We resume coverage of Pioneer Cement Limited with a Buy rating and a TP of PkR103/share, which offers a potential upside of 25.5% along with a DY of 7.6%. We expect EPS of PkR10.01/11.26 in FY16/17F, along with DPS of PkR6.25/6.75.

Improvement in core operations due to (i) uptick in local cement demand, (ii) reduction in power tariffs, and (iii) commencement of WHR (12 MWs by 2HFY17) will be the triggers for PIOC, going forward. Since peak operating levels on Line‐I has been as high as 115% (FY05) and 78% on Line‐II (FY08), we highlight company’s low utilization levels in the last six years was a consequence of demand patterns only.

PIOC posted 2QFY16 EPS of PkR2.45, up 7.5%YoY/29%QoQ (ex‐liability reversals of PkR557.8mn booked in 2QFY15), mainly due to (i) 5pptYoY/6pptQoQ rise in GP margins to 42.5%; (ii) 21%YoY growth in off‐take (97% were high‐margin local sales), and (iii) 69% dip in finance cost due to better liquidity position. PIOC also announced first interim cash dividend of PkR2.5/share.

By: InterMarket Securities Limited