Pioneer Cement Ltd (PIOC) has posted a NPAT of PKR663mn (EPS: PKR2.92) for 2QFY22, up 3% yoy and 38% qoq. Same period last year, PIOC had booked a one-time tax credit of PKR235mn, which helped the company to post decent profits; hence the yoy growth is modest. The result has come in slightly lower than our estimated net profits of PKR752mn (EPS: PKR3.31). Lower-than-expected sales is the major deviation. The result takes net profits in 1HFY22 to PKR1,143mn (EPS: PKR5.03), up 88% yoy.

Key result highlights for 2QFY22:

Net sales have increased by 60% yoy and 39% qoq to PKR8.6bn in 2QFY22 vs our expected revenue of PKR9.0bn. Massive increase in local cement prices and 20% qoq jump in volume sales have led to higher topline.

Gross margins have increased by 5.2ppt yoy but have declined by 3ppt qoq to 20.6% in 2QFY22. The qoq decline in GMs is mainly attributable to massive increase in variable cost amid elevated coal and oil prices against inadequate increase in cement prices to fully pass on the cost pressure. The GMs have come in better than our expected margins of 19%.

Finance costs have increased by c.45% yoy and 2% qoq to PKR593mn; this is due to increase in both short-term borrowing and interest rates.

Among other line items: (i) distribution expenses have declined by 11% yoy to PKR28mn amid lack of exports, and (ii) PIOC has booked an effective tax rate of 37% vs. a PKR235mn tax reversal SPLY.

PIOC has posted decent gross margins in 2Q, although lower-than-expected sales have dragged profitability slightly. Looking ahead, we think that lower sales and increase in international coal prices will keep a check on 2HFY22 gross margins and net profits. We maintain our Buy stance on the stock with a TP of PKR110/sh.

Courtesy – Intermarket Securities Limited