The Qassim Cement -Equity Report -28-05-2012

Catalysts not in sight

Qassim Cement enjoys a significant competitive advantage by virtue of being located in the central region, which is near the high demand areas of Riyadh and its surroundings. Since the company is already operating at full capacity (104% in 2011) with low clinker inventory levels, its future growth is likely to be constrained. However, Qassim Cement has achieved substantial efficiency in production, which translates it into one of the low-cost cement producers in the Kingdom. With growth constraints, the company lacks near term catalysts for the share price. We initiate coverage on Qassim Cement and assign a Neutral rating with a target price of SAR84.

Valuation: We value Qassim Cement as per DEP and comparables methods, assigning 70% and 30% weighting respectively. As per the DEP method, we estimate the fair value at SAR85.5 while as per the comparables method; we value Qassim Cement at SAR80.8. Thus we assign a target price of SAR84 to Qassim Cement which implies an upside potential of 8%. We rate the company Neutral.