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Yamamah Saudi Cement

Source: Taib Bank

Quarterly Result Update

Yamama Saudi Cement Co. (YSCC) reported a 20.0% YoY increase in revenues to SAR 685.88 million during 1H10 due to higher sales volumes.
Net profit was up 22.6% to SAR 357.26 million from SAR 291.33 million.
We upward revise our sales estimate for 2010 by 15.6% accounting for the healthy 1H10 financial performance. Accordingly, our 2010 net profit estimate stands 23.3% higher.
We revise our earlier NEUTRAL recommendation on Yamama Saudi Cement to OVERWEIGHT with a revised DCF target price of SAR 59.22, implying an upside of 16.7%.

Profitability
Gross profit was up 14.6% to SAR 467.97 million because of higher revenues, despite the increase in cost of sales. However, as a percentage of revenues, gross margin declined 324 bps to 68.2% from 71.5%. Operating income increased 19.5% to SAR 357.52 million, while operating margin declined 30 bps to 52.1% from 52.4%. Net profit attributable to equity shareholders was up 22.6% to SAR 357.26 million from SAR 291.33 million, boosted by top-line growth. Furthermore, net profit margin expanded 110 bps to 52.1% from 51.0% a year ago. Adjusted annualised EPS increased to SAR 5.29 from SAR 4.32.

We had updated YSCC cement on June 15, 2010 with an NEUTRAL recommendation (target price of SAR 50.34 and an upside of 1.3%). Currently, the company’s stock is trading at a P/E multiple of 10.45x and 10.16x on 2010E and 2011E earnings, and at a P/BV multiple of 2.18x and 2.09x on 2010E and 2011E BVPS, respectively. Meanwhile, the stock has increased 7.1% since the beginning of this year as against a decrease of 2.0% registered by the Tadawul All Share Index. Considering the above factors, we have arrived at a price target of SAR 59.22, which exhibits an upside of 16.7% from its closing price of SAR 50.75 (as on August 25, 2010). Consequently, we have revised our earlier NEUTRAL recommendation on Yamama Saudi Cement Company to OVERWEIGHT.

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