Global Research - Oman
Oman
Investment Update
Oman Cement Company
Tickers:
OCCO.OM (Reuters)
OCOI OM (Bloomberg)
Listing:
Muscat Securities Market
Investment Summary
•
Oman Cement Company (OCC) posted revenue of RO63.5mn which was higher by
9% as per our estimates of RO58.3mn for 2008. Difference in the forecasted and actual
revenue was because of the increase in the price cap during the year as well as import of
higher amount of clinker and cement. Company sales volume increased by 14.6% to 2.1mn
tons as compared to 1.87mn tons in 2007. On the other hand local sales price increased by
12.2% to RO29.7/ton whereas the export price rose by 11.6% to RO36.5/ton.
•
OCC’s cost of sales increased by 69% to RO49.65mn in 2008. The increase in cost was
due to high purchase cost of cement and clinker imported under instructions from the
government in order to meet the local demand. The company imported 0.92mn tons of
clinker during the year to meet the demand, which is 42% higher as against 0.53mn tons
during the previous year.
•
OCC’s other income increased by 68% to RO3.2mn in 2008 as against RO1.91mn in 2007.
This other income portion has over the years added significant amount to the bottom line.
•
OCC reported profit before tax of RO14.1mn in 2008 which was subject to 12% income
tax resulting in a profit after tax of RO12.5mn as compared to RO17.6mn in 2007. In
2008, the company managed to report net margins of 19.74% as against 35.3% in 2007.
•
In terms of quarterly performance of 2008, 1Q-2008 was the most favorable quarter as the
company report profit after tax of RO3.9mn and net margins of 34%. Although in the last
quarter the company report highest ever revenue but was not able to full transfer it to the
bottom line as the net margins were merely 9% in 4Q-2008.
•
OCC’s assets declined marginally to RO133mn in 2008 as compared to RO134.3mn
in 2007. The major reason for the fall in assets in 2008 was because of decline in the
investment available for sale. Investment available for sale dropped to RO15.2mn as
compared to RO21.0mn in 2007.
•
OCC announced an expansion of 1.2mn tons in clinker capacity for which a contract has
been signed. The duration for construction and erection of the project is 25 months as per
the contract and the project is expected to be completed in December 2009- 1st Quarter
Head of Research
fhasan@global.com.kw
Phone No:(965) 22951270
Financial Analyst
hkumar@global.com.kw
Phone No:(965) 22951281
Buy
Current Price:
RO0.372 (As on April 13th, 2009)
Faisal Hasan, CFA
Hettish Kumar
April, 2009
Oman Cement Company
1
Global Research - Oman
Global Investment House
of 2010. In order to finance the project, OCC will be partly utilizing loan funds. The total
contract value for the Expansion Project is RO62.7mn (US$162mn) and RO20mn of the
project cost is to be met from loans.
•
Sohar Praton Concrete Products Company SAOC, a 58.4% subsidiary of OCC went into
liquidation and consequently, the parent company’s control of the subsidiary passed to
the liquidator. Accordingly, the subsidiary is deconsolidated with effect from 12 March
2008. On the other hand, Oman Mondi Shuaiba Packaging (OMSP) reported an improved
performance during the year 2008. Revenue earned by OMSP increased from RO3.5mn
to RO6.5mn in 2008.
•
As per MEED, over US$105bn worth of projects have been announced by Oman. Keeping
in view the liquidity crunch and the cash constraints, even if we discount the projects by
more than a half, still there would be ample demand which would be catering to sales
growth of the cement companies in Oman. According to OCC, the expected demand for
cement in Oman is estimated at 4.63mtpa during 2009.
•
The value of OCC’s shares derived from the weighted average of the DCF and relative
valuation methods is RO0.676 per share. The stock closed at RO0.372 on the Muscat
Securities Market at the end of trading on 13th April 2009, which implies that the weighted
average value of OCC’s shares is at a premium of 82% to the share’s current market price.
At their current price, OCC’s shares have a P/E multiple of 10.6x and 7.2x for 2009 and
2010 respectively. We therefore reiterate our BUY recommendation on the scrip.
Table 01: Investment Indicators
CMP (13th April 2009)
RO0.372
Gross Profit
Year
(RO mn)
2010 F
19.8
2009 F
13.4
2008 A
13.9
2007 A
20.5
Shares in Issue (mn)
330.9
Net Profit
EPS
(RO mn)
(RO)
17.0
0.05
11.6
0.04
12.5
0.04
17.6
0.05
M-Cap (RO mn) 52-Week Hi/Lo (RO)
123.1
1.025 / 0.232
BVPS
ROAE
P/E
P/BV
(RO)
(%)
(x)
(x)
0.36
14.79
7.2
1.0
0.34
10.42
10.6
1.1
0.33
11.32
7.9
0.9
0.33
17.07
12.5
2.0
Source : Company’s Annual Reports, Reuters & ’Global’ Research.
Historical P/E & P/BV multiples based on respective year-end prices, while those for future years are based on
current market price in the Muscat Securities Market as on April 13, 2009.
Chart 01: Share Price Performance Chart
14,000
1.20
12,000
1.00
10,000
0.60
6,000
0.40
4,000
0.20
Index - LHS
13-Apr-09
13-Mar-09
13-Feb-09
13-Jan-09
13-Dec-08
13-Nov-08
13-Oct-08
13-Sep-08
13-Aug-08
13-Jul-08
13-Jun-08
13-May-08
13-Apr-08
2,000
-
(RO)
0.80
8,000
0.00
OCC - RHS
Source: Zawya
Oman Cement Company
Global Research - Oman
Global Investment House
Oman Cement Sector
The cement industry in Oman dates back to 1977, when Oman Cement Company (OCC) was
set up, followed by Raysut Cement Company (RCC), which started in 1981. OCC is situated
in the Muscat Governorate in Northern Oman, while RCC’s plant is located in the Dhofar
Governorate in Southern Oman. Most of the consumption is concentrated in the northern
part of the country as the southern part is less developed and demand for cement is lower.
As a consequence of that RCC has established a cement receiving facility at Port Sultan
Qaboos in Muscat with a capacity of 15,000 tons cement to cater to the Northern part of the
Country. RCC being present in the southern part of the country serves the deficit markets of
Yemen and East Africa for which it has established cement receiving facilities at the Ports
of Mukalla and Aden.
In Oman, construction activity has been in heightened mode since 2003, with cement demand
surpassing supply, resulting in cement shortages and price hikes. Consequently, the Omani
government decided to impose a ban on cement exports in mid 2004, a move that forced
local producers to focus on opportunities at home. Since then the country’s cement deficit
declined as the demand supply gap reversed into surplus. In nominal terms Oman’s building
and construction sector value has increased from RO159mn in 2000 to RO762mn at the end
of 2007, growing at a CAGR of 25%. Which is further expected to rise to RO838mn in 2008.
The building and construction sector contribution to the nominal GDP of the country is 4.8%
as of 2007 which is expected to touch 5% at the end of 2008. Oman ranks below in terms of
country’s building and construction sector contribution to the GDP when compared with its
regional players. UAE ranks at the top at 8% followed by Qatar and Bahrain at 5.7% and 5%
respectively.
Chart 02: Building & Construction Sector (BCS) as % GDP
8.0%
7.0%
6.0%
The increasing difference is because
of lower production of oil as
compared to BCS sector.
5.0%
4.0%
3.0%
2.0%
1.0%
2000
2001
2002
2003
2004
BCS as % of Nominal GDP
2005
2006
2007
BCS as % of Real GDP
2008
Source: Ministry of National Economy, Oman
On the other hand in real terms, country building and construction material sector contribution
to the GDP has increased from 2.1% in 2000 to 6.7% in 2007. The difference between the
nominal and real terms is because of the decline in the oil production from 299mn barrels in
2003 to 259mn barrels in 2007. Nevertheless in the same period nominal GDP continued to
increase as the oil price surged from US$27.8/barrel in 2003 to US$65.2/barrel in 2007. Going
forward we believe that building and construction material contribution to GDP will continue to
increased (1) ongoing construction and expansion activities in the real estate and construction
sector and (2) decline in the oil production in the country because of depleting reserves.
Oman Cement Company
Global Research - Oman
Global Investment House
Oman’s Cement Capacity Enhancements to Continue
Over the years with the increasing oil prices and higher budgetary revenues, the country
continued to focus on the diversification and developmental activities which in turn required
contribution from the cement sector as well for the construction activities. In view of that,
both the cement companies has continued to increase their cement capacities which at the end
of 2008 are 4.6mtpa as compared to 2.2mtpa in 2003.
Chart 03: Oman Cement Sector Capacity
140
7.0%
120
91.2
(mn Tons)
100
116.3
42.9
47.7
53.0
58.8
4.0%
68.7
3.0%
40
20
6.0%
5.0%
85.9
80
60
107.4
112.9
2.0%
2.2
2.2
2.2
3.2
4.2
4.6
4.6
5.4
5.4
5.4
-
1.0%
0.0%
2003
2004
2005
2006
Oman Capacity
2007
2008
2009F
GCC Capacity
2010F 2011F 2012F
Oman as % of GCC
Source: Oman & Raysut Cement
Oman Cement increased its capacity from 1.26mtpa in 2003 to 1.87mtpa in 2008. The heightened
demand prompted OCC to announce a further expansion which will double its clinker capacity
to 2.4mtpa. This expanded capacity would help in achieving high local market share and to
reduce the company’s reliance on imported clinker which incurs lots of cost and reduces the
margins. OCC is planning to bring the additional capacity on-stream in 2010.
On the other hand Raysut Cement also followed the footsteps of Oman Cement. It increased
its cement capacity from 0.98mtpa in 2003 to 2.75mtpa in 2008. In the meanwhile it has
surpassed the capacity of OCC, but with the expansion of OCC both would be able to produce
almost equal amounts of cement.
Cement capacity of Oman has continued and have tracked the pace of capacity enhancements
in the region. Overall in GCC, the cement capacity is expected to increase from 43mtpa in
2003 to 85.9mtpa and 116.3mtpa in 2008 and 2012 respectively. Hence, Oman’s contribution
to the overall cement capacity of GCC is to decline from the current levels of 5.4% in 2008
to 4.6% in 2012.
Demand Supply Scenario
Country’s demand and supply situation has in 2008 almost broke even as the total supply of
cement was 4.12mn tons while consumption in the country rose from 3.07mn tons to 4.06mn
tons. Cement demand in the country is driven by:
•
Tourism: In 2006, tourism accounted for 0.75% of the GDP with a value of RO103mn,
but the government hopes this figure can be increased to 1.4%of GDP in 2010 and 3% by
2020. Hence more of the focus would be on developing the infrastructure which in turn
would result in favorable situation for the cement industry. Many tourism related projects
are expected to come online in the coming 3-4 years.
Oman Cement Company
Global Research - Oman
Global Investment House
Table 02: Tourism Projects in Oman
Project Name
Majan Gulf Properties - Khasab Resort
Yenkit Tourism Devp - Integrated Tourism Complex
Muriya - Resorts
Alfa - Journey of Light Beach Resort
Ministry of Tourism - Seeb Complex
Omran - Asian Beach Games Project
Omran - Duqm Hotel
Omran - Fort Hotel Resort
Omran - Jabal Al Akhdar Resort Hotel
Omran - Oman Convention and Exhibition Centre
Omran - Ras Al Hamra Resort & Retreat
Omran / Qatari Diar Real Estate Inv. Co - Ras Al-Hadd Resort
Sama Dubai - Yiti Resort & Spa (Yiti)
Swiss-Belhotel International / HBG Holdings Ltd
The Wave Tourism Development
World In / Bolici Group - Hayoot Beach Resort
Value (US$mn)
780
2,000
850
950
100
180
80
300
150
400
700
220
1,400
200
2,000
350
10,660
Project End
Q1 2012
Q4 2011
Q4 2012
Q2 2011
Q3 2009
Q2 2010
Q1 2010
Q4 2010
Q2 2011
Q2 2011
Q1 2011
Q2 2012
Q4 2010
Q4 2010
Q1 2015
Q4 2010
Source: MEED
The total cost of these tourism related projects only is worth US$11bn which when translated
into cement demand would result in cement demand of 6.5mn tons in the four year period.
Overall, the outlook for tourism sector is very bright in the coming years and the Sultanate is
leaving no stones unturned to realize exponential growth in this sector.
•
Foreign Freehold Ownership: Earlier, only GCC nationals were the only foreigners
allowed to buy land in Oman which extend land ownership rights to GCC national and
GCC corporate entities. However, the Royal decree 12/2006, expands foreign ownership
rights to include non-GCC nationals as well.
•
Real Estate Investments: Despite the upsurge in property prices till September 2008
the Omani market remained competitive in terms of prices as compared to other GCC
countries. Omani land is cheaper than the other GCC countries. This gives the country an
advantage in attracting investments from other prosperous GCC countries.
As per MEED, at the end of 2008 US$105bn worth of projects has been announced by Oman.
On a conservative note even if 50% of the projects go as per schedule atleast US$52.5bn
worth of projects would continue as per schedule.
Table 03: Oman Cement Demand Expectations
Overall Project Announcements in Oman (2008-2015)
Assumed Actual Implementation
Expected Building & Construction Related Projects
Cement Revenue as % of Build & Cons Sector in GCC
Cement Price per Ton as of 2008 in Oman
Resulting Cement Demand (2008-2015)
Annual Cement Demand
(US$mn)
50%
40%
12%
(US$/Ton)
(mn Tons)
(mn Tons)
105,000.0
52,500.0
21,000.0
2,520.0
81.5
30.9
4.4
Source: MEED & Global Research
Oman Cement Company
Global Research - Oman
Global Investment House
These projects include various civil, industrial, infrastructure, real estate and construction
related projects. Hence of the total if we assume 40% are related to infrastructure, building and
real estate related construction projects the total amount of the project would be US$21bn. In
the past, cement sector revenues of the GCC have averaged around 12% of the total building
and construction sector contribution in the nominal GDP. Hence by calculating the total
value of cement in the coming 7 years till 2015, it reveals that Oman would have a minimum
cement demand of atleast 4.4mn tons per annum.
Cement production of Oman has increased from 2.51mn tons in 2003 to 4.12mn tons in 2008.
On the other hand cement sold by Omani companies in the country was 4.05mn tons in 2008,
which means that the demand and supply situation is running neck to neck.
Chart 04: Oman Demand Supply Scenario (mn tons)
6.0
1.2
5.0
1.0
0.8
4.0
0.6
3.0
0.4
2.0
0.2
1.0
-
0.0
2005
2006
2007
Supply
2008
Demand
2009F
2010F
Surplus / (Gap)
2011F
-0.2
Source: Global Research
Going forward, with the economic slowdown and lower oil prices we expect Oman cement
sector to continue this stiff competition between supply and demand and later on would turn
in to a surplus as one of the cement players capacity is expected to come online in 2010.
Per Capita Cement Consumption in Oman
The cement consumption in Oman is directly linked to the scope of infrastructure
developments undertaken by the government in recent years. Cement consumption and prices
have therefore been highly sensitive to the volume of government-backed construction work
in the Sultanate, as supply constraints on locally produced clinker has persisted throughout
the past few years. Omani per capita cement consumption is relatively lower than its regional
players. UAE takes the lead with per capita cement consumption of more than 3,800kg. Qatar
ranks 2nd with per capita cement consumption of more than 2,200kg.
In 2006, per capita consumption of Oman surpassed 1000kg mark and is currently standing at
1,499kg at the end of 2008. Looking at the pace of development in the country and expected
future demand, it is expected that per capita consumption would reach 1,662kg by 2012.
Oman Cement Company
Global Research - Oman
Global Investment House
Chart 05: Per Capita Cement Consumption & Growth per Capita
1,600
35%
1,400
30%
1,200
25%
20%
1,000
15%
800
10%
600
5%
400
0%
200
-5%
-
-10%
2003
2004
2005
2006
2007
Per Capita Cement Consumption
2008
Growth
Source: Company Reports & Global Research
Majority of the export share has been taken up by Raysut Cement. Oman Cement exports has
increased from mere 641ktons in 2003 to as high as 1.2mn tons in 2006 and back to 807ktons
in 2008.
Local and Export Cement Prices
Cement prices in Oman continued to increase despite government intervention over the
prices. Average realizations for both the companies rose during 2008. On an average (local
and export price) cement prices for Oman rose from US$71.5/ton to US$81.5/ton. Local
cement price on average rose from RO27.5/ton in 2007 to RO31.5/ton in 2008.
Chart 06: Local & Export Prices (RO/Ton)
40
34
28
22
16
10
2003
2004
2005
2006
2007
2008
OCC - Local Price
OCC - Export Price
2003
2004
2005
2006
2007
2008
RCC - Local Price
RCC - Export Price
Source: Company Reports & Global Research * Amount of export revenue not available before 2006 for OCC
RCC which exports majority of its produce realized higher local prices of RO33/ton as
compared to that of OCC at 29.7/ton. On the other hand average export rose from RO30.5/ton
in to RO34.5/ton in 2008. RCC which exports majority of its produce realized lower export
prices of RO32.3/ton as compared to that of OCC at 36.5/ton.
Local and export cement prices has reported a CAGR of 6.8% and 7.3% respectively during
2003-08. Government has put certain restrictions on the selling prices of cement. However,
the rising cost of inputs in the form of clinker and other important inputs such as services and
manpower, may have adverse impact on the future performance of the cement industry in
general and OCC in particular. Going forward in 2009 alone we expect the cement price to
remain relatively lesser as compared to that of 2008 mainly because of economic slowdown.
In the medium to long term we expect prices to recover 2010 onwards.
Oman Cement Company
Global Research - Oman
Global Investment House
Financial Performance of the Sector
Financial performance of the Omani cement sector has remained satisfactory. Combined
revenues of the two listed companies increased at a CAGR of 28% during 2003-08. During
2008 alone, the revenue increased by 35% to RO152.6mn as compared to RO112.9mn in 2007.
Surge in revenue was because of the increase in average realization prices from US$71.5/
ton to US$81.5/ton in 2008 and also because of rise in selling volumes from 4.1mn tons to
4.86mn ton in 2008. Cost of sales on the other hand doubled to RO107mn from RO52.7mn in
2007. Increase in cost was because of increase in the usage and price of imported clinker and
high cost of imported cement. As a result of this gross profit declined by 24% to RO45.5mn
(Gross Margins: 30%) as compared to RO60.2mn (Gross Margins: 53%) at the end of 2007.
Table 04: Oman Cement Sector
(RO’ 000)
2003
Sales Revenue
43,721
Cost of Sales
24,578
Gross Profit
19,142
Non Core Income
2,395
Operating Expense
4,895
Operating Profit
13,859
Financial Charges
1,020
Net Profit
13,752
Assets
127,992
Equity
89,107
Debt
18,030
Liabilities
38,886
2004
55,403
27,667
27,736
2,363
5,952
21,236
556
20,208
141,068
103,081
15,050
37,987
2005
71,962
36,148
35,814
4,011
7,163
27,950
324
28,179
189,451
139,210
22,603
50,240
2006
97,685
44,604
53,081
5,211
10,896
41,264
202
41,214
218,926
166,437
17,652
52,490
2007
112,925
52,741
60,184
9,917
13,576
45,455
101
47,739
247,294
210,711
9,796
45,516
2008
152,603
107,142
45,461
3,178
19,108
42,017
74
39,648
250,631
215,985
5,696
34,646
Source: Company Reports & Global Research
Operating expenses increased by 31% to RO19.1mn as compared to RO13.5mn in 2007.
Increase in operating expense was due to the higher man power cost and also due to higher
land lease rentals. With such high operating expense, operating profit reportedly dropped to
RO42mn (Operating Margins: 28%) in 2008 as compared to RO45.5mn (Operating Margins:
40%) in 2007.
The sector is less leveraged and equity amount to 86% of the total assets. Because of less
reliance on debt, the financial charges of the sector has dropped to RO0.074mn as compared
to RO.101mn in 2007. On the other side, other income of the sector which is earned through
return on cash balances, foreign exchange transactions, dividend income and result from
associates dropped to RO3.1mn as compared to RO9.9mn at the end of 2007. On the whole
cement sector earnings of Oman reported a CAGR 23.6% during 2003-08. In 2008, net
earnings of the sector were RO39.6mn as compared to RO47.7mn in 2007, a drop of 17%.
The sector was able to post net margins of 26% in 2008 as compared to 42% recorded in the
previous year.
The sector posted a revenue growth of 35% whereas cost of sales on the other hand escalated
to 103%, a number never touched before and expected not to do so in the years to come.
Oman Cement Company
Global Research - Oman
Global Investment House
Table 05: Oman Cement Sector Ratios
Revenue Growth (%)
Cost Growth (%)
Asset Growth (%)
Gross Margins (%)
Non Core Income as % of PAT
Operating Margins (%)
Net Margins (%)
Debt as % of Assets (%)
Liabilities as % of Assets (%)
Equity as % of Assets (%)
Return on Equity (%)
Return on Assets (%)
2003
N/A
N/A
N/A
44%
17%
32%
31%
14%
30%
70%
15%
11%
2004
27%
13%
10%
50%
12%
38%
36%
11%
27%
73%
20%
14%
2005
30%
31%
34%
50%
14%
39%
39%
12%
27%
73%
20%
15%
2006
36%
23%
16%
54%
13%
42%
42%
8%
24%
76%
25%
19%
2007
16%
18%
13%
53%
21%
40%
42%
4%
18%
85%
23%
19%
2008
35%
103%
1%
30%
8%
28%
26%
2%
14%
86%
18%
16%
Source: Company Reports & Global Research
Other income earned by the sector contributed 8% to the overall profits of the sector in 2008
as compared to 21% in 2007. Drop in the contribution was because of lesser amounts earned
through investment portfolio and share of profit from associates. With assets and equity of
RO250.5mn and RO216mn, the sector with net income of RO39.6mn was able to give return
on assets and return on equity of 16% and 18% respectively.
Table 06: Oman Cement Sector Statistics
Cement Produced in Oman (000 Tons)
Cement Sold in Oman (000 Tons)
Cement Exports from Oman (000 Tons)
Price per Ton in Oman (US$)
Cost per Ton in Oman (US$)
EV/Ton (US$)
Per Capita Cement Consumption (Kg)
2003
2,515
1,889
641
44.9
25.2
169.5
807
2004
2,621
1,847
824
53.9
26.9
249.9
765
2005
2,686
2,173
821
62.4
31.4
468.8
866
2006
3,609
2,589
1,210
66.8
30.5
356.9
1,005
2007
3,875
3,072
1,032
71.5
33.4
373.6
1,157
2008
4,121
4,057
807
81.5
57.2
169.8
1,499
Source: Company Reports & Industry Sources
Enterprise value per ton of the companies rose at a CAGR of 21.8% during 2003-07. However
with the decline in the equity markets, the enterprise values declined for both the companies
by over 50%. Enterprise value per ton of Oman Cement dropped to US$133 in 2008 as
compared to US$305 in 2007. While the same for Raysut Cement dropped to US$207 in
2008 as compared to US$442 in 2007.
Oman Cement Company
Global Research - Oman
Global Investment House
Oman Cement Sector in Charts
Gross Margins (%)
61%
Non Core Income as % of PAT
25%
55%
21%
49%
17%
43%
13%
37%
9%
31%
25%
5%
2003
2004
2005
2006
2007
2008
Operating Margins (%)
45%
2003
2004
40%
35%
35%
30%
30%
25%
25%
20%
2006
2007
2008
2007
2008
Net Margins (%)
45%
40%
2005
20%
2003
2004
2005
2006
2007
2008
Financial Charges as % of Loan
6%
2003
2004
2006
Debt as % of Assets
15%
5%
2005
12%
4%
9%
3%
6%
2%
3%
1%
0%
0%
2003
2004
2005
2006
2007
2003
2008
EV/Ton (US$)
500
90%
400
86%
2004
2005
2006
2007
2008
Equity as % of Assets
82%
300
78%
200
74%
100
70%
-
66%
2003
2004
2005
2006
2007
2008
Return on Equity (%)
25%
2003
2004
18%
21%
16%
19%
14%
17%
12%
15%
2006
2007
2008
Return on Assets (%)
20%
23%
2005
10%
2003
2004
2005
2006
2007
2008
2003
2004
2005
2006
2007
2008
Source: Company Reports & Global Research
10
Oman Cement Company
Global Research - Oman
Global Investment House
Sector Outlook
Oman’s 2008 budget surplus soared to RO1.58bn (US$4.1bn) in 2008 compared to RO40.2mn
a year earlier as the country’s oil revenues jumped up on record-high oil prices. Total state
2008 revenues stood at RO7.9bn compared to RO5.9bn a year earlier while expenditure rose
to RO6.4bn in 2008 compared to RO5.9bn a year earlier, according to Ministry of National
Economy. Such high revenues would give room to the country for further development and
project announcements.
Domestic cement demand is expected to remain robust during 2009, fuelled in large part
by planned investments in major infrastructure projects, integrated tourism and residential
complexes, and general housing growth. The project line-up included the six domestic airports
at Sohar, Ras al Hadd, Duqm, Shaleem, Adam and Haima; port developments at Sohar and
Duqm; the tourism and residential developments in Ras al Hadd, Sifah, Yiti and Taqah;
and the Batinah coastal road rehabilitation program. In fact, up to 10% of the estimated
RO800mn in allocations towards infrastructure projects, announced by the government in its
2009 budget, would go towards cement purchases alone.
Significant cement demand will also be generated when many Omanis, keen to have their
own homes, embark on the development of their government-allotted residential plots.
Around 196,000 plots were distributed during the 2003-2007 period, against which only
around 37,000 building permits have been issued so far. This leaves some 160,000 plots
awaiting potential development, not counting the scores of allotments that authorities have
began to make to a broader segment of Omani women.
Nevertheless, supply would outstrip demand and would create a surplus situation which
would put pressure on the cement companies in the country. This surplus would increase
the cement players reliance on exports which would be flooded with excess capacity from
Pakistan, India and Saudi Arabia. India and Pakistan have relatively lesser room for cutting
their prices which in turn can be taken up Omani companies as their gross margins are higher
than those of Pakistani and Indian cement companies. Along with that, after the clinker
expansion are carried out the cost would give more room for the Omani companies to breach
the export market share of other cement companies.
Oman Cement Company
11
Global Research - Oman
Global Investment House
Oman Cement Company
Revenue to Grow Post Expansion
In 2008, the revenue increased to RO63.5mn as compared to RO49.9mn at the end of 2007.
Such a growth was possible because of higher production and sales volume as well as better
realization prices.
The clinker produced during the year 2008 was 1.18mn tons as against 1.15mn tons produced
during the corresponding period of 2007. This represents 98.5% (2007-96.17%) capacity
utilization. While the cement produced during the year 2008 was 2.003mn tons which is
7.4% higher than 1.87mn tons produced during the previous year 2007. During the year
264,728ktons of cement was procured as per the instructions of Ministry of Commerce &
Industry to meet the local market demand.
OCC sales volume increased by 14.6% to 2.1mn tons as compared to 1.87mn tons in 2007.
Out of the total 2.1mn, local sales volume were 2.07mn tons whereas the exports were down
from previous levels of 2007 at 91,251tons to 81,285tons. On the other hand local sales price
increased by 12.2% to RO29.7/ton whereas the export price increased by 11.6% to RO36.5/ton.
Chart 07: Sales Revenue
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
-
35%
30%
25%
20%
15%
10%
5%
0%
2003
2004
2005
2006
2007
2008
Revenue (RO mn)
2009 (F) 2010 (F) 2011 (F) 2012 (F)
Growth
-5%
Source: Company Reports & Global Research
In 2009, we expect the economic slowdown locally as well as regionally to impact the
company which will result in lower sales revenue for the year. We expect a nominal drop
in volumes with a 2-3% drop in the local as well as export price. Going forward, we expect
OCC to report a CAGR growth of 7.2% during 2008-12. After 2009, we expect the things
to come back on track and expect an increase in volume as well as price mainly because
of expected economic recovery globally as well as regionally and initiation of delayed and
halted projects. Along with that the company would have higher clinker and cement capacity
which would enable it to roll out more volumes of cement.
Cost Pressure to Ease
Cost of the sales increased at a CAGR of 25.3% during 2003-08. In 2008, cost of sales
increased by 69% to RO49.65mn. The increase in cost was due to high purchase cost of
cement and clinker imported under instructions from the government in order to meet the
local demand. The company imported 0.92mn tons of clinker during the year to meet the
12
Oman Cement Company
Global Research - Oman
Global Investment House
demand, which is 42% higher as against 0.53mn tons during the previous year. On the other
hand in 2008 the company also imported 174k tons of cement to meet the shortfall locally.
Chart 08: Gross Profit & Margins
25.0
53.0%
48.0%
20.0
43.0%
15.0
38.0%
10.0
33.0%
28.0%
5.0
-
23.0%
2003
2004
2005
2006
2008 2009 (F) 2010 (F) 2011 (F) 2012 (F)
2007
Gross Profit (RO mn)
Gross Margins
18.0%
Source: Company Reports & Global Research
In 2009, we expect the company would follow the same trend and would continue to import
significant amount of clinker at 0.6mn tons and 0.15mn tons of cement to meet their local
requirements. Later on we expect the company cost pressure to ease off and anticipate it to
increase at a CAGR of 5.4% during 2008-12. Lesser growth in the cost would be due to
availability of new clinker capacity which would halt the import of high cost clinker.
As a result of availability of additional clinker capacity after 2009 we expect the company’s
gross profit to increase at a CAGR of 12.9% during 2008-12 as compared to a CAGR growth
of 5.8% during 2003-08. OCC enjoyed higher gross margins during 2003-07 averaging around
43%. Such margins would be harder to achieve in the coming years as the but nevertheless
OCC’s margins would be significantly better than what were reported in 2008.
Loans & Financial Charges
In 2008, OCC financial charges increased to RO66.5k as compared to RO23.0k in 2007. While
the loan balance declined to RO0.9mn in 2008 from RO2.2mn recorded in the previous year.
With the announcement of the expansion by OCC and the need of financing the Company will
be partly utilizing loan funds. The total contract value for the Expansion Project is RO62.7mn
(US$162mn) out of which RO20mn of the project cost is to be met from loans.
Chart 09: Loans & Financial Charges (RO mn)
0.3
7.18
0.3
6.18
5.18
0.2
4.18
0.2
3.18
0.1
2.18
0.1
1.18
-
0.18
2003
2004
2005
2006
2007
Loans - RHS
2008 2009 (F) 2010 (F) 2011 (F) 2012 (F)
Financial Charges - LHS
Source: Company Reports & Global Research
Oman Cement Company
13
Global Research - Oman
Global Investment House
Previously the company has acquired three loan facilities of which the first one from
Government of the Sultanate of Oman is interest free and amounts to RO0.9mn. The loan is
secured by a first mortgage over the assets of the parent company and the assignment of the
insurance policy over plant and machinery as a first beneficiary and is being repaid in annual
installments of RO 300,000 which commenced in December 2002.
Non-Core Income
In 2008, OCC non-core income increased by 68% to RO3.2mn as against RO1.91mn in 2007.
This non-core income portion has over the years added significant amount to the bottom line.
In 2008, non-core income as percentage of profit after tax was 26% as compared to 11% in
2007.
Chart 10: Non-Core Income
6.00
30%
5.00
25%
4.00
20%
3.00
15%
2.00
10%
1.00
-
5%
2003
2004 2005 2006 2007
Non-Core Income (RO mn)
2008 2009 (F)2010 (F)2011 (F)2012 (F)
Non-Core Income as % of PAT
Source: Company Reports & Global Research
Going forward, we expect the non-core income portion to continue to cushion the bottom line
of the Company and grow at a CAGR of 14.7% during 2008-12. OCC’s subsidiary Oman
Mondi Shuaiba Packaging has also turned profitable in 2008 and would be adding good
amounts to the total.
Net Profit
In 2008, OCC reported profit before tax of RO14.1mn which was subject to 12% income tax
resulting in a profit after tax of RO12.5mn as compared to RO17.6mn in 2007. In 2008, the
company managed to report net margins of 19.74% as against 35.3% recorded in the previous
year. In terms of quarterly performance of 2008, 1Q-2008 was the most favorable quarter as
the company report profit after tax of RO3.9mn and net margins of 34%. Although in the
last quarter the company report highest ever revenue but was not able to full transfer it to the
bottom line as the net margins were merely 9% in 4Q-2008.
14
Oman Cement Company
Global Research - Oman
Global Investment House
Chart 11: Net Profit
25.00
45%
20.00
40%
35%
15.00
30%
25%
10.00
20%
15%
5.00
-
2003
2004
2005
2006
2007
Net Profit (RO mn)
2008 2009 (F) 2010 (F) 2011 (F) 2012 (F)
Net Margins (%)
10%
5%
Source: Company Reports & Global Research
Going forward, we expect OCC to report net profit CAGR of 15.1% during 2008-12. Increase
in net profit in the coming years would be on account of increase in the revenue because of
the availability of additional clinker capacity and rolling out of higher sales volume.
Asset growth to continue
In 2008, the asset declined marginally to RO133mn as compared to RO134.3mn in 2007. The
major reason for the fall in assets in 2008 was because of decline in the investment available
for sale. Investment available for sale dropped to RO15.2mn as compared to RO21.0mn
in 2007. Nevertheless the cost of available for sale investments is merely RO8.0mn which
portrays that the Company is still profitable on its investments.
Company’s shareholders’ equity decreased a marginal 1.5% to RO117.9mn. The decrease
was due to 44.5% decline in fair value reserves to RO7.2mn compared to RO13.07mn in
2007. The adjusted book value per share (BVPS) marginally fell to 0.356 compared to 0.362
in 2007. The company’s current liabilities increased by 21% to RO9.32mn with its share
in total assets rising from 5.8% in 2007 to 7.0% in 2008. This was led by a 66.3% rise in
trade and other payables to RO7.1mn in 2008. During the same period, non-current liabilities
decreased 15.2% to RO5.7mn with its share in total assets falling to 4.3% in 2008.
Chart 12: Asset
180.0
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
-
2003
2004
2005
Assets (RO mn)
2006
2007
2008 2009 (F) 2010 (F) 2011 (F) 2012 (F)
Equity as % of Assets
Liability as % of Assets
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Source: Company Reports
The share of current assets in the total assets increased to 31.6% in 2008 compared to 23.7%
in the previous year. Inventories, contributing 11.5% to the total assets, rose to RO15.2mn in
2008 as imported clinker and finished cement mounted.
Oman Cement Company
15
Global Research - Oman
Global Investment House
Going forward, we expect OCC to report a CAGR of 5.3% during 2008-12. The liabilities of
the company are going to rise on account of requirement of loan for funding the expansion.
We expect current ratio of debt as a % of assets to increase from 1% in 2008 to 5% in 2009.
Performance of the Subsidiaries
The company has two subsidiaries which are: Oman Mondi Shuaiba Packaging and Sohar
Praton and Concrete Products (SPCP). In 2008, The company divested its investments in the
associate, M/s. Al Batna Quarries Co. LLC and sold all its 50,000 shares bought at a price of
RO50,000 (20% stake) at a premium price of RO80,000.
On the other hand, Oman Mondi Shuaiba Packaging reported an improved performance
during the year 2008. Revenue earned by the company increased from RO3.5mn to RO6.5mn
in 2008. Such performance resulted in a profit after tax of RO156,678 in 2008 as against a
loss of RO59,414 in 2007.
7.0
200
6.0
150
5.0
100
4.0
50
3.0
-
2.0
(50)
1.0
(100)
0.0
2005
2006
Revenue (LHS)
2007
Profit (RHS)
2008
(RO 000)
(RO mn)
Chart 13: Oman Mondi Shuaiba Packaging
(150)
Source: Company Reports
Sohar Praton Concrete Products Company SAOC (the subsidiary), a 58.4% subsidiary, is
a closely held joint stock Company registered in the Sultanate of Oman and is engaged in
manufacturing and marketing pre-cast ready mixed concrete products. On 12th March 2008,
Sohar Praton Concrete Products Company went into liquidation and consequently, the parent
company’s control of the subsidiary passed to the liquidator. Accordingly, the subsidiary is
deconsolidated with effect from 12 March 2008.
Capacity Expansion
OCC announced further expansion of 1.2mn tons in clinker capacity for which a contract has
been signed with M/s. China National Building Material Equipment Corporation Ltd., China
(CNBMEC). The duration for construction and erection of the project is 25 months as per the
contract and the project is expected to be completed in December 2009/1st Quarter of 2010.
In order to finance the Expansion Project, OCC will be partly utilizing loan funds. The total
contract value for the expansion project is RO62.7mn (US$162mn) and RO20mn of the
project cost is to be met from loans. This expanded capacity is expected to help in achieving
high local market share and to target export markets for both grey Portland cement and the
specialized Oil-Well Cement.
16
Oman Cement Company
Global Research - Oman
Global Investment House
Chart 14: Clinker Capacity Enhancement
3.0
2.5
2.0
1.5
1.0
0.5
1983
1998
2010
Source: Company Reports
The company also signed contract for execution of civil works of the project for up gradation
and modernization of Packing Plant has been signed with M/s. China National Building
Material Equipment Corporation Ltd., China (CNBMEC) and the project is anticipated to be
completed in the 2nd quarter of 2009.
Oman Cement Company
17
Global Research - Oman
Global Investment House
Chart Gallery - Oman Cement Company
Gross Margins (%)
45%
EV/EBITDA (x)
10.0
40%
8.0
35%
6.0
30%
4.0
25%
2.0
20%
0.0
15%
2007
2008
2009F
2010F
2011F
Net Margins (%)
40%
2007
2012F
2008
4.00
30%
3.00
25%
2.00
20%
1.00
2010F
2011F
2012F
EV/Revenues (x)
5.00
35%
2009F
0.00
15%
2007
2008
2009F
2010F
2011F
Return on Average Assets (%)
16%
2007
2012F
18%
12%
16%
10%
14%
8%
12%
6%
2009F
2010F
2011F
2012F
Return on Average Equity (%)
20%
14%
2008
10%
2007
2008
2009F
2010F
2011F
2012F
Debt as % of Assets (%)
2007
2009F
2010F
2011F
2012F
Non Core Income as % of PAT (%)
30%
5%
2008
26%
4%
22%
3%
2%
18%
1%
14%
0%
2007
2008
2009F
2010F
2011F
2012F
P/Bv Ratio (x)
2.0
10%
2007
2008
12.0
1.4
10.0
1.1
8.0
0.8
6.0
0.5
2010F
2011F
2012F
P/E Ratio (x)
14.0
1.7
2009F
4.0
2007
2008
2009F
2010F
2011F
2012F
2007
2008
2009F
2010F
2011F
2012F
Source: Company Reports
18
Oman Cement Company
Global Research - Oman
Global Investment House
Outlook
In 2008 OCC imported clinker and cement to meet local demand under directions of
the government, a claim for reimbursement of shortfall in profits below a base level of
RO16.1mn after tax will be made during 2009 with the government. OCC has also entered
into discretionary portfolio management agreements with two companies appointing them
as portfolio managers to handle part of its investments in shares which as of 2008 amount to
RO19.5mn.
Chart 15: OCC’s - FCF (RO mn) & FCF to Sales (%)
25.0
50%
20.0
40%
15.0
30%
10.0
20%
5.0
10%
-
0%
(5.0)
(10.0)
-10%
(15.0)
-20%
(20.0)
2003
2004
2005
2006
2007
FCF
2008 2009 (F) 2010 (F) 2011 (F) 2012 (F)
FCF/Sales
-30%
Source : Company Reports & ’Global’ Research
The company expanded its share of the Oil Well Cement market in the MENA region in 2008
as more and more drilling companies preferred to standardize on the company’s products
because of high quality and consistent performance in cementing operations of oil wells.
Considering the market demand of new types of cement, OCC has planned to introduce three
new products in the year 2009.
According to OCC, the expected demand for cement in Oman is estimated at 4.63mtpa during
2009. In order maintain its market share, OCC installed an additional cement mill of 3,000tpd
and is in the process of further expansion by installing new production line of 4,000tpd
clinker capacity to meet the competition. With the neck to neck demand supply situation the
expansion would pave the way towards a profitable future.
Oman Cement Company
19
Global Research - Oman
Global Investment House
Valuation & Recommendation
DCF Method
In order to compute the cost of equity for the Discounted Cash Flow (DCF) method, we have
used the Capital Asset Pricing Model (CAPM).
The following assumptions have been made in order to arrive at the DCF value of Oman
Cement Company.
•
A risk-free rate of 4.50% has been assumed.
•
A market risk premium of 6.0% has been assumed.
•
The beta of the company was quite low when computed on the basis of monthly returns
over 5 years to end-March 2009, hence we have taken beta of 1.
•
The cost of equity derived from the above assumptions using the Capital Asset Pricing
Model (CAPM) is 10.51%.
•
The cost of debt taken is 6%.
•
Based on the above assumptions, the Weighted Average Cost of Capital (WACC) works
out to be 9.61%.
•
Terminal growth rate of 3.0% has been assumed.
Based on our future earnings projections and the above assumptions for DCF computations,
the DCF value of Oman Cement is RO0.769 per share.
Table 07: Oman Cement - Equity Valuation by DCF
(RO mn)
Free Cash Flow
Discounted Cash Flow
Terminal Value
WACC
Terminal Growth Rate
Primary Value
Discounted Terminal Value
Value of Investments
Cash
Debt
Equity Value
No. of Equity Shares Outstanding (mn)
Per Share Value (RO)
2009 (F) 2010 (F) 2011 (F) 2012 (F)
(3.61)
8.53
14.46
16.04
(3.38)
7.28
11.27
11.40
249.9
9.6%
3.00%
26.6
177.6
46.5 (As at December 2008)
4.7 (As at December 2008)
0.9 (As at December 2008)
254.5
330.9
0.769
Source : Global Research
20
Oman Cement Company
Global Research - Oman
Global Investment House
Sensitivity Analysis
A sensitivity analysis for different estimated long-run future growth rates and weighted cost
of capital (and, thereby, the underlying betas) is shown in table below. The table provides
estimated fair values for OCC’s shares based on a range of varying inputs. The shaded area
at the center shows the most probable range of alternatives.
Table 08 : Oman Cement - Sensitivity Analysis
WACC
7.6%
8.6%
9.6%
10.6%
11.6%
1.0%
0.801
0.708
0.636
0.580
0.535
Terminal Growth Rate
2.0%
3.0%
0.908
1.062
0.785
0.889
0.694
0.769
0.625
0.681
0.570
0.613
4.0%
1.300
1.039
0.871
0.754
0.668
5.0%
1.722
1.272
1.017
0.854
0.740
Source: Global Research
Relative Valuation Method
The peer group valuation is performed to compare the intrinsic value of Oman Cement arrived
at using the DCF calculation. In order to value Oman Cement using this method, we have
used the weighted average price-to-earnings (P/E) multiple for the Oman cement industry,
comprising Oman Cement Company and Raysut Cement Company. The price-earnings
multiple of a stock is a reflection of various factors, such as the expected profitability of the
company, its growth potential as perceived by the market, predictability and sustainability of
its revenues, the quality of its earnings and the quality of its management, among others.
To arrive at the peer-set P/E multiple, we have computed the average industry P/E of the two
listed cement companies in Oman, based on their current market prices and projected earnings
for 2008. The weighted average P/E for the GCC cement industry, thus arrived at, is 8x.
On the basis of the weighted average P/E for the industry and Oman Cement’s projected
2008 earnings, the company’s stock valuation comes to RO0.303per share. However, as the
price-earnings multiple varies with time and is dependent on several factors, such as market
sentiment and other qualitative factors, we have provided a lower weightage of 20% to the
peer valuation method, and 80% weightage to the value arrived at using the DCF method.
Valuations
The value of OCC’s shares derived from the weighted average of the DCF and relative
valuation methods is RO0.676 per share. The stock closed at RO0.372 on the Muscat
Securities Market at the end of trading on 13th April 2009, which implies that the weighted
average value of OCC’s shares is at a premium of 82% to the share’s current market price.
Table 09 : Weighted Average Share Value of Oman Cement
(RO)
Weightage
As per DCF Method
80%
As per Relative Valuation
20%
Weighted Average Share Value
Fair Value
0.769
0.303
0.676
Source: Global Research
At their current price, OCC’s shares have a P/E multiple of 10.6x and 7.2x for 2009 and 2010
respectively. We therefore reiterate our BUY recommendation on the scrip.
Oman Cement Company
21
22
Oman Cement Company
477,429
77,579
1,836,064
1,990,150
3,092,798
7,474,020
4,395,296
2,043,312
878,286
11,580,545
33,087,271
6,724,145
11,029,090
13,633,203
6,528,991
24,553,580
53,880
95,610,159
122,329,927
Liabilities
Short-term Loan
Bank Borrowings
Trade Payable
Other Payables
Provision for Taxation
Total Current Liabilities
Deferred Taxation
Medium-Term Loan
Employee Indemnity Provision
Proposed Dividend
Paid-up Capital
Share Premium
Statutory Reserve
Voluntary Reserve
Fair Value Reserve
Retained Earnings
Revaluation Surplus
Total Shareholder’s Equity
Total Liabilities & Equity
Source: Company Reports & Global Research
2006
1,062,128
77,579
4,938,447
1,681,087
5,159,343
6,620,000
1,131,965
20,670,549
4,654,936
34,199,661
54,012
283,953
13,434,089
106,606,515
57,573,788
49,032,727
122,329,927
(RO)
Cash & Cash Equivalents
Bank Balances
Trade Receivables
Other Receivables
Inventories
Short-term Deposits
Held to Maturity Investments
Total Current Assets
Held to Maturity Investments
Long-term Deposits
Employee Loans
Investments in Associates
Investments Available-for-Sale
Gross Fixed Aassets
Less: Accumulated Depreciation
Net Fixed Assets
Total Assets
BALANCE SHEET
698,372
135,330
1,776,584
2,506,350
2,617,511
7,734,147
4,202,684
1,522,369
1,040,494
8,933,563
33,087,271
6,724,145
11,029,090
15,434,896
13,065,099
31,437,046
53,880
110,831,427
134,264,684
2007
2,214,961
77,579
4,769,308
1,311,876
4,327,600
18,085,650
1,050,000
31,836,974
3,607,819
19,045,080
13,464,543
611,065
21,066,192
105,717,980
61,084,969
44,633,011
134,264,684
300,000
2,592,012
4,531,318
1,896,380
9,319,710
3,873,740
600,000
1,262,327
7,279,200
33,087,271
6,724,145
11,029,090
16,543,635
7,250,172
35,985,915
31,820
110,652,048
132,987,025
3,800,000
2,728,767
4,775,342
1,706,742
13,010,852
2,351,169
2,600,000
1,312,820
8,271,818
33,087,271
6,724,145
11,029,090
17,705,592
5,721,521
38,171,707
31,820
112,471,146
139,952,493
3,420,000
2,984,513
5,222,898
1,536,068
13,163,479
3,447,678
2,340,000
1,404,717
13,234,908
33,087,271
6,724,145
11,029,090
19,406,565
7,097,307
40,245,560
31,820
117,621,758
151,051,463
Oman Cement Company
2008
2009 (F)
2010 (F)
4,609,866
4,254,620
5,840,876
101,173
101,173
101,173
5,568,367
5,197,290
6,511,501
1,541,038
1,732,430
2,034,844
15,243,498
13,643,836
11,938,053
14,570,000
13,113,000
11,801,700
422,784
380,506
418,556
42,056,726
38,422,855
38,646,704
3,190,494
2,871,445
3,158,589
12,390,075
11,151,068
12,266,174
621,272
652,336
717,569
15,286,514
13,757,863
15,133,649
123,942,149 141,947,149 154,947,149
64,512,246
68,850,221
73,818,371
59,429,903
73,096,928
81,128,778
132,987,025 139,952,493 151,051,463
3,078,000
3,183,850
5,571,738
1,382,461
13,216,049
3,768,503
2,083,735
1,503,048
16,543,636
33,087,271
6,724,145
11,029,090
21,265,609
8,610,672
40,433,319
31,820
121,181,925
158,031,136
2011 (F)
6,246,713
101,173
7,639,488
2,400,982
14,327,325
12,745,836
460,412
43,921,929
3,474,448
13,492,792
789,326
16,647,014
158,947,149
79,241,522
79,705,627
158,031,136
2,770,200
3,355,501
5,872,127
1,244,215
13,242,043
4,426,535
1,827,470
1,608,261
19,852,363
33,087,271
6,724,145
11,029,090
23,449,257
10,275,373
40,233,788
31,820
124,830,744
165,398,696
2012 (F)
6,747,207
101,173
9,269,955
3,244,484
16,777,505
13,765,503
506,453
50,412,281
3,821,893
14,842,071
868,259
18,311,715
161,947,149
84,804,672
77,142,477
165,398,696
Global Research - Oman
Global Investment House
Oman Cement Company
17,633,797
20,555,920
2,055,592
11,580,545
24,553,580
P&L Appropriation Account:
Op Balance of Retained Earnings
Adjustments
Net Profit for the year
Transfer to Voluntary Reserve
Proposed Dividend
Closing Balance of Retained Earnings
Source: Company Reports & Global Research
2006
49,710,230
(26,757,379)
22,952,851
(2,020,866)
20,931,985
(74,778)
38,067
1,682,953
624,406
(27,782)
23,174,851
(2,742,763)
123,832
20,555,920
(RO)
Sales Revenue
Cost of Sales
Gross Profit
General & Administrative Expenses
Operating Profit
Finance Charges
Other Income
Interest Income
Dividend Income
Share of Result of Associates
Impairment Loss in an Associate/Asset
Profit Before Taxation
Taxation
Minority Interest
Net Profit
INCOME STATEMENT
24,553,580
17,618,723
1,801,693
8,933,563
31,437,046
2007
49,911,507
(29,460,849)
20,450,658
(2,638,844)
17,811,814
(23,022)
189,691
2,259,010
694,764
(16,616)
(1,219,299)
19,696,342
(2,425,928)
348,309
17,618,723
31,437,046
396,209
12,540,599
1,108,739
7,279,200
35,985,915
35,985,915
11,619,566
1,161,957
8,271,818
38,171,707
38,171,707
17,009,735
1,700,973
13,234,908
40,245,560
Oman Cement Company
2008
2009 (F)
2010 (F)
63,522,594
63,233,698
74,271,809
(49,652,665) (49,800,000) (54,467,368)
13,869,929
13,433,698
19,804,441
(2,898,425)
(2,845,516)
(3,342,231)
10,971,504
10,588,182
16,462,210
(66,517)
(233,501)
(230,251)
581,444
523,300
586,096
1,626,176
1,463,558
1,609,914
948,424
726,109
722,288
47,003
54,053
62,161
14,108,034
13,121,702
19,212,418
(1,567,435)
(1,567,446)
(2,298,452)
65,310
95,769
12,540,599
11,619,566
17,009,735
40,245,560
18,590,438
1,859,044
16,543,636
40,433,319
2011 (F)
79,668,943
(58,105,263)
21,563,680
(3,585,102)
17,978,578
(262,098)
644,705
1,770,906
794,517
71,486
20,998,093
(2,512,336)
104,681
18,590,438
40,433,319
21,836,480
2,183,648
19,852,363
40,233,788
2012 (F)
84,588,343
(61,237,895)
23,350,449
(3,806,475)
19,543,973
(263,684)
709,176
3,718,902
873,968
82,209
24,664,544
(2,951,023)
122,959
21,836,480
Global Research - Oman
Global Investment House
23
24
Oman Cement Company
Source: Company Reports & Global Research
(RO)
Operating
Operating Activities
Net Profit
Deferred Tax Liability
Tax Paid
Depreciation
Impairment of Assets
Interest Income
Dividend Income
Finance Charges
Proposed Remuneration to Directors
Amortization of Bond Premium
Other Amortizations
Share of Results of Associate Cos.
Gain on Sale of Property, Plant and Equip
Gain from Sale of Investments
Provisions for Stores, etc.
Minority Interest
Indemnity
Working Capital
Dec/(inc.) in Receivables
Dec / (inc) in Inventories
Inc/(dec) in Accounts Payable
Inc/(dec) Other Current Liabilities
Inc/(dec) Other Current Assets
Income Tax Paid
Financial Charges Paid
Employee Benefits Paid
Total Operating
Investing
Capex
Advance for Purchase of PPE
Dividend Income
Maturity of Long-Term Loans
Interest Income
Dividend Received
Loans
Recall of Short-term Deposits
Long-term Deposits
Proceeds from Disposal of Property
Short-term Deposits
Investments in Associates/Subsidiaries
Investments Available for Sale
IPOs & Rights Issue Subscriptions
Capital Reduction in AFS Investments
Total Investing
Financing
Cash Flow from Discontinued Operations
Rights Issue of Shares
Dividend
Term-loan Repayments
Finance Charges
Total Financing
Net Change in Cash
Net Cash at Beginning
Discontinued Operations
Net Cash at End
CASH FLOW STATEMENT
2007
21,959,295
17,618,723
2,425,928
3,862,787
784,506
(2,448,701)
(694,764)
80,825
(2,884)
270,819
16,616
171,574
(348,309)
222,175
1,386,846
660,169
456,720
269,957
(3,093,827)
(80,825)
(59,967)
20,111,522
(518,396)
1,131,966
2,714,280
694,764
3,688,931
(13,407,717)
(343,728)
(1,095,995)
(7,135,895)
57,751
(11,580,545)
(300,000)
(11,822,794)
1,152,833
1,062,128
2,214,961
2006
25,280,514
20,555,920
2,742,763
3,689,029
(1,682,953)
(624,406)
12,271
110,000
(2,090)
27,782
486,389
(123,832)
89,641
537,122
640,132
658,969
(1,153,875)
391,896
(2,745,845)
(88,000)
(67,990)
22,915,801
(236,105)
(7,078,035)
1,405,834
4,664,981
622,306
17,196,500
(9,617,320)
(20,815,000)
(115,624)
(523,007)
2,000
(14,493,470)
181,250
(8,271,818)
(259,550)
(12,271)
(8,362,389)
59,942
1,002,186
1,062,128
(8,933,563)
(300,000)
(9,233,563)
2,394,975
2,214,961
(71)
4,609,866
(19,807,857)
1,050,000
2,215,150
948,424
10,170,655
3,820
13,489,140
80,000
(35,249)
8,114,083
16,380,673
12,540,599
1,567,435
3,950,036
(2,153,151)
(948,424)
66,517
(5,457)
(47,003)
(3,820)
(50,649)
1,204,551
260,039
(10,149,386)
(1,119,479)
(12,120,449)
3,114,136
(23,594)
(2,617,511)
(66,517)
(32,803)
3,514,456
(7,279,200)
5,500,000
(233,501)
(2,012,700)
(355,245)
4,609,866
4,254,620
(18,005,000)
12,041
726,109
1,463,558
361,328
1,239,008
1,457,000
22,990
(12,722,966)
12,220,294
11,619,566
(1,522,571)
(189,638)
4,337,975
(1,463,558)
(726,109)
233,501
(54,053)
(65,310)
50,493
2,160,127
179,685
1,599,662
136,755
244,024
14,380,421
(8,271,818)
(640,000)
(230,251)
(9,142,068)
1,586,255
4,254,620
5,840,876
(13,000,000)
722,288
1,609,914
(325,195)
(1,115,107)
1,311,300
(3,072)
(10,799,872)
20,735,736
17,009,735
1,096,510
(170,674)
4,968,150
(1,609,914)
(722,288)
230,251
(62,161)
(95,769)
91,897
792,459
(1,616,625)
1,705,782
255,746
447,556
21,528,195
Oman Cement Company
2008
2009 (F)
2010 (F)
(13,234,908)
(598,265)
(262,098)
(14,095,271)
405,837
5,840,876
6,246,713
(4,000,000)
794,517
1,770,906
(357,715)
(1,226,617)
(944,136)
(271)
(3,963,317)
21,799,646
18,590,438
320,825
(153,607)
5,423,150
(1,770,906)
(794,517)
262,098
(71,486)
(104,681)
98,330
(3,335,220)
(1,494,124)
(2,389,272)
199,337
348,839
18,464,426
2011 (F)
(16,543,636)
(564,065)
(263,684)
(17,371,384)
500,494
6,246,713
6,747,207
(3,000,000)
873,968
3,718,902
(393,486)
(1,349,279)
(1,019,667)
3,276
(1,166,286)
23,490,274
21,836,480
658,031
(138,246)
5,563,150
(3,718,902)
(873,968)
263,684
(82,209)
(122,959)
105,213
(4,452,110)
(2,473,970)
(2,450,180)
171,651
300,389
19,038,164
2012 (F)
Global Research - Oman
Global Investment House
Global Research - Oman
Global Investment House
FACT SHEET
Oman Cement Company
2008 2009 (F) 2010 (F) 2011 (F) 2012 (F)
2006
2007
Liquidity Ratios
Current Ratio (x)
Quick Ratio (x)
Inventory Stock (Days)
Receivables Outstanding (Days)
Length of Operating Cycle (Days)
Payables Outstanding (Days)
Length of Cash Cycle (Days)
2.8
2.1
78
33
111
32
78
4.1
3.6
59
35
94
22
72
4.5
2.9
72
30
102
16
86
3.0
1.9
106
31
137
19
117
2.9
2.0
86
29
114
19
95
3.3
2.2
82
32
115
19
96
3.8
2.5
93
36
129
19
110
Profitability Ratios
Total Asset Turnover (x)
Total Net Fixed Asset Turnover (x)
Equity Turnover (x)
Gross Profit Margin (%)
Operating Margin (%)
Net Profit Margin (%)
Return on Average Assets (%)
Return on Average Equity (%)
0.4
1.0
0.6
46.2
42.1
41.4
17.8
22.8
0.4
1.1
0.5
41.0
35.7
35.3
13.7
17.1
0.5
1.1
0.6
21.8
17.3
19.7
9.4
11.3
0.5
0.9
0.6
21.2
16.7
18.4
8.5
10.4
0.5
0.9
0.6
26.7
22.2
22.9
11.7
14.8
0.5
1.0
0.7
27.1
22.6
23.3
12.0
15.6
0.5
1.1
0.7
27.6
23.1
25.8
13.5
17.8
Activity Ratios
Inventory Turnover Ratio (x)
Debtor Turnover Ratio (x)
Creditors Turnover Ratio (x)
4.7
11.2
11.2
6.2
10.3
16.3
5.1
12.3
22.7
3.4
11.7
18.7
4.3
12.7
19.1
4.4
11.3
18.8
3.9
10.0
18.7
Leverage Ratios
Debt / Equity (x)
Current Liabilities / Equity (x)
Liabilities / Total Assets (x)
0.03
0.08
0.22
0.02
0.07
0.17
0.01
0.08
0.17
0.06
0.12
0.20
0.05
0.11
0.22
0.04
0.11
0.23
0.04
0.11
0.25
Ratios Used for Valuation
EPS (RO)
Book Value Per Share (RO)
EV/Revenues (x)
Market Price (RO) *
Market Capitalization (RO mn)
EV/Ton (RO)
EV/EBITDA (x)
Dividend Yield (%)
P/E Ratio (x)
P/BV Ratio (x)
0.06
0.29
3.9
0.58
191.9
153.5
7.2
6.0%
9.3
2.0
0.05
0.33
4.4
0.66
219.7
117.6
9.3
4.1%
12.5
2.0
0.04
0.33
1.5
0.30
99.6
51.3
5.3
7.3%
7.9
0.9
0.04
0.34
2.0
0.37
123.1
67.0
7.1
6.7%
10.6
1.1
0.05
0.36
1.7
0.37
123.1
47.3
5.0
10.8%
7.2
1.0
0.06
0.37
1.5
0.37
123.1
46.9
4.6
13.4%
6.6
1.0
0.07
0.38
1.4
0.37
123.1
46.5
4.0
16.1%
5.6
1.0
Source: Company Reports & Global Research
* Market price for 2009 and subsequent years as per closing price on MSM on April 13, 2009.
Oman Cement Company
25
Global Research - Oman
Global Investment House
This Page is Intentionally Left Blank
26
Oman Cement Company
Global Research - Oman
Global Investment House
This Page is Intentionally Left Blank
Oman Cement Company
27
Global Research - Oman
Global Investment House
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
Recommendation
Oman Cement Company
Buy
Ticker
Price
OCCO.OM (Reuters)
RO0.372
OCOI OM (Bloomberg)
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
Buy
Fair value of the stock is >10% from the current market price
Hold
Fair value of the stock is between +10% and -10% from the current market price
Reduce
Fair value of the stock is between -10% and -20% from the current market price
Sell
Fair value of the stock is < -20% from the current market price
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28
Oman Cement Company