AAH initiates FCCL coverage with a target price of Rs. 31
AAH Research has just initiated coverage of Fauji Cement Company Ltd (FCCL), raising its target price to Rs. 31 per share for December 2024, reflecting a potential upside of 35% from the last day’s closing price (LDCP) and a 7% dividend yield. Here are the key points from the report:
Investment Recommendation and Financial Outlook
The research house initiated coverage on FCCL with a “BUY” rating and a target price of PKR 30.83 per share, offering a substantial upside from the current levels. They anticipate FCCL to deliver an EPS of PKR 4.30 and a DPS of PKR 1.50 in FY24E, representing a robust growth of approximately 42% compared to FY23.
The investment thesis is supported by increased capacity share, anticipated uptick in cement demand, reduction in finance costs, and easing energy prices.
Industry Landscape and Market Share
The cement industry, known for its cyclical nature, is expected to witness improved profitability. FCCL’s recent amalgamation with Askari Cement and expansion in DG Khan has boosted its manufacturing capacity to 10 million tons, making it the third-largest player in the industry. FCCL’s market share surged to 11% in Q3FY24 and is expected to stabilize around 10%.
Energy Conservation and Margin Stability
FCCL has focused on energy conservation, with investments in solar and waste heat recovery (WHR) capacity. By reducing reliance on the national grid, FCCL has managed to optimize costs. The company’s coal mix primarily comprises Afghan and local coal, which is more cost-effective than international markets.
Debt Structure and Valuation
Despite being leveraged, FCCL’s debt structure is considered optimal. The company has utilized various financing schemes, with a majority of debt under variable financial charges. The research report values FCCL using the discounted cash flow (DCF) method, projecting a target price of PKR 31 per share by December 2024.
Investment Concerns and Risks
Key risks include potential inflationary pressures, import restrictions, and political instability affecting demand.
| Key Financials (PKR Million) | FY22A | FY23A | FY24F | FY25F | FY26F |
|---|---|---|---|---|---|
| Revenue | 54,243 | 68,069 | 80,754 | 102,856 | 129,047 |
| Gross Profit | 14,399 | 20,418 | 26,566 | 32,987 | 36,218 |
| EBT (Earnings Before Tax) | 11,528 | 12,900 | 17,076 | 22,586 | 25,285 |
| PAT (Profit After Tax) | 7,113 | 7,440 | 10,535 | 13,935 | 15,600 |
| EPS (Earnings Per Share) | 3.02 | 3.03 | 4.30 | 5.68 | 6.36 |
| Key Financials (PKR Million) | FY22A | FY23A | FY24F | FY25F | FY26F |
|---|---|---|---|---|---|
| Total Assets | 113,698 | 138,828 | 163,146 | 175,070 | 192,412 |
| Total Liabilities | 55,962 | 73,653 | 91,115 | 94,008 | 100,656 |
| Total Equity | 57,736 | 65,176 | 72,032 | 81,061 | 91,756 |
| Key Financials | FY22A | FY23A | FY24F | FY25F | FY26F |
|---|---|---|---|---|---|
| ROA | 6% | 5% | 6% | 8% | 8% |
| EV Per Ton (USD) | 40 | 17 | 33 | 33 | 29 |
| EPS | 3.02 | 3.03 | 4.30 | 5.68 | 6.36 |
| EPS Growth | 20% | 0% | 42% | 32% | 12% |
| Return On Equity | 12% | 11% | 15% | 17% | 17% |
| Debt to Equity | 45% | 62% | 66% | 52% | 41% |
| Gross Margin | 27% | 30% | 33% | 32% | 28% |
| EBIT Margin | 23% | 24% | 27% | 27% | 23% |
| Net Margin | 13% | 11% | 13% | 14% | 12% |
This table summarizes the key financial metrics for the specified fiscal years. Each metric provides an insight into the company’s performance, profitability, and financial health over time.
The information in this article is based on research by AAH Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.
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