Maple Leaf Cement (MLCF) posted 1QFY23 unconsolidated NPAT of PKR1.2bn (EPS: PKR1.13), more than twice our expectation of PKR0.6bn (EPS: PKR0.52). Higher-than-expected margins explain the deviation. On a consolidated basis, MLCF has posted NPAT of PKR1.4bn (EPS: PKR1.28), higher than our expectation of PKR1.1bn (EPS: PKR0.99). The stock is up 2% as we write. Going by MLCF’s result, we expect other cement companies to also show strong margin improvement.
Despite the steep decline in volumetric sales in 1QFY23 by 27% YoY / 30% QoQ, net sales have increased by 30% YoY (down 11% QoQ) to PKR12.8bn. This is due to the jump in local cement prices, in order to pass on cost pressures.
Gross margins rose by 8.3ppt YoY and 2.6ppt QoQ, to 27.8% in 1QFY23. GMs came in higher than our expectation of 21%, owing to higher retention price, better inventory management and greater consumption of local coal.
Selling and distribution expenses have increased by 4% YoY to PKR417mn, despite the 38% YoY decline in exports. Higher transportation expenses due to elevated fuel prices may be the reason, in our view.
Among other line items: i) finance cost increased by 95% YoY to PKR643mn, due to higher interest rates and long term borrowings, ii) admin expenses have surged by 71% YoY to PKR369mn, and iii) MLCF has reported effective tax rate of 32% in 1QFY23 vs. 32% in SPLY.
Despite the depressed cement offtake, largely due to floods and a prolonged monsoon season, MLCF has posted decent margins and profitability in 1Q. According to our channel checks, local coal now satisfies 70% of the overall coal requirement. Looking ahead, we believe that new expansion, coupled with decent demand growth and higher cement prices will help MLCF post decent profitability in the remainder of FY23. We therefore maintain our BUY stance on the stock with a Target Price of PKR47/sh. MLCF is one of our top picks in the IMS Cement Universe.