Earnings Report /
Pakistan

Maple Leaf Cement: 2QFY20 – Better-than-expected GMs trimmed losses

    Intermarket Securities
    26 February 2020

    Maple Leaf Cement (MLCF) posted unconsolidated 2QFY20 NLAT of PKR1.15bn (LPS: PKR1.04), better than our estimated loss of PKR1.44bn (LPS: PKR1.31). This took 1HFY20 loss to PKR2.5bn (LPS PKR2.23).

    Despite marked improvement in local cement dispatches (up 86%yoy), the yoy decline in 2QFY20 profitability is mainly led by: (i) lower retention prices due to significant price cuts following the expansion, (ii), higher fixed costs of the new plant, and (iii) 2.5x yoy increase in finance cost from debt financing of the new plant.

    A major deviation from our estimate came from better than expected GMs of 1.6% as against our expectation of -3%.

    2Q20 Key result highlights

    • Net sales posted a healthy growth of 35%yoy to PKR9.0bn on account of a significant jump in local dispatches by 86%yoy, However, net retention prices declined by 22%yoy (as per our estimates).
    • GMs plunged to mere 1.6% in 2QFY20, down by 22ppt yoy. The decline is mainly attributable to (i) lower retention prices as a result of price cuts to gain domestic market share, and (ii) higher fixed costs emanating from depreciation of new plant. These are the lowest GMs in 2QFY20 in our cement universe so far. Note that savings due to lower transportation costs from railway contracts (unlike peers) also could not support GMs substantially.
    • Finance cost surged to PKR883mn, up by 2.5x yoy. Higher interest rates and additional debt for new plant elevated finance cost. Also note that the company has ~PKR23.6bn of debt on books (as per last published report).
    • Other line items include: (i) reversal of tax charge amounting to PKR57mn, and (ii) PKR281mn of Admin expenses.

    Despite being a premium brand in the North region, MLCF has posted weak results amid lower GMs in 2QFY20 as it ostensibly increased discounts and pushed sales in the South market (freight disadvantage) following expansion in May’19. Moreover, cement prices have declined substantially in 3QFY20, amid subdued demand and addition of new capacities by LUCK, PIOC and KOHC. Also, these expansions may reduce the market share of MLCF in the coming quarters.