Equity Analysis /
Saudi Arabia

Yamama Cement: Strong results on higher selling prices

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

    SNB Capital
    30 July 2019
    Published by

    Yamama Cement reported a Q2 19 net profit of SAR53mn vs a net loss of SAR36mn in Q1 18. This is in line with NCBC estimates and compares with the consensus estimates of SAR50mn. Sales came in weaker-than-expected, however this was offset by higher other income. With selling prices in line with estimates, we believe the variance in revenues came from lower-than-expected volumes.

    NCBC view on results

    Yamama Cement reported Q2 19 net profit of SAR53mn vs a net loss of SAR36mn in Q2 18. This is in line with NCBC estimates and compares with the consensus estimate of SAR50mn. Despite earnings being in line, sales came in 12% lower than expected due to lower-than-expected quantities, which led to the deviation in the top-line.

    Sales increased by 47.6% yoy to SAR165mn, coming in lower than our estimates of SAR188mn. Total sales quantity of Yamama Cement declined by 19.6% yoy to 0.80mn tons in Q2 19. This is lower than our estimate of 0.93mn tons and is weaker than the 7.2% yoy decline in local cement industry sales in Q2 19. We believe underperformance may be attributed to relatively lower demand in the Central region. Selling prices increased 83.7% yoy to SAR207/ton in Q2 19, coming in line with NCBC’s estimates of SAR202/ton and Q1 19 levels of SAR208/ton. We believe the qoq flat prices are positive. Moreover, we believe it was sector-wide and not specific to Yamama Cement. Accordingly, we expect similar strong selling prices for the remaining players, specifically those in the Central and Western regions.

    Gross margins expanded to 39.6% in Q2 19 vs -11.9% in Q2 18. This is in line with our estimates of 39.9%. We believe the yoy gross margin improvement is due to high selling prices, as the cost/ton remained flat yoy at SAR125/ton. 

    We are Neutral on Yamama Cement with a PT of SAR19.3. We believe the strong selling prices for Yamama Cement and potentially the remaining players is a key positive. However, we believe selling prices will remain volatile as the outlook on quantities remains unclear during H2 19. We expect further clarity on the timeline of mega projects to be the key catalyst for an improvement in cement demand in Saudi.