Kohat Cement Co. Ltd (KOHC) has posted 2QFY22 NPAT of PKR1.59bn (EPS: PKR7.90), compared with net profit of PKR0.96bn SPLY. The result is well above our estimated EPS of PKR6.40, where higher-than-expected margins is the major deviation. The result takes net profits to PKR2.98bn in 1HFY22 (EPS: PKR14.86), up 103% yoy.
Key highlights of 2QFY22 results:
Net Sales have increased by 38% yoy and 21%qoq to PKR8.21bn. Increase in sales emanated from a massive surge in local cement prices, which led to elevated retention prices. KOHC has posted total offtake of 0.89mn in 2QFY22, up 2% qoq but down 8% yoy.
Even with the massive jump in international coal prices (peaking near US$250/bbl in October), the company has posted gross margins of 30.2% in 2QFY22,up by 2.6ppt yoy but down 3ppt qoq. This is higher than our expected margins of 25%. Greater pile-up of coal inventory at lower cost has helped KOHC to post stable margins, in our view.
Among other line items: (i) Other income has surged by 3.3x yoy to PKR129mn on account of higher cash balance and interest rates, (ii) KOHC has booked an effective tax rate of 29% vs28% in 2QFY21, and (iii) finance costs have declined 13% yoy to PKR118mn in 2QFY22.
KOHC has posted impressive GP margins and profitability in 2Q, majorly due to lower average coal prices as compared with industry average and sharp increase in retention prices. However, we believe that gross margins are likely to decline in coming quarters amid massive jump in international coal prices and no major change in local cement prices. But, for FY23 and beyond, we expect that higher cement prices and ease off in international coal prices will expand KOHC’s earnings. We reiterate our Buy stance on the stock with a TP of PKR230/sh.