SIGMIX: Analysis of Hail Cement Company (3001) Stock Performance

Hail Cement Company was established as a Saudi joint-stock company listed on the Saudi financial market (Tadawul), specializing in the production and marketing of cement and related products. The company is headquartered in the Hail region and primarily aims to meet the needs of northwestern Saudi Arabia. Hail Cement is characterized by its relatively limited geographic reach compared to some larger competitors, allowing it to focus on service quality within its regional scope. Since its listing on the main market under ticker 3001, the company has provided investors with transparency in financial and operational data, contributing to the support of the construction sector linked to national infrastructure projects. Hail Cement has gradually developed its production capabilities while maintaining conservative financial policies and regular dividend distributions to shareholders. Thus, Hail Cement's stock is well-known among investors seeking relative stability in a vital industrial sector.

Hail Cement Company experienced notable fluctuations in its financial results during 2023 and 2024. In 2023, the company recorded an annual net profit of 24.6 million SAR, with quarterly profits ranging from 3.2 million SAR in the fourth quarter to 6 million SAR in the second quarter. In the first quarter of 2024, net profit declined to 15 million SAR, representing a 19% decrease compared to the same period in 2023. This profit volatility reflects the impact of intense competition and changes in demand within the cement sector. It is worth noting that the company faced losses in some quarters, particularly in the second half of 2023, prompting a review of its operational and distribution policies. Overall, Hail Cement's performance has been linked to macroeconomic trends, as Saudi cement companies continued to achieve aggregate profits exceeding 2 billion SAR in the first nine months of 2024, despite pricing pressures and changes in demand volume.

As of the last trading day before the stock suspension in June 2024, the price of Hail Cement stock was approximately 11.60 SAR. Based on this price and the number of issued shares (approximately 98 million shares), the company's market capitalization was about 1.136 billion SAR. This figure reflects the company's relative size in the Saudi cement sector, placing it among medium-sized companies in terms of market capitalization. It is important to note that the stock's movement during 2023 and early 2024 was influenced by financial results announcements, distribution policies, and acquisition news. It is crucial to understand that the stock is no longer available for trading following the merger decision with Qassim Cement and the suspension of its listing, and its market data has become linked to the transformation and the rights of new shareholders within the unified entity.

The price-to-earnings (P/E) ratio of Hail Cement stock was relatively high before trading was suspended. If we take the net profit for 2023 (24.6 million SAR) and the last stock price (11.60 SAR), we find that the P/E ratio is approximately 47. This figure is considered high for the cement sector and indicates that investors were expecting an improvement in future profits or reflecting the company's weak profitability in recent periods. It is essential to note that the P/E ratio loses some of its significance after trading has ceased, as the focus shifts to the valuation of the deal and the value of the new shares in the acquiring company. Additionally, the high ratio may result from declining annual profits and not necessarily indicate a high market valuation.

Hail Cement Company has adopted a moderate and balanced dividend distribution policy throughout its years of listing. In the fourth quarter of 2023, the company announced a cash distribution of 3.5% of the nominal value of the share (0.35 SAR per share with a nominal value of 10 SAR). These distributions were part of the company's efforts to maintain shareholder satisfaction and stimulate confidence in the stock, despite operational challenges. It is noteworthy that distribution ratios varied between quarters and years depending on the size of the profits achieved. The company has also followed a cautious policy of retaining a portion of the profits to support its financial position in facing market fluctuations. For current shareholders, their rights were converted into shares in Qassim Cement Company after the completion of the acquisition deal.

Hail Cement's stock belongs to the cement and building materials sector, a strategic sector closely linked to housing projects, infrastructure, and macroeconomic trends in the Kingdom. In 2024, the Saudi cement sector recorded aggregate profits nearing 2 billion SAR in the first nine months, indicating strong demand, especially with the ongoing implementation of Vision 2030 projects. However, the sector faces challenges related to increased supply, competition among companies for government and private contracts, as well as fluctuations in raw material prices and production costs. Hail Cement is among the companies with a relatively limited market share, making it more susceptible to price and demand fluctuations. The company's listing on Tadawul enhanced transparency but did not prevent it from facing the sectoral challenges that all cement companies in the Kingdom encounter.

Hail Cement competes with several major cement companies in the Kingdom of Saudi Arabia, including Qassim Cement Company (which acquired it in 2024), Riyadh Cement, Southern Region Cement, Eastern Region Cement, Najran Cement, Yanbu Cement, and Yamama Cement. Each of these companies has a market share in a specific geographical area, but competition remains based on prices, product quality, and the ability to respond to government and private infrastructure projects. Recently, the sector has witnessed an increase in mergers and acquisitions aimed at enhancing efficiency and expanding market shares, as reflected in Qassim's acquisition of Hail Cement. Intense competition compels companies to improve operational processes and reduce costs to maintain acceptable profitability levels.

In June 2024, the Board of Directors of Hail Cement announced its approval of an acquisition deal by Qassim Cement Company. Under this deal, trading of Hail Cement stock was suspended in the Saudi financial market, and the delisting process began, converting shareholder rights into shares in the acquiring company. The agreement stipulated that Qassim Cement would issue new shares (approximately 20.56 million shares) to Hail Cement shareholders according to a specified ratio. The final approval of the deal was granted by the extraordinary general assembly on June 10, 2024, and Hail Cement became part of the unified Qassim Cement entity. This merger represents an important step in restructuring the sector and enhancing competitiveness, with expectations of improved operational efficiency and competitiveness for the new group.

The suspension of trading on Hail Cement stock on June 11, 2024, was a preliminary step to complete the acquisition deal and delisting. This action means that the stock is no longer available for buying or selling in the Saudi financial market, and its ownership has fully transferred to Qassim Cement Company. For shareholders of Hail Cement, their rights were converted into shares in the new company according to the specified ratio in the acquisition deal. It is important for shareholders to follow the announcements from the acquiring company to understand the details of the conversion process and the timing of receiving the new shares. Such transactions are common in the financial market and are often accompanied by a re-evaluation of investors' rights based on the performance of the unified entity in the future.

After the completion of the acquisition deal and the delisting of Hail Cement stock, it is no longer possible to invest in the stock independently. Hail Cement shareholders have become part of the ownership structure of Qassim Cement Company, and the future of their investments depends on the performance of the unified company. The merger is expected to lead to improved operational efficiency and an expanded market share for the new entity, especially by leveraging operational integration and resource distribution. However, the results of the merger remain contingent upon management's ability to implement coordination strategies, reduce costs, and maximize the benefits of shared resources. Investors are advised to follow Qassim Cement's new reports and monitor the overall sector performance to anticipate future investment prospects.

The Saudi cement sector experienced relatively positive results in 2024, with aggregate profits for listed companies amounting to approximately 2 billion SAR in the first nine months. Sector profits rose to about 648 million SAR in the third quarter, despite expectations of an 11% decline compared to the second quarter. Hail Cement contributed partially to these results until the trading suspension, after which its business results were included in Qassim Cement's reports following the acquisition. The sector's performance reflects resilience in facing challenges, but it also indicates ongoing competitive pressures and the need to control expenses and improve operational efficiency in smaller companies.

Saudi cement companies, including Hail Cement previously, benefit from the significant momentum provided by Vision 2030 projects, particularly in infrastructure, housing, and large industrial projects. The Saudi government supports the implementation of massive projects such as NEOM, Qiddiya, and the Red Sea, which reflects increased demand for essential building materials, primarily cement. However, the large supply volume and competition among companies exert pressure on prices and profit margins. Demand for cement is expected to remain strong in the medium term, with the possibility of seasonal cycles or quiet periods linked to the timing of government and private project implementations.

After the completion of the acquisition deal, there are no longer independent data or financial reports issued under Hail Cement's name; instead, all its results and news are integrated into Qassim Cement's reports. Investors should follow Qassim Cement's disclosures through the Tadawul website, in addition to the quarterly and annual reports that detail the financial performance and operational activities of the unified entity. Sector analyses published by specialized platforms such as Argaam or local and international economic press can also be followed. This helps investors understand the impact of the merger on their investments and monitor future developments in the sector.