Yamama Cement’s profit below estimate, says NCB Cap

Yamama Cement’s first-quarter net profit of SAR 51 million (down 66 percent year-on-year) fell shy of NCB Capital and consensus’ estimates of SAR 57 million.

“We believe the weakness came from 1) lower sales quantities due to the construction slowdown, 2) weak margins due to the revised fuel support levels, despite the higher than expected other (investment) income of SAR 5.7 million,” NCB Capital said in an earnings review.

Sales volumes dropped 25 percent YoY, underperforming the sector’s 19.9 percent YoY decline.

Discounts led to an average selling price of SAR 178 a ton, missing NCB Capital’s forecast of SAR 195 a ton.

“We believe discounts offered by smaller players in remote regions to sell in high demand areas may lead to further discounts for Yamama Cement,” the brokerage firm added.

Yamama’s gross profit margins fell to a lifetime low of 28.6 percent in Q1-2017, from 49.6 percent in the first quarter last year.

Gross margins were hit by the kingdom’s revised fuel and energy prices along with steep discounts.

NCBC added that it maintained its “neutral” rating for the stock, but cut its price target from SAR 30.50 to SAR 20.30.

Key downsides for the stock are lower prices amid competition, higher costs and reduced subsidies.