Earnings Report /
Pakistan

Kohat Cement: 1QFY23 Review - Strong earnings backed by elevated margins

  • KOHC has posted 1QFY23 NPAT of PKR1.8bn (EPS: PKR8.89), compared with a net profit of PKR1.4bn (EPS: PKR6.96) in SPLY.

  • Revenue increased by 30% YoY to PKR8.8bn, as volumes declined. However, elevated domestic prices supported the topline.

  • The company has posted gross margins of 31.3% in 1QFY23, up by 3.7ppt YoY but down 1.9ppt QoQ.

Intermarket Securities
27 October 2022

Kohat Cement Co. Ltd (KOHC) has posted 1QFY23 NPAT of PKR1.8bn (EPS: PKR8.89), compared with a net profit of PKR1.4bn (EPS: PKR6.96) in SPLY. The result came in higher than our expected EPS of PKR6.71. Higher-than-expected margins caused the major deviation.  

Key observations:

  • Net sales have increased by 30% YoY but are down 5% QoQ to PKR8.8bn, as volumes declined. However, elevated domestic prices supported the topline. Revenue came in higher than our expectation of PKR8.3bn.

  • The company has posted gross margins of 31.3% in 1QFY23, up by 3.7ppt YoY but down 1.9ppt QoQ. These are higher than our expected margins of 25%. Higher coal inventory at lower costs and a sufficient increase in cement prices have helped KOHC sustain higher gross margins.

  • Among other line items: (i) other income has surged by 4.7x YoY to PKR367mn on account of higher cash balances and elevated interest rates, and (ii) KOHC has booked an effective tax rate of 33% (in line with estimate) vs. 30% in 1QFY22 owing to super tax.

KOHC has posted an impressive GM and profitability in 1Q, majorly attributed to elevated retention prices and better inventory management. Looking ahead, earnings of the company are likely to increase further amid better demand outlook post recent floods, coupled with ease off in international coal prices. Our liking for KOHC comes from its discounted valuations as the company trades at an EV of USD19/ton against USD32/ton for the IMS Cement Universe. We reiterate our Buy stance with a TP of PKR200/sh.