Margin contractions seen for Saudi cement firms, says Shuaa Cap

Dubai-based Shuaa Capital expects sharp margin contractions for all Saudi Arabia’s cement companies in the medium-term, however Q2 will likely be supported by a limited decline in inventories, the financial services provider said in a sector review.

Shuaa maintained a “sell” rating to most players under coverage, namely Northern Region Cement, Southern Province Cement, Qassim Cement, Arabian Cement, Yamama Cement, Yanbu Cement, and Saudi Cement, while it revised City Cement rating to “buy” at SAR 13.9 per share, instead of a previous “sell”.

Domestic cement sales declined to 4.5 million tons in May 2017, a 20.2 percent year-on-year (YoY) drop and a 2.8 percent fall from last month.

“Amid levy of export duties, cement exports from the eastern province remained nil in May 2017. Within our stock coverage, all the companies reported YoY decline in sales volumes, with Northern region reporting the sharpest decline (42 percent YoY),” the report said.

Yamama saw a marginal 1 percent increase in market share, while share of Southern Province declined by 0.5 percent.

Cement production also fell 18 percent YoY in May but marginally rose by 0.7 percent month-on-month (MoM) to 4.6 million tons.

While clinker production fell 14 percent YoY, it increased by 16 percent MoM to 4.1 million tons.

 “Our estimated total sector inventories remain elevated at 7.9 sales months compared to historical levels (5 years average: 4.3 sales months).” Shuaa Capital said.