EUR 75.00 For Business Accounts Only

Pakistan Cement: Likely to turn into profits in 1QFY21; Overweight maintained

• Topline Cement Universe is likely to turn in a profit of Rs4.2bn in 1QFY21 vs. losses of Rs758mn and Rs176mn in 4QFY20 and 1QFY20, respectively.
• The sequential improvement in universe profitability stems from (1) improvement in retention prices by an average 13% QoQ, (2) increase in local cement sales by 16% QoQ and (3) downward repricing of loans at prevailing KIBOR rate.
• Retention prices have improved by an average Rs34/bag primarily on the back of reduction in Federal Excise Duties (FED) by Rs25/bag and increase in cement prices to an average of Rs530/bag (North region).
• Cement sales in 1QFY21E were the second highest in Pak history at 13.6mn tons, up 22% YoY - wherein local sales growth touched 19% YoY and exports increased by 36% YoY. In 1QFY21 total cement sales were up 26% QoQ. These high double-digit growths are attributed to (1) low base from both last year (FY20 budgetary measures) and last quarter (COVID-19 lockdown) and (2) ongoing construction activities amidst construction package.
• Fuel cost is expected to come down due to lower average coal prices of US$50-55/ton (FOB) vs. US$69/ton in 4QFY20 (assuming a two months lag in realized pricing). However, Power costs may increase due to increase in Furnace Oil (FO) prices after rebound in crude oil prices.
• We maintain our Overweight stance on Pakistan Cement sector. Key triggers for the sector are (1) materialization of construction package, (2) increased liquidity in the sector after SBP calls to increase construction sector loans to 5% of total private sector credit, (3) new additions in CPEC projects and (4) relatively lower commodity prices (oil/coal).
• LUCK: We expect Lucky Cement (LUCK) to post unconsolidated and consolidated EPS of Rs5.81 (+360% QoQ and +97% YoY) and Rs10.03 (+119% QoQ and +155% YoY), respectively. Unconsolidated earnings are likely to increase sequentially on the back of likely increase in GP margins to 24.2% (+770 bps QoQ) and increase in cement dispatches to 2.46mn tons (+35% QoQ). In consolidated earnings, we expect 50% contribution from local cement business, followed by international businesses contribution of 15%, ICI 19% and KIA 12%.
• KOHC: We expect Kohat Cement (KOHC) to post EPS of Rs0.66 in 1QFY21 compared to LPS of Rs0.8 in 4QFY20. The company is likely to turn in profit as GP margins are likely to be around 8.4% in 1QFY21 compared to 1.4% in 4QFY20. Finance cost is expected to come at around Rs135mn (-37% QoQ). The company is likely to record cement dispatches of 0.9mn tons (+62% QoQ).
• FCCL: We expect Fauji Cement (FCCL) to post EPS of Rs0.28 compared to LPS of Rs0.26 in 4QFY20. Company is likely to turn in a gross margin of 16% vs. -7% in 4QFY20. Volumetric sales of the company is likely to clock in at 0.83mn tons (+19% QoQ).
• DGKC: We expect DG Khan Cement (DGKC) to post EPS of Rs0.17 vs. LPS of Rs0.71 in 4QFY20. Like its peers, DGKC’s gross margin is likely to improve 851bps QoQ to 15.1%. However, absence of dividend income from MCB due to the restriction imposed by SBP is likely to restrict EPS improvement. Volumetric sales are likely at 1.91mn tons (+45% QoQ). 

MLCF: Maple leaf Cement (MLCF) is likely to post consolidated EPS of Rs0.34, compared to a loss of Rs0.75/share in 4QFY20. Volumetric sales of the company is expected to clock in at 1.17mn tons (+10.5% QoQ). We expect GP margins of the company to clock in at 18.2% (+20ppts QoQ).