EUR 10.00 For Business Accounts Only

Maple Leaf Cement (MLCF): 2QFY19 EPS Rs1.3, -36% YoY (+27% QoQ); 1HFY19 EPS Rs2.2, -41% YoY (In-line with expectations)

• MLCF reported 2QFY19 consolidated EPS of Rs1.3, broadly in-line with estimates. While pretax earnings were down 26% YoY, net earnings fell by 36% on the back of higher effective tax rate in 2QFY19 compared to same period last year.
• Lower effective tax rate in 2QFY18 was on the back of tax relief which MLCF booked on account of setting up a Coal Fired Power Plant (CFPP) under wholly-owned subsidiary, Maple Leaf Power Limited (MLPL) which started its commercial operations in Oct 2017. This year, tax rates were normalized, we believe.
• Cement sales were up 4% YoY during the outgoing quarter, mainly led by higher avg. net retention prices as volumes were down by 11% YoY on the back of 14% decline in local sales.
• As per our estimates, avg. net retention prices grew by Rs54/bag to Rs387 in 2QFY19 owing to increase in local cement prices to pass on input costs and higher export prices due to devaluation, we believe.
• Cement gross margins fell 5.3ppts YoY to 23.6% in 2QFY19 as rising input costs like higher coal prices (mainly owing to devaluation; PKR devalued by ~24% since Jan 2018) led to higher production cost.
• Financial charges grew by 1.9x YoY in 2QFY19 on account of increase in borrowing to fund the cement expansion project and higher policy rate, up 450bps since Jan 2018 to 10.25%.
• 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.