Qassim Cement Company. Results Update 4 th Quarter 2011 MARCH Research Division Company Reports

RESEARCH DIVISION Head of Research Abdullah Alawi +966 2 6618275 a.alawi@aljaziracapital.com.sa Senior Analyst Syed Taimure Akhtar +966 2 6618271 s.akhtar@aljaziracapital.com.sa Analyst Saleh AlQuati +966 2 6618253 s.alquati@aljaziracapital.com.sa BROKERAGE AND INVESTMENT CENTERS DIVISION General Manager Brokerage Division Ala a AlYousef +966 1 2256000 a.yousef@aljaziracapital.com.sa AGMHead of international and institutional brokerage Luay Jawad AlMotawa +966 1 2256277 lalmutawa@aljaziracapital.com.sa Regional Manager West and South Regions Abdullah AlMisbahi +966 2 6618404 a.almisbahi@aljaziracapital.com.sa Area Manager Qassim & Eastern Province Abdullah AlRahit +966 6 3617547 aalrahit@aljaziracapital.com.sa Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), License No. 0707637

Qassim Cement Company Result Update 4Q11 KSA Cement March Higher prices led to YoY profitability growth of 10.4% in 2011. Rating: Neutral Generates highest margins amongst peers. Capacity constraints and low clinker inventory level. Maintain Neutral recommendation. Current Price: SAR 81.0 12 Months Price Target: SAR 83.5 Upside/ (Downside): 3.1% High prices led YoY growth Price Chart Qassim Cement Company (Qassim) posted an aftertax profit of SAR553mn (EPS: SAR6.14) in 2011 compared to PAT of SAR501mn (EPS: SAR5.56) in 2010. Qassim s bottom line rose 10.4% YoY in 2011, primarily attributed to a revenue growth of 6.9% YoY. Higher average price realizations (up 6.3% YoY) led the top line growth. Furthermore, COGS, as a percentage of sales, declined to 41.1% from 42.5% in 2010. Gross margins expanded to 58.9% in 2011 compared to 57.5% in 2010. 13,000.0 11,000.0 9,000.0 7,000.0 5,000.0 3,000.0 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 TASILHS Jul 10 Jan 11 Jul 11 Jan 12 Qassim RHS 120.0 100.0 80.0 60.0 40.0 20.0 Financial performance 2011 All fig in SAR mn Annual Change 2010 2011 unless otherwise stated (2011/2010) Sales Revenue 968 1,035 6.9% COGS (412) (426) 3.4% Gross Profit 557 609 9.4% Gross Margin 57.5% 58.9% Operating Profit 519 572 10.2% Operating Margin 53.6% 55.2% Net Profit 501 553 10.4% Net Margin 51.7% 53.4% EPS (SAR) 5.56 6.14 Source: Quarterly & annual reports Increased gross margins in addition to lower operating costs (general & administrative expenses declined 11.7%) led to higher operating and net margins. 4Q2011 financial performance overview Qassim s 4Q2011 profitability was recorded at SAR146mn (EPS: SAR1.62), an increase of 29.7% YoY. This indicates that the company s recorded profitability remained 18.1% higher than our estimations for the quarter under review, which was mainly due to higherthanexpected price realizations and sales volumes. Quarterly financial performance All fig in SAR mn YoYChange 4Q10 3Q11 4Q11 unless otherwise stated (4Q11/4Q10) Sales Revenue 241 213 270 12.1% COGS (106) (87) (105) 0.7% Gross Profit 135 126 165 22.1% Gross Margin 56.2% 59.2% 61.2% Operating Profit 124 118 156 26.1% Operating Margin 51.2% 55.5% 57.6% Net Profit 112 115 146 29.7% Net Margin 46.6% 53.9% 54.0% EPS (SAR) 1.25 1.28 1.62 Source: Quarterly & annual reports Key Information Reuters Code 3040.SE Bloomberg Code QACCO AB Country: Saudi Arabia Sector: Cement Primary Listing: TASI MCap: SAR7.3 bn 52 Weeks H/L: SAR93.8/59.0 Qassim Cement Company Established in 1976, Qassim Cement Company (Qassim), one of the top five cement producers, is located in central Saudi Arabia. The company accounts for 10.2% of the domestic market share. Qassim has an annual installed production capacity of 3.5 million tonnes of clinker and 4.0 million tonnes of cement. The company manufactures ordinary portland cement, sulfate resistant cement (SRC) and limestone cement. Qassim generates most of its revenue in the domestic market. At the end of 2011, the company s total cement production capacity stood at 4.2 MT, with one of the highest utilization rates in the industry. Abdullah Alawi (Head of Research) a.alawi@aljaziracapital.com.sa +96626618275

On a QoQ basis, the bottom line growth (up 26.9%) was largely driven by a 26.7% rise in revenue (due to 20.3% higher volumes and 5.3% increase in prices). On a YoY basis, performance during 4Q2011 was driven largely by higher prices, which increased 9.9% compared to sales volumes that rose 2.0%. Furthermore, decline in SG&A expenses (19.9% YoY) along with lower zakat expenses (10.5% YoY) contributed to the growth in bottom line. Qassim generates highest margins amongst peers Benefiting from low production cost and higher price realizations, Qassim has been generating highest margins in the sector. In 2011, it reported gross margins of 58.9% (industry average: 53.0%) and net margins of 53.4% (industry average: 47.4%). The company s cost of production at SAR100/ton is lowest in the industry compared to its peer s average level of SAR110/ton. This is largely due to the fact that Qassim operates at a significantly high utilization rate (107.2% in 2011) owing to its technologically advanced plants. Furthermore, the company has one of the highest price realizations in Saudi Arabia. At SAR244, average realization per ton of cement for Qassim was 7.0% premium to the industry average in 2011. Rising demand along with limited cement capacity in the Kingdom would lead to increased prices. We expect prices to remain strong in the coming quarters. Low inventory levels restrict the company s growth Qassim has consistently maintained low clinker inventory levels. This strategy would limit its ability to capitalize on the incremental demand expected in the cement sector. Increased infrastructure spending, business expansion and rising residential construction activities are boosting demand for cement in the KSA. Qassim s clinker inventory level stood at 199,000tons at the end of 2011, representing 2.7% of the sector s total clinker inventory. This is much lower when compared with SPCC (holding 16.1% of the sector s total clinker inventory) and Yamama (holding 17.6% of the sector s total clinker inventory). Moreover, the company is already operating at high utilizations rates; operating rates were 107.2% in 2011. Although it has proposed to add a new production line in June 2011, limited natural gas supply from Saudi Aramco continues to pose a challenge. Key financial updates Key revisions in The upward revision in sales revenue is mainly associated with the (i) positive adjustment of expected utilization rate (ii) improvement in average prices and (iii) recent agreement with Saudi cement to buy 200,000tons of clinker during. The increase in gross, operating and net profit is mainly based on the upward revision in sales revenues. All fig in SAR mn unless otherwise stated Earlier Estimates New Estimates "Upward/ (Downward) revision" Sales Revenue 1,017 1,107 8.9% COGS (436) (469) 7.6% Gross Profit 580 638 10.0% Gross Margin 57.1% 57.6% Operating Profit 542 599 10.5% Operating Margin 53.3% 54.1% Net Profit 531 580 9.2% Net Margin 52.2% 52.3% EPS (SAR) 6.15 6.44 Source: Aljazira Capital Investment consideration Considering the 2011 performance, and our current outlook and estimates, we arrived at an updated 12month price target of SAR83.5/share, which indicates a potential upside of 3.1% over the market price of SAR81/share (as of 25th Mar ). We believe most of the positives are already priced in the current stock price, and therefore, we maintain our Neutral recommendation of the stock.

All fig in SAR mn, unless otherwise stated 2010 2011 E 2013E 2014E 2015E Income Statement Revenue 968 1,035 1,107 1,113 1,107 1,102 Growth YoY (%) 1.8% 6.9% 7.0% 0.5% 0.5% 0.5% Cost of Sales (412) (426) (469) (463) (466) (469) Gross Profit 557 609 638 650 641 633 Growth YoY (%) 2.2% 9.4% 4.8% 1.8% 1.3% 1.3% Selling and Marketing Expenses (7) (10) (11) (11) (11) (11) General and administrative Expenses (31) (28) (29) (30) (30) (30) Operating Profit 519 572 599 609 601 592 Growth YoY (%) 3.0% 10.2% 4.7% 1.7% 1.4% 1.4% Other Income 12 10 11 11 11 11 Other Expense (8) Profit Before Tax 523 582 610 620 612 604 Zakat Provision (22) (29) (30) (31) (30) (30) Minority Interest 0.2 0.0 Net Profit 501 553 580 589 581 574 Growth YoY (%) 16.9% 10.4% 4.9% 1.7% 1.3% 1.4% Balance Sheet Assets Propert, Plant & Equipment 1,223 1,170 1,114 1,060 1,008 958 Capital Work in Progress 29 21 11 6 3 1 Deffered Expenses net 36 32 29 26 24 21 Cash and Cash Equivalent 20 245 427 630 820 1,001 Trading Investments 469 413 413 413 413 413 Trade Recievables, net 51 46 49 50 49 49 Prepayment and Other Recievables 10 8 9 9 9 9 Inventories, net 187 189 209 207 207 205 Total Assets 2,023 2,123 2,261 2,400 2,532 2,657 Liabilities & Owners Equity Trade Payables 12 13 14 14 15 15 Accrued Expenses and Other Current Liabilities 82 69 76 75 76 77 Dividends 33 36 36 36 36 36 Zakat Provisions 21 27 27 27 27 27 Employees End of Service Benefit 20 22 22 22 22 22 Capital 900 900 900 900 900 900 Statutory Reserves 135 191 248 307 366 423 General Reserves 376 376 376 376 376 376 Retained Earnings 445 490 562 642 716 782 Minority Interest (1) (1) (1) (1) (1) (1) Total Equity & Liabilities 2,023 2,123 2,261 2,400 2,532 2,657 Cash flows statement Cash Flow from Operating Activities 547 630 652 677 666 659 Cash Flow from Investing Activities 130 43 (19) (24) (27) (28) Cash Flow from Financing Activities (674) (448) (450) (450) (450) (450) Change in cash 4 225 183 203 190 181 Net Cash at hand 20 245 427 630 820 1,001 Key fundamental ratios Liquidity ratios Current ratio (x) 5.0 8.0 7.5 7.6 7.5 7.4 Quick Ratio (x) 3.7 4.9 5.8 7.2 8.4 9.5 Profitability ratios Gross Margin 57.5% 58.9% 57.6% 58.4% 57.9% 57.4% Operating margin 53.6% 55.2% 54.1% 54.7% 54.2% 53.8% Net Income Margin 51.7% 53.4% 52.3% 52.9% 52.5% 52.1% EBITDA margin 63.7% 63.6% 62.0% 62.4% 61.8% 61.2% Return on average assets 23.5% 26.7% 26.4% 25.3% 23.6% 22.1% Return on average equity 27.0% 28.3% 27.8% 26.5% 24.7% 23.1% Leverage ratio Debt/Equity (x) Interest Coverage (x) Market/Valuation ratios EV/Sales (x) 7.76 7.27 6.79 6.76 6.79 6.82 EV/EBITDA (x) 12.19 11.43 10.95 10.82 10.99 11.15 EPS (SAR) 5.56 6.14 6.44 6.55 6.46 6.37 BVPS (SAR) 20.61 21.73 23.17 24.72 26.18 27.55 Market Price (SAR)* 62.25 72.75 81.00 81.00 81.00 81.00 MarketCap (SAR mn) 5,603 6,548 7,290 7,290 7,290 7,290 Dividend Yield 8.4% 9.3% 6.2% 6.2% 6.2% 6.2% P/E ratio (x) 11.19 11.85 12.58 12.37 12.54 12.71 P/BV ratio (x) 3.02 3.35 3.50 3.28 3.09 2.94 Source: Company annual reports & Aljazira capital * We have taken respective December closing prices for 2010 & 2011, while for years & onwards we used closing price of 25th March.

COMPANY PROFILE RATING TERMINOLOGY AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further valueadded services, brokerage across MENA and International markets, as well as offering a full suite of securities business. 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. 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. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated Neutral is expected to stagnate within +/ 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company. For further queries about our special services, contact us at the toll free number 800 116 9999.

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