Bekaert Analysis

Bekaert (ENXTBR:BEKB)
September 23, 2010
ENXTBR:BEKB - Fwd P/E NTM ENXTBR:BEKB - Share Pricing

220 24
200 22
180 20
160 18
140 16
120 14
100 12
80 10
60 8
40 6
20 4
Jul Jul Jul Jul Jul
2006 2007 2008 2009 2010
Current Capitalization (Millions of EUR)

Currency EUR
Share Price as of Sep-22-2010 181.8
Shares Out. 20.3
Market Capitalization** 3,688.5
Bearer Shares Shares Out 19.7
* Bearer Shares Share Price 181.8
= Bearer Shares Market Capitalization 3,584.5
+ Registered Shares Shares Out 0.6
* Registered Shares Share Price 181.8
= Registered Shares Market Capitalization 104.0
- Cash & Short Term Investments 200.1-
+ Total Debt 840.4
+ Pref. Equity -
+ Total Minority Interest 120.8
= Total Enterprise Value (TEV) 4,449.6
Book Value of Common Equity 1,545.4
+ Pref. Equity -
+ Total Minority Interest 120.8
+ Total Debt 840.4
= Total Capital 2,506.6
1
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Key Financials1
12 12 12 Press 12 12 12
months months months Release months† months months
For the Fiscal Period Ending Dec-31- Dec-31- Dec-31- 12 Dec-31- Dec-31- Dec-31-
2007A 2008A 2009A months 2010E 2011E 2012E
Currency EUR EUR EUR EUR EUR EUR EUR
Total Revenue 2,173.6 2,662.4 2,437.3 2,772.3 3,047.2 3,270.2 3,471.5

Growth Over Prior Year 8.2% 22.5% (8.5%) 8.3% 25.0% 7.3% 6.2%
Gross Profit 433.9 601.8 534.2 741.6 - - -

Margin % 20.0% 22.6% 21.9% 26.8% - - -
EBITDA 304.1 459.2 398.9 615.0 647.5 668.6 689.0

Margin % 14.0% 17.2% 16.4% 22.2% 21.2% 20.4% 19.8%
EBIT 189.4 298.4 259.1 435.3 469.8 492.9 505.1

Margin % 8.7% 11.2% 10.6% 15.7% 15.4% 15.1% 14.6%
Earnings from Cont. Ops. 152.9 174.1 151.8 288.6 - - -

Margin % 7.0% 6.5% 6.2% 10.4% - - -
Net Income 152.9 174.1 151.8 288.6 339.9 338.9 353.8

Margin % 7.0% 6.5% 6.2% 10.4% 11.2% 10.4% 10.2%
Diluted EPS Excl. Extra Items3 7.58 8.793 7.672 14.515 16.752 17.216 18.019
Growth Over Prior Year 14.6% 16.0% (12.8%) 210.7% 88.0% 2.8% 4.7%
Valuation Multiples based on Current Capitalization

12 Press 12 12 12
For the Fiscal Period Ending months Release months† months months
Dec-31- 12 Dec-31- Dec-31- Dec-31-
2009A months 2010E 2011E 2012E
TEV/Total Revenue 1.7x 1.6x 1.5x 1.4x 1.3x
TEV/EBITDA 9.7x 6.8x 6.9x 6.7x 6.5x
TEV/EBIT 14.3x 9.4x 9.5x 9.0x 8.8x
P/Diluted EPS Before Extra 23.7x 12.5x 10.9x 10.6x 10.1x
P/BV 2.8x 2.3x 2.4x 2.1x 1.8x
Price/Tang BV 3.1x 2.6x - - -
2
in%
20
15
10
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-5
WACC RoIC
-10
Return on Invested Capital

14.0%
12.9%
12.0%
10.8%
9.6%
10.0%
7.9% 7.7%
8.0% 7.2%
6.9%
5.6% 5.5%
6.0% 5.3%
4.0%
2.5%
2.0%
0.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
3
1) Investment thesis:
Short Bekaert, a global manufacturer of steel wire products and coatings, whose Chinese division
is operating at peak margins and peak returns on assets. Due to the recent Chinese auto-stimulus,
Bekaert’s steel tire cord production and profitability has reached record levels. The company (and
some of its competitors) are realizing record margins (36.8% in 1H10) compared to other
geographies which are experiencing single-digit margins.
There are two types of products that are responsible for Bekaert’s recent success. Steel tire cord
(a wire tire mesh that is used within radial tires) and Saw Wire (a very thin steel wire that is used
to cut polysilicon into wafers). We believe that profitability within China (90% of Bekaert’s
operating profit) is evenly split between Saw Wire and Steel Wire.
Making steel tire cord is a commodity business. The process simply consists of buying hot
rolled coil, drawing it, and stranding it into cord. After-tax return on assets for metal fabrication
companies hover around mid-single digits (BGC: 7.2%, Nexans: 5.4%, Nexans 3.0%). We
believe Bekaert is currently experience at 30%+ after-tax return on their Chinese assets. This is
not sustainable and it is the primary driver of Bekaert’s earnings power.
Making saw wire is relatively complex, however, there is ample capacity that is coming onto the
market. The margins are incredible: Bekaert sells saw wire for $25,000/tonne and has 75%
gross margins. This compares to steel tire cord which sells for $2,000/tonne and has 35% gross
margins.
We believe that both Steel Tire Cord and Saw Wire are industries that have significant risk
of overcapacity and that margins will be driven lower relatively quickly as unit economics
are too attractive to be sustained at current levels.
2) Business description:
Bekaert (www.bekaert.com) is a global market leader in drawn steel wire products and
applications and a technological leader in its two core competences: advanced metal
transformation and advanced materials and coatings. Bekaert (Euronext Brussels: BEKB) is a
global company with headquarters in Belgium, employing 25 000 people worldwide. Serving
customers in 120 countries, Bekaert generates annual combined sales of € 3.3 billion.
Examples of products: BEKB is a supplier of steel cord products for tire reinforcement - one in
every four tires in the world runs on Bekaert steel cord. Dramix® steel fibers are used to
reinforce over five million cubic meters of concrete every year.
BEKB purchases more than 2.5 million tons of wire rod per year. Depending on customer
requirements, BEKB draws wire in different diameters, even as thing as ultrafine fibers.
4
3) Market assessment:
China is where it’s at
North America
EMEA
2002 1H10
2002 1H10
Asia-Pacific
Latin America
2002 1H10
Automotive
Energy & Utilities
2002 1H10 Construction
30 Countries
25,000 Employees
Listed on Euronext Brussels
Experienced record high capacity utilization and gross margins in 1H10
Thanks to the strong automotive growth drivers of the BRIC countries and our solid presence
in after-sales markets, especially tires, we remained resilient in 2009 on a global scale.
In 1H10, strong volumes drove organic sales growth of 29.2%.

- Automotive sector was positive in all markets and will likely be so for remainder of
the year
- Construction markets remain under pressure, particularly in EMEA
- Energy and Utility continued to perform well on a global level across multiple
applications, especially regarding alternative energy solutions
5
Asia and China, in particular, is the key growth driver.
Strategic importance: China Grows... Bekaert grows...
Annual economic growth rate Chinese economy in general
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
8.6% 7.8% 7.1% 8.0% 7.3% 8.0% 9.1% 9.5% 9.9% 10.7% 11.5% 9.0%
Year-on-year turnover increase of Bekaert In China
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
41% 19% 68% 30% 22% 42% 22% 34% 36% 51% 61% 52%
In terms of sales, Bekaert realized an annual average growth rate of about 40% over the
period 1997-2008.
For the Fiscal Period Ending

2001 2002 2003 2004 2005 2006 2007 2008 2009
Currency EUR EUR EUR EUR EUR EUR EUR EUR EUR
Revenues
EMEA 1,042.7 1,050.8 1,051.8 886.2 936.4 977.3 1,050.8 1,167.8 827.3
North America 542.6 552.8 483.6 584.1 618.9 597.5 511.1 605.1 473.5
Latin America 18.7 29.7 22.4 28.8 32.5 31.6 71.1 176.6 327.3
Asia Pacific 162.8 206.3 211.0 211.4 292.1 369.4 505.5 712.9 809.2
Other 29.1 23.9 28.3 31.4 34.3 33.8 35.1 - -
Europe
European Union
Rest of Europe
Total Revenues 1,795.9 1,863.5 1,797.0 1,741.9 1,914.3 2,009.6 2,173.6 2,662.4 2,437.3
Revenues Growth
EMEA 1% 0% -16% 6% 4% 8% 11% -29%
North America 2% -13% 21% 6% -3% -14% 18% -22%
Latin America 59% -25% 29% 13% -3% 125% 148% 85%
Asia Pacific 27% 2% 0% 38% 26% 37% 41% 14%
Other -18% 18% 11% 9% -2% 4%
Total Revenues 4% -4% -3% 10% 5% 8% 22% -8%
6
Asia profitability is a significant driver.
Profitability by Area
Corporate
Other
Asia Pacific
2008
Latin America
2009
North America
EMEA
(100.0) 0 100.0 200.0 300.0 400.0
In 1H10, profitability by segment grew as follows:
Profitability by Area
Asia Pacific
Latin America
1H10
1H09
North America
EMEA
-50 0 50 100 150 200 250
7
Profitability differences by segment are dramatic. Asia Pacific is the biggest contributor
and higher margins segment by far.
Segment Margin 2008 2009 1H09 1H10

EMEA –0.7% –2.3% –6.6% 9.9%
North America 4.2% –1.8% –1.9% 6.4%
Latin America 8.8% 8.0% 5.0% 0.7%
Asia Pacific 34.2% 35.6% 34.9% 36.8%
Historically, the wire products have been the most profitable:

2001 2002 2003 2004 2005 2006 2007
Currency EUR EUR EUR EUR EUR EUR EUR
Revenues
Advanced Wire Products – 1,241.0 1,241.0 1,501.4 1,639.9 1,688.5 1,843.8
Advanced Materials 163.5 103.1 103.1 116.5 141.1 184.4 203.5
Advanced Coatings – 112.6 112.6 127.1 132.4 136.3 124.2
Other 86.6 57.8 63.4 127.8 121.4 121.3 156.0
Corporate (113.2) (105.6) (105.6) (131.0) (120.5) (120.9) (153.9)
Fencing Systems Europe 387.6 388.0 382.4 – – – –
Wire 674.8 – – – – – –
Steelcord 596.7 – – – – – –
Total Revenues 1,795.9 1,797.0 1,797.0 1,741.9 1,914.3 2,009.6 2,173.6
Operating Profit Before Tax

Advanced Wire Products – 120.9 121.2 180.6 182.1 176.9 208.3
Advanced Materials – 2.1 7.7 7.5 5.6 15.1 17.2
Advanced Coatings – 3.0 (2.1) (7.7) (4.2) 0.9 (0.8)
Other – (52.9) (42.4) (41.3) (35.8) (35.3) (37.3)
Corporate – – – – (11.4) (11.6) (12.8)
Fencing Systems Europe – (8.8) 27.4 – – – –
Total Operating Profit Before Tax – 64.2 111.8 139.0 136.3 145.9 174.6
Margins
Advanced Wire Products 9.7% 9.8% 12.0% 11.1% 10.5% 11.3%
Advanced Materials 2.0% 7.5% 6.5% 3.9% 8.2% 8.5%
Advanced Coatings 2.7% –1.9% –6.1% –3.2% 0.6% –0.6%
8
Bekaert Return on Assets in China is extremely high:
Bakaert China Return on Assets (ROA)

35.0%
30.3%
30.0%
25.0%
18.9%
20.0%
16.5%
15.0%
10.0%
5.0%
0.0%
2008 2009 1H10
**Assumes 15% Asset base growth for 1H10
What is happening with inventories?

Sales rose 28% in 1H10 yet inventories rose 28% from 358mn to 490mn. Receivables
rose by 52%!
COGs
Steel is the largest and most significant cost. Steel represents approximately 35-40% of
BEKB’s operating costs, labor 20%, and energy 5%.
Asset Turns
Xingda
2003 2004 2005 2006 2007 2008 2009 2010
Capex as % of sales 44.77% 18.54% 24.31% 16.20% 20.18% 18.36% 21.75% 20.30%
Asset Turns .5x .7x .7x .5x .5x .5x .5x .7x
Bekaert
Asset Turns 2001 2002 2003 2004 2005 2006 2007 2008 2009
EMEA 0.9 1.0 1.0 0.7 0.9 1.0 1.0 1.4 1.1
North America 0.8 1.1 1.0 1.2 1.3 1.3 1.4 1.8 1.8
Latin America 0.5 0.7 0.6 0.7 0.2 0.2 0.3 1.7 1.8
Asia Pacific 0.8 1.1 0.9 0.6 0.6 0.6 0.7 0.7 0.8
9
Working Capital
Bekaert:
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
DSIs 90.8 85.3 76.4 82.7 113.9 83.5 83.4 80.9 90.4 68.7 88.1
DSOs 71.3 65.4 61.0 62.5 80.7 67.5 72.5 73.5 66.2 71.8 96.0
DPOs 44.1 68.7 45.3 49.0 68.2 44.9 51.5 48.6 45.0 47.4 56.6
Average 2000-2008 Versus Average

DSIs 87.5 0.8%
DSOs 69.0 39.3%
DPOs 48.4 17.0%
Xingda
2003 2004 2005 2006 2007 2008 2009 2010 BEKB

DSIs 89.5 52.8 67.1 46.2 50.8 72.6 58.6 76.0 88.1
DSOs 109.8 101.5 112.8 134.0 126.0 87.7 101.8 108.1 96.0
DPOs 95.1 48.0 34.4 36.6 32.4 32.6 52.3 30.8 56.6
Average 2000-2008 Versus Average

DSIs 63.2 20.2%
DSOs 112.0 —3.5%
DPOs 46.5 —33.9%
Bekaert has had a manufacturing platform in China since the early nineties. The company
experienced significant growth in China in recent years and operates 17 sites at 8 locations
there (Shenyang, Weihai, Jiangyin, Wuxi, Shanghai, Suzhou, Chongqing, Huizhou),
including 13 manufacturing plants, an R&D center and Engineering plant, a trading company,
and the Regional Headquarters Bekaert Asia. At present, close to 10 000 people are working
for Bekaert in China.
Analysts with buy recommendations — the majority of those following the company —
praise Bekaert for its early entry into China and its successful expansion. It and rival Xingda
International (1899.HK) have about half of the tire cord market in the country.
The Chinese market is maturing, with about 90 percent of car and truck tires using steel cord,
but some two-thirds of the market is for replacement tires. For trucks in particular tire
demand is strongly linked to economic growth — which could still hit 10 percent this year.
10
Table 4: BEKB controls 25% of global steel cord capacity
Capacity (tonnes) % of Global Capacity
BEKB in China 340,000 13%
BEKB in World ex China 325,000 12%
BEKB total steel cord capacity 665,000 25%
Global steel cord capacity 2,660,000 100%

Source: Company reports and J.P. Morgan estimates. Note: includes proposed acquisition of 2 Bridgestone tire cord
plants on Feb 1, 2010.
Comments from Xingda’s 1H10 Interim Update
The ongoing infrastructure projects in the country have seen the revival of domestic freight
volume in turn boosting the demand for truck tire replacement. Meanwhile the automobile
subsidy program as well as recovering overseas markets gave impetus to the automobile sector
and provided added support to the continuous development of the radial tire industry.
According to China Association of Automobile Manufacturers, sales of truck and passenger cars
increased by 89% and 107% to 2.08 mn units and 6.72 mn units. Radial tire output rose by 13%
yoy to approximately 178mn units in 1H10. Xingda is the largest radial tire cord manufacturer in
the PRC.
Radial tire cord for trucks continues to be the Group’s major source of revenues. Sales volume
increased by 59.6% to 134,000 tonnes while radial cord for passenger cars increased by 123.7%
to 38.700 tonnes.
Despite the rebound in cost of domestic steel wire rods during the period, the Group managed to
adjust the average selling price of its products to ease pressure from the rising cost. During the
period, steel wire rods accounted for 55.8% of total cost of sales (first half of 2009 was 52.4%).
The overall utilization rate increase from 61.4% in 1h09 to 86.2% in 1h10.
11
Xingda performance
Revenue
The Group’s revenue by product category is as follows:
Six months ended 30 June

RMB in million 2010 Proportion (%) 2009 Proportion (%) Change (%)
Radial Tire Cords 2,355 93 1,420 93 +65.8

– For Truck 1,903 75 1,212 79 +57.0
– For Passenger Car 452 18 208 14 +117.3
Bead Wires 183 7 107 7 +71.0
Total 2,538 100 1,527 100 +66.3
With its strong pricing power, Group succeeded in increasing average selling price of products,
thereby coping with the increase in the cost of steel wire rods. Higher utilization offered the
company scale.
The group has developed a new product which is called sawing wire, which is an ultra tensile
grade steel wire of very tiny diameter for cutting hard and brittle metals. More than half of the
existing production facilities can be shared in manufacturing process of this new product. Mass
production will begin in yr 2011.
Figure 3: Steel cord accounts for approximately 9% of the cost of a tire
Natural Rubber - 31% Synthetic Rubber - 25%
Textile Fabric - 6% Fillers - 16%
Steel Cord - 9%
Source: Michelin
Chemicals - 13%
12
Asian Tire producers
Table 6: We believe increasing need for tire cord in emerging markets will be a key driver of
BEKB’s sales growth
Capacity (million Amount of investment
Tire Manufacturer Location
tires/year) (€ million)
Bridgestone 2.0 Thailand 75
Bridgestone 1.0 China 67
Cheng Shin Tire 5.5 Taiwan 250
Continental 4.0 China 185
Hankook 10.0 Hungary 230
Michelin undisclosed China & India 1,300
Michelin 2.0 Russia undisclosed
Michelin undisclosed Brazil 300
Pirelli 4.2 Russia 250
Toyotires 2.0 China 72
Tokohama 2.1 China 52
Source: Company reports and J.P. Morgan estimates.
China Vehicle Sales Forecast

Table 7: China vehicle Sales Forecast
Sales Unit (‘000) 2004 2005 2006 2007 2008 2009E 2010E 2011E
Sedan 2,242 2,787 3,829 4,727 5,047 7,231 8,225 9,076
MPV 109 156 191 226 197 234 269 299
SUV 163 196 238 357 448 637 765 879
Minivan 757 831 918 988 1,064 1,947 2,297 2,573
Total PV 3,271 3,970 5,176 6,298 6,756 10,049 11,556 12,827
(yoy % change) 21% 30% 22% 7% 49% 15% 11%
Bus 183 179 191 247 253 340 357 382

Truck 1,121 1,163 1,317 1,516 1,641 2,173 2,390 2,598
Trailer 99 57 93 178 194 214 235 251
Van Chassis 91 91 98 102 88 92 95 98
Truck Chassis 307 298 341 450 450 485 500 515
Total CV 1,801 1,788 2,040 2,494 2,625 3,304 3,577 3,804
(yoy % change) –0.7% 14.1% 22.3% 5.2% 25.9% 8.3% 6.3%
Total Vehicles 5,072 5,758 7,216 8,792 9,381 13,353 15,133 16,631
(yoy % change) 17.2% 13.5% 25.3% 21.8% 6.7% 42.3% 13.3% 9.9%
Source: Company reports and J.P. Morgan Estimates.
Competitor Xingda International (SEHK:1899) also has similarly impressive margins.

2003 2004 2005 2006 2007 2008 2009 2010
Currency HKD HKD HKD HKD HKD HKD HKD HKD
Tota Revenues 1,113.8 1,947.3 2,727.3 2.911.0 3,213.9 4,035.8 4,470.7 5,641.0
Growth Over Prior Year NA 74.8% 40.1% 6.7% 10.4% 25.6% 10.8% 50.5%
Gross Profit 557.1 767.1 820.6 846.7 812.1 1,065.2 1,367.9 1,865.5
Margin % 50.0% 39.4% 30.1% 29.1% 25.3% 26.4% 30.6% 33.1%
EBITDA 505.0 777.5 702.7 764.7 683.7 918.2 1,188.5 1,579.5

Margin % 45.3% 39.9% 25.8% 26.3% 21.3% 22.8% 26.6% 28.0%
EBIT 440.5 666.6 557.0 588.8 477.0 658.4 899.7 1,249.7

Margin % 39.5% 34.2% 20.4% 20.2% 14.8% 16.3% 20.1% 22.2%
13
However, they are plowing a ton of capex into their business. Radial tire cords increases 27%
YOY to 400,000 tonnes. Bead wires increased 10.6% YOY to 73,000 tonnes. Construction of No.
9 factory will add 280,000 tonnes, adding around 90,000 tonnes per year. Total capacity for radial
tire cord will exceed 550,000 tonnes in 2012. (What is the US radial tire cord capacity?
Calculate some per capita tire cord capacity metrics versus other countries)
Truck cord margins have expanded significantly. In their interim presentation, they say there is a
“stable oligopoly situation in China due to high entry barriers”
GP for Truck Tire Cords
RMB’ million
703
37.0%
354
29.2%
1H 2009 1H 2010
Truck Cord is 75% of revenue
Revenue by Product
RMB107mn RMB183mn
(7%) (7%)
RMB208mn RMB452mn
(14%) (18%)
1H 2010 1H 2010
RMB1, 212mn RMB1, 903mn
(79%) (75%)
Radical tire cord for truck Radical tire cord for passenger car Bead Wire
14
Key players in the tire cord market are: Century Enka Limited, Cordenka GmbH, Formosa
Taffeta Co. Ltd., Hyosung Corporation, Junma Tyre Cord Company Limited, Kolon Industries,
Inc., Kordarna a.s., Kordsa Inc., Bekaert, SRF Limited and Teijin Fibers Limited. The report,
titled, “Tire Cord: A Global Strategic Business Report,” announced by Global Industry Analysts,
Inc., provides an industry overview, product overview, product introductions, recent industry
activity and profiles of major players.
Goodyear is the world’s largest customer for Radial Tires. Xingda received accreditation from
Goodyear in 2005. According to China Rubber Industry Association (CRIA), Xingda represented
36% of China’s Radial Tire Cords ioutput and 6% of global output in 2005. Xingda raised 1.1bn
Rmb in its IPO in December 2006. In 2007 GS rport, estimated that China would be 1/3rd of
total global 3.2mn ton output by 2010E. Big competitors are Bekaert and Arcelor-Kiswire Group.
New entrants are emerging, mainly companies that are diversifying from textile cords and othe
steel wire product industries.
Sales focus remains on the domestic market. Customers include tire markers in China: GITI Tire,
Triangle, Zhongce, Goodyear, Pirelli, Cooper and Kumho. The largest buyer is GITI Tire,
accounting for 15-23% of sales.
Exhibit 4: China’s top-20 radial tire makers (2005)

Ranking 2005 2004
Company Name
China Global Volume (unit mn) Share Volume (unit mn) Share
1 13 GITI Tire 20.8 14% 18.0 17%
2 8 Hankook Tire 19.3 13% 14.5 14%
3 10 Kumho Tire 10.3 7% 6.5 6%
4 12 Cheng Shin Tire 9.0 6% 8.2 8%
5 23 Zhongce Rubber 8.4 6% 5.8 6%
6 1 Bridgestone 7.6 5% 5.5 5%
7 2 Michelin 6.6 5% 6.5 6%
8 14 Triangle Group 6.2 4% 5.3 5%
9 20 Linglong Rubber 5.8 4% 3.7 4%
10 24 Cooper 5.4 4% 4.6 4%
11 38 South China Tire & Rubber 4.7 3% 4.0 4%
12 3 Goodyear 3.4 2% 2.6 3%
13 40 Nankang Rubber Tire 3.0 2% NA NA
14 6 Sumitomo Rubber 3.0 2% NA NA
15 49 Federal Tire 2.9 2% 2.3 2%
16 19 Shanghai Tire & Rubber 2.7 2% 2.3 2%
17 34 Kenda Rubber 2.4 2% NA NA
18 62 Beijing Capital Tire 2.1 1% 2.0 2%
19 NA Changchun Tire 2.0 1% NA NA
20 28 Aeolus Tire 1.8 1% 1.3 1%
Other 30+ makers 15.0 10% 11.0 11%
Total: 143.5 100% 103.0 100%
Source: CIRA, Tire Business, Gao Hua Securities Research estimates.
15
Exhibit 7: We forecast 21% 2005-2010E CAGR for China’s radial tire cords sales
China’s total radial tire cords sales
(Ton mn)
1.2 2005-2010E CAGR
1.0
0.8
Domestic: 17%
0.6
0.4
0.2 Net export: 34%
0.0
-0.2
98 99 00 01 02 03 04 05 06E 07E 08E 09E 10E
Source: CRIA, Gao Hua Securities Research estimates.
***CRIA seems to be a major source for this type of data. Have to try and track this down
Exhibit 12: We expect global radial tire cord capacity to continue to shift to China
Global total capacity: 2.9 mn tons (2005); 3.5 mn tons (2010E)
(Ton mn)
1.6
2005 2010E
1.4
Capacity reduction regions Capacity addition regions
1.20
1.2
1.0
0.8
0.60
0.6 0.56 0.55
0.50 0.50
0.46
0.42
0.4 0.35
0.29
0.21 0.20 0.22
0.18
0.2 0.14
0.02
0.0
North Japan Korea India Rest of China
America world
16
Exhibit 15: Global radial tire cords market by marker (2005)
Independent makers: 64% In-house makers: 36%

Bridgestone
Others 11%
17%
Michelin
Tokusen 10%
2%
Tokyo Rope
2%
Hyosung Pirelli
2% 4%
BMZ
Goodyear
4%
3%
Sumitomo
Xingda 2%
6%
Others
6%
Bekaert
12% 19%
Note: Arrow indicated the trend of market share change over 2005-2010E as per Gao Hua Securities Research.
In this report, GS thought Bekaert would raise capacity to 350K tons by 2010 from 150K in
2005. Global radial tire cord consumption is 2.5mn tons in 2005. Expects this to grow with tire
growth. Split between in-house and independents was 36% and 64% in 2005. Bekaert and
Arcelor Kiswire were 19 and 12%, with Bridgestone and Michelin at 11 and 10% in 2005.
Xingda has better gross margins than its local competitors. Xingda has centralized production
within a single plant, which is the world’s largest radial tire cords plant. This enables it to achieve
better economies of scale via low land cost, low river transportation cost, and low labor cost
given its rural location.
17
Exhibit 18: Leading Chinese makers’ gross margins of radial tire cords (2003-1H2006)
(Gross margin)
56%
Xingda
Fuxing
50%
Shougang Concord
46%
40%
36%
30%
26%
20%
16%
2003 2004 2006 1H2008
Source: Company data.
Goodyear is the world’s largest radial tire cord buyer, purchasing roughly 250K tons of
radial tire cords from Bekaert and Arcelor-Kiswire Group
“We forecast that tire makers will try to pass through costs to tire cords makers and that
increasing commoditization could lower the domestic industry’s average gross margin further to
around 20% in 2010E from 25% in 2005. Xingda also faces challenges in managing its huge
working capital requirement for expansion.”
FYI: 2010 margins for 1H were 32.9% for Xingda!
New entrants are: Junma Tire Cord, China’s largest nylon tire cords marker. They were pricing
their cords at a 5-10% discount to Xingda’s.
GS estimates that steel wire rods and other raws account for 58% and 12% of Xingda’s COGS,
respectively.
18
Exhibit 24: Junma’s sales have seen a quick rise
Revenue from radial tire cords
2500
2,200
2005 1H2006
2000
1500
1,085
1000
533
500 432
273
204
88 85
0
Xingda Fuxing Shougang Concord Junma
Exhibit 25: Junma’s gross margin is improving fast

Gross margins of radial tire cords
40%
32.1% 30.9%
29.6% 28.8%
30%
19.8% 20.3%
20%
10%
0%
-10%
-20% -17.6%
-30% 2005 1H2006
-40%
-44.5%
-50%
Xingda Fuxing Shougang Concord Junma
19
Exhibit 16: China’s radial tire cords industry remains consolidated
China’s radial tire cords output by makers (2005)
Other—10 makers
9%
Shougang Conoord
7%
Xingda
The Aroelor-Kilswire Group
36%
9%
Fuxing
9%
Bekaert
30%
Source: CRIA, Gao Hua Securities Research Estimates
Exhibit 17: China’s radial tire industry is much fragmented than radial tire cord industry
China’s radial tire output by manufacturers (2005)
GITI Tire
14%
Other 40+ makers

34%
Hankook Tire
13%
Kumho Tire
7%
South China Tire
3%
Cooper Cheng Shin Tire
4% 6%
Linglong Zhongce Tire
4% Triangle Michelin
4% 6%
5%
Source: CRIA
Source: CRIA
20
In addition to capex, radial tire cords makers need significant amounts of working capital.
Upstream, steel suppliers usually grant no credit, given the cord makers’ small purchase
amounts, but, downstream, tire makers usually ask for 3-6 months credit (see Exhibit 30). Their
inventory turnaround is slow, because ensuring a stable supply to tire makers is a top priority and
tire makers are increasingly adopting just-in-time inventory management.
Exhibit 30: Huge finance gap for Xingda’s operation

Turnover of main working capital items
Huge finance gap
A/C payable
Inventory A/C receivable
0 1 2 3 4 5 6 month
Exhibit 31: Xingda’s A/C receivable and payable days
(Day)
160 A/C receivable days A/C payable days

135
120 113 four months

110
102
95
90 three months
60 two months
48
34 36
30 one months
0
2003 2004 2006 1H2008
21
Peers mentioned in report: Tokyo Rope, Bekaert, Shougang Concord, Fuxing, and Hyosung.
Exhibit 42: Production process of radial tire cords
Raw material Testing Cleaning First drawing Testing
Patenting Testing Second drawing
Testing Patenting & plating Testing Final drawing
Testing Stranding Testing Packing
4) Competitive advantages/disadvantages:
a. Estimated that 90% of production stays local.
5) Major customers:
a. 20 yrs ago, steel trie was evenly split between tire manufacturers and independent
steel markers and processors. In recent years, integrated tire manufacturers have
started to reexamine whether steel tire cord production is a core competency,
considering the high fixed costs. As a result, captive steel cord production has been
increasingly looking to divest.
6) Key suppliers:
7) Management:
8) Other significant business issues:
9) Financial summary:
10) Valuation summary:
a. Comps
i. Reliance Steel, Worthington, and Kloeckner are similar to BEKB in the sense
that they all purchase finished steel products, add value to those products, and
then deliver them to a consumer
11) Potential position size:
12) Ownership summary – attached
a. Company has a controlling family stake (38% of shares)
b. Aims to pay 40% of earnings as dividends
13) Street research assessment:
14) Contra thesis:
a. More cars + more paved raods = more radial tires (BEKB tire cord is used for this)
22
15) Catalysts:
16) Model – attached
17) Charts – attached
18) Questions
a. Restructuring activities? How much cost were they able to take out?
b. Margin by product type
c. Why does BEKB own their China operations? Why not a JV?
d. China market
i. Cars
1. New Vehicle versus existing fleet
2. Maintenance demand estimate
3. Radial tire penetration
4. Truck versus Car
ii. Competitive landscape
1. Current capacity
2. New capacity plans
3. Cost structure comparison to Bekaert
iii. Customers
1. Sourcing relationships with manufacturers
iv. Margins
1. Truck Cord
a. How did truck cord margin increase so significantly from 29.2% to
37.0% (GP)
Appendix
CHINA MARGIN UNSUSTAINABLE (from Reuters article, September 2010)
Bekaert’s operating margin in Asia Pacific topped 35 percent last year and rose further in the first
half — “better than pharma” as one analyst said.
But analysts tend to agree that such margins are unsustainable. The question is when they will
come down.
Bullish analysts say that this will not be for some years to come. Others have factored in erosion
already from next year.
“It’s very attractive for companies to step in to that market,” said one analyst who declined to be
named. “There doesn’t look like much potential left in the shares at their current level.”
Kristof De Graeve of Societe Generale Private Banking, who has a ‘hold’ rating on Bekaert, said
that at the current share price the risks and rewards are fairly balanced.
“China has sought to cool its economy, although I don’t expect a dramatic slowdown. The
recovery in Europe and the United States is uncertain,” he said.
23
Bekaert has laid foundations in India and Russia, but the markets there were yet to take off,
he said.
“The cyclicality is less than before, but it’s still cyclical. If anything goes wrong, then one could
expect a sharp correction ... For now, things are so positive it’s almost unbelievable,” De Graeve
said. (Reporting by Philip Blenkinsop; Editing by Hans Peters)
In China, BEKB’s tire cord exposure is skewed towards commercial (65% of sales) versus
passenger car.
China Auto Sales Slow

12 October 2010 No Comment
Statistics for September’s sales were late out due to the week long break in China, however sales
results that were leaked out earlier this month show that sales have risen but much slower than
expected. Industry experts are still aiming for the end of year sales results of 17 million car sales,
which will equal the USA’s all time highest auto sales results, and sales are expected to continue
strong over the next few years.
From AP:
China auto sales slowed further in September, after a boom fueled by tax breaks and subsidies,
according to industry data reported Tuesday.
Official sales data for September, delayed by a week-long national holiday from Oct. 1, showed
total vehicle sales rising 17 percent from a year earlier to 1.56 million units, down from 18
percent in August, the China Association of Automobile Manufacturers reported.
Sales rose 16 percent in July and 21 percent in June, but have generally slowed since spring.
Total auto sales in China surged 45 percent to 13.6 million vehicles in 2009, making it the
world’s largest vehicle market.
“Growth in China’s auto market seems to be back to normal after the boom,” said Wei
Chenggang, an analyst at Shanghai Securities, in Shanghai, forecasting further slowing in months
to come.
“This might be bad for automakers in the short term, but is definitely better for the sustainable
development of the industry,” he said.
Analysts are forecasting that sales may climb roughly 30 percent to about 17 million for the year,
providing a respite for automakers still fighting flat or weakening sales in the U.S. and other
more mature markets.
In January-September, China’s total vehicle sales rose 36 percent to 13.1 million units, while
passenger car sales climbed 37 percent, to 9.9 million units, after rising nearly 40 percent in the
first eight months of the year, the industry group reported.
24
Figures from several foreign and domestic automakers also showed growth in sales easing.
GM said its sales rose 15 percent to 208,353 vehicles in September, slowing from 19 percent in
August and 22 percent in July. GM’s total sales in China climbed 37.4 percent in January to
September from a year earlier, to a record 1.78 million vehicles, the company said.
Back in the U.S. GM’s sales slipped slightly in September from August as shoppers wary of
spending on big ticket items steered clear of showrooms. They were up 10.5 percent from a year
earlier, when sales slumped following the end of the Cash for Clunkers program.
Ford Motor China said its sales rose 26 percent in September from a year earlier, to 50,970
vehicles, up slightly from a 24 percent increase the month before. Sales in the first nine months
of the year were up 40 percent at 419,073 units.
Japan’s Honda Motor saw sales inch up 3 percent in September from a year earlier, while sales
for the year climbed a modest 16 percent.
GM partner Shanghai Automotive Industry Corp., or SAIC, said sales of their Shanghai GM joint
venture surged 41 percent year-on-year, while SAIC’s overall sales grew 23 percent in
September, up from 22 percent in August.
SAIC VW, its venture with Germany’s Volkswagen AG, saw sales climb 36 percent. Volkswagen,
which did not report separate China sales figures for September, said its January-September sales
jumped 39 percent from the year before to 1.48 million vehicles.
Disclaimer: This memorandum is for discussion purposes only and is not intended to be, nor
should it be construed or used as, financial, legal, tax or investment advice or a general
solicitation. This memorandum is as of September 23, 2010, is not complete and is subject to
change. The data contained herein are prepared by the author from publicly available sources
and the author’s independent research and estimates. Certain information has been provided
by sources believed to be reliable, but has not been independently verified and its accuracy or
completeness cannot be guaranteed and should not be relied upon as such.
25

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Bekaert (ENXTBR:BEKB)

September 23, 2010

ENXTBR:BEKB - Fwd P/E NTM ENXTBR:BEKB - Share Pricing

Current Capitalization (Millions of EUR)

Total Revenue 2,173.6 2,662.4 2,437.3 2,772.3 3,047.2 3,270.2 3,471.5

Gross Profit 433.9 601.8 534.2 741.6 - - -

EBITDA 304.1 459.2 398.9 615.0 647.5 668.6 689.0

EBIT 189.4 298.4 259.1 435.3 469.8 492.9 505.1

Earnings from Cont. Ops. 152.9 174.1 151.8 288.6 - - -

Net Income 152.9 174.1 151.8 288.6 339.9 338.9 353.8

Valuation Multiples based on Current Capitalization

TEV/Total Revenue 1.7x 1.6x 1.5x 1.4x 1.3x

TEV/EBITDA 9.7x 6.8x 6.9x 6.7x 6.5x

TEV/EBIT 14.3x 9.4x 9.5x 9.0x 8.8x

P/Diluted EPS Before Extra 23.7x 12.5x 10.9x 10.6x 10.1x

P/BV 2.8x 2.3x 2.4x 2.1x 1.8x

Price/Tang BV 3.1x 2.6x - - -

Return on Invested Capital

China is where it’s at

In 1H10, strong volumes drove organic sales growth of 29.2%.

Strategic importance: China Grows... Bekaert grows...

Annual economic growth rate Chinese economy in general

Year-on-year turnover increase of Bekaert In China

For the Fiscal Period Ending

(100.0) 0 100.0 200.0 300.0 400.0

In 1H10, profitability by segment grew as follows:

-50 0 50 100 150 200 250

Segment Margin 2008 2009 1H09 1H10

Historically, the wire products have been the most profitable:

Operating Profit Before Tax

Bakaert China Return on Assets (ROA)

**Assumes 15% Asset base growth for 1H10

What is happening with inventories?

Average 2000-2008 Versus Average

2003 2004 2005 2006 2007 2008 2009 2010 BEKB

Average 2000-2008 Versus Average

Global steel cord capacity 2,660,000 100%

Comments from Xingda’s 1H10 Interim Update

Six months ended 30 June

Radial Tire Cords 2,355 93 1,420 93 +65.8

Figure 3: Steel cord accounts for approximately 9% of the cost of a tire

Natural Rubber - 31% Synthetic Rubber - 25%

Textile Fabric - 6% Fillers - 16%

China Vehicle Sales Forecast

Bus 183 179 191 247 253 340 357 382

Competitor Xingda International (SEHK:1899) also has similarly impressive margins.

EBITDA 505.0 777.5 702.7 764.7 683.7 918.2 1,188.5 1,579.5

EBIT 440.5 666.6 557.0 588.8 477.0 658.4 899.7 1,249.7

GP for Truck Tire Cords

Truck Cord is 75% of revenue

Exhibit 4: China’s top-20 radial tire makers (2005)

Source: CIRA, Tire Business, Gao Hua Securities Research estimates.

0.2 Net export: 34%

Source: CRIA, Gao Hua Securities Research estimates.

Source: CRIA, Gao Hua Securities Research estimates.

Independent makers: 64% In-house makers: 36%

Source: CRIA, Gao Hua Securities Research estimates.

Source: Company data.

FYI: 2010 margins for 1H were 32.9% for Xingda!

Source: Company data.

Exhibit 25: Junma’s gross margin is improving fast

-30% 2005 1H2006

Source: Company data.

Other 40+ makers