The Bell about ACPL: Sparse profitability during FY11 with strong comeback likely in FY12 – Elixir Securities Limited

Karachi: FY11 earnings slightly below estimates: ACPL announced FY11 earnings of PKR684mn (EPS: PKR7.90) down 33% YoY and 4% below Elixir Securities’ expectation of PKR710mn (EPS: PKR8.20) due to higher than expected tax rate during 4QFY11 which had an EPS impact of PKR0.30/sh on its forecast.

According to Elixir Securities, earnings decline in FY11 proliferated from inadequate profitability during 1H. However, profitability propped up during 2HFY11 on the back of improved EBITDA margins and higher cement volumes. 4QFY11 earnings clocked in at PKR259mn (EPS: PKR 2.98), up 110% YoY.

Higher margins and dispatches drive earnings growth during 4Q: ACPL’s cement off take increased by 10% YoY during 4QFY11 led by both higher local and export off take. EBITDA margins posted an increase of 119% YoY during 4QFY11 due to low base while it increased 32% QoQ owing to higher retention prices coupled with hedging of coal inventory at USD114/ton.

Cost efficiencies coupled with lower govt levies to augment bottom‐line in FY12: ACPL is in the midst of erecting a 12 MW Waste Heat Recovery (WHR) project which shall come online by 2QFY12 and have an annual EPS impact of PKR2/sh in FY12. Furthermore, lower govt levies in FY12 budget has not been passed on to the final consumer. This could further augment Elixir Securities’ EBITDA margins by PKR460/ton and raise its FY12 EPS forecast by PKR4.5/sh Investment perspective: At last closing price of PKR48.2/share, ACPL offers an upside of 66% to its Jun‐12 price target of PKR80/share and trades at FY12 PER of 4.0x. BUY!

 

Key FinancialsOutstanding shares:87mn
(PKR mn)4QFY11A4QFY10AYoYFY11A FY10AYoY
Net Sales2,5231,91332%8,5547,66812%
Gross Profit 66234990%1,7311,958-12%
SG&A207 1946% 6996517%
EBITDA524 218141%1,3041,578-17%
Other operating income30 106-72% 104262 -60%
Other Charges3843-12%77103-25%
Finance cost 717-58%2478    -69%
Net Income259123 110%6841,017 -33%
EPS (PKR) 2.981.42109% 7.90 11.74-33%
EBITDA/ton1,041476119%704 873-19%
Retention/ton5,0124,18620%4,6174,2439%
COGS/ton3,6963,4228%3,683 3,160 17%
Dispatches(mn tons) 0.500.4610%1.851.813%
Source: Elixir Research, Company Accounts

 

 

Higher margins and dispatches drive earnings growth during 4Q Stimulant for bottom‐line growth during 4QFY11 was EBITDA margins and higher dispatches.

ACPL’s cement off take rose by 10% YoY during 4QFY11 led by both higher local and export off take. Local off take rose 9% YoY to 0.35mn tons during 4QFY11 led by uptick in post flood reconstruction activities and higher farmer income in the southern region. Export dispatches marked up by 12% YoY to 0.15mn tons during 4QFY11 owing to higher cement demand from Iraq and Africa. EBITDA margins posted an increase of 119% YoY during 4QFY11 due to low base while it increased 32% QoQ owing to higher retention prices coupled with hedging of coal inventory at USD114/ton. Average retention for 4QFY11 rose 20% YoY; due to increase in domestic cement prices which had more than offset 8% YoY increase in COGS/ton.

EBITDA margins declined 19% YoY (in‐line with Elixir Securities’ estimates) during FY11 due to sparse profitability during 1H. ACPL’s local cement volumes posted nominal uptick of 2% YoY to 1.32mn tons during FY11 despite 20% YoY growth in local cement off take of the south region. Underperformance by ACPL was primarily due to capacity constraint, as ACPL operated at an average utilization level of 103% during FY11. Therefore, other larger players (LUCK) captured the incremental demand in the south region. Export off take was relatively stronger, showing a growth of 5% YoY to 0.53mn tons during FY11

Cost efficiencies coupled with lower govt levies to augment bottom line in FY12

ACPL has taken preventive measures to curb its cost and the company is in the final stages of erecting a 12 MW Waste Heat Recovery (WHR) project which shall come online by 2QFY12. WHR project shall reduce ACPL’s reliance on the expensive grid electricity by 30% and is likely to yield after‐tax savings of PKR177mn for FY12 resulting in EPS impact of PKR2/sh. Furthermore, GoP has provided relief to cement manufacturers by lowering Federal Excise Duty (FED) and General Sales Tax (GST) along with stamping out of Special Excise Duty (SED). Tax pass‐through’s emanating from these lower govt levies have been withheld by cement manufacturers which could enhance Elixir Securities’ FY12 EBITDA margins by PKR460/ton and raise Elixir Securities’ FY12 EPS forecast by PKR4.5/sh. However, Elixir Securities maintains a prudent stance and expect manufacturers to pass on the benefit of lower cement prices to the final consumer.