Yanbu Cement’s Q1 misses estimates on higher production cost: NCBC

Yanbu Cement Co.’s net profit of SAR 40 million for the first quarter of 2018 missed NCBC and consensus estimates of SAR 68 million and SAR 89 million, respectively, the research firm said in an earnings review.

“We believe the variance from estimates is mainly due to lower than expected gross margins from an increased cost of production,” the firm said.

Net profit dropped 67.7 percent year-on-year (YoY) mainly on lower sales volume and selling prices.

Sales quantities stood at 1.49 million tons in Q1, in-line with expectations, the report said.

Selling prices reached SAR 145 per ton, lower than the estimates of SAR 140 per ton, and lower than SAR 177 per ton in the previous quarter.

The Western Region witnessed high competition since Umm Al Qura and United Cement began operating in the second half of 2016, leading to high discounts and a continuous volatility in selling prices.

“We believe selling price levels at other cement companies in the Western region also declined on a quarter-on-quarter (QoQ) basis,” the brokerage said.

Gross margins contracted significantly to 19 percent in Q1 from 43 percent a year earlier.

Cost of production is believed to have reached SAR 118 per ton (up 6.8 percent YoY) compared to the projection of SAR 85 per ton.

Going forward, the research firm expects an average gross margin of 40 percent until 2022.

NCBC revised its rating on the stock to “Overweight” with a target price of SAR 37 per share.

The mega projects announced in the North West and Western Region, in addition to the 1.5million ton export deal signed are believed to be key catalysts for Yanbu Cement, the investment arm of National Commercial Bank added.