Morning Call about – 1) Cement sector: Fog lifted 2) LUCK: FY13 PAT to jump 43% YoY – Arif Habib Limited

Karachi, September 17, 2013 (PPI-OT): Cement Sector Marketing Arrangement; Fog lifting the horizon As per Arif Habib Limited correspondence with the higher management of Lucky Cement Limited (LUCK), Mr. Tabba, CEO of the company will hold the office of the Chairman of All Pakistan Cement Manufacturer Association, which was decided in a meeting yesterday.

According to Arif Habib Limited in addition, the association of the manufacturers has become even stronger as all the manufacturers have reportedly agreed to form a committee to have representation from both northern and southern regions unlike before, when players mostly from the northern dominated the association.

To recall, Mr. Tabba has resigned from the position of Deputy Chairman of APCMA at the end of last month, which had threatened the very existence of the marketing arrangement of the cement manufacturers with a fear of a price war, which raised concerns for investors. Resultantly, cement sector stocks went down the drain losing 4% of the value in just four days, till sanity found its way to the stock market.

Though Arif Habib Limited had highlighted in Arif Habib Limited previous updates that the possibility of a price war seemed a distant probability, however, after the outcome of yesterday’s meeting, the clarity of a price war appears a far cry. Arif Habib Limited re-affirm Arif Habib Limited outperformance stance on the sector.

2) LUCK; FY13 earnings to jump 43% YoY, DPS expected at PKR 8.0 The board of directors of Lucky Cement Limited (LUCK) is scheduled to announce its FY13 financial results today. Arif Habib Limited expects the company to post a massive 43% YoY earnings growth to PKR 9.7bn (EPS: PKR 30.06) in FY13 compared to PKR 6.8bn (EPS: PKR 20.97) a year back.

This strong earnings performance is expected mainly on account of a 13% YoY improvement in average retention prices coupled with a 19% YoY drop in average coal prices in the international market. This diverging price trend in coal and cement prices is expected to take gross profit up by a gigantic 36% YoY to PKR 17.3bn in FY13 with gross margins up by 7 percentage points to 45% compared to 38% a year back.

Arif Habib Limited expects the board to announce a cash dividend of PKR 8.0/share along with the result. Arif Habib Limited reiterate ‘Buy’ recommendation on LUCK with Dec-end price target at PKR 294, with a potential upside of 17% from current levels.

Financial Highlights
PKR mn                4QFY13    3QFY13     QoQ     FY13E      FY12A    YoY
Net Sales             10,701    10,224      5%     38,436     33,323   15%
Cost of Sales          5,651     5,666   -0.3%     21,139     20,601    3%
Gross Profit           5,050     4,558     11%     17,297     12,721   36%
Distribution Costs     1,192       967     23%      4,201      3,237   30%
Operating Profit       3,580     3,114     15%     12,464      9,010   38%
Finance Cost              22        49    -56%        137        253  -46%
Profit after tax       2,740     2,692      2%      9,722      6,782   43%
EPS (PKR)               8.47      8.32              30.06      20.97 
DPS (PKR)                                            8.00       6.00