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Southern Province Cement

Source: NCB Capital

Pressure from competitors

We downgrade SPCC to Underweight due to increased competition, particularly from its local private peer Najran Cement. This is exacerbating the existing sector-wide issues leading to a poor outlook, with limited catalysts in the medium-term to change this; we are cautious on SPCC.

• Competition expected to intensify in 2Q10: We expect revenues to be flat at SR361mn in 2Q10e with net income falling by 5% to SR201mn. For Apr and May, total sales volumes are up 2% YoY. 2Q10 is set to be another weak quarter for SPCC as it is expected to continue losing market share, particularly to its local private competitor Najran Cement.

• Outlook tough, valuation expensive: With SPCC faring worse than expected against the competition from Najran cement, we downgrade the stock to Underweight. SPCC is trading at a P/E of 13.6x 2010e earnings, above the industry average of 10.6x.

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