Equity Analysis /
Pakistan

Lucky Cement: FY 19 results: Pricing disruption amid weak volumes to hit profitability

    Intermarket Securities
    26 July 2019

    We expect LUCK to post unconsolidated 4QFY19 NPAT of PKR1.9bn (EPS: PKR5.98) as compared to PKR2.4bn last year, down 19%yoy. The decline in earnings is likely on account of (i) pricing disruption amongst cement manufacturers that brought down cement prices in North to as low as PKR450/bag (resulting in decline in retention prices), (ii) decline in domestic cement sales by 13%yoy which will more than offset growth in exports (up 62%yoy). 

    This will take FY19 profitability to PKR10.2bn (EPS: PKR31.6) as compared to PKR12.2bn (EPS: PKR37.7), down by 16%yoy. This decline could be attributable to (i) declining local sales, (ii) higher distribution cost amid increasing proportion of export sales in sales mix, (iii) PKR devaluation, and (iv) weak cement prices. We expect company to announce final cash dividend of PKR7.50/sh.

    The gross margins are expected to decline by 6%yoy to 29% in FY19 owing to (i) drop in cement retention prices, (ii) decline in domestic sales, (iii) increase in power and gas tariff and (iii) weakness in PKR. 

    The distribution cost is expected to rise to PKR2.7bn in FY19 as compared to PKR2.0bn in same period last year on account of increase of exports in total sales mix.

    We maintain our Buy stance on LUCK (Jun’20 TP of PKR543/sh) due to its strong balance sheet, cost efficiencies and diversification.