Positive outlook on Yanbu Cement

Positive outlook on Yanbu Cement
01 June 2006

The sales revenue of Yanbu Cement Co (YCC) for the year 2005 increased only by 0.6 per cent to SR778.9mn from SR774.6mn reported in 2004. The was mainly due to the decline in the production of clinker which for the year 2005 stood at 3.04Mt (from 4 kilns) as compared to 3.45Mt reported in the previous year. Cement production for the year 2005 stood at 3.74Mt, down 12 per cent as compared to 4.25Mt reported in the previous year. As a result, sales volume stood at 3.72Mt in 2005, down 12.9 per cent as compared to 4.27Mt reported in 2004 (reports Global Investment house, Kuwait).
 The gross profit of Yanbu Cement Co (YCC) for the year 2005 increased by 5.9 per cent to SR476.3mn from SR449.7mn reported in 2004. The price realization per tonne cement sold increased by 15.4 per cent to SR209.3 during 2005 from SR181.4 recorded in the previous year, underscoring strong demand for cement in the Saudi market. The EPS (adjusted for 5:1 stock-split) of the company increased to SR4.3 from SR4.1 reported in 2004. 

In October 2005, capacity of the fourth line of the company was increased to 9000tpd from 7000tpd. The company is intending to put up a new kiln of 3.3Mta which will start production by 2009. Yanbu Paper products Co, collaboration between YCC (60% stake) and Shuaiba Paper Products Co (40%) of Kuwait began operation in September-2005 with a production capacity of 70m bag/yr. 
Over the medium-term, cement demand in Saudi Arabia is expected to be robust in view of the massive investments planned all across the country. Assuming that all the investment projects valued at $182bn announced in Saudi Arabia so far are implemented, we project a cement demand growth at a CAGR of about 12% in volume-terms during 2005-’08. Assuming also that all the proposed clinker/cement capacity expansions are completed in the country as planned, we project high surpluses of cement in Saudi Arabia in the years after 2007-‘08. 
While countries all across the GCC have continued to announce investments in projects, covering various segments of the economy, Saudi Arabia has a large share of these projects. According to data currently available, projects currently under execution in the GCC amount to about $620bn. Out of these, Saudi Arabia is believed to account for about 29.3 per cent, or US$182bn worth of projects. Of these about $80bn worth of projects are believed to be in the civil segment. New clinker capacities of about 21.3mt and cement capacities of about 22.0mt are believed to be coming up in the Kingdom in the coming 2-3 years by way of expansions as well as green-field projects. The projections for the years 2006-‘09 have been revised keeping in view the company’s 2005 and 1Q2006 performance. 
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