falcom equity research report - falcom.com.sa · fahad al-jomaih analyst +966 1 2118499...

Fahad Al-JomaihAnalyst+966 1 [email protected]

FALCOMEQUITY RESEARCH REPORT

FALCOM Financial ServicesP.O. Box 884Riyadh 11421Kingdom of Saudi Arabia

Recommendation“Hold”

Fair PriceRO 1.754

Raysut Cement CompanyFebruary 24, 2010

Raysut Cement Company

Code (RCCI) PE (x) 13.9 Sector Industry

Close Price (RO) 1.743 PBV (x) 3.09 Index PE 12.7

52 week high (RO) 2.000 Div Yield (%) 6.2% Index PBV 2.8

52 week low (RO) 0.670 Outstanding Shares (million) 200 Index Div Yield 4.6%

YTD 2010 9.3% Market Cap (RO million) 325 Sector PE 15.7

Last year’s Volume (Mn) 52.5 % of MSM 30 7.8% Sector PBV 3.8

Beta 1.2 % of sector 45.6% Sector Div Yield 4.3%

Financials (RO '000) 2007 2008 2009E 2010E 2011E 2012E

Revenues 63,013 89,081 93,408 67,360 70,695 74,649

EBITDA 31,249 35,548 33,582 33,973 35,518 37,334

Net Profit 30,120 27,107 28,482 29,166 30,867 32,799

Total Assets 113,030 117,644 124,108 124,970 132,157 140,702

Total Liabilities 22,083 19,590 18,787 12,201 11,495 11,640

Shareholders' Equity 90,946 98,054 105,322 112,769 120,662 129,062

EPS (RO) 0.15 0.14 0.14 0.15 0.15 0.16

BVPS (RO) 3.83 3.56 3.31 3.09 2.89 2.70

Ratio Analysis

Profitability Ratios (%)

Net Profit Margin 48% 30% 30% 43% 44% 44%

EBIDTA Margin 50% 40% 36% 50% 50% 50%

Return on Avg. Equity 37% 29% 28% 27% 26% 26%

Return on Avg. Cap. Emp. 34% 27% 27% 26% 26% 26%

Growth (%)

Revenues 31% 41% 5% -28% 5% 6%

Net Income 46% -10% 5% 2% 6% 6%

Shareholders’ Equity 28% 8% 7% 7% 7% 7%

Total Assets 17% 4% 5% 1% 6% 6%

Liquidity/Turnover/Leverage Ratios

Current Ratio (x) 2.70 3.03 3.61 6.28 7.76 8.95

Total Asset Turnover (x) 0.56 0.76 0.75 0.54 0.53 0.53

Cash Operating Cycle (days) n.m 6 24 25 24 24

Total Debt/Total Equity 8% 5% 3% 1% 0% 0%

Valuation Ratios

PE (x) 11.64 12.88 12.24 11.95 11.29 10.63

PBV (x) 3.83 3.56 3.31 3.09 2.89 2.70

PEG (x) 0.93 1.71 1.67 1.70 1.63 1.54

Dividend Yield (%) 2.9% 5.7% 6.0% 6.2% 6.5% 6.9%

Earnings Yield (%) 8.6% 7.8% 8.2% 8.4% 8.9% 9.4%

EV/Revenues (x) 5.46 3.86 3.68 5.11 4.87 4.61

(Source: Raysut, MSM , Gulf base , FALCOM Research (Note: Stock Market Data and Prices are as of February 2010)

-

0.50

1.00

1.50

2.00

2.50

-

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00 MSM30 Sector RCCI

Source: Ministry of National Economy, Oman

Source: Central Bank of Oman, IMF

Omani Cement IndustryOm – Operating Variables

VVariable 2004 2005 2006 2007 2008 CAGR (%)

Total clinker capacities (Mn tons) 2.0 2.0 3.0 3.4 3.6 17%

Total cement capacities (Mn tons) 2.0 2.0 3.5 3.6 4.0 18%

Total cement production (Mn tons) 2.6 2.8 3.6 3.9 4.1 12%

Total cement sales (Mn tons) 2.7 3.0 3.8 4.1 4.9 16%

Total domestic consumption (Mn tons) 1.8 2.2 2.6 3.1 4.1 22%

Total revenue (RO Mn) 55.4 72.0 97.7 113.0 152.6 29%

Source: Company Financials, FALCOM Research

Company Financials, FALCOM Researchials, FALCO

FALCOM Research Raysut Cement Company 7

Initial Coverage Report February 24, 2010

Industry Mechanism Scenario and Outlook In an attempt to understand the future trend in Omani cement industry, we esti-mated future Omani demand for cement using industry variables (consumption, productions, etc.) and economic indicators (GDP growth, BCS growth, population growth, etc.)

For all our forecast period (2009E-2014E) we estimated that cement demand will tally with GDP growth rate. GDP was at a 4-year high reaching RO 809.7 million with per-capita consumption of 1.496 kg in 2008. IMF estimates that GDP growth rate will be slower at around 4% in 2009 compared with 7% and 8% in 2007 and 2008, respectively. We do not expect cement demand to grow at historical levels due to the effects of global economic slowdown on regional and local growth; rather we expect demand for cement to grow slightly at a rate of 4.07% and 3.79% in 2009 and 2010, respectively. Therefore, we estimate that in 2009 cement consumption will reach 4.31 Mtpa and 4.47 Mtpa in 2010. Cur-rently demand for cement and supply of cement is almost equal, however, we expect the gap to start widening by 2010 with Oman cement’s clinker capacity addition of 1.2 Mtpa.

!"#$%&$'()*+(),-,( !!"#$%$&'!()*+,&-+!.+/),%(

FALCOM RESEARCH Raysut Cement Company 7

Industry Mechanism Scenario and Outlook In an attempt to understand the future trend in Omani cement industry, we estimated future Omani demand for cement using industry variables (consumption, productions, etc.) and economic indicators (GDP growth, BCS growth, population growth, etc.)

For all our forecast period (2009E-2014E) we estimated that cement demand will tally with GDP growth rate. GDP was at a 4-year high reaching RO 809.7 million with per-capita consumption of 1.496 kg in 2008. IMF estimates that GDP growth rate will be slower at around 4% in 2009 compared with 7% and 8% in 2007 and 2008, respectively. We do not expect cement demand to grow at historical levels due to the effects of global economic slowdown on regional and local growth; rather we expect demand for cement to grow slightly at a rate of 4.07% and 3.79% in 2009 and 2010, respectively. Therefore, we estimate that in 2009 cement consumption will reach 4.31 Mtpa and 4.47 Mtpa in 2010. Currently demand for cement and supply of cement is almost equal, however, we expect the gap to start widening by 2010 with Oman cement’s clinker capacity addition of 1.2 Mtpa.


Prices hiked between 2005 and 2008 with growth in demand and shrinkage in cement surplus. Duopoly structure in the industry accompanied with similar cost structures caused cement prices in Oman to sell at relatively close levels. Prices grew at a CAGR of 11% over a four-year period (2004-2008) averaging RO 27.47 per ton in 2007 and RO 31.17 per ton in 2008, a 14% growth rate. Demand for

Excess supply in 2010 due to additional 1.2 Mtpa clinker capacities

!"#$%&$'()*+(),-,( !!"#$%$&'!()*+,&-+!.+/),%(

FALCOM RESEARCH Raysut Cement Company 7

Industry Mechanism Scenario and Outlook In an attempt to understand the future trend in Omani cement industry, we estimated future Omani demand for cement using industry variables (consumption, productions, etc.) and economic indicators (GDP growth, BCS growth, population growth, etc.)

For all our forecast period (2009E-2014E) we estimated that cement demand will tally with GDP growth rate. GDP was at a 4-year high reaching RO 809.7 million with per-capita consumption of 1.496 kg in 2008. IMF estimates that GDP growth rate will be slower at around 4% in 2009 compared with 7% and 8% in 2007 and 2008, respectively. We do not expect cement demand to grow at historical levels due to the effects of global economic slowdown on regional and local growth; rather we expect demand for cement to grow slightly at a rate of 4.07% and 3.79% in 2009 and 2010, respectively. Therefore, we estimate that in 2009 cement consumption will reach 4.31 Mtpa and 4.47 Mtpa in 2010. Currently demand for cement and supply of cement is almost equal, however, we expect the gap to start widening by 2010 with Oman cement’s clinker capacity addition of 1.2 Mtpa.


Prices hiked between 2005 and 2008 with growth in demand and shrinkage in cement surplus. Duopoly structure in the industry accompanied with similar cost structures caused cement prices in Oman to sell at relatively close levels. Prices grew at a CAGR of 11% over a four-year period (2004-2008) averaging RO 27.47 per ton in 2007 and RO 31.17 per ton in 2008, a 14% growth rate. Demand for



Source:: MEED, FALCOM Research

Sales and net profit

2004 2005 2006 2007 2008 CAGR (%)

Sales (Mn tons)

Raysut Cement 1.0 1.2 1.9 2.2 2.7 28%

Oman Cement 1.6 1.8 1.9 1.9 2.2 7%

Net profit (Mn RO)

Raysut Cement 7.0 10.0 20.7 30.1 27.1 40%

Oman Cement 13.2 18.1 20.6 17.6 12.5 -1%


Source: Company Financials

Source:: Company Financials, FALCOM Research Company Financials, FAL

Clinker and Cement Capacity

Company Financials, FALCOM Research

Disruptions inpproduction

lines


Source: Company Financials, FALCOM Researchials, FAL

Cement and Clinker Capacity Production

ll Full Capacitypacity


Source: Company Financials, FALCOM Researc

Source:ce: Company Financials, FALCOM Research Company Fina

Source: Company Financials, FALCOM

Company Financials, FALCOM Research

DuPont’s Decomposition of ROE

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

Net Margin (%) 47.8% 30.4% 30.5% 43.3% 43.7% 43.9% 44.3%

Asset Turnover (x) 0.56 0.76 0.75 0.54 0.53 0.53 0.51

Equity Multiplier (x) 1.24 1.20 1.18 1.11 1.10 1.09 1.09

ROE (%) 33.1% 27.6% 27.0% 25.9% 25.6% 25.4% 24.7%

ROA (%) 26.6% 23.0% 22.9% 23.3% 23.4% 23.3% 22.8%


Operating Variables (up to 3Q2009)

(Mtpa, except prices) 9M08 9M09 Growth (%)

Total Cement Production (Mtpa) 1.74 1.28 -26%

Local Sales (Mtpa) 1.52 1.76 16%

Export Sales (Mtpa) 0.57 0.56 -2%

Total Sales (Mtpa) 2.09 2.32 11%

Local Cement Prices (RO/ton) 31.27 31.18 -0.3

Export Cement Prices (RO/ton) 31.97 30.29 -5%

Average Prices (RO/ton) 31.46 30.97 -1.6


Summary Financials (up to 3Q2009)

(Mn RO) 9M08 9M09 Growth (%)

Imported Cement 9.8 17.9 83%

Local Revenue 47.6 55.0 16%

Export Revenue 18.1 16.8 -7%

Total Revenue 65.7 71.8 9%

Cost of Sales (excluding depreciation) 35.2 45.5 29%

EBITDA 30.2 26.0 -14%

EBT 29.5 27.5 -7%


Source: FALCOM Research * Figures are rounded except WACC

Sensitivity Analysis for the Fair Value (RO per share)

Perpetual Growth Rate

2.17% 3.17% 4.17% 5.17% 6.17%

9.92% 1.877 2.047 2.276 2.601 3.100

10.92% 1.669 1.793 1.954 2.171 2.479

11.92% 1.502 1.596 1.713 1.866 2.071

12.92% 1.366 1.438 1.527 1.638 1.783

WA

CC

13.92% 1.252 1.309 1.378 1.462 1.568

Source: FALCOM Research

Relative Valuation Method

Company P/E (x)

Kuwait Cement Company n.m

Kuwait Portland Cement 12.1

Hilal Cement n.m

Qatar Cement 8.4

Fujairah Cement 6.9

Gulf Cement n.m

Um Al Qaiwain Cement n.m

Ras Al Khaima Cement 7.3

Sharja Cement 7.5

Union Cement 21.1

National Cement 8.9

Arabian Cement 19.8

Yamama Cement 12.7

Saudi Cement 11.3

Qassim Cement 10.6

Southern Province Cement 13.5

Yanbu Cement 11.0

Eastern Province Cement 11.9

Tabuk Cement 13.9

Raysut Cement 13.9

Oman Cement 12.6

VALUATION TTM

Earnings (2010E, Mn RO) 29.2

Industry P/E (x) 12.7

Value per share 1.849


Weighted Average Valuation

Valuation Methodology Weight (%) Fair value (RO)

DCF 70% 1.713

Relative valuation 30% 1.849

Weighted average value per share 100% 1.754

Source: FALCOM Research

Trend in Dividends and Free Cash Flow (Mn RO, otherwise stated)

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

FCFF 9.9 16.1 31.2 30.3 29.5 30.5 29.4

Dividends 10.0 20.0 21.0 21.5 22.8 24.2 25.2

DPS (RO/share) 0.050 0.100 0.105 0.108 0.114 0.121 0.126

Dividend payout (%) 66.4% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8%

Dividend yield (%) 2.9% 5.7% 6.0% 6.2% 6.5% 6.9% 7.2%


falcom equity research report - falcom.com.sa · fahad al-jomaih analyst +966 1 2118499...

Documents