Cement producer saw earnings reach $20m in Q2 due to a decrease in sales, increased expenses and other issues
Saudi Cement earnings reached $20 million during the second quarter of the year, marking a year-on-year (y-o-y) decline of 19%, as compared to an estimate of $15.20 million and a consensus estimate of $17.8 million, a report from Al Rajhi Capital has found.
According to the report, the beat was mainly due to a 34% rise in cement volume in June 2020, which be due to pre-VAT hike buying. The y-o-y decline in earnings is primarily due to a decrease in sales, an increase in selling and distribution expenses, an increase in zakat, and a decrease in associate income, partially supported by a drop in general and administrative expenses and finance costs.
The report added that Saudi Cement reported revenue of $79.45 million, a decline of 12% y-o-y, mainly due to a 14.5% y-o-y drop in volume, partially backed by a 3% rise in price to $67.99/ton as compared to $66.93/ton in Q1 2020 and $66.13/ton in Q2 2019.
The Eastern region is the only region that witnessed a y-o-y decline in volume during the quarter. This may be due to slow construction activities. Further, the decline in the cost of sales was similar to a drop in revenue that remained the gross margin almost flat at 41%. Relatively higher operating costs affected the operating margin and net margin.
“Going forward, we believe that the cement demand in the Eastern region would be under little pressure; though a gradual pick-up in demand is expected mainly due to rise in mortgages, which grew by 85% y-o-y in KSA during Q2, and resuming of the construction activities of the other infrastructure projects would also bring demand back in the region,” Al Rajhi Capital said in the report.
“Cement prices are expected to be at the current levels for the second half of the year. Post Q2 result and considering the improving scenario of the construction sector, we have revised the target price to $16.80/share from $14.40/share and maintain our rating to ‘Neutral’ on the stock.”