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Yanbu Cement

Source: Taib Bank

Quarterly Result Update

Yanbu Cement Co. (YCC) reported total revenues of SAR 683.1 million during 9M10, down 9.3% from SAR 753.0 million.

Net profit fell 17.4% to SAR 330.8 million from SAR 400.5 million.

We have maintained our sales estimate for 2010. However, our net profit estimate stands 2.7% lower, on anticipation of higher operating costs.

We are reiterating our earlier NEUTRAL recommendation on Yanbu Cement with a revised DCF target price of SAR 43.15, implying an upside of 5.2%.

Profitability
Gross profit declined 14.0% to SAR 428.8 million due to lower revenues, resulting from increased competition from private cement manufacturers in Saudi Arabia due to the conditional export ban. As a percentage of revenues, gross margin narrowed 346 bps to 62.8%. Profit from operations fell 18.1% to SAR 334.9 million in 9M10 from SAR 408.9 million. Operating margin contracted 527 bps to 49.0%. Non-operating income stood at SAR 7.1 million. Net profit attributable to equity shareholders declined 17.4% to SAR 330.8 million from SAR 400.5 million because of lower sales and the export ban. Adjusted annualised EPS dropped to SAR 4.2 from SAR 5.1.

We had updated YCC on September 6, 2010 with a NEUTRAL recommendation (target price of SAR 43.72 and an upside of 2.4%). Currently, the company’s stock is trading at a P/E multiple of 10.06x and 10.28x on 2010E and 2011E earnings, and at a P/BV multiple of 1.70x and 1.63x on 2010E and 2011E BVPS, respectively. Meanwhile, the stock has declined 15.5% since the beginning of the year as against an increase of 5.3% registered by the Tadawul All Share Index. Considering the above factors, we have arrived at a price target of SAR 43.15, with an upside of 5.2% from the closing price of SAR 41.00 (as of November 10, 2010). Accordingly, we are reiterating our earlier NEUTRAL recommendation on Yanbu Cement.

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