Taurus Research16
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INSIGHT October 11, 2013 Construction & Materials TSL Research Lucky Cement Limited Industry wide decline hits the largest player as well We preview 1QFY14 results of Lucky Cement in which we project the company to re‐ port net earnings of PKR2.26bn (EPS: PKR6.98), depicting an impressive improve‐ ment of 12% YoY against CPLY. However, on a QoQ basis, we expect the bottom line to show a dip of 17% QoQ due to subdued volumes owing to wide‐spread heavy rains and Ramadan resulting in inability to pass on the tariff hike. The uncertainty created over cement sector outlook in past couple of months came to an end with a token hike of ~PKR10/bag in cement prices last week. As per our indus‐ try sources, this increase is a first step and further raise will be witnessed as demand picks up, to completely nullify the tariff hike pressure. After incorporating the latest price increase in our financial model, our Jun’14 TP for Lucky Cement came out to PKR298.9/share, implying a whopping upside potential of 28% from current levels. Despite the fact that the cement sector is trading at an attractive valuation, we feel that it will remain out of limelight until demand picks up (likely in 2HFY14) which will eventually result in the hike of retail cement prices. Decline in QoQ dispatches and subdued price rise to lead to gross profit dip Following the weak sales over a period of Jul‐Aug, LUCK cement off take in Sep’13 showed a sharp recovery which limited the QoQ volumetric decline to single digit (down 9% QoQ), better than industry wide negative trend of 12% QoQ. During the said period, company’s local sales volumes is likely to stand at 0.851mn tons, reflecting a sharp decline of 15% QoQ, however, exports on the other side witnessed a modest growth of 1% QoQ primarily backed by resumption of cement sup‐ ply to Afghanistan after a hiatus due to seasonal factors and improved sales through sea‐based route. We expect Lucky cement’s top line to decline by 6% QoQ to PKR9.4bn in 1QFY14, owing to attrition in volumetric sales of the company. Cement prices also could not increase enough to off‐ set the cost pressure resulting in gross profits dipping by 13% QoQ to PKR3.9bn, translating into gross margins of 41% against 44% in 4QFY13. We expect a steep decline of 55% QoQ in administration expenses due to one off item recognized in 4QFY14 related to Professional and Advisory services (ICI acquisition related cost) which will somewhat support the otherwise declining operating profit. Despite negligible finance costs for the quarter due to un‐leverage position, bottom line is estimated to slump by 16% QoQ to PKR2.3bn (EPS: PKR6.98). DISCLAIMER: The above information and advice is given in good faith, without any legal responsibility. Taurus Securities Limited or individuals con‐ nected with it may have used research material before publication and may have positions in or may be interested in the securities mentioned herein. Continued on page 2 Hassaan Bin Ghafoor [email protected] Direct: +92‐21‐35216403 BUY Stock price as of 10‐Oct 234.4 Target price 298.9 Current upside/(downside) 28% Outstanding shares (m) 323.4 Market Cap (PKRbn) 75.8 Free float 40% 3M Avg. daily turnover (PKRm) 183.6 3M Avg. daily volume (m) 0.8 3M High 264.8 3M Low 220.9 Key Financials PKRbn Year end FY13A FY14F FY15F FY16F Net sales 37.81 41.77 44.99 48.63 Cost of sales 21.09 23.27 25.62 27.54 Gross Profit 16.72 18.50 19.37 21.09 Operating profit 12.16 13.49 13.88 15.06 Financing costs 0.09 0.00 ‐ ‐ Net Profit 9.71 10.08 10.55 11.64 Key Metrics EPS 30.04 31.16 32.61 35.99 DPS 8.00 12.00 16.00 21.00 BVPS 126.9 150.1 170.7 190.7 P/Ex 7.80 7.52 7.19 6.51 P/BVx 1.85 1.56 1.37 1.23 Dividend Yield 3% 5% 7% 9% Earnings growth 43% 4% 5% 10% ROA 19% 18% 17% 17% ROE 24% 21% 19% 19% Net Debt/Equity ‐6% ‐15% ‐22% ‐26% LUCK PA 100 125 150 175 200 225 250 275 Sep‐12 Dec‐12 Mar‐13 Jun‐13 Sep‐13 LUCK Rel. KSE‐100 Price Performance PKR mn 4QFY13 1QFY14 QoQ 1QFY13 YoY Sales ‐ net 10,076 9,428 ‐ 6% 8,852 7% Cost ofsales 5,602 5,553 ‐ 1% 4,979 12% Gross profit 4,474 3,875 ‐ 13% 3,873 0% Admin expenses 429 192 ‐ 55% 140 37% Distribution expenses 657 716 9% 1,105 ‐ 35% Operating profit 3,388 2,967 ‐ 12% 2,628 13% Other income 52 55 5% 87 ‐ 37% Profit before tax 3,470 2,809 ‐ 19% 2,560 10% Tax 738 552 ‐ 25% 545 1% Profit after tax 2,732 2,257 ‐ 17% 2,014 12% EPS 8.45 6.98 ‐ 17% 6.23 12% DPS 8.00 ‐ n.a ‐ n.a Source: Company accounts&TSL Research
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Transcript of Taurus Research16
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INSIGHTOctober11,2013
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LuckyCementLimitedIndustrywidedeclinehitsthelargestplayeraswellWepreview1QFY14resultsofLuckyCementinwhichweprojectthecompanytoreport net earnings of PKR2.26bn (EPS: PKR6.98), depicting an impressive improvementof12%YoYagainstCPLY.However,onaQoQbasis,weexpectthebottomlinetoshowadipof17%QoQduetosubduedvolumesowingtowidespreadheavyrainsandRamadanresultingininabilitytopassonthetariffhike.Theuncertaintycreatedovercementsectoroutlookinpastcoupleofmonthscametoanendwithatokenhikeof~PKR10/bagincementpriceslastweek.Asperourindustrysources,thisincreaseisafirststepandfurtherraisewillbewitnessedasdemandpicksup,tocompletelynullifythetariffhikepressure.After incorporatingthe latestprice increase inour financialmodel,our Jun14TP forLuckyCement cameout toPKR298.9/share,implyingawhoppingupsidepotentialof28%fromcurrentlevels.Despitethefactthatthecementsector istradingatanattractivevaluation,wefeelthatitwillremainoutoflimelightuntildemandpicksup(likelyin2HFY14)whichwilleventuallyresultinthehikeofretailcementprices.
DeclineinQoQdispatchesandsubduedpricerisetoleadtogrossprofitdipFollowingtheweaksalesoveraperiodofJulAug,LUCKcementofftakeinSep13showedasharprecoverywhich limited theQoQ volumetricdecline to singledigit (down9%QoQ),better thanindustrywidenegativetrendof12%QoQ.Duringthesaidperiod,companyslocalsalesvolumesislikelytostandat0.851mntons,reflectingasharpdeclineof15%QoQ,however,exportsontheothersidewitnessedamodestgrowthof1%QoQprimarilybackedbyresumptionofcementsupply toAfghanistanafterahiatusdue to seasonal factorsand improved sales through seabasedroute.WeexpectLuckycementstoplinetodeclineby6%QoQtoPKR9.4bnin1QFY14,owingtoattritioninvolumetricsalesofthecompany.Cementpricesalsocouldnotincreaseenoughtooffsetthecostpressureresulting ingrossprofitsdippingby13%QoQtoPKR3.9bn,translating intogrossmarginsof41%against44%in4QFY13.Weexpectasteepdeclineof55%QoQinadministrationexpensesduetooneoffitemrecognizedin4QFY14 related toProfessionalandAdvisory services (ICIacquisition related cost)whichwillsomewhat support theotherwisedecliningoperatingprofit.Despitenegligible finance costs forthe quarter due to unleverage position, bottom line is estimated to slump by 16% QoQ toPKR2.3bn(EPS:PKR6.98).
DISCLAIMER:Theaboveinformationandadviceisgiveningoodfaith,withoutanylegalresponsibility.TaurusSecuritiesLimitedorindividualsconnectedwithitmayhaveusedresearchmaterialbeforepublicationandmayhavepositionsinormaybeinterestedinthesecuritiesmentionedherein.
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[email protected]:+922135216403
BUYStockpriceas of10Oct 234.4Targetprice 298.9Currentupside/(downside) 28%Outstandingshares(m) 323.4MarketCap(PKRbn) 75.8Freefloat 40%3MAvg.dailyturnover(PKRm) 183.63MAvg.dailyvolume(m) 0.83MHigh 264.83MLow 220.9
KeyFinancials PKRbnYearend FY13A FY14F FY15F FY16FNetsales 37.81 41.77 44.99 48.63Costofsales 21.09 23.27 25.62 27.54Gross Profit 16.72 18.50 19.37 21.09Operatingprofit 12.16 13.49 13.88 15.06Financingcosts 0.09 0.00 NetProfit 9.71 10.08 10.55 11.64
KeyMetricsEPS 30.04 31.16 32.61 35.99DPS 8.00 12.00 16.00 21.00BVPS 126.9 150.1 170.7 190.7P/Ex 7.80 7.52 7.19 6.51P/BVx 1.85 1.56 1.37 1.23DividendYield 3% 5% 7% 9%Earnings growth 43% 4% 5% 10%ROA 19% 18% 17% 17%ROE 24% 21% 19% 19%NetDebt/Equity 6% 15% 22% 26%
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PKRmn 4QFY13 1QFY14 QoQ 1QFY13 YoYSalesnet 10,076 9,428 6% 8,852 7%Costofsales 5,602 5,553 1% 4,979 12%Grossprofit 4,474 3,875 13% 3,873 0%Adminexpenses 429 192 55% 140 37%Distributionexpenses 657 716 9% 1,105 35%Operatingprofit 3,388 2,967 12% 2,628 13%Otherincome 52 55 5% 87 37%Profitbeforetax 3,470 2,809 19% 2,560 10%Tax 738 552 25% 545 1%Profitaftertax 2,732 2,257 17% 2,014 12%EPS 8.45 6.98 17% 6.23 12%DPS 8.00 n.a n.aSource:Companyaccounts&TSLResearch
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INSIGHT TSLResearch
OutlookTheuncertaintycreatedovercementsectoroutlookinpastcoupleofmonthscametoanendwithatokenhikeof~PKR10/bagincementpriceslastweek.Asperourindustrysources,thisincreaseisafirststepandfurtherraisewillbewitnessedasdemandpicksup,tocompletelynullifythetariffhikepressure.Despitethefactthatthecementsectoristradingatanattractivevaluation,wefeelthat itwillremainoutof limelightuntildemandpicksup (likely in2HFY14)whichwilleventuallyresultinthehikeofretailcementprices.Goingforward,PakcementclustershouldagainstartitsoutperformanceoncethelocaldemandstartstoacceleratepostFeb13.Whileontheexportfront,weexpectthecurrenttrendtocontinue.AboutthecompanyLuckyCement isthecountrys largestcementproducerandexporter.Thecompany ispartoftheYunusBrothersGroupandproducesOrdinaryPortland,SulphateResistantandBlockCement. IthastwocementunitsoneofwhichislocatedinPezu,KPKwhereas;theotherissituatednearKarachiandbothofthemcollectivelyboastofanannualcementproductioncapacityof7.75milliontons.Thecompany is listedonallmajorstockexchanges inthecountrycoupledwithan internationalpresenceintheshapeofitsGDRslistedontheLondonStockExchange.
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