      Net income: SAR8mn, -86% Y-o-Y, -45% Q-o-Q, -77% vs. EFGe
      Revenues: SAR157mn, -32% Y-o-Y, +29% Q-o-Q, -18% vs. EFGe
      Gross profit: SAR30.8mn, -57% Y-o-Y, -6% Q-o-Q, -44% vs. EFGe
      Net operating profit: SAR12.8mn, -77% Y-o-Y, -29% Q-o-Q, -60% vs. EFGe
 
Eastern Province Cement Company reported its 4Q17 headline results, with net profit of SAR8mn (-86% Y-o-Y, -45% Q-o-Q), missing our estimates by a wide margin (-77%), mainly due to: i) weaker-than-estimated cement prices; ii) lower revenue contribution from the ready-mix business; and iii) higher-than-normal operating costs reported during the quarter. 
 
The company reported revenues of SAR157mn (-32% Q-o-Q, +29% Q-o-Q), 18% below our estimates, despite cement sales volume coming in line with EFGe of 0.65mn tonnes (the best quarter in 2017; -4% Y-o-Y, +53% Q-o-Q). Cement prices, however, were weaker at SAR172/tonne (-21% Y-o-Y, -8% Q-o-Q) and came in 9% below our estimate. Moreover, the weaker-than-estimated revenue contribution from the ready-mix business – unavailable, but we estimate it to be at SAR45mn (-47% Y-o-Y, +7% Q-o-Q, -33% EFGe) – and higher operating costs during the quarter squeezed gross margins to 19.6% (-12pp Y-o-Y, -7pp Q-o-Q, -9pp EFGe) in 4Q17. 
 
The company’s Board of Directors (BoD) has proposed a cash dividend of SAR1.0/share for FY17 (vs. SAR1.5/share in FY16), which came in below our FY17 DPS estimates of SAR1.25/share. The proposed dividend implies an 80% dividend pay-out ratio (vs. 57% in 2016, in line with our 81% estimate) and a dividend yield of c4%. The ex-date and distribution date will be announced later.
 
Our view: A disappointing set of 4Q results but not a complete surprise, given the still-weak conditions in the market. Sales volume picked up quite strongly during the quarter, as expected, but cement prices were marginally softer. Note that 4Q17 cement prices for Eastern were well below its immediate competitor, Saudi Cement, which reported SAR225/tonne during 4Q17, giving us comfort that cement prices have bottomed and that the company is likely to realise higher prices going forward.
 
Looking ahead to 2018: Eastern Cement is one of our key picks from the Saudi Arabian cement sector because it is: i) an immediate beneficiary from the export fee exemption, as it can regain its Bahrain market share and potentially begin exporting to other neighbouring markets over the medium term; ii) strong balance sheet with net cash/investment making up 20% MCap (ex-Yemen investment worth SAR124mn); and iii) use of natural gas as feedstock, which we believe will be less vulnerable to fuel price hikes in 2019, as it is less subsidised than heavy fuel oil. Hence, we maintain our favourable medium- to long-term outlook on Eastern Cement, although we do not write-off some short-term hiccups in light of the still-fragile Saudi Arabian cement market.
 
Eastern Cement: SAR25.45 as of 21 Mar. 2018, Rating: Buy, TP: SAR31.00/share, MCap: USD584mn, EACCO AB/3080.SE
Sameer Kattiparambil, Dina Hicham