alharbi
23-04-2006, Sun 7:31 PM
السهم يرتفع له أيام ونشر التقرير اليوم
Global values Arabian Cement at SR176 per share and upgrade the earlier recommendation to buy.
Posted: 23-04-2006 , 07:46 GMT
Arabian Cement Company Equity Research Update -Arabian Cement Company (ACC) was the first cement company to be established in Saudi Arabia back in 1956. The company produces and markets various types of cement, such as ordinary portland cement (OPC), sulphate resisting cement (SRC) and portland pozzolanic cement. The current annual clinker capacity of the company stands at 2.4mtpy, while the cement grinding capacity is 2.5mtpy. ACC is expanding its clinker capacity by 2.3mt, expected to be commissioned by the middle of 2007. It also has plans to de-commission about 1.3mt of its existing capacity later.
The company has paid-up equity capital of SR600mn. Among the major shareholders of the company are prominent business families, such as Al Sulaiman, Al Rajhi, Al Issa and Binladen families, and institutions, such as Riyad Bank and National Commercial Bank.
The company is currently listed on the Saudi Stock Market (Tadawul), where it is heavily traded. The high/low prices of the stock over the last one year have been SR239 / SR97 (post the recent 5:1 stock-split).
Arabian Cement Company - Results for 2005
(SR ’000)
2005
2004
% Change
Sales
687,227
578,799
18.7%
Cost of Sales
(338,677)
(315,060)
7.5%
Gross Profit
348,550
263,739
32.2%
Staff Expenses
(25,090)
(22,062)
13.7%
Other General & Administrative Expenses
(5,789)
(4,692)
23.4%
Selling & Marketing Expenses
(826)
(1,056)
-21.8%
Provisions
(1,353)
(11,027)
-87.7%
Depreciation
(2,160)
(2,038)
6.0%
Operating Profit
313,332
222,865
40.6%
Other Income
4,874
3,610
35.0%
Income from Available-for-Sale investments
9,618
14,893
-35.4%
Gains from short-term investments
14,720
7,583
94.1%
Profit on disposal of investments
0
72,124
-100.0%
Others
724
(103)
-800.8%
Profit Before Zakat
343,267
320,971
6.9%
Zakat
(12,417)
(14,595)
-14.9%
Net Profit
330,851
306,376
8.0%
EPS (SR)
27.6
25.5
8.0%
Source: Company's Financial Statements for 2005.
Analysis of 2005 Results
The sales revenue of ACC for the year 2005 increased by 18.7% to SR687.2mn from SR578.8 mn in 2004. The cost of sales of SR338.7mn, on the other hand, was higher by 7.5% over the previous year. The higher increase in the sales revenue than in the cost of sales has caused a higher increase in the gross profit – an increase of 32.2% to SR348.6mn during the year from SR263.6mn in 2004. Simultaneously, the Gross Profit Margin improved to 50.7% in 2005 from 45.6% in 2004.
On the operating expenses side, the general & administrative expenses of SR5.8mn increased by 23.4% during the year. On the other hand, the distribution expenses of SR0.8mn decreased by 21.8% during 2005. Staff costs of SR25.1mn were higher by 13.7% over the previous year. The operating profit of SR313.3mn in 2005 was higher by 40.6% over the previous year. The Operating Profit Margin improved to 45.6% in 2005 from 38.5% in 2004.
The income/gains from the investment portfolio gave the company SR24.3mn during the year, 8.3% higher than SR22.5mn in the previous year. The net profit of the company increased by 8.0% during 2005 to SR330.9mn from SR306.4mn in 2004. The EPS of the company rose to SR27.6 (SR5.5 post the recent 5:1 stock-split) during the year, from SR25.5 (SR5.1 post the stock-split) reported in 2004. The company has declared a total dividend of SR20 per share (40%) during the year.
The total assets of the company of SR2.2bn at the end of 2005 witnessed an increase of 23.4%. While there was an increase of 3.5% in the trade receivables (59 average receivable-days at the end of December 2005, lower than 66 days in December 2004), inventories decreased by 16.3% (159 average inventory-days at the end of 2005, down from 204 days at the end of 2004). Investments rose by 18.4% during the year to SR693.5mn from SR585.6mn in the previous year. Net fixed assets rose by 15.0% to SR754.0mn during the year. On the liabilities side, there was a rise in the account payables of 9.7% during the year (51 average payable-days at the end of 2005, down from 53 days at the end of 2004).
Saudi Cement Sector Outlook
According to data currently available, projects currently under execution in the GCC amount to about $620bn. Out of these, Saudi Arabia is believed to account for about 29.3%, or $182bn worth of projects. Of these about $80bn (or over 44%) worth of projects are believed to be in the civil segment. Civil projects – covering infrastructure and property construction segments – are known to be highly cement-intensive in nature. The high proportion of the proposed investments in the civil segment points towards a steady and sustainable cement demand in the country moving forward. Thus, there is now greater visibility on the future cement demand front in the country.
On the supply side, announcements have been made by various incumbent as well as new cement companies for expansion of existing capacities and/or setting up new capacities. New clinker capacities of about 21.3mt and cement capacities of about 22.0mt are believed to be coming up in the Kingdom in the coming 2-3 years by way of expansions as well as greenfield projects.
Over the medium-term, the cement demand in Saudi Arabia is expected to be robust in view of the massive investments planned all across the country. Assuming that all the investment projects valued at $182bn announced in Saudi Arabia so far are implemented, we project a cement demand growth at a CAGR of about 12% in volume-terms during 2005-’08.
Valuation & Recommendation
In our previous Research Report on ACC in September 2005, with which we had initiated coverage of the stock, we had arrived at a weighted average share value of SR589 per share (post-dilution of equity after a proposed 1:3 rights issue in 2005; SR118 post the recent 5:1 stock-split), and had recommended a 'Hold' on the stock at the then prevailing price of SR805 (pre-dilution; SR161 post the stock-split) (SR603.75 post-dilution; SR121 post the stock-split). The stock has had a good run at the stock market since then, touching a high/low of SR239/SR155 (post the stock-split) over a period of about six months since the release of our Report, before the Saudi stock market went for a major correction in late-February 2006. The stock has lost about SR129 (over 54%) since the middle of February 2006, to close at SR110 on April 17, 2006.
The positive newsflows favorably impacting the Saudi cement sector, as well as the performance of the company in 2005 have prompted us to revisit our earlier projections. We have accordingly revised our projections for sales, gross profit, operating profit and net profit for 2006 to SR859.7mn (from SR857.0mn in our earlier report), SR425.5mn (SR391.8mn), SR383.0mn (SR344.4mn) and SR389.9mn (SR368.8mn) respectively, in keeping with the company's 2005 results.
Besides the changes in the projections, we have also made a change in the risk-free rate from that assumed in our earlier Report. We have retained the market risk premium, beta and cost of debt at the earlier levels. As a result, WACC has declined marginally to 9.10% in this Update from 9.13% in the earlier Report. The combination of the revised financial projections, WACC and the number of shares outstanding has now led to the DCF value of SR179, higher than SR116 (post stock-split; SR581 pre-split) arrived at in the September 2005 Report. Based on the Sector P/E multiple of 25.0x (down from 29.9x at the time of the earlier Report), the peer valuation has increased now to SR162, higher than SR124 (post stock-split; SR622 pre-split) earlier. The combined effect of these two has led to an upward revision in the weighted average share value of ACC, which is now SR176, as against SR118 (post stock-split; SR589 pre-split) arrived at in our September 2005 Report.
At the current market price of SR110 on the Tadawul, the ACC share is quoting at a discount of 59.8% to its intrinsic value. We, therefore, recommend a ‘Buy’ on the ACC stock at the current price levels, upgrading it from our earlier recommendation of ‘Hold’.
The upgrade in our recommendation on the stock reflects both a change in the intrinsic valuation of the company as well as the massive run-down on the stock on the Tadawul in recent weeks.
Global values Arabian Cement at SR176 per share and upgrade the earlier recommendation to buy.
Posted: 23-04-2006 , 07:46 GMT
Arabian Cement Company Equity Research Update -Arabian Cement Company (ACC) was the first cement company to be established in Saudi Arabia back in 1956. The company produces and markets various types of cement, such as ordinary portland cement (OPC), sulphate resisting cement (SRC) and portland pozzolanic cement. The current annual clinker capacity of the company stands at 2.4mtpy, while the cement grinding capacity is 2.5mtpy. ACC is expanding its clinker capacity by 2.3mt, expected to be commissioned by the middle of 2007. It also has plans to de-commission about 1.3mt of its existing capacity later.
The company has paid-up equity capital of SR600mn. Among the major shareholders of the company are prominent business families, such as Al Sulaiman, Al Rajhi, Al Issa and Binladen families, and institutions, such as Riyad Bank and National Commercial Bank.
The company is currently listed on the Saudi Stock Market (Tadawul), where it is heavily traded. The high/low prices of the stock over the last one year have been SR239 / SR97 (post the recent 5:1 stock-split).
Arabian Cement Company - Results for 2005
(SR ’000)
2005
2004
% Change
Sales
687,227
578,799
18.7%
Cost of Sales
(338,677)
(315,060)
7.5%
Gross Profit
348,550
263,739
32.2%
Staff Expenses
(25,090)
(22,062)
13.7%
Other General & Administrative Expenses
(5,789)
(4,692)
23.4%
Selling & Marketing Expenses
(826)
(1,056)
-21.8%
Provisions
(1,353)
(11,027)
-87.7%
Depreciation
(2,160)
(2,038)
6.0%
Operating Profit
313,332
222,865
40.6%
Other Income
4,874
3,610
35.0%
Income from Available-for-Sale investments
9,618
14,893
-35.4%
Gains from short-term investments
14,720
7,583
94.1%
Profit on disposal of investments
0
72,124
-100.0%
Others
724
(103)
-800.8%
Profit Before Zakat
343,267
320,971
6.9%
Zakat
(12,417)
(14,595)
-14.9%
Net Profit
330,851
306,376
8.0%
EPS (SR)
27.6
25.5
8.0%
Source: Company's Financial Statements for 2005.
Analysis of 2005 Results
The sales revenue of ACC for the year 2005 increased by 18.7% to SR687.2mn from SR578.8 mn in 2004. The cost of sales of SR338.7mn, on the other hand, was higher by 7.5% over the previous year. The higher increase in the sales revenue than in the cost of sales has caused a higher increase in the gross profit – an increase of 32.2% to SR348.6mn during the year from SR263.6mn in 2004. Simultaneously, the Gross Profit Margin improved to 50.7% in 2005 from 45.6% in 2004.
On the operating expenses side, the general & administrative expenses of SR5.8mn increased by 23.4% during the year. On the other hand, the distribution expenses of SR0.8mn decreased by 21.8% during 2005. Staff costs of SR25.1mn were higher by 13.7% over the previous year. The operating profit of SR313.3mn in 2005 was higher by 40.6% over the previous year. The Operating Profit Margin improved to 45.6% in 2005 from 38.5% in 2004.
The income/gains from the investment portfolio gave the company SR24.3mn during the year, 8.3% higher than SR22.5mn in the previous year. The net profit of the company increased by 8.0% during 2005 to SR330.9mn from SR306.4mn in 2004. The EPS of the company rose to SR27.6 (SR5.5 post the recent 5:1 stock-split) during the year, from SR25.5 (SR5.1 post the stock-split) reported in 2004. The company has declared a total dividend of SR20 per share (40%) during the year.
The total assets of the company of SR2.2bn at the end of 2005 witnessed an increase of 23.4%. While there was an increase of 3.5% in the trade receivables (59 average receivable-days at the end of December 2005, lower than 66 days in December 2004), inventories decreased by 16.3% (159 average inventory-days at the end of 2005, down from 204 days at the end of 2004). Investments rose by 18.4% during the year to SR693.5mn from SR585.6mn in the previous year. Net fixed assets rose by 15.0% to SR754.0mn during the year. On the liabilities side, there was a rise in the account payables of 9.7% during the year (51 average payable-days at the end of 2005, down from 53 days at the end of 2004).
Saudi Cement Sector Outlook
According to data currently available, projects currently under execution in the GCC amount to about $620bn. Out of these, Saudi Arabia is believed to account for about 29.3%, or $182bn worth of projects. Of these about $80bn (or over 44%) worth of projects are believed to be in the civil segment. Civil projects – covering infrastructure and property construction segments – are known to be highly cement-intensive in nature. The high proportion of the proposed investments in the civil segment points towards a steady and sustainable cement demand in the country moving forward. Thus, there is now greater visibility on the future cement demand front in the country.
On the supply side, announcements have been made by various incumbent as well as new cement companies for expansion of existing capacities and/or setting up new capacities. New clinker capacities of about 21.3mt and cement capacities of about 22.0mt are believed to be coming up in the Kingdom in the coming 2-3 years by way of expansions as well as greenfield projects.
Over the medium-term, the cement demand in Saudi Arabia is expected to be robust in view of the massive investments planned all across the country. Assuming that all the investment projects valued at $182bn announced in Saudi Arabia so far are implemented, we project a cement demand growth at a CAGR of about 12% in volume-terms during 2005-’08.
Valuation & Recommendation
In our previous Research Report on ACC in September 2005, with which we had initiated coverage of the stock, we had arrived at a weighted average share value of SR589 per share (post-dilution of equity after a proposed 1:3 rights issue in 2005; SR118 post the recent 5:1 stock-split), and had recommended a 'Hold' on the stock at the then prevailing price of SR805 (pre-dilution; SR161 post the stock-split) (SR603.75 post-dilution; SR121 post the stock-split). The stock has had a good run at the stock market since then, touching a high/low of SR239/SR155 (post the stock-split) over a period of about six months since the release of our Report, before the Saudi stock market went for a major correction in late-February 2006. The stock has lost about SR129 (over 54%) since the middle of February 2006, to close at SR110 on April 17, 2006.
The positive newsflows favorably impacting the Saudi cement sector, as well as the performance of the company in 2005 have prompted us to revisit our earlier projections. We have accordingly revised our projections for sales, gross profit, operating profit and net profit for 2006 to SR859.7mn (from SR857.0mn in our earlier report), SR425.5mn (SR391.8mn), SR383.0mn (SR344.4mn) and SR389.9mn (SR368.8mn) respectively, in keeping with the company's 2005 results.
Besides the changes in the projections, we have also made a change in the risk-free rate from that assumed in our earlier Report. We have retained the market risk premium, beta and cost of debt at the earlier levels. As a result, WACC has declined marginally to 9.10% in this Update from 9.13% in the earlier Report. The combination of the revised financial projections, WACC and the number of shares outstanding has now led to the DCF value of SR179, higher than SR116 (post stock-split; SR581 pre-split) arrived at in the September 2005 Report. Based on the Sector P/E multiple of 25.0x (down from 29.9x at the time of the earlier Report), the peer valuation has increased now to SR162, higher than SR124 (post stock-split; SR622 pre-split) earlier. The combined effect of these two has led to an upward revision in the weighted average share value of ACC, which is now SR176, as against SR118 (post stock-split; SR589 pre-split) arrived at in our September 2005 Report.
At the current market price of SR110 on the Tadawul, the ACC share is quoting at a discount of 59.8% to its intrinsic value. We, therefore, recommend a ‘Buy’ on the ACC stock at the current price levels, upgrading it from our earlier recommendation of ‘Hold’.
The upgrade in our recommendation on the stock reflects both a change in the intrinsic valuation of the company as well as the massive run-down on the stock on the Tadawul in recent weeks.