Earnings Report /
Saudi Arabia

Saudi Cement Company: Growth in prices and lower opex support earnings

  • Total selling quantities during Q2 22 stood at 1.75mn tons (-8.8% yoy, -7.3% qoq)

  • Revenue increased marginally by 0.3% yoy (+10.8% qoq) to SAR349mn

  • Net other expenses stood at SAR0.4mn compared to SAR5.6mn in Q2 21 and our estimate of SAR2.3mn

SNB Capital
16 August 2022
Published bySNB Capital

Saudi Cement reported a strong set of Q2 22 results, with a net income increasing 18.6% yoy (+67.7% qoq) to SAR103mn. This is higher than the SNB Capital and consensus estimates of SAR59.7mn and SAR64.8mn, respectively. We believe the positive variance in earnings is mainly driven by 1) higher than expected average selling prices which stood at SAR199/ton (+9.9% yoy, +19.4% qoq) vs SAR181/ton in Q2 21 and our estimate of SAR172/ton. 2) improvement in gross margins which stood at 41.8% vs 39.8% of Q2 21 and our estimate of 34.1%, supported by higher prices.

  • Total selling quantities during Q2 22 stood at 1.75mn tons (-8.8% yoy, -7.3% qoq) and came in-line with our estimates of 1.79mn tons. This compares to the total industry decline of 1.7% yoy (-15.5%). Cement sales in Q2 22 stood at 1.32mn tons (-7.0% yoy, -15.4% qoq), while clinker sales stood at 434,000 tons as compared to 498,000 tons in Q2 21 (-12.9% yoy, +31.1% qoq).

  • Revenue increased marginally by 0.3% yoy (+10.8% qoq) to SAR349mn, and came higher than our estimates of SAR308mn. The variance in revenue was mainly driven by an increase in average selling prices which stood at SAR199/ton (+9.9% yoy, +19.4% qoq) vs our estimate of SAR172/ton. We believe the growth in prices is the key highlight of the result.

  • Gross margins expanded by 199bps yoy to 41.8% in Q2 22, and came higher than our estimates of 34.1%. We believe the expansion and variance in margins is mainly driven by higher selling prices despite an increase in production costs. Cost/ton stood at SAR116/ton (+6.3% yoy, +2.1% qoq) as compared to our estimate of 113/ton.

  • Opex in absolute terms decreased by 7.8% yoy to SAR43.1mn and came in-line with our estimates of SAR43.0mn while opex to sales ratio stood at 12.3% vs our estimate of 14.0%. The variance is mainly due to lower selling and distribution expenses.

  • Net other expenses stood at SAR0.4mn compared to SAR5.6mn in Q2 21 and our estimate of SAR2.3mn. We believe yoy decline and variance was mainly driven by higher share in profit of associates which offset the impact of the increase in finance charges.

Outlook

Based on our last update, we are Neutral on Saudi Cement with a PT of SAR53.5. Growth in selling prices and lower opex are the key highlights of the result while decline in volume and higher production costs are the major concerns. The stock currently trades at a 2022f P/E and EV/EBITDA of 21.9x and 12.8x, compared to the covered peers average of 21.0x and 13.7x, respectively.