Yamama Cement sees June deliveries decline

Yamama Cement's June domestic deliveries reached 484,000t, a 5.5 per cent decline MoM and a 17.7 per cent YoY fall, according to NBK Capital. However, this figure was in line with NBK Capital's 1.5Mt estimate of the 2Q14 sales volume. Yamama Cement’s primary area of activity in Riyadh is still experiencing a slowdown in construction activity, on the back of the labour correction campaigns that were introduced by the Saudi government.

The research house expects to start seeing  improvement for the market as a whole following the recent slow stabilisation (even though June can be considered a seasonally slow month). Construction activity is predicted to pick up once the players fully adhere to the new labour rules and the commencement of  projects like the Riyadh Metro (which should start coming into play by 2H14) is forecast to lead to an increase in activity in the central region.

The Saudi cement market as a whole saw cement sales reach 4.84Mt in June, down 5.2 per cent MoM and down 3.8 per cent YoY. This is compared to 5.09Mt April (-2.6 per cent YoY), 5.17Mt in March (-5.2 per cent YoY), 4.55Mt in February (-6 per cent YoY), and 4.62Mt in January (-12.5 per cent YoY). The MoM decline is mostly due seasonality, as June tends be the weakest month in 2Q due to rising summer temperatures, according to the report.

Clinker imports fell to zero in June from 47,000t in May and 170,000t in April. This compares to 498,000t in March, 560,000t, in February and 833,000t in January. Therefore, the 10Mt import target announced earlier by the government has been reached and NBK Capital does not expect to see any further imports going forward.

There was a slight decline in clinker inventories in June from 16.01Mt to 15.8Mt (as against 15.77Mt in April, 15.68Mt in March, 15Mt in February and 14.8Mt in January). Nevertheless, Yamama Cement’s inventories increased during the period from 1.7Mt to 1.78Mt (+4.7 per cent MoM).

Furthermore, Yamama Cement’s preliminary 2Q14 results were broadly in line with estimates at the operating level. Net profit at SAR207m (US$55m), was down 22.8 per cent YoY but up 18.3 per cent QoQ. Gross profit (post depreciation) of SAR199m, was down 26 per cent YoY but up 9.9 per cent QoQ. Assuming quarterly depreciation was in line with previous quarters (SAR47m), this would result in a pre-depreciation gross profit of SAR246m, 2.3 per cent below estimates of SAR251.7m (no consensus available). Operating profit amounted to SAR183m and implies an EBITDA of SAR230m (using previous quarters’ depreciation), also missing the research firm’s forecast of SAR238m and Bloomberg consensus estimate of SAR234.5m by 3.4 per cent and 1.9 per cent, respectively.

The company’s board of directors has recommended a dividend payment of SAR0.50/share for 1H14, which is slightly below NBK Capital’s expectation of SAR1.62/share.