Yanbu Cement August182009 - mec.bizmec.biz/term/uploads/YNCCO_22082009.pdf · Yanbu Cement’s...

C E M E N T | 1 9 A u gus t 20 09 I N I T I AT I O N O F CO VE R AG E

Yanbu Cement (YCC) Overweight Cementing its position Price (SR) 50.5

12-month target price (SR) 64.5

Potential upside/downside (%) ↑ 27.7

Yanbu Cement’s location advantage, coupled with expansion plans and expected cost

savings, positions it well to tap growth in the near future. Despite a disappointing FY08

due to production shutdowns that impacted sales and costs, we believe Yanbu’s growth

drivers make it an attractive buy.

Stock details

Financials

52-week range H/L (SR) 67/34 2007 2008 2009E 2010E 2011EMarket cap ($ mn) 1,416 Revenues SR mn 1,171 1,094 996 1,025 1,260 Shares outstanding (mn) 105 EBITDA SR mn 776 680 604 628 722 Listed on exchange TADAWUL Net income SR mn 661 560 497 485 545

Price perform(%) 1M 3M 12M Clinker Capacity mt 4,080 4,080 4,080 4,080 6,480

Absolute 4.8 0.5 (20.5) Utilization % 94 89 90 97 81 Rel. to market 5.0 4.2 11.1 EBITDA margin % 66.3 62.2 60.6 61.3 57.3 Avg daily turnover (mn) SR US$ Net margin % 56.5 51.2 49.9 47.3 43.3 3M 3.2 0.9 ROE % 30.0 23.9 20.8 19.7 21.3 12M 5.5 1.5 ROA % 27.5 21.7 18.1 15.5 15.6

Reuters code 3060.SE Source: Company, NCBC Research estimates

Bloomberg code YNCCO AB Website www.yanbucement.com

Valuation multiples

08 09E 10EP/E (x) 9.5 10.7 10.9

P/B (x) 2.3 2.2 2.1

EV/EBITDA (x) 7.4 8.3 8.0

Div yield (%) 7.9 7.9 7.9

Source: NCBC Research estimates

Share price performance

0

40

80

120

160

200

Feb-05 Jun-06 Dec-07 Jul-090

5000

10000

15000

20000

25000

YCC TASI (RHS)

Source: Reuters

Pravin Rajendran [email protected]

Please refer to the last page for important disclaimer

• New capacity to fuel growth: YCC has announced an SR1.5bn expansion plan to increase

annual cement production capacity to 7.5mn tons (FY11) from 3.8mt, currently. Once

operational, the new capacity would enable the company to meet domestic requirements and

allow it to sell outside the KSA as and when the export restrictions are removed

• Competitively positioned: YCC is not only advantageously positioned in terms of demand

centers in the golden triangle of Jeddah, Makkah and Madinah, but also benefits from its

location near raw material sources. In addition, its nearness to the Red Sea gives it the

option of exporting cement to countries like Egypt

• Not burdened with inventory pile-ups: While most cement companies in the KSA are

weighed down by large stockpiles, YCC and its nearest competitor, Arabian Cement are

not burdened with inventory pileups. This is because of strong construction activity in the

vicinities of the holy cities of Makkah and Madinah, which keeps demand high. The western

region is believed to account for 30% of all residential projects in KSA

• Growth intact despite loss of market share: YCC remains the largest cement selling

company in western Saudi Arabia despite the considerable decline in its market share

(from 17.3% in FY07 to 14.3% in FY08). We expect the company’s revenue to grow at a

CAGR of 5.9% over FY08-FY12 backed by the strong demand in the region and its ability

to generate above industry realizations

• Valuation: At the current price, YCC trades at a P/E of 9.7x and EV/EBITDA of 7.8x, both at

a discount of 21.1% and 19.1% respectively to the industry on a TTM basis. YCC offers an

attractive dividend yield of 7.9% - second highest in the industry. We assign YCC an

OVERWEIGHT rating due to its strategic location advantage, capacity expansion plans, and

cheap valuation

19 AUGUST 2009 YANBU CEMENT - INITIATING COVERAGE 2

Investment scenarios

Valuation amid falling realizations and increased production cost

Historical and expected price performance (three scenarios)

39.7

13.9

14.48.4

76.4

8.48.2

4.2

97.1

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20

40

60

80

100

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Pro

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50.50

97.1

39.7

76.4

0

20

40

60

80

100

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10

Historical Price Performance Current Price Price Scenario

Scenario Analysis

Investment view Investment Scenarios

Price Target :

SR64.5

Weighting of DCF base case and relative valuation parameters of P/E, EV/EBITDA and P/BV in ratio 40/60. In relative valuation, we use the FY09E earnings, EBITDA and book value. In DCF, we forecast earnings until FY12 and discount the free-cash-flows accruing to the company to arrive at the present value

DCF Bull Case SR97.1

Removal of export ban on cement by the Saudi Government, a 5% improvement in price realization and lower cost of production could result in 8.6% revenue CAGR between FY08-FY12E. We expect YCC’s domestic sales to reach 6.6mt in FY12

DCF Base CaseSR76.4

With the new production facility coming online in FY11 and strong demand in YCC’s areas of operation, we assume an FY08-FY12E revenue CAGR of 5.9%

• Supply dynamics: YCC is placed well in supply terms. We believe YCC’s ability to utilize its existing capacity optimally in the medium term and bring new capacity online in FY11 would prove to be a potential driver, sustaining growth in the long term. While other players are facing excess supply and issues of higher inventory,YCC is better placed in terms of supply and demand

• Operations in epicenter of KSA’s cement demand: YCC’s location is in the western region, which is the heart of KSA’s cement demand, given Government spending on infrastructure, residential and economic city projects. This provides immense opportunities to strengthen its top-line. Furthermore, its varied product base further equips it well to cater to demand in the region

• Cost benefits to add value in the long term: YCC’s ability to create a better product mix with a larger share of high marginproducts, i.e., Pozzolana and Sulphur Resistant Cement, could contribute significantly to margins in the long term. Moreover, cost savings accruing because of proximity to raw material sources are expected to mitigate the effect of falling realizations, in future

• Benefits from outsourcing arrangement with ACC: YCC has outsourced its operations to ACC Limited, an Indian company with an installed capacity of ~22mt per annum, now part of global major Holcim. ACC has more than six decades experience in the industry

• Trades at discount: YCC is trading at a P/E of 9.9x below the industry average of 12.3x on TTM basis. Its EV/EBITDA multiple trades at 7.9x, below the industry average of 9.6x on TTM basis

DCF Bear Case SR39.7

We incorporate the possibility of a delay in the capacity expansion plan. A decline in production of 50% from our base case is assumed

Investment Risks Potential catalysts

• Entry in new markets: If the export ban is completely lifted by the Government, YCC’s proximity to Red Sea and Yanbu port would serve as a strategic factor in facilitating trade with countries such as Egypt, Sudan, Ethiopia, and Eritrea, and Yemen

• New capacity not coming on-board: YCC has planned capacity expansion that is likely to come on-board in 2011, taking annual cement capacity to 7.5mt. Delay in bringing this production online will impact the company’s revenue generating ability going forward

• Cement production from new companies: The number of companies producing cement in KSA is on the rise. The annual cement production capacity of 49mt is expected to increase to 55mt by Dec 2010


Investment view

Concrete foundations for long-term growth YCC’s capacity expansion plan is expected to come online by 2011, taking the annual cement

production capacity to 7.5mt. With an estimated cost of SR1.5bn, the plant is expected to be

partially funded by loan and internal accruals. Our understanding suggests that the

management is looking at phasing out some of its old production lines – probably the two

1500TPD kilns installed in 1977. This enhanced capacity positions YCC well to exploit location

advantages in the domestic market, and the export as well, if the government removes the

export ban.

“Survival of the fittest” The ban on exports since June 2008 has led to a supply glut in the region, resulting in inventory

pile-ups. Some companies are implementing forced production shutdowns to avoid excess

stock accumulation and associated costs. Under these circumstances, companies that are able

to utilize their existing capacity optimally, strike a balance between production and stock, and

tap the right demand centers are likely to benefit the most.

As shown in the exhibits below, YCC and Arabian Cement, which are both located in the

western region of Saudi Arabia, have been able to produce optimally and cater to robust

demand in the region, following the introduction of the export ban. Moreover, these companies

have not suffered major setbacks owing to the export ban, as the domestic demand has been

strong enough in this part of KSA. As a result, the stock pile-up for the two has been lower

compared with that of the industry.

Exhibit 1: Cement stock (months)

Exhibit 2: Capacity utilization (%)

0.0

0.8

1.6

2.4

3.2

4.0

4.8

Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09

Industry Yanbu Arabian

0%

20%

40%

60%

80%

100%

120%

Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09

Industry Yanbu Arabian

Source: Yamama Cement, NCBC Research

Source: NCBC Research

Furthermore, considering the excess supply likely coming up in the region, the Government

could continue to raise the export restrictions, with agreements coming on board at a faster

pace. With the enhanced capacity coming at the right time, we believe YCC would be well

placed to meet export demand and benefit from higher realizations than those in the domestic

market. However, the company is likely to look to service the domestic market, before reviewing

export options.


I NV ES T M E N T V I EW

Proximity to demand centers offers better top line visibility: YCC has benefited immensely

from being located in the western region of KSA in terms of business generation, while others

have been facing huge inventories and related costs.

The company is strategically located near the golden triangle of Jeddah, Makkah and Madinah,

which draws more than 5mn Muslim pilgrims every year. This feature has made these cities

crucial for infrastructure development (hotels, housing units, and railway facilities). Both these

provinces account for approx. 30% of the KSA’s residential projects, creating growth

opportunities. YCC is also the nearest cement plant to the upcoming Knowledge Economic City

(KEC), a key mega-development projects in the Kingdom.

In the event of the export ban being lifted, the company’s nearness to the Red Sea and Yanbu

Port could be useful in facilitating exports to countries such as Egypt, Sudan, Ethiopia, Eritrea

and Yemen.

Better product-mix and raw material accessibility, a positive: The company produces three

different types of cement – Ordinary Portland Cement, Portland Pozzolana Cement and Sulphur

Resistant Cement. In FY08, blended cement accounted for ~55% of total revenue for YCC.

While the realizations of blended cement are higher, the cost of producing it is lower compared

to Ordinary Portland Cement. Higher proportion of blended cement in Yanbu’s product-mix is

likely to enable it to realize slightly above industry price. On a ballpark basis, Sulphur Resistant

Cement sells at SR0.7-1 per bag more than Ordinary Portland Cement. In view of the negative

outlook of cement prices, YCC’s ability to maintain major proportion of its high margin products

is likely to help.

Exhibit 3: Average realization and cost per ton

0

50

100

150

200

250

300

2006 2007 2008 2009E 2010E 2011E 2012E

Industry Realisation YCC Realisation YCC Cost

Source: Company, Reuters, NCBC Research

YCC also benefits from easy accessibility of raw materials. The company holds four quarry

licenses (see exhibit 4) which make available limestone, gypsum, clay (having more than fifty

years life), and iron. This limits likely escalation of production cost, due to sudden increase in

the raw material cost.



Exhibit 4: Raw material licenses

Area Location Mineral 50.00 sq. km Ras Baridi Gypsum, Limestone, Clay

10.50 sq. km Ras Baridi Limestone, Clay

2.93 sq. km Ras Qara Pozzolana

0.96 sq. km Hashif Al Qou’d Iron

Source: Ministry of Petroleum and Mineral Resources

The company’s ability to both generate above industry realizations coupled with accessibility to

raw material costs will enable it to limit the impact of falling realizations on the margins.

Rising competition in KSA to impact market: Cement companies in KSA have been

experiencing a fall in market share with the entry of four new players. Both YCC and Arabian

Cement have suffered market share declines in recent times. With the likely addition of Al Safwa

Cement (in the western region) by FY10, the fall could aggravate further. We remain cautious

about the effect of competition arising in the western region; however, the company positives

are likely to limit the impact on its bottom line.

At the current market price of SR50.5 per share, YCC is trading at a P/E multiple of 9.7x at a

discount of 21.1% on TTM basis. It is trading at an EV/EBITDA of 7.8x, a discount of 19.1% on

TTM basis. The company trades at a 10.7x 09E P/E and an 8.3x 09E EBITDA. In addition, YCC

has been amongst the companies offering the highest dividend yield in the industry. Its FY08

dividend yield was 7.9% against industry average of 6.7%.

We assign YCC an OVERWEIGHT rating due to its strategic location in the KSA region,

cost benefits, and planned capacity expansions, which are expected to aid growth in the

medium-to-long term.



Investment risks • Delay in capacity addition: YCC has planned capacity expansion activities that will come

on-board in 2011, taking its annual cement production capacity to 7.5 mt. Any delay in

bringing this production online will impact the company’s revenue generating ability in

future, thus reducing potential upside. We incorporate this in our worst case scenario

• Oil price volatility: The Saudi Arabian economy depends highly on the hydrocarbon

sector and is vulnerable to periodic swings in oil prices. Demand growth for cement is high

in Saudi Arabia, as record oil revenues have been aiding Government spending on

infrastructure, including roads, schools and other buildings. However oil price declines can

hurt cement demand, given the linkage with construction activities

• Capacity glut: Apart from the eight cement producers, some of which are enhancing

production capacity, there are a number of new cement companies that are set to

commence production over FY09-FY10. The Saudi Ministry of Industry has issued nearly

27 licenses (planned capacity of 45mn tons) to various companies to set up cement

factories. As discussed above, Al Safwa is expected to begin production in FY10. If more

players enter the western region, YCC may experience potential fall in its top-line

• Price curbs could limit profitability: KSA and its neighboring countries have been

experiencing high level of Government interference – 1) Egyptian Government has banned

the export of cement till Oct-2010, the government also imposed a resource development

fee of LE27/ton of clay extracted from quarries in addition to reducing subsidies on energy

prices for select industries; 2) the UAE government has put a cap on price, ordering

cement companies to sell at AED14 per bag. The Saudi Government too imposed

restrictions on cement exports in June 2008, but is lifting them conditionally. More of such

measures in the future could have an adverse impact on the profitability of cement

companies—including YCC


Valuation We use the following methodologies to arrive at a fair price for YCC:

• Discounted cash flow (DCF)

• Peer group valuation (EV/EBITDA, P/E and P/BV)

• Justified P/E and P/BV

Weighted average cost of capital (WACC) Given the USD-SR peg, we take the US 10-year Treasury yield of 3.48% as the risk-free rate.

The company’s adjusted beta (weekly returns since 1 January 2007 compared with the TASI) is

0.80. We assume an equity risk premium of 8.85% for Saudi Arabia. The cost of equity for the

company is calculated as 10.54%.

The cost of debt of 4.5% for YCC is based on payments made for availing the credit facilities

from a local bank. Provisions for Zakat made by the company over the last three years have

been in the range of 2.2–2.9%. The post-tax cost of debt for YCC aggregated 4.4%. Using the

above assumptions, YCC’s WACC is 10.3% in 2009.

Discounted cash flow We evaluate YCC’s business on the basis of DCF, with cash flow forecasts up to FY12 and a

terminal growth rate assumption at 3.0%.

Exhibit 5: Details of DCF valuation

(SR'000 unless specified) Value %age of totalSum of PV of FCFF - 4 year 856,428 10.7

PV of terminal value 6,883,034 85.8

Enterprise value 7,739,462

Add: Cash available 306,051 3.8

Less: Total debt 27,020 (0.3)

Equity value 8,018,493

No. of shares outstanding ('000) 105,000

Value per share (SR) 76.4

Source: Company, NCBC Research

Our DCF valuation gives a target value of SR76.4 per share. YCC is currently trading at a

premium of 51% to this value. The table below indicates the sensitivity of the target value to

changes in cost of equity (CoE) and terminal growth rate.

Exhibit 6: DCF-based fair value (SR) for a range of CoEs and terminal growth rates

Cost of equity (%)

8.5 9.5 10.5 11.5 12.5 2.0 89.0 76.9 67.6 60.2 54.3

2.5 96.2 82.3 71.7 63.5 56.8

3.0 104.9 88.5 76.4 67.1 59.7

3.5 115.5 95.8 81.8 71.2 62.9 Term

inal

gr

owth

rate

(%

)

4.0 128.5 104.6 88.0 75.9 66.5

Source: Bloomberg, NCBC Research


V A LU A TI O N

Peer group valuation We have considered valuation multiples (P/E, P/B, EV/EBITDA) of KSA cement companies for

FY08, FY09E and on TTM basis.

Exhibit 7: Valuation metrics - all cement companies in KSA

Company name P/E EV/EBITDA P/BV

08A TTM 09E 08A TTM 09E 08A TTM 09EArabian Cement 11.3 12.0 8.5 11.7 11.8 10.7 1.5 1.6 1.6

Yamama Cement 9.5 12.2 10.9 7.1 8.5 7.8 2.2 2.0 1.9

Tabuk Cement 11.2 16.1 11.8 6.7 8.7 6.7 1.7 1.6 1.7

Qassim Cement 12.0 12.3 10.7 9.8 9.4 8.3 3.6 3.4 3.1

Southern Cement 10.8 11.6 N/A 9.1 9.9 N/A 3.6 3.4 N/A

Saudi Cement 10.4 10.9 11.9 11.2 10.6 10.4 2.3 2.3 2.3

Eastern Cement 8.8 11.3 9.9 7.3 8.5 8.8 2.0 2.0 2.2

Yanbu Cement 9.5 9.7 10.7 7.4 7.8 8.3 2.3 2.4 2.2Overall average 10.4 12.0 10.6 8.8 9.4 8.7 2.4 2.3 2.1

Average (excluding YCC) 10.6 12.3 10.6 9.0 9.6 8.8 2.4 2.3 2.1

Premium / (discount) (%) (10.4) (21.1) 0.3 (17.8) (19.1) (5.3) (6.5) 1.7 2.6


We take the industry’s TTM P/E to arrive at YCC’s target price. We apply similar calculations for

EV/EBITDA and P/BV. The target P/E, EV/EBITDA, and P/BV multiples used are 12.3, 9.6, and

2.3, respectively. These multiples are then seen in consonance with an average of FY09E and

FY10E earnings, shareholder equity, and EBITDA, to arrive at the target price.

The table below lists our valuation of YCC, based on peer multiples.

Exhibit 8: Valuation based on multiples

Particulars 2009ENet Profit (SRmn) 491

P/E (Industry) 12.3

Value based on P/E (SR) 57.7EBITDA (SRmn) 616

EV/EBITDA (Industry) 9.6

Value based on EV/EBITDA (SR) 59.0Shareholders Equity (SRmn) 2,463

P/BV (Industry) 2.3

Value based on P/BV (SR) 54.7Source: NCBC Research estimates


V A LU A TI O N

As seen in the chart below, YCC is trading at an EV/ton of USD356x FY08 capacity, compared

with the industry average of USD326 per ton.

Exhibit 9: Regional—EV per ton and EBITDA margins (2008)

YSCC

SCC

EPCC

QCC

YCC

ACCSPCC

TCC

180

230

280

330

380

40% 55% 70%

Size of the bubble indicates M-CapDotted lines represent industry averages

EV

/Ton

(US

D) -

200

9E

EBITDA Margin - TTM


We compare Saudi Arabian cement companies with some of their international peers and

conclude that valuations of KSA cement companies’ are reasonable because their EBITDA

margins are far higher than those of global counterparts.

Exhibit 10: KSA valuations look reasonable

India

Saudi Arabia

Oman

Qatar

Kuwait

UAEEgypt

Pakistan

Thailand

China

Multinationals

-

100

200

300

400

500

600

700

800

0% 20% 40% 60% 80%

Size of the bubble indicates M-Cap

EV

/Ton

(US

D) -

200

8E

EBITDA Margin - 2007



V A LU A TI O N

Justified P/E and P/BV

With a dividend payout of 85% and a sustainable growth rate of 3.0%, we arrive at a justified

P/E of 11.3x. Multiplying this with the average FY09 and FY10 EPS, we obtain a target price of

SR52.7 for YCC.

Similarly we determine the value of YCC using the Justified P/BV approach. We obtain a

justified P/BV of 2.4x, assuming ROE of 21.1% and a terminal growth rate of 3.0%. Multiplying

this with the average FY09 and FY10 BVPS, we derive a target price of SR56.3 for the

company.

Blended valuation Assigning different weights to all the methodologies discussed, we arrive at a target price of

SR64.5 per share for YCC. This represents an upside of 27.7% from the CMP of SR50.5.

Exhibit 13: Blended valuation

(SR) Price Weightage (%)DCF 76.4 40.0

Price/Earnings 55.2 20.0

- Peer group 57.7

- Justified 52.7

EV/EBITDA 59.0 20.0

Price/Book value 55.5 20.0

- Peer group 54.7

- Justified 56.3

64.5 100.0Source: NCBC Research

Exhibit 11: Target price (SR) based on justified P/E

Dividend payout (%)

75 80 85 90 95 2.0 41.1 43.8 46.5 49.3 52.0

2.5 43.6 46.5 49.4 52.4 55.3

3.0 46.5 49.6 52.7 55.8 58.9

3.5 49.8 53.1 56.5 59.8 63.1 Term

inal

gr

owth

rate

(%

)

4.0 53.6 57.2 60.8 64.4 67.9


Exhibit 12: Target price (SR) based on justified P/BV

RoE (%)

16.1 18.6 21.1 23.6 26.1 2.0 38.7 45.6 52.5 59.3 66.2

2.5 39.7 47.0 54.3 61.6 68.8

3.0 40.8 48.5 56.3 64.1 71.9

3.5 42.0 50.3 58.6 67.0 75.3 Term

inal

gr

owth

rate

(%

)

4.0 43.4 52.4 61.3 70.3 79.2



V A LU A TI O N

Valuation evolution Since 2001, YCC has largely traded in the EV/EBITDA band of 10–20x. The company is

currently trading at 7.4x FY08 EBITDA and at 8.3x FY09E EBITDA, which are close to the low

end of its historical EV/EBITDA band.

Exhibit 14: EV/EBITDA bands – YCC trades just below the lower band

10x

15x

20x

-

4,000

8,000

12,000

16,000

20,000

Jan-01 Aug-02 Mar-04 Oct-05 May-07 Dec-08

EV

(SR

mn)

Source: Company, Bloomberg, NCBC Research

The fall in enterprise value observed at the beginning of FY06 was in line with the decline in the

benchmark Tadawul All Share Index (TASI). The TASI plunged more than 50% in 2006 because

of exceptionally high valuations, speculative trading, and profit-booking. It again fell ~55% in

2008, in line with the global financial meltdown.

The historical movement of YCC’s P/E multiple is similarly plotted. Since FY01, YCC has largely

traded in the P/E band of 10-20x. The company is currently trading at 10.7x FY09E earnings.

Exhibit 15: YCC trades at 9.5x FY08 earnings

10x

15x

20x

-

40

80

120

160

200

Jan-01 Aug-02 Mar-04 Oct-05 May-07 Dec-08

Pric

e (S

R)

Source: Company, Bloomberg, NCBC Research


V A LU A TI O N

Dividends YCC has been paying regular dividends to its shareholders. In FY07, the company paid

dividend of SR5.0 per share. However, declining profitability and an adverse economic climate

have led to YCC cutting its dividend payments to SR4.0 in FY08.

Exhibit 16: Dividend policy

('000 SR unless specified) 2004A 2005A 2006A 2007A 2008ADividend per share (SR) 5.00 3.50 4.00 5.00 4.00 Earning per share (SR) 4.07 4.32 4.88 6.29 5.33

Gross dividend 367,500 525,000 367,500 420,000 525,000

Net income 427,666 453,615 512,201 660,953 559,736

Dividend payout (%) 122.8 81.0 82.0 79.4 75.0Paid-up equity capital 1,050,000 1,050,000 1,050,000 1,050,000 1,050,000

Source: Company, Tadawul, NCBC Research

The company’s dividend payouts have usually been 75-80%. Investment in capacity expansion

could deter higher payouts in the coming years.

Liquidity YCC is not a highly liquid stock (volume/value of trades generated). In FY08, shares worth

SR7.6mn (or 0.11mn shares) were traded daily, on an average.

Exhibit 17: Yanbu Cement is low on liquidity (FY08)

0

20

40

60

80

100

120

YanbuCement

SaudiCement

SouthernCement

TabukCement

ArabianCement

EasternCement

QassimCement

YamamaCement

-

1

2

3

4

5

6

7

8

Volume (mn), LHS Value (SR bn), RHS

Source: Tadawul, NCBC Research

Ownership restrictions / accessibility • Investors resident in Saudi (Saudi / GCC / Foreigners) No restrictions

• GCC Investors not resident in Saudi Arabia No restrictions

• Non-GCC (Foreign) Investors Allowed through swaps


Business background

Company overview YCC is among the larger cement players of Saudi Arabia. In FY08, the company sold 4.3mn

tons (mt) of cement – the second highest in the country. Yanbu Cement was the largest seller of

cement in FY07, but was dislodged from the top spot by Southern Province Cement in FY08.

YCC’s cement production declined 7.1% in FY08 to 4.3mt from 4.6mt in FY07 as a result of the

shutdown of two of its production lines for maintenance.

YCC also has a subsidiary that manufactures paper bags. It owns 60% in Yanbu Al-Shuaiba

Paper Products, a company that was set up in 2005 with a capital of SR12.5mn to manufacture

multi-ply Kraft paper; current capacity of this unit stands at 75mn bags per year. The other

partner, Shuaiba Industrial Company (of Al Safwa Group), is a leading paper packaging

manufacturer in the Middle East.

Corporate history YCC, established in 1977, started commercial operations in 1979 when it commissioned two of

its long dry kilns each 1500 tons per day (TPD) at Ras Baridi, 60km north of the city of Yanbu

on the west coast of Saudi Arabia.

Exhibit 18: Plant location

Source: Company, EIU, NCBC Research

A series of expansions followed in 1982, 1997, and 2005. As a result, YCC now runs four kilns

with an annual clinker production capacity of 4.0mt and a cement capacity of 3.8mt. A new

cement kiln is expected to boost output in FY11.

YCC has contracted the operation and maintenance of its plant to a well-established cement

company of India—ACC Limited. The latter has been running the production facility for more

than 30 years now. ACC Limited is a part of Switzerland-based Holcim.


B U S I NE S S B A C K G RO U N D

Exhibit 19: Clinker capacity (1979 – till date)

Year Kilns TPD Days Tonnes1979 1 1,500 300 450,000

1979 1 1,500 300 450,000

1983 1 1,100 300 330,000

2005 1 9,500 300 2,850,000

4,080,000Source: Company, NCBC Research

YCC produces various types of cement—Ordinary Portland Cement (OPC), Portland Pozzolana

Cement (PPC), Sulfate Resisting Cement (SRC), and Low Heat Cement (LHC). YCC was the

first cement company on the west coast of Saudi Arabia to produce SRC.

YCC’s net profit grew at 8.2% CAGR over the past five years (FY03–FY08) vis-à-vis the

average industry CAGR of 10.5%. YCC registered a 0.6% CAGR in volume of cement and

clinker sold (mn tons) over FY03–FY08, compared with the industry average of 3.0%.

Exhibit 20: Sales and net profit – CAGR in FY03-FY08

0%

5%

10%

15%

20%

YanbuCement

ArabianCement

SaudiCement

YamamaCement

SouthernCement

EasternCement

TabukCement

QassimCement

Sales Volume (CAGR) Net Profit (CAGR)


Shareholding pattern With a stake of 29.5%, the Al Rajhi family is the single-largest shareholder in YCC. (The Al Rajhi

family has interests in various businesses including: banks, PVC pipes, foam mattresses,

bottled water, steel, real estate, poultry and many more). YCC’s other shareholders are General

Organization for Social Insurance (11.7%) and Public Investment Fund (10.0%).

Approximately 52.6% of YCC’s outstanding shares are available as free-float.


B U S I NE S S B A C K G RO U N D

Exhibit 21: Shareholding pattern as of July 2009

Others, 54.6%

Abdullah Abdul Aziz Saleh Al Rajhi, 5.8%

Sulaiman Abdul Aziz Saleh Al Rajhi, 23.7%

General Organization for Social Insurance ,

11.7%

Public Investment Fund , 10.0%

Source: Tadawul, NCBC Research

The Government of Saudi Arabia holds a large number of shares in most cement companies

through the General Organization for Social Insurance, Public Pension Agency, and Public

Investment Fund. As per the Tadawul, the total holdings of the Government are as follows:

Southern Province Cement (50.3%), Qassim Cement (45.8%), Eastern Province Cement

(30.6%), Yanbu Cement (21.7%), Saudi Cement (13.5%), Yamama Cement (12.1%) and

Arabian Cement (5.1%).


Industry overview

Current status Cement is the backbone of any country’s infrastructure development. Demand for cement

serves as the barometer for gauging a country’s economic health. KSA has experienced

buoyant cement demand in the recent past—a CAGR of 5.9% over the past five years.

Saudi Arabia’s cement industry has come a long way, from a single-cement production

company, ACC, with a manufacturing capacity of 0.1mt in 1955, to 12 companies currently with

a total production capacity of ~48mt. The Kingdom is the largest producer and consumer of

cement in the GCC region that also includes Oman, United Arab Emirates, Qatar, Kuwait, and

Bahrain.

Exhibit 22: KSA cement companies FY08 (capacity in ‘000 tons)

Company Region Year of Est. Cement capacityArabian Cement Company Western 1955 3,500

Saudi Cement Company Eastern 1955 11,900

Yamama Cement Company Central 1961 6,300

Yanbu Cement Company Western 1976 3,800Qassim Cement Company Central 1976 4,100

Southern Province Cement Company Southern 1978 6,000

Eastern Province Cement Company Eastern 1983 3,500

Tabuk Cement Company Northern 1994 1,450

Riyadh Cement Company Central 2005 2,100

Najran Cement Company Southern 2005 2,100

City/Medina Cement Company Central 2005 1,500

Northern Province Cement Company Northern 2008 2,000 Source: Company, Tadawul, Zawya, MEED, NCBC Research

In 2008, all the cement companies (eight listed and four private) collectively sold 30.0mt of

cement and clinker in the domestic market, compared with 27.0mt in 2007. Export sales over

the same period were 2.8mt and 3.5mt.

Dispatches in the first half of 2009 points towards another year of solid growth for the cement

industry. In 1H09, total dispatches of cement and clinker in the Kingdom was up an impressive

17.6%Y-o-Y to 19.0mt from 16.2mt in 1H08. Export sales over the same period declined

significantly as a result of export ban.

Key developments in 1H09 were:

(1) The KSA government lifted the ban on cement exports permitting Northern Cement and

Tabuk Cement to export their surplus production upon fulfillment of certain conditions

(2) A double-digit growth in domestic sales of cement; and

(3) Heavy stockpiling of clinker at the producer level

Sales The eight listed cement companies in Saudi Arabia reported total sales of SR7.60bn in FY08. In

1H09, sales stood at SR4.02bn compared to SR4.41bn over the same period last year.

Competition from newly established cement companies, restriction on exports and a decline in

price realization led to the decline in sales for the listed companies.


I N D US T R Y O V E R V I E W

Average price realizations per ton of cement were SR236 in 1H09 and SR259 in 1H08.

Lower capacity utilization and rising clinker stock at the producer level pushed up the

cost of production for cement by more than 10% to SR108 per ton in 2008. As a result, the

net profit of the eight cement companies stands reduced to SR4.00bn in 2008 from SR4.48bn in

2007.

Exhibit 23: KSA cement—sales (domestic and exports) and price (SR/ton)

0

10

20

30

40

50

60

2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E0

50

100

150

200

250

300

Domestic Sales Exports Price (RHS)


Per-capita consumption Annual per capita consumption of cement in the Kingdom registered a CAGR of 3.6% to 1.20

tons in 2008 from 1.01 tons in 2003. This figure is lower than per capita consumption of cement

in other GCC countries such as Qatar, the UAE, and Kuwait; providing scope for growth.

Exhibit 24: Per capita – GDP vs. cement consumption: KSA remains low regionally

-

10

20

30

40

50

60

70

80

Oman Saudi Arabia Kuwait UAE Qatar-

1

2

3

4

5

Per capita GDP ('000 USD) (LHS) Per capita consumption (tons) (RHS)

Source: International Cement Review, IMF

Capacity build-up Saudi Arabia’s annual cement production capacity is expected to increase from 44.9mt in 2008

to 63.9mt in 2012. Our projections take into account closure of some old capacities by existing

cement companies and the fact that only a few new companies have received mining permits.



A number of new companies and capacity expansions by existing companies in the cement

industry over the next few years will underpin this growth. In the past twelve months itself,

companies such as Riyadh Cement, Najran Cement, Medina/City Cement, and Northern

Cement, which added ~7mt of new capacity, have commenced production. Companies such as

Al Safwa Cement, Al Jazeera Cement, and Al Jouf Cement are also likely to establish

production plants by 2010. Additionally, some incumbent cement companies such as Arabian

Cement, Yanbu Cement, and Saudi Cement are ramping up production capacity.

Exhibit 25: Capacity buildup in KSA (mn tons)

-

10

20

30

40

50

60

70

2005 2006 2007 2008 2009E 2010E 2011E 2012E

Source: Zawya, MEED, Company, NCBC Research


Business overview

Market share In FY08, YCC sold 4.29mt of cement, achieving a 14.3% domestic market share. The

company’s domestic market share was the highest in FY07; however, it slipped to the second

position in FY08, with Southern Cement trumping it to the top slot with 15.8% market share on

sales of 4.74mt cement.

YCC topped the cement sellers’ list in FY03 and FY04, besides FY07

Exhibit 26: KSA cement—domestic market share

0%

4%

8%

12%

16%

20%

2003 2004 2005 2006 2007 2008

Tabuk Cement Eastern Cement Arabian Cement Qassim Cement

Yamama Cement Saudi Cement Yanbu Cement Southern Cement


Our industry data for Jan-Dec 2008 suggests that the four new companies—Riyadh Cement,

Najran Cement, City Cement, and Northern Cement—sold 3.32mt of cement and clinker in the

domestic market in KSA, and exported 0.38mt. The total industry sales over the same period

were 30.0mt (domestic) and 2.8mt (export).

Key competitive advantages We believe that YCC is more professionally managed company than its peers, supported by a

number of factors. For instance, the company has outsourced its operations to a third-party

(ACC Limited), ever since it commenced operations in 1979. This has allowed the company’s

senior management to focus on strategy and growth than on day-to-day operations of the plant.

Other factors that back our belief are:

• Location advantage. YCC’s proximity to the golden triangle of Makkah, Madinah and

Jeddah provides a ready market for the company’s cement. As a result, the company has

not exported cement since the past 4-5 years. Additionally, the company’s proximity to the

Yanbu port would facilitate easy exports, as and when market conditions and government

regulations allow

• The western region is rich in raw materials. As per the Deputy Ministry for Mineral

Resources, YCC holds the mining rights over acreage of 64sq km. The limestone and

gypsum reserves held by Yanbu have more than 50 years of mine life. Other raw materials

such as clay are also easily available near the plant site, helping save on costs



Exhibit 27: Raw material licenses

Area Location Mineral 50.00 sq. km Ras Baridi Gypsum, Limestone, Clay

10.50 sq. km Ras Baridi Limestone, Clay

2.93 sq. km Ras Qara Pozzolana

0.96 sq. km Hashif Al Qou’d Iron


Exhibit 28: Quarry location


• Apart from this, some general factors contribute to the attractiveness of Saudi–based

cement companies. The chart below clearly suggests that Saudi Arabian cement

companies are highly profitable than those operating in any of the nearby markets

Exhibit 29: Profitability matrix - KSA cement companies have superior margins (2007)

0%

10%

20%

30%

40%

50%

60%

70%

Saud

i Ara

bia

Om

an

Indi

a

Egy

pt

UA

E

Pak

ista

n

Kuw

ait

Chi

na

Mul

tinat

iona

ls

Qat

ar

Thai

land

Gross margins EBITDA margins


Power

Production of one ton of cement usually requires 90–100 units of electricity. YCC has a 140

megawatt (MW) captive power plant, which is more than sufficient for producing 4.5mt of

cement. The power plant also meets the electricity needs of the residential complex located in

the plant. The company recently entered into an agreement with MAN Diesel to buy six

generators worth €45mn (SR236mn) increasing the total output to 175MW. YCC has been a

customer of MAN Diesel since 1994.

YYY CCC CCC



Capacity utilization

YCC’s cement plants have a good operational track record. The company’s clinker capacity

utilization rates have been 89-94% for the past three years.

Exhibit 30: Clinker capacity utilization

0%

25%

50%

75%

100%

125%

Qassim Eastern Yanbu Tabuk Saudi Yamama Arabian

2004 2005 2006 2007 2008


The chart above reveals that YCC’s clinker capacity utilization in FY03 and FY04 was above

most of its peers. However, it declined to less than 80% in FY05. The production of clinker in

FY05 was affected due to stoppage of production for maintenance works at a line, while

production at another line halted for more than two months for capacity expansion works. This

expansion increased Yanbu’s daily production capacity from 7,000TPD clinker to 9,500TPD

clinker in FY06. Utilization rates displayed a distinct improvement in FY06 and FY07 despite

production in FY06 being affected by a fire in March 2006.

In the forecast period, we see YCC’s capacity utilization rate moving at 80–100%.


Financial performance

Sales Yanbu Cement reported sales of SR1093.5mn in FY08, a 6.6% YoY decline. The company

reported 8.2% revenue CAGR over FY03–FY08, thanks to higher cement prices. YCC’s

average price realizations increased to SR254 per ton in FY08 from SR177 per ton in FY03 at

7.6% each year. Over the same period, cement sales increased modestly at 0.6% each year to

4.29mt from 4.17mt.

We do not expect sales volumes to improve in the near term but believe that the company is

poised for growth following capacity expansion. We expect YCC to deliver better numbers after

the commissioning of the new 10,000TPD line and likely replacement of a few old kilns. The

average price realization is however expected to drop as the excess capacity situation

continues. We believe that YCC would continue to concentrate on its local markets of Makkah

and Madinah and the projects expected to come up in the region in near future.

Exhibit 31: Sales expected to grow at 6% CAGR

-

300

600

900

1,200

1,500

2005 2006 2007 2008 2009E 2010E 2011E 2012E-

2

4

6

8

Sales (mn SR) Cement sold (mn tonnes)


Export restrictions YCC mostly caters to the domestic market; it had last exported cement nearly seven years ago.

Thus, export restrictions imposed by the Saudi Government (effective since June 2008) did not

directly impact the company.

Despite new cement companies coming up in the Kingdom, we do not expect YCC to look at the

export market in the near term. We assume no exports for the company in our base case

valuation model. However, should the ban be lifted, we expect the company would efficiently

exploit its proximity to the Red Sea for exporting to countries such as Egypt, Ethiopia, Eritrea

and Sudan.

Margins Gross margins of Saudi Arabian cement companies are 10–15 percentage points higher than

those of counterparts in Egypt, the UAE, India, and other geographies. In FY08, YCC’s gross

margin was 53.5% versus the KSA cement industry’s average of 55.8%. YCC enjoyed gross


F I NA N CI AL S P E R F O RM A N CE

margins of 62.4% in FY06 and 58.1% in FY07. The company’s gross margins have contracted

due to a rise in the cost of producing cement. YCC’s cement production cost increased to

SR118/ton in FY08 from SR105/ton in FY07 because of two production lines being closed for

maintenance.

We expect a better cost structure for YCC due to likely replacement of old kilns and improved

capacity utilization. Moreover, cost benefits stated above will enable the company to lower the

impact of falling realizations on its bottom line. However, as realizations are expected to decline

at a faster pace and quantum, we expect margins to fall to 47.6% in FY12 from 51.3% in FY08.

Exhibit 32: Declining margins expected over the forecast period

30%

40%

50%

60%

70%

2005 2006 2007 2008 2009E 2010E 2011E 2012E

Gross Margins Operating Margins


We see cement prices in the Kingdom declining to SR228/ton in FY09, SR217/ton in FY10, and

then stabilizing at SR206/ton until FY12. Historically, YCC’s realizations have been above

industry due to a better mix of blended products. Thus, we are assuming YCC to earn

realizations above the industry.

Exceptional items YCC’s FY06 and FY07 net income includes insurance compensation received for a fire at its

fourth production line in March 2006. YCC received SR8.6mn and SR7.7mn from the insurance

firm in FY06 and FY07, respectively.

Fixed asset investment YCC formally announced its capacity expansion plan in May 2008. The addition of a new 3.0mt

(10,000TPD kiln) clinker plant is likely to result in replacement of the old (1,500TPD * 2) kilns

and also increase the company’s annual clinker production capacity to 6.5mt. The new line is

expected to cost as much as SR1500mn.

We present technical details relating to the new plant, gleaned from AUSTROPLAN Austrian

Engineering GmbH, the consultant for the project and other sources.



Exhibit 33: YCC — fifth production line Capacity 3,500,000 t/y

Vertical Roller Mills [2 x 450 t/h]

Raw Meal Silos [2 x 28 kt]

Kiln Plant [10,000 t/d]

Clinker Silos [2 x 40 kt]

Cement Mills [5 x 150 t/h]

Cement Silos [4 x 15 kt]

Power Plant 6 x 9L58/64 MAN Diesel

Contractor Sinoma International Source: Company, AUSTROPLAN , Zawya

Cash and investments As of 31 December 2008, YCC had SR132.2mn in cash and cash equivalents, nearly 250%

higher than in 2007. Over the same period, its investments stood at SR388.5mn, compared with

SR646.6mn. The table below details YCC’s investments:

Exhibit 34: Breakdown of Investments – 2008

Company name Stake

(%) Paid-up capital

(SR mn) Investment

(SR mn) Line of business Yanbu Al Shuaiba Paper Products Co. 60.00 12.50 Paper bags

Paper Sacks Factory 60.00

Saudi and Emirates for Concrete Production 25.00 Source: Company, Zawya, Tadawul, NCBC Research

Leverage YCC has little debt on its books. The FY08 balance sheet shows long-term credit facilities from

a local bank of SR13.7mn, compared with SR18.5mn in FY07.

We expect long-term debt to increase due to capacity expansions being undertaken. Our

forecast period assumes that YCC will fund its capital expenditure partially through a loan taken

from the Saudi National Commercial Bank (NCB), and from internal accruals. As per the MoU

signed with Sinoma (China), the fifth production line is believed to cost SR1500mn or

USD400mn.

Profitability YCC’s ROE and ROA contracted significantly in FY08. We conduct a DuPont analysis at the

company and industry level to identify the reasons.

Exhibit 35: DuPont breakdown

Particulars 2006 2007 2008Asset turnover (times) 0.38 0.49 0.42

Net profit margin (%) 60.7 56.5 51.2

Equity multiplier (times) 1.12 1.09 1.10

Return on equity (%) 25.4 30.0 23.9Return on assets (%) 22.8 27.5 21.7 Source: Company, NCBC Research



The main reasons for the contraction is the fall in the asset turnover ratio (to 0.42 in FY08 from

0.49 in FY07), and net profit margin (to 51.2% in FY08 from 56.5% in FY07). YCC’s asset

turnover ratio is above that of the industry average of 0.35, whereas its net profit margin is a tad

below the industry average of 52.7%.

At end-FY08, YCC’s ROE stood at 21.7% versus the industry average of 24.0%. Its ROA of

21.7% was higher than the industry average of 18.3%.


Financials (SR mn) 2006 2007 2008 2009E 2010E 2011E 2012EIncome statement

Net sales 843 1,171 1,094 996 1,025 1,260 1,373

% change 38.8 (6.6) (8.9) 2.9 22.9 9.0

Operating expenses 336 515 533 488 505 667 719

Operating profit 507 656 561 509 520 592 654

EBITDA 602 776 680 604 628 722 792

% change 28.8 (12.4) (11.2) 4.0 15.0 9.7

Dep. & Amortization 95 120 119 95 108 130 138

EBIT 507 656 561 509 520 592 654

Interest Income, net -1 -1 -1 -5 -19 -30 -27

Other Income 10 18 19 10 0 0 0

Non-recurring items 9 8 0 0 0 0 0

Pre-tax profit 524 681 579 513 501 563 626

Tax (Zakat) 12 19 17 13 13 14 16

Minority Interest 0 -2 -3 -3 -3 -4 -4

Net income 512 661 560 497 485 545 607

% change 29.0 (15.3) (11.1) (2.4) 12.3 11.3

Balance sheet Current assets 351 397 538 839 959 848 865

Investments 287 647 388 0 0 0 0

Net fixed assets 1,610 1,518 1,673 2,065 2,413 2,783 2,744

Other assets 3 2 0 0 0 0 0

Total assets 2,250 2,563 2,600 2,904 3,372 3,632 3,608

Current liabilities 115 185 186 199 204 264 284

Total debt 14 10 5 218 614 689 509

Other liabilities 24 31 36 36 36 36 36

Total liabilities 153 226 227 453 855 988 829

Share capital 1,050 1,050 1,050 1,050 1,050 1,050 1,050

Reserves & surplus 1,035 1,274 1,306 1,381 1,444 1,567 1,699

Shareholders' funds 2,085 2,324 2,356 2,431 2,494 2,617 2,749

Minority Interest 12 14 17 19 22 26 30

Total equity & liabilities 2,250 2,563 2,600 2,904 3,372 3,632 3,608

Cash flow statement Cash flow from op. (a) 539 799 636 612 596 636 716

Cash flow from inv.(b) (95) (27) (273) (98) (456) (500) (99)

CAPEX (56) (27) (273) (487) (456) (500) (99)

Free cash flow 483 772 363 126 140 136 617

Cash flow from fin.(c) (489) (417) (527) (210) (25) (348) (655)

Debt (99) 3 (5) 213 397 74 (180)

Net chg. in cash (a+b+c) (46) 355 (163) 304 114 (212) (37)

Cash at start of the year 89 330 684 132 437 551 339

Cash at end of the year 43 684 521 437 551 339 302

Source: Company, NCBC Research estimates


F I NA N CI AL S

Key financials

Key ratios 2006 2007 2008 2009E 2010E 2011E 2012EPer share ratios (SR) EPS 4.9 6.3 5.3 4.7 4.6 5.2 5.8

Cash EPS 5.8 7.4 6.5 5.6 5.6 6.4 7.1

Div per share 4.0 5.0 4.0 4.0 4.0 4.5 4.8

Book value per share 19.9 22.1 22.4 23.2 23.8 24.9 26.2

Valuation ratios (x) P/E 10.4 8.0 9.5 10.7 10.9 9.7 8.7

P/Cash EPS 8.7 6.8 7.8 9.0 8.9 7.9 7.1

P/BV 2.5 2.3 2.3 2.2 2.1 2.0 1.9

EV/sales 6.0 4.3 4.6 5.0 4.9 4.0 3.7

EV/EBITDA 8.3 6.5 7.4 8.3 8.0 7.0 6.3

Div yield (%) 7.9 9.9 7.9 7.9 7.9 8.9 9.4

Profitability ratios (%) Gross margins 62.4 58.1 53.5 53.2 53.0 49.0 49.5

Operating margin 60.1 56.0 51.3 51.1 50.7 47.0 47.6

EBITDA margins 71.4 66.3 62.2 60.6 61.3 57.3 57.7

Net profit margins 60.7 56.5 51.2 49.9 47.3 43.3 44.2

ROE 25.4 30.0 23.9 20.8 19.7 21.3 22.6

ROA 22.8 27.5 21.7 18.1 15.5 15.6 16.8

Liquidity ratios Current ratio 5.5 5.6 5.0 4.2 4.7 3.2 3.0

Quick Ratio 4.5 4.9 4.4 3.7 4.2 2.6 2.4

Operating ratios (days) Inventory 134 103 83 75 74 88 90

Receivables outstanding 34 33 45 55 55 55 60

Payables outstanding 6 18 4 18 18 27 27

Operating cycle 168 136 128 130 129 143 150

Cash cycle 162 119 124 112 111 116 123

Sector specific data / ratios EV/ton (SR) 1,363 1,363 1,363 1,363 1,363 688 688

EV/ton (USD) 364 364 364 364 364 184 184

Cement Capacity (000 tons) 3,762 3,762 3,762 3,762 3,762 7,452 7,452

Clinker Capacity (000 tons) 3,900 4,080 4,080 4,080 4,080 6,480 6,480

Capacity Utilization (%) - Clinker 91 94 89 90 97 81 89

Source: Company, NCBC Research estimates

19 AUGUST 2009

Kindly send all mailing list requests to [email protected]

Brokerage sales Roger Yeoman +966 2646 5724 [email protected] +966 500 556 261 (mobile)

Brokerage website www.alahlitadawul.com / www.alahlibrokerage.com

Corporate website www.ncbc.com

NCBC INVESTMENT RATINGS

Overweight: Target price represents expected returns in excess of 15% in the next 12 months Neutral: Target price represents expected returns between -10% and +15% in the next 12 months Underweight: Target price represents a fall in share price exceeding 10% in the next 12 months Price Target: Analysts set share price targets for individual companies based on a 12 month horizon. These share price targets are subject to a

range of company specific and market risks. Target prices are based on a methodology chosen by the analyst as the best predictor of the share price over the 12 month horizon

OTHER DEFINITIONS

NR: Not Rated. The investment rating has been suspended temporarily. Such suspension is in compliance with applicable regulations and/or in circumstances when NCB Capital is acting in an advisory capacity in a merger or strategic transaction involving the company and in certain other situations

CS: Coverage Suspended. NCBC has suspended coverage of this company NC: Not Covered. NCBC does not cover this company IMPORTANT INFORMATION

The authors of this document hereby certify that the views expressed in this document accurately reflect their personal views regarding the securities and companies that are the subject of this document. The authors also certify that neither they nor their respective spouses or dependants (if relevant) hold a beneficial interest in the securities that are the subject of this document. Funds managed by NCB Capital and its subsidiaries for third parties may own the securities that are the subject of this document. NCB Capital or its subsidiaries may own securities in one or more of the aforementioned companies, or funds or in funds managed by third parties The authors of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. The Investment Banking division of NCB Capital may be in the process of soliciting or executing fee earning mandates for companies that are either the subject of this document or are mentioned in this document. This document is issued to the person to whom NCB Capital has issued it. This document is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This document is not intended as an offer or solicitation with respect to the purchase or sale of any security. This document is not intended to take into account any investment suitability needs of the recipient. In particular, this document is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this document. NCB Capital strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this document take into account both risk and expected return. Information and opinions contained in this document have been compiled or arrived at by NCB Capital from sources believed to be reliable, but NCB Capital has not independently verified the contents of this document and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. To the maximum extent permitted by applicable law and regulation, NCB Capital shall not be liable for any loss that may arise from the use of this document or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and statements regarding future prospects contained in this document may not be realized. All opinions and estimates included in this document constitute NCB Capital’s judgment as of the date of production of this document, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this document may be reproduced without the written permission of NCB Capital. Neither this document nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this document should make themselves aware, of and adhere to, any such restrictions. By accepting this document, the recipient agrees to be bound by the foregoing limitations. NCB Capital is authorised by the Capital Market Authority of the Kingdom of Saudi Arabia to carry out dealing, as principal and agent, and underwriting, managing, arranging, advising and custody, with respect to securities under licence number 37-06046. NCB Capital’s registered office is at 25th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 22216, Riyadh 11495, Kingdom of Saudi Arabia.

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