EUR 12.20 For Business Accounts Only

Maple Leaf Cement (MLCF): 3QFY18 EPS Rs1.9, ‐15% YoY (-4% QoQ); (In-line with expectations)

• MLCF reported 3QFY18 consolidated earnings of Rs1.1bn (EPS Rs1.9), in-line with expectations. Earnings were down 15% mainly owing to contraction in margins.
• Growth in the company’s revenues during the outgoing quarter was driven by higher volumes, +23% YoY where local demand depicted stellar growth of 30% thanks to increased private sector construction activities and demand from Govt. projects under CPEC.
• While consolidated gross margins were down 3.9ppts to 34% in 3QFY18, cement operations margin significantly contracted by 8.4ppts to 30%. We attribute this to 1) higher input costs and 2) lower local net retention as cement prices in North remained under pressure during period under review. We estimate that average net retention price of the company fell by 10% YoY to Rs329/bag.
• Decline in consolidated margins was restricted to 34% during the outgoing quarter on the back of cheap power generation from the company’s wholly-owned subsidiary, Maple Leaf Power Limited (MLPL) which started commercial operations in Oct 2017. This coal based power subsidiary is the second cheapest source of electricity for the company after Waste Heat Recovery (WHR) system, despite higher international coal prices.
• We flag 1) price competition, 2) unanticipated increase in gas and coal prices, and 3) lower than estimated local demand, as key risk for MLCF.