Earnings Report /
Saudi Arabia

Arabian Cement: Strong results on better margins

  • Revenue decreased marginally 0.8% yoy (-10.9% qoq) to SAR231mn

  • Total selling quantities decreased by 9.4% yoy (-21.9% qoq) to 1.01mn tons in Q2 22

  • Gross margins expanded by 237bps yoy to 29.4%

SNB Capital
9 August 2022
Published bySNB Capital

Arabian Cement reported a strong set of Q2 22 results with the income of SAR45.0mn increasing by 34.3% yoy (+7.4% qoq). This is higher than the SNB Capital and consensus estimates of SAR24.5mn and SAR27.1mn, respectively. We believe the variance in earnings is mainly driven by 1) higher revenue which stood at SAR231mn (-0.8% yoy, -10.9% qoq) due to higher selling prices 2) improved gross margins which expanded by 237bps yoy to 29.4% and 3) decline in opex due to lower general and administrative expenses.

  • Revenue decreased marginally 0.8% yoy (-10.9% qoq) to SAR231mn, but came higher than our estimates of SAR211mn, driven by higher selling prices. Average local selling prices stood at SAR228/ton (+9.4% yoy, +14.0% qoq), vs our estimates of SAAR203/ton.

  • Total selling quantities decreased by 9.4% yoy (-21.9% qoq) to 1.01mn tons in Q2 22, marginally lower than our estimates of 1.04mn tons. This compares to the total industry decline of 1.7% yoy (-15.5% qoq).

  • Local cement sales increased by 4.4% yoy (-22.3% qoq) to 0.69mn tons better than the local industry’s decline of 5.6% yoy. Exports decreased 29.9% yoy (+20.9% qoq) to 322,000 tons, compared to the industry’s exports growth of 4.7% yoy (+28.1% qoq).

  • Gross margins expanded by 237bps yoy to 29.4% in Q2 22 and came higher than our estimates of 22.9%. We believe the yoy expansion and variance in margins was mainly due to higher selling prices. Average cost/ton stood at SAR161/ton (+5.9% yoy, +9.8% qoq) vs our estimate of SAR157/ton.

  • Operating expenses in absolute terms decreased by 12.0% yoy (-9.8% qoq) to SAR22.3mn and came lower than our estimate of SAR25.5mn while opex to sales ratio stood at 9.7% vs 10.9% in Q2 21 and our estimate of 12.1%.

  • Net non-opex in Q2 22 stood at SAR0.6mn, vs Q2 21 levels of SAR4.1mn our estimate of SAR9.5mn and our estimate of net-non operating income of SAR1.5mn. We believe the decline in net non-opex is due to increase in profit of the associates and lower finance costs.

Outlook

We are Neutral on Arabian Cement with a PT of SAR40.1. Increase in selling prices and margins are the key positive while decline in volume is the major concerns. We expect the company to benefit from housing and giga projects in the western region. The stock currently trades at a 2022f PE and EV/EBITDA of 17.7x and 10.2x, vs covered peers average of 20.8x and 13.5x, respectively.