Earnings Report /
Pakistan

Kohat Cement: Q4 FY 19 results in line with expectations

    Intermarket Securities
    30 September 2019

    Kohat Cement (KOHC) announced Q4 FY 19 NPAT at PKR262mn (EPS: PKR1.31) compared with our estimated NPAT of PKR265mn (EPS: PKR1.32). This takes FY 19 profit to PKR2.43bn (EPS: PKR12.11), down 18% yoy. Some deviation in Q4 results include: (i) higher effective tax charge of 52% and (ii) higher-than-expected GMs of 21%. Along with the result, KOHC announced a final cash dividend of PKR2.5/sh. 

    Key highlights: 

    • Net sales grew by 11% yoy to PKR3.40bn in Q4 FY 19 on the back of higher domestic dispatches (up 5% yoy).
    • GMs declined by 6ppt to 21% owing to (i) lower cement retention prices amid industry pricing indiscipline and (ii) negative implication of PKR devaluation potentially offsetting the impact of lower coal prices. Similarly, on quarterly basis, GMs were down by c6ppts qoq owing to price cuts/discounts. 
    • KOHC reported effective tax rate of 52% yoy in Q4 compared with 7.3% reported in Q4 FY 18. We assume the increase in effective tax charge is on account of reversal in tax credit taken last year following GoP maintaining corporate tax rates at 29%. 
    • Among other line items: (i) distribution expenses declined to PKR9mn, and (ii) other expenses surged to PKR167mn (up by 3.0x), possibly Fx losses.
    • In FY 19, the company reported profit of PKR2.43bn (EPS: PKR12.11) vs PKR2.98bn (EPS: PKR 14.84), down by 18% yoy. The decline in profitability is on account of (i) marginal dip in domestic dispatches (2% yoy), (ii) lower retention prices, (iii) increased production cost amid PKR devaluation and (iv) higher effective tax charge.

    Within our core cement space, we maintain our Buy stance with a TP of PKR83/sh on the scrip owing to (i) lower leverage for its upcoming expansion (expected in Q2 FY 20) and (ii) lower breakeven price level (on cash flow basis).

    Risks: (i) Drastic increase in coal prices, (ii) decline in local demand growth, and (iii) break-down in pricing mechanism.