EUR 4.27 For Business Accounts Only

D.G. Khan Cement (DGKC): 3QFY19 EPS Rs1.9, -33% YoY (-36% QoQ); (In-line with expectations)

 

• DGKC’s 3QFY19 consolidated earnings clocked in at Rs1.9/sh, in-line with street consensus. Despite higher revenues on the back of additional sales from new cement line in South region, net earnings fell 33% YoY, mainly on the back of contraction in gross margins and higher financial charges.
• The companies cement operations continue to suffer amid higher input costs as evident from lower GP margins, down 8ppts to 17% YoY. Although South African FOB coal prices averaged US$85.3/ton in 3QFY19, down 9.5% YoY, significant PKR devaluation of 22% (since Jan 2018 TO date) against the greenback led to higher purchase cost.
• Financial charges on the other hand were higher by 8.0x YoY, due to higher debt levels (for financing of new cement line that came online in 2H2018) and increase in interest rates (+475bps since Jan 2018 to date to 10.75%).
• While pretax earnings on consolidated basis were down 54% YoY, net earnings decline was restricted to 33% amid tax benefit due to new cement line.
• We flag 1) further decline in cement prices, 2) unanticipated increase in gas and coal prices and 3) lower than expected local cement demand as key risks for DGKC.