Southern Cement’s Q3 profit widely misses estimates, says Riyad Cap

Southern Province Cement Co.’s (SPCC) Q3 net profit (SAR 57 million) missed Riyad Capital’s estimate of SAR 83 million and consensus forecasts by a high margin, the brokerage said in a report.

“At first look, reasons for a large miss are the sharp fall in realization to SAR 170/ton, [down] 29 percent year-on-year and 9 percent quarter-on-quarter amidst a sharp drop in utilization to 64 percent,” the firm said.

“In our view, the bleak earnings in Q3 2017 was due to an one-off attempt to reduce inventories offsetting prices; a strategy devised by Yanbu in Q4 2016 and Yamama in Q2 2017, both came out with a decent set of numbers in the subsequent quarter,” it added.

Sales volumes fell 23 percent on a sequential basis and 17 percent YoY due to an influx of more producers focusing the western and southern region.

The sharp fall in selling prices to SAR 170 a ton and a drop in clinker production also weighed on Southern Cement’s Q3 earnings.

The cement producer’s revenue of SAR 216 million reported a modest miss, compared to the brokerage firm’s estimate of SAR 182 million.

Gross profit dropped 65 percent YoY to SAR 65 million, came in lower than Riyad Capital’s forecast of SAR 97 million.

Gross margins dropped 30 percent in Q3, from 41 percent in the previous quarter.

Riyad Capital maintained a “neutral” rating on Southern Cement, but cut its target price to SAR 47 from SAR 56, as “industry outlook continues to be bleak and investor sentiments are negative,” the report said.