Saudi cement firms’ Q2 profit to drop 53%: Riyad Cap

Net incomes of Saudi Arabia’s cement companies in the second quarter is expected to decline 53 percent year-on-year (YoY) and 18 percent quarter-on-quarter (QoQ) to SAR 431 million as sales continue to weaken, according to a sector forecast issued by Riyad Capital.

“The sector faces continued challenges on falling cement prices and lowering demand amid ongoing supply glut. We continue to expect 2017 to be constrained on the back of these concerns. Key news flow that brought some cheer for the sector is the government’s decision to reduce the export tariffs by 50 percent from SAR 85-133 earlier mentioned, though exact details not divulged at this point. We believe this is a welcome move and evident with sector stocks rally of 5- 6 percent over last week,” the brokerage said.

Sales volumes are expected to decline by 20 percent YoY to 6.2 million tons, mainly due to sharp declines in sales volumes from Southern Cement and Saudi Cement.

Gross margins are expected to reach 42 percent, dropping 800 basis points (bps) from Q2 2016, while operating margins are likely to fall 900-100 bps on a YoY basis.

Revenues are expected to decline 35 percent in Q2 to around SAR 1.2 billion from SAR 1.8 billion a year earlier.

Cement production is expected to reach 12 million tons in Q2, down 19 percent YoY, mainly due to Ramadan and holidays season falling in the quarter.

Continued production cuts are expected from Yanbu, Najran and Al Jouf as producers continues to face the brunt of low demand, the report said.

The brokerage firm has maintained the target price and “Neutral” rating for all cement stocks under its coverage.