Qassim Cement (QCC) recently announced its preliminary Q2 2011 results, which were in-line with analysts expectations but showed relatively weak Q2 2011 numbers, Saudi bank NCB Capital (NCBC) stated.
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All numbers came in three to five per cent below NCBC's estimates with net income up 6.6 per cent YoY to US$39mn. Although the YoY gain is better than the declines seen in 2010, it is significantly below the 15 per cent increase that NCBC expected for the covered stocks as a whole in Q2 2011.
Gross profit
Q2 2011 came in at US$41mn, increasing 3.6 per cent YoY but 4.4 per cent below the NCBC estimate for Q2 2011 of US$43mn. Q2 2011 was a decrease of 1.2 per cent QoQ.
Operating profit
Q2 2011 came in at US$39mn, increasing 3.2 per cent YoY but 4.7 per cent below the NCBC estimate for Q2 2011 of US$41mn. Q2 2011 was a decrease of 1.3 per cent QoQ.
Net profit
Q2 2011 came in at US$39mn, increasing 6.6 per cent YoY but 3.4 per cent below the NCBC estimate for Q2 2011 of US$40mn. Q2 2011 was a decrease of 0.4 per cent QoQ.
EPS
Q2 2011 came in at US$0.42, increasing 6.6 per cent YoY but 3.4 per cent below the NCBC estimate for Q2 2011 of US$0.44. Q2 2011 was a decrease of 0.4 per cent QoQ.
In summary, Qassim Cement reported three to six per cent YoY growth in all profit lines in Q2 2011. However, all profit lines came in three to five per cent below NCBC estimates. The key issue with Qassim Cement remains its limited stock levels and its already high utilization rates, both limiting its ability to meet any increase in demand.
The company attributed the YoY rise in profitability to 1) higher sales volumes and 2) improved operating performance of its subsidiary companies. NCBC's report argues that QCC might have also benefited from increased prices seen in Q2 2011.
Although the YoY growth in Q2 2011 is better than the YoY declines seen in Q1 2010, NCBC states that the 6.6 per cent growth will come in significantly below the 15 per cent YoY growth it expected for the six cement stocks under coverage. NCBC argues that the key reason for this is QCC's limited ability to increase production.
QCC has been reported in the local press as investigating the possibility of opening a new line of production. Any such increase in capacity could be seen as a potential positive catalyst to the stock.
