JS Securities Limited - JS Research.

Karachi -- January 27, 2023 (PPI-OT)

MLCF, LUCK and CHCC 2QFY23 result previews

We present 2QFY23 earnings expectations for Maple Leaf Cement Factory Limited (MLCF), Lucky Cement Limited (LUCK) and Cherat Cement Company Ltd. (CHCC).

We forecast 2QFY23 EPS at Rs1.9 for MLCF (+11% YoY), Rs10.1 for LUCK (+31% YoY) and Rs8.1 for CHCC (+34% YoY). Improvement in bottom-line is expected from better retention prices and stable gross margins over proactive cost management through increase in the quantum of local and Afghan coal in the fuel mix.

2QFY23 profitability to expand

In today's note, we present 2QFY23 earnings expectations for three cement companies. We expect sequential betterment in volumes over low base from impact of monsoon and heavy flooding during 1QFY23. In addition, the sector also witnessed increase in retention prices this quarter. As a result, we expect top-line to expand in 2QFY23. On margins front, tilt towards Afghan and local coal in the coal mix for the past several months is expected to benefit the sector's margins. However, higher finance cost may limit the aforementioned positives in the bottom-line.

MLCF: Increase in mix of local coal to support margins

For 2QFY23, we expect Maple Leaf Cement (MLCF) to post an EPS of Rs1.9, as against an EPS of Rs1.7 for 2QFY22 primarily due to better coal cost management. We expect gross margins to show a 3ppt QoQ improvement on the basis of higher quantum of local coal in the fuel mix and higher retention prices during the period. Operating margin is expected to improve by 3.4ppt on a QoQ basis with 2QFY23 EBIT clocking in at Rs3.5/share due to better volumetric sales and margins. Since the company has recently incurred CAPEX to kick start its 2mn tons new cement line, we do not expect any dividend announcement alongside the results.

LUCK: Margins to likely normalize

The board of Lucky Cement (LUCK) is scheduled to meet on 27th January, 2023 to discuss 2QFY23 financial results. We expect the company to post an unconsolidated EPS of Rs10.1, +31% YoY over better margins but declining by 16% QoQ likely due to absence of dividend income and lower margins compared to previous quarters. We expect gross margins to clock in at 27%...