Morning Call about Attock Cement Pakistan Limited – Construction and Materials – Arif Habib Limited

Karachi: The stock of Attock Cement Pakistan Limited (ACPL) has rallied by 25% since the announcement of its 1HFY12 profitability, which grew by 116% YoY along with an interim cash dividend of PKR 1.75/share.

According to Arif Habib Limited believes that the stock has still more to offer as cement prices are likely to stay downward sticky in the medium term combined with easing (international) coal prices and potential savings from waste heat recovery (WHR) are all but pointing towards a healthy profitability going forward. Based on these strong fundamentals Arif Habib Limited has raised Arif Habib Limited’s FY12 and FY13 earnings estimates by 18% and 17%, respectively and have increased Arif Habib Limited’s target price by 7% to PKR 83.2/share. Therefore Arif Habib Limited strongly recommends a ‘‘Buy’’ on the scrip, offering an upside potential of 16% along with a dividend yield of 8%, highest in cement sector.


ACPL Financial Highlights
PKR million 2QFY12 1QFY12 QoQ 1HFY12 1HFY11 YoY
Net Sales 2,418 2,134 13% 4,552 3,786 20%
Cost of Sales 1,795 1,613 11% 3,408 3,196 7%
Gross profit 622 521 20% 1,143 590 94%
Admin expenses 55 53 5% 108 91 19%
Selling expenses 127 131 -3% 259 235 10%
Operating Profit 440 337 31% 777 264 194%
Financial charges 3 3 -19% 6 8 -31%
Profit before tax 432 331 30% 763 301 153%
Profit after tax 296 211 40% 507 235 116%
EPS (PKR) 3.42 2.44 5.86 2.71
Sources: Company financials


Result Highlights

•             Despite suffering a 5% YoY volumetric contraction in 1HFY12, the company achieved a 20%YoY jump in net revenues. This was mainly on account of a 26% YoY improvement in the average retention price.

•             Cost of sales swelled by a 7% YoY due to higher coal and electricity prices. However strong pricing scenario helped the company to increase its gross profit by 94% YoY and improve its gross margins to 25% in 1HFY12 from 16% in 1HFY11.

•             Selling expenses witnessed a jump of 10%YoY, which were mainly on account of higher exports related expenses.

•             Financial charges slashed by a whopping 31%YoY during the period under review, as the company had retired its long term Murabahah (financing) by the end of FY10.

WHR plant likely to bring about an annualised savings of PKR 3/share

ACPL has started trial production of its WHRP. Although it has the capacity of around 12MW but it would be limited to 8.7MW due heat limitation of the kiln. This will reduce power requirement from Karachi Electric Supply Corporation (KESC) by an estimated ~28%, resulting in an annualized after tax savings of PKR 3/share. This Arif Habib Limited believes would be a major earnings booster going forward as ACPL has relied on expensive electricity prices for its power utilization, which has been narrowing its margins.

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