Dear Clients,

Maple leaf Cement (MLCF) managed to emerge out of losses during 1HFY21 led by improved industry dynamics including: 1) a sharp increase in domestic retention amidst record-high demand, and 2) lower interest rates. Consequently, the company recorded a bottom-line profit of PKR 1,625mn (EPS: PKR 1.48) during 1HFY21 compared with a loss of PKR 1,767mn (EPS: PKR -1.61) during 1HFY20. Sequentially, earnings rose by 93% Q/Q to PKR 1,070mn (EPS: PKR 0.97) during 2QFY21 aided by the aforementioned factors including the sharp increase in retention and higher industry dispatches.

Key Highlights

– Maple Leaf’s top-line inched up by 3% Y/Y to PKR 16,621mn during 1HFY21 supported by increased cement retention. Recall that cement prices had increased to nearly PKR 600/bag in tandem with the reduction in FED, allowing the industry retention to increase sharply. Potential increase in top-line, however, was marred by a 12% Y/Y reduction in off-take to 2.45mn MT. This decline in dispatches is likely a result of MLCF’s normalizing market share (~10% in 1HFY21 vs. 13% in 1HFY20) in light of the prevalent pricing discipline. Sequentially, MLCF’s top-line increased by 21% Q/Q to PKR 9,100mn during 2QFY21 supported by the record high industry dispatches.

– MLCF’s margins surged by 18pps Y/Y to 22% during 1HFY21 and 5pps Q/Q to 24% during 2QFY21 because of the aforementioned improvement in cement retention.

– MLCF’s financial charges dipped by 55% Y/Y to PKR 743mn during 1HFY21 led by the 625bps reduction in interest rates and a lower debt balance. Sequentially, financial charges fell by 26% Q/Q to PKR 317mn during 2QFY21 likely because of a lower debt balance amidst improving cash flows.

– In-line with the industry trend, MLCF announced a brownfield expansion of its cement facility by 8,000tpd (2.4mn MT/annum). Moreover, the expansion facility will be installed with a WHR plant. The company’s board has approved an outlay of PKR 18.5bn, being finance via a mix of debt and internal cash generation. Note that the company has ruled out the issuance of additional right shares.

– We presently have a BUY stance on the stock with a Jun21 TP of PKR 57/sh. The stock is trading at an FY23 PE of 5.7x.

Regards,
KASB Research