Company disappoints with revenues and on dividend payouts
Export ban unsettles cement firm's earnings
Southern Province Cement, the largest Saudi cement company by market value, announced worse earnings than expected for the second quarter and disappointing dividends over the weekend. Southern reported a 13 per cent decline in profits on Saturday, falling behind NCB Capital's forecast. The dividend of 2 riyals a share for the first half of the year also came in 20 per cent lower than analysts expected.
Launched in 1978, the cement company boasts a market value of 2.5bn riyals and is listed on the Tadawul exchange. Major shareholders of Southern include some of the kingdom's government bodies such as the Public Pension Agency, the Public Investment Fund and the General Organisation for Social Insurance. Southern shares closed down 1.8 per cent yesterday at 67.75 riyals. Farouk Miah, an NCB Capital analyst, maintains an "underweight" rating with a price target of 60 riyals.
Profits for the second quarter came in at 185m riyals, 8 per cent below Mr Miah's estimate and 2 per cent below profits for the first quarter of this year. Southern attributed the disappointing numbers to lower sales volumes after a ban of exports dating from June 2008. The ban was instituted as a result of higher cement prices caused by a lack of supply in the domestic market amid increased infrastructure construction. Despite that local shortfall, cement companies had been exporting their products to reap larger profits abroad.
The company also cited increased competition and better domestic supply putting pressure on cement prices. Mr Miah said the company was hit by increased competition from Najran Cement, where sales volume in the second quarter increased by 97 per cent year on year. Southern is looking to open a new production line by mid-2012 near Mecca. The company planned to expand one of its three factories but decided to put the project off last year until market conditions improved.