Equity Analysis /
Pakistan

Kohat Cement: 3QFY19 results – earnings beat on better than expected margins

    Intermarket Securities
    29 April 2019

    Kohat Cement (KOHC) announced 3QFY19 NPAT of PKR644mn (EPS: PKR3.21), down by 1%yoy. The result was better than our expected NPAT of PKR545mn (EPS: PKR2.72), due to higher than expected GMs. This takes 9MFY19 NPAT to PKR2.2bn (EPS: PKR10.81), down 5%yoy mainly on account of lower domestic dispatches and weakening PKR devaluation.

    We have a Buy recommendation on Kohat Cement with an unchanged target price of PKR115.

    Key Highlights in 3QFY19

    Net sales grew by 9% yoy to PKR3.9bn in 3QFY19, as compared to PKR3.5bn reported in the same period last year, on the back of higher cement prices (up 16%yoy) despite a decline in domestic dispatches.

    Gross margins remained flat yoy at 28%, despite negative implication of PKR devaluation potentially offsetting the impact of lower coal prices. This was better than expected. However, on a quarterly basis, GMs were down by c. 4%qoq, possibly owing to price cuts/discounts amid a demand slowdown in 3Q. 

    Among other line items: (i) distribution expenses increased by 36%yoy to PKR36mn likely as a result of higher exports, and (ii) effective tax rate came in 2Q came in at 30%.

    Risks: (i) sharp increase in coal prices, (ii) decline in local dispatches growth, and (iii) break-down in pricing mechanism.