EUR 56.22 For Business Accounts Only

CCNN PLC 9M'16 - Weak topline, cost pressure derail Q3 earnings

• CCNN’s 9M’16 PAT was down 56% y/y to ₦0.7 billion (Vetiva estimate: ₦1.0 billion) following a disappointing Q3. Despite q/q increase in cement prices (46% price hike only took effect from September), revenue over the 3-month period declined 5% q/q to N2.7 billion and suggests volume must have been down over the period. Asides the impact of the price hike on volume, we believe the challenges around LPFO (CCNN’s main kiln fuel) supply could have also weighed more on production. Amidst the volume pressure, coupled with impact of currency devaluation on FX-exposed costs, Q3 cost of sales as a percentage of sales rose to 78% (Q2: 63%) and almost singlehandedly derailed all profit lines over the period. For context, Q3 PAT was down 85% q/q to ₦63 million (Q2: ₦416 million).
• From where we stand, the outlook on CCNN appears quite tough on a number of fronts. Although we understand that there is an ongoing plant capacity expansion to 1.5 million MT (construction first reported in the media September 2014), we have not considered the expansion in our model as we await clarity on progress. Whilst we retain our revenue forecast at N12.2 billion, we revise our FY’16 cost of production assumptions to reflect the impact of FX challenges on FX-related inputs. After updating our model, we revise our FY’16 PAT estimate to ₦0.8 billion (Previous: ₦1.2 billion). Our target price is revised lower to ₦7.03 (Previous: ₦9.21), driven by our lower optimism on post-2016 organic growth outlook and energy challenges.