-       Net income: SAR17mn, -51% Y-o-Y, -42% Q-o-Q, -49% vs. EFGe
-       Revenue: SAR169mn, -27% Y-o-Y, +3% Q-o-Q, -6% vs. EFGe
-       Gross profit: SAR54mn, -25% Y-o-Y, +28% Q-o-Q, +5 vs. EFGe
-       Net operating profit: SAR41mn, -25% Y-o-Y, +62% Q-o-Q, +25% EFGe
 
Yamama Cement Company has reported its 4Q17 financial highlights, showing net profit of SAR17mn (-51% Y-o-Y,-42% Q-o-Q), and coming in 49% below our estimates. The company has attributed the earnings weakness to: i) provisions of SAR21mn that have been booked for their Yemeni Saudi Company; and ii) increase in Zakat provisions by SAR5.7mn. Barring the one-off provisions, the company could have booked clean earnings of cSAR40mn (tax adjusted), 21% above our earnings estimate. 
 
Revenue inched up 3% Q-o-Q to SAR169mn, mainly on the back of 11% Q-o-Q recovery in selling prices to SAR195 per tonne, which more than offset the 7% decline in sales volumes that touched 0.865mn tonnes (-28% Y-o-Y, vs. 1.0mn tonnes EFGe) during the quarter. The recovery in sales price translates to better-than-estimated gross margin of 32% (+360bps Q-o-Q, +350bps vs. EFGe) after a few quarters of decline.
 
Overall, a good set of operational figures. Even though sales volume were weaker than our estimate, we are not very surprised, as we were expecting some demand volatility before stabilisation by 2H18. However, selling prices started to rebound at a higher-than-expected rate, which supports our view that cement prices have bottomed out. However, we are still mindful of the competition scenario in the country and will remain conservative on cement prices over the short term. We remain Neutral on the stock, given that it trades an expensive 2018e P/E of 20x.

Yamama Cement: SAR17.04 as of 7 Feb. 2018, Rating: Neutral, TP: SAR16.00/share, MCap: USD920mn, YACCO AB/3020.SE

Sameer Kattiparambil

Dina Hicham