Jul 09, 2009
Global Research - Saudi Arabia
Investment Update
Saudi Arabia
Yanbu Cement Company
Tickers:
3060.SE (Reuters) YNCCO AB (Bloomberg)
Listing:
BUY
Saudi Stock Exchange (Tadawul)
Fair Value:
SR79.3
CMP:
SR48.10 (As on July 1st, 2009)
Investment Summary
· YanbuCementCompany(YCC), 2008 revenues reached SR1,093mn as compared to our
forecasted 2008 revenues of SR1,203mn, a 10.1% deviation. The reason for the decline is because of higher cost, lower sales activity during the end of 2008, and a liquidity crunch that halted various infrastructure projects activity in KSA. · Established in 1977, YCC started its 1,500tpd cement production in 1979 located at Ras Baridi , the company's only factory. Controlled by AlRajhi family and the Saudi government, Yanbu has a paid up capital of SR1.05bn. It serves the western region of KSA to supply cities like Jeddah, Madina, and Madina. Yanbu faces competition from the existing Arabian Cement and from upcoming newly established cement companies in the western region. Cement production reached 4.29mtpa in 2008 against 4.62mtpa in 2007, a 7.1% decrease. This is due to the stoppage of kilns #1, and #2 due to maintenance. Both kilns have the capacity to produce 3,000tpd. This decreased utilization rates down to 84.9% from 96.3% in 2007. Clinker production reached 3.62mtpa in 2008 against 3.81mtpa in 2007, a 5% decrease. But clinker inventory decreased 8.8% to reach 442,000 tons. YCC cost of sales increased 4% from SR490.3mn to SR508.5mn, bringing gross profit down to SR584.9mn, a 14% decline from 2007. On the other hand, gross profit margins decreased to 53% from a previous 58%. As opposed operating expenses decreased slightly by 0.1% to reach SR24.1mn in 2008. Yanbu's other income segment increased a fragment of 2.1% to reach SR18.8mn. While financial charges decreased 30.9% to reach SR728,094. This have caused net profits before taxes to reach SR578.0mn. While Zakat and Minority interest reached SR16.6mn and SR2.6mn respectively pulling the net profit to SR559.7mn in 2008. YCC net profits for 2008 reached SR559.7mn against SR660.9mn, a 15.3% decrease from the previous year. EPS decreased to SR5.33/share, against SR6.29/share witnessed in 2007. Yanbu cement is considered the fourth largest listed Saudi cement company in term of 2008 profits, revenues and assets. Assets size reached SR2,599mn, up 1.4% from 2007, shareholders equity reached SR2,356mn, up as well 1.4% from the previous year. Liabilities in 2008 reached SR227mn. 1
·
· Faisal Hasan, CFA
Head of Research
fhasan@global.com.kw Phone No:(965) 22951270
Hettish Kumar
Financial Analyst
hkumar@global.com.kw Phone No:(965) 22951281
·
Turki O.AlYaqout
Assistant Financial Analyst
tyaqout@global.com.kw Phone No:(965) 22951295
·
Yanbu Cement Company
Global Research - Saudi Arabia
Global Investment House
·
Yanbu Cement is currently undergoing expansion. On 30th July 2008, YCC signed an agreement with Sinoma International Engineering Co. of China to produce a 5th line of production capable of producing 10,000tons/day of clinker which is equal to 3.2mtpa, this will lift its capacity to 7.2mtpa. The contract is valued at US$442mn. Currently Yanbu has 4 kiln clinker production lines, Kiln #1 and #2 are established in 1980 to produces 1,500tpd respectively. Kiln #3 established in 1984 it produces 1,000tpd, and kiln #4 established in 1997 is able to produce 8,500tpd. In addition YCC signed a contract to expand power stations to accommodate its expansion plans, the contract is valued at Euro31.5mn. In Q1-2009, Yanbu declared profits of SR151.7mn, on a Q-o-Q basis, profits increased 26% which brought net profit margins up from 48% in Q4-2008 to 55% in Q1-2009. On a Y-o-Y basis, profits declined 9.9%. On the cost side, cost decreased 11% to reach SR117.5mn. As for the balance sheet, asset and shareholders equity decreased 11% to reach SR2,310mn and SR2,102mn respectively. YCC Q2-2009 profits reached SR151mn (EPS/SR1.44), a 0.67% decrease from the previous quarter and a 1.3% increase on a Y-o-Y basis. 1st half 2009 profits reached SR303mn (EPS/ SR2.88), as compared to SR318mn (EPS/SR3.03) during the same period a year ago. According to Yanbu Cement, the decrease in Q2-2009 is attributed to lower sales volume. The value of YCC's shares derived from the weighted average of the DCF and relative valuation methods is SR79.3 per share. The stock closed at SR48.10 on the Saudi Stock Exchange at the end of trading on July 1st 2009. The value of the stock has a potential upside of 64.9% from its current price level. At current price, YCC shares are trading at a P/E multiple of 8.9x and 8.9x for 2009 and 2010 respectively. We, therefore, reiterate our `BUY' recommendation for the scrip.
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Table01:InvestmentIndicator
CMP(SR) SharesinIssue(mn) M-Cap(SRmn) 52-WeekLow/High(SR) 48.10 105.0 5,050.5 35.40 / 78.00 GrossProfit NetProfit EPS BVPS ROAE P/E P/BV Year (SR`000) (SR`000) (SR) (SR) (%) (x) (x) 2010 (F) 609,189 568,163 5.4 23.2 23.53 8.9 2.1 2009 (F) 602,545 564,994 5.4 22.8 23.79 8.9 2.1 2008 (A) 584,977 559,736 5.3 22.4 23.92 7.3 1.7 2007 (A) 680,338 660,953 6.3 22.1 29.99 15.0 4.3
Source : Company Reports & 'Global' Research. ** Historical P/E & P/BV multiples pertain to respective year -end prices, while those for future years are based on closing prices on the Tadawul as of 1st July, 2009
Chart01:YCCStockPerformance
10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 90 80 70 60 50 40 30 20 10 0
30-Oct-08
30-Dec-08
30-Sep-08
28-Feb-09
30-Jul-08
30-Mar-09
30-Jan-09
30-May-09
30-Jun-08
30-Aug-08
Tadawul Index
30-Nov-08
YCC (SR)
Source: Zawya
2
Yanbu Cement Company
30-Apr-09
30-Jun-09
Global Research - Saudi Arabia
Global Investment House
Saudi Cement Sector
Kingdom of Saudi Arabia is gifted with its large land size and its abundance of natural resources, including oil, natural gas, and limestone. Limestone which makes 70% of the cement composition is hugely deposited in the lands of KSA, it's a major raw material in the production of cement. This makes cement companies to operate easily in KSA because of the cheap local natural resources available. Since the land size is very huge, the cement sector of Saudi Arabia is divided into five regions, Northern, Eastern, Southern, Western and Central region. The eastern, central and southern regions dominate the Saudi cement market in term of production. Saudi Cement the largest producer of cement in KSA in 2008 is located in the eastern region, Southern Cement company dominates the south, and Yamama Cement dominates the central region. Together they produced 44.51% of the total cement produced in KSA in 2008. Cement production is closely correlated with the real estate activity, government spending and oil revenues. The higher each segment, the more productivity and revenues of the cement sector. Recently in late 2008, the cement sector was hit slightly due to the credit crisis that halted projects and caused a economic slowdown which shrank real estate and equity markets. The last half year of 2008 was over shadowed by a extreme volatile oil market which brought oil prices from an all-time high of US$147 to US$40-50 per barrel. 2009BudgetSupport The Kingdom announced its largest budget for 2009, which forecasts a revenue of SR410bn up 8.9% from the previous year, and the budget expenditure increase of 15.9% to reach SR475bn. The budget is aimed to boost spending and expenditures and provide confidence in the Saudi economy to manage the global recessionary pressures. In the 2009 budget, the Kingdom committed SR225bn in new capital budgets assigned for new projects and existing ones. This strong budget is closely linked with the cement industry, the government is supporting the economy, its considering building new infrastructures, develop industrial cities and continue supporting existing economic cities. The 2009 budget will focus on construction of 1,500 new school, building houses for the fast growing population of which 30% are below the age of 30, also it will focus on building 86 new hospitals. GovernmentSpending To show additional continuous support of the economy, On 26th April, 2009 King Abdullah Al Saud visited the oil producing Eastern Province and introduced developmental projects worth SR54bn. As of 27th April 2009 projects in the Kingdom are valued at US$647.0bn, up 38.2% from the same period a year ago. The strong support of the government to the economy will positively impact the cement industry by increasing the cement demand, and productivity to supply a strong real estate and construction market. We could witness a new construction boom currently under way in line with the surge in public and private sponsored investments, including roads, schools, hospitals, roads, railways, the expansion of industrial cities of Jubail and Yanbu, and the buildup of the ambitious new "Economic Cities".
Yanbu Cement Company
3
Global Research - Saudi Arabia
Global Investment House
In 2008, construction sector contributed SR76bn, up 17% from the previous year. It also accounted for 4.6% of the GDP, down from 5.4% share of GDP in 2004. The decline in the construction activities was due to the increase from other sectors in the GDP. On a CAGR basis construction sector increased 10.4% during the period 2004-2008. Chart02:ConstructionSectoras%ofGDP
2,000 1,500 1,000 10% 500 2004 2005 2006 2007 2008* Building & Construction Sector Nominal GDP BCS as % of Nominal GDP % Growth 5% 0% 25% 20% 15%
Source: SAMA
2008:ARecordYear The cement sector witnessed a overheat during 2008, cement prices reached all-time high, inducing the government to intervene and introduce an export ban by June 2008. In 2007, cement exports reached 3.5mn tons which account for 12% of the total cement sales, after the new law was taken into action cement exports in 2008 decreased 18.9% to 2.8mn tons which accounts for 9.5% of total cement sales. The export ban helped in decreasing the cement prices due to lower local demand and excess supply. In late 2008 and early 2009 big cement factories are concerned from the increasing storages and inventories of cement, but as of May 25th 2009 the government export ban is to be lifted under certain restrictions. The government demands cement companies to sell the cement by SR10 to lift the export ban on cement. Some factories are selling the cement at SR8 per bag because of the low demand. Currently in KSA there are eight listed cement companies, including Saudi Cement, Qassim Cement, Yanbu Cement, Arabian, Cement, Yamama Cement, Tabuk Cement, Eastern Province Cement, and Southern Province Cement. Together they have a cement production of 32.9mn tons. In 2008 witnessed four new companies entering the cement market, namely Riyadh Cement, Najran Cement, Madina Cement, and Western Cement. The four new companies have a cement production capacity of 3.7mn tons. At the end of 2008, Saudi Cement Company leads in term of market share at 16.3% overtaking Yanbu Cement which became the 4th in term of market share with 13.0%.
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SR bn
Yanbu Cement Company
Global Research - Saudi Arabia
Global Investment House
Table02:CementProduction2008
(mtpa) Yamama Cement Saudi Cement Eastern Cement Qassim Cement Yanbu Cement Arabian Cement Southern Cement Tabuk Cement Riyadh Cement Najran Cement Madina Cement Western Cement Total
Source: Company Reports & Global Research
2007 4.65 5.28 3.48 3.46 4.62 2.82 4.61 1.36 30.29
2008 4.37 5.37 3.11 3.22 4.29 2.74 4.90 1.15 1.38 0.80 1.10 0.47 32.89
During 2008, cement production increased 8.6% to reach 32.8mn tons, as compared with 2007 cement production increased 12.0% to reach 30.29mn. In 2008, Saudi Cement dominated the Saudi cement production, producing 5.37mn tons, increasing 1.7% from the previous year. Southern Cement climbed the ladder and became the 2nd largest market share holder in 2008 with 14.9% up from 4th in term of market share among cement companies in KSA in 2007. Southern Cement produces around 4.9mn tons of cement overtaking Yamama cement. Important to notice is that only Saudi Cement Company and Southern Cement Company enjoyed a Y-o-Y increase in production, Saudi Cement increased 1.7% and Southern Cement increased the highest among other cement companies with 6.2%. None of the eight listed cement companies witnessed an increase in the market share of production in 2008, due to the fact of increasing competition from the four new players. The new players took an 11.4% of the market share in 2008, Riyadh cement dominates the new players with 3.7% share, Najran with 2.4%, Madina with 3.3% and Western Cement having a 1.4%. This have limited the increasing market share of the existing players, causing all to witness a decrease in market share, the average decrease for the eight existing players was 12.7%. In term of cement sales in 2008, sales grew 7.9% to reach 32.7mn tons, as compared to 30.3mn tons in 2007. Local sales grew 11.4% to reach 29.9mn tons, while export deliveries decreased significantly by 19% due to the export ban. Saudi Cement dominated cement sales, its local deliveries reached 4.23mn tons, but the export reached 1.03mn tons, export deliveries is more than the combined cement sales of Western and Najran Cement. Southern Cement dominated the local deliveries reaching 4.62mn tons, but overall deliveries including exports reached 4.92mn. 19.5% of the total Saudi Cement sales comes from exports, even though the government introduced a ban against exports, Saudi Cement sales performed greatly before the ban was introduced.
Yanbu Cement Company
5
Global Research - Saudi Arabia
Global Investment House
Table03:CementSalesinSaudiArabia
(mtpa) Yamama Cement Saudi Cement Eastern Cement Qassim Cement Yanbu Cement Arabian Cement Southern Cement Tabuk Cement Riyadh Cement Najran Cement Madina Cement Western Cement Total
Source: Yamama Cement
Local 2007 4.29 4.15 2.37 2.96 4.65 2.83 4.21 1.36 26.82
2008 4.06 4.23 2.55 2.91 4.30 2.76 4.62 1.16 1.16 0.71 0.98 0.44 29.87
Export 2007 0.34 1.15 1.12 0.50 0.40 3.51
2008 0.30 1.03 0.56 0.28 0.29 0.00 0.20 0.07 0.11 2.84
Total 2007 4.63 5.30 3.49 3.46 4.65 2.83 4.61 1.36 30.33
2008 4.36 5.25 3.11 3.20 4.30 2.76 4.92 1.16 1.36 0.78 1.09 0.44 32.71
Exports were also dominated by Saudi Cement with a 36.5% share of the total exports of Saudi companies, followed by Eastern Cement with 36.1%. On average export decreased 18.9% in 2008 as opposed to local sales increasing 11.4% Inventories Due to the low demand and huge supply, Saudi Cement companies are facing an inventory problem. Inventories increased tremendously in 2008 for clinker and cement. Export ban and low local demand play a huge role in the pile up of cement. Chart03:CementInventory
250 200 150 100 50 0
am Sa a ud Ea i ste Qa rn ssi Ya m nb Ar u ab So ian uth e Ta rn bu Ri k ya d Na h jra M n ad i W na es ter n Ya m
'000 tons
'000 tons
2,000 1,500 1,000 500 -
Chart04:ClinkerInventory
1000.0% 800.0% 600.0% 400.0% 200.0% 0.0% -200.0%
am Sa a ud i Ea ste rn Qa ssi m Ya nb u Ar ab i So an uth ern Ta bu k Ri ya dh Na jra n M ad ina
200.0% 150.0% 100.0% 50.0% 0.0% -50.0%
Ya m
2007
2008
Y-o-Y
2007
2008
Y-o-Y
Source: Yamama Cement
Source: Yamama Cement
Inventories have piled up strongly in 2008. Cement inventories increased 73.3% from 2007 to reach 728,000 tons. Clinker inventories increased significantly to 7.3mn tons, up 357.1% from 2007. Saudi Cement witnessed the highest increase in clinker inventories year end 2008, clinker stock reached 1.5mn tons a 936.6% increased from 2007. Southern Cement witnessed the second largest increase in clinker inventories, reaching 1.2mn , a 404.6% increase from 2007. As for the cement inventories, Saudi Cement once again dominated the inventory pile with cement stock reaching 193,000 tons, a 144.3% increase from 2007. Followed by Southern
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Yanbu Cement Company
Global Research - Saudi Arabia
Global Investment House
Cement with a pile of 92,000 tons. On the other hand Tabuk Cement has the lowest amount of inventories reaching 28,000 tons and witnessing a decrease of 20% in inventories from 2007. Yanbu and Arabian Cement joins Tabuk Cement with a decrease in inventories in 2008, Yanbu and Arabian Cement stock decreased 8.3% and 2.9% respectively in 2008. CapacityUtilizationRates Utilization rates of Saudi cement companies have reached an average of 78.2% in 2008 as compared with 94.3% enjoyed in 2007 and 98.6% in 2006. Rates have decreased 17.1% in 2008 due to the credit crisis, declined production, export ban and huge inventory. In 2008, Yanbu Cement had the highest cement utilization rate among the eight listed cement companies, utilization rates reached 89.4%, followed is Eastern Cement with a utilization rate of 88.8%. Saudi Cement which dominates the cement sector in terms of production, inventories, and cement sales had the lowest utilization rate of 60.3%, down from 87.9% enjoyed in 2007. Chart05:CapacityUtilizationRates-2008
125.0% 115.0% 105.0% 95.0% 85.0% 75.0% 65.0% 55.0% Yamama Saudi Eastern Qassim 2006
Source: Yamama Cement & Global Research
Yanbu 2007
Arabian 2008
Southern
Tabuk
Capacities of the listed cement companies reach 38.5mn tons in 2008, up 16.7% from the previous year. Saudi Cement witnessed a huge increase in cement capacity, capacity reached 8.9mn tons in 2008 up 48.3% from 2007, a reason for its utilization rates very low in 2008. Increased expansion for cement companies lead to a higher capacity which were hit hard by the credit crisis which directly affected the utilization rates. Companies like Arabian Cement and Southern Cement increased capacity in 2008 by 35.7% and 33.3% respectively. The expansion have decreased their utilization rates significantly by 28.4% and 20.3% respectively. Chart06:GCCCementProductionCapacity2008
Tabuk Cement, 1.5mn Eastern Province Cement, 3.5mn
Yanbu Cement, 4.8mn Saudi Arabia Qassim Cement, 3.7mn
Saudi Cement, 8.9mn
Arabian Cement, 3.8mn
Southern Cement, 6.0mn
Yamama Cement, 6.3mn
Source: Company Reports & Global Research
Yanbu Cement Company
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Global Research - Saudi Arabia
Global Investment House
Profitability Saudi Arabian listed cement companies have managed to post a slight decrease in profits of 10.5% during the year 2008, combined net profit decreased to SR4.0bn down from SR4.4bn enjoyed in 2007. The reason for the nominal decrease in profits is the increase in costs and slow demand. Costs of sale increased 10.8% pushing down margins as well as profits. Table04:KSACementEarningsGrowth-2008
(%) Sales Revenue Cost of Sales Gross Profit Net Profit Assets Equity Liability Yamama -5.3% 9.7% -13.4% -16.5% 50.4% 34.2% 178.4% Saudi Eastern Qassim -7.5% -13.5% -3.2% -9.8% -6.6% 2.5% -5.7% -18.0% -6.1% -9.5% -16.7% -4.4% 17.6% -11.8% 10.2% 4.0% -11.3% 13.1% 50.8% -14.9% 2.0% Yanbu Arabian Southern -6.6% 27.1% 12.4% 3.7% 74.6% 24.9% -14.0% -6.7% 4.9% -15.3% -17.3% 12.4% 28.1% 54.9% 4.3% 29.9% 27.2% 13.5% 13.6% 152.0% -30.0% Tabuk -14.7% 10.6% -29.0% -31.4% 0.7% -4.6% 47.8%
Source: Company Reports
Tabuk Cement witnessed a very tough year, profits decreased 31.4% the highest decline among listed cement companies, reaching a total of SR151.1mn in 2008. Sales revenues plunged 14.7% and equity decreased 4.6%. On the other hand, Southern Cement outperformed the whole cement market in 2008, the only company that posted positive net profits among KSA cement companies of 12.4%, equity jumped 13.5%, and liabilities decreased 30%. In addition Southern Cement earned the highest profits of SR791.1. Chart07:FinancialStatisticsofKSACementCompanies2008
1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 0.0 Yamama Saudi Eastern Qassim Yanbu Arabian Southern Tabuk Sales Revenue
Source: Tadawul
10,000.0 8,000.0
SR mn
SR mn
6,000.0 4,000.0 2,000.0 0.0 Yamama Saudi Eastern Qassim Yanbu Arabian Southern Tabuk Assets Equity Liability
Cost of Sales
Net Profit
Table05:2008Ratio's
Dividend Yield (%) P/E (x) P/B ratio (x) ROA (%) ROE (%) Yamama Saudi Eastern Qassim Yanbu Arabian Southern Tabuk 5.9 6.2 7.5 9.9 10.3 9.7 10.7 7.6 7.5 9.3 7.9 7.0 7.3 7.7 8.3 11.8 1.6 2.0 1.8 2.1 1.7 1.1 2.8 1.7 17.0 13.7 19.7 22.8 21.5 8.9 28.8 12.3 21.5 21.8 23.2 30.0 23.8 13.9 33.5 14.5
* Ratio's as of Dec.31, 2008 Source: Tadawul
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Yanbu Cement Company
Global Research - Saudi Arabia
Global Investment House
Saudi Arabia was able to pull out a year with a nominal drop in profits owing to the lesser reliance on other source of income and focus on the core business itself. On the back of a strong demand up until 3Q-2008, average realization for all companies rose an average of 3.9%. The weighted average realization increased from SR254.16 in 2007 to SR263.8 ending 2008. Arabian Cement prices rose abruptly by 30.8% in 2008 increasing from SR 255.51 to SR334.3 in 2008. While Saudi Cement witnessed the biggest decline of 9.1%, average realization decreased from SR258.14 to SR234.7. Chart08:CementProductionandAverageRealization2007&2008 2008 2007 400.0 6,000 270.00 6,000 350.0 265.00 5,000 5,000 300.0 260.00 4,000 250.0 255.00 4,000 200.0 3,000 250.00 3,000 150.0 245.00 2,000 2,000 100.0 240.00 1,000 50.0 235.00 1,000 230.00 Yamama Saudi Eastern Qassim Yanbu ArabianSouthern Tabuk Yamama Saudi Eastern Qassim Yanbu Arabian Southern Tabuk Average Realization (SR/ton) Average Realization (SR/ton) Cement Produced (000 tons) Cement Produced (000 tons)
Source: Company Reports and Global Research
As of Q1-2009, cement companies profits continued to post declining profits, Q1-2009 profits decreased an average of 20% from the same period a year ago, with Eastern Cement posting the largest decline of 37%, while Qassim Cement posted the lowest of 5%. While Southern Cement continued to post the biggest profits of SR200.2mn and Tabuk the lowest with SR33.5mn, a 34% decrease from the same period last year. Chart09:Q-o-Qchangeinprofits 220 200 180 160 140 120 100 80 60 40 20 0 Tabuk Eastern Arabian Yamama Qassim Yanbu Saudi Southern Q4-2008 Q1-2009 % Change
SR mn
Source: Company Reports, Global Research
300.0% 250.0% 200.0% 150.0% 100.0% 50.0% 0.0%
But on a Q-o-Q basis, Saudi listed cement companies have performed excellently. This shows the strength of the sector and that the construction and real estate slowdown has not affected the Saudi Arabian cement market due to the continuous support of the government, in addition to a oil breakeven price is US$46 for KSA that will continue to post surplus in its budget. Saudi Arabian cement companies are undergoing capacity expansions that will increase it from 44mtpa in 2008 to 55mtpa in 2011.
Yanbu Cement Company
9
Global Research - Saudi Arabia
Global Investment House
May2009 During May 2009, cement production witnessed a increase of 7.8% as compared to the same period a year ago. Local cement sales reached 3.39mn tons, of which 3.30mn tons are local sales, while 85,000 tons are export sales. Local sales increased substantially by 23% as compared with May 2008 while export sales decreased 83.2%. In May 2009, the cement industry hit a new milestone, cement sales exceeded the 3.3mn tons for the first time. Overall cement sales in January to May 2009 reached 15.6mn tons, up 16.1% from the same period in 2008. Chart10:CementSalesinMay2009
500 450 400 350 300 250 200 150 100 50 a rn dh an bu rn n a i sim am ud uk ra in ste he bi Ya n Ta b ya ad aj Sa Ya m as ra Ea ut Ri N A So M Q N or th er n
0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 -0.1 -0.2
('000 tons)
2008
2009
Y-o-Y
Source: Yamama Cement
While YTD from January to May 2009, cement production increased 1.9% to reach 15.8mn tons with Saudi and Southern Cement dominating the production list, producing 2.42mn tons and 2.29mn tons respectively. In terms of local sales, deliveries increased 16.1% to reach 15.6mn tons as compared with 13.4mn tons during the same period 2008. As per inventories, cement piles increased 39.9% while clicker inventories increased 419.18% during the period Jan-May 2009. Saudi, Southern and Yamama Cement continue to dominate the production and local sales category in 2009. Chart11:CementInventoriesinMay2009
250 200
'000 tons
150 100 50 0
Ya m am a
rn
dh
n
rn
n
a
sim
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ud
uk
bi a
ste
he
ra
in
Ri ya
Ya n
Ta b
Sa
as
A ra
So ut
Ea
N
ad
M
Q
2008
2009
Source: Yamama Cement
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Yanbu Cement Company
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Global Research - Saudi Arabia
Global Investment House
SectorOutlook Finally the sun have shined on the cement market once again, by May 25th 2009 the government is expected to life the export ban on majority of the countries. The ban lift will help contribute to increasing profits. Going forward, the ban lift will positively impact the cement market. The current crisis had its limits only on the 4Q-2008, with the new current year profits growth showed no slowdown in the cement sector. Despite a ban on export and a credit crisis, cement companies posted positive profits in 2008 and Q1 of 2009. The average growth of cement company profits excluding Tabuk Cement and Arabian Cement grew at an average rate of 33.2% on a Q-o-Q basis, Tabuk and Arabian reported a 280.7% and 122.7% profit growth respectively in Q1-2009. Cement is considered a major and a principal unit of building materials. An export ban on cement companies was for the government to take it time to reshuffle major notices in the industry. Cement prices reached new high which made it hard and expensive for the customer to obtain. As a result the government implemented a ban on cement export. The export ban was to supply the Saudi market once again and decrease cement prices. As of 25th May 2009 the government will allow companies to export under certain restrictions. Sell the cement bag for SR10 before exporting, make sure the availability of cement to the local market and to avoid shortage of supply, to make sure of the availability of strategic inventory up to 10% of local market needs, and finally is the availability of updated data through the ministry regarding levels of production, distribution network as well as prices to avoid facing the same crisis in the future. In addition, ministry of commerce and industry mentioned that the cement industry will continue to grow and be good in 2009. The ministry clarified that it is still getting orders for cement licenses and in a matter of time two new companies will enter the cement market, AlJouf Cement and AlSafwa Cement. Between April and May of 2009, the government has given the acceptance for Northern Cement to export some of its excess supply but its restricted to sell the local cement by SR10 per bag, in addition the company will preserve 10-12% of its production in storage for any sudden increase in demand. The CEO of Northern Cement then mentioned that it has orders to export 50% of its production. Today cement companies look at a export ban as a way to deprive them from their profits, but the Commerce and Industry Government is trying to help the consumer by decreasing price and limiting the chaotic market. The export lift will be the important event of 2009 that will in additionally increase net profits and decrease huge inventories and get the market back on track once again. Saudi cement export will cater to the deficit markets of GCC as well as of MENA. Countries like Kuwait, Qatar, Bahrain in GCC and Yemen, Syria, Jordan and Iraq has demand supply gap of cement. But looking at the sector as a whole, the fundamentals are very strong in addition to the huge government spending that will increase the cement activity and limit the negative externalities of the export ban.
Yanbu Cement Company
11
Global Research - Saudi Arabia
Global Investment House
Yanbu Cement Company
Established in 1977, YCC started its 1,500tpd cement production in 1979 at Ras Baridi, the company's only factory. Controlled by AlRajhi family and the Saudi government, Yanbu has a paid up capital of SR1.05bn. It serves the western region of KSA to supply cities like Jeddah, Madina, and Madina. Yanbu faces competition from the existing Arabian Cement Company and from upcoming newly established cement companies in the western region. Yanbu enjoys the enormous supply of natural minerals on the western region of KSA. Minerals include oil, limestone, sand, and iron ore, this helps in the availability of materials and help ease production cost. Limestone and gypsum reserves are located adjacent to the plant with more than 50 years mine life. Clay is mined some 20km south east of the plant while sand stone and iron ore are transported from other parts of Saudi Arabia. Over the past five years, cement utilization has remained well above 88%. Currently cement and clinker production capacity is 4.8mtpa and 4.1mtpa respectively. Chart12:CementCapacity
9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 2006 2007 2008 2009F 2010F Cement Capacity 2011F 2012F
Source: Company Reports & Global Research.
Yanbu Cement Company has a cement production capacity of 4.8mtpa in 2008 and a 89.4% utilization rates while clinker capacity reached 4.1mtpa and an 88.4% utilization in the same year. With an new 5th production line under process capacity will increase to 7.8mtpa. Realization prices for cement reached SR254.4/ton in 2008, up 1% from 2007. On a CAGR basis realization prices increased 8.8% during the period 2004-2008. In 2009 price realization is forecasted to remain constant at SR254.4/ton, and on a CAGR basis prices are expected to increase 1.2% during the period 2008-2012. RevenueShift Yanbu's 2008 revenues reached SR1,093mn in 2008, down 6.6%, due to the fact that in Q4-2008 the gulf region witnessed a huge correction in oil prices, stock exchange and real estate markets. This has directed the economic region in a slowdown. Yanbu realization prices increased up 1% to SR254.4/ton but its cost per ton increase 7% to reach SR95.6/ton. In addition cement activity in Q4-2008 slowed down, where by yearend Yanbu's local sales decreased 7.6% as opposed to a 8.3% and 8.9% decrease in cement and clinker inventory respectively. Local sales reached 4.2mtpa in 2008, as opposed to 4.7mtpa enjoyed in 2007.
12
'000 tons
Yanbu Cement Company
Global Research - Saudi Arabia
Global Investment House
Chart13:SalesRevenue
1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 2006 2007 2008 2009F Sales Revenue (SR '000) 2010F 2011F % Growth 2012F 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0%
Source: Company Reports & Global Research.
YCC production reached 4.3mtpa in 2008 against 4.6mtpa reached in 2007, reporting a 7.1% decrease from 2007. In 2007 revenues reached SR1,170mn as opposed to yearend 2008 revenue of SR1,093mn. On a quarter basis, Q1-2008 reported the best results of SR323.1mn, while Q3-2008 was the lowest performer of the year. OperatingExpenses&Profit Cost of production increased to SR508.5mn in 2008 as compared to SR490.3mn enjoyed in 2007, increasing slightly by 3.7% as opposed to the average increase in cost among listed Saudi cement companies by 13.7%. Of which depreciation cost decreased 7.8% to reach SR97.6mn and production cost increased 6.9% accompanied by the 15.6% increase in cost of production/ton to SR95.6/ton. This have pulled gross profit margins down to 53% in 2008 as compared to 58% in 2007. Gross profit reached SR584.9mn, down 14% from the 2007. Chart14:GrossProfit&Margins
1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 2006 2007 2008 2009F 2010F GPM % 2011F 2012F Gross Profit (SR '000) 65% 60% 55% 50% 45%
Source: Company Reports & Global Research.
On the other hand, operating expenses witnessed a 0.1% decrease from SR24.15mn to SR24.12mn. General and administrative expenses witnessed a 14.7% decline to reach SR3.9mn, while staff costs increased 8.2% to reach SR15.4, and distribution expenses decreased 20.5% to reach SR9.9mn. On a CAGR basis, staff cost increased as well 8.2% during the period 2004-2008, which shows steady growth in times of expansions and slowdown, while G&A and distribution cost increased 12.7% and 23.7% during the same period. Operating profit reached SR560.8mn, a 14.5% decrease from 2007. This have lowered OPM to 51% in 2008 from 56% in 2007.
Yanbu Cement Company
13
Global Research - Saudi Arabia
Global Investment House
In 2009, operating expenses are expected to increase 5.5% in 2009 on the back of higher depreciation and G&A expenses. This not affect operating margins which will remain still at 51%. Operating profits are expected to increase 3% reaching SR577.1mn in 2009. Chart15:EBITDAMargins
12,000,000 10,000,000 8,000,000
SR '000
70% 65% 60% 55% 50% 45% 40% 35% 30% 2006 2007 2008 EBITDA 2009F EV 2010F 2011F EBITDA Margins 2012F
6,000,000 4,000,000 2,000,000 0
Source: Company Reports & Global Research.
OtherIncome Other income segment witnessed a 2.1% increase from 2007 to reach SR18.8mn as of 2008. On a CAGR basis, other income increased 26.9% during the period 2004-2008. On the other hand financial charges decreased 3.7% to reach SR728,000 in 2008. NetProfit Yanbu Cement Company posted 2008 net profits of SR559.7mn as opposed to SR660.9mn in 2007, a 15.3% decrease. Earnings Per Share decreased to SR5.33/share in 2008 against SR6.29/share in 2007. As a result the net profit margins fell from 56% in 2007 to 51% in 2008. In addition compared with other listed cement companies, YCC 2008 profits is considered above the average of 12.3% decline in listed cement companies profits. Chart16:QuarterlyPerformance
400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 70% 60% 50% 40% 30% 20% 10% 0%
(SR `000)
Source: Company Reports & Global Research.
In term of quarterly result, Q1-2009 proved to be strong, Yanbu declared profits of SR151.7mn, on a q-o-q basis, profits increased 26% which brought net profit margins up from 48% in Q42008 to 55% in Q1-2009. On a Y-o-Y basis, profits declined 9.9%. On the cost side, cost decreased 11% to reach SR117.5mn.
14
00 2Q 6 /2 00 3Q 6 /2 00 4Q 6 /2 00 1Q 6 /2 00 2Q 7 /2 00 3Q 7 /2 00 4Q 7 /2 00 1Q 7 /2 00 2Q 8 /2 00 3Q 8 /2 00 4Q 8 /2 00 1Q 8 /2 00 9
Revenue Net Profit NPM
1Q /2
Yanbu Cement Company
Global Research - Saudi Arabia
Global Investment House
Table06:YanbuCementCompanyInterimResults
(SR' 000) Sales Revenue Cost of Sales GrossProfit Operating Expenses OperatingProfit Financial Charges Other Income ProfitBeforeZakat Minority Interest Zakat NetProfit EPS Equity Liability Assets GPM OPM NPM
Source: Company Report
Q4/2008 252,823 (131,375) 121,449 (7,393) 114,055 (205) 7,491 121,341 356 (1,450) 120,247 1.15 2,372,729 227,083 2,599,812 48% 45% 48%
Q1/2009 277,402 (117,518) 159,884 (5,657) 154,226 (70) 2,309 156,466 (611) (4,072) 151,783 1.45 2,102,922 207,429 2,310,351 58% 56% 55%
Q-o-Q%Change 10% -11% 32% -23% 35% -66% -69% 29% -272% 181% 26%
-11.4% -8.7% -11.1%
BalanceSheet In 2008, YCC assets increased 1.4% to reach SR2,599mn as compared to SR2,563mn in 2007. The slight increase is attributed to the 251.9% increase in cash is funds and banks to reach SR132.1. In addition trade receivables increased 15.5% to SR134.7, 10% in stock inventory, and 12.8% in inventories. On the other hand, investment in funds which hold the largest segment of current assets, making a 41.9% share in 2008 was affected by the capital market deterioration and recorded a 40% decrease in value to reach SR388.4mn. The decline can also be attributed to the sell of investments for the requirement of expansion funds. The plant and property segment increased 10.2% to reach SR1,673mn. During the ongoing crisis liquidity is considered a survival tool for companies around the KSA and the GCC. Cash in funds and banks which is huge liquidity used to make a 3.6% share of current assets of YCC in 2007. In 2008 the share increased to 14.3%, showing the counter strategy Yanbu is taking to tackle the credit crisis. Current assets reached SR926.2mn in 2008 against SR1,043mn in 2007, a 11.2% decrease. Chart17:AssetComposition
100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2006 2007 Cash in Fund &Banks Spare Parts &Other Materials 2008 2009F Investment in Funds Plant & Equipment 2010F 2011F 2012F Trade Receivables Stock Inventory &WIP Deferred Expenses
Source: Company Reports, Global Research
Yanbu Cement Company
15
Global Research - Saudi Arabia
Global Investment House
As for liability and equity, liability increased slightly by 0.6% to reach SR185.7mn. The slight increase it attributed to an increase in employee indemnity provisions by 16.4% and an 11.8% increase in profits from distribution. Long term loans reached SR5.0mn in 2008, down 47.5% from 2007. In addition trade payables decreased abruptly to reach SR5.7mn in 2008 from SR23.7mn, a 75.9% decline. While shareholders equity increased 1.4% to reach SR2,356mn as compared to SR2,323mn recorded in 2007. ExpansionPlans Yanbu Cement is currently under an expansion plan. On 30th July 2008, YCC signed an agreement with Sinoma International Engineering Co. of China to produce a 5th line of production capable of producing 10,000tons/day of clinker which is equal to 3.2mtpa, this will lift its clinker capacity to 7.1mtpa and cement capacity to 7.8mtpa. The contract is valued at US$442mn. In addition to Sinoma contract, YCC signed a contract to expand power stations to accommodate its expansion plans, the contract is valued at Euro31.5mn. Increasing capacity will add to higher revenues after 2011. Saudi Arabia is continuing its developmental projects despite the economic slowdown & credit crunch. The local demand is to come from the residential segment as majority of the local's do not own a home and drive towards ownership would raise the demand. On the other hand export demand is to continue because of deficit in markets of various GCC and MENA countries.
16
Yanbu Cement Company
Global Research - Saudi Arabia
Global Investment House
ChartGallery-YanbuCementCompany
Revenue (SR mn) Assets (SR mn)
1,200 1,000 800 600 400 200 0 2003 2004
2,750 2,500 2,250 2,000 1,750 1,500
2005
2006
2007
2008
2003
2004
2005
2006
2007
2008
7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0%
Debt to Equity (%)
64.0 62.0 60.0 58.0 56.0 54.0 52.0 50.0 48.0 2003 2007 2008
Gross Margins (%)
2004
2005
2006
2007
2008
2003
2004
2005
2006
30.0 27.5 25.0 22.5 20.0 17.5 15.0 2003
Return on Average Assets (%)
32.0 30.0 28.0 26.0 24.0 22.0 20.0
Return on Average Equity (%)
2004
2005
2006
2007
2008
2003
2004
2005
2006
2007
2008
2,500.0 2,000.0 1,500.0 1,000.0 500.0 2003 2004
Equity (SR mn)
700.0 600.0 500.0 400.0 300.0 200.0 100.0
Net Profits (SR mn)
2005
2006
2007
2008
2003
2004
2005
2006
2007
2008
P/Bv Ratio (x) 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 2003 2004 2005 2006 2007 2008
40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 2003 2004
P/E Ratio (x)
2005
2006
2007
2008
Source: Company Annual Reports
Yanbu Cement Company
17
Global Research - Saudi Arabia
Global Investment House
Outlook
Yanbu enjoys the enormous supply of natural minerals on the western region of KSA. Minerals include oil, limestone, sand, and iron ore, this helps in the availability of materials and help ease production cost. Limestone and gypsum reserves are located adjacent to the plant with more than 50 years mine life. Clay is mined some 20km south east of the plant while sand stone and iron ore are transported from other parts of Saudi Arabia. On the past five years, cement utilization has remained well above 88%. Currently cement and clinker production capacity is 4.8mtpa and 4.1mtpa respectively and is expected to reach 7.8mtpa and 7.1mtpa respectively by 2011. In 2009, sales revenue are forecasted to increase 3.8% to reach SR1,135mn on the back of growing demand of cement and a US$400bn infrastructure development in KSA. In addition utilization rates are expected to bounce back to 93% in 2009 from the 89.4% enjoyed in 2008, as of Q1-2009 utilization rates increase to 91.5%. On a CAGR basis, sales revenue are expected to increase 10.2% during the period 2008-2012. The reason of increased growth, is because Yanbu is undergoing an expansion that will come into effect in 2011, raising cement capacity will increase from 4.8mtpa to 7.8mtpa. Cost of production in 2009 is expected to increase by 4.8% to reach SR532.9mn due to higher depreciation cost. Gross profit is expected to increase 3% but gross profit margins will remain at 53% in 2009. During the period 2008-2012, gross profits are forecasted to increase 10.4% and margins to reach 54% by 2012. Cost per ton is expected to decrease to SR90/ton in 2009, down 5.4% from 2008, while during the 2008-2012 period cost per ton is expected to report a 1% CAGR. Net profits are forecasted to reach SR564.9mn, increasing 0.9% in 2009. Profits will remain constant in 2009 and 2010, but by 2011 net profits will burst and reach SR763.7mn due to the proceeds from the new line. Chart18:Profits&Margins 1,000,000
800,000
65% 60% 55% 50% 45% 40%
SR '000
600,000 400,000 200,000 2006 2007 2008 Gross Profit GPM 2009F 2010F Operating Profit OPM 2011F 2012F Net Profit NPM
Source: Company Reports, Global Research
While in Q2-2009, Yanbu profits reached SR151mn (EPS/SR1.44), a 0.67% decrease from the previous quarter and a 1.3% increase on a Y-o-Y basis. 1st half 2009 profits reached SR303mn (EPS/SR2.88), as compared to SR318mn (EPS/SR3.03) during the same period a year ago. According to Yanbu Cement, the decrease in Q2-2009 is attributed to lower sales volume. In the future, Yanbu is expected to benefit strongly from the infrastructural projects of the KSA, especially in the western region. As of June 29, 2009 projects of the KSA reached SR574.1bn, up 20.8% on a Y-o-Y basis. On the other hand, Yanbu would continue to face competition from Arabian Cement and upcoming new Safwa Cement and Western Cement.
18
Yanbu Cement Company
Global Research - Saudi Arabia
Global Investment House
Valuation & Recommendation
DCFMethod In order to compute the cost of equity for the Discounted Cash Flow (DCF) method, we have used the Capital Asset Pricing Model (CAPM). The following assumptions have been made in order to arrive at the DCF value. · · · · A risk-free rate of 5.50% has been assumed. A market risk premium of 6.0% has been assumed. The beta of the company has been taken as 1.0. The cost of equity derived from the above assumptions using the Capital Asset Pricing Model (CAPM) is 11.50%. The cost of debt taken is 7%. Based on the above assumptions, the Weighted Average Cost of Capital (WACC) works out to be 11.05%. Terminal growth rate of 3.0% has been assumed.
· ·
·
Based on our future earnings projections and the above assumptions for DCF computations, the DCF value of Yanbu Cement Company is SR85.7per share. Table07:YanbuCementEquityValuationbyDCF
(SR 000) Free Cash Flow Discounted Cash Flow WACC Terminal Value Primary Value Discounted Terminal Value Investments Cash Debt Enterprise Value Equity Value No. of Equity Shares Outstanding PerShareValue(SR)
Source: Company Report, Global Research
2009(F) 124,738 118,284
2010(F) 254,616 217,419
2011(F) 653,524 502,520
2012(F) 838,584 580,657
11.05% 10,729,702 1,418,879 7,429,523 82,626 (As of 1Q-09) 89,717 (As of 1Q-09) 11,219 (As of 1Q-09) 9,009,526 8,998,307 105,000 85.7
SensitivityAnalysis A sensitivity analysis for different estimated long-run future growth rates and weighted cost of capital (and, thereby, the underlying betas) is shown in table below. The table provides Yanbu Cement Company 19
Global Research - Saudi Arabia
Global Investment House
estimated fair values for YCC's shares based on a range of varying inputs. The shaded area at the center shows the most probable range of alternatives. Table08:YanbuCementCompanySensitivityAnalysis
TerminalGrowthRate 2.0% 2.5% 3.0% 87.6 92.8 98.7 82.1 86.6 91.7 77.3 81.2 85.7 72.9 76.4 80.4 69.0 72.1 75.6 3.5% 105.5 97.6 90.8 84.8 79.5 4.0% 113.4 104.3 96.5 89.8 83.9
10.1% 10.6% 11.1% 11.6% 12.1%
Source: Global Research
RelativeValuationMethod The peer group valuation is performed to compare the intrinsic value of Yanbu Cement arrived at using the DCF calculation. In order to value Yanbu Cement using this method, we have used the weighted average price-to-earnings (P/E) multiple for the Saudi Cement sector. The priceearnings multiple of a stock is a reflection of various factors, such as the expected profitability of the company, its growth potential as perceived by the market, predictability and sustainability of its revenues, the quality of its earnings and the quality of its management, among others. To arrive at the peer-set P/E multiple, we have computed the average industry P/E of the listed cement companies in KSA, based on their current market prices and projected earnings for 2009. The weighted average P/E for the KSA cement industry, thus arrived at, is 10x. On the basis of the weighted average P/E for the industry and Yanbu Cement's projected 2009 earnings, the company's stock valuation comes to SR53.8 per share. However, as the price-earnings multiple varies with time and is dependent on several factors, such as market sentiment and other qualitative factors, we have provided a lower weightage of 20% to the peer valuation method, and 80% weightage to the value arrived at using the DCF method. Valuations The value of YCC's shares derived from the weighted average of the DCF and relative valuation methods is SR79.3 per share. The stock closed at SR48.10 on the Tadawul at the end of trading on July 1st 2009, which implies that the weighted average value of YCC's shares is at a premium of 64.9% to the share's current market price. Table09:WeightedAverageShareValueofYanbuCementCompany
(SR) As per DCF Method As per Relative Valuation WeightedAverageShareValue(80%DCF,20%P/E)
Source: Global Research
WACC
FairValue 85.7 53.8 79.3
At current price, YCC's shares have a P/E multiple of 8.9x and 8.9x for 2009 and 2010 respectively. We therefore maintain our `BUY' recommendation for the scrip.
20
Yanbu Cement Company
BALANCESHEET
Global Research - Saudi Arabia
2006 42,767 286,811 88,715 102,730 116,499 637,521 1,609,807 2,693 2,250,022 1,518,356 1,507 2,563,400 1,673,161 389 2,599,813 2,140,460 292 2,780,835 2,443,359 219 3,004,109 2,446,206 219 3,178,949 2007 37,558 646,550 116,660 104,433 138,335 1,043,536 YANBUCEMENTCOMPANY 2008 2009(F) 2010(F) 132,176 163,063 68,151 388,459 58,269 40,788 134,730 139,901 149,103 114,845 116,809 133,651 156,053 162,042 168,838 926,263 640,084 560,531 2011(F) 93,579 44,867 198,155 176,317 219,607 732,525 2012(F) 157,355 53,840 221,100 193,891 234,366 860,552 2,391,105 219 3,251,875
Yanbu Cement Company
1,165 5,627 44,200 12,896 51,173 115,060 13,979 23,953 152,992 9,707 31,177 225,813 5,091 36,278 227,083 105,091 41,719 366,977 4,660 23,759 45,876 19,975 90,660 184,929 4,660 5,718 51,268 16,498 107,571 185,715 5,255 26,282 53,831 16,470 118,329 220,166 12,755 28,302 56,523 16,563 130,161 244,304 255,091 45,891 545,286 13,010 35,263 59,349 22,265 143,178 273,065 260,193 50,480 583,738 1,050,000 525,000 509,765 2,084,765 12,265 2,250,022 1,050,000 525,000 748,519 2,323,519 14,068 2,563,400 1,050,000 746,318 559,737 2,356,055 16,674 2,599,812 1,050,000 746,318 597,531 2,393,849 20,009 2,780,835 1,050,000 746,318 638,494 2,434,812 24,011 3,004,108 1,050,000 746,318 770,080 2,566,398 28,813 3,178,949
(SR 000) Cash in Fund and Banks Investment in Funds Trade Receivables Stock Inventory and WIP Spare Parts and Other Materials TotalCurrentAssets
Plant and Equipment Deferred Expenses TotalAssets
Liabilities: Current Portion of Long-term loans Trade Payables Profits for Distribution Zakat Provision Other Liabilities TotalCurrentLiabilities
6,505 36,737 62,316 23,635 157,495 286,689 130,096 55,528 472,314
Long-term Loan Employee Indemnity Provision TotalLiabilities
Global Investment House
Owner'sEquity: Paid-up Capital General & Statutory Reserves Retained Earnings TotalOwner'sEquity Minority Interest TotalLiabilitiesandOwner'sequity
1,050,000 746,318 948,668 2,744,986 34,575 3,251,875
21
Source: Company Reports & Global Research
Global Research - Saudi Arabia
22
2006 843,243 (317,329) 525,914 (2,785) (12,941) (2,436) (894) 506,857 (1,399) 9,948 515,406 8,661 (11,551) (314) 512,201 2007 1,170,728 (490,390) 680,338 (4,654) (14,310) (4,277) (909) 656,188 (1,054) 18,472 673,606 7,723 (18,573) (1,803) 660,953 YANBUCEMENTCOMPANY 2008 2009(F) 2010(F) 1,093,514 1,135,484 1,183,101 (508,537) (532,939) (573,912) 584,977 602,545 609,190 (3,968) (4,317) (4,498) (15,482) (16,076) (16,750) (3,400) (3,530) (3,679) (1,274) (1,522) (1,829) 560,854 577,100 582,434 (728) (2,102) (5,102) 18,867 9,434 10,377 578,993 584,432 587,709 (16,650) (16,806) (16,901) (2,606) (2,631) (2,646) 559,736 564,994 568,163 2011(F) 1,538,862 (715,063) 823,799 (6,155) (23,852) (5,386) (1,951) 786,454 (7,806) 11,415 790,063 (22,720) (3,556) 763,786 367,264 512,201 (367,500) (2,200) 509,765 509,765 660,953 (420,000) (2,200) 748,519 748,519 559,736 (525,000) (221,318) (2,200) 559,737 559,737 564,994 (525,000) (2,200) 597,531 597,531 568,163 (525,000) (2,200) 638,494 638,494 763,786 (630,000) (2,200) 770,080
INCOMESTATEMENT
2012(F) 1,614,029 (744,948) 869,081 (6,456) (25,017) (5,649) (1,930) 830,028 (3,903) 12,556 838,681 (24,118) (3,775) 810,788
(SR 000) Sales Revenue Cost of Sales GrossProfit General and Administrative Expenses Staff Costs Distribution Expenses Depreciation OperatingProfit Finance Expenses Other Income NetProfitbeforeZakat Insurance Claims Zakat Minority Interest NetProfit
P&LAppropriation Balance- Beginning of the Year Net Income for the Year Proposed Dividend Transfer to General Reserves Director's Fees Balance-EndoftheYear
770,080 810,788 (630,000) (2,200) 948,668
Global Investment House
Yanbu Cement Company
Source: Company Reports & Global Research
CASHFLOWSTATEMENT
2006 512,201 7,693 94,287 (7) 1,186 314 1,478 11,551 660,953 4,425 106,756 161 12,878 1,803 7,224 18,573 559,736 2,410 98,902 (46) 20,117 2,606 5,100 16,443 564,994 132,701 97 3,335 5,442 (28) 568,163 147,101 73 4,002 4,172 92 763,786 147,154 4,802 4,589 5,703 810,788 155,101 5,763 5,048 1,370 2007 YANBUCEMENTCOMPANY 2008 2009(F) 2010(F) 2011(F) 2012(F)
(SR 000) Operatingactivities Net Income Provision for Slow Movement Goods Depreciation Gain on Sale of Property, Plant and Equip. Amortization Minority Interest Employee Indemnity Provision Zakat Provision
Global Research - Saudi Arabia
Yanbu Cement Company
(3,095) (35,652) (14,637) (44,932) 19,028 (10,521) 538,895 (27,945) (1,704) (26,260) 18,132 35,343 (11,494) 798,847 (18,070) (12,822) (17,717) (18,041) 17,066 (19,920) 635,764 (5,171) (1,964) (5,989) 20,564 10,757 724,738 (9,202) (16,842) (6,795) 2,021 11,833 704,616 (49,052) (42,666) (50,770) 6,961 13,016 803,524 (46,571) (36,987) (18,704) 7 7,000 (95,254) (359,739) (27,168) 10 (386,896) 258,090 (272,705) 46 (14,568) 330,190 (600,000) (269,810) 17,481 (450,000) (432,519) (4,079) (150,000) (154,079) (97,730) (1,395) (388,129) (2,200) (489,454) (45,813) 88,580 42,767 (130) 3,495 (418,324) (2,200) (417,159) (5,209) 42,767 37,558 (4,770) (519,608) (2,200) (526,578) 94,618 37,558 132,176 100,000 595 (522,437) (2,200) (424,042) 30,887 132,176 163,063 150,000 7,500 (522,308) (2,200) (367,008) (94,912) 163,063 68,151 5,102 255 (627,174) (2,200) (624,017) 25,428 68,151 93,579
Changes in Assets and Liabilities Dec/(inc.) in Receivables Dec / (inc) in Inventories Dec/ (inc) in Other Current Assets Inc/(dec) in Payables Inc/(dec) Other Current Liabilities Zakat NetCashflowfromOperatingactivities
(22,945) (17,574) (14,758) 1,474 14,318 938,584
Investingactivities Investment in Mutual Funds Projects Under Operation Purchase of Plant and Equipment Proceeds from Sale of Plant and Equipment Net Change in Investments NetcashflowfromInvestingactivities
(8,973) (100,000) (108,973)
Global Investment House
23
FinancingActivities Long-term Loans Payment of Long-term Loan Dividend Directors Fees NetCashFlowfromFinancingactivities
(130,096) (6,505) (627,033) (2,200) (765,834) 63,776 93,579 157,355
Net Change in Cash Net Cash at Beginning NetCashatEnd
Source: Company Reports & Global Research
FACTSHEET
2006 2007 YANBUCEMENTCOMPANY 2008 2009(F) 2010(F) 2011(F) 2012(F)
Global Research - Saudi Arabia
24 0.1 0.0 0.4 0.5 0.4 62.4 60.1 60.7 22.8 25.4 3.7 9.7 11.3 4.9 19.9 14.5 8.9 1,877 71.7 7,534 71.8 14.7 3.6 6.3 22.1 14.6 8.4 2,057 63.5 9,896 94.3 15.0 4.3 4.7 11.4 33.4 4.6 8.7 34.5 5.3 22.4 6.8 3.6 828 93.8 4,095 39.0 7.3 1.7 4.6 8.3 33.3 5.4 22.8 8.5 4.4 1,041 92.9 5,051 48.1 8.9 2.1 0.5 0.7 0.5 58.1 56.0 56.5 27.5 30.0 0.4 0.7 0.5 53.5 51.3 51.2 21.7 23.9 0.4 0.6 0.5 53.1 50.8 49.8 21.0 23.8 0.4 0.5 0.5 51.5 49.2 48.0 19.6 23.5 4.6 8.2 21.0 5.4 23.2 8.9 4.4 1,094 92.4 5,051 48.1 8.9 2.1 0.1 0.0 0.1 0.0 0.1 0.0 0.1 0.1 0.1 0.1 0.5 0.6 0.6 53.5 51.1 49.6 24.7 30.5 4.6 8.9 22.5 7.3 24.4 6.6 3.4 671 82.5 5,051 48.1 6.6 2.0
5.5 4.5 98 38 135 32 103
5.6 4.9 77 32 109 11 98
5.0 4.1 79 42 121 11 110
2.9 2.2 79 44 123 11 113
2.3 1.6 80 45 124 17 107
2.7 1.9 79 41 120 16 104
3.0 2.2 91 47 138 18 120 0.1 0.0 0.5 0.7 0.6 53.8 51.4 50.2 25.2 30.5 4.0 7.7 20.7
Global Investment House
Yanbu Cement Company
LiquidityRatios Current Ratio (x) Quick Ratio (x) Inventory Stock (days) Receivables Outstanding (Days) Length of Operating Cycle (Days) Payables Outstanding (Days) Length of Cash Cycle (Days) LeverageRatios Current Liability / Equity (x) Debt / Equity (x) ProfitabilityRatios Total Assets Turnover (x) Total Net Fixed Assets Turnover (x) Equity Turnover (x) Gross Profit Margin (%) Operating Margin (%) Net Profit Margin (%) Return on Average Assets (%) Return on Average Equity (%) ActivityRatios Inventory Turnover Ratio (x) Debtor turnover Ratio (x) Creditors Turnover Ratio (x) RatiosUsedforValuation EPS (SR) Book Value Per Share (SR) EV/EBITDA (X) EV/ Revenues EV/Ton (SR) Dividend Payout Ratio (%) Market Capitalization (SR mn) Market Price (SR) * P/E Ratio (x) P/BV (x)
7.7 26.1 6.0 3.1 645 77.7 5,051 48.1 6.2 1.8
Source: Company Reports & Global Research *Market price as on July 1st 2009
Global Research - Saudi Arabia
Global Investment House
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 Yanbun Cement Company Recommendation Buy Ticker 3060.SE (Reuters) YNCCO AB (Bloomberg) Price SR48.10 Disclosure 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 Buy Hold Reduce Sell Fair value of the stock is >10% 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 between -10% and -20% from the current market price Fair value of the stock is < -20% from the current market price
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Yanbu Cement Company
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