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Analyst:

Muhammad Sarfraz Abbasi


sarfraz.abbasi@atlascapital.com.pk
(+92-21)-111-226-100 (Ext.403)

Morning Pulse Feb 15, 2010


BUY
Cement: DGKC – 1HY11 financial Other income to rescue profitability.…
We expect other income to post a rise of 4% to PRs490m
performance preview… in 1HFY11 against PRs471m in 1HFY10. The main reason
behind this upsurge in other income is dividends that Market Snapshot
Synopsis… company have received by company from its Index Chg %
D.G. Khan Cement Company Ltd (DGKC) is scheduled associate companies. This augment in other income has KSE 30 11546.54 11.21 0.1
Pakistan Research

to announce its operating results for 1HFY11 on Thursday rescued company’s profitability as the core operations KSE 100 11946.09 2.75 0.02
17th Feb’11. We expect company to post Profit after Tax seem to be having LPS of PRs0.42. On the other hand, KSE ALL 8294.51 -1.62 -0.02
(PAT) of PRs227.84m translating into an EPS of PRs0.62, financial charges are expected to increase by 3% to
posting a sharp decline of 52% Y-o-Y basis against the PRs986.46m in 1HFY11 against PRs955.98m in the same
corresponding period of last year when company had period last year.
recorded PAT of PRs470m and EPS of PRs1.29 Key Data
respectively. On Q-o-Q basis, We anticipate company (PRs m) 1HFY10 1HFY11E Chg 1QFY11 2QFY11E Chg Market Cap(PRs bn) 9.83
may post PAT of PRs206m (EPS PRs0.56) in 2QFY11 Sales 7,958 7,502 -6% 3,528 3,975 13% Shares Outstanding (m) 365.10
against PAT of PRs22m (EPS0.06) in QFY11. In our today’s Cost of Sales 6,253 5,939 -5% 2,849 3,089 8% Bloomberg DGKC PA
Gross Profit 1,705 1,564 -8% 678 885 30% 12M Avg. Volume (m) 3.80
report we present our detailed expectations on
Oper expenses 605 630 4% 369 262 -29%
financial performance of company for 1Q/FY11.
Other oper. Exp 140 145 4% 29 116 293%
Sales may decline due to sluggish dispatches … Other oper. income 471 490 4% 233 257 10%
130% 12M DGKC relative performance vs KSE
We expect DGKC to post 6% decline in sales during Operating Profit 1,431 1,279 -11% 514 765 49%
Financial charges 956 986 3% 488 498 2% 105%
1HFY10 to PRs7.5b against PRS7.9bn in the same period
Profit before Tax 475 292 -39% 26 267 943%
of the last year. There is nothing else but the demand 80%
Profit after tax 470 228 -52% 22 206 829%
which has been remained depressed in 1HFY11.
EPS 1.29 0.62 -52% 0.06 0.56 829% 55% DGKC KSE-100
Fundamentally speaking, slow down in demand do Gross Margins (%) 21% 21% 19% 22%
have justification, dwindling demand in both local and Oper Margins (%) 18% 17% 15% 19% 30%

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export markets was manifested by, 1) disruption in Net Margins (%) 6% 3% 1% 5%
normal construction activities due to devastating floods Source: Company accounts, Atlas Research
2) lower exports as regularly buying markets are
becoming self-sufficient. In 1HFY11, we expect gross
profit of the company to decline by 8% to PRs1.56bn
Future Outlook and recommendation…
We believe that prevailing lower demand scenario in
against PRs1.71bn. We expect decline in CoGS of 5% to
the country does not seem be lasting any longer, thus,
PRs5.94bn against PRs6.25bn in 1HFY10. However, we
pick up in construction activities in domestic market
believe this decline might be fruitful in a situation when Atlas Capital Markets (Pvt.) Ltd
would bring growth in dispatches going forward. We
revenue seems going down with the same percentage. B-209, Park Towers, Clifton, Karachi
further expect, the rising prices scenario would enable
On Q-o-Q basis, we expect company to record sales of Equity Research: Equity Sales:
company to cover its shortcoming in core business. We
PRs3.98bn in 2QFY11 against sales of PRs3.53bn in QFY11 Tel: 92 (21) 5376125 Tel: 92 (21) 5368261-8
maintain our BUY stance on scrip as its having an upside
posting a rise of 13%, whereas we expect cost of sale to Fax: 92 (21) 5376126 Fax: 92 (21) 5376122
potential of 45% to our SOTP based fair price of PRs39.
increase by 8% to PRs3.089m against PRs3.52m. Gross Money Market: Corporate Finance:
margins in 2QFY11 likely to be seen at 22% while these Tel: 92 (21) 5376128 Tel: 92 (21) 5824991
Fax: 92 (21) 5376129 Fax: 92 (21) 5376122
were 19% in 1QFY11.
Financial Products Distribution:
Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time Tel: 92 (21) 5376125
of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Atlas Capital Markets (Pvt.) Fax: 92 (21) 5376126
Limited accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All Atlas Research is available on Bloomberg and
information is provided without warranty and Atlas Capital Markets (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or Thomson Financial
completeness of any information hereto contained.