091214 cicr cement bag no 5

8/8/2019 091214 CICR Cement Bag No 5

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14 th December, 2009

THEGLOBALCEMENTBAG

Kindly read last page for contact details and important disclaimer

CEMENT MONTHLY | ISSUE NO. 05

LOCAL | RISING DEMAND AFTER SEASONAL HEADWINDS

As expected, cement consumption posted a partial recovery in

October 2009 after Septembers seasonal reduction. Demand lev-

els grew to an overall 44% YoY increase, and a rise of 17.2% MoM.

Governed by the same market forces, we believe demand for ce-

ment will partially slow in November 2009 with the El-Adha feast.

Cement consumption is likely to increase in December 2009, par-

ticularly in light of the recent increase in steel prices. Fear of a fur-

ther increase in steel prices will drive individuals to raise their ce-

ment consumption. Our coverage universe includes three compa-

nies Misr Beni Suef Cement, Misr Cement (Qena), and Sinai Ce-

ment. The latter remains our top-pick Sinai Cement .

INTERNATIONAL | INVESTMENTS IN ALGERIA AT RISK

The Algerian government has introduced a number of measures in

recent months. These include caps on foreign shareholdings, theconsolidation of state-owned cement plants (to create a national

leader for cement industry), as well as a new investment strategy

promoting home-grown industry. We believe Algeria is keen to de-

velop its cement industry and to create an influential state-owned

entity. The key question is whether or not these are the last such

measures or whether they merely precede a new wave of re-

nationalizations as expected by an Algerian newspaper namely, La

Tribune

COUNTRIES BREAKING NEWS

Egypt:

MBSC: Announced trial operations for its second production line.

Cancelled El Wadi Cement licencePreliminary not final.

UAE: Cement imports fall on excess stock and cheap local items.

Algeria: Algeria to boost national presence in its cement sector.

Germany: Cement industry forecasts decline in sales.

Iran:

Cement output to reach 76mtpa.

To build cement factories in nine countries.

Nigeria: Seeks cement independence by 2013.

Pakistan: Closed six cement facilities.

Syria: To link a cement plant to rail grid.

Venezuela: Cement shortages, prices above regulations.

RECENT MARKET DEVELOPMENTS

BASMA [email protected]

GHADA [email protected]

CEMENT TEAM

LOCAL MARKET INDICATORS | Oct-09

* Based on 12M moving average (MA) cement production and the added effec-tive cement production capacity** Including imports by local producing Co.s# Average ex-factory price including transportation costs^ Delayed deliveries, yet, no export contracts initiated due to the extended exportbanSource: Ministry of Investment and company reports

1M-STOCK PRICE PERFORMANCE

GLOBAL HIGHLIGHT | RISKY COUNTRIES

Contents

Algeria: Toughens stance on foreign investors | New investment

strategy to promote home-grown industry | One Algerian newspa-per predicted a wave of re-nationalizations | To boost nationalpresence in its cement sector | Algeria is to consolidate its state-owned cement plants into a national champion.

Pakistan: Closed six cement facilities | Local demand of cement

contracted by 14%.

Germany: Cement industry forecasts YoY decline in sales by 5%

in 2010.

UAE: Cement imports falls on excess stock and cheap local items

| Producers and traders in the UAE are expecting more toughtimes for vague construction sector.

Venezuela: Cement shortages | Prices above regulations | Persis-

tent shortages of cement since the government expropriated allcement assets in the country.

VALUATION AND RECOMMENDATION

Gray cement Mkt indicator Unit Oct-09 MoM % YoY %

Consumption k tons 3,953 17% 44%

Production k tons 3,641 6% 19%

Utilization rate * 103% 59 bps 969 bps

Exports ^ k tons 1 NM -100%

Imports ** k tons 114 -55% NM

Local price#

EGP/ton 483 -4% 10%

Export price ^ USD/ton NA NA NA

Section Page

Local cement companies under coverage 2

Key issues 3

Key market developments in Egypt 9

Market key performance indicators 9Companies key performance indicators 13Companies views and outlook 14CICR views and outlook 14Recent financial results 18Share performance 19

Valuation 20

Company

Last

Price *

LCY TP(LCY)

Up

/Down

to TP Rec.

MKT

Cap

US$ mn PER10e

EV/EBITDA

10e

Dividend

Yield

09e

MBSC 127.8 157.9 23.6% H 461.3 5.8x 3.6x 5.9%

MCQE 88.4 102.2 15.6% B 478.6 6.9x 4.1x 11.1%

SCEM 42.9 53.2 24.0% B 541.9 4.3x 3.3x 7.1%

* As of 13-Dec-09

-4.9%-2.0%-0.2%

0.1%1.4%3.8%

6.0%6.8%

15.0%

17.9%-20.5%

-19.2%

-9.1%-7.3%-4.7%-3.4%-2.8%-1.3%-1.1%-0.6%

0.4%0.9%3.3%4.3%5.5%

18.6%

-10.2%

-8.7%-6.4%-5.4%

-4.8%-4.6%-4.6%-3.4%-3.2%

1.1%6.6%6.7%6.7%7.6%

-60%-40%-20% 0% 20% 40% 60%80%100%

NCEM EYSVCE EYMBSC EYAMRI EY

TORA EYMCQE EY

SCEM EYHCCO EYALEX EYSUCE EY

GCEM UHRAKCC UH

KCEM KKOCOI OM

GHCD QDQACCO ABTACCO ABSACCO AB

RCCI OMYNCCO ABQNCD QD

ARCCO ABYACCO ABSOCCO ABEACCO AB

PCEM KK

FCCL PATITK GA

IT IMACPL PA

BZU IMLG FP

CPR PLCEMEXCPO MM

ADANA TIHEI GR

HOLN VXBINC IN

AKCNS TISRCM IN

Loca

l

Regional

International

Source: Bloomberg


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Local cement companies under coverage

An assessment of the graph below suggests both local and some of the re-gional players are relatively cheap. The international players, specifically theheavyweights, look relatively expensive and, as mentioned in previous edi-tions, may start to relocate to this region.

Top pick for this month maintained | SCEM | BUY:(Maintained)SCEM released its 9M09 standalone financial results, revealing a 67% YoY

growth in net profits to EGP497mn.

In a our Sector Note published on December 3, 2009, we lowered expectedmargins (2009-13) and revised SCEMs overcapacity utilization to more real-istic levels. However, SCEM remains our top pick with a BUY recommenda-tion. SCEM currently trades at PER 2010 and EV/EBITDA 2010 of 4.3x and3.3x, respectively, the cheapest in our cement coverage universe.

Misr cement (Qena) | MCQE | BUY:(Upgraded)So far, MCQE has not revealed any intensions to expand or to diversify its

operations.

In our recently published Sector Note, we amended our model for MCQE,taking into consideration the recent cost efficiency, MCQEs lower than ex-pected depreciation expense and our revised local cement market indicators.

MCQE trades at a historical discount to the market of 33% and an evenhigher discount over the last three months. On this basis, we upgraded ourrecommendation from Hold to BUY.

)Maintained(:Hold|MBSC|Misr Beni Suef Cement

MBSC is to begin cement production with its 1.5-mtpa second line in July2010.

MBSC released its 9M09 financial results, revealing a 33% growth in netprofits, to EGP294mn.

Given the lack of management guidance concerning the significantly lowercosts in 3Q09, we cannot be sure that MBSC will sustain such lower costs.Thus in our December 3rd Sector Note, we maintained our Hold recommen-dation.

Peers 09e PER vs. EPS CAGR

Source: Bloomberg and CICR est imates

Peersanalysis

MBSC EYMCQE EY

SCEM EY

RAKCC UH

GCEM UH

ARCCO AB

YACCO AB

SACCO AB

AKCNS TI

CIMSA TI

ADANA TI

LG FP

HOLN VX

HEI GR

IT IM

BZU IM

TACCO AB

YNCCO AB

TITK GA

CEMEXCPO MM

FCCL PA

CPR PL

QNCD QDOCOI OM

RCCI OM

0.00

5.00

10.00

15.00

20.00

-42% -22% -2% 18% 38%

10EPER

3-year EPS CAGR


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Key Issues

Debt and credit facilities

Lafarge sells EUR750mn of 10-year notes

LAFARGE [LG FP] recently took advantage of declining yields through the sale ofEUR750mn (USD1.1bn) in 10-year notes. Lafarge's sale brought its borrowing in thebond market this year to EUR3.3bn. (www.cemweek.com, 7-Dec-09)

BZU: Successful completion of its 7-year bond issue

BUZZI UNICEM [BZU IM] has successfully completed the issue of the bond resolved

by its BoD on November 11, 2009, for a nominal amount of EUR350mn with a 7-yearmaturity. The issue, which represents BZUs launch on the Eurobond market, re-ceived subscriptions for 2.2-fold the amount. Standard & Poors assigned to the bondthe rating BBB. Buzzi Unicem will apply for the listing of the bond and the admissionto trading on the Luxembourg regulated market (Luxembourg Stock Exchange).Through the issue, the company aims at diversifying the funding sources and length-

ening the average debt maturity profile. (Company Press Release, 2-Dec-09)

Holcim Mexico may raise MXN1bn

The Mexican subsidiary ofHOLCIM LTD [HOLN VX], HOLCIM APASCO is consideringraising up to MXN1bn in asset backed securities. The offering would reportedly begeared towards local investors. (www.cemweek.com, 15-Nov-09)

CEMEXCPO: Received approval to launch convertible securities transaction

CEMEX [CEMEXCPO MM] announced that it has received approval from the Co-misin Nacional Bancaria y de Valores ("CNBV", or the Mexican securities authority)to launch an offer to issue mandatorily convertible securities (the "Securities")through an exchange offer directed to holders of Certificados Burstiles issued by

CEMEXCPO. The transaction is expected to be launched for a minimum amount ofSecurities of MXN3bn. CEMEX may issue Securities mandatorily convertible into amaximum amount of 400mn CPOs. The offer period will be from November 11, 2009to December 9, 2009; but this period could be extended in accordance to the termsdescribed in the prospectus.(Company Press Release, 11-Nov-09)

Decisions

Egypt cancelled Al-Wadi Cement licence

Egypt void AL-WADI CEMENT's production license following delays; Authorities re-viewing four more licensees. The chairman of Egypt's INDUSTRIAL DEVELOPMENT AU-

THORITY revealed that in the next two weeks he will determine weather the licensesof the remaining firms will be cancelled or not. He added that he expects minimallyone more license to be cancelled. (www.cemweek.com, 22-Nov-09)

CommentAfter contacting the IDAs officials and the announcement made by the IDAs chair-man, we knew that the only company that the LICENSES WITHDRAWAL COMMITTEE(LWC) recommended its license-withdrawal is AL-WADY CEMENT (AWC). However,this decision is preliminary not final. This recommendation and AWCs case still hasto be presented to the Minister of Industry and Trade, to get an approval and still it isnot to be a final decision. If the ministry approved, still AWC has got the chance topresent an appeal for this decision.

International

Local


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Algeria toughens stance on foreign investors

Algeria is implementing a new investment strategy to promote home-grown industry,even if that risks deterring foreign investors. Government measures adopted thisyear have set caps on foreigners' shareholdings. The government says it remainsopen to foreign investors and has not publicly acknowledged any change in invest-

ment strategy this year. However, Reda Hamiani, HEAD OF ALGERIA'S BUSINESSLEADERS' FORUM, revealed that official thinking had changed. International energyfirms operating in Algeria, the world's fourth biggest gas exporter, have been affectedby some of the government measures adopted in the past few years. The biggestimpact though is likely to be felt outside the energy sector. ARCELORMITTAL[ISPA.AS], LAFARGE [LG FP; LAFP.PA], DANONE [DANO.PA], and ORASCOM areamong the biggest non-energy foreign investors.

Hamiani said the new policy aimed to address two related problems: the large vol-umes of imports skewing Algeria's balance of trade and its local industry that hasbeen overshadowed by the oil and gas sector. Foreign investment was still welcomebut must be focused on manufacturing and to bring a transfer of technology to Alge-ria.

One Algerian newspaper, La Tribune, predicted a wave of re-nationalizations. It drewa comparison with Russia's former president, Vladimir Putin, who restored some pri-vatized assets to state control after their owners were hit with tax demands. (Reuters,3-Dec-09)

Algeria to boost national presence in its cement sector

As per its plan to create a national leader for cement industry and other building ma-terials, Algeria is to consolidate its state-owned cement plants into a national cham-

pion which will challenge the French Lafarge [LG FP] for its share of the market and

later expand abroad. The holding company will invest DZD180bn (USD2.4bn) to

nearly double the annual cement production in the next three years. Currently, Alge-

ria's 12 state-owned cement plants produce c.11.5 mtpa of cement and control 67%of the domestic market, with LG accounting for the balance. However, this new in-

dustrial giant should, in the initial stage, control from 75%-to-80% of the domestic

market before extending its activities towards the international market.(www.noozz.com, 29-Nov-09)

Comment

It is worth highlighting the earlier announcement that Algeria may see 1mn ton short-

age in 2010, expected to result in further importation during 2010, as the importation

of 1mn tons of cement in 2009 may not be enough. Hence, enlarging the cement

sector by any means is logical. Previously, it was announced that there is a new law

in Algeria requires foreign investors to sell 51% of the entity to partners who reside in

Algeria. However, LG argued that its application for investment in Algeria in 2008was in place before this governments new measures on foreign investment. Later

on, the Algerian government announced the establishment of a national cement com-

pany as part of the measures taken by the government to develop its national indus-

try.

In sum, we believe currently Algeria is keen to develop its cement industry and to

create a significant national entity. We believe that this national plan needs more

clarification. Will it end up by only establishing governmental green fields and con-

solidations, or there will be other severe measures to arise in the coming future.

International


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HEI: Halted cement plant construction

HEIDELBERG [HEI GR] has announced plans to construct a new cement plant in theVoronezh region will be delayed. News of the postponed plans is likely tied to thecompany's current availability of funds, as well as the current state of the economy.(www.cemweek.com, 20-Nov-09)

Pakistan: Closed six cement facilities

The PAKISTAN GOVERNMENT stands to lose of PKR400mn each month after theystopped the production of cement at six cement operations. After local demand ofcement contracted by 14%, the Pakistani government made the decision to close sixcement facilities. (www.cemweek.com, 18-Nov-09)

Syria: To link a cement plant to rail grid

State-owned GENERAL ESTABLISHMENTOF SYRIAN RAILWAYShas started on a project

to link the new Hama Cement Plant to its rail network at a total cost of SYP400mn(USD8.7mn), to be completed in two years. (www.zawya.com, 17-Nov-09)

Expansions

Suez Lime to build a new factory

SUEZ LIME (established in October 2007 as a joint venture between SUEZ CEMENT

[SUCE.CA; SUCE EY], TOURAH CEMENT [TORA.CA; TORA EY], and the Italian

lime producer UNICALCE at stakes of 49%, 1%, and 50%, respectively) announced

the establishment of a new lime factory in Suez governorate. This new plant is to

start operations in 2011 at a production capacity of 300 tons/day.(www.egyptse.com, 19-Nov-09)

MBSC: Announced trial operations for clinker production of its second line

MISR BENI SUEF CEMENT (MBSC) [MBSC.CA; MBSC EY] announced trial opera-

tions for its second 1.5mtpa clinker production line in its plant in Beni Suef gover-

norate. (www.egyptse.com, 12-Nov-09)

Comment

We believe these trial operations are only for Phase I of this 1.5mtpa new cement

production line (clinker production). However, MBSC is expected to finalize Phase II

(cement production) and to start cement production for this second production line

by July 2010, awaiting the new grinders installation and operation. It is worth high-

lighting that this new production line requires a total investment cost of EGP1.5bn,

including the EGP134.5mn and EGP148mn license cost and energy supply cost

(electricity and natural gas), respectively.

Holcim Philippines keeping 2010 capex

HOLCIM PHILIPPINESplans to maintain its 2010 capital expenditure project, despite adecline in demand and a rise in prices. (www.cemweek.com, 7-Dec-09)

Iran: Cement output to reach 76mtpa

Eight cement projects will come on stream by March 2010 to boost Irans cementproduction capacity from 67mtpa to 76mtpa. (www.zawya.com, 26-Nov-09)

Local

Internation

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CEMEXCPO: Announced completion of EURUS wind farm construction

CEMEX [CEMEXCPO MM] announced that the installation of the 167 wind turbinesof the EURUS wind farm was completed on November 15 in Juchitan, Oaxaca, Mex-ico. EURUS was jointly developed by CEMEXCPO and ACCIONA and has 167 windturbines with 1.5 MW of capacity each built with ACCIONA Wind power technology.

The wind farm represents an investment of USD550mn (c.EUR367mn). EURUS has250 MW of power production capacity. EURUS allows a reduction of CO 2 emissionsby c.600k metric tons each year. (Company Press Release, 23-Nov-09)

LG: To open a cement plant in northern

LAFARGE CEMENT SYRIA gets 7-year USD340mn-loan to partially finance the first pri-vate Greenfield cement plant in Syria with a production capacity of 2.75mtpa. Lafargebegan the project to help Syria meet the expected domestic demand, which is ap-proximately 9mtpa while, the current production is only 6mtpa. (www.cemweek.com

and www.zawya.com, 16-Nov-09 and 12-Nov-09)

Iran to build cement factories in nine countries

Iran will establish cement plants in nine countries and focus on cement exports. Ira-nian engineers will build cement production units in Syria, Venezuela, Bolivia, Alge-ria, Lebanon, Ecuador, Iraq, Belarus and one of the Mid-Asian countries.(www.cemweek.com, 15-Nov-09)

Arabian Yemen Cement to start production

ARABIAN YEMEN CEMENT (AYCC) plans to start commercial production and is ex-

pected to produce 5.2ktpd of cement. It is worth highlighting that this project is 15%-owned by Yemeni investors, while the balance is owned by Saudi investors that in-clude EASTERN PROVINCE CEMENT CO. [EACCO AB]. (www.zawya.com, 14-Nov-09)

LG: Bengal unit starts commercial production

LAFARGE [LG FP] has commissioned its Mejia grinding unit in India. The one-mtpagrinding plant has started commercial production, but will ramp up production overthe next few months. The plant has cost Rs Cr.300 and will produce fly ash-basedcement. (www.cemweek.com, 14-Nov-09)

Heidelberg Cement India plans expansion

HEIDELBERG CEMENT India announced that it would set up expansion project at itsplants at DAMOH (MADHYA PRADESH) and at JHANSI (UTTAR PRADESH) to increasecement production capacity from existing from 1.8mtpa to 4.7mtpa.(www.cemweek.com, 4-Nov-09)

Market Indicators

Demand:

Germany: Cement industry forecasts decline in sales

In Germany, the cement industry expects another tough year for sales in 2010. Ce-ment consumption is expected to reach 25mn tons in 2009, around 9% below 2008and consumption in 2010 is expected to decline by another 5%.(www.cemweek.com,2-Dec-09)

CPR: Sales in Brazil rose to EUR307mn

CIMPOR [CPR PL]'s sales in Brazil climbed to EUR307mn - making it the company'slargest market behind Portugal. Sales during 9M09 for Cimpor in Brazil totalled3.3mn tons. (www.cemweek.com, 26-Nov-09)

Internatio

nal

In

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Lafarge Romania experiences first ever fall in sales

LAFARGE ROMANIA posted a 34% YoY drop for sales in 9M09. This drop was more

than anticipated, as the French-based group forecasted a 28-30% drop of the localcement market in volume in 2009. (www.cemweek.com, 20-Nov-09)

Imports:

UAE: Cement imports falls on excess stock and cheap local items

Cement imports to the UAE have dropped significantly, due to the drop in prices oflocally produced material and excess stock. Producers and traders in the UAE areexpecting more tough times as they continue to remain clueless about the futurecourse of the construction sector. Cement in UAE is currently sold at AED190-210/ton. (www.zawya.com, 3-Dec-09)

Nigeria: Seeks cement independence by 2013

Local cement companies expect Nigeria to reach 100% production coverage by 2013and may no longer be required to import cement to meet the demand in the country.Currently, Nigerian cement makers produce 9.5mtpa. However, consumption of ce-ment totals 19.5mtpa, leaving a 10mtpa-deficit that requires cement to be importedfrom outside sources. (www.cemweek.com, 16-Nov-09)

Prices:

Venezuela: Cement shortages, prices above regulations

After Venezuela's seizure of CEMEX [CEMEXCPO MM]', LAFARGE [LG FP]'s andHOLCIM [HOLN VX]'s cement units in the country, cement shortages have emergedand cement prices have kept rising on the black market. There are persistent short-ages of cement in Venezuela since the government expropriated all cement assets inthe country. (www.cemweek.com, 29-Nov-09)

Pakistan: low prices threaten cement firms

The deficiency between production costs and market prices in Pakistan are c.PKR35-45/50 kg bag. The cost for production of the highest producing factories is aroundPKR275/50 kg bag while market prices are PKR230-240/50 kg bag. He added thesituation for local cement factories is impossible, pointing out that at the current pricelevel, many factories will be forced to shut down. (www.cemweek.com, 16-Nov-09)

Costs:

LG: Raised prices in Jordan

JORDAN LAFARGE CEMENT FACTORIES COMPANY has raised cement prices in thecountry. The prices were hiked by JOD2/ton. LG is the only manufacturer of cementin Jordan. This price increase reflects higher prices of industrial fuel as approvedrecently by the Jordanian government. (www.cemweek.com, 14-Nov-09)

International

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Mergers and Acquisitions

CPR: Confirmed end of Ecuador bid

CIMPOR [CPR PL] announced that the GOVERNMENT OF ECUADOR officially rejectedCPRs takeover bid forCEMENTOS CHIMBORAZO, nullifying the bid. Instead, the com-

pany will be acquired by the State of Ecuador, which will sell up to 49% of the sharesto indigenous communities and workers. (www.cemweek.com, 7-Nov-09)

HOLN: Approved Jaffna bid

HOLCIM SRI LANKA would enter the bidding process to build a joint venture cementplant with state-run SRI LANKA CEMENT CORPORATION in the northern Jaffna penin-sula. This marks a positive move for the Swiss-based cement company as the Jaffnapeninsular has a notable amount of high quality limestone deposits.(www.cemweek.com, 5-Nov-09)

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CEMENT MONTHLY | ISSUE NO. 05 | THE GLOBAL CEMENT BAG

9

Market Key Performance Indicators

Monthly 10M09 vs. 10M08

Source: Ministry of Investment, company reports, and CICR database* Demand = Local sales + Imports

Source: Ministry of Investment, company reports, and CICR database* Demand = Local sales + Imports

Graycemen

tlocaldemand*

Demand growth recorded a 44% YoY and 23% MoM growth in October 2009.Cement consumption grew YoY by 27% during 10M09.

GraycementProduction


Source: Ministry of Investment, company reports, and CICR database Source: Ministry of Investment, company reports, and CICR database

Production registered YoY and MoM growth of 19% and 6%, respectively, in October 2009.Cement production grew YoY by 20% during 10M09.

Key market developments in Egypt

2,744

3,839

3,169

3,882

3,623

4,334

4,091

4,121

4,066

4,157

4,389

3,373

3,953

8%

40%

-17%

22%

-7%

20%

-6%

1%-1%

2%6%

-23%

17%20%23%

8%

23%19%

30%

23%

31%25%

21%

30%32%

44%

-40%

-20%

0%

20%

40%

60%

-

1,000

2,000

3,000

4,000

5,000

6,000

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

000's tonsGray Cement Local Demand MoM Chg YoY Chg

Decline due to

Ramadan

31,371

39,989

5,000

15,000

25,000

35,000

45,000

10M08 10M09

000's tons

up by 27%

3,057

3,799

3,366

3,985

3,609

4,270

4,037

4,218

3,922

4,001

4,138

3,437

3,641

10%

24%

-11%

18%

-9%

18%

-5%

4%

-7%

2%3%

-17%

6%

15%15%

6%

20%

12%

25%

19%

28%

18% 21% 19%

24%

19%

-20%

-10%

0%

10%

20%

30%

40%

-

1,000

2,000

3,000

4,000

5,000

6,000

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

000's tons Gray Cement Production MoM Chg YoY Chg

Decline due to

Ramadan

32,627

39,259

5,000

15,000

25,000

35,000

45,000

10M08 10M09

000's tons

up by 20%


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Market Key Performance Indicators (Cont)

Monthly

Source: Ministry of Investment, company reports, and CICR database

10M09 vs. 10M08

Graycementmarketde

ficit/surplus

Source: Ministry of Investment, company reports, and CICR data-base

As demand growth outpaced supply, deficit of 731k tons was recorded during 10M09, compared to a surplus of 1,257k tonsin 10M08.

Monthly

Source: Ministry of Investment, and CICR database* Demand =Local sales + Imports

10M09 vs. 10M08

Source: Ministry of Investment and CICR database* Demand = Local sales + Imports

Gra

ycementdemand*vs.sup

ply

15%

15%6%

20%

12%

25%

19%28%

18% 21% 19%24%

19%

20%23%

8%

23%

19%

30%23%

31%25%

21%

30%

32%

44%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

2,000

3,000

4,000

5,000

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

000's tonsSupply Demand YoY Supply Chg YoY Demand Chg

32,627

39,259

31,371

39,989

5,000

15,000

25,000

35,000

45,000

55,000

10M08 10M09

000's tonsSupply Demand

313

(40)

196

103

(14)

(64)

(53)

97

(144)

(157)

(252)

64

(312)

-1000

-800

-600

-400

-200

0

200

400

600

800

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

000's tons

1,257

(731)

(900)

(500)

(100)

300

700

1,100

1,500

10M08 10M09

000's tons


11/21



11

Market Key Performance Indicators (Cont)

* Utilization rate based on 12M moving average (MA) cement produc-tion and the added effective cement production capacitySource: Ministry of Investment and company reports

GrayCementutilizationrate*

* Utilization rate based on 12M moving average (MA) cement pro-duction and the added effective cement production capacitySource: Ministry of Investment and company reports


Demand has been following a higher growth pattern since the beginning of 2009, hence tighter utilization rates wereachieved, reaching its peak of 103% in October 2009.

Monthly

Source: Ministry of Investment, and CICR database* Including imports by local producing Co.s

10M09 vs. 10M08

Source: Ministry of Investment and CICR database* Including imports by local producing Co.sT

otalGraycementimp

orts*vol.

In October 2009, 114k tons of cement were imported to bring the total quantity of imported cement in 10M09 to 959k tons

representing 2.2% of local demand.

GrayCementexportsvolume


Source: Ministry of Investment Source: Ministry of Investment

94% 9

5%

95%

96%

96% 9

7% 9

8%

100%

100%

101%

102%

103%

103%

85%

90%

95%

100%

105%

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

94%

103%

85%

90%

95%

100%

105%

110%

115%

10M08 10M09

Up by 918 bps

827

66

149

342

253

114

0

100

200

300

400

500

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

000's tons

First shippment of

imported cement

959

-

400

800

1,200

10M08 10M09

000's tons

253

187

133

199

49 19 13 1 0 1 3 0 10

50

100

150

200

250

300

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

000's tons

The 6-monthexport banremoval in Oct-08

The start ofthe 4-monthexport ban

on April 14

4 cementcompaniesdecided to

halt exportsExport

banextended

til Oct-10

1,000

285

-

400

800

1,200

10M08 10M09

000's tons

Down by 71 %


12/21



12

Market Key Performance Indicators (Cont.)

Monthly

Source: Ministry of Investment and company reports* Average ex-factory local price including transportation costs

GRAY

CEMENTLOCALPRICE*

10M09 vs. 10M08

Source: Ministry of Investment and company reports* Average ex-factory local price including transportation costs

For the second month consecutively, local cement prices decreased to EGP483/ton in October 2009 compared to EGP500/ton in September 2009 bearing a decline of 4%. Yet on a an annual perspective, prices recorded a YoY increase of 10%

438

457

454

468

565

501

511

500

499

543

549

500

483

-2%

4%

-1%3%

21%

-11%

2%

-2%0%

9%

1%

-9%

-4%

12%

19%15% 16%

36%

8%

16%

20%

13%

23%21%

12% 10%

-15%

-5%

5%

15%

25%

35%

45%

55%

300

400

500

600

700

800

900

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

EGPperton

Average Ex-Factory Gray Cement Local Price MoM Chg YoY Chg

Drivers' strikeincreasedtransportation

costs

436

512

300

350

400

450

500

550

600

10M08 10M09

EGP per ton

up by 17 %


13/21


14/21



14

THEGLOBALCEMENTBA

G

Companies views and outlook

Consumption partially resumed its strength in October 2009: Although demand

in October regained some its previous strength after the seasonal slowdown, in-

creasing 17% MoM (and 44% YoY), it remained below pre-Ramadan levels. On top

of this, with November incorporating the Greater Bairam vacation, local producershave recently witnessed a slight MoM decline in local demand. However, cement

consumption is expected to regain its strength by mid-December 2009 when the

work-force returns to its full utilization after the Greater Bairam vacation.

Increase in steel prices to trigger cement consumption and prices: In December

2009 steel prices increased 5% MoM. Consequently, most cement producers expect

consumers to increase their demand for cement fearing another increase. Thus ce-

ment consumption and retail prices (not the ex-factory) are forecast to increase

shortly.

CICR views and outlookConsumption linked to steel prices: The sharp fall in steel prices from their peak

of EGP6,530/ton in August 2008 to a low of EGP3,000/ton in October 2009 triggered

an increased demand for cement. The strong inverse correlation of 0.87 between

steel prices and cement consumption led an expansion in cement deliveries, on an

average MoM basis, of 4.7% between October 2008 and October 2009. Developers

have tended to accelerate their construction works so as to benefit from the dip in

steel prices. As such, we agree with local players that cement demand and retail

prices could rise in the short term, driven by consumers fear of further increases in

steel prices.

Recently released Sector Note An overheated market in 2010?:

In 2009, cement consumption will increase, capitalizing on (i) modest steelprices, (ii) the GoEs stimulus package, (iii) the GoEs focus on low-cost hous-ing, (iv) robust demand from individuals living in rural areas and (v) the largereal-estate backlog. We believe added demand for cement will reach 9.7mntons and 5mn tons in 2009 and 2010 respectively. Over 2011-2013, the yearlyadded demand will reach an average of 4.4mn tons.

Given that many local producers were a long way from their previously an-nounced schedule by the end of 2009, new capacities will not come on-streamin the planned time-frame. As a result of this, the year of the highest capacityadditions has shifted to 2012 (11.28mn tons) instead of 2011 and the year ofcompletion to 2013 instead of 2012.

Utilization rates are expected to peak in 2009 and 2010 with added demandoutpacing added capacity and driving up utilization rates to above 100%.Theexpected slightly slower growth in cement consumption in 2011 and 2012,coupled with the planned added capacity of 5.8mn tons and 11.3mn tons re-spectively, will ease the utilization rate until it reaches its low (93.2%) by 2012.Starting 2013, the utilization rate will rebound to 99.4%.

The market is expected to realize an average deficit of 1.3mn tons over 2009-2011. Starting 2012, the market will reverse this, achieving an average surplusof 1.9mn tons during 2012-13. Imports will fully cover the market deficit over2009-2011 and are expected to reach an average of 1.7mn tons during thisperiod. Thereafter, it will turn into nil with the market realizing a surplus due tothe large capacity additions expected to come on-stream by 2012.


15/21



15

THEGLOBALCEMENTBA

G

Cement exports are expected to drop to 0.3mn tons on average in 2009 and2010 due to the GoEs decision in mid July 2009 to extend the cement andclinker export ban to October 2010, rather than August 2009. By 2011, exportsare expected to recover, driven by the anticipated global economic recovery.Exports are only expected to regain their full momentum in 2012 after compa-nies re-establish their previous markets.

We believe local cement prices will reach EGP505/ton in 2009. Post-2009 weexpect local prices to grow at a slower pace due to the rising competition fromcheaper imported cement. The large capacity inflow in 2010 in Saudi Arabia(9.2mn tons) and the removal of the export ban will further intensify competi-tion in the domestic market and lead to more market-based prices. As for ex-port prices, they recorded an average of USD80/ton in 2009 and are expectedto be in the vicinity of USD83 during 2010. Thereafter, we believe export priceswill grow at 5% AAGR, supported by the recovery in the global markets.


16/21



16

Market Key Performance Indicators outlook

Source: Ministry of Investment and company reports

GrayCementOutlook

Demand & production outlook Surplus & imports outlook

Exports outlook

Source: Ministry of Investment, and CICR database

Local * & export prices outlook

* Ex-factory prices including transportation costsSource: Ministry of Investment and CICR databaseG

rayCementOutlook

GrayCementOutlook Changes to planned capacity additions (2009-13)

Source: CICR database

34

38

48

53

57

61

66

38 40

47

51

56

63

69

92.2%

94.1%

101.4%

101.3%99.7%

93.2%

99.4%

86%

88%

90%

92%

94%

96%

98%

100%

102%

104%

0

10

20

30

40

50

60

70

80

2007 2008 2009E 2010F 2011F 2012F 2013F

mn tons Demand Production Utilization Rate

1.3

2.4

1.5

4.0

1.4

-1.0

-2.1

-0.8

1.5

2.2

-3

-2

-1

0

1

2

3

4

5

2007 2008 2009E 2010F 2011F 2012F 2013F

mn tonsImports Surplus/Deficit


4.2

1.3

0.30.3

0.7

1.5

2.2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2007 2008 2009E 2010F 2011F 2012F 2013F

mn tons

362

440

505529

551 563588

70

8580

8387

9196

0

20

40

60

80

100

120

0

100

200

300

400

500

600

700

2007 2008 2009E 2010F 2011F 2012F 2013F

USD/tonEGP/ton Local Prices Exports Prices

2009 P 2010 P 2011 P 2012 P 2013 P Total

Capacity Additions in mn tons (Old) 3.85 6.30 11.38 3.00 - 24.53

Capacity Additions in mn tons (New) 4.10 3.95 5.80 11.28 1.50 26.63


17/21



17

Market Key Performance Indicators outlook (Cont)

GrayCementOutlook

Changes to our projected market indicators (2009-2013)

GrayCementOutlook

Planned market capacities by company (2009-13)

Source: CICR database

2008 2009 P 2010 P 2011 P 2012 P 2013 P

Production (mn tons)

Old 39.85 45.69 51.67 57.12 63.33 66.50

New 39.85 47.13 51.05 56.06 62.90 68.60

Consumption (mn tons)

Old 38.43 46.16 51.37 54.63 58.90 64.46

New 38.43 48.11 53.14 56.84 61.41 66.35

Utilization Rate (%)

Old 94.1% 98.9% 98.4% 89.4% 94.7% 99.4%

New 94.1% 101.4% 101.3% 99.7% 93.2% 99.4%

Exports (mn tons)

Old 1.34 0.28 0.30 1.62 3.09 4.26

New 1.34 0.28 0.30 0.72 1.49 2.24

Imports (mn tons)

Old - 0.74 - - - -

New - 1.26 2.39 1.50 - -

Local Prices * (EGP/ton)

Old 440 505 551 561 572 582

New 440 505 529 551 563 588

Export Prices (USD/ton)

Old 85 80 82 90 96 101

New 85 80 83 87 91 96

* Ex-factory prices including transportation cost

Export price in 2009 is actual


in 000 tons

Company Name 2009 P 2010 P 2011 P 2012 P 2013 P

Tourah Cement 3,330 3,330 3,330 3,330 3,330

Helwan Cement 4,500 4,500 4,500 4,500 4,500

National Cement 3,500 3,500 3,500 3,500 3,500

Assiut Cement (Cemex) 5,000 5,000 5,000 6,500 6,500

Al-Amreyah Cement (Cimpor) 3,700 3,700 3,700 3,700 3,700

Alexandr ia & Beni Suef Cement (T itan) 3,250 4,500 4,500 4,500 4,500

Suez Cement 4,200 4,200 4,200 4,200 4,200

Egyptian Cement Co. (ECC) (Lafarge) 10,300 10,300 10,300 10,300 10,300

Sinai Cement 3,200 3,200 3,200 3,200 3,200

Misr Cement (Qena) 1,500 1,500 1,500 1,500 1,500

Misr Beni Suef Cement 1,500 2,250 3,000 3,000 3,000

Arabian Cement - 1,575 3,150 4,200 4,200Madcom Aswan 375 750 750 750 750

Arab National Cement Co. (ANCC) - - - 750 1,500

Wadi El-Nile Cement - - 375 1,500 1,500

El-Sweedy Cement - - 375 1,500 1,500

North Sinai cement - - - 1,500 1,500

South Valley Cement 1,500 1,500 1,500 1,500 1,500

Al-Nahda Industries - - 750 1,500 1,500

Building Materials Industries - - 375 1,500 1,500

Al-Wadi Cement - - - 750 1,500

Al-Shouraa Cement 600 600 600 600 600

Ministry of Defense Plant - - 1,600 3,200 3,200

Total Effective Capacities 46,455 50,405 56,205 67,480 68,980

Added Capacity 4,100 3,950 5,800 11,275 1,500


18/21



18

Rece

ntfinancialresults

Country

CompanyName

CompanyTicker

Curr.

Recent

(LCYmn)

PeriodCovered

Ended

Previous

(LCYmn)

%

Chg

Egypt

HelwanCement

HCCOEY

EGP

456

9M09

Sep-09

452

1%

Egypt

MisrBeniSuefCem

ent

MBSCEY

EGP

294

9M09

Sep-09

222

3

3%

Egypt

NationalCement

NCEMEY

EGP

66

1Q09/10

Sep-09

39

6

7%

Egypt

SinaiCement^

SCEMEY

EGP

497

9M09

Sep-09

298

6

7%

Egypt

SouthValleyCeme

nt

SVCEEY

EGP

148

9M09

Sep-09

137

8%

Egypt

SuezCement*

SUCEEY

EGP

991

9M09

Sep-09

913

8%

Egypt

TorahCement

TORAEY

EGP

267

9M09

Sep-09

206

2

9%

Kuwait

KuwaitCementCompany

KCEMKK

KWD

15

9M09

Sep-09

20

-26%

Kuwait

PortlandCementCompany

PCEMKK

KWD

14

9M09

Sep-09

-4

NM

UAE

NationalCement

NCCUH

AED

145

9M09

Sep-09

198

-27%

France

Lafarge

LGFP

EUR

774

9M09

Sep-09

1,558

-50%

Germany

Heidelberger*

HEIGR

EUR

419

9M09

Sep-09

1,985

-79%

Greece

TitanCement*

TITKGA

EUR

104

9M09

Sep-09

163

-36%

Italy

BuzziUnicem

BZUIM

EUR

117

9M09

Sep-09

295

-60%

Italy

Italcementi*

ITIM

EUR

104

9M09

Sep-09

198

-48%

Portugal

Cimpor*

CPRPL

EUR

178

9M09

Sep-09

150

1

8%

Switzerland

HolcimLtd.*

HOLNVX

CHF

1,577

9M09

Sep-09

2,107

-25%

Local Regional International

NetProfits

*Conso

lidated

^Standalone

Source:

Stockexchanges,

Bloomberg,andCompanyreports


19/21


20/21


21/21

CI CAPITAL RESEARCH

Mark Rorison | Group Director, Head of [email protected]

Amr Hussein Elalfy, CFA | Director

[email protected]

Mona Mansour | Director

[email protected]

CIBC

Amr Mostafa | Managing [email protected]

DYNAMIC SECURITIES

Ahmed Roushdy | Managing Director

[email protected]

DISCLAIMERThe information used to produce this market commentary is based on sources that CI Capital Research (CICR) believes to be reliable and accu-rate. This information has not been independently verified and may be condensed or incomplete. CICR does not make any guarantee, representa-tion or warranty and accepts no responsibility or liability to the accuracy and completeness of such information. Expression of opinion containedherein is based on certain assumptions and with the use of specific financial techniques that reflect the personal opinion of the authors of the com-mentary and is subject to change without notice. It is acknowledged that different assumptions can always be made and that there is a wide choiceof techniques that can be adopted each of which can lead to a different conclusion. Therefore, all that is stated herein is of an indicative and infor-mative nature as forward-looking statements, projections, and fair values quoted may not be realized. Accordingly, CICR does not take any re-

sponsibility for decisions made on the basis on the content of this commentary. This commentary is made for the sole use of CICRs customersand no part or excerpt of its content may be redistributed, reproduced or conveyed in any form, written or oral, to any third party without the priorwritten consent of CICR. This commentary does not constitute a solicitation or an offer to buy or sell securities.

Contact Details & Disclaimer

CI CAPITAL HOLDING

8, Nadi El-Seid Street, Third FloorDokki, Giza

Egypt

Reuters pages: COIW, COIX, COIY, andCOIZ

Bloomberg page: COIB

For more information,please contact CI Capital Research on +2

(02) 33 38 62 59,send e-mail to [email protected] visit our website at www.cich.com.eg

RATING SYSTEM

In February 2009, CI Capital Research (CICR) launched a new rating system to give analysts more freedom to be market responsive. This is tomake one element of our research more dynamic, namely the advertising of target prices and recommendations. What we did not change is ourassessment of the Long Term Fair Value (LTFV), nor have we stopped our detailed industry and company research. What we did is changing thetarget price to trade in the balance of where a share should trade and where we think it will trade.

LTFV: As before we continue to estimate a fundamental valuation, largely DCF and/or NAV based.

Target Price: The target price, which is not necessarily the LTFV, is where the analyst, given all (qualitative as well as financial) information avail-able, thinks the share price can get to within the next 3-12 months. This can be changed at any time on changing facts, and perceptions.

Recommendations: Our new rating system falls out from the total return relating to the share price performance to the target price, and includingany distributions as may not be included in the target price calculation. This is shown in the table below, and to be BUY must return over 19%, anarbitrary hurdle rate we think reasonable given prevailing interest rates and risks. (Please see table below.)

Recommendation structure: Change to Target Price

Strong BUY > 30% Strong Conviction

BUY > 20% < 30%

Hold > 10% < 20%

Underweight > 0% < 10%

SELL < 0%

091214 cicr cement bag no 5

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