The Saudi Ministerial Committee of Supply has decided to reduce the export tariff fees for cement companies by 50% in order to encourage local producers and enhance competition. It is worth mentioning that the government has imposed export fees of SAR85-135 per tonne for the exported cement in mid-March 2017. This has led export sales volumes to Bahrain (no export ban to Bahrain) to drop significantly by 20% Y-o-Y in 1Q17, all of which happened in March (-55% Y-o-Y), and there were no exports in April and May. Moreover, companies that have obtained export licences over the past period refrained from using the export licence, given the high export fees.
 
In our view, this initiative would act positively for some of our covered names, including Saudi and Eastern Cement (they were selling to Bahrain, but stopped since the announcement of the high export fees), as well as for the companies that have recently obtained export licences, including Tabuk and Al Jouf Cement (other names include Najran, Hail). However, regional oversupply, high competition and geopolitical tension remain the main challenges to export.
 
Saudi Cement: SAR51.88 as of 06 Jul 2017, Rating: Buy, TP: SAR75.00/share, MCap: USD2,117mn, SACCO AB/3030.SE
Eastern Cement: SAR24.37 as of 06 Jul 2017, Rating: Neutral, TP: SAR33.20/share, MCap: USD559mn, EACCO AB/3080.SE
Tabuk Cement: SAR11.44 as of 06 Jul 2017, Rating: Sell, TP: SAR11.30/share, MCap: USD275mn, TACCO AB/3090.SE
Al Jouf Cement: SAR8.18 as of 06 Jul 2017, Rating: Sell, TP: SAR8.00/share, MCap: USD284mn, JOUF AB/3091.SE
Analyst: Tarek El-Shawarby