Qassim Cement’s Q4 profit in-line with estimates, says NCBC

Qassim Cement Co.’s Q4 net profit of SAR 67.2 million – down 23.6 percent year-on-year (YoY) –  came in-line with NCB Capital’s forecasts of SAR 71.2 million, but beat consensus’ estimates of SAR 58.2 million.

“We believe the YoY decline was driven by lower selling prices and gross margins, despite the Opex efficiencies (SAR 8.1 million versus SAR 10.2 million in Q4 2016),” NCB Capital said in an earnings review.

Qassim Cement’s sales quantities stood at 1.05 million tons in Q4, matching the research firm’s estimate of 1 million tons.  Sales quantities increased 8.9 percent YoY and 19.3 percent from the previous quarter.

Sales reached SAR 169 million, in-line with estimates.

Average selling prices amounted to SAR 162 per ton, compared to NCB Capital’s estimate of SAR 169 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,” the report said.

Discount levels, however, reached their lowest point in Q3 last year and prices began to partially revive.

Gross margins dropped to 44.8 percent in Q4 from 52 percent a year earlier, mainly due to the discount offered by the cement firm. As a result, gross profit fell 21.5 percent YoY to SAR 75.7 million.

NCB Capital 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,” the report said.

The research firm maintained a “neutral” rating on the stock with an unchanged target price of SAR 59.7 per share.