Kohat Cement Co. Ltd (KOHC) has posted 4QFY21 NPAT of PKR1.0bn (EPS: PKR4.81), compared with a loss of PKR0.16bn SPLY; the result came in line with our estimated 4Q EPS of PKR4.70. FY21 net profits thus rise to PKR3.50bn against a loss of PKR0.45bn last year. On a qoq basis, profitability declined by 9%, majorly due to lower offtake during the period.

Key highlights of 4QFY21 result:

Net Sales have more than doubled yoy to PKR6.24bn, but declined by 7% qoq mainly due to a decline in total offtake by 11% qoq. However, local dispatches and exports together increased by 57% yoy, complemented by higher local prices in the North region along with reduced discounts. Overall retention prices thus increased 46% yoy and 4% qoq to PKR358/bag.

Despite the increase in raw material costs, gross margins have increased by 0.2ppt qoq to 26.1%; this is slightly higher than our expected margins of 25.5%. On a yoy basis, margins have increased significantly by 25ppt, mainly led by (i) a massive jump in retention prices due to significant cuts in discounts, lower FED and higher local prices.

Among other line items: (i) other income has jumped by 4.0x yoy to PKR61mn on account of higher cash balance, (ii) KOHC has booked an effective tax rate of 29% as compared with a tax reversal in 4QFY21, (iii) finance costs has declined 42% yoy to PKR124mn in 4QFY21.

So far, KOHC is the only company in IMS Cement universe, the gross margins of which have increased qoq; all other companies (including LUCK) have witnessed a sequential decline in margins. This is an impressive result by KOHC despite increase in international coal and oil prices. Looking ahead, we expect that double-digit cement demand growth and further increase in local prices will continue to expand KOHC’s earnings in the coming quarters.

We reiterate our Buy stance on the stock with a TP of PKR315/sh.

Courtesy – Intermarket Securities Limited