Ismail Iqbal Securities (Pvt.) Limited

Maple Leaf Cement Factory (MLCF) registered earnings of PKR 847mn (EPS: PKR 1.60) in the first quarter, up 55.3% from the earnings posted in same period last year. The increase was chiefly propelled by strong local dispatches and lower finance costs. The company’s overall dispatches witnessed a strong growth of 10% YoY to clock in at 0.704mn MT which led to an improvement of 11.5% YoY in its top line.

Other than that, the cost of sales saw an increase of 9% YoY on account of PKR depreciation, higher packaging costs and increase in gas tariff. We now have a target price of PKR 83 (Previous: PKR 80.6) for June 2016, which implies an upside of 19% to its closing price. We are therefore maintaining a buy recommendation on the scrip.

Company to highly benefit from upcoming projects

The company’s local dispatches saw an increase of 13.5% YoY to stand at 0.567mn MT on the back of higher construction activity in northern region. Exports dispatches saw a meager de-cline of 1.63% YoY to stand at 0.136mn MT owing to increasing penetration of cheap Iranian cement in Afghanistan. In the coming years, MLCF is likely to benefit from the construction of Dasu dam and Tarbela 4th extension on the basis of its proximity to the aforementioned pro-jects.

Cost curbing mechanisms continue

The cost of sales of the company may have escalated but decline in furnace oil and coal prices and significant reduction in power cost in the quarter abated the costs considerably. Other than that, the company has reduced its debt burden by PKR 473 billion in the quarter, leading to a reduction of almost 50% YoY in its finance cost. The company has also finalized the feasi-bility study for setting up a 40MW coal based power plant at the existing facility. Letter of credit is expected to be established in November 2015.

Updating target price to PKR 83

Our June 2016 target price now for MLCF is PKR 83, up from PKR 80.6 previously. Our target price implies an upside of 19% to the stock’s closing price; therefore, we are maintaining a buy recommendation on the stock.