Saudi Ceramic Company, Saudi Arabia’s largest manufacturer and seller of ceramic tiles, has seen its Q2 net income fall by 40.0% y-o-y, impacted by lower revenue and a resultant fall in gross margins.

According to Al Rajhi Capital Research, in line with the revenue being lower than expectations, the net income too was lower than Al Rajhi’s estimate of SR40 million ($10.65 million).

The company’s Q2 2022 revenue was at SR339 million (-5% y-o-y) and is likely to have been impacted by lower demand and due to the temporary suspension of some of its factories, as a result of the suspension of gas supplies by Aramco on account of maintenance work.

Gross profit falls

The revenue was lower than Al Rajhi’s estimate of SR363 million. Gross profit fell by 23% y-o-y, while operating income fell by 47.8% y-o-y, at the back of a 734bps gross margin erosion (31.2% in Q2 2022 and 30.8% in Q1 2022).

“We expect lower revenue, increased competition and higher cost of production, due to the increase in certain input costs, to have impacted profitability. Lower than expected revenue, moderated by higher-than-expected non-operating income, was the main reason for this,” Al Rajhi said.

Building and construction segment in KSA has come under pressure during the year, though Al Rajhi expects the sector’s performance to improve, aided by stable mortgage offtake, pickup in the execution of giga projects and favourable movement of construction material prices, which have started to fall.

However, the recovery is likely to take time, and short-term pressures are likely to persist. Al Rajhi also takes into account the strong market position of Saudi Ceramic regionally. Overall, post-Q2 2022 earnings, Al Rajhi reduces the firm’s target price from SR50/share to SR41/share, but increase its rating to ‘Overweight’ from ‘Neutral’.

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