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R e s e a r c h

P a k i s t a n

R e s e a r c h P a k i s t a n

Update Pulse

Update Pulse Jun 22, 2011

Jun 22, 2011

Update Pulse Jun 22, 2011

Cement Sector: ACPL – Easing coal prices expected to bode well…

Synopsis…

ACPL posted an EPS of PKR2.20, substantially higher by 38% QoQ Volumetric sales rose by 8% QoQ to 479k tons. Monetary sales grew by 11% QoQ to PKR2.25bn Gross profit rose by 42%QoQ to PKR478m Declining coal prices in international market are expected to boost up 4Q earnings. Budgetary measures to lower the industry’s tax burden would support revival. We suggest a BUY stance on ACPL.

PKR(m)

2QFY11

3QFY11

QoQ

Revenue

2,031

2,246

11%

COGS

1,694

1,767

4%

Gross Profit

337

478

42%

Distribution Costs

136

124

-9%

Administrative cost

47

42

-9%

EBITDA

154

312

103%

Financial cost

5

9

77%

EBT

162

293

81%

Taxes

24

103

337%

EAT

138

190

38%

EPS (PKR)

1.60

2.20

Source: Company accounts, Summit Capital Research

Earnings jumped up by a substantial 38% QoQ…

Despite of lackluster performance of the industry, the company has shown a slight improvement in 3QFY11 as its earnings posted a substantial upsurge of 38% QoQ to PKR190m. The rise in earnings was due to 1) augment in sales as it grew by 11%, 2) lower distribution cost and administrative cost as these both costs declined by 9%. Moreover, sales of the company stood at PKR 2.25bn, 11% higher than last quarter on account of 8% QoQ increased total dispatches.

ACPL outperformed industry …

In terms of volumetric sales, the company has shown an improve performance during the 9MFY11. Local dispatches of the industry dropped by 8% YoY whereas ACPL has showed a negligible decline of 1.00% YoY. On the export front, total export dispatches of the industry were seen substantially lower by 14% YoY while ACPL showed an increase of 2% YoY.

Tons

9MFY10

9MFY11

YoY

Industry

Local dispatches

17,383,721

16,017,470

-8%

Export dispatches

7,860,429

6,726,814

-14%

ACPL

Local dispatches

981,018

971,205

-1%

Export dispatches

369,114

377,775

2%

Source: APCMA, company accounts & Summit Capital Research

Easing coal prices expected to bode well…

During the 3QFY11 cost of sales of the company has shown an augment of 4% to PKR1.77bn in comparison of the last quarter. We expect cost of sale to decrease in final quarter as the energy cost, which is the key cost component grabs about 55% of the total production cost, is expected to decline. Our assumption for decline in energy cost during 4QFY11 mainly on the back of the stabilizing coal prices in international market. Coal prices which were hovering around US$142 per ton at the beginning of the Jan’11 have dropped by 16% to US$119 per ton.

Future Outlook and recommendation…

We believe, budgetary measures are expected to go in favor of cement industry. The GoP has allocated 58% higher funds to PSDP as well as GoP plans to initiate mega projects at priority which seems to be quite supportive for the industry. In addition to this, complete removal of SED, lowered FED by PKR200 per ton in FY12 and decreased ST from 17% to 16% would benefit the industry as a whole.

Our DCF based target price for scrip is PKR69. The scrip currently offers an upside potential of 35% (based on yesterday’s closing price). We recommend a BUY stance.

BUY Market Snapshot Index Chg % KSE 30 11681.83 152.92 1.33 KSE 100 12326.14 160.16
BUY
Market Snapshot
Index
Chg
%
KSE 30
11681.83
152.92
1.33
KSE 100
12326.14
160.16
1.32
KSE ALL
8559.55
106.50
1.26
12M relative performance vs KSE
175%
KSE-100
ACPL
140%
105%
70%
35%
Muhammad Sarfraz Abbasi
sarfraz.abbasi@summitcapital.com.pk
021-35376125
B-209 Park Towers Clifton Karachi
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Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Summit Capital (Pvt.) Limited accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty and Summit Capital (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.

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