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JS Securities Limited – JS Research (August 15, 2022)

Karachi, August 15, 2022 (PPI-OT): Cements: KOHC, ACPL and FCCL FY22 Result Previews

We present 4QFY22 earnings expectations for Kohat Cement Company Ltd. (KOHC), Attock Cement Pakistan Ltd. (ACPL) and Fauji Cement Company Limited (FCCL), where we expect bottom-line to take a hit due to higher financial charges and the 10% one-time Super tax charge. This would be despite relatively stable margins on gross levels.

We expect KOHC to post an EPS of Rs3.7 (-24% YoY) whereas ACPL and FCCL are expected to post EPS of Rs0.7 (-34% YoY) and Rs0.4 (-35% YoY), respectively for 4QFY22. We do not expect any dividend alongside the results.

Bottomline to take a hit over higher finance and tax charge

We present 4QFY22 earnings expectations for Kohat Cement Company Ltd. (KOHC), Attock Cement Pakistan Ltd. (ACPL) and Fauji Cement Company Limited (FCCL). Despite dull dispatches, we expect top-line of these cement manufacturers to report a notable increase over better retention prices. On the cost side, given higher global coal prices, cement players opted to significantly increase the quantum of relatively cheaper Afghan variant in their coal mix. Moreover, the Prime Minister relief package on electricity prices somewhat offset the impact of higher fuel price adjustments. As a result, we expect cement companies’ gross margins for the last quarter to show only a slight decline compared to 3QFY22 levels. Despite relatively stable margins, we expect earnings to take a significant hit of 55-70% on a QoQ basis for the three companies. Major reasons for the decline are higher expected finance costs (higher debt and increase in interest rates), 10% super tax charge and deferred tax adjustments.

Result Previews

Kohat Cement (KOHC): We preview 4QFY22 EPS of Kohat Cement wherein we expect the company to post an EPS of Rs3.65, -24% YoY. We expect operating profit to improve compared to last year mainly on back of 51% YoY higher revenue in 4QFY22. Revenue is higher on a QoQ basis as well as there has been a significant jump of ~Rs100/bag in retention prices for the last quarter. We expect gross margins to remain flattish on a YoY basis but due to higher revenue absolute gross profit is expected to increase 53% YoY. We expect 4QFY22 EBIT to clock in at Rs12.12/share, +64% YoY. Full year earnings for KOHC are estimated at Rs26.70/share, +53% YoY. We do not expect the company to announce any dividend with the results.

Attock Cement (ACPL): For 4QFY22 we expect Attock Cement to post an unconsolidated EPS of Rs0.73, -34% YoY. Earnings for 4QFY22 are estimated to decline by 34% YoY, (mainly on back of the incremental 10% tax charge and deferred tax adjustment). We expect gross margins to clock in at 19% (+3.2ppt/-0.1ppt YoY/QoQ) as the company utilized its captive plant rather than solely relying on the national grid for power supply. ACPL also availed better retention prices, as compared to its peers in the Southern region. Earnings for FY22 are estimated to increase 12% YoY, (largely on back of improved retention prices) to clock in at Rs9.01/share. We do not expect any dividend announcement alongside the results.

Fauji Cement (FCCL): For 4QFY22 we expect the company to post an EPS of Rs0.41, versus a reported EPS of Rs0.62 for 4QFY21. Earnings are likely to decline on a QoQ basis as well, primarily due to increase in finance cost and higher tax charge. Even though Fauji Cement is expected to have a better retention compared to its peers in the Northern region, we are likely to see depressed gross level performance (c. 2ppt QoQ) as the company had to rely on expensive power sources like Gas on LNG rates and National Grid. Full year earnings for FY22 are estimated to clock in at Rs3.35/share. Along with the result, we do not expect any dividend announcement.

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