Yanbu Cement's Q1 misses estimates on lower prices: Al Rajhi Cap

Yanbu Cement Co.’s net profit of SAR 39.6 million for Q1 2018 missed Al Rajhi Capital and consensus estimates of SAR 96 million and SAR 90 million, respectively, the brokerage said in an earnings report on Sunday.

The company’s revenue declined 30 percent year-on-year (YoY) to SAR 216 million due to lower-than-expected sales price of SAR 145/ton and a 6.5 percent YoY decline in volume at 1.49 million tons.  The cost per ton jumped 7 percent YoY to SAR 117, driven by the reversal of economies of scale as the volume dropped.

The brokerage firm expects the selling price to remain at current levels in Q2, but volume to fall due to the seasonality effect.

The export of one million ton of clinker and 500,000 ton of cement under a one-year agreement, which commenced from April, will increase revenue by SAR 100 million this year.

"We believe the level of inventory will decrease going forward," the report said.

Yanbu Cement’s gross and operating margins dropped to 19 percent and 14 percent, respectively, during the quarter due to a 38 percent increase in cost per ton due to lower economies of scale.

Al Rajhi Capital expects Public Investment Fund's (PIF) initiatives in the region (NEOM, Red Sea, Jeddah Downtown, Rou’a Al Haram and Rou’a Al Madinah) will remain the upside driver for the region in medium to long term.

It attributed downside risks to "increase in price war" which is likely to lead to lower than expected sales volume and selling prices.

Meanwhile, Al Rajhi Capital maintained its neutral recommendation on the company, but revised the target price to SAR 29 per share.