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Morning Call about -Strong dispatches and margins to shape a 56% earnings growth – Arif Habib Limited

Karachi, September 18, 2013 (PPI-OT): FY13 Earnings to clock in at PKR 20.15/share, DPS at PKR 8 Arif Habib Limited previews the financial result for Kohat Cement Company Limited (KOHC), scheduled to be announced today.

According to Arif Habib Limited expect the company to post a massive 56% YoY earnings growth to PKR 2.6bn (EPS: PKR 20.15) in FY13. A strong 7% YoY dispatches growth coupled with a 12% YoY improvement in average retention prices remained the major contributors towards the 19% expected top line growth of the company.

This healthy top line growth, coupled with a 19% YoY drop in coal prices, is expected to have led to a 51% YoY jump in gross profit of the company to PKR 4.3bn. Consequently, gross margin is expected to have improved to 39% in FY13, compared to 31% a year back. Moreover, a steep 61% YoY drop is expected in the finance cost of the company, boosting the bottom-line further.

Arif Habib Limited expects the BoD to announce a cash dividend of PKR 8.0/share compared to PKR 3.0/share announced last year.

Financial Highlights 
PKR mn                            FY13      FY12     YoY 
Net Sales                        11,086    9,316     19% 
Cost of Sales                     6,767    6,464      5% 
Gross Profit                      4,319    2,852     51% 
Selling Expenses                     71       46     54% 
Administration Expenses              87       67     31% 
Operating Profit                  4,161    2,739     52% 
Finance Cost                        246      626    -61% 
Profit before tax                 3,751    2,036     84% 
Profit after tax                  2,594    1,661     56% 
EPS (PKR)                         20.15    12.90 
DPS (PKR)                          8.0     3.0      167% 

Sources: Company Accounts and AHL Estimates 

Taurus Securities Limited reiterates ‘Buy’ recommendation for the stock, with 53% upside potential from Arif Habib Limited DCF based target price of PKR 136/share. In addition to this sizeable upside potential of 53% from levels, the company stock is trading at a forward multiple of 4.7x while offering an adequate dividend yield of 9% at current levels. Encouragingly, KOHC remains immune from the recent power tariff hike due to a stay order of the court for Peshawar Electric Supply Corporation, which gives the company an edge over most of its sector rivals.

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