HOLD. Saudi Arabia Fertilizers Company (SAFCO) Investment Update. Target Price SR Global Research - Saudi Arabia

Transcription

1 Market Data Bloomberg Code: SAFCO AB Reuters: 2020.SE CMP (06 th Feb 2010): SR O/S (mn): Market Cap (SRmn): Market Cap (US$mn): 8,350 P/E 2010e (x): 12.0 P/Bv 2010e (x): 4.0 Price Performance 1Yr High /Low (SR): /86.0 Average Volume: 380,014 Market Data 1m 3m 12m Absolute 2.6% 10.7% 54.1% Relative 4.6% 20.4% 25.3% Price Index Performance 7,000 6,500 6,000 5,500 5,000 4,500 4,000 Jan09 Feb09 Mar09 Apr09 May09 Jun09 Jul09 Aug09 Sep09 Oct09 Nov09 Dec09 Jan10 Tadawul LHS Source: Zawya Faisal Hasan, CFA Head of Research Phone No:(965) Hettish Karmani Senior Financial Analyst Phone No:(965) Syed Taimure Akhtar Financial Analyst Phone No:(966) Ext.: SAFCO (SR) RHS Global Research Saudi Arabia Investment Update Saudi Arabia Fertilizers Company (SAFCO) Strong prices & lower CAPEX leads to improve margins & valuation. Higher capacity utilization & subsidized feedstock prices, key drivers. Lower prices caused lower 2009 profitability. HOLD Target Price SR Key growth drivers Despite of decline in Saudi Arabia Fertilizers Company (SAFCO) profitability, we believe the key growth factors associated with the company are (i) expected upward trend in the average prices of fertilizer products, (ii) higher subsidized feedstock prices at US$0.75 per mmbtu in Saudi Arabia and (iii) higher capacity utilization i.e. more than 100.0% on the back of shortage of fertilizer products, which will lead the company to maintain its profitability margins on the past 4years historical levels. It is worth mentioning, at present, the company has no immediate expansion plans, which indicates the company to show limited increase in CAPEX. However, the company is intended to further increase its production capacity, which is mainly based on the allocation of gas from Aramco. Sharp decline in prices leads to lower profitability during 2009 The sharp fall in the average prices of fertilizer products during 2009 remained the key factor, which has led the company s profitability to decline by 56.9% to SR1.8bn as compared to SR4.3bn (EPS; SR17.1) in However, during 2009, the company was able to maintain its capacity utilization on higher level i.e. more than 100.0%, which has led the company to record gross and profit margins at 61.8% and 67.3%. Moreover, the company s profitability during 2009 was also remained lower than our estimated PAT of SR2.3bn (EPS; SR9.4), which is mainly due to the lower profitability recorded during 4Q2009 on the back of the shutdown in production complex for annual maintenance, which has restricted the company s profitability at SR375.9mn during the quarter. Prices in international markets to remain strong The expected slow improvement in the global economic situation, we believe the average prices of OPEC crude oil will remain in the range of US$75.0 to US$80.0 per barrel during 2010 an increase of 23.0% to 31.0% over average prices recorded in Furthermore, the long term prices of OPEC crude oil are expected to remain in the range of US$ per barrel during Lower CAPEX leads to upward revision in valuation The lower than expected growth in the company s CAPEX during 2009 has led us to lower down the expected future growth in CAPEX. Consequently, this has led to higher free cash flows (FCF), which is translated into upward revision in the SOTPDCF intrinsic value of SAFCO to SR Hence, at present, the stock is offering at a potential upside of 2.5% from the current market price. We, therefore, recommend HOLD for the stock. Table 01: SAFCO Investment Indicators Year Net Profit EPS BVPS ROAA P/E P/BV (SR mn) (SR) (SR) (%) (x) (x) 2013 (E) 2, (E) 2, (E) 2, (E) 2, (A) 1, Source: Company Annual Reports & Global research *Historical P/E & P/BV multiples pertain to respective year end prices, while those for future years are based on closing prices on the Tadawul as of February 06th 2010 February 2010 Saudi Arabia Fertilizers Co. (SAFCO) 1

2 Valuation & Recommendation SOTPDCF Method We have used sum of the parts (SOTP) valuation technique to value SAFCO, which itself is the combination of the fair values of SAFCO and YANSAB. We have used Capital Asset Pricing Model (CAPM) to calculate the cost of the equity, which is based on the following assumptions: A riskfree rate of 5.6% has been assumed. A market risk premium of 6.0% has been assumed. Beta taken from Bloomberg and taken at 1.0. The cost of equity derived from the above assumptions using the Capital Asset Pricing Model (CAPM) is 11.6%. The cost of debt has been assumed at 7.0%. Based on the above assumptions, the Weighted Average Cost of Capital (WACC) works out to be 10.6%. We have assumed the terminal growth rate at 3.0%. Based on our future earnings projections and the above assumptions for, the SOTPDCF value of SAFCO comes out to be SR128.4 per share. Table 02: DCF Base Valuation (SR Mn) 2010 (E) 2011 (E) 2012 (E) 2013 (E) FCF 1,996 2,132 2,375 2,329 Discounted Cash Flow 1,850 1,787 1,799 1,596 Terminal Value 31,489 Primary Value 7,033 Discounted Terminal Value 21,566 Company s Net Present Value 28,599 LongTerm Debt (282) Investments & Cash Equivalents 3,429 Total Equity Value YANSAB in SAFCO 357 Total Equity Value SAFCO 32,104 Shares Outstanding (000) 250,000 Fair Value Per Share Source: Global Research Sensitivity Analysis A sensitivity analysis for different estimated longrun future growth rates and weighted cost of capital is shown in table below. The table provides estimated SOTP fair values for SAFCO shares based on a range of varying inputs. The shaded area at the center shows the most probable range of alternatives. Table 03: DCF Base Valuation Terminal Growth Rates 2.00% 2.50% 3.00% 3.50% 4.00% 8.62% % % % % Source: Global Research WACC 2 Saudi Arabia Fertilizers Co. (SAFCO) February 2010

3 Valuation The lower than expected growth in the company s CAPEX during 2009 has led us to lower down the expected future growth in CAPEX. Consequently, this has led to higher free cash flows (FCF), which is translated into upward revision in the SOTPDCF intrinsic value of SAFCO to SR Table 04: SOTP DCF Base Valuation (SR) Fair Value Saudi Arabia Fertilizer Company DCF Yanbu National Petrochemical Company DCF 1.4 SOTP Value Source: Global Research Based on our valuations, at present, the stock is trading at a prospective 2010 and 2011 P/E of 12.8x and 12.2x, respectively and offering a dividend yield of 5.5% for Moreover, the stock is offering at a potential upside of 2.5% from the current market price of SR as on 06th Feb We, therefore, recommend from HOLD for the stock. February 2010 Saudi Arabia Fertilizers Co. (SAFCO) 3

4 Saudi Arabia Fertilizer Company Financial Update Higher Capacity Utilization Improving Gross Margins During 2009, the lower capacity utilization led the company s annual production to show a decline of 28.8% as compared to the production of 5.7mn tons recorded in The major reasons of decline in the production during 2009 are the (i) full year impact of shut down of Dammam Urea plant and (ii) the temporary halt of production facilities during 4Q2009 for annual maintenance. Furthermore, the company s gross profit margins are recorded at 61.8% during 2009 as compared to 79.3% during Going forward, the expectations of improvement in the capacity utilization i.e. in the average range of 95.0% 105.0%, during , will help the company to manage the expectations of limited upside in the average prices of fertilizer prices and dilute its production costs. Hence, this will lead to the improvement in the profitability margins, going forward, and expected to remain over 70.0% during i.e. higher than the 4years historical levels. However, in view of commencement of inside the Kingdom, we believe the company s capacity will slow down but remain above 100.0% during Chart 01: SAFCO Production & Capacity Utilization Chart 02: SAFCO Gross Profit & GP Margins 7, , , , % 113.4% 89.4% 97.9% 100.1% 106.7% 120.0% 115.0% 102.7% 110.0% 105.0% 5,000 4,500 4,000 3,500 3,000 2, % 79.3% 70.8% 71.6% 72.2% 72.0% 85.0% 80.0% 75.0% 3, % 2, % 70.0% 2, % 1,500 1, % 1, % 85.0% 60.0% Production ('000' tons) LHS Capacutity Utilization RHS Gross Profit (SR mn) LHS Gross Profit Margins RHS The company s sales revenue in 2013 is expected to remain lower than the sales revenue of SR5.5bn recorded in 2008, which is mainly due to the expectations of lower average prices of fertilizer products and lower capacity utilization rate during Chart 03: Sales Revenue Growth 6, % 5, , % 57.9% 24.4% 2.8% 7.2% 3.1% 80.0% 60.0% 40.0% 3, , , % 20.0% 0.0% 20.0% 40.0% 60.0% Sales Revenue (SR mn) Growth 4 Saudi Arabia Fertilizers Co. (SAFCO) February 2010

5 Going forward, the sales revenue of the company is expected to increase at a CAGR of 7.4% during to SR3.6bn. Furthermore, based on the anticipated decline in the capacity utilization during 2013 along with the limited upside in the average prices of fertilizer products, the company s sales revenue is expected to show a minimal decline. Lower Plant, Property & Equipment (PPE) Growth Lower CAPEX The company s net PPE during 2009 has shown slight decline in and recorded at SR3.4bn as compared to SR3.5bn recorded in Chart 04: SAFCO Plant Property & Equipment 3,900 3,800 3,700 3,600 3, % 9.3% 0.2% 3.4% 2.5% 2.1% 1.7% 6.0% 4.0% 2.0% 0.0% 2.0% 4.0% 3, % 3, % 3, % Net PPE (SR mn) Growth Moreover, the actual PPE is 12.9% lower than our estimated PPE of SR3.9bn, which has led us to make downward revision in our estimated 4year PPE CAGR to 2.4% from our previous estimated 4year PPE CAGR of 8.3%. Consequently, this will lead to the average improvement of around 31.0% in the future cash flows during However, the approval of gas allocation from Aramco for making further expansions in the existing could exceed our expected CAPEX growth. Profitability Growth The company posted after tax profit of SR1.8bn during 2009, which is 56.9% lower than the profitability recorded in However, based on our expectations, the company s profitability will show a growth of 32.9% to SR2.4bn in 2010 and increase at a CAGR of 10.5% during Chart 05: Profitability & ROAA Chart 06: Profitability & ROAE 4, % 4, % 4, % 45.0% 4, % 60.0% 3, , , % 26.9% 26.2% 26.3% 23.9% 40.0% 35.0% 3, , , % 33.0% 31.4% 31.1% 28.0% 55.0% 50.0% 45.0% 2, % 30.0% 2, % 40.0% 1, , % 1, , % 30.0% % % 15.0% 20.0% Net Profit (SR mn)lhs ROAARHS Net Profit (SR mn)lhs ROAERHS February 2010 Saudi Arabia Fertilizers Co. (SAFCO) 5

6 The company s net profit margins is expected to remain in the average level of 73.8% during , as compared to the 4year historical average of 67.5% during Moreover, we believe the company s prospective ROAA and ROAE will remain in the average range of 23.5%27.0% and 29.0%31.0% during , respectively. 6 Saudi Arabia Fertilizers Co. (SAFCO) February 2010

7 Fertilizer Sector World Fertilizer Outlook Based on Food and Agriculture Organization (FAO), the world fertilizer capacities (ammonia, sulfuric acid, phosphorus acid, phosphoric acid and potash) are expected to increase at a CAGR of 4.2% during to 324.8mn tons, which is expected to outpace by the increase in capacities in the Middle East and African region. The combine capacities in the Middle East and African are expected to increase at a CAGR of 15.6% during followed by the Latin American region, where the capacity is expected to increase at a CAGR of 11.5%. Chart 07: World Fertilizer Capacity Expansion ( 000 tons) Chart 08: World Production Demand ( 000 tons) 350, , , , % 3.7% 2.8% 4.0% 6.2% 3.8% 7.0% 6.0% 5.0% 4.0% 300, , , , % 3.4% 4.5% 5.0% 4.2% 6.0% 5.0% 4.0% 3.0% 2.0% 150, , % 2.0% 100, % 1.0% 0.0% 50, % 50, % 0.0% 2.0% E 2011E 2012E 2013E E 2011E 2012E 2013E World Fertilzer Capacity Growth World Fertilzer Production Growth Source: FAO & Global Research Source: FAO & Global Research Based on the estimations of FAO, the world fertilizer demand will increase at a CAGR of 3.2% during to 281.4mn tons, while the fertilizer production will increase at a CAGR of 4.3% to 207.5mn. This indicates the expected growth in the production will be enough to meet the growth in the world fertilizer demand. However, we believe the world fertilizer sector could lose its equilibrium, if there will be the (i) shutdown of any fertilizer complex for annual maintenance could create temporary shortage in the world, (ii) unprecedented increase in the demand of food (agricultural more specifically) items. Chart 09: World Production Demand ( 000 tons) Chart 10: World Fertilizer Capacity Utilization 270, , % 2.6% 4.5% 4.0% 96.0% 94.0% 250, % 3.5% 92.0% 240, % 1.3% 4.0% 3.0% 2.5% 90.0% 88.0% 230, % 86.0% 220, % 84.0% 210, % 82.0% E 2011E 2012E 2013E 80.0% World Fertilzer Demand Growth E 2011E 2012E 2013E Europe & C. Asia N. America Latin America ME & Africa South Asia East Asia World Source: FAO & Global Research Source: FAO & Global Research Based on FAO expectations, the world capacity utilization will remain in the range of 85.0% 90.0% during Based on our calculations, fertilizer capacities utilization in the American and European regions are expected to remain on higher side, while from 2011 onwards, we are expecting a decline in the capacity utilization in these regions. However, we believe, the ample availability of gas at highly subsidized prices, the capacity utilizations in the Asian and African regions are expected to show the improvement and outpace the world s growth. February 2010 Saudi Arabia Fertilizers Co. (SAFCO) 7

8 Regional Fertilizer Outlook The regional governments are expected to spend US$13.7bn to make expansions in the existing fertilizer capacities of their respective countries. This will lead the overall regional capacities to increase at a CAGR of 16.3% to 64.5mn tons by 2013 including all fertilizer products. Chart 11: Regional Capacity Expansion ( 000 tons) & Growth 70, % 11.4% 1.9% 35.0% 60,000 50, % 21.7% 30.0% 25.0% 40,000 30,000 20,000 10, % E 2011E 2012E 2013E 20.0% 15.0% 10.0% 5.0% 0.0% Source: Zawya & Global Research Production Capacity Growth Saudi Fertilizer Outlook Saudi Arabia is among the leading regional (Middle East) producer of fertilizer products with the capacity to produce 6.7mn tons in 2009 of fertilizer products (ammonia, sulfuric acid, phosphorus acid, phosphoric acid and potash), which indicates the regional contribution of 16.7%. Moreover, based on the country s expansion plans, the fertilizer capacity in KSA is expected to increase at a CAGR of 38.6% during to 12.3mn tons and make further improvement in the overall regional contribution. We believe the huge expansion in Saudi Arabia is mainly due to the (i) well developed local industrial infrastructure (ii) undisrupted supply of feedstock gas at higher subsidize prices and (iii) the expected higher demand of fertilizer products in South & East Asian markets as the economies of these countries are mainly based on agricultural activities. Chart 12: KSA Regional Contribution 2013E Chart 13: KSA Production & Capacity Utilization 14, , % 106.3% 105.9% 103.5% 130.0% 125.0% KSA 43.8% 10, , % 112.9% 105.4% 120.0% 115.0% 6, % 4, % 2, % Other Middle East Countries 56.2% Production Capacity Utilization 95.0% Source: Zawya, FAO & Global Research Source: Zawya, FAO & Global Research Moreover, the expected completion of Maaden Phosphate CompanyMPC (JV of SABIC and Saudi Ma aden), which has a capacity to produce 10.0mn tons of different fertilizer products including the capacity to produce 2.9mn tons of Di Ammonia Phosphate (DAP). The project is expected to commence its commercial operation in 2H2010 and reach at its maximum capacity utilization during 1H Saudi Arabia Fertilizers Co. (SAFCO) February 2010

9 Feedstock & Fertilizer Product Prices Natural gas is the main feedstock for fertilizer sector and crude oil prices are used as a benchmark to set gas prices in international markets. However, gas prices are highly subsidized in certain regions of the world such as MiddleEast, Northern Africa, and South Asia where predetermined discounts exist which fix the price to US$0.75 per mmbtu (in Saudi Arabia) to US$2.5 per mmbtu (North Africa and South Asia). In view of improvement in crude oil prices during 2H2009, we expect the average prices of crude oil will remain in the range of US$75.0 to US$80.0 per barrel during 2010 an increase of 23.0% to 31.0% over average prices recorded in Chart 14: Crude Oil & Gas Prices OPEC Crude Oil (US$ per barrel) LHS Gas Prices (US$ per mmbtu) RHS Source: EIA, OPEC & Global Research Chart 15: Fertilizer Product Prices (US$ per ton) 1, Ammonia Urea DAP Source: Bloomberg, & Global Research Furthermore, on the back of improvement in global situation, we believe the long term prices of crude oil to remain in the range of US$ per barrel during keeping in mind the slow global economic recovery. Subsequently, the longterm average prices of gas are expected to remain in the range of US$4.0 to US$5.25 per mmbtu during We believe the expected stability in the average prices of feedstock prices will lead the average prices the fertilizer products to increase at a CAGR of 1.9% during Furthermore, based on our expectations, the average prices per ton of ammonia, urea and DAP, during will remain in the range of US$ , US$ and US$ , respectively. February 2010 Saudi Arabia Fertilizers Co. (SAFCO) 9

10 Balance Sheet Saudi Arabian Fertilizer Company (SAFCO) (SR 000) Current Assets Cash & Equivalent 1,572,063 3,918,062 2,964,250 3,429,901 3,936,007 4,557,780 5,193,517 Account R/A 855, , , , , , ,396 Inventories 393, , , , , , ,152 Payment & Other Assets 11, , , , , , ,425 Securities & Short Term Investment 6,750 Total Current Assets 2,832,550 5,160,929 4,074,745 4,537,165 5,087,503 5,778,503 6,411,490 Non Current & Fixed Assets Intangible Assets 75,199 4,269 98, , , , ,026 Intangible and financial Investments 1,281,774 1,135,028 1,114,590 1,142,455 1,256,700 1,382,370 1,520,607 Plant & property 3,811,597 3,457,564 3,449,690 3,566,127 3,655,889 3,732,832 3,795,127 Home Ownership program R/A 152,306 92,248 58,616 64,478 70,925 78,018 85,820 Total NonCurrent & Fixed Assets 5,320,876 4,689,109 4,721,642 4,876,743 5,092,382 5,307,531 5,521,580 Total Assets 8,153,426 9,850,038 8,796,387 9,413,908 10,179,885 11,086,034 11,933,070 Balance Sheet Current Liabilities Accounts P/A 774, , , , , , ,286 Current Installment of LT Debt 148, , , , , , ,786 Zakat Provision 180, , , , , ,942 Total Current Liabilities 923, , , , ,299 1,013,594 1,046,014 NonCurrent Liabilities LongTerm Debt 826, , , , , , ,786 EndofService Indemnity 389, , , , , , ,107 Other longterm liabilities Total Non Current Liabilities 1,215,873 1,077, , , , , ,893 Total Liabilities 2,139,089 1,816,078 1,740,988 1,620,941 1,613,218 1,677,644 1,695,907 Owners Equity Share Capital 2,000,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 Statuary Reserves 1,000,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 General Reserves 545,105 45,105 45,105 45,105 45,105 45,105 45,105 Unrealized gains from Investments 405,719 1,141, , , , , ,095 Retained Earnings 2,063,513 3,097,450 3,038,216 3,773,563 4,545,020 5,384,478 6,210,963 Total Owners Equity 6,014,337 8,033,960 7,055,399 7,792,967 8,566,667 9,408,390 10,237,163 Total Liabilities & Owners Equity 8,153,426 9,850,038 8,796,387 9,413,908 10,179,885 11,086,034 11,933, Saudi Arabia Fertilizers Co. (SAFCO) February 2010

11 Profit & Loss Statement Saudi Arabian Fertilizer Company (SAFCO) (SR 000) Sales 3,516,028 5,550,727 2,740,709 3,410,548 3,506,861 3,759,889 3,644,114 Cost of Sales (1,221,554) (1,150,913) (1,047,543) (996,722) (997,307) (1,044,650) (1,019,427) Gross Profit 2,294,474 4,399,814 1,693,166 2,413,826 2,509,554 2,715,239 2,624,687 Selling & Distribution Expenses (91,738) (95,858) (52,124) (93,790) (96,439) (103,397) (100,213) General & Admin Exp (75,322) (58,062) (85,264) (87,672) (93,997) (91,103) Operating Income 2,127,414 4,245,894 1,641,042 2,234,772 2,325,443 2,517,845 2,433,371 Interest Income and Financial ChargesNet 28,891 (22,714) 42, , , , ,499 Other Income (Expenses)Net (34,464) (156,956) 22,048 7,621 8,402 9,264 10,213 Interest before share of income from associated company 2,121,841 4,066,224 1,705,449 2,369,586 2,483,398 2,703,178 2,645,083 Income from IBNBaytar 164, , , , , , ,508 Net Income Before Zakat 2,286,226 4,417,880 1,839,765 2,514,009 2,637,460 2,869,939 2,825,591 Zakat (77,000) (109,403) (43,861) (62,850) (65,936) (71,748) (70,640) Unusual Item (28,688) 49,011 Net Income 2,209,226 4,279,789 1,844,915 2,451,158 2,571,523 2,798,191 2,754,951 P&L Appropriation A/C Opening Balance 1,054,287 2,063,513 3,097,450 3,038,216 3,773,563 4,545,020 5,384,478 Net profit for the year 2,209,226 4,279,789 1,844,915 2,451,158 2,571,523 2,798,191 2,754,951 Gain from available for sale investments Dividend Declared (1,200,000) (2,995,852) (1,904,149) (1,715,811) (1,800,066) (1,958,734) (1,928,466) Transfer to statutory reserves (250,000) Retained Earnings 2,063,513 3,097,450 3,038,216 3,773,563 4,545,020 5,384,478 6,210,963 February 2010 Saudi Arabia Fertilizers Co. (SAFCO) 11

12 Cash Flow Statement Saudi Arabian Fertilizer Company (SAFCO) (SR 000) OPERATING ACTIVITIES Profit for the year 2,209,226 4,279,789 1,844,915 2,451,158 2,571,523 2,798,191 2,754,951 Other Income Ibn Baytar (164,385) (351,656) (134,316) (144,422) (154,062) (166,762) (180,508) Depreciation & Amortization 343, , , , , , ,045 Interest Income (28,891) 22,714 (42,359) (127,193) (149,552) (176,069) (201,499) Financial Cost 3,012 (76,029) (22,048) (7,621) (8,402) (9,264) (10,213) Write Down Investment 31, ,985 Change in Working Capital 63,166 (248,699) 364,927 (54,451) (32,095) 12,068 35,170 Net Cash from operating activities 2,456,742 4,217,975 2,408,063 2,397,978 2,523,347 2,769,635 2,724,946 INVESTING ACTIVITIES Purchase of Plant & Property (141,010) 66,092 (483,547) (401,881) (390,881) (393,858) (395,055) Intangible & Financial Investments (373,702) 146,746 20,438 (27,865) (114,245) (125,670) (138,237) Unrealized Gain on Investment 265, ,686 (919,327) 2,221 2,243 2,265 2,288 Other NonCurrent Assets 76, ,508 (43,977) 2,344 1,922 1, Other Investment Activities 132, , , , , , ,508 Cash Flows from Investing Activities (39,617) 1,218,953 (1,285,347) (280,759) (346,900) (349,056) (349,589) FINANCING ACTIVITIES LongTerm Financing (265,179) (148,392) (236,786) (70,571) (28,229) (25,406) (22,865) Financial Charges Net 25,879 53,315 64, , , , ,712 Dividend Paid (1,200,000) (2,995,852) (1,904,149) (1,715,811) (1,800,066) (1,958,734) (1,928,466) Cash Flows from Financing Activities (1,439,300) (3,090,929) (2,076,528) (1,651,568) (1,670,341) (1,798,806) (1,739,619) Increase/Decrease in Cash 977,825 2,345,999 (953,812) 465, , , ,737 Cash Beginning Balance 594,238 1,572,063 3,918,062 2,964,250 3,429,901 3,936,007 4,557,780 Cash Ending Balance 1,572,063 3,918,062 2,964,250 3,429,901 3,936,007 4,557,780 5,193, Saudi Arabia Fertilizers Co. (SAFCO) February 2010

13 Fact Sheet Saudi Arabian Fertilizer Company (SAFCO) Liquidity Ratios Current Ratio Cash Ratio Profitability Ratios Gross Margin (%) 65.3% 79.3% 61.8% 70.8% 71.6% 72.2% 72.0% EBITDA Margin (%) 70.3% 83.0% 74.4% 73.8% 74.8% 75.3% 75.8% EBIT Margin (%) 60.5% 76.5% 59.9% 65.5% 66.3% 67.0% 66.8% Net Profit Margin (%) 62.8% 77.1% 67.3% 71.9% 73.3% 74.4% 75.6% ROAE (%) 41.1% 60.9% 24.5% 33.0% 31.4% 31.1% 28.0% ROAA (%) 29.7% 47.5% 19.8% 26.9% 26.2% 26.3% 23.9% Leverage Ratios Debt to Equity 13.7% 7.3% 5.0% 3.6% 3.0% 2.4% 2.0% Debt to Asset (%) 10.1% 6.0% 4.0% 3.0% 2.5% 2.1% 1.7% Liabilities/Total Assets (x) Growth Rates Revenue Growth Rate 92.0% 57.9% 50.6% 24.4% 2.8% 7.2% 3.1% Net Income Growth Rate 91.9% 93.7% 56.9% 32.9% 4.9% 8.8% 1.5% Equity Growth Rate 26.9% 33.6% 12.2% 10.5% 9.9% 9.8% 8.8% Total Asset Growth Rate 21.2% 20.8% 10.7% 7.0% 8.1% 8.9% 7.6% Ratios Use for Valuation BV per share (SR) EPS (SR) Market Price (SR) Market Cap in (SR Mn) 23,700 21,813 30,250 31,313 31,313 31,313 31,313 EV (SR Mn) 28,879 18,484 27,639 28,165 27,631 26,983 26,325 EV/EBITDA P/E Ratio (x) P/BV Ratio (x) *Historical P/E & P/BV multiples pertain to respective year end prices, while those for future years are based on closing prices on the Tadawul as of February 06th 2010 February 2010 Saudi Arabia Fertilizers Co. (SAFCO) 13

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15 The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant disclosures which apply to this particular research has been mentioned in the table below under the heading of disclosure. Disclosure Checklist Company Recommendation Ticker Price Disclosure Saudi Arabia Fertilizers HOLD SAFCO AB SR , 10 Company (SAFCO) 1. did not receive and will not receive any compensation from the company or anyone else for the preparation of this report. 2. The company being researched holds more than 5% stake in. 3. makes a market in securities issued by this company. 4. acts as a corporate broker or sponsor to this company. 5. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company. 6. An employee of serves on the board of directors of this company. 7. Within the past year, has managed or comanaged a public offering for this company, for which it received fees. 8. has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 9. expects to receive or intends to seek compensation for investment banking services from this company in the next three month. 10. Please see special footnote below for other relevant disclosures. Global Research: Equity Ratings Definitions Global Rating Definition Buy Fair value of the stock is >10% from the current market price Hold Fair value of the stock is between +10% and 10% from the current market price Reduce Fair value of the stock is between 10% and 20% from the current market price Sell Fair value of the stock is < 20% from the current market price This material was produced by KSCC ( Global ),a firm regulated by the Central Bank of Kuwait. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time,to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities ( securities ), perform services for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not independently verified the contents of this document. 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. Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgement. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or ommission from this or any other document prepared by Global for, or sent by Global to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice.past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such restrictions. By accepting this report you agree to be bound by the foregoing limitations. February 2010 Saudi Arabia Fertilizers Co. (SAFCO) 15

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