We maintain our HOLD rating on Yamama with a higher target price of SAR 63.18 per share on positive reform in the Saudi equity market. Yamama’s shares price tracked the uptrend in the Saudi stock market, hiking by 13% in the past six months following Saudi Arabia’s announcement to open its USD 530 billion stock exchange to foreign investors in H1 2015. We believe Yamama will benefit from this strong positive reform which will definitely make the Arab world’s biggest bourse more attractive and might lead to as much as USD 40 billion of foreign cash entering the market. However, we expect the Saudization and the crackdown on visas and immigrant workers to keep on pressuring growth in the construction sector and thus Yamama’s performance during 2014 especially after the disappointing H1 results.
Yamama cement witnessed a steep cut in sales volume by 21.7% to 3 million tons, which translated into a substantial 21.8% fall in H1 revenues to SAR 733 million. Earnings followed suit falling by 29.8% as higher income from Murabaha and islamic investments funds failed to offset the increased SG&A expense and Zakat provisions. Hence, Yamama’s net margin decreased to 52.1% from 58.0% in H1 2013. Looking forward, we estimate a decrease in earnings in 2014 to SAR 734 million, expecting growth at a CAGR of 12% in the coming three years.
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