Strategy Note /
Saudi Arabia

Najran Cement: Meeting feedback summary

  • In H2 21, the company attributed the weak demand to labor shortage post the lifting of COVID-19

  • Weak prices were due to the certain producer selling at deep discounts in the central region

  • Waste heat recovery is one of the projects that would help the company in reducing cost of production

SNB Capital
16 June 2022
Published by

Today, we met the management of Najran Cement. Below are the key highlights:

Market overview:

  • In H2 21, the company attributed the weak demand to labor shortage post the lifting of COVID-19 related restrictions and strict labor regulations.

  • Currently, labor force has started to improve which should result in a pick-up in the construction activity.

  • Prices in the central region dropped significantly during 2021, which negatively impacted prices in other regions in Saudi.

  • In 2021, the company opted to sell at price realization of SAR150/ton, which was lower than its historical average to maintain its market share.

  • The company highlighted that the weak prices were due to the certain producers selling at deep discounts in the central region, whereas in the Southern region prices remained stable. Due to the attractive price in the Southern region players from other regions also pushed their products in the region, which forced the company in bringing its prices down.

  • The management highlighted that supply-demand dynamics are healthy and better prices can be realized in Q2 22. Average prices in Q1 22 stood at SAR159/ton, compared to SAR193/ton in Q1 21, SAR153/ton in Q4 21.

  • The company expects demand to pick up on the back of Giga/Mega projects.

  • Cost per ton: the company recorded the lowest cost per ton during Q4 21 at SAR112/ton. Cost/ton increased to SAR129/ton for Q1 22 due to inflationary pressure.

  • The management is implementing cost optimization initiatives and is expecting the cost per ton to settle at around SAR 120/ton.

  • Waste heat recovery is one of the projects that would help the company in reducing cost of production.

Production:

  • The company has a total capacity of 5.0mn mt, divided into 3 plants with capacity of 1.9mn, 2.1mn and 1.0mn. Since 2016, the company has been operating one production line of 2.1mtpa capacity.

  • In September 2021, the company decided to run another production line with a capacity of 1.9mn. The 1.0mn production line is currently idle, where the company expects to operate it once it feels that demand is sufficient.

  • Out of the three plants, the company has fuel allocation for two of its plants.

Others:

  • In Q1 22, the company reported a net income of SAR23.3mn, down 61% yoy decline. This is due to lower sales volumes, lower selling prices and higher cost of production.

  • D/E ratio by end of 2021 stood at 14%. The company refinanced SAR278.5mn of its debt with a rate of SAIBOR+110bps.

  • The company started its own transportation company, which has helped it in reducing its cost. Currently, Najran Cement has 55 trucks, with plans to grow the fleet in the long run.

  • The fleet is used for the transportation of HFO and for the sale of cement. The transportation company sales represented c7% of 2021 revenues. The contribution increased to c9% in Q1 22.