Yamamah Saudi Cement -Equity Report -28-05-2012

Beneficiary of infrastructure boom

Yamama Cement has been the biggest beneficiary of ongoing infrastructure projects in Saudi Arabia. The spate of infrastructure activity particularly in Riyadh is triggering higher cement demand in the region. Since Yamama has been in the business for over 40 years, the company enjoys a well entrenched brand presence and has emerged as the supplier of choice in the central region. We like the company’s transparent management given the highly regulated industry environment. Accordingly, we believe Yamama deserves a premium valuation. We give an overweight rating to the stock with a target price of SAR61 a share, implying an upside potential of 26%.

Valuation & Conclusion: Using the long-run DEP valuation, we estimate the fair value for Yamama at SAR64. On a comparative valuation basis, we estimate the fair value at SAR54.5. Our target price is SAR61, a weighted average of the two estimates with a weight of 70% to the long run DEP method and 30% to the multiples. Yamama is trading at a 2012 EV/EBITDA multiple of 8.6x, a 2012 PE of 10.6x and offers an above average dividend yield of 6.2%.