Finance and Business Growth in local demand to push earnings up for remainder of the year

Finance and Business

Maple Leaf Cement Factory Limited (MLCF) announced its 2QFY17 earnings result of PKR 2.79/share which was 2% lower than that reported last year. However, the Company’s Finance and Business topline increased by 9% due to higher construction work in the Country’s Northern region, which led the company’s cement capacity utilization to stand at 93% during the quarter despite the fact that dispatches in the second quarter usually remain sluggish. The lower EPS was due to higher tax expenses for the period. Keeping in mind the continuous growth in the construction work in the county due to CPEC, acceleration in private sector construction activities and materialization of the budgeted spending on PSDP projects, we have updated our target price for MLCF to PKR 138.70, from PKR 136 previously. Our new target price offers an upside of 12%; hence, we are maintaining a positive stance on the scrip.

Finance and Business Growth in local demand to push earnings up for remainder of the year

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Reduced selling expenses as a result of decline in exports
The company’s Finance and Business selling expenses reduced to 4.8% of net sales from 5.8% reported in 2QFY16. The decline was a result of decline in the export sales as the company bears high selling expenses for export sales compared to local sales. The decline in export sales was in turn due to increased competition from cheap Iranian cement in Afghanistan, which is one of Pakistan’s biggest export markets.
Changes in tax regime softens EPS
The tax expenses for the period increased by 74% as compared to corresponding period last year. The increase in tax expense was a result of change in the company’s tax regime. The company Finance and Business had fallen under the normal tax regime in 2QFY17 as compared to minimum tax regime in the corresponding period last year due to absence of tax losses (that was available to the company last year).

 

New line to increase MLCF’s Finance and Business capacity to 5.97 million MT
The company has signed an agreement with FLSmidth to procure machinery for its brownfield expansion. The company Finance and Business plans to add a production line with the cement capacity of 2.1m MT which will enhance company’s existing cement capacity of 3.87m MT to 5.97m MT per year.
Furthermore, the company has also planned to install a 40 MW coal fired power plant for which shipments of equipment have reached its site. The purpose of this project is to add reliable and inexpensive source of power compared to the national grid as it will be the cheapest source of electricity after the waste heat recovery plant and will also reduce company’s dependency on the grid.

 

Updating target price to PKR 138.70
We have updated our target price to PKR 138.70 for December 2017 from PKR 136 previously. Our new target price offers a 12% upside to the company’s last closing price. Hence, we are maintaining a positive stance on the stock.

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