Earnings Report /
Saudi Arabia

Eastern Cement: Top line growth offset by lower other income

  • Eastern Cement reported a weaker-than-expected set of Q2 20 results

  • Total sales quantities of Eastern Cement declined 11.5% yoy to 0.45mn tons, coming in line with our estimates.

  • Sales declined by 8.2% yoy to SAR146mn, coming in higher than our estimates of SAR137mn.

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
6 August 2020
Published bySNB Capital

Eastern Cement reported net income of SAR30mn in Q2 20, decreasing 6.3% yoy (-64.7% qoq). This is lower than our estimates of SAR34mn. All profit lines (selling quantities, gross profit and EBIT) were in line with our estimates, the negative variance and yoy decline in earnings was due to lower other income.

Eastern Cement reported a weaker-than-expected set of Q2 20 results, with net income declining by 6.3% yoy to SAR30mn. This compares to the NCBC and consensus estimates of SAR34mn and SAR37mn, respectively. Sales declined -8.2% yoy to SAR146mn, mainly on lower sales quantities of precast concrete and an absence of clinker exports. Gross profit and EBIT were in line with our estimates, the negative variance was mainly due to lower than expected other income.

Total sales quantities of Eastern Cement declined by 11.5% yoy to 0.45mn tons, coming in line with our estimates. This compares to the total industry sales decline of -4.1% yoy. Domestic cement sales declined -0.9% yoy to 0.42mn and compares to the industry’s growth of +6.4% yoy. We believe this is due to lower sales quantities of precast concrete. Cement exports were broadly flat yoy at 30,000 tons; while no clinker exports took place in Q2 20 vs 54,000 tons of clinker exported in Q2 19.

Sales declined 8.2% yoy to SAR146mn, coming in higher than our estimates of SAR137mn. Average selling prices increased +3.8% yoy to SAR322/ton, in-line with Q1 20 levels of SAR325/ton and slightly higher than our estimates of SAR305/ton. Blended cost/ton declined -5.0% yoy to SAR221/ton, but were higher than our estimates of SAR205/ton. As a result of this, gross margins came in at 31.5% in Q2 20 (+635 bps yoy), vs our estimates of 32.8%. Gross profit increased +15% yoy to SAR46mn, coming in line with our estimates of SAR45mn.

Opex declined 6.3% yoy to SAR15mn, vs our estimates of SAR13.5mn. Non-operating expenses stood at SAR1mn in Q2 20, vs non-operating income of SAR8mn in Q2 19 and our estimates of income of SAR3mn. We believe this is due to lower other income and income from investments.

Although demand for cement might be impacted by Covid-19 related measures, we believe strong demand from the Ministry of Housing projects will continue to support demand in the short-term. We await full results to update our PT and estimates.