Saudi Cement’s Q3 profit in-line with estimates: Al Rajhi Capital

Saudi Cement Co.’s net profit of SAR 87 million for the third quarter of 2017 came in-line with Al Rajhi Capital and the consensus’ estimates of SAR 88 million and SAR 83 million, respectively.

Net profit in Q3 fell 57 percent year-on-year (YoY) due to a 29 percent decline in sales volume because of sluggish demand, and higher cost per ton due to lower production.

“Despite weaker volumes, helped by locational advantage, the company was able to raise its average selling price on sequential basis to SAR 233/ton,” Al Rajhi Capital said.

“However, we believe that this advantage is unlikely to sustain due to increasing competition amid weak demand outlook,” the brokerage added.

Saudi Cement holds the highest level of inventory in the sector (5.3 million tons), which could give the company an advantage over its peers in coming quarters after any potential removal of energy subsidies.

The company’s revenue stood at SAR 250 million in Q3, in-line with Al Rajhi Capital’s estimate of SAR 245 million.

Profit margins contracted, with gross and operating margins coming in at 46.4 percent and 37.6 percent respectively, due to low selling prices and high cost per ton.

Looking forward, the brokerage expects a sharp drop in selling prices in the Central and Northern regions, which would increase the competition and urge Saudi Cement to offer bigger discounts.

However, the firm is expected to benefit if the government decides to cancel current export fees.

Al Rajhi Capital revised its dividends estimate for the second half of 2017 to SAR 1 per share, versus SAR 1.5 earlier.

The brokerage maintained a “Neutral” rating on the stock with a revised target price of SAR 42 per share.