Saudi Arabia: Qassim Cement - April 2018

Transcription

1. Qassim Cement Cement – Industrial QACCO AB: Saudi Arabia 23 April 2018 Target price Current price 42.50 41.17 3% over current as at 19/4/2018 Existing rating Underweight Neutral Overweight Underweight Vol th RSI10 Performance Price Close MAV10 MAV50 Relative to TADAWUL FF (RHS) 56.0 107.0 51.0 95.8 46.0 84.5 41.0 73.3 36.0 62.0 70 30 -10 600 400 200 04/17 07/17 10/17 01/18 Source: Bloomberg Earnings Period End (SAR) 12/16A 12/17A 12/18E 12/19E Revenue (mn) Revenue Growth EBITDA EBITDA Growth EPS EPS Growth 852 626 591 -16.8% -26.5% -5.6% 491 314 288 -27.4% -34.0% -8.1% 4.8 2.9 2.8 -24.9% -38.9% -4.9% Source: Company data, Al Rajhi Capital 656 10.9% 325 12.8% 2.9 5.9% Research Department Yazeed Alsaqaaby Tel +966 1 211 9398, alsaqaaby@alrajhi-capital.com Qassim Cement Q1: In-line with estimates Qassim’s bottom-line of SAR 57.1mn (-29% y-o-y, -15%q-o-q) was in-line with our estimate of SAR56.2mn as well as consensus estimate of SAR60.7mn. Revenue fell 23% y-o-y to SAR 148mn, due to a drop of 16% y-o-y (-1% q-o-q) in the average sales price and 14% decline in volumes. The company’s earnings were supported by higher other income as well as drop in Zakat expenses. Going forward, we forecast Qassim’s sales to decline by around 10% y-o-y (14% q-o-q in next quarter due to seasonality effect) . Current modest demand, high inventories and stiff competition in the sector have led the company to offer higher discounts on the sale price which declined to SAR160 per ton (vs. SAR178 in Q1 2017). On yearly basis the company was able to reduce the cost/ton to SAR92 (-4% y-o-y) which we believe will remain at this levels with slight increase in the coming quarters. We continue with our Neutral rating on Qassim cement with a target price of SAR42.5/share.  Revenue: Q1 revenue came in at SAR 148mn (-23% y-o-y), in-line our estimate of SAR141mn. During the quarter, the company sold 923k tons (-14% y-o-y, vs. sector average of -11%), mainly due to the increase in competition among players which we believe are leading to companies entering new local regions and fight for demand by lowering prices. In Q2 2018, we expect the company’s sales volume to go down sharply by around 10% y-o-y, which implies 14% q-o-q decline due to seasonality effect.  Gross and operating profit: Qassim Cement reported a gross profit of SAR63mn in Q1 compared to our estimate of SAR 60mn. Despite the decrease in sales volume and the prices, the company was able to reduce the cost/ton to SAR92(-4% y-o-y) which we believe will remain at this levels with slight increase in the coming quarters. The operating profit stood at SAR 55mn, in line with our SAR 54mn.  Dividends: The company distributed dividends of SAR2.9 per share for total year 2017, which is more than its EPS of SAR2.8 per share. For 1H 2018, we believe the company will maintain same payout level, which implies dividends of SAR1.20/share. As for 2018, we expect the company’s dividends to fall ~5% y-o-y (to SAR2.7) on weak demand and low selling prices. This implies a dividend yield of 6.5%%  Valuation and Conclusion: The company posted a 29% y-o-y and 15% q-o-q decline in net profit due to the decline in sales volume and average realized price/ton, which is the trend in the market. We remain Neutral on the stock with a target price of SAR42.5/share. Figure 1 Qassim Cement: Summary of Q1 2018 results (SAR mn) Q1 2017 Q4 2017 Q1 2018 Revenue 191 169 148 % chg y-o-y % chg q-oq -22.6% -12.5% ARC Estimate Gross Profit 88 76 63 -29.0% -17.3% 60 Gross Margin 46% 45% 42% NA NA 43% Operating Profit 81 68 55 -32.5% -19.3% 54 Net Profit 80 67 57 -28.7% -14.9% 56 140 Source: Company data, Al Rajhi Capital Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.
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3. Qassim Cement Cement –Industrial 23 Apr 2018 Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. 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"Neutral": We expect the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 12 month time horizon. "Underweight": Our target price is more than 10% below the current share price, and we expect the share price to reach the target on a 12 month time horizon. "Target price": We estimate target value per share for every stock we cover. This is normally based on widely accepted methods appropriate to the stock or sector under consideration, e.g. DCF (discounted cash flow) or SoTP (sum of the parts) analysis. Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if a company’s profits or operating performance exceed or fall short of our expectations. Contact us Mazen AlSudairi Head of Research Tel : +966 11 211 9449 Email: alsudairim@alrajhi-capital.com Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. 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