Global Research Result Update Equity Oman Cement Sector 29th May, 2012

HOLD

Oman Cement Company (OCC)

Market Data Bloomberg Code: Reuters Code: th CMP (29 May 2012): O/S (mn) Market Cap (OMR mn): Market Cap (USD mn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High (OMR): Low (OMR): Average Volume: (000) 1m 8.1 10.5 3m 32.0 33.8 0.69 0.42 143.4 12m 20.1 24.3 OCOI OM OCCO.OM OMR0.676 330.8 223.7 581.7 11.2 1.5

Target Price OMR0.698

1Q12 net profit increases by 23.9%YoY OMR10bn development plan; 35.5% Investment Expenditure Increased Clinker Capacity by 600,000tpa Fair value upgraded; Recommendation maintained at HOLD

Modest 8.5% increase in top line in 1Q12

Oman Cement Company (OCC) recorded a 8.6% increase in top line to OMR13.9mn as sales volume reflected positively. This resulted in a 23.9% increase in profits reaching OMR5.1mn as compared to OMR4.1mn registered in 1Q11. The increase has mirrored strongly in margins. Gross margins increased to 40.1% and net margins up by 450bps to 36.8% during the quarter. The increase can be attributed to the inauguration of its new clinker line which increased the capacity to 2.4mtpa. In addition to higher production and sales volume.

New Kiln leads to higher production and sales

Absolute (%) Relative (%) Oman Cement managed to roll out 543,544tons of cement during 1Q12, up 10.7% as compared to the previous period, the increase is associated to a new Kiln commissioned in 2011, a new line of 4,000tpd of clinker has been completed. Clinker production on the other hand increased 94% and reach 538,295tons, of which 60% of it is from the new Kiln. In terms of sales, OCC sold 558,495tons of cement during 1Q12 as compared to 490,865tons in 1Q11, a 13.8% increase. OCC signed a contract to increase capacity of Kiln-1 and is expected to commission it in 1Q13.
Interim Results (OMR mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Gross Margins (%) Operating Margins (%) Net Margins (%)

Price Volume Performance

1,600 1,400 1,200 1,000 0.60 800 0.55 600 400 200 0.50 0.45 0.40 0.75 0.70 0.65

23-May-11 23-Jun-11 23-Jul-11 23-Aug-11 23-Sep-11 23-Oct-11 23-Nov-11 23-Dec-11 23-Jan-12 23-Feb-12 23-Mar-12 23-Apr-12 23-May-12

1Q11 12.9 8.1 4.7 4.0 4.2 36.9% 31.1% 32.3%

1Q12 14.0 8.4 5.6 4.7 5.1 40.1% 33.5% 36.8%

Change 8.6% 3.0% 18.2% 16.8% 23.9% -

Stabilization in Prices
Prices of cement in Oman have witnessed stability after recording continuous decline since 2009 where prices averaged around USD82.5/ton. Since 1Q12 Omani cement price have averaged around USD65/ton, a strong sign of stabilization. We expect cement prices to continue at their current levels and start to increase from 2013 onwards.

Volume (000)

OCC (OMR) - RHS

Faisal Hasan, CFA Head of Research fhasan@global.com.kw Tel.: (965) 2295-1270 Turki O. AlYaqout Financial Analyst tyaqout@global.com.kw Tel.: (965) 2295-1295 Global Investment House www.globalinv.net

Huge Development Plan

The Omani government ratified the new budget for 2012 with a historical OMR10.0bn in expenditures, 35.5% of the expenditures is targeted to investments. According to the Ministry of Economy, the country is allocating around OMR2.0bn to build new projects including roads, construction of 29 schools, 5 new hospitals, establishment of fishing harbors and centralized markets. The development plan will help OCC tremendously as it will help keep up local cement demand. In addition risks arising from the supply of cement from neighboring countries including UAE will decrease due to the situation in UAE is turning around as there is pickup in demand which has given rise to increase in price for the first time since 2009.

Global Research Oman Healthy financial base

Oman Cement Company (OCC)

OCC managed to witness a 2.6% increase in equity for 1Q12 to reach OMR143.6mn, in addition to an healthy 3.8% increase in assets. Oman Cement debt/equity ratio is currently at 0.09x in 1Q12 and is expected to decrease to 0.05x in 2012. The company has a healthy current and quick ratio of 3.1x and 2.1x respectively.

Valuation update
We have upgraded our fair value to OMR0.698/share after incorporating improved cement demand forecast for 2012-15 in our model. Despite upgrading our fair value the recommendation has not changed due to 32.0% increase in share price in the last 3 months. Thus we maintain HOLD recommendation on the stock.

May 2012

Global Research Oman

Oman Cement Company (OCC)

Financial Statement
(OMR mn) Net Sales Revenue Cost of Sales Gross Profit General & Administrative Expense Operating Profit Other Income Share of Result of Associates Net Finance Income Profit Before Taxation Taxation Net Profit Cash and Bank Balance Receivables and Prepayments Inventories Investments Other Assets Long-term Deposits Investments in Associates Investments Available-for-Sale Net Fixed Assets Total Assets Loans Payables Others Paid -up Capital Reserves Share Premium Revaluation Surplus Retained Earnings Total Shareholders Equity Total Equity & Liability Cash Flow from Operating Activities Cash Flow from Investing Activities Cash Flow from Financing Activities Net Change in Cash Net Cash at End
Cash Flow

2009 68.3 (42.0) 26.2 (2.5) 23.7 3.6 0.0 (0.0) 27.4 (3.1) 24.2 2.3 5.1 7.7 7.8 2.1 22.4 0.6 13.6 91.8 153.5 4.1 4.9 8.6 33.1 35.9 6.7 0.0 60.2 135.9 153.5 32.7 (30.8) (4.1) (2.3) 2.4

2010 51.9 (29.2) 22.7 (5.2) 17.5 10.6 0.1 (0.0) 28.2 (3.2) 25.0 3.2 5.6 9.4 6.4 16.8 17.8 0.7 12.8 99.5 172.2 7.4 7.7 8.7 33.1 35.7 6.7 0.0 73.0 148.5 172.2 27.6 (17.9) (8.9) 0.8 3.2

2011 47.9 (31.1) 16.8 (3.4) 13.4 1.4 0.1 (0.3) 14.5 (1.7) 12.8 3.0 8.9 12.6 6.3 12.5 11.3 0.8 11.0 107.8 174.3 8.0 11.4 6.5 33.1 35.0 6.7 0.0 73.6 148.4 174.3 8.4 3.0 (11.6) (0.2) 3.0

2012e 57.8 (34.2) 23.6 (3.8) 19.8 2.3 0.1 (0.1) 22.2 (2.2) 19.9 3.1 7.1 8.4 6.6 12.5 11.9 0.8 11.2 109.6 171.3 7.6 9.8 5.1 33.1 35.2 6.7 0.0 73.7 148.7 171.3 27.3 (6.8) (20.4) 0.1 3.1 2.9 2.2 40.8% 34.3% 34.5% 11.5% 13.4% 0.05 17.8% 87.8 8.9% 3.95 8.60 0.45 0.68 223.7 0.06 11.21 1.50

2013e 61.8 (36.3) 25.5 (4.0) 21.5 2.1 0.1 (0.1) 23.6 (2.4) 21.3 5.8 7.6 8.9 6.6 12.5 11.3 0.8 11.5 108.2 173.3 7.2 10.4 5.3 33.1 35.4 6.7 0.0 75.1 150.3 173.3 25.4 (2.4) (20.3) 2.7 5.8 3.0 2.4 41.3% 34.8% 34.4% 12.3% 14.2% 0.05 18.7% 86.6 8.9% 3.64 8.00 0.45 0.68 223.7 0.06 10.52 1.49

2014e 65.4 (38.5) 27.0 (4.3) 22.7 1.9 0.2 (0.1) 24.7 (2.5) 22.2 8.4 8.1 9.5 6.7 12.5 10.7 0.8 11.7 107.7 176.2 6.9 12.6 5.4 33.1 35.6 6.7 0.0 75.8 151.2 176.2 28.0 (3.4) (22.0) 2.6 8.4 2.9 2.2 41.2% 34.7% 33.9% 12.7% 14.7% 0.05 19.3% 85.4 9.6% 3.39 7.60 0.46 0.68 223.7 0.07 10.08 1.48

2015e 69.2 (40.7) 28.5 (4.5) 24.0 1.7 0.2 (0.1) 25.8 (2.6) 23.2 8.3 10.4 11.2 6.7 12.5 10.2 0.9 11.9 107.2 179.4 6.5 13.1 8.2 33.1 35.9 6.7 0.0 75.8 151.6 179.4 26.9 (3.4) (23.6) (0.1) 8.3 3.1 2.4 41.2% 34.7% 33.6% 13.1% 15.3% 0.04 20.1% 85.3 10.4% 3.21 7.28 0.46 0.68 223.7 0.07 9.63 1.48

Current Ratio (x) 2.9 3.2 2.9 Quick Ratio (x) 2.0 2.5 2.0 Gross Profit Margin (%) 38.4% 43.8% 35.1% Operating Margin (%) 34.8% 33.7% 28.0% Net Profit Margin (%) 35.5% 48.3% 26.7% Return on Average Assets (%) 16.9% 15.4% 7.4% Return on Average Equity (%) 19.1% 17.6% 8.6% Debt / Equity (x) 0.03 0.05 0.05 Cash Return On Capital Invested (%) 22.5% 21.7% 12.6% EV/Ton (OMR) 133.3 83.1 83.4 Dividend Yield (%) 2.9% 5.8% 5.8% EV/Revenues (x) 3.65 4.16 4.52 EV/EBITDA (x) 8.14 6.71 11.56 Book Value Per Share (OMR) 0.41 0.45 0.45 Market Price (OMR) * 0.75 0.64 0.64 Market Capitalization (OMR mn) 247.5 211.8 211.8 EPS (OMR) 0.07 0.08 0.04 P/E Ratio (x) 10.21 8.46 16.54 P/BV Ratio (x) 1.82 1.43 1.43 Source: Company Reports & Glob al Research * Market price for 2012 and sub sequent years as per closing price on MSM on May 28th, 2012
Ratio Analysis

May - 2012

Balance Sheet

Profit & Loss Statement

Global Research Oman

Oman Cement Company (OCC)

Disclosure
The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant disclosures which apply to this particular research has been mentioned in the table below under the heading of disclosure. Disclosure Checklist Company Oman Cement Company Recommendation BUY Bloomberg Ticker OCOI OM Reuters Ticker OCCO.OM Price OMR0.676 Disclosure 1,10

1.

Global Investment House did not receive and will not receive any compensation from the company or anyone else for the preparation of this report. 2. The company being researched holds more than 5% stake in Global Investment House. 3. Global Investment House makes a market in securities issued by this company. 4. Global Investment House acts as a corporate broker or sponsor to this company. 5. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company. 6. An employee of Global Investment House serves on the board of directors of this company. 7. Within the past year, Global Investment House has managed or co-managed a public offering for this company, for which it received fees. 8. Global Investment House has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 9. Global Investment House expects to receive or intends to seek compensation for investment banking services from this company in the next three month. 10. Please see special footnote below for other relevant disclosures. Global Research: Equity Ratings Definitions Global Rating Definition STRONG BUY Fair value of the stock is >20% from the current market price BUY Fair value of the stock is between +10% and +20% from the current market price HOLD Fair value of the stock is between +10% and -10% from the current market price SELL Fair value of the stock is < -10% from the current market price

Disclaimer
This material was produced by Global Investment House KSCC (Global),a firm regulated by the Central Bank of Kuwait. This do cument is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities (securities), perform serv ices for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgment. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Global for, or sent by Global to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice. Past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such restrictions. By accepting this report you agree to be bound by the foregoing limitations.

May - 2012

Global Investment House Website: www.globalinv.net Global Tower Sharq, Al-Shuhada Str. Tel. + (965) 2 295 1000 Fax. + (965) 2 295 1005 P.O. Box: 28807 Safat, 13149 Kuwait

Research Faisal Hasan, CFA (965) 2295-1270 fhasan@global.com.kw

Brokerage Fouad Fahmi Darwish (965) 2295-1700 fdarwish@global.com.kw

Wealth Management - Kuwait Rasha Al-Qenaei (965) 2295-1380 alqenaei@global.com.kw

Wealth Management - International Fahad Al-Ibrahim (965) 2295-1400 fahad@global.com.kw

Global Kuwait Tel: (965) 2 295 1000 Fax: (965) 2 295 1005 P.O.Box 28807 Safat, 13149 Kuwait Global Egypt Tel: (202) 24189705/06 Fax: (202) 22905972 24 Cleopatra St., Heliopolis, Cairo

Global Bahrain Tel: (973) 17 210011 Fax: (973) 17 210222 P.O.Box 855 Manama, Bahrain Global Saudi Arabia Tel: (966) 1 2994100 Fax: (966) 1 2994199 P.O. Box 66930 Riyadh 11586, Kingdom of Saudi Arabia

Global UAE Tel: (971) 4 4477066 Fax: (971) 4 4477067 P.O.Box 121227 Dubai, UAE Global Jordan Tel: (962) 6 5005060 Fax: (962) 6 5005066 P.O.Box 3268 Amman 11180, Jordan

Global Wealth Manager E-mail: contactus@global.com.kw Tel: (965) 1-804-242