Yanbu cement’s Q3 2018 net profit came at SAR 13.5 million (-25 percent year-on-year or YoY and 215 percent quarter-on-quarter or QoQ), beating Al Rajhi Capital’s (SAR 2 million) as well as consensus estimates (SAR 3.8 million) by a wide margin.
This divergence was due to higher-than-expected export prices, around 90 percent up (clinker prices reached SAR 136/ton) and lower cost per ton, the brokerage firm noted in its earnings review.
The company was able to lower cost per ton by keeping the high level of production at 1.58 million ton (+30 percent YoY), which enabled the company to benefit from the economies of scale.
However, sales volume decreased by a wide margin (-37 percent YoY), resulted into elevated levels of inventory (reached 4.3 million ton; represents 93 percent of last 12 months -LTM - sales).
Going forward, Al Rajhi Capital expects the cement demand to increase as the anticipated rise in the government spending should increase the construction activities.
“However, we don’t expect prices to pick up any time soon, due to high inventory level and huge competition,” it noted in the report while remaining ‘Neutral’ on the stock.
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