The Saudi Arabian pipe manufacturer Amiantit¿s decision to shut three Bahrain production plants is not all bad news for the company.
Shutdowns have silver lining for Amiantit
The Saudi Arabian pipe manufacturer Amiantit's decision to shut three Bahrain production plants is not all bad news for the company. On Saturday Amiantit, based in Dammam, announced its plans to stop providing energy services and making fibreglass, epoxy and ductile pipes in Bahrain, attributing the step to a slump in demand.
A negative market reaction led shares to initially drop 1.2 per cent on the Saudi Tadawul All-Share Index. However, the shares rebounded yesterday to close at 17.25 Saudi riyals. Since the middle of last month, the shares have fallen 10 per cent.
The closures are a step in the right direction for the company, said Raj Sinha, who covers the stock for HSBC Middle East.
"Not investing in areas that haven't got growth is a positive thing. Why would [the company continue to] incur losses?" he said.
Strong demand in the Gulf's oil and gas sector has helped to offset the rapid slowdown in the construction industry for pipe manufacturers.
Amiantit's third-quarter results fell 40 per cent to 42.4 million riyals against 72.4m riyals during the same period a year ago, when its earnings were damaged by write-offs and a temporary shutdown of a production plant in Saudi Arabia.
The company said the closure of its Bahrain units would not have a negative impact on its earnings forecast for this year.
"Yes, there may be a charge for [the Bahrain closures] in the fourth quarter but the fact is you're not pursuing an operation that has a low margin," said Mr Sinha.
He expects the Saudi plant to be back on line by the end of the year and does not expect write-offs in the next quarter's earnings because of the closures.
He said the close proximity of Saudi Arabia to Bahrain would help to plug the gap of production supply.
Amiantit is one of the world's biggest producers of pipes and pipe systems, with customers in the civil engineering, industrial, energy and agricultural markets.