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Saudi Arabia: Qassim Cement - April 2018

IM Insights
By IM Insights
6 years ago
Saudi Arabia: Qassim Cement - April 2018


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  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.
  2. Qassim Cement Cement –Industrial 23 Apr 2018 IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by Al Rajhi Capital (Al Rajhi), a company authorized to engage in securities activities in Saudi Arabia. Al Rajhi is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Al Rajhi. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account. Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication. Compensation and Investment Banking Activities Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months. Additional Disclosures This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. 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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. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction. Explanation of Al Rajhi Capital’s rating system Al Rajhi Capital uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage except financial stocks and those few other companies not compliant with Islamic Shariah law: "Overweight": Our target price is more than 10% above the current share price, and we expect the share price to reach the target on a 12 month time horizon. "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. Box 5561, Riyadh 11432 Kingdom of Saudi Arabia Email: research@alrajhi-capital.com Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37. Disclosures Please refer to the important disclosures at the back of this report. 3