JS Securities Limited -Morning Briefing

Karachi, December 31, 2018 (PPI-OT): Dec-2018 dispatches could fall 2% YoY, southern players to dominate

We expect cement dispatches to decline marginally by 2% YoY during Dec-2018 to 3.67mn tons from 3.73mn tons in Dec-2017.

While North’s dispatches are expected to decline (-12% YoY), southern players could show robust growth (+44% YoY) during the month.

Local dispatches, ~85% of industry in Dec-2018, could decline by 8%, whereas exports are likely to increase by 69% YoY.

We reiterate that companies with recent plant additions in the south namely LUCK, DGKC and ACPL are expected to dominate in terms of sales’ performance during the month.

Dispatches to dip 2% YoY in Dec-18; exports likely savior

Cement dispatches for the month of Dec-2018 are expected to slightly decrease by 2% YoY to 3.67mn tons from 3.73mn tons in the same month last year. While the drop is partly due to closure of brick kilns (to avoid winter smog), a slowdown in demand in the Northern region also explains the muted trend during the month. North-based dispatches could record a 12% YoY drop in Dec-2018, where local and export sales are expected to decrease by 12% YoY and 6% YoY respectively. In contrast, South-based players are expected to continue to post robust numbers where we are envisaging a 44% YoY growth in dispatches. This would be particularly on the back of a strong increase in exports (~251% YoY), along with an anticipated double-digit growth (11% YoY) in local dispatches. For 1HFY19, total dispatches are expected to rise marginally by 1% YoY, mainly on the back of 51% YoY growth in South-based dispatches (southern exports grew 237% YoY).

Southern players continues to dominate

Analyzing forecasted dispatches by company, we anticipate Attock Cement (ACPL) could potentially outshine owing to stellar growth in exports. We are expecting the company’s total dispatches to increase by 44% YoY with ~169% YoY growth in exports during the month. D.G Khan Cement (DGKC) is expected to follow with total dispatches growth of 25% YoY. Again, exports are anticipated to play a pivotal role, likely to rise 120% YoY. Both ACPL and DGKC have recently added new plants in the south, helping these companies in boosting their export sales. Note that total exports in the southern region are likely to record a 251% YoY growth as compared to 11% YoY increase in local. Tapping new markets, especially Bangladesh, partially explains the rise in exports for these companies. We reiterate that recent capacity expansion by these players, in relatively ideal proximity for seaborne trade, is providing them with the required apparatus to boost exports. However, the same is taking a toll on export market shares of north based players.