By: Next Capital Pakistan Limited
Cements: Latest dispatches data for 5MFY16 shows local sales have surpassed our expectations, while the drop in exports is much steeper than estimates. Resultantly, we have revisited demand assumptions, revising earnings estimates for Next Cement universe in the range of -2-8%; TP’s change by -4 -23%.
Local demand has surprised significantly on the upside, +15%/21%YoY for North/South in 5MFY16; we upward revise our 4yr CAGR for both North/South to 13.5/10.2%. South demand growth has exceeded expectations mainly due to exceedingly strong demand from Bahria Town Karachi. However, we expect South growth to normalize from 2HFY16, as Bahria’s construction program is front-loaded.
The state of exports remains dismal, down 25%/27% in the North/South region in 5MFY16. We do not eye any respite on this front, as sea export markets are importing significantly less cement due to local capacity additions and increase in anti-dumping duty incidence. In the north, capacity additions in Tajikistan have weakened demand from Afghanistan. We have revised our annual decline in exports assumption to 30% annually for both regions; previously 10%/20% for North/South.
We reiterate our liking for Pak cement sector, where the sharp fall in exports has largely been made up for by the rise in local demand. Cherat Cement is our top pick, while we also like Lucky, DG Khan, Maple, Pioneer and Kohat.