Qassim Cement’s profit matches forecasts, says NCB Capital

Qassim Cement Co.’s Q4 2016 net profit of SAR 89 million came in line with NCB Capital’s estimate of SAR 93 million and the consensus estimate of SAR 96 million respectively, the brokerage firm said in an earnings review.

The cement producer’s earnings declined 36.8 percent year-on-year, due to lower sales volumes and selling prices amid high competition to maintain market share.

Gross margins dropped significantly to 51.8 percent in the fourth quarter, but came in higher than NCB Capital’s estimates of 50.2 percent.

The decline in margins was due to discounts and higher costs from lower fuel subsidies, the report said.

Meanwhile, opex came in at SAR 9.4 million versus NCB Capital’s estimates of SAR 6.4 million, leading to a variance of -14.5 percent.

“However due to a higher than expected other income of SAR11.3 million vs. our estimate of SAR1.4million, net profit came in-line with our expectations,” the investment arm of National Commercial Bank added.

Meanwhile, selling prices stood at SAR 193/ton vs. the brokerage’s estimates of SAR2 12/ton, declining by -14 percent YoY and -9 percent quarter-on-quarter (QoQ). As a result, sales came 13.6 percent below NCB Capital’s estimates at SAR 185 million.

“We believe these high discounts came to maintain market share, despite clinker production cuts,” the firm said, adding that discounts offered by smaller players in remote regions to sell in high demand areas may lead to further discounts for Qassim Cement.

NCB Capital maintained a ‘neutral’ rating on the cement producer, keeping the target price unchanged at SAR 71 per share.

Lower prices due to fierce competition and higher costs from fuel price hikes are the key risks for the stock going forward, the report said.