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Southern Province Cement

Source: Taib Bank

Quarterly Result Update

Southern Province Cement Company (SPCC) reported total revenues of SAR 712.21 million for 1H10, down 1.6%.

Net profit declined 9.1% YoY to SAR 374.81 million from SAR 412.32 million.

We reduce our sales estimate by 3.9% and net profit estimate by 4.5%.

We reiterate our earlier NEUTRAL recommendation on SPCC with a revised DCF target price of SAR 68.82, implying an upside of 2.7%.

Profitability
In tandem with the drop in top-line, gross profit declined 7.1% to SAR 398.91 million from SAR 429.17 million. As a percentage of revenues, gross margin declined 329 bps to 56.0% from 59.3%. Net operating profit slipped 9.3% to SAR 385.47 million, and as a percentage of revenues, narrowed 458 bps to 54.1% from 58.7%. Net profit for 1H10 was down 9.1% YoY to SAR 374.81 million, while as a percentage of revenue reduced 435 bps to 52.6%. Adjusted annualised EPS declined to SAR 5.35 from SAR 5.89.

We had updated SPCC on June 16, 2010 with a NEUTRAL recommendation (target price of SAR 73.31 with an 8.2% upside). Currently, the stock is trading at a P/E multiple of 12.83x and 12.22x on 2010E and 2011E earnings, and at a P/B multiple of 3.66x and 3.39x on 2010E and 2011E BVPS, respectively. Meanwhile, the stock has remained flat since the beginning of this year, as against a gain of 3.0% by the Tadawul All Share Index. Considering the above factors, we have arrived at a price target of SAR 68.82, which exhibits an upside of 2.7% from the closing price SAR 67.00 (as of September 06, 2010). Consequently, we reiterate our earlier NEUTRAL rating on SPCC.

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