DGKC posted 67% YoY growth in earnings and presents robust outlook ‘Research Of The day’ – KASB Research
By: Shagufta Irshad,
DGKC posted 67% YoY growth in earnings
DGKC posted EPS growth of 67% YoY to PRs3.03 for 3QFY13, taking 9MFY13 EPS to PRs9.68 (+102% YoY). The results came 10% above our expectations due to lower operating cost, financial charges and effective tax rate. We are maintaining our full EPS of PRs13.01 and Buy rating for the stock. DGKC is currently trading at 5.06x FY14E EPS vs. 5.9x for Lucky, 6.2x for Pak Cluster, 11.7x for regional peer group, indicating further room for potential upside in the stock price.
3QFY13: Key Highlights
DGKC reported 5% YoY increase in local sales while exports came down 16% YoY during 3QFY13. DGKC’s average realized cement prices went up 6% YoY compared to 4% increase in cost only, leading to 10% YoY increase in gross cash margin to PRs132/bag. Operating cost came down 34% YoY to PRs22/bag. Decline in outstanding loans, cut in interest rates and strong core operating income limited the need for short-term finance and enabled the company to report 46% YoY decline in interest expense.
Transporters cost hike to inflate cement prices
Pak transporters association has recently increased their inland freight for transportation of: 1) coal from the port to the cement plants in the up-country (PRs5-7/bag impact) and 2) cement from plants to the port (US$3/t impact on export cost). Apart from this, minimum load per truck is also reduced from 70t to 50t. These two factors combined, are expected to inflate cost by ~PRs15-20/bag, which should be passed-on immediately at least for local and Afghanistan exports (80-85% of DGKC total sales), in our view. Since prices in other markets are uncontrollable to some extent, we see crude impact of 2% downside to our FY14E estimates. However, the impact can be nullified/ minimized by altering sales to marketing with higher margins (Local market/ Africa/ Srilanka).