• Global values YSCC at SR79/share and recommends a BUY on the stock
Global Investment House – Saudi Arabia – Yamama Saudi Cement Company – Result Update-Yamama Saudi Cement Company (YSCC) is currently the biggest cement producer in the country as well as in the Gulf Cooperation Council (GCC). The company owns 33% of Cement Product Industry Company which has a capacity to produce 30mn bags every year. YSCC revenue rose during 2003-07 at a CAGR of 16%. During 2007, the company was able to earn revenue of SR1,185mn, which was higher by 25% than the previous year.
YSCC net profit from the year 2007 rose by 22% to SR731mn as against SR601mn in 2006. The company recently announced its first half 2008 results in which its earning rose by 13% to SR425mn as against SR376mn in 1H/2007.
The value of YSCC’s shares derived from the weighted average of the DCF and relative valuation methods is SR79 per share. The stock closed at SR66.25 on the Saudi Stock Exchange at the end of trading on 19th July, 2008. The value of the stock has a potential upside of 19.3% from its current price level. At current price, YSCC shares are trading at a P/E multiple of 10.4x and 9.4x for 2008 and 2009 respectively. We, therefore, recommend a ‘BUY’ on the stock.
Financial Performance
Company revenue rose handsomely during 2003-07 at a CAGR of 16%. During 2007, the company was able to earn revenue of SR1,185mn, which was higher by 25%. Such a growth was possible because of increase in the sales volume along with an increase in the price of cement during the year. Sales volume rose by 20.2% to 4.6mn tons while the average price increased to SR256/tons from SR247/ton recorded in 2006. Increase in sales volume can be attributed to the rise in sales magnitude as a result of commencement of production of the new line. Over the past five years the price has increased at a CAGR of 5%. This is due to the huge construction and real estate projects being carried out in the Kingdom of Saudi Arabia which has caused cement prices to go up.
The cost associated with the sales rose more in comparison to the sales. It increased at a CAGR of 13% during 2003-07. In 2007, cost rose by 31% to SR416.7mn as against SR318.5mn in 2006. Higher increase in the cost compared to that of sales restricted the gross profit growth to 22% during 2007. Gross profit rose to SR768.8mn as compared to SR631mn in 2006. As a result gross margins declined by 100bps to 65% from 66% in the previous year.
In the year 2007, selling and distribution expense increased by 57% to SR0.9mn as against SR0.6mn in 2006. Increase in the expense can be attributed to rise in the transportation and port handling fees because of rising cost of fuel and rise in local and export volumes. General and administrative expense rose at a CAGR of 4% during 2003-07. In the year 2007, general and administrative expense increased by 3.4% to SR13.5mn as against SR13mn in 2006. As a result of rising cost because of increase in the cost of raw materials the company’s operating expenses rose during the year which resulted in a decline in the margins in 2007 when compared to 2006. Operating profit rose by 22% to SR728mn as against SR595mn in 2006. In the year, operating margins declined by 200bps to 61% as against 63% in 2006.
The company previously obtained the approval of Saudi Industrial Development Fund (SIDF) for granting an amount of SR387mn for its projects. The company withdrew an amount of SR361mn out of that loan until the end of 2007 and SR20mn was paid by the company as 1st installment during the year. YSCC has also obtained the approval of SIF for granting an amount of SR103mn as loan that shall be allotted to the works of the 2nd phase of the second power plant. Till the end of 2007, the company didn’t receive any amount of that loan. The company also received a loan of SR400mn based on Islamic Tawrq System from one of the local banks and SR160mn was paid for that loan during 2007.
During the year the other income declined by 41% to SR11.3mn as against SR19.2mn in 2006. On the other hand company’s investment income rose tremendously to SR11mn, an increase of 355%. Major boost to the investment income came from Industrialization & Energy Services Company whose contribution in the total investment income was more than 60% and amounted to SR6.74mn in 2007 as against SR1.5mn in 2006. In 2007, the company’s investment in Sahara Petrochemical Company added SR3.5mn to the total investment income.
The total assets of the company increased by 15% to SR3.6bn at the end of 2007 as compared to SR3.1bn reported in the previous year. Such an increase resulted because of the expansion carried out by the company which came online during 2007. As a result of expansion the gross fixed assets of the company increased from SR2.6bn in 2006 to SR4.4bn in 2007 and the net fixed assets rose to SR2.5bn in 2007 from SR823mn in 2006. Current assets rose by 32% at the end of the year to SR712mn.
The company has investments in Sudani Kuwaiti Holding Company, Kafaa for Steel Company, Industrialization and Energy Services Company, Arabian Shield Cooperative Insurance Company, Sahara Petrochemical Company and Al Kayan Petrochemical Company. YSCC owns 11.2mn share in Industrialization and Energy Services Company worth SR112.5mn that is equivalent to 5.625% of the paid up capital. YSCC. YSCC has 2.1mn shares of Sahara Petrochemical Company with an amount of SR21mn that is equivalent to 1.167% of the paid-up capital of SR1.87mn.
Company net profit from the year 2007 rose by 22% to SR731mn (EPS: SR5.4) as against SR601mn (EPS: SR4.5) in 2006. YSCC was able to complement its net margins by 100bps to 59% as compared to 58% in 2006.
