Saudi Arabia Cement Sector

Transcription

1 Arabia Sector Demand strong in Makkah and Madinah Provinces EQUITY RESEARCH April 9 The 3.38mt of cement/clinker sales achieved in KSA, for Mar-9, is the highest ever monthly sales reported in the country. Discussions with managements and industry players indicate key sources of demand in Makkah and Madinah Provinces. Monthly Sales: dispatches in the domestic market strengthened for the third straight month, rising to 3.38mt in March. Mar-9 cement sales were up 13.6% YoY and 17.6% MoM. Production: In Mar-9, KSA produced a sizeable amount of cement and clinker. Despite this, the 3.3mt of cement production fell short of total cement demand. As a result, manufacturers offloaded some of the old stock and helped reduce the cement inventory. Stock: Clinker stock as a percentage of cement sales stood at 249% in Mar-9, versus 283% in Feb-9. Among listed firms, Co located in the east had the highest clinker and cement stock as a percentage of cement deliveries at 451% and 46% respectively. Discussions with managements of various cement companies reveal that much of current demand is originating from the Makkah and Madinah Provinces of the Kingdom. Ballpark calculations indicate that price realizations for companies based in the western region continue to remain 6 to 8% above the industry average. Both and located in the western region record the lowest clinker stock as a percentage of sales ratios of 91% and 35% respectively. Chart of the month: Domestic sales cross 3mt for the first time Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 Domestic Sales (mt) Export Sales (' tons), RHS Pravin Rajendran p.rajendran@ncbc.com Please refer to the last page for important disclaimer Exhibit 1: cement companies Valuation matrix P/E EV/ P/BV EV/ton DY ROE ROA Company M-Cap Stock perf (%) (x) EBITDA (x) 8 (%) (%) (%) $ mn Mar-9 YTD TTM 8 * $ 8 TTM TTM Cem (SPCC) 2, Cem (SCC) 1, Cem (YSCC) 1, Cem (YCC) 1, Cem (QCC) 1,312 (11.7) Cem (EPCC) Cem (ACC) Cem (TCC) (.5) Source: NCBC Research, All prices as of April 22, 9 * P/BV based on latest available book value

2 SAUDI ARABIA CEMENT SECTOR MONTHLY (MAR-9) Industry snapshot The Kingdom of Arabia (KSA) has 12 cement companies with an estimated annual production capacity of approximately 48mt. March 9 was a good month for the cement industry. Total dispatches (including exports) stood at 3.46mt versus 2.94mt in Feb-9 and 2.89mt in Jan-9. Total dispatches in the comparable month of the previous year were 3.49mt. Export sales from the country continue to remain below the, ton mark. At 77, tons, cement exports from Arabia were down 85% YoY, but up 2.3% MoM. Exhibit 2: March at a glance NRCC (2.1) Sales: 97; 2% Exports: ; NA TCC (1.6) Sales: 124; 1% Exports ; NA QCC (4.1) Sales: 398; 24% Exports: ; NA YSCC (6.3) Sales: 438; 2% Exports: ; NA EPCC (3.3) Sales: 296; 31% Exports: 13; 3% SCC (11.) Sales: 49; 4% Exports: 64; 19% YCC (4.5) Sales: 392; 13% Exports: ; NA CCC (1.9) Sales: 15; -5% Exports: ; NA RCC (1.9) Sales: 157; 41% Exports: ; NA ACC (3.) Sales: 29; 23% Exports: ; NA SPCC (6.2) Sales: 557; 2% Exports ; NA NJCC (2.8) Sales: 12; 2% Exports: ; NA Legend Company (Capacity in mn tons) Month s sales in tons; Growth MoM Month s exports in tons; Growth MoM CCC City, NJCC Najran, RCC Riyadh, NRCC Northern Region April 9 2

3 SAUDI ARABIA CEMENT SECTOR MONTHLY (MAR-9) Domestic sales In Mar-9, cement sales in Arabia increased 17.6% MoM and 13.6% YoY. Total domestic sales of companies (including listed and private) stood at 3.38mt versus 2.87mt in Feb-9 and 2.97mt in Mar-8. Exhibit 3: Domestic Sales ( tons) MoM Exhibit 4: Domestic Sales ( tons) YoY 35% 5% 3% 4% 25% 2% 15% 1% 5% 3% 2% 1% % -1% % -2% Feb-9 Mar-9 MoM growth (RHS) Mar-8 Mar-9 YoY growth (RHS) On an individual basis too, some of the companies,,, and Arabia achieved their highest-ever domestic sales numbers recorded, in Mar-9. Of listed companies, only registered a major decline in YoY sales. Both and its geographically closest competitor have very low inventory levels. (Please refer to the annexure on Page 1 for company specific charts.) Exports sales outside the Kingdom stood at 77, tons in Mar-9, as against 57, tons in Mar-8 and 64, tons in Feb-9. The 85% YoY decline is explained by the government restriction on sale of cement outside the country. The special weekly cement export quota of 25, tons for Bahrain, if fully utilized, should result in sales of, tons per month. The two cement exporting companies Co and Province Co sold 64, tons and 13, tons of cement respectively, outside the Kingdom in Mar-9 versus 54, tons and 1, tons of cement, respectively in Feb-9. April 9 3

4 SAUDI ARABIA CEMENT SECTOR MONTHLY (MAR-9) Exhibit 5: KSA s total cement exports ( tons) Exhibit 6: Exports by SCC and EPCC ( tons) Jan-7 Mar-7 May-7 Jul-7 Sep-7 Nov-7 Jan-8 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Monthly Exports (mn tons) Production Arabia produced 3.31mt of cement in Mar-9, down 3.6% YoY but up 12.8% MoM. Production covered 96% of the total cement demand for the month; while the rest was met through old stock. This resulted in a 13.% reduction in the cement stockpiles at the manufacturer level. (Please refer to the Inventory / stock section on Page 5 for more details). Exhibit 7: production ( tons) 4, 3, 3, 2, 2, 1, 1, Exhibit 8: Clinker production ( tons) 4, 3, 3, 2, 2, 1, 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec In contrast, clinker production increased during the month by 23.8% YoY and 16.% MoM. Companies leading the increased clinker production are,, and Najran. April 9 4

5 SAUDI ARABIA CEMENT SECTOR MONTHLY (MAR-9) Inventory / stock Stockpiling of clinker at the manufacturer level is continuing, albeit at a slower pace. At the end of Mar-9, total clinker stock held by cement producers was higher by just 1.5% MoM, the lowest rise since the export ban was put in place 1 months ago. Exhibit 9: Clinker stock ( tons) 2, Exhibit 1: stock ( tons) 25 2, 1, 15 1, 5 Mar-8 Feb-9 Mar-9 Mar-8 Feb-9 Mar-9 Total clinker stock of the industry stood at 8.5mt in Mar-9, or just short of three months cement sales 1. Company wise, has the lowest clinker stock of 35% as a percentage of sales; for, clinker stock stood at 451%, or more than four months' cement sales. It is interesting to note that cement companies based in the western region hold low clinker stock, whereas those based in the eastern region seem burdened with huge stockpiles of clinker. Higher price realization for cement sold by companies based in the western region supports our view of strong cement demand in the Makkah and Madinah Provinces. For instance in 1Q-9, price realizations for Co stood at SR254/ton versus the industry average of SR239/ton. Exhibit 11: Clinker stock 9, 7, 6, 4, 3, 1, % % % % Exhibit 12: Clinker stock ( as % of sales) % % % % % % % Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Clinker stock (' tons) Clinker stock as% of cement sales (RHS) Mar-9 Mar-8 Mar-9 1 Average cement sales for the first three months of 9 April 9 5

6 SAUDI ARABIA CEMENT SECTOR MONTHLY (MAR-9) Market share In Mar-9, five companies lost domestic market share in favor of the other six. was the biggest gainer of the month. Other companies that managed to improve their market share by a wide margin include Riyadh and. Winners: (1.%), Riyadh (.8%), (.7%), (.4%), (.4%), and Najran (.1%) Losers: (-1.5%), City (-.7%), Northern (-.4%), (-.4%), and (-.2%) No change: New companies Riyadh, Najran, City and Northern have managed to increase market share at the expense of the traditional players. The new players were responsible for 14.3% of total cement sales in the first three months of 9. Exhibit 13: Domestic market share cement sales 16% Exhibit 14: Domestic market share cement sales YTD 2% 12% 8% 4% 16% 12% 8% 4% % % Feb-9 Mar-9 Riyadh City Najran Northern Jan8-Mar8 City Jan9-Mar9 Riyadh Northern Najran April 9 6

7 SAUDI ARABIA CEMENT SECTOR MONTHLY (MAR-9) Valuation As of 22 Apr 9, the cement sector index is up 16.1% YTD, vis-à-vis an increase of 8.6% in the benchmark index TASI. The upswing in 9 comes after a fall of ~5% in 8. The exhibit below shows the valuation multiples of all the listed cement companies in the Kingdom. Exhibit 15: cement companies Valuation matrix M-Cap Stock performance (%) P/E (x) EV/ EBITDA P/BV (x) EV/ton 8 DY (%) ROE (%) ROA (%) Company Reuters $ mn Mar-9 YTD TTM 8 * $ 8 TTM TTM 35.SE 2, SE 1, SE 1, SE 1, SE 1,312 (11.7) SE SE SE (.5) Source: NCBC Research, All prices as of April 22, 9 * P/BV based on latest available book value The following exhibits depict the current valuation of cement companies listed in Arabia. Exhibit 16: EV per ton vs. EBITDA margin Size of the bubble indicates M-Cap Dotted lines represent industry averages EV/Ton (USD) - 8 4% 5% 6% 7% 8% EBITDA Margin - 8 Source: NCBC Research April 9 7

8 SAUDI ARABIA CEMENT SECTOR MONTHLY (MAR-9) Exhibit 17: P/E vs. ROE 4 Size of the bubble indicates M-Cap Dotted lines represent industry averages 3 ROE (%) - TTM P/E - TTM Source: NCBC Research April 9 8

9 SAUDI ARABIA CEMENT SECTOR MONTHLY (MAR-9) Annexures Annexure 1- Production and dispatches Exhibit 18: production and dispatches ( tons) % chg % chg (Jan-Mar) % chg Description Mar-9 Mar-8 YoY Feb-9 MoM 9 8 YoY Production 3,36 3, % 2, % 9,136 9,19.3% Clinker 3,378 2, % 2, % 9,714 7, % Dispatches 3,46 3, % 2,91 17.% 9,184 9,144.4% Clinker % % % Production % % 1,127 1, % % % 1,437 1, % % % % % % 1, % % % 1,98 1, % % % % % % 1,331 1, % % 15 2.% % Others % % 1, % Dispatches % % 1,131 1, % % % 1,43 1, % % % % % % 1, % % % 1,94 1, % % % % % % 1,354 1, % % % % Others % % 1, % April 9 9

10 SAUDI ARABIA CEMENT SECTOR MONTHLY (MAR-9) Annexure 2 - Chart gallery Company data (YSCC) Exhibit 19: Production and sales (in tons) Exhibit 2: Stock - and clinker (in tons) 8 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Production Domestic Sales - Exports Stock (SCC) Exhibit 21: Production and sales (in tons) Exhibit 22: Stock - and clinker (in tons) 2 1 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Production Domestic Sales - Exports Stock Province (EPCC) Exhibit 23: Production and sales (in tons) Exhibit 24: Stock - and clinker (in tons) 8 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Production Domestic Sales - Exports Stock April 9 1

11 SAUDI ARABIA CEMENT SECTOR MONTHLY (MAR-9) (QCC) Exhibit 25: Production and sales (in tons) Exhibit 26: Stock - and clinker (in tons) 8 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Production Domestic Sales - Exports Stock (YCC) Exhibit 27: Production and sales (in tons) Exhibit 28: Stock - and clinker (in tons) Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Production Domestic Sales - Exports Stock (ACC) Exhibit 29: Production and sales (in tons) 35 Exhibit 3: Stock - and clinker (in tons) Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Production Domestic Sales - Exports Stock April 9 11

12 SAUDI ARABIA CEMENT SECTOR MONTHLY (MAR-9) Province (SPCC) Exhibit 31: Production and sales (in tons) Exhibit 32: Stock - and clinker (in tons) Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Production Domestic Sales - Exports Stock (TCC) Exhibit 33: Production and sales (in tons) 18 Exhibit 34: Stock - and clinker (in tons) Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Production Domestic Sales - Exports Stock April 9 12

13 SAUDI ARABIA CEMENT SECTOR MONTHLY (MAR-9) Glossary Abbreviations used %Chg % change MoM Month on month ROE Return on equity Bn Billion Mt Million tons Rev Revenue Div yld Dividend yield Net inc Net income SR Riyal EV Enterprise value P/E Price to earnings TTM Trailing 12 month EBITDA Earnings before interest, tax, depreciation, and amortization P/BV Price to book value YoY Year on year M-Cap Market capitalization QoQ Quarter on quarter YTD Year to date Mn Million ROA Return on assets IMPORTANT INFORMATION The authors of this document hereby certify that the views expressed in this document accurately reflect their personal views regarding the securities and companies that are the subject of this document. The authors also certify that neither they nor their respective spouses or dependants (if relevant) hold a beneficial interest in the securities that are the subject of this document. Funds managed by NCB Capital and its subsidiaries for third parties may own the securities that are the subject of this document. NCB Capital or its subsidiaries may own securities in one or more of the aforementioned companies, or funds or in funds managed by third parties The authors of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. The Investment Banking division of NCB Capital may be in the process of soliciting or executing fee earning mandates for companies that are either the subject of this document or are mentioned in this document. This document is issued to the person to whom NCB Capital has issued it. This document is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This document is not intended as an offer or solicitation with respect to the purchase or sale of any security. This document is not intended to take into account any investment suitability needs of the recipient. In particular, this document is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this document. NCB Capital strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this document take into account both risk and expected return. Information and opinions contained in this document have been compiled or arrived at by NCB Capital from sources believed to be reliable, but NCB Capital has not independently verified the contents of this document and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. To the maximum extent permitted by applicable law and regulation, NCB Capital shall not be liable for any loss that may arise from the use of this document or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and statements regarding future prospects contained in this document may not be realized. All opinions and estimates included in this document constitute NCB Capital s judgment as of the date of production of this document, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this document may be reproduced without the written permission of NCB Capital. Neither this document nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Arabia where its distribution may be restricted by law. Persons who receive this document should make themselves aware, of and adhere to, any such restrictions. By accepting this document, the recipient agrees to be bound by the foregoing limitations. NCB Capital is authorized by the Capital Market Authority of the Kingdom of Arabia to carry out dealing, as principal and agent, and underwriting, managing, arranging, advising and custody, with respect to securities under license number NCB Capital s registered office is at 25th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 22216, Riyadh 11495, Kingdom of Arabia. April 9