AKD Quotidian about — Cement sector: Issues resolved for now

Karachi, September 17, 2013 (PPI-OT): The All Pakistan Cement Manufacturers Association (APCMA) held a scheduled meeting yesterday for the election of the Chairman of the Executive Committee of the Association.

According to AKD Securities in this regard, news reports suggest that LUCK has decided to withdraw its resignation from the APCMA with the election of its CEO as the Chairman of the Executive Committee. Return of LUCK to the APCMA suggests that the cement manufacturers have managed to resolve their differences where news reports and channel checks suggest that the body has decided to put a hold on capacity expansions for the next six months, at least.

AKD Securities understands that status quo viz, production and sales volumes will be maintained, which should dovetail with increase in cement prices going forward. Considering the listed cement sector has shed 4.0% during the last month, underperforming the KSE-100 by 2.2% in the process, emergent news flow should lead to a pullback in cement sector share prices. Within this backdrop, AKD Securities retains AKD Securities liking for LUCK while hitherto underperforming DGKC also has room to catch up.

LUCK returns: The All Pakistan Cement Manufacturers Association (APCMA) held a scheduled meeting yesterday for the election of the Chairriian of the Executive Committee of the Association along with the Vice-Chairman. While AKD Securities understands that the APCMA will make the results public after its Annual General Meeting to be held on Sep 26’13, news reports suggest that LUCK has decided to withdraw its resignation from the APCMA with the election of its CEO as the Chairman of the Executive Committee.

Expansions on hold for now: Return of LUCK to the APCMA suggests that the cement manufacturers have managed to resolve their differences. On this front, news reports and channel checks suggest that the APCMA has decided to put a hold on capacity expansions for now with no L/Cs for the import of plant and machinery against capacity expansions to be established before Mar14.

Furthermore, a five member committee will be formed to monitor capacity utilizations in the north and south regions and decide on expansions based on capacity utilizations for each region. AKD Securities understand that status quo viz. production and sales volumes will be maintained although AKD Securities believes that an increase in cement prices going forward is likely.

Outlook: With issues related to capacity expansions and price hikes evidently resolved for now, AKD Securities are likely to see positive momentum return to current sector scrips particularly as the listed sector has shed 4.0% during the last month, underperforming the KSE-100 by 22% in the same period. In this regard, AKD Securities estimates that a PkR1O/bag increase in certificate prices will have an annualized earnings impact of -PkR1.6/share for LUCK and -PKR1.1/share for DGKC. As such, while AKD Securities retain liking for LUCK, underperforming DGKC appears to have sizeable room to catch up.