A number of leading Saudi cement producers have released their first-quarter 2011 results this week with three of the four companies under Global Investment House’s (GIH) coverage reporting better than expected results, reflecting improvements in cement demand outlook.
Saudi Cement Co said-first quarter profit rose 19 per cent as production efficiency increased with additional capacity. Net income climbed to SAR210.8m (US$56m) from SAR176.6m in the year-earlier period. These results exceeded GIH’s estimate by 11.4%, demonstrating a strong performance considering the producer’s cement dispatches stayed more or less flat at 1.81Mt on a YoY basis in 1Q11. Saudi Cement attributed the improvement in profitability to increased production efficiency of new lines (introduced in April 2009) in addition to decrease in depreciation expense. GIH notes that Saudi Cement’s outlook in the short-term will revolve around its ability to realise further efficiency savings from the new lines. In the longer-term, lifting of the export ban and further improvements in local demand will be the key growth factors for the company.
Qassim Cement Company net profit increase by 1.3% YoY and 30.5% QoQ to SAR147.2m exceeding Global Investment House’s (GIH) 1Q11 net profit estimate of SAR138.7m by 6.1%. Gross profit was up by 3.8% to SAR162.7m and operating profit increased 2.9% YoY to SAR151.7m. Qassim cited increase in average realisation price and improved operating performance of the subsidiary company as the reason behind the increase. GIH highlighted that cement companies located in Saudi Arabia’s Central region are apparently benefiting from higher realisation prices due to increased construction activity. The improvement in profitability has come despite the decline in Qassim’s cement dispatches by 7.8% to 724,000t.
Yamama Cement, meanwhile, saw its first-quarter net profit increase nine per cent YoY and 12 per cent QoQ to SAR180m. The company’s gross profit and operating profit were also up nine per cent each to SAR196m and SAR184m, respectively. GIH noted that these cement results exceeded its estimates by 7.3%, stating that it was a good performance considering the fact that Yamama’s cement dispatches have declined by 4.7% YoY to 957,000t in the Jan-Feb 2011 period. The company cited operational and marketing efficiency as the main reason behind increased profitability. As with Qassim Cement, Yamama’s location close to demand centres in the central region gives it the ability to charge premium prices which has helped to offset a decline in dispatches. In addition, Yamama Cement has the second lowest cost structure after Qassim cement compared to the Saudi cement companies under GIH coverage due to its integrated plant and captive power supply. The company seems to have further leveraged its cost advantage.
Yanbu Cement, on the other hand, saw its 1Q11 profit decline to SAR101m (US$27m), down 17.9 per cent YoY. Gross profit fell 13.3 per cent to SAR111m and operating profit decreased 14.8% YoY to SAR104m. GIH note that Yanbu’s performance continues to be held back by old, inefficient lines as cement dispatches declined by 2.2% YoY to 607,000t in Jan-Feb 2011 period. Yanbu cited a fall in sales and annual maintenance of Kiln No. 4 as the reason behind the decline. Furthermore, increased competition in the western region due to the cement export ban and increases in cement capacity have taken their toll on the company, GIH adds. However, the start-up of a new production line, expected to come on-stream in 2H11, could serve as a catalyst for an improved performance going forward.