Earnings Report /
Pakistan

Pioneer Cement: 4QFY22 Review - Higher tax dents better operating performance

  • PIOC has posted a loss of PKR0.6mn (LPS: PKR2.57). effective tax rate of 142% led to losses

  • However, the company’s gross margins and operating profits have improved significantly during the quarter

  • Local cement demand is likely to decline in 1HFY23 amid recent floods, but will likely to rebound in 2HFY23

Rahul Hans
Rahul Hans

Head of Research

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Intermarket Securities
22 September 2022

Pioneer Cement Ltd (PIOC) has posted a loss of PKR0.6mn (LPS: PKR2.57) for 4QFY22 from an EPS of PKR3.84 in 4QFY21. Whereas, we estimated NPAT of PKR0.4bn (EPS: PKR1.58). Higher-than-expected effective tax rate led to losses. However, the company’s gross margins and operating profits have improved significantly during the quarter. The result takes net profits in FY22 to PKR1.0bn (EPS: PKR4.62), down 47% YoY.

Key observations

  • Net sales have increased by 51% YoY and 21% QoQ to PKR9.3bn in 4QFY22, below our expected revenue of PKR9.9bn. The increase in QoQ revenue majorly stemmed from 24% QoQ increase in retention prices.

  • Gross margins have surged by 3.4ppt YoY and 1.6ppt QoQ to 24.7% in 4QFY22. The increase in GMs is mainly attributed to efficient coal inventory management and more than adequate increase in cement prices, in our view. GMs have come in higher than our expected margins of 20.2%.

  • Finance costs have increased by 47% YoY, but down 6% QoQ to PKR719mn; this is due to increase in interest rates.

  • Among other line items: (i) PIOC has booked impairment loss of PKR76mn on its assets fair value, and (ii) PIOC has booked an effective tax rate of 142% vs. 24% in SPLY for 4Q (IMS assumption: 64%). Higher tax rate is due to a one-off high super tax implication that led PIOC into losses for the first time since 1QFY21

PIOC has posted decent gross margins and PBT in 4Q, despite elevated cost pressures. Looking ahead, we think that demand is likely to decline in 1HFY23 amid recent floods. Following the possible decline in coal prices coupled with higher demand coming from flood destruction, we see a likely increase in profitability. We maintain our Buy stance on the stock with a TP of PKR92/sh.