Karachi, April 19, 2023 (PPI-OT): CHCC, LUCK and ACPL 3QFY23 result previews

We present 3QFY23 earnings expectations for Cherat Cement Company Limited (CHCC), Lucky Cement Ltd. (LUCK) and Attock Cement Pakistan Limited (ACPL). We forecast 3QFY23 EPS at Rs6.92 for CHCC (+26% YoY/-14% QoQ), Rs13.0 for LUCK (-26% YoY/+24% QoQ) and Rs3.85 for ACPL (+61% YoY/+19% QoQ).

CHCC is expected to show a sequential decline in earnings over lower sales volume and higher finance costs owing to rise in interest rates. We highlight that LUCK is likely to see a higher depreciation cost in 3QFY23 as the new line starts production. ACPL is expected to post an increase in earnings both YoY and sequentially primarily driven by a higher topline.

We have an Overweight stance on the cement sector as long-term fundamentals remain durable. With international coal prices declining consistently and hopes of an uptick in volumes in the next year, sector would likely stay in the lime light.

CHCC: Margins to stay resilient

The Board of Cherat Cement (CHCC) is scheduled to meet on 27th April, 2023 to discuss 3QFY23 results. We expect CHCC to post an EPS of Rs6.9 for the quarter (+26% YoY) primarily due to better coal cost management compared to last year. On a QoQ basis, however, we expect the company to post a decline in earnings owing to lower sales volume and higher finance costs. We expect gross margins to remain flat QoQ despite rise in Afghan coal costs, thanks to relative improvement in retention prices. Operating margin is also expected to remain flattish on a QoQ basis at 26.6% mainly due to stable gross margins. We do not expect any dividend announcement alongside the results.

LUCK: EPS to decline on a YoY basis on lower other income

Lucky Cement (LUCK) is expected to post unconsolidated earnings of Rs3.4bn translating into an EPS of Rs13.0, 26% lower on a YoY basis mainly due to expected absence of dividend income from subsidiaries except for ICI which will contribute Rs1.02bn in dividend income.

During the quarter, top-line is expected to clock in at Rs25.2bn showing an 18% YoY increase, largely due to rise in retention prices although dispatches are lower by 20% compared to 3QFY22. LUCK is expected to post a 4ppt YoY improvement in Gross margins as the company adds local coal in its coal mix. The company, however, is expected to book a higher depreciation for the period as its new line at Pezu commences production. We do not expect any dividend announcement alongside the quarter results given the recent capital expenditure commitments.

ACPL: Earnings to improve this quarter

Attock Cement’s (ACPL) board is scheduled to meet on 27th April, 2023 to discuss 3QFY23 financial results. We expect ACPL to post earnings of Rs530mn translating into an EPS of Rs3.85, +61%YoY/+19% QoQ. During the quarter, top-line is expected to clock in at Rs 8bn, +34% QoQ, largely due to increase in total dispatches owing to noticeable increase in the quantum of exports coupled with better overall retention prices. Finance cost, on the other hand is expected to elevate because of higher debt and increase in interest rates during the period. We do not expect any dividend announcement by ACPL 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 LUCK and MLCF 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.