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Yanbu Cement

Source: NCB Capital

1Q10 preliminary results

Yanbu Cement Company (YCC) announced preliminary 1Q10 numbers on 6 April 2010. All profit lines fell by around 20% YoY, with net income 8% lower than our estimate. The company stated that, lower sales as a result of increased competition, was the key reason behind the poor numbers. We continue to remain cautious on the stock.

• Gross profit – fell 20% in 1Q10 to SR128mn, 11% below our forecast. 1Q10 came in 52% up on 4Q09.

• Operating profit – fell 21% YoY in 1Q10 to SR122mn, 11% below our forecast.

• Net profit - fell 19% YoY in 1Q10 to SR123mn, 8% below our forecast. The net profit in 1Q10 was up 54% QoQ.

• EPS – fell 19% YoY to SR1.17, 8% below our forecast.

• The company attributed the lower profitability to 1) Lower sales volumes 2) Lower sales value and 3) Increased competition in the western region due to the limits on exports faced by other cement companies

• In addition to the above, we believe the old age of the lines at Yanbu will have impacted its reliability in production, as well as leading to higher costs

• From our Cement Monthly publications, we know that Yanbu Cement sales volumes fell by 11.5% in the first two months of 2010 YoY versus sales for the sector which increased by 27%.

• We remain cautious on the stock for the coming 12 months, mainly due to concerns on production reliability and high costs associated with its old lines. Once the new 10,000 ton per day line opens in mid-2011, we believe there is a possibility three out of four of the current lines will be closed, leading to a better outlook scenario.

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