Yanbu Cement Company (YCC) is one of the leading cement producers in Saudi Arabia. Following the upgrade of its fourth production line by 750,000tpa, which took place in early 2007, Yanbu Cement now has a cement production capacity of 4.8mtpa.

The company has a 60% stake in Yanbu Al Shuaiba Paper Products Company and company’s major shareholder is General Organization for Social Insurance.

The company’s sales revenue increased during 2003-07 at a CAGR of 15%. During 2007, the company sales rose by 39% to SR1.17bn as compared to SR843.2mn in 2006. The company’s net profit for the year 2007 rose by 29% to SR 661mn (EPS: SR6.3) as against SR 512mn (EPS: SR4.9) in 2006. The company’s net margins tumbled by 4% to 56% in 2007.

In 1H-2008, the company’s earning declined by 14.5% to SR317mn as against SR371mn in 1H-2007. This translated into an earning per share of SR3.03 as against SR3.54 in 1H-2007. The company equity declined by 9% to SR2.1bn as against SR2.3bn at the end of 2007. Total assets witnessed a declined of 8.8% to SR2.3bn as compared to SR2.5bn reported at the end of 2007.

The value of Yanbu’s shares derived from the weighted average of the DCF and relative valuation methods is SR84 per share. The stock closed at SR63.75 on the Saudi Stock Exchange at the end of trading on 6th August, 2008. The value of the stock has a potential upside of 31.7% from its current price level. At current price, Yanbu shares are trading at a P/E multiple of 10.2x and 9.8x for 2008 and 2009 respectively. We, therefore, recommend a ‘BUY’ on the stock

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