a Saudi Cement Company

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January 2012 KMEFIC Research Equity Analysis Report Key Drivers: Cement Demand Construction Sector According to the latest Saudi Arabia Infrastructure Report published by Business Monitor International (BMI), the Kingdom’s construction industry is set to grow 4.1% this year to reach SAR 87 billion ($23.2 billion). The construction sector in Saudi Arabia accounted for 6.9% of the country’s gross domestic product (GDP) in 2010, with a growth of 3.7% YoY. During the first quarter of 2011, the value of contracts awarded by the government grew five folds over the same period last year. A report by National Commercial Bank estimates the total value of these contracts to be around SAR 49.7 billion ($13.5 billion), with the majority of them in the oil and gas sectors. Construction Projects According to industry experts, Saudi Arabia, Qatar, and Abu Dhabi are attracting the bulk of projects in the region. The construction boom in Saudi Arabia is a result of increased government spending and through the establishment of six ‘’economic cities’’ in different regions of the country. In addition, the Kingdom is planning to spend USD 373 billion between 2010 and 2014 on social development and infrastructure projects to advance Saudi Arabia’s economic development (Source: CIA - The World Fact Book). Table 4 shows a list of some major construction projects in the Kingdom. Population Table 4 - Major Ongoing Construction Projects in Saudi Arabia Project Name Value (USD Billion) Completion Date Modon - Sudair Industrial City 40 2028 KHC - Kingdom Tower 30 TBA Gulf Cooperation Council - GCC Rail Network 30 2017 SAGIA - Jazan Economic City 27 2037 SAGIA - King Abdullah Economic City (KAEC) 27 2026 SAGIA - Ras Al Zour Economic City 25 2020 Sadara Chemical Company - Jubail Petrochemicals Complex 20 2015 SATORP - Jubail Refinery and Petrochemical Complex 14 Dec-13 Khuzam Real Estate Company - Qasr Khuzam 13 2014 Saudi Kayan - Jubail Petrochemicals Complex 12.5 H2-2013 Source: Zawya projects According to the Central Department of Statistics and Information, the population distribution in 2009 showed that 66% of the Saudi population was aged 30 years or less; indicative of an increase in housing demand in the future. The International Monetary Fund (IMF) expects the Saudi population to grow 2.2% in 2011 and at an average rate of 2.1% over the next five years. Furthermore, King Abdulla bin Abdulaziz ordered in 2011 the construction of 500,000 housing units, the building of hospitals, and an increase in mortgage lending. These factors will consequently increase the demand for cement (both directly and indirectly). Positive Outlook The Saudi cement industry witnessed an increase in output to meet market demand caused by the government's continued spending on mega infrastructural projects. It is expected that Saudi cement companies should be able to satisfy the market’s demand through new expansions or restorations of stopped production lines. Yamama Saudi Cement Co. P a g e | 10
January 2012 KMEFIC Research Equity Analysis Report The construction sector is foreseen to remain active and will continue to be the major driver for the cement industry. According to Business Monitor International (BMI),, the construction sector is expected to grow at an average rate of 4% (in real terms) over the years 2012 – 2015 due to a healthy project pipeline and strong government support. Lastly, the 2022 World Cup being hosted in Qatar will stimulate demand for cement as well as other construction materials. Saudi Arabia stands to benefit from this increased demand as it borders Qatar (the only country that does), putting Saudi cement companies in a good position to meet the excess demand of cement. Porter’s Five Forces Model Below is Porter’s Five Forces Model applied to the Saudi cement industry in order to assess its attractiveness. Figure 4 – Porters’ Five Forces Model Suppliers' power: HIGH Threat of new entrants: MODERATE Cement Industry Threat of substitutes: VERY LOW Business rivalry: MODERATE Customers' power: MODERATE Source: KMEFIC Research Threat of New Entrants: The biggest entry barriers to the Saudi cement industry are plant and equipment costs, in addition to carbonic energy requirements of the cement mills and plants. Entry barriers are slightly lowered by the fact that the Saudi government provides energy subsidies to cement companies, low interest rate loans from the Saudi Industrial Development Fund (SIDF), and quarries at low prices as aid to the industry. However, these subsidies do not completely offset the huge costs required for venturing into the industry and hence, the threat of new entrants to the Saudi cement industry is moderate. Suppliers’ Power: Saudi cement companies are under low pressure in terms of production costs due to the abundance of limestone reserves in addition to the energy subsidies provided by the government. . However, the government remains the most important supplier to the cement industry in Saudi Arabia, thus making suppliers’ power high. Yamama Saudi Cement Co. P a g e | 11
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a Saudi Cement Company

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