Earnings Report /
Pakistan

Maple Leaf Cement: Q3 FY 20 review: Lower retention prices drag company into gross losses again

  • MLCF posted Q3 FY 20 unconsolidated NLAT of PKR1.28bn (LPS: PKR1.17)

  • Net sales posted a decent growth of 13% yoy to PKR6.9bn on account of significant jump in local dispatches by 72%

  • We have a TP of PKR25/sh for MLCF implying a Neutral recommendation

Intermarket Securities
24 April 2020

Maple Leaf Cement (MLCF) posted 3QFY20 unconsolidated NLAT of PKR1.28bn (LPS: PKR1.17), almost in line with our estimated loss of PKR1.33bn (LPS: PKR1.21). This takes 9MFY20 LPS to PKR4.38. Despite marked improvement in cement dispatches (up 86% yoy in local market), the yoy decline in 2QFY20 profitability is mainly led by (i) lower retention prices due to significant price cuts following its expansion, (ii), higher fixed cost of the new plant, and (iii) 2.6x yoy increase in finance cost from debt financing of the new plant.

On a consolidated basis, the company posted NLAT of PKR960mn (LPS: PKR0.87), in-line with our expected loss of PKR958mn (LPS: PKR0.87). Note that savings due to lower transportation cost from railway contracts, unlike peers, could not prevent GMs from becoming negative.

Key highlights:

  • Net Sales posted a decent growth of 13% yoy to PKR6.9bn on account of (i) significant jump in local dispatches by 72% yoy. However, net retention prices declined by 35% yoy to PKR256/bag (as per our estimates).
  • GMs plunged to -3.4% in 3Q, in line with our expectation of -3.3%. This is down by 24ppts yoy, mainly attributable to (i) lower retention prices as a result of price cuts to gain domestic market share and sales in the South market (freight disadvantage), and (ii) higher fixed costs emanating from the depreciation of new plant (COD May 2019).
  • Finance cost surged to PKR709mn, up by 2.6x yoy. Note that the company has ~PKR20.2bn of debt on books (as per last reported accounts) the finance cost of which was completely expensed (previously partly capitalized).
  • Other line items include: (i) reversal of tax charge amounting to PKR28mn, and (ii) Admin expenses rose by 10%yoy to PKR176.202 in 3Q.

Despite MLCF having a premium brand in the North region, it could not break even and has posted negative GMs, as it ostensibly increased discounts and pushed sales in the South market. The lockdown situation may exacerbate prices for the sector amid thin demand (delays the expected reformation of pricing consensus), but cost pressures are easing due to PKR depreciation and falling international coal and oil prices. For the sector, while there is a construction package in place to stir activity and demand, the key determinant is the degree to which the present lockdown will ease in coming months. We have a TP of PKR25/sh for MLCF implying a Neutral stance.