Saudi cement firms’ profit to decline in Q1: Riyad Cap

Saudi cement producers are expected to see lower profitability in Q1 2017 due to lower sales volume and market volatility, Riyad Capital said in a new report.

The brokerage has issued Q1 2017 net profit forecasts for five Saudi cement producers under its coverage.

“We expect the earnings cycle for the Saudi cement sector in Q1 2017 to be dismal with recent industry data intensifying such a bearish stance,” Riyad Capital said.

Sales volumes fell to 4 million tons in February, the lowest in the last three to four years, which will weigh on profitability in Q1.

Other factors behind the brokerage’s bearish view are volatility in selling prices, sharp drops in utilization rates on lower production, and high inventory levels in the sector.

Yamama Cement is projected to post a 70 percent plunge year-on-year (YoY) in Q1 net profit to SAR 44 million, due to continued pressures since Q3 2016.

Southern Province Cement Co. and Yanbu Cement followed, with profit expected to slump 47 and 44 percent YoY to SAR 150 million and SAR 102 million, respectively.

“We expect subdued revenue trends in Q1 2017 with a -38 percent YoY and -11 percent QoQ decline in revenue to SAR 1.31 billion for the coverage group. This is in addition to -28 percent YoY and -12 percent QoQ fall in sales volumes,” Riyad Capital said.

Cement production is likely to see a 26 percent YoY drop in Q1, the firm said, adding that it expects major production cuts – primarily from Yamama – while Saudi Cement could also follow similar trends.

The investment arm of Riyad Bank said it maintained a “neutral” rating for the sector, adding that target prices will be revised following Q1 2017 financial results.