Saudi Cement Co.’s Q2 net profit – which fell 62 percent year-on-year (YoY) to SAR 94 million – came below Al Rajhi Capital’s estimate of SAR 138 million and consensus expectations of SAR 136 million, the brokerage said in an earnings review.
“The main reason for the miss was lower than expected sale price as well as higher than expected cost per ton,” Al Rajhi Capital said.
“An escalation in cost of goods due to higher fuel prices and lower selling prices due to the slowdown in construction activities have put further downward pressure on the company’s bottom-line,” the report added.
Second-quarter revenue stood at SAR 270 million, below Al Rajhi Capital’s SAR 292 million estimate.
Gross and operating profit margins came in at 45 percent and 37 percent respectively in Q2, hit by low selling prices along with high cost per ton.
However, Saudi Cement still enjoys higher selling prices compared to the sector’s average of SAR 175 per ton, despite a 5 percent decline quarter-on-quarter (QoQ) in sale price per ton, the brokerage said.
Looking ahead, the company is expected to benefit from Saudi Arabia’s recent move to cut cement export fees by 50 percent, and export higher volumes in H2. However, there is likely to be more pressure on profit margins.
Saudi Cement is also expected to raise its full-year payout ratio from 93 percent in 2016, due to low leverage and limited capital expenditure.
However, the steep decline in selling prices within the central and northern regions may increase the competition in the eastern region and lead the cement producer to offer deep discounts.
Al Rajhi Capital remained “neutral” on the stock, but lowered its target price to SAR 51 from SAR 55.
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