Oman Cement Company recorded net income of OMR4.2m in 1Q11 as compared to OMR7.1m in the previous year. Decline in net income was resulted because of drop in the selling price & sales volume. Strong competition from neighboring UAE is hitting the companies quite adversely. Furthermore, the net income was lower because of losses reported on investment in held for trading securities (reports Global Investment House, Kuwait).
The company reported 0.8% and 1.6% drop in production and sales volume in 1Q11. Cement production reached 0.49Mt in 1Q11 while sales volume dropped to 0.49mn during the period. Drop in the sales volume was because of inflow of cheap cement from UAE. Demand in UAE is almost half of the supply which is affecting their local companies quite negatively and to move some of their extra production, some suppliers are dumping their low priced cement in the neighboring countries.
Oman Cement’s second expansion project to install a new production line of a rated capacity of 4000tpd clinker is in progress and the project is expected to come online by the end of 2Q11 as against earlier expectation of 1Q11. Because of a quarter delay in the commissioning, Oman Cement has had to resort to import of 0.21Mt of clinker at a price of OMR3.48m (OMR16.2/t). Analysts believe, for the full year company would import at least 0.4Mt of clinker which will continue to keep the margins below the levels previously reported by the company.
At present local selling prices have been marked down to OMR26.2/tonne compared to OMR31.3/tonne one year earlier. Global house analysts have downgraded its fair value by 11.9% to OMR0.600/share as compared to OMR0.681 earlier. Drop in the fair value is because of incorporation of lower than expected 1Q11 results, delay in commissioning of the new clinker line and drop in realization prices post dumping of cheap cement by UAE. The stock at its current price of OMR0.577 is trading at a discount of 3.9% to Global’s fair value.