Net loss of SAR2mn vs. net profit of SAR19mn in 3Q17, SAR10mn in 2Q18, and EFGe net profit of SAR9mn
Revenue: SAR65mn, -38% Y-o-Y, -7% Q-o-Q, -15% vs. EFGe
Gross profit: SAR5.3mn, -81% Y-o-Y, -73% Q-o-Q, -62% vs. EFGe
 
City Cement Company reported its 3Q18 financial highlights, showing a net loss of SAR2mn, vs. a net profit of SAR19mn in 3Q17 and SAR10mn in 2Q18, and missing our earnings estimate of SAR9mn. The miss was mainly driven by weaker-than-expected revenue, which came in at SAR65mn (-38% Y-o-Y, -7% Q-o-Q), 15% below our estimate as cement prices continued their downtrend and touched SAR122/tonne (-20% Y-o-Y, -7% Q-o-Q, and -16% vs. EFGe). However, sales volumes were stable Q-o-Q and came in almost exactly in line with our estimate, at 0.53mn tonnes (-23% Y-o-Y, flat Q-o-Q, +1% vs. EFGe).
 
The cost structure also partly weighed on earnings, with the cash cost per tonne coming in slightly ahead at SAR74/tonne (+6% Y-o-Y, +31% Q-o-Q, -8% vs. EFGe), affecting its EBITDA margin, which contracted to 29% vs. 48% in 3Q17, 46.5% in 2Q18, and EFGe of c39%. 
 
Our view: A weak set of numbers, with City posting a loss for the first time in recent years. Weakness in cement price is in-line with the sector trend we have seen so far during the quarter, and it re-emphasises the severity of competition in the market. We believe that the market will continue to witness price pressure in the short term, until a\the implementation of new projects kick starts a sector recovery.
 
We currently have a Buy rating on City Cement, due to its strong balance sheet, location in a high-demand region and its decent valuation, but we will revisit our numbers once the full financials are released.

Sameer Kattiparambil, Dina Hicham
 
City Cement: SAR9.06 as of 31 Oct. 2018, Rating: Buy, TP: SAR13.20/share, MCap: USD457mn, CITYC AB/3003.SE