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Gulf ceramics makers poised for 2025 rebound

RAK Ceramics creates tiles and sanitaryware such as bathtubs. It is expected to benefit from the Gulf's building spree RAK Ceramics
RAK Ceramics creates tiles and sanitaryware such as bathtubs. It is expected to benefit from the Gulf's building spree
  • Gulf has two listed ceramics makers
  • Granted Saudi customs exemption
  • Earnings likely to recover

Following a turbulent 2024, the Gulf’s listed ceramics makers should perform better this year thanks to lower customs duties, rising demand for their products and fewer Red Sea shipping disruptions.

For equity investors, Oman’s Al Anwar Ceramic Tiles and the UAE’s RAK Ceramics provide a play on the Gulf’s rising population and mega infrastructure spending, as well diversification from the dominant energy, petrochemicals and banking sectors.

Yet shareholders in the two companies have suffered of late.

Al Anwar is likely to a report a 2024 annual net loss of OMR200,000 ($519,437), according to a report by Bahrain’s Sico Bank which also forecasts RAK Ceramics’ 2024 annual profit will fall 22 percent year on year to AED229 million ($62.4 million).

The manufacturers, which make ceramic tiles and sanitaryware such as basins and bathtubs, have endured several challenges over the past few years. These include 12 percent customs duties on exports to Saudi Arabia, which the kingdom introduced in 2022, plus excess supply, logistical difficulties and cheaper imports from Asia, the report explains.

But 2025 will be better after Saudi Arabia gave the two companies customs exemptions that it will reaffirm every six months. Also, the kingdom’s demand for ceramics will rebound “sharply” this year, while Red Sea shipping disruptions should decrease.

“Earnings will likely recover through the year”, Sico wrote.

The bank has a buy rating on Al Anwar’s shares and a target price of OMR0.134, plus a neutral rating and a target price of AED2.96 on RAK Ceramics.

On Wednesday, shares in RAK Ceramics and Al Anwar closed at AED2.58 ($0.70) and OMR0.107 ($0.28) respectively, down 4.1 and 34 percent over the past 12 months.

A study by Mordor Intelligence forecasts the GCC’s sanitaryware and ceramic tile industry will expand by an annual compound growth rate of 5.5 percent to reach $12.7 billion in 2030 from $9.7 billion this year.

“The market is dominated by distributors who import products from different countries,” Mordor wrote. “Regional companies compete based on innovation and creativity to keep up with the changing consumer behaviour.”

Extensive construction projects in Saudi Arabia, the UAE, Qatar and Oman will drive Gulf ceramics sales growth, Sico wrote.

“The demand for ceramic tiles is expected to rise significantly, contributing to the overall expansion of the market,” says Sico’s report, noting the value of planned or under-construction Gulf real estate projects is $1.7 trillion, up from $1.4 trillion a year ago.

Of this total value, 63 percent is from projects in Saudi Arabia and 24 percent from developments in the UAE.

This spending should help Al Anwar to swing to an annual profit of OMR600,000 in 2025 and OMR1.5 million in 2026, Sico forecasts.

Mordor highlighted similar demographic and economic trends, noting there is a growing demand “for modern and functional bathroom and kitchen fixtures”.

RAK Ceramics has a market capitalisation of AED2.54 billion ($692 million), and has factories in India and Bangladesh as well as the UAE. Its Bangladeshi operations suffered a steep profit drop in the first nine months of 2024 as a result of gas shortages and rising gas prices although these problems have now eased. The company remains vulnerable to depreciation in the Bangladeshi and Indian currencies, Sico wrote.

The company is also setting up a factory in Saudi Arabia although when this facility will open is unclear. Its long-mooted sale of a $280 million land plot in Ras Al Khaimah is possible, Sico wrote, predicting the manufacturer’s annual net profit should rise slightly in both 2025 and 2026.

RAK Ceramics, which is listed on the Abu Dhabi Securities Exchange, trades at a trailing price-to-earnings ratio of 10.9, bourse data shows. That compares with the exchange’s broader PE ratio of 15.6.