Saudi Arabia - Southern Province Cement Company (SPCC) has registered a revenue of SR330 million ($88 million) for the first three months of 2022, down 25% over last year mainly due to a steap fall in cement volumes.

Fall in sales was attributed to a 23.7% y-o-y fall in cement volume. Cement sales volume for Q1 2022 came in at 1.6 million tonnes, broadly in line with the estimate of Al Rajhi Capital, a leading financial services provider in the kingdom.

Gross profit fell by 42.3% y-o-y, while operating profit fell by 47.0% y-o-y. Lower revenue and the resultant fall in operating leverage impacted profitability, as gross margins fell to 32.2% for Q1 2022, compared to 41.9% a year back, it stated.

However, the revenue was higher than Al Rajhi Capital's estimate of SR273 million ($72.6 million).

Apart from this, Al Rajhi said it also expects the profitability to have been impacted by higher royalty, due to the changes in the method of calculating the same.

"For Q1 2022, cement volume of SPCC fell by 23.7% y-o-y, underperforming the industry, which on an average fell by 10.1%, and the performance of the Southern region, which registered a fall of 20.6%. However, cement prices were relatively stable and better than the companies operating in other regions," it stated in the review.

"Going forward, we expect construction activity to remain weak; along with this, with a clinker inventory of 34.7 mn tons, in April-22, which is around seven months of production (LTM), we expect the average realization to remain under pressure, said an expert at Al Rajhi.

"However, there could be a slight recovery in the volume post H1 2022, as we expect marginal recovery in demand backed by an improvement in the execution of mega and giga projects. However, this recovery is likely to be limited, resulting in cement sales volume coming lower in 2022, compared to 2021," he noted.

"Overall, we reduce our target price to SAR63/share from SAR75/share, but maintain our rating at “Neutral”, he added.

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