Raysut Cement Company (RCCI.MSM)

Raysut Cement Company (RCCI.MSM) Country: Oman Exchange: Muscat Securities Market Sector: Construction / Cement Local Ticker: RCCI Reuters Code: RCCI.MSM Investment Opinion: OVERWEIGHT Last traded Price: OMR 3.092 (as on June 24, 2008) Fair Value: OMR 3.553 Products & Services: Manufacture and sale of Ordinary Portland Cement (OPC), Sulphate Resisting Cement (SRC), Oil Well Cement (OWC) and Pozzolana Well Cement. Current Market Price (OMR) 3.092 YTD Stock Performance (%) 55.5 Outstanding Shares (In million) 200.00 Market Cap (OMR Million) 618.40 Annualized EPS 0.24 P/E 13.04 (1Q 2008) (OMR) BVPS (1Q 2008) (OMR) 0.41 P/B 7.47 DPS (OMR) 0.10 Dividend Yield (%) 3.2 52-week High (OMR) 3.175 52-week Low (OMR) 1.410 Source: Muscat Securities Market, Zawya.com Share Price Movement RCC vs. MSM Index Raysut Cement Company (RCC) is the larger of two cement producers in Oman and dominates the cement export market with a market share of 91.3%. To fulfill the on-going demand for cement, the GCC plans to scale up its sales volume to 1,000,000-1,200,000 metric tonnes in 2008. In 1Q 2008, RCC s top and bottom-line surged 60.7% and 61.9% to OMR 21.94 million and OMR 11.86 million, respectively. On March 27, 2008, the company distributed 100% cash dividend for the year 2007. The exciting regional macro economic indicators coupled with massive price increase of cement would encourage new players to enter the market. Offsetting RCC s growth opportunities with underlying risks, we raise our 12-month price target to OMR 3.553 from OMR 1.625, while reiterating our OVERWEIGHT recommendation on the stock. Call us on +973 17549485 or email us at research@taib.com

Background Oman s leading cement producer and exporter. Raysut Cement Company (RCC), the larger of two cement manufacturers and exporters in Oman, was established on March 15, 1981 and became fully operational within three years. The company is primarily engaged in the manufacture and sale of Ordinary Portland Cement (OPC), Sulphate Resisting Cement (SRC), Oil Well Cement (OWC) and Pozzolana Well Cement that finds applications in two burgeoning sectors of the region, namely oil well exploration and construction. Headquartered in Salalah, RCC has branch offices throughout Oman and regional offices (through its associate companies) at Mukalla and Aden in Yemen. The company s factory, outfitted with the state-of-the-art equipment and machinery, is ideally located near the Salalah port on the south-western coast of Oman. This strategic location facilitates low cost export of over 50% of its annual production to places such as Yemen, East African countries, Kuwait, Qatar, the Indian Ocean Islands, among others. Consequently, RCC s cement exports account for about 91.3% of its total sales volume. RCC has three production lines manufacturinging clinker and cement, seven cement storage silos, bulk cement terminals at Mukalla (Yemen) and Muscat Port (North Oman), and four special bulk cement-carrying ships. Since its inception, RCC has maintained its pace of growth through cost efficient management and periodic up-gradation of its product range, including SRC Type V and Oil Well Class G. Over the years, it has also earned a formidable reputation for exceptional expertise in providing innovative solutions specific to the applications and needs of its customers. Special Pozomix Cement for shallow oil wells is a case in point. Scaling-up production capacity. For the year 2007, RCC produced 1.93 million tonnes per year (mtpy) of clinker (62.7% of Oman s total clinker production) and 2.01 mpty of cement (51.8% of the total cement production). However, with the real estate and construction sectors in the region flourishing, the demand for cement is going through the roof a phenomenon likely to continue for the foreseeable future. To tap this growing domestic demand for cement, RCC recently increased its production capacity to 3 million tonnes from 2.2 million tonnes through the addition of a fourth production line. For any cement company, eco-friendliness is a significant challenge, which Raysut meets effectively. Thanks to a sophisticated blasting technique, the dust emission levels at its plant are much lower than the rigorous Swiss standard of 100 mg/nm3. As a result, for the past 15 years, the company has received the National Award for Pollution-free Industrial Environment. In 1997, the company was awarded the ISO 9002 quality certification from the American Petroleum Quality register, which was recently followed up with the ISO:14001 certification. Further, the American Petroleum Institute (API) has accredited it for licensed oil well cement production. The company is also a member of the Arab Union for Cement and Building Materials. Robust performance in 1Q 2008. Chaired by H.E. Mohammed Bin Alawi Bin Ali Muquaibal. For 1Q 2008, RCC s net profits soared 61.9% to OMR 11.86 million compared to OMR 7.32 million in 1Q 2007. Consequently, earnings per share (EPS) increased to OMR 0.059 as against OMR 0.037. Board of s RCC s board of directors consists of ten members. H.E. Mohammed Bin Alawi Bin Ali Muquaibal is the Chairman and Mr. Mohammed Bin Abdulla Bin Said Bader Al Rawas is the Vice Chairman of the company. The rest of the board members are as follows: Name Mr. Said Bin Ahmed Al Rawas Designation Mr. Hamad Mohammed Ganim Al Swidi Mr. Zenhom Zahran Mr. Fahad bin Abdulla Abdul Aziz Al Rajihi Mr. Mohammed Bin Yousuf bin Alawi Al Ibrahim Mr. Mohammed Bin Alawi bin Abdulla Ibrahim Mr. Atif Abdul Hameed Al Raeesi Mr. Hamed Bin Mohammed Al Sayari

Major Shareholders and Affiliates Public holds the lion s share. RCC is a joint stock company with 54.16% of its share capital under public control. The remaining 45.84% of the company is owned by Islamic Development Bank (11.70%), Abu Dhabi Fund for Development (10.00%), Abdullah Abdulazziz Al Rajhi (10.00%), Dolphin International (9.14%) and the Ministry of Defense Pension Fund (5.00%). Foreign ownership is restricted to 70% of the share capital and is open to both GCC as well as foreign investors Shareholding Pattern 11.70% 10.00% 54.16% 10.00% 5.00% 9.14% Islamic Development Bank Abdullah Abdulaziz Al Rajhi Ministry of Defense Pension Fund Abu Dhabi Fund for Development Dolphin International Public RCC in turn enjoys holdings in the following companies: SUBSIDIARIES / ASSOCIATES / AFFILIATES COUNTRY % SHARE Aden Raysut Cement Company Yemen 49.00% Al Mukalla Raysut Trading Company Yemen 49.00% The Industry Scenario A swelling economic wave. The Omani economy continued its double digit growth momentum in 2007, spurred by higher oil revenues, increasing per capita income, amplifying surpluses in fiscal and balance of payments accounts, modest domestic inflation, and increasing public and private sector investments. In 2007, Oman registered a 13.1% year-on-year nominal GDP growth of OMR 15.5 billion. While the oil sector accounted for 45.3% of the GDP, the non oil sector contributed around 14.3% and the services sector s share stood at 39%. The Omani government is planning to diversify the economy away from its reliance on the oil & gas sector. According to experts, the Omani economy is set to realize a growth rate of about 11.6% in 2008, thanks to surging world oil prices as well as improvement in nonpetroleum exports. Oman s total population stood at 3,204,897 in July 2007, and is projected to grow at a rate of 3.234% for the current year. The expansion in the economy and the population growth, supported by strong consumer spending, is expected to strengthen the industrial sector substantially. The Omani government has predicted that the budget for the year 2008 would register a deficit of 6.9% as spending is expected to jump by 20% or USD 15.06 billion. It is estimated that total expenses would reach OMR 5.8 billion, while revenue is set to rise to only OMR 5.4 billion, thereby leaving a deficit of OMR 0.4 billon. On January 06, 2008, the government approved additional allocations to the budget amounting to OMR 2.36 billion. The expansion is aimed at financing several economic and development projects in various sectors, such as roads, harbor, gas, housing, airports, health, city planning, education, and municipality services. However, the projected shortfall could turn into a surplus as the price of oil, which accounts for most of the country s revenue, is calculated at only USD 45 per barrel for an average daily production of 790,000 barrels.

Duopolistic market. Currently, Oman s cement sector stands in the third place across the GCC with the industry consisting of only two listed companies Raysut Cement Company (RCC) and Oman Cement Company (OCC). Together they produce 3.86 mtpy of clinker and 4.62 mtpy of cement. In 2007, the industry s total production of clinker and cement augmented to 3.08 mtpy and 3.88 mtpy in that order, from 2.86 mtpy and 3.61 mtpy in 2006, registering growths of 7.7% and 7.5%, respectively. RCC is the larger producer, with a clinker production of 1.93 mtpy (accounting for 62.7% of the total clinker production) and cement production of 2.01 mtpy (51.8% of the total cement production). In the case of OCC, while clinker production declined to 1.15 mtpy, an 8.7% fall in 2007, cement production witnessed a 3.9% year-on-year growth to 1.87 mtpy. For the year, total cement sales (inclusive of both the companies) reached 4.11 mtpy, with 3.07 mtpy sold in the domestic market and the rest (1.04 mtpy) exported. OCC with a market share of 58.3%, on domestic sales volume of 1.79 mtpy, was the leading cement marketer in the local market. However, in terms of cement exports, OCC had a mere 8.7% market share. On the other hand, RCC dominated the cement export market, with sales volume of 0.94 mtpy or 91.3% of total cement exports, while its domestic market share stood at 41.7% at the end of 2007. In terms of sales value, the two companies together posted aggregate revenues and profit after tax of OMR 112.92 million and OMR 48.14 million, up by 15.9% and 16.7% respectively, year-on-year. Snapshot of the Omani Cement Industry In million tonnes 2007 2006 % Chg Actual Production of Clinker 3.08 2.86 7.7% Actual Production of Cement 3.88 3.61 7.5% Total Cement Sales 4.10 3.80 8.2% Domestic Cement Sales 3.07 2.59 18.5% Cement Exports 1.03 1.21-14.9% Driven by robust demand for cement, thanks to a healthy pipeline of civil, industrial and infrastructure projects in Oman, the average price realization or average selling price of cement for both the companies continued its up trend in 2007, as in the past years. For the year, the average price realization for the industry increased to OMR 27.47 per tonne, registering a 7.2% year-on-year growth. While the average price realization for OCC grew 2.5% to OMR 26.55 from OMR 25.89, the same for RCC surged 11.3% to OMR 28.26 from OMR 25.38 in 2006. RCC s average price realization trailed mainly on account of its relatively higher proportion of bulk sales. Hand-holding by the government. On March 15, 2008, in an effort to put a cap on rising inflation in the construction sector, the government announced its intention to reduce import duties on building materials, which currently ranges from 5% to 15%. The country had restricted the import of cement two years ago to support the sale of the two local firms - Oman Cement Co and Raysut Cement Co - which in turn has caused a shortage in the market. In addition, the price of cement has doubled in the past year - a 50-kilogram bag of cement rose to OMR 3.6 in March 2008 from OMR 1.3 in the year ago comparable period. Meanwhile, OCC entered into discussions with the government to raise the price of cement in order to offset the soaring price of imported clinker. Consequently, on May 19, 2008, the government sanctioned the establishment of five new cement factories. In addition, it raised the cement quotas of some regions, stipulating that the cement is to be distributed under the ministry s supervision. Finally, in order to mitigate the shortage of gas, the Omani government has initiated a feasibility study as a prelude to setting up a coal-operated cement factory. We believe that the industrial, residential, and other construction projects that are currently under implementation in the Sultanate will drive local cement consumption for another few years. In fact, local demand is projected to increase to 3.7-4 million tonnes in 2008, compared to 3.2 million tonnes in 2007, up 15%-25%. However, after 2010, the growth momentum is anticipated to slow down, while still remaining at 4%-6% per annum.

Peer Analysis Particulars OCC RCC Actual Production of Clinker (2007) (million tonnes) 1.15 1.93 Actual Production of Cement (2007) (million tonnes) 1.87 2.01 Total Cement Sales (2007) 1.88 2.23 Domestic Cement Sales (2007) 1.79 1.28 Cement Exports (2007) 0.09 0.94 Revenue (1Q 2008) 11.74 21.94 Net profit (1Q 2008) 3.99 11.86 Total assets (1Q 2008) 131.57 120.19 Shareholders equity (1Q 2008) 118.91 82.8 ROA (1Q 2008)* 12.1% 39.5% ROE (1Q 2008)* 13.4% 57.3% *Annualized figures Asset Structure Total assets grew 26% in 1Q. As at the end of March 2008, RCC s total assets surged 26% to OMR 120.19 million from OMR 95.42 million in the corresponding year ago period. While current assets, as a percentage of total assets, advanced to 38% from 28.1%, the share of total non-current assets in total assets plunged to 62% from 71.9% in 1Q 2007. Simultaneously, current assets soared 70.3% to OMR 45.62 million, driven by an over three-fold growth in investment held for trading reaching to OMR 9.13 million. During 1Q 2008, the company s cash and bank balance climbed 36.2% to OMR 19.95 million, while trade receivables registered an over two fold growth reaching OMR 6.05 million. In addition, inventories climbed 63.4% to OMR 5.86 million from OMR 3.59 million in 1Q 2007. Among inventories, spares and consumables comprised of 55.8% followed by raw materials (21%), work in progress (12.2%) and finished goods (11%). During the quarter, a 8.7% increase in fixed assets to OMR 71.14 million and an 8.8% rise in investment in associates to OMR 3.31 million, helped to increase total non-current assets by 8.7% to OMR 74.57 million. Asset Structure (1Q 2008) 8.9% 2.9% 16.6% 7.6% 4.9% 59.2% Fixed assets Inventories Investment held for trading Cash & cash equivalents Other current assets Other non-current assets At the end of 2007, RCC s asset structure predominantly consisted of non-current assets, which comprised 66.3% of the total assets, while current assets constituted the balance (33.7%). The company s non-current assets climbed 21.7% to OMR 74.94 million, led by fixed assets and investments in associates. Fixed assets surged 21.8% during the year to OMR 71.50 million, while investment in associates rose 18.8% to OMR 3.31 million.

Strong growth in major assets. Among the current assets, cash & cash equivalents tumbled 73.2% to OMR 3.92 million from OMR 14.64 million as RCC did not make any short term deposit of maturity of less than three months of the value date. However, those short term deposits (of maturity period of three months to one year) which are placed with commercial banks at an interest rate of 4% to 4.5% per annum surged 16.5% to OMR 12.12 million from OMR 10.41 million. This indicates that the company is parking its cash in the form of interest earning short term deposits. During 1Q 2008, the company s trade and other receivables soared 83.2% to OMR 6.06 million, while inventories surged by 62% to OMR 5.76 million. Further, investments held for trading registered an over four-fold growth to OMR 8.87 million, while prepayment and other receivables climbed 35.5% to OMR 1.36 million. Capital Structure Shareholders equity up 21.5% As on March 31, 2008, RCC s issued and paid up share capital stood at OMR 20.00 million, consisting of 200 million shares of OMR 0.100 each. At the Extra-ordinary General Meeting on March 22, 2006, shareholders approved to increase the liquidity by a 1:10 stock split. Consequently, the par value of the share split from OMR 1.000 per share to OMR 0.100 per share. During the first quarter of 2008, shareholder s equity advanced by 21.5% to OMR 82.80 million from OMR 68.15 million in the last comparable quarter. This can be mainly attributed to a 51.3% surge in retained earnings which increased to OMR 32.68 million from OMR 21.60 million. Accordingly, book value or net assets per share (BVPS) improved to OMR 0.41 from OMR 0.34 in 1Q 2007. During 1Q 2008, RCC s total debt declined 27.5% to OMR 7.06 million from OMR 9.73 million, as the company continued to repay its long-term loans with adequate debt servicing capacity. Consequently, its total debt to equity ratio declined to 8.5% from 14.3% in 1Q 2007. Total non-current liabilities also decreased by 25.6% to OMR 7.25 million, mainly on account of a 36.5% decline in non-current term loans. As at the end of March 2008, the outstanding balance of term-loans taken from banks and the government stood at OMR 7.06 million, out of which OMR 2.41 million accounted for the current portion of term loans payable within 2008. The bank loans are secured by registered mortgage of the company s properties and bear interest at the rate ranging between 3%-4.5%. While two of the government loans are interest free, the third loan bears interest at the rate of 5%. Capital Structure in OMR millions 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 1Q 2008 1Q 2007 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Shareholders equity Term loan (non-current portion) D/E ratio Recent Performance Bottom-line climbed 61.9% For the first quarter of 2008, RCC s bottom-line soared 61.9% to OMR 11.86 million from OMR 7.32 million in the year ago comparable quarter, driven by sales. Therefore, net profit margin (NPM) climbed to 54% from 53.6% in 1Q 2007. This resulted in annualized earnings per share of 0.237 as against OMR 0.146 in the year-ago period. Continuing the uptrend in return on investment ratios, both annualized return on equity (ROE) and return on assets (ROA) increased to 57.3% and 39.5% as against 43% and 30.7%, respectively, in 1Q 2007.

Recent Performance in OMR millions 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 2007 2006 1Q 2008 1Q 2007 80.0% 60.0% 40.0% 20.0% 0.0% Revenue Net profit ROA ROE Increasing price realizations propel revenues. RCC reported strong top-line growth for1q 2008, top-line climbed 60.7%, to OMR 21.94 million as against OMR 13.65 million in 1Q 2007. In terms of sales volume, the company achieved sales of 750,828 metric tones (MTS) as against 515,813 MTS during the corresponding period a year ago, translating into a increase of 45.6%. During the first quarter of 2008, cement production surged 40.4% to 712,518 MTS from 507,418 in 1Q 2007, while the production of clinker increased by 23.8% to 584,771 MTS from 0.37MTS. Simultaneously, RCC s average price realization increased to OMR 29.22 from OMR 26.46 in 1Q 2007. The company s cost of sales rose sharply by 50.5% to OMR 10.31 million from OMR 6.85 million, while cost of sales as a percentage of sales revenue declined to 47% from 50.2% in 1Q 2007. Consequently, gross profit posted soared 71.1% to OMR 11.63 million, as a result of which gross profit margin increased to 53% from 49.8% in 1Q 2007. During the period, EBITDA level stood at OMR 12.90 million as against OMR 8.37 million, EBITDA margin declined to 58.8% from 61.3% in 1Q 2007. Among the geographic segment, domestic segment comprised of the lion s share (69%) in terms of total sales volume, while Yemen and other GCC countries accounted for 31%. Consequently, revenue from domestic segment registered an over twofold growth reaching to OMR 14.81 million, while revenue from Yemen and other GCC countries declined 7.7% to OMR 7.13 million in 1Q 2007. RCC s Key Indicators Particulars 1Q 2008 1Q 2007 % Chg Clinker production (MTS) 584,771 472,348 23.8% Cement production (MTS) 712,518 507,418 40.4% Cement Sales volume (MTS) 750,828 515,813 45.6% Domestic Sales volume 518,012 219,697 135.8% Export Sales volume 232,816 296,116-21.4% Distributed 100% cash dividend. For the year 2007, RCC s net profit climbed 45.8% to OMR 30.12 million as against OMR 20.66 million recorded in the previous year, on account of a 31.3% rise in sales. Consequently, net profit margin climbed to 47.8% from 43.1% in 2006. In line with the strong financial results, EPS advanced to OMR 0.151 from 0.103. Benefiting the shareholders, the company distributed 100% cash dividend (OMR 0.100 per share) as compared to 50% cash dividend in 2006. Concurrently, maximizing shareholders value, ROE and ROA augmented to 33.1% and 26.6% as against 29.2% and 21.4%, respectively, in 2006. However, cost of sales grew 30.3% to OMR 35.06 million from OMR 26.90 million in 2007. The primary reason fro this was an increase in energy consumption due to higher production coupled with a 126% surge in the cost of imported cement. In addition, fuel, gas and electricity charges of the company rose 16.2% to OMR 6.59 million in 2007. However, RCC s cost of sales ratio decreased to 55.6% from 56.1% in 2007. Consequently, gross profit climbed to OMR 27.95 million, registering a 32.6% growth and gross profit margin improved to 44.4% from 43.9% year-on-year. During the year, general & administrative expenses declined 36.5% to OMR 0.47 million, while other income soared to OMR 0.24 million. Consequently, profit from operations grew to OMR 27.72 million.

New Projects and Strategy Expansion is the magic mantra. The boom in construction activity witnessed in Oman over the last three years is estimated to continue in the medium-term on expectations of sustained high oil prices and abundant liquidity. This liquidity is liable to persist as mega real estate and infrastructure projects are developed to meet the needs of a growing population. Increased construction activity and high demand are urging the price of cement and cement products across the country to spiral. To capitalize on accelerating opportunities, RCC is focusing on scaling-up its production capacity that will help it to maintain its leading position in cement export, while maximizing its domestic market share. In March 2008, a floating cement terminal, contracted by RCC commenced operations at the Sohar port. The Panamanian-registered floating silo had earlier operated from Port Sultan Qaboos in Muscat, from last August to February 2008. Following an arrangement with the Ministry of Commerce and Industry, RCC renewed its charter agreement with the owners of MV Eastmed Carrier. MV Eastmed Carrier, a specialized vessel equipped for bagged and bulk cement storage and discharging facilities, is currently handling around 20,000-22,000 bags of cement for consumers in and around the Batinah region. In addition, the terminal is also providing around 800-900 tonnes per day of loose cement to ready-mix concrete suppliers. RCC has deployed a total of three vessels to transport bulk cement from Salalah plant to its existing shore-based terminal in Muscat. Additional cement needs for the floating terminal would be sourced from reputable overseas suppliers to the extent of 40,000-50,000 tonnes per month. In addition, the company has announced plans to boost this sales volume to 1000,000-1200,000 metric tonnes during 2008, up 60%. On December 17, 2007, the company signed an agreement with Oman Cement Company (OCC) to supply the latter with 30,000 metric tonnes of Ordinary Portland Cement at OMR 21.5 per metric tonne. Positives With a 27-year history as Oman s leading Cement Company, RCC carries tremendous brand recognition. The company is currently experiencing a dream run of profitability, on the back of surging demand for cement.. The planned and on-going construction projects in the country assure consistent demand for cement for the foreseeable future. Negatives The government s decision to establish five new cement companies will encourage new players to enter the market, heating up competition.

Valuation: Discounted Cash Flows Cost of Equity: 11.34% WACC: 11.29% We have used the Discounted Cash Flow (DCF) method to determine our fair value estimate. As inputs for our valuation, we have used the unlevered industry Beta for emerging markets cement companies of 1.17. We have derived the equity premium by adding the historical premium of US equities over the risk-free rate and the country premium. We estimate a country premium of 1.20% using Moody s long-term country rating (A2 for Oman) and estimating a default spread for that rating, based upon the difference in yields for traded country bonds. As a proxy for the risk-free rate of interest, we have taken the yield on 10-year US treasury notes as the proxy for the risk-free rate of interest. At the time of this report, the 10-year US Treasury bond had a yield of 4.141%. Based on the inputs and the Capital Asset Pricing Model, we arrive at a Cost of Equity of 11.34%. Considering the long-term debts of RCC, we arrive at the Weighted Average Cost of Capital (WACC) of 11.29%. Investment Opinion Fair Value: OMR 3.553 Investment Opinion: OVERWEIGHT Oman s positive macro-economic environment coupled with sustained buoyancy in construction and real estate activities has created a vigorous operating environment for cement companies. The government s plan to spend at least USD 3 billion in expanding the international airport in Muscat and building another three airports in tourist locations and in the industrial city of Sohar, provides potential growth opportunities. At present, the country is facing a supply crunch which is likely to continue over the next few years. To meet this gap, the government has approved the establishment of five new companies. Further more, domestic demand is projected to increase to 3.7-4 million tonnes in 2008, compared to 3.2 million tonnes in 2007, up 15%-25%. Oman has around USD 25 billion worth of development projects in the pipeline; this is anticipated to grow by at least 10% up to 2010, adding a further fillip to cement demand. However, analysts believe that after 2010, the growth momentum may slow down to around 4%-6% per annum. In our opinion, RCC will continue its growth momentum both in top-line and bottom-line in the nearto medium-term, driven by the healthy market milieu. The company has geared-up to meet the surging demand by enhancing its production capacity. This will also fulfill its long-term ambition of becoming a heavyweight regional player, satisfactorily catering to major cement requirements from construction activity within and outside the country. This can be witnessed from the fact that RCC recently increased its production capacity to 3 million tonnes from 2.2 million tonnes through the addition of a fourth production line. This move will not only tap demand, but also afford the company, economies of scale. In addition, the company plans to improve its sales volume to 1000,000-1200,000 metric tonnes during 2008. Considering the above factors, we revise our Fair Value per share for RCC upwards by 118.6% to OMR 3.553 from OMR 1.625 (July 04, 2007). The stock exhibits a 14.9% potential upside from its closing price of OMR 3.092 (as on June 24, 2008). Therefore, we reiterate our earlier OVERWEIGHT investment opinion on the stock. Condensed Projections (in OMR 000) 2008E 2009E 2010E Revenue 85,068 106,505 129,936 Net profit 41,824 48,872 56,033 Total assets 133,756 154,873 175,161 EPS (OMR) 0.209 0.244 0.280

FINANCIAL STATEMENTS BALANCE SHEET As on In OMR 000 31 Dec 07 31 Dec 06 % Chg 31 March 08 31 March 07 % Chg ASSETS Non-current assets Property, plant and equipment 71,500 58,681 21.8% 71,137 65,464 8.7% Investment in an associate 3,310 2,787 18.8% 3,310 3,042 8.8% Investments available for sale 125 125 0.0% 125 125 0.0% Total non current assets 74,935 61,593 21.7% 74,572 68,631 8.7% Current assets Inventories 5,759 3,555 62.0% 5,860 3,586 63.4% Trade receivables 6,063 3,310 83.2% 6,049 2,709 123.3% Receivable from related parties 0 0 2,148 1,963 9.4% Investment held for trading 8,870 2,091 324.1% 9,130 2,580 253.9% Prepayments and other receivables 1,361 1,005 35.5% 0 0 Bank deposits 12,117 10,405 16.5% 0 0 Cash and cash equivalents (Bank and cash) 3,923 14,638-73.2% 19,952 14,644 36.2% Other Assets 0 0 2,483 1,307 90.0% Total current assets 38,094 35,003 8.8% 45,622 26,789 70.3% Total assets 113,030 96,596 17.0% 120,194 95,420 26.0% Shareholders funds Share capital 20,000 20,000 0.0% 20,000 20,000 0.0% Share premium 13,457 13,457 0.0% 13,457 13,457 0.0% Legal reserve 6,667 6,667 0.0% 0 0 Asset replacement reserve 3,648 2,142 70.3% 0 0 Voluntary reserve 6,352 4,283 48.3% 0 0 Reserves 0 0 16,666 13,091 27.3% Retained earnings 40,823 24,278 68.1% 32,678 21,600 51.3% Total equity 90,946 70,826 28.4% 82,801 68,148 21.5% Non current liabilities Term loans non-current portion 5,033 7,254-30.6% 4,650 7,327-36.5% Deferred government grant 357 526-32.2% 0 0 Deferred tax liability 2,605 2,426 7.4% 2,604 2,426 7.3% Total non-current liabilities 7,994 10,205-21.7% 7,254 9,753-25.6% Current liabilities Trade and other creditors 11,682 7,765 50.4% 27,732 15,112 83.5% Term loans current portion 2,407 7,800-69.1% 2,407 2,407 0.0% Total current liabilities 14,089 15,565-9.5% 30,139 17,519 72.0% Total equity and liability 113,030 96,596 17.0% 120,194 95,420 26.0% Net assets per share 0.455 0.354 28.4% 0.414 0.341 21.5%

INCOME STATEMENT For the period ended In OMR 000 31 Dec 07 31 Dec 06 % Chg 31 March 08 31 March 07 % Chg Revenue 63,013 47,975 31.3% 21,939 13,649 60.7% Cost of sales -35,060-26,901 30.3% -10,306-6,850 50.5% Gross profit 27,953 21,074 32.6% 11,633 6,799 71.1% General and administrative expenses -471-741 -36.4% -121-85 42.4% Other income 240 139 72.7% 31 96-67.7% Profit from operation 27,722 20,472 35.4% 11,543 6,810 69.5% Net financing costs/income -78 43-281.4% 52 23 126.1% Contribution to Gonu-Cyclone Relief Fund -1,000 0 Share of profit in an associate 3,154 2,764 14.1% 0 0 Fair value (loss)/ gain on investments held for trading 3,506-170 -2162.4% 260 489-46.8% Profit before tax 33,305 23,108 44.1% 11,855 7,322 61.9% Income tax -3,185-2,450 30.0% 0 0 Profit after tax 30,120 20,658 45.8% 11,855 7,322 61.9% No. of Outstanding Shares ( 000) 200,000 200,000 200,000 200,000 EPS (OMR) 0.151 0.103 46.6% 0.237* 0.146* 62.3% *Annualized figures KEY RATIOS 31 March 08 31 Dec 07 Gross profit margin 53.0% 44.4% Net profit margin 54.0% 47.8% Cost of Sales Ratio 47.0% 55.6% Total debt/equity ratio 8.5% 8.6% Shareholders equity/asset ratio 68.9% 80.5% BVPS (OMR) 0.41 0.45 EPS (OMR) 0.237* 0.151 ROE 57.3%* 33.1% ROA 39.5%* 26.6% * Annualized figures

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