AKD Securities Limited – MLCF: 1HFY15 Analyst Briefing Notes

Karachi, February 12, 2015 (PPI-OT): Maple Leaf Cement (MLCF) held its 2QFY15 analyst briefing earlier today. To recall, the company posted NPAT of PkR0.89bn (EPS: PKR1.68) in 2QFY15, lower by 4%YoY (+26%YoY on pre-tax basis). Consequently, 1HFY15 earnings stood at PkR1.43bn (EPS: PkR2.72), lower by 3%YoY (+31%YoY on pre-tax basis). Along with the result, MLCF announced a surprise dividend of PkR1/share, the company’s first payout in 10yrs. Key takeaways from the conference call included:

• Despite falling int’l oil and coal prices, GP margin remained largely stable at 36.6% (+1.3ppt YoY/+1.1pptQoQ). As per management, steeper margin accretion did not occur due to the company running its captive power plant on FO (old inventory) following disruption in electricity supplies from WAPDA.

• Effective tax rate clocked in at 26% in 1HFY15 vs. effectively no tax expense in 1HFY14. In this regard, the company has filed a legal petition for the Alternative Corporate Tax (ACT) not to be implemented retrospectively. Currently having been granted a stay order, the company remains hopeful of a favourable eventual decision.

• MLCF is planning to set up a ~25MW coal based power plant which will run on local coal (expected to be transported within a 50km range from the plant) rather than imported coal. While the project is still in its planning phase, the company expects the plant to produce electricity at ~PkR6/kwh.

• After announcing a surprise dividend in the recent results, the company intends to maintain a modest payout ratio going forward, with due consideration for the planned coal power project and ~PkR9bn in outstanding loans.

• The company remains confident over the pricing dynamics of the industry in the foreseeable future and does not plan to come up with any capacity expansion where current capacity utilization (FY14: ~80%) is slated to cater to the rising demand.

While AKD Securities Limited awaits release of detailed 1HFY15 accounts to revisit AKD Securities Limited’s investment case for MLCF (FY15F P/E: 8.97x), AKD Securities Limited takes this opportunity to incorporate the recent 100bps cut in DR in AKD Securities Limited’s financial model. In this regard, AKD Securities Limited’s revised TP now stands at PkR67.8/sh, offering potential upside of 19%. Accumulate!