Dear Clients,

Kohat Cement (KOHC)’s latest quarterly results depicted an earnings growth of 100x to PKR 965mn (EPS: PKR 4.81) during 2QFY21 compared with earnings of PKR 10mn (EPS: PKR 0.05) recorded during 2QFY20. The surge in earnings was largely a product of improved fundamentals including: 1) improved pricing, and 2) record high cement dispatches. Cumulatively, earnings jumped by 15x to PKR 1,472mn (EPS: PKR 7.33) during 1HFY21 on account of the aforementioned factors.

Key Highlights

– The Company’s sales picked up by 84% Y/Y to PKR 11,108mn during 1HFY21 supported by a 65% Y/Y growth in total dispatches to 1.9mn MT. The improvement in the company’s market share was largely aided by the commencement of its expansion plant. Sequentially, KOHC’s sales picked up by 15% Q/Q to PKR 5,934mn during 2QFY21 supported by the record-high industry dispatches registered within the time-frame.

– KOHC’s margins surged by 20pps Y/Y to 23% during 1HFY21 aided by: 1) a sharp improvement in realized retention, and 2) record-high cement dispatches. On a quarterly basis, margins improved by 9pps Q/Q to 28% during 2QFY20 on account of the aforementioned increase in local dispatches and improved pricing.

– KOHC’s financial charges surged by 14x Y/Y to PKR 274mn despite lower interest rates as the company likely began expensing its interest rates post the commencement of its expansion plant.

– Along with the result, KOHC’s board has approved a PKR 30bn investment in the cement production line’s expansion, an 8-10MW WHR plant and a 25MW coal-fired power plant. The expansion plant’s annual capacity is projected at 7,800tpd-10,000tpd (2.4mnMT-3.0mn MT) with an estimated COD of 2.0-2.5 years. The entire investment is expected to be funded by a mix of both debt (likely by incentivized financing offered by the SBP) and equity.

– We presently have a BUY stance on the stock with a Jun21 TP of PKR 281/sh. The stock is trading at an FY22 PE of 8.3x.

Regards,
KASB Research