Pioneer Cement (PIOC)
Improving dynamics supporting PIOC’s bottom-line
Pioneer Cement (PIOC)’s profitability emerged out of losses during 1HFY21 supported by improving industry fundamentals including: 1) record-high industry dispatches, 2) a sharp increase in domestic retention, and 3) lower interest rates. Consequently, the company posted earnings of PKR 607mn (EPS: PKR 2.67) during 1HFY21 against a loss of PKR 112mn (EPS: PKR -0.49) recorded during 1HFY20. On a sequential basis, PIOC’s bottom-line registered at PKR 646mn (EPS: PKR 2.84) during 2QFY21 against a loss of PKR 40mn (EPS: PKR -0.17) recorded during 1QFY20. This improvement in profitability was largely aided by the aforementioned improvement in pricing and dispatches. Moreover, the company also recorded a tax reversal of PKR 235mn, furthering assisting its bottom-line enhancement.
– Pioneer Cement’s top-line jumped by 126% Y/Y to PKR 9,371mn during 1HFY21 primarily supported by a sharp increase in the company’s dispatches, which rose by over 2x to 1.6mn MT on account of PIOC’s expansion coming online. On a sequential basis, PIOC’s revenues picked up by 35% Q/Q to PKR 5,378mn during 2QFY21 because of record-high industry dispatches and a sharp improvement in domestic retention.
– PIOC’s margins rose by 11pps Y/Y to 12% during 1HFY21 and 7pps Q/Q to 15% during 2QFY21 because of the aforementioned improvement in cement retention and increased domestic dispatches.
– PIOC’s financial charges increased by 360% Y/Y to PKR 839mn during 1HFY21 despite the 625bps reduction in interest rates. This increase is largely consequent to the company expensing its interest charges post the commencement of its expansion line. Prior to the COD, PIOC was capitalizing its interest charges to its plant. Sequentially, financial charges dipped by 5% Q/Q to PKR 409mn likely because of a lower debt balance.
– We presently have a Neutral stance on the stock with a Jun21 TP of PKR 129/sh. The stock is trading at an FY22 PE of 9.1x.