Karachi, October 17, 2022 (PPI-OT): Cements: MLCF and KOHC 1QFY23 result previews

We present 1QFY23 earnings expectations for Maple Leaf Cement Factory Ltd. (MLCF) and Kohat Cement Company Limited (KOHC), where despite dull dispatches, we expect stable gross margins for the two cement companies compared to 4QFY22 levels over increase in the quantum of local and Afghan coal in the fuel mix.

We forecast 1QFY23 EPS at Rs1.1 for MLCF as against an EPS of Rs0.03 for 4QFY22 whereas KOHC is expected to post EPS of Rs7.7 for the quarter versus an EPS of Rs1.96. In addition to gross margin improvement, absence of one-time 10% super tax charge also supports sequential bottom-line growth. We do not expect any dividend alongside the quarter results.

Earnings to sequentially improve in 1QFY23

We present 1QFY23 earnings expectations for Maple Leaf Company Factory Ltd. (MLCF) and Kohat Cement Company Ltd (KOHC). Given higher global coal prices for the past several months, cement players have opted to significantly increase the quantum of the relatively cheaper Afghan and local coal in their coal mix. We hence expect slightly higher gross margins compared to 4QFY22 levels even though dispatches were dull during the period. Due to better gross level performance, we expect earnings for the two companies to remain firm even with higher expected finance costs (due to increase in interest rates). Among the key reasons for sequential improvement in 1QFY23 bottom-line is also absence of the one-time 10% super tax charge.

MLCF: Increase in mix of local coal supports margins

The board of Maple Leaf Cement Factory Ltd. is scheduled to meet on 17th Oct-22 to discuss 1QFY23 financial results. For 1QFY23, we expect Maple Leaf Cement to post an EPS of Rs1.1, as against an EPS of Rs0.03 for 4QFY22 primarily due to absence of 10% super tax charge. We also expect gross margins to show an increase of 7ppt/2ppt on a YoY/QoQ basis mainly on back of higher quantum of local coal in the fuel mix and higher retention prices during the period. Operating margin is expected to improve by 1.2ppt on a QoQ basis with 1QFY23 EBIT clocking in at Rs2.43/share despite markedly lower volumetric sales. Since the company is about to kick start its 2mn tons new cement line in a month’s time, we do not expect any dividend announcement alongside the results.

KOHC: FCA adjustment to offset higher retention prices

We preview 1QFY23 EPS of Kohat Cement wherein we expect the company to post an EPS of Rs7.7, versus an EPS of Rs1.96 for 4QFY22, an increase of 3.9x mainly due to one-time higher tax charged in the previous quarter. We expect gross margins to clock in at 28% (-5ppt/0ppt YoY/QoQ). The company is expected to show stable gross margins on a QoQ basis as a result of better retention prices despite reliance on the national grid for power supply where fuel price adjustments (FCA) resulted in elevated per unit electricity cost. Company is expected to broadly maintain its operating margins at 26% on a sequential basis. We do not expect any dividend announcement alongside 1QFY23 results.