Construction and cement sectors rebound in Saudi

September rises herald recovery after rocky summer as projects emerge

Construction and cement indices dipped in August.
Construction and cement indices dipped in August.

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Saudi Arabia’s construction sector has only climbed so far in September as the index added more than 24 points yesterday on the Tadawul in Riyadh, up 0.75%.

The group of listed companies was one of the hardest hit during the shorter trading hours of Ramadan as wavering economic data from the US impacted market risk sentiment for project-linked firms. Yesterday the index closed at 3,281, with Saudi’s stock exchange closing up more than 1% to 6,373.61.

Makkah Construction & Development Company, which bids for contracts around the Holy City, rose 0.69% to SR29.1 to continue its 10-day increase. Mohammad Al Mojil Company, which specialises in civil work in the oil and gas markets, gained 0.62% to SR16.15 having lost more than 10% in share price during August.

The index of cement companies – has also recovered this month, up 0.49% yesterday to close at 3,957, its highest level since 10th August. Southern Province – the largest supplier by market capitalisation – rose 0.37% to SR67.25. Saudi Cement Company, Qassim Cement Company and Yamamah Cement all gained between 0.2% and 0.97%, though Yanbu Cement slipped 0.4% to SR42.5.

Big projects in the Kingdom are gradually soaking up the oversupply of cement caused by numerous big producers and an export ban.

“Things are picking up and are okay right now, particularly if ou look at all of the big projects such as the economic cities coming on line,” Nishit Lakhotia, an analyst at Securities & Investment Company told CW this morning.

“In Saudi demand will be increasing by 20% year-on year, especially in the west of the country.”

He added that he expected the export ban to remain “for some time”, with prices remaining low in the face of stiff local competition.

This recent performance has been a mirror to the expected earnings of the companies’ contribution to the sector. In April, Farouk Miah, a senior equity analyst at NCB Capital, wrote that Yanbu’s first-quarter 2010 sales would drag on overall performance.

"Assuming pricing/cost pressures are the same for every stock, the data suggests that the strongest year-on-year performance in [first quarter 2010] should come from Yamamah Cement, followed by Saudi and Qassim Cement,” he said.

“Yanbu has already reported its [first quarter 2010] results, with net income down 19% year-on-year. Given Yanbu’s sales volumes showed the worst results in the sector of down 7% YoY for the quarter, its poor earnings seem in-line with this volume data. Southern Cement, with the next lowest sales growth performance, would also be expected to post weak earnings for the quarter.”

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