nbk capital - mena in focus 6-2-2012

8/10/2019 NBK Capital - MENA in Focus 6-2-2012

1/17

February 06, 2012

nbkcapi ta l .com

MENAinFocus

Inside This Issue

In Focus 1: Valuation versus Growth: A Different Perspective

In this report, we take a brief look at the performance of the

GCC stock markets versus their MENA peers as well as the BRIC

group, and compare the current valuations and expected GDP

growth of the markets respective countries. With a relatively

low PE combined with high real GDP growth, Qatar looks the

most attractive in the MENA. We also do a similar analysis

for a sample of our coverage universe in the GCC countries by

comparing their PE-to-growth (PEG) ratios, which incorporates

the expected EPS growth in the medium-term. Although the

Qatari companies under coverage have slightly higher PEG ratios

than their GCC peers, they offer some of the most generous

dividend yields.

By: Munira Mukadam & Sara Kanaan

In Focus 2: Performance of the GCC Cement Stocks in 2011

In this section, we analyze the performance of the Gulf

Cooperation Council (GCC) cement stocks by comparing the

performance of each GCC countrys cement index with that of

the respective countrys general price index. We further compare

the GCC cement indices against each other to highlight the

position of these stocks in 2011.

By: Shoug Al Khatrash

Rebased Performance of Regional Indices

60

70

80

90

100

110

120

Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11S&P Pan Arab Large/Mid Composite S&P GCC Large/Mid Composite MSCI Jordan+Egypt+Morocco

MENA Market Caps

0%

1%

1%

2%

2%

3%

6%

7%

11%

14%

14%

39%

0 50 100 150 200 250 300 350 400

Palestine

Tunisia

Lebanon

Oman

Bahrain

Jordan

Egypt

Morocco

Kuwait

Qatar

UAE

Saudi Arabia

(%) Share of MENA Market Cap Market Cap. (USD billion)

Summary of Performance of MENA Indices

Index Level

as of

31-Jan-12% below

52-Week High

% over

52-Week Low

1-Month Period

REGIONAL

S&P Pan Arab Large/Mid Composite 122 132 113 -7.6% 8.0% 2.4% 914

S&P GCC Large/Mid Composite 127 137 112 -6.8% 14.0% 1.4% 729

MSCI Jordan+Egypt+Morocco 1,056 1,250 887 -15.5% 19.0% 18.6% 143

GCC

MSCI Bahrain 241 295 218 -18.5% 10.3% -0.9% 17

MSCI Kuwait 806 954 778 -15.5% 3.7% 0.2% 101

MSCI Oman 944 1,160 892 -18.6% 5.9% -3.2% 18

MSCI Qatar 1,013 1,052 852 -3.7% 19.0% -2.4% 121

S&P Saudi Arabia Large/Mid Composite 153 158 124 -3.5% 23.1% 2.7% 347

MSCI UAE 215 263 194 -18.2% 10.5% 5.5% 125

OTHER MENA

MSCI Egypt 1,203 1,411 925 -14.7% 30.1% 28.9% 56

MSCI Jordan 198 249 194 -20.7% 2.1% -6.9% 26

MSCI Morocco 674 833 642 -19.1% 5.0% 4.1% 61

MSCI Lebanon 873 1,136 851 -23.1% 2.6% -1.3% 10

MSCI Tunisia 1,249 1,408 1,132 -11.3% 10.4% -1.5% 9

Palestine SE 476 513 465 -7.2% 2.5% -0.2% 3

Market Cap

(USD

billions)

INDEX 52-Week High 52-Week Low

% Change
http://www.nbkcapital.com/http://www.nbkcapital.com/http://nbkcapital.com/


2/17

MENAinFocusFebruary 06, 2012

nbkcapi ta l .com | 2

VALUATION VERSUS GROWTH: A DIFFERENT PERSPECTIVE

Stock market performance in 2011

The year 2011 was another tumultuous period for stock markets around the world as the nancial

crisis spread throughout the Eurozone. Political turmoil in some Middle East and North African(MENA) countries further dampened investor condence in the region. The Gulf Cooperation

Council (GCC) stock markets suffered, with ve out of the six countries stock markets declining

in 2011. However, some of the GCC indices did not fare so badly when compared to the rest of the

MENA countries as well as the BRIC (Brazil, Russia, India, and China) group. The Qatar Exchange

was the outperformer, posting a miniscule increase of 1% in 2011, the only index in our sample

to end the year in positive territory. Saudi Arabias Tadawul All Shares Index (Tadawul) was the

next best performer, declining by just 3% in 2011, compared with a 49% drop in Egypts EGX30

Index and a 25% decrease in Indias Nifty Index.

Figure 1-1 Performance of the GCC Indices in 2011 versus MENA and BRIC Indices

-30%

-25%

-20%

-15%

-10%

-5%

0%

-49%

Sources: Bloomberg and NBK Capital

So where do current valuations stand?

In Figure 1-2, we list the countries market capitalization-to-GDP ratios. For the market cap-to-GDP

as of 2011, we use the total market capitalization of all listed securities as of December 2011 and

nominal gross domestic product (GDP) for FY2011 as estimated by the International Monetary

Fund (IMF). This ratio can also be thought of as an economy-wide price-to-sales ratio. In our

sample, at the end of 2011, the weighted average ratio for the GCC countries stood at 51%,

compared with 35% for their MENA peers and 45% for the BRIC countries. The average for the

MENA peers seems low at rst glance; however, excluding Egypt, which witnessed unusual political

events that led to a steep decline in the stock market in 2011, the MENA average increases to

50%. Although the aggregate data suggests that the GCC valuations are broadly in line with their

MENA and BRIC peers, we do see a few countries trading at very low ratios. Specically, the

United Arab Emirates (UAE) and Oman had ratios as low as 25% and 27%, respectively. In fact,

Oman has historically traded at a similar low market cap-to-GDP ratio of around 26%. However,the UAEs long-term average stood close to 53%, indicating there is room for growth.

IN FOCUS 1

Munira Mukadam

T.+971 4365 [email protected]

Sara Kanaan

T.+971 4365 2812

[email protected]

The Qatar Exchanges index

was the only one to end the

year in posit ive territory
http://www.nbkcapital.com/http://www.nbkcapital.com/http://www.nbkcapital.com/http://www.nbkcapital.com/http://www.nbkcapital.com/mailto:munira.mukadam%40nbkcapital.com?subject=mailto:munira.mukadam%40nbkcapital.com?subject=http://www.nbkcapital.com/


3/17



Figure 1-2 Market Capitalization-to-GDP: GCC versus MENA and BRIC

2000 - 2010 Mkt. Cap. Nominal GDP

Average Average Period

GCC

Qatar 123% 91% 1997-2009 73% 126 173

Saudi Arabia 92% 63% 1991-2010 61% 339 560

United Arab Emirates 64% 53% 1998-2010 25% 90 358

Oman 32% 26% 1992-2009 27% 18 67

Kuwait 111% 87% 1993-2009 55% 94 173

Bahrain 109% 106% 1998-2009 91% 24 26

Average 51%

MENA ex. GCC

Egypt 56% 33% 1988-2010 22% 49 224

Morocco 56% 32% 1988-2010 63% 59 94

Tunisia 14% 12% 1988-2010 22% 10 43

Lebanon 24% 19% 1995-2010 21% 9 41

Jordan 153% 103% 1988-2010 89% 25 28

Palestine 41% 30% 1997-2010 n/a n/a n/aAverage 35%

BRIC

Brazil 55% 34% 1988-2010 56% 1,276 2,258

Russia 62% 34% 1991-2010 43% 719 1,680

India 68% 42% 1988-2010 63% 1,064 1,697

China 69% 41% 1991-2010 39% 2,800 7,266

Average 45%

2011 (USD Billion)

Long-Term

Sources: World Bank, Bloomberg, IMF, and NBK Capital

We also looked at the countries trailing price-to-earnings (PE) multiples as of the end of December

2011 as another measure to assess the GCC markets valuation relative to the MENA and BRIC

countries (Figure 1-3A). Three of the GCC countries PEs fell in the lower end of the spectrum in

our sample. Oman had the lowest trailing PE multiple (12x) among the GCC and the third lowest

in the sample. Qatar and Saudi Arabia displayed the next lowest PEs in the GCC (around 13x).

The UAEs PE was surprisingly high due to the large negative trailing earnings recorded by several

companies. Excluding these, UAEs trailing PE would have stood at 8.5x (Figure 1-3B), the

second lowest (after Egypt) among the comparable PEs for the rest of the GCC, MENA, and BRIC

countries. Similarly, the adjusted PE ratios for Bahrain and Kuwait would also drop considerably

to 9.7x and 13.7x from 20.3x and 22.6x, respectively.

Figure 1-3 Trailing PE*: GCC versus MENA and BRIC

A All listed companies B Excluding companies with negative trailing earnings

931%

1178%

1201%

1231%

1301%

1302%

1578%

1625%

1711%

1719%

1747%

2025%

2263%

2302%

0 5 10 15 20 25

Egypt

Brazil

Oman

India

Qatar

Saudi Arabia

China

Jordan

Tunisia

Morocco

UAE

Bahrain

Kuwait

Russia

*As of December 31, 2011 Sources: Bloomberg and NBK Capital

The UAE is trading at a

market cap-to-GDP ratio well

below its historical average

830%

848%

971%

1063%

1150%

1207%

1231%

1264%

1266%

1372%

1507%

1579%

1673%

2302%

0 5 10 15 20 25

Egypt

UAE

Bahrain

Brazil

Oman

Saudi Arabia

India

Qatar

Jordan

Kuwait

China

Tunisia

Morocco

Russia
http://www.nbkcapital.com/http://www.nbkcapital.com/http://www.nbkcapital.com/http://www.nbkcapital.com/http://www.nbkcapital.com/http://www.nbkcapital.com/


4/17



Valuation versus Growth: Country

In Figure 1-4, we plot the real GDP growth forecasted by the IMF for 2012 against the countries

forward PE multiples. The forward PE is calculated using the latest market cap and net prot

for 2012 based on consensus estimates. Hence, the sample of companies used to calculate the

forward PEs differs from those used to calculate the trailing PEs mentioned previously dependingon the availability of estimates.

Essentially, the countries falling in the top left quadrant of Figure 1-4 would be the most attractive,

trading at relatively lower valuations while offering higher economic growth. With a forward PE of

around 10x and expected real GDP growth of 6%, Qatar is the only country in the MENA that falls

in this section. The expansion of liqueed natural gas (LNG) production, proactive government

support of the banking system, and increased public spending supported the high growth rates in

Qatar during the nancial crisis. However, we believe a key factor in realizing further growth, albeit

at a slower pace, will be expansion in the non-oil sector, as emphasized in the National Development

Strategy (2011-2016) unveiled by Qatar last year, as well as the broader Qatar National Vision

2030. We believe increased spending on infrastructure development, manufacturing, nancial

services, trade, and tourism will drive non-oil sector growth.

Among the remaining GCC countries, the UAE trades at the lowest PE multiple. However, the UAE

is expected to post lower GDP growth than Qatar. We believe the UAEs low PE ratios represent

the generally tainted investor sentiment, driven by concerns about continued weakness in the real

estate market, nancial distress at several large corporates, and the lack of credit growth, which

in turn are hampering economic growth.

Figure 1-4 Forward PE versus Real GDP Growth

Lebanon

Egypt

Oman

India

Qatar

Saudi ArabiaBahrain

China

Jordan

Morocco

UAETunisia

Brazil

Kuwait

Russia

0%

2%

4%

6%

8%

10%

6 8 10 12 14 16

2012 Forward PE

RealGDPGrowth%(

2012)

Sources: IMF, Bloomberg, and NBK Capital

PEG Ratio Analysis: A Different Perspective

We now take a closer look at our coverage universe in four GCC countries, namely, Qatar,

Saudi Arabia, the UAE, and Oman, which together account for more than 80% of the market

capitalization in the MENA region. We aim to analyze the stocks current valuation in each country

while incorporating the expected growth of earnings in the medium-term. For this, we computed

the PE-to-growth (PEG) ratio, taking each stocks trailing PE multiple and dividing that by the

expected earnings per share (EPS) growth over the next ve years. Typically, a PEG ratio close to 1

denotes a fairly-valued stock while a ratio considerably below or above 1 indicates undervaluation

or overvaluation of the stock, respectively. However, this ratio is not the only way to analyze current

Qatar looks the most favorable

in the MENA with a relatively

low PE combined with higher

real GDP growth forecasted

for 2012


5/17



valuation levels, and thus, the results of this study may not fall exactly in line with our current

recommendations on the stocks.

In Figure 1-5, we list the stocks and their respective PEG ratios. We see that all Qatari stocks in

the sample display a PEG ratio of more than 1, indicating their richer valuation. The sample

includes four large Qatari banks, which have strong fundamentals, although we believe these

banks have benetted from better share price performance and display higher valuations.Similarly, despite having a decent fundamental growth story, Qatar National Cements (QNCCs)

share price rallied at the end of 2010, after the 2022 FIFA World Cup was awarded. The stock

price increased by 41% in the 10 days following the announcement on December 2, 2010, and

ended the year up 48%. In 2011, the share has mostly traded sideways, and thus valuations have

remained steep, resulting in a high PEG ratio. In the case of Saudi Arabia, more than half of the

sampled stocks displayed a PEG ratio slightly below or close to 1 with the exception of Saudi

Telecom (STC) and Yamama Cement, for which we expect marginal EPS growth going forward.

Accordingly, Saudi Arabias average PEG (excluding the outliers) stood close to 1, compared to

1.2 for the Qatari stocks. The UAE and Omani stocks seemed the cheapest with an average PEG

of 0.9 (excluding outliers). DP World, Etisalat, and Oman Cement were the exceptions with PEG

ratios considerably exceeding 1.Figure 1-5 PEG Ratios and Dividend Yields of the Coverage Universe

Qatar

The Commercial Bank of Qatar 11.4 11.2% 1.02 7.00 8.3%

Doha Bank 11.3 10.5% 1.08 4.50 7.0%

Qatar National Bank 13.9 10.2% 1.37 4.00 2.6%

Qatar Islamic Bank 12.9 9.3% 1.40 4.50 5.3%

Qatar Electricity and Water Co.** 10.1 4.2% 2.41 7.00 5.0%

Qatar National Cement 13.2 4.4% 2.99 4.25 3.8%

Saudi Arabia

Riyad Bank 11.1 13.7% 0.81 1.30 5.6%

Arab National Bank 11.1 12.7% 0.87 1.00 3.6%

Saudi Hollandi Bank 9.6 11.0% 0.88 1.00 3.4%

Banque Saudi Fransi 10.3 11.0% 0.94 0.00 0.0%

Savola 20.3 20.0% 1.02 1.30 4.5%

Samba Financial Group 9.8 9.4% 1.04 1.79 3.8%

The Saudi British Bank 11.6 10.5% 1.10 0.65 1.6%

Almarai 17.6 15.3% 1.15 2.25 2.3%

Mobily 7.6 4.4% 1.73 3.25 6.2%

Saudi Telecom 8.8 2.4% 3.66 2.00 5.9%

Yamama Cement 13.33 1.8% 7.41 4.00 5.7%

United Arab Emirates

Union National Bank 4.7 9.8% 0.48 0.10 3.5%

First Gulf Bank 6.5 12.5% 0.52 1.00 6.5%

Abu Dhabi Islamic Bank 7.1 12.8% 0.55 0.20 6.3%

Agthia 10.8 13.9% 0.77 0.05 2.9%

Arabtec 15.9 20.5% 0.78 0.00 0.0%

National Bank of Abu Dhabi 8.5 10.9% 0.78 0.30 2.7%

Abu Dhabi Commercial Bank 5.4 6.5% 0.83 0.00 0.0%

Air Arabia 10.4 12.3% 0.84 0.04 7.2%

Aramex 12.6 10.0% 1.26 0.04 2.0%

du 12.9 10.2% 1.27 0.00 0.0%

Drake and Scull Intl. 11.3 6.8% 1.66 0.00 0.0%

DP World 17.7 6.0% 2.94 0.20 2.1%

Etisalat 10.1 2.6% 3.89 0.60 6.6%

Oman

National Bank of Oman 10.6 14.9% 0.71 0.02 5.5%

Bank Muscat 10.2 13.8% 0.74 0.03 3.3%Raysut Cement 10.9 8.9% 1.22 0.07 9.2%

Oman Cement 10.8 5.0% 2.16 0.02 4.6%

PEGDividend

YieldPE *Company

EPS CAGR

(2011F-2016F)DPS

FY2011

*As of December 31, 2011 **EPS CAGR for 2011-2017 Sources: Companies nancial statements, Bloomberg, and NBK Capital

Although the Qatari stocks

look slightly expensive from

the PEG ratio perspective, they

look the most attractive from a

dividend perspective


6/17



Although the Qatari stocks look slightly expensive from a PEG ratio perspective, they look the most

attractive from a dividend perspective, offering generous dividend yields ranging from around

3% for Qatar National Bank to 8% for The Commercial Bank of Qatar. Similarly, Omani stocks,

with a relatively lower average PEG of 0.9, also offer decent dividend yields ranging from 3% for

Bank Muscat up to 9% for Raysut Cement. The UAE stocks, on the other hand, present a good

opportunity when simply looking at the PEG ratio; however, they are expected to pay relativelylower dividends in FY2011, with a few exceptions.

All in all, we believe Qatar is one of the strongest growth stories in the region driven by continued

government spending, political stability, and increased focus on the non-oil sector. Sector credit

growth in Qatar was the strongest in the GCC, at 28% in 2011. The Qatar Exchange outperformed

all of its MENA and BRIC peers but continues to display a market capitalization-to-GDP ratio

below its long-term historical average. Although the covered Qatari companies have slightly higher

PEG ratios than their GCC peers, they offer some of the highest dividend yields in the group.

We are also bullish on Saudi Arabia, which we believe continues to benet from high oil prices,

allowing the government to shore up surpluses and reinvest in the economy. The expansionary

budget announced for 2012 is further testimony to the fact that government spending will remain

high. Thus, we expect the country to record decent GDP growth in FY2012. Furthermore, severalof the covered Saudi companies look undervalued, presenting an opportunity for stock selection,

in addition to those that offer decent dividend yields, namely, Mobily (6.2%; our top pick among

the Saudi telecom operators), STC (5.9%), Yamama Cement (5.7%), and Riyad Bank (5.6%; our

top pick among the Saudi banks).

We believe the continued nancial woes in Dubai and Abu Dhabi will make 2012 more challenging

for the UAE than for its GCC peers. However, over-pessimism by investors has resulted in the

undervaluation of several players with decent fundamentals, such as First Gulf Bank (FGB), which

is also our top pick among the UAE banks.


7/17



PERFORMANCE OF THE GCC CEMENT STOCKS IN 2011

In this section, we analyze the performance of the Gulf Cooperation Council (GCC) cement stocks

by comparing the performance of each GCC countrys cement index with that of the respective

countrys general price index. We further compare the GCC cement indices against each other to

highlight the position of these stocks in 2011.

Methodology

In the absence of cement indices for Kuwait, the United Arab Emirates (UAE), Qatar, and Oman,

a synthetic weighted market capitalization index was created for each country. The constituents of

these indices comprise all publicly listed cement companies under each countrys stock exchange.

Figure 2-1 Synthetic Indices Constituents

Indices Consitituents Market Cap (USD millions)

UAE

National Cement Company 293.0

Fujairah Cement Industries 92.0

Gulf Cement 210.1

Ras Al Khaimah Cement 81.7

Union Cement 189.5

Umm Al Qaiwain Cement Industries 65.2

Sharjah Cement 105.4

Kuwait

Kuwait Cement 996.1

Hilal Cement 51.6

Kuwait Portland Cement 228.0

Oman

Oman Cement 368.5

Raysut Cement 367.8

Qatar

Qatar National Cement 1,530.5

Al Khalij Holding Company 491.7

Sources: Zawya and NBK Capital

Bahrain was excluded from the study due to the fact that Falcon Cement Company, the only

integrated cement plant operating in the country, is privately owned. There remains one GCC

country left to be examined: Saudi Arabia. Saudi Arabia already has an existing cement index,

which was used in this study.

Additionally, each respective countrys general price index was used as the comparable benchmark

with the exception of the UAE. In the UAEs case, the MSCI UAE was used as the comparable

benchmark to help capture both the Dubai and Abu Dhabi markets. We then analyzed the historical

performance of each countrys cement index versus the respective country general price index for

2011.

IN FOCUS 2

Shoug Al Khatrash

T.+965 2259 [email protected]

A weighted market

capitalization index was

created for the UAE, Qatar,

Oman, and Kuwait
http://www.nbkcapital.com/http://www.nbkcapital.com/http://www.nbkcapital.com/http://www.nbkcapital.com/http://www.nbkcapital.com/mailto:shoug.alkhatrash%40nbkcapital.com?subject=mailto:shoug.alkhatrash%40nbkcapital.com?subject=http://www.nbkcapital.com/


8/17



The Findings

Saudi Arabia

Figure 2-2 Saudi Arabias Cement Index vs. Tadawul All Share Index

60

70

80

90

100

110

120

130

140

150

Tadawul Saudi Cement Index

Sources: Reuters and NBK Capital

With 10 publicly listed cement companies distributed among the provinces of Saudi Arabia, the

cement index outperformed Tadawul in 2011, increasing by 36%, compared to the 3% decline of

Tadawuls All Share Index for the year. The industry witnessed two entrants, Hail Cement and Al

Jouf Cement, which were listed on Tadawul at the end of 2010 and 2011, respectively.

Clinker and cement capacity exceeded demand by a factor of 15% to 20% during 2011. With

new cement players entering the scene, supply remains plentiful. In addition, exports from the

country remain negligible, as the ban on exports remains largely in place. However, pricing held

up remarkably throughout FY2011 (partly on the back of signicant clinker inventory build-up).

Though oversupply seems to be a general theme for the GCC countries in 2011, the Saudi Arabian

cement index proved to be the star performer within the region. It is to be noted that the cement

industrys protability in Saudi Arabia is exceptionally high, mainly due to the fuel subsidies

the cement companies enjoy (negating any possible competition from imports). In addition, the

massive government spending seen recently seems to be reected in the index. Total government

expenditure in Saudi Arabia during 2011 is expected to touch SAR 804 billion (source: NBK

Economic Research). The governments Ninth Development Plan, covering the years 2010 to2014, calls for extensive investments in both infrastructure and housing. As a result, the outlook

for cement demand in Saudi Arabia remains solid as the government continues to invest in

infrastructure.

The Saudi Arabian cement index

increased by 36% in 2011,

compared to the 3% decline of

Tadawuls All Share Index


9/17



Qatar

Figure 2-3 Qatar Cement Index vs. Qatar General Price Index

80

90

100

110

120

Qatar General Index Qatar Cement Index


The Qatar cement index is comprised of two constituents, Qatar National Cement (which remains

very much the dominant player in the country) and Al Khalij Holding Group. During 2011, the

Qatar cement index increased by a marginal 0.4%, as the Qatar general price index rose by a

slight 1%.

The National Development Strategy 2011-2016 and the Qatar National Vision 2030, have laid out

the governments determination to develop the non-oil sector through the budgeted government

expenditures of more than $125 billion over ve years (source: GCC Economic Outlook: NBK).

Also, the government has claimed it will directly fund $65 billion in infrastructure investment and

manufacturing (including the 2022 FIFA World Cup 2022 development spending).

Looking closely at Qatar National Cements share price, the stock rallied on the back of the FIFA

World Cup announcement (on the 2ndof December 2010) by almost 40% at the end of FY2010.

However, the share gave back some since the stock rally. The share may have run ahead of itself

as we believe that projects related to the World Cup will not kick-off for at least another four years.

Also, it is to be noted that in 2011, delays were witnessed in project start-ups and execution(examples include the Qatar to Bahrain causeway), which may have led to lower-than-expected

cement demand during the year.

During 2011, the Qatar

cement index increased by a

marginal 0.4%, as the Qatar

general price index rose by a

slight 1%.


10/17



Oman

Figure 2-4 Oman Cement Index vs. Muscats General Price Index

40

50

60

70

80

90

100

110

Muscat SE General Index Oman Cement Index


The Oman cement index consists of two stocks: Oman Cement and Raysut Cement. Though

government spending may have risen by more than 20% in 2011 (source: GCC Economic Outlook:

NBK), the cement stocks witnessed a decline of 36% in 2011, compared to Muscats general

price index, which declined 16%.

Such a decline may seem unfounded considering that the governments eighth Five-year

Development Plan (2011-2015), which includes massive infrastructure spending on new schools,

hospitals, and transportation. However, this decline may be more justied when factoring in the

situation of the UAE cement dumping. The Omani cement market was aggressively targeted

by the UAE cement players during 2011 as the UAE suffers from major oversupply, and Omanbasically represents the only country to which the UAE can export. This phenomenon is continuing

into 2012, and though both Oman-based companies have followed different strategies to shield

themselves from the UAE players, the cement index seems to have reected these struggles.

Kuwait

Figure 2-5 Kuwait Cement Index vs. Kuwait Stock Exchange Weighted Index

40

50

60

70

80

90

100

110

KSE Weighted Index Kuwait Cement Index


The Oman cement index

witnessed a decline of 36% in

2011, compared to the 16%

decline in Muscats general

price index

The Kuwait cement index witnessed

a decline of 36% in 2011,

compared to the 16% decline in

the KSEs weighted index


11/17



The Kuwait synthetic cement index, which consists of three operating companies, Kuwait

Cement Company (the only cement manufacturer in the country), Hilal Cement Company, and

Kuwait Portland Cement Company, declined by 36% during 2011, as the KSE weighted index

experienced a fall of 16%.

The previous Kuwaiti Parliament approved a mega-development plan worth USD 129 billion in

projects, expected to be completed during 2010-2014. According to Kuwaits National Assembly,798 new projects are currently under construction in the country, and USD 17.5 billion is

scheduled to be spent on such projects during 2011-2012. We believe that the Kuwait cement

sector is likely to be one of the main beneciaries of the countrys much talked about multi-billion

dollar development plan. However, delays in the implementation of these projects were witnessed

throughout 2011. Also, the country experienced some political unrest during 2011 which led to

the dissolution of the Kuwaiti Parliament in December 2011. Itmay still be surprising that the

Kuwait cement index had witnessed such a hard fall during the year, considering cement prices

in Kuwait have been the highest among the GCC countries, hovering around USD 79-85 per ton.

UAE

Figure 2-6 UAE Cement Index vs. MSCI UAE

40

50

60

70

80

90

100

110

MSCI UAE UAE Cement Index


Currently, there are seven publicly listed cement companies across the UAE. All cement companies

are currently trading on the Abu Dhabi Stock Exchange, with the exception of National Cement

Company, which trades on the Dubai Stock Exchange. In 2011, the MSCI UAE dropped by 20%,but the cement index slumped 44% during the year.

It has been a bumpy ride for the UAE cement industry ever since the collapse of the real estate

market in 2008-2009, when a steady shift in focus was seen from real estate and construction

to other sectors such as oil, gas, and power. Most UAE companies are currently running at or

close to cash break-even, putting a oor to prices. The UAE has the lowest domestic prices within

the region. In addition, the UAE cement players remain at a signicant disadvantage in cost of

production as most gas prices are subsidized across the GCC, which is not the case in the UAE.

Therefore, it may come as no surprise for the cement index to witness such a decline over the year.

The MSCI UAE dropped by

20% in 2011, as the UAE

cement index slumped 44%

during the year


12/17



GCC

Figure 2-7 GCC Cement Indices

40

50

60

70

80

90

100

110

120

130

140

150

UAE Cement Index Kuwait Cement Index Oman Cement Index

Qatar Cement Index Saudi Cement Index


It is obvious that the Saudi Arabian cement index surged during 2011 outperforming both its

countrys index, and its GCC peers cement indices. However, the performance of Kuwaits cementindex during 2011 may seem disappointing considering the countrys strong economic condition

and budgeted infrastructure projects. The country had also been tightly placed in terms of demand

as opposed to the overhang of supply in most GCC countries. In addition, Qatars cement index

performance may be considered unexceptional when looking at the countrys economic prospects.

The index, with marginal advancements, seemed to be experiencing a transitional year. Going

into 2012, the Saudi Arabian cement stocks may seem to be fairly valued, whereas one could

expect an increase in value for the Kuwait cement stocks. The UAE clearly underperformed all

of its GCC peers cement indices after experiencing a decline by almost half in 2011. We do not

believe that the situation will change for UAE cement players in the short-term. However, it should

be expected that eventually marginal players will disappear and the market will rationalize. The

countrys dull performance had also taken its toll on Oman. Though growth in the non-oil sectorfor Oman is expected to remain strong at 5% in 2012 (source: NBK: Economic Outlook), UAE

cement dumping may continue to affect the countrys cement index performance.

Valuation

When comparing enterprise value (EV)/ton ratios, the averages of cement companies in Saudi

Arabia, Qatar and Kuwait, are trading above the GCC average. However, we feel it is necessary to

account for Kuwait Cements upcoming capacity, which would reduce the companys EV/ton value

by almost half. This would place it at par with its GCC peers. It is also not surprising that the UAE

EV/ton average is trading below that of its GCC peers. Overall, the regions cement stocks had

mixed themes during 2011, and whether these trends continue will be a test of time.

The GCC cement indices had

mixed performances during 2011


13/17



Figure 2-8 Valuation Table

EV / Ton

(USD)

Southern Province Cement Co. KSA 511.5 0% 43%

Yamama Cement Co. KSA 401.3 7% 36%

Saudi Cement Co. KSA 392.4 15% 70%

Qassim Cement KSA 521.9 2% 25%

Yanbu Cement Co. KSA 477.2 -2% 48%

Eastern Province Cement Co. KSA 366.9 8% 35%

Arabian Cement Co. KSA 254.2 2% 50%

Tabuk Cement KSA 370.9 5% 30%

Al Jouf Cement KSA 368.1 10% 45%

Hail Cement KSA nmf 19% 45%

KSA Average 407.2

Gulf Cement Co. UAE 71.2 34% -37%Fujairah Cement Industries Co. UAE 110.8 -10% -17%

Union Cement Co. UAE 42.1 -5% -31%

Sharjah Cement Co. UAE 36.1 40% -8%

Umm Al Qaiwain Cement UAE 127.7 22% -8%

National Cement Company UAE 154.9 49% -12%

RAK Cement UAE 65.9 -2% -19%

UAE Average 86.9

Raysut Cement Oman 135.6 -6% -39%

Oman Cement Oman 150.2 0% -30%

Oman Average 142.9

Qatar National Cement Qatar 352.8 1% 6%

Al Khalij Holding Co Qatar 328.5 -6% -6%

Qatar Average 340.6

Kuwait Cement Co. Kuwait 486.9 -2% -31%

Kuwait Portland Cement Kuwait nmf -1% -54%

Hilal Cement Kuwait nmf -21% -21%

GCC Average 272.7

Company Name Country

Valuation Stock Performance

YTD 1 yr



14/17



COMPANIES IN FOCUS (PRICES AS OF JANUARY 31, 2012)

2011 2012 2013 Latest 2012 2013

Banking

Abu Dhabi Commercial Bank UAE AED 2.93 26-Jan-12 3.30 Accumulate 5.4* 8.8 6.9 0.7* 0.7 0.7

Abu Dhabi Islamic Bank UAE AED 3.20 29-Dec-11 3.60 Accumulate 6.8 6.6 5.9 0.9 0.8 0.8

Arab National Bank Saudi Arabia SAR 27.50 12-Jan-12 37.50 Buy 10.8* 8.9 7.7 1.4 1.2 1.1

BankMuscat Oman OMR 0.738 15-Jan-12 0.780 Hold 9.7* 9.3 7.9 1.3* 1.2 1.1

Banque Saudi Fransi Saudi Arabia SAR 42.30 17-Jan-12 49.50 Accumulate 10.5* 9.3 8.2 1.6 1.4 1.2

Doha Bank Qatar QAR 62.90 19-Jan-12 70.60 Accumulate 10.5* 10.2 8.8 1.8* 1.8 1.7

First Gulf Bank UAE AED 17.15 30-Jan-12 20.00 Buy 6.9* 6.4 5.6 1* 0.9 0.8

National Bank of Abu Dhabi UAE AED 10.70 31-Jan-12 12.40 Accumulate 8.3* 7.5 6.7 1.2* 1.0 0.9

National Bank of Oman Oman OMR 0.319 24-Jan-12 0.320 Hold 10.1* 9.4 8.2 1.2* 1.2 1.1

Qatar Islamic Bank Qatar QAR 82.40 19-Jan-12 90.50 Accumulate 14.3* 11.6 10.5 1.7* 1.6 1.6

Qatar National Bank Qatar QAR 133.10 31-Jan-12 146.50 Accumulate 12.4* 11.2 10.0 2.2* 1.9 1.7

Riyad Bank Saudi Arabia SAR 23.55 18-Jan-12 33.80 Buy 11.2* 10.0 8.6 1.2 1.1 1.0

Samba Financial Group Saudi Arabia SAR 45.20 19-Jan-12 58.00 Buy 9.5* 8.3 7.5 1.5 1.2 1.1

Saudi Hollandi Bank Saudi Arabia SAR 29.70 15-Jan-12 30.70 Hold 9.5* 9.3 8.1 1.4 1.2 1.1

The Commercial Bank of Qatar Qatar QAR 82.80 25-Jan-12 106.80 Buy 10.9* 9.2 8.2 1.4* 1.4 1.3

The Saudi British Bank Saudi Arabia SAR 42.20 16-Jan-12 49.00 Accumulate 11* 9.5 8.4 1.9 1.6 1.4

Union National Bank UAE AED 3.06 29-Dec-11 3.70 Buy 5.0 5.4 4.9 0.6 0.5 0.5

Recommendation12-Month

Fair ValueCountry Currency

PE PBSector

Closing

Price

Date of Last

Report

2011 2012 2013 2011 2012 2013

Building Materials

Ezz Dekheila Steel Egypt EGP 449.33 Under Review na na na na na na

Ezz Steel Egypt EGP 5.64 Under Review na na na na na na

Lecico Egypt EGP 6.49 07-Dec-11 8.90 Buy 12.7 6.8 5.3 5.6 4.5 4.0

Oman Cement Co. Oman OMR 0.419 29-Jan-12 0.631 Buy 10.8* 8.6 7.6 7.2 6.7 6.0

Qatar National Cement Co. Qatar QAR 112.90 23-Oct-11 93.60 Reduce 14.4 11.2 11.3 11.7 9.5 9.7

Raysut Cement Co. Oman OMR 0.720 02-Nov-11 0.869 Hold 9.8 8.8 7.5 8.5 8.8 7.5

Yamama Cement Saudi Arabia SAR 74.00 14-Nov-11 71.73 Accumulate 13.5* 7.1 7.1 9.9* 7.1 7.1

Contractors

Arabtec UAE AED 2.01 07-Dec-11 1.47 Hold 22.0 14.4 10.6 6.9 6.2 5.6

DEPA UAE USD 0.36 07-Dec-11 0.77 Buy 7.1 5.6 5.6 3.7 2.8 3.0

Drake and Scull UAE AED 0.88 20-Nov-11 1.05 Buy 8.5 9.1 8.4 6.4 6.5 6.1

Orascom Construction Egypt EGP 250.29 04-Dec-11 287.06 Buy 11.4 7.3 7.0 7.8 6.2 6.0

Real Estate

Emaar UAE AED 2.74 17-Nov-11 3.47 Buy 10.3 12.4 18.9 7.0 7.7 11.0

Mabanee Kuwait KWD 0.860 23-Nov-11 1.080 Buy 23.3 14.3 11.8 20.6 13.2 10.5

Salhia Real Estate Co. Kuwait KWD 0.206 25-Jan-12 0.300 Buy 15.3 21.0 22.0 11.4 11.7 12.1

Sorouh UAE AED 0.84 13-Nov-11 2.41 Buy 6.0 5.9 2.4 6.6 7.0 3.1

Telecommunications

Batelco Bahrain BHD 0.394 24-Jan-12 0.560 Buy 7.1* 6.7 6.7 3.6* 3.6 3.6

du UAE AED 2.95 16-Nov-11 4.16 Buy 14.8 12.3 11.2 5.1 4.2 3.7

Etisalat UAE AED 9.50 09-Jan-12 10.42 Accumulate 10.5 10.1 9.7 4.5 4.4 4.3

Jordan Telecom Jordan JOD 5.54 05-Feb-12 4.45 Reduce 15.4* 15.7 15.5 7.1* 6.9 6.7

Mobily Saudi Arabia SAR 58.50 19-Jan-12 77.00 Buy 8.1* 7.7 7.2 6.2* 5.8 5.4

Mobinil Egypt EGP 104.75 13-Dec-11 100.00 Accumulate nmf 27.3 22.8 4.8 4.5 4.2

Nawras Oman OMR 0.632 31-Jan-12 0.790 Buy 8.6* 9.0 9.0 4.5* 4.3 4.2

Omantel Oman OMR 1.309 07-Dec-11 1.450 Accumulate 8.9 9.7 10.1 4.2 4.4 4.4

Qatar Telecom Qatar QAR 146.00 30-Jan-12 180.00 Buy 9.8 9.2 10.0 3.2 3.2 3.1

Saudi Telecom Saudi Arabia SAR 34.30 19-Jan-12 42.00 Buy 8.9* 9.0 8.8 4.6* 4.4 4.4Telecom Egypt Egypt EGP 14.98 14-Nov-11 20.00 Buy 9.0 9.8 9.4 4.4 4.6 4.5

Vodafone Qatar Qatar QAR 7.30 22-Jan-12 8.47 Accumulate nmf nmf nmf nmf nmf 16.5

Wataniya Telecom Kuwait KWD 2.000 30-Jan-12 2.690 Buy 10.6 11.4 11.6 3.6 3.5 3.5

Transportation & Log istics

Agility Kuwait KWD 0.370 Under Review nmf na na 6.9 na na

Air Arabia UAE AED 0.65 02-Nov-11 0.75 Accumulate 12.3 14.3 13.7 5 .1 3.6 2.7

Aramex UAE AED 1.77 05-Feb-12 2.20 Buy 12.3* 11.1 9.6 6.8 6.1 5.5

DP World UAE USD 10.95 31-Jan-12 14.00 Buy 17.7 19.6 17.7 9.0 9.3 8.9

Jazeera Airways Kuwait KWD 0.460 03-Nov-11 0.450 Accumulate 9.2 8.8 8.2 10.7 10.2 9.6

Others

Agthia UAE AED 1.79 22-Dec-11 2.20 Buy 12.4* 10.9 9.5 8.2 6.5 5.6

Almarai Saudi Arabia SAR 102.00 18-Jan-12 117.00 Accumulate 18.0* 14.8 12.7 14.9* 12.5 10.7

Dana Gas UAE AED 0.40 Under Review 10.8 na na 7.9 na na

GB Auto Egypt EGP 23.16 05-Dec-11 32.80 Buy 13.7 11.4 8.6 6.5 5.9 4.7

Oriental Weavers Egypt EGP 29.98 01-Dec-11 30.20 Hold 11.6 9.1 6.8 7.4 6.3 5.1

Juhayna Egypt EGP 4.71 11-Dec-11 5.50 Buy 15.6 12.9 10.0 8.0 6.5 5.4

Qatar Electricity and Water Co. Qatar QAR 141.20 21-Nov-11 167.00 Buy 10.2 10.0 9.5 10.4 10.2 10.0

Savola Saudi Arabia SAR 31.40 18 -Jan-12 30.00 Accumulate 13.1* 13.3 11.0 11.4* 10.7 9.4

Sector

Under Review

PE EV/EBITDACountry

Closing

PriceCurrency

Under Review

12-Month

Fair ValueRecommendation

Date of Last

Report

Under Review

Under Review

* FY2011 actual results


15/17



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

DISCLAIMER

The information, opinions, tools, and materials contained in this report (the Content) are not addressed to, or intended for publication, distribution to, or use by,any individual or legal entity who is a citizen or resident of or domiciled in any jurisdiction where such distribution, publication, availability, or use would constitute abreach of the laws or regulations of such jurisdiction or that would require Watani Investment Company KSCC (NBK Capital) or its subsidiaries or its afliates to obtainlicenses, approvals, or permissions from the regulatory bodies or authorities of such jurisdiction. The Content, unless expressly mentioned otherwise, is under copyrightto NBK Capital. Neither the Content nor any copy of it may be in any way reproduced, amended, transmitted to, copied, or distributed to any other party without theprior express written consent of NBK Capital. All trademarks, service marks, and logos used in this report are trademarks or service marks or registered trademarks or

registered service marks of NBK Capital.

The Content is provided to you for information purposes only and is not to be used, construed, or considered as an offer or the solicitation of an offer to sell or to buy orto subscribe for any investment (including but not limited to securities or other nancial instruments). No representation or warranty, express or implied, is given by NBKCapital or any of its respective directors, partners, ofcers, afliates, employees, advisors, or representatives that the investment referred to in this report is suitable foryou or for any particular investor. Receiving this report shall not mean or be interpreted that NBK Capital will treat you as its customer. If you are in doubt about suchinvestment, we recommend that you consult an independent investment advisor since the investment contained or referred to in this report may not be suitable for youand NBK Capital makes no representation or warranty in this respect.

The Content shall not be considered investment, legal, accounting, or tax advice or a representation that any investment or strategy is suitable or appropriate for yourindividual circumstances or otherwise constitutes a personal recommendation to you. NBK Capital does not offer advice on the tax consequences of investments, andyou are advised to contact an independent tax adviser.

The information and opinions contained in this report have been obtained or derived from sources that NBK Capital believes are reliable without being independentlyveried as to their accuracy or completeness. NBK Capital believes the information and opinions expressed in this report are accurate and complete; however, NBKCapital gives no representations or warranty, express or implied, as to the accuracy or completeness of the Content. Additional information may be available upon request.NBK Capital accepts no liability for any direct, indirect, or consequential loss arising from the use of the Content. This report is not to be relied upon as a substitution forthe exercise of independent judgment. In addition, NBK Capital may have issued, and may in the future issue, other reports that are inconsistent with and reach differentconclusions from the information presented in this report. Those reports reect the different assumptions, views, and analytical methods of the analysts who preparedthe reports, and NBK Capital is under no obligation to ensure that such other reports are brought to your attention. NBK Capital may be involved in many businesses thatrelate to companies mentioned in this report and may engage with them. Past performance should not be taken as an indication or guarantee of future performance, andno representation or warranty, express or implied, is made regarding future performance. Information, opinions, and estimates contained in this report reect a judgmentat the reports original date of publication by NBK Capital and are subject to change without notice.

The value of any investment or income may fall as well as rise, and you may not get back the full amount invested. Where an investment is denominated in a currencyother than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price, or income of thatinvestment. In the case of investments for which there is no recognized market, it may be difcult for investors to sell their investments or to obtain reliable informationabout their value or the extent of the risk to which they are exposed.

NBK Capital has not reviewed the addresses of, the hyperlinks to, or the websites referred to in the report and takes no responsibility for the content contained therein.Such address or hyperlink (including addresses or hyperlinks to NBK Capitals own website material) is provided solely for your convenience and information, and thecontent of the linked site does not in any way form part of this document. Accessing such websites or following such links through this report or NBK Capitals websiteshall be at your own risk.

COPYRIGHT NOTICE

This is a publication of NBK Capital. No part of this publication may be reproduced or duplicated without the prior consent of NBK Capital.


16/17



Kuwait

National Bank of Kuwait SAK

Abdullah Al-Ahmed Street

P.O. Box 95, Safat 13001

Kuwait City, Kuwait

T. +965 2242 2011F. +965 2243 1888

Telex: 22043-22451 NATBANK

INTERNATIONAL NETWORK

Bahrain


Bahrain Branch

Seef Tower, Al-Seef District

P.O. Box 5290, Manama, Bahrain

T. +973 17 583 333

F. +973 17 587 111

Saudi Arabia

National Bank of Kuwait SAKJeddah Branch

Al-Andalus Street, Red Sea Plaza

P.O. Box 15385

Jeddah 21444, Saudi Arabia

T. +966 2 653 8600

F. +966 2 653 8653



Dubai Branch

Sheikh Rashed Road, Port Saeed

Area, ACICO Business Park

P.O. Box 88867, Dubai


T. +971 4 2929 222

F. +971 4 2943 337

Jordan


Head Ofce

Al Hajj Mohd Abdul Rahim Street

Hijazi Plaza, Building # 70

P.O.Box 941297,Amman -11194, Jordan

T. +962 6 580 0400

F. +962 6 580 0441

Lebanon

National Bank of Kuwait

(Lebanon) SAL

Sanayeh Head Ofce

BAC Building, Justinian Street

P.O. Box 11-5727, Riyad El Solh

1107 2200 Beirut, Lebanon

T. +961 1 759 700

F. +961 1 747 866

IraqCredit Bank of Iraq

Street 9, Building 187

Sadoon Street, District 102

P.O.Box 3420, Baghdad, Iraq

T. +964 1 7182198/7191944

+964 1 7188406/7171673

F. +964 1 7170156

Egypt

Al Watany Bank of Egypt

13 Al Themar Street

Gameat Al Dowal AlArabia

Fouad Mohie El Din Square

Mohandessin, Giza, Egypt

T. +202 333 888 16/17F. +202 333 79302

United States of America


New York Branch

299 Park Avenue, 17th Floor

New York, NY 10171, USA

T. +1 212 303 9800F. +1 212 319 8269

United Kingdom

National Bank of Kuwait (Intl.) Plc

Head Ofce

13 George Street,

London W1U 3QJ, UK

T. +44 20 7224 2277

F. +44 20 7224 2101

NBK Investment

Management Limited

13 George Street

London W1U 3QJ, UK

T. +44 20 7224 2288F. +44 20 7224 2102

France

National Bank of Kuwait (Intl.) Plc

Paris Branch

90 Avenue des Champs-Elysees

75008 Paris, France

T. +33 1 5659 8600

F. +33 1 5659 8623

Singapore


Singapore Branch

9 Rafes Place #51-01/02

Republic Plaza, Singapore 048619T. +65 6222 5348

F. +65 6224 5438

Vietnam


Vietnam Representative Ofce

Room 2006, Sun Wah Tower

115 Nguyen Hue Blvd, District 1

Ho Chi Minh City, VietnamT. +84 8 3827 8008

F. +84 8 3827 8009

China


Shanghai Representative Ofce

Suite 1003, 10th Floor,

Azia Center, 1233 Lujiazui Ring Rd.

Shanghai 200120, China

T. +86 21 6888 1092

F. +86 21 5047 1011

ASSOCIATES

Qatar

International Bank of Qatar (QSC)

Suhaim bin Hamad Street

P.O.Box 2001

Doha, Qatar

T. +974 447 3700

F. +974 447 3710

Turkey

Turkish Bank

Head Ofce

Valikonagl Avenue No. 1

P.O.Box 34371 Nisantasi,

Istanbul, Turkey

T. +90 212 373 6373

F. +90 212 225 0353

NATIONAL BANK OF KUWAIT

Kuwait

Head Ofce

38th Floor, Arraya II

Al Shuhada Street, Block 6, Sharq

P.O.Box 4950, Safat 13050

Kuwait

T. +965 2224 6900

F. +965 2224 6905

MENA Research


Al Shuhada Street, Block 6,Sharq

P.O.Box 4950, Safat 13050, Kuwait

T. +965 2224 6663

F. +965 2224 6905

E. [email protected]

Brokerage


Al Shuhada Street, Block 6, Sharq

P.O.Box 4950, Safat 13050, Kuwait

T. +965 2224 6964

F. +965 2224 6978

E. [email protected]


NBK Capital Limited

Precinct Building 3, Ofce 404

Dubai International Financial Center

P.O.Box 506506

Dubai, UAE

T. +971 4 365 2800

F. +971 4 365 2805

Turkey

NBK Capital

Arastima ve Musavirlik AS,

Sun Plaza, 30th Floor,

Dereboyu Sk. No.24

Maslak 34398, Istanbul, Turkey

T. +90 212 276 5400

F. +90 212 276 5401

Egypt

NBK Capital Securities

Egypt SAE

20 Aisha EL Taymouria St.

Garden City

Cairo, Egypt

T. +202 2798 5900

F. +202 2798 5905

NBK CAPITAL
http://www.nbkcapital.com/http://www.nbkcapital.com/http://www.nbkcapital.com/http://www.nbkcapital.com/http://www.nbkcapital.com/mailto:menaresearch%40nbkcapital.com.kw%20?subject=mailto:menaresearch%40nbkcapital.com.kw%20?subject=mailto:menaresearch%40nbkcapital.com.kw%20?subject=mailto:menaresearch%40nbkcapital.com.kw%20?subject=http://www.nbkcapital.com/


17/17

KUWAIT DUBAI ISTANBUL CAIRO

nbk capital - mena in focus 6-2-2012

Documents