Pakistan Cements: Price and margin volatility gaining traction; estimates tweaked
- YTD trends in the key drivers for cement sector (prices, coal, demand, supply) exhibited a mixed performance. Prices have become volatile, cost pressure increased, while demand/supply dynamics have seen more favorable move.
- We update our estimates accordingly for BMA cement universe, revising earnings estimates (down by 2-24% overFY18-20E), due to (i) upward revision in our coal/oil price assumptions, (ii) delay in few expansions and operational efficiency projects, and (iii) actual accounts for 1HFY18.
- We believe, the recent episode of price increase in North region (PKR20-30/bag increased so far), although provides a breather to rising pricing pressure, however, any further price increase may see a pushback from end consumers in near-term in the backdrop of upcoming low demand period and c.4mn tons supply addition.
- Although we maintain our view of less likelihood of any indiscipline in pricing arrangement following 6.8mn tons new capacity addition in rest of CY18, we downgrade our stance on the sector from Overweight to Marketweight post 26% run up in past 3mnths and continued uncertainty on pricing and margins.
- We maintain our Buy call on LUCK, DGKC, MLCF and KOHC, in order of preference while we have a Neutral stance on PIOC and ACPL (previously Buy).
Co. is engaged in the production and sale of Ordinary Portland and Sulphate Resistant Cements.
Kohat Cement Company Limited. Kohat Cement Company Limited is a Pakistan-based company, which is engaged in the production and sale of cement. The Company's products include Grey Cement and White Cement. The Company offers Ordinary Portland Grey Cement under the brand name KOHAT CEMENT. The Company produces and sells White Portland Cement under the brand name KOHAT SUPER WHITE. The Company also offers white canvas for various architectural applications. The Company's white canvas is used for concreting and ornamental applications, terrazzo floorings, fixing of tiles and marbles, and others. The Company's White Portland Cement is available in all local markets in Pakistan and Afghanistan. The Company has an annual production capacity of 2.8 million tons of Grey Cement and 150,000 tons of White Cement. The Company produces both Grey and White Cements at its plants located in Rawalpindi Road, Kohat.
Lucky Cement is a cement manufacturing and distribution company which is based in Pakistan. Co. is engaged in the manufacture and sale of Ordinary Portland, Sulphate Resistant, and Slag Cement. Co.'s brand names included Lucky Cement, Lucky Star, Lucky Gold, Chairman, and Lucky Sulphate Resistant Cement. Co. maintains production facilities in Pezu (Production capacity: 13,000 tons per day) as well as in Karachi (Production capacity: 8,000 tons per day). In addition, Co. is engaged in developing export markets for bulk loose cement from Pakistan to the Gulf Countries, African Markets, and Far East Region including Nepal & Sri Lanka.
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.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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