Morning Briefing for December 23, 2013 – Standard Capital

Karachi, December 23, 2013 (PPI-OT): Cement sector – DGKC

Global commodity prices are decreasing and with that coal price is also coming down which sounds good to Pakistani cement manufacturers.

According to Standard Capital has earlier forecasted that total dispatches of the sector could go as high as 35mn tons given increase in local dispatches.

Standard Capital believes that work on one big dam has already been started where things have gone beyond land purchase which is a good omen for FCCL at least whose capacity is geared for dam construction. Standard Capital also sees DGKC to be among volume leaders to cater to these kinds of projects.

Also Standard Capital sees prices of cements have increased in the southern zone to nearly Rs 515 – 525/ 50kg bag on the retail side wherein Standard Capital still sees margins of cement players to be more glaring in 3Q.

Coal prices may hit earnings
The cement industry may indeed take sigh of relief on stabilizing coal prices. Earlier they weren’t able to pass on price increase onto consumer in term of price hike in per beg.

Coal prices have risen from $71.34/t in September to $80.48/t in Nov. The price of coal for Dec is also predicted to be around $90/t. Standard Capital expects earnings of cement companies to stabilize in 3Q with increased dispatches since Standard Capital sees public schemes being speed up in the Punjab province which is a good aspect of PSDP disbursement.

Script    1QFY14E   Exp. P/E   Dividend  LT debt to  T. Debt to   PBV    ROE    ROA
            PS                   Yield     equity        assets   
FECTC      3.05       3.7         3%         13%          43%     1.1   25.20  10.59
PIOC       1.28       7.1         2%         32%          47%     0.8   12.23   5.95
KOHC       4.78       5.0         2%         41%          44%     1.9   44.20  18.02
CHCC       2.85       5.3         3%         15%          27%     1.4   15.90   9.27
FCCL       0.44       8.2         9%         62%          47%     1.3    2.71   1.23
DGKC       2.44       8.5         4%         13%          24%     0.7   12.48   8.11
LPCL       0.69(9M)   7.5         4%         39%          45%     1.0    9.38   6.98
LUCK       7.87       9.3         3%         13%          18%     2.2   20.39  16.69
DCL        0.19       9.2         n/a        96%          62%     0.3    4.87   1.82
ACPL       3.69       9.9         9%         14%          26%     2.3   21.67  16.14
Source: www.scstrade.comCement Sector- Fundamentals

Among players Standard Capital has earlier highlighted FECTC and CHCC as better players. Standard Capital also comes up with detailed call on PIOC. Among less leveraged Standard Capital continues to see FECTC and CHCC as better options.

Among less leveraged Standard Capital sees DGKC with bright chances of volume increase. DGKC is showing less long term debt to equity ratio which is a good omen in terms of its less sensitivity to interest rate charge.