Eastern Cement’s Q1 beats estimates on higher selling prices: NCBC

Eastern Province Cement Co.’s first quarter net profit of SAR 17 million came in higher than NCB Capital’s estimate of SAR 7.5 million, on higher-than-expected selling prices, the brokerage firm said in a report on Thursday.

The Saudi company’s Q1 earnings plunged 63 percent year-on-year (YoY).

“We believe the YoY decline in earnings was mainly due to lower sales quantities, discounts and higher opex,” NCBC said.

Eastern Cement’s total sales quantity stood at 0.58 million tons in Q1, in-line with expectations.

Sales stood at SAR 139 million, higher than estimates of SAR 127 million.

Average selling prices for cement stood at SAR 183 per ton, higher than NCBC estimates of SAR 176/ton, the report said.

The company’s other peers, including small players and new entrants, had offered discounts on a quarter-on-quarter (QoQ) basis in Q1 due to the slowdown in the construction sector and increased competition.

“We believe Eastern Cement’s ability to maintain prices on a QoQ basis is a positive,” NCBC said.

Gross margins contracted to 23.0 percent in Q1 2018, from 29.8 percent in Q1 2017. This compares to NCBC expectations of 12.3 percent.

The main reason behind the margin contract and lower gross profits is a 27.1 percent decline YoY in selling prices, the investment arm of National Commercial Bank said, adding that it expects an average gross margin of 26.2 percent until 2022.

NCBC is Neutral on Eastern Cement, with a target price of SAR 28.5.

“Volatility in selling prices and margins are key risks for the company. However, unexplored export prospects and FTSE EM provisional list inclusion remain key positive catalysts,” the firm said.