U Capital – Saudi Cement (SACCO) – 4Q23 Result Review

Issue Date: 11 March 2024

Revenue decreased by 11% YoY, however, came ahead of Bloomberg consensus and U-capital expectations                                                                                                                                                

Saudi Cement reported a revenue of SAR 380.9mn for 4Q23, which was ahead of Bloomberg consensus of SAR 376mn and U-Capital expectations of SAR 320mn. Revenue decreased by 11% YoY but grew 21% QoQ basis. For FY23, revenue came in at SAR 1,461.8mn, registering a YoY growth of 3% driven by rise in both, sales and volume.                                                                                     

                                                                                                                                                                            

Net profit decreased by 33% YoY, missing Bloomberg consensus while it came ahead of U-Capital expectations                                                                                                                                          

For 4Q23, net profit decreased by 33% YoY while it jumped 52% QoQ to SAR 103.8mn compared to our expectations of SAR 68.5mn. For FY23, net profit declined by 4% YoY to SAR 381.0mn, mainly attributed to the increase in selling and distribution expenses, general and administrative expenses, decrease in the share of profit in an associate and increase in zakat expense which offset the increase in other revenues, and gain on sale of investment related to subsidiary.                                                                                                                                             

                                                                                                                                                              

Maintain Accumulate rating                                                                                                                                                                              

For the larger part of CY23, cement companies faced challenges in cement realization. The average realization took a hit due to diminished demand, heightened inventory, and intensified market competition. Likewise, for Saudi Cement, there has been sequential decline in revenue and profitability for the first three quarters of FY23. However, the trend has reversed in 4Q23, and going ahead we expect the recovery in the KSA construction sector to benefit the cement companies in the region. We note the strong set of results reported for 4Q23, ahead of our estimates, and believe that there should be further upside from current trading level. Consequently, we are maintaining the Accumulate rating.                                                                                                                          

                                                                                                                                                                                           

Valuation                                                                                                                                                                                     

Saudi Cement is trading at 2024e P/E of 18.2x, representing a 9% discount compared to the historical average P/E of 20.0x. Additionally, EV/EBITDA multiple of 11.9x, based on our FY24 estimate, represents a 11% discount compared to the historical average EV/EBITDA of 13.3x.