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Yanbu Cement

Source: Taib Bank

Quarterly Result Update

Yanbu Cement Co. (YCC)’s 1Q10 sales were down 13.7% to SAR 239.53 million from SAR 277.40 million a year ago.

Net profit declined 18.8% to SAR 123.18 million from SAR 151.78 million in 1Q09.

We estimate 2010 sales at SAR 906.55 million and net profit at SAR 448.77 million.

We downgrade our earlier OVERWEIGHT recommendation on Yanbu Cement to NEUTRAL with a revised DCF target price of SAR 46.29, implying an upside of 8.7%.

Profitability
Gross profit declined 20.2% to SAR 127.65 million due to lower revenues. As a percentage of revenues, gross margin declined 434 bps to 53.3%. Profit from operations fell 21.0% to SAR 121.80 million from SAR 154.23 million. Operating margin contracted 475 bps to 50.8%. On the positive side, non-operating income more than doubled to SAR 4.73 million from SAR 2.31 million. Due to lower sales and the continuing export ban, net profit attributable to equity shareholders was down 18.8% to SAR 123.18 million from SAR 151.78 million. Adjusted annualised EPS declined to SAR 4.69 from SAR 5.78 in 1Q09.

We had initiated YCC on November 21, 2008 with an OVERWEIGHT recommendation (target price of SAR 58.30 and an upside of 35.6%). Currently, the company’s stock is trading at a P/E multiple of 9.97x and 9.73x on 2010E and 2011E earnings, and at a P/BV multiple of 1.76x and 1.66x on 2010E and 2011E BVPS, respectively. Meanwhile, the stock has declined 12.2% 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 46.29, which exhibits an upside of 8.7% from its closing price of SAR 42.60 (as on June 15, 2010). Consequently, we have revised our earlier OVERWEIGHT recommendation on Saudi Cement Company to NEUTRAL.

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