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Yamamah Saudi Cement

Source: Taib Bank

Quarterly Result Update

Yamama Saudi Cement Co. (YSCC) reported a 34.9% YoY increase in revenues to SAR 349.01 million during 1Q10 on higher sales volumes.

Net profit was up 31.1% to SAR 165.19 million from SAR 125.99 million during 1Q09.

We estimate 2010 sales at SAR 1,129.68 million and net profit at SAR 531.91 million.

We revise our earlier Overweight recommendation on Yamama Saudi Cement to NEUTRAL with a revised DCF target price of SAR 50.34, implying an upside of 1.3%.

Profitability
Gross profit was up 22.6% to SAR 225.27 million led by higher revenues despite the increase in cost of sales. However, as a percentage of revenues, gross margin declined by 650 bps to 64.5% from 71.0%, due to capacity additions and selective export ban. Operating income increased 31.6% to SAR 170.35 million, while operating margin declined 124 bps to 48.8% from 50.1%.

We had initiated YSCC cement on October 15, 2008 with an OVERWEIGHT recommendation (target price of SAR 56.38 and an upside of 22.6%). Currently, the company’s stock is trading at a P/E multiple of 12.61x and 11.56x on 2010E and 2011E earnings, and at a P/BV multiple of 2.03x and 1.93x on 2010E and 2011E BVPS, respectively. Meanwhile, the stock has increased 4.9% since the beginning of this year as against an increase of 3.3% registered by the Tadawul All Share Index. Considering the above factors, we have arrived at a price target of SAR 50.34, which exhibits an upside of 1.3% from its closing price of SAR 49.70 (as on June 15, 2010). Consequently, we revised our earlier OVERWEIGHT recommendation on Yamama Saudi Cement Company to NEUTRAL.

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