Karachi, August 28, 2023 (PPI-OT): DGKC and ACPL FY23 result previews

We present 4QFY23 earnings expectations for DG Khan Cement Ltd. (DGKC) and Attock Cement Pakistan Ltd. (ACPL), where we expect bottom-line to take a hit owing to higher financial and tax charges. This would be despite relatively stable margins on gross levels.

We expect DGKC to post 4QFY23 EPS of Rs1.6 compared to LPS of Rs1.5 in the previous year, with a dividend of Re1/share. For ACPL, we expect 4QFY23 EPS of Rs3.1 compared to LPS of Rs0.4 in the SPLY, with a dividend of Rs3/share. We highlight that any deferred tax adjustments could lead to negative 4QFY23 bottomline for both companies.

Beyond FY23 results, we expect earnings growth momentum to gain support from sticky margins. We, hence, have an Overweight stance on the Cement sector as long-term fundamentals remain durable. With international coal prices declining consistently, sector would likely stay in the lime light.

Higher finance cost and tax charge to impact bottomline

We present 4QFY23 earnings expectations for DG Khan Cement Ltd. and Attock Cement Ltd. Dull dispatches are expected to impact top-line of cement manufacturers. On the cost front, cement players have opted to significantly increase the quantum of relatively cheaper local variant in their coal mix providing cushion to margins. Despite better margins, we expect earnings to take a significant hit from higher finance costs and from the 10% Super tax charge to be taken in this quarter.

DGKC: EPS to decline over higher finance cost and Super tax

The Board of DG Khan Cement (DGKC) is scheduled to meet on 31st August, 2023 to discuss FY23 results. For 4QFY23, top-line is expected to clock in at Rs17.5bn showing a 4% QoQ decline, largely due to lower dispatches. Gross margins are expected to remain stable owing to better retention prices for the quarter and lower coal costs. Cost pressures due to inflation, higher finance cost (+8% QoQ), and the Super tax charge take our earnings projections to Rs1.6/share for the quarter, down 41% QoQ. In addition to the retrospective Super Tax charge in 4QFY23, any deferred tax charge due to 6% increase in future tax rate (owing to Super Tax rising from 4% to 10% on a recurring basis) could result in a loss for the company. We expect dividend of Rs1/share alongside final results.

ACPL: Improvement in margins; Super tax offsets benefit

The Board of Attock Cement (ACPL) is scheduled to meet on 29th August, 2023 to discuss FY23 results. ACPL is expected to post 4QFY23 earnings of Rs429mn translating into an EPS of Rs3.1.

During the quarter, top-line is expected to clock in at Rs 7.4bn, drop of 8% QoQ, largely due to decline in dispatches owing to slowdown in the local market. Gross margins are, however, expected to improve by 1ppt QoQ owing to better coal management. Like DGKC, deferred tax charge could take the company’s bottomline near zero. We believe it is likely to see a dividend announcement of Rs3/share alongside the results.

Outlook

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