elixirsecurities

a dawood group company

December26,2011

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PAKISTAN RESEARCH

Construction&Materials
LUCK:Higherretentionstodriveearningsgrowthduring2Q

LUCKPA
PriceTarget:PKR110/Share ClosingPrice:PKR78.1/Share
Key Data 12m Price Range (PKR) Market Cap (PKR mn) Outstanding Shares (mn) Avg. Daily Volume mn (YTD)

Flattishcementofftakesduring 2QFY12 todate: Localindustrydispatchesduringthefirst twomonthsof2QFY12wereupamere0.5%YoYat3.73mntonswhereasexportvolumes weredown5%YoYat1.47mntons.Weconservativelyestimate2QFY12industryvolumesto remain in line with Oct11 and Nov11 dispatches, down 1% YoY. We expect LUCK to maintainits1Qlocalandexportmarketshareat16%and25%respectively. Strong margins to drive earnings growth during 2Q: EBITDA margins for local dispatches during2QFY12areexpectedtoclockinatPKR2,218/ton,up1.07xYoYonthebackof35% YoY higher retention prices as COGS/ton is expected at PKR3,202/ton, up 8% YoY. Export EBITDAmarginsareexpectedatPKR620/ton,down24%YoY,duetoweakexportretention prices.

83.6 60.3 25,252.4 323.4 1.2

Initialestimatessuggestrobustearnings:BasedonindustrydispatchesdataofOct11and Nov11andhigherlocalpricespost1QFY12,LUCKsEPSfor2QFY12isexpectedatPKR4.80, up1.1xYoY. InvestmentPerspective:AtthelastclosingpriceofPKR78.1/share,LUCKoffersanupsideof 41%toourJun12pricetargetofPKR110/shareandtradesatFY12PERof3.7x.BUY!

YTDRelativePerformance

(%) 110 105 100 95 90 85 80 75

LUCK

KSE-100 Index

Flattishcementofftakesduring2QFY12todate
Local cementoff take forthe industryduringfirst two monthsof2QFY12 marked up by a mere0.5%YoYto3.73mntons,whereasexportdispatchesstoodat1.47mntons,down5% YoY.Weestimateindustrydispatchestofall1%YoYduring2Qwithlocalvolumesat5.5mn tonsandexportdispatchesat2.2mntons. Exportdispatchesslowdownisexpectedduetoweakexportpricesandourchannelchecks suggest that exports have become unviable for some of the northern players with higher cost of production. We expect LUCK to maintain 1Q market share in local and export dispatchesat16%and25%respectively,whichshalltranslateintodispatchesof1.4mntons, upamere1%YoY.
31-Dec-10 21-Jan-11 11-Feb-11 07-Mar-11 29-Mar-11 19-Apr-11 10-May-11 31-May-11 21-Jun-11 12-Jul-11 02-Aug-11 23-Aug-11 19-Sep-11 10-Oct-11 01-Nov-11 25-Nov-11 20-Dec-11

Source: Elixir Research LUCK EPS (PKR) DPS (PKR) PER (x) Div Yield EV/EBITDA (x) P/BV (x) ROE Source: Elixir Research FY12E 21.1 6.0 3.7 7.7% 2.7 0.8 21% FY13E 16.0 5.0 4.9 6.4% 2.9 0.7 14% FY14E 16.1 5.0 4.8 6.4% 2.5 0.6 13%

Strongmarginstodriveearningsduring2Q
Localcementpriceshaveshownphenomenalgrowthof23%YoYduring2QFY12todateand withretentionoftaxbenefitsallowedinFY12Budget,localretentionpricesforLUCKduring 2QareexpectedatPKR5,284/ton,up35%YoY.However,COGS/tonisexpectedtoremainin line with 1Q at PKR3,202/ton, up 8% YoY, which shall lead to local EBTIDA margin of PKR2,218/ton, up 1.1x YoY. Export retention prices areestimated to decline by 6% YoY to PKR5,175/ton, translating into EBTIDA margin of PKR620/ton, down 24% YoY. Net selling pricelesslogisticchargesforexportsisexpectedatPKR3,771/ton,up3%YoY.Whilehigher gaspricesfromJan12wouldputpressuresoninputcost,coalpriceshavecorrectedby7% during1HFY12.Assuch,costwouldlikelyremaincontainedgoingforwardwhilemarginsare expectedtoremainsustainable. Our initial estimates driven by 2Q to date average prices (local and export) and cement dispatchesduringOct11andNov11suggestanEPSofPKR4.80for2QFY12,up1.1xYoY.

SateeshBalaniAC sbalani@elixirsec.com (+9221)111354947Ext:3120

PleaserefertothelastpageforAnalystCertificationandotherimportantdisclosures.

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Economic&PoliticalNews

Research,(+9221)35694679

SNGPLmayface750mmcfdgasshortfallinJanuary
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Incentivesforautoindustry
The government has notified incentives for new entrants in automobile sector under its auto industry development programme. AccordingtotheEngineeringDevelopmentBoard,additionalcustomsdutyliveableunderanearlierSROof2006wouldnotbechargedon subcomponents,importedinakitformbyanassemblerormanufacturerdeclaredtobeanewentrantbytheEDB.

ELIXIRSECURITIES

December26,2011

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ELIXIRSECURITIES

December26,2011