Equity Analysis /
Saudi Arabia

Yamama Cement: Strong results on higher selling prices

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

    SNB Capital
    1 May 2019
    Published by

    Yamama Cement reported a better than expected set of Q1 19 results, with net profit increasing +196.2% yoy to SAR71.0mn. This is higher than the NCBC and consensus estimates of SAR12mn and SAR18mn, respectively. With sales volumes coming in-line with our estimates, we believe the variance is due to higher than expected selling prices. Selling prices stood at SAR207/ton in Q1 19 vs Q4 18 levels and our estimates of SAR155/ton.

    NCBC View on Results 

    Yamama Cement reported a better than expected set of Q1 19 results, with net profit increasing +196.2% yoy to SAR71mn. This is higher than the NCBC and consensus estimates of SAR12mn and SAR18mn, respectively. We believe the better than expected results came as a result of higher than expected selling prices. 

    Total sales quantity of Yamama Cement increased +38.2% yoy to 1.03mn tons in Q1 19, in-line with our estimate. This is compared to a -9.4% yoy decline in the industry’s local cement sales in Q1 19. We believe the relative yoy outperformance is due to demand improvement from a low base in the Central region during Q1 18. 

    Sales increased 51.5% yoy to SAR214mn, coming higher than our estimates of SAR157mn. Selling prices increased 9.6% yoy to SAR207/ton, higher than Q4 18 levels and NCBC estimates of SAR155/ton. We believe the qoq increase in prices was sector-wide and not specific to Yamama Cement. Accordingly, we expect a similar outperformance for the remaining players, specifically those in the Central and Western regions. 

    Gross margins expanded from 27.5% in Q1 18 to 42.4% in Q1 19. This is higher than our estimates of 19.1%. We believe the gross margin expansion is mainly due to higher than expected selling prices and lower cost/ton of SAR119/ton vs our estimates of SAR125/ton.

    We are Neutral on Yamama Cement with a PT of SAR15.4. We believe the increase in selling prices for Yamama Cement and potentially the remaining players is positive. However, we believe selling prices will remain volatile as the outlook on quantities remains muted during H1 19. We expect further clarity on the timeline of mega projects to be the key catalyst for an improvement in cement demand in Saudi going forward.