Global Investment House -Kuwait –GCC Market Review July 2009.
The performance of GCC markets were mixed during July-09. Two of the markets - Kuwait and Bahrain ended the month on a negative note whereas rest of the four markets witnessed gains during the July-09. In fact most of the markets declined during the first half of July-09; however performance turned positive during the second half of the month. Improvement in investors’ sentiment in international markets on the back of better-than expected 2Q-2009 results had a positive impact on the regional markets as well. Most of the international companies in banking and financial services sector beat the analysts’ estimates in terms of 2Q-2009 results. Better results by corporates and lower-than-expected decline in US GDP during 2Q-2009 raised hopes that global economy is emerging out of recession. The rally in oil prices during the second half of July also had positive influence on the market. WTI Nymex Futures ended the month at approx. US$69.0/b, up from a low of around US$59/b on 13th July. Corporate earnings for the region have also started to come in and results have been mixed so far.
Looking forward we will see stock specific movements as more companies come out with results. Factors like oil prices and movements in international markets will continue to impact the direction of regional bourses. The trading activity is expected to remain low on account of summer months and beginning of holy month of Ramadan.
Table 1 : Index Performances
Country Measured by Index Close MTD Growth (%) YTD Growth (%)
Bahrain Global Bahraini Stocks Index
119.8 -5.3 -15.8
Kuwait Global General Index
211.4 -2.9 2.4
Oman MSM Index
5,846.2 4.2 7.4
Qatar Global General Qatari Index
502.1 1.8 -2.7
Saudi Arabia Tadawul All Share Index
5,778.1 3.2 20.3
UAE NBAD Index
6,690.4 5.4 12.4
Source: Respective Stock Exchanges and Global Research
GCC Cement Sector – 1H/2009 Earnings Update…
Tables are turning and times are changing. Previous expectation of prolonged recession has been ruled out by recently released economic and financial numbers worldwide. Sectors which at the end of 2008 and 1Q-2009 were recording huge losses and declines have eventually turned the tables and are posting better than expected results. Cement sector of GCC has also followed the foot-steps of the leaders. After registering a y-o-y decline of 35% and 43% in 2008 and 1Q-2009 respectively, the sector reported q-o-q increase of 61.6% in 2Q-2009 which eventually restricted the half year y-o-y decline to 24.4%. The sector reported a profit of US$922.2mn in 1H-2009 as compared to US$1,220.5mn in 1H-2008, while on a q-o-q basis the profit soared to US$567.9mn in 2Q-2009 as compared to US$351.3mn in 1Q-2009.
Table 2: Earnings of GCC Listed Cement Companies
(US$ mn) 1H-2008 1H-2009 Y-o-Y 1Q-2009 2Q-2009 Q-o-Q
Saudi Arabia 663.2 555.5 -16.2% 270.9 284.7 5.1%
Oman 72.7 74.0 1.8% 32.5 41.6 28.0%
UAE 269.0 151.1 -43.8% 37.4 113.8 204.5%
Kuwait 134.4 55.8 -58.5% (28.2) 81.0 N/M
Qatar 81.1 85.7 5.7% 38.9 46.9 20.5%
GCC 1,220.5 922.2 -24.4% 351.3 567.9 61.6%
Source: Company Report
N/M - Not Meaningful
On a country basis during 1H-2009, Qatar cement sector reported profit growth of 5.7% followed by Oman at 1.8%. Kuwait registered the highest decline at 58.5%, followed by UAE at 43.8%. While the ranking on a q-o-q basis was charted by UAE with profit growth of 204.5% followed by Oman at 28%. On a company specific basis, RAK Cement of UAE reported the highest profit growth of 126.8% followed by Union Cement of UAE and Oman Cement at 49.8% and 49.3% respectively. Top losers were Arkan Building Materials of UAE followed by Umm Al Qaiwain Cement Company, UAE and Kuwait Cement Company.
Most interesting features of the quarterly results was for UAE that despite drop in average price realization and sales volume, the sector reported better numbers than the previous quarter. This was primarily due to commissioning of coal mill successfully by majority of the players giving them the ability to burn multiple fuels. Drop in the cement sales volume has been reported by most of the players as construction activity has slowed down in UAE. As reported by Fujairah Cement Industries of UAE, demand decreased in UAE cement market from 75,000tpd to about 45,000tpd i.e. a 40% drop from 27.3mtpa to 16.4mtpa.
In the current scenario equity market has been on the path of recovery. Year to date, majority of the equity markets have recovered and posted growth. Despite this, ongoing projects have come down. The projects market which was US$2.68tn in April 2009 declined to US$2.2tn in the month of May 2009. Major decline in the projects announcement came from UAE whose total size went down to US$960bn from US$1.32tn in April 2009. Oman witnessed the second highest decline in the project pipeline to US$96bn from US$110bn.
Although the work on different projects in Saudi Arabia and Qatar is going on at a brisk pace, the overall project pipeline in these countries went down by 9% and 4% to US$586bn and US$209bn respectively. Despite decline in projects we believe Saudi Arabia, Qatar and Abu Dhabi are still having a healthy outlook, but we note that new contract awards on average are down by 50% year-to-date across the GCC.
Table 3: Global GCC Cement Sector Coverage
Company Market Cap 2009e P/E 2009e P/Bv ROA ROE
Yamama Cement Co, KSA 1,453 9.9 1.8 17% 21%
Saudi Cement Co, KSA 1,672 9.2 2.1 14% 22%
Eastern Cement Co, KSA 1,014 9.0 2.3 20% 23%
Qassim Cement Co, KSA 1,578 11.0 3.0 23% 30%
Yanbu Cement Co, KSA 1,409 9.7 2.4 22% 24%
Arabian Cement Co, KSA 985 8.4 1.5 9% 14%
Oman Cement Co, Oman 596 11.8 2.0 9% 11%
Raysut Cement Co, Oman 885 12.6 3.3 23% 28%
Arkan Building Materials, UAE 1,920 37.0 3.4 -11% -18%
Gulf Cement Co, UAE 494 10.4 1.2 0% 0%
Fujairah Cement Co, UAE 291 5.9 1.1 12% 21%
Ras Al Khaimah Cement Co, UAE 174 7.5 0.8 9% 10%
Union Cement Co, UAE 372 9.0 0.9 10% 11%
Source: Global Research
* ROA and ROE of 2008 and Market Cap in US$mn
A large amount of new cement supply is coming to the market at a time when demand is slowing. We expect supply to grow by 20% in 2009 while demand is going to remain low. The cement capacity build-up in the GCC (and neighboring regions), alongside a reduction in spending with lowered oil receipts, would place downwards pricing pressure on construction commodities across the whole region. While the long-term prospects are stable, in our opinion short-term volatility in both prices and profitability is a likely scenario.
We believe the outlook for cement demand is still relatively good in some countries, albeit with slower growth than in recent years. If all planned projects in GCC go ahead, the region in particular could see continued growth in demand. Saudi Arabia & Qatar would be topping the growth while we expect a slowdown in Kuwait. The scenario for Kuwait does not include the substantial demand we expect from the development of Silk City and hence we expect demand growth in this country to be the slowest among the six GCC countries.
Market activity….
GCC bourses saw 20.6bn shares being traded in the month of July-09 as compared to 50.3bn shares recorded in the previous month. Similarly the value of shares traded on the bourses decreased to US$39.2bn in July-09 as compared to US$63.8bn reported in the previous month.
Table 4: Exchange Activity
Country Total Volume Traded Total Value Traded (US$) Market Cap (US$) No. of Transactions
Bahrain 25,762,536 13,410,064 16,400,905,122 1,566
Kuwait 7,136,700,000 6,237,073,692 119,286,518,602 157,079
Oman 426,352,991 453,642,317 16,188,967,287 86,189
Qatar 297,055,784 2,096,453,848 78,491,593,343 80,499
Saudi Arabia 3,682,201,433 26,770,839,833 296,770,220,273 3,130,740
UAE 9,007,325,481 3,579,025,028 143,439,503,829 172,229
Source: Respective Stock Exchanges and Global Research
The breadth of GCC stock markets was tilted towards advancers in July-09 as 202 stocks registered monthly gains as compared to 190 decliners whereas 317 stocks remain unchanged.
Table 5: Market Breadth
Advancers Volume Decliners Volume Unchanged Volume Total
BSE 7 1,228,103 16 23,269,184 27 1,265,249 50
KSE 34 1,434,720,000 27 86,085,000 142 5,615,895,000 203
MSM 30 249,707,658 30 133,186,931 90 43,458,402 150
DSM 21 103,926,124 21 191,604,854 1 1,524,806 43
Tadawul 61 1,843,158,610 64 1,722,743,428 7 116,299,395 132
DFM & ADX 49 5,640,477,750 32 1,515,787,717 50 1,851,060,014 131
Total 202 9,273,218,245 190 3,672,677,114 317 7,629,502,866 709
Source: Respective Stock Exchanges and Global Research
