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Yamamah Saudi Cement

Source: Global Investment House

• Better than expected performance in 1Q11
• 1Q11 net profit increase by 9.0%YoY
• Realization prices increase by 2.5%YoY
• Fair value upgraded; Recommendation unchanged

Strong 1Q11 performance
Yamama Cement posted a net profit of SAR179.8mn in 1Q11 which was 7.3% above our forecast of SAR167.7mn and 9.0% above 1Q10 net profit of SAR165.2mn. The profitability was propped up by decline in cost of sales per ton by 6.3% to SAR102.3 per ton. Yamama cement has a cost advantage relative to the sector due to its integrated production plant and captive power supply which further became prominent during the quarter.

Meanwhile gross margins increased to 55.8% in 1Q11 from 51.4% in 1Q10 due to operational cost efficiency and higher realization prices. Yamama Cement has the ability to charge premium prices due to its proximity to demand centers in the central region.’

Valuation update
We have upgraded our fair value to SAR65.6/share from SAR58.8/share in light of our revised forecasts. However, we keep our recommendation unchanged at HOLD since the stock offers a potential upside of 6.2%. The stocks 2011e P/E of 11.8x is at a slight premium to the Saudi cement sector universe 2011e P/E of 11.7x and at a discount of 4.0% to the regional emerging market cement companies 2011e P/E of 12.3x.

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