Al Jouf Cement Company reported its 2Q18 preliminary results, swinging to a loss as prices and volumes hit bottom. The company reported its historically weakest quarterly result: net loss of SAR13mn (Vs net profit of SAR11mn in 2Q17, SAR4mn in 1Q18), which missed our net profit estimate of SAR5mn. 
 
The earnings miss was primarily due to weak cement prices, which significantly declined to SAR103/tonne (-47% Y-o-Y, -30% Q-o-Q), and came in 38% below our estimate. Moreover, cement sales volumes also slumped to 0.27mn tonnes (-18% Y-o-Y, -22% Q-o-Q), and 15% below our estimate. This led revenue to decline to SAR27.2mn (-56% Y-o-Y, -45% Q-o-Q, -47% EFGe).
 
Our view: Very disappointing results. Although we expected to see weak cement volumes Q-o-Q, we also expected some stability in cement prices as we assumed an improved demand outlook in the Northern region (with the help of NEOM) and Jouf’s export initiative to be supportive. But the significant drop in cement prices shows the intense competition and price wars there. We continue to believe the market will witness more volatility in the low-season summer months; hence, we reiterate our Sell rating on Al Jouf, given that the company is already trading at an expensive 2019e P/E of 25x and EV/EBITDA of 15x. 
 
Al Jouf Cement: SAR9.40 as of 8 Aug. 2018, Rating: Sell, TP: SAR7.77/share, MCap: USD358mn, JOUF AB/3091.SE
Sameer Kattiparambil, Dina Hicham