Global Cuts Yamamah Cement to ‘Reduce’

JEDDAH, 9 May 2006 — Global Investment House (Global) has downgraded Yamamah Saudi Cement Co. Ltd. to “reduce” from “hold.” At current prices, the company’s share is quoting at a premium of more than 15 percent of its intrinsic value, Kuwait-based Global said in its report.

“We, therefore, recommend a ‘reduce’ on the ... stock at the current price levels, downgrading it from our earlier recommendation of ‘hold’,” Global added.

While the stock has lost most of its gains in recent weeks, it is still trading at a high premium to its intrinsic value, the brokerage added.

Despite the Global’s report, Yamamah’s shares were trading 5.66 percent higher at SR102.75 in morning trading yesterday.

Yamamah Cement is among the biggest cement producers in Saudi Arabia. The company was founded in 1961 in Riyadh with a capital of SR25 million. The commercial production began in 1966 with a 300tpd line. Yamamah Cement later expanded its plant capacity by adding new production lines. Today, Yamamah Cement has clinker capacity of 2.8mtpy and cement capacity of 3.0mtpy. The company also has a paper bags unit, with a capacity to produce 30 million bags every year, for captive consumption.

The company is currently listed on the Saudi Stock Market (Tadawul), where it is heavily traded. The turnover of the Yamamah Cement stock on the Tadawul has been very high at over 201 percent over the last one year. The high/low prices of the stock over the last one year have been SR213/ SR64 (post the recent 2:1 bonus and 5:1 stock-split).

The gross profit of Yamamah Cement in 2005 increased by 24.1 percent to SR541.7 million from SR436.3 million in 2004. The gross profit per ton cement sold increased by 21.4 percent to SR152 during the year from SR125 in the previous year, underscoring strong demand for cement in the Saudi market. Among the operating expenses, the general & administrative expenses of SR15.6 million were higher by 32.5 percent during the year. On the other hand, the staff and distribution expenses declined during the year. The operating profit of SR501.8 million in 2005 was higher by 25.3 percent over the previous year. The net profit of the company declined by 7.6 percent during 2005 to SR500.9 million from SR542.2 million in 2004. There was a one-time profit on disposal of investments in 2004 of SR144.8 million; after adjusting for this amount, the actual rise in the net profit in 2005 was 26 percent year-on-year. The EPS (post the recent 2:1 bonus and 5:1 stock-split) of the company fell to SR3.7 from SR4 reported in 2004 (actually risen to SR3.7 in 2005 from SR2.9 in 2004, after adjustment).

The company declared a cash dividend of SR30 per share (60 percent) during the year, the same as in the previous years.

The dividend payout ratio of the company for the year was 53.9 percent, higher than 49.8 percent in the previous year.

The total assets of the company of SR2.7 billion at the end of 2005 witnessed an increase of 38.1 percent over the previous year-end. Trade receivables remained steady at the previous year’s level, while inventories decreased by 13.0 percent.