ACPL: FY11 EPS expected at PKR8.20

Result expectation: Attock Cement is scheduled to announce its full year FY11 result on September 11, 2011. We expect the company to post PAT of PKR710 mn, down 30% YoY (EPS: PKR8.20) with 4QFY11 PAT expected at PKR285mn, up 132% YoY (EPS: PKR3.28). Earnings decline in FY11 shall emanate from sparse profitability during 1H. However, profitability is likely to snap back during 2HFY11 on the back of improved EBITDA margins and increased cement offtake.  We also expect the company to declare final dividend of PKR4/share.

4Q recovery to limit decline in EBITDA margins during FY11: We expect EBITDA margins to decline by 19% YoY during FY11 due to poor margins in 1HFY11 while we expect 4QFY11 EBITDA margins to rise by 32% QoQ to PKR1,044/ton due to full period impact of recovery in cement prices coupled with hedging of coal inventory.

Nominal uptick in dispatches despite strong demand in the south region: We expect ACPL’s FY11 local dispatches to rise by 2% YoY to 1.32mn tons while industry’s local offtake in the south region were up 20% YoY. Export offtake for ACPL is likely to have augmented by 5% YoY to 0.53mn tons owing to volumetric demand from Iraq and South Africa

Investment perspective: At the last closing price of PKR41.0/share, ACPL offers an upside of 95% to our Jun-12 price target of PKR80/share and trades at FY11/12 PER of 5.0x/3.4x. BUY!

4Q recovery to limit decline in EBITDA margins during FY11

We expect EBITDA margins to decline by 19% YoY during FY11 due to poor margins in 1HFY11. EBITDA margins for ACPL lost traction in 1QFY10 and bottomed out in 1QFY11 at PKR435/ton, following which they have been on a rising trend. EBITDA/ton increased 11% QoQ and 64% QoQ respectively, during 2Q and 3QFY11, while we expect 4QFY11 EBITDA margins to rise 32% QoQ due to full period impact of recovery in cement prices coupled with hedging of coal inventory. Average retention for 4QFY11 is expected at PKR 4,938/ton (up 18% YoY); due to increase in domestic cement prices, which shall more than offset 7% YoY increase in COGS/ton.

Nominal uptick in dispatches despite strong demand in the south region

We expect ACPL’s FY11 local dispatches to rise by 2% YoY to 1.32mn tons while industry’s local offtake in the south region were up 20% YoY. Dispatches in the south region were up 20% YoY during FY11 as a result of uptick in post flood reconstruction efforts along with an increase in sub-urban development driven by higher farmer liquidity from a bumper crop season. Underperformance by ACPL was primarily due to capacity constraint, as we estimate ACPL operated at an average utilization level of 103% during FY11. Therefore, other larger players (LUCK) captured the incremental demand in the south region.  Export offtake for ACPL is likely to have augmented by 5% YoY to 0.53mn tons owing to volumetric demand from Iraq and South Africa (Note: 75% of ACPL’s exports cater to cement demand from Iraq)

Economic & Political News

Government may cut POL prices up to PKR2/litre

The government is likely to decrease petroleum product prices by up to PKR2/litre in line with the international POL price trend and new prices would be effective from September 1. According to calculations by Oil and Gas Regulatory Authority (Ogra), based on average global crude prices on August 24, high-speed diesel (HSD) price is expected to decrease by PKR2/litre, petrol by PKR1/litre, light diesel oil by PKR2/litre, kerosene oil by PKR2/litre, Jet-4 by PKR2.15/litre and Jet-8 by PKR1/litre. These prices do not include IFEM.

SRB rejects FBR’s advice to banks

The Sindh Revenue Board (SRB) has outrightly rejected the FBR’s advice to banks and directed all service providers including banks, to pay Sindh Sales tax on services for month of July 2011 to Sindh government. All the Service providers including banks, insurance, telecommunication companies and others are legally required to pay Sindh Sales tax on services for the month of July 2011, to Government of Sindh by 25th August 2011.

Mutual funds industry grows 4% to PKR259bn

Over the last seven months of the current calendar year, the money market funds category witnessed significant rise of 81%, followed by Islamic income funds up by 47%, which together have spearheaded the overall industry growth. The equity related funds categories mirrored the dull sentiments at the stock market. In July, the KSE-100 index receded by 2.5% while the equity funds category showed a decline of 7.5% to close at PKR48bn.
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