Airlink Communication Limited

Airlink Communication Limited (PSX: AIRLINK) was incorporated in Pakistan as a private limited company in January 2014 and was converted into a public limited company in April 2019. The company is engaged in import, export distribution, identing, wholesale and retail of communication and IT related products and services including smart phone/ cellular phones, tablets, laptops accessories and related products.

Pattern of Shareholding

As of June 30, 2023, AIRLINK has a total of 395.269 million shares outstanding which are held by 4908 shareholders. Sponsors have the majority stake of 73.43 percent in the company followed by Banks, DFIs and NBFIs holding 5.56 percent shares. Insurance companies have 3.81 percent shares of AIRLINK while local general public accounts for 2.25 percent shares. Around 1.97 percent of the company’s shares are held by its directors, their spouse and minor children and 1.34 percent by Modarabas & Mutual Funds. The remaining shares are held by other categories of shareholders.

Financial Performance (2021 – 2023)

AIRLINK posted its first annual report as a public listed company in 2020. In 2021, the company’s topline inched up followed by a decline in the successive two years. However, its bottomline expanded in 2021 and 2022 followed by a steep plunge in 2023. AIRLINK’s margins which considerably eroded in 2021, bounced back in the next year. In 2023, while gross and net margins improved, operating margin ticked down. The comprehensive performance evaluation of AIRLINK since its public listing is outlined below.

In 2021, AIRLINK’s topline grew by 10.15 percent year-on-year.The company’s production plant became operational in April 2021 with the total production capacity of 1.2 million cell phones; however, the company was able to utilize 13.8 percent of its installed capacity. Modest revenue growth was the result of low penetration level of 3G/4G services. Moreover, the economy had recently started recovering from the shocks of COVID-19. The company didn’t make any export sales in 2021. Service incomes significantly grew during the year; however, it had a very insignificant contribution in the total sales mix of AIRLINK in 2019. High cost of sales due to Pak Rupee depreciation and high inflation resulted in a paltry 0.67 percent rise in gross profit with GP margin sliding down from 11.09 percent in 2020 to 10.14 percent in 2021. Administrative expense hiked by 39.74 percent in 2021 as a result of higher payroll expense as AIRLINK’s number of employees increased from 477 in 2020 to 530 in 2021. Other factors which drove up administrative expense in 2021 were high depreciation, repair & maintenance and allowance for ECL. Distribution expense spiked by 21.83 percent in 2021 due to higher payroll expense, freight outward and depreciation while AIRLINK considerably reduced its advertising & promotion budget in 2021. Other income slid by 59.91 percent in 2021 on account of considerably low profit earned on investments. While other income had already shrank during the year, it was nearly offset by considerably higher other expense recorded by AIRLINK during the year due to higher provisioning for WWF, loss on termination of lease as well as exchange loss. Operating profit plummeted by 11.05 percent in 2021 with OP margin slipping to 7.4 percent from 9.17 percent in 2020. Due to lower short-term and long-term borrowings as well as monetary easing, AIRLINK’s finance cost dropped by 21.15 percent in 2021. AIRLINK’s gearing ratio also nosedived from 65 percent in 2020 to 48 percent in 2021. Lower effect of tax on import stage drove down the company’s total tax expense for the year by 16.72 percent in 2021. As a consequence, net profit rose by 2.79 percent year-on-year in 2021 to clock in at Rs.1505 million with EPS of Rs.4.47 versus EPS of Rs.4.71 in the previous year. NP margin eroded from 3.4 percent in 2020 to 3.18 percent in 2021.

AIRLINK’s topline slumped by 2.56 percent in 2022. At the onset of the year, the country was witnessing strong impetus in its economic activity, however, towards the end of the financial year, worsening politico-economic conditions of the country resulted in ban on imports of luxury items which restricted AIRLINK to import cell phones in CBU condition. After that, the SBP also issued notification to seek prior approval to establish L/Cs for the import of cell phones in CKD/SKD condition. With Russia-Ukraine war in full swing, there was an acute shortage of commodities, resulting in hike in prices. Moreover, diminishing foreign exchange reserves of Pakistan was translating in drastic depreciation in the value of local currency. Demand for AIRLINK’s products was also dipping due to decline in the purchasing power of consumers. During the year, the company utilized 85.94 percent of its installed capacity and produced 1.031 million cell phones. While gross profit tumbled by 0.96 percent in 2022, stringent cost control measures put in place by the management enabled AIRLINK to slightly drive up its GP margin to 10.30 percent in 2022. Administrative expense escalated by 17.43 percent in 2022 as number of employees increased to 806 in 2022 which culminated in higher payroll expense. Higher fee & subscription charges followed by towering utility charges, travelling & conveyance and entertainment also pushed up the administrative expense in 2022. Conversely, distribution expense slumped by 5.39 percent in 2022 on account of lower freight outward, salaries & wages as well as packing expense due to lower sales. Other income magnified by 253 percent in 2022 mainly on account of reversal of ECL, gain on termination of lease and modification gain on long-term loans. Other expense also surged by 54.89 percent in 2022 due to increased profit related provisioning. Operating profit marched down by 0.38 percent in 2022; however, OP margin rebounded to 7.57 percent. Despite monetary tightening, AIRLINK was able to cut down its finance by 7 percent in 2022 due to lower lease liabilities and short-term borrowing. AIRLINK’s gearing ratio fell to 27 percent in 2022. Then effect of expenses not allowed for tax, effect of deferred tax, prior year tax and FTR collectively lowered tax expense by 8.86 percent in 2022. This resulted in 9.54 percent rise in net profit to clock in at Rs.1648.59 million with EPS of Rs.4.3 and slightly higher NP margin of 3.57 percent in 2022.

AIRLINK’s topline drastically fell by 53.41 percent in 2023. The macroeconomic environment remained quite challenging characterized by Pak Rupee depreciation, import restrictions, commodity super cycle, high indigenous inflation and soaring discount rate. The company was able to operate at 18.7 percent capacity owing to restriction on import. Shallow demand also played a pivotal role in thin revenue registered during the year. The company was able to significantly cut down its cost of sales by 53.57 percent in 2023. Although gross profit also thinned down by 52 percent in 2023, GP margin slightly improved to 10.61 percent in 2023. Administrative expense was scaled down by 29.42 percent in 2023 as AIRLINK streamlined its workforce to 191 employees in 2023 versus 806 employees in the previous year. Distribution expense also dipped by 39.18 percent in 2023 mainly on account of lower payroll expense, freight and advertising budget. Lower profit related provisioning resulted in 38 percent lesser other expense incurred by AIRLINK in 2023. Other income also plunged by 38 percent due to lesser reversal of ECL. Operating profit eroded by 59 percent in 2023 with the lowest OP margin of 6.65 percent. Regardless of high discount rate, AIRLINK was able to cut down its finance cost by 29.92 percent in 2023 by rationalizing its long-term and short-term borrowings. This resulted in its gearing ratio falling down to its lowest level of 20 percent in 2023. Nevertheless, net profit plummeted by 45.74 percent in 2023 to clock in at Rs.894.54 million with EPS of Rs.2.33 – the lowest since 2020. On the positive front, AIRLINK was able to record the highest NP margin of 4.16 percent in 2023 by streamlining its outstanding loans and overcoming its finance cost.

Recent Performance (1HFY24)

FY24 proved to be quite pleasant for AIRLINK thus far. During 1HFY24, not only did the company’s topline inclined by a massive 107 percent year-on-year, it was able to produce a healthy bottomline too. Gross profit multiplied by 152 percent year-on-year, apparently due to stability of Pak Rupee and easing global commodity prices. GP margin greatly improved from 7.83 percent in 1HFY23 to 9.51 percent in 1HFY24. Administrative expense spiked by 66 percent year-on-year in 1HFY24 may be due to expansion of workforce and also because of inflation. Conversely, distribution expense dropped by 36 percent during the period. Higher profit related provisioning led to 389 percent spike in other expense during 1HFY24. Other income inched up by 8 percent during the period. All these factors led to 226 percent higher operating profit registered by AIRLINK in 1HFY24 with OP margin climbing up to 7.08 percent from 4.5 percent during the same period last year. Unlike the previous years where the company was able to control its finance cost, during 1HFY24, finance cost escalated by 72 percent. Net profit mounted by 103 percent year-on-year in 1HFY24 to clock in at Rs.1362.96 million with EPS of Rs.3.45 versus EPS of Rs.1.70 in 1HFY23. Higher finance cost took its toll on the NP margin of AIRLINK in 1HFY24 which was recorded at 4.68 percent versus 4.79 percent during the same period last year.

Future Outlook

With AIRLINK all set to partner with Xiaomi to produce smart TVs, it seems like the company is leaving no stone unturned to navigate through the choppy waters and strengthen its footprint in the local market. The company is already producing smart phones of renowned brands such as TCL, Tecno, alcatel, itel, Huawei, MI etc. With the aim to take optimum benefit of the growing urban population and technological awareness, the company is not only enhancing its strategic partnerships to diversify its product mix but also expanding its distribution network and geographical presence.