Arabian Cement has just reported its 2Q18 highlights, showing a net loss of SAR51mn (vs net profit of SAR36mn 2Q17, a net loss of SAR6mn in 1Q18), consecutive quarterly losses, and came in significantly below our estimate of SAR25mn. Although full details are not still available, we assume the miss was driven primarily by lower-than-expected cement prices and sales volume at the company’s Saudi operations.
 
The company reported consolidated revenues of SAR108mn (-52% Y-o-Y, -46% Q-o-Q), missing our estimate by 36%, as cement sales volumes at its Saudi operations came in weaker at 0.53mn tonnes (-34% Y-o-Y, -49% Q-o-Q, -16% EFGe), while cement prices retracted further during the quarter to SAR111/tonne (-30% Y-o-Y, -10% Q-o-Q, -21% EFGe).
 
A very disappointing set of results from a company that is present in the high-demand Western region. Although we are not entirely surprised by the volume trend, as it includes the seasonality factors, the significance of the fall in cement prices is of a source of concern, not to mention the potentially negative risks to our estimates, given the weak set of results. Our current Buy rating on ACC was based on the premise that cement price would improve gradually from the current uneconomical levels and that the company’s presence in the high-demand Western region would benefit over the long run. However, we will be revisiting our estimates shortly, in view of the published set of results.

Arabian Cement Co. (Saudi): SAR24.00 as of 31 Jul. 2018, Rating: Buy, TP: SAR35.70/share, MCap: USD640mn, ARCCO AB/3010.SE

Sameer Kattiparambil
 
Dina Hicham