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Saudi cement firms’ dividends drop, yields ‘still attractive’ - Al Rajhi Capital

Saudi cement firms’ dividends drop, yields ‘still attractive’ - Al Rajhi Capital
The decline in dividends was expected, although “the current dividend yield in the sector is [about] 6% as compared to the market average of 3.3%,”

Riyadh – Mubasher: Saudi cement companies issued lower dividend distributions by 10% to 15% owing to weak market conditions, Al Rajhi Capital said in a report on Wednesday.

The decline in dividends was expected, although “the current dividend yield in the sector is [about] 6% as compared to the market average of 3.3%,” the research firm said.

“Going forward, we believe there is limited downside (about 10-15% on average) for dividends, even if we assume this decline, the dividend yield will remain attractive at 5%”, Al Rajhi added.

The sales volume of companies operating in the Saudi cement sector decreased 19% to reach 28.3 million tonnes, while clinker production dropped 10% to 29.3 million tonnes, and inventories stood at 33.6 million tonnes in the first seven months of 2017.

Al Rajhi believes that Saudi Arabia’s Northern Region “remains the weakest” as its current stockpiles represent 118% of regional producers’ dispatches over the past 12 months.

“Weak demand within the region has led companies to reach out to far away regions which have negatively impacted companies’ profit/ton due to the high transportation costs. The increase in competition has also, no doubt, reduced realized prices,” the report showed.

Meanwhile, the Eastern region’s cement manufacturers were affected by the implementation of “export fees on Bahrain exports, however, these exports are likely to re-start after the 50% discount on fees.”

The research firm expects “volatility and stiff competition on selling prices” to continue on the short-term in the cement sector, particularly after the slowdown in construction activities and on the back of limited demand from mega projects.