Yanbu National Petrochemicals -Equity Report -24-06-2012

Better cost control measures raised the profitability during 1Q12
YANSAB recorded net profit of SAR720mn in 1Q12, which was higher by 0.3% YoY and 8.3% QoQ. Decline in cost was instrumental in the rise in the profitability. Cost of sales dropped by 6.1% which rose the gross margins to 37.1% compared to 32.4% in the previous quarter. Slight growth in the topline was due to the 10 day scheduled maintenance taken during the current period.

Valuation Update
We have reduced our fair value to SAR56.0/share as compared to SAR57.8/share earlier. Slight change in the fair value is because of expectations of lower product prices and a limited growth in the topline because of capacity constraints and bleak demand outlook for Europe, a sizable market for YANSAB. The stock at its current price of SAR44.9 is trading at a discount of 24.7% to our fair value. Hence we maintain our recommendation at Strong Buy on the stock.