KEY THEMES
Last Thursday, we initiated coverage on four Egypt ceramics stocks listed on the EGX. We rated two of them Overweight and two Underweight. Here is a summary of our view:
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, such as (1) attractive location, (2) minimal FX risk, (3) favorable international relations, and (4) new export subsidy.
Initiate coverage on four ceramics stocks: We initiated coverage on the ceramics industry in Egypt with four EGX-listed ceramics manufacturers, namely (sorted in an alphabetical order):
1. Al-Ezz for Ceramics & Porcelain [ECAP] (OW, 12M PT EGP14.8, +50%).
2. Arab Ceramic Co. - Ceramica Remas [CERA] (OW, 12M PT EGP0.88, +28%).
3. General Co. for Ceramic & Porcelain Products [PRCL] (UW, 12M PT EGP2.7, +3%).
4. Lecico Egypt [LCSW] (UW, 12M PT EGP3.8, +10%).