Yanbu Cement Company (YNCC)

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Global Research
Result Update
Equity – Saudi Arabia
Cement Sector
21 June, 2011
Yanbu Cement Company (YNCC)
Market Data
Bloomberg Code:
YNCCO AB
Reuters Code:
3060.SE
CMP (20 June 2011): SAR 57.3
O/S (mn) 105.0
Market Cap (SAR mn): 6,011
Market Cap (USD mn): 1,603
P/E 2011e (x): 14.7
P/Bv 2011e (x): 2.3
Price Performance 1-Yr
High (SAR): 57.6
Low (SAR): 39.0
Average Volume: (000) 67.8
1m 3m 12m
Absolute (%) 12.3 29.5 39.3
Relative (%) 16.8 27.9 36.7
Price Volume Performance
600
500
400
300
200
100
60
55
50
45
40
35
1Q11 net profit declines by 17.9%YoY
Gross margin decline to 48.3% in 1Q11
Fuel shortage disrupts production
Fair value upgraded; Recommendation unchanged
Hold
Target Price
SAR54.2
1Q11 net profit falls short of our estimate
1Q11 net profit of SAR101.1mn was down 17.9%YoY and 4.0% below our estimate of
SAR105.2mn. Yanbu cement performance has been held back by old inefficient lines in
2010. The trend has continued in 1Q11. The matters were compounded due to closure of
three production lines due to fuel shortages in the last week of March 2011. These lines
have a capacity of 4,000 tons per day, which is approximately 30.0% of the production
capacity of the company.
Higher operating costs and lower other-income pull down margins
The margins reduced substantially as cost of sales per ton increased to SAR120.7 in
1Q11 compared to SAR109.8 in 1Q10. Consequently, the gross margins came down to
48.3% in 1Q11 from 53.2% in 1Q10. Meanwhile, SG&A expenses also witnessed an
increase to SAR7.5 per ton in 1Q11 from SAR5.7 per ton in 1Q10 reflecting the increase
in freight and transportation costs while the financing expenses more than doubled to
0.075mn. Meanwhile other-income declined substantially by 82.4%YoY to SAR0.8mn.
Consequently net margins declined to 44.1% in 1Q11 from 51.4% in 1Q10.
Sales revenue continue to decline
Sales declined by 4.4%YoY to SAR229.0mn on the back of fall in volumes sold by
3.9%YoY to 979,000 tons. Average realization prices also witnessed a slight decline of
0.5% to SAR234 per ton.
Capacity expansion expected in 3Q11
Additional capacity of 3.0mn tons is expected to come on-line in 3Q11. The expansion will
increase the total capacity to 7.8mn tons. However, there might be a possibility of the
Yanbu Cement closing down some of its old production lines after the expansion.
0
Source: Zawya
Volume ('000)
Faisal Hasan, CFA
Head of Research
fhasan@global.com.kw
Tel.: (965) 22951270
Umar Faruqui
Financial Analyst
ufaruqui@global.com.kw
Tel.: (965) 22951438
Global Investment House
www.globalinv.net
30
YNCCO (SAR)
Revision in estimates
We have increased our 2011 cost of sales forecast by 2.3% in light of the 1Q11 results.
Consequently, we have revised downwards 2011 net profit forecast by 2.5% to
SAR410mn.
Yanbu Cement Company 2011e
SAR mn Earlier Estimates Revised estimates Change %
Revenues 922 921 -0.1%
Cost of sales (444) (454) 2.3%
Operating Profit 450 439 -2.5%
Net Profit 421 410 -2.5%
Source: Global Research
Valuation update
We have upgraded our fair value to SAR54.2/share from SAR45.7/share after
incorporating improved cement demand forecast for 2012-14 in our model. The cement
demand outlook has further improved with the announcement of 21 royal orders which
includes building of 500,000 housing units. The new measures come on top of the fiveyear
development plan which saw an increase of 67.0% in planned expenditure. We
believe the stock has priced in the positive fundamentals. The stock at its current price of
SAR57.3/share is trading at a premium of 5.7% to the fair value. Thus, we re-iterate our
HOLD recommendation on the stock.

Ratio Analysis
Cash Flow
Balance Sheet
Income Statement
Global Research – Saudi Arabia
Yanbu Cement Company (YNCC)
Financial Statements
(SAR mn) 2008 2009 2010 2011e 2012e 2013e 2014e
Revenue 1,094 943 895 921 1,110 1,234 1,272
Revenue growth -6.6% -13.7% -5.1% 2.9% 20.5% 11.2% 3.1%
Cost of sales (509) (434) (431) (454) (560) (627) (648)
Gross Profit 585 510 465 467 549 607 623
SG&A (24) (24) (26) (28) (33) (36) (37)
Operating profit 561 486 439 439 517 571 586
Financial charges (1) (0) (0) (22) (29) (26) (24)
Other income 19 11 9 10 11 12 26
Profit Before Taxation 579 497 448 427 498 557 588
Zakat and minority interest (19) (15) (18) (17) (19) (22) (23)
Net Profit 560 482 430 410 479 535 565
Net profit growth -15.3% -13.9% -10.7% -4.7% 16.8% 11.7% 5.6%
Cash and Bank Balance 132 112 320 325 373 425 544
Receivables and Prepayments 135 144 170 177 185 196 202
Stock inventory and WIP 115 141 156 164 184 197 199
Spare parts and other materials 156 146 162 167 161 183 192
Other current assets 388 183 0 0 0 0 0
Total current assets 926 726 809 833 904 1,001 1,137
Deferred charges 0 0 - - - - -
Net fixed assets 1,673 2,104 3,284 3,690 3,754 3,805 3,850
Total Fixed assets 1,674 2,105 3,284 3,690 3,754 3,805 3,850
Total Assets 2,600 2,831 4,092 4,523 4,658 4,806 4,987
Accounts payables 6 42 206 218 261 283 293
Profit for distribution 51 57 56 59 62 65 68
Other current liabilities 129 138 358 237 284 294 306
Long-term debt 5 118 871 1,306 1,175 1,058 952
Employee end-of-service benefits 36 41 49 53 59 65 71
Share capital 1,050 1,050 1,050 1,050 1,050 1,050 1,050
Retained Earnings 560 482 430 523 685 902 1,150
Other reserves 746 884 1,049 1,049 1,049 1,049 1,049
Total Shareholders Equity 2,356 2,416 2,529 2,622 2,784 3,001 3,249
Total Equity & Liability 2,600 2,831 4,092 4,523 4,658 4,806 4,987
Cash Flow from Operating Activities 636 606 679 519 664 693 747
Cash Flow from Investing Activities (15) (529) (1,279) (500) (200) (200) (200)
Cash Flow from Financing Activities (527) (303) 626 (14) (416) (441) (428)
Change in Cash 95 (226) 25 5 48 52 119
Net Cash at End 132 295 320 325 373 425 544
Gross margin 53.5% 54.0% 51.9% 50.7% 49.5% 49.2% 49.0%
Operating profit margin 51.3% 51.5% 49.0% 47.6% 46.6% 46.3% 46.1%
Net Profit Margin 51.2% 51.1% 48.1% 44.5% 43.1% 43.3% 44.4%
Return on Average Assets 21.7% 17.8% 12.4% 9.5% 10.4% 11.3% 11.5%
Return on Average Equity 23.9% 20.2% 17.4% 15.9% 17.7% 18.5% 18.1%
EV/ton (USD) 220.7 283.5 291.4 392.1 236.2 230.0 222.0
Quick ratio (x) 4.1 2.4 1.0 1.3 1.2 1.3 1.4
Debt / Equity (x) 0.00 0.05 0.42 0.52 0.46 0.38 0.32
EV/EBITDA (x) 6.8 10.2 11.7 16.5 13.8 12.0 11.0
EV/Revenues (x) 3.6 5.4 5.9 7.7 6.2 5.5 5.1
FCF Yield 8.9% 1.5% -13.4% 0.3% 7.7% 8.2% 9.1%
EPS (SAR) 5.3 4.6 4.1 3.9 4.6 5.1 5.4
Book Value Per Share (SAR) 22.4 23.0 24.1 25.0 26.5 28.6 30.9
Market Price (SAR) * 39.0 48.5 42.8 57.3 57.3 57.3 57.3
Market Capitalization (SAR mn) 4,095 5,093 4,494 6,011 6,011 6,011 6,011
Dividend Yield 8.2% 7.0% 5.2% 5.2% 5.2% 5.2% 6.9%
P/E Ratio (x) 7.3 10.6 10.4 14.7 12.6 11.2 10.6
P/BV Ratio (x) 1.7 2.1 1.8 2.3 2.2 2.0 1.9
Source: Company Reports & Global Research
* Market price for 2011 and subsequent years as per closing prices on June 20, 2011
June – 2011 2

Global Research – Saudi Arabia
Yanbu Cement Company (YNCC)
Disclosure
The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant
disclosures which apply to this particular research has been mentioned in the table below under the heading of disclosure.
Disclosure Checklist
Company
Recommendation
Bloomberg
Ticker
Reuters
Ticker Price Disclosure
Yanbu Cement Company HOLD YNCCO AB 3060.SE SAR 57.3 1,10
1. Global Investment House did not receive and will not receive any compensation from the company or anyone else for the
preparation of this report.
2. The company being researched holds more than 5% stake in Global Investment House.
3. Global Investment House makes a market in securities issued by this company.
4. Global Investment House acts as a corporate broker or sponsor to this company.
5. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct
ownership position in securities issued by this company.
6. An employee of Global Investment House serves on the board of directors of this company.
7. Within the past year, Global Investment House has managed or co-managed a public offering for this company, for which it
received fees.
8. Global Investment House has received compensation from this company for the provision of investment banking or financial
advisory services within the past year.
9. Global Investment House expects to receive or intends to seek compensation for investment banking services from this
company in the next three month.
10. Please see special footnote below for other relevant disclosures.
Global Research: Equity Ratings Definitions
Global Rating
Definition
STRONG BUY
BUY
HOLD
SELL
Fair value of the stock is >20% from the current market price
Fair value of the stock is between +10% and +20% from the current market price
Fair value of the stock is between +10% and -10% from the current market price
Fair value of the stock is < -10% from the current market price
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June - 2011 3

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