Pakistan Cement: Profitability back on the mend,(AKD Daily, Oct 20, 2020)
AKD Daily
Pakistan Cement: Profitability back on the mend
After a rough ending to FY20 as COVID-19 related disruptions became a drag on dispatches while discounts being offered by players remained elevated, AKD cement universe’s profitability is expected to enter back into the green with 1QFY21 PAT expected at PkR2.7bn against a loss PkR2.0/2.1bn recorded in 1QFY20/4QFY20.
Apart from increase in prices and local cement offtake (up 19%YoY for 1QFY21), decrease in interest rate by SBP will also support profitability as finance cost recedes by 17/14% YoY/QoQ, offset somewhat by increased short term borrowings after significant losses in 4QFY20.
LUCK will continue to outperform with gross margin of 26% for the quarter against 14% for peers while leverage is still going to hurt CHCC and PIOC’s profitability where latter is expected to gain support from capital gains on short term investments.
Re-iterating LUCK (TP: PkR761.3/sh, 19.4% upside) and MLCF (TP: PkR41.9/sh, 12.2% up-side) as our top picks, we maintain a favorable outlook on the sector on the back of encouraging demand numbers which opens up room for local players to increase prices in the medium term.
AKD Research
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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