Raysut Cement Company (RCC), Oman's largest cement producer by market value, reported a sharp drop in first quarter (Q1) earnings for the current year, triggering a retreat in the company’s shares on Monday.
Q1 2019 total profit and comprehensive income attributable to shareholders amounted to 242,951 Omani rials ($631,862) compared to 450,161 rials in Q1 2018, a 46.03 percent year-on-year drop.
Sameer Kattiparambil, an analyst at EFG Hermes based in Muscat, described the company's numbers in an email to Zawya as "weak", adding that they "clearly signal the competitive scenario in the company’s home and export markets”.
Kattiparambil said that despite Raysut Cement’s “stronger-than-expected consolidated revenues,” which rose 9.78 percent year-on-year to 23.01 million rials in Q1 2019, from 20.96 million rials in Q1 2018, the company’s net profit of 242.95 thousand rials was below EFG Hermes’ estimate of 0.9 million rials.
The company’s gross margin (gross profit/revenue) stood at 19.67 percent in Q1 2019, compared to 24.01 percent in Q1 2018 and was considerably below EFG Hermes’ estimate of 22.8 percent.
“Although the details are unavailable as of yet, we assume the weak cement prices in both the company’s home and export markets, and potentially the spillover impact of the higher cost structure from last year, to have affected the profit margin, in our view,” Kattiparambil said.
The company’s shares dropped 6.91 percent on Monday to 0.34 rials per share, and fallen by 7.89 percent so far this year.
“Although we assume the earnings cycle to be challenging for RCC over the short term, due to significant competition in the region, we currently have a Buy rating on the stock, as the company's assets are valued at a steep discount to its peers,” EFG Hermes’ Kattiparambil said.
He expects that “the company’s cost-optimisation plan would improve the profit margin gradually over the coming quarters,” noting that the EFG Hermes will revisit estimates for Raysut Cement once the full financials are released.
(Reporting by Gerard Aoun; Editing by Michael Fahy)
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