Topline Cement Universe Sees 13% QoQ Profit Increase in 4QFY24

Staff Report :Profitability for the Topline Cement Universe is expected to post Rs12.5bn in 4QFY24 against Rs11.1bn in 3QFY24, up by 13% QoQ, due to higher average retention prices.

This will take FY24 profits to Rs51.1bn, up 84% YoY due to an increase in GP margins to 29%, up by 4ppts YoY.

While on a YoY basis, Topline Cement Universe posted a loss of Rs2.8bn in 4QFY23 due to a higher effective tax rate related to super tax liability. Excluding tax implications, Profit Before Tax (PBT) in 4QFY24 is expected to increase by 45% YoY due to higher revenues and other income.

Net sales are anticipated to grow by 10% YoY to Rs91.3bn in 4QFY24 despite a 7% YoY decline in local cement sales, thanks to an 11% YoY increase in average local cement prices.

The decline in cement dispatches in 4QFY24 is due to (1) lower working days amid Eid holidays, (2) high cost of construction, and (3) lower demand due to economic slowdown.

Capacity utilization of the cement sector clocked in at 52% in 4QFY24, compared to 55% in 4QFY23.

Gross margin of the sector is anticipated to improve by 1% YoY to 27% in 4QFY24 due to higher retention prices.

During 4QFY24, cement players in the South region mostly relied on Richards Bay coal, while those in the North region used a combination of Afghan and local coal. Richards Bay coal prices averaged at US$108 per ton in 4QFY24 compared to US$109 per ton in 4QFY23 and US$97 per ton in 3QFY24, down 1% YoY and up 11% QoQ.

Average retention price for 4QFY24 is estimated at Rs914/bag, up 11% YoY and 2% QoQ.

Other income of the sector is estimated to clock in at Rs5.6bn in 4QFY24, up by 44% YoY. LUCK is expected to contribute 60% to the sector’s other income.

We have an Overweight stance on the Pakistan Cement sector with Luck Cement (LUCK), Maple Leaf Cement (MLCF), and Fauji Cement Company Limited (FCCL) as our top picks.

*Lucky Cement (LUCK):* We expect LUCK’s consolidated earnings to grow by 40% YoY and increase by 6% QoQ to Rs56.5/share in 4QFY24. The YoY increase in earnings is primarily attributed to higher profits from Lucky Electric Power and local cement operations. Moreover, the QoQ earnings incline is attributed to the QoQ increase in earnings from local cement operations. Along with the result, we expect LUCK to pay a DPS of Rs24.0.

On an unconsolidated basis, LUCK is likely to report EPS of Rs20.05, up by 127% YoY and by 19% QoQ. The significant YoY jump in earnings is attributable to higher cement retention prices and higher other income. Gross margin is anticipated to clock in at 30% in 4QFY24 compared to 28% and 29% reported in 4QFY23 and 3QFY24.

*Kohat Cement (KOHC):* KOHC is likely to post EPS of Rs10.50 in 4QFY24, up 349% YoY mainly due to a lower effective tax rate and higher other income. Moreover, QoQ earnings are expected to remain flat due to higher retention prices being offset by slightly higher coal prices. Gross margins are expected to clock in at 29% in 4QFY24 vs 27% and 30% reported in 4QFY23 and 3QFY24. Along with the result, we expect KOHC to pay a DPS of Rs7.0.

*Fauji Cement (FCCL):* We expect FCCL’s earnings to clock in at Rs0.89/share, up by 362% YoY. The increase in earnings is due to higher revenue amidst higher domestic dispatches and a lower effective tax rate. On a QoQ basis, earnings are expected to increase by 23% QoQ due to higher domestic dispatches amidst new plant operations and better margins. Gross margin is likely to clock in at 30% in 4QFY24 vs 39% and 28% reported in 4QFY23 and 3QFY24.

*DG Khan Cement (DGKC):* We expect DGKC to post an unconsolidated EPS of Rs2.61, compared to an LPS of Rs13.12 in 4QFY23. The YoY increase in earnings is due to higher margins, and lower financial charges and effective tax rates. On a QoQ basis, DGKC EPS is expected to decrease by 3% QoQ, with higher local retention prices being offset by lower dispatches. Gross margins are likely to clock in at 18% in 4QFY24 vs 11% and 26% reported in 4QFY23 and 3QFY24. Along with the result, we expect DGKC to pay a DPS of Rs1.5.

*Maple Leaf Cement (MLCF):* MLCF is likely to post an unconsolidated EPS of Rs1.11, compared to an LPS of Rs0.53 in 4QFY23. This is mainly due to higher gross margins and a lower effective tax rate. On a QoQ basis, earnings are expected to remain flat with higher retention prices being offset by lower domestic dispatches. Gross margins are anticipated at 32% in 4QFY24 vs 24% and 28% in 2QFY23 and 3QFY24. Along with the result, we expect MLCF to pay a DPS of Rs1.0,” Topline said in a report.