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Pakistan Cement: sales -7% YoY in Aug 2018; Local sales -11% YoY, Export sales +26% YoY

• Pakistan cement industry is likely to register its first YoY drop in monthly sales during Aug 2018 in almost a year, as per our channel checks. Decline will likely come from distressed local sales. However, overall cement sales on monthly basis will likely remain the same at around 3.5mn tons.     
• Due to extended number of Eid holidays, we expect local cement consumption to post over 10% YoY decline while consumption on monthly basis is anticipated to remain same at around 3mn tons.
• With additional capacities in South region (~2.3mn tons per annum) and currency devaluation, sea exports are expected to grow by 2.5x YoY. However, dispatches to Afghanistan are likely to contract by 28% YoY while sales to Indian market expected to post marginal growth.
• External account situation of the country continue to post challenge to the new Government as Current Account Deficit (CAD) in Jul 2018 clocked-in at a whopping US$2.2bn, higher than street consensus.
• We believe that the required measures to curtail the external account i.e further currency devaluation and monetary tightening among others are expected to curtail overall aggregate demand (we expect GDP growth to be 4.7% in FY19 compared to 5.8% in FY18), which will affect local cement consumption in FY19.
• While cement prices have remained stable so far, local cement consumption going forward will dictate pricing.
• Our top picks in the sector are Lucky Cement (LUCK) and Maple Leaf Cement (MLCF).