Earnings Report /
Saudi Arabia

Qassim Cement Co.: Q2 20 review – Record-high sales in June drive strong earnings

  • Qassim Cement reported a strong set of Q2 20 results, with net income increasing +21.3% yoy (-23.3% qoq) to SAR85mn

  • Domestic cement sales volume increased +32.8% yoy to 0.85mn tons, coming higher than our estimates of 0.68mn tons

  • Revenues increased +8.4% yoy to SAR167mn, coming in higher than our estimates of SAR142mn

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
13 August 2020
Published bySNB Capital

Qassim Cement reported a stronger than expected set of Q2 20 results, with net income increasing +21.3% yoy to SAR85mn vs our estimates of SAR56mn. We believe the variance is mainly due to 1) higher than expected domestic sales volume and 2) lower than expected cost/ton.

Qassim Cement reported a strong set of Q2 20 results, with net income increasing +21.3% yoy (-23.3% qoq) to SAR85mn. This is significantly higher than our estimates of SAR56mn and consensus estimates of SAR65mn. We believe the positive variance was mainly due to higher than expected sales volume, which offset the impact of marginally lower than expected selling price (SAR197/ton vs SAR210/ton). Furthermore, lower than expected cost/ton was also a positive variance in results.

Domestic cement sales volume increased +32.8% yoy to 0.85mn tons, coming higher than our estimates of 0.68mn tons. The company significantly outperforming the local industry’s growth rate of +6.4% yoy. This offset the lack of exports in Q2 20 vs 60,000 tons of cement exports in Q2 19. Domestic cement sales in June of 0.44mn were all-time high monthly sales, following the easing of COVID-19 related restrictions.

Revenues increased +8.4% yoy to SAR167mn, coming higher than our estimates of SAR142mn. The variance is mainly due to higher than expected selling quantities. Average selling prices declined -10.8% yoy to SAR197/ton, coming, marginally lower than our estimates of SAR210/ton as well as Q1 20 and Q2 19 levels of SAR220/ton. We believe the yoy decline in the average cost/ton is mainly due to an economies of scale related to higher sales volume.

Gross margins expanded by 535bps yoy to 54.3%, coming higher than our estimates of 47.6%. We believe the yoy improvement and variance in margins was mainly due to lower than expected cost/ton of SAR90/ton (-20.1% yoy) vs our estimates of SAR110/ton. This offset the decline in average selling prices. Operating expenses increased 19.1% yoy to SAR8.5mn, vs our estimates of SAR7mn.

Although demand for cement might be impacted by Covid-19 related measures, we believe strong demand from the Ministry of Housing projects will continue to support demand in the short-term. We await full results to update our PT and estimates.