Arabian Cement Company (ACC) reported its 4Q18 headline results, showing a sequential improvement in earnings to SAR16mn (-83% Y-o-Y, +14% Q-o-Q) and ahead of our estimates of SAR10mn. The earnings beat was driven by one-off revenue of SAR14mn reported during the quarter, which more than offset a weaker operational figure (higher cost structure). Barring the one-off, the company would have reported net income of SAR2mn, which is below our net income estimate of SAR10mn.
 
ACC reported revenue of SAR175mn (-29% Y-o-Y, +49% Q-o-Q) and 8% ahead of our estimates. Although the revenue breakdown is not available yet, our initial estimates suggest that the revenue beat was mainly driven by the: i) higher-than-expected cement sales volumes at the company’s Saudi operation; and ii) improvement in Jordan’s cement prices.
 
Saudi sales volume slightly higher; cement price in line: Cement sales volumes at ACC’s Saudi operation has touched 0.73mn tonnes (-17% Y-o-Y, +55% Q-o-Q, +4% vs. EFGe), whereas cement prices came in line with our estimate at SAR142/tonne (-24% Y-o-Y, +11% Q-o-Q, +1% vs. EFGe).
 
Cement prices in Jordan improve; sales volume in line: ACC reported higher-than-expected revenue from Jordan at SAR70mn (-17% Y-o-Y, +21% Q-o-Q, +8% vs. EFGe), which we believe was supported by higher cement prices in the country: SAR350/tonne (flat Y-o-Y, +17% Q-o-Q, +8% vs EFGe). However, cement sales came in line with our estimate of 0.2mn tonnes.
 
The company’s Board of Directors (BoD) has proposed a cash dividend of SAR1/share for FY18 (vs. SAR4/share in FY17 and vs. our estimate of no dividend distribution for FY18), implying a dividend yield of c4%. The ex-dividend date and the distribution date will be announced later.
 
Our view: Despite the improvement in cement prices Q-o-Q, ACC’s operational numbers are still not compelling, due to an inflated cost structure, which could partly be due to the higher production cost in Jordan. Moreover, the improvement in cement prices was well below KSA’s Central region (avg. cement prices of SAR158), which could be due to comparatively high competition in the Western region. Having said that, the better scenario in Jordan post government intervention to keep the cement prices healthy, along with improvement in local and export sales volumes, would help the company to improve its margins in the coming quarters. We currently have a Buy rating on ACC due to comparably better valuation (2020e EV/EBITDA of 7.7x vs. sector average of 11x). We will revisit our estimates once the full financials are released.‎

Sameer Kattiparambil, Dina Hicham

  
Arabian Cement Co. (Saudi): SAR24.22 as of 28 Feb. 2019, Rating: Buy, TP: SAR28.70/share, MCap: USD646mn, ARCCO AB/3010.SE