Karachi, October 11, 2013 (PPI-OT): 1QFY14 earnings expected to clock in at PKR 4.68/share
Based on Arif Habib Limited’s estimates, Kohat Cement Limited (KOHC) with a ~14%YoY increase in dispatches, a ~2%YoY improvement in retention prices followed by an impressive ~55% YoY reduction in financial charges will post an earning of PKR 4.68/share.
According to Arif Habib Limited, this is ~27%YoY higher than the last year same quarter.
Financial Highlights PKR mn 1QFY14 1QFY13 QoQ Net Sales 2,460 2,104 17% Gross Profit 968 726 33% Operating Profit 933 692 35% Finance Cost 38 85 -55% Profit after tax 602 476 27% Earnings per share 4.68 3.31 Strong domestic dispatches to spur top line growth during the quarter, company’s dispatches grew by ~14%YoY to 401ktons. Sale (Tons) 1QFY14 1QFY13 YoY Total 400,939 350,779 14% Local 323,076 272,702 18% Export 77,863 78,077 -0.3%
Changes in GST regime to keep retention prices relatively subdued
Arif Habib Limited expects retention prices to post a modest ~2% YoY increase during 1QFY14 and ex-factory prices are expected to jump by a ~8% YoY. But, having said that, a ~1% increase in GST rate and computation of GST at retail prices level (announced in federal budget FY14) would keep this healthy retail price increase from translating into higher retention prices.
Unchanged power tariff to keep power cost low
The good part is, unlike its peers operating on the national grid, plants operating on the PESCO grid still enjoy the old power tariff (PKR ~9/Kwh) due to a stay order granted by the court.
In Arif Habib Limited’s discussion with the management of companies operating on PESCO, Arif Habib Limited learnt that the tariff increase can’t be retrospective in nature and the companies are not required to make any provision for the said. This will keep the plants operating on PESCO to enjoy the lower tariff till a decision has been made by the courts.
Aggressive deleveraging to reduce finance cost by a hefty 55%
Finance cost is expected to drop down by a hefty 55% YoY to PKR 38mn during the quarter mainly on account of aggressive deleveraging by the company. Evident from its declining debt to equity, standing at 0.24 compared to 0.8 a year back.
Arif Habib Limited recommends a ‘Buy’ stance for the scrip with June-14 target price of PKR 147.8/share, offering an attractive upside potential of 57%. In addition to the sizeable upside potential the stock is currently trading at a 4.6x PER and offering a 5% dividend yield based on FY14 estimates.