Saudi on course for full demand recovery in 4Q14

Saudi cement sector is currently showing signs of recovery, with demand beginning to return to its normal levels, a new report by NCB Capital reveals.

Mohamed Tomalieh, equity research analyst at NCB Capital, said: “The average YoY decline in sales since November 2013 stood at 7.9 per cent but sales in May 2014 increased 3.1 per cent YoY, the first increase since the end of the amnesty period for expats in November 2013. The recent growth supports our view of demand normalising in 3Q14, with expectations of full demand recovery in 4Q14. For companies in the central region, demand from the Riyadh Metro project will play a pivotal role in 4Q14.”

Tomalieh also pointed out that the earlier slowdown in demand and increased costs from imports will have a negative impact on profit growth this year. “On an adjusted basis, we believe the YoY earnings growth for the companies under our coverage will be 1.1 per cent in 2014E. The sector currently trades at a 2014E P/E of 16.0x vs. a historical average of 13.0x,” Tomalieh added.