HSBC reaffirms ‘buy’ on Saudi Cement, Yamama; expects demand to weaken

HSBC has reaffirmed “buy” ratings on Saudi Cement and Yamama Cement Co., while keeping a hold on Qassim Cement Co. and Yanbu, the bank said in a sector note.

Although cement companies seen stronger than expected demand during the first eight months of 2015, the government’s plans to scale back on projects and spending will weigh on the sector going forward. Costs may also rise over time as demand weakens, if the government increases fuel prices.

“We prefer names that can support dividends given this backdrop,” HSBC added.

Saudi Cement is seen to have the highest 2015e yield among its peers. The company is expected to pay a five percent dividend yield.

“Our target price falls to SAR 89 from SAR 110 in line with our lower earnings estimates for the company,” it said on Saudi Cement.

Target prices for all companies were reduced, given expectations of weaker demand.

Cement deliveries were up eight percent year-to-date (YTD) and up 18 percent year-on-year in August. Meanwhile, HSBC predicts five percent demand growth for 2015.

“Cement prices in Saudi have fallen 2 percent YTD. We expect more discounting going forward and lower our average prices to SAR 240 per ton in 2015e and SAR 230 in 2016e falling to SAR 210 by 2018e,” the note added.