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DGKC - D.G. Khan Cement Company Limited

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AHL Research

17 April 2017


Result Preview

DGKC: Earnings to increase 5% YoY in 9MFY17

We preview the financial result for D.G. Khan Cement Company Limited (DGKC) scheduled to be announced on April 19th, 2017. We expect the company to post 15% QoQ earnings drop to PKR 2,219mn (EPS: PKR 5.07) as company’s total dispatches are expected to decline by 9% QoQ. On a cumulative 9M basis, the company is expected to post a 5% YoY earnings growth to PKR 6,725mn (EPS: PKR 15.35) compared to PKR 6,379mn (EPS: PKR 14.56) in the corresponding period last year. The growth is mainly due to 9% YoY jump in dispatches (12% YoY increase in local sales while exports down 7% YoY). Moreover, distribution expenses are expected to increase by 15% YoY due to augmented export handling charges. In addition, finance costs are expected to surge by 154% YoY amid procurement of long term financing for hub plant along with higher short term borrowings.



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Aba Ali Habib Research

18 April 2017


DGKC Result Preview


9MFY17 EPS to up by 3.85% YoY to PKR 15.12


  • DGKC is scheduled to announce its 3QFY17 results on 19th April 2017. 9MFY17 EPS of company is likely to clock in at PKR 15.12, against 14.56 in SPLY, up by 3.85% YoY primarily on back of rise in volumetric sales to 3.36mn tones from 3.16mn tones, up by 6.5% YoY (Local: 9.7% YoY, Export: -10.9%). Decline in exports is due to closure of Pak Afghan border for almost one month.
  • 3QFY17 EPS is expected at PKR 4.5 compared to PKR 5.25 in SPLY, down by 14.3% due to expected dip in gross margins by 5.1pps to 39.3% against 44.4% in corresponding period of last year. Contraction in gross margins is due to surge in coal prices by 57% during 9MFY17. Moreover, company is unlikely to announce any dividends for 3QFY17.
  • We maintain our “BUY” stance on this scrip with Dec’17 TP of PKR 332, implying potential upside of 48% along with dividend yield of 2.4%.

DGKC Preview 18042017_Page_1-min.jpg

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D.G. Khan Cement Company Ltd. (DGKC) is scheduled to announce its 3QFY17 financial result on 19thApr-17, where we expect company to post PAT of PKR 2.19bn (EPS PKR 4.99), down by 5%YoY as compared to PKR 2.30bn (EPS PKR 5.25) registered in corresponding period last year.


We recommend ‘BUY’ call on LUCK and DGKC with Dec-17 TP of PKR 949/share and PKR 274/share, offering upside potential of +11% and +21% respectively



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AHL Research

19 April 2017


Earnings Review – 3QFY17 EPS @ PKR 4.45, -25% QoQ

DGKC: 9MFY17 EPS @ PKR 14.73 (up 1% YoY)


The BoD’s of D.G. Khan Cement (DGKC) released 3QFY17 results today, with profit after tax (PAT) set at PKR 1,948mn (EPS: PKR 4.45), down by 25% QoQ in contrast to preceding quarter’s bottom-line of PKR 2,598mn (EPS: PKR 5.93). This takes the cumulative profitability of 9MFY17 to PKR 6,454mn (EPS: PKR 14.73), up 1% YoY from SPLY’s earnings of PKR 6,379mn (EPS: PKR 14.56).

DGKC 9MFY17_Page_1.jpg

Result Highlights

  • Sequential decline in company’s turnover (down 2% QoQ to PKR 7.9bn) is attributable mainly to a 9% drop in cement dispatches during 3QFY17.
  • While gross margins dropped sharply by ~610bps during 3QFY17 to 36%, compared to 42% in 2QFY17 due to augmented costs including coal and fuel cost. However, 9MFY17 gross margins remained relatively stable clocking in at 42% (down ~101bps).
  • Selling expenses dropped by 11% QoQ to PKR 223mn, owed to 7% contraction in export dispatches, adding up to PKR 728mn in 9MFY17, depicting a 17% YoY jump from 9MFY16.
  • Effective taxation during the quarter was booked at 26% (2QFY17: 22% and 9MFY17: 26%).

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IGI Research

19 April 2017


DGKC: Earnings clocked in at PKR 4.45/share for 3QFY17, down by 15%YoY

  • D.G Khan Cement Company (DGKC) announced financial results for 3QFY17 with earnings clocking in at PKR 1.95bn (EPS PKR 4.45) down by 15%YoY (19%QoQ) as compared to PKR 2.60bn (EPS PKR 5.93) in the same period last year, taking 9MFY17 cumulative earnings to PKR 6.45bn (EPS PKR 14.73), up by +1%YoY.
  • During 3QFY17, net sales increased by +3%YoY to PKR 7.95bn as compared to PKR 7.68bn reported in the same period last year on the back of higher retention prices and increased local sales mix of 88% (3QFY16; 84%).
  • Gross margins witnessed a decline of 817bps to 36.2% during 3QFY17 likely owing to higher coal price and increased fuel/power cost as a result of dependence on Khairpur Captive plant utilizing LNG as a source of power generation.
  • Finance cost inclined by 2.9xYoY to PKR 109mn during 3QFY17 likely owing to higher short term borrowing cost.
  • However, effective tax rate declined by 511bps to 26.2% in 3QFY17 providing some support to earnings.



We maintain our “BUY” call on DGKC with our Dec-17 target price of PKR 274/share, offering +20.8% upside from its last closing. The company is currently trading at a FY17E P/E of 10.4x and offers a dividend yield of 3%.

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BMA Research

16 June 2017


Growing core with diversified portfolio as cherry on top; Reinstate with ‘OW’


  • We reinstate coverage on DG Khan Cement Company (DGKC) with an Overweight stance and a Jun’18 SOTP-based TP of PKR270, offering an upside of 22% from current levels.
  • Our conviction on the scrip is based on its:

  1. ability to operate beyond 100% utilization with industry’s most efficient cement plants

  2. efficient sales mix

  3. utilization of industry’s first coal-based Captive Power Plant (CPP)

  4. sustainable margins and

  5. strong EBITDA generation.

  • DGKC’s well-diversified investment portfolio (37% of its total assets), provides the company with a continuous dividend stream along with reducing its concentration risk (contributes PKR51 to our TP).
  • Moreover, to expand and sustain its market share, DGKC has announced dual expansions in both North and South region. The 2.8mn tons South expansion brings with it world’s largest grinding mill making DGKC one of the most efficient cement producer across the globe.
  • DGKC trades at a forward P/E of 9.7x (19% discount to industry average), and is one of our top picks in BMA Cement Universe.

Re-initiate coverage with TP of PKR270; Overweight: We re-initiate coverage on DG Khan Cement Company (DGKC), Pakistan’s 3rd largest cement player in terms of capacity and 2nd largest in terms of market share, with an Overweight stance and a Jun’18 SOTP-based Target Price (TP) of PKR270, offering an upside of 22% from current levels. Our conviction in the scrip is based on:

  1. ability to operate beyond 100% utilization with industry’s most efficient cement plants thus outdoing concerns on volumetric constraint,
  2. efficient sales mix with 88% contribution from high margin local sales,
  3. sustainable margins given inhouse access to all possible sources of cheaper power generation including industry’s first coal-based Captive Power Plant (CPP),
  4. well-diversified investment portfolio leading to continuous dividend stream, and
  5. expansion projects in both regions to sustain as well as grow its market share (compared to other players who are expanding mainly to defend their share).

DGKC trades at a forward P/E of 9.7x (19% discount to industry average), and is one of our top picks in BMA Cement Universe.


FY17 to face brunt of high cost and super tax; margins to sustain ahead: We expect FY17 earnings to record a decline of 6% YoY to PKR18.87/sh, driven by two key factors:

  1. increase in fuel and power cost on the back of higher Coal and FO prices and linkage of natural gas price with LNG from 2HFY17 leading to PKR160-180/mmbtu increase in prices; however, utilization of 30MW coal-based CPP during the year helped in partially offsetting the impact of increase in cost, and
  2. imposition of 3% super tax, which although was applicable in FY16 as well but the negative impact of the same was more than mitigated by the one-off tax credit booked on installation of coal-based CPP during the previous year.

Nevertheless, given company’s efficient sales mix and ability to efficiently operate beyond 100% along with timely commencement of South expansion project (due in 4QFY18), we expect the topline to grow at a 3-yr CAGR of 14%. Moreover, utilization of cheaper inhouse power generation including coal will likely help sustain the margins for the company (we eye an average of 46% on cash-basis over FY17-19F).


Diversification to support earnings growth: DGKC has a diversified investment base with its stake in Banking, Insurance, Textile, Dairy, Paper and board, Hotel and Real estate etc, reflecting ~37% of its assets. The investment portfolio not only provides continuous dividend stream to the company but also reduces its concentration risk. In terms of recent developments, DGKC’s 55% stake in Nishat Paper Ltd has started to bear fruits with company turning profitable since FY16 (contributed first ever dividend of PKR1/sh). We expect Nishat Paper to continue to contribute positively towards the investment income of DGKC. Moreover, the company is set to benefit from its 12.5% equity stake in Nishat Emporium through Nishat Hotel and Properties; the PKR24bn project is expected to generate ROE of 25-30% in the form of rental income (more than 70% occupancy rate). We estimate DGKC to generate a dividend income of PKR200-300mn from FY17 onwards through this project. DGKC’s portfolio contributes PKR51/share or 19% to our SOTP-based valuation of the company.


Increasing its reach with dual expansions: DGKC is in the process of expanding its arms in both North (brown-field) and South region (green-field) with a capacity addition of ~2.2mn tons and 2.8mn tons, respectively. On one hand, expansion in South will help the company increase its geographical reach along with easy and less costly access to exports market through sea; while on the other hand, North expansion will help DGKC defend its regional market share while making it the 2nd largest player in terms of capacity in the region (outdoing Lucky Cement).


#1 South expansion-COD expected by Mar’18: The project, located at Hub, entails a total cost of USD350mn to be financed with a debt/equity ratio of 60/40. A key highlight of the project is the installation of world’s largest grinding mill with a capacity of 654 tons per hour (4.7mn tons per annum), providing operational cost efficiency to the company along with an option to expand further in future within a small time frame, if required (highly unlikely given current quantum of planned expansions in South, as 88% of the existing capacity or 7.57mn tons is slated to be online by FY19). That said, we have assumed prices to remain soft in South post-expansions, however, any further decline in prices may hurt our earnings estimates (earnings decline by ~2% on every drop of PKR10/bag in prices). In terms of current progress, the project is currently under erection phase and is expected to start commissioning by Dec’17 with commencement of commercial operations from Mar’18. We flag booking of 10% tax credit as per Section 65b of income tax ordinance on the total cost of expansion project as an upside to our estimates.


#2 North expansion: The North expansion project will likely add 2.2mn tons to the existing DG Khan site, at an estimated total cost of USD150mn to be financed by 50:50 debt/equity ratio. To note, no material development has been witnessed to this end, since the announcement of the plans to expand. We await further clarity on the project, before incorporating the same into our estimates.


Strong EBITDA generation with healthy dividend expectations: DGKC’s EBITDA generation is expected to remain strong (PKR16-19bn over FY18-22F) along with healthy cashflow generation (PKR12-15bn) post commencement of its expansion project. We believe, this will help the company to comfortably increase its payout to 40% of its profit after tax as per the regulatory requirements stipulated in the recent Budget FY18 where every listed company with reserves greater than its paid-up-capital is required to payout at least 40% of its net income to the shareholders or pay additional tax as penalty (applicable from Jul’17).


Key risks: Key risks to our estimates include:

  1. delay in commissioning of South expansion project,
  2. more than expected decline in local prices post DGKC's expansion,
  3. sharp surge in input cost (coal/gas/FO prices), and
  4. lower-than-expected dividends from associated companies.

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Aba Ali habib Research

19 September 2017


DGKC: Results Review: Margins hammered, EPS fell by 9.2% YoY to PKR 18.2; in line with our estimates

  • DGKC announced its financial results for FY17, where PAT of the company clocked in at PKR 7.97bn (EPS: 18.20), in line with our expectations of PKR 8.03bn (EPS: 18.33). Earnings during the year fell by 9.2% YoY due to dip in gross margins by 3.3pps YoY to 39.3% on back of increase in coal prices by ~44.5% YoY.
  • During 4Q, company reported EPS of PKR 3.47 against 4.05/4.45 during 4QFY16/3QFY17, down by 14%/22% YoY/QoQ due to decline in net sales by 3.2%/5.6% YoY/ QoQ. Volumetric sales of the company witnessed decline of 11.3%/ 1.1% YoY/QoQ.
  • Finance cost of the company went up by 1.93x during FY17 to PKR 382mn from 130mn, whereas effective tax rate during the year was 28.5% compared to 29.6% in FY16.
  • Company declared final cash dividend of PKR 7.5 per share, in line with our estimations following dividend distribution clause of Finance act.
  • We have kept our cement universe under review due to apprehension in per bag prices. Similarly, Updated industry report would be released shortly.

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AHL Research

18 October 2017


Profitability up by 49% YoY / 87% QoQ


The Board of D.G. Khan Cement (DGKC) released the 1QFY17 result today, with unconsolidated earnings set at PKR 2,837mn (EPS: PKR 6.48), up by 49% YoY / 87% QoQ as compared to PKR 1,908mn (EPS: PKR 4.35) in SPLY.


Result Highlights

  • The company’s turnover depicted a 14% jump YoY to PKR 7.5bn during 1QFY18 mainly attributable to robust growth in cement dispatches (+15% YoY) in total cement dispatches (21% YoY growth in local sales and 14% YoY decline in exports).
  • While gross margins dropped by 9ppt during 1QFY18 to 35% in contrast to 44% during 1QFY17 due to higher coal prices (average coal prices up 33% YoY in the period under review).
  • A 20% jump in finance costs was also observed in 1QFY18 to PKR 89mn as leveraging plays its part on account of higher long term debt.
  • Selling expenses retreated by 9% YoY to PKR 233mn in the period under review amid lower exports.
  • The company also recognized a tax reversal in 1QFY18 amid availability of tax credit on its Greenfield plant (Hub) as opposed to 38% effective taxation booked during SPLY.


  • Our Jun’18 target price is set at PKR 210.10/share, we recommend “BUY”.

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D.G. Khan Cement Company Limited (DGKC): Tax-credit fueling earnings growth in 1HFY18

Friday, 16 February 2018

By: Pearl Securities Limited

  • The board meeting of DG Khan Cement Limited is scheduled on 20th of Feb’18 to announce its 1HFY18 financial results
  • We expect the company to post profit after tax of PKR5,317mn (EPS PKR12.14) in 1HFY18 versus PKR4,506mn (EPS PKR10.28) in the corresponding half of last year, exhibiting an increase of 18%YoY. The increment in earnings is solely due to the tax-savings on its new cement plant.
  • Top-line of the company is expected to clock in at PKR15,981mn in 1HFY18 as against PKR14,687mn during same half last year, augmenting by 9%YoY. This accretion in top-line is primarily due to higher dispatches, up 11%YoY.
  • On a quarterly basis, we estimate DGKC’s bottom-line to exhibit a decline of 5%YoY to PKR2,479mn despite higher volumes & tax savings. This is principally in the wake of squeezed margins due to double digit rise in production cost (up 18%YoY).

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DG Khan Cement Limited (DGKC): Tax credit reversal may significantly impair 2Q earnings


Monday, 19 February 2018

By: JS Global Capital Limited

  • The Board of Directors of DG Khan Cement Limited (DGKC) is scheduled to meet on Tuesday, February 20, 2018 to discuss its 1HFY18 financial results.
  • We expect DGKC to announce an EPS of Rs2.13 for the 2QFY18 (down 64% YoY) primarily due to one-off expected temporary tax reversal and substantial decline in GP margins
  • Cumulatively during 1HFY18, earnings are likely to clock-in at Rs8.63/share (down 27% YoY) mainly due to (1) higher cost of production, (2) increase in operating expenses and (3) 16% YoY decline in other income.
  • We currently have a ‘Buy’ rating on the stock with our Dec-2018 Target Price of Rs199 that offers an upside of 41% from its last close.

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D.G. Khan Cement Limited (DGKC): 3QFY18 Result Review



27 April 2018

ASDA Securities (Private) Limited




  • The company reported net sales of PKR 7,612mn, down by 4% as against PKR 7,946mn, SPLY
  • Gross profit for the period under review shrank by a massive 26%/33%, QoQ/YoY. Gross margin stood at only 25% owing to depressed cement price per bag and higher international coal prices (3QFY18: USD 95/ton)
  • Net Profit for the period declined by 37%, SPLY to report at PKR 1,236mn (EPS: PKR 2.82), taking 9MFY18 profit to PKR 1,718mn (EPS: 11.34).

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D.G. Khan Cement Limited (DGKC): EPS posted at PKR11.34 in 9MFY18 - 23%YoY fall



27 April 2018

Pearl Securities Limited




  • DG Khan Cement Limited announced its 9MFY18 financial results wherein the company reported profit after tax of PKR4,970mn (EPS PKR11.34) as against PKR6,454mn (EPS PKR14.73) in the corresponding period of last year, down 23%YoY. The earnings remained close to our expectations
  • Top-line of the company arrived at PKR23,375mn as against 22,633 in the same period of last year, up 3%YoY. This accretion is attributable to higher dispatches (up8%YoY) during 9MFY18 despite depressed cement prices.
  • On a quarterly basis, bottom-line of the company arrived at PKR1,236mn (EPS PKR2.82) during 1QFY18 as compared to PKR1,948mn (EPS PKR4.45) in the same quarter of last year, down 37%YoY. This attrition is primarily due to decline in DGKC’s margin which shrank 3ppsYoY to 25% as against 28% in same quarter of last year due to higher production cost in the in the wake of surging coal prices (up 26%YoY).

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D.G. Khan Cement Company Limited (DGKC): Pressure on gross margin drags earning



15 May 2018

Azee Securities (Pvt.) Ltd.




  • In our today's morning briefing we would discuss the performance of D.G. Khan Cement Company Limited (DGKC) in 9MFY18
  • Primarily owing to higher coal prices, the profit after taxation (PAT) of DGKC fell by 23% YoY in 9MFY18 to Rs 4,970 million (EPS: Rs 11.34) as against a PAT of Rs 6,454 million (EPS: Rs 14.73) in 9MFY17. In addition to higher coal prices, the lower cement prices and surge in finance cost affected the profitability of the company. Higher volumetric sales however provided some support to the bottom-line
  • On QoQ basis however the bottom-line of the company managed to post 38% growth mainly on back of lower effective taxation while some recovery in local cement prices towards the end quarter also provided some support but gross margin significantly down to 25% in 3QFY18 to 32% in 2QFY18. The PAT of the company totaled Rs 1,236 million (EPS: Rs 2.82) in 3QFY18 as against a PAT of Rs 896 million (EPS: Rs 2.05) in 2QFY18. The effective taxation of the company stood at 25.7% in 3QFY18 versus 64.9% in 2QFY18.

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D.G Khan Cement Company Limited (DGKC): Revising Target price to PKR 197 upon revision in assumptions



22 May 2018

Ismail Iqbal Securities (Pvt.) Limited




  • D.G Khan Cement Company Limited (DGKC) announced earnings of PKR 1.2 bn (EPS: PKR 2.82) for 3QFY18, reporting a decline of 36.6% YoY despite an increase in its total dispatches. The decline in earnings was mainly because of lower cement price during the quarter along with expensive coal which reduced margins down to 25.2% during the quarter against 36.2% in the SPLY. Going forward in 4QFY18, we expect earnings to increase by 2.6x times YoY due to a one off tax impact on DGKC’s expansion plant.
  • We have increased our December-18 target price to PKR 197/share from our previous target price of 186/share after revising some assumptions. Our new target price still offers an upside of 55%; hence, we are maintaining positive stance on the scrip. Please note that we have not taken implication of Katas Raj case decision into our model as we await further information of the case which will be available once formal order of the case is released.
  • During 3QFY18, DGKC’s total dispatches increased by ~6% YoY owing to hike in cement demand from local market. During the quarter, the company’s dispatches to local market increased by 7% YoY due to continuous growth in construction work throughout the country, mainly related to CPEC, and materialization of the budgeted spending on PSDP projects. However, cement dispatches to export destinations declined by 6.4% YoY which we expect to improve considering recent devaluation of PKR. Please note that decline in exports was mainly because of lower margins from export dispatches compared to local sales.

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D.G. Khan Cement Limited (DGKC): Enters the southern region, as trial operations begin



23 May 2018

EFG Hermes Pakistan Limited




  • As per the notice issued to the stock exchange, DG Khan Cement (DGKC) has completed the installation of its southern cement plant with an annual production capacity of c2.7mn tons (increasing total capacity by c65%). Trial operations have commenced, with successful commissioning of the cement silos, packing plant, raw material crushing, transportation and storage departments. Our discussion with the management suggests that a time period of c20-40days (depending on technical requirements) is required before moving to the commercialization phase. DGKC is also confident of securing the 5-year tax-haven for its southern plant since the company will be paying FED and GST on the bags dispatched (produced in trial run), therefore meeting the 30th June 2018 deadline.
  • We incorporated the new plant in FY19 and resultantly recognized a 10% tax credit in our 2019e earnings (under section 65B of the tax ordinance). However, with the plant coming into operation earlier than we had anticipated, it would imply a 39% uplift to our FY18 earnings (From PKR17.6/share currently to PKR24.4/share) – this incorporates the 10% tax credit. DG Khan will further enjoy a tax haven status on its new plant for five years, which we believe will provide the company with a competitive advantage in the southern region – this will require an update to our numbers as we incorporate the tax benefit. Looking forward, we maintain our liking for DGKC, given addition of very cost-competitive new capacity, which is set to unlock earnings growth (we expect a 11.8% five year earnings CAGR) and its commendable investment portfolio. However, we do highlight a tough operating environment in the southern region, which would test the pricing discipline as the region has already witnessed expansions by Lucky and Attock cement, and Power cement’s expansion is set to follow. At the current price, the stock trades at an attractive forward P/E of 7.5x. We have a Buy rating on the stock with a TP of PKR190/share, implying an upside potential of 44%.

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D.G. Khan Cement Company Limited (DGKC): South pricing discipline to sustain; Inexpensive multiples; Strong ‘Buy’ maintained



30 May 2018

IGI Finex Securities Limited




  • DGKC has lost nearly 40% since the beginning of FY18TD and compared to the benchmark KSE-100 index, the scrip has underperformed by nearly 32%. We think DGKC’s strong share price underperformance is overdone. We reiterate our view on the scrip as we expect pricing discipline to continue in South despite recent commencement of DGKC’s Hub Plant, which will be crucial in keeping company’s gross margins stable. Recent budgetary tax measures such as sequential reduction in corporate tax from 30% in 2018, to 25% by 2023 is warmly welcomed. Albeit, continuation of Super tax and 20%YoY increase in FED have clearly negative implications for the sector as in whole, however, players have hit back yet again with a simultaneous cements price increase to compensate for the latter.
  • As such we have revised our earnings for DGKC incorporating budgetary measures and commencement of its Hub plant, with EBITDA now projected to show a +7% CAGR over the next 5yrs (FY19-FY23), making it one of the strongest growth companies in our cement coverage. However, higher depreciation charge and surged financed costs pertaining to Hub plant are estimated to overshadow net earnings growth during this period. The stock trades at an attractive FY19E EV/EBITDA multiple of 4.1x versus 6.9x of other IGI cement coverage companies, depicting a substantial discount. We value the company at PKR 194/share which offers +52% upside from its last closing of PKR 127/share

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D.G. Khan Cement Company Limited (DGKC): Tax benefits to provide hedge against falling margins; BUY



20 June 2018

Alfa Adhi Securities (Pvt.) Ltd.




  • We revisit our investment case on D.G. Khan Cement Company Limited (DGKC) and revise down our target price by 17% after incorporating FY19 budgetary measures, 9MFY18 detailed accounts and revised coal prices. Our revised price target (PT) of PKR 137/share provides a potential upside of 13% along with a dividend yield of 5.6%.
  • Our revised investment case on DGKC is based on (1) dispatches growth from commencement Hub plant (2) 5-year tax exemption on Hub plant which would support to earnings (3) hedge against decreasing margins from increase in cement prices in north region and (4) lower EV/ton as compared to peers
  • We estimate FY18 EPS to clock in at PKR 16.76, down 8% YoY driven by higher fuel and power costs, lower cement prices in north and contained topline growth due to capacity constraints. FY19 EPS is projected to settle at PKR 19.61, up 17% YoY due to full year impact of Hub plant and tax credit on expansion. EPS is expected to grow at a CAGR of 3% during FY20-FY24.

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