AKD Quotidian about — DGKC: FY11 Result Preview

Government & Politics

Karachi: DC Khan Cement Company Limited (DGKC) is scheduled to announce its full-year FY11 financial result tomorrow.

According to AKD Securities expects the company to report NPAT of PkR348.62mn in the review period against NPAT of PkR233mn in FY10, a growth of 50%YoY. The result translates into an EPS of PkR0.80 in FY11E against an EPS of PkR0.53 in the previous year. While the aforementioned is AKD Securities’ base case, DGKC may earn an additional EPS of PkR1.65, should the company have received excise duty refund of PkR1.115bn. Base-case growth is expected to stem from higher local cement prices (up 43%YoY) leading to a rise of 13%YoY in the company’s top line (AKD Securities expects total dispatches to decline by 19%YoY to stand at 3.95mn tons in FY11 owing to lower local dispatches due to Aug’10 floods). Higher cement prices should offset increase in coal prices due to Australian floods in mid-FY11, leading to a gross margin of 23% in FY11 against 17% in FY10. Consequently, the operating margin should also increase by 200bpsYoY to stand at 11% in FY11. However, operating in a higher interest rate environment, financial charges should increase by 13%YoY in the review period. Going forward, AKD Securities expects FY12F to reveal moderate gains for the local cement sector given existing cement prices prevail and post flood reconstruction continues. Construction of dams on schedule should provide additional impetus to domestic dispatches. AKD Securities currently has a Buy stance on DGKC (FY12F PER: 9.4x) which offers an upside of 43% to AKD Securities’ target price of PkR28.7/share.

LOTPTA: Px Price Surge to keep PTA margins under pressure
Regional Px prices have edged up by a further US$15/ton to US$1,690/ton. As per ICIS, major plant outages in China since May- 11 have forced a sharp rebound in Px prices as a total of 2.8mn tons or -30% of country’s Px capacity has been closed due to various issues. Px production in China is expected to normalize by Oct-11, which should help bring Px prices down.

That said, PTA prices have also been on the incline since Aug-11, as regional textile activity peaks in Sep-Oct, while recent uptick in int’l cotton prices may further add momentum. However, regional PTA-Px primary margins have reduced to just US$143/ton from CT11TD high of US$360/ton in Feb-11 owing to surging Ho. As for LATPTA, AKD Securities expects PTA-Px primary margins for 3QCY11 to settle at -US$275/ton, compared with an estimated US$400/ton in 2QCT11, while nor full year CCC F ETS estimate stands at PbRb.40, which would still represent a growth of 14%ToT over CY10. Going by this, LOTPTA trades at so attractive CY11F PER of 3.46x.

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