Saudi Cement earnings reached SR75 million ($20 million) during the second quarter (Q2) of the year, marking a year-on-year (y-o-y) decline of 19%. However, this was higher than the analysts expectations of SR57 million and consensus estimate of SR67 million, a report said.

The beating of estimate was mostly due to a 34% rise in cement volume in June 2020, which could be because of pre-VAT hike buying, said the report released by Al Rajhi Capital, a leading financial services provider in the Kingdom.

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 cost.

The company reported revenue of SR298 million, a decline of 12% y-o-y, mainly due to 14.5% y-o-y drop in volume, partially backed by a 3% rise in price to SR255/ton as compared to SR251/ton in Q1 2020 and SR248/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 a 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 SR63/share from SR54/share and maintain our rating to ‘Neutral’ on the stock.” – TradeArabia News Service