ezz steel - mecmec.biz/term/uploads/irax-26-12-2010.pdf · source: nbk capital discounted cash flow...

December 26, 2010

nbkcapi ta l .com

ezz steelAll “ezz” Well

key DAtA

Fair Value per share (EGP) 23.6Closing Price (EGP) * 18.452-week High / Low (EGP) 24.65/16.11YTD / 12-month return 8%/8.5%Trailing P/E 32.5Shares Outstanding (million) 534Market Cap (EGP million) 9,795Free Float 35%Reuters / Bloomberg ESRS.CA/ESRS EY

*As of December 26, 2010. Sources: Reuters, Zawya and NBK Capital

key metrics

2009A 2010F 2011F 2012F

EPS (EGP) 0.17 0.63 0.87 2.39EPS Growth nm* nm* 37% 175%P/E nm* 28.9 21.2 7.7EV/EBITDA 9.7 7.5 6.1 3.8

Revenue (EGP million) 12,589 16,273 19,163 21,506Revenue Growth -42.4% 26.4% 17.8% 12.2%

EBITDA (EGP million) 1,621 2,111 2,597 4,136EBITDA margin 12.9% 13.0% 13.6% 19.2%EBITDA Growth -63.5% 30.2% 23.0% 59.3%

*nm = not meaningful. Sources: Company financial statements and NBK Capital

QUArterly forecAsts

EGP million 1Q2011F 2Q2011F 2010F 2011F

Revenue 4,750 4,950 16,273 19,163EBITDA 595 644 2,111 2,597

Source: NBK Capital

rebAseD PerformAnce

12.0

15.0

18.0

21.0

24.0

27.0

Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10

EZZ Steel MSCI Egypt

Sources: MSCI, Reuters, and NBK Capital

**Please refer to page 36 for recommendations and risk ratings.

HigHligHts

12-month fair Value: egP 23.6

recommendation: buy – risk level**: 3

reason for report: initiation of coverage

• Regional and domestic leader: Ezz Steel is one of the largest steel producers within the Middle East and North Africa (MENA) region and boasts an overwhelming market leadership in Egypt with a share of more than 40% in both the long andflat product categories. The company’scurrent finished product capacity stands at 5.8 milliontons per annum (mtpa) (3.5 mtpa – long products, and 2.3 mtpa–flatproducts).EzzSteeliscurrentlyundergoinganaggressive, billion-dollar capacity expansion that involves adding 3.7 mtpa of direct reduced iron (DRI) capacity (1.85 mtpa is already underway) and debottlenecking 1.2 mtpaoffinishedsteelcapacity(byaddinga1.3mtpameltshop) at Ezz Flat Steel (EFS). The entire capacity addition is expected to be completed in phases by the end of 2013, and will eventually result in 6.9 mtpa of integrated DRI-fed finishedsteelcapacity.

• Margin-accretive backward-integration strategy is the main catalyst: WeviewEzzSteel’saggressivecapacityexpansionas the main catalyst for the stock as 1) the expansion further strengthensthecompany’sdomesticmarketleadership,and2) the strategy is margin-accretive in nature benefittingfrom the DRI-scrap differential (around USD 200 per ton of savings in raw material costs). The DRI process advantage at Al Ezz El Dekheila (EZDK), as and when replicated at other Ezz Steel operations at Sadat City, 10th of Ramadan City, and Suez will considerably improve the consolidated EBITDA margins for the company going forward. Accordingly, weexpectEzzSteel’sEBITDAmargintoexpandconsistentlyover our forecast period to reach 22.4% by 2015, compared to our forecast of 13% for 2010 (12.9% in 2009).

• Positive demand–supply steel dynamics in the domestic market going forward: Strong GDP forecasts, increasing purchasing power, and an impressive pipeline of government-backed infrastructure projects is likely to result in the consumptionoffinishedsteelinEgyptgrowingata5-yearCAGR of 12.9% going forward. We view the limited new domestic supply over the medium term favorably as well.

• Fair value of EGP 23.6 per share yields a 28.4% upside and hence a “Buy” recommendation: We are initiating coverage on Ezz Steel with a “Buy” recommendation and a 12-month fair value of EGP 23.6 per share, resulting in an upside potential of 28.4%. We used two valuation methods, discounted cash flow (DCF) and peer comparison (usingforward EV/EBITDA multiples), to calculate our fair value.

Analysts

Rajat Bagchi

T. +965 2259 5115E. [email protected]

Mariam Al-Bahar

T. +965 2259 5138E. [email protected]

http://www.nbkcapital.com

mailto:rajat.bagchi%40nbkcapital.com?subject=

mailto:mariam.albahar%40nbkcapital.com?subject=

contents

execUtiVe sUmmAry ............................................................................ 3

VAlUAtion .............................................................................................. 4

bUlls Vs. beArs ................................................................................... 8

tHe egyPtiAn steel sector – PoiseD for groWtH ..................... 9

Egypt Steel Sector in the Global and Regional Context .......................... 10

Egypt Steel Sector – The Story So Far ................................................. 12

Top-down Story Intact .......................................................................... 15

Egypt Construction Sector Overview .................................................... 16

Egypt Steel Sector – The Story Forward .............................................. 18

mAjor finAnciAl AssUmPtions & forecAsts – ezz steel ....... 20

tHe Dri Process ADVAntAge .......................................................... 21

ezz steel – groUP bAckgroUnD .................................................... 23

finAnciAl stAtements ..................................................................... 26

Al ezz el DekHeilA - cAsH coW for ezz ........................................ 27

VAlUAtion ........................................................................................ 28

efs tUrnAroUnD – We exPect VAlUe Unlocking .................. 30

finAnciAl oVerVieW AnD forecAsts ........................................ 32

finAnciAl stAtements ................................................................. 35

MENA Building Materials - Ezz SteelDecember 26, 2010

nbkcapi ta l .com | 3

execUtiVe sUmmAry

We initiate coverage on Ezz Steel with a “Buy” recommendation. Our fair value for the stock is EGP 23.6 per share, which represents an upside potential of 28.4% from the last close. Our investment rationale for the stock ismainly driven by the company’s planned backward-integration strategy, which we believe will be margin accretive in the long run. Our positive outlook ontheEgyptiansteelsectorhasalsofavorablyinfluencedourvaluationforthestock.Inaddition,we initiate coverage on Al Ezz El Dekheila (EZDK), which is 54.6% owned by Ezz Steel, with a “Buy” recommendation. We value the stock at EGP 955 per share, which yields an upside of 23.4%fromthelastclosingprice.Amidmanypositivesforthesestocks,wehighlightfluctuationin global steel and raw material prices as the main risk to our fair value for both stocks. Any potential delays in the commissioning of the DRI plants/melt shop will negatively impact our fair values as well.

We believe the Egyptian steel sector will be one of the main beneficiaries of the upcominginfrastructure and real estate projects in the country. Healthy GDP forecasts, increasing purchasing power, rising demand for residential housing, and an impressive pipeline of government-backed infrastructure projects should result in strong demand for steel in Egypt. We believe this demand will push the per capita consumption of steel in Egypt higher from the current level of 77 kg, which issignificantlylowerthantheMiddleEasternandglobalaverageof205and179kg,respectively.AsperBusinessMonitorInternational(BMI)estimates,consumptionoffinishedsteelinEgyptwillgrowatafive-yearCAGRof12.9%comparedtothehistoricalrateof9%between2004and2009. We believe Turkish steel exporters will continue to feed the Egyptian market. On the supply side, apart fromEzzSteel’s ownexpansion, therearenomeaningfulfinished steel capacitiescoming up in Egypt over the near term, which we feel is clearly positive for the sector.

In light of our positive outlook on the sector, we expect Ezz Steel to deliver solid numbers going forward. We expect total revenue to grow at a six-year CAGR of 14.3% from EGP 12.6 billion in 2009 to EGP 28.1 billion in 2015 mainly due to increased production at EFS. On the EBITDA marginfront,weexpectthecompany’saggressive,billion-dollarcapacityexpansion,whichinvolvesadding 3.7 mtpa of direct reduced iron (DRI) capacity, to yield rich dividends. We view this as amargin-accretive backward-integration strategy that will benefit by capturing the DRI-scrapdifferential at the EFS and Ezz Steel stand-alone (ESRS)/Al Ezz Rolling Mill (ERM) operations. Accordingly,weexpectEzzSteel’sEBITDAmargintoexpandconsistentlyoverourforecastperiodto reach 22.4% by 2015 compared to our forecast of 13% for 2010 (12.9% in 2009).

OurmaininvestmentargumentforEZDKstemsfromthefactthatthecompany’scurrentmarketvaluationdoesnot capture the value of the company’s proportionate stake (55%) inEzzFlatSteel and hence, appears compelling. The fact that the current stock price for EZDK is 11% lower than our stand-alone fair value for the company (EGP 861 per share) corroborates our view onthestock.Astrongbalancesheet,healthydividend-payingrecord,androbust,freecashflow-generating ability are some of the other factors that support our investment case.




VAlUAtion

The purpose of this valuation exercise is to arrive at a fair-value estimate of the share price using fundamental analysis that should prevail for Ezz Steel over the next 12 months. This valuation does not represent a guarantee that this value is achievable within this time frame, as a wide range of variables and market dynamics affect the market price of an asset. Each investor must use his or her favorite mix of fundamental research, technical analysis, and market intelligence to arrive at an investment decision that matches his or her objectives and risk tolerance.

We arrived at a 12-month fair value for Ezz Steel by using two valuation methods: discounted cash flow(DCF)andpeercomparisonbasedonforwardEV/2011EBITDAmultiples.Wespecifiedaweight for each method, as shown in Figure 1. A greater weight is assigned to DCF, as this method examines the fundamentals of the company to determine its future cash-generating ability. The 12-month fair value target of EGP 23.6 is 28.4% higher than the last closing price and hence, our “Buy” recommendation.

Figure 1 Weighted Average Fair Value per Share

Valuation Method Value (EGP) Weight

Discounted cash flow 26.7 80%Peer comparison 11.1 20%

Weighted a ve rage fa ir va lue 23.6 100%

Source: NBK Capital

We expect the stand-alone EZDK operation at Alexandria, themost efficient company undertheEzzSteelumbrella,toaccountforalmost50%ofEzzSteel’sfairvalue;whereas,EzzSteelstand-alone (ESRS) operations at Sadat City and Al Ezz Rolling Mill (ERM) operations at 10th of RamadanCitytoaccountforalmost40%ofEzzSteel’sfairvalue.

Figure 2 Sum-of-the Parts Fair Value for Ezz Steel

Company Stake (%)Value of Equity (EGP mllion)

Value to Ezz Steel (million)

Per Share Value (EGP)

% of total value

EZDK 54.6% 11,508 6,282 11.8 50.0%ESRS/ERM 98.9% 4,889 4,836 9.5 38.5%EFS 63.8% 2,281 1,456 2.7 11.6%EZZ - Fa ir Va lue 12,575 23.6 100%

Source: NBK Capital

Discounted cash flow Valuation – ezz steel

OurDCFvaluation(Figure3)isbasedonforecastedfinancialresultsthrough2015.TheDCFvaluation is a function of the following major variables:

• Future net operating profit less adjusted taxes (NOPLAT), which is driven primarily byexpectations of revenues and operating expenses

• Future changes in working capital

• Futurenetexpendituresonfixedassets

Our 12-month fair value for

Ezz Steel is EGP 23.6 per

share, which is 28.4% higher

than the current price

EZDK accounts for 50% of Ezz

Steel’s fair value




• The weighted average cost of capital (WACC), which is a weighted average of our estimated cost of equity and the after-tax cost of debt

• The long-term expected growth rate in NOPLAT and the expected rate of return on net new invested capital (RONIC)

Fromtheforecastedfinancialresults,weextractedthefreecashflowsusedinourvaluation.Wediscountedthosecashflowstoapoint12monthsinthefutureinordertoobtainanestimatedvalueofthecompany’soperations.Aftersubtractingnetdebtandminorityinterest,andaddingthe value of non-operating assets, we arrived at a total equity value of EGP 14.2 billion.

ToestimatethevalueofEzzSteel’soperations,weincorporatedavaryingWACCintoourmodelbased mainly on interest rate levels and the operating environment.

Figure 3 DCF Valuation

Figures in EGP Thousands*Fiscal Year Ends December 2010 2011 2012 2013 2014 2015

Net Ope ra t ing Pro f it Af te r Tax 1,620,670 1,294,803 2,458,816 2,915,912 3,576,054 3,949,630

Add: Depreciation and Amortization 606,203 661,537 883,537 1,082,226 1,135,185 1,190,569

Gross Cash Flow 2,226,873 1,956,341 3,342,353 3,998,138 4,711,239 5,140,199

(Increase)/ Decrease in Working Capital (160,216) (204,639) (276,340) (362,770) (433,333) (527,929)

(Incr.)/ Decrease in Operating Fixed Assets (2,171,530) (1,394,195) (1,503,103) (764,256) (389,760) (414,150)

Free Cash Flow f rom Ope ra t ions (104,873) 357,507 1 ,562,910 2,871,111 3,888,146 4,198,120

Te rmina l Va lue 24,865,295

Va lue o f Ope ra t ions in 12 Months 23,523,342

Add: Excess Cash 1,269,218

Add: Value of Long-Term Investments 380,000

Less:Total Debt (8,926,623)

Less: Minority Interest (2,005,150)

Va lue o f Equity in 12 Months 14,240,787

Pe r -sha re Va lue in EGP 26.7

Forecast

*Except per share value. Source: NBK Capital

Ezz Steel is currently undergoing an aggressive expansion plan which is expected to last until theendof2013.Inspiteofthesignificantcapitalexpenditure(capex),weexpectthecompanyto remain free cashflowpositive over our forecast period primarily due to our expectation ofsignificantimprovementintheEBITDAmargin.WithincreasingprofitabilityatESRS/ERMandEFS by 2014–2015, we expect the effective tax rate for Ezz Steel to inch closer to the prevailing corporatetaxrateof20%inEgypt,thusnegativelyaffectingcashflows.

Ezz Steel Detailed Capex Plan

DRI plant at ERM: We expect the new DRI plant (1.85 mtpa) at ERM, the construction of which is already underway, to be completed at the beginning of 2012. The total investment cost of USD 400 million (EGP 2.32 billion) is expected to be funded through 70% debt and 30% internalcashflows.ThisDRIplantwill feedbothESRS/ERMandEFShence,accordingly,weexpect margin expansion at both these operations from the beginning of 2Q2012.

Melt shop at EFS: The new electric arc furnace will add 1.3 mtpa of liquid steel production capacity to the existing melt shop. The total investment will be around USD 200 million (EGP 1.16 billion),andwillbecompletedbytheendof1H2013.Theprojectisexpectedtobefullyfinancedthroughinternalcashflows.Themainrationalebehindthecapacityincreaseisdebottlenecking,as EFS currently has a rolling mill capacity of 2.4 mtpa with a melting capacity of only 1.35 mtpa.

DRI plant at EFS: The construction is due to commence during 2H2011, and the plant will have a capacity of 1.85 mtpa. The total investment will be around USD 400 million (EGP 2.32 billion) and is expected to be completed by the end of 2013. The DRI plant is expected to be funded through70%debtand30%internalcashflows.

Using the DCF valuation

method, we arrived at a fair

value per share of EGP 26.7




Sensitivity Analysis

We performed a sensitivity analysis (Figure 4) on two important inputs for our DCF valuation model: the cost of equity and the perpetual growth rate used in computing the terminal value.

Figure 4 DCF Sensitivity

-0.50% -0.25% Base Case 0.25% 0.50%

-1.00% 28.6 28.6 28.7 28.7 28.7

-0.50% 27.6 27.6 27.6 27.7 27.7

Base Case 26.6 26.6 26.7 26.7 26.7

0.50% 25.7 25.7 25.8 25.8 25.8

1.00% 24.8 24.8 24.9 24.9 24.9

Pe rpe tua l Growth Ra te

Co

st o

f E

qu

ity*

* Variations in the cost of equity result in variations in WACC. Source: NBK Capital

Peer group comparison

We compared Ezz Steel with publicly traded global steel players. Our peer basket is spread across steel companies from developed and emerging economies. For valuation purposes, we obtained the current enterprise value (in this case from the 9M2010 balance sheet) and consensus 2011 EBITDA for each company to arrive at the forward EV/EBITDA multiple. We calculated the enterprise value for Ezz Steel based on the simple average (excluding outliers) of the forward EV/EBITDA multiple for the peer basket. Accordingly, we have applied a target EV/EBITDA multiple of 5.85x to our 2011 EBITDA estimate of EGP 2.6 billion for Ezz Steel, which resulted in an implied value of EGP 11.1 per share. We emphasize that the consolidated 2011 EBITDA margin for Ezz Steel is almost entirely driven by EZDK stand-alone. Our forecasted consolidated EBITDA margin of 13.6% for Ezz Steel in 2011 is lower than the peer average of 15.4%.




Figure 5 Peer Comparison

EBITDA Margin

Market Cap.* EV

(USD '000) (USD '000)

Baoshan Iron & Steel Co Ltd. China 17,120,923 25,215,160 5,043,312 16.4% 5.0Angang Steel Co Ltd. China 8,614,136 13,242,294 2,311,371 16.1% 5.7Wuhan Iron and Steel Co Ltd. China 5,251,707 9,225,014 1,601,564 13.4% 5.8Maanshan Iron and Steel Co. China 4,008,546 6,857,173 1,375,177 13.5% 5.0Ave rage - China 34,995,312 54,539,641 14.8% 5.4

Steel Authority of India Ltd. India 16,772,218 20,300,623 2,481,443 24.4% 8.2Tata Steel Ltd. India 12,622,286 22,622,831 3,339,645 13.9% 6.8JSW Steel Ltd. India 4,702,906 9,257,107 1,127,121 21.5% 8.2Ave rage - India 34,097,411 52,180,561 20.0% 7.7

Nucor Corp. USA 14,002,626 15,741,726 2,520,300 13.3% 6.2Ternium SA USA 7,854,415 7,557,715 1,742,060 22.4% 4.3United States Steel Corp. USA 8,213,056 11,313,056 2,099,940 10.5% 5.4Commercial Metals USA 2,004,205 2,849,215 487,830 6.5% 5.8AK Steel Holding Corp. USA 1,790,637 2,212,637 504,030 7.7% 4.4Ave rage - USA 33,864,938 39,674,348 12.1% 5.2

Novolipetskiy Metallurgicheskiy Russia 27,099,554 27,144,503 3,809,000 34.4% 7.1Severstal' OAO Russia 17,035,301 17,180,426 3,189,000 16.0% 5.4Mechel OAO Russia 10,216,463 10,414,819 2,814,500 29.1% 3.7Ave rage - Russia 54,351,318 54,739,747 26.5% 5.4

Nippon Steel Corp. Japan 22,558,983 38,118,951 6,965,428 13.7% 5.5Kobe Steel Ltd. Japan 7,572,949 15,860,016 2,872,021 12.3% 5.5Nisshin Steel Co Ltd. Japan 1,912,382 5,098,908 729,212 11.2% 7.0Ave rage - Japan 32,044,314 59,077,876 12.4% 6.0

Grupo Simec SAB de CV Mexico 1,279,549 1,072,440 260,421 11.2% 4.1Gerdau SA Brazil 19,000,361 26,407,044 4,628,778 21.5% 5.7ThyssenKrupp AG Germany 18,756,158 25,204,764 5,123,971 8.5% 4.9Voestalpine AG Austria 7,536,632 11,398,846 1,781,056 13.5% 6.4SSAB AB Sweden 5,021,859 7,434,605 1,083,391 16.4% 6.9Outokumpu Oyj Finland 3,064,513 6,080,984 764,413 12.8% 8.0Simple Ave rage 15.8% 5.88Simple Ave rage (e xc luding out lie rs) 15.4% 5.85Ezz Stee l Egypt 1,772,033 2,836,462 463,693 13.6% 6.12

EV / 2011 EBITDA

(USD '000) 2011 (%)

EBITDA 2011

Company Name Country

Market Data

*Prices as of last close. Sources: Respective company financial statements, Reuters Knowledge, and NBK Capital

Using the simple average

(excluding outliers) of the

forward EV/ EBITDA multiple

for the sample, we arrived at

a fair value of EGP 11.1 per

share




bUlls Vs. beArs

bull story

• Regional and domestic leadership to be strengthened:WefeelEzzSteel’sregionalandlocalmarket leadership will be further reinforced with the new capacity addition plan. Ezz Steel isperfectlypositionedtoreapthebenefitsoftheaforementionedcapexplangoingforward.Marketleadershipaswellasexpectedcostefficiencyfromtheexpansionstrategyshouldbea‘win-win’strategyforEzzSteel.

• Margin-accretive backward-integration strategy is the main catalyst: We view Ezz Steel’saggressive capacity expansion as the main catalyst for the stock as 1) the expansion further strengthens the company’s domestic market leadership, and 2) the backward-integrationstrategyismargin-accretivebenefittingfromtheDRI-scrapdifferential(aroundUSD200perton of savings in raw material costs). The DRI process advantage at Al Ezz El Dekheila (EZDK), asandwhenreplicatedatEzzSteel’sothersteeloperationsatSadatCity,10th of Ramadan City, and Suez, will considerably improve the consolidated EBITDA margins for the company going forward. Currently, Ezz Steel is considered one of the lowest cost steel producers globally.

• Positive demand–supply steel dynamics going forward: Strong GDP forecasts, increasing purchasing power, rising demand for residential housing, and an impressive pipeline of government-backedinfrastructureprojectsshouldresultintheconsumptionoffinishedsteelin Egypt growing at a five-year CAGR of 12.9% going forward. Generic risks arising fromfluctuationsinglobalsteelpricesarenegatedtoacertainextentbythelimitednewdomesticsupply over the medium term.

• Solid numbers: We expect total revenue to grow at a six-year CAGR of 14.3% from EGP 12.6 billionin2009toEGP28.1billionin2015mainlyduetodebottleneckingofthefinishedsteelcapacityatEFS.WeexpectEzzSteel’sEBITDAmargintoincreaseconsistentlyoverourforecast period to reach 22.4% by 2015, compared to our forecast of 13% for 2010 (12.9% in2009).WeexpectnetprofittoalmostquadrupletoEGP338millionin2010comparedto 2009, boosted by an overall increase in domestic steel demand and notable rise in steel prices.

bear story

• Foreign exchange exposure: From Ezz Steel operations, EZDK and EFS are exposed to exchangeraterisk,asalmosthalfofEZDK’srevenuefromitsflatsegmentisfromexports,whileallEFSrevenuecomesfromflatsteelexports.SincethisexportportionoftherevenueismainlydenominatedinEuros,EzzSteel’soperatingresultswillcontinuetobeaffectedbythefluctuationinforeigncurrencyexchangerates,andanypotentialweakeningoftheEGPagainst the Euro will negatively affect the company.

• Generic risks to our valuation: We view fluctuationsinglobalsteelandrawmaterialpricesasa generic risk to our fair value. Any intervention by the local government regarding imposing price caps on domestic steel prices or further raising natural gas or electricity prices could be a potential deterrent for the company. Any potential delays in the commissioning of the DRI plants will negatively affect our fair value.




tHe egyPtiAn steel sector – PoiseD for groWtH

The Egyptian steel market is the second-largest steel market in the Middle East and North Africa (MENA) region in terms of production and third largest in terms of consumption. According to the WorldSteelAssociation,finishedsteelproductionandconsumptionwere5.5milliontonsand5.9million tons, respectively, in 2009. The market is primarily dominated by long products, which account for approximately 80–85% of the local steel consumption. Flat products, which account for around 15–20% of the local consumption, are mainly exported to the European Union. The sector is highly concentrated in terms of production capacity and market share because of El Ezz Steel Rebars (Ezz Steel), which is the largest player, followed by Beshay Steel (a distant second). AccordingtoEzzSteel’s1H2010analystpresentation,thesetwocompaniesaccountedfor55%of the long product market share. In addition, Ezz Steel controls 45% of the long product market and43%oftheflatproductmarket;whereas,BeshaySteelandEgyptIronandSteelCo.areadistantsecondwithamarketshareof10%and14%inthelongandflatmarket,respectively.

Figure 6 Main Players in the Egyptian Steel Sector

Capac ity

(million tons)

Ezz Steel * 5.8 Beshay Steel 2.0 Egyptian Iron and Steel Co. 1.0 Kandil Steel 1.0 Suez Steel Co. 0.6 Misr National Steel 0.4 Arab Co. for Special Steel 0.14

Company

* Consolidated Sources: Zawya, companies’ websites, and NBK Capital

BelowisouranalysisoftheEgyptiansteelsectorusingMichaelPorter’sFiveForcesModel.

Barriers to Entry – HIGH

• The steel industry in general is highly capital-intensive, which acts as a natural barrier to entry. TheconcentratednatureofEgypt’ssteelmarketdiscouragesnewplayersfromenteringthe market. Most of the other players, with the exception of Al Ezz El Dekheila (EZDK), are conventional steel players using scrap as a raw material and, hence, operate on extremely low margins, which results in low returns on capital employed. This could be the only window of opportunity for new entrants, as it may create opportunities, provided the incumbent government plans to issue new licenses for steel plants in Egypt, which is not likely to happen in the near future.

Ezz Steel enjoys a formidable

market leadership status




Bargaining Power of Suppliers – MEDIUM/HIGH

• ThoughtheEgyptiansteelindustryhassurplusproductioncapacity,theindustry’sessentialraw materials lack quality. Thus, Egypt is a net importer of steel-making raw materials—namely,ironoreandscrap—inadditiontobillets(semi-finishedlongproduct).IronorefoundinEgypthasanironconcentrationof53%,lowerthantheindustry’sminimumrequirementof 73%, which is necessary to produce steel of an acceptable quality. Hence, Egyptian companies must continue to import raw materials to ensure production of good-quality steel and remain competitive. Egyptian steel companies imported an average of 3.8 million tons of iron ore annually during 1999–2008.

• Energy Subsidies – The Egyptian steel industry, similar to other energy-intensive industries, enjoyed energy subsidies from the local government in the past; however, there has beenan adverse development from the steel players’ perspective in the recent past. In 2007,the government announced plans to gradually remove subsidies on energy prices for energy-intensive industries. Subsequently, in 2008, the government increased the price of natural gas from USD 1.7 to 3 per mmbtu. Although this move has negated the cost advantage of the Egyptian steel companies to a certain extent, this new increased gas price is still lower than thegaspricesinothercountries.Becausethegovernmentisthecountry’slonegassupplier,Egyptian steel companies are left with no alternatives.

Bargaining Power of Buyers – MEDIUM

• TheEgyptiansteelindustryisfarfrommonopolistic,butitsconcentratednaturebenefitsitsplayersintermsofpricing.EzzSteel,inparticular,enjoyspricingpowerduetothecompany’sdominant market share. The company enjoys the rare status of a price-maker in the domestic rebar (long product) market. The company sets the rebar price in the domestic market at the beginningofeverymonth,whichservesasabenchmarkpriceforthelocalindustry.EzzSteel’sdomestic rebar price is typically set at a slight premium to international prices.

• Backward integration for consumers is ruled out because buyers (i.e., construction and heavy engineeringplayers)wouldfinditdifficulttomanufacturesteelduetothehighbarrierstoentry mentioned above.

Threat of Substitute Products – LOW

• Steelasacommodityhasnosubstitutes.Intermsoffinishedsteelproducts,however,thereare a few substitutes. For example, wood is sometimes used as a construction material in the west as a substitute for long steel products.

Competitive Rivalry within the Industry – MEDIUM

• Though the Egyptian steel industry is highly concentrated, it is vulnerable mainly to cheap imports from Turkey. However, we do not view this negatively as we feel that the imported steel satisfiesexcessdemand.

egypt steel sector in the global and regional context

Globally, steel production and consumption have been led by Asia, and China in particular. Egypt’ssteelsectoriscurrentlysmallintheglobalcontext;however,Egypt’ssizeandimportancearelargerwithintheMENAregion.Egypt’ssteelproductionhasgrownata10-yearcompoundannual growth rate (CAGR) of 7.7%, far outpacing the global steel production of 4.5% during the same period. However, Egyptian steel consumption has grown at a slower pace of 3.2% compared to the growth in global steel consumption of 4.7% over the last 10 years. Steel consumption in Egyptsignificantlypickedupfrom2004onwardsgrewatafive-yearCAGRof9%until2009,which was comprehensively higher than the global steel consumption growth rate of 2.7% during the same period.




Figure 7 Global Steel Production and Consumption in 2009

5.9

18

18.5

4

28.4

45.4

55.3

24.7

57.4

53.2

542.4

1121.2

5.5

25.3

26.5

29.8

32.7

48.6

56.6

59.9

58.1

87.5

567.8

1226.5

Egypt

Turkey

Brazil

Ukraine

Germany

South Korea

India

Russia

US

Japan

China

World

Production (million tons) Consumption (million tons

Sources: World Steel Association and NBK Capital

According to 2010 forecasts for steel consumption (MEED Steel Conference, October 2010), Egypt accounts for almost 15% of steel consumption in the MENA region, and is easily one of the largest steel markets in the region. Egypt accounted for more than a third of the African steel production in 2009, second to South Africa, which dominated the continent with 51% of the total production.

The Egyptian steel sector is

small in the global context,

but is the third largest in the

region




Figure 8 Trend in MENA Steel Consumption

2010F 2011F Growth

(million tons) (million tons) (%)

KSA 9.6 10.2 6%

UAE 6.4 6.6 3%

Other Gulf 4.1 4.2 2%

Total GCC 20.1 21.0 4%

Egypt 8.8 9.3 6%

Algeria 4.7 5.2 11%

Libya 1.5 1.9 27%

Other North Africa 3.5 3.5 0%

Total North Africa 18.5 19.9 8%

Iraq 2.0 2.4 20%

Syria 2.7 2.8 4%

Other Eastern Mediterranean 2.1 2.3 10%

Total Eastern Mediterranean 6.8 7.5 10%

Iran 17.1 17.4 2%

MENA 62.5 65.8 5%

Country /Region

Sources: Meed Steel Conference 2010 and NBK Capital

egypt steel sector – the story so far

Robust economic growth leading to increased purchasing power significantly boosted steelconsumption in Egypt in the recent past, as we clearly see an increase in steel consumption from 2004 onwards. A massive infrastructure, housing, and tourism boom in the recent past ensured thatsteelconsumptioninEgyptgrewatanimpressivefive-yearCAGRof9%comparedtoEgypt’srealGDPgrowth rateof6%.Domesticdemand forfinishedsteeloutstrippedproduction from1999 onwards with the exception of 2004.

Figure 9 Historical Trend in Steel Production, Consumption, and Real GDP Growth in Egypt

2.6 2.8

3.84.3 4.4

4.8

5.66.0 6.2 6.2

5.5

4.7 4.8

5.75.9

5.1

4.6

7.1

6.7

7.5 7.6

5.9

0%

1%

2%

3%

4%

5%

6%

7%

8%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Production in (million tons) Consumption (million tons) Real GDP growth (%)


Steel consumption in Egypt is

expected to grow at a faster

pace in 2011 compared to

both the MENA and GCC

regions

Steel consumption in Egypt

has increased at a brisk pace

in the recent past




Wewould like tohighlight that, inspiteof the increaseddemandforsteel,Egypt’sper-capitasteel consumption is still low compared to some countries in the MENA region, and across the globe.Egypt’scurrentannualper-capitasteelconsumptionstandsat77kg.Attheendof2009,Egypt’sper-capitasteelconsumptionwaswellabovetheAfricanaverageof42.1kg,butfarbelowthe Middle Eastern and global average of 205 and 179 kg, respectively. We expect per-capita consumption of steel to grow considering the impressive pipeline of infrastructure and ongoing real estate projects.

Figure 10 Historical Trend in Per-capita Finished Steel Consumption

Country 2003 2004 2005 2006 2007 2008 2009

France 251.2 267.1 235.9 255.3 261 242.6 167.2

Germany 387.4 439.9 427.7 475.6 518.2 514.8 345

Italy 548.3 571.9 543.9 629.6 624.3 569.3 320

European Union (27) Average 328.4 353 338.3 384.9 403.9 371.7 240.7

Turkey 206.8 226 233.2 265.2 299.6 262.5 234.7

Russia 175.5 183.2 204.9 245.8 285.6 251.5 176.3

Ukraine 134.7 121.8 118.4 144.1 179.4 147.8 86.5

Other CIS 77.2 31 30.5 37.9 47.9 48.4 55.4

CIS Average 142.3 147.2 160.8 190 220.4 195 140.3

Canada 486.4 540.9 520.1 554.8 470.9 429.9 283.7

Mexico 144 152.6 143.9 159.4 156.7 149.3 125.3

United States 347.5 400.7 356.5 400.9 358.5 323.6 186.9

NAFTA Average 308.3 350.6 316.7 353.2 317.3 288.7 178.9

Argentina 74.1 92.4 94.4 113.4 115.3 118.2 78.7

Brazil 86.8 98.2 89 96.8 114 122.2 93.1

Venezuela 60.2 96.3 96.1 126.2 140.1 128.7 100.5

Others 43 52.5 54 60 63.5 67.4 50.7

Central and South America Avg. 65.6 78.1 74.8 84 93.8 98.5 73.9

Egypt 60.2 54.1 68.5 62.2 72.2 84.6 77

South Africa 88.2 105.1 98.5 126 123.9 125.6 84.6

Other Africa 19.9 19.9 21.8 21.3 22 23.4 26.3

Africa Average 30.7 31.3 34 35 36.5 39.2 42.1

Iran 229.6 225.8 241.7 225.3 291.6 236.9 245.6

Other Middle East 182.1 188.7 210.2 233.1 245.7 271.2 217.5

Middle East Average 176.8 178.8 196.6 201.8 231.1 226.6 204.8

China 186.2 212.4 266 287.4 319.6 326.9 405.2

India 31.3 32.9 36.6 41.2 45.8 45 47.8

Japan 576.6 602.4 601.6 619.5 636.9 612.4 418.9

South Korea 952 986.7 981.6 1042.6 1142.1 1210.7 936.1

Taiwan, China 881 974.8 877.1 870 790.9 737.8 491

Other Asia 47.7 51.4 53.6 53 54.6 55.6 50.1

Asia Average 132.6 145.3 165.6 175.5 190 191.6 207.1

Australia 309.8 328.7 322.9 316.9 332.2 331 233.4

World Average 150.6 164.5 173.6 188.3 198.9 193.8 178.9


As mentioned previously, the rebar price set by Ezz Steel at the beginning of every month serves as a benchmark price for the local steel industry. Hence, the historical trend in rebar prices for Ezz Steel serves as a historical reference for steel prices in Egypt. We would like to point out that thedomesticpriceforrebarsandflatproductsiscurrentlysubjectedto8%and10%salestax,

Egypt’s per-capita consumption

of steel is low compared to

some countries in the MENA

region, and across the globe




respectively. From 2005 until the end of October 2010, Egyptian rebar prices went through a full cycle of uptrend and correction. Egyptian rebar prices more than doubled to USD 1,205 per ton (EGP 6,630 per ton) in August 2008 compared to USD 552 per ton (EGP 3,037 per ton) in January 2005. The rebar prices in August 2008 were a historical high for the Egyptian steel sector, in line with the increase in global steel prices. Since then, Egyptian rebar prices have corrected almost 58% to hit a low of USD 509 per ton (EGP 2,800 per ton) in August/November 2009 becauseoftheglobalfinancialcrisis.CheapsteelimportsfromTurkeyledtopricingpressuresinEgypt between 4Q2008 and 2009. Since the lows of November 2009, Egyptian rebar prices have recovered almost 48% to reach USD 661 per ton (EGP 3,833 per ton-exclusive of sales tax) in December 2010, outpacing the 20% jump in global steel prices during the same period.

Figure 11 Historical Trend in Rebar Prices

0

200

400

600

800

1000

1200

1400

1600

1800

Mar-08 Jun-08 Aug-08 Oct-08 Jan-09 Mar-09 Jun-09 Aug-09 Nov-09 Jan-10 Apr-10 Jun-10 Sep-10 Nov-10

Turkish Domestic Rebar (USD/ton) Egyptian Rebar (USD/ton)

Chinese Steel Rebar (USD/ton) ME Rebar import price

Sources: Bloomberg and NBK Capital

Global steel prices, as with any commodity prices, are a function of raw material prices. Therefore, prevailingscrapandironorepricessetthefloorforglobalsteelprices.Therefore,analyzingthepricedifferentialbetweenthefinishedproductandtherawmaterialsisrelevant.SinceEgyptiansteel companies use imported iron ore/scrap as raw materials, we compared the historical prices of Egyptian rebar with the global scrap and iron ore prices. We observe that the price differential between thefinishedproduct and rawmaterial has declined over the years, especially in thecaseofironore.Thedeclineissignificantlyhigherwhencomparedtotheironoreprices.Inthebeginning of 2005, the Egyptian rebar price was around 10 times that of global iron ore. The differential between the Egyptian rebar price and global iron ore price has declined to 4–4.5 times the iron ore price. The price deferential with the scrap prices over the years has been far more consistent,asshowninthefigureinthefollowingpage.

Egyptian rebar prices have

recovered appreciably in the

recent past




Figure 12 Historical Trend in Egyptian Rebar Prices and Input Prices

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Jan-

05

Jul-0

5

Dec

-05

Jun-

06

Dec

-06

Jun-

07

Dec

-07

Jun-

08

Dec

-08

Jun-

09

Dec

-09

Jun-

10

Dec

-10

Rebar/Scrap Differential Rebar/Iron Ore Differential

Sources: Bloomberg and NBK Capital

top-down story intact

Egypt witnessed a massive infrastructure, housing, and tourism boom in the recent past. Thus, the growth in construction activity far outpaced the growth in nominal GDP for 2004–2009, which led to a robust demand for steel (mainly long products) in Egypt. During this period, construction activity in Egypt grew at a staggering CAGR of almost 19% compared to the nominal GDP growth rate of 16.4%. This growth in construction activity is compelling when compared to the long-term CAGRs of 12.6% (20-year) and 11.7% (10-year).

We expect the growth momentum in the Egyptian construction sector to remain intact going forward, and expect the positives in the construction sector to act as the major driver for the Egyptian steel sector. According to BMI forecasts, the Egyptian construction sector will undergo a real growth of 4.36% in 2010, followed by real growth in the range of 4.4–5.6% for the period 2010 to 2014. The longer-term picture holds much promise due to the demographics of the Egyptianpopulation.AccordingtoBMIestimates,abouttwo-thirdsofEgypt’spopulationliveinurban areas. By 2025, urban dwellers are expected to reach 83%—which translates to around 79 million people—as a result of increasing population and migration. To meet the increased demand for housing, there is a clear need for residential construction. According to the same estimates, construction of 820,000 units annually will be required over the next two decades to meet the current and future demand, but Egypt can build only around 300,000 units per year due to the current capacity constraints. We feel residential construction activity will be a focus area for the government and private developers.

The price differential between

the finished product and raw

material has narrowed over the

years




egypt construction sector overview

Egypt is a fairly large regional construction market. According to BMI, the Egyptian construction sector was around USD 6.2 billion in 2009, which places this market ahead of Qatar and at roughly 2.5x the size of the Kuwaiti market. However, the construction markets of the UAE, Saudi Arabia, Algeria, Iran, and possibly Iraq are much larger. Overall, the construction market in Egypt accounted for about 7% of the regional construction industry in 2009. Thus, we believe that Egypt is an important regional construction market.

We remain optimistic about upside surprises. Despite the somewhat muted projections for 2010, we note that there could a silver lining in terms of real GDP and construction sector growth in 2010 and beyond. Our view is based on the following:

• Recent data points have been encouraging. AccordingtotheEgyptianCabinet,thecountry’sGDP grew by an annualized 5.1% in the three months ending December 2009, and the construction sector in the same period grew by 11.5%. We also note that the country’sEconomicDevelopmentminister expects Egypt’s real GDP growth in FY2010 to be 5.5%versusthe3.5%projectedbyBMI.TherehasalsobeensomeanecdotalevidencethatEgypt’stourism industry (roughly 11% of the GDP) seems to be bouncing back this year, along with a resumptionofSuezCanalrevenueandtrafficgrowthsinceDecemberandapick-upinexportsthus far in 2010.

• The government has persisted in its willingness to stimulate infrastructure projects. We believe that BMI has not yet factored in the impact of the last two stimulus package announcements. In an effort to mitigate the undesirably sharp impact of the downturn on the construction industry (roughly 3.4% of 2008 GDP), the government has proposed three stimulus packages. The first packagewas announced inOctober 2008 andwasworth EGP15 billion (about USD 2.75 billion). The second package was announced in the June 2009 state budget and was worth EGP 8 billion (about USD 1.47 billion). The most recent stimulus announcement was made in January 2010 and was worth EGP 11.2 billion (about USD 2.05 billion). Mostly targeting infrastructure, a water and social services-oriented plan was laid out with the third stimulus: (1) EGP 9 billion for water treatment projects, (2) EGP 1 billion for social programs, (3) EGP 500 million for developing land near suburban areas, (4) EGP 200 million for the developmentofCairo’sringroad,and(5)EGP300millionforhousingprojects.Beyondthesepackages, the Egyptian government intends to target infrastructure, spending worth around USD 24 billion by June 2011, with increased emphasis on Public Private Partnership (PPP) projects to stimulate the economy. We have presented a list of selected infrastructure projects in Figure 9.

• Egypt domestic demand growth: Egypt has a unique set of drivers, as the Egyptian economy is muchmorediversifiedcomparedtosomeofitsregionalcounterparts.Egyptiscomparativelyless dependent on oil and gas, which contributed only 15% to its GDP in FY2008/2009, than some of its GCC peers. With around 80 million inhabitants, Egypt is the most populous nation in the Arab world with a rapid population growth rate of nearly 1.5–2% per annum. For this reason, domestic consumption is an important driver of economic growth and a major contributor of nearly 76.2% of GDP in 2009. The fast-growing (and young) population also translates into genuine domestic demand for real estate. Egypt’s demographics support astrong housing demand for the next decade, which translates into a strong domestic demand for steel.

• Caveat:stimulusplanswillhavetobeweighedagainstrisingbudgetdeficits,aslowingforeigndirect investment (FDI)environment,and theprospectof increasing inflation. In our view, these factors could serve to lower spending on infrastructure projects.

• Net-net, we remain positive about the prospects of a near-to-intermediate pick-up in Egypt’s economic activity and construction sector.




Figure 13 Selected Infrastructure Projects Proposed in Egypt

NamePro jec t Va lue

(USD bn)Desc r ipt ion

Transpo r tAirportsMubarak Airport 0.36 Plans in progressAirports Improvement 0.91 Project announcedNew Airports 1.09 Project announcedNew Terminal at Cairo 0.56 Opened

PortsAdabiya Port bulk terminal 7.09 Plans to link to south of Suez Canal

NileRiverports;deepeningSuezCanal 9.12ProjectAnnounced;Timeframe2009-2012

RailwaysAswan-Wadi Halfa, Sudan rail line 0.50 Government considering project

Cairo's Third Metro Line 0.46PhaseTwocontractawarded;Vinci,Bouygues, Arab Contractors, OCIC

RoadsCairo-Alexandria Highway 0.34 Project announcedPort Said- Marsa Matruh 0.27 Coastal highwayShoubra-Banha highway 0.13 Project announced

UpperEgypt-RedSearoadproject;365km 0.24Constructionunderway;2009;National Construction Co.

Ene rgy and Ut ilit ie sOil& Gas Pipelines and Projects

Assiut-Aswan pipeline 0.91Constructionstarted;2008-2009;GASCO

Power PlantsNuweiba 750MW combined cycle plant 0.71 Government allocated funds

Nuclear power plant 1.5-1.8Tenderexpectedin2010;Timeframe2008-2020;Bechtel

Ain Sokhna 0.60WorldBank;2009-;EgyptianElectricity Holding Co.

WaterNew Cairo waste water treatment plant 0.47 Contractawarded;OCIC,AqualiaTwo water pumping stations 0.02 Contractannounced;KirloskarRed Sea-Dead Sea Canal project 4.35 Feasibility study December 2008

Const ruc t ionResidential Construction

Westown and Eastown, Cairo 4.00Delayed;2008-2011;SodicandSolidere International

Mivida project, New Cairo City 1.25 Projectannounced;2009-;EmaarMisr for Development

Industrial ConstructionPhosphate-based fertilizer plant 0.80 Finalsiteundecided;November

Cairo cement plant 0.24ContractsignedDecember2008;2009-2011;Inekon

Sources: BMI, industry sources, and NBK Capital

Several infrastructure projects

are expected to go ahead

in Egypt over the near-to-

intermediate term




Figure 14 Major Residential Projects in Egypt

Value Area Housing(USD MM) (MM m2) Units

Sheikh Khalifa Bin Zayed City/Emaar Misr

100Sheikh Zayed City, Cairo

2.2 12,000 2011Targetsmid/lowincome;projectincludesmosques,educational, recreational, sports, & entertainment facilities

Cairo Festival City/Al Futtaim Group

9,000New Cairo City

3 481 2020

Five-district development: residential, retail, and three businessdistricts;includesafestivalcenterwithshopping, entertainment, & educational areas, an automotive park, two hotels, residential villas, & a hospital

Barwa New Cairo/ Barwa Real Estate Company

9,000Berger Hill, East Cairo

8.4 40,000 2021

A four-phase project: villas, three hotels, residential & commercial buildings, medical facilities, schools, mosques, parks, retail shopping areas, & town center

Cairo Financial Center

730 Cairo 0.75 N/AP 1: 2010P 2: 2013

Overlooking the Citadel fortress, the two-phase development will include: Phase 1: 16-screen cinema complex, office & retail space,&parkingarea;Phase2:retailspace,exhibition & conference center, a hotel, a health club, & parking area

Hyde Park/Damac Properties

7,000New Cairo City

4.7 3,000P 1: 2011P 2: 2012

A community development with attached & detached villas,countryclub,&surroundinglandscaping;80%of the project's area is dedicated to green space

Marassi/Emaar Misr 1,740Sidi Abdulrahman & Alamein

6.25 N/AP 1: 2010End: 2013

A seven-district development including hotels, villas, a marina, a golf course, hospital and health-care facilities, retail areas, & a six-km beachfront

Mivida/Emaar Misr for Development Company

1,000New Cairo City

3.8 5,000P 1: 2012End: 2016

A community development including houses, offices, healthcare, business & hospitality facilities, schools, retail space, & business & central parks

Cairo Expo City N/A Cairo 0.7 N/AP 1: 2011End: 2012

Designed by Zaha Hadid and Buro Happold, the project includes a conference/exhibition facility, two hotels, a shopping mall, office space, an underground garage, restaurants, & other facilities

CityStars 2,500Sharm El Sheikh

7.5 N/A 2018

A five-phase project with infrastructure developments throughoutconstruction;projectincludeshotels,residential units, commercial space, retail outlets, cinemas, & schools

Dream Farms/ Egyptian Kuwaiti Co. for Dev. and Inv.

26,200South of Cairo

3 655 2011Project includes residential and industrial cities, universities, hospitals, schools, health care centers, two supermarkets, & two mosques

Grand Heights/ KUWADICO

1,000Sixth of October City

3.7 N/A 2015An array of residential units spread across an area of severalislands;inDecember2008,theprojectwasrenamed "Grand Heights" from "October Hills"

Egypt Eastown/ Solidere

1,600Sheikh Zayed City, Cairo

0.858 2,200 2017

SODIC plans to develop downtown Kattameya in this two-phase project including office & residential units, hotels, retail outlets, entertainment facilities, parks, & public squares

Egypt Westown/ Solidere

2,400Sheikh Zayed City, Cairo

1.2 2,800 2017Five residential neighborhoods with townhouses & apartments, office units, retail outlets within a mall, entertainment facilities, & hotels

Madinaty/Talaat Moustafa Group

14,000Northeast of Cairo

33.6 120,000P 2&3: 2011

End: 2032

A residential, entertainment, & commercial community including villas, hotels, exhibition halls, educational, medical, entertainment and shopping faculties;aroadnetworkisplannedtolinkMadinatyto the external highways

DetailsCompletionLocationProject/Developer

Sources: BMI, industry sources, and NBK Capital

egypt steel sector – the story forward

We have a positive outlook on the Egyptian steel sector, and accordingly, expect per capita consumption of steel to grow from these levels, especially considering the impressive pipeline of infrastructureandrealestateprojects.AccordingtoBMIestimates,theconsumptionoffinishedsteelwillgrowatafive-yearCAGRof12.9%comparedtothehistoricalrateof9%in2004–2009.Local consumption is expected to outstrip local production going forward. Therefore, we believe Turkish exporters will remain active suppliers to the Egyptian market, and we expect no import tariffstobeimposedforaslongasthemarketdeficitcontinues.

Residential projects in Egypt

will act as a key driver for

domestic steel demand




Onthesupplyside,apartfromEzzSteel’sown,therearenomeaningfulsupplyadditionsinEgyptover the near term. Of the handful of steel licenses awarded by the Egyptian government over the past three years, only three have translated into concrete project plans. We expect continued tightness in license awards as the government focuses on rationing natural gas allocations and limiting energy subsidies, thus keeping away potential new entrants.

Figure 15 Forecasted Trend in the Steel Demand–Supply Egypt

2007 2008 2009 2010f 2011f 2012f 2013f 2014f 5-yr CAGR

Production (million tons) 6.2 6.2 5.5 5.9 7.0 8.2 9.5 10.8 14.5%Import (million tons) 2.3 3.0 2.7 3.1 3.1 3.1 2.5 2.0 -5.7%Export (million tons) 1.0 1.1 0.51 0.65 0.78 0.97 0.12 0.14 -22.7%Total Supply 7.4 8.1 7.7 8.3 9.3 10.3 11.9 12.7Consumption (million tons) 7.5 7.6 5.9 8.8 9.3 9.8 10.3 10.8 12.9%

Sources: BMI and NBK Capital.

On the pricing front, we expect average prices for long products to be around EGP 3,625 per ton (net of sales tax) for 4Q2010. We expect current rebar prices of EGP 3,850 per ton (net of sales tax) to hold during 2011 thus, resulting in an increase of 12.7% year-over-year (YoY). We are keenly monitoring the pricing trends in Turkey to see whether any pricing differential may induce cheaper imports, leading to pricing pressures in Egypt. That does not seem to be the case at present.

Figure 16 Price Forecast

2008 2009 2010f 2011f 2012f 2013f

Rebar price (EGP per ton) 4,760 2,935 3,417 3,850 3,946 4,025Rebar price (USD per ton) 821 506 589 664 680 694YoY growth -38.3% 16.4% 12.7% 2.5% 2.0%

Flat product price (EGP per ton) 4,572 2,839 3,758 4,081 4,183 4,267Flat product price (USD per ton) 788 489 648 704 721 736YoY growth -37.9% 32.4% 8.6% 2.5% 2.0%

Sources: Company and NBK Capital.

We expect domestic steel

demand to grow at a faster

pace compared to production

We expect domestic rebar

prices to increase by 12.7%

YoY in 2011




mAjor finAnciAl AssUmPtions AnD forecAsts –

ezz steel consliDAteD

The key assumptions for Ezz Steel are broken down by operation (Figure 17). Though EZDK willcontinuetoaccountforthelion’sshareofEzzSteel’srevenueandEBITDAuntil2011,weforecast increasing contribution from EFS and ESRS/ERM due to the capacity additions and process upgrades at these operations from 2012 onwards.

Figure 17 Key Assumptions by Operations

2010f 2011f 2012f 2013f 2014f 2015f

Rebar prices (EGP per ton) 3,417 3,850 3,946 4,025 4,106 4,188Rebar prices (USD per ton) 589 664 680 694 708 722Flat product prices (EGP per ton) 3,758 4,081 4,183 4,267 4,352 4,439Flat product prices (USD per ton) 648 704 721 736 750 765Capacity utilization (%) 84.7% 86.8% 92.9% 80.9% 89.9% 94.1%EZDK (Standa lone )

Revenue (EGP million) 9,273 10,177 11,208 11,508 11,859 12,051EBITDA (EGP million) 1,870 2,238 2,515 2,566 2,661 2,698EBITDA margin (%) 20.2% 22.0% 22.4% 22.3% 22.4% 22.4%ESRS/ERM

Revenue (EGP million) 5,414 5,803 5,948 6,067 6,188 6,312EBITDA (EGP million) 162 231 974 1,304 1,388 1,415EBITDA margin (%) 3.0% 4.0% 16.4% 21.5% 22.4% 22.4%EFS

Revenue (EGP million) 1,586 3,183 4,350 5,504 8,225 9,744EBITDA (EGP million) 79 127 647 1,101 1,768 2,181EBITDA margin (%) 5.0% 4.0% 14.9% 20.0% 21.5% 22.4%Ezz Stee l (conso lida ted)

Revenue (EGP million) 16,273 19,163 21,506 23,079 26,273 28,107EBITDA (EGP million) 2,111 2,597 4,136 4,971 5,817 6,294EBITDA margin (%) 13.0% 13.6% 19.2% 21.5% 22.1% 22.4%Revenue Cont r ibut ion

EZDK (stand-alone) 57.0% 53.1% 52.1% 49.9% 45.1% 42.9%ESRS/ERM 33.3% 30.3% 27.7% 26.3% 23.6% 22.5%EFS 9.7% 16.6% 20.2% 23.8% 31.3% 34.7%EB ITDA Cont r ibut ion

EZDK (stand-alone) 88.6% 86.2% 60.8% 51.6% 45.7% 42.9%ESRS/ERM 7.7% 8.9% 23.5% 26.2% 23.9% 22.5%EFS 3.8% 4.9% 15.6% 22.1% 30.4% 34.7%

Source: NBK Capital.

We expect stand-alone EZDK

to remain the main driver for

growth until the end of 2011




tHe Dri Process ADVAntAge – tHe WAy forWArD

for ezz steel

The process of directly reducing the iron ore in solid form by reducing gases is called direct reduction.Ironore(lumps,pellets,orfines)isreducedinsolidstateat800–1050°C,eitherbyareducing gas or coal. The reducing gas is mainly a mixture of hydrogen (H2) and carbon monoxide (CO). Direct reduced iron (DRI) is successfully manufactured worldwide through either natural gas or coal-based technology.

Direct reduction, an alternative route of steel making, has been developed to overcome some of thedifficultiesofconventionalblastfurnaces.Theconventionalrouteformakingsteelconsistsof pelletization plants, coke ovens, blast furnaces, and basic oxygen furnaces. Such plants requirehighcapitalexpendituresandhavetoadheretostringentspecificationsforrawmaterials.Steel plants with capacity of less than 1 million tons that use blast furnaces are generally not economically viable. The direct reduction process has multiple advantages over the conventional steel-making process: 1) the initial capital outlay and operating costs of direct reduction plants are low compared to conventional steel plants since the direct reduction process is intrinsically more energy efficient than the blast furnace because it operates at a lower temperature, 2)direct-reduced iron is richer in iron than pig iron, typically 92–94% total iron (depending on the quality of the raw iron ore) as opposed to about 90% for molten pig iron, and an excellent feedstock for the electric arc furnaces (EAF) used by mini-mills, and 3) the direct reduction process is comparatively more environmentally friendly.

The DRI method leads to substantial cost savings for raw materials compared to a manufacturer thatusesscrapasrawmaterial.Wewouldliketoemphasizethatthisprocessisnotonlyefficient,but also makes steel-making viable in Egypt, considering the poor quality of the locally available ironore.Itisalsomuchmoreprofitablethanscrap-basedproduction.Theproductionefficiencyeffectively compensates for the cost of imported iron ore pellets.

Weneed tounderstand the impact of this technology fromEzzSteel’sperspective.EzzSteelcurrently has 3.2 mtpa of DRI capacity at its subsidiary EZDK (Alexandria), which uses imported iron ore pellets as raw materials. The other operations at ERSR/ERM (Sadat City/10th of Ramadan City) and EFS (Suez) currently use scrap as raw material. All plants operate on EAFs. Needless to say,EZDKisbyfarthemostprofitablecompanyundertheEzzSteelumbrelladuetothesubsidiary’sprocessadvantage.Weestimatethatthe9M2010cashcostpertonoffinishedproductatEZDKwas EGP 2,540, 25% lower than the EGP 3,380 per ton at ESRS/ERM (scrap-based), which highlights the lower costs of raw materials for a DRI-based versus a scrap-based steel producer. In further analysis, we compared the historical EBITDA margins for 38 steel companies across the globe, and as expected, we observed that EZDK generates higher EBITDA margins compared to the peer average.Weshouldmentionthat,inspiteofimportingironore,EZDK’sEBITDAmarginsareinthe top quartile among the global steel companies. Very few steel companies in our sample set have consistently generated higher EBITDA margins than EZDK during the period of study. Data permitting, we would have ideally wanted to run a comparison amongst global steel companies that operate on imported raw material. Locally available, high-quality raw material is one of the main reasons for the high EBITDA margins for Chinese, Indian, Russian, Brazilian, and South Africancompanies.EzzSteel’snewDRIcapacityaddition in2013willallow thecompany touse imported ironorepellets for itsentirefinishedsteelproduction.We feel theDRIprocessadvantage as and when replicated at other operations of Ezz Steel will expand the group EBITDA marginssignificantly,andweconsiderthisthemaincatalystforthestockgoingforward.




Figure 18 EBITDA Margin for Global Steel Players

2005 2006 2007 2008 2009Af r ica

EgyptEzz Steel (stand-alone) 8.9% 6.9% 2.3% 6.0%Al Ezz Dekhe ila ( stand-a lone ) 37.3% 41.1% 37.8% 36.6% 17.3%Egyptian Iron and Steel Co 7.6% 21.7% -15.4%El Obour Metallurgical Industries 8.7% 16.7% 7.8% 6.2%South Af r icaArcelormittal South Africa Ltd 33.8% 28.3% 30.0% 33.9% 6.0%Merafe Resources Ltd 17.9% 17.3% 28.1% 58.0% -5.5%Af r ican Ave rage 24.4% 20.0% 22.1% 26.4% 1.7%Asia

ChinaBaoshan Iron & Steel Co Ltd 23.7% 19.6% 16.5% 12.1% 14.3%Angang Steel Co Ltd 14.7% 26.5% 23.5% 11.8% 11.3%Wuhan Iron and Steel Co Ltd 22.8% 19.8% 24.2% 14.6% 11.7%IndiaSteel Authority of India Ltd 36.0% 25.4% 31.0% 31.3% 24.2%Jindal Steel & Power Ltd 39.5% 39.9% 40.1% 43.7% 49.8%Tata Steel Ltd 38.7% 31.9% 30.8% 18.2% 9.7%JSW Steel Ltd 34.4% 31.5% 32.3% 28.8% 20.1%JapanNippon Steel Corp 16.8% 18.6% 17.6% 16.1% 11.1%JFE Holdings Inc 18.3% 21.4% 20.6% 19.0% -1.3%Sumitomo Metal Industries Ltd 19.5% 23.7% 23.2% 20.9% 16.6%Kobe Steel Ltd 15.3% 16.5% 15.1% 14.7% 9.8%South Ko reaPOSCO 29.5% 24.3% 22.7% 22.8% 16.9%Hyundai Steel Corp 12.9% 14.1% 12.0% 14.3% 10.4%Hyundai Hysco Co. Ltd. 9.1% 5.7% 6.1% 6.9% 6.3%Asian Ave rage 23.7% 22.8% 22.5% 19.7% 15.1%Europe

Ge rmanyThyssenKrupp AG 8.2% 9.3% 9.7% 8.9% -1.2%Salzgitter AG 13.8% 20.5% 14.6% 9.7% 0.6%Spa inAcerinox SA 8.8% 17.5% 9.5% 3.4% -6.4%Tubos Reunidos SA 14.9% 18.7% 22.1% 20.7% 6.1%Tubacex SA 12.1% 11.8% 15.1% 10.7% -4.9%Vallourec SA 24.6% 29.8% 28.2% 26.1% 21.6%IMS International Metal Service SA 9.5% 10.2% 8.6% 5.3% -12.5%RussiaNovolipetskiy Metallurgicheskiy Kombinat 48.6% 43.0% 44.1% 39.0% 22.3%Severstal' OAO 27.0% 22.2% 23.0% 19.2% 4.2%Magnitogorskiy Metallurgicheskiy Kombinat 27.8% 30.4% 28.2% 20.1% 20.2%Europe Ave rage 19.5% 21.3% 20.3% 16.3% 5.0%La t in Amer ica

B razilCompanhia Siderurgica Nacional 52.0% 30.3% 45.4% 55.5% 37.2%Gerdau SA 23.7% 21.7% 20.1% 23.5% 10.4%Usinas Siderurgicas de Minas Gerais SA 38.4% 34.1% 37.2% 29.3% 22.6%Acos Villares SA 21.5% 23.8% 2.8% 29.9% 20.3%La t in Amer ican Ave rage 33.9% 27.5% 26.4% 34.6% 22.6%Nor th Amer ica

United Sta te sNucor Corp 19.8% 22.0% 18.1% 16.0% 3.3%United States Steel Corp 12.6% 13.6% 9.9% 15.1% -9.0%Gerdau AmeriSteel Corp 19.9% 14.6% 17.0% 2.2% 4.3%Steel Dynamics Inc 22.0% 23.8% 18.8% 13.0% 8.4%Nor th Amer ican Ave rage 18.6% 18.5% 15.9% 11.6% 1.7%Pee r Ave rage (e x-EZDK) 22.8% 21.5% 21.1% 20.1% 9.7%

EBITDA Margin (%)

Sources: Reuters and NBK Capital

EZDK has consistently

generated higher EBITDA

margins over the years

compared to its peer average




ezz steel – groUP bAckgroUnD

As discussed earlier, Ezz Steel is the largest steel producer in the MENA region and commands asignificantmarketshareintheEgyptiansteelmarket.Accordingtothecompanypresentationfor1H2010,EzzSteelcontrols45%ofthe longproductmarketand43%oftheflatproductmarket. The company is listed on the Egyptian Exchange as well as on the London Stock Exchange through a global depository receipts (GDR) program.

Figure 19 Ezz Steel – Over the years

Time Period History over the years Finished Steel Capacity

70s - early 90s Ezz family - leading importer and distributer of steel products

1994 Ezz establishes Al Ezz Steel Rebars (ezzsteel)

1995 Ezzsteel acquires ERM (0.5 million tons per annum) 0.5 tpa

1996 Local steel production begins at ezzsteel (1 mtpa) 1.5 mtpa

2000 Flat steel production begins at EZDK (1 mtpa) 4.5 mtpa

2003 Flat steel production begins at Ezz Flat Steel (EFS) (1.3 mtpa) 5.8 mtpa

2006 Comprehensive corporate reorganization completed

2008 Completion of capital increase, bond issue and increased stake in EZDK

2009Successful completion of capital increase for EFSStart of construction of DRI mega module and billet caster

CurrentLong capacity - 3.5 mtpaFlat capacity - 2.3 mtpa

Sources: Company and NBK Capital

EzzSteel’sstructureconsistsoffourplantsacrossthreeentities:

Al Ezz Dekheila Co. at Alexandria: Al Ezz Dekheila is located in Alexandria and Ezz Steel owns 54.6% of the company. EZDK is the largest steel operation under the Ezz umbrella with 2 mtpa oflongproductand1.0mtpaofflatproductcapacity.Thecompany is a fully integrated steel unit consisting of three direct reduction units for producing sponge iron, four 80- ton electric arc furnaces (EAFs), coupled with continuous casting machines for billet production and rolling mills, and a privately operated port.

ESR (Sadat City): The mini-mill comprises offer a melt shop (scrap melting and billet caster) and two rolling mills with a total long product capacity of 1 mtpa.

Al Ezz Rolling Mill (ERM) at 10th of Ramadan City: The rolling mill and wire mesh factory have a capacity of 0.5 mmtpa and is 98.9% owned by Ezz Steel.

Ezz Flat Steel (Sokhna/Suez): The company operates through a mini-mill and specializes in a continuous process from steelmelt to rolled flat sheets. The facility is based on the well-established mini-mill concept, producing liquid steel by melting scrap in an electric arc furnace. The Danieli-built plant includes a thin slab continuous caster, allowing the plant to produce very thin gauges of steel sheets, down to a minimum thickness of 1 mm. Recently, EFS added a billet castertobeabletoconvertits1.3mtpacapacitytomanufacturesemi-finishedlongproducts,givingthecompanytheflexibilitytoswitchtolongproductsasandwhenrequired.

Ezz Steel has positioned itself

as a leading steel player in the

MENA region




Figure 20 Current Shareholding Pattern

EZZ STEEL

Ezz Industries Free Float

Al Ezz DekheliaSteel Company (EZDK) Al Ezz Flat

Steel Company (EFS) Al Ezz Rolling Mills (ERM)

66% 34%

54.6% 33.8% 98.9%

55%

Source: Company and NBK Capital.

Thecompany’splantsareideallylocatednearmajorportsatAlexandriaandSuez,whichprovideseasy transportation and distribution of both rawmaterials and finished products. Ezz Steel’sproduction is based on the electric arc furnace (EAF) steelmaking technology and leverage on significantcost advantagesdue to the relatively lowenergyand laborcosts inEgypt.Mostofthe company’s long steel products are sold in the domesticmarket;whereas,51%of its flatproduction is exported, mainly to the GCC countries, Europe, and Asia.

Figure 21 Plant Location

Subsidiary Location Year of commission Products Capacity Level of Integration

Al Ezz Dekheila Alexandria 1986 Rebar, Wire, FlatLong - 2 mtpaFlat - 1 mtpa

Fully integrated

Al Ezz Rolling Mill 10th of Ramadan City 1993 Rebar, Wire 0.5 mtpaRolling mill

Wire mesh factory

ESR Sadat City 1996 Rebar 1 mtpaMelt Shop, Billet Caster and rolling

millsEzz Flat Steel Suez 2002 Flat 1.3 mtpa Fully integrated


The export-oriented flat steel

plants are strategically located

near major ports at Alexandria

and Suez

Ezz Steel owns 63.8% of EFS

(both indirect and direct state)




EZDK is the greatest contributor to Ezz Steel compared to the other entities under the Ezz umbrella on all financial parameters. EZDK not only lends financial scalability to the group,butalsocontributessignificantlytoproductionefficiencywithinthegroup.Intermsofcurrentproductioncapacity,EZDKaccountsfor51.7%ofthetotalgroupcapacity,57%ofthegroup’slongproductioncapacity,and43.5%ofthetotalflatcapacity.EZDKhasaccountedforanaverageof57.3%(63.4%and58.8%in2009and9M2010,respectively)ofEzzSteel’sconsolidatedrevenueandalmostallofconsolidatednetprofit,respectively,fromtheperiod2006to2009.

Figure 22 Contribution by Group Companies

2006 2007 2008 2009 9M2010 2006 2007 2008 2009 9M2010

EZDK 58.3% 54.2% 53.3% 63.4% 58.8% 83.8% 85.0% 96.2% 95.0% 88.4%ESR/ERM 25.2% 27.9% 30.1% 34.1% 31.5% 7.7% 7.8% 3.3% 15.7% 8.0%Ezz Flat Steel 16.5% 17.9% 16.6% 2.5% 9.7% 8.5% 7.2% 0.5% -10.6% 3.6%

Revenue contribution to EZZ Steel EBITDA contribution to EZZ SteelCompany


EZDK is the greatest

contributor to Ezz Steel

compared to the other entities

under the Ezz umbrella on all

financial parameters




finAnciAl stAtements

Income Statement (EGP Thousands)

Fiscal Year Ends December 2008 2009 2010 2011 2012 2013 2014

Total Revenue 21,843,081 12,589,262 16,272,981 19,163,365 21,506,254 23,078,769 26,272,744

Cost of Revenue 16,859,429 10,546,695 13,677,346 15,996,657 16,737,903 17,399,963 19,643,577

Gross Profi t 4,983,652 2,042,567 2,595,635 3,166,708 4,768,350 5,678,806 6,629,167

Selling/General/Admin. Expenses 522,830 402,038 484,687 570,030 632,042 707,945 811,910

Depreciation/Amortization 659,771 588,148 606,203 661,537 883,537 1,082,226 1,135,185

Ope ra t ing Income 3,801,051 1,037,381 1,504,746 1,935,141 3,252,770 3,888,634 4,682,071

Interest Income (Exp), Net Non-Operating (455,358) (689,800) (730,710) (868,828) (1,028,518) (1,179,240) (1,209,550)

Other net 114,651 86,967 185,000 250,000 250,000 250,000 250,000

Net Income be fo re Taxes 3,494,423 589,991 959,035 1,316,313 2,474,253 2,959,394 3,722,522

Provision for Income Taxes 751,207 189,885 215,320 294,331 524,478 650,054 806,752

Net Income a f te r Taxes 2,743,216 400,106 743,716 1,021,983 1,949,775 2,309,340 2,915,770

Minority Interest (1,352,553) (218,661) (405,252) (559,106) (674,943) (707,229) (750,043)

Net Income a f te r mino r it y inte re st 1,233,450 88,132 338,463 462,877 1,274,832 1,602,111 2,165,727

Historical Forecast

Balance Sheet (EGP Thousands)


ASSETS

Cash and Short-Term Investments 4,111,079 1,591,680 2,735,806 2,021,928 4,889,564 7,323,836 9,378,486

Total Receivables, Net 471,115 772,486 878,741 958,168 1,290,375 1,615,514 1,944,183

Total Inventory 3,179,149 2,678,665 4,130,559 4,687,021 5,146,905 5,437,488 6,040,400

To ta l Cur rent Asse ts 7,820,813 5 ,207,737 7 ,829,725 7,772,515 11,436,526 14,515,311 17,520,706

Property/Plant/Equipment, Total - Net 10,029,467 9,626,751 11,193,401 11,926,058 12,545,624 12,227,654 11,482,229

Other Long-Term Assets, Total 754,146 1,746,119 1,715,214 1,415,214 1,215,214 1,115,214 815,214

TOTAL ASSETS 18,628,458 16,600,803 21,118,340 21,493,787 25,577,365 28,238,179 30,198,149

LIAB ILITIES & EQUITY

Accounts Payable 828,519 855,326 2,115,488 2,491,237 2,795,813 3,173,331 3,612,502

Short-Term Debt 3,930,053 3,375,612 5,332,453 4,187,959 5,340,132 5,380,229 4,699,351

Other Current Liabilities 2,422,010 933,755 1,012,696 1,204,591 1,513,765 1,711,678 1,949,616

To ta l Cur rent Liabilit ie s 7,180,582 5 ,164,693 8 ,460,636 7,883,787 9,649,710 10,265,238 10,261,470

Long-Term Debt 2,635,923 3,547,408 4,542,460 4,722,592 5,340,132 5,380,229 4,699,351

Defered Income Tax 572,052 620,693 678,408 725,896 776,709 831,078 889,254

Minority Interest 1,775,156 1,674,937 1,649,379 2,011,180 2,485,648 2,929,357 3,405,071

Other Liabilities 1,273,599 994,079 850,000 750,000 650,000 555,000 500,000

To ta l Liabilit ie s 13,437,312 12,001,810 16,180,883 16,093,454 18,902,199 19,960,903 19,755,146

To ta l Equity 5,191,146 4 ,598,993 4 ,937,456 5,400,333 6,675,165 8,277,276 10,443,003

TOTAL LIAB ILITIES AND EQUITY 18,628,458 16,600,803 21,118,340 21,493,787 25,577,365 28,238,179 30,198,149

Historical Forecast

Cash Flow (EGP Thousands)


Cash from Operating Activities 3,600,994 76,810 2,088,113 1,867,317 3,159,728 3,929,056 4,437,605

Cash from Investing Activities (962,923) (1,239,609) (2,578,521) (1,103,163) (1,255,956) (610,693) 12,112

Cash from Financing Activities (984,198) (1,284,850) 2,255,228 (1,478,032) 963,863 (884,091) (2,395,067)

Net Change in Cash 1,653,722 (2,439,886) 1,764,819 (713,878) 2,867,636 2,434,272 2,054,650

Historical Forecast

Sources: Company financial statements and NBK Capital




Al ezz el Dekheila - cash cow for ezz

key DAtA

Fair Value per Share (EGP) 955Closing Price (EGP) * 77452-week High / Low (EGP) 1128.45/720YTD / 12-month return 3.2%/3.8%Trailing P/E 12.8Shares Outstanding (000s) 13,364Market Cap (EGP million) 10,341Free Float 6.40%Reuters / Bloomberg Code IRAX.CA/IRAX EY

*As of December 26, 2010. Sources: Reuters, Zawya and NBK Capital

key metrics

2009A 2010F 2011F 2012F

P/E 16.1 14.2 12.5 7.7EPS (EGP) 48.0 54.5 62.0 100.5EPS Growth -78% 14% 14% 62%Dividend Yield - 3.5% 4.0% 6.5%EV/EBITDA 9.9 7.9 6.5 4.8

Revenue (EGP million) 9,027 11,803 14,064 16,377Revenue Growth - 30.8% 19.2% 16.5%

EBITDA (EGP million) 1,562 1,964 2,379 3,204EBITDA margin 17.3% 16.6% 16.9% 19.6%EBITDA Growth -63.8% 25.8% 21.1% 34.6%


QUArterly forecAsts

EGP million 1Q2011F 2Q2011F 2010F 2011F

Revenue 3,425 3,550 11,803 14,064EBITDA 562 601 1,964 2,379

Source: NBK Capital

rebAseD PerformAnce

600

700

800

900

1,000

1,100

1,200

Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10

IRAX MSCI Egypt

Sources: MSCI, Reuters, and NBK Capital

12-month fair Value: egP 955

recommendation: buy – risk level**: 3

reason for report: initiation of coverage

• We are initiating coverage on Al Ezz El Dekheila (EZDK) with a “Buy” recommendation and a 12-month fair value of EGP 955 per share, resulting in an upside potential of 23.4%.WebelieveEZDK’scurrentmarketvaluationdoesnotcapturethevalueofthecompany’sproportionatestakeinEFS(55%) and, hence, appears compelling. The current stock price is 11% lower than our stand-alone fair value of EZDK (EGP 861 per share). The top-down story of a healthy economic outlook for Egypt, resulting in robust domestic steel demand, further underpins our positive outlook for the company.

• Market leadership: EZDK is the largest steel operation under the Ezz umbrella, with integrated capacities of 3 mtpa (2mtpa–longproducts,and1.0mtpa–flatproducts)fedby a 3.2 mtpa DRI plant. EZDK is the largest stand-alone steel producer in Egypt and enjoys a dominant market share. InadditiontoEZDK’sformidablepositioninginthedomesticsteel market, the company also exploits export opportunities intheEuropeanmarketsduetothecompany’sproximitytoports.Thecompany’svariedproductrangeensuresgreatermarket visibility and penetration.

• Cash cow for Ezz Steel: EZDK is the greatest contributor to Ezz Steel compared to the other entities under the Ezz umbrellaonallfinancialparameters.EZDKnotonlylendsfinancial scalability to the group but also contributessignificantlytoproductionefficiencywithinthegroup.EZDKhasbecomeacashcowovertheyearsandhassignificantlyinfluencedEzzSteel’sfinancials.During2004–2008,EzzSteel earned almost EGP 4 billion in cash dividends from EZDK.EZDK’scontribution to thegroupEBITDAwarrantsattention as it accounted for an average of 90% (95% and 88.4% in 2009 and 9M2010, respectively) of the group EBITDAsinceEZDK’sconsolidationwithEzzSteelin2006.

• Process advantage within the group: The company, through its fully integrated steel unit consisting of three direct reduction units for producing sponge iron and four 80-ton electric arc furnaces (EAFs), uses DRI for its steel production. The DRI method leads to substantial cost savings on raw materials compared to steel plants using scrap as raw material. We estimatethe9M2010cashcostpertonoffinishedproductat EZDK was USD 437, 25% lower than the USD 583 per ton at ESR/ERM (scrap-based).

**Please refer to page 36 for recommendations and risk ratings.




VAlUAtion

We arrive at a fair value of EGP 955 per share for EZDK, which results in an upside potential of 23.4% and hence, our “Buy” recommendation. We believe that the current stock price is 11% lower than our stand-alone fair value of EZDK (EGP 861 per share) which means that the current marketpricedoesnotcapturethevalueofthecompany’sproportionatestakeinEFSand,hence,appears attractive.

Figure 23 Fair Value per Share (including EFS)


Discounted cash flow 1030 80%Peer comparison 655 20%

Weighted a ve rage fa ir va lue 955 100%

Source: NBK Capital

stand-alone Valuation—ezDk

Wearrivedatthisstand-alonevaluationbyusingtwovaluationmethods:discountedcashflow(DCF)andpeercomparisonbasedonforwardEV/EBITDAmultiples.Wespecifiedaweightforeachmethod, as shown in Figure 24. A greater weight is assigned to DCF, as this method examines the fundamentals of the company to determine its future cash-generating ability.

Figure 24 Stand-alone Fair Value per Share of EZDK


Discounted cash flow 848 80%Peer comparison 913 20%

Weighted a ve rage fa ir va lue 861 100%

Source: NBK Capital

Discounted cash flow Valuation—ُezDk consolidated

OurDCFvaluation (Figure3) isbasedon forecastedfinancial results through2015.TheDCFvaluation is a function of the following major variables, which have been estimated using our models:

• Future net operating profit less adjusted taxes (NOPLAT), which is driven primarily byexpectations of revenues and operating expenses

• Future changes in working capital

• Futurenetexpendituresonfixedassets

• The weighted average cost of capital (WACC), which is a weighted average of our estimated cost of equity and the after-tax cost of debt

• The long-term expected growth rate in NOPLAT and the expected rate of return on net new invested capital (RONIC)

From the forecastedfinancial results,we extracted the free cashflows thatwere used in ourvaluation.Wediscounted thosecashflows to apoint12months into the future to obtain anestimatedvalueofthecompany’soperations.Aftersubtractingnetdebtandminorityinterest,andadding the value of non-operating assets, we arrived at a total equity value of EGP 13.7 billion.

Our 12-month fair value for

EZDK is EGP 955, 23.4%

higher than the current price

Our 12-month stand-alone fair

value for EZDK is EGP 861,

11% higher than the current

price




Figure 25 DCF Valuation

Figures in EGP Thousands*Fiscal Year Ends December 2010 2011 2012 2013 2014 2015

Net Ope ra t ing Pro f it Af te r Tax 959,070 1 ,226,290 1,838,940 2,234,498 2,703,283 3,061,730

Add: Depreciation and Amortization 672,673 722,318 783,043 815,340 929,128 941,419

Gross Cash Flow 1,631,743 1,948,608 2,621,984 3,049,838 3,632,411 4,003,148

(Increase)/ Decrease in Working Capital (69,379) (137,149) (227,631) (221,082) (279,701) (314,044)

(Incr.)/ Decrease in Operating Fixed Assets (1,527,850) (1,044,195) (1,353,103) (664,256) (264,760) (264,150)

Free Cash Flow f rom Ope ra t ions 34,514 767,264 1 ,041,249 2,164,500 3,087,950 3,424,954

Te rmina l Va lue 20,557,243

Va lue o f Ope ra t ions in 12 Months 19,410,667

Add: Excess Cash 1,290,311

Add: Value of Long-Term Investments 380,000

Less:Total Debt (6,396,789)

Less: Minority Interest (1,135,470)

Va lue o f Equity in 12 Months 13,766,153

Pe r -sha re Va lue in EGP 1,030

Forecast

* Except per-share value. Source: NBK Capital

Sensitivity Analysis

We performed a sensitivity analysis (Figure 26) on two important inputs for our DCF valuation model: the cost of equity and the perpetual growth rate used in computing the terminal value.

Figure 26 DCF Sensitivity

-0.50% -0.25% Base Case 0.25% 0.50%

-1.00% 1087 1088 1089 1091 1092

-0.50% 1057 1058 1059 1060 1062

Base Case 1028 1029 1030 1031 1032

0.50% 1000 1001 1002 1003 1004

1.00% 973 974 975 976 977

Pe rpe tua l Growth Ra te

Co

st o

f E

qu

ity*

*Variations in the cost of equity result in variations in WACC. Source: NBK Capital

Using the DCF valuation

method, we arrived at a fair

value per share of EGP 1,030




efs tUrnAroUnD – We exPect VAlUe Unlocking

Al Ezz Flat Steel, a 1.3 mtpa mini-mill, specializes in a continuous process from steel melt to rolledflatsheets.Thefacility isbasedonthewell-establishedmini-millconceptofproducingliquid steel by melting scrap in an electric arc furnace.

Initial bottlenecks: Ezz Flat Steel (EFS) was established in 2003. Funded through project finance,thecompanywasbasedonanon-recourse/limitedrecoursefinancialstructurewiththeassumptionthatrepaymentwouldbemetthroughthecashflowgeneratedbytheproject.ThecapitalrequirementfortheprojectwasUSD740million,ofwhichUSD270millionwasfinancedthrough equity and the remainder through debt. The company ran into short-term financingproblemscompoundedbythefactthatitbecameverydifficulttoundertakefurtherdebtfacilities(undertheprojectfinancescheme)asoverdraftswereprohibited,thusfurtherposingproblemswiththecompany’sworkingcapitalfinance.Tomeettheworkingcapitalrequirement,EFSusedpre-paid sales, which meant that it was unable to charge higher prices (in an era of increasing steelprices),leadingtolowerrevenuesandcashflows.TheabovesituationexplainswhyEFShasbeenEzzSteel’sleastprofitablesubsidiaryforovertheyears.

Capital infusion by EZDK: The EZDK management eventually decided to provide a capital injectionofUSD330millionforEFS,therebymeetingEFS’scapitalrequirementforexpansionsand working capital. This capital increase was funded through EZDK in three equal tranches of USD 110 million that were completed in January 2010. As a result of the capital infusion, EZDK’sstakeinEFScurrentlystandsat55%.ThoughthecapitalinfusiondidnotstretchEzzSteel’s balance sheet, the infusion did dilute Ezz Steel’s stake in EFS from 75.2 to 63.8% (direct – 33.8%, and indirect – 30%).

Our outlook on EFS: Althoughthecapital increaseappearstodiluteEzzSteel’sstake inEFS,andsqueezeEZDK’sconsolidatedmarginsandearnings in thenear term,webelieve that theincrementalvaluefromEFS’sturnaroundstorywillbepositiveforEZDKoverthelongterm,andhence,forEzzSteel’sshareholders.ThecapitalincreasewillhelpEFSovercomeitsoperationaldifficultiesbyfinancingitsworkingcapitalrequirements,andtherebyimprovingsales.

We believe EFS will act as the future growth engine for Ezz Steel as a whole. We expect the benefit of the new DRI capacity will lead to increased margins from beginning of 2Q2012The fully integrated production process will eventually be implemented at EFS by the end of 2013. We believe the EBITDA margins for EFS are likely to eventually scale up almost to the levels of stand-alone EZDK (we forecast average EBITDA margin of 22% for the period between 2011-2019).

From 2014 onwards, we expect a big boost to the revenue and EBITDA margin due to the planned capex discussed earlier. Recently, EFS added a billet caster to be able to convert its 1.3 mtpa capacityformanufacturingsemi-finishedlongproducts,andenablingittodiversifyacrossbothlongandflatproducts.Thiscouldbehandyespeciallyinadepressedflatsmarket,asitwouldallow EFS to produce long products to sell in the domestic markets. Management expects that EFS may manufacture long products to the extent of 30% of the total sales volume to counter any probablesoftnessintheflatsteelmarket.However,wehaveonlyforecastedflatsteelproductionfor EFS and have not accounted for any revenue from long products.




Figure 27 Financial Forecast – EFS

2008 2009 2010f 2011f 2012f 2013f 2014f 2015f

Capacity utilization (%) 56.0% 0.1% 41.0% 60.0% 80.0% 51.6% 75.6% 87.8%Production (million tons) 0.729 0.001 0.532 0.780 1.040 1.290 1.890 2.195Sales volume (million tons) 0.771 0.043 0.422 0.780 1.040 1.290 1.890 2.195Average prices (EGP per ton) 4,715 - 3,758 4,081 4,183 4,267 4,352 4,439Total revenue (EGP billion) 3.63 0.32 1.59 3.18 4.35 5.50 8.23 9.74Total EBITDA (EGP million) 21 -179 79 127 647 1,101 1,768 2,181EBITDA margin (%) 0.6% - 5.0% 4.0% 14.9% 20.0% 21.5% 22.4%


We expect EFS to turn around

going forward




finAnciAl oVerVieW AnD forecAsts

revenue overview

Inthissection,wediscussthefinancialforecastsoftheEZDKincludingEFSindetail.Toanalyzethe future trend of total revenues, we will treat each segment individually and forecast the trend in capacity utilization, production, sales volume, and steel prices going forward.

key revenue Drivers

In this particular section we discuss the segmental revenue for EZDK stand-alone. We are more optimisticregardingthelongsegmentthantheflatproductsegment.Ourconcernregardingtheflat segment stems from the fact thatalmost50%ofproduction isexported to theEuropeanmarkets, which we feel is still reeling in the aftermath of the financial crisis. The negativityregarding the European Union debt crisis does not help matters. However, the silver lining for the segment would be the healthy domestic demand. Accordingly, we forecast lower capacity utilizations for this segment going forward.

We forecast that the long product segment will benefit from themoderate rise in both salesvolume and prices. On the pricing front, we expect average prices for long products to be around EGP 3,625 per ton (net of sales tax) for 4Q2010. We expect current rebar prices of EGP 3,850 per ton (net of sales tax) to hold during 2011 thus, resulting in an increase of 12.7% YoY We do not expect any capacity additions in either segment over our forecast period.

Figure 28 Key Revenue Forecast Drivers

2008 2009 2010f 2011f 2012f 2013f 2014f

EZDK (stand-a lone ) Long segmentCapacity (million tons) 1.7 1.7 2.0 2.0 2.0 2.0 2.0Capacity utilization (%) 106.6% 106.2% 91.2% 90.3% 95.0% 97.4% 99.8%Production (million tons) 1.81 1.81 1.82 1.81 1.90 1.95 2.00Sales volume (million tons) 1.78 1.80 1.68 1.66 1.81 1.85 1.90Average prices (EGP per ton) 4,760 2,935 3,417 3,850 3,946 4,025 4,106YoY growth (%) 42.7% -38.3% 16.4% 12.7% 2.5% 2.0% 2.0%

EZDK (stand-a lone ) Fla t segmentCapacity (million tons) 1.0 1.0 1.0 1.0 1.0 1.0 1.0Capacity utilization (%) 69.5% 97.8% 100.0% 95.0% 95.0% 92.5% 91.0%Production (million tons) 0.69 0.98 1.00 0.95 0.95 0.93 0.91Sales volume (million tons) 0.69 0.97 0.90 0.90 0.95 0.93 0.91Average prices (EGP per ton) 4,572 2,839 3,758 4,081 4,183 4,267 4,352YoY growth (%) 28.4% -37.9% 32.4% 8.6% 2.5% 2.0% 2.0%


We expect the long product

segment to benefit from the

moderate rise in both sales

volume and prices




total revenue

We expect total revenues for the company to grow at a six-year CAGR of 16.8% between 2009 and 2015 mainly due to scalability in operations at EFS as discussed earlier.

Figure 29 Trends in Total Revenue

11.6

8.2

9.310.2

11.2 11.5 11.9

3.6

0.3

1.6

3.2

4.4

5.5

8.2

15.3

9.0

11.8

14.1

16.4

17.9

21.1

2008 2009 2010f 2011f 2012f 2013f 2014f

Revenue from EZDK (stand-alone) (EGP billion) Revenue from EFS (EGP billion) Total revenue (EGP billion)


ebitDA and ebitDA margin

We expect the EBITDA margin to contract from 17.3% in 2009 to 16.6% in 2010 primarily due totheincreaseinironorepricesduring3Q2010.Asdiscussedearlier,weexpecthigherefficiencyat EFS to boost margins, going forward.

Our discussion with the company management led to the understanding that the global iron ore suppliers (mainly three export players) have better control over prices compared to their steel counterparts. Therefore, we do not expect the steel players to pass on this price increase to the end consumers. To analyze the above-mentioned trend in iron ore and steel prices, we compared the historical prices for Chinese imported iron ore and Chinese steel rebar from the beginning of 2009 till date. Although, iron ore prices more than doubled to the current prices of USD 170 per ton compared to USD 71.8 per ton in the beginning of 2009, rebar prices increased only by 26% to USD 680 per ton during the same period. On the energy front, the heavy industries faced aratehikebythegovernment,whichsignificantlyincreasedthenaturalgaspricesinEgyptto USD 3 per mmbtu compared to the previous USD 1.7 per mmbtu.

EFS will be a major driver for

the total revenue going forward




Figure 30 Trends in the EBITDA and EBITDA Margins

4.31

1.56

1.96

2.38

3.20

3.71

4.48

36.6%

17.3%16.6%

16.9%

19.6%20.7%

21.2%

2008 2009 2010f 2011f 2012f 2013f 2014f

EBITDA (EGP billion) EBITDA margin (%)


Debt likely to Decline

With no capex plans for the future, we expect that debt for EZDK (stand-alone) will decline going forward. We have assumed an effective borrowing rate of 12% for the forecast period. The company has already drawn up a plan to replace its long-term borrowings with medium-term loans. The terms of agreements state that the total facility will not exceed EGP 3.5 billion and will be managed by a syndicate of banks with Arab African International Bank as the main representative. The drawn amount was EGP 2.16 billion at the end of 2009, and the loan will be repaid over 14 semi-annual installments. Accordingly, we expect the debt-to-equity ratio to gradually decline to 0.7x from the current level of 1.4x by 2015.

We expect EBITDA margin

to expand due to higher

efficiency at EFS




finAnciAl stAtements

Income Statement (EGP Thousands)


Total Revenue 11,768,754 9,027,045 11,803,097 14,063,533 16,377,021 17,907,077 21,141,429Cost of Revenue 7,219,452 7,269,326 9,603,394 11,395,689 12,835,856 13,820,922 16,209,633Gross Profi t 4,549,301 1,757,720 2,199,702 2,667,844 3,541,164 4,086,155 4,931,796Selling/General/Admin. Expenses 236,172 196,098 235,637 288,584 337,612 374,258 449,890Depreciation/Amortization 427,741 429,919 672,673 722,318 783,043 815,340 929,128Ope ra t ing Income 3,885,389 1,131,703 1,291,392 1,656,943 2,420,508 2,896,558 3,552,778Interest Income (Exp), Net Non-Operating (326,885) (502,620) (658,029) (769,472) (917,842) (822,576) (638,786)Interest/Invest Income - Non-Operating 103,427 117,650 110,000 125,000 150,000 160,000 165,000Other net 65,450 12,432 150,000 10,000 12,000 13,000 15,000Net Income be fo re Taxes 3,727,381 759,165 893,363 1,022,471 1,664,667 2,246,982 3,093,992Provision for Income Taxes (740,913) (182,730) (214,901) (243,894) (372,090) (487,194) (683,887)Net Income a f te r Taxes 2,986,467 576,435 678,462 778,577 1,292,577 1,759,788 2,410,105Minority Interest (2,012) 65,275 50,000 50,000 50,000 50,000 (515,525)Net Income a f te r mino r it y inte re st 2,984,456 641,710 728,462 828,577 1,342,577 1,809,788 1,894,579

Historical Forecast

Balance Sheet (EGP Thousands)


ASSETSCash and Short-Term Investments 2,545,499 1,117,782 641,379 1,657,900 3,103,749 3,435,619 3,387,248 Total Receivables, Net 314,090 491,613 590,155 632,859 900,736 1,074,425 1,374,193 Total Inventory 1,896,753 2,219,451 2,688,950 2,997,066 3,529,861 3,904,410 4,417,125 Other Current Assets 5,183 22,868 23,183 22,390 24,657 28,769 29,648 To ta l Cur rent Asse ts 4,761,524 3 ,851,714 3 ,943,667 5,310,215 7,559,003 8,443,223 9,208,213 Property/Plant/Equipment, Total - Net 5,354,845 8,755,288 9,611,788 9,933,665 10,503,725 10,352,641 9,688,273 Long-Term Investments 33,534 21,438 380,000 380,000 380,000 380,000 380,000 Other Long-Term Assets, Total 159,366 819,439 243,000 217,000 196,000 177,000 149,000 TOTAL ASSETS 10,309,268 13,447,880 14,178,455 15,840,880 18,638,728 19,352,864 19,425,487 LIAB ILITIES & EQUITYAccounts Payable 348,043 679,901 1,003,263 1,125,083 1,310,162 1,432,566 1,374,193 Payable/Accrued 391,720 498,334 767,201 808,653 941,679 1,029,657 1,162,779 Accrued Expenses 18,102 33,103 59,015 70,318 81,885 89,535 105,707 Other Liabilities 1,737,956 1,579,727 1,513,242 1,608,057 1,911,530 2,063,017 2,586,616 To ta l Cur rent Liabilit ie s 5,047,722 5 ,162,919 3 ,342,722 3,612,110 4,245,255 4,614,775 5,229,294 Long-Term Debt 1,578,986 3,661,266 5,483,576 6,412,267 7,648,681 6,854,798 5,323,216 Defered Income Tax 508,698 550,184 550,184 550,184 550,184 550,184 550,184 Minority Interest 7,712 1,135,470 1,135,470 1,135,470 1,135,470 1,135,470 1,135,470 Other Liabilities 924,716 924,716 924,716 924,716 924,716 924,716 924,716 To ta l Liabilit ie s 8,067,834 11,434,554 11,436,667 12,634,747 14,504,306 14,079,943 13,162,880

To ta l Equity 2,241,434 2 ,013,326 2 ,741,788 3,206,134 4,134,422 5,272,922 6,262,607

TOTAL LIAB ILITIES AND EQUITY 10,309,268 13,447,880 14,178,455 15,840,880 18,638,728 19,352,864 19,425,487

Historical Forecast

Cash Flow (EGP Thousands)


Cash from Operating Activities 3,575,268 551,490 1,631,765 1,867,969 2,452,190 2,867,008 3,433,569 Cash from Investing Activities (293,198) (736,477) (1,127,997) (922,933) (1,215,001) (518,827) (121,735) Cash from Financing Activities (2,974,681) (1,200,240) (963,451) 71,484 208,660 (2,016,310) (3,360,205) Net Change in Cash 307,389 (1,377,706) (459,682) 1,016,521 1,445,849 331,870 (48,371)

Historical Forecast





risk AnD recommenDAtion gUiDe

recommenDAtion UPsiDe (DoWnsiDe) PotentiAl

BUY MORE THAN 20%

ACCUMULATE BETWEEN 5% AND 20%

HOLD BETWEEN -10% AND 5%

REDUCE BETWEEN -25% AND -10%

SELL LESS THAN -25%

risk leVel

loW risk HigH risk

1 2 3 4 5

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Kuwait

National Bank of Kuwait SAKAbdullah Al-Ahmed StreetP.O. Box 95, Safat 13001Kuwait City, KuwaitT. +965 2242 2011F. +965 2243 1888Telex: 22043-22451 NATBANK

internAtionAl netWork

Bahrain

National Bank of Kuwait SAKBahrain BranchSeef Tower, Al-Seef DistrictP.O. Box 5290, Manama, BahrainT. +973 17 583 333F. +973 17 587 111

Saudi Arabia

National Bank of Kuwait SAKJeddah BranchAl-Andalus Street, Red Sea PlazaP.O. Box 15385Jeddah 21444, Saudi ArabiaT. +966 2 653 8600F. +966 2 653 8653

United Arab Emirates

National Bank of Kuwait SAKDubai BranchSheikh Rashed Road, Port Saeed Area, ACICO Business ParkP.O. Box 88867, DubaiUnited Arab EmiratesT. +971 4 2929 222F. +971 4 2943 337

Jordan

National Bank of Kuwait SAKHeadOfficeAl Hajj Mohd Abdul Rahim StreetHijazi Plaza, Building # 70P.O.Box 941297,Amman -11194, JordanT. +962 6 580 0400F. +962 6 580 0441

Lebanon

National Bank of Kuwait(Lebanon) SALSanayehHeadOfficeBAC Building, Justinian StreetP.O. Box 11-5727, Riyad El Solh1107 2200 Beirut, LebanonT. +961 1 759 700F. +961 1 747 866

Iraq

Credit Bank of IraqStreet 9, Building 187Sadoon Street, District 102P.O.Box 3420, Baghdad, IraqT. +964 1 7182198/7191944 +964 1 7188406/7171673F. +964 1 7170156

Egypt

Al Watany Bank of Egypt13 Al Themar StreetGameat Al Dowal AlArabiaFouad Mohie El Din SquareMohandessin, Giza, EgyptT. +202 333 888 16/17F. +202 333 79302

United States of America

National Bank of Kuwait SAKNew York Branch299 Park Avenue, 17th FloorNew York, NY 10171, USAT. +1 212 303 9800F. +1 212 319 8269

United Kingdom

National Bank of Kuwait (Intl.) PlcHeadOffice13 George Street,London W1U 3QJ, UKT. +44 20 7224 2277F. +44 20 7224 2101

NBK InvestmentManagement Limited13 George StreetLondon W1U 3QJ, UKT. +44 20 7224 2288F. +44 20 7224 2102

France

National Bank of Kuwait (Intl.) PlcParis Branch90 Avenue des Champs-Elysees75008 Paris, FranceT. +33 1 5659 8600F. +33 1 5659 8623

Singapore

National Bank of Kuwait SAKSingapore Branch9RafflesPlace#51-01/02Republic Plaza, Singapore 048619T. +65 6222 5348F. +65 6224 5438

Vietnam

National Bank of Kuwait SAKVietnamRepresentativeOfficeRoom 2006, Sun Wah Tower115 Nguyen Hue Blvd, District 1Ho Chi Minh City, VietnamT. +84 8 3827 8008F. +84 8 3827 8009

China

National Bank of Kuwait SAKShanghaiRepresentativeOfficeSuite 1003, 10th Floor,Azia Center, 1233 Lujiazui Ring Rd.Shanghai 200120, ChinaT. +86 21 6888 1092F. +86 21 5047 1011

AssociAtes

Qatar

International Bank of Qatar (QSC)Suhaim bin Hamad StreetP.O.Box 2001Doha, QatarT. +974 447 3700F. +974 447 3710

Turkey

Turkish BankHeadOfficeValikonagl Avenue No. 1P.O.Box 34371 Nisantasi,Istanbul, TurkeyT. +90 212 373 6373F. +90 212 225 0353

nAtionAl bAnk of kUWAit

Kuwait

HeadOffice38th Floor, Arraya IIAl Shuhada Street, Block 6, SharqP.O.Box 4950, Safat 13050KuwaitT. +965 2224 6900F. +965 2224 6905

MENA Research35th Floor, Arraya IIAl Shuhada Street, Block 6, SharqP.O.Box 4950, Safat 13050, KuwaitT. +965 2224 6663F. +965 2224 6905E. [email protected]

Brokerage37th Floor, Arraya IIAl Shuhada Street, Block 6, SharqP.O.Box 4950, Safat 13050, KuwaitT. +965 2224 6964F. +965 2224 6978E. [email protected]

United Arab Emirates

NBK Capital LimitedPrecinctBuilding3,Office404Dubai International Financial CenterP.O.Box 506506Dubai, UAET. +971 4 365 2800F. +971 4 365 2805

Turkey

NBK CapitalArastima ve Musavirlik AS,Sun Plaza, 30th Floor,Dereboyu Sk. No.24Maslak 34398, Istanbul, TurkeyT. +90 212 276 5400F. +90 212 276 5401

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