Karachi, August 04, 2023 (PPI-OT): LUCK and MLCF FY23 Result Previews

We present 4QFY23 earnings expectations for Lucky Cement Ltd. (LUCK) and Maple Leaf Cement (MLCF), where we expect bottom-line of both companies to take a hit owing to higher financial charges, Super tax and deferred tax adjustments. This would be despite relatively stable margins on gross levels

We expect LUCK to post 4QFY23 EPS of Rs2.7 (-79% YoY) whereas MLCF is expected to post an LPS of Rs0.5 compared to breakeven bottom-line posted in the SPLY. We do not expect these companies to announce any dividend alongside the results. Excluding deferred tax adjustments, LUCK and MLCF are expected to post 4QFY23 EPS of Rs7.4 and Rs0.65, respectively.

We have an Overweight stance on the Cement sector as long-term fundamentals remain intact. With international coal prices declining consistently and expectations of volume recovery in FY24, we believe sector would remain on investors' radar.

Higher finance and tax charge to impact earnings

We present 4QFY23 earnings expectations for Lucky Cement Ltd. (LUCK) and Maple Leaf Cement (MLCF). While dull dispatches are expected to be more than offset by higher retention prices, we expect efficient fuel consumption and increase in international coal use (especially South players) to support margins. We, however, expect earnings to take a significant hit from higher finance costs, the 10% super tax charge and likely deferred tax adjustments this quarter. To recall, Federal Budget FY24 announced a 10% Super Tax on a retrospective basis for FY23, compared to 4% charged so far, in addition to making the 10% Super Tax a permanent tax for companies earning annual income of more than Rs500mn.

LUCK: EPS to decline over lower other income and super tax

The Board of LUCK is scheduled to meet on 7th August, 2023 to discuss 4QFY23 results. During the quarter, top-line is expected to clock in at Rs26.3bn showing a 19% YoY increase, largely due to rise in retention prices although dispatches are lower by 5% compared to 4QFY22. This is expected to take 4QFY23 gross margins to 30%, compared to 26% in 3QFY23. Cost pressures from higher finance cost and tax charges, however, take our earnings projections to Rs2.7/share for the quarter, down 79% QoQ.

In addition to the retrospective Super Tax charge in 4QFY23, we also incorporate a deferred tax charge amounting to ~Rs1.5bn (Rs4.8/share), due to 6% increase in future tax rate (owing to Super Tax rising from 4% to 10% on a recurring basis). Barring this, our earnings estimate for the quarter increases to Rs7.4/share. We do not expect any dividend announcement alongside the quarter results given the recent capital expenditure commitments.

MLCF: Improved margins; DTL charge could lead to a loss

MLCF is expected to post loss of Rs537mn in 4QFY23, translating into an LPS of Rs0.5, owing to higher Super Tax and one-time deferred tax charges. Barring the deferred tax charge, our earnings estimate for the quarter comes to around Rs0.65/share.

During the quarter, top-line is expected to clock in at Rs 13.7bn, drop of 20% QoQ, largely due to decrease in total dispatches owing to slowdown. Finance cost, on the other hand is expected to elevate by 40% QoQ because of higher interest rates and the full reflection of debt related to the new line. We do not expect any dividend announcement by MLCF alongside the quarter results.

Outlook

Long-term prospects for the industry are intact and we hence stick to our Overweight stance on the sector. We highlight MLCF and FCCL among our top selections from the sector, given their respective timely expansions that have the potential to capture higher market shares. We also highlight KOHC among top picks due to its efficient cost control and lower leveraged balance sheet.