Kohat Cement (KOHC)

Dear Clients,

Kohat Cement’s (KOHC) earnings recovered to PKR 1,059mn (EPS: PKR 5.27) during 3QFY21 against a loss of PKR 381mn (EPS: PKR -1.90) recorded during 3QFY20. The recovery in profitability was likely a product of: 1) increase in domestic retention, which rose by 18% Y/Y to PKR 597/bag, 2) higher domestic dispatches and 3) lower interest rates.

Key Highlights

– KOHC’s top-line picked up by 108% Y/Y to PKR 17,820mn during 9MFY21 post a 63% Y/Y increase in domestic dispatches to 2.9mn MT after record high industry dispatches and an increase in the company’s production capacity. Moreover, higher domestic retention also aided the overall top-line growth during the period.

– KOHC’s gross margins improved by 35pps Y/Y to 26% during 3QFY21 supported by the aforementioned improvement in retention and higher dispatches. Sequentially, however, margins contracted by 2pps Q/Q despite higher retention as coal prices shot up by 26% Q/Q to USD 90/MT.

– Financial charges dipped by 12% Q/Q to PKR 119mn during 3QFY21 on account of a lower debt balance resulting from a significant improvement in the company’s cash-flows.

– We have a BUY stance on the stock with a TP of PKR 295/sh. The stock offers an upside of 41% and trades at an FY22 PE of 7.8x.

Regards,
KASB Research

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