EGYPTCeramics: From Dusk to Dawn
Purchasing power recovery is key; initiate coverage on four ceramics names
EGYPTCeramics
Egypt / Ceramics / Core Coverage Report
From Dusk to Dawn
Purchasing power recovery is key; initiate coverage on four ceramics names
A fragmented market
We estimate Egypt’s ceramics industry size to be c.EGP21bn in annual revenues, where there are many major players with 33 factories with a maximum capacity of 400mn sqm p.a. The local ceramics market is fragmented between EGX-listed companies, such as Lecico Egypt [LCSW], Al Ezz for Ceramics & Porcelain [ECAP], Arab Ceramic Co. - Ceramica Remas [CERA], and General Company for Ceramic & Porcelain Products [PRCL], and non-listed companies, topped by Cleopatra Ceramics, Royal Ceramics, Milano Ceramics, and Innova Ceramics.
Egypt – a large consumer but a larger producer too
Egypt produced 285mn sqm of ceramic tiles in 2020, according to Statista, making it the world’s tenth largest in terms of volume. Yet, the country usually consumes 80% of its own production and exports the remainder, ranking the tenth in terms of global consumption. Meanwhile, exports (20% of local production) have been suffering since the onset of COVID-19. According to the Export Council for Building Materials, Refractory & Metallurgy Industries (ECBM), ceramic tiles exports decreased by 17% y/y to USD144mn in 2020 then slumped further by 4% y/y in 9M 2021 to USD92mn.
… but has the potential to become a manufacturing and exporting hub: Egypt is gifted with many resources that can help it become a ceramics hub for manufacturing and exporting, e.g.:
1. Attractive location: Egypt’s location, being central, makes shipping costs cheaper, especially for nearby countries like Libya and Iraq. Currently, African and Iraqi importers enjoy a 50% shipping discount offered by the Egyptian government to encourage exports. Egypt is known for its rich, yet relatively cheap, labor force in addition to an abundance of natural gas – despite demands by local manufacturers for cost reduction so they can be as competitive as possible with their neighboring peers that access the commodity at lower prices.
2. Minimal FX risk: Most of Egypt-based manufacturers are exposed to minimal FX risk as they secure around 90% of their raw materials locally. At the same time, the majority of production is sold locally.
3. Favorable international relations: Recently, relations with Turkey have improved and there is currently less tension in Libya. This opens the door for potentially more exports post-COVID-19.
4. New export subsidy: For the first time, exporters in Egypt’s ceramics industry are now eligible for a 3-year subsidy program, starting from July 2021, with additional incentives when exporting to African countries.
Initiate coverage on four ceramics stocks
In this note, we initiate coverage on the ceramics industry in Egypt with four EGX-listed ceramics manufacturers, namely (sorted in terms of upside/downside) Al-Ezz for Ceramics & Porcelain [ECAP] (OW, 12M PT EGP14.8, +50%), Arab Ceramic Co. - Ceramica Remas [CERA] (OW, 12M PT EGP0.88, +28%), General Co. for Ceramic & Porcelain Products [PRCL] (UW, 12M PT EGP2.7, +3%), Lecico Egypt [LCSW] (UW, 12M PT EGP3.8 , +10%).
Dina Abdelbadie
Equity Analyst
T +202 3300 5716