Egypt Cement - Global

Gl o b a l Re s e a r c h
July 2009
Se c t or
Egypt Cement Sector
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Against All Odds...
Global Investment House KSCC
Global Tower,
P.O. Box 28807 Safat
13149 Kuwait
Tel: (965) 22951000
Fax: (965) 22951299
Email: research@global.com.kw
http://www.globalinv.net
Global Investment House stock market indices can be accessed
from the Bloomberg page GLOH
and from Reuters Page GLOB
Faisal Hasan, CFA
Head of Research
fhasan@global.com.kw
Phone No:(965) 22951270
Mahmoud Soheim
Manager-Egypt Research
msoheim@globalinv.com.eg
Phone No: (202) 37609526
Ahmed Abu Hussein, CFA
Financial Analyst
aabuhussein@globalinv.com.eg
Phone No: (202) 37609526
Radwa Weshahy
Financial Analyst
rweshahy@globalinv.com.eg
Phone No: (202) 37609526
Table of Contents
Investment Summary 1
Global Cement Industry 5
MENA Cement Industry 14
Egypt Cement Industry 28
Valuation and Recommendation 60
Players Profile 63
Sinai Cement Company 64
Misr Cement Qena 81
Misr Beni Suef Cement 98
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Investment Summary
The structure of the world cement industry has become more globalized with a small
number of multinational companies dominating the world cement manufacturing capacities.
Moreover, the interaction between the cement markets supply and demand forces on the
national , regional and international arena, created a new world order.
The world cement industry experienced a period of rapid growth during the past decade,
where the world aggregate cement consumption increased at a CAGR of 7.3% over the period
from 2003-2008. The robust growth in the cement industry came on the back of strong global
economic performance, which was mainly attributable to the vigorous economic activity and
developments in emerging markets, growing at a CAGR of 7.5% over the same period.
The cement industry situation has changed considerably after the global financial crisis,
where the added cement capacities during the past couple of years and the announcement of
multiple new capacities coming on-stream in the next 4 years, mainly in emerging markets,
coupled with the expected slow-down in the construction sector will create an inevitable
oversupply situation in the global cement markets.
The world map of cement has changed dramatically over the past 60 years, where the center of
gravity has been moving steadily away from the west toward the East or developing economies.
North America and Europe (developed market) share in world cement consumption has been
declining from around 80% in the 50s to around 20% recently. This trend is attributable
to developing countries large population growth, as well as the continuous construction
development plans, including large scale infrastructure and real estate projects and cheap
labor and raw materials.
On the regional level, the MENA regions cement industry has been expanding remarkably
over the past five years, on the back of the high activity witnessed in the construction sector to
undertake large scale real estate and infrastructure developments, including housing, tourism,
industrial and public projects. MENA region cement consumption has been expanding at a
CAGR of 9.6%, reaching 258.7mn ton in 2008, whereas cement production reached 255.6mn
ton in 2008, achieving a CAGR of 7.6% over the same period.
The MENA region cement production capacity in 2008 is estimated at around 376mn ton,
which is forecasted to increase by 40.5%, reaching around 529mn ton in 2012, according to
the announced expansion plans. Arab Countries cement annual production capacity stood
at 222mn ton, representing 59% of the MENA regions cement annual production capacity.
Arab Countries cement annual production capacity is expected to increase by 99mn ton over
the next 4 years, reaching 321mn ton.
These huge cement capacities addition in the MENA region coming on stream over the next
years, unluckily coincided with the global economic slowdown and a declining activity in the
construction sector. This situation is expected to create an over-supply in the regional cement
market and trigger price wars, in addition to possible delays in the planned commissioning
dates of the new capacities, shutdowns of some of the inefficient existing capacities and
lower utilization rates.

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Therefore, we believe that countries with low cash cost of production per ton will be better
positioned to survive the declining global cement prices and export their excess capacities at
competitive prices.
With respect to the local market, the Egyptian cement industry has been growing vigorously
over the past 5 years, on the back of the high activity experienced in the construction and real
estate sectors. Egypts cement consumption has been growing at a CAGR of approximately
6% over the past 40 years. Despite the declining global demand, resulting from the global
financial crisis, cement demand in Egypt continued its robust growth fueled by lower steel
prices, which triggered higher construction activity.
The Egyptian grey cement sector consists of 13 cement manufacturing companies, of which 9
companies are controlled by 6 multinational companies. At the end of 2008, Egypts cement
production capacity reached 43.3mn tons, compared to 41.8mn ton in 2007, recording a
growth rate of 3.9%. Egypt cement production capacity is expected to add around 18.5mn tons
between 2009 and 2011, growing at a CAGR of 12.6% over the next 3 years. Accordingly,
Egypt cement production capacity will come very close to 62mn ton.
The government intervention in the cement industry through increasing energy prices for
energy intensive industries, including cement, harmed the competitive edge of the Egyptian
cement sector, for its relatively low cost of production. In addition, banning cement exports
could jeopardize the position of the Egyptian cement in export markets, yet we believe the
negative effect will be marginal, as Europe, which represents Egypts main export market, is
witnessing a severe decline in demand.
Finally, we believe that Egypts cement sector outlook is positive, on the back of the continuing
activity in the construction sector. The growth in the construction sector is expected to be
driven by the government plan to boost investments in infrastructure projects, as well as low
income housing and industrial development projects, in addition to the improvement of under
developed areas in Egypt. Furthermore, the private sector investments in the residential,
commercial and hospitality real estate segments are expected to support the construction
sector, as well.
Table 01: Global Valuation Matrix
Company Name
Price
(LE)
Target
Price
(LE) Reco.
Upside
potential
BVPS*
(LE)
EPS*
(LE)
PBV^
(x)
PE^
(x)
Sinai Cement 71.98 107.3 Buy 49.0% 23.77 9.20 1.51 7.83
Misr Cement Qena 78.00 91.3 Buy 17.1% 22.62 11.38 3.46 6.86
Misr Beni Suef Cement 88.49 162.8 Buy 83.9% 42.60 19.29 2.08 4.59
* 2009 projected EPS & BV
^ Multiples are based on projected EPS, BVPS & last market prices as of June 30th, 2009.
Source: Global Research
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Introduction
The world cement industry experienced a period of rapid growth during the past decade,
where the world aggregate cement consumption increased at a CAGR of 7.3% over the period
from 2003-2008. The robust growth in the cement industry came on the back of strong global
economic performance, which was mainly attributable to the vigorous economic activity and
developments in emerging markets, growing at a CAGR of 7.5% over the same period.
The global front has changed dramatically since mid 2008, as the US economy went into
recession. A liquidity squeeze appeared in the horizon, on the back of defaulting sub-
prime mortgage borrowers, due to easy credit granted to home buyers with a low credit-
worthiness.
In mid-September, the situation deteriorated rapidly all over the world, where a series of
defaults in many financial institutions occurred simultaneously, leading to the worlds worst
financial crisis. Huge stocks sell-off wave hit the worlds markets triggered by investors
panic, leading to tremendous losses on the global stock exchanges. Although the world
governments efforts to curb the downward trend to avoid recession, through adopting
expansionary policies, including lowering interest rates and injecting money in the world
economy, the global financial crisis still persists to date.
The global concurrent economic slow-down will negatively affect consumer demand, which
in turn will drag the growth of the entire sectors of the world economy. The construction
sector, which drives demand on building materials, will not be different and will be adversely
affected by the slowing world economy. In addition, tight credit conditions will act as an
obstacle to real estate developers in the implementation of their planned projects on all fronts,
leading to delay or cancellation of these projects. Consequently, the double effect of a slower
world economy and dry credit markets will negatively affect demand on building materials,
including cement.
The cement industry situation has changed considerably after the global financial crisis,
where the added cement capacities during the past couple of years and the announcement of
multiple new capacities coming on-stream in the next 4 years, mainly in emerging markets,
coupled with the expected slow-down in the construction sector will create an inevitable
oversupply situation in the global cement markets.
Consequently, this will lead to delay in the planned commissioning dates of the new capacities,
shutdowns of some of the inefficient existing capacities and lower utilization rates. However,
there is some good news represented in lower oil and natural gas prices, resulting from
reduced oil demand, which will have the effect of lowering the cement production cost.
Cement demand growth in developed markets, Western Europe and North America, is
expected to decelerate. Whereas, emerging markets cement demand growth is forecasted
to remain positive, although at a slower pace than previously projected before the global
financial crisis.
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Therefore, the majority of the new capacities additions are directed to emerging economies,
which are still under-developed and needs a lot of spending on infrastructure projects, in
addition to emerging markets comparative advantage in terms of cost differential, where labor
and energy cost are cheaper and CO2 emission restrictions are lower than in the developed
economies. This will somehow alleviate the pressure on the construction sector, resulting
from the slow-down in the housing sector and mitigate the negative effect on the growth of
the global cement consumption created by developed countries.
Given the new set of circumstances, a new competitive environment will emerge, where
countries with lower cash cost of production will be better positioned to survive the declining
global cement prices and export their excess capacities at competitive prices.
The purpose of this report is to assess the position of Egyptian cement industry within the
context of the global and regional cement industry. We will apply a top-down approach by
exploring the cement market dynamics in each respective market.
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Global Cement Industry
The structure of the world cement industry has become more globalized with a small
number of multinational companies dominating the world cement manufacturing capacities.
Moreover, the interaction between the cement markets supply and demand forces on the
national, regional and international arena, created a new world order.
The cement consumption is cyclical and closely related to the construction industry business
cycle, which in turn is largely determined by the overall macro economic growth. However,
cement is to some extent protected from extreme cycles in the construction industry, because
it is almost used in every type of construction. That is why the cement demand as a building
material is the last to be influenced during economic recessions and the first to benefit from
an economic recovery.
The cement consumption is seasonal throughout the year, where consumption decline in the
winter season due to bad weather conditions. Furthermore, the demand on cement is inelastic
in nature, as a decrease in cement prices will not significantly boost consumption during
a down cycle in the construction sector, as well as an increase in cement prices will not
materially reduce demand throughout a high construction activity period.
The cement industry has some distinctive characteristics. It is a capital intensive industry,
where the typical investment cost of a green field plant with an annual capacity of 1mn ton is
estimated to be in the range of USD150-200mn. In addition, the cement industry is an energy
intensive industry, where the production of one ton of cement requires around 60-130kg of
fuel oil or its equivalent, depending on the cement type and the production process, and about
105kwh of electricity.
The cement industry is closely related to the population, this relationship is intuitive because
the ultimate purpose of any building and construction development activity is to serve people,
whether in the form of housing, commercial, industrial, service or infrastructure developments.
The supply curve of cement kept shifting upward in close relation to population, exhibiting a
95.8% correlation between cement production and population.
Chart 01: World Cement production against world population
Source: USGS, U.S Census Bureau & Global research
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Supply and Demand Analysis
The world cement industry witnessed a stage of rapid growth over the period from 2002-
2007, resulting generally from good economic performance in world economies. The world
GDP growth achieved a CAGR of 4.6% over the same period and a growth rate of 5.2%
in 2007. This growth in the world economy came mainly on the back of strong economic
performance in emerging economies, which were able to achieve high economic growth rate
during the period from 2002 to 2007, growing at a CAGR of 7.4%, compared to 2.7% in
developed economies.
Chart 02: Real GDP growth rates
Source: IMF & Global research
Much of the growth in developing countries is attributable to intensive spending in the field
of social development and construction activities, especially in the Middle East and Asian
economies. Consequently, global cement consumption has been growing vigorously over
the past 5 years at a CAGR of 8.7%, reaching 2.76bn tons in 2007 up from 2.57bn tons
consumed in 2006. On the other hand, world cement production responded to this increasing
consumption by growing robustly at a CAGR of 8.5% over the same period, where cement
production reached 2.76bn ton in 2007, compared to 2.57bn tons in 2006.
Chart 03: World cement production and consumption
Source: Cembureau, ICR, USGS & Global research
By far China is the worlds largest cement producer and consumer, accounting for about
50% of the worlds aggregate supply and demand. Chinas large population of 1.3bn people,
besides the massive numbers of infrastructure projects and continuing urbanization are the
driving forces behind its tremendous cement consumption and production quantities. The
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World Developed Economies Developing Economies
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Production Consumption
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second largest producer and consumer of cement is India with a population of 1.1bn people
and substantial housing and infrastructure development projects.
Chart 04: World cement 2008 by region
Source: Cembureau, ICR & Global research
The world map of cement has changed dramatically over the past 60 years, where the center of
gravity has been moving steadily away from the west toward the East or developing economies.
North America and Europe (developed market) share in world cement consumption has been
declining from around 80% in the 50s to around 20% recently. This trend is attributable
to developing countries large population growth, as well as the continuous construction
development plans, including large scale infrastructure and real estate projects and cheap
labor and raw materials.
Chart 05: Growth in World cement consumption in developed vs. developing countries
Source: Cembureau, ICR, USGS & Global research
The world has changed dramatically after the emergence of the financial crisis in the United
States and its rapid spillover effect all over the world. Deteriorating credit markets and tight
credit conditions prevailing around the globe, as well as slower economic growth will act as
major drags on the construction and building materials sectors, in terms of lower demand and
hard project financing.
The strong performance of the world cement industry over the past half decade is believed to
come to an end, as the world cement consumption increased by 3.4% in 2008, compared to
7.6% in 2007, whereas the world cement production achieved a growth rate of 2.1% in 2008
against 7.4% in 2007. Therefore, we believe that the world cement industry already started its
down cycle, which is expected to prevail at least during the coming year, if not longer.
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49.1%
Others, 5.2%
Asia Pacic, 18.3%
Europe, 9.5%
Americas, 9.0%
MENA, 8.9%
Others, 5.8%
Asia Pacic, 18.4%
Europe, 9.0%
Americas, 9.1%
MENA, 9.1%
China,
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The decline in world cement consumption was mainly attributable to developed economies
weak demand, which is estimated to be decreased by around 9.6% in 2008, compared to a
decline of 1.7% in 2007. Although, cement demand in developing economies is estimated
to decrease too, it is still on the positive side, growing by a moderate 5.9% in 2008, against
a 9.6% in 2007. The continuing construction spending in emerging economies will offset the
negative cement demand growth witnessed in developed countries.
Chart 06: World expected cement demand by region
Source: Global research
Moreover, an examination of how the growth in cement production evolved historically over
the past 60 years can provide us with some insight on where the global cement industry is
heading. As indicated in chart 07, we plotted the growth in cement production for different
time periods for years 2007 and 2008. We found that the trend line for 2008 different periods
CAGR shows a flatter slope than the trend line for 2007, which supports our previous
argument that the cement industry entered a period of slowdown.
The cement industry production achieved a growth rate of 7.4% over 2007, compared to
2.1% in 2008, which is even lower than cement production long term growth. Therefore, we
believe that the cement industry will grow at its long term average growth rate in the range
of 4.5 to 5% over the short term, before rebounding again when the world economy starts to
recover.
Chart 07: World cement production CAGR for different periods
Source: USGS & Global research
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2007 2008 Trend 2008 Trend 2007
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Cement Pricing
The world average cement prices have been growing at a CAGR of 5% over the past 4 years,
reaching an average of US$105-110/ton in 2008, compared to US$85-90/ton in 2004. This
robust growth in cement prices came mainly on the back of the rapid growth in cement
demand, especially from emerging markets as we explained earlier, in addition to the rising
international energy prices, particularly the prices of steam coal and petcoke, which represent
the main energy source in the cement industry.
Chart 08: Australia -New Castle Steam Coal FOB price
Source: World Bank & Global Research
The production cost of cement varies significantly from one country to another, depending
on the availability and cost of energy, raw materials and labor. As long as energy cost is
the largest contributor to the cements production cost, cement producers in countries with
lower cost of energy will have a competitive advantage over their counterparts. In addition,
environmental regulations and carbon dioxide (CO2) restrictions in some countries will
add an incremental cost to the overall production cost. As an example for these restrictions,
Europes current CO2 price is EUR25 per ton of clinker produced.
On average, energy cost represents around 30% of the cement total production cost. Keeping
all other things constant, a rise in energy cost will be translated into higher production cost,
causing cement manufacturers to increase their selling prices in order to maintain their target
profit margins. The extent to which the cement prices will respond to an increase in energy
cost will depend primarily on the prevailing conditions in the construction market, which
directly affects demand for cement.
Capacities Additions
The world new cement capacity additions experienced a period of significant growth to cope
with the increasing cement consumption. This trend is evidenced by the large increase in the
contracted cement kiln capacities, achieving a CAGR of 33.5% for the period 2003-2008.
Given the annual contracted new cement kiln capacities globally excluding China, as indicated
in chart 09, and the fact that a time period of 2-3 years is needed between the contract award
and the commissioning of production, we can forecast that around an additional 400mn ton
of cement capacities will come on stream outside China during the next 3 years.
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Chart 09: New Global contracted cement kiln capacities (excluding China)
Source: FLSmidth & Global Research
However, new cement capacities annual order book declined in 2007 and 2008 by 10.7%
and 1.6%, respectively, reflecting cement producers concern regarding the coming 2-3 years
outlook of the world cement consumption. This implies that the growth in cement consumption
during near future is expected to grow at a slower pace compared to the previous robust 5
years.
An analysis of the distribution of the annual contracted order book among different
regions shows that around 90% of the contracted new capacity additions were originated
from developing countries, especially from MENA region and India, against only 10% in
developed markets.
The shift in cement manufacturing toward the Eastern hemisphere was mainly driven by tight
supply conditions and escalating demand environment, on the back of increasing population
and continuous development of immature housing and infrastructure projects, which remain
a fundamental driver for growth. The supply/demand imbalance in emerging markets enabled
cement producers to command higher prices and enjoy higher profitability, which created
surplus funds available for investment and further capacity expansions.
Furthermore, emerging markets have a competitive advantage with respect to production cost
and price differential, which is considered another reason encouraging cement producers to
shift east. Access to cheap labor and energy cost, as well as relaxed environmental regulations
were two main factors contributing to the lower production cost in emerging markets. In
addition, high cement prices in developed markets compared to emerging markets, with the
exception of Africa due to limited supply and dependence on imports, created the basis for
exports to developed markets at competitive prices.
Moreover, Chinese equipment manufactures provide cement plant projects at lower cost. The
Chinese Sinoma Company is able to provide turnkey projects at approximately 30% less than
European suppliers. Therefore, the return on invested capital for cement producers employing
the Chinese technology for a typical 1.5mn ton cement plant reaches 16%, compared to 10%
for an identical plant build by any European supplier. It is worth mentioning that Sinoma had
a market share of 34% in 2008, taking the lead for the first time from FLSmidth.
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43.1%
86.7%
-10.7%
-1.6%
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Chart 10: Cement plants equipment suppliers market share 2008
Source: FLSmidth & Global Research
The emergence of the financial crisis and its negative consequences on the construction
sector, especially in the developed markets, resulted in capacity reduction and projects delay,
as well as exacerbating the move of the new cement capacities to the emerging markets. In
Developed markets, companies will focus on vertical integration into ready-mix concrete and
aggregates, as a strategy to protect their market share and profitability.
Lafarge, the world largest cement producer, modified its 2006-2010 initial global capacity
expansion plan down from 60mn ton to 48mn ton and extended the plan time horizon by 1
year to end in 2011. In addition, Lafarge re-allocated the planned 10% capacity expansion in
developed countries in its initial plan, to become 100% directed toward emerging markets.
In addition, major multinational players are expected to abandon merger and acquisition
activity during 2009, as they will focus mainly on cash flow generation and achieving a sound
liquidity position through cost optimization, applying a conservative investment approach and
keeping low leverage. However, cement manufacturers emerging from developing countries
are serious competitors to the traditional industry leaders. These emerging market players
are gaining momentum and increasing control over the cement industry, on the back of high
profitability making them cash rich companies eager for growth and willing to diversify
abroad.
A new competitive environment will emerge in the global cement industry, where countries
with lower cash cost of production will be better positioned to survive the declining global
cement prices and export their excess capacities at competitive prices.
Trade
Generally, cement is not an export oriented product because it is a heavy and low value
product. Therefore, cement transportation cost is considered an important factor in
determining its import/export destinations world-wide. Consequently, the world total cement
trade represented only 6-8% of the world total consumption over the period from 1999 to
2008.
Polysius (Germany), 14%
KHD (Germany), 7%
Others, 13%
FLSmidth (Denmark), 32%
Sinoma (China), 34%
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Chart 11: Cement world trade
Source: Ocean Shipping Consultants, Clarkson, ICR & Global Research
The United States of America is the largest importer of cement in the world. However, the
volume of cement imports to the United States has been significantly slashed by 33.2% and
42.8% in 2007 and 2008, respectively. This decline resulted from the construction sector
slow down, which mainly came on the back of weakness in the housing segment. On the other
hand, China is the worlds largest cement exporting country, thanks to its huge capacities,
which produce around 50% of the world cement production, and its competitive cement
selling prices of approximately US$55/ton.
Cement Seaborne Shipping is much more economically than inland shipping, allowing
cement to travel very long distance at lower cost. Therefore, seaborne shipping has the lions
share in global cement trading, where around 80% of total cement trading is shipped by sea.
However, seaborne cement trading accounted for a small percentage of the world dry bulk
shipments amounting to 4.5% of in 2007 and it is estimated to be 4.2% in 2008.
Chart 12: World dry bulk shipments
Source: Clarkson & Global Research
The bulk carrier freight rates, which are determined by factors outside the cement sector,
including fleet supply, seasonal factors and bunker price (carrier fuel), can change the cost
competitiveness of one country compared to others in global markets.
The international seaborne dry bulk freight rates, as measured by Baltic Dry Index (BDI), which
provide an assessment of the price of moving the major raw materials by sea, has witnessed a
dramatic drop by around 93% since late May 2008 till the end of December 2008, back to its
2005 levels. However, the index started to recover some of its losses since early 2009.
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World cement trade Seaborne trade % of global consumption
Iron ore, 25.9%
Coal, 26.1%
2007
Steel products, 8.9%
Others, 14.9%
Phosphate rock, 1.1%
Grains, 10.0%
Bauxite/ Alumina, 2.8%
Cement, 4.5%
Forest Products, 5.8%
Steel products, 8.9%
Grains, 9.9%
Bauxite/ Alumina, 2.7%
Cement, 4.2%
Forest Products, 5.6%
Iron ore, 27.2%
Coal, 25.7%
Others, 14.8%
Phosphate rock, 1.0%
2008E
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Chart 13: Baltic Dry Index
Source: Bloomberg & Global Research
The current financial turmoil along with the global economic slow-down, especially in
developed economies, will result in reduction in the global cement consumption growth.
Therefore, the volume of global cement trading is expected to be negatively affected, as most
of the cement volumes are forecasted to be produced and consumed locally, whereas cement
trading will be mainly concentrated in the Eastern hemisphere, where demand still exists.
-
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MENA Cement Industry
For the purpose of the report, the Middle East and North Africa (MENA) region is represented
by 20 countries, including 18 Arab countries and 2 non-Arab countries, as follows:
- Gulf Co-operation Council (GCC) Countries; Bahrain, Kuwait, Oman, Qatar, Saudi
Arabia and United Arab Emirates (UAE).
- The Arab Peninsula; Iraq, Yemen and the GCC region.
- The Levant; Jordan, Lebanon, Syria and Palestine.
- North Africa; Algeria, Egypt, Libya, Morocco, Sudan and Tunis.
- Non-Arab Countries; Iran and Turkey. They are added to the MENA region because they
are considered major cement producers.
Table 02: MENA economic indicators 2008e
Country
GDP
growth
Population
(mn.)
GDP per
capita (US$)
Inflation rate
(End of
period)
A
r
a
b

C
o
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n
t
r
i
e
s
A
r
a
b

P
e
n
i
n
s
u
l
a
G
C
C

r
e
g
i
o
n
Bahrain 6.3 0.78 25,245 10.5
Kuwait 5.9 3.44 46,397 9.0
Oman 7.4 2.60 21,704 10.0
Qatar 16.8 1.10 106,460 15.0
Saudi Arabia 5.9 24.90 21,221 11.5
United Arab Emirates 7.0 4.76 56,667 12.9
Iraq 9.8 28.22 3,324 6.8
Yemen 3.5 22.98 1,199 15.9
T
h
e

L
e
v
a
n
t
Jordan 6.0 5.85 3,267 16.1
Lebanon 6.0 3.80 7,376 8.7
Syria 4.2 19.88 2,238 8.0
Palestine 0.8 2.41 2,758 11.5
N
o
r
t
h

A
f
r
i
c
a
Algeria 4.9 34.80 4,922 4.2
Egypt 7.2 75.05 2,109 20.2
Libya 7.1 6.21 17,468 12.0
Morocco 6.5 31.18 2,902 3.9
Sudan 8.5 38.13 1,631 12.0
Tunis 5.5 10.36 4,032 4.7
Non-Arab
Countries
Iran 5.5 72.87 5,247 24.0
Turkey 3.5 69.69 11,463 10.9
Source: IMF, CIA and Global Research
Sector Drivers
Economic Activity
The MENA region is endowed with a substantial energy reserve, where more than 66%
of the worlds crude oil reserve exists and around 47% of the global natural gas reserve is
located. Accordingly, the hydrocarbon sector is a main contributor to MENAs economy,
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especially for oil-exporting countries, such as Saudi Arabia, UAE, Kuwait, Algeria, Libya
and Iran. Other countries including Egypt, Morocco, Tunis, Oman and Jordan are not mainly
dependent on the hydrocarbon sector and have more diversified economies.
Chart 14: Global Oil and Natural Gas proven reserves (end of 2008)
OIL Natural GAS
Source: BP & Global Research
The overall MENA region witnessed a period of strong economic performance, growing at
a CAGR of around 5.3% over the past 5 years. Economies were expanding vigorously on all
fronts, following the global growth trend, achieving a growth rate of 5.8% in 2008, the same
as 2007. MENA oil-exporters economic growth rate declined from 6.4% in 2007 to 5.8%
in 2008, resulting from slower domestic demand growth in Iran. However, GCC economic
growth reached 6% in 2008 from 4.1% in 2007. On the other hand, MENA diversified
economies achieved an economic growth rate of 5.7% in 2008, compared to 3.8% in 2007.
Chart 15: MENA GDP growth rate
The significant surge in the international food and oil prices starting in 2007 to mid 2008
caused inflation rate to exceed the 10%-mark in the majority of MENA countries. Crude
oil prices reached almost US$145/barrel in mid 2008 from around US$55/barrel at the
beginning of 2007. This remarkable increase in oil prices created surplus liquidity mainly in
oil exporting countries, especially the GCC economies.
On the other hand, more diversified economies, which are dependent on food and oil imports,
experienced a decline in their current account balances as a percentage of GDP, due to higher
cost of imports.
Saudi Arabia, 21.0%
Iran, 10.9%
Iraq, 9.1%
Kuwait, 8.1%
UAE, 7.8%
Other MENA, 8.4%
Rest of the
World, 34.7%
Iran, 16.0%
Qatar, 13.8%
Saudi Arabia, 4.1%
UAE, 3.5%
Algeria, 2.4%
Other MENA, 5.7%
Rest of the
World, 54.5%
3
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%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2007 2008e 2009f 2010f
MENA Diversied MENA Oil Exporters GCC MENA
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Chart 16: MENA current account position as percentage of GDP
The governments of the GCC countries utilized these excess funds to diversify their economies
to become less dependent on the oil and gas sector, as they invested a substantial amount
of these excess petrodollars in society development, such as real estate and infrastructure
projects, in order to attract private investments, which were primarily directed to develop
high-end housing, commercial and tourism schemes, as well as industrial project. These large
scale multi-facet development projects on all fronts, as well as infrastructure developments
created a great demand for building materials, including cement.
The world economic slowdown, resulting from the manifestation of the global credit crunch,
which started in mid September 2008, negatively affected MENA economies. The direct effect
of the crisis was relatively mild, compared to developed economies, as financial institutions in
MENA region were not large holders of subprime mortgage securities. However, the vulnerability
of MENA economies to the ripple effect of the financial crisis was more severe than its direct
effect, with respect to shrinking global demand, squeezing liquidity and falling stock markets.
Therefore, MENA countries economic growth are expected to slowdown, on the back of
lower revenues, resulting from weak demand for the regions exports and tourism, falling oil
prices and tight credit conditions. This will lead to decline in investment spending, which will
result in scaling down and postponement of ambitious investment projects.
Oil exporting countries current account position will be negatively affected, as receipts from
hydrocarbons were slashed, on the back of falling crude oil prices, reaching around US$45/
barrel from a peak of US$145/barrel in mid-2008. On the other hand, diversified economies will
benefit from lower commodity and oil prices, as their current account position will improve.
It is worth mentioning that oil price is an essential key factor affecting the regions economy,
as well as the world economy. Therefore, any decision by the regions main oil exporting
countries, which are also members in the Organization of the Petroleum Exporting Countries
(OPEC), to cut oil production to set a floor under oil prices will play a major role in shaping
the regions growth profile.
Population
Population is one of the main determinants of cement consumption. As any construction
activity undertaken to develop any type of real estate or infrastructure project, is implemented
to serve the people whether in form of housing, tourism or public services projects. MENA
1
4
.
9
%
1
9
.
2
%
-
1
.
2
%
1
2
.
8
%
1
7
.
2
%
-
3
.
6
%
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3
.
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%
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.
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%
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.
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0
%
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0
%
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0
.
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%
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.
1
%
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.
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%
0.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
MENA MENA Oil Exporters MENA Diversied
2006 2007 2008 2009 2010
region has a large population base, with a total population of around 461mn people, growing
at a CAGR of 2% over the past 10-year period.
Population in the MENA region is expected to grow by its historical annual average rate until
it reaches approximately 507mn people in 2013. Furthermore, MENA region has favorable
population segmentation with around 39% of its population are young and less than 18 years
old, which ensures strong demand on housing and utilities development projects.
Chart 17: MENA historical and forecasted population
Source: IMF, US Census Bureau & Global Research
Arab Countries contribute to around 69% of total MENA population, with a total population
of 318mn people in 2008, compared to 142mn people in non-Arab countries. North Africa
was the greatest contributor with a share of 43% of total MENA population.
Chart 18: MENA Population distribution 2008
Source: IMF, US Census Bureau & Global Research
Construction activity
The MENA regions construction activity has been expanding vigorously over the past years
to develop large scale real estate and infrastructure projects. Generally, this high level of
activity in the construction sector came on the back of the good economic performance all
over the MENA region, as well as different governments hefty investments, through the
public sector to develop immature housing and infrastructure projects to upgrade the living
standards and social services offered to the increasing population. Moreover, the contribution
of the private sector to this construction boom was mainly focused on the development of
luxurious residential, commercial and leisure schemes.
-
100
200
300
400
500
600
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
P
o
p
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l
a
t
i
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n

m
n
.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
MENA population MENA population Growth
The Levant, 7% North Africa, 43%
Non-Arab Countries, 31%
GCC, 8%
Yemen, 5%
Iraq, 6%
Arab
Peninsula,
19%
1~ l,t teaeat :ectc| }u|, !)
The GCC region witnessed the highest level of construction activity in the MENA region,
driven by two main factors; the high oil prices, which created a surplus liquidity, and
willingness to diversify their economies to become less dependent on the hydrocarbon
sector.
The world economic recession resulting from the outbreak of the global financial crisis and
the subsequent free fall in the world oil prices, as a consequence of slower global demand,
negatively affected the liquidity levels of oil dependant economies. Moreover, dry credit
market conditions worsened the situation even more, with project financing became very
hard to obtain, as banks willingness to finance real estate projects disappeared. This situation
has adversely affected the construction activity, leading to a slowing-down in the sector
and downsizing and rescheduling of ambitious development plans. Accordingly, demand on
building materials decreased, leading to a decline in their prices.
According to data published by MEED, the Gulf region, which includes GCC, Iraq and Iran,
projects value in March 2009 reached US$3.1bn, growing at a CAGR of around 10% over
the past 10 quarters. Although the total projects value increased by 16.5% during the last
quarter in 2008, it advanced only by 5% in the first quarter of 2009. The large increase in
the projects value in the last quarter of 2008 came on the back of the stimulus packages
announced by the governments to invest in infrastructure projects, in order to counter attack
the slowdown resulting from the financial turmoil.
Chart 19: Gulf region projects value against their growth rate
Source: MEED & Global Research
The value of the projects in itself is promising and assures a good activity in the broad
construction sector over the next years. However, the two crucial questions are how many
projects will find their way to the light with the current liquidity constraints and falling
demand and how such projects are distributed among different economic sectors.
We believe that the coming period will determine the destiny of many projects, where
infrastructure and economically feasible projects with adequate financing will be the surviving
projects, although they may witness some delays relative to their original completion dates.
On the other hand, projects that are speculative in nature, mainly luxurious real estate projects,
will be the ones that are more likely to witness cancellations.
The UAE has the largest construction market worth US$1.23bn, representing around 42% of
the Gulf region projects value, where some 80% of the UAE planned activity is in the real
-
500
1,000
1,500
2,000
2,500
3,000
3,500
Dec.
2006
Mar.
2007
Jun.
2007
Sept.
2007
Dec.
2007
Mar.
2008
Jun.
2008
Sept.
2008
Dec.
2008
Mar.
2009
U
S
$

m
n
.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Projects value Growth
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estate construction segment. Therefore, the UAE vulnerability to the negative consequences
of the credit crunch is much harsher than other countries in the region. There are around
US$335mn worth of projects on hold, representing 25% of UAE projects value and even on-
going projects were rescheduled with extended time frames and minimal work force because
of lack of funding and lower population projections, due to downsizing of the expatriate work
force.
Chart 20: Gulf region projects breakdown by country on March 2009
Source: MEED & Global Research
The decline in building material prices, which is considered a positive factor in stimulating
the construction sector, was not enough to fuel more real estate investments due to declining
demand and the severe lack of funds to finance projects, in addition to that the fiscal budget
of oil exporting countries, mainly GCC, came under pressure due to lower oil prices.
Although the construction sector is under pressure, the governments still have the ability
to ease strain on a slowing down construction sector by injecting funds to stimulate the
economic activity. Therefore, many governments in the region adopted stimulus package
plans to enhance their economies, mainly through increasing public spending on society
development projects, such as schools, universities, hospitals and infrastructure projects, as
well as injecting fresh money in the troubled financial system .
Data shows that merely the top 12 infrastructure projects in the MENA region will cost around
US$55bn, to be implemented during the coming years. This level of expected expenditure on
infrastructure projects should provide a good level of assurance that the construction activity
in the overall MENA region is not expected to fall sharply. However, the construction activity
will vary from one country to another. Accordingly, MENA demand on building materials is
not expected also to decline severely.
Oman, 3.5%
Qatar, 7.1%
Saudi Arabia, 20.7%
UAE, 41.9%
Iran, 9.7%
Bahrain, 2.2%
Kuwait, 9.9%
Iraq, 5.0%
Table 03: Top 12 railway and road mega projects
Project Country
Value
(US$ bn) Scope Status
Completion
Date
GCC rail network GCC region 14 3,000km rail network connecting
the 6 GCC countries
Planning 2016
Kuwait national rail network Kuwait 6.6 505km railway linking Saudi borders
in the south with Iraqi borders in the
north though Kuwait cities
Planning 2014
Land bridge Saudi Arabia 6.6 1,155km railway linking port cities
of Jeddah, Dammam and Jubail
through Riyadh
Developer
selection
2011
Makkah-Madina railway Saudi Arabia 6 440km railway linking the 2 holy
cities of Makkah and Madina with
Jeddah
Contract
awarded
2012
Mina-Arafa railway Saudi Arabia 5.3 The railway will link the Holy city
of Makkah with Mina, Muzdalefa
and Arafat
Contract
awarded
2013
UAE railway UAE 3 9000km high speed railway linking
all the 7 emirates together
Planning 2015
Total railway projects 41.5
Friendship causeway Bahrain/
Qatar
4.2 45km road and railway linking
Bahrain and Qatar
Contract
awarded
2013
Subiya Causeway Kuwait 3.7 36km bridge linking between
Kuwait city and Subia peninsula
Planning 2016
Red Sea bridge Yemen/
Djibouti
2 27km road and railway linking the
Arabian Peninsula and Africa
Planning 2020
Jamarat bridge Saudi Arabia 1.5 Expansion of the Hajj bridge in Mina Construction 2009
Persian Gulf bridge Iran 1 Bridge linking Qeshm island with
Iranian mainlan
Planning 2014
Island bridges UAE 1 20 bridges linking islands of
Suwwa, Reem and Umlafaine
Contract
awarded
N/A
Total road projects 13.4
Total rail & road projects 54.9
Source: MEED, Zawya & Global Research
Regulations
The cement industry is highly regulated, as it is subject to high level of intervention by most
the regions governments. The reason behind this is that cement is considered a strategic
commodity, as it is an essential building material for all and every kind of society construction
and infrastructure development activity.
Therefore, different governments across the region issued various regulations on their
respective local cement markets to regulate trading of cement, with the objective of prioritizing
meeting local demand and controlling local selling price of cement.
In Saudi Arabia, cement prices soared from an average of US$67/ton in 2007 to over
than US$100/ton, on June 2008. In turn, the Ministry of Commerce and Industry (MOCI)
imposed a ceiling on the factory price of cement at SR250/ton (US$68/ton). In addition, the
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government banned all cement exports effective June 2008, following growing complaints
from contractors and individuals that traders are directing cement for exports, attracted by
higher profit. On May 25th, 2009, cement export ban was removed on condition that cement
companies abide by the government decision to sell each bag of cement on the local market
for SAR10 (US$2.67).
It is worth mentioning that, Eastern Province Cement Company decided to shut a production
line, which produces 3,500 ton per day, for four months (for a lengthy maintenance), as the
government decision to ban exports has inflated the Companys stockpiles. However, Saudi
Arabia decision to remove export ban, was driven by two reasons, the current high level of
inventory and the expected new capacities additions.
Table 04: Main government regulations
Country Regulations Effective date
Egypt Price cap of US$58.5/ton August 2006
Export duty of US$12/ton February 2007
Export duty of US$15/ton August 2007
Export ban March 2008 to September 2008
Removal of export duty of US$15/ton October 2008
Allowing imports April 2009
Export ban April 2009 to August 2009
Saudi Arabia Price cap of US$68/ton June 2008
Export ban June 2008
Removal of export ban May 2009
UAE Price cap of US$81/ton 2007
Price cap of US$99/ton 2008
Reintroduction of 5% imports duty February 2009
Oman Export duty US$78/ton June 2008 until now
Syria Price cap of US$130/ton February 2009 until now
Iran Export ban May 2008 to December 2008
Price cap of US$50-60/ton July 2008
Export Duty US$100/ton July 2008 to December 2008
Price cap of US$65/ton January 2009
Source: ICR, Reuters & Global Research
On the other hand, UAE government decided to set cement price at US$81/ton in 2007.
Price cap was further raised to US$94/ton and again to around US$99/ton in 2008. The surge
witnessed in cost of raw materials and fuel coupled with supply shortage pushed cement
prices to a record high. Accordingly, the Ministry of Economy signed an agreement with
producers to increase production and remove import duties, as well as reducing port handling
fees on May 2008. Later in February 2009, import duties of 5% were reintroduced to protect
local manufacturers, as well as avoiding oversupply in the market.
During March 2008, Oman two cement companies along with the Oman Chamber of
Commerce and Industry (OCCI) agreed to increase the retail price of cement by OMR0.20 to
OMR1.50 per bag equivalent to OMR30.0 per ton (US$78.0/ton) for cement manufacturers,
effective June 1st, 2008.
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In 2008, the Syrian Prime Minister decided to extend, until June 2009, the permission to
import cement to satisfy the rapidly growing demand. This decision is revised on June of
every year. On February 2009, the Syrian government decided to fix the cement price at
US$130/ton, in order to protect the local producers, from the notably cheaper imported
cement from countries with lower production cost.
Moreover, the Iranian government banned producers from exporting cement because of
concerns to witness a local shortage, effective May 2008. However, recently established
plants were allowed to export a proportion of their production to cover bank repayments
and other debt, but have to pay an export tax duty of US$100/ton, which was imposed by
the government on July 2008. Additionally, Iran government has enforced a US$50-60/ton
cement price, as the black market price was more than double the ex-work price, effective
July 2008.
On January 2009, the government has decided to eliminate the US$100/ton export duty,
as the local supply and demand were almost balanced, after new plants started production.
Additionally, exports will only be allowed as long as the price of cement in Iran does not
exceed a maximum of US$65/ton.
Concerning Egypt the latest set of regulations were issued by the Minister of Trade and
Industry in April 2009, to control local cement prices including, banning cement exports for
4 months, reduction of cement imports clearing period from 30day period to 3-day period,
as well as obliging cement producers to print their selling prices on cement bags for all
distribution channels, including end-user price. Further details regarding regulations in the
cement market will be discussed later under Egypts cement sector.
Supply and Demand Analysis
The MENA regions cement industry has been expanding remarkably over the past five
years, on the back of the high activity witnessed in the construction sector to undertake large
scale real estate and infrastructure developments, including housing, tourism, industrial and
public projects. MENA region cement consumption has been expanding at a CAGR of 9.6%,
reaching 258.7mn ton in 2008, whereas cement production reached 255.6mn ton in 2008,
achieving a CAGR of 7.6% over the same period.
Chart 21: MENA cement production and consumption
Source: Arab union for Cement and Building Material (AUCBM), ICR & Global Research
1
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2003 2004 2005 2006 2007 2008
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Consumption Production Consumption growth Production growth
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Turkey is considered the largest cement producer in the region, producing 20.1% of the
regions total cement production in 2008. Iran produces around 17.4% of the regions cement
production and comes in the second place, followed by Egypt, which produced almost 15.5%
of MENA cement production in 2008. Saudi Arabia and UAE ranked the fourth and fifth
biggest cement producers in the region in 2008, manufacturing around 12.9% and 6.3%,
respectively.
Chart 22: MENA countries cement production and consumption 2008
Source: Arab union for Cement and Building Material (AUCBM), ICR & Global Research
On the consumption front, Iran is the largest cement consumer in the region, consuming around
17% of the regions cement consumption, followed by Turkey, which consumed 15.7% of
the regions cement consumption in 2008. Egypt took the third place with approximately
14.8% of MENA cement consumption in 2008. In addition, Saudi Arabia and UAE came
as the fourth and fifth biggest cement consumers in the region in 2008, consuming around
11.5% and 7.7%, respectively.
Chart 23: MENA countries Cement per Capita Consumption (CPCC) Vs. 5 year CPCC CAGR
Source: AUCBM, ICR & Global Research
Further analysis of the cement consumption data with respect to Cement Per Capita
Consumption (CPCC) and its respective CAGR over the past five years reveals that all Arab
countries average CPCC stands at 490kg, with a CAGR of 8% over the previous 5-year
period, compared to a CPCC of 593kg and a CAGR of 6.3% over the same period in non-
Arab countries. Collectively, the MENA region average CPCC recorded 519kg, achieving a
CAGR of 7.4% over the past half decade, relative to a world average CPCC of 426kg and a
CAGR of 6.1% over the past 5 years.
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CPCC (kg.) GCC avg. CPCC MENA avg. CPCC 5 year CAGR
!+ l,t teaeat :ectc| }u|, !)
GCC countries have the highest CPCC figures in the MENA region, recording an average
of 1,660kg in 2008, with a CAGR of 7.4% over the period from 2003-2008, resulting from
the high level of construction activity experienced in the GCC region. UAE has the highest
CPCC in the MENA region, reaching 4,200kg in 2008. It is worth mentioning that Libya
CPCC is in the same level as some GCC countries. Other countries in the MENA region
CPCC figures hover around the regions average CPCC, with the exception of Iraq, Syria,
Yemen and Sudan, which are far below the MENA regions average.
We believe that countries with a large population base and relatively lower CPCC will have
a good potential for cement consumption growth on the long-term. Countries under this
category are Sudan, Yemen, Iraq and Syria. On the other hand, GCC countries CPCC is not
sustainable on the long term, given their low population base, except for Saudi Arabia, which
has a much larger population compared to other GCC countries.
Capacities
As aforementioned, the strong economic performance witnessed in the MENA countries has
encouraged more investments in real estate and infrastructure development projects, which
in turn created high demand for building materials. Therefore, cement producers around the
MENA region planned to raise their production capacities to meet the growing demand.
The MENA region cement production capacity in 2008 is estimated at around 376mn ton,
which is forecasted to increase by 40.5%, reaching around 529mn ton in 2012, according to
the announced expansion plans. Arab Countries cement annual production capacity stood
at 222mn ton, representing 59% of the MENA regions cement annual production capacity.
Arab Countries cement annual production capacity is expected to increase by 99mn ton over
the next 4 years, reaching 321mn ton.
Chart 24: MENA countries current and forecasted annual cement production capacity
Source: International Cement Review (ICR), MEED, Iran Cement, CemWeek, Zawya, Arab Union for Cement and
Building Materials (AUCBM), Cement Companies and Global Research
Egypt, Saudi Arabia and UAE are implementing considerable capacity expansion plan, contributing
around 32% of the new capacity expansion in the MENA region, in order to meet the growing
local demand. Egypt is projected to add around 18.5mn ton, increasing its annual production
capacity from 43mn ton in 2008 to 62mn ton in 2012. In addition, Saudi Arabia is expected to
increase its cement annual production capacity by 27%, reaching 61mn ton in 2012, compared to
48mn ton in 2008. Similarly, UAE is forecasted to lift its annual production capacity by 17mn ton
by 2012, representing 56% increase from 2008 production capacity level of 30mn.
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UAE Morocco Algeria Libya Syria Jordan Tunisia Qatar Sudan Oman Yemen Kuwait Bahrain
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Moreover, other countries are also implementing capacity expansions and establishing
Greenfield plants, including Algeria, Morocco, Libya, Jordan, Syria, Yemen, Kuwait, Sudan
and Qatar. Syria was expected to be one of the major cement producers in the region, as
since 2005 the Syrian government planned to add around 25mn ton, of which only 6mn ton
were confirmed. Up to date, no further details were disclosed concerning the start-up dates of
the remaining announced capacities. Therefore, we excluded Syrias unconfirmed additional
capacities from our calculations.
Chart 25: Distribution of capacities additions in MENA countries between 2009-2012
Source: International Cement Review (ICR), MEED, Iran Cement, CemWeek, Zawya, Cement Companies & Global
Research
Iran is expected to have the lions share with respect to the new capacities additions, where
around 35% of the new cement capacities in the MENA region are expected to come from
Iran, which is projected to boost its production capacity by 89%, reaching 113.5mn ton
in 2012, relative to 60mn ton in 2008. It is worth mentioning that the Iran cement annual
production capacity reached 64mn ton on March 2009.
The new capacities additions in the region are expected to come over the course of the next 4
years, where 25% will be added in 2009, whereas the majority of the new capacities expansions
of 36% are forecasted to start operations in 2010. Afterwards, 23% and 16% of the new
capacities are due to be completed in 2011 and 2012, respectively. Moreover, Arab Countries
are expected to add 34, 36, 28 and 1mn ton over 2009, 2010, 2011 and 2012, respectively.
Chart 26: MENA countries current and forecasted annual cement production capacity
Source: International Cement Review (ICR), MEED, Iran Cement, CemWeek, Zawya, Cement Companies and
Global Research
Iran, 35.1%
Sudan, 4.7%
Algeria, 2.7%
Bahrain, 0.2%
Egypt, 12.1%
Jordan, 3.5%
Kuwait, 1.2%
Libya, 4.6%
Morocco, 6.4%
Oman, 1.0%
Qatar, 2.0%
Saudi Arabia, 8.6%
Syria, 4.2%
Tunisia, 0.7%
UAE, 11.0%
Yemen, 2.0%
376
38
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Saudi Arabia is expected to add 3mn ton in 2009, 7mn ton in 2010 and 3mn ton in 2011,
which will bring Saudi Arabia total cement annual production capacity to 61mn ton by the
end of 2012. UAE is expected to add 10, 2 and 4mn ton of new cement capacities in 2009,
2010 and 2011, respectively.
Chart 27: Capacities additions by country throughout 2009 to 2012
Source: International Cement Review (ICR), MEED, Iran Cement, CemWeek, Zawya, Cement Companies and
Global Research
However, the negative effect of the world financial crisis on the construction sector forced
some cement producers to revise their expansion plans, either by postponing their projects
or by cancelling the entire project. Therefore, some of the announced projects were deferred,
especially in UAE and Saudi Arabia.
In UAE, Jebel Ali Cement factory, which will have an annual production capacity of 2.5mn
ton, completion date were postponed to 2010. In addition, JK cement, which is expected
to have an annual capacity of 2.2mn ton, was postponed to commence operation in 2011.
In Saudi Arabia, Arabian Cement Company postponed its 3mn ton cement plant to start
operations in 2011, whereas Southern Provence Cement Company freezed its expansion
plans, until market conditions improve.
These huge cement capacities addition in the MENA region coming on stream over the next
years, unluckily coincided with the global economic slowdown and a declining activity in the
construction sector. This situation is expected to create an over-supply in the regional cement
market and trigger price wars, in addition to possible delays in the planned commissioning
dates of the new capacities, shutdowns of some of the inefficient existing capacities and
lower utilization rates Therefore, we believe that countries with low cash cost of production
per ton will be better positioned to survive the declining global cement prices and export their
excess capacities at competitive prices.
Pricing and Cost
Pricing
Based on the fact that most of the regions governments intervened in the cement industries,
either by imposing price caps or setting an export duty fee, the cement prices in 2008 were
stable to the extent to which the governments were able to enforce the stated regulations. The
average retail cement price in the MENA region in 2008 was approximately US$103/ton.
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Chart 28: Cement retail prices in the region
Source: International Cement Review (ICR), Global Cement Magazine, WorldCement, CemWeek and Global Research
Cost
Cement production cost varied among different MENA countries and some other selected
countries, depending on the cost of energy, raw materials and labor. The MENA region
average cash cost of production in 2008 reached US$40/ton. It is worth mentioning that
Algeria has the lowest cash cost of production of US$15/ton.
Chart 29: Selected countries cash cost of production
Source: International Cement Review (ICR) and Global Research
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Egypt Cement Industry
Background
Egypt is one of the oldest countries in cement manufacturing in the region, as it started cement
production in the early years of the 20th century, specifically in 1927 with the construction of
Torah Cement Company. Later in 1929, Helwan Cement Company was established followed
by Alexandria Cement Company in 1948 and National Cement Company in 1956. In the 70s,
the production capacities of the 4 cement companies reached around 4mn tons.
The construction boom witnessed in the late 70s and 80s created high demand for cement
that was met through imports because of the limited local production capacities, despite the
opening of 3 new cement companies, Suez, Assuit and Amiryah, which started production
throughout that period. In the mid 80s, Egypt became one of the largest cement importing
countries in the world.
During the 90s, 6 new cement companies were established to cope with the increasing
construction activity and the resulting increasing cement demand, especially with the
appearance of new sub-urban cities such as, Al-Sherouq, Al-Obour, 6th of October, 10th of
Ramadan and Al-Sadat. However, Egypts cement net importing position prevailed during
the 90s and the early years of the 21st century.
Consequently, cement producers in Egypt increased their production capacities and enhanced
their production lines to meet the surging local cement demand. In 2002, Egypt turned out to
be a net exporter of cement and later in 2004 Egypt stopped importing cement and became
one of the largest cement exporting countries in the world.
Similarly, cement distribution and pricing evolved over time and went through 3 phases of
development. The first phase started in 1932 with the establishment of the cement store by
the sole cement producers then, Torah and Helwan, to organize selling their production.
Later in 1957, the government replaced the cement store with the cement selling office,
which was responsible for marketing cement in the local and export markets. However, the
governments centralized management of that office led to price distortions and production
bottlenecking in the cement sector. Therefore, the cement selling office was terminated in
1991 and cement producers became free to set their prices based on the market forces.
Currently, grey cement manufacturers in Egypt reached 13 players with a total production
capacity of 43.3mn ton. Out of the 13 market players, there are 9 cement companies controlled
by 6 leading multinational companies, who entered the Egyptian market mainly through the
privatization of the state-owned cement companies, which started in 1996. The entrance of
these multinational companies significantly contributed to enhancing the productivity and
efficiency of the local cement industry.
Ordinary Portland Cement (OPC) is the most common type of cement produced in Egypt.
This type of cement is the most widely used in every aspect of the construction works. In
addition, the production mix is not limited to OPC, it also includes, seawater cement, rapid
hardening cement, slag cement and white cement. These other types of cement are more
specific purpose cement and differ from OPC in their composition.
}u|, !) l,t teaeat :ectc| !)
Sector Drivers
Economic Activity
The Egyptian economy continued its robust growth for the third consecutive year, achieving
an average GDP growth rate of 7.1% over the past 3 years. The economic growth was broad-
based including various sectors. The main sectors that have witnessed the highest growth rate
in real term over the past 3 years were construction 14.9%, Suez Canal 14.0%, tourism 13.7%
and communication 12.9%. This healthy economic performance came on the back of economic
reform policies adopted by the government since 2004, as the government continuously presses
on with legislative and administrative efforts to create better business environment.
Chart 30: Real GDP growth
Source: Ministry of Economic development, CBE & Global research
The government efforts placed Egypt for the third time in 4 years, among the top 10 global
reformers and the top regional reformer this year in the Doing Business 2009 report,
which is compiled annually by the World Bank comparing the business environments in 181
economies worldwide. There have been improvements particularly in the areas of starting a
business, dealing with construction permits, registering property, getting credit, protecting
investors and trading across borders.
Chart 31: Total implemented investments
Source: CBE & Global research
This economic growth came on the back of growth in final consumption at a CAGR of
18.3%, which was mainly attributable to the growth in private consumption, over the period
from 2004/05 to 2007/08. In addition to the huge investments undertaken by local and foreign
investors in almost all the economic sectors, where total investment reached L199.5bn,
representing 22.3% of GDP and achieving a CAGR of 27.4% over the same period.
5.9%
3.4%
3.2%
3.1%
4.2%
4.6%
6.9%
7.1%
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7.1%
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Public Investment Private Investment Implemented invt./GDP
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Moreover, Foreign Direct Investment (FDI) reached US$13.2bn in 2007/08, recording a
remarkable CAGR of 50.5% over the past 3 years. It is worth mentioning that FDI represented
8.1% of GDP in 2007/08, compared to 8.5% in 2006/07.
Chart 32: Net FDI
Source: Ministry of Investment & Global research
USA and European Union (EU) represent a major source of FDI, where they collectively
account for around 65% of total FDI inflows to the Egyptian economy. When we look at the
distribution of the total FDI inflows by country, we find that USA is the greatest contributor
with a share of 36.1% in 2007/08, followed by the Euro Union with a share of 28.7%.
Chart 33: FDI total inflows
Furthermore, higher international food and energy prices prevailed in the international
markets, as well as the higher local consumption level resulted in soaring inflation rate,
reaching a peak of 23.6% in August 2008, and higher cost of imports, which increased by
37.8% in 2007/08 over the previous year, in addition to higher exports proceeds, which
increased by 33.3% in 2007/08. The increase in the cost of imports outweighed the growth
in exports, leading to 43.7% increase in the trade deficit in absolute value and as percent of
GDP in 2007/08, reaching 14.5% compared to 12.7% in 2006/07.
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Chart 34: Development in inflation and the corridor range
On the other hand, the increase in net services by 30.2%, mainly on the back of the growth
in receipts from Suez Canal and tourism, as well as the incline in transfers by 32.3%,
compensated to some extent for the increase in trade deficit and resulted in a surplus of
US$888mn in the current account balance in 2007/08. Nevertheless, the current account
balance declined by 60.9%, compared to the previous year, and represented 0.6% of GDP.
Starting from the second half of 2008, the global financial crisis extended its shadows on the
Egyptian economy, where GDP growth reached 5% during H1 2008/09, compared to 7.1% in
H1 2007/08. Although final consumption kept is momentum during H1 2008/09, growing at
23.7%, total investments were severely hit, achieving a growth rate of 13.8% in H1 2008/09,
relative to a growth of 33.2% in H1 2007/08. Moreover, FDI witnessed a sharp decline by
48.2% from in US$7.8bn in H1 2007/08 to US$4.0bn in H1 2008/09, as the majority of FDI
inflows were from USA and EU that have been severely hit by the world credit crunch.
The current account balance deficit widened to US$2,513mn, representing 2.7% of GDP
in H1 2008/09, compared to US$294mn, representing 0.4% of GDP in H1 2007/08. This
decline came on the back of deteriorating trade balance position, decreasing by 29.8%, in
addition to slower growth in Suez Canal receipts, which recorded a growth rate of 8.1% in
H1 2008/09 compared to 24.6% in H1 2007/08, as well as 2.8% growth in tourism receipts in
H1 2008/09, as opposed to 30.1% in H1 2007/08.
Therefore, the Egyptian government has taken measures to limit the spillover negative effects
of the world financial crisis and spur economic growth including:
1. Increasing the infrastructure investment budget,
2. Cancelling taxes on exports and increasing financial support to all exporting sectors
benefiting from export support fund to 50%,
3. Postponing plans to cancel subsidies on electricity and natural gas for energy-intensive
industries, like cement, fertilizers and petrochemicals,
4. Refraining imports of finished goods and commodities that have a local counterpart.
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|! l,t teaeat :ectc| }u|, !)
We believe that trade deficit is not expected to worsen dramatically in 2009 as imports
decline, as a result of a weaker domestic demand and plunging commodity prices will to
some extent offset the expected drop in the countrys exports. In addition, the current account
deficit is expected to widen as a result of the declining tourism and Suez Canal revenues, as
well as the remittances of the expatriate workers.
Moreover, The subsidy bill, which surged by almost 50% in 2007/08, is expected to witness
a considerable decline as the oil prices dropped severely since June 2008 and the changes
made by the Egyptian government to reduce energy subsidy during 2008 are not expected to
reverse. This in turn will leave more room for the government to direct this saving in other
areas that could bolster the economic growth.
Despite the challenges that currently face the Egyptian government to sustain the economic
growth, the financial intermediation will not be hampered by the international credit crunch,
supported by a strong banking sector with healthy balance sheets and low level of financial
integration, thanks to the government reforms. The Egyptian banking sector reforms were
mainly attributed to strong supervision and regulation, elimination of nonperforming loans
and unadventurous financing and investment practices.
In general, Egypts medium term outlook remains sound with an expected GDP growth of
around 4%. We believe that the Egyptian economy is capable of surpassing the current storm
that hit the world economy, thanks to the reforms implemented since 2004. Most likely, the
government will work on targeting inflation rate, maintaining economic growth and balance
of payments stability, throughout 2009.
}u|, !) l,t teaeat :ectc| ||
Construction Activity
The construction sector is considered one of the important sectors in the Egyptian economy,
as it has been expanding remarkably at a CAGR of approximately 15% over the past 3 years
and employs approximately 10% of the Egyptian work force. Another sector that is highly
interrelated with construction sector is the real estate sector, which achieved a CAGR of
around 4% over the same period. Collectively, the two sectors contribution to GDP reached
7.4% in 2007/2008, achieving a CAGR of 10% for the period from 2004/05 to 2007/08.
Chart 35: Construction vs. real estate sector macro indicators
The high construction activity witnessed in all the economic sectors whether, residential,
recreational, industrial or infrastructure, over the recent past created high demand on all
building materials in the local market. This growth was mainly attributable to robust economic
performance, as well as the large investments implemented by both the government sector
in the field of social services and public utilities, and the private sector in all segments of
the real estate sector including, housing, commercial, hospitality and industrial development
projects.
According to building permits quarterly bulletin published by the Egyptian Cabinet
Information and Decision Support Center (IDSC), the composite building and construction
index in Egypt maintained its momentum in December2008, increasing by 5.6% on Q-o-Q
basis and 18.8% on Y-o-Y basis. The composite building and construction index recorded a
healthy CAGR of 9.2% over the last 5 years.
Chart 36: Composite building and construction index
Source: IDSC & Global research
(10,000)
-
10,000
20,000
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40,000
1
9
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L
E

m
n
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Construction Real Estate Construction Growth Real Estate growth
0
20
40
60
80
100
120
140
160
180
Q
4

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|+ l,t teaeat :ectc| }u|, !)
Moreover, the total number of building permits kept its upside trend in December 2008,
reaching 21,905 building permits. The overall building permits index achieved a growth rate
of 9.4% in December 2008, compared to the previous quarter, and an impressive 77.6% over
December 2007. This increase in issued building permits promises a positive outlook in the
construction sector.
Chart 37: Overall building permits index
It is worth mentioning that the construction activity does not include only the construction
of different types of buildings, but also it includes all infrastructure developments, such as
roads, electricity and water works. According to the latest data published by CAPMAS, the
total value of executed construction work by the private sector in 2007 reached LE8.9bn,
against a total value of LE10.6bn executed by the public sector in 2006/07.
Although the reporting periods for the private sector and the public sector do not match, we
will add the two values up just to find out how the value of executed construction work is
distributed among different economic sector during the last available fiscal year.
Chart 38: Total value of executed construction work according to economic activity
Residential buildings share of total value of executed construction works was only 17% and
the remaining other types of buildings captured 31% of the total construction works, whereas
the remaining 52% was spent on different infrastructure projects. This fact highlights that the
demand on building materials depends on the broad construction activity including building
construction and infrastructure works.
0
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Residential blgs., 17%
Industrial blgs., 5%
Healthcare blgs., 4%
Educational blgs., 4%
Administrative blgs., 1%
Roads & bridges
18%
Water & water-waste
projects, 29%
Electricity stations, 5%
Others, 17%
}u|, !) l,t teaeat :ectc| |]
Although the construction sector has been negatively affected during the H1 2008/09,
achieving a growth rate of 9.4%, compared to 14.9% in H1 2007/08, the real estate sector
was able to slightly improve its growth rate from 3.4% in H1 2007/08 to 3.5% in H1 2008/09.
This large decline in the construction sector growth came on the back of lower investments,
as a result of the global financial crisis.
Therefore, the Egyptian government took some measures to stimulate the Egyptian economy,
including the construction sector by increasing the public infrastructure investment budget
by LE15bn, in addition to the originally planned infrastructure investments of approximately
LE418bn in electricity, water, sanitation, transportation and communication sectors
throughout the sixth 5-year plan (2007/08-2011/12).
The sixth five year plan (2007/08-2011/12) placed an overall investment target of LE1,295bn,
of which around LE670bn are planned to be spent on construction activity in general, which
includes targeted investments of LE418bn in the infrastructure, LE132bn in construction and
real estate, LE76bn in health and education and LE44bn in tourism.
Chart 39: Sixth 5-year plan targeted total investments
Distribution among economic sectors Distribution by implementing body
Source: Ministry of Economic Development & Global Research
The government 5-year plan set a target to encourage investment and prioritize development
in Upper Egypt, within the context of the governments local development of developing
under-developed areas of Egypt. The plan included establishing a holding company for Upper
Egypt to identify investment opportunities, providing investment incentives to encourage
private sector investment, completing delivery of potable water, electricity and natural gas.
The local development plan also included rural development, which include the establishment
of 400 villages and reclamation of 1mn acre, as well as slum development project.
Moreover, the government announced that it will allocate another LE15bn to be invested
in participation with the private sector in infrastructure and industrial development projects
within the context of Public-Private Partnership (PPP) strategy, which proved to be a
successful alternative to government, as it relief some burden from the states spending
budget, besides benefiting from the private sector technical know-how, as well as better
offered services. During the period from 1998 to 2007, the private sector participation in PPP
projects reached US$15.3bn in the Energy, Telecom and transportation sectors.
Agriculture &
Irrigation, 5%
Extractive
Industries, 11%
Manufacturing, 23%
Construction &
real estate, 10%
Trade, 3%
Tourism, 3%
Education & Health, 6%
Other social services, 6%
Electricity, 6%
Transportation, 13%
Water, 1%
Sanitation, 3%
Financial services, 0%
Communication, 10%
Public sector, 16%
Private sector,
84%
|e l,t teaeat :ectc| }u|, !)
Chart 40: Private sector participation in infrastructure projects
By year By sector
Source: PPI World Bank database & Global Research
Given the current global economic recession resulted from the credit crunch, the governments
total targeted investments throughout the sixth 5-year development plan seem to be optimistic,
as we believe that total planned investments should be adjusted downward because total
implemented investments, including FDIs will be negatively affected at least during the next
one to two years.
However, lower international commodities prices, including building materials, which came
on the back of declining global demand, presented an opportunity for more infrastructure and
building investments at lower cost, mainly in less developed countries with immense society
development needs.
In addition, the governments plan to boost investments in infrastructure, such as transportation
and public utilities, as well as economic housing and industrial development projects, besides
prioritizing the development of under-developed areas in Egypt will act as a cushion for the
activity in the construction sector.
We, therefore, believe that the construction sector is expected to experience slower growth
rate during the next one to two years, relative to the booming phase over the last 3 years,
yet the decline in growth rate is not expected to be that severe, providing reasonable support
for the building materials sector, including cement. In other words, the outlook of the local
construction sector is to some extent promising, taking into consideration the concurrent
global financial turmoil and liquidity squeeze.
Population
Population is considered one of the main drivers of the economic activity, including the
building materials sector, through their demand on housing and different construction
activities. Egypt is a population rich country and has the largest population in the MENA
region, representing around 15% and 21% of total MENA and Arab countries population,
respectively.
Egypts population reached approximately 75mn at the end of June 2008, achieving a CAGR
of 2% over the past 10 years. Furthermore, population in Egypt is expected to reach 84.5mn
in 2014, growing at its historical annual average growth rate.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
U
S
$

m
n
Energy Telecom Transport
1,092
689
11,895
398
1,277
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Electricity Natural Gas Telecom Airports Seaports
U
S
$

m
n
Chart 41: Egypt population
Source: IMF & Global research
Egypt has favorable demographics segmentation with around 33% of its current population is
less than 15 years old and 50% falls in 15-45 age-group. This segmentation guarantees a strong
current and future demand on housing and society development projects. It is worth mentioning
that it is estimated that around 350,000 housing units are needed annually to meet new housing
demand, in addition to 2.5mn housing units to meet accumulated unmet housing demand.
Chart 42: Egypt population age-group segmentation
Source: CAPMAS & Global research
Regulations
Generally, the cement industry in Egypt received a great deal of the government supervisory
authorities attention, because of the increasing local cement selling price, resulting from
fake supply shortage existed in the local market, as local production exceeds consumption.
This situation emerged because cement producers and traders preferred to direct cement
production to the export market, where prices are higher than the local selling prices, in order
to achieve higher profits.
To ensure local supply of cement at reasonable prices, the Egyptian government imposed
an export duty of LE65 (US$12)/ton on exported cement in February 2007. Apparently, the
export duty was not severe enough to offset cement export price differential. Therefore, the
government increased the export duty to LE85 (US$15.5)/ton in August 2007. However, local
cement prices remained high, as cement producers passed their increased cost to consumers.

In an attempt by the government to bring discipline to the local cement market, the Egyptian
government imposed a ban on cement exports for 6 months starting from April till the end
0
10
20
30
40
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60
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80
90
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
P
e
o
p
l
e

m
n
1.9%
2.0%
2.0%
2.1%
2.1%
2.2%
Population Growth
<15 years, 33%
15-45 years, 50%
45-65 years, 12%
>65 years, 5%
|~ l,t teaeat :ectc| }u|, !)
of September 2008, to calm an overheated local cement market. Unfortunately, local cement
prices remained high, on the back of high local demand driven by the construction boom,
as well as the traders malpractices of maintaining high prices through faking shortage of
supply.
In addition, the government decision to impose LE27(US$5)/ton of clay extracted from
quarries, as resources development fees in May 2008, as well as the liberalization of energy
prices for energy intensive industries, will harm the competitive edge of Egyptian cement
sector, for its relatively low cost of production. As the government felt that the subsidy that
should go to local consumers, is passed to exports and that the producers are making high
profit margins.
Furthermore, the Minister of Trade and Industry filed a sue case of anti-competitive practice
against local cement producers for the period from May 2005 till the end of 2006. The local
cement producers were accused of forming a cartel to set local cement prices and dividing
market shares among them. In August 2008, the court found local cement producers guilty of
exercising monopolistic behavior and fined cement manufacturers with a total of LE200mn.
However, the emergence of the global financial crisis since mid September 2008 triggered
the Egyptian government to take some defensive measures in order to minimize the negative
effect of the slowdown in the world economy on Egypts cement exports. These measures
included the removal of the LE85/ton export duty in October 2008, as well as bringing the
export ban to an end.
Later in February 2009, cement producers voluntary decided to stop cement exports for 3
months in order to satisfy local demand and calm the surging local cement prices, around
LE490/ton, which reached more than LE700/ton. The skyrocketing cement price came on the
back of two major factors; the first was the significant surge in transportation cost, as truck
drivers organized a strike across the governorates to protest the new law that bans the use of
trailers. The second was the malpractice of traders, who took advantage of this strike, as well
as the surging cement local demand to further raise prices.
Consequently, the Minister of Trade and Industry intervened in April 2009, through issuing
some regulations to control local cement prices including, assigning the governments
anticompetitive supervisory body to investigate local cement market for any dysfunctional
during the past 6 months, banning cement exports for 4 months, reduction of cement imports
clearing period from 30day period to 3-day period, as well as obliging cement producers
to print their selling prices on cement bags for all distribution channels, including end-user
price, in order to end the manipulation of cement prices by traders.
This new set of regulations is expected to ease some of the upward pressure on local cement
price, due to the competition from imported cement. However, the current strong local cement
demand will act as a buffer for sharp decline in local cement price and the profitability of
cement producers. On the other hand, banning cement exports for 4 months for the second
time in less than a year, although it could jeopardize the position of the Egyptian cement in
export markets, we believe this negative effect will be marginal, as Egyptian main cement
export markets, such as Spain and Italy are facing a severe decline in demand.
}u|, !) l,t teaeat :ectc| |)
We believe that the new capacities addition will fix the current distortion taking place in
local cement price, as new supply will come on stream to meet the soaring local cement
consumption. However, regulating cement imports will be a critical issue, especially that
Saudi Arabia, where huge new capacities are under their way, removed the export ban. In
addition, Saudi Arabia has lower cost of production and could export to Egypt at low prices.
This situation will create unfavorable market conditions for all cement producers, in the form
of price war, which will lead to lower profitability and extended payback period for new
investments.
Supply/demand analysis
The Egyptian cement industry has been growing vigorously over the past 5 years, on the back
of the high activity experienced in the construction and real estate sectors. Egypts cement
consumption has been growing at a CAGR of approximately 6% over the past 40 years. In
2008, local cement consumption reached 38.4mn tons, achieving a growth rate of 11.4% over
2007 and recording a CAGR of around 9% since 2003. On the other hand, cement production
reached 39.8mn tons, compared to 38.4mn tons in 2007, achieving a CAGR of 6.6% over
the past 5 years.
Chart 43: Egyptian cement industry supply and demand
Over the past 5 years, the overall cement sector capacity utilization rate kept increasing,
with some companies operating over 100% of their installed capacities, driven by the strong
growth in cement consumption, which outpaced production growth.
Despite the declining global demand, resulting from the global financial crisis, cement
demand in Egypt continued its robust growth fueled by lower steel prices, which triggered
higher construction activity, as developers used this opportunity to complete their pending
and delayed construction works, when steel price was high, in addition to accelerating their
projects schedule to benefit from lower development cost.
Chart 44: Monthly cement demand
Moreover, individuals who acquired land plots within the context of the national housing
program under build your own home scheme, created high demand on building materials
28.3
32.5
36.2
38.4
39.8
23.6
28.1
30.2
34.5
36.5
38.3
39.8
41.8
43.3
38.4
77%
85%
91%
92% 92%
0
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2004 2005 2006 2007 2008
T
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0%
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Production Local Consumption Capacity Utilization rate
0.0
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
T
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2006 2007 2008 2009
}u|, !) l,t teaeat :ectc| +1
because they are obliged to get the necessary building permits and finalize the construction of
their own homes within a pre-specified time span. In addition, homes construction in villages
experienced high activity, as the government is discussing a law that will regulate building
in villages and agricultural lands.
Accordingly, local cement prices reacted positively to this high demand, surging from around
LE420/ton in the beginning of 2008 to more than LE700/ton in February 2009. Furthermore,
the strike organized by truck drivers in February 2008 to protest the new law that bans the use
of trailers also contributed to the rising local cement price.
Chart 45: Monthly cement demand vs. cement average retail price in Greater Cairo
Source: IDSC, CBE, Ministry of Investment & Global research
It is worth mentioning that cement demand in Egypt is seasonal, as it witnesses some decline
during the winter months from October to February and the Holy month of Ramadan, while
it accelerates throughout the summer months.
Chart 46: Monthly cement demand vs. 3-month moving average
Source: IDSC, CBE, Ministry of Investment & Global research
On the export front, Egypts cement exports as percentage of total cement production
experienced a declining trend over the past 5 years, as cement producers kept directing a
greater proportion of their production to the local market in order to meet the increasing
local cement consumption. The remarkable decline in 2008 exports came on the back of the
Minister of Trade and Industry decision to ban cement exports for a six month period from
March to October 2008.
0.0
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Local demand LE/ton
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Local Consumption 3 per. Mov. Avg. (Local Consumption)
+! l,t teaeat :ectc| }u|, !)
Chart 47: Cement and clinker exports
Source: CBE, Ministry of Investment & Global research
Going down to the companies level, we found that the market share of each company
is highly in line with their respective capacity. With respect to total domestic and export
cement sales, Italicementi group, including Suez, Helwan and Torah cement companies, has
the largest market share of around 28%, followed by Egyptian Cement Company, which is
owned by Lafarge, captured approximately 21% market share in 2008.
Chart 48: Egyptian cement market players market shares in 2008
Source: Companies financials & Global research
It is worth mentioning that Arabian Cement Company only produces clinker and directs
almost all of its production to the export market. Therefore, we excluded Arabian Cement
Company from our calculations, in order not to distort our cement capacity, production and
consumption figures, besides the scarcity of information about this company specifically.
Capacities
The Egyptian grey cement sector consists of 13 cement manufacturing companies, of which
9 companies are controlled by 6 multinational companies. Only one company is owned by
the Egyptian government that is National Cement Company, while 3 firms are owned by the
Egyptian private sector, namely Misr Beni Suef Cement, Misr Cement Qena and South Valley
Cement. Multinational companies control 85.5% of Egypts grey cement manufacturing
capacity.
4.8
5.2
5.8
4.2
1.2
7.3
4.2
2.4
1.9
0.9
16.9%
15.9%
16.1%
10.9%
3.0%
-
2
4
6
8
10
12
14
2004 2005 2006 2007 2008
T
o
n
s

m
n
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Cement Exports Clinker Exports Cement exports to total production
Italcementi (Suez+Helwan
+Torah), 27.7%
Egyptian Cement Company
(lafarge), 20.5%
Assuit Cement (Cemex), 12.7%
Alexandria & Beni Suef Cement (Titan), 8.4%
Ameryah Cement (Cimpor), 7.8%
Sinai Cement (Vicat), 6.0%
Misr Beni Suef Cement, 4.3%
Misr Cement Qena, 5.0%
South Valley Cement, 0.2%
National Cement, 7.4%
}u|, !) l,t teaeat :ectc| +|
Chart 49: Egypt current capacity distribution by company
At the end of 2008, Egypts cement production capacity reached 43.3mn tons, compared
to 41.8mn ton in 2007, recording a growth rate of 3.9%. The increase in the production
capacity was attributable to the opening of South Valley Cement new production lines. The
distribution of the current cement capacities in Egypt is found to be more concentrated in
Suez and Sinai.
Chart 50: Egypt current cement capacities distribution by region
In order to meet the growing local cement consumption, Industrial Development Authority
(IDA) held an auction in October 2007 to bid for new cement capacities licenses, either by
new entrants or existing players wishing to expand their capacities. The bid resulted in the
sale of 8 out of the 10 offered new licenses against a total sum of LE1.14bn, to add 12MTA
of cement capacity.
Later in January 2008, IDA offered the remaining two licenses in El-Wadi El-Gedid and
Sohag governorates for bidding. The bid resulted in the sale of El-Wadi El-Gedid license,
whereas Sohag license was postponed, after all the companies applied for the license have
been disqualified. Accordingly, total new cement capacities additions resulting from IDA
auction summed up to 13.5mn ton tons of cement capacity, which are planned to start
production between 2010 and 2011.
Italcementi (Suez, Helwan,
Torah), 27.3%
Egyptian Cement Company
(lafarge), 23.1%
Assuit Cement (Cemex), 11.5%
Alexandria & Beni Suef Cement (Titan), 7.6%
Ameryah Cement (Cimpor), 8.5%
Sinai Cement (Vicat), 3.5%
Misr Beni Suef Cement, 3.5%
Misr Cement Qena, 3.5%
South Valley Cement, 3.5%
National Cement, 8.1%
Lower Egypt, 12%
Upper Egypt, 26%
Central Egypt, 26%
Suez & Sinai, 36%
++ l,t teaeat :ectc| }u|, !)
Table 05: Cement new capacities licenses winners
Company
License cost
(LE mn) Governorate
Capacity
(MTA)
Expected
commencement date
Wadi Al-Nil Cement 251 Beni Suef 1.5 2010
El-Sewedy Cement 201 Suez 1.5 2010
Arab National Cement 200 El-Menya 1.5 2011
Al-Nahda for Industries 83 Qena 1.5 2011
North Sinai Cement 44 North Sinai 1.5 2011
Construction Material 22 Assuit 1.5 2010
El-Wadi Cement - El-Wadi El-Gadid 1.5 2011
Total Greenfield capacities 801 10.5
Assuit Cement 202 Assuit 1.5 2010
Beni Suef Cement 135 Beni Suef 1.5 2010
Total expansion capacities 337 3.0
Total new capacities 1,138 13.5
Source: Industrial Development Authority (IDA) & Global Research
It is worth mentioning that 7 out of the 9 new licenses were oriented toward Upper Egypt,
where the country is far less developed and needs a lot of infrastructure and public utilities
development projects. The concentration of the new licenses in Upper Egypt came in
synchronization with the government plan to prioritize and encourage investment in Upper
Egypt.
Chart 51: Egypt forecasted cement capacity distribution by region in 2011
In addition, there are approximately another 5mn ton of additional capacities that were
licensed in prior periods to the latest auction. These new capacities are due to come on
stream between 2009 and 2010. During 2009, Sinai Cement and Misr Beni Suef Cement
new production lines will start production with a capacity of 1.5mn ton each, while a new
Company called Medcom will start production in Aswan with a capacity of 1mn ton. In
addition, Alexandria and Beni Suef Cement plan to increase their annual capacity by 200,000
tons through debottlenecking. Moreover, National Cement will expand its existing lines
annual production capacity by 750,000tons on 2 phases, the first phase to be implemented in
2010 and the second phase in 2011.
Therefore, Egypt cement production capacity is expected to add around 18.5mn tons between
2009 and 2011, growing at a CAGR of 12.6% over the next 3 years. Accordingly, Egypt
cement production capacity will come very close to 62mn ton.
Lower Egypt, 10%
Upper Egypt, 36% Central Egypt, 20%
Suez & Sinai, 32% Al-Wadi Al-Gedid, 2%
}u|, !) l,t teaeat :ectc| +]
Chart 52: Egypt expected annual capacities additions
The capacities addition in Egypt coming on stream, along with the new capacities installation
in the MENA region over the next 3 years, especially Saudi Arabia and United Arab Emirates,
will create an oversupply in the region, where Saudi Arabia is expected to add 13.2mn ton
and UAE is forecasted to add 16.8mn ton.
Unfortunately, the slowdown in the construction sector, resulting from the world financial
crisis will exacerbate the severity of the excess supply situation in the region. However,
on the bright side, Egypt is still witnessing a boom in the construction sector, despite the
declining demand on building materials in the global markets. Therefore, we believe that the
on-going high construction activity will act as a buffer, protecting Egypts cement industry
from the negative consequences of the global financial crisis.
Pricing and cost
Pricing
Cement price in Egypt has been growing robustly since the start of 2008, driven by high
demand resulting from higher construction activity, as explained earlier under supply and
demand section. The average retail price of cement in Greater Cairo reached near LE600/
ton in February 2009 from around LE400/ton at the beginning of 2008, recording a growth
rate of 50%. Therefore, the government intervened with some measures, as indicated earlier
under the regulations section, to bring discipline back to the cement market.
However, the imposed government regulations were successful to the extent that cement
prices kept growing at a reasonable pace throughout 2008. Since the beginning of 2009, high
local cement demand caused cement prices to hike again till it reached near the LE600/ton
in February 2009.
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+e l,t teaeat :ectc| }u|, !)
Chart 53: Average cement retail prices in Greater Cairo
Source: CBE, Ministry of Investment & Global research
It is worthy to mention that cement in other governorates is most likely traded at a premium
to the average retail price prevailing in Greater Cairo. The highest retail price is found in
Upper Egypt, due to transportation cost, where cement is traded on average at a 10%-15%
premium compared to those prices in Greater Cairo. Accordingly, when prices in Greater
Cairo reached near LE600/ton, prices in Upper Egypt climbed to more than LE700/ton.
Cost of production
The cost structure of the cement industry has evolved significantly over the past 2 years,
on the back of the government decisions to liberalize energy prices for energy intensive
industries. Therefore, cement cost of production witnessed a large increase over the course of
2008, where the median cash cost of production reached US$31.5/ton in 2008 from US$23.3/
ton in 2007, recording a growth of 35.2% between 2007 and 2008. It is worth mentioning that
cash cost of production increased further in Q1 2009 to reach US$35.2/ton.
Chart 54: Cash cost of production per ton in US$
Source: Companies financials & Global research
Initially, the liberalization of energy prices for energy intensive industries, including cement
was introduced in mid-2007 to be implemented over 3-year period. The scheme encompassed
increasing electricity prices from LE0.134/KWH to LE0.216/KWH for high voltage
usages, through increasing electricity price by LE0.0273/KWH annually over 3 years. In
addition, natural gas prices were set to increase from USD1.25/MBTU toUSD2.65/MBTU,
via increasing its price by USD0.47/MBTU annually. The new scheme first phase of the
liberalization of energy prices started in the first of September 2007, where electricity and
natural gas prices became LE0.1613/KWH and USD1.72/MBTU, respectively.
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}u|, !) l,t teaeat :ectc| +
Later in May 2008, the government decided to shorten the liberalization of energy prices
phase-out period. Consequently, starting from the first of July 2008, electricity prices were
raised by approximately 52% from LE0.1613/KWH to LE0.245/KWH. Similarly, natural
gas prices increased by 74.4% from USD1.72/MBTU to USD3.0/MBTU and fuel oil price
increased by 100% from LE500/ton to LE100/ton. Moreover, the government imposed LE27/
ton of clay extracted as a resources development fees, starting from first of July 2008.
However, the liberalization of energy prices will jeopardize the competitive edge of the
Egyptian cement industry for its relative low cost of production, in favor of other regional
competitors, who have lower cost of production and excess capacities, such as Saudi Arabia.
Consequently, this will lead to squeezed profit margins for local cement producers, as they
will not be able to raise their prices beyond imported cement, which has a lower cost, to
compensate for the increasing cost of production.
Market Structure Analysis (porters five competitive forces)
Chart 55: Cement market competition analysis

Rivalry among Existing Players High
Competition among existing players is high, as all cement manufacturers produce similar
product mix with almost no differences with respect to the product quality. Therefore, cement
producers compete along other dimensions, such as cost optimization, distribution channels
and pricing. In addition, customer loyalty is low and creating a brand identity is difficult,
as customers will always prefer to buy at lower prices, as long as the product is similar,
irrespective of the brand name.
Competition among existing cement manufacturers was not fierce over the recent past, as
the cement market witnessed a period of high demand, growing at a CAGR of 9% over the
past 5-year period, that led some cement manufacturers to operate beyond their nominal
capacities. However, the granted new cement capacities licenses besides allowing imports
will intensify the competition among the existing players and the new entrants on capturing
market share, leading to price wars.
Threat of New
Entrants
Low
Threat of
Substitute
Low
Rivalry among
Existing Players
High
Bargaining Power
of Suppliers
Low
Bargaining Power
of Buyers
Low
+~ l,t teaeat :ectc| }u|, !)
Threat of New Entrants High
The entry barriers to the cement industry are high, as the cement industry is a capital intensive
industry and requires a large initial investment cost. In addition, a license is required to be
issued by the government to operate a cement plant. Furthermore, economies of scale is
important in operating a cement plant, as cement production fixed costs are high.
Bargaining Power of Suppliers Low
Cement manufacturing raw materials, such as limestone and clay are located abundantly
in Egypt. In addition, all cement manufacturers in Egypt have concessions to raw material
quarries. Therefore, the bargaining power of suppliers is weak.
Bargaining Power of Buyers Low
There are two different buyers in the cement market, traders and agents and on the other hand
end-users. The majority of cement distribution is controlled by traders, who purchase cement
from cement manufacturers and resell it to the end users. The high demand witnessed in the
local market gave more power to cement manufacturers and traders, who benefited from the
situation by raising cement prices. In other words, cement producers and traders became
price makers and end-customers price takers.
Therefore, the government intervened with a set of regulations, as mentioned earlier, to
regulate the local cement market. However, power is expected to shift to end-users when the
new cement capacities come on stream, leading to a balance between the supply and demand
forces.
Threat of Substitutes Low
There is no effective substitute for cement.
}u|, !) l,t teaeat :ectc| +)
Cement market forecast
Supply and Demand
As long as cement consumption is heavily dependent on the construction activity, which in
turn is highly correlated with the economic performance. We regressed the change in local
cement consumption against the change in GDP over the past 12 years, in order to be able to
project how local cement consumption will evolve over the coming 5 years, given the change
GDP. The resulting regression equation is:
% Local cement demand= -0.15+4.19 % GDP
This regression equation is found to be statistically significant with a coefficient of
determination (R) of 71.8% and standard error of 4.1%.
Table 06: Historical and projected GDP growth vs. local cement consumption growth
GDP Growth Local consumption growth
1996/97 5.3% 8.5%
1997/98 4.1% 7.2%
1998/99 5.4% 11.1%
1999/00 5.9% 7.0%
2000/01 3.4% -0.9%
2001/02 3.2% 0.8%
2002/ 03 3.1% -7.1%
2003/ 04 4.2% -2.3%
2004/ 05 4.6% 2.3%
2005/ 06 6.9% 18.8%
2006/ 07 7.1% 8.1%
2007/ 08 7.2% 14.7%
2008/09F 4.0% 1.4%
2009/10F 4.5% 3.5%
2010/11F 6.0% 9.7%
2011/12F 6.5% 11.8%
2012/13F 6.8% 12.9%
2013/14F 7.0% 13.9%
Source: Ministry of Economic Development & Global Research
The local cement consumption volume resulting from the regression equation represents
estimated local consumption for the period from July to June of each year. Therefore, we
calculated the average local consumption for each respective year and the year that follows
to obtain an annual local consumption forecast for the period from January to December of
each year for the coming 5 years.
Table 07: Projected local cement consumption
Mid-year Tons (mn) Full year Ton (mn)
2008/09F 37.32
2009/10F 38.61 2009 37.96
2010/11F 42.37 2010 40.49
2011/12F 47.39 2011 44.88
2012/13F 53.49 2012 50.43
2013/14F 60.95 2013 57.22
] l,t teaeat :ectc| }u|, !)
The regression equation estimated that local cement consumption is forecasted to be 37.96mn
ton, which is lower than local consumption in 2008. Therefore, we adjusted the regression
results to cope with the fact that local cement consumption in the first 3 months of 2009 was
running at 23% higher than Q1 2008. According to our analysis, we forecast that local cement
consumption will grow at a CAGR of 8.3% over the next 5 year. However, we estimated
that local cement consumption will grow at a slower pace in 2010 and 2011 after growing
vigorously over the past 3 years. Afterwards, local cement demand will rebound gradually
starting from 2012.
Table 08: Adjusted forecasted local cement consumption
Year
Forecasted consumption
(Ton mn) Premium
Adjusted forecasted
consumption (Ton mn)
Annual
growth
2008A 38.40 - 38.40
2009F 37.96 12% 42.52 10.7%
2010F 40.49 10% 44.54 4.7%
2011F 44.88 5% 47.12 5.8%
2012F 50.43 2% 51.45 9.2%
2013F 57.22 0% 57.22 11.2%
In order to forecast local and export sales for each player in the market, we started with assuming
a utilization rate for each market player in the cement industry for the next 5 years, taking into
consideration each respective player historical utilization rate and the new capacities additions.
Afterward, we multiplied the utilization rate of each cement manufacturer by its annual cement
production capacity to obtain each player cement production. By summing up individual
cement production, we reached to the total cement production, which is then subtracted from
total local consumption to get the total exports sales.
Subsequently, we allocated total export sales to each market player based on every player
respective historical share in cement exports, taking into consideration the entrance of new
competitors in the market. Finally, we subtracted each manufacturer cement production from
forecasted exports to get estimated local sales for each market participant.
Chart 56: Forecasted cement production capacity, utilization rate, local & exports sales
We believe that exports sales are expected to witness a slight growth in 2009, before it will start to
rebound in 2010 and 2011, as the construction sector in Europe, which represents Egypts major
1.2 1.5
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2008A 2009F 2010F 2011F 2012F 2013F
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Capacity Local consumption Exports Utilization rate
}u|, !) l,t teaeat :ectc| ]1
export destination, is expected to recover. Afterwards, exports will decline in 2012 till it reaches
2008 levels in 2013, as local demand is expected to rebound, according to our estimates.
We believe that Africa represents a real potential for the Egyptian cement exports, as
many African countries are still under developed, besides they do not have the sufficient
cement capacity to meet their local demand. The main obstacle to achieve this target is the
unavailability of transportation networks. However, Europe is expected to remain a major
export destination, due to its proximity to Egyptian ports. On the other hand, the exports to
the Arabian Peninsula countries are forecasted to decline considerably, on the back of the
new cement production capacity that will come on stream in that region during the next 2 to
3 years, which are expected to cover this regions deficit.
Chart 57: Egypts forecasted major export markets
Prices
Cement local selling prices is expected to witness some stabilization throughout the remaining
months of 2009, resulting from the latest government decisions of banning exports, allowing
imports and printing retail price on cement bags.
Moreover, cement selling price is not expected to drop notably, as it did not witness the
significant surge in its retail price like other building materials prices, such as steel rebars,
which increased by around 88%, reaching LE6,630/ton in mid 2008, compared to LE3,530/
ton at the end of 2007. Therefore, steel prices witnessed a hard landing, reaching LE3,150/ton
in March 2009. The following graph emphasis our argument, as it shows the indexed retail
local selling prices of cement and steel rebars since the start of 2006.
]! l,t teaeat :ectc| }u|, !)
Chart 58: Cement and steel rebars indexed retail local selling prices
However, we believe that cement prices will calm down in 2010 and 2011, when new cement
capacities are expected to come on stream, before it continue to grow moderately in 2012
and 2013. The capacities additions in the local market will coincide with the new capacities
additions in the region, especially in Saudi Arabia and UAE. This will create an oversupply
situation in the local and regional markets, leading to price wars.
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}u|, !) l,t teaeat :ectc| ]|
SWOT Analysis
Strengths
Abundant and cheap raw materials and labor.
Relatively low production cost, compared to other countries in the region.
Competitive cement selling price.
Local demand remained high, despite the global financial crisis.
Weaknesses
Liberalization of energy prices.
The imposition of US$5/ton on clay used in production.
Minimal environmental regulations.
Distortions in the local cement market, due to manipulation of cement prices by
traders.
Opportunities
Large government planned infrastructure investments.
Large population base, guaranteeing continuous housing and social development
demand.
High housing demand, especially in the low and lower middle segments.
Egypt geographical location gives it flexibility to direct cement exports.
Lower steel prices encouraged more construction activity.
Threats
Slowing down GDP and investments.
Large new cement capacities additions in the region, including Egypt.
Loss of export markets due to exports banning.
More government intervention to raise raw materials and fuel prices.
]+ l,t teaeat :ectc| }u|, !)
Outlook
Egypt cement sector outlook is positive, on the back of the continuing activity in the construction
sector. The growth in the construction sector is expected to be driven by the government plan
to boost investments in infrastructure projects, as well as low income housing and industrial
development projects, in addition to the improvement of under developed areas in Egypt.
Furthermore, the private sector investments in the residential, commercial and hospitality
real estate segments are expected to support the construction sector, as well.
However, the government intervention in the cement industry through increasing energy
prices for energy intensive industries, including cement, harmed the competitive edge of
the Egyptian cement sector, for its relatively low cost of production. In addition, banning
cement exports could jeopardize the position of the Egyptian cement in export markets, yet
we believe the negative effect will be marginal, as Europe, which represents Egypts main
export market, is witnessing a severe decline in demand.
Although the government decision to shorten cement imports clearing period could work to
stabilize local prices, regulating imports will be a critical issue, especially that Saudi Arabia,
where several new capacities are under their way, removed the export ban. Saudi Arabia has
lower cost of production and could export to Egypt at low prices. This situation will create
unfavorable market conditions for all cement producers, in the form of price war, which will
lead to lower profitability and extended payback period for new investments.
Moreover, the capacities additions in Egypt are expected to come on stream along with the
new capacities installation in the MENA region over the next 3 years, especially in Saudi
Arabia and UAE, creating an oversupply situation. Unfortunately, these new capacities
coincided with a slowing construction sector on the regional level. This situation is expected
to result in price wars, as well as delays in the planned commissioning dates of the new
announced capacities and lower utilization rates.
With respect to cement local price, we believe that prices will go down in 2010 and 2011, on
the back of the competition from imported cement, as well as the commissioning of the new
local cement capacities over the next 2 years, before it continue to grow moderately in 2012
and 2013. On the other hand, local cost of production is not expected to grow significantly,
like what happened over the past year, assuming that the government will not intervene to
materially raise the cement industry raw materials or fuel cost.
Finally, we believe that the cement local demand will be the white knight, which will be able
to provide a safety cushion to the cement industry against turbulences witnessed in the export
markets. Despite the negative consequences of the financial crisis on the world economy,
Egypt cement sector outlook is still believed to be promising.
}u|, !) l,t teaeat :ectc| ]]
Cement Sector Financial Performance
The aggregate financial performance of all the cement companies listed on the Egyptian
Exchange is depicted in the following table.
Table 09: Cement sector financial performance
2007 2008 Y-o-Y %
(Values in LE mn) Revenue EBITDA
Net
Profit Revenue EBITDA
Net
Profit Revenue EBITDA
Net
Profit
Suez Cement Group 4,196 1,698 981 5,542 2,077 1,041 32.1% 22.3% 6.1%
Egyptian Cement 3,208 1,797 1,548 3,449 1,849 1,494 7.5% 2.9% -3.5%
Assuit Cement 1,731 902 477 2,316 881 576 33.7% -2.4% 20.8%
Alexandria Cement 533 276 175 733 287 208 37.6% 3.8% 18.8%
Amiryah Cement 946 462 286 1,310 587 408 38.4% 27.1% 42.7%
National Cement* 975 346 231 1,155 317 240 18.4% -8.4% 3.9%
Sinai Cement 656 381 342 906 475 414 38.1% 24.8% 21.3%
Misr Beni Suef Cement 588 397 193 660 421 202 12.2% 6.1% 4.8%
Misr Cement Qena 597 344 276 773 408 303 29.5% 18.3% 9.6%
*As National Cement FY ends on June 30, we adjusted the Companys figures to show it on a comparables basis
to other cement companies.
Source: Companies Financials & Global Research
The aggregate sales revenue of the cement sector grew by 25.4% in 2008, where it increased
from LE13.4bn in 2007 to LE16.8bn in 2008. Although sales volume slightly decreased by
0.3% in 2008, the increase in the average selling price per ton from LE331/ton in 2007 to
417/ton in 2008, outweighed the decline in the sales volume, leading to high growth in sales
revenue. It is worth mentioning that we excluded South Valley Cement from our calculations
because its financial results are distorted, as it started cement production in May 2008,
yet the Company was established in 1997, operating as a portfolio management company
managing its own portfolio of actively traded securities. Accordingly, its profitability ratios
and valuation multiples will not be comparable to any other cement company.
Chart 59: Average selling price for all cement companies
*Assuit Cement Q1 2009 results was not available, as the Company was delisted on April 2009.
Suez Cement Group achieved the highest sales value, capturing 33% of the total market
sales value, followed by Egyptian Cement and Assuit Cement, representing 20% and 14%
of aggregate sales value, respectively. Collectively, the three companies accounted for 67%
of the total market sales revenue. These results are in line with the three companies sales
volumes and production capacities.
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Moreover, Amiryah Cement achieved the highest growth rate in revenue in 2008, on the back
of the 13% increase in sales volume and the 22% growth in average selling price. Sinai Cement
ranked second in terms of growth in revenue driven by the commencement of production of its
second production line during the Q4 2008, boosting sales volumes in 2008 by 20%.
On the other hand, the cash cost of production reached US$31.5/ton in 2008 from US$23.3/
ton in 2007, increasing by 35.2%. Additionally, the cash cost of production increased further
by 12% in Q1 2009 to reach US$35.2/ton. This growth in cash cost of production, came
mainly on the back of the liberalization of energy prices, as we explained earlier.
It is worth mentioning that Suez Cement Group reported the highest cash cost of production
of US$57.6/ton in Q1 2009, whereas Alexandria Cement had the lowest cash cost of US$24.7/
ton in the same period.
Chart 60: Cash cost of production for all cement companies
Furthermore, the cement sector aggregate EBITDA reached LE7.3bn in 2008, compared to LE6.6bn
in 2007, recording a growth rate of 10.6%. All cement companies average EBITDA margin reached
43.7% in Q1 2009, compared to 49.2% and 43.4% in 2007 and 2008, respectively. Misr Beni Suef
Cement achieved the highest EBITDA margin of 59.4% in Q1 2009 among all cement market players,
while National Cement Company recorded the lowest EBITDA margin of 25.8% in Q1 2009.
Chart 61: Cement sector EBITDA margin
With respect to net profit, the cement sector overall net profit reached LE4.5bn in 2008, compared to
LE4.9bn in 2007, achieving a growth rate of 8.4%. All cement companies average Return on Sales
(ROS) reached 31.7% in Q1 2009, compared to 33.6% and 29% in 2007 and 2008, respectively. Misr
3
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Suez
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ECC Assuit
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Alexandria
Cement
Amiryah
Cement
National
Cement
Sinai
Cement
Misr Beni
Suef
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Cement
Qena
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Suez
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ECC Assuit
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2007 2008 Q1 2009
Beni Suef Cement also achieved the highest ROS of 46.4% in Q1 2009 relative to all other cement
companies, whereas National Cement Company recorded the lowest ROS of 18% in the same period.
Chart 62: Cement sector ROS
Finally, the average ROE for all cement companies declined to 29.2% in 2008, compared to 30.3%
in 2007. During 2008, the highest ROE was achieved by ECC, reaching 103.1%, while Assuit
Cement reported the lowest ROE of 17.1%.
Chart 63: Cement sector ROE
Valuation ratios
Table 10: Cement companies valuation ratios*
PE PBV EV/EBITDA EV/Ton (US$)
Suez Cement 5.9 0.9 2.8 101.0
ECC 0.2 0.2 0.7 38.3
Assuit Cement^ 2.0 - 1.3 41.2
Alexandria Cement 4.0 1.3 2.9 44.9
Amiryah Cement 6.1 1.9 4.1 140.1
National Cement 6.9 2.2 4.4 79.9
Sinai Cement 6.1 1.5 4.8 185.7
Misr Beni Suef Cement 8.7 1.9 3.8 173.0
Misr Cement Qena 7.7 3.1 4.2 172.0
Average 3.5 1.4 2.5 88.5
Median 6.1 1.5 3.8 101.0
Multiples are based on last market prices as of June 30th, 2009.
* Ratios are calculated using balance sheet figures as of March 31st, 2009 & income statement figures on December 31st, 2008
^ Assuit Cement Q1 2009 results was not available, as the Company was delisted on April 2009
Suez
Cement
ECC Assuit
Cement*
Alexandria
Cement
Amiryah
Cement
National
Cement
Sinai
Cement
Misr Beni
Suef
Cement
Misr
Cement
Qena
2007 2008 Q1 2009
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Regional Cement Sector Performance
Chart 64: Regional peer EBITDA margin in 2008
Chart 65: Regional peers ROS in 2008
Chart 66: Regional peers ROE in 2008
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Table 11: Regional peers valuation ratios*
PE PBV EV/EBITDA EV/Ton (US$)
Arabian Cement 11.1 1.6 11.3 410.9
Eastern Province Cement 8.8 2.2 7.2 321.5
Qassim Cement 10.2 2.8 8.2 432.1
Saudi Cement 9.4 2.2 26.8 356.3
Southern Province Cement 10.9 3.8 9.5 439.1
Tabuk Cement 12.8 1.8 7.9 364.5
Yamama Saudi Cement 8.8 2.0 6.8 326.5
Yanbu Cement 9.0 2.4 7.5 294.7
Saudi Arabia Average 9.8 2.4 9.4 367.0
Saudi Arabia Median 9.8 2.2 8.0 360.4
Arkan Building Materials N/A 4.9 37.0 N/A
Gulf Cement 933.9 1.3 4.3 N/A
Fujairah Cement 5.7 1.3 7.2 N/A
Sharjah Cement 3.9 0.7 2.7 N/A
National Cement 6.7 0.6 14.2 N/A
RAK Cement 7.5 0.8 6.0 N/A
Umm Al Qaiwain Cement 36.1 0.5 13.3 N/A
Union Cement 8.4 1.0 5.7 N/A
UAE Average 25.2 1.5 9.6 N/A
UAE Median 7.5 0.9 6.6 N/A
Raysut Cement 11.0 3.5 7.9 278.2
Oman Cement 14.5 1.6 10.8 211.2
Oman Average 12.1 2.4 8.8 249.0
Oman Median 12.8 2.5 9.4 244.7
Kuwait Cement 70.6 3.0 12.4 N/A
Qatar National Cement 6.9 2.3 13.6 N/A
Regional Average 12.1 2.1 9.7 350.9
Regional Median 9.4 1.9 8.1 341.4
Multiples are based on last market prices as of June 30th, 2009.
* Ratios are calculated using balance sheet figures as of March 31st, 2009 & income statement figures on December
31st, 2008
Valuation and Recommendation
In order to arrive at fair value for cement companies under review, we have used two valuation
methods:
1. Discounted Cash Flow (DFC) method, using Free Cash Flow to Firm (FCFF) approach.
2. Relative valuation method, using Enterprise Value to Earnings before Interest, Taxes,
Depreciation and Amortization (EV/EBITDA).
Discounted Cash Flow (DCF) method
The Discounted cash Flow (DCF) method used in the valuation of cement companies under
review was the Free Cash Flow to Firm (FCFF) approach, which is defined as after tax
operating cash flow after covering all the companys capital expenditures and working capital
needs. Our forecast horizon extends for 5 years, from 2009 to 2013, which represent the
terminal year. The terminal value is estimated using constant growth Gordon Growth Model.
The forecasted FCFF and the terminal value are then discounted at the companys Weighted
Average Cost of Capital (WACC), in order to arrive at total enterprise value. Afterwards,
cash is added to enterprise value and debt deducted from it to arrive at the companys equity
value, which is then divided by the total number of shares to reach the companys per share
fair value.
In our DCF valuation, we have used the following assumptions:
1. Risk Free Rate (RFR) of 10.5%, representing the weighted average Yield to Maturity
(YTM) on April 2014 treasury bonds.
2. Market risk premium of 9.5% was assumed.
3. Beta of 1.
4. The cost of equity was calculated using the Capital Asset Pricing Model (CAPM).
5. Perpetual growth of 3%.
Under these assumptions, the cost of equity reached 20% and a WACC of 20% were used for
Sinai Cement and Misr Cement Qena, as these two companies are free of debt. On the other
hand, the WACC used for Misr Beni Suef Cement was 19.7%, as the Company has a debt
burden, which has a cost of 11.6%. As we mentioned earlier the company has a tax holiday,
therefore it does not benefit from the interest tax shield.
Table 12: Per share value using DCF method
Company Name
Fair value per
share (LE)
Sinai Cement Company 108.3
Misr Cement Qena Company 85.8
Misr Beni Suef Cement Company 165.2
}u|, !) l,t teaeat :ectc| e1
Relative Valuation Method
We compared cement companies under review with other cement producers in the region, in
terms of Enterprise Value to Earnings before Interest, Taxes, Depreciation and Amortization (EV/
EBITDA). We preferred to use EV/EBITDA rather than Price to Earnings ratio (PE), as it puts
different companies on a comparable basis irrespective of their capital structure. We reached a
weighted average EV/EBITDA of 2.51x for the cement sector in Egypt, 9.40x for the cement
sector in Saudi Arabia, 9.59x for the cement sector in UAE, 8.77x for the cement sector in Oman,
12.36x for the cement in Kuwait and 13.56x for the cement sector in Qatar. This resulted in an
overall weighted average EV/EBITDA of 6.82x for the cement sector in the region.
Table13: Peer group EV/EBITDA
Company Name EV/EBITDA
Suez Cement Company 2.75
Egyptian Cement Company 0.70
Assuit Cement Company 1.29
Alexandria Cement Company 2.90
Amiryah Cement Company 4.11
National Cement Company 4.36
Egypt Cement Sector weighted average 2.51
Arabian Cement Company 11.29
Eastern Province Cement Company 7.23
Qassim Cement Company 8.22
Saudi Cement Company 26.78
Southern Province Cement Company 9.52
Tabuk Cement Company 7.88
Yamama Saudi Cement Company 6.75
Yanbu Cement Company 7.53
Saudi Cement Sector weighted average 9.40
Arkan Building Materials 37.03
Gulf Cement Company 4.29
Fujairah Cement Company 7.19
Sharjah Cement Company 2.75
National Cement Company 14.21
RAK Cement Company 5.98
Umm Al Qaiwain Cement Company 13.30
Union Cement Company 5.72
UAE Cement Sector weighted average 9.59
Raysut Cement 7.90
Oman Cement 10.84
Oman Cement Sector weighted average 8.77
Kuwait Cement Company 12.36
Kuwait Cement Sector weighted average 12.36
Qatar National Cement Company 13.56
Qatar Cement Sector weighted average 13.56
Overall Weighted Average 6.82
EV is calculated using June 30th, 2009 last market price
* Assuit Cement Q1 2009 results was not available, as the Company was delisted on April 2009, we used cash and debt
balances as of 31/12/2008,
Source: Stock Exchanges & Global Research
e! l,t teaeat :ectc| }u|, !)
Consequently, companies under review fair value per share based on multiple valuation are
shown in the table below:
Table 14: Per share value using multiple valuation
Company Name
Fair value per
share (LE)
In order to arrive at the weighted average fair value per share for each cement company, we
have assigned an 80% weight to DCF valuation and 20% weight to relative valuation. The
weighted average per share value for each company is illustrated in the table below:
Table 15: Per share weighted average fair value
Company Name
Weighted average
value (LE)
Risks to valuation
Lower than forecasted local and export cement demand, would adversely affect the
projected sales volumes.
Lower than forecasted sales volumes and/or selling price, would negatively affect the
projected sales values, which in turn will lead to lower valuation.
Higher than projected cost of production would affect valuation adversely.
Higher than projected capital expenditure would negatively affect valuation.
}u|, !) l,t teaeat :ectc| e|
Players Profle
e+ l,t teaeat :ectc| }u|, !)
Tickers:
SCEM.CA (Reuters)
SCEM:EY (Bloomberg)
Listing:
The Egyptian Exchange (EGX)
Fair Value:
LE107.3
CMP:
LE71.98 (As of June 30th, 2009)
July, 2009
BUY
Sinai Cement Company
The Companys cement plant, located in North Sinai, started cement production in January
2001, with a production capacity of 1.5mn ton.
On August 2006, the Company contracted with FLSmidth to establish a second production
line with a production capacity of 1.5mn ton. The new production line started operation in
late 2008, raising the Companys production capacity to 3mn ton.
Sinai Cement Company holds a 25.4% stake in Sinai White Cement Company and a 99.96%
in Sinai Cement Services Company. It is worth mentioning that the Companys Board of
Directors (BOD) approved on December 2007, the establishment of Sinai Cement Services
Company, with an authorized capital of LE250mn and issued capital of LE25mn. Sinai
Cement Company paid 50% of Sinai Cement Services capital, as of the end of first quarter
of 2009.
The Company will raise its issued and paid-in capital from LE350mn to LE700mn, in order
to finance the second production line. It is important to note that trading on Sinai Cement
stocks is limited to the local investors and is prohibited on foreigners.
On August 2008, Sinai Cement Company was fined LE20mn for conduction anti-competitive
practice during the period from May 2005 to the end of 2006. The Company and other local
cement producers were accused of forming a cartel to manipulate local cement prices and
dividing market shares among them.
Key Data
Market Cap. (LEmn) # 2,519
EPS (LE)* 9.2
BVPS (LE)* 23.8
P/E* 7.8
P/BV* 1.5
12M Avg. vol. 34,001
52 week Low/High (LE) 29.0/75.0
# As of June 30th, 2009
Company Background
Sinai Cement Company was incorporated in
1998, as an Egyptian Joint Stock Company,
subject to Law No. 8 of year 1997, and
its executive regulations. Sinai Cement is
specialized in the production of grey cement
and its related products. Sinai Cement
Company is listed on the Egyptian Exchange
(EGX) since July 2000.
}u|, !) l,t teaeat :ectc| e]
Management
Sinai Cement Company is chaired by Eng. Hassan Rateb. The Companys Board of Directors
(BoD) was elected in 2007 for a 3-year period. The table below shows the current board
members.
Table 16:Sinai Cement Board Members
Hassan Rateb Chairman
Eric Hollar Managing Director
Gilbert Nathan Board Member
Mohamed Sanhory Board Member
Salah Yassin Board Member
Ezzat Ghazy Board Member
Anis El Hindy Board Member
Adel Nasr El Din Board Member
Rehab Rateb Board Member
Louis Vicat Board Member
Source: EGX
Shareholding and Liquidity
Sinai Cement Companys authorized capital is LE1bn, while the issued and paid-in capital
is LE350mn, distributed over 35mn shares, with a par value of LE10/share. On November
2008, the Companys extraordinary general assembly approved increasing the Companys
issued and paid-in capital by LE350mn, through a 1:1 stock dividend distribution, in order to
finance the Companys second production line.
Accordingly, the Companys issued and paid-in capital will reach LE700mn, distributed over
70mn shares, at a par value of 10/share. It is worth mentioning that the capital increase was
not listed until now.
Chart 67: Sinai Cement Shareholders Structure as of March 31st, 2009
Source: EGID
Vicat Misr Cement Industries Company holds a 39.6% stake in Sinai Cement Company,
whereas the Companys free float reached 26.3% as of March 31st, 2009. It is important to
note that foreigners are banned from trading on Sinai Cement stock.
Social Insurance Fund for
Public Sector Labor, 9.4%
Sama Cement, 9.4%
Vicat Misr Cement
Industries, 39.6%
Al Arabia Co. for Industrial
Investment, 6.2%
Others, 9.0%
Free Float, 26.3%
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Table 17: Stock Liquidity
2007 2008 2009*
Average Daily Volume 50,612 51,727 36,813
Average Daily Turnover (LE000) 3,054 3,216 1,808
Market Capitalization (LE000) ** 2,390,500 1,159,200 2,519,300
* Average daily volume and turnover for the period from January to June 2009.
** Market Capitalization is calculated on respective year-end prices and for 2009 as of June 30th, 2009.
Source: Mubasher and Global Research
The Companys stock was underperforming the EGX 30 Index, as well as the Building
Materials index till November 2008. Afterwards, Sinai Cement stock outperformed the
EGX30 and it was moving in line with the Building Materials Index.
Chart 68: Sinai Cement share price performance chart
Source: Mubasher, EGX and Global Research
Table 18: Sinai at a glance
CMP (LE) Shares in Issue (mn) M-Cap (LE mn) 52-Week Hi/Lo (LE)
71.98 35 2,519 75 29.02
Year
Gross Profit
(LE mn)
Net Profit
(LE mn)
EPS
(LE)
BVPS
(LE)
ROAE
(%) P/E (x) P/BV (x)
2010 F 691,512 514,440 7.35 24.51 30.45% 9.79 1.47
2009 F 785,918 643,841 9.20 23.77 40.09% 7.83 1.51
2008 A 544,355 434,131 12.40 44.23 31.65% 2.79 1.63
2007 A 465,310 341,539 9.76 34.14 32.40% 7.15 2.11
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SCEM EGX30 Building Materials Index
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Financial Performance
Income Statement Analysis
During the period from 2004 to 2008, Sinai Cement Companys total sales volume has
reported a robust growth, rising at a CAGR of 18.7%. This strong growth came on the back of
the increase in local cement sales volume, where it increased form 0.9mn ton in 2004 to 2.3mn
ton in 2008, growing at a CAGR of 26.3%. This can be attributed to the surge witnessed in
the local cement consumption, driven by the higher construction activities witnessed in the
country. In 2008, the Companys local cement sales volume grew by 44.8%, compared to
2007. Meanwhile, the exported cement volume dropped by 74.7% in 2008, on the back of the
Minister of Trade and Industry decision to ban cement exportation for a 6-month period from
March to October 2008, as well as the surging local demand.
Chart 69: Sinai Cement Sales Volume Breakdown
Source: Sinai Cement Company and Global Research
Moreover, the increase witnessed in the local cement demand in 2008 has fuelled the growth
in the selling prices, where Sinai Cement Companys average selling price rose by 15.2% in
2008. Consequently, the Companys total sales value climbed to LE906.3mn in 2008 from
LE656.4mn in 2007, achieving a growth rate of 38.1%. Sinai Cement Company maintained
a healthy growth in its sales value over the past 4 years, growing at a CAGR of 28.9% from
2004 to 2008.
Chart 70: Sinai Cement Sales Value and Average Price
0.6
0.6
0.4
0.1
1.0 1.2
1.6 2.3
1.9%
7.3%
11.1%
19.9%
0.0
0.5
1.0
1.5
2.0
2.5
2005 2006 2007 2008
T
o
n
s

m
n
0%
5%
10%
15%
20%
25%
Local Sales Export Sales Growth in sales
421.0
540.2 656.4
906.3
306
326
332
382
0
100
200
300
400
500
600
700
800
900
1,000
2005 2006 2007 2008
L
E

m
n
0
50
100
150
200
250
300
350
400
450
L
E
Total Sales Value Average price per ton (right scale)
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The governments plan to reduce the subsidy bill through cutting the energy subsidies for the
energy intensive industries, including the cement, implemented since mid 2007, has raised
the Companys cash cost of production by 58.0% in 2008, reaching LE153/ton from LE97/
ton in 2007. It is worth mentioning that cash cost of production is calculated by excluding
depreciation expense from cost of sales.
Chart 71: Sinai Cement average selling price and cash cost of production
Consequently, COGS soared by almost 90% in 2008, from LE191.1mn in 2007 to LE362.0mn
in 2008. This increase in COGS out-weighted the growth in sales, leading to an escalation in
the COGS/Sales ratio from 29.1% in 2007 to 39.9% in 2008.

Chart 72: Sinai Cement Cost of Goods Sold (COGS)
Although the S,G&A declined as a percent of sales from 12.8% in 2007 to 7.6% in 2008, the
EBITDA margin decreased from 58.1% in 2007 to 52.5% in 2008, as the hike witnessed in
the COGS outpaced the growth in the sales and the decline in the S,G&A.
306
326
332
382
85 89
97
153
72.1%
72.5%
70.9%
60.1%
-
50
100
150
200
250
300
350
400
450
2005 2006 2007 2008
L
E
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Average price per ton Cash cost per ton Spread
142
159
191
362
2.6%
12.4%
20.1%
89.5%
33.6%
29.5%
29.1%
39.9%
-
50
100
150
200
250
300
350
400
2005 2006 2007 2008
L
E

m
n
0%
20%
40%
60%
80%
100%
COGS Growth in COGS COGS/Sales
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Chart 73: Sinai Cement EBITDA
Sinai Cement Company enjoys a10 year tax exemption according to Law no. 8 of year 1997.
The tax holiday started in 2002 and will end in 2011. It is worth mentioning that the Company
paid LE0.32mn in 2008, representing the 20% taxes on the interest income, which is not
included in the tax holiday.
The Company has incurred LE20mn, reported as extraordinary item in 2008, as a result of the
courts decision for committing anti-competitive practice during the period from May 2005
to the end of 2006. In turn, the Companys Return on Sales (ROS) declined from 52.0% in
2007 to 45.7% in 2008.
Chart 74: Sinai Cement Net Profit
Balance Sheet Analysis
In 2008, the Companys total assets grew by 29.9%, reaching LE1.8bn, compared to LE1.4bn
in 2007. The Companys asset structure is dominated by the long term assets, which include
fixed assets and projects under construction. The long term assets increased from LE672.0mn
in 2006 to LE1.2bn and LE1.4bn in 2007 and 2008, respectively, as the Company established
a second production line, which was contracted in August 2006, to double its cement annual
production capacity from 1.5mn ton to 3mn ton. The remaining cost to complete the second
line is estimated to be LE150-160mn, based on the Companys management guidance.
Sinai Cement Companys investments, which constituted 5.9% of total assets, grew from
LE80.2mn in 2007 to LE103.1mn in 2008, up by 28.5%. It is worth mentioning that the
230 326 381 475
54.6%
60.3%
58.1%
52.5%
-
50
100
150
200
250
300
350
400
450
500
2005 2006 2007 2008
L
E

m
n
40%
45%
50%
55%
60%
65%
EBITDA EBITDA Margin
182
287
342
414
43.2%
53.1%
52.0%
45.7%
-
50
100
150
200
250
300
350
400
450
2005 2006 2007 2008
L
E

m
n
0%
10%
20%
30%
40%
50%
60%
Net prot Return on Sales
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Company holds a stake of 25.4% in Sinai White Cement Company. In addition, the Companys
Board of Directors (BOD) approved on December 2007, the establishment of Sinai Cement
Services Company, with an authorized capital of LE250mn and issued capital of LE25mn.
Sinai Cement will hold a 99.96% stake in the new company. It is worth mentioning that Sinai
Cement paid 50% of Sinai Cement Services capital, as of the end of first quarter of 2009.
Chart 75: Sinai Cement Assets Composition
On the other hand, the Companys funding structure was dominated by the equity, as the
Company is free of debt. The shareholders equity accounted for 88.0% of the Companys
total assets in 2008, reaching LE1.5bn in 2008, compared to LE1.2bn in 2007, up by 29.5%.
In addition, the Companys other liabilities rose from LE159.4mn in 2007 to LE211.6mn in
2008, up by 32.8%. The accrued expenses have contributed significantly to this increase, as
the Company accrued LE20mn fine for conducting anticompetitive practice.
Chart 76: Sinai Cement Liabilities and Shareholders Equity
Q1 2009
Sinai Cement local sales volume reached 893,102 ton in the first quarter of 2009, compared
to 458,644 ton in the first quarter of 2008, growing by 94.7% Y-o-Y. This came on the back
of the commencement of the Companys second production line, which raised the annual
production capacity from 1.5mn ton to 3mn ton. Additionally, the ongoing growth in the local
cement demand during the first quarter of 2009 has supported the local sales volume of Sinai
8.8%
18.1%
6.7%
8.7%
7.5%
9.5%
77.6%
68.8%
85.0%
77.9%
4.8% 5.6% 5.9% 5.9%
1.4%
7.7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008
Cash & Equivalent Other assets Long-term Assets Investments
93.7% 93.5%
88.2% 88.0%
6.3% 6.5%
11.8% 12.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008
Equity Other liabilities
Cement Company. It is worth mentioning that the Company didnt export cement during the
first quarter of 2009, compared to 31,233 ton exported in the first quarter of 2008.
Chart 77: Sinai Cement Q1 Sales Value
Furthermore, the Companys average selling prices increased by 9.1% during the first quarter
of 2009, reaching LE418/ton, compared to the average selling price in 2008. Accordingly, the
total sales value mounted by 108.5% during the first quarter of 2009, reaching LE372.7mn up
from LE178.8mn reported in the same period the previous year.
Chart 78: Sinai Cement Selected Income Statement Items in Q1
Moreover, Sinai Cement Companys cash cost per ton soared in the first quarter of 2009
by 9.6%, reaching LE199/ton from LE182/ton in 2008. The COGS/Sales ratio rose from
30.2% in the first quarter of 2008 to 47.7% in the first quarter of 2009. On the other hand, the
S,G&A/Sales ratio declined from 8.0% to 5.0% during the comparable periods.
The rise in the production cost has negatively impacted the Companys EBITDA margin,
which decreased from 61.8% in the first quarter of 2008 to 47.2% in the first quarter of
2009. Similarly, the net profit margin declined from 54.4% to 42.3% between the comparable
periods.
115 150 179 373
43.4%
30.3%
19.5%
108.5%
-
50
100
150
200
250
300
350
400
Q1 2006 Q1 2007 Q1 2008 Q1 2009
L
E

m
n
0%
20%
40%
60%
80%
100%
120%
Total Sales Value Growth
34 45 54 178 67 90 110 176
29.5%
30.4% 30.2%
47.7%
58.7%
60.0%
61.8%
47.2%
-
20
40
60
80
100
120
140
160
180
200
Q1 2006 Q1 2007 Q1 2008 Q1 2009
L
E

m
n
0%
10%
20%
30%
40%
50%
60%
70%
COGS EBITDA COGS/Sales EBITDA Margin
Table 19: Sinai Cement Q1 Income Statement
LE000 Q1 2008 Q1 2009 Change%
Sales 178,784 372,717 108.5%
COGS (53,964) (177,907) 229.7%
S,G&A (14,339) (18,799) 31.1%
EBITDA 110,481 176,011 59.3%
Depreciation (8,882) (17,522) 97.3%
EBIT 101,599 158,489 56.0%
Interest Income 0 2,652 -
Investment Income 0 0 -
Interest Expense 0 0 -
Other Provisions (3,454) (4,695) 35.9%
Other Non-Operating Income\(Expense) (1,177) 1,220 203.7%
NPBT 96,968 157,666 62.6%
Income Tax 0 0 -
NPAT 96,968 157,666 62.6%
Capital Gain/Loss 290 0 -100.0%
Other Extraordinary Items 0 0 -
NPAUI 97,258 157,666 62.1%
Minority Interest 0 0 -
Net Profit/(Loss) 97,258 157,666 62.1%
Financial Forecast
Based on our cement market forecast, Sinai Cement Company is expected to operate at a utilization
rate of 120% in 2009, on the back of high local demand. Then, the utilization rate will decline to
118%, as we assumed that local cement demand will grow at a slower rate in 2010 and 2011.
Chart 79: Sinai Cement forecasted capacity, utilization rate, local & export sales volume
However, we assumed that Sinai will increase its utilization rate to 121% in 2011, as the
company will allocate a larger proportion of its production to the export markets. Afterwards,
utilization rate is expected to rebound gradually, to reach 125% in 2013, as local demand growth
is forecasted to increase.
Moreover, we assumed that average price per ton during 2009 will follow cement consumption
pattern, declining by around 5% in 2010, then increasing gradually to reach almost LE450/
ton by 2013.
3.0 3.0 3.0 3.0 3.0
3.6
0.1
0.2
0.5
0.4
0.1
3.5
3.3
3.2
3.3
120%
118%
121%
123%
125%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2009 2010 2011 2012 2013
T
o
n

m
n
100%
105%
110%
115%
120%
125%
130%
Capacity Local sales Export Sales Utilization rate
Chart 80: Sinai Cement forecasted sales value and average price
With respect to cash cost of production, we assumed a growth rate of 30.5% in 2009, in order to
reflect the government decision to increase energy prices. Afterwards, cash cost of production is
forecasted to increase on average by 2% annually, assuming no further government intervention,
such as increasing energy prices and/or imposing any additional duties on cement manufacturers.
Chart 81: Sinai Cement forecasted average selling price and cash cost of production
Consequently, COGS/Sales ratio is forecasted to increase in 2010, as the selling price is
expected to decline, whereas cash cost of production is not foreseen to decrease, based on
our estimates. Nevertheless, COGS/Sales ratio is estimated to decline gradually starting from
2011 till it reaches 2009 levels in 2013, as the selling price will rebound at a higher rate than
the growth in cash cost of production.
Chart 82: Sinai Cement forecasted cost of sales and COGS/Sales ratio
1,504
1,411
1,500
1,582
1,677
418
399
413
429
447
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
1,650
1,700
2009 2010 2011 2012 2013
L
E

m
n
370
380
390
400
410
420
430
440
450
460
L
E
Sales value Average price/ton (Right scale)
382
418
399
413
429
447
153
199
203 207 210
215
60.1%
52.3%
49.0%
50.0%
51.0%
52.0%
100
150
200
250
300
350
400
450
500
2008 2009 2010 2011 2012 2013
L
E
30%
35%
40%
45%
50%
55%
60%
65%
Average price/ton Cash cost/ton Spread
718
720
750
775
805
47.7%
51.0%
50.0%
49.0%
48.0%
660
680
700
720
740
760
780
800
820
2009 2010 2011 2012 2013
L
E

m
n
40%
42%
44%
46%
48%
50%
52%
COGS COGS/Sales
Furthermore, we assumed that the S,G&A will increase annually by 10% from 2008 levels.
Therefore, S,G&A/Sales is expected to increase marginally throughout our forecast horizon,
as the percentage increase in S,G&A will outpace the increase in sales. Accordingly,
EBITDA Margin is forecasted to decline in 2010, as a result of the increase in COGS/Sales
and S,G&A/Sales, then improving gradually over the next years.
Chart 83: Sinai Cement forecasted EBITDA and EBITDA margin
Net profit as a percent of sales is expected to follow a similar pattern like EBITDA margin
from 2009 to 2011, for the same reasons mentioned above. However, net profit margin will
be lower than EBITDA margin, mainly due to the expected increase in depreciation expense,
resulting from depreciating the new production line.
Starting from 2012, Sinai Cement will start to pay 20% taxes, as its tax exemption period will
end in 2011. Therefore, ROS will drop in 2012. It is worth mentioning that we assumed a tax
rate of 20% on interest income during the tax exemption period, according to the Egyptian tax
law, which exempts only operating income from taxes throughout the tax holiday period.
Chart 84: Sinai Cement forecasted net profit and ROS
710
608
658
706
761
47.2%
43.1%
43.9%
44.6%
45.4%
-
100
200
300
400
500
600
700
800
2009 2010 2011 2012 2013
L
E

m
n
40%
41%
42%
43%
44%
45%
46%
47%
48%
EBITDA EBITDA margin
644
514
565
493
538
42.8%
36.5%
37.7%
31.1%
32.1%
-
100
200
300
400
500
600
700
2009 2010 2011 2012 2013
L
E

m
n
30%
32%
34%
36%
38%
40%
42%
44%
Valuation
Discounted Cash Flow (DCF)
Based on our valuation assumption stated earlier under valuation and recommendation section
and out projected Free Cash Flow to Firm (FCFF), shown below, we reached a fair value of
LE108.3/share using DCF method, implying 50.4% upside potential from the current market
price of LE71.98/share, as of June 30th, 2009.
Table 20: Sinai Cement DCF valuation
(Values in 000) 2009F 2010F 2011F 2012F 2013F
Free Cash Flow 509,412 570,416 619,473 548,946 591,968
Terminal Value 3,586,627
Discounted Cash Flow 465,143 434,038 392,806 290,071 260,670
PV of Terminal Value 1,579,352
Enterprise Value 3,422,080
Cash 368,015
Debt -
Equity value 3,790,095
No. of Shares 35,000
Fair Value (LE) 108.3
Sensitivity Analysis
We provide below a sensitivity analysis table, which shows the probable values given
different growth rate assumption and WACC. The shaded area represents the most probable
outcome.
Table 21: Sensitivity Analysis
Terminal Growth
1.0% 2.0% 3.0% 4.0% 5.0%
WACC
18.0% 112.9 116.4 120.3 124.8 130.0
19.0% 107.5 110.5 113.9 117.8 122.1
20.0% 102.8 105.4 108.3 111.6 115.3
21.0% 98.4 100.7 103.3 106.1 109.3
22.0% 94.6 96.6 98.8 101.2 104.0
Relative Valuation
Using the Weighted average EV/EBITDA of 6.82x for the cement sector in the region,
calculated earlier under the valuation and recommendation section, we reached a fair value
of LE103.1/share using relative valuation method, implying 43.2% upside potential from the
current market price of LE71.98/share, as of June 30th, 2009.
Based on the fact that relative valuation is being highly influenced by the market prices of the
comparable companies, a 20% weight was assigned for EV/EBITDA and 80% to the DCF.
Table 22: Sinai Cement weighted average fair value
Valuation approach
Fair Value/
share (LE) Weight
Weighted
Value (LE)
DCF Valuation 108.3 80% 86.6
Relative valuation 103.1 20% 20.6
Weighted average fair value 107.3
Current market price (LE)* 71.98
Upside/(Downside) potential 49.0%
*Price as of June 22nd, 2009
Combining both methods resulted in a fair value of LE107.3/share, compared to the current
market price of LE71.98/share, implying an upside potential of 49.0% over the market
price. Therefore, we initiated our coverage for Sinai Cement Company with a BUY
recommendation.
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}u|, !) l,t teaeat :ectc| ~1
Tickers:
MCQE.CA (Reuters)
MCQE:EY (Bloomberg)
Listing:
Fair Value:
LE91.3
CMP:
LE78.0 (As of June 30
th
, 2009)
July, 2009
BUY
Misr Cement Qena
The Companys cement plant is located in Qena governorate and it started production in
April 2002, with a production capacity of 1.5mn ton. Misr Cement Qena holds a 20% stake
in South Upper Egypt Company, which is specialized in the production of cement bags.
On August 2008, Misr Cement Qena Company was fined LE20mn for conducting anti-
competitive practice during the period from May 2005 to the end of 2006. The Company and
other local cement producers were accused of forming a cartel to manipulate local cement
prices and dividing market shares among them.
Management
On March 2009, Misr Cement Qena Companys Board of Directors (BoD) was elected,
where Mr. Mahmoud Hassan was reelected to chair the Companys Board.
Key Data
EPS (LE)* 11.4
BVPS (LE)* 22.6
P/E* 6.9
P/BV* 3.5
12M Avg. vol. 11,308
52 week Low/High (LE) 60.5/91.3
Company Background
Misr Cement Qena was established in 1997, as an
Egyptian Joint Stock Company. The Company
operates under Law No. 159 of year 1981 and its
executive regulations. The Company also enjoys
the tax exemption benefits of Law No. 8 of year
1997. Misr Cement Qena Company mainly
produces grey cement and its related products.
Misr Cement Qena Company is listed on the
Egyptian Exchange (EGX) since May 2000.
~! l,t teaeat :ectc| }u|, !)
Table 23: Misr Cement Qena Board Members
Mahmoud Hassan Chairman and Managing Director
Adel Fatouh Board Member & representing Misr Insurance & Al Shark Insurance companies
Amr El Gawhary Board Member & representing the Egyptian Investment Projects Company
Mohamed Sultan Board Member & representing Egyptian Kuwaiti Investment Company
Giorgio Bodo Board Member & representing Asec Cement Company
Roshdi Eskander Board Member & representing Al Ahli Capital Holding
Souheir Mahmoud Board Member & representing Misr Bank
Osama Abd ElWahab Board Member & representing National Investment Bank
Mamdouh Mahmoud Board Member & representing Misr Construction and Trading Company
Mohamed Naseem Board Member
Mahmoud Suboh Board Member
Mohamed Riziq Board Member
Mahmoud Abd Allah Board Member
Source: EGX
Misr Cement Qena Company current senior management is shown in the table below.
Table 24: Misr Cement Qena senior management
Mohamed Ismail General Manager - Finance
Alaa Hassan General Manager Cement Plant
Sabry Hassan Manager Administration
Ahmed Imam Manager Finance (Cairo Branch)
Mahmoud Abd El Aziz Manager Finance (Main Branch)
Mahmoud Safwat Manager Production
Source: EGX
Misr Cement Qena Companys authorized capital is LE600mn, while the issued and paid-
in capital is LE300mn, distributed over 30mn shares, with a par value of LE10/share. The
Company holds 122,000 shares, as treasury stock, representing 0.4% of the Companys issued
shares, with total value of LE10.1mn, as of March 31st, 2009. It is worth mentioning that the
Company acquired the treasury shares at an average purchase price of LE83.05/share.
According to the Capital Market Authority law, companies hold treasury stock for more than one-
year period are obliged to resell these treasury shares in the market or write them off. Therefore,
Misr Cement Qena Company extraordinary general assembly meeting, held on March 22nd, 2009,
approved decreasing its issued and paid-in capital by LE1.22mn, through writing off 122,000 treasury
stock. The Company is currently performing the required procedures to write off its treasury stock.
Chart 85: Misr Cement Qena Shareholders Structure as of March 31st, 2009
Source: EGID
Banks, 7.5%
Misr Insurance, 20.1%
Al Ahli Capital Holding, 7.5%
Egyptian Kuwaiti Investment, 9.8%
Egyptian Investment Projects, 10.0%
Asec Cement, 27.4%
Others, 2.1%
Free Float, 15.5%
}u|, !) l,t teaeat :ectc| ~|
The Companys shareholders structure is diversified between different companies, banks,
insurance and other companies, with a 15.5% of its shares is free floated in the market, as of
March 31st, 2009.

2007 2008 2009*
Average Daily Volume 74,386 22,430 860
Average Daily Turnover (LE000) 5,840 1,714 67
Market Capitalization (LE000) ** 2,208 2,091 2,340
Misr Cement Qena Companys stock performance is considered relatively stable, when
compared to the EGX 30 index and the Building Materials index. The Companys stock price
movement showed a steady pattern during the market peaks and dips.
Chart 86: Misr Cement Qena share price performance chart
Table 26: Misr Cement Qena at a glance
78.00 30 2,340 91.25 60.50
Year
Gross Profit
(LE mn)
Net Profit
(LE mn)
EPS
(LE)
BVPS
(LE)
ROAE
(%)
P/E
(x)
P/BV
(x)
2010 F 353,830 270,746 9.06 23.08 39.66% 8.61 3.39
2009 F 432,589 339,952 11.38 22.62 41.80% 6.86 3.46
2008 A 431,956 302,950 10.10 31.69 34.22% 7.72 2.46
2007 A 359,348 276,448 9.21 27.32 37.07% 7.99 2.86
-
50
100
150
200
250
300
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MCQE EGX30 Index Building Materials Index
~+ l,t teaeat :ectc| }u|, !)
Misr Cement Qena sales volume reached 2.0mn ton in 2008, compared to 1.8mn ton in 2007,
a Y-o-Y growth of 10.5%. This growth is mainly attributed to the local sales, where the local
sales volume grew from 1.2mn ton in 2007 to 1.6mn ton in 2008, up by 30.2%, reflecting the
surge witnessed in the local cement consumption.
Meanwhile the export sales volume declined by 30.0% between 2007 and 2008, on the back
of the Minister of Trade and Industry decision to ban cement exportation for a 6-month
period from March to October 2008.

During the period from 2004 to 2008, the Companys total sales volume reported strong
growth, rising at a CAGR of 10.6%, as it reached 2.0mn tons in 2008 against 1.3mn tons
in 2004. The local sales volume grew at a CAGR of 9.8%, whereas the export sales volume
increased at a CAGR of 13.6% between 2004 and 2008.
Chart 87: Misr Cement Qena Sales Volume Breakdown
Source: Misr Cement Qena Company and Global Research
In 2008, Misr Cement Qena Companys average selling price was up by 17.2%, triggered by the
robust growth in the local cement demand. The increase in average selling prices along with the
rise in the sales volume, have resulted in the growth in the Companys total sales value, reaching
LE773.3mn in 2008 up from LE597.3mn in 2007, achieving a growth rate of 29.5%. Between
2004 and 2008, the growth in Companys total sales value has increased at a CAGR of 18.0%,
where local and export sales values grew at a CAGR of 76.9% and 23.1%, respectively.
Chart 88: Misr Cement Qena Sales Value and Average Price
0.5 0.6
0.6
0.4
1.2
1.1
1.2
1.6
10.5%
8.1%
1.8%
4.4%
0.0
0.5
1.0
1.5
2.0
2.5
2005 2006 2007 2008
T
o
n
s

m
n
0%
2%
4%
6%
8%
10%
12%
Local Sales Export Sales Growth in Total Sales Volume
420.1
521.8
597.3
773.3
250
305
335
392
0
100
200
300
400
500
600
700
800
900
2005 2006 2007 2008
L
E

m
n
0
50
100
150
200
250
300
350
400
450
L
E
}u|, !) l,t teaeat :ectc| ~]
The governments energy subsidy cut decision has adversely influenced the production cost
of Misr Cement Qena Company. The Companys cash cost per ton jumped by 29.9% in 2008,
reaching LE173/ton from LE133/ton in 2007. This came on the back of the surge witnessed
in the fuel oil and the electricity prices, where they contributed together to 52.6% of the total
COGS in 2008. It is worth mentioning that Misr Cement Qenq use fuel oil as a source of
energy not natural gas.
Chart 89: Misr Cement Qena average selling price and cash cost of production
Accordingly, the Companys COGS mounted to LE341.4mn in 2008, compared to LE238.0mn
in 2007, rising by 43.5%. In addition, COGS/Sales ratio increased from 39.8% in 2007 to
44.1% in 2008, as the growth in COGS outpaced the growth in sales.
Chart 90: Misr Cement Qena Cost of Goods Sold (COGS)
Moreover, the S,G&A/Sales ratio rose from 2.5% in 2007 to 3.2% in 2008. Therefore, the
EBITDA margin decreased from 57.7% to 52.7% between 2007 and 2008, reflecting the
increase in COGS/Sales and S,G&A/Sales ratios.
250
305
335
392
118
125
133
173 52.7%
59.1%
60.2%
55.9%
-
50
100
150
200
250
300
350
400
450
2005 2006 2007 2008
L
E
48.0%
50.0%
52.0%
54.0%
56.0%
58.0%
60.0%
62.0%
198.8
213.6
238.0
341.4
47.3%
40.9%
39.8%
44.1%
26.8%
7.5%
11.4%
43.5%
-
50
100
150
200
250
300
350
400
2005 2006 2007 2008
L
E

m
n
0%
20%
40%
60%
~e l,t teaeat :ectc| }u|, !)
Chart 91: Misr Cement Qena EBITDA
Additionally, the Companys interest income surged by 95.8% in 2008, reaching LE17.8mn,
as opposed to LE9.1mn in 2007. This came on the back of the hike witnessed in the time
deposits from LE281.1mn in 2007 to LE477.0mn in 2008, growing by 69.7%. Furthermore,
the Company formed LE45mn as provision expense in 2008, resulting from the governments
decision to raise the resources development fees on clay.
Misr Cement Qena Company enjoys 10 years tax exemption according to Law no. 8 of year
1997. The tax holiday started in 2003 and will end in 2012. It is worth mentioning that the
Company paid LE3.2mn in 2008, representing the taxes on the interest income, which is not
included in the tax holiday.
The ROS declined from 46.3% in 2007 to 39.2% in 2008, mainly due to the cost increase and
the provision expense incurred in 2008. The Company reported a net profit of LE302.9mn in
2008, compared to LE276.4mn in 2007, recording a Y-o-Y growth of 9.6%.
Chart 92: Misr Cement Qena Net Profit
The Companys total assets reached LE1.1bn in 2008, as opposed to LE1.0mn in 2007, up
by 17.4%. This growth is basically attributed to the surge witnessed in the cash and cash
equivalents, which soared by 67.2%, reaching LE489.6mn, compared to LE292.9mn in 2007.
In turn, the cash and cash equivalents contribution to the Companys total assets grew from
30.1% to 42.9% between 2007 and 2008.
209.7
294.1
344.4
407.5
49.9%
56.4%
57.7%
52.7%
-
50
100
150
200
250
300
350
400
450
2005 2006 2007 2008
L
E

m
n
40%
45%
50%
55%
60%
148
236
276
303
35.3%
45.2%
46.3%
39.2%
-
50
100
150
200
250
300
350
2005 2006 2007 2008
L
E

m
n
0%
10%
20%
30%
40%
50%
}u|, !) l,t teaeat :ectc| ~
On the other hand, the long term assets, which were the major component in the Companys
asset structure, represented 51.3% of the Companys total assets in 2008, down from 63.6%
in 2007. Furthermore, the inventory grew from LE36.5mn in 2007 to LE51.1mn in 2008,
increasing by 40.1%. This came on the back of the hike witnessed in the fuel oil price, which
was doubled during the year.
Chart 93: Misr Cement Qena Assets Composition
On the other hand, the Companys financing was dominated by the equity, which represented
83.4% of the total assets in 2008. The shareholders equity reached LE950.8mn in 2008,
compared to LE819.6mn in 2007, increasing by 16.0%.
Additionally, the Companys other liabilities rose from LE152.0mn in 2007 to LE189.8mn
in 2008, up by 24.9%. This increase is mainly attributed to the growth in the provisions for
the resource development fees.
Chart 94: Misr Cement Qena Liabilities and Shareholders Equity
Q1 2009
During the first quarter of 2009, Misr Cement Qena sales value grew by 12.7%, on the back
of the strong local cement demand, driven by the higher construction activities witnessed in
the country. The Companys sales value increased from LE213.3mn in the first quarter of
2008 to LE240.4mn in the first quarter of 2009.
9.8% 11.9%
42.9%
8.4%
7.8%
5.8%
81.8% 80.2%
63.6%
51.3%
30.1%
6.2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008
Cash & Equivalent Other assets Long-term Assets
62.7%
83.2% 84.4% 83.4%
37.3%
16.8% 15.6% 16.6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008
Equity Other liabilities
~~ l,t teaeat :ectc| }u|, !)
Chart 95: Misr Cement Qena Q1 Sales Value
In addition, the Companys COGS reached LE111.1mn in the first quarter of 2009, compared
to LE86.0mn in the first quarter of 2008, rising by 29.1%. As a result, the COGS/Sales ratio
increased from 40.3% to 46.2% between the comparable periods. In addition, the S,G&A/
Sales ratio rose slightly from 3.3% in the first quarter of 2008 to 3.4% in the first quarter of
2009. Accordingly, the Companys EBITDA margin fell from 56.3% to 50.4% between the
comparable periods.
Chart 96: Misr Cement Qena Selected Income Statement Items in Q1
Moreover, the interest income increased from LE4.2mn in the first quarter of 2008 to
LE7.2mn in the first quarter of 2009, a Y-o-Y growth of 71.8%. This came on the back of the
62.9% growth in the time deposits from LE387.4mn to LE631.0mn between the comparable
periods.
The Companys bottom line reached LE101.7mn in the first quarter of 2009, as opposed to
LE89.8mn reported in the first quarter of 2008, achieving a growth of 13.2%. The ROS rose
merely from 42.1% to 42.3% between the comparable periods.
129.5 143.1 213.3 240.4
59.6%
10.5%
49.1%
12.7%
-
50
100
150
200
250
300
Q1 2006 Q1 2007 Q1 2008 Q1 2009
L
E

m
n
0%
10%
20%
30%
40%
50%
60%
70%
54
61
86
111
72
78
120 121
41.6%
42.9%
40.3%
46.2%
55.9%
54.7%
56.3%
50.4%
-
20
40
60
80
100
120
140
Q1 2006 Q1 2007 Q1 2008 Q1 2009
L
E

m
n
0%
10%
20%
30%
40%
50%
60%
}u|, !) l,t teaeat :ectc| ~)
Table 27: Misr Cement Qena Q1 Income Statement
LE000 Q1 2008 Q1 2009 Change%
Sales 213,315 240,424 12.7%
COGS (86,042) (111,121) 29.1%
SG&A (7,080) (8,217) 16.1%
EBITDA 120,192 121,085 0.7%
Depreciation (10,176) (10,252) 0.8%
EBIT 110,016 110,833 0.7%
Interest Income 4,212 7,237 71.8%
Investment Income 160 0 -100.0%
Interest Expense (22) (13) -42.9%
Other Provisions (20,000) (20,000) 0.0%
Other Non-Operating Income\(Expense) (2,426) 5,531 328.0%
NPBT 91,940 103,588 12.7%
Income Tax (2,146) (1,938) -9.7%
NPAT 89,794 101,650 13.2%
Capital Gain/Loss 0 0 -
NPAUI 89,794 101,650 13.2%
Net Profit/(Loss) 89,794 101,650 13.2%
Financial Forecast
According to our cement market forecast, Misr Cement Qena is expected to operate at a utilization
rate of 130% in 2009, fueled by high local consumption. After that the utilization rate will decrease
to 115%, as we forecasted that local demand will advance by a slower pace in 2010 and 2011.
In addition, the Companys utilization rate was assumed to rebound gradually from 115% in
2010 to reach 118% in 2013. We also assumed that the Company is expected to allocate a greater
proportion of its production to the export market in 2010 and 2011. Afterwards, an increasing
percentage of production will be allocated to the local market, as local demand will rebound.
Chart 97: Misr Cement Qena forecasted capacity, utilization rate, local & export sales volume
Furthermore, we assumed that average price per ton during 2009 will maintain its current
levels, on the back of higher local demand, then decline by 5% in 2010, before rebounding
gradually until reaching approximately LE450/ton in 2013.
1.5 1.5 1.5 1.5 1.5 1.5
1.3
1.2
1.3
1.7
0.5 0.5
0.5
0.1
0.4
130%
115%
116%
117%
118%
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2009 2010 2011 2012 2013
T
o
n

m
n
110%
115%
120%
125%
130%
135%
) l,t teaeat :ectc| }u|, !)
Chart 98: Misr Cement Qena forecasted sales value and average price
Moreover, we assumed that cash cost of production to grow at around 12% in 2009, in order to
reflect the government decision to liberalize energy prices. Afterwards, cash cost of production is
forecasted to increase on average by 1.5% annually, assuming no further government intervention,
such as increasing energy prices and/or imposing any additional duties on cement manufacturers.
Chart 99: Misr Cement Qena forecasted average selling price & cash cost of production
Accordingly, COGS/Sales ratio is expected to increase in 2010, as the selling price is expected to
decrease, while cash cost of production will keep increasing marginally over our forecast horizon.
However, COGS/Sales ratio is estimated to decline gradually starting from 2011 till it reaches
45.8% in 2013, as the selling price growth will outpace the rise in the cash cost of production
Chart 100: Misr Cement Qena forecasted cost of sales and COGS/Sales ratio
693
720
754
794
810
402
414
415
430
449
620
640
660
680
700
720
740
760
780
800
820
2009 2010 2011 2012 2013
L
E

m
n
370
380
390
400
410
420
430
440
450
460
L
E
392
415
402
414
430
449
173
193 196 198 200
205
55.9%
53.4%
51.1%
52.2%
53.5%
54.2%
100
150
200
250
300
350
400
450
500
2008 2009 2010 2011 2012 2013
L
E
30%
35%
40%
45%
50%
55%
60%
377
339
344
351
364
46.6%
48.9%
47.8%
46.5%
45.8%
310
320
330
340
350
360
370
380
390
2009 2010 2011 2012 2013
L
E

m
n
40%
41%
42%
43%
44%
45%
46%
47%
48%
49%
50%
COGS COGS/Sales
}u|, !) l,t teaeat :ectc| )1
Additionally, we assumed that S,G&A will increase annually by 10% from 2008 level.
Consequently, S,G&A/Sales is expected to increase marginally throughout our forecast
horizon, as the percentage increase in S,G&A will outpace the increase in sales. Accordingly,
EBITDA Margin is forecasted to decline in 2010, as a result of the increase in COGS/Sales
and S,G&A/Sales, then improving gradually over the next years.
Chart 101: Misr Cement Qena forecasted EBITDA and EBITDA margin
ROS is expected to follow a similar trend like EBITDA margin from 2009 to 2012, for the
same reasons mentioned above. However, net profit margin will be lower than EBITDA
margin, mainly because we assumed that the Company will continue to form provisions but
at lower rate than the historical rate, as percentage of sales.
Starting from 2013, Misr Cement Qena will start to pay 20% taxes, as its tax exemption
period will end in 2012. Therefore, ROS will drop in 2013. It is worth mentioning that we
assumed a tax rate of 20% on interest income during the tax exemption period, according to
the Egyptian tax law, which exempts only operating income from taxes throughout the tax
holiday period.
Chart 102: Misr Cement Qena forecasted net profit and ROS
406
326
346
371
396
50.2%
47.0%
48.0%
49.2%
49.8%
-
50
100
150
200
250
300
350
400
450
2009 2010 2011 2012 2013
L
E

m
n
40%
42%
44%
46%
48%
50%
52%
340
271
293
319
280
42.0%
39.1%
40.6%
42.3%
35.2%
-
50
100
150
200
250
300
350
400
2009 2010 2011 2012 2013
L
E

m
n
30%
32%
34%
36%
38%
40%
42%
44%
)! l,t teaeat :ectc| }u|, !)
Valuation
Based on our valuation assumption stated earlier under valuation and recommendation
section and out projected Free Cash Flow to Firm (FCFF), shown below, we reached a fair
value of LE85.8/share using DCF method, implying 9.9% upside potential from the current
market price of LE78/share, as of June 30th, 2009.
Table 28: Misr Cement Qena DCF valuation
(Values in 000) 2009F 2010F 2011F 2012F 2013F
Free Cash Flow 383,571 306,337 325,311 349,174 311,032
Discounted Cash Flow 350,239 233,096 206,279 184,508 136,961
PV of Terminal Value 829,824
Cash 631,843
Debt -
outcome.
Terminal Growth
WACC
1.0% 2.0% 3.0% 4.0% 5.0%
18.0% 88.7 90.8 93.2 96.0 99.2
19.0% 85.3 87.2 89.3 91.6 94.3
20.0% 82.4 84.0 85.8 87.8 90.1
21.0% 79.7 81.1 82.6 84.4 86.3
22.0% 77.2 78.5 79.8 81.3 83.0
Relative Valuation
current market price of LE78/share, as of June 30th, 2009.
}u|, !) l,t teaeat :ectc| )|
Table 30: Misr Cement Qena weighted average fair value
Valuation approach
Fair Value/
share (LE) Weight
Weighted
Value (LE)
Current market price (LE)* 78
*Price as of June 30th, 2009
market price of LE78/share, implying an upside potential of 17.1% over the market price.
Therefore, we initiated our coverage for Misr Cement Qena Company with a BUY
recommendation.
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)~ l,t teaeat :ectc| }u|, !)
Tickers:
MBSC.CA (Reuters)
MBSC:EY (Bloomberg)
Listing:
Fair Value:
LE162.8
CMP:
LE88.49 (As of June 30
th
, 2009)
July, 2009
BUY
Misr Beni Suef Cement
Misr Beni Suef Cement Companys plant, which is located in Beni Suef governorate in Upper
Egypt, started production in 2003, with a production capacity of 1.5mn ton. In 2005, the
Company decided to double its production capacity to meet the growing demand on cement
in both the local and exportation markets.
On December 2006, Misr Beni Suef Cement signed the second production line contract
with Polysius. The new line commenced production in the first quarter of 2009, raising the
Companys production capacity to 3mn ton.
On August 2008, Misr Beni Suef Cement Company was charged by LE20mn for exercising
monopolistic activities during the period from May 2005 to the end of 2006. The Company,
along with other local cement producers, was accused of forming a cartel to manipulate local
cement prices and dividing market shares among them.
Management
Misr Beni Suef Cement Company is currently chaired by Dr. Mohamed Ali Ahmed. The
Companys Board of Directors (BoD) consists of 6 members in addition to the chairman, as
shown in the table below.
Key Data
EPS (LE)* 19.3
BVPS (LE)* 42.6
P/E* 4.6
P/BV* 2.1
12M Avg. vol. 14,496
52 week Low/High (LE) 41.0/104
Company Background
Misr Beni Suef Cement Company was
founded in 1997, as a Joint Stock Company,
operating under Law No. 8 of year 1997 and
its executive regulations. The Company is
involved in the production of grey cement and
its related products. The Company is listed on
the Egyptian Exchange (EGX) since August
1999.
}u|, !) l,t teaeat :ectc| ))
Table 31: Misr Beni Suef Cement Board Members
Mohamed Ali Ahmed Chairman
Farouk Mohamed Vice Chairman and Managing Director
Fayek Al Qasrawy Vice Chairman and Managing Director
Al Sayed Ali Ahmed Vice Chairman and Managing Director
Mostafa Hafez Board Member and representing the National Investment Bank
Mahmoud Awara Board Member
Magdi Abbas Board Member
Source: EGX
Misr Beni Suef Cement Companys authorized capital is LE500mn, while the issued and
paid-in capital is LE200mn, distributed over 20mn shares, with a par value of LE10/share.
Chart 103: Misr Beni Suef Cement Shareholders Structure as of March 31st, 2009
Source: EGID
The Companys stock is considered relatively liquid, where 46.9% of its capital is free floated
in the stock market. The top management holds a 31.6% stake in the Company and 20.1%
stake is owned by the National Investment Bank, as of March 31st, 2009.

2007 2008 2009*
Average Daily Volume 16,032 34,661 13,266
Average Daily Turnover (LE000) 1,818 3,647 756
Market Capitalization (LE000) ** 2,322 994 1,770
Apparently, Misr Beni Suef Cement Companys stock is underperforming the EGX index, as
well as the Building Materials index. Although, Misr Beni Suef share rose at a slower pace
when compared to both indices, its performance was more stable relative to the two indices.
Top Management, 31.6%
National Investment Bank, 20.1%
Free Float, 46.9%
Others, 1.4%
Chart 104: Misr Beni Suef shares price performance chart
Table 33: Misr Beni Suef at a glance
88.49 20 1,770 104.00 41.01
Year
Gross Profit
(LE mn)
Net Profit
(LE mn)
EPS
(LE)
BVPS
(LE)
ROAE
(%) P/E (x) P/BV (x)
2010 F 651,021 401,362 20.07 53.72 41.67% 4.41 1.65
2009 F 633,285 385,737 19.29 42.60 45.57% 4.59 2.08
2008 A 441,504 202,412 10.12 42.04 26.17% 4.91 2.10
2007 A 407,795 193,150 9.66 35.31 30.15% 12.02 2.51
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MBSC EGX30 Index Building Materials Index
Misr Beni Suef Cement Companys total sales volume witnessed a moderate growth during
the period from 2004 to 2008, rising at a CAGR of 2.8%. In 2008, the Companys total sales
volume reported a slight decline of 2.4%, where it went down from 1.73mn ton in 2007
to 1.69mn ton in 2008.This can be attributed to the plunge witnessed in the export sales
volume in 2008, dropping by 67.0%, from 0.9mn ton to 0.3mn ton between 2007 and 2008.
Conversely, the strong domestic demand has supported the local sales volume, which surged
by 63.4% during the year, growing from 0.9mn ton in 2007 to 1.4mn ton in 2008.
Chart 105: Misr Beni Suef Cement Sales Volume Breakdown
Source: Misr Beni Suef Cement Company and Global Research
Misr Beni Suef Cement Companys average selling price rose by 13.0% in 2008, rising from
LE346/ton in 2007 to LE391/ton in 2008. Accordingly, the Companys total sales value
reached LE660.0mn in 2008, compared to LE588.3mn in 2007, up by 12.2%. Between 2004
and 2008, the Companys total sales value witnessed a robust growth at a CAGR of 22.5%,
where it climbed from LE293.0mn in 2004 to LE660.0mn in 2008.
Chart 106: Misr Beni Suef Cement Sales Value and Average Price
The rise in the energy prices, after the governments decision to cut energy subsidies for
the energy intensive industries, has contributed significantly to the hike witnessed in the
Companys cash cost per ton, excluding depreciation, by 23.9% in 2008, reaching LE129/ton
from LE104/ton in 2007.
0.5
0.9
1.4
0.7
1.2
0.9
0.3
0.8
3.5%
13.0%
-2.1%
-2.4%
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2005 2006 2007 2008
T
o
n
s

m
n
-4%
0%
4%
8%
12%
16%
20%
Local Sales Export Sales Growth in Total Sales Volume
406.0 557.5 588.3 660.0
362
355
346
391
0
100
200
300
400
500
600
700
2005 2006 2007 2008
L
E

m
n
320
330
340
350
360
370
380
390
400
L
E
Chart 107: Misr Beni Suef Cement average selling price and cash cost of production
Consequently, the COGS increased from LE180.5mn in 2007 to LE218.4mn in 2008, rising
by 21.0%, which outpaced the growth in sales. Therefore, the COGS/Sales ratio grew from
30.7% in 2007 to 33.1% in 2008.
Chart 108: Misr Beni Suef Cement Cost of Goods Sold (COGS)
Additionally, the S,G&A/Sales ratio rose from 1.9% to 3.1% between 2007 and 2008. The
increase witnessed in both, the COGS and S,G&A as percentage of sales, caused EBITDA
margin to decline from 67.4% in 2007 to 63.8% in 2008.
Chart 109: Misr Beni Suef Cement EBITDA
346
391
362 355
85
96
104
129
76.6%
73.1%
69.8%
66.9%
-
50
100
150
200
250
300
350
400
450
2005 2006 2007 2008
L
E
62.0%
64.0%
66.0%
68.0%
70.0%
72.0%
74.0%
76.0%
78.0%
132.5
168.6
180.5
218.4
20.4%
27.3%
7.0%
21.0%
32.6%
30.3%
30.7%
33.1%
-
50
100
150
200
250
2005 2006 2007 2008
L
E

m
n
0%
20%
40%
268.3
383.1
396.8
421.0
66.1%
68.7%
67.4%
63.8%
-
50
100
150
200
250
300
350
400
450
2005 2006 2007 2008
L
E

m
n
40%
45%
50%
55%
60%
65%
70%
75%
Furthermore, the Companys interest income dropped by 36.5% in 2008, reaching LE14.6mn,
compared to LE23.0mn in 2007. This decline is due to the slump of the time deposits from
LE535.4mn in 2007 to LE216.4mn in 2008, down by 59.6%.
The Company formed LE120mn provision expense in 2008 to meet the cost of extending the
infrastructure for the additional electricity and natural gas required for Companys second
production line, which will double the current annual production capacity from 1.5mn ton to
3mn ton.
Misr Beni Suef Cement Company enjoys 10 years tax exemption according to Law no. 8 of
year 1997. The tax holiday started in 2004 and will end in 2013. It is worth mentioning that
the Company paid LE2.9mn in 2008, representing the 20% taxes on the interest income,
which is not included in the tax holiday.
The Companys ROS declined to 30.7% in 2008 from 32.8% in 2007 for the same reasons
explained above. The Company net profit grew from LE193.1mn in 2007 to LE202.4mn in
2008, up by 4.8%.
Chart 110: Misr Beni Suef Cement Net Profit
Misr Beni Suef Cement Companys total assets increased from LE1.4bn in 2007 to LE1.6bn
in 2008, a Y-o-Y growth of 12.6%. This came as a result of the Companys expansion plan,
which will double the annual production capacity from 1.5mn ton to 3mn ton. Therefore, the
Companys projects under construction reported more than twofold growth during the year
rising from LE243.3mn in 2007 to LE781.1mn in 2008.
Consequently, the long term assets has accounted for 80.6% of total assets in 2008, up from
56.3% in 2007. This came on the expense of the cash and cash equivalent balance, which
plummeted by 59.2% in 2008, dropping from LE558.1mn to LE227.9mn between 2007 and
2008.
132.8
227.7
193.1
202.4
32.7% 32.8%
30.7%
40.8%
-
50
100
150
200
250
2005 2006 2007 2008
L
E

m
n
0%
10%
20%
30%
40%
50%
Net Prot Return on Sales
Chart 111: Misr Beni Suef Cement Assets Composition
On the other hand, Misr Beni Suef Cement Companys equity, which represents 54.1% of
the Companys financing structure, grew by 19.1% in 2008, to reach LE840.8mn up from
LE706.1mn in 2007.

On the debt front, the Companys interest bearing debt balance stood at LE51.7mn in
2008, compared to LE183.4mn in 2007, a drop of 71.8%. This decline was due to the early
repayment of the Companys debt in 2008. Moreover, the Companys other liabilities rose
from LE490.1mn in 2007 to LE660.5mn in 2008, up by 34.8%. This increase is mainly
attributed to the growth in the provisions, related to the additional required infrastructure for
electricity and natural gas to operate the Companys second production line.

Chart 112: Misr Beni Suef Cement Liabilities and Shareholders Equity
Q1 2009
The local cement demand has maintained its growth during the first quarter of 2009,
driven by the accelerated activities witnessed in the construction sector. Misr Beni Suef
Cement Companys total sales value soared by 57.5% in the first quarter of 2009, reaching
LE231.3mn, as opposed to LE146.8mn in the first quarter of 2008, due to the commencement
of the production from the first phase of the second production line.
11.8%
35.2%
14.7%
3.7%
3.3%
4.8%
84.5%
61.6%
56.3%
80.6%
40.5%
3.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008
Cash & Equivalent Other assets Long-term Assets
28.6%
9.3% 13.3% 3.3%
48.2%
59.5% 51.2%
54.1%
23.1%
31.3%
35.5%
42.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008
Interest Bearing Debt Equity Other liabilities
}u|, !) l,t teaeat :ectc| 1]
Chart 113: Misr Beni Suef Cement Q1 Sales Value
In the first quarter of 2009, the Companys COGS hiked by 85.8%, which outpaced growth in
sales, reaching LE89.9mn, compared to LE48.4mn in the first quarter of 2008. Accordingly,
the COGS/Sales ratio increased from 33.0% to 38.9%, between the comparable periods.
Moreover, the S,G&A/Sales ratio rose from 0.7% in the first quarter of 2008 to 1.7% in the
first quarter of 2009. In turn, the EBITDA margin went down from 66.3% to 59.4% between
the comparable periods.
Chart 114: Misr Beni Suef Cement Selected Income Statement Items in Q1
Misr Beni Suef Cement Companys bottom line reached LE107.4mn in the first quarter of
2009, as opposed to LE57.7mn reported in the first quarter of 2008, achieving a growth
of 86.0%. Consequently, the net profit margin rose from 39.3% to 46.4% between the
comparable periods.
116.8 117.3
146.8
231.3
57.6%
0.4%
25.2%
57.5%
-
50
100
150
200
250
Q1 2006 Q1 2007 Q1 2008 Q1 2009
L
E

m
n
0%
10%
20%
30%
40%
50%
60%
70%
33
38
48
90
83
79
97
137
28.6%
32.0%
33.0%
70.7%
67.3%
66.3%
59.4%
38.9%
-
20
40
60
80
100
120
140
160
Q1 2006 Q1 2007 Q1 2008 Q1 2009
L
E

m
n
0%
10%
20%
30%
40%
50%
60%
70%
80%
1e l,t teaeat :ectc| }u|, !)
Table 34: Misr Beni Suef Cement Q1 Income Statement
LE000 Q1 2008 Q1 2009 Change%
Sales 146,809 231,268 57.5%
COGS (48,394) (89,897) 85.8%
SG&A (1,058) (3,970) 275.3%
EBITDA 97,357 137,401 41.1%
Depreciation (15,837) (15,829) -0.1%
EBIT 81,520 121,573 49.1%
Interest Income 4,428 3,351 -24.3%
Investment Income 0 0 -
Interest Expense 0 0 -
Other Provisions (28,000) (17,223) -38.5%
Other Non-Operating Income\(Expense) 674 349 -48.1%
NPBT 58,621 108,050 84.3%
Income Tax (888) (675) -24.0%
NPAT 57,733 107,375 86.0%
Capital Gain/Loss 0 0 -
NPAUI 57,733 107,375 86.0%
Net Profit/(Loss) 57,733 107,375 86.0%
Financial Forecast
According to our cement market forecast, Misr Beni Suef Cement is expected to operate
at a utilization rate of 85% in 2009, as the new production line will not be fully completed
during 2009. After that the utilization rate will increase gradually, as the new production line
will be completed in 2010. The utilization rate is forecasted to reach103% in 2013. We also
assumed that the Company is expected to allocate a greater proportion of its production to the
export market in 2010 and 2011. Afterwards, an increasing percentage of production will be
allocated to the local market, as local demand will rebound.
Chart 115: Misr Beni Suef Cement forecasted capacity, utilization rate, local & export sales volume
Furthermore, we assumed that average price per ton during 2009 will maintain its current
levels, on the back of strong local consumption, then decline by 5% in 2010, before rebounding
gradually until reaching LE450/ton in 2013.
3.0 3.0 3.0 3.0
2.2
2.4
2.9
0.3
0.4
0.8
0.2
3.0
2.2
2.4
0.6
94%
99%
85%
101%
103%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2009 2010 2011 2012 2013
T
o
n

m
n
80%
85%
90%
95%
100%
105%
Chart 116: Misr Beni Suef Cement forecasted sales value and average price
Moreover, we assumed that cash cost of production to grow at around 28% in 2009, reflecting the
government decision to liberalize energy prices. Afterwards, cash cost of production is forecasted
to increase on average by 2% annually, assuming no further government intervention, such as
increasing energy prices and/or imposing any additional duties on cement manufacturers.
Chart 117: Misr Beni Suef Cement forecasted average selling price and cash cost of production
Consequently, COGS/Sales ratio is expected to increase in 2010, as the selling price is
expected to decrease, while cash cost of production will keep increasing marginally over our
forecast horizon. However, COGS/Sales ratio is estimated to decline gradually starting from
2011 till it reaches 45.8% in 2013, as the selling price is expected to increase at a higher rate
than the growth in the cash cost of production.
Chart 118: Misr Beni Suef Cement forecasted cost of sales and COGS/Sales ratio
1,055 1,122 1,219 1,298 1,382
400
413
414
428
447
-
200
400
600
800
1,000
1,200
1,400
1,600
2009 2010 2011 2012 2013
L
E

m
n
370
380
390
400
410
420
430
440
450
460
L
E
391
414
400
413
428
447
129
166 168 171
176
179
66.9%
60.0%
58.0%
58.5%
59.0%
60.0%
100
150
200
250
300
350
400
450
500
2008 2009 2010 2011 2012 2013
L
E
40%
45%
50%
55%
60%
65%
70%
422
471
506
532
553
40.0%
42.0%
41.5%
41.0%
40.0%
-
100
200
300
400
500
600
2009 2010 2011 2012 2013
L
E

m
n
38%
39%
40%
41%
42%
43%
44%
COGS COGS/Sales
1~ l,t teaeat :ectc| }u|, !)
Additionally, we assumed that S,G&A will increase annually by 10% from 2008 level.
Consequently, S,G&A/Sales is forecasted to increase marginally over our forecast horizon,
as the growth in S,G&A will outpace the increase in sales. Accordingly, EBITDA Margin is
forecasted to decline in 2010, as a result of the increase in COGS/Sales and S,G&A/Sales,
then advancing gradually over the next years.
Chart 119: Misr Beni Suef Cement forecasted EBITDA and EBITDA margin
Net profit as a percent of sales is expected to follow a similar trend like EBITDA margin
from 2009 to 2013, for the same reasons mentioned above. However, net profit margin will
be lower than EBITDA margin, mainly because we assumed that the Company will continue
to form provisions required to meet the cost of supply energy to its new production line, but
at lower rate than the historical rate, as percentage of sales.
Starting from 2014, Misr Beni Suef Cement will start to pay 20% taxes, as its tax exemption
period will end in 2013. It is worth mentioning that we assumed a tax rate of 20% on interest
income during the tax exemption period, according to the Egyptian tax law, which exempts
only operating income from taxes throughout the tax holiday period.
Chart 120: Misr Beni Suef Cement forecasted net profit and net profit margin
611 626
686
736
796
57.9%
55.8%
56.3%
56.7%
57.6%
-
100
200
300
400
500
600
700
800
900
2009 2010 2011 2012 2013
L
E

m
n
40%
42%
44%
46%
48%
50%
52%
54%
56%
58%
60%
386
401
475
546
624
36.5%
35.8%
39.0%
42.1%
45.2%
-
100
200
300
400
500
600
700
2009 2010 2011 2012 2013
L
E

m
n
30%
32%
34%
36%
38%
40%
42%
44%
46%
}u|, !) l,t teaeat :ectc| 1)
Valuation
Based on our valuation assumption stated earlier under valuation and recommendation section
and out projected Free Cash Flow to Firm (FCFF), shown below, we reached a fair value of
LE165.2/share using DCF method, implying 86.7% upside potential from the current market
price of LE88.49/share, as of June 30th, 2009.
Table 35: Misr Beni Suef Cement DCF valuation
(Values in 000) 2009F 2010F 2011F 2012F 2013F
Free Cash Flow (42,193) 477,877 653,014 699,846 756,028
Discounted Cash Flow (38,576) 365,052 416,788 373,206 336,852
PV of Terminal Value 1,663,397
Cash 257,190
Debt (69,039)
outcome.
Terminal Growth
WACC
1.0% 2.0% 3.0% 4.0% 5.0%
17.7% 173.9 180.4 187.8 196.3 206.2
18.7% 163.8 169.5 175.8 183.0 191.3
19.7% 154.9 159.8 165.2 171.4 178.4
20.7% 146.9 151.1 155.9 161.2 167.1
21.7% 139.6 143.3 147.5 152.1 157.2
Relative Valuation
current market price of LE88.49/share, as of June 30th, 2009.
Table 37: Misr Beni Suef Cement weighted average fair value
Valuation approach
Fair Value/
share (LE) Weight
Weighted
Value (LE)
Current market price (LE)* 88.49
*Price as of June 22nd, 2009
market price of LE88.49/share, implying an upside potential of 83.9% over the market price.
Therefore, we initiated our coverage for Misr Beni Suef Cement Company with a BUY
recommendation.
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This Page is Intentionally Left Blank
This Page is Intentionally Left Blank
Company
Sinai Cement Company
Misr Cement Qana
Misr Beni Suef Cement
Recommendation
Buy
Buy
Buy
Reuters Ticker
SCEM.CA
SCEM:EY
MCQE.CA
MCQE:EY
MBSC.CA
MBSC:EY
Price (LE.)
71.98
78.00
88.49
Disclosure
1,10
1,10
1,10
1,10
1,10
1,10
Disclosure Checklist
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secu ri ti es. Globa l m a y, from ti m e to ti m e,to the ex ten t perm i tted by la w, pa rti ci pa te or i n vest i n other fi n a n ci n g
tra n sa ction s with the issu ers of the secu rities ( secu rities) , perform services for or solicit bu sin ess from su ch issu er,
a n d/or ha ve a position or effect tra n sa ction s in the secu rities or option s thereof. Globa l m a y, to the exten t perm itted
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In form a ti on a n d opi n i on s con ta i n ed herei n ha ve been com pi led or a rri ved by Globa l from sou rces beli eved to
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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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