Cement prices in Qatar are expected to remain flat because of fewer local players and government control over prices, according to Global Investment House.The cement sector continued to witness low demand in the first quarter of this year and the country was also “hurt” by influx of cheaper cement from neighbouring countries, said Global in its latest report.
The sector witnessed a bottom line growth of 6.7% despite a 1.3% drop in the top line, it said, adding: “Of the two listed cement companies, Al Khalij Holding saw its bottom line grow 53.3% while Qatar National Cement (QNCC) reported an increase of 2% during January-March.”
The consolidated revenues of the sector declined by 1.3% to US$90.1m (QR328m) due to a decline in cement sales volume as well as fall in prices. The decline was somehow arrested by Al Khalij Holding (Gulf Cement) whose sales witnessed an increase of 69.7%.
Noting that cement prices in Qatar have remained mostly constant since last couple of year with average price around US$68.7 (QR250) per tonne, Global said: “We believe cement prices to remain flat in Qatar because of lesser local players and government control over prices.”
The consolidated net income of the two listed companies was up 6.7% YoY to US$35.8m (QR130mn) at the end of March 31, 2011. It had reported a 3.2% growth QoQ.
This increase in net income, according to Global, resulted from enhanced gross margins to 40.9% in 1Q against 34.5% in the comparable period of previous year. QNCC enjoyed gross margins of 44.8% while Al Khalij Holding’s was 20.9%. The non-core income segment continued to add to the bottom line but it was “significantly” lesser than the contribution in the same period last year. Its contribution was US$5.4m (QR20m) or 15.3% of total income compared to US$11.2m (QR41m) or 33.4% of total income in 1Q 2010.
The debt levels of the sector increased by 53.1% to US$472.2m (QR1.72bn) in the first three months of this year, thus resulting in debt-asset ratio to jump to 29.1% from 21.7% in the year-ago quarter, it said, adding: “The increase in the debt levels could be attributed to increase in the leverage taken by Al Khalij Holding.” The assets of the cement sector rose 14.4% to US$1.62bn (QR6bn) in January-March 2011 mainly due to the 53.1% increase in debt.
In view of the probe into bidding of FIFA World Cup 2022, Global, however, cautioned that situation may go haywire until things get cleared up and “if the (probe) results goes against Qatar, we will revisit the companies under coverage.