IGI Securities Limited – Flash Note

Karachi, February 24, 2016 (PPI-OT): Cements – PIOC: Higher Base Effect of Other Income Diluted Impact of Growth in Revenues

Profitability contracted by 40%YoY to PKR 556mn (EPS: PKR 2.45) in 2QFY16, primarily due to one-off other income of PKR 558mn recorded in same period last year, on account of loan payback to ADB. Company also announced a hefty cash dividend of PKR 2.50/share.

Earnings for 1HFY16 declined by 23%YoY to PKR 988mn (EPS PKR 4.35).

Revenue increased by +15%YoY to PKR 2.4bn in 2QFY16 on the back of +15%YoY growth in total dispatches (+15%YoY local dispatches growth).

Gross Margin improved by 460bpsYoY to 43% in 2QFY16 as compared to 38% in same period last year. As a result, gross profit grew by +29%YoY to PKR 1.0bn. This is on the back of a) volumetric growth in dispatches, b) lower coal prices and, c) decline in power cost.

Effective tax rate has increased to 41% in 2QFY16 compared to 27% in same period last year, resulting in 13%YoY increase in tax expense to PKR 395mn.

Recommendation

Company plans to install 12MW Waste Heat Recovery Plant (WHR) at initial project cost of PKR 1.5bn (~USD 15mn). This would reduce PIOC’s dependence on National Grid by ~40-45%, providing annualized savings of PKR 1.5-1.7/share. The scrip is currently trading at FY16 P/E of 8.8x and offers +62% upside from last close along with 7.6% dividend yield. With IGI Securities Limited’s Dec-16 TP of PKR 133/share, IGI Securities Limited maintains IGI Securities Limited’s ‘BUY’ call on the scrip.