AKD Quotidian about — Cement price rises in the North

Karachi: With Ramadan over, cement manufacturers have raised cement prices in the North.

According to AKD Securities Limited, in this regard, SPI data shows an increase of 5%WoW in cement prices to -PkR398.6/bag for the week ended Sep 9′ll. This is in line with the expected increase in dispatches post Ramadan (shorter working hours). In the South however, cement prices have remain constant due to floods in Sindh that have affected demand, resulting in lower dispatches in the province. AKD Securities’ conversation with cement manufacturers indicates that cement prices are poised to increase further coupled with expectations of growth in local cement dispatches until Nov’11. On the export front, increasing exports to Afghanistan should provide impetus to growth, particularly for DGKC as 40% of the company’s export dispatches comprise those sent to Afghanistan. For LUCK, its proposed new plant in Democratic Republic of Congo (DRC) should compensate for likely lower sea exports in the longer term. At current price levels, AKD Securities has a Buy stance on both LUCK (FY12 PER: 5.76x) and DGKC (FY12 PER: 9.61x) which offer upsides of 18% and 40% to AKD Securities’ target prices of PkR87.6lshare and PkR28.72/share, respectively.

Trade deficit widens in Aug’11 According to latest data released by FBS, the Aug’11 trade deficit has surged by 24%MoM to US$1 .84bn against a trade deficit of US$1 .48bn in Jul’11. This is largely due to a 11%MoM decline in exports (which have broken below US$2bn for the first time since Nov’10) and a 3%MoM increase in imports. As a result, the 2MFY12 trade deficit has expanded by 20%YoY to US$3.33bn against a trade deficit of US$2.78bn (revised numbers) in the same period last year. In this regard, exports showed a growth of 20%YoY in 2MFY12 to $4.17bn while imports also rose by 20%YoY to US$7.SObn. Although sequential Balance of Trade data is disappointing (particularly the MoM decline in exports), AKD Securities believes the Aug’11 Current Account (CA) should be in control. This is because remittances typically tend to rise sharply in Ramadan – last year, the CA posted one of its highest surpluses in the month of Ramadan. Going forward, while AKD Securities believes that the full-year CA deficit should be a manageable 1% of GDP, risks remain due to 1) potential continued deceleration in exports (particularly if global economic growth further slows down and cotton prices remain low), 2) potential deceleration in remittances momentum post Ramadan. That said, contained oil prices should provide some support to the import bill and the overall Current Account.

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