DG Khan Cement Co posts NPAT of PKR2.05bn in 3QFY21

DG Khan Cement (DGKC) has posted an unconsolidated NPAT of PKR2.05bn (EPS: PKR4.67) in 3QFY21, from NLAT of PKR1.0bn (LPS: PKR2.29) in SPLY and below our EPS estimate of PKR5.20. The yoy improvement in the quarter’s performance is mainly due to: (i) higher local cement prices in North, (ii) higher dividend income from MCB, and (ii) 42% yoy decline in finance cost. Major deviation stems from lower-than-expected sales volumes .

Key result highlights for 3QFY21:

Despite a decline in local sales/exports of 6%/11% yoy (as per APCMA), net sales have increased by 12% yoy to PKR10.9bn. This is mainly due to higher retention prices, which increased by 25% yoy to PKR353/bag.

The company has booked a gross profit of PKR2.5bn, with gross margins of 23% (up 22ppt yoy and 1.6ppt qoq) – in line with our estimates. The yoy improvement is led by easing of cost pressures amid (i) lower energy prices and installation of 10MW WHR at Hub plant, and (ii) greater fuel efficiency, in our view.

Finance cost has reduced by 42% yoy to PKR695mn, mainly due to the decline in borrowings amid lower interest rates.

Among other line items: (i) other income has nearly tripled to PKR1.68bn, due to bumper dividends from MCB (will normalize in future), and (ii) distribution expenses dropped by 7% yoy to PKR407mn owing to lower exports.

This is a decent result by DGKC, even if we exclude one-off dividend from MCB. The margins and earnings are expected to increase further from 1QFY22 due to continued substitution of export volumes with local sales and cost efficiencies due to the commissioning of 30MW coal based CPP at Hub plant. We have a Buy call on the scrip with a TP of PKR180/sh.

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