daily check
Earnings to increase by 31%YoY 4QFY25E: We expect AKD Cement
Universe profitability to increase by 31%YoY to PkR19.8bn in 4QFY25E, compared
to PkR15.1bn in SPLY. Topline is expected to improve by 7%YoY to PkR115bn,
driven by 17%YoY increase in avg. domestic cement prices and a 2%YoY rise in
total offtakes, though partially offset by a higher export proportion in sales
mix, rising to 23% from 21% in SPLY. Additionally, gross margins are expected
to improve by 4.1ppts to 34.0%, primarily due to i) higher retention prices,
ii) declining coal prices, and iii) lower grid electricity rates.
Declining finance cost to uplift FCCL/MLCF earnings: We
expect FCCL, MLCF, CHCC, KOHC and PIOC to post earnings growth of
2.8x/72%/2.2x/5.0%/0.6% YoY during 4QFY25, reaching PkR1.4/2.5/9.5/13.6/6.0 per
share, respectively. Meanwhile, DGKC is projected to report a turnaround with
earnings of PkR1.9bn (EPS: PkR4.4) in 4QFY25, compared to a loss of PkR1.7bn
(LPS: PkR3.9) in SPLY. This recovery is supported by an improvement in gross
margins to 24.4% in 4QFY25E from 7.9% in SPLY, driven by a 7%YoY increase in
retention prices and rise in export prices. On the other hand, FCCL and MLCF’s
gross margins are expected to contract by 1.9/2.3ppts YoY to 34.3% and 36.1%,
respectively. However, FCCL and MLCF’s offtakes increased by 7%/6%YoY,
respectively, offsetting the decline in margins. Additionally, finance costs
for MLCF/FCCL/DGKC/CHCC/PIOC/KOHC are expected to decline by
69%/40%/70%/36%/35%/51% YoY, owing to lower debt levels and easing interest
rates.
LEPCL dividend void to weighs on LUCK’s earnings: LUCK’s
earnings are anticipated to decline by 35%YoY to PkR4.2/sh compared to
PkR6.5/sh. The said decline in earnings is due to the absence of dividend from
LEPCL, compared to a PkR6bn dividend income during SPLY. Notably, LUCK received
dividend from LEPCL during 3QFY25 compared to 4QFY24 in prior year. Moreover,
gross margins are anticipated to improve to 35.8% during 4QFY25E compared to
32.4% during SPLY amid a 17%YoY increase in domestic retention prices and an
11%YoY increase in export prices.
FY25 Earnings Uplift in Full Swing: Earnings for the AKD
Cement Universe are anticipated to grow by 42%YoY in FY25, driven by; i)
improved retention prices, ii) declining power costs, and iii) reduction in
finance cost. Notable improvements are expected in the earnings of DGKC, FCCL,
and CHCC, rising by 13.7x, 55%, and 58% YoY, respectively.
Investment Perspective: We maintain positive outlook on the
sector supported by earnings growth driven by i) expected growth in demand, ii)
gross margin expansion due to improvement in retention prices along with
declining power cost, and iii) declining interest rates.
Our preferred picks from the sector remain FCCL and KOHC.
Our liking for FCCL stems from; i) growth in market share, ii) efficient
utilization of fuel mix, iii) higher reliance on grid (beneficiary of tariff
cuts), and iv) easing interest rates, whereas KOHC is preferred on, i) the
company’s attractive valuation, trading at the lowest EV/ton in our universe at
US$28.0 versus the AKD Universe average of US$50.9, ii) position as the
sector’s lowestcost producer (COGS/ton): PkR8,734 (during 9MFY25), iii)
efficient energy mix to keep gross margins uplifted
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