Attock Cement Pakistan Limited: Positives Priced In; HOLD – By Elixir Research
Attock Cement Pakistan Limited: We upgrade ACPL’s FY16/17/18 earnings estimates by 6/11/12% after incorporating improved sales mix along with slightly lower fuel and power costs.
Sales mix of the company is estimated to tilt towards local dispatches (i.e. ~73/27% in 3QFY16) with strong demand emanating from a flurry of big ticket real estate projects.
That said we however contend that complete displacement of export volume in favor of high margin local sales will likely not materialize as our correspondence with key southern players (LUCK and ACPL) indicate their reluctance to completely retreat from export market.
Furthermore, looming expansions in south which are estimated to increase overall capacity in the south by 47% will likely alter demand/supply dynamics of the market in our view with downward pressure in cement prices likely to be witnessed in FY19 when both ACPL’s and DGKC’s capacities are scheduled to come online.
We therefore have reduced our cement price assumption by 6% across FY19-21.
Even though, ACPL’s earnings are expected to remain robust for the next two years, we believe minimal payout in order to finance expansion (expected D/E of 60/40%) and looming significant capacities will likely weigh on investor sentiment in the short run and financial performance of the company in the long run.
Our Dec-16 PT of PKR220/sh (↑9%) offers an upside of 4% to last closing. HOLD!
By: Elixir Securities Pakistan (Private) Limited