Cementos Pacasmayo's Region Shows Growth, But The Name Is Still A Hold

Cementos Pacasmayo's Q1 2025 results showed a 5% YoY increase in cement revenues driven by recovering demand and a 20% YoY increase in concrete and prefabricated products, supported by infrastructure projects. Increased plant utilization boosted gross profits by 5.5% YoY; however, a 20% YoY rise in SG&A expenses due to renegotiated wage agreements largely offset these gains, resulting in flat EBITDA margins. Despite a solid 10% dividend yield, the analyst maintains a Hold rating due to limited growth prospects and a valuation that fairly reflects its current earnings profile.

Analysis

Cementos Pacasmayo's Q1 2025 results indicated a recovery in demand, with cement revenues increasing 5% year-over-year and the concrete and prefabricated products segment growing 20% YoY, supported by ongoing infrastructure projects such as Yanacocha, Motupe, and Chavimochic. This demand uplift led to a 4 percentage point increase in plant utilization and a 5.5% YoY rise in gross profit, despite higher wage pressures. However, these gains were largely negated by a significant 20% YoY surge in SG&A expenses, primarily due to renegotiated collective salary agreements, which resulted in flat EBITDA and a contraction in EBITDA margins. While management indicated a portion of the SG&A increase is non-recurring, administrative costs remain a persistent drag on profitability. Capex in Q1 2025 reached PEN 37 million against a full-year guidance of PEN 100 million, suggesting a potential overrun if spending continues at this rate. The company maintains its 100% dividend payout policy, yielding approximately 10% at current prices, and management has reaffirmed dividends as a priority, supported by a cash cushion from lower maintenance capex versus depreciation. Despite a moderately positive construction cycle in Peru, CPAC exhibits limited earnings growth potential post its capacity expansion, with the current valuation at a 9-10x earnings multiple reflecting a return profile almost entirely reliant on its dividend.

Key Decisions for Investors

• Income-focused investors might find the 10% dividend yield attractive but should acknowledge the 100% payout ratio and the company's limited growth prospects.
• Investors prioritizing capital appreciation should exercise caution due to the flat earnings outlook and absence of clear growth catalysts for Cementos Pacasmayo.
• Closely monitor SG&A expense trends for evidence of sustainable cost management beyond non-recurring items, and track capital expenditure to ensure it aligns with guidance, as deviations could impact free cash flow and dividend sustainability.
• Consider the inherent risks associated with emerging market exposure and the cyclical nature of the Peruvian construction sector when evaluating the long-term viability of the investment and dividend.