CHCC: Earnings growth to continue, Line III may provide key upside
​We upgrade our stance on Cherat Cement (CHCC) from Sell to Neutral with a revised TP of PkR181/sh (up 4% from PkR174/sh earlier). Our new target price is based on revised EPS estimates of PkR14.43/20.12 for FY17/18F (up 6%/3%) due in large to above expected 2QFY17 results.
CHCC announced 2QFY17 EPS at PkR3.51, up 52%YoY, led by above-expected GMs of 42%, 4x increase in other income and 23.5% effective tax rate. Moreover, CHCC also highlighted details on its new cement expansion of 2.2mn tpa, with targeted capex and timeline of PkR13.5bn and 27months, respectively.
CHCC is currently trading at FY17/18F P/E of 12.4x/9.0x. Despite our Neutral stance, CHCC provides multiple upside triggers including clarity on 2.2mn tpa expansion which may add up to PkR100/sh to our valuation in a best case and provision of complete tax break vs. our assumption of tax break adjusted for equity investment (Section 65E ITO).Co. is engaged in the manufacturing and marketing of cement and clinker.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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