Elixir Securities Limited – Result Review
Karachi, February 24, 2015 (PPI-OT): LUCK – 1HFY15EPS clocked in at PKR17.32
Lucky Cement Company Ltd (LUCK) announced its 1HFY15 financial results yesterday. The company posted EPS of PKR17.32, up 9% YoY in line with Elixir Securities Limited’s expectations. 2Q earnings clocked in at PKR9.07/sh up 12% YoY.
Margins improve 2.1pp YoY
LUCK’s gross margins remained robust as cost of sales/ton declined slightly by 1% YoY while average net retention was up by 3% YoY which resulted in accretion in gross margins by 2.1pp YoY.
Cost of sales per ton (PKR3,693/ton, down 1% YoY) remained relatively flat owing to lower coal prices and stable power costs where as per Elixir Securities Limited’s correspondence with company, LUCK has also not booked GIDC expense during the quarter. While sales mix of the company remained comparatively same on YoY basis, better net retention (PKR6650/ton, up 3% YoY) was achieved on the back of better realized prices, particularly in the South region where cement prices have risen by ~8% YoY.
Efficiency projects of Karachi plant to be operational by Feb end
LUCK is currently involved in enhancing efficiencies of both its Karachi and Pezu plant. In this regard civil works for the installation of additional 5MW WHR (in addition to 15MW) and vertical grinding mills in Karachi have been completed and are expected to become fully operational by February end. Furthermore the company is also adding 5MW additional WHR capacity at Pezu plant and is expected to commence operations by 2QFY16. Elixir Securities Limited estimates total savings from the said projects at PKR1.2/sh.
JV in Iraq reaping fruits
LUCK’s grinding operations in Iraq has started reaping profits where it’s Joint Venture (50% ownership) has posted a net profit of USD6.4mn during Jul-Dec period. Given that the JV only operates a grinding mill and is currently enjoying robust margins of around USD17-20/ton roughly equivalent to a fully integrated cement plant in Pakistan, LUCK is also considering further expanding its operations in Iraq by setting up a fully integrated cement facility.
Elixir Securities Limited highlights possible increase in gas tariff hike (~30%) which was initially planned to be implemented In Jan-15, but has now been deferred to April-15 according to recent news flow, poses a downside risks to Elixir Securities Limited’s estimates as LUCK’s both plants generate captive power from gas. While imposition of duty on exports to South African market poses a minimal threat in Elixir Securities Limited’s opinion as the company can easily reroute its existing exports (~0.6mn tons) to other export markets given demand supply deficit in the African continent.
Elixir Securities Limited’s Dec-15 PT of PKR591/sh offers an upside of 14% to last closing along with a dividend yield of 2.5%, while materialization of mega energy projects provides further upside to Elixir Securities Limited’s investment case. Elixir Securities Limited maintains BUY!