EUR 10.00 For Business Accounts Only

Maple Leaf Cement (MLCF): 4QFY18 EPS Rs2.0, +46% YoY (+7% QoQ) (Better than expectations)

• MLCF reported consolidated earnings for 4QFY18, +46% YoY, better than the street consensus mainly on the back of one-time deferred tax adjustment due to lower corporate tax (corporate tax rate to be gradually reduced by 1% to 25% from previous 30%, during the next 5 years), which the previous Govt. announced in its last budget.
• The company also booked tax credit (power companies in Pakistan are tax exempt) on its power subsidiary Maple Leaf Power Limited (MLPL) which started its commercial operations in Oct 2017.
• Sales were +13% YoY during the outgoing quarter, mainly due to 12% increase in revenue from cement operations thanks to higher local dispatches, +13% YoY.
• Decline in consolidated gross margins were restricted to 27%, -5.2ppts YoY in 4QFY18 while cement operations margin significantly contracted by 12.3ppts YoY to 20%. We attribute this decline to 1) higher input costs where coal prices were +30% YoY to US$100/ton. Moreover, consolidated margins were restricted to 27% on the back of cheap power generation from MLPL.
• 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.