JS Securities Limited - JS Research.

Karachi -- January 20, 2023 (PPI-OT)

Cement: December dispatches marginally down MoM; 2QFY23 still reports 26% QoQ jump

Cement dispatches for Dec-22 clocked in at 3.9mn tons (-16% YoY), taking cumulative dispatches for 2QFY23 to 12.1mn tons, down 17% YoY. Dispatches for 2QFY23 however jumped 26% QoQ, as the Sep-quarter had the impact of monsoon and heavy flooding resulting in a lower base.

Ongoing decline in South African coal prices, would in normal course of business, benefit the sector's margins. In the current scenario however, we believe country's restricted imports would make it difficult to avail lower imported coal prices and also impact overall construction sector demand. This is in addition to any potential increase in local coal and/or Afghan coal prices.

We believe the Cement sector prices in much negatives as stocks currently trade at P/E of around 3x. We reiterate Lucky Cement Limited (LUCK) and Maple Leaf Cement Factory Limited (MLCF) are among our top picks.

Dispatches remain dull in Dec-2022 as well

Cement dispatches for the month of Dec-2022 are reported at 3.9mn tons, showing a fall of 16% YoY. Dispatches were also down on a MoM basis by 3%. The tally for 2QFY23 came in at 12.1mn tons, lower by 17% on a YoY basis owing to slow-down in construction activities due to winter season. Dispatches however jumped on a QoQ basis, up 26%, as Sep-quarter had the impact of monsoon and heavy flooding resulting in a lower base.

Cheaper international coal, but import restrictions a hurdle

Richard Bay coal prices are down by ~55% compared to their recent high of c.US$360/ton in early Sep-2022. International coal prices have been on a downward trajectory despite winter season. In the instance of South African coal costing similar to current arrangements, we believe local manufacturers would want to switch back to the...