Mubasher: NCB Capital issued a ‘Neutral’ recommendation on the Saudi Yamama Cement with a price target of SAR 30.5 a share and a price-earnings ratio of 10.2x after recording the lowest second quarter earnings.
In the second quarter of 2016, the company’s net income declined 39.3% year-over-year to SAR 116 million from SAR 191.5 million.
“This is the lowest Q2 earnings on record”, said the research agency, attributing this steep decline to “lower than expected sales volumes which came 5.5% below our estimates and extensively high price discounts offered due to the overall muted sector outlook”.
The company’s total sales stood at 1.38 million tonnes in the second quarter, registering a 9.0% decrease annually, which came in line with the industry that fell by 9.4% year-over-year in the same quarter and 5.5% lower than NCB Capital estimates.
“We believe these declines are a result of the overall weak demand and also due to the Ramadan effect, with 25 days of Ramadan being in 2Q16 vs. 13 days in 2Q15”, according to the research note.
On the scale of selling price, the research firm calculated that the agreed exchange value may have been as low as SAR 196 per tonne compared to SAR 227/tonne in the first quarter of 2016.
On record, this is also the lowest selling price for the company, driven by “the muted sector outlook and smaller companies in remote regions offering discounts to sell in high demand areas”.
Along with lower selling prices, costs increased due to the revision in fuel prices that negatively impacted the earnings.
As a result, the cost per tonne is expected to increase from SR100/tonne in Q2-15 to SR114/tonne in Q2-16”, the firm concluded.
