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.