|21 November, 2018

Saudi Arabian Cement sector remained "under pressure" in Q3 2018, report says

Most Saudi Cement companies reported a drop in quarterly net profit as sales volumes continued to decline

Saudi Arabian Cement sector remained "under pressure" in Q3 2018, report says

A drop in average sales volume and aggregate revenues during the third quarter (Q3) of the year 2018 kept the Saudi cement sector under pressure, an analysts' report has highlighed.

“The Saudi cement sector continued to remain under pressure in Q3 2018, with the average sales volume dropping 12.5 percent y-o-y (albeit at a slower pace than the previous quarter’s decline of 15.4 percent y-o-y)," the note from Al Rajhi Capital issued on Tuesday explained. "The aggregate revenue of all the public listed cement companies declined 18.6 percent y-o-y in Q3 2018 (9M 2018: -21% y-o-y),” it added. In total, there are 14 cement companies whose shares are listed on the main market of the kingdom's stock exchange, Tadawul.

The report stated that cement production dropped 11.6 percent in Q3 2018, almost in line with the decline in sales volume.

The three largest Saudi cement companies in terms of market capitalisation on Tadawul reported a drop in Q3 earnings.

Saudi Cement Company saw net profit decline by 13.7 percent year-on-year (y-o-y)in the third quarter, when it declared a net profit after zakat and tax of 75.4 million Saudi riyals ($20.1 million), versus a net profit of 87.4 million Saudi riyals in the same period last year.

Data from Eikon shows that the stock has dropped close to 7 percent this year. On Wednesday, the company’s stock dropped 0.22 percent, closing at 44.35 riyals.

The company has the biggest share of cement exports of any Saudi producer. It has exported 423,000 tons since the removal of export fees in February 2018, the report said, noting that the target price for the stock is 38 Saudi riyals.

Southern Province Cement reported a 91 percent y-o-y drop in Q3 net profit. Q3 2018 net profit after zakat and tax amounted to 5.3 million riyals versus a net profit of 57 million riyals a year ago.

Al Rajhi Capital set the target price for the stock at 30 Saudi Riyals. Data from Eikon shows that the company’s shares dropped close to 21 percent this year. The stock added 0.26 percent on Wednesday to close at 38.1 riyals.

Yanbu Cement reported a 28 percent y-o-y drop in Q3 net profit. Q3 2018 net profit after zakat and tax amounted to 13 million Saudi riyals versus a net profit of 18 million Saudi riyals a year ago.

Al Rajhi Capital set the target price for the stock at 23 Saudi Riyals. Data from Eikon shows that the stock has dropped close to 28 percent this year. It added 1.25 percent on Wednesday to close at 24.3 riyals.

Although sales volumes have continued to decline in the short term, the report was more upbeat about the sector's medium-term prospects. “We expect the cement demand to increase as the anticipated rise in the government spending should increase the construction activities,” it said.

“In this regard, the Kingdom has also recently announced over 600 projects worth ~SAR16bn in the Qassim region and 259 development projects worth ~SAR7bn in the Hail region.” (Read more here).

Despite this, it said that a pick-up in cement prices in the short terl looks unlikely, due to high inventory levels and huge competition between producers. The firm has maintained its total sales estimate for the sector this year at 41 million tons..

Saudi Arabia’s index ended the day 0.13 percent higher on Wednesday, Dubai’s index gained 0.24 percent, Abu Dhabi’s index dropped 0.4 percent, Qatar’s index edged up 0.24 percent, while Kuwait’s premier market index ended the day mainly flat, Bahrain’s index gained 0.6 percent and Oman’s stock market was closed for a religious holiday.

By 14:45 GST, Egypt’s blue-chip index EGX30 was trading 1.26 percent lower.

(Reporting by Gerard Aoun; Editing by Michael Fahy)

(Gerard.aoun@refinitiv.com)

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© ZAWYA 2018

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