GCC Strategy

Global Research GCC Investment Strategy Equity - GCC January 10, 2012
GCC Investment Strategy - 2012

Country Wise - P/E & Earnings Growth
20.0%
3-yr Earnings CAGR
17.0%
Kuwait UAE
14.0% 11.0% 8.0% 8.0

GCC
Oman
Qatar

14.0
Uncertainty likely to overshadow fundamentals Banking offers numerous opportunities; telecom a mixed bag KSA looks good at current levels; Qatar on dips Proposed strategy: Play the dividend game
KSA
10.0 12.0 2012e P/E (x)
Sector Wise - P/E & Earnings Growth

24.0%
3-yr Earnings CAGR
18.0% 12.0%
Banks
Constructi on
Telecom
6.0%
0.0% Petroche m 8.0 9.5
Real Estate
CBM
11.0 12.5 2012e P/E (x) 14.0
Uncertainty likely to overshadow fundamentals Albeit the USA is now in a much better position, the Euro zone crisis still lingers. With economists stating that a recession in Europe is inevitable, we wait to see the repercussions of the ensuing news on GCC markets. There is a lot being said about drastic softening in the growth of China and India, two leading EM markets. Moreover, recent sanctions on Iran led it to retaliate with a threat to block off the Strait of Hormuz, which if implemented would share headlines with vaporization of investor sentiment. The implications of this standoff and the resulting geo-political upheaval could be manifold, none of which can be viewed in positive light. Re-rating still possible If oil prices move in a positive direction, regional surpluses will swell further than expectations, stringing along a wave of positive sentiments. Possible MSCI upgrade of UAE and Qatar in 2012 would trigger sizeable interest followed by inflows into these markets. Regulatory changes, like those relating to increasing of foreign ownership limits (case in point: UAE and Qatar) and opening the market to foreign owners (case in point: KSA) will lead to significant inflows into the market. Banking offers numerous opportunities, telecom a mixed bag During 2012, we expect the GCC banking sector to offer the highest earnings growth. We suggest that investors should keep a close eye on Qatar (on dips) and KSA for low risk banking sector investments. UAE banks offer substantially higher upside potential but that does not come without exceptionally higher risk. We reiterate our fondness of selective Abu Dhabi based banks. While we do not see enticing upside coming from petrochemical stocks, the construction and cement sectors should remain in the headlines on excessive infrastructure spending. The telecom & real estate sectors does not earn a bullish stance from our side, we remain opportunistic on the sector which offers some good picks. Proposed strategy: Play the dividend game If we were to somehow escape the list of risk factors affecting our valuation, KSA and Qatar should stand out as the best performing markets in the GCC in 2012. We would put more weight on KSA because of its size, its recent under-performance. While UAE offers the highest growth potential, especially after the poor performance in 2011 we believe that the country also has the highest probability to be bogged down by negative news. We believe that given highly uncertain times and expected market volatility, investors should stick to safe stocks (stocks with acceptable recommendations to curtail downside risk) that offer good dividend yield.
CBM - Cement & Building Materials
Country Wise - ROE & P/BV

22.0%
2012e ROAE (%)
Qatar
20.0% 18.0% 16.0%

14.0% 12.0% 10.0% 0.8 UAE 1.0 1.2 1.4 1.6 1.8 2012e P/BV (x) 2.0 2.2
Oman GCC
KSA
Kuwait
Source: Global Research
Faisal Hasan, CFA Head of Research fhasan@global.com.kw Tel.: (965) 22951270 Global Investment House www.globalinv.net
Global Research GCC

Global Research - GCC Universe UAE Abu Dhabi Commercial Bank Arkan Building Materials Company Dana Gas Emirates Telecommunications Corporation National Bank of Abu Dhabi Ras Al Khaimah Cement Company Ras Al Khaimah Ceramics Co. Abu Dhabi National Energy Union National Bank Air Arabia Arabtec Holding PJSC Dubai Financial Market Drake & Scull International Emirates NBD Aramex Emaar Properties Aldar Properties Sorouh Real Estate Total Kuwait Mobile Telecommunications Company National Bank of Kuwait Kuwait Finance House Commercial Bank of Kuwait National Mobile Telecommunications Company Jazeera Airways Company Burgan Bank Mabanee Salhia Real Estate Total Oman Oman Telecommunications Company Bank Muscat Bank Dhofar National Bank of Oman Raysut Cement Company Oman International Bank Oman Cement Company Ahli Bank Total OTEL OM BKMB OM BKDB OM NBOB OM RCCI OM OIBB OM OCOI OM ABOB OM 2,546.0 3,068.5 1,309.8 901.3 395.3 731.7 379.8 543.3 2.0% 7.8% 8.0% 3.5% -9.4% 4.3% 3.8% 3.6% 14.1% 15.8% 3.0% 3.5% -23.7% 10.2% -0.7% 0.4% 2.8% -11.9% -17.1% -8.0% -38.9% 8.6% -31.6% -5.3% 8.5 8.2 11.0 8.0 10.4 14.6 10.8 8.2 9.00 1.8 2.2 0.5 1.3 0.5 2.8 0.8 1.4 1.42 22.4% 15.4% 18.2% 14.7% 14.3% 10.5% 9.4% 19.4% 17.4% 16.8% 2.2% 2.6% 2.2% 7.6% 1.7% 7.9% 3.0% 3.4% 0.15 0.09 0.05 0.04 0.07 0.02 0.04 0.03 1.31 0.76 0.55 0.32 0.76 0.29 0.44 0.26 ZAIN KK NBK KK KFIN KK CBK KK NMTC KK JAZEERA KK BURG KK MABANEE KK SRE KK 13,297.2 15,911.0 8,494.0 3,515.8 3,509.9 323.8 2,429.5 1,715.2 368.1 -5.5% -1.8% -3.3% -2.5% 2.1% -8.9% -2.1% -3.4% 0.0% -7.5% 5.7% -2.2% -6.1% 3.2% 32.3% -3.2% 3.6% -2.9% -41.9% -15.6% -23.4% -18.1% 1.0% 230.6% -13.8% 21.3% -26.8% 11.2 13.1 20.1 21.1 9.6 5.1 10.4 14.3 14.9 12.99 1.6 1.9 1.9 1.8 1.5 2.0 1.4 2.6 0.7 1.74 15.0% 15.0% 9.4% 8.5% 16.7% 49.2% 13.7% 20.3% 5.2% 13.8% 9.5% 2.6% 0.9% 1.3% 8.9% 10.1% 1.5% 12.1% 2.8% 2.6% 0.08 0.09 0.04 0.04 0.20 0.08 0.04 0.06 0.01 0.86 1.12 0.88 0.77 1.94 0.41 0.46 0.86 0.20 ADCB UH ARKAN UH DANA UH ETISALAT UH NBAD UH RAKCC UH RAKCEC UH TAQA UH UNB UH AIRARABI UH ARTC UH DFM UH DSI UH EMIRATES UH ARMX UH EMAAR UH ALDAR UH SOROUH UH 4,204.8 433.6 790.6 19,846.1 8,517.1 79.1 287.3 2,050.7 1,963.6 754.7 671.6 1,829.6 462.5 4,267.1 729.5 4,162.5 698.2 564.6 -6.8% -22.2% -15.4% -5.3% -0.9% -13.0% -5.3% 0.8% -0.7% -4.2% 10.0% -13.4% -5.3% -15.3% 0.0% -11.0% -11.0% -15.1% -1.1% -28.3% -15.4% -10.5% 7.9% -25.0% -5.3% 6.1% -2.7% -3.4% 26.9% -18.4% -2.0% -25.8% 2.8% -0.8% -19.1% -22.5% 25.5% -47.4% -42.9% -14.6% 11.3% -30.2% -36.2% -18.8% 1.2% -28.7% 4.2% -44.7% -26.4% -2.1% -14.1% -28.3% -61.6% -51.8% 8.1 18.7 5.3 9.9 8.0 na 5.4 4.1 3.9 10.1 16.7 nm 7.9 8.2 11.6 9.6 11.2 6.3 8.12 0.9 0.9 0.3 1.7 1.2 0.4 0.4 0.7 0.6 0.5 0.8 0.9 0.6 0.5 na 0.5 0.4 0.3 0.87 10.8% 5.1% 6.0% 17.4% 16.0% 0.0% 7.5% 17.9% 15.6% 5.2% 5.1% 1.0% 8.1% 6.1% 12.0% 4.9% 3.9% 4.9% 11.0% 1.1% 3.1% 4.5% 9.5% 1.7% 0.0% 3.4% 1.6% 2.3% 4.0% 1.7% 0.9% 4.0% 0.7% 9.0% 2.6% 0.6% 2.4% 2.1% 0.34 0.05 0.08 0.93 1.36 0.00 0.26 0.30 0.74 0.06 0.10 0.01 0.10 0.34 0.16 0.26 0.06 0.11 2.76 0.91 0.44 9.22 10.90 0.60 1.42 1.21 2.89 0.59 1.65 0.84 0.78 2.82 1.83 2.51 0.89 0.79 Bloomberg Ticker Mkt. Cap USD mn 1M Stock Performance 3M 12M P/E 2012e P/BV 2012e ROAE 2012e ROAA 2012e EPS 2012e Current Price
GCC Investment Strategy

Target Price 3.62 1.12 0.79 11.10 12.63 0.69 2.32 1.79 4.95 0.76 1.27 0.81 1.00 3.83 2.00 3.25 1.10 1.05 Upside / (Downside) 31.0% 23.1% 79.5% 20.4% 15.9% 15.0% 63.4% 48.1% 71.1% 28.7% -23.0% -3.6% 28.2% 35.8% 9.3% 29.5% 23.6% 32.9% STRONG BUY STRONG BUY STRONG BUY STRONG BUY BUY BUY STRONG BUY STRONG BUY STRONG BUY STRONG BUY SELL HOLD STRONG BUY STRONG BUY HOLD STRONG BUY STRONG BUY STRONG BUY Rating
0.86 1.13 0.92 0.73 2.59 0.61 0.55 0.98 0.25
0.3% 1.1% 4.0% -5.5% 33.6% 49.7% 18.9% 14.0% 25.0%
HOLD HOLD HOLD HOLD STRONG BUY STRONG BUY BUY BUY STRONG BUY
1.45 0.71 0.35 0.33 0.83 0.21 0.47 0.28
11.3% -6.8% -36.9% 3.7% 9.1% -27.8% 6.6% 6.3%
BUY HOLD SELL HOLD HOLD SELL HOLD HOLD
January 2012
Global Research GCC
Global Research - GCC Universe Qatar Qatar National Bank Industries Qatar Qatar Telecom Vodafone Qatar Qatar Islamic Bank The Commercial Bank of Qatar Qatar Electricity & Water Company Doha Bank Al Rayan Bank Qatar National Cement Company Total Saudi Arabia Saudi Basic Industries Corporation Al Rajhi Bank Saudi Telecom Company Samba Financial Group Saudi Electricity Company Riyad Bank The Saudi British Bank Banque Saudi Fransi Etihad Etisalat Company Arab National Bank Saudi Arabia Fertilizers Company Yanbu National Petrochemicals Company Saudi Hollandi Bank Saudi International Petrochemichal Company Yamama Saudi Cement Company Arabian Cement Co. Saudi Cement Company Dar Alarkan Emaar Economic City Saudi Real Estate Co. (Akaria) Al Khodari Sons Company Mohammad Al-Mojil Group Total Bahrain Bahrain Telecommunications Company
* All price in local currency as of 5 January 2012 Source: Bloomberg & Global Research
Bloomberg Ticker
Mkt. Cap USD mn 1M
Stock Performance 3M 11.8% 12.2% -0.5% 2.6% 7.1% 15.4% 7.1% 15.6% 15.3% 5.0% 12M 9.3% -6.2% -2.7% -10.2% 0.4% -8.1% 6.7% -0.5% 44.3% 3.5%
P/E 2012e 11.4 7.6 8.6 na 12.0 9.2 9.1 9.5 14.3 12.4 10.06
P/BV 2012e 2.4 2.4 1.1 1.0 1.9 1.6 2.7 2.2 2.5 2.3 2.03
ROE 2012e 21.8% 35.1% 13.4% -4.1% 16.0% 17.5% 32.4% 23.1% 18.1% 19.2% 21.2%
ROA 2012e 3.4% 28.6% 2.8% -3.2% 3.1% 3.4% 7.1% 2.9% 3.4% 16.8% 4.6%
EPS 2012e 13.63 17.53 16.73 (0.32) 7.02 9.28 15.70 6.91 1.94 9.12
Current Price 155.90 134.10 144.60 7.54 84.50 85.50 142.50 66.00 27.85 113.40
Target Price 169.04 170.90 197.17 7.49 82.92 98.03 180.81 67.27 27.24 125.40
Upside / (Downside) 8.4% 27.4% 36.4% -0.7% -1.9% 14.7% 26.9% 1.9% -2.2% 10.6%
Rating
QNBK QD IQCD QD QTEL QD VFQS QD QIBK QD CBQK QD QEWS QD DHBK QD MARK QD QNCD QD
27,237.2 20,256.8 6,989.7 1,750.7 5,483.9 5,810.7 3,913.8 3,746.8 5,736.7 1,529.3
2.6% -1.1% -4.6% -0.8% -0.4% 3.6% 2.3% 1.5% 3.9% 4.4%
HOLD STRONG BUY STRONG BUY HOLD HOLD BUY STRONG BUY HOLD HOLD BUY
SABIC AB RJHI AB STC AB SAMBA AB SECO AB RIBL AB SABB AB BSFR AB EEC AB ARNB AB SAFCO AB YANSAB AB AAAL AB SIPCHEM AB YACCO AB ARCCO AB SACCO AB ALARKAN AB EMAAR AB SRECO AB ALKHODAR AB MMG AB
76,993.8 27,797.8 18,025.2 10,991.1 15,220.7 9,359.3 8,159.3 8,157.2 9,845.9 6,243.8 11,582.4 6,569.5 2,619.3 1,891.8 2,546.8 953.5 3,008.8 2,059.0 1,643.2 835.1 592.1 801.6
0.0% 1.1% 1.5% -2.3% 1.9% 0.4% 4.6% 3.7% 5.0% -3.5% -4.1% -1.8% 6.8% -0.3% 6.4% 6.4% 15.2% 12.6% 11.5% 13.5% 6.0% 18.2%
9.7% 2.6% -1.2% 4.3% 2.6% -0.6% 6.8% 12.2% -0.9% 3.0% -5.3% 0.5% 15.6% 8.1% 14.1% 10.9% 17.1% 17.2% 13.3% 12.0% -13.6% 12.6%
-10.3% -16.8% -21.8% -23.7% -2.1% -12.4% 1.0% -6.2% -4.1% -9.0% 4.0% -10.1% 0.3% -22.9% 35.4% 32.6% 47.5% -22.3% 1.4% -1.5% -5.0% 23.3%
9.2 11.3 8.2 8.5 19.2 9.9 10.0 8.5 7.0 8.4 11.1 7.1 8.3 10.5 12.8 7.5 13.2 6.3 na 25.7 12.8 24.7 10.35
1.7 3.3 1.3 1.3 1.0 1.2 1.6 1.4 1.7 1.3 5.4 1.8 1.2 1.3 2.7 1.1 3.0 0.5 0.8 1.0 2.9 1.8 1.81
20.2% 30.2% 16.1% 16.3% 5.5% 12.0% 17.0% 18.0% 26.6% 16.4% 49.2% 28.7% 15.7% 12.5% 21.7% 15.8% 23.2% 7.7% -0.5% 3.8% 24.4% 7.4% 18.4%
9.4% 4.6% 7.1% 2.5% 1.5% 2.0% 2.4% 2.8% 15.2% 2.3% 44.6% 14.1% 2.1% 5.5% 20.3% 11.1% 18.4% 5.1% -0.3% 3.5% 8.7% 3.7% 4.9%
10.43 6.13 4.11 5.38 0.71 2.37 4.08 4.99 7.53 3.27 15.67 6.18 3.58 1.84 5.52 5.96 5.59 1.13 (0.04) 1.02 4.07 0.97
96.25 69.50 33.80 45.80 13.70 23.40 40.80 42.30 52.75 27.50 173.75 43.80 29.70 19.35 70.75 44.70 73.75 7.15 7.25 26.10 52.25 24.05
118.60 73.27 43.50 53.73 13.80 26.18 43.13 47.32 71.10 32.60 182.70 57.80 32.00 23.60 71.20 59.20 66.80 8.90 7.65 28.95 65.10 24.50
23.2% 5.4% 28.7% 17.3% 0.7% 11.9% 5.7% 11.9% 34.8% 18.5% 5.2% 32.0% 7.7% 22.0% 0.6% 32.4% -9.4% 24.5% 5.5% 10.9% 24.6% 1.9%
STRONG BUY HOLD STRONG BUY BUY HOLD BUY HOLD BUY STRONG BUY BUY HOLD STRONG BUY HOLD STRONG BUY HOLD STRONG BUY HOLD STRONG BUY HOLD BUY STRONG BUY HOLD
BATELCO BI
1,504.9
0.0%
0.0%
-21.2%
6.9
1.0
15.3%
12.3%
0.06
0.39
0.50
27.9%
STRONG BUY
January 2012
Global Research GCC
TABLE OF CONTENTS
Valuation & Outlook Global Research - GCC Top Picks Macroeconom ic Outlook Market Perform ance Global Outlook Sectoral Outlook Com pany Profiles Aviation & Logistics Sector Air Arabia Jazeera Airw ays Company Aramex Banking Sector Al Rajhi Bank Samba Financial Group Riyad Bank The Saudi British Bank Banque Saudi Fransi Arab National Bank Saudi Hollandi Bank Burgan Bank Commercial Bank of Kuw ait Kuw ait Finance House National Bank of Kuw ait Bank Muscat National Bank of Oman Bank Dhofar Oman International Bank Ahli Bank Al Rayan Bank Qatar Islamic Bank Doha Bank Commercial Bank of Qatar Qatar National Bank First Gulf Bank National Bank of Abu Dhabi Abu Dhabi Commercial Bank Union National Bank Emirates NBD Cem ent & Building Materials Sector Arabian Cement Co. Saudi Cement Company Yamama Saudi Cement Company Oman Cement Company Raysut Cement Company Qatar National Cement Company Arkan Building Materials Company 5 11 12 17 20 22 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 Ras Al Khaimah Cement Company Ras Al Khaimah Ceramics Co. Construction Contracting Sector Arabtec Holding Drake & Scull International Mohammad Al Mojil Group Al Khodari Sons & Company Energy & Petrochem icals Sector Saudi Basic Industries Corporation Saudi Arabia Fertilizers Company Yanbu National Petrochemicals Co. Saudi International Petrochemichal Co. Industries Qatar Dana Gas Real Estate Sector Emaar Properties Aldar Properties Sorouh Real Estate Dar Al Arkan Real Estate Saudi Real Estate Company Emaar Economic City Mabanee Salhia Real Estate Company Telecom Sector Etihad Etisalat Company Saudi Telecom Company Bahrain Telecommunications Company National Mobile Telecommunications Co. Mobile Telecommunications Company Qatar Telecom Vodafone Qatar Emirates Telecommunications Corporation Omantel Utilities Sector Qatar Electricity & Water Company Abu Dhabi National Energy Saudi Electricity Company Others Dubai Financial Market Appendix Disclosure 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 128
January 2012
Global Research GCC
Valuation & Outlook

Earnings growth 2011: We were a tad optimistic in 2011, it seems Our expectations for earnings growth for 2011 (companies under coverage) have been toned down further, though only slightly in most cases, with Kuwait & UAE being the exceptions. Earnings expectations for Kuwait and UAE have been slashed sharply largely due to revised outlook of the banking sector for the former and high provision expectations for the latter (knocking out one-off gains from profits).
GCC Coverage Earnings Growth 2011e - Revised vs Previous Estimates
35%
30% 25% 20% 15% 10% 5% 22% 18%
30% 27%
24% 24% 17% 9% 3% 0%
Oman
11% 1%
Kuwait
0%
Qatar
*GCC
Previous: Strategy Report Aug-11
*UAE
KSA
Revised
Source: Glob al Research * Profit figures adjusted for Aldar, one-offs from ENBD and ADCB Profit growth for UAE and GCC w/o adjustment for ENBD, ADCB is 13% &20% resp. Figures pertain to Glob al Research's coverage universe only
Earnings growth 2012: A slower year for GCC, growth rationalizing in effect Profit growth for GCC should normalize in 2012 after posting (still expectedly) 18%YoY rise in 2011. We see growth figures almost halving in 2012 to 10% after adjusting for one-offs posted by UAE banks against unadjusted figure of 7%YoY. Growth will decline due to shift of stellar growth from heavy weight countries (in terms of our coverage profits) to low weight ones. Oman and Kuwait should shine with high double digit growth; Qatar, though no longer in pole position, should see above average growth in 2012.
GCC Coverage Earnings Growth 2012e 25% 20% 23% 20%
20% 15%
15% 10% 10%
18%
16% 10%
9%
6%
8% 5%
9% 3%
5%
0%
China
UK
Russia
Japan
Oman
Brazil
GCC
India
USA
Source: Glob al Research, Bloomb erg * Profits adjusted for one off gains made b y ENBD and ADCB in 2011 Figures pertain to Glob al Research's coverage universe only
January 2012
Kuwait
Germa ny
Qatar
*UAE
KSA
Global Research GCC
From a sectoral perspective, the petrochemical sector which contributed three-quarters to GCCs incremental profits in 2011, is expected to take a back seat and give in to the banking and telecom sectors. Growth in petrochemical sector is expected to be very sluggish post 50%YoY rise in 2011 due to anticipation of diminished demand for their products on fears of slowdown in emerging markets and recession in Europe. Banking profits are forecast to pick up pace amidst lower provisions and higher top-line growth and as a result, the banking sector is forecast to exhibit the fastest growth in profits amongst all major sectors.
Profit Drivers in 2012 Utilities 5.8% Others 1.6%
CBM 1.1%
Telecom 20.8%
Petrochem 5.9%
Banks 64.7%
Source: Glob al Research Figures pertain to Glob al Research's coverage universe only
Banking sector projected to witness highest earnings growth Having mentioned that Kuwait and Oman are projected to see the highest growth within the GCC in 2012, we believe that this growth will be driven foremost by their respective banking sectors. Banking sectors of the remaining members of GCC should also see a healthy rise averaging at around 16%.
Global Research Universe - Earnings Growth 2012e Kuwait KSA Qatar Banks 27% 15% 14% Petrochem n/a -1% 16% Telecom 16% 11% 18% Cements & Building Materials n/a 5% 2% Construction & RE 53% 6% n/a Other sectors 40% 15% 13% Source: Global Research * Profits adjusted for one off gains made by ENBD and ADCB in 2011 Figures pertain to Global Research's coverage universe only
Oman 31% n/a 3% 4% n/a n/a
*UAE 12% 8% 6% 19% -9% 20%
*GCC 16% 2% 11% 6% 1% 17%
We see modest growth of 11% YoY coming in from the telecom sector with countries expected to show double digit growth include Qatar, Kuwait and KSA. Profit growth story for Qatar and Kuwait is related to growing revenues from their international subsidiaries while that for KSA is more home-based; KSA still offers an undertapped market with broadband services offering augmenting revenues. Petrochemical sector profits would, however, lose steam considerably, inching up by just 2%YoY due to reasons touched upon earlier. The KSA petrochemical sector is expected to exhibit a marginal decline in profits while that of Qatar would show handsome growth on diversified end products.
January 2012 6
Global Research GCC
Sector Outlook: Banking offers numerous opportunities, telecom offers a mixed bag We suggest that investors should keep a close eye on Qatar and KSA for low risk banking sector investments. UAE banks offer substantially higher upside potential but that does not come without exceptionally higher risk. We reiterate our fondness of selective Abu Dhabi based banks. While we do not see enticing upside coming from petrochemical stocks. The construction sector should remain in the headlines on excessive infrastructure spending while, despite high upside potential, we remain picky on the available real estate stories within our coverage given the growing associated risks. Our confidence in the construction sector is further bolstered by the geographical diversification of their revenue streams. The cement sector should also see some lime light, piggy backing on the same spending story. However, we see potential only in KSA based cement companies where strong demand exists emanating from ongoing projects; while those in Qatar will benefit once actual spending starts possibly two years from now. We recommend a neutral stance on the petrochemical sector due to a bearish outlook on petrochemical prices; incremental revenues coming from added capacities will be offset by drop in product prices, leading eventually to stunted earnings growth. While the telecom sector does not earn a bullish stance from our side, we remain opportunistic on the sector which offers some good picks throughout the GCC. Return Ratios: GCC ROAE to remain unchanged from 2011, Oman and Kuwait to improve We do not expect a change in GCCs average ROE in 2012, as compared to the previous year. As has been the case for quite some time now, Qatar will remain the highest ROE generator, although this time around we expect to witness marked improvement in the ROEs of Kuwait and Oman. On a positive note, we anticipate an increasing trend in return ratios, going forward as companies cope with existent challenges. It is also interesting to note that the return ratios of GCC members is comparable to that of leading EM and developed economies.
GCC Coverage ROE 2012e 25%
21% 16%
16% 18%
20%
15%
17% 14% 11% 8%
19% 18% 18% 17%

13% 13%
10%
5%
0%
Source: Glob al Research, Bloomb erg
Trading multiples: UAE is the cheapest, Kuwait the most expensive As per our coverage, the GCC market is trading at a forward 2012e P/E of 9.8x which is markedly much cheaper than most of its international peers. This underpins the fact that GCC markets have undergone noticeable derating since previously these used to trade at a premium to the international peers.
January 2012
Germany
Oman
Japan
Qatar
KSA
China
Kuwait
Russia
Brazil
India
UAE
UK
GCC
USA
Global Research GCC
GCC Coverage Trading Multilpes (P/E) 2012e

16.0 14.0 12.0 10.0 8.0
6.0 4.0 2.0

China Russia Kuwait
India
GCC
UK
0.0
Source: Glob al Research, Bloomb erg Figures pertain to Glob al Research's coverage universe only
Within GCC, UAE seems to be trading at a significant 17% discount to the GCC average while Kuwait is trading at a premium of around 34%, according to a P/E comparison. However, when adjusted through PEG, KSA seems to be the most expensive market while UAE retains its position as the cheapest one within the GCC.
GCC Coverage Trading Multiples : (Discount) or Premium to GCC average
40% 30% 20% 10% 0% -10% -20% -30% -40% -50% 34% 34% 40%
3%
10%
-8%
-15%
-22%
-8% -40% UAE Kuwait Oman Qatar KSA -17% UAE Kuwait Oman Qatar
-1%
KSA
PEG (LHS)
P/E (RHS)
Source: Glob al Research, Bloomb erg Figures pertain to Glob al Research's coverage universe only
Uncertainty is likely to overshadow fundamentals As expected, GCC markets remained under considerable pressure throughout 2011 from news related to exogenous factors. Albeit the USA is now in a much better position since our last strategy report, the Euro zone crisis still lingers. With economists stating that a recession in Europe is inevitable, we wait to see the repercussions of the ensuing chain of news on GCC markets. If that was not enough, there is a lot being said about drastic softening in the growth of China and India, two leading emerging markets. Moreover, recent sanctions on Iran led it to retaliate with a threat to block off the Strait of Hormuz, which if implemented would share headlines with vaporization of investor sentiment. The implications of this standoff and the resulting geopolitical upheaval could be manifold, none of which can be viewed in positive light. While that takes care of most of the external factors, real estate markets in the UAE are still in poor health and the restructuring of Dubai Group is still underway. Further defaults/restructurings from large conglomerates including those that classify as GREs, will keep UAE high on the risk perception of investors; fortunately the effects of such will be limited to UAE.
January 2012
Germa ny
Oman
KSA
Japan
UAE
Qatar
USA
Brazil
30%
20%
0% -10% -20%
Global Research GCC
Re-rating is still possible Despite the gloomy picture, some events may still propel markets in the right direction. If oil prices move in a positive direction, say above USD120/barrel, regional surpluses will swell further than expectations creating positive sentiment in the market. The petrochemical sector will be the first and the largest beneficiary and has the capacity (market weight) to actually thrust the index forward. Possible MSCI upgrade of UAE and Qatar in 2012 would trigger sizeable interest followed by inflows into these markets. This comes at a very opportune time, when Taiwan and/or South Korea could see a possible upgrade into developed markets, leaving EM indexed funds to scramble for possible replacements. Regulatory changes, like those relating to increasing of foreign ownership limits (case in point: UAE and Qatar) and opening the market to foreign owners (case in point: KSA) will lead to significant inflows into the market, more so in the case of KSA which is the largest stock exchange in the GCC. The FOL of most stocks in Qatar and UAE are already maxed out and any relaxation in the limits will be met with cheer from foreign investors, not to mention that it is already a precondition to the MSCI status upgrade to EM. Resolution of asset quality issues of UAE based banks, a slow-down in corporate defaults and a confirmation from GREs that liquidity positions are in control, would send the right message across. Investors that draw immense riskiness from these factors will see their fears assuaged, inducing a fresh rally in the markets. Similarly, if developmental plans being carried out by governments accelerate and particularly in Kuwaits case, any actual implementation of the announced projects would bring about a sudden and positive shift in our outlook of the country. Proposed strategy: Play the dividend game If we were to somehow escape the list of risk factors affecting our valuation, KSA and Qatar should stand out as the best performing markets in the GCC in 2012. We would put more weight on KSA because of its size and its recent under-performance. While UAE offers the highest growth potential, especially after the poor performance in 2011 we believe that the country also has the highest probability to be bogged down by negative news. We continue to remain neutral on Kuwait due to limited growth prospects and lack of enticing investment opportunities.
Global Research Universe - Dividend Yield 2012e Kuwait KSA Banks 3.3% 5.4% Petrochem 3.8% Telecom 6.0% 6.1% CBM 5.0% Construction 2.8% Real Estate 0.7% L&A 0.0% Utilities 1.0% Source: Glob al Research, Bloomb erg Figures pertain to Glob al Research's coverage universe only
Qatar 5.7% 4.5% 3.3% 5.7% 4.9%
Oman 4.9% 7.7% 9.6% -
UAE 6.2% 0.0% 6.5% 0.0% 2.6% 0.0% 9.4% 9.5%
We believe that given highly uncertain times and expected market volatility, investors should stick to safe stocks (stocks with acceptable recommendations to curtail downside risk) that offer good dividend yield. We believe that a yield of over 4% (US 10-yr Treasury yield plus slight premium) should be perceived as attractive.
January 2012
Global Research GCC
Chart Gallery
Beta & PE
1.2 1.1
Qatar 25.0 22.0
High PE
LOW PE
8.0 7.2
1.0
Beta (x)
19.0
16.0 Oman Saudi Arabia 13.0
6.4
5.6 4.8
SOROUH UH
0.9
0.8 0.7 0.6 0.5 8.0 9.0 10.0 11.0 12.0 13.0 PE (x) UAE
Kuwait
MABANEE KK JAZEERA KK
YANSAB AB
High PBV
6.0 5.0 4.0
3.0 2.0 1.0
SAFCO AB
LOW PBV
0.6 0.5 0.4
0.3 0.2 0.1
Top ROAE Stocks

50.0%
44.0% 38.0%
32.0% 26.0%
20.0%
SAFCO AB
OIBB OM
SOROUH UH
QEWS QD
ALDAR UH
EMAAR UH
SACCO AB
RCCI OM
RJHI AB
EMIRATES UH
ARCCO AB
OTEL OM DHBK QD
OIBB OM
10.0
CBK KK
SECO AB
4.0
MARK QD
EEC AB
QEWS QD
JAZEERA KK
Top ROAA Stocks

50.0% 40.0%
30.0% 20.0%
High Div Yield Stocks

13.0% 12.0% 11.0%
10.0% 9.0% 8.0%
IQCD QD
YACCO AB
SACCO AB
QNCD QD
OTEL OM
10.0%
SAFCO AB
ARCCO AB
YANSAB AB
OCOI OM
EEC AB
7.0%
UNB UH AIRARABI UH
MABANEE KK
RCCI OM
YANSAB AB
DHBK QD
CBQK QD
SACCO AB
Source: Bloomberg & Global Research
January 2012
SAFCO AB
BURG KK
TAQA UH
OTEL OM
IQCD QD
RJHI AB
EEC AB
10
Global Research GCC
Global Research GCC Universe Top Picks

Stocks Sector Country Target Price (LC) 4.95 Upside Potential Key Factors
Union National Bank Banks
UAE
* The best choice when market sentiment rebounds 71% * Has potential to reduce CoF further to resist NIM shrinkage * Robust ROE and enticing multiples; trading below BV * Reducing its exposure to UAE by diversifying geographically 63% * Attractive P/E and P/BV ratios, lowest in GCC * Strong demand of RAKCEC products to be driven from EM * Robust earnings trajectory in a tough market 59% * Asset quality issues remain but are manageable * Increase in FOL will eventually generate positive results * Slow down in NPL formation expected
Ras Al Khaimah Ceramics Co.
CBM
UAE
2.32
First Gulf Bank
Banks
UAE
24.55
Abu Dhabi Commercial Bank
Banks
UAE
3.62
31% * Resumption of dividends after a lag of 2 years * Low trading multiples are not justified * Exceptionally well performing recuring income portfolio
Emaar Properties
Real Estate
UAE
3.25
29% * No short term financing bottlenecks * Revenues from international operations to continue in 2012 * Acquisition targets in Asia to raise the backlog further
Drake & Scull International Qatar Electricity & Water Company
Construction
UAE
1.00
28% * Active participation in KSA to bolster the contracts * Attractive trading multiples and dividend yield * Growing domestic capacities 27% * Actively seeking overseas opportunities * Good choice to take exposure in Utilities sector * International operations key growth driver 36% * Forex movement is critical to group income & valuation * Attractive EV/EBITDA multiple of 4.1x for 2012e * Sharp rebound in profits is on the cards 19% * Lower provisions & cleaner books to underpin performance * Lowest P/BV in Kuwait, 17% discount to Kuwait banking avg. * Focusing on a new strategy called STAMP
Utilities
Qatar
180.81
Qatar Telecom
Telecom
Qatar
197.17
Burgan Bank
Banks
Kuwait
0.55
Jazeera Airways Company
L&A
Kuwait
0.61
50% * Secured USD200mn financing 4 new aircrafts * Trading at a low P/E which makes it very attractive * Sound operations makes Wataniya a good telecom play 34% * Forex movement is critical to group income & valuation * Strong balance sheet, attractive price * Pure retail player with prime properties and exposure 14% * Visible revenues from recurring operations * Revenues & net income to double by 2013 * To benefit from high cement demand in the Western Region
National Mobile Telecommunications Telecom Company Mabanee Real Estate
Kuwait
2.59
Kuwait
0.98
Arabian Cement Co. Yanbu National Petrochemicals Company Etihad Etisalat Company
CBM
KSA
59.20
32% * Healthy growth in profitability and sales * Growth not yet priced in * Affliation with SABIC a key advantage
Petrochem
KSA
57.80
32% * Catering largely to Emerging Asian countries * Cheap on valuations considering the growth prospects * Launch of 4G to cement leadership in mobile broadband
Telecom
KSA
71.10
35% * Dividends set to grow * Trading at attractive multiples
January 2012
11
Global Research GCC
Macroeconomic Outlook
Oil
The year 2011 remained quite challenging for global commodities. Deepened global macroeconomic uncertainties, heightened risks surrounding the international financial system, sovereign debt crisis in the euro-zone, persistently high unemployment in the advanced economies, inflation risk in the emerging economies social unrest in many parts of the world and , natural disasters and ensuing nuclear catastrophe in Japan earlier last year led to excessive volatility in oil prices.
Oil Price (USD/Barrel)
120.0 110.0 100.0 90.0 80.0 70.0 60.0 50.0
2009
2010
2011
2007
2008
2012e
2013e
2014e
2015e
Source: Bloomberg Concensus Estimates
After posting gains of over 25% in 2010, the same trend continued and oil prices registered a further gain of 26.2% in 2011. For 2012, oil outlook is anything but clear, as macroeconomic, geopolitical and physical supply/demand fundamental factors all seem to point in different directions. We assume that volatility in oil prices will continue but average price in 2012 would maintain the same level as they were in 2011 as both the positive and negative factors will play their part.
Proven Reserves of Oil & Gas Country Oil (billion barrels) Saudi Arabia 264.5 UAE 97.8 Qatar 25.4 Kuwait 101.5 Oman 5.5 Bahrain 0.4 GCC 495.1 MENA World GCC as % of MENA GCC as % of World
Source: OPEC
Natural gas (bn cu m) 8,016.0 6,091.0 25,201.0 1,784.0 610.0 218.0 41,920.0 87,074.0 192,549.0 48.1% 21.8%
Crude Oil Production (tb pd) 2009 Saudi Arabia 8,051 UAE Qatar Kuwait Oman Bahrain 2,256 781 2,263 810 210 14,371
2016e
2010 8,284 2,304 801 2,297 860 200 14,746
2011 9,363 2,524 812 2,558 900 210 16,368
864.7 1,467.0 57.3% 33.7%
GCC
Factors which can drive the prices up include: Escalation of tensions in Iran. Tension arises within the militias in Libya and creates supply disruption. Political issues in South Sudan. China continues monetary relaxing which raises commodity demand.
January 2012
12
Global Research GCC
Factors which may weigh upon oil prices are: The likelihood of a European recession and the potential knock-on effects on the rest of the world could pressure crude oil prices. Security situation eases in Iraq leading to increase in oil production. Saudi Arabia increases its spare capacity to cover the shortcoming of other countries.
Lately there was news that crude production by the Organization of Petroleum Exporting Countries rose to the highest level in three years in December 2011, led by surging Libyan output. Production increased 162,000bpd, or 0.5%, to an average 30.6mbpd from a revised 30.5mbpd. Daily output by the 11 members with quotas, all except Iraq, climbed 167,000 barrels to 27.9mn, 3.1mn barrels above their former target. Libyan output also rose by 100,000 barrels to 700,000 a day last month, the highest level since the uprising. Saudi Arabia, OPECs biggest producer, increased output by 50,000 barrels to 9.6mbpd.
Gross Domestic Product

Despite the economic turmoil and slowdown worldwide, GCC region continued to fare better than other regional economies with an estimated nominal and real GDP growth of 24.3% and 6.9% in 2011, respectively. High oil price and increased production ensured continued healthy revenues in the oil-rich Gulf States. Apart from higher oil prices, the growth was ensued by robust incremental government spending worth over USD100bn in 2011. However, growth in 2012 is estimated to be lower both on the real and nominal front . A weaker global outlook will result in a more tough economic environment for the GCC and will present considerable downside risks to oil prices which are the core factor for nominal GDP growth. Expectations of supply disruption from Iran and Libya and anticipated boost to oil production from the GCC countries would help excel the real GDP of the region. But with oil prices expected to remain the same or lower in 2012, the nominal and real GDP would get a boost through increasing production output only. Hence, we estimate real GDP growth of 4.1% in 2012.
GCC Real GDP (USD bn) 900.0 800.0
700.0
8.0% 6.0%
4.0%
Country GDP Growth 2010 Bahrain 4.1% Kuwait Oman Qatar KSA UAE 3.4% 4.1% 16.6% 4.1% 3.2%
2011e 1.5% 5.7% 4.4% 18.7% 6.8% 3.3%
2012e 3.6% 4.5% 3.6% 6.0% 3.6% 3.8%
2013e 4.8% 5.1% 3.8% 4.3% 4.4% 4.0%
600.0 500.0
400.0
2.0% 0.0%
-2.0%
2008
2009
2010
2005
2006
2007
2014e
2015e
GCC Real GDP
Growth
Source: IMF
Government spending on the other hand is also likely to increase further, which will ensure that the Gulf economies grow strongly in the near term. However, unrest in Bahrain, and to a much lesser degree in Saudi Arabia, Kuwait & Oman, have focused the minds of GCC leaders on their internal matters which will limit the availability of funds required for economic momentum. Within GCC, we expect Saudi Arabias real GDP growth to be roughly 3.6% in 2012 from 6.8% in 2011 as increased production and large fiscal stimulus boosted activity while next years slowdown is largely explained by expectations of low growth in output to cover up shortcomings from Libya and Iran. UAEs real GDP on the other hand grew by 3.3% in 2011, largely due to increase in oil and gas production. However, 2012 real GDP growth is estimated at 3.8%. Recovery in Dubais trade and service economy, earlier signs of real estate stability and increase oil and gas output would be instrumental for the growth.
January 2012 13
2016e
2011e
2012e
2013e
Global Research GCC
Oil & Non Oil GDP Growth 15.0%
10.0%
5.0%
0.0%
-5.0% -10.0% 2006 2007 2008 2009 2010 2011e
Non Oil
Source: IMF
Oil
Qatars real GDP which is estimated to have grown by 18.7% in 2011, is expected to witness the most slowdown as most of the hydrocarbons production and LNG mega trains have come on stream and very less are in the pipeline. The growth is estimated to be 6.0% in 2012 largely driven by developments in the non-hydrocarbons sector. Kuwait outlook is no different than its regional peers. IMF estimates real GDP growth of 4.5% in 2012 as compared to 5.7% in 2011.
Budgets
Robust growth in oil prices boosted the fiscal and current account surplus of GCC in past years. With oil price averaging roughly at USD100/bbl in 2011, GCC region is estimated to post budget surplus of USD183bn in 201112. While for 2012-13, with oil price estimated to remain at roughly the same levels; we see decline in surplus as the region has embarked upon various spending drives.
GCC Budget Surplus
250.0 200.0
Country Performance
100.0 80.0
(USD bn)
150.0 100.0 50.0
(USD bn)
60.0
40.0 20.0
2007-08
2008-09
2010-11
2009-10
2011-12e
2014-15e
2012-13e
2013-14e
2015-16e
2016-17e
Saudi Arabia UAE Qatar Kuwait 2012-13e Oman Bahrain
2011-12e Source: IMF & Glob al Research
Source: IMF & Glob al Research
With overall expectation of USD179bn budget surplus to be reported by the GCC in 2012-13, we expect Saudi Arabia to be the lead contributor to the total at USD79.8bn (45% of the total) followed by Kuwait at USD57.7bn (32.2% of the total). Saudi Arabia, rolled out the new National Budget Plan for 2012 with expenditures of SAR690bn (USD184bn). Expenditures will focus on education, healthcare, water & sewage services and transportation. Projects worth SAR168bn (USD45bn) in education sector, SAR86.5bn (USD23.1bn) in healthcare, SAR35.2bn (USD9.4bn) in transportation include building of 742 new schools, 17 new hospitals, roads totaling 4,200km and expansion of six existing airports to name a few. These new initiatives along with earlier plans would definitely scale the demand of cement higher in the country.
January 2012
14
Global Research GCC
Kuwait revenue is 68% lesser than that of Saudi Arabia but its surplus is 75% of the surplus of Saudi Arabia which is mostly because the Kuwaiti government has generally saved its oil revenues. Kuwaits spending has mainly been on public sector salaries and subsidies rather than public investment. With the exception of Bahrain, the economic prospects for the other oil-rich Gulf States are strong in the next two to three years. In Qatar, government spending and investment was complemented by a relaxation of foreign ownership laws in the past year. However, double-digit growth rates are unlikely to be sustained but the country would continue to make handsome surplus on the back of its increased gas production levels.
Breakeven Oil Price Country Saudi Arabia UAE Qatar Kuwait Oman Bahrain
Source: Reuters Poll
GCC Long Term Ratings (2011) Oil (USD/Barrel) 84.5 80.0 46.0 67.5 75.0 107.5 Saudi Arabia UAE Qatar Kuwait Oman Bahrain S&P AAN/R AA AA A BBB Moodys Aa3 Aa2 Aa2 Aa2 A1 Baa1 Fitch AAN/R N/R AA N/R BBB
Source: Respective Rating Agencies
Oman, which has already been affected by social unrest to some degree, will benefit from a 20% increase in government spending in the near term. The country is expected to make roughly USD3bn in surplus in 2011-12 and 5% lesser in 2012-13. In Bahrain, political conditions have improved since the uprising in first quarter of 2011. The countrys financial sector which accounts for 25% of GDP was hit hard and saw various banking and investment giants pulling their operations out of the country. We anticipate Bahrains nominal GDP to grow by 3.5% in 2012 and expect it to report a budget deficit as the country is expected to face tough competition from its more-stable neighbors for financial services and tourism business.
Projects Market
GCC projects thrived and projects continued to pour in until 2008 when the subprime crisis emerged followed by economic slowdown; ever since the region witnessed a continuous deterioration in the projects value. At the end of December 2011, there are roughly USD1.8tn worth of projects of which USD0.43tn are on hold or cancelled. Saudi Arabia remains at the top with active projects worth USD584bn planned for the coming 7-8years. Even after significant number of projects going on hold or getting cancelled UAE projects market remained second at USD303bn. Qatar stands third with active projects worth USD191bn and Kuwait with USD162bn.
GCC Project Markets (USD bn)
3,000
GCC Project (USD bn) - Country Wise - 2011

750
Projects on Hold Active Projects
2,400
1,800
600 450
1,200
600
300 150 0
Kuwait
Oman
Bahrain
Qatar
KSA
2005
2006
2007
2008
2009
2010
Source: MEED
Amongst all the projects, the 100 largest projects currently underway in the GCC total more than USD1.2tn. The main downtrend in value across all countries was seen within real estate developments. This year real estate projects have a combined value of USD601bn, accounting for almost one third of the total planned projects.
January 2012 15
2011
UAE
Global Research GCC
In 2011, USD150bn worth of new projects were announced and contracts worth USD111bn were signed. Fourth quarter of 2011 alone witnessed projects worth USD46bn been assigned. The new projects which came up were mostly in hydrocarbons sector at USD60bn followed by USD42bn in social infrastructures and USD25bn in real estate.
TOP 10 Largest Project in GCC Project Name King Abdullah Economic City Capital District Sudair Industrial City Al Reem Island Yas Island Development Lusail Mixed Use Development Qatar Integrated Rail Project Jizan Economic City Saadiyat Island Kingdom City Sourse: MEED Contracts Signed Budget (USD bn) 93.0 40.0 40.0 37.0 37.0 33.0 28.8 27.0 27.0 26.6 30 25
(USD bn)
20 15 10 5 1Q-07 2Q-07 3Q-07 4Q-07 Avg . 2007 1Q-08 2Q-08 3Q-08 4Q-08 Avg . 2008 1Q-09 2Q-09 3Q-09 4Q-09 Avg . 2009 1Q-10 2Q-10 3Q-10 4Q-10 Avg . 2010 1Q-11 2Q-11 3Q-11 4Q-11 Avg . 2011
In the medium term we expect the recent development plan approved by Kuwait worth USD105bn (2011-14), Saudi Arabia budgeted spending for 2012-13 at US184bn, Oman economic plan of USD77.9bn (2011-15) and Qatar estimated spending of over USD75bn post its successful World Cup bid win for 2022, will swarm the market with a multitude of projects.
Money Supply
Rising oil prices lead to an improvement in overall liquidity in the system. This improved the aggregate GCC money supply (M2), reporting an augmentation of 3.2%YoY. Excluding Bahrain, all the countries reported a single digit growth in 2011.
GCC M2 Growth
20.0%
M2 Growth Country Wise - 2012e

20.0%
16.0%
12.0% 8.0%
16.0%
12.0% 8.0%
4.0%
0.0%
4.0%
0.0%
2008
2009
2010
2011e
2012e
Kuwait
Oman
Qatar
KSA
UAE
Source: Respective Central Bank & Global Research
We estimate an overall 10% growth in M2 in 2012 on the back of huge government spending worth billions inspite of our neutral outlook on oil price. Within GCC we see Qatar and Saudi Arabia to grow the most at 17.0% and 12.0% respectively. Also, in all GCC countries, credit extension is expected to improve by 23% in 2012, which should provide an additional positive boost to domestic demand. Loan growth will be particularly strong in Qatar and Saudi Arabia by 18% and 12%, respectively.
January 2012 16
Global Research GCC
Market Performance
GCC markets in 2011 succumbed to global and regional pressures. Political unrest that swept across the Middle East had its ripple effects echoing in several countries. For the year 2011, all GCC markets ended on a lower note, barring the Qatari market that managed to inch marginally higher, adding 1.12% in annual gains. On the negative side, Bahrain Bourse posted the steepest decline amongst its GCC peers, down by 20.15% for the year. All sectoral indices ended the year 2011 on a negative note, with only a handful of stocks closing with gains. In Kuwait, Global General Index ended with a 19.78%YoY decline, with all sectoral indices ending the year on a negative note. Investors sentiments were boosted by actions taken both on the domestic as well as the regional levels. During the period, GCC approved a USD20bn economic aid package for Bahrain and Oman, in an effort to support the two member-states that were hit by a wave of political unrest. Meanwhile in Saudi Arabia, King Abdullah ordered unprecedented economic benefits worth around USD93bn.
Bahrain Corporate Earnings (USD mn) 1,000
500
Kuwait Corporate Earnings (USD mn) 6,000 4,000

2,000
(500)
(1,000)
(1,500)
(2,000)
4Q09
1Q10
2Q10
3Q10
3Q11
4Q09
1Q10
2Q10
2Q11 2Q11 2Q11
Oman Corporate Earnings (USD mn)

500
Qatar Corporate Earnings (USD mn)

5,000
400
300
4,000
3,000
200 100 -
2,000 1,000 -
2Q09
3Q09
2Q10
3Q10
4Q10
3Q11
3Q09
4Q09
1Q10
Saudi Arabia Corporate Earnings (USD mn)

9,000 7,500 6,000 4,500 3,000 1,500 -
UAE Corporate Earnings (USD mn)

6,000 4,500 3,000 1,500 (1,500) (3,000)
3Q09
4Q09
1Q10
2Q10
3Q11
4Q09
1Q10
2Q10
Source: Zawya
During the period, investors especially in Qatar & UAE had their attention geared twice towards MSCIs decision regarding the upgrade of both bourses from frontier to emerging markets status. On June 21 and December 15, MSCI, decided to postpone it to its next review, citing the need for more time for market-participant feedback on new trading rules and systems. Corporate earnings also failed to entice investor sentiment, which took into
January 2012 17
3Q11
2Q09
3Q10
4Q10
1Q11
2Q11
2Q09
3Q09
3Q10
4Q10
1Q11
3Q11
4Q09
1Q10
1Q11
2Q11
2Q09
2Q10
3Q10
4Q10
1Q11
3Q11
2Q09
3Q09
4Q10
1Q11
2Q11
2Q09
3Q09
3Q10
4Q10
1Q11
Global Research GCC
consideration a more broader view by looking at imported international events. News of default and bailouts in European countries shook investors confidence in equity markets several times during the year.
GCC Market Capitalization to GDP Ratio 200%
150% 100%
50% 0%
2007 2008 2009 2010 2011
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
United Arab Emirates
Source: Respective Country Stock Exchange Websites
Some of the positives for 2012 would be the opening up of Saudi Arabia for further foreign investment, MSCI reviews of UAE & Qatar and earnings surprises. Saudi Arabia is pressing ahead with a long-awaited plan to open up its stock market to foreigners and is expected to formalize its rules by January 15, 2012. The country has been considering a wider opening of its market for several years and recently, news emerged that it plans to offer limited direct foreign ownership. Foreign investors currently are allowed to invest in Saudi Arabian companies only by share swap transactions via international investment banks, who deal with local partners. IPO Activity in GCC Given the macro-economic backdrop, IPO activity remained largely subdued with fund raising falling to its lowest degree of activity in the last ten years. MENA capital markets raised USD843.9mn in 2011 as compared to USD2.8bn in 2010, a decline of 69.3%. The year is closing with IPO funds worth USD226.1mn being raised in the fourth quarter, a decline of 83.5% from USD1.4bn raised in Q4 2010.
Middle East and Africa IPOs by year
200.0 25
Mena Sukuk Issues

12,000 10,000
160.0
120.0 80.0
20
15 10
8,000 6,000 4,000 2,000 1Q10 3Q10 1Q11 3Q11

4Q09 2Q10 4Q10 2Q11
40.0
-
5
0
2004
2005
2006
2007
2008
2009
2010
2011
Capital Raised (USD bn) Source: E&Y
Number of Deals
Source: Zawya
Saudi Arabia led the GCC in 2011, raising USD460.5mn through IPOs, followed by the UAE with USD271.3mn and Oman with USD63.9mn. Morocco, Tunisia, Jordan and Syria were the only other MENA countries with IPO activity in 2011. The largest IPO of 2011 in MENA was UAEs Eshraq Properties Company (USD229.1mn) followed by Saudi Arabias Hail Cement Company (USD130.5mn) and the United Electronic Company (USD105.6mn).
January 2012
4Q11e
18
Global Research GCC
Regional Sectors vs Respective Country Indices 2011 KSA Return O/perform. Media & Publish 49.6% 52.7% Cement 37.2% 40.2% Retail 31.5% 34.5% Hotel & Tourism 22.5% 25.6% Multi Investment 20.0% 23.1% Ind Investment 8.7% 11.7% Insurance 6.6% 9.7% Agr & Food Ind 2.7% 5.8% Real Estate Dev -1.6% 1.4% Building & Construction -2.0% 1.1% Energy & Utilities -2.1% 1.0% Qatar Banking 8.1% 6.6%
Petrochem Industries Transport Banks & Fin Services Tel & Info Tech
2011 Return -4.0% -9.6% -12.8% -13.3%
U/perform. -1.0% -6.5% -9.8% -10.2%
Industry Insurance Service Industrial Banking Industries Investment
0.1% -6.8% -8.7% -19.0% -23.4% -25.6% -28.8%
-1.4% -8.3% -10.2% -3.0% -7.5% -5.6% -8.7%
Oman Service Bahrain Insurance Banking Hotel & Tourism Services Kuwait Insurance Banking Food Services Real Est. Dubai Telecoms Cons Staples Banks Insurance Abu Dhabi Banks Insurance Services
-5.5%
10.5%
-3.7% -9.9% -10.9% -17.9% -4.0% -5.5% -7.3% -13.8% -13.8% 1.4% 0.0% -2.4% -15.7%
16.4% 10.1% 9.2% 2.1% 12.9% 11.4% 9.6% 3.1% 3.1% 18.8% 17.4% 15.0% 1.7%
Industrial Investment Foreign
-20.8% -26.9% -29.1%
-3.9% -10.0% -12.2%
Transport Real Estate & Cons. Inv & Fin Services Industrials Services Telecoms Consumer Staples Energy Industrial Real Estate
-22.5% -23.7% -35.9% -40.9% -70.4% -16.0% -25.9% -26.5% -36.8% -57.6%
-5.1% -6.2% -18.5% -23.5% -52.9% -3.0% -12.9% -13.5% -23.8% -44.6%
-2.0% -7.4% -10.2%
11.0% 5.6% 2.9%
Source: Reuters
January 2012
19
Global Research GCC
Global Outlook; Still Hazy

Stepping into an uncertain year 2012 promises to be an uncertain year with many political and economic challenges looming over the horizon. The European sovereign debt crisis remains unresolved while the Arab Spring continues with social unrest in Syria and further protests in Egypt. Meanwhile, new sanctions on Iran and subsequent military drills by the Iranian Navy in the Strait of Hormuz has increased the risk of a stand-off between the US and Iran which could severely disrupt oil supplies. The transition of power in North Korea has also increased geo-political risk with lack of clarity over the direction this isolated country will take. In addition, US has also entered the election year with the economy on the forefront of election campaigns. The Democrats and the Republicans have divergent views on measures to cut down on deficit which is adding to uncertainty. European sovereign debt crisis extends into 2012 The new year will likely see Europe suffer from the hangover of the 2011 sovereign debt crisis. The 1H12 is crucial as major repayments come up. Around USD203bn in debt will mature in the 17 member Euro-Area in the first three months, according to UBS AG. What happens in Italy is particularly important as it is the third largest economy in the region and accounts for around a third of the total debt repayments due in 1Q12 equivalent to USD68bn. Anything above a 7.0% yield is seen as a dangerous level which could push Italy into a crisis. All eyes will be on the issuance of debt by European countries in January to gauge whether the crisis is subsiding. Meanwhile, Angela Merkel, the German Chancellor re-iterated Germanys willingness to take the Euro-zone out of the crisis in her New Year address. Europe on the verge of recession Europe is on the verge of recession as manufacturing output declined in the Euro-zone in December for a fifth consecutive month. The sharpest fall was seen in the Southern European economies of Italy, Greece and Spain which have been at the forefront of the debt crisis. 2011 saw technocrats replacing long standing politicians in Greece and Italy which gave some hope to markets regarding the implementation of austerity measures. However, these changes failed to bring down borrowing costs significantly for Italy; a pattern which is raising concerns. The sovereign debt crisis is threatening to slow down the world economic growth as it is one of the largest economic blocs. MENA countries are not immune to the sovereign debt crisis due to, inter alia, its impact on oil prices, capital flows and tourism. Any worsening of the sovereign crisis will cast a shadow on capital markets as was witnessed in 2011. Euro on the decline The effect of the sovereign debt crisis was reflected in the Euro-USD exchange rate. The Euro has depreciated by 12.6% against the USD since it reached a peak of 1.48 in May 2011 as concerns prevailed over the ability of the Euro-zone to deal with the sovereign debt crisis. For the whole year Euro depreciated by 3.0% against the USD.
EUR/USD Exchange Rate 1.50 1.45 1.40 1.35 1.30
1.25
May-11
Nov-11
Jan-11
Jun-11
Feb-11
Mar-11
Jul-11
Oct-11
Apr-11
1.20
Source: Bloomberg
January 2012
Dec-11
Aug-11
Sep-11
Aug-11
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Global Research GCC
Modest growth seen for US in 2012 The US economy seems to be trudging along despite strong headwinds from the Euro-zone crisis and overhang of high debt and deficit. The start of the election year in US was greeted by positive economic news with ISM manufacturing index increasing to 53.9 in December compared to 52.7 in November. US housing starts also increased 9.3% in November to a 19-month high. Meanwhile, unemployment declined to 8.5% in December 2011 after staying above 9.0% for a large part of 2011. The IMF now estimates US economy to grow by 1.8% in 2012. 2011 saw the political system going to brinkmanship in dealing with the debt ceiling issue. The political paralysis was also one of the reasons for US debt rating downgrade by S&P. The super committee which was formed to deal with deficit reduction measures of atleast USD1.2trn failed to come up with an agreement. Now there will be automatic across-the-board cuts beginning in 2013 unless a bipartisan deal is reached or the act is amended. Surprise cut in bank reserve requirement in China a positive sign Chinas CPI declined to 4.2% in November, which is a 14 month low, allaying fears of a hard landing. The Chinese Central Bank increased the banks reserve requirement ratio six times and the interest rates three times in 2011 to curb inflation. However, in a surprising move the Central Bank cut the reserve requirement ratio in December indicating that the policy makers have turned their focus back on growth in view of the expected slowdown in Eurozone and other advanced economies. According to IMF, Chinese economy is expected to grow at 9.0% in 2012 compared to an expected 9.5% in 2011. Besides being the global economic growth engine, growth in China is important for GCC countries in particular as China is expected to account for 50.0% of oil demand growth in 2012. China is also a major trading partner of GCC countries in addition to being a major market for petrochemical products.
Index Change - 2011 10.0%
2.0%
-6.0% -14.0%
-22.0%
Singapore - Straits Time
Japan - Nikkei 225
Honk Kong - Hang Seng
England - FTSE 100
Germany - DAX
US DJ Average
India - BSE
France - CAC 40
Source: Reuters
International capital market performance US capital markets were the best performing among the major stock exchanges. DJ Average increased by 5.5% in 2011 while S&P stayed flat. Emerging markets witnessed the steepest fall as capital flowed out in the backdrop of the political upheavals in the Middle East and sovereign debt crisis in Europe. The Indian market ended the year 24.6% down while the Chinese market ended the year with a decline of 23.1%. Meanwhile, the European markets also witnessed sharp drops, particularly in 2H11 as the European sovereign debt crisis intensified. Measures taken by the European Union to stabilize the crisis was met with rise in government bond yields in the Southern European economies reflecting the market perception of the effectiveness of the measures. Fears of contagion and liquidity crunch had a major impact on the European equity markets. Even Germany saw its index plummeting by 14.7% as it played the leading role to tame the debt crisis around its borders.
January 2012
China - SSE180
Russia - IRTS
-30.0%
Brazil - BVSP
US - S&P500
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Global Research GCC
SECTOR OUTLOOK
January 2012
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Global Research GCC
Banking Sector
Investment Thesis 2012 should see acceleration in top-line growth for GCC banks, healthy profit growth KSA upgraded to POSITIVE on cheap valuations, low risk Qatari story is still ripe, buy on dips Qatar and KSA spending spree augers well for their banking sectors We retain our neutral stance on Kuwait, UAE offers good opportunities but at considerable risk Key Risk to Valuation Slow down in world economies, negatively impacting GCC economies and spending programs Unaccounted for corporate defaults, inability of GREs to service debt specifically in UAE Exposure to construction & real estate and contraction in government spending Unexpected changes in magnitude of interest rates the direction or
Market sentiment goes for a toss
UAE & Qatar banking indices outperform country index in 2011 The direction which banking indices within the GCC took was close to our expectations in the case of Qatar and UAE (as against Strategy Report Jan-11). These banking sectors, over which we had a bullish stance outperformed the general index.
Market Returns of Banking Sector in 2011
Kuwait UAE* KSA Oman Qatar
Banking Index Country Index Relative Performance

Source: Reuters * denoted by ADX
-5.5% -16.9% 11.4%
-2.0% -13.0% 11.0%
-12.8% -3.1% -9.7%
-23.4% -15.9% -7.5%
8.1% 1.5% 6.6%
Kuwait and KSA turned out to be surprises, the former offering a positive one while the latter offering a negative one. KSA witnessed the worst relative performance within the GCC while our previous stance was neutral to positive. Kuwait banking sector on the other hand, outperformed the index while we had a neutral stance on it. Oman was the worst performer amongst regional banking indices in absolute performance while Qatar was the best performer. What we expected for 2011 and what we expect now Profits for the GCC banking sector (banks under coverage) are anticipated to roughly meet our previous (Strategy Report Jan-11) expectations of 21%YoY growth (revised 19%YoY) for 2011. Expectations for individual countries have however undergone drastic revision with that of Oman, Kuwait and KSA being reduced and that of UAE and Qatar reviewed upwards.
Changes in assumptions since previous strategy
NII Profit Loans Deposits 2011p 2011r 2012p 2012r 2011p 2011r 2012p 2012r 2011p 2011r 2012p 2012r 2011p 2011r 2012p 2012r Oman 7% 11% 10% 13% 21% 3% 22% 28% 9% 17% 10% 8% 15% 25% 12% 9% Qatar 14% 14% 17% 17% 13% 24% 17% 14% 22% 27% 19% 18% 22% 22% 18% 17% UAE 7% 15% 14% 5% 33% 36% 38% -11% 9% 7% 13% 5% 10% 1% 14% 5% Kuwait 5% 0% 15% 5% 10% -1% 44% 27% 9% 3% 13% 5% 9% 8% 14% 5% KSA 8% -1% 16% 10% 20% 15% 24% 15% 11% 11% 14% 12% 9% 10% 13% 12% GCC 8% 7% 15% 9% 21% 19% 28% 10% 11% 11% 14% 10% 11% 9% 14% 10%
Source: Global Research p = previous expectations as of Strategy Report in Jan 2011, r = revised expectations
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Oman: Lowered our profit forecast for 2011 drastically on expectations of much higher provisions. We previously forecast a 12%YoY decline in provisions but now expect an 81%YoY increase. This comes despite a heavy upward revision in NII and non-interest income forecast. Qatar: Increased our profit forecast for 2011 significantly on higher than previously anticipated non-interest income. This comes despite increasing our forecast on provisions from expecting a decline of 27% to a rise of 18%. UAE: Increased our profit forecast for 2011 slightly due to higher than anticipated one-off gains made by ENBD and inclusion of extraordinary gains made by ADCB. Excluding the impact of both, profit growth expectations were actually reduced to 20 24% (against previous forecast of 33%). This comes due to a major downward shift in our growth forecast for non-interest income and a rise in provisions against previous expectations of a decline offset to some extent by an increase in forecast for NII. Kuwait: The only country we see exhibiting a drop in profits; we have lowered our forecast due to a downward revision in our growth outlook for NII and an upward revision in provisions. KSA: Decreased our profit forecast for 2011 slightly due to downward revision in forecast for NII which more than offset the upward revision in non-interest income. Our predictions for the banking sector in 2012 GCC banking sector will see its profits rising by 10%YoY (16%YoY if adjusted for one-offs booked by UAE) in 2012. Net interest income (NII) will not just improve but pick up pace against 2011, driven by healthy rise in loans and flattened spreads; deposit growth will match that of loans and will be similar to that of 2011. We expect the excessive liquidity position to hold during 2012, due to limited acceptable-risk lending opportunities with the net loans to deposits ratio at 92%, slightly lower than in 2011. Non-interest income will slow down over 2011 but will still exhibit single digit growth, driven mostly by a rise in fee and commission income. We see an addition of USD2.9bn to NPLs of GCC banks, with the NPL ratio touching peak of 5.0% in 2012. Addition of USD4.8bn in provisions during the year, down by 13%YoY, will push the NPL coverage ratio to 84.9%, up by 860bps. We see the cost of risk sliding further south to 85bps from 101 in 2011. All banking sectors with the exception of Qatar (where NPLs are already low), are expected to witness a decline in provisions. We believe that GCC banks will project an average ROE of around 16.4% in 2012, somewhat higher than what they achieved in 2011 (15.4% post one-off adjustment). Overall we see 2012 and 2013 as the base years in which GCC banks will achieve required consolidation for a take-off possibly in 2014.
Key Performance Indicators - 2012e
NII Oman Qatar UAE** Kuwait KSA GCC** YoY 13% 17% 5% 5% 10% 9% CAGR 14% 14% 8% 7% 14% 11% Profit YoY CAGR 28% 20% 14% 16% 12% 24% 27% 23% 15% 18% 16% 19% Loans YoY CAGR 8% 12% 18% 18% 5% 8% 5% 6% 12% 13% 10% 11% Deposits YoY CAGR 9% 11% 17% 16% 5% 8% 5% 6% 12% 12% 10% 11% Cost of Risk bps 43 37 142 104 50 85
Source: Global Research * 2011 - 2014 CAGR, Cost of risk = provision expense/Avg. gross loans ** Profit figures adjusted for one-off gains in 2011
Prediction: Oman & Kuwait will see the highest growth in profits, UAE the lowest On a regional basis we see highest profitability growth coming from Oman and Kuwait, clearly outpacing the GCC average.
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Omans banking profits are expected to jump 28%YoY in 2012: We see an acceleration in the top-line, up 13%YoY driven by an 8%YoY rise in loans and 35bps rise in spreads. We believe that benchmark interest rates in Oman will rise slightly, leading to improvement in the yields on assets. The effect of such on the cost of funds will, in the worst case be muted due to continuation of excessive liquidity in the system, giving the bank continued room to replace high-cost deposits with low cost ones. A 37%YoY drop in provisions will be a important contributor to bottom-line growth during 2012, however overshadowed by improvement in operating performance. We believe that new NPL formation will decelerate considerably, almost to a halt and NPL ratio which peaked in 2010, to shed off another 26bps during the year. Oman is projected to bear a cost of risk of 43bps, which will add considerably to the NPL coverage. We believe that Omani banks will post a collective average ROE of 15.5% Kuwaits profits are forecast to outperform most regional peers with a growth of 27%YoY: Unlike Oman, profit growth will not be led by operating performance. Top-line will grow by 5%YoY on stable spreads and dismal volumes. Loans growth will remain sluggish on limited lending opportunities and absence of any economic catalyst. Banks will mobilize just enough deposits to meet loan disbursement and keep their liquidity position largely intact. We do not see any major shift in benchmark interest rates during the year, first on account of absence of any trigger from the US and secondly due to absence of fear for rising inflation. We also do not see benchmark rates dropping any further, on grounds that they seem to have touched bottom; they are currently the lowest in at least t he past 6 years. Given the outlook for interest rates and ruling out any major shift in asset or liability make-up, we see no reason why spreads should change. Kuwaits bottom-line growth is expected to be generated largely by a 34%YoY drop in provisions. NPL formation is expected to be slow with the countrys banking sector believed to touch peak in 2011. However, with one of the lowest asset quality in GCC and a low coverage, we believe that overall provisions will be high despite the YoY drop; with the cost of risk at 104bps, an addition of 11.9% to the coverage ratio is expected for 2012. We see Kuwaiti banks posting a collective average ROE of 12.5%, one of the lowest in the region. Similar to 2011, KSA is projected to post a profit growth of 15%YoY: KSAs bottom-line is expected to be driven by improving operating performance with the top-line contributing the most with a 10%YoY surge. Net interest income is forecast to be driven by volumes (loans growth predicted to rise by 12%YoY) while spreads are seen to erode by 8bps due to shrinkage in interest earning yield and a rise in cost of funds. Post a massive decline in 2011, provisions are seen to slide by a further 5%YoY, impacting the bottom-line marginally. NPL formation should slow down considerably, rising by just 8%YoY, though NPL ratio will decline by 11bps from 2011 and NPL coverage will see an addition of 7%, reaching 126%. We see KSA banks posting a collective average ROE of 18.6%, one of the highest in the region and an improvement over the previous year. Qatar is projected to record a 14%YoY rise in earnings: Qatars NII is forecast to exhibit the strongest growth (17%YoY) within the GCC banking sector, propelling the bottom-line forward. The growth in the top-line will come from an 18%YoY rise in loans, widely outpacing other GCC countries. However, spreads will shrink by around 20bps, coming under pressure as banks mobilize deposits aggressively to cater to loan demand. Resultantly, we believe that cost of funds will outpace yield on assets leading to an erosion in spreads. Qatars non-interest income is also anticipated to add to banking income, driven by a massive 28%YoY rise in fee & commission income. Unlike other countries in the GCC, Qatars provision expense will rise; amounting to 13%YoY as per our projections. NPLs will rise by a massive 24%YoY, however NPL ratio will inch up by just 8bps, still remaining one of the lowest within the region. We see Qatari banks recording collective average ROE of 20.0%, one of the highest in the region thought lower than the previous year.
January 2012
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Global Research GCC
UAEs adjusted profits to pick up pace in 2012, to grow by 12%YoY: UAEs banking profits will decline by 11%YoY on un-adjusted basis due to one-off gains made by ENBD and ADCB in 2011 but jump by 12%YoY on adjusted basis. Top-line growth will be sluggish, growing by 5%YoY mimicking loans growth expectations of 5%YoY while spreads remain relatively unchanged from levels seen in the previous year. Non-interest income is not expected to fare any better with fee and commission income which is the main contributor, increasing by just 2%YoY due to the new retail regulations from the CBUAE. Decline in provisions, will therefore be the next largest contributor to income after NII; we see provision expense decline by just 7%YoY. We believe that NPLs ratio will touch peak (addition of 66bps to reach 8.8%) during the year, with NPLs rising by 14%YoY (addition of AED7.7bn); a considerable slow-down from the previous years. The rise in NPLs will be fueled largely by recognition of exposure to Dubai Group, amalgamation of Dubai Bank into ENBD and possibly Al Jaber Group. Challenges and Opportunities Qatar: Positive; the story of an amazing-growth-story is still ripe We continue to stand by our bullish stance on Qatar where the amazing-growth-story story still has not become stale. Albeit slightly expensive on relative valuation, Qatars burgeoning economy will trickle down quite favorably to its banking sector. Qatari banks are still expected to exhibit one of the strongest loans disbursement in the GCC especially as the major spending on FIFA World Cup inches closer. The pitch of heavy infrastructure spending driving banking volumes and profits, therefore still holds true and that comes on the back of a very dedicated government. The Qatari banking sector is expected to draw attention once again by posting the strongest top-line growth amongst GCC banks, as per our forecast and above average profit growth figures. Despite witnessing a rise in NPLs and consequently provisions in 2012, the Qatari banking sector should remain impervious. Valuations at current levels look rich, though a buying opportunity if created on dips, should be exploited. KSA: Upgraded to Positive; strong growth potential, cheap valuation multiples & low risk We have upgraded our previous stance of neutral to positive to positive on KSA on a plethora of reasons including improved lending opportunities and greater visibility on mega-infrastructure development projects. This is expected to resuscitate the flat-lining top-line and hold the basis of fresh investor interest into the sector. KSA banking is not anticipated to suffer from any new asset quality issues, with the repercussions of Saad & Algosaibi completely dealt with in the previous years and in fact portraying a 42% decline in provisions in 2011. Despite good news coming in, the KSA banking index dropped 13% during 2011, making banking stocks look extremely enticing; KSAs banking sector which was once expensive, is currently one of the cheapest amongst its GCC counterparts, second only to UAE in terms of relative valuation yet offers a low-risk proposition.
P/BV vs ROAE
24.0%
P/E vs g (3-yr Earnings CAGR)

24% UAE Oman
GCC KSA Qatar
22.0%
2012e ROAE
22%
Kuwait
20.0% 18.0% 16.0% 14.0% 12.0% UAE Kuwait Oman
Qatar KSA
GCC
3-yr CAGR
20% 18% 16%
14%
12%
10.0%
0.5 1.0 1.5 2.0 2.5
10%
5.0 7.5 10.0 2012e P/E 12.5 15.0
2012e P/BV
Source: Bloomberg & Global Research
January 2012
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Global Research GCC
UAE: Selectively Positive; high risk play comes with high potential rewards The UAE banking sector should feel another tough year in 2012 especially since asset quality woes for the country are still not over. With massive maturities coming up for GREs in 2012, we keep our fingers crossed despite assurance from the government. Moreover, the matter of the restructuring of Dubai Group is still to see closure which may very well drag on till the mid of the year. With little visibility on operating conditions it is difficult to rule out the occurrence of other corporate defaults and restructurings. NPL ratio for UAE banking sector is still expected to touch peak, despite having the highest NPL ratio amongst its peers and that assumption is drawn from guidance received from leading banks in the UAE themselves. That said, UAE banking sector is still robust and safe with a collective CAR of over 20%. It is also very capable of handling any new NPL formation, provide adequately for the same and still show a decent set of profits. Moreover, it is the still the cheapest within the GCC peer group, as per relative valuations and individual banks offer sizeable returns that are just too attractive to miss; it goes without saying that we prefer Abu Dhabi banks over Dubai ones. Oman: Upgraded to Neutral to positive, good story wrong price paradox We have upgraded our stance on Oman from neutral to neutral to positive on enhanced earnings outlook and improved asset quality expectations. We see the Omani banking sector posting the highest growth in profits in 2012 and a CAGR of 20% over 2011 2014. The Omani banking sector is expected to gain massively from government spending measures and other infrastructure expenditure over the next few years which amounts to over USD100bn. Omani banks have also successfully dealt with their asset quality issues with NPLs ratio expected to improve drastically in 2012 and provisions projected to fall amidst double digit loans disbursement. Despite several positives, including the fact that the Omani banking index has declined by 23% in 2011, we believe that Omani banks are still expensive and offer little potential upside at current levels. We recommend entry into selective stocks when banking stocks see further weakness.
ROE (%) & P/BV (x) - 2012e
35%
33% 30% 28% 25%
RJHI AB
Return on Equity
23% 20% 18% 15% 13% 10% 8% 5%

0.0 0.5 1.0 1.5 P/BV 2.0 ABOB OM
DHBK QD QNBK QD
BSFR AB FGB UH
UNB UH SAMBA AB NBAD UH
CBQK QD
SABB AB
NBOB OM
ARNB AB AAAL AB BKMB OM
QIBK QD NBK KK
BURG KK RIBL AB
ADCB UH
KFIN KK CBK KK
EMIRATES UH
2.5
3.0
3.5
Source: Glob al Research
Kuwait: Neutral, no change in status quo We maintain our neutral stance on Kuwait since we are still to see the deployment of the much needed major infrastructure projects defined under the Developmental Plan amounting to over USD105bn. While plans remain on paper, we remain skeptical on firstly, the actual implementation of the spending and then the timeline under which these projects will see conclusion. Albeit, we expect Kuwaiti banking sector to post a 27%YoY rise in profits in 2012, that comes as an eventuality of a decline in provisions rather than an improvement in the core banking performance. We reiterate our stance that Kuwait lacks a convincing story but that is subject to change once we observe any encouraging developments on the spending side. Kuwait stands as the most expensive banking sector in the GCC on relative valuation basis.
January 2012 27
Global Research GCC
Cement Sector
Investment Thesis Over supply to remain in the picture. Price war continues. Reconstruction activities in Afghanistan, Iraq & Libya kicks off at a high pace M&A activity picking up in the sector Huge spending plans in countries to shrink over supply Key Risks to Valuation Real estate activity fails to kick off. Lifting or imposing ban on import & export Global economic slowdown forces countries to delay their mega projects. Disruption in fuel supplies. Government exercising control on prices.
Over-supply to persist; strong spending plans to shrink the gap Cement capacity in the GCC is expected to reach 120.7mn tons by 2013, a 13.0% increase from 2011. While cement demand is expected to reach 88mn tons in 2013, up 6.6% from 82.5mn tons in 2011 and 78.3mn tons in 2010. Capacity increase is driven majorly by KSA where it is expected to reach 58mn tons while demand is expected to be at par with the capacity increase and is expected to increase by 8.3% during the period 2011-13. UAE is expected to witness an increase in the oversupply with capacity touching 43mtpa by 2013 and demand expected to remain in the range of 18-20mtpa. We expect cement over-supply to continue till 2013. However, the over-supply situation in the GCC is likely to shrink on the back of huge spending plans announced by Saudi Arabia, Qatar and Kuwait.
GCC Demand Supply Gap Scenario (mn tons)
120.0 30.0
100.0 80.0
60.0 40.0
24.0 18.0
12.0 6.0
20.0
2006 2007 2008 2009 2010 2011e 2012e 2013e
(6.0)
GCC Supply
GCC Demand
GCC Surplus / (Gap) - RHS
Reconstruction activities in Afghanistan & Iraq to gather pace We believe that security issues have improved in Afghanistan and Iraq which is seconded by exit of international allied forces. Pace of construction remained slow in the past years but as the powers have been assigned to local people, we believe that they will kick off the much needed mega projects in a drive to reduce the poverty levels and provide employment opportunities to their youth. Hence we believe that Afghanistan and Iraq would kick off their much needed projects which would benefit their close neighbors as they very little indigenous cement production and the plants which are still producing are quite old and obsolete. We anticipate UAE and Omani cement companies to benefit as Saudi Arabias conditional exports remain in force. Saudi Arabia budgets out huge spending plans Saudi Arabia, rolled out the new National Budget Plan for 2012 with expenditures of SAR690bn (USD184bn). Expenditure will focus on education, healthcare, water and sewage services and transportation. Projects worth SAR168bn (USD45bn) in education sector, SAR86.5bn (USD23.1bn) in healthcare, SAR35.2bn (USD9.4bn) in
January 2012 28
Global Research GCC
transportation include building of 742 new schools, 17 new hospitals, roads totaling 4,200km and expansion of six existing airports to name a few. These new initiatives along with earlier plans would definitely scale the demand of cement higher in the country.
Gross Margins & ROAE - 2012e 25.0%
Return on Average Equity Return on Average Assets
Net Margins & ROAA - 2012e 25.0% SACCO YACCO QNCD 20.0% 15.0%
20.0% 15.0%
ARCCO RCCI
OCOI ARKAN
YACCO SACCO QNCD ARCCO OCOI

ARKAN 24%
Net Margin
10.0% 5.0% RAKCC

0.0% 0% 12%
10.0%
RCCI
24%
36%
48%
60%
5.0% RAKCC 0.0% 0% 12%
36%
48%
60%
Gross Margin Source: Company Reports & Global Research
M&A Activity in the Sector Picks Up Following years of massive infrastructure development and a combination of plentiful supplies of raw material and cheap feedstock the cement sector benefitted immensely and banked upon various expansionary initiatives. Ironically, most of these expansions came online at a time when the region possibly faces the worst economic slowdown in many decades. As a result of which M&A has picked up in the sector in an effort to bring in synergies and economies of scale. Various regional companies have been acquiring companies in UAE because they are the one who have been affected the most and are available at cheaper valuations. With shrinking margins and drop in profitability in the backdrop of oversupply we anticipate such activities to continue in the sector.
M&A in Cement Sector in 2010-11 Acquirer Raysut Cement Ultratech Cement Raysut Cement Oman Portuguese Cement Products Co. Company Pioneer Cement ETA Star Cement Location of Plant UAE UAE, Bahrain & Bangladesh 50% 5.00 2,000 c.m ready mix 2,200 sq.m tiles 64,000 blocks Saudi Cement Company Global Cement Co Kuwait Kuwait 40% 2.90 Stake 100% 51% Price (USD mn) 175.00 380.00 Cement Capacity mtpa 1.2 3.0
Focus on cost-savings; deriving value from supply chain Companies in GCC are likely to focus on cost-saving measures such as installation of in-house power plants to compensate for the decline in volume sales and realization prices and increase in transportation and freight costs. In addition, various companies have banked on horizontal and vertical integration. Some of them have ventured into concrete block business while others have got stake in lime stone quarries, shipping companies, power plants, cement baggaging plants and port terminals etc.
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Delay in construction projects and government intervention to be the key risks Key risks to the sector arise from delay in the execution of the big ticket government development plans particularly in Kuwait. Another major factor would be the imposition of trade bans. Saudi Arabia has imposed a cement export ban which has adversely affected the revenues of various companies. Any similar move elsewhere would generate the same impact.
EV/Ton (USD) 400
320
240
160
80 0
YACCO SACCO QNCD ARCCO OCOI Arkan RCCI RAKCC
Outlook: Positive on Saudi Arabia, Neutral on Oman & Qatar and Negative on UAE We expect Saudi Arabia to remain in the forefront in the backdrop of huge spending plans followed by Oman & Qatar. In addition, the delay in commissioning of around 4.0mtpa of cement capacity in Saudi Arabia in 2012 due to fuel shortages is likely to benefit large number of existing players in the form of price support. Meanwhile in Oman, despite the inflow of cheaper cement from UAE, we believe, the cement companies would continue to benefit from the government projects which are going on in the country as both the companies are government backed. In Qatar, we anticipate demand to maintain status quo as the projects and contracts related to World Cup are yet to begin. UAE would cast its shadow on all the GCC countries as its excess capacity would continue to initiate price wars and take away their market share.
January 2012
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Global Research GCC
Construction Sector
Investment Thesis Over USD1.4tn of active projects in MENA. Huge amount budgeted for infrastructure & construction projects. Saudi Arabia to be the front runner in the project pipeline. Acquisitions, strategic alliances and joint ventures to continue. Key Risks to Valuation Slower than expected recovery could lead to project cancellations. Bargaining power of developers further shrinks the margins. Receivables of the companies continue to rise. Funding and project financing may be tough especially for foreign entrants.
Over USD1.8tn of projects underway in GCC; roughly 24% inactive The lingering global financial downturn and the political uncertainty caused by this years uprisings is reflected in the exit of several mega real estate projects from the list as developers exercise caution and put planned schemes on hold. Nevertheless there are USD1.4tn of active projects in GCC in hydrocarbons, public infrastructure projects, refineries, power plants, roads, hospitals and various other segments. Saudi Arabia continues to remain at the top with highest number of active projects followed by UAE more specifically Abu Dhabi as Dubai still reels with problems related to its debt maturities. UAE projects market continues to fall as more and more of Dubai based projects have either come online or have been completely shelved off.
GCC Project Markets (USD bn)
3,000 2,400 1,800 1,200 600 -
GCC Project (USD bn) - Country Wise - 2011

750 600
450 300 150

0
Bahrain
Kuwait
Oman
Qatar
2005
2006
2008
2009
Projects on Hold
Source: MEED
Active Projects
2011
2007
2010
Projects on Hold
Active Projects
We believe that they are various opportunities available for construction contracting companies in Saudi Arabia, Kuwait & Qatar and these market would continue to be sought by various companies. Backlog growth momentum to continue Backlog growth which is the key driver for the top line of contracting companies has started to pick up in recent quarters driven by new order wins in Saudi Arabia. As of 2011, we anticipate backlog roughly of companies within our coverage to touch USD13.3bn as compared to USD12.3bn at the end of 2010. Within our coverage we believe that the share of Saudi Arabia is set to touch 40% in 2011 from 29% in 2010 and 18% in 2009. Looking at the individual companies backlogs, we believe that the risk of further project cancellations is behind us. Going forward, growth in backlogs will largely be a function of the end sub-sector and geographical exposure of individual companies. Amongst our coverage, Saudi Arabian contractors are estimated to report stronger growth in backlog by 31% followed by DSI whose backlog is estimated to grow by 24%.
January 2012
UAE
KSA
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Company Backlog 10.0

8.0
(USD bn)
6.0 4.0
2.0
2008 2009 ARABTEC

Source: Company Reports
2010 DSI
2011e OCI MMG
2012e
2013e
2014e
ALKHODAR
Within our coverage we anticipate DSI to fare better amongst all, since the company is geographically diversified and has established foothold in most of the GCC countries by acquiring already existing strong companies. Acquisitions and JVs continued and expected to do so going forward Prior to the economic slowdown and Dubai debt issues, the ever-expanding pie of work in GCC coupled with attractive margins, encouraged significant capacity build up. In addition to organic growth, well-established contractors took the acquisition route to expand their scope of activity and expand their geographical reach. The sector witnessed 11 transactions (4 acquisitions and 7 joint ventures) in 2011 compared to 8 (4 acquisitions and 4 joint ventures) in 2010.
Contractors Acquisitions and Joint Ventures in 2011 Company Quarter Country Share Company Name DSI 1Q11 Saudi Arabia 100% ICCC * OCI 1Q11 Italy 50% Maire Tecnimont 2Q11 Egypt NA Arab Contractors 2Q11 US 50% Pandora Methanol LLC Al Khodari 2Q11 South Korea 55% Lotte Engg & Construction Co 2Q11 Saudi Arabia NA Al Yamama Co. / Al Kifah Group Mojil Group 1Q11 Oman 51% National Training Institute 1Q11 Saudi Arabia 20% Saudi Masader Company 2Q11 Saudi Arabia 50% 3W Networks MMG 2Q11 Saudi Arabia NA Gulf Elite Gen Contracting Co. 2Q11 Saudi Arabia 50% Al Rushaid Petroleum Inv. Co.
Source: Company Reports & Zawya
Business Construction Construction Construction Fertilizer Construction Construction Construction Construction Construction Construction Construction
Acquisition / JV Acquisition JV JV Acquisition JV JV JV Acquisition JV Acquisition JV
Given the companies current cash balances of over USD1.2bn and their strong fundamental outlook, we believe there will be continuation of such transactions in the coming years which would add to the backlog and respectively to the top-line of the Company. Orascom Construction to split OCI recently announced that it has decided to start the process of spinning off the construction business from the current conglomerate structure. The new proposed structure will result in OCI as the continuing company holding the fertilizer business while the construction business would be separately listed. Current shareholders would continue to hold one share of OCI fertilizer business while receiving free of charge one share in the new company. Both businesses of the Company are ranked amongst the top in their respective segments. Its contracting business being one of the biggest in MENA and its nitrogen fertilizer business being ranked third worldwide. We believe that the new companies which will result because of the split would have strong potential and can focus more in their areas of expertise and generate returns for the investors.
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Receivables management of UAE based contractors continues to remain a key issue At the end of 3Q11, combined receivables of UAE construction contractors stand at AED7.5bn, higher by 1.3% QoQ and 21.5% YoY. Overall receivables size as percentage of sector balance sheet size stands at 53.8% as of 3Q11. The receivables outstanding days of the sector stand at 354 days at the end of 3Q11 as compared to 345 days at the end of 2Q11 and 329 days in 3Q10. Amongst the two, company with highest receivables days is Arabtec at 381 days whereas DSI stands at 320 days. Although receivable days of Arabtec are higher but they have remained consistent and have not aggravated during the last 4-8 quarters but at the same time with increasing revenue and backlog of DSI, their receivable days have surged from 180 days in 3Q10 to 320 days in 3Q11. Margins to shrink in the long run MENA region contractors margins have remained significantly higher than the international peers. These were higher as during the construction boom, developers were awarded high margin contracts. However, lately that phase has passed and now competition has emerged which has forced contractors to shift their business mix. Nevertheless we believe that margins would remain under pressure in the long run as many international contractors have entered the market.
Gross Margins & ROAE (2012e)
25.0%
Return on Average Equity
Net Margins & ROAA (2012e)

Return on Average Assets
ALKHODA R
11.0%
20.0%
15.0%
9.0%
7.0% ALKHODA R OCI (Cons Seg)
OCI (Cons Seg)
10.0% MMG 5.0% 0.0% 10.0% DSI

ARABTEC
5.0%
3.0%
MMG
ARABTEC
DSI
13.0%
16.0%
19.0%
22.0%
25.0%
1.0% 2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
Gross Margin Source: Global Research
Net Margin
Long-term growth to remain firm Regardless of the collapse in regional real estate markets, we believe long-term outlook for construction contractors remains attractive. The region displays relatively unique characteristics: decent demographics, strong state budget surpluses fueled by high oil prices, muscular sovereign wealth funds and a drive to diversify economies. Hence we believe infrastructure and construction boom in MENA region would translate well in terms of profitability for regional contractors. In our view Dubai construction market will remain fundamentally weak in the coming years as the Emirate is facing issues related to oversupply and sliding real estate prices. However there are ample opportunities for contractors in Saudi Arabia, Abu Dhabi & Qatar.
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Global Research GCC
Petrochemical Sector
Investment Thesis Additional output from new ventures and product diversification to support revenue streams. Over USD700bn petrochemical projects in Middle East; over USD350bn in GCC. Advantage of getting undisrupted feedstock at highly subsidized prices. Decline in oil prices to be compensated by increasing output. Key Risks to Valuation Increase/decrease in oil and related product prices. Increase in price of feedstock
Delays in the initiation of new complexes.
Gas supply to new plants remains getting stricter.
Oil prices expected to remain at current levels After posting gains of over 25% in 2010, the same trend continued and the oil prices registered a further gain of 26.2% in 2011. For 2012, oil outlook is anything but clear, as macroeconomic, geopolitical and physical supply/demand factors all seem to point in different directions. Economic turbulence is shaking oil demand as the slowdown hits manufacturing activities worldwide. Slow oil demand, initiated in the OECD region, has moved to China and India, leading to a downward revision in next years oil demand growth forecast. Other regions are also expected to experience an economic slowdown, including countries like Brazil and several Latin American economies. Hence we assume volatility in oil prices and expect average prices in 2012 would maintain at the same level as they were in 2011. GCC countries continue to pump money into petrochemical projects High oil prices and steady production levels fueled economic growth in the region. Energy sector continued to dominate GCC countries revenues despite rigorous diversification efforts made by these economies to develop the non-oil sectors. In order to continue to benefit from previous high oil prices, GCC countries are focused on expanding their output by adding various new products to their offerings. As of today total value of planned projects in the regional petroleum sector is estimated at USD353bn. Despite this optimistic scenario, project postponement and cancellation trend continues to plague the market. Saudi Arabia to lead the market with USD215bn worth of new investment Saudi Arabia currently has approximately 147 projects upcoming in the petroleum sector, with an estimated cumulative value of USD215bn. These projects are focused heavily on the upstream oil and gas segment. One of the major upcoming projects is the Yanbu Integrated Refinery & Petrochemicals Complex that is currently in the study phase and has an estimated budget of USD20bn. Another major upcoming project is the Jizan Refinery Project that has an estimated budget of USD7bn. UAE follows with 116 projects with an estimated cumulative value of USD98bn UAE currently has roughly 116 projects upcoming in the petroleum sector, at an estimated cumulative value of USD98bn. These projects are focused heavily on the upstream oil and gas segment. One of the major upcoming projects is the Tacaamol Al-Gharbia Chemicals Industrial City project that is currently in planned phase, and has an estimated budget of USD20bn. Another major upcoming project is the Zadco and has an estimated budget of USD10bn. Asian region to raise the demand; America to follow & Europe to remain weak Emerging markets are increasingly becoming the drivers of growth in the global economy as mature and developed markets struggle with slow or even negative growth. This is especially true for the petrochemicals industry, which is banking on emerging markets in Asia and elsewhere absorbing new capacity due to come on stream in the next few years. We believe a major chunk of future demand growth will come from this region and should enable the GCC petrochemicals industry to find a ready market for the output of the aggressive capacity expansion projects currently underway at various locations. While we believe that America has gradually come
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out of recession as recent economic numbers were quite encouraging we believe that the demand from the region would be better than the previous years. While for Europe we believe that there are high chances of economic slowdown leading to recession which will cast shadow on the demand of petrochemical products. Developed markets not witnessing capacity additions Petrochemicals capacity expansion in the developed markets, especially the US, has been muted since the turn of the century. Natural gas prices which had averaged USD2/mmbtu throughout the 1990s have shot to highs of over USD13/mmbtu in 2008 and averaged around USD6/mmbtu in this decade. With oil prices staying above USD70 per barrel, naphtha prices have also risen in tandem. As a result, European and US petrochemicals crackers have increasingly found it difficult to compete with low-cost Middle Eastern players. As petrochemicals are commodity products, price is often the single most distinguishing factor. This fact enables low-cost producers to outmaneuver high-cost players. In consequence, we expect capacity shutdowns in developed markets such as the US and the EU as companies increasingly try to rationalize their capacity portfolio in order to compete more with the low-cost producers. Capacity to grow at a CAGR of 2.9% during 2011-13 We expect the total petrochemical regional capacity to increase at a CAGR of 2.9% during 2011-13 with most of the additional production capacity from KSA followed by Qatar. In terms of growth, the capacity expansion from Qatar is expected to increase at a CAGR of 13.4% during 20011-13. This will reflect positively on the improvement in the regional market share i.e. 14.2% in 2013 as compared to 10.3% in 2010.
GCC Petrochemical Production Capacity
70 60
50 40
mtpa
30 20
10 2006 2007 2008 2009 2010 2011e 2012e 2013e
Saudi Arabia
Source: Industry Sources
Qatar
UAE
Bahrain
Kuwait
Oman
Shift in feedstock The GCC is currently experiencing a shortage of ethane, historically the prime feedstock for its petrochemical plants, due to the increased domestic demand to fuel other industries, primarily power, steel, and aluminium. Moreover, the region is developing policies to give priority to domestic gas use over export, phase out price subsidies, and align domestic natural gas prices with export prices. As a result, some project owners such as ChemaWeyaat in the UAE, Saudi Kayan and owners of future downstream petrochemical clusters in Saudi Arabia are moving away from ethane-based, export orientated petrochemical production and are now developing plans to produce a wider slate of high-value specialty chemicals for the automotive, textile, electronic, construction, agricultural, and pharmaceutical industries. Regional fertilizer companies continue to grow We expect regional fertilizer capacity to increase at a CAGR of 16.4% during 2009-13 with most of the expansion of 13.3m tons expected from Saudi Arabia followed by Oman and Qatar. The major expansion in Saudi Arabia and Qatar is mainly due to: Availability of undisrupted supply of feedstock gas at highly subsidized prices. Ongoing demand-supply gap in Asian & Far East markets. Expectations of average prices of fertilizer products to remain strong.
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Consequently, these factors will lead the regional fertilizer sector to continue its growth with gross margins to remain at an average of 68% during 2011-13.
Gross Margins & ROAE - 2012e
60.0% SAFCO
Net Margins & ROAA - 2012e

48.0% 42.0% SAFCO
Return on Average Equity
Return on Average Assets
50.0% 40.0%
36.0%
IQ 30.0%
20.0% 10.0% 0.0% 0% 20% 40% 60% 80% YANSAB SABIC
30.0% 24.0% 18.0%

12.0% YANSAB SABIC 6.0% DANA SIPCHEM 0.0% 0% 20% 40% Net Margin IQ
SIPCHEM DANA
60%
80%
Gross Margin Source: Company Reports & Global Research
Outlook Demand for petrochemicals and their offshoots have historically trailed global economic trends due to the nature of their end uses. During the onset of the global economic crisis, demand and, therefore, prices of petrochemical products plummeted to historic lows. Although prices have since recovered, the long-term outlook for petrochemical products appears set to be challenged and shaped by the emerging trends affecting the global petrochemical sector value chain. Within the sector we remain Bullish on SABIC & YANSAB while SAFCO offers significant dividend yield.
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Global Research GCC
Real Estate Sector

Investment Thesis 2012 to further build on Dubai nascent signs of stabilization Abu Dhabi to continue its downward slide on new supply flooding the market Saudi and Kuwait remain strong in the residential and retail markets Maintain a negative outlook on the office segment across the board Selectively expect property managers to outperform developers again Key Risks to Valuation Extended slowdown in global growth to hurt Dubai and Abu Dhabi Financing for new projects in Saudi still a barrier for development acceleration Upcoming quality retail supply in Kuwait to pressure yields New office supply a key short-medium term risk
2011 harsh on UAE, but Dubai is showing early signs of stabilization In spite of the several project cancellations and delays that took place in the two major UAE markets, 2011 proved yet another tough year for the Dubai and Abu Dhabi property markets as expected earlier on the year. Average prices for residential units dropped 12% and 17% on average in both markets, respectively whereas apartment rents followed a similar pattern moving down 9% and 12%. The quarterly rate of decline, however, is starting to signal early signs of stabilization with Dubai villa rents increasing slightly in the third quarter while the pace of decline in apartment rents has decelerated significantly compared to the 2009 2010 period.
Dubai Residential Units Supply 2010 - 2013 380 370 Abu Dhabi Residential Units Supply 2010 - 2013 300 11 27 250 200
Units (ooo')
360
350
Units (000')
22 20
340 330
150
320
310 300 331 331
358 315
100 50 0
185
204
204
224
290 280 2010 2011e Completed Supply

Source: Jones Land LaSalle
2012e New Supply
2013e
2010 2011e Completed Supply

2012e New Supply
2013e
Office rents also followed suit down 10% on average in Dubai and 20% in Abu Dhabi reflecting the slowdown in business activity coupled with relentless new supply entering the two markets leaving them with an estimated vacancy of 45% in Dubai and 20% in Abu Dhabi up from 40% in the former and 10% in the latter at the end of 2010. Expect selective solidity in Dubai, More downward pressure in Abu Dhabi Digging into 2012, Dubai selling prices of residential units should bottom out by 1H12 but is still off from a general price appreciation as the market will remain overflowed with excess supply and significant new inorganic demand is not expected in 2012, in our view. We expect the same for the office market as new supply equivalent to 20% of existing capacity is expected to enter the market during 2012 and 2013. For the Dubai hospitality segment, we do not expect the improvements that took place during 2011 as a result of the Arab spring to be extended further in 2012 but see a more negative spell on leisure tourism and business travel from the overall negative global sentiment. For the retail segment, we see further stability as the absence of new future supply, the firmness of rental rates and moderate vacancy rates during 2011 act as positive indicators in the near future.
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In Abu Dhabi, we expect 2012 to see a further 15% drop in selling prices of residential units and 10% drop in rents as new supply continues to enter the market. We also expect further deterioration in the office market as considerable new supply is currently in the pipeline pressuring both property prices and rental rates downwards. Our outlook on Abu Dhabi hospitality segment is also negative for 2012 given the new supply entering the market coupled with low demand for tourism and an already feeble performance in 2011. The retail segment was able to maintain stable performance in terms of rental rates on the absence of new quality supply but is expected to see further downward pressures going forward as several deliveries are scheduled in 2012 and 2013. Saudi maintained its upward drift, increasing vacancy rates in the office segment In Riyadh, the residential market comfortably absorbed the new supply of c.25,000 units delivered throughout 2011. Selling prices in the residential market maintained their upward trend supported by the rise of input commodity prices like steel and cement along with increasing land prices. Villa and apartment rents increased 9% and 10% YoY on average. Villa and apartment rents in Jeddah also reported a 12% and 15% annual increase as the market continued to suffer from a state of undersupply.
Riyadh Residential Units Supply 2010 - 2013 960 Jeddah Residential Units Supply 2010 - 2013 770 760 30 29
940
920
750
740
Units (ooo')
19 18
Units (000')
900 880 860
730 720
911 882 858 882
710
700 690 737 719 719
840
820
680 670 2010 2011e Completed Supply 2012e New Supply 2013e
703
800
2010 2011e Completed Supply

2012e New Supply
2013e
Vacancies in the office market increased in 2011 to around 15% in Riyadh up from 10% at the end of 2010 as the market fails to totally absorb the new 290,000 sqm of office space. Average rents have inched higher during the year despite the increasing vacancies as tenants became more willing to upgrade to higher quality premises at slightly higher rates passing the vacancies through to lower grade sites. In Jeddah, current vacancy rates also stand at around 10-15% but are expected to increase as new supply of 180,000sqm will enter the market in 2012 and 2013 whereas vacancies in the CBD are, already, much higher reaching up to 20%. Same upward trend is expected in 2012 We do not expect any significant trend changes in 2012 in Riyadh and Jeddah as the major market dynamics remain in place. In our view, affordability constraints, supply shortage of ready residential units and high activity on land speculation will continue to drive property prices and rentals higher in both markets. Funding developers will also remain a key issue in the Saudi market especially in the almost near absence of off plan sales in a market where financing is most needed to accelerate the pace of construction. In spite of the growing economy and business activity, we preserve our negative view on the office market on the back of the large amount of new supply entering the market over the coming two years. In the retail segment, the only major new addition in 2012 will be Dar Alarkans AlQasr Mall. We expect the market absorption of new supply to remain on the strong side given the lack of quality supply and the inherent importance of retail malls in Saudi as an entertainment destination. Kuwaiti land prices continued to push housing prices higher Land prices in Kuwait maintained their long term upward move in 2011 after slowing down in the period between 1Q08 and 2Q10 increasing by an average of 20%. The majority of transactions remained in the private housing segment, which meant that land price inflation was passed through to prices of houses with transactions in some areas witnessing increases of 25-30% over 2010 prices.
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The office market, on the other hand, is highly oversupplied with some alarming vacancy rates in the CBD that reached as high as 30% during 2011 with very low take up rate for new deliveries. The retail segment, however, maintained its strong posture and footfall growth during the year for the already operating well positioned malls while new market entrants are still struggling to attract shoppers, which could be an early sign of saturation, in our view. Current market dynamics to remain intact Based on our analysis of the current growth dynamics of the Kuwaiti real estate market, we expect the major trends to hang about the same fashion as in 2011. For the residential market, we expect trading volumes and values for the private housing segment to keep on increasing so long as organic demand remains intact and attractive capital gains are attainable. The same trend should materialize in the investment housing segment as yields remain on the attractive realm of 7-8% as opposed to sluggish stock market performance and very low returns on bank deposits. For the office market, vacancies are expected to increase as new supply enters the market during the year with major deliveries in 1H12. Elsewhere, the delivery of Mabanees Phase III of The Avenues Mall will be the major addition to the retail market during the year. Performance in the hospitality segment is expected to remain sluggish on the back of slow business activity and an inherent lack of tourism inflow. Property managers to remain on the forefront in 2012 We expect asset managers with strong visible recurring income profile to outperform in 2012, on a relative basis, as was the case in 2011. Our opinion is developed given our anbalysis of the eight real estate companies under our coverage where we do not see any significant deliveries for EEC or Dar Alarkan in Saudi as well as a sluggish 2012 Abu Dhabi market for the two Abu Dhabi based developers; Aldar and Sorouh. Emaar is our favorite story in terms of international developments deliveries although risks of delays and defaults could materialize if the political situation in the region worsens. In Kuwait, Phase III of Mabanees star project; The Avenues Mall will start operations, which should boost 2012 earnings before almost doubling it 2013. Salhia also has a decent recurring income profile but net earnings are squeezed by high debt service costs. Emaars very strong retail portfolio is expected to maintain its strong operational performance while the hospitality segment could face some obstacles in terms of sustaining its 2011 ADRs and vacancy rates. Akaria is another visible story providing stable revenue generation with potential risks to earnings forecasts mostly to the upside on unaccounted for land sales. For Aldar and Sorouh, the outlook remains bleak in the short term given market conditions and squeezed margins realized on recent deliveries. Specifically for Aldar, concerns linger over the need for more financing, and perhaps further dilution, in the near future in case new convertibles are issued. For Dar Alarkan, we maintain our view that the company will be able to meet its debt obligations on the 2012 Sukuk. This means that external financing is urgently needed to revamp the slowing down construction activity of the development projects. We believe securing this kind of financing will act as a major boost to the stock price.
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Telecom Sector
Investment Thesis Diversification in other markets is the only way forward for further growth. In GCC, the next phase of growth will be led by broadband services. Many GCC operators have strong balance sheet & sound operations in many of their portfolio countries. Sector growth immune to political instability, if any. M&A likely to resume among operators. Key Risks to Valuation Core home markets for incumbent telecom operators are under pressure. Implementation of Mobile Number Portability will change market dynamics. Operators need to be more diligent diversification strategy in other unfamiliar markets beyond GCC. in
Any change in operational dynamics, especially from the regulatory authority. Forex volatility in diversified telcos.
Limited growth from traditional services Regional telecom operators overall continue to post revenue gains. However, the high penetration rates show that the region is likely approaching saturation levels, a trend underscored by high penetration rates, and therefore revenue growth is slowing. In GCC markets, operators are experiencing slowing or declining ARPU (average revenues per user) and face the need to prepare for limited growth from traditional services (voice and sms). In fiscal year 2011, incumbent operators in Saudi Arabia, the UAE, Qatar, and Bahrain began to experience flat or declining revenue growth. As a result, operators will need to rely on efficiency gains rather than scale alone to maintain their bottom lines. Competition likely to get tougher The year 2011 witnessed aggressive competition among telco operators in GCC. We expect competition is likely to get tougher on the pricing front and therefore margins are likely to get impacted. Telecom companies in GCC will continue to increase capital expenditure, investing in network infrastructure to improve network quality and offer more value-added services to customers.
EBITDA Margins of Regional Telcos
55.0% 45.0% 35.0% 25.0% 15.0% 5.0% -5.0%
Etisalat
Mobily
2010
2011e
2012e

January 2012 40
Vodafone Qatar
Zain
Omantel
Wataniya
Batelco
Qtel
STC
Global Research GCC
Broadband high growth connection With the high competition GCC telecom market is becoming increasingly saturated, the GCC telecom operators are jostling for position. Central to all of their strategies is a greater focus on mobile data services. Data contribution to total revenue is at its early stage and therefore has huge growth potential. Revenue from data services and the Internet will continue to rise for local operators with a drop in the share of voice segment revenues to total revenues. M&As did not materialize in 2011 Besides the organic and inorganic growth plans pursued by regional operators, consolidation will be another force shaping the regional telecom competitive landscape. We are of the opinion that in GCC, factors like maturing level of SIM penetration, stiff competition (leading to ARPU dilution) and further deregulation (issuance of further licenses, implementation of MNP) all these factors are likely to affect profitability margins. Therefore, we expect that M&As are likely to continue within the region as well as cash rich operators will continue to eye overseas acquisitions to offset the declining trend in core home markets. However, we have seen that 2011 was somewhat muted on this front. In string of "almost deals" but failure to strike an agreement were UAE-based telecom giant Etisalat scrapped its USD12bn offer to buy a controlling stake in Kuwait-based Zain, The deal would have made Etisalat the regional heavyweight, but it had been plagued by delays and disputes. Similarly Batelco and Kingdom Holding scrapped their plans to acquire a 25% stake in Zain KSA. Overseas expansion The theme for the incumbent operators in GCC is similar as they have invested in overseas markets to hedge against the decline in revenues and market share in the domestic markets. The performance of these companies are increasingly become dependent on overseas operations. We are of the opinion that going forward in home markets growth is likely to be limited and careful diversification in other markets is the only way forward for further growth. Outlook The large and transient expatriate populations in the Gulf countries are also a factor in encouraging competition, and thus growth and penetration rates - with a fluid population new operators (2nd & 3rd operators) had a better chance of gaining market share. However in GCC telecom space competition is likely to get more fierce going forward. Customers will eventually benefit from lower tariffs and bundled offers are likely to increase in the near future. Operators will continue to focus on cost optimization and driving efficiencies to manage their growth, margins and profitability expectations.
Regional Telcos 2012e EBITDA Margin & ROAE 55% Etisalat Regional Telcos 2012e Div. Yield & P/E 11.0 Etisalat Zain
EBITDA Margin 2012e
50%
Qtel
10.0
P/E 2012 e (x)
Omantel 9.0 8.0 7.0 6.0
45%
40% 35% Zain Batelco Wataniya
Wataniya
Qtel Saudi Telecom
Omantel Mobily Batelco
Saudi Telecom
Mobily
30%
25% 10%
5.0 2.0%
15% 20% ROAE 2012e 25% 30%
4.0%
6.0%
8.0%
10.0%
Dividend Yield 2012e
Source: Glob al Research
In GCC telecom sector each company in the region has different operational dynamics depending on its reach in the domestic market, its strategy for overseas expansions and funding strategy. Out of our coverage of 9 Telcos in GCC, Qtel (Qatar), Wataniya Telcom (Kuwait), and Mobily (KSA) remain our preferred picks.
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Global Research GCC
Utilities Sector
Investment Thesis Strong demand for electricity all GCC countries. Growing capacity base. Supply trails demand due implementation of power plants. to delay in Key Risks to Valuation Downturn in GDP growth. Delay in implementation of power projects. Further entrants of new players will make the market more competitive. Deceleration of private investments in the sector.
Growth outlook is promising as most of GCC economies will report GDP growth.
The GCC countries are witnessing burgeoning power demand and the sector is growing at the rate of 8%-10% annually. According to the World Energy Council, the GCC will require 100 GW of additional power over the next 10 years to meet demand. The GCC power sector will require about USD50bn of investments in new power generating capacity and USD20bn in desalination. The forecast for 2030 represents a compound annual growth rate of 7% per annum. This forecast compares to a global rate of 1.8% per annum, placing the GCC countries with one of the highest power demand growth rates in the world. Value of GCC Power and Water Projects
Number of projects UAE Saudi Arabia Bahrain Qatar Kuwait Oman Total
Source: Zawya (Ventures Middle East)
Projects value (USD) 10 bn 8.6 bn 4.1 bn 3.3 bn 3.4 bn 2.5 bn 31.9 bn
% of GCC projects by value 31% 27% 13% 10% 11% 8% 100%
11 11 3 3 10 6 44
GCC Power and Water sector ramping up capacity base As per the latest industry data there are 44 power and water projects in the GCC valued at USD31.9bn already underway or due to begin in 2012. The UAE leads the way with 11 projects valued at USD10bn, including the USD800mn Hassyan 1 Independent Power Plant, on which construction is slated to begin in 2012. Saudi Arabia also has 11 new projects underway or due to start in 2012, valued at USD8.6bn, including the USD2bn Al Qurrayah Independent Power Plant (IPP). In Kuwait, ten projects are underway valued at USD3.4bn, seven of which will begin construction in 2012. Bahrain has three projects valued at USD4.1bn, including the independent water and power plant in Al Dur, which has been ongoing since 2008. Qatar has three projects valued at USD3.3bn, while Oman has six projects valued at USD2.5bn, all of which will begin construction in 2012.
This investment in power generation is essential to meet the demand emanating from the aggressive diversification attempts and infrastructure led developments in the GCC countries.
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Thrust on IWPPs The IWPP model has helped GCC countries meet demand for electricity and water, which is rising rapidly on the back of growing populations and energy-intensive infrastructure and industrial projects. Private projects account for around 40,000MW of power capacity in the region. The year 2011 witnessed 3 IPPs being awarded in the GCC with 7,500MW of new capacity contracted. It is likely that 2012 will also follow the suit with almost same volume. Saudi Arabia, Oman and possibly Abu Dhabi are all planning to award more private capacity and are due to be joined by Kuwait and Dubai, the GCCs last bastions of state generation. In GCC as such there is no shortage of power on an aggregate level in the region, at a granular level pockets of over-capacity currently exist. This is the case in Saudi Arabia and within parts of the UAE, such as Abu Dhabi and Dubai, while Sharjah suffers from electricity shortages. Kuwait, Oman, and Bahrain all experience power shortages at times of peak demand. Till now Kuwait was the only GCC country not to embrace private developers, however, it is planning to beef-up its capacity and is set to award its first privately developed power and water projects. In a short span of time Qatar has ramped up the capacity on a rapid pace. This made the Qatar the surplus state and during the summer of 2011, it has exported 200MW of surplus electricity to the GCC electricity grid (GCCIA). Top 10 Power Projects in GCC Country
1 2 3 4 5 6 7 8 9 10 UAE UAE Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia Oman Saudi Arabia UAE
Projects
Hassyan IWPP Braka Nuclear Facility Shuaiba 3 Expansion Rabigh Plant Extension Ras Al Zour Yanbu I and II
Capacity (MW)
9,000 5,600 5,600 2,800 2,800 2,500 2,400 2,000 1,730 1,600
Commission Date
2014 2017 2013 2015 2014 2012 2013 2014 2013 2014
Cost (USD bn)

18.0 20.0 3.0 3.4 4.0 4.0 2.5 2.0 2.1 1.5
Jizan Economic City Power Plant Sur IPP Riyadh P11 Shuweihat 3
Source: Utilities Middle East
GCC Grid Saudi Arabia, along with its GCC neighbors, planning to export electricity. In 2009 the GCC Interconnection Grid was established, which has already linked the utility networks of five GCC states, with Oman set to join soon. The joint project between Saudi Arabia, Bahrain, Qatar, man, Kuwait and the UAE will allow the nations to reduce the frequency of power outages by exchanging generation capacities across seasons and time zones. It is hoped that this regional grid will one day be linked to the Egyptian network, thereby connecting a major part of the Arab world's electricity through one grid. The Interconnection Grid has provided huge benefits to those states connected. Longer term, the GCC harbors ambitions to export electricity further afield, including to Europe. Focusing on nuclear energy Perhaps the biggest challenge facing utilities in the coming years will be how to secure the necessary feedstock to power the new capacity. With the exception of Qatar, all GCC states are facing increasingly tight gas markets leaving governments with little option but to pursue alternative energy production. In Saudi Arabia and Kuwait, liquid fuels, in the form of crude oil and diesel, have overtaken gas as the largest source of feedstock. However, this has come at a high price with Riyadh alone burning an estimated 800,000 b/d in its power plants. The increasingly high cost of burning liquid fuels and the environmental concerns over coal have left nuclear power as the favored option in much of the GCC. There is a growing acknowledgement in the GCC that nuclear power will have to play a significant role in future if the high power demand growth is to be met and electricity shortages are to be averted. Toward this end, Saudi Arabia has plan to spend more than USD100bn to build 16 nuclear energy plants over the next few years. The kingdom is keen to develop solar and other renewable energy technologies to reduce dependence on oil and gas. It has allocated USD3bn to produce solar energy panels in Jubail and Yanbu.
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43
Global Research GCC
The UAE is currently discussing options for the supply of nuclear fuel with several countries including Australia and Russia, and expects to award the contract in the first quarter of 2012. Outlook Industry experts are of the opinion that the power sector in the GCC region has seen exponential growth, with demand for electrical power to triple over the next 25 years. Leaving aside the global recession, massive investments are being planned in the GCC especially in mega energy and industrial sectors. Expanding population and social developments are other major drivers for utilities demand to grow at such high rates. We have optimistic stance for the sector as a whole. We cover 3 utilities companies in GCC, Qatar Electricity & Water Co. (Qatar), Saudi Electricity Co. (KSA), and Abu Dhabi National Energy Co. Taqa (UAE). Out of this, QEWC is our preferred pick as we consider it as a safe bet due to its cost-plus agreements with KAHRAMAA, its sole customer. Saudi Electricity though it is operating in a high demand growth country, its highly subsidized residential tariffs and huge capex requirements makes it not a preferred bet.
Revenue & Profit Growth - 2012e 20.0% 15.0%
ROAE 2012e
10.0% 5.0% 0.0%
P/BV & ROAE - 2012e 35% 28% 21% Taqa

14% 7% 0%
QEWC
SEC 0.5 1.0 1.5 2.0 P/BV 2012e 2.5 3.0
QEWC YoY Revenue Growth Source: Glob al Research
SEC
Taqa
YoY Net Profit Growth
However, it has recently announced its restructuring plan to split it into six companies, the further details are still awaited. We believe that this restructuring exercise will have significant impact on the company's stock price as well as on our fair value. Taqa is not only a UAE-based utilities company but a global energy player. Its strong liquidity position, growing asset portfolio and strong performance makes TAQA a strong investment case.
January 2012
44
Global Research GCC
COMPANY PROFILES
January 2012
45
Global Research GCC
AVIATION & LOGISTICS
January 2012
46
Global Research GCC
Air Arabia
Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (AED): 0.85 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): -4.2 Relative (%): -0.6 Price Volume Performance 80,000
70,000
STRONG BUY
28.7% 0.765 0.594 AIRARABI UH AIRA.DU
High load factor to lessen the impact of high operating costs Profitability and margins continue to remain under pressure from high fuel costs. However, high load factors and increased passenger numbers lessened the impact of higher operating costs. Average load factor in 3Q11 was 83% and number of passenger AED3.5mn for 9M11. Air Arabia plans to double its fleet by 2016 Air Arabia is expanding their fleet size. They have ordered six aircraft during 2011 another six aircraft will be delivered in 2012. Currently, it operates a total fleet of 29 aircraft, serving 70 routes from three hubs in UAE, Morocco and Egypt. The company is expecting to double their fleet size by 2016. Strong dividend yield Air Arabia is maintaining a strong balance sheet with high cash and low debt. The company has high dividend yield and they are expecting to distribute 25% of net income in 2011 subject to the approval of the board of directors. Income Statement (AED mn) Sales Revenue Cost of Sales Gross Profit EBITDA Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Liabilities Debt Key Ratios
4,666.7 2,772.0 754.7 10.0 0.5
/ 0.57 9,235.5 1,870,680 3m 12m -3.4 -28.7 -0.8 -10.5
2010 2,080 (1,769) 312 255 306
2011e 2,439 (2,105) 333 263 244
2012e 2,717 (2,312) 405 330 273
2013e 3,058 (2,599) 459 354 312
2014e 3,442 (2,899) 543 426 371
0.90
0.85
60,000 50,000 40,000 30,000 20,000 10,000 0

Ja n -1 1 Fe b -1 1 M a r-1 1 Ap r-1 1 M a y-1 1 Ju n -1 1 Ju l-1 1 Au g -1 1 Se p -1 1 Oct-1 1 N o v-1 1 D e c-1 1
0.80 0.75 0.70 0.65 0.60
2010 6,370 5,377 993 230
2011e 7,138 5,234 1,903 785
2012e 7,459 5,281 2,178 887
2013e 7,761 5,276 2,485 1,010
2014e 8,174 5,333 2,841 1,163
Gross Margin (%) EBITDA Margin (%) Net Margin (%) EV/EBITDAR (x) Load Factors (%) ROAA (%) ROAE (%) Dividend Yield (%) EPS (Fils) BVPS (AED) P/E (x) P/BV (x)
2010 15.0% 12.3% 14.7% 4.4 80.0% 7.6% 8.3% 10.8% 0.07 1.15 9.5 0.8
2011e 13.7% 10.8% 10.0% 6.4 83.3% 3.7% 4.7% 11.9% 0.05 1.12 11.0 0.5
2012e 14.9% 12.1% 10.1% 5.6 84.8% 3.8% 5.3% 11.2% 0.06 1.13 10.0 0.5
2013e 15.0% 11.6% 10.2% 5.4 90.2% 4.2% 6.0% 11.2% 0.07 1.13 8.7 0.5
2014e 15.8% 12.4% 10.8% 4.8 93.8% 4.7% 7.1% 11.2% 0.08 1.14 7.4 0.5
Volume ('000)
Source: Bloomberg
AIRARABI (AED)-RHS
Lamya Hayat Financial Analyst lhayat@global.com.k w Phone: +965-2295-1203
Source: Company Reports & Global Research
January 2012
47
Global Research GCC
Jazeera Airways
Recommendation: Downside / Upside: Target Price (KWD): Current Price (KWD): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (KWD mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (KWD): 0.47 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): -8.9 Relative (%): -6.1 Price Volume Performance
9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
Ja n -1 1 Fe b -1 1 M a r-1 1 Ap r-1 1 M a y-1 1 Ju n -1 1 Ju l-1 1 Au g -1 1 Se p -1 1 Oct-1 1 N o v-1 1 D e c-1 1
STRONG BUY
49.7% 0.614 0.410 JAZEERA KK JAZK KW
New strategy for long term profitability After the implementation of the turnaround plan, Jazeera is focusing on a new strategy called strategic master plan. It is a 3-year plan that will start in 2012. Its aim is to sustain the companys profitability in the long term through increasing load factor, enhancing yield, and increase market share. Financing new aircrafts Jazeera has secured USD200mn financing 4 new aircrafts from national and international banks. Jazeera is expecting to the four new Airbus A320s between 2012 and 2014. Currently, the company has 11 A320s in operation. This should drive the growth in revenues in the coming years. Rights issue should reduce leverage The company is planning to raise capital from KWD22mn to KWD42mn. This should reduce leverage and strengthen the balance sheet. Debt to Equity ratio is expected to reach 2x after the right issue from 3.5x in 3Q11. Income Statement (KWD mn) Sales Revenue Cost of Sales Gross Profit EBITDA Net Profit Balance Sheet (KWD mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margins (%) EBITDA Margins (%) Net Margins (%) EV/EBITDAR (x) Load Factors (%) ROAA (%) ROAE (%) EPS (Fils) BVPS (Fils) P/E (x) P/BV (x) 2010 12.4% 16.6% -6.6% 13.1 0.6 7.6% 8.3% (12.7) 70.2 nm 1.8 2011e 31.6% 31.3% 20.3% 6.7 0.7 6.9% 56.3% 55.0 125.2 8.3 3.6 2012e 30.9% 29.8% 22.1% 5.5 0.7 9.1% 47.0% 76.9 202.1 5.3 2.0 2013e 31.4% 30.2% 23.4% 5.0 0.7 9.7% 36.0% 88.6 290.7 4.6 1.4 2014e 32.5% 31.2% 24.6% 4.7 0.7 9.8% 28.3% 95.8 386.5 4.3 1.1
220.0 90.2 323.9 5.3 2.0
0.11 743.3 761,412 3m 12m 32.3 230.6 34.1 249.1
2010 43 (37) 5 7 (3)
2011e 63 (43) 20 20 13
2012e 80 (55) 25 24 18
2013e 87 (60) 27 26 20
2014e 90 (61) 29 28 22
500 450 400 350 300 250 200 150 100 50 0
2010 173 15 158 101
2011e 177 28 149 90
2012e 193 44 149 83
2013e 207 64 143 73
2014e 222 85 137 66
Volume ('000)
Source: Bloomberg
JAZEERA (Fils)
Lamya Hayat Financial Analyst lhayat@global.com.k w Phone: +965-2295-1203
January 2012
48
Global Research GCC
Aramex
Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USD mn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (AED): 2.17 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): 0.0 Relative (%): 3.6 Price Volume Performance
18 16 14 12 10 8 6 4 2 0
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
HOLD
9.3% 2.00 1.83 ARMX UH ARMX.DU
Strong performance despite regional unrest Aramex 9M11 revenue jumped 16% YoY while profitability increased by 6%, impacted by higher fuel prices and global inflationary pressures. We view these as positives given that the company has been able to achieve revenue growth despite unrest in its core operating market. Strong balance sheet and cash rich company Aramex enjoys a strong balance sheet with a cash balance of AED432mn and negligible debt. The strong cash position has helped the company undertake a series of acquisitions in Turkey and Asia lately and to further extend its network geographically. Expect further growth in 2012 We expect Aramex to maintain its growth figures in 2012 given our outlook on a more stable political landscape and an associated growth in business activity. Income Statement (AED mn) Revenue Gross Profit EBIT Net Profit Before Tax Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Net Fixed Assets Cash & Bank Balances Key Ratios Gross Margin Operating Margin Net Margin Current Ratio (x) Total NFA Turnover (x) ROAA ROAE Dividend yield EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 53.8% 10.4% 9.2% 2.6 7.6 9.4% 12.1% 3.6% 0.14 1.22 14.9 1.7 2011e 52.5% 9.8% 8.5% 2.7 7.2 9.0% 11.8% 4.9% 0.15 1.29 12.2 1.4 2012e 51.8% 8.7% 8.0% 2.6 7.3 9.0% 12.0% 6.0% 0.16 1.35 11.6 1.4 2013e 51.7% 8.5% 7.7% 2.7 7.3 8.9% 12.1% 6.5% 0.17 1.40 11.0 1.3 2014e 51.7% 8.3% 7.5% 2.7 7.6 9.1% 12.5% 6.5% 0.18 1.46 10.2 1.3
1,464.1 2,679.3 729.4 11.6 1.4
/ 1.51 2,633.9 1,298,439 3m 12m 2.8 -14.1 5.4 4.1
2010 2,212 1,190 229 245 204
2011e 2,557 1,342 252 260 217
2012e 2,876 1,490 251 259 231
2013e 3,184 1,646 271 280 244
2014e 3,495 1,806 291 299 263
2.5 2.3 2.1 1.9 1.7 1.5
2010 2,286 1,781 332 555
2011e 2,508 1,890 375 681
2012e 2,645 1,974 418 720
2013e 2,811 2,055 449 806
2014e 2,978 2,139 469 888
Volume ('000)
Source: Bloomberg
ARMX (AED)
Mostafa El-Maghraby Senior Financial Analyst melmaghraby@global.com.k w Phone: +965-2295-1279
January 2012
49
Global Research GCC
BANKING SECTOR
January 2012
50
Global Research GCC
Al Rajhi Banking & Investment Corp.

Recommendation: Downside / Upside: Target Price (SAR): Current Price (SAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (SAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (SAR): 83.5 Avg Volume ('000) : Avg. Val. Traded (USD) Absolute (%): Relative (%): 1m 1.1 -1.8
HOLD
5.4% 73.3 69.5 RJHI AB 1120.SE
Retail sector to drive growth A stronghold on the retail sector due to its Islamic nature and a large branch network will help drive the balance sheet growth. We expect RJHI's loan book to rise by 13.8% YoY in 2012 and post CAGR (2010-14e) of 14.2% while deposits are expected to grow by 12.8% in 2012. Increase in financing rates an upside potential RJHIs low cost of funding between 0.1% to 1.0% (demand deposits 96% of total) has allowed the bank to maintain high spreads, which have historically been twice that of conventional banks. Any increase in yields will enable the bank to expand its spreads further. High efficiency and returns justify premium valuations The bank enjoys one of the highest ROAE in the sector that could reach 33.6% by 2014. Given the bank's ability to grow loans faster than peers and higher efficiency, the premium valuation, in our view, is justified. Income Statement (SAR mn) Net Financing Income Non-Financing Income Provisions Operating Expenses Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Gross Financing Deposits Key Ratios Spreads Cost to Income Financing to Deposits NPFs /Gross Financing NPF Coverage ROAA ROAE Dividend Yield EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 5.8% 25.6% 84.1% 2.2% 125.2% 3.8% 25.3% 4.2% 4.5 18.2 18.4 4.6 2011e 5.1% 28.2% 81.8% 2.3% 112.8% 3.7% 26.1% 5.4% 4.9 19.4 14.2 3.6 2012e 5.1% 25.7% 82.5% 2.3% 121.7% 4.1% 30.2% 6.4% 6.1 21.2 11.3 3.3 2013e 5.2% 24.9% 83.9% 2.2% 131.8% 4.3% 32.4% 7.1% 7.2 23.5 9.6 3.0 2014e 5.3% 24.6% 83.9% 2.2% 136.4% 4.4% 33.6% 8.0% 8.4 26.3 8.3 2.6
1,500.0 104,250.0 27,797.8 11.3 3.3
65.8 2010 8,861 2,800 (1,909) (2,981) 6,771 2011e 8,734 3,550 (1,459) (3,459) 7,366 2012e 10,010 4,047 (1,257) (3,612) 9,189 2013e 11,737 4,580 (1,427) (4,056) 10,835 2014e 13,718 4,956 (1,545) (4,593) 12,536
1,146.2 22,677,132 3m 12m 2.6 -16.8 -4.2 -12.5
Price Volume Performance

5,000 4,000 3,000 2,000 1,000 85 80 75 70 65
2010 2011e 2012e 2013e 2014e 184,841 213,935 238,991 268,066 300,811 30,318 29,159 31,732 35,199 39,461 120,348 138,429 157,565 181,014 204,335 143,064 169,300 191,037 215,749 243,516
0
Volume ('000)
Source: Bloomberg
60
RJHI (SAR)
Digvijay Tanwar, CFA Senior Financial Analyst dtanwar@global.com.k w Phone: +965-2295-1275
January 2012
51
Global Research GCC
Samba Financial Group

Recommendation: Downside / Upside: Target Price (SAR): Current Price (SAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (SAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (SAR): 62.5 Avg Volume ('000) : Avg. Val. Traded (USD) Absolute (%): Relative (%): 1m -2.3 -5.2
BUY
17.3% 53.7 45.8 SAMBA AB 1090.SE
Expansion in balance sheet to drive profitability Although, the banks spreads currently at 2.9% are expected to remain stable in near future, loan book growth is expected to drive NSCI. The bank's strong corporate franchise and large deposit base will help expand its credit portfolio. We forecast net profit CAGR (2010-14e) of 11.8% Asset quality expected to improve on loan growth We project the slowdown in NPL formation posting an avg. rise (2010-14e) of 5.2%, which accompanied by higher loan growth to improve current NPL ratio from 3.9% at the end fo 2010 to 2.9% by 2014. The bank's loan to deposit ratio at 64.3% (the lowest in the sector) offers it attractive growth potential. Attractive growth potential & capability Samba's developed brand & services' platform, diversified revenues, high cost efficiency, ample liquidity & well capitalized asset base are believed to be a few of the growth drivers. Valuations at current levels look attractive. Income Statement (SAR mn) Net Interest Income Non-interest Income Provisions Operating Expenses Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loan to Deposits NPLs /Gross Loans NPL Coverage ROAA ROAE Dividend Yield EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 3.2% 27.7% 62.9% 3.9% 118.1% 2.4% 19.0% 2.9% 4.9 27.6 12.4 2.2 2011e 2.9% 29.4% 67.1% 3.7% 117.9% 2.3% 16.8% 3.8% 4.9 31.4 9.4 1.5 2012e 2.9% 28.4% 67.6% 3.3% 126.9% 2.4% 16.2% 4.2% 5.4 34.9 8.5 1.3 2013e 3.0% 27.4% 69.4% 3.0% 132.2% 2.6% 17.4% 4.7% 6.5 39.1 7.1 1.2 2014e 3.1% 26.7% 70.9% 2.9% 133.5% 2.8% 18.5% 5.6% 7.7 44.3 5.9 1.0
900.0 41,220.0 10,991.1 8.5 1.3
42.4 2010 4,536 2,364 (559) (1,910) 4,435 2011e 4,340 2,346 (266) (1,968) 4,452 2012e 4,656 2,645 (380) (2,076) 4,845 2013e 5,298 3,221 (373) (2,338) 5,808 2014e 6,119 3,879 (399) (2,670) 6,929
229.9 3,161,847 3m 12m 4.3 -23.7 -2.4 -19.4

1,200 1,000 800 65 60 55
600
400 200 0
50
45 40 35
2010 2011e 2012e 2013e 2014e 187,416 195,436 215,649 237,559 261,620 25,430 28,089 31,208 35,061 39,656 80,251 89,511 101,808 118,015 133,371 133,463 139,245 157,058 176,927 195,257
Source: Bloomberg
Volume ('000) SAMBA (SAR)
January 2012
52
Global Research GCC
Riyad Bank
Recommendation: Downside / Upside: Target Price (SAR): Current Price (SAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (SAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (SAR): 26.8 Avg Volume ('000) : Avg. Val. Traded (USD) Absolute (%): Relative (%): 1m 0.4 -2.5
BUY
11.9% 26.2 23.4 RIBL AB 1010.SE
Higher operating income and lower provisions to drive NI growth In addition to improved core-banking, we expect the decline in provisions to be the main profitability driver. We forecast net income to increase by 12.9% YoY in 2011 & post CAGR (2010-14e) of 15.1%. We do not project any significant change in NPL ratio which is expected to remain at current levels. Asset quality remains supreme second best among peers RIBLs asset quality remains one of the best amongst peers with a projected second best gross NPL ratio of 1.8% and NPL coverage of 128%. Going forward we believe the bank would be able to maintain high quality with adequate coverage. Provisioning charge is expected to be ~30-40bps. Well positioned to capture growth opportunities RIBL's developed relationships with private & public entities, accompanied by well spread & under-utilized retail network offers a wide range of business opportunities. Overall, we expect assets to post CAGR (2010-14e) of 8.7%. Income Statement (SAR mn) Net Interest Income Non-interest Income Provisions Operating Expenses Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loan to Deposits NPLs /Gross Loans NPL Coverage ROAA ROAE Dividend Yield EPS (SR) BVPS (SR) P/E (x) P/BV (x) 2010 2.8% 38.6% 83.5% 1.7% 126.2% 1.6% 10.2% 4.9% 1.9 18.7 14.1 1.4 2011e 2.8% 40.6% 83.9% 1.8% 128.5% 1.8% 11.2% 6.2% 2.1 19.3 11.1 1.2 2012e 2.7% 39.2% 83.9% 1.7% 142.4% 1.9% 12.0% 6.9% 2.4 20.0 9.9 1.2 2013e 2.7% 37.5% 84.8% 1.7% 144.6% 2.0% 13.7% 8.2% 2.8 20.9 8.3 1.1 2014e 2.8% 36.5% 84.8% 1.7% 149.1% 2.1% 15.4% 9.6% 3.3 21.9 7.1 1.1
1,500.0 35,100.0 9,359.3 9.9 1.2
21.1 2010 4,142 1,839 (850) (2,306) 2,825 2011e 4,179 2,046 (511) (2,526) 3,188 2012e 4,467 2,192 (491) (2,611) 3,557 2013e 5,101 2,401 (487) (2,810) 4,205 2014e 5,858 2,681 (470) (3,120) 4,950
344.5 2,285,876 3m 12m -0.6 -12.4 -7.4 -8.0

12,000 10,000 8,000 6,000 4,000 2,000 0 28 27 26 25 24 23 22 21 20
2010 2011e 2012e 2013e 2014e 173,556 180,994 198,983 220,836 242,046 29,233 28,996 30,066 31,326 32,792 106,035 114,971 128,766 147,182 163,317 126,945 137,101 153,553 173,515 192,602
Source: Bloomberg
Volume ('000) RIBL (SAR)
January 2012
53
Global Research GCC
The Saudi British Bank

Recommendation: Downside / Upside: Target Price (SAR): Current Price (SAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (SAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (SAR): 46.5 Avg Volume ('000) : Avg. Val. Traded (USD) Absolute (%): Relative (%): 1m 4.6 1.7
HOLD
5.7% 43.1 40.8 SABB AB 1060.SE
Lower provisions and better cost control to drive profitability We expect SABB's profitability to be mainly driven by reduction in provisions and better cost controls. While provisioning expense is likely to come down to ~50-70bps during 2011-14e compared to a high of 1.85% in 2009 & 1.6% in 2010, operating efficiency is expected to improve on better cost controls. Higher share of corporate loans and time deposits to pressure spreads SABB's increased focus towards corporate loans is increasing its ratio in its loan book vs. high yield retail loans. At the same time, time deposits have increased while less costly demand deposits have come down. This is likely to pressure SABBs spreads in the near term. Corporate loans to pickup on government spending SABB's diversified operating income stream and quality retail services, along with its ability to benefit from set of global business expertise (with HSBC as a strategic partner) will facilitate the bank's future growth. Income Statement (SAR mn) Net Interest Income Non-interest Income Provisions Operating Expenses Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads (%) Cost to Income (%) Loan to Deposits (%) NPLs /Gross Loans (%) NPL Coverage (%) ROAA (%) ROAE (%) Dividend Yield (%) EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 3.0% 36.2% 78.4% 3.4% 100.0% 1.5% 13.6% 1.8% 2.5 19.5 16.1 2.1 2011e 2.7% 31.8% 80.7% 3.4% 107.6% 2.2% 18.5% 1.8% 3.9 22.6 10.4 1.8 2012e 2.5% 32.6% 80.7% 3.4% 115.4% 2.2% 17.0% 2.7% 4.1 25.5 10.0 1.6 2013e 2.5% 31.4% 81.2% 3.2% 121.9% 2.3% 17.7% 2.9% 4.8 29.1 8.4 1.4 2014e 2.5% 30.9% 81.6% 3.1% 128.3% 2.5% 18.6% 3.5% 5.8 33.5 7.0 1.2
750.0 30,600.0 8,159.3 10.0 1.6
33.9 2010 3,243 1,637 (1,243) (1,754) 1,883 2011e 3,080 2,002 (570) (1,600) 2,912 2012e 3,235 2,228 (640) (1,760) 3,063 2013e 3,648 2,517 (628) (1,911) 3,625 2014e 4,205 2,952 (600) (2,183) 4,375
132.5 1,448,523 3m 12m 6.8 1.0 0.0 5.3

1,000 800 600 400 200 0 48 45 42
39
36 33 30
2010 2011e 2012e 2013e 2014e 125,373 134,670 149,282 168,484 186,176 15,172 16,916 19,134 21,861 25,149 74,248 82,895 92,815 108,316 121,996 94,673 102,720 115,046 133,454 149,468
Source: Bloomberg
Volume ('000) SABB (SAR)
January 2012
54
Global Research GCC
Banque Saudi Fransi

BUY
11.9% 47.3 42.3 BSFR AB 1050.SE
All round financial performance expected Besides core-income growth and reduced provisions, the banks noncommission income is believed to continue providing vital support to the bank's overall financial performance. We expect the bank's net income to increase by 10.6% YoY in 2011 and post CAGR (2010-14e) of 19.4%. Best NPL to gross loan ratio among peers BSF's asset quality is one of the best in the industry. NPL coverage at over 140% remains more than adequate. We expect NPL formation at an average (2010-14e) of 8.7%, coupled with rising loan portfolio to result in NPL ratio stabilizing at 1.1% by 2014. Improved business conditions to drive loan growth BSF's credit quality remain supportive for capturing greater opportunities, arising from improving business conditions. We expect the bank to well capitalize on its brand name and assets to post CAGR (2010-14e) of 9.5%. Income Statement (SAR mn) Net Interest Income Non-interest Income Provisions Operating Expenses Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loan to Deposits NPLs /Gross Loans NPL Coverage ROAA ROAE Dividend Yield EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 3.0% 28.6% 86.6% 1.2% 147.0% 2.3% 17.7% 2.7% 3.9 23.4 11.5 1.9 2011e 2.9% 31.6% 89.4% 1.2% 146.0% 2.4% 16.9% 3.5% 4.2 26.0 10.1 1.6 2012e 2.8% 29.7% 88.4% 1.2% 147.2% 2.4% 16.8% 3.5% 4.6 29.0 9.2 1.5 2013e 2.8% 27.7% 88.4% 1.1% 151.6% 2.5% 17.5% 3.5% 5.4 32.8 7.8 1.3 2014e 3.1% 26.2% 88.0% 1.1% 153.6% 2.7% 18.6% 3.9% 6.6 37.6 6.5 1.1
723.2 30,591.9 8,157.2 9.2 1.5
35.6 2010 3,066 1,329 (339) (1,259) 2,801 2011e 3,277 1,435 (239) (1,380) 3,097 2012e 3,640 1,597 (191) (1,442) 3,610 2013e 4,450 1,865 (127) (1,580) 4,618 2014e 5,372 2,150 (105) (1,733) 5,696
143.6 1,674,295 3m 12m 12.2 -6.2 5.4 -1.9

1,000
800 600 43 400 200 0 39 35
51
47
2010 2011e 2012e 2013e 2014e 123,218 132,979 145,281 162,085 177,409 18,004 18,832 21,178 24,409 28,565 80,977 89,273 97,839 109,430 119,081 93,529 104,005 113,365 126,969 138,396
Source: Bloomberg
Volume ('000) BSFR (SAR)
January 2012
55
Global Research GCC
Arab National Bank

BUY
18.5% 32.6 27.5 ARNB AB 1080.SE
Stable operating income and better cost efficiency to drive profitability With provisioning expense declining to 57bps vs 141bps in 2010, profits for 2011 is expected to jump by 27%. Going forward, ANB's core & non-core income is expected to go up driven by loan book growth. With cost efficiency improving, profits are projected to post CAGR (2010-14e) of 20.1%. Credit to grow with renewed focus With the risk aversion easing, we expect ANB's loan portfolio to grow by 13.4% in 2012 with focus on both corporate & retail sectors. JVs in Arabian Heavy Equipment Leasing Co., & Saudi Home Loan will help the bank to benefit from the growing infrastructure & mortgage credit demand. NPLs peak out and coverage adequate as asset quality stabilize The bank besides closely monitoring its credit portfolio (developing better control over its NPL situation) is expected to strengthen its current NPL coverage to 128% by 2014 while NPL ratio comes down to 2.3% by 2014. Income Statement (SAR mn) Net Interest Income Non-interest Income Provisions Operating Expenses Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loan to Deposits NPLs /Gross Loans NPL Coverage ROAA ROAE Dividend Yield EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 3.2% 36.5% 78.6% 3.0% 108.1% 1.7% 13.5% 2.9% 2.2 17.3 16.8 2.2 2011e 3.0% 38.1% 82.4% 3.0% 111.7% 2.0% 15.7% 3.3% 2.9 19.2 9.7 1.4 2012e 2.9% 36.5% 83.9% 2.8% 119.8% 2.2% 16.4% 5.7% 3.3 20.8 8.4 1.3 2013e 2.8% 36.2% 84.7% 2.5% 127.2% 2.4% 18.1% 6.5% 3.9 22.8 7.0 1.2 2014e 3.0% 35.8% 87.8% 2.3% 128.0% 2.6% 19.5% 7.8% 4.7 25.4 5.9 1.1
850.0 23,416.3 6,243.8 8.4 1.3
26.3 2010 3,158 1,359 (964) (1,644) 1,911 2011e 3,169 1,402 (412) (1,735) 2,424 2012e 3,354 1,575 (359) (1,792) 2,779 2013e 3,704 1,832 (206) (1,997) 3,334 2014e 4,397 2,114 (212) (2,323) 3,976
186.6 1,513,575 3m 12m 3.0 -9.0 -3.8 -4.7

1,200 1,000 800 36 34 32 30
600
28 400 200 0 26 24 22
2010 2011e 2012e 2013e 2014e 116,035 121,002 131,573 146,229 160,059 15,291 16,237 17,608 19,316 21,481 66,203 74,060 84,248 95,923 109,386 84,199 89,830 100,468 113,185 124,612
Source: Bloomberg
Volume ('000) ARNB (SAR)
January 2012
56
Global Research GCC
Saudi Hollandi Bank

HOLD
7.7% 32.0 29.7 AAAL AB 1040.SE
Lower impairment charges to boost bottom-line SHB's relatively slower credit expansion, coupled with low interest rates, is expected to keep core-income under pressure. However, we expect near term profitability to be driven by reduction in provisions & non-interest income growth. We expect NI to grow at CAGR (2011-14e) of 14.1%. Continued risk aversion to help improve asset quality The bank's more vigilant pruning of the loan book is believed to have cleared its portfolio from the majority of infected loans. We expect SHB's better control over NPLs situation, which is projected to facilitate the improvement in both NPL coverage & NPL ratio to 136.3% & 2.5%, respectively, by 2014. Corporate dominant credit book to tap into promising retail prospects The bank was watchful and very selective in its balance sheet expansion. However, with retail credit prospects looking better, the bank could grow its retail portion to alter its corporate dominated credit mix in favor of retail. Income Statement (SAR mn) Net Interest Income Non-interest Income Provisions Operating Expenses Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loan to Deposits NPLs /Gross Loans NPL Coverage ROAA ROAE Dividend Yield EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 2.6% 39.4% 84.2% 2.6% 124.4% 1.4% 13.2% 0.0% 2.4 19.3 12.3 1.5 2011e 2.7% 39.0% 80.9% 2.8% 123.2% 2.0% 16.1% 3.4% 3.3 21.6 9.0 1.4 2012e 2.7% 38.9% 81.8% 2.8% 125.4% 2.0% 15.7% 4.3% 3.6 23.9 8.3 1.2 2013e 2.6% 38.1% 82.4% 2.6% 132.2% 2.0% 15.8% 6.1% 4.0 26.1 7.5 1.1 2014e 2.8% 36.7% 82.2% 2.5% 136.3% 2.3% 17.9% 8.3% 4.9 28.6 6.1 1.0
330.8 9,823.3 2,619.3 8.3 1.2
25.7 2010 1,287 673 (398) (772) 790 2011e 1,332 707 (153) (796) 1,091 2012e 1,421 728 (130) (837) 1,183 2013e 1,555 810 (154) (901) 1,309 2014e 1,870 915 (139) (1,023) 1,623
78.0 605,467 3m 12m 15.6 0.3 8.8 4.6

1,400 1,200 1,000 800 600 400 200 0 26 24 30 28 34 32
2010 53,883 6,387 35,039 41,604
2011e 56,825 7,148 36,676 45,317
2012e 61,935 7,918 40,324 49,276
2013e 68,628 8,640 45,305 55,014
2014e 75,354 9,469 50,029 60,889
Source: Bloomberg
Volume ('000) AAAL (SAR)
January 2012
57
Global Research GCC
Burgan Bank
Recommendation: Downside / Upside: Target Price (KWD): Current Price (KWD): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (KWD mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (KWD): 0.55 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): -2.1 Relative (%): 0.7 Price Volume Performance
9,000 8,000 7,000 6,000 600 580 560 540 520 500 480 460 440 420 400
BUY
18.9% 0.55 0.46 BURG KK BURG.KW
Sharp rebound in profits is on the cards Burgan is forecast to see a sharp rebound in its bottom-line in 2011 carrying over from spectacular 9-month performance; we have raised our projections by 24% for 2011 and 12% for 2012. The bank is expected to exceed precrisis profit levels by 2013 and exhibit a 2011-2014 CAGR of 22%. Lower provisions and cleaner books to underpin Burgan's performance Having taken the full brunt of a weakening operating environment, Burgan's loan book seems cleaner & safer today than what it was in prior years. Provisions declined in 9M11 as NPL formation possibly decelerated while the bank stood at an adequate provisioning level. A good opportunity to buy, more so when market sentiment is positive The bank is trading at the lowest P/BV multiple in Kuwait and at a 17% discount to the Kuwait banking sector average. We see the stock would outperform its peers as soon as market sentiment reverses. Income Statement (KWD mn) Net interest income Non-interest income Provisions Operating expenses Net Profit Balance Sheet (KWD mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (fils) BVPS (fils) P/E (x) P/BV (x) 2010 3.2% 39.6% 87.2% 6.1% 72.9% 0.1% 1.2% 1.7% 3.2 288.4 27.9 1.0 2011e 3.1% 36.0% 88.9% 9.5% 55.1% 1.3% 12.4% 4.2% 37.2 311.6 12.8 1.5 2012e 3.2% 36.5% 91.7% 9.0% 65.5% 1.5% 13.7% 7.4% 44.3 335.8 10.4 1.4 2013e 3.3% 37.0% 94.3% 8.5% 73.2% 1.7% 15.7% 9.5% 54.3 355.1 8.5 1.3 2014e 3.5% 35.0% 97.7% 6.9% 89.9% 1.9% 18.4% 12.6% 67.4 377.4 6.8 1.2
1,471.4 676.8 2,430.5 10.4 1.4
/ 0.41 1,501.1 2,653,473 3m 12m -3.2 -13.8 -1.3 4.7
2010 107 58 (72) (65) 5
2011e 108 61 (22) (61) 55
2012e 122 70 (24) (70) 65
2013e 133 81 (21) (79) 80
2014e 152 93 (19) (86) 99
5,000 4,000 3,000

2,000
2010 4,150 424 2,236 2,565
2011e 4,360 458 2,332 2,624
2012e 4,599 494 2,484 2,709
2013e 4,893 522 2,683 2,845
2014e 5,299 555 3,001 3,072
1,000
0
Source: Bloomberg
Naveed Ahmed, CFA Senior Financial Analyst nahmed@global.com.k w Phone: +965-2295-1280
Volume ('000) BURG (fils) - RHS
January 2012
58
Global Research GCC
Commercial Bank of Kuwait

20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
HOLD
-5.5% 0.73 0.77 CBK KK CBKK.KW
Bottom-line performance in 2012 hinged on NPLs, shortfall in coverage CBK remains vulnerable to the weak economic environment while its NPL formation sees little respite; provision are expected to erode net income almost to nil in 2011. With limited improvement in income, the fate of CBK's earnings are expected to be steered by the performance of its provisions. Little hope of dividends for 2011 and windfall from Boubyan stake CBK has been a good dividend distributor (average 6 year DPS and payout ratio at 47% and 60% resp). With diminished profits in 2011, we expect it to be a repetition of 2009 when no dividends were given. Windfall from sale of Boubyan stake is still on the cards, but without clarity on timing. Expensive at current levels, fair value reduced by 8% CBK is currently trading at one of the highest multiples amongst Kuwaiti banks and those in the region. The bank lacks a good story and excitement related to income performance, we remain bearish on the stock. Income Statement (KWD mn) Net interest income Non-interest income Provisions Operating expenses Net Profit Balance Sheet (KWD mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (fils) BVPS (fils) P/E (x) P/BV (x) 2010 2.8% 24.4% 113.6% 15.4% 57.9% 1.1% 8.9% 1.6% 31.8 366.3 28.9 2.5 2011e 2.9% 21.3% 97.8% 6.9% 85.0% 0.1% 0.9% 0.0% 3.4 421.3 233.6 1.9 2012e 3.0% 21.8% 97.9% 7.5% 103.3% 1.2% 8.5% 2.6% 36.4 437.7 21.1 1.8 2013e 3.0% 22.0% 97.6% 7.5% 118.7% 1.7% 12.0% 6.0% 52.8 444.5 14.6 1.7 2014e 3.3% 21.1% 97.0% 7.5% 125.9% 2.1% 16.2% 8.1% 72.7 454.7 10.6 1.7
1,272.0 979.5 3,517.2 21.1 1.8
0.73 416.8 1,197,946 3m 12m -6.1 -18.1 -4.2 0.3
2010 88 36 (42) (30) 40
2011e 92 41 (84) (29) 4
2012e 95 46 (53) (31) 46
2013e 98 52 (41) (33) 67
2014e 110 56 (32) (35) 93
1000 950 900 850 800 750 700
2010 3,623 447 2,582 2,273
2011e 3,741 536 2,295 2,347
2012e 3,943 531 2,403 2,456
2013e 4,180 507 2,542 2,603
2014e 4,474 499 2,726 2,811
Volume ('000)
CBK (fils) - RHS
Source: Bloomberg
January 2012
59
Global Research GCC
Kuwait Finance House

Recommendation: Downside / Upside: Target Price (KWD): Current Price (KWD): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (KWD mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (KWD): 1.20 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): -3.3 Relative (%): -0.5 Price Volume Performance
14,000 12,000 10,000 1200 1150 1100 1050 1000 6,000 4,000 2,000 0 950 900 850 800
HOLD
4.0% 0.92 0.88 KFIN KK KFIN.KW
Profit recovery to set in from 2012 Despite having seen our previous prediction of 2011 being another tough year for KFH come to transpire, we have reduced our forecast for 2011 & 2012 by 13% & 23% resp. Profit recovery in 2012 will therefore be lower than previous expectations on a lackluster economic backdrop and asset quality issues. Little clarity on asset quality and level of provisioning Albeit a few entities that KFH had exposure to have seen debt restructuring in 2011, hinting at easing provisioning requirements, there is little information on where most of the NPLs are coming from. Even though we see a decline in provisions 2012 onwards, our assumptions come with low conviction. FV slashed by 5%, high trading multiples do not justify price KFH is one of the most expensive banks in Kuwait and the GCC. With lower than average ROE, high price multiples indicate a downside rather than an attractive investment opportunity. We have slashed our fair value by 5%. Income Statement (KWD mn) Net commission income Non-commission income Provisions Operating expenses Net Profit Balance Sheet (KWD mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (fils) BVPS (fils) P/E (x) P/BV (x) 2010 4.7% 52.1% 78.9% 12.4% 59.4% 0.9% 9.4% 1.7% 39.4 449.4 27.3 2.4 2011e 4.1% 53.3% 72.9% 12.5% 69.4% 0.7% 7.4% 1.1% 32.3 455.0 27.8 2.0 2012e 4.2% 53.9% 73.8% 11.8% 80.5% 0.9% 9.7% 1.8% 43.8 474.1 20.1 1.9 2013e 4.3% 53.5% 74.4% 9.8% 99.7% 1.1% 12.5% 2.8% 57.8 497.3 15.2 1.8 2014e 4.6% 52.4% 76.0% 8.7% 109.5% 1.4% 17.6% 4.5% 83.3 527.3 10.6 1.7
2,689.0 2,366.4 8,497.4 20.1 1.9
/ 0.88 1,949.0 7,153,469 3m 12m -2.2 -23.4 -0.4 -4.9
2010 355 219 (199) (298) 106
2011e 325 278 (205) (321) 87
2012e 339 268 (138) (327) 118
2013e 351 303 (118) (350) 155
2014e 393 359 (93) (394) 224
8,000
2010 12,548 1,159 7,360 7,649
2011e 13,384 1,194 7,951 8,943
2012e 14,150 1,224 8,508 9,453
2013e 15,199 1,260 9,260 10,197
2014e 16,485 1,291 10,239 11,041
Source: Bloomberg
Volume ('000) KFIN (fils) - RHS
January 2012
60
Global Research GCC
National Bank of Kuwait

25,000 20,000 15,000 10,000 5,000 0
HOLD
1.1% 1.13 1.12 NBK KK NBKK.KW
No expectations of any extraordinary performance We expect NBK to post 12%YoY profit growth in 2012 (stagnancy in 2011). This comes post pruning previous estimates (Strategy Update: Aug-11) by 4%YoY & 5%YoY for 2011 & 2012 resp. The growth in 2012 is not expected out of good operating performance but rather a decline in provisioning. High asset quality, coverage ratio but provisions will remain high NBK boasts excellent asset quality; the lowest in Kuwait and one of the lowest in the GCC. We nevertheless see some NPL formation in upcoming quarters as a weakening operating environment in Kuwait and Egypt catch up with it. However, with a coverage of over 200%, we remain comfortable. Limited upside potential at current levels, FV slashed by 3% Albeit, the bank stands out from amongst its peers given certain advantages that it has to offer, we believe that current trading multiples are not justified. Any correction in price levels, however should be taken advantage of. Income Statement (KWD mn) Net interest income Non-interest income Provisions Operating expenses Net Profit Balance Sheet (KWD mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (fils) BVPS (fils) P/E (x) P/BV (x) 2010 3.5% 31.9% 127.4% 1.6% 208.7% 2.3% 17.1% 3.5% 76.2 487.8 17.2 2.5 2011e 3.5% 30.5% 126.3% 1.6% 244.7% 2.3% 15.3% 3.2% 76.0 508.2 14.7 2.2 2012e 3.5% 31.0% 124.6% 1.7% 244.2% 2.5% 16.2% 3.6% 85.3 546.2 13.1 2.1 2013e 3.6% 32.0% 123.1% 1.7% 249.0% 2.6% 16.3% 3.7% 93.3 595.2 12.0 1.9 2014e 3.8% 32.5% 121.5% 1.7% 250.7% 2.7% 16.6% 3.9% 103.2 650.0 10.9 1.7
3,957.7 4,432.7 15,917.3 13.1 2.1
/ 1.00 2,094.9 8,919,012 3m 12m 5.7 -15.6 7.5 2.8
2010 359 140 (12) (174) 302
2011e 381 153 (44) (180) 301
2012e 398 165 (29) (193) 337
2013e 424 183 (18) (214) 369
2014e 472 198 (16) (240) 408
1400 1350 1300 1250 1200 1150 1100 1050 1000
2010 12,899 1,931 8,133 6,385
2011e 13,206 2,011 8,256 6,538
2012e 13,844 2,162 8,475 6,800
2013e 14,547 2,356 8,747 7,106
2014e 15,344 2,572 9,065 7,461
Volume ('000)
NBK (fils) - RHS
Source: Bloomberg
January 2012
61
Global Research GCC
Bank Muscat
Recommendation: Downside / Upside: Target Price (OMR): Current Price (OMR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (OMRmn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (OMR): 0.90 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): 7.8 Relative (%): 4.2 Price Volume Performance
5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 1.00 0.90 0.80 0.70 0.60 0.50
HOLD
-6.8% 0.71 0.76 BKMB OM BMAO OM
Bank Muscat plans a right issue of OMR100mn during 2Q12 Bank Muscat is aiming to maintain its capital adequacy ratio higher than the regulatory requirement of 12% through right issue. As of 3Q11, the banks capital adequacy ratio is 12.8% and the bank is expecting an aggressive growth in assets in 2012 which will decrease its capital adequacy ratio. Bank Muscat to secure USD170mn subordinate debt from IFC The bank is sourcing funds to meet the growing demand for credit. The bank's is strengthening its capital position to support long-term dollar funding and asset growth. However, Bank Muscat is waiting for the approval of the IFC board and the regulators in the Sultanate. Bank Muscat shares are fairly valued We believe that the bank shares are fairly valued with a 2012e P/BV of 1.3x, the banks shares it has a downside potential.
1,548.4 1,181.4 3,068.6 8.2 1.2
0.66 994.4 1,927,635 3m 12m 15.8 -11.9 12.3 5.0
Income Statement (OMRmn) Net interest income Non-interest income Provisions Operating expenses Net Profit Balance Sheet (OMRmn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (OMR) BVPS (OMR) P/E (x) P/BV (x)
2010 187 66 (33) (103) 102
2011e 227 71 (39) (120) 120
2012e 247 83 (33) (129) 144
2013e 273 92 (42) (137) 160
2014e 309 102 (51) (140) 189
2010 5,851 796 4,194 3,527
2011e 7,118 883 4,974 4,876
2012e 7,459 989 5,185 5,237
2013e 8,204 1,087 6,042 5,866
2014e 8,919 1,183 6,960 6,628
Volume ('000)
Source: Bloomberg
BKMB (OMR)
Lamya Hayat Senior Financial Analyst lhayat@global.com.k w Phone: +965-2295-1203
2010 3.5% 38.8% 124% 4.2% 105.9% 1.7% 13.5% 2.4% 0.075 0.591 12.0 1.0
2011e 3.6% 39.4% 102% 4.5% 108.8% 1.8% 14.3% 2.3% 0.077 0.570 9.9 1.3
2012e 3.9% 39.0% 99% 4.3% 132.5% 2.0% 15.4% 3.2% 0.093 0.638 8.2 1.2
2013e 3.7% 37.7% 103% 4.2% 140.2% 2.0% 15.4% 3.2% 0.104 0.702 7.4 1.1
2014e 3.7% 34.4% 105% 4.0% 152.8% 2.2% 16.6% 5.2% 0.122 0.764 6.3 1.0
January 2012
62
Global Research GCC
National Bank of Oman

Recommendation: Downside / Upside: Target Price (OMR): Current Price (OMR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (OMR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (OMR): 0.35 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): 3.5 Relative (%): 0.0 Price Volume Performance
3,000 2,500 2,000 1,500 1,000 500 0 0.36 0.35 0.34 0.33 0.32 0.31 0.3 0.29 0.28 0.27
HOLD
3.7% 0.33 0.32 NBOB OM NBO.OM
NBO is focusing on being a pioneer in lunching Islamic operations Islamic banking has been named as a key area for development at NBO. The banks will capitalize on the opportunities presented by the innovative industry and meeting the increasing demand for Sharia-compliant finance. NBO will benefit from CBQs experience in this field Expected slowdown in loans and deposits in 2012 NBO have witnessed a phenomenal loan growth of 15.5% in 3Q11. We believe that this aggressive growth in loans will be tuned down to 10% in 2012. We believe that deposits will follow the same behavior slowing down from 16.5% in 3Q11 to 9.6% in 2012. The journey of change in management continues NBO has seen high attrition in its high ranked cadres which is a challenge that needs to be tackled. In October, NBO has appointed a new deputy chief executive officer. Income Statement (OMR mn) Net interest income Non-interest income Provisions Operating expenses Net Profit Balance Sheet (OMR mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (OMR) BVPS (OMR) P/E (x) P/BV (x) 2010 3.6% 51.1% 103% 4.3% 111.5% 1.5% 11.2% 4.6% 0.025 0.246 16.4 1.5 2011e 3.8% 46.0% 101% 4.2% 121.6% 1.9% 14.5% 6.6% 0.034 0.263 9.3 1.2 2012e 3.9% 43.8% 113% 3.8% 148.3% 1.9% 16.0% 7.7% 0.040 0.283 8.0 1.1 2013e 4.0% 40.8% 115% 3.6% 162.7% 2.1% 18.2% 10.2% 0.049 0.307 6.6 1.0 2014e 4.1% 37.5% 118% 3.1% 197.0% 2.3% 20.1% 12.0% 0.057 0.333 5.6 1.0
1,081.0 347.0 901.3 8.0 1.1
0.30 261.0 217,770 3m 12m 3.5 -8.0 0.1 8.9
2010 55.6 22.5 (7.3) (39.9) 27.2
2011e 62.3 31.5 (8.2) (43.1) 37.1
2012e 71.1 33.8 (9.8) (46.0) 43.2
2013e 83.4 36.1 (11.2) (48.8) 52.5
2014e 97.6 38.9 (14.8) (51.2) 62.0
2010 2011e 2012e 1,804.9 2,173.9 2,349.7 265.8 284.7 305.7 1,432.4 1,722.8 1,897.3 1,324.9 1,617.7 1,773.2
2013e 2,581.7 332.2 2,157.0 1,978.9
2014e 2,871.3 360.1 2,473.2 2,228.1
Source: Bloomberg
Volume ('000) NBOB (OMR)
January 2012
63
Global Research GCC
Bank Dhofar
1,000 900 800 700 600 500 400 300 200 100 0
SELL
-36.9% 0.35 0.55 BKDB OM BDOF.OM
One off loss on legal cases to be reversed Despite the higher operating income the bank reported a loss in 3Q11 due to the legal dispute loss. The primary court issued a cancelation to the court enforcement judgment. This will reflect positively on the profitability as the amount of RO26.1 mn will be returned back to Bank Dhofar's account. Increase in provisions Provision for loan impairment has increased by 18.9%YoY while loan impairments recoveries, on the other hand, have doubled in 3Q11 compared to last year. However, this increase is considered normal if compared to the loan growth . Rich valuations Bank Dhofar is currently trading at 2012 P/BV 1.8x and P/E 12.0x, which is considered to be higher than the industry average of P/BV 1.3x and P/E 10.9x. Income Statement (OMR mn) Net interest income Non-interest income Provisions Operating expenses Net Profit Balance Sheet (OMR mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios
915.2 504.3 1,309.9 12.0 1.8
0.51 86.0 140,284 3m 12m 3.0 -17.1 -0.4 -0.2
2010 57.3 14.1 (4.2) (29.2) 33.3
2011e 62.7 17.3 (4.1) (32.3) 38.3
2012e 70.0 17.1 (3.7) (35.5) 42.1
2013e 76.6 18.4 (3.5) (37.9) 47.2
2014e 88.2 19.9 (3.4) (40.5) 56.5
0.70
0.60
2010 1,664 227 1,333 1,250
2011e 1,780 261 1,411 1,307
2012e 1,943 288 1,555 1,434
2013e 2,140 315 1,746 1,601
2014e 2,379 348 1,976 1,805
0.50
Volume ('000)
Source: Bloomberg
BKDB (OMR)
Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (OMR) BVPS (OMR) P/E (x) P/BV (x)
2010 3.6% 40.9% 101% 4.6% 116.1% 2.1% 15.5% 2.1% 0.041 0.278 13.5 2.0
2011e 3.8% 40.4% 102% 4.0% 138.1% 2.2% 15.7% 2.6% 0.042 0.285 13.1 1.9
2012e 3.9% 40.8% 103% 3.8% 144.1% 2.3% 15.4% 2.5% 0.046 0.314 12.0 1.8
2013e 3.9% 39.9% 103% 3.8% 137.6% 2.3% 15.7% 3.2% 0.052 0.344 10.7 1.6
2014e 4.1% 37.4% 104% 3.8% 129.8% 2.5% 17.0% 3.8% 0.062 0.380 8.9 1.5
January 2012
64
Global Research GCC
Oman International Bank

5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0
SELL
-27.8% 0.21 0.29 OIBB OM
OIB to merge with HSBC Omans fourth largest bank, OIB, is currently in discussion with HSBC on a possible merger agreement. This merger is expected to create a stronger entity through synergies driven by the strong global experience of HSBC and bringing innovative product to the Omani banking sector Lawsuit filed against Bank Dhofar Oman International Bank filed a claim of proceeds of sale of shares of Bank Dhofar that were pledged by the Ali Redha group in favor of OIB. Post the primary court judgment, OIB will not receive the claimed amount which is OMR26.1mn. Lack of assets growth Unlike its peers, OIB assets remained stagnant in 2011 and did not take a share of the sectors growth. However, we are expecting the assets growth to pick up in 2012 so the bank maintains its position compared to its peers. Income Statement (OMR mn) Net interest income Non-interest income Provisions Operating expenses Net Profit Balance Sheet (OMR mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (OMR) BVPS (OMR) P/E (x) P/BV (x) 2010 3.2% 51.9% 80% 10.0% 108.4% 1.6% 10.3% 5.2% 0.019 0.185 15.1 1.6 2011e 2.9% 52.6% 81% 9.5% 117.2% 1.4% 9.4% 2.7% 0.018 0.195 15.6 1.4 2012e 3.0% 50.3% 83% 9.0% 114.9% 1.6% 10.5% 3.2% 0.021 0.207 13.8 1.4 2013e 3.0% 48.8% 85% 9.0% 105.9% 1.7% 11.5% 3.7% 0.024 0.220 11.9 1.3 2014e 3.1% 46.3% 87% 9.0% 97.0% 1.8% 12.8% 4.5% 0.029 0.236 9.9 1.2
968.1 281.7 731.7 13.8 1.4
0.24 405.1 285,182 3m 12m 10.2 8.6 6.8 25.5
2010 29.8 10.3 0.7 (20.8) 17.6
2011e 29.5 11.4 (0.8) (21.5) 16.4
2012e 34.7 11.9 (1.3) (23.4) 19.3
2013e 39.9 12.4 (1.4) (25.5) 22.3
2014e 47.1 12.9 (1.9) (27.8) 26.7
0.30 0.28 0.26 0.24 0.22 0.20
2010 2011e 2012e 1,155.6 1,139.5 1,251.7 169.1 178.1 188.7 716.8 729.6 821.6 797.0 797.4 883.4
2013e 1,387.2 201.0 930.1 989.4
2014e 1,549.3 215.7 1,062.2 1,118.1
Volume ('000)
Source: Bloomberg
OIBB (OMR)
January 2012
65
Global Research GCC
Ahli Bank
3,000 2,500 2,000 1,500 1,000 500 0 0.24 0.22 0.20 0.30 0.28 0.26
HOLD
6.3% 0.28 0.26 ABOB OM ABOB.OM
Ahli bank enhances its market share Ahli bank is still witnessing an aggressive growth in its assets taking advantage of the growth in Omani banking sector. The bank enhanced its position among its peer this year by gaining 6.3% market share in 9M11 compared to 6.1% in 2010. Ahli Bank is the best performing bank in Oman The banks profit increased by 29.4%YoY in 3Q11. Total Assets have reached OMR898mn representing a growth of 31.5%YoY. Loans and advances grew by 29%YoY and deposits grew by 32.2% YoY in 3Q11. in 2011, Ahli bank has received an award of best performing bank in Oman Limited upside potential We believe that the bank is going to witness double digit growth in 2012. We believe that growth will continue, however the share price have captured this growth leaving it with a limited upside potential. Income Statement (OMR mn) Net interest income Non-interest income Provisions Operating expenses Net Profit Balance Sheet (OMR mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (OMR) BVPS (OMR) P/E (x) P/BV (x) 2010 3.1% 36.1% 104% 0.4% 132.4% 2.0% 14.5% 2.5% 0.020 0.143 17.2 1.6 2011e 3.2% 28.6% 106% 0.5% 200.5% 2.3% 17.8% 3.3% 0.025 0.155 10.6 1.7 2012e 3.2% 27.7% 106% 0.5% 217.6% 2.6% 19.4% 4.2% 0.032 0.176 8.2 1.5 2013e 3.2% 29.3% 107% 0.6% 225.7% 2.5% 18.8% 4.6% 0.035 0.198 7.4 1.3 2014e 3.3% 30.3% 108% 0.6% 227.5% 2.5% 18.8% 5.2% 0.040 0.224 6.6 1.2
801.4 209.2 543.3 8.2 1.5
0.25 293.5 207,883 3m 12m 0.4 -5.3 -3.1 11.6
2010 19.4 6.3 (0.5) (9.3) 13.9
2011e 27.8 9.1 (3.5) (10.6) 20.1
2012e 33.1 10.8 (2.7) (12.2) 25.6
2013e 37.7 11.9 (3.1) (14.5) 28.2
2014e 44.0 13.1 (3.6) (17.3) 31.9
2010 805.6 101.9 659.9 632.2
2011e 2012e 931.8 1,055.0 123.9 140.5 773.1 885.2 720.5 823.5
2013e 1,201.2 158.8 1,022.8 947.0
2014e 1,369.0 179.6 1,192.6 1,094.1
Source: Bloomberg
Volume ('000) ABOB (OMR)
January 2012
66
Global Research GCC
Al Rayan Bank
Recommendation: Downside / Upside: Target Price (QAR): Current Price (QAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (QAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (QAR): 28.1 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): 3.9 Relative (%): 2.7 Price Volume Performance
15,000 12,000 9,000 6,000 3,000 0
HOLD
-2.2% 27.24 27.85 MARK QD MARK.QA
Now the largest Islamic bank by loan book in Qatar MAR is the fastest growing Islamic bank with a loan CAGR of 56% during 2007-10, albeit on a low base. In 9M11 loan growth has been 15%YTD with the loan book now bigger than QIB. Strong tie-ups with the State will ensure that the bank continues to benefit from increased State spending. Robust financial performance that is expected to continue Financial performance historically has been very strong & we expect it to remain so, with our forecasts suggesting an earnings CAGR of 13.3% until 2014.The Islamic banking regulatory changes, clean balance sheet, & high capitalization will ensure that the bank outgrow most peers in the short term. Rich valuation - Growth factored in price The bank deserves to trade at a premium to the sector, considering its high growth and strong ROAE that is expected to continue. However, valuations at current levels look a bit stretched. Income Statement (QAR mn) Net Financing Income Total Other Income Provisions Operating Expenses Net Profit Balance Sheet (QAR mn) Assets Shareholders' Equity Financing Receivables Investment Acc.holders Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA (%) ROAE (%) Dividend Yield (%) EPS (QAR) BVPS (QAR) P/E (x) P/BV (x) 2010 4.1% 17.3% 92.8% 0.0% 100.5% 4.1% 23.8% 13.8% 1.6 6.9 11.8 2.8 2011e 2.2% 18.6% 72.9% 0.3% 105.0% 3.1% 20.7% 5.1% 1.8 10.5 15.5 2.7 2012e 2.8% 22.4% 78.5% 0.5% 105.0% 2.6% 18.1% 4.9% 1.9 11.0 14.3 2.5 2013e 2.9% 23.6% 82.0% 0.7% 105.0% 2.6% 19.6% 5.6% 2.2 11.7 12.5 2.4 2014e 3.1% 24.4% 84.6% 1.0% 105.0% 2.7% 21.7% 5.7% 2.7 12.8 10.5 2.2
749.9 20,887.5 5,736.3 14.3 2.5
/ 19.3 1,829.8 11,687,193 3m 12m 15.3 44.3 6.4 45.5
2010 1,047 321 81 (237) 1,211
2011e 685 1,079 (91) (329) 1,345
2012e 956 1,071 (115) (454) 1,457
2013e 1,203 1,243 (195) (577) 1,675
2014e 1,690 1,320 (278) (735) 1,996
30 28 26 24 22
2010 34,683 5,150 25,064 27,017
2011e 51,370 7,845 30,445 41,746
2012e 59,963 8,283 39,113 49,852
2013e 69,470 8,785 48,079 58,625
2014e 79,047 9,583 56,896 67,289
20
18 16
Volume ('000)
Source: Bloomberg
MARK (QAR)
January 2012
67
Global Research GCC
Qatar Islamic Bank

Recommendation: Downside / Upside: Target Price (QAR): Current Price (QAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (QAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (QAR): 91.1 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): -0.4 Relative (%): -1.5 Price Volume Performance
2,500 2,000 1,500 1,000 500 0
HOLD
-1.9% 82.92 84.50 QIBK QD QISB.QA
Overall performance weak - Profitability up on Investment Income QIB recorded a 22% jump in 9M11 profitability boosted by 8.8x surge in investment income as investment securities jumped 3x YTD. However, core financing and fee & commission income has fallen by 6% and 7% YoY respectively indicating low quality earnings growth. Islamic banking regulation catalyst to loan growth Although lending has fallen -8.6% in first nine months and investment accountholders down 12.7%, we believe that a favorable impact of the QCB regulation on closure of Islamic operations of conventional banks by 2011 may come into effect only in 2012 with QCB raising the year end deadline. Valuations appear to be stretched For 2012, we forecast a 9% jump in operating profits and a 10% jump in profits. Lending as well as deposits are expected to grow by 20%. Notwithstanding the high growth, valuations at current levels look rich. Income Statement (QAR mn) Net Financing Income Total Other Income Provisions Operating Expenses Net Profit Balance Sheet (QAR mn) Assets Shareholders' Equity Financing Receivables Investment Acc.holders Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA (%) ROAE (%) Dividend Yield (%) EPS (QAR) BVPS (QAR) P/E (x) P/BV (x) 2010 3.8% 25.1% 97.0% 1.1% 111.5% 2.9% 17.2% 6.2% 6.2 33.7 13.1 2.4 2011e 3.7% 30.4% 97.1% 1.2% 110.3% 2.8% 16.6% 6.1% 6.4 43.1 13.2 2.0 2012e 4.0% 30.7% 97.2% 1.2% 100.0% 2.8% 16.0% 6.7% 7.0 44.5 12.0 1.9 2013e 3.9% 28.7% 97.2% 1.2% 100.0% 2.9% 17.9% 7.8% 8.1 46.1 10.4 1.8 2014e 4.0% 27.8% 97.2% 1.3% 100.0% 2.8% 19.1% 8.6% 9.0 47.9 9.4 1.8
236.3 19,966.8 5,483.4 12.0 1.9
75.6 193.6 4,361,245 3m 12m 7.1 0.4 -1.9 1.6
2010 1,417 490 (40) (479) 1,335
2011e 1,350 985 (72) (710) 1,505
2012e 1,428 1,112 (50) (781) 1,658
2013e 1,678 1,234 (105) (837) 1,911
2014e 1,987 1,196 (115) (884) 2,119
95 90 85 80 75 70
2010 51,765 7,969 29,352 30,258
2011e 54,448 10,182 28,311 29,163
2012e 62,146 10,513 34,502 35,490
2013e 70,211 10,896 40,824 42,006
2014e 78,868 11,320 47,636 49,028
Volume ('000)
Source: Bloomberg
QIBK (QAR)
January 2012
68
Global Research GCC
Doha Bank
Recommendation: Downside / Upside: Target Price (QAR): Current Price (QAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (QARmn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (QAR): 66.4 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): 1.5 Relative (%): 0.3 Price Volume Performance
2,000 1,600 1,200 800 400 0
HOLD
1.9% 67.27 66.00 DHBK QD DOBK.QA
Recent results disappoints - profits down 9% QoQ Doha's 3Q11 results were hit by weak operating income and higher costs. While the loan book witnessed a QoQ expansion, net interest margins (NIMs) came under pressure during the quarter on lower asset spreads despite lower cost of funding. Cost efficiency deteriorated further. Asset quality improves on write off NPL ratio of the bank almost halved to 2.1%, as the bank recognized QAR564mn in NPL write-offs while coverage improved to 98% in 3Q11. Going forward, we see benefits of lower provisioning charges 50-60bps vs. peak of 1.15% in 2010 resulting in a healthier ROAE of ~23%. Dividend play rather than growth Given the bank's low capitalization level and its retail focus, growth is expected to remain sluggish in the near term. Nonetheless dividend yield historically has been high and expected to remain so. Income Statement (QAR mn) Net Interest Income Non-Interest Income Provisions Operating Expenses Net Profit Balance Sheet (QAR mn) Assets Shareholders' Equity Net Loans & Financings Deposits from Customers Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA (%) ROAE (%) Dividend Yield (%) EPS (QAR) BVPS (QAR) P/E (x) P/BV (x) 2010 4.9% 33.8% 86.1% 3.9% 92.2% 2.3% 21.0% 7.7% 5.8 24.6 11.2 2.6 2011e 4.6% 34.7% 94.1% 2.1% 93.5% 2.7% 23.7% 7.9% 7.3 29.3 8.8 2.2 2012e 4.2% 35.0% 89.0% 2.3% 95.0% 2.7% 23.1% 8.7% 7.9 30.5 8.4 2.2 2013e 4.1% 33.4% 90.8% 2.5% 95.0% 2.7% 24.3% 9.5% 8.7 31.8 7.6 2.1 2014e 4.0% 32.3% 90.7% 2.6% 95.0% 2.6% 25.2% 10.3% 9.4 33.3 7.0 2.0
206.7 13,642.1 3,746.5 8.4 2.2
45.6 212.5 3,359,894 3m 12m 15.6 -0.5 6.6 0.8
2010 1,532 607 (359) (723) 1,054
2011e 1,728 617 (212) (813) 1,318
2012e 1,769 742 (200) (880) 1,429
2013e 1,779 886 (208) (889) 1,565
2014e 1,841 926 (175) (894) 1,695
70 65 60 55 50 45 40
2010 47,230 5,087 26,547 30,822
2011e 51,009 6,058 29,423 31,262
2012e 55,624 6,299 30,888 34,701
2013e 61,299 6,573 35,286 38,866
2014e 67,614 6,874 39,482 43,529
Volume ('000)
Source: Bloomberg
DHBK (QAR)
January 2012
69
Global Research GCC
Commercial Bank of Qatar

2,500 2,000 1,500 1,000 500 0
BUY
14.7% 98.0 85.5 CBQK QD COMB.QA
9M11 results positive and beat consensus estimates CBQ's 9M11 net profit jumped 14% YoY while total assets have grown 17% YTD. These are strong set of numbers. The regulatory changes in the retail sector has so far had limited impact. Increasing government business to impact margins CBQ is aggressively looking to target public sector business which is increasing its ratio in its loan book. This could be detrimental to margins and fee and commission income as public sector business is low margin in nature. Nonetheless, high loan book will support operating income. Strong outlook and high dividend yield The recent results re-affirm our positive outlook on CBQs stock. Given its relatively strong balance sheet, solid long-term funding and high capitalization level, the bank is expected to do well in the near term. Dividend yield is expected to remain high. Income Statement (QAR mn) Net Interest Income Non-Interest Income Provisions Operating Expenses Net Profit Balance Sheet (QAR mn) Assets Shareholders' Equity Net Loans & Financings Deposits from Customers Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA (%) ROAE (%) Dividend Yield (%) EPS (QAR) BVPS (QAR) P/E (x) P/BV (x) 2010 3.7% 32.5% 103.8% 3.2% 89.7% 2.7% 15.1% 7.6% 7.2 44.1 12.8 2.1 2011e 3.5% 29.8% 115.0% 2.8% 101.0% 3.1% 17.3% 7.1% 9.1 52.2 9.2 1.6 2012e 3.3% 30.3% 110.0% 2.9% 101.0% 3.0% 17.5% 8.3% 10.1 53.6 8.5 1.6 2013e 3.3% 29.8% 107.5% 3.0% 100.0% 3.0% 18.9% 9.5% 11.1 54.7 7.7 1.6 2014e 3.2% 30.2% 105.0% 3.1% 100.0% 2.9% 19.6% 10.1% 11.8 55.8 7.2 1.5
247.4 21,156.7 5,810.2 8.5 1.6
64.5 223.7 4,775,556 3m 12m 15.4 -8.1 6.4 -6.8
2010 1,778 939 (295) (787) 1,635
2011e 1,943 1,194 (199) (876) 2,062
2012e 2,202 1,412 (322) (997) 2,295
2013e 2,287 1,694 (380) (1,073) 2,528
2014e 2,348 1,893 (407) (1,158) 2,676
95 90 85 80 75
2010 62,520 10,912 33,567 33,281
2011e 72,363 12,904 43,060 38,513
2012e 80,717 13,256 47,729 44,676
2013e 87,912 13,525 52,176 50,037
2014e 95,798 13,802 57,019 56,041
70
65 60
Volume ('000)
Source: Bloomberg
CBQK (QAR)
January 2012
70
Global Research GCC
Qatar National Bank

1,000 800 600 400 200 0
HOLD
8.4% 169.0 155.9 QNBK QD QNBK.QA
Continues to deliver robust financial performance With a net profit growth of 32% in 2011, financial performance continues to be super strong. Growth was strong in all revenue lines, while cost were contained. With over USD100mn planned state spending on infrastructure, QNB will be a key beneficiary. Expansion in balance sheet to drive profitability Given the strong surge in lending & impressive deposit growth witnessed in 2011, we have revised our 2012 loan-growth upwards by 4.6% while deposits have been revised by 4.5%. We see a CAGR (2011-14) of 11% asset growth. Good visibility, good earnings, low risk premium justified We continue to believe that QNBs business model remains robust and asset quality supreme. Given its size (largest listed bank by assets in GCC) and strong ties with the state, the bank will continue to capture Qatars public sector credit growth which is expected to remain high in the near term. Income Statement (QAR mn) Net Interest Income Non-Interest Income Provisions Operating Expenses Net Profit
636.1 99,170.7 27,235.0 11.4 2.4
115.7 219.4 8,322,881 3m 12m 11.8 9.3 2.8 10.5
2010 5,675 1,934 (600) (1,292) 5,702
2011* 7,800 2,400 (1054)^ (1601)^ 7,500
2012e 8,954 2,873 (933) (2,163) 8,670
2013e 10,309 3,449 (1,065) (2,575) 10,048
2014e 11,423 4,104 (952) (3,023) 11,472
155 150 145 140 135 130 125 120 115
Balance Sheet (QAR mn) 2010 2011* 2012e 2013e 2014e Assets 223,382 302,000 331,075 372,448 414,255 Shareholders' Equity 22,280 38,000 41,813 46,776 52,845 Net Loans & Financings 131,696 194,000 214,802 250,557 280,892 Deposits from Customers 165,470 200,000 245,026 276,880 307,336 Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA (%) ROAE (%) Dividend Yield (%) EPS (QAR) BVPS (QAR) P/E (x) P/BV (x) 2010 3.4% 17.0% 79.6% 1.0% 117.7% 2.8% 27.9% 3.8% 9.0 35.0 14.8 3.8 2011^ 3.4% 15.6% 97.0% 1.1% 119.0% 2.9% 24.2% 2.6% 11.8 62.8 13.2 2.5 2012e 3.0% 18.3% 87.7% 1.3% 120.0% 2.8% 21.8% 5.0% 13.6 65.7 11.4 2.4 2013e 2.9% 18.7% 90.5% 1.4% 117.0% 2.9% 22.7% 5.4% 15.8 73.5 9.9 2.1 2014e 2.9% 19.5% 91.4% 1.5% 115.0% 2.9% 23.0% 5.7% 18.0 83.1 8.6 1.9
Volume ('000)
Source: Bloomberg
QNBK (QAR)
Source: Company Reports & Global Research * 2011 figures based on press release dated 9 Jan 2012 ^ Our estimates
January 2012
71
Global Research GCC
First Gulf Bank

Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (AED): 18.8 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): -3.8 Relative (%): -0.8 Price Volume Performance
3,000 2,500 2,000 1,500 1,000 20 19 18 17 16 15 14 13 12
STRONG BUY
59.4% 24.55 15.40 FGB UH FGB.AD
Robust earnings trajectory in a tough market FGB has weathered severe asset deterioration, adverse regulatory changes and tough operating environment without any decline in profitability. The bank boasts an above average ROE banking on robust top-line growth and cost leadership. We expect FGB to post a 2011 - 2014 earnings CAGR of 18%. Asset quality issues remain but are manageable FGB's NPLs were stagnant for 9M11, outperforming our initial assessment. Albeit mostly due to write-offs, the bank did escape severe deterioration. Taking a very conservative stance for 2012, even if provisions remain at current levels, we believe that FGB will still show an improvement in profit. Laggard behaviour will not remain forever, downside risk is limited 2011 was not a fruitful year for the bank's stock despite strong fundamentals & cheap valuations. Renewed interest in it after the increase in FOL was shortlived on negative market news. We still remain strongly upbeat on it. Income Statement (AED mn) Net interest income Non-interest income Provisions Operating expenses Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 3.6% 17.8% 96.8% 4.6% 72.1% 2.6% 18.5% 3.6% 2.3 12.8 7.3 1.4 2011e 3.9% 18.5% 104.4% 4.2% 107.6% 2.4% 17.2% 4.6% 2.4 14.9 6.5 1.0 2012e 3.9% 19.2% 105.5% 4.6% 119.0% 2.4% 16.3% 7.4% 2.6 16.3 6.0 0.9 2013e 3.9% 19.0% 105.6% 4.5% 135.3% 2.8% 18.0% 9.0% 3.1 18.0 5.0 0.9 2014e 3.8% 18.7% 105.6% 4.0% 150.4% 3.2% 20.5% 11.3% 3.9 20.1 4.0 0.8
1,500.0 23,100.0 6,289.0 6.0 0.9
14.0 390.7 1,748,612 3m 12m 10.4 -12.1 14.0 0.8
2010 4,257 2,048 (1,639) (1,122) 3,420
2011e 5,127 1,385 (1,592) (1,207) 3,573
2012e 5,441 1,377 (1,515) (1,312) 3,833
2013e 5,810 1,800 (1,346) (1,442) 4,643
2014e 6,402 1,947 (739) (1,565) 5,843
2010 2011e 2012e 2013e 2014e 140,758 159,632 161,088 172,407 189,992 19,226 22,416 24,476 26,981 30,147 98,923 108,096 116,941 127,210 141,085 98,742 98,857 104,788 113,171 125,620
500
0
Source: Bloomberg
Volume ('000) FGB (AED) - RHS
January 2012
72
Global Research GCC
National Bank of Abu Dhabi

Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (AED): 11.9 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): -0.9 Relative (%): 2.0 Price Volume Performance
2,500 2,000 1,500 1,000 500 0
BUY
15.9% 12.63 10.90 NBAD UH NBAD.AD
Beats industry growth for deposit and loans for 2011 NBAD is expected to record over 15%YoY growth in both loans and deposits for 2011, beating sector growth by a huge margin. The muscle shown by the bank in loans disbursement and deposit mobilization without any upward pressure in cost speaks volumes of its operating strength. NPL ratio seen to spike in 2012 but far from disconcerting levels We see a 100bps addition to NBAD's NPL ratio in 2011 and another 40bps in 2012 due to local exposure and that in Egypt & Libya. The bank is however capable of providing well for this without any visible decline in profits. NBAD's coverage ratio has been and is expected to stand at very comfortable levels. Story: Low risk, good returns NBAD boasts the highest ROE within our UAE banking universe and stands out as the safest bank within our UAE universe. We believe that the bank's trading multiples are low and attractive and associated risks are minimal. Income Statement (AED mn) Net interest income Non-interest income Provisions Operating expenses Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 2.8% 26.1% 114.4% 2.3% 112.8% 1.8% 20.2% 2.9% 1.5 8.4 7.4 1.4 2011e 3.0% 25.5% 111.8% 3.3% 97.9% 1.7% 18.0% 3.1% 1.4 8.0 8.1 1.4 2012e 2.9% 27.7% 112.3% 3.7% 105.4% 1.6% 16.0% 5.0% 1.4 9.1 8.0 1.2 2013e 3.0% 29.8% 111.4% 3.6% 116.5% 1.8% 17.1% 5.6% 1.7 10.4 6.5 1.0 2014e 3.1% 32.1% 110.1% 3.5% 120.7% 1.9% 17.6% 6.3% 2.0 11.8 5.6 0.9
2,870.0 31,283.5 8,516.9 8.0 1.2
9.1 335.1 959,858 3m 12m 7.9 11.3 11.5 24.3
2010 5,249 1,930 (1,207) (2,186) 3,683
2011e 5,885 2,097 (1,560) (2,433) 3,881
2012e 6,114 2,202 (1,562) (2,733) 3,912
2013e 6,768 2,351 (1,138) (3,061) 4,787
2014e 7,652 2,586 (892) (3,571) 5,619
12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5
2010 2011e 2012e 2013e 2014e 211,427 245,122 256,760 276,311 301,443 20,113 22,945 26,009 29,837 33,920 140,909 161,595 171,927 186,968 206,739 123,131 144,483 153,152 167,891 187,740
Volume ('000)
NBAD (AED) - RHS
Source: Bloomberg
January 2012
73
Global Research GCC
Abu Dhabi Commercial Bank

Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (AED): 3.30 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): -6.8 Relative (%): -3.9 Price Volume Performance
20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
STRONG BUY
31.0% 3.62 2.76 ADCB UH ADCB.AD
Robust top-line growth With clear visibility on a 27%YoY growth in NII in 2011, the bank is expected to manage another 12%YoY rise in 2012 despite anticipation of tough market conditions. We believe that the bank's ability to maintain spreads and loans growth will make it stand out as a smart investment choice. Slowdown in NPL formation expected ADCB is expected to see a slowdown in asset deterioration in 2012 which is also when we see the NPL ratio reaching an inflexion point. We believe that most of the bank's asset quality troubles are over with. However provisions expense is forecast to remain high in 2012 before dropping off in later years. Low trading multiples are not justified ADCB was one of the best (relative) performing banking stocks during 2011. It is trading at enticing multiples and offers an attractive upside potential. The stock is also expected to resume dividends after a lag of 2 years. Income Statement (AED mn) Net interest income Non-interest income Provisions Operating expenses Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 2.4% 30.9% 115.7% 11.1% 44.1% 0.2% 2.5% 0.0% 0.1 3.2 26.1 0.6 2011e 2.9% 32.8% 116.0% 10.5% 46.8% 1.8% 20.1% 6.8% 0.6 3.1 4.7 0.9 2012e 3.2% 34.5% 113.7% 11.0% 57.8% 1.0% 10.8% 5.9% 0.3 3.2 8.1 0.9 2013e 3.3% 34.7% 109.2% 9.8% 72.9% 1.6% 16.1% 8.5% 0.5 3.4 5.1 0.8 2014e 3.3% 36.0% 106.1% 9.0% 83.4% 1.8% 18.0% 10.2% 0.6 3.7 4.3 0.7
5,595.6 15,443.8 4,204.6 8.1 0.9
/ 2.03 1,497.3 1,108,634 3m 12m -1.1 25.5 2.5 38.4
2010 3,682 1,654 (3,287) (1,649) 381
2011e 4,662 1,751 (2,267) (2,102) 3,298
2012e 5,215 1,698 (2,604) (2,383) 1,896
2013e 5,616 1,900 (1,853) (2,609) 2,999
2014e 6,218 2,057 (1,625) (2,977) 3,608
3.5 3.3 3.1 2.9 2.7 2.5 2.3 2.1 1.9 1.7 1.5
2010 2011e 2012e 2013e 2014e 178,271 179,586 183,352 195,484 213,370 15,565 17,231 17,900 19,253 20,935 129,068 133,173 140,527 149,720 163,664 106,134 109,158 115,708 127,322 142,636
Volume ('000)
ADCB (AED) - RHS
Source: Bloomberg
January 2012
74
Global Research GCC
Union National Bank

Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (AED): 3.90 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): -0.7 Relative (%): 2.2 Price Volume Performance
14,000 12,000 10,000 8,000 6,000 4.0 3.8 3.6 3.4 3.2 3.0 2.8 2.6 2.4
STRONG BUY
71.1% 4.95 2.89 UNB UH UNB.AD
Dropping interest rates + highest CoF = Rise in spreads, NII Since time deposits form 78% of UNB's deposits and that it has the highest cost of fund amongst its peers, we reiterate that the current decline in interbank rates will allow the bank to reduce its cost of funds which will have a positive and pronounced impact on UNB's spreads and net interest income. High provisions expected in 4Q11 and 1Q12 UNB is believed to have exposure to Dubai Hold. & Al Jaber Grp. & its Egypt ops form 2.2% of loans; provisions for these are still to be taken. We expect the worst to be seen in 4Q11 and/or 1Q12. The increase in gen. prov./CRWA to 0.99% in 3Q11 will only slightly reduce pressure on future provisions. Still a good choice when market sentiment rebounds We have increased our 2011e bottom-line projections for UNB by 23% on better top-line performance and lower than previously expected provisions. The bank offers robust ROE despite one of the lowest multiples in UAE. Income Statement (AED mn) Net interest income Non-interest income Provisions Operating expenses Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 2.5% 28.0% 99.7% 4.3% 47.5% 1.7% 14.9% 3.0% 0.5 3.9 5.5 0.8 2011e 3.1% 24.4% 108.0% 4.8% 56.6% 2.3% 17.3% 5.2% 0.7 4.5 4.0 0.6 2012e 3.2% 25.1% 108.0% 5.0% 65.3% 2.4% 15.6% 9.1% 0.7 5.0 3.9 0.6 2013e 3.2% 24.4% 109.0% 4.8% 71.5% 2.7% 16.8% 9.1% 0.9 5.5 3.3 0.5 2014e 3.4% 23.0% 110.0% 4.5% 76.7% 2.9% 17.8% 10.4% 1.0 6.1 2.8 0.5
2,495.6 7,212.4 1,963.6 3.9 0.6
2.75 634.7 552,784 3m 12m -2.7 1.2 0.9 14.2
2010 1,951 604 (491) (715) 1,359
2011e 2,399 554 (397) (720) 1,820
2012e 2,447 601 (395) (765) 1,848
2013e 2,592 715 (246) (809) 2,196
2014e 2,950 806 (259) (863) 2,568
2010 81,780 9,781 57,756 57,941
2011e 76,303 11,242 58,196 53,885
2012e 78,752 12,465 60,524 56,041
2013e 83,414 13,659 64,750 59,403
2014e 91,290 15,224 71,878 65,344
4,000
2,000 0
Volume ('000)
UNB (AED) - RHS
Source: Bloomberg
January 2012
75
Global Research GCC
Emirates NBD
Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x):
STRONG BUY
35.8% 3.83 2.82 EMIRATES UH ENBD.DU
Asset quality woes to continue over forecast period ENBD's bottom-line took a huge hit due to provisions relating to the second entity of Dubai Holding in 3Q11. The bank has also offered guidance of addition of 1% to NPL ratio each year in 2012 and 2013, which in turn is expected to keep provisions on the higher side than previously expected. Earnings Risks: Union Properties & absorption of Dubai Bank Given the health of the real estate market in UAE, we expect a second write down of ENBD's UP investment in 4Q11 in the range of AED300-400mn. Losses from associates (UP) may dilute earnings further. Absorption of Dubai Bank, a black box, is a potential earnings risk beyond 2011. Cost of upside in terms of risk is too high, absorption of Dubai Bank Albeit ENBD offers an attractive upside potential at current levels, we expect negative news to keep the bank's share price under strict check. We believe that better and less riskier opportunities within this sector exist. Income Statement (AED mn) Net interest income Non-interest income Provisions Operating expenses Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Gross Loans Deposits Key Ratios Spreads Cost to Income Loans to Deposits NPLs /Gross Loans NPL coverage ROAA ROAE Dividend yield EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 2.8% 34.7% 102.3% 10.0% 40.5% 0.8% 8.1% 7.2% 0.4 5.3 6.6 0.5 2011e 2.9% 37.4% 114.0% 13.4% 44.1% 0.9% 8.4% 8.2% 0.5 5.6 6.4 0.5 2012e 2.9% 38.0% 112.7% 14.7% 50.8% 0.7% 6.1% 5.9% 0.3 5.7 8.2 0.5 2013e 3.1% 35.7% 112.6% 15.0% 57.6% 1.2% 10.6% 9.0% 0.6 6.0 4.6 0.5 2014e 3.3% 35.3% 113.6% 14.0% 64.3% 1.6% 14.0% 11.5% 0.9 6.6 3.2 0.4
5,557.8 15,672.9 4,266.9 8.2 0.5
Price Performance 1-Yr High /Low (AED): 4.6 / 2.7 Avg Volume ('000) : 484.7 Avg. Val. Traded (USD) 474,008 1m 3m 12m Absolute (%): -15.3 -25.8 -2.1 Relative (%): -11.7 -23.2 16.1 Price Volume Performance
16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
2010 6,795 2,262 (3,550) (3,147) 2,340
2011e 7,130 2,576 (5,321) (3,635) 2,562
2012e 7,120 2,884 (4,263) (3,799) 1,911
2013e 7,595 3,547 (3,690) (3,981) 3,434
2014e 8,702 3,899 (3,192) (4,445) 4,920
5.0 4.5 4.0 3.5 3.0 2.5
2010 2011e 2012e 2013e 2014e 286,216 272,710 274,370 289,686 312,845 29,656 31,219 31,457 33,607 36,715 204,595 211,716 219,235 231,024 254,058 199,972 185,763 194,606 205,200 223,631
Volume ('000)
EMIRATES (AED) - RHS
Source: Bloomberg
January 2012
76
Global Research GCC
CEMENT & BUILDING MATERIALS
January 2012
77
Global Research GCC
Arabian Cement Company

STRONG BUY
32.4% 59.20 44.70 ARCCO AB 3010.SE
Sales revenue benefit from increase in construction activity Sales revenue have witnessed a healthy growth of 44.6%YoY in 9M11 as the company benefited from increase in construction activity in the Western region of Saudi Arabia. We expect the trend to extend into next year with sales revenue expected to increase by 15.7%YoY in 2012. Capacity expansion ACC is planning to increase its capacity at it's Rabigh plant by around 2.3mn tpa. We have not incorporated the expansion in our model. However, If the company goes ahead and does not face any problems relating to energy connections, it can provide further upside to our valuations. Trading at cheap valuations The stock's 2012e P/E multiple is at a discount to the our GCC cement universe 2012e P/E multiple of 11.7x. With net profit expected to grow by 76.2% and 6.0% in 2011 and 2012, the growth has not yet been priced in. Income Statement (SAR mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margins (%) Operating Margins (%) Net Margins (%) EV/EBITDA (x) EV/Ton (USD) ROAA (%) ROAE (%) Dividend Yield (%) EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 42.8% 38.7% 34.3% 17.8 335.8 6.4% 10.7% 3.0% 3.2 31.3 10.7 1.1 2011e 50.8% 45.8% 44.3% 9.7 207.2 10.4% 16.7% 2.3% 5.6 36.1 8.0 1.3 2012e 46.2% 41.2% 40.6% 8.4 190.8 10.3% 15.5% 2.3% 6.0 41.0 7.5 1.1 2013e 44.8% 39.8% 39.8% 7.6 171.4 9.6% 13.6% 2.3% 5.9 46.0 7.6 1.0 2014e 42.9% 37.9% 38.6% 6.9 153.2 8.8% 12.0% 2.3% 5.8 50.8 7.7 0.9
80.0 3,576.0 953.5 7.5 1.1
25.2 2010 745 (426) 319 288 255 2011e 1,015 (499) 516 465 450 2012e 1,175 (632) 543 484 477 2013e 1,189 (656) 532 473 474 2014e 1,199 (685) 514 454 463
368.1 3,866,927 3m 12m 10.9 32.6 4.2 37.0

3,000 2,500 2,000 50 45 40 35
1,500
30 1,000 500 0 25 20 15
2010 4,155 2,503 1,652 1,191
2011e 4,463 2,885 1,578 1,131
2012e 4,812 3,283 1,529 1,018
2013e 5,105 3,678 1,427 916
2014e 5,402 4,063 1,339 825
Volume ('000)
Source: Bloomberg
Umar Faruqui, ACCA Financial Analyst ufaruqui@global.com.k w Phone: +965-2295-1438
ARCCO (SAR)-RHS
January 2012
78
Global Research GCC
Saudi Cement Company

HOLD
-9.4% 66.80 73.75 SACCO AB 3030.SE
Spare capacity; the new theme SCC stands to benefit from a sustained increase in cement demand due to it's spare capacity. The company operated at 84.0% utilization levels in 9M11 giving the company the ability to capitalize on incremental demand. Gas shortage for new capacities is also likely to benefit the company. Efficiency gains continue to filter in The new production lines that came online in April 2009 had an apparent effect on cost of sales which declined to SAR101.1 per ton in 3Q11 compared to SAR116.9 per ton in 3Q10. We expect the company to operate at 88.0% in 2012 which is likely to bring in further efficiency savings. Positive fundamentals priced in The stock has witnessed an increase of around 40.0% in 2011, pricing in the positive fundamentals. The stock's 2012e P/E is close to our GCC cement universe average 2012e P/E of 11.7x. Income Statement (SAR mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margins (%) Operating Margins (%) Net Margins (%) EV/EBITDA (x) EV/Ton (USD) ROAA (%) ROAE (%) Dividend Yield (%) EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 50.4% 44.6% 43.2% 11.6 246.8 13.8% 20.5% 8.0% 4.3 22.0 11.6 2.3 2011e 55.7% 50.0% 48.3% 13.1 344.8 17.5% 23.5% 5.5% 5.3 23.4 13.6 3.1 2012e 55.8% 50.1% 48.7% 12.2 337.7 17.8% 23.2% 5.5% 5.6 24.9 13.2 3.0 2013e 55.5% 49.9% 48.5% 11.8 330.0 17.4% 22.0% 5.5% 5.7 26.6 13.0 2.8 2014e 55.2% 49.5% 48.3% 11.4 321.7 16.9% 20.9% 5.5% 5.7 28.3 12.9 2.6
153.0 11,283.8 3,008.8 13.2 3.0
47.8 2010 1,526 (757) 769 681 660 2011e 1,693 (749) 943 847 818 2012e 1,759 (778) 981 882 856 2013e 1,789 (796) 993 892 868 2014e 1,816 (814) 1,002 899 876
194.3 2,886,597 3m 12m 17.1 47.5 10.3 51.8

2,500 2,000 1,500 1,000 500 0 80 75 70 65 60 55 50 45 40 35 30
2010 4,617 3,371 1,245 441
2011e 4,712 3,575 1,137 375
2012e 4,895 3,817 1,078 318
2013e 5,081 4,070 1,011 271
2014e 5,291 4,333 959 230
Volume ('000)
Source: Bloomberg
SACCO (SAR)-RHS
January 2012
79
Global Research GCC
Yamama Saudi Cement Company

HOLD
0.6% 71.20 70.75 YACCO AB 3020.SE
Better outlook We now expect both net profit and sales to grow at a 3-year CAGR of 2.5% in light of the improvement in cement demand and outlook. Cement dispatches for the company have increased by 8.9%YoY in 11M10 while the net profit has increased by 10.4%YoY in 9M11. Advantageous cost structure and proximity to demand centers Yamama Cement has a cost advantage relative to the sector due to it's integrated production plant and captive power supply. In addition proximity to the demand centers in the central region, where a large proportion of activity is taking place, helps in keeping transport and freight costs down. Replacement of old lines Yamama cement has announced the results of the feasibility study for replacement of old lines as positive. The introduction of new lines is likely to bring efficiency savings as experienced by Saudi Cement Company. Income Statement (SAR mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margins (%) Operating Margins (%) Net Margins (%) EV/EBITDA (x) EV/Ton (USD) ROAA (%) ROAE (%) Dividend Yield (%) EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 56.0% 52.4% 51.6% 9.8 276.0 17.9% 21.1% 7.8% 4.9 23.4 10.6 2.2 2011e 55.6% 51.6% 51.5% 12.9 389.5 19.5% 22.0% 5.5% 5.3 24.7 13.7 2.9 2012e 55.6% 51.4% 51.7% 12.2 380.7 19.8% 21.7% 5.5% 5.5 26.2 12.8 2.7 2013e 55.8% 51.3% 51.6% 11.6 371.0 19.5% 21.0% 5.5% 5.7 27.8 12.5 2.5 2014e 55.6% 51.1% 51.5% 11.2 360.9 18.5% 19.9% 5.5% 5.7 29.5 12.4 2.4
135.0 9,551.3 2,546.8 12.8 2.7
44.1 2010 1,272 (560) 712 666 657 2011e 1,388 (617) 771 716 715 2012e 1,443 (640) 802 741 746 2013e 1,485 (657) 828 762 767 2014e 1,495 (664) 831 765 771
155.2 2,439,299 3m 12m 14.1 35.4 7.4 39.7

800 700 600 500 400 300 200 100 0 30 20 60 50 40 80 70
2010 3,653 3,159 495 190
2011e 3,695 3,331 364 95
2012e 3,836 3,535 301 47
2013e 4,048 3,759 289 24
2014e 4,275 3,987 287 12
Volume ('000)
Source: Bloomberg
YACCO (SAR)-RHS
January 2012
80
Global Research GCC
Oman Cement Company

Recommendation: Downside / Upside: Target Price (OMR): Current Price (OMR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (OMR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (OMR): 0.65 Avg Volume ('000) : Avg. Val. Traded (USD) Absolute (%): Relative (%): 1m 3.8 0.2
HOLD
6.6% 0.471 0.442 OCOI OM OCCO.OM
Fall in realization prices to be off set by increase in volumes Inflow of cheap cement from neighboring countries has resulted in drop in realization prices. However with the expected increase in volumes in the back drop of huge spending plans by government we estimate that drop in prices to be compensated by increase in volumes Capacity upgrades to replenish margins Recently, the company signed contracts for a capacity upgrade of Kiln 1 along with the refurbishment of the kiln's pollution control systems. Both upgrades, will be completed by mid 2012 which will eventually help in controlling cost and will result in rise in margins. New clinker capacity to curtail imports and reduce cost The new clinker capacity after considerable delays have come online in 3Q11. Additional clinker capacity would curtail the costlier imports and would result in lesser cost per ton for the Company. Income Statement (OMR mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (OMR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margin (%) Operating Margin (%) Net Margin (%) EV/EBITDA (x) EV/Ton (USD) ROAA (%) ROAE (%) Dividend Yield (%) EPS (OMR) BVPS (OMR) P/E (x) P/Bv (x) 2010 43.8% 33.7% 48.3% 6.7 215.7 15.4% 17.6% 5.8% 0.076 0.449 8.46 1.43 2011e 35.2% 27.7% 27.2% 7.8 145.2 7.6% 8.8% 10.6% 0.039 0.439 11.01 0.98 2012e 35.4% 27.9% 29.6% 7.4 144.9 8.1% 9.4% 10.6% 0.041 0.436 10.77 1.01 2013e 34.3% 26.8% 28.3% 7.4 144.2 8.1% 9.3% 10.6% 0.040 0.432 10.91 1.02 2014e 33.0% 25.5% 26.7% 7.5 143.4 7.9% 9.2% 10.6% 0.040 0.427 11.19 1.03
330.9 146.2 379.9 10.8 1.0
0.42 2010 52 (29) 23 17 25 2011e 48 (31) 17 13 13 2012e 46 (30) 16 13 14 2013e 47 (31) 16 13 13 2014e 49 (33) 16 12 13
97.1 144,098 3m 12m -0.7 -31.6 -4.1 -14.7

1,500 1,200 0.70 0.64
900
600
0.58
0.52
2010 172 149 24 7
2011e 170 145 25 8
2012e 167 144 23 7
2013e 165 143 22 7
2014e 165 141 24 6
300
0
0.46
0.40
Volume (000)
Source: Bloomberg
Hettish Karmani Senior Financial Analyst hk umar@global.com.k w Phone: +965-2295-1281
Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Aug-11 Sep-11 Oct-11 Dec-11
OCC (OMR) - RHS
January 2012
81
Global Research GCC
Raysut Cement Company

Recommendation: Downside / Upside: Target Price (OMR): Current Price (OMR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (OMR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (OMR): 1.25 Avg Volume ('000) : Avg. Val. Traded (USD) Absolute (%): Relative (%):
HOLD
9.1% 0.830 0.761 RCCI OM RAYC.OM
Raysut Cement bolsters shipping capability Raysut cement has added a second wholly owned ship to its fleet. The 16,000-tonne capacity carrier along with others will strengthen Company's ability to reach potential export markets as far afield as East Africa and the Indian sub-continent. Margins dilution to continue Raysut cement last year acquired Pioneer Cement. Ever since then the company has witnessed significant erosion in gross margins as the prices in UAE are pretty low. We anticipate further reduction in gross margins as the realization prices continue to deteriorate. Political problems in targeted markets blurs export visibility Visibility on exports remain very low as countries like Yemen, Sudan & Somalia, the target markets of the Company are facing serious political problems. Income Statement (OMR mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (OMR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margin (%) Operating Margin (%) Net Margin (%) EV/EBITDA (x) EV/Ton (USD) ROAA (%) ROAE (%) Dividend Yield (%) EPS (OMR) BVPS (OMR) P/E (x) P/Bv (x) 2010 54.2% 34.8% 31.9% 11.0 290.6 13.2% 19.3% 8.2% 0.104 0.537 11.82 2.28 2011e 36.9% 22.7% 17.1% 9.4 115.7 7.4% 13.6% 8.8% 0.071 0.539 10.67 1.41 2012e 36.1% 21.9% 18.1% 9.2 111.3 7.7% 14.3% 8.8% 0.073 0.542 10.39 1.40 2013e 35.4% 21.2% 17.6% 9.2 109.8 7.7% 14.0% 8.8% 0.072 0.544 10.57 1.40 2014e 34.7% 20.5% 17.2% 9.2 107.5 7.6% 13.6% 8.8% 0.070 0.544 10.90 1.40
200.0 152.2 395.3 10.4 1.4
0.76 2010 65 (30) 35 23 21 2011e 83 (52) 31 19 14 2012e 81 (52) 29 18 15 2013e 82 (53) 29 17 14 2014e 81 (53) 28 17 14
45.0 123,094 1m 3m 12m -9.4 -23.7 -38.9 -13.0 -27.2 -22.0

500
400 300 200 100 0
1.30
1.22 1.14 1.06 0.98 0.90
2010 192 107 84 68
2011e 193 102 91 71
2012e 187 102 85 68
2013e 185 103 82 64
2014e 182 103 80 61
Volume (000)
Source: Bloomberg
Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Oct-11 Nov-11
RCCI (OMR) - RHS
January 2012
82
Global Research GCC
Qatar National Cement Company

Recommendation: Downside / Upside: Target Price (QAR): Current Price (QAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (QAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (QAR): 116 Avg Volume ('000) : Avg. Val. Traded (USD) Absolute (%): Relative (%): 1m 4.4 3.2
BUY
10.6% 125.4 113.4 QNCD QD QANC.QA
Calcium Carbonate plant to run at full throttle operations QNCC has started commercial production of its calcium carbonate plant in July 2011. QNCC agreed to supply the state-run QEWC with the plant's output for 25 years. The company will run with full throttle production in 2012 and would add to the topline of the Company. Company expects growing demand in 2012 QNCC believes that it will have to import cement from Asian countries and from Egypt next year as it expects a growing demand from the local construction sector as the country prepares to host the 2022 football World Cup. Revenue to remain range bound as competition heats up Various regional players have started selling their produce in Qatar by virtue of which volumes of QNCC are estimated to decline. Hence revenue is estimated to report a CAGR of -1.1% during 2010-14. Income Statement (QAR mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (QAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margin (%) Operating Margin (%) Net Margin (%) EV/EBITDA (x) EV/Ton (USD) ROAA (%) ROAE (%) Dividend Yield (%) EPS (QAR) BVPS (QAR) P/E (x) P/Bv (x) 2010 46.7% 41.5% 42.8% 10.1 334.1 18.2% 22.9% 3.7% 9.5 44.0 12.3 2.7 2011e 46.0% 41.1% 43.4% 9.6 284.0 16.5% 19.8% 5.5% 8.9 46.2 12.6 2.4 2012e 44.0% 39.1% 41.6% 9.3 276.5 16.6% 19.2% 6.0% 9.1 49.0 12.4 2.3 2013e 43.0% 38.1% 41.1% 9.4 268.2 16.4% 17.8% 6.4% 8.9 51.1 12.7 2.2 2014e 43.0% 38.1% 41.1% 9.2 259.2 16.0% 16.8% 6.9% 8.7 52.5 13.0 2.2
49.1 5,568.0 1,529.1 12.4 2.3
98.5 2010 1,090 (581) 510 452 467 2011e 1,010 (545) 464 415 438 2012e 1,076 (602) 473 421 448 2013e 1,062 (605) 457 405 437 2014e 1,042 (594) 448 397 428
14.2 426,397 3m 12m 5.0 3.5 -4.0 4.8

250 200 150 100 50 120 112 104 96 88
2010 2,608 2,160 448 324
2011e 2,709 2,267 442 324
2012e 2,697 2,405 292 162
2013e 2,639 2,508 131 -
2014e 2,719 2,578 142 -
0
Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Aug-11 Sep-11 Oct-11 Nov-11
Volume (000) Source: Bloomberg
80
QNCC (QAR) - RHS
January 2012
83
Global Research GCC
Arkan Building Materials Company

Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (AED): 1.77 Avg Volume ('000) : Avg. Val. Traded (USD) Absolute (%): Relative (%):
STRONG BUY
23.1% 1.12 0.91 ARKAN UH ARKN.AD
Biggest cement manufacturer in UAE ARKAN is currently benefiting from being an integrated player in UAE, playing a big role in Abu Dhabi where demand outstrips supply. Additionally, Arkan has a lead in UAE for having the best cost structure due to close proximity and diversified line of business. Adding operational activities and liquidating investments Arkan currently added a new line of business, a pipes factory. The pipes segment rolled out revenues of AED16.3mn for the 9M11 period. As opposed Arkan have liquidated all shares in portfolio except for AED475,000 which is covered. A strong step into focusing on operational activities. Healthy outlook Arkan is expected to witness a 66.5% increase in revenue for 2012 as the company enjoys a new line of cement expansion. The companys profits are expected to increase 31.7% on a CAGR basis during the period 2010-14. Income Statement (AED mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margin (%) Operating Margin (%) Net Margin (%) EV/EBITDA (x) EV/Ton (USD) ROAA (%) ROAE (%) EV/Revenues (x) EPS (AED) BVPS (AED) P/E (x) P/Bv (x) 2010 44.6% 14.8% 21.7% 47.5 1,039.6 2.1 3.4 15.7 0.03 0.91 56.3 1.9 2011e 26.2% -2.9% 13.6% 35.3 133.1 1.4 2.4 9.5 0.02 0.93 45.6 1.1 2012e 31.3% 3.1% 18.0% 19.2 133.4 2.8 5.1 5.7 0.05 0.98 18.7 0.9 2013e 33.4% 8.2% 21.5% 14.4 129.8 3.9 6.9 4.6 0.07 1.05 13.0 0.9 2014e 34.4% 11.3% 23.8% 11.0 121.5 5.0 8.3 3.7 0.09 1.14 10.0 0.8
1,750.0 1,592.5 433.6 18.7 0.9
0.91 2010 245 (136) 109 36 53 2011e 285 (210) 74 (8) 39 2012e 474 (326) 148 15 85 2013e 572 (381) 191 47 123 2014e 671 (440) 231 76 160
614.3 239,689 1m 3m 12m -22.2 -28.3 -47.4 -19.3 -24.7 -34.4

10,000 8,000 6,000 4,000 2,000 0 2.5 2.2 1.9 1.6 1.3 1.0
2010 2,591 1,594 997 926
2011e 2,990 1,632 1,357 926
2012e 3,121 1,718 1,404 879
2013e 3,185 1,840 1,344 791
2014e 3,237 2,000 1,237 657
Volume ('000)
Source: Bloomberg
Turki O. AlYaqout Financial Analyst tyaqout@global.com.k w Phone: +965-2295-1295
Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11
ARKAN (AED) - RHS
January 2012
84
Global Research GCC
RAK Cement Company

BUY
15.0% 0.69 0.60 RAKCC UH RAKC.AD
9M11 results ended in red at gross profit level RAKCC recorded net loss of AED16.4mn in 9M11, as compared with AED0.146mn loss same period last year. Cement selling price have witnessed a decline, in addition the company posted lower sales volume due to a halt in the project market, Ramadan season and slow real estate cycle. Higher exports, a good play for 2012 RAKCC operates in a market where the is a huge difficulty due to decreased demand and abundant supply. However the company plans to enhance exports, where by 4Q11 the company achieved tenders from Iraq and Kuwait clients, which could help compensate for lower volumes in local market. Revision in estimates We have revised our estimates for the Company as the situation continues to worsen in UAE. We have dropped the revenue further by 17.9% during 2011, cost are expected to decrease as raw material prices are at rock bottom. Income Statement (AED mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margin (%) Operating Margin (%) Net Margin (%) EV/EBITDA (x) EV/Ton (USD) ROAA (%) ROAE (%) Dividend Yield (%) EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 1.8% -3.8% -1.7% 18.7 89.6 -0.5% -0.5% 11.9% (0.0) 1.6 nm 0.5 2011e -5.0% -11.8% -9.7% 49.1 74.9 -2.3% -2.4% 0.0% (0.0) 1.5 nm 0.4 2012e 4.0% -3.2% 0.0% 11.5 69.9 0.0% 0.0% 0.0% (0.0) 1.5 nm 0.4 2013e 5.0% -2.3% 1.6% 10.9 76.4 0.4% 0.4% 6.9% 0.0 1.5 96.9 0.4 2014e 7.0% -0.6% 2.7% 10.3 79.4 0.7% 0.7% 6.9% 0.0 1.4 55.8 0.4
484.0 290.4 79.1 nm 0.4
0.58 2010 227 (223) 4 (9) (4) 2011e 187 (196) (9) (22) (18) 2012e 179 (172) 7 (6) (0) 2013e 189 (179) 9 (4) 3 2014e 192 (179) 13 (1) 5
5,713.0 1,418,337 1m 3m 12m -13.0 -25.0 -30.2 -10.1 -21.4 -17.2

70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5
2010 796 765 31 -
2011e 792 744 48 -
2012e 767 742 25 -
2013e 746 719 27 -
2014e 726 698 28 -
Volume ('000)
Source: Bloomberg
Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11
RAKCC (AED) - RHS
January 2012
85
Global Research GCC
RAK Ceramics
Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (AED): 2.45 Avg Volume ('000) : Avg. Val. Traded (USD) Absolute (%): Relative (%): 1m -5.3 -2.4
STRONG BUY
63.4% 2.32 1.42 RAKCEC UH RKCE.AD
Diversification efforts RAKCEC ceramics revenue grew by 4.5% YoY in 9M-11 and in 3Q11 it went up by 12% YoY. The company worked to diversify it sales to other markets to withstand the slowdown in the MENA region due to the political uncertainties. RAKCEC managed to diversify sales without losing volumes. Higher costs accured with export coverage RAK Ceramics international operations are all located in Asian countries majorly in China, Bangladesh & India. However, RAKCEC witnessed a hike in cost of sales due to higher freight and energy costs. Well positioned for the future RAK is well positioned to manage a slowdown in world growth, due to the fact it produces in low cost countries, its line of business is at the end of the construction cycle which makes contract cancellation probability less and finally emerging markets are expected to drive demand in upcoming years. Income Statement (AED mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margin (%) Operating Margin (%) Net Margin (%) Debtor Turnover (x) Debt / Equity (x) ROAA (%) ROAE (%) Inventory Turnover (x) EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 24.9% 10.9% 8.1% 2.3 0.9 5.0% 12.6% 2.10 0.4 3.4 7.3 0.8 2011e 24.5% 7.0% 6.2% 2.1 0.9 3.7% 9.0% 2.03 0.3 3.4 5.1 0.4 2012e 23.5% 6.0% 5.8% 1.9 0.7 3.3% 7.5% 1.92 0.3 3.7 5.4 0.4 2013e 23.8% 6.3% 6.5% 2.0 0.6 3.9% 8.3% 2.07 0.3 4.0 4.5 0.4 2014e 23.8% 6.3% 6.9% 2.1 0.5 4.1% 8.3% 2.15 0.3 4.3 4.1 0.3
743.2 1,055.4 287.3 5.4 0.4
1.35 2010 3,337 (2,506) 831 363 270 2011e 3,475 (2,623) 852 244 215 2012e 3,402 (2,603) 799 204 196 2013e 3,581 (2,727) 853 227 234 2014e 3,710 (2,828) 881 232 256
199.0 106,141 3m 12m -5.3 -36.2 -1.7 -23.3

4,000 3,200 2,400 1,600 800 0 2.5 2.2 1.9 1.6 1.3 1.0
2010 5,673 2,283 3,391 2,093
2011e 5,971 2,508 3,463 2,148
2012e 5,982 2,713 3,269 1,933
2013e 6,113 2,958 3,155 1,740
2014e 6,303 3,226 3,077 1,566
Volume ('000)
Source: Bloomberg
Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11
RAKCEC (AED) - RHS
January 2012
86
Global Research GCC
CONSTRUCTION CONTRACTORS
January 2012
87
Global Research GCC
Arabtec Holding
Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (AED): 1.74 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): 10.0 Relative (%): 13.6 Price Volume Performance
120 100 80 1.4 60 1.2 40 20 1.0 1.8 1.6
SELL
-23.0% 1.27 1.65 ARTC UH ARTC.DU
Slowdown in UAE to limit to the revenue growth Arabtecs recent performances have been significantly marred by a combination of the significant slowdown in the real estate and construction sectors specially in UAE, which still now is roughly 40% of the backlog. Nevertheless the Company is keen on bidding for contracts in other geographies which will drive the topline. Receivables continue to increase, to remain as a cause of concern Receivables management is the primary cause of concern since almost 65% of the balance sheet size is tied in receivables as of 3Q11. How effectively ARABTEC would be able to manage would remain the key for its future. Minorities eating up the profit share Minorities averaged 20% of net income over the last three years. Acquisitions and joint ventures have raised the share of the minorities which is further expected to rise to around 38% in the coming years. Income Statement (AED mn) Contract Revenue Contract Costs Gross Profit Operating Profit Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margin EBITDA Margin Operating Margin Net Margin Current Ratio (x) Debt/Equity (x) ROAA ROAE EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 15.1% 12.6% 7.8% 5.6% 1.2 0.3 3.5% 12.1% 0.2 1.8 7.7 0.9 2011e 12.5% 11.2% 4.0% 2.7% 1.3 0.2 1.5% 4.6% 0.1 1.9 18.7 0.8 2012e 11.8% 11.3% 4.4% 3.0% 1.4 0.2 1.8% 5.1% 0.1 2.0 32.5 16.7 2013e 11.5% 11.1% 4.6% 3.2% 1.4 0.1 2.0% 5.6% 0.1 2.1 29.6 14.4 2014e 11.2% 11.2% 4.3% 3.2% 1.5 0.1 2.0% 5.6% 0.1 2.2 29.6 13.6
1,495.0 2,466.8 671.6 32.5 16.7
/ 0.93 16,637.1 6,124,185 3m 12m 26.9 4.2 29.5 22.3
2010 5,464 (4,637) 827 425 307
2011e 4,682 (4,095) 587 188 127
2012e 4,916 (4,336) 580 218 147
2013e 5,285 (4,678) 606 242 171
2014e 5,681 (5,043) 638 247 181
2010 8,680 2,698 5,982 755
2011e 8,306 2,827 5,478 654
2012e 8,284 2,977 5,307 580
2013e 8,687 3,150 5,536 526
2014e 9,218 3,334 5,884 502
0
Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11
0.8
Volume ('000)
Source: Bloomberg
ARTC (AED) - RHS
January 2012
88
Global Research GCC
Drake & Scull International

Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (AED): 1.14 Avg Volume ('000) : Avg. Val. Traded (USD) Absolute (%): Relative (%): 1m -5.3 -1.7
STRONG BUY
28.2% 1.00 0.78 DSI UH DSI.DU
Backlog to ride on growth in Saudi Arabia and emerging Asia DSIs 3Q11 backlog stood at AED6.7bn which is further estimated to touch AED7.5bn by the end of 2011. Company's backlog to sales ratio is estimated to increase on the back of its active participation in Saudi Arabia along with expected additions from the targeted acquisitions in Asia post 2011. DSI eyes acquisitions In Asia after completing its targets in MENA DSI is actively looking for joint ventures and acquisitions in Asia as part of its diversification strategy. DSI would target companies specializing in MEP & WEP projects. On an average acquisition have yielded backlog to purchase price ratio of 2.9x, which is quite healthy for a contracting company. Attractive trading multiples and dividend yield DSI prices have fallen over 25% in the year, the company is trading at low P/E compared to UAE market and construction contractors & has an attractive dividend yield. Income Statement (AED mn) Contract Revenue Contract Costs Gross Profit Operating Profit Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Backlog/Sales (x) Gross Margin (%) Net Margin (%) EV/EBITDA (x) Debt / Equity (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (AED) BVPS (AED) P/E (x) P/Bv (x) 2010 2.6 18.6% 8.3% 12.8 0.3 3.3% 6.1% 6.7% 0.1 1.1 14.0 0.9 2011e 1.9 15.3% 6.9% 7.4 0.3 4.0% 8.1% 6.3% 0.1 1.2 8.1 0.7 2012e 2.1 15.0% 6.5% 7.0 0.2 3.6% 7.8% 6.3% 0.1 1.2 7.9 0.6 2013e 2.1 14.8% 6.2% 6.2 0.2 3.7% 8.1% 6.3% 0.1 1.3 7.3 0.6 2014e 2.1 14.5% 5.9% 5.3 0.2 3.6% 8.1% 6.3% 0.1 1.4 7.0 0.6
2,177.8 1,698.7 462.5 7.9 0.6
0.76 2010 1,855 (1,510) 344 117 155 2011e 3,079 (2,609) 470 188 212 2012e 3,265 (2,775) 490 192 214 2013e 3,708 (3,161) 547 213 231 2014e 4,084 (3,492) 592 226 243
8,257.6 2,206,376 3m 12m -2.0 -26.4 0.6 -8.2

60 1.2 1.1 1.0
50
40
30
20 10
0.9
0.8
2010 4,871 2,542 2,329 789
2011e 5,791 2,669 3,121 723
2012e 5,991 2,791 3,200 641
2013e 6,506 2,931 3,575 569
2014e 7,013 3,084 3,929 506
Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11
Vol. (mn) - LHS
0.7
DSI (AED) - RHS
Source: Bloomberg
January 2012
89
Global Research GCC
Mohammad Al-Mojil Group

Recommendation: Downside / Upside: Target Price (SAR): Current Price (SAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (SAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (SAR): 25.8 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): Relative (%): 18.2 15.3
HOLD
1.9% 24.5 24.1 MMG AB 1310.SE
Contracts and backlog rise to SAR3.1bn & SAR4.5bn YTD, respectively Company received sizable orders in 2011 which raised its new contracts to SAR3.1bn while its backlog touched SAR4.5bn. Global Research estimates new contracts awarded to the Company to touch SAR3.5bn each year during 2012-14 on the back of huge spending plans in Saudi Arabia. Provisions related to doubtful debts to remain as risk to profitability MMG reported significant provisions related to doubtful debts at a sum of SAR154mn and SAR236mn in 2009 and 2010 respectively. There is no guidance from the Company related to any provisions in 2011, however, if the amount appears it would be in 4Q11, which can take the profits down. ARAMCO spending to benefit the company Company's key clients Aramco is expected to spend more than USD40bn in the next five years which will trickle down to MMG as it is one of the leading oil and gas contractor in Saudi Arabia. Income Statement (SAR mn) Contract Revenue Contract Costs Gross Profit Operating Profit Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Backlog/Sales (x) Gross Margin (%) Net Margin (%) EV/EBITDA (x) Debt / Equity (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (SAR) BVPS (SAR) P/E (x) P/Bv (x) 2010 1.8 11.2% -10.4% 11.9 0.3 -6.0% -10.5% 4.0% (1.44) 12.53 nm 1.5 2011e 1.7 12.0% 5.3% 12.3 0.6 3.1% 6.4% 2.2% 0.81 12.84 30.0 1.9 2012e 1.8 11.5% 5.0% 10.6 0.6 3.2% 7.4% 2.2% 0.97 13.32 24.7 1.8 2013e 1.8 11.0% 4.7% 10.0 0.5 3.1% 7.2% 4.3% 0.96 13.27 25.1 1.8 2014e 1.8 10.5% 4.4% 8.6 0.5 3.5% 8.6% 4.3% 1.10 12.38 21.8 1.9
125.0 3,006.3 801.6 24.7 1.8
14.6 1,171.7 6,636,883 3m 12m 12.6 5.9 23.3 27.6
2010 1,731 (1,537) 194 84 (179)
2011e 2,429 (2,186) 243 152 101
2012e 2,842 (2,558) 284 178 122
2013e 3,307 (3,009) 298 174 120
2014e 3,753 (3,415) 338 197 138

15.0
12.0 9.0 6.0 3.0
27.0
24.0 21.0 18.0 15.0
2010 2,944 1,566 1,378 515
2011e 3,700 1,605 2,095 969
2012e 3,852 1,664 2,188 918
2013e 3,969 1,659 2,310 871
2014e 4,037 1,547 2,490 826
Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jul-11 Aug-11 Sep-11 Oct-11 Dec-11
Vol. (mn) - LHS
12.0
MMG (SAR) - RHS
Source: Bloomberg
January 2012
90
Global Research GCC
A.A.M Al Khodari Sons Company

Recommendation: Downside / Upside: Target Price (SAR): Current Price (SAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (SAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (SAR): 72.0 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): Relative (%):
STRONG BUY
24.6% 65.1 52.3 ALKHODAR AB 1330.SE
Company to benefit from construction boom in Saudi Arabia Company is an ideal proxy to gauge the Saudi Arabia construction and infrastructure boom. It is a well diversified contractor in the infrastructure segment, which differentiates it from others that are more horizontally diversified. 4Q11 earnings to remain volatile because of the planned auction AKS as per its plan has upgraded its plant and machinery and has conducted an auction on its outgoing machinery in the mid of Oct 2011. In the past years company has enjoyed over 50% gross margins on the auction and we expect the auction to have positive impact on 4Q11 financials. Margins expected to drop but to remain higher than industry average Company is a diversified contractor and enjoys highest margins in the industry but with increasing competition we anticipate the margins to drop over the years but to remain higher than industry average of 15%. Income Statement (SAR mn) Contract Revenue Contract Costs Gross Profit Operating Profit Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Backlog/Sales (x) Gross Margin (%) Net Margin (%) EV/EBITDA (x) Debt / Equity (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (SAR) BVPS (SAR) P/E (x) P/Bv (x) 2010 2.8 26.9% 20.3% 8.7 1.3 11.9% 37.0% 2.4% 5.1 13.8 10.5 3.9 2011e 3.6 21.6% 13.0% 12.8 1.3 6.6% 21.3% 3.0% 3.3 15.7 15.4 3.3 2012e 3.7 21.5% 13.4% 10.7 1.0 7.6% 23.0% 4.0% 4.1 17.8 12.8 2.9 2013e 3.7 21.0% 13.3% 9.4 0.8 8.2% 22.4% 4.0% 4.6 20.3 11.5 2.6 2014e 3.7 20.5% 13.1% 8.1 0.6 8.7% 22.2% 5.9% 4.9 22.2 10.6 2.3
42.5 2,220.6 592.1 12.8 2.9
43.0 232.8 3,622,799 3m 12m -5.0 -0.7
2010 1,074 (785) 289 230 218
2011e 1,090 (855) 235 165 142
2012e 1,291 (1,013) 278 195 173
2013e 1,458 (1,152) 306 213 194
2014e 1,600 (1,272) 328 226 210
6.0 -13.6 3.1 -20.4

1.6 1.4 75.0 67.0
1.2 1.0
0.8 0.6 0.4 0.2
59.0
51.0 43.0
2010 1,826 588 1,238 756
2011e 2,160 666 1,494 883
2012e 2,269 754 1,515 796
2013e 2,358 863 1,495 681
2014e 2,396 945 1,451 556
Jan-11 Jan-11 Mar-11 Apr-11 May-11 May-11 Jun-11 Jul-11 Sep-11 Oct-11 Nov-11 Dec-11
Vol. (mn) - LHS
35.0
AKS (SAR) - RHS
Source: Bloomberg
January 2012
91
Global Research GCC
ENERGY & PETROCHEMICAL SECTOR
January 2012
92
Global Research GCC
Saudi Basic Industries Corporation

Recommendation: Downside / Upside: Target Price (SAR): Current Price (SAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (SAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (SAR): 113 Avg Volume ('000) : Avg. Val. Trd (USD) Absolute (%): Relative (%):
STRONG BUY
23.2% 118.60 96.25 SABIC AB 2010.SE
Strong feedstock cost advantage to drive the profitability As oil prices are expected to remain in the range of USD90-100/barrel we see limited upside in the product prices of the petrochemicals. Nonetheless, strong feedstock cost advantage should allow the group to generate sector-leading returns, which would support its expansion into new markets. Drop in capex by 2012 in the absence of big ticket projects Except Saudi Kayan which is to commence full throttle operation in 2013, the rest of the expansions planned by SABIC, such as the expansion of its Ibn Rushd facilities, JV with Exxon-Mobil in elastomers in Saudi and a new polycarbonates plant in China require a total capex of for USD4bn during 2012-14. Significant minorities at SABIC Except metals, all other business of SABIC have significant minorities. Minorities have averaged 35% of net income over the last five years. With Yansab and Kayan starting up, we expect the share of minorities to increase further in coming years. Income Statement (SAR mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margin (%) Operating Margin (%) EBITDA Margin (%) Net Margin (%) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 31.9% 24.9% 24.1% 14.2% 10.1 7.0% 18.9% 2.9% 7.2 40.3 14.6 2.6 2011e 35.3% 28.3% 25.5% 16.7% 7.9 9.6% 24.1% 3.2% 10.6 47.9 9.1 2.0 2012e 35.6% 28.6% 26.3% 16.9% 7.8 8.7% 20.2% 3.2% 10.4 55.3 9.2 1.7 2013e 36.1% 29.1% 27.4% 17.3% 7.4 8.3% 17.9% 3.2% 10.6 62.9 9.1 1.5 2014e 36.8% 29.8% 28.4% 17.8% 7.4 8.1% 16.2% 3.2% 10.8 70.7 8.9 1.4 2010 2011e 2012e 2013e 2014e 151,970 191,276 185,261 182,703 182,390 (103,423) (123,682) (119,376) (116,668) (115,238) 48,547 67,594 65,884 66,035 67,152 37,893 54,184 52,896 53,226 54,365 21,529 31,890 31,277 31,653 32,529
3,000.0 288,750.0 76,993.8 9.2 1.7
85.3
6,171.4 164,081,232 1m 3m 12m 0.0 9.7 -10.3 -2.9 2.9 -5.9

18.0
15.0
110 104 98
12.0
9.0
92 6.0
3.0 -
2010 317,580 166,147 151,433 109,482
2011e 346,683 189,035 157,648 108,972
2012e 368,341 211,311 157,030 106,142
2013e 391,511 233,962 157,548 103,408
2014e 416,137 257,490 158,647 100,765
86
80
Source: Bloomberg
Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11
Volume (mn) Price (SAR) - RHS
January 2012
93
Global Research GCC
Saudi Arabia Fertilizers Company

Recommendation: Downside / Upside: Target Price (SAR): Current Price (SAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (SAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (SAR): 193 Avg Volume ('000) : Avg. Val. Traded (USD) Absolute (%): Relative (%):
HOLD
5.2% 182.70 173.75 SAFCO AB 2020.SE
Highest margins worldwide The company has one of the lowest cash cost globally. SAFCO enjoys healthy margins thanks to the availability of cheap feedstock. The gas cost of USD0.75/mmbtu is on an average 80% lesser than market prices in the worlds major gas markets. Dividend yield to look out for We expect the limited capacity expansion will lead the company to show stable cash flows and a sizable increase in cash reserves during 2011-14. We, therefore, expect the company ability to maintain it payout ratio and yield in the range of 8-10% in the coming years. Price to be instrumental for revenue growth The company's revenue is expected to increase at 2011-14 CAGR of 17.6%, between 2011-13 on the back of higher prices and in 2014 & onwards because of commissioning of new Urea and Ammonia capacities. Income Statement (SAR mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios
250.0 43,437.5 11,582.4 11.1 5.6
149 2010 3,789 (1,100) 2,690 2,622 3,235 2011e 5,096 (1,326) 3,770 3,681 3,994 2012e 4,913 (1,253) 3,660 3,574 3,917 2013e 5,796 (1,417) 4,379 4,278 4,628 2014e 7,767 (1,857) 5,911 5,775 6,113
181.7 8,587,035 1m 3m 12m -4.1 -5.3 4.0 -7.0 -12.1 8.4

1,250
1,000
200
188
750
500
176
164
2010 8,379 7,134 1,245 353
2011e 9,199 7,878 1,321 231
2012e 9,414 8,045 1,369 199
2013e 9,713 8,173 1,540 172
2014e 11,141 9,286 1,855 149
250
-
152
140
Volume (000) Source: Bloomberg
Price (SAR) - RHS
Gross Margin (%) Operating Margin (%) EBITDA Margin (%) Net Margin (%) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (SAR) BVPS (SAR) P/E (x) P/BV (x)
2010 71.0% 69.2% 96.6% 85.4% 10.4 37.7% 45.6% 8.2% 12.9 28.5 12.35 5.60
2011e 74.0% 72.2% 89.4% 78.4% 9.7 45.4% 53.2% 7.4% 15.0 30.6 11.56 5.69
2012e 74.5% 72.7% 92.3% 79.7% 9.3 42.1% 49.2% 8.5% 15.7 31.3 11.09 5.56
2013e 75.6% 73.8% 91.7% 79.8% 8.0 48.4% 57.1% 10.2% 18.5 31.8 9.39 5.47
2014e 76.1% 74.3% 88.8% 78.7% 6.1 58.6% 70.0% 11.3% 24.5 36.2 7.11 4.80
Jan-11 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Oct-11 Dec-11
January 2012
94
Global Research GCC
Yanbu National Petrochemical Company

STRONG BUY
32.0% 57.80 43.80 YANSAB AB 2290.SE
Profitability growth to continue YANSAB started its commercial operation in 1Q10 with a capacity of 4.0mn tons of mainly basic petrochemical products. We expect revenues and profitability to increase at a 3-year CAGR of 8.3% and 9.1% respectively after an expected increase in profitability by 102.0% in 2011. Affiliation with SABIC, a key advantage Yansab is a subsidiary of SABIC which allows it to benefit from the distribution network of SABIC. The parent markets the output of YANSAB. Yansab is mainly catering to the demand arising from Asian countries where demand for petrochemical products is expected to remain strong. Growth not yet priced in We believe, Yansab offers a good story. Currently it is trading at an attractive multiples. With product prices expected to remain strong going forward, we believe the stock offers a good opportunity to enter, Income Statement (SAR mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margins (%) Operating Margins (%) EBITDA Margins (%) Net Margins (%) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 37.3% 35.2% 50.0% 28.7% 11.7 7.2% 22.8% 3.0 13.0 16.0 3.6 2011e 41.4% 39.8% 48.6% 34.6% 6.4 12.9% 31.5% 6.0 19.1 7.4 2.3 2012e 40.5% 39.6% 48.4% 33.9% 5.7 12.3% 25.7% 2.7% 6.2 24.0 7.1 1.8 2013e 40.8% 39.9% 48.4% 34.3% 4.8 12.8% 23.7% 4.5% 6.8 28.8 6.4 1.5 2014e 41.6% 40.8% 48.5% 35.4% 4.0 14.0% 23.3% 6.9% 7.8 33.5 5.6 1.3
562.5 24,637.5 6,569.5 7.1 1.8
38.5 2010 5,822 (3,652) 2,170 2,046 1,673 2011e 9,773 (5,730) 4,043 3,888 3,382 2012e 10,265 (6,107) 4,158 4,063 3,477 2013e 11,194 (6,629) 4,564 4,465 3,843 2014e 12,426 (7,258) 5,168 5,065 4,397
1,629.4 20,327,006 3m 12m 0.5 -10.1 -6.3 -5.8

9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 55 50 45 40 35 30 25 20
2010 23,163 7,340 15,823 8,041
2011e 26,122 10,722 15,400 6,915
2012e 28,174 13,503 14,670 5,739
2013e 29,910 16,194 13,717 4,305
2014e 31,434 18,832 12,602 2,669
Volume ('000)
Source: Bloomberg
YANSAB (SAR)-RHS
January 2012
95
Global Research GCC
Saudi International Petrochemical Company

STRONG BUY
22.0% 23.60 19.35 SIPCHEM AB 2310.SE
Exposure to emerging countries The theme for the stock revolves around the company's exposure to emerging Asian markets particularly China. In addition, it is increasing it's product range to high-margin petrochemical products which will move the company away from reliance on methanol based products. Phase 3 expansion underway SIPCHEM has started work on two new plants which will diversify it's product range. EVA and LDPE plant will have a capacity of 0.2mn tpa and Ethyl acetate plant will have a capacity 0.1mn tpa and are expected to start production by 2H13. Strong growth We expect sales revenue and net profit to grow at a 3-year CAGR of 8.8% and 10.5% respectively driven by capacity expansion. The company also offers a modest dividend yield of 4.7%. Income Statement (SAR mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Liabilities Long-term Debt Key Ratios Gross Margins (%) Operating Margins (%) EBITDA Margins (%) Net Margins (%) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 43.2% 38.4% 43.1% 19.0% 13.8 1.2% 2.8% 3.6% 1.1 13.4 22.3 1.9 2011e 41.4% 38.2% 38.1% 19.9% 7.4 3.3% 8.1% 5.0% 1.8 14.2 11.0 1.4 2012e 42.5% 39.5% 39.4% 19.4% 6.8 4.9% 11.8% 4.7% 1.8 15.1 10.5 1.3 2013e 43.3% 40.4% 40.5% 20.0% 6.0 5.1% 12.0% 5.3% 2.1 16.2 9.3 1.2 2014e 44.2% 41.5% 41.6% 20.8% 5.2 5.3% 11.9% 6.1% 2.4 17.4 8.0 1.1
366.7 7,095.0 1,891.8 10.5 1.3
16.5 2010 1,993 (1,131) 861 764 378 2011e 3,299 (1,933) 1,366 1,261 657 2012e 3,480 (2,000) 1,480 1,375 674 2013e 3,822 (2,166) 1,656 1,545 766 2014e 4,251 (2,372) 1,879 1,764 885
2,036.7 11,309,604 3m 12m 8.1 -22.9 1.3 -18.6

10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 30 25 20 15 10 5
2010 12,027 3,829 8,197 4,202
2011e 12,462 4,013 8,449 3,992
2012e 13,080 4,071 9,008 3,952
2013e 13,781 4,112 9,669 3,873
2014e 14,518 4,134 10,384 3,679
Volume ('000)
Source: Bloomberg
SIPCHEM (SAR)-RHS
January 2012
96
Global Research GCC
Industries Qatar
Recommendation: Downside / Upside: Target Price (QAR): Current Price (QAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (QAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (QAR): 153 Avg Volume ('000) : Avg. Val. Traded (USD) Absolute (%): Relative (%): 1m -1.1 -2.3
STRONG BUY
27.4% 170.90 134.10 IQCD QD IQCD.QA
Local cost and international prices, definitely a win win scenario IQ offers significant cost advantage due to low domestic gas prices which is roughly 50% of the companies overall cost while all the products in the companys portfolio are global commodities and their pricing is determined by global demand supply dynamics. QAFCO V & QAFCO VI too boost the revenues QAFCO V & QAFCO VI fertilizer projects are expected to come online by end of 2011 and end of 2012 respectively, which will increase the ammonia and urea capacity of IQ by a significant amount and would give further boost to the revenues as prices are also expected to inch higher. QASCO expansion on hold due to natural gas allocation restrictions QASCO expansion is on hold due to natural gas allocation restrictions by QAPCO. IQ outlined step by step growth each year by expanding various business which in 2014 would be slowed down due to this news. Income Statement (QAR mn) Sales Revenue Cost of Sales Gross Profit Operating Profit Net Profit Balance Sheet (QAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margin (%) Operating Margin (%) EBITDA Margin (%) Net Margin (%) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (QAR) BVPS (QAR) P/E (x) P/BV (x) 2010 48.1% 41.8% 51.4% 45.2% 12.1 18.8% 27.3% 4.0% 10.1 39.5 13.61 3.49 2011e 54.2% 48.2% 54.5% 49.6% 8.2 24.6% 35.5% 3.4% 15.1 44.4 8.83 3.00 2012e 52.5% 46.5% 52.5% 48.2% 6.9 24.8% 34.5% 4.5% 17.5 55.6 7.65 2.41 2013e 53.8% 47.8% 53.4% 49.5% 5.5 25.0% 33.3% 6.0% 20.9 68.3 6.42 1.96 2014e 52.9% 46.9% 52.9% 48.8% 5.3 22.4% 28.4% 7.5% 21.2 79.3 6.31 1.69
550.0 73,755.0 20,255.1 7.6 2.4
117 2010 12,331 (6,401) 5,930 5,157 5,575 2011e 16,692 (7,652) 9,040 8,039 8,282 2012e 2013e 2014e 20,013 23,229 23,939 (9,497) (10,723) (11,265) 10,516 12,506 12,674 9,315 11,113 11,238 9,642 11,494 11,683
301.9 11,150,101 3m 12m 12.2 -6.2 3.3 -4.9

2.0 1.6 160 150
1.2
0.8 0.4 -
140
130 120 110
2010 31,908 21,762 10,146 7,542
2011e 35,468 24,873 10,595 7,226
2012e 42,278 31,087 11,192 7,041
2013e 49,667 38,055 11,612 6,862
2014e 54,840 44,112 10,728 6,688
Source: Bloomberg
Dec-10 Jan-11 Feb-11 Mar-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11
Volume (mn) Price (QAR) - RHS
January 2012
97
Global Research GCC
Dana Gas PJSC

STRONG BUY
79.5% 0.79 0.44 DANA UH DANA.AD
Reduced profitability forecast We have reduced our profitability forecast by 19.0% and 47.0% for 2012 and 2013 respectively in light of the expected lower drilling activity in Egypt. We have also reduced our subsequent forecasts in light of the expected lower capex due to slow receivables recovery and liquidity requirements. Concerns over convertible bond subdue price performance The maturity of the Sukuk approaching in 2012 in tandem with slow recovery in Egypt receivables raised liquidity concerns which has subdued share price performance in 2011. We believe, the company is likely to refinance the bond, though at a higher interest rate. Value still there The company's performance will be driven by it's operations in Egypt and Iraq with profitability expected to grow at a 3-year CAGR of 20.3%. The company is trading at an attractive 2012 and 2013 earnings multiple. Income Statement (AED mn) Sales Revenue-Net EBITDA Depreciation Operating Profit Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Liabilities Long-term Debt Key Ratios EBITDA Margins (%) Operating Margins (%) Net Margins (%) EV/Revenue (x) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 77.5% 47.8% 12.3% 1.2 7.5 1.4% 2.0% 0.0 1.2 30.5 0.6 2011e 81.0% 60.0% 26.3% 0.7 4.3 4.2% 6.1% 0.1 1.3 5.8 0.3 2012e 80.2% 58.8% 24.0% 0.6 3.6 4.2% 6.0% 0.1 1.4 5.3 0.3 2013e 79.3% 58.9% 27.1% 0.6 3.3 5.2% 7.4% 0.1 1.5 4.0 0.3 2014e 77.4% 59.3% 29.8% 0.5 3.1 6.1% 8.4% 0.1 1.7 3.3 0.3
6,600.0 2,904.0 790.6 5.3 0.3
0.4 2010 1,283 995 (104) 613 158 2011e 1,943 1,573 (111) 1,166 510 2012e 2,288 1,835 (133) 1,345 549 2013e 2,658 2,107 (147) 1,566 720 2014e 2,978 2,306 (147) 1,766 888
13,983.3 2,359,241 1m 3m 12m -15.4 -15.4 -42.9 -12.5 -11.8 -29.9

90,000 80,000 70,000 60,000
50,000 40,000 30,000 20,000 10,000 0
0.9
0.8 0.7 0.6 0.5 0.4 0.3
2010 11,831 7,956 3,875 3,288
2011e 12,793 8,844 3,949 3,307
2012e 13,366 9,386 3,981 3,307
2013e 14,173 10,098 4,074 3,307
2014e 15,155 10,979 4,176 3,303
Source: Bloomberg
Volume ('000) DANA (AED)-RHS
January 2012
98
Global Research GCC
REAL ESTATE SECTOR
January 2012
99
Global Research GCC
Emaar Properties
Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USD mn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (AED): 3.6 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): -11.0 Relative (%): -7.4 Price Volume Performance
60
50 40 30 20 10 0
Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
STRONG BUY
29.5% 3.3 2.5 EMAAR UH EMAR.DU
Visible and solid recurring income portfolio Emaar's well performing operational investment portfolio remains the key support to share price, in our view. Rental income and revenue from hospitality is expected to contribute AED3.3bn to 2011 and 2012 revenues representing 40% and 42% of aggregate revenues for the two years. Growing revenues from international operations International operations will pick up pace and contribute an estimated AED7.7bn to revenues between 2012 and 2014 mitigating the phase out of Dubai sales. Contribution from international sales represents 36% of our 2012-2014 revenues compared to 16% from Dubai based developments. Refinancing and S&P rating affirm long term funding stability The new AED3.67bn facility signed in December 2011 along with S&P affirmation of Emaar's BB rating and the outlook revision to stable from negative are long term funding stabilizers, in our view. Income Statement (AED mn) Revenue Gross Profit EBIT Net Profit Before Tax Net Profit Balance Sheet (AED mn) Assets Debt Liabilities Shareholders' Equity Key Ratios EBIT Margin Net Margin Interest Coverage (x) Debt to Equity (x) EV/EBITDA (x) ROAA ROAE Dividend Yield EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 21.7% 20.1% 7.4 0.4 6.4 4.0% 7.9% 0.0% 0.4 5.1 6.3 0.5 2011e 28.2% 21.2% 3.5 0.3 7.5 3.1% 5.9% 0.0% 0.3 5.2 9.1 0.5 2012e 28.5% 20.3% 4.9 0.2 6.8 3.0% 5.3% 0.0% 0.3 5.4 9.6 0.5 2013e 29.5% 23.1% 6.2 0.2 6.1 3.5% 5.7% 0.0% 0.3 5.6 8.5 0.4 2014e 27.4% 21.2% 6.0 0.1 7.6 2.6% 3.8% 0.0% 0.2 5.9 12.1 0.4
6,091.2 15,289.0 4,162.4 9.6 0.5
/ 2.4 12,110.6 9,770,018 3m 12m -0.8 -28.3 1.8 -10.1
2010 12,150 4,547 2,631 2,478 2,448
2011e 8,168 4,174 2,301 1,923 1,731
2012e 7,850 4,105 2,237 1,805 1,592
2013e 7,776 4,316 2,293 2,039 1,798
2014e 5,958 3,330 1,632 1,435 1,266
4.0
3.5
3.0
2.5 2.0
2010 62,504 11,169 31,204 31,300
2011e 60,067 10,823 28,267 31,800
2012e 56,936 7,636 24,044 32,892
2013e 55,875 6,173 21,433 34,441
2014e 53,325 4,567 17,369 35,956
1.5
1.0
0.5
0.0
Volume ('000)
Source: Bloomberg
EMAAR (AED)
January 2012
100
Global Research GCC
Aldar Properties
Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USD mn): P/E 2012e (x): P/Bv 2012e (x):
STRONG BUY
23.6% 1.1 0.9 ALDAR UH ALDR.AD
Asset sales to the government saved short term situation The AED16.8bn asset sales that Aldar concluded with the government of Abu Dhabi is a short term positive, in our view, as it absorbed the risky asset sales that were scheduled for delivery in 2012 and injected cash in the drained company. But the debt burden remains a key issue Although the deal with the government included the write off of the AED5bn infrastructure loan due to the government, Aldar is now left with AED20bn of debt with no significant cash generation power to meet its debt obligations over the coming three years. 2012 net income at AED228mn We expect Aldar to report a net income of AED228mn in 2012. Excluding the asset sale to the government, we expect Aldar to report a net loss negatively affected by the large debt service costs. Income Statement (AED mn) Revenue Gross Profit EBIT Net Profit Before Tax Net Profit Balance Sheet (AED mn) Assets Debt Liabilities Shareholders' Equity Key Ratios EBIT Margin Net Margin Debt to Equity (x) Interest Coverage (x) EV/EBITDA (x) ROAA ROAE Dividend Yield EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 -290.3% -706.7% 7.7 (7.2) na -26.7% -298.1% 0.0% (3.1) 1.0 nm 0.9 2011e 7.6% 7.9% 3.5 0.5 16.3 1.5% 9.2% 0.0% 0.1 1.4 7.0 0.6 2012e 9.4% 10.8% 2.9 0.3 26.9 0.9% 3.9% 0.0% 0.1 1.4 nm 0.6 2013e 18.1% 26.6% 1.7 1.2 11.0 3.5% 11.5% 0.0% 0.2 1.6 4.8 0.6 2014e 14.6% 30.8% 1.0 1.3 7.1 4.1% 10.6% 0.0% 0.2 1.8 4.7 0.5
4,143.4 2,564.7 698.2 nm 0.6
Price Performance 1-Yr High /Low (AED): 2.5 / 0.8 Avg Volume ('000) : 15,861.1 Avg. Val. Traded (USD) 6,054,165 1m 3m 12m Absolute (%): -11.0 -19.1 -61.6 Relative (%): -7.4 -16.5 -43.5 Price Volume Performance
70 60 50 40 1.5 30 20 10 0
2010 1,791 288 (5,199) (12,658) (12,658)
2011e 6,770 1,515 516 534 534
2012e 2,110 689 198 228 228
2013e 2,857 1,168 518 760 760
2014e 2,536 1,057 371 781 781
2.5 2.0
2010 47,344 28,234 43,097 4,247
2011e 34,579 20,251 28,760 5,819
2012e 26,323 16,913 20,490 5,833
2013e 22,104 11,127 15,511 6,593
2014e 18,936 7,271 11,562 7,374
1.0 0.5
Volume ('000)
Source: Bloomberg
Close
January 2012
101
Global Research GCC
Sorouh Real Estate

Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USD mn): P/E 2012e (x): P/Bv 2012e (x):
STRONG BUY
32.9% 1.1 0.8 SOROUH UH SOR.AD
Disappointing development sales margins Gross profit significantly disappointed in 9M11 at 12.1% realized on the long awaited deliveries of Sorouh's Reem Island developments. Scheduled deliveries in 2012 and 2013 should maintain current level of revenues but we lower our overall outlook on gross margins going forward. Upcoming deliveries offer visibility in near term earnings Sorouh's liquidity position continuous to be solid given the available undrawn AED500 mn committed bank facility on top of the 3Q11 cash balance of AED1.2 bn balance. The company's first debt repayment is due on September 2012 on the AED2.7 bn facility that was raised in 2010. Lower our value on a more negative outlook on earnings We have lowered our income forecasts for Sorouh by 33% for 2012e - 2014e and accordingly cut our fair value target by 31% to AED1.05/share from AED1.52/share previously. Income Statement (AED mn) Revenue Gross Profit EBIT Net Profit Before Tax Net Profit Balance Sheet (AED mn) Assets Debt Liabilities Shareholders' Equity Key Ratios EBIT Margin Net Margin Debt to Equity (x) Interest Coverage (x) EV/EBITDA (x) ROAA ROAE Dividend Yield EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 -3.4% 0.6% 0.7 (0.4) 7.7 0.1% 0.3% 0.0% 0.0 2.1 nm 0.4 2011e 8.8% 10.0% 0.9 10.1 8.4 2.7% 5.7% 0.0% 0.1 2.2 7.9 0.4 2012e 12.2% 11.5% 0.8 8.5 8.8 3.3% 5.7% 0.0% 0.1 2.3 7.0 0.3 2013e 12.5% 13.1% 0.3 24.3 3.4 4.9% 6.9% 0.0% 0.1 2.5 5.5 0.3 2014e 23.0% 26.6% 0.1 58.7 0.1 5.9% 7.0% 0.0% 0.2 2.6 5.1 0.3
2,881.6 2,073.8 564.6 7.0 0.3
35 30 25 20 15 10 5 0
2010 1,205 365 (42) 16 7
2011e 3,097 554 271 365 309
2012e 2,827 594 344 383 324
2013e 3,162 632 396 491 415
2014e 1,682 622 387 529 447
1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0
2010 13,634 1,643 7,456 6,178
2011e 13,619 2,138 7,082 6,537
2012e 11,971 2,032 5,051 6,921
2013e 10,333 816 2,922 7,412
2014e 9,415 330 1,474 7,941
Volume ('000)
Source: Bloomberg
SOR (AED)
January 2012
102
Global Research GCC
Dar Alarkan Real Estate Company

Recommendation: Downside / Upside: Target Price (SAR): Current Price (SAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (SAR mn): Mkt Cap (USD mn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (SAR): 10.3 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): 12.6 Relative (%): 9.7 Price Volume Performance
70 60
50 40
STRONG BUY
24.5% 8.9 7.2 ALARKAN AB 4300.SE
High debt obligations in 2012 on maturity of the SAR3.75bn Sukuk DAAR's debt profile has been an overhang to projects development as the company needs to meet its SAR3.75bn sukuk obligations in 3Q12. As of 3Q11, the company had a cash balance of SAR2bn and short term receivables of SAR1.5bn. Deteriorating 9M11 earnings, margin erosion 9M11 revenues came in at SAR2.5bn down 21% on slower land sales and the near absence of deliveries from any residential units. Moreover, realized margins on land sales have deteriorated significantly from 47% in 9M10 to 41% in 9M11. Growth in recurring income and new funding are key in 2012 Increasing occupancy in AlQasr residential units designated for rentals along with the opening of AlQasr mall in 2Q12 will be key for DAAR as they will be used as collateral to secure funding projects development. Income Statement (SAR mn) Revenue Gross Profit EBIT Net Profit Before Tax Net Profit Balance Sheet (SAR mn) Assets Debt Liabilities Shareholders' Equity Key Ratios EBIT Margin Net Margin Debt to Equity (x) Interest Coverage (x) EV/EBITDA (x) ROAA ROAE Dividend Yield EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 39.1% 35.1% 0.1 0.1 8.9 6.2% 10.0% 13.9% 1.3 13.4 5.3 0.5 2011e 36.4% 31.0% 0.0 0.1 10.7 4.4% 6.9% 0.0% 1.0 14.4 7.4 0.5 2012e 37.0% 33.2% 0.1 0.1 10.3 5.1% 7.3% 0.0% 1.1 15.6 6.3 0.5 2013e 34.7% 30.9% 0.1 0.1 8.9 5.3% 7.5% 13.9% 1.2 15.7 6.0 0.5 2014e 36.2% 32.7% 0.1 0.1 8.5 5.4% 7.4% 12.9% 1.2 16.0 6.1 0.4
1,080.0 7,722.0 2,059.0 6.3 0.5
6.1 6,701.0 13,505,292 3m 12m 17.2 -22.3 10.5 -18.0
2010 4,142 1,764 1,618 1,483 1,456
2011e 3,459 1,377 1,258 1,122 1,072
2012e 3,680 1,474 1,362 1,274 1,223
2013e 4,149 1,564 1,440 1,337 1,283
2014e 3,897 1,532 1,410 1,327 1,273
30 20
10 0
11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0
2010 23,349 7,679 8,849 14,235
2011e 24,217 7,548 8,645 15,307
2012e 24,061 6,155 7,266 16,530
2013e 24,453 6,327 7,455 16,733
2014e 23,780 5,383 6,511 17,004
Volume Source: Zawya ('000)
Source: Bloomberg
DAAR (SAR)
January 2012
103
Global Research GCC
Saudi Real Estate Company (AKARIA)

2 1 1 1 1 1 0 0 0
BUY
10.9% 29.0 26.1 SRECO AB 4020.SE
First development sales projects to contribute to revenues by 2014 Akaria is leveraging on its under-utilized land bank by launching its first development project of Binban, which is expected to commence construction in 1H12. Akaria is also engaged in a 50:50 JV to develop 206 villas in Knowledge Economic City. Clean balance sheet with zero debt exposure All under development projects on the company's portfolio are being developed utilizing internal equity. We expect Akaria to raise the minimal needed amount of debt in 2013 to compensate the financing of the Binban project. Earning surprises are one sided to the upside Akaria is one of the few pure plays on the attractive rental market of Riyadh offering stable and visible earnings. Earning surprises remain to the upside given any sale of land plots from the company's existing land bank. Income Statement (SAR mn) Revenue Gross Profit EBIT Net Profit Before Tax Net Profit Balance Sheet (SAR mn) Assets Debt Liabilities Shareholders' Equity Key Ratios EBIT Margin Net Margin Debt to Equity (x) Interest Coverage (x) EV/EBITDA (x) ROAA ROAE Dividend Yield EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 51.3% 42.4% 10.9 5.3% 5.7% 4.1% 1.5 26.7 17.1 1.0 2011e 57.9% 51.3% 13.0 3.9% 4.1% 5.2% 1.1 26.5 24.1 1.0 2012e 56.3% 49.9% 16.7 3.6% 3.8% 4.1% 1.0 26.6 25.7 1.0 2013e 62.0% 54.0% 0.1 66.8 13.1 4.3% 4.9% 4.1% 1.3 26.9 19.8 1.0 2014e 34.4% 30.1% 0.1 119.2 6.9 8.2% 9.5% 4.1% 2.7 28.6 9.6 0.9
120.0 3,132.0 835.1 25.7 1.0
21.0 214.9 1,369,292 3m 12m 12.0 -1.5 5.3 2.8
2010 432 264 222 213 183
2011e 256 173 148 149 131
2012e 244 161 138 139 122
2013e 293 210 182 180 158
2014e 1,087 463 374 372 327
30 28 26 24 22 20
2010 3,480 278 3,203
2011e 3,405 220 3,185
2012e 3,409 222 3,187
2013e 3,712 250 486 3,225
2014e 3,969 250 537 3,432
Volume ('000)
Source: Bloomberg
Akaria (SAR)
January 2012
104
Global Research GCC
Emaar Economic City

60 50 40 30 20 10 0
HOLD
5.5% 7.7 7.3 EMAAR AB 4220.SE
SAR5bn loan to restart construction activity EEC received SAR5 bn 10-year loan from the ministry of finance to restart and speed up construction activity in KAEC. The loan represents the first debt component in the company's books and will pull the company out of its liquidity squeeze with a cash balance of SAR304mn in 1Q11. Revise earnings upwards on accelerated project execution Residential units and land sales have been the only source of revenues with minor contributions from the industrial valley. Given receipt of the SAR5bn loan, we revise our project delivery assumptions and now expect a net loss in 2012 to reverse to profit afterwards. Strategy shift switches 2011 to net profit We expect 2011 SAR81mn net profit realized on sales of serviced land plots in KAEC. The sales come in as a shift in strategy towards managing a shorter cash cycle especially on residential developments. Income Statement (SAR mn) Revenue Gross Profit EBIT Net Profit Before Tax Net Profit Balance Sheet (SAR mn) Assets Debt Liabilities Shareholders' Equity Key Ratios EBIT Margin Net Margin Debt to Equity (x) Interest Coverage (x) EV/EBITDA (x) ROAA ROAE Dividend Yield EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 -649.0% -642.1% na -6.6% -7.9% 0.0% (0.7) 8.6 nm 0.8 2011e 29.5% 25.0% 0.7 4.1 31.5 0.9% 1.7% 0.0% 0.2 8.7 48.7 0.8 2012e 1.0% -5.7% 0.7 0.1 na -0.2% -0.4% 0.0% (0.0) 8.7 nm 0.8 2013e 7.9% 2.1% 0.7 1.0 na 0.1% 0.1% 0.0% 0.0 8.7 nm 0.8 2014e 13.9% 8.7% 0.7 2.6 48.4 0.4% 0.8% 0.0% 0.0 8.8 nm 0.8
850.0 6,162.5 1,643.2 nm 0.8
5.7 7,364.3 13,739,182 3m 12m 13.3 1.4 6.5 5.7
2010 91 (64) (590) (578) (584)
2011e 517 333 104 88 81
2012e 457 218 4 (14) (26)
2013e 469 284 37 18 10
2014e 704 355 98 71 62
8.0 7.5 7.0 6.5 6.0 5.5 5.0
2010 8,885 1,587 7,298
2011e 14,051 5,030 6,624 7,427
2012e 14,188 5,000 6,787 7,401
2013e 14,723 5,000 7,313 7,410
2014e 14,804 5,000 7,331 7,473
Volume ('000)
Source: Bloomberg
EEC (SAR) - RHS
January 2012
105
Global Research GCC
Mabanee
Recommendation: Downside / Upside: Target Price (KWD): Current Price (KWD): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (KWD mn): Mkt Cap (USD mn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (KWD): 0.90 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): -3.4 Relative (%): -0.6 Price Volume Performance
6 1.0 0.9 0.8 0.7 0.6 0.5
BUY
14.0% 0.98 0.86 MABANEE KK MABK.KW
Highly lucrative retail portfolio Mabanee's operations are solely concentrated in Kuwait and rotate around one project; The Avenues Mall. We expect The Avenues' unique positioning to act as a support to future competition that is scheduled to enter the market through to the end of 2013. 2013 revenues to increase twofold on completion of Phase III Construction of Phase III of The Avenues mall is scheduled to be completed in 1H12 adding 95,000 sqm to available GLA of 166,000 sqm with an expected rental rate of KWD40/sqm/month boosting Mabanees revenues more than twofold by 2013. 3-year revenue CAGR of 26% and net profit CAGR of 28% Our model yields a 3-year revenue CAGR of 26% and a net profit CAGR of 28% through to 2014 while maintaining an average gross margin of 71% in line with 2009 and 2010. Income Statement (KWD mn) Revenue Gross Profit EBIT Net Profit Before Tax Net Profit Balance Sheet (KWD mn) Assets Debt Liabilities Shareholders' Equity Key Ratios EBIT Margin Net Margin Debt to Equity (x) Interest Coverage (x) EV/EBITDA (x) ROAA ROAE Dividend Yield EPS (Fils) BVPS (Fils) P/E (x) P/BV (x) 2010 62.3% 52.4% 0.2 12.0 22.7 7.3% 13.7% 0.0% 33.8 23.0 17.4 1.0 2011e 65.7% 54.5% 0.2 8.9 21.1 7.0% 12.9% 0.0% 37.0 26.7 23.3 3.2 2012e 65.5% 57.3% 0.2 13.8 14.0 10.1% 17.4% 0.0% 60.4 32.7 14.2 2.6 2013e 66.3% 58.1% 0.2 24.1 10.7 12.6% 19.3% 3.8% 75.0 36.9 11.5 2.3 2014e 67.9% 60.0% 0.1 28.4 10.2 13.5% 19.6% 7.9% 78.0 37.9 11.0 2.3
555.6 477.8 1,715.9 14.2 2.6
0.55 633.1 1,863,064 3m 12m 3.6 21.3 5.5 39.7
2010 36 28 22 20 19
2011e 38 30 25 21 20
2012e 58 46 38 35 33
2013e 71 57 47 43 41
2014e 72 58 49 45 43
5
4 3 2 1 0
2010 256 100 129 127
2011e 293 111 146 147
2012e 335 111 154 181
2013e 335 78 131 204
2014e 332 69 123 209
Volume (000')
Source: Bloomberg
Mabanee (KWD)
January 2012
106
Global Research GCC
Salhia Real Estate Company

Recommendation: Downside / Upside: Target Price (KWD): Current Price (KWD): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (KWD mn): Mkt Cap (USD mn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (KWD): 0.27 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): 0.0 Relative (%): 2.8 Price Volume Performance
3.0 290 2.5 2.0 1.5 1.0 190 0.5 0.0
STRONG BUY
25.0% 0.25 0.20 SRE KK SREK.KW
Well diversified operating real estate portfolio Salhia has a well diversified rental portfolio that has exposure to the Kuwaiti retail, office and hospitality segments in addition to senior citizens home care facilities in Germany with further plans to penetrate the UK real estate market. Stable revenues, but high exposure to the office market is a risk Salhia enjoys a stable revenue profile although we perceive its high exposure to the local office and hotel markets as risks in the medium term. The collective contribution from the two segments to 2011 revenues is 79% of all Kuwait based revenues and 53% of the expected aggregate figure. Risk from the financial investment portfolio minimized substantially We believe the risk of further substantial impairments to Salhia's financial investment portfolio of KWD23mn has decreased significantly given its current size and the severe impairments charged over the past three years. Income Statement (KWD mn) Revenue Gross Profit EBIT Net Profit Before Tax Net Profit Balance Sheet (KWD mn) Assets Debt Liabilities Shareholders' Equity Key Ratios EBIT Margin Net Margin Debt to Equity (x) Interest Coverage (x) EV/EBITDA (x) ROAA ROAE Dividend Yield EPS (Fils) BVPS (Fils) P/E (x) P/BV (x) 2010 31.4% 23.7% 0.6 2.9 8.2 4.7% 7.7% 7.5% 20.6 0.2 13.5 1.2 2011e 32.4% 13.3% 1.3 2.6 11.3 2.1% 4.6% 0.0% 11.9 0.3 17.5 8.0 2012e 30.2% 14.4% 1.2 1.9 11.1 2.3% 4.7% 0.0% 12.7 0.3 15.8 7.3 2013e 29.1% 14.5% 1.2 1.9 10.9 2.4% 4.6% 0.0% 12.8 0.3 15.6 7.0 2014e 28.0% 14.8% 1.0 2.1 10.3 2.5% 4.6% 0.0% 13.0 0.3 15.4 6.6
512.7 102.5 368.2 15.8 7.3
0.20 261.6 211,734 3m 12m -2.9 -26.8 -1.0 -8.4
2010 43 25 14 11 10
2011e 44 26 14 7 6
2012e 44 26 14 8 7
2013e 44 25 14 8 7
2014e 43 25 13 9 8
270 250 230
210
2010 210 66 97 112
2011e 281 135 152 129
2012e 279 125 141 137
2013e 282 122 138 144
2014e 272 105 121 151
170 150
Volume ('000)
SRE (KWD Fils)
Source: Bloomberg
January 2012
107
Global Research GCC
TELECOM SECTOR
January 2012
108
Global Research GCC
Etihad Etisalat Company - Mobily

Recommendation: Downside / Upside: Target Price (SAR): Current Price (SAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (SAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (SAR): 56.0 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): Relative (%): 5.0 2.1
STRONG BUY
34.8% 71.10 52.75 EEC AB 7020.SE
4G services launched; Data revenues to drive growth Mobily has launched 4G services which is likely to cement its position as the leader in mobile broadband services. The increase in EBITDA at a 3-year CAGR of 4.0% is expected to be driven by data revenues. Contribution of data revenues to total revenues is expected to reach 20.0% in 2011. Dividends set to grow With the Board of Directors proposing a minimum of 40.0% dividend payout ratio, we expect dividend for 2011 to be SAR3.0 per share which translates into an attractive yield of 6.3%. We expect dividends to grow further to SAR3.5 per share in 2012, a yield of 6.8%. Trading at attractive valuations The stock's price multiples are attractive considering the growth prospects. In addition the expected rise in dividends will make the company attractive on a dividend yield basis. Income Statement (SAR mn) Sales Revenue EBITDA Dep. & Amortization Interest Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios EBITDA Margins (%) Net Margins (%) Interest Coverage (x) Debt to Equity (x) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 38.5% 26.3% 29.7 0.5 7.3 13.1% 27.0% 5.4% 6.0 22.3 9.2 2.5 2011e 37.0% 25.3% 31.1 0.3 5.5 14.0% 26.5% 6.3% 7.0 26.2 7.5 2.0 2012e 36.6% 25.1% 44.4 0.2 4.9 14.1% 24.7% 6.8% 7.5 30.5 7.0 1.7 2013e 36.3% 24.8% 61.6 0.1 4.5 13.5% 22.3% 7.3% 7.7 34.7 6.8 1.5 2014e 36.1% 24.6% 84.0 0.1 4.1 12.8% 20.2% 7.8% 7.8 38.8 6.7 1.4
700.0 36,925.0 9,845.9 7.0 1.7
43.0 2010 16,013 6,165 (1,810) (146) 4,211 2011e 19,279 7,134 (2,089) (162) 4,869 2012e 20,996 7,689 (2,281) (122) 5,271 2013e 21,836 7,922 (2,416) (89) 5,409 2014e 22,299 8,043 (2,502) (66) 5,475
1,151.0 15,868,417 3m 12m -0.9 -7.7 -4.1 0.2

8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 40 35 30 25 60 55 50 45
2010 33,430 15,580 17,851 5,529
2011e 36,102 18,348 17,753 3,653
2012e 38,807 21,345 17,463 2,335
2013e 41,400 24,303 17,097 1,268
2014e 44,055 27,154 16,901 501
Volume ('000)
Source: Bloomberg
EEC (SAR)-RHS
January 2012
109
Global Research GCC
Saudi Telecom Company

Recommendation: Downside / Upside: Target Price (SAR): Current Price (SAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (SAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (SAR): 43.2 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): Relative (%): 1.5 -1.4
STRONG BUY
28.7% 43.50 33.80 STC AB 4110.SE
Sales growth gives reason to cheer Increase in domestic revenue by 3.5%YoY in 3Q11 is an encouraging sign which will allay fears of revenue erosion in the domestic market. The company has also witnessed a strong growth in revenues from Kuwait and Bahrain which is likely to extend into 2012. Dividend payout reduced The company has announced a dividend payout of SAR1.5 per share for 9M11 compared to SAR2.25 per share in 9M10. The reduction has come in light of the high capex requirements for the overseas operations. We expect the dividends to be around SAR2.0 per share in 2012, a yield of 6.0%. Overseas operations to drive growth The decline in stock price by more than 20.0% in 2011 has priced in the lower dividend payout. We expect contribution from overseas operations to increase as investment in overseas operations starts generating revenues. Income Statement (SAR mn) Sales Revenue EBITDA Dep. & Amortization Interest Net Profit
2,000.0 67,600.0 18,025.2 8.2 1.3
33.0 2010 51,787 19,625 (8,645) (1,789) 9,440 2011e 54,141 19,701 (8,682) (1,908) 7,321 2012e 55,299 19,968 (8,998) (1,993) 8,222 2013e 55,777 19,978 (9,310) (2,074) 8,045 2014e 56,299 20,114 (9,589) (2,025) 7,991
881.0 8,562,709 3m 12m -1.2 -21.8 -7.9 -17.4

6,000 5,000 4,000 3,000 2,000 1,000 0 45 43 41 39 37 35 33 31 29 27 25
Balance Sheet (SAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios EBITDA Margins (%) Net Margins (%) Interest Coverage (x) Debt to Equity (x) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (SR) BVPS (SR) P/E (x) P/BV (x)
2010 2011e 2012e 2013e 2014e 110,709 121,905 126,872 131,397 135,886 53,468 59,314 64,338 69,205 74,040 57,241 62,590 62,534 62,192 61,846 21,736 27,260 26,576 25,926 25,309
Volume ('000)
Source: Bloomberg
STC (SAR)-RHS
2010 37.9% 18.2% 6.1 0.6 5.6 8.7% 21.7% 7.6% 4.7 22.5 9.1 1.9
2011e 36.4% 13.5% 5.8 0.6 4.6 6.3% 15.6% 6.0% 3.7 24.5 9.3 1.4
2012e 36.1% 14.9% 5.5 0.6 4.4 6.6% 16.1% 6.0% 4.1 26.6 8.2 1.3
2013e 35.8% 14.4% 5.1 0.5 4.3 6.2% 14.6% 6.0% 4.0 28.6 8.4 1.2
2014e 35.7% 14.2% 5.2 0.4 4.3 6.0% 13.5% 5.9% 4.0 30.6 8.5 1.1
January 2012
110
Global Research GCC
Bahrain Telecommunication Company

Recommendation: Downside / Upside: Target Price (BHD): Current Price (BHD): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (BHD mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (BHD): 0.5 Avg Volume ('000) : Avg. Val. Traded (USD) 1m Absolute (%): Relative (%): 0.0 1.7
STRONG BUY
27.9% 0.50 0.39 BATELCO BI BTEL.BH
Good opportunity to enter; offers a high dividend yield The alleged irregularities in allocation of licenses in India casted a shadow on the Batelco's Indian operations which subdued it's price performance in 2011. The decline of more than 20.0% in 2011 has landed the stock at attractive valuations. Overseas operations to drive revenue growth Total revenue declined by 4.1%YoY to BHD245.4mn in 9M11. The decline was mitigated by an increase in revenues from other operations by 6.1%YoY. Other operations account for 37.9% of total revenues as of 9M11. We expect this share to increase further in 2012. EBITDA growth to slow down We expect EBITDA growth to slowdown to a 3-year CAGR of 1.0% after an increase at a 2006-09 CAGR of 9.9%.Increase in competition in the domestic market and decline in ARPU's will keep a tap on EBITDA growth. Income Statement (BHD mn) Sales Revenue EBITDA Dep. & Amortization Other Revenues Net Profit
1,440.0 567.4 1,504.9 6.9 1.0
0.4 2010 340 146 (40) 1 87 2011e 334 137 (40) 1 74 2012e 342 139 (42) 1 82 2013e 344 140 (44) 1 85 2014e 347 141 (47) 1 87
130.7 147,571 3m 12m 0.0 -21.2 2.4 -1.1

1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 0.3 0.5 0.45 0.4 0.35 0.55
Balance Sheet (BHD mn) Assets Shareholders' Equity Liabilities Debt Key Ratios EBITDA Margins (%) Net Margins (%) EV/Revenues (x) FCF Yield (%) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (fils) BVPS (fils) P/E (x) P/BV (x)
2010 658 517 142 -
2011e 677 538 138 -
2012e 686 570 115 -
2013e 725 604 121 -
2014e 750 638 112 -
Volume ('000)
BATELCO (BHD)-RHS
Source: Bloomberg
2010 43.0% 25.5% 1.9 14.9% 4.5 13.0% 17.0% 9.6% 60.3 350.7 8.6 1.5
2011e 41.0% 22.2% 1.4 15.0% 3.5 11.1% 14.1% 9.6% 51.5 373.8 7.6 1.0
2012e 40.6% 24.1% 1.5 9.8% 3.6 12.1% 14.8% 9.2% 57.1 396.2 6.9 1.0
2013e 40.6% 24.6% 1.4 17.5% 3.5 12.0% 14.4% 9.5% 58.9 419.3 6.7 0.9
2014e 40.6% 25.2% 1.4 12.6% 3.5 11.8% 14.1% 9.7% 60.7 443.1 6.5 0.9
January 2012
111
Global Research GCC
National Mobile Telecommunications Co.

Recommendation: Downside / Upside: Target Price (KWD): Current Price (KWD): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (KWD mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (KWD): 2.06 Avg Volume ('000) : Avg. Val. Traded (USDmn) 1m Absolute (%): Relative (%): 2.1 4.9
STRONG BUY
33.6% 2.59 1.94 NMTC KK NMTC.KW
Kuwait subscriber fee amendment In Kuwait, subscriber license fee amendment, from post-paid (KWD1/month) to all subscribers (KWD0.5/month), will impact margins. Kuwait, Algeria & Tunisia are key performance drivers. Palestine turned EBITDA positive from 2Q11. Kuwait witnessed erosion in ARPU & EBITDA margin in 3Q11. Group financial forecast We estimate 2011 YoY growth of 35.0% in group revenue & 42.7% in group EBITDA. The estimated growth in 2011 is mainly aided by the full consolidation of Tunisiana apart from strong QoQ revenue growth in Algeria. We est. 2011-14 CAGR of 3.5% in rev., 2.0% in EBIDTA & 6.2% in net profit. Forex movement is critical to group operations With around 65% of revenue generated by international operations, forex movement is critical to Wataniyas income & valuation. Sound operations in many of its portfolio countries makes Wataniya a good telecom play. Income Statement (KWD mn) Sales Revenue EBITDA Dep. & Amortization Interest Net Profit Balance Sheet (KWD mn) Assets Shareholders' Equity Liabilities Debt Key Ratios EBITDA Margins (%) Net Margins (%) Interest Coverage (x) Debt to Equity (x) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (fils) BVPS (fils) P/E (x) P/BV (x) 2010 40.2% 14.5% 21.1 0.3 4.2 8.2% 16.3% 2.6% 156 1,003 12.2 1.9 2011e 42.5% 47.4% 26.1 0.3 3.7 27.2% 52.1% 2.6% 186 1,642 10.5 1.2 2012e 41.9% 13.5% 27.2 0.2 3.2 6.5% 11.8% 2.8% 203 1,790 9.6 1.1 2013e 41.1% 13.8% 29.5 0.2 2.7 6.7% 11.6% 3.1% 216 1,946 9.0 1.0 2014e 40.6% 13.8% 35.3 0.1 2.3 6.8% 11.0% 3.4% 222 2,103 8.7 0.9
504.0 977.8 3,511.3 9.6 1.1
1.58 81.9 565,420.8 3m 12m 3.2 5.1 1.0 19.5

700 600 500 400 2.10 2.00 1.90 1.80
2010 539 217 (100) (10) 78
2011e 728 309 (140) (12) 345
2012e 756 317 (136) (12) 102
2013e 787 323 (139) (11) 108
2014e 808 329 (140) (9) 111
300
200
1.70
1.60
2010 1,005 503 340 163
2011e 1,533 823 501 210
2012e 1,587 897 490 200
2013e 1,635 975 499 162
2014e 1,663 1,054 516 92
100
0
1.50
1.40
Volume ('000)
Source: Bloomberg
Chandresh Bhatt Vice President cbhatt@global.com.k w Phone: +965-2295-1282
NMTC (KWD) - RHS
January 2012
112
Global Research GCC
Mobile Telecommunications Company (Zain)

Recommendation: Downside / Upside: Target Price (KWD): Current Price (KWD): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (KWD mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x):
HOLD
0.3% 0.86 0.86 ZAIN KK ZAIN.KW
Kuwait operations to remain under pressure In Kuwait, subscriber fee amendment, from post-paid (KWD1/month) to all subscribers (KWD0.5/month), will impact margins but relatively to a lesser extent. In Kuwait Data segment has high growth potential, witnessing intense competition. Revenue to remain under pressure due to likely ARPU erosions. Iraq & Sudan In Iraq, the management expects competition to get fierce & Zains market share (53% - 3Q11) is expected to slightly decrease going forward. The upcoming 4th license in Iraq will further intensify the competition. With Sudan split, Zain group faces a risk of potential license fee in South Sudan. Stock re-rating likely to take time In the recent past the stock witnessed severe selling pressure due to change in management & non-completion of Zain KSA stake sale. Now it will take time to get re-rated. Income Statement (KWD mn) Sales Revenue EBITDA Dep. & Amortization Interest Net Profit Balance Sheet (KWD mn) Assets Shareholders' Equity Liabilities Debt Key Ratios EBITDA Margins (%) Net Margins (%) Interest Coverage (x) Debt to Equity (x) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (fils) BVPS (fils) P/E (x) P/BV (x) 2010 45.6% 23.7% 11.1 0.1 10.1 7.4% 13.0% 13.2% 83 684 18.3 2.2 2011e 45.0% 21.2% 21.4 0.2 6.9 8.9% 11.7% 6.7% 72 556 12.5 1.6 2012e 44.6% 24.3% 26.5 0.2 6.5 11.0% 15.0% 7.2% 85 581 10.1 1.5 2013e 44.3% 26.0% 33.0 0.1 6.2 11.8% 15.9% 7.8% 95 611 9.1 1.4 2014e 44.1% 27.6% 43.7 0.1 5.9 12.5% 16.5% 10.0% 103 644 8.3 1.3
4,307.5 3,704.5 13,302.5 10.1 1.5
Price Performance 1-Yr High /Low (KWD): 1.50 / 0.86 Avg Volume ('000) : 2,114.8 Avg. Val. Traded (USDmn) 8,747,652.9 1m 3m 12m Absolute (%): Relative (%): -5.5 -2.7 -7.5 -41.9 -5.7 -23.5
2010 1,352 616 (166) (55) 1,063
2011e 1,321 595 (168) (28) 280
2012e 1,364 608 (168) (23) 331
2013e 1,415 626 (166) (19) 368
2014e 1,453 641 (165) (15) 401

25,000 20,000 1.60
1.50
1.40 1.30
15,000
10,000 5,000 0
1.20
1.10 1.00 0.90 0.80
2010 3,710 2,647 843 220
2011e 3,302 2,157 634 510
2012e 3,417 2,256 805 356
2013e 3,510 2,372 831 307
2014e 3,608 2,501 844 263
Volume ('000)
Source: Bloomb erg Bloomberg
ZAIN (KWD) - RHS
Source: Company Reports & Global Research Net margin, ROAE, EPS & P/E (x) for 2010 are net of capital gain on sale of African assets
January 2012
113
Global Research GCC
Qatar Telecom (Qtel)

Recommendation: Downside / Upside: Target Price (QAR): Current Price (QAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (QAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (QAR): 164.5 Avg Volume ('000) : Avg. Val. Traded (USDmn) 1m Absolute (%): Relative (%): -4.6 -5.8
STRONG BUY
36.4% 197.2 144.60 QTEL QD QTEL.QA
International operations key growth driver International operations like Indonesia, Iraq & Oman are likely to drive further growth in group revenue & EBITDA. Going forward, we are positive on these operations as they are performing well with growing revenue. Resilient ARPU & strong customer growth in Indonesia & Iraq are the main revenue drivers. Revenue & margins to remain under pressure in Qatar In 9M11, Qatar operations witnessed a marginal YoY growth of 1.1% in rev. & EBITDA margin improved from 52.6% in 9M10 to 52.8% in 9M11. We forecast revenue in Qatar to decline at a CAGR 1.3% in 2011-14 & expect margins to come pressure as competition is likely to intensify going forward. Forex movement is critical to group performance With more than 80% rev. generated by intl. operations, forex movement is critical to Qtels income & valuation. Among regional telecom players, Qtel is trading at attractive EV/EBITDA multiple of 4.1x for 2012e & P/E of 8.6x. Income Statement (QAR mn) Sales Revenue EBITDA Dep. & Amortization Interest Net Profit Balance Sheet (QAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios EBITDA Margins (%) Net Margins (%) Interest Coverage (x) Debt to Equity (x) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (QAR) BVPS (QAR) P/E (x) P/BV (x) 2010 45.9% 10.6% 5.3 1.4 4.4 4.4% 16.7% 3.4% 19.7 129.8 7.6 1.1 2011e 46.0% 8.5% 5.6 1.2 4.5 5.5% 13.6% 3.8% 15.5 119.4 9.1 1.2 2012e 46.2% 8.8% 6.3 1.1 4.1 4.1% 13.4% 4.1% 16.7 130.7 8.6 1.1 2013e 46.3% 8.8% 7.0 0.9 3.8 4.6% 13.0% 4.5% 17.7 142.4 8.2 1.0 2014e 46.2% 8.9% 7.2 0.8 3.4 4.6% 12.5% 4.5% 18.5 154.4 7.8 0.9
176.0 25,449.7 6,989.2 8.6 1.1
118.3 42.8 1,719,241.0 3m 12m -0.5 -9.4 -2.7 -1.4
2010 27,179 12,465 (6,317) (2,367) 2,888
2011e 31,892 14,669 (7,803) (2,619) 2,725
2012e 33,546 15,501 (7,841) (2,462) 2,944
2013e 35,232 16,299 (8,097) (2,324) 3,118
2014e 36,522 16,881 (8,336) (2,354) 3,261

250
200 150 100 50 0
170
160 150 140 130 120 110
2010 2011e 2012e 2013e 2014e 101,399 107,379 111,033 114,726 119,071 19,030 21,022 22,998 25,060 27,177 36,107 39,811 42,798 46,143 49,999 46,262 46,546 45,237 43,523 41,895
Volume ('000)
Source: Bloomberg
QTEL (QAR) - RHS
January 2012
114
Global Research GCC
Vodafone Qatar
Recommendation: Downside / Upside: Target Price (QAR): Current Price (QAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (QAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (QAR): 8.4 Avg Volume ('000) : Avg. Val. Traded (USDmn) 1m Absolute (%): Relative (%): -0.8 -2.0
HOLD
-0.7% 7.5 7.54 VFQS QD VFQS.QA
4th consecutive quarter of positive EBITDA In 2Q11-12, Vodafones revenue grew by 42.9% YoY & 3% QoQ to QAR299.7mn. It achieved positive EBITDA, for the 4th consecutive quarter, of QAR34mn in 2Q11-12 as compared to EBITDA loss of QAR23.1mn in 2Q10-11. It is on track to be EBITDA positive on a cumulative basis for this fiscal. We expect revenue growth of 31.1% this fiscal In 2Q11-12, net loss reduced by 30.0% YoY & 6% QoQ to QAR115.0mn. Our revised, full-year 2011-12 net loss forecast is QAR459.9mn. This fiscal, we expect YoY revenue growth of 31.1% to QAR1,225.3mn and estimate a revenue CAGR of 19.4% during FY2011-12 to FY2014-15. Subscriber growth & network expansion In 2Q, subscriber base grew by 35% YoY to 814k, gives it a market share of 28% & revenue market share of 24.7%. Focusing on improving network quality, targeting to achieve 550 cell sites by this fiscal end. Income Statement (QAR mn) Sales Revenue EBITDA Dep. & Amortization Interest Net Profit Balance Sheet (QAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios EBITDA Margins (%) Net Margins (%) Interest Coverage (x) Debt to Equity (x) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (QAR) BVPS (QAR) P/E (x) P/BV (x) 2010-11 -2.9% -64.3% (0.9) 0.1 (210.7) -7.1% -8.2% 0.0% (0.7) 8.4 nm 0.92 2011-12e 12.0% -37.5% 4.2 0.1 36.7 -5.5% -6.7% 0.0% (0.5) 7.8 nm 0.96 2012-13e 23.5% -17.0% 7.8 0.2 14.4 -3.3% -4.1% 0.0% (0.3) 7.5 nm 1.00 2013-14e 30.0% -4.9% 12.0 0.1 10.1 -1.1% -1.4% 0.0% (0.11) 7.4 nm 1.02 2014-15e 32.0% 1.7% 15.7 0.1 8.2 0.5% 0.6% 0.0% 0.0 7.4 nm 1.01
845.4 6,374.3 1,750.6 nm 1.0
7.3 294.3 629,182.5 3m 12m 2.6 -6.4 -10.2 -9.0
2010-11 2011-12e 935 (27) (548) (31) (601) 1,225 147 (577) (35) (460)
2012-13e 1,575 370 (577) (47) (268)
2013-14e 1,809 543 (577) (45) (89)
2014-15e 2,085 667 (577) (42) 36

2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
8.6 8.4 8.2 8.0 7.8 7.6 7.4 7.2 7.0
2010-11 8,416 7,078 610 728
2011-12e 8,200 6,618 666 916
2012-13e 7,979 6,351 647 981
2013-14e 7,684 6,262 588 834
2014-15e 7,506 6,298 499 709
Volume ('000)
Vodafone (QAR) - RHS
Source: Bloomberg
Source: Company Reports & Global Research Vodafone Qatar follows April-March as its financial year.
January 2012
115
Global Research GCC
Etisalat
STRONG BUY
20.4% 11.10 9.22 ETISALAT UH ETEL.AD
International operations - key growth drivers We are optimistic about Etisalats international operations in Egypt, Africa & Saudi Arabia. These markets will be the key value drivers in the short to medium term. In 9M11 revenue from international operations grew by 15.7% YoY to AED6.1bn & contributed 28% to group topline. Declining mobile subscriber base in UAE Mobile subscribers in UAE declined to 7.5mn at the end 3Q11 from 7.8mn a year ago. The growth in mobile subscriber base is hard to achieve due to stiff competition & high penetration. Etisalat UAE focuses on rebalancing of its product portfolio from mobile (voice & sms) to internet & data revenue. Reduce our target price from AED11.66 to AED11.1 No further developments on the UAE royalties reduction front & also on a potential status change which will allow foreign participation in the stock. We cut our price target for the stock on the back of domestic pressures. Income Statement (AED mn) Sales Revenue EBITDA Dep. & Amortization Interest Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Liabilities Debt Key Ratios EBITDA Margins (%) Net Margins (%) Interest Coverage (x) Debt to Equity (x) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 51.9% 23.9% 43.0 0.2 5.2 10.4% 20.3% 5.6% 1.0 4.9 11.2 2.2 2011e 49.0% 21.6% 24.3 0.2 5.0 9.0% 17.4% 6.0% 0.9 5.2 10.5 1.8 2012e 51.1% 22.3% 26.5 0.2 4.6 9.1% 17.4% 6.0% 0.9 5.5 9.9 1.7 2013e 51.1% 22.4% 28.1 0.1 4.4 9.1% 17.2% 6.0% 1.0 5.9 9.5 1.6 2014e 52.1% 22.6% 30.3 0.1 4.1 9.2% 17.0% 6.0% 1.0 6.2 9.1 1.5
7,906.1 72,894.6 19,845.5 9.9 1.7
Price Performance 1-Yr High /Low (AED): 11.4 / 8.9 Avg Volume ('000) : 1,498.7 Avg. Val. Traded (USDmn) 4,254,389.8 1m 3m 12m Absolute (%): Relative (%): -5.3 -10.5 -14.6 -2.4 -6.9 -1.6
2010 31,929 16,561 (2,985) (385) 7,631
2011e 32,033 15,681 (3,231) (645) 6,906
2012e 33,003 16,859 (3,444) (636) 7,348
2013e 34,365 17,555 (3,660) (625) 7,685
2014e 35,538 18,510 (3,831) (611) 8,039

14,000 12,000 12.0 11.5 11.0
10,000
8,000
10.5
10.0 9.5
6,000
4,000 2,000 0
2010 75,607 38,716 30,253 6,639
2011e 78,476 40,878 30,929 6,669
2012e 82,280 43,483 32,264 6,533
2013e 86,013 46,029 33,609 6,375
2014e 89,690 48,534 34,969 6,186
9.0
8.5 8.0
Volume ('000)
Source: Bloomberg
ETISALAT (AED) - RHS
January 2012
116
Global Research GCC
Omantel
Recommendation: Downside / Upside: Target Price (OMR): Current Price (OMR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (OMR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (OMR): 1.38 Avg Volume ('000) : Avg. Val. Traded (USDmn) 1m Absolute (%): Relative (%): 2.0 -1.5
BUY
11.3% 1.45 1.31 OTEL OM OTL.OM
Gaining mobile market share In 3Q11, mobile segment continued to see growth with market share (w/o resellers) increased to 53.4% (51.3% 3Q10) & resilient ARPU of USD25.45. The management attributed this mainly to investments made in improving customer service, enhance network coverage & launch of innovative products. Revenue growth to remain in check Broadband segment has huge potential & Omantel is poised to reap benefits of its investments made in 3.5G & NGN in terms of addressing potential growth of broadband services. However, with intense competition we expect overall revenue growth to remain on check going forward. High dividend yield stock We forecast a CAGR of 1.1% in group revenue, 0.7% in EBITDA & 1.2% in net profit during 2011-14. The stock is a good dividend yield play with 7.7% yield on 2011e dividend. Income Statement (OMR mn) Sales Revenue EBITDA Dep. & Amortization Interest Net Profit Balance Sheet (OMR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios EBITDA Margins (%) Net Margins (%) Interest Coverage (x) Debt to Equity (x) EV/EBITDA (x) ROAA (%) ROAE (%) Dividend Yield (%) EPS (OMR) BVPS (OMR) P/E (x) P/BV (x) 2010 47.6% 26.9% 35.2 0.1 5.0 16.0% 25.1% 7.8% 0.149 0.612 8.6 2.1 2011e 45.6% 25.2% 50.6 0.0 4.9 16.2% 23.3% 7.6% 0.150 0.662 8.7 2.0 2012e 45.7% 25.7% 117.8 0.0 4.6 16.1% 22.2% 7.7% 0.154 0.716 8.5 1.8 2013e 45.4% 25.8% 159.9 0.0 4.3 15.3% 20.9% 7.7% 0.157 0.773 8.3 1.7 2014e 45.0% 25.3% 139.5 0.0 4.1 14.2% 19.3% 7.7% 0.155 0.828 8.4 1.6
750.0 980.3 2,546.1 8.5 1.8
1.04 216.9 668,337.3 3m 12m 14.1 10.7 2.8 19.6

1,600
1,400
2010 417 198 (79) (6) 112
2011e 445 203 (82) (4) 112
2012e 451 206 (83) (2) 116
2013e 456 207 (83) (1) 118
2014e 460 207 (84) (1) 116
1.40
1.35
1,200 1,000
800
1.30 1.25
1.20
600 400
200
1.15 1.10
1.05
2010 686 459 186 41
2011e 692 496 174 22
2012e 738 537 187 13
2013e 792 580 197 15
2014e 842 621 205 16
0
Volume ('000)
1.00
OTEL (OMR) - RHS
Source: Bloomberg
January 2012
117
Global Research GCC
UTILITIES SECTOR
January 2012
118
Global Research GCC
Qatar Electricity & Water Company

Recommendation: Downside / Upside: Target Price (QAR): Current Price (QAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (QAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x):
STRONG BUY
26.9% 180.8 142.5 QEWS QD QEWC.QA
QEWC proposes building new Water station in Qatar QEWC has proposed to KAHRAMA to set up an additional local water production station in Ras Abu Fintas with a capacity of 72mn gallons a day. If the project is approved it will boost QEWC's output of desalinated water to more than 330mn gallons or 83% of Qatar's water production. Ras Girtas expansion Ras Girtas Power Company (RGPC), a JV involving QEWC & other consortium partners, plans to expand its 2,730 MW Ras Laffan-C power capacity by up to 750 MW & water desalination by 25 MIGD by 2014. This will increase the plant's capacity to 3,480 MW of power & 88 MIGD of water. Plans international expansion QEWC is actively seeking greenfield & acquisition opportunities in various regions across the world to expand its generation portfolio. Growing domestic as well as intl. operations makes QEWC an excellent investment choice. Income Statement (QAR mn) Sales Revenue Cost of Sales Gross Profit EBIT Net Profit Balance Sheet (QAR mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross profit margin EBIT margin Net profit margin LT Debt /Equity (x) Current ratio ROAA (%) ROAE (%) Dividend Yield (%) EPS (QAR) BVPS (QAR) P/E (x) P/BV (x) 2010 44.9% 47.6% 33.9% 3.4 0.7 5.8% 31.6% 5.8% 11.6 37.6 8.8 2.7 2011e 49.1% 48.2% 31.3% 3.2 1.3 6.4% 34.0% 4.6% 13.9 44.3 10.0 3.2 2012e 50.7% 49.9% 33.4% 2.5 1.1 7.2% 32.4% 5.0% 15.7 52.7 9.1 2.7 2013e 51.0% 49.9% 35.2% 2.0 0.9 7.9% 30.3% 5.4% 17.4 62.2 8.2 2.3 2014e 51.3% 50.0% 36.4% 1.7 1.0 8.4% 28.2% 5.7% 19.0 72.8 7.5 2.0
100.0 14,250.0 3,913.4 9.1 2.7
Price Performance 1-Yr High /Low (QAR): 154 / 118 Avg Volume ('000) : 63.7 Avg. Val. Traded (USDmn) 2,377,857.3 1m 3m 12m Absolute (%): 2.3 7.1 6.7 Relative (%): 1.1 -1.8 8.0 Price Volume Performance
500 450 400 350 300 250 200 150 100 50 0
2010 3,430 (1,892) 1,539 1,632 1,163
2011e 4,456 (2,270) 2,186 2,150 1,394
2012e 4,706 (2,320) 2,387 2,348 1,570
2013e 4,946 (2,422) 2,524 2,470 1,740
2014e 5,222 (2,543) 2,679 2,612 1,900
160
150 140 130 120

110 100
2010 22,123 3,763 3,944 14,417
2011e 22,338 4,430 3,293 14,615
2012e 22,496 5,266 3,241 13,988
2013e 22,799 6,218 3,216 13,364
2014e 23,685 7,275 3,294 13,116
Volume ('000)
Source: Bloomb erg Bloomberg
QEWS (QAR) - RHS
January 2012
119
Global Research GCC
Abu Dhabi National Energy

Recommendation: Downside / Upside: Target Price (AED): Current Price (AED): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (AED mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (AED): 1.63 Avg Volume ('000) : Avg. Val. Traded (USDmn) 1m Absolute (%): 0.8 Relative (%): 3.7 Price Volume Performance
14,000 12,000 10,000 8,000 6,000 4,000 2,000 1.7 1.6 1.5 1.4 1.3 1.2 1.1
STRONG BUY
48.1% 1.79 1.21 TAQA UH TAQA.AD
Strong set of results in first 9-months Taqa reported strong performance in 9M11 both operationally & financially. It benefited from higher oil prices and a quarterly increase in UK production, along with higher Power & Water revenue from UAE. Revenue & net profit growth was 24% YoY & 66.3% to AED18.7bn & AED1.1bn, respectively. Firm growth in electricity and water business We believe that TAQA is well placed in capitalizing opportunities available in the electricity & water segment. We expect revenue CAGR (2011-14) of 6.3% for electricity & water and 10.0% for oil & gas. At group level, we forecast revenue CAGR of 8.8% & net profit CAGR of 9.8% during 2011-14. Strong investment case to have an exposure in energy sector Taqa's recent debt offering received tremendous response. It has strong liquidity position with cash of AED4bn on its books as of 3Q11. Growing asset portfolio & strong performance makes TAQA a strong investment case. Income Statement (AED mn) Sales Cost of Sales Gross Profit EBIT Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Net Fixed Assets Bank Borrowings Key Ratios Gross profit margin EBIT margin Net profit margin LT Debt/Equity (x) Current ratio ROAA ROAE Dividend Yield (%) EPS (AED) BVPS (AED) P/E (x) P/BV (x) 2010 33.4% 32.9% 0.1 8.7 1.5 1.8% 11.6% 6.6% 0.16 1.43 9.0 1.0 2011e 36.5% 37.0% 0.1 7.6 1.2 2.2% 16.8% 9.5% 0.25 1.57 4.8 0.8 2012e 36.0% 35.8% 0.1 6.8 1.5 2.6% 17.9% 9.5% 0.30 1.75 4.1 0.7 2013e 35.5% 35.3% 0.1 6.1 1.9 2.8% 18.1% 11.9% 0.33 1.94 3.6 0.6 2014e 35.0% 34.9% 0.1 5.4 2.2 3.0% 17.8% 11.9% 0.37 2.16 3.3 0.6
6,225.0 7,532.3 2,050.7 4.1 0.7
1.14 810.1 286,305.7 3m 12m 6.1 -18.8 9.7 -5.8
2010 2011e 2012e 2013e 2014e 21,401 25,213 27,973 30,340 32,444 (14,250) (16,010) (17,903) (19,569) (21,089) 7,151 9,203 10,070 10,771 11,355 7,038 9,336 10,019 10,713 11,318 1,019 1,567 1,843 2,073 2,274
2010 2011e 2012e 2013e 2014e 116,059 113,208 115,866 119,868 124,055 8,897 9,752 10,883 12,066 13,451 78,651 76,762 74,896 72,374 69,985 80,455 77,088 75,557 73,212 72,616
0
Volume ('000) Source: Bloomberg
1.0
TAQA (AED) - RHS
January 2012
120
Global Research GCC
Saudi Electricity Company

Recommendation: Downside / Upside: Target Price (SAR): Current Price (SAR): Bloomberg Code: Reuters Code: Market Data O/S (mn): Mkt Cap (SAR mn): Mkt Cap (USDmn): P/E 2012e (x): P/Bv 2012e (x): Price Performance 1-Yr High /Low (SAR): 14.8 Avg Volume ('000) : Avg. Val. Traded (USDmn) 1m Absolute (%): 1.9 Relative (%): -1.0 Price Volume Performance
35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 15.0 14.5 14.0
HOLD
0.7% 13.8 13.7 SECO AB 5110.SE
Plans restructuring in Jan.'12 Saudi Electricity Co. (SEC) plans corporate restructuring in Jan.'12. As per the plan it will split into six companies. SEC will be a holding company & will retain full ownership of the 6 companies, which include 4 power generation firms, 1 distribution company & 1 transmission company. Asset base continues to rise The rising annual peak power demand grew by around 10% in the past year. We expect power demand to grow between 6% to 8% per annum till 2020, and estimate the company's available power capacity to reach 61,000MW by 2013. The asset base is projected to record CAGR (2010-14e) of 8.6%. Restructuring intricacies will impact stock price Currently, we valued the stock at SAR13.8 and if the restructuring exercise goes through, the details of which are still awaited, it will have significant impact on the company's stock price as well as on our fair value. Income Statement (SAR mn) Sales Revenue Gross Profit Operating Expenses Operating Income Net Profit Balance Sheet (SAR mn) Assets Shareholders' Equity Gross Fixed Assets Long Term Debt Key Ratios Gross Margin Operating Margin Net Margin LT Debt /Equity (x) Current Ratio (x) ROAA ROAE Dividend Yield EPS (SAR) BVPS (SAR) P/E (x) P/BV (x) 2010 7.9% 6.5% 8.2% 1.2 0.5 1.3% 4.6% 5.0% 0.5 12.2 25.7 1.2 2011e 8.0% 6.8% 8.4% 1.4 0.5 1.3% 5.0% 5.1% 0.6 12.6 22.1 1.1 2012e 8.5% 7.2% 8.7% 1.3 0.4 1.3% 5.5% 5.1% 0.7 13.2 19.2 1.0 2013e 9.1% 7.8% 9.2% 1.2 0.4 1.5% 6.2% 5.1% 0.8 13.9 16.2 1.0 2014e 9.4% 8.1% 9.5% 1.1 0.4 1.6% 6.7% 5.1% 1.0 14.8 14.3 0.9
4,166.6 57,082.3 15,220.7 19.2 1.0
12.4 2010 27,860 2,187 (382) 1,806 2,279 2011e 30,621 2,440 (366) 2,074 2,580 2012e 33,951 2,898 (445) 2,453 2,968 2013e 38,144 3,476 (505) 2,971 3,514 2014e 41,982 3,963 (546) 3,417 3,991
3,516.5 12,909,509 3m 12m 2.6 -2.1 -4.1 2.2
13.5
13.0 12.5 12.0 11.5 11.0
2010 2011e 2012e 2013e 2014e 190,872 211,014 230,846 249,038 265,171 50,658 52,689 55,107 58,073 61,528 265,093 289,284 314,068 344,583 375,649 62,360 72,071 70,705 68,995 67,173
Volume ('000)
Source: Bloomberg
SECO (SAR) - RHS
January 2012
121
Global Research GCC
OTHERS
January 2012
122
Global Research GCC
Dubai Financial Market

HOLD
-3.6% 0.810 0.840 DFM UH DFM.DU
Trading activity witnesses continuous slide By October 2011, DFM witnessed a 63.1% decline in average daily trading value on a YoY basis as stock plummeted due to several political and economic situations including the Arab Spring and the Euro Debt zone crisis, which battered investor confidence resulting in low trading activity. MSCI second delay Index compiler MSCI Inc. delayed its decision another six months to upgrade the status of DFM to the emerging market index. DFM adopted the Delivery Vs Payment System (DvP), and opened up Foreign Ownership Limits to fulfill MSCI requirements. Inclusion will help boost trading activity and liquidity. Long road to pre crisis levels Based on our expectations, the companys profitability will start to pick up by 2012 to AED73.9mn as compared to 888,000 forecasted for 2011. On a CAGR basis profits will increase 32.9% during 2010-14. Income Statement (AED mn) Total Revenue Operating Expense Gross Profit Investment Revenue Net Profit Balance Sheet (AED mn) Assets Shareholders' Equity Liabilities Debt Key Ratios Gross Margins Operating Margins Net Margins Current Ratio (x) TCF/TR ROAA ROAE Dividend Yield EPS (fils) BVPS (AED) P/E (x) P/BV (x) 2010 58.7% 39.5% 38.7% 4.8 83.7% 0.9% 0.9% 3.3% 0.9 0.9 164.4 1.6 2011e 3.7% 13.4% 7.9% 6.8 65.5% 0.1% 0.1% 0.0% 0.1 1.0 6.0 0.9 2012e 36.6% 42.2% 41.8% 6.9 70.5% 1.0% 1.1% 0.0% 1.0 1.0 0.8 0.9 2013e 61.2% 57.1% 57.1% 6.5 74.7% 2.0% 2.1% 2.0% 2.0 1.0 0.4 0.9 2014e 70.0% 68.6% 68.6% 5.4 78.6% 3.3% 3.5% 2.0% 3.4 1.0 0.2 0.9
8,000.0 6,720.0 1,829.5 0.8 0.9
60,000 50,000 40,000 30,000 20,000 10,000 0 1.1 0.9 0.7 1.7 1.5 1.3
2010 190 (114) 76 73 79
2011e 141 (110) 31 62 1
2012e 197 (119) 78 64 74
2013e 278 (128) 150 66 143
2014e 399 (138) 260 68 246
2010 7,915 7,523 360 58
2011e 7,993 7,627 325 19
2012e 8,077 7,701 326 10
2013e 8,094 7,684 344 -
2014e 8,323 7,770 459 -
Source: Bloomberg
Volum e ('000) DFM (AED)
Source: Company Reports & Global Research * TCF Total Commission Fees, TR Total Revenue
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APPENDIX
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Global Research - GCC Universe
Bloomberg Ticker Cement & Building Material Arkan Building Materials Company Ras Al Khaimah Cement Company Ras Al Khaimah Ceramics Co. Raysut Cement Company Oman Cement Company Qatar National Cement Company Yamama Saudi Cement Company Arabian Cement Co. Saudi Cement Company Total Telecom Emirates Telecommunications Corporation Bahrain Telecommunications Company Mobile Telecommunications Company Oman Telecommunications Company Qatar Telecom Vodafone Qatar Saudi Telecom Company Etihad Etisalat Company Total Petrochemicals Dana Gas Industries Qatar Saudi Basic Industries Corporation Saudi Arabia Fertilizers Company Yanbu National Petrochemicals Company Saudi International Petrochemichal Company Total Utilities Abu Dhabi National Energy Qatar Electricity & Water Company Saudi Electricity Company Total TAQA UH QEWS QD SECO AB 2,050.7 3,913.8 15,220.7 0.8% 2.3% 1.9% 6.1% 7.1% 2.6% -18.8% 6.7% -2.1% 4.1 9.1 19.2 12.29 0.7 2.7 1.0 1.18 17.9% 32.4% 5.5% 9.3% 1.6% 7.1% 1.5% 1.9% 0.30 15.70 0.71 1.21 142.50 13.70 DANA UH IQCD QD SABIC AB SAFCO AB YANSAB AB SIPCHEM AB 790.6 20,256.8 76,993.8 11,582.4 6,569.5 1,891.8 -15.4% -1.1% 0.0% -4.1% -1.8% -0.3% -15.4% 12.2% 9.7% -5.3% 0.5% 8.1% -42.9% -6.2% -10.3% 4.0% -10.1% -22.9% 5.3 7.6 9.2 11.1 7.1 10.5 8.89 0.3 2.4 1.7 5.4 1.8 1.3 2.20 6.0% 35.1% 20.2% 49.2% 28.7% 12.5% 22.9% 4.5% 28.6% 9.4% 44.6% 14.1% 5.5% 11.7% 0.08 17.53 10.43 15.67 6.18 1.84 0.44 134.10 96.25 173.75 43.80 19.35 ETISALAT UH BATELCO BI ZAIN KK OTEL OM QTEL QD VFQS QD STC AB EEC AB 19,846.1 1,504.9 13,297.2 3,509.9 2,546.0 6,989.7 1,750.7 18,025.2 9,845.9 -5.3% 0.0% -5.5% 2.1% 2.0% -4.6% -0.8% 1.5% 5.0% -10.5% 0.0% -7.5% 3.2% 14.1% -0.5% 2.6% -1.2% -0.9% -14.6% -21.2% 0.0% 1.0% 2.8% -2.7% -10.2% -21.8% -4.1% 9.9 6.9 11.2 9.6 8.5 8.6 na 8.2 7.0 9.20 1.7 1.0 1.6 1.5 1.8 1.1 1.0 1.3 1.7 1.57 17.4% 15.3% 15.0% 16.7% 22.4% 13.4% -4.1% 16.1% 26.6% 16.5% 9.5% 12.3% 9.5% 8.9% 16.8% 2.8% -3.2% 7.1% 15.2% 7.5% 0.93 0.06 0.08 0.20 0.15 16.73 (0.32) 4.11 7.53 9.22 0.39 0.86 1.94 1.31 144.60 7.54 33.80 52.75 ARKAN UH RAKCC UH RAKCEC UH RCCI OM OCOI OM QNCD QD YACCO AB ARCCO AB SACCO AB 433.6 79.1 287.3 395.3 379.8 1,529.3 2,546.8 953.5 3,008.8 -22.2% -13.0% -5.3% -9.4% 3.8% 4.4% 6.4% 6.4% 15.2% -28.3% -25.0% -5.3% -23.7% -0.7% 5.0% 14.1% 10.9% 17.1% -47.4% -30.2% -36.2% -38.9% -31.6% 3.5% 35.4% 32.6% 47.5% 18.7 na 5.4 10.4 10.8 12.4 12.8 7.5 13.2 11.62 0.9 0.4 0.4 0.5 0.8 2.3 2.7 1.1 3.0 1.85 5.1% 0.0% 7.5% 14.3% 9.4% 19.2% 21.7% 15.8% 23.2% 15.4% 3.1% 0.0% 3.4% 7.6% 7.9% 16.8% 20.3% 11.1% 18.4% 10.9% 0.05 0.00 0.26 0.07 0.04 9.12 5.52 5.96 5.59 0.91 0.60 1.42 0.76 0.44 113.40 70.75 44.70 73.75 Mkt. Cap USD mn 1M Stock Performance 3M 12M P/E 2012e P/BV 2012e ROE 2012e ROA 2012e EPS 2012e Current Price
Target Price 1.12 0.69 2.32 0.83 0.47 125.40 71.20 59.20 66.80
Upside / (Downside) 23.1% 15.0% 63.4% 9.1% 6.6% 10.6% 0.6% 32.4% -9.4%
Rating
STRONG BUY BUY STRONG BUY HOLD HOLD BUY HOLD STRONG BUY HOLD
11.10 0.50 0.86 2.59 1.45 197.17 7.49 43.50 71.10
20.4% 27.9% 0.3% 33.6% 11.3% 36.4% -0.7% 28.7% 34.8%
STRONG BUY STRONG BUY HOLD STRONG BUY BUY STRONG BUY HOLD STRONG BUY STRONG BUY
National Mobile Telecommunications Company NMTC KK
0.79 170.90 118.60 182.70 57.80 23.60
79.5% 27.4% 23.2% 5.2% 32.0% 22.0%
STRONG BUY STRONG BUY STRONG BUY HOLD STRONG BUY STRONG BUY
1.79 180.81 13.80
48.1% 26.9% 0.7%
STRONG BUY STRONG BUY HOLD
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Global Research - GCC Universe Bloomberg Ticker Mkt. Cap USD mn Transportation and Logistics Aramex Air Arabia Jazeera Airways Company Total Banks Abu Dhabi Commercial Bank First Gulf Bank National Bank of Abu Dhabi Union National Bank Emirates NBD National Bank of Kuwait Kuwait Finance House Commercial Bank of Kuwait Burgan Bank Bank Muscat Bank Dhofar National Bank of Oman Ahli Bank Qatar National Bank Qatar Islamic Bank The Commercial Bank of Qatar Doha Bank Al Rayan Bank Al Rajhi Bank Samba Financial Group Riyad Bank The Saudi British Bank Banque Saudi Fransi Arab National Bank Saudi Hollandi Bank Total ADCB UH FGB UH NBAD UH UNB UH EMIRATES UH NBK KK KFIN KK CBK KK BURG KK BKMB OM BKDB OM NBOB OM ABOB OM QNBK QD QIBK QD CBQK QD DHBK QD MARK QD RJHI AB SAMBA AB RIBL AB SABB AB BSFR AB ARNB AB AAAL AB 4,204.8 6,289.1 8,517.1 1,963.6 4,267.1 15,911.0 8,494.0 3,515.8 2,429.5 3,068.5 1,309.8 901.3 543.3 27,237.2 5,483.9 5,810.7 3,746.8 5,736.7 27,797.8 10,991.1 9,359.3 8,159.3 8,157.2 6,243.8 2,619.3 -6.8% -3.8% -0.9% -0.7% -15.3% -1.8% -3.3% -2.5% -2.1% 7.8% 8.0% 3.5% 3.6% 2.6% -0.4% 3.6% 1.5% 3.9% 1.1% -2.3% 0.4% 4.6% 3.7% -3.5% 6.8% -1.1% 10.4% 7.9% -2.7% -25.8% 5.7% -2.2% -6.1% -3.2% 15.8% 3.0% 3.5% 0.4% 11.8% 7.1% 15.4% 15.6% 15.3% 2.6% 4.3% -0.6% 6.8% 12.2% 3.0% 15.6% 25.5% -12.1% 11.3% 1.2% -2.1% -15.6% -23.4% -18.1% -13.8% -11.9% -17.1% -8.0% -5.3% 9.3% 0.4% -8.1% -0.5% 44.3% -16.8% -23.7% -12.4% 1.0% -6.2% -9.0% 0.3% 8.1 6.0 8.0 3.9 8.2 13.1 20.1 21.1 10.4 8.2 11.0 8.0 8.2 11.4 12.0 9.2 9.5 14.3 11.3 8.5 9.9 10.0 8.5 8.4 8.3 10.08 0.9 0.9 1.2 0.6 0.5 1.9 1.9 1.8 1.4 2.2 0.5 1.3 1.4 2.4 1.9 1.6 2.2 2.5 3.3 1.3 1.2 1.6 1.4 1.3 1.2 1.70 10.8% 16.3% 16.0% 15.6% 6.1% 15.0% 9.4% 8.5% 13.7% 15.4% 18.2% 14.7% 19.4% 21.8% 16.0% 17.5% 23.1% 18.1% 30.2% 16.3% 12.0% 17.0% 18.0% 16.4% 15.7% 16.2% 1.1% 2.6% 1.7% 2.3% 0.7% 2.6% 0.9% 1.3% 1.5% 2.2% 2.6% 2.2% 3.0% 3.4% 3.1% 3.4% 2.9% 3.4% 4.6% 2.5% 2.0% 2.4% 2.8% 2.3% 2.1% 2.3% 0.34 2.56 1.36 0.74 0.34 0.09 0.04 0.04 0.04 0.09 0.05 0.04 0.03 13.63 7.02 9.28 6.91 1.94 6.13 5.38 2.37 4.08 4.99 3.27 3.58 2.76 15.40 10.90 2.89 2.82 1.12 0.88 0.77 0.46 0.76 0.55 0.32 0.26 155.90 84.50 85.50 66.00 27.85 69.50 45.80 23.40 40.80 42.30 27.50 29.70 ARMX UH AIRARABI UH JAZEERA KK 729.5 754.7 323.8 0.0% -4.2% -8.9% 2.8% -3.4% 32.3% -14.1% -28.7% 230.6% 11.6 10.1 5.1 9.01 na 0.5 2.0 0.89 12.0% 5.2% 49.2% 9.6% 9.0% 4.0% 10.1% 6.3% 0.16 0.06 0.08 1.83 0.59 0.41 1M Stock Performance 3M 12M P/E 2012e P/BV 2012e ROE 2012e ROA 2012e EPS 2012e Current Price
Target Price
Upside / (Downside)
Rating
2.00 0.76 0.61
9.3% 28.7% 49.7%
HOLD STRONG BUY STRONG BUY
3.62 24.55 12.63 4.95 3.83 1.13 0.92 0.73 0.55 0.71 0.35 0.33 0.28 169.04 82.92 98.03 67.27 27.24 73.27 53.73 26.18 43.13 47.32 32.60 32.00
31.0% 59.4% 15.9% 71.1% 35.8% 1.1% 4.0% -5.5% 18.9% -6.8% -36.9% 3.7% 6.3% 8.4% -1.9% 14.7% 1.9% -2.2% 5.4% 17.3% 11.9% 5.7% 11.9% 18.5% 7.7%
STRONG BUY STRONG BUY BUY STRONG BUY STRONG BUY HOLD HOLD HOLD BUY HOLD SELL HOLD HOLD HOLD HOLD BUY HOLD HOLD HOLD BUY BUY HOLD BUY BUY HOLD
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Global Research - GCC Universe Bloomberg Ticker Mkt. Cap USD mn Real Estate Dar Alarkan Emaar Economic City Saudi Real Estate Co. (Akaria) Emaar Properties Aldar Properties Sorouh Real Estate Mabanee Salhia Real Estate Total Construction Contractors Arabtec Holding Drake & Scull International Al Khodari Sons Company Mohammad Al-Mojil Group Total Others Dubai Financial Market Total
* All price in local currency as of 5 December 2011 Source: Bloomberg & Global Research
Stock Performance 1M 3M 12M
P/E 2012e
P/BV 2012e
ROE 2012e
ROA 2012e
EPS 2012e
Current Price
Target Price
Upside / (Downside)
Rating
ALARKAN AB EMAAR AB SRECO AB EMAAR UH ALDAR UH SOROUH UH MABANEE KK SRE KK
2,059.0 1,643.2 835.1 4,162.5 698.2 564.6 1,715.2 368.1
12.6% 11.5% 13.5% -11.0% -11.0% -15.1% -3.4% 0.0%
17.2% 13.3% 12.0% -0.8% -19.1% -22.5% 3.6% na
-22.3% 1.4% -1.5% -28.3% -61.6% -51.8% 21.3% -26.8%
6.3 na 25.7 9.6 11.2 6.3 14.3 14.9 12.98
0.5 0.8 1.0 0.5 0.4 0.3 2.6 0.7 0.66
7.7% -0.5% 3.8% 4.9% 3.9% 4.9% 20.3% 5.2% 4.9%
5.1% -0.3% 3.5% 2.6% 0.6% 2.4% 12.1% 2.8% 3.4%
1.13 (0.04) 1.02 0.26 0.06 0.11 0.06 0.01
7.15 7.25 26.10 2.51 0.89 0.79 0.86 0.20
8.90 7.65 28.95 3.25 1.10 1.05 0.98 0.25
24.5% 5.5% 10.9% 29.5% 23.6% 32.9% 14.0% 25.0%
STRONG BUY HOLD BUY STRONG BUY STRONG BUY STRONG BUY BUY STRONG BUY
ARTC UH DSI UH ALKHODAR AB MMG AB
671.6 462.5 592.1 801.6
10.0% -5.3% 6.0% 18.2%
26.9% -2.0% -13.6% 12.6%
4.2% -26.4% -5.0% 23.3%
16.7 7.9 12.8 24.7 11.54
0.8 0.6 2.9 1.8 0.77
5.1% 8.1% 24.4% 7.4% 6.5%
1.7% 4.0% 8.7% 3.7% 2.6%
0.10 0.10 4.07 0.97
1.65 0.78 52.25 24.05
1.27 1.00 65.10 24.50
-23.0% 28.2% 24.6% 1.9%
SELL STRONG BUY STRONG BUY HOLD
DFM UH
1,829.6
-13.4%
-18.4%
-44.7%
720.1 720.10
0.9 0.87
1.0% 1.0%
0.9% 0.9%
0.01
0.84
0.81
-3.6%
HOLD
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Disclaimer
Disclosure Checklist Company Abu Dhabi Commercial Bank Abu Dhabi National Energy Ahli Bank Air Arabia Aldar Properties Al Rajhi Bank Al Rayan Bank Al Khodari Sons Company Arab National Bank Arabian Cement Co. Arabtec Holding PJSC Aramex Arkan Building Materials Company Bahrain Telecom. Company Bank Dhofar Bank Muscat Banque Saudi Fransi Burgan Bank Commercial Bank of Kuwait Dana Gas Dar Alarkan Doha Bank Drake & Scull International Dubai Financial Market Emaar Economic City Emaar Properties Emirates NBD Emirates Telecom. Corporation Etihad Etisalat Company F.A Al Hokair Company First Gulf Bank Industries Qatar Jazeera Airways Company Kuwait Finance House Mabanee Mobile Telecom. Company Mohammad Al-Mojil Group National Bank of Abu Dhabi National Bank of Kuwait National Bank of Oman National Mobile Telecom. Company Oman Cement Company Oman Telecom. Company Qatar Electricity & Water Co. Qatar Islamic Bank January 2012 Recommendation STRONG BUY STRONG BUY HOLD STRONG BUY STRONG BUY HOLD HOLD STRONG BUY BUY STRONG BUY SELL HOLD STRONG BUY STRONG BUY SELL HOLD BUY BUY HOLD STRONG BUY STRONG BUY HOLD STRONG BUY HOLD HOLD STRONG BUY STRONG BUY STRONG BUY STRONG BUY U/R STRONG BUY STRONG BUY STRONG BUY HOLD BUY HOLD HOLD BUY HOLD HOLD STRONG BUY HOLD BUY STRONG BUY HOLD Bloomberg Ticker ADCB UH TAQA UH ABOB OM AIRARABI UH ALDAR UH RJHI AB MARK QD ALKHODAR AB ARNB AB ARCCO AB ARTC UH ARMX UH ARKAN UH BATELCO BI BKDB OM BKMB OM BSFR AB BURG KK CBK KK DANA UH ALARKAN AB DHBK QD DSI UH DFM UH EMAAR AB EMAAR UH EMIRATES UH ETISALAT UH EEC AB ALHOKAIR AB FGB UH IQCD QD JAZEERA KK KFIN KK MABANEE KK ZAIN KK MMG AB NBAD UH NBK KK NBOB OM NMTC KK OCOI OM OTEL OM QEWS QD QIBK QD Reuters Ticker ADCB.AD TAQA.AD ABOB.OM AIRA.DU ALDR.AD 1120.SE MARK.QA 1330.SE 1080.SE 3010.SE ARTC.DU ARMX.DU ARKN.AD BTEL.BH BDOF.OM BMAO.OM 1050.SE BURG.KW CBKK.KW DANA.AD 4300.SE DOBK.QA DSI.DU DFM.DU 4220.SE EMAR.DU ENBD.DU ETEL.AD 7020.SE 4240.SE FGB.AD IQCD.QA JAZK.KW KFIN.KW MABK.KW ZAIN.KW 1310.SE NBAD.AD NBKK.KW NBO.OM NMTC.KW OCCO.OM OTL.OM QEWC.QA QISB.QA Price AED 2.76 AED 1.21 OMR 0.261 SAR 0.594 AED 0.89 SAR 69.5 QAR 27.85 SAR 52.25 SAR 27.5 SAR 44.7 AED 1.65 AED 1.83 AED 0.91 BHD 0.394 OMR 0.551 OMR 0.763 SAR 42.3 KWD 0.46 KWD 0.77 AED 0.44 SAR 7.15 QAR 66 AED 0.78 AED 0.84 SAR 7.25 AED 2.51 AED 2.82 AED 9.22 SAR 52.75 SAR 64.75 AED 15.4 QAR 134.1 KWD 0.41 KWD 0.88 KWD 0.86 KWD 0.86 SAR 24.05 AED 10.9 KWD 1.12 OMR 0.321 KWD 1.94 OMR 0.442 OMR 1.307 QAR 142.5 QAR 84.5 Disclosure 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 128
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Qatar National Bank Qatar National Cement Company Qatar Telecom Ras Al Khaimah Cement Company Ras Al Khaimah Ceramics Co. Raysut Cement Company Riyad Bank Samba Financial Group Salhia Real Estate Saudi Arabia Fertilizers Company Saudi Basic Industries Corporation Saudi Cement Company Saudi Electricity Company Saudi Hollandi Bank Saudi International Petrochem. Co. Saudi Real Estate Co. (Akaria) Saudi Telecom Company Sorouh Real Estate The Commercial Bank of Qatar The Saudi British Bank Union National Bank Vodafone Qatar Yamama Saudi Cement Company Yanbu National Petrochem. Co.
HOLD BUY STRONG BUY BUY STRONG BUY HOLD BUY BUY STRONG BUY HOLD STRONG BUY HOLD HOLD HOLD STRONG BUY BUY STRONG BUY STRONG BUY BUY HOLD STRONG BUY HOLD HOLD STRONG BUY
QNBK QD QNCD QD QTEL QD RAKCC UH RAKCEC UH RCCI OM RIBL AB SAMBA AB SRE KK SAFCO AB SABIC AB SACCO AB SECO AB AAAL AB SIPCHEM AB SRECO AB STC AB SOROUH UH CBQK QD SABB AB UNB UH VFQS QD YACCO AB YANSAB AB
QNBK.QA QANC.QA QTEL.QA RAKC.AD RKCE.AD RAYC.OM 1010.SE 1090.SE SREK.KW 2020.SE 2010.SE 3030.SE 5110.SE 1040.SE 2310.SE 4020.SE 4110.SE SOR.AD COMB.QA 1060.SE UNB.AD VFQS.QA 3020.SE 2290.SE
QAR 155.9 QAR 113.4 QAR 144.6 AED 0.6 AED 1.42 OMR 0.761 SAR 23.4 SAR 45.8 KWD 0.2 SAR 173.75 SAR 96.25 SAR 73.75 SAR 13.7 SAR 29.7 SAR 19.35 SAR 26.1 SAR 33.8 AED 0.79 QAR 85.5 SAR 40.8 AED 2.89 QAR 7.54 SAR 70.75 SAR 43.8
1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10
1. Global Investment House did not receive and will not receive any compensation from the company or anyone else for the preparation of this report. 2. The company being researched holds more than 5% stake in Global Investment House. 3. Global Investment House makes a market in securities issued by this company. 4. Global Investment House acts as a corporate broker or sponsor to this company. 5. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company. 6. An employee of Global Investment House serves on the board of directors of this company. 7. Within the past year , Global Investment House has managed or co-managed a public offering for this company, for which it received fees. 8. Global Investment House has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 9. Global Investment House expects to receive or intends to seek compensation for investment banking services from this company in the next three months. 10. Please see special footnote below for other relevant disclosures.
Global Research: Equity Ratings Definitions Global Rating Defination STRONG BUY Fair value of the stock is BUY Fair value of the stock is HOLD Fair value of the stock is SELL Fair value of the stock is
>20% from the current market price between +10% and +20% from the current market price between +10% and -10% from the current market price < -10% from the current market price
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Disclaimer
This material was produced by Global Investment House KSCC (Global),a firm regulated by the Central Bank of Kuwait. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities (securities), perform services for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgment. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Global for, or sent by Global to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice. Past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such restrictions. By accepting this report you agree to be bound by the foregoing limitations.
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Global Research Team

Analyst Faisal Hasan, CFA Title SVP - Head of Research Telephone Tel: (965) 2295-1270 Email fhasan@global.com.kw
Aviation & Logistics Lamya Hayat Mostafa El-Maghraby Senior Financial Analyst Senior Financial Analyst Tel: (965) 2295-1203 Tel: (965) 2295-1279 lhayat@global.com.kw melmaghraby@global.com.kw
Digvijay Tanwar, CFA Lamya Hayat Naveed Ahmed, CFA Turki Al Yaqout
Banks & Financial Services Senior Financial Analyst Tel: (965) 2295-1275 Senior Financial Analyst Senior Financial Analyst Financial Analyst Tel: (965) 2295-1203 Tel: (965) 2295-1280 Tel: (965) 2295-1295
dtanwar@global.com.kw lhayat@global.com.kw nahmed@global.com.kw tyaqout@global.com.kw
Cement & Building Materials Hettish Karmani Turki Al Yaqout Umar Faruqui, ACCA Senior Financial Analyst Financial Analyst Financial Analyst Tel: (965) 2295-1281 Tel: (965) 2295-1295 Tel: (965) 2295-1438 hkumar@global.com.kw tyaqout@global.com.kw ufaruqui@global.com.kw
Hettish Karmani
Construction Contractors Senior Financial Analyst Tel: (965) 2295-1281 Economics
hkumar@global.com.kw
Turki Al Yaqout Talal S. AlGharaballi Khalid Waleed Al Osaimi
Financial Analyst Assistant Financial Analyst Assistant Financial Analyst
Tel: (965) 2295-1295 Tel: (965) 2295-1274 Tel: (965) 2295-1284
tyaqout@global.com.kw talgharaballi@global.com.kw kalosaimi@global.com.kw
Petrochemicals Hettish Karmani Umar Faruqui, ACCA Senior Financial Analyst Financial Analyst Tel: (965) 2295-1281 Tel: (965) 2295-1438 Real Estate Mostafa El-Maghraby Senior Financial Analyst Tel: (965) 2295-1279 melmaghraby@global.com.kw hkumar@global.com.kw ufaruqui@global.com.kw
Strategy Hettish Karmani Lamya Hayat Naveed Ahmed, CFA Senior Financial Analyst Senior Financial Analyst Senior Financial Analyst Tel: (965) 2295-1281 Tel: (965) 2295-1203 Tel: (965) 2295-1280 hkumar@global.com.kw lhayat@global.com.kw nahmed@global.com.kw
Telecom Chandresh Bhatt Umar Faruqui, ACCA Vice President Financial Analyst Tel: (965) 2295-1282 Tel: (965) 2295-1438 Utilities Tel: (965) 2295-1282 cbhatt@global.com.kw ufaruqui@global.com.kw
Chandresh Bhatt
Vice President
cbhatt@global.com.kw
January 2012
131
Global Investment House Website: www.globalinv.net Global Tower Sharq, Al-Shuhada Str. Tel. + (965) 2 295 1000 Fax. + (965) 2 295 1005 P.O. Box: 28807 Safat, 13149 Kuwait
Research Faisal Hasan, CFA (965) 2295-1270 fhasan@global.com.kw
Index Rasha Al-Huneidi (965) 2295-1285 huneidi@global.com.kw
Brokerage Fouad Fahmi Darwish (965) 2295-1700 fdarwish@global.com.kw
Wealth Management Kuwait Rasha Al-Qenaei (965) 2295-1380 alqenaei@global.com.kw
Wealth Management International Fahad Al-Ibrahim (965) 2295-1400 fahad@global.com.kw
Global Kuwait Tel: (965) 2 295 1000 Fax: (965) 2 295 1005 P.O.Box 28807 Safat, 13149 Kuwait
Global Bahrain Tel: (973) 17 210011 Fax: (973) 17 210222 P.O.Box 855 Manama, Bahrain
Global UAE Tel: (971) 4 4477066 Fax: (971) 4 4477067 P.O.Box 121227 Dubai, UAE
Global Egypt Tel: (202) 24189705/06 Fax: (202) 22905972 24 Cleopatra St., Heliopolis, Cairo
Global Saudi Arabia Tel: (966) 1 2994100 Fax: (966) 1 2994199 P.O. Box 66930 Riyadh 11586, Kingdom of Saudi Arabia
Global Jordan Tel: (962) 6 5005060 Fax: (962) 6 5005066 P.O.Box 3268 Amman 11180, Jordan
Global Wealth Manager E-mail: contactus@global.com.kw Tel: (965) 1-804-242

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Global Research GCC Investment Strategy Equity - GCC January 10, 2012

GCC Investment Strategy - 2012

3-yr Earnings CAGR

14.0% 11.0% 8.0% 8.0

10.0 12.0 2012e P/E (x)

Sector Wise - P/E & Earnings Growth

CBM - Cement & Building Materials

Country Wise - ROE & P/BV

20.0% 18.0% 16.0%

Source: Global Research

Global Research GCC

GCC Investment Strategy

0.86 1.13 0.92 0.73 2.59 0.61 0.55 0.98 0.25

0.3% 1.1% 4.0% -5.5% 33.6% 49.7% 18.9% 14.0% 25.0%

1.45 0.71 0.35 0.33 0.83 0.21 0.47 0.28

11.3% -6.8% -36.9% 3.7% 9.1% -27.8% 6.6% 6.3%

BUY HOLD SELL HOLD HOLD SELL HOLD HOLD

Global Research GCC

GCC Investment Strategy

Mkt. Cap USD mn 1M

Global Research GCC

GCC Investment Strategy

Global Research GCC

GCC Investment Strategy

Valuation & Outlook

Previous: Strategy Report Aug-11

Global Research GCC

GCC Investment Strategy

Oman 31% n/a 3% 4% n/a n/a

*UAE 12% 8% 6% 19% -9% 20%

*GCC 16% 2% 11% 6% 1% 17%

Global Research GCC

GCC Investment Strategy

17% 14% 11% 8%

19% 18% 18% 17%

Source: Glob al Research, Bloomb erg

Global Research GCC

GCC Investment Strategy

GCC Coverage Trading Multilpes (P/E) 2012e

6.0 4.0 2.0

Global Research GCC

GCC Investment Strategy

Qatar 5.7% 4.5% 3.3% 5.7% 4.9%

Oman 4.9% 7.7% 9.6% -

UAE 6.2% 0.0% 6.5% 0.0% 2.6% 0.0% 9.4% 9.5%

Global Research GCC

GCC Investment Strategy

Top ROAE Stocks

Top ROAA Stocks

High Div Yield Stocks

Source: Bloomberg & Global Research

Global Research GCC

GCC Investment Strategy

Global Research GCC Universe Top Picks

Union National Bank Banks

Ras Al Khaimah Ceramics Co.

First Gulf Bank

Abu Dhabi Commercial Bank