Yamama Saudi Cement Company. Results Update 4 th Quarter 2011 MARCH Research Division Company Reports

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1 Yamama Saudi Cement Company Results Update 4 th Quarter 2011 Research Division Company Reports Please read Disclaimer on the back All rights reserved, AlJAZIRA CAPITAL

2 RESEARCH DIVISION Head of Research Abdullah Alawi a.alawi@aljaziracapital.com.sa Senior Analyst Syed Taimure Akhtar s.akhtar@aljaziracapital.com.sa Analyst Saleh Al-Quati s.alquati@aljaziracapital.com.sa BROKERAGE AND INVESTMENT CENTERS DIVISION General Manager - Brokerage Division Ala a Al-Yousef a.yousef@aljaziracapital.com.sa AGM-Head of international and institutional brokerage Luay Jawad Al-Motawa lalmutawa@aljaziracapital.com.sa Regional Manager - West and South Regions Abdullah Al-Misbahi a.almisbahi@aljaziracapital.com.sa Area Manager - Qassim & Eastern Province Abdullah Al-Rahit aalrahit@aljaziracapital.com.sa Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), License No

3 Yamama Saudi Cement Company Result Update 4Q11 KSA Cement March Higher sales volumes led YoY profitability growth of 12.6%. High clinker inventory levels and ideal location. Rating: Current Price: Overweight SAR49.3 Strong balance sheet. Upgrade to Overweight recommendation. 12 Months Price Target: SAR55.4 Upside/(Downside): 12.4% High sales volumes led YoY growth Price Chart Yamama Saudi Cement Company (Yamama) posted an after-tax profit of SAR740mn (EPS: SAR5.48) in 2011 compared to PAT of SAR657mn (EPS: SAR4.87) in The company s growth in bottom line was mainly associated with 13.4% YoY growth in revenues. Higher sales volumes (up 9.8% YoY) along with 3.3% YoY increase in average prices attributed to the revenue growth. However, higher production cost as cost per ton increased 3.1% YoY led to marginal improvement in gross margins to 56.1% in , , , , , ,000.0 Jan -08 Jul -08 Jan -09 Jul -09 Jan -10 TASI-LHS Jul -10 Jan -11 Jul -11 Yamama Jan -12 -RHS Financial performance 2011 All fig in SAR mn Annual Change unless otherwise stated (2011/2010) Sales Revenue 1,272 1, % COGS (560) (633) 13.0% Gross Profit % Gross Margin 56.0% 56.1% Operating Profit % Operating Margin 52.4% 52.0% Net Profit % Net Margin 51.6% 51.3% EPS (SAR) Source: Quarterly & annual reports Along with increased production cost, higher SG&A expenses (up 30.9%YoY) limited the operating and net margin expansion. Both the margins remained broadly at the same level of Q2011 financial performance overvieww Yamama s 4Q2011 profitability was recorded at SAR191mn (EPS: SAR1.42), an increase of 19.5% YoY. This indicates that the company s recorded profitability remained 10.8% higher than our estimations for the quarter under review, which was mainly due to higher-than-expected price realizations and sales volumes in addition to lower than expected COGS. Quarterly financial performance All fig in SAR mn YoY-Change 4Q10 3Q11 4Q11 unless otherwise stated (4Q11/4Q10) Sales Revenue % COGS (136) (133) (157) 15.0% Gross Profit % Gross Margin 56.7% 55.7% 57.5% Operating Profit % Operating Margin 52.8% 50.8% 53.1% Net Profit % Net Margin 50.8% 49.3% 51.7% EPS (SAR) Source: Quarterly & annual reports Key Information Reuters Code 3020.SE Bloomberg Code YACCO AB Country: Saudi Arabia Sector: Cement Primary Listing: TASI M-Cap: SAR9.9bn 52 Weeks H/L: SAR57.0/35.3 Yamama Saudi Cement Company Established in 1961, Yamama Saudi Cement Company (Yamama) is the second-largest cement manufacturer in Saudi Arabia. The company s production capacity aggregated 6.3 million tonnes (MT) at the end of YSCC produces ordinary Portland cement and sulfate resisting cement. The company has a 33.3% stake in Cement Product Industry, which was established in 1972 and produces paper bags for cement packaging. Yamama enjoys a significant cost advantage vis-à-vis peers due to its integrated production plants and captive power supply Abdullah Alawi (Head of Research) a.alawi@aljaziracapital.com.sa

4 On a QoQ basis, the bottom line growth (up 28.6%) was largely driven by a 22.7% rise in revenue due to higher volumes. On a YoY basis, performance during 4Q2011 was driven by higher prices and sales volumes, prices increased 5.3% while sales volumes rose 11.4%. Furthermore, decline in zakat expenses contributed to the growth in bottom line. High clinker inventory levels and ideal location remain its key strengths Yamama, with a production capacity of 6.3 MT is the second-largest cement producer in Saudi Arabia. In addition to its high capacity, Yamama maintains the second highest clinker inventory compared to its peers in KSA. As of end 2011, Yamama s inventory level stood at 1.3 MT representing 17.6% of the sector s total inventory. Further, the company is located in the central region, which accounts for nearly 40% of the total demand for cement in the Kingdom. We believe, in the near- to medium-term, the cement sector demand is likely to be driven by ongoing construction activities considering the Government s increased infrastructure spending, business expansion and residential units construction significant portion of which is concentrated in the central region. We believe Yamama is well-placed to capitalize on the anticipated increase in cement demand. Further, the company also plans to add a new production line by replacing some of its old lines, the impact of which is likely to be witnessed after Strong balance sheet Key revisions in The upward revision in sales revenue is mainly associated with the positive adjustment of expected utilization rate and prices. Upward revision in gross, operating & net margins is mainly associated with expectation of higher prices. The increase in net profit from our earlier was mainly based on the upward revision in sales revenues. As of December 2011, the company has a cash balance of SAR66mn and short term investments stood at SAR832mn together representing nearly a quarter of the total assets. Yamama has a debt outstanding of SAR190mn and is well positioned to meet its obligations, considering its high proportion of short term investments. Key financial updates All fig in SAR mn unless otherwise stated Earlier Estimates New Estimates "Upward/ (Downward) revision" Sales Revenue 1,455 1, % COGS (654) (665) 1.7% Gross Profit % Gross Margin 55.0% 56.3% Operating Profit % Operating Margin 51.3% 52.1% Net Profit % Net Margin 50.4% 51.2% EPS (SAR) Source: Aljazira Capital Investment consideration During February, the company increased its share capital to SAR2.03bn from SAR1.35bn through a bonus issue of one share for every two shares held. Considering the 2011 performance, and our current outlook and estimates, we arrived at an updated 12-month price target of SAR55.4/share, which is indicating a potential upside of 12.4% over the market price of SAR49.3 (as of March 25, ). We, therefore, upgrade our recommendation for YSCC to Overweight.

5 Updated Financial Statements All fig in SAR mn, unless otherwise stated E 2013E 2014E 2015E Income Statement Revenue 1,272 1,442 1,521 1,551 1,551 1,551 Growth YoY (%) 9.4% 13.4% 5.5% 2.0% 0.0% 0.0% Cost of Sales (560) (633) (665) (680) (680) (680) Gross Profit Growth YoY (%) 14.8% 13.7% 5.8% 1.8% 0.0% 0.0% Selling and Marketing Expenses (43) (56) (61) (63) (62) (62) Operating Profit Growth YoY (%) 15.6% 12.7% 5.5% 1.8% 0.1% 0.0% Net interest income (6) (5) (3) (1) (1) (1) Other Income Profit Before Tax Zakat Provision (25.0) (24.0) (27) (28) (28) (28) Net Profit Growth YoY (%) 17.0% 12.6% 5.3% 2.0% 0.1% 0.0% Balance Sheet Assets Investments Property, Plant & Equipment 2,106 1,959 1,821 1,669 1,508 1,346 Other non current assets Cash & cash Equivalents Inventories Account receivables, prepayments and other receivables Short Term Investment ,204 1,479 1,759 Total Assets 3,653 3,822 3,824 3,946 4,083 4,222 Liabilities & Owners Equity Account payable & Other current liabilities Current portion of long term loans Accrued dividends Long term financial liabilities Employees' Terminal Benefits Share capital 1,350 2,025 2,025 2,025 2,025 2,025 Statutory Reserve Retained profit Consensual Reserve Unrealized Gains Total Equity & Liabilities 3,653 3,822 3,824 3,946 4,083 4,222 Cash flows statement Cash Flow from Operating Activities Cash Flow from Investing Activities (123) (253) (168) (288) (308) (311) Cash Flow from Financing Activities (692) (623) (782) (674) (657) (654) Change in cash (18) Net Cash at hand Key fundamental ratios Liquidity ratios Current ratio (x) Quick Ratio (x) Profitability ratios Gross Margin 56.0% 56.1% 56.3% 56.2% 56.2% 56.2% Operating margin 52.4% 52.0% 52.1% 52.0% 52.0% 52.0% Net Income Margin 51.6% 51.3% 51.2% 51.2% 51.3% 51.3% EBITDA margin 52.6% 52.2% 52.2% 52.1% 52.2% 52.2% Return on average assets 17.9% 19.8% 20.4% 20.5% 19.8% 19.2% Return on average equity 21.2% 22.6% 22.6% 22.2% 21.3% 20.6% Market/Valuation ratios EV/Sales (x) EV/EBITDA (x) EPS (SAR) BVPS (SAR) Market Price (SAR)* Market-Cap (SAR mn) 4,635 6,300 9,983 9,983 9,983 9,983 Dividend Yield 82.2% 65.7% 68.5% 82.2% 82.2% 82.2% P/E ratio (x) P/BV ratio (x) Source: Company annual reports & Aljazira capital * We have taken respective December closing prices for 2010 & 2011, while for years & onwards we used closing price of 25th March.

6 COMPANY PROFILE RATING TERMINOLOGY AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business. Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated Overweight will typically provide an upside potential of over 10% from the current price levels over next twelve months. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated Underweight would typically decline by over 10% from the current price levels over next twelve months. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated Neutral is expected to stagnate within +/- 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company. For further queries about our special services, contact us at the toll free number

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