Pakistan Cement_May'17 Dispatches Review
As per latest numbers released by APCMA, total dispatches during May'17 grew by 3.7%MoM/2.4%YoY, primarily led by double digit growth in domestic dispatches to 3.39mn tons in May'17 (+10.9%YoY/+2.4%MoM). However, exports continued to falter, going down 44.6%YoY to just 0.309mn tons in May'17, diluting the impact of robust domestic demand growth in overall dispatches. Continuation of double digit growth in domestic dispatches was likely led by a persistent increase in PSDP spending to reach PkR83bn/PkR52bn in May'17/Apr'17 (up 83%/26%YoY). On a cumulative basis, total dispatches growth reached 5.8%YoY in 11MFY17, though lower than 10.5%YoY in 11MFY16 primarily due to relatively slower domestic demand growth of 10.8%YoY in 11MFY17 vs.17.8%YoY in 11MFY16. While looking at some slowdown in dispatches due to Ramadan, we anticipate total dispatches growth to resume its upward trajectory post Jun'17, increasing by 6.1%YoY/8%YoY in FY17F/FY18F. We derive our thesis from: 1) increasing construction activity on higher PSDP spending in 2HCY17 & onwards (15% unutilized federal PSDP as at May'17 & 32% higher total PSDP allocation (PkR2.1tn) in budget FY18) in the backdrop of election year and 2) impressive growth in private sector credit related to construction activity (+25.6%YoY in Apr'17). Citinig positive fundamentals, we maintain our Overweight stance on the cement sector, where our top picks include LUCK (TP: PkR1,180/sh, upside: 37%), MLCF (TP: PkR152/sh, upside: 34%) and FCCL (TP: PkR56/sh, upside: 23%).
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