Saudi Cement’s Q1 profit to fall 40% on lower revenue: SICO

Saudi Cement Co. is expected to post a 40 percent decline year-on-year (YoY) in Q1 2017 earnings at SAR 160 million, driven by a 31 percent YoY drop in revenue, Bahrain-based SICO Investment Bank said in a recent note.

Saudi Cement’s total volumes, including exports, dropped 31 percent YoY in the first two months of 2017, SICO said, adding that it expects the company to end the first quarter with a 30 percent drop.

Saudi cement firms’ recent halting of exports to Bahrain, after the Saudi government’s implementation of taxes on exports, presents a downside risk to Saudi Cement’s volumes in fiscal year 2017, the report said.

The exporting cement firms have long term contracts with Bahraini importers and thus, violations could result in financial penalties.

Saudi Cement’s exports to Bahrain constituted 7 percent of its total volumes in FY16 and about 9 percent in the year-to-date.

“With export volumes disappearing, we see higher risk of Saudi Cement being dragged into the domestic price war,” SICO said.

SICO cut the cement firm’s target price to SAR 50 from SAR 62, and downgraded the stock to ‘Sell’.

Demand visibility remains low, the brokerage said, adding that competitive intensity is very high and pricing pressure will remain until clinker stocks decline.

“Exports are unlikely to help given the prohibitively high tax and while there are some green-shoots in the form of production cuts within the sector, much needs to be done for stocks to reach more comfortable levels,” the report said.

Over the long term, however, Saudi Cement is better placed in the kingdom with low competitive intensity, healthy demand outlook led by housing and industrial projects in the eastern province, and rail-based access to the central region from its facility in Hofuf, SICO added.