Al-Ahsa Stock: Comprehensive Analysis and Developments in Saudi Market

Al-Ahsa stock belongs to Hail Cement Company, one of the leading companies in the cement sector in the Saudi financial market (Tadawul) under the symbol 3001. The company was established to meet demand in the Hail and Al-Ahsa regions and is distinguished by its production facilities spread across these vital areas. Many followers associate the name 'Al-Ahsa stock' with the company due to its factories in the Al-Ahsa region in the Eastern Province, alongside its headquarters in Hail in the north of the Kingdom. The company's operations began in the second decade of the third millennium, coinciding with the construction boom witnessed by the Kingdom as part of national development plans. The company focuses on producing ordinary cement and ready-mix concrete, distributing its products through a network of local distributors. Due to its medium size, Hail Cement has played a complementary role in meeting the needs of areas close to its facilities, and although it is not one of the largest companies in the sector, it has contributed to enhancing the competitiveness of the Saudi market in the building materials field.

The financial performance of Hail Cement Company has been affected by several factors during 2023 and 2024, with noticeable changes in revenues and profits. In 2023, the company recorded a net annual profit of SAR 24.6 million, an increase of 50% compared to 2022, where the net profit was SAR 16.4 million. The earnings per share rose to SAR 0.25 compared to SAR 0.17 in the previous year. At the beginning of 2024, the first-quarter results showed a 19.3% decline in revenues, reaching SAR 61.85 million, compared to SAR 73.78 million in the first quarter of 2023. The gross profit also decreased by 11% to SAR 22.59 million, while operating profit and net profit fell by 18.5% and 19%, respectively. This decline is primarily attributed to rising sales costs and increased operational and zakat expenses. These indicators suggest that the company faced significant challenges in terms of sales and profitability at the beginning of 2024, affected by market conditions and a slowdown in local construction projects.

Hail Cement has paid attention to dividends within the limits of its profitability. In February 2024, the general assembly approved a cash dividend of 3.5% on the profits of 2023, equivalent to SAR 0.35 per share. This percentage is modest compared to some of its peers in the sector, attributed to the company's desire to enhance operational liquidity and address financial challenges. The company did not record dividends for the previous quarters of 2024 until the suspension of its stock trading. Additionally, the absence of dividends for 2022 reflects the management's caution amid profit fluctuations. This policy indicates that the company balances between rewarding shareholders and the necessity of retaining liquidity to support operations, especially during downturns.

Al-Ahsa stock (Hail Cement) falls within the cement sector, which is witnessing strong competition among major local companies such as Qassim Cement, Madinah Cement, Eastern Cement, and Yanbu Cement. The demand for cement largely depends on the volume of government and private construction and housing projects. In recent years, the sector has experienced a slowdown in local growth, prompting companies to seek external export opportunities and improve production efficiency. Major companies have greater production capacity, giving them more flexibility in pricing and cost reduction. In contrast, medium-sized companies like Hail Cement often face challenges in maintaining profit margins, leading them to pursue mergers, as seen in the recent acquisition by Qassim Cement. Nevertheless, the sector remains promising in the medium term with Vision 2030 projects requiring substantial amounts of cement.

In June 2024, it was announced that Qassim Cement Company acquired all shares of Hail Cement, leading to the suspension of the latter's stock trading in preparation for its delisting from the market. This merger followed the approval of the extraordinary general assembly of Hail Cement, aimed at merging production capabilities and expanding market share. This acquisition is expected to achieve economies of scale, reduce administrative costs, and enhance negotiating power with suppliers and customers. It will also allow the new entity to benefit from a broader distribution network and greater operational expertise. For Hail Cement shareholders, this merger means the transfer of their ownership to the larger entity, with the potential to benefit from Qassim Cement's operational efficiency and future expansion plans.

The financial indicators for Hail Cement present a clear picture of the company's challenges and opportunities. The earnings per share was SAR 0.25 in 2023, while it declined to SAR 0.15 in the first quarter of 2024 according to quarterly data. The price-to-earnings (P/E) ratio was relatively high due to declining profits compared to the market price, reflecting the stock's sensitivity to financial performance fluctuations. The market capitalization was calculated based on the number of issued shares (approximately 97.9 million shares) and the stock price before suspension. Dividends in 2023 amounted to 3.5% of the nominal value, which is a limited rate in the sector. These figures indicate that the stock represented a medium to high-risk option, especially amid operational challenges and intense competition.

Reviewing Hail Cement's business results reveals fluctuations in performance between quarters and years. In the fourth quarter of 2023, revenues decreased by 42.5% compared to the same period in 2022, and gross profit fell by 77.1%. The company also recorded a slight operating loss in the last quarter of 2023, following strong operating profits in the previous year. In the first quarter of 2024, pressures continued with declines in revenues and net profit. These fluctuations reflect the company's sensitivity to economic conditions in the construction sector and rising fixed and variable costs. On the other hand, the company managed to achieve annual profits in 2023, indicating its ability to adapt during certain periods, but ongoing operational pressures led to the decision to merge with a larger company.

The Saudi cement sector is directly affected by government project trends, especially those related to Vision 2030 and housing and infrastructure development programs. As the pace of projects increases, the demand for cement rises, positively reflecting on the sales and profits of companies operating in the sector. However, during periods of slowdown, as occurred in 2023-2024, sales decline and price competition increases, putting pressure on profit margins. For Hail Cement, the slow growth of projects and declining local demand led to a decrease in revenues and net profit. The merger of the company into a larger entity is expected to enhance operational efficiency and capitalize on any future recovery in the sector, especially with upcoming government initiatives in the coming years.

With increasing competition in the local market, Saudi cement companies have begun exploring expansion opportunities in neighboring regional markets such as the Gulf and Iraq. This strategy aims to compensate for local stagnation and increase profit margins. In the case of Hail Cement, there were no significant export expansions until 2024, but after its merger with Qassim Cement, it may have greater opportunities to benefit from external distribution channels and the new entity's export expertise. Additionally, the unified entity is expected to enhance its operational efficiency through updating production lines and developing new products, which may boost competitiveness and provide the company with the flexibility needed to face local market fluctuations.

Al-Ahsa stock (Hail Cement) has witnessed several pivotal developments in 2024, most notably the suspension of its trading on the Saudi stock market (Tadawul) in June 2024 after shareholders approved the acquisition by Qassim Cement. The company also announced in February 2024 a cash dividend of 3.5% on the profits of 2023. Operationally, the first-quarter results of 2024 showed continued profitability, although it declined compared to the previous year. Investors are currently awaiting the release of consolidated financial results for the new entity after the completion of the merger, where management is expected to focus on increasing efficiency, reducing costs, and improving competitiveness in the local and regional markets.

Investors in medium-sized cement company stocks like Hail Cement face a range of risks that may impact their financial decisions. Among the most prominent risks are fluctuations in local demand for cement linked to the volume of government and private projects, as well as changes in energy and raw material prices that directly affect production costs. Additionally, intense competition with larger companies may limit the ability of small and medium enterprises to maintain their market share and profit margins. Mergers and acquisitions may also lead to business restructuring, which could positively or negatively impact shareholders. It is always important to assess these risks in the context of personal investment objectives and consult financial specialists.

The Saudi Capital Market Authority (CMA) and the stock market (Tadawul) play a pivotal role in regulating listing operations, disclosure, and protecting shareholder rights. With every merger or acquisition, companies must disclose all relevant details and clarify the impact of operations on the financial status of shareholders. In the case of Hail Cement, the stock was suspended, and acquisition details were officially announced to protect shareholder rights and ensure transparency. This commitment enhances investor confidence in the Saudi market and contributes to improving the efficiency of the national financial market. It is essential to follow official disclosures and rely on credible sources when analyzing any stock or making financial decisions.

With the completion of Qassim Cement's acquisition of Hail Cement, Al-Ahsa stock transitions from being a separate stock to part of a larger entity. In the short term, the merger and integration processes may take some time and affect operational results. However, in the medium to long term, the new entity is expected to benefit from economies of scale, increased efficiency, and improved competitiveness, especially with the activation of Vision 2030 projects in the construction and housing sector. Challenges related to demand fluctuations and energy prices remain, but the new management may focus on innovation, product development, and regional expansion to enhance shareholder value. It is important to monitor periodic business results and official reports of the new entity to understand the impact of these transformations in the long run.