By: Yousuf Rahman,
Global Securities Pakistan Ltd.
DG Khan Cement Company (DGKC) is scheduled to announce its financial results on FY14 on Sep 16’14. We anticipate the company to announce earnings of PKR 5,483mn (EPS: PKR 12.51) during FY14, relatively stable compared to PKR 5,502mn (EPS: PKR 12.56) posted during FY13. On a quarterly basis, we expect the company’s bottom-line to increase by 22% YoY to PKR 1,539mn (EPS: PKR 3.51) during 4Q FY14 because of an expected decline in the company’s effective tax rate (26% vs 36% during 4Q FY13). Along with the result, the BoD is likely to announce a final cash dividend of PKR 3/sh.
|3mo ended||%||3mo ended||%||12mo ended||%|
|S & D||470||365||(22)||450||365||(19)||1,751||1,555||(11)|
Increased local prices to elevate top-line
In spite of a marginal 1% YoY decline in cement dispatches to ~3.96mn MT, we estimate revenues of the company to increase by 8% YoY to PKR 26,890mn during FY14 because of a 12% YoY increase in local cement prices to PKR 506/bag. On a quarterly basis, the company’s top-line is estimated to rise by 1% QoQ to PKR 7,284mn during 4Q FY14 despite a 6% QoQ decline in dispatches as a higher proportion of local dispatches (81% vs. 71% during 3Q FY14) is likely to support revenue growth.
Higher energy tariffs to constrict margins
Despite higher retention, gross margin of the company is likely to shrink by 4pps to 33% during FY14 because of an increase in gas and electricity tariffs during the period. During FY14, gas tariff was hiked by 17%, GIDC was increased to PKR 100/mmbtu and electricity tariff was risen by ~60% to PKR 15/kwH. On a quarterly basis, margins are estimated to rise by 5pps QoQ to 35% during 4Q FY14 because of an anticipated improvement in the company’s gas supply.
Higher dividends from investment portfolio to raise other income
Other income of the company is estimated to rise by 11% YoY to PKR 1,631mn during FY14 because of an increase in dividends received from the company’s investment in MCB. Meanwhile, other operating expense of the company is expected to decline by 17% YoY to PKR 455mn during FY14 because of an exchange gain recorded during 3Q FY14 as PKR appreciated by ~6% during the period.
Principal repayments to reduce financial charges
Financial charges of the company are estimated to decline by 24% YoY to PKR 755mn during FY14 because of a significant reduction in the company’s outstanding debt. The company repaid ~PKR 1.9bn of its debt during 9mo FY14, leading to a 37% reduction in the company’s debt to PKR 6.1bn as of Mar 30’14.
Our Dec14 TP for the share stands at PKR 107/sh. The stock offers an upside of 31%, a dividend yield of 4%, and trades at an FY14 PE of 6.4x (FY15 PE of 5.5x). BUY!
|Div. Yield (%)||2||4||4||6||6|
|Earnings Growth (%)||1,900||34||(0)||16||4|