Affordable housing drives Saudi cement sector

Due to improving volume growth and better realized prices the margins of the cement companies have improved recently: report

  
An Asian labourer works at the construction site of a building in Riyadh, Saudi Arabia August 2, 2016. Image used for illustrative purpose.

An Asian labourer works at the construction site of a building in Riyadh, Saudi Arabia August 2, 2016. Image used for illustrative purpose.

REUTERS/Faisal Al Nasser

Saudi cement sector is back in positive trajectory from June 2019 as compared to 2018 levels, a report said, adding that the primary driver of this growth is the government’s push towards affordable housing.

Due to improving volume growth and better realized prices the margins of the cement companies have improved recently, added the Saudi Cement Report released by Al Rajhi Capital, a leading financial services provider in the kingdom.

The housing projects still has a lot of potential as we estimate the size of the untapped affordable housing potential in Saudi Arabia at about SR500 billion ($133 billion).

“Our calculations show 1.22 million homes are likely to be constructed from 2020 to 2030 for achieving Vision 2030 penetration target of 70 per cent, with the current run rate of around 0.18 million homes in 2019 we estimate it to pick up to 0.19m a year for the next three years,” Al Rajhi Capital said in the report.

This provides huge opportunities for cement industries in near term. In the long term horizon several infrastructural projects such as Neom and Red sea to name a few ensures sustainable demand for the overall industry.

“However in the near term we see the majority of the cement demand coming from affordable housing scheme and therefore we feel selected cement companies with better valuation metrics to do well. Accordingly we are bullish on Qassim and Arabian cement with a target price of SR78 and SR41 respectively which implies an upside of 18 per cent and 14 per cent respectively from the CMP,” the report said. – TradeArabia News Service

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