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Saudi Cement Industry

Majed Salah
By Majed Salah
6 years ago
Saudi Cement Industry / Saudi Cement Sector

Ard, Commenda, Sales


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  1. Saudi Cement Sector Cement –Industrial Saudi Arabia 28 September 2016 January 18, 2010 Research Department Mohammed AlThunayyan, Tel +966 1 211 9395, althunayyanm@alrajhi-capital.com Key themes This is our monthly update on Cement production, volumes and inventory in Saudi Arabia. Saudi Cement Monthly Total inventory climbed to a new record According to the latest data released by Yamama Cement, total cement sales in the Kingdom fell 10.3% y-o-y , but grew 41% m-o-m to 4.34mn tons in August. Total inventory reached a new high of 26.35mn tons, representing 45% of the last 12 months sales. Inventory grew 11.7% y-o-y and 5% m-o-m. Cement production in the Kingdom came in at 4.3mn tons during August, down 10% yo-y (+35% m-o-m). Among the companies under our coverage, Saudi and Yamama Cement’s market shares improved 0.4% and 0.3% compared to the same period last year to reach 13.1% and 9.1% respectively. On the other hand, Yanbu and Arabian cement’s market share declined 1% and 0.6% to 10.4% and 8.3%, respectively. For the remaining months of 2016, we expect cement demand to remain modest and achieving a positive y-o-y growth could be a challenge for companies. Key takeaways:  In the first 8 months of 2016, total cement dispatches slipped 4% y-o-y to 38.7mn tons. City and Al Jouf cement witnessed the highest increase in sales by +28% and +19% y-o-y respectively, while Najran, Eastern and Arabian cement reported the most declines by -29% ,-13.4% and -10.4% y-o-y, respectively.  According to Bloomberg, Saudi Arabia is weighing plans to cancel more than $20 billion of projects and slash ministry budgets by a quarter due to low oil prices (Bloomberg). Low government spending is likely to put further pressure on the sector which could force companies to offer more discounts on sales.  Umm Al-Qura Cement (UACC) commenced commercial operations at its new Portland cement production line. The plant is located in Taif governorate and has an annual production capacity of 2.22mn tons of cement . We expect this capacity addition to raise the competition in the Western region. Main competitors are Arabian, Yanbu, City and Southern cement.  The Real Estate Development Fund (REDF) plans to launch the accelerated loan program in partnership with Al Rajhi Bank within the next few days.(Argaam)  In August, Saudi, Yamama and Yanbu cement held 46% of the total inventory in the sector by4.5mn, 3.9mn and 3.6mn tons of inventories, respectively. Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.
  2. Saudi Cement Sector Cement –Industrial Saudi Arabia 28 September 2016 January 18, 2010 Valuation: Saudi cement sector index declined 22% YTD, compared to 16.2% YTD decline for TASI. Yamama cement witnessed the biggest drop of -36% YTD, while Southern cement recorded the lowest decline of 9% YTD. The cement index is currently trading at an aggregate forward PE of 9.2x, below 3 year average of 13.5x, and below Tadawul’s forward PE of 11.9x (Source: Bloomberg). The sector’s profitability has been negatively impacted by several factors such as slowdown in construction activities, higher competition, inventory pile up, and lifting subsidies. However, at current prices levels some cement companies offer attractive dividend yields. For companies under our coverage, the average dividend yield is ~ 7.6%. We expect Saudi and Southern cement to offer the highest dividend yields of 9.3% and 9.1%. Figure 1 Companies' performance in H1 2016 & Expected dividend yields%. Sales volum e Avg realized price/ton Net Incom e Payout Ratio % H1 2016 (ΔY-o-Y%) H1 2016 (ΔY-o-Y%) H1 2016 (ΔY-o-Y%) 3Years Avg Saudi Cement -1.8% -3.4% -7.7% 94.4% Arabian Cement -8.3% -9.5% 3.1% 80.2% Qassim Cement -1.7% -7.7% -24.2% Yanbu Cement -8.0% ~ -6.7% Yamama Cement 0.5% Southern Cement -4.4% Com panies Dividend (SAR/Share) 2015A Dividend Yield% 2016E 2017 E 2017 E 6.00 5.25 5.00 9.3% 4.50 3.75 3.50 8.4% 96.0% 6.25 4.75 4.25 8.0% -24.5% 85.2% 5.00 3.00 2.75 8.0% -5.3% -27.3% 84.8% 3.00 1.25 0.75 3.7% 0.0% 2.8% 82.5% 6.00 5.50 5.75 9.1% Source: Company data, Al Rajhi Capital Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.
  3. Saudi Cement Sector Cement –Industrial 28 September 2016 Figure 2 Cement production volume (absolute, y-o-y, m-o-m) 6,000 60% 50% 5,000 40% 30% 4,000 20% 3,000 10% 0% 2,000 -10% -20% 1,000 -30% - -40% Production volume ('000 tons) y-o-y growth m-o-m growth Source: Company data, Al Rajhi Capital Figure 3 Cement production ('000 tons, y-o-y) Figure 4 Cement production ('000 tons, m-o-m) 5100 4400 4900 Title: Source: 4200 Please fill in the values above to have them entered in your report 4700 4000 4500 4300 3800 4100 3600 3900 3700 3400 3500 3200 3300 3100 3000 Aug--15 Aug-16 Jul-16 Cement production (y-o-y) Aug-16 Cement production (m-o-m) Source: Yamama data, Al Rajhi Capital Source: Yamama data, Al Rajhi Capital Figure 5 Cement production ('000 tons, y-o-y) Figure 6 Cement production ('000 tons, m-o-m) 800 700 700 600 Title: Source: Please fill in the values above to have them entered in your report 600 500 500 400 400 300 300 200 200 100 100 0 0 Yamama Cement Saudi Cement Qassim Cement Aug-15 Yanbu Cement Arabian Cement Southern Cement Yamama Cement Saudi Cement Aug-16 Source: Yamama data, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. Qassim Cement Jul-16 Yanbu Cement Arabian Cement Southern Cement Aug-16 Source: Yamama data, Al Rajhi Capital 3
  4. Saudi Cement Sector Cement –Industrial 28 September 2016 Figure 7 Cement sales volumes (absolute, y-o-y, m-o-m) 7,000 80% 6,000 60% 5,000 40% 4,000 20% 3,000 0% 2,000 -20% 1,000 -40% - -60% Sales volume ('000 tons) y-o-y growth m-o-m growth Source: Company data, Al Rajhi Capital Figure 8 Cement sales volumes ('000 tons, y-o-y) Figure 9 Cement sales volumes ('000 tons, m-o-m) 5500 5000 5000 4500 Title: Source: Please fill in the values above to have them entered in your report 4500 4000 4000 3500 3500 3000 3000 2500 2500 2000 2000 1500 1500 1000 1000 Aug--15 Aug-16 Jul-16 Cement sales volumes (y-o-y) Aug-16 Cement sales volumes (m-o-m) Source: Yamama data, Al Rajhi Capital Source: Yamama data, Al Rajhi Capital Figure 10 Cement sales volumes ('000 tons, y-o-y) Figure 11 Cement sales volumes ('000 tons, m-o-m) 800 700 700 600 Title: Source: Please fill in the values above to have them entered in your report 600 500 500 400 400 300 300 200 200 100 100 0 0 Yamama Cement Saudi Cement Qassim Cement Aug-15 Yanbu Cement Arabian Cement Southern Cement Yamama Cement Saudi Cement Aug-16 Source: Yamama data, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. Qassim Cement Jul-16 Yanbu Cement Arabian Cement Southern Cement Aug-16 Source: Yamama data, Al Rajhi Capital 4
  5. Saudi Cement Sector Cement –Industrial 28 September 2016 Figure 12 Inventories (absolute, y-o-y, m-o-m) 30,000 50% 40% 25,000 30% 20,000 20% 15,000 10% 10,000 0% 5,000 -10% Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Total Inventories ('000 tons) y-o-y growth Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 m-o-m growth Source: Company data, Al Rajhi Capital Figure 13 Inventories ('000 tons, y-o-y) Figure 14 Inventories ('000 tons, m-o-m) 26,500 26,500 26,000 26,000 25,500 25,500 25,000 25,000 24,500 24,500 24,000 24,000 23,500 23,500 23,000 23,000 22,500 22,500 22,000 Title: Source: Please fill in the values above to have them entered in your report 22,000 Aug--15 Aug-16 Jul-16 Inventories (y-o-y) Aug-16 Inventories (m-o-m) Source: Yamama data, Al Rajhi Capital Source: Yamama data, Al Rajhi Capital Figure 15 Inventories ('000 tons, y-o-y) Figure 16 Inventories ('000 tons, m-o-m) 5000 5000 4500 4500 4000 4000 3500 3500 3000 3000 2500 2500 2000 2000 1500 1500 1000 1000 500 500 0 Title: Source: Please fill in the values above to have them entered in your report 0 Yamama Cement Saudi Cement Qassim Cement Aug-15 Yanbu Cement Arabian Cement Southern Cement Yamama Cement Saudi Cement Aug-16 Source: Yamama data, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. Qassim Cement Jul-16 Yanbu Cement Arabian Cement Southern Cement Aug-16 Source: Yamama data, Al Rajhi Capital 5
  6. Saudi Cement Sector Cement –Industrial 28 September 2016 Figure 17 Y-o-Y change in Bank credit to building and construction activity (%) 30% 25% 20% 15% 10% 5% 0% Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Bank credit to building and construction activity (%) Source: Company data, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. 6
  7. Saudi Cement Sector Cement –Industrial 28 September 2016 IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by Al Rajhi Capital (Al Rajhi), a company authorized to engage in securities activities in Saudi Arabia. Al Rajhi is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York, NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Al Rajhi. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account. Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. 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Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. 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  8. Saudi Cement Sector Cement –Industrial 28 September 2016 Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction. Explanation of Al Rajhi Capital’s rating system Al Rajhi Capital uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage except financial stocks and those few other companies not compliant with Islamic Shariah law: "Overweight": Our target price is more than 10% above the current share price, and we expect the share price to reach the target on a 12 month time horizon. "Neutral": We expect the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 12 month time horizon. "Underweight": Our target price is more than 10% below the current share price, and we expect the share price to reach the target on a 12 month time horizon. "Target price": We estimate target value per share for every stock we cover. This is normally based on widely accepted methods appropriate to the stock or sector under consideration, e.g. DCF (discounted cash flow) or SoTP (sum of the parts) analysis. Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if a company’s profits or operating performance exceed or fall short of our expectations. Contact us Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561, Riyadh 11432 Kingdom of Saudi Arabia Email: research@alrajhi-capital.com Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37. Disclosures Please refer to the important disclosures at the back of this report. 8