Cherat Cement Company Limited (CHCC) Q3 earnings preview
Akseer Research has just released an update on CHCC’s previous quarter’s financial results. Here are the important points from their 3QFY24 earnings preview:
Anticipated Earnings Per Share (EPS) Growth
CHCC is expected to report an EPS of PKR 7.27 in 3QFY24, showing an 11% increase compared to the same period last year when the EPS was PKR 6.55.
Factors Driving Profitability
The increase in profitability can be attributed to higher cement prices and lower coal prices despite a decline in dispatches.
Expected Decrease in Net Sales
The net sales are anticipated to decrease by 6% YoY to PKR 8.8 billion in 3QFY24, mainly due to lower dispatches.
Dispatches Breakdown
- Overall dispatches are expected to decline by 16.4% YoY.
- Local sales are projected to drop by 20.4%.
- However, exports are anticipated to increase by 33.5% YoY during the 3QFY24.
Price Trends
Local cement prices are estimated to have increased by 16.4% YoY in the Northern region, while export prices are expected to improve by 19.7% YoY for the company in Rupee terms.
Impact of Coal Prices
Coal prices declined by 16.7% YoY in 3QFY24 due to ease in international coal prices, contributing to improved margins.
Expected Gross Margin Increase
The gross margin is expected to rise to 33%, exhibiting a 7.6ppt YoY increase.
Cost Analysis
- Selling & admin expenses are expected to increase by 3% YoY.
- Finance costs are expected to surge by 19% YoY due to high borrowing amid elevated interest rates.
Investment Recommendation
Akseer Research has a ‘BUY’ recommendation on CHCC with a Dec-24 price target (PT) of PKR 215/share, providing a potential upside of 30% and a dividend yield of 3%.
Financial Estimates (PKR mn)
| Financials | 3QFY22 | 3QFY23E | YoY | 9MFY22 | 9MFY23E | YoY |
|---|---|---|---|---|---|---|
| Net Sales | 9,299 | 8,765 | -6% | 28,756 | 29,056 | 1% |
| Cost of Sales | 6,892 | 5,831 | -15% | 20,463 | 19,515 | -5% |
| Gross Profit | 2,407 | 2,934 | 22% | 8,293 | 9,540 | 15% |
| Selling & Admin. Exp | 277 | 285 | 3% | 760 | 882 | 16% |
| Other Income | 236 | 141 | -40% | 360 | 360 | 0% |
| Other Charges | 105 | 153 | 45% | 336 | 429 | 28% |
| Finance cost | 415 | 495 | 19% | 1,416 | 1,306 | -8% |
| Profit before tax | 1,846 | 2,141 | 16% | 6,142 | 7,283 | 19% |
| Taxation | 573 | 729 | 27% | 1,831 | 2,441 | 33% |
| Net Income | 1,272 | 1,412 | 11% | 4,310 | 4,842 | 12% |
| EPS | 6.55 | 7.27 | 11% | 22.19 | 24.77 | 12% |
Key Financial Ratios
| Financial Ratios | FY21A | FY22A | FY23A | FY24E | FY25F | FY25F |
|---|---|---|---|---|---|---|
| EPS | 16.50 | 22.93 | 22.67 | 30.69 | 37.91 | 44.24 |
| EPS Growth | -269% | 39% | -1% | 35% | 24% | 17% |
| DPS | 2.25 | 3.00 | 4.50 | 3.50 | 7.50 | 9.00 |
| PER | 8.2 | 5.9 | 6.0 | 4.4 | 3.6 | 3.1 |
| Dividend Yield | 1.7% | 2.2% | 3.3% | 2.6% | 5.6% | 6.7% |
| EV/EBITDA | 5.6 | 4.2 | 3.5 | 2.8 | 2.2 | 1.8 |
| P/B | 1.9 | 1.5 | 1.3 | 1.0 | 0.8 | 0.7 |
| ROE | 23.6% | 25.7% | 21.1% | 22.5% | 22.7% | 21.8% |
Valuation Basis
The PT for Cherat Cement Company Limited (CHCC) has been computed using Free cash flow to equity (FCFF) method, with a risk-free rate of 15%, beta of 1.0, and market risk premium of 6% to arrive at a cost of equity of 21%.
Investment Thesis
The ‘Buy’ recommendation on the stock is based on a Dec-24 PT of 215/share, providing an upside of 30% along with a dividend yield of 3%. The investment case on CHCC is supported by the ease in coal prices and improved retention prices.
Risks
Key downside risks include higher than anticipated increase in input cost (Coal, FO, Gas), lower than anticipated growth in cement demand, lower than expected cement prices, and lower than anticipated decline in interest rates.
Company Description
Cherat Cement Company Limited manufactures, markets, and sells Portland cement and clinker in Pakistan. The company sells its products under the Cherat brand name and also exports its products to Afghanistan. The company was incorporated in 1981 and is headquartered in Karachi, Pakistan.
The financial data for CHCC’s quarterly results:
| Financial Estimates (PKR mn) | 3QFY22 | 3QFY23E | YoY | 9MFY22 | 9MFY23E | YoY |
|---|---|---|---|---|---|---|
| Net Sales | 9,299 | 8,765 | -6% | 28,756 | 29,056 | 1% |
| Cost of Sales | 6,892 | 5,831 | -15% | 20,463 | 19,515 | -5% |
| Gross Profit | 2,407 | 2,934 | 22% | 8,293 | 9,540 | 15% |
| Selling & Admin. Exp | 277 | 285 | 3% | 760 | 882 | 16% |
| Other Income | 236 | 141 | -40% | 360 | 360 | 0% |
| Other Charges | 105 | 153 | 45% | 336 | 429 | 28% |
| Finance cost | 415 | 495 | 19% | 1,416 | 1,306 | -8% |
| Profit before tax | 1,846 | 2,141 | 16% | 6,142 | 7,283 | 19% |
| Taxation | 573 | 729 | 27% | 1,831 | 2,441 | 33% |
| Net Income | 1,272 | 1,412 | 11% | 4,310 | 4,842 | 12% |
| EPS | 6.55 | 7.27 | 11% | 22.19 | 24.77 | 12% |
The key financial ratios for CHCC:
| Key Financial Ratios | FY21A | FY22A | FY23A | FY24E | FY25F | FY25F |
|---|---|---|---|---|---|---|
| EPS | 16.50 | 22.93 | 22.67 | 30.69 | 37.91 | 44.24 |
| EPS Growth | -269% | 39% | -1% | 35% | 24% | 17% |
| DPS | 2.25 | 3.00 | 4.50 | 3.50 | 7.50 | 9.00 |
| PER | 8.2 | 5.9 | 6.0 | 4.4 | 3.6 | 3.1 |
| Dividend Yield | 1.7% | 2.2% | 3.3% | 2.6% | 5.6% | 6.7% |
| EV/EBITDA | 5.6 | 4.2 | 3.5 | 2.8 | 2.2 | 1.8 |
| P/B | 1.9 | 1.5 | 1.3 | 1.0 | 0.8 | 0.7 |
| ROE | 23.6% | 25.7% | 21.1% | 22.5% | 22.7% | 21.8% |
These ratios provide insights into the company’s earnings, growth, dividend distribution, valuation, and return on equity over multiple years.
Disclaimer:
The information in this article is based on research by Akseer 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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