Earnings Report /
Saudi Arabia

Southern Province Cement Company: Q2 20 review – Strong results on top line growth

  • Southern Cement reported a better-than-expected set of Q2 20 results, with net income increasing +48.4% yoy to SAR135mn

  • Sales increased +22.8% yoy to SAR339mn (-25.8% qoq), coming in line with our estimates of SAR333mn

  • Total cement and clinker sales of Southern Cement increased +16.0% yoy (-25.6% qoq) to 1.72mn tons

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
13 August 2020
Published bySNB Capital

Southern Cement reported a net income of SAR135mn in Q2 20, increasing +48.4% yoy (-26.2% qoq). This is higher than the NCBC and consensus estimates of SAR113mn and SAR100mn, respectively. The strong sales growth of +22.8% yoy was in-line with our estimates, the positive surprise came from higher than expected gross margin expansion. Gross margins expanded by 390bps yoy to 44.8%, due to marginally higher than expected selling prices and marginally lower than expected cost/ton.

Southern Cement reported a better-than-expected set of Q2 20 results, with net income increasing +48.4% yoy (-26.2% qoq) to SAR135mn. This is higher than the NCBC estimates of SAR113mn and consensus estimates of SAR100mn. While revenue (+22.8% yoy) and selling quantities (+16.0% yoy) came in-line with our estimates, the positive variance was mainly due to marginally higher than expected selling price of SAR197/ton vs our estimates of SAR188/ton and marginally lower than expected cost/ton.

Sales increased +22.8% yoy to SAR339mn (-25.8% qoq), coming in line with our estimates of SAR333mn. Blended selling prices increased +5.9% yoy to SAR197/ton, in line with Q1 20 levels but higher than our estimates of SAR188/ton and Q2 19 levels of SAR186/ton.

Total cement and clinker sales of Southern Cement increased +16.0% yoy (-25.6% qoq) to 1.72mn tons, in line with our estimates of 1.77mn tons, and compares to a decline of -4.1% yoy in Q2 20 across the industry. The company sold 1.6mn tons of cement domestically in Q2 20 (+23.0% yoy), outperforming the local industry’s growth of 6.4% yoy. On the other hand, clinker sales declined -30.5% yoy to 0.12mn tons.

Gross margins expanded by 390bps yoy to 44.8%, coming higher than our estimates of 38.8%, due to marginally higher than expected selling prices and lower than expected cost/ton of SAR108/ton (-1.1% yoy) vs our estimates of SAR115/ton. SG&A costs amounted to SAR15mn, slightly lower than our estimates of SAR17mn.

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.