Earnings Report /
Pakistan

Kohat Cement: 3QFY21 review – Higher prices lift earnings; in line with expectations

  • KOHC has posted 3QFY21 NPAT of PKR1.06bn (EPS: PKR5.27), compared with a loss of PKR0.4bn SPLY

  • Higher offtake and retention prices has increased gross margins by 34ppt yoy to 26% in 3QFY21

  • KOHC earnings in coming quarters are expected to increase amid higher local cement dispatches and prices, in our view

Intermarket Securities
12 April 2021

Kohat Cement Co. Ltd (KOHC) has posted 3QFY21 NPAT of PKR1.06bn (EPS: PKR5.27), compared with a loss of PKR0.4bn SPLY; though the result is broadly in line with our estimated 3Q EPS of PKR5.59. The increase in profitability in 3Q was mainly led by higher domestic sales and massive jump in retention prices. 9MFY21 net profits thus rise PKR2.53bn against a loss last year.

Key highlights:

  • Net sales have more than doubled yoy to PKR6.7bn. Local dispatches and exports together increased by 59% yoy, complemented by higher local prices in the North region along with reduced discounts. Overall retention prices thus increased 37% yoy and 21% qoq to PKR378/bag.

  • Gross margins have also increased significantly, by 34ppt yoy to 26%, though we had expected margins of 27.5%. We suspect that slightly higher realised coal prices underlie the minor deviation in GMs (also down 2ppt qoq). The yoy increase is mainly led by (i) a decline in international energy prices (although they have increased recently), and (ii) higher retention prices due to significant cut in discounts and lower FED.

  • Among other line items: (i) other income has doubled yoy to PKR53mn on account of higher cash balance, (ii) KOHC has booked an effective tax rate of 29% as compared with a tax reversal in 3QFY20, (iii) finance costs has declined 32% yoy to PKR119mn.

Reiterate Buy with a TP of PKR300/sh

Despite massive jump in international coal prices recently (up c.60% since October 2020), KOHC has posted impressive increase in GP margins during 9MFY21. We expect that double-digit cement demand growth and further increase in local prices will continue to expand KOHC earnings in the coming quarters. In the previous quarter, KOHC had also announced an expansion of 7,700-10,000tpd (2.3-3.0mn tons). We reiterate our Buy stance on the stock with a TP of PKR300/sh.