Yanbu Cement’s Q3 misses estimates on lower selling prices: Al Rajhi Cap

Yanbu Cement’s Q3 2017 net profit at SAR 18 million came in far below Al Rajhi Capital’s estimate of SAR 69 million and consensus estimate of SAR 68 million, mainly due to lower than expected selling price along with higher than expected cost/ton, the brokerage said in an earnings review on Tuesday.

Revenue stood at SAR 173 million, compared to Al Rajhi Capital’s SAR 205 million estimate. 

The company sold 1.27 million tons of cement in Q3, a rise of 12 percent year-on-year (YoY) and holds inventory of 3.9 million tons, representing 65 percent of sales volume over the last 12 months.

Yanbu’s gross margin dropped to 16 percent from 39 percent and, with operating margins also falling to 11 percent from 33 percent in Q2 2017.

“Taking into consideration production capacities and number of producers, we believe that Western region is facing the most challenging conditions. However, PIF’s initiatives in the region (NEOM, Red Sea, Jeddah Downtown, Rou’a Al Haram and Rou’a Al Madinah) could create a key driver for the region in medium to long term,” Al Rajhi Capital added.

Key upsides are potential cancelation of export fees as well as the Saudi sovereign wealth fund’s initiatives in the Western region.

The brokerage firm added that it expects Yanbu to cut clinker production over the next few months and to distribute a cash dividend of SAR 1.0 per share for H2 2017.

Al Rajhi Capital maintained its “neutral” rating for the stock, but slashed its target price to SAR 28.