AKD Securities Limited Equity Research – Daily Report

Karachi, January 04, 2019 (PPI-OT): Pakistan Cements: ‘Dam’ned if you do, ‘dam’ned if you don’t

After running an initial feasibility study in CY00, construction of Mohamand Dam is expected to finally commence in 1HCY19. With a total PC-I cost of PKR307bn, Federal Govt. is expected to finance the reservoir cost of PKR144bn while WAPDA bridges the shortfall.

Dam construction is expected to take 5 years and 8 months and generate meagre annual demand of 0.3-0.4mn tons cement from CY20. However, a slow pace of construction can result in even lower demand being generated.

Players in the vicinity of the dam site are expected to be at an advantage to qualify for the supply contracts where, from our universe, CHCC and LUCK will see an increase of PKR0.39 and PKR0.19 in EPS for FY21 with an increase of 0.05mn tons of cement per annum.

We maintain our view of significant pressure on prices in North with 9.4mn tons of capacity additions expected in CY19 and term the incremental demand from the dam as a drop in the ocean. At current levels, we have an underweight stance on the sector.