BMA Capital report on Pakistan cements dispatches decline 0.4%yo y in may15_ local south sales surprise!

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As per the latest cement dispatch figures released by the All Pakistan Cement
Manufacturers Association (APCMA), industry off‐take reported a decline of 0.4%YoY to
3.05mn tons in May’15 as against 3.07mn ton reported in the same month last year. The
volumetric decrease was primarily due to the recent imposition of anti‐dumping duty on
Pakistani cement exporters to South Africa (S.A) which consequently contracted cement
exports by 26%YoY. On a cumulative basis, 11MFY15 dispatch growth settled at
3.47%YoY to 32.13mn tons compared to 31.05mn tons in the same period last year. The
cement numbers are expected to remain under pressures at least for the next couple of
months as manufacturers seek new export avenues or ramp up exports to existing
markets. Within the BMA Cement space, we advocate strong conviction on KOHC at a
target price of PKR289/sh due to i) commissioning of waste heat recovery (expected in
Jul’15) which will pave the way for cost savings, and ii) ample capacity to cater
incremental demand given lower utilization of 63%.
A decline in cement dispatches: The country’s total dispatches for May’15 reported a
decline of 0.4% to 3.05mn tons against 3.07mn tons in the same month last year. In this
regard, declining exports from both South and North by 27% and 24%, respectively led
overall decline in dispatches. Local sales however, remained firm with the North and
South local markets posting growths of 7% and 13%, respectively.
Exports under a tough period: Pakistani cement exports are going through a tough time,
declining by 26% in May’15 out‐pacing the prior months’ decline. Previously, exports from
North were under pressure due to dwindling demand in Afghanistan following a decline in
infrastructural activity post US withdrawal however recent imposition of anti‐dumping
duty by South Africa will likely restrict exports from South as well. Currently, the
manufacturers are in search of alternate markets to maintain their production levels. To
add, the volume diversion is exerting pressure on the export prices which declined USD2‐
3/ton post the duty imposition.
Local southern sales gaining traction: In the recent past, Northern local dispatch growth
had driven the overall growth in cement dispatches of the country, however, southern
sales are gaining traction with 6.4%YoY in 11MFY15 as against a decline of 5.3% in FY14.
Furthermore, cement dispatches in South for May’15 reported a whopping increase of
13%YoY vis‐a‐vis 7% registered in Apr’15. The property price boom in the South (especially
Karachi) and execution of mega private projects such as Bahria Town and DHA Phase‐9 are
expected to continue upward momentum, going forward. The increased local sales will
also assist the companies in the South to replace their volumes lost from South African
exports with high margin local sales. On a cursory basis, if the local dispatches in the South
grow at a pace of 10% in the next year, it will be able to replace approx 36% (473k tons) of
the sales volumes to S.A.
Govt. spending; an impetus waiting to be realized: Under the Budget FY16, the govt. has
allocated PKR1,514bn under the head of PSDP, a growth of 27%YoY. Furthermore,
allocation for the construction of mega dams i.e. Dasu and Diamer Bhasha and various
other infrastructural projects are expected to boost cement demands in the country.
Consequently, companies operating in the Northern region are likely to be the biggest
beneficiary in the said event.
Investment perspective: We maintain our liking for KOHC within the BMA cement space
with a target price of PKR289/sh offering a total return of 50%. The prime triggers for the
scrip remains the i) ample excess capacity given utilization levels of 63% and ii) expected
commissioning of WHR plant in Jul’15.
Dispatches decline 0.4%YoY in May’15; local South sales surprise!
Pakistan Cements
Wednesday June 23, 2015
Construction & Mat. Sector Performance
1M 3M 12M
Absolute % 11% 7% 43%
Relative to KSE % 6% 0% 24%
Relative Chart KSE100 vs Construction &
Materials Sector
‐15%
‐5%
5%
15%
25%
35%
45%
55%
Jun‐14
Jul‐14
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14
Jan‐15
Feb‐15
Mar‐15
Apr‐15
May‐15
Jun‐15
Construction and Materials (Cement)
KSE100 Index
Sajjad Hussain
sajjad.hussain@bmacapital.com
+92 111 262 111 Ext: 2062
Source: BMA Research
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