Net loss of SAR39mn vs. net loss of SAR39mn in 3Q17, SAR47mn in 2Q18, and EFGe of SAR35mn 
Gross profit: SAR86mn, +13% Y-o-Y, +8% Q-o-Q, +20% vs. EFGe
Revenue: SAR250mn, +12% Y-o-Y, +3% Q-o-Q, +5% vs. EFGe
 
Saudi Ceramics Company (SCC) has just released its 3Q18 financial highlights, showing some improvements operationally, but its bottom-line continues to be in red territory. SCC reported 3Q18 net loss of SAR39mn vs. a net loss of SAR39mn in 3Q17, SAR47mn in 2Q18, broadly in line with our net loss estimate of SAR36mn. However, the company was able to report better-than-expected operational metrics, with revenue improving to SAR250mn (+12% Y-o-Y, +3% Q-o-Q, +5% vs. EFGe), while it managed to keep its cost flat Q-o-Q at SAR164mn (+11% Y-o-Y, +1% Q-o-Q,-2% vs. EFGe), resulting in a stable gross margin of 34% (+0.5pp Y-o-Y, +1.5pp Q-o-Q, and +4.3pp vs. EFGe and EBITDA margin at 10% (flat Y-o-Y,+4pp Q-o-Q, +3pp vs. EFGe).
 
Our view: Although the company continues to report a weak bottom line, we like the improved operational metrics, given the challenging market.  We still believe the operational environment will remain volatile in the short term as cheap imports continue to flood the market, and the construction recovery phase is yet to start, which we expect towards late 2019. However, recent news about the investigation related to dumping from India, China and Spain and the potential anti-dumping duties, if it materialises, will boost the company's sales volumes and tile prices over the medium term. We have a Buy rating on SCC, as we believe its assets are cheaply valued, despite being a market leader, and it will have a strong case once demand recovers.‎ 
 
Saudi Ceramics: SAR20.90 as of 5 Nov. 2018, Rating: Buy, TP: SAR24.30/share, MCap: USD334mn, SCERCO AB/2040.SE
Sameer Kattiparambil, Dina Hicham