Update Pulse

July 28, 2011

Cement Sector: LUCK FY11 result expectation

because of expanded regional capacities, cut down in construction activities post economic meltdown and heavy sea freight charges on exports.
P KR (m) Net Sales Cost of Sales Gross Profit Financial Charges P rofit Before Tax Taxation P rofit After Tax E PS DPS Gross profit margin Net profit margin FY10 24,509 16,530 7,979 569 3,418 280 3,137 9.70 4.00 33% 13% FY11 25,521 17,059 8,462 568 4,049 287 3,762 11.63 4.00 33% 15% YoY 4% 3% 6% 0% 18% 3% 20%

BUY
Market Snapshot Index KSE 30 11687.85 KSE 100 12265.53 KSE ALL 8501.36 Chg -129.54 -98.53 -67.00 % -1.1 -0.80 -0.78

Pakistan Research

Synopsis
We anticipate LUCK to witness a sharp 20% YoY rise in earnings. Volumetric sales to witness decline mainly because of 34% YoY expected decline in export sales. Retention prices increased substantially by 32% YoY. We expect sales and COGS to post a marginal upsurge of 4% and 3% YoY respectively. Decline in coal prices in international market, higher dispatches and improved retention prices would be they key catalysts for earnings of FY12. Our Fair value of the scrip is PKR85, therefore, we suggest a BUY stance at current level.

Key Data Market Cap(PRs bn) hares Outstanding (m) Bloomberg 12M Avg. Volume (m)

23.53 323.38 LUCK PA 1.23

EPS to post a rise of 20% YoY

Lucky Cement Limited (LUCK) is scheduled to announce its th FY11 results on Saturday, 30 July11. We anticipate LUCK to witness a sharp 20% YoY rise in earnings by posting PAT of PKR3.76bn translating into an EPS of PKR11.63 as against PAT of PKR3.14bn and EPS of PKR9.70 respectively in the corresponding period last year. We also expect LUCK to declare a cash dividend of PKR.4.00.

Source: Company Finan cials, Summit Capital Research

Gross margins to stay flat at 33%

We expect cost of sale to post marginal upsurge of 3% to PKR17.05bn against PKR 16.53bn in FY10. During the FY11 international coal prices have seen rising trends as per ton coal prices which were hovering around US$105 at the commencement of the year reached at US$141 during the Jan11. The reason behind the upsurge in coal prices was attributed to decline in coal production and increased demand from major coal consuming countries. Nevertheless, coal prices have started settling down gradually at US$125 pert on after resumption of suspended operations in Queensland, Australia. Moreover, we also expect operating expenses and financial charges to stay flat.
137%

12M relative performance vs KSE

119%

Sales to witness an upsurge due to higher retention prices

Top line of the LUCK may have gone unlucky during FY11 if there was not a substantial jump of about 32% YoY in retention prices. We have incorporated a 34% YoY decline in export dispatches whereas 10% YoY increase in local dispatches. Thus, we expect sales of the company to witness a marginal increase of 4% to PKR25.52bn as against PKR24.50bn in FY10. FY11 remained a real testing time for the LUCK and other cement sector players as year started with monsoon rains at the advent which was later on converted into a devastating flood which badly impacted cement demand. Moreover, local market remained a victim of over supply situation as lesser exports forced players to target local market. On export front, decline was mainly

101%

83%

KSE-100

LUCK

65% Aug-10 Sep-10 Feb-11 Apr-11 Dec-10 Oct-10 Jan-11 May-11 Nov-10 Mar-11 Jun-11 Jul-10

Future outlook and recommendation

We believe, higher allocation to PSDP, reduced levies and improved retention prices would bode well for the company going forward. We also expect export to pick up in FY12 due to expected increase in demand in GCC countries. We recommend a BUY stance on LUCK (Target price PKR85)

Analyst: Muhammad Sarfraz Abbasi sarfraz.abbasi@summitcapital.com.pk 021-35376125 B-209, Park Towers, Clifton, Karachi

Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Summit Capital (Pvt.) Limited accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty and Summit Capital (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.