Pakistan Cement: Downcycle continues in 2QFY20, (AKD Daily, Jan 22, 2020)
Pakistan Cement: Downcycle continues in 2QFY20
- AKD Cement universes’ profitability is expected to remain in negative territory for 2QFY20 as price competition among local players led to prices going down by PkR70-90/bag during the period.
- Finance cost is going to be a drag on earnings of our universe for 2QFY20 as increasing debt to finance capacity additions and working capital will take interest cover down to 1.2x for 2QFY20 vs. 5.8x in 2QFY19.
- High leveraged players are worst placed in the current fickle environment and are slated to post losses in 2QFY20 while companies with low leverage (LUCK and FCCL) are expected to remain in green. However , we highlight that companies (such as CHCC, MLCF) can utilize available tax benefits to support bottomline.
- We expect the cement sector to remain under pressure in near term on the back of disappointing results for 2QFY20 while outlook for 3QFY20 also remains bleak with declining retail prices (particularly in North) while coal prices have also crept up. On the other hand, demand isn't expected to provide much support either as Government’s fiscal constraints increase. We maintain LUCK as our preferred play from the sector with our Dec’20 TP of PkR585/sh providing an upside of 21.6% - Buy.
Maple Leaf Cement Factory is engaged in the production and sale of white cement, grey cement and clinker. Co. is a subsidiary of Kohinoor Textile Mills Limited.
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AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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