Pioneer Cement (PIOC) has posted 3QFY21 NPAT of PKR687mn (EPS: PKR3.02), lower than our estimated profits of PKR786mn (EPS: PKR3.46), mainly because of lower revenues and gross margins. This takes 9MFY21 net profits to PKR1.3bn (EPS: PKR5.69), compared with a loss of PKR523mn SPLY. The surge in profitability in 3QFY21 is led by (i) higher volumes post expansion, (ii) better retention prices, and (iii) lower variable costs post commissioning of coal based CPP and WHR.
Key result highlights for 3QFY21:
Net sales have increased by c.2.5x yoy and 17% qoq to PKR6.3bn, mainly because of surge in sales volume by 1.5x/7% yoy/qoq post commissioning of new plant in January 2020.
Gross margins have risen to 24.7% in 3Q from negative 6% SPLY (up 30ppt yoy), but are lower than our estimated GMs of 27%. The increase in GMs is mainly attributable to (i) lower variable costs post commissioning of Coal based CPP and WHR and due to decline in international coal prices, and (iii) higher retention prices which increased to PKR349/bag vs. PKR241/bag in 2Q, by our estimate.
Finance costs have increased by c.5x yoy to PKR489mn; this is because the interest on debt raised for the new plant is no longer capitalized.
Among other line items: (i) distribution expenses have declined by 54% yoy to PKR34mn amid negligible exports, and (ii) PIOC has booked an effective tax rate of 29% vs PKR73mn tax reversal SPLY.
PIOC has posted relatively better gross margins than MLCF and DGKC in 3QFY21, partly because of the positive impact of coal based CPP which came online in March 2021. We believe that GMs and profitability of PIOC will increase further in the coming quarters due to energy cost savings from full utilization of coal based CPP and expected increase in cement prices. We reiterate our Buy stance on the stock with a TP of PKR155/sh.