Pakistan: Cement Sector Profitability To Improve – OpEd
According to Topline Securities, its cement universe is expected to post profit of PKR12.5 billion for 4QFY24 as against a profit of PKR11.1 billion for 3QFY24, up by 13%QoQ, due to higher average retention prices.
This will take FY24 profits to PKR51.1 billion, up 84%YoY due to increase in GP margins to 29%.
While on YoY basis, Topline cement universe posted loss of PKR2.8 billion in 4QFY23 due to higher effective tax rate related to super tax liability. Excluding for tax implications, Profit Before Tax (PBT) in 4QFY24 is expected to increase by 45% YoY due to higher revenues and other income.
Net sales are anticipated to grow by 10%YoY to PKR91.3 billion in 4QFY24 despite 7%YoY decline in local cement sales, thanks to 11%YoY increase in average local cement prices.
Decline in cement dispatches in 4QFY24 was due to: 1) lower working days amid Eid holidays, 2) high cost of construction, and 3) lower demand due to economic slowdown.
Capacity utilization of the cement sector clocked in at 52% in 4QFY24, as compared to 55% in 4QFY23.
Gross margin of the sector are anticipated to improve by 1%YoY to 27% in 4QFY24 due to higher retention prices.
During the 4QFY24, cement players in the South region mostly relied on Richards Bay coal, while those in the North region used a combination of Afghan and local coal. Richards Bay coal prices averaged at US$108 per ton in 4QFY24 as compared to US$109 per ton in 4QFY23 and US$97 per ton in 3QFY24, down 1% YoY and up 11% QoQ.
Average retention price for 4QFY24 is estimated at PKR914/bag, up 11% YoY and 2%QoQ.
Other income of the sector is estimated to rise to PKR5.6 billion in 4QFY24, up by 44%YoY.
LUCK is expected to contribute 60% in sector’s other income.
The brokerage house has an Overweight stance on Pakistan Cement sector with Luck Cement (LUCK), Maple Leaf Cement (MLCF) and Fauji Cement Company (FCCL).
Lucky Cement (LUCK)
LUCK’s consolidated earnings are expected to grow by 40%YoY and 6%QoQ. The YoY increase in earnings is primarily attributed to higher profits from Lucky Electric Power and local cement operations. Moreover, QoQ earnings incline is attributed to QoQ increase in earnings from local cement operations. Along with the result LUCK is expected to pay PKR24.0 dividend per share. On unconsolidated basis, LUCK likely to report EPS of PKR20.05, up by 127%YoY and by 19% QoQ. The significant YoY jump in earnings is attributable to higher cement retention price, and higher other income. Gross margin is anticipated to clock in at 30% in 4QFY24 as compared to 28% and 29% reported in 4QFY23 and 3QFY24.
Kohat Cement (KOHC)
KOHC is likely to post EPS of PKR10.50 in 4QFY24 up 349%YoY mainly due to lower effective tax rate and higher other income. Moreover, QoQ earnings are expected to remain flat due to higher retention prices being offset by slightly higher coal prices. Gross margins are expected to clock in at 29% in 4QFY24 vs 27% and 30% reported in 4QFY23 and 3QFY24. Along with result we expect KOHC to pay PKR7.0 dividend per share.
Fauji Cement (FCCL)
Expect earnings of FCCL to clock in at PKR0.89/share up by 362%YoY. The increase in earnings is due to higher revenue amidst higher domestic dispatches and lower effective tax rate. On QoQ basis earnings are expected to increase by 23%QoQ due to higher domestic dispatches amidst new plant operations and better margins. Gross margin is likely to clock in at 30% in 4QFY24 as compared to 39% and 28% reported in 4QFY23 and 3QFY24.
DG Khan Cement (DGKC)
DGKC is expected to post unconsolidated EPS of PKR2.61, as compared to a LPS of PKR13.12 in 4QFY23. YoY increase in earnings is due to higher margins, and lower financial charges and effective tax rate. On QoQ basis EPS of the company is expected to decrease by 3%QoQ where higher local retention prices to be offset by lower dispatches. Gross margins are likely to clock in at 18% in 4QFY24 as compared to 11% and 26% reported in 4QFY23 and 3QFY24. Along with result DGKC in anticipated toto pay a PKR1.5 dividend per share.
Maple Leaf Cement (MLCF)
MLCF is likely to post unconsolidated EPS of PKR1.11, compared to a LPS of PKR0.53 in 4QFY23. This is mainly due to higher gross margins and lower effective tax rate. On QoQ basis earnings are expected to remain flat with higher retention price being offset by lower domestic dispatches. Gross margins are anticipated at 32% in 4QFY24 as 24% and 28% in 2QFY23 and 3QFY24. Along with result we expect MLCF to pay dividend per share of PKR1.0.