Analyst:

Muhammad Sarfraz Abbasi

sarfraz.abbasi@atlascapital.com.pk
(+92-21)-111-226-100 (Ext.403)

Morning Pulse Oct 26, 2010

BUY
Cement: DGKC – 1Q/FY11 financial Decline in operating expenses while increase in
performance preview… other Income to act as savior for bottom line…
We expect administrative and selling expenses to post a Market Snapshot
Synopsis… Index Chg %
D.G. Khan Cement Company Ltd (DGKC) is scheduled decline of 28.79% cumulatively in 1Q/FY11 to
PRs308.21m against PRs432.82m during the same period KSE 30 10297.54 47.46 .46
to announce its operating results for 1Q/FY11 tomorrow.
Pakistan Research

KSE 100 10703.71 51.23 0.48

We expect DGKC to post Profit after Tax (PAT) of of last year. We also foresee financial charges to post a
KSE ALL 7453.26 38.66 0.52
PRs64.12m translating into an EPS of PRs0.18, posting a trifling increase of 3.52% to PRs484.66m against
sharp decline of 89.03% against the corresponding PRs468.18m in 1Q/FY10. Nevertheless, we anticipate
period of last year when company recorded PAT of operating income to witness an upsurge of 27.51% to
PRs584.62m and EPS of PRs1.60 respectively. Moreover, PRs213.44m against PRs167.39m last year. Our
expectation for this substantial growth in other income is Key Data
we do not expect any payout announcement. In our Market Cap(PRs bn) 10.03
today’s report we present our detailed expectations on mainly because of the dividends from the associated
Shares Outstanding (m) 365.10
financial performance of company for 1Q/FY11. companies. Bloomberg DGKC PA
12M Avg. Volume (m) 851.59
Depress demand situation likely to axe revenues… (PRs m) 1Q/FY10 1Q/FY11E Chg
DGKC is likely to see yet another quarter of shrinking Sales 4,592 3,444 -25%
revenues. Historically speaking, first quarter normally Cost of Sales 3,275 2,656 -19%
generates low revenue as volumetric sale remains lower Gross Profit 1,317 788 -40% 12M DGKC relative performance vs KSE
138%
owning sluggish demand. However, during the 1Q/FY10 Operating Expenses 433 308 -29%
reason behind the nuisance was prevailing lower 116%
Other operating income 167 213 28%
retention prices, whereas in 1Q/FY11 it was attributed to 94%
Operating profit 958 588 -39%
dwindling demand in both local and export markets
owing to 1) disruption in normal construction activities Financial charges 468 485 4% 72% DGKC KSE-100

due to devastating floods 2) Low prices scenario Profit before Tax 490 103 -79% 50%
prevailing in export markets while higher sea freight

Apr-10

Aug-10
Oct-09

Feb-10

Oct-10
Jan-10
Nov-09

Dec-09

Jun-10

Sep-10
Mar-10

May-10

Jul-10
Taxation 95 39 -59%
charges make Pakistani cement uncompetitive 3) slow Profit after tax 585 64 -89%
pace of rehabilitation activities as the main focus of the EPS 1.60 0.18 -89%
government is to provide food and health facilities to
Source: Company accounts, Atlas Research
the to the flood effected people. Because of these
factors we expect top line of the company to witness a
Future Outlook and recommendation…
sharp decline of 25.00% to PRs3.45bn against
We believe that 2H/FY2011 is going to be an era of Atlas Capital Markets (Pvt.) Ltd
PRs4.560bn in 1Q/FY10. Gross profit of the company is B-209, Park Towers, Clifton, Karachi
substantial growth in dispatches especially in local
likely to face substantial decline of 40.17% to
market. Our anticipation is backed by the factors 1) Equity Research: Equity Sales:
PRs787.98m against PRs1.32bn during the corresponding Tel: 92 (21) 5376125 Tel: 92 (21) 5368261-8
reconstruction activities for flood infected people 2)
period of last year, despite of our expectation for the Fax: 92 (21) 5376126 Fax: 92 (21) 5376122
normal constructions actives 3) infrastructure rebuilding
company to incur lower cost of sales which is likely to Money Market: Corporate Finance:
post floods 4) augment in exports orders. We maintain Tel: 92 (21) 5376128 Tel: 92 (21) 5824991
record a decline of 18.90% to PRs2.66bn against
BUY stance on scrip as it offers an upside potential of Fax: 92 (21) 5376129 Fax: 92 (21) 5376122
PRs3.27bn mainly due to lower production cost.
42% to our SOTP based target price of PRs39. Financial Products Distribution:
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Limited accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All Atlas Research is available on Bloomberg and
information is provided without warranty and Atlas Capital Markets (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or Thomson Financial
completeness of any information hereto contained.