Despite the fact that the bulk of the demand growth is being absorbed by the new players, Yamama cement net profit increased by 10.2%YoY in 4Q10 to SAR159.4m. Though cement dispatches declined by 4.5%YoY to 1.35Mt in 4Q10, increase in realisation prices by 5.5%YoY to SAR233.5/t supported profitability growth.
On an annual basis, sales increased by 9.4%YoY to SAR1.27bn driven by increase in volume sold by 5.4% and increase in realization price by 3.8%. Yamama cement has been able to charge premium prices due to its proximity to demand centers in the central region at a time when other cement companies are facing a decline in realisation prices. The company managed to reduce its stock inventory to 0.97Mt at the end of 2010 from 1.39Mt at the end of 2009.
Yamama cement has a cost advantage relative to the sector due to its integrated production plant and captive power supply. This advantage became more pronounced as cost of sales per ton declined by 2.1%YoY to SAR102.4 per ton in 2010. Lower cost along with higher realization prices has increased operating margins to 52.4% in 2010 from 49.3% in 2009.
Analysts at Global Investment House (GIH) have increased its net profit forecast by 4.0% to SAR678m for 2011 as it believes the strong performance of 2010 is likely to be extended into 2011. The company has fared well despite the increase in Saudi cement sector capacity due to its advantageous location. GIH have also revised downwards its cost of sales estimates by 4.6% for 2011 in view of the company’s success in controlling costs.