By: Ismail Iqbal Securities (Pvt.) Limited
Pioneer Cement Limited (PIOC) registered earnings of PKR 432mn (EPS: PKR 1.90) in the quarter, delineating an improvement of 17% YoY primarily owing to 7% YoY increase in its top line and 3% YoY decline in its cost of sales. We now have a target price of PKR 117 (Previous: PKR 120) for June 2016, which implies an upside of 35% to its closing price. We are therefore maintaining a buy recommendation on the scrip.
Higher construction activity in northern region boosts local dispatches: The overall gross dispatches in 1QFY16 mounted to 0.288mn MT, increasing by 6.3% YoY. Local dispatches showed an impressive growth of 10.1% YoY to stand at 0.273mn MT on the back of higher construction activity in Punjab whereas the export dispatches showed a mammoth plunge of 36% YoY owing to the increasing competition from Iranian cement in Afghanistan.
Bleak coal outlook to bolster margin in coming years The average South African coal prices in the last two months have reached to $51.55/ton, declining by 5% from the last quarter. The recently concluded COP21 Paris climate change summit where more than 190 nations reached an accord to curb green house emissions reinforce the our outlook of declining trend of coal demand in the coming years. Hence, the company is going to see further growth in its margin. Also, the company has replaced its grate cooler and burner which will better the production cycle and increase the capacity utilization.
Waste heat recovery to provide further cost savings: The company has signed a contract with a Chinese contractor to put up its 12MW Waste Heat Recovery (WHR) plant. The estimated capital outlay of the project is PKR 1.5 billion. The company has given an advance of almost PKR 200mn to its supplier in the quarter. As per our estimates, PIOC will annually save PKR 600mn from the project.