AKD Quotidian about — DGKC: TP Revision

Karachi, March 05, 2014 (PPI-OT): While DGKC posted a decline in earnings during 1HFY14; AKD Securities expects a much better result in 2HFY14 due to the sharp decline in coal prices as well as an improvement in cement dispatches. Moreover, recent PKR appreciation vs. the greenback and commencement of operations Of the WHR unit at the Khairpur plant will also provide support to the gross margins of the company. In this regard, AKD Securities has revised AKD Securities’ Earnings estimate for FYI4F by 7% to PKR12.94/share and AKD Securities’ revised Jun14 TP comes to PKR106.9/share.

According to AKD Securities, the stock currently trades at an FY14 P/E of 7.2 xs and offers an upside of 15.13% to AKD Securities’ revised TP Accumulate.

Uptick in dispatches and prices: Volumes are expected to be much better during 2HFY14 led by a boost in construction activity in the north post the end of the winter season. AKD Securities may also see slight increase in retail prices in the range of PKR5-10/bag in the north during the coming weeks, should cement manufacturers choose to pass on the impact of higher utility prices.

Margins to improve during 40FY14: Coal prices are on the decline in the international market due to a decline in demand as winter draws to a close. In this regard, Richard Bay 6ODOKC coal has come dawn to US$73.85/ton, a CYTD decline of 13%. Margins are expected to remain flattish however due to lower gas supply during 30FY14 coupled with a delay in the increase in cement prices, offsetting gains likely to accrue from the decrease in coal prices coupled with appreciation of the PKR vs. the US$ and commercial operations of the WHR plant at Khairpur. However! Margins are Likely to improve in 4QFY14 due to improved gas supply as well as an improvement in cement retention prices.

DGKC: Income Statement

(PKRmn)                             FY13          FY14F         FY15F        FY16F

Turnover - net                      24,916     27,162      29,144     31,116
Gross Profit                            9,326       9,300       10,316     11,095
Gross margins                          37%         34%            35%          36%
SandA expense                          2,157      2,178          2,349        2,511
Finance cost                              995         757              564            361
Other operating income      1,466      1,671          1,749         1,940
PBT                                           7,096      7,330          8,569         9,540
PAT                                           5,503      5,668          6,598         7,346
EPS (PKR)                                 12.56      12.94          15.06         16.77
DPS (PKR)                                  3.00         3.25             3.75           4.25

Sources: Co, Reports and AKD Research

Investor perspective; AKD Securities has tweaked AKD Securities’ earnings estimates slightly considering the lack of any movement on gas tariffs by the government as well as the continuous decline in coal prices and appreciation of the PKR. In this regard AKD Securities has increased AKD Securities’ FY14 EPS forecast to PKR12.94/share while earnings for to remainder of AKD Securities’ forecast horizon have been increased by -1% on average. This results in an increase in AKD Securities’ Jun14 TP to PKR 106.9/share. The stock currently trades at an FY14 PIE of 7.2 xs and offers an upside of 15.13% to AKD Securities’ revised TP. Accumulate.