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Update Pulse

Jun 22, 2011

Cement Sector: ACPL Easing coal prices expected to bode well

ACPL outperformed industry


In terms of volumetric sales, the company has shown an improve performance during the 9MFY11. Local dispatches of the industry dropped by 8% YoY whereas ACPL has showed a negligible decline of 1.00% YoY. On the export front, total export dispatches of the industry were seen substantially lower by 14% YoY while ACPL showed an increase of 2% YoY.
Tons Industry Local dispatche s E xport dispatches ACPL Local dispatche s 981,018 369,114 971,205 377,775 -1% 2% E xport dispatches 17,383,721 7,860,429 16,017,470 6,726,814 -8% -14% 9MFY10 9MFY11 YoY

BUY
Market Snapshot KSE 30 KSE 100 KSE ALL Index 11681.83 12326.14 8559.55 Chg 152.92 160.16 106.50 % 1.33 1.32 1.26

Pakistan Research

Synopsis
ACPL posted an EPS of PKR2.20, substantially higher by 38% QoQ Volumetric sales rose by 8% QoQ to 479k tons. Monetary sales grew by 11% QoQ to PKR2.25bn Gross profit rose by 42%QoQ to PKR478m Declining coal prices in international market are expected to boost up 4Q earnings. Budgetary measures to lower the industrys tax burden would support revival. We suggest a BUY stance on ACPL.
P KR(m ) Revenue COGS Gross Profit Distribution Costs A dministrative cost E BITDA Financial cost E BT Taxes E AT E PS (PKR) 2QFY11 2,031 1,694 337 136 47 154 5 162 24 138 1.60 3QFY11 2,246 1,767 478 124 42 312 9 293 103 190 2.20 QoQ 11% 4% 42% -9% -9% 103% 77% 81% 337% 38%

Source: APCMA, company accounts & Summit Capital Research

Easing coal prices expected to bode well


During the 3QFY11 cost of sales of the company has shown an augment of 4% to PKR1.77bn in comparison of the last quarter. We expect cost of sale to decrease in final quarter as the energy cost, which is the key cost component grabs about 55% of the total production cost, is expected to decline. Our assumption for decline in energy cost during 4QFY11 mainly on the back of the stabilizing coal prices in international market. Coal prices which were hovering around US$142 per ton at the beginning of the Jan11 have dropped by 16% to US$119 per ton.

175% 140% 105% 70% 35%

12M relative performance vs KSE


KSE-100 ACPL

Source: Company accounts, Summit Capital Research

Future Outlook and recommendation


We believe, budgetary measures are expected to go in favor of cement industry. The GoP has allocated 58% higher funds to PSDP as well as GoP plans to initiate mega projects at priority which seems to be quite supportive for the industry. In addition to this, complete removal of SED, lowered FED by PKR200 per ton in FY12 and decreased ST from 17% to 16% would benefit the industry as a whole. Our DCF based target price for scrip is PKR69. The scrip currently offers an upside potential of 35% (based on yesterdays closing price). We recommend a BUY stance.

Earnings jumped up by a substantial 38% QoQ


Despite of lackluster performance of the industry, the company has shown a slight improvement in 3QFY11 as its earnings posted a substantial upsurge of 38% QoQ to PKR190m. The rise in earnings was due to 1) augment in sales as it grew by 11%, 2) lower distribution cost and administrative cost as these both costs declined by 9%. Moreover, sales of the company stood at PKR 2.25bn, 11% higher than last quarter on account of 8% QoQ increased total dispatches.

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Muhammad Sarfraz Abbasi sarfraz.abbasi@summitcapital.com.pk 021-35376125 B-209, Park Towers, Clifton, Karachi

Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Summit Capital (Pvt.) Limited accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty and Summit Capital (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.

Jun-11

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