The Bell about Construction & Materials

Karachi: ACPL: EPS revised up on higher cement prices and cost efficiencies

Lower govt levies coupled with rising prices to compound FY12 earnings
GOP provided relief to cement manufacturers in FY12 budget by curtailing govt levies on cement.

According to Elixir Securities Limited, Tax pass‐through’s emanating from these lower govt levies have not filtered into retail cement prices and are being withheld by cement manufacturers which would enhance Elixir Securities Limited’s local retention by 8% to PKR5,456/ton. Ironically, cement manufacturers in the south region have increased prices by PKR15/bag to PKR390/bag. Elixir Securities Limited still factors cement price of PKR380/bag for the remainder of FY12, 3% lower than current retail prices. Subsequently, Elixir Securities Limited expects net sales to rise by 13% YoY during FY12 to PKR9.69 billion and Elixir Securities Limited’s EBITDA margins to expand by 69% YoY to PKR1,187/ton with lower govt levies having an impact of PKR460/ton on Elixir Securities Limited’s EBITDA forecast. In the absence of lower govt levies Elixir Securities Limited’s EPS forecast would be revised downward by PKR4.30/sh.

Waste Heat recovery to curtail power cost/ton
ACPL has taken preventive measures to curb its cost by investing in 12MW Waste Heat Recovery System (WHRS). Construction work and interfacing of WHRS with production lines has been completed, whereby the plant will commence trial operation in a few days. Elixir Securities Limited expects WHRS to become fully operational by the end of 2QFY12 and have incorporated it from thereon. Assuming a 70% utilization level for WHRS, ACPL’s reliance on grid electricity will be reduced by 25% and is likely to yield after‐tax savings of PKR177mn and PKR374mn for FY12/FY13 resulting in EPS impact of PKR2/share for FY12 and PKR4/share for FY13.

PT revised to PKR 90/share
In the wake of aggressive 150bps monetary easing by SBP, Elixir Securities Limited has lowered Elixir Securities Limited’s risk free rate to 12% and raised Elixir Securities Limited’s market risk premium to 8% which yields a price target of PKR90/share. Elixir Securities Limited has raised Elixir Securities Limited’s FY12/FY13 EPS by 20% and 26% to PKR14.53 and PKR14.28 respectively, primarily due to improved EBITDA margins proliferating from higher retention prices. At yesterday’s closing price of PKR56.6/share, ACPL offers an upside of 59% to Elixir Securities Limited’s Jun‐12 price target of PKR90/share and trades at FY12 PER of 3.9x. BUY!