Lucky Cement has underperformed the market by 9%

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    • cement1Lucky Cement (LUCK) is due to announce 4QFY14 financial results on September 02, 2014, where we expect earnings to grow by 14% YoY to Rs9.65/share.
    • The anticipated sturdy YoY growth is on the back of (1) volumetric growth and (2) higher cement prices.
    • On a QoQ basis, we project LUCK’s earnings to grow by 3% owing to seasonally driven uptick in volumetric sales.
    • LUCK has underperformed the market by 9% on risk of imposition of ant-dumping duty on Pak Cement exports in South Africa . Although, we see low probability of imposition of anti dumping duty our back of the envelop calculation suggest that if 10% import duty is imposed this could result in an annualized negative EPS impact of 6% for LUCK.
    • Presently, we maintain our ‘Hold’ recommendation on LUCK with a Target Price of Rs384.

    4QFY14 EPS likely to clock in at Rs9.65, up 14%YoY
    The Board of Directors of LUCK is scheduled to meet on September 02, 2014 to announce the 4QFY14 financial results. On a standalone basis, we expect LUCK to post PAT of Rs3,121mn (EPS: Rs9.65) in 4QFY14 vis-à-vis PAT of Rs2,732mn (EPS: Rs8.45) in the same period last year, up by 14%YoY. The anticipated sturdy YoY growth is on the back of (1) volumetric growth led by exports and (2) higher cement prices (+8%YoY). Meanwhile on a sequential basis, we project LUCK’s earnings to grow by 3% owing to seasonally driven uptick in volumetric sales. After incorporating our 4Q estimates, we expect LUCK to register an EPS growth of 16%YoY to Rs34.96. Alongside result, we also expect the company to announce a final cash dividend of Rs9/share.
    Anti dumping duty concerns can hurt Lucky Cement
    Luck’s stock price has plunged sharply over the last two weeks where the stock underperformed the market by 9%. The under performance is largely attributed to the news that South African cement manufacturers submitted an application recently to International Trade Administration Commission of South Africa where they have alleged that Pakistani cement is being dumped in the South African Market. Since LUCK is Pakistan’s biggest cement exporter to South Africa, the stock also underperformed the cement sector by 5% over the last fortnight. We believe market has overplayed these concerns as we expect low probability of imposition of anti dumping duty given that consumers in South Africa are beneficiaries amid the current scenario. That said, our back of the envelop calculation suggest that if 10% import duty is imposed, it is likely to result in an annualized negative EPS impact of 6% for LUCK. However, we also flag the possibility of LUCK switching to East African markets, if anti-dumping duty is imposed and Pak exporters loose their competitive edge in South Africa.

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