20110428 automotive gb auto company note58 repairedmec.biz/term/uploads/auto-28-04-2011.pdf ·...

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Please Read Last Page for Contact Details and Important Disclaimer

GB Auto 2011: A challenging year– Hold maintained GB Auto [AUTO] reported a 28% year-on-year (YoY) growth in consolidated net earnings in its 2010 results to EGP258mn. The marginal growth level came despite 61% higher 2010 revenues of EGP6,874mn, driven mainly by passenger car (PC) total revenue growth of 86% to EGP5,383mn, increasing its contribution from 68% to 78% due to lower margins. Meanwhile, commercial vehicle (CV) total revenues rose 3.2% to EGP665mn, and two- and three-wheeler total revenues increased 4.5% YoY to EGP624.8mn in 2010. Elsewhere, AUTO’s financing business continued to grow, up 795% to EGP55.5mn. EBITDA margin narrowed by 0.8 of a percentage point (pp) to 8.8%, mainly due to CV's lower gross margin of 9.3% in 2010 vs. 11.6% a year ago. In view of 2010 financial results and the current political unrest in Egypt, we have updated our DCF model, lowering FY11e EPS 46% from EGP3.43 to EGP1.84. Furthermore, we lowered both LTFV and TP by 43% (from EGP58.1/share to EGP33.3/share). As this now leaves AUTO with 17% upside potential, we maintain our Hold recommendation with Moderate Risk rating.

Revenue growth on higher sales volumes: AUTO’s revenues increased 61% YoY to EGP6,874mn in 2010, up from EGP4,258mn a year earlier as a result of a 79%YoY increase in total PC sales volume (including vehicles sold in Iraq) to 74,390 units. Bus sales volume increased 17% YoY to 927 units in 2010 (vs. 792 units in 2009), and the company’s financing business segment gained 795% to report EGP55. 5mn (up from only EGP6.2mn a year earlier).

PC revenue contribution up, thanks to Iraq: PC's contribution to total revenues increased by 10pp from 68% to 78% in 2010. We calculate that 62% of PC sales volume growth (from 41,646 units to 74,390 units) was driven by Iraq, whose contribution to PC revenues represented 23% in 2010.

EBITDA margin decreased 0.8pp on lower CV gross margin: AUTO reported a 0.8pp decline in 2010 EBITDA margin to 9%. This was mainly due to CV's lower gross margin of 9.3% vs. 11.6% in 2009, which was partially offset by a 0.5pp improvement in SG&A/sales to 5.3% in 2010. All said, AUTO reported a YoY 28% higher consolidated net earnings of EGP257.9mn (-18% vs. CICRe of EGP316mn), compared to EGP201.4mn in 2009.

Valuation and recommendation: AUTO’s results reflected a general recovery within the Egyptian automotive market in 2010. However, the current political unrest in Egypt is expected to rein the automotive market growth in 2011. Hence, we have updated our DCF model, lowering FY11e EPS by 46% from EGP3.43 to EGP1.84. Moreover, we have lowered our LTFV and TP 43% from EGP58.1/share to EGP33.3/share. As this implies 17% upside potential from AUTO’s recent market price of EG28.5/share, we maintain our Hold recommendation with Moderate Risk rating.

Key Performance Indicators

Source: Company financials and CICRe

AUTO Stock Performance | 52 weeks

Ahmed Abdel Ghani [email protected]

HOLD (MAINTAINED) LTFV| EGP33.3 (DOWNGRADED)

TP|EGP33.3 (DOWNGRADED) COMPANY SYNOPSIS

GB Auto [AUTO] was founded by Sadek & Kamal Ghabbour in 1940. In 1956 the company was incorporated for trade in automotive-related products & construction materials whilst later on, in the early 1970s, it began securing agent licenses for passenger car, bus and automotive part distributors. In July 2007, GB Auto shares began trading on the Egyptian Exchange (EGX) after the completion of a capital increase through an IPO. GB Auto was the first (and is currently the only car assembly company) floating shares in EGX. The company has an authorized capital of EGP400mn and an issued capital of EGP129mn, distributed over 129mn shares at a par value of EGP1/share. SHAREHOLDER STRUCTURE SHARE DATA

Dr. Raouf Ghabbour & Family 73.5%Free Float 26.5%Total 100.0%

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Volume AUTO EGX 30 - rebased

Reuters; Bloomberg AUTO.CA , AUTO EYRecent price as of 27-Apr-11 EGP 28.50No.of issued shares 129 mnNo. of O/S shares 125.7 mnMarket cap 3582.5 mn52-wk high / low EGP 55/ EGP 24.1Avg. daily volume / turnover 0.11 mn / EGP 4.37 mn

EGP mn 2009 A 2010 A 2011 P 2012 P 2013 P

Revenues 4,258.4 6,873.8 7,760.9 10,035.1 12,759.8 Growth rate 61.4% 12.9% 29.3% 27.2%

EBITDA 405.7 602.6 563.3 839.0 1,107.4 Growth rate 48.5% -6.5% 48.9% 32.0%EBITDA margin 9.5% 8.8% 7.3% 8.4% 8.7%

Net income 201.4 257.9 237.5 423.5 600.5 Growth rate 28.0% -7.9% 78.3% 41.8%Net margin 4.7% 3.8% 3.1% 4.2% 4.7%

PER 17.8x 13.9x 15.4x 8.6x 6.1xP/BV 2.0x 1.9x 1.8x 1.7x 1.5xEV/EBITDA 10.4x 6.0x 9.4x 6.6x 5.1xNet debt/EBITDA 1.6x 0.1x 2.9x 2.3x 1.8xDividend yield 3.6% 3.6% 3.1% 5.5% 7.8%

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Financial & Operational Summary AUTO’s 2010 financials showed a 28% increase in bottom line profits after tax and minority interest of EGP258mn (vs. EGP201mn in 2009 and 18% lower than CICRe of EGP316mn). Revenues rose 61% YoY to EGP6,874mn in 2010, up from EGP4,258mn a year ago (3% lower than CICRe of EGP7,084mn), mainly due to a 79% YoY increase in total passenger car (PC) sales volume (including vehicles sold in Iraq and Mazda sales in Egypt) to 47,390 units from 41,646 units a year ago (CICRe: 76,543 units). This reflects a fundamental recovery in the Egyptian automotive market. Commercial vehicle sales revenues increased 3% on the year from EGP645mn in 2009 to EGP665mn in 2010, 10% lower than CICRe of EGP735mn. This occurred mainly on the back of a 17% year-on-year increase in bus segment sales from 792 units in 2009 to 927 units in 2010. This was driven by reviving demand in the corporate sector as well as a recovery– although more modest– in demand from the tourism sector. The company’s finance business grew 795% from EGP6.2mn to EGP56mn on the year.

AUTO’s EBITDA margin narrowed 0.8pp to 8.8% in 2010, down from 9.5% in 2010 and below CICRe of 9.3%. This was mainly due to an increase in OPEX/Sales to 91%, up from 90% in 2009 on higher Cogs/sales to reached 86% in 2010 vs.95% a year earlier.

On a quarterly basis, AUTO’s financials showed a 56% YoY decline in net earnings to EGP40mn in 4Q10. This decline was mainly due to the devaluation of the Egyptian Pound against the foreign currencies-mainly US Dollar and the Japanese Yen. Moreover, the shortage of CBU vehicles in Iraq and the three-wheelers in Egypt in addition to some stock liquidation of some models including Sonata and Mazda had impacted the company’s performance. Revenues increased 34% YoY reached EGP1,762mn in 4Q10 vs. EGP1,318mn a year ago.

Figure 1 | Income Statement Summary – AUTO

Source: GB Auto, Bloomberg and CICR estimates

Figure 2 | Quarterly Financial KPIs -- AUTO

Source: GB Auto

EGP mn 2009 A 2010 A % YoY 2010 E Var. 2011 CICRe % YoY 2011e Consensus % YoY

Revenues 4,258 6,874 61% 7,084 -3% 7,761 13% 8,028 17%

Operating Expenses (3,853) (6,271) 63% (6,428) -2% (7,198) 15% (7,312) 17%

Opex/Sales 90% 91% 0.8pp 91% 0.5pp 93% 2pp 91% -0.2pp

EBITDA 406 603 49% 655 -8% 563 -7% 716 19%EBITDA margin 10% 9% -0.8pp 9% -0.5pp 7% -2pp 9% 0.2pp

Net income 201 258 28% 316 -18% 238 -8% 279 8%Net margin 5% 4% -1.0pp 4% -0.7pp 3% -1pp 3% -0.3pp

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Sales Breakdown A. Passenger Cars (PCs) Total market PC sales showed a 21% YoY increase in volume to 192,848 units in 2010 (60% CBU units), up from 158,926 units (62% CBU units) a year ago, driven mainly by economic recovery in the Egyptian market.

GB Auto’s PCs total sales revenue (including sales in Iraq) showed an 86% YoY increase to EGP5,383mn in 2010 (vs. EGP2,893mn in 2009) driven by a 79% YoY increase in sales volume to 74,390 units (70% CBU and 30% CKD) in 2010. AUTO’s Egyptian sales volumes (including Hyundai and Mazda) increased YoY by 29.8% in 2010, reaching 54,052 units in 2010 vs. 41,646 units a year ago. This was a strong year for the Completely Knocked Down (CKD) units, with a 59% increase in unit sales over 2009 reached 22,439 units. This increase was mainly driven by the sales of Hyundai Verna within the national taxi replacement program, which accounted for 7,306 Verna units sold in 2010. AUTO captured a 56.7% share of this program in 2010.

Mazda sales showed a disappointing performance in 2010, returning a net loss of EGP11.2mn due to the effects of foreign currencies, which support customer perceptions of it as a high-priced product. Currently, AUTO’s management are negotiating with the supplier to optimize its product mix and price.

AUTO’s joint venture GK Auto in Iraq has shown a massive performance since its inauguration in 1Q10, with sales volume reaching 20k units in 2010 despite supply constraints which have challenged this segment during its short life operation.

On a quarterly basis, Auto’s sales volume in the Egyptian market rose YoY by 4% to 12,982 units in 4Q10. In this quarter, sales volume was expected to show a more strong performance but it was to some extent affected by a model change and consumer anticipation of launching new Accent RB model in early 2011. Moreover, sales were constrained in this quarter due to the supplier’s decesion to discountinue two popular models (Viva and Atos). On a different note, GB AUTO’s management decided to discount its selling prices to promote purchasing old Sonata models imapcted the margins in this quarter.

After-sales segment reported a 25%YoY growth in 2010 to EGP199mn. This growth came slower than expected due to the paced roll-out of the new service centers.

Figure 3 | Total market and GB Auto sales volume in Egypt

Source: AMIC and GB AUTO

198,800

158,926 192,848

51,518 41,646

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B. Commercial Vechicles (CVs) Although GB AUTO has spent the past 12 months reducing levels of high cost inventory, finalizing the establishment of GB Polo in Suez and addressing quality issues in the trailer segment, the growth in this segment was constrained in 2010 by the impact of the strength of the Japenese Yen and the Euro on this price-sensitive segment. Total CVs’ sales revenue increased YoY by 2%, reaching EGP586.6mn in 2010.

Buses: AUTO’s market share increased in 2010 by 5% YoY, reaching 37.3%. This segment reported a 17% YoY increase in sales units, reaching 927 units in 2010 driven mainly by the construction of the new paint shop at GB Polo which now is cabaple of operating at a full capacity of 14 units per single shift per day. This factory has launched export operations making its first export sales in 4Q10. Trucks: This segment showed a slight uptick in unit sales of 5.6% YoY to 1,297 units in 2010 despite the challenge faced this segment in 4Q10 due to the appreciation of the Japense Yen. Moreover, heavy trucks reported a 49% YoY decline in 2010 as a result of pricing issues. Hence, GB AUTO’s market share declined YoY by 2.4% reached 15% in 2010. Trailers: This segment witnessed a dramatic year in 2010, mainly due to the collapse of the second hand truck market, which dropped from 5000 units in the past two years to only 1500 units in 2010. Moreover, the GoE has postponed the drawbar replacement program, while the transport sector has slowed down, applying the wait-and-see approach for recovery signs in the market. At the same time, AUTO’s mangement suspended manufacturing to address quality issues and manage high cost inventory. Accordingly, AUTO’s sales volume dropped by 37% YoY to 409 units in 2010 and its market share declined by 49% reached 43% in 2010.

Construction equipment: This segment showed modest results in 2010 due to forex related product pricing issues with the supplier. Hence, its sales volume decline YoY by 49% to 43 units in 2010.

After-Sales revenue showed a 13% YoY increase reached EGP78.8mn in 2010.

Figure 4 | GB Auto Bus sales volumes and market share*

* Market share is calculated excluding micro-buses

Source: GB Auto

1,319 792 927

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Figure 5 | GB Auto Trucks & Trailers sales volumes and market share*

* Market share is calculated excluding Pick-ups and light commercial vehicles Source: GB Auto

C. Two-and Three-wheel vehicles This segment’s sales revenues grew only by 2% YoY to EGP595mn in 2010 due to supply constraints, which was a result of the new safety standards being implemented in the Egyptian market which required this segment’s units to be complied with the European automotive standards. Moreover, Bajaj plants in India were focusing on their domestic increase in demand. After-sales revenues for this segment has grown significantly YoY by 84% to EGP30mn in 2010 given that the consumers attracted to the products that its spare parts and service centers are available. Figure 6 | Two and Three wheelers sales volume

Source: GB Auto

D. Other lines of business Tires: sales showed a successful year in 2010 with a 37.7% growth in Lassa tires sales and strong performance by Yokohama. This segment reported a 78% growth in 2010, reaching EGP111.7mn.

Transportation Services passed a very difficult year in 2010, as AUTO’s management decided to discontinue passenger transport division leading to a net cost of EGP25mn due to the difficulties in working with municipal authorities. Accordingly, sales revenue reported a 38% YoY decline to EGP53.6mn in 2010.

Financing Business continued its solid growth performance in 2010, reporting a 795% growth YoY to EGP55.5mn. This growth came mainly on the back of a 395% YoY increase in new financing contracts totaled EGP202mn. Moreover, Mashroe’y achieved a small profit in 2010 exceeding Auto’s management expectations. The original business plan for this micro-finance business called for 15 branches in 2010, but demand supported the establishment of 25 branches by year end.

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Two wheelers Three wheelersUnits (000)

1,397 1,228 1,297 625 646 409

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Figure 7 | Other Lines of Business

Source: GB Auto

Figure 8 | Breakdown of other LoB’s Revenues by segment

Source: GB Auto

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Changes in our Projection Assumptions

A. Passenger Cars (PCs) We continue to forecast GB Auto’s PC sales on a volume-driven basis, taking into account the effect of the current unrest, since as with any economy, the purchasing of vehicles (new or used) is positively correlated with safety and stability. Before these events, market experts were optimistic that the automotive market will rebound beyond the sales volumes that were achieved before the global financial crisis which had a severe negative effect on the vehicles’ sales in 2009 (especially after the strong sales volume in 2010 reached 192,848 PCs, compared to 158,926 units in 2009). Market experts forecasted total PC market sales volumes in 2011 (prior to the 25th January revolution) to increase by 15% to reach 221,775 units. After the revolution, however, customers preferred to apply the “wait-and-see” approach in owning new vehicles, considering them as among the lowest priorities during uncertain times. Accordingly, we expect total market PCs sales to decline by 20% YoY in FY11 to reach 154,278 units, and to rebound beyond 2010 sales by 2013e as a result of an expected gradual recovery in the macro economy. Our projections for GB Auto’s passenger car segment are explained below.

GB Auto’s PCs sales Hyundai (Egypt) Sales: We lowered our projections for GB Auto’s Hyundai sales volume in Egypt for FY11-FY14 by 28% on average and forecast Hyundai sales units to reach 77,951 units in 2015. We lowered our 2011 estimates by 29%, meanwhile, to 42,725 units (58% CBU and 42% CKD) versus our previous estimates of 60,575 units (66% CBU and 34% CKD) reflecting the effect of the current events on the market.

Average selling price: We increased AUTO’s Hyundai average selling price going forward slightly on the back of the appreciation of foreign currencies against the Egyptian Pound. We have therefore increased AUTO’s average PC selling price in 2011 by only 1% to EGP74k/unit (from EGP73.2k in our previous estimate and vs. an average of EGP65.7), as we do not believe that GB Auto will be able to significantly increase its average selling prices if it intends to maintain its leading market share and the means to strengthen it.

Market share: We have revised our estimates for GB Auto’s market share, in the belief that GB Auto will not be able to increase its market share beyond 2010 due to the severe competition. Hence, we forecast a market share of 27.7% for GB Auto Hyundai PCs in Egypt, versus our previous estimate of 28.3%.

Gross profit margin (GPM): We lowered our GPM going forward to 11.8% vs. 12.5% in our previous estimates.

Figure 9 | Forecasted market and AUTO’s Hyundai sales volume (2011-2015)

Source: GB Auto and CICR estimates

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Mazda (Egypt) Sales: We believe that Mazda will continue to disappoint due to the appreciation of the Japenese Yen against the local currency, adding to customers’ perception of it as highly priced. Accordingly, we lowered our projections for Mazda sales in Egypt going forward. In 2011, we lowered our estimates for Mazda sales volume 35% to 401 units, a reduction from 543 units in our previous estimates.

Average selling price: Due to the concerns mentioned above regarding customer perceptions of Mazda selling prices and the foreign currency constraint, we have lowered our average selling price for Mazda going forward. In 2011, we reduced our forecast for average selling price 7.4% from EGP122k/unit to EGP113k/unit and vs. EGP139.6k/unit in 2010 as we believe that AUTO’s management will try to liquidate the old Mazda stock through lowering its margins.

Market share: We have revised our estimates for GB Auto’s Mazda market share maintained the same one as in our previous forecast in 2011 at 0.3% and increasing it going forward to reach 1% in 2014 vs. our previous forecast of 2.5%.

Gross profit margin (GPM): We have also updated our forecasts for Mazda’s GPM. In 2011, we forecast Mazda’s GPM at 2%, compared to our previous forecats of 7%. Going forward, we expect its GPM to reach its peak point in 2014 at 3%, vs. our previous peak forecast in 2012 of 11%.

After-sale revenue (Egypt) We increased our estimates for PCs after-sale revenue going forward as a result of the anticipation of the new service centers that target under-served customers nationwide. In 2011, Auto’s management have scheduled opening of 5 new service centers. Hence, we increased our projections of after-sales service revenue by 16% to EGP237mn, vs. EGP205mn in our previous forecasts.

Hyundai (Iraq) Although the Iraqi market remains undeveloped while hindered by United Nations (UN) sanctions, wars and lack of safety, and despite a lack of reliable and accurate statistics, we believe that this is a very promising market for GB Auto due to several optimistic signs, including:

The nascent re-emergence of the Iraqi middle-class now represents c.40% of the total Iraqi population (around 30mn citizens).

International Monetary Fund (IMF) forecast of 11% growth in Growth Domestic Product (GDP) in 2011 while other economists projected a growth of 4-9% through 2011

The consumer goods in Iraq (including automotive) appeared to be the front-runner in 2010 with a relatively low consumer inflation rate of 4.2% in 2010.

On a different note, GB Auto is scheduling to optimize its product mix in Iraq and try to strengthen its existence through inauguration of showrooms across the country. Moreover, GB AUTO plans to build up strong relationships with dealers and establishing warehouses to shorten lead time on sales. Going forward, Auto’s management plans to build after-sale service centres in three main centres of commerce, including Baghdad, Erbil and Basra, with potential for further expansion. Accordingly, we expect GB Auto to sell around 2,590 units per month in 2011 (vs. our previous forecast of 1,833 units per month) and to reach its higher rate of 4,550 units per month by 2015. (See following page for a chart.)

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Figure 10 | Total PCs sales volume projections (2011-2015)


B. Commercial Vechicles (CVs) Our estimates for the commercial vehicle LoB are also volume driven. We believe that this segment will face another challenging year in 2011 due to the effects of the revolution on many sectors that this price-sensitive segment targets including mainly construction and tourism. Accordingly, we estimate total CVs market volumes (buses and all models of trucks) will decline by 31% vs. our previous estimates to reach 37,862 units (including 8,382 buses) from 54,637 units (including 16,174 buses) in our previous forecast.

GB Auto has spent the last year (2010) in reducing the levels of high-cost inventory, finalizing the GB-Polo factory in Suez and addressing some quality issues in the trailer segment. Accordingly, we believe that this Line of Business (LoB) will be very promising in the coming years (after 2011) benefiting from exports to GB Polo’s markets and Algeria through GB-Allab. Our projections for GB Auto’s CVs segment are explained below:

Buses: We lowered our estimates for bus sales volume in 2011 due to current events in Egypt, and estimate AUTO’s bus segment will sell 754 units, vs. our previous estimate of 960 units. Despite this reduction in our forecast for the current year, we believe that the full establishment of the GB Polo factory will enchance bus segment sales. The facility is now capable of producing at full annual capacity of 4000 units per single shift, and made its first export in 4Q10. This, in addition to Auto’s strategy to co-operate with Marcopolo to optimize the product mix (including pricing and designs), its plans to compete with the Egyptian market requirements and establish exports-offices in key markets including Syria, Algeria, United Arab Emirates and Saudi Arabia (to be fully staffed and start operations in 2011) will all further enhance sales in the bus segment going forward to grow at a 3-year CAGR (2012-2015) of 42% to reach 4,771 units in 2015.

Figure 11 | Forecasted buses market and Auto sales volume (2011-2015)


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Trucks: We lowerd our forecasts for trucks sales volume to reflect the challenges attached to lower demand in the corporate sector. In 2011, we lowered our estimates for truck sales by 60% to 737 units, compared to our previous estimate of 1,820 units.

Trailers: We lowered our forecasts for trailers sales volume in 2011 by 84% to 354 units compared to our previous estimate of 2,250 units. The decrease is mainly a reflection of the expected ban on the draw-bar replacement program due to trailers’ owners’ protests. Going forward we expect this segment to grow at a 3-year CAGR of 38% from 2012-2015 to reach 1,695 units in 2015 on the expected recovery in the Egyptian economy. Construction equipment: We revised our forecast for the construction equipment sales units lowering it by 68% to reach 30 units in 2011 vs. 95 units in our previous forecast. Average selling price: We revised our estimates for the average selling price for CVs going forward in order to reflect the changes that have occurred within this segment and the appreciation of foreign currencies mainly the Japenese Yen and Euro against the Egyptian Pound. Hence, in 2011, we increased our average selling price 13% to EGP248k/unit (vs. EGP220k/unit in our previous estimates). After-sale revenue: We expect the after-sale sales revenue to reach EGP70mn in 2011 (vs. our previous forecast of EGP146mn). Going forward we expect this segment to expand as a result of Auto’s management plan to establish 7 new centers in strategic locations across the country by the end of 2011.

Figure 12 | Forecasted CVs sales volumes (2011-2015)


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C. Two and Three Wheelers vehicles Sales Volume: We believe that this segment will continue its success in the current year and going forward as a result of Auto’s strategy to sustain the build-up in demand in this segment. As part of the plan, it has equipped each new sales branch for this segment with an in-house mechanic service to boost sales and encourage customers to return for maintenance, thus mitigating the shortage of supply. In 2011, we assigned a sales volume of 6,506 and 51,537 units for two and three-wheelers, respectively (vs. our previous forecasts of 9,700 and 43,700 units respectively). This reduction in our two-wheeler forecasts is mainly a reflection of an expected decline in corporate fleets’ sales due to the current events. Average selling prices: Going forward, we increased our estimates for two-and three-wheeler’ average selling prices due to the effect of foreign currencies. In 2011, we are assigning an average selling price of EGP13.5k/unit, compared to EGP11.3k/unit in our previous update. After sale revenue: In 2011, we lowered the after sales revenue to EGP31mn from EGP37mn in our previous forecasts to account for the decline in two-wheelers sales volume. Going forward, we expect the after-sale for this segment to grow at a 3-year CAGR of 21.4% from 2012-2015 to reach EGP63mn, driven by the company’s strategy mentioned earlier. Figure 13: Two-and-Three wheelers sales volumes projections (2011-2015)


D. Other lines of business Tires: We have lowered our forecasts for tire sales going forward to reflect the expected decline in demand in the Egyptian market. In 2011, we decreased our estimates by 37% to EGP168mn from a previous forecast of EGP265mn.

Financing activities (GB Lease and Mashroe’y): We expect the financing/leasing business to report a strong results going forward, although we did not account for GB Auto’s new 90%-ownership consumer financing company Drive Car Trading (Drive) which was announced on April 3, 2011. It is expected to start its operations in 2Q11 in partnership with the Egyptian-based company Blue Bay Management until it begins real operations, in 2011, we expect this segment to report an EGP355mn,196% higher than our previous forecast of EGP120mn. Going forward, we expect the financing business to grow at 3-years CAGR of 27% from 2012-2015 to reach EGP1.4bn in 2015.

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Transportation activities (Cargo): We lowered our forecasts for cargo transport activities by 23%, from EGP26mn to EGP20mn. Going forward, we expect this segment to grow at a 3-year CAGR of 10% to reach EGP29mn in 2015, driven mainly by the management plan to provide truck rentals to the corporate clients on a fixed contract basis and streamline the fleet to suit that arrangement.

Figure 14: Other lines of Business sales revenue projections (2011-2015)


112 168 176 202 232 267

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Figure 15 | New vs. Old estimates dated October 21, 2010

Source: CICR estimates

Old New Chg. Old New Chg. Old New Chg. Old New Chg.

Hyundai - EgyptVolume (Units) 60,575 42,725 -29% 69,662 48,279 -31% 77,325 55,521 -28% 85,057 64,959 -24%Market Share (%) 26.5% 27.7% 1.2pp 27% 27.7% 1.2pp 27% 28% 1.2pp 27% 28% 1.2ppAverage selling price (EGP 000) 73.2 74.0 1.1% 76.0 76.6 0.8% 79.0 79.6 0.8% 82.2 82.8 0.8%Revenue (EGP mn) 4,434 3,161 -29% 5,294 3,697 -30% 6,112 4,422 -28% 6,992 5,381 -23%Gross profit (EGP mn) 554 373 -33% 662 436 -34% 764 522 -32% 874 635 -27%Gross Profit Margin (%) 12.5% 11.8% -0.7pp 12.5% 11.8% -0.7pp 12.5% 11.8% -0.7pp 12.5% 11.8% -0.7pp

Mazda - EgyptVolume (Units) 900 401 -55% 5,257 872 -83% 7,295 1,604 -78% 9,629 2,346 -76%Market Share (%) 0.4% 0.3% -0.1pp 2% 1% -1.5pp 3% 0.8% -1.7pp 3.0% 1% -2.0ppAverage selling price (EGP 000) 123.0 113.0 -8% 123.0 125 2% 126.0 140.0 11% 126.0 142.0 13%Revenue (EGP mn) 111 45 -59% 647 109 -83% 919 225 -76% 1,213 333 -73%Gross profit (EGP mn) 8 (1) NM 71 1 -98% 101 4 -96% 133 10 -93%Gross profit Margin (%) 7% -2% -9.0pp 11% 1% -10.0pp 11% 2% -9.0pp 11% 3% -8.0pp

After-Sale Revenue (Egypt)Sales Revenues (EGP mn) 300.0 237.3 -20.9% 390.0 437.7 12.2% 470.0 580.8 23.6% 549.7 685.6 24.7%Gross profit (EGP mn) 123 88 -29% 160 175 9% 193 232 21% 225 274 22%Gross Profit Margin (%) 41% 37% -4.0 pp 41% 40% -1.0 pp 41% 40% -1.0 pp 41% 40% -1.0 pp

Hyundai - IraqVolume (Units) 42,000 31,080 -26% 47,000 37,200 -21% 52,500 45,000 -14% 54,600 52,000 -5%Market Share (%) 35% 26% -9.1pp 39% 31% -8.2pp 42% 36% -6.0pp 42% 40% -2.0ppAverage selling price (EGP 000) 75.0 78.0 4% 75.5 79.0 5% 76.8 81.0 5% 81.5 81.5 0.0%Revenue (EGP mn) 3,150 2,424 -23% 3,549 2,939 -17% 4,032 3,645 -10% 4,450 4,238 -5%Gross profit (EGP mn) 243 170 -30% 302 235 -22% 343 310 -10% 378 360 -5%Gross Profit Margin (%) 8% 7% -0.7pp 9% 8% -0.5pp 9% 9% 0.0pp 9% 9% 0.0pp

Segment Revenues (EGP mn) 7,995 5,868 -27% 9,879 7,183 -27% 11,533 8,872 -23% 13,205 10,637 -19%Gross profit (EGP mn) 928 630 -32% 1,194 848 -29% 1,400 1,068 -24% 1,611 1,279 -21%Total Gross Profit Margin 12% 11% -0.9pp 12% 12% -0.3pp 12% 12% -0.1pp 12% 12% -0.2pp

Buses (units) 1,080 754 -30% 2,500 1,660 -34% 3,850 2,810 -27% 4,384 3,817 -13%Trucks (units) 1,820 737 -60% 1,910 1,200 -37% 2,000 1,440 -28% 2,200 1,863 -15%Trailers (units) 2,250 354 -84% 3,100 649 -79% 4,650 1,260 -73% 5,142 1,465 -72%Construction Equipment (Units) 95 30 -68% 100 32 NM 120 35 NM 132 40 NMAverage Selling Price (EGP 000) 220.0 247.9 13% 351.1 261.6 -26% 379.6 269.4 -29% 431.6 274.8 -36%Revenue (EGP mn) 1,154 465 -60% 2,672 926 -65% 4,031 1,494 -63% 5,118 1,974 -61%Gross Profit (EGP mn) 133 46 -65% 521 139 -73% 786 254 -68% 998 336 -66%Gross profit Margin (%) 11.5% 10.0% -1.5 pp 19.5% 15.0% -4.5 pp 19.5% 17.0% -2.5 pp 19.5% 17.0% -2.5 ppAfter-Sale Service Sales Revenue (EGP mn) 146.0 69.7 -52% 182.5 138.9 -24% 219.0 179.2 -18% 255.9 236.9 -7%Gross profit (EGP mn) 58 17 -70% 73 42 -43% 88 54 -39% 102 71 -31%Gross Profit Margin (%) 40.0% 25.0% -15.0pp 40.0% 30.0% -10.0pp 40.0% 30.0% -10.0pp 40.0% 30.0% -10.0pp

Segment Revenues (EGP mn) 1,300 534.6 -59% 2,854.3 1,064.7 -63% 4,249.9 1,672.8 -61% 5,373.5 2,211.3 -59%Segment Gross Profit (EGP mn) 191 64 -67% 594 181 -70% 874 308 -65% 1,100 407 -63%Total Gross Profit Margin (%) 15% 12% -2.7pp 21% 17% -3.9pp 21% 18% -2.2pp 20% 18% -2.1pp

Commercial Vehicles (CVs)

2011 e 2012 e 2013 e 2014 e

Passenger Cars (PCs)

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Figure 16| New vs. Old estimates (Cont’d)

Source: CICR estimates Figure 17| New vs. Old EPS dated October 21, 2010


Two Wheelers (units) 18,000 6,506 -64% 20,700 7,481 -64% 23,800 8,602 -64% 27,370 9,892 -64%Three Wheelers (units) 50,000 51,537 3% 55,000 56,690 3% 60,500 62,359 3% 66,550 68,595 3%Average selling Price (EGP 000) 11.30 13.51 20% 11.50 13.75 20% 11.70 13.99 20% 11.93 14.27 20%Revenue (EGP mn) 768 784 2% 871 1,120 29% 986 992 1% 1,121 1,120 0%Gross Profit (EGP mn) 169 212 25% 183 227 24% 197 248 26% 224 274 22%Gross Profit Margin (%) 22.0% 27.0% 5.0 pp 21.0% 20.2% -0.8 pp 20.0% 25.0% 5.0 pp 20.0% 24.5% 4.5 pp

After-sale ServiceSales Revenue (EGP mn) 37 31 -15% 47 35 -25% 50 45 -11% 59 54 -9%Gross profit (EGP mn) 9 7 -22% 11 9 -22% 12 11 -7% 14 13 -5%Gross profit Margin (%) 24% 22% -2.0pp 24% 25% 1.0pp 24% 25% 1.0pp 24% 25% 1.0pp

Segment Revenues (EGP mn) 805.4 815.4 1% 917.6 1,154.9 26% 1,036.3 1,037.1 0% 1,179.8 1,173.4 -1%Gross Profit (EGP mn) 177.9 218.7 23% 194.1 235.5 21% 209.3 259.3 24% 238.3 287.7 21%Total Gross Profit Margin (%) 22% 27% 4.7pp 21% 20% -0.8pp 20% 25% 4.8pp 20% 25% 4.3pp

Tires (EGP mn) 265.0 167.6 -37% 270.0 175.9 -35% 310.0 202.0 -35% 356.5 232.3 -35%Gross profit (EGP mn) 38.4 24.3 -37% 39.2 25.5 -35% 45.0 29.3 -35% 51.7 33.7 -35%Gross Profit Margin (%) 15% 15% 0.0pp 15% 15% 0.0pp 15% 15% 0.0pp 15% 15% 0.0pp

Financing (EGP mn) 560.0 355.2 -37% 1060.0 672.3 -37% 1500.0 951.4 -37% 1800.0 1141.7 -37%Gross profit (EGP mn) 61.6 53.3 -14% 127.2 100.9 -21% 210.0 142.7 -32% 252.0 171.3 -32%Gross Profit Margin (%) 11% 15% 4.0pp 12% 15% 3.0pp 14% 15% 1.0pp 14% 15% 1.0pp

Cargo Transportation (EGP mn) 26.0 20.0 -23% 28.6 22.0 -23% 31.5 24.2 -23% 34.7 26.6 -23%Gross profit (EGP mn) 2.6 0% -100% 2.9 0.4 -85% 3.2 1.2 -62% 3.5 2.7 -23%Gross Profit Margin (%) 10% 0% -10.0pp 10% 2% -8.0pp 10% 5% -5.0pp 10% 10% 0.0pp

Passenger Transp. (EGP mn) 2.3 0 -100% 0.0 0 NM 0.0 0 NM 0.0 0 NMGross profit (EGP mn) -0.9 0.0 -100% 0.0 0.0 NM 0.0 0.0 NM 0.0 0.0 NMGross Profit Margin (%) -38% 0% 37.6pp 0% 0% 0.0pp 0% 0% 0.0pp 0% 0% 0.0pp

Total OLB Revenues (EGP mn) 853.3 543 -36% 1,358.6 870 -36% 1,841.5 1,178 -36% 2,191.2 1,401 -36%Total OLB Gross profit (EGP mn) 101.8 77.6 -24% 169.2 126.8 -25% 258.1 173.2 -33% 307.2 207.6 -32%Total Gross Profit Margin (%) 12% 14% 2.4pp 12% 15% 2.1pp 14% 15% 0.7pp 14% 15% 0.8pp

Total Revenues (EGP mn) 10,953 7,761 -29% 15,010 10,273 -32% 18,661 12,760 -32% 21,949 15,423 -30%Total Gross profit Margin (EGP mn) 1,398 990 -29% 2,152 1,390 -35% 2,741 1,809 -34% 3,257 2,181 -33%Total Gross Profit Margin (%) 13% 13% 0.0pp 14% 14% -0.8pp 15% 14% -0.5pp 15% 14% -0.7pp

Consolidated KPIs

Two and Three Wheelers

Other Lines of Business (OLB)

(EGP) 2011 2012 2013 2014New 1.9 3.3 4.7 6.5Old 3.4 7.9 10.8 14.2Change -46% -58% -57% -54%

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Valuation and Recommendation In our report dated October 21st, 2010, we assigned a value of EGP58.1/share for GB Auto’s TP and LTFV. In view of 2010 results and the current political unrest in Egypt we have updated our DCF model lowering 2011e EPS 46% from EGP3.43 to EGP1.84. To derive our new LTFV, we used a risk free rate of 11% (vs.10% in our previous forecast), an equity market premium of 9% (vs. 8% in our previous forecast), a WACC of 17%, a Beta of 0.7x and a perpetual growth rate of 4%. GB Auto is traded at a forward 2011PER of 15.2x vs. international peers multiple average of 9.3x. We lowered our LTFV and TP 43% to EGP33.3/share. As this implies 17% upside potential from AUTO’s recent market price of EGP28.5/share, we maintained our Hold recommendation on the stock with Moderate Risk rating. Rolling over our five-year forecast period: Since we use a five-year DCF model, we had to roll our forecast period over from 2010-14 to 2011-15. Figure 18 | DCF Valuation

Source: CICR estimates Figure 19: Sensitivity Analysis (LTFV)


Figure 20: Peers analysis

Source: Bloomberg and CICR estimates

EGP (mn) 2011 P 2012 P 2013 P 2014 P 2015 PNOPAT 406 608 800 956 1,135Depreciation and amortization 82 114 143 152 156Net plant expenditures (784) (399) (189) (98) (101)Working investment 61 (637) (806) (382) (403)FCFF (234) (314) (52) 628 787PV of FCFF (211) (242) (34) 353 377PV of Terminal Value 3,018WACC 17.0%Prepetual Growth rate 4.0%Corporate value 3,261Total Debt (Dec-10) (143)Total Cash (Dec-10) 678Minority interest (Dec-10) (222)Equity value 3,574Total Number of shares 129.0No. of shared held by the group 3.3No. of Outstanding shares 125.7Current FV 28.4LTFV 33.3

Country P/E EV/EBITDAUSA 8.3 3.2USA 9.6 9.1UK 7.0 4.2

USA 12.0 10.09.2 6.6

Egypt 15.5 9.4

2011Name

AverageGB Auto

General MotorsAsbury AutomotivePendragnLithia Motors

33 15.1% 16.1% 17.1% 18.1% 19.1%2.0% 35 32 29 26 243.0% 38 34 31 28 264.0% 41 37 33 30 275.0% 45 40 36 32 296.0% 50 44 39 35 31

WACC

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Risks to our Recommendation Upside risks

Supplying a new PC brand: GB Auto is currently negotiating with a global automotive manufacturer to distribute its PCs in Egypt to further increase the utilization of the new CKD capacity. This agreement is expected to enhance GB Auto’s sales revenues and market share going forward. Supplying micro-buses and pickup vehicles: Currently, GB Auto’s CVs line of business has not introduced micro-buses and pickup vehicles although they represent the major sales volumes in the market. We believe that if Auto introduces these vehicles it will enhance its sales volume and market share. Inauguration of the warehousing and logistics facility: The automotive warehousing and logistics facility at Sadat City should be fully operational within 12-18 months. This new facility will help GB Auto save EGP30mn each year, thereby enhancing its margins. Furthermore, the company may offer the facility up for use by other automotive players, allowing them to improve their own efficiency and reduce costs while generating an estimated EGP30mn in revenue each year. This will ultimately enhance AUTO’s revenues.

Start of operations of the new finance business Drive: We believe that if Drive starts its operations during 2Q11 (as planned) this will enhance Auto’s sales.

Downside risks

Foreign exchange fluctuations: As GB Auto depends mainly on OEMs, it is subject to foreign exchange rate fluctuations. Thus, any unfavorable FX fluctuations are likely to affect GB Auto’s margins. Halting the renewal of the Verna assembling license: GB Auto and Hyundai Motor Company (HMC) are currently in talks, as HMC does not intend to renew GB Auto’s Verna assembly license beyond 2011. This is a direct result of South Korea’s oversupply of labor. We believe this will negatively impact GB Auto, unless the company is successful in either obtaining a reversal of the HMC decision or producing an alternative for the market. Competition: Strong competition and new entries to the market. Unexpected delay in economic recovery: Weaker-than-expected economic recovery could impact sales revenues further. Delay in capex program: Any delay in GB Auto’s capex expansion plans could impact our valuation.

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Financial Statements*

* 2010 Shareholders’ equity is adjusted for dividends distribution

Source: Company reports and CICR estimates

Balance Sheet (EGP mn) 2009 A 2010 A 2011 P 2012 P 2013 P 2014 P 2015 PAssets Cash & Cash Equivalent 141.6 828.5 596.8 771.6 981.1 1,185.9 1,395.6Net Receivables 519.3 692.0 742.1 959.5 1,222.2 1,333.2 1,568.9Total Inventory 1,184.0 1,661.1 1,823.4 2,327.9 2,932.3 3,337.5 3,580.2Advance Payments 75.9 257.6 218.8 236.8 299.2 290.2 341.0Other Trading Assets 1.4 1.4 1.4 1.4 1.4 1.4 1.4Other Current Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Current Assets 1,922.2 3,440.6 3,382.3 4,297.2 5,436.2 6,148.2 6,886.9Net Plant 1,360.9 1,688.1 2,390.0 2,675.9 2,722.1 2,668.2 2,612.6Long-Term Investments 9.9 7.9 7.9 7.9 7.9 7.9 7.9Other Trading Non-Current Assets 32.2 40.1 46.6 52.8 60.2 67.4 74.7Other Non-Current Assets 184.2 159.8 258.1 333.7 424.3 512.9 603.6Intangibles 184.3 181.7 178.4 178.4 178.4 178.4 178.4Total Assets 3,693.8 5,518.2 6,263.3 7,545.8 8,829.1 9,582.8 10,364.1

Liabilities & Shareholders' Equity Short-Term Debt 682.7 726.4 1,249.4 1,949.2 2,520.5 2,379.3 1,775.5Current Portion Of LTD 104.5 101.5 250.0 333.3 333.3 83.3 0.0Accounts Payable 76.7 58.3 148.4 189.5 239.4 290.2 341.0Accrued Expenses 33.2 32.4 49.7 63.5 80.2 97.2 114.2Down Payments 102.3 37.7 165.1 213.5 270.8 328.2 386.2Taxes Payable 45.2 47.8 47.8 47.8 47.8 47.8 47.8Dividends Payable 164.8 185.1 112.6 200.8 284.7 395.4 536.6Other Spontaneous Finance 9.3 17.7 17.7 17.7 17.7 17.7 17.7Other Current Liabilities 496.0 1,051.3 1,045.5 1,351.8 1,718.9 2,077.6 2,444.9Total Current Liabilities 1,714.6 2,258.2 3,086.2 4,367.1 5,513.2 5,716.6 5,663.8Total Long-Term Debt 0.0 41.4 750.0 416.7 83.3 0.0 0.0Other Non-Current Liab. 65.4 1,068.4 54.1 47.7 41.3 38.6 38.6LTerm Spontaneous Fin. 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Liabilities 1,780.0 3,368.0 3,890.3 4,831.4 5,637.8 5,755.2 5,702.4Deferred Taxes 21.8 26.6 34.8 45.1 57.3 69.2 81.5Other Provisions 42.6 56.9 127.9 219.7 336.4 477.5 643.5Minority Interest 66.6 222.5 235.2 257.8 289.9 334.4 394.9Shareholders' Equity 1,782.8 1,844.2 1,975.1 2,191.8 2,507.7 2,946.4 3,541.7Total Liabilities & Net worth 3,693.8 5,518.2 6,263.3 7,545.8 8,829.1 9,582.8 10,364.1

Income Statement (EGP mn) 2009 A 2010 A 2011 P 2012 P 2013 P 2014 P 2015 PRevenues 4,258.4 6,873.8 7,760.9 10,035.1 12,759.8 15,422.7 18,149.4COGS (3,608.9) (5,909.3) (6,771.1) (8,644.7) (10,951.2) (13,241.2) (15,556.6)Gross Profits 649.5 964.5 989.8 1,390.4 1,808.6 2,181.5 2,592.8SG&A (243.8) (361.9) (426.5) (551.4) (701.2) (847.5) (997.3)EBITDA 405.7 602.6 563.3 839.0 1,107.4 1,334.0 1,595.5Dep. & Amort. (55.0) (79.1) (82.3) (113.6) (142.9) (151.8) (156.4)EBIT 350.7 523.5 481.0 725.4 964.5 1,182.1 1,439.1Interest Expense (114.0) (171.0) (269.9) (308.9) (355.0) (308.0) (215.6)Stock option fair value for MD (17.3) 0.0 (6.1) 0.0 0.0 0.0 0.0Provisions 20.6 (29.3) 71.0 91.8 116.7 141.1 166.0Interest Income 0.0 0.0 0.0 0.0 0.0 0.0 0.0Investment Income 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other Non-Operating Inc. 26.6 33.6 43.2 55.8 71.0 85.8 101.0Other Non-Operating Exp. 0.0 0.0 (6.4) (6.4) (6.4) (2.7) 0.0EBT 266.6 356.7 312.8 557.6 790.8 1,098.3 1,490.5Taxes (including deferred taxes) (63.2) (72.8) (62.6) (111.5) (158.2) (219.7) (298.1)NPAT 203.4 284.0 250.2 446.1 632.6 878.7 1,192.4Minority Interest (1.9) (26.1) (12.7) (22.6) (32.1) (44.6) (60.5)Extraordinary Items 0.0 0.0 0.0 0.0 0.0 0.0 0.0Attributable Profits 201.4 257.9 237.5 423.5 600.5 834.1 1,131.9

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Source: Company reports and CICR estimates

Cash Flow 2009 A 2010 A 2011 P 2012 P 2013 P 2014 P 2015 PNOPAT 245.6 452.8 405.9 607.7 798.9 955.3 1,133.6Dep. & Amor. 55.0 79.1 82.3 113.6 142.9 151.8 156.4COPAT 300.6 531.9 488.2 721.3 941.9 1,107.1 1,290.0WI Change 122.9 (915.1) 61.2 (636.8) (805.6) (381.9) (403.3)Other Current Items (25.5) 556.2 (5.8) 306.4 367.0 358.7 367.3CF After Current Oper. 398.0 173.0 543.6 390.9 503.3 1,083.9 1,254.0Financing Payments (124.0) (275.5) (371.4) (558.9) (688.3) (641.3) (298.9)Cash Before LT. Use 273.9 (102.5) 172.2 (168.0) (185.0) 442.5 955.1Net Plant Change (234.5) (406.3) (784.2) (399.5) (189.2) (97.9) (100.8)FCFF 189.0 (789.5) (234.8) (314.9) (52.9) 627.3 785.9Others 16.2 1,065.7 (1,072.5) (32.7) (32.5) (8.1) 10.3CF Before Financing 55.7 556.9 (1,684.5) (600.2) (406.7) 336.6 864.6Short-Term Debt (63.6) 43.7 523.0 699.9 571.3 (141.2) (603.8)Long-Term Debt 3.0 142.9 958.6 0.0 0.0 0.0 0.0Net-worth (17.8) (93.6) (6.6) (28.7) (32.1) (44.6) (60.5)Grey Area 44.3 145.7 163.0 216.4 277.8 338.7 404.8Dividends (4.2) (108.7) (185.1) (112.6) (200.8) (284.7) (395.4)Change in Cash 17.4 686.9 (231.7) 174.9 209.5 204.8 209.7

Fact Sheet 2009 A 2010 A 2011 P 2012 P 2013 P 2014 P 2015 PROE 11.4% 15.4% 12.7% 20.4% 25.2% 29.8% 33.7%ROS 4.8% 4.1% 3.2% 4.4% 5.0% 5.7% 6.6%ROA 5.5% 5.1% 4.0% 5.9% 7.2% 9.2% 11.5%ROIC 9.8% 16.0% 9.1% 11.6% 13.4% 15.6% 18.1%EBITDA Margin 9.5% 8.8% 7.3% 8.4% 8.7% 8.6% 8.8%ATO 1.2 1.2 1.2 1.3 1.4 1.6 1.8WI/ Sales 37.4% 36.5% 31.6% 30.8% 30.6% 27.9% 25.9%ALEV 2.3 3.3 3.5 3.7 3.8 3.5 3.1Debt/ Tangible Networth 1.1 2.0 2.2 2.4 2.4 2.1 1.7Current Ratio 1.1 1.5 1.1 1.0 1.0 1.1 1.2

EPS 1.60 2.05 1.86 3.31 4.69 6.52 8.84Div/Share 1.03 1.03 0.88 1.57 2.22 3.09 4.19Revenues/Share 33.87 54.67 60.64 78.41 99.70 120.51 141.81BV/Share 14.18 14.67 15.43 17.13 19.59 23.02 27.67Gross Cash Flow/Share 2.39 4.23 3.81 5.64 7.36 8.65 10.08FCFF/Share 1.50 -6.28 -1.83 -2.46 -0.41 4.90 6.14EBITDA/Share 3.23 4.79 4.40 6.56 8.65 10.42 12.47EV/Share 33.63 28.82 41.41 43.56 43.78 38.48 31.47

Multiples 2009 A 2010 A 2011 P 2012 P 2013 P 2014 P 2015 PP/E 17.8 13.9 15.4 8.6 6.1 4.4 3.2Div Yield % 3.6% 3.6% 3.1% 5.5% 7.8% 10.8% 14.7%P/ Revenue 0.8 0.5 0.5 0.4 0.3 0.2 0.2EV/ Revenues 1.0 0.5 0.7 0.6 0.4 0.3 0.2P/ COPAT 11.9 6.7 7.5 5.1 3.9 3.3 2.8EV/ COPAT 14.1 6.8 10.9 7.7 5.9 4.4 3.1P/ FCFF 19.0 -4.5 -15.5 -11.6 -68.9 5.8 4.6EV/ FCFF 22.4 -4.6 -22.6 -17.7 -105.9 7.8 5.1P/ EBITDA 8.8 5.9 6.5 4.3 3.3 2.7 2.3EV/ EBITDA 10.4 6.0 9.4 6.6 5.1 3.7 2.5P/ BV 2.0 1.9 1.8 1.7 1.5 1.2 1.0

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Contacts and Disclaimer:

CI CAPITAL RESEARCH

Mark Rorison | Group Director, Head of Research [email protected]

Amr Hussein Elalfy, CFA | Co-Head of Research [email protected]

Mona Mansour | Co-Head of Research [email protected]

CI CAPITAL SECURITIES BROKERAGE

(EGYPT & UAE)

Khaled Abd E l Rahman | MD & Global Head of Securities Brokerage [email protected]

DYNAMIC SECURITIES

Ahmed Roushdy | Managing Director

[email protected]

DISCLAIMER

The inform ation used to produce this market commentary is based on sources that CI Capital Research (CICR) believes to be reliable and accu-rate. This information has not been independently veri fied and may be condensed or incomplete. CICR does not make any guarantee, representa-tion or warranty and accepts no res ponsibility or liability to the accuracy and complet eness of such inform ation. Expression of opinion contained herein is based on certain assum ptions and with the use o f specific financial techniques that re flec t the personal opinion of the authors of the com-mentary and is subject to change without notice. It is acknowledged that different assumptions can a lways be made and that there is a wide choice of techniques that can be adopted each of which can lead to a di fferent conclusion. There fore, all that is stated herein is of an indicative and infor-mative nature as forward-looking statem ents, projections, and fair values quoted may not be realized. Accordingly, CICR does not take any re-sponsibility for decisions made on the basis on the content of this comment ary. This commentary is m ade for the sole use of CICR’s customers and no part or excerpt of its content may be redistributed, reproduced or conveyed in any form, writ ten or oral, to any third party without the prior written consent of CICR. This commentary does not constitute a solicitation or an offer to buy or sell securities.

CI CAPITAL HOLDING

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Egypt

Reuters pages: CO IW, COIX, COIY, and CO IZ

Bloomberg page: CO IB < GO>

For more information, please contact

CI Capital Research on +2 (02) 33 38 62 59,

send e-mail to [email protected]

or visit our website at www.cich.com.eg

RATING SYSTEM In February 2009, CI Capital Research (CICR) launched a new rating system to give analysts more free dom to be market responsive. This is to make one element of our research m ore dynamic, namely the advertising of target prices and recomm end ations. What we did not change is our assessment of the Long Term Fair Value (LTFV), nor have we stopped our detailed industry and company research. W hat we did is changing the target price to trade in the balance of where a share should trade and where we think it will trade. LTFV: As before we continue to estimate a fundamental valuation, largely DCF and/or NAV based. Target Price: The target price, which is not necessarily the LTFV, is where the analyst, given all (qualitative as well as financial) inform ation avail-able, thinks the share price can get to within the next 3-12 months. This can be changed at any time on changing facts, and perceptions. Recommendations: O ur new rating system falls out from the total return relating to the share price performance to the target price, and including any distributions as may not be included in the target price calculation. This is shown in the table below, and to be BUY must return over 19%, an arbitrary hurdle rate we think reasonable given prevailing interest rates and risks. (Please see table below.) Recommendation structure: Change to Target Price

Strong BUY > 30% Strong Conviction BUY > 20% < 30% Hold > 10% < 20%

Underweight > 0% < 10% SELL < 0%

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