Net loss – -SAR46mn, N/M Y-o-Y, N/M Q-o-Q, N/M vs. EFGe Gross profit – SAR55mn, -56% Y-o-Y, -50% Q-o-Q, -35% vs. EFGe Net operating loss – -SAR9mn, N/M Y-o-Y, N/M Q-o-Q, N/M vs. EFGe   Saudi Ceramics (SCC) reported its preliminary 2Q16 results, showing a loss of SAR46mn for the first time ever vs. net profit of SAR63mn in 3Q15, SAR28mn in 2Q16 and our estimate of SAR24mn in 3Q16. The company cited that the loss was driven mainly by i) decline in sales volumes on weak demand that led the company to lower its selling prices to defend its market share, leading to shrinking margins; ii) increase in SG&A expenses; iii) provision amounting to SAR25mn against impairment in its investment in Ceramic Pipes Company; and iv) increase in financing and zakat costs. If we exclude the SAR25mn provisions for impairment, the loss in 3Q16 would be SAR21mn. Revenue fell 34% Y-o-Y (-20% vs. our estimate) on volume, and pricing and COGS were up on higher energy cost, leading to 56% Y-o-Y drop in gross profit (-35% vs. estimate), and margin contracted 12pp Y-o-Y (-6pp vs. EFGe). 10% increase in SG&A expenses led to an operational loss of SAR9mn.   The results came as a negative surprise and affirm that the challenges facing the company are more severe than expectations; we were expecting a significant drop in earnings to be driven by lower demand on construction slowdown and hike in energy cost. (Earnings release, Tarek El-Shawarby)   Saudi Ceramics: SAR23.06 as of 19 October 2016, Rating: Buy, FV: SAR48.00 per share, MCap: USD307mn, SCERCO AB / 2040.SE