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Southern Province Cement

Source: Taib Bank

Quarterly Result Update

• Southern Province Cement Company (SPCC) reported total revenues of SAR 1,309.1 million for 2010, topping our estimate by 1.9%.
• Net profit declined 10.2% YoY to SAR 658.5 million, in line with our expectation of SAR 655.6 million.
• We have marginally revised our sales estimate for 2011 upwards by 0.7%, while we have maintained our net profit estimate for 2011.
• We reiterate our earlier NEUTRAL rating on SPCC with a revised DCF target price of SAR 65.00, implying an upside of 9.2%.

Profitability
Gross profit declined 7.1% to SAR 712.9 million from SAR 767.1 million, declining as a percentage of revenue by 370 bps to 54.5% from 58.2%. Net operating profit slumped 10.3% to SAR 681.2 million, narrowing 560 bps as a percentage of revenue to 52.0% from 57.6%. Net profit dropped 10.2% YoY to SAR 658.5 million, down 530 bps as a percentage of revenue to 50.3%. Adjusted annualised EPS declined to SAR 4.70 from SAR 5.24.

We had updated SPCC on January 03, 2011 with a NEUTRAL recommendation (target price of SAR 65.66 with a 4.2% upside). Currently, the stock is trading at a P/E multiple of 12.51x and 11.64x on 2011E and 2012E earnings, and at a P/B multiple of 3.30x and 3.11x on 2011E and 2012E BVPS, respectively. The stock has declined 2.9% since the beginning of 2011 as against an 8.3% drop registered by the Tadawul All Share Index. The stock has declined 5.6% since our last update report. Based on the above factors and our analysis, we have arrived at a price target of SAR 65.00, with an upside of 9.2% from the closing price of SAR 59.50 (as of March 16, 2011). Accordingly, we are reiterating our earlier NEUTRAL rating on SPCC.

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