Earnings Report /
Pakistan

Maple Leaf Cement: 4QFY22 Review - Margins came in line, but higher ETR leads to earnings miss

  • MLCF posted 4QFY22 unconsolidated NPAT of PKR35mn (EPS: PKR0.03), much lower than our expectation of PKR0.54/share

  • Gross margins rose by 3.4ppt YoY and 1.0ppt QoQ, to 25.2% in 4QFY22. GMs came in line with our expectation of 25.1%.

  • MLCF has reported Effective Tax Rate (ETR) of 98% in 4QFY22 vs. 28% in SPLY, amid one-off super tax impact

Intermarket Securities
2 September 2022

Maple Leaf Cement (MLCF) posted 4QFY22 unconsolidated NPAT of PKR35mn (EPS: PKR0.03), much lower than our expectation of PKR0.54/share. Higher-than-expected taxation explains the deviation. This result takes FY22 net profits to PKR3.6bn (EPS: PKR3.30), down 42% YoY. On a consolidated basis, MLCF has posted a NPAT of PKR232bn (EPS: PKR0.21), lower than our expectation of PKR1.06bn (EPS: PKR0.96). This takes FY22 NPAT to PKR4.5bn (EPS: PKR4.15) up 19% YoY.

Key observations

  • Net sales have increased by 51%/20% YoY/QoQ to PKR14.4bn in 4QFY22. This is due to jump in local cement prices as well as the increase of 3%/15.5% YoY/QoQ in cement volumes.

  • Gross margins rose by 3.4ppt YoY and 1.0ppt QoQ, to 25.2% in 4QFY22. GMs came in line with our expectation of 25.1%.

  • Despite the increase in exports by 161% yoy in 4Q, selling and distribution expenses have reduced by 21% YoY to PKR316mn, owing to relatively lower transportation expenses.

  • Among other line items: (i) finance cost increased by 75% YoY to PKR536mn, due to higher interest rates and short term borrowings, (ii) admin expenses have surged by 7% YoY to PKR300mn in 4QFY22, and (iii) MLCF has reported Effective Tax Rate (ETR) of 98% in 4QFY22 vs. 28% in SPLY. This is due higher than expected impact of super tax. Which led to the major deviation, as compared to our estimated ETR of 74%.

Despite the elevated tax rate, which is due to one-off heavy super tax, MLCF has posted a decent result in 4Q, as input costs (international coal and oil prices) have escalated significantly. Looking ahead, in 1HFY23 we believe that lower demand amid recent floods and prolonged monsoon season will dent cement demand and earnings. However, later in 2HFY23 and beyond, new expansion coupled with decent demand growth and higher cement prices will help MLCF post decent profitability. Hence, we maintain a BUY stance on the stock with a Target Price of PKR47/sh. MLCF is one of our top picks in the IMS Cement Universe.