AKD Quotidian about — Cements: Best of the Rest!

Karachi, November 16, 2012 (PPI-OT): The Cement sector has been one of the biggest outperformers in the stock market in CY12 to-date.

According to AKD Securities, in absolute terms, the sector has returned 110%, outperforming the broader market by 68%. While many view the sector levels to have reached peak, AKD Securities believes a sector-wide rerating is in the process underpinned by improving fundamentals. A further rally in the leveraged Cement sector is likely to materialize in the near term with current CPI numbers at 7.7%YoY, leading to expectations of a probable heavyweights such as LUCK and DGKC have been in the limelight, AKD Securities believes investors may have been undervaluing some cement scrips. In today’s daily, AKD Securities presents AKD Securities’ views on some of the scrips AKD Securities finds attractive based on annualized quarterly results. Worthy stocks include FECTC, CHCC, KOHC, MLCF and PICO.

The Verdict: AKD Securities’ sorting is based on annualized EPS (based on 1QFY13 earnings) for the selected companies and an AKD Cement Sector FY13E P/E of 5.2x. As can clearly be seen from the table above, FECTC stands out with the highest potential upside at 79.2%. That said, with just 50.16 million shares, ideally a liquidity discount should be placed on the company. Moreover, CHCC and PIOC also appear attractive based on upsides in excess of 30%. Interestingly, CHCC’s annualized earnings at PKR 11.2 per share are similar to consensus expectations for DGKC. With DGKC’s last closing at PKR 52.9 and CHCC at PKR 43.4, AKD Securities believes investors should eye a potential switch to CHCC from DGKC. Moreover, taking the above scrips and including LUCK and DGKC, AKD Securities arrives at a current sector P/E of 4.89x. As can be clearly and company P/E. CHCC, DCL, FECTC, CHCC, KOHC, MLCF and PICO continue to look attractive.

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