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MAY 2011

www.ncbc.com

Equity Research

Production

Farouk Miah

Tariq Al-Alaiwat

Faisal Al Azmeh

Martin K Arokiaraj

[email protected]

[email protected]

[email protected]

[email protected]

Saudi Factbook 2011

Gateway to the Kingdom

Please refer to last page for important disclaimer

SAUDI FACTBOOK - 2011 NCB CAPITAL

MAY 2011

2

Contents

EXECUTIVE SUMMARY 3

NCBC RECOMMENDATIONS 4

KSA - ECONOMY AND NATION 7Effective surplus mobilization by the government 8Resilient financial sector 9Outlook remains encouraging 13

SAUDI STOCK MARKET 14TASI performance was mixed in 2010 15Saudi market is the strongest in the region 17Continued strong earnings growth in 2011E 19

INDUSTRIES & COMPANIES 24Banking & Financials 26Petrochemicals 42Cement 61Retail 76Energy & Utilities 88Agriculture & Food 93Telecom 110Insurance 120Multi Investment 155Industrial Investment 165Building & Construction 181Real Estate 198Transport 209Media & Publishing 216Hotels & Tourism 222

The economy of Saudi Arabia maintains an enviable position. Low debt levels, an estimated budget surplus and gains from high oil prices should lead to strong GDP growth in 2011. With 25%+ earnings growth expected for the Saudi stock market in 2011, coupled with a discount to historical valuation levels, the strength of the economy translates into a positive outlook for the local stock market.

A positive economic outlook The Saudi Arabian economy remains one of the strongest in the region and one of the best positioned to weather any potential slowdown in the global recovery. Whilst many major economies continue to struggle post the financial crisis, the Saudi economy registered real GDP growth of 3.8% in 2010, up from 0.6% in 2009 and is expected to record growth of some 5.8% in 2011.

With limited exposure to the regional political instability and a low probability of any upheaval in Saudi Arabia itself, the government is positioned to benefit in the shot term from oil prices which remain stubbornly above $100/bbl, up more than 20% YoY. The gains in income for the government have been translated into a significant ramp-up in government spending with various measures announced in the wake of the regional instability which is likely to further support economic growth.

Strong earnings growth to support the market Aggregate market earnings grew by 34% in 2010 to SR77.6bn (USD21bn) led by the Petrochemical sector (up 180%). 2011E market earnings should grow by some 25%+, with the 24% YoY growth in 1Q11 supporting this outlook. With the TASI trading on 16x earnings versus a historical average of 20x, the market looks far from expensive. We believe the combination of an inexpensive valuation and steady earnings growth is setting the stage for the market to rise, with a testing of the 7,500-8,000 range possible over the coming 12 months

As of May 2011, the Saudi market is the best performer in the region, up 1.1%. It is the only market to be up YoY with the next best performer Dubai which is flat YoY. The worst performer in the region is Egypt which is down some 30% YoY. Despite good earnings growth across the region in 1Q11, the negative sentiment off the back of the regional instability has significantly increased the risk premiums and the returns investors require before entering the stock market. This is primarily behind the subdued performance YTD.

Upside present for the Saudi market We believe oil prices in the $95-100/bbl range for 2011, coupled with good earnings growth and an attractive valuation of the market provides compelling reasons for the Saudi market to rise towards 7,500-8,000 in the coming 12 months. However, we note that the risk exposure of the region is higher and with political tensions still present in the region, the market may experience volatility in the short term. Additionally, with summer and Ramadan coming in the next few months, the Saudi market may suffer from limited liquidity and news flow. However, with good earnings growth expected throughout the year, any volatility may provide opportune entry points into the market.

MAY 2011

EXECUTIVE SUMMARY

A strong economy supports a strong market

3

EXECUTIVE SUMMARY NCB CAPITAL

MAY 2011

NCBC Recommendations

Exhibit 1: Coverage stocks details Stock Current Rating PT (SR) Comments Al Rajhi (1120. SE)

Overweight 88.7 Strong presence in corporate as well as retail credit, and high NIMs translate into high net special commission income for the bank. This, coupled with optimum cost efficiency, allows for higher ROE. We expect Al Rajhi to continue to capitalize on its well established brand name and operating model.

Arab National (1080.SE)

Neutral 34.6 A focus on retail lending, increased credit to medium sized entities and a recovery in fee income is expected to improve ANB’s spreads and profitability ratios.

AlBilad(1140. SE)

Neutral 16.2 Bank Al Bilad is likely to experience strong earnings growth as cost efficiency improves and the loan book expands. However, we believe the positives are already priced in.

BJAZ(1020. SE)

Neutral 18.9 We expect BJAZ to continue its shift away from fees to special commission income, which should help diversify operating income. Troubled assets notwithstanding, we believe BJAZ has the potential to grow loans faster than the market and enhance profitability.

Banque Saudi Fransi (1050. SE)

Overweight 55.0 Above average loan growth, better spreads with a re-pricing of corporate loans and increasing retail focus should allow BSF to grow net special commission income. In addition, a low cost to income ratio and optimum utilization of funds should enhance profitability.

Riyad Bank (1010. SE)

Overweight 32.0 We expect RIBL to post a strong net income growth due to continued higher than average loan growth, and increasing utilization of the third largest branch network in KSA.

SABB(1060. SE)

Overweight 48.7 SABB’s operating income is expected to remain strong. Aided by solid net special commission income and fee income. We also expect the bank’s loans to grow in line with the industry, supported by a higher CAR.

SAIB(1030. SE)

Overweight 22.7 SAIB is transforming its operating model from volatile earning streams to stable core banking income. The retail focus and the low-cost fund base are expected to improve spreads, while improvements in loan book quality should enhance profitability.

Samba(1090. SE)

Overweight 60.2 Samba is likely to benefit from its strong position in corporate and investment banking, capitalizing on increased government investments. Although the bank loan growth has been conservative, we are bullish on Samba’s fundamentals and expect high a ROE, led by better margins and high operating efficiency.

Saudi Hollandi (1040. SE)

Overweight 35.0 SHB’s increased focus on retail credit should improve yields, but a higher share of time deposits could pressure spreads and net special commission income. Improved cost-to-income ratio and well covered NPLs are expected to boost profitability.

SABIC(2010.SE)

Overweight 127.3 Expanding capacity, rising prices and growing demand would drive 2011 performance. A wide product range, integrated production flow, low feedstock cost and a strong presence in emerging markets further support our optimism towards the stock.

Sipchem(2310.SE)

Overweight 27.6 Acetyls Complex (Phase II expansion) doubled Sipchem’s annual capacity to 2.2mn mt, thus boosting 2010 performance. Full-year benefits of the acetyl complex are expected to accelerate earnings in 2011. An earlier than expected commencement of Phase III expansion (currently set for 2014) is a potential catalyst.

NIC (Tasnee) (2060.SE)

Overweight 36.4 Tasnee is the only titanium pigment producer in the Middle East and is monetizing its low cost feedstock advantage through its petrochemicals business. Contribution from SEPC and improving petrochemical and titanium dioxide prices should drive 2011 earnings growth. Positive developments on the acrylic acid project also support our optimism on the stock.

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MAY 2011

Exhibit 1: Coverage stocks details Stock Current Rating PT (SR) Comments Sahara (2260.SE)

Overweight 23.7 Strong earnings from SEPC and Al Waha (which started in April 2011) are set to boost 2011 net income. Sahara’s strong project pipeline is also a key positive for the stock. Once all of Sahara's plants start operations, the company will have one of the most diverse product portfolios in the sector with a range of ethylene derivatives, super absorbent polymers and acrylates. However, timely start up of its projects is important.

Yansab (2290.SE)

Neutral 46.9 Yansab has started commercial operations in March 2010 and thus benefited from improving demand and petrochemical prices. Full benefits from the complex are expected to be realized in 2011. However, with lack of any near term growth catalyst, we believe current valuation offers limited upside.

SAFCO2020.SE

Overweight 208.0 The company's high margins, low capital expenditure requirement and short cash conversion cycle results in high free cash flows, hence, high dividends payments. We believe the expected increase in ammonia and urea prices that will help the company to grow bottom line is already priced in by the market

Saudi Kayan (2350.SE)

Neutral 18.2 Diversified product-mix and strong links with SABIC are positives. However, doubts over on-time start of production and lack of revenues until 2011 dim the near outlook. While 2013e will benefit from full year contribution from its plants, post 2013e net income is likely to contract as the current cycle nears its peak.

Petrochem(2002.SE)

Neutral 17.2 Expected to commence operations in 2012e and will be entering into the Ethylene and Propylene derivatives arena through a JV with Chevron Phillips. However there will be likely no revenue until 2012e and net losses in 2010e-2011e.

Yamama Cement (3020.SE)

Overweight 63.0 Strong demand in Riyadh coupled with highest capacity in the central region a positive. Competition and deterioration in operational performance a risk. Ability to get a higher share in new projects coupled with rationalization of cost structure to boost top and bottom-line.

Eastern Cement (3080.SE)

Neutral 49.3 Shifting focus to domestic market due to limitation on exports. Remains focused on Eastern region for sales, however lack of major projects limits demand upside. Limited ability to meet incremental demand another concern.

Yanbu Cement (3060.SE)

Neutral 48.0 Western region fundamentals remain strong, volatility in project progress leads to top-line risk in the near term. Increase in the pace of implementation of planned projects to prove near-term catalyst. Lack of reliability in old lines as concern on the stock.

Saudi Cement (3030.SE)

Neutral 55.1 High excess capacity and stock levels will enable the company to easily meet any incremental growth in demand. Access to the railway link between the eastern region and Riyadh a key positive. Location in the east where local demand is limited is a key drawback for the stock.

Southern Cement (3050.SE)

Neutral 65.2 Well positioned for Jizan Economic City in the South. New facility in 2012 near Makkah should also help. However competition is fierce and new capacities will take some time to complete.

Qassim Cement(3040.SE)

Neutral 66.7 Lowest cost cement producer in the country with very low inventory levels. Lack of capacity expansion plans could limit growth.

Jarir(4190.SE)

Overweight 162.0 Ongoing expansion in stores, coupled with increasing disposable incomes and likelihood of benefiting from the recent government stimulus packages are key positives for Jarir. Low liquidity, margin pressures and declining prices of laptops are the key concerns.

Al-Hokair(4240.SE)

Overweight 45.1 After rapid expansion through FY07, Al Hokair underwent restructuring efforts tostreamline its stores in FY08-FY09. Efficiency and profitability have improved and the company looks set to benefit from further growth. From 895 stores at the end of FY10, we estimate 1,242 stores by the end of FY16e. Controlling costs as the company expands is the key issue on the stock.

Al-Othaim(4001.SE)

Overweight 103.0 Number 2 food retailer in the KSA, well positioned to increase share as market shifts to organized retailing. Entrance of foreign players and rising COGS are key risks. Store expansion is key catalyst for the stock.

Saudi Electricity (5110.SE)

Overweight 18.5 The new tariff structure on the industrial, commercial and government customers came in effect on 1 July 2010. This had a significant impact on profitability which we believe the market has already priced into the stock. The key risks going forward include the rising cost of purchased energy from its independent producers as well as the increase in depreciation expense.

Savola(2050.SE)

Neutral 31.5 Long term fundamentals remain solid although short term margins concerns are the key risk. Exposure to high sugar and edible oil prices , combined with limited ability to pass on the price increases to end consumers is leading to margin pressure in these businesses. Continued opening of new retail stores is limiting margin gains in the retail business.

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MAY 2011

Exhibit 1: Coverage stocks details Stock Current Rating PT (SR) Comments Almarai(2280.SE)

Neutral 106.0 Geographic expansion and the Infant Milk venture key drivers for the stock. With start of production at the new bakery and infant milk plants, integration of HADCO and JV projects with PepsiCo, the coming 12-18 months are set to be potentially lucrative. However the 6-12 month outlook is much more muted with high food costs putting pressure on margins and limiting profitability growth.

Saudi Telecom Co. (7010.SE)

Overweight 47.1 Dominance in DSL, its scale of business and its relatively higher and more secure ARPU levels provide a strong platform for the stock. Limited information available on its international business, as well the pace at which it continues to lose market share to competitors are key concerns.

Mobily (7020.SE)

Overweight 66.9 Dominance in wireless internet access, increased leverage of its infrastructure resources leading to lower costs and its strong management/execution capabilities are key positives. Declining ARPU levels, its limited fixed line services as well as acquisition costs of new customers are concerns surrounding the stock.

Zain KSA(7030.SE)

Neutral 7.0 Attractive and innovative packages, increasing market share and growing mobile broadband business has helped it gain market share. However, its high debt levels and the financing of this, ownership concerns due to bids for the Zain Kuwiat stake in Zain KSA and the extent of its continued losses set against the SR22bn it paid for its license are key risks on the stock.

Saudi Steel Pipes (1320.SE)

Overweight 28.3 Increasing demand in medium size pipes, and the start of a large diameter pipe (which SSP owns 33%) in 2012 will drive robust revenue and earnings growth. With the significant growth potential, high dividends yield and clean balance sheet; we think the market is not pricing in the expected performance of SSP over the next 12 months.

Ma'aden 1211.SE

Neutral 24.3 Concerns regarding long term reserves exists despite the higher gold price. Phosphate unit is the main value driver for Maaden and is expected to start in June 2011. High Zakat expense and growing debt levels are a drag on the company's value in the short and medium term. The aluminum project may not be value accretive. We do not include the aluminum project in our valuation until we have further clarity

Dar Al Arkan (4300.SE)

Overweight 11.2 With the highest ROE in the sector and rising land prices in KSA, we believe Dar Al Arkan in unjustifiably trading at a discount to the sector. We believe the liquidity concerns are manageable, meaning the large valuation discount is likely to decline.

Taiba (4090.SE)

Overweight 18.8 With a portfolio of prime assets, expected revenue growth and improving margins, we believe Taiba’s fundamentals make the stock an attractive play in the hospitality sector in the second holiest city in Islam.

Al-Akaria(4020.SE)

Neutral 26.5 Good earning visibility, future growth potential and a large land bank are positives that are partially offset by low ROE and risk of rising excess supply offices in Riyadh.

Source: NCBC Research

6

2010 was characterized by underlying weakness in advanced economies that led to their slow pace of recovery. While the US economy suffered from slow growth and a stubbornly high unemployment rate, the Euro-zone faced a severe sovereign debt crisis that forced many economies in the region to adopt early austerity measures. However, the Saudi economy grew strongly, largely off the back of high oil prices and is poised to register further strong growth in 2011.High government spending has been the main driver of growth in the non-oil economy. The Saudi government in the last three budgets has focused on increasing capital expenditures to the tune of SAR741bn in infrastructure projects to spur growth in the economy as the private sector activity continues to remain weak given the slow growth in credit since the end of 2008. In 2010, the annual growth of banks’ credit to the private sector was around 5%.

Exhibit 2: Real GDP growth CAGR (08 – 12E) Exhibit 3: Annual % change in real GDP

% %

0

2

4

6

8

10

12

UK Japan Russia US KSA Brazil India China

-8

-6

-4

-2

0

2

4

6

8

World Output US Japan UK KSA

2008 2009 2010 2011e

Source: IMF Source: IMF

The country’s current account surplus rebounded to SAR261bn in 2010 from an eight-year low of SAR85bn in 2009. Meanwhile, higher international prices of many commodities were the primary cause of higher inflation in 2010, which averaged around 5% for the year. The rise in food price inflation was particularly sharp from 1% year-on-year in December 2009 to 8.5% year-on-year in November 2010. Given the strong fundamentals, we expect the private sector to steadily regain confidence and Saudi banks to gradually resume lending at pre-crisis levels steering the kingdom’s road to recovery.

Off the back of the regional instability and the subsequent gain in oil prices to over $100/bbl (WTI), expectations of oil prices remaining higher than in 2010 will help the nation to shore up its foreign reserves and fund its expenditure plans. Although a downside risk to high oil prices is the derailing of the recovery in developed countries, we still expect oil to average in the range of USD95-100/bbl in 2011.Thus, a combination of high oil prices and generous store of foreign reserves will enable the government to achieve its budgeted expenditure.

MAY 2011

ECONOMY AND NATION

The Saudi economy bounces back

7

ECONOMY AND NATION NCB CAPITAL

MAY 2011

Exhibit 4: Saudi Arabia macroeconomic indicators Indicator 2007 2008 2009 2010 2011FReal GDP (%) 2.0 4.2 0.6 3.8 5.8 Hydrocarbon (%) (1.2) 1.3 (2.0) 0.6 1.6 Non-hydrocarbon (%) 3.2 3.0 2.6 3.2 4.2Nominal GDP (%) 8.0 23.8 (21.7) 16.6 24.0Inflation (%) 4.1 9.9 5.1 5.4 5.2Current account balance (% of GDP) 24.2 28.0 6.0 16.0 24.0Fiscal balance (% of GDP) 12.2 32.5 (6.0) 6.7 8.0

Source: IMF, SAMA

Effective surplus mobilization by governmentThe Saudi government has demonstrated great commitment to the decisions of the G20 by maintaining an expansionary fiscal policy stance. In 2010, actual expenditures of SAR626.5 bn were nearly 16% above the budgeted SAR540bn, and also 14% higher than the actual expenditure of SAR550bn in 2009. Simultaneously, the Saudi Arabian Monetary Agency maintained a stable monetary policy focused on supporting liquidity and lowering the cost of finance for borrowers by reducing its benchmark interest rate (reverse repo) from 1.5% to 0.25%. During 2010, the bench mark remained at similar levels to those of 2009.

Despite adopting an expansionary fiscal policy to drive the economic recovery since the financial crisis of 2008, Saudi Arabia’s budget returned to a surplus of SAR108.5bn in 2010 (around 6.7% of GDP). This was primarily achieved on the back of a pick up in oil prices and higher crude oil production. At the same time, the Kingdom managed to reduce overall public debt to 10.2% of GDP, down from 103% in 1999.Thus, even as major global economies are seen grappling with the issue of rising debt-to-GDP ratio, Saudi Arabia enjoys a comfortable fiscal situation with a steadily falling debt-to-GDP ratio. The 2011 budget continues to focus on mobilizing capital to support the growth in the non- oil sector by allocating SAR256bn or 44.3% of the total expenditures on subsequent phases of ongoing infrastructure projects. The budget estimates revenues at SAR540bn and expenditures at SAR580bn, projecting a deficit of SAR40bn. Since the budget is generally based on a conservative estimate of oil prices, we expect the budget to register a surplus in 2011.

Exhibit 5: Budget balance and public debt

SR bn

-40-20

020406080

100120140160180

2008 2009 2010 2011 2012E-10-50510152025303540

(%)

Budget balance mil SAR Public debt mil SARBudget balance (% of GDP, RHS) Public debt (% of GDP, RHS)

Source: EIU

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MAY 2011

Resilient financial sector Banking sector fundamentals remain sound Saudi banks have exhibited healthy liquidity conditions and are hence poised to support stronger loan appetite in 2011.They have among the lowest loan-to-deposit ratios in the Gulf and are minimally exposed to real estate. In 2010, the domestic banks had strong financial ratios, with NPLs at less than 3% of gross loans, coverage ratio at 116%, return on equity of 13.5% and return on assets of 2%. These factors, combined with the global economic rebound, are likely to accelerate growth in the Saudi banking sector, in our view.

SAMA has implemented several measures to successfully ensure easy access to credit by establishing specialized credit development institutions and state financing program. However, the pace of bank loan growth, particularly to the private sector, made slow progress of 5% in 2010. Although the credit growth is picking up gradually for the negative levels in 2009, we do not expect SAMA to increase interest rates in 2011 on account of the expansionary monetary policy stance in the US. We anticipate a gradual revival in consumer confidence and private investments.

Exhibit 6: Saudi Banking Sector still has room to grow

2011 March figures in %

0

20

40

60

80

100

120

UAE Kuwait Oman Qatar KSA Bahrain

Credit-to-GDP Customer deposit-to-GDP

Source: Central Banks of GCC countries, IMF, NCBC Research

Revival in debt and capital marketsThe Saudi sukuk market has grown considerably in recent years and has the potential to become a major source of funding for the corporate sector. After a brief pause in 2009, the sukuk market bounced back last year with six new issuances worth over USD4.1bn. In comparison, there were four new issues worth USD3.1bn in 2009. The largest issue in 2010 came from the Power & Utilities sector with the Saudi Electricity Company (SEC) raising USD1.9bn. This was SEC’s third offering after the company raised USD3.3bn from two issues in 2009. The state-owned Saudi Aramco raised USD1.0bn for its Jubail Refinery project, while the real estate company Dar Al-Arkan raised USD450mn during the year. Borrowers from the Gulf are expected to sell as much as USD8.2bn of sukuk in 2011, the most since 2007, encouraged by low yields and accelerating economic growth. Among companies planning to issue sukuk are Albaraka Banking Group BSC, Bahrain’s biggest publicly traded Islamic lender, which may sell as much as USD500mn, and Saudi International Petrochemical Co. which may offer as much as SAR2bn (USD533mn) this quarter.

The Saudi Arabian capital market also exhibited an increase in activity in 2010 with the benchmark Tadawul All Shares Index (TASI) index finishing 2010 on a strong note. It touched 6620.75 points by the end of the year, 8.15% higher than the corresponding period in 2009. Market capitalisation also rose by 10.86%over the same period, reaching SAR1.33tn (USD354.78bn). While the total number of

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MAY 2011

shares traded slipped by 42.2% in 2010, the value of shares traded fell 39.9% to SAR1.26tn.We expect 2011 to be a better year for the bourse, with market confidence likely to improve on the back of anticipated strong performances by companies in the industrial, petrochemicals, banking and retail sectors.

Government’s proactive measures to facilitate growth The government’s prime focus over the years has been to boost infrastructure spending in order to foster a strong, diversified economy. Government support has became more pronounced over the past couple of years as the government has had to provide stimulus measures in the face of falling oil prices while at the same time continuing with its long-term diversification agenda. In fact, figures available from the budget for 2011 indicate that the government has allocated a total of SAR741bn since 2009 on infrastructure projects. Apart from budgetary outlays, continued commitment to the five economic cities also reflects the government’s objective to stimulate sustainable industrial and employment growth in the economy.

The budget for 2011 continues on the government’s overall growth agenda with the budgeted expenditure set to increase by 7% to SAR580bn. Capital expenditure is set to touch SAR256bn with the amount directed to new projects as well as new phases of existing projects. Like previous budgets, human resource development continues to be a focus area with education set to take 28% of the total budgeted amount for 2011. Spending on social welfare is set to increase as well with the budgeted amount for ‘health and social affairs’ increased by 12% to SAR68.7bn. Expenditure on water, agriculture and related infrastructure is also set to rise by 10% to SAR50.8bn.

On the revenues front, while the budget projects a deficit of SAR40bn, this is not likely to be the case on account of the government’s conservative estimate of oil prices while calculating oil revenues, as well as the recent increase in oil prices which will support income growth for the government. In 2010, for example, while the budget envisioned a deficit of SAR70bn, actual figures for the year reflect a strong surplus of SAR108.5bn. With economic growth set to continue and energy markets not expected to destabilize sharply this year, IMF projects fiscal balance to be in surplus at 12.8% of GDP.

Exhibit 7: Oil and non-oil GDP contribution (latest figures unavailable)

Exhibit 8: Real non-oil GDP breakup (latest figures unavailable)

% %

0

20

40

60

80

100

120

2005 2006 2007 2008 2009Oil Non-oil

0%

20%

40%

60%

80%

100%

2005 2006 2007 2008 2009

Agriculture Electricity, Gas & Water Construction

Manufacturing (non-oil) Private Services Government Services

Source: SAMA, NCBC Research Source: SAMA, NCBC Research

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MAY 2011

However, the Kingdom’s economy remains exposed to challenges Strong growth in the non-oil sector has been instrumental in providing support to the overall economy for the past couple of years. While this trend is encouraging, the country’s economy nevertheless is still reliant on crude oil exports. This exposes the economy to the vagaries of the global energy market. Oil and related sectors continue to contribute around 85% of total revenue of the economy.

Exhibit 9: Contribution of oil and non-oil sectors to total revenues (latest figures unavailable)

%

0%10%20%30%40%50%60%70%80%90%

100%

2000 2002 2005 2008 2009Oil revenues Other revenues

Source: SAMA, NCBC Research

Off the back of the regional political instability WTI oil price has averaged $95/bbl so far in 2011, 23% above the average of 2010. However if prices remain high or continue to increase, this could reduce demand and combined with the sovereign debt issues in the Eurozone and monetary tightening in Asia could restrain global growth. This could in turn bring oil prices down and slow down the global recovery. Consequently, oil prices will continue to remain sensitive to investor sentiment and the state of the global economy in 2011, highlighting the risk of being overly exposed to this single commodity.

Regional issues have an impact on sentiment While Saudi Arabia’s economy has been gathering strength, risks to it could arise both from crises in faraway economies like the Eurozone as well as instability in its own region. With the political upheaval in the middle-east in the past three months, the Kingdom faces a far greater risk from increasing civil strife in neighbouring countries such as Yemen, Bahrain, Egypt and Tunisia.

Although the risk of this political upheaval spreading to Saudi Arabia is extremely low, the regional unrest has certainly had a negative impact on the regions growth prospects for 2011, as well as negatively impacting some Saudi listed companies with investments in these countries. However, what maybe more damaging is the impact on investors’ sentiment; particularly international investors which require a significantly higher return in order to be compensated for the perceived higher risk for all economies in the region.

Similar to other economies in the MENA region, the Saudi Arabian government faces the challenge of providing adequate employment opportunities to a young and growing population at home. At the same time, the government needs to take the lead in promoting education and technical knowledge in order for its citizens to exploit emerging job opportunities at home. Encouragingly, the government has been aware of its role in promoting human resources and has been moving fast in this regard through large investments in education and training.

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MAY 2011

Bank credit remained subdued Despite rising oil prices and strong government support, growth in credit offered to the private sector remains subdued. According to preliminary estimates, lending to the private sector increased by around 5% over 2010, significantly below the average year-on-year growth of 27% between 2004 and 2008. The fall in credit growth was partly a result of the reluctance of banks to start lending, with many lenders preferring to build up their capital adequacy levels to protect against possible fall-out from non-performing loans than offer credit. However, we expect lending to pick up in 2011 as business confidence increases and growth in the economy continues.

Exhibit 10: Credit to private and public sector

(SR bn)

0100200300400500600700800900

1Q-08 2Q-08 3Q-08 4Q-08 1Q-09 2Q-09 3Q-09 4Q-09 1Q-10 2Q-10 3Q-10 4Q-10 1Q-11

Private Sector (SAR bn) Public Sector (SAR bn)


Inflation remains a key concern for policy makers Inflation has emerged as an area of concern for the Saudi Arabian economy, with food prices in particular driving headline inflation higher. High food price inflation is not something new for Saudi Arabia; the Kingdom suffered from high global food prices in mid-2008 with headline inflation crossing double digits. Rising food prices in the international market since the middle of 2010 has driven higher inflation in the Kingdom once again with the Consumer Price Index (CPI) rising to 4.7% in March 2011. YoY food price inflation was particularly sharp, rising from 1% in December 2009 to 4.9% in March 2011. Disruption to global food supplies due to natural disasters (as in Australia in January 2011) and export restrictions (like in India) could make the problem worse in the short-term, particularly for an import dependant country like Saudi Arabia.

Exhibit 11: KSA CPI, housing and food inflation

%

-5

0

5

10

15

20

25

Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11General Index Food Housing


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MAY 2011

While supply-side pressures are likely to keep inflation in the range of 5%-5.5% in 2011, monetary policy is likely to remain loose. Given the Saudi Riyal’s peg to the US Dollar, interest rates in Saudi Arabia are set to remain low, given that the US Fed is not expected to raise rates in the near future. High unemployment in the US and a threat of deflationary pressures have forced the Fed to keep monetary policy loose, including taking unorthodox measures like a second round of quantitative easing worth USD600bn. YTD, the headline inflation figure in Saudi Arabia has remained steady at around 5%, although risks that this could move higher remain present.

Outlook remains encouraging Domestic fundamentals are strong Saudi Arabia showed strong resilience in the global economic downturn of 2008-09. A key reason for this has been the government’s aggressive support of the economy, especially the non-oil sector. Without this, a 0.6% growth in 2009 would not have been possible, especially in the spectre of weak energy markets and a global economic downturn. In 2010, the economy has expanded by 3.7%, with non-oil sector growth at 4.3%. Government services made a robust contribution to economic growth, with the sector growing by 5.9%.

Apart from the continued government support in 2010, a revitalised energy market also helped with oil export revenues rising due to higher prices as well as production. Consequently, the current account surplus is estimated to have more than tripled to USD70bn in 2010. Rising oil revenues have also boosted the government’s balance sheet with the Kingdom posting a budget surplus of SAR108.5bn in 2010. This is in sharp contrast to the SAR70bn deficit projected in the budget for the year. Meanwhile, strong government support to the economy is likely to continue into 2011, with the average WTI oil price of $102 YTD continuing to help, though certain stimulus measures are expected to be toned down, especially due to a reviving economy. With healthy growth expected in both oil and non-oil sectors, real GDP is on course to expand by more than 4% this year.

Energy markets set to maintain YoY gains The steady increase in oil prices since mid-2009 has been encouraging for the Saudi Arabian economy, given the large share of hydrocarbons (40%) in its GDP. Energy markets strengthened significantly during 2009 and 2010 and took another move upwards in 1Q11 due to the regional instability. With WTI averaging $95/bbl in 2011 so far, 23% above the 2010 average, we believe Saudi Arabia will continue to benefit from the current pricing environment. We expect prices to average in the $95-100/bbl range for 2011, 26% above the average of 2010. However, the risk for Saudi Arabia is that prices remain at the current $110/bbl level, or worse still, continue to increase, leading to lower demand and a subsequent slump in prices.

The International Energy Agency (IEA) expects global oil demand to increase by as much as 1.2 million barrels per day (mb/d) in 2011, despite risks to the global economic growth from the debt-crisis in the Eurozone and inflation-induced monetary policy tightening in Asia. .

Increasing oil revenues will lend greater strength to the government to boost diversification efforts through investment in infrastructure and human resource development. It also enables the government to intervene strongly in the event of any future shock to the economy.

13

Despite the recent volatility of the index due to the political turmoil in the region, the TASI was able to rebound to its previous levels above the 6,500 range. We believe this highlights the strong fundamentals of the Saudi stock market. With market valuation levels looking relatively inexpensive and earnings growth of 25%+ expected in 2011, we believe the TASI could test the 7,500 to 8,000 level over the coming 12 months. So far in 2011 (to May), the Saudi market is the best performer in the region, up 1.1%. It is the only market to be up YoY with the next best performer Dubai which is flat YoY. The worst performer in the region is Egypt which is down some 30% YoY. Despite good earnings growth across the region in 1Q11, the negative sentiment off the back of the regional instability has significantly increased the risk premiums and the returns investors require before entering the stock market. This is primarily behind the subdued performance YTD.

Exhibit 12: TASI - flat performance over the last 18 months

TASI Index levels for 2009 until 2011 YTD

3,000

3,500

4,000

4,500

5,000

5,500

6,0006,500

7,0007,500

8,000

31-Dec-08 31-M ar-09 30-Jun-09 30-Sep-09 31-Dec-09 31-M ar-10 30-Jun-10 30-Sep-10 31-Dec-10 31-M ar-11

25 Nov 2009: 32% rise YTD, however Dubai World debt standstill announcement drives the market down for th t f th

9 March 2009: Down 14% for the year and down 80% from its peak of Feb. 2006

June 2009: Saad/Al Gosaibi troubles come to light, impacting the Saudi as well as regional markets

TASI ends 2009 up 27.5%, but down 4% from its peak in November

26 April 2010: 13% rise YTD, but worries on the Euro/Greece/etc. reverses the trend

Rally in 4Q10 leads the TASI to end up 8.2% for 2010

Political instability in the Middle-East leads to 19% drop and then rally back to 6,500 level

Source: Bloomberg, NCBC Research

The Saudi market is looking even more compelling Within the GCC and the region, we highlight the Saudi market as the most interesting based on a number of factors. Saudi Arabia has the largest and most diverse economy. In addition, the Saudi stock market is the largest in market capitalization terms (USD350bn) and liquidity (daily turnover of USD1.2bn YTD).

Aggregate market earnings grew 34% in 2010 to SR77.6bn (USD21bn) led by the Petrochemical sector (up 180%). 2011E market earnings should grow a further 25-30%. With the TASI trading on 16x earnings versus a historical average of 20x, the market looks far from expensive. We believe the combination of an inexpensive valuation and steady earnings growth is setting the stage for the market to rise, with a testing of the 7,500-8,000 range possible over the next year.

We acknowledge that substantial risks exist. Along with the political uncertainty in the region, rising inflation, especially food inflation, could increase the political and economic challenges for many emerging markets. Oil remains stubbornly above the USD100/bbl level, which normally would be positive for the Saudi economy and markets given the high exposure to petrochemicals. However, if it

MAY 2011

KSA STOCK MARKET

Saudi market remains attractive

14

KSA STOCK MARKET NCB CAPITAL

MAY 2011

remains significantly ahead of USD100/bbl, we believe global growth could slow, potentially reducing demand for Saudi exports.

Exhibit 13: 2010 GCC market performance Exhibit 14: 2011 YTD GCC market performance

2010 performance of GCC markets 2011 YTD performance of GCC markets

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Dubai Bahrain Abu Dhabi Kuwait Oman TASI Qatar

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

Kuwait Oman Bahrain Qatar Dubai Abu Dhabi TASI

Source:Bloomberg, NCBC Research Source: Bloomberg, NCBC Research 2011 YTD to 04 May

TASI performance was mixed in 2010 From a global perspective, the TASI performance was mixed in 2010 against the larger developed markets in 2010, whilst being on the low end when compared to other emerging markets. So far in 2011, the Saudi market is showing its resilience as it is the only market which is up in the region, although the region is under performing most of the other emerging and developed markets due to the regional instability.

Exhibit 15: 2010 performance vs global peers Exhibit 16: 2011 YTD performance vs global peers

2010 global market performance 2011 YTD global market performance

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Sha

ngha

i

Nik

kei

225

Bra

zil

Eur

oTop

100

Han

gS

eng

TAS

I

Dow

Jone

s

Nas

daq

-10%-8%-6%-4%-2%0%2%4%6%8%

10%12%

Bra

zil

Nik

kei

225

TAS

I

Han

gS

eng

Eur

oTop

100

Sha

ngha

i

Nas

daq

Dow

Jone

s

Source: Bloomberg, NCBC Research Source: Bloomberg, NCBC Research 2011 YTD to 04 May

Sector performance: Petrochemicals, Cement and Retail strong The company and sector make-up of the TASI offers some explanations of the performance in 2010 as well as the resilience so far in 2011. The Petrochemical sector composes about 30% of the TASI’s free float weighted market capitalization. While this sector is fully exposed to the global economy, most of the remaining sectors are more domestically focused, including the larger sectors such as Banking (32% free float weight), Telecoms (7% free float weight), Agriculture/Food (5% free float weight), and Cement (6% free float weight). Most companies in these sectors witnessed a bottoming of earnings in early 2009 and have been showing a recovery since. However, due to their domestic focus, these companies are relatively resilient to ongoing global

15


MAY 2011

economic issues and are showing steady earnings progression, which is supporting their stock levels.

Exhibit 17: TASI performance YTD

Units as stated

Index No. of

Average daily turnover Mkt cap Free float Change (%) Valuation (%)

Index value companies (SR mn) (SR mn) Wt (%) YTD P/BV P/E TTMTASI 6,623.6 145 5,497 1,332,982 100.0 0.0 2.0 16.6Banking & Financial 16,079.3 11 239 339,273 32.0 (3.8) 2.0 15.5Petrochemicals 6,836.1 14 1,164 510,980 30.0 4.9 2.7 17.4Cement 1,726.4 4 108 119,035 7.0 (10.1) 1.8 10.5Retail 4,332.7 9 272 45,092 6.1 10.4 2.4 12.4Energy & Utilities 2,719.6 8 157 65,561 5.5 (1.4) 1.5 21.8Agri & Food 5,077.5 14 575 46,318 4.8 (9.7) 2.6 17.5Telecom/IT 5,721.7 13 607 43,294 3.6 12.9 1.6 30.9Insurance 3,361.9 14 470 19,787 2.5 1.2 1.8 29.7Multi Investment 5,336.3 9 313 17,417 2.3 8.4 3.6 15.3Industrial Investment 4,912.2 2 52 58,526 2.0 (2.1) 1.1 24.3Construction 964.2 31 589 19,340 1.7 5.8 2.4 22.9Real Estate 2,462.1 7 601 36,639 1.0 7.8 1.1 47.4Transport 2,788.5 4 123 6,655 0.8 (12.8) 0.9 12.1Media/Publishing 1,529.9 3 77 2,810 0.3 4.8 1.2 20.7Hotels/Tourism 5,317.4 2 150 2,256 0.2 8.9 1.3 18.1

Source: Zawya, Reuters, NCBC Research Prices as of 08 May 2011

We note that YTD in 2011, the strongest performing sectors are Cement, Retail and then Petrochemicals. Both Cement and Retail are highly defensive and largely focused on domestic consumer demand, with the high dividends in Cement also aiding its performance. On the other hand, although the Petrochemical sector is much more global in exposure, it has performed strongly, largely off the back of high petrochemical prices. The strongest sector in the TASI in 2011 to date is the Industrial Investment sector, however this is due to the performance of Ma’aden alone, which comprises 1.5% of the TASI free-float weighted market capitalization, and which has risen 25% YTD off the back of higher fertilizer prices.

Exhibit 18: 2010 sector performance

Exhibit 19: 2011 YTD sector performance

2010 sector performance

2011 YTD sector performance

-25%-20%-15%-10%-5%0%5%

10%15%20%25%

Med

ia/P

ublis

hing

Hot

els/

Tour

ism

Insu

ranc

e

Rea

l Est

ate

Con

stru

ctio

n

Mul

ti-in

vest

men

t

Tran

spor

t

Cem

ent

Ban

king

/Fin

anci

al

Tele

com

/IT

Indu

stria

l Inv

TAS

I

Agr

i/Foo

d

Ret

ail

Ener

gy/U

tiliti

es

Pet

roch

emic

als

-15%-10%-5%0%5%

10%15%

Tran

spor

t

Tele

com

/IT

Agr

i/Foo

d

Ban

king

/Fin

anci

al

Rea

l Est

ate

Ene

rgy/

Util

ities

Con

stru

ctio

n

Med

ia/P

ublis

hing

TAS

I

Hot

els/

Tour

ism

Insu

ranc

e

Pet

roch

emic

als

Mul

ti-in

vest

men

t

Ret

ail

Cem

ent

Indu

stria

l Inv


Source: Bloomberg, NCBC Research 2011 YTD to 04 May

16


MAY 2011

Saudi market is the strongest in the region

Within the GCC region, and indeed in the entire Middle East region, the Saudi stock market is the largest in market capitalization, turnover and in number of highly liquid stocks. The market is mainly retail driven, with 90% of turnover from retail investors, however given its high liquidity and plethora of blue chip companies, there has been a steady shift towards institutional investors. By December 2010, 4.8% of trading on the market was Institutional based (either Mutual Funds or Swap trades), versus 2.8% a year earlier.

Nearly 50% of the GCC market capitalization … The Saudi stock market makes up about 48% of the market capitalization of the GCC region (43% of the GCC plus Egypt), the largest by far and followed by Kuwait and Qatar at 16% each. This is up from 43% during 2008 when the regional markets peaked just before the global financial crisis impacted many of the region’s real estate and financial markets. The Saudi economy fared relatively well during the financial crisis, benefiting from large scale government fiscal stimulus, the results of which can be seen in the resilience of the stock market.

Exhibit 20: GCC market capitalization: Saudi makes up nearly 50% of the region

In USD bn

0

200

400

600

800

1000

1200

Jan-

07

Apr

-07

Jul-0

7

Oct

-07

Jan-

08

Mar

-08

Jun-

08

Sep

-08

Dec

-08

Mar

-09

Jun-

09

Aug

-09

Nov

-09

Feb-

10

May

-10

Aug

-10

Oct

-10

Jan-

11

Saudi Dubai Abu Dhabi Kuwait Qatar Oman Bahrain

Source: NCBC Research, Reuters

…and an even stronger 70% of GCC turnover While the Saudi market makes up nearly 50% of the total size of the GCC stock markets, we believe even more importantly, the TASI makes up about 70% of GCC market turnover. In fact, the TASI has increased its lead in turnover, growing from about 60% of regional turnover in 2008 to over 70% so far in 2011. We believe this is significant as the Saudi market is one of the few in the region which maintains consistently strong daily turnover levels (an average of SAR3bn or USD810mn in daily turnover in 2010 and over USD900mn so far in 2011). Turnover levels in many of the other regional markets have suffered dramatically since the financial crisis and we believe this has encouraged some investors in the other markets to shift trading to the Saudi market in order to benefit from the higher liquidity levels.

17


MAY 2011

Exhibit 21: GCC turnover: The TASI makes up 70% of GCC turnover

% of GCC turnover

0%10%20%30%40%50%60%70%80%90%

100%

Q10

7

Q20

7

Q30

7

Q40

7

Q10

8

Q20

8

Q30

8

Q40

8

Q10

9

Q20

9

Q30

9

Q40

9

1Q10

2Q10

3Q10

4Q10

1Q11

Saudi Kuwait Abu Dhabi Dubai Qatar Oman Bahrain


The most liquid and widest breadth turnover The Saudi market enjoys its higher relative turnover versus its GCC neighbours due to the higher turnover levels of the market. For 2010, the average turnover to market capitalization level for the Saudi market was 60%, down from the 120% level in the previous two years. While at a low level, this is still significantly higher than other GCC markets, which ranged from 2% (Bahrain) to 54% (Dubai) in 2010.

Looking at the liquidity issue from a different perspective, we calculated the absolute number of stocks which trade above certain thresholds on a daily basis. The Saudi market has 132 stocks which traded above USD1mn per day on average in 2010, nearly twice as much as the rest of the region combined. And at the higher threshold of USD5mn per day, the Saudi market had 34 stocks, more than twice the rest of the region combined.

Given the stronger absolute levels of liquidity and the breadth of stocks with strong liquidity, we believe institutional investors have taken notice and are increasingly targeting the Saudi market as a key investment destination.

Exhibit 22: Turnover to market capitalization ratios Exhibit 23: Number of stocks trading over USDmn / day

Yearly market turnover / market capitalization in % Number of stocks trading over USDmn per day on average

Saudi Kuwait Abu Dhabi Dubai Qatar Oman Bahrain2007 196 78 57 126 43 32 42008 124 70 58 89 43 36 72009 117 75 28 124 34 37 32010 60 41 13 54 17 18 2

Saudi Kuwait Abu Dhabi Dubai QatarOver USD1mn 132 40 6 10 18Over USD2mn 88 25 5 6 9Over USD5mn 34 7 1 3 4

Source: NCBC Research, Reuters Source: NCBC Research, Reuters

18


MAY 2011

Continued strong earnings growth in 2011E

In 2010, earnings for companies in the Saudi market increased by 34% to SAR77.6bn (the increase was 26% on a free float weighted basis). The growth was mainly led by the Petrochemical sector where aggregate earnings increased by 180%, led by SABIC (2010 earnings up 139%), SAFCO (2010 earnings up 75%), Tasnee (2010 earnings up 179%), and Yansab (SR1.7bn in net income in 2010 versus a loss in 2009). SABIC’s earnings grew to a market leading SR21.6bn for the year from SR9bn in 2009, with the SR12.6bn increase accounting for 63% of the overall market net income growth for the year. The Petrochemical sector benefited from both rising prices as well as capacity expansions at many of the companies during the year, a benefit which will likely continue in 2011.

Utilities, mainly led by Saudi Electricity, was also strong in 2010 as sector earnings grew 92% to SR2.4bn (96% of sector earnings are from Saudi Electricity). Growth at Saudi Electricity was spurred by the change in electricity tariffs mid-way through the year. We believe 2011 should also see strong earnings growth as the company benefits from a full year of revised tariffs.

2011E could see 25-30% earnings growth We believe market earnings should see continued robust growth in 2011E and expect growth in the 25-30% range for the year. Absolute earnings for the market may reach SR100bn for the full year, the highest level ever and versus the SR85bn reached in 2007, the previous highest earnings year. In 1Q11, the market recorded earnings growth of 24%, with the Petrochemical, Retail and Telecom sectors exhibiting the best performance, broadly in-line with our 2011 outlook.

Exhibit 24: Aggregate market earnings – 2011E could be a record year

In SR bn

-

20

40

60

80

100

120

2006 2007 2008* 2009 2010 2011E

Banks Petrochems Telecoms Cement Utilities Other


Petrochemicals a key contributor again As was the case in 2010, the Petrochemical sector will likely be the main driver of earnings growth for the market. Overall earnings should rise over 40% for the sector to over SR40bn; in 1Q11, the sector recorded earnings growth of 51% YoY to SR11.1bn. Key contributors to this growth include:

� SABIC is expected to show earnings growth of over 35% to nearly SR30bn as the company benefits from a strong petrochemical pricing environment as well as continued capacity expansion.

� Saudi Kayan, which reported negative earnings in 2010, is expected to increase earnings to approximately SR1.9bn in 2011E as 16 of its production plants come on stream and begin generating revenues/income.

19


MAY 2011

� Yansab should increase earnings by over 60% to SR2.8bn as it benefits from a full year of revenues/earnings for its plants which started operations mid 2010.

� Sipchem will also benefit from a full year of production at its Phase II plants which should drive earnings to more than double to around SR850mn.

Exhibit 25: 2011E should be another strong year for Petrochemical earnings

Net income in SR mn, unless otherwise stated

(100)

400

900

1,400

1,900

2,400

2,900

3,400

3,900

4,400

4,900

SAFCO Tasnee Saudi Kayan YANSAB Sipchem Sahara Petrochem SABIC*2009 2010 2011E

9.1bn

21.6bn

29.7bn

Source: NCBC Research, Reuters NB: The above estimates are not inclusive of the actual reported 1Q11 numbers

The key question is on the Banking sector The Banking sector (listed banks) has been on a declining earnings trend for the past four years after sector earnings peaked in 2006. Since then, declining brokerage income, and rising impairments for investments and credit provisions have resulted in weaker net income from 2007-2009, with earnings in 2010 essentially flat. Provisions looked to have peaked and are on a declining trend, which should allow earnings to increase in the coming years, especially as loan growth looks to eventually return.

Potential growth in the Banking sector earnings will be a key driver for the overall market given that the Banking sector accounts for over 25% of overall market earnings and about 35% of the free float market capitalization.

Exhibit 26: Banking sector earnings could return to growth in 2011

Banking sector earnings in SR bn (listed banks only)

10

15

20

25

30

35

2005 2006 2007 2008 2009 2010 2011E

A 4 year slide in earningsGrowth returning in

2011?

Source: NCBC Research, Reuters NB: The above estimates are not inclusive of the actual reported 1Q11 numbers

Utilities to benefit from a full year of tariff changes The Utilities sector, which is mostly comprised of earnings from Saudi Electricity should record very strong growth in 2011E as it did in 2010 due to the full year impact of the tariff changes benefiting net income. In June of 2010, the government announced that Saudi Electricity would be adjusting tariffs for the industrial, commercial, and government sub-sectors based on time of day and time of year usage. The revised tariffs, which took effect from July 2010, have led to strong revenue growth, with most of this additional revenue flowing

20


MAY 2011

straight to the company’s bottom line as stronger earnings. Saudi Electricity’s net income in 2010 grew to SR2.3bn from SR1.2bn in 2009, and we expect earnings to expand again to SR4.3bn in 2011E

Market valuations look reasonable The TASI rose 8.2% in 2010, near the middle of the pack both in the immediate region and globally. This, despite the very strong earnings growth from companies in the market.

Exhibit 27: Regional and global market performance – 2008, 2009, 2010

%

2008 2009 2010Saudi Arabia (56.5) 27.5 8.2Abu Dhabi (47.5) 14.8 (0.9)Dubai (72.4) 10.2 (9.6Kuwait (38.0) (10.0) (0.7)Qatar (28.1) 1.1 24.8Egypt (56.4) 35.1 15.0Bahrain (34.5) (19.2) (1.8)Oman (39.8) 17.0 6.1MSCI EM (54.5) 74.5 16.4Hang Seng (48.3) 52.0 5.3DJIA (33.8) 18.8 11.0FTSE Eurofirst 100 (44.9) 24.9 2.0Nikkei (42.1) 19.0 (3.0)Source: NCBC Research

Sector wise and unsurprisingly, Petrochemicals and Utilities were the strongest sectors in 2010, given their strong earnings growth over the year. The Petrochemical sector rose 21% and the Utilities sector rose 19% in 2010.

Exhibit 28: Sector performance for 2010

%

-30%-25%-20%-15%-10%-5%0%5%

10%15%20%25%

Med

ia/P

ublis

hing

Hot

els/

Tour

ism

Insu

ranc

e

Rea

l Est

ate

Con

stru

ctio

n

Mul

ti-in

vest

men

t

Tran

spor

t

Cem

ent

Bank

ing/

Fina

ncia

l

Tele

com

/IT

Indu

stria

l Inv

TAS

I

Agri/

Food

Ret

ail

Ener

gy/U

tiliti

es

Petro

chem

ical

s


At 16x trailing earnings, the TASI is below its 20x historical averageThe fast moving political events in the region at the beginning of the year led to extreme market volatility. During that period, the TASI fell to 16x TTM earnings, near the lower end of the recent historical range (apart from the trough reached at the end of 2008/beginning of 2009). Given the strong earnings growth expected in 2011, the TASI is trading on approximately 12.5-13.5x forward earnings, again at the low end of its recent historical range.

Investor sentiment has turned much more conservative given the events which occurred in Tunisia and Egypt and across the region in general. This has led to higher risk premiums for markets in the region, resulting in lower multiples.

21


MAY 2011

However, we believe grouping all of the countries in the Middle East in the same light is far too simplistic and has resulted in strong potential for returns for those investors able to differentiate between the different countries in the region and willing to enter the Saudi market.

Exhibit 29: TASI at 16x is below its historical 20x PE multiple

TASI index levels (LHS), Price to Earnings multiples (RHS)

-

5,000

10,000

15,000

20,000

25,000

Jan-

05M

ar-0

5M

ay-0

5A

ug-0

5O

ct-0

5D

ec-0

5M

ar-0

6M

ay-0

6Ju

l-06

Sep

-06

Dec

-06

Feb-

07A

pr-0

7Ju

l-07

Sep

-07

Nov

-07

Jan-

08A

pr-0

8Ju

n-08

Aug

-08

Nov

-08

Jan-

09M

ar-0

9Ju

n-09

Aug

-09

Oct

-09

Dec

-09

Mar

-10

May

-10

Jul-1

0O

ct-1

0D

ec-1

0M

ar-1

1

0

10

20

30

40

50

60

TASI (LHS) TTM P/E (RHS) Average P/E (RHS)

Source: NCBC Research, Bloomberg

The TASI could reach the 7,500-8,000 level over the coming 12 months We believe the TASI has substantial room for upside over the coming12 months given its current undemanding valuation combined with the strong expectations of earnings growth through 2011. Assuming 20-25% earnings growth in 2011E (on a free float basis versus 25-30% on an aggregate market basis), and no multiple expansion would result in a TASI level of 7,500-8,000 over the next year.

While a host of risks exist for the local as well as global markets, we believe earnings growth will remain robust given the combination of local and global exposures of most of the companies in the market. As current market multiples are already on the low end of the historic range, we believe further multiple contraction is not likely on a sustained basis. Temporary multiple contraction, especially in the short-term due to the current political situations in the region are of course possible.

While we understand the increasing caution in the market on any investments into the Middle East, we believe differentiating between the countries and understanding the economic and political situations is crucial. On this basis, we remain confident on the outlook for the Saudi market and feel substantial upside is likely over the next year.

Sector valuations range from 11x to 33x On a sector level, the P/E ranges are from 11x for the Cement sector to 33x for the Multi-Investment sector. Most sectors are currently trading below their historical averages, implying upside potential on any earnings growth. Of the large sectors, we note:

� Petrochemicals is trading at 16x P/E versus its historical average of 21x. With our expectations of 40% earnings growth for the sector, we believe this will be one of the stronger performers again in 2011E, helping to drive the entire market to strong returns.

� The Banks/Financials sector is trading at 16.5x P/E, just above its historical average of 16.1x. Given the flat earnings over the past year for the sector, we believe investors are waiting for evidence of earnings growth before buying into this sector in a meaningful way.

22


MAY 2011

� The Telecoms/IT sector is trading on a P/E of 14.1x, below its historical average of 18.4x. We have Overweight ratings on two of the three main stocks in the sector, Mobily and Saudi Telecom Company, given the undemanding valuations and strong upside potential on the shares.

� The Retail sector is trading at 14.7x P/E, below its historical average of 20x. We believe there is substantial upside in the sector.

Exhibit 30: Sector P/Es versus historical P/Es

Price to Earnings multiples

05

10152025303540

Cem

ent

Tran

spor

t

Tele

com

/IT

Ret

ail

Med

ia/P

ublis

hing

Agr

i/Foo

d

Pet

roch

emic

als

TAS

I

Con

stru

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Ban

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/Fin

anci

al

Hot

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Tour

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Insu

ranc

e*

Rea

l Est

ate

Indu

stria

l Inv

Ene

rgy/

Util

ities

Mul

ti-in

vest

men

t

TTM P/E Average P/E

Source: NCBC Research, Reuters * Average P/E for the Insurance sector is not meaningful

Strong dividend yields support the market Another reason for our positive stance on the Saudi market is the strong dividend yields for many of the stocks. Of our stocks under coverage, the top 10 dividend yielding companies have 2011E dividend yields ranging from 4.7% to 8.5%. Five of these ten stocks are cement companies with stable dividend outlooks due to their strong cash flows and limited investment plans going forward. The other 5 stocks do not only offer lucrative yields, but also look attractive from a valuation stand point providing potential upside from current price levels.

Exhibit 31: Dividend yields

%

0.0

1.5

3.0

4.5

6.0

7.5

9.0

Sau

diC

emen

t

Al H

okai

r

Sau

diE

lect

ricity

Jarir

Eas

tern

Cem

ent

Yam

ama

Cem

ent

Yan

buC

emen

t

STC

SA

FCO

Qas

sim

Cem

ent


23


MAY 2011

24

Industries & Companies

Sector Page No.Banking & Financials 26Petrochemicals 42Cement 61Retail 76Energy & Utilities 88Agriculture & Food 93Telecom 110Insurance 120Multi Investment 155Industrial Investment 165Building & Construction 181Real Estate 198Transport 209Media & Publishing 216Hotels & Tourism 222

Please note that our estimates for the companies under coverage have not been updated post the 1Q11 results


MAY 2011

25

Banking & Financials

Ticker Company Page No.

1120 Al Rajhi 30

1090 SAMBA 31

1050 Banque Saudi Fransi 32

1010 RIBL 33

1080 Arab National 34

1060 SABB 35

1150 Al Inma Bank 36

1030 Saudi Investment 37

1140 Al Bilad 38

1020 BJAZ 39

1040 Saudi Hollandi 40

The Saudi banking sector, the second-largest among its peers in the GCC region, remained one of the strongest during the financial crisis; banks were adequately capitalized and did not seek government assistance to ride out the crisis.We are positive on the sector’s asset quality as we believe most of the banks have sufficiently provided for their bad loan books; this should positively impact bottom line performance in 2011. NPLs in 2010 declined by 10% YoY and provisions fell by 8%. Consequently, net income grew 3.2% YoY in 2010. After a subdued loan growth environment, credit started picking up in 2010. Loans grew 4.9% YoY to SR766.3bn, while customer deposits increased 5.6%. Total banking assets of the 12 main domestic banks grew 4.3% YoY to SR1,379.0bn.

We expect the growth in credit to return in 2011, aided by higher growth in GDP, demand for project financing from the corporate segment and increase in retail lending with higher demand for personal loans.

Banking branch networks and the number of ATMs increased. At the end of 2010, the Saudi banking sector had 12 domestic and 9 foreign banks with 1,591 branches and 10,885 ATMs.

Exhibit 32: Key financials of Saudi banks (2010) – SR million; network of branches and ATMs

Banks Branches ATMs AssetsLoans &

advances Customer deposits Net profits

The National Commercial Bank 287 1,626 282,372 125,597 229,160 4,724Samba Financial Group 68 512 187,416 80,251 133,463 4,435Al Rajhi Bank 451 2,750 184,841 120,377 143,064 6,771Riyad Bank 241 2,576 173,556 106,035 126,945 2,825The Saudi Investment Bank 45 324 51,491 31,002 37,215 429Bank Aljazira 50 308 33,018 18,704 27,345 29Alinma Bank 20 190 26,669 15,593 8,316 15

Esta

blis

hed

as S

audi

B

anks

Bank Albilad 75 497 21,117 12,290 16,932 92SABB 80 510 125,373 74,248 94,673 1,883Banque Saudi Fransi 81 385 123,218 80,977 93,529 2,801Arab National Bank 139 927 116,035 66,203 84,199 1,911

Dom

estic

Ban

ks

JV w

ith

Fore

ign

Part

ners

Saudi Hollandi Bank 44 245 53,882 35,039 41,604 784Emirates Bank 1 15Bank Muscat 1 5National Bank of Bahrain 1 1National Bank of Kuwait 1 2

GC

C B

anks

Gulf International Bank 2Deutsche Bank 1 12*BNP Paribas 1J.P. Morgan Chase N.A. 1

Fore

ign

Ban

ks

Non

- GC

C

National Bank of Pakistan 1 Total 1,591 10,885 1,378,988 766,316 1,036,445 26,699�

Source: SAMA, Tadawul, Company data, NCBC Research Note: Financial statements of the banks are consolidated and include financial statements of its subsidiaries, including those located outside KSA. * Five international banks namely, Gulf International Bank, Deutsche Bank, BNP Paribas, J.P. Morgan Chase and National Bank of Pakistan operate 12 ATMs across KSA.

MAY 2011

BANKING

Sector to mirror economic recovery in 2011

26

BANKING NCB CAPITAL

MAY 2011

The Saudi banking sector is the largest among its GCC peers in terms of market capitalization. Considering only listed banks in our analysis, the Saudi banking sector came in second after the UAE in terms of total operating income in 2010. However, Saudi banks trade at a higher P/E of 16.0x compared to the UAE banks (P/E of 8.7x). We believe this is due to the strong fundamentals and higher asset quality that translate into better ROE.

Exhibit 33: Total operating income of GCC banks, 2008–10

Exhibit 34: Comparison of RoE and P/E of GCC banks, 2010

USD mn %

0

2,500

5,000

7,500

10,000

12,500

15,000

2008 2009 2010

KSA Kuwait Qatar Oman UAE Bahrain

0%

5%

10%

15%

20%

25%

30%

0 5 10 15 20 25 30 35

P/E (x)R

oE (%

)

KSA Kuwait Qatar UAE Bahrain Oman

Source: Reuters, NCBC Research; The companies list is not exhaustive Source: Reuters, NCBC Research; Size of the bubble represents market cap. as on 27April2011

As of 31 December 2010, Al Rajhi had the largest market capitalization among the 11 listed banks that constitute the Saudi banking index. NCB, one of the largest banks in KSA, is not mentioned in the table as it is a privately-held entity.

Exhibit 35: Sector details

Units as stated

% weight in Index as of Dec 2010

NIM (%),2010

Avg. RoE (%), 2010

Alinma Bank (Alinma) 2 3 0.1Al Rajhi Bank (Al Rajhi) 12.4 5.1 22.9Samba Financial Group (SAMBA) 5.1 2.5 18.4The Saudi British Bank (SABB) 1.8 2.7 13.3Riyad Bank (RIBL) 3.6 2.4 9.8Banque Saudi Fransi (Saudi Fransi) 3.3 2.6 16.6Arab National Bank (Arab National) 2.2 2.9 12.9The Saudi Investment Bank (SAIB) 1 2.7 5.5Saudi Hollandi Bank (Saudi Hollandi) 0.5 2.3 13Bank AlJazira (BJAZ) 0.6 2.4 0.6Bank AlBilad (AlBilad) 0.8 3.4 3Source: Bloomberg, Tadawul: Company data; * NIM stands for Net Interest Margins

Exhibits 36 and 37 depict the performance of Saudi banks in terms of net interest income and net interest margin during 2008–10. In 2010, net interest income declined 1.2% YoY, while net interest margins contracted 17bps over 2009. This was due to the low interest rates and slow credit growth. SAIB and Albilad, which had reported a decline in net interest income in 2009, posted a high growth of 29.6% YoY and 14.0% YoY, respectively, in 2010. Among larger banks, RIBL’s net interest income fell 4.7% YoY, while Samba’s declined 10.5% YoY; however, Al Rajhi’s grew 5.6% YoY.

27

BANKING NCB CAPITAL

MAY 2011

Exhibit 36: Net Interest Income of Banks, 2008–10 Exhibit 37: Net Interest Margin (%) of Banks, 2008–10

SR mn %

0

7,000

14,000

21,000

28,000

35,000

2008 2009 2010

Al Rajhi SAMBA SABB RIBL

Saudi Fransi Arab National SIBC Saudi Hollandi

BJAZ Albilad Alinma

1

3

5

7

Al R

ajhi

SA

MB

A

SA

BB

RIB

L

Sau

diFr

ansi

Ara

bN

atio

nal

SIB

C

Sau

diH

olla

ndi

BJA

Z

Alb

ilad

Alin

ma

2008 2009 2010

Source: Tadawul, NCBC Research Source: Tadawul, NCBC Research

The ROE for most banks declined in 2010; however, Albilad’s ROE turned positive from -8.0% in 2009 to 3.0% during the year. On the P/B multiple front, Al Rajhi continued to dominate due to its ability to maintain a higher profitability in ROE terms.

Exhibit 38: Comparison of P/B and RoE, 2009 Exhibit 39: Comparison of P/B and RoE, 2010

% %

Al Rajhi

SAMBA

SABB

RIBLSaudi Fransi

Arab National

Saudi HollandiAlinma

SIBC

BJAZ

0

5

10

15

20

25

30

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

P/B (x)

RoE

(%) Al Rajhi

SAMBA

SABBRIBL

Saudi Fransi

Arab National

Saudi Hollandi

AlinmaSIBC BJAZ

Albilad

0

5

10

15

20

25

30

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

P/B (x)

RoE

(%)

Source: Bloomberg, Tadawul, NCBC Research; Size of the bubble represents market cap. as on 31 Dec 2009; Bank Albilad is been excluded due to losses in 2009

Source: Bloomberg, Tadawul, NCBC Research; Size of the bubble represents market cap. as on 27 April 2011

Interest rates in KSA remained steady in 2010, as the Saudi Interbank Interest Rate (SAIBOR) closely tracked the USD Libor and SAMA continued its efforts to encourage credit growth. The government maintained the repo rate and reverse repo rate at 2% and 0.25%, respectively, during the year. These measures are expected to increase lending, going forward, but banks remain cautious as they continue to handle loan loss provisions.

Exhibit 40: Movement in Interbank Interest Rates Exhibit 41: Movement in Repo & Reverse Repo rates

% %

0

1

2

3

4

5

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11-50

50

150

250

350

450

Spreads bps (RHS) SAIBOR (%, LHS) LIBOR (%, LHS)

0

2

4

6

8

10

12

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11

Repo R repo Inflation

Source: Bloomberg, NCBC Research Source: Bloomberg, NCBC Research

28

BANKING NCB CAPITAL

MAY 2011

NCBC recommendations in the sector During 2010, the increase in loan loss provisioning to improve the NPL coverage ratio affected the performance of Saudi banks. However, the economy’s strong fundamentals, continued government spending and a revival in credit growth are expected to enhance the sector’s performance. Growth in customer deposits with a higher share of demand deposits is likely to improve spreads. Provision levels are also expected to decline YoY, providing room for net income growth. Banks, on their part, are increasingly looking to target the retail segment and medium sized entities for loan growth. Therefore, we maintain a positive outlook NCBC recommendations in the sector for Saudi banks for 2011 and beyond.

.

Exhibit 42: Coverage stocks details Stock Current Rating PT (SR) Comments Al Rajhi (1120. SE)

Overweight 88.7 Strong presence in corporate as well as retail credit, and high NIMs translate into high net special commission income for the bank. This, coupled with optimum cost efficiency, allows for higher ROE. We expect Al Rajhi to continue to capitalize on its well established brand name and operating model.

Arab National (1080.SE)

Neutral 34.6 A focus on retail lending, increased credit to medium sized entities and a recovery in fee income is expected to improve ANB’s spreads and profitability ratios.

AlBilad(1140. SE)

Neutral 16.2 Bank Al Bilad is likely to experience strong earnings growth as cost efficiency improves and the loan book expands. However, we believe the positives are already priced in.

BJAZ(1020. SE)

Neutral 18.9 We expect BJAZ to continue its shift away from fees to special commission income, which should help diversify operating income. Troubled assets notwithstanding, we believe BJAZ has the potential to grow loans faster than the market and enhance profitability.

Banque Saudi Fransi (1050. SE)

Overweight 55.0 Above average loan growth, better spreads with a re-pricing of corporate loans and increasing retail focus should allow BSF to grow net special commission income. In addition, a low cost to income ratio and optimum utilization of funds should enhance profitability.

Riyad Bank (1010. SE)

Overweight 32.0 We expect RIBL to post strong net income growth due to continued higher than average loan growth, and increasing utilization of the third largest branch network in KSA.

SABB(1060. SE)

Overweight 48.7 SABB’s operating income is expected to remain strong. Aided by solid net special commission income and fee income. We also expect the bank’s loans to grow in line with the industry, supported by a higher CAR.

SAIB(1030. SE)

Overweight 22.7 SAIB is transforming its operating model from volatile earning streams to stable core banking income. Retail focus and low-cost fund base are expected to improve spreads, while improvements in loan book quality should enhance profitability.

Samba(1090. SE)

Overweight 60.2 Samba is likely to benefit from its strong position in corporate and investment banking, capitalizing on increased government investments. Although the bank loan growth has been conservative, we are bullish on Samba’s fundamentals and expect high ROE, led by better margins and high operating efficiency.

Saudi Hollandi (1040. SE)

Overweight 35.0 SHB’s increased focus on retail credit should improve yields, but a higher share of time deposits could pressure spreads and net special commission income. Improved cost-to-income ratio and well covered NPLs are expected to boost profitability.


29

Al Rajhi Bank (Al Rajhi), the third largest bank in KSA in terms of total assets, was established in 1976. Being a full-fledged Islamic bank, Al Rajhi offers Sharia’a-compliant banking and investment products to its customers through a network of 451 branches and 2,750 ATMs. The bank has fully owned subsidiaries in Malaysia (20 branches) and Kuwait. Al Rajhi also has offices in the UK, British Virgin Islands and Jersey.

� Business brief Al Rajhi offers Sharia’a-compliant retail as well as corporate banking and treasury services to its customers. Al Rajhi Capital, the bank’s subsidiary, manages investment banking, asset management and the brokerage businesses. The bank has received regulatory approval to launch Islamic banking operations in Jordan and is looking to open new branches in 2011.

� FinancialsAl Rajhi’s net income grew marginally 0.06% to YoY SR6.8bn in 2010. Net special commission income grew 5.6% YoY, while the non-special commission income declined 10.1% YoY, leading to marginal growth (1.4% YoY) in total operating income. The bank’s provisions also remained higher at SR1.9bn in 2010 (SR1.8bn in 2009). Lower growth in the bank’s loan portfolio (7.1% YoY) compared to 16.4% YoY increase in customer deposits resulted in a decline in the loan to deposit ratio to 80% (87% in 2009). In 1Q11, Al Rajhi’s net income grew 0.9% YoY to SR1,700mn, marginally below our expectation of SR1,758mn. The increase in non-interest income was the main contributor towards the total operating growth (3.7% YoY). Provisions booked during the quarter declined slightly by 2.6% YoY to SR349mn.

� Recent developments In March 2011, the bank commenced operations in Jordon. In January 2011, Al Rajhi announced a cash dividend of SR1.5 per share for the second half of the fiscal year 2010, taking the total dividend to SR3.0 per share for 2010. In October 2010, along with four other Saudi banks, Al Rajhi agreed to provide bridge funding collectively worth SR1.35bn to Jabal Omar Development Co.

BANKING � MAY 2011

AL RAJHI BANK

ALSO KNOWN AS: AL RAJHI

OVERWEIGHT Current price 75.8Pricing as of 04-05-2011

STOCK DETAILS 52-week range H/L (SR) 84.0/65.5Market cap ($mn) 30,292.4Shares outstanding (mn) 1,500.0

Price perform (%) 1M 3M 12MAbsolute (1.9) (5.1) (4.7)Market 1.2 2.3 (3.0)Sector (2.6) (3.6) (7.1)

Avg daily turnover (mn) SR US$3M 134.5 35.912M 105.3 28.1

Reuters code 1120.SEBloomberg code RJHI AB

www.alrajhibank.com.sa

WEIGHTING & FREEFLOAT (%) TASI (free float weight) 12.19Free float 53.17

VALUATION MULTIPLES 09A 10A 11EP/E (x) 16.8 16.8 13.5P/B (x) 4.0 3.7 3.3P/S (x) 9.9 9.7 8.5Div Yield (%) 3.9 4.6 5.2DPS 3.0 3.5 3.9 Source: NCBC Research estimates

SHARE PRICE PERFORMANCE

5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-1063

68

73

78

83

TASI Al Rajhi (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Sulaiman Abdul Aziz Saleh Al Rajhi 19.9Saleh Abdul Aziz Saleh Al Rajhi 15.1GOSI 9.9Abdullah Abdul Aziz Saleh Al Rajhi 5.9

Source: Tadawul, NCBC Research

Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Sp. Com Income SRmn 8,390 8,861 10,115 11,754 5.6 11.9Operating Income SRmn 11,505 11,661 13,338 15,509 1.4 10.5Net Income SRmn 6,767 6,771 8,432 10,450 0.1 15.6Assets SRmn 170,730 184,841 208,372 236,721 8.3 11.5Equity SRmn 28,741 30,318 34,570 36,640 5.5 8.4Loans SRmn 112,843 120,377 133,325 152,132 6.7 10.5Total Deposits SRmn 128,964 148,478 167,789 193,712 15.1 14.5Net Interest Margin % 5.2 5.1 5.3 5.4Cost/Income % 25.9 25.6 25.7 24.9ROE % 24.3 22.9 26.0 29.3ROA % 4.1 3.8 4.3 4.7Div Payout % 69.1 87.2 78.7 78.7EPS SR 4.5 4.5 5.6 7.0 0.1 15.6BVPS SR 19.2 20.2 23.0 24.4 5.5 8.4 Source: Company, NCBC Research

30

Please refer to the last page for important disclaimer www.ncbc.com

Samba Financial Group (Samba), the second largest bank in Saudi Arabia in terms of total assets, was incorporated in 1980 through the takeover of Citigroup’s branches in the Kingdom. Samba operates 68 branches and 512 ATMs. The bank operates in Pakistan through its subsidiary and has branches in the UK, Dubai and Qatar.

� Business brief Samba’s core banking activities include corporate as well as retail banking and treasury services. The bank also offers trade, Islamic banking and corporate investment services. Samba Capital & Investment Management Co, the investment banking division, handles asset management and brokerage services. Samba Real Estate Co., another subsidiary of the bank, manages real estate projects for Samba Real Estate Fund.

� FinancialsSamba’s net income declined 2.7% YoY in 2010 mainly due to a 10.5% YoY decrease in net special commission income as bank’s loans declined 4.6% YoY. However, the non-interest income increased 15.9% YoY. As a result, the total operating income decreased at a lower rate of 2.9% YoY. The bank’s provisions declined 7.6% YoY to SR559mn. Samba’s net income continued declining in 1Q11 in line with our expectations despite an 85% YoY decline in provisions to SR93mn. Lower growth in core banking activities is the main reason for poor YoY results. Net special commission income declined 8.7% YoY due to 3.4% YoY decline in loan portfolio.

� Recent developments In March 2011, Fitch affirmed Samba’s long-term Issuer default rating at “A+,” with a stable outlook. In January 2011, Samba’s Board of Directors recommended a dividend of SR0.75 per share for the second half of the fiscal year 2010, taking the total dividend to SR1.65 per share for the year 2010. In December 2010, along with four other Saudi banks, Samba agreed to provide murabaha loan worth SR5bn to Saudi Electricity Co. for financing the company’s capacity expansion plans.


SAMBA FINANCIAL GROUP

ALSO KNOWN AS: SAMBA


STOCK DETAILS 52-week range H/L (SR) 64.8/42.5Market cap ($mn) 13,196.7Shares outstanding (mn) 900.0



Reuters code 1090.SEBloomberg code SAMBA AB

www.samba.com




5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-10424752576267

TASI SAMBA (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Public Invst Fund 22.9Public Pension Authority 15.0GOSI 11.4


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Sp. Com Income SRmn 5,070 4,536 5,039 5,816 (10.5) 4.7Operating Income SRmn 7,110 6,901 7,456 8,582 (2.9) 6.5Net Income SRmn 4,560 4,435 5,169 6,069 (2.7) 10.0Assets SRmn 185,518 187,416 197,746 221,577 1.0 6.1Equity SRmn 22,502 25,603 28,747 32,007 13.8 12.5Advances SRmn 84,147 80,251 87,090 97,963 (4.6) 5.2Total Deposits SRmn 156,322 155,138 162,869 182,612 (0.8) 5.3Net Interest Margin % 2.9 2.5 2.7 2.9Cost/Income % 27.4 27.7 27.8 26.8ROE % 21.4 18.4 19.0 20.0ROA % 2.5 2.4 2.7 2.9Div Payout % 36.2 37.2 51.3 51.3EPS SR 5.1 4.9 5.7 6.7 (2.7) 10.0BVPS SR 25.0 28.4 31.9 35.6 13.8 12.5 Source: Company, NCBC Research

31

BSF, an affiliate of Crédit Agricole Group, commenced operations in December 1977 by taking over the branches of Banque Indosuez. The bank offers conventional and Islamic banking products through a network of 81 branches and 385 ATMs in Saudi Arabia.

� Business brief BSF’s core activities include retail and corporate banking as well as treasury services. The bank’s investment banking activities are conducted by Saudi Faransi Capital. The bank also has an insurance JV with Allianz Group under the name Allianz Saudi Fransi Co. (32.5%). Sofinco Saudi Fransi manages BSF’s consumer finance activities. Furthermore, the bank has 27.0% stake in Syria-based Banque BEMO Saudi Fransi.

� FinancialsIn 2010, BSF’s loans, deposits and investments grew 3.4%, 2.5% and 13.4% YoY, respectively. However, net special commission income grew slightly by 0.5% YoY as a result of lower net interest spreads. Net income rose 13.4% YoY to SR2.8bn, mainly due to 47% YoY decrease in loan loss provisions to SR339bn (SR642bn in 2009). In 1Q11, the bank’s net income grew marginally 0.5% YoY to SR717mn, slightly lower than our estimate of SR746mn. Despite the 7.3% YoY growth in total operating income (driven by 4.7% growth in net special commission income), net income remained broadly flat due to increased operating expenses including provisions.

� Recent developments In May 2011, BSF participated in SR2.25bn commercial loan to Zain KSA together with three other banks. In January 2011, BSF declared an annual dividend of SR1 per share for 2010. In November 2010, the bank announced plans to expand its retail operations in KSA and double its market share in the next three years. In the same month, BSF announced plans to increase capital in its associate Banque Bemo Saudi Fransi and raise its stake to 33.06% to comply with the new requirements of the Central Bank of Syria.


BANQUE SAUDI FRANSI

ALSO KNOWN AS: BSF



Price perform (%) 1M 3M 12MAbsolute (6.4) (3.5) 1.7Market 1.2 2.3 (3.0)Sector (2.6) (3.6) (7.1)


Reuters code 1050.SEBloomberg code BSFR AB

www.alfransi.com.sa




5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-10303540455055

TASI Saudi Fransi (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Groupe Crédit Agricole [Calyon] 31.1GOSI 12.8Rashid Al Abdul Rahman Al Rashid & Sons 9.8Mohd Ibrahim Mohd Al Essa 5.0 Source: Tadawul, NCBC Research

Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Sp. Com Income SRmn 3,050 3,066 3,360 3,879 0.5 8.3Operating Income SRmn 4,295 4,395 4,873 5,668 2.3 9.7Net Income SRmn 2,471 2,801 3,244 3,977 13.4 17.2Assets SRmn 120,572 123,218 133,932 152,871 2.2 8.2Equity SRmn 15,752 18,023 19,523 21,954 14.4 11.7Advances SRmn 78,315 80,977 89,866 103,914 3.4 9.9Total Deposits SRmn 101,015 98,308 106,943 122,739 (2.7) 6.7Net Interest Margin % 2.6 2.6 2.7 2.8Cost/Income % 27.0 28.6 28.3 27.0ROE % 16.6 16.6 17.3 19.2ROA % 2.0 2.3 2.5 2.8Div Payout % 43.2 42.9 40.7 45.8 (0.8) 1.9EPS SR 3.4 3.9 4.5 5.5 13.4 17.2BVPS SR 21.8 24.9 27.0 30.4 14.4 11.7 Source: Company, NCBC Research

32

Riyad Bank (RIBL), established in 1957, is Saudi Arabia’s fourth largest listed bank in terms of asset size. The bank has 241 branches and 2,576 ATMs in KSA, a branch in London, an agency in Houston, and a representative office in Singapore.

� Business brief RIBL performs core-banking activities through four divisions: Personal banking, Corporate banking, Treasury services and International banking. The bank offers a range of conventional and Sharia’a compliant banking products. RIBL provides asset and wealth management, corporate finance, and brokerage services through its wholly-owned investment banking subsidiary Riyad Capital. RIBL’s other subsidiaries operate in the leasing, real estate and insurance (joint venture with Royal Sun Alliance) segments.

� FinancialsRIBL’s net income declined 6.8% YoY in 2010 due to a 4.7% YoY decrease in net special commission income and 51% YoY increase in loan loss provisions to SR850mn. However, the bank’s non-special commission income grew 14% YoY, resulting in a marginal increase of 0.3% YoY in total operating income. During the year, the bank’s loan portfolio and total deposit base declined 0.5% and 1.3% YoY, respectively. In 1Q11 the bank’s net income grew 8.3% YoY, above our estimates. We believe this is mainly due to the growth in operating income (in line with our estimates) and lower provisions for the quarter. Bank’s net special commission income continued to decline in 1Q11 (2.8% YoY), but growth in non-interest income 18.8% YoY increased total operating income by 3.9% YoY.

� Recent developments Fitch Ratings affirmed RIBL's Long-term Issuer Default Rating at 'A+' with a Stable Outlook in March 2011. In January 2010, the bank announced a dividend of SR0.70 per share for the second half of the fiscal year 2010, taking the total dividend to SR1.3 per share for the year. In December 2010, RIBL, along with five other Saudi banks, agreed to provide Islamic financing collectively worth SR1.2bn to Mobily for the company’s expansion plans.


RIYAD BANK

ALSO KNOWN AS: RIBL



Price perform (%) 1M 3M 12MAbsolute (1.1) 1.6 (6.9)Market 1.2 2.3 (3.0)Sector (2.6) (3.6) (7.1)


Reuters code 1010.SEBloomberg code RIBL AB

www.riyadbank.com




5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-10192123252729

TASI RIBL (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Public Invst Fund 21.7GOSI 21.6Mohd Ibrahim Mohd Al Essa 8.6Al Nahla Group 8.6SAMA 6.5 Source: Tadawul, NCBC Research

Company financials

2009 2010 2011E 2012E YoY(%)

CAGR (%)(09-12E)

Net Sp. Com Income SRmn 4,347 4,142 4,543 5,295 (4.7) 6.8Operating Income SRmn 5,960 5,980 6,447 7,468 0.3 7.8Net Income SRmn 3,030 2,825 3,326 4,065 (6.8) 10.3Assets SRmn 176,399 173,556 189,053 213,779 (1.6) 6.6Equity SRmn 28,235 29,233 30,274 31,651 3.5 3.9Advances SRmn 106,515 106,035 114,913 131,933 (0.5) 7.4Total Deposits SRmn 143,315 139,456 153,443 176,079 (2.7) 7.1Net Interest Margin % 2.7 2.4 2.6 2.7 - -Cost/Income % 36.8 38.6 39.2 36.7 - -ROE % 11.2 9.8 11.2 13.1 - -ROA % 1.8 1.6 1.8 2.0 - -Div Payout % 69.1 73.4 71.9 77.0 6.2 3.7EPS SR 2.0 1.9 2.2 2.7 (6.8) 10.3BVPS SR 18.8 19.5 20.2 21.1 3.5 3.9 Source: Company, NCBC Research

33

Arab National Bank (ANB) commenced operations in KSA in 1980 after the takeover of Arab Bank PLC. The bank has a network of 139 local branches and 927 ATMs, along with one branch in London. ANB holds 100% stake in Arab National Investment Co. and 62.5% stake in Arabian Heavy Equipment Leasing Co.

� Business brief ANB offers personal banking, corporate banking, treasury services and syndications, and corporate finance services to its customers. Besides core banking activities, ANB offers investment banking, heavy equipment leasing and housing finance services through its subsidiaries and associate companies. ANB Invest handles investment banking and asset management operations, while Arabian Heavy Equipment Leasing Co. operates under Sharia’a guidelines and leases heavy equipments. Saudi Home Loans Co. is an associate providing housing finance services.

� FinancialsANB’s net income declined 19.4% YoY to SR1.9bn during 2010, mainly due to an 8.6% YoY fall in net special commission income and 83.1% YoY rise in loan loss provisions. The bank's non-interest income, however, grew significantly by 29.8% YoY, mainly due to trading and exchange income. Consequently, total operating income grew marginally by 0.2% YoY. ANB’s net income further declined in 1Q11 by 7.4% YoY. Net special commission income fell marginally by 1.1% YoY and total operating income by 1.0% YoY in 1Q11. We believe the higher operating expenses and the YoY increase in provision charges have pressured the bottom line performance.

� Recent developments In May 2011, ANB led a consortium of banks providing SR2.25bn commercial loan to Zain KSA. In March 2011, ANB increased its capital by 31% to SR8.5bn through issue of four bonus shares for every 13 shares, taking the total number of shares to 850mn. In addition, the bank announced a cash dividend of SR1 per share for the year 2010.


ARAB NATIONAL BANK

ALSO KNOWN AS: ANB

NEUTRALCurrent price 33.1Pricing as of 04-05-2011

STOCK DETAILS 52-week range H/L (SR) 35.9/26.0Market cap ($ mn) 6,760.0Shares outstanding (mn) 850.0



Reuters code 1080.SEBloomberg code ARNB AB

www.anb.com.sa




5,000

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7,000


25

30

35

TASI Arab National (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Arab Bank 40.0GOSI 10.8Rashid Al Abdul Rahman Al Rashid & Sons

9.9

Al Jaber Trading Co. 5.6 Source: Tadawul, NCBC Research

Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Sp. Com Income SRmn 3,456 3,158 3,524 4,079 (8.6) 5.7Operating Income SRmn 4,493 4,504 4,742 5,512 0.2 7.0Net Income SRmn 2,370 1,911 2,476 3,097 (19.4) 9.3Assets SRmn 126,838 125,373 130,257 145,202 (1.2) 4.6Equity SRmn 14,369 15,291 16,686 18,120 6.4 8.0Advances SRmn 110,297 116,035 127,757 145,420 5.2 9.7Total Deposits SRmn 93,082 97,983 107,433 123,895 5.3 10.0Net Interest Margin % 3.1 2.9 3.0 3.1Cost/Income % 35.6 36.5 37.9 36.7ROE % 17.5 12.9 15.5 17.8ROA % 2.0 1.7 2.0 2.3Div Payout % 27.9 38.1 39.0 44.6EPS SR 2.8 2.2 2.9 3.6 (19.4) 9.3BVPS SR 16.9 18.0 19.6 21.3 6.4 8.0 Source: Company, NCBC Research

34

SABB (formerly The Saudi British Bank) is an affiliate of HSBC Group. The bank commenced operations in 1978, offering conventional and Islamic products under the brand name SABB Amanah. SABB operates 80 branches, 510 ATMs and two separate subsidiaries for investment banking and brokerage; it also offers insurance services.

� Business brief SABB offers personal, corporate, private and Islamic banking as well as treasury and trade services. The bank also provides investment banking solutions through HSBC Saudi Arabia Ltd. (40% stake), which specializes in asset management, corporate finance services, and debt finance and advisory services. SABB provides brokerage and securities services through SABB Securities (100%) and Sharia’a-compliant insurance products through SABB Takaful (32.5%)

� FinancialsSABB reported a 2.9% YoY decline in loans and a 6.2% YoY increase in deposits in 2010. The fall in loans and net interest margins resulted in a 5.6% YoY decrease in net special commission income. Consequently total operating income declined 6.2% YoY and net income fell 7.3% YoY. SABB booked provisions of SR1.2bn in 2010 (SR1.5bn in 2009) and increased its provision coverage to 100% from 50% in 2009. In 1Q11, SABB reported significant growth in net income 21% YoY to SR751mn, better than our expectations. We believe lower provision charges on credit losses contributed towards the high net income growth. .

� Recent developments In January 2011, SABB’s Board of Directors recommended a dividend of SR0.68 per share for the year 2010. In the same month, Global Finance magazine named the bank as the Best Trade Finance Bank in Saudi Arabia for 2011. In December 2010, the bank launched a Sharia’a-compliant program called SABB Advance to provide its affluent customers with special services within KSA and abroad.


SABB

ALSO KNOWN AS: THE SAUDI BRITISH BANK





Reuters code 1060.SEBloomberg code SABB AB

www.sabb.com




5,000

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6,000

6,500

7,000


37

42

47

TASI SABB (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) HSBC Holdings Co. 40.0Al Olayan Saudi Invst Co. 16.9GOSI 9.5


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Sp. Com Income SRmn 3,437 3,243 3,468 3,856 (5.6) 3.9Operating Income SRmn 5,160 4,839 5,117 5,685 (6.2) 3.3Net Income SRmn 2,032 1,883 2,344 3,012 (7.3) 14.0Assets SRmn 126,838 125,373 130,257 145,202 (1.2) 4.6Equity SRmn 13,045 15,172 16,602 18,811 16.3 13.0Advances SRmn 76,382 74,248 79,543 89,090 (2.8) 5.3Total Deposits SRmn 108,690 104,997 109,285 121,510 (3.4) 3.8Net Interest Margin % 2.7 2.7 2.8 2.9Cost/Income % 32.5 36.2 37.0 36.8ROE % 16.5 13.3 14.8 17.0ROA % 1.6 1.5 1.8 2.2Div Payout % 33.1 30.6 30.8 30.8EPS SR 2.7 2.5 3.1 4.0 (7.3) 14.0BVPS SR 17.4 20.2 22.1 25.1 16.3 13.0 Source: Company, NCBC Research

35

Alinma Bank (Alinma) was established in March 2006 in accordance with a Royal Decree with a share capital of SR15bn. The bank commenced its full-fledged operations in 2009 and offers retail and corporate banking services as per Sharia’a-compliant principles. The bank operates through a network of 20 branches and 190 ATMs.

� Business brief Alinma is an Islamic bank that provides retail and corporate banking services. The bank offers asset management, brokerage, investment banking and wealth management services through Alinma Investment Co. The bank entered into a joint venture to provide Takaful insurance services in order to capitalize on the vast untapped retail market for Sharia’a-compliant insurance services.

� FinancialsAlinma recorded a net income of SR15mn for the year ended 2010 compared to SR215mn in 2009. The startup stage of operations and continuous additions of branches and ATMs in order to expand its network presence, has kept the operating costs higher for the bank. The bank’s loan portfolio increased more than 14x YoY and deposits grew 455% YoY in 2010 primarily due to a lower base in 2009. In 1Q11, Alinma reported net income of SR70mn against a net loss of SR75mn in 1Q10 as their core banking activities grew significantly. Net special commission income grew 255% and total operating income stood at SR262mn, up 218% YoY.

� Recent developments In April 2011, Alinma signed an agreement with Deutsche Gulf Finance to offer financing programs for real estate. In March 2011, the bank signed an agreement with the Saudi arm of Tokio Marine to set up an insurance firm with each having a share of 28.75% in SR20mn capital. Alinma launched four new branches – three in Riyadh in December 2010 and one in Al-Mubarraz in January 2011. The bank is looking to expand its branch network by launching more than 100 branches over the next five years.


ALINMA BANK

ALSO KNOWN AS: DEVELOPMENT BANK

NCCurrent price 10.1Pricing as of 04-05-2011


Price perform (%) 1M 3M 12MAbsolute 1.5 (2.4) (17.2)Market 1.2 2.3 (3.0)Sector (2.6) (3.6) (7.1)


Reuters code 1150.SEBloomberg code ALINMA AB

www.alinma.com


VALUATION MULTIPLES 08A 09A 10EP/E (x) 38.8 70.5 N/MP/B (x) 1.0 1.0 1.0P/S (x) 44.7 24.6 22.9Div Yield (%) N/A N/A N/ADPS 0.0 0.0 0.0 Source: NCBC Research estimates


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6,500

7,000


10

11

12

13

TASI Alinma (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Public Invst Fund 10.0GOSI 10.0Public Pension Authority (PPA) 10.7


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(08-10)

Net Sp. Com Income SRmn - 339 607 619 2.0 35.1Operating Income SRmn - 339 615 662 7.6 39.7Net Income SRmn - 390 215 15 (93.0) (80.4)Assets SRmn - 15,556 17,306 26,669 54.1 30.9Equity SRmn - 15,390 15,605 15,621 0.1 0.7Advances SRmn - - 1,112 15,593 1,302.2 NATotal Deposits SRmn - - 1,501 8,316 454.0 NANet Interest Margin % - 2.3 3.9 3.02Cost/Income % - 65.9 67.5 97.3ROE % - 2.5 1.4 0.1ROA % - 2.5 1.3 0.1Div Payout % - - - -EPS SR - 0.3 0.1 0.0 (93.0) (80.4)BVPS SR - 10.26 10.4 10.4 0.1 0.7 Source: Company, NCBC Research

36

The Saudi Investment Bank (SAIB) was established in 1976 in Riyadh. The bank operates a network of 45 branches and 324 ATMs in KSA. SAIB provides investment banking services through two subsidiaries and other related services such as lease financing, insurance and reinsurance, real estate financing and financial investment through five associate companies.

� Business brief SAIB provides personal, corporate, investment and Islamic banking along with treasury services in KSA. The bank offers investment banking services through two subsidiaries: Alistithmar Capital, which offers brokerage and investment banking services; and BNP Paribas Asset Management Co. SAIB also offers related services through five associate companies: AMEX (Saudi Arabia) Ltd, Saudi Orix Leasing Company, Medgulf KSA, Amlak International and Naeem Investment Co.

� FinancialsSAIB’s total operating income rose 15.3% YoY in 2010 owing to a significant 29.6% YoY growth in net special commission income. However, net income for the year declined 17.7% YoY mainly due to a 52.4% YoY rise in provisions (amounting to SR845mn in 2010 as compared to SR555mn in 2009). While the bank’s loan portfolio grew 4.1% on a YoY basis, customer deposits fell 2.7% and investments declined 22.8% in 2010. SAIB reported a net income of SR208mn for 1Q11 ten times higher than 1Q10, but below our estimate of SR243mn. We believe lower provisions has boosted the net income, however, minor growth in net special commission income as well as decreased non-interest income has resulted in an 8.2% YoY decline in total operating income of the bank.

� Recent developments In January 2011, SAIB’s Board of Directors recommended to increase the bank’s capital by 22.2% to SR5.5bn by granting one bonus share for every 4.5 shares, thus taking the total number of shares to 550mn (from 450mn).


SAUDI INVESTMENT BANK

ALSO KNOWN AS: SAIB



Price perform (%) 1M 3M 12MAbsolute (6.4) (5.0) 19.0Market 1.2 2.3 (3.0)Sector (2.6) (3.6) (7.1)


Reuters code 1030.SEBloomberg code SIBC AB

www.saib.com.sa


VALUATION MULTIPLES 09A 10A 11EP/E (x) 19.9 24.2 13.5P/B (x) 1.4 1.3 1.2P/S (x) 6.9 5.9 5.6Div Yield (%) N/A N/A N/ADPS 0.0 0.0 0.0 Source: NCBC Research


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7,000


16

18

20

22

TASI SIBC (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) GOSI 21.5Public Pension Authority 17.3Saudi Oger Ltd. 8.5JPMorgan Chase Co. 7.4National Comm Bank 7.3 Source: Tadawul, NCBC Research

Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Sp. Com Income SRmn 1,014 1,315 1,428 1,627 29.6 17.1Operating Income SRmn 1,517 1,749 1,868 2,123 15.3 11.9Net Income SRmn 522 429 769 1,138 (17.7) 29.7Assets SRmn 50,148 51,491 55,514 61,265 2.7 6.9Equity SRmn 7,428 8,141 8,920 10,068 9.6 10.7Advances SRmn 29,785 31,002 33,189 37,207 4.1 7.7Total Deposits SRmn 41,959 42,611 45,706 50,041 1.6 6.0Net Interest Margin % 2.1 2.7 2.8 2.9Cost/Income % 36.7 32.6 32.2 32.3ROE % 7.4 5.5 9.0 12.0ROA % 1.0 0.8 1.4 1.9Div Payout % - - - -EPS SR 0.9 0.8 1.4 2.1 (17.7) 29.7BVPS SR 13.5 14.8 16.2 18.3 9.6 10.7 Source: Company, NCBC Research

37

Bank Albilad (Albilad), headquartered in Riyadh, was established in 2004 through the merger of eight money-exchange organizations. The bank operates 75 branches and 497 ATMs. Albilad’s wholly owned subsidiaries are Albilad Brokerage & Securities Management Co., Albilad Investment Co., and Albilad Real Estate Co.

� Business brief Albilad’s Consumer Services segment offers Albilad Net, Albilad Tadawul, Albilad 24, auto financing, personal financing, real estate financing, local share investment services and credit cards. The Corporate Services division provides a range of finance solutions such as Murabaha, Musharaka, Istisna’a and securitization finance. The Investment Services segment offers investment avenues in mutual funds, including Akar, Amwal, Asayel, Al-Murabih and Al-Seef.

� FinancialsAlbilad’s net income turned positive to SR92mn in 2010 compared to a net loss of SR248mn in 2009, mainly due to 20.9% YoY growth in operating income and 20% YoY decline in provisions for credit losses to SR242mn. The net special commission income grew 14%, while the non-special commission income rose significantly by 31.3% in 2010. However, in 1Q11, the bank’s provisions increased 18% YoY to SR51mn. The bank’s Net special commission income grew 11.1% YoY to SR165mn, in line with our estimate of SR160mn as its loan and investment portfolio expanded 12.7% and 16.9% respectively. Net income came in 5.6% higher YoY at SR55mn, exceeding our estimate of SR51mn. .

� Recent developments In April 2011, the bank signed an agreement with Saudi Integrated Telecom Company to acts as the IPO manager and the main underwriter. In October 2010, Albilad achieved a compliance validation with the Payment Card Industry Data Security Standard (PCI DSS), which is required by SAMA and other major card brands such as Visa Inc. and MasterCard Worldwide.


BANK ALBILAD

ALSO KNOWN AS: ALBILAD

NEURTALCurrent price 18.5Pricing as of 04-05-2011




Reuters code 1140.SEBloomberg code ALBI AB

www.bankalbilad.com.sa WEIGHTING & FREEFLOAT (%) TASI (free float weight) 0.83Free float 77.18VALUATION MULTIPLES 09A 10A 11EP/E (x) N/M 60.0 18.3P/B (x) 1.8 1.8 1.6P/S (x) 6.1 5.0 4.3Div Yield (%) N/A N/A N/ADPS 0.0 0.0 0.0 Source: NCBC Research estimates


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7,000


17

19

21

TASI AL Bilad (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Mohd Ibrahim Mohd Al Subaei 11.6Abdullah Ibrahim Mohd Al Subaei 11.1First Invst Co 7.4Abdul Rahman Saleh Abdul Aziz Al Rajhi 6.9Abdul Rahman Abdul Aziz Saleh Al Rajhi 6.5 Source: Tadawul, NCBC Research

Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Sp. Com Income SRmn 548 625 738 889 14.0 17.5Operating Income SRmn 909 1,099 1,300 1,549 20.9 19.4Net Income SRmn -248 92 302 453 NA NAAssets SRmn 17,411 21,117 23,133 25,944 21.3 14.2Equity SRmn 3,002 3,103 3,405 3,859 3.4 8.7Advances SRmn 11,014 12,290 14,363 16,421 11.6 14.2Total Deposits SRmn 13,769 17,315 19,096 21,618 25.8 16.2Net Interest Margin % 3.4 3.4 3.5 3.7Cost/Income % 87.4 65.3 61.5 58.0ROE % (8.0) 3.0 9.3 12.5ROA % (1.5) 0.5 1.4 1.8Div Payout % - - -EPS SR (0.8) 0.3 1.0 1.5 NA NABVPS SR 10.0 10.3 11.4 12.9 3.4 8.7 Source: Company, NCBC Research

38

Bank Aljazira (BJAZ) specializes in Islamic banking and investment products in Saudi Arabia. The bank was established in 1975, following the takeover of the Saudi Arabian branches of National Bank of Pakistan. The bank is headquartered in Jeddah and operates a network of 50 branches and 308 ATMs across KSA.

� Business brief BJAZ offers Sharia’a-compliant retail banking, corporate banking and treasury services. The bank’s investment subsidiary AlJazira Capital (AJC) is one of the leading brokerage houses in Saudi Arabia in terms of value and volume traded. BJAZ also operates Aman Real Estate that acts as a custodian of collateral in the bank’s lending activities. In 2010, the bank received a government approval to establish a Takaful company with a capital of SR350mn.

� FinancialsThe bank’s increasing focus on core banking resulted in significant YoY growth of 20.6% and 23.5% in loans and deposits respectively, in 2010. This coupled with a low cost of funding, enabled the bank to increase its net special commission income by 7.4% YoY. However, due to the weak stock market performance, BJAZ’s non-special commission income fell 13% YoY intern decreasing total operating income by 1.4% YoY over the same period. In 1Q11, the bank’s net income increased five-fold YoY to SR62mn mainly attributable to the decline in provisions for credit losses. The bank’s net special commission income also grew by 8.6% YoY, driven by volumes, while, non-interest income continued declining in 1Q11.

� Recent developments In March 2011, BJAZ issued a SR1bn 10-year Sukuk (priced at 1.7% over six month SAIBOR for the first five years). Mainly to strengthen its funding base and enable faster loan growth. In January 2011, the bank agreed to grant medium-term Islamic financing worth SR242mn to Eastern Industrial Co. for setting up a corrosion-resistant fiberglass plant in Jubail Industrial City.


BANK AL JAZIRA

ALSO KNOWN AS: BJAZ, BAJ



Price perform (%) 1M 3M 12MAbsolute (0.5) 4.9 6.4Market 1.2 2.3 (3.0)Sector (2.6) (3.6) (7.1)


Reuters code 1020.SEBloomberg code BJAZ AB

www.baj.com.sa


VALUATION MULTIPLES 09A 10A 11EP/E (x) N/M N/M 40.5P/B (x) 1.2 1.2 1.2P/S (x) 4.9 5.0 4.6Div Yield (%) 3.0 N/A N/ADPS 0.6 0.0 0.0 Source: NCBC Research estimates


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6,000

6,500

7,000


16

18

20

22

TASI BJAZ (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Rashed Al Abdul Rahman Al Rashid & Sons Co

22.2

Al Okhoah Union for devlp 6.5National Bank of Pakistan 5.8Saleh Abdullah Mohd Kamal 5.0 Source: Tadawul, NCBC Research

Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Sp. Com Income SRmn 668 717 838 1,010 7.4 14.8Operating Income SRmn 1,171 1,155 1,253 1,509 (1.4) 8.8Net Income SRmn 28 29 141 406 5.0 145.2Assets SRmn 29,977 33,018 37,222 42,562 10.1 12.4Equity SRmn 4,694 4,806 4,948 5,315 2.4 4.2Advances SRmn 15,504 18,704 21,627 24,921 20.6 17.1Total Deposits SRmn 24,833 27,734 31,470 36,352 11.7 13.5Net Interest Margin % 2.4 2.4 2.5 2.6Cost/Income % 62.0 66.2 66.1 60.9ROE % 0.6 0.6 2.9 7.9ROA % 0.1 0.1 0.4 1.0Div Payout % 618.0 - - 20.5 (100.0) -67.9EPS SR 0.1 0.1 0.5 1.4 5.0 145.2BVPS SR 15.6 16.0 16.5 17.7 2.4 4.2 Source: Company, NCBC Research

39

Saudi Hollandi Bank (SHB), headquartered in Riyadh, was established in 1977 with the conversion of ABN Amro into a joint venture bank. Currently, a consortium led by RBS holds a 40% stake in SHB. The bank offers conventional and Islamic products through a network of 44 branches and 245 ATMs across KSA.

� Business brief SHB’s core banking activities include corporate banking, retail banking, and treasury services. The bank offers Van Gogh preferred banking services such as domestic and international share trading services and mutual fund portfolios to high net-worth individuals (HNIs) under the wealth management segment.

� FinancialsSHB’s net income grew more than 9x YoY in 2010 due to the bank’s low net income base in 2009 (high provisions for the year). However, the total operating income for the year declined 9.0% YoY. This was mainly ascribed to lower net special commission income, which fell 18% YoY to SR1.3bn. However, the bank’s fee income and exchange income rose 24.3% and 12.1%, respectively, on a YoY basis. SHB’s loan portfolio declined 2.7% and customer deposits fell 7.2% YoY in 2010, and it booked provisions amounting to SR398bn (SR1,248bn in 2009). In 1Q11, the bank’s net income grew 3.5% YoY to SR238mn mainly due to 9.9% YoY increase in non-interest income. SHB’s net income, however, was below our estimate of SR282mn. We attribute this variance to higher than expected operating expenses and provision charges.

� Recent developments In March 2011, Fitch Ratings affirmed SHB’s long-term issuer default rating at “A-” with a stable outlook. In January 2011, SHB’s Board of Directors decided to reappoint Eng. Mubarak Abdullah Al-Khafrah as Chairman of Board for a new term of three years. In October 2010, the bank launched a new Olisha branch offering Islamic banking services in Riyadh.


SAUDI HOLLANDI BANK

ALSO KNOWN AS: SHB


STOCK DETAILS 52-week range H/L (SR) 35.7/24.5Market cap ($ mn) 2,654.2Shares outstanding (mn) 330.8



Reuters code 1040.SEBloomberg code AAAL AB

www.shb.com.sa


VALUATION MULTIPLES 09A 10A 11EP/E (x) 115.9 12.7 10.7P/B (x) 1.8 1.6 1.4P/S (x) 4.6 5.1 4.9Div Yield (%) N/A N/A 1.9DPS 0.0 0.0 0.6 Source: NCBC Research estimates


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5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-1025272931333537

TASI Saudi Hollandi (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) RBS, Fortis Group and Banco Santander (ABN AMRO)

39.9

Al Olayan Saudi Invst Co. 20.8GOSI 9.6


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Sp. Com Income SRmn 1,570 1,287 1,343 1,517 (18.0) -1.1Operating Income SRmn 2,147 1,954 2,044 2,296 (9.0) 2.3Net Income SRmn 86 784 934 1,118 812.3 135.2Assets SRmn 59,110 53,882 57,889 63,905 (8.8) 2.6Equity SRmn 5,633 6,387 7,228 8,085 13.4 12.8Advances SRmn 36,023 35,039 37,485 42,164 (2.7) 5.4Total Deposits SRmn 52,084 45,961 49,096 54,090 (11.8) 1.3Net Interest Margin % 2.7 2.3 2.5 2.6Cost/Income % 37.8 39.5 40.2 39.0ROE % 1.5 13.0 13.7 14.6ROA % 0.1 1.4 1.7 1.8Div Payout % - - 20.3 30.5 NA NAEPS SR 0.3 2.4 2.8 3.4 812.3 135.2BVPS SR 17.0 19.3 21.9 24.4 13.4 12.8 Source: Company, NCBC Research

40


MAY 2011

41

Petrochemicals


2010 SABIC 46

2020 SAFCO 47

2060 Industrialization 48

2350 Saudi Kayan 49

2290 YANSAB 50

2250 SIIG 51

2310 Sipchem 52

2260 Sahara Petrochemical 53

2330 Advanced Petrochem 54

2380 Petro Rabigh 55

2002 National Petrochem 56

2210 Nama Chemicals 57

2170 Alujain 58

2001 Chemanol 59

The Saudi petrochemical sector is benefiting from the recent rise in oil as it boosts petrochemical prices. This offers higher margins for Saudi players given their low and relatively fixed cost structure. Moreover, commissioning of new projects, sustained efforts to move downstream and strong demand from Asian and Middle Eastern countries reinforce the sector’s positive outlook going forward.In 2011 petrochemical prices have been strengthening due oil hovering above USD100/bbl and tightened supply due to planned and unplanned shutdowns across the globe. Saudi players are benefitting from this high price environment given their low and fixed cost structure. The price of ethane, a key petrochemical feedstock produced in KSA, is at USD0.75 per mmbtu, which is much lower than the global spot price of over USD4 per mmbtu. As a result, the ethylene production cost of ethane based Saudi plants is close to USD160/mt, compared to USD380/mt for producers using naphtha-feed crackers. However, discussions with industry players indicate that the price of natural gas (USD0.75/mmbtu) would double to USD1.5/mmbtu by 2012E. Moreover, with limited supply of low-cost ethane, Saudi producers are focusing on mixed-feed crackers. The resultant increase in production costs due to a rise in ethane cost (in 2012E) and inclusion of heavier feedstock are not likely to have a significant impact on Saudi producers’ earnings considering their expanding production base along with an improvement in prices and demand.

Proximity to growing Asian and Middle Eastern markets is another important positive for the sector. Saudi petrochemical companies are undertaking aggressive capex to capitalize on rising demand and their cost advantage. According to a BMI report, total ethylene capacity in Saudi Arabia is expected to more than double to 18mn mtpa by 2012 from around 8mn mtpa in 2008. The commercial start-up of major plants of Saudi Kayan’s petrochemical complex in 2H11 would be a key growth driver for the sector in 2011. Moreover, SABIC is looking for opportunities to invest in new downstream products such as polyurethanes and polyamides. The company also aims to increase R&D spending to more than 2% of sales in coming years from 1% level currently.

Nevertheless, Saudi producers are facing anti-dumping claims from China and India. China imposed anti-dumping duties in 2009 on Butanediol exports by Sipchem, while India imposed duties on polypropylene supplied by Saudi producers (such as SABIC, Tasnee and Advanced Petrochemicals) in November 2010. Saudi authorities are in talks with their Indian counterparts to remove the imposed duties. Also, China decided against imposing anti-dumping duties on Saudi methanol producers after concluding a year-long investigation in November 2010.

The sector currently comprises 14 listed companies, with Saudi Basic Industries Co (SABIC) being the largest. Furthermore, SABIC is the largest petrochemical sector player in the Middle East region. Headquartered in Riyadh, SABIC reported annual production volumes of 67mn tonnes (mt) and accounted for 65% of the total revenues from the petrochemical sector of KSA in 2010. Overall, the Saudi petrochemical sector witnessed steady growth in 2010 after enduring difficulties in late 2008 and early 2009. Saudi petrochemical firms

MAY 2011

PETROCHEMICALS

Rising prices and capacity additions – key triggers

42

PETROCHEMICALS NCB CAPITAL

MAY 2011

42

collectively reported net income of SR29.6bn in 2010 compared to net income of SR10.5bn in 2009.


Units as stated

% weight in Index as of 27 April2011

NM (%), 2010

Avg. RoE (%), 2010

Saudi Basic Industries Corp (SABIC) 13.5 14.2 18.8 KSA Fertilizers Co (SAFCO) 2.9 85.4 45.6 Saudi Industrial Investment Group (SIIG) 2.0 8.2 7.2 Sahara Petrochemical 1.2 NM 10.5 Yanbu National Petrochemical Co (YANSAB) 2.0 28.7 25.7 Nama Chemicals 0.3 5.5 2.2 Saudi International Petrochemical Co (Sipchem) 1.4 19.0 7.7 National Industrialization Co (NIC) 2.9 9.2 17.3 Alujain Corporation 0.2 5.0 7.9 Advanced Petrochemical Company 0.8 16.2 18.9 Saudi Kayan Petrochemical Company 2.1 NM (0.1)Rabigh Refining and Petrochemical Co 0.8 0.4 2.6 Chemanol 0.2 1.0 0.4 Petrochem 0.3 NM (0.9)Source: Zawya, Saudi Stock Exchange (Tadawul); NM: Net Margin

In 2010, the petrochemical sector’s combined revenues (all of the 14 companies) increased 54% YoY to SR235.5bn, supported by a rise in petrochemical prices, capacity expansions and higher demand from Asian economies, particularly China. SABIC, KSA’s largest petrochemical company which constituted 65% of the total petrochemical sector revenue in 2010, reported a 47% YoY rise in revenues for the same period. The net margin of KSA petrochemical companies expanded to 12.6% in 2010 from 6.8% in 2009. Saudi Kayan and Petrochem incurred losses in 2010 as they are still in the start-up phase.

Exhibit 44: Revenues of companies, 2005–10 Exhibit 45: Profitability of companies, 2005-10

SR mn %

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2005 2006 2007 2008 2009 2010

SABIC SAFCO SIIG Sahara Nama Sipchem

NIC Alujain APPC Rabigh Chemanol

-20

0

20

40

60

80

100

2005 2006 2007 2008 2009 2010SABIC SAFCO SIIGSahara Nama SipchemNIC Chemanol APPC

Source: Zawya, Tadawul, NCBC Research Source: Zawya, Tadawul, NCBC Research

Stock multiples improved significantly in 2009, after falling drastically in 2008. The upward movement continued in 2010, but at a moderate pace as investors adopted a cautious approach amid signs of some instability in Europe. Of the key stocks in the sector, SABIC traded at RoE and P/B multiple of 18.8% and 2.8x at end 2010, respectively, versus 8.6% and 2.3x at end 2009, respectively.

43


MAY 2011

42

Exhibit 46: Comparison of P/B and ROE, 2009 Exhibit 47: Comparison of P/B and ROE, 2010

% %

SAFCO

SABIC

SIIG SPC Yanbu

Nama

Sipchem NIC

Alujain

APCKayan

Rabigh

Chemanol Petrochem

-20

-10

0

10

20

30

0 1 2 3 4 5

P/B (x)

RO

E (%

)

SABIC

SIIG

SPC

Yanbu

Nama

Sipchem

NIC

Alujain

APCKayan

Rabigh

Chemanol Petrochem

-10

-5

0

5

10

15

20

25

30

-1 0 1 2 3 4 5 6 7 8

P/B (x)RoE

(%)

Source: Bloomberg, Tadawul, NCBC Research Source: Bloomberg, Tadawul, NCBC Research

Trading turnover of KSA petrochemical stocks averaged to SR2.3bn daily in 2010 compared to SR1.2bn daily in 2009, signifying renewed stock market activity during 2010. Within the sector, SABIC with an average daily turnover of SR389mn in 2010 had the largest turnover.

Exhibit 48: Avg. daily turnover, Jan10 – Dec10 Exhibit 49: Share price movement, Jan10 – Dec10

SR mn Rebased to 100 on 1st Jan-10

28.2 49.4

268.

5

115.

9

38.6

38.7 68

.8

19.5

31.7

21.2

25.8

19.3

389.

3

31.6

0

100

200

300

400

500

Sip

chem NIC

Kay

an

Yan

sab

Pet

roch

em

Sah

ara

Pet

roR

abig

h

Alu

jain

Che

man

ol

Nam

a

SA

FCO

SIIG

SA

BIC

AP

PC

50

70

90

110

130

150

Jan-10 Mar-10 May-10 Aug-10 Oct-10 Dec-10

Sipchem NIC Kayan YansabPetrochem Sahara Petro Rabigh AlujainChemanol Nama SAFCO SIIGSABIC APPC


Tadawul Petrochemical index gained 19.8% in 2010, after a strong growth of 57.2% in 2009. However, the petrochemical sector fell sharply by 18.2% during May 2010 resulting in 1.8% drop for the period May–December 2010. This could be ascribed to ongoing concerns related to the European debt crisis and a slower-than-expected rebound in the US.

Our outlook for the KSA petrochemical sector remains largely positive Sustained demand and recovery in prices, as witnessed in 2010, strengthen our outlook for the Saudi petrochemical sector in 2011. Moreover, an increase in production capacity could enable Saudi producers to tap the rising demand from Asian economies. On the flip side, post 2012E, anticipated weakness in prices due to oversupply may exert some pressure on earnings of Saudi petrochemical producers. We believe the sector's feedstock advantage and proximity to the high-growth Asian and Middle Eastern markets would continue to offer support, going forward.

NCBC Recommendations in the Sector The Petrochemical stocks under our coverage universe include Tasnee, Sipchem, Yansab, Sahara, Petrochem and Saudi Kayan. Detailed information on the companies’ performance is included in our Petrochemical Sector Report released in August 2010 and 4Q10 company update reports.

44


MAY 2011

Exhibit 50: Coverage stocks details Stock Current Rating PT (SR) Comments SABIC(2010.SE)

Overweight 127.3 Expanding capacity, rising prices and growing demand would drive 2011 performance. A wide product range, integrated production flow, low feedstock cost and a strong presence in emerging markets further support our optimism towards the stock.

Sipchem(2310.SE)

Overweight 27.6 Acetyls Complex (Phase II expansion) doubled Sipchem’s annual capacity to 2.2mn mt, thus boosting 2010 performance. Full-year benefits of the acetyl complex are expected to accelerate earnings in 2011. An earlier than expected commencement of Phase III expansion (currently set for 2014) is a potential catalyst.

NIC (Tasnee) (2060.SE)

Overweight 36.4 Tasnee is the only titanium pigment producer in the Middle East and is monetizing its low cost feedstock advantage through its petrochemicals business. Contribution from SEPC and improving petrochemical and titanium dioxide prices should drive 2011 earnings growth. Positive developments on the acrylic acid project also support our optimism on the stock.

Sahara (2260.SE)

Overweight 23.7 Strong earnings from SEPC and Al Waha (which started in April 2011) are set to boost 2011 net income. Sahara’s strong project pipeline is also a key positive for the stock. Once all of Sahara's plants start operations, the company will have one of the most diverse product portfolios in the sector with a range of ethylene derivatives, super absorbent polymers and acrylates. However, timely start up of its projects is important.

Yansab (2290.SE)

Neutral 46.9 Yansab has started commercial operations in March 2010 and thus benefited from improving demand and petrochemical prices. Full benefits from the complex are expected to be realized in 2011. However, with lack of any near term growth catalyst, we believe current valuation offers limited upside.

SAFCO2020.SE

Overweight 208.0 The company's high margins, low capital expenditure requirement and short cash conversion cycle results in high free cash flows, hence, high dividends payments. We believe the expected increase in ammonia and urea prices that will help the company to grow bottom line is already priced in by the market

Saudi Kayan (2350.SE)

Neutral 18.2 Diversified product-mix and strong links with SABIC are positives. However, doubts over on-time start of production and lack of revenues until 2011 dim the near outlook. While 2013e will benefit from full year contribution from its plants, post 2013e net income is likely to contract as the current cycle nears its peak.

Petrochem(2002.SE)

Neutral 17.2 Expected to commence operations in 2012e and will be entering into the Ethylene and Propylene derivatives arena through a JV with Chevron Phillips. However there will be likely no revenue until 2012e and net losses in 2010e-2011e.


45

Established in 1976, Saudi Basic Industries Corporation (SABIC) is one of the leading petrochemical companies in the world, with sales totaling SR152bn (USD40.6bn) in 2010. The company produces basic chemicals (olefins, oxygenates and aromatics), intermediates and polymers. SABIC also produces fertilizers (through SAFCO, Ibn Al-Baytar, Al-Bayroni) and metals (through Hadeed, ALBA, GARMCO).

� Business brief SABIC operates across the globe through its subsidiaries and associates. It functions through six interlinked divisions: Chemicals, Polymers, Performance Chemicals, Innovative Plastics, Fertilizers, and Metals. The company is targeting an annual total production capacity of 130mn mtpa by 2020.

� FinancialsSABIC reported a 47.5% YoY increase in revenues to SR152.0bn in 2010 due to higher production volumes and petrochemical prices. Growth in 2010 production volumes is due to capacity addition by Yansab, Sharq’s third expansion project and SABIC’s petrochemical complex in Tianjin (China) through a JV with Sinopec. EBITDA margins improved to 31.9% in 2010 from 28.7% in 2009. SABIC posted a net income of SR21.5bn in 2010, up 137.3% YoY.

� Recent developments On 25 January 2011, SABIC announced that Ibn Rushd, its subsidiary, would complete its expansion project in 30 months. The project would double Ibn Rushd's aromatics capacity to 1.2mn mtpa, while terephthalic acid capacity would more than double to 750,000 mtpa. On 17 January 2011, the company declared termination of the 50:50 JV agreement between SAFCO and HADEED for the construction of steel plant in Jubail Industrial City as studies did not yield encouraging results. In August 2010, SABIC signed a guarantee agreement with National Commercial Bank to grant a SR4.5bn loan to Saudi Kayan for funding the increased project cost.

PETROCHEMICALS � MAY 2011

SAUDI BASIC INDUSTRIES CORPORATION

ALSO KNOWN AS: SABIC


STOCK DETAILS 52-week range H/L (SR) 114/77Market cap ($ mn) 88,578Shares outstanding (mn) 3,000

Price perform (%) 1M 3M 12MAbsolute 5.4 8.2 7.5Market 1.2 2.3 (3.0)Sector 3.6 9.4 5.3


Reuters code 2010.SEBloomberg code SABIC AB

www.sabic.com




60

80

100

120

5,000

5,500

6,000

6,500

7,000

May-11Feb-11Nov-10Aug-10May-10

TASI SABIC (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Public Investment Fund 70.0General Organization for Social Insurance (GOSI)

5.2


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 103,062 151,970 182,946 189,763 47.5 22.6EBITDA SRmn 29,577 48,502 56,226 60,323 64.0 26.8Net Income SRmn 9,074 21,529 28,866 31,915 137.3 52.1Assets SRmn 296,861 317,580 355,039 379,667 7.0 8.5Equity SRmn 108,255 120,782 139,203 160,616 11.6 14.1Total Debt SRmn 107,015 110,602 99,526 86,855 3.4 (6.7)Cash & Equiv SRmn 57,197 50,648 60,327 80,392 (11.4) 12.0EBITDA Mgn % 28.7 31.9 30.7 31.8 - -Net Mgn % 8.8 14.2 15.8 16.8 - -ROE % 8.6 18.8 22.2 21.3 - -ROA % 3.2 7.0 8.6 8.7 - -Div Payout % 49.6 48.8 36.4 32.9 - -EPS SR 3.02 7.18 9.62 10.64 137.3 52.1BVPS SR 36.08 40.26 46.40 53.54 11.6 14.1 Source: Tadawul, Zawya, Company, NCBC Research

46

Established in 1965, Saudi Arabian Fertilizer Company (SAFCO) produces ammonia and urea nitrogen-based fertilizers. The company markets products in Asia, America, Australia, Africa and the Middle East countries. Saudi Basic Industries Corp. (SABIC) holds a 43% stake in SAFCO.

� Business brief SAFCO has a urea production capacity over 2.6mn mtpa, the majority of which is exported. Urea is a key nitrogen-based fertilizer across the globe. The company also manufactures 2.3mn mtpa of ammonia, most of it used as an intermediate raw material for producing urea.

� FinancialsRevenues for 2010 grew 38.3% YoY to SR3,789mn, driven by higher sales volumes as well as higher petrochemical prices. Gross margins for the year increased 860bps YoY and net profit was up 79.3% to SR3,235mn. We expect the company’s revenue and net profit for 2011 to grow at 22.8% and 15.3%, respectively. SAFCO announced its 1Q11 earnings on 12 April 2011. Net income came in at SR833mn compared to SR698mn in 1Q10; a 19.3% growth YoY, yet decreased 18.7% QoQ. The company attributed the YoY increase to the rise in selling prices (urea and ammonia) and the QoQ decline to the fall in sales volume.

� Recent developments On the 17 January 2011, SABIC announced that it would not proceed with the 50:50 agreement between SAFCO and HADEED. The company stated that the construction of the steel plant in Jubail Industrial City did not yield encouraging results during the studies which were conducted. Nevertheless, SAFCO announced it would go ahead with its SAFCO 5 expansion plan, which is likely to add 1mn mtpa of urea capacity by 2013. The company also finalized an agreement with the Ministry of Petroleum and Mineral Resources for its gas feedstock, which would be required for the expansion and growth of the company.


SAURI ARABIAN FERTILIZER CO

ALSO KNOWN AS: SAFCO

OVERWEIGHT Current price (SR) 177.0Pricing as of 04-05-2011

STOCK DETAILS 52-week range H/L (SR) 193/117Market cap ($ mn) 11,797Shares outstanding (mn) 250

Price perform (%) 1M 3M 12MAbsolute (1.8) 3.5 37.4Market 1.2 2.3 (3.0)Sector 3.6 9.4 5.3


Reuters code 2020.SEBloomberg code SAFCO AB

www.safco.com.sa




90

140

190

240

5,000

5,500

6,000

6,500

7,000


TASI SAFCO (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) SABIC 42.9General Organization for Social Insurance (GOSI)

16.7


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 2,741 3,789 4,655 4,415 38.3 17.2EBITDA SRmn 1,889 2,855 3,694 3,199 51.1 19.2Net Income SRmn 1,804 3,235 3,729 3,225 79.3 21.4Assets SRmn 8,808 8,379 8,763 8,918 (4.9) 0.4Equity SRmn 7,015 7,134 7,738 7,838 1.7 3.8Total Debt SRmn 590 353 116 0 (40.2) -Cash & Equiv SRmn 2,964 2,256 2,395 2,365 (23.9) (7.3)EBITDA Mgn % 68.9 75.3 79.4 72.5 - -Net Mgn % 65.8 85.4 80.1 73.0 - -ROE % 31.2 59.4 63.5 51.8 - -ROA % 23.8 46.4 53.2 44.3 - -Div Payout % 166.3 92.7 87.2 93.0 - -EPS SR 7.22 12.94 14.92 12.90 79.3 21.4BVPS SR 28.06 28.54 30.95 31.35 1.7 3.8 Source: Tadawul, Zawya, Company, NCBC Research

47

National Industrialization Company (Tasnee) was established in Riyadh in 1985 to support the Kingdom’s industrial development. In 2007, Tasnee acquired LyondellBasell’s worldwide titanium dioxide business. In 2008, it purchased Australia's Bemax Resources Ltd. and International Titanium Powder (ITP).

� Business brief Tasnee’s main businesses are in petrochemicals and titanium dioxide. The company also has smaller business lines in automotive batteries, carton packaging and related services. In 2006, Tasnee, in a JV with Sahara Olefins and Basell, formed Saudi Ethylene and Polyethylene Co. (SEPC) that started operations in June 2009. SEPC has a capacity of 1mn mtpa of ethylene cracker, and 400k mtpa each of low and high density polyethylene.

� FinancialsIn 2010, Tasnee generated revenues of SR16bn, 47.2% higher than 2009. Tasnee’s net income in 2010 was SR1,473mn, up 183.5% from SR519mn in 2009, primarily driven by the full-year contribution from the SEPC production, which commenced operations in June 2009. Moreover, higher petrochemical prices and improving demand supported the YoY growth of Tasnee’s earnings in 2010.

� Recent developments On 30 January 2011, Tasnee announced that its subsidiary TSOC signed an agreement with Saudi Kayan and a JV between Dow Chemicals and Saudi Aramco to set up a n-butanol plant. The plant, to be operated by Tasnee, would cost SR1.8bn and have an annual capacity of 330k mt. The output of the plant, which is expected to start 2H14, would be divided equally between the three partners. As of December 2010, Tasnee is looking for USD1.5–2.0bn funding to set up an acrylic acid plant in Jubail. The EPC contract for the acrylic acid project was awarded to Germany’s Linde German and Korea's Samsung in October 2010. This project, costing SR4bn, is expected to start in 1Q13.


NATIONAL INDUSTRIALIZATION

ALSO KNOWN AS: NIC, TASNEE


STOCK DETAILS 52-week range H/L (SR) 39/20Market cap (SR mn) 5,736Shares outstanding (mn) 557



Reuters code 2060.SEBloomberg code NIC AB

www.tasnee.com WEIGHTING & FREEFLOAT (%) TASI (free float weight) 3.20Free float 87.7VALUATION MULTIPLES 09A 10A 11EP/E (x) 41.4 14.6 14.5P/B (x) 2.8 2.3 2.1P/S (x) 2.0 1.3 1.1Div Yield (%) 1.8 2.4 2.4DPS 0.7 0.9 0.9

Source: NCBC Research estimates


15

25

35

45

5,000

5,500

6,000

6,500

7,000


TASI NIC (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Al Sha'er Trade, Industries and Construction

8.6

General Organization for Social Insurance (GOSI)

8.2

Gulf Investment Corporation 7.4Kingdom Holding Company 6.2Swicorp Co. 5.6 Source: Tadawul, NCBC Research

Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 10,863 15,989 18,837 19,218 47.2 20.9EBITDA SRmn 2,448 4,368 4,873 4,979 78.4 26.7Net Income SRmn 519 1,473 1,480 1,503 183.5 42.5Assets SRmn 33,168 34,746 36,310 39,133 4.8 5.7Equity SRmn 7,790 9,262 10,215 11,211 18.9 12.9Total Debt SRmn 16,015 14,755 13,452 14,096 (7.9) (4.2)Cash & Equiv SRmn 3,585 3,886 3,528 5,455 8.4 15.0EBITDA Mgn % 22.5 27.3 25.9 25.9 - -Net Mgn % 4.8 9.2 7.9 7.8 - -ROE % 6.9 17.3 15.2 14.0 - -ROA % 1.6 4.3 4.2 4.0 - -Div Payout % 73.3 34.4 34.3 33.8 - -EPS SR 0.93 2.64 2.65 2.70 183.5 42.5BVPS SR 13.97 16.61 18.33 20.11 18.9 12.9 Source: Tadawul, Zawya, Company, NCBC Research

48

Saudi Kayan Petrochemical Company (Kayan) was established by SABIC (35% stake) and Al Kayan Petrochemical (20%) in 2007 to set up a SR46bn petrochemical complex in Jubail Industrial City. The plant has the capacity to produce approximately 6mn mtpa of petrochemical products each year.

� Business brief Believed to be one of the world's largest integrated petrochemical plant, the complex would manufacture specialized chemicals such as polycarbonate, bisphenol A, acetone and ethanolamines, besides ethylene, polyethylene, propylene and ethylene glycols. Kayan has commenced trial operations at most of its plants (such as olefins, ethylene glycol, polypropylene, phenolics and high density polyethylene plants) during 2H10 and January 2011. Experimental runs are expected to start at the remaining plants in phases during 2011-2013.

� FinancialsKayan has limited financial history as it is yet to start operations. We assume commercial operations of its plants to begin in 3Q11. Kayan reported a net loss of SR14.7mn in 2010 compared to SR16.9mn in 2009. Full year 2010 loss per share stood at SR0.01; it was in line with loss per share in 2009.

� Recent developments On 30 January 2011, Kayan signed a preliminary agreement with Saudi Acrylic Acid Company (SAAC) and a proposed joint venture of Saudi Arabian Oil Company (Saudi Aramco) and Dow Chemical Company to build, own and operate the N-Butanol facility having an annual production capacity of 330k mtpa in Jubail Industrial City. The project would be an equal proportion JV costing around SR1.8bn, with production expected to start in 2H14. The company commenced trial operations at its 400k mtpa high density polyethylene plant in January 2011. Kayan started trial operations at its Phenolics plant in December 2010; the plant comprises the Cumene, Phenol and Bisphenol-A production units.


SAUDI KAYAN

ALSO KNOWN AS: KAYAN

NEUTRALCurrent price (SR) 18.2Pricing as of 04-05-2011


Price perform (%) 1M 3M 12MAbsolute (2.2) (2.9) (18.4)Market 1.2 2.3 (3.0)Sector 3.6 9.4 5.3


Reuters code 2350.SEBloomberg code KAYAN AB

www.saudikayan.com


VALUATION MULTIPLES 09A 10A 11EP/E (x) - - 21.3P/B (x) 1.8 1.8 1.6P/S (x) - - 3.8Div Yield (%) - - -DPS - - - Source: NCBC Research estimates


14

16

18

20

22

5,000

5,500

6,000

6,500

7,000


TASI Kayan (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) SABIC 35.0Kayan Petrochemical Co 20.0


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn - - 7,112 15,113 - -EBITDA SRmn - - 2,557 5,617 - -Net Income SRmn (17) (15) 1,280 3,041 - -Assets SRmn 35,808 43,445 48,019 49,629 21.3 11.5Equity SRmn 15,477 15,462 16,742 19,783 (0.1) 8.5Total Debt SRmn 19,113 26,089 29,056 27,102 36.5 12.3Cash & Equiv SRmn 2,472 967 188 528 (60.9) (40.2)EBITDA Mgn % - - 36.0 37.2 - -Net Mgn % - - 18.0 20.1 - -ROE % (0.1) (0.1) 7.9 15.4 - -ROA % (0.1) (0.0) 2.8 6.2 - -Div Payout % - - - - - -EPS SR (0.01) (0.01) 0.85 2.03 - -BVPS SR 10.32 10.31 11.16 13.19 (0.1) 8.5 Source: Tadawul, Zawya, Company, NCBC Research

49

Yanbu National Petrochemicals Company (Yansab) was established in 2006 to set up a 4mn mt per annum petrochemical complex in the Yanbu Industrial City. SABIC holds a majority stake (51%) in Yansab. The company commenced commercial operations in March 2010.

� Business brief Yansab has a diversified petrochemical product mix, including Ethylene (1.3mn mtpa), Propylene (400k mtpa), Polypropylene (400k mtpa), Polyethylene (both low and high density with 400k mtpa each) and Mono, Di and Tri Ethylene Glycol (770k mtpa total). Other products such as Benzene, Butene, Methyl Tertiary Butyl Ether and Benzene Toluene Xylene have a total production capacity of close to 375k mtpa.

� FinancialsYansab posted revenues of SR5,822mn for the first time in 2010 as its petrochemical complex started commercial operations in March. The company reported a 2010 gross profit of SR2,170mn, representing a 37.3% gross margin for the full year. Yansab’s 2010 net income totaled SR1,673mn as against a net loss of SR29mn in 2009.

� Recent developments On 26 September 2010, Yansab restarted its olefins cracking unit, which was temporarily shutdown from 10 September 2010 due to technical failure of the plant equipment. Earlier on 4 May 2010, the company announced appointment of Mr. Osama A. Bashaikh as Chairman, effective from 1 June 2010. Mr. Osama bin Abdullatif Bashaikh succeeds Mr. Rahman Bin Saleh Al-Faqih, whose term ends on 31 May 2010.


YANBU NATIONAL PETROCHEMICALS COMPANY

ALSO KNOWN AS: YANSAB





Reuters code 2290.SEBloomberg code YANSAB AB

www.yansab.com.sa


VALUATION MULTIPLES 09A 10A 11EP/E (x) - 17.2 11.1P/B (x) 5.1 3.9 3.1P/S (x) - 5.0 3.0Div Yield (%) - - 2.0DPS - - 1.0 Source: NCBC Research estimates


20

30

40

50

60

5,000

5,500

6,000

6,500

7,000


TASI YANSAB (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) SABIC 51.0General Organization for Social Insurance (GOSI)

10.5


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn - 5,822 9,491 10,156 - -EBITDA SRmn (29) 2,881 4,236 4,423 - -Net Income SRmn (29) 1,673 2,589 2,800 - -Assets SRmn 21,124 23,163 23,823 22,529 9.7 2.2Equity SRmn 5,668 7,340 9,367 11,604 29.5 27.0Total Debt SRmn 14,611 11,635 10,911 7,574 (20.4) (19.7)Cash & Equiv SRmn 606 790 1,906 1,452 30.4 33.9EBITDA Mgn % - 49.5 44.6 43.5 - -Net Mgn % - 28.7 27.3 27.6 - -ROE % (0.5) 25.7 31.0 24.1 - -ROA % (0.1) 7.6 11.0 12.1 - -Div Payout % - - - - - -EPS SR (0.05) 2.97 4.60 4.98 - -BVPS SR 10.08 13.05 16.65 20.63 29.5 27.0 Source: Tadawul, Zawya, Company, NCBC Research

50

Saudi Industrial Investment Group (SIIG) was established in 1996 in Riyadh. The company primarily focuses on investment opportunities in the Kingdom’s petrochemical sector. SIIG operates through three subsidiaries – Saudi Chevron Phillips, Jubail Chevron Phillips and National Petrochemicals Company (PetroChem).

� Business brief Of the three subsidiaries, Saudi Chevron Philips and Jubail Chevron Phillips are operational. Saudi Chevron Phillips produces cyclohexane (780k mtpa) and motor gasoline (290k mtpa), while Jubail Chevron Phillips manufactures styrene (750k mtpa) and propylene (150k mtpa). In 2007, SIIG, through Petrochem, formed Saudi Polymers Co to manufacture a range of petrochemical products such as ethylene, propylene and their derivatives. The project, entailing an investment of SR21bn, has an annual production capacity of 3.4mn mt and is scheduled to commence operations by the end of 2011.

� FinancialsIn 2010, SIIG’s revenues grew 31.7% YoY to SR4,952mn from SR3,760mn in 2009. The company reported net income of SR405mn in 2010 compared to SR306mn in 2009 as higher selling prices and stable production levels drove the stronger revenue and net income figures. SIIG announced the conversion of subordinate loans into paid-in capital for Saudi Polymers Co that, in turn, positively impacted its earnings in 2010 as the move lowered the company’s stake in Petrochem’s losses by SR21mn.

� Recent developments On 11 December 2010, SIIG’s BoD recommended to the General Assembly the distribution of cash dividend of SR0.5 per share. On 16 June 2010, the company announced it would implement certain conversion projects (aggregating USD1.8bn) in KSA along with Chevron Phillips Arabic. Both partners would have an equal contribution in the project. One of these projects entails the production of nylon 6.6 for the first time in the Kingdom.


SAUDI INDUSTRIAL

ALSO KNOWN AS: SIIG





Reuters code 2250.SEBloomberg code SIIG AB

www.siig.com.sa


VALUATION MULTIPLES 08A 09A 10A

P/E (x) 248.3 39.6 29.9P/B (x) 2.3 2.2 2.1P/S (x) 5.7 3.2 2.4Div Yield (%) - 1.9 1.9DPS - 0.5 0.5 Source: NCBC Research estimates


10

15

20

25

30

5,000

5,500

6,000

6,500

7,000


TASI SIIG (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Public Pension Authority (PPA) 10.6Ali Abdullah Ibrahim Al Jafaly 6.3


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 1,459 2,139 3,760 4,952 31.7 50.3EBITDA SRmn 474 168 572 701 22.5 13.9Net Income SRmn 437 49 306 405 32.2 (2.6)Assets SRmn 4,964 8,649 19,699 23,674 20.2 68.3Equity SRmn 3,126 5,197 5,503 5,681 3.2 22.0Total Debt SRmn 1,372 2,731 10,174 12,940 27 111Cash & Equiv SRmn 749 2,703 4,586 3,769 (17.8) 71.4EBITDA Mgn % 32.5 7.9 15.2 14.1 - -Net Mgn % 30.0 2.3 8.1 8.2 - -ROE % 14.5 1.2 5.7 28.9 - -ROA % 9.3 0.7 2.2 7.5 - -Div Payout % 51.4 - 73.5 55.6 - -EPS SR 0.97 0.11 0.68 0.90 32.2 (2.6)BVPS SR 6.95 11.55 12.23 12.62 3.2 22.0 Source: Tadawul, Zawya, Company, NCBC Research

51

Established in 1999, Saudi International Petrochemical Co (Sipchem) is engaged in producing petrochemical products such as methanol, butanediol, carbon monoxide, acetic acid and vinyl acetate. The company is expanding its product mix through a Phase III development plan.

� Business brief Under Phase I, Sipchem established a methanol plant with a production capacity close to 1mn tonnes per annum (mtpa) and a butanediol plant with a capacity of 75k mtpa. Following the completion of Phase II expansion in 3Q10, the company added carbon monoxide (345k mtpa), acetic acid (460k mtpa) and vinyl acetate (330k mtpa) to its product mix. Sipchem is currently undertaking Phase III expansion, which is expected to add products such as ethylene vinyl acetate (EVA), low density polyethylene (LDPE) and ethyl acetate to its existing petrochemical product mix.

� FinancialsSipchem generated SR1,993mn in revenues in 2010 (SR830mn in 2009) driven by the completion of Phase II expansion and increase in petrochemical prices and demand. The company’s net income rose 168.4% to SR378mn in 2010 from SR141mn in 2009.

� Recent developments In January 2011, the Capital Market Authority approved Sipchem’s plans to raise its capital by 10% to SR3.67bn by issuing one bonus share for every 10 shares. On 08 January 2011, the company awarded an engineering, procurement and construction (EPC) contract to eTEC Engineering & Construction Company, Korea for the construction of an ethyl acetate plant. The facility, scheduled to commence operations in 2Q13, is expected to produce 100k mtpa of ethyl acetate and butyl acetate. On 15 December 2010, Sipchem awarded an EPC contract for its ethylene vinyl acetate plant to South Korea's GS Engineering and Construction Co. The plant is expected to commence in 2Q13 and entails an investment of SR3.0bn. The plant would produce 200k mtpa of EVA and LDPE.


SAUDI INTERNATIONAL PETROCHEMICAL COMPANY

ALSO KNOWN AS: SIPCHEM



Price perform (%) 1M 3M 12MAbsolute (4.2) 2.4 (11.0)Market 1.2 2.3 (3.0)Sector 3.6 9.4 5.3


Reuters code 2310.SEBloomberg code SIPCHEM AB

www.sipchem.com




15

20

25

30

5,000

5,500

6,000

6,500

7,000


TASI Sipchem (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Zamil Group Holding Company 9.6National Manufacturing Holding Co.

8.3

Public Pension Authority 7.7Al Olayan Financial Company 5.2 Source: Tadawul, NCBC Research

Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 830 1,993 3,577 3,664 139.9 64.0EBITDA SRmn 327 1,069 1,854 1,772 227.5 75.7Net Income SRmn 141 378 776 717 168.4 72.0Assets SRmn 11,818 12,027 13,387 14,299 1.8 6.6Equity SRmn 4,922 4,921 5,662 6,010 (0.0) 6.9Total Debt SRmn 4,461 4,566 5,042 5,458 2.3 7.0Cash & Equiv SRmn 1,831 1,621 2,853 2,212 (11.5) 6.5EBITDA Mgn % 39.3 53.7 51.8 48.4 - -Net Mgn % 17.0 19.0 21.7 19.6 - -ROE % 2.9 7.7 14.7 12.3 - -ROA % 1.2 3.2 6.1 5.2 - -Div Payout % 236.6 88.2 42.9 46.5 - -EPS SR 0.38 1.03 2.12 1.95 168.4 72.0BVPS SR 13.42 13.42 15.44 16.39 (0.0) 6.9 Source: Tadawul, Zawya, Company, NCBC Research

52

Sahara Petrochemical Company (Sahara) was established in 2004 by the Al Zamil Group. The company develops, owns and operates production facilities through joint ventures with other companies in the petrochemical sector. Sahara has four subsidiaries: Al Waha Petrochemical, Tasnee & Sahara Olefins (TSOC), Saudi Acrylic Acid Company (SAAC) and Arabian Chlor Vinyl Company (ACVC).

� Business brief Al Waha has a production capacity of 467k mtpa of propylene and 450k mtpa of polypropylene. It is expected to start commercial production in 2Q11. Saudi Ethylene and Polyethylene Co. (SEPC) (24% owned by Sahara) has a production capacity of 1mn mtpa of ethylene and 800k mtpa of polyethylene. Sahara also has three projects in the pipeline: Saudi Acrylic Monomers Company (SAMC) for producing acrylates, Superabsorbent Polymers Project (SAP Project) for superabsorbent polymers and ACVC for caustic soda and ethylene dichoride.

� FinancialsSahara’s share in SEPC's net income is the primary income generator for Sahara currently. Sahara reported a net income of SR329.2mn in 2010 compared to SR76.5mn in 2009, primarily due to the full-year contribution from SEPC, which started operations in June 2009.

� Recent developments In January 2011, SAAC entered into a preliminary agreement with Saudi Kayan and a proposed JV of Saudi Arabian Oil Company and Dow Chemical Company to build, own and operate the n-Butanol which will have a production capacity of 330k mtpa. Production would commence in 2H14. In November 2010, the company received a SR900mn loan from SIDF for its SAMC project expected to be completed by the end of 2012. In October 2010, SAAC and SAMC signed an early work agreement with Linde and Samsung to commence EPC activities at its acrylic acid project in Jubail Industrial City. Production is expected to commence by 1Q13.


SAHARA PETROCHEMICAL

ALSO KNOWN AS: SAHARA, SPCO



Price perform (%) 1M 3M 12MAbsolute 6.2 18.6 (8.6)Market 1.2 2.3 (3.0)Sector 3.6 9.4 5.3


Reuters code 2260.SEBloomberg code SPC AB

www.saharapcc.com


VALUATION MULTIPLES 09A 10A 11EP/E (x) 95.1 22.1 12.6P/B (x) 2.5 2.2 1.9P/S (x) - - 4.1Div Yield (%) - - -DPS - - - Source: NCBC Research estimates


10

15

20

25

30

5,000

5,500

6,000

6,500

7,000


TASI SPC (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Al Zamil Group Holding Company 7.9


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn - - 1,777 2,440 - -EBITDA SRmn (32) (5) 641 888 - -Net Income SRmn 76 329 575 758 330.5 114.8Assets SRmn 5,956 6,584 8,107 9,545 10.6 17.0Equity SRmn 2,938 3,305 3,880 4,638 12.5 16.4Total Debt SRmn 2,260 2,360 2,249 2,875 4.4 8.4Cash & Equiv SRmn 556 164 43 20 (70.5) (66.9)EBITDA Mgn % - - 36.1 36.4 - -Net Mgn % - - 32.4 31.1 - -ROE % 3.2 10.5 16.0 17.8 - -ROA % 1.4 5.2 7.8 8.6 - -Div Payout % - - - - - -EPS SR 0.26 1.13 1.97 2.59 330.5 114.8BVPS SR 10.04 11.30 13.26 15.85 12.5 16.4 Source: Tadawul, Zawya, Company, NCBC Research

53

Dammam-based Advanced Petrochemical Company (APPC) was established in 2005 to develop a SR2.9bn integrated propane dehydrogenation and polypropylene complex in Jubail Industrial City. The facility has an annual production capacity of 450k mt of polypropylene. It commenced commercial operations in 2008.

� Business brief APPC has an annual production capacity of 450k mt of polypropylene, which is used in several applications such as manufacturing of fabrics, moldings, pipes and furniture. APPC operates a propylene plant (with a capacity of 455k mtpa) by using CATOFIN-ABB Lumus technology, which converts propane gas into propylene. The company appointed Vinmar International (Houston), Mitsubishi Corp. and Domo (Belgium) to offtake the output from the complex. Most of the production would be shipped through the ports of Dammam, Jeddah and Jubail.

� FinancialsIn 2010, APPC’s revenue grew 38.5% YoY to SR2,031mn from SR1,467mn in 2009. The net income rose 158.3% YoY to SR328mn during the same period, largely due to higher polypropylene prices in the international markets and an increase in sales volumes.

� Recent developments On 12 December 2010, APPC announced that it had completed the maintenance of its polypropylene units, which were temporarily closed on 30 November 2010. During the same month, the company recommended a cash dividend of SR1 per share for the second half of 2010. In October 2010, APPC re-appointed Khalifa Abdullatif Al-Molhim as Chairman of the Board.


ADVANCED PETROCHEM

ALSO KNOWN AS: APPC

NCCurrent price (SR) 32.4Pricing as of 04-05-2011

STOCK DETAILS 52-week range H/L (SR) 35/17 5Market cap ($ mn) 1,221 MShares outstanding (mn) 141 S

Price perform (%) 1M 3M 12M PAbsolute (0.9) 25.1 39.8 AMarket 1.2 2.3 (3.0) MSector 3.6 9.4 5.3 S

Avg daily turnover (mn) SR US$ A3M 49.9 13.3 312M 41.4 11.0 1

Reuters code 2330.SE RBloomberg code APPC AB B

www.advancedpetrochem.com

WEIGHTING & FREEFLOAT (%) TASI (free float weight) 0.67 TFree float 94.7 F


P/E (x) 21.8 36.0 14.0 PP/B (x) 2.8 2.7 2.5 PP/S (x) 3.1 3.1 2.3 PDiv Yield (%) - 3.1 5.4 DDPS - 1.0 1.8 D Source: NCBC Research estimates


15

20

25

30

35

5,000

5,500

6,000

6,500

7,000


TASI APPC (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) National Polypropylene Co.General Organization for Social Insurance (GOSI)

7.95.3


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn - 1,459 1,467 2,031 38.5 -EBITDA SRmn (1) 366 357 570 59.5 -Net Income SRmn 2 210 127 328 158.3 433.4Assets SRmn 2,545 3,507 3,414 3,365 (1.4) 9.7Equity SRmn 1,416 1,617 1,670 1,811 8.4 8.5Total Debt SRmn 1,070 1,713 1,474 1,264 (14.2) 5.7Cash & Equiv SRmn 89 216 296 457 54.1 72.6EBITDA Mgn % - 25.1 24.3 28.0 - -Net Mgn % - 14.4 8.7 16.2 - -ROE % 0.2 13.9 7.7 75.4 - -ROA % 0.4 27.8 14.7 38.7 - -Div Payout % - - 111.2 75.4 - -EPS SR 0.02 1.49 0.90 2.32 158.3 433.4BVPS SR 10.02 11.44 11.82 12.81 8.4 8.5 Source: Zawya, Tadawul, Company, NCBC Research

54

Rabigh Refining and Petrochemical Co. (PetroRabigh), established in Rabigh in 2005, is a joint venture between Saudi Aramco and Japan’s Sumitomo Chemical. The US$10bn project can produce 130 mn barrels (bbl) of refined products and 2.4mn mt of petrochemical products annually.

� Business brief Aramco is expected to supply 400k barrels of crude oil, 95mn cubic feet (mcf) of ethane and about 15k barrels of butane on a long-term, fixed-price basis to Petro Rabigh. Sumitomo provides the technological and marketing expertise. The plant is equipped with a sophisticated High Olefins Fluid Catalytic Cracker (HOFCC) and Ethane Cracker. Saudi Aramco is responsible for marketing Petro Rabigh’s refining petroleum products, while Sumitomo handles the marketing of petrochemical products. Petro Rabigh is planning to work on the US$6.67bn phase II project which would add about 17 new products.

� FinancialsPetro Rabigh’s revenues grew 59.2% YoY to SR46.8bn in 2010 from SR29.4bn in 2009. The company’s net income rose to SR208.7mn in 2010 on increased sales volume and better gross margin, compared to a net loss of SR1,433.1mn in 2009.

� Recent developments In January 2011, Petro Rabigh announced that all its plants have commenced full-scale operations. In October 2010, a power outage interrupted the functioning at most of the units, which resumed operations in phases in the subsequent months. In August 2010, Petro Rabigh entered into an agreement with Saudi Advanced Industries Co (SAIC) and the National Industries Co (TASNEE) to provide 100k mtpa of propylene oxide to both. The two companies would invest SR375–400mn to set up a 120k mtpa polyether polyols plant in Petro Rabigh’s industrial area.


RABIGH REFINING AND PETROCHEMICAL

ALSO KNOWN AS: PETRORABIGH





Reuters code 2380.SEBloomberg code PETROR AB

www.petrorabigh.com



P/E (x) - - 119.6P/B (x) 2.7 3.2 3.1P/S (x) 3.8 0.8 0.5Div Yield (%) - - -DPS - - - Source: NCBC Research estimates


17

22

27

32

37

5,000

5,500

6,000

6,500

7,000


TASI Petro Rabigh (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Saudi Arabian Oil Company (Aramco)

37.5

Sumitomo Chemical Company 37.5


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn - 6,543 29,423 46,838 59.2 -EBITDA SRmn (423) (1,029) (144) 1,906 - -Net Income SRmn (443) (1,256) (1,433) 209 - -Assets SRmn 26,961 47,911 52,146 47,243 (9.4) 20.6Equity SRmn 5,953 9,264 7,831 8,010 2.3 10.4Total Debt SRmn 19,444 31,569 33,995 26,475 (22.1) 10.8Cash & Equiv SRmn 186 1,534 1,306 2,548 95.1 139.3EBITDA Mgn % - (15.7) (0.5) 4.1 - -Net Mgn % - (19.2) (4.9) 0.4 - -ROE % (10.5) (16.5) (16.8) 10.5 - -ROA % (2.3) (3.4) (2.9) 1.7 - -Div Payout % - - - - - -EPS SR (0.51) (1.43) (1.64) 0.24 - -BVPS SR 6.80 10.58 8.94 9.14 2.3 10.4 Source: Zawya, Tadawul, Company, NCBC Research

55

National Petrochemical Company (Petrochem) was established in 2008. The company is mainly involved in investing in the petrochemical industry through its 65% owned Saudi Polymers Company.

� Business brief Saudi Polymers Company is undertaking a petrochemical project being built in Jubail Industrial City. The project, estimated to cost over SR20.8bn, is financed through equity and debt funding. The project is scheduled to be completed by the end of 2011. However, we expect revenues to commence from 2Q12. Once operational, the project would have annual production capacity of 3.4mn mtpa, including ethylene, propylene, HDPE, LDPE, polypropylene, polystyrene, and hexane. Petrochem is 50.0% owned by Saudi Industrial Investment Group (SIIG).

� FinancialsWe do not expect Petrochem to report revenues until 2012E. The company is likely to suffer losses until then mainly due to non-operating expenses. Petrochem reported net loss of SR43.0mn in 2010, lower than SR60.6mn net loss in 2009.

� Recent developments On 25 January 2011, Petrochem announced that its general meeting will be held on 9 April 2011 in Riyadh Marriott Hotel, Riyadh.


NATIONAL PETROCHEM

ALSO KNOWN AS: SAUDI PETROCHEM, PETROCHEM





Reuters code 2002.SEBloomberg code PETROCH AB

www.petrochem.com.sa


VALUATION MULTIPLES 09A 10A 11EP/E (x) - - -P/B (x) 2.4 2.4 2.4P/S (x) - - -Div Yield (%) - - -DPS - - - Source: NCBC Research estimates


12

17

22

27

5,000

5,500

6,000

6,500

7,000


TASI Petrochem (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Saudi Industrial Investment Grp Co. 50.0General Organization for Social Insurance (GOSI)

16.2

Public Pension Authority (PPA) 16.2


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn - - - 6,218 - -EBITDA SRmn (9) 14 (14) 2,160 - -Net Income SRmn (61) (43) (15) 969 (29.6) (351.9)Assets SRmn 14,581 18,320 20,722 22,253 25.6 15.1Equity SRmn 4,757 4,715 4,700 5,669 (0.9) 6.0Total Debt SRmn 8,712 11,602 12,748 12,748 33.2 13.5Cash & Equiv SRmn 3,272 2,103 1,469 172 (35.7) (62.5)EBITDA Mgn % - - - 34.7 - -Net Mgn % - - - 15.6 - -ROE % (1.7) (0.9) (0.3) 18.7 - -ROA % (0.7) (0.3) (0.1) 4.5 - -Div Payout % - - - - - -EPS SR (0.13) (0.09) (0.03) 2.02 (29.6) (351.9)BVPS SR 9.91 9.82 9.79 11.81 (0.9) 6.0 Source: Tadawul, Zawya, Company, NCBC Research

56

Established in 1992, Nama Chemicals Company (NAMA) develops, owns and operates industrial projects within the chemical and petrochemical sectors. NAMA functions through its affiliates Arabian Alkali Company (55k mtpa capacity) and Jubail Chemical Industries Company (60k mtpa capacity).

� Business brief Arabian Alkali is one of the largest caustic soda producers in the Middle East. Jubail Chemical Industries (JANA) produces epoxy resins and markets them under the brand names RAZEEN and ARALDITE. NAMA set up the Hassad Petrochemical Company in 2005, which manufactures different types of chemicals to supply feedstock to both of its subsidiaries.

� FinancialsIn 2010, the company’s revenues grew 58% YoY to SR628.2mn compared to SR397.7mn in 2009. NAMA reported net income of SR34.5mn in 2010 compared to a loss of SR49.8mn in 2009, mainly attributed to an increase in sales and improvement in product prices in the international markets. The EBITDA margin stood at 9.8% in 2010 compared to a loss in 2009.

� Recent developments In December 2010, NAMA started production in the Alaepkruhedrin chlorine plant, owned by its subsidiary JANA, with a production capacity of 30k mt per year. During the same month, the company commercialized its chlorine alkali plant of caustic soda with a capacity of 50k mt per year. JANA received a SR210mn loan from the Saudi Industrial Development Fund in January 2010. The loan amount would be used for the expansion of the epoxy factory in order to double its production capacity to 120k mt per annum by the end of 2011.


NAMA CHEMICALS

ALSO KNOWN AS: NAMA


STOCK DETAILS 52-week range H/L (SR) 12/8Market cap ($ mn) 377Shares outstanding (mn) 129



Reuters code 2210.SEBloomberg code NAMA AB

www.nama.com.sa





8

10

12

14

5,000

5,500

6,000

6,500

7,000


TASI NAMA (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Ahmed Hamad Al Gosaibi Co. 7.4


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 513 622 398 628 58.0 7.0EBITDA SRmn 50 27 (28) 62 - 7.3Net Income SRmn 34 (68) (50) 34 - 0.5Assets SRmn 1,751 2,545 2,396 2,448 2.2 11.8Equity SRmn 921 1,557 1,565 1,630 4.1 20.9Total Debt SRmn 696 800 702 660 (6.0) (1.7)Cash & Equiv SRmn 81 487 23 216 819.5 38.3EBITDA Mgn % 9.7 4.3 (7.0) 9.8 - -Net Mgn % 6.6 (10.9) (12.5) 5.5 - -ROE % 4.0 (5.5) (3.2) 2.2 - -ROA % 2.4 (3.2) (2.0) 1.4 - -Div Payout % - - - - - -EPS SR 0.3 (0.5) (0.4) 0.3 - 0.5BVPS SR 7.2 12.1 12.2 12.7 4.1 20.9 Source: Zawya, Tadwul, Company, NCBC Research

57

Alujain Corporation (Alujain), an industrial investment firm, was established in 1991 and promoted by Xenel Industries (one of the oldest conglomerates in the Kingdom). The company’s investments include a 57.4% stake in National Petrochemical Co. (NatPet) and a 100% stake in Arab Pesticide Co. (MOBEED).

� Business brief Alujain predominantly invests in the Saudi petrochemical, energy, mining and metals sectors. The company transferred its Alfasel propylene production facility to the Teldene polypropylene project, promoted by associate NatPet, in May 2006. NatPet owns a SR2.3bn propylene and polypropylene plant, with a 400k mtpa capacity. The company signed a contract with Noble Group for the offtake of its production.

� FinancialsAlujain posted sales totaling SR852.1mn in 2010, mainly due to the start of commercial production at its subsidiary’s (NatPet) polypropylene facility in Yanbu Industrial City in Q3 2010. Benefiting from this, the company posted a net income of SR42.2mn in 2010.

� Recent developments In December 2010, Alujain withdrew its application made to the Capital Market Authority for acquiring the remaining stake in NatPet. This move was a result of some technical concerns and CMA’s comments. In the same month, NatPet terminated its Polypropylene Marketing Agreement with SABIC effective 31 December 2011. In December 2010, NatPet received a final settlement of USD35mn from Lurgi/APSA, the contractors who built its propylene plant, as compensation for the delay in delivery of the plant.


ALUJAIN CORPORATION

ALSO KNOWN AS: ALUJAIN





Reuters code 2170.SEBloomberg code ALCO AB

www.alujaincorporation.com



P/E (x) - - 34.2P/B (x) 2.8 2.8 2.6P/S (x) - - 0.02Div Yield (%) - - -DPS - - - Source: NCBC Research estimates


10

15

20

25

30

5,000

5,500

6,000

6,500

7,000

May-11Feb-11Nov-10Aug-10May-10TASI ALCO (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Safra Co 14.9 Khalid Abdul Rahman Saleh Al Rajhi

9.9


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn - - - 852 - -EBITDA SRmn (57) (59) (63) 183 - -Net Income SRmn (40) (65) (27) 42 - -Assets SRmn 2,747 3,229 3,406 3,559 4.5 9.0Equity SRmn 651 515 519 554 6.9 (5.2)Total Debt SRmn 1,612 2,123 2,066 2,168 4.9 10.4Cash & Equiv SRmn 201 113 52 312 498.1 15.8EBITDA Mgn % - - - 21.5 - -Net Mgn % - - - 5.0 - -ROE % (5.9) (11.2) (5.3) 31.5 - -ROA % (2.3) (2.2) (0.8) 4.8 - -Div Payout % - - - - - -EPS SR (0.58) (0.94) (0.39) 0.61 - -BVPS SR 9.41 7.44 7.49 8.01 6.9 (5.2) Source: Zawya, Tadawul, Company, NCBC Research

58

Established in 1989, Methanol Chemicals Company (Chemanol) is a manufacturer of methanol, formaldehyde and its derivatives, including urea formaldehyde, acetaldehyde, hexamine, resins and super plasticizers. The company exports near 83% of products to more than 50 countries, including the UK, France, Germany, South Africa, the US, Canada, and Japan.

� Business brief Chemanol produces and supplies methanol, formaldehyde and its derivatives for use across industries such as agricultural, pharmaceutical, paper manufacturing and construction. The company had its Initial Public Offering (IPO) on the Saudi Stock Exchange in August 2008 to finance an expansion plan involving around SR2bn investment.

� FinancialsChemanol revenues grew 46.5% YoY to SR589.5mn in 2010 as compared to SR402.3mn in 2009. However, net income declined 72.6% YoY to SR6mn, mainly due to higher selling and marketing expenses, and increased interest cost. The company’s net margin fell 446 basis points YoY and stood at 1% in 2010.

� Recent developments Chemanol started operations at its plants in Jubail in June 2010. These plants include a methanol plant (annual production capacity of 231k mt), di-methyl formamide plant (production capacity of 60k mtpa) and a pentaerythritol plant (production capacity of 20k mtpa). The company has secured a SR326mn loan from local and Gulf banks to fund these projects.


METHANOL CHEMICALS

ALSO KNOWN AS: CHEMANOL



Price perform (%) 1M 3M 12MAbsolute 0.4 (4.1) (15.5)Market 1.2 2.3 (3.0)Sector 3.6 9.4 5.3


Reuters code 2001.SEBloomberg code CHEMANOL AB

www.chemanol.com



P/E (x) 44.0 76.3 278.5P/B (x) 1.2 1.2 1.2P/S (x) 2.9 4.2 2.9Div Yield (%) - - -DPS - - - Source: NCBC Research estimates


10

12

14

16

18

5,000

5,500

6,000

6,500

7,000


TASI Chemanol (RHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Abdullah & Abdul Aziz Kanoo C 11.2Zamil Group Holding Co 11.2Mazen Khalifa Al Ahiq Al Nuaimi & Sons

7.5

Mohammed Jalal & Sons Co. 5.0Al Mazrooe Holding Co 5.0 Source: Tadawul, NCBC Research

Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 461 571 402 589 46.5 8.5EBITDA SRmn 61 73 59 138 134.3 31.2Net Income SRmn 25 38 22 6 (72.6) (37.4)Assets SRmn 1,301 2,640 3,033 3,092 1.9 33.5Equity SRmn 678 1,390 1,411 1,415 0.3 27.8Total Debt SRmn 546 1,148 1,448 1,480 2.2 39.4Cash & Equiv SRmn 13 375 270 136 (49.6) 119.9EBITDA Mgn % 13.2 12.8 14.6 23.3 - -Net Mgn % 5.4 6.7 5.5 1.0 - -ROE % 3.7 3.7 1.6 1.7 - -ROA % 2.2 1.9 0.8 0.8 - -Div Payout % - - - - - -EPS SR 0.20 0.32 0.18 0.05 (72.6) (37.4)BVPS SR 5.62 11.53 11.70 11.73 0.3 27.8 Source: Zawya, Tadawul, Company, NCBC Research

59


MAY 2011

60

Cement


3030 Saudi Cement 66

3020 Yamamah Cement 67

3050 Southern Cement 68

3040 Qassim Cement 69

3010 Arab Cement 70

3080 Eastern Cement 71

3060 Yanbu Cement 72

3091 Al Jouf Cement 73

3090 Tabuk Cement 74

The Saudi market for cement is one of the strongest globally, helped by steady demand growth, as well as government subsidies which have led to market beating margins. Excess supply, falling prices and competition from private players have all contributed to the poor performance of the listed sector over the past three years. However with all these factors less acute than before, we believe in 2011 the KSA cement sector could see the first meaningful YoY net income growth since 2007. We believe the outlook for 2011 is the most positive it has been over the past 24 months. We believe domestic cement demand will remain strong with total cement volume growth of 10% expected in 2011. Additionally, we expect prices to remain relatively stable due to the excess supply situation being less acute than over the past two years. The recent government announcement of plans to spend SR250bn in building 500k houses, alongside increased commentary suggesting the long awaited mortgage law will be passed soon, could potentially provide significant extra cement demand. If demand is higher than expected, we believe cement companies with excess capacity and high stock levels will benefit the most given the ease with which they can meet this demand. Factoring in the locations for the new housing, we believe Yamamah Cement is best positioned to benefit, given its location near Riyadh, followed by Saudi and Southern Cement who have excess capacity and stock.

We believe 2011 could be the first time in three years that listed companies will see most of the incremental growth in cement demand. Over the past three years, private companies have taken a 20%+ market share of the Saudi cement market. However, over the past few months, we have seen the market share of private players stagnating at around 20%. We believe this could be due to the private players maxing out their limited capacity with existing demand. Subsequently, this may mean that any incremental growth in demand in 2011 and beyond will be increasingly be met by the listed companies as they have sufficient spare capacity to fulfill this demand.

Exhibit 51: Saudi cement market share Exhibit 52: Total cement sales (local and export)

% ‘000 tons

60%65%70%75%80%85%90%95%

100%

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep

-08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep

-09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep

-10

Nov

-10

Jan-

11

Mar

-11

0%

5%

10%

15%

20%

25%

Listed players Private players (RHS)-

10,000

20,000

30,000

40,000

50,000

60,000

2008 2009 2010E 2011E 2012E 2013E 2014E 2015E

Source: Yamamah Cement, NCBC Research Source: Bloomberg, Tadawul, NCBC Research

MAY 2011

CEMENT

Outlook the most positive since 2009

61

CEMENT NCB CAPITAL

MAY 2011

Cost advantages lead to higher returns. KSA cement companies’ impressive returns compared to GCC peers are primarily due to their significant cost advantages. Cement companies in KSA have access to low cost raw materials compared to their global peers due to access to limestone quarries under the licenses granted by the government. They also have access to low cost natural gas/oil, which is used as fuel by cement plants and a major portion of overall costs at a cement firm. As a result, the cost of production for KSA-based companies is significantly lower than the GCC and global players. Thus, average gross margins for KSA cement companies in 2010 was are around 52% compared to the GCC average of 35%.

Exhibit 53: Gross margin, 2010 Exhibit 54: Comparison of ROE and P/E of GCC companies, 2010

USD mn %

0

10

20

30

40

50

60

Saudi Arabia UAE Qatar Oman Kuwait GCCAverage2008 2009 2010

0

5

10

15

20

25

30

5 10 15 20 25 30 35 40

P/E (x)

RO

E (%

)

KSA UAE Kuwait Oman Qatar


The sector fares well on a ROE basis, coupled with attractive P/E multiples. Of the thirteen cement producers operating in KSA, nine are listed on the Tadawul.


Units as stated

Country

% weight in Index as of

Dec 2010 NM(%),

2010ROE (%)

2010Dividend Yield

2010Saudi Cement Co. 1.4 43.2 19.6 7.0Yamama Saudi Cement Co. 1.3 51.6 20.8 6.8Southern Province Cement Co 0.7 50.3 26.5 7.0Yanbu Cement Co 0.5 48.0 17.0 4.5Qassim Cement Co 0.5 51.7 27.0 8.0Eastern Province Cement Co 0.5 41.8 16.2 6.5Arabian Cement Co 0.5 34.2 10.2 2.4Tabuk Cement Co 0.3 44.9 11.3 7.0Al Jouf Cement 0.3 9.2 NA 0.0Source: Bloomberg, Tadawul: Company data, NCBC Research; NM: Net Margin

Cement production by the 13 companies in KSA grew 13% YoY to 42.9mt, whereas their total domestic cement sales volume increased 12% YoY to 41.3mt during 2010, driven by increased construction activity in the region that led to increased demand for cement. Saudi Cement, among the listed firms, reported the highest increase in sales volumes, while Eastern Cement’s sales volumes declined the most in 2010.

Overall, revenue of the listed sector increased by 5% YoY in 2010 to SR7.9bn. Saudi Cement reported the highest increase in revenue of 13%, while Yanbu Cement’s revenue declined the most in 2010, by 5%. Adjusted net profits for the listed sector fell by 1% to SR3.6bn during the year. While net profit at Arabian

62

CEMENT NCB CAPITAL

MAY 2011

Cement fell the most at 20%, Yamama Cement reported the highest increase at 17% in 2010.

Pricing pressure to remain, although less than beforeOff the back of the conditional export ban and the excess supply over the past few years, the price of cement per ton has fallen since 2008; it fell 3% YoY to SR228 in 2010 compared to SR235 per ton in 2009 and SR255 in 2008. This subsequently led to the declines in adjusted net profit for the sector over the past three years from SR4.5bn in 2007 to SR3.6bn in 2010.

Although we expect there to be continued pricing pressure in the long term, off the back of conversations with key sector participants and analysis of supply/demand dynamics, we believe 2011 will see less pricing pressure than previously expected. We believe prices will stay relatively stable, falling by only SR1 YoY to SR228, against our previous expectation of SR226. The key reason for this is higher than expected cement demand and lower than expected supply e.g. Al Safwa completed all engineering works in early 2010 but has still not fully commenced commercial operations at its 1.5mn tons per year facility. This has led to the excess supply situation to be less acute than expected, limiting pricing pressure.

Exhibit 56: Price/Cost of Cement per ton Exhibit 57: Net profit for the sector, 2007-10

SR per ton SR mn

-

20

40

60

80

100

120

140

1Q-0

7

2Q-0

7

3Q-0

7

4Q-0

7

1Q-0

8

2Q-0

8

3Q-0

8

4Q-0

8

1Q-0

9

2Q-0

9

3Q-0

9

4Q-0

9

1Q-1

0

2Q-1

0

3Q-1

0

4Q-1

0

200

210

220

230

240

250

260

270

Av. Price Realized (RHS) Av. Cost of Production 0

1,500

3,000

4,500

6,000

2007 2008 2009 2010


Reasonable valuations The sector’s 2011e P/E and P/BV multiple currently stands at 11.6x and 2.3x, respectively, versus 13.1x and 1.9x for the overall Saudi stock market. While Southern Cement and Qassim Cement reported the highest RoEs of around 27%, Arabian and Tabuk Cement reported the lowest RoE in the industry at 10-11%, for 2010.

63

CEMENT NCB CAPITAL

MAY 2011


% %

0

5

-10 -5 0 5 10 15 20 25 30 35 40

P/BV (x)

RO

E (%

)

Saudi Cement Yamama Southern ProvinceYanbu Cement Qassim Cement Eastern CementArabian Cement Tabuk Cement AL Jouf Cement

0

5

-10 -5 0 5 10 15 20 25 30 35 40

P/BV (x)

RO

E (%

)

Saudi Cement Yamama Southern ProvinceYanbu Cement Qassim Cement Eastern CementArabian Cement Tabuk Cement AL Jouf Cement


Average daily turnover for the sector stood at SR48mn per day in 2009 falling to SR36.9mn per day in 2010. Saudi Cement had the highest average daily turnover at SR7.4mn in 2010, followed by Yamama at SR7.3mn.

Exhibit 60: Avg. daily turnover, Jan10 – Dec10 Exhibit 61: Share price movement, Jan 10 – Dec10


77

4

6

3

4

2

2

0

2

4

6

8

Yamama Saudi Eastern Qassim Yanbu Arabian Southern Tabuk

70

90

110

130

150


Yamama Saudi Eastern Qassim Yanbu

Arabian Southern Tabuk Al Jouf


Outlook for the sector improving We believe the outlook for the sector is the most positive it has been over the past 24 months off the back of government’s recent announcement to spend SR250bn in building 500k houses, as well as increased possibility of the launch of the long-awaited mortgage law. On the supply side, off the back of conversations with market participants we believe there is expected to be far less excess supply than anticipated earlier, leading to less acute pricing pressure. Over the longer-term, ongoing construction projects (including the construction of the planned economic cities), public infrastructure projects, and expansion in sectors such as power, utilities and petrochemicals are key drivers that will likely help the cement industry in KSA to sustain its growth. Furthermore, KSA players’ strong margins compared to both the GCC and global players remains a key advantage.

Dividend yields a key positive Due to the high profitability of the cement sector (average sector gross profit margin of 52% in 2010, with net profit margin of 46%), and limited expansion opportunities, this leads to the Saudi cement companies have strong balance sheets and cash flows. Most of the companies thus pay out significant dividends (an average payout ratio of 77% in 2010) leading to attractive dividend yields; we expect over 6% for 2011. We believe this is a key positive for the sector and will provide downside protection in case of a correction in the broader stock market.

64

CEMENT NCB CAPITAL

MAY 2011

NCBC Recommendations in the Sector Demand outlook for the sector has improved off the back of recent plans by the government to build 500k houses, as well as increased likelihood of the mortgage law passing. This, coupled with reduced pricing pressure suggests a stronger profitability outlook for the sector in near-to-medium term. Currently we have six stocks under our coverage: Yamama Cement, Eastern Cement, Yanbu Cement, Saudi Cement, Southern Cement and Qassim Cement.

Exhibit 62: Coverage stocks details Stock Current Rating PT (SR) Comments Yamama Cement (3020.SE)

Overweight 63.0 Strong demand in Riyadh coupled with highest capacity in the central region a positive. Competition and deterioration in operational performance a risk. Ability to get a higher share in new projects coupled with rationalization of cost structure to boost top and bottom-line.

Eastern Cement (3080.SE)

Neutral 49.3 Shifting focus to domestic market due to limitation on exports. Remains focused on Eastern region for sales, however lack of major projects limits demand upside. Limited ability to meet incremental demand another concern.

Yanbu Cement (3060.SE)

Neutral 48.0 Western region fundamentals remain strong, volatility in project progress leads to top-line risk in the near term. Increase in the pace of implementation of planned projects to prove near-term catalyst. Lack of reliability in old lines as concern on the stock.

Saudi Cement (3030.SE)

Neutral 55.1 High excess capacity and stock levels will enable the company to easily meet any incremental growth in demand. Access to the railway link between the eastern region and Riyadh a key positive. Location in the east where local demand is limited is a key drawback for the stock.

Southern Cement (3050.SE)

Neutral 65.2 Well positioned for Jizan Economic City in the South. New facility in 2012 near Makkah should also help. However competition is fierce and new capacities will take some time to complete.

Qassim Cement (3040.SE)

Neutral 66.7 Lowest cost cement producer in the country with very low inventory levels. Lack of capacity expansion plans could limit growth.


65

Saudi Cement Company (SCC) is one of the oldest and largest cement companies in Saudi Arabia. Its new lines continue to drive lower costs, a key strength of the stock. Due to its high capacity and stock levels, SCC is well positioned to benefit from any increase in demand off the back of the recent government housing announcement.

� Business brief SCC was established in 1955 and specializes in the production of ordinary Portland cement, sulphate resistant cement and oil well cement. SCC has the largest capacity in Saudi; it had an annual installed capacity of 8.6mn tons of cement and 6.6 mn tones of clinker in 2010. SCC has been losing ground in the domestic market in the past few years, mainly due to competition from new entrants. The company’s market share declined to 15.2% in 2010 from 17.5% in 2007. SCC has a 36% equity stake in United Cement Company (Bahrain) and another 33.0% in Cement Product Industry Co. Ltd.

� FinancialsRevenues grew 13.4% YoY to SR1,526mn in 2010 on account of increased sales volumes. Higher revenues and lower costs due to efficiency gains from new production lines led to a 13.2% YoY increase in net profit to SR659mn in 2010. In summary, the 1Q11 results came in strong with all profit lines growing by 18-19%, a significant beat on our estimate. This was driven largely off the back of increased cost efficiencies from its new production lines.

� Recent developments From our Cement Monthly publications, we know that total Saudi Cement sales volumes fell by 1% YoY in 1Q11 vs. the sector which increased by 8%, thus its good 1Q11 results were off the back of good prices, combined with lower costs. In November 2010, SCC announced it received approval for setting up a KD4mn joint venture in Kuwait.

CEMENT � MAY 2011

SAUDI CEMENT

ALSO KNOWN AS: SCC





Reuters code 3030.SEBloomberg code SACCO AB

www.saudicement.com.sa




5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-103540455055

TASI Saudi Cement (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) General Organization for Social Insurance (GOSI)

8.5

Khalid Abdul Rahman Saleh Al Rajhi 7.9Public Pension Authority (PPA) 5.3


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 1,346 1,526 1,676 1,747 13.4 9.1EBITDA SRmn 811 894 963 974 10.3 6.3Net Income SRmn 582 660 732 746 13.2 8.6Assets SRmn 4,931 4,617 4,570 4,475 (6.4) (3.2)Equity SRmn 3,071 3,371 3,490 3,621 9.8 5.6Total Debt SRmn 1,509 927 695 468 (39) (32)Cash & Equiv SRmn 187 91 180 218 (51.4) 5.3EBITDA Mgn % 60.3 58.6 57.5 55.8 - -Net Mgn % 43.3 43.2 43.7 42.7 - -ROE % 19.7 20.5 21.3 21.0 - -ROA % 12.3 13.8 15.9 16.5 - -Div Payout % 91.9 92.8 83.6 82.0 - -EPS SR 3.81 4.31 4.78 4.88 13.2 8.6BVPS SR 20.07 22.03 22.81 23.67 9.8 5.6 Source: Tadawul, Zawya, Company, NCBC Research

66

Yamama Cement Company (YSCC) is one of the oldest and largest cement companies in Saudi Arabia. Located in Riyadh, it is ideally positioned to benefit from the 40% of total KSA cement demand expected in the central region. Additionally, due to its high capacity and stock levels, it is well positioned to benefit from any pick-up in demand.

� Business brief YSCC was founded in 1961 and is one of the largest cement companies in Saudi Arabia with annual cement and clinker production capacities if 6.3mn tons and 6.0mn tons, respectively. Based near Riyadh, YSCC is strategically located to take advantage of the increased momentum of the construction sector in 2011, particularly in the Central region. YSCC maintains one of the highest market shares for cement sales in the KSA at 12.9% for March 2011, although down from 14.1% at the end of 2009.

� FinancialsIn 2010, YSCC’s revenues were up 9.4% YoY to SR1,272mn driven by increased volume sales as well as higher prices. Production efficiency led to margin gains, resulting in a 16.9% YoY rise in net profit to SR657mn during the year. In summary, Yamamah reported a good set of numbers for 1Q11 with all profit lines up around 9% YoY, and coming in 4-6% higher than we estimated. However, the company’s profitability slowed in this quarter to single digit growth vs. double-digit growth for the last 6 quarters.

� Recent developments In January 2011, YSCC announced a year-end dividend of SR2 per share in addition to an interim dividend of SR2 per share announced on July 2010. In April 2010, the Board of Directors accepted the resignation of Sheikh Abdul Aziz Bin Ibrahim Al-Muhanna who, in turn, was replaced by Prof. Ibrahim bin Abdulaziz Al-Muhana.

CEMENT � MAY 2011

YAMAMA CEMENT

ALSO KNOWN AS: YSCC





Reuters code 3020.SEBloomberg code YACCO AB

www.yamamacement.com




5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-10354045505560

TASI Yamamah Cement (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Prince Sultan Mohammed Saud AlKabeer Al Saud

9.7


7.8



Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 1,163 1,272 1,309 1,367 9.4 5.5 EBITDA SRmn 766 857 851 868 11.9 4.3 Net Income SRmn 562 657 664 682 16.9 6.7 Assets SRmn 3,694 3,653 3,724 3,609 (1.1) (0.8)Equity SRmn 3,055 3,159 3,280 3,420 3.4 3.8 Total Debt SRmn 422 267 201 134 (36.7) (31.8)Cash & Equiv SRmn 712 700 869 939 (1.8) 9.7 EBITDA Mgn % 65.9 67.4 65.0 63.5 - -Net Mgn % 48.3 51.6 50.7 49.9 - -ROE % 19.1 21.1 20.6 20.4 - -ROA % 15.4 17.9 18.0 18.6 - -Div Payout % 72.1 82.2 81.3 79.2 - -EPS SR 4.16 4.87 4.92 5.05 16.9 6.7 BVPS SR 22.63 23.40 24.30 25.33 3.4 3.8 Source: Tadawul, Zawya, Company, NCBC Research

67

Southern Province Cement Company (SPCC) is Saudi Arabia’s largest cement producer in terms of market capitalization and the third largest in terms of capacity. Its high capacity and the growing demand base in the south/west of Saudi are key strengths for SPCC. Increased competition, particularly from its local private peer Najran Cement, is a key concern.

� Business brief SPCC was set up in 1978 and operates production facilities in Jazan, Bisha and Tuhama, with the bulk of the production taking place in the first two facilities. In 2010, SPCC produced 5.3mn tons of cement and 5.3mn tons of clinker. SPCC’s share in the domestic market continues to decline mainly due to the rising competition by several new players in the industry. Its share has fallen from 15.3% in 2008 and 13.8% in 2009 to 12.3% in 2010. The Public Investment Fund owns a 37.4% stake in the company.

� FinancialsRevenues fell 0.7% YoY to SR1,309mn in 2010 mainly due to lower cement prices. We believe the company has been particularly hit by increased competition from Najran Cement, whose sales volumes in 2010 rose 79% YoY compared to 2% for SPCC. Moreover, increased production costs and lack of other income pressurized margins, thus resulting in a 10.3% YoY fall in net profit to SR659mn during the year. In summary, 1Q11 was a strong set of results from SPCC, due largely off the back of sales volume increase of 27% YoY in 1Q11. Net profit grew by 19% YoY to SR226mn off the back of high volumes, 8.7% higher than our expected figure.

� Recent developments With inventory of over two million tons, SPCC is well positioned to benefit from any increase in cement demand in KSA which could be seen due to the governments aim to build 500k housing units. In January 2011, SPCC announced a year-end dividend of SR2.5 per share in addition to an interim dividend of SR2.0 announced in July 2010.

CEMENT � MAY 2011

SOUTHERN CEMENT

ALSO KNOWN AS: SPCC





Reuters code 3050.SEBloomberg code SOCCO AB

www.spcc.com.sa




5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-105457606366

TASI Southern Cement (LHS)

Source: Reuters


15.4


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 1,318 1,309 1,429 1475 (0.7) 3.8EBITDA SRmn 859 805 848 851 (6.3) (0.3)Net Income SRmn 734 659 683 682 (10.3) (2.4)Assets SRmn 2,802 2,832 2,927 2916 1.1 1.3Equity SRmn 2,462 2,488 2,539 2519 1.1 0.8Total Debt SRmn - - - - - -Cash & Equiv SRmn 607 547 480 507 (9.9) (5.8)EBITDA Mgn % 65.2 61.5 59.3 57.7 - -Net Mgn % 55.7 50.3 47.8 46.2 - -ROE % 30.4 26.6 27.2 27.0 - -ROA % 26.4 23.4 23.7 23.3 - -Div Payout % 95.4 95.7 92.2 102.6 - -EPS SR 5.2 4.7 4.9 4.9 (10.3) (2.4)BVPS SR 17.6 17.8 18.1 18.0 1.1 0.8 Source: Tadawul, Zawya, Company, NCBC Research

68

Qassim Cement Company (QCC) was founded in 1976 in Buraydah, which lies in the central region of KSA. As of December 2010, QCC had a total production capacity of 4.1mn tons of cement and 3.5mn tons of clinker. Its status as a low cost producer is a key positive; limited spare capacity is a key drawback of the stock.

� Business brief

QCC held a steady share of the KSA’s cement market for many years, however this fell to 9.9% in 2010 from 11.2% in 2009, led by increased competition from private players. Nevertheless, QCC is still one of the most efficient companies in the domestic cement sector. QCC produced cement at SR98 per ton in 2010; the lowest manufacturing cost in the sector with the industry average at SR108 per ton. In an industry facing pricing pressure, QCC’s low-cost advantage is a key positive for the stock

� FinancialsLow inventory level suppressed the company’s sales volume in 2010. This along with lower prices led to a 1.8% YoY decline in revenues to SR969mn. Margins were hit on account of increased electricity costs and reduced other income. As a result, net profit declined 16.8% YoY to SR501mn in 2010. Qassim Cement reported limited YoY growth in all profit lines in 1Q11. Although gross and operating profit was higher than our estimate, net income came in exactly in-line with our expected SR147mn. The key issue with Qassim Cement remains its limited stock levels and its already high utilization rates, both limiting its ability to meet any increase in demand.

� Recent developments The reported gross and operating income in 1Q11 came in higher than we expected; we believe this is due to the company being able to charge a higher price than expected. On volumes, we expected Qassim to report a 5% decline in 1Q11 YoY; it reported a decline of 6% against the 8% growth in volumes for the sector.

CEMENT � MAY 2011

QASSIM CEMENT

ALSO KNOWN AS: QCC





Reuters code 3040.SEBloomberg code QACCO AB

www.qcc.com.sa




5,000

5,500

6,000

6,500

7,000


56

61

66

71

TASI Qassim Cement (LHS)

Source: Reuters


19.9

Public Pension Authority (PFA) 5.4


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 987 969 973 973 (1.8) (0.5)EBITDA SRmn 629 617 616 618 (1.9) (0.6)Net Income SRmn 602 501 521 520 (16.8) (4.8)Assets SRmn 2,244 2,023 2,116 2,183 (9.8) (0.9)Equity SRmn 1,829 1,856 1,925 1,994 1.5 2.9 Total Debt SRmn 200 0 0 0 (100) (100)Cash & Equiv SRmn 16 20 161 276 23.2 158.4 EBITDA Mgn % 63.7 63.7 63.3 63.5 - -Net Mgn % 61.0 51.7 53.5 53.4 - -ROE % 33.9 27.2 27.6 26.5 - -ROA % 26.7 23.5 25.2 24.2 - -Div Payout % 89.7 89.8 86.4 74.4 - -EPS SR 6.69 5.57 5.79 5.78 (16.8) (4.8)BVPS SR 20.32 20.62 21.39 22.16 1.5 4.9 Source: Tadawul, Zawya, Company, NCBC Research

69

Arabian Cement Company (ACC) was the first to commence cement production in Saudi Arabia in 1958. The company mainly produces portland cement, portland pozzolan cement, sulfate-resistant cement and ready-mix concrete. As of 2010, ACC had a production capacity of around 3.5mn tons of cement and 3.3mn tons of clinker per year.

� Business brief ACC, the oldest cement company in the Kingdom, produced 3.2mn tons of cement and 2.4mn tons of clinker in 2010. The company’s market share has declined consistently from 11.6% in 2005 to 8.4% in 2008, 7.7% in 2009 to 7.2% at the end of 2010. This was mainly due to increased competition following the entry of four new players in the Saudi market.

� FinancialsACC’s revenue grew 1% YoY to SR745mn in 2010, driven mainly by an increase in sales volume. EBITDA margin contracted by 7.4% to 53.8% due to higher production costs. Despite this, the company’s net margin moved up to 34.2% in 2010 from 23.3% in 2009; net profit grew by 48% YoY to SR255mn. This was due to increased write downs during 2009.

� Recent developments In December 2010, ACC announced progress on the establishment of a new cement plant in Jordan, where it holds a 86% stake. The company mentioned that changing market conditions in Jordan with a slowdown in demand and rising capacities led to an 18.6% increase in construction costs (equivalent to US$74mn). In 1Q11, the company reported strong results with net income up 42% YoY. This was mainly due to strong sales volumes growth in the domestic market, alongside no unscheduled shut-downs in production which has plagued the company in the past few years.

CEMENT � MAY 2011

ARABIAN CEMENT

ALSO KNOWN AS: ACC


STOCK DETAILS 52-week range H/L (SR) 43/25Market cap (SR mn) 879Shares outstanding (mn) 80



Reuters code 3010.SEBloomberg code ARCCO AB

www.arabiacement.com



P/E (x) 10.2 19.2 12.9P/B (x) 1.5 1.5 1.3P/S (x) 3.6 4.5 4.4Div Yield (%) 7.3 3.0 2.4DPS 3.0 1.3 1.0 Source: NCBC Research estimates


5,000

6,000

7,000

May-11Jan-11Sep-10May-10222732374247

TASI Arab Cement (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Sulaiman Abdul Aziz Saleh Al Rajhi 11.8National Commercial Bank 9.9Abdul Aziz Abdullah Sulaiman Al Sulaiman

7.5

Abdullah Abdul Aziz Saleh Al Rajhi 5.7Public Pension Authority (PPA) 5.1


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 722 917 737 745 1.0 1.0EBITDA SRmn 436 389 451 401 (11.1) (2.8)Net Income SRmn 392 324 172 255 48.0 (13.4)Assets SRmn 2,366 3,518 3,830 4,158 8.6 20.7Equity SRmn 1,841 2,244 2,222 2,442 9.9 9.9Total Debt SRmn 282 1,017 1,296 1,405 8.4 70.8Cash & Equiv SRmn 117 451 66 147 123.7 8.0EBITDA Mgn % 60.4 42.4 61.2 53.8 - -Net Mgn % 54.3 35.3 23.3 34.2 - -ROE % 22.5 15.9 7.7 10.9 - -ROA % 18.8 11.0 4.7 6.4 - -Div Payout % 81.6 74.0 58.1 31.4 - -EPS SR 4.90 4.05 2.15 3.18 48.0 (13.4)BVPS SR 23.01 28.06 27.78 30.53 9.9 9.9 Source: Tadawul, Zawya, Company, NCBC Research

70

Eastern Cement Co (EPCC) was established in 1982 near Dammam in the eastern region of KSA. Until the conditional export ban in May 2008, EPCC was a regular exporter of cement to neighboring countries. Limited spare capacity and a muted demand outlook in the eastern region are key concerns on the stock.

� Business brief In 2010, EPCC’s market share was broadly flat compared to 2009 (8.3%), but declined from 12.0% in 2008 and 9.5% in 2007. The company produced 3.19mn tons of cement and 3.23mn tons of clinker in 2010. EPCC holds a 30% stake in Arabian Yemeni Cement Company, Yemen, 5.4% stake in Industrialization and Energy Services Company and 1.2% stake in Saudi Industrial Investment Group.

� FinancialsRevenues grew by 5.2% YoY to SR819mn in 2010, primarily driven by higher sales volume. However, an increase in production costs (mainly depreciation, power and labor) exerted pressure on margins; as a result, net profit fell by 2.3% YoY to SR343mn during the year. Eastern Cement reported worse than expected 1Q11 results on 17 April 2011. Net income fell by 10% YoY to SR83mn, 18% below our estimate. Higher operating costs as well as poor sales volumes combined to lead to the poor results.

� Recent developments On 31 May 2010, EPCC announced it commenced operations at its SR117-mn power generation plant. The 100-MW power plant covers a distance of 7.2 km. From our Cement Monthly publications, we know that overall sales volumes at Eastern Cement decreased by 2% YoY in 1Q11 versus growth of 7.9% for the sector. A key reason for the YoY decline in total sales is that in 1Q10, Eastern Cement had 105k tons of domestic clinker sales vs. 0 in 1Q11

CEMENT � MAY 2011

EASTERN CEMENT

ALSO KNOWN AS: EPCC





Reuters code 3080.SEBloomberg code EACCO AB

www.eastern-cement.com.sa


VALUATION MULTIPLES 09A 10A 11EP/E (x) 11.3 11.6 10.6P/B (x) 2.0 1.9 1.9P/S (x) 5.1 4.9 4.5Div Yield (%) 6.5 7.6 6.5DPS 3.0 3.5 3. 0 Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-103639424548

TASI Eastern Cement (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Public Pension Authority (PFA) 10.6Public Investment Fund 10.0General Organization for Social Insurance (GOSI)

10.0


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 779 819 876 900 5.2 4.9 EBITDA SRmn 449 445 461 477 (0.9) 2.0 Net Income SRmn 351 343 377 390 (2.3) 3.6 Assets SRmn 2,316 2,360 2,345 2,448 1.9 1.9 Equity SRmn 2,028 2,111 2,147 2,278 4.1 4.0 Total Debt SRmn 115 75 25 0 (35.0) (100.0)Cash & Equiv SRmn 341 401 312 373 17.6 3.0 EBITDA Mgn % 57.6 54.3 52.6 53.0 - -Net Mgn % 45.1 41.9 43.0 43.3 - -ROE % 18.0 16.6 17.7 17.6 - -ROA % 15.5 14.7 16.0 16.3 - -Div Payout % 73.5 87.8 68.4 66.2 - -EPS SR 4.08 3.99 4.38 4.53 (2.3) 3.6 BVPS SR 23.58 24.55 24.97 26.49 4.1 4.0 Source: Tadawul, Zawya, Company, NCBC Research

71

Yanbu Cement Company (YCC) is a medium sized cement company based in Jeddah in the western region of Saudi Arabia. Its location close to Jeddah and Makkah, two important demand points is a key positive; its old production lines and associated high costs are key negatives.

� Business brief Jeddah-based Yanbu Cement Company (YCC) was established in March 1976 with an initial production capacity of 3,000 tons of clinker per day. It was set up at Ras Baridi near Yanbu on the west coast of Saudi Arabia. Currently, the company’s total cement production capacity stands at 4.8 mtpa, although it is scheduled to open a new 3mtpa line in 3Q11. YCC was the largest seller of cement in the Saudi market during 2003–04; however, the company’s market share has been declining due to increasing competition. In the domestic market, its share fell to 9.0% in 2010 from 15.3% in 2007.

� FinancialsThe company’s revenue decreased 5% YoY to SR895mn in 2010 due to lower sales volume and prices amid intensifying competition and the export ban. Gross margin contracted 210 bps YoY to 51.9% leading to a 10.7% YoY drop in net profit. In summary, Yanbu Cement reported weak 1Q11 numbers with net income falling 18% YoY and 10% below our expected number. We believe increased finance expenses due to higher debt to fund its new line, alongside a maintenance shut down on one of its lines are the key reasons for the weak results.

� Recent developments In April 2011, Yanbu announced it had fuel supply issues and was having intermittent stoppages in production at the three smaller lines. Additionally, in April 2010 the company announced that a fire broke out at its new line which is scheduled to start operations in 3Q11. In July 2010, a fire broke out in an oil boiler at the fourth production line due to a technical fault.

CEMENT � MAY 2011

YANBU CEMENT

ALSO KNOWN AS: YCC





Reuters code 3060.SEBloomberg code YNCCO AB

www.yanbucement.com




5,000

5,500

6,000

6,500

7,000


39

42

45

48

TASI Yanbu Cement (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Sulaiman Abdul Aziz Saleh Al Rajhi

23.7


11.8

Public Investment Fund 10.0Abdullah Abdul Aziz Saleh Al Rajhi 5.8


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 943 895 944 1,040 (5.0) 3.3 EBITDA SRmn 586 539 578 635 (8.0) 2.7 Net Income SRmn 482 430 401 448 (10.7) (2.4)Assets SRmn 2,831 4,092 4,781 4,815 44.5 19.4 Equity SRmn 2,416 2,529 2,718 2,954 4.7 6.9 Total Debt SRmn 128 1,072 1,482 1,229 738.9 112.7 Cash & Equiv SRmn 295 320 122 108 8.5 (28.5)EBITDA Mgn % 62.1 60.2 61.2 61.1 - -Net Mgn % 51.1 48.1 42.5 43.1 - -ROE % 20.2 17.4 15.3 15.8 - -ROA % 17.7 12.4 9.0 9.3 - -Div Payout % 65.4 48.8 52.4 70.3 - -EPS SR 4.59 4.10 3.82 4.27 (10.7) (2.4)BVPS SR 23.01 24.09 25.89 28.13 4.7 6.9 Source: Tadawul, Zawya, Company, NCBC Research

72

Al Jouf Cement Company (JCC) is the most recent entrant into the Saudi cement market with commercial production and its IPO taking place in 2010. It has a production capacity of 1.4mn tons of Ordinary Portland Cement (OPC) and 262,500 tons of Sulphate Resisting Cement (SRC).

� Business brief Since commencing production in July 2010, JCC has produced an average of 89k tons of cement per month with domestic cement sales averaging at 68k tons per month. The company commanded a 0.9% share of the local cement market in July 2010 with this figure rising to 2.4% in October 2010. As of March 2011, its domestic market share stood at 2.7%.

� FinancialsJCC commenced commercial sales in 2010. It managed to record SR103mn of revenues during the year compared to no revenues in 2009. In 2010, the company recorded EBITDA of SR49mn vs. (SR6mn) in 2009 and net profit of SR15mn as compared to a net loss of SR32mn in 2009 mainly due to absence of sales in 2009 and higher setup costs.

� Recent developments On 18 December 2010, the company established an investment company called Al Jouf Investments Company Ltd. The new firm would deal in wholesaling and retailing of cement and derivatives as well as build a ready-mix concrete, cement and cement derivatives factory. In October 2010, JCC’s board of directors approved the appointment of Mr. Saad Ahudab as managing director. In August 2010, the company announced it gained access to the SR180.41mn second instalment of the total SR483.5mn loan given by SIDF. The company was listed on the Tadawul exchange in August 2010.

CEMENT � MAY 2011

AL JOUF CEMENT COMPANY

ALSO KNOWN AS: JCC



Price perform (%) 1M 3M 12MAbsolute 12.2 16.7 NAMarket 1.2 2.3 (3.0)Sector 6.7 10.0 2.1


Reuters code 3091.SEBloomberg code JOUF AB

www.joufcem.com



P/E (x) NM NM 117.2P/B (x) 1.7 1.8 1.4P/S (x) NM NM 16.7Div Yield (%) NA NA N/ADPS NA NA N/A Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


10

12

14

TASI Jouf Cement (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) KSB Capital Group 6.1Ali Abdul Aziz Ali Al Duwaiyan 5.3


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 0 0 0 103 NM NMEBITDA SRmn (16) (3) (6) 49 NM NMNet Income SRmn (6) (11) (32) 15 NM NMAssets SRmn 1,046 1,065 1,130 1,678 48.4 17.1 Equity SRmn 1,015 1,004 972 1,266 30.2 7.6 Total Debt SRmn 0 0 0 380 - -Cash & Equiv SRmn 31 20 5 68 1242.4 30.1 EBITDA Mgn % NM NM NM 47.6 - -Net Mgn % NM NM NM 14.3 - -ROE % (0.6) (1.1) (3.2) 1.3 - -ROA % (0.6) (1.0) (2.9) 1.1 - -Div Payout % NA NA NA N/A - -EPS SR (0.05) (0.08) (0.25) 0.11 NM NMBVPS SR 7.81 7.72 7.48 9.74 30.2 7.6 Source: Tadawul, Zawya, Company, NCBC Research

73

Tabuk Cement Company (TCC), founded in 1994, is amongst the smallest cement manufacturers in the KSA in terms of market capitalization and capacity. In 2010, the company produced 1.3mn tons of cement and clinker at its plant located in the north-west region of the Kingdom. TCC’s location enables it to cater to the demand for cement in the northern region.

� Business brief TCC’s share in the domestic cement market has declined consistently from 5.1% in 2007 and 3.5% in 2009 to 3.2% at the end of 2010. The company has a 3.37% stake in Industrialization & Energy Services Company, a support services and product manufacturing organization catering to the energy sector. It also holds a marginal stake in the Saudi Cement Company.

� FinancialsRevenues grew 2.8% YoY to SR275mn in 2010 driven by higher volumes off the back of increased domestic demand. TCC’s EBITDA margin rose to 65% in 2010 compared to 62.9% in 2009. As a result, the company’s net profit grew 1.9% YoY to SR123mn during the year. TCC recorded good results for 1Q11 with net income increasing by 21% YoY.

� Recent developments In December 2010, TCC announced the election of Board of Directors for a period of three years beginning January 2011. On 26 October 2010, TCC was fined SR0.1mn for violating one of the CMA regulations by delaying the announcement of the decision taken by its Board of Directors to distribute dividend.

CEMENT � MAY 2011

TABUK CEMENT

ALSO KNOWN AS: TCC





Reuters code 3090.SEBloomberg code TACCO AB

www.tcc-sa.com





5,000

5,500

6,000

6,500

7,000


17

19

21

TASI Tabuk Cement (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Khaled Saleh Abdul Rahman Al Hudaithi

7.9



Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 341 291 267 275 2.8 (7.0)EBITDA SRmn 263 196 168 179 6.3 (12.1)Net Income SRmn 220 151 121 123 1.9 (17.6)Assets SRmn 1,366 1,226 1,279 1,256 (1.8) (2.7)Equity SRmn 1,031 1,044 1,052 1,094 4.0 2.0Total Debt SRmn - - - - - -Cash & Equiv SRmn 472 353 427 392 (8.1) (6.0)EBITDA Mgn % 77.1 67.4 62.9 65.0 - -Net Mgn % 64.6 51.9 45.3 44.9 - -ROE % 23.6 14.6 11.5 11.5 - -ROA % 17.5 11.7 9.7 9.7 - -Div Payout % 102.1 89.3 93.0 98.5 - -EPS SR 2.45 1.68 1.34 1.37 1.9 (17.6)BVPS SR 11.46 11.61 11.69 12.16 4.0 2.0 Source: Tadawul, Zawya, Company, NCBC Research

74


MAY 2011

75

Retail


4190 Jarir Marketing 78

4240 AlHokair 79

4001 Al Othaim 80

4200 Aldrees 81

4002 Mouwasat 82

4050 SASCO 83

4180 Fitaihi Group 84

4290 Alkhaleej Trng 85

4160 National Agriculture 86

KSA’s retail sector is primarily driven by the growing and fast urbanizing population, increasing per capita and disposable income, rising brand awareness and the increasing access to organized retail. Key players in the Saudi retail sector include Jarir Marketing (electronics), Fawaz Abdulaziz Al-Hokair Co (Fashion) and Al Othaim (Food Retail). With the global economy recovering, Saudi Arabia’s listed retail sector reported a healthy performance, generating revenues of SR11.9bn in 2010 as compared to SR10.3bn in 2009. The rising mall culture has driven retailers to expand operations in the Kingdom by opening new stores and launching aggressive promotional campaigns. In addition to local demand, the Kingdom’s retail sector benefits immensely from religious tourism; over 12 mn people visit the holy cities of Makkah and Medina every year. The recently announced stimulus package including two month bonus payment to Saudis by the government will translate into increased consumer spending, thus benefitting the retail companies.

Good top-line growth in 2010 Of the nine companies in the sector, Jarir Marketing Co and Fawaz Abdulaziz Al-Hokair Co are by far the largest, with a market capitalization of SR6.5bn and SR3.3bn, respectively. The two companies constitute 1.0% and 0.3% of the free float of the TASI.

The combined revenue of the nine companies rose 15.2% YoY to SR11.9bn in 2010. The sector’s earnings grew 23.7% YoY to SR1.1bn during the same period after rising 9.5% in 2009. Jarir Marketing reported a 7.2% YoY increase in net profit to SR401mn in 2010. Al-Hokair posted a net profit of SR288mn in 2010, a 31.1% rise over 2009. Jarir Marketing and Al-Hokair posted net margins of 13.3% and 11.7%, respectively, higher than the industry average of 9.6%.

Exhibit 63 Revenue of companies, 2008–2010 Exhibit 64: Profitability of companies, 2008–2010

SR mn %

0

2,000

4,000

6,000

8,000

10,000

12,000

2008 2009 2010

Jarir AlHokair Company Al Othaim Others

0

4

8

12

16

2008 2009 2010

Jarir AlHokair CompanyAl Othaim Others

Source: Bloomberg, NCBC Research; Al-Hokair’s FY ended Mar 31, 2010 Source: Tadawul, Bloomberg, NCBC Research

As of 31 December 2010, the average P/B multiple of Saudi retail companies stood at 3.5x compared to 3.4x in 2009. However, the average reported return on equity increased by 200 basis points to 24.4% in 2010 from 22.4% in 2009.

MAY 2011

RETAIL

Continued growth led by strong local demand

76

RETAIL NCB CAPITAL

MAY 2011


% %

SASCO

AlHokair

National Agri

Jarir

Al Othaim

Fitahi Group

Al MouwasatAldreesAlkhaleej

(20)

(10)

0

10

20

30

40

50

60

70

0 1 2 3 4 5 6 7 8 9

P/B (x)

RO

E (%

)

SASCO

National Agri

Fitahi Group

Jarir

AlHokair

Alkhaleej Al Mouwasat

Al OthaimAldrees

(40)

(30)

(20)

(10)

0

10

20

30

40

50

60

70

(1) 0 1 2 3 4 5 6 7 8 9

P/B (x)

RO

E (%

)


Strong demand and rise in investment to drive growthLooking ahead, KSA’s retail sector should be driven by strong macro economic factors, rising infrastructure spending, the new economic cities as well as the government stimulus package. According to CB Richard Ellis, Saudi Arabia's total retail sales are predicted to grow to USD125bn by 2014 from about USD75bn in 2009. This rise could be partially due to overseas expansion of international brands, mainly from Europe and the US, given the limited growth prospects in their respective home markets. Rising per capita income and KSA’s young and growing population are being increasingly influenced by the western lifestyle, presenting a significant opportunity for the retail sector.

NCBC Recommendations for the Sector On a long-term perspective, we are positive on KSA’s retail sector, considering the strong fundamentals of the domestic market which are likely to help it remain relatively immune to any weakness in the global economy. However, sharp volatility in global commodity prices in the past few months may pressurize margins. We currently have three stocks in the sector under our coverage: Jarir, Al-Hokair and Al-Othaim.

Exhibit 67: Coverage stocks details Stock Current Rating PT (SR) Comments Jarir(4190.SE)

Overweight 162.0 Ongoing expansion in stores, coupled with increasing disposable incomes and likelihood of benefiting from the recent government stimulus packages are key positives for Jarir. Low liquidity, margin pressures and declining prices of laptops are the key concerns.

Al-Hokair(4240.SE)

Overweight 45.1 After rapid expansion through FY07, Al Hokair underwent restructuring efforts tostreamline its stores in FY08-FY09. Efficiency and profitability have improved and the company looks set to benefit from further growth. From 895 stores at the end of FY10, we estimate 1,242 stores by the end of FY16e. Controlling costs as the company expands is the key issue on the stock.

Al-Othaim(4001.SE)

Overweight 103.0 Number 2 food retailer in the KSA, well positioned to increase share as market shifts to organized retailing. Entrance of foreign players and rising COGS are key risks. Store expansion is key catalyst for the stock.


77

Jarir Marketing Company (Jarir) was established in Riyadh in 1979. Historically, the company was focused on the sale of books, school items and office supplies. In the past five years, Jarir has increasingly focused on sale of electronics such as laptops, gaming devices and smart phones. Its position as the leading electronics retailer in the region is a key positive; pressure on margins from competition is a key risk.

� Business brief Jarir’s business activities are divided into four broad segments: School Supplies, Office Supplies, Consumer Electronics and Books. The company had 28 stores across GCC as of 2010, up from 20 in 2007. Jarir has benefited from the young demographics of the region to become the leading consumer electronics retailer in the GCC.

� FinancialsRevenues grew 18% YoY to SR3,015mn in 2010 due to increased sales of electronics, mainly smart phones and computers and its accessories. However, margins continued to suffer; net margins were down 134bps YoY to 13.3% in the year due to the changing sales mix with an increasing proportion of sales coming from low-margin electronics. Going forward, we expect new store opening to continue to drive revenue and net income. In 1Q11, net income grew by an impressive 15% to SR137mn.

� Recent developments On 25 April 2011, Jarir announced a SR2.7 dividend per share for 1Q11, up 17% on the SR2.3 paid in 1Q10. In a recent press release, Jarir announced plans to open four new stores in 2011. Of these, three would be located in KSA and one outside the Kingdom. This would take Jarir’s total store count to 32 by the end of 2011.

RETAIL � MAY 2011

JARIR MARKETING

ALSO KNOWN AS: JARIR





Reuters code 4190.SEBloomberg code JARIR AB

www.jarirbookstore.com




5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-10118128138148158168

TASI Jarir (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Jarir Commercial Investment Co. 12.0Mohammed Abdul Rahman Nasser Al Aqeel

9.0

Abdul Salam Abdul Rahman Nasser Al Aqeel

9.0

Abdullah Abdul Rahman Nasser Al Aqeel

9.0

Abdul Karim Abdul Rahman Nasser Al Aqeel

9.0 Source: Tadawul, NCBC Research

Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 2,555 3,015 3,316 3,690 18.0 13.0EBITDA SRmn 403 415 447 508 3.0 8.0Net Income SRmn 374 401 424 483 7.2 8.9Assets SRmn 1,250 1,433 1,584 1,726 14.6 11.3Equity SRmn 723 798 883 975 10.3 10.5Total Debt SRmn 137 150 155 133 9.5 (1.0)Cash & Equiv SRmn 40 52 87 90 31.8 31.4EBITDA Mgn % 15.8 13.8 13.5 13.8 - -Net Mgn % 14.6 13.3 12.8 13.1 - -ROE % 53.1 52.7 50.5 52.0 - -ROA % 31.0 29.9 28.1 29.2 - -Div Payout % 79.2 78.9 80.2 81.2 - -EPS SR 9.35 10.02 10.60 12.08 7.2 8.9BVPS SR 18.07 19.94 22.08 24.38 10.3 10.5 Source: Tadawul, Zawya, Company, NCBC Research

78

Established in 1990, Fawaz Abdulaziz AlHokair Company (AlHokair) is the largest fashion retail franchise player in the Saudi market, accounting for roughly half of the mid-market fashion retail business in KSA through its 70 plus brands. Its position as the leading player in a growing market is a key positive; potential margin pressure from its expansion abroad is a key risk on the stock.

� Business brief AlHokair operates around 1000+ fashion stores and is the retail franchise partner for over 70 global brands. The brands under its control fall into all major categories with major brands including Zara, Banana Republic, GAP, Monsoon and Marks & Spencers. It has a majority stake in Retail Group Egypt and Retail Group Jordan, all acquired from its parent company in June 2010. It also recently became launched Retail Group Kazakhstan.

� FinancialsAlHokair’s revenues rose 9.2% YoY to SR2.1bn in FY2010 (ended 31 March), mainly due to the Wahba acquisition and the opening of new stores. Net income grew at an impressive rate of 14.6% to SR232mn during the year as margins expanded following the restructuring efforts of the past few years. We expect continued expansion in revenues and net income in the coming years as store counts increase due to new openings as well as recent acquisition, and further efficiencies are recognized.

� Recent developments In February 2011, it launched its first “FG4” stores in Saudi, a joint-venture with George Davies formerly of Next/George which sees the company’s first move into the “affordable” segment of the fashion market. In September 2010, AlHokair announced the extension of the MoU to acquire Retail Group Gulf.

RETAIL � MAY 2011

FAWAZ ABDULAZIZ ALHOKAIR

ALSO KNOWN AS: ALHOKAIR





Reuters code 4240.SEBloomberg code ALHOKAIR AB

www.alhokair.com.sa




5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-10283338434853

TASI AlHokair (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Fawaz Alhokair Group 49.0Fawaz Abdul Aziz Fahd Al Hokair 7.0Dr Abdulmajeed Abdulaziz Fahed Alhokair

7.0

Dr Salman Abdulaziz Fahed Alhokair

7.0


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 1,899 2,074 2,513 2,795 9.2 13.7EBITDA SRmn 232 318 358 423 37.0 22.1Net Income SRmn 202 232 297 320 14.4 16.5Assets SRmn 1,590 1,887 2,175 2,347 18.7 13.9Equity SRmn 863 1,094 1,251 1,431 26.8 18.4Total Debt SRmn 370 370 370 320 0.0 (4.7)Cash & Equiv SRmn 24 77 63 64 217.1 30.6EBITDA Mgn % 12.2 15.4 15.8 15.7 - -Net Mgn % 10.7 11.2 14.0 12.0 - -ROE % 22.9 23.7 28.6 23.5 - -ROA % 14.3 13.3 16.9 14.5 - -Div Payout % 69.2 75.6 47.2 43.7 - -EPS SR 2.89 3.31 4.24 4.57 14.4 16.5BVPS SR 12.33 15.63 17.87 20.40 26.8 18.4 Source: Tadawul, Zawya, Company, NCBC Research

79

With operations commencing in 1956, Abdullah Al Othaim Markets Company (Al Othaim) is the second largest food retailer in Saudi Arabia. Its leading position in the fast growing Mass Grocery Retail sector is a key positive; it’s exposure to high food prices and limited ability to pass on cost inflation is a key risk on the stock.

� Business brief Al Othaim operates through four business models: hypermarkets, supermarkets, corner stores and wholesale stores. The company operates a chain of over 96 stores, primarily in the central region of Saudi Arabia with it looking to open 8+ new stores per year in the coming 3-5 years. Al-Othaim signed an MOU to buy the remaining stake in its Real Estate arm in August 2010 with the MOU extended until the end of May 2011.

� FinancialsAl Othaim’s revenue was up 12.2% YoY to SR3,521mn in 2010, driven largely by increased store count, as well as due to the structural shift in the food retail market which is seeing market share move away from the independent corner stores to the organized larger chains. The company’s margins have expanded significantly as it benefits from economies of scale in the form of rebates/discounts received from suppliers. Thus, net income more than doubled YoY to SR162mn in 2010 from SR78mn the previous year. We expect continued growth in the coming years as Al Othaim looks to open ten stores per year and build on its margin growth.

� Recent developments Al Othaim announced completion of its Dammam mall at an investment of SR302.5mn in November 2010. The company opened two new branches covering 13,000 sq, mtr. in Jeddah in September 2010. Al-Othaim signed a MOU to acquire the remaining stake in its realty arm in August 2010; the company currently owns 13.7% in the entity.

RETAIL � MAY 2011

AL OTHAIM





Reuters code 4001.SEBloomberg code AOTHAIM AB

www.othaimmarkets.com




5,000

5,500

6,000

6,500

7,000


50

70

90

TASI A. Othaim Markets (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Al Othaim Holding Company 27.6Abdul Aziz Saleh Al Othaim 17.7Abdullah Saleh Ali Al Othaim 6.0HSBC Co / Swap Agreements 5.2 Source: Tadawul, NCBC Research

Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 3,139 3,519 4,124 4,683 12.1 14.3EBITDA SRmn 134 190 234 263 41.8 25.2Net Income SRmn 78 162 154 174 107.7 30.7Assets SRmn 1,237 1,480 1,655 1,824 19.6 13.8Equity SRmn 343 449 535 641 30.8 23.2Total Debt SRmn 337 351 325 280 4.1 (6.0)Cash & Equiv SRmn 107 45 54 163 (57.8) 15.0EBITDA Mgn % 4.3 5.4 5.7 5.6 - -Net Mgn % 2.5 4.6 3.7 3.7 - -ROE % 24.3 40.9 31.3 29.6 - -ROA % 6.7 11.9 9.8 10.0 - -Div Payout % 72.1 41.7 43.8 38.8 - -EPS SR 3.47 7.20 6.84 7.73 107.7 30.7BVPS SR 15.24 19.93 23.78 28.49 30.8 23.2 Source: Tadawul, Zawya, Company, NCBC Research

80

Aldrees Petroleum and Transport Services Co. (Aldrees), established in 1963, has three main operational divisions: petroleum, transport and food. The company owns a 98% stake in Aldrees Sudan which is engaged in marine, land and air transportation.

� Business brief The company’s petroleum division operates a network of 410 gas stations under the brand name Petrol. It operates on long-term contracts (2–3 years), supplying fuel to government and private companies. The transportation division operates and maintains a fleet of more than 2,500 carriers, ranging from chemical/lubricant tankers, trailers and bulkers to flat beds. The Super 2 division manages coffee and cake stores under the brand name Super Café. It also handles car wash & car detailing centres (located in the company’s gas station network) under the brand name Super Wash.

� FinancialsAldrees’ revenues grew 13% YoY to SR1,480mn in 2010, mainly led by expansion of its network of stations. Net profit grew at a higher pace of 24.9% YoY to SR86mn in 2010 compared to SR69mn in 2009. The increase can be ascribed to higher revenues and operational efficiency. Consequently, net margin increased to 5.8% in 2010 from 5.3% in 2009. In 1Q11, reported net income grew by 10.6% YoY to SR22mn.

� Recent developments Aldrees announced in January 2011 a cash dividend of SR2 per share for 2010.

RETAIL � MAY 2011

ALDREES PETROLEUM

ALSO KNOWN AS: APTSCO, Aldrees





Reuters code 4200.SEBloomberg code ALDREES AB

www.aldrees.com

WEIGHTING & FREEFLOAT (%) TASI (free float weight) 0.22Free float 100




5,000

5,500

6,000

6,500

7,000


35

40

45

TASI Aldrees (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Hamad Mohammed Saad Al Drees 6.7Abdul Mohsen Mohammed Saad Al Drees

6.5


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 866 1,134 1,310 1,480 13.0 19.6EBITDA SRmn 74 93 118 140 18.6 23.7Net Income SRmn 50 53 69 86 24.9 19.8Assets SRmn 531 664 734 770 5.0 13.2Equity SRmn 296 317 347 393 13.5 9.9Total Debt SRmn 76 122 155 137 (11.5) 21.7Cash & Equiv SRmn 41 27 70 18 (73.6) (23.1)EBITDA Mgn % 8.5 8.2 9.0 0.0 - -Net Mgn % 5.8 4.7 5.3 5.8 - -ROE % 18.5 17.3 20.8 23.3 - -ROA % 10.6 8.9 9.9 11.4 - -Div Payout % 75.0 70.8 54.4 58.1 - -EPS SR 2.00 2.12 2.76 3.44 24.9 19.8BVPS SR 11.84 12.68 13.86 15.74 13.5 9.9 Source: Tadawul, Zawya, Company, NCBC Research

81

Mouwasat Medical Services (Mouwasat) owns, manages and operates hospitals, dispensaries and pharmacies across Saudi Arabia. Incorporated in 1974, the company commenced its first owned comprehensive medical facility in 1988.

� Business brief Mouwasat operates in the field of medical services across the Kingdom and owns nine pharmacies, two dispensaries and five hospitals (with a combined capacity of 953 beds). Mouwasat’s medical network covers the main cities of Saudi Arabia, including Dammam, Jubail, Qatif, Al Ahsa, Riyadh and Al Madina. Al Mouwasat converted from a limited liability company to a joint stock company in January 2006.

� FinancialsMouwasat’s revenues grew 13.5% YoY to SR587mn in 2010 driven by expansion of services as well as improvement in the price of services. EBITDA rose 13.8% YoY to SR177mn in 2010 against SR156mn in 2009, driven by higher revenues and operational efficiency. However, net margin fell slightly by 50bps, while net income grew 10.8% to SR119mn. In 1Q11, net income increased by 20.7% YoY to SR39mn.

� Recent developments On 8 May 2011, the company announced it had purchased a plot of land in Riyadh for SR30mn. The plot covered an area of 11,600 square meters and was close to the company’s new hospital and would be used for future potential expansion. On 5 January 2011, Mouwasat announced the election of Chairman and Board members. On 26 June 2010, the company extended its contract with Aramco for five years with effect from 1 July 2010. Under this contract, the company would provide medical services to Aramco employees and their families, which would generate revenue of SR150mn annually.

RETAIL � MAY 2011

MOUWASAT MEDICAL SERVICES

ALSO KNOWN AS: MOUWASAT





Reuters code 4002.SEBloomberg code MOUWASAT AB

www.mouwasat.com





5,000

5,500

6,000

6,500

7,000


405060708090

TASI Mouwasat (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Mohammed Sultan Hammad Al Subaie

17.5

Nasser Sultan Fahad Al Subaie 17.5Sulaiman Mohammed Sulaiman Al Saleem

17.5

HSBC / Swap Agreements 8.6Credit Suisse / Swap Agreements 8.0 Source: Tadawul, NCBC Research

Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 401 455 518 587 13.5 13.6EBITDA SRmn 125 140 156 177 13.8 12.3Net Income SRmn 89 97 107 119 10.8 10.1Assets SRmn 557 622 720 884 22.7 16.6Equity SRmn 354 426 503 609 21.0 19.8Total Debt SRmn 123 113 116 167 43.3 10.7Cash & Equiv SRmn 15 29 48 137 185.6 108.2EBITDA Mgn % 31.2 30.8 30.1 30.1 - -Net Mgn % 22.2 21.4 20.7 20.2 - -ROE % 25.0 24.9 23.0 21.3 - -ROA % 15.9 16.5 15.9 14.8 - -Div Payout % 39.4 43.8 23.4 42.2 - -EPS SR 3.55 3.88 4.28 4.74 10.8 10.1BVPS SR 14.18 17.04 20.13 24.36 21.0 19.8 Source: Company, NCBC Research ^ % Var indicates variance from NCBC forecasts

82

Saudi Automotive Services Company (SASCO) is headquartered in Riyadh. Established in 1982, it provides a variety of services and utilities for cars, motorists and travelers. SASCO owns specialized maintenance workshops in Saudi Arabia. The company also owns and manages supermarkets, rest areas and restaurants for travelers.

� Business brief SASCO offers services such as car maintenance and repair, spare parts, car rescue, first aid, issuance of car test certificates and international driving licenses. The company also operates a network of supermarkets, petrol pumps, housing facilities, rest areas, restaurants and other facilities across Saudi Arabia to service motorists and travelers. It has minority investments in four firms: Middle East Battery Co. (7.94%), Industrialization & Energy Services Co. (3.38%), National Co. for Tourism (0.4%) and United Racing Co. (25%).

� FinancialsSASCO recorded a 12.2% YoY growth in revenues to SR214mn in 2010 compared to SR191mn in 2009. This led to a 7.1% increase in EBITDA and 10.4% rise in net income during the year. However, margins declined slightly; EBITDA margins fell 44bps to 9.1%, while net margins declined 26bps to 16.3% in 2010 due to higher operating expenses as a percentage of sales.

� Recent developments In October 2010, SASCO signed credit facilities for SR130mn with Arab National Bank to fund its organic expansion as well as acquisition of new petrol stations. In June 2010, SASCO announced plans to expand operations by establishing 20 new sites within KSA before the end of 2011 and to renovate existing sites.

RETAIL � MAY 2011

SAUDI AUTOMOTIVE

ALSO KNOWN AS: SASCO





Reuters code 4050.SEBloomberg code SACO AB

www.sasco.com.sa



P/E (x) 18.9 21.3 19.3P/B (x) 1.6 1.3 1.3P/S (x) 3.1 3.5 3.1Div Yield (%) NA NA 3.4DPS NA NA 0.5 Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


9

11

13

15

17

TASI SASCO (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Ibrahim Mohammed Ibrahim Al Hudaithi

9.0

Nihaz Commercial Investment Co.

8.7


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 192 214 191 214 12.2 3.6EBITDA SRmn 33 33 18 20 7.1 (16.4)Net Income SRmn 33 36 32 35 10.4 1.8Assets SRmn 481 469 556 588 5.6 6.9Equity SRmn 422 413 499 512 2.5 6.6Total Debt SRmn - - - - - -Cash & Equiv SRmn 106 134 129 60 (53.3) (17.1)EBITDA Mgn % 17.4 15.3 9.6 9.1 - -Net Mgn % 17.2 16.6 16.5 16.3 - -ROE % 8.3 8.5 6.9 6.9 - -ROA % 7.2 7.5 6.1 6.1 - -Div Payout % 0.0 0.0 0.0 64.7 - -EPS SR 0.73 0.79 0.70 0.77 10.4 1.8BVPS SR 9.38 9.17 11.09 11.37 2.5 6.6 Source: Tadawul, Zawya, Company, NCBC Research

83

Established in 1992, Fitaihi Group Holding Company is engaged in the design, manufacture, and wholesale & retail distribution of gems, jewelry and precious stones. The company has two marketing subsidiaries, Marina B Creation Vados and Marina B Geneve, which market its products worldwide. It is also involved in the management of leading hospitals in the region.

� Business brief Fitaihi’s product portfolio includes precious stones, jewelry, consumer products, beauty products, kitchenware, leather products and clothing, accessories, perfumes, medical equipment, industrial parts, and more. The company has presence in the hospital industry through a 19.3% investment in International Medical Center and 5.7% stake in Dar Al Fouad Hospital. Fitaihi also has a 20% stake in Fitaihi Junior. The company owns two premium department stores under the brand name Fitahi in Jeddah and Riyadh, in addition to other outlets.

� FinancialsFitaihi’s revenues for 2010 rose 8.4% YoY to SR166mn compared to SR153mn in 2009. The EBITDA margin increased 71bps with the net margin almost doubling YoY to 13.2% during the year from 6.7% last year. This was mainly driven by higher revenues combined with lower interest charges as well as high investment income in 2010. In 1Q11, net income at the company grew by 4% YoY to SR13mn.

� Recent developments In April 2010, the AGM approved the BoD members for a three year term, including Mr. Ahmed Hasan Ahmed Fitaihi as BoD Chairman.

RETAIL � MAY 2011

FITAIHI GROUP HOLDING

ALSO KNOWN AS: FITAIHI





Reuters code 4180.SEBloomberg code AHFCO AB

www.fitaihigroup.com





5,000

5,500

6,000

6,500

7,000


10

12

14

16

TASI Fitaihi (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Ahmed Hussain Ahmed Fitaihi 23.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 120 194 153 166 8.4 11.6 EBITDA SRmn 13 34 23 26 13.6 27.2 Net Income SRmn 1 19 10 22 113.4 198.2 Assets SRmn 765 720 731 702 (4.0) (2.8)Equity SRmn 637 560 616 659 7.0 1.2 Total Debt SRmn 87 71 55 0 (100.0) (100.0)Cash & Equiv SRmn 5 14 10 11 10.3 28.3 EBITDA Mgn % 10.6 17.6 15.0 15.7 - -Net Mgn % 0.7 9.9 6.7 13.2 - -ROE % 0.1 3.2 1.8 3.5 - -ROA % 0.1 2.6 1.4 3.1 - -Div Payout % 0.0 0.0 0.0 0.0 - -EPS SR 0.02 0.38 0.21 0.44 113.4 198.2 BVPS SR 12.74 11.19 12.32 13.18 7.0 1.2 Source: Tadawul, Zawya, Company, NCBC Research

84

Established in 1992, Alkhaleej Training and Education Company (Alkhaleej) conducts training programs in the fields of IT, electronics, English language as well as administrative and financial services. The company has more than 82 branches in Saudi Arabia, over 19 locations in the Middle East and nine locations outside the region.

� Business brief Alkhaleej implements training programs through various divisions, including New Horizons Centers for computer learning (largest independent IT training company in KSA); Direct English Centers; Platinum Center for advanced training solutions (offers advanced computer courses); Takniat for training, business and professional development (specializes in management training); Kawader (employs graduates of its programs); E-Learning (provides over 2000 courses online); and Al Dhiafa (hospitality and tourism training).

� FinancialsAlkhaleej’s revenues grew by 12.8% to SR395mn in 2010 as compared to SR350mn in 2009, driven by improved sales in the government sector. Net income rose 8.7% YoY to SR46mn in 2010 as compared to SR42mn in the previous year. This was mainly due to increased profitability from subsidiary companies and education projects.

� Recent developments In August 2010, Alkhaleej announced that it opened Rowaj Al Khaleej International School, its first foreign school in Dammam. The company said that it has invested SR60mn so far and plans to open many such schools in various cities; the second branch is expected in 2012 in Riyadh.

RETAIL � MAY 2011

ALKHALEEJ TRAINING

ALSO KNOWN AS: ALKHALEEJ





Reuters code 4290.SEBloomberg code ALKHLEEJ AB

www.alkhaleej.com.sa





5,000

5,500

6,000

6,500

7,000


25

30

35

40

TASI Alkhaleej Trng (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Abdul Aziz Rashid Abdul Rahman Al Rashid

20.3

Ahmed Ali Ahmed Al Shedwy 13.3AlWaleed Abdul Razzaq Saleh Al Duraian

11.8

Abdul Aziz Hamaad Nasser Al Bulaihid

10.0

Ahmed Mohammed Salim Al Sirry 6.0 Source: Tadawul, NCBC Research

Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 301 346 350 395 12.8 9.4EBITDA SRmn 60 70 70 70 1.2 5.3Net Income SRmn 38 41 42 46 8.7 6.8Assets SRmn 302 357 425 481 13.1 16.8Equity SRmn 154 195 228 265 16.2 19.8Total Debt SRmn 43 87 107 118 9.6 39.8Cash & Equiv SRmn 26 34 31 34 9.8 8.6EBITDA Mgn % 20.0 20.1 19.9 17.8 - -Net Mgn % 12.4 11.9 12.0 11.6 - -ROE % 27.9 23.7 19.9 18.6 - -ROA % 14.0 12.5 10.8 10.1 - -Div Payout % - 18.2 17.8 16.4 - -EPS SR 4.69 4.12 2.80 3.05 8.7 (13.4)BVPS SR 19.26 19.46 15.18 17.64 16.2 (2.9) Source: Tadawul, Zawya, Company, NCBC Research

85

National Agriculture Marketing Co (THIMAR), headquartered in Riyadh, is engaged in the manufacturing, procurement, processing and marketing of agricultural products, accessories, meat and other supplies through its various dealers. The company, established in 1987, holds a 100% stake in Wasmi Meat. THIMAR has 23 stores in Saudi Arabia.

� Business brief THIMAR is primarily engaged in the sale of agricultural and meat products to its clients from sectors such as hotels, restaurants and the military. In addition, the company provides services for the operation, management and marketing of agricultural projects. THIMAR is also engaged in the wholesale and retail trading of agricultural and meat products.

� FinancialsTHIMAR’s net revenues fell 42.4% YoY to SR76mn in 2010 from SR132mn in 2009. It reported a loss of SR18.7mn during the year mainly due to higher selling costs, against a loss of SR10.6mn reported last year. Cash and equivalents stood lower at SR1.9mn in 2010 compared to SR6.6mn in 2009.

� Recent developments In January 2011, THIMAR announced the resignation of CEO Ghassan Abdul Karim Ali Sleiham. The company also announced plans to reduce operating expenses and shut down loss-making units.

RETAIL � MAY 2011

NATIONAL AGRICULTURE

ALSO KNOWN AS: THIMAR

NCCurrent price (SR) 22.8 Pricing as of 04-05-2011




Reuters code 4160.SEBloomberg code THIMAR AB

www.thimar.com.sa



P/E (x) NM NM NMP/B (x) 2.8 3.3 7.0P/S (x) 1.6 1.7 3.0Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


14

19

24

29

TASI Thim'ar (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%)


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 122 146 132 76 (42.4) (14.6)EBITDA SRmn 1 1 (10) (13) 36.4 NMNet Income SRmn 3 (10) (11) (19) 75.9 NMAssets SRmn 121 115 100 59 (40.6) (21.2)Equity SRmn 91 81 69 33 (52.5) (28.9)Total Debt SRmn 2 0 0 0 - (100.0)Cash & Equiv SRmn 3 5 7 2 (70.9) (17.5)EBITDA Mgn % 0.7 0.7 (7.3) (17.2) - -Net Mgn % 2.1 (7.0) (8.1) (24.7) - -ROE % 2.9 (11.9) (14.2) (36.8) - -ROA % 2.2 (8.7) (9.9) (23.6) - -Div Payout % - - - - - -EPS SR 0.26 (1.02) (1.06) (1.87) 75.9 NMBVPS SR 9.10 8.07 6.89 3.27 (52.5) (28.9) Source: Tadawul, Zawya, Company, NCBC Research

86


MAY 2011

87

Energy & Utilities


5110 Saudi Electricity 90

2080 GASCO 91

Saudi Arabia’s electricity consumption is mainly led by hot weather conditions, growing and urbanizing population and rapid industrialization in the region. The country is going through an expansion phase in its power generation capacity in order to meet the rising demand. The Electricity and Cogeneration Regulatory Authority (ECRA) forecasts the electricity demand in KSA to expand at a CAGR of 2.9% from 38,000MW in 2009 to 60,000MW in 2025. The Saudi government has planned over 34 power projects, adding more than 21,000MW capacity (including 20-30MW extensions of existing plants and new projects having more than 1,600MW capacity). These projects include five independent power projects (IPPs) with an investment of USD20bn and are likely to be completed by 2019. In order to facilitate this massive expansion, the government has increased the allocation for water and infrastructure sectors by 10.4% to SR50.8bn, which is 8.8% of total budget in 2011.

Exhibit 68: Revenue of GCC energy and utilties companies, 2008–10

Exhibit 69: Comparison of ROE & P/E of GCC companies, 2010

USD mn %

01,0002,0003,0004,0005,0006,0007,0008,0009,000

2008 2009 2010KSA Kuwait Qatar UAE Oman

-10

0

10

20

30

40

0 5 10 15 20 25 30 35 40 45 50P/E

RoE

(%)

KSA Kuwait Qatar UAE

Source: Tadawul, Bloomberg, NCBC Research Source: Tadawul, Bloomberg, NCBC Research

The Energy and Utilities sector currently constitutes two listed companies: Saudi Electricity Company (SEC) and National Gas and Industrialization Co. (NGIC). SEC is one of the heavyweights in the overall market and comprises 1.8% of TASI free float.

SEC enjoys a near monopoly in the electricity sector. In 2010, the company’s revenue increased 16.8% YoY to SR27.9bn and net profit rose 97.3% YoY to SR2.3bn. NGIC’s revenues grew marginally by 2.3% YoY to SR1.6bn in 2010. It reported a net profit of SR104mn in 2010 compared to a net loss of SR59mn in 2009.


Units as stated

Country % weight in Index

as of Dec 2010NM (%),

2010Avg. RoE (%),

2010Saudi Electricity Co (SEC) 1.84 8.3 4.6National Gas & Industrialization Co (NGIC) 0.18 6.6 10.0Source: Bloomberg, Tadawul: Company data; NM: Net Margin

MAY 2011

ENERGY & UTILITIES

Primary focus – Power and water

88

ENERGY & UTILITIES NCB CAPITAL

MAY 2011

Exhibit 71: Revenue of companies, 2008–2010 Exhibit 72: Profitability of SECO, relative to sector average

SR mn %

18,000

20,000

22,000

24,000

26,000

28,000

30,000

2008 2009 20101,100

1,200

1,300

1,400

1,500

1,600

NGIC (RHS) SECO

0%

2%

4%

6%

8%

10%

2008 2009 2010

Sector Average SECO


The Saudi government is focused on increasing its power generation capacity and water supplies to meet the demand of growing population. The new tariff structure for industrial, commercial and government customers announced by ERCA (effective from 01 July 2010) is expected to continue supporting revenue growth and profit margins of the power companies.

NCBC Recommendations in the Sector We are positive on the sector especially after the hike in power tariff. We currently are overweight on Saudi Electricity.

Exhibit 73: Coverage stocks details Stock Current Rating PT (SR) Comments Saudi Electricity (5110.SE)

Overweight 18.5 The new tariff structure on the industrial, commercial and government customers came in effect on 1 July 2010. This had a significant impact on profitability which we believe the market has already priced into the stock. The key risks going forward include the rising cost of purchased energy from its independent producers as well as the increase in depreciation expense.


89

Saudi Electricity Company (SEC) is the largest power generator in Saudi Arabia. Established in 2000, the company is engaged in the generation, transmission and distribution of electric power across the Kingdom. SEC was formed through the consolidation of 10 regional electricity companies.

� Business brief SEC retains a monopoly on the transmission and distribution of electricity in Saudi Arabia and a near monopoly on generation. The company also exports and imports energy, and invests in various power projects in the Kingdom. SEC had a total available capacity of 46,152MW at the end of 2010.

� FinancialsRevenues grew 16.8% YoY to SR27,858mn driven mainly by increased consumption due to rising demand for electricity, as well as the reformed tariff structure on industrial, commercial and government customers which became effective on 01 July 2010..SEC reported weaker than expected 1Q11 earnings on 18 April 2011. Net loss came in at SR744mn, significantly worse than our estimate of a loss at SR457mn. The rise in depreciation expense and the increased cost of purchased energy were the key drivers behind the decline.

� Recent developments SEC announced on 27 December 2010 that it signed a contract to expand power generation capacity by 1104MW (its 10th plant in Riyadh) for a total cost of SR3.5bn. The expansion would be completed by 2012. The company also revealed its long-term expansion plan; it expects to add capacity of 1826MW by 2011, 6510MW by 2012 and 12752MW by 2016. In December 2010, SEC signed a SR5bn Murabaha loan agreement with four local banks repayable over 15 years. The loan would be used to fund its capacity expansion plans in generation, transmission, and distribution in Saudi Arabia.

UTILITIES � MAY 2011

SAUDI ELECTRICITY

ALSO KNOWN AS: SEC, SECO



Price perform (%) 1M 3M 12MAbsolute 3.4 3.4 30.8Market 1.2 2.3 (3.0)Sector (0.9) (0.8) 19.9


Reuters code 5110.SEBloomberg code SECO AB

www.se.com.sa




5,000

5,500

6,000

6,500

7,000


11

13

15

TASI Saudi Electricity (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Government ownership in SEC Capital

74.3

ARAMCO 6.9


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 23,851 27,858 29,811 31,492 16.8 9.7EBITDA SRmn 8,454 10,188 12,846 13,118 20.5 15.8Net Income SRmn 1,170 2,307 4,205 3,822 97.3 48.4Assets SRmn 166,091 190,875 208,895 234,329 14.9 12.2Equity SRmn 49,175 50,686 54,585 57,859 3.1 5.6Total Debt SRmn 47,574 63,550 47,449 57,856 33.6 6.7Cash & Equiv SRmn 3,883 7,223 2,385 2,519 86.0 (13.4)EBITDA Mgn % 35.4 36.6 43.1 41.7 - -Net Mgn % 4.9 8.3 14.1 12.1 - -ROE % 2.4 4.6 8.0 6.8 - -ROA % 0.8 1.3 2.1 1.7 - -Div Payout % 249.4 126.4 69.4 76.3 - -EPS SR 0.28 0.55 1.01 0.92 97.3 48.4BVPS SR 11.80 12.16 13.10 13.89 3.1 5.6 Source: Tadawul, Zawya, Company, NCBC Research

90

National Gas & Industrialization Company (GASCO) was established in 1963 by the merger of two companies. GASCO is engaged in various activities, including filling, refilling and distributing liquefied petroleum gas (LPG); designing and building gas networks; and selling as well as installing gas tanks and cylinders.

� Business brief GASCO sells LPG gas cylinders across Saudi Arabia (in 26.5 and 52.5 liter sizes). The company also provides various types of gas tanks and related accessories. About 350 carriers of GASCO have a capacity of 40,000 liters each, while the remaining 42 have a capacity ranging 11,000–23,000 liters. The company’s filling plants are located in Riyadh, Jeddah, Dammam, Al Madinah, Taif, Bureidah and Khamis Mushait. The company also designs and implements gas networks for retail and industrial customers.

� FinancialsRevenues for 2010 grew 2.3% to SR1,582mn compared to SR1,546mn in 2009. EBIDTA increased 13.2% YoY to SR154mn, thus leading to a 94 bps rise in EBITDA margin to 9.7%. The company reported a net income of SR104mn in 2010 compared to a SR59mn loss in 2009. GASCO reported its 1Q11 earnings on 20 April 2011. Net income came in at SR8.9mn compared to SR16.3mn in 1Q10, a significant decline of 45% YoY. The company attributed the decline to the additional payouts (2 month salary) which were paid to all employees.

� Recent developments The company announced in February 2011 plans to distribute SR0.7 per share in dividends for the year ended December 31, 2010.

UTILITIES � MAY 2011

GASCO



Price perform (%) 1M 3M 12MAbsolute 8.7 14.2 (7.4)Market 1.2 2.3 (3.0)Sector (0.9) (0.8) 19.9


Reuters code 2080.SEBloomberg code NGIC AB

www.gasco.com.sa



P/E (x) 10.0 NM 14.3P/B (x) 1.6 1.5 1.4P/S (x) 1.0 1.0 0.9Div Yield (%) 7.5 2.5 3.5DPS 1.5 0.5 0.7 Source: NCBC Research estimates


15

17

19

21

5,000

5,500

6,000

6,500

7,000


TASI Gas&Industrialization (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Saeed Ali Ghadran Al Ghamdi 11.9Public Investment Fund 10.9General Organization for Social Insurance (GOSI)

6.1


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 1,392 1,471 1,546 1,582 2.3 4.4EBITDA SRmn 151 115 136 154 13.2 0.6Net Income SRmn 139 149 (59) 104 NM (9.3)Assets SRmn 1,494 1,297 1,344 1,483 10.3 (0.2)Equity SRmn 1,101 941 991 1,087 9.6 (0.4)Total Debt SRmn - - - - - -Cash & Equiv SRmn 19 133 262 240 (8.4) 131.7EBITDA Mgn % 10.8 7.8 8.8 9.7 - -Net Mgn % 10.0 10.1 (3.8) 6.6 - -ROE % 13.3 14.6 (6.1) 10.0 - -ROA % 10.0 10.7 (4.5) 7.4 - -Div Payout % 80.7 75.5 NM 50.5 - -EPS SR 1.86 1.99 (0.79) 1.39 NM (9.3)BVPS SR 14.68 12.55 13.22 14.49 9.6 (0.4) Source: Tadawul, Zawya, Company, NCBC Research

91


MAY 2011

92

Agriculture & Food


2050 Savola Group 95

2280 Almarai 96

6090 Jazan Development 97

2270 SADAFCO 98

6010 NADEC 99

6002 Herfy Foods 100

6070 Jouff Agriculture 101

6020 Qassim Agriculture 102

4061 Anaam Holding 103

6001 Halwani Bros 104

6050 Saudi Fisheries 105

2100 Wafra Food 106

6040 Tabuk Agriculture 107

6060 Sharqiya Dev Co. 108

Saudi Arabia is the largest food market in the region, expanding at a CAGR of 8% in the last five years to an estimated SR115bn in 2010. A young and growing population coupled with a rising per capita income drives demand; it is expected to reach SR140bn by 2015. Due to the harsh climate, Saudi Arabia is highly dependant on imported food with this growing at 16% YoY to some USD17bn in 2009 (or 15% of all Saudi imports). According to EIU, Saudi Arabia is likely to import food items of around USD35.2bn in 2020, which is 66.3% of the total food imported by GCC countries.

Exhibit 74: Revenue of listed GCC agri. companies Exhibit 75: Comparison of ROE & P/E of GCC Cos, 2010

USD mn %

0

100

200

300

400

500

2008 2009 201001,0002,0003,0004,0005,0006,0007,0008,0009,00010,000

Oman Qatar UAE Kuwait KSA (RHS) -20

-10

0

10

20

30

40

50

60

-5 0 5 10 15 20 25

P/E (x)

RO

E (%

)

Kuwait KSA Qatar Oman

Source: Tadawul, Bloomberg, NCBC Research; * Plotted on secondary axis Source: Tadawul, Bloomberg, NCBC Research

Almarai and Savola are the key stocks in the sector Of the 14 companies in the sector, Almarai and Savola are by far the largest with market capitalizations of SR21.6bn and SR13.6bn, respectively, as of 27 April 2011, and make up 1.6% and 1.8% of the free float of the TASI, respectively. Almarai reported a net margin of 18.5% and ROE of 22.3% in 2010, while Savola posted a net margin of 4.2% and ROE of 12.7% during the year.

The combined revenues of the 14 companies (excluding Bishah and Hail Agriculture) grew 16.5% to SR32.7bn in 2010, while earnings of the industry rose 24.8% YoY to SR2.7bn. Savola, the biggest player in the industry in terms of revenue, recorded a revenue growth of 17.5% and earnings of 14.1% during the year, while Almarai’s revenues increased 18.1% and earnings 17.2%.

MAY 2011

AGRICULTURE & FOOD

Stepping up to fill the supply gap

93

AGRICULTURE & FOOD NCB CAPITAL

MAY 2011

Exhibit 76: Revenue of listed companies, 2008–2010 Exhibit 77: Sector vs Savola margins

SR mn %

0

6,000

12,000

18,000

24,000

30,000

36,000

2008 2009 2010

Savola Almarai Others

-123456789

2008 2009 2010-

1

2

3

4

5

6

Sector Savola (RHS %)


Strong long-term growth drivers We expect favorable demographics to continue to drive the sector’s growth. A relatively young population (over 60% of population is under 30 years of age), rising income levels as well as increasing acceptance of western culture, lifestyle and tastes are expected to drive the growth going forward. KSA’s per capita food consumption is low compared to many developed nations as well as its GCC peers, implying potential growth in the future. However, KSA’s large dependence on imports, depleting water resources as well as the recent sharp volatility in food prices witnessed globally are key concerns for the sector going forward.

NCBC recommendations in the sector We are positive on the sector on an overall long-term perspective given its strong fundamental drivers, including favorable demographics, large population base, rising per capita income as well as low per capita food consumption. Additionally, these factors should continue to provide a shield against the ongoing global difficulties following the financial crisis. However, in the short run, we believe the sector may suffer from high raw material prices with a limited ability to pass these prices onto consumers, leading to margin pressure. We currently have two stocks under coverage in the sector: Savola and Almarai, both of which we currently rate as Neutral due to the concern on short term margins.

Exhibit 78: Coverage stocks details Stock Current Rating PT (SR) Comments Savola(2050.SE)

Neutral 31.5 Long term fundamentals remain solid although short term margins concerns are the key risk. Exposure to high sugar and edible oil prices , combined with limited ability to pass on the price increases to end consumers is leading to margin pressure in these businesses. Continued opening of new retail stores is limiting margin gains in the retail business.

Almarai(2280.SE)

Neutral 106.0 Geographic expansion and the Infant Milk venture key drivers for the stock. With start of production at the new bakery and infant milk plants, integration of HADCO and JV projects with PepsiCo, the coming 12-18 months are set to be potentially lucrative. However the 6-12 month outlook is much more muted with high food costs putting pressure on margins and limiting profitability growth.


94

Savola is one of the leading food companies in the region, with operations ranging from Morocco to Kazakhstan. It is well positioned to benefit from the growth in Mass Grocery Retail in the region, alongside increased spending on food. Limited ability to pass on raw material inflation to consumers is a key risk on the stock.

� Business brief Savola’s business interests are divided into four segments: Savola Foods (edible oils and sugar), Savola Retail (Panda and Hyper Panda), Real Estate (Kinan International) and Savola Plastic. Savola enjoys a leading position in retailing through its 110+ outlets across the Kingdom. Savola has major investments in Almarai Dairy Company (30%), Herfy Foods Company (49%), and Jordanian Tameer Company (5%). It is also one of the founding shareholders of Knowledge Economic City in Madinah and a founding shareholder of King Abdullah Economic City in Rabigh, Saudi Arabia.

� FinancialsSavola’s revenues grew 17.5% YoY to SR21bn in 2010 compared to SR17.9bn in 2009, driven by improved volumes as the Group increased its stake in core businesses. However, net income fell 6.8% YoY to SR887mn during the year due to an impairment loss (SR284mn) as well as higher tax expenses. In 1Q11, Savola saw a 58% drop in reported net income to SR165mn, although the fall was 16.5% on an adjusted basis. High raw material prices coupled with a limited ability to pass this onto consumers led to margin pressure and the subsequent poor results.

� Recent developments On 19 April 2011, Savola announced a SR0.25 dividend for 1Q11. In September 2010, Savola announced plans to acquire Fawaz Alhokair Group’s 7% stake in Al Azizia Panda in a share swap deal in a deal valued at around SR298mn. In August 2010, it announced a share swap deal with Al-Muhaidib Group to purchase the latter’s 10% stake in Savola Foods as well as 18.6% stake in Al Azizia Panda United Co.

AGRICULTURE & FOOD | MAY 2011

SAVOLA GROUP

ALSO KNOWN AS: SAVOLA



Price perform (%) 1M 3M 12MAbsolute 6.5 1.8 (17.3)Market 1.2 2.3 (3.0)Sector 2.7 (2.4) (10.7)


Reuters code 2050.SEBloomberg code SAVOLA AB

www.savola.com




2,0003,0004,0005,0006,0007,0008,000


23

28

33

38

TASI SAVOLA Group (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Mohammed Ibrahim Mohammed Al Essa

11.9


10.9

Abdullah Mohammed Abdullah Al Rabeah

8.7

Abdul Qader Al Muhaidib and Sons Co.


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 17,917 21,029 23,548 25,619 17.4 12.7EBITDA SRmn 2,074 2,312 2,148 2,385 11.5 4.8Net Income SRmn 952 887 1,060 1,216 (6.8) 8.5Assets SRmn 17,257 17,782 19,843 20,872 3.0 6.5Equity SRmn 6,961 7,020 7,580 8,296 0.9 6.0Total Debt SRmn 5,018 5,176 6,241 6,275 3.1 7.7Cash & Equiv SRmn 1,001 563 1,464 1,401 (43.8) 11.9EBITDA Mgn % 11.6 11.0 9.1 9.3 - -Net Mgn % 5.3 4.2 4.5 4.7 - -ROE % 14.3 12.7 14.5 15.3 - -ROA % 6.0 5.1 5.6 6.0 - -Div Payout % 52.5 70.5 47.2 41.2 - -EPS SR 1.9 1.8 2.1 2.4 (6.8) 8.5BVPS SR 13.9 14.0 15.2 16.6 0.6 6.0 Source: Tadawul, Zawya, Company, NCBC Research

95

Riyadh based Almarai is the leading dairy company in the region and claims to be the largest integrated dairy company in the world. Recently it has expanded into fruit juice, bakery, poultry and infant milk as it seeks to become the leading food company in the Middle-East.

� Business brief Almarai’s product range includes fresh and long-life dairy products, several fruit juice flavors, cheese and butter and bakery products. Recent initiatives have seen the company entering the poultry and infant milk markets. It expects to increase poultry output five fold to 100mn birds per year by 2013, whilst commencing production at its infant milk manufacturing facility by the end of 2011.

� FinancialsAlmarai has recorded strong revenue and earnings growth over the past five years based on its increasing market share in the dairy market, as well as a larger product portfolio. In 2010, the company’s revenues grew 18% YoY to SR6.9bn; net profit rose17% YoY to SR1.1bn. In 1Q11, the company reported a 0.5% YoY growth in net income to SR235mn. The limited growth was off the back of record high raw material prices and inability of Almarai to increase its product prices, leading to margin pressure. Management of the company have stated that they expect 2011 to be a “challenging” year.

� Recent developments IPNC, the company’s joint venture with Mead Johnson Nutrition, launched infant formula products (co-branded Almarai and Enfamil) in Saudi Arabia in December 2010. In October 2010, the Almarai Board of Directors proposed a one-for-one bonus issue, increasing the company’s outstanding shares to 230,000,000. The company approved a SR2bn investment plan to expand its poultry production facilities in the Hail region in April 2010.

AGRICULTURE & FOOD � MAY 2011

ALMARAI COMPANY

ALSO KNOWN AS: ALMARAI



Price perform (%) 1M 3M 12MAbsolute (3.2) (9.9) (5.7)Market 1.2 2.3 (3.0)Sector 2.7 (2.4) (10.7)


Reuters code 2280.SEBloomberg code ALMARAI AB

www.almarai.com




5,000

5,500

6,000

6,500

7,000


90

100

110

TASI Almarai (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Savola Group 29.9HH Prince Sultan Mohammed Saud Al Kabir Al Saud

28.6

Omran Mohammed Al Omran and Company

5.7


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 5,869 6,931 8,005 8,998 18.1 15.3EBITDA SRmn 1,642 1,944 2,142 2,451 18.4 14.3Net Income SRmn 1,097 1,285 1,466 1,713 17.2 16.0Assets SRmn 10,987 12,571 13,930 15,534 14.4 12.2Equity SRmn 5,383 6,134 7,082 8,205 14.0 15.1Total Debt SRmn 4,377 4,847 5,147 5,448 10.7 7.6Cash & Equiv SRmn 508 241 141 703 (52.6) 11.5EBITDA Mgn % 28.0 28.0 26.8 27.2 - -Net Mgn % 18.7 18.5 18.3 19.0 - -ROE % 24.4 22.3 22.2 22.4 - -ROA % 11.4 10.9 11.1 11.6 - -Div Payout % 41.9 40.3 40.8 41.6 - -EPS SR 4.8 5.6 6.4 7.5 17.2 16.0BVPS SR 23.4 26.7 30.8 35.7 14.1 15.1 Source: Company, NCBC Research ^ % Var indicates variance from NCBC forecasts

96

Jazan Development Co. (JAZADCO) is headquartered in Jazan. It was established in 1993 to conduct agriculture and aquaculture activities in KSA. JAZADCO’s subsidiaries include Selonda Aquaculture - UK (50% stake), Fish Hatcheries Company (40%), Jannat Agricultural Investment Company (25%) and Tabuk Fisheries Company (20%).

� Business brief JAZADCO’s principal activities include ownership and operation of fish, shrimp and fruit farms; investment in the real estate and agricultural sectors; production of mineral water and seafood; distribution of industrial, electrical and food retail equipment and real estate development, including establishment and operation of industrial projects. The company sells products across Saudi Arabia, as well as exports them to other GCC, European and Far East countries. It has a total annual production capacity of 3,000 tons of shrimp, 46 million liters of mineral water and 800 tons of mangoes.

� FinancialsRevenues rose 80% YoY to SR75mn in 2010 compared to SR42mn in 2009. Despite the tremendous surge in revenues, EBITDA decreased 48.8% YoY to SR6mn during the period. Consequently, net loss grew 42.2% YoY to SR41mn in 2010 from SR29mn the previous year due to increased costs and investment losses from an external fish farming company.

� Recent developments In November 2010, JAZADCO approved infrastructure development expenditure worth SR10mn for a residential project covering an area of 149,000 square meters in Jazan. The infrastructure work is expected to be completed within eight months. The company also received a 10-year SR21mn loan from KSA’s Agricultural Development Fund to finance its second shrimp farm project.


JAZAN DEVELOPMENT

ALSO KNOWN AS: JAZADCO



Price perform (%) 1M 3M 12MAbsolute 17.0 39.1 34.1Market 1.2 2.3 (3.0)Sector 2.7 (2.4) (10.7)


Reuters code 6090.SEBloomberg code GIZACO AB

www.jazadco.com.sa



P/E (x) 51.6 N/M N/MP/B (x) 1.5 1.6 1.7P/S (x) 24.6 24.6 13.7Div Yield (%) 2.4 0.0 0.0DPS 0.5 0.0 0.0 Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


15

20

25

TASI Jazan Development (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Sulaiman Saleh Sulaiman Al Amri 6.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 27 42 42 75 80.0 40.9EBITDA SRmn 4 0 11 6 (48.8) 12.3Net Income SRmn 14 20 (29) (41) 42.2 N/MAssets SRmn 795 723 730 708 (3.1) (3.8)Equity SRmn 769 675 649 607 (6.4) (7.6)Total Debt SRmn 0 20 20 38 89.3 NACash & Equiv SRmn 110 83 42 35 (15.8) (31.5)EBITDA Mgn % 14.8 1.0 26.4 7.5 - -Net Mgn % 51.9 47.6 (69.0) (54.5) - -ROE % 1.8 2.8 (4.4) (6.6) - -ROA % 1.7 2.6 (4.0) (5.7) - -Div Payout % 166.7 125.0 0.0 0.0 - -EPS SR 0.30 0.40 (0.58) (0.82) 42.2 N/MBVPS SR 15.40 13.50 12.98 12.15 (6.4) (7.6) Source: Tadawul, Zawya, Company, NCBC Research

P97

Jeddah based Saudia Dairy and Foodstuff Company (SADAFCO) commenced operations in 1977 and focuses on dairy products. The company has since diversified its product line by entering into joint ventures with other food companies. SADAFCO’s portfolio comprises more than 100 products sold under the SAUDIA brand.

� Business brief SADAFCO operates through five main segments: milk, juices, snacks, ice cream and other food items. Under the milk segment, SADAFCO offers customers a wide range of milk packs, milk powder, cheddar cheese and milk shakes. The ice cream segment sells a number of ice cream flavors, while the other food segment produces tomato ketchup and paste, as well as hummus.

� FinancialsRevenue for the 2010 financial year grew by 11% to SR1,134mn driven by new product launches as well as an increase in market share of existing products. On the net income line, SADAFCO reported SR146mn for 2010, against the SR217mn in 2009. In 4Q10 (the three months ending March 31 2011), SADAFCO saw a 72% drop in reported net income to SR33mn, however this was due to a SR109mn one-off gain from the sale of investments in 4Q09.

� Recent developments In May 2010, SADAFCO announced plans to develop an Under One Roof Project for which it would conduct a feasibility test. The company aims to bring all production and production related infrastructure under a single roof in order to increase efficiency and meet future demand. In April 2010, Fonterra completed full acquisition of Saudi New Zealand Milk Products (SNZMP). It earlier owned 49% stake in SNZMP, while SADAFCO held the majority share. The deal was valued at around SR120mn.


SAUDIA DAIRY AND FOODSTUFF COMPANY

ALSO KNOWN AS: SADAFCO





Reuters code 2270.SEBloomberg code SADAFCO AB

www.sadafco.com


VALUATION MULTIPLES FY09A FY10A FY11AP/E (x) 49.9 7.0 10.9P/B (x) 2.8 2.1 1.9P/S (x) 1.5 1.4 1.2Div Yield (%) - 6.9 -DPS - 3.0 - Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-103035404550

TASI SADAFCO (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) United Manufacturing Co. 30.1Al Samh Trading Ltd. 11.6Global Investment House 8.9


Company financials

FY08 FY09 FY10 FY11YoY(%)

CAGR (%)(FY08-FY10)

Net Revenues SRmn 878 922 1,023 1,134 10.9 8.9EBITDA SRmn 104 103 163 165 1.4 16.7Net Income SRmn 58 28 203 130 (36.3) 30.4Assets SRmn 764 719 964 1,074 11.4 12.0Equity SRmn 515 502 667 730 9.5 12.3Total Debt SRmn 6 18 0 0 NM (100.0)Cash & Equiv SRmn 83 50 323 338 4.5 59.7EBITDA Mgn % 11.8 11.2 15.9 14.6 - -Net Mgn % 6.7 3.1 19.9 11.4 - -ROE % 11.7 5.6 34.8 18.6 - -ROA % 7.8 3.8 24.1 12.7 - -Div Payout % 83.4 0.0 48.0 0.0 - -EPS SR 1.80 0.87 6.25 3.99 (36.3) 30.4BVPS SR 15.8 15.4 20.5 22.5 9.5 12.3 Source: Tadawul, Zawya, Company, NCBC Research, Year-End March 31

98

National Agriculture Development Company (NADEC) commenced operations in 1981 with a 20% government stake. The company focuses on agricultural production, food processing and distribution. NADEC operates through three business segments: agricultural, dairy and juice products. The company sells its products under the NADEC brand.

� Business brief NADEC offers a wide range of products under each of its operating segments. The company offers manufactured products such as tomato paste, grains, vegetables, fruits, fodder, olives and honey under agricultural segment. The dairy products segment provides long-life products (including cheese and milk), desserts and special products. The juice segment offers a range of fresh and long-life juices in containers of various sizes. NADEC has the capacity to annually produce 120,000 tons of potatoes, 150,000 tons of wheat, 20,000 tons of wheat seeds, 30,000 liters of olive oil, 300,000 tons of alfalfa, 40,000 tons of onion, 5,402 tons of dates, 60,000 tons of maize, nine tons of honey and 6,000 tons of grain maize. The company also produces 800,000 liters of dairy products per day. It operates five agricultural projects across Saudi Arabia, six cattle farms, and two modern dairy plants.

� FinancialsNADEC’s revenues increased 8.5% YoY to SR1,448mn in 2010 compared to SR1,335mn in 2009. Its EBITDA grew a modest 2.2% YoY to SR217mn during the year due to increased operating expenses. However, net profit stood at SR10.5mn in 2010 against a loss of SR42.9mn the year before largely owing to capital gains and a lower depreciation charge during the year.

� Recent developments In October 2010, a court ordered ARAMCO to vacate the land it was using to lay pipes and conduct excavations as it belonged to NADEC. The latter demanded a compensation of SR3.5bn from ARAMCO.


NATIONAL AGRICULTURE

ALSO KNOWN AS: NADEC





Reuters code 6010.SEBloomberg code NADEC AB

www.nadec.com.sa



P/E (x) 23.2 N/M 152.0P/B (x) 1.5 1.6 1.6P/S (x) 1.2 1.2 1.1Div Yield (%) 2.8 0.0 0.0DPS 0.8 0.0 0.0 Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


25

30

35

TASI NADEC (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Public Investment Fund 20.0Sulaiman Abdul Aziz Saleh Al Rajhi 19.7Saleh Abdul Aziz Saleh Al Rajhi 11.4Abdullah Abdul Aziz Saleh Al Rajhi 8.3


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 1,083 1,339 1,335 1,448 8.5 10.2EBITDA SRmn 208 260 212 217 2.2 1.4Net Income SRmn 72 69 (43) 11 NM (47.3)Assets SRmn 1,828 2,442 2,510 2,378 (5.3) 9.2Equity SRmn 990 1,059 975 972 (0.4) (0.6)Total Debt SRmn 448 922 1,103 980 (11.1) 29.8Cash & Equiv SRmn 20 18 35 47 33.8 33.6EBITDA Mgn % 19.2 19.4 15.9 15.0 - -Net Mgn % 6.6 5.1 (3.2) 0.7 - -ROE % 7.3 6.7 (4.2) 1.1 - -ROA % 4.5 3.2 (1.7) 0.4 - -Div Payout % 62.9 65.2 0.0 0.0 - -EPS SR 1.19 1.15 (0.72) 0.18 NM (47.3)BVPS SR 16.50 17.70 16.26 16.19 (0.4) (0.6) Source: Tadawul, Zawya, Company, NCBC Research

99

Established in 1981, Herfy Food Services Company (Herfy) has a chain of fast food restaurants as well as pastry, bakery and chocolate showrooms across Saudi Arabia. Herfy is KSA’s largest food chain with over 170 fast food restaurants, 16 pastry and chocolate showrooms and one meat processing plant.

� Business brief Herfy operates fast food restaurants, food retail outlets, bakeries and chocolate showrooms. In total, Herfy operates 185 outlets in five countries. The company is also engaged in meat processing. Its combined production capacity of sweets and bakery products stands at 13,400 tons per annum and frozen meat capacity at 4,090 tons per annum.

� FinancialsHerfy reported a 12.0% YoY growth in revenue to SR580mn in 2010 compared to SR518mn in 2009 driven largely by 20 new restaurant openings during the year. This also led to an 8.4% YoY growth in net income to SR124mn in 2010. However, margins declined marginally; EBITDA margin fell 34bps and net margin 72bps during the year. In 1Q11, Herfy reported a 15.7% YoY increase in net income to SR33mn.

� Recent developments On 18 April 2011, Herfy approved a SR1.5 dividend payment for the second half of 2010. Herfy announced on 8 November 2010 that it signed a SR50mn credit facility agreement with Al Rajhi Bank; these funds would be used for its expansion plans.


HERFY FOOD SERVICES

ALSO KNOWN AS: HERFY



Price perform (%) 1M 3M 12MAbsolute 4.1 (2.8) 34.1Market 1.2 2.3 (3.0)Sector 2.7 (2.4) (10.7)


Reuters code 6002.SEBloomberg code HERFY AB

www.herfy.com





3,0004,0005,0006,0007,0008,000

Mar-11Nov-10Jul-1055

65

75

85

95

TASI Herfy Foods (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Savola Group 47.6Ahmed Hamad Mohammed Al Said

20.3


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 375 466 518 580 12.0 15.6EBITDA SRmn 84 118 142 157 10.6 23.3Net Income SRmn 62 91 115 124 8.4 26.4Assets SRmn 325 355 411 499 21.5 15.3Equity SRmn 231 262 317 380 20.1 18.1Total Debt SRmn 42 30 18 34 86.6 (6.9)Cash & Equiv SRmn 20 21 20 50 149.2 34.7EBITDA Mgn % 22.3 25.2 27.4 27.1 - -Net Mgn % 16.4 19.6 22.1 21.4 - -ROE % 28.6 37.0 39.6 35.7 - -ROA % 20.6 26.8 30.0 27.3 - -Div Payout % 0.0 0.0 17.7 65.2 - -EPS SR 2.28 3.38 4.25 4.60 8.4 26.4BVPS SR 8.55 9.71 11.73 14.08 20.1 18.1 Source: Tadawul, Zawya, Company, NCBC Research

100

Al-Jouf Agriculture Development Co. (Al Jouf) was established in 1988. Headquartered in Al Jouf, the company processes and sells agricultural and livestock products. Al Jouf sells products across Saudi Arabia and in the neighboring states through its network and marketing outlets.

� Business brief Al Jouf’s core activities involve the processing and marketing of agricultural and animal products. The company’s product portfolio includes potatoes and potato seeds, onion and onion seeds, and fruits such as peaches, plums, apples, apricot and grapes. Its offering also consists of products such as olive oil, bee honey, dates, wheat and barley, and alfalfa fodder for livestock and fodder dealers. Other projects undertaken by the company include milk production and processing (under the brand Al-Safwa Dairies), and sheep breeding and fattening.

� FinancialsRevenues fell 7.1% YoY to SR247mn in 2010 compared to SR266mn in 2009. However, EBITDA margins improved to 43.6% during the year from 40.2% in 2009 due to higher average realized price in the domestic market led by an increased focus on high margin products, as well lower production costs and operating expenses. Consequently, net income grew 5.3% YoY to SR66mn in 2010 compared to SR63mn the previous year. In 1Q11, net income fell by 15.5% YoY to SR6mn.

� Recent developments The Board of Directors in December 2010 proposed to increase the capital by 25% through one bonus issue for every four shares held; this would take the total capital to SR250mn. It also proposed a cash dividend of SR2.0 per share for 2010. In October 2010, Al Jouf said it expected olive production to grow 50% YoY to 3,000 tons in 2010. In September 2010, it announced the completion of phase 1 of the cultivation of olive trees in which 1 million trees were grown. Phase 2 has begun with planting likely to be completed by 30 September 2011; another 1 million trees would be grown in this stage.


AL-JOUF AGRICULTURE

ALSO KNOWN AS: AL JOUF, JADCO



Price perform (%) 1M 3M 12MAbsolute (3.0) (3.7) 17.8Market 1.2 2.3 (3.0)Sector 2.7 (2.4) (10.7)


Reuters code 6070.SEBloomberg code JADCO AB

www.aljouf.com.sa





5,000

5,500

6,000

6,500

7,000


23

28

33

TASI Jouff Agriculture (LHS)

Source: Reuters



Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 189 213 266 247 (7.1) 9.3EBITDA SRmn 95 96 107 108 0.6 4.2Net Income SRmn 50 54 63 66 5.3 10.1Assets SRmn 507 545 578 610 5.6 6.4Equity SRmn 430 472 535 558 4.3 9.1Total Debt SRmn 1 6 1 0 (100.0) (100.0)Cash & Equiv SRmn 12 28 94 65 (30.8) 74.5EBITDA Mgn % 50.3 45.1 40.2 43.6 - -Net Mgn % 26.3 25.5 23.7 26.8 - -ROE % 12.3 12.1 12.5 12.1 - -ROA % 10.0 10.3 11.2 11.2 - -Div Payout % 0.0 18.4 63.5 60.4 - -EPS SR 2.50 2.72 3.15 3.31 5.3 9.8BVPS SR 21.50 23.60 26.76 27.91 4.3 9.1 Source: Tadawul, Zawya, Company, NCBC Research

101

Qassim Agriculture Co. (GACO), established in 1984, is headquartered in Qassim. The company invests in agricultural businesses and livestock and is also looking to expand into the poultry business through a SR250mn investment with a target of 1 million birds/year production.

� Business brief GACO is mainly involved in crop production, food processing and animal farming activities. The company produces 2,500 tons of dates, 25,000 tons of corn, and 42,000 tons of wheat annually. GACO is also a distributor of dates and dairy products. The company invests in the construction of cooling stores, transportation and import of fodder, cereals and agricultural equipment to meet internal requirements. GACO is looking to expand into the poultry business, although this has been delayed several times in the past two years. The project is expected to consist of a feed mill, cold stores, a slaughter factory and a hatchery.

� FinancialsGACO’s revenues fell 4.0% YoY to SR81mn in 2010 due to inappropriate weather conditions leading to a considerable decline in crop production during the period. This resulted in higher per unit production costs, and marketing and administrative expenses mainly owing to the poultry project. Consequently, EBITDA margins declined significantly to (9.0%) in 2010 from 7.6% in 2009 leading to a net loss of SR17mn in 2010 compared to a SR7mn loss in 2009.

� Recent developments In August 2010, GACO postponed the launch of operations of its broiler chicken farms poultry project from September 2010 to February 2011. In February 2011, it announced it would delay the investment due to the election of a new Board of Directors who would need time to research the investment.


QASSIM AGRICULTURE

ALSO KNOWN AS: GACO





Reuters code 6020.SEBloomberg code QAACO AB

www.gaco.com.sa



P/E (x) NM NM NMP/B (x) 1.4 1.4 1.5P/S (x) 6.4 6.7 7.0Div Yield (%) NA NA NADPS 0 0 0 Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


101112

TASI Qassim Agriculture (LHS)

Source: Reuters



Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 49 88 84 81 (4.0) 18.2EBITDA SRmn 13 14 6 (7) N/M N/MNet Income SRmn (3) 0 (7) (17) 149.9 82.7Assets SRmn 498 574 562 539 (4.1) 2.7Equity SRmn 404 405 399 381 (4.4) (1.9)Total Debt SRmn 6 7 17 14 (16.9) 33.5Cash & Equiv SRmn 12 2 0 3 1009.4 (40.0)EBITDA Mgn % 26.3 15.5 7.6 (9.0) - -Net Mgn % (5.8) 0.3 (8.2) (21.5) - -ROE % (0.7) 0.1 (1.7) (4.5) - -ROA % (0.6) 0.1 (1.2) (3.2) - -Div Payout % NA NA NA NA - -EPS SR (0.06) 0.01 (0.14) (0.35) 149.9 82.7BVPS SR 8.08 8.11 7.97 7.62 (4.4) (1.9) Source: Tadawul, Zawya, Company, NCBC Research

102

Anaam International, established in 1982, has its headquarters in Jeddah, Saudi Arabia. The company imports, sells and produces frozen food and animal feed, and has investments in industrial projects and the livestock trade. Anaam has factories and plants in Jouf and Qassim.

� Business brief Anaam is involved in the import, export, supply, trade, transportation and breeding of livestock in Saudi Arabia. The company also trades in marine equipment. Other activities include the production and transportation of meat, management and operation of slaughter houses, processing of meat imports, wholesale trade of frozen food, production of animal feed, and investments in industrial projects. Anaam has the capacity to produce animal feed at a total of 66,000 tons per year. The company is also into real estate development and investment activities.

� FinancialsAnaam’s revenues for 2010 rose 122.2% YoY to SR140mn from SR63mn in 2009. The company’s EBITDA margins narrowed to 6.6% from 10.2% in 2009. However, the net profit margin improved to 8.1% in 2010 from (12.8%) in 2009. This was mainly due to a capital gain from the sale of property and equipment recorded during the year as compared to a capital loss reported in the previous year.

� Recent developments In February 2010, Anaam declared that it intends to boost sales to SR150mn in a period of three years. The company would raise its focus on the food, real estate and industrial sectors to achieve this target.


ANAAM INTERNATIONAL

ALSO KNOWN AS: ANAAM





Reuters code 4061.SEBloomberg code ANAAM AB

www.anaam.com.sa



P/E (x) 99.5 NM 43.9P/B (x) 4.1 4.4 4.0P/S (x) 4.8 7.9 3.6Div Yield (%) - - -DPS - - - Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-1029

34

39

44

49

TASI Anaam Holding (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Prince Abdullah Turki Abdul Aziz Al Saud

9.9


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 88 103 63 140 122.2 16.6EBITDA SRmn 9 9 6 9 44.1 0.8Net Income SRmn 6 5 (8) 11 NM 23.5Assets SRmn 247 248 233 235 0.9 (1.7)Equity SRmn 115 120 112 123 10.1 2.2Total Debt SRmn 25 22 19 15 (18.2) (14.8)Cash & Equiv SRmn 22 14 21 4 (79.2) (42.3)EBITDA Mgn % 10.2 8.4 10.2 6.6 - -Net Mgn % 6.8 4.9 (12.8) 8.1 - -ROE % 5.4 4.3 (7.0) 9.6 - -ROA % 2.4 2.0 (3.4) 4.8 - -Div Payout % 0.0 0.0 0.0 - - -EPS SR 0.60 0.40 (0.73) 1.03 NM 23.5BVPS SR 10.60 11.00 10.15 11.17 10.1 2.2 Source: Tadawul, Zawya, Company, NCBC Research

103

Halwani Brothers Company (HB) produces, markets and distributes food products within and outside Saudi Arabia. HB has over 26 brands and 15 plants in Saudi Arabia and Egypt. The company was established in 1952 and is headquartered in Jeddah, Saudi Arabia.

� Business brief HB is engaged in the production of cheese, ice-cream, frozen and processed meat, jams, grains, juices, dates and halawa as well as in tissue manufacturing. The company has the capacity to produce 12,200 tons of Tahina, 20,100 tons of Halwa, 22,950 tons of meat, 3,000 tons of cheese, 3,348 tons of Arabic sweets, 4,500 tons of dairy products and 9,996 tons of jam per year.

� FinancialsHB reported an 18.6% YoY growth in 2010 revenues to SR732mn. This combined with lower costs resulted in a 39.9% YoY rise in EBITDA and an 88.4% YoY increase in net income to SR125mn and SR80mn, respectively. Consequently, EBITDA and net margin expanded to 17.1% and 11.0% in 2010 from 14.5% and 6.9%, respectively, in 2009. In 1Q11, net income increased by 3.3% YoY to SR22mn.

� Recent developments On 8 February 2011, the company reported that it temporarily shut down production in Jeddah due to damage caused by the floods on 25 January 2011. On 19 January 2011, HB recommended a dividend per share of SR1.5 for 2010. On 25 September 2010, the company announced that Halwani Brothers Egypt, a 100% subsidiary, plans to double its capacity of canned and processed meat at a cost of EGP100mn. The expansion is expected to be completed by the end of 2012. Phase 1, which is likely to boost capacity by 50%, commenced in October 2010. This phase is expected to cost EGP50mn and is estimated to take around eight months to complete.


HALWANI BROTHERS

ALSO KNOWN AS: HALWANI, HB





Reuters code 6001.SEBloomberg code HB AB

www.halwani.com.sa





5,000

5,500

6,000

6,500

7,000


30

40

TASI H B (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Dalat Industrial Investment Co. 55.5Mohamed Abdel Hameed Mahmood Halwani

6.9


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 551 664 617 732 18.6 9.9EBITDA SRmn 61 71 89 125 39.9 27.0Net Income SRmn 33 58 43 80 88.4 34.5Assets SRmn 438 646 570 649 14.0 14.0Equity SRmn 267 485 463 507 9.6 23.9Total Debt SRmn 51 66 0 0 - (100.0)Cash & Equiv SRmn 15 188 144 117 (18.9) 98.3EBITDA Mgn % 11.1 10.8 14.5 17.1 - -Net Mgn % 6.0 8.8 6.9 11.0 - -ROE % 12.7 15.5 9.0 16.6 - -ROA % 7.7 10.8 7.0 13.2 - -Div Payout % 129.9 36.7 67.0 53.3 - -EPS SR 1.15 2.04 1.49 2.81 88.4 34.5BVPS SR 9.34 16.97 16.21 17.76 9.6 23.9 Source: Tadawul, Zawya, Company, NCBC Research

104

Dammam-based Saudi Fisheries Company (SFC) commenced operations in 1981. With ALASMAK as its flagship brand, the company has national and international recognition in fishing, aquaculture and seafood manufacturing and distribution. Saudi Fisheries manufactures products at its processing plants and delivers them using its own fleet.

� Business brief Saudi Fisheries generates revenues from four operating segments: value-added products (2,000 tons production capacity); individually quick-frozen or IQF products (1,000 tons capacity); fish products; and a new product Alasmak Tuna. The value-added products segment comprises fish sticks, fish burgers, shrimp nuggets, king shrimp and golden crispy shrimp. The IQF segment offers IQF shrimp in retail packs. Fish products are offered in fresh, frozen whole, gutted, steak, chunk, and fillet forms. A company owned chain of retail shops and fish service counters handles the distribution process. The company operates four processing plants located in Dammam, Jeddah, Jazan and Riyadh.

� FinancialsSFC’s revenues decreased 17.1% YoY to SR98mn in 2010 as compared to SR118mn in 2009. The EBITDA loss increased a marginal 3.1% YoY to SR11.5mn during 2010. However, net loss reduced to SR27m in 2010 from SR29mn in 2009.

� Recent developments In December 2010, SFC Board of Directors proposed a rights issue at SR10 per shares to raise the company’s capital by 168% to SR535mn from the existing SR200mn. Consequently, SFC’s shares outstanding would increase to 53.5 million from 20.0 million. In January 2010, SFC and NCB signed a two-year SR50mn Islamic credit facility to finance the company’s expansion project in the Asir area.


SAUDI FISHERIES

ALSO KNOWN AS: ALASMAK, SFC





Reuters code 6050.SEBloomberg code SFICO AB

www.saudi-fisheries.com



P/E (x) NM NM NMP/B (x) 6.4 7.8 9.7P/S (x) 8.6 9.0 10.8Div Yield (%) NA NA NADPS 0 0 0 Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


48

TASI Saudi Fisheries (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Public investment Fund 40.0Prince Mete'eb Bin Abdul Aziz Al Saud

21.5


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 106 123 118 98 (17.1) (2.6)EBITDA SRmn (23) (12) (11) (11) 3.1 (20.7)Net Income SRmn (31) (26) (29) (27) (6.2) (4.6)Assets SRmn 227 200 187 191 2.4 (5.6)Equity SRmn 190 164 136 109 (19.8) (17.0)Total Debt SRmn - 2 9 48 433.9 NMCash & Equiv SRmn 3 2 2 2 16.2 (16.4)EBITDA Mgn % (21.7) (9.8) (9.4) (11.7) - -Net Mgn % (29.2) (21.0) (24.3) (27.5) - -ROE % (15.1) (14.6) (19.1) (22.0) - -ROA % (12.7) (12.1) (14.8) (14.2) - -Div Payout % 0.0 0.0 0.0 - - -EPS SR (1.55) (1.29) (1.43) (1.34) (6.2) (4.6)BVPS SR 9.50 8.22 6.78 5.44 (19.8) (17.0) Source: Tadawul, Zawya, Company, NCBC Research

105

Riyadh-based Food Products Company, was established in 1989 to provide food products to Saudi Arabian families. It focuses on processing, marketing, distribution and export of value-added foods items. The company’s target markets include Asia and the Middle East.

� Business brief Food Products Company operates under the brand name ‘WAFRA’ and has an 11.1% stake in Jannat Agricultural Investment Co. The company classifies its operations under four business segments: Meat Factory (offers beef and chicken burgers, kebabs, frankfurters), Vegetable Factory (offers frozen French fries, potato wedges and a variety of peanuts), Pasta Factory (produces a wide range of pasta under various brands) and Breakfast Cereals (supplies corn flakes, frosted flakes and rice crispies).

� FinancialsWAFRA’s revenue for 2010 grew 3.1% YoY to SR73mn. EBITDA rose 15.5% YoY to SR16mn, resulting in a margin gain of 235bps to 21.9%. Net income nearly tripled in 2010 to SR17mn from SR6mn in 2009, driven mainly by an increase in other income due to capital gains earned in 1H10.

� Recent developments In October 2010, WAFRA announced the appointment of Ibrahim Mohammed Turki Al Daghrir as the company’s General Manager.


FOOD PRODUCTS COMPANY

ALSO KNOWN AS: WAFRA, FOOD PRODUCTS COMPANY





Reuters code 2100.SEBloomberg code FPCO AB

www.wafrah.com





5,000

5,500

6,000

6,500

7,000


13

16

19

22

TASI Food (LHS)

Source: Reuters



Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 65 76 71 73 3.1 4.2 EBITDA SRmn 19 18 14 16 15.5 (5.4)Net Income SRmn 8 14 6 17 204.2 29.8 Assets SRmn 182 185 200 210 5.1 4.7 Equity SRmn 158 170 177 194 10.0 7.1 Total Debt SRmn 3 0 0 0 NM (100.0)Cash & Equiv SRmn 7 5 5 12 133.7 20.5 EBITDA Mgn % 29.2 23.7 19.5 21.9 - -Net Mgn % 12.3 18.4 8.1 23.8 - -ROE % 5.2 8.5 3.3 9.4 - -ROA % 4.5 7.6 3.0 8.5 - -Div Payout % 0.0 0.0 0.0 0.0 - -EPS SR 0.40 0.70 0.29 0.87 204.2 29.8 BVPS SR 7.90 8.50 8.83 9.72 10.0 7.1 Source: Tadawul, Zawya, Company, NCBC Research

106

Tabuk Agriculture Development Company (TADCO), established in 1983 and headquartered in Tabuk, is primarily involved in the production and marketing of agricultural products. TADCO is also actively involved in environment protection and water resource management. Its products include fruits, vegetables, forage products, grains and seeds, and processed products such as olive oil and honey.

� Business brief TADCO operates through five business units: Forage – produces alfalfa to sell mainly to dairy farms; Olive – produces and processes olive oil through olive tree cultivation; Vegetable – mainly yields and markets onions and potatoes; Fruit – cultivates fruits such as peaches, apricots, plums, nectarines and pears; and Grain – produces wheat and wheat seeds.

� FinancialsRevenues declined 10.3% YoY to SR151mn in 2010 from SR168mn in 2009. However, EBITDA margins improved significantly by 441 bps to 25.2% during the period due to better price realizations on some products and a decrease in input costs of several products. Consequently, net income surged by 64.9% YoY to SR12mn in 2010 from SR7mn the previous year.

� Recent developments In January 2011, TADCO received a SR18.4mn loan from the Agricultural Development Fund to finance part of its Refrigerated Warehouses project for potatoes and onions. The company also finalized a SR10mn Islamic financing agreement with NCB to fund this project. TADCO is currently under discussions with Far East Agriculture Company to acquire a SR10mn stake in the company. In November 2010, the BoD proposed a capital increase through a 100% rights issue, which is awaiting approval.


TABUK AGRICULTURE

ALSO KNOWN AS: TADCO





Reuters code 6040.SEBloomberg code TAACO AB

www.tadco-agri.com





5,000

5,500

6,000

6,500

7,000


18

23

28

TASI Tabuk Agriculture (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Abdullah Abdul Aziz Saleh Al Rajhi 25.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 146 172 168 151 (10.3) 1.0EBITDA SRmn 47 51 35 38 8.7 (6.9)Net Income SRmn 20 24 7 12 64.9 (16.8)Assets SRmn 448 435 423 422 (0.2) (2.0)Equity SRmn 390 369 364 367 1.0 (2.0)Total Debt SRmn 5 4 3 6 105.6 7.2Cash & Equiv SRmn 6 4 10 5 (53.1) (5.3)EBITDA Mgn % 32.2 29.7 20.8 25.2 - -Net Mgn % 13.8 13.7 4.2 7.7 - -ROE % 5.2 6.2 1.9 3.2 - -ROA % 4.5 5.3 1.6 2.7 - -Div Payout % 0.0 42.4 142.0 86.1 - -EPS SR 1.01 1.18 0.35 0.58 64.9 (16.8)BVPS SR 19.52 18.47 18.18 18.35 1.0 (2.0) Source: Tadawul, Zawya, Company, NCBC Research

107

Established in 1986, Ash-Sharqiyah Development Company (Ash-Sharqiyah) sells meat and agricultural products. It also undertakes agricultural projects, rehabilitation of land and irrigation works. Ash-Sharqiyah owns stakes in Al Hassa Food Industries, United Dairy Farms and Pure Breed Poultry.

� Business brief Ash-Sharqiyah is involved in the production and marketing of wheat, barley, fodder crops such as alfalfa and rhodes grass, wheat and barley straw and potatoes. It has an annual production capacity of 14.5 million tons of milk, 14,000 tons of wheat and 550 kilograms of honey. Other projects undertaken by the company include calf and sheep breeding, and production of bio-fertilizers. Ash-Sharqiyah also owns a shopping center in Dammam.

� FinancialsRevenues rose 9.9% YoY to SR35mn in 2010 compared to SR32mn in 2009. However, EBITDA margins decreased 325 bps YoY to 18.8% in the year. Nevertheless, higher income from associate led to a YoY decline in net loss to SR4mn in 2010 compared to SR5mn in 2009.

� Recent developments In November 2010, SHADCO announced Amal Abdel-Rahman’s resignation from the Board of Directors. The company in October 2010 announced the appointment of Omar Bin Abdulaziz Al Khamis as Chairman, replacing Bader Bin Fahd Al Daoud.


ASH-SHARQIYAH

ALSO KNOWN AS: SHADCO





Reuters code 6060.SEBloomberg code ASACO AB

www.asharqiyah.com.sa



P/E (x) NM NM NMP/B (x) 3.0 3.7 3.8P/S (x) 6.1 9.6 8.7Div Yield (%) NA NA NADPS 0.0 0.0 0.0 Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-102530354045

TASI Eastern Agriculture (LHS)

Source: Reuters



Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 53 51 32 35 9.9 (12.8)EBITDA SRmn 17 21 7 7 (6.3) (26.8)Net Income SRmn 3 (12) (5) (4) 17.8 NMAssets SRmn 144 133 115 107 (6.8) (9.3)Equity SRmn 117 104 85 81 (4.7) (11.6)Total Debt SRmn 10 11 8 1 (86.3) (51.2)Cash & Equiv SRmn 1 1 0 1 482.5 3.0EBITDA Mgn % 31.8 41.2 22.0 18.8 - -Net Mgn % 6.4 (23.5) (14.9) (11.2) - -ROE % 3.0 (10.9) (5.1) (4.8) - -ROA % 2.4 (8.7) (3.9) (3.6) - -Div Payout % 0.0 0.0 0.0 0.0 - -EPS SR 0.50 (1.70) (0.64) (0.53) 17.8 NMBVPS SR 15.70 13.80 11.29 10.76 (4.7) (11.8) Source: Company, NCBC Research ^ % Var indicates variance from NCBC forecasts

108


MAY 2011

109

Telecom


7020 Etihad Etisalat 115

7010 STC 116

7030 Zain KSA 117

7040 Atheeb Telecom 118

The liberalization of the KSA telecom sector can be seen as the catalyst which has led to significant growth in the sector; in 2010 the subscriber base was some 51.6mn, growing at a CAGR of 40% during 2001–10. However, with the mobile voice segment approaching saturation, we believe “data”, which includes broadband internet access, will provide the next leg of growth for the Saudi telecom sector. From a mobile penetration of 58% in 2005, this has increased to over 180% in 2010, indicating the significant growth in the Saudi telecom sector. However, despite being the largest market for mobile services in the GCC, KSA’s penetration rate is lower than the UAE’s 217% and just above Qatar’s 182%. Going forward, we expect the mobile penetration growth rate in KSA to be much slower and to increase to 205% by 2015e. Internet penetration reached 42% in 2010, while broadband was at a mere 16%, but is expected to be a catalyst for growth in the telecom sector in the long term. We expect broadband subscribers to reach 11.4mn by 2015e from 4.4mn in 2010.

With mobile penetration rates already touching new highs, further growth is likely to be at a diminishing rate, implying limited room for mobile subscriber additions. However, broadband, non-voice services (mainly value-added features), and introduction of smart phones could add new subscribers as well as limit the fall in ARPU, which although declining significantly from SR132 in 2006 to SR73 in 2010 is expected to stabilize at SR63 by 2015e.

KSA’s fixed line penetration has stagnated around 15% as more users migrate to mobiles with corporate demand remaining subdued due to the global economic downturn. Fixed line subscribers fell 3% in 2010 to 4.04mn and we expect the growth to remain subdued going forward. However, fixed line services could witness some competition-led growth with the launch of Atheeb. In addition, decreasing household size, a rising population and an increase in the demand from businesses are expected to drive fixed-line growth over the long term.

Although increasing competition has been beneficial in driving penetration and revenue growth, it is now beginning to impact margins due to continued pricing pressure. Going forward, the risk is that margins remain under pressure as further additions to the subscriber base come at a higher cost associated with growing marketing expenses. Hence, the key for companies is to shift their focus to value added services, providing not just connectivity but also monetizing digital demand and thus limiting declines in ARPU. We believe KSA is a relatively more lucrative market for these value added services given the country’s affluent and young population that is more open to adopting newer technologies and services. Yet, the true catalyst for growth is likely to be the largely untapped broadband market; the broadband penetration rate stood at just 16% in 2010 (well below Bahrain, Qatar and UAE’s more than 50% rate) versus 42% internet penetration rate. Data revenues as a percentage of total revenues are expected to increase to 22% by 2014e from around 15% in 2010.

MAY 2011

TELECOM

Data, broadband; the next leg of growth

110

TELECOM NCB CAPITAL

MAY 2011

Exhibit 79: Fixed-line and mobile penetration rate Exhibit 80: Broadband & internet penetration rate

% %

14%

14%

15%

15%

16%

16%

16%

17%

2004 2005 2006 2007 2008 2009 20100%

40%

80%

120%

160%

200%

Fixed-line Mobile (RHS)

0%

3%

6%

9%

12%

15%

18%

2004 2005 2006 2007 2008 2009 20100%

10%

20%

30%

40%

50%

Broadband Internet (RHS)

Source: EIU, BMI, ITU, CITC Source: EIU, BMI, ITU, CITC

Saudi telecom companies also are diversifying geographically, selectively targeting other markets where there are either synergies present, or organic growth potential is high. STC has holdings in a number of foreign subsidiaries including in India and Indonesia.

The rapid growth in the Saudi telecom sector positions it as the largest in the GCC in revenue terms in 2010. However, in terms of return on equity it is lower than its GCC peers, due mainly to losses at Zain KSA, and is trading at a P/E multiple of 8.4x, slightly above the GCC average of 8.3x.

Exhibit 81: GCC Telco’s revenues, 2008–10 Exhibit 82: GCC Telco’s RoE and P/E comparison, 2010

USD mn %

02,0004,0006,0008,000

10,00012,00014,00016,00018,00020,000

2008 2009 2010

Oman Bahrain UAE KSA Kuwait Qatar

0

8

16

24

32

6 8 10 12

P/E (x)

RO

E (%

)

KSA Qatar UAE Kuwait Oman Bahrain

Source: Reuters, Tadawul, Bloomberg The companies list is not exhaustive.

Source: Reuters, Tadawul, Bloomberg, NCBC Research Size of the bubble represents market cap. as on 31 Dec 2010

Saudi listed telecoms market STC is the largest company in KSA’s telecommunication sector with a market cap of SR77bn at end of 1Q11 followed by Mobily with a market cap of SR36.1bn. Zain’s initial public offering came in 2008 and the company launched commercial services in August 2008. Atheeb listed in March 2009.


Country % weight in Index


2010Avg. RoE (%),

2010Saudi Telecom Co (STC) 2.2 18.2 20.0Etihad Etisalat Co (Mobily) 4.0 26.3 30.3Mobile Telecommunication Co. (Zain) 0.8 (39.7) (32.0)Atheeb Telecom 0.0 NA NASource: Bloomberg, Tadawul, Reuters; NM: Net Margin *start periods may differ based on the availability of data

Mobily continued to perform well despite the downturn and intensifying competition in KSA, with revenues up 22.6% in 2010 due largely to its

111

TELECOM NCB CAPITAL

MAY 2011

aggressive focus on the mobile and wireless internet markets. Margins improved significantly as a result of the increasing percentage of high-margin data revenue and higher efficiency. STC’s revenues increased by 2% in 2010, largely led by its expansion into overseas markets. However, its margins suffered on account of these overseas investments as well as higher inter-connection charges to other network. Consequently, net profit excluding capital gain declined 14.5% in 2010. Although Zain continued to sink deeper into the red, its revenue nearly doubled YoY in 2010, led by the significant expansion in subscriber base brought about by its aggressive promotional and marketing strategies.

Exhibit 84 Revenue of companies, 2008-2010 Exhibit 85: Net profit margin, 2008-2010

SR mn %

0

12,000

24,000

36,000

48,000

60,000

72,000

84,000

2008 2009 2010

STC Mobily Zain KSA

0

7

14

21

28

35

42

2008 2009 2010

STC Mobily

Source: Tadawul Source: Tadawul

As of 31 Dec 10, the P/B multiples of STC and Mobily were 1.6x and 2.4x, respectively, while that of Zain stood at 1.6x. ROEs of STC and Mobily were 20% and 30%, respectively. With Zain continuing to report losses, its ROE remains negative.

Exhibit 86: Comparison of P/B and RoE, 2009 Exhibit 87: Comparison of P/B and RoE, 2010

% %

0

1

2

3

4

-48 -32 -16 0 16 32 48

P/B

V (x

)

ROE (%)

STC Mobily Zain KSA

0

1

2

3

-48 -32 -16 0 16 32 48

P/B

V (x

)

ROE (%)

STC Mobily Zain KSA

Source: Bloomberg, Tadawul Size of the bubble represents market cap. as on 31 Dec 2009

Source: Bloomberg, Tadawul Size of the bubble represents market cap. as on 31 Dec 2010

Zain was the most active stock in the telecom sector with turnover of SR48mn per day in 2010 followed by Mobily’s SR47mn per day.

112

TELECOM NCB CAPITAL

MAY 2011



35

47 48

8

0

10

20

30

40

50

60

STC Mobily Zain Atheeb

60

80

100

120

140


STC Mobily Zain Atheeb

Source: Bloomberg, Tadawul Source: Bloomberg, Tadawul

The Saudi Arabia Telecommunication Sector is experiencing intense competition brought on by the entry of new players. Further reforms will likely attract more new entrants into the market and add to competition. The drive for market share gains amongst existing carriers is leading to significant pricing pressure, as reflected in declining ARPUs, as well as margin pressure. Nevertheless, continued strong demand for mobiles, reduction in handset prices and tariffs and increasing popularity of value-added services offered on mobile platforms, present a significant growth opportunity. We expect growth in the customer base and increased usage to somewhat mitigate the decline in ARPU. Moreover, internet and broadband services usage are expected to grow, given the expanding young population and their willingness to adopt new technologies. Although demand for wired Internet is likely to promote fixed-line connectivity, we believe companies will focus more on wireless connectivity, especially through mobiles, given their high penetration. Furthermore, investments in the sector are likely to increase as more reforms are implemented and new carriers start operations.

113

TELECOM NCB CAPITAL

MAY 2011

NCBC Recommendations in the Sector We have a cautiously optimistic view on the KSA telecom sector as a whole. While declining ARPU levels, high capex requirements, high penetration rate in mobile and a saturating voice market remain concerns, increasing focus on Value Added Services and Broadband access, largely underpenetrated at present, as well as the potential from international exposure provides good potential for growth in the coming years. Positive macro factors such as a growing young population with increasing disposable incomes should act as key supporters of growth for the sector. We currently have three stocks under our coverage in the sector, Saudi Telecom Co., Mobily and Zain KSA.

Exhibit 90: Coverage stocks details Stock Current Rating PT (SR) Comments Saudi Telecom Co. (7010.SE)

Overweight 47.1 Dominance in DSL, its scale of business and its relatively higher and more secure ARPU levels provide a strong platform for the stock. Limited information available on its international business, as well the pace at which it continues to lose market share to competitors are key concerns.

Mobily (7020.SE)

Overweight 66.9 Dominance in wireless internet access, increased leverage of its infrastructure resources leading to lower costs and its strong management/execution capabilities are key positives. Declining ARPU levels, its limited fixed line services as well as acquisition costs of new customers are concerns surrounding the stock.

Zain KSA(7030.SE)

Neutral 7.0 Attractive and innovative packages, increasing market share and growing mobile broadband business has helped it gain market share. However, its high debt levels and the financing of this, ownership concerns due to bids for the Zain Kuwiat stake in Zain KSA and the extent of its continued losses set against the SR22bn it paid for its license are key risks on the stock.


114

Etihad Etisalat Company (Mobily), is the second largest mobile operator in Saudi Arabia. Since breaking STC’s monopoly in 2005 it has taken around 40% of the mobile subscriber market. Its leading position in wireless internet and potential upside on dividend payout are key positives; the threat of continued competition based on price is a key threat.

� Business brief Mobily was established in 2004 with the UAE-based Emirates Telecommunications Corporation (Etisalat) as the majority owner. Mobily commenced operations in 2005 providing wireless telecommunication services. Mobily offers mobile telephony services in the Kingdom using GSM, 3/3.5G and Wimax technologies. Mobily had over 2.3mn broadband subscribers and is estimated to have reached 20mn mobile subscribers as of the end of 2010. Around 18% of revenues in 2010 was said to have come from “Data” sources with this set to increase in the coming years.

� FinancialsMobily continued its robust performance in 2010 with revenues growing by 22.6% YoY to SR16bn. This can be ascribed largely to expansion of its customer base. Net income rose by 39.7% YoY to SR4.2bn in 2010, driven by increasing efficiency as Mobily was able to leverage its growing customer base. 1Q11 was another strong quarter for the company with net income growing by 40% YoY to SR998mn.

� Recent developments In January 2011, Mobily announced it had selected Ciena Corporation to build its optical network. The network will support its data traffic as well new service rollout, while at the same time reducing operational costs. On December 20, 2010, Mobily announced it secured a SR1.2bn short-term Islamic facility for 12 months, renewable for further six months, with five local banks. The company said the funds are intended mainly for the expansion and upgrade of its data communication network, in line with its GED strategy.

TELECOM � MAY 2011

ETIHAD ETISALAT

ALSO KNOWN AS: MOBILY



Price perform (%) 1M 3M 12MAbsolute 0.0 1.2 7.2Market 1.2 2.3 (3.0)Sector (2.6) (6.3) (6.6)


Reuters code 7020.SEBloomberg code EEC AB

www.mobily.com.sa




5,000

5,500

6,000

6,500

7,000


404346495255

TASI Mobily (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Etisalat – UAE 27.4General Organization for Social Insurance (GOSI)

11.2


Company financials

2009 2010 2011E 2011EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 13,058 16,013 17,360 18,219 22.6 11.7EBITDA SRmn 4,837 6,165 6,747 7,284 27.5 14.6Net Income SRmn 3,014 4,211 4,478 4,743 39.7 16.3Assets SRmn 30,926 33,430 38,612 39,991 8.1 8.9Equity SRmn 12,243 15,580 18,486 21,332 27.3 20.3Total Debt SRmn 8,595 7,972 6,371 5,212 (7.3) (15.4)Cash & Equiv SRmn 933 1,661 2,307 2,160 78.0 32.3EBITDA Mgn % 37.0 38.5 38.9 40.0 - -Net Mgn % 23.1 26.3 25.8 26.0 - -ROE % 27.4 30.3 26.3 23.8 - -ROA % 10.4 13.1 12.4 12.1 - -Div Payout % 29.0 33.2 31.9 36.1 - -EPS SR 4.3 6.0 6.4 6.8 39.7 16.3BVPS SR 17.5 22.3 26.4 30.5 27.3 20.3 Source: Tadawul, Zawya, Company, NCBC Research

115

Despite liberalization of the sector, STC remains the leading telecom company in Saudi Arabia. In the past three years, STC has started investing abroad and currently operates in 10 countries including Malaysia and Turkey. Its offering of all services in Saudi Arabia and its international presence are key positives; falling ARPUs and high investment requirements in the international businesses are key risks.

� Business brief Saudi Telecom (STC) was established in 1998 as Saudi Arabia’s first telecom operator. STC classifies its operating segments in terms of service offerings, i.e., GSM, PSTN, and DATA. The GSM segment includes mobile, 3G, prepaid cards, international roaming and messaging services, while PSTN comprises fixed- line, card telephones, interconnect and international call services. DATA services consist of leased data transmissions, DSL and Internet services.

� FinancialsDespite increased domestic competition, the group’s revenues grew by 2% in 2010 due to significant progress in overseas operations and expansion of the Internet business. However, large set-up costs/capex for expansion in international markets plus intensifying competition in the local market together exerted pressure on margins; net income has declined at a CAGR of 7.5% during 2008–2010. In 1Q11, operating income grew by 13% YoY, however net income fell by 11% due to a SR375mn bonus salary payment to staff.

� Recent developments In January 2011, STC announced it has established a 50:50 JV with Aegis to provide call center services. The company also mentioned it has signed an agreement with Novatel Wireless, Inc to launch the first dual-carrier HSPA+ network in the Kingdom. The network allows a transmission speed of up to 42 Mbps. In December 2010, the company pre-qualified along with four other operators to bid for the third license in Syria.


SAUDI TELECOM

ALSO KNOWN AS: STC





Reuters code 7010.SEBloomberg code STC AB

www.stc.com.sa




5,000

5,500

6,000

6,500

7,000


30

35

40

TASI STC (LHS)

Source: Reuters


7.0



Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 50,780 51,787 54,033 55,355 2.0 2.9EBITDA SRmn 20,612 19,621 20,110 21,383 (4.8) 1.2Net Income SRmn 10,866 9,434 8,328 9,006 (13.2) (6.1)Assets SRmn 106,824 110,781 115,463 117,447 3.7 3.2Equity SRmn 42,035 44,998 47,911 51,198 7.1 6.8Total Debt SRmn 31,290 30,188 30,957 30,054 (3.5) (1.3)Cash & Equiv SRmn 7,710 6,051 7,864 8,009 (21.5) 1.3EBITDA Mgn % 40.6 37.9 37.2 38.6 - -Net Mgn % 21.4 18.2 15.4 16.3 - -ROE % 27.3 21.7 17.9 18.2 - -ROA % 10.5 8.7 7.4 7.7 - -Div Payout % 54.7 63.6 67.2 63.5 - -EPS SR 5.4 4.7 4.2 4.5 (13.2) (6.1)BVPS SR 21.0 22.5 24.0 25.6 7.1 6.8 Source: Tadawul, Zawya, Company, NCBC Research

116

Mobile Telecommunications Company Saudi Arabia (Zain KSA), a member of Mobile Telecommunications Group (Zain), Kuwait, was established in 2007 in Saudi Arabia to provide wireless telecommunications services. Good progress in growing its subscriber base is a key positive of Zain; uncertainty of ownership and its high debt levels are key risks.

� Business brief Zain KSA is the third mobile operator in the Kingdom, offering both voice and data services. The company launched commercial services in August 2008 and is estimated to have 8mn subscribers by the end of 2010. Zain KSA became EBITDA positive in 2010. However, a high debt burden continues to hamper its ability to generate a net profit and uncertainty over ownership continues to linger with several parties still looking to take a stake in Zain KSA.

� FinancialsZain KSA’s recorded impressive revenue growth in 2010, nearly doubling YoY, due to its increased subscriber base and higher usage. However, high D&A expenses and increased financial charges resulted in net profit remaining in negative territory. Moving ahead, we believe customer acquisition costs will remain high and the high debt levels and need for consistent investments will maintain pressure on Zain KSA’s financial results. We do not foresee the company moving into profitability until 2014e.

� Recent developments On 12 April 2011, Zain KSA announced it had completed a SR2.25bn refinancing agreement with a consortium of banks led by Arab National Bank. Over the course of the first quarter of 2011, Kingdom Holdings and Batelco have both expressed their interest in acquiring Zain's 25% stake in Zain KSA.


ZAIN KSA

ALSO KNOWN AS: ZAIN





Reuters code 7030.SEBloomberg code ZAINKSA AB

www.sa.zain.com


VALUATION MULTIPLES 09A 10A 11EP/E (x) NM NM NMP/B (x) 1.1 1.6 1.9P/S (x) 3.2 1.6 1.2Div Yield (%) - - -DPS 0 0 0 Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


56789

10

TASI Zain (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Mobile Telecommunications Co 25.0Faden Commercial & Real Estate Establishment

6.8

Saudi Plastics 6.8Public Pension Authority (PPA) 5.0


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 3,004 5,934 7,965 9,154 97.5 45.0EBITDA SRmn (990) 331 1,642 2,244 NM NMNet Income SRmn (3,099) (2,358) (956) (425) (23.9) (48.4)Assets SRmn 27,830 28,055 27,457 27,379 0.8 (0.5)Equity SRmn 8,622 6,129 5,173 4,748 (28.9) (18.0)Total Debt SRmn 9,494 11,849 11,856 11,856 24.8 7.7Cash & Equiv SRmn 506 702 247 332 38.8 (13.1)EBITDA Mgn % (33.0) 5.6 20.6 24.5 - -Net Mgn % (103.2) (39.7) (12.0) (4.6) - -ROE % (30.5) (32.0) (16.9) (8.6) - -ROA % (11.4) (8.4) (3.4) (1.6) - -Div Payout % - 0.0 0.0 0.0 - -EPS SR (2.21) (1.68) (0.68) (0.30) (23.9) (48.4)BVPS SR 6.16 4.38 3.70 3.39 (28.9) (18.0) Source: Tadawul, Zawya, Company, NCBC Research

117

Etihad Atheeb Telecommunications Company (Atheeb) was established in 2008 to provide fixed-line telecommunication services in KSA. The company is a joint venture between KSA-based Atheeb Trading Co, Al-Nahla Trading Co, Traco Group and Bahrain Telecom.

� Business brief Atheeb was established to build, operate and maintain the second fixed line telecommunication network in Saudi Arabia. The company aims to provide innovative and high technology solutions such as video services, internet telephony and broadband internet, as well as voice telephone communications and data services. At the time of writing, Atheeb only provides internet access through its “GO” brand, with fixed line telephone services not on offer.

� FinancialsIn the 2010 financial year (3 months ending 31 March 2011), Atheeb generated SR187mn in revenues, up from the SR35mn in the previous financial year. However, high COGS and operational costs resulted in all profit lines coming in negative with the net loss at SR575mn, worse than the SR379mn loss reported in the 2009 financial year. Since the company has only recently launched operations, losses are likely to continue as revenues ramp up and the company establishes its network and customer base.

� Recent developments In January 2011, Atheeb announced it is looking to expand outside of Saudi Arabia. The company also mentioned that it is awaiting shareholders’ approval to raise capital of SR600mn through a rights issue in order to lower its accumulated losses. Atheeb announced that Zaid al Shabanat replaced Raed bin Abdulraouf Kayal as its CEO effective January 1, 2011. In an October 2010 press release, the company expressed its interest to buy a stake in Zain KSA.


ETIHAD ATHEEB

ALSO KNOWN AS: ATHEEB





Reuters code 7040.SEBloomberg code EAT AB

www.go.com.sa


VALUATION MULTIPLES FY09A FY10A FY11AP/E (x) - NM NMP/B (x) - 1.1 15.4P/S (x) - 19.9 3.8Div Yield (%) - - -DPS - 0 0 Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000

4-May8-Feb9-Nov10-Aug17-May

5

10

15

TASI Atheeb (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Atheeb Trading Co. Ltd. 16.1Bahrain Telecom 15.0Al Nahla Commercial & Real Estate 13.7TRACO 5.8


Company financials*

FY08 FY09 FY10** FY11YoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn - - 35 187 4.3 N/AEBITDA SRmn - - (310) (319) (0.0) N/ANet Income SRmn - - (379) (575) 0.5 N/AAssets SRmn - - 2,114 2,113 (0.0) N/AEquity SRmn - - 621 46 (0.9) N/ATotal Debt SRmn - - 1,008 621 (0.5) N/ACash & Equiv SRmn - - 77 187 1.4 N/AEBITDA Mgn % - - (875.7) (171.2) - -Net Mgn % - - (1,069.4) (308.3) - -ROE % - - (61.0) (172.5) - -ROA % - - (17.9) (27.2) - -Div Payout % - - 0.0 0.0 - -EPS SR - - (3.79) (5.75) 0.5 N/ABVPS SR - - 6.21 0.46 (0.9) N/A Source: Tadawul, Zawya, Company, NCBC Research, *company’s year ending is 31 March, **Atheeb started operations in January 2010

118


MAY 2011

119

Insurance


8010 Tawuniya 123

8030 MEDGULF 124

8020 Malath Insurance 125

8310 AMANA Insurance 126

8200 Saudi Re 127

8290 Solidarity 128

8260 Gulf General 129

8210 BUPA Arabia 130

8250 AXA-Cooperative 131

8170 Trade Union 132

8230 ARCCI 133

8190 U C A 134

8080 SABB Takaful 135

8130 ATC 136

8160 AICC 137

8280 Al Alamiya 138

8180 Sagr Insurance 139

8220 Weqaya Takaful 140

8120 Gulf Union 141

8070 Arabian Shield 142

8270 Buruj Insurance 143

8060 Walaa Insurance 144

8090 SANAD 145

8240 ACE Arabia 146

8040 ALLIANZ SF 147

8300 Wataniya Insurance 148

8050 Saudi Salama 149

8140 Al-Ahlia 150

8150 ACIG 151

8100 SAICO 152

8110 Saudi Indian 153

The growth in Saudi Arabia’s insurance sector largely depends on the performance of protection and savings insurance. Considering the low penetration level of life insurance in the region, the industry is expected to grow rapidly.The gross written premiums (GWP) amounted to SR14.7bn in 2010. According to BMI, non-life penetration is predicted to rise to 1.25% by 2015 (0.98% in 2010), while life insurance density is likely to improve to US$41 in 2015 from US$15 per capita in 2010. KSA’s premium to GDP ratio of 0.67%, compared to the UAE’s 2%, offers considerable growth potential for insurance players in the Kingdom. BMI expects GWP to expand at a CAGR of 25.6% to SR34.4bn in 2015. The government’s regulation to make health insurance mandatory for all private sector employees, in line with the move initiated for expatriates in 2006, is also expected to drive growth in the health insurance segment.

Saudi Arabia’s insurance sector’s revenues grew 31.9% to SR8.8bn in 2010 as compared to SR6.7bn in 2009. In terms of valuation, KSA trades at a higher P/B multiple of 3.4 as compared to the other GCC average of 1.1x. Moreover, ROE of KSA players is 6.5% as compared to the other GCC average of 10.2%, indicating the sector’s start-up nature in the Kingdom.

Exhibit 91: Revenue of GCC insurance companies, 2009–10


USD mn %

0

200

400

600

800

1,000

1,200

1,400

1,600

2008 2009 2010KSA Kuwait Qatar Bahrain UAE Oman

0

4

8

12

16

20

24

0 1 2 3 4

P/B(x)

RO

E (%

)

KSA Kuwait Qatar Bahrain UAE Oman

Source: Bloomberg, Tadawul, NCBC Research The list of companies taken is not exhaustive.

Source: Bloomberg, Tadawul, NCBC Research Note: P/B multiple is considered as most of the KSA companies posted losses and P/E ratio was not meaningful to evaluate. The list of companies taken is not exhaustive. Size of the bubble represents market cap. as on 27 April 2011.

As of 7 February 2011, KSA’s insurance industry market capitalization stood at SR21.1bn, with a total of 31 listed companies. Tawuniya, a dominant player in the industry, has 24.3% weight in the total market capitalization. The company also ranks highest in terms of net profit margin (NPM) and ROE of 17.1% and 30.5%, respectively, in 2010 (NPM was 13.6% and ROE stood at 23.8% in 2009). Mediterranean & Gulf Insurance & Reinsurance Co. (MEDGULF) has the second-highest weight in total market capitalization at 11.1%. Since, most of the companies in the sector are still in their nascent stage, they are experiencing low profitability or losses. Despite this, trading volumes for the sector is very high as many of the smaller and loss making companies have high turnover. However, we ascribe this to the speculation on this market segment.

MAY 2011

INSURANCE

Favourable demographics driving growth

120

INSURANCE NCB CAPITAL

MAY 2011


Units as stated


NM (%), 2010

Avg. RoE (%), 2010

The Company for Co-operative Insurance (Tawuniya)

0.53 17.14 30.45

Malath Co-operative Insurance and Reinsurance Co. (Malath)

0.10 4.71 7.02

The Mediterranean & Gulf Insurance and Reinsurance Co. (MEDGULF)

0.10 12.43 23.31

Saudi Fransi Co-operative Insurance Co. (Allianz SF)

0.03 (4.02) (9.93)

Islamic Arab Insurance Co. (SALAMA) 0.02 5.52 10.23 Saudi United Cooperative Insurance Co. (Walaa)

0.03 (3.69) (3.26)

Arabian Shield Co-operative Insurance Co. (Arabian Shield)

0.03 9.53 7.11

SABB Takaful (SABB) 0.04 (3.59) (1.71)Sanad Insurance and Reinsurance Co-operative Co. (Sanad)

0.03 (10.76) (14.47)

The Saudi Arabian Cooperative Insurance Co. (SAICO)

0.02 (3.66) (12.21)

Saudi Indian Company for Cooperative Insurance (Saudi Indian)

0.02 (34.59) (35.03)

Gulf Union Co-operative Insurance Co. (Gulf Union)

0.07 2.31 1.95

Alahli Takaful Company (ATC) 0.02 (310.06) (10.85)Al-Ahlia Insurance Co. (Al-Ahlia) 0.03 (3.58) (11.90)Allied Co-operative insurance group (ACIG) 0.02 (66.56) (39.43)Arabia Insurance Co-operative Co. (AICC) 0.03 NA (8.20)Trade Union Co-operative Insurance (Trade Union)

0.04 NA NA

Al-Sagr Cooperative Insurance Co. (Al Sagr) 0.03 11.86 9.74 United Co-operative Assurance (UCA) 0.04 NA 0.37 Saudi Re for Co-operative Reinsurance Co. (Saudi Re)

0.07 0.12 0.01

Bupa Arabia for Co-operative Insurance Co. (Bupa)

0.07 4.39 15.22

Weqaya Takaful insurance & reinsurance Co. (Weqaya)

0.03 (1,548.76) (13.98)

Al-Rajhi Company for Cooperative Insurance (ARCCI)

0.04 (36.33) (16.39)

ACE Arabia Cooperative Insurance Co. (ACE) 0.02 NA (2.84)AXA Cooperative Insurance Co. (AXA-Cooperative)

0.03 1.43 0.96

Al Alamiya for Cooperative Insurance Company (Al Alamiya)

0.03 NA NA

Gulf General Cooperative Insurance Company (Gulf General)**

0.07 NA NA

Buruj Cooperative Insurance Company (Buruj)**

0.03 NA NA

Solidarity Saudi Takaful Co (Solidarity)** 0.07 NA NA

Wataniya Insurance Company (Wataniya)** 0.03 NA NA

Amana Cooperative Insurance Co (Amana)** 0.03 NA NA

Source: Bloomberg, Tadawul: Company data; NM: Net Margin ** This company was listed in 2010

The sector recorded a 91.7% jump in net income to SR696.2mn in 2010 as compared to SR363.1mn in 2009 due to the higher number of start-ups. Tawuniya’s revenues grew 30.0% to SR2.8bn and net income rose 64.0% YoY to SR484.9mn during the year. MEDGULF posted higher revenues of SR1.9bn in 2010 as compared to SR1.4bn in 2009, while Bupa Arabia recorded revenues worth SR1.6bn as compared to SR1.2bn the previous year.

121

INSURANCE NCB CAPITAL

MAY 2011

Exhibit 94: Revenue of companies, 2008–2010 Exhibit 95: Profitability of companies, 2008–2010

SR mn %

0

2,000

4,000

6,000

8,000

10,000

12,000

2008 2009 2010Tawuniya Medgulf Bupa Arabia Others -6

-1

4

9

14

19

2008 2009 2010

Tawuniya Medgulf Bupa Arabia

Source: Bloomberg, Tadawul, NCBC Research The list of companies is not exhaustive

Source: Bloomberg, Tadawul, NCBC Research;

122

The Company for Cooperative Insurance (NCCI), widely known as Tawuniya, was established in Riyadh in 1986. Tawuniya provides Islamic as well as conventional general and family insurance services. In addition, it undertakes reinsurance and agency activities. The company’s subsidiaries include United Insurance Company (50% stake), Waseel Co. (45%) and Cooperative Real Estate Investment Co. (33.33%).

� Business brief Tawuniya’s product portfolio falls under two broad categories: retail and corporate. The retail segment includes motor vehicle, medical & accident, fire & property and miscellaneous insurance; the corporate segment offers motor vehicle, medical, fire & property, casualty, engineering, marine, aviation and energy insurance services. To aid its insurance services, the company entered into agreements with international re-insurers such as Munich Re.

� FinancialsTawuniya’s net premium earned increased 28.9% YoY to SR2.7bn for the year ended December 2010. In addition, reinsurance commission rose 17.8% YoY. The company’s other income (underwriting and investment income) also grew significantly (158.5% YoY) due to a low base in 2009. Consequently, total revenues rose 30.0% YoY to SR2.8bn. Overall, the net income increased 63.6% YoY to SR485mn in 2010 compared to SR296mn in 2009.

� Recent developments In April 2011, the shareholders approved capital hike of SR250mn through bonus issue (one bonus share for two shares held), increasing total capital to SR750mn. In March 2011, the number of claims under insurance property, casualty and cars affected by the floods in Jeddah on 26 January reached 1320 claims amounting SR97mn (paid as per settlement procedures). In February 2011, Board recommended cash dividends of SR150mn (SR3 per share). In October 2010, Standard and Poor's (S&P) rated Tawuniya ‘A’ with a ‘stable’ outlook due to its strong financial standing.

INSURANCE � MAY 2011

TAWUNIYA


STOCK DETAILS 52-week range H/L (SR) 76/50Market cap ($mn) 1,325Shares outstanding (mn) 75.0

Price perform (%) 1M 3M 12MAbsolute (2.2) (0.6) 12.5Market 1.2 2.3 (3.0)Sector 6.1 13.4 (6.8)


Reuters code 8010.SEBloomberg code TAWUNIYA AB

www.tawuniya.com.sa





5,000

5,500

6,000

6,500

7,000


48

58

68

TASI Tawuniya (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Public Pension Authority 23.7General Organization for Social Insurance (GOSI)

22.8


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn 1,095 1,271 2,064 2,659 28.9 34.4Total Revenues SRmn 1,564 1,602 2,175 2,829 30.0 21.8Net Income SRmn 525 67 296 485 63.6 (2.6)Assets SRmn 5,308 5,097 7,227 7,532 4.2 12.4Equity SRmn 1,847 1,073 1,416 1,769 24.9 (1.4)Investments SRmn 1,863 1,081 1,407 1,816 29.1 (0.8)Technical Reserves SRmn 2,392 2,783 1,838 2,198 19.6 (2.8)Combined Ratio % 101.0 110.1 88.4 86.8 - -Net Mgn % 33.6 4.2 13.6 17.1 - -ROE % 29.1 4.6 23.8 30.4 - -ROA % 11.0 1.3 4.8 6.6 - -Div Payout % 95.2 148.7 67.5 30.9 - -EPS SR 10.5 1.3 5.9 9.7 63.6 (2.6)BVPS SR 36.9 21.5 28.3 35.4 24.9 (1.4) Source: Tadawul, Zawya, Company, NCBC Research

123

Mediterranean & Gulf Insurance & Reinsurance Co. (MEDGULF) is a subsidiary of the Medgulf Group, a leading insurance and reinsurance company in the Middle East with operations across Saudi Arabia, Bahrain, Lebanon, Turkey, Jordan, the UAE, and the UK. Established in 2006, the company currently operates through offices in Riyadh, Jeddah and Khobar.

� Business brief MEDGULF offers various insurance products, including motor, health, aviation, banker’s blanket bonds, burglary, contractor’s all risk, credit, employer’s liability, fidelity guarantee, marine cargo and hull insurance. The company offers one-stop solution by providing insurance and reinsurance services along with risk management and third party administration.

� FinancialsNet insurance premium, which contributes around 96% of MEDGULF’s total revenues, grew 37.8% YoY to SR1.8bn in 2010. Hence, total revenues rose 38.1% YoY to SR1.9bn. The company’s net claims increased 37% YoY and total expenses grew 35.5% YoY. Overall, net income showed significant rise of 58.6% YoY to SR232mn, mainly supported by the increase in net insurance premiums. Net margin improved by 161bps YoY due to decline in total costs (as percentage of total revenues) to 87% (88.7% in 2009).

� Recent developments In March 2011, MEDGULF announced a cash dividend of SR100mn or SR1.25 per share. The company announced in March 2011 the resignation of two board of directors.


MEDGULF

ALSO KNOWN AS: MEDGULF SAUDI


STOCK DETAILS 52-week range H/L (SR) 33/21Market cap ($mn) 614Shares outstanding (mn) 80

Price perform (%) 1M 3M 12MAbsolute (4.0) (2.0) (2.0)Market 1.2 2.3 (3.0)Sector 6.1 13.4 (6.8)


Reuters code 8030.SEBloomberg code MEDGULF AB

www.medgulf.com



P/E (x) 431.6 15.7 9.9P/B (x) 2.9 2.5 2.2P/S (x) NA 1.7 1.2Div Yield (%) NA 2.6 4.3DPS NA 0.8 1.3 Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


20

25

30

35

TASI MEDGULF (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) MEDGULF 40.5Saudi Investment Bank 19.0Mediteranian Sea / Swap agreements

5.1


Company financials

2007 2008* 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA 1,300 1,792 37.8 N/M

Total Revenues SRmn NA NA 1,354 1,870 38.1 N/M

Net Income SRmn 7 5 147 232 58.6 223.8

Assets SRmn 807 807 2,961 3,914 32.2 69.3

Equity SRmn 807 788 925 1,069 15.5 9.8

Investments SRmn 758 773 576 593 2.9 36.9Technical Reserves SRmn NA NA 1,411 1,945 37.8 N/MCombined Ratio % NA NA 92 91 - -

Net Mgn % NA NA 10.8 12.4 - -

ROE % 0.8 0.7 17.1 23.3 - -

ROA % 0.8 0.7 7.8 6.8 - -

Div Payout % NA NA 41.0 43.0 - -

EPS SR 0.09 0.07 1.83 2.90 58.6 223.8

BVPS SR 10.09 9.85 11.57 13.36 15.5 9.8 Source: Tadawul, Zawya, Company, NCBC Research * Financials of 2008 for 18 Months

124

Malath Cooperative Insurance and Reinsurance Company (Malath) was established in 2007. Headquartered in Riyadh, Malath was the second insurance company (after Tawuniya) to be listed on the Saudi Stock Exchange. Besides general insurance, it provides facultative reinsurance products.

� Business brief Malath’s Corporate Products segment offers health, group life, motor, property, engineering, marine, aviation and energy insurance. Under the Retail Segment, the company offers health, medical malpractice, travel and motor insurance. The company derives its premium income mainly from motor, medical, property, aviation, marine cargo & hull, energy, and engineering insurance.

� FinancialsMalath recorded net income of SR18mn in 2010 compared to SR7mn in 2009. The net insurance premium earned grew 148.6% YoY to SR325mn compared to SR131mn in 2009. The company’s reinsurance premium and underwriting income also rose 43.9% and 139.6%, respectively. The growth in net income was due to the increase in customer base, retention of key clients and the expansion of distribution network. Consequently, the company’s revenues grew 131.4% YoY to SR383mn. Malath managed to post a net income growth of 150.1% YoY, despite a near three-fold increase in net claims paid.


MALATH COOPERATIVE

ALSO KNOWN AS: MALATH



Price perform (%) 1M 3M 12MAbsolute 3.8 9.3 (25.0)Market 1.2 2.3 (3.0)Sector 6.1 13.4 (6.8)


Reuters code 8020.SEBloomberg code MALATH AB

www.malath.com.sa



P/E (x) N/M 72.8 29.1P/B (x) 2.3 2.1 2.0P/S (x) 12.0 3.2 1.4Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


101316192225

TASI Malath Insurance (LHS)

Source: Reuters



Company financials

2007 2008* 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn 2 27 131 325 148.6 445.7

Total Revenues SRmn 3 44 166 383 131.4 403.7

Net Income SRmn (17) (33) 7 18 150.1 N/M

Assets SRmn 330 447 697 990 42.0 44.2

Equity SRmn 283 232 252 263 4.1 (2.5)

Investments SRmn 275 114 217 215 (1.0) (7.9)Technical Reserves SRmn 12 121 321 575 79.4 258.6 Combined Ratio % NM 256.0 118.2 110.2 - -

Net Mgn % NM NM 4.4 4.7 - -

ROE % (6.0) (13.0) 3.0 7.0 - -

ROA % (5.2) (8.6) 1.3 2.1 - -

Div Payout % NA NA NA NA - -

EPS SR (0.6) (1.1) 0.2 0.6 150.1 N/M

BVPS SR 9.4 7.7 8.4 8.8 4.1 (2.5) Source: Tadawul, Zawya, Company, NCBC Research * Financials of 2008 for 21 Months

125

Amana Cooperative Insurance Company (Amana), listed on 13 June 2010 on the TASI, is expected to provide various insurance products for corporates as well as individuals. The company is headquartered in Riyadh and has branches in Jeddah and Khobar.

� Business brief Amana was established by three partners: El Seif Co., FAL Holding and Libano-Suisse Group; these companies together own 60% of its shares. The company provides insurance services across two broad segments: individual and corporate. Under the individual products segment, Amana offers medical, accident (personal accident, motor, travel and others), fire, and marine insurance products. In the corporate segment, the company provides insurance on health, fire, car, engineering, property, marine and land shipments besides other miscellaneous products.

� FinancialsAmana reported net insurance premium of SR4mn in 2010. However, due to higher expenses it resulted in a net loss of SR48mn during the year.


AMANA COOPERATIVE

ALSO KNOWN AS: AMANA



Price perform (%) 1M 3M 12MAbsolute 55.6 152.3 N/MMarket 1.2 2.3 (3.0)Sector 6.1 13.4 (6.8)


Reuters code 8310.SEBloomberg code AMANA AB

www.amana-coop.com.sa



P/E (x) N/A N/A NMP/B (x) N/A N/A 4.2P/S (x) N/A N/A 282.6Div Yield (%) N/A N/A N/ADPS N/A N/A N/A Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


TASI AMANA Insurance (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Amana Gulf Insurance Co. 18.3


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn N/A N/A N/A 4 N/A N/ATotal Revenues SRmn N/A N/A N/A 4 N/A N/ANet Income SRmn N/A N/A N/A (48) N/A N/AAssets SRmn N/A N/A N/A 352 N/A N/AEquity SRmn N/A N/A N/A 272 N/A N/AInvestments SRmn N/A N/A N/A 239 N/A N/ATechnical Reserves SRmn N/A N/A N/A 49 N/A N/ACombined Ratio % N/A N/A N/A 479.6 N/A N/ANet Mgn % N/A N/A N/A NM N/A N/AROE % N/A N/A N/A NM N/A N/AROA % N/A N/A N/A NM N/A N/ADiv Payout % N/A N/A N/A N/A N/A N/AEPS SR N/A N/A N/A (1.51) N/A N/ABVPS SR N/A N/A N/A 8.49 N/A N/A Source: Tadawul, Zawya, Company, NCBC Research

126

Established in May 2008, Saudi Reinsurance Co (Saudi Re) is the first cooperative reinsurance company in Saudi Arabia and is headquartered in Riyadh. The company provides life and non-life Sharia’a-compliant reinsurance products. Its products cover treaty and facultative types of reinsurance in all classes of business within the Kingdom as well as in other countries across the MENA region.

� Business brief Saudi Re offers a wide range of reinsurance-related products such as fire, marine (hull and cargo), general accident, engineering (machinery breakdown and contractor’s risks), aviation, motor, third-party liability as well as life and medical insurances.

� FinancialsSaudi Re posted a 248.9% YoY growth in net premiums written to SR29mn in 2010 compared to SR8mn in 2009. The company also registered a 2.5x jump in total revenues to SR45mn in 2010. However, net income reduced drastically by 98.8% on account of a significant increase in net claims and a decline in investment proceeds of shareholders. Net claims incurred by Saudi Re rose 277.8% YoY to SR19mn in 2010 from SR5mn in 2009.

� Recent developments In January 2011, the Board of Directors appointed Fahd bin Abdulrahman Alhesni as the company’s Managing Director and Chief Executive Officer.


SAUDI REINSURANCE

ALSO KNOWN AS: SAUDI RE





Reuters code 8200.SEBloomberg code SAUDIRE AB

www.saudi-re.com



P/E (x) 39.3 210.2 N/MP/B (x) 1.0 1.0 1.0P/S (x) N/M 77.2 22.6Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


8

10

12

TASI Saudi Re (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Jordan Islamic Finance Bank 5.0

Ahmad Hamad AlGosaibi & Bros. Co. 5.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA 0 8 29 248.9 N/MTotal Revenues SRmn NA 0 13 45 241.6 N/MNet Income SRmn NA 26 5 0 (98.8) N/MAssets SRmn NA 1,033 1,094 1,196 9.3 N/MEquity SRmn NA 1,026 1,006 984 (2.1) N/MInvestments SRmn NA 1,012 1,035 1,024 (1.0) N/MTechnical Reserves SRmn NA 1 15 111 628.6 N/MCombined Ratio % NA N/M 403.9 229.7 - -Net Mgn % NA N/M 36.7 0.1 - -ROE % NA 2.5 0.5 0.0 - -ROA % NA 2.5 0.5 0.0 - -Div Payout % NA NA NA NA - -EPS SR NA 0.26 0.05 0.00 (98.8) N/MBVPS SR NA 10.26 10.06 9.84 (2.1) N/M Source: Tadawul, Zawya, Company, NCBC Research

127

Solidarity Saudi Takaful Company (Solidarity) was listed on the Saudi Stock Exchange (Tadawul) in June 2010. The company, headquartered in Riyadh, intends to provide insurance services in segments such as property, medical, marine (cargo and hull), general accident and motor.

� Business brief Solidarity, which has a paid up capital base of SR555mn, intends to offer a variety of insurance products, including property insurance, medical insurance, marine (cargo and hull) insurance, general accident insurance, engineering insurance and motor insurance. The company operates through branches in Riyadh, Jeddah and Khobar. Solidarity plans to open new branches across major cities in Saudi Arabia.

� FinancialsSolidarity did not report any premium income or revenues as it is still setting up operations.


SOLIDARITY SAUDI

ALSO KNOWN AS: SSTC, SOLIDARITY



Price perform (%) 1M 3M 12MAbsolute 15.7 16.8 N/MMarket 1.2 2.3 (3.0)Sector 6.1 13.4 (6.8)


Reuters code 8290.SEBloomberg code SOLIDARI AB

www.sstc.com.sa



P/E (x) NA NA NMP/B (x) NA NA 2.0P/S (x) NA NA NMDiv Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


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5,500

6,000

6,500

7,000


14

19

TASI Solidarity (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Solidarity Company 27.5


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn N/A N/A N/A 0 N/A N/ATotal Revenues SRmn N/A N/A N/A 0 N/A N/ANet Income SRmn N/A N/A N/A (38) N/A N/AAssets SRmn N/A N/A N/A 519 N/A N/AEquity SRmn N/A N/A N/A 503 N/A N/AInvestments SRmn N/A N/A N/A 510 N/A N/ATechnical Reserves SRmn N/A N/A N/A 0 N/A N/ACombined Ratio % N/A N/A N/A NM N/A N/ANet Mgn % N/A N/A N/A NM N/A N/AROE % N/A N/A N/A NM N/A N/AROA % N/A N/A N/A NM N/A N/ADiv Payout % N/A N/A N/A N/A N/A N/AEPS SR N/A N/A N/A (0.68) N/A N/ABVPS SR N/A N/A N/A 9.06 N/A N/A Source: Tadawul, Zawya, Company, NCBC Research

128

Bupa Arabia for Cooperative Insurance, a medical insurance company, was established in Jeddah in 2008. Prior to its listing on Tadawul, Bupa Arabia conducted business under a joint venture between Nazer Group and BUPA Group (UK).

� Business brief Bupa Arabia offers medical insurance to companies, businesses and families. The company’s corporate services include customized healthcare plans, which have been divided into BUPA Direct and BUPA Corporate Health Care Scheme. BUPA Direct targets companies having 10–50 employees with three main schemes: Executive, Classic and Essential. BUPA Corporate Health Care Scheme targets companies with over 50 employees. Bupa Arabia also offers a medical insurance scheme for companies with more than 100 employees under the Bupa Corporate scheme.

� FinancialsBupa Arabia registered a healthy 33.5% YoY growth in total revenues to SR1,316mn in 2010 compared to SR1,208mn in 2009. This was due to a similar growth in net insurance premium to SR1,609mn in 2010. The company’s net income rose 26.4% YoY to SR71mn despite a 34.3% rise in net claims to SR1,308mn. The company was able to post a net income growth due to an increase in underwriting income.

� Recent developments In October 2010, Saleh Bin Nasser Al Jasser and Ojnakio Airnio Arebayn were appointed as members of the company’s Board of Directors.


BUPA ARABIA


STOCK DETAILS 52-week range H/L (SR) 25.5/13.4Market cap ($ mn) 213.8Shares outstanding (mn) 40.0

Price perform (%) 1M 3M 12MAbsolute (1.0) 3.9 (20.1)Market 1.2 2.3 (3.0)Sector 6.1 13.4 (6.8)


Reuters code 8210.SEBloomberg code BUPA AB

www.bupa.com.sa



P/E (x) N/M 14.3 11.3P/B (x) 2.1 1.8 1.6P/S (x) N/M 0.7 0.5Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


17

22

TASI Bupa Arabia (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Bupa Middle East Holdings 22.5Bupa Investments Limited 15.0Modern Software Solutions Co 5.0Nazer Group Holding Co 5.0Assas Company for Healthcare 5.0 Source: Tadawul, NCBC Research

Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA 1,205 1,609 33.5 N/MTotal Revenues SRmn NA NA 1,208 1,613 33.5 N/MNet Income SRmn NA (2) 56 71 26.4 N/MAssets SRmn NA 392 1,403 1,669 18.9 N/MEquity SRmn NA 390 437 493 12.7 N/MInvestments SRmn NA 352 309 313 1.4 N/MTechnical Reserves SRmn NA - 798 1,012 26.9 N/MCombined Ratio % NA NA 95.3 325.6 - -Net Mgn % NA NA 4.6 4.4 - -ROE % NA (0.4) 13.5 15.2 - -ROA % NA (0.4) 6.2 4.6 - -Div Payout % NA NA NA NA - -EPS SR NA (0.04) 1.40 1.77 26.4 N/MBVPS SR NA 9.75 10.93 12.32 12.7 N/M Source: Tadawul, Zawya, Company, NCBC Research

129

Gulf General Cooperative Insurance Company (Gulf General) was established in December 2009 through the merger of Saudi General Insurance Co. (SGI) and Gulf Cooperation Insurance Co. (GCI). The company, headquartered in Jeddah, provides various general insurance services in Saudi Arabia.

� Business brief Gulf General Cooperative Insurance Co. will provide insurance services in various segments, including fire, accident, property, engineering, vehicle, marine (cargo and hull), health, aviation, and energy. The company has also been authorized to provide personal accident, workmen compensation, life, theft/burglary, money, fidelity, pecuniary and liability insurance services to its clients. Gulf General’s offices are located in Jeddah, Riyadh and Dammam.

� FinancialsGulf General reported net insurance premium worth SR36mn thus taking its total revenues to SR41mn. However, due to high expenses it reported net loss of SR43mn during the year.

� Recent developments In the month of March 2011, the company got temporary approval from SAMA for to extend marketing and sale of 31 insurance products for six months. During November and December 2010, Gulf General received multiple approvals from SAMA on the sale and marketing of business interruption, fidelity guarantee, medical malpractice, and money insurance products.


GULF GENERAL

ALSO KNOWN AS: GGI, GGCI





Reuters code 8260.SEBloomberg code GGCI AB

www.ggi-sa.com



P/E (x) NA NA NMP/B (x) NA NA 5.1P/S (x) NA NA 19.0Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


30

40

50

60

TASI Gulf General (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Saudi General Insurance Co. 15.0Gulf Company for Cooperative Insurance

15.0

Al Fadel Investments 5.0Mohammad Al Said for Commercial Investment

5.0

Ibla International Real Estate Development


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn N/A N/A N/A 36 N/A N/ATotal Revenues SRmn N/A N/A N/A 41 N/A N/ANet Income SRmn N/A N/A N/A (43) N/A N/AAssets SRmn N/A N/A N/A 369 N/A N/AEquity SRmn N/A N/A N/A 154 N/A N/AInvestments SRmn N/A N/A N/A 151 N/A N/ATechnical Reserves SRmn N/A N/A N/A 120 N/A N/ACombined Ratio % N/A N/A N/A 181.7 N/A N/ANet Mgn % N/A N/A N/A NM N/A N/AROE % N/A N/A N/A (28.3) N/A N/AROA % N/A N/A N/A (11.8) N/A N/ADiv Payout % N/A N/A N/A NA N/A N/AEPS SR N/A N/A N/A (2.17) N/A N/ABVPS SR N/A N/A N/A 7.68 N/A N/A Source: Tadawul, Zawya, Company, NCBC Research

130

AXA Cooperative Insurance Company (AXA Cooperative) is part of the AXA Group headquartered in France. Established in July 2008, AXA Cooperative is engaged in providing various insurance and reinsurance services for individual and institutional clients in Saudi Arabia.

� Business brief AXA Cooperative provides insurance policies suitable for individual as well as business needs. The company offers motor, property, golf, relocation, yacht, health, travel and home insurance products for individuals. It also provides marine, fire, engineering, life and liability insurance services to corporate customers. AXA Cooperative operates through offices in Riyadh, Jeddah and Dammam in Saudi Arabia.

� FinancialsAXA Cooperative recorded revenues for the first time in 2010. Net insurance premium stood at SR128mn and reinsurance commission amounted to SR3.4mn. Overall, total revenues were reported at SR131mn. Gross claims amounted to SR45mn and net claims incurred were SR87mn during the period. The company recorded a positive net margin of 1.4% and net income of SR2mn. Net income growth was due to a decline in operating expenses.

� Recent Developments In November 2010, the company received provisional approval for 6 months from SAMA for 3 insurance products. The company appointed Mr. Saud bin Abdulaziz Kanoo as President of the Governing Council


AXA COOPERATIVE

NCCurrent price (SR) 35.0Pricing of as 04-05-2011


Price perform (%) 1M 3M 12MAbsolute 32.1 92.3 35.7Market 1.2 2.3 (3.0)Sector 6.1 13.4 (6.8)


Reuters code 8250.SEBloomberg code AXA AB

www.axa-gulf.com



P/E (x) NA NM NMP/B (x) NA 3.6 3.6P/S (x) NA N/M 5.3Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


20

30

40

TASI AXA-Cooperative (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) AXA Insurance Gulf Bahrain 32.0

AXA Mediterranean Sea Holding 18.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA NA 128 N/M N/M

Total Revenues SRmn NA NA NA 131 N/M N/M

Net Income SRmn NA NA 0 2 1,557.5 N/M

Assets SRmn NA NA 205 550 168.8 N/M

Equity SRmn NA NA 195 195 0.4 N/M

Investments SRmn NA NA 204 205 0.5 N/MTechnical Reserves SRmn NA NA NA 222 N/M N/MCombined Ratio % NA NA NA 101.5 - -

Net Mgn % NA NA N/M 1.4 - -

ROE % NA NA 0.1 1.0 - -

ROA % NA NA 0.1 0.5 - -


EPS SR NA NA 0.01 0.09 1,557.5 N/M

BVPS SR NA NA 9.73 9.77 0.4 N/M Source: Tadawul, Zawya, Company, NCBC Research

131

Saudi Arabia-based Trade Union Cooperative Insurance & Reinsurance Company (Trade Union) was established in 2007. The company is headquartered in Al Khobar and registered with the Council of Cooperative Health Insurance (CCHI). � Business brief

Trade Union’s product portfolio includes property insurance (fire and allied perils), liability insurance (general and product), marine insurance (hull, cargo and land transit), crime insurance (burglary, computer fraud), engineering insurance (machinery breakdown, contractor’s risks), motor insurance (commercial or heavy vehicles) and personal lines (household comprehensive, personal accident, new vehicle warranty). Trade Union also provides medical and life insurance products as well as reinsurance services led by Swiss Reinsurance Co. The company’s medical treaty is secured by Munich Re. Trade Union has reinsurance treaties with eight re-insurers, namely Hanover Re, Swiss Re, CCR, R+V Re, Odessey Re, SCOR, Paris Re and Mapere Re. Hanover Re is the leading reinsurer for the company.

� FinancialsTrade Union reported a 1.4% YoY rise in net insurance premium to SR258mn in 2010. Driven by this and coupled with lower expenses, the company’s net income grew robust 41% YoY to SR21mn during the year.

� Recent developments In April 2011, the company got temporary approval from SAMA for 15 products. In March 2011, Trade Union opened a new branch in Jeddah and signed a one year contract with Olayan Financing Company to provide health insurance to latter’s employees. In February 2011, the company announced cash dividends of SR0.5 per share, total dividends of SR12.5mn. In January 2011, Trade Union signed a one-year contract worth SR100mn with National Commercial Bank to provide insurance coverage for vehicles purchased on lease-to-own basis by the latter. In the same month, the company signed a health insurance contract for the employees of Saudi Public Transport Co., and a contract with Methanol Chemicals Co. to provide them with six insurance products. During November and December 2010, the company received final approval from SAMA to issue eight more insurance products.


TRADE UNION CO-OP

ALSO KNOWN AS: TUCIC, TUCI





Reuters code 8170.SEBloomberg code TRDUNION AB

www.tui-sa.com





5,000

5,500

6,000

6,500

7,000


16

21

26

TASI Trade Union (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) United Commercial Insurance Co 22.3

Al Ahlia Insurance Company 10.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA 254 258 1.4 N/M Total Revenues SRmn NA 7 281 280 (0.3) N/M Net Income SRmn NA NA 15 21 41.0 N/M Assets SRmn NA 262 858 860 0.1 N/M Equity SRmn NA 248 261 276 5.8 N/M Investments SRmn NA 257 243 242 (0.3) N/M Technical Reserves SRmn NA NA 346 354 2.3 N/M Combined Ratio % NA N/M 103.4 99.5 - -Net Mgn % NA NA 5.3 7.4 - -ROE % NA NA 5.8 7.8 - -ROA % NA NA 2.6 2.4 - -Div Payout % NA NA NA NA - -EPS SR NA NA 0.59 0.83 41.0 N/M BVPS SR NA 9.90 10.45 11.06 5.8 N/M Source: Tadawul, Zawya, Company, NCBC Research

132

Established in 1990 in Bahrain, Al Rajhi Company for Cooperative Insurance (ARCCI) is an Islamic insurance company. The company set up operations in Saudi Arabia in July 2008. ARCCI provides cooperative insurance and reinsurance services in compliance with Sharia’a principles to individuals and corporates in Saudi Arabia.

� Business brief ARCCI offers general, health and family insurance products and services. Under general insurance, the company provides property, marine (hull and cargo) & aviation, engineering, liability, casualty, travel, motor, workmen compensation, fidelity guarantee, medical malpractice and related products. It offers products for individuals, families and companies under health insurance. ARCCI offers health plans that fully comply with the Council for Cooperative Health Insurance (CCHI) requirements. Under family insurance, ARCCI offers protection and savings plans to individuals and families as well as companies. The company operates through a network of three branches in Riyadh, Jeddah and Dammam; its head office is located in Riyadh.

� FinancialsARCCI reported revenues for the first time in 2010 since the commencement of operations in Saudi Arabia. The company recorded total revenues amounting to SR80mn in 2010. Net insurance premium, which accounted for 89.6% of the revenues, stood at SR72mn. ARCCI reported gross claims worth SR11.8mn, while net claims incurred stood at SR43.4mn. Net loss was lower at SR26mn compared to SR29mn in 2009, as the company started generating revenues in 2010. Operating expenses (comprising general and administrative expenses) more than doubled to SR59.7mn due to growth in operations.

� Recent developments In February 2011, Al Rajhi Takaful received approval from SAMA for Workmens Compensation and Employers Liability Insurance Product. The company had also obtained three product approvals in December 2010.


AL RAJHI COOPERATIVE

ALSO KNOWN AS: ARCCI





Reuters code 8230.SEBloomberg code ARCCI AB

www.alrajhitakaful.com



P/E (x) NA N/M N/MP/B (x) NA 5.4 6.4P/S (x) NA N/M 11.7Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


28

38

48

TASI Al Rajhi Takaful (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Al Rajhi Banking and Investment 22.5Al Rajhi Insurance Ltd. 22.5Oman Insurance Company 10.0Al Ramtan Summit Co. 5.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA NA 72 N/M N/M

Total Revenues SRmn NA NA NA 80 N/M N/M

Net Income SRmn NA NA (29) (26) (9.1) N/M

Assets SRmn NA NA 193 232 20.2 N/M

Equity SRmn NA NA 173 146 (15.2) N/M

Investments SRmn NA NA 187 213 14.4 N/M Technical Reserves SRmn NA NA NA 156 N/M N/M Combined Ratio % NA NA NA 215.8 - -

Net Mgn % NA NA N/M (32.5) - -

ROE % NA NA (16.7) (16.4) - -

ROA % NA NA (14.9) (12.3) - -


EPS SR NA NA (1.44) (1.31) (9.1) N/M

BVPS SR NA NA 8.63 7.31 (15.2) N/M Source: Tadawul, Zawya, Company, NCBC Research

133

United Cooperative Assurance Company (UCA) is engaged in insurance business in Saudi Arabia. In 2007, the company was established in Jeddah as a separate entity from UCA Insurance Co. of Bahrain. UCA was listed on Tadawul in June 2008.

� Business brief UCA offers a wide range of insurance products such as engineering (contractor’s risks, machinery, and plant & equipment used for construction), medical, personal accident and protection, motor insurance, and marine cargo. The company’s 220 employees cater to clients through offices in three major cities of the Kingdom, namely Jeddah, Riyadh and Khobar.

� FinancialsUCA’s net insurance premium declined marginally YoY to SR623mn, however its total revenues grew slightly to SR680mn in 2010 from SR674mn in 2009. However, due to reduced expenses YoY during the year, the company managed to report 12.8% YoY rise in net income to SR57mn.

� Recent developments In December 2010, SAMA allowed UCA to open 140 new points of sale across all regions in Saudi Arabia. In the same month, the company announced that it has received regulatory approval to open a new branch in the city of Mecca.


UNITED COOPERATIVE

ALSO KNOWN AS: UCA





Reuters code 8190.SEBloomberg code UCA AB

www.uca.com.sa





5,000

5,500

6,000

6,500

7,000


25

30

35

TASI U C A (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) UCA Insurance Co. 32.5

Al Faisaliah Group Holding 5.0

Civil Woks Co. 5.0


Company financials

2007 2008 2009* 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA 628 623 (0.7) N/MTotal Revenues SRmn NA NA 674 680 0.9 N/MNet Income SRmn NA (10) 50 57 12.8 N/MAssets SRmn NA 207 1,188 1,260 6.1 N/MEquity SRmn NA 190 246 295 20.1 N/MInvestments SRmn NA 206 169 170 0.5 N/MTechnical Reserves SRmn NA NA 647 531 (18.0) N/MCombined Ratio % NA NA NA 98.6 - -Net Mgn % NA N/M 7.4 8.3 - -ROE % NA (5.4) 23.1 21.0 - -ROA % NA (4.9) 7.2 4.6 - -Div Payout % NA NA NA NA - -EPS SR NA (0.51) 2.51 2.83 12.8 N/MBVPS SR NA 9.49 12.28 14.75 20.1 N/M Source: Tadawul, Zawya, Company, NCBC Research * For the 20 months to end 2009

134

SABB Takaful was established in 2007 in Riyadh as an associate company of SABB and HSBC. The company conducts its business through SABB’s established distribution network (over 70 branches) and direct sales team across Saudi Arabia. SABB Takaful’s insurance products are Sharia’a compliant.

� Business brief SABB Takaful offers products under the Family, General, Corporate and Group Takaful categories. Under the Family Takaful segment, the company covers education, savings, retirement and investment plans. The General Takaful segment covers everyday travel, home, and personal accident risks. Corporate Takaful provides cover for marine cargo, commercial fire protection, and business takaful solutions for SMEs.

� FinancialsSABB Takaful’s net earned premium contributes 95% of its total revenues. In 2010, the company’s net insurance premium posted a 133.1% YoY growth to SR147mn compared to SR63mn in 2009. Consequently, the total revenues increased 123% YoY to SR155mn. SABB Takaful’s net loss narrowed down to SR5.6mn in 2010 from SR16.5mn in 2009. However, the management ascribed the net loss in 2010 to the lower profit margins earned on a range of insurance products sold by the company. The net claims paid during the year declined 61.3% YoY; however the over three-fold rise in other expenses led to a 96% increase in total costs to SR155mn.

� Recent developments In April 2011, Mr. David Robert Hunt resigned and was replaced by Mr. Bharat Khosla as Managing director. Dr. Faisal bin Hamad Sugair also resigned as a member of board. In March 2011, the company entered into an agreement with Emirates NBD (KSA) to cover the latter’s portfolio of bank loans in cases of death or permanent disability. In February 2011 and December 2010, SABB Takaful received final approval for Schengen travel takaful product and extension of six months for various insurance products.


SABB TAKAFUL

ALSO KNOWN AS: MEDGULF SAUDI





Reuters code 8080.SEBloomberg code SABBT AB

www.sabbtakaful.com



P/E (x) N/M N/M N/MP/B (x) 12.4 1.9 2.0P/S (x) 12.5 9.1 4.1Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


914192429

TASI SABB Takaful (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) SABB 32.5

HSBC Holding Co. 31.0


Company financials

2007 2008* 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn 5 46 63 147 133.1 209.5

Total Revenues SRmn 6 51 70 155 123.0 193.9

Net Income SRmn (45) (48) (16) (6) (66.1) (50.0)

Assets SRmn 79 209 793 971 22.5 131.2

Equity SRmn 55 51 330 322 (2.2) 79.8

Investments SRmn 59 28 287 313 8.9 74.1Technical Reserves SRmn 6 115 403 566 40.3 358.0Combined Ratio % 352.7 127.8 125.1 105.2 - -

Net Mgn % (728.1) (95.0) (23.6) (3.6) - -

ROE % (80.4) (90.5) (8.6) (1.7) - -

ROA % (56.7) (33.5) (3.3) (0.6) - -

Div Payout % - - - - - -

EPS SR (1.3) (1.4) (0.5) (0.2) (66.1) (50.0)

BVPS SR 1.6 1.5 9.7 9.5 (2.2) 79.8 Source: Tadawul, Zawya, Company, NCBC Research * Financials of 2008 for 20 Months

135

AlAhli Takaful Company (ATC), established in 2006, is a joint venture between National Commercial Bank, FWU AG, International Financial Corporation, and VHV. The company is headquartered in Jeddah and provides a range of takaful insurance products and services in Saudi Arabia.

� Business brief ATC offers a range of financial planning products for savings, retirement, education and marriage. The company’s “AlAhli Takaful and Saving Program” provides maturity benefit by investing regular contributions, and death benefit through the coverage of paid and future contributions.

� FinancialsIn 2010, ATC’s total revenues soared 122.5% YoY to SR3mn due to an increase in the net insurance premium, which is the single source of income for the company. Gross claims paid by the company were marginally up at SR1,891mn. However, net claims declined significantly by 46.9% YoY to SR296mn. Despite a decrease in net claims, total expenses rose 22.3% YoY to SR1,829mn owing to higher other expenses (up 63.3% YoY). ATC’s net loss increased to SR8mn in 2010 compared to SR5mn in 2009 due to lower fee income and higher general and administrative expenses.

� Recent developments In March 2011, Mr. Donald Paul Hill resigned as a member of the Board of Directors. In February 2011, Board of Directors approved increase of the company’s share capital by SR80mn through rights issue. In January 2011, the Board of Directors announced the appointment of Mr. Ehab Yousef Linjawi to replace Mr. Khaled Jaafar Al Lakany as Chief Executive Officer.


ALAHLI TAKAFUL

ALSO KNOWN AS: ATC





Reuters code 8130.SEBloomberg code ATC AB

www.alahlitakaful.com



P/E (x) N/M N/M N/MP/B (x) 9.2 9.9 11.2P/S (x) N/M 668.9 300.7Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


70

90

TASI ATC (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) National Commercial Bank 30.0FWU Group 13.1International Finance Corporation 13.1VHV Vermogensanlage 7.5


Company financials

2007* 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA 0 1 3 122.5 N/M

Total Revenues SRmn NA (0) 1 3 122.5 N/M

Net Income SRmn (2) (12) (5) (8) 51.2 60.4

Assets SRmn 95 95 158 315 99.9 49.0

Equity SRmn 94 83 77 68 (11.6) (10.3)

Investments SRmn 94 72 66 59 (9.8) (14.4)Technical Reserves SRmn NA 2 67 229 241.5 N/M Combined Ratio % NA 52.4 131.2 72.1 - -

Net Mgn % N/M N/M (456.3) (310.1) - -

ROE % (2.0) (13.5) (6.5) (10.9) - -

ROA % (2.0) (12.6) (4.1) (3.3) - -


EPS SR (0.19) (1.20) (0.52) (0.79) 51.2 60.4

BVPS SR 9.42 8.31 7.69 6.80 (11.6) (10.3) Source: Tadawul, Zawya, Company, NCBC Research * 6 Months Financial reported for 2007

136

Arabia Insurance Cooperative Company (AICC), established in 2007, is headquartered in Riyadh and has been issuing insurance policies since January 2009.

� Business brief AICC is engaged in insurance as well as reinsurance activities and services across Saudi Arabia. The company is authorised to offer all kinds of insurance products, including motor, property, marine, engineering, health and general accident insurance. The company also offers term insurance protection plans and unit-linked savings plans. It is also looking to expand the market for Takaful life policies and investment products. AICC operates through its branches in Riyadh, Jeddah, Mekkah, Taif, Damam, Khobar, Hafuf and Khamis Mushet.

� FinancialsAICC did not generate any revenues in 2010. However, the general and administrative expenses incurred by the company increased 13.0% YoY to SR16.4mn compared to SR14.5mn in 2009. This resulted in a net loss to SR12.2mn in 2010.

� Recent developments In January 2011, AICC received the final approval from SAMA for the marketing and sale of money insurance products. In the same month, the company got approval from SAMA to extend the sale and marketing of 23 products for six months. In December 2010, the company announced SAMA’s approval for the marketing and sale of a range of marine insurance products.


ARABIA INSURANCE

ALSO KNOWN AS: AICC





Reuters code 8160.SEBloomberg code AICC AB

http://www.aicc.com.sa



P/E (x) N/M N/M N/MP/B (x) 2.7 3.0 3.3P/S (x) N/M N/M N/MDiv Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


17

22

27

TASI AICC (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Arab Holding Co. 19.2Jordanian Insurance Co. 12.2Arab Supply and Trading (ASTRA)

5.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA NA NA N/M N/MTotal Revenues SRmn NA NA NA NA N/M N/MNet Income SRmn NA (27) (12) (12) 3.7 N/MAssets SRmn NA 177 212 196 (7.5) N/MEquity SRmn NA 171 156 142 (8.8) N/MInvestments SRmn NA 169 193 177 (8.5) N/MTechnical Reserves SRmn NA NA NA NA N/M N/MCombined Ratio % NA NA NA NA - -Net Mgn % NA N/M N/M N/M - -ROE % NA (15.7) (7.2) (8.2) - -ROA % NA (15.1) (6.1) (6.0) - -Div Payout % NA NA NA NA - -EPS SR NA (1.34) (0.59) (0.61) 3.7 N/MBVPS SR NA 8.54 7.80 7.12 (8.8) N/M Source: Tadawul, Zawya, Company, NCBC Research

137

Al Alamiya Cooperative Insurance Company (Al Alamiya) was established in Riyadh in June 2009. The company got listed on the Saudi Arabian Stock Exchange (Tadawul) in December 2009. The company is still under establishment and plans to offer fire, motor, marine, property and health insurance products.

� Business brief Al Alamiya Cooperative Insurance Co. received approval for conducting operations as well as selling insurance products in Saudi Arabia. However, many of the company’s products are undergoing the regulatory approval process with SAMA. The company intends to acquire the insurance business of Royal & Sun Alliance Insurance Co. and assets of Al Alamiya Trading & Services Co.

� FinancialsAl Alamiya reported a net loss of SR25mn as it is still in operational phase.

� Recent developments In April 2011, the company got permission from SAMA to extend the temporary approval to sale 11 insurance products for a period of 6 months. In March 2011, Al Alamiya received SAMA’s consent to discontinue 6 products without having any other financial impact on the company. In December the company got approval to renew temporary product approval for 24 products for the period of six months. In December 2010, Al Alamiya received SAMA’s approval to open five points of sale in Saudi Arabia. In October 2010, it received final approval from SAMA for selling marine insurance products. In September 2010, the company appointed Hassan Ali Hassan Nasser as Managing Director and Chief Executive Officer.


AL ALAMIYA

ALSO KNOWN AS: AL ALAMIYA





Reuters code 8280.SEBloomberg code ALALAMIY AB

www.alamiyainsurance.com.sa



P/E (x) N/A N/A N/AP/B (x) N/A N/A 3.6P/S (x) N/A N/A N/ADiv Yield (%) N/A N/A N/ADPS N/A N/A N/A Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


21

26

31

36

TASI Al Alamiya (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Royal & Sun Alliance Insurance 50.0Riyad Bank 19.9


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn N/A N/A N/A N/A N/A N/ATotal Revenues SRmn N/A N/A N/A N/A N/A N/ANet Income SRmn N/A N/A N/A (25) N/A N/AAssets SRmn N/A N/A N/A 178 N/A N/AEquity SRmn N/A N/A N/A 172 N/A N/AInvestments SRmn N/A N/A N/A 177 N/A N/ATechnical Reserves SRmn N/A N/A N/A 0 N/A N/ACombined Ratio % N/A N/A N/A N/A N/A N/ANet Mgn % N/A N/A N/A N/A N/A N/AROE % N/A N/A N/A N/A N/A N/AROA % N/A N/A N/A N/A N/A N/ADiv Payout % N/A N/A N/A N/A N/A N/AEPS SR N/A N/A N/A (1.25) N/A N/ABVPS SR N/A N/A N/A 8.58 N/A N/A Source: Tadawul, Zawya, Company, NCBC Research

138

Al Sagr Company for Cooperative Insurance (Al Sagr Saudi) commenced operations in Saudi Arabia in 1983 as a branch of Al Sagr National Insurance Co. (ASNIC), Dubai. Headquartered in Al Khobar, Sagr Insurance operates through its three branches in Dammam, Riyadh and Jeddah.

� Business brief Sagr Insurance’s wide range of insurance products comprises fire and general (property, engineering, liability and miscellaneous), marine (cargo and hull), motor, life and medical insurance services. The company also provides jewellery merchant insurance and hotel/furnished apartments -blanket insurance. In addition, Sagr Insurance offers reinsurance services. The company has reinsurance treaties with 10 re-insurers in the Middle East and Europe, including Allianz Re and Converium (Germany), Odyssey Re (France), Takaful Re (UAE) and BEST RE (Tunis).

� FinancialsSagr Insurance’s gross insurance premium grew 40.1% YoY to SR240mn in 2010. Total revenues increased 31.0% to SR175mn, mainly due to a 32% growth in net insurance premium which contributed 94% of the total earnings. Net claims rose a modest 1.4% YoY to SR97mn. This resulted in a massive 612.9% growth in net income to SR21mn in 2010 against SR3mn in 2009. The company was able to stabilise the net claims incurred in spite of the 32% rise in net insurance premium earned, leading to higher profits.


AL SAGR COMPANY

ALSO KNOWN AS: AL SAGR SAUDI





Reuters code 8180.SEBloomberg code SAGR AB

www.alsagrsaudi.com



P/E (x) 176.7 148.6 20.8P/B (x) 2.1 2.1 1.9P/S (x) N/M N/M 2.5Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


29

49

69

TASI Sagr Insurance (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Al Saqar National Insurance Co. 26.0Arabian Red Land Industrial Services

5.0

Abdullah Rasheed Al Rasheed & Sons Co.

5.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA 124 164 32.0 N/MTotal Revenues SRmn NA NA 134 175 31.0 N/MNet Income SRmn NA 2 3 21 612.9 N/MAssets SRmn NA 208 432 520 20.5 N/MEquity SRmn NA 202 203 224 10.2 N/MInvestments SRmn NA 185 192 214 11.6 N/MTechnical Reserves SRmn NA - 137 166 21.6 N/MCombined Ratio % NA NA 105.3 92.0 - -Net Mgn % NA N/M 2.2 11.9 - -ROE % NA 1.2 1.4 9.7 - -ROA % NA 1.2 0.9 4.4 - -Div Payout % NA NA NA NA - -EPS SR NA 0.12 0.15 1.04 612.9 N/MBVPS SR NA 10.12 10.15 11.18 10.2 N/M Source: Tadawul, Zawya, Company, NCBC Research

139

Weqaya Takaful Insurance & Reinsurance Company (Weqaya) was established in May 2009 with a paid-up capital of SR200mn. The company is headquartered in Riyadh with regional offices in Jeddah and Dammam. Weqaya offers insurance products in healthcare, general insurance and reinsurance segments.

� Business brief Weqaya’s insurance portfolio includes motor, property, engineering, marine cargo, accident, health as well as takaful protection and savings products.

� FinancialsWeqaya recorded sales for the first time in 2010. The company reported total revenues of SR1.5mn in 2010. Net insurance premium, which accounted for 90.9% of the total revenues, stood at SR1.4mn in the period. Weqaya recorded net claims of SR0.1mn. The company incurred higher operational expenses with recent establishment of new branches. General and administrative expenses grew 5.2% YoY to SR13.0mn in 2010. Consequently, Weqaya’s net loss more than doubled to SR24mn during the period from SR11mn in 2009.

� Recent developments In March 2011, the company appointed Mr. Ali bin Abdullah Al-Saheli, Sami bin Abdullah Alzakari as members of Board of Directors. In December 2010, Weqaya received the final approval from SAMA to issue Group Creditors takaful product and temporary approval to sell all the 26 products for six months. In October 2010, the company announced resignation of Ajlan Bin Abdulaziz Al Ajlan from the Board of Directors.


WEQAYA TAKAFUL

ALSO KNOWN AS: WEQAYA





Reuters code 8220.SEBloomberg code WEQAYA AB

www.weqaya.com.sa



P/E (x) NA N/M N/MP/B (x) NA 2.4 2.8P/S (x) NA N/M 287.2Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


16

21

26

31

TASI Weqaya (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) First Investment Takaful Co 20.0Rana Investment Co. 5.0Abdul Aziz Al Ajlan & Sons 5.0Al Mal Invesmtment House 5.0International Financial Advisors 5.0 Source: Tadawul, NCBC Research

Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA NA 1 N/M N/M Total Revenues SRmn NA NA NA 2 N/M N/M Net Income SRmn NA NA (11) (24) 115.1 N/M Assets SRmn NA NA 190 189 (0.5) N/M Equity SRmn NA NA 181 158 (12.8) N/M Investments SRmn NA NA 183 159 (12.8) N/M Technical Reserves SRmn NA NA NA 3 N/M N/M Combined Ratio % NA NA NA 1,135.8 - -Net Mgn % NA NA N/M NM - -ROE % NA NA (6.1) (14.0) - -ROA % NA NA (5.8) (12.5) - -Div Payout % NA NA NA NA - -EPS SR NA NA (0.55) (1.19) 115.1 N/M BVPS SR NA NA 9.07 7.90 (12.8) N/M

Source: Tadawul, Zawya, Company, NCBC Research 140

Gulf Union Cooperative Insurance Company (Gulf Union) was established by Gulf Union Insurance and Projects Management Holding Co in August 2007. The company offers Sharia’a-compliant insurance products catering to clients in Saudi Arabia as well as customers of Gulf Union Insurance and Risk Management Company, its sister concern.

� Business brief Gulf Union is engaged in cooperative insurance and reinsurance activities, excluding protection and savings insurance. The company’s product portfolio comprises insurance for property, engineering, marine, liability, motor, individual, health, and other related cooperative insurance activities. Apart from Dammam, Gulf Union operates branches in Jeddah, Khobar and Riyadh.

� FinancialsGulf Union’s net insurance premium fell 20.6% YoY to SR140mn in 2010. The underwriting income also decreased 26.3% YoY to SR34mn. This resulted in a decline in total revenues to SR177mn in 2010 as compared to SR229mn in 2009. Net claims incurred fell 10.7% YoY to SR107mn. Net income decreased significantly by 72.7% YoY to SR4mn from SR15mn in 2009 due to decline in overall revenues.

� Recent developments In April 2011, the company got approval to open two point of sales which is likely to enable expand its sales outlets. In the same month, Mr. Abdullah Abdullatif Al Fozan resigned as a member of board of director. In February 2011, the company was ceased to issue medical insurance policies for new customers by Council of Cooperative Health Insurance. In November 2010, Gulf Union announced that it has received SAMA’s approval to resume selling all kinds of vehicle insurance policies.


GULF UNION COOPERATIVE

ALSO KNOWN AS: GULF UNION





Reuters code 8120.SEBloomberg code GULFUNI AB

www.gulfunion.com.sa





5,000

5,500

6,000

6,500

7,000


20

30

TASI Gulf Union (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Gulf Union Insurance and Projects Management Holding Company

23.5


Company financials

2007* 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA 176 140 (20.6) N/M

Total Revenues SRmn NA NA 229 177 (22.8) N/M

Net Income SRmn (22) (20) 15 4 (72.7) N/M

Assets SRmn 208 205 872 762 (12.6) 54.2

Equity SRmn 198 195 206 213 3.7 2.5

Investments SRmn 203 175 183 175 (4.3) (4.9)Technical Reserves SRmn NA NA 435 369 (15.3) N/MCombined Ratio % NA NA 119.5 120.8 - -

Net Mgn % N/M N/M 6.5 2.3 - -

ROE % (11.0) (10.2) 7.5 2.0 - -

ROA % (10.5) (9.7) 2.8 0.5 - -


EPS SR (0.99) (0.91) 0.68 0.19 (72.7) N/M

BVPS SR 9.01 8.87 9.34 9.69 3.7 2.5 Source: Tadawul, Zawya, Company, NCBC Research * 4 months Financials reported for 2007

141

Arabian Shield Cooperative Insurance Company (Arabian Shield), headquartered in Riyadh and established in 2007, commenced operations in January 2008. The company, a subsidiary of Bahrain-based Arabian Shield Insurance Company, is engaged in cooperative insurance and reinsurance activities.

� Business brief Arabian Shield provides a variety of general insurance products, including motor, marine, engineering, property, liability, airplane and accident insurance. It also offers medical insurance to individuals as well as company establishments.

� FinancialsThe company’s net insurance premium grew 92.4% YoY to SR131mn in 2010. Total revenues increased 66.8% YoY to SR158mn compared to SR95mn in 2009. Net claims paid rose 106.1% to SR96mn, which resulted in a 69.9% YoY increase in total expenses to SR135mn in 2010. Net surplus grew 50.3% YoY in 2010 taking the net income to SR15.1mn, indicating an increase of 86.0%.

� Recent developments In the month of April and February 2011, the company got approval to open a total of 11 new point of sales. In January 2011, Arabian Shield appointed Mr. Joseph Rizzo, in place of Mr. Mahmoud Al Soufi, on the Board of Directors. During October and November 2010, the company received SAMA’s approval to open 12 new point of sales in Saudi Arabia.


ARABIAN SHIELD





Reuters code 8070.SEBloomberg code SHIELD AB

www.arabianshield.com



P/E (x) N/M 50.8 27.3P/B (x) 2.1 2.0 1.9P/S (x) NA 4.3 2.6Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


10

15

20

25

30

TASI Arabian Shield (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Arabian Shield Insurance Co. 30.0Bahrain National Holding Co. 15.0Yamama Saudi Cement Co. 5.0Al Obaikan Investment Group 5.0


Company financials

2007 2008* 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA 68 131 92.4 NA

Total Revenues SRmn NA NA 95 158 66.8 NA

Net Income SRmn (5) (4) 8 15 86.0 (242.2)

Assets SRmn 204 202 448 456 1.7 30.7

Equity SRmn 195 196 204 219 7.4 4.1

Investments SRmn 204 202 256 207 (19.2) 0.5Technical Reserves SRmn NA NA 125 149 19.3 NACombined Ratio % NA NA 116.6 102.9 - -

Net Mgn % NA NA 8.5 9.5 - -

ROE % (2.7) (1.9) 4.0 7.1 - -

ROA % (2.6) (1.8) 2.5 3.3 - -

Div Payout % - - - - - -

EPS SR (0.26) (0.19) 0.40 0.75 86.0 (242.2)

BVPS SR 9.74 9.81 10.22 10.97 7.4 4.1 Source: Tadawul, Zawya, Company, NCBC Research * Financials of 2008 for 19 months

142

Buruj Cooperative Insurance Company (Buruj), a part of Kuwait’s Gulf Insurance Group, was established in October 2008 in Riyadh. Formerly known as Saudi Pearl Insurance Co., the company was re-established as Buruj Cooperative Insurance Company due to regulatory changes in KSA’s insurance sector. The company got listed on the TASI in February 2010.

� Business brief Buruj is yet to commence operations. However, the company is likely to mainly deal with insurance segments such as motor, property and fire, marine, engineering, medical, accidents, fidelity, money and liability.

� FinancialsBuruj reported net insurance premium of SR2mn, thus its total revenue came in at SR3mn in 2010. However, due to increased expenses the company reported net loss of SR30mn during the year.

� Recent developments In December 2010, Buruj received final approval from SAMA for marketing and sale of Fidelity Guarantee Insurance product as well as three other land transit and marine insurance products. In addition the company got temporary ales and marketing approval extension for 15 products for a period of six months. Further, in the same month, the company also received regulatory approval to open 50 new points of sale across Saudi Arabia. In November 2010, Buruj received SAMA’s approval to open two new branches in Jeddah and Khobar as well as a Motor Claims Service Center in Riyadh.


BURUJ COOPERATIVE

ALSO KNOWN AS: BURUJ





Reuters code 8270.SEBloomberg code BURUJ AB

www.burujinsurance.com





5,000

5,500

6,000

6,500

7,000


24

34

TASI Buruj (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Gulf Insurance Co. KSC 22.5Yousef Mohammed Abdel Wahab Naghy Co.

5.0

Gulf Medical Co. 5.0Batterji Industrial Group Co. 5.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn N/A N/A N/A 2 N/A N/ATotal Revenues SRmn N/A N/A N/A 3 N/A N/ANet Income SRmn N/A N/A N/A (30) N/A N/AAssets SRmn N/A N/A N/A 138 N/A N/AEquity SRmn N/A N/A N/A 100 N/A N/AInvestments SRmn N/A N/A N/A 100 N/A N/ATechnical Reserves SRmn N/A N/A N/A 16 N/A N/ACombined Ratio % N/A N/A N/A 548.1 N/A N/ANet Mgn % N/A N/A N/A NM N/A N/AROE % N/A N/A N/A NM N/A N/AROA % N/A N/A N/A NM N/A N/ADiv Payout % N/A N/A N/A N/A N/A N/AEPS SR N/A N/A N/A (2.29) N/A N/ABVPS SR N/A N/A N/A 7.71 N/A N/A Source: Tadawul, Zawya, Company, NCBC Research

143

Sanad Insurance & Reinsurance Cooperative Company (SANAD), established in 2006, is headquartered in Riyadh. The company provides a range of car, general, health, property, and marine insurance as well as reinsurance services. SANAD also plans to expand its product portfolio to cover insurance for agriculture, airlines, ships, petrol and power.

� Business brief SANAD provides fire, travel, medical, motor, property, marine, and engineering insurance products. The company also offers insurance against general accidents. In addition, SANAD provides life insurance products and reinsurance services.

� FinancialsThe company’s net insurance premium grew 139.3% YoY to SR185mn in 2010 as compared to SR77mn in 2009. SANAD’s reinsurance commissions rose 92.8% YoY to SR11.2mn. Total revenues increased 135.6% YoY to SR196mn in 2010 from SR83mn in 2009, due to rise in net insurance premium, which accounts for 94% of the total revenues. The company’s net claims grew 164.7% YoY to SR130.4mn. This, coupled with higher policy acquisition costs, raised the total expenses by 195.5% YoY to SR239mn. SANAD posted a higher net loss of SR21mn in 2010 as compared to SR15mn in the previous year.

� Recent developments In April 2011, the company announced that Mr. Aevens has resigned from the post of the Chief Executive Officer.


SANAD INSURANCE

ALSO KNOWN AS: SANAD





Reuters code 8090.SEBloomberg code SANAD AB

www.sanad.com.sa



P/E (x) N/M N/M N/MP/B (x) 2.3 2.5 2.9P/S (x) 135.6 4.7 2.0Div Yield (%) N/A N/A N/ADPS N/A N/A N/A Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


101520253035

TASI SANAD (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Al Khazna Insurance Co. 15.0Continental Insurance Co. 10.0Ramat Marketing and Distribution Ltd

5.0


Company financials

2007* 2008^ 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA 3 77 185 139.3 NA

Total Revenues SRmn NA 3 83 196 135.6 NA

Net Income SRmn (9) (15) (15) (21) 44.8 32.9

Assets SRmn 191 199 415 370 (10.9) 24.6

Equity SRmn 191 175 157 135 (14.3) (11.0)

Investments SRmn 186 173 28 36 28.9 (42.3)Technical Reserves SRmn NA 1 171 193 13.2 NACombined Ratio % NA 369.8 104.8 129.4 - -

Net Mgn % NA (520.0) (17.5) (10.8) - -

ROE % (4.7) (8.3) (8.8) (14.5) - -

ROA % (4.7) (7.7) (4.8) (5.4) - -

Div Payout % - - - - - -

EPS SR (0.45) (0.76) (0.73) (1.06) 44.8 32.9

BVPS SR 9.55 8.75 7.86 6.74 (14.3) (11.0) Source: Tadawul, Zawya, Company, NCBC Research * Financials of 2007 for 6 months

144

Established in Al-Khobar in 2006, Saudi United Cooperative Insurance Company (Wala’a Insurance) specializes in business risks and government agencies. The company markets products and services under the WALAA brand and operates through its branches in Riyadh, Jeddah and Al-Khobar.

� Business brief Wala’a offers cooperative insurance products for property (fire and allied risks), motor, marine cargo and hull, engineering, medical and miscellaneous accidents insurance. The company earns majority of revenues from the motor, medical and property insurance segments.

� FinancialsIn 2010, the company’s net insurance premium that contributes 89% of total revenues grew 189.2% YoY to SR120mn from SR42mn in 2009. Reinsurance commission increased 167.1% YoY to SR14.5mn. Consequently, the company’s total revenues rose 186.3% YoY to SR135mn from SR47mn in 2009. Net claims paid increased 89.6% YoY in 2010, thereby pushing the total expenses up 91.1% YoY. Overall, net loss for the year stood at SR5mn compared to SR25mn loss in 2009. This was mainly due to the increase in net insurance premiums written.

� Recent developments In November 2010, Wala’a announced that it has received the final approval from SAMA for marketing and selling the Plate Glass insurance product. The company now has nine products that have received SAMA’s final approval.


SAUDI UNITED

ALSO KNOWN AS: WALA’A





Reuters code 8060.SEBloomberg code WALAA AB

www.walaa.com



P/E (x) N/M N/M N/MP/B (x) 2.1 2.5 2.5P/S (x) N/A 8.1 2.8Div Yield (%) N/A N/A N/ADPS N/A N/A N/A Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


10

15

20

25

TASI Walaa Insurance (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) International General Insurance Co. 10.5Abdullah Mohammed Taleb Hakim 5.0


Company financials

2007 2008* 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA 42 120 189.2 NA

Total Revenues SRmn NA NA 47 135 186.3 NA

Net Income SRmn (13) (15) (25) (5) (80.2) (27.1)

Assets SRmn 188 187 361 369 2.3 25.3

Equity SRmn 187 181 154 152 (1.7) (6.8)

Investments SRmn 186 182 190 156 (17.9) (5.7)Technical Reserves SRmn NA NA 123 162 31.6 NACombined Ratio % NA NA 175.1 115.7 - -

Net Mgn % NA NA (53.2) (3.7) - -

ROE % (6.9) (8.0) (15.0) (3.3) - -

ROA % (6.8) (7.9) (9.2) (1.4) - -

Div Payout % - - - - - -

EPS SR (0.64) (0.74) (1.25) (0.25) (80.2) (27.1)


145

Headquartered in Al Khobar, ACE Arabia Cooperative Insurance Company (ACE) is a joint venture between ACE Limited and El Khereiji Group. The company was established in 2009 and received regulatory approval from SAMA to start operations in January 2010. ACE operates in Saudi Arabia through offices in Al Khobar, Riyadh, Jeddah and Al Hassan.

� Business brief ACE offers insurance products in the property, casualty, financial, personal and health segments to a diverse range of clients in Saudi Arabia. It provides an array of customized insurance products including health, fire and property, engineering, accidents, liability, car, marine, aviation, energy and collective insurance.

� FinancialsACE’s assets totaled SR91mn, while its shareholders’ equity stood at SR87mn at the end of 2010. The company posted a net loss of SR3mn in the year, lower than SR9mn in 2009. The losses can be primarily ascribed to the early stage of operations.

� Recent developments In November 2010, ACE received final approval from SAMA for the marketing and sale of Bankers Blanket Bond policy. In the same month, the company announced the appointment of Mr. Stephen Bryan Dixon in the Board of Directors.


ACE ARABIA

ALSO KNOWN AS: ACE





Reuters code 8240.SEBloomberg code ACE AB

www.ace-mena.com



P/E (x) N/A NM NMP/B (x) NA 4.2 4.4P/S (x) N/A N/A N/ADiv Yield (%) N/A N/A N/ADPS N/A 0.0 0.0 Source: NCBC Research estimates


10 20 30 40 50

5,000 5,500 6,000 6,500 7,000

May-11

Feb-11Nov-10Aug-10May-10

TASI ACE (RHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) ASINA International Holding 30.0 General Company for Technological Development 5.0

Wehdan Investment 5.0General Company for Investment 5.0 Middle East Investment 5.0 Source: Tadawul, NCBC Research

Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn N/A N/A N/A N/A NA N/ATotal Revenues SRmn N/A N/A N/A N/A NA N/ANet Income SRmn N/A N/A (10) (12) 26.3 N/AAssets SRmn N/A N/A 100 91 (9.2) N/AEquity SRmn N/A N/A 90 87 (4.3) N/AInvestments SRmn N/A N/A 98 89 (8.4) N/ATechnical Reserves SRmn N/A N/A N/A N/A NA N/ACombined Ratio % N/A N/A N/A N/A NA N/ANet Mgn % N/A N/A N/A N/A NA N/AROE % N/A N/A (10.6) (13.7) NA N/AROA % N/A N/A (9.5) (12.6) NA N/ADiv Payout % N/A N/A N/A N/A NA N/AEPS SR N/A N/A (0.96) (1.21) 26.3 N/ABVPS SR N/A N/A 9.0 8.7 (4.3) N/A Source: Tadawul, Zawya, Company, NCBC Research

146

Saudi Fransi Cooperative Insurance Company (Allianz SF) was established in 2007 in Riyadh. The company is a subsidiary of Banque Saudi Fransi and Assurances Generales de France (member of the Allianz Group).

� Business brief ALLIANZ SF offers multiple insurance solutions through two main segments: individual solutions and corporate. Under the individual solutions segment, the company provides Sharia’a-compliant insurance products including individual financial planning (for education, protection and retirement), family income protection, life and disability insurance and corporate solutions assurance. The corporate solutions segment offers fire, general accident, construction/engineering, marine cargo, aviation and employee compensation insurance products.

� FinancialsALLIANZ SF continued to incur losses in 2010; its net loss totaled SR10mn, lower than SR22mn in 2009. ALLIANZ SF’s net insurance premium rose 83.2% YoY to SR233mn. Consequently, total revenues increased 72.3% YoY to SR249mn, albeit impacted by the 43.9% YoY decline in investment and other income. Total costs and expenses moved up 57.4% mainly due to the 83.1% YoY rise in net claims. Technical reserves grew 173% YoY. The fall in net loss was ascribed to higher net premiums written.

� Recent developments In March 2011, ALLIANZSF received renewal of permit by SAMA’s to conduct insurance business for next three years. in February 2011, the company got approval for 6 products from SAMA. In November 2010, the company transferred to its ownership a protection and savings portfolio, totaling nearly SR366.1mn, already underwritten by parent companies, Banque Saudi Fransi and Allianz Group (AGF and SNA units). The transfer was in accordance with regulatory approvals received in June 2010.


ALLIANZ SAUDI FRANSI

ALSO KNOWN AS: ALLIANZ SF, ALLIANZ SAUDI FRANSI





Reuters code 8040.SEBloomberg code ALLIANZ AB

www.allianzsf.com



P/E (x) NM NM NMP/B (x) 7.0 10.9 2.9P/S (x) 119.9 3.2 1.9Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


12

22

32

TASI ALLIANZ SF (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Banque Saudi Fransi 32.5AGF International Co. 16.2SNI Holding Co. 16.2


Company financials

2007 2008* 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA 4 127 233 83.2 NA

Total Revenues SRmn NA 4 144 249 72.3 NA

Net Income SRmn (16) (33) (22) (10) (55.5) (14.1)

Assets SRmn 104 239 443 941 112.3 108.4

Equity SRmn 84 66 43 158 270.2 23.5

Investments SRmn 100 72 46 40 (13.1) (26.5)Technical Reserves SRmn NA 58 156 426 173.0 NACombined Ratio % NA 797.2 128.2 110.2 - -

Net Mgn % NA (862.4) (15.5) (4.0) - -

ROE % (18.8) (44.6) (41.2) (9.9) - -

ROA % (15.2) (19.5) (6.6) (1.4) - -


EPS SR (0.8) (1.7) (1.1) (0.5) (55.5) (14.1)

BVPS SR 4.2 3.3 2.1 7.9 270.2 23.5 Source: Tadawul, Zawya, Company, NCBC Research * Financials of 2008 for 18 Months

147

Wataniya Insurance Company (Wataniya) was listed on the Saudi Stock Exchange (Tadawul) in June 2010. The company plans to offer Sharia’a-compliant non-life insurance and reinsurance services in the Kingdom. Wataniya operates through offices in Jeddah, Riyadh and Khobar.

� Business brief Wataniya intends to offer a wide range of insurance services in segments such as property, medical, marine, aviation, engineering, fire, general accident, motor and liability insurance. The company has strategic partnerships with New Re Company (part of Munich Re Group) and Saudi Hollandi Bank that would help Wataniya sell insurance products.

� FinancialsWataniya reported SR18mn as net insurance premium earned, thus taking its total revenues to SR21mn. However, due to higher expenses the company incurred net loss of SR20mn during the year.

� Recent developments In January 2011, SAMA granted approval to the company to market and sell motorcycle insurance product. In December 2010, Standard and Poor's Ratings Services assigned Wataniya’s financial strength a rating of BBB and the credit rating of stable outlook. In November 2010, David Murray Sims was appointed to the company’s Board of Directors, replacing Steven Jeffrey Truob.


WATANIYA INSURANCE

ALSO KNOWN AS WATANIYA



Price perform (%) 1M 3M 12MAbsolute 15.3 21.5 NAMarket 1.2 2.3 (3.0)Sector 6.1 13.4 (6.8)


Reuters code 8300.SEBloomberg code WATANIYA AB

www.wataniya.com.sa





5,000

5,500

6,000

6,500

7,000


TASI Wataniya (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Saudi National Insurance Co. 27.5Saudi Hollandi Bank 20.0New Reinsurance Co. Ltd. 10.0Ibrahim Al Juffali & Bros. Co. 5.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn N/A N/A N/A 18 N/A N/ATotal Revenues SRmn N/A N/A N/A 21 N/A N/ANet Income SRmn N/A N/A N/A (20) N/A N/AAssets SRmn N/A N/A N/A 156 N/A N/AEquity SRmn N/A N/A N/A 75 N/A N/AInvestments SRmn N/A N/A N/A 60 N/A N/ATechnical Reserves SRmn N/A N/A N/A 55 N/A N/ACombined Ratio % N/A N/A N/A 188.1 N/A N/ANet Mgn % N/A N/A N/A NM N/A N/AROE % N/A N/A N/A NM N/A N/AROA % N/A N/A N/A NM N/A N/ADiv Payout % N/A N/A N/A NA N/A N/AEPS SR N/A N/A N/A (2.04) N/A N/ABVPS SR N/A N/A N/A 7.49 N/A N/A Source: Tadawul, Zawya, Company, NCBC Research

148

Established in 2006 in accordance with a Royal Decree, Saudi IAIC Cooperative Insurance Company (Saudi Salama) is a Jeddah-based insurance company. The company markets insurance products under the SALAMA brand. SALAMA, a subsidiary of the UAE-based Islamic Arab Insurance Co., provides Sharia’a-compliant general insurance solutions.

� Business brief SALAMA’s products are broadly classified into three segments: health, motor and general insurance. The health insurance segment offers individual and corporate healthcare cover. Motor insurance provides comprehensive and third party liability insurance cover. The general insurance segment offers cover for fire & property, personal accident, marine, engineering, aviation as well as miscellaneous insurance.

� FinancialsSALAMA’s net insurance premium decreased 36.3% YoY to SR134mn in 2010 as compared to SR210mn in 2009. However, the company’s reinsurance premium increased 40.2% YoY. The significant decline in net insurance premium, which accounts for 89% of total revenues, led to 29.7% YoY decrease in total revenues to SR150mn. SALAMA’s gross claims fell 6.2% YoY, while net claims rose 33.2% YoY. Thus, total expenses declined 27.8% YoY. Overall, net income fell 29.4% YoY to SR8mn in 2010 from SR12mn in 2009, mainly due to the decrease in volume of premiums underwritten.

� Recent developments In November 2010, SALAMA received final approval from SAMA for issuance of 19 insurance products.


SAUDI IAIC

ALSO KNOWN AS: SAUDI SALAMA


STOCK DETAILS 52-week range H/L (SR) 44/20Market cap ($mn) 95Shares outstanding (mn) 10.0



Reuters code 8050.SEBloomberg code SALAMA AB

www.salama.com.sa





5,000

5,500

6,000

6,500

7,000


18232833384348

TASI SALAMA (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Arab Islamic Insurance Company 30.0Bin Dawood & Sons Commercial Co.

5.0

Al Sha'er Trade, Industries and Construction

5.0

Cooperative Group Company for Trade & Construction

5.0


Company financials

2007 2008* 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA 72 210 134 (36.3) NA

Total Revenues SRmn NA 76 214 150 (29.7) NA

Net Income SRmn (13) (38) 12 8 (29.4) NM

Assets SRmn 111 257 255 251 (1.6) 31.2

Equity SRmn 83 61 76 87 14.2 1.4

Investments SRmn 103 64 76 71 (7.3) (11.7)Technical Reserves SRmn NA 134 127 109 (13.6) NMCombined Ratio % NA 119.5 92.0 104.3 - -

Net Mgn % NA (50.6) 5.5 5.5 - -

ROE % (15.7) (53.4) 17.2 10.2 - -

ROA % (11.7) (20.9) 4.6 3.3 - -


EPS SR (1.3) (3.8) 1.2 0.8 (29.4) NM

BVPS SR 8.3 6.1 7.6 8.7 14.2 1.4 Source: Tadawul, Zawya, Company, NCBC Research * Financials of 2008 for 19 months

149

Al-Ahlia Insurance Company (Al-Ahlia) was established by the National Insurance Company of Egypt and several Saudi investors in 2007. Headquartered in Riyadh, the company offers Sharia’a-compliant cooperative insurance and reinsurance services in the Kingdom.

� Business brief Al-Ahlia offers a range of general insurance products, including fire insurance, property insurance, marine insurance, motor insurance, money insurance, engineering insurance, medical insurance, medical malpractice insurance, fidelity insurance and liability insurance.

� FinancialsAl-Ahlia’s net insurance premium, which contributes 94.8% to the total revenues, increased over 9x YoY to SR150mn in 2010. The total revenues rose to SR158mn compared to SR17mn in 2009. The commencement of sales in the medical insurance business also played a role in the significant surge in sales. Net claims incurred increased 340.7% YoY to SR37.7mn during the period, in line with the rise in sales. The general and administrative expenses of the company declined 82.6% YoY to SR791mn during 2010. Overall, the growth in revenues and fall in operating expenses resulted in a lower net loss of SR6mn in 2010 compared to SR31mn in 2009.

� Recent developments In January, Al Ahlia terminated its marketing and selling contract with the agent Al Areen Insurance Agency. In December 2010, the Board of Directors announced the appointment of Mr. Sami Bin Ezzat Al Ali as Chief Executive Officer of the company. In the same month, SAMA extended temporary approval for the period of six moths for the company’s 20 insurance products.


AL-AHLIA INSURANCE

ALSO KNOWN AS: AL-AHLIA





Reuters code 8140.SEBloomberg code ALAHLIA AB

www.alahlia.com.sa



P/E (x) N/M N/M N/MP/B (x) 4.1 6.7 7.7P/S (x) NA 20.5 2.2Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


TASI Al-Ahlia (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Al Ahlia Insurance Co. - Egypt 18.0


Company financials

2007 2008* 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA 16 150 862.5 N/M

Total Revenues SRmn NA NA 17 158 854.1 N/M

Net Income SRmn NA (15) (31) (6) (81.7) N/M

Assets SRmn 113 107 182 310 70.3 40.1

Equity SRmn 100 83 51 44 (13.3) (23.8)

Investments SRmn 100 101 16 1 (95.5) (80.7)Technical Reserves SRmn NA NA 61 161 162.8 N/MCombined Ratio % NA NA 277.9 76.8 - -

Net Mgn % NA N/M (186.6) (3.6) - -

ROE % NA (16.7) (46.2) (11.9) - -

ROA % NA (13.9) (21.4) (2.3) - -


EPS SR NA (1.53) (3.10) (0.57) (81.7) N/M

BVPS SR 10.00 8.30 5.11 4.43 (13.3) (23.8) Source: Tadawul, Zawya, Company, NCBC Research * Financials reported for 2008 is for 18 months

150

Allied Cooperative Insurance Group (ACIG) was incorporated in 2007 through the acquisition of the Saudi Arabian assets and client portfolio of ACIG Bahrain, its parent company. Based in Jeddah, ACIG offers Sharia’a-compliant insurance and reinsurance products in Saudi Arabia.

� Business brief ACIG offers Islamic general insurance products, including marine, medical, motor, accident and engineering insurance. The company offers marine cargo and inland transit insurances through the Marine Insurance segment. The Motor Insurance segment provides third-party liability protection, personal accident cover (for drivers and passengers) and comprehensive ‘own damage’ options. The General Insurance segment provides money, fidelity, personal accident, public liability, workmen’s compensation, and medical malpractice insurance.

� FinancialsACIG’s net insurance premium grew over 26x YoY to SR22mn in 2010. The company’s reinsurance premium also increased 15.6x YoY to SR2mn. This resulted in 25x YoY rise in total revenues to SR25mn in 2010 as compared to SR1mn in 2009. The net loss incurred declined 32.6% YoY to SR16mn due to lower operating expenses, specifically general and administrative expenses, which decreased 96.3% YoY to SR502mn.

� Recent developments In April, ACIG received approval from SAMA to open 44 point of sale in different regions of the Kingdom. In March 2011, Dr. Omar zuheer Hafiz resigned from the post of managing director & chief executive officer, but continued as a member of BOD. The company decided to restructure the Audit Committee after the consent of SAMA. October 2010, the company received SAMA’s approval to raise capital from SR100mn to SR200mn through a 100% rights issue.


ALLIED CO-OPERATIVE

ALSO KNOWN AS: ACIG, SAUDI ACIG


STOCK DETAILS 52-week range H/L (SR) 50.3/20.7Market cap ($ mn) 89.3Shares outstanding (mn) 10.0



Reuters code 8150.SEBloomberg code ACIG AB

www.acig.com.sa



P/E (x) N/M N/M N/MP/B (x) 4.8 6.7 10.2P/S (x) N/M 340.8 13.7Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


28

38

48

58

TASI ACIG (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Allied Cooperative Insurance Group 20.0

Islamic Development Bank 20.0


Company financials

2007* 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA 1 22 2,534.9 N/M

Total Revenues SRmn NA NA 1 25 2,394.0 N/M

Net Income SRmn (5) (23) (24) (16) (32.6) 51.2

Assets SRmn 94 78 91 139 53.2 13.7

Equity SRmn 92 70 50 33 (34.1) (29.1)

Investments SRmn 91 74 48 35 (27.0) (27.1)Technical Reserves SRmn NA NA 30 79 161.4 N/MCombined Ratio % NA NA 1,423.5 181.1 - -

Net Mgn % N/M N/M (2,463.0) (66.6) - -

ROE % (5.1) (28.1) (40.3) (39.4) - -

ROA % (5.0) (26.4) (28.7) (14.2) - -


EPS SR (0.47) (2.28) (2.42) (1.63) (32.6) 51.2

BVPS SR 9.22 7.02 4.99 3.29 (34.1) (29.1) Source: Tadawul, Zawya, Company, NCBC Research * 5 month financial reported for 2007

151

Established in 2007, Saudi Arabian Cooperative Insurance Company (SAICO) offers Sharia’a-compliant insurance services across Saudi Arabia. SAICO is a subsidiary of Bahrain-based Saudi Arabian Cooperative Insurance Company, which holds 30% stake in the company.

� Business brief SAICO provides insurance services in two categories: business and personal. Under business insurance, the company covers liabilities such as fire and property, marine cargo, engineering, aviation, motor vehicle, energy as well as life and health. The personal insurance provides insurance for home, car, boat, life and health as well as accidents.

� FinancialsSAICO’s net insurance premium that contributes 84.5% of total revenues increased nearly 19x YoY to SR217mn in 2010. Consequently, total revenues grew over 18x YoY to SR256mn. Net claims rose from SR3mn in 2009 to SR167mn in 2010, and total expenses increased over 14x to SR263mn. The company incurred a net loss of SR9mn during the year, higher than SR8mn in 2009.

� Recent developments In December 2010, SAICO received SAMA’s approval to hike capital from SR100mn to SR150mn through a rights issue. In November 2010, the company received approval to open three new branches in Jeddah, Boraida and Khobar. During the fourth quarter of 2010, SAICO received SAMA’s approval to issue Money insurance, Theft insurance, Dishonesty insurance, Medical Malpractice insurance and five other new products. In addition the company also got six month renewal of approval for 30 insurance products.


SAUDI ARABIAN

ALSO KNOWN AS: SAICO SAUDI





Reuters code 8100.SEBloomberg code SAICO AB

www.saico.com.sa



P/E (x) N/M N/M N/MP/B (x) 3.7 4.0 4.6P/S (x) NA 23.7 1.3Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


20

40

60

80

100

TASI SAICO (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Saudi Arab Insurance Co. 30.0Al Wa'lan Car Co. 5.0Erad Holding 5.0


Company financials

2007* 2008^ 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA NA 12 217 1,782.7 N/M

Total Revenues SRmn 2 NA 14 256 1,741.4 433.4

Net Income SRmn (6) (10) (8) (9) 11.9 13.8

Assets SRmn NA 94 204 625 206.8 N/M

Equity SRmn 94 90 82 72 (11.5) (8.3)

Investments SRmn 102 91 69 69 0.2 (12.3)Technical Reserves SRmn NA NA 64 433 580.7 N/MCombined Ratio % NA NA 149.4 121.6 - -

Net Mgn % (377.5) NA (60.3) (3.7) - -

ROE % (6.8) (11.0) (9.8) (12.2) - -

ROA % NA (10.7) (5.6) (2.3) - -

Div Payout % - - - - - -

EPS SR (0.64) (1.01) (0.84) (0.94) 11.9 13.8

BVPS SR 9.36 8.99 8.15 7.22 (11.5) (8.3) Source: Tadawul, Zawya, Company, NCBC Research * Financials of 2007 for 5 months; ^ Financials of 2008 for 17 months

152

In 2007, Saudi Indian Company for Co-operative Insurance (Saudi Indian) was established through a joint venture between New India Assurance Co., Life Insurance Corporation of India (Intl) and Fawaz Abdulaziz Al Hokair and Co. Headquartered in Riyadh, the company provides life and general insurance services to individuals and commercial establishments.

� Business brief Saudi Indian’s product profile is segregated into two broad categories: life insurance and non-life insurance. The company offers various products related to protection and savings such as Takaful Insurance, Participating Endowment, Cash Back, Money Back & Protect Lifelong and Child Benefit plans through the life insurance segment. Saudi Indian provides insurance for fire, motor, engineering, health and other miscellaneous products, including personal accident, burglary, money and fidelity guarantee under the non-life insurance segment.

� FinancialsSIICI’s net insurance premium rose 1.8% YoY to SR38mn in 2010. The company’s total revenues grew 6.9% YoY to SR44mn in 2010 due to a robust growth in reinsurance commission, which rose 57.1% YoY to SR6mn. SIICI’s net loss also declined to SR15mn in 2010 as compared to SR27mn in 2009. This decrease was due to a 24.4% YoY drop in net claims, which stood at SR24mn in 2010. Other expenses also declined 10.1% during the period, providing support to the company’s bottom-line.

� Recent developments In March, the company announced appointment of Mr. Majid Abdullah Al-Hogail as independent member of the board of directors who replaced Mr. Nasser Abdulrahman Suhaibani. In January 2011, Saudi Indian announced the appointment of Mr. Abdullah Saad Al Jarbou as Chairman of the company’s Board of Directors. Mr. Fouad Hannoun was appointed Managing Director of the company in October 2010.


SAUDI INDIAN

ALSO KNOWN AS: SIICI, SAUDI INDIAN





Reuters code 8110.SEBloomberg code SINDIAN AB

www.sicci-ksa.com



P/E (x) N/M N/M N/MP/B (x) 4.1 6.2 9.0P/S (x) 332.0 7.8 7.3Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


20

30

40

50

TASI Saudi Indian (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) New India Insurance Co. 10.6Life Insurance Corp of India 10.2Life Insurance Corp (Int’l) 10.2Khaled Abdulaziz Bin Salmah Trading Establishment

5.0

Saleh Saad Al Khariji Establishment 5.0 Source: Tadawul, NCBC Research

Company financials

2007* 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Ins. Premium SRmn NA 1 38 38 1.8 N/M

Total Revenues SRmn NA 1 42 44 6.9 N/M

Net Income SRmn (12) (9) (27) (15) (43.9) 7.7

Assets SRmn 96 104 183 173 (5.7) 21.7

Equity SRmn 88 79 52 36 (31.0) (25.8)

Investments SRmn 93 68 68 56 (17.5) (15.4)Technical Reserves SRmn NA 13 79 82 3.5 N/M Combined Ratio % NA 746.4 176.3 152.7 - -

Net Mgn % NA (893.7) (66.0) (34.6) - -

ROE % (14.0) (10.4) (41.9) (35.0) - -

ROA % (12.8) (8.7) (19.1) (8.6) - -


EPS SR (1.23) (0.87) (2.74) (1.54) (43.9) 7.7


153


MAY 2011

154

Multi-Investment


4280 Kingdom Holding 157

4080 Assir 158

2190 SISCO 159

2030 SARCO 160

2140 Al Ahsa for Dev. 161

2120 Saudi Advanced 162

4130 Al Baha 163

The KSA Multi-Investment sector comprises of diversified conglomerates with investments in various sectors, including hospitality, real estate, manufacturing, energy, infrastructure and education. Kingdom Holding Company (Kingdom), the largest in the sector, accounted for about 57% of the sector’s revenues in 2010.In 2010, the sector‘s ROE stood at 2.1% higher than the GCC average

Exhibit 96: Revenue of GCC multi investment 2008–10


USD mn %

0

500

1,000

1,500

2,000

2,500

2008 2009 2010KSA Kuwait Qatar

-30

-10

10

30

50

70

90

0 20 40 60 80 100

P/E (x)

RO

E (%

)

KSA Qatar

Source: Bloomberg, NCBC Research Revenue of Qatar is USD 4.76mn in 2009

Source: Bloomberg, NCBC Research Size of the bubble represents market cap. as on 31 March 2010.

Kingdom Holding is the largest company in the sector with a 0.3% weight in the overall market index, down from 2.48% in the previous year.


Units as stated


NM (%), 2010

Avg. RoE (%), 2010

Saudi Arabian Refineries Co. (SARCO) 0.10 NA 2.8Saudi Advanced Industries Co. (SAIC) 0.09 71.9 1.2Al Ahsa Development Co. (AADC) 0.10 47.6 10.4Saudi Industrial Services Co. (SISCO) 0.16 0.3 0.1Aseer Trading, Tourism, Mfg., Agri., Real Estate and Contracting Company (ATTMCO)

0.16 4.4 3.6

Al Baha for Development & Investment Co. (ABDICO)

0.03 N/M (6.1)

Kingdom Holding Co. ( KINGDOM) 0.31 19.9 2.3Source: Bloomberg, Tadawul, Company data, NCBC Research; NM: Net Margin

During 2005–07, the sector’s revenues increased at a CAGR of 126%, aided by macroeconomic expansion at a CAGR of 10.5%. However, the sector’s performance dipped during the last three years due to the global financial crisis. In 2010, the sector’s total revenues declined 13.8% YoY to SR5.4bn primarily due to a 29.5% YoY decline in Kingdom’s revenue owing to changes in the reporting standard for investments in subsidiaries (Fairmont Raffles International and Real Estate Investment Company Ltd). Kingdom now adds earnings from these subsidiaries using equity method; earlier it used to consolidate their financials. However, the other leading players, namely Aseer Trading, Tourism,

MAY 2011

MULTI INVESTMENT

Global crisis acts as an impediment

155

MULTI INVESTMENT NCB CAPITAL

MAY 2011

Mfg., Agri., Real Estate & Contracting Company (ATTMCO) and Saudi Industrial Services Company (SISCO) experienced a significant increase in revenues. AADC recorded the highest growth in revenue, a five-fold rise to SR98mn. The sector reported a 44.6% YoY growth in net income mainly due to a 50.3% YoY rise in Kingdom’s profits by improving the operating efficiency of its hotels and earning better profits from associated companies.

Exhibit 99: Revenue of companies, 2008–2010 Exhibit 100: Profitability of companies, 2008–2010

SR mn %

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2008 2009 2010

KINGDOM ATTMCO AADC SAIC SARCO SISCO ABDICO(50)

(25)

0

25

50

75

100

2008 2009 2010

ATTMCO AADC SAIC

SISCO KINGDOM


As of 31 December 2010, the sector’s P/E and P/BV multiple stood at 40.3x and 1.2x, respectively, compared to 38.3x and 1.4x in 2009. The KSA multi-investment sector’s ROE averaged 2.5% in 2010 compared to 1.9% in 2009.


% %

SAICKINGDOM

AADCSARCO

ABDICO

ATTMCO

SISCO

-6

-4

-2

0

2

4

6

0.0 0.5 1.0 1.5 2.0 2.5

P/B (x)

RO

E(%

)

SAIC

KINGDOM

AADC

SARCO

ABDICO

ATTMCO

SISCO

-8-6

-4-2

024

68

1012

0.0 0.5 1.0 1.5 2.0 2.5

P/B (x)

RO

E(%

)

Source: Bloomberg, Tadawul, Reuters, NCBC Research Size of the bubble represents market cap. as on 31 Dec 2009

Source: Bloomberg, Tadawul, Reuters, NCBC Research Size of the bubble represents market cap. as on 7 Feb 2011

156

Kingdom Holding Company was established in 1996. The company primarily focuses on banking and financial services, real estate, and hotels & hotel management and other sectors. Headquartered in Riyadh, the company has six 100% owned subsidiaries across the world.

� Business brief Initially engaged in construction, housing development, and educational projects, Kingdom has enhanced its stake across sectors in several Saudi Arabian, Middle Eastern and international companies. The company’s portfolio includes premium brands such as Apple, Time Warner, Samba, Citigroup, Pepsi, Walt Disney and Hewlett-Packard. Kingdom has made investments in the domestic health, education and social services sectors. The company is also a private equity player in Saudi Arabia and in developing markets in the Middle East, Africa and Asia.

� FinancialsKingdom’s revenues fell 24.6% YoY to SR3,040.7mn in 2010. The decline is mainly ascribed to the changes in reporting standard for investments in Fairmont Raffles International and Real Estate Investment Company Ltd from consolidation to equity method. Net income for 2010 grew 50.3% YoY to SR605.2mn, mainly due to improved operating efficiency in hotels and better profits from associated companies.

� Recent developments In February 2011, Kingdom offered to buy a 25% stake in Zain Kuwait’s Saudi Arabian assets. In January 2011, Kingdom’s wholly-owned subsidiary Kingdom Hotel Investments (KHI) signed an agreement with TA Global to sell its 100% stake in Swissôtel Kunshan for about US$61mn.

MULTI-INVESTMENT� MAY 2011

KINGDOM HOLDING

ALSO KNOWN AS: KHC





Reuters code 4280.SEBloomberg code KINGDOM AB

www.kingdom.com.sa



P/E (x) NM 78.7 52.4P/B (x) 1.5 1.3 1.2P/S (x) 6.6 7.9 10.4Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


6789

1011

5,000

5,500

6,000

6,500

7,000


TASI Kingdom (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Prince AlWaleed Talal Abdul Aziz Al Saud

95.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 5,001 4,771 4,032 3,041 (24.6) (15.3)EBITDA SRmn 888 977 927 790 (14.8) (3.8)Net Income SRmn 1,210 (29,911) 403 605 50.3 (20.6)Assets SRmn 78,508 50,715 49,990 42,188 (15.6) (18.7)Equity SRmn 51,221 21,615 24,579 27,081 10.2 (19.1)Total Debt SRmn 18,131 17,614 14,103 154 (98.9) (79.6)Cash & Equiv SRmn 2,309 1,893 2,233 1,299 (41.9) (17.5)EBITDA Mgn % 17.8 20.5 23.0 26.0 - -Net Mgn % 24.2 (627.0) 10.0 19.9 - -ROE % 2.1 (82.1) 1.7 2.3 - -ROA % 1.4 (46.3) 0.8 1.3 - -Div Payout % - - - - - -EPS SR 0.33 (8.07) 0.11 0.16 50.3 (20.6)BVPS SR 13.82 5.83 6.63 7.31 10.2 (19.1) Source: Tadawul, Zawya Company, NCBC Research

157

Established in 1977 and headquartered in Abha (Southwest Saudi Arabia), Aseer Trading, Tourism and Manufacturing Company (Aseer) is an investment holding company with interests in five sectors – food, petrochemicals, real estate, building materials and construction, and financial services.

� Business brief Aseer operates in a wide range of businesses and has investments in diverse projects, including agriculture, cement, printing & publishing, and energy-related projects. The company is also engaged in travel and tourism and has stakes in resorts and hotels. Aseer’s wholly-owned subsidiaries include Dallah Industrial Investment Company, Al Ustool Arabia Real Estate Development Co. Ltd, Al Khawatem Trading & Contracting Co. Ltd., Al Nasrah International Real Estate Development Co. Ltd., Al Mawajed International Real Estate Development Co. and Al Tilal Regional Investment Co. The company has a network of six branches. These are located in Al Madinah, Riyadh, Wadi Al Dawaser, Jeddah, Hail and Al Jouf.

� FinancialsAseer reported revenues of SR1,928mn in 2010 compared to SR1,713mn in 2009. EBITDA improved 19.7% YoY to SR223mn during the period. Net income recorded a modest 6.5% YoY increase to SR85mn in 2010 from SR80mn in 2009.

� Recent developments In January 2011, the BoD proposed a dividend of SR0.75 per share for 2010. In October 2010, the company announced the appointment of Mr. Abdullah Saleh Kamel as Chairman of Board of Directors.

MULTI INVESTMENT � MAY 2011

ASEER TRADING

ALSO KNOWN AS: ASEER



Price perform (%) 1M 3M 12MAbsolute 7.5 11.7 (8.7)Market 1.2 2.3 Sector 5.4 7.4 (6.3)


Reuters code 4080.SEBloomberg code ATTMCO AB

www.aseercorp.com.sa



P/E (x) NM 21.8 20.4P/B (x) 0.8 0.7 0.8P/S (x) 1.0 1.0 0.9Div Yield (%) 3.6 5.4 5.4DPS 0.5 0.8 0.8 Source: NCBC Research estimates


8

10

12

14

16

5,000

5,500

6,000

6,500

7,000


TASI Aseer (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Dalat Al Baraka Holding Co 49.9


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 1,482 1,727 1,713 1,928 12.6 9.2EBITDA SRmn 134 158 186 223 19.7 18.6Net Income SRmn 363 (434) 80 85 6.5 (38.4)Assets SRmn 4,073 3,309 3,565 3,306 (7.3) (6.7)Equity SRmn 3,356 2,313 2,416 2,284 (5.4) (12.0)Total Debt SRmn 158 246 196 106 (46.0) (12.5)Cash & Equiv SRmn 132 254 417 188 (54.9) 12.5EBITDA Mgn % 9.0 9.1 10.9 11.6 - -Net Mgn % 24.5 (25.1) 4.7 4.4 - -ROE % 14.4 (15.3) 3.4 3.6 - -ROA % 10.6 (11.8) 2.3 2.5 - -Div Payout % 30.9 N/M 118.8 111.5 - -EPS SR 3.24 (3.43) 0.63 0.67 6.5 (38.4)BVPS SR 26.55 18.32 19.11 18.07 (5.4) (12.0) Source: Tadawul, Zawya, Company, NCBC Research

158

Established in 1988, Saudi Industrial Services Company (SISCO) undertakes large-scale investments in KSA’s infrastructure sector on a build-operate-transfer and build-operate-own model. SISCO has business interests in water desalination and distribution; development of industrial estates, free zone ports and support services.

� Business brief SISCO’s affiliate Support Services Operations Co. (97% owned) provides ancillary services such as building and car maintenance, catering, and gas stations in industrial estates. Saudi Trade & Export Development Co. (76% owned) operates a free zone at Jeddah Islamic Seaport on a BOT basis. Kindasa Water Services (60% owned) operates a 14,000 cubic meter/day desalination plant and water distribution network. International Water Distribution Co. (50% owned) is engaged in building and operating water distribution networks in the KSA. Red Sea Gateway Terminal Co. (53% owned) provides container handling, stevedoring and cargo services. SA-TALKE (33.3% owned) provides complete logistics solution to the petrochemical industry.

� FinancialsSISCO reported a robust revenue growth of 100.5% YoY to SR279mn in 2010 from SR139mn in 2009. However, the company’s net income declined 38.2% YoY during the period to 0.8mn from 1.2mn mainly due to financial charges incurred in connection to the Red Sea Gateway Terminal Co. and impairment of investment in Sama Airlines.

� Recent developments International Water Distribution Co. (Saudi Tawzea) launched draft drinking water services in Jeddah in October 2010. Saudi Tawzea received a SR260.8mn loan from Alinma Bank in August 2010.


SAUDI INDUSTRIAL SERVICES

ALSO KNOWN AS: SISCO





Reuters code 2190.SEBloomberg code SISCO AB

www.sisco.com.sa



P/E (x) NM 800.2 1,293.8P/B (x) 1.4 1.4 1.4P/S (x) 7.4 7.2 3.6Div Yield (%) NA NA NADPS 0 0 0 Source: NCBC Research estimates


911 13 15

17 19

5,000

5,500

6,000

6,500

7,000


TASI SISCO (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Xenei Industrial Co. 14.6


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 108 135 139 279 100.5 37.2EBITDA SRmn 37 34 34 109 222.1 43.5Net Income SRmn (5) (24) 1 1 (38.2) N/MAssets SRmn 703 1,893 2,371 2,555 7.8 53.8Equity SRmn 426 722 730 724 (0.8) 19.3Total Debt SRmn 77 855 1,232 1,402 13.8 163.5Cash & Equiv SRmn 54 718 441 229 (48.0) 62.0EBITDA Mgn % 34.2 25.4 24.3 39.1 - -Net Mgn % (4.9) (17.9) 0.9 0.3 - -ROE % (1.2) (4.2) 0.2 0.1 - -ROA % (0.8) (1.9) 0.1 0.0 - -Div Payout % NA NA NA NA - -EPS SR (0.08) (0.36) 0.02 0.01 (38.2) N/MBVPS SR 6.27 10.61 10.73 10.64 (0.8) 19.3 Source: Tadawul, Zawya, Company, NCBC Research

159

Saudi Arabia Refineries Company (SARCO), established in Jeddah in 1959, invests in commercial and industrial projects in and outside Saudi Arabia. The company is principally involved in the purchase, refining, transportation, sale, import and export of crude oil and petroleum products.

� Business brief SARCO owns stakes in Arabian Salfonates Company (34%), Arabian Tankers Company (27%), Jeddah Oil Refinery Co (25%), Saudi Industrial Investment Group (3.33%), Tabuk Cement and Riyad Bank. SARCO generates income from its stakes in the earnings of other companies as well as capital gains on the sale of its investments.

� FinancialsSARCO has been reporting little to no revenues as most of its income comes from its investments in associates. Higher earnings from its associates resulted in increased net income to SR11.1mn, registering a 257.2% YoY growth in FY10. Saudi Industrial Investment Company made a major contribution to this significant jump in the 2010 profits.

� Recent developments The company is currently involved in a lawsuit regarding its holding in Saudi Industrial Investment Group.


SAUDI ARABIA REFINERIES COMPANY

ALSO KNOWN AS: SARCO





Reuters code 2030.SEBloomberg code SARCO AB

www.almasafi.com.sa



P/E (x) 85.2 215.3 60.3P/B (x) 3.2 1.7 1.7P/S (x) N/M N/M N/MDiv Yield (%) 1.1 1.1 1.1DPS 0.5 0.5 0.5 Source: NCBC Research estimates


24

34

44

54

5,000

5,500

6,000

6,500

7,000


TASI SARCO (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Prince Mete'eb Bin Abdul Aziz Al Saud

7.3

Prince Khalid Turki Abdul Aziz Turki Al Saud

5.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 1 0 0 0 NM NMEBITDA SRmn (2) (2) (1) (2) (23.0) 2.2Net Income SRmn 99 8 3 11 257.2 (51.7)Assets SRmn 351 229 397 411 3.6 5.4Equity SRmn 597 212 385 398 3.5 (12.6)Total Debt SRmn 8 0 0 0 NM NMCash & Equiv SRmn 43 47 31 30 (4.0) (11.4)EBITDA Mgn % (251.5) N/M N/M N/M - -Net Mgn % N/M N/M N/M N/M - -ROE % 18.3 2.0 1.0 2.8 - -ROA % 23.3 2.7 1.0 2.8 - -Div Payout % 15.2 95.1 240.3 67.3 - -EPS SR 6.59 0.53 0.21 0.74 257.2 (51.7)BVPS SR 39.79 14.11 25.67 26.56 3.5 (12.6) Source: Tadawul, Zawya Company, NCBC Research

160

Established in 1987, Saudi Advanced Industries Co. (SAIC) participates in, developing and promoting industrial projects under The Economic Offset Program organized by the Ministry of Defense and Aviation. SAIC encourages firms in the US, the UK and France to collaborate with Saudi companies to establish high-tech plants in diversified industries.

� Business brief SAIC has stakes in Al Obaikan Glass Co. (40.0%), NPS Bahrain for Oil & Gas Services Co. (20.0%), Gulf Salt Co. (11.2%), Al Salam Aircraft Co. (10.0%), Industrialization & Energy Services Co. (3.4%), Arabian Industrial Fibers Co. (0.6%), and Yanbu National Petrochemicals Co. The company enters into contracts with other firms to set up technology-oriented companies.

� FinancialsSAIC’s total operating revenue declined 66.8% YoY to SR13mn in 2010. Due to this and lower income from investments, net income for the year fell 72.7% YoY to SR9.5mn.

� Recent developments In February 2011, the company announced that its 40% owned subsidiary, Obeikan Glass Company has started the initial phase of its operations. In January 2011, Al Salam Aircraft Co. (in which SAIC has a 10% stake) signed a USD53mn agreement with Syrian Arab Airlines for the maintenance of the latter’s airplanes and JT9D engines. In December 2010, Al Salam Aircraft Co. signed a five-year, SR1,425mn F-15 TSP contract with Royal Saudi Air Forces.

MULTI-INVESTMENT � MAY 2011

SAUDI ADVANCED

ALSO KNOWN AS: SAIC


STOCK DETAILS 52-week range H/L (SR) 17/10Market cap ($ mn) 198Shares outstanding (mn) 43.2



Reuters code 2120.SEBloomberg code SAIC AB

www.saic.com.sa



P/E (x) 41.5 21.4 78.2P/B (x) 1.1 1.0 0.9P/S (x) 29.6 18.7 56.2Div Yield (%) 2.9 NA NADPS 0.5 NA NA Source: NCBC Research estimates


911 13

15 17 19

5,000

5,500

6,000

6,500

7,000


TASI Saudi Advanced (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Khalid Saleh Abdul Rahman Al Shethry

17.7


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 22 25 40 13 (66.8) (15.9)EBITDA SRmn 16 20 36 10 (71.8) (14.0)Net Income SRmn 16 18 35 10 (72.7) (15.2)Assets SRmn 822 892 778 834 7.1 0.5Equity SRmn 820 702 776 832 7.2 0.5Total Debt SRmn - - - - NM NMCash & Equiv SRmn 401 1 19 11 (45.4) (70.2)EBITDA Mgn % 72.3 79.3 90.9 77.2 - -Net Mgn % 70.2 71.3 87.4 71.9 - -ROE % 3.3 2.4 4.7 1.2 - -ROA % 3.2 2.1 4.2 1.2 - -Div Payout % 0.0 120.6 - - -EPS SR 0.36 0.41 0.81 0.22 (72.7) (15.2)BVPS SR 18.99 16.25 17.96 19.25 7.2 0.5 Source: Tadawul, Zawya Company, NCBC Research

161

Al-Ahsa Development Company (AADC) was established in 1993 under the Royal Decree to undertake investment activities in the industrial and service sectors of Saudi Arabia, particularly in the region of Al-Ahsa. AADC has business interests in foods, textiles and medical services.

� Business brief AADC’s affiliate Al-Ahsa Medical Services Co. (30% stake) manages a modern 220-bed hospital in Al-Ahsa region. Al-Ahsa Food Services Co. (50% stake), a JV with Eastern Agriculture Development Co, has a capacity to process 5,000 tons of dates and produces date molasses vinegar, dates and compressed dates. The company’s affiliate Saudi Japanese Textile Co. (100% stake) produces synthetic fiber used in the production of dress materials. Al-Ahsa Recreation and Tourism Co. (17.4% stake) establishes and manages recreational projects.

� FinancialsAADC recorded a massive jump in revenues to SR98mn in 2010 from SR16mn in 2009 due to improved performance by its subsidiaries and a land sale. EBITDA grew more than six fold from SR12mn in 2009 to SR88mn in 2010. Net income increased to SR47mn in 2010 from SR3mn in 2009.

� Recent developments In January 2011, AADC announced repayment of a SR39.4mn commercial loan. The company sold its 45% stake in the Knoll Ahsa land scheme in December 2010 for approximately SR97.3mn and earned a profit of SR77.5mn in the sale. In March 2010, AADC announced that National Handling Services Co., in which it held 5% stake, signed an agreement to merge with Saudi Airlines Ground Services Co. and Attar Ground Services Co. to form a new entity providing ground services to all Saudi Arabian airports.


AL-AHSA DEVELOPMENT

ALSO KNOWN AS: AADC





Reuters code 2140.SEBloomberg code AADC AB

www.ahsa-dev.com.sa



P/E (x) NM 172.1 12.4P/B (x) 1.5 1.4 1.2P/S (x) NM 35.6 5.9Div Yield (%) N/A N/A N/ADPS N/A N/A N/A Source: NCBC Research estimates


89

10 11 12 13

5,000

5,500

6,000

6,500

7,000


TASI Al Ahsa for Dev. (LHS)

Source: Reuters



Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 77 (21) 16 98 502.7 8.4 EBITDA SRmn (1) (26) 12 88 610.3 521.5 Net Income SRmn 34 (56) 3 47 1,287.6 10.6 Assets SRmn 727 559 571 621 8.8 (5.1)Equity SRmn 521 397 420 480 14.2 (2.7)Total Debt SRmn 168 132 126 108 (14.5) (13.8)Cash & Equiv SRmn 3 6 7 16 131.4 67.6 EBITDA Mgn % (1.5) N/M 76.2 89.8 - -Net Mgn % 44.9 N/M 20.7 47.6 - -ROE % 7.1 (12.3) 0.8 10.4 - -ROA % 4.5 (8.7) 0.6 7.8 - -Div Payout % - - - - - -EPS SR 0.70 (1.15) 0.07 0.95 1,287.6 10.6 BVPS SR 10.62 8.11 8.57 9.79 14.2 (2.7) Source: Tadawul, Zawya, Company, NCBC Research

162

Al-Baha Investment & Development Co. (Al-Baha) was established in 1992 to develop and operate projects in Al-Baha province. Engaged in a wide range of industrial, commercial and agricultural activities, the company plans to expand beyond the region. Al-Baha’s investments include a 95% stake in Al-Baha Marble & Granite Company.

� Business brief Al-Baha is engaged in wholesale and retail trading as well as industrial projects, including construction. The company also operates refrigeration stores as well as repair and maintenance workshops, and develops animal as well as agricultural products. In addition, Al-Baha owns and reclaims agricultural land for use in new projects. Furthermore, the company constructs, maintains and operates public utilities (including tramways), and develops recreational and tourist facilities such as parks and tourist villages.

� FinancialsAl-Baha’s revenue declined 37.6% YoY to SR0.2mn in 2010. The company incurred a net loss of SR6mn in 2010 compared to SR4.6mn the previous year. This was mainly due to lower revenue coupled with losses from investments and provisions made during the year.

� Recent developments In January 2011, Al-Baha signed an MoU with Al Sateaa Modern General Contracting Company to purchase assets from the latter. The company raised loan worth SR35mn to fund its asset purchases. The company entered into an MoU with Adakkl factory for tanning leather and leather products in April 2010.

MULTI-INVESTMENT � MAY 2011

AL-BAHA INVESTMENT

ALSO KNOWN AS: Al-Baha





Reuters code 4130.SEBloomberg code ABDICO AB

NA



P/E (x) NM NM NMP/B (x) 2.2 2.2 2.4P/S (x) 1,012.2 945.2 1,514.9Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


10

12

14

16

18

5,000

5,500

6,000

6,500

7,000


TASI Al Baha (LHS)

Source: Reuters



Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 1.77 0.23 0.24 0.15 (37.6) (55.9)EBITDA SRmn (3) (5) (2) (3) NM (1.5)Net Income SRmn (13) (15) (4.6) (6.0) NM (23.8)Assets SRmn 147 119 128 117 (8.7) (7.3)Equity SRmn 123 105 102 95 (7.0) (8.3)Total Debt SRmn 9 0 0 0 N/M (100.0)Cash & Equiv SRmn 40 28 39 23 (41.9) (17.7)EBITDA Mgn % NM NM NM NM - -Net Mgn % NM NM NM NM - -ROE % (12.0) (13.1) (4.4) (6.1) - -ROA % (9.4) (11.2) (3.7) (4.9) - -Div Payout % - - - - - -EPS SR (0.90) (1.00) (0.30) (0.40) NM (23.8)BVPS SR 8.18 6.97 6.79 6.31 (7.0) (8.3) Source: Tadawul, Zawya, Company, NCBC Research

163


MAY 2011

164

Industrial-Investment


1211 MA'ADEN 167

2230 Saudi Chemical 168

2070 SPIMACO 169

1212 Astra Ind 170

1213 AlSorayai Group 171

2150 ZOUJAJ 172

1214 Shaker Group 173

2300 SPM 174

2340 AlAbdullatif 175

1210 BCI 176

2220 Maadaniyah 177

2180 FIPCO 178

4140 Saudi Export 179

Owing to higher sales volumes and commencement of new projects in the KSA post the financial crisis, the industrial investment sector’s revenues rose 10.4% in 2010. Furthermore, recent capacity expansion plans are likely to facilitate growth in the sector.At the listed company level, KSA’s industrial investment sector continued to report strong revenue growth historically. ROE has been broadly at par with GCC peers, with P/E averaging around 22.0x.

Exhibit 103: Revenue of GCC industrial investment companies, 2008-10


USD mn %

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2008 2009 2010

KSA Qatar Kuwait

0

5

10

15

20

25

0 4 8 12 16 20 24

P/E (x)

RO

E (%

)

KSA Qatar Kuwait

Source: Tadawul, Bloomberg, NCBC Research; Source: Tadawul, Bloomberg, NCBC Research

The industrial investment sector has a large number of private players, with 13 listed companies.


Units as stated

% weight in Index as of

Dec 2010NM (%),

2010Avg. RoE (%), 2010

Basic Chemical Industries Co. (BCI) 0.11 12.0 17.4Saudi Arabian Mining Co. (MAADEN) 1.41 (1.8) NMAstra Industrial Group (ASTRA) 0.18 23.1 15.9Al Sorayai Trading & Industrial Group** (ALSORAYA)

0.13 8.4 18.6

Saudi Pharmaceutical Indus. & Medical Appliances Corp. (SPIMACO)

0.36 17.0 6.9

The National Co. for Glass Industries (ZOUJAJ) 0.11 64.1 14.5Filling & Packing Material Mfg. Co. (FIPCO) 0.05 12.7 15.8National Metal Manufacturing & Casting Co. (NMMCC)

0.10 5.3 4.8

The Saudi Chemical Co. (SCCO) 0.50 18.0 23.4Saudi Paper Manufacturing Co. (SPM) 0.14 15.3 22.2Al-Abdullatif Industrial Investment Co. (ALABDUL) 0.13 13.4 12.1Saudi Industrial Export Co. (SIECO) 0.05 1.7 2.9Al Hassan Ghazi Ibrahim Shaker Co. (SHAKER) 0.11 12.6 32.4Source: Bloomberg, Tadawul: Company data; NM: Net Margin ** This company was listed in 2010

Sector revenues increased 10.4% to SR9.9bn in 2010 compared to SR8.9bn in the previous year, driven mainly by higher sales volumes and improved demand

MAY 2011

INDUSTRIAL INVESTMENT

Capacity expansion plans indicate a positive outlook

165

INDUSTRIAL INVESTMENT NCB CAPITAL

MAY 2011

166

from international markets. SPM reported the largest increase in revenues (from a lower base), while Al Sorayai Trading & Industrial Group reported the steepest decline. Net profit for the sector fell 16.1% to SR1.4bn in 2010 as against SR1.7bn in the previous year, mainly due to higher raw material costs.

Exhibit 106: Revenue of companies, 2008–2010

Exhibit 107: Profitability of Maaden relative to sector average

SR mn

%

0

1,500

3,000

4,500

6,000

7,500

9,000

10,500

2008 2009 2010

SPIMACO SCCO SPM ALABDUL ASTRA

MAADEN AL SORAYAI SHAKER Others

-5

10

25

40

55

70

2008 2009 2010

Sector Average MAADEN



As of 31 December 2010, the sector’s ROE and P/BV multiple stood at 5.3% and 2.0x, respectively, compared to corresponding figures of 6.7% and 2.4x in 2009.

Exhibit 108: Comparison of P/B and ROE, 2009


%

%

-10

0

10

20

30

40

0 2 4 6

P/B (x)

RO

E (%

)

ZOUJAJ FIPCO NMMCC SCCO SPM ALABDUL SIECO MAADEN BCI ASTRA SPIMACO

-10-505

101520253035

0 2 4 6

P/B (x)

RO

E (%

)

ZOUJAJ FIPCO NMMCC SCCO SPM

ALABDUL SIECO MAADEN BCI ASTRA

SPIMACO AL SORAYA SHAKER



NCBC Recommendations in the Sector Currently, we have Ma’aden under our stock coverage universe.

Exhibit 110: Coverage stocks details Stock Current Rating PT (SR) Comments Ma’aden (1211.SE)

Neutral 24.3 Concerns regarding long term reserves exists despite the higher gold price. Phosphate unit is the main value driver for Maaden and is expected to start in June 2011. High Zakat expense and growing debt levels are a drag on the company's value in the short and medium term. The aluminum project may not be value accretive. We do not include the aluminum project in our valuation until we have further clarity.


Saudi Arabian Mining Company (Ma’aden), established in 1997, is engaged in the exploration and production of metal and non-metal ores. The company owns five operating precious metal extraction mines and several new projects. Ma’aden went public and raised SR9.2bn in July 2008, reducing the government’s holding to 55% from 100%.

� Business brief Ma’aden currently has two business lines, gold mining and Maaden Phosphate Company (MPC), which is a SR17bn project to set up a diammonium phosphate (DAP) production facility. MPC is a 70:30 JV between Ma’aden and SABIC and is scheduled to commence trial production in 2Q11 and commercial in 3Q11. The company is also in the process of setting up a SR40.5bn integrated aluminum plant in a JV with Alcoa.

� FinancialsMa’aden’s net sales for 2010 grew 11.4% YoY to SR707mn. However, EBITDA margins declined 500bps YoY to 19.1% due to higher general and administrative expenses on increased management consultancy services and higher staff costs. EBITDA decreased 11.9% YoY to SR135mn. Lower return on investment and private Islamic Murabaha deposits resulted in net loss of SR13mn in 2010 as against a net profit of SR395mn in 2009. We expect operations from Phosphate JV to drive revenues to SR3,262mn and net profit to SR866mn in 2011.

� Recent developments On 20 December 2010, Ma’aden announced that it has signed financial agreements with Public Investment Fund (PIF) to finance USD2.1bn for its JV with Alcoa Inc., Maaden Aluminium Co would receive USD1.3bn, while Maaden Rolling Co would receive USD821mn. On 06 December 2010, the company awarded a SR91mn contract to Abdullah A.M. Al Khodari Sons Co. to build cathode sealing and anode pallet storage buildings within a year.

INDUSTRIAL INVESTMENT � MAY 2011

SAUDI ARABIAN MINING

ALSO KNOWN AS: MAADEN

UNDERWEIGHTCurrent price (SR) 27.2Pricing as of 04-05-2011




Reuters code 1211.SEBloomberg code MAADEN AB

www.maaden.com.sa


VALUATION MULTIPLES 09A 10A 11EP/E (x) 63.7 NM 20.7P/B (x) 1.4 1.3 1.2P/S (x) 39.7 35.6 6.4Div Yield (%) - - -DPS - - - Source: NCBC Research estimates


15

20

25

30

5,000

5,500

6,000

6,500

7,000


TASI MA'ADEN (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Public Investment Fund 50.0General Organization for Social Insurance

9.4

Public Pension Agency 7.2


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 634 707 3,950 7,554 11.4 128.3EBITDA SRmn 152 117 2,654 5,506 (23.0) 230.9Net Income SRmn 395 (13) 1,215 2,138 (103.2) 75.6Assets SRmn 29,230 34,910 44,666 52,807 19.4 21.8Equity SRmn 18,356 18,704 20,393 23,570 1.8 8.7Total Debt SRmn 8,783 13,517 20,477 24,237 53.9 40.3Cash & Equiv SRmn 3,371 3,161 2,821 2,303 (6.2) (11.9)EBITDA Mgn % 23.9 16.6 67.2 72.9 - -Net Mgn % 14.9 (1.8) 30.8 28.3 - -ROE % 0.5 (0.1) 6.0 9.1 - -ROA % 0.3 (0.0) 2.7 4.0 - -Div Payout % - - - - - -EPS SR 0.43 (0.01) 1.31 2.31 (103.2) 75.6BVPS SR 19.85 20.22 22.05 25.48 1.8 8.7 Source: Tadawul, Zawya, Company, NCBC Research

167

Saudi Chemical Company (SCC) manufactures and sells explosives and detonators for civil and military use. In 2004, SCC entered the seismic explosives market, serving the oil and gas exploration sector. The company’s subsidiary Sitcopharma supplies medical and surgical equipment to hospitals and medical centers.

� Business brief SCC's products include Prilex (a blasting agent primarily used for underground applications and fissured sedimentary rocks), Kemulex (an emulsion explosive used for underwater blasting and worksites with wet holes), Sanel (a non-electric shock tube used for bench and trench blasting), detonating cords electric detonators, explosives packing, and blasting machines.

� FinancialsSCC’s net sales grew 2.7% YoY to SR1,687mn during 2010. Lower raw material costs boosted EBITDA margin by 120bps YoY to 19.3%. EBITDA grew 9.5% to SR326mn. SCC enjoyed a non-operative profit of SR48mn in 2009. As a result, the YoY net income growth in 2010 was just 0.7%, reaching SR303mn.

� Recent developments On 28 December 2010, SCC announced that its subsidiary Saudi International Trading Co., Ltd., after winning its case against Armed Forces Hospital in Riyadh, would receive SR68.44mn for drugs and treatments supplied to the hospital.


SAUDI CHEMICAL

ALSO KNOWN AS: SCC





Reuters code 2230.SEBloomberg code SCCO AB

www.saudichemical.com





32

37

42

47

5,000

5,500

6,000

6,500

7,000


TASI SCC (LHS)

Source: Reuters



Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 1,230 1,537 1,643 1,687 2.7 11.1EBITDA SRmn 171 225 298 326 9.5 24.1Net Income SRmn 112 201 301 303 0.7 39.5Assets SRmn 1,658 2,024 2,382 2,317 (2.8) 11.8Equity SRmn 896 1,096 1,239 1,353 9.2 14.7Total Debt SRmn 138 119 50 17 (66.0) (50.3)Cash & Equiv SRmn 166 166 375 122 (67.3) (9.6)EBITDA Mgn % 13.9 14.7 18.1 19.3 - -Net Mgn % 9.1 13.0 18.3 18.0 - -ROE % 12.8 20.1 25.8 23.4 - -ROA % 7.2 10.9 13.7 12.9 - -Div Payout % - - 84.0 73.0 - -EPS SR 1.77 3.17 4.76 4.79 0.7 39.5BVPS SR 14.17 17.34 19.60 21.39 9.2 14.7 Source: Tadawul, Zawya, Company, NCBC Research

168

Saudi Pharmaceutical Industries & Medical Appliances Corporation (SPIMACO) manufactures medicine and medical appliances for local and international markets. Since its establishment in 1986, SPIMACO has expanded its annual production capacity to include 3.5mn liters of liquid medicine, 850mn tablets, and 55mn capsules of cream and ointment, aseptic drops and penicillin.

� Business brief SPIMACO products include Zimax, Formit, Proton, Famocid 10, Cortimax, Sapofen Plus and Glaze. At the end of 1Q10, the company had the largest market share among private players in terms of own products as well as licensors’ products in KSA. SPIMACO has eight wholly-owned subsidiaries, which help the company maintain its leadership position in the Saudi Arabian market.

� FinancialsSPIMACO’s revenues in 2010 rose 9.1% YoY to SR1,037.6mn driven by higher volumes and better demand from international markets. EBITDA grew 11.3% YoY to SR195.6mn, while net income increased 14.0% YoY to SR176.5mn.

� Recent developments In February 2011, the BoD approved an MOU to establish a USD22mn project in Morocco for the production of oncology medicine along with two partners. SPIMACO will hold a 39% stake in the project. In October 2010, SPIMACO signed a five-year agreement with Merck Sharp & Dohme, to manufacture, market, distribute and sell products under Merck brand names in Saudi Arabia.


SAUDI PHARMACEUTICAL

ALSO KNOWN AS: SPIMACO





Reuters code 2070.SEBloomberg code SPIMACO AB

www.spimaco.com.sa





25

30

35

40

45

5,000

5,500

6,000

6,500

7,000


TASI SPIMACO (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Arab Company for Drug Industries & Medical Appliances

20.0



Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 798 872 951 1,038 9.1 9.2EBITDA SRmn 129 142 176 196 11.3 14.9Net Income SRmn 122 128 155 177 14.0 13.1Assets SRmn 3,357 1,937 2,722 3,459 27.1 1.0Equity SRmn 2,884 1,411 2,195 2,957 34.7 0.8Total Debt SRmn - - 60.0 - NM NMCash & Equiv SRmn 170 63 107 347 225.6 26.8EBITDA Mgn % 16.2 16.3 18.5 18.9 - -Net Mgn % 15.3 14.7 16.3 17.0 - -ROE % 5.0 6.0 8.6 6.9 - -ROA % 4.2 4.8 6.6 5.7 - -Div Payout % 96.5 91.7 76.0 66.7 - -EPS SR 1.55 1.64 1.97 2.25 14.0 13.1BVPS SR 36.76 17.98 27.98 37.70 34.7 0.8 Source: Tadawul, Zawya, Company, NCBC Research

169

Astra Industrial Group (Astra) operates in the healthcare, chemical, engineering, agricultural and home furnishing industries. The company’s subsidiaries are Tabuk Pharmaceutical Manufacturing Co, Astra Polymer Compounding, Astra Industrial Complex Co, and International Building Systems Factory Co.

� Business brief Astra’s broad product portfolio includes a range of generic and under-licensed pharmaceutical products; additives and compounds used in plastic product production; fertilizers, agricultural pesticides, insecticides and fungicides; and pillows, bed sheets, and mattress pads. The company also constructs metal-based pre-engineered industrial buildings and steel structures.

� FinancialsAstra reported a 7.6% growth in sales to SR1,121mn as sales increased across segments in 2010. The company’s EBITDA rose 1.0% YoY to SR206mn in 2010. Astra reported a profit of SR29mn from the sale of its 100% stake in Arab Company to manufacture pillows and blankets. The company’s 2010 net profit increased 26.8% YoY to SR259mn; assisted by the non-recurring profit and higher other income resulting from increased Murabaha income and earnings from the pharmaceutical-related business.

� Recent developments On 31 January 2011, Astra announced that it had completed the sale of its 100% stake in Arabian Company for Comforters and Pillows for SR100mn, realizing a profit of SR29mn which was recorded in the 2010 results. In December 2010, the company announced that its 51% owned subsidiary, Development Company would begin trial operations in 3Q2011 and commercial production in 4Q2011.


ASTRA INDUSTRIAL

ALSO KNOWN AS: AIG, ASTRA



Price perform (%) 1M 3M 12MAbsolute 3.8 (4.0) (9.8)Market 1.2 2.3 (3.0)Sector 6.0 8.5 9.6


Reuters code 1212.SEBloomberg code ASTRA AB

www.astraindustrial.com.sa





24

29

34

39

44

5,000

5,500

6,000

6,500

7,000


TASI Astra Indust (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Arab Supply and Trading Corporation (ASTRA)

43.8

Mohammed Nejir Saqer Al Utaibi 8.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 850 991 1,042 1,121 7.6 9.6EBITDA SRmn 216 201 204 206 1.0 (1.5)Net Income SRmn 197 186 204 259 26.8 9.5Assets SRmn 1,120 1,743 2,076 2,894 39.4 37.2Equity SRmn 828 1,438 1,562 1,690 8.2 26.9Total Debt SRmn 68 0 79 788 892.7 126.5Cash & Equiv SRmn 43 525 462 940 103.5 180.4EBITDA Mgn % 25.4 20.3 19.6 18.4 - -Net Mgn % 23.2 18.8 19.6 23.1 - -ROE % 26.7 16.4 13.6 15.9 - -ROA % 19.3 13.0 10.7 10.4 - -Div Payout % 0.0 19.9 45.4 43.0 - -EPS SR 2.66 2.51 2.75 3.49 26.8 9.5BVPS SR 11.17 19.40 21.07 22.80 8.2 26.9 Source: Tadawul, Zawya, Company, NCBC Research

170

Al Sorayai Trading and Industrial Group (Al Soroyai) is a wholesale and retail distributor of carpets, rugs, floorings, furniture, blankets, curtain fabrics and related materials. The company exports products to almost 65 countries, including the US, China, India, Iraq, Russia and Poland.

� Business brief Al Soroyai was formerly known as Al Sorayai Carpet Factory Company Ltd. The company manufactures carpets, rugs, curtains and accessories for the domestic and export markets. It has the capacity to produce 86mn sq. meters of carpets per annum. Al Sorayai derives around 75% of its total revenue from the Saudi market and the rest from exports to over 65 countries across the world. In February 2010, raised SR243mn in its IPO.

� FinancialsAl Soroyai’s revenues for 2010 decreased 3.7% YoY to SR908mn. EBITDA for 2010 was down 3.2% YoY to SR132mn, while net profit decreased 5.3% YoY to SR76mn. 1Q11 net income came in at SR9.1mn compared to SR13.1mn in 1Q10, down 30.5%YoY.

� Recent developments The company announced in February 2011 plans to distribute SR1 per share in dividends for the year ended December 31, 2010.


AL SORAYAI TRADING

ALSO KNOWN AS: AL SOROYAI



Price perform (%) 1M 3M 12MAbsolute (1.8) 2.5 (15.5)Market 1.2 2.3 (3.0)Sector 6.0 8.5 9.6


Reuters code 1213.SEBloomberg code ALSORAYA AB

www.al-sorayai.com



P/E (x) 9.8 9.0 9.5P/B (x) 2.2 1.9 1.6P/S (x) 0.8 0.8 0.8Div Yield (%) - - 4.1DPS - - 1.0 Source: NCBC Research estimates


18

23

28

33

5,000

5,500

6,000

6,500

7,000


TASI AlSorayai Group (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Nafei Nasser Abdul Aziz Al Sarei 9.1Mohammed Nasser Abdul Aziz Al Sarei

8.7

Saleh Nasser Abdul Aziz Al Sarei 8.7Abdul Aziz Nasser Abdul Aziz Al Sarei

8.7

Khaled Hamza Ahmed Nahas 8.1Source: Tadawul, NCBC Research

Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 841 937 943 908 (3.7) 2.6EBITDA SRmn 127 128 136 132 (3.2) 1.4Net Income SRmn 84 74 80 76 (5.3) (3.4)Assets SRmn 811 883 945 1,039 9.9 8.6Equity SRmn 302 332 373 444 19.1 13.6Total Debt SRmn 374 348 342 367 7.0 (0.7)Cash & Equiv SRmn 19 10 19 16 (17.7) (6.0)EBITDA Mgn % 15.1 13.6 14.5 14.5 - -Net Mgn % 10.0 7.9 8.5 8.4 - -ROE % 30.1 23.3 22.8 18.6 - -ROA % 10.1 8.7 8.8 7.7 - -Div Payout % 0.0 0.0 0.0 39.5 - -EPS SR 2.81 2.46 2.67 2.53 (5.3) (3.4)BVPS SR 10.08 11.08 12.42 14.79 19.1 13.6 Source: Tadawul, Zawya, Company, NCBC Research

171

National Company for Glass Industries (Zoujaj) owns glass container factories, in Riyadh and Dammam. Zoujaj has stakes (45% each) in Saudi Guardian International Float Glass and Guardian RAK, and a joint venture with Guardian Industries. These manufacture float glass for automotive and construction applications. It owns 50% of lighting products manufacturer, Saudi National Lamps & Electrical Co.

� Business brief Zoujaj’s plants in Riyadh and Dammam produce 92,000 meters per year of glass containers for the food and beverage industry. These plants produce 75 types of returnable/non-returnable bottles. Saudi Guardian International Float Glass Co manufactures float glass of 220,000 meters per year. Guardian RAK (with a capacity of 700 tons per day) implements a hi-tech glass coating technology to expand its float glass offerings to regional clients.

� FinancialsIn 2010, Zoujaj’s revenues fell 9.4% YoY to SR110.8mn. The EBITDA margin contracted to 47.4% in 2010 from 53.1% in 2009 on lower realization. However, the net margin stood at 64.1% in 2010 higher than 37.2% in 2009 mainly due to better performances from associates. The company reported a net income of SR71mn YoY in 2010, up 56.1% YoY.

� Recent developments In December 2010, Zoujaj entered into an agreement with CGE of Germany to design and set up a glass manufacturing company, with an annual production capacity of 48,000 mtpa in the initial phase, expanding to 72,000 mtpa.

INDUSTRIAL INVESTMENT� MAY 2011

NATIONAL CO. FOR GLASS

ALSO KNOWN AS: ZOUJAJ





Reuters code 2150.SEBloomberg code ZOUJAJ AB

www.zoujaj-glass.com





16

21

26

31

36

5,000

5,500

6,000

6,500

7,000


TASI Zoujaj (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Riyadh Mohammed Abdullah Al Humaidan

25.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 106 109 122 111 (9.4) 1.4EBITDA SRmn 46 44 65 52 (19.3) 4.2Net Income SRmn 80 68 46 71 56.1 (4.0)Assets SRmn 501 488 509 582 14.3 5.1Equity SRmn 443 428 455 525 15.5 5.9Total Debt SRmn 24 25 21 17 (20.6) (11.5)Cash & Equiv SRmn 3 17 26 69 169.2 196.3EBITDA Mgn % 43.6 40.6 53.1 47.4 - -Net Mgn % 75.6 62.4 37.2 64.1 - -ROE % 19.9 15.5 10.3 14.5 - -ROA % 16.8 13.7 9.1 13.0 - -Div Payout % 37.3 66.5 32.9 52.8 - -EPS SR 2.68 2.26 1.52 2.37 56.1 (4.0)BVPS SR 14.76 14.27 15.15 17.50 15.5 5.9 Source: Tadawul, Zawya, Company, NCBC Research

172

Al Hassan Ghazi Ibrahim Shaker Company (Shaker) imports and wholesales air conditioning products and home appliances. The Shaker Group comprises the parent company and three subsidiaries and is one of the leading players in its sector in KSA. The company completed its IPO in May 2010.

� Business brief Shaker sells, repairs and maintains air conditioners and home appliances. Its portfolio comprises over eight brands with a nationwide presence and strong market position. Shaker also sells OEM products under its label. Exclusive sales outlets, service and display centers, warehousing facilities and training academies expanded its presence in KSA. Shaker has 25 branches in the Kingdom with showrooms in Jeddah, Al Qassim, Khamis Mushayt, Riyadh and Khobar.

� FinancialsNet revenue grew 15.8% YoY to SR1,156mn in 2010 from SR998mn in 2009. Net income rose 9.6% YoY to SR145mn from SR132mn in 2009. 1Q11 Net income came in at SR33.61mn compared to SR19.28mn in 1Q10, up 74.3% YoY.

� Recent developments Shaker signed on February 2011 an MOU with LG Electronics to market and sell LG Solar and Lighting LED and PLS products in the Kingdom. In October 2010, Shaker purchased two 29,904 sq. meters of land (for future expansion) for SR15.8mn in Riyadh.


AL HASSAN GHAZI IBRAHIMSHAKER CO.

ALSO KNOWN AS: SHAKER



Price perform (%) 1M 3M 12MAbsolute 10.7 4.8 NAMarket 1.2 2.3 (3.0)Sector 6.0 8.5 9.6


Reuters code 1214.SEBloomberg code SHAKER AB

www.shaker.com.sa





19

39

59

79

5,000

5,500 6,000 6,500 7,000

May-11

Feb-11Nov-10Aug-10May-10

TASI SHAKER (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Hassan Ghazi Ibrahim Shaker 14.0A K Al-Muhaidib and Sons Group 12.2Ibrahim Abdullah Abunayyan and Brothers

12.2

Tawazon Arabia Co. for Commercial Investment

10.7

Lemaa Ismail Faouzi Abu Khadra 7.4 Source: Tadawul, NCBC Research

Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 750 918 998 1,156 15.8 15.5EBITDA SRmn 88 118 163 197 20.7 30.8Net Income SRmn 78 103 132 145 9.6 23.0Assets SRmn 524 739 658 874 32.8 18.6Equity SRmn 231 387 411 485 18.0 28.1Total Debt SRmn 187 190 123 180 46.6 (1.3)Cash & Equiv SRmn 54 54 25 52 109.7 (1.3)EBITDA Mgn % 11.7 12.9 16.4 0.0 - -Net Mgn % 10.4 11.2 13.3 12.6 - -ROE % 40.4 33.4 33.2 32.4 - -ROA % 16.3 16.3 19.0 19.0 - -Div Payout % - - - 72.3 - -EPS SR 2.23 2.94 3.78 4.15 9.6 23.0BVPS SR 6.59 11.06 11.73 13.84 18.0 28.1 Source: Tadawul, zawya, Company, NCBC Research

173

Saudi Paper Manufacturing Company (SPMC) is one of the few integrated paper companies in the MENA region. SPMC produces tissue paper, tissue rolls and other paper products and also has recycling operations.

� Business brief SPMC has three paper processing plants with an aggregate capacity of 125,000 tons of tissue paper, 50,000 tons of converted paper, and 65,000 tons of de-inked paper per year, respectively. The company’s wholly owned subsidiary – Saudi Paper Converting Co (SPCC) – converts tissue rolls into branded consumables, which are distributed through wholesale and retail channels. Saudi Recycling Co (SRC) collects waste paper that serve as feed for SPMC’s downstream de-inking plants. Al-Madar Trading Co was set up in the UAE to collect waste paper from international sources.

� FinancialsSPMC’s revenue grew 44.1% YoY to SR804mn in 2010. The company completed its expansion plans by the end of 2009 that, in turn, boosted revenues. However, gross margins fell 470 bps YoY to 28.7%, while EBITDA margins contracted 420 bps to 22.8% in 2010. The company’s net profit increased 30.4% YoY to SR123mn during the same period.

� Recent developments On 08 December 2010, SPMC announced that it would acquire 85% stake in Al-Juthoor, a paper tissue manufacturing plant in Kuwait, for SR35mn. On 11 November 2010, the company mentioned it would acquire a Turkish paper recycling plant for SR26mn. On 31 October 2010, the company announced it would set up a paper recycling factory in the Kingdom of Morocco. The factory is expected to have a production capacity of 11,000 tons per annum and would be set up at a cost of SR40mn.


SAUDI PAPER

ALSO KNOWN AS: SPMC, SAUDI PAPER GROUP



Price perform (%) 1M 3M 12MAbsolute (4.6) (5.1) (21.6)Market 1.2 2.3 (3.0)Sector 6.0 8.5 9.6


Reuters code 2300.SEBloomberg code SPM AB

www.saudipaper.com





31

41

51

5,000

5,500

6,000

6,500

7,000


TASI SPM (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) HH Prince Abdullah Bin Musaed Bin Abdul Aziz Al Saud

50.0

Ra’ed Bin Abdul Rahman Bin Abdul Aziz Al Mesha’al

8.4

Falcom Financial Services Co. 7.7


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 444 506 558 804 44.1 21.9EBITDA SRmn 117 126 150 183 21.7 15.9Net Income SRmn 83 84 94 123 30.4 14.0Assets SRmn 628 1,089 1,374 1,502 9.3 33.8Equity SRmn 382 447 511 595 16.5 15.9Total Debt SRmn 195 557 762 824 8.1 61.6Cash & Equiv SRmn 27 21 37 36 (3.4) 9.6EBITDA Mgn % 26.5 24.9 26.9 22.8 - -Net Mgn % 18.6 16.7 16.9 15.3 - -ROE % 23.9 20.4 19.6 88.7 - -ROA % 14.3 9.8 7.6 34.1 - -Div Payout % 27.2 35.5 39.9 36.7 - -EPS SR 2.75 2.81 3.13 4.09 30.4 14.0BVPS SR 12.73 14.90 17.02 19.83 16.5 15.9 Source: Tadawul, zawya, Company, NCBC Research

174

Established in 1981, Al-Abdullatif Industrial Investment Company (Al Abdullatif) ranks among the largest carpet manufacturers in the Middle East and Africa region. The company has fully integrated operations from fiber extrusion to finishing. Its affiliates are ADFA Blanket Co., Eastern Textile Co., National Spinning Co., Shahd Paper Tubes and Nadeen Arabian Color Co.

� Business brief Al Abdullatif manufactures three kinds of carpets: tufted, woven and non-woven, primarily made from synthetic fibers. The company exports these carpets to more than 25 countries. The color pigment division provides various shades required to make carpets and blankets. The paper tube segment offers paper tubes of different sizes and thicknesses for winding carpets and yarn. Al Abdullatif has a total production capacity of 1.5mn blankets per annum and 100mn sq. meters of carpets per annum.

� FinancialsAl Abdullatif’s revenues grew 14.4% YoY to SR1,139mn in 2010. However, due to intense competition in products sold by the company (especially blankets), selling prices reduced and raw material costs rose during 2010. Increased cost led to a 490bps YoY contraction in EBITDA margins to 23.4%. Net income fell by 9.6% YoY to SR152mn in 2010.

� Recent developments Al Abdullatif announced on 08 January 2011 that it has completed connecting machines at Red Sea Cable Company’s production lines. It also completed tests whereby commercial production was scheduled to commence at the start of January 2011. The company has a 27.0% stake in Red Sea Cable Company.


AL ABDULLATIF INDUSTRIAL

ALSO KNOWN AS: AIIC





Reuters code 2340.SEBloomberg code ALABDUL AB

www.carpets.com





22

27

32

37

5,000

5,500

6,000

6,500

7,000


TASI AlAbdullatif (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Abdul Latif Holding Group 60.0Omar Sulaiman Saleh Al Abdul Latif 6.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 1,066 1,139 996 1,139 14.4 (64.4)EBITDA SRmn 288 282 282 266 (5.4) (69.2)Net Income SRmn 200 201 169 152 (9.6) (74.6)Assets SRmn 1,312 1,534 1,596 1,509 (5.4) (61.6)Equity SRmn 1,111 1,215 1,383 1,130 (18.3) (66.1)Total Debt SRmn 63 217 112 258 130.9 36.4Cash & Equiv SRmn 75 35 229 71 (69.0) (68.5)EBITDA Mgn % 27.0 24.8 28.3 23.4 - -Net Mgn % 18.8 17.7 16.9 13.4 - -ROE % 19.8 17.3 13.0 12.1 - -ROA % 16.1 14.1 10.8 9.8 - -Div Payout % 60.9 - 168.7 133.3 - -EPS SR 2.46 2.48 2.07 1.88 (9.6) (74.6)BVPS SR 13.67 14.95 17.03 13.90 (18.3) (66.1) Source: Tadawul, Zawya, Company, NCBC Research

175

In

Basic Chemical Industries (BCI), incorporated in 1973, produces and sells chemicals through its subsidiaries, which include Saudi Water Treatment (100% stake); National Adhesive (47% stake); Basic Chemicals National (100% Stake); Chemical Marketing and Distribution (99% stake); OKAZ Chemical Marketing and Distribution Co. (100% stake); and Arabian Polyol.

� Business brief BCI produces a variety of chemicals such as liquefied chlorine gas, hydrochloric acid, caustic soda, polyurethane (polyol), adhesives, calcium chloride, water treatment chemicals, laundry and janitorial products. The company’s plant, located in the First Industrial Zone in Dammam City, has an annual production capacity of 71,560 mt of gases. The company has a polyurethane plant (10,859 mtpa), a chemical plant (146,359 mtpa), an adhesives plant (15,879 mtpa), and a sulfuric acid plant (27,554 mtpa).

� FinancialsBCI’s revenues rose 6.8% YoY to SR543.5mn in 2010. EBITDA rose 1.4% YoY to SR113.4mn in the same year as the EBITDA margin declined to 20.9% in 2010 compared to 22.0% in 2009. Net income increased 3.8% YoY to SR65.1mn. The company’s outstanding debt reduced significantly in 2010 to SR20.8mn from SR59.6mn in 2009.

� Recent developments In December 2010, BCI announced a cash dividend of SR1 per share for 2010. In February 2011, BCI announced that Chemical Marketing and Distribution Co. (one of its subsidiaries) has undertook a 1% share in the Saudi Water Treatment, with BCI keeping its old share of 99% in the Saudi Water Treatment. So as for now BCI and its subsidiaries own 100% of the Saudi Water Treatment shares.


BASIC CHEMICAL INDUSTRIES

ALSO KNOWN AS: BCI





Reuters code 1210.SEBloomberg code BCI AB

www.bci.com.sa





18

22

26

30

5,000

5,500

6,000

6,500

7,000


TASI BCI (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Ali Al Abdullah Al Tamimi Co. 22.0Abdul Aziz Muhana Abdul Aziz Almoaibed

9.1

Abdullah Muhana Abdul Aziz Almoaibed

8.2

Mohammed & Abdul Rahman Al Saad Al Buwardi Co.

7.0

Noor Muhana Abdul Aziz Almoaibed 5.0 Source: Tadawul, NCBC Research

Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 424 494 509 544 6.8 8.6EBITDA SRmn 92 95 112 113 1.4 7.4Net Income SRmn 48 40 63 65 3.8 10.3Assets SRmn 516 531 570 626 9.8 6.7Equity SRmn 285 305 354 392 10.6 11.2Total Debt SRmn 108 93 60 21 (65.2) (42.3)Cash & Equiv SRmn 37 35 114 150 31.3 58.7EBITDA Mgn % 21.6 19.3 22.0 20.9 - -Net Mgn % 11.4 8.0 12.3 12.0 - -ROE % 17.8 13.4 19.0 17.4 - -ROA % 9.7 7.6 11.4 10.9 - -Div Payout % 0.0 34.7 43.9 42.3 - -EPS SR 1.76 1.44 2.28 2.37 3.8 10.3BVPS SR 10.36 11.08 12.88 14.25 10.6 11.2 Source: Tadawul, Zawya, Company, NCBC Research

176

National Metal Mfg & Casting (Maadaniyah) is the largest manufacturer of steel wire and other wire products in Saudi Arabia. The company has two plants in Jubail Industrial City and Dammam. Maadaniyah’s plants are equipped with modern machinery for wire drawing, stranding, galvanizing, and manufacturing fasteners. Maadaniyah’s brands include Aslak, Mahawer and Masabik.

� Business brief Maadaniyah has the capacity to produce 22,000 tons of castings, 12,000 units of axles, and 100,000 tons of steel wires each year. The company specializes in the manufacture of low relaxation PC strands, high/low- galvanized steel, carbon wires & strands, mattress spring wires, fasteners, welding wires, and steel nails. These products are used in various sectors including construction, appliances, electrical cable, building systems, and steel fabrication.

� FinancialsThe company’s revenues fell marginally by 0.4% YoY to SR317.8mn in 2010 from SR319.2mn in 2009. EBITDA declined 0.9% YoY to SR37.6mn. Net income stood at SR16.7mn, an increase of 7.6%, driven mainly by higher other income. 1Q11 net income came in at SR1.21mn compared to SR8.16mn in 1 Q10, down 85% YoY.

� Recent developments In March 2011, the company announced it is in talks to acquire Khaleej Metal Coat Company of the UAE.


NATIONAL METAL

ALSO KNOWN AS: NATMETAL, MAADANIYAH



Price perform (%) 1M 3M 12MAbsolute 1.5 (8.5) 12.7Market 1.2 2.3 (3.0)Sector 6.0 8.5 9.6


Reuters code 2220.SEBloomberg code NMMCC AB

www.maadaniyah.com



P/E (x) 17.2 44.4 41.3P/B (x) 2.0 2.0 2.0P/S (x) 1.4 2.2 2.2Div Yield (%) 1.9 1.9 N/ADPS 0.5 0.5 N/A Source: NCBC Research estimates


16192225283134

5,000

5,500

6,000

6,500

7,000


TASI Maadaniyah (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) National Manufacturing Company 35.4


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 369 500 319 318 (0.4) (4.9)EBITDA SRmn 58 64 38 38 (0.9) (13.3)Net Income SRmn 21 40 16 17 7.6 (6.9)Assets SRmn 452 544 483 517 6.9 4.5Equity SRmn 317 340 345 349 1.1 3.3Total Debt SRmn 66 80 73 80 9.5 6.7Cash & Equiv SRmn 12 13 35 12 (67.1) (1.3)EBITDA Mgn % 15.6 12.9 11.9 11.8 - -Net Mgn % 5.6 8.0 4.9 5.3 - -ROE % 6.8 12.2 4.5 4.8 - -ROA % 4.6 8.1 3.0 3.3 - -Div Payout % 123.6 31.8 82.3 - -EPS SR 0.81 1.57 0.61 0.65 7.6 (6.9)BVPS SR 12.39 13.30 13.48 13.64 1.1 3.3 Source: Tadawul, Zawya, Company, NCBC Research

177

Filling and Packing Materials Manufacturing Company (FIPCO) produces bags and other woven polypropylene packaging products for industrial and agricultural use. The company’s production facilities located in Riyadh cover an area of 75,000 sq. meters FIPCO manufactures over 2mn jumbo bags annually.

� Business brief FIPCO’s products include jumbo bags with capacities ranging from 500 to 2,000 kg; container liners used in dry cargo shipping; and sling bags in different sizes. The company also produces leno bags for packing fresh vegetables and fruits; cable fillers for electric cable manufacturers; fabrics for fire retardants; tents and lumber protection; strapping bands used for boxes; and agriculture and baler twines for green houses and grass baling use.

� FinancialsFIPCO’s revenue for 2010 rose 23.4% to SR171mn led by an increase in sales volumes and higher exports. EBITDA rose 22.7% to SR32mn in 2010 asn the EBITDA margin remained flat. Net income rose 9.3% to SR22mn as the net margin declined. 1Q11 net income came in at SR6.6mn compared to SR6.3mn in 1Q10, up 5% YoY.

� Recent developments The company on 08 December 2010 announced that it would undertake expansion projects in its Twisted Products Department with costs of SR20mn are expected.


FILLING AND PACKING

ALSO KNOWN AS: FIPCO





Reuters code 2180.SEBloomberg code FIPCO AB

www.fipco.com.sa





18

23

28

33

5,000

5,500

6,000

6,500

7,000


TASI FIPCO (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Falcom Financial Services Co. 14.6


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 145 178 138 171 23.4 5.6EBITDA SRmn 22 25 26 32 22.7 14.0Net Income SRmn 15 18 20 22 9.3 14.2Assets SRmn 121 139 167 188 12.7 15.7Equity SRmn 90 96 126 147 16.1 17.6Total Debt SRmn 6 11 17 16 (5.9) 42.5Cash & Equiv SRmn 3 18 13 15 10.9 78.4EBITDA Mgn % 14.9 13.9 18.8 18.7 - -Net Mgn % 10.0 9.9 14.3 12.7 - -ROE % 17.1 18.8 17.8 15.8 - -ROA % 12.0 13.5 12.9 12.2 - -Div Payout % 39.6 0.0 0.0 53.2 - -EPS SR 1.26 1.52 1.72 1.88 9.3 14.2BVPS SR 7.84 8.38 10.99 12.76 16.1 17.6 Source: Tadawul, Zawya, Company, NCBC Research

178

Saudi Industrial Export Co. (SIEC) exports, imports and distributes agricultural goods, industrial products and bulk commodities. SIEC is represented by its associates across the globe and has exported over 10 million tons of products to more than 40 markets. The company’s key trading markets include Europe, Asia and Africa.

� Business brief SIEC trades in bulk food products (including rice, maize, sugar and edible oils); fertilizers, minerals, chemicals and petrochemicals; iron, steel and other metals; and air conditioners, trucks and cables. The company provides various services to its suppliers and customers, including guaranteed payments, arms-length marketing, financing, and logistics for land and sea transport. SIEC is investing in distribution channels and warehousing facilities to reach more manufacturers and customers.

� FinancialsSIEC’s net revenues rose 84.2% YoY to SR187mn in 2010, led by increased exports during 4Q10. The company realized higher price on products (used in the manufacture of fertilizers) exported mainly to India and China. As a result, it managed to record net income of SR3mn in 2010 compared to a net loss of SR6mn in 2009. 1Q11 net income came in at SR5.50mn compared to SR1.02mn in 1Q10, up 439.2% YoY.

� Recent developments In August 2010, SIEC announced the resignation of its general manager Mr. Mohamed Abdullah Al Khanafer.


SAUDI INDUSTRIAL EXPORT

ALSO KNOWN AS: SADIRAT, SIEC





Reuters code 4140.SEBloomberg code SIECO AB

www.siec.com.sa



P/E (x) 21.8 NM 100.8P/B (x) 2.6 3.0 2.9P/S (x) 0.4 3.1 1.7Div Yield (%) 3.5 NA NADPS 1.0 NA NA Source: NCBC Research estimates


19

24

29

34

5,000

5,500

6,000

6,500

7,000


TASI SIECO (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Ibrahim Oudah Abdullah Al - Oudah

5.9


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 220 709 101 187 84.2 (5.3)EBITDA SRmn 4 22 (3) 3 NM (13.7)Net Income SRmn 7 14 (6) 3 NM (25.3)Assets SRmn 164 147 128 121 (5.3) (9.7)Equity SRmn 121 119 103 107 4.5 (3.8)Total Debt SRmn 16 0 0 0 - -Cash & Equiv SRmn 80 98 85 26 (69.2) (30.9)EBITDA Mgn % 2.0 3.0 (2.5) 1.5 - -Net Mgn % 3.4 2.0 (5.5) 1.7 - -ROE % 6.2 11.9 (5.0) 2.9 - -ROA % 4.5 9.2 (4.0) 2.5 - -Div Payout % NA 75.6 NA NA - -EPS SR 0.69 1.32 (0.51) 0.29 NM (25.3)BVPS SR 11.16 11.02 9.50 9.93 4.5 (3.8) Source: Tadawul, Zawya, Company, NCBC Research

179


MAY 2011

180

Building & Construction


2040 Saudi Ceramics 183

2160 Amiantit 184

2240 Zamil Ind 185

1310 MMG 186

2320 Al Babtain 187

2110 Saudi Cables 188

2200 Arabian Pipes 189

1330 Abdullah A M Al Khodari Sons Co 190

2130 SIDC 191

1320 SSP 192

2090 National Gypsum 193

4230 Red Sea Housing 194

2360 SVCP 195

2370 MESC 196

Following the global financial crisis, construction activities in the Kingdom remained fragile during 2010 due to delay in many infrastructure projects. Also, higher costs hurt profitability margins of many firms. However, the sector is expected to perform well in future led by government support. At the listed company level, KSA has a large and diversified construction sector with strong revenue growth historically. But top lines have suffered in the current crisis. ROE has been slightly below GCC peers, with P/E averaging around 14x.

Exhibit 111: Revenues of GCC building and construction companies, 2008–10

Exhibit 112: Comparison of ROE and P/E of GCC companies, 2010

USD mn %

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2008 2009 2010KSA UAE Oman Kuwait

5

9

13

17

21

25

0 5 10 15 20 25 30

P/E (x)

RO

E(%

)

UAE Oman KSA Kuwait


The building and construction sector has a large number of private players; 14 companies are listed on the index.


Units as stated


NM (%), 2010

Avg. RoE (%), 2010

Saudi Ceramic Co 0.43 20.3 23.6Saudi Arabian Amiantit Co 0.38 5.4 9.9Zamil Industrial Investment Co 0.30 5.3 17.0Middle East Specialized Cables Co 0.06 (9.2) (17.7)National Gypsum Company 0.10 34.1 11.2Saudi Vitrified Clay Pipes Co 0.09 31.2 32.5Saudi Steel Pipe Company 0.10 12.3 8.4Saudi Cable Company 0.15 (4.6) (6.9)Arabian Pipes Company 0.15 (1.4) (0.5)AL-Babtain Power & Telecommunication Co 0.26 8.5 13.8Red Sea Housing 0.09 7.9 8.4Saudi Industrial Development Co 0.07 41.5 32.0Mohammad Al Mojil Group 0.20 (10.4) (10.5)Abdullah A.M. Al-Khodari Sons Co 0.13 20.6 39.8Source: Bloomberg, Tadawul: Company data; NM: Net Margin

The sector’s revenues declined 9.4% to SR17.0bn in 2010 from SR18.8bn in 2009, led by the delay in infrastructure projects and slowdown in construction activities. Net profit also fell 42.2% YoY to SR888mn in 2010 due to lower selling prices and increased operating costs.

MAY 2011

BUILDING & CONSTRUCTION

Strong pipeline – a long-term positive

181

BUILDING & CONSTRUCTION NCB CAPITAL

MAY 2011

182

Exhibit 114: Revenues of companies, 2008–10

Exhibit 115: Profitability of SSP relative to sector average

SR mn

%

0

4,000

8,000

12,000

16,000

20,000

2008 2009 2010Amiantit Zamil Specialized Cables

Saudi Cable Co. Al Babtain Mohamed Al Mojil

Saudi Steel Pipe

0

5

10

15

20

25

2008 2009 2010

Sector Average Saudi Steel Pipe

Source: Bloomberg, Tadawul, NCBC Research


As of 31 December 2010, the sector’s P/E and P/BV multiples stood at 14.5x and 2.0x, respectively (P/E and P/BV multiples stood at 16.6x and 2.0x, respectively, in 2009). Al-Khodari Sons Co’s RoE was the highest, while that of Middle East Specialized Cable was the lowest.



%

%

Saudi Ceramics Amiantit

Zamil

Specialized Cables

Gypsum SaudiVitrified

Saudi Cable Co.

Arabian pipes

Al Babtain

Redsea

Mohamed Al MojilSIDC

Saudi Steel Pipe

-10

-5

0

5

10

15

20

25

30

35

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

P/B (x)

RO

E(%

)

Saudi Ceramics

Amiantit

Zamil

Specialized Cables

SaudiVitrified

Saudi Cable Co.

Arabian pipes

Al Babtain

Redsea

Mohamed Al Mojil

SIDC

Saudi Steel Pipe

Al-Khodari Sons Co

Gypsum

-27

-18

-9

0

9

18

27

36

45

54

0.0 1.0 2.0 3.0 4.0 5.0P/B (x)

RO

E(%

)



The industry’s outlook seems bright, considering various planned economic cities and the KSA government’s focus on infrastructural development. Improving macroeconomic factors and emergence of Saudi Arabia as a regional construction hub further boosts the sector’s prospects.

NCBC Recommendations in the Sector Currently, we have Saudi Steel Pipes under our stock coverage universe.

Exhibit 118: Coverage stocks details Stock Current Rating PT (SR) Comments Saudi Steel Pipes (1320.SE)

Overweight 28.3 Increasing demand in medium size pipes, and the start of a large diameter pipe (which SSP owns 33%) in 2012 will drive robust revenue and earnings growth. With the significant growth potential, high dividends yield and clean balance sheet; we think the market is not pricing in the expected performance of SSP over the next 12 months.


Riyadh-based Saudi Ceramic Company (SCC) manufactures and markets ceramic wall and floor tiles, ceramic road markers, sanitary ware, and electric water heaters. The company, established in 1977, has five offices in Saudi Arabia and one in Dubai.

� Business brief SCC has continually enhanced its production capacity to meet the growing demand for ceramics and related products. The company’s manufacturing units in Riyadh Industrial City are spread over 1mn square meters and comprise four tile factories, one sanitary ware factory, two Frit plants and two electric water heater factories. The company’s product offerings encompass tiles (porcelain, ceramic and decorated), squaring and chamfering units, sanitary ware, electric water heaters, and ceramic road markers.

� FinancialsSCC’s revenues grew 12.7% YoY to SR1,080mn in 2010. Gross profit for the year increased 11.7% to SR394mn, while net income rose 11.9% YoY to SR221mn.

� Recent developments In January 2011, SCC started trial operations at Saudi Ceramics Clay Pipes Company (having annual production capacity of 60,000 tons), in which it owns a 50% stake. SCC has started pilot production at its fourth tile factory, after completing the first expansion phase. With this enhancement, the company’s annual tile manufacturing capacity increased to 43mn square meters. The contract for the second phase (adding another 9mn square meters) of the expansion has been signed at SR90mn. This expansion is expected to be completed by 4Q11. SCC plans to produce 264,000 tons per year of red brick by 2012 at the cost of SR150mn.

CONSTRUCTION � MAY 2011

SAUDI CERAMIC

ALSO KNOWN AS: SCC


STOCK DETAILS 52-week range H/L (SR) 154 /114Market cap ($mn) 898Shares outstanding (mn) 25



Reuters code 2040.SEBloomberg code SCERCO AB

www.saudiceramics.com





100

110

120

130

140

150

5,000

5,500

6,000

6,500

7,000


TASI Ceramic (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) General Organization for Social Insurance (GOSI)

15.9

Saleh Abdul Aziz Saleh Al Rajhi 14.3Falcom Financial Services Co. 6.8Public Investment Fund 5.4 Source: Tadawul, NCBC Research

Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 615 857 958 1,080 12.7 20.6EBITDA SRmn 178 264 282 332 17.6 23.0Net Income SRmn 128 178 197 221 11.9 20.0Assets SRmn 1,288 1,565 1,778 1,935 8.8 14.5Equity SRmn 613 724 859 1,004 16.9 17.9Total Debt SRmn 479 650 688 761 10.6 16.6Cash & Equiv SRmn 21 25 36 39 9.2 23.2EBITDA Mgn % 29.0 30.8 29.5 30.8 - -Net Mgn % 20.7 20.8 20.6 20.4 - -ROE % 22.0 26.6 24.9 23.7 - -ROA % 11.0 12.5 11.8 11.9 - -Div Payout % 49.0 35.1 38.0 39.7 - -EPS SR 5.10 7.12 7.89 8.82 11.9 20.0BVPS SR 24.52 28.97 34.35 40.16 16.9 17.9 Source: Tadawul, Zawya, Company, NCBC Research

183

Saudi Arabian Amiantit Company (SAAC) was established in 1968 to manufacture pipes for the local market. The company’s core business activities are manufacturing and sales of pipe systems, ownership and sales of pipe technologies, water management consultancy and engineering services, and manufacturing and supplying polymer products.

� Business brief SAAC has 30 pipe system manufacturing plants, 6 technology companies, 4 material suppliers, and 8 supply and engineering subsidiaries. The company serves the worldwide municipal, civil engineering, industrial, energy and agricultural markets; thus, it supports global infrastructure development through an extensive sales and service network in more than 70 countries.

� FinancialsSAAC’s revenues decreased 6.5% YoY in 2010 to SR3,077mn due to lower domestic and global demand. The company witnessed a 2.7% YoY decline in domestic sales in 2010. Gross margins for 2010 declined 260bps YoY to 23.6% owing to higher costs of goods sold. Gross profit fell 15.9% to SR727mn. Net income dropped 18.5% YoY to SR165mn in 2010.

� Recent developments SAAC stopped all its activities in Bahrain in November 2010 due to the lack of product demand in the country. International Water Distribution Co., jointly owned (50-50) by Saudi Industrial Services (SISCO) and SAAC, secured a SR260.8mn loan from Alinma Bank in August 2010 and USD105.4mn with the Saudi Industrial Development Fund in May 2010. These funds would be utilized to finance its projects in Jeddah, Qassim and Riyadh.


AMIANTIT COMPANY

ALSO KNOWN AS AMIANTIT GROUP, SAAC





Reuters code 2160.SEBloomberg code SAAC AB

www.amiantit.com





10

15

20

25

5,000

5,500

6,000

6,500

7,000


TASI Amiantit (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Al Mawarid Investment Co Ltd 10.2Prince Khalid Abdullah Abdul Rahman Al Saud

7.4

Abdullah Saleh Abdullah AL Bassam

5.8


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 3,102 4,026 3,293 3,077 (6.5) (0.3)EBITDA SRmn 498 827 827 523 (36.7) 1.6Net Income SRmn 64 235 202 165 (18.5) 37.1Assets SRmn 4,060 4,504 4,056 4,071 0.4 0.1Equity SRmn 1,320 1,487 1,652 1,684 2.0 8.4Total Debt SRmn 1,527 1,609 1,072 1,020 (4.9) (12.6)Cash & Equiv SRmn 202 329 425 242 (43.2) 6.2EBITDA Mgn % 16.1 20.5 25.1 17.0 - -Net Mgn % 2.1 5.8 6.1 5.36 - -ROE % 5.1 16.8 12.9 9.9 - -ROA % 1.7 5.5 4.7 4.1 - -Div Payout % - 24.5 57.0 104.9 - -EPS SR 0.55 2.04 1.75 1.43 (18.5) 37.1BVPS SR 11.43 12.87 14.30 14.58 2.0 8.4 Source: Tadawul, Zawya, Company, NCBC Research

184

Zamil Industrial Investment Co. (ZIIC), established in 1998 and headquartered in Dammam, is a manufacturing and fabrication group serving the construction industry. It mainly operates in the steel, HVAC, glass, insulation and concrete sectors.

� Business brief ZIIC has manufacturing plants and offices in 55 countries; it exports products to over 90 markets globally. The company offers products such as air conditioning, pre-engineered steel buildings, process equipment, transmission towers, processed architectural glass and other solutions to the global construction industry. It operates through Zamil Air Conditioners (ZAC), Zamil Steel Inds (ZSI), Zamil Glass Industries (ZGI) and Arabian Fiberglass Insulation Co. Ltd (AFICO).

� FinancialsDespite increased volumes, ZIIC’s revenues fell 4.4% YoY to SR4,018mn in 2010 mainly due to the decline in selling prices. Cost of sales stood lower in 2010 as gross margins rose 277bps to 24.8% and gross profits increased 7.6% to SR995mn. Net profit fell 8.3% to SR211mn.

� Recent developments In February 2011, the company announced a SR46mn contract with Saudi Aramco Mobil Refinery Co to manufacture and supply structural steel requirements for the latter’s clean fuels project. In December 2010, Petro-Chem Zamil, a 50:50 JV between ZIIC and Petro-Chem Development (US), won a SR111mn contract from Tecnicas Reunidas to supply delayed coker furnaces to the Yanbu Export Refinery project in western region of KSA.


ZAMIL INDUSTRIAL

ALSO KNOWN AS: ZIIC





Reuters code 2240.SEBloomberg code ZIIC AB

www.zamilindustrial.com





24

34

44

54

5,000

5,500

6,000

6,500

7,000


TASI ZIIC (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Zamil Group Holding Co. 19.9Al Amanah Saudi Equity Fund 5.0 Public Pension Authority (PPA) 5.0Khaled Hamza Ahmad Nahas 5.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 3,681 4,550 4,204 4,018 (4.4) 3.0EBITDA SRmn 361 454 441 419 (5.1) 5.1Net Income SRmn 207 225 230 211 (8.3) 0.7Assets SRmn 3,965 5,370 4,663 4,907 5.2 7.4Equity SRmn 892 1,028 1,195 1,289 7.8 13.0Total Debt SRmn 1,975 2,860 2,028 2,197 8.3 3.6Cash & Equiv SRmn 187 201 354 296 (16.3) 16.6EBITDA Mgn % 9.8 10.0 10.5 10.4 - -Net Mgn % 5.6 4.9 5.5 5.3 - -ROE % 25.3 23.4 20.7 68.0 - -ROA % 6.0 4.8 4.6 17.6 - -Div Payout % 43.6 40.0 39.1 42.6 - -EPS SR 3.44 3.75 3.84 3.52 (8.3) 0.7BVPS SR 14.87 17.14 19.92 21.48 7.8 13.0 Source: Tadawul, Zawya, Company, NCBC Research

185

Mohammad Al Mojil Group Company (MMG) provides construction services in the Gulf region. The company has undertaken projects mainly in the oil, gas and petrochemical industries. MMG also offers mechanical, electrical, civil, structural and maintenance services.

� Business brief MMG is engaged in various construction and engineering projects, including onshore services such as civil and structural work, and mechanical and electrical services. It also conducts offshore activities, especially in marine projects with the help of various marine vessels. The company owns heavy machinery, including testing and calibration facilities, and provides equipment services such as technical and maintenance services for turnkey projects. Besides this, it offers services in steel fabrication.

� FinancialsRevenue for 2010 declined 21.9% to SR1,731mn compared to SR2,216mn in 2009. In line with this, EBITDA fell 35.5% YoY to SR249mn in the year. MMG reported a net loss of SR179mn in 2010 against a SR40mn net profit in 2009.

� Recent developments MMG announced on 25 January 2011 that it signed an agreement with National Holding Company to establish a JV in Abu Dhabi that would provide industrial construction services for the oil and gas, energy, petrochemical and water sectors. MMG would hold 49% stake in the JV. The company also signed a letter of intent worth SR256mn on 23 January 2011 with Daelim Saudi Arabia for execution of electrical and mechanical work for a project in western Saudi Arabia. The company has signed a SR197mn contract with Hyundai Engineering and Construction to build a base lube factory in Abu Dhabi; work on this project is expected to begin in February 2011 and finish by December 2012.


MOHAMMAD AL MOJIL

ALSO KNOWN AS: MMG





Reuters code 1310.SEBloomberg code MMG AB

www.almojilgroup.com



P/E (x) 5.0 70.4 NMP/B (x) 1.5 1.5 1.8P/S (x) 1.0 1.3 1.6Div Yield (%) 4.4 3.3 3.3DPS 1.0 0.8 0.8 Source: NCBC Research estimates


12

17

22

27

5,000

5,500

6,000

6,500

7,000


TASI MMG (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Mohammed Hamad Abdul Karim Al Moajil

50.0

Adel Mohammed Hamad Al Moajil 5.0Al Moajil Holding Co. 5.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 1,955 3,345 2,216 1,731 (21.9) (4.0)EBITDA SRmn 640 850 386 249 (35.5) (27.0)Net Income SRmn 549 666 40 (179) NM NMAssets SRmn 2,225 3,669 3,073 2,944 (4.2) 9.8Equity SRmn 1,295 1,902 1,840 1,566 (14.9) 6.5Total Debt SRmn 0 0 450 515 14.4 NMCash & Equiv SRmn 63 86 41 46 11.4 (9.9)EBITDA Mgn % 32.7 25.4 17.4 14.4 - -Net Mgn % 28.1 19.9 1.8 (10.4) - -ROE % 50.5 41.7 2.2 (10.5) - -ROA % 31.2 22.6 1.2 (6.0) - -Div Payout % NM 18.8 232.5 NM - -EPS SR 4.39 5.33 0.32 (1.44) NM NMBVPS SR 10.36 15.22 14.72 12.53 (14.9) 6.5 Source: Tadawul, Zawya, Company, NCBC Research

186

Al-Babtain Power and Telecommunication Company (Al-Babtain) provides outdoor lighting, transmission and distribution (T&D), and testing station services to the power sector. The company also designs, manufactures, and installs steel towers for the telecommunications sector.

� Business brief Al-Babtain’s T&D portfolio comprises transmission towers up to 500 kV, monopoles up to 230 kV, and distribution poles up to 33 kV. The company’s subsidiary Al-Babtain LeBLANC Telecommunication (51% stake) is a joint venture with LeBLANC that provides engineering, manufacturing and installation services for communication towers of various types in Saudi Arabia, neighboring Arab countries, and North African nations. Al-Babtain operates in the petrochemicals, oil and gas, cement, industrial, and commercial segments of structural steel, providing engineering and manufacturing solutions for varied applications.

� FinancialsRevenues declined 13.8% YoY to SR968mn in 2010 due to lower selling prices resulting from increased competition as well as delays in some infrastructure projects in the telecommunications sector. Gross profit fell 13.8% to SR203mn. Net income for 2010 decreased 28.4% YoY to SR78mn.

� Recent developments In February 2011, the company announced it had signed two contracts with National Contracting Company to supply 220 and 400 kilovolt power towers in Oman for a project cost of SR93mn. In December 2010, Al-Babtain announced an investment of USD10mn in Qatar Engineering & Construction. Al Babtain acquired 49% of Al Babtain LeBlanc Telecommunications Systems (LeBlanc) in October 2010. The company would issue 2.25mn shares of Al-Babtain to LeBlanc and pay SR25.8mn through cash.


AL BABTAIN POWER

ALSO KNOWN AS: AL-BABTAIN





Reuters code 2320.SEBloomberg code ALBABTAI AB

www.al-babtain.com.sa





15 20 25 30 35 40 45

5,000

5,500

6,000

6,500

7,000


TASI AL Babtain (LHS)

Source: Reuters



Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 836 1,013 1,123 968 (13.8) 5.0EBITDA SRmn 149 210 192 159 (17.6) 2.1Net Income SRmn 96 131 109 78 (28.4) (6.6)Assets SRmn 991 1,416 1,138 1,290 13.3 9.2Equity SRmn 423 498 581 603 3.8 12.5Total Debt SRmn 328 602 291 452 55.4 11.3Cash & Equiv SRmn 20 68 51 39 (24.2) 24.9EBITDA Mgn % 17.8 20.7 17.1 16.4 - -Net Mgn % 11.5 12.9 9.7 8.1 - -ROE % 24.6 28.4 20.3 13.2 - -ROA % 10.4 10.9 8.6 6.5 - -Div Payout % 84.4 30.9 55.5 77.6 - -EPS SR 2.37 3.23 2.70 1.93 (28.4) (6.6)BVPS SR 10.44 12.31 14.34 14.88 3.8 12.5 Source: Tadawul, Zawya, Company, NCBC Research

187

Established in 1975, Saudi Cable Company (SCC) is headquartered in Jeddah, Saudi Arabia. SCC manufactures and sells cables and related products. Besides Saudi Arabia, the company has operations in Lebanon, the US, Turkey and Bahrain.

� Business brief SCC manufactures and markets low, medium and high voltage wires as well as cables; building wires; insulated power cables; telecommunication cables; various conductors used for transmission and distribution; copper and aluminum rods; and polyvinyl chloride. The company also provides turnkey project services for power and telecom projects, including systems design, installation, engineering, and testing.

� FinancialsRevenues for 2010 declined 24.5% YoY to SR1,857mn which was mainly due to an increase in competition as new companies entered the low -voltage cable business, compromising 60% of SCC’s sales. Gross margins fell to 5.4% in 2010 as compared to 15.9% in 2009 owing to lower selling prices. Gross profits decreased 74.3% YoY to SR104mn. The company incurred a SR88mn net loss as compared to the SR104mn profit in 2009.

� Recent developments In June 2010, SCC received purchase orders from Saudi Electricity Company for SR68mn in addition to orders worth SR147mn that it had received in May 2010.


SAUDI CABLE COMPANY

ALSO KNOWN AS SCC, SCC GROUP





Reuters code 2110.SEBloomberg code SCACO AB

www.saudicable.com



P/E (x) 5.6 11.3 NMP/B (x) 1.1 0.9 1.0P/S (x) 0.3 0.5 0.6Div Yield (%) 4.8 4.8 4.8DPS 0.8 0.8 0.8 Source: NCBC Research estimates


5

10

15

20

25

5,000

5,500

6,000

6,500

7,000


TASI Cables (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Xenel Industrial Co. 16.6


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 3,143 3,503 2,458 1,857 (24.5) (16.1)EBITDA SRmn 448 463 243 (40) NM NMNet Income SRmn 283 212 104 (88) NM NMAssets SRmn 2,700 3,420 3,339 3,643 9.1 10.5 Equity SRmn 965 1,050 1,309 1,200 (8.4) 7.5 Total Debt SRmn 786 1,546 1,367 1,817 32.9 32.2 Cash & Equiv SRmn 69 122 109 124 14.4 21.5 EBITDA Mgn % 14.3 13.2 9.9 (2.1) - -Net Mgn % 9.0 6.1 4.2 (4.7) - -ROE % 33.5 21.0 8.9 (7.0) - -ROA % 11.9 6.9 3.1 (2.5) - -Div Payout % 20.2 26.9 54.6 (64.9) - -EPS SR 3.72 2.79 1.37 (1.16) NM NMBVPS SR 12.70 13.82 17.23 15.78 (8.4) 7.5 Source: Tadawul, Zawya, Company, NCBC Research

188

Arabian Pipes Company (APC) is the largest manufacturer of medium-sized High Frequency Welded (HFW) steel pipes in the Middle East. The company manufactures anti-corrosion coated HFW pipes for the oil & gas, petrochemical, agricultural and construction industries. Established in 1991, APC has manufacturing facility in Riyadh.

� Business brief APC’s product line includes line-pipe applications (for long distance oil & gas transportation), structural applications (for construction), general purpose applications (industrial water and irrigation), standard pressure applications and casting applications. APC’s total production capacity is 460,000 tons of steel pipes per annum.

� FinancialsAPC’s 2010 revenues declined 41.7% YoY to SR256mn primarily due to lower sales volumes. Production expenditure also increased as the company commenced commercial production at its Jubail plant. This led to a rise in fixed expenses as well as depreciation expenses. Hence, EBITDA margins decreased 767bps YoY to 13.0%. Consequently, APC reported a net loss of SR4mn in 2010 as against a net profit of SR25mn in 2009.

� Recent developments In January 2011, APC signed three contracts for SR22mn, SR37.8mn and SR11.8mn with three companies for supplying pipes used for transportation of natural gas. As per the agreements, the pipes would be supplied during 2Q11 and 3Q11. APC also announced the extension of its pipe supply contract with Saudi Aramco until 14 November 2011. On 2 January 2011, the company announced that it fully acquired Arabian Yadong Coating Co. for SR9.6mn.


ARABIAN PIPES

ALSO KNOWN AS: AC, APC, ANABIB





Reuters code 2200.SEBloomberg code APCO AB

www.arabian-pipes.com



P/E (x) 8.7 40.6 NMP/B (x) 1.4 1.4 1.4P/S (x) 1.2 2.3 4.0Div Yield (%) - - -DPS - - - Source: NCBC Research estimates


18

23

28

33

38

5,000

5,500

6,000

6,500

7,000


TASI APC (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Abdul Qader Al Mohaidib & Sons Co.

13.8

Saleh Abdulaziz Babaker & Sons Co

7.3


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 640 817 439 256 (41.7) (26.3)EBITDA SRmn 158 160 91 33 (63.4) (40.6)Net Income SRmn 126 117 25 (4) NM NMAssets SRmn 1,474 1,635 1,393 1,306 (6.2) (4.0)Equity SRmn 642 712 737 733 (0.5) 4.5Total Debt SRmn 749 883 625 508 (18.7) (12.1)Cash & Equiv SRmn 17 19 34 21 (39.5) 6.8EBITDA Mgn % 24.7 19.5 20.7 13.0 - -Net Mgn % 19.6 14.4 5.7 (1.4) - -ROE % 21.7 17.3 3.5 (0.5) - -ROA % 9.2 7.5 1.7 (0.3) - -Div Payout % 37.6 - - - - -EPS SR 3.99 3.72 0.80 (0.11) NM NMBVPS SR 20.37 22.60 23.39 23.28 (0.5) 4.5 Source: Tadawul, Zawya, Company, NCBC Research

189

Please refer to the last page for important disclaimer www.ncbc.com

ABDULLAH A.M. AL-KHODARI SONS CO. (AAMAK) is a major contractor and infrastructure developer in the region. Headquartered in Al-Khobar, AAMAK executes projects in Saudi Arabia and neighboring countries in the Middle East.

� Business brief AAMAK mainly deals in construction of industrial, civil, residential and commercial buildings, roads and building infrastructure, operations and maintenance of municipal areas and institutional sectors. The company implements general contracting projects, including civil construction, railways, oil and gas pipelines, water & waste water treatment, electrical works and heavy steel metal fabrication. It also operates and maintains plants and facilities, foundations, landscaping, sand stabilizations and other related earth works.

� FinancialsAAMAK’s net sales for 2010 grew 2.5% YoY to SR1,074mn. However, lower gross margins led to a 389bps YoY decline in EBITDA margins to 30.5% in 2010 compared to 34.4% in 2009. However, an increase in other income at the non-operating level resulted in a net income growth of 0.4% YoY to SR218mn in 2010 compared to SR217mn in 2009.

� Recent developments AAMAK signed a MOU in early 2011 with Kier Construction Ltd. for the construction and civil engineering of the port for the smelter in Ras Al Zour. In December 2010, the company decided to establish a branch in Abu Dhabi, UAE. In December 2010, AAMAK won a SR59mn contract from the Ministry of Water & Electricity to install sanitation networks in Dawadmi.


ABDULLAH A.M. AL-KHODARI SONS CO.

ALSO KNOWN AS: AAMAK



Price perform (%) 1M 3M 12MAbsolute (3.5) 9.9 NMMarket 1.2 2.3 (3.0)Sector 3.2 3.9 (15.6)


Reuters code 1330.SEBloomberg code ALKHODAR.AB

www.alkhodari.com





40 46 52 58 64 70

5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-10TASI ALKHODARI (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Abdullah A M Al Khodari Sons Investment Holding Company

60.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 1,059 1,159 1,048 1,074 2.5 0.5EBITDA SRmn 409 419 361 328 (9.1) (7.1)Net Income SRmn 227 240 217 218 0.4 (1.3)Assets SRmn 1,256 1,340 1,450 1,826 26.0 13.3Equity SRmn 317 348 506 588 16.2 22.9Total Debt SRmn 586 642 659 756 14.7 8.8Cash & Equiv SRmn 90 33 33 71 117.8 (7.7)EBITDA Mgn % 38.6 36.1 34.4 30.5 - -Net Mgn % 21.4 20.7 20.7 20.3 - -ROE % 71.6 72.1 50.8 39.8 - -ROA % 18.1 18.5 15.6 13.3 - -Div Payout % - - - 44.9 - -EPS SR 5.34 5.64 5.11 5.13 0.4 (1.3)BVPS SR 7.46 8.18 11.91 13.84 16.2 22.9 Source: Tadawul, Zawya, Company, NCBC Research

190

Saudi Industrial Development Company (SIDC), established in 1992, invests in the industrial sector of the KSA. The company manufactures and distributes ceramics such as bathtubs, sanitary ware and tiles, home furnishing, and mattresses. Over the years, SIDC has diversified its investments to cover spring mattresses and polyester fibers.

� Business brief SIDC operates through its affiliates. Saudi Ceramic Plant (100% stake) in Yanbu Industrial City produces ceramic sanitary ware (annual capacity of 500,000 units) as well as acrylic bathtubs and shower trays (annual capacity of 100,000 units). Arabian Spring and Sponge Mattresses Mfg. Co. (50% stake), formerly known as Sleep High, is a leading manufacturer of spring mattresses. SIDC also has a minority stake in Arabian Industrial Fibers Co. (1.6%) that produces 725 kilo tons annually (KTA) of aromatics, in addition to terephathalic acid (350 KTA) and polyester (150 KTA).

� FinancialsSIDC’s revenues grew 4.4% YoY to SR232mn in 2010. Gross profit rose 16.7%YoY to SR56mn on lower sales costs, while gross margins increased 257bps YoY to 24.3%. Net income also turned positive at SR95mn compared to a loss of SR3mn in 2009, assisted by a gain on sale of Yansab shares during the year.

� Recent developments SIDC sold 3.2mn shares of Yanbu National Petrochemicals Co (YANSAB) for SR134mn during 2Q10. The deal resulted in a non-operating income of SR101mn. In June 2010, Saudi Industrial Development Fund agreed to reschedule and repay the outstanding loan of SR67.9mn pertaining to the ceramics factory branch of SIDC. During the same month, the company said that a court ruled in favor of Al-Birr Organization in a lawsuit filed by Al-Birr, challenging SIDC’s ownership of 800,000 shares in YANSAB.


SAUDI INDUSTRIAL

ALSO KNOWN AS: SIDC





Reuters code 2130.SEBloomberg code SIDC AB

www.sidc.com.sa





5

10

15

20

5,000

5,500

6,000

6,500

7,000


TASI Saudi Industrial (LHS)

Source: Reuters



Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 232 250 222 232 4.4 0.1 EBITDA SRmn 17 18 15 20 28.5 4.9 Net Income SRmn 12 (6) (3) 95 NM 100.6 Assets SRmn 618 480 504 495 (1.9) (7.2)Equity SRmn 362 234 291 311 7.0 (5.0)Total Debt SRmn 120 112 105 61 (42.0) (20.2)Cash & Equiv SRmn 21 23 10 47 382.6 31.6 EBITDA Mgn % 7.4 7.3 6.9 8.5 - -Net Mgn % 5.1 (2.2) (1.6) 41.0 - -ROE % 4.1 (1.9) (1.3) 126.4 - -ROA % 1.9 (1.0) (0.7) 76.2 - -Div Payout % - - - - - -EPS SR 0.29 (0.14) (0.09) 2.38 NM 100.6 BVPS SR 9.06 5.86 7.27 7.78 7.0 (5.0) Source: Tadawul, Zawya, Company, NCBC Research

191

Saudi Steel Pipe Company (SSP), established in 1980, manufactures welded steel pipes, galvanized and non- galvanized pipes, carbon steel tubes and angular tubes. The company sells products in the domestic market and exports to nearly 20 countries.

� Business brief SSP manufactures black and galvanized pipes in small and medium diameter sizes, and caters to the construction, real estate, and oil and gas markets. The small diameter production capacity is 80,000 tons per year, while the medium diameter is 160,000 tons per year. The company is also expanding in the large diameter pipes market through a 35% stake in an under- construction plant in Jubail. The plant would have a capacity of 200,000 tons per year and is scheduled to commence in 2012e.

� FinancialsRevenues grew 10.1% to SR593mn in 2010 from SR539mn in 2009. However, the company witnessed an increase in raw material costs; as a result, net profit declined 35.4% YoY to SR73mn in 2010. We expect net profit to contract 19.1% YoY to SR59mn in 2011 due to the same reason. SSP reported a growth in earnings for 1Q11 on 19 April 2011. Net income came in at SR21.0mn (4.9% growth YoY) due to higher sales volume, mainly driven by a 28.9% growth in medium diameter pipes.

� Recent developments On 02 January 2011, SSP announced it has extended a contract with Saudi Aramco for supplying pipes until 14 November 2011. Also, it signed a contract with Abu Dhabi Oil Refinery Company in December 2010 for supplying pipes to the Takreer project. On 21 December 2011, SSP said that TSM Arabia has been authenticated by SAGIA. TSM Arabia will have 14,000 tons capacity expected in Phase 1 (at a total cost of SR80mn) and 36,000 tons in Phase 2. Production is expected to commence in 2012.


SAUDI STEEL PIPES

ALSO KNOWN AS: SSP





Reuters code 1320.SEBloomberg code SSP AB

www.sspipe.com




5,000

5,500

6,000

6,500

7,000


21

26

31

TASI SSP (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) RANCO Group 40.0Hugh Steel Company Ltd. 16.3Abdulla Ibrahim Al Khareef Sons Co.

8.8


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12E)

Net Revenues SRmn 539 593 587 749 10.1 11.6EBITDA SRmn 131 98 105 134 (24.9) 0.8Net Income SRmn 113 73 69 83 (35.4) (9.7)Assets SRmn 981 929 953 1,000 (5.3) 0.6Equity SRmn 793 781 790 799 (1.5) 0.3Total Debt SRmn 0 29 40 48 NM NMCash & Equiv SRmn 81 38 60 21 (53.6) (36.2)EBITDA Mgn % 24.3 16.6 17.9 17.9 - -Net Mgn % 20.9 12.3 11.8 11.1 - -ROE % 18.5 9.3 8.8 10.4 - -ROA % 13.7 7.6 7.3 8.5 - -Div Payout % 90.4 104.9 73.9 79.9 - -EPS SR 2.21 1.43 1.35 1.63 (35.4) (9.7)BVPS SR 15.55 15.31 15.49 15.67 (1.5) 0.3 Source: Tadawul, Zawya Company, NCBC Research

192

National Gypsum Company, headquartered in Riyadh, specializes in the production of gypsum plasters, plaster boards, and laminated gypsum tiles. National Gypsum’s manufacturing plants are located in Riyadh and Yanbu, while branches are situated at Jeddah and Dammam. The company exports its products worldwide. National Gypsum holds a 33.3% stake in its subsidiary Qatar Saudi Gypsum Company.

� Business brief National Gypsum has an annual production capacity of 450,000 tons of gypsum plaster, 12mn square meters of plaster board, 48,000 tons of spray gypsum and fixing plaster, 0.5mn square meters of gypsum ceiling tiles, and 30,000 tons of gypsum powder.

� FinancialsThe company’s sales declined 24.0%YoY to SR154mn in 2010. In addition to the drop in sales, National Gypsum reported a rise in the cost of sales as gross margins declined 430bps to 40.8%. The gross profit for 2010 was down 31.2% YoY to SR63mn. Net profit fell 40.7% YoY to SR53mn in 2010.

� Recent developments After three consecutive years of distributing a cash dividend of SR2.5 per share, National Gypsum has recommended a dividend of SR2.0 for 2010 that is awaiting approval in its upcoming AGM.


NATIONAL GYPSUM COMPANY

ALSO KNOWN AS NGC, GYPSUM





Reuters code 2090.SEBloomberg code NGCO AB

www.gypsco.com.sa


VALUATION MULTIPLES 09A 10A TTMP/E (x) 8.7 11.0 18.5P/B (x) 1.8 1.8 2.1P/S (x) 3.7 4.8 6.3Div Yield (%) 8.1 8.1 6.5DPS 2.5 2.5 2.0 Source: NCBC Research estimates


20

25

30

35

40

5,000

5,500

6,000

6,500

7,000


TASI Gypsum (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Al Manafa Investment & Real Estate Development Co.

34.5

Theneyan Fahd Theneyan Al Theneyan

10.3


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 223 260 203 154 (24.0) (11.6)EBITDA SRmn 113 133 104 76 (27.3) (12.5)Net Income SRmn 95 112 89 53 (40.7) (17.9)Assets SRmn 597 602 629 596 (5.2) (0.1)Equity SRmn 528 539 555 462 (16.7) (4.3)Total Debt SRmn 39 39 49 44 (10.3) 3.9 Cash & Equiv SRmn 46 82 106 86 (18.8) 22.9 EBITDA Mgn % 50.8 51.3 51.5 49.2 - -Net Mgn % 42.5 43.2 43.7 34.1 - -ROE % 18.7 21.1 16.2 10.3 - -ROA % 16.6 18.7 14.4 8.6 - -Div Payout % 83.3 70.4 89.4 120.6 - -EPS SR 3.00 3.55 2.80 1.66 (40.7) (17.9)BVPS SR 16.68 17.01 17.53 14.60 (16.7) (4.3) Source: Tadawul, Zawya, Company, NCBC Research

193

Red Sea Housing Services Company was established in Jeddah in 1967. The company’s objective was to replicate the American manufactured housing model in Saudi Arabia. Red Sea Housing later diversified into manufacturing and property management, setting up its first manufacturing facility in 1983. The company manufactures, sells and leases all types of modular buildings.

� Business brief Red Sea Housing has three manufacturing facilities, one each in Dubai, Jubail, and Accra (Ghana). The company has the capability to manufacture 920 square meters of quality housing a day; this represents an annual production capacity of 335,000 square meters. Red Sea Housing serves all types of housing requirements: commercial and residential, temporary and permanent. Red Sea Housing offers special services to oil & gas, and mining companies; the company’s markets comprise Africa, the Middle East, Asia and South America.

� FinancialsRed Sea’s revenues fell 12.5% YoY to SR745mn in 2010. Gross margins increased to 29.8% in 2010 from 28.7% a year ago and gross profits declined 9.4% to SR222mn. However, zakat rate grew from 9.9% in 2009 to 23.7% in 2010. Net profit declined 50.6% YoY to SR61mn in 2010.

� Recent developments Red Sea Housing won SR558mn in contracts from Saudi Arabian Mining for building rental housing facilities in October 2010. In April 2010, the company received a SR480mn contract from Chiyoda-JGC joint venture to engineer, manufacture and construct a major housing facility for Papua New Guinea’s Liquefied Natural Gas Project by November 2011.


RED SEA HOUSING

ALSO KNOWN AS: RSH, RED SEA


STOCK DETAILS 52-week range H/L (SR) 61/ 37Market cap ($mn) 442Shares outstanding (mn) 30



Reuters code 4230.SEBloomberg code REDSEA AB

www.rsh.com.sa





35 40 45 50 55 60

5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-10TASI Red Sea (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Al Dabbagh Holding Co. 51.0Mumtaz Foods Co. 5.0The National Scientific Company LTD

5.0

Tejariah for Marketing Services and Agencies

5.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 690 1,139 852 745 (12.5) 2.6EBITDA SRmn 158 279 178 152 (14.5) (1.3)Net Income SRmn 117 214 124 61 (50.6) (19.6)Assets SRmn 772 1,003 921 1,004 9.0 9.2Equity SRmn 529 682 696 694 (0.3) 9.5Total Debt SRmn 36 99 102 106 4.7 43.9Cash & Equiv SRmn 37 120 47 62 31.0 18.1EBITDA Mgn % 23.0 24.5 20.9 20.5 - -Net Mgn % 17.0 18.8 14.5 8.2 - -ROE % 23.8 35.4 17.9 8.8 - -ROA % 17.7 24.1 12.8 6.3 - -Div Payout % 51.1 49.1 48.6 49.2 - -EPS SR 3.91 7.13 4.12 2.03 (50.6) (19.6)BVPS SR 17.62 22.72 23.20 23.13 (0.3) 9.5 Source: Tadawul, Zawya, Company, NCBC Research

194

Saudi Vitrified Clay Pipes Company (SVCP), established in 1977 and headquartered in Riyadh, manufactures vitrified clay pipes and fittings as well as jacking pipes. The company’s annual production capacity is 170,000 tons. Along with the local Saudi Arabian market, SVCP has presence in international markets, including Arab countries, the Far East and Europe.

� Business brief SVCP manufactures vitrified clay pipes (ranging from 100–1200mm) and jacking pipes (150–1000mm). These pipes are used in domestic and industrial sewage systems as well as for storm water disposal. The main features of these pipes are strength, durability, and resistance to chemicals contained in sewage and drainage water. The company has a state of the art 56,000 square meter facility in Riyadh with an annual production capacity of 170,000 tons.

� FinancialsSVCP’s revenues for 2010 rose 8.7% to SR245mn. Gross profits increased 39.4% to SR96mn as there was a significant decline in the cost of sales. Gross margins increased 860bps to 39.1% for the same period. Net income rose 84.5% to SR72mn in 2010 from SR39mn in 2009.

� Recent developments In August 2010, SVCP’s Board discussed a plan to invest SR100mn to expand production capacity. The Board also discussed the allocation of 200,000sq meters of industrial land in Al-Khari.


SAUDI VITRIFIED

ALSO KNOWN AS: SAUDI VITRIFIED, SVCP





Reuters code 2360.SEBloomberg code SVCP AB

www.svcp-sa.com





41 46 51 56 61 66

5,000

5,500

6,000

6,500

7,000


TASI SVCP (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Abdul Latif Al Essa Co. 15.6Prince Faisal Abdul Aziz Faisal Al Saud

15.0

Saad Saud Ibrahim Al Sayari 13.3Al Riyadh Investment Co. 5.5 Source: Tadawul, NCBC Research

Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 215 258 225 245 8.7 4.4 EBITDA SRmn 49 53 68 99 45.8 26.3 Net Income SRmn 43 46 39 72 84.5 18.6 Assets SRmn 333 450 478 463 (3.1) 11.6 Equity SRmn 196 211 217 254 17.4 9.1 Total Debt SRmn 61 156 206 167 (19.1) 39.8 Cash & Equiv SRmn 11 15 45 36 (20.3) 50.4 EBITDA Mgn % 22.8 20.5 30.1 40.3 - -Net Mgn % 20.1 18.0 17.3 29.4 - -ROE % 24.6 22.8 18.2 122.3 - -ROA % 14.7 11.9 8.4 61.2 - -Div Payout % 69.5 72.7 86.5 62.5 - -EPS SR 2.88 3.09 2.60 4.80 84.5 18.6 BVPS SR 13.05 14.09 14.44 16.95 17.4 9.1 Source: Tadawul, Zawya, Company, NCBC Research

195

Middle East Specialized Cables Co. (MESC) began as a local manufacturer in 1993 in Riyadh. In 2003, it acquired Jordan New Cable Company and in 2007 entered into a joint venture with Fujikura Company to expand its product range to low and medium voltage power cables.

� Business brief MESC’s products (categorized into instrumentation and process control cables) are used in indoor, outdoor and control room applications, system cables (data and telephone cables), and power cables (used in applications requiring greater electrical or electromagnetic protection). The company also markets specialized cables for harsh environment applications, such as those in the hydrocarbon industry. MESC has an annual production capacity of about 30,500 tons of copper and 9,000 tons of aluminum cables. Besides regional operations, MESC has presence in 14 countries.

� FinancialsMESC’s revenues fell 0.5% YoY to SR1,029mn in 2010. Gross margins declined 900bps YoY to 8.2% and gross profit fell 52.6% YoY to SR84mn. MESC incurred a net loss of SR95mn in 2010 compared to a net profit of SR51mn in 2009.

� Recent developments Abdulaziz Al Doailej replaced Hashem Salama Al Huneidi as CEO as of the beginning of 2011. In August 2010, MESC Group won a USD14mn deal from GS Engineering & Construction Corporation, to supply instrumentation cables for Takreer Ruwais Refinery Expansion in Abu Dhabi.


ME SPECIALIZED CABLE

ALSO KNOWN AS: MESC


STOCK DETAILS 52-week range H/L (SR) 26 /13Market cap ($mn) 186Shares outstanding (mn) 40



Reuters code 2370.SEBloomberg code MESC AB

www.mesccables.com

WEIGHTING & FREEFLOAT (%) TASI (free float weight) 0.08Free float 58.7VALUATION MULTIPLES

08A 09A 10AP/E (x) 7.9 13.6 NMP/B (x) 1.4 1.4 1.9P/S (x) 0.5 0.7 0.7Div Yield (%) 6.9 5.7 -DPS 1.2 1.0 - Source: NCBC Research estimates


10 15 20 25 30 35

5,000

5,500

6,000

6,500

7,000

May-11Jan-11Sep-10May-10TASI MESC (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Abdul Aziz Mohammed Sulaiman Al Namlah

26.6

Mohammed Ali Abdullah Al Suwailem

12.6

Mansoor Abdul Aziz Mohammed Ka'aky

8.4

Lama Holding Group 6.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 1,103 1,308 1,034 1,029 (0.5) (2.3)EBITDA SRmn 235 245 152 53 (64.9) (39.0)Net Income SRmn 150 88 51 (95) NM NMAssets SRmn 1,246 1,615 1,710 1,471 (14.0) 5.7Equity SRmn 435 507 504 367 (27.1) (5.4)Total Debt SRmn 470 836 780 808 3.6 19.8Cash & Equiv SRmn 90 54 40 45 12.3 (21.1)EBITDA Mgn % 21.3 18.7 14.7 5.2 - -Net Mgn % 13.6 6.8 5.0 (9.2) - -ROE % 39.6 18.8 10.2 (21.8) - -ROA % 14.4 6.2 3.1 (6.0) - -Div Payout % 13.3 54.3 78.0 - - -EPS SR 3.75 2.21 1.28 (2.37) NM NMBVPS SR 10.86 12.66 12.61 9.19 (27.1) (5.4) Source: Tadawul, Zawya, Company, NCBC Research

196


MAY 2011

197

Real Estate


4310 KEC Madinah 200

4300 Dar Al Arkan 201

4250 Jabal Omar 202

4100 Makkah 203

4220 Emaar E .C 204

4090 Taiba 205

4150 Arriyadh Dev 206

4020 Al Akaria 207

With an increase in the domestic population of almost 450,000 annually and the creation of more than 200,000 new households every year over the coming decade, tremendous opportunities will be created for patient investors in the real estate sector, although the planning and development challenges for policy makers seem to be immense.The population of Saudi Arabia reached 27.3mn in 2010, by far the largest in the GCC and has been growing at 2.7% annually over the past 20 years, one of the fastest globally.

Exhibit 119: Saudi population is the largest in GCC Exhibit 120: Saudi population by age group

Thousand (person)—2010 data Saudis only (2008 data)

0 5,000 10,000 15,000 20,000 25,000 30,000

KSA

UAE

Kuwait

Oman

Qatar

Bahrain

0 - 4

10 - 14

20 - 24

30 - 34

40 - 44

50 - 54

60 - 64

70 - 74

80+

Females Males

Source: IMF, NCBC Research Source: Central Department of Statistics, NCBC Research

Residential sector We estimate Saudi Arabia will need an additional 973,000 units over 2010-15E and a total of 2.1mn units over the coming decade (215,000 units per year). We note that the government’s estimates are even more aggressive than ours. According to the 9th Five Year Development Plan, 1.2mn units are needed over the next 5 years, or 250,000 units every year. Although demand is expected to grow throughout the Kingdom, the three largest regions (Riyadh, Makkah and the Eastern Province) are expected to comprise 70% of incremental demand. This is due to their sheer size and the continued trend of urbanization.

Office sector Demand for office space has increased over the past few years on the back of higher demand from the private and public sectors.

Growth from the private sector was driven by the financial sector (banks, brokers, insurance companies, etc) and other professionals (accountants, consultants, IT firms, etc). The public sector has also required additional space with rising recruitments in some government agencies and increasing government spending.

Retail sector The key driver of demand for retail space is retail spending which is driven by population growth and household consumption levels. With household consumption expected to grow between 6-7% per annum over the next few years, demand for retail space is likely to continue to grow as well, we believe.

MARCH 2011

REAL ESTATE

The long-term driver: Demographics

198

REAL ESTATE NCB CAPITAL

MARCH 2011

Hospitality sector The key driver for this sector is the number of visitors to a particular area. In Saudi, there is no such thing as a “tourist visa”. Instead, the main temporary visitors are Saudis traveling from one city to another (for business or leisure); foreign business travelers (mostly to Riyadh, Jeddah and the Eastern Province); or pilgrims traveling to Makkah and Madinah for Hajj or Umrah.

The sector’s revenue declined 17.3% to SR5.4bn in 2010 due to slower pace of construction activity and reduced rentals. Dar AlArkan, the largest player in the sector, accounts for 76.3% of the total sector revenues in 2010. The company reported revenues of SR4.1bn, a 24.2% YoY decline, and net income of SR1.5bn, down 31.4% YoY in 2010. Companies such as Emaar, Jabal Omar and KEC reported a combined net loss of SR766.5mn during the year; the loss can be ascribed mainly to higher operating and maintenance cost. Overall, the sector’s net income decreased to SR1.3bn in 2010 from SR2.3bn in 2009.

Exhibit 121: Revenues of companies, 2008–10

Exhibit 122: Profitability of companies, relative to sector average

SR mn %

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2008 2009 2010

Al Akaria Taiba Dar Al Arkan Others

0

20

40

60

80

2008 2009 2010

Sector Average Saudi Real Est Taiba Dar Alarkan

Source: Zawya, Tadawul, NCBC Research Source: Zawya, Tadawul, NCBC Research

NCBC Recommendations for the Sector On an overall long-term perspective, we are positive about KSA’s real estate sector. Through our comprehensive analysis on the housing, retail, office, and hospitality markets, we believe the sector benefits from a fast growing population, rising number of households, increasing business activity and religious tourism. We currently have three stocks in the sector under our coverage: Dar Al Arkan, Taiba and Al Akaria.

Exhibit 123: Coverage stocks details Stock Current Rating PT (SR) Comments Dar Al Arkan (4300.SE)

Overweight 11.2 With the highest ROE in the sector and rising land prices in KSA, we believe Dar Al Arkan in unjustifiably trading at a discount to the sector. We believe the liquidity concerns are manageable, meaning the large valuation discount is likely to decline.

Taiba (4090.SE)

Overweight 18.8 With a portfolio of prime assets, expected revenue growth and improving margins, we believe Taiba’s fundamentals make the stock an attractive play in the hospitality sector in the second holiest city in Islam.

Al-Akaria(4020.SE)

Neutral 26.5 Good earning visibility, future growth potential and a large land bank are positives that are partially offset by low ROE and risk of rising excess supply offices in Riyadh.


199

Knowledge Economic City Company was established in August 2010 with a capital of SR3.4bn. Headquartered in Jeddah, the company is mainly engaged in managing the development of the Knowledge Economic City (KEC) project located at Al Madinah Al Munawarrah. The project would be built with an investment of SR30bn.

� Business brief KEC Madinah is responsible for developing a sustainable knowledge-based city and a central business district alongside residential projects at Madinah. The project comprises 30,000 residential units, 1,200 shops and retail outlets, a high-speed rail terminal as well as a business district comprising companies from education, information and communication technology, health, hospitality and tourism sectors. The company would also undertake investments in a variety of real-estate assets and provide a range of real-estate related services.

� FinancialsIncorporated in July 2010, KEC Madinah did not report revenues for 2010 as the project is still in the development phase. The company suffered net loss of SR146mn during the period due to the lack of revenues and mainly on account of pre-incorporation set-up costs worth SR129mn.

� Recent developments In January 2011, KEC Madinah announced plans to enter into a 50:50 JV with Saudi Real Estate Co. to develop real-estate projects in the first phase of local residential and commercial development activities in the Knowledge Economic City. The planned JV would initiate with a capital of SR50mn and commence development of a 200 villas residential district, scheduled to be completed in 4Q12.

REAL ESTATE DEVELOPMENT � MAY 2011

KNOWLEDGE ECONOMIC CITY

ALSO KNOWN AS: KEC MADINAH



Price perform (%) 1M 3M 12MAbsolute 9.5 5.2 NAMarket 1.2 2.3 (3.0)Sector (1.0) (1.1) (19.6)


Reuters code 4310.SEBloomberg code KEC AB

www.madinahkec.com



P/E (x) NA NA NMP/B (x) NA NA 0.9P/S (x) NA NA NADiv Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


7

9

11

TASI KEC (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) King Abdullah bin Abdul Aziz Foundation

29.4

Knowledge Economic City 24.4Savola Group 6.4


Company financials

2007 2008 2009 2010*YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn NA NA NA NA NA NAEBITDA SRmn NA NA NA (16) NA NANet Income SRmn NA NA NA (146) NA NAAssets SRmn NA NA NA 3,267 NA NAEquity SRmn NA NA NA 3,218 NA NATotal Debt SRmn NA NA NA NA NA NACash & Equiv SRmn NA NA NA 2,031 NA NAEBITDA Mgn % NA NA NA NM NA NANet Mgn % NA NA NA NM NA NAROE % NA NA NA (4.5) NA NAROA % NA NA NA (4.5) NA NADiv Payout % NA NA NA NA NA NAEPS SR NA NA NA (0.43) NA NABVPS SR NA NA NA 9.48 NA NA Source: Tadawul, Zawya, Company, NCBC Research *2010 financials are for 5-month period

200

Established in 1994, Dar Al Arkan is one of the largest real estate developers in Saudi Arabia. The company’s main activities include the purchase of real estate and land as well as the construction of both commercial and residential properties. The company has four wholly owned subsidiaries: Dar Al Arkan Investment Co., Dar Al Arkan Projects Co., Dar Al Arkan Properties Co., and Dar Al Arkan Sukuk Co.

� Business brief Dar Al Arkan has a long history of developing residential projects around the Kingdom. Historically, these developments have been small ranging from tens to a few hundred units, mainly in Riyadh. However, since 2007, the company has focused on the development of large scale master planned communities. These include; Shams Alriyadh, Al Qasr, and Al-Tilal. Dar Al Arkan also offers pre-sales, after-sales, and funding services to its customers. To complement its core business, the company established Saudi Home Loans Company worth SR2bn in December 2007 to provide Shariah-compliant home loans.

� FinancialsRevenues fell 24.2% YoY to SR4.1bn in 2010 from SR5.5bn in 2009 owing to lower sales volume mainly in land and residential units. Gross margins took a dip and declined to 40.0% in 2010 from 43.2% in 2009. Net profit dropped 31.4% YoY to SR1.5bn in 2010. Dar Al Arkan reported worse than expected 1Q11 results on 20 April 2011. Net income fell by 31.5% YoY to SR273mn, 15.4% below our estimate. The slow land activity during the quarter led to the significant decline in income.

� Recent developments In January 2011, the company signed a 14-year lease contract with Carrefour KSA for 8,700 sq mtr area in Al Qasr Mall. On 23 June 2010, Dar Al Arkan entered into a fixed-to-floating rate swap agreement for about USD225mn of the total USD450mn sukuk issued recently.

REAL ESTATE DEVELOPMENT� MAY 2011

DAR AL ARKAN

ALSO KNOWN AS: DAAR, DAR AL ARKAN





Reuters code 4300.SEBloomberg code ALARKAN AB

www.alarkan.com


VALUATION MULTIPLES 09A 10A 11EP/E (x) 4.5 6.6 6.7P/B (x) 0.7 0.7 0.6P/S (x) 1.8 2.3 2.4Div Yield (%) 11.2 - -DPS 1.0 - - Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


9

11

13

15

TASI Dar Al Arkan (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Khalid Abdullah Shelash Al Shelash 9.1Yousef Abdullah Shelash Al Shelash 7.7Hadhlool Saleh Mohammed Al Hadhlool

6.2

Majed Abdul Rahman Abdul Aziz Al Qassim

5.3


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12)

Net Revenues SRmn 5,464 4,142 4,085 5,146 26.0 (2.0)

EBITDA SRmn 2,361 1,658 1,724 1,929 11.9 (6.5)

Net Income SRmn 2,123 1,456 1,427 1,543 8.1 (10.1)

Assets SRmn 23,321 23,007 23,468 23,623 0.7 0.4

Equity SRmn 13,849 14,067 15,283 16,525 8.1 6.1

Total Debt SRmn 8,355 7,770 6,988 5,798 (17.0) (11.5)

Cash & Equiv SRmn 2,223 1,189 920 515 (44.0) (38.6)

EBITDA Mgn % 43.2 40.0 42.2 37.5 - -

Net Mgn % 38.8 35.1 34.9 30.0 - -

ROE % 16.6 10.4 9.7 9.7 - -

ROA % 9.8 6.3 6.1 6.6 - -

Div Payout % 50.9 - - - - -

EPS SR 1.97 1.35 1.32 1.43 8.1 (10.1)

BVPS SR 12.82 13.03 14.15 15.30 8.1 6.1 Source: Tadawul, Zawya, Company, NCBC Research

201

Jabal Omar Development Company (Jabal Omar) is engaged in real estate development in the Jabal Omar area. In cooperation with local and international subcontractors, the company buys, builds, develops, manages, rents, leases and sells land and properties. Jabal Omar, headquartered in Mecca, was established in October 2006.

� Business brief Jabal Omar builds residential towers, hotels, commercial centers as well as roads and parking facilities for pilgrims visiting Mecca. The company’s major venture, Jabal Omar project (also known as the Western Gate Road Development), is scheduled for completion in 2011. The project is a 230,000 square meter mixed-use development located around the Grand Mosque of Makkah. After completion, the project would feature 38 residential towers, hotels, a retail concourse, a 58,000 square meter prayer area, public parks, a central transportation station, a conference hall and other related facilities.

� FinancialsJabal Omar did not record any revenues in 2010 as its projects are still under development phase. The company’s net loss increased to SR37mn from SR23mn a year earlier as the result of a rise in operating expenses owing to the development of projects.

� Recent developments In January 2011, Jabal Omar awarded a SR85.6mn contract to Khatib & Alami for technical supervision of the first phase of the Jabal Omar project. In December 2010, the company entered into a SR3.4bn contract with Nesma & Partners Contracting Co. to construct nine towers in the first phase of the project. In October 2010, the company received a bridge loan of SR1.4bn from five national Saudi Arabian Banks to finance its property project.


JABAL OMAR DEVELOPMENT COMPANY

ALSO KNOWN AS: JABAL OMAR , JODC



Price perform (%) 1M 3M 12MAbsolute 2.6 (1.6) (20.6)Market 1.2 2.3 (3.0)Sector (1.0) (1.1) (19.6)


Reuters code 4250.SEBloomberg code JOMAR AB

www.jabalomar.com.sa



P/E (x) NM NM NMP/B (x) 1.6 1.6 1.6P/S (x) NA NA NADiv Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


15

17

19

21

TASI Jabal Omar (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Jabal Omar Establishment 32.1General Organization for Social Insurance (GOSI)

9.5

Makkah Construction & Development Co.

9.2


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn - 0 0 0 N/M -EBITDA SRmn - (93) (26) (35) (34.4) -Net Income SRmn - (53) (23) (37) (61.1) -Assets SRmn - 6,704 6,879 7,361 7.0 -Equity SRmn - 6,661 6,638 6,601 (0.6) -Total Debt SRmn - 0 0 318 - -Cash & Equiv SRmn - 946 27 101 267.5 -EBITDA Mgn % - NA NA NA - -Net Mgn % - NA NA NA - -ROE % - (0.79) (0.35) (0.56) - -ROA % - (0.78) (0.34) (0.52) - -Div Payout % - NA NA NA - -EPS SR - (0.08) (0.03) (0.06) (61.1) -BVPS SR - 9.92 9.89 9.83 (0.6) - Source: Tadawul, Zawya, Company, NCBC Research

202

Makkah Construction & Development Co. (MCDC) was established in 1989 to develop areas around the Holy Mosque in Makkah. The company is engaged in the redevelopment of the Holy Haram area. MCDC commenced a residential and commercial complex, including the Jabal Omar and Jabal Khandama projects.

� Business brief MCDC is involved in real estate (investment, construction and development), property management and hotel management. The company holds 100% stake in Makkah Hilton & Towers (the 1,400-room hotel) and Makkah Shopping Center (a three-storied 451 unit shopping center). MCDC also holds 25% stake in Takief Company. In 2006, MCDC was a founding member of the Jabal Omar Development Company (9.1% stake) that was established with a capital of SR5bn. The Jabal Omar project is spread across an area of 230,000 sq mtr and includes hotels, commercial centers and prayer facilities for over 200,000 people.

� FinancialsMCDC’s revenue rose 30.1% YoY to SR274mn in 9M11 compared to SR210.7mn in 9M10. Net income grew 39.4% YoY to SR213.3mn in the same period, mainly driven by better realization and higher occupancy rates in residential hotels. The company’s cash stood at SR278mn in 9M11 compared to SR160.8mn in 9M10.

� Recent developments In October 2010, MCDC provided bank guarantee to Jabal Omar Development to obtain a loan worth SR1.5bn for two years.


MAKKAH CONSTRUCTION

ALSO KNOWN AS: MCDC





Reuters code 4100.SEBloomberg code MCDCO AB

www.mcdc.com.sa



P/E (x) 23.2 24.2 18.2P/B (x) 1.3 1.3 1.4P/S (x) 17.7 18.5 14.9Div Yield (%) 4.8 4.8 NADPS 1.5 1.5 NA Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


27

29

31

33

TASI Makkah (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Saudi Bin Laden Group 10.9Mohammed Salah Hamza Sairafi 8.8


Company financials*

2008 2009 2010 2011YoY(%)

CAGR (%)(08-11)

Net Revenues SRmn 272 291 279 346 24.2 8.4 EBITDA SRmn 237 261 250 315 26.4 10.0 Net Income SRmn 177 222 213 284 33.1 17.1 Assets SRmn 4,618 4,124 4,170 3,884 (6.8) (5.6)Equity SRmn 4,234 3,959 3,999 3,692 (7.7) (4.5)Total Debt SRmn 0 0 0 0 NA NACash & Equiv SRmn 114 189 131 309 136.1 39.3 EBITDA Mgn % 87.1 89.8 89.6 91.2 - -Net Mgn % 65.1 76.3 76.5 82.1 - -ROE % 4.8 5.4 5.4 7.4 - -ROA % 4.4 5.1 5.1 7.0 - -Div Payout % 111.7 111.4 115.9 NA - -EPS SR 1.07 1.35 1.29 1.72 33.1 17.1 BVPS SR 25.69 24.02 24.26 22.40 (7.7) (4.5) Source: Tadawul, Zawya, Company, NCBC Research, *Year ending is 30 April

203

In 2006, Emaar the Economic City (Emaar EC) was set up by Emaar Properties through a joint venture with Saudi Arabian investors to undertake the development of the SR300bn King Abdullah Economic City (KAEC). KAEC is a part of the government’s initiatives to diversify the economy and establish new economic, educational, and technology hubs.

� Business brief KAEC, the single largest private sector-led project (168mn sq m) in the GCC region, has six key components: seaport, industrial zone, residential district, a financial island, an educational zone and a waterside resort. This mega project is expected to offer about 1mn job opportunities. Saudi Arabian General Investment Authority (SAGIA) is the prime facilitator for this project. The mega residential district is expected to house around 2mn people.

� FinancialsEmaar EC’s revenues declined by 65.1% YoY to SR91mn in 2010. The net loss incurred by the company widened to SR584mn in 2010 from SR309mn in 2009 as sales proved insufficient to cover operating and maintenance expenses. The project is still in development phase and revenue generation through land and property sales has been limited.

� Recent developments On 27 December 2010, Emaar EC entered into an industrial land lease agreement with Saudi Petra Engineering Company to build an air conditioning manufacturing facility in KAEC’s Industrial Valley. On 2 June 2010, Saudi Total Lubricants Company Ltd signed an agreement with Emaar EC to establish a lubricants manufacturing facility on around 65,000 sq m of leased land. On 18 June 2010, the company entered into a development and license agreement with Al Ahlam Marine Tourism Group to develop a marine and yacht club facility inside KAEC.


EMAAR THE ECONOMIC CITY

ALSO KNOWN AS EEC, EMAAR EC


STOCK DETAILS 52-week range H/L (SR) 10/6Market cap ($mn) 1,586Shares outstanding (mn) 850

Price perform (%) 1M 3M 12MAbsolute 2.2 1.4 (25.5)Market 1.2 2.3 (3.0)Sector (1.0) (1.1) (19.6)


Reuters code 4220.SEBloomberg code EMAAR AB

www.kingabdullahcity.com



P/E (x) NM NM NMP/B (x) 0.7 0.8 0.8P/S (x) 58.6 22.8 65.4Div Yield (%) 0.0 0.0 0.0DPS 0.0 0.0 0.0 Source: NCBC Research estimates


5,000

5,500

6,000

6,500

7,000


10

TASI Emaar E .C (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Modern Daim Real Estate 20.0ME Royal Capital Co. 9.4Emaar Middle East 5.8ME Hollandi 5.8ME Strategic Investments 5.8 Source: Tadawul, NCBC Research

Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 0 102 261 91 (65.1) N/AEBITDA SRmn (157) (375) (214) (249) 16.4 16.6Net Income SRmn 26 (292) (309) (584) 89.0 NMAssets SRmn 8,747 9,532 9,305 8,885 (4.5) 0.5Equity SRmn 8,483 8,191 7,882 7,298 (7.4) (4.9)Total Debt SRmn 0 0 0 0 - -Cash & Equiv SRmn 640 2,219 864 339 (60.7) (19.1)EBITDA Mgn % NM (368.9) (82.1) - -Net Mgn % NM (287.5) (118.6) (642.1) - -ROE % 0.3 (3.5) (3.8) (7.7) - -ROA % 0.3 (3.2) (3.3) (6.4) - -Div Payout % 0.0 0.0 0.0 0.0 - -EPS SR 0.03 (0.34) (0.36) (0.69) 89.0 NMBVPS SR 9.98 9.64 9.27 8.59 (7.4) (4.9) Source: Tadawul, Zawya, Company, NCBC Research

204

Taiba Holding Co (Taiba), established in September 1988 is based in Madinah, home of the second Holy Mosque in Islam. The company transformed to a holding company in 2007 and transferred most of its assets to its subsidiaries. It currently owns and manages real estate properties, hotels and resorts mainly through its subsidiaries and is geographically concentrated in Madinah and the surrounding cities.

� Business brief Taiba primarily focuses on the real estate sector; it is a major developer in the central area surrounding the Holy Prophet's mosque. The company’s subsidiaries and associate companies include ARAC, and Al Aqeeq amongst many others. All real estate functions are run by Al Aqeeq, the real estate arm, including real estate development, property sales, rent, contracting and maintenance. The second largest revenue source is ARAC, the tourism arm, which owns and operates properties and resorts in Madinah, Yanbu, Al Ula and Makkah (under development).

� FinancialsRevenues declined at a compounded annual rate of 20.3% during 2007–10. However, they increased 15.5% to SR256mn in 2010 on a YoY basis due to the completion of new projects. Net income grew 32.6% YoY to SR91mn in 2010 due to operational efficiency. Taiba reported very strong 1Q11 earnings on 16 April 2011. On an adjusted basis, net income increased 38.1% YoY to SR19.8mn, and this was well ahead of our estimate of SR12.8mn.

� Recent developments In June 2010, Taiba announced its intentions to stop the quarterly payment of dividends due to cash flow constraints following a delay by the Saudi finance ministry to disburse the company’s compensation money. The ministry promised to pay off Taiba for the expropriation of a plot of land that the company initially sold for SR200mn. However, the deal was cancelled later due to the expropriation. In March 2010, Taiba announced a dividend of SR0.3 per share for 1Q10.


TAIBA HOLDING

ALSO KNOWN AS: TAIBA





Reuters code 4090.SEBloomberg code TIRECO AB

www.taiba.com.sa




5,000

5,500

6,000

6,500

7,000


TASI Taiba (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Mohammed Ibrahim Mohammed Al Essa

16.6


6.9

Mohammed Salah Hamza Sairafi 5.1


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12)

Net Revenues SRmn 226 248 455 340 (25.3) 14.6EBITDA SRmn 82 104 210 146 (30.5) 21.2Net Income SRmn 61 92 166 104 (37.3) 19.5Assets SRmn 3,536 3,629 3,967 4,119 3.8 5.2Equity SRmn 2,817 2,875 2,830 2,782 (1.7) (0.4)Total Debt SRmn 4 2 211 492 133.2 397.3Cash & Equiv SRmn 485 309 46 28 (39.1) (61.4)EBITDA Mgn % 36.3 41.9 46.2 42.9 - -Net Mgn % 27.0 37.1 36.5 30.6 - -ROE % 2.1 3.2 5.8 3.7 - -ROA % 1.7 2.6 4.4 2.6 - -Div Payout % 295.1 163.0 90.4 144.2 - -EPS SR 0.41 0.61 1.11 0.69 (37.3) 19.5BVPS SR 18.78 19.17 18.87 18.55 (1.7) (0.4) Source: Tadawul, Zawya, Company, NCBC Research

205

Arriyadh Development Company is engaged in the construction of commercial, office and residential buildings and complexes. The company also develops public parks, tourist compounds and parking lots. Headquartered in Riyadh, Arriyadh was established in 1994.

� Business brief Arriyadh is involved in residential projects such as Sunrise Cities, and commercial projects such as Attameer Trading Center, Arriyadh Transportation Center, Technical Service City, Riyadh Hills and Riyadh Car Auction (for the sale of used cars). The company is also engaged in the development of market areas such as Batiha Meat & Vegetable Market, Riyadh Wholesale & Retail Market, and Riyadh Vegetable & Fruits Market. The company’s USD4.47bn mixed-use development project covering an area of 750k sq.mtr in Riyadh is on hold as it is due for government approval.

� FinancialsArriyadh’s revenues increased 4.8% YoY to SR163mn in 2010; net income rose 3.7% YoY to SR96mn. However, net margins declined 60 bps to 59.0% in 2010 compared to the previous year, mainly on account of higher operating cost in some centers.

� Recent developments In August 2010, Arriyadh elected Dr. Abdul -Aziz bin Mohammed bin Ayyaf as Chairman of its Board of Directors. The company announced it has taken initiatives for the construction of plazas with an investment of SR10mn in June 2011. The project is likely to be completed by mid-2011 and would generate rental income of SR11.5mn per annum for the company.


ARRIYADH DEVELOPMENT

ALSO KNOWN AS: ARRIYADH, ARDCO



Price perform (%) 1M 3M 12MAbsolute (1.0) 5.6 19.1Market 1.2 2.3 (3.0)Sector (1.0) (1.1) (19.6)


Reuters code 4150.SEBloomberg code ADCO AB

www.ardco.com.sa





5,000

5,500

6,000

6,500

7,000


TASI Arriyadh Development (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Emaar Arabian Shield Investment Co. 9.6Development & Investment Services Co.

9.6

Adyar Holding Co. 5.5


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 127 140 155 163 4.8 8.5EBITDA SRmn 83 94 110 116 6.0 12.0Net Income SRmn 71 79 93 96 3.7 10.8Assets SRmn 1,577 1,593 1,589 1,642 3.3 1.3Equity SRmn 1,377 1,404 1,422 1,468 3.2 2.2Total Debt SRmn - - - - NA NACash & Equiv SRmn 148 163 8 31 304.6 (40.3)EBITDA Mgn % 65.0 67.0 70.6 71.4 - -Net Mgn % 55.5 56.4 59.6 59.0 - -ROE % 5.2 5.7 6.6 6.7 - -ROA % 4.5 5.0 5.8 6.0 - -Div Payout % 70.7 63.2 80.9 104.0 - -EPS SR 0.71 0.79 0.93 0.96 3.7 10.8BVPS SR 13.77 14.04 14.22 14.68 3.2 2.2 Source: Tadawul, Zawya, Company, NCBC Research

206

Saudi Real Estate (AKARIA) was established in Riyadh in 1976. The company owns and manages residential and commercial properties. At present, it generates all of its revenues from Riyadh. AKARIA also engages in the trading, sale and lease of construction materials.

� Business brief AKARIA is one of the pioneers in shopping center construction in the GCC. It also develops housing and office complexes. In addition, the company partners with international hotel chain operators to develop industrial/science parks and hotels. AKARIA’s principal investment holdings include a 25% stake in Saudi Company for Al Muaiqliah Commercial Center, 15% stake in United Glass Company, and 10% stake in Dar Al Tamleek Company.

� FinancialsSales increased 152.4% YoY to SR432mn in 2010. Net income grew 94.7% YoY to SR180mn benefiting from higher occupancy levels, primarily in Q410. Operating profit increased 158.3% YoY to SR236.1mn. Akaria reported better than expected 1Q11 results on 18 April 2011. Net income came in at SR30.1mn, recording a slight decline of 1.6% YoY, but ahead of our estimates by 19.4%.

� Recent developments In January 2011, AKARIA announced plans to enter a 50:50 joint venture with Madinah Knowledge Economic City to develop residential and commercial projects.. The venture is expected to be completed by 4Q12. In October 2010, AKARIA sold 244,622.95 square meters of land for SR222.9mn and earned a profit of SR137.5mn. The company has recently completed “Al Akaria” Plaza, and announced its three year contract with King Abdullah City for Atomic and Renewable Energy (KACARE) on August 1st,2010. It is also working on the expansion of the Diplomatic Quarter of Riyadh, which is expected to add 420 units, both villas and apartments. .


SAUDI REAL ESTATE

ALSO KNOWN AS: REAL ESTATE, AKARIA





Reuters code 4020.SEBloomberg code SRECO AB

www.al-akaria.com




5,000

5,500

6,000

6,500

7,000


21

23

25

27

TASI Real Estate (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Public Investment Fund 64.5


Company financials

2009 2010 2011E 2012EYoY(%)

CAGR (%)(09-12)

Net Revenues SRmn 171 432 230 229 (0.4) 10.2EBITDA SRmn 111 266 143 142 (0.7) 8.6Net Income SRmn 93 183 101 109 7.9 5.4Assets SRmn 3,237 3,480 3,442 3,453 0.3 2.2Equity SRmn 3,067 3,203 3,152 3,170 0.6 1.1Total Debt SRmn 0 0 0 0 NA NACash & Equiv SRmn 644 158 229 152 (33.6) (38.2)EBITDA Mgn % 64.9 61.6 62.2 62.0 - -Net Mgn % 54.4 42.4 43.9 47.6 - -ROE % 3.0 5.8 3.2 3.4 - -ROA % 2.9 5.4 2.9 3.2 - -Div Payout % 96.8 82.0 89.1 82.6 - -EPS SR 0.78 1.53 0.84 0.91 7.9 5.4BVPS SR 25.56 26.69 26.27 26.42 0.6 1.1 Source: Tadawul, Zawya, Company, NCBC Research

207


MAY 2011

208

Transport


4030 NSCSA 211

4040 SAPTCO 212

4260 Budget Saudi 213

4110 Mubarrad 214

209

After a weak performance in 2009, Saudi Arabia’s transport sector fared well in 2010 as improving global economic conditions resulted in higher demand for crude oil (KSA’s major export commodity). The government’s focus on developing transportation infrastructure throughout the Kingdom is further enhancing the sector. KSA has the added advantages of an increase in religious tourism, improved demand from other sectors and proximity to Europe, Asia and Africa as compared to other GCC countries. Saudi Arabia’s transport sector is emerging when compared to those of other GCC countries. The Kingdom’s transport sector RoE stood at 7.0% in 2010, below GCC’s average ROE of 8.9%.

Exhibit 124: Revenues of GCC transport companies, 2008–10

Exhibit 125: Comparison of ROE and P/E of GCC companies, 2010

USD mn

%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2008 2009 2010

KSA UAE Kuwait Oman Qatar

4

68

1012

1416

1820

22

0 9 18 27

P/E (x)

RO

E (%

)

KSA UAE Qatar Kuwait Oman


Source: Tadawul, Bloomberg, NCBC Research

KSA’s transport sector has a large number of private players with only four listed companies. Among the listed players, National Shipping Co. of Saudi Arabia has the highest average traded value at about SR15mn/day.


Units as stated

% weight in Index


2010Avg. RoE (%),

2010United International Transportation Co.Ltd. (BUDGET)

0.09 18.6 21.9

Saudi Public Transport Co ( SAPTCO) 0.15 6.6 3.5National Shipping Co. of Saudi Arabia (NSCSA)

0.65 20.0 8.2

Saudi Transport and Investment Co. (MUBARRAD)

0.05 (14.8) (4.1)

Source: Bloomberg, Tadawul: Company data; NM: Net Margin ** This company was listed in 2010

The sector’s revenues rose 13.6% YoY to SR3.4bn in 2010, primarily due to improved demand. Revenues of National Shipping Co of Saudi Arabia, the largest player in the industry (in terms of revenues and market cap), increased the most (22.8% YoY in 2010). However, Saudi Transport and Investment Co.,

MAY 2011

TRANSPORT

Improved demand and government support aid prospects

TRANSPORT NCB CAPITAL

MAY 2011

210

the smallest player, reported the steepest revenue decline (13.0% YoY fall in 2010). On profitability, the sector reported an 11.6% YoY rise in net profits. Saudi Public Transport Company posted the highest growth in net profits (56.8% YoY in 2010), while Saudi Transport and Investment Co. reported the steepest fall (SR6.7mn loss in 2010 vis-à-vis a SR5.2mn profit in 2009).

Exhibit 127 Revenue of companies, 2008-2010

Exhibit 128: Profitability of NSCSA relative to sector average,

SR mn

%

0500

1,0001,5002,0002,5003,0003,5004,0004,500

2008 2009 2010

NSCSA SAPTCO MUBARRAD BUDGET

0

15

30

2008 2009 2010

Sector Average NSCSA



As of 31 December 2010, the sector’s P/E and P/BV multiples stood at 13.6x and 1.30x, respectively, compared to 33.9x and 1.73x in 2009. The transport sector’s average ROE stood at 7.8% in 2010. United International Transport Company Limited reported the highest ROE of 21.9%, while Saudi Transport and Investment Co. reported the lowest ROE of (4.1%) during the period.

Exhibit 129: Comparison of P/B and RoE, 2009

Exhibit 130: Comparison of P/B and RoE, 2010

%

%

NSCSA

SAPTCOMUBARRAD

BUDGET

0

5

10

15

20

25

-1 0 1 1 2 2 3 3

P/B(x)

RO

E (%

)

NSCSA

SAPTCO

MUBARRAD

BUDGET

-10

-5

0

5

10

15

20

25

0 1 2 3

P/B(x)

RO

E (%

)



We are optimistic about KSA’s transport sector as increase in expansion projects and infrastructure development activities across sectors would support local freight industry rates. The Saudi Arabian General Investment Authority (SAGIA) has recognized 19 priority investment opportunities in the transport and logistics sector, mainly in the Kingdom’s planned economic cities. The government’s 2011 transport budget has also emphasized major transport development initiatives across Saudi Arabia.

Established in 1979, the National Shipping Company of Saudi Arabia (NSCSA) provides marine transport services, primarily to the oil & gas and chemical sectors. Additionally, NSCSA offers liner (general cargo), ship management, and container storage and repair services.

� Business brief NSCSA operates a fleet of 34 ships (17 oil tankers, 13 chemical tankers and four general cargos). The company is likely to add up to 16 chemical carriers to its existing fleet by 2012. NSCSA operates its chemical tankers through National Chemical Carriers (NCC), its 80% subsidiary. Along with transportation, the company offers ship management services for its own vessels as well as other shipping companies through its wholly-owned subsidiary, Mideast Ship Management.

� FinancialsIn 2010, NSCSA’s sales grew 22.8% YoY to SR2,053mn. The company’s operating profit rose 25.0% to SR347mn and net income increased 11.3% to SR411mn.

� Recent developments In December 2010, NCC signed a contract with South Korea-based SLS Shipbuilding Company for purchase of two petrochemical tankers worth SR322.5mn. These tankers are expected to be delivered in 1H11. In September 2010, NCC cancelled its contract with SLS Shipbuilding Company to build five tankers. In August 2010, the company formed a joint venture with Arabian Agricultural Services Company (ARASCO) to form Bahri Dry Bulk, a company that would be engaged in operating dry-bulk vessels. This company, with SR200mn share capital, is 60% owned by NSCSA and is scheduled to start operations in 2011. In May 2010, NCC cancelled its contract with SLS Shipbuilding Company to build two tankers. NSCSA would build a chemical tanker costing SR245mn with Daewoo Shipbuilding and Marine Engineering (DSME). The carrier is expected to be received by 2013.

TRANSPORT � MAY 2011

NATIONAL SHIPPING COMPANY

ALSO KNOWN AS: NSCSA


STOCK DETAILS 52-week range H/L (SR) 21/13Market cap ($mn) 1,222Shares outstanding (mn) 315



Reuters code 4030.SEBloomberg code NSCSA AB

www.nscsa.com





12

14

16

18

20

5,000

5,500

6,000

6,500

7,000


TASI Shipping (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Public Investment Fund 28.1Abdulla Saad Abdul Rahman AlRashid

6.3


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 1,703 2,595 1,672 2,053 22.8 6.4EBITDA SRmn 634 1,188 638 708 11.0 3.8Net Income SRmn 423 750 369 411 11.3 (0.9)Assets SRmn 7,797 9,819 10,339 9,959 (3.7) 8.5Equity SRmn 4,660 5,091 4,988 5,086 2.0 3.0Total Debt SRmn 2,432 4,007 4,763 4,143 (13.0) 19.4Cash & Equiv SRmn 851 1,059 762 1,086 42.6 8.4EBITDA Mgn % 37.2 45.8 38.2 0.0 - -Net Mgn % 24.8 28.9 22.1 20.0 - -ROE % 11.0 15.4 7.3 8.2 - -ROA % 6.1 8.5 3.7 4.0 - -Div Payout % 74.5 63.0 85.3 76.6 - -EPS SR 1.3 2.4 1.2 1.3 11.3 (0.9)BVPS SR 14.8 16.2 15.8 16.1 2.0 3.0 Source: Tadawul, Zawya, Company, NCBC Research

211

Saudi Public Transport Company (SAPTCO) provides bus transport services for domestic and international travel to neighboring countries such as Egypt, Syria, Jordan, Kuwait, Qatar, the UAE, Bahrain, Yemen, Sudan and Lebanon. Headquartered in Riyadh, the company has about 161 local and international agents.

� Business brief SAPTCO has a fleet of around 3,000 buses; its operations include nearly 579 daily scheduled trips, connecting 600 cities, towns and villages across the Kingdom. SAPTCO provides intra-city and inter-city transport services across Saudi Arabia, and international transport services to 10 neighboring countries. The company provides contract and charter transportation services to schools, colleges and other groups. SAPTCO offers special transport services to Mecca and Medina during the Hajj and Umrah seasons. The company also offers premium services between Makkah and Madinah, Riyadh and Al Khobar, and to Bahrain; SAPTCO is planning to expand these routes. Additionally, the company provides advertising space on its buses.

� FinancialsIn 2010, revenues remained flat at SR754mn as compared to SR752mn in 2009. However, net income rose significantly to SR50mn in 2010 from SR32mn in the previous fiscal year due to higher operational efficiency. The company’s operating profit grew 164.5% YoY to SR39.4mn in 2010.

� Recent developments As part of its expansion plan, SAPTCO announced, on 4 April 2011, that it has planned to buy 150 new Mercedes buses by 1Q12 for a total consideration of US$47mn. Delivery of these buses will likely be in three tranche; first 50 in September 2011, second 50 in October 2011, and remaining by March 2012.


SAUDI PUBLIC TRANSPORT COMPANY

ALSO KNOWN AS: SAPTCO





Reuters code 4040.SEBloomberg code SAPTCO AB

www.saptco.com.sa



P/E (x) 30.5 28.8 18.4P/B (x) 0.6 0.7 0.6P/S (x) 1.2 1.2 1.2Div Yield (%) 6.8 N/A 6.8DPS 0.5 N/A 0.5 Source: NCBC Research estimates


6

7

7

8

8

5,000

5,500

6,000

6,500

7,000


TASI SAPTCO (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Public Investment Fund 15.7


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 732 766 752 754 0.2 1.0EBITDA SRmn 189 180 158 193 21.6 0.7Net Income SRmn 101 30 32 50 56.8 (20.8)Assets SRmn 1,909 1,788 1,816 1,798 (1.0) (2.0)Equity SRmn 1,488 1,414 1,387 1,446 4.2 (1.0)Total Debt SRmn 114 63 108 51 (52.8) (23.5)Cash & Equiv SRmn 668 410 311 390 25.6 (16.4)EBITDA Mgn % 25.8 23.5 21.1 0.0 - -Net Mgn % 13.8 3.9 4.2 6.6 - -ROE % 6.9 2.1 2.3 3.5 - -ROA % 5.5 1.6 1.8 2.8 - -Div Payout % 61.7 208.3 N/A 124.8 - -EPS SR 0.8 0.2 0.3 0.4 54.0 (20.9)BVPS SR 11.9 11.3 11.1 11.6 4.2 (1.0) Source: Tadawul, Zawya, Company, NCBC Research

212

United International Transportation Co. (Budget Saudi) is the largest car rental company in the MENA region. The company, Budget International’s franchisee, operates more than 14,500 vehicles that include luxury, 4x4, full-size, intermediate, compact and economy cars.

� Business brief Budget Saudi provides various services such as short-term and long-term car rentals; chauffeur driven cars; CorpRate Program (a corporate client-oriented service with preferential rates and value additions such as faster reservations and flexible billing); and Budget Express (a loyalty program for members). The company also provides Hajj & Umrah services for visitors and pilgrims; Lodge and Drive (accommodation along with car rental); Premier Limousine Service (chauffeur driven luxury vehicles); and automotive maintenance (maintenance facilities, including satellite workshops). Budget Saudi is also engaged in the sale of used cars.

� FinancialsBudget Saudi reported a 5.5% YoY increase in net sales to SR511mn in 2010 driven by a rise in short- as well as long-term leasing revenues. Driven by YoY growth in revenues, the EBITDA also went up 4.0% YoY to SR337mn during the year compared to SR324mn last year. Net income margins expanded 85bps YoY to 18.6% from 17.7% in 2009 as net income for 2010 rose at a higher rate of 10.5% YoY to SR95mn.

� Recent developments Budget Saudi on 19 January 2011 declared a dividend of SR2.25 per share for 2010 compared to a SR2.0 per share for 2009.


UNITED INTERNATIONAL

ALSO KNOWN AS: BUDGET SAUDI, UNITRANS, UITC





Reuters code 4260.SEBloomberg code BUDGET AB

www.budgetsaudi.com



P/E (x) 10.9 10.7 9.7P/B (x) 2.6 2.3 2.0P/S (x) 1.9 1.9 1.8Div Yield (%) 3.5 4.0 4.5DPS 1.8 2.0 2.3

Source: NCBC Research estimates


32

42

52

62

5,000

5,500

6,000

6,500

7,000


TASI Budget Saudi (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Al Zahid Holding Group 38.1Abdul Elah Abdullah Mahmood Ali Zahid

11.5

Mohammed Abdullah Mahmood Zahid

9.2


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 397 473 484 511 5.5 8.8EBITDA SRmn 251 320 324 337 4.0 10.3Net Income SRmn 78 84 86 95 10.5 6.6Assets SRmn 683 729 761 834 9.6 6.9Equity SRmn 303 356 406 461 13.5 15.0Total Debt SRmn 241 247 224 271 20.7 4.0Cash & Equiv SRmn 16 10 28 11 (61.0) (11.7)EBITDA Mgn % 63.2 67.7 66.9 65.9 - -Net Mgn % 19.7 17.8 17.7 18.6 - -ROE % 28.1 25.5 22.5 21.9 - -ROA % 12.7 11.9 11.5 11.9 - -Div Payout % 35.1 38.2 42.7 43.4 - -EPS SR 4.27 4.58 4.69 5.18 10.5 6.6BVPS SR 16.55 19.44 22.19 25.19 13.5 15.0 Source: Tadawul, Zawya, Company, NCBC Research

213

Saudi Transport and Investment Company (Mubarrad) is engaged in the land transport business across Saudi Arabia and other Gulf Cooperation Council (GCC) countries. Mubarrad also deals in purchase and sale of land, construction, management and operation of buildings.

� Business brief Mubarrad owns a fleet of more than 1,165 vehicles (including truck heads, reefer trailers, reefer trucks, flat trucks for dry transport, and trailers for bulk transport) for carrying all types of general and industrial cargo. The company provides services such as handling, warehousing, and delivering goods and materials within the Kingdom via land airports or sea. Mubarrad also operates an Express Parcel Services throughout Saudi Arabia. In addition, the company constructs, manages and leases cold stores and trailers.

� FinancialsMubarrad’s revenue for 2010 declined 13.0% YoY to SR45mn. The company’s EBITDA margins expanded 445bps YoY to 34.2%. EBITDA for 2010 was flat YoY at SR15mn. However, during 1Q10, the company incurred loss on liquidated investments leading to a net loss of SR7mn for 2010 as against a net profit of SR5mn in 2009.

� Recent developments On 22 January 2011, Mubarrad elected Prof. Hamoud Albelaasi, Prof. Badr Bin Khalid Alshahyli, Engineer Hatem Ben Hamad Suhaibani, Prof. Bin Bashar al-Nasiri, Mr. Mohamed Asmari and Mr. Abdul Aziz Bin Mohammed Alfdagy as members of the board for a period of three years. During October 2010, Mr. Ibrahim Ibn Musa Al Majid and Professor Hamad bin Nasser Al-Tuwaijri resigned from the member of council and submitted their resignation to the board.


MUBARRAD


STOCK DETAILS 52-week range H/L (S) 20/11Market cap ($mn) 73Shares outstanding (mn) 18



Reuters code 4110.SEBloomberg code SLTCO AB

www.mubarrad.com.sa



P/E (x) 24.4 52.3 NMP/B (x) 1.6 1.6 1.7P/S (x) 5.6 5.2 6.0Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates


10

15

20

5,000

5,500

6,000

6,500

7,000


TASI Mubarrad (LHS)

Source: Reuters



Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 47 49 52 45 (13.0) (1.0)EBITDA SRmn 15 15 15 15 0.0 1.4Net Income SRmn 13 11 5 (7) NM NMAssets SRmn 219 225 217 197 (9.3) (3.5)Equity SRmn 188 166 169 162 (4.0) (4.9)Total Debt SRmn 0 32 19 6 (66.7) N/MCash & Equiv SRmn 4 6 12 20 65.2 69.0EBITDA Mgn % 31.9 31.7 29.8 34.2 - -Net Mgn % 28.9 22.9 10.0 N/M - -ROE % 7.7 6.3 3.1 (4.1) - -ROA % 6.5 5.0 2.3 (3.2) - -Div Payout % 0.0 0.0 0.0 0.0 - -EPS SR 0.75 0.62 0.29 (0.37) NM NMBVPS SR 10.45 9.24 9.36 8.99 (4.0) (4.9) Source: Tadawul, Zawya, Company, NCBC Research

214


MAY 2011

215

Media & Publishing


4210 SRMG 218

4070 Tihama 219

4270 SPPC 220

After a disastrous performance in 2009 due to the global economic downturn, the Media and Publishing sector managed to record steady growth in revenues and significant jump in profitability in 2010 on recovery in the advertising and education industries. Companies looking to advertise now prefer the less expensive web advertising due to its vast reach. This limits the growth of print media, which still accounts for a lion’s share of advertisement revenue. Although the sector is likely to benefit from higher advertising activities led by the ongoing economic recovery, increasing competition from internet and stringent government regulations present a challenge, thus dampening the outlook.KSA’s media sector is significantly larger than its GCC peers on the revenue front, despite declining over 2008-10. The sector traded at a higher P/E multiple (despite lower ROE) compared to its regional peers (refer exhibit 2).

Exhibit 131: Revenue of GCC print/media, 2008–10


USD mn %

0

100

200

300

400

500

2008 2009 2010KSA Kuwait Qatar Qatar (25)

(20)

(15)

(10)

(5)

0

5

10

15

20

25

0 15 30

P/E (x)

RO

E (%

)

KSA Kuwait Qatar Bahrain

Source: Bloomberg, NCBC Research Revenue of Qatar is USD 4.76mn in 2009

Source: Bloomberg, NCBC Research Size of the bubble represents market cap. as on 31 March 2010.

Media and publishing sector in Saudi Arabia comprises the following three listed companies. SRMG has the highest weight on the index. The sector accounts for just 0.4% of the TASI.


Units as stated


NM (%), 2010

Avg. RoE (%), 2010

Saudi Research And Marketing Group (SRMG) 0.17 8.2 6.8Saudi Printing & Packaging Co. (SPPC) 0.07 9.7 5.0Tihama Advertising & Public Relations Co. (Tihama)

0.06 24.7 12.7

Source: Bloomberg, Tadawul, Gulfbase, NCBC Research; NM: Net Margin * start periods may differ based on availability of data

In 2010, the sector’s overall revenues increased 10.5% YoY to SR1.6bn. SPPC’s revenues rose 12.6% YoY to SR402mn, the highest among media and publishing companies in the index. However, increased costs and lower income from capital lease contracts pushed the company’s YoY net income 39.9% lower

MAY 2011

MEDIA & PUBLISHING

Bleak outlook for conventional print media sector

216

MEDIA & PUBLISHING NCB CAPITAL

MAY 2011

to SR39mn; margins reduced almost half from 18.2% in 2009 to 9.7% in 2010. SRMG, the largest player in the industry, reported a 10.3% YoY rise in revenues to SR1.1bn and a 92.1% YoY increase in net income to SR87mn. Tihama’s net income surged more than four-fold to SR30mn. Consequently, the sector’s net income increased 34.5% YoY to SR156mn.

Exhibit 134: Revenue of companies, 2008–2010 Exhibit 135: Profitability of SRMG relative to sector average

SR mn %

0

500

1000

1500

2000

2500

2008 2009 2010SRMG SPPC Tihama*

0

5

10

15

20

25

30

2008 2009 2010Sector Average SRMG


As of 31 December 2010, the sector’s average PE and P/BV multiples stood at 15.8x and 1.2x, respectively, compared to corresponding figures of 40.4x and 1.6x in 2009. The fall in the multiples can be mainly ascribed to the significant increase in the profitability of SRMG and Tihama. The sector’s average ROE climbed to 6.8% in 2010 from 5.0% in 2009.


% %

SRMG

SPPC

Tihama

0

2

4

6

8

10

12

0.5 1.0 1.5 2.0 2.5

P/B (x)

RO

E (%

)

SRMG

SPPC

Tihama

0

2

4

6

8

10

12

14

0.5 1.0 1.5 2.0

P/B (x)

RO

E (%

)

Source: Bloomberg, Tadawul, Reuters, NCBC Research Size of the bubble represents market cap. as on 31 Dec 2009

Source: Bloomberg, Tadawul, Reuters, NCBC Research Size of the bubble represents market cap. as on 07 Feb 2010

The sector’s trading turnover averaged SR2.7mn per day in 2010. Tihama was the most traded stock in the sector, with an average daily turnover of SR5.5mn in 2010.

217

Established in 1988, Saudi Research and Marketing Group (SRMG) is a leading publishing group based in Riyadh. SRMG’s subsidiaries include Saudi Research and Publishing Company, Saudi Distribution Company, Saudi Specialized Publishing Company (SSPC), and Al Khaleejiah Advertising and Public Relations Company.

� Business brief SRMG is engaged in four key activities – publishing, advertising, printing and distribution. The publishing segment is engaged in research and marketing, while the advertising segment mainly deals with production and marketing of audiovisual media. The printing segment prints newspapers, magazines, books and journals in various languages.

� FinancialsSRMG revenues grew 10.3% YoY to SR1,068mn in 2010 due to a recovery in the advertising and education industries. EBITDA margin climbed 275bps YoY with net margin up 348bps to 8.2% in 2010 compared to 4.7% in 2009. This was primarily as a result of SRMG’s cost reduction program that led to reduced operating expenses. As a result, net income nearly doubled YoY to SR87mn during the year compared to SR45mn the year before. 1Q11 net income came in at SR15.1mn compared to a profit of SR14.8mn in 1Q10, up 2.0% YoY.

� Recent developments In May 2010, SRMG entered into an agreement with Egypt-based Al-Ahram Establishment to strengthen cooperation in the fields of printing, publishing, digital publishing, media activities, distribution and organizing conferences.

MEDIA � MAY 2011

SAUDI RESEARCH AND MARKETING GROUP

ALSO KNOW AS: SRMG





Reuters code 4210.SEBloomberg code RESEARCH AB

www.srmg.com





12

17

22

27

5,000

5,500

6,000

6,500

7,000


TASI SRMG (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Kingdom Holding Company 29.9HH Prince Faisal Ahmad Bin Salman Al Saud

6.8

Mohammed Hussain Ali Al Amudy 5.6GOSI 5.2


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 1,113 1,342 969 1,068 10.3 (1.4)EBITDA SRmn 285 306 109 150 37.2 (19.3)Net Income SRmn 367 224 45 87 92.1 (38.1)Assets SRmn 2,187 2,259 2,153 2,132 (1.0) (0.9)Equity SRmn 1,401 1,376 1,264 1,304 3.2 (2.4)Total Debt SRmn 114 221 286 211 (26.3) 22.6 Cash & Equiv SRmn 461 141 66 61 (8.6) (49.1)EBITDA Mgn % 25.6 22.8 11.3 14.0 - -Net Mgn % 32.9 16.7 4.7 8.2 - -ROE % 28.2 16.2 3.4 6.8 - -ROA % 18.5 10.1 2.1 4.1 - -Div Payout % 65.5 71.3 88.2 91.8 - -EPS SR 4.58 2.81 0.57 1.09 92.1 (38.1)BVPS SR 17.51 17.20 15.79 16.30 3.2 (2.4) Source: Tadawul, Zawya, Company, NCBC Research

218

Established in 1983, Tihama Advertising & Public Relations Co. operates Egyptian Satellite Channel, Al-Hayat newspaper and Kolness magazine. Tihama operates through its subsidiaries – Tihama Distribution Company, United Journalists, Star Media Co., Saudi Signs Supply Co., Intermarkets Riyadh, and Ad Art Medyan.

� Business brief Tihama has three business segments: media, public relations (PR), and other services. The media segment comprises newspapers, magazines, outdoor advertising and a satellite television channel. The PR segment includes press files and promotional information services. The Other services segment comprises video production and distribution of Arabic and American films in the Middle East. The company also has a network of bookstores. Tihama also operates in Cairo, Dubai, London, and Paris.

� FinancialsAlthough Tihama’s revenue fell significantly by 17% in FY10, the 3Q10 figure of SR84mn indicates an increase of 2.5% YoY. The company revealed it sold a piece of land during the year; this helped it report positive net income of SR20mn for 3Q10 against a loss of SR2mn in 3Q10. 4Q10 (the 3 months ending on 31st March 2011) net income came in at SR4.1mn compared to SR9.8mn in 4Q10, a drop of 58%.

� Recent developments Tihama signed an agreement with General Establishment for the King Fahd Causeway on 8 January 2011. The five-year agreement includes investment in advertising and advertising services at SR15.2mn. On 20 December 2010, Tihama declared it signed a contract with Tecnovision for exclusive distribution of the latter’s products. On 14 December 2010, the company signed an agreement with Mifflin Harcourt to become an agent for the latter’s educational products in Saudi Arabia.

MEDIA � MAY 2011

TIHAMA ADVERTISING

ALSO KNOWN AS: TIHAMA





Reuters code 4070.SEBloomberg code TAPRCO AB

www.tihama.com



P/E (x) 16.0 28.4 20.3P/B (x) 2.0 2.1 1.9P/S (x) 3.4 4.1 4.4Div Yield (%) 3.7 - -DPS 1.2 - - Source: NCBC Research estimates


18

23

28

33

5,000

5,500

6,000

6,500

7,000


TASI Tihama (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Bader Fahad Ibrahim Al Dawood 19.3


Company financials

FY08 FY09 FY10 FY11YoY(%)

CAGR (%)(08-11)

Net Revenues SRmn 137 142 118 110 (6.3) (6.9)EBITDA SRmn 22 21 (1) 3 NM (46.0)Net Income SRmn 28 30 17 24 39.6 (5.5)Assets SRmn 335 339 324 314 (3.2) (2.1)Equity SRmn 226 239 227 250 10.2 3.5Total Debt SRmn 1 0 1 0 (100.0) (100.0)Cash & Equiv SRmn 85 84 44 20 (53.9) (37.8)EBITDA Mgn % 16.0 14.7 (0.7) 3.1 - -Net Mgn % 20.5 21.2 14.4 21.4 - -ROE % 12.8 13.0 7.3 9.9 - -ROA % 8.8 8.9 5.1 7.4 - -Div Payout % 53.5 59.8 - - - -EPS SR 1.87 2.01 1.13 1.58 39.6 (5.5)BVPS SR 15.04 15.93 15.13 16.68 10.2 3.5 Source: Tadawul, Zawya, Company, NCBC Research, Year-ending March 31

219

Saudi Printing and Packaging Company (SPPC), formerly Madina Printing and Publishing Company, was established in 1963. A subsidiary of Saudi Research and Marketing Group, SPPC is engaged in various commercial and package printing as well as production activities. The company has five printing houses and a 1.0mn sq meters production area.

� Business brief SPPC offers integrated print production solutions from pre-press designing and printing to post-printing binding and packaging. The company has a capacity of 6,000 magazine copies/hour; 150,000 newspaper copies/hour; book printing capacity of 6,500 copies/hour; and 10,000 sheets/hour. SPPC also has exclusive printing rights for its parent company and Saudi Research and Publishing Company. The company’s publications include Sayidaty, Arrajol, Al Eqtisadiah, Almajalla, and Arab News.

� FinancialsSPPC’s revenue in 2010 rose 12.6% YoY to SR402mn. EBITDA grew 9.4% YoY to SR62mn during the same period. However, net income slumped to SR39mn in 2010 as compared to SR65mn in 2009. This was mainly ascribed to the higher costs in 4Q10 and lower YoY profits from capital lease contracts due to expiry of contracts in the 4Q09. 1Q11 net income came in at SR7.6mn compared to a reported profit of SR7.2mn in 1Q10. This marks an increase in net income by 5.6% YoY and was mainly due to lower costs.

� Recent developments In February 2011, the BoD proposed the distribution of a SR0.5 dividend per share for the year ended December 31, 2010.

MEDIA � MAY 2011

SAUDI PRINTING AND PACKAGING COMPANY

ALSO KNOWN AS: SPPC





Reuters code 4270.SEBloomberg code SPPC AB

www.sppc.com.sa





9

10

11

12

13

14

15

5,000

5,500

6,000

6,500

7,000


TASI SPPC (LHS)

Source: Reuters

TOP 5 SHAREHOLDERS (%) Saudi Research and Marketing Grp 42.0Intellectual Holding Company for Advertising and Publicity

10.5

Saudi Research and Publishing Co 7.0Scientific Works Holding Company 7.0


Company financials

2007 2008 2009 2010YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 370 465 357 402 12.6 2.8EBITDA SRmn 118 126 57 62 9.4 (19.1)Net Income SRmn 137 151 65 39 (39.9) (34.2)Assets SRmn 858 1,068 1,021 1,028 0.7 6.2Equity SRmn 701 792 765 804 5.1 4.7Total Debt SRmn 35 198 181 116 (36.2) 48.9Cash & Equiv SRmn 22 16 19 13 (29.2) (16.1)EBITDA Mgn % 31.8 27.0 16.0 15.5 - -Net Mgn % 37.1 32.4 18.2 9.7 - -ROE % 20.8 20.2 8.4 5.0 - -ROA % 16.4 15.6 6.2 3.8 - -Div Payout % 43.7 59.8 - 76.7 - -EPS SR 2.29 2.51 1.08 0.65 (39.9) (34.2)BVPS SR 11.69 13.20 12.75 13.40 5.1 4.7 Source: Tadawul, Zawya, Company, NCBC Research

220


MAY 2011

221

Hotel & Tourism


4010 SHARCO 224

4170 Shams 225

Saudi Arabia’s hotel & tourism sector showed signs of recovery in 2010, with hotels running at higher occupancy rates. In 2010, international tourist arrivals grew 13.9% YoY and the international tourism receipts grew 28.0% YoY. Saudi Arabia is investing multi-million dollars in various projects such as airport development and hospitality infrastructure, which would help the Kingdom’s tourism sector in the coming years. ROE stood at 5.1% as against the GCC average of 3.9%, and the sector traded at a P/E multiple of 17.5x compared to the GCC’s 19.1x.

Exhibit 138: Revenue of GCC hotel and tourism companies, 2008-10


USD mn %

0

100

200

300

400

500

600

2008 2009 2010

Kuwait Oman Bahrain UAE KSA

-30

-20

-10

0

10

20

30

-50 -40 -30 -20 -10 0 10 20 30

P/E (x)

RO

E (%

)

UAE KSA Kuwait Bahrain Oman


The KSA hotel & tourism sector comprises the two companies mentioned below. As of 27 April 2011, SHARCO, with a market cap of SR1.9bn, was the largest company in the sector.


Units as stated

% weight in Index as on Dec 2010

NM (%), 2010

Avg. RoE (%), 2010

Saudi Hotels& Resort Areas Co (SHARCO) 0.18 43.7 7.5Tourism Enterprises Co. (TECO) 0.04 12.7 2.7Source: Bloomberg, Tadawul: Company data; NM: Net Margin

The sector’s revenue dropped 60.4% to SR295.8mn in 2010, compared to SR747.1mn in 2009 mainly due to lower revenue posted by SHARCO. In 2010, SHARCO’s revenue fell 61.7% YoY to SR281.0mn and net income dropped 67.8% YoY to SR122.7mn. SHARCO’S 2009 performance was strong due to the sale of gulf village land for SR291.6mn. The proceeds from sales were included as a part of its on-going operation in 2009. TECO’s 2010 revenue grew 7.4% YoY to SR14.9mn. It reported a net profit of SR1.9mn in 2010 compared to a loss of SR3.4mn in 2009, driven mainly by improved operational efficiency and higher revenues.

MAY 2011

HOTELS & TOURISM

Conservative tourism

222

HOTELS & TOURISM NCB CAPITAL

MAY 2011

Exhibit 141: Revenue of companies, 2008–2010 Exhibit 142: Profitability of companies, 2008–2010,

SR mn %

0

100

200

300

400

500

600

700

800

2008 2009 2010

SHARCO TECO

-35

-10

15

40

65

2008 2009 2010

SHARCO TECO


As of 31 December 2010, SHARCO’s ROE was 7.5% and P/B multiple of 1.1x compared with TECO’s ROE of 2.7% and a higher P/B multiple of 3.0x. The sector’s average ROE and P/B multiple stood at 7.3% and 2.0x, respectively, in 2010.


% %

SHARCO

TECO -10

-5

0

5

10

15

20

25

30

35

40

0 1 2 3 4 5 6

PB (x)

RO

E (%

) SHARCO TECO

(4)

0

4

0 1 2 3 4

PB (x)RO

E (%

)


TECO topped the average trading value chart and has higher price volatility when compared with SHARCO.


SR mn Prices rebased to 100 on 1st Jan-09

2

11

0

2

4

6

8

10

12

SHARCO TECO

0

50

100

150

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11

TECO SHARCO


223

Riyadh-based Saudi Hotels & Resorts Areas Co. (SHARCO), founded in 1979, owns and operates many resorts and hotels independently as well as through its subsidiaries Al Khaleej Resorts Co. Ltd., Riyadh Hotels Co. Ltd., Makkah Hotels Co. Ltd., Al Nakheel Touristic Area Co. Ltd., Tabuk Hotels Co. Ltd., Madina Hotels Co. Ltd. and Riyadh Marriott Hotel.

• Business brief SHARCO is engaged in travel & tourism activities as well as construction, ownership, investment and management of hotels, real estate, resorts and entertainment centres. The company mainly operates through its subsidiaries, Al Khaleej Resorts Company and The Riyadh Hotels and Entertainment Company. The company reports revenues under four business lines: hospitality, real estate, resorts and entertainment.

• Financials SHARCO’s revenues declined 61.7% to SR281mn in 2010 compared to SR733.3mn in 2009. Net income fell 67.8% to SR122.7mn during the year from SR380.6mn in 2009. A fall in performance was observed in 2010 as the 2009 sales figure included an amount worth SR292mn from a sale of land (Gulf Village).

• Recent developments In December 2010, SHARCO announced that its affiliate firm signed a contract with Public Authority for Civil Aviation to run Riyadh’s King Khaled Airport Hotel for 10 years. It also signed a deal to develop 942 sq. meters. land in Medina. SHARCO concluded a deal with Supreme Commission to develop land bank (160 pieces) covering total area of 124,473 sq. meters. The company would mainly build residential units under this pact.

HOTEL & TOURISM ⏐ MAY 2011

SAUDI HOTELS

ALSO KNOWN AS: SHARCO

NC Current price (SR) 28.0Pricing as of 04-05-2011




Reuters code 4010.SEBloomberg code SHARCO AB

www.saudi-hotels.com.sa WEIGHTING & FREEFLOAT (%) TASI (free float weight) 0.18Free float 52.7 VALUATION MULTIPLES 08A 09A 10AP/E (x) 15.7 5.1 15.7P/B (x) 1.4 1.2 1.2P/S (x) 6.6 2.6 6.9Div Yield (%) 4.3 5.4 5.4DPS 1.2 1.5 1.5 Source: NCBC Research estimates SHARE PRICE PERFORMANCE

20

23

26

29

5,000

5,500

6,000

6,500

7,000


TASI Hotels (LHS)

Source: Reuters TOP 5 SHAREHOLDERS (%) Mohammed Ibrahim Mohammed Al Essa

22.4

Public Investment Fund 16.6General Organization for Social Insurance (GOSI)

6.5


Company financials

2007 2008 2009 2010

YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 264 294 733 281 (61.7) 2.1EBITDA SRmn 123 141 398 145 (63.5) 5.9Net Income SRmn 78 123 381 123 (67.8) 16.5Assets SRmn 1,535 1,953 1,839 1,885 2.5 7.1Equity SRmn 820 1,348 1,625 1,663 2.4 26.6Total Debt SRmn 58 53 50 45 (11.0) (8.3)Cash & Equiv SRmn 39 26 33 38 17.8 (0.7)EBITDA Mgn % 46.4 48.1 54.3 51.7 - -Net Mgn % 29.4 41.9 51.9 43.7 - -ROE % 9.8 11.3 25.6 7.5 - -ROA % 5.2 7.1 20.1 6.6 - -Div Payout % 88.9 67.3 27.2 84.4 - -EPS SR 1.1 1.8 5.5 1.8 (67.8) 16.5BVPS SR 11.9 19.5 23.5 24.1 2.4 26.6 Source: Tadawul, Zawya, Company, NCBC Research

224

Tourism Enterprise Co. (TECO) was established in 1991 to construct and manage tourist projects. Headquartered in Dammam, Saudi Arabia, the company primarily focuses on ownership and management of the Palm Beach Resort®. TECO offers it's visitors various sports and recreational activities, conference facilities, cabanas and suites.

• Business brief The Palm Beach Resort, which stretches up to 1,300 meters, includes 165 chalets, more than 100 suites and cabanas overlooking the Arabian Gulf. Sports and recreational facilities include ladies sports club with swimming pool; men's sports and fitness center; football, tennis, basketball and squash courts; sauna and steam bath facility; and catering services such as coffee shops, swimming pool for children, gardens for families and 24-hour security. The Resort offers event facilities such as conference rooms for up to 120 guests in addition to business lunches and cocktails.

• Financials TECO’s revenues grew 7.4% YoY in 2010, driven by better realizations. The company reported a net profit of SR1.9mn in 2010 compared to a loss of SR3.4mn in the previous year. The increase can be ascribed to rationalization of expenses during the year. Consequently, the company’s net margin stood at 12.7% during the year compared to (24.5%) in 2009.

• Recent developments In June 2010, the company re-elected Dr. Adel Bin Abdulaziz Boodai as Chairman and Mr. Abdul Hamid Abdullah as Managing Director and CEO.

HOTEL & TOURISM ⏐ MAY 2011

TOURISM ENTERPRISE CO.

ALSO KNOWN AS: SHAMS

NC Current price (SR) 25.4Pricing as of 04-05-2011




Reuters code 4170.SEBloomberg code TECO AB

www.palmbeach-resort.com WEIGHTING & FREEFLOAT (%) TASI (free float weight) 0.04Free float 100.0 VALUATION MULTIPLES 08A 09A 10AP/E (x) 1,448 NM 137P/B (x) 3.5 3.7 3.6P/S (x) 17.6 18.6 17.3Div Yield (%) NA NA NADPS NA NA NA Source: NCBC Research estimates SHARE PRICE PERFORMANCE

16

21

26

31

5,000

5,500

6,000

6,500

7,000


TASI Shams (LHS)

Source: Reuters TOP 5 SHAREHOLDERS (%)


Company financials

2007 2008 2009 2010

YoY(%)

CAGR (%)(07-10)

Net Revenues SRmn 13.2 14.7 13.9 14.9 7.4 4.1EBITDA SRmn 4.8 4.3 0.9 6.2 611.6 8.7Net Income SRmn 2.1 0.2 (3.4) 1.9 NM (3.5)Assets SRmn 79.4 78.5 74.0 75.3 1.8 (1.7)Equity SRmn 72.8 72.6 69.2 71.0 2.5 (0.8)Total Debt SRmn - - - - - -Cash & Equiv SRmn 3.0 3.6 4.6 19.2 318.3 85.6EBITDA Mgn % 36.4 29.4 6.3 41.5 562.9 4.5Net Mgn % 15.9 1.2 (24.5) 12.7 - -ROE % 2.9 0.2 (4.8) 2.7 - -ROA % 2.6 0.2 (4.5) 2.5 - -Div Payout % - - - - - -EPS SR 0.2 0.0 (0.3) 0.2 NM (3.5)BVPS SR 7.2 7.2 6.8 7.0 2.5 (0.8) Source: Tadawul, Zawya, Company, NCBC Research

225


MAY 2011

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NCBC Investment Ratings OVERWEIGHT: Target price represents expected returns in excess of 15% in the next 12 months

NEUTRAL: Target price represents expected returns between -10% and +15% in the next 12 months

UNDERWEIGHT: Target price represents a fall in share price exceeding 10% in the next 12 months

PRICE TARGET: Analysts set share price targets for individual companies based on a 12 month horizon. These share price targets are subject to a range of company specific and market risks. Target prices are based on a methodology chosen by the analyst as the best predictorof the share price over the 12 month horizon

Other Definitions NR: Not Rated. The investment rating has been suspended temporarily. Such suspension is in compliance with applicable regulations and/or in

circumstances when NCB Capital is acting in an advisory capacity in a merger or strategic transaction involving the company and in certain other situations

CS: Coverage Suspended. NCBC has suspended coverage of this company

NC: Not covered. NCBC does not cover this company

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