Net income: SAR9mn, -35% Y-o-Y, -52% Q-o-Q, -58% vs. EFGe
Revenues: SAR122mn, flat Y-o-Y, -20% Q-o-Q, -7% vs. EFGe
Gross profit: SAR21mn, -36% Y-o-Y, -44% Q-o-Q, -40% vs. EFGe
Net operating profit: SAR7mn, -61% Y-o-Y, -66% Q-o-Q, -63% vs. EFGe
 
Eastern Province Cement (EPCC) reported its 3Q18 financial highlights, with net profit of SAR9mn (-35% Y-o-Y, -52% Q-o-Q), missing our estimate by 58%. The miss was attributable to: i) lower-than-estimated cement sales volume; ii) lower revenue from ready-mix business; and iii) elevated COGS (+13% Y-o-Y, -11% Q-o-Q,+5% vs. EFGe).
 
The company reported revenue of SAR122mn (flat Y-o-Y, -20% Q-o-Q), 7% below our estimate, mainly on the back of weaker-than-expected cement sales volumes, which came in at 0.46mn tonnes (+7% Y-o-Y, -12% Q-o-Q, -5% vs. EFGe), and due to lower-than-expected ready-mix revenue, which came in at SAR37mn (-13% Y-o-Y,-28% Q-o-Q, -14% vs. EFGe). However, cement prices were relatively stable and came in line with our estimate, at SAR187/tonne (-1% Y-o-Y,-3% Q-o-Q, +1 vs. EFGe). The elevated cost resulted in a decline in EBITDA margin to 28% (-7pp Y-o-Y, -4pp Q-o-Q, -3pp vs. EFGe). 
 
Our view: A disappointing set of results, as the company was not able to increase its sales volumes post the low demand season, reflecting current pressure from competition in the market. Despite market weakness, EPCC was able to broadly maintain cement prices during the quarter, which we believe was due to less severity in competition in the eastern region, compared to the rest of the country, and we assume the company will be targeting margins rather than just sales volumes, which sounds plausible. 
 
We currently have a Buy rating on EPCC, as : i) its valuation remains compelling (2019e EV/EBITDA of 6.6x, EV/ton USD82; dividend yield 6.3%); ii) carries a strong, cash-rich balance sheet (cash/investment making up 30% of Mcap - ex-Yemen investment, which is worth SAR124mn), which will be helpful, considering current market volatility; and iii) it will be a beneficiary of export markets as it has access to a number of major markets in the Middle East. However, we are not dismissing the possibility of any further short-term hiccups, in view of the still-fragile Saudi Arabian cement market.

Sameer Kattiparambil, Dina Hicham
 
Eastern Cement: SAR17.28 as of 31 Oct. 2018, Rating: Buy, TP: SAR29.90/share, MCap: USD396mn, EACCO AB/3080.SE