The acquisition of Pakistan PTA Limited last year by KP Chemical Corporation, a subsidiary of South Korean conglomerate LOTTE, proved to be a good omen for the chemical provider.
The acquirers strong financial health, technological know-how, along with favourable market conditions helped the company earn Rs2.17 billion in the first half of the current year compared to Rs1.208 billion in the same period a year earlier.
Higher prices of Pure Terephthalic Acid (PTA), along with healthy sales in the second quarter, translated into revenues of Rs20.8 billion in the first half of the current fiscal year.
"Average PTA prices during the first half of current fiscal year stood at $935 per ton compared to $800 per ton in the same period last year," said Furqan Punjani, Research Analyst at Topline Securities
In light of improved PTA-Px spread, gross profit margins widened by 3 percentage points to 16 percent.
As the balance sheet is heavy on cash, its other operating income rose massively to Rs451 million against Rs52 million in the same period a year earlier.
At the same time, a relatively stable rupee against the dollar paved way to reduce exchange losses - helping Lotte record lower other operating expenses.
However, with regulatory changes after the withdrawal of monetization incentives and the reduction in import duty to 3 percent from 7.5 percent of late, Lottes financial performance is likely to remain under pressure in the latter half of the year.
A slump in the companys share turnover at the local bourse also suggests that investor sentiments have already turned cautious. Lottes trading volume at the KSE has decreased to an average of 5 million shares in the past two months from an average of 15 million shares in the first six months of the year.
Although, share prices remained relatively weak in August, an upbeat result announcement seems to have alleviated investors fears as its share price nearly hit its upper circuit limit to Rs8.25 per share yesterday. Albeit the market price is still below 38 percent from its peak marked at Rs13.32 in April.
Despite the reduction in incentives, however, not all cards are stacked against the sole PTA manufacturer in Pakistan, as a healthy balance sheet and stable primary margins would help it to ride out reasonably well. Whether KSE investors are going to play down the regulatory risk remains to be seen.
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Lotte Pakistan PTA Ltd
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Rs (mn) 1HCY10 1HCY09 %chg
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Net sales 20,796 16,134 29%
Cost of sales 17,511 14,126 24%
Gross profit 3,285 2,008 64%
Gross margin 16% 12% 27%
Distribution & selling expense 55 37 49%
Administration expense 125 103 21%
Other operating income 452 52 769%
Other operating expense 197 337 -42%
Financial charges 129 179 -28%
Net profit 2,176 1,208 80%
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Source: KSE Announcement