Saudi Cement Industry

Transcription

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”). 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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. 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