Saudi Arabia Fertilizers Company

Saudi Arabia Fertilizers Company
SAFCO: Initiation Report
Research Division
Company Reports
December 2011
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Research Division
Brokerage and Investment Centers

Division
Division Manager
General Manager - Brokerage Division
+966 2 6618275
+966 1 2256000
Abdullah Alawi
a.alawi@aljaziracapital.com.sa
Alaa Al-Yousef
a.yousef@aljaziracapital.com.sa
Senior Analyst
AGM-Head of international and institutional brokerage
+966 2 6618271
+966 1 2256277
Syed Taimure Akhtar

s.akhtar@aljaziracapital.com.sa
Luay Jawad Al-Motawa
lalmutawa@aljaziracapital.com.sa
Analyst
Regional Manager - Central Region
+966 2 6618253
+966 1 2256364
Saleh Al-Quati
s.alquati@aljaziracapital.com.sa
Sultan Al-Mutawa
s.almutawa@aljaziracapital.com.sa
Regional Manager - West and South Regions
Abdullah Al-Misbahi
+966 2 6618404
a.almisbahi@aljaziracapital.com.sa
Area Manager - Qassim & Eastern Province
Abdullah Al-Rahit
+966 6 3617547
aalrahit@aljaziracapital.com.sa
Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), License No. 07076-37
Contents
SAFCO - A Defensive Play
Investment Risks
Valuation Summary
Discounted cash flows (DCF) Valuation
Comparative valuation
Weighted average valuation
Sensitivity Analysis
Valuation Under Different Scenarios
Company Overview
Shareholding pattern
Production process & key consuming markets

SAFCO-V Financial Implication
Massive expansions will lead excessive production capacities globally
1
3
4
4
6
6
7
7
9
9
10
12
13
Ammonia capacity - Expansion plans

Urea capacity Expansion plans
13
13
Expansion Will Support Production Growth
14
SAFCO-V to support production growth
Financial Overview
14
15
9MFY11 Financial Result
15
Balanced Financial Growth

4Q11 Financial Estimates
16
18
Financial Statements
19
SAFCO - Income Statement (FY10-14e)

SAFCO - Balance Sheet (FY10-14e)
SAFCO - Cash Flow Statement (FY10-14e)
19
20
21
December 2011

Initiation | KSA | Petrochemical Sector | December 2011
SAFCO - A Defensive Play
Fertilizers Company (SAFCO) is among the key producers of fertilizer products

within the region and the largest manufacturer of fertilizers inside the
Kingdom. At present, after the shutdown of Dammam urea plant in 4QFY08,
the company is operating at a design capacity of around 4.5mn tons of
fertilizer. The companys production mix is mainly based on ammonia & urea;
where most of the ammonia is used to produce urea. Beside these products,
the company has a limited capacity to produce melamine and sulfuric acid.
It is noteworthy that the company adopted a defensive expansion rather
than aggressive; where the recent expansion (SAFCO-IV) was completed
in 2QFY07. Moreover, we believe the company, at present, is indicating to
remain more focused on fertilizer business rather than diversification.
Improvement in capacity utilization and steady price movement

supported regional sector The financial turmoil in 2008 led most
of the developing nations to postpone their expansion plans (including
fertilizer complexes), which were supposed to come online in recent years.
Consequently, these countries along with others are still relying on imports,
which allowed the regional as well as local fertilizer plants to make a quick
come back in term of capacity utilization. Moreover, recovery in the average
prices of fertilizer products from 4QFY08 & 1HFY09 levels also played a vital
role in supporting the regional sectors financial growth.
SAFCO-V project to expand fertilizer products base SAFCO recently
made an announcement to initiate study to establish a new production facility

(SAFCO-V) of SAR1.9bn (USD500mn). According to the given information,
SAFCO is scheduled to award Engineering, Procurement and Construction
(EPC) for the project in 4QFY11, while the project is expected to come on
in 2HFY14. Furthermore, the announcement was made after reaching an
agreement with the Ministry of Petroleum and Mineral Resources (MPMR) for
the supply of feedstock gas, which was the major reason to put this expansion
on hold in the past. SAFCO-V is expected to make the additions of 1.2mn tons
and 1.5mn tons ammonia and urea, respectively, which will lead the overall
capacity to increase at 2010-14CAGR of 6.7%.
Key Financial and Valuation Data

Financials (All fig in SAR
2010
2011 E
2012 E
2013 E
2014 E
Revenues
3,789
5,325
6,346
6,494
6,716
EBITDA
3,051
4,431
5,240
5,426
5,566
Net income
3,235
4,383
5,366
5,531
5,646
EPS (SAR)
12.9
17.5
21.5
22.1
22.6
P/E
12.3
10.0
8.2
7.9
7.7
PBV
5.6
5.3
4.7
4.2
3.7
EV/EBITDA
12.4
9.2
7.8
7.4
7.2
Source: Company Data, AlJazira Capital * Historical prices are based on respective year end closing and for 2011 &
subsequent year we have taken closing price as on 21st Dec 2011
Possible over-supply in global market According to International

Fertilizer Association (IFA) 2011-15 outlooks, the sector will experience
250 capacity-related projects with an estimated investment of USD88bn till
2015. This indicates most of the new complexes around the globe are under
construction process, so the world is still facing an imbalance demand supply
situation. However, the completion of these expansions, possibly in 2014,
will drag the global industry to face over-supply situation. Similarly, we expect
SAFCO to operate with high utilization rate ranging in the average level of
95%-115% till 2013 and show subsequent decline in utilization rate in 2014.
Page 1 of 21
Current Price:
SAR 175
12 Months Price Target: SAR 171.0
Downside: 2.3%
Price Chart
7500
7000
6500
6000
5500
5000
4500
4000
TASI
SAFCO
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Operational focus revolves around fertilizer business - Saudi Arabia
mn, unless otherwise stated)
Neutral
Rating:
205
185
165
145
125
105
85
Key Information
Reuters Code
Bloomberg Code
Country:
Sector:
Primary Listing:
M-Cap:
52 Weeks H/L:
2020.SE
SAFCO AB
Saudi Arabia
Petrochemical
TASI
SAR43,750mn
SAR 194.2/142.2
Company Overview
The company was established
in Sep 1965 and started its
commercial production in 1970.
SAFCO holds 50% stakes in
National Chemical Fertilizer CO.
(Ibn Baytar), 3.7% stakes in Arabian
Industrial Fibers (Ibn Rushd) and
1.7% stakes in Yanbu National
Petrochemical Co. (YANSAB).
The companys principle activities
are to manufacture and convert
urea and ammonia.
The company, at present, is the
main producer of ammonia, urea,
melamine and sulfuric acid in KSA.
Syed Taimure Akhtar
(Senior Analyst)
s.akhtar@aljaziracapital.com.sa
+966-2-6618271
December 2011
Sound financial growth We expect the companys revenues to increase
at a CAGR of 15.4%, during 2010-14. The expected growth is mainly based

on the increase in volumetric sales and average prices of related fertilizer
products at a CAGR of 2.4% and 10.5%, respectively during 2010-14. On the
other hand, the expected stability in gross margin coupled with growth in
revenues will the lead the companys net profitability to increase at a CAGR
of 14.9%, during 2011-14.
Investment recommendation We used a blended approach to derive
12-month price target for SAFCO. Under this valuation approach, we assigned
85% weights to DCF based value and 15% to relative/comparative valuation
(EV/EBITDA metrics) based value and arrived at a weighted average 12-month
price target of SAR171.0/share. This implies the stock is trading at a premium
of 2.3% to the market price of SAR175/share (as of 21st Dec 2011) and
prospective 2012 P/E & P/BV of 8.2 and 4.7x, respectively. We, therefore,
initiate our coverage on SAFCO with Neutral recommendation.
Page 2 of 21
December 2011
Investment Risks
Deviation in capacity utilization from expectation The growth
story of SAFCO is primarily based on improvement in capacity utilization. We

believe the main factors which could lead us to make subsequent changes in
our expected utilization and valuation are (i) early completion of expansion in
importing countries or vice versa, (ii) lower than expected demand of related
products or vice versa and (iii) easy availability of substitute products i.e. DAP3.
Lower than expected average prices We are considering that the

average prices of related fertilizer products will remain close to its current
high levels. Hence, any unexpected movement in the average prices could
lead us to make subsequent changes in our valuation.
Larger than expected impact of competition Based on the upcoming

regional & international capacity expansions, we are expecting the company
might face stiff challenges to maintain its market share in international markets.
Although we have discounted this factor in our valuation but any event beyond
our expectation could lead us to alter our valuation, subsequently.
Unexpected maintenance shutdown Though the unexpected

maintenance shutdown has no long-term impact the companys growth but
it could hit the financials of the particular period. Hence, we are anticipating
limited impact on the companys valuation.
Delay in SAFCO-V expansion In a later section, we have discussed
in detail the impact of any possible an early or a delayed commencement of

SAFCO-V expansion on our valuation.
3 Di ammonia phosphate used as a fertilizer and it temporarily increase the soil acidity.
Page 3 of 21
December 2011
Valuation Summary
Discounted cash flows (DCF) Valuation
The following are key basic steps & assumptions we are using to value SAFCO on DCF:
4-years forecasted free cash flows (FCF).
Terminal value calculation based on the Gordon Growth Model (GGM).

o
Expecting terminal growth of 3%.
Using Capital Asset Pricing Model (CAPM) to calculate cost of equity. However, the
CAPM calculation is based on the following variables:
o Risk free rate of 3.1%, which is equivalent to 10-years US bond yield plus Saudi
Arabia sovereign risk premium of 1.25%.
Equity risk premium taken at 10.77%.
Beta of 1.05
We are using Weighted Average Cost of Capital (WACC) for discounting the future
FCF of the company, where the calculation of WACC is based on the following
variables:
o
Cost of equity equivalent to CAPM
Cost of debt taken at 3.9%
Contribution from equity & debt in SAFCOs capital structure is taken at 95% &
5%, respectively.
Using the above assumptions, we have derived the companys cost of equity & WACC
at 14.4% & 13.9%, respectively, and arrived at DCF based value of SAR179.7/share for
the company.
Page 4 of 21
December 2011
DCF Base Valuation

All figures in SAR Mn, unless specified
2010
2011e
2012e
2013e
2014e
Revenues
3,789
5,325
6,346
6,494
6,716
EBITDA
3,051
4,431
5,240
5,426
5,566
80.5%
83.2%
82.6%
83.5%
82.9%
2,622
3,980
4,752
4,894
4,982
Margin (%)
EBIT
Margin (%)
69%
75%
75%
75%
74%
Net Income
3,235
4,383
5,366
5,531
5,646
Margin (%)
85%
82%
85%
85%
84%
Cash from operations
2,435
4,211
4,910
5,024
5,101
Total assets
8,379
9,331
10,420
11,546
12,977
Shareholders equity
7,134
8,212
9,289
10,398
11,813
Total liabilities & equity
8,379
9,331
10,420
11,546
12,977
2,363
3,898
4,670
4,809
4,896
Free Cash Flow Analysis (FCF)

NOPLAT
Depriciation & amortization
429
450
488
532
584
Change in net working capital
(377)
(138)
(248)
(318)
(379)
CAPEX
(222)
(664)
(638)
(733)
(865)
FCF
2,193
3,546
4,273
4,291
4,236
Discount Factor
0.99
0.87
0.76
0.67
PV of FCF
3,500
3,704
3,266
2,831
Sum of PV of FCF
13,301
Terminal value
40,099
PV of Terminal value
26,801
Enterprise value
40,102
Add: Net debts
4,117
Total equity value
44,219
Value of YANSAB in SAFCO
709
Net Worth
44,927
Shares (mn)
250.0
DCF Based value (SAR/share)
179.7
Terminal growth
3.0%
WACC
13.9%
Source: AlJazira Capital
Page 5 of 21
December 2011
We used EV/EBITDA to compare SAFCO with its peer group around the globe. Under the
comparative valuation, we used the average 2011 EV/EBITDA of 5.9x for the peer group
to arrive at a value of SAR121.4/share for the company.
Sector EV/EBITDA
5.9
Implicit enterprise value
26,235
Cash
4,197
Debt
(80)
Net worth of SAFCO
30,352
Shares outstanding (mn)
250
Comparative value (SAR/share)
121.4

We used a blended approach to derive the price target for SAFCO. Under this valuation
approach, we assigned 85% weights to DCF based value and 15% to relative/comparative
valuation (EV/EBITDA metrics) based value and arrived at a weighted average 12-month
price target of SAR171.0/share. This implies the stock is trading at a premium of 2.3% to
the market price of SAR176/share (as of 21st Dec 2011) and trading at prospective 2012
P/E & P/BV of 8.2 and 4.7x, respectively. We, therefore, initiate our coverage on SAFCO
with Neutral recommendation.
SAR/Share
Weights
Weighted
average
DCF base value
179.7
85%
152.8
Relative value
121.4
15%
18.2
Weighted average 12-month price target (SAR/share)
171.0
Page 6 of 21
December 2011
The table below highlights the sensitivity of SAFCO weighted average 12-month price
target with terminal growth & WACC.
Terminal Growth
Weighted Average Cost of Capital (WACC)

11.88%
12.88%
13.88%
14.88%
15.88%
2.00%
186.1
173.2
162.5
153.4
145.7
2.50%
192.2
178.1
166.5
156.8
148.5
3.00%
199.0
183.6
171.0
160.5
151.6
3.50%
206.7
189.6
175.8
164.5
154.9
4.00%
215.3
196.3
181.2
168.8
158.5
Valuation Under Different Scenarios

In order to examine different situations that SAFCO could face we have further tested
our core fundamental assumptions under two possible scenarios: Bull Case and Bear
Case. These scenarios illustrate how sensitive our DCF-based fair value is to changes in
key fundamental variables. We chose the impact of average prices of related products,
while keeping the other factors constant (base case) and the capacity utilization of the
companys operational complexes, while keeping the other factors constant (base case).
Scenario 1 Price Analysis
Bull Case - 15%
203.3
10.0%
190.8
7.5%
185.4
5.0%
180.4
2.5%
175.6
Base Case
171.0
-2.5%
166.4
-5.0%
162.0
-7.5%
157.5
-10.0%
153.1
Bear Case - 15%
144.4
0
50
100
150
200
250
SAR/share
Page 7 of 21
December 2011
Scenario 2 Capacity Utilization

Bull Case - 115%
224.0
105.0%
204.6
100.0%
194.8
95.0%
185.1
175.4
90.0%
Base Case
171.0
155.8
80.0%
75.0%
146.1
136.2
70.0%
65.0%
126.6
Bear Case - 60%
116.9
0
50
100
150
200
250
300
SAR/share
Page 8 of 21
December 2011
Company Overview
SAFCO is the largest
producer of fertilizer
products inside the
Kingdom. The major
feedstock is methane gas,
which is supplied by Saudi
Aramco under a long-term
contract.
Saudi Arabia Fertilizer Company (SAFCO) is among the largest producer of fertilizer
products in the region. The company is operating at a design capacity to produce
around 4.5mn tons of different fertilizer products; where production is primarily based
on ammonia and urea. However, the company is also producing a limited amount of
melamine and sulfuric acid products.
SAFCO Product-wise capacity
Production line
Based on the given

information, SAFCO-IV
expansion made the
addition of 2.2mn tons of
urea & ammonia in 2007.
At the time of closure
Dammam plant was
operating with a design
capacity to produce
330,000 & 200,000 tons/
year of urea and ammonia,
respectively.
Based on the given
information, the canceled
JV with Hadeed was
scheduled to operate at a
design capacity to produce
1.7mn tons of flat steel.
Capacity (% of Total)
Ammonia
45.0%
Urea
51.7%
Melamine
2.9%
Sulfuric acid
0.4%
Source: Company reports & Aljazira Capital
It is noteworthy that the company has not made any expansion in its capacity after the
completion of SAFCO-IV in 2007 i.e. 4th expansion since its establishment in 1965. Hence,
beside the issue of gas allocation for SAFCO-V in past, this indicates the companys
reluctance for an aggressive expansion strategy. Apparently, this enabled the company to
remain cost efficient in the recent global financial turmoil with the only setback was from
the decline in average prices of related products. In addition, the company permanently
shut down its oldest Dammam urea plant in 4QFY08.
In 2011, SAFCO canceled JV with Saudi Iron & Steel Company complex (Hadeed) to
construct a flat steel product facility and made an announcement to continue its focus on
generic business i.e. fertilizer. According to the press release, the companys decision not
to make further development on 50:50 JV with Hadeed is based on the not encouraging
results of the final studies.
Shareholding pattern
The company was
established with the
initial share capital of
SAR100mn, which
continued to increase
over the period of time.
At present, SAFCOs
share capital is stood at
SAR2,500mn,
SAFCO is considered
as the fertilizer wing of
SABIC; where SABIC owns
most of the companys
stake followed by GOSI.
Page 9 of 21
The below chart shows the companys current shareholding structure as of 31st Dec
2010:
General Public
40.4%
SABIC 42.9%
GOSI 16.7%
Source: Tadawul
December 2011
Production process & key consuming markets

The company has a typical operational structure at the complex; where the production flow
is much similar to other international players. Most of the fertilizer complexes around the
world are utilizing ammonia as a feedstock to produce urea and Di Ammonia Phosphate
(DAP). However, the production flow at SAFCO complex starts from the manufacturing
of ammonia and ends with the generation of urea as the final output.
Ammonia production process
Natural gas
Atmosphere
Desulfuriser
Flue gases
Steam reformer
Waste heat boiler
Steam
Air reformer
Air
Water
Steam
Waste heat boiler
Water
Shift converter
(CO
CO2 )
Saturated
UCARSOL
CO2 removal
UCARSOL
Methananation
CO2 Stripper
Compression and cooling

CO2
Mixer
Urea plant
NH3 converter
Synthesis loop
Cool to 30oC
Impurities
NH3
Decompression
NH3 recovery
NH3
Pure gas
Industry
Ammonia
Urea plant
Source: New Zealand Institute of Technology
According to the companys annual reports, sales to Asian market remained prominent
over the period of time; where the contribution in sales was recorded at 66.9% in 2009
as compared to 40.3% in 2007 (Note: The unavailability of 2010 revenues break-up led us
to use 2009 revenues break-up). In addition, American & Australian markets made 30.6%
of the companys sales revenue in 2009 followed by the limited exposure in local and
regional market.
Page 10 of 21
December 2011
Urea production process

CO2
NH3
Synthesis
Urea, excess NH3,

Carbamate, H2O
NH3, CO2
Heat
Decomposition
Urea
Heat
Recovery
Cooling
H2O
Concentration
H2O
Urea
Granulation
Urea
Granule
Source: New Zealand Institute of Technology
We believe the limited exposure in local and regional markets are mainly due to the lower
consumption of fertilizer products on the back of limited agricultural activities i.e. wheat,
rice, grain and so on, locally.
Page 11 of 21
December 2011
SAFCO-V Financial Implication

The project faced several delays because of reluctance from Saudi Aramco to supply
gas for this expansion. However, after reaching an agreement to get undisrupted supply
of feedstock gas from Saudi Aramco the company, recently, made announcement to
reinitiate its study to establish new production line i.e. SAFCO-V. According to the given
information, the company is scheduled to award EPC for the project in 4QFY11, while
the project is scheduled to come online in 2HFY14. The start of commercial operation
from SAFCO-V will make the addition of 2.7mn tons of urea of ammonia in the companys
existing production capacity.
SAFCO - V Impact on EPS
Scenarios
Commencement after 2014
2014 (EPS in SAR)
Impact in % - 2014 EPS
21.1
-6.6%
Base Case
22.6
Early start 2Q 2014
23.2
2.7%
Based on given information, we expect the project will start its commercial operation in
2HFY14. This indicates the impact of SAFCO-V on the company cash flows will start in
2014. The completion of project will lead the companys overall capacity to increase at a
CAGR of 6.7% in 2010-14.
SAFCO-V Implication on valuation
190.1
Early start 2Q14
171.0
Base Case
159.2
Commence operation after 2014
50
100
150
200
250
SAR/share
Page 12 of 21
December 2011
Massive expansions will lead excessive production

capacities globally
According to IFA 2011-15 outlooks, the global industry will carry out 250 capacity-related
expansion projects, over the next five years. Moreover, IFA estimates that almost
USD88mn will be invested in the sector to carry out these projects. It is noteworthy that
most of the expansions are scheduled to be done on existing sites.
Ammonia capacity - Expansion plans

Based on IFAs 2011 global capacity survey, ammonia capacity around the world is
expected to increase at a CAGR of 3.5%, during 2010-15, to reach at 229.6mn tons/year
in 2015. Moreover, the expected expansion in capacity is mainly based on the successful
completion of 67 projects during 2010-15. It is noteworthy that around 33% of the
upcoming expansions are expected from China. On regional basis, the major expansions
are expected in Asian, African and Latin American regions.
Urea capacity Expansion plans

Most of ammonia around the world is utilized to produce urea. This indicates urea as
the major driver in the growth of ammonia capacity. According to IFA 2011-15 outlooks,
around 58 new plants are expected to come on-stream till 2015. Consequently, this will
lead the global urea capacity to increase at a CAGR of 4.5%, during 2010-15, to reach at
224.5mn tons in 2015. In addition, IFA estimates urea production and demand around the
globe will increase at a CAGR of 4.6% and 3%, during 2010-15, respectively.
World Urea Supply & Demand
Million Tonne
2010*
2011e
2012e
2013e
2014e
2015e
Capacity
179.5
184.1
198.2
Total supply
152.0
155.6
165.1
205.4
218.6
224.5
171.7
182.1
190.5
Fertilizer demand
129.7
134.5
Non-fertilizer demand
18.3
19.6
138.0
142.6
146.4
150.4
19.6
20.2
21
21.3
Total demand
148.0
154.1
157.6
162.8
167.4
171.7
4.0
1.5
7.5
8.9
14.7
18.8
Supply
Demand
Supply/demand gap
Source: IFA 2011-15 outlooks * estimated figures by IFA
Based on IFA estimations, we expect 2011 will remain a tight year for fertilizer industry
with limited availability of excess urea. Considering the historical utilization rate, the
sector is expected to start facing massive excess in urea starting 2014, which will further
increase to 18.8mn tons of urea in 2015. Hence, we believe this will allow the complexes
globally to operate on high utilization rate without facing intense inventory build-up
pressure till 2013.
However, the historical utilization rate with scheduled expansion will lead the sector
to reach excess urea of 14.7mn tons and 18.8mn tons in 2014 & 2015, respectively.
Thus, the key exporting regions (with large facilities) are expected to operate at a lower
utilization rate with limited volumetric growth, in the long-run, to (i) avoid inventory buildup and (ii) fill the post expansion global demand/supply gap, which is expected to remain
in major importing countries.
Page 13 of 21
December 2011
Expansion Will Support Production Growth

In line with the global sector future dynamics, we expect the company will be able to
continue to show improvement in the utilization rate till 2013 ranging in the average levels
of 95%-115%. However, the companys utilization rate is expected to drop down to 75%80% in 2014, which is mainly due to the anticipated oversupply situation globally, if large
fertilizer complexes around the world continue to operate at historical utilization rate (as
discussed earlier).
SAFCO-V to support production growth

We believe since the inception of SAFCO-IV plant in 2007, the companys production growth
was solely based on the operational performance/smoothness of existing production line.
Similarly, the operational halt at the companys production facilities in 4QFY09 remained
a prime factor that led YoY decline of 12.3% in production volume in 2009. However,
the increase in volumetric production in subsequent years i.e. 2010 & 2011 was mainly
associated with the undisputed flow of operation with better utilization rate.
Production Growth
10.0%
5000
3.4%
6.6%
4800
2.6%
1.9%
5.0%
1.6%
4600
0.0%
4400
-5.0%
4200
-12.3%
-10.0%
4000
3800
2009
2010*
2011e
Production (000 tons) - LHS
2012e
2013e
2014e
-15.0%
Growth - RHS
Source: Aljazira Capital *2010 production figures are calculated while 2011 onwards are estimated
Despite of expected decline in the utilization rate in 2014 (as discussed earlier), we expect
the companys overall volumetric production to increase at a CAGR of 2.3%, during 201014. The growth in production volume is mainly based on;
1. Start of SAFCO-V project, which will offset the potential impact of lower utilization
rate in 2014 on production volume.
2. The demand/supply gap in major importing countries will remain in coming years,
since the pace of increase in demand in these countries will remain higher than
their respective expansions in coming years.
Page 14 of 21
December 2011
Financial Overview
9MFY11 Financial Result
SAFCO posted after tax profit of SAR2.8bn (EPS: SAR11.3) in 9MFY11, indicating an
increase of 48.6% as compared to the corresponding period last year. On quarterly
basis, the companys 3QFY11 profitability rose by 100.5% to SAR1.2bn (EPS: SAR4.8).
The YoY growth in net profitability, on quarterly and 9MFY11, was mainly based on the
improvement in operational performance of the company; where 9MFY11 gross margin
was recorded at 74.4% as compared to 71.2% in 9MFY10.
Income Statement: 9MFY11
9MFY10
9MFY11
Sales
2,487.2
3,546.2
42.6%
Cost of sales
(715.3)
(909.0)
27.1%
Gross profit
1,771.9
2,637.2
48.8%
(51.9)
(60.8)
17.3%
General & Administrative expenses

Income from main operation
YoY Change
1,720.0
2,576.4
49.8%
Investment income
22.4
36.3
62.0%
Income from Ibn Byatar
214.6
278.9
30.0%
1,957.0
2,891.6
47.8%
Income before zakat

Zakat
Net income
Earnings per share (SAR)
(50.3)
(58.5)
16.4%
1,906.8
2,833.1
48.6%
8.84
11.33
Source: SAFCO quarterly financial statements
Furthermore, the improvement in the companys financials, during the period review,
was mainly associated with YoY increase in (i) volumetric sales by 2.6% in 9MFY11 and
2.5% in 3QFY11 and (ii) the average prices of related fertilizer products rose by 36.1% in
9MFY11 and 41.9% in 3QFY11.
Financial Ratios: 9MFY11
9MFY10
9MFY11
Gross Profit Margin
71.2%
74.4%
Operating Margin
69.2%
72.7%
Net Profit Margin
76.7%
79.9%
Return on Average Assets
24.9%
37.1%
Return on Average Equity
30.0%
43.7%
Current Ratio
4.1
6.8
Quick Ratio
3.5
6.1
Inventory
6.4
9.1
Receivable
6.2
5.6
Payable
0.5
0.5
2.7%
1.2%
n/a
n/a
Profitability Ratios (%)
Liquidity Ratios (x)
Turnover Ratios (x)
Capital Structure
Debt/Equity (%)
Interest Coverage (x)
Source: SAFCO quarterly financial statements
Page 15 of 21
December 2011
Balanced Financial Growth

We believe the favorable price trend in related products along with the improvement
in volumetric sales will remain crucial for the companys future growth. Hence, the
expected increase in these factors at 2010-14 CAGR of 10.5% and 2.4%, respectively,
will translate into an increase in the companys revenues at a CAGR 15.4%, during 201014. On the other hand, SAFCOs gross margins are expected to show steady improvement
and stabilize in the range of 75%-76%, during 2011-14, as compared to 4-year (FY07-10)
historical average of 69.3%.
Sales revenue growth
7000
60.0%
3.4%
40.5%
2.3%
19.2%
6000
40.0%
38.3%
5000
20.0%
4000
0.0%
3000
-50.6%
-20.0%
2000
-40.0%
1000
2009
2010
2011e
Sale revenues (SAR mn)
2012e
2013e
2014e
-60.0%
Growth - RHS
Source: SAFCO financial reports & Aljazira Capital
Page 16 of 21
December 2011
The companys net profitability is expected to be SAR4.3bn (EPS: SAR17.4) in 2011,

indicating a growth of 34.1% over net profit of 2010. However, SAFCOs net profit margin is
expected to lower down in 2011 to 82.3% from 85.4% recorded in 2010; where the decline
is mainly due to the recognition of gain on disposal of land amounting SAR302.5mn in 2010.
Net profitability growth, ROAA & ROAE
6000
65.0%
61.3%
57.1%
60.0%
5000
56.2%
55.0%
54.3%
4000
45.6%
50.8%
49.5%
50.0%
50.4%
45.0%
46.0%
3000
40.0%
37.7%
35.0%
2000
30.0%
24.5%
25.0%
1000
20.0%
19.8%
0
2009
2010
Net profit (SAR mn) - LHS
2011e
2012e
ROAA - RHS
2013e
2014e
15.0%
ROAE - RHS
Source: SAFCO financial reports & Aljazira Capital
We expect the companys net profitability margin will continue to show improvement in
2012 and 2013 to 85% (on average basis). However, the expected decline in utilization rate
in 2014 will cause a retreat in the companys net margin to 84.1% in the respective year.
Page 17 of 21
December 2011

The company is expected to post after tax profit of SAR1.5bn (EPS: SAR6.2) in 4QFY11 as
compared to the net profit of SAR1.2bn (EPS: SAR4.8) in preceding quarter i.e. 3QFY11. The
QoQ growth in SAFCO bottom line is mainly associated with the expected improvement in
the average prices of related fertilizer products and higher volumetric sales due to seasonal
impact. Consequently, these factors will lead the companys revenue to show QoQ increase
of 29%, where gross margin is expected to reach at 80.2% as compared to 78.6% recorded
in 3QFY11.
All figures are in SARmn, unless
otherwise stated
Sales revenue
1QFY11A
2QFY11A
3QFY11A
4QFY11e
QoQ change
4QFY11/3QFY11
1,038
1,130
1,379
1,779
29.0%
Gross profit
775
778
1,084
1,426
31.6%
EBIT
757
757
1,062
1,404
32.2%
Net income
833
790
1,211
1,550
28.1%
EPS (SAR)
3.3
3.2
4.8
6.2
Source: SAFCO Quarterly financial reports & Aljazira Capital
In comparison with the corresponding quarter last year, our expected revenues for 4QFY11
are indicating a growth of 36.6%. However, the net profitability is expected to show an
improvement of 51.2% over the after tax profit of SAR1.0bn (EPS: SAR4.1) recorded in
4QFY10. The growth is mainly based on the expected improvement in operational margins
to 78.9% in 4QFY11 as compare to 69.9% recorded in 4QFY10.
Page 18 of 21
December 2011
Financial Statements
SAFCO - Income Statement: FY10-14e
All figure in SAR Mn, unless specified
2010
2011E
2012E
2013E
2014E
Sales
3,789
5,325
6,346
6,494
6,716
Cost of sales
(1,100)
(1,262)
(1,503)
(1,505)
(1,635)
Gross Profit
2,690
4,064
4,843
4,989
5,081
(68)
(83)
(92)
(95)
(99)
2,622
3,980
4,752
4,894
4,982
65
56
78
80
81
303
2,989
4,036
4,830
4,973
5,063
307
429
618
643
669
3,296
4,465
5,447
5,616
5,732
Selling & distribution expenses

General & admin expenses
Operating Income
Interest income and financial charges - net
Write down of investment
Other income (expenses) - net
Interest before share of income from
associated company
Income from IBN-Baytar
Net Income Before Zakat
Zakat
(61)
(82)
(82)
(84)
(86)
Unusual item
(0)
Net Income
3,235
4,383
5,366
5,531
5,646
Opening balance
3,038
2,982
4,078
5,151
6,257
Net profit for the year
3,235
4,383
5,366
5,531
5,646
P&L Appropriation A/C
Gain from available for sale investments

Dividend declared
Transfer to statutory reserves
Retained Earnings
(3,291)
(3,287)
(4,292)
(4,425)
(4,234)
2,982
4,078
5,151
6,257
7,669
Source: SAFCO financial reports, AlJazira Capital
Page 19 of 21
December 2011
SAFCO - Balance Sheet Statement: FY10-14e

2010
2011E
2012E
2013E
2014E
Cash & equivalent
2,256
2,864
3,203
3,457
3,806
Account receivables, other receivable &

prepayments
1,036
1,068
1,282
1,538
1,846
345
414
456
524
603
Payment & other assets
58
63
67
72
Securities & short term investment
3,637
4,405
5,003
5,587
6,328
Assets
Current Assets
Inventories
Total current assets

Non current & fixed assets
Intangible assets
147
103
108
114
120
Intangible and financial investments
1,269
1,333
1,666
1,999
2,399
Plant & property
3,243
3,457
3,607
3,807
4,088
Home ownership program receivables
82
33
36
40
44
Total non current & fixed assets
4,741
4,926
5,417
5,959
6,649
Total assets
8,379
9,331
10,420
11,546
12,977
Accounts P/A
315
459
470
482
494
Current installment of long term debt
193
80
80
80
80
Zakat provision
122
Total Current liabilities
630
539
550
562
574
Long term debt
160
80
76
75
74
End of service indemnity
455
500
505
510
515
Other long-term liabilities
615
580
581
585
590
1,245
1,119
1,131
1,148
1,164
Share capital
2,500
2,500
2,500
2,500
2,500
Statuary reserves
1,250
1,250
1,250
1,250
1,250
General reserves
45
45
45
45
45
Liabilities & Owners Equity

Current liabilities
Non current liabilities
Total non current liabilities

Total liabilities
Provisions
Provisions & liabilities
Owners Equity
Unrealized gains from investments
357
339
342
346
349
Retained earnings
2,982
4,078
5,151
6,257
7,669
Total owners equity
7,134
8,212
9,289
10,398
11,813
Total liabilities & owners equity
8,379
9,331
10,420
11,546
12,977
Page 20 of 21
December 2011
SAFCO - Cash Flow Statement: FY10-14e

2010
2011E
2012E
2013E
2014E
3,296
4,465
5,447
5,616
5,732
Operating cash flow

Income before zakat
Depreciation & amortization
299
450
488
532
584
Other cash flows from operations
(670)
(567)
(777)
(806)
(836)
Change in Working Capital
(490)
(138)
(248)
(318)
(379)
Net Cash from operating activities
2,435
4,211
4,910
5,024
5,101
Addition to property. Plat & equipment
(123)
(664)
(638)
(733)
(865)
Other investment activities
466
487
284
309
268
Cash Flows from Investing Activities
344
(178)
(353)
(424)
(597)
(3,250)
(3,287)
(4,292)
(4,425)
(4,234)
(237)
(193)
(4)
(1)
(1)
56
78
80
81
(3,425)
(4,218)
(4,346)
(4,154)
Investing Cash flow
Financing Cash flow

Dividend paid
Repayment of term loans
Other financing activities
Cash Flows from Financing Activities
Increase/Decrease in Cash
(3,487)
(709)
608
339
254
350
Cash Beginning Balance
2,964.5
2,255.9
2,864.2
3,202.9
3,456.7
Cash Ending Balance
2,256
2,864
3,203
3,457
3,806
Page 21 of 21
December 2011
COMPANY PROFILE
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company
and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed
to conduct securities business in all securities business as authorized by CMA, including dealing, managing,
arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul
market, having occupied the market leadership position for several years. With an objective to maintain its market
leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services,
brokerage across MENA and International markets, as well as offering a full suite of securities business.
Rating Terminology
1. Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target.
Stocks rated Overweight will typically provide an upside potential of over 10% from the current price levels
over next twelve months.
2. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target.
Stocks rated Underweight would typically decline by over 10% from the current price levels over next twelve
months.
3. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks
rated Neutral is expected to stagnate within +/- 10% range from the current price levels over next twelve
months.
4. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further
analysis of a material change in the fundamentals of the company.
For further queries about our special services, contact us at the toll free number 800 116 9999.
Disclaimer
The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research,
and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration
the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and
hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is
advised that every potential investor seek professional advice from several sources concerning investment decision and should study
the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate
them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic are of a volatile nature and could witness
sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and
fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled
or arrived at by AlJazira Capital from sources believed to be reliable, but AlJazira Capital has not independently verified the contents
obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty,
express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the
information and opinions contained in this report. AlJazira Capital shall not be liable for any loss as that may arise from the use of this
report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future
performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this
document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any
change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report.
The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low
volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some
fees might be levied on some investments in securities. This report has been written by professional employees in AlJazira Capital, and
they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this
report during the time of publication of this report. This report has been produced independently and separately and no party (in-house
or outside) who might have interest whether direct or indirect have seen the contents of this report. It should be also noted that the
Research Division of AlJazira Capital had no information at the time of issuing this report regarding any conflict of interest between the
company/companies mentioned in this report and any members of the board / executives / employees of AlJazira Capital or any of Bank
AlJazira Group companies. No part of this document may be reproduced whether inside or outside the Kingdom of Saudi Arabia without
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such restrictions. By accepting this document, the recipient agrees to be bound by the foregoing limitations.
Asset Management
Brokerage
Corporate Finance
Custody
Advisory
Head Office: Madinah Road, Mosadia P.O. Box: 6277, Jeddah 21442, Saudi Arabia Tel: 02 6692669 - Fax: 02 669 7761

Saudi Arabia Fertilizers Company

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SAFCO: Initiation Report

Brokerage and Investment Centers

General Manager - Brokerage Division

AGM-Head of international and institutional brokerage

Syed Taimure Akhtar

Luay Jawad Al-Motawa

Regional Manager - Central Region

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Ammonia capacity - Expansion plans

Expansion Will Support Production Growth

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9MFY11 Financial Result

Balanced Financial Growth

SAFCO - Income Statement (FY10-14e)