Saudi Cement Sector - April 2018

Transcription

1. Saudi Cement Sector - Monthly Cement –Industrial Saudi Arabia 12 Apr 2018 January 18, 2010 Research Department Yazeed Alsaqaaby Tel +966 1 211 9398, Research@alrajhi-capital.com Key themes This is our monthly update on Cement production, volumes and inventory in Saudi Arabia. Saudi Cement sector: Sales weakness persists What do we think? Stock Rating Price Target Yamama N SAR 17.0 Southern N SAR 44.0 Saudi N SAR 42.0 Yanbu N SAR 33.0 Qassim N SAR 44.0 Arabian N SAR 36.0 Total cement sales for Q1 2018 stood at 11.8 mn tons ( -11% y-o-y and -1% q-o-q ) as a result of continued slowdown in construction activity. The combination of weak demand and high inventory levels forced the companies to seek other solutions such as entering other regions within the Kingdom as well as exporting with low selling prices – a case in point is Yanbu Cement export agreement which seeks to lower the inventory and increase cash levels . Yanbu cement’s low cash cost per ton gives the company the ability to export with lower prices, which is likely not possible for other companies to replicate in our view.  Going forward, demand is unlikely to pick up based on the trends witnessed during the first three months of 2018. We remain cautious as the construction activities are bound to remain weak. We believe Q2 will witness a material drop in sales volume due to seasonality (Ramadan and the Eid ) which will result in around 20% drop on q-o-q basis to reach 9.6 mn tons (-14 y-o-y) based on our analysis. For now, we remain neutral on the sector given the low demand, high inventories and price war in the sector.  The overhang of excess inventory remains with a slight increase on a m-o-m basis. Inventory stood at 35.7mn tons (79% of LTM sales). In this backdrop, reaching the optimal level of inventories (2 months dispatches) will take time in our view.  We believe that due to slowdown in construction activity and prevailing high inventory levels, companies started to enter new regions in the Kingdom which triggered a price war. The central region seems to be an attractive area especially for northern region cement companies due to the relatively bigger market. The sales market share for northern cement companies increased in the last six months. On the other hand, central region companies’ market share decreased slightly during the same period.  Yanbu Cement signed a one-year agreement to export 1 million tons of clinker and 0.5 million tons of cement starting April 2018. The deal is estimated to add SAR100mn revenue in 2018 as per management commentary. The agreement will help the company to lower its inventory (currently at 76% of LTM sales) and increase cash levels which will support higher payout ratio for the year. On the other hand, we believe lower margins on this deal will not aid material earnings improvement. We believe the company will renew the deal next year if the local demand remains weak. 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 - Monthly Cement –Industrial Saudi Arabia 12 Apr 2018 January 18, 2010 Monthly sales for March at 4.1mn tons : According to the latest monthly data released by Yamama Cement, total cement dispatches in the Kingdom declined 11% yo-y in the month of March. Total inventory rose 23.2% y-o-y to 35.7mn tons, representing 71% of the last 12 months’ sales. Clinker production in the Kingdom fell 12% y-o-y to 4.06 mn tons during March. Yamama Cement and Riyadh Cement posted the sharpest decline in dispatches by ~50% y-o-y and ~41% y-o-y, respectively. Meanwhile, Hail Cement and Tabuk Cement reported the highest increase in cement sales by ~42% y-o-y and ~17.8% y-o-y respectively. The high inventory level could be attributed to lower cement demand (slowdown in construction activities in the Kingdom), and limited supply cut by Saudi producers. Pressure of high inventories might lead some producers to offer more discounts. The companies holding highest inventories as compared to last 12-month sales include Hail (219%), Najran (150%), and Tabuk (117%), while those holding the lowest inventories include City (24%), Arabian (24%), and United (24%). Figure 1 Cement Sector (March data) Sales Volume Current Inventory Company Name 2017 2018 y-o-y 2017 2018 y-o-y Yamama Cement 521 258 -50% 4215 4,926 17% Inventory as % of LTM sales 132% Saudi Cement 469 463 -1% 4972 4,889 -2% 97% Eastern Cement 192 198 3% 2100 2,722 30% 126% Qassim Cement 359 335 -7% 1003 1650 65% 44% Yanbu Cement 485 540 11% 2851 3,974 39% 76% Arabian Cement 380 330 -13% 310 918 196% 27% Southern Cement 542 498 -8% 2247 3,312 47% 62% Tabuk Cement 123 145 18% 1064 1,429 34% 130% Riyadh Cement 309 182 -41% 1589 1,075 -32% 44% Najran Cement 188 143 -24% 2907 2,794 -4% 167% Cement City 383 249 -35% 1096 823 -25% 27% Northern Cement 115 114 -1% 721 1,090 51% 93% Jouf Cement 114 121 6% 1060 1,179 11% 87% Safwa Cement 156 160 3% 328 886 170% 51% Hail 92 131 42% 1710 2,640 54% 237% Umm alQura cement 115 124 8% 381 975 156% 75% United cement 133 172 29% 445 457 3% 25% Total 4676 4163 -11% 28999 35,739 23% 79% Source: Yamama cement, 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 12 Apr 2018 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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4. Saudi Cement Sector Cement –Industrial 12 Apr 2018 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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5. Saudi Cement Sector Cement –Industrial 12 Apr 2018 Disclosures Please refer to the important disclosures at the back of this report. 5