Contrasting 1Q for Arabian Cement and Eastern Province

Contrasting 1Q for Arabian Cement and Eastern Province
Published: 16 June 2011

Two of Saudi Arabia’s leading cement producers have reported mixed first quarter 2011 results, with one exceeding and the other missing estimates by Global Investment House (GIH).

Arabian Cement Company (ACC) posted 1Q net profit of SAR116.6m, considerably higher than GIH estimates of SAR70.2m. On a YoY basis net profit was up by 42% due to lower production costs and higher revenues. In addition, 1Q10 results suffered from major maintenance shutdowns.
Sales revenue was up by a healthy 4.1% YoY as the company benefited from increased construction activity in the Western region of Saudi Arabia which includes the major urban centres of Jeddah, Makkah and Madina. Total cement dispatches rose 14.2%YoY to 992,000t in 1Q11.
Realisation prices appear to have stabilised with a slight decline of 0.4% YoY to SAR232/t during the quarter, reflecting improvements in demand. By comparison, cement realisation prices fell by 6.1% in 2010 YoY as competition intensified. GIH expect realisation prices for 2011 to be SAR230.3/t, representing a marginal decline of 1.0% YoY.  
GIH has increased its sales revenue forecast for ACC by 16.7% to SAR935m for 2011 in light of increasing dispatches in the first quarter. It believes strong sales growth will continue throughout 2011. However, it has decreased its 2011 estimate of cost of sales by 4.8%. The company has managed to induce significant cost savings after major maintenance with cost of sales coming down to SAR97/t in 1Q11. Consequently, GIH have increased its net profit estimates for 2011 by 53.4% to SAR431m.

Eastern Province Cement Company (EPC), meanwhile, saw 1Q11 net profit down 9.4% below GIH’s forecast and 10.5% lower than 1Q10.  Net profit suffered due to a 7.5% YoY increase in sales costs on the back of higher labour and power costs. The company has the highest cost of sales per ton of SAR117.3/t compared to the other Saudi companies under GHI coverage, which is mainly due to the operation of old lines.
EPC’s sales remained flat with a slight increase of 0.12% to SAR210.5m. The decline in volumes by 2.1% to 893,000t was offset by increase in realisation prices by 2.3% to SAR235.7/t. Meanwhile, the gross margins declined to 46.7% in 1Q11 compared to 50.4% in 1Q10 largely due to increase in costs despite the improvement in average realisation prices.

GIH have increased its sales revenue forecast by 2.9% to SAR827m for 2011 in light of an average improvement in sales prices in 4Q10. However, it expects volumes to remain restricted due to capacity constraints. GIH have also increased its 2011 estimates for cost of sales by 2.2%. Going forward, EPC, though the company faces capacity limitations, the lifting of the export ban will help support cement prices and thus profitability.