International Cement Group - SAC Capital 2021-03-10: FY2020 Net Profit Set Back By Forex Loss


International Cement Group - FY2020 Net Profit Set Back By Forex Loss

  • International Cement Group's FY2020 revenue was marginally above our projections but net profit missed.
  • Commencement of the 87.5%-owned Kazakhstan cement plant added 1.2 million MT of capacity.
  • Higher expenses capped gains.

Maiden contribution from the Kazakhstan plant.

  • International Cement Group (ICG, SGX:KUO) reported a 7.9% or a S$10.4 million increase in revenue from S$131.2 million in FY2019 to S$141.6 million in FY2020.
  • The increase was attributed to higher contribution from the cement segment owing to higher demand for cement in Tajikistan and the commencement of sales of the Group’s Kazakhstan plant. The cement segment recorded a year-on-year growth of 16.7% from S$113.9 million in FY2019 to S$132.9 million in FY2020.
  • The revenue increase was partially offset by a decrease in revenue from the Group’s aluminium segment from S$17.3 million in FY2019 to S$8.7 million in FY2020. The decrease was mainly due to lower level of construction activities in Singapore as a result of the effects of the COVID-19 pandemic as well as the cessation of the extrusion business in Malaysia at the end of 2019.
  • International Cement Group's FY2020 revenue was marginally above our projections but net profit missed.
  • Overall, International Cement Group’s gross margin improved slightly from 38.4% to 40.0%

Higher expenses capped gains

  • International Cement Group's other expenses increased from S$1.4 million in FY2019 to S$12.7 million in FY2020, of which S$10.7 million was attributed to foreign exchange loss arising from
    1. a revaluation of amounts owed to the Engineering, Procurement and Construction (“EPC”) contractor and intercompany loans relating to the Kazakhstan plant which are denominated in US Dollar (“US$”) and Chinese Yuan (“CNY”) and
    2. a revaluation of dividend receivables from the cement plant in Tajikistan and intercompany loans denominated in Tajikistan Somoni (“TJS”).
  • During FY2020, the Kazakhstani Tenge (“KZT”) depreciated 10% against the US$ and CNY while the TJS depreciated 15% against the Singapore Dollar (“S$”). The National Bank of Tajikistan decided to harmonise official and black-market rates in November due to a reduction in remittances. Oil-dependent Kazakhstan suffered an economic downturn with the decline in oil prices, leading to a weakening of the Tenge.
  • International Cement Group's finance expense also rose from S$0.6 million in FY2019 to S$3.8 million in FY2020. The increase was due to
    1. the recognition of interest expense on the outstanding payables to the EPC contractor for the Kazakhstan plant, which was previously capitalised under “construction costs” when the plant was under construction and
    2. the unwinding of discount on present value of interest-free loans from non-controlling interest and major shareholder.
  • In addition, International Cement Group also incurred higher marketing costs to create brand awareness for its newly-opened Kazakhstan plant and to boost sales in Tajikistan.

Return to normalcy.

  • International Cement Group’s cement sales in 1H2020 was affected by COVID-induced lockdown in Tajikistan and Afghanistan, its primary export market, which caused construction activities to slow down and tighter border controls. Mobility restrictions have eased from 2H2020. The Kazakhstan plant only came on stream in later part of 3Q2020.
  • On the other hand, International Cement Group’s aluminium business faced intense pressure from shutdown of construction activities in Singapore and manpower disruptions. These have resumed progressively, but tight controls are still in place which would push out the project delivery timeline.

Maintain BUY on International Cement Group

Lam Wang Kwan SAC Capital Research | https://www.saccapital.com.sg/ 2021-03-10
SGX Stock Analyst Report BUY MAINTAIN BUY 0.089 SAME 0.089