EUR 4.27 For Business Accounts Only

Maple Leaf Cement (MLCF): 3QFY19 EPS Rs0.9, -50% YoY (-25% QoQ); (Better than expectations)

 

• MLCF reported 3QFY19 consolidated EPS of Rs0.9, slightly better than our estimates mainly due to lower than anticipated operating expenses and effective tax rate. However, earnings were substantially down YoY owing to significant contraction in gross margins.
• Cement sales fell 14% YoY, mainly on the back of lower sales in the domestic market. During the outgoing quarter, MLCF sold 0.7mn tons of dispatches in the local market, down 30% YoY amid slowdown in economic activities.
• However, export dispatches showed considerable growth of 31% YoY in 3QFY19 to 0.08mn tons. Total dispatches of the company were down 10% YoY to 0.78mn tons.
• net retention prices of MLCF grew by 17% YoY to Rs386/bag. This was to pass on the rising input costs. To note, cement prices in North region averaged Rs603/bag in 3QFY19 vs. Rs508/bag in similar period last year, as per data available at Pakistan Bureau of Statistics (PBS). However, prices have now come down to Rs520-550/bag, as per channel checks.
• Gross margins of cement business significantly contracted by 10ppts to 19% amid higher energy costs and inflationary pressure.
• Operating expenses clocked in at Rs14mn, down 90% YoY. While we await management clarity on this, we believe that this was on the back of loss on short term investments due to re-measurement.
• 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.