Equity Analysis /
Saudi Arabia

Qassim Cement Co.: Q2 19 – Higher volumes and prices drive earnings growth

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

    SNB Capital
    5 August 2019
    Published by

    Qassim Cement reported a strong set of Q2 19 results, with net income increasing significantly to SAR70mn vs SAR18mn in Q2 18. This is significantly higher than our estimates of SAR47mn. We believe the variance in earnings was driven by 1) higher than expected selling quantities of 0.7mn tons vs our estimates of 0.6mn tons and 2) higher than expected selling prices of SAR221/ton vs our estimates of SAR193/ton.

    NCBC view on the results:

    Qassim Cement reported a strong set of Q2 19 results with net income increasing significantly yoy to SAR70mn vs SAR18mn in Q2 18. This is significantly higher than the NCBC and consensus estimates of SAR47mn and SAR53mn, respectively. We believe the variance came mainly from higher than expected quantities of 0.7mn tons in Q2 19 vs our estimates of 0.6mn tons. Moreover, selling prices came-in at SAR221/ton vs our estimates of SAR193/ton and SAR125/ton in Q2 18.

    Sales increased +75.5% yoy to SAR155mn, coming higher than our estimates of SAR118mn. We believe the variance came from higher than expected selling quantities and prices. Total sales volume in Q2 19 stood at 0.7mn tons (flat yoy) vs our estimates of 0.6mn tons. Moreover, selling prices increased +76.5% yoy to SAR221/ton in Q2 19 vs SAR125/ton in Q2 18 and our estimates of SAR193/ton.

    Cement exports of 60,000 tons (vs no exports in Q2 18), offset the -9.1% yoy decline in domestic cement sales. This is weaker than the industry’s domestic sales declines of -7.2% yoy. 

    Gross margins expanded significantly to 48.9% in Q2 19 vs 25.0% in Q2 18, higher than our estimates of 45.6%. Operating expenses increased +12.1% yoy to SAR7.2mn, coming marginally lower than our estimates of SAR8mn. Non-operating income stood at SAR2.0mn, lower than Q2 18 levels of SAR2.8mn, but higher than our estimates of SAR0.6mn. We believe this is due to higher than expected other income, which offset the increase in zakat expenses.

    We are Neutral on Qassim Cement with a PT of SAR42.9. We believe the stability of high selling prices for Qassim Cement and other players is a key positive. We expect demand from mega projects to begin by Q1 20, which would be the key catalyst for the sector.