Earnings Report /
Pakistan

Kohat Cement: 3QFY22 review – Impressive margins amid lower COGS; beats expectation

  • KOHC has posted 3QFY22 NPAT of PKR1.6bn (EPS: PKR8.19), compared with net profit of PKR1.1bn in SPLY

  • Net sales have increased by 28% yoy and 4% qoq to PKR8.6bn. This is due to increase in local cement prices

  • The company has posted gross margins of 29.2% in 3QFY22, up by 3.3ppt yoy but down 1.0ppt qoq

Intermarket Securities
26 April 2022

Kohat Cement Co. Ltd (KOHC) has posted 3QFY22 NPAT of PKR1.6bn (EPS: PKR8.19), compared with net profit of PKR1.1bn in SPLY. The result came in higher than our expected EPS of PKR7.20, where higher-than-expected margins is the major deviation. The result takes net profits to PKR4.6bn in 9MFY22 (EPS: PKR23.05), up 83% yoy.

Key highlights of 3QFY22 result:

  • Net Sales have increased by 28% yoy and 4% qoq to PKR8.6bn. The increase in sales emanated from a surge in local cement prices, which in turn led to elevated retention prices. KOHC total offtake stood at 0.93mn in 3QFY22, almost flat qoq, but down 8% yoy.

  • The company has posted gross margins of 29.2% in 3QFY22, up by 3.3ppt yoy but down 1.0ppt qoq. This is higher than our expected margins of 25%. Greater pile-up of coal inventory at lower cost and easy access to Afghan and local coal amid its plant’s geographic presence has helped KOHC to post stable margins, in our view.

  • Among other line items: (i) Other income has surged by 3.6x yoy to PKR193mn on account of higher cash balances and elevated policy rate, (ii) KOHC has booked an effective tax rate of 28% vs. 29% in 3QFY21, and (iii) finance costs have increased 21% yoy to PKR144mn in 3QFY22.

KOHC has posted impressive GMs and profitability in 3Q, majorly attributed to lower average coal prices as compared with the going industry average and flat qoq volumes. Looking ahead in 4Q, the earnings of the company are likely to sustain current levels amid higher demand and recent increase in local cement prices (to pass on the impact of elevated coal prices).

We reiterate our Buy stance on the stock with a TP of PKR200/sh.