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Monday, October 15th, 2018

Morning Call about Kohat Cement Company Limited

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by October 10, 2012 Brokerage

Karachi, October 10, 2012 (PPI-OT): Profitability is likely to jump by 4x YoY in 1QFY13

The Board of Directors of Kohat Cement Company Limited (KOHC) is scheduled to meet on October 13, 2012 to approve financial results for 1QFY13.

According to Arif Habib Limited expects the company to report net earnings of PKR 502 million (EPS: PKR 3.90) in 1QFY13, a ~4x YoY jump, when compared with PKR 128 million (EPS: PKR 0.99) in the corresponding quarter last year. This healthy growth is expected on account of a 21% YoY improvement in retention price coupled with a modest 1% decline in cost of sales. In addition to this, aggressive loan repayment is likely to yield a 58% YoY decline in the financial charges.

Financial Highlights      
PKR million

1QFY13

1QFY12

YoY

Net Sales

2,077

1,701

22%

Cost of Sales

1,349

1,362

-1%

Gross Profit

728

339

114%

Selling Expenses

9.5

8.9

7%

Administration Expenses

14.3

14.5

-1%

Operating Profit

704

316

123%

Finance Cost

75

180

-58%

Profit before tax

612

139

340%

Profit after tax

502

128

292%

Earnings per share

3.90

0.99

Sources; Company Accounts and AHL Estimates

Strong pricing is likely to take revenues up by 22% YoY

Top line of the company is expected to jump by a 22% YoY to PKR 2.1 billion in 1QFY13 compared to PKR 1.7 billion in the same quarter last year. This is expected mainly on account of a 21% YoY jump in average retention price to PKR 297/bag compared to PKR 244/bag in 1QFY12.

Healthy exports growth likely to offset falling local dispatches

Despite a production halt during the quarter, the company is likely to register 1% growth in total dispatches to 351k tons in 1QFY13. Though the combined effect of monsoon, Ramadan and Eid is likely to drag local off take by a 5% YoY to 273k tons but a strong 27% YoY jump in exports volume is likely to offset the fall in domestic volumes.

Aggressive deleveraging likely to take finance cost down by 58% YoY

The company has been aggressively deleveraging its balance sheet in FY12 with repayments of PKR 1.9 billion, which included a prepayment of PKR 1.1 billion. Arif Habib Limited believes that this aggressive deleveraging coupled with falling interest rates is likely to push finance cost down by a 58% YoY to PKR 75 million.

Recommendation

Arif Habib Limited’s DCF based target price for the scrip works out to PKR 107/share, offering an upside potential of 69.8%. In addition to this, the stock is available at an attractive PER of 3.3x based on FY13 earnings of PKR 18.87/share. Thus, Arif Habib Limited recommends a Buy for the stock.

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