Karachi, February 08, 2023 (PPI-OT): PIOC and FCCL 2QFY23 result previews

We present 2QFY23 earnings expectations for Pioneer Cement Limited (PIOC) and Fauji Cement Company Ltd. (FCCL). We forecast 2QFY23 EPS at Rs5.2 for PIOC (+77% YoY/+101% QoQ) and Rs1.0 for FCCL (-9% YoY/+3% QoQ).

PIOC is expected to show noticeable improvement in gross margins and earnings over better retention prices and proactive cost management through increase in the quantum of local and Afghan coal in fuel mix.

PIOC: Efficient fuel management to support EPS expansion

For 2QFY23, we expect Pioneer Cement (PIOC) to post an EPS of Rs5.2, as against an EPS of Rs2.9 for 2QFY22 primarily due to better coal cost management and lower power costs. We expect gross margins to show a 4ppt QoQ improvement on the basis of higher quantum of local coal in the fuel mix and better retention prices during the period. To recall, the company had used local and Afghan coal of higher rates during 1QFY23, which are expected to come at par to peers in 2QFY23. Moreover, the company is also expected to use local coal for its captive power plant (17% of fuel and power cost), further declining cost of production. Operating margin is expected to improve by 4.4ppt on a QoQ basis due to better volumetric sales and margins. We do not expect any dividend announcement alongside the results.

FCCL: Earnings to sequentially remain stable

The Board of Fauji Cement (FCCL) is scheduled to meet on 14th February, 2023 to discuss 2QFY23 financial results. We expect the company to post earnings of Rs2.2bn translating into an EPS of Rs1.0, 3% QoQ for the quarter. During the quarter, top-line is expected to clock in at Rs 18.7bn, +125% YoY, largely due to the merger impact with Askari Cement (executed in 4QFY22). Since the company has recently kick started its new 2mn tons cement line at Nizampur, we do not expect any dividend announcement alongside the first quarter results given capital expenditure commitments.

Outlook

Recent uptick in demand has provided the sector room to pass on some impact of cost increases. 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 given its outstanding gross level performance broadly due to its efficient cost control and lower leveraged balance sheet.