AKD Securities Limited — DGKC: 1HY15 Result Review

Karachi, February 17, 2015 (PPI-OT): On an unconsolidated basis, DGKC has posted NPAT of PkR2.24bn (EPS: PkR5.10) in 2QFY15, registering a phenomenal growth of 40%YoY/63%QoQ. The result was higher than AKD Securities Limited’s projected 2QFY15 NPAT of PkR1.89bn (EPS: PkR4.32) with the deviation due to a lower than expected tax rate. While pre-tax growth clips to 26%YoY/50%QoQ (effective tax rate of 8.7% in 2QFY15 vs. 17.4% in 2QFY14), this is still a solid number backed by higher sales, stable margins and higher ‘other income’ on dividends/interest earnings.

As a result, 1HFY15 earnings settled at PkR3.39bn (EPS: PkR7.75) vs. NPAT of PkR2.67bn (EPS: PkR6.09) in 1HFY14, up by 27%YoY (+17%YoY on pre-tax basis). In this regard, while core income was flattish, impetus to earnings growth was provided by lower financial charges (-57%YoY) and higher ‘other income’ (+18%YoY).

Having gained 14%CYTD, DGKC trades at a forward P/E multiple of 8.3x. AKD Securities Limited Buys stance on the scrip where AKD Securities Limited’s liking is due to both favourable cement sector dynamics and the company’s sequentially improving margins (33.7% in 2QFY15 vs. 31.4% in 2QFY14). This is underpinned by the absence of any expansion announcement in recent results which has shored up investor sentiment in cement sector scrips in general and DGKC in particular. AKD Securities Limited’s TP of PkR153.4/share offers 22% upside.