Qassim Cement posts in-line Q3, says NCB Capital

Qassim Cement Co.’s Q3 net profit of SAR 51.2 million – down 26.6 percent year-on-year (YoY) – matched NCB Capital’s forecasts of SAR 51.6 million, but beat consensus’ estimates of SAR 46.2 million, the brokerage firm said in an earnings review.

“We believe the YoY decline was driven by record low selling prices and gross margins, despite the Opex efficiencies (SAR 6.4 million vs our estimates of SAR 7.8 million in 3Q17) and higher other income (SAR 7.8 million vs our estimates of SAR 4.4 million in 3Q17),” NCB Capital added.

Qassim Cement’s sales came in at SAR 131 million, missing the brokerage’s expectations of SAR 141 million by 7.5 percent.

Average selling prices reached SAR 150 per ton, compared to the estimate of SAR 152 per ton.

“We believe these discounts came as a result of the slowdown in the construction sector and increased competition, specifically from smaller players and new entrants,” analysts at NCB Capital said.

Gross margins dropped to 40.8 percent in Q3 from 49.5 percent in Q3 2016, missing the forecast of 41.4 percent.

Margins were hurt by the steep discounts offered by the cement producer, NCB Capital said, adding that it expects an average gross margin of 47.4 percent until 2021.

“Further contraction in margins and continued demand weakness are key risks for Qassim Cement,” NCB Capital added.

The brokerage recommended “neutral” on the stock with a target price of SAR 59.7.