Saudi Cement Co.’s net income of SAR 142 million in Q1 2018 was higher than the NCB Capital and consensus estimates of SAR 108 million and SAR 126 million, respectively, the financial advisory firm said in an earnings report.
The first quarter earnings were 13.7 percent lower year-on-year (YoY).
“We believe the YoY decline in earnings came from lower sales and higher costs,” NCB Capital said. “Moreover, we believe the variance from our estimates came mainly from higher than expected selling prices.
Total sales quantity of Saudi Cement stood at 1.45 million tons in the first quarter – in-line with NCB Capital’s estimates.
Sales quantities declined by 1.4 percent YoY, which was better than the cement industry performance of a decline of 12.7 percent YoY in Q1 2018.
Sales were higher than estimated at SAR 331 million, as was the average selling prices of SAR 228 per ton. NCB Capital had estimated average selling price of SAR 200/ton.
“We believe the QoQ discounts came as a result of the slowdown in the construction sector and increased competition, specifically from smaller players and new entrants,” the report said. “However, as expected, the discount levels bottomed out during Q3 2017 and prices began to partially revive since then.”
“We believe selling price levels at other cement companies in Saudi declined as well on a QoQ basis,” it added.
Saudi Cement’s gross margins contracted from 55.2 percent in Q1 2017 to 51.2 percent in Q1 2018 – compared to NCB Capital’s estimates of 46.5 percent – mainly due to an increase in cost of production and lower selling prices.
The advisory firm expects an average gross margin of 45.1 percent until 2022.
NCB Capital is “neutral” on Saudi Cement with a target price of SAR 54.5.
“Volatility in selling prices is a key risk for the company. However, unexplored export prospects and MSCI provisional list inclusion remain key positive catalysts,” it said.
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