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January 02, 2013

Pakistan Cement Sector

Cement: Winter chills fail to dampen


MORNING BRIEFING
Furqan Ayub + 9221 111-574-111 Ext: 3103 furqan.ayub@js.com

domestic sales in December


KSE100 Index: Closing 16,794.87 (110.46)
Our industry channel checks suggest that December 2012 cement dispatches surged by 7.3%YoY and 8%MoM to 2.86mn tons. After incorporating the December sales figure, cumulative cement sales for 1HFY13 have registered at 15.99mn tons, up by 4.1%YoY. Volumetric growth to date is on the back of uptick in local demand, stemming from aggressive infrastructure spending before the general elections in 2013. Despite outperformance of 82% vis--vis the KSE100 in 2012, we reiterate our Over-Weight stance on the cement sector, eyeing strong earnings growth of 37%YoY in FY13 for our universe companies.

Cement sales maintain positive momentum in December


Our industry channel checks suggest that December 2012 cement dispatches surged by 7.3%YoY and 8%MoM to 2.86mn tons. The growth is primarily driven by local sales, with increased demand stemming from government infrastructure spending. Local sales in December 2012 rose by 13.5%YoY to 2.29mn tons. On a MoM basis too, domestic dispatches were up by an impressive 16.8%. Demand from the public sector has picked up pace since November, with the government speeding up the completion of infrastructure projects. As per the latest PSDP figures, the government has already released Rs101.40bn in the first six months of the fiscal year. This translates in to 43.5% of the full year PSDP allocation of Rs233bn. Note, this is higher than 40% recommended by the Planning Commission. After incorporating the December sales figure, cumulative local sales figure translates into 8%YoY growth in 1HFY13 to 11.77mn tons. With pre-election construction activity expected to remain in full swing till March, we maintain our FY13E local cement volumetric growth target of 8%YoY.
Demand Outlook (mn tons) Local Demand Growth Export Demand Growth Total Demand Growth FY11A FY12A FY13F 22.0 -7% 9.4 -12% 31.4 -8% 23.9 9% 8.6 -9% 32.5 3% 25.9 8% 8.6 0% 34.5 6%

Source: JS Research & APCMA

Weather and logistical hindrances keep exports at bay


Winter chills in Afghanistan and logistical hindrances kept exports at bay in December 2012. Our channel checks indicate exports were registered at 0.57mn tons in December, down 12.2%YoY and 17.3%MoM. Thus, 1HFY13 export figure registers at 4.21mn, down 5.5%YoY. While low export figures are somewhat disappointing for the industry, with local sales riding strong and cement prices still intact we do not foresee this as a major concern.

Cement offtake in December (mn tons) Dec-12 Dec-11 YoY% MoM% Local Exports Total 2.29 0.57 2.86 2.02 0.65 2.67 13.5% -12.2% 7.3% 16.8% -17.3% 8.0%

Source: JS Research

Cement manufacturers stay adamant on cement prices


Backed by stable domestic demand, cement prices have maintained their higher levels of Rs445-Rs450/bag. Cement prices may witness a further uptick of approximately Rs3-4/bag considering the recent notification by OGRA to hike the gas tariff for cement factories and captive power plants. Having said that, we do not rule out a seasonal downward adjustment in cement prices in January with the peak winter season resulting in slower interim demand.

Cement offtake in 1HFY13 (mn tons) Local Exports Total Source: JS Research 1HFY13 1HFY12 YoY% 11.77 4.21 15.99 10.90 4.46 15.36 8.0% -5.5% 4.1%

JS Research is available on Bloomberg, Thomson Reuters, CapitalIQ and www.jsgcl.com Please refer to the important disclaimer on the last page

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January 02, 2013

MORNING BRIEFING

Fundamentals remain strong - Re-iterate Over-Weight


High cement prices, lower costs and steady volumetric growth led to JS Cement Universe outperforming the market by 82% in 2012. Despite the outperformance, we maintain our Over-Weight stance on the sector eyeing strong earnings growth of 37%YoY in FY13 for our cement universe companies. Our preferred plays within the sector are DGKC, LUCK and FCCL with respective target prices of Rs62, Rs169 and Rs9.8.

Pakistan market statistics (Jan 01, 13) KSE-100 Index Previous KSE-100 Index Change from last closing Change from last closing (%) KSE Market Cap. (Rs. bn) KSE Market Cap. (US$ bn) Total Volume (Shares mn) Traded Value (Rs. bn) 16,794.87 16,905.33 -110.46 -0.65% 4,219.40 43.43 119.68 2.14 22.02 13,694.94 -69.06 -0.50% 3.31 254.88 9.68%

Also in Focus
EFS and LTFF revised by the SBP
Following the easing in the discount rate, State Bank of Pakistan (SBP) has revised the refinance rates for various finance schemes with the exception of financing over 5 years and up to 10 years. Export Finance Scheme (EFS) rate has been reduced to 8.3% from 8.5%, with the banks margin/spread not exceeding 1%. Hence, exporters will now get the financing facility at 9.3%. Under the Long Term Financing Scheme (LTFF), the rates have been reduced by 0.7% and 0.2% for up to 3 years and 5 years respectively. However, rates of financing facilities for up to 10 years have been raised by 0.2%. We believe this revision in rates will bode well for the textile sector.

Traded Value (US$ mn) KSE-30 Index Change from last closing Change from last closing (%) KSE Futures Volume (Shares mn) KSE Futures Value (Rs. mn) KSE Futures Spread Source: KSE

KSE valuations FY12A FY13F FY14F P/E (x) P/BV (x) Div. Yield (%) Earnings growth Source: JS Research 7.2 1.7 6% 14% 6.5 1.5 7% 12% 6.1 1.3 8% 7%

JS Global Capital Limited


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This report has been prepared for information purposes by the Research Department of JS Global Capital Ltd. The information and data on which this report is based are obtained from sources which we believe to be reliable but we do not guarantee that it is accurate or complete. In particular, the report takes no account of the investment objectives, financial situation and particular needs of investors who should seek further professional advice or rely upon their own judgment and acumen before making any investment. This report should also not be considered as a reflection on the concerned companys management and its performances or ability, or appreciation or criticism, as to the affairs or operations of such company or institution. Warning: This report may not be reproduced, distributed or published by any person for any purpose whatsoever. Action will be taken for unauthorized reproduction, distribution or publication.

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