Cement Sector Detail Report - Sow The Seeds For Long Term

www.darson.com.
pk - UAN: 111 900 400

Asia | Pakistan | Equities | Cement
Wednesday, January 22, 2020
Cement Sector
Sow The Seeds For Long-Term
Yasin Muhammad Hanif

Research Analyst
Notified Research Entity Yasin.hanif@darson.com.pk
www.JamaPunji.pk
www.darson.com.pk - UAN: 111 900 400
Asia | Pakistan | Equities | Cement
Contents 1. Industry Overview-Glimpse of FY19

Page No.
5
2. Demand Outlook 6
3. Supply Glut Creating Price Disruption 7
4. Cost Pressures 8
5. Export Overview And Outlook 9
6. High Interest Rate Have Deteriorate Profitability 10
7. Upside/Downside To Our Investment Case 11
8. Darson Cement Universe 12
I. Lucky Cement Limited, (LUCK) 13
II. Attock Cement Limited, (ACPL) 16
III. Fauji Cement Limited, (FCCL) 19
IV. Kohat Cement Limited, (KOHC) 22
V. DG Khan Cement Limited, (DGKC) 25
VI. Maple Leaf Cement Limited, (MLCF) 28
VII. Cherat Cement Limited, (CHCC) 31
VIII. Pioneer Cement Limited, (PIOC) 34
Cement Sector | Pakistan
Initiating Coverage
Pakistan Cements-Sow The Seeds For Long-term

• We initiate our coverage on the cement sector of Pakistan with a “Neutral” Darson Cement Universe Vs KSE100 Index
stance. Our universe cover 8 companies with market capitalization of ~74% of cement Market Cap (bn) (LHS) KSE-100 (RHS)
sector. 500 45,000
Billions
450
• Considering the current dynamics: 1) Flat demand, 2) Fiscal constraints, 3) Cost pressures, 40,000
400 35,000
4) Excess supply concerns, 5) Exports issues in north region and 6) Debt burdens, we think 350 30,000
the sector would remain lackluster in the remaining quarters. Further we may see sector 300
25,000
profitability shrinking by ~78% YoY in FY20E, thus we recommend investors to stay cautious 250
20,000
200
until the right opportunity arises. 150 15,000
100 10,000
Prepared by - DARSON RESEARCH Contact us @ research@darson.com.pk or +92-21-32467224
• Gross Margins’ are expected to deteriorate further in FY20 to ~15% from ~22% in FY19 on 50 5,000
account of cost pressures that are build-up due to (1) Currency devaluation, (2) Rise in 0 0
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power and gas tariffs (by 30-40%) and (3) Increase in FED (from Rs1500/ton to
Rs2000/ton).
• PIOC & KOHC future enhanced capacities would result in a higher pricing pressure and Source: PSX, Darson Research
heightened competition. However, cement price below Rs550/bag would create difficulties
such as cash-flow problems and high fixed cost (depreciation and debt repayments). As a Valuation Snapshot-Dec’20
result, all high-leverage players may suffer losses in FY20. Company Current Price Stance TP Upside/Downside
LUCK 481.17 Hold 543.27 13%
• Demand should accelerate in FY21 due to recovery in the housing demand (both in urban ACPL 105.21 Buy 126.04 20%
and rural areas) and Govt. projects. Pakistan’s per capita cement consumption (140Kg) is
FCCL 16.47 Hold 18.02 9%
excessively low than regional economies (Average 400Kg) which portrays that the country
KOHC 77.13 Buy 111.44 44%
has a lot of growth potential. We expect local volumes to grow at a 5-yr (FY20E-FY25) CAGR
DGKC 75.82 Hold 78.33 3%
of 5% (previously 9%).
MLCF 21.81 Buy 27.65 27%
• Our preferring scrips are LUCK (Un-leveraged and a wide variety of investments; TP CHCC 51.37 Hold 56.98 11%
Rs543.27/share), KOHC (Trading at a significant discount on EV/TON of USD 29 vs industry PIOC 29.04 Buy 39.81 37%
EV/TON USD 47 and a strong balance sheet structure; TP Rs111.44/share and ACPL (A well- Source: Company Financials, Darson Research
known brand in south and a high export portfolio; TP Rs126.67/share).
Notified Research Entity DISCLAIMER - For important disclaimer and contact details, see the last page of the report Page No. 3
www.JamaPunji.pk
Cheap Valuations?
From January’19 till present, stock price has dropped by ~30% on account of multiple reasons. Looking at the price, it looks like the stock is cheap comparatively
however the valuations for some companies are still not attractive so it is better to wait and see until the right opportunity arises.
Sector appears to be undervalued on EV/TON (USD 47) when compared with last five years average EV/TON (~USD 120) offering discount of 60%. On P/Ex ratio,
the sector is little attractive to 2-yr average P/E of 12.5x offering discount of 8% from current P/E of 11.53x. However P/E metric becomes irrelevant for loss
making companies.
On EV/EBITDA basis, sector is still overpriced at ~10.96x versus historical multiple of ~6.5x as most of the companies (except LUCK & FCCL) are carrying high level
of debt. Further KOHC and ACPL would be more attractive after excluding debt from EV. This metric is somehow very helpful. It considers debt on company’s
books and for loss making companies the EV/EBITDA may be positive (in other words, the company’s operating profit may be positive but its bottom line may be
negative due to finance cost, taxes and depreciation/amortization). This may be especially useful for screening companies that may provide good investment
opportunities going forward.
Company Current Price Target Price Stance FY19A-EPS FY20E-EPS FY21E-EPS EV/EBITDA Ev/Ton $ P/E-FY20E P/E-FY21E
LUCK 481.17 543.27 Hold 32.44 23.71 30.43 16.37 87 20.29 15.81
ACPL 105.21 126.04 Buy 15.09 10.08 11.83 6.62 39 10.43 8.89
FCCL 16.47 18.02 Hold 2.05 0.96 1.75 6.82 43 17.11 9.42
KOHC 77.13 111.44 Buy 12.29 8.17 13.16 6.01 29 9.44 5.86
DGKC 75.82 78.33 Hold 3.67 (4.45) 3.66 15.81 53 0.00 20.73
MLCF 21.81 27.65 Buy 2.47 (3.04) 2.35 17.40 37 0.00 9.27
CHCC 51.37 56.98 Hold 9.98 (4.32) 2.90 9.26 42 0.00 17.72
PIOC 29.04 39.81 Buy 3.48 (0.20) 3.08 9.58 46 0.00 9.42
Source: PSX, Company Financials, Darson Research
www.JamaPunji.pk
Industry Overview
Pakistan’s Cement industry is divided in to two regions North and South. Out of current operational capacity of 62.4mn TPA (78% utilization level in FY19), the
north region secures ~76% and the south region constitutes the remaining ~24% level. In the Industry, Lucky cement has the highest market share of 19%
followed by Bestway cement of 17%. Construction industry contributes ~3% to GDP.
Glimpse of FY19
Cement Sector performed poorly in FY19 due to the local demand which was down ~2.34% YoY after previous growth of ~15.42% YoY in FY18. Lower PSDP
spending by government and a further ban on non-filer to purchase property have substantially curtailed real estate and private sector activity. However due to
oversupply which caused a price disruption along with high borrowing cost (13.25% since FY18) and devaluation of currency (~24% since FY18) played a key role
in dragging the sector profitability. Further also higher power and gas tariffs were also the reason for a lower profitability within the sector.
On the export side, sector showed a healthy growth of ~37.65% YoY in FY19 to 6.5Mn Tons from 4.7Mn Tons mainly by the south players having a sea-port
advantage thus allowing it to access multiple avenues. However, north players confronted difficulties due to political factors as India suspended Pakistan’s cement
export due to the tense relations and escalation between Islamabad and Delhi followed by terrorist attack in Pulwama. The duty (Additional custom duty of
200%) came when some north players were in the expansion phase. Afghanistan was a lucrative market for north players but dumping by Iran (Re-imposition of
sanction by US) on a relatively low price has changed the dynamics. However, overall capacity utilization reached to ~79% in FY19 versus ~89% in FY18.
Industry Local Dispatches Export Dispatches Industry Utilization level
Local (Mn.Ton) Growth YoY Export (Mn.Ton) Growth YoY 92%
41.40 20.00%
37.65% 90% 89%
41.20 7.00 40.00%
41.15 15.42% 88%
41.00 15.00% 35.00%
6.00
86%
40.80 30.00%
10.00% 5.00 84%
40.60 25.00%
4.00 82%
40.40 40.18 20.00%
5.00% 3.00 80%
40.20 15.00% 79%
78%
40.00 2.00 10.00%
0.00% 76%
39.80 -2.34% 1.00 5.00%
1.77% 74%
39.60 -5.00% 0.00 0.00% 72%
FY18 FY19 FY18 FY19 FY18 FY19
Source: APCMA, Darson Research Source: APCMA, Darson Research Source: APCMA, Darson Research
www.JamaPunji.pk
Demand could remain dull in FY20 but to pickup afterwards

Industry local dispatches grew at a 5-Year CAGR of 9% led by government initiatives towards cement Industry such as higher infrastructure spending, private
housing schemes, industrial projects and commercial construction. Despite the following factors: (1) sluggish demand, (2) excess supply and (3) structural
changes, we expect local dispatches to grow by 1.70% YoY in FY20 to 40.86mtpa which would be considered a stagnant growth. However, demand should
accelerate by FY21 as the country would be heading in the right direction (PSDP disbursements, Start of CPEC 2nd phase, Monetary easing, Housing scheme &
Dams construction). As soon as the govt. initiates ground work on Naya Pakistan low-cost housing scheme and the construction of dams, it would reasonably
boost local demand. We expect local volumes to grow at a 5-yr (FY20E-FY25E) CAGR of 5% (previously of 9%).
Will Govt. cut PSDP?

In our view, PSDP is considered one of the significant demand drivers for cement industry as ~20-40% local demand comes from PSDP related projects. For FY20,
the federal government has kept Rs701bn for PSDP to carry out new/ongoing projects. However, projected tax collection target (Rs5.3tr), fiscal deficit of 7.1% of
GDP, and debt/interest payments may be the reasons GOP might cut PSDP which could affect local sales, in our view. However, PSDP size may be increased after
FY20 in order to cater infrastructure requirements.
Govt./Regulatory actions hurt private sector demand

Private sector is the second factor that drives the local demand. If we look at the FY20 budget, tough measures like restrictions on Non-filers to purchase property
(on above 5mn), Capital gains on immoveable properties and assets being purchased through banking channels etc. GoP thinks that these tools would restrict
black money inflow in the sector as these are the biggest sources of money laundering. As a result, the near-term outlook seems gloomy.
PSDP
Industry Local Dispatches
Local Dispatches (Mn.Ton) Growth YoY Budgeted (Rs in Bn) Actual (Rs in Bn)
60.00 18%
48.35 16% 1200
50.00 45.40 14%
41.15 40.18 39.79 41.18 43.03 12%
35.65 1000
40.00 10%
8% 800
30.00
6%
20.00 4% 600
2%
10.00 0% 400
-2%
0.00 -4% 200
FY17 FY18 FY19 FY20E FY21E FY22E FY23E FY24E
0
FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Source: APCMA, Darson Research Source: MoF, Darson Research
www.JamaPunji.pk
Supply Glut Creating Price Disruption

Industry has expanded by ~30% in last four years (2016-2019 from 45.62 MTPA to 59.42 MTPA) on account of robust demand in various projects under CPEC,
government infrastructure projects and private housing schemes. The current expansionary cycle is most likely to end by 3QFY20 which would take the total
capacity to ~69.69mtpa. The industry capacity might reach to 71.49 MTPA if FECTO expands.
To recall, north region observed price war during Apr-May’19 due to subdue demand and over supply. Price went down by 25-30% to ~Rs450/bag. The breakdown
in price was mainly done by FCCL & ASKARI to keep up their market share maintain thus this forced leverage players to give more dealer discounts so they could
raise the volumes. At the time of price war, south region didn’t affected and prices were stable even though there wasn’t much demand. This is because players
were exporting surplus quantity to various markets via sea-port.
Right now price disruption is started again in north side (prices are below Rs500/bag in some areas of north) and we expect it would continue till 3QFY20 once
PIOC and KOHC expand their operations. At this price level, leverage players would again suffer losses as there breakeven price is above Rs530/bag hence
utilization level would further hamper. Once the sector’s expansion cycle ends we expect a meaningful recovery in cement bag price by 2-5% as it is been
historically noticed.
Industry In Expansion Phase Upcoming Capacities (MTPA) Retail Price Volatility in North & South Remain
6
Intact
Total Industry Capacity (MTPA)
750
5.0
80.00 5
69.70 71.50
70.00 600
59.43
60.00 4
51.24 450
50.00 45.62 46.94
3 2.7
40.00 2.3 300
30.00 2
150
20.00
1
10.00 0
Feb'19
Sep'19
Jan'19
Jan'20
Feb'20E
Jul'19
Aug'19
Oct'19
Mar'19
Mar'20E
Jun'19
Dec'19
Apr'19
Nov'19
May'19
May'20E
May'20E
Apr'20E
0.00 0
FY16 FY17 FY18 FY19 FY20E FY21E PIOC KOHC Total
Source: APCMA, Darson Research Source: PSX, Company Financials, Darson Research Source: PBS, Darson Research
www.JamaPunji.pk
Cost Pressures
Industry witnessed lower gross margin of ~15% in FY19 versus ~22% in FY18. Rising cost pressures could further deteriorate gross margins within the upcoming
quarters. in our view. Following reasons have build up cost pressures:
• PKR depreciation increases coal cost

Coal is a major energy source that constitutes ~30-40% of total cost of production. Last year coal price has touched a fresh low of ~USD59 on account of global
economies as China shifting towards cleaner energy sources thus creating supply glut in the world. Lower coal prices are beneficial to manufactures as it gives
them a competitive cost price to operate at. To recall, In FY19 PKR devalued by ~24% since FY18 and has wiped out the gains of lower coal prices. If the coal
prices remain below USD60 it will be beneficial to the cement manufacturers subject to exchange rate stability.
• IMF condition-Increase in Utilities (Electricity and Gas) tariff

In the framework of the IMF condition, GoP has increased the gas and power tariff by ~30-50% which is used as a fuel by various industries. For cement
industry, increase in energy tariff is a serious issue as most of the plants are using national grid, gas and other sources (after consuming their own in-house
power). As a result, it has impacted in cost terms and may further deteriorate as the producer would not be able to fully pass on the cost increase owing to
weak demand in local side.
Industry GP Margin Coal Price (USD) PKR/USD

35% 165 159.18
74
30% 156.28
72 160 155.42
30% 71.33
70 70.42 155 155.19
146.1
25% 22% 68 155.96 158.22
156.06
20% 150
20% 66 65.4 66.13 145 138.82 139.37
15% 64
15% 140 141.35
62
60.26 135
10% 60 60.58 138.69
58 130
5%
56 125
0% 54
FY18 FY19 FY20F FY21F Jul'19 Aug'19 Sep'19 Oct'19 Nov'19 Dec'19
Source: Company Financials, Darson Research Source: Quandl, Darson Research Source: SBP, Darson Research
www.JamaPunji.pk
FED-Post Budget Measure

Along with the power tariff, GOP has also increased FED on the cement bag from Rs75/bag to Rs100/bag which has further increased the cost. To recall, when the
previous government increased the FED in FY19 (Rs75/bag from Rs62.5/bag), prices were passed onto the end consumers but this time the sector dynamics are
dull and thus the prices aren't fully passed on. Above mentioned factors may put significant pressure on margins in the near-term. However we expect, margins
would recover from FY21 once the Govt. succeeds to put economy back on track.
Can Export Offset Weak Local Demand?

Industry witnessed significant growth for cement export of ~38% YoY in FY19 to reach at 6.5 MTPA. This is the highest ever growth recorded in the last 5 years as
the new government took major initiatives on currency depreciation in order to make import expensive. However in the year 2019 local demand declined by
~2.34% led by a weak private sector and lower government spending but exports have offset weak local demand to some extent in terms of absorbing the fixed
cost. This mainly benefited the south players as they have multiple export avenues through the sea port (Bangladesh, Srilanka, Tanzania, Philippines and East
Africa). For the north side players have limited options (Afghanistan and India) due to cross-border markets. Previously, Afghanistan was the top option for
Pakistan with an export share of ~55% of total export in FY12 but at present the market has became less favorable (Export share ~26% currently) owing to supply
of Iranian cement at cheaper price and also because the country improved it’s internal capacities. The other interesting market was India but the north players
have lost that option due to political tension between two countries. Even if cement can reach some markets through the border, the 200 percent duty on
Pakistani goods would make them extremely unattractive.
Industry Export Dispatches Export To India Export To Afghanistan

Export Dispatches (Mn.Ton) To India (Mn.ton) Total Export (Mn.Ton) % of Total export
9.00 50% To Afghanistan (Mn.Ton) Total Export (Mn.Ton) % of Total export
8.00 40% 7% 55%
38% 6% 8%
7.00 30% 10% 11%
6.00
20% 17%
5.00
27% 26%
10%
26%
4.00
2% 2% 3%0%
8.56 8.37
2% 4% 1% 8.56 8.37 8.13
3.00 -3% 8.13
7.19 5.87 0% 7.19
-12% -10% 6.54
2.00 -… 4.66 4.74 5.87 6.54
1.00 -21% -20% 4.66 4.74
3.61 4.71 4.4
0.00 -30% 3.65 2.87 2.43
0.60 0.48 0.67 0.69 0.99 1.25 1.21 0.71 0.00 1.71 1.82 1.72
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 5MFY20 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Source: APCMA, Darson Research Source: APCMA, Darson Research Source: APCMA, Darson Research
www.JamaPunji.pk
Going Forward, we think north based plants have only one destination primarily Afghanistan (with less market share), the outlook remains weak as export via sea
is not feasible because of high transportation cost. However, south based operations (LUCK, ACPL,DGKC) have the most to gain as they are strategically located
near the sea-port however they also have to find more markets to offset excess supply. This could provide much support to their top-line coupled with
depreciated rupee which would yield them better margins. We forecast, total export to grow at a 5-yr CAGR of 2% (mainly by south producers).
High interest rate have deteriorate profitability

In the current capacity enhancement cycle (FY18-FY20E), companies that have opted for high debt are now bearing high finance cost (Interest rate 13.25% up by
450bps in last 18 months) along with the hefty principle repayments which has caused cash-flow problems. This has eroded the sector profitability by ~40% in
FY19 and would further deteriorate in FY20 by ~78% YoY. With the current interest rate of 13.25% + markup, companies (like MLCF, DGKC, PIOC & CHCC) which
are highly leveraged would be the most vulnerable and sensitive to it.
On the other side, KOHC and LUCK standout because of least leveraged balance sheet, significant cash balance and diverse short-term investments have kept
them safe against short-term economic volatilities such as interest rate. However, medium to long-term elements would show signs of improvement once
interest rate starts to decline and companies with high-leverage balance sheet companies (like MLCF, DGKC, PIOC & CHCC) may be in a position to recoup their
previous losses.
Sector Profitability (Rs in bn) Interest Coverage Ratio For FY20 Debt to Asset level
Net Profit (Rs in Bn) 7 50%
45.00 0%
6
40.00 -10%
40%
35.00 -20% 5 Is lower than pervious
30.00 -30% but still a concern
4 30%
25.00 -40%
20.00 -50% All at risky levels
3
20%
15.00 -60%
10.00 -70% 2
5.00 -80% 10%
1
0.00 -90%
FY17 FY18 FY19 FY20E 0 0%
MlCf PIOC CHCC DGKC ACPL KOHC In Previous Expansionary Cycle In Current Expansionary Cycle
Source: Company Financials, Darson Research Source: Company Financials, Darson Research Source: Company Financials, Darson Research
www.JamaPunji.pk
Key upside/risks to our investment case
Upside triggers
• Dreamed Mega projects of Govt.

Government low-cost housing scheme, construction of two Dams (Diamer Basha & Mohmand Dam) and CPEC’s second phase would increase local demand
throughout the following 5-6 years, if materialized.
• Unexpected decline in coal price

Global economies specially China shifted towards cleaner energy sources which has created a supply glut in the world. Lower coal price gives breather to the cost as it is the
key component in cost of the production.
• Reduction in duties
Any decrease in sales tax and FED would provide much relief to the manufactures thus would result in a higher retention price.
Downside triggers
• Price war/Competition
Excess supply would create further price disruption.
• Currency devaluation
Any further devaluation will increase the coal cost as its contributes ~30-40% of the total cost of production.
• Steep rise in Grid/Gas tariff

Any hike in tariff would hurt gross margin for some who completely rely on grid/gas as compared to those who have in-house power generation.
www.JamaPunji.pk
Coverage Companies List With

Current Operational Capacity
• LUCK (North & South ,6.8 MTPA & 4.8 MTPA)

• ACPL (South, 2.9 MTPA)
• FCCL (North, 3.4 MTPA)
• KOHC (North, 2.6 MTPA)
• DGKC (North & South, 4.2 MTPA & 2.9 MTPA)
• MLCF (North, 5.6 MTPA)
• CHCC (North, 4.5 MTPA)

• PIOC (North, 5.6 MTPA)
Source: http://www.dgcement.com/marketing.html
www.JamaPunji.pk
Lucky Cement Ltd. (LUCK)
Give Worth To Your Investment, Hold Dec’20 TP of 543.27/share

We initiate coverage on Lucky Cement (LUCK)-A well-diversified portfolio (Cement, Chemicals, Auto’s, Power, Consumer and Pharmaceutical), the largest plant in
the cement industry (with a 11.6 MTPA installed capacity and 18% market share), debt-free balance Sheet along with a cost-efficient plant (100% in-house power
generation), lowest breakeven level in the industry which would shield it against price war. Considering these factors, we have a “Hold” recommendation on the
scrip with a Dec’20 target price of Rs543.27/share, which implies 13% upside/downside (excl. D/Y) from LDCP of Rs481.17/share.
Diversified Portfolio: With varied investments, company enjoys significant growth in earnings. Currently, the core business constitutes ~75% and remaining comes
from other investments. Once the 660mw coal based power plant comes online by Mar’21 online- the outlook would be more lucrative. We estimate this project to
contribute Rs154.97/share to our estimated TP, representing ~27% of EPS by FY22E. KIA-Luck motors have started CKD production in 1QFY20. Though the auto
industry is in tough times however once economic outlook starts improving the recovery would be fast. We estimate, this project to contribute Rs26.15/share to
our estimated TP.
Valuation: We have valued LUCK by using SOTP valuation method to arrive at a Dec’20 TP of Rs543.27/share. The core business is valued at Rs204.07/share by
using 5-yr FCFF valuation. We used RFR of 12 and terminal growth rate is grown at 3.5%. The scrip currently trades at FY20E P/E of 20.29x
Key risks: (1) Steep rise in gas tariff, (2) Political uncertainty in Iraq, (3) Slowdown in auto industry could effect Kia lucky motor sales, (4) Weak demand in local
market, (5) Delay in 660MW coal power plant, (6) CNIC condition and (7) Axle load regulation
KSE-100 LUCK Key Indicators LUCK Valuation FY18 FY19 FY20E FY21E
45,000 600 Current Price 481.17 EPS (Rs) 37.72 32.44 23.71 30.43
40,000
35,000
500 Target Price 543.27 DPS (Rs) 8.00 7.25 6.50 7.50
30,000 400 Stance Hold P/E x 12.76 14.83 20.29 15.81
25,000
300 Upside/Downside 13% DY % 2% 2% 1% 2%
20,000
15,000 200 52-Week High 513 Gross Margin 36% 29% 25% 30%
10,000 Relative Performance 100
52-Week Low 320.2 Source: Company Financials, Darson Research
5,000
Outstanding Shares (In 000) 323,375
0 0
Market Cap (In 000) 155,598,349
13-Jun-19
13-Apr-19
13-Dec-19
13-Dec-18
13-Feb-19
13-Aug-19
13-Oct-19
Free Float 40%

Source: PSX, Darson Research
www.JamaPunji.pk
Local Dispatches Vs Utilization Level EBITDA Margin Vs Industry

8 100% 35%
7 30%
80%
6 25%
5 60% 20%
4
40% 15%
3
2 10%
20%
1 5%
0 0% 0%
FY18 FY19 FY20E FY21E FY22E FY23E FY24E FY18 FY19 FY20E FY21E FY22E FY23E FY24E
Local (Mn.ton) Export (Mn.ton) Utilization Level % LUCK Industry

Source: Company Financials, Darson Research Source: Company Financials, Darson Research
Revenue To Increase Earnings Contribution-FY20E

90000 0.3 -2% 0%
80000
0.25 1% 11%
70000
Core
60000 0.2
50000 ICI
0.15
40000 16% WIND
30000 0.1 IRAQ
20000
0.05 DRC CONGO
10000
0 0 70% LEPL
FY18 FY19 FY20E FY21E FY22E FY23E FY24E
Revenues (In Mn) Growth (YoY) CAGR 5-Yr

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LUCK - Financial Statements Summary (June Year End)

IncomeStatement (Rs in Mn) FY18 FY19 FY20E FY21E Shareholding Pattern
Revenue 47,542 48,021 49,092 61,118
EBITDA 15,499 12,219 8,844 13,559 Others, 1%
PBT 15,119 12,221 8,746 13,213 Foreign, 15%
Tax (2,922) (1,731) (1,727) (2,762)
Directors, 41%
PAT 12,197 10,490 7,019 10,451 Local, 9%
EPS 37.72 32.44 21.71 32.32
DPS 8.00 7.25 6.25 6.50
Mutual Funds,
6%
Balance Sheet (Rs in Mn) FY18 FY19 FY20E FY21E Insurance, 3%

Banks, 2%
Fixed Asset 66,043 91,710 90,519 89,292 NIT and ICP, 0%
Current Asset 42,956 33,379 28,469 40,813 Associated
Total Asset 108,999 125,089 118,988 130,105 Compani…
Total Equity 86,367 94,318 98,993 107,342 Source: Company Financials
Total Liabilities 22,632 30,771 19,995 22,763
Key Ratios FY18 FY19 FY20E FY21E Current Management

GP Margin 35.66% 29.12% 24.65% 29.67% • Chairman: Muhammad Yunus Tabba
Net Margin 25.66% 21.84% 14.30% 17.10% • CEO: Muhammad Ali Tabba
Dividend Yield 1.87% 1.70% 1.46% 1.52% • Directors: Muhammad Sohail Tabba, Jawd Yunus
ROE 14.12% 11.12% 7.09% 9.74% tabba, Mariam Tabba Khan, Manzoor Ahmed &
EV/EBITDA (x) 8.63 12.06 17.00 10.43 Mohammad Javed Iqbal
Source: Company Financials, Darson Research
www.JamaPunji.pk
Attock Cement Ltd. (ACPL)
Enjoys Immense Popularity, Buy (Dec’20 TP of Rs126.04/share)

We initiate coverage on Attock Cement (ACPL)-The company is well known by its brand name “Falcon”, ACPL has the highest exposure of cement/clinker export
due to proximity to the sea-port. With recent expansion in FY18- the company market share has raised to ~21% (the 2nd largest player in south). The company has
also made an investment in cement grinding unit (0.9 MTPA) in Iraq via joint venture (60:40). All the above factors would be the key drivers for earnings growth.
Considering this, we have a “Buy” recommendation on the scrip with a Dec’20 TP of Rs126.04/share, which implies 20% upside/downside (excl. D/Y) from LDCP
price of Rs105.21/share.
International Joint Venture: Attock cement is the second player to enter in IRAQ after LUCK. The company has setup its grinding unit of 0.9MTPA via joint
venture (60:40) with the Iraq-based Al-Geetan Commercial Agency to form a subsidiary. Iraq economy is improving gradually following the deep economic crisis
seen in the previous years so cement consumption should be boosted by strong reconstruction programs. We estimate, this Project to add Rs15.89/share to our
TP. (We have taken assumptions from LUCK Iraq operations such as net margins/ton, bag price etc)
Valuation: We have valued ACPL by using SOTP valuation method to arrive at a Dec’20 TP of Rs126.04/share. The core business is valued at Rs109.86/share by
using 5-yr FCFF valuation. We used RFR of 12 and terminal growth rate is grown at 3.5%. The scrip currently trades at FY20E P/E of 9.92x.
Key risks: (1) Steep rise in grid tariff, (2) PKR devaluation will increase the coal cost, (3) Weak demand, (4) CNIC condition and (5) Axle load regulation
KSE-100 ACPL Key Indicators ACPL Valuation FY18 FY19 FY20E FY21E
40,000 120 Target Price 126.04 DPS (Rs) 8.00 4.00 5.00 6.00
35,000
100 Stance Buy P/E x 4.20 4.73 9.92 8.45
30,000
25,000 80 Upside/Downside 20% DY % 8% 4% 5% 6%
20,000 60 52-Week High 122 Gross Margin 31% 23% 24% 23%
15,000
40 52-Week Low 64.17 Source: Company Financials, Darson Research
10,000 Relative Performance
5,000 20 Outstanding Shares (In 000) 137,426
0 0
Market Cap (In 000) 14,458,589
13-Jun-19
13-Apr-19
13-Dec-19
13-Dec-18
13-Feb-19
13-Aug-19
13-Oct-19
Free Float 20%

www.JamaPunji.pk
Local Dispatches Vs Utilization level EBITDA Margins vs Industry

2.50 140% 30%
120% 25%
2.00
100%
20%
1.50 80%
15%
1.00 60%
40% 10%
0.50
20% 5%
- 0% 0%
FY18 FY19 FY20E FY21E FY22E FY23E FY18 FY19 FY20E FY21E FY22E FY23E FY24E
Local (Mn.ton) Export (Mn.ton) Utilization level % ACPL Industry
ACPL's Revenue EPS Contribution

35,000 25%
Core Iraq Operations
30,000
20%
25,000 3.71
20,000 15%
3.33
15,000 10% 2.67
2.34
10,000 1.89 21.58
5%
5,000 15.75
12.34 13.70
- 0% 10.05
FY18 FY19 FY20E FY21E FY22E FY23E FY24E
Revenue (In Mn) Growth (YoY) FY20E FY21E FY22E FY23E FY24E
www.JamaPunji.pk
ACPL - Financial Statements Summary (June Year End)

Revenue 16,884 20,781 21,384 23,498 Mutual Funds,
EBITDA 3,857 3,528 2,985 3,069 Directors, 0% 4%
Others, 10%
Banks, 2%
PBT 3,129 2,403 1,685 1,941
Tax 1,270 (330) (304) (237)
PAT 4,400 2,073 1,381 1,705
EPS 32.02 15.09 10.05 12.40
DPS 8.00 4.00 5.00 6.00
Balance Sheet (Rs in Mn) FY18 FY19 FY20E FY21E

Fixed Asset 19,677 19,670 19,214 18,770
Current Asset 6,729 7,647 8,387 8,685 Shareholding
10% or more,
Total Asset 26,406 27,317 27,601 27,455 84%

GP Margin 31% 23% 24% 23% • Chairman: Laith G. Pharaon
Net Margin 26% 10% 6% 7% • CEO: Babat Bashir Nawaz
Dividend Yield 8% 4% 5% 6% • Directors: Wael G. Pharaon, Wael G.Pharaon,
ROE 30% 13% 8% 9% Shuaib A. Malik, Abdul Sattar, Agha Sher Shah,
EV/EBITDA (x) 5.06 5.77 6.41 5.76 Sajid Nawaz & Babar Bashir Nawaz
www.JamaPunji.pk
Fauji Cement Ltd. (FCCL)
Constrained Growth, Hold (Dec’20 TP of Rs18.02/share)

We initiate coverage on Fauji Cement (FCCL) with a “Neutral” stance. Market share is to decline in the near-term once new capacities of 7.6 MTPA comes online by
FY20, major price disruptor owing to lowest break even price (to maintain market share), earnings growth would be very moderate in future, being a north player-
export profile is limited, no expansion plan yet and high EV/ton of USD 43 versus industry EV/ton of USD47. Considering this, we have a “Hold” recommendation
on the scrip with a Dec’20 TP of Rs18.02/share, which implies 9% upside/downside from LDCP of Rs16.47/share. However, company offers a healthy payout ratio
of ~22% versus peers.
Capex doesn’t look achievable in current dynamics: If we look to recent expansions done by DGKC, ACPL, MLCF and CHCC- the investment cost is too high (around
Rs20-25bn) which seems very difficult for the company due to very minimal cash balance and tough macroeconomic conditions. However, if it plans to do so, they
might raise fresh equity/bank loan and may also cut future dividends as well.
Power Efficiencies: With WHR power plant of 21MW and recently added solar power plant of 12.5 MW is providing some breather to the margins and there is less
dependence on grid.
Valuation: We have valued FCCL by using FCFF valuation to arrive at a Dec’20 TP of Rs18.02/share. We used RFR of 12 and terminal growth rate is grown at 3.5%.
The scrip currently trades at FY20E P/E of 17.11x
Key risks: (1) Steep rise in grid tariff, (2) PKR devaluation will increase coal cost, (3) Weak demand, (4) CNIC condition and (5) Axle load regulation
KSE-100 FCCL Key Indicators FCCL Valuation FY18 FY19 FY20E FY21E
40,000 Target Price 18.02 DPS (Rs) 2.00 1.50 0.50 0.75
35,000 20
Stance Hold P/E x 10.16 7.90 17.11 9.42
30,000
25,000
20,000 52-Week High 23.60 Gross Margin 24% 26% 16% 24%
10
15,000
10,000 Relative Performance 52-Week Low 12.23 Source: Company Financials, Darson Research
5
5,000 Outstanding Shares (In 000) 1,379,815
0 0
Market Cap (In 000) 22,725,553
13-Jun-19
13-Apr-19
13-Dec-18
13-Dec-19
13-Feb-19
13-Aug-19
13-Oct-19
Free Float 55%

www.JamaPunji.pk
Local Dispatches Vs Utilization Level Local Market Share To Decline

3.50 120% 4 0.09
3.00 3.5 0.08
100%
3 0.07
2.50
80% 0.06
2.5
2.00 0.05
60% 2
1.50 0.04
1.5
40% 0.03
1.00 1 0.02
0.50 20%
0.5 0.01
0.00 0% 0 0
Local (Mn.ton) Export (Mn.ton) Utilization Level FCCL Capacity (Mn.Ton) Capacity Share-North
Stagnant Growth Ahead GP Margin Vs EBITDA Margin

25000 15% 30.00%
10%
20000 25.00%
5%
20.00%
15000 0%
15.00%
10000 -5%
-10% 10.00%
5000
-15% 5.00%
0 -20% 0.00%
Revenue (In Mn) Growth YoY CAGR GP Margin EBITDA Margin
www.JamaPunji.pk
FCCL - Financial Statements Summary (June Year End)

Income Statement (Rs in Mn) FY18 FY19 FY20E FY21E Shareholding Pattern
Revenue 21,161 20,798 17,032 17,424
EBITDA 5,559 5,891 3,465 4,880 Directors:, 0%
Others, 13%
PBT 4,098 4,412 1,782 3,181
Tax (1,147) (1,588) (489) (812) Associated
PAT 3,429 2,824 1,293 2,370 Companies,
EPS 2.49 2.05 0.94 1.72 49%
DPS 2.00 1.50 0.25 0.75

Balance Sheet (Rs in Mn) FY18 FY19 FY20E FY21E General Public,
Fixed Asset 22,711 23,290 22,391 21,474 32%
Mutual Funds,
Current Asset 6,338 5,676 5,513 8,169 Insurance
0%
Total Asset 29,049 28,965 27,903 29,642 Companies, 1% NIT and ICT, 3%
Modarabas, 0% Banks, 4%

GP Margin 24% 26% 15% 24% • Chairman: Lt. Gen Syed Tariq Nadeem Gilani
Net Margin 16% 14% 8% 14% • CEO: Lt. Gen Muhammad Ahsan
Dividend Yield 12% 9% 1% 4% • Company Secretary: Brig Riaz Ahmed Gondol
ROE 17% 14% 6% 11% • CFO: Mr Omer Ashraf
EV/EBITDA (x) 4.60 4.18 7.13 4.48
www.JamaPunji.pk
Kohat Cement Ltd. (KOHC)
Unawaken Scrip, Buy (Dec’20 TP of Rs111.44/share)

We initiate coverage on Kohat Cement (KOHC)-Lowest EV/Ton of USD 29 versus industry average of USD 47, upcoming expansion of 7,800tpd by 2HFY20
(capacity share would increase from 6% to 9%), KOHC owns investment properties having market value of Rs5.4bn (as per FY19 financials), lowest debt level
compared to other players (excl. LUCK & FCCL)-which is a plus point in current dynamics. Considering these factors, we have a “Buy” recommendation on the
scrip with a Dec’20 TP of Rs111.44/share, which implies 44% upside/downside (excl. D/Y) from LDCP of Rs77.13/share. Kohat is also one of our preferring stock in
our cement universe.
Safe in current environment: For expansion, company has financed (45%) in-house cash and short-term investments which shows quite a bit less financing from
external sources as compared to other peers (MLCF,CHCC,PIOC & DGKC). This is an advantage for the company in a high interest rate environment as finance cost
would not deteriorate earnings significantly. However, Debt/Asset ratio is relatively low versus other players (excl. LUCK & FCCL) which portrays a stronger
financial structure for the company and that they can meet their financial obligation by selling its assets if needed. In addition, KOHC breakeven is less than MLCF,
DGKC and CHCC which shield them in price disruption.
Valuation: We have valued KOHC by using FCFF valuation to arrive at a Dec’20 TP of Rs111.44/share. We used RFR of 12 and terminal growth rate is grown at
3.5%. The scrip currently trades at FY20E P/E of 9.44x
Key risks: (1) Steep rise in grid tariff, (3) PKR devaluation will increase coal cost, (3) Delay in expansion, (4) CNIC condition and (5) Axle load regulation
KSE-100 KOHC Key Indicators KOHC Valuation FY18 FY19 FY20E FY21E
40,000 90 Target Price 111.44 DPS (Rs) 5 2.25 1.5 2.75
35,000 80
70 Stance Buy P/E x 8.22 4.25 9.44 5.86
30,000
25,000
50
40
15,000 30
20
0 0
Market Cap (In 000) 15,492,409
13-Jun-19
13-Apr-19
13-Dec-19
13-Dec-18
13-Feb-19
13-Aug-19
13-Oct-19
Free Float 30%

www.JamaPunji.pk

5.00 95% 35%
30%
4.00 90%
25%
3.00 85% 20%
2.00 80% 15%

10%
1.00 75%
5%
- 70% 0%
Local (Mn.ton) Export (Mn.ton) Utilization Level % KOHC Industry

Revenue To Grow Capacity Based Share To Rise

35,000 40% 6.00 10.00%
30,000 35%
5.00 8.00%
30%
25,000
25% 4.00
20,000 6.00%
20%
3.00
15,000 15%
4.00%
10% 2.00
10,000
5% 2.00%
5,000 1.00
0%
- -5% - 0.00%
Revenue (In Mn) Growth (YoY) CAGR 4-yr KOHC Capacity (Mn.Tons) Capacity Share-North
www.JamaPunji.pk
KOHC - Financial Statements Summary (June Year End)

Revenue 13,439 15,646 18,705 23,382
General Public, Others, 2%
EBITDA 4,265 3,959 2,997 4,462 12% Directors, 17%
PBT 3,998 3,676 2,265 3,655
Tax (990) (1,207) (624) (1,012) Mutual Funds,
11%
PAT 3,008 2,469 1,641 2,643
EPS 14.97 12.29 8.17 13.16 Banks,
DPS 5.00 2.25 1.50 2.75 Insurance,
Modarbas, 2%
Balance Sheet (Rs in Mn) FY18 FY19 FY20E FY21E Nit, 0%

Fixed Asset 12,910 25,709 25,779 25,852
Associated
Current Asset 10,407 5,606 7,098 9,697
Companies,
Total Asset 23,317 31,315 32,877 35,549 55%

GP Margin 32% 27% 16% 19% • Chairman: Aizaz Mansoor Sheikh
Net Margin 22% 16% 9% 11% • CEO: Nadeem Atta Sheikh
Dividend Yield 7% 3% 2% 4% • Company Secretary: Muhammad Asadullah Khan
ROE 17% 13% 8% 11%
EV/EBITDA (x) 2.19 4.59 5.90 3.42
www.JamaPunji.pk
DG Khan Cement Ltd. (DGKC)
Venture Portfolio Gives A Pad (Dec’20 TP of Rs78.33/share)

We initiate coverage on DG Khan cement (DGKC)-Costly expansion in the industry (~Rs30.8bn), highly leveraged balance sheet (~Rs41.3bn debt as per FY19
financials) amongst the peers (excl. Lucky & FCC), break down in price (Below Rs540/bag) could result further loss in FY20F due to high break even price, export
from south plant will not provide much relief due to hefty fixed cost and lower margin on clinker sale thus only improving utilization levels, company is installing
CFPP of 30MW and WHR power generation of 10MW to its Hub Plant-this would minimize the cost of energy and less reliance on national grid (currently running
on 100% grid) and continuous dividend income from group companies {contributes ~49% of total earnings (6-yr avg. FY14-19) would provide some relief to the
bottom line in near-term against sector related headwinds. Given that, we have a “Hold” recommendation on the scrip with Dec’20 TP of Rs78.33/share, which
implies 3% upside/downside (excl. D/Y) from LDCP of Rs75.82/share.
Highest debt level in the cement universe: As per FY19 financials, DGKC carries total debt of Rs41.3bn, owing to loans taken for green field expansion in south.
To recall, finance cost has mostly affected the profitability in FY19 due to high interest rate environment. Having a significant amount of debt, finance cost would
remain a major concern in declining profitability until the borrowing cost comes down.
Valuation: We have valued DGKC by using SOTP valuation to arrive at a Dec’20 TP of Rs78.33/share. The core business is valued at Rs36/share by using 5-yr
FCFF methodology. We used RFR of 12 and terminal growth rate is grown at 3.5%.
Key risks: (1) Steep rise in grid tariff, (3) PKR devaluation will increase coal cost, (3) Weak Demand, (4) Increase in interest rate, (5) CNIC condition and (6) Axle
load regulation
KSE-100 DGKC Key Indicators DGKC Valuation FY18 FY19 FY20E FY21E
45,000 120 Current Price 75.82 EPS (Rs) 20.17 3.67 (4.45) 3.66
40,000
100
Target Price 78.33 DPS (Rs) 4.25 1.00 - 1.00
35,000
Stance Hold P/E x 5.68 15.39 - 20.73
30,000 80
25,000 Upside/Downside 3% DY % 6% 1% 0% 1%
60
15,000 40
20
5,000 Outstanding Shares (In 000) 438,119
0 0
Market Cap (In 000) 33,218,183
03-Jun-19
03-Apr-19
03-Dec-18
03-Dec-19
03-Feb-19
03-Oct-19
03-Aug-19
Free Float 50%

www.JamaPunji.pk
Local Discpatches Vs Utilization Level EBITDA Margin Vs Industry

7.00 140% 30%
6.00 120% 25%
5.00 100%
20%
4.00 80%
15%
3.00 60%
10%
2.00 40%
1.00 20% 5%
0.00 0% 0%
Local (Mn.ton) Export (Mn.ton) Utilization Level % DGKC Industry

Revenue To Grow At A 5-yr CAGR Leverage Balance Sheet

60,000 35% 100% 70%
30% 60%
50,000 80%
25%
50%
40,000 20%
60% 40%
15%
30,000
10% 30%
40%
20,000 5%
20%
0% 20%
10,000 10%
-5%
- -10% 0% 0%
Revenue (In Mn) Growth (YoY) CAGR 5-yr Debt/Equity Debt/T.Assets
www.JamaPunji.pk
DGKC - Financial Statements Summary (June Year End)

Revenue 30,668 40,517 38,629 44,160
EBITDA 7,167 6,354 3,626 7,358 Directors, 4%
Others, 24% Associated
PBT 7,370 1,991 (2,832) 1,534 Companies,
Tax 1,468 (381) 880 68 32%
PAT 8,837 1,610 (1,951) 1,602
EPS 20.17 3.67 (4.45) 3.66
DPS 4.25 1.00 - 1.00
Nit , 0%
General Public, Banks, 4%

18% Insurance, 1%
Fixed Asset 92,813 92,318 89,363 86,392 Mutual Funds,
Current Asset 29,076 33,623 31,220 32,047 Shareholders 3%
holding 10%,
Total Asset 121,889 125,941 120,583 118,439 31%
Total Equity 77,134 70,928 68,539 70,141

GP Margin 28% 13% 6% 14% • Chairman: Mrs. Naz Mansha
Net Margin 29% 4% -5% 4% • CEO: Mian Raza Mansha
Dividend Yield 6% 1% 0% 1% • CFO: Mr. I.U Niazi
ROE 11% 2% -3% 2%
EV/EBITDA (x) 6.83 9.42 15.79 7.07
www.JamaPunji.pk
MLCF Cement Ltd. (MLCF)
Strong Footprint, Buy (Dec’20 TP of Rs27.65/share)

We initiate coverage on Maple leaf cement (MLCF)-Company is the largest producer of white cement in the country with ~90% of local share, naturally enriched-
located near salt range (surrounded by the finest quality of raw materials: limestone, clay & sand), 2nd cost efficient plant after luck-100% owned 40 MW coal
power plant, low inland transportation cost due to contract with Pakistan railway resulting in cost savings (contract extended till Jun’21), hefty debt due to loans
taken for new line (7300 TPD), limited export profile (only Afghanistan with minimal share) and company use pet-coke (~50% in new line when coal price rises).
Taking all these factors, we have a “Buy” recommendation with a Dec’20 TP of Rs27.65/share, which implies 27% upside/downside (excl. D/Y) from LDCP of
Rs21.81/share.
Highest regional pricing: Company has the highest regional pricing in the industry owing to (i) Low in-land transportation cost, (ii) Largest producer of white
cement in the country, (iii) Cost efficient plant after LUCK and (iv) Usage of pet coke in new line resulting in cost saving to some extent.
In-house power generation: Company has self-power generation (Coal power plant & WHR) which has reduced dependence on national grid. To highlight, in the
last three quarters gross margin were depressed due to pricing pressure and weak demand. However, being a cost efficient player as compared to small players,
company’s gross margin would improve once the sector starts to pick up probably by next fiscal year.
Valuation: We have valued MLCF by using FCFF valuation to arrive at a Dec’20 TP of Rs27.65/share. We used RFR of 12 and terminal growth rate is grown at
3.5%.
Key risks: (1) Rise in interest rate, (2) CNIC condition, (3) Price disruption, (4) No extension in railway contract and (5) Banned on Usage of Pet coke
KSE-100 MLCF Key Indicators MLCF Valuation FY18 FY19 FY20E FY21E
40,000 Target Price 27.65 DPS (Rs) 2.50 0.50 - 0.50
50
35,000
Stance Buy P/E x 8.29 9.68 - 10.33
30,000 40
25,000 Upside/Downside 27% DY % 11% 2% - 2%
30
15,000 20
10
5,000 Outstanding Shares (In 000) 1,098,346
0 0
Market Cap (In 000) 23,954,926
13-Jun-19
13-Apr-19
13-Dec-18
13-Dec-19
13-Feb-19
13-Aug-19
13-Oct-19
Free Float 24%

www.JamaPunji.pk
Local Dispatches Vs Utilization level EBITDA Margin Vs Industry

7.00 120% 30%
6.00 100% 25%
5.00
80% 20%
4.00
60% 15%
3.00
40% 10%
2.00
1.00 20% 5%
0.00 0% 0%
Local (Mn.ton) Export (Mn.ton) Utilization Level % MLCF Industry

Leverage Balance Sheet MLCF Revenue

100% 80% 60,000 35.0%
70% 30.0%
80% 50,000
60% 25.0%
40,000
60% 50%
20.0%
40% 30,000
40% 15.0%
30%
20,000
20% 10.0%
20% 10,000
10% 5.0%
0% 0% - 0.0%
Debt/Equity Debt/T.Assets Revenue (In Mn) Growth (YoY) CAGR-4yr
www.JamaPunji.pk
MLCF - Financial Statements Summary (June Year End)

Revenue 25,699 26,006 28,428 36,736
Directors, 0%
EBITDA 7,309 5,150 2,552 7,342 General Public,
PBT 4,395 1,664 -3,482 2,018 22%
Tax (763) (199) (170) (548)
PAT 3,632 1,465 (3,653) 1,470
EPS 6.12 2.47 (3.33) 1.34 Shareholders
DPS 2.50 0.50 - 0.50 holding 10% or
more, 12%
Associated
Companies,
Mutual Funds,
Balance Sheet (Rs in Mn) FY18 FY19 FY20E FY21E 55%
4%
Fixed Asset 45,997 51,751 48,959 46,140
Insurance, 2%
Current Asset 12,732 14,207 16,484 15,824
Total Asset 58,729 65,958 65,443 61,964 Banks, 3% Nit, 0%

GP Margin 29% 19% 2% 16% • Chairman: Tariq Sayeed Saigol
Net Margin 14% 6% -13% 4% • CEO: Sayeed Tariq Saigol
Dividend Yield 10% 2% - 2% • CFO: Syed Mohsin Raza Naqvi
ROE 12% 5% -11% 4%
EV/EBITDA (x) 4.55 4.23 19.70 6.23
www.JamaPunji.pk
Cherat Cement Ltd. (CHCC)
Location Edge, Hold (Dec’20 TP of Rs56.98/share)

We initiate coverage on Cherat cement (CHCC)-Limited export profile (only left with Afghanistan), last expansion of 6700 TPD has increased capacity share (from
6% to 10%), CHCC is most vulnerable to any price breakdown due to high break even price (Rs540/bag)-because of high debt, minimal cash balance have
increased short-term borrowings and additional upcoming capacities (LUCK,PIOC & KOHC) in the north would lower its market share in near-term thus company
could create price disruption by giving high dealer discount as it has done in the past. We have a “Hold” recommendation on the scrip with a Dec’20 TP of
Rs56.98/share, offering 11% downside from LDCP of Rs51.4/share.
Dual-fuel Generator to save power cost: The company has installed three Wartsila dual fuel generators having capacity of 9.7MW each. As a result, this has
reduced the reliance on national grid but still margin seems to be under-pressure for short-term period owing to weaker prices and higher fixed cost. However,
company’s margin should rebound once sector starts to recuperate probably by FY21. At present, Generator is running on FO which is a plus point as FO prices
have declined significantly due to IMO 2020.
Construction of mega dams: Cherat would be the first company to get benefit from construction of two dams due to nearest cement plant. If this project
materialize little bit, company local dispatches would grow significantly.
Valuation: We have valued CHCC by using FCFF valuation to arrive at a Dec’20 TP of Rs56.98/share. We used RFR of 12 and terminal growth rate is grown at
3.5%.
Key risks: (1) Weak demand, (2) PKR devaluation will increase coal cost, (3) increase in power cost (Grid & FO), (4) CNIC condition and (5) Axle load regulation
KSE-100 CHCC Key Indicators CHCC Valuation FY18 FY19 FY20E FY21E
40,000 80 Target Price 56.98 DPS (Rs) 5 4 - -
35,000 70
Stance Hold P/E x 8.05 3.10 - 17.72
30,000 60
25,000 50 Upside/Downside 11% DY % 10% 8% - 0%
20,000 40 52-Week High 78.8 Gross Margin 22% 18% 12% 16%
15,000 30
10,000 Relative Performance 20
52-Week Low 24.39 Source: Company Financials, Darson Research
0 0
Market Cap (In 000) 9,980,934
13-Jun-19
13-Apr-19
13-Dec-18
13-Dec-19
13-Feb-19
13-Aug-19
13-Oct-19
Free Float 55%

www.JamaPunji.pk

5.00 30%
4.00 25%
20%
3.00
15%
2.00
10%
1.00 5%
0.00 0%
Local (Mn.ton) Export (Mn.ton) Utilization Level CHCC Industry
Debt More Than Equity Revenue To Grow At A 5-Yr Of 14%

100% 250% 35000 60%
30000 50%
80% 200%
25000
40%
60% 150% 20000
30%
40% 100% 15000
20%
10000
20% 50%
5000 10%
0% 0% 0 0%
Debt/Equity Debt/T.Assets Revenue (In Mn) Growth YoY CAGR 5-yr
www.JamaPunji.pk
CHCC - Financial Statements Summary (June Year End)

Revenue 14,388 15,863 23,762 26,419
EBITDA 3,509 3,473 3,279 4,549 Others, 18% Directors, 5% Associated
PBT 2,147 1,048 (752) 714 Companies,
Public Sector, 29%
Tax (15) 715 (11) (202)
2%
PAT 2,132 1,763 (763) 512
EPS 12.07 9.98 (4.32) 2.90
DPS 5.00 4.00 - -

Banks, 10%
Fixed Asset 24,238 27,186 26,120 25,044 General Public,
Current Asset 6,282 8,093 10,972 11,358 30%
Mutual Funds,
Total Asset 30,520 35,280 37,092 36,402 6%

GP Margin 22% 18% 12% 16% • Chairman: Omar Faruque
Net Margin 15% 11% -3% 2% • CEO: Azam Faruque
Dividend Yield 9% 8% 0% 0% • CFO: Yasir Masood
ROE 19% 15% -7% 5%
EV/EBITDA (x) 6.70 8.09 9.27 6.37
www.JamaPunji.pk
Pioneer Cement Ltd. (PIOC)
Expansion To Drive Growth In Future, Hold (Dec’20 TP of Rs39.81/share)

We initiate coverage on Pioneer cement (PIOC)-Recent expansion of 10,000TPD has enhanced its capacity share from 4.47% to 9.4%, company also installed
24MW coal power plant and 12MW WHR power plant to minimize the reliance on national grid thus this would result into lower the cost of energy and improve
gross margin as well, PIOC is vulnerable to any break down in price due to high break even price (because of high leverage) and for FY20 outlook-earnings could
remain under pressure owing to stagnant demand, cost pressures and borrowing cost but would rebound quickly once sector starts to recover. Given that, we
have a “Buy” recommendation on the scrip with a Dec’20 TP of Rs39.81/share, which implies 37% upside/downside (excl. D/Y) from LDCP of Rs29.04/share.
Expansion: PIOC expansion is online and its capacity based share has increased from 4.47% to 9.4%. As a result, local dispatches could grow at a 5-yr CAGR of
12% (FY20-25E). With the help of coal power plant and WHR power generation, reliance on national grid would be less and savings would result in earnings
accretion.
Significant debt could hurt bottom-line: Company took 75% of debt out of total project cost of approx. Rs21bn. However, borrowing cost could drag earnings in
upcoming quarters if interest rate remains at current level (13.25% plus markup & highest level in eight years).
Valuation: We have valued PIOC by using FCFF valuation to arrive at a Dec’20 TP of Rs39.81/share. We used RFR of 12 and terminal growth rate is grown at 3.5%.
Key risks: (1) Weak demand, (2) Price break down, (3) Delay in expansion, (4) CNIC condition and (5) Axle load regulation
KSE-100 PIOC Key Indicators PIOC Valuation FY18 FY19 FY20E FY21E
40,000 45
Target Price 39.81 DPS (Rs) 4.07 - - 1
35,000 40
30,000 35 Stance Buy P/E x 6.49 6.61 - 9.42
30
25,000 Upside/Downside 37% DY % 14% - - 3%
25
20,000
20 52-Week High 49.15 Gross Margin 28% 22% 19% 22%
15,000 15
10
0 0
Market Cap (In 000) 6,596,378
13-Jun-19
13-Apr-19
13-Dec-18
13-Dec-19
13-Feb-19
13-Aug-19
13-Oct-19
Free Float 55%

www.JamaPunji.pk

4.00 80% 30%
3.50 70%
25%
3.00 60%
20%
2.50 50%
2.00 40% 15%
1.50 30%
10%
1.00 20%
5%
0.50 10%
0.00 0% 0%
Local (Mn.ton) Export (Mn.ton) Utilization Level PIOC Industry
Capacity Based Share To Increase Revenue To Increase

6.00 10.0% 30000 40%
9.0%
5.00 8.0% 25000 30%
4.00 7.0% 20000
6.0% 20%
3.00 5.0% 15000
4.0% 10%
2.00 3.0% 10000
2.0% 5000 0%
1.00
1.0%
0.00 0.0% 0 -10%
PIOC Capacity (Mn.Tons) Capacity Share-North Revenue (In Mn) Growth (YoY) CAGR 5-yr
www.JamaPunji.pk
PIOC - Financial Statements Summary (June Year End)

Directors, 0%
Revenue 10,121 9,734 13,241 18,134 Associated Nit, 0% Banks, 4%
EBITDA 2,684 1,947 2,768 3,958 Companies, 0%
Insurance, 2%
PBT 2,213 1,323 41 983 Mutual Funds,
2%
Tax (569) (533) (86) (283)
PAT 1,644 790 (45) 700 Others, 70% Shareholders
EPS 7.24 3.48 (0.20) 3.08 holding 10% or
more, 47%
DPS 4.07 - - 1.00

Fixed Asset 23,040 36,247 35,525 34,798
Current Asset 6,071 6,030 8,133 8,511 General Public,
Total Asset 29,111 42,277 43,658 43,310 22%
Total Equity 13,629 13,321 13,277 13,977

GP Margin 28% 22% 19% 22% • Chairman: Aly Khan
Net Margin 16% 8% -0.34% 4% • CEO: Arif Hamid Dar
Dividend Yield 13% 0% - 3% • CFO: Waqar Naeem
ROE 12% 6% -0.34% 5%
EV/EBITDA (x) 5.89 13.93 9.58 6.39
www.JamaPunji.pk
www.Darson.com.pk - UAN: 111 900 400
DARSON SECURITIES (PVT) LIMITED
TREC HOLDR: PAKISTAN STOCK EXCHANGE / PAKISTAN MARCANTILE EXCHANGE LTD.
Important disclosures Notified Research Entity
This report has been prepared by Darson Securities (Pvt) Ltd. and is provided for information purposes only. Under no circumstances it is to be used or considered as an offer to sell, or a solicitation of any offer to buy. This
information has been compiled from sources we believe to be reliable, but we do not hold ourselves responsible for its completeness or accuracy. All opinions and estimates expressed in this report constitute our present
judgment only and are subject to change without notice. This report is intended for persons having professional experience in matters relating to investments.
Research Dissemination Policy:

Darson Securities (Pvt.) Ltd. endeavors to make all rightful efforts to disseminate research to all eligible clients in a timely manner through either electronic or physical distribution such as email, mail and/or fax. However, it is
worth mentioning that, not all clients may receive the material at the same time.
Analyst Certification:
The research analyst(s), if any, denoted by AC on the cover of this report, who exclusively reports to the research department head, primarily involved in the preparation, writing and publication of this report, certifies that the
expressed views in this report are unbiased and independent opinions of the analyst(s). The observations presented also accurately reflect the personal views of the analyst(s) based on the research about the subject
companies/securities and in any case, no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research report. It is also
important to note that the research analyst(s) or any of its close relatives do not have a financial interest in the securities of the subject company aggregating more than 1% of the value of the company. Additionally, the
research analyst or its close relative have neither served as a director/officer in the past 3years nor received any compensation from the subject company in the past 12 months. The Research analyst or its close relatives have
not traded in the subject security in the past 7 days and will not trade in next 5 days.
Financial Interest Disclosure:

Darson Securities (Pvt.) Ltd. or any of its officers and directors does not have a significant financial interest (above 1% of the value of the securities of the subject company). Darson Securities (Pvt.) Ltd., their respective
directors, officers, representatives, employees and/or related persons may have a long or short position in any of the securities or other financial instruments mentioned or issuers described herein at any time and may make a
purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other financial instruments from time to time in the open market or otherwise.
Risk Associated with Target Price:

Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by
competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates,
foreign exchange rates and input prices.
Rating System:
If;
• Expected return >15% - Buy Call
• Expected Return is in between 0% to 15% - Neutral/Hold Call
• Expected Return <0% - Sell Call
Valuation Methodology
To arrive at our period end target prices, DSL uses
different valuation methodologies including:
• Discounted cash flow (DCF, DDM)

• Justified price to book (JPB)
• Relative Valuation (P/E, P/B, P/S etc.)
• Equity & Asset return based methodologies (EVA, Residual Income etc.)
SECP JamaPunji Portal link: www.JamaPunji.pk

Contact Details
MANAGEMENT
MR. MALIK DIL AWAYZ AHMED , CFA Chief Executive Officer ceo@darson.com.pk 021-32471083 Ext(130)
RESEARCH
MR. YOUSUF SAEED Head of Research yousuf.saeed@darson.com.pk 021-32467224 Ext(125)
MR. YASIN MUHAMMAD HANIF Research Analyst yasin.hanif@darson.com.pk 021-32467224Ext(125)
MR. MEHROZ KHAN Research Analyst mehroz.khan@darson.com.pk 021-32467224 Ext(125)
MS. MAIMOONA Research Analyst mamoona.asghar@darson.com.pk 021-32467224 Ext(125)
MR. DILAWER JAWED Technical Analyst dilawer@darson.com.pk 021-32467224 Ex t(125)
MR. IMRAN SHAFIQUE Database Officer imran.shafique@darson.com.pk 021-32467224 Ext(125)
EQUITIES SALES
INSTITUTIONAL SALES
MR. MUHAMMAD YOUSUF BAGASRA Head of Corporate Sales muhammad.yousuf@darson.com.pk 021-32469677-680
MR. SANTOSH KUMAR Institutional Corporate Sales santosh.kumar@darson.com.pk 021-32471086-87
RETAIL SALES
MR. IRSHAD ZUBAIR Head of Retail Sales irshad.zubair@darson.com.pk 021-32468915 Ext(231)
COMMODITIES SALES
MR. SYED ZIA HYDER KAZMI Manager Commodities zia.kazmi@darson.com.pk 021-32468925
Page No. 38
Contact Details
OFFICE ADDRESS:
Corporate Office: Branch Office: Branch Office:

Suite No. 808, Office No. 516 Room No. 193-195,
8th Floor, Business & Finance Centre, 5th Floor, PSX Building, 1st Floor, City Mall,
I.I. Chundrigar Road, Stock Exchange Road. Chen One Road,
KARACHI KARACHI. FAISALABAD
111-900-400, 021-32425538
2470755-57 32471088 042-5789705
Branch Office : Branch Office:

Room No. 102, Office No. 404,
1st Floor, LSE Building, 3rd Floor, Liberty Tower,
Aiwan-e-Iqbal Road, Liberty Gulberg.
LAHORE LAHORE.
042-36309842 042-36314293 042-6366263, 6364208 042-5789705
Branch Office : Branch Office:

Office # 3, Office # 3,
Main Block, 1st Floor 1st Floor,
GDA Trust Plaza, G.T. Road, Al-Munir Market, Liaquat Bazar
GUJRANWALA SARGODHA
0553-732963-64, 0321-6449554 0483-701141, 0333-9804899
Branch Office: Branch Office

2nd Floor, 1st Floor,
State Life Building, Metro Trade Centre,
Near Skynet Courier Office Near Shaloom Centre,
Circular Road, Al-Markaz Road
DERA ISMAIL KHAN JHELUM
0966-730906 0544-626087, 832289
Page No. 39

Cement Sector Detail Report - Sow The Seeds For Long Term

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www.darson.com.

pk - UAN: 111 900 400

Wednesday, January 22, 2020

Yasin Muhammad Hanif

Contents 1. Industry Overview-Glimpse of FY19

Pakistan Cements-Sow The Seeds For Long-term

opportunities going forward.

Demand could remain dull in FY20 but to pickup afterwards

Will Govt. cut PSDP?

Govt./Regulatory actions hurt private sector demand

Supply Glut Creating Price Disruption

• PKR depreciation increases coal cost

• IMF condition-Increase in Utilities (Electricity and Gas) tariff

Industry GP Margin Coal Price (USD) PKR/USD

FED-Post Budget Measure

Can Export Offset Weak Local Demand?

Industry Export Dispatches Export To India Export To Afghanistan

High interest rate have deteriorate profitability

Key upside/risks to our investment case

• Dreamed Mega projects of Govt.

• Unexpected decline in coal price

• Steep rise in Grid/Gas tariff

Coverage Companies List With

• LUCK (North & South ,6.8 MTPA & 4.8 MTPA)

• CHCC (North, 4.5 MTPA)

Give Worth To Your Investment, Hold Dec’20 TP of 543.27/share

Free Float 40%

Local Dispatches Vs Utilization Level EBITDA Margin Vs Industry

Local (Mn.ton) Export (Mn.ton) Utilization Level % LUCK Industry

Revenue To Increase Earnings Contribution-FY20E

Revenues (In Mn) Growth (YoY) CAGR 5-Yr

LUCK - Financial Statements Summary (June Year End)

Balance Sheet (Rs in Mn) FY18 FY19 FY20E FY21E Insurance, 3%

Key Ratios FY18 FY19 FY20E FY21E Current Management

Enjoys Immense Popularity, Buy (Dec’20 TP of Rs126.04/share)

Free Float 20%

Local Dispatches Vs Utilization level EBITDA Margins vs Industry

Local (Mn.ton) Export (Mn.ton) Utilization level % ACPL Industry

ACPL's Revenue EPS Contribution

ACPL - Financial Statements Summary (June Year End)

Balance Sheet (Rs in Mn) FY18 FY19 FY20E FY21E

Key Ratios FY18 FY19 FY20E FY21E Current Management

Constrained Growth, Hold (Dec’20 TP of Rs18.02/share)

Free Float 55%

Local Dispatches Vs Utilization Level Local Market Share To Decline

Stagnant Growth Ahead GP Margin Vs EBITDA Margin

FCCL - Financial Statements Summary (June Year End)

DPS 2.00 1.50 0.25 0.75

Key Ratios FY18 FY19 FY20E FY21E Current Management

Unawaken Scrip, Buy (Dec’20 TP of Rs111.44/share)

Free Float 30%

Local Dispatches Vs Utilization Level EBITDA Margin Vs Industry

2.00 80% 15%

Local (Mn.ton) Export (Mn.ton) Utilization Level % KOHC Industry

Revenue To Grow Capacity Based Share To Rise

KOHC - Financial Statements Summary (June Year End)

Balance Sheet (Rs in Mn) FY18 FY19 FY20E FY21E Nit, 0%

Key Ratios FY18 FY19 FY20E FY21E Current Management

Venture Portfolio Gives A Pad (Dec’20 TP of Rs78.33/share)

Free Float 50%

Local Discpatches Vs Utilization Level EBITDA Margin Vs Industry

Local (Mn.ton) Export (Mn.ton) Utilization Level % DGKC Industry