Qassim Cement’s Q1 profit beat forecast, says Al Rajhi Cap

Qassim Cement Co. reported a net profit of SAR 80 million for the first quarter of 2017, beating Al Rajhi Capital’s estimate of SAR 71 million, partially due to lower zakat and on stable other income compared to a year earlier, the brokerage said in an earnings review.

However, the company’s earnings for Q1 dropped 40 percent year-on-year (YoY).

The stiff competition in the central region coupled with the current modest demand has led to the company offering more discounts on the sale price which declined to SAR178 per ton.

“In the short term, we don’t see any signs of recovery in the sector and we believe that there could be further downside to prices especially in the central and western region as they are most accessible to producers.” Al Rajhi Capital said.

Revenue for the quarter dropped 31 percent YoY to SAR 191 million, largely in line with the estimate of SAR186 million. On a quarter-on-quarter basis, revenue increased 3 percent driven by higher sales volume.

Meanwhile, the company reported a gross profit of SAR 88 million in Q1 compared to the brokerage’s forecast of SAR 81 million. In spite of a 3 percent rise in revenue quarter-on-quarter, Q1 gross profit declined 8 percent sequentially on the account of higher cost per ton.

“Consequently, gross and operating margins declined to 46 percent and 42 percent, approximately ~550bps and ~400bps lower than the previous quarter.” the brokerage said.

Al Rajhi Capital affirmed its “underweight” rating on Qassim Cement’s stock with a target price of SAR 45 per share.