Saudi Cement Company Q Recommendation. Overweight. Saudi Cement Cement Sector. 20 April, Fair Value (SAR) SACCO AB

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1 Company Recommendation Overweight Fair Value (SAR) Price as of April 19, Expected Return 60.2% Company Data 3030.SE Tadawul Symbol Week High (SAR) Week Low (SAR) -4.4% YTD Change Month Average Volume (Thousand Shares) 9,428 Market Cap. (SAR Million) 2,514 Market Cap. (USD Million) 153 Outstanding Shares (Million Shares) 153 Major Shareholders ( > 5% ) General Organization for Social Insurance 8.98% Khalid Abdulrahman Saleh Al Rajhi 8.0 Public Pension Agency 5.62% week Stock Price Movement Tadawul Index Quarterly Net Income (SAR mn) Source: Tadawul Q Company (SCC) announced its Q interim results revealing a bottom line of SAR 265 million compared to SAR 303 million in Q slumping 12.5% YoY and surging 50% QoQ outstripping our estimate of SAR 255 million. The company attributed the YoY decrease in net income to lower sales and rising energy prices while the QoQ increase was driven by mounting sales and shrinking selling and administration expenses as well as impairment charges for kilns 5 and 4 in Q Gross profit plunged 12.7% YoY in Q posting SAR 296 million compared to SAR 339 million in Q Operating income hit SAR 274 million in Q tumbling 11.6% YoY. The company's cement production contracted by 2.0% in Q recording 2.10 million tons (mt) versus 2.15 mt in Q On the other side, total dispatches posted 2.09 mt shrinking 4.6% compared to 2.19 mt in Q Regarding the local cement market, cement production in Q hit million tons versus mt in Q surging 3.0%. Furthermore, total dispatches escalated 2.9% to mt from mt in Q Clinker stock plateaued at mt in March 2015 leaping 3.2% YoY. Net earnings in Q surpassed our estimate of SAR 255 million. The company s bottom line decrease was driven by shrinking demand. We forecast the slowdown in cement sales to continue in 2016 triggered by reduction of government spending. However, lifting the ban on cement exports is expected to strengthen the company s sales as it is located closer to the eastern borders of Saudi Arabia thus trimming accumulated clinker inventory in the upcoming years. Our valuation is maintained at SAR assigning an Overweight recommendation FY - Ending December 3762A 3761E 3760F 3762F EV/EBITDA EV/Sales Turki Fadaak Research & Advisory Manager TFadaak@albilad-capital.com Saeed I. Alghamdi Financial Analyst sialghamdi@albilad-capital.com Source: Company Filings, Albilad Capital Research Estimates P/E Dividend Yield 9.7% 9.7% 9.7% 10.5% P/BV P/Revenue Revenue Growth (4.6%) (7.1%) 2.5% 2.9% Source: Company Filings, Albilad Capital Research Estimates 1

2 20 April, 2016 Sector Overview Three companies are expected to increase their capacities through their new production lines in 2016 with total capacity of 16,000 tons per day. The cement sector s sales continued to improve in Q compared to Q However, Continuous clinker buildup implies a high level of demand saturation as the sector awaits cement exports ban lift in which may reduce the clinker buildups. Dependency on local demand, rising production costs, and government expenditure cuts, these factors may limit the local demand on cement starting from 2016 onwards. Cement Dispatches Breakdown - Q Southern 1 Saudi 12% Yanbu 11% Yamamah 10% Arabian 9% Qassim 7% Najran 6% Riyadh 6% City 5% Eastern 5% Northern 4% Safwa Jouf Hail Tabuk 2% Local Dispatches and Export of Cement Local Dispatches (Million Tons) Export (Million Tons) Cement Company s Expansions Company Project Daily Capacity (Tons) Commencing Date Remarks SPCC New Line Q Tabuk Cement New Line N/A UACC New Plant Q Arab Cement New Line H Bisha Plant (Experimental production delayed) Experimental production commenced, commercial production delayed) Experimental production commenced without production and delayed commercial production) 80% 60% 40% 20% Growth Comparison Clinker Inventory Growth Cement Dispatches Growth Cement Production Growth YSCC New Line TBA 0% QACCO New Line TBA -20% EPCCO New Line TBA -40% -60% TBA: To be announced Clinker Inventory to Cement Dispatches (Thousand Tons) Cliker Inventory Cement Dispatches Clinker Inventory to Cement Dispatches 25,000 22,500 20,000 17,500 15,000 12,500 10,000 7,500 5,000 2, % 700% 600% 500% 400% 300% 200% 100% 2

3 Cement and Clinker Summary by the End of Q Company (thousand ton) Q Q Growth Q Q Sector Production Cement Clinker % 7.3 Sector Dispatches Cement Clinker 367 Sector Inventory Cement % 6.2 Clinker Cement Production / Company Yamama Cement % % 3.6- % 62.7 % 63.2 Eastern Cement % 3.0- % 7.2 Qassim Cement % 0.2 % 0.6 % 0.7 Yanbu Cement % 7.7- % 66.1 % 67.2 Arabian Cement % 7.7- % 2.1 Southern Cement % 7.7- % 67.7 % 62.2 Tabuk Cement % 3.6 % 3.3 Riyadh Cement % 37.2 % 1.6 Najran Cement % % 0.2 % 1.6 City Cement % 22.2 % 7.7 Northern Cement % 36.2 % 7.6 Jouf Cement Safwa Cement % 7.2 Hail Cement % 66.2 % 3.0 Cement Dispatches / Company Yamama Cement % % 7.1- % 62.3 % 63.3 Eastern Cement % 6.2- % 7.2 Qassim Cement % 67.2 % 1.2 % 0.7 Yanbu Cement % 66.2 % 67.2 Arabian Cement Southern Cement % 6.1- % 67.7 % 62.7 Tabuk Cement % 3.6 % 3.7 Riyadh Cement % 37.7 % 2.6 Najran Cement % % 0.2 % 1.7 City Cement % 21.6 % 7.6 Northern Cement % 37.6 % 2.1 % 7.3 Aljouf Cement % 62.6 % 3.0 Safwa Cement Hail Cement % 67.0 % 3.7 % 3.1 3

4 Income Statement (SAR mn) 2014A 2015A 2016E 2017F 2018F Sales 2, , , , ,893.4 COGS SG&A EBITDA 1, , , , ,132.2 EBITDA Margin 65.6% 61.2% 59.8% 59.8% 59.8% Depreciation and amortization EBIT 1, ,009.0 Net interest income (15.2) (12.1) (12.1) (12.1) (12.1) Others Pre-Tax and Zakat Income 1, ,006.9 Tax and Zakat Net Income 1, ROS 53.1% 48.7% 51.7% 51.8% 51.9% Balance Sheet (SAR mn) 2014A 2015A 2016E 2017F 2018F Cash and marketable securities Accounts Receivables Inventory Others Total ST Assets 1, , , , ,320.4 Net Fixed Assets 3, , , , ,881.2 Projects Under Implementation Others Total LT Assets 3, , , , ,102.2 Total Assets 4, , , , ,422.6 Short term debt and CPLTD Accounts Payable Accrued Expenses Others Total ST Liabilities 1, , , , ,042.0 Total Long Term Debt Other Non-Current Liabilities Equity 3, , , , ,289.3 Total Liabilities and Equity 4, , , , ,422.6 Presentation of financial statements may differ from the company s presentation. However, there is no impact on the final results. 4

5 Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent. Overweight: The Target share price exceeds the current share price by 10%. We expect the share price to reach the Target price over the next 9-12 months Neutral: The Target share price is either more or less than the current share price by < 10% We expect the share price to reach the Target price over the next 9-12 months Underweight: The Target share price is less than the current share price by 10%. We expect the share price to reach the Target price over the next 9-12 months To be Revised: No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials, waiting for more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital Research. Albilad Capital Client Services Tel: Toll-free: Asset Management Tel: Research & Advisory Tel: Website: Brokerage Tel: Investment Banking Tel: Disclaimer AlBilad Capital exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Capital Co., its managers, and staff bear no liability whether explicitly or implicitly for the content of the report and no legal responsibility, whether directly or indirectly, for any results based on it. This report should not be reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a prior written permission from AlBilad Capital. We would also like to note that this information in no way constitutes a recommendation to buy or sell banknotes or make any investment decisions. Any investment act taken by an investor based fully or partially on this report is the complete responsibility of the investor. This report is not meant to be used or seen as advice or an option or any other measure to be taken in the future. We recommend consulting a qualified investment advisor before investing in these investment tools. AlBilad Capital preserves all rights associated with this report. CMA Authorization Number