Earnings Report /
Saudi Arabia

Qassim Cement Co.: Higher prices mitigated by non-opex

  • Total selling quantities (composed entirely of local cement sales) in Q2 22 stood at 0.91mn tons

  • Revenue declined by 23.1% yoy (+6.8% qoq) to SAR152mn, but came higher than our estimates of SAR130mn.

  • Gross margins contracted significantly to 30.0% in Q2 22 vs 50.6% in Q2 21

SNB Capital
16 August 2022
Published bySNB Capital

Qassim Cement reported a mixed set of Q2 22 results with net income declining by 71.1% yoy (+15.4% qoq) to SAR29.0mn. This is lower than the SNB Capital and consensus estimates of SAR36.3mn and SAR39.8mn, respectively. Although revenue and margins came ahead of our estimates, we believe the variance in earnings is primarily led by higher non-opex which stood at SAR8.1mn vs our estimate of non-operating income of SAR8.0mn.

 

  • Total selling quantities (composed entirely of local cement sales) in Q2 22 stood at 0.91mn tons (-17.1% yoy, -19.3% qoq) and came in line with our estimates of 0.90mn tons. This compares to the local cement industry decline of 1.7% yoy (-15.5% qoq).

  • Revenue declined by 23.1% yoy (+6.8% qoq) to SAR152mn, but came higher than our estimates of SAR130mn. The yoy decline in revenue is due to lower volume and selling prices. However, the positive variance in revenue is driven by higher than expected average selling prices which stood at SAR166/ton (-7.2% yoy, +32.2% qoq) vs our estimate of SAR143/ton. The qoq recovery in prices is the key highlight of the results.

  • Gross margins contracted significantly to 30.0% in Q2 22 vs 50.6% in Q2 21 and our estimates of 28.4%. We believe the yoy contraction in margins is mainly due to increased production costs. Average cost in Q2 22 stood at SAR116/ton vs SAR89/ton in Q2 21 and our estimate of SAR103/ton. 

  • Operating expenses in absolute terms increased by 3.2% yoy (+1.7% qoq) to SAR8.7mn, and came in line our estimate of SAR8.5mn while opex to sales ratio stood at 5.7% vs our estimate of 6.6%.

  • Non-operating expenses stood at SAR8.1mn in Q2 22 vs our estimate of non-operating income of SAR8.0mn. The variance is mainly due to the unrealized losses from investments at FVTPL.

 

Outlook

Based on our last update, we are Overweight on Qassim Cement with a PT of SAR84.4. The qoq recovery in selling prices is the key highlight of the results while decline in volume and higher production costs are the key concerns. The company’s proximity to central region is a key strength, as it plans to expand production by 2023f to supply the anticipated demand growth in the region. The stock trades at 2022f P/E of 20.5x vs covered peers average of 21.2x.