ID :
190496
Wed, 06/22/2011 - 16:38
Auther :
Shortlink :
http://m.oananews.org//node/190496
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Morning Call about Lucky Cement Limited- Arif Habib Limited
Recovery in dispatches; hinting strong earnings growth in 4QFY11
Arif Habib Limited is reiterating our Buy stance on the stock of Lucky Cement Limited (LUCK) with the DCF based December 2011 target price of PKR 97.7/share.
According to Arif Habib Limited, at the closing price of PKR 70.09/share, the Scrip offers an upside potential of 39.4% from our target price. Besides sizable upside potential the Stock offers an attractive dividend yield of 8.6% for FY11. Furthermore LUCK is trading at FY11E PER of 6x as compared to 15.5x and 6.9x of DGKC and ACPL, respectively. Following factors shape our positive stance on the Scrip:
• Strategic move of routing 60% of its production in domestic market in FY11 as compared to 47% a year back, due to 24.2% higher retention price in the domestic market.
• Retirement of expensive long term debt and increasing reliance on cheap SBP Export Financing Facility has significantly reduced the debt servicing requirement for the Company. This coupled with no major capex requirement ahead, LUCK has the potential to surprise the market with healthy cash dividend of PKR 6/share in FY11.
• Market has yet to incorporate reduction in FED and abolishment of SED announced in the Federal Budget FY12. Although these measures have a pass on effect (PKR 21/bag) but it forms a strong case of improving margins going forward.
• Cost saving measures like Waste Heat Recovery Plants of 25MW and maintaining its own fleet of long trailers is likely to reduce the energy and transportation cost by 20% and 5%, respectively. Refused Derived Fuel Plant is likely to replace 40% of coal used in Karachi plant to generate additional cost savings.
• Selling 20MW electricity to Hyderabad Electric Supply Corporation (HESCO) will diversify the revenue base of the Company with an expected annualized contribution of PKR 1.2bn to the revenues.
A 38% QoQ earnings jump in 4QFY11 will be a trigger in short term
According to the industry sources, LUCK’s dispatches have crossed 1m tons in April-May2011, a 9% improvement, when compared with the dispatches of Feb- Mar2011. At current average, LUCK is likely to achieve 10% QoQ increase in the total dispatches in 4QFY11. Furthermore Ex-Factory price has gradually increased to PKR 365/bag in 4QFY11 as compared to the average of PKR 315/bag during 3QFY11. With strong pricing position coupled with 10% QoQ increase in the volumes, LUCK is expected to post 38% higher QoQ profitability in 4QFY11 to PKR 4.34/share.
Arif Habib Limited is reiterating our Buy stance on the stock of Lucky Cement Limited (LUCK) with the DCF based December 2011 target price of PKR 97.7/share.
According to Arif Habib Limited, at the closing price of PKR 70.09/share, the Scrip offers an upside potential of 39.4% from our target price. Besides sizable upside potential the Stock offers an attractive dividend yield of 8.6% for FY11. Furthermore LUCK is trading at FY11E PER of 6x as compared to 15.5x and 6.9x of DGKC and ACPL, respectively. Following factors shape our positive stance on the Scrip:
• Strategic move of routing 60% of its production in domestic market in FY11 as compared to 47% a year back, due to 24.2% higher retention price in the domestic market.
• Retirement of expensive long term debt and increasing reliance on cheap SBP Export Financing Facility has significantly reduced the debt servicing requirement for the Company. This coupled with no major capex requirement ahead, LUCK has the potential to surprise the market with healthy cash dividend of PKR 6/share in FY11.
• Market has yet to incorporate reduction in FED and abolishment of SED announced in the Federal Budget FY12. Although these measures have a pass on effect (PKR 21/bag) but it forms a strong case of improving margins going forward.
• Cost saving measures like Waste Heat Recovery Plants of 25MW and maintaining its own fleet of long trailers is likely to reduce the energy and transportation cost by 20% and 5%, respectively. Refused Derived Fuel Plant is likely to replace 40% of coal used in Karachi plant to generate additional cost savings.
• Selling 20MW electricity to Hyderabad Electric Supply Corporation (HESCO) will diversify the revenue base of the Company with an expected annualized contribution of PKR 1.2bn to the revenues.
A 38% QoQ earnings jump in 4QFY11 will be a trigger in short term
According to the industry sources, LUCK’s dispatches have crossed 1m tons in April-May2011, a 9% improvement, when compared with the dispatches of Feb- Mar2011. At current average, LUCK is likely to achieve 10% QoQ increase in the total dispatches in 4QFY11. Furthermore Ex-Factory price has gradually increased to PKR 365/bag in 4QFY11 as compared to the average of PKR 315/bag during 3QFY11. With strong pricing position coupled with 10% QoQ increase in the volumes, LUCK is expected to post 38% higher QoQ profitability in 4QFY11 to PKR 4.34/share.
