Elixir Securities Limited – Elixir Insight

Karachi, April 19, 2018 (PPI-OT): Pakistan Cement Sector – KOHC and MLCF Earnings Preview

We expect KOHC to post EPS of PKR4.31/share for 3QFY18, down 28% YoY on the back of rising cost of sales (coal prices up 32% YoY) and lower retention prices. We expect cumulative earnings for 9MFY18 to clock in at PKR14.95/sh; down 26% YoY. Along with the result, we expect the company to declare DPS of PKR5.

Revenue of the company is expected to increase by 10% YoY due to improved local dispatches (up 19% YoY), however rising Cost of Sales (up by 37%YoY) are expected to erode Gross Margins by 15ppts to 27%.

We expect MLCF to post consolidated EPS of PKR2.0/share, down 13% YoY while 9MFY18 EPS is expected to clock in at PKR5.74/share, down 16% YoY. We have incorporated bottomline impact of PKR0.54/sh for the quarter, coming from Maple Leaf Power.

On standalone cement operations, MLCF’s revenue is expected to decrease by 1% YoY due to lower exports (down 42%YoY). Gross Margins are also expected to decline 7ppts YoY due to rising cost of sales on the back of higher coal prices.

KOHC – 3QFY18 EPS Expected at PKR4.31: The Board of Directors of Kohat Cement Company Ltd (KOHC) is scheduled to approve 3QFY18 results of the company on Saturday, April 21, 2018. We expect the company to post EPS of PKR4.31/share, down 28%YoY on the back of decline in gross margins (15ppts YoY). Along with the result, we expect KOHC to announce a dividend of PKR5.0/sh due to 1) strong cash position of PKR1.6bn (as of Dec-17) and 2) company’s historical trend of higher interim pay outs.

During the quarter, we expect revenue of the company to improve by 10% due to improved local dispatches (up 19% YoY), however rising cost of sales is projected to dilute the impact. Lower margins can be attributed to increasing cost of sales (up 37% YoY) due to 41% YoY expected increase in cost of raw materials and 19% YoY hike in energy costs.

MLCF – 3QFY18 Consolidated EPS Expected at PKR2.0: The Board of Directors of Maple Leaf Cement Factory Ltd. (MLCF) is scheduled to announce 3QFY18 results of the company on Tuesday, April 24, 2018.We expect the company to post consolidated EPS of PKR2.0/share, down 13% YoY while 9MFY18 EPS is to clock in at PKR5.74/share, down 16% YoY as compared to 9MFY17 EPS of PKR6.82/sh.

We have incorporated bottomline impact of PKR0.54/sh for the quarter, coming from Maple Leaf Power Limited, MLCF’s wholly owned subsidiary, which started its commercial operations for its coal power generation in Oct-17.

On standalone cement operations, we expect a 1% YoY decline in Revenues to PKR6.2bn for the quarter, as a meagre growth of 2%YoY in overall dispatches is projected to be offset by rising cost of sales and lower retention prices. Moreover, the company also registered a decline of 42%YoY in its exports during the quarter owing to deterioration in Pakistan’s bilateral ties with MLCF’s key export markets i.e. Afghanistan and India. High cost of sales (15% YoY) due to surge in coal prices (up 32% YoY) is expected to translate into 14% YoY higher raw material and power cost; thus bringing gross margins down by 7ppts YoY to 29%.

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