Southern Province Cement Co.’s Q4-2016 net profit dropped 48 percent year-on-year (YoY) to SAR 156.3 million, coming below Aljazira Capital and consensus estimates, the brokerage firm said in an earnings review.
The earnings miss was attributed to lower-than-expected volumetric sales, weak realization price, and the significant increase in operating expenses by 31.3 percent YoY to SAR 23.4 million.
Gross profit fell by 43.9 percent YoY and 2.2 percent QoQ to SAR 179.6 million, leading gross margins to shrink to 50.7 percent in Q4-2016, compared to 59.7 percent in the same period of 2015.
Fundamentals are pressured this year due to weak market liquidity and the kingdom’s efforts to improve efficiency through project prioritization, the brokerage firm added.
The Saudi government recently lifted an export ban on cement, but companies will pay back the subsidy on fuel, and the cost will range between SAR 85 and SAR 133 per exported ton.
“We believe that the cost per exported ton will increase to SAR 280-340 (including shipping cost and operating expenses), which will limit potential export markets and profitability,” Aljazira Capital added.
Southern Cement’s net profit for fiscal year 2017 is projected to decline 6.3 percent YoY to SAR 825 million on an expected decline in sales volume and prices.
“We expect cement dispatches for 2017 to be muted due to current economic environment,” Aljazira said. “We expect dispatches to show signs of recovery in FY2018.”
The company will likely cut its dividend to SAR 2.5 share in H2-2016, from SAR 3.5 share in the same period of 2015.
The brokerage firm reduced its rating on the stock to “neutral” from “overweight,” cutting its target price to SAR 69 from SAR 86.50.
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