Al Jazira Capital maintain "Neutral" recommendation on Yamama Cement

18/10/2017 22:23 AST

Yamama Cement 3Q2017 net income of SAR 29.2mn (EPS, SAR 0.14) came above Al Jazira Capital estimates, which was mainly attributed to higher than expected selling price, indicating a deviation of 35.0% from the market consensus of SAR 21.59mn. Other income is expected to stand at SAR 9.7mn compared to loss in 3Q2016. We maintain our "Neutral" recommendation and TP of SAR 16.20/Share on the stock.

Net income of SAR 29.2mn came above our estimates of SAR 10.1mn, a decline of 48.2%YoY. The decline in net income was mainly attributed to lower volumetric sales and weak selling price despite the increase in other income. We expect other income to stand at SAR 9.7mn, compare to loss of SAR 22.1mn in 3Q2016.

Revenue stood at SAR 164.0mn; a decline of 31.0%YoY, well above our estimates of SAR 153.9mn due to higher than expected sales prices. The YoY sales decline is mainly attributed to decline in volumetric sales and weak selling price. Cement sales showed a decline of 16.7%YoY to stand at 931KT in 3Q2017 from 1.12MT in 3Q2016. For 3Q2017, we expect the selling price to be around SAR 176.2/ton vs. SAR 210.9 in 3Q2016 and SAR 161.8 in 2Q2017. Gross profit stood at SAR 41.95mn depicting a decline of 57.6%YoY, impacted mainly by lower volumetric sales and higher cost per ton. Gross margin declined to 25.6% in 3Q2017 from 41.9% in 3Q2016, however an improvement over the 16.9% gross margin recorded in 2Q2017 due to improvement in price realization. We expect gross margin to stand at 24.7% for FY2017 compared to 42.0% for FY2016. Based on our calculation, the cost/ton is expected to be at SAR 131.1 vs. SAR 122.3/ton in 3Q2016 and 134.4/ton in 2Q2017. We expect cost per ton to remain high due to higher depreciation rate for moving the plant. Operating profit stood at SAR 25.46mn showing a decline of 70.4%YoY and an increase of 66.9%QoQ. OPEX stood at SAR 16.49mn, showing an increase of 26.3%YoY.

Al Jazira Capital expect cement sector to show signs of recovery in FY2018, driven by higher demand and government spending. For 2017, AJC expect Yamama cement to post net income of SAR 141.46mn (EPS of SAR 0.70) a decline of 61.4%YoY. Furthermore, lower sales price are consistent with continued pressure on cement demand and high levels of inventory, which is expected to remain high in the near term. Based on our estimates, the company is trading at forward P/E and P/BV of 22.98x and 0.94x, respectively based on the current price. AJC do not expect the company to pay dividend for 2017. We maintain our "Neutral" recommendation and PT of SAR 16.20 on the stock.

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