acico industries company new(1)

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ACICO Industries Company Kuwait Stock

Exchange

December 18, 2011 Page | 1

ACICO Industries Company

Reuters Code: Fair Value:

ACIC.KW 552 fils

Current Price: (As on December 6,2011)

Recommendation:

234 Fils Strong Buy

Kuwait Economic Overview:

Subject Descriptor Units 2007 2008 2009 2010 2011 2012

GDP - Current Prices KWD Billons 32.58 39.99 30.48 35.63 44.85 45.68

GDP - Constant Prices KWD Billons 18.15 19.23 18.35 18.92 19.75 20.82

Real GDP growth % change 4.40% 6.00% 4.60% 3.10% 4.40% 5.40%

GDP per capita, current prices KWD9,583 11,762 8,708 9,898 12,120 11,712

Inflation, average consumer % change 7.50% 9.00% 2.10% 6.00% 5.20% 4.70%


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Kuwait is an oil based economy with the fifth largest proven crude

oil reserves in the world. Consequently, Kuwaits economy was structured

around the production and refining of hydrocarbons. According topreliminary data from Kuwaits Central Statistical Office, nominal GDP

grew 16.9% YoY (Year on Year) in 2010 to reach KWD 35.6 billion, up

from KWD 30.5 billion the previous year. Growth was driven largely by

the oil sector, which contributed KD18.3 billion to GDP, an increase of

22% YoY due to higher oil prices in 2010. During the year 2010, Kuwait

reported a budget surplus of KWD 6.3 billion. Oil revenues for the year

reached KWD 18.8 billion and accounted for approximately 94% of total

government revenues. The Economist Intelligence Unit (EIU) expects the

non-oil sector to remain relatively small, despite efforts to diversify theeconomy. Looking forward, EIU forecasts real GDP to grow at an average

rate of 4.9% over the 20112016 periods.1

Source: Economist Intelligence Unit, International Monetary Fund

Industry Sector:

ACICO is listed in the industry sector. It contains 29 companies. They have7 competitors and they are:

1. Kuwait Cement Company (KCC)

2. National Industries Company (NIC)

3. Kuwait Portland Cement Company(KPCC)

4. Hilal Cement Company(HCC)

5. Salbookh Trading Company(STC)

6. GulfRocksCompany

7. Kuwait Building Materials(KBMMC)

Name PE EPS DPS PayoutDivYld(%)

ROE(%)

P/Book P/SalesMarket Cap.

(KWD)*

ACICO 0.02 0.01 0.62 4.31 4.85 0.70 1.4255,089,671.17

Sector 24.07 0.04 0.02 0.39 2.93 6.06 1.06 2.39

1KMEFIC research on Kuwait Cement Industry Report of October 2011

prices

Population growth % change 6.30% 0.00% 2.90% 2.90% 2.80% 5.40%
http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCAQFjAA&url=http%3A%2F%2Fwww.reuters.com%2Ffinance%2Fstocks%2Foverview%3Fsymbol%3DNIBM.KW&ei=JFbiTviHEczoOdqVvNUE&usg=AFQjCNFANZEQFA56A9_tf-nEeMQA_ho4iQ&sig2=sRzdiLhNtYdoEgCGHigdLwhttp://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCAQFjAA&url=http%3A%2F%2Fwww.reuters.com%2Ffinance%2Fstocks%2Foverview%3Fsymbol%3DNIBM.KW&ei=JFbiTviHEczoOdqVvNUE&usg=AFQjCNFANZEQFA56A9_tf-nEeMQA_ho4iQ&sig2=sRzdiLhNtYdoEgCGHigdLw


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average(Mean)

76,490,744.15

Sectormedian

22.89 0.01 0.01 0.42 2.29 4.67 1.02 1.7135,107,984.90

Competitors

KCC 22.89 0.02 0.01 0.46 1.96 8.52 2.07 7.28325,910,139.52

NIC 36.66 0.01 0.01 0.68 2.62 5.15 1.33 2.58105,820,743.59

KPCC 14.17 0.25 0.09 0.37 9.88 29.23 1.10 1.7083,813,450.22

ACICO - 0.02 0.01 0.62 4.31 4.85 0.70 1.4255,089,671.17

HCC 11.63 0.01 0.01 0.98 4.63 4.50 0.95 0.8315,126,298.63

STC --

0.010.00 0.00 0.00 -8.30 0.43 1.71

10,464,913.59

Gulf Rocks - 0.00 0.00 0.00 0.00 0.27 0.46 0.479,160,823.17

KBMMC 35.01 0.01 0.00 0.00 0.00 4.29 1.44 3.136,539,913.32

Source : Reuters 3000 Xtra .

*Market Cap. is calculated for 09/12/2011.

ACICO's market cap is about 55 million KD. They are ranked 4th

among the competitors in terms of market cap. And it is less than the

sector average by 28%. Considering the data, it is considered a medium cap

stock. ACICO's EPS is about 20 fils which is less than the sector average by

50%. But its payout ratio is 62% which is more than the sector average

(39%). This gives ACICO a competitive advantage which attracts long

term investors. Their P/B is 0.7 which is a good indicator that their stock

will probably rise. This is good for speculators because of the highopportunity for the stock price to increase. ACICO'S ROE is about 4.85%

which is higher than the sector median (4.67%) by a little bit. This indicates

that ACICO's ROE is in the normal range when compared to the sector.

Kuwait has a dynamic construction sector that has seen significant

expansion with the new millennium. Currently, there are over 200 planned

construction projects with a total value exceeding $155 billion. Kuwait is

estimated to spend more than $63 billion over the next three years alone,

with a significant focus on the development of educational facilities,commercial and residential buildings, infrastructure, as well as power and

water plants.2

2KMEFIC research on Kuwait Cement Industry Report, October 2011


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In the Cement Sector, Kuwait posted a 51.7% decrease in net profits

to reach KWD49mn during 9M11(9 months of 2011). This is due to the

decrease in capital markets. Kuwaiti cement companies hold large portfolios

in investments which altered profits during the 9M11 as the political and

economic scene of the world reduced sentiments in capital markets in theregion.3

ACICO-Company Background:

ACICO Industries Company is a shareholding Kuwaiti company

established in 1990 and listed in both The Kuwait & Dubai financial

markets. They operate in the industrial, cement, construction, hotels, and

real estate businesses.

ACICO Industries Company is a fast growing company whose

products and services meet essential necessities and requirements of

modern life including building materials. ACICO Industries Company, is

known as Aerated Concrete Industries Company. ACICO is the only

certified agent for Hebel Company in Germany. Their original strategy is

to be prepared to enhance and adapt to the constantly changing nature of

their clients.

ACICO Industries Company diversified into the construction sectorthrough the grade A ACICO Construction as classified by CTC (Central

Tenders Committee) in Kuwait.4

ACICO profit (30/9/2011):

Net profit of the company for the last 9 months of 2011 was 1.5

million KD. That recorded a decrease of 4 million KD for the same period

of 2010. 5Shareholding:

3Global GCC Cement Sector Quarterly, November 2011

4http://www.acicogroup.com/En_ACICO_Overview.cms

5KSE.com.kw (Kuwait Stock Exchange Market)


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As for shareholding pattern of the company, various members of the

Al-Khalid family have sizeable holdings in the company about 22.24%.

Holder Name % O/S

Al-Khalid (Ghassan Ahmad Saoud) 12.890 %

Al-Khalid (Ahmad Ghassan Ahmad Saoud) 9.350 %

Kuwait Investment Co SAK 6.330 %

Al Saqer (Hamad Abdulaziz Al Hamad) 5.760 %

Public 65.670 %


Board of Directors:

The Board of Directors of the company consists of the Al Khaled

family member, with Abdul Aziz Al Ayoub as the Chairman of the Board.

Name Current position

Abdul Aziz Al Ayoub Chairman of the Board

Ghassan Al Khalid Vice Chairman of th Board

Ahmad Al Khalid Member of the Board

Walid Al Khalid Member of the Board

Faisal Al Majed Member of the Board

Faten Al Naqeeb Member of the Board

Ahmad Al Rifai Member of the Board


Listing & Trading:

ACICO was listed in the Kuwait Stock Exchange in 1997, under the

ticker ACICO. The companys shares have enjoyed healthy liquidity in the

past. The average daily volume traded of the stock was 252,000 shares,

with a turnover ratio of 20%. This means that the trading on the share isvery low for the last 52 weeks. The stock closed at KD0.234 on December

6, 2011, with a 52-week high/low of KD0.357/KD0.196. The company is

also listed on the Dubai Financial Market (DFM).

Price Performance

Closing Price* (Fils)234.00


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52 wk High (Fils)357.00

52 wk Low (Fils)196.00

Average volume Traded** 252,000

Turnover 20%

Markt Cap. (KD) 55,443,960.00

Source : Reuters, http://www.reuters.com/finance/stocks/overview?symbol=ACIC.KW

* Closing pri ce for 6/12/2011

* * Average Volume Traded is calculated for the last 12 month

Business Overview:

The core business of ACICO Company is involved in: Industrial,

Cement, Construction, Hotels and Real Estate and we will talk about

each one briefly. ACICO are involved in all these sectors for one clear

reason, self-dependency. They use the materials from the industrial part to

create construction sites which they use for their own real estate and hotel

sectors. This value chain assures the timely supply of raw materials for

ACICO manufacturing operations and projects which decreases the risk
http://www.reuters.com/finance/stocks/overview?symbol=ACIC.KWhttp://www.reuters.com/finance/stocks/overview?symbol=ACIC.KW


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factors associated with manufacturing. This gives them a strong

competitive advantage because they are in full control of all their projects.

ACICO Industrial Co.:

ACICO Industrial is the largest manufacturer of Autoclaved Aerated

Concrete (AAC) in the Middle East.6 AAC is a light weight, insulating and

fire resistance building material that is formed into blocks, reinforced wall,

roof, floor panels and lintels. It is used for a wide range of both load and

non-load bearing and framed construction applications. It is manufactured

from fine ground silica sand, Portland cement, lime, water and aluminum

paste as aerating agent. It produces blocks, lintels, slabs, and reinforcedstructural components. ACICO AAC plants are located in the State of

Kuwait, United Arab Emirates, Kingdom of Saudi Arabia and Qatar.

ACICO Industrial is a manufacturer of AAC blocks with tongue and

groove feature. This feature interlocks blocks, providing more stability and

decreases the amount of glue needed between the blocks. ACICO Industrial

manufactures blocks, lintels and slabs with different characteristics to meet

the needs of its customers.7

ACICO Cement:

6http://www.acicogroup.com/En_core_industrial_overview.cms

7http://www.acicogroup.com/En_core_industrial_overview.cms

ACICO

ACICOIndustrial

ACICOConstruction

ACICOReal Estate

ACICOHotels


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ACICO Cement plant is located in Shuaibah Industrial Area with a

large production capacity and underway to exceed one million tons per

year. Through their high-tech quality control laboratories, highly qualified

technical engineers, technicians, and skilled labors, we are able to maintain

and assure the quality of ACICO's Cement. Operating and manufacturingin compliance with local and international standards, ACICO Cement is

approved by the Ministry of Public Works, Public Authority for Housing

Welfare and other governmental bodies.8

Ready Mix Concrete:

ACICO Cement was urged by its high quality cement production to

set up two production lines of dry & wet Ready Mix Concrete. The plant is

designed and equipped with the most advanced technology, operated byexperienced skilled engineers and managed through a professional

management team to maintain quality in compliance with local and

international standards. ACICO Ready Mix Concrete proves its capability

to meet projects specifications, delivery schedules, proper technical

services, customer expectation and satisfaction.

ACICO Construction:

ACICO Construction Co. is classified as grade "1" Construction

Company by Central Tenders Committee (CTC) in Kuwait and UAE. Since

its inception in 1990, ACICO has experienced sustained and steady growth

8http://www.acicogroup.com/En_core_cement_overview.cms


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and became a leading company in engineering, procurement and

construction (EPC) contracting in multi-discipline projects. ACICO's

sphere of activities covers presently Kuwait and UAE markets and

expanding into rest of GCC.

ACICO Construction Co. has successfully demonstrated its maturity

by developing a 55 level hotel and 60 level multi-use tower on prime area

on Sheikh Zayed Road in Dubai and building of residential township- in

Kuwait- 443 Row Houses with supporting Infrastructure to name a few.

Over years of ACICO Construction Co. growth, it was fundamental

to our business to obtain and maintain client satisfaction by delivering

quality construction services on time, often ahead of time, and within

budget. With almost two decades of experience, a string of several

governmental approvals and variety of successful projects were achieved

such as villas, chalets, commercial and residential buildings, hospitals,

schools, and multi-use high rise towers in Kuwait and the UAE.

ACICO has strong clientele base and strong relationship with GCC

banks, which has been instrumental in creating more than two decades of

successful growth. ACICO prides itself on conducting business based on

highest ethical practices and international standard.9

ACICO Hotels:

Another success to our portfolio was the diversification into the

hospitality sector. Due to the lucrative nature of the industry and the

expertise of our team, ACICO Industries Company erected two hotels in

the UAE. Our first hotel was built with the load bearing walls

construction on an area of 29,605m2 in the emirate of Fujairah spreading

on more than 500 meters of private beach. The second hotel was erected 60

stories high on Sheikh Zayed Road in the heart of Dubai. ACICO hascommissioned the Rezidor Hotel Group, mother company of the prominent

brand "Radisson", the operations of its hotels and resorts. The Rezidor

9http://www.acicogroup.com/En_core_construction_overview.cms


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Hotel Group have an extensive track record of hotel management in over

70 countries.10ACICO Real Estate:

ACICO Real Estate is a diversified real estate management company.

Our services include property and asset management services for high rise,

office, commercial, medical and residential buildings. ACICO Real Estate

was essentially established for letting, selling, and maintaining all

properties owned by the group. This step came as part of the integration

strategy of the group.

ACICO Real Estate has succeeded in bringing an outstanding

performance and integrity to real estate investment in the most active citiesin the region.11

10http://www.acicogroup.com/En_core_hotels_overview.cms

11http://www.acicogroup.com/En_core_realestate_overview.cms


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Company Projects:

The most successful, well-known projects ACICO built were in The

Emirates. They entered the hospitality sector by building the Radisson Royal

Hotel Dubai and Radisson Blu Resort Fujairah.

Radisson Royal Hotel Dubai

Radisson Royal Hotel Dubai is a five-star hotel that defines the

magnitude of business and pleasure in one place. It is located in the most

distinctive location which is the Sheikh Zayed Road, Dubai. Add to that, they

have The Dubai Trade center, Dubai International Exhibition and

Convention Center, Dubai International Financial Center, and Dubai Metro

in the proximity of the hotel. Leisure destinations like Burj Khalifa, Dubai

Mall, and Golf clubs are a few minutes' drive from the hotel.

Radisson Blu Resort Fujairah

Radisson Blu Resort Fujairah is located 90 minutes away from Dubai

and lies between Hajjar Mountains and approximately 500 meters away

from the private oceanic beach. The project covers an area of 29,605m2

with all 257 rooms having an uninterrupted panoramic view of sea.

Also there are a lot of successful projects like:

Nassima Tower - UAE

ACICO Business Park - UAE

Nakheel Town Houses - Dubai

American University in Dubai

ACICO Medical PlazaDubai

Chevron- Kuwait
http://www.acicogroup.com/MediaGallery/Gallery.aspx?id=123http://www.acicogroup.com/MediaGallery/Gallery.aspx?id=123


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Dasman School- Kuwait

The Palms Beach Hotel- Kuwait

Wataniya Resort - Khairan- Kuwait

Etc .

Technical Overview:

Company Name ACICOSector IndusrtyR1 234 Fils

R2 248 FilsS1 220 FilsS2 208 FilsTarget Price 245 Fils*Target price from Bollinger analysis.

Recommendation:

Our recommendation is to buy the share because multiple indicators

like RSI, Momentum, and Bollinger show that. The trend of the share ingeneral, appears to be bullish which indicates buy decision.

MACD on the 7th of September closed at price 198 fils. On the 13th

of September, there was a bullish signal which led to the increase of the

price of the share to 270 fils on the 24th of October with high traded

volume at that period. However, on the 28th of November, MACD gave us

a bearish signal which led to the decrease of the price to 230 fils on the 15th

of December and till today it gives us a sell signal.

The Momentum Indicator was -57 points which is less than -50. Thisindicated a bullish signal which led to an increase in the price from 196 to

265 fils on the 29th of September. On that day, momentum was 69 which is

more than 50. This indicated a bearish signal which led to the decrease of

the price from 265 to 230 fils. On the 15th of December, the momentum

was -25.This indicated a neutral to buy signal.
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The RSI was 24 points on the 6th of September which is less than 30.

This gave a bullish signal which led to the increase of the price to 250 fils

on the 21st of September. And the RSI was 60 points which gave a bearish

signal which led to the decrease of the price to 230 on the 15th of

December. And it was 48.5 points which indicated a neutral to buy signal.

Bollinger indicator on the 15th of December gave us a bullish signal

because the price approached the bottom line of the Bollinger. This caused

the price to push up from 220 to 230 fils. And the target price from the

Bollinger analysis is 245 fils (middle line).

Overview

RSI


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MACD , RSI, Momentum

Bollinger


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Fundamental Overview:

-Ratios Overview

Period End Date31-Dec-10

31-Dec-09

31-Dec-08

31-Dec-07

31-Dec-06

Liquidity and Asset Ratios

Current Ratio 0.64 0.57 0.35 0.70 1.28

Total Assets / Equity 3.09 2.82 2.85 2.46 2.04

Sales / Assets 0.16 0.24 0.33 0.23 0.50

Sales / Inventory 6.48 9.66 10.01 12.18 21.74

Sales / Receivables 6.09 9.18 4.36 4.33 5.66

Leverage

Total Debt/Total Assets (%) 0.65 0.61 0.62 0.58 0.48

Total Debt/Equity (%) 2.02 1.73 1.76 1.43 0.98

Times Interest Earned(TIE) 1.12 0.79 0.95 0.63 4.02

Return on Cash & Equiv.(%) 2.70 1.50 11.01 0.17 2.73

Liquidity

A/R turnover 60.17 45.34 86.72 83.00 63.45

Inventory Turnover 0.16 0.11 0.10 0.09 0.05

Quick ratio 0.46 0.43 0.28 0.66 1.17

Cash Ratio 0.11 0.17 0.02 0.56 0.11Growth Potential

Assets Growth (%) 0.12 0.06 0.08 0.72 0.36

Book Value Growth (%) 1.77 7.65 -6.43 42.46 26.54

Earnings Growth (%) 0.69 -42.45 -70.42 65.45 59.32

Revenues Growth (%) -0.25 -0.24 0.58 -0.22 60.14

Profitability

Asset Turnover 6.21 4.17 3.00 4.39 2.00


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Return on Assets (%) 2% 2% 3% 12% 12%

Return on Average Assets(%) 2% 2% 3% 15% 12%

Return on Equity (%) 5% 5% 9% 29% 25%

Return on Average Equity(%) 5% 5% 9% 34% 25%

Operating Margin (%) 6% 3% 5% 2% 13%

Payout Ratio (%) 60% 57% 16% 49% 70%

Liquidity and Asset Ratios:The current ratio is less than 1 which is a good sign. This

indicates that ACICO would be unable to pay off its debt obligation ifthey came due at that point. The sales to asset ratio has declined in

the last 2 years which isnt a good sign. It indicates that ACICO

needs more investment to generate sales revenue which means less

profitability of the firm. The cash ratio of ACICO is 0.11 in 2010

which is low. This means that creditors would be reluctant in how

much debt they should give to ACICO.

Leverage Ratios

The total debt to total assets ratio in 2010 was 65%. This

means that 65% of the companys assets are financed by debt. This

means that the majority of the companys assets are financed by debt.

The debt to equity ratio of 2.02 is high which means that ACICO has

been aggressive in financing its growth by debt.

Growth Potential Ratios

The assets growth potential in 2010 is 12%. The growth was

pretty high before the 2008 crisis with 72% growth. The revenue

growth in the last 2 years has been negative. This indicates that the

revenue has been decreasing for the last 2 years.


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Profitability Ratios

The Return on Equity (ROE) ratio measures the amount of net

income earned as a percentage of equity. ACICOs ROE is pretty

consistent with its competitors and is higher than the sector medianso they are in the normal range. The Return on Average Equity

(ROAE) has been consistent in the last 2 3 years due to the

consistency and predictability of the companys ROE. The Return on

Assets (ROA) and Return on Average Assets (ROAA) for the last 3

years has been consistent within a certain range (between 2 and 3%).

Fundamental Analysis

Assumptions:

1)We assumed the growth rate for the FCFE for the next 5 years as (19.8%)

2)We assumed the terminal growth in the FCFE model 4.9% (Real GDP

economic growth of Kuwait for the next 5 years)

3)We assumed the Risk Free Rate (RF) as 4.5 %( 2.5% discount rate from

CBK+2%)

4)We took the Risk Premium (RP) from Aswath Damodaran's website as 5.75%

5)We took the beta of the company from Reuters 3000 xtra

6)We assumed the growth rate in the DDM model as about 30%

Discounted Cash Flow

Two Stage FCFE

VariableGrowthPhase

Length 5 years

Risk Free Rate 4.500% (Discount Rate from CBK + 2%)

RP is 5.8% Damodaran

Terminal Growth 4.90% Economy Growth From KMIFIC Research

Expected Growth 19.82%

Beta 1.17 (Reuters)

Cost of Equity Ke 11.23%

Year FCFE PV of FCFE

1 2011 6,0665,454

2 2012 7,2695,875


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3 2013 8,7106,329

4 2014 10,4366,819

5 2015 12,5057,346

No. of shares*1000 236,940

Terminal FCFE Year 5 207,314

PV of Terminal Price 121,778

Value per share 0.648

Discounted Cash Flow

Two StageDDM

Variable High Growth PhaseStable Growth

Phase

Length 5 yearsForever after

5 years

Risk Free Rate 4.50%

RP is 5.75%

Expected Growth 30.06% 4.9%Beta 1.17 1.17

Cost of Equity Ke 11.23% 11.23%

Year DPS PV of DPS

2011 1 0.013 0.012

2012 2 0.017 0.014

2013 3 0.022 0.016

2014 4 0.029 0.019

2015 5 0.037 0.022

Expected: Year 6

Terminal Price: Year 5 0.617

PV of Terminal Price 0.362

Value per share 0.444


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Multiples Overview

Relative Valuation Method:

The peer group valuation is performed to compare the intrinsic value

of ACICO arrived at using the DCF calculation. In order to value ACICO

using this method, we have used the weighted average price-to-earnings

(P/E) multiple and Price-to-book-value (P/BV) for ACICO's competitors,

which makes up the peer set for ACICO. The price-earnings multiple of a

stock is a reflection of various factors, such as the expected profitability of

the company, its growth potential as perceived by the market, predictability

and sustainability of its revenues, the quality of its earnings and the quality

of its management, among others.

The value of ACICOs shares derived from the weighted average of

the DCF and relative valuation methods is KD0.552 per share. The stock

closed at KD0.234 on the KSE at the end of trading on the 12th of

December, 2011, which implies that the weighted average value of

ACICOs shares is at a premium of 58% to the shares current market price.

And the weights to each method are shown in the table below:

Weighted Valuation

Method Value Weight Valuation

DDM 0.444 0.3 0.133

FCFE 0.648 0.5 0.324

P/E 0.578 0.1 0.058

P/BV 0.369 0.1 0.037

Weighted Value/share 1.00 0.552


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D b P |

Recommendation:

The company's involvement in multiple sectors gives it a strong

competitive advantage and growth prospect. Therefore, looking at the

fundamental analysis, the fair value is 0.552KD; we recommend a strongbuy of the company's stocks for long-term investors.

Looking at the technical analysis, the low trading volume of the

stock indicates that the stock price will take time to rise to its intrinsic

value.

The final recommendation is a strong buy of ACICOs stock.

Equity Rating and Definition:

Rating Definition

StrongBuy

Fair value of the stock is > 50% from the currebt market Price

Buy Fair value of the stock is > 10% from the currebt 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 currebt market Price

Sell Fair value of the stock is < -20% from the currebt market Price

Done by :

Anas Mamoon Kouki , 209118313

Hady Mohammed Makki , 209218877

Mohammed Fahad Al-Ahmad, 209114510

acico industries company new(1)

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