SAC Capital analyst Lam Wang Kwan has kept “buy” on International Cement Group (ICG) as he deems the counter’s foundation as “concrete”.
The group’s results for the FY2021 ended December stood above Lam’s expectations, with revenue of $181.4 million, up 28.1% y-o-y, and net profit of $26.5 million, which increased by three-fold.
According to Lam, the group’s net profit stood 15.8% higher than his full-year estimates, which was mainly due to the stronger-than-expected revenue growth, which also surpassed his forecasts by 15.7%.
That said, Lam sees near-term headwinds such as the Kazakhstani tenge depreciating against the US dollar (USD) by 17%. The depreciation will see the group incurring forex losses as they pay engineering procurement construction (EPC) contractors in USD, while its operating expenses are paid in the Tenge.
On the back of this, Lam has estimated some $8 million of forex loss in the FY2022.
The group is also likely to face affected margins, with an estimated 1.2 percentage point erosion on its gross margin due to the higher oil prices, which is driving up cost of sales.
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Furthermore, the group is expecting to face increased competition in Tajikistan, with another cement producer adding a big cement plant in the country. The plant will be operational in 2023.
“The entry of the new competitor is expected to negatively impact cement price in the region and reduce ICG’s Tajikistan sales by an estimated 10% in FY2023 and FY2024 annually, before growing at 3% thereafter following consolidation in the market,” writes Lam in his March 23 report.
On the back of this, Lam has lowered his target price estimates to 6.2 cents from 8.9 cents previously as he expects the group’s FY2022 bottom line to drop by 18.6% due to forex loss.
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He does, however, estimate the group’s topline to grow 7.7% in FY2022 due to the addition of two new cement plants in Kazakhstan.
“Sharcem, in East Kazakhstan, is expected to commence commercial sales in 2HFY2022, however we expect to see significant contribution in FY2023. With an annual production capacity of one million tonnes, we expect Sharcem to add [an estimated] $60 million and [around] $15 million to the top and bottom line in FY2023,” writes the analyst.
“In addition, construction of the Korcem cement plant in the Jambyl region is also underway. The output will be exported to Kyrgyzstan in 2025. ICG will fund the construction of Sharcem through shareholders’ loan and internal resources, while Korcem is funded via vendor financing and internal resources. Cement demand in Central Asia is underpinned by the reconstruction, urbanisation and infrastructure growth plans,” he adds.
To be sure, Lam sees the group recording its next earnings uplift in FY2023 with Sharcem’s contribution. This translates to an expected 22.4% growth in revenue and 60.3% growth in net profit with the absence of a significant forex loss.
“While we are optimistic about ICG’s operations and long term growth plan, the revised price reflects the higher cost of equity required by the current market environment,” says Lam.
As at 9.27am, shares in International Cement Group are trading 0.1 cent higher or 3.7% up at 2.8 cents, or an FY2022 P/B of 0.6x.
