NCB: Saudi cement sector heads for another strong quarter

NCB: Saudi cement sector heads for another strong quarter
Published: 27 September 2011

The outlook for Saudi Arabia’s cement sector remains strong during 2011 with good demand growth and stable prices, despite the usual slowdown over the summer months, NCB Capital said. It expects the third quarter YoY to be another strong quarter for the sector, although relatively weaker than 1H2011 due to the seasonal slowdown.

In its report, NCB Capital said that Yamamah Cement remains the only overweight in the sector with a price target of SAR72.50. The company benefits from its high capacity and stock levels which should enable it to take advantage of the strong demand in Saudi Arabia. Its low cost base adds to its competitive strength.

"Our fair value price targets for most companies have decreased slightly due to the higher costs seen in 2Q11. The price target of Eastern and Yanbu have increased; for Eastern this is due to higher than expected non-operating income and for Yanbu due to higher prices and sales volumes than expected," said Farouk Miah, acting Head of Equity Research at NCB Capital. "We believe the outlook for the listed companies remains positive and in line with our last sector update.

"For the six covered stocks, we expect revenues to be come in at SAR1.53 billion, up 7% YoY, with gross profit at SAR828m, up 10% YoY and net income is expected to come in at SAR745m, up 12% YoY. On a QoQ basis revenues are likely to be 28% lower due to weaker sales during July and August owing to the summer and Ramadan."


For July and August 2011, total sales volume at the listed companies was up only 4.7% YoY, largely due to the 10% drop in August since all of Ramadan fell in August 2011, as against only a part of it in 2010.