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

Southern Cement reported higher-than-expected earnings in the first quarter of 2018 with net profit at SAR 102 million, down 2.5 percent year-on-year (YoY), NCB Capital said in a recent report.

NCB Capital had estimated Southern Cement’s net earnings for the period at SAR 69 million, while the consensus estimate stood at SAR 73 million.

“We believe the variance from our estimates came mainly from higher selling prices,” the research firm said.

“We believe the YoY decline in earnings was mainly due to lower sales quantities and higher operating expenses,” it added.

Southern Cement’s sales quantities declined 14.1 percent YoY, which was lower than the cement industry performance of -12.7 percent YoY in Q1 2018.

The firm’s total sales quantity in the quarter stood at 1.31 million tons, in-line with NCB Capital’s estimates.

Q1 sale of SAR 274 million exceeded estimates; as did the average selling prices of SAR 209/ton – NCB Capital had forecast average selling prices of SAR 175/ton.

Gross margins expanded from 40.3 percent in Q1 2017 to 44.5 percent in Q1 2018.

NCB Capital expects an average gross margin of 45.1 percent until 2022.

“We are ‘neutral’ on Southern Cement, with a target price of SAR 45.5,” NCB Capital said.

“Further loss of market share due to lower discounts is a key risk for Southern Cement. However, its strategic location to export to East Africa is a positive in the long-run,” it added.