Earnings Report /
Saudi Arabia

Qassim Cement Co.: Strong results on higher sales and margins

  • Qassim Cement reported a better than expected set of Q1 20 results, with net income up +98.5% yoy to SAR111mn.

  • Total sales volume in Q1 20 increased +53.5% yoy to 1.18mn tons, vs our estimates of 1.13mn tons.

  • Gross margins expanded to 58.4% vs 42.3% in Q1 19, higher than our estimates of 50.0%.

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
3 May 2020
Published bySNB Capital

Qassim Cement reported a stronger than expected set of Q1 20 results, with net income increasing +98.5% yoy to SAR111mn vs our estimates of SAR98mn. We believe the variance is mainly due to higher selling prices and lower cost/ton. Selling prices stood at SAR221/ton in Q1 20 vs our estimates of SAR202/ton.

Qassim Cement reported a better than expected set of Q1 20 results, with net income up +98.5% yoy to SAR111mn. This compares to the NCBC and consensus estimates of SAR98mn. We believe the variance is due to 1) higher than expected selling prices, which stood at SAR221/ton (+11.2% yoy) vs our estimates of SAR202/ton and 2) a lower than expected production cost which stood at SAR92/ton (-19.9% yoy) vs our estimates of SAR101/ton. 

Revenues grew +70.6% yoy to SAR262mn, higher than our estimates of SAR227mn. The variance is due to higher than expected selling prices, which increased +11.2% yoy to SAR221/ton, vs our estimates of SAR202/ton. 

Total sales volume in Q1 20 increased +53.5% yoy to 1.18mn tons, vs our estimates of 1.13mn tons. Domestic cement sales quantities increased +44.7% yoy (+19.9% qoq) to 1.11mn tons. This growth is higher than the industry’s domestic cement sales growth of +32.9% yoy (+12.1% qoq) and represents the company’s highest sales volume since Q1 16. Cement exports of 72,000 tons (vs 3,000 tons in Q1 19) further supported the sales growth. 

Gross margins expanded to 58.4% vs 42.3% in Q1 19, higher than our estimates of 50.0%. We believe the yoy improvement and variance in margins was due to higher selling prices as well as a lower production cost of SAR92/ton (-19.9% yoy) vs our estimates of SAR101/ton. We believe the decline in production cost is due to economies of scale as production increased. Operating expenses increased to SAR24mn vs SAR8mn in Q1 19 and our estimates of SAR9mn. Non-operating expenses increased to SAR18mn from SAR1mn in Q1 19, vs our estimates of SAR7mn, mainly due to higher zakat expenses and impairment of financial investments. 

We are Neutral on Qassim Cement, with a PT of SAR73.7. While the strong growth in sales and margins are key positives for Qassim Cement, we believe that the demand outlook for 2020f will likely be negatively affected by COVID19 developments.