Earnings Report /
Pakistan

DG Khan Cement: 4QFY21 review – Higher effective tax rate lead to earnings miss

  • DGKC has posted an unconsolidated NPAT of PKR0.87bn (EPS: PKR1.99) in 4QFY21 vs NLAT of PKR0.31bn (LPS: PKR0.70) in SPLY

  • GMs during the quarter clocked in at 17.6% (down 5.2ppt qoq) – largely in line with our estimated margins of 17.9%.

  • Other income of has reduced by 72%qoq to PKR466mn. The decline is due to a one-off dividend received from MCB in 3QFY21.

Intermarket Securities
14 September 2021

DG Khan Cement (DGKC) has posted an unconsolidated NPAT of PKR0.87bn (EPS: PKR1.99) in 4QFY21, from NLAT of PKR0.31bn (LPS: PKR0.70) in SPLY and below our EPS estimate of PKR2.21. The qoq decline in the performance is mainly due to: (i)lower GP margins amid higher international coal and oil prices and (ii) one-off dividend income from MCB in 3QFY21. Major deviation stems from higher-than-expected effective tax rate. The company has also announced a PKR1.0/sh cash dividend.

Key result highlights for 4QFY21:

  • Net sales have increased by 66% yoy and 14% qoq to PKR12.36bn. The yoy increase is majorly due to higher retention prices amid lower discounts and increase in local cement prices. Apart from this total cement dispatched has increase by 1% yoy and 7% qoq.

  • Gross margins during the quarter clocked in at 17.6% (down 5.2ppt qoq) – largely in line with our estimated margins of 17.9%. The qoq decline in margins is led by higher cost pressures amid increase in international coal and oil prices and lower increase in cement prices compared with the rise in cost.

  • Other income of has reduced by 26% yoy and 72% qoq to PKR466mn. The qoq decline is due to a one-off dividend received from MCB in 3QFY21.

  • Among other line items: (i)Finance has declined by 30% yoy to PKR697mn, due to lower interest rates and minimal decline in borrowings, (ii) distribution expenses have increased by 63%yoy to PKR551mn owing to higher exports and transportation expenses, and (iii) effective tax rate during the quarter is reported at 27% vs tax reversal in 4QFY20.

DGKC result was slightly lower than expectation, for the next quarter, we believe that elevated international coal and energy prices will  keep a check on future profitability for next quarter or two. But, for the long run, we believe that healthy local demand and potential increase in cement prices will elevate the profitability of the company. We have a Buy rating on the scrip with a TP of PKR185/sh.