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Yanbu Cement

Source: Taib Bank

Quarterly Result Update

Yanbu Cement Co. (YCC) reported an 11.1% decline in 1H10 sales to SAR 491.56 million from SAR 552.63 million.

Net profit fell 21.9% to SAR 236.60 million from SAR 302.85 million.

We have maintained our sales estimate for 2010. However, in anticipation of higher operating costs our net profit estimate stands revised 2.0% lower.

We are reiterating our earlier NEUTRAL recommendation on Yanbu Cement with a revised DCF target price of SAR 43.72, implying an upside of 2.4%.

Gross profit declined 18.0% to SAR 300.13 million due to lower revenues and higher CoS. As a percentage of revenues, gross margin declined 514 bps to 61.1%. Profit from operations was down 22.3% to SAR 237.6 million from SAR 306.0 million. Operating margin contracted 703 bps to 48.3%. On the positive side, non-operating income increased 1.3% to SAR 6.22 million from SAR 6.13 million. Due to lower sales and the export ban, net profit attributable to equity shareholders was down 21.9% to SAR 236.60 million from SAR 302.85 million. Adjusted annualised EPS declined to SAR 4.51 from SAR 5.77.

We had initiated YCC on June 15, 2010 with a NEUTRAL recommendation (target price of SAR 46.29 and an upside of 8.7%). Currently, the company’s stock is trading at a P/E multiple of 10.20x and 10.17x on 2010E and 2011E earnings, and at a P/BV multiple of 1.76x and 1.68x on 2010E and 2011E BVPS, respectively. Meanwhile, the stock has declined 12.0% since the beginning of the year as against an increase of 3.0% registered by the Tadawul All Share Index. Considering the above factors, we have arrived at a price target of SAR 43.72, which shows an upside of 2.4% from the closing price of SAR 42.70 (as of September 6, 2010). Accordingly, we are reiterating our earlier NEUTRAL recommendation on Yanbu Cement to NEUTRAL.

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