Al Yamamah Steel’s Q1 misses estimates as volumes fall: SICO

Al Yamamah Steel Industries Company’s (Al Yamamah Steel) net profit of SAR 6.7 for Q1 2017-18 ending in December, fell below investment bank SICO’s estimates as the Tadawul-listed firm saw a slump in volumes and a rise in cost of sales, SICO said in an earnings review.

“The 12 percent quarter-on-quarter (QoQ) decline in volumes is surprising and implies continued erosion of market share considering that the cement sector (proxy for construction steel demand) in contrast reported 15 percent QoQ volume growth with western region companies faring reasonably well,” SICO said.

The report said the weak business conditions are likely to continue for a few more quarters, with the recent contract awards allowing a gradual recovery in volumes.

Due to its location in Jeddah, Al Yamamah Steel could benefit from the upcoming mega projects in the western and north-western region, the report said.

“Considering that the NEOM project – which involves building a city out of scratch – will require large quantities of building materials,” it added.

However, SICO noted that the firm’s weakness in the first quarter is difficult to ignore, along with the potential risk to dividends.

The investment bank reduce Al Yamamah Steel’s target price to SAR 25 from SAR 29, and downgrade the stock to ‘neutral.’