Earnings Report /
Pakistan

Maple Leaf Cement: 3QFY22 review – lower-than-expected COGS amid efficient coal procurement

  • MLCF has posted 3QFY22 unconsolidated NPAT of PKR1.2bn (EPS: PKR1.08), higher than our expected EPS of PKR0.68

  • Gross margins have reduced sharply by 6.8ppt qoq, while up 0.8ppt yoy, to 24.3% in 3QFY22

  • We maintain a Buy stance on the stock with a TP of PKR47/sh. MLCF is one of our top pick in the IMS Cement Universe

Rahul Hans
Rahul Hans

Head of Research

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Intermarket Securities
20 April 2022

Maple Leaf Cement (MLCF) has posted 3QFY22 unconsolidated NPAT of PKR1.2bn (EPS: PKR1.08), higher than our expected EPS of PKR0.68. Higher-than-expected GMs explain the deviation – majorly due to lower realized cost of Afghan coal verses expectation. This result takes 9MFY22 net profits to PKR3.6bn (EPS: 3.27), down 35% yoy. The result is accompanied with an announcement to buy-back 25mn shares and cancel the same to reduce the issued share capital of the company.

On a consolidated basis, MLCF has posted a NPAT of PKR1.6bn (EPS: PKR1.42), higher than our expected net profit of PKR1.2bn (EPS: PKR1.07).

Key highlights for 3QFY22 result:

  • Net Sales have increased by 27% yoy, but down 2% qoq, to PKR12.0bn in 3QFY22. Despite a 15% qoq reduction in sales volumes to 1.1mn tons in 3Q, elevated retention prices amid higher local cement prices and reduced discounts have supported the topline.

  • Gross margins have reduced sharply by 6.8ppt qoq, while up 0.8ppt yoy, to 24.3% in 3QFY22. This is higher than our expected GMs of 22%. Sequentially lower GMs are attributed to increased procurement cost of Afghan and Richard Bay coal. On the other hand, local cement prices have not moved in tandem with increased cost pressure due to slower demand amid winter season.

  • Even though exports declined significantly by 81% yoy in 3Q, selling and distribution expenses have increased by 23% yoy to PKR388mn; this may be due to higher transportation costs and salary expenses, in our view.

  • Among other line items: (i) admin expenses have reduced by 14% yoy to PKR226mn, (ii) finance cost has increased by 42% yoy to PKR494mn, due to increased interest rates and short term borrowings, and (iii) MLCF has reported effective tax rate of 29% in 3QFY22 vs. 7% only in same period last year.

We reiterate that MLCF has posted better gross margins in 3QFY22, impressive given that cost has escalated significantly amid higher international coal and oil prices. At the same time, demand was depressed and prices did not move much to absorb elevated cost pressures during the quarter. Looking ahead, in FY23 and beyond, higher cement prices with potential ease-off in international coal prices and new expansion (due to be online by the end of 1HFY23) will together elevate the overall profitability of the company. We maintain a Buy stance on the stock with a Target Price of PKR47/sh. MLCF is one of our top pick in the IMS Cement Universe.