Southern Cement’s Q4 beat estimates on higher sales: NCB Cap

Southern Province Cement Co. (Southern Cement) reported better-than-expected financial results for Q4 2017, with net income of SAR 115 million – higher than NCB Capital and consensus estimates of SAR 71 million and SAR 68 million, respectively, the research firm said in an earnings review.

“We believe the better than expected results were due to higher-than-expected quantities sold, higher selling prices of SAR 203/ton versus our estimates of SAR 181/ton, and better-than-expected gross margin of 45.4 percent,” NCB Capital said.

Total sales at SAR 302 million also beat NCB Capital’s estimates of SAR 253 million. The research firm said the discount levels appeared to have bottomed out during Q3 2017 and prices began to edge higher, in line with its expectations.

Total sales quantity of Southern Cement stood at 1.49 million tons in Q4 2017, higher than NCB Capital’s estimates of 1.40 million tons.

Gross margins contracted 487 basis points year-on-year (YoY) to 45.4 percent in the fourth quarter, from 50.2 percent in Q4 2016 – this was the lowest Q4 gross margin on record, but was higher than NCB Capital’s estimates of 34.4 percent.

NCB Capital expects an average gross margin of 45.4 percent until 2021.

“We are neutral on Southern Cement, with a target price of SAR 69.9,” the report said.

“Further contraction in gross margins and continued demand weakness are key risks for Southern Cement going forward. Southern Cement trades at a TTM P/E of 18.2x,” it added.