Pakistan’s cement industry reviews by AHL Research

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While economic conditions tails pinned in the earlier part of 2020 amid an outbreak of the novel Coronavirus, prompt action by the government (implementing a lockdown together with the disbursement of emergency funds to counter the pandemic) quickly revived the economy. The momentum has continued, and in particular, the cement sector has posted a strong rebound. This was primarily owed to a package for the construction industry, work on colony construction of high-level dams, and the low-interest-rate environment, which has translated to a healthy 16% jump in cement offtake during 1HFY21 to 28.6mn tons. This was aided by a similar surge in local dispatches to 23.6mn tons while exports observed a similar growth (+15% YoY to 5.0mn tons) in Jul-Dec’20.

We also highlight the QoQ upturn in total offtake by 11% to an all-time high of 15.0mn tons, given local dispatches went up by 18% to 12.8mn tons (surprising as the winter season has historically been slower). Albeit, exports pulled down by 17% QoQ to 2.3mn tons amid manufacturers’ preference to cater to high-margin local sales, a second wave of COVID-19 globally together with congestion at the ports (priority given to import of sugar and wheat as opposed to clinker exports to contain inflationary pressure).

2QFY21: AHL Cement universe earnings to surge by a stunning 3x YoY / 2x QoQ

Although coal prices witnessed a slight uptick during 2QFY21 to USD 60/ton (lagged effect) from USD 50/ton in the last quarter, we believe cost pressures will remain contained amid i) benefits of large scale economies with all players posting improvement in offtake on a QoQ / YoY basis and, ii) price hike in North towards the end of the quarter. Effectively, we eye higher margins in 2QFY21 vis-à-vis last quarter and SPLY.

LUCK: EPS growth of 3x YoY expected in 2QFY21

Lucky Cement Limited (LUCK) is forecast to post earnings of PKR 3,100 (EPS: PKR 9.59) in 2QFY21, up by 3x compared to PKR 3.03/share in SPLY and PKR 6.89/share in 1QFY21. We cite growth in dispatches to 2.6mn tons during the quarter, coupled with improved retention prices (both local and export) to aid margins (at 29% vis-à-vis 15% SPLY). Consolidated earnings of the company are estimated at PKR 5,250mn (EPS: PKR 16.23).

MLCF: Losses to Profit

Maple Leaf Cement Factory Limited (MLCF) is set to unveil its 2QFY21 financial result whereby we expect the company to post a bottom-line of PKR 1,081mn (EPS: PKR 0.98) against a loss of PKR 785mn (LPS: PKR 0.71) in SPLY. This turnaround is owed to margin accretion to 25% in the period under review vs 6% in 2QFY20 primarily attributable to pricing improvement as dispatches are forecast to decline by 17% YoY to 1.3mn tons.

Whereas on a QoQ basis margins may witness a hike of 527bps due to 10% uptick in offtake.

ACPL: King of South

Attock Cement Pakistan Limited (ACPL) is scheduled to announce its 2QFY21 financial result of 26th Jan’20 whereby we project company earnings to arrive at PKR 554mn (EPS: PKR 4.03) compared to PKR 405mn (EPS: PKR 2.95) in SPLY and PKR 119mn (EPS: PKR 0.87) in 1QFY21. Spectacular growth in profitability is instead of a 3% YoY / 6% QoQ jump in dispatches to 0.94mn tons coupled with its premium pricing in the South market. This is expected to translate to margins of 25.8% during the quarter as opposed to 21.1% in SPLY and 18.6% in the last quarter.

DGKC: Topline growth to offset absent dividend income

D.G. Khan Cement Company Limited (DGKC) is forecast to post profitability of PKR 647mn (EPS: PKR 1.48) in 2QFY21 against PKR 581mn (EPS: PKR 1.33) in SPLY and loss of 351mn (LPS: PKR 0.80) in the last quarter. With retention prices undergoing tremendous improvement, margins are set to climb up to 16.8% vs 13.2% in 2QFY21. Simultaneously, a 30% jump in local dispatches on a QoQ basis is set to improve margins by 7% over last quarter.

KOHC: 67x YoY surge in earnings expected in 2QFY21

Kohat Cement Company Limited (KOHC) is projected to unveil earnings of PKR 643mn (EPS: PKR 3.20) during the outgoing quarter, depicting a jump of 67x YoY and 27% QoQ to PKR 10mn (EPS: PKR 0.05) and PKR 507mn (EPS: PKR 2.52) in SPLY and 1QFY21, respectively. Substantial improvement in retention prices and a 59% YoY / 8% QoQ jump in offtake to 0.98mn tons are likely to aid margins to 20.3% as opposed to 1.3% last year 18.5% in 1QFY21.

FCCL: Earnings to grow by 5x YoY / 38% QoQ in 2QFY21

Fauji Cement Company Limited (FCCL) is expected to post earnings of PKR 960mn (EPS: PKR 0.70) in 2QFY21 vs PKR 189mn (EPS: PKR 0.14) in SPLY and PKR 696mn (EPS: PKR 0.50) in 1QFY21. With nearly 20% jump in retention prices, margins are set to jump up by 19% YoY to 26%. At the same time, 11% QoQ growth in offtake to 0.92mn tons will push up margins by 461bps in 2QFY21 in contrast to 1QFY21.

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