NCB Capital adopts ‘cautious’ outlook on Saudi cement sector

NCB Capital has adopted a “cautious” outlook on Saudi Arabia’s cement sector, expecting a five percent slump in sales for 2016 as lower oil prices take their toll on private and public sector projects.

Despite low production levels, there are still high inventories, which highlights the sector’s weak performance, the investment arm of the National Commercial Bank (NCB) said in a note.

A recent analysis from Middle East Economic Digest (MEED) said that  construction companies in the Gulf region, particularly in Saudi Arabia and the United Arab Emirates, should prepare for a sharp drop in activity in 2016.

Accordingly, the kingdom’s cement producers are expected to offer price discounts of eight percent in 2015 and seven percent in 2016. Other companies are projected to follow suit.

Companies in the kingdom are expected to reduce dividend payouts for 2016, with the exception of Eastern Province Cement Co.

NCB Capital reaffirmed its ratings for several cement producers, while picking Yanbu Cement Co. and Saudi Cement as top picks on relatively attractive dividend yields.