Equity Analysis /
Saudi Arabia

Yanbu Cement Co: Strong results on higher exports and local prices

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

    SNB Capital
    2 May 2019
    Published by

    Yanbu Cement reported a strong set of Q1 19 results, with net income increasing 83.8% yoy to SAR73mn. This is higher than the NCBC estimates of SAR42mn. We believe the deviation came from higher than expected export quantities and selling prices on local cement sold. Assuming clinker sales at SAR100/ton (US$27/ton), we believe cement selling prices stood at SAR181/ton vs our estimates of SAR168/ton.

    NCBC view on the results 

    Yanbu Cement reported a better than expected set of Q1 19 results, with net income increasing 83.8% yoy to SAR73mn. This is higher than the NCBC and consensus estimates of SAR42mn and SAR41mn, respectively. We believe the variance came from higher than expected export quantities and selling prices on domestic sales. 

    Sales increased 20.5% yoy to SAR260mn in Q1 19, coming higher than our estimates of SAR227mn. Total sales quantity of Yanbu Cement (domestic and exports) increased +24.6% yoy to 1.86mn tons in Q1 19, coming higher than our estimate of 1.62mn tons. This is stronger than the +10.2% yoy growth in total industry sales of clinker and cement in Q1 19. The deviation came from higher than expected exports of clinker. With blended selling prices being in-line with our estimates at SAR140/ton and assuming clinker was exported at SAR100/ton (US$27), we believe cement selling prices increased +25.3% yoy to SAR181/ton. This is higher than our estimates of SAR168/ton and compares to Q4 18 levels of SAR160/ton. 

    Gross margins expanded to 35.7% in Q1 19 vs 19.2% in Q1 18. This is higher than our estimates of 24.4%. We believe the margin expansion was driven by 1) higher than expected selling prices on local cement sold and 2) a lower cost/ton due to the higher than expected clinker exports. The blended cost/ton stood at SAR90/ton in Q1 19 vs SAR117/ton in Q1 18 and our estimates of SAR106/ton.

    We are Overweight on Yanbu Cement with an unchanged PT of SAR37.0. We believe the qoq increase in selling prices for Yanbu Cement and the remaining players is positive. However, despite the increase in prices, we believe growth in quantities will remain muted during H1 19 and may place pressure on selling prices going forward. We expect further clarity on the timeline of mega projects to be the key catalyst for Yanbu Cement going forward.