Riyad Cap expects modest recovery for construction sector in Q2

Riyad Capital has weaker expectations for Saudi Arabia’s construction sector this quarter, although some key stocks like Saudi Ceramic and Bawan saw improved performance, the firm said in a note.

The sector is showing signs of a delayed recovery due to the slowdown in projects, which is expected to continue until at least early 2017, according to MEED.

Challenges that faced the sector in Q2 include a decline in awarded projects, lower real estate sales, and oversupply in private commercial and residential projects. Ramadan’s seasonal slowdown also impacted work during the period.

“We forecast Q2 2016 estimates with minimal revisions to our full year projections. We believe a detailed interpretation of the impact of hike in utility tariffs is unclear and expect this to take another one or two quarters to clearly depict a forward trend. We expect revenues to register a decline of -18 percent Y/Y and earnings to decline -64 percent Y/Y for the companies under our coverage,” the firm added.

Riyad Capital maintained its target prices and ratings for Saudi Ceramics and Zoujaj, but adjusted its outlook for Bawan, Saudi Cable Co., and Amiantit. The investment firm may revise further if it sees a valuation opportunity.