Saudi Cement Sector - Aljazira · PDF fileSaudi Cement Sector-Executive Summary ... Cement...
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Saudi Cement Sector-Executive Summary
The Saudi Cement sector has seen its fortune rise on the back on the back of improved demand, backed by heavy infrastructure development in the Kingdom of Saudi Arabia. The TASI Cement index has moved up by 20% YTD, primarily due the favorable demand fundamental. However, the sector was impacted by a number of factors, that we believe have resulted in subduing the
sectors profitability:
• Depleting Inventory Levels
• The decree the government to maintain at least 2 months of inventory level based on production capacity;
• Government initiative to import un-subsidized cement in-order to meet demand;
• Limited fuel allocation the Ministry;
• Capped ex-factory prices at SAR 240.
On the back of the sector performance in 1H-2013, and changes on the fundamental front we have revised our estimations and 12-months price target.
Company Name Old 12-month price target in SAR
New 12-month price target in SAR
Old Recommendation
Share Price performance from our last recommendation
New Recommendation
Arabian Cement 69.5 73.5 Neutral 6.7% Neutral
Najran Cement 31.0 28.9 Overweight -2.9% Neutral
Qassim Cement 88.0 91.5 Overweight -0.9% Neutral
Saudi Cement 103.2 113.0 Neutral 8.2% Neutral
Southern Cement 118.1 114.2 Overweight 5.0% Neutral
Yamamah Cement 61.7 65.0 Overweight 8.0% Overweight
Yanbu Cement 73.7 76.6 Neutral 7.9% Neutral
Source: Aljazira Reseacrh
Key financial updates
AlJazira Capital Cement Universe
Share Capital
Market Cap (SAR Mn)
Profitability (SAR Mn) EPS (SAR) PE (x) PB (x) Dividend Yield
(SAR Mn) (SAR Mn) 2012a 2013e 2012a 2013e 2012a 2013e 2012a 2013e 2012a 2013e
Arabian Cement 3,048 5,720 384 544 4.8 6.8 10.4 10.6 1.4 1.8 4.6% 6.0%
Najran Cement 1,878 4,505 202 285 1.4 1.8 16.1 15.8 1.8 2.3 5.5% 4.0%
Qassim Cement 1,994 7,583 561 593 6.2 6.6 12.9 12.9 3.5 3.5 5.9% 5.9%
Saudi Cement 2,732 16,715 1,102 1,152 7.2 7.5 10.0 13.5 1.9 2.6 6.0% 7.0%
Southern Cement 2,743 15,435 1,003 1,026 7.2 7.3 14.0 15.1 5.3 5.8 7.0% 6.5%
Yamamah Cement 3,543 10,986 818 901 4.0 4.4 9.8 12.4 2.3 3.0 5.5% 8.4%
Yanbu Cement 3,296 11,852 721 948 4.6 6.0 11.9 12.6 2.6 3.2 6.1% 5.8%
Source: Aljazira Reseacrh
Key financial updates
Saudi Cement Sector
Sector report - Updated Outlook For 3Q2013
Analyst
Jassim Al-Jubran +966 2 6618602
Senior Analyst
Talha Nazar +966 2 6618603
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Saudi cement sector - Strong demand outlook; supply concerns persist
Saudi Arabia’s cement industry continues to witness robust demand due to a rise in construction activity, led by government-
backed infrastructure projects. Moreover, the sector is benefiting from low production costs on account of subsidized fuel
from Ministry of Petroleum. We believe companies that are in close proximity to high demand areas (particularly in the western
region) and the ones that are expanding their capacities are better placed to capitalize on the rising demand. However, limited
fuel allocation from Ministry of Petroleum to the cement sector poses a major threat to the planned capacity expansion.
Furthermore, the government’s cap on price realizations and ruling on maintaining minimum two months inventory level is
likely to hurt the profitability of cement manufacturers.
Favorable macroeconomic factors continue to drive demand
The cement industry in the Kingdom has witnessed a steady growth in consumption over the last few years. Cement
consumption1 has increased from 25.9MT in 2002 to 53.0MT in 2012 – a CAGR of 11.6% during 2007–12 as against the 3.4%
registered during 2002–07. The robust growth has been propelled by a rise in construction activity in the Kingdom.
The residential building sector, which accounts for around 60% of cement consumption, is expected to expand at a CAGR
of 8–10%2 in the long term, supported by a rising population, changing family structure, which more emphasis on nucleus
families, implementation of the mortgage law3 ,new structure decided by the ministry of housing to provide developed land
along with a loan to build housing units. Further, increase in infrastructure spending by government and strong project
pipeline in KSA is also supporting the cement demand. According to MEED Saudi Arabia Projects Market 2013 report, of the
USD 110bn worth of contracts awarded in 2012 among GCC countries, contracts worth USD 50bn were awarded in Saudi
Arabia. Furthermore, contracts worth around USD 30bn were awarded during the first six months of 2013.
1. Production and consumption data is the aggregate of Yamama Cem, Saudi Cem, Eastern Cem, Qassim Cem, Yanbu Cem, Arabian Cem, Southern Cem, Tabuk Cem, Riyadh Cem, Najran Cem, City Cem, Northern Cem, and AlJouf Cem2. NRCC prospectus dated May 20123. The implementation of the mortgage law is expected to trigger demand for housing units and, consequently, drive cement demand.
Figure 1: Total cement and clinker sales
Source: Yamama Cements, AlJazira Capital
2007 2008 2009 2010 2011 2012
26 25 26 26 27 31
33 38
44 49
53
20
30
40
50
60
MT
2002 2003 2004 20062005
CAGR: 3.4% CAGR: 11.6%
We believe the demand is expected to remain healthy in the long term, supported by ongoing construction activities due to
an increase in government spending on infrastructure, business expansion, and the construction of residential units.
Saudi Cement Sector
Sector report - Updated Outlook For 3Q2013
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Septemper 2013
Supply concerns persist despite expansion plans
Saudi Arabia’s cement production capacity increased at a CAGR of 11.2% to 56.2MT in 2012 from 33.0MT in 2007. Consequently,
production rose 11.6% during the same period, driven by the entry of new players and expansion by existing companies.
The central and western regions account for the majority of cement capacity in the KSA –28.6% and 24.5%, respectively.
However, in recent years, demand in the central region has gradually stabilized, while that in the western region has increased
due to development projects such as the construction of king Abdul-Aziz airport in Jeddah and other infrastructure projects.
Capacity to increase 12.1% over 2012–15
The rising demand for cement in the Kingdom has encouraged companies to expand operations in order to meet demand and
stay competitive. The KSA cement sector is expected to add about 23.0MT capacity by 2015 to meet the strong rise in domestic
demand. However, the majority of the capacity addition is likely to enter the market in 2015.
Fuel allocation – a major bottleneck in expansion
Cement companies in Saudi Arabia benefit from subsidized heavy fuel, which is allocated by the Ministry of Petroleum. Over
the last few months, several cement producers like Najran Cement and Tabuk cement reported a delay in implementation of
their expansion plans due to their inability to enter into a fuel supply agreement with the ministry. Limited fuel allocation to
cement producers remains a major concern for the implementation of the planned capacity expansion. During 2011, Yanbu
Cement Company (a major player in the western region) was involved in a dispute ; the company was unable to enter into a
fuel supply agreement , which resulted in a delay in the opening of Yanbu’s new kiln. Moreover, ministry had turned down
fuel supply for new production lines of Southern Province Cement and Qassim Cement. In 2012, the government asked
Saudi Aramco to provide fuel for six months to cement companies that underwent capacity expansions. However, this was a
temporary solution, and cement companies in the Kingdom continue to face a fuel supply bottleneck. The risk of a shortage
of cement supply could be mitigated by assurance from Aramco on the continuous availability of fuel.
33.0
43.8 46.0 47.550.7
56.2 57.863.1
79.2
20.0
32.0
44.0
56.0
68.0
80.0
2013
E
2014
E
2015
E
2007
2008
2009
2010
2011
2012
Figure 2: Installed capacity (MT) Figure 3: Region-wise production capacity4
Eastern Region, 22%
Central Region, 29% Western
Region, 24%
Northern Region, 7% Southern
Region, 19%
4. As of May 2012Northern Cem, and AlJouf Cem
Source: Yamama Cements, AlJazira Capital Source: Yamama Cements, AlJazira Capital
Cement Sector
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Imports to support declining inventory level Clinker inventory levels for cement producers in Saudi Arabia have been depleting over the last few years due to robust demand for cement. Overall inventory levels of clinker declined from 25% of clinker production (10.9MT) in 2009 to 13.4% (6.4MT) in 2012. During 2012, Yamama and Saudi Cement registered the highest decline in clinker inventory. The decline in Saudi Cement’s inventory was due to the sale of 2mn tons of clinker to Qassim Cement. Furthermore, the falling inventory levels add to the existing supply concerns.
The government, however, has taken initiatives to offset the concerns over depleting clinker inventory levels.
10.910.0
7.5
6.4 6.1
12.0%
15.0%
18.0%
21.0%
24.0%
27.0%
30.0%
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2009 2010 2011 2012 YTD
MT
Clinker Stock As a % of production (RHS)
Figure 4: Declining clinker inventory Figure 5: Company-wise inventory level
0.0
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ama
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MT
Clinker inventory - Aug 2013 Clinker Imports - Aug 2013
Source: Yamama Cements, AlJazira Capital Source: Yamama Cements, AlJazira Capital
Government initiatives to bridge demand–supply gapThe Saudi government has taken a series of measures to mitigate the supply concerns in the Kingdom’s cement sector.
• Maintaining minimum inventory levels: In May 2013, KSA’s Minister of Commerce and Industry made it mandatory for cement producers to build a ‘strategic’ reserve of two months of inventory at each plant, given the rising deficit in cement production. In case of a shortfall, the companies have to cover the same by importing. The ministry stated that it would monitor the companies and penalize the ones that do not adhere to the decree. In August 2013, eight cement producers reported a clinker import of approximately 1.4mn tons, of which Saudi Cement’s imports were around 23.3% of 2013 target (The government has set a target of 6mn ton of import for 2013,Import distribution formula will be based on fuel allocation).
• Cement imports to alleviate near-term shortage: In April 2013, the government instructed cement factories to import 10MT of additional cement to meet local demand. In June 2013, the Saudi Port Authority reported that about 350,000 tons of cement had been imported from the UAE and Egypt.
• Additional capacity: The government has set aside SAR 3bn, to support construction of four cement factories with a total capacity of 12MT.
Cement Sector
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Cement prices – remain regulated by the governmentThe rise in cement demand and the limited supply led to price5 increases in 2011 and 2012 (up 2.6% YoY and 4.2% YoY, respectively). During 2012, the price increase was limited, as the government took various measures to keep prices under control; these include extending export ban and intervening in the dispute between Saudi Aramco and cement producers. Furthermore, in March 2012, the government imposed a price ceiling for cement at SAR 240/tonne (down from SAR 250/ton earlier) to control unprecedented hikes in cement prices. Despite the price regulations, the Saudi market has suffered from an ‘informal’ cement market throughout 2012. According to news sources, traders were stockpiling cement to create artificial shortages, and cement was being sold at inflated prices.
Among listed players, Yanbu Cement and Qassim Cement command the highest prices in the region at around SAR 252/ton. During 1H2013 average cement prices in the Kingdom stood at SAR 236/ton.
Figure 6: Cement price realizations
234
229
235
245
236
225
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240
245
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2009 2010 2011 2012 1H 2013
SAR/t
on
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225
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Tabu
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South
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Saud
i
Aljou
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SAR/
ton
Figure 7: Company-wise price realization
Source: Yamama Cements, AlJazira Capital Source: Yamama Cements, AlJazira Capital
Margins likely to be adversely affected by price cap and clinker importCement companies in the Kingdom benefit from higher profitability compared with their regional and global peers; this is primarily on account of a favorable cost structure due to access to cheaper raw materials and fuel. Energy and raw material costs account for nearly 32% and 29%, respectively, of total production expenditure. Consequently, margins for cement producers in the Kingdom are much higher than those of their regional peers. Average gross and net margins (TTM) for cement companies6
in Saudi Arabia stood at 51.9% and 45.9%, respectively, vis-à-vis regional average of 33.8% and 28.3%, respectively.
Figure 9: Trend in gross and net margins
53.7%
51.4%
53.1%53.7%
48.3%
46.0% 46.5% 46.7%
42%
45%
48%
51%
54%
57%
2009 2010 2011 2012
Gross Margin Net margin
Figure 8: Saudi – better positioned
Kuwait
Oman
Qatar
Saudi
UAE
0%
10%
20%
30%
40%
50%
60%
0% 15% 30% 45% 60%
Gros
s Marg
in (TT
M)
Net Margin (TTM)
Source: Bloomberg, AlJazira Capital Source: Tadawul, Bloomberg, AlJazira Capital
During 2012, gross and net margins for cement producers stood at 53.7% and 46.7%, respectively. At 58.6%, Qassim Cement maintains the highest gross margin level among its domestic peers, followed by Southern Province Cement (58.2%) and Yamama Cement (58.0%). Qassim Cement’s higher price realizations and better efficiency help the company in maintaining higher gross margins vis-à-vis its peers.
Government cap – SAR240/ton
5. Price data pertains to average of Yamama Cem, Saudi Cem, Eastern Cem, Qassim Cem, Yanbu Cem, Southern Cem, Tabuk Cem, Najran Cem, and AlJouf Cem
6..Data pertains to average of Yamama Cem, Saudi Cem, Eastern Cem, Qassim Cem, Yanbu Cem, Arabian Cem, Southern Cem, Tabuk Cem, Najran Cem, and AlJouf Cem
Cement Sector
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Saudi , 14.6%
Eastern, 5.9%
Yamama, 10.3%
Qassim, 7.7% Yanbu, 14.4% Arabian,
8.0% Tabuk, 2.5%
Northern, 3.6% Al Jouf, 2.7%
Southern, 12.3%
Najran, 5.5% Others, 12.6%
Regulatory limit of 85%
Competitive landscapeIn terms of capacity until Aug-2013, the top three cement players in KSA control over 40% of the market – Saudi Cement Company (16.1%), Southern Province Cement Company (13.3%), and Yamama Cement Company (12.0%). Yanbu cement with the eadditional capacity of about 3.0MT in 2012, the company is expected to rise to around 12.5% from 11.8% during 2013. Furthermore, the market share of private players is expected to rise its share market from 12.6% to 18.4% primarily due to the expected capacity addition of approximately 3.5MT in 2015 by Riyad Cement.
Source: NRCC prospectus, Tadawul, AlJazira Capital
Saudi , 13.2% Eastern, 4.2%
Yamama, 11.7%
Qassim, 5.4%
Yanbu, 10.2%
Arabian, 8.8%
Tabuk, 3.4% Northern, 2.5%
Al Jouf, 1.9% Southern,
10.6% Najran,
7.0%
Others, 18.4%
New Players*, 2.6%
“New Players” refers to expected expansion by existing companies.
Source: NRCC prospectus, AlJazira Capital
Figure 12: Market share by capacity – 2015E Figure 11: Market share by capacity – 2012
We believe margins may come under pressure due to price realizations being regulated by the government and the continuation of the export ban. Furthermore, production costs are expected to increase as companies import clinker to adhere to the government’s decree of maintaining two months of inventory level. In addition the cost of imported clinker for cement companies have adversely effected the profitabilty, as Najran cement which is located in the Southern region has been effected by approximately SAR 80/ton in 2Q-2013.
Source: Yamama Cements, Tadawul, AlJazira Capital
Figure 10: Gross and net margins across Saudi cement companies (2012)
58.6% 58.2% 58.0% 56.9% 55.8% 55.6%52.9% 50.9%
42.0%39.2%
51.9% 50.1%47.3%
53.5%48.1%
28.3%
55.4%
47.0%
33.0%27.5%
25%
32%
39%
46%
53%
60%
67%
Yamama Saudi Eastern Qassim Yanbu Arabian Southern Tabuk Najran Aljouf
Gross Margin Net Margin
Cement Sector
Strategic Reports |Cement Sector
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Price upgraded, ‘Neutral’ recommendation maintained/Net income expectation revised
• Valuation update: We revise our 12-month price target for Arabian
Cement by 1.4% to SAR 73.53/share. On the back of revised beta from
Bloomberg , however we cut our net income estimates for 2013 by 8.2%
on the back of i)lower price realization and ii)less than expected growth
in dispatches . The stock is currently trading at a PE and PB of 13.18x and
1.93x respectively. For 2013 and 2014, at current market price (24th Sept
2013) we expect the company to trade at an expected PE of 10.6x and 9.3x
respectively. We maintain our “Neutral” stance.
• Lower dispatches and price realization hurting prospects:
Arabian 1H-2013 showed a fall of 6.3% in the local market as dispatches
stood at 2.20mn as compared to 2.35 tons in 1H-2012. For full year we
cut our dispatches forecast on the local front by 5.4%. According to our
estimates price realization per tonne for the company has showed a fall
of 8.6%. For full year 2013 we expect the company’s per ton realization to
register fall of 8%.
• We downgrade our 2013 expectation: Arabian cement in 2Q-2013
posted net income of SAR124.7mn.Major deviation from our expectation
was due to lower dispatches at lower price realization. We cut our 2013 net
income estimate by 8.1% to SAR 543.65mn.
New Recommendation ‘Neutral’’
Old recommendation ‘Neutral’
New 12-month price target; SAR73.53
Old12-month price target; SAR 69.5
Current Price: SAR71.50
Upside / (downside): 2.8%
Reuters code: 3010.SEBloomberg code: ARCCO:ABCountry: Saudi ArabiaSector: CementPrimary Listing: TadawulM-Cap: SAR 5,920mn52 Weeks H/L (SAR): 76.43 / 43.70
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Tasi ACCO
Price Chart
SARmn (unless specified) 2012 2013e 2014e 2015e 2016eSales (Mn SAR) 1,371 1,486 1,599 1,615 1,324 % Growth In sales 27% 8% 8% 1% -18%Net Income (Mn SAR) 384 544 617 637 467 % Growth In Net Income -6% 42% 14% 3% -27%EBITDA Margins 41% 50% 51% 51% 49%EBIT Margins 29% 39% 40% 40% 35%Net Margins 28% 37% 39% 39% 35%ROE 13% 17% 17% 16% 11%ROA 9% 12% 12% 13% 9%PE (x) 10.4 10.6 9.3 9.0 12.3 PB (x) 1.4 1.8 1.6 1.4 1.4 EV/EBITDA (x) 8.1 8.1 6.9 6.7 8.0 Dividend Yild 4.6% 6.0% 4.2% 4.2% 4.2%
Source: Company’s report & Aljazira Capital research,
Key financial updates
Arabian Cement Company
Investment Update |Saudi Arabia | Cement
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Price downgraded, Relegated to ‘Neutral’ recommendation /Net income expectation revised
• Valuation update: We revise our 12-month price target for Najran cement
company by 6.7% to SAR 28.9/share. On the back of i) A revised Beta of 1.37
from Bloomberg. ii) We reduce our Expectation of capacity utilization for
2013 by 9.4% after a fuel supply issue iii) Operational efficiency in reducing
the cost per tonne from 134 to SAR 130 iii) lower price realization. The
stock is currently trading at a PE and PB of 17.88x and 2.34x respectively.
For 2013 and 2014, at current market price (24th Sept 2013) we expect the
company to trade at an expected PE of 15.80x and 11.38x respectively. We
revise our 12months price target for NCC to SAR 28.9/share. Therefore, we
relegated our recommendation to “Neutral” stance.
• Fuel shortages lead to a reduction in Dispatches growth: Najran
Cement commenced experimental operation of its new 2.1mtpa capacity
plant at the beginning of 3Q-2013 taking NCC’s capacity to 5mtpa. However,
the company has not been able to utilize its full capacity due to lack of
fuel allocation from the Ministry of Petroleum. NCC in a recent circular on
Tadawul highlighted the issue and came up with a temporary solution.
A decision so far has not been reached on the fuel allocation issue. We
believe that given the shortfall in cement demand it is inevitable that the
plant will receive fuel allocation. However due to the previous short fall we
have revised our estimates for 2013.
• We downgrade our 2013 expectation: NCC in 2Q-2013 posted net
income of SAR 63.5 mn (EPS; SAR0.37), which remained in line with our
estimations, with a slight deviation of 7.4%. Major deviation from our
expectation was due to lower clinker stocks resulting in lower sales. We cut
our 2013 net income estimate by 12.9% to SAR 285.1mn.
New Recommendation ’Neutral’’
Old recommendation ‘Overweight’
New 12-month price target; SAR28.9
Old12-month price target; SAR 31.0
Current Price: SAR 26.5
Upside / (downside): 9.0%
Reuters code: 3002.SEBloomberg code: NAJRAN:ABCountry: Saudi ArabiaSector: CementPrimary Listing: TadawulM-Cap: SAR 4,301mn52 Weeks H/L (SAR): 29.90 / 16.90
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NCCO
Price Chart
SARmn (unless specified) 2011 2012 2013e 2014e 2015e 2016eSales 697 613 755 1,019 1,159 1,238 % Growth In sales 9.3% -12.1% 23.0% 35.1% 13.7% 6.8%Net Income 235 202 285 396 464 497 % Growth In net income -2.3% -13.8% 41.0% 38.8% 17.2% 7.0%EPS 2.16 1.44 1.81 2.53 2.93 3.11 Gross Margins 42% 45% 45% 45% 46% 45%EBIT Margins 38% 40% 41% 42% 43% 43%Net Margins 34% 33% 38% 39% 40% 40%ROE 19% 11% 15% 18% 19% 18%ROA 12% 7% 9% 12% 13% 14%PE (x) - 16.06 15.80 11.38 9.71 9.07 PB (x) - 1.8 2.3 2.1 1.9 1.6 EV/EBITDA (x) - 11.5 11.3 8.2 6.7 5.9 Dividend Yield - 5.5% 4.0% 4.0% 4.0% 4.0%
Source: Company’s report & Aljazira Capital research,
Key financial updates
Najran Cement Company
Investment Update |Saudi Arabia | Cement
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Price upgraded, Relegated to ‘Neutral’ recommendation /Net income expectation revised.
• Valuation update: We revise our 12-month price target for Qassim
cement company by 3.8% to SAR91.5/share. On the back of i) A revised
Beta of 0.58 from Bloomberg. ii) Operational efficiency in reducing the cost
per tonne from 102.4 to SAR 100 iii) Expected higher cement production
iii) lower price realization. The stock is currently trading at a PE and PB of
12.97x and 3.82x respectively. For 2013 and 2014, at current market price
(24th Sept 2013) we expect the company to trade at an expected PE of
12.90x and 12.18x respectively. We revise our 12 months price target for
QCC to SAR 91.5/share. However we maintain our “Neutral” stance.
• Proximity to high-growth regions: Qassim is located in the central
region of Saudi Arabia and benefits from the strong demand from central
and western parts of the Kingdom. We expect the company’s sales increased
at a CAGR of 3.2% during 2012–2016 from 4.1 MT to 4.8 MT. Qassim is
expected to continue on a steady growth path as demand is projected
to increase due to the government’s active participation in a new Metro
project, construction and real estate projects, especially in the central and
western parts that are characterized by high population, and infrastructure
development.
• We upgrade our 2013 expectation: QCC in 2Q-2013 posted net income
of SAR 166.1 mn (EPS; SAR1.85), depicting lower than our expectation by
3.0% Y/Y. Major deviation from our expectation was due to the rise of some
expenses elements especially Zakat expense. However, we raise our 2013
net income estimate by 2.8% to SAR 593.2mn due to operation efficiency
driven by lower cost.
New Recommendation ’Neutral’’
Old recommendation ‘Overweight’
New 12-month price target; SAR 91.5
Old12-month price target; SAR 88.0
Current Price: SAR84.25
Upside / (downside): 8.6%
Reuters code: 3040.SEBloomberg code: QACCO:ABCountry: Saudi ArabiaSector: CementPrimary Listing: TadawulM-Cap: SAR 7,627mn52 Weeks H/L (SAR): 88.5 / 75.0
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Price Chart
SARmn (unless specified) 2011 2012 2013e 2014e 2015e 2016eSales (SAR mn) 1,034.8 1,047.9 1,079.2 1,149.7 1,174.9 1,186.4 Growth in sales % 6.9% 1.3% 3.0% 6.5% 2.2% 1.0%Net Income (SAR mn) 552.7 561.0 593.2 628.2 643.1 636.5 Growth in net income % 10.4% 1.5% 5.7% 5.9% 2.4% -1.0%EPS 6.14 6.23 6.59 6.98 7.15 7.07 Gross Margins 59% 59% 60% 60% 60% 59%EBIT Margins 55% 55% 57% 57% 57% 56%Net Margins 53% 54% 55% 55% 55% 54%ROE 28% 27% 27% 26% 25% 23%ROA 26% 25% 25% 25% 23% 22%PE (x) 11.85 12.91 12.90 12.18 11.90 12.02 PB (x) 3.35 3.51 3.46 3.20 2.96 2.76 EV/EBITDA (x) 11.08 10.91 10.37 9.86 9.65 11.02 Dividend Yield 5.9% 5.9% 5.9% 5.9% 5.9% 5.9%
Source: Company’s report & Aljazira Capital research,
Key financial updates
Qassim Cement Co.
Investment Update |Saudi Arabia | Cement
10 © All rights reserved
Please read Disclaimer on the back
Septemper 2013
Price upgraded, ‘Neutral’ recommendation maintained/Net income expectation revised
• Valuation update: We revise our 12-month price target for Saudi Cement
by 9.5% to SAR 113.02/share. On the back of revised beta from Bloomberg ,
however we cut our net income estimates for 2013 by 3.16% on the back of i)
lower price realization and ii)a cut of 4.1% in our expectation for volumetric
dispatches. The stock is currently trading at a PE and PB of 13.99x and 5.8x
respectively. For 2013 and 2014, at current market price (24th Sept 2013)
we expect the company to trade at an expected PE of 13.46x and 10.86x
respectively. We maintain our “Neutral” stance.
• Lower dispatches and price realization hurting prospects: Saudi
Cement in 1H-2013 showed a jump of 5.1% in its net income on the back of
improved volumetric sales, however the jump in dispatches was lower than
our expectation. We have adjusted our dispatches assumption downward
by 4.1%.
• We downgrade our 2013 expectation: Saudi cement in 2Q-2013
posted net income of SAR344.9mn.Major deviation from our expectation
was due to lower dispatches at lower price realization. We cut our 2013 net
income estimate by -3.1% to SAR 1151.6mn
New Recommendation ‘Neutral’’
Old recommendation ‘Neutral’
New 12-month price target; SAR113.0
Old12-month price target; SAR 103.2
Current Price: SAR109.25
Upside / (downside): 3.4%
Reuters code: 3030.SEBloomberg code: SACCO:ABCountry: Saudi ArabiaSector: CementPrimary Listing: TadawulM-Cap: SAR 16,294mn52 Weeks H/L (SAR): 110.25 / 87.0
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SARmn (unless specified) 2011 2012 2013e 2014e 2015e 2016eRevenues (Sales) 1,716 2,203 2,285 2,480 2,521 2,592 % Growth in Revenues 12% 28% 4% 9% 2% 3%Net Income 831 1,102 1,152 1,259 1,273 1,316 % Growth in Gross Profit 24% 29% 6% 9% 1% 3%EPS 5.43 7.20 7.53 8.23 8.32 8.60 Return On Equity (ROE) 22% 19% 20% 25% 35% 37%Retun On Asstes (ROA) 14% 12% 14% 18% 25% 27%EBIT Margins 51% 52% 52% 53% 52% 53%Net Margins 49% 43% 43% 48% 50% 50%PE (x) 8.70 9.98 13.46 10.86 13.78 14.58 PB (x) 1.90 1.89 2.63 2.75 4.81 5.45 Dividend Yield 7% 6% 7% 11% 7% 6%
Source: Company’s report & Aljazira Capital research,
Key financial updates
Saudi Cement Company
Investment Update |Saudi Arabia | Cement
11 © All rights reserved
Please read Disclaimer on the back
Septemper 2013
Price downgraded, Relegated to ‘Neutral’ recommendation/Net income expectation revised
• Valuation update: We revise our 12-month price target for Southern
cement company by 3.3% to SAR 114.2/share. On the back of i) A revised
Beta of 0.59 from Bloomberg. ii) Lower price realization iii) Expected sales
reduction by 12.5% for 2013. The stock is currently trading at a PE and PB
of 15.16x and 5.63x respectively. For 2013 and 2014, at current market
price (24th Sept 2013) we expect the company to trade at an expected PE
of 15.08x and 13.74x respectively. We revise our 12 months price target
for SPCC to SAR 114.2/share. However we maintain our “Neutral” stance.
• The second largest market share: SPCC is one of the leading cement
companies in Saudi Arabia with a market share of 13.7% (August-2013).
SPCC is expected to further strengthen its position in the Saudi Arabian
market after doubling clinker capacity at its Tihama factory to 10,000 tons
per day by mid-2012. SPCC has increased its grinding capacity by 50% in
Jazan plant after adding a third cement mill on 1Q-2013.
• Risk Factors:
1. The shortage of fuel supply for Tihama and Jizan plants may affect the production
capacity.
2. The new expansions in the region might reduce the company’s share.
3. Increase clinker inventory after import decision might have an impact on cost
per tonne in case of lower demand.
• We downgrade our 2013 expectation: SPCC in 2Q-2013 posted
net income of SAR 297.0 mn (EPS; SAR2.12), depicting higher than our
expectation by 9.9%Y/Y. Major deviations from our expectation was due
to an increase in local dispatches. However, we cut our 2013 net income
estimate by 12.4% to SAR 1.02bn due to lower capacity utilization of the
new expansions.
New Recommendation ’Neutral’’
Old recommendation ‘Overweight’
New 12-month price target; SAR114.2
Old12-month price target; SAR118.1
Current Price: SAR110.25
Upside / (downside): 3.5%
Reuters code: 3050.SEBloomberg code: SOCCO:ABCountry: Saudi ArabiaSector: CementPrimary Listing: TadawulM-Cap: SAR 14,9801mn52 Weeks H/L (SAR): 115 / 91.0
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Price Chart
SARmn (unless specified) 2011 2012 2013e 2014e 2015e 2016eSales 1,691.1 1,805.3 1,851.3 2,029.3 2,095.2 2,163.3 Growth in sales (%) 29% 6.8% 2.5% 9.6% 3.3% 3.3%Net Income 895.7 1,003.3 1,025.8 1,125.7 1,146.5 1,182.3 Growth in net income (%) 36% 12.0% 2.2% 9.7% 1.8% 3.1%EPS 6.40 7.17 7.33 8.04 8.19 8.45Gross Margins 57% 58% 59% 59% 58% 58%EBIT Margins 54% 56% 56% 56% 56% 56%Net Margins 53% 56% 55% 55% 55% 55%ROE 34% 38% 38% 41% 42% 43%ROA 30% 33% 34% 37% 37% 38%PE (x) 13.44 13.95 15.08 13.74 13.49 13.08 PB (x) 4.55 5.25 5.75 5.70 5.65 5.59 EV/EBITDA (x) 13.54 12.36 12.09 11.18 10.95 10.64 Dividend Yield 7.3% 7.0% 6.5% 7.1% 7.2% 7.5%
Source: Company’s report & Aljazira Capital research,
Key financial updates
Southern Province Cement Co.
Investment Update |Saudi Arabia | Cement
12 © All rights reserved
Please read Disclaimer on the back
Septemper 2013
Price upgraded, ‘Overweight’ recommendation maintained/Net income expectation revised
• Valuation update: We revise our 12-month price target for Yamamah
Saudi Cement by 5.4% to SAR 65.01/share. On the back of revised
beta from Bloomberg and higher net income expectation due to i)
Extraordinary other income for 2Q-2013 ii)higher price realization. The
stock is currently trading at a PE and PB of 12.61x and 3.1x respectively.
For 2013 and 2014, at current market price (24th Sept 2013) we expect
the company to trade at an expected PE of 12.40x and 12.00x
respectively. We maintain our “Overweight” stance.
• Higher Other income and strong price realization adding
to the bottom line: Yamamah Saudi Cement in 1H-2013 showed a
jump of 11.8%YoY in its net income on the back of improved volumetric
sales as it showed an increase of 5.8% YoY. We maintain our full year
dispatches assumption for the company. The company in 2Q-2013
posted non-operational income of SAR19.7mn depicting a jump of
120%YoY, which our higher than our expectation.
• We upgrade our 2013 expectation: Yamamah cement in 2Q-
2013 posted net income of SAR267.6mn.Major deviation from our
expectation was due to higher other income. We revise our 2013 net
income estimate by 5.1% to SAR 900.5mn.
New Recommendation ’Overweight’
Old recommendation ‘Overweight’
New 12-month price target; SAR65.01
Old12-month price target; SAR 61.65
Current Price: SAR54.25
Upside / (downside): 19.8%
Reuters code: 3020.SEBloomberg code: YACCO:ABCountry: Saudi ArabiaSector: CementPrimary Listing: TadawulM-Cap: SAR 11,086mn52 Weeks H/L (SAR): 57.0 / 43.0
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Price Chart
SARmn (unless specified) 2012 2013e 2014e 2015e 2016e Revenue 1,575.8 1,601.4 1,621.2 1,624.5 1,643.2 Growth YoY (%) 9.3% 1.6% 1.2% 0.2% 1.2% Net Profit 817.6 900.5 911.6 920.1 956.1 Growth YoY (%) 11% 10% 1% 1% 4% EPS (SAR) 4.8 4.4 4.5 4.5 4.7 Operating margin 54.8% 56.0% 56.2% 56.6% 58.2% EBITDA margin 54.9% 56.2% 56.3% 56.7% 57.2% ROA 21.3% 23.0% 22.5% 21.8% 21.8% ROE 23.7% 25.0% 24.2% 23.4% 23.4% EV/EBITDA (x) 12.70 12.21 12.03 11.92 11.69 P/E ratio (x) 9.80 12.14 12.00 11.89 11.44 P/BV ratio (x) 2.28 2.97 2.84 2.73 2.62 Dividend Yield 5.5% 8.4% 6.7% 6.8% 6.9%
Source: Company’s report & Aljazira Capital research,
Key financial updates
Yamamah Saudi Cement Co.
Investment Update |Saudi Arabia | Cement
13 © All rights reserved
Please read Disclaimer on the back
Septemper 2013
Price upgraded, ‘Neutral’ recommendation maintained/Net income expectation revised
• Valuation update: We revise our 12-month price target for Yanbu
cement company by 3.9% to SAR 76.6/share. On the back of i) A revised
Beta of 0.89 from Bloomberg. ii) Operational efficiency in reducing the cost
per tonne to SAR 100. The stock is currently trading at a PE and PB of 13.48x
and 3.60x respectively. For 2013 and 2014, at current market price (24th
Sept 2013) we expect the company to trade at an expected PE of 12.55x
and 12.01x respectively. We revise our 12months price target for YNCC to
SAR 76.6/share. However we maintain our “Neutral” stance.
• Strong Inventory build-up and capacity utilization to support
growth for YNCC: Despite of a rise in Yanbu Cement dispatches, the
Company recorded the second largest clinker inventory levels of 0.991mn
on August-2013 showing jumps of 65% Y/Y and 45% Q/Q. We expect
that the higher inventories and spare capacity levels will translate into
higher growth for Yanbu cement as it will serve as a cushion against any
unexpected increase in demand to strengthen its position in the sector and
improve its market share in the western region.
• We upgrade our 2013 expectation: YCC in 2Q-2013 posted net income
of SAR 274.4 mn (EPS; SAR1.73), which is higher than our expectation by
7.6% Y/Y. Major deviation from our expectation was due strong demand
in the western region, along with company’s cost efficiency. Therefore, we
raise our 2013 net income estimate by 8.1% to SAR 947.8mn.
New Recommendation ‘Neutral’’
Old recommendation ‘Neutral’
New 12-month price target; SAR76.6
Old12-month price target; SAR 73.7
Current Price: SAR75.25
Upside / (downside): 1.7%
Reuters code: 3060.SEBloomberg code: YNCCO:ABCountry: Saudi ArabiaSector: CementPrimary Listing: TadawulM-Cap: SAR 11,615mn52 Weeks H/L (SAR): 80.75 / 46.0
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Price Chart
SARmn (unless specified) 2011 2012 2013e 2014e 2015e 2016eSales 1,132.3 1,496.5 1,706.3 1,793.9 1,855.9 1,900.7 Growth in Sales (%) 26.4% 32.2% 14.0% 5.1% 3.5% 2.4%Net Income 529.3 720.5 947.9 990.2 1,021.9 1,039.9 Growth in net income (%) 22.9% 36.1% 31.6% 4.5% 3.2% 1.8%EPS 5.04 6.86 6.02 6.29 6.49 6.60 Gross Margins 49% 53% 60% 59% 59% 59%EBIT Margins 46% 51% 58% 57% 57% 57%Net Margins 47% 48% 56% 55% 55% 55%ROE 18% 22% 25% 24% 24% 23%ROA 12% 15% 18% 19% 20% 20%PE (x) 13.69 11.88 12.55 12.01 11.64 11.43 PB (x) 2.52 2.57 3.17 2.93 2.75 2.61 EV/EBITDA (x) 12.12 9.11 9.96 9.33 8.81 8.57 Dividend Yield 3.6% 6.1% 5.8% 6.3% 6.8% 6.1%
Source: Company’s report & Aljazira Capital research,
Key financial updates
Yanbu Cement Company
Investment Update |Saudi Arabia | Cement
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Disclaimer
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1. 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.
2. 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.
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AGM - Head of ResearchAbdullah Alawi+966 12 [email protected]
Senior Analyst Syed Taimure Akhtar +966 12 6618271 [email protected]
Senior Analyst
Talha Nazar +966 12 [email protected]
Analyst
Saleh Al-Quati+966 12 [email protected]
Analyst
Jassim Al-Jubran +966 12 [email protected]
General Manager - Brokerage DivisionAla’a Al-Yousef+966 11 [email protected]
AGM-Head of international
and institutional brokerageLuay Jawad Al-Motawa +966 11 [email protected]
Regional Manager - West and South Regions
Abdullah Al-Misbahi+966 12 [email protected]
Sales And Investment Centers Central Region
Manger
Sultan Ibrahim AL-Mutawa +966 11 [email protected]
Area Manager - Qassim & Eastern Province
Abdullah Al-Rahit+966 16 [email protected]
Asset Management Brokerage Corporate Finance Custody Advisory
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