27 May 2012
Saudi Arabia's cement sector benefits immensely from the massive ongoing construction activities in the Kingdom. Cement companies in the Kingdom enjoy significant feedstock advantage, cheap transport and backing from government projects, according to a report by Al-Rajhi Capital released yesterday.
The report said mature companies, which carry attractive margins, are equipped with high capacity and are in close proximity to construction areas. "We have rated each company on our coverage based on various objective and subjective measures. The rating criteria include top and bottom-line growth, operating margin, ROE, dividend yield, etc," the report added.
"Arabian Cement is our top pick owing to its robust revenue and earnings growth, proximity to the Western Region (which is undergoing massive expansion) as well as open investor relations," Al-Rajhi Capital said.
Al-Rajhi Capital said it likes Yamama Cement due to its favorable presence in Riyadh, decent sales and net profit growth estimates over the next four years, negative net debt and active investor relations. Al Jouf Cement - one of the newly incorporated cement companies - occupies the third position. Revenue and net profit growth are robust due to its high growth phase; however, being located in the northern region, it is far off from the high demand market. Further, the ban on exports has hurt the company's strategy to target export markets. Saudi Cement Company comes fourth in the rating list and scores high on dividend yield and profitability. Qassim Cement comes fifth in the list.
The Saudi cement sector is one of the established sectors in the Kingdom. The industry is benefiting from massive investments currently underway in the Kingdom as the country bids to channel its oil revenues to build its infrastructure and strengthen the nonoil sector. As a consequence, the government has initiated plans to execute projects, worth around $700, across the Kingdom over the next 20 years. Nearly half of the government investments are set aside for real estate and housing in order to facilitate improved living standards for its citizens. Other projects consist of developing roads, ports and railways, including the Land Bridge Project connecting Dammam in the Eastern Region to Jeddah on the Red Sea, the cost of which is estimated to be $10 billion. Another important investment is the development of the economic cities - mainly King Abdullah Economic City, worth $50 billion, and Knowledge Economic City which is estimated to cost $8 billion. "We believe these mega projects will continue to provide growth opportunities to the Saudi cement producers," the report added.
The cement industry has clocked exceptional growth, recording a remarkable CAGR of 20 percent during the 2005-2011 along with a healthy net profit margin, averaging 49 percent.
Al-Rajhi Capital said Saudi Arabia is the cheapest cement producer in the GCC region, owing to the cheap availability of natural gas allocated by Aramco and presence of natural resources at its disposal. The cost of producing cement in Saudi Arabia stands at $30/ton as against $44/ton in the GCC region. Cement prices in the Kingdom have remained more or less constant over the last three years on account of tight government control over prices. Going forward, cement prices are expected to remain stable unless Aramco revises its fuel pricing. The government wields a strong influence on the cement prices in the Kingdom, with aim to curb any unfair spike in prices. Cement prices soared in 2007 following an upswing in economic activities and an improvement in the overall economy. In mid-2008, the export ban was activated in order to tame inflation.
With the ban on exports of cement in place, the market experienced an oversupply situation as prices eventually dropped to the range of SR230-SR240 per ton by 2010.
Since the start of 2012, the sector is experiencing acute shortage of cement in the Western region of Saudi Arabia, particularly the Makkah region, on account of which retail prices touched a record high of SR25 per bag (~SR500 per ton versus government ceiling of SR280 a ton). Hence, the government acted swiftly by arresting a few manipulators and also urged cement companies to operate at full capacity. Though the cement companies tried to address this issue but the undersupply is still not fully under control.
The mammoth infrastructure development across the Kingdom ensures continuous flow of demand. According to the ninth five-year development plan (2009-14), the Saudi government has drawn up plans to spend over $385 billion on construction projects until 2014. This projected expenditure reflects a 67 percent increase over the eighth plan with major focus on education, social health and infrastructure development. The housing sector has been allocated SR100.5 billion, with planned construction of 1 million housing units over 266 million square meters of land. Under transportation development, some of the major plans include establishment of the Ras Az Zawr port (which is almost complete) and upgradation of airports in Jeddah and Madinah, and completion of railroad network expansion -- North- South line, Harmain high speed train and Land Bridge. The total estimated transport expenditure is SR111 billion, indicating a 96 percent increase in allocation. These projects are part of a long-term plan to invest $700 billion in various sectors across the Kingdom. The details of the allocation are mentioned below. Some of other highlights of the 2012 budget include setting up 742 schools (along with 2,900 schools currently under construction), setting up 17 new hospitals, and completing construction of 137 hospitals, 4,200 km of roads, 4 regional airports, water desalination, and improving water and sewage networks. These investments will continue to boost construction activities and push up cement demand in the country, Al-Rajhi Capital report said.
Saudi Arabia's cement sector benefits immensely from the massive ongoing construction activities in the Kingdom. Cement companies in the Kingdom enjoy significant feedstock advantage, cheap transport and backing from government projects, according to a report by Al-Rajhi Capital released yesterday.
The report said mature companies, which carry attractive margins, are equipped with high capacity and are in close proximity to construction areas. "We have rated each company on our coverage based on various objective and subjective measures. The rating criteria include top and bottom-line growth, operating margin, ROE, dividend yield, etc," the report added.
"Arabian Cement is our top pick owing to its robust revenue and earnings growth, proximity to the Western Region (which is undergoing massive expansion) as well as open investor relations," Al-Rajhi Capital said.
Al-Rajhi Capital said it likes Yamama Cement due to its favorable presence in Riyadh, decent sales and net profit growth estimates over the next four years, negative net debt and active investor relations. Al Jouf Cement - one of the newly incorporated cement companies - occupies the third position. Revenue and net profit growth are robust due to its high growth phase; however, being located in the northern region, it is far off from the high demand market. Further, the ban on exports has hurt the company's strategy to target export markets. Saudi Cement Company comes fourth in the rating list and scores high on dividend yield and profitability. Qassim Cement comes fifth in the list.
The Saudi cement sector is one of the established sectors in the Kingdom. The industry is benefiting from massive investments currently underway in the Kingdom as the country bids to channel its oil revenues to build its infrastructure and strengthen the nonoil sector. As a consequence, the government has initiated plans to execute projects, worth around $700, across the Kingdom over the next 20 years. Nearly half of the government investments are set aside for real estate and housing in order to facilitate improved living standards for its citizens. Other projects consist of developing roads, ports and railways, including the Land Bridge Project connecting Dammam in the Eastern Region to Jeddah on the Red Sea, the cost of which is estimated to be $10 billion. Another important investment is the development of the economic cities - mainly King Abdullah Economic City, worth $50 billion, and Knowledge Economic City which is estimated to cost $8 billion. "We believe these mega projects will continue to provide growth opportunities to the Saudi cement producers," the report added.
The cement industry has clocked exceptional growth, recording a remarkable CAGR of 20 percent during the 2005-2011 along with a healthy net profit margin, averaging 49 percent.
Al-Rajhi Capital said Saudi Arabia is the cheapest cement producer in the GCC region, owing to the cheap availability of natural gas allocated by Aramco and presence of natural resources at its disposal. The cost of producing cement in Saudi Arabia stands at $30/ton as against $44/ton in the GCC region. Cement prices in the Kingdom have remained more or less constant over the last three years on account of tight government control over prices. Going forward, cement prices are expected to remain stable unless Aramco revises its fuel pricing. The government wields a strong influence on the cement prices in the Kingdom, with aim to curb any unfair spike in prices. Cement prices soared in 2007 following an upswing in economic activities and an improvement in the overall economy. In mid-2008, the export ban was activated in order to tame inflation.
With the ban on exports of cement in place, the market experienced an oversupply situation as prices eventually dropped to the range of SR230-SR240 per ton by 2010.
Since the start of 2012, the sector is experiencing acute shortage of cement in the Western region of Saudi Arabia, particularly the Makkah region, on account of which retail prices touched a record high of SR25 per bag (~SR500 per ton versus government ceiling of SR280 a ton). Hence, the government acted swiftly by arresting a few manipulators and also urged cement companies to operate at full capacity. Though the cement companies tried to address this issue but the undersupply is still not fully under control.
The mammoth infrastructure development across the Kingdom ensures continuous flow of demand. According to the ninth five-year development plan (2009-14), the Saudi government has drawn up plans to spend over $385 billion on construction projects until 2014. This projected expenditure reflects a 67 percent increase over the eighth plan with major focus on education, social health and infrastructure development. The housing sector has been allocated SR100.5 billion, with planned construction of 1 million housing units over 266 million square meters of land. Under transportation development, some of the major plans include establishment of the Ras Az Zawr port (which is almost complete) and upgradation of airports in Jeddah and Madinah, and completion of railroad network expansion -- North- South line, Harmain high speed train and Land Bridge. The total estimated transport expenditure is SR111 billion, indicating a 96 percent increase in allocation. These projects are part of a long-term plan to invest $700 billion in various sectors across the Kingdom. The details of the allocation are mentioned below. Some of other highlights of the 2012 budget include setting up 742 schools (along with 2,900 schools currently under construction), setting up 17 new hospitals, and completing construction of 137 hospitals, 4,200 km of roads, 4 regional airports, water desalination, and improving water and sewage networks. These investments will continue to boost construction activities and push up cement demand in the country, Al-Rajhi Capital report said.
© Arab News 2012
