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Saudi Ceramics Co.

Source: Al Rajhi Bank

Steady growth

Saudi Ceramics’ preliminary results for Q4 2010 show weaker sales and profits growth than we had expected. However, assuming new ceramic tile production capacity starts to contribute from Q1 2011, sales growth should accelerate. Inventory management also seems to be improving. We are reviewing our Overweight rating on Saudi Ceramic, but only because the share price has moved towards our target after solid performance.

Revenue performance: Saudi Ceramics’ preliminary Q4 results showed gross revenue of SAR279mn with an increase of 13% year-on-year. A quarter-on-quarter comparison does not really makes sense, since Q3 is seasonally weak due to Ramadan. Compared to Q2, revenues rose by only 0.3%. However, we suspect that – contrary to our expectation – the new ceramic tile production capacity was not utilised in Q4. While we cannot confirm this conclusion until full results are available, if we are correct then revenue growth ought to accelerate from Q1 2011 onwards.

Profit performance: We calculate that EBITDA rose by 8% from SAR74mn in Q4 2009 to SAR80mn in Q4 2010. This was well below our estimate of SAR98mn. Weaker EBITDA fed through to lower growth in operating profit and net profit than we had expected. Nevertheless, the 11% year-on-year growth in net profit in Q4 was respectable. If we are right to believe that the new ceramic tile production capacity was not utilised in Q4, then again this helps to explain the shortfall in profits.

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