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February 06, 2012
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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
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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 2858E.munira.mukadam@nbkcapital.com
Sara Kanaan
T.+971 4365 2812
E.sara.kanaan@nbkcapital.com
The Qatar Exchanges index
was the only one to end the
year in posit ive territory
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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
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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
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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
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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.
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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 5294E.shoug.alkhatrash@nbkcapital.com
A weighted market
capitalization index was
created for the UAE, Qatar,
Oman, and Kuwait
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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
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Qatar
Figure 2-3 Qatar Cement Index vs. Qatar General Price Index
80
90
100
110
120
Qatar General Index Qatar Cement Index
Sources: Reuters and NBK Capital
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%.
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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
Sources: Reuters and NBK Capital
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
Sources: Reuters and NBK Capital
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
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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
Sources: Reuters and NBK Capital
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
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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
Sources: Reuters and NBK Capital
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
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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
Sources: Reuters and NBK Capital
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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
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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 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
National Bank of Kuwait SAK
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
United Arab Emirates
National Bank of Kuwait SAK
Dubai Branch
Sheikh Rashed Road, Port Saeed
Area, ACICO Business Park
P.O. Box 88867, Dubai
United Arab Emirates
T. +971 4 2929 222
F. +971 4 2943 337
Jordan
National Bank of Kuwait SAK
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
National Bank of Kuwait SAK
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
National Bank of Kuwait SAK
Singapore Branch
9 Rafes Place #51-01/02
Republic Plaza, Singapore 048619T. +65 6222 5348
F. +65 6224 5438
Vietnam
National Bank of Kuwait SAK
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
National Bank of Kuwait SAK
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
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NBK Capital Limited
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Dubai International Financial Center
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T. +971 4 365 2800
F. +971 4 365 2805
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Arastima ve Musavirlik AS,
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Garden City
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KUWAIT DUBAI ISTANBUL CAIRO