Qassim Cement’s second quarter earnings of SAR 70 million exceeded estimates of SAR 52 million, Al Rajhi Capital said.
The research firm attributed the result to higher scaling prices. “Although, production and sales volume declined 9 percent quarter-on-quarter (q-o-q), in-line with our expectation, average cement sales prices jumped 14 percent q-o-q in Q2, which was above expectation,” Al Rajhi said in a research note.
“We do not believe that the increase in average sales prices is a result of demand improvement as the overall market demand decreased 18 percent y-o-y. It is likely that the company emphasized on high pricing strategy as is the case with most of Central, Western and Northern cement companies,” it added.
The research firm expected the company to distribute a dividend of SAR 2.85 per share in 2019. “This implies a dividend yield of 5.5 percent higher than the market and sector dividend yield of 3.6 percent and 4.8 percent respectively.”
Therefore, Al Rajhi maintained its “Neutral” recommendation for the company’s share and to maintain positions, and increased the target price from SAR 41 per share to SAR 49.
“Given the higher selling prices, exportation agreement and high level of dividends (SAR 1.15/share in H1 19 and SAR 2.85/share in FY19e), we raise our TP to SAR 49/share. We remain ‘Neutral’ on the stock,” Al Rajhi concluded.
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