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.

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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.