Arabian Cement reported a strong set of Q3 22 results, with the net income of SAR59.0mn increasing by 56.5% yoy (+31.1% qoq). This is higher than the SNB Capital and consensus estimates of SAR43.2mn and SAR50.6mn, respectively. We believe the variance in earnings is mainly driven by 1) higher selling prices which stood at SAR269/ton (+23.0% yoy, +17.9% qoq) vs our estimates of SAR240/ton, 2) improved gross margins which stood at 34.0% vs 30.4% in Q3 21 and our estimates of 31.5% and 3) lower opex due to decline in selling and distribution expenses.
Revenue increased by 7.9% yoy (+4.2% qoq) to SAR241mn and came higher than our estimates of SAR218mn, driven by higher selling prices. Average selling prices stood at SAR269/ton (+23.0% yoy, +17.9% qoq), vs our estimates of SAAR240/ton.
Revenue increased by 7.9% yoy (+4.2% qoq) to SAR241mn and came higher than our estimates of SAR218mn, driven by higher selling prices. Average selling prices stood at SAR269/ton (+23.0% yoy, +17.9% qoq), vs our estimates of SAR240/ton.
Total selling quantities declined by 12.3% yoy (-11.7% qoq) to 0.89mn tons in Q3 22, in-line with our estimates of 0.91mn tons. This is significantly lower than the total industry growth of 14.3% yoy (+11.2% qoq).
Local cement sales increased 23.8% yoy (+16.7% qoq) to 0.81mn tons better than the local industry’s growth of 7.4% yoy (+13.7% qoq). Exports decreased 75.9% yoy (-72.4% qoq) to 89,000 tons compared to the industry’s exports growth of 32.0% yoy (-5.5% qoq).
Gross margins expanded by 360bps yoy to 34.0% in Q3 22 and came higher than our estimates of 31.5%. We believe the yoy expansion and variance in margins was mainly due to higher selling prices. Average cost/ton stood at SAR178/ton (+16.7% yoy, +10.2% qoq) vs our estimate of SAR164/ton.
In absolute terms, opex decreased by 18.3% yoy (-19.4% qoq) to SAR18.0mn and came lower than our estimate of SAR23.0mn while opex to sales ratio stood at 7.5% vs 9.9% in Q3 21 and our estimate of 10.6%.
Net non-opex in Q3 22 stood at SAR4.8mn, vs SAR8.0mn in Q3 21 and our estimate of SAR2.6mn. We believe the increase in net non-opex is due to higher finance and zakat expenses.
Based on our last update we are Neutral on Arabian Cement with a PT of SAR40.1. The increase in selling prices and margins are the key positives while decline in volume is a concern. We expect the company to benefit from Jeddah development plan and mega projects in the western region. The stock currently trades at a 2023f P/E and EV/EBITDA of 16.2x and 9.7x, vs covered peers average of 20.3x and 13.2x, respectively.