Yanbu Cement’s Q2 falls below estimates on higher production cost: Aljazira Cap

Yanbu Cement’s second-quarter net income of SAR 4 million fell below Aljazira Capital and consensus estimates of SAR 26.6 million and SAR 36.9 million, respectively, the financial advisory firm said in an earnings review.

The major deviation from estimates was attributed to higher production cost – 46 percent higher than expected) – which offset the positive impact from higher-than-expected revenue, the report said.

Revenue stood at SAR 197.4 million, well above Aljazira Capital’s estimates by 25.2 percent as the brokerage had expected lower selling price.

“Despite higher YoY price realization, lower volumetric sale weighted heavy on the top line,” the report said.

“Dispatches are expected to continue its current trajectory for 2018, while growth in average selling price is expected to remain muted.”

Aljazira Capital said it remains cautious, in the short term, on the cement sector due to limited construction activity, resulting in an oversupplied market and intense competition.

For Yanbu Cement, lower-than-expect selling price is the main down side risk to valuation, as the company faces tough competition in the region, it added.

“Based on our estimates, the company is trading at forward P/E and P/BV of 24.8x and 1.22x, respectively,” the report said.

“The company reduced its dividend payment in H1 2018 to SAR 0.50 per share, and is expected to pay a dividend of SAR 1 per share for H2 2018.”

Aljazira Capital maintained its “neutral” recommendation on the stock, with target price of SAR 28.8 per share.