Arabian Cement's Q1 misses estimates on steep discounting: NCBC

Arabian Cement reported a net loss of SAR 6.1 million in Q1 2018, compared to NCB Capital and consensus estimates of a net profit of SAR 65 million and SAR 83 million, respectively.

"We believe the earnings disappointment is mainly attributed to steep discounting by Arabian Cement, due to the high competition and gross margin contraction," NCBC said.

Selling prices in Saudi Arabia may have been as low as SAR 110/ton versus SAR 182/ton in Q1 2017.

Total sales volumes of Arabian Cement in the Kingdom stood at 1.04 million tons in Q1 2018, coming broadly in-line with NCBC estimates.

Sales quantities declined by 7 percent year-on-year (YoY) versus a decline of 12.7 percent YoY for the industry in the first quarter.

The company reported lower Q1 gross margin on record, contracting from 41.8 percent in Q1 2017 to 6.4 percent in Q1 2018, and compared to estimates of 34.9 percent.

"We believe the contraction in margins is due to higher price discounts offered and a higher contribution from the higher cost Jordanian operations,” the report said.

NCBC recommended a Neutral rating on the stock with a price target of SAR 36.7.

Going forward, price volatility due to competition is key risk, while new prospects for export markets and the potential demand from new mega projects are key catalysts.