ACICO Industries Company New

ACICO Industries Company Exchange
Kuwait Stock
ACICO Industries Company

Reuters Code:
ACIC.KW
Fair Value:
552 fils
Current Price: (As on December 6,2011) Recommendation:

234 Fils Strong Buy
Kuwait Economic Overview:
Subject Descriptor GDP - Current Prices GDP - Constant Prices Real GDP growth GDP per capita, current prices Inflation, average consumer
Units KWD Billons KWD Billons % change KWD % change
2007 32.58 18.15 4.40% 9,583 7.50%
2008 39.99 19.23 6.00% 11,762 9.00%
2009 30.48 18.35 4.60% 8,708 2.10%
2010 35.63 18.92 3.10% 9,898 6.00%
2011 44.85 19.75 4.40% 12,120 5.20%
2012 45.68 20.82 5.40% 11,712 4.70%
December 18, 2011
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prices Population growth % change 6.30% 0.00% 2.90%
Kuwait Stock
2.90%
2.80%
5.40%
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 to preliminary 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 the economy. 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 have 7 competitors and they are: 1. 2. 3. 4. 5. 6. 7.
Name ACICO Sector
1
Kuwait Cement Company (KCC) National Industries Company (NIC) Kuwait Portland Cement Company(KPCC) Hilal Cement Company(HCC) Salbookh Trading Company(STC) Gulf Rocks Company Kuwait Building Materials(KBMMC)
EPS 0.02 DPS 0.01 0.02 Payout 0.62 0.39 Div Yld (%) 4.31 2.93 ROE (%) 4.85 6.06 P/Book 0.70 1.06 P/Sales 1.42 2.39 Market Cap. (KWD)* 55,089,671.17
PE
24.07
0.04
KMEFIC research on Kuwait Cement Industry Report of October 2011
December 18, 2011
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average (Mean) Sector median Competitors KCC NIC KPCC ACICO HCC STC Gulf Rocks KBMMC 22.89 36.66 14.17 11.63 35.01 0.02 0.01 0.25 0.02 0.01 0.01 0.00 0.01 0.01 0.01 0.09 0.01 0.01 0.00 0.00 0.00 0.46 0.68 0.37 0.62 0.98 0.00 0.00 0.00 1.96 2.62 9.88 4.31 4.63 0.00 0.00 0.00 8.52 5.15 29.23 4.85 4.50 -8.30 0.27 4.29 2.07 1.33 1.10 0.70 0.95 0.43 0.46 1.44
Kuwait Stock
76,490,744.15
22.89
0.01
0.01
0.42
2.29
4.67
1.02
1.71
35,107,984.90
7.28 2.58 1.70 1.42 0.83 1.71 0.47 3.13
325,910,139.52 105,820,743.59 83,813,450.22 55,089,671.17 15,126,298.63 10,464,913.59 9,160,823.17 6,539,913.32
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 high opportunity 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
KMEFIC research on Kuwait Cement Industry Report, October 2011
December 18, 2011
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Kuwait Stock
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 the region.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 sector through 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. 5 Shareholding:
3
4 5
Global GCC Cement Sector Quarterly, November 2011 http://www.acicogroup.com/En_ACICO_Overview.cms KSE.com.kw (Kuwait Stock Exchange Market)
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Kuwait Stock
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
Al-Khalid (Ghassan Ahmad Saoud) Al-Khalid (Ahmad Ghassan Ahmad Saoud) Kuwait Investment Co SAK Al Saqer (Hamad Abdulaziz Al Hamad) Public Source : Reuters 3000 Xtra .
% O/S
12.890 % 9.350 % 6.330 % 5.760 % 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 Abdul Aziz Al Ayoub Ghassan Al Khalid Ahmad Al Khalid Walid Al Khalid Faisal Al Majed Faten Al Naqeeb Ahmad Al Rifai Current position Chairman of the Board Vice Chairman of th Board Member of the Board Member of the Board Member of the Board Member of the Board Member of the Board
Source : Reuters 3000 Xtra .
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 is very 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) 52 wk Low (Fils) Average volume Traded** Turnover Markt Cap. (KD)
Kuwait Stock
357.00 196.00 252,000 20% 55,443,960.00
Source : Reuters, http://www.reuters.com/finance/stocks/overview?symbol=ACIC.KW

* Closing price 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
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Kuwait Stock
factors associated with manufacturing. This gives them a strong competitive advantage because they are in full control of all their projects.
ACICO
ACICO Industrial
ACICO Construction
ACICO Real Estate
ACICO Hotels
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 reinforced structural 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:
6 7
http://www.acicogroup.com/En_core_industrial_overview.cms http://www.acicogroup.com/En_core_industrial_overview.cms
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Kuwait Stock
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 manufacturing in 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 by experienced 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
8
http://www.acicogroup.com/En_core_cement_overview.cms
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Kuwait Stock
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 has commissioned the Rezidor Hotel Group, mother company of the prominent brand "Radisson", the operations of its hotels and resorts. The Rezidor
http://www.acicogroup.com/En_core_construction_overview.cms
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Kuwait Stock
Hotel Group have an extensive track record of hotel management in over 70 countries.10 ACICO 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 cities in the region.11
10 11
http://www.acicogroup.com/En_core_hotels_overview.cms http://www.acicogroup.com/En_core_realestate_overview.cms
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Kuwait Stock
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 Plaza Dubai Chevron - Kuwait
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Kuwait Stock
Dasman School - Kuwait The Palms Beach Hotel - Kuwait Wataniya Resort - Khairan - Kuwait Etc .
Technical Overview: Company Name Sector R1 R2 S1 S2 Target Price

Target price from Bollinger analysis.
ACICO Indusrty 234 Fils 248 Fils 220 Fils 208 Fils 245 Fils*
Recommendation: Our recommendation is to buy the share because multiple indicators like RSI, Momentum, and Bollinger show that. The trend of the share in general, 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. This indicated 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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Kuwait Stock
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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Kuwait Stock
MACD , RSI, Momentum
Bollinger
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Kuwait Stock
Fundamental Overview: -Ratios Overview

Period End Date Liquidity and Asset Ratios Current Ratio Total Assets / Equity Sales / Assets Sales / Inventory Sales / Receivables Leverage Total Debt/Total Assets (%) Total Debt/Equity (%) Times Interest Earned (TIE) Return on Cash & Equiv. (%) Liquidity A/R turnover Inventory Turnover Quick ratio Cash Ratio Growth Potential Assets Growth (%) Book Value Growth (%) Earnings Growth (%) Revenues Growth (%) Profitability Asset Turnover 6.21 4.17 3.00 4.39 2.00 0.12 1.77 0.69 -0.25 0.06 7.65 -42.45 -0.24 0.08 -6.43 -70.42 0.58 0.72 42.46 65.45 -0.22 0.36 26.54 59.32 60.14 60.17 0.16 0.46 0.11 45.34 0.11 0.43 0.17 86.72 0.10 0.28 0.02 83.00 0.09 0.66 0.56 63.45 0.05 1.17 0.11 0.65 2.02 1.12 2.70 0.61 1.73 0.79 1.50 0.62 1.76 0.95 11.01 0.58 1.43 0.63 0.17 0.48 0.98 4.02 2.73 0.64 3.09 0.16 6.48 6.09 0.57 2.82 0.24 9.66 9.18 0.35 2.85 0.33 10.01 4.36 0.70 2.46 0.23 12.18 4.33 1.28 2.04 0.50 21.74 5.66 31-Dec10 31-Dec09 31-Dec08 31-Dec07 31-Dec06
December 18, 2011
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Return on Assets (%) Return on Average Assets (%) Return on Equity (%) Return on Average Equity (%) Operating Margin (%) Payout Ratio (%) 2% 2% 5% 5% 6% 60% 2% 2% 5% 5% 3% 57% 3% 3% 9% 9% 5% 16%
Kuwait Stock
12% 15% 29% 34% 2% 49%
12% 12% 25% 25% 13% 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 if they 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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Kuwait Stock
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 median so 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 Variable Length Risk Free Rate RP is Terminal Growth Expected Growth Beta Cost of Equity Ke Year 1 2 2011 2012 Growth Phase 5 years 4.500% 5.8% 4.90% 19.82% 1.17 11.23% FCFE PV of FCFE 5,454 5,875
(Discount Rate from CBK + 2%) Damodaran Economy Growth From KMIFIC Research (Reuters)
6,066 7,269
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3 4 5 2013 2014 2015
Kuwait Stock
8,710 10,436 12,505
6,329 6,819 7,346
No. of shares*1000
Terminal FCFE Year 5 PV of Terminal Price Value per share
236,940
207,314 121,778 0.648
Discounted Cash Flow Two Stage DDM
Variable Length
High Growth Phase 5 years
Stable Growth Phase Forever after 5 years
Risk Free Rate RP is Expected Growth

Beta
Cost of Equity Ke
Year
4.50% 5.75% 30.06% 1.17 11.23%

DPS
4.9%
1.17 11.23%
PV of DPS
2011 2012 2013 2014 2015
1 2 3 4 5 Expected: Year 6 Terminal Price: Year 5 PV of Terminal Price

Value per share
0.013 0.017 0.022 0.029 0.037
0.012 0.014 0.016 0.019 0.022
0.617 0.362
0.444
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Kuwait Stock
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 FCFE P/E P/BV

Weighted Value/share
0.444 0.648 0.578 0.369
0.3 0.133 0.5 0.324 0.1 0.058 0.1 0.037

1.00 0.552
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Kuwait Stock
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 strong buy 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 Strong Buy Buy Hold Reduce Sell Definition Fair value of the stock is > 50% from the currebt market Price Fair value of the stock is > 10% from the currebt market Price Fair value of the stock is between +10% and -10% from the current market Price Fair value of the stock is between -10% and -20% from the currebt market Price 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
December 18, 2011
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