March 07, 2023 RIYADH CABLES GROUP CO.

Initiating Coverage Report

Rating Neutral Leader in a Fast-Growing Sector

12- Month Target Price SAR 46.00
Solid fundamentals driving valuations
Improving macroeconomic landscape and strong commodity prices presage
Price as on March-06, 2023 46.30 SAR
continuation of strong growth in Riyadh Cables Group Company’s profitability
Upside to Target Price 233.4
(0.6%) driven by: 1) rebounding volumetric sales; 2) improving margins; and 3) ability to
Expected Dividend Yield 4.8% pass-on raw material cost hikes utilizing its position as a market leader in the
Expected Total Return 4.2% region. We initiate coverage with a Neutral rating and a target price of SAR 46.00,
based on DCF valuation technique. Our fair value for RCGC stands at SAR 6.9 billion
or SAR 46.3 per share.
Market Data Upcoming decade of transformation in the Middle East
52 Week H/L SAR 49.55/35.60 The “Vision 2030” is the overarching framework driving much of the activity in KSA.
Market Capitalization SAR 6,945 mln The vision envisages a number of economic cities, public infrastructures, and Giga
Shares Outstanding 150 mln projects as part of a broader push to diversify the Kingdom away from oil revenues.
Free Float 31.1%
Besides KSA’s 2030 Vision, other GCC nations have also outlined their ambitious
1,139,174 goals to ensure sustainable development and economic diversification over the
12-Month ADTV
next 10 to 15 years. All of these plans envision massive infrastructure investments,
Bloomberg Code RIYADHCA AB
and megaprojects to spur growth of new sectors.
The demand for cables is flourishing
Apart from upbeat government sponsored activity, persistently high oil prices
have turned Middle East into a hotspot for global capital that is rushing to find
attractive investment opportunities. RCGC stands to benefit greatly from
improved dynamics of the region as the market for cables in Saudi Arabia is
expected to grow at a CAGR of 6.0% to 8.3% between 2022 to 2027 in Saudi Arabia
and other GCC countries. The power cables market, pertinent to RCGC, is
anticipated to grow rapidly amidst demand conditions in the telecom cables,
specialty cables, and engineering services, etc.
DPS expected at SAR 4.0 in 2027
Between 2019-21, the average payout was 93% as the Company paid a dividend of
SAR 230 million, SAR 179 million and SAR 196 million for 2019, 2020 and 2021
respectively. We expect a dividend payout of 85% for the forecasted period
leading to a DPS of SAR 1.88 in 2022 rising to SAR 4.03 in 2027.
Total revenue to surge at a CAGR of +11.0%
RCGC topline is anticipated to grow at a +11.0% CAGR for 2022E-2027E as we are
expecting revenues of just over SAR 10.7 billion in 2027 primarily on the back of the
significant giga projects that have been announced for the foreseeable future.
Table 1: Key Financials (2021-2027E)
SAR mln 2021 2022E 2023E 2024E 2025E 2026E 2027E
Income Statement
Revenues 4,883 6,364 7,439 8,717 9,586 10,135 10,719
Gross Profit 463 669 799 985 1,097 1,179 1,281
EBIT 303 446 533 687 768 827 912
Net Income 240 333 393 534 597 642 711
Key Ratios (%)
Gross Margin 9.5% 10.5% 10.7% 11.3% 11.4% 11.6% 12.0%
EBIT Margin 6.2% 7.0% 7.2% 7.9% 8.0% 8.2% 8.5%
Net Margin 4.9% 5.2% 5.3% 6.1% 6.2% 6.3% 6.6%
Source: RC

Abdullah D. Alharbi Ghadah A. Bin Ekresh Riyad Capital is licensed by the Saudi Arabia
[email protected] [email protected] Capital Market Authority (No. 07070-37)
+966-11-486-5680 +966-11-203-6812
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Macro and Sector Overview

Saudi Arabia Economy
Saudi Arabia is among the world’s largest economies and the largest economy in
the Middle East, with a nominal GDP estimated at SAR 2,813 billion in 2022. Over
the past 20 to 30 years, revenues from the oil and energy sector have helped the
nation's economy flourish and enabled a major rise in the overall standard of living.
With around 40.6% of the nation's GDP coming from the oil sector in 2021, the KSA
has continued to be one of the top oil exporters and producers. Alongside all other
factors, GDP growth is driving a boom in the construction sector, which increases
the demand for power cables.
Exhibit 1: Saudi Arabia Real GDP (SAR bln)
3,500 8%

3,000 6%

2,500 4%

2,000 2%

3,246
3,159
3,075
2,996
2,916
2,813

1,500 0%
2,615
2,547
2,540

2,533

1,000 -2%

500 -4%

- -6%
2018 2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E
Real GDP Real GDP Growth Rate

Source: RC, IMF

*Base year 2010

Upcoming decade of transformation in the Middle East

Saudi Arabia presented "Vision 2030" in 2016, a plan to diversify the economy and
lessen dependence on oil in order to achieve sustainable growth in the Kingdom.
"Vibrant Society," "Thriving Economy," and "Ambitious Nation" are the three main
goals on which the vision is built. Each Vision 2030 program's success depends on
the development of new infrastructure, construction projects, industries, and
Giga-projects that will allow the country's economy to be further diversified, the
change to a more sustainable growth model, the improvement of Saudi quality of
life through access to high-quality services, and the establishment of Saudi Arabia
as a global powerhouse.
Since the Vision's inception, numerous large-scale projects have been launched;
many of these are now entering an accelerated construction phase such as:

▪ Public infrastructure: Makkah public transport, King Salman International

Airport Airport, Saudi Land Bridge Rail, Kingdom National Schools Program, King
Hamad and King Fahd causeways, etc.
▪ Smart cities and Economic cities: NEOM city, Jeddah Economic city, Knowledge
Economic city in Medina, etc.
▪ Giga projects: Red Sea Project, Al Qiddiya, Al Ula tourism region, King Salman
Park, Darriyah gate, Roshn real estate development, etc.

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Renewable Energy Projects

The energy infrastructure in Saudi Arabia has seen a significant transition as a
result of the country's involvement in one of the most ambitious green energy
programs in the world. The Kingdom aims to create 58.7 GW of renewable energy
capacity by 2030 to implement this ambition, enabling it to produce 50% of its
electricity with no carbon emissions. However, the new capacity will mainly come
from photovoltaic solar parks and onshore wind farms (respectively 68% and 27%
of the new capacity), but also from innovative concentrated solar power plants (5%
of the new capacity).

The Kingdom will need to undertake grid modernization measures to facilitate this
energy transformation. Thus, Saudi Electricity Company (SEC) and the Saudi
National Grid plan to construct 86 transformer substations and 5,400 circuit
kilometers of additional transmission lines by 2030. Further, the Kingdom is
continuing its grid interconnection efforts to ensure a resilient grid and to
potentially become an exporter of green electricity as some of the cornerstone
projects already engaged include:

▪ 35 renewable energy parks are planned across the Kingdom, aiming to build 9
GW per year between 2025-2030.

▪ Four photovoltaic projects are planned to start by 2023, totaling approximately

capacity of 3GW from: Sudair (1.5 GW), Shuaibah (0.6 GW), Jeddah (0.3 GW) and
Rabigh (0.25 GW).

Giga Projects to support the growth in Cable Market

Saudi Arabia’s planned projects highlight the Kingdom’s efforts toward economic,
social and cultural diversification. The Kingdom has set ambitious plans under
Vision 2030, each of these projects will drive the company to accomplish a
successful milestone to grow especially that the projects will be developed in
around 9 cities within the Kingdom with an estimated total coverage area of 150
km2. Therefore, we believe this step will lead to high growth in the cables market
for the future.
Exhibit 2: Main Giga Projects with approximate area

Source: RC

Furthermore, Saudi Arabia’s giga-projects are set to bring significant volumes of

steady work to the construction sector over the long term, starting with the need
for roads and other critical infrastructure. In this regard, each of these projects will
open new areas of economic activity, create jobs and drive economic development
in line with Vision 2030.

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Power Cables Market in the Kingdom

With an expected CAGR of 8.3% between 2022 and 2027 (according to analysis
from Arthur D. Little), the power cables market (pertinent to RCGC) is anticipated
to grow rapidly in light of these favorable demand conditions. By 2027, the market
is anticipated to reach a size of SAR 16.8-18.7 billion. Additionally, given these
circumstances, RCGC's other products, such as telecom cables, specialty cables,
engineering services, etc., are likely to see growth in the KSA market.
Exhibit 3: Saudi Arabia Power Cable Market (SAR bln)

18.2 18.7
16.8
15.5
14.2
12.5
10.6 11.2
9.9 10.1

2018 2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E

Source: RC, RCGC, Arthur D. Little

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GCC Macro and Sector Overview

GCC Economy
Real GDP in the GCC countries fell by 5.6% in 2020 but it began to climb in 2021 and
is expected to grow by more than 3% over the following four to five years. With the
help of World Expo 2020, the UAE is already experiencing an increase in domestic
spending and a rebound in tourism. Due to higher oil exports, public spending, and
credit growth, Kuwait's real GDP is anticipated to grow during the medium term.
Although hydrocarbon dependence varies per nation but is still a significant
economic force in the area. The rise in oil prices has helped the GCC countries'
economies recover economically.
Exhibit 4: GCC Real GDP (SAR bln)

4,000 6%

3,000 2%
699 725
662 681
628 635 651
623 605 614
2,000 475 487 -2%
451 463
432 429 428 439
391 396

1,000 1,802 -6%

1,542 1,600 1,662 1,729
1,435 1,484 1,393 1,425 1,485

- -10%
2018 2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E

UAE Kuwait Qatar Oman Bahrain GCC Real GDP Growth Rate

Source: RC, IMF

Visions of GCC in the Upcoming Years

The GCC nations have all outlined their goals for the ensuing 10 to 15 years, and
they all center on sustainable development and economic diversification. Each
country's vision depends on the growth of new sectors, infrastructure, and
megaprojects to succeed:
▪ UAE National Strategy: UAE has numerous national and emirate-specific plans,
the majority of which will encourage construction (Energy Strategy 2050, Abu
Dhabi Vision 2030, Fujairah 2040 Plan, Dubai Industrial Strategy 2030, etc.).
▪ Kuwait Vision 2035: Aims to promote private sector investment and build an
environment that is conducive to growth. South Saad Al Abdullah city, which
would eventually accommodate 400k people, is a smart city that is also being
created from scratch.
▪ Qatar Vision 2030: Aspires to achieve an acceptable and sustained pace of
economic growth with expanding industries and services having a competitive
advantage.
▪ Oman Vision 2040: Strives to create a diversified, sustainable economy that
embraces the industrial revolution and secures competitiveness. The goal of the
vision is to enable the private sector to lead a healthy national economy.
▪ Bahrain Vision 2030: Intends to transform an economy dependent on oil wealth
into one that is productive and competitive on a global scale, led by the
expansion of the private sector.

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Renewable Energy Projects

GCC countries have set their targets to increase the adoption of renewable energy
in their power generation capacity. Therefore, projects will all need diverse types
of power cables during their execution. Some of the keystone projects planned or
already engaged:

Exhibit 5: GCC Power Cable Projects Overview

United Arab Estate Kuwait Qatar Oman Bahrain

7.3GW of Upcoming 800MW Capacity Solar 4.5GW Projects in 125MW Under Askar
2.9GW of Projects
Projects Projects Different Sources Project

▪ Fujairah 3: Waste-to- ▪ Under separate phases ▪ Two 800MW capacity ▪ Manah 1 & 2: Solar ▪ Askar project: mix of
energy project of 2.4GW. of the Shagaya project solar projects projects of 2.9GW, 100MW solar energy
▪ Al Dhafra: Solar energy ▪ The project is a mix of together account for and 25MW waste-to-
▪ Siraj Energy
project of 2GW in Abu CSP and photovoltaic 1GW. energy project.
▪ Messaieed
Dhabi. solar energy. ▪ Waste-to-energy
▪ SP IV and V: Solar energy projects of 911MW
projects of 2GW and scale, of which the
0.9GW in Dubai. OESHC project
accounts for 750MW.
▪ Wind energy projects
of 650MW scale
combined Dhofar 1 & 3
of 450MW and DUQM of
200MW.

Source: RC, RCGC

GCC’s Mega Projects

GCC countries are also involved in large-scale upcoming projects with an
estimated project budget of SAR 180 billion. The requirement for power cables in
the region is anticipated to increase over the next few years. From 2022 to 2027,
the power cables market is expected to rise at a compound yearly growth rate of
6.0%, from SAR 10.9-12.1 billion in 2022 to SAR 14.6-16.2 billion in 2027. The UAE
is predicted to be the main driver of growth, followed by Oman and Kuwait, while
Bahrain and Qatar are anticipated to grow modestly. Given the multi-sectoral
demand profile, growth is predicted for all power cable types.

Exhibit 6: GCC Power Cable Market, Mega Projects (SAR bln)

16.2
15.4
14.6
13.9
13.0
11.8 12.1
11.3 11.4
10.9

2018 2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E

United Arab Estate Kuwait Qatar Oman Bahrain

Limited Large-scale Various Mega Industrial

8 Mega Scale Projects 4 Mega Projects Number of Planned Projects
Projects Projects

▪ Kizad project phase 2 (Seaport) ▪ North Kuwait Airport ▪ Currently planned beyond the ▪ Sur refinery ▪ Railway project to integrate
Airport city in Doha. the public transport network.
▪ Lower Zakum development (Oil ▪ Al Zour ( Petrochemical plant) ▪ Green Hydrogen
field) ▪ Ras Laffan petrochemical
▪ Al Khiran City (Residential city ▪ Green Ammonia facility in
plants.
▪ DIFC development (Commercial development in Al Ahmadi Dhofar Habhab Oil field
hub) governorate). service.
▪ Mina Rashid Development
(Waterfront residential
community).

Source: RC, RCGC

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Iraq Macro and Sector Overview

Iraq Economy
Iraq’s economy is linked to oil, which is the country's primary source of revenue.
Over 99% of exports and 85% of government revenue is accounted by oil. On the
back of rising oil prices, it is anticipated that Iraq's economy would gradually
rebound and in the medium term, the debt-to-GDP ratio is expected to continue
to decline. Iraq's security, political, and institutional circumstances have steadily
improved, allowing for stability and supporting growth. Due to systemic
deficiencies in law enforcement and public investment, the economy remains
vulnerable since it relies on a single revenue source.
However, Iraq showed indications of recovery with 5.9% real GDP growth in 2021
after a sharp decline of 15.7% during the pandemic. By 2027, it is anticipated to
increase at a steady rate and reach SAR 941 billion.

Exhibit 7: Iraq Real GDP (SAR bln)

1,000 10%

5%
800

0%
600
-5%

941
917
894
871
848
821

803
776

400
733
692

-10%

200
-15%

- -20%
2018 2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E
Real GDP Real GDP Growth Rate

Source: RC, IMF

Iraq Vision
The Iraqi government is making significant investments in economic reforms that
would help the nation diversify its economy and build a sustainable one. This
strategy entails improvement of basic infrastructure, particularly in the areas of
electricity and telecommunications. Iraq has announced in its official reform
program that it intends to invest in a number of important sectors, such as:
▪ Electricity
▪ Industrial infrastructure
▪ Digital infrastructure

In addition, major Gulf and global economies are providing investment to Iraq,
which is expected to aid in its reconstruction. KSA and UAE governments have also
committed SAR 22.5 billion in investments in Iraq. Also, Iraq has Bilateral
Investment Treaties (BITs) with eight countries (France, Germany, etc.).
Iraq Projects
As a result of the macroeconomic trends, there will be more construction projects,
which will require a variety of power cables to execute. Iraq has about SAR 1.4
trillion in big projects which are planned or underway. Various types of power
cables will be required for the implementation of each of these projects.

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Iraq Power Cable Market

Iraq's power cable market value is anticipated to increase by 7.1% between 2022
and 2027, from SAR 2.5-2.7 billion in 2022 to SAR 3.5-3.8 billion in 2027, driven by
these post-war development and reconstruction projects. Given the fundamental
challenges, Iraq suffers in managing its public funds and maintaining political
stability.

Exhibit 8: Iraq Projects (SAR bln)

3.8
3.7
3.6
3.5

3.0
2.7 2.7
2.6
2.5
2.4

2018 2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E

Power Projects Infrastructure and Industrial Residential and Commercial

▪ Build the basic power infrastructure rather ▪ Planned projects such as a crude oil export ▪ Plans for Rafael city, a new city next to the
than transitioning to renewables, unlike pipeline of 2,951 kilometers through Jordan capital, Baghdad, to provide housing for the
GCC countries. and Al Faw refinery that includes a residents of Baghdad.
petrochemical plant for its industrial
▪ Started a large-scale gas-fired power plant ▪ Plans of residential projects in Nahrawan,
expansion.
program of 11GW. Further, to support it, Al Nasr, Erbil etc.
Khairat thermal power plant of 3.2GW, ▪ Expanding its public infrastructure through
Rumaila combined cycle power plant of projects like the eastern high-speed
3GW, and a few solar power plants. railway.
▪ Planned the grid interconnection with
Jordan, and various another grid
modernization projects.

Source: RC, RCGC

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Riyadh Cables Group Company

Riyadh Cables, founded in 1984 with a capital of SAR 7.5 million, is recognized as a
pioneer in the Middle East's wire and cable industry. The company has 15 facilities
and is spread out over an area of 1,500,000 sqm with a production capacity of
264,000 tons. It manufactures and supplies all types of wire and cables from the
most cutting-edge facilities in Saudi Arabia, United Arab Emirates and Iraq.
The Company’s business model is divided into four main categories:
▪ Manufacturing: Manufactures copper and aluminum low, medium, high and
extra-high voltage electrical wires and cables as well as copper and aluminum
communication cables, instrumentation cables, copper and optical fibers,
specialized cables and overhead conductors.
▪ Selling and Distribution: In addition to selling through the 18 sales and
distribution centers of the Specialized Wire Company, located in various cities
throughout the Kingdom, the company also sells its goods directly to customers
who it has contracts with.
▪ Electrical Contracting Projects: The design and construction of electricity
distribution networks as well as the drilling, installation, and connecting work
associated with electrical cables and wires, are all included in electrical
contracting projects. Therefore, the Company is involved in contracting for
electrical projects involving high voltage cables both inside and outside the
Kingdom.
▪ Maintenance: Construction and architectural contracting as well as the
maintenance of industrial buildings and production lines.

Since its inception in 1984 with the goal of becoming a pioneer in the field of cables,
RCGC has not only experienced a history full of significant achievements, but is
also continuing to expand and develop as it recently announced a joint venture in
Kuwait. RCGC has progressed towards achieving its vision to become one of the
leading and most efficient company’s in providing products and services for
transmission and distribution of electric power and infrastructure.

Exhibit 9: RCGC Timeline

Source: RC, RCGC

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Geographical Presence
The Company continues to maintain its track record of expanding its geographic
scope and strengthening its presence in the markets by utilizing its local expertise
as well as expanding and establishing factories across the world. The Company has
18 branches engaged in selling and distributing its products, all of which are
subsidiaries of the Specialized Wire Company. Outside the Kingdom, the Company
has 5 branches engaged in the activity of selling and distributing the company’s
products, four of these branches belong to the Metals Company, one branch in
Kuwait and three branches in the United Arab Emirates, while one branch belongs
to Riyadh Cables Company in United Arab Emirates.
Exhibit 10: Geographical Presence

Source: RC, RCGC

▪ UAE: The Company has been able to enter the UAE market strongly and gain a
greater market share as it is also one of the leading companies in exports to
international markets due to its subsidiary, National Cable Industry Company.

▪ Iraq: Since it has been the dominant supplier in the Iraq cable market, the
company is looking to leverage its marketing and integrated production to grow
in the Iraq market. It has the most advanced cable facility in Iraq, it has doubled
its production capacity. Thus, revenues in Iraq increased between year 2019 and
2021 with a compound annual growth rate of +19.26%.

▪ Kuwait: RCGC is currently launching its first industrial facility in Kuwait to

manufacture high and extra-high voltage cables, noting that it will be the only
producer of high and extra-high voltage cables in Kuwait. This will allow it to
further solidify its position as a key supplier in the Kuwaiti market. The industrial
facility is a joint venture with Gulf Cable and Electrical Industries Company, a
company established in Kuwait under the name (Gulf and Riyadh Wire
Manufacturing Company). Manufacturing operations are estimated to start in
2023.

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RCGC’S Future Strategy

RCGC’s main strategy is to protect and increase its market share by focusing on
increasing the sale of its main products in the markets in which it is located as well
as go into more niche high value products that it has the ability to produce in due
to its focus on higher quality. The Saudi market and other target markets are
attractive elements that will increase the demand for cables and services provided
in the coming years. RCGC’s share in Saudi market is likely to increase to 38% in
2027.
Exhibit 11: RCGC Market Share in Kingdom (%)

38%

32%
30% 30%

2019 2020 2021 2027E

Source: RC, RCGC

RCGC’s strategy can be illustrated below:

▪ Continuous follow-up on market trends and requirements, to be proactive in
providing customers with integrated solutions of products and services and to
continue to be a regional provider of power solutions.
▪ Relying on the company's extensive sales and distribution network, which
includes 18 branches throughout the Kingdom. Seeks to increase its share in
urban projects and small and medium infrastructure projects.
▪ Obtaining the largest share in the upcoming giga projects due to the group's
possession of a wide portfolio of products of power cables compared to any
other Saudi manufacturers (from 0.3 kV to 500 kV), such as engaging in NEOM.

Exhibit 12: RCGC’s New Products Under Development

Source: RC, RCGC

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RCGC Major Subsidiaries

The Company is engaged in producing most cables in the Kingdom besides being
among the top 15 cable makers globally in terms of production and sales
worldwide. However, RCGC and its subsidiaries conduct their business operations
in an integrated manner as a single entity. However, it has thirteen subsidiaries
owned directly or indirectly, of which five are considered essential and eight are
considered non-essential.
▪ Metal, Cables and Plastic Industry: Closed joint stock company with a
capital of SAR 215.1 million. The company produces polyethylene, copper-
based, insulated wires and cables.
▪ Specialized Electrical Cables and Wire Industry: Closed joint stock
company with a capital of SAR 25.1 million. The company's operational
activities include the production of basic non-ferrous metals such as wires,
pipes, and other items, as well as the production of insulated copper and
aluminum wires and cables.
▪ Telephone Cable Industry: Closed joint stock with a capital of SAR 40.1
million. The company's activity is represented in the manufacture of wooden
pallets, the manufacture of optical fibers and the manufacture of insulated
wires and cables made of copper.
▪ Riyadh Cables Company: Riyadh Cable Company has a capital of SAR 120.1
million. The company's operations include producing pipes of all kinds for
telecommunications, electricity, and other uses, installing heating panels and
other domestic appliances as well as installing, maintaining, and repairing air
conditioning and refrigeration systems.
▪ National Cables Industry (NCI): Established in 2001 in the Emirate of
Sharjah (UAE) on a spacious area of 150,000 square meter. In this region, the
manufacturing facility is the most modern using latest state of art machinery
technology and management system to deliver good quality products. The
foresight in understanding the future needs of the market as well as the
technical expertise is an essential strategy at NCI in its continuous journey of
production improvement.
▪ First Cable Factory in Iraq: Alrowad Co. established in 2013 is the first
private cable factory in Iraq, located in an area of more than 75,000 square
meters in South Baghdad. The Company mainly specializes in manufacturing of
low and medium voltage cables. RCGC’s subsidiary (NCI) owns 100% of
Alrowad Co. which in return led RCGC is to gain market share in the Iraq market.
Exhibit 13: Ownership Structure

23.98% 22.42% 9.32% 9.30% 5.00% 3.45% 3.45% 2.97% 1.00% 0.75%

Abdulkader Ahmed Mohammed Leenah Ehsan Khoder Mohammed

Hikmat Al Alma Limited Rana Hamdi
Al-Muhaideb Samer Al Hikmat Al Hamdi Al Abdulmajee Mohsen Al Suliman Al
Zaim Company Al Zaim
& Sons Zaim Zaim Zaim d Al Zaim Ibrahim Sulaim

Riyadh Cables
Group Company

99.75% 99.60% 99.83% 99.95%

Saudi Modern for Specialized Saudi Modern Company for
Saudi Modern Company for Metals, cables and plastic
Electrical Cables and Wire Riyadh Cables Company
Telephone Cable Industry Industry
Industry

100%

National Cables Industry

Source: RC, RCGC

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Major Customers
RCGC has a strong presence as it has longstanding relationships with its
customers and supplies products manufactured in the Kingdom and the United
Arab Emirates. As a result, RCGC facilities and products been qualified by regional
service and utilities such as SEC, DEWA, FEWA and many others. In addition, major
projects such as the King Salman Energy City and Roshn projects also use RCGC
products.
Exhibit 14: Major Customers by Category and Length of Relationship

Source: RC, RCGC

Operations Overview
The Company carries out its manufacturing process through (15) factories,
including (13) factories in the Kingdom while one factory is in the Emirate of Sharjah
in the United Arab Emirates and one factory in Iraq.
▪ Cable Factories: Nine factories which are dedicated to the manufacture of
cables and electrical wires of all kinds and telephone cables of both types made
of copper and optical fibers.
▪ Support Factories: Six factories which work on the production of raw materials
used for the manufacture of cables.
The company’s factories represent an integrated manufacturing system, where
the supporting factories produce most of the raw materials used in the
manufacture of cables and electrical wires while the cable factories carry out the
production process in an integrated manner.
Exhibit 15: Factories Structure
Riyadh Cables RTC RCC RMC RCGC

Cable Factory No. 6 Cable Factory No. 4 Cable Factory No. 2 Cable Factory No. 1
NCI 4.8 MTA 33.6 MTA 34.8 MTA 60.0 MTA

Cable Factory No. 8 Cable Factory No. 7 Cable Factory No. 5 Support Factory No. 1 Cable Factory No. 3
24.0 MTA 1.10 MTA 30.0 MTA 60.0 MTA 55.2 MTA

Support Factory No. 2

Alrowad Co. 144.0 MTA

Cable Factory No. 9 Support Factory No. 3

16.4 MTA 60.0 MTA

Support Factory No. 4

165.0 MTA

Support Factory No. 5

13.2 MTA

Support Factory No. 6

8.0 MTA

Source: RC, RCGC

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RCGC’S Market Positioning

Riyadh Cables product portfolio is wide and diverse which makes it more difficult
for players to operate in and compete against RCGC across its several product
portfolios. The production capacity is around 264,000 mt making the company a
leader in the industry, creating a diversified and fragmented competitive
landscape. Nevertheless, a small number of companies rival RCGC in some areas
of its product offering.
Exhibit 16: RCGC’S World-Class, Scale, Integrated Manufacturing Facilities

Scale Integrated Manufacturing

▪ Metal Processing
▪ Area: 1,500,000
▪ Aluminum Clad Steel
▪ (15) Facilities ▪ Polymers Compounding Facilities
▪ Capacity: 264,000 tons ▪ Wooden and Steel Drums
▪ Multiple Lines ▪ Polypropylene Yarn
▪ Metal Forming and Working

State-of-the-Art Equipment

▪ Imported from leading suppliers

in Germany, Finland and Italy
▪ Latest technologies and ERP
integration
▪ Continuous upgrades

Source: RC, RCGC

RCGC competes with a large set of local and multinational players on specific
products. Below are the key competitors for RCGC:

1. Al Fanar Group Company: In order to create cables ranging from building

wire to HV cables, Al Fanar, a Saudi electrical and electronic manufacturing
company, focuses on expanding local production capabilities outside the
Kingdom. Additionally, they provide comparable EPC solutions and turnkey
projects in a variety of industries, including renewable energy, transmission,
and distribution.
2. El Swedy Company: Elsewedy was founded in 1938 and is listed on the Egypt
Stock Exchange since 2006. The company is recognized in MENA as an
electrical product manufacturer with a presence in the Gulf countries that
creates sustainable projects in energy and infrastructure, which enable
businesses, communities and regions to thrive, owing to its plants in KSA and
Qatar. The company mainly produces LVC, MVC and HVC cables up to 132KV.
It also offers other products such as electrical and cable accessories.
3. Ducab Company: Ducab was founded in 1979 and started as a joint venture
between UAE government and BICC under the need to develop local
manufacturing capabilities. Ducab has developed capabilities to manufacture
a range of power cables (with a unit dedicated to extra high voltage cables) and
acquired IP for specialized cables.
4. Jeddah Cables Company: Jeddah Cables has the ability to domestically
produce both high and extra-high voltage cables with a production capacity of
50,000 mt in addition to lower voltage cables, overhead lines, instrumentation
cables and control cables.

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5. Bahra Electric Company: Bahra Electric was established in 2008 as the

company purely produces wires, low, medium and high voltage power cables,
overhead lines, control cables and instrumentation cables.
6. Gulf Cables Company: Gulf Cable Company was established in 1975 as a sole
cable manufacturer in Kuwait and is also listed on the Kuwaiti Stock Exchange.
It has a production capacity of 50,000 mt. Due to its advantageous
geographical positioning, Gulf Cable naturally controls the low and medium
voltage power cable markets in Kuwait. Although it exports to the Gulf nations,
it hasn't showed much interest in growing there. The company has prioritized
investments in Jordan, where it has industrial assets above other countries in
the Middle East.
7. Oman Cables Company: Oman Cables was established in 1984 as an
electrical manufacturer dominating the local Omani market with a totally
integrated variety of electrical products, which include medium voltage power
cables, low voltage power and control cables, instrumentation cables, pilot
cables, overhead power transmission line conductors and building wires. The
company has two local manufacturing plants with four factories and a
production capacity of 120,000 mt. Also, Oman Cables holds 51%
shareholding in Oman Aluminum Processing Industries LLC, which
manufactures aluminum rods and overhead conductors.
Exhibit 17: RCGC Versus Competitor
LV Power MV Power HV Power Extra & HV Overhead Specialized Communicat
Competitor Wires Rods Fiber Optics
Cable Cable Cable Power Cable Lines Cables ion Cables

RCGC ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Al Fanar Group ✓ ✓ ✓ ✓

Bahra Electric ✓ ✓ ✓ ✓ ✓ ✓

Ducab ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

ElSewedy Electric ✓ ✓ ✓ ✓ ✓

Gulf Cables ✓ ✓ ✓ ✓ ✓ ✓

Jeddah Cables ✓ ✓ ✓ ✓ ✓ ✓ ✓

Oman Cables ✓ ✓ ✓ ✓ ✓

Source: RC, RCGC

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Competitive Advantages
National Brand with high capacity and regional operations
Over the past four decades, the company has produced enough cables to circle the
globe nearly 2,000 times. This level of high production capacity gives the business
a significant competitive advantage in terms of quick turnaround times and the
capacity to fulfill significant orders without frequently subcontracting with other
manufacturers. As a result, RCGC has been able to address a market share of 30%
in the Kingdom market and 22% in the UAE market.
Close relationship with major clients
RCGC has served as a regional resource for businesses looking to improve and
develop the specifications and designs currently in use because it was one of the
pioneers in the region's cable industry. Furthermore, RCGC focuses on ongoing
customer service and after-sales services in addition to offering its clients a range
of consulting and technical services in accordance with projects.
Diversity of products and services
The company stands out for being able to manufacture over 3,000 different high-
quality cables and wires in a variety of sizes and requirements for usage in the
energy, contracting, transportation, industry, and communications sectors. This
enables the company to have a significant competitive advantage when offering
integrated solutions.

Key Risks and Challenges

Macroeconomic concerns
RCGC’s growth is linked to the economic growth in the markets that it operates in,
particularly Saudi Arabia, where it sells most of its products. These markets are
currently experiencing high levels of growth and many large and giga projects are
underway. Higher levels of crude oil prices help the GCC countries as many of them
derive a substantial portion of their revenues from crude oil. Any extraordinary
decline in crude oil prices or any other economic issues which leads to a slowdown
in the ongoing construction projects can have a negative impact on the Company.
Exposed to regional markets
RCGC is exposed to both production and sales outside Saudi Arabia, in regional
markets. It also has 18 branches with sales and distribution offices. Although most
are stable markets with little geopolitical risks; some markets, such as Iraq, have
seen periods of heightened risks, which can lead to a negative impact on sales.
External cost pressure
The Company’s manufacturing facilities depend on several requirements to run its
factories such as electricity, industrial water, gas and diesel. Thus, any increase in
costs on any of these fronts can lead to rising costs for the Company. However,
these costs are generally a smaller proportion of total costs and the potential
impact on margins is likely to be minimal.
Competition
The cable market is quite scattered and there are many competitors who offer
similar products in different segments at competitive prices. Therefore, the
company may face some challenges on this front at time to increase its market
share, especially in the Kingdom of Saudi Arabia.

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Segmental & Financial Analysis

Product portfolio and services
The company and its subsidiaries are considered among the leading companies
that are specialized in the production of cables, electrical wires, communication
cables and electrical conductors in the Middle East and abroad. Additionally, the
business is renowned for producing and selling all varieties of wire and cables out
of its most modern, cutting-edge facilities in Riyadh, Saudi Arabia, the United Arab
Emirates, and Iraq.
Exhibit 18: Revenue Break-down with Product Categories
Riyadh Cables Group Company Major Products

3% 2% 3%
1% 2% 1% 2% 0%
4% 11%
12% 12%
17% 17%
17%

62% 67% 66%

2019 2020 2021

LV MV HV Bare Copper Fiber Obtic Others

Wires Low Voltage Cable Medium Voltage Cable High Voltage Cable Bare Copper Optical Fiber

▪ Manufactures wires, ▪ Produce Low Voltage ▪ Support a voltage ▪ High voltage power ▪ Used in producing ▪ Produce Loose Tube
cords and wiring cables Cables in both PVC and range between 6 kV cables are up to 380 conductors for power Type Cables and Tight
to be used in the XLPE insulations of and 36 kV, making kV, ideal for cables, overhead line Buffer Types Cables
supply of electric copper and aluminum, them ideal for use in transmission systems. conductors, screens, for use as fiber optic
power, lighting and with armored and un- infrastructure, and armoring. cables for outdoor and
internal wiring for armored designs, and including the indoor use
residences and offices, in single or multi-core distribution and respectively.
and other similar constructions. transmission of power
environments of a
non-industrial nature.

Source: RC, RCGC

Other Products
The Company is also distinguished in its ability to produce more than 3,000 SKUs
of cables and wires of different specifications and sizes of high quality, which are
used in the sectors of energy, contracting, oil and gas, transportation, industry and
communications, which gives it a highly competitive advantage in providing
integrated solutions. The exhibits below show some of the other products RCGC
offers.
Exhibit 19: RCGC’s Other Products
Wooden and Steel Drums
Owns one of the most advanced plants for manufacturing
different sizes of wooden and steel drums used in the cables
industry.

Overhead Lines Control Cables

Produce up to 500 kV used for long distance power transmission
and inter-city connections which include bare hard drawn copper
conductors.

Copper Rods
Produce high purity copper rods of 8 mm diameter as it used in
producing conductors for all types of cables and metallic
screens.

LV XLPE Compounds
Material which is used as insulation in low voltage cables.

Aluminum Rods
Produce high purity aluminum rods of 9.5 mm diameter which
then used in producing conductors for power cables and
overhead line conductors and armoring.

LSHF Compounds
Material is used to fill and jacket cables with special characteristic
of non-toxic emissions.

Copper Telephone Cables

Produce an extensive range of telephone cables, up to 3,600
pairs, in accordance with specifications supplied by Saudi
Telecom.

Source: RC, RCGC

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Through its participation in numerous significant projects over the past few years
and the expansion of its product line with a major focus on high voltage and extra
high voltage cables, RCGC has become even stronger in the industry. The
Company’s revenues mainly relate to the sale of cables, which are copper and
aluminum cables for a variety of uses and with different voltages (low, medium, and
extra-high voltage cables as well as indoor wires and overhead lines) as well as fiber
optic cables, in addition to and other revenue comprising of scrap sales and
turnkey projects whereby the Group carries out contracting services and
installation work on a project basis for electricity projects.
The majority of revenues and volumes comes from Copper
RCGC relies on two main metals to manufacture its products, namely copper and
aluminum. However, sales volumes and prices have faced changes over the years,
which has been reflected in the company's revenues.
Copper wires volumes sold declined by -15.9% to 98 tpa in 2020 from 116 tpa in
2019 with stable average selling price per ton at about SAR 30.5k. This was mainly
due to the impact of COVID-19 on most sales channels. Thereafter, average selling
price per ton rose by +37.6% to SAR 42.1k in 2021 mainly due to an increase in
global average price of copper per ton and global average price of aluminum, offset
by a decline in the quantities sold by -7.2% to 91 tpa in 2021.
Aluminum wires volumes sold improved by +12.7% from 57 tpa in 2019 to 64 tpa in
2020 with an increase in the average selling price per ton from SAR 14.7k to SAR
15.0k. In 2021, volumes declined by -25.5% to 47.9 tpa. This was mainly due to the
increase in the average selling price per ton from SAR 15.0k to SAR 19.0k due to the
increase in the global average price of aluminum.
Exhibit 20: Volume Breakdown 2019-2027E (000 Tones)

79
76
72
68
62
56
57

64

48

211
199
188
169
142
118
116

98

91

2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E

Copper Aluminum

Source: RC, RCGC

As we mentioned earlier, we expect a growth in sales volumes due to the many

large and giga projects in the country which are at different stages of completion
and their need for cable products as well as the company’s entrance into new
markets such as Kuwait while also raising its market share. The company also plans
to expand its products range which will drive sales growth. We have incorporated a
strong growth in volumes at a CAGR of +10.8% during the period 2022E-2027E.
We would highlight the big jump in 2022 and 2023 as the construction picks up pace
and the Company goes through the order backlog.

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A) Copper Wires: Copper products revenues represent about 76.2% of the

company’s revenues during years 2019, 2020 and 2021. However, Copper
wires revenues declined by -15.7% from SAR 3,537 million in 2019 to SAR 2,984
million in 2020, which was mainly a result of the impact of COVID-19 on most
sales channels whereas most of the projects and purchases had been
suspended or postponed to 2021 due to the economic stagnation. In 2021,
Copper wires revenues improved by +27.7% to SAR 3,811 million due to an
increase in the average selling price per ton by 37.6%. For 2022E-2027E, we
expect a CAGR of +12.0% to reach SAR 8,856 million in 2027.
Exhibit 21: Copper Products Revenue and Gross Profits 2019-2027E (SAR mln)
10,000 16%
11.6%
11.0% 11.3%
8,000
10.7% 10.8% 12%
9.8% 10.2%
9.4%
6,000 8.6%
8%

8,856
8,354
7,881
4,000

7,100
5,967
5,014

4%
3,811
3,537

2,000
2,984

767 867 944 1,027

332 319 328 491 609
0 0%
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E

Revenues Gross Profit Gross Margin

Source: RC, RCGC

B) Aluminum Wires: Aluminum products represent about 20.2% of the

company’s revenues during the years 2019, 2020 and 2021. Revenues for
aluminum grew by +15.4% from SAR 838 million in 2019 to SAR 968 million in
2020. This rise was due to an increase in revenues from direct and indirect sales
to SEC and contractors for air conductors’ installations (increased about SAR
170.3 million), which mainly relate to aluminum products in line with the
increase in the number of installed orders included in the supply agreements
by the SEC. For 2021, revenues declined by -6.1% to SAR 909 million, the
decline was mainly in the quantities sold through medium voltage products and
air conductors (within the high voltage cables) as a result of the return of
quantities to the normal level. For 2022E-2027E, we expect a CAGR of +7.2%
to reach SAR 1,640 million in 2027.
Exhibit 22: Aluminum Products Revenue and Gross Profits 2019-2027E (SAR mln)

2,000 16%
13.7%
13.1% 12.9% 12.6% 13.1% 12.9% 12.6% 13.1%
1,600
10.4% 12%

1,200
8%
1,640
1,562
1,487

800
1,417
1,276
1,156
968

4%
909
838

400 186 192 197 215

115 101 119 149 161

0 0%
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E

Revenues Gross Profit Gross Margin

Source: RC, RCGC

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C) Fiber Optic: Revenues for fiber optic cables represent about 1% of the group's
revenues during the years 2019, 2020 and 2021. It mainly relates to a major
project with STC and other telecom companies. Revenues for fiber optic
cables declined from SAR 55 million in 2019 to SAR 42 million in 2020 and then
to SAR 19 million in 2021 due to the gradual slowdown from the main project
with STC that started in 2016. For 2022E-2027E, we expect a CAGR of +7.2%
to reach SAR 79 million in 2027E.
Exhibit 23: Fiber Optic Revenue and Gross Profits 2019-2027E (SAR mln)
100 40%

30.6% 30.6% 30.6% 30.6% 30.6%

80
25.7% 25.5% 25.5% 30%

60
20%
14.9%
40

79
76
75
23 23 24

60
57
56
55

18 10%
14 14 15
42

20
6 6
19

0 0%
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E

Revenues Gross Profit Gross Margin

Source: RC, RCGC

D) Others: Other revenues represent about 2.7% of the group’s revenues during
years 2019, 2020 and 2021. Other revenue consists of scrap sales as well as
revenue from turnkey projects. Other revenues fell by -31.2% from SAR 135
million in 2019 to SAR 93 million in 2020 due to the delivery of electrical
contracting projects (turnkey) in Kuwait and Dubai Electricity and Water
Authority (DEWA) projects among other projects. Other revenues increased
by +55.6% to SAR 145 million in 2021 as a result of starting new turnkey
projects. For 2022E-2027E, we expect a CAGR of +7.2% to reach SAR 145
million in 2027.

Exhibit 24: Other Revenue and Gross Profits 2019-2027E (SAR mln)

160 10.5% 16%

13.4% 8.2% 10.5% 10.5% 10.5% 10.5% 10.5%

120 12%
9.8%

80 8%
145

145
143
142
141
139
138
135

93

40 4%
18 14 15 15 15 15 15
9 12

0 0%
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E

Revenues Gross Profit Gross Margin

Source: RC, RCGC

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Gross profit per ton likely to grow

In general, margins improve due to product mix, efficiencies and innovation. One
of the advantages of the company is gross profit per ton is not linked to commodity
price as the Company fixes the profit per ton at the time it receives an order from
the client and the metal price is hedged. Gross profit per ton grew in 2021 due to
the increase in revenues and the change in the sales mix. Moving forward, for
FY2022-2027 we expect copper gross profit per ton for the company to rise
gradually reaching SAR 4.87k in 2027.
Exhibit 25: Gross Profit per Ton 2019-2027E (SAR per ton)

4.87
4.75
4.62
4.54
4.28
4.15
3.62
3.27
2.87

2.71

2.71
2.68

2.67
2.61

2.61
2.48
2.01

1.56

2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E

Copper Aluminum

Total revenue to surge at a CAGR of +11.0% through 2027E

Revenues of the Company increased by +6.1% in 2019 to SAR 4.6 billion.
Thereafter, topline declined in 2020 by -10.5% but grew in 2021 by +19.5% to SAR
4.8 billion. While the company tried to manage the impact as a result of COVID-19,
there was a shift in commodity prices while volumes were impacted negatively.
The Company was able to post good growth in 2021 due to the sharp rise in
commodity prices and robust volume recovery brought on by supply and demand
bottlenecks.
For 2022, we are expecting total revenues of SAR 6.4 billion, a growth of +30.3%
Y/Y. However, we anticipate a +11.0% CAGR for 2022E-2027E period as we are
Source: RC, RCGC
expecting growth in revenues to just over SAR 10.7 billion in 2027 primarily on the
back of the significant giga projects that have been announced for the foreseeable
future. We expect an increase in demand for the company's specialized products,
including those that will be produced exclusively by RCGC in the Kingdom. This will
result in higher profitability over time.
Exhibit 26: Revenue CAGR of +11.0% for 2019-2027E (SAR mln)
12,000 35%
30.3% 30%
10,000 19.5% 25%
16.9% 17.2% 20%
8,000
15%
10.0%
10,719

6,000 10%
10,135

6.1% 5.7%
9,586

5.8%
8,717

5%
7,439

4,000
6,364

0%
4,883
4,566

4,087

2,000 -10.5% -5%

-10%
0 -15%
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E
Revenues (%) Growth

Source: RC, RCGC

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Uptrend in profitability
Gross profit declined by -9.1% Y/Y in 2020 to SAR 436 million due to COVID-19
impact, in addition to a fall in gross profit per ton for aluminum as a result of the
change in the sales mix to low and medium voltage cables, combined with a lower
average selling price per ton than high voltage cables. In 2021, gross profit
increased by +6.1% to SAR 463 million on the back of reversing the provisions with
a value of SAR 27.8 million. We expect gross profit to significantly grow to SAR 669
million in 2022 and then gradually rise to reach close to SAR 1.3 billion in 2027 due
to strong growth in volumes tied with better margins and product mix.
Both EBIT and EBITDA are expected to follow a similar pattern as we do not expect
any extraordinary rise in depreciation or other operating expenses. We expect the
Company’s EBITDA to grow from SAR 368 million in 2021 to SAR 1.0 billion in 2027.
Exhibit 27: Key Profitability Metrics 2019-2027E (SAR mln)
1,400

1,200

1,281
1,179
1,000

1,097

1,020
985

931
800

912
867

827
799

781

768
600

687
669

623
533
532

400
480

463

446
436

368
350
347

200
278

286

303

-
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E
Gross Profit EBIT EBITDA

Source: RC, RCGC

Gross margins to expand gradually
RCGC gross margins have faced some volatility in line with economic conditions.
Margins were reported at 10.5% in 2019 and peaked at 10.7% in 2020 but came
down to 9.5% in 2021 due to the rise in cost of raw materials in line with the
increase in the price of minerals globally. Going forward, we expect an
improvement in margins due to the high demand from giga projects as well as
expanding business outside the Kingdom (such as the Kuwait Project).
We expect gross margins to grow to 10.5 % in 2022 and keep rising to 10.7% in
2023 and to 11.3% in 2024 on the back of an increase in the number of projects at
a higher margin as well as better product mix. Furthermore, we expect margins to
reach new levels at 12.0% in 2027.
Exhibit 28: Key Profitability Margins 2019-2027E (%)
12.0%
11.6%
11.4%
11.3%
10.7%
10.7%

10.5%
10.5%

9.5%

8.5%
8.2%
8.0%
7.9%
7.2%
7.0%
7.0%

9.5%
9.2%
9.0%
9.0%
6.2%
8.6%
6.1%

8.4%
8.4%
7.6%

7.5%

2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E

Gross Margins EBIT Margins EBITDA Margins

Source: RC, RCGC

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Net income to keep pace with revenues

Net income grew by +10.7% from SAR 197 million in 2019 to SAR 218 million in
2020 mainly driven by a reversal of ECL provisions, going from a provision of SAR
33.5 million in 2019 to a provision refund of SAR 12.1 million in 2020. This is in
addition to lower costs financing and lower depreciation expense (which declined
by SAR 4.6 million). Thereafter, bottomline increased by +10% to reach SAR 240
million in 2021, in line with the increase in revenues and gross profit as a result of
the change in the sales mix coupled with an increase in the global average price of
copper per ton and aluminum per ton by +51.0% and +45.5%, respectively.
Going forward, we expect net income to rise to SAR 333 million in 2022 and keep
on growing to SAR 393 million in 2023 due to the pent-up demand. We expect an
extraordinary year in 2024 with a net income of SAR 534 million on the back of
higher revenues and improving margins, we then expect a steady rise in net income
reaching SAR 711 million through 2027.
Exhibit 29: Net Income and Net Margins 2019-2027E (SAR mln)
800 6.2% 6.3% 6.6% 7%
6.1%
5.3% 5.2% 5.3% 6%
4.9%
600 5%
4.3%
4%
400

711
3%

642
597
534
2%
393

200
333
240
218

1%
197

0 0%
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E
Net Income Net Margins

Source: RC, RCGC

Net margins have been on a gradual uptrend since 2019 rising from 4.3% in 2019 to
5.3% in 2020 before it declined to 4.9% in 2021. We expect net margin to improve
reaching 5.2% in 2022 and then gradually rise to 5.3% in 2023 before picking up to
6.1% in 2024 and eventually going to 6.6% in 2027.
DPS at SAR 4.0 in 2027
Between 2019-21, the average payout was 93% as the Company paid a dividend of
SAR 230 million, SAR 179 million and SAR 196 million for 2019, 2020 and 2021
respectively. We expect a dividend payout of 85% for the forecasted period
leading to a DPS of SAR 1.88 in 2022 rising to SAR 4.03 in 2027.
Exhibit 30: DPS and Dividend Payouts 2019-2027E (SAR)
12.00 160%

117%
120%
8.00 85% 85% 85% 85% 85% 85%
82% 82%
80%
3.64 4.03
4.00 3.02 3.38
1.88 2.23 40%
1.53 1.19 1.31

0.00 0%
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E

EPS DPS Dividend Payout

Source: RC, RCGC

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Net Debt-to-EBITDA at 2.2x by 2027

Net debt/EBITDA for RCGC slightly increased to 3.5x in 2021 from 3.3x in 2019 due
to the higher net debt despite the improving EBITDA. We expect Net debt/EBITDA
to continue to decrease to reach 2.2x by 2027 on the back of strong ability for
RCGC to generate cash from its operations.

Exhibit 31: Net Debt and Net Debt/EBITDA 2019-2027E (SAR mln)
2,500 400%
3.46x 350%
2,000 3.33x
2.80x 300%
2.68x
2.45x 2.47x 2.38x 250%
1,500 2.27x 2.24x

2,285
200%

2,213
2,140
1,912
1,000

1,667
150%
1,491
1,274
1,156

100%
500
794

50%
0 0%
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E
Net debt Net Debt-to-EBITDA

Source: RC, RCGC

Receivables expected to increase
Accounts Receivables fell significantly for the Company to SAR 819 million in 2020
from SAR 1.1 billion in 2019 due to lower volumes sold as a result of COVID-19,
which affected revenues. In 2021, AR increased to SAR 963 million in-line with
higher revenues due to higher prices for Copper and Aluminum. We expect an
increase in receivables to SAR 1.3 billion in 2022 due to higher revenues and to rise
gradually, in-line with revenues, to reach SAR 2.1 billion by 2027. In terms of a
percentage of revenues, receivables declined from 23.7% in 2019 to 19.7% in
2021. Going forward, we assume receivables would increase to 20.5% of sales in
2022 and then remain stable until 2027.
Exhibit 32: Account Receivables and as % of Revenues (SAR mln)
2,500 23.7% 25%
20.0% 19.7% 20.5% 20.0% 20.0% 20.0% 20.0% 19.5%
2,000 20%

1,500 15%
2,090
2,027
1,917

1,000 10%
1,743
1,488
1,305
1,084

963

500 5%
819

0 0%
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E
Accounts Receivables A/R as % of Revenues

Source: RC, RCGC

Payables to rise as well

Accounts payable increased from SAR 128 million in 2020 to SAR 221 million in
2021 on the back of higher purchases and payment dates from suppliers along with
higher prices for Copper and Aluminum. We expect Accounts Payables to increase
gradually to reach SAR 661 million in-line with higher demand.

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The Company managed its working capital

In the past three years, CCC has increased from 172 days to 185 days, mainly due
to higher inventory which amounted of SAR 1.6 billion in 2021. We expect cash
conversion cycle to drop to 140 days by 2027 mainly due to an increase in
inventories, accounts receivables and accounts payable on back of higher
expected demand.

Exhibit 33: Cash Conversion Cycle 2019-2027E (Days)

185
172 175
154 147
131 139 141 140 140
114

114

104

97
97

95
95
93
87

26 26 26 26 26 26
73

72

71

70
70
69

68
18
65

8 13

2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E

Days Receivables Days Inventory Days Payables Cash Conversion Cycle

Source: RC, RCGC

Capital Expenditure expected to rise

The Company’s capital expenditure in the past 3 years averaged around SAR 70
million. We expect capital expenditure to show a slight increase in 2022 to SAR 77
million, before starting to increase from 2023 to SAR 108 million and reaching a
level of SAR 162 million by 2027. This is mostly in line with management’s guidance
of spending a total CapEx of SAR 100-170 million for the years 2023-2027. The
additional capex would be prompted by additional capacity and demand.
Exhibit 34: Capital Expenditure 2019-2027E (SAR mln)
200 3%
1.5%
1.5%
2.0%
160 1.4% 2%
1.4%
1.4% 1.5%
120 1.2% 1.2% 2%
162

80 1%
151
136
121
108
89

40 1%
77
69
50

0 0%
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E
Capital Expenditure Capital Expenditure as % of Revenues

Source: RC, RCGC

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Valuation
We have conducted the valuation for RCGC through the Fundamental approach,
using the Discounted Cash Flows method. We arrive at a valuation of SAR 6.9 bln
or SAR 46.3 per share.
Discounted Cash Flows (DCF) valuation at SAR 6.9 bln (SAR 46.3/share)
Using our DCF valuation technique, we arrive at an equity value for the company of
SAR 6.9 billion or SAR 46.3 per share. To calculate the Weighted Average Cost of
Capital (WACC), we have used a risk-free rate of 4.4% and an equity risk premium
of 5.0%. Our Beta of 1.12 is the average Beta of the following: ELECTRICAL
INDUSTRIES and Middle East Specialized Cables and two listed companies in
Cement sector namely: Yamama and Yanbu. Our cost of debt assumption is at
6.21%. We are using 39.4% as a weight of debt for RCGC and an equity weight of
60.6%. Applying the respective weights to cost of equity and cost of debt, we
arrive at a WACC of 8.4%.

Exhibit 35: Discounted Cash Flows Valuation

RC - Valuation 2023E 2024E 2025E 2026E 2027E

EBIT 533 687 768 827 912
Depreciation & Amortization 90 94 99 104 109
Capital Expenditure (375) (469) (472) (327) (348)
Change in Working Capital (108) (121) (136) (151) (162)
Cash Flow to the Firm 140 191 260 453 510
Terminal Value 9,708
Total FCFF 140 191 260 453 10,218
Discounting Factor 1.0 0.9 0.9 0.8 0.7
Discounted Cash Flows 140 176 221 355 7,396

Risk Free Interest Rate (Rf) 4.4%

Long-term growth rate 3.0% Equity Risk Premium 5.0%
Enterprise value 8,148 Beta 1.1
Add: Cash 50
Cost of equity CAPM 10.0%
Add: Investments 70
Cost of debt 6.2%
Less: Debt 1,324 Zakat 2.5%
Equity Value 6,945 Debt Weight 39.4%
Number of shares 150 Equity Weight 60.6%
Price per share (SAR) 46.3 WACC 8.4%

Source: RC

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Financial Statements
The following are the consolidated Income statement, Balance Sheet and Cash
Flow with Ratios and Key Metrics for RCGC:
Exhibit 36: Condensed Income Statement
Income Statement (SAR mln) 2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E
Revenues 4,566 4,087 4,883 6,364 7,439 8,717 9,586 10,135 10,719
COGS (4,086) (3,650) (4,420) (5,694) (6,641) (7,732) (8,489) (8,956) (9,438)
Gross Profit 480 436 463 669 799 985 1,097 1,179 1,281
S,G&A Expenses (183) (172) (171) (232) (275) (321) (346) (369) (389)
Provisions for credit losses (33) 12 9 (2) (5) 8 4 1 2
Other income 15 9 3 11 14 14 14 17 18
Operating Profit 278 286 303 446 533 687 768 827 912
Loan charges (50) (35) (32) (74) (96) (97) (109) (118) (126)
Zakat (32) (32) (31) (39) (44) (56) (63) (67) (75)
Net Income 197 218 240 333 393 534 597 642 711

EBITDA 347 350 368 532 623 781 867 931 1,020
EPS 1.31 1.45 1.60 2.22 2.62 3.56 3.98 4.28 4.74
DPS 1.53 1.19 1.31 1.88 2.23 3.02 3.38 3.64 4.03

Source: RC, RCGC

Exhibit 37: Condensed Balance Sheet

Balance Sheet (SAR mln) 2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E
Assets
Cash & equivalents 54 64 50 46 120 108 135 264 370
Account receivables 1,084 819 963 1,305 1,488 1,743 1,917 2,027 2,090
Inventories 1,041 1,145 1,586 1,737 1,852 2,006 2,213 2,293 2,430
Others 79 40 71 87 110 144 153 163 173
Total Current Assets 2,258 2,069 2,670 3,174 3,570 4,001 4,418 4,747 5,064
PPE 1,229 1,144 1,155 1,147 1,166 1,194 1,232 1,280 1,334
Others 17 89 128 124 112 101 88 73 55
Total non-Current Assets 1,245 1,233 1,283 1,271 1,278 1,295 1,320 1,354 1,390
Total Assets 3,503 3,302 3,953 4,446 4,848 5,297 5,738 6,101 6,453

Liabilities & Equity

Islamic loan 1,210 859 1,324 1,537 1,787 2,020 2,275 2,477 2,656
Accounts Payable 90 128 221 399 465 541 594 627 661
Others 176 250 255 302 327 384 425 452 483
Total Current Liabilities 1,476 1,236 1,800 2,238 2,579 2,945 3,294 3,556 3,799
Employee's terminal benefits 96 96 107 113 117 120 124 129 133
Lease liabilities 12 10 9 8 7 6 5 4 4
Total non-Current Liab 109 107 116 121 124 126 129 133 137
Total Liabilities 1,584 1,343 1,917 2,359 2,703 3,071 3,423 3,690 3,936
Share Capital 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500
Retained Earnings 189 208 261 278 297 324 354 386 422
Statutory Reserve 207 229 253 286 326 379 439 503 574
Others 23 22 22 22 22 22 22 22 22
Total Equity 1,919 1,959 2,036 2,086 2,145 2,225 2,315 2,411 2,518
Total Liab & Equity 3,503 3,302 3,953 4,446 4,848 5,297 5,738 6,101 6,453

Source: RC, RCGC

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Exhibit 38: Condensed Cash Flows

Cash Flows (SAR mln) 2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E
Net Income before Zakat 229 250 271 372 437 590 659 709 786
Adjustments (256) 344 (480) (228) (169) (258) (244) (85) (91)
CFO (27) 594 (208) 144 268 331 415 625 695
Additions (89) (50) (69) (77) (108) (121) (136) (151) (162)
Others 1 (2) (3) 0 0 0 0 0 0
CFI (88) (52) (72) (77) (108) (121) (136) (151) (162)
Financing paid (2,568) (3,097) (2,815) (4,050) (4,735) (5,607) (6,120) (6,538) (6,950)
Proceeds from finance 2,924 2,746 3,280 4,264 4,984 5,840 6,375 6,740 7,128
Dividend paid (230) (179) (196) (283) (334) (454) (507) (546) (604)
Others (2) (2) (2) (2) (2) (1) (1) (1) (1)
CFF 124 (532) 267 (71) (87) (221) (253) (344) (427)
Change in cash 8 10 (13) -4 74 (11) 26 129 106
Beginning cash 46 54 64 50 46 120 108 135 264
Cash at year end 54 64 50 46 120 108 135 264 370

Source: RC, RCGC

Exhibit 39: Ratios and Key Metrics

2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E
Growth (YoY)
Revenues 6.1% (10.5%) 19.5% 30.3% 16.9% 17.2% 10.0% 5.7% 5.8%
Gross Profit 34.7% (9.1%) 6.1% 44.5% 19.3% 23.4% 11.3% 7.5% 8.7%
Selling & Distribution 17.7% (11.2%) 5.5% 24.8% 19.5% 16.5% 9.4% 5.2% 5.2%
General & Admin 8.8% (0.7%) (5.9%) 46.3% 17.6% 17.3% 6.8% 8.2% 5.7%
EBITDA 29.1% 0.7% 5.4% 44.5% 17.1% 25.3% 11.0% 7.4% 9.6%
Net Income 45.5% 10.7% 10.0% 38.6% 18.3% 35.6% 11.8% 7.6% 10.8%

Profitability
Gross Margins 10.5% 10.7% 9.5% 10.5% 10.7% 11.3% 11.4% 11.6% 12.0%
EBITDA Margins 7.6% 8.6% 7.5% 8.4% 8.4% 9.0% 9.0% 9.2% 9.5%
EBIT Margins 6.1% 7.0% 6.2% 7.0% 7.2% 7.9% 8.0% 8.2% 8.5%
Net Margins 4.3% 5.3% 4.9% 5.2% 5.3% 6.1% 6.2% 6.3% 6.6%
Return on Equity 10.3% 11.1% 11.8% 15.9% 18.3% 24.0% 25.8% 26.6% 28.2%
Return on Assets 5.6% 6.6% 6.1% 7.5% 8.1% 10.1% 10.4% 10.5% 11.0%
Return on Capital Employed 13.7% 13.8% 14.1% 20.2% 23.5% 29.2% 31.4% 32.5% 34.3%

Leverage/Liquidity (x)
Current Ratio 1.5 1.7 1.5 1.4 1.4 1.4 1.3 1.3 1.3

Others
EPS 1.3 1.5 1.6 2.2 2.6 3.6 4.0 4.3 4.7
DPS 1.5 1.2 1.3 1.9 2.2 3.0 3.4 3.6 4.0
Dividend Payout 117% 82% 82% 85% 85% 85% 85% 85% 85%
Book Value per share 12.8 13.1 13.6 13.9 14.3 14.8 15.4 16.1 16.8

Source: RC, RCGC

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Stock Rating

Buy Neutral Sell Not Rated

Expected Total Return Expected Total Return Expected Total Return
Under Review/ Restricted
Greater than +15% between -15% and +15% less than -15%

* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors
For any feedback on our reports, please contact [email protected]

Disclaimer
Riyad Capital is a Saudi Closed Joint Stock Company with Paid up capital of SR 500 million, licensed by the Saudi
Arabian Capital Market Authority NO.07070-37. Commercial Registration No: 1010239234. Head Office: Granada
Business Park 2414 Al-Shohda Dist. – Unit No 69, Riyadh 13241 - 7279 Saudi Arabia. Ph: 920012299.

Riyad Capital may receive compensation from the Company for services rendered to it. Riyad Capital may be an
advisor or underwriter in respect of a proposed offering of Securities by the Company.

This document is being furnished to you solely for your information and may not be reproduced, redistributed or
passed on to any other person. This document may not be directly or indirectly distributed into any jurisdiction
where to do so would be unlawful.

The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst
all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts,
opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or
warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital
does not represent that the information in this report is complete or free from any error. This report is not, and is
not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no
reliance should be placed on the accuracy, fairness or completeness of the information contained in this report.
Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and
neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for
the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in
securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report
represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject
to change without notice. There can be no assurance that future results or events will be consistent with any such
opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts
or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future
actual results or events could differ materially. The value of, or income from, any investments referred to in this
report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future
performance. Accordingly, investors may receive back less than originally invested amount. This report provides
information of a general nature and does not address the circumstances, objectives, and risk tolerance of any
particular investor. Therefore, it is not intended to provide personal investment advice and does not take into
account the reader’s financial situation or any specific investment objectives or particular needs which the reader
may have. Before making an investment decision the reader should seek advice from an independent financial,
legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all
recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information,
opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.

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