Morning Call about Attock Cement Pakistan Limited – Arif Habib Limited

Karachi: Swelling energy cost may drop profitability by 30% YoY in FY11

Attock Cement Pakistan Limited (ACPL) is scheduled to announce its FY11 financial result on September 11, 2011.

According to Arif Habib Limited expects the company to earn profit after tax of PKR 713mn (EPS: PKR 8.23) in FY11, a 30% YoY drop, when compared with PKR 1,017mn (EPS: PKR 11.74) in FY10. Rising energy costs and diminishing brand premium are expected to be the major earnings draggers during the period under review. Arif Habib expects the Board to announce a cash dividend of PKR 4/share along with the result.

Strong volumetric growth coupled with healthy retention prices are expected to yield a 51% QoQ earnings growth to PKR 287mn (EPS: PKR 3.32) in 4QFY11.

 

ACPL Financial Highlights
PKR mn 4QFY11 3QFY11 QoQ  FY11  FY10 YoY
Net Sales 2,455 2,246 9% 8,486 7,668 11%
Cost of Sales  1,803 1,767 2% 6,766 5,710  18%
Gross profit 652 478 36% 1,720 1,958 -12%
Admin expenses  44 42 5%  178 184  -3%
Selling expenses 153 124 24% 512  467 10%
Operating Profit 449 302 49% 1,060 1,466 -28%
Financial charges 7 8.5 -22% 24 78 -70%
Profit before tax  442 293 51% 1,037 1,388 -25%
Profit after tax  287 190  51% 713  1,017  -30%
Earnings per share (PKR)  3.32 2.20 8.23 11.74    
Sources: Company financials and AHL Research

 

 

Net Sales are expected to jump by 11% YoY

Arif Habib expects the company to achieve an 11% YoY growth in the net sales in FY11. This healthy revenue growth is expected on account of an 8% YoY improvement in the average retention price coupled with a 3% YoY increase in the total dispatches.

Swelling energy cost is likely to squeeze gross margin by 5.3ppt

Rising electricity tariff and lowering brand premium has been acting like a double edged sword for the company’s gross margin, which is expected to be around 20% in FY11 as compared to 25% a year back. ACPL does not enjoy the luxury of a captive power plant, which exposed the company to rising electricity costs, taking its toll on the production cost. On the other hand, refocus of Lucky Cement on the southern domestic market also effected the brand premium on ACPL, resulting is squeezing gross margin.

Lowering financial cost is providing much need support

Finance cost of the company is expected to drop by a 70% YoY in FY11. The company has retired its long term murabaha by the end of FY10, which has substantially reduced the financial charges.

Recommendation

Arif Habib’s DCF based target price for ACPL works out to PKR 69/share, which offers an attractive upside potential of 44.6% from last closing price of PKR 47.74/share; thus Arif Habib recommends a Buy.

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