Earnings Report /
Mexico

Grupo Cementos de Chihuahua: Quarterly Report 3Q21: Confirms solid results and maintains guidance

  • GCC showed a double-digit sales and EBITDA growth, supported by volume and pricing increases

  • We remain optimistic regarding the company's and the sector's outlook, favored by the US recovery

  • The company stands out for its financial strength, outlook that remain solid and an attractive valuation

Jose Itzamna Espitia Hernandez
Jose Itzamna Espitia Hernandez

Senior Equity Research Analyst, Infrastructure, Materials and Transportation

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Banorte
27 October 2021
Published byBanorte
  • GCC continued with a strong performance, in line with expectations, with double-digit sales and EBITDA growth, supported by volume and pricing increases, but with slight pressure on profitability

  • The company stands out for its financial strength (-0.1x ND/EBITDA), outlook that remain solid and an attractive valuation of 7.4x FV/EBITDA vs. sector´s 8.6x, for which we reiterate Buy

Favorable industry performance drives growth. GCC's 3Q21 results continued with a solid performance, supported by a 9.7% y/y increase in US cement volumes, due to positive dynamics in the sector and a low comparable base (weak demand from the oil industry in 3Q20), which more than offset the 23.4% decline in ready-mix. In Mexico, cement volumes increased 1.1% and ready-mix volumes went up 17.7%, due to increased construction activity in assembly plants and industrial warehouses, among others. Prices were better in local currency terms, and in Mexico in dollar terms the growth was higher due to the appreciation of the peso/dollar exchange rate. As a result, sales rose 12.2% y/y. Meanwhile, EBITDA grew 10.2%, with the margin decreasing 0.6pp y/y to 34.9%, lower than expected, due to a 23% increase in selling, general and administrative expenses. Net income rose 11.7% y/y as a result of the operating progress. It is worth noting that free cash flow was positive, although lower by 8.9% vs. 3Q20, from a higher amount of maintenance Capex. The outlook remains favorable. By not modifying its 2021e guidance, we remain optimistic regarding the company's and the sector's outlook, favored by the US recovery, not without leaving aside the additional impulse that the infrastructure plan would represent in the longer term, with positive implications for Mexico. Nonetheless, we will be watching for any updates on expectations going forward in light of global economic slowdown concerns, although we do not foresee a significant impact for the time being.