Yanbu Cement beat Q4 estimates on higher gross margins: NCBC

Yanbu Cement Co. reported a better-than-expected set of Q4 2017 results, with its net income of SAR 96 million (down 7.7 percent year-on-year) beating NCB Capital and consensus estimates of SAR 81 million and SAR 52 million, respectively, the research firm said in an earning review.

“We believe the YoY decline in earnings is mainly due to lower sales volume, which was partially offset by higher selling prices,” it said. “Moreover, we believe the variance from estimates is mainly due to gross margins expansions.”

Yanbu Cement’s total sales quantity stood at 1.26 million tons in Q4 2017, lower than NCB Capital’s estimates of 1.42 million tons.

Revenues of SAR 223 million were also below NCB Capital’s estimates of SAR 249 million, mainly due to the lower than expected sales volume.

“We believe the discount levels bottomed out during Q3 2017 and prices began to partially revive, in-line with our expectations,” the report said.

“However, we believe increasing competition from other smaller players led to the decline in the market share of Yanbu Cement to 10.5 percent in Q4 2017 from 15.6 percent in Q4 2016,” it added.

Yanbu Cement’s gross margins expanded 667 basis points (bps) YoY to 51.6 percent in Q4 last year versus 44.9 percent in the previous year, and against NCB Capital’s estimates of 35.4 percent as cost efficiencies improved.

NCB Capital expects an average gross margin of 41.8 percent during 2018 to 2021.

It also holds “neutral” view on Yanbu Cement stock, with a target price of SAR 40.8.

“The mega projects announced in the Western region and the prospects from lifting the export tariffs are key catalysts in the long-term for the company,” the report said. “Yanbu Cement recommended a dividend of SR1.25/share for H2 2017, taking the full year DPS to SAR 2/share. This (is) lower than our estimate of SAR 2.5/share.”

The stock trades at a TTM P/E of 15.6x, it added.