Cements – Another Expansion On The Cards

Intermarket Securities Limited.

• According to a news report, Fecto Cement Limited (FECTC) intends to invest PkR12bn in Punjab (Kalar Kahar); assuming the company installs a Chinese plant at US$120/tpa, this investment could be enough to put up a 950k tpa cement plant. At present, FECTC already owns a 819k tpa plant (utilization of 82% in 9MFY15) near Islamabad.
• Assuming FECTC goes through with its plans, the cements sector is poised to see capacities totaling ~12mn tons being added in the next 3-4yrs. Based on local demand growth projections of 7%pa., new capacities on the horizon should still be absorbed by overall demand across the medium-term. However, we flag that any further major capacity expansions could rekindle industry pricing concerns beyond the next few years.
• The IMS Cement Universe has gained 15.4%CYTD to trade at a FY16F P/E of 9.5x where we retain our Overweight stance based on strong local demand and firm pricing outlook over the next few years at least. At current levels, our top picks are DGKC, CHCC and PIOC.