Capital-KuwaitinFocus... · 1 | nbkcapital.com Contents Kuwait economic Brief........................................................................................2 Oil Market and

Kuwait in Focus

January 2010

1 | nbkcapi ta l .com

Contents

Kuwait economic Brief ........................................................................................2

Oil Market and Budget Developments ..............................................................3

Monetary Developments November 2009 ........................................................6

Real Estate Activity .......................................................................................11

Kuwait Research Coverage ..............................................................................16

Agility ........................................................................................................................ 17

Jazeera Airways ...................................................................................................... 22

The Sultan Center ................................................................................................... 24

Wataniya Telecom ................................................................................................... 25

Companies in Focus ..........................................................................................27

Al Ahli Bank of Kuwait (ABK) .......................................................................28

Aviation Lease and Finance Company (ALAFCO) ..........................................31

Bank of Kuwait and the Middle East (BKME) .................................................34

Boubyan Petrochemical .................................................................................37

Burgan Bank (Burgan) ...................................................................................40

Burgan Co. for Well Drilling, Trading and Maintenance (Burgan Well Drilling) ....43

Commercial Real Estate Company (Altijaria) ...................................................46

Gulf Cable and Electrical Industries Company (Gulf Cable) .............................49

Gulf Insurance Company (GIC) .......................................................................52

Haj & Umrah Services Consortium Co. (Mashaer) .........................................56

Injazzat Real Estate Development Company (Injazzat) ...................................60

Kuwait Cement Company ..............................................................................64

Kuwait Finance House (KFH) ........................................................................67

Kuwait Financial Center (Markaz) ...................................................................71

Kuwait Food Group (Americana) ....................................................................75

Kuwait and Gulf Link Transport Company (KGL) ...........................................78

Kuwait National Cinema Company (KNCC) ....................................................81

Kuwait Projects (KIPCO) ...............................................................................84

Mabanee Company .......................................................................................89

Mobile Telecommunications Company (Zain) ..................................................92

National Industries Group Holding (NIG) .........................................................98

National Investment Company (NIC) ............................................................101

National Real Estate Company (NREC) ........................................................104

Oula Fuel Marketing Company (Oula) ...........................................................107

Tamdeen Investment Company (Tamdeen) ..................................................110

Tamdeen Group ..........................................................................................113

The Transport and Warehousing Group (TWG) .............................................117

United Real Estate Company (Real Estate Company) ..................................120

YIACO Medical Company (YIACO) ..............................................................123

Kuwait Market statistics .................................................................................126

http://www.nbkcapital.com


Kuwait economic Brief

National Bank of Kuwait

NBK Economic Research

T. +965 2259 5500F. +965 2224 6973E. [email protected]

DisClaiMeR anD CopyRight

While every care has been taken in preparing this publication, National Bank of Kuwait accepts no liability whatsoever for any direct or

consequential losses arising from its use. The Economic Brief is distributed on a complimentary and discretionary basis to NBK clients and

associates. This report and previous issues can be found in the “Reports” section of the National Bank of Kuwait’s web site.

© Copyright Notice: NBK Economic Brief is a publication of National Bank of Kuwait. No part of this publication may be reproduced or duplicated

without the prior consent of NBK.

• oil Market and Budget Developments

• Monetary Developments november 2009

• Real estate activity


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Kuwait Economic Brief Kuwait in Focus - January 2010

oil MaRKet anD BuDget DevelopMents

Crude prices renew upward march after early December pullback... Kuwait’s budget outlook remains strong…

After a relatively stable November, crude prices saw considerable volatility throughout December. The price of Kuwait Export Crude (KEC) dropped $8 per barrel (pb) to $71 pb in the first half of December, before rallying back to $77 by the end of the month and to nearly $80 by January 7th—a new post-recovery high. The initial fall may have been driven by a strengthening of the US dollar, which appreciated by 4% in trade-weighted terms between December 1st and 17th. But crude prices began rising again after this burst of support for the dollar abated.

Later in the month, crude prices also drew support from more fundamental factors, notably the continued decline in oil and oil product inventory levels in the US (though admittedly from still high levels), as well as relatively upbeat signals from macro indicators around the world, particularly purchasing manager indices of industrial activity. These data provided backing for the more bullish analysts who expect crude prices to be well supported by supply and demand dynamics through 2010.

Kuwait Export Crude *

45

50

55

60

65

70

75

80

85

90

4Q09 1Q10 2Q10 3Q10 4Q10 1Q11

$ p

er b

arre

l

*Note: Future price projections correspond to NBK’s price scenarios Source: NBK Economic Research Department

The prices of global benchmark crudes also resumed their upward march in the second half of December. The price of West Texas Intermediate (WTI) crude, for example—which had traded at a discount to other crudes in early December as a result of storage constraints in the US—had recovered to more than $83 pb by January 6th, its highest since October 2009. On average, the price of WTI stood at $62 in 2009, down 38% on its average for 2008, but ending the year more than double the low of $34 pb recorded in mid-February. For some analysts, the sharp recovery in prices through 2009 was not only a result of dollar weakness but also evidence that demand growth in emerging markets—which was surprisingly robust last year—has become more influential in determining the price of oil than conditions in traditionally important markets, especially the US.

Global benchmarks climb to

post-crisis highs…




In light of growing confidence about the outlook for world economic growth, some of the more pessimistic forecasts for global oil demand in 2010 have gradually been upgraded. The Centre for Global Energy Studies (CGES), for example—which has long held downbeat views on the prospects for 2010—has revised up its forecast for incremental oil demand this year to 1.0 million barrels per day (mbpd, 1.2%) from 0.7 mbpd a month earlier. The CGES expects virtually all of the growth to come from outside the OECD. On the other hand, the US-based International Energy Agency (IEA) has consistently been at the bullish end of the spectrum, and has nudged up its forecast for 2010 oil demand growth by 0.1 mbpd to nearly 1.5 mbpd (1.7%). Although the IEA expects no growth from within the OECD, the agency believes that the prospects for the region have improved. Despite these upgrades, it should be noted that, given the sharp drop expected to have been registered in 2009 (perhaps 1.5 mbpd) the forecast increases for 2010 are still not that strong.

Kuwait Export Crude Price Scenarios

Low Base High

4Q09f 74.4 74.4 74.42009f 60.4 60.4 60.41Q10f 66.8 69.1 72.7FY09/10f 66.7 67.3 68.22Q10f 61.8 66.2 74.53Q10f 56.5 64.3 77.04Q10f 53.2 62.4 80.52010f 59.6 65.5 76.21Q11f 52.3 62.4 84.4FY10/11f 55.9 63.8 79.1

$/barrelScenario

Source: NBK Economic Research Department

Crude output of the OPEC-11 (i.e., excluding Iraq) continued to creep up through November, rising by 41,000 bpd to stand at 26.611 mbpd. This was the eighth successive monthly increase, leaving output nearly 900,000 bpd (3%) off its March floor and around 7% above the official quota levels. At the meeting on December 22nd, OPEC members appeared to sidestep the issue of ‘official’ versus ‘actual’ production levels by declaring that, although output would be left unchanged, members remain committed to their individual quota allocations—a seemingly contradictory stance. Yet with crude prices now at levels that the organization is comfortable with, members are having to tread carefully to avoid upsetting the market balance. The cartel’s statement made it clear that OPEC members remain cautious about the strength and durability of the world economic recovery, and hence growth in the demand for oil. But should recent signs of recovery be sustained, the organization may look to ease its cautious stance at its next meeting on March 17th.

Despite the apparently improving oil market fundamentals, there is still scope for prices to ease back over the coming year, with sluggish demand and high stock levels beginning to weigh on the market once winter demand subsides. On the demand side, global demand growth in 2010 is assumed to come in along the lines of the 1.0 mbpd projected by the CGES. Although OPEC leaves its crude production more or less unchanged from 4Q2009 levels, the global supply is given a boost from both a small (0.2 mbpd) annual increase in non-OPEC supply and a 0.5 mbpd rise in OPEC NGLs (natural gas liquids, which are not subject to quota constraints) in the second half of the year. Under this scenario, the price of KEC slips back to below $70 in 1Q2009 and ends the year in the low-to-mid-$60s range.

Further upgrades for global oil

demand forecasts for 2010…

OPEC leaves output

unchanged… cautious about

global recovery…

Prices could ease back despite

anticipated improvement in

demand …




On the other hand, oil demand growth in 2010 could turn out to be stronger—perhaps closer to the 1.5 mbpd assumed by the IEA—as a result of a potentially cold winter and better-than-expected world economic growth. In this scenario, modest increases in the non-OPEC supply would not be enough to prevent rising demand eating into global stock cover as the year goes on. The price of KEC would be back in the mid-$80s by the start of next year.

Alternatively, a combination of modest demand and a larger-than-expected increase in non-OPEC crude supply in 2010—perhaps an extra 0.2 mbpd on average—could push prices significantly lower, perhaps to just above $50 by the end of the year. Such a scenario, however, would surely require OPEC to be unwilling or unable to cut back production from current levels.

Assuming that oil prices for the remainder of 1Q2009 do not stray too far, the price of KEC for FY2009/11 as a whole will average $67-68 pb, far higher than many were predicting halfway through the year or the $35 pb assumed in Kuwait’s budget. Indeed, this year’s budget is almost certain to register another huge surplus. If, as we expect, public expenditures come in at 5-10% below the budget plans, the government should record a surplus of between KD 5.2 and 6.4 billion, before allocating 10% of revenues to the Reserve Fund for Future Generations (RFFG).

Although it is early days, if oil prices end up in the $56-79 range implied by the three scenarios above, the prospects for the FY2010/11 budget seem set to remain fairly favorable. Local media reports have suggested that planned government spending may rise by around 35% to KD 16.3 billion next year, although this is likely to include a large inter-governmental transfer to the Public Institute for Social Security. Even with this exceptional item of spending, however, the budget is likely to remain in balance and could even see a surplus as high as KD 4.8 billion in our “high” scenario. Two consecutive years of surplus would represent a stark contrast to the fiscal positions of governments in other parts of the world, which are set to embark on a period of huge cutbacks.

Budget Forecasts for Fiscal Years 2009/10 and 2010/11

Official Low Base High Possible Low Base High(M illion KD, unless otherwise noted) Budget Case Case Case Budget Case Case Case

Oil Price ($/barrel) 35.0 66.7 67.3 68.2 43.0 55.9 63.8 79.1

Total Revenues 8,075 16,728 17,094 17,312 9,990 13,201 15,688 19,469Oil Revenues 6,925 15,578 15,944 16,162 8,790 12,001 14,488 18,269Non-Oil Revenues 1,150 1,150 1,150 1,150 1,200 1,200 1,200 1,200

Expenditures (official) 12,116 12,116 12,116 12,116 16,300 16,300 16,300 16,300Surplus (deficit) -4,041 4,612 4,978 5,196 -6,310 -3,099 -612 3,169

After RFFG -4,849 2,939 3,268 3,465 -7,309 -4,419 -2,181 1,222

Expenditures (NBK estimate) 11,510 11,207 10,904 15,485 15,078 14,670Surplus (deficit), NBK estimate 5,218 5,886 6,407 -2,284 610 4,799

After RFFG 3,545 4,177 4,676 -3,604 -958 2,852

Under Alternative Oil Price ScenariosFY 2009/10 FY 2010/11


While higher OPEC/non-OPEC

supply could push prices

lower…

Large budget surplus seen in

FY2009/10 almost assured …

…and possibility of further

significant surplus in

FY2010/11…

Stronger-than-expected

demand presents additional

upside risk …




Wajih BoustaniAssistant EconomistEconomics Department

T. +965 2259 5356E. [email protected]

MonetaRy DevelopMents noveMBeR 2009

Credit growth improves in november with help from rising deposits and better demand

Monetary developments showed signs of further stability as 2009 came to an end. During November, deposits at local banks expanded at a decent pace. Meanwhile, credit showed signs of improvement, with growth surpassing the rise in deposits.

Monetary Highlights – November 2009

Nov

2009

(M illion KD, unless otherwise noted) mn KD mn KD % mn KD % mn KD %

Local Bank Assets 40,898 662 1.6 891 2.2 1,656 4.2 of which:

Claims on Gov't 1,901 0 0.0 -98 -4.9 -84 -4.2Credit to Residents 25,154 240 1.0 1,659 7.1 1,494 6.3Foreign Assets 7,357 75 1.0 -2,483 -25.2 -1,439 -16.4

Money Supply (M2) 24,992 265 1.1 2,581 11.5 3,041 13.9Private Deposits 24,163 199 0.8 2,479 11.4 2,921 13.8

Sight Deposits 4,196 67 1.6 221 5.6 533 14.6Savings Deposits 2,802 18 0.6 296 11.8 314 12.6KD Time Deposits & CDs 14,351 -19 -0.1 1,430 11.1 1,160 8.8FC Deposits 2,814 133 5.0 532 23.3 915 48.2

Change

One Twelve Year-to-

Month Month Date *

*As of November 2009 Source: NBK Economic Research Department

As a result, the money supply (M2) expanded 1.1% (+KD 265 million) month on month (MoM) in November compared to 0.6% in the previous month. Since the beginning of 2009, M2 has added more than KD 3 billion. The increase in non-resident deposits for the second consecutive month suggests the end of foreign outflows.

Credit to residents rose 1% MoM in November, benefiting from the pickup in the demand for credit and the expansion in deposits in previous months. The increase in credit of KD 240 million in November was 7.1% growth year on year (YoY), and a better 10.2% when annualized for the three months ended in November.

Credit growth improves, driven

by the consumer sector


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Credit Indicators – Percentage Growth

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09

YoY Rate Last-3-Months-annualized


The consumer sector was the main engine for credit growth in November. Personal facilities grew by a solid 1.3% MoM (KD 104 million) for the second consecutive month, pushing their annual growth rate to 8.5%. Year-to-date, 83% of the rise in personal facilities came from installment loans. Unclassified loans posted the only other major advance in November, rising KD 106 million MoM. Loans to other sectors were fairly subdued. Growth in the construction and oil and gas sectors was relatively modest at KD 29 million and KD 9 million, respectively, while loans to the trade and real estate sectors fell slightly.

Credit Indicators – November 2009 (Year-on-Year Percentage Growth)

5%

10%

15%

20%

25%

Nov-08 Feb-09 May-09 Aug-09 Nov-09

Private deposits Credit

0%

5%

10%

15%

20%

25%


Personal Facilities Loans to Real Estate


Private resident deposits rose KD 199 million, mostly in foreign currency. Since the beginning of 2009, private resident deposits have jumped by a remarkable KD 2.9 billion or 14%.

On the other hand, government deposits were down KD 51 million, following a KD 462 million increase the previous month. The government withdrew some of its deposits as banks are

Deposits grew at a decent rate




enjoying a healthy level of liquidity and the crisis-related withdrawals of foreign deposits appear to have ended. In fact, non-resident deposits were up KD 98 million in November, for the second consecutive month.

Following the KD 101 million increase in the previous month, local banks’ liquid assets (including net interbank deposits) were unchanged in November. The subscription in new Central Bank of Kuwait (CBK) bonds amounting to KD 107 million was partially offset by a drop in deposits with the CBK. In general, banks retained their comfortable liquidity profile, and as a consequence, average KIBOR rates remained close to their all-time-lows.

Liquidity Indicators – November 2009 (Year-on-Year Percentage Growth)

Liquid assets to total assets Interbank rates

6%

8%

10%

12%

14%

16%

18%


Including net foreign interbank deposits Excluding net foreign interbank deposits

0%

1%

2%

3%

4%

5%

6%

Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09

1-mnth KIBOR 1-mnth LIBOR


Since the beginning of November through mid-December, the dinar made a slight improvement against the dollar. Meanwhile, during December, the dinar offset some of its previous losses sustained vis-à-vis the Euro, following the recent weakness of the Euro in the FX market.

Monetary Indicators – November 2009 – Exchange Rates

0.33

0.35

0.37

0.39

0.41

0.43

0.45

0.26

0.27

0.28

0.29

0.30

0.31

17-Sep-07 7-Jan-08 28-Apr-08 18-Aug-08 8-Dec-08 30-Mar-09 20-Jul-09 9-Nov-09

Dinar / Dollar (LHS axis) Dinar / Euro

Stronger Dinar


Banks’ liquidity remains

comfortable

Dinar posts slight gains




Monetary highlights – november 2009

Nov Nov Nov Nov Nov Nov

mn KD %

Total Liquidity (M2) 24,992 265 149 1.1 0.6 540 123 2.2 0.5 2,581 3,354 11.5 15.7 3,041 13.91) Currency in Circulation 828 66 -2 8.6 -0.2 100 36 13.8 4.9 102 29 14.0 3.9 120 17.02) Private Sector Deposits 24,163 199 150 0.8 0.6 440 87 1.9 0.4 2,479 3,326 11.4 16.1 2,921 13.8

KD Deposits 21,349 66 135 0.3 0.6 363 407 1.7 1.9 1,947 2,223 10.0 11.7 2,006 10.4Sight Deposits 4,196 67 -13 1.6 -0.3 132 240 3.2 6.2 221 261 5.6 6.7 533 14.6Savings Desposits 2,802 18 -24 0.6 -0.8 15 -54 0.5 -1.9 296 319 11.8 12.9 314 12.6Time Deposits & CDs 14,351 -19 172 -0.1 1.2 216 222 1.5 1.6 1,430 1,643 11.1 12.9 1,160 8.8FC Deposits 2,814 133 15 5.0 0.6 77 -320 2.8 -10.7 532 1,103 23.3 69.9 915 48.2

Money (M1) 5,024 133 -15 2.7 -0.3 232 276 4.8 6.0 323 290 6.9 6.3 653 14.9

Quasi-Money 19,968 132 163 0.7 0.8 308 -153 1.6 -0.8 2,258 3,065 12.7 18.3 2,388 13.6

Net Foreign Assets 9,468 60 637 0.6 7.3 651 184 7.4 2.0 1,558 3,328 19.7 54.7 1,861 24.51) CBK (net) 5,201 142 181 2.8 3.7 555 450 12.0 9.8 710 1,229 15.8 32.1 691 15.3

Foreign Assets 5,272 142 180 2.8 3.6 557 450 11.8 9.6 678 1,167 14.8 29.5 659 14.3Foreign Liabilities 72 0 -1 0.4 -1.8 1 0 1.7 -0.1 -31 -62 -30.6 -46.4 -32 -30.6

2) Local Banks (net) 4,267 -82 456 -1.9 11.7 95 -266 2.3 -5.8 848 2,099 24.8 93.3 1,170 37.8Foreign Assets 7,357 75 489 1.0 7.2 136 -170 1.9 -2.3 -2,483 -1,645 -25.2 -18.4 -1,439 -16.4Foreign Liabilities 3,090 156 33 5.3 1.1 41 96 1.3 3.4 -3,332 -3,743 -51.9 -56.1 -2,609 -45.8

Domestic Assets 15,524 205 -489 1.3 -3.1 -110 -61 -0.7 -0.4 1,023 27 7.1 0.2 1,181 8.21) Claims on Gov't (net) -3,292 -64 -398 2.0 14.0 -302 -203 10.1 6.7 -628 -1,634 23.6 102.4 -618 23.1

CBK (net) -1,165 -114 64 10.9 -5.8 83 255 -6.6 -19.5 306 -36 -20.8 3.5 -40 3.6Claims 0 0 0 0 0 … … -1 0 … … 0 …Deposits 1,165 114 -64 10.9 -5.8 -83 -255 -6.6 -19.5 -306 36 -20.8 3.5 40 3.6

Local Banks (net) -2,128 51 -462 -2.3 26.9 -385 -458 22.1 26.6 -933 -1,598 78.1 275.3 -577 37.2Claims 1,901 0 0 0.0 0.0 42 12 2.2 0.6 -98 -133 -4.9 -6.5 -84 -4.2Deposits 4,028 -51 462 -1.2 12.8 426 470 11.8 13.0 836 1,465 26.2 56.1 493 13.9

2) Claims on Private Sector 27,112 226 124 0.8 0.5 650 501 2.5 1.9 1,781 1,789 7.0 7.1 1,656 6.5Credit Facilities 25,154 240 136 1.0 0.5 632 488 2.6 2.0 1,659 1,691 7.1 7.3 1,494 6.3Other Local Investments 1,958 -15 -12 -0.8 -0.6 18 13 0.9 0.6 122 98 6.6 5.2 162 9.0

3) Other (net) -8,296 43 -215 -0.5 2.6 -459 -359 5.9 4.5 -130 -129 1.6 1.6 143 -1.7

%mn KD mn KD % mn KD % mn KD

Oct Nov

One Month Change 3 Month Change 12 Month Change Year-to-Date

Nov Oct Oct Oct Oct Oct

Nov Nov Nov Nov Nov Nov

mn KD %

Total Bank Assets 40,898 662 857 1.6 2.2 1,848 1,371 4.7 3.5 891 1,384 2.2 3.6 1,656 4.2

Liquid Assets 5,231 156 198 3.1 4.1 890 911 20.5 21.9 1,445 1,228 38.2 31.9 1,563 42.6Cash and CBK Balances 373 -56 -48 -13.1 -10.1 -174 -63 -31.8 -12.9 -171 16 -31.5 3.9 -160 -30.0CBK Bonds 948 107 0 12.7 0.0 180 73 23.4 9.5 534 414 … … 574 …Public Debt Instruments 1,901 0 0 0.0 0.0 42 12 2.2 0.6 -98 -133 -4.9 -6.5 -84 -4.2Inter-Local Bank Deposits 1,036 164 53 18.9 6.5 496 364 91.6 71.8 297 8 40.2 1.0 357 52.5Time Deposits w/ CBK 974 -59 193 -5.7 23.0 347 526 55.3 103.7 883 922 978.2 837.0 876 900.6

Credit Facilities 25,154 240 136 1.0 0.5 632 488 2.6 2.0 1,659 1,691 7.1 7.3 1,494 6.3Trade 2,221 -17 26 -0.8 1.2 54 17 2.5 0.7 -29 34 -1.3 1.6 -64 -2.8Industry 1,449 0 -13 0.0 -0.9 33 59 2.3 4.2 -32 23 -2.1 1.6 -17 -1.1Construction 1,681 29 32 1.7 2.0 37 13 2.2 0.8 4 -81 0.3 -4.7 7 0.4Agriculture and Fishing 13 -1 -1 -4.4 -6.3 0 0 -2.3 -0.7 0 0 -2.3 1.5 1 4.0Non-Bank Financial Institutions 2,947 15 13 0.5 0.5 207 156 7.6 5.6 38 27 1.3 0.9 192 7.0

Personal Facilities 8,409 104 111 1.3 1.3 151 129 1.8 1.6 661 593 8.5 7.7 543 6.9Purchase of Securities 2,872 62 53 2.2 1.9 39 18 1.4 0.6 186 120 6.9 4.5 78 2.8

Other Pers. Facs. 5,537 42 57 0.8 1.1 113 111 2.1 2.1 475 473 9.4 9.4 465 9.2Consumer Loans 622 1 6 0.2 1.0 11 9 1.7 1.5 2 3 0.3 0.4 5 0.9Installment Loans 4,539 31 50 0.7 1.1 92 96 2.1 2.2 481 498 11.8 12.4 453 11.1

Other 375 9 1 2.6 0.4 10 6 2.9 1.7 -7 -29 -1.9 -7.3 6 1.7Real Estate 6,561 -6 2 -0.1 0.0 68 115 1.1 1.8 791 867 13.7 15.2 596 10.0Crude Oil & Gas 209 9 6 4.7 3.0 7 19 3.5 10.2 107 105 105.3 110.6 98 88.5Public Services 0 … … … … … … … … -1 … … … -1 …Other 1,664 106 -40 6.8 -2.5 76 -18 4.8 -1.1 119 125 7.7 8.7 139 9.1

Foreign Assets 7,357 75 489 1.0 7.2 136 -170 1.9 -2.3 -2,483 -1,645 -25.2 -18.4 -1,439 -16.4

Other Assets 3,156 190 35 6.4 1.2 190 141 6.4 5.0 270 110 9.4 3.8 38 1.2

Total Deposit Liabilities 29,203 303 709 1.0 2.5 1,363 909 4.9 3.2 3,619 4,832 14.1 20.1 3,761 14.8Private Sector Deps 24,163 199 150 0.8 0.6 440 87 1.9 0.4 2,479 3,326 11.4 16.1 2,921 13.8Gov't Deposits 4,028 -51 462 -1.2 12.8 426 470 11.8 13.0 836 1,465 26.2 56.1 493 13.9Interbank 1,012 155 97 18.1 12.7 497 353 96.6 70.0 305 41 43.2 5.1 347 52.2

Foreign Liabilities 3,090 156 33 5.3 1.1 41 96 1.3 3.4 -3,332 -3,743 -51.9 -56.1 -2,609 -45.8

Other Liabilities 3,679 186 99 5.3 2.9 398 328 12.1 10.4 -8 -223 -0.2 -6.0 177 5.1

Equity 4,926 16 2 0.3 0.0 47 38 1.0 0.8 611 518 14.2 11.8 327 7.1

%mn KD mn KD % mn KD % mn KD

Oct Oct Nov

One Month Change 3 Month Change 12 Month Change Year-to-Date

Nov Oct Oct Oct Oct




Monetary highlights – november 2009 (Continued)

Nov Oct Sep Aug Jul Dec Nov

Balance Sheet Structure:Liquid Assets/Total Assets * 10.3 10.5 10.5 9.8 9.4 7.7 7.7Credit/Total Assets 61.5 61.9 62.9 62.8 62.8 60.3 58.7DPBs/Total Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0Foreign Assets/Total Assets 18.0 18.1 17.3 18.5 19.2 22.4 24.6Private Sector Deposits/Total As. 59.1 59.6 60.5 60.8 61.4 54.1 54.2Loans to Deposits ** 90.3 90.3 91.8 90.6 90.2 89.6 87.2Reserve Ratio 18.9 19.2 18.6 17.5 16.9 14.6 14.8

2009 2008%

* Note: Liquid assets include cash, public debt instruments, time deposits with CBK, and net interbank deposits.

** Note: Loans used in LDR ratio include: resident, non-resident, financial inst., in both KD&FC. Deposits used in LDR ratio include: private, government, and financial institutions. Source: NBK Economic Research Department




Real estate aCtivity

Recovery in real estate sales continues through november

sales overview

The steady recovery in real estate activity from its lows at the turn of the year continued through November, with the total number of sales (residential, commercial, and retail) rising to 542, up 33% from 408 in October. This is the highest level of sales since July 2008. The commercial sector had two consecutive decent months, following weakness most of the year. Time will tell whether this rise can be sustained—part of it could still reflect a post-Ramadan bounce. But for the first time this year, monthly sales are more or less back to the levels seen during the period of ‘normal’ market activity between 2003 and 2006, though still well down from the 800+ recorded in the boom years.

Total Real Estate Sales

0

200

400

600

800

1000

1200

2007 2008 2009

-100

-50

0

50

100

150

Number of sales ( LHS) KD value of sales (%y/y, RHS)

Source: Ministry of Justice

In KD value terms, total sales registered their highest level since April 2008, at KD 193 million, and are now up 41% on a year ago. This level of sales represents a strong performance—on par with anything seen during the 2003—2006 period. Note that sales values have been strong across the three main market segments (see below), suggesting that any underlying improvement in property sector trends reflects broader market—as opposed to segment-specific—factors.




Sales - residential

In the residential market, the number of sales climbed to 379 from 280 in October. Again, this was a much stronger performance than that of late (the highest since July 2008). Yet of all the segments, the residential segment remains the one performing most below par; sales numbers are still around 25% below their 2003—2006 average, whereas in other segments, the sales numbers are at or above their historic norms. Average sales prices increased for the fourth successive month and are now up 29% from their July lows.

Residential Sales

0

100

200

300

400

500

600

700

800

900

1000

2007 2008 2009

-100

-80

-60

-40

-20

0

20

40

60

80

100

120

Number of sales (LHS) KD value of sales (%y/y, RHS)


Sales - apartments

November saw 156 sales of investment property (largely apartments), up from 123 a month earlier. Compared to the residential sector, the number of apartment sales has not weakened significantly during the recent downturn. But there has been a notable drop in average sales prices. After peaking at KD 806,000 in May 2008, average prices slumped to just KD 219,000 in March this year, though they have since begun to recover. The extent of the fall in prices may help to explain why sales numbers have remained fairly resilient, with investors seeing more value in these now-cheaper assets.




Apartment Sales

0

20

40

60

80

100

120

140

160

180

200

2007 2008 2009

-100

-50

0

50

100

150

200

250



Sales - commercial

There were 7 sales of commercial property during November, up from 5 in October and an average of 6 per month in 2009 so far. Performance was stronger in value terms, with November’s sales worth KD 39 million, compared to an average of just KD 15 million in the year to October. But interpreting this requires considerable caution. A look at the more detailed weekly data suggests that one large land sale provided a major boost to the value of sales in November; without it, sales values would have been their second weakest this year. Thus, the spike in the growth in sales values seen this month should not be considered a sign of broad-based improvement in commercial property market conditions.




Commercial Sales

0

5

10

15

20

25

2007 2008 2009

-200

-100

0

100

200

300

400

500

600



savings and Credit Bank loans

The number of loans approved by the Savings and Credit Bank (SCB) rose for the second successive month in November but remains at fairly modest levels. Total loan approvals stood at 313, compared to an average of 372 per month for the year so far and 412 through 2008. The value of loan approvals also remains weak, at KD 9.2 million, down 50% on the same month last year.

The unusual gap that has opened up in recent months in the composition of loans—with the number of loans approved for additions and renovations exceeding those approved for the purchase of properties—widened in November. The number of loans for home purchase stood at 129, barely above the September low of 107 and less than half the average of 268 of the past five years. As we mentioned last month, this may reflect affordability issues, as well as a slowdown in the distribution of land plots made under the government’s housing program. The latter at least could rise through early 2010 with more plots being distributed in the North-West Sulaibikhat and Sabah Al Ahmed areas.




SCB Loan Approvals

200

250

300

350

400

450

500

550

600

2007 2008 2009

-100

-50

0

50

100

150

200

250

Number of loans (LHS) KD value of loans (%y/y, RHS)

Source: Savings and Credit Bank

Real Estate Sales and SCB Housing Loans

2007 2008 Sep Oct Nov M/M Y/Y

Sales Values (mn KD) 233.5 156.2 57.7 143.2 193.2 34.9 41.4Residential Property 128.6 74.8 36.4 61.7 87.6 42.0 36.8Apartments 83.6 56.7 21.3 39.0 66.7 71.2 1.1Commercial 21.3 24.7 0.0 42.5 38.9 -8.6 488.6

Number of Transactions 773.6 513.8 223.0 408.0 542.0 32.8 5.2Residential Property 648.3 381.4 169.0 280.0 379.0 35.4 11.1Apartments 117.3 121.3 54.0 123.0 156.0 26.8 -8.8Commercial 8.0 11.1 0.0 5.0 7.0 40.0 133.3

Average Transaction Size (000 KD) 301.7 320.3 258.7 350.9 356.4 1.6 34.4Residential Property 201.6 203.3 215.6 220.3 231.0 4.9 23.1Apartments 703.8 477.2 393.5 316.9 427.8 35.0 10.8Commercial 2359.7 2563.4 0.0 8500.0 5550.0 -34.7 152.3

2007 2008 Sep Oct Nov M/M Y/Y

Value of Approved Loans (mn KD) 12.5 15.0 7.1 8.3 9.2 10.8 -49.7New Construction 5.7 10.2 2.8 3.0 3.0 -0.7 -77.1Purchase of Existing Homes 5.3 3.2 3.2 3.7 4.1 13.6 2.5Additions & Renovations 1.5 1.5 1.1 1.6 2.0 26.2 82.3

Number of Approved Loans 378 412 229 285 313 9.8 -22.5New Construction 146 195 46 54 48 -11.1 -77.3Purchase of Existing Homes 118 89 61 78 81 3.8 -13.8Additions & Renovations 114 128 122 153 184 20.3 85.9

Value of Disbursed Loans (mn KD) 15.1 12.1 9.3 11.5 11.5 -0.1 -11.4New Construction 8.3 7.0 4.6 6.4 6.7 5.1 -12.9Purchase of Existing Homes 5.2 3.6 3.7 3.5 3.2 -10.0 -15.2Additions & Renovations 1.7 1.5 1.0 1.6 1.7 0.9 4.2

%

2009

2009

%Real Estate Sales

SCB Housing Loans

Monthly Avg.

Monthly Avg.

Sources: Ministry of Justice and Savings and Credit Bank



Kuwait Research Coverage

NBK Capital

MENA Research


• agility

• Jazeera airways

• sultan Center

• Wataniya telecom


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Kuwait in Focus - January 2010

DynCorp terminated Agility DGS’s participation as a subcontractor for the LOGCAP IV task order. On December 21, 2009, Agility made the following announcement:

Agility clarifies LOCAP IV contract

Agility Defense and Government Services Inc. (“Agility DGS Inc.”), an indirect subsidiary of The Public Warehousing Company KSC (“PWC”), was terminated by DynCorp International (DI) as a subcontractor on the Logistics Civil Augmentation Program IV (“LOGCAP IV) as of December 17, 2009. Agility DGS Inc. believes DI’s termination is in breach of the contractual terms between the parties, and is looking at legal options available to it in this regard.

• The LOGCAP IV initial task order issued to DGS was valued at KD 185.3 million for the base year, plus four one-year extension options. The task order was to be carried out in southern Afghanistan involving business such as operational and maintenance support (i.e. electrical power, sewage and waste, laundry operations etc.) for the US Forces.

• Our previous forecasts did not account for the effects of LOGCAP IV task order awarded to DGS. As mentioned in our previous analyst comment (dated November 11, 2009), we were expected to issue an update after meeting with management to discuss the implications of the task order.

• The effect on Agility’s value if the company is unable to rectify the matter is still uncertain. We maintain our status on Agility as “Under Review” until we receive further information on the implications of the indictment by the U.S. Department of Justice and the implications on the cancellation of the LOGCAP IV task orders.

agility (aglt.KW) - analyst Comment issued on December 23, 2009

Wadie KhouryT. +965 2259 5118E. [email protected]

Related ReseaRch

• Update - 25 June 2009

• Update - 20 Nov. 2008


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agility (aglt.KW) - analyst Comment issued on november 17, 2009

• Agility (The Public Warehousing Company) was informed that the U.S. Department of Justice had obtained an indictment against the company and has intervened in a civil lawsuit under the False Claims Act. Agility has sent out a statement regarding the matter, which is found below in full.

• In our previous analyst comment for Agility (dated November 11, 2009), we noted that we will be issuing an update report with new forecasts for Agility to incorporate the LOGCAP IV task order award. We will be meeting with Agility’s management to get a better understanding of this latest development; however, we are placing Agility’s coverage status as “Under Review” to properly assess the matter.

• Below is a copy of the statement we received from Agility:

Statement by Public Warehousing Co. (PWC)

Concerning Announcement of Indictment and Qui Tam Lawsuit

The Public Warehousing Company (PWC) has for some time worked with the government to seek a mutually agreeable resolution to a contract dispute between the U.S. government and the Company and is surprised and disappointed that the government has decided to take these actions. Today, the Company was informed that the Department of Justice (“DOJ”) had obtained an indictment against the company and has intervened in a civil lawsuit under the False Claims Act, both of which allege that PWC committed fraud against the U.S. government.

The company has been the principal food supplier for the U.S. military in Kuwait and Iraq since 2003. PWC’s service has been timely, reliable and cost effective throughout its work on these competitively awarded contracts, and its performance has been unparalleled. The prices it charges have been negotiated with, agreed to, and continually approved as by the U.S. government since then. The government has consistently found PWC’s prices to be fair and reasonable.

Since 2006, the company’s “fill rates” – the number of cases of food accepted compared with the number ordered – were consistently more than 99 percent, a number that exceeds the fill rates of U.S. domestic service providers. That means that PWC was more successful in delivering food and other items to the military in a hostile war zone than other vendors have been within the safe environs of the continental U.S.

The court documents filed in the United States reveal that the investigation leading to the indictment and the False Claims Act lawsuit was instigated by Kamal Mustafa Sultan, owner of Kamal Mustafa Sultan Company, who has a long history of strong animosity towards PWC, its officers and its employees. A July 19, 2009 San Antonio (Texas) Express-News story raises major questions about the company: http://www.mysanantonio.com/military/Firm_tied_to_Iraq_scandal_profited.html

In the PWC matter, Kamal Mustafa Sultan brought a “qui tam” case under the False Claims Act in November 2005, which means that he has a financial interest in the outcome of the case. In Kuwait, Kamal Mustafa Sultan has filed more than 40 court actions against PWC, its executives and its employees, and all of the court actions have been unsuccessful.





Related Research

• Agility update – 25 June 2009

• Agility update – 20 Nov. 2008

agility (aglt.KW) - analyst Comment (continued) issued on november 17, 2009

The company has long cooperated with government reviews, inspections, audits and inquiries necessary to ensure taxpayer dollars are being spent appropriately. The company made every effort to resolve this with U.S. contracting agencies, including trying to get a formal interpretation of the contract by a neutral agency and going to mediation, but the government refused.

Our company has provided unparalleled service to U.S. troops and exceptional value for American taxpayers under the most demanding conditions ever faced by a contractor. Our success has come at a very high price. More than 30 employees have been killed and 200 injured in carrying out their work in a warzone. Attacks on our convoys have destroyed more than 300 trucks and damaged another 700.

An indictment and a complaint are merely allegations. PWC is confident that once these allegations are examined in court, they will be found to be without merit. The Defense Logistics Agency (DLA) has temporarily suspended PWC from being awarded any new business until it determines that the company is presently responsible. The company has not been debarred from U.S. government contracting, as no determination has been made by the government at this time, and will not be made until all the facts have been reviewed. The temporary suspension should not impact any current government work being performed by the company.

Samir Murad, CFA



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Related Research

• Agility update – 25 June 2009

• Agility update – 20 Nov. 2008

agility (aglt.KW) - analyst Comment issued on november 11, 2009

• In continuation of the trend that Agility set in 1H2009, the company posted a 15% increase in net income in 3Q2009 despite an 11% decline in gross revenue over the period.

• Agility achieved gross revenues of KD 413.5 million in 3Q2009 and net revenues of KD 156.3 million, essentially leading to an expansion in the net revenue margin to 37.8%.

• Global Integrated Logistics (GIL), which is being affected by the decline in global trade volumes, saw a decline of 21% in revenue in 3Q2009 compared to 3Q2008. However, this was compensated for by the expansion in net revenue margin for GIL from 28% in 3Q2008 to 36% in 1H2009. This led to an almost flat performance at the net revenue level for GIL in 3Q2009.

• Defense and Government Services (DGS) saw an increase in revenue of 4% in 3Q2009 to KD 178.4 million, but had a slight drop in net revenue margin from 33% in 3Q2008 to 32% in 3Q2009.

• According to Agility’s press release, operating income increased by 5% in 3Q2009 to KD 43 million. We do not have full financials as of yet, and accordingly, we do not know what exactly led to the higher growth in net income compared to operating income. Moreover, Agility said that, excluding non-recurring items, the group’s net income would have increased by 25% (year on year).

• Agility’s balance sheet remains strong with just KD 39 million in net debt, while cash flow from operations increased by 29% in 9M2009 to KD 188.5 million.

• Agility mentioned in the press release that GIL saw new customer wins with Nokia Siemens, Pfizer, Adelaide Aqua, and Ras Gas in Qatar. DGS saw the award of a LOGCAP IV task order in southern Afghanistan at an estimated value of KD 185.3 million for the base year.

• Our current forecasts for Agility do not account for additional revenue from the LOGCAP IV task order in southern Afghanistan. We will be meeting with management to assess the implications that this task order may have on Agility, which we expect to be positive. We will issue an update report on Agility to incorporate the new information.

Samir Murad, CFA



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** Please refer to page 129 for recommendations and risk ratings.

agility - Change of Forecast issued on June 25, 2009

highlights

12-Month Fair Value: Under ReviewRecommendation: Under Review-Risk Level**: 4Reason for Report: 1Q2009 Update/Change of Forecast

• Following the announcement of a timetable for the withdrawal of U.S. troops from Iraq by the U.S. government, our concerns for Agility have shifted to the Defense and Government Services (DGS) segment. Our new forecasts attempt to reflect such a withdrawal. However, including this plan in our forecasts is not simple, as we do not know the extent of the actual impact that the Subsistence Prime Vendor Contract (SPVC) and other Iraq-related contracts with the U.S. Army have on Agility—though the impact is expected to be very substantial.

• Due to the lack of disclosure of operating profits by segments (Agility provides net revenues by segments only), we were forced to make several critical assumptions (which we elaborate more on in the full report) to establish our forecasts. Obviously, with such limited disclosure, the risk associated with those assumptions is significantly higher.

• Agility posted a strong operating performance in 1Q2009 despite an 8.1% decline in total revenue. Agility’s EBITDA margin improved to 13.1% in 1Q2009 (the 1Q2008 EBITDA margin was 11.4%), which resulted in a 5.6% year-on-year increase in EBITDA. This result is 4.5% higher than our EBITDA forecast of KD 51 million, even though we were expecting to see flat growth in revenues.

• Global Integrated Logistics (GIL), the largest contributor to revenue, saw a decline of 13.8% in revenue in 1Q2009 compared to 1Q2008, due to the negative effect the global financial crisis is having on volumes in commercial logistics in general. As expected, DGS was immune to the financial crisis as DGS recorded a 3.4% increase in revenues in 1Q2009.

Key Data

Current Price* Avg. Value Traded per Day

KD 0.620 KD 5.5 million

52-Week High Market Cap

KD 1.220 KD 0.6 billion

52-Week Low Current Number of Shares

KD 0.475 1,046.8 million

Reuters Bloomberg

AGLT.KW AGLTY KK

Privately Held: 41% Public: 59%Ownership Structure

Price as of close on January 18, 2010 Sources: Reuters, Zawya, and NBK Capital

Rebased performance

0.400

0.500

0.600

0.700

0.800

0.900

1.000

1.100

1.200

1.300

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10AGLT MSCI KWT

Sources: MSCI, Reuters, and NBK Capital

Key Ratios

2008 a 2009 f 2010 f 2011 f 2012 f

P/E 4.4 4.4 na na naEPS Growth -8% 4% na na na

EV/ EBITDA 4.2 4.2 na na naEBITDA Margin 11% 11% na na naEBITDA Growth -7% -1% na na na

Dividend Yield 0.0% 0.0% na na naROAE 19% 17% na na na

1Q2009 EBITDA a 2Q2009 EBITDA fKD 53.3 mln KD 51.0 mln

1Q2009 EBITDA f 3Q2009 EBITDA fKD 51.0 mln KD 50.0 mln

a = actual, f = forecast. Sources: Reuters and NBK Capital

analysts

Samir Murad, CFA

T. +965-2259 5145E. [email protected]

Badder Al Ghanim




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JazeeRa aiRWays (JazK.KW) - analyst Comment issued on December 22, 2009

• Jazeera Airways benefited from increased demand for travel in the summer season, and managed to return to profitability in 3Q2009. The airline, which experienced a turbulent performance in 1H2008, is currently portraying signs of recovery from the disruption that resulted from the unplanned exit of the Dubai hub.

• The number of passengers flying with Jazeera Airways reached 582,490 in 3Q2009, an increase of 57% compared to the same period last year. This result underlines an important milestone for the airline, as this is the first quarter in which the number of passengers flying with Jazeera Airways exceed the half-million mark.

• Jazeera Airways operated a fleet of 10 Airbus A320s in 3Q2009 (six in 3Q2008) and managed to increase capacity—measured in available seat kilometers (ASK)—by 44% compared to the same period last year.

• Revenue passenger kilometers (RPK) increased by 38% in 3Q2009 year on year, a rate that is slower than the growth in ASK. Accordingly, the load factor slipped from 73% in 3Q2008 to 70% in 3Q2009; however, this remains much better than the 62% load factor attained in 2Q2008. Management attributes the decline in load factor to three factors: a) a shorter summer season due the overlap with Ramadan, b) the impact of the H1N1 virus on the demand for travel, and c) effects of the restructuring from Dubai. The drop in load factor was in line with our forecasts for the quarter.

• Yield (calculated as total revenue divided by RPK) had a sharp drop of 25% in 3Q2009 compared to 3Q2008, yet was better than our forecast of a 28% decline. The lower yield is a result of the following: a) competitive pricing from other airlines as a result of excess capacity and b) the reduction in the fuel surcharge.

• Total revenue increased by 4% to KD 15.9 million in 3Q2009, a result that is in line with our forecast of KD 15.8 million.

• At the operating level, Jazeera Airways achieved an EBITDAR of KD 3.2 million in 3Q2009, 17% lower than 3Q2008. Moreover, the reported EBITDAR came in 16% below our forecast of KD 3.8 million for 3Q2009. We do not have a breakdown of expenses to assess where the divergence occurred. Net income declined by 53% in 3Q2009 to KD 0.8 million.

• As part of the restructuring into a single hub, Jazeera Airways has deferred delivery of seven aircraft that the airline had previously scheduled for 2010 and 2011. Based on the new fleet schedule, Jazeera Airways will receive only one aircraft in 2010 and none in 2011. We believe this is a wise move by Jazeera Airways, as this will allow the airline to build traffic for existing capacity, improve load factors, and enhance profitability.

• We will update our models to incorporate the latest operational results and the deferral in aircraft delivery, and issue a new fair value estimate and recommendation.

Samir Murad, CFA


Related Research

• Update - 22 October 2009

• Update - 10 May 2009



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Key Data





52-Week Low Current Number of Shares

KD 0.162 220 million

Reuters Bloomberg

JAZK.KW JAZEERA KK

Privately Held: 30% Public: 70%Ownership Structure


Rebased performance

0.100

0.150

0.200

0.250

0.300

0.350

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10JAZK MSCI KWT


Key Ratios

2008 a 2009 f 2010 f 2011 f 2012 f

P/E 9.8 nmf 7.1 5.3 2.7Net Income Growth 94% nmf nmf 34% 94%EPS Growth 13% nmf nmf 34% 94%

EV/ EBITDAR 9.0 9.2 4.3 3.1 2.0EBITDAR Margin 16% 15% 21% 21% 22%EBITDAR Growth 26% -2% 115% 40% 49%

Dividend Yield 0.0% 0.0% 5.7% 7.6% 18.4%ROAE 17% nmf 22% 26% 42%

2Q2009 EBITDAR a 3Q2009 EBITDAR fKD 0.3 mln KD 3.8 mln

2Q2009 EBITDAR f 4Q2009 EBITDAR fKD 3.0 mln KD 2.7 mln



JazeeRa aiRWays - turbulence issued on october 22, 2009

highlights

12-Month Fair Value: KD 0.240Recommendation: Buy-Risk Level**: 5Reason for Report: 2Q2009 Update

• The unexpected closure of the hub in Dubai created an operational disruption for Jazeera Airways in 1H2009. The hub in Dubai accounted for 20% to 25% of total capacity, which suddenly had to be transferred to Kuwait. Accordingly, Jazeera Airways had to build traffic for this unplanned increase in capacity for the hub in Kuwait.

• The performance of Jazeera Airways in 1H2009 has been below expectations, as it saw a 10% decline in revenue and sustained a net loss of KD 2.2 million in the period. The decline in revenue was below our forecast growth of 17%, due to a lower-than-expected decline in yield and load factor and an unexpected drop in aircraft utilization that led to a lower-than-expected growth in capacity (ASK).

• As of June 30, 2009, the net debt-to-equity ratio of Jazeera Airways stands at a conservative 1.1x. This ratio increases to 3.1x if one views the operating leases as additional off- balance-sheet debt.

• The management of Jazeera Airways is working diligently to refinance the KD 29.7 million in short-term debt before the end of 2009. We will continue to monitor this area over the coming months.

• According to Note 14 in the 1H2009 financial statements, Jazeera Airways has given a guarantee to the aircraft supplier of obligations due from a related company. While we do not have any reason to believe that these obligations cannot be met, we cannot analyze the potential liability, if any, that may arise from the guarantee given the limited financial information we have on the related party (a non-public entity).

• According to Jazeera Airways’ aircraft delivery schedule, the airline plans to have 34 aircraft in its fleet by 2014. All these aircraft cannot be allocated to the Kuwait hub only, which makes the establishment of a second hub a critical step for the airline to achieve its growth targets.

• Our new 12-month fair value estimate for the share price of Jazeera Airways is KD 0.240, which is 21% higher than the latest close. Our new recommendation for Jazeera Airways is “Buy”.

analysts

Samir Murad, CFA


Wadie Khoury




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the sultan CenteR - top line growth issued on December 17, 2009

highlights

12-Month Fair Value: KD 0.320Recommendation: Buy-Risk Level**: 4Reason for Report: 3Q2009 Update

• Sultan Center reported a 20% year-on-year (YoY) increase in total revenue for 9M2009; total revenue was KD 228.3 million. The significant increase in sales growth is due to the 25% increase in grocery sales––the company’s main line of business. The improvement in grocery sales was driven by Sultan Center’s operations in Oman (26% increase in revenue) and the full consolidation of the Lebanese stores––both of which had strong operating performances in 9M2009.

• Due to the tough economic environment, Sultan Center saw a decline in sales of discretionary items, such as household and imported products. This impacted the retailer’s operations in Kuwait and Jordan—which exhibited declines in sales per average square meter of 3.6% and 1.3%, respectively.

• Sultan Center’s EBITDA declined by 8.5% to KD 13.4 million in 9M2009, a result that is 9% lower than our forecast. Selling, general and administrative (SG&A) costs increased by 33.7% in 9M2009 mostly due to some non-recurring expenses related to the integration of the Lebanese operation. On the other hand, net income declined by 27.6% to KD 8.4 million in 9M2009.

• We revised our FY2009 forecasts to show respective declines of 2.5% and 0.7% in sales per average square meter in Kuwait and Jordan (previous forecasts were for no growth in Kuwait and a 7% increase in Jordan). In addition, we revised our forecast for telecom revenue for FY2009 downwards, as the spike in the 1Q2009 revenue was a result of maturing contracts rather than new business.

• On November 16, 2009, the U.S. Department of Justice issued two press releases related to two separate lawsuits that charge Agility with defrauding the United States. The lawsuits allege Sultan Center’s involvement in overcharging the U.S. Army for local market ready items. We do not have enough information to make an assessment regarding any liability that Sultan Center may face, if any, and we have not reflected any potential impact from these lawsuits in our forecasts.

• Our 12-month fair value estimate for Sultan Center is KD 0.320 per share. This value is based solely on our discounted cash flow model (DCF) and is 54% higher than the latest market price. Our recommendation for Sultan Center is “Buy.”

Key Data




KD 0.295 KD 120 million

52-Week Low Shares Outstanding

KD 0.124 578.8 million

Reuters Bloomberg

SCFK.KW SULTAN KK

Privately Held: 44% Public: 56%

Ownership Structure


Rebased performance

0.100

0.150

0.200

0.250

0.300

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10SCFK MSCI KWT


Key Ratios

2008 a 2009 f 2010 f 2011f 2012f

Adj. P/E* nmf 13.8 11.0 11.4 12.3

Adj. EV/ EBITDA* 11.0 7.7 6.7 6.4 6.6

EBITDA Margin 5% 6% 6% 6% 6%

EBITDA Growth -3% 31% 14% 5% -2%

Dividend Yield 0.0% 0.0% 1.0% 1.1% 1.0%

3Q2009 EBITDA a 4Q2009 EBITDA fKD 4.9 million KD 5.0 million

3Q2009 EBITDA f 1Q2010 EBITDA fKD 5.8 million KD 4.9 million

* Adjusted, a = actual, f = forecast. Sources: Reuters and NBK Capital

analysts

Samir Murad, CFA


Wadie Khoury








Related Research

• initiation of Coverage - 02 July 2009

Wataniya teleCoM (nMtC.KW) - analyst Comment issued on october 25, 2009

• Wataniya announced its results for 3Q2009, which came in line with our expectations. Total revenue for 3Q2009 decreased by 5% YoY and reached KD 119 million; this was in line with our forecast of KD 119.6 million. Revenue from the Kuwaiti operation dropped by 16%, and contributed to 41% of total revenue versus 46% in 3Q2008. This was mainly due to the cancellation of the called-party-pays fee that occurred at the end of December 2008. As for the 9M2009 results, total revenue decreased by just 1% YoY.

• At the end of September 2009, total active subscribers reached 12.5 million, a growth of 17% compared to the same period last year. Both the Algerian and Tunisian operations were the main contributors to total subscribers: 47.5% and 38% respectively.

• Consolidated EBITDA declined by 6% in 3Q2009 to KD 49.4 million (5% lower than our forecast), which translates into an EBITDA margin of 41.5%. This decline is mainly due to the slowdown in the Kuwaiti operation. The EBITDA of Kuwait, which constitutes around 44% of the group EBITDA, dropped by 22% in 3Q2009 compared to the same period last year. As for the 9M2009 results, consolidated EBITDA decreased by 5% YoY and reached KD 142 million.

• Net profit decreased to KD 18.5 million during 3Q2009 compared to KD 25.6 million in 3Q2008 due to a decrease in other operating income. As for 9M2009, net profit increased by 43% due to the cancellation of the Kuwaiti MOC license charges after Wataniya won a court ruling against the ministry in June 2009.

• Our estimate of Wataniya Telecom’s fair value per share stands at KD 2.240, 45% above the share’s closing price of KD 1.540 on January 18, 2009 — hence, our “Buy” recommendation.

Diala HoteitT. +971 4 365 2855E. [email protected]


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Wataniya teleCoM - home Market at Risk issued on october 15, 2009

highlights

12-Month Fair Value: KD 2.240Recommendation: Buy-Risk Level**: 4Reason for Report: 1H2009 Update

• The financial results posted by Wataniya Telecom for 2Q2009 were in line with our expectations. The company achieved revenues of KD 121.3 million, compared to our forecast of KD 121.8 million. The slow growth in revenue (1.2% YoY) is due mainly to increased competition in Kuwait.

• As we mentioned in our Initiation of Coverage, “Competition Heats Up,” published on July 2, 2009, the increased competition as well as the cancellation of the called-party-pays fee will have a negative impact on the profitability of mobile operators in Kuwait. The 2Q2009 results were a good indicator of the effect of the cancellation; revenue from Wataniya’s operation in Kuwait dropped by 11% YoY, and revenue from Zain’s operation in Kuwait decreased 8% YoY.

• At the end of 2Q2009, Wataniya’s consolidated EBITDA declined by 5% YoY and totaled KD 48.8 million, compared to KD 51.6 million in 2Q2008. The EBITDA margin declined from 43% in 2Q2008 to 40% in 2Q2009 mainly due to the slowdown in the Kuwaiti operation. The EBITDA of the Kuwaiti operation, which constitutes around 52% of the group EBITDA, dropped by 18% in 2Q2009 compared to the same period last year. This occurred despite the improvement in the cost of revenue as a percentage of total revenue from 36% in 2Q2008 to 29% in 2Q2009 mainly due to the cancellation of the MOC license charges after Wataniya won a court ruling against the ministry in June 2009.

• Accordingly, the company also reversed the provision Wataniya had been charging its income statement with (for MOC license charges) that totaled KD 58.4 million in 2Q2009. Hence, Wataniya Telecom’s bottom line surged to KD 63.5 million at the end of 2Q2009 compared to KD 26.5 million in 2Q2008.

• Based on Wataniya’s latest performance in each country, we reviewed our previous forecast to incorporate these changes. Our new 12-month fair value estimate for Wataniya is KD 2.240 (8.7% higher than our previous fair value). With a 45% upside potential compared to Wataniya’s latest market price, our new recommendation is “Buy.”

Key Data

Closing Price* Avg. Value Traded per DayKD 1.540 KD 309,123

52-Week High Market CapKD 1.760 KD 772 mln

52-Week Low Current Number of SharesKD 1.200 501.16 mlnReuters Bloomberg

NMTC.KW NMTC KK

Qatar Telecom: 52.5% KIA: 24% Public: 23.5%

Ownership Structure


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Sources: MSCI, Reuters and NBK Capital

Key Ratios

2008 a 2009 f 2010 f 2011 f 2012 f

Adj.P/E 9.4 11.4 11.6 11.5 10.9Adj.EPS Growth 2% -18% -1% 1% 6%

EV/ EBITDA 4.0 4.1 3.9 3.6 3.4EBITDA Margin 42.3% 40.9% 40.6% 41.3% 41.7%EBITDA Growth 26.3% -2.3% 4.9% 7.4% 6.7%

Dividend Yield 3.0% 7.4% 3.5% 4.4% 4.6%Adj.ROAE 24% 16% 14% 13% 13%

2Q2009 EBITDA a 3Q2009 EBITDA fKD 49 mln KD 52 mln

2Q2009 EBITDA f 4Q2009 EBITDA fKD 52 mln KD 50 mln


analysts

Diala Hoteit

T. +971-4-365 2855E. [email protected]

Lisa Fernandes

T. +971-4-365 2856E. [email protected]


mailto:diala.hoteit%40nbkcapital.com?subject=

mailto:lisa.fernandes%40nbkcapital.com?subject=


Companies in Focus

NBK Capital

MENA Research


• al ahli Bank of Kuwait (aBK)

• aviation lease and Finance Company (alaFCo)

• Bank of Kuwait and the Middle east (BKMe)

• Boubyan petrochemical

• Burgan Bank (Burgan)

• Burgan Co. for Well Drilling, trading & Maintenance (Burgan Well Drilling)

• Commercial Real estate Company (altijaria)

• gulf Cable and electrical industries Company (gulf Cable)

• gulf insurance Company (giC)

• haj & umrah services Consortium Co. (Mashaer)

• injazzat Real estate Development Company (injazzat)

• Kuwait Cement Company

• Kuwait Finance house (KFh)

• Kuwait Financial Center (Markaz)

• Kuwait Food group (americana)

• Kuwait and gulf link transport Company (Kgl)

• Kuwait national Cinema Company (KnCC)

• Kuwait projects (KipCo)

• Mabanee Company

• Mobile telecommunications Company (zain)

• national industries group holding (nig)

• national investment Company (niC)

• national Real estate Company (nReC)

• oula Fuel Marketing Company (oula)

• tamdeen investment Company (tamdeen)

• tamdeen group

• the transport and Warehousing group (tWg)

• united Real estate Company (united Real estate)

• yiaCo Medical Company (yiaCo)



Companies in Focus



al ahli BanK oF KuWait (aBK)

highlights

• Al Ahli Bank of Kuwait (ABK) was established in 1967. The Behbehani family, currently ABK’s largest shareholder, holds approximately 35% of the bank’s total share capital.

• With an asset base of KD 3 billion, as of September 2009, ABK accounts for 8% of the total banking assets in Kuwait.

• For the 9M2009 period, ABK’s net profit stood at KD 24 million, 66% lower than 9M2008, on the back of weak non-interest income and large provisioning charges.

• In 2008, ABK recorded a 39% drop in net profits below 2007. With the exception of the 2008 and 9M2009 performance, ABK has maintained good profitability and cost efficiency over the past few years.

• ABK’s asset quality indicators have been strong, as the non-performing loans (NPLs)-to-gross loans ratio has declined from almost 8% in 2003 to 2.5% in 2008. On average, the NPL coverage was 173% over the past five years. As of December 2008, the coverage ratio stood at 209%.

• ABK has historically maintained adequate capital adequacy ratios (CAR), above the minimum required by the Central Bank of Kuwait (CBK). As of December 2008, the CAR stood at 14.72%.

• In September 2009, ABK sued Saudi conglomerate Al Saad Group owner Maan al-Sanea and Saad Trading, Contracting and Financial Services Co. for USD 125 million.

• In the same month, Moody’s downgraded ABK’s bank financial strength rating from C- to D+. Back in June 2009, Fitch affirmed ABK’s long-term issuer default rating (IDR) at A- and short-term IDR at F2. However, ABK’s individual rating was downgraded from C to C/D with a Stable Outlook. In July 2009, S&P reaffirmed ABK’s BBB+/A-2 rating with a Negative Outlook.

Key Data

KSE Code ABK.KSE 52-week avg. volume 303,714 Reuters Code ABKK.KW 52-week avg. value (KD) 163,932

Closing Price 0.490 YTD -5.8%52-week High/Low 0.61 / 0.47 1-Year Period -19.7%

Million KD 560.30 Latest (million) 1,143Market Capitalization Shares Outstanding

Ownership StructureClosely Held: 50% Public: 50%

General Liquidity

Price (KD) Price Performance

Price as of close on January 18, 2010, Sources: Reuters, Zawya, and NBK Capital

stock performance

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52-week High: KD 0.610

52-week Low: KD 0.470

Sources: Zawya and NBK Capital

analyst

Munira Mukadam

T. +971 4 365 2858E. [email protected]

Key Ratios

2005 2006 2007 2008 9M2009

Growth in Loans 25.3% 16.6% 30.4% 13.9% -5.9%Growth in Deposits 30.0% 13.0% 40.0% -9.8% -5.3%Growth in Net Profit 73.2% 27.6% 26.7% -39.5% -65.5%Growth in Operating Income 60.9% 34.6% 13.2% -3.7% -10.7%

Loans-to-Assets 57.5% 61.2% 59.1% 63.2% 66.9%NPLs-to-Gross Loans 4.2% 3.6% 3.0% 2.5% N/ANPL Coverage 169.5% 186.6% 169.1% 209.4% N/ACapital Adequacy 18.4% 15.3% 14.0% 14.7% N/A

Growth in Costs 22.8% 21.6% 29.1% 7.4% 5.3%Cost-to-Income 22.3% 20.1% 23.0% 25.6% 27.3%Net Interest Income-to-Operating Income 64.5% 57.3% 56.6% 60.6% 72.7%

RoAA * 2.5% 2.7% 2.8% 1.5% 1.1%RoAE * 19.4% 22.8% 26.1% 14.6% 10.2%

* Annualized figures. Sources: Company’s financial statements and NBK Capital


mailto:munira.mukadam%40nbkcapital.com?subject=



asset Quality

• ABK’s non-performing loans (NPLs)-to-gross loans ratio has dropped from 7.8% in 2003 to 2.5% in 2008. NPL coverage has been more than adequate, ranging from 112% to 209% since 2003. No doubt, the rapid increase in loans led to simultaneous growth in general provisioning, which accounted for 61% of total provisions as of December 2008. Taking a closer look at provisions though, we see that specific NPL coverage also improved continuously between 2003 and 2006. In 2007, however, specific NPL coverage declined sharply from 99% to 82%, and stayed at 81% in 2008. Total NPL coverage at the end of 2008 stood at 209%.

NPLs-to-Gross Loans and NPL Coverage Ratio

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NPLs-to-Gross Loans NPL Coverage

Sources: Company’s financial statements and NBK Capital

NPL Analysis – Pre-invasion versus Post-liberation

KD '000 2004 2005 2006 2007 2008

NPLs 39,689 39,034 38,628 36,463 36,863Specific Provisions 39,689 39,034 38,628 36,463 36,863% of total NPLs 68% 71% 69% 61% 66%

KD '000 2004 2005 2006 2007 2008


Post-LiberationNPL Growth -15% 8% 36% -19%Provisions Growth -7% 25% -25% -33%NPL Coverage 77% 84% 98% 54% 45%

KD '000

NPLs 58,389 54,901 55,721 59,654 55,620Specific Provisions 54,004 52,408 55,303 49,051 45,309

Pre-invasion

Post-liberation

Total


overview

Al Ahli Bank of Kuwait (ABK) was established in 1967, by one of Kuwait’s prominent business families — the Behbehani family. The family is currently the largest shareholder, holding approximately 35% of the bank’s total share capital. The bank has a fairly small network of 22 branches and 48 ATMs in Kuwait and two overseas branches in Dubai and Abu Dhabi. ABK is also awaiting approval for licenses to open new branches in Oman and Qatar. The bank has created a strong franchise in corporate and commercial banking, which is ABK’s main focus. Retail lending, considered very secure and highly profitable in Kuwait, is another key area of focus. As of September 2009, ABK had an asset base of KD 3 billion, resulting in a market share of approximately 8% of the total banking assets in Kuwait. ABK’s loans and deposits market shares stood at approximately 8% and 7%, respectively. The bank provides commercial banking and asset management services, and investment banking services via its wholly owned subsidiary Ahli Capital Investment Company.

latest news

• September 2009: ABK sued Saudi conglomerate Al Saad Group owner Maan al-Sanea and Saad Trading, Contracting and Financial Services Co. for USD 125 million, for an alleged breach of contract and fraud over a credit agreement. ABK accused Saad of breaking a USD 60 million credit facilities agreement in 2007. In July 2009, ABK announced an exposure of less than USD 30 million to the troubled Saudi conglomerate and no exposure to the Al Gosaibi Group.

• September 2009: Moody’s downgraded ABK’s bank financial strength rating from C- to D+. Consequently, ABK’s long-term global local currency and long-term foreign currency deposit ratings were also downgraded to A2 from A1. Back in June 2009, Fitch affirmed ABK’s long-term issuer default rating (IDR) at A- and short-term IDR at F2. However, ABK’s individual rating was downgraded from C to C/D with a Stable Outlook. Earlier in the year, in February 2009, S&P placed ABK, along with four other Kuwaiti banks, on “credit watch negative” for a possible downgrade, after the institutions were exposed to the distressed local investment sector. However, in July 2009, S&P affirmed ABK’s BBB+/A-2 rating with a Negative Outlook.

• September 2009: ABK’s shareholders approved the board of directors’ proposal to increase the bank’s share capital by 25% to KD 144 million via a rights issue. The increase is subject to approval by an Amiri decree.

Al Ahli Bank of Kuwait (ABK)




Balance sheet

• After recording consistent balance sheet growth of 20% between 2004 and 2007, ABK’s total assets grew by only 3% in 2008 and declined by 1.4% in 9M2009.

• Net loans and advances grew by a CAGR of 24% between 2005 and 2007. In 2008, lending growth stood at 14% with the loan book reaching KD 2.13 billion by December. Almost all the growth in 2008 occurred during the first three quarters. In fact, 4Q2008 saw a slight decline in the loan book. During 2009, net loans declined for three consecutive quarters to KD 2 billion at the end of September 2009, 6% lower than the December 2008 level.

• The growth in customer deposits was slightly quicker in the past, as they grew by a CAGR of 27% in the three years ending 2007. During 2008, however, total deposits declined by 10%, standing at KD 1.99 billion as of December 2008. Deposits were almost flat in the first six months of 2009, but fell by around 6% during 3Q2009, putting total deposits at KD 1.89 billion, down 5% during 9M2009.

Financial statements

Income Statement (KD '000) 2007 2008 9M2008 9M2009

Interest Income 175,002 185,341 141,902 106,310Interest Expense (108,610) (116,869) (87,821) (45,224)Net Interest Income 66,392 68,472 54,081 61,086

Fees and Commissions 18,415 24,493 19,687 16,054Foreign Exchange Income 5,135 5,073 4,049 2,855Net Investment Earnings 11,951 8,729 10,482 2,872Other Operating Income 15,412 6,235 5,822 1,180Total Operating Income 117,305 113,002 94,121 84,047

Staff Expenses (17,355) (18,393) (14,111) (14,575)Depreciation (1,645) (1,238) (831) (1,280)Other Expenses (7,938) (9,302) (6,843) (7,083)Total Operating Expenses (26,938) (28,933) (21,785) (22,938)

Loan Loss Prov. (1,872) (15,213) 3,453 (29,786)Investment and Other Prov. (8,544) (19,489) (1,509) (5,044)Other Income / (Exp.) (3,910) (3,331) (3,886) (2,021)Net Income 76,041 46,036 70,394 24,258

Balance Sheet (KD '000) 2006 2007 2008 Sep-09

AssetsCash and Cash Equivalents 708,192 842,748 679,916 809,050Loans and Advances 1,433,932 1,870,012 2,129,103 2,002,497Net Investments 249,512 205,095 159,273 120,100Net Fixed Assets 14,306 13,956 33,822 34,408Others 18,584 29,346 34,845 28,978Total Assets 2,424,526 2,961,157 3,036,959 2,995,033

Liabilities and Shareholders' EquityDue to Banks and Oth.Fin.Inst. 417,378 335,401 648,567 723,637Customers' Deposits 1,576,669 2,207,998 1,991,676 1,886,481Other Liabilities 167,296 98,664 84,304 63,560Total Liabilities 2,161,343 2,642,063 2,724,547 2,673,678

Total Shareholders' Equity 263,183 319,094 312,412 321,355

Total Liabilities and Sh. Equity 2,424,526 2,961,157 3,036,959 2,995,033


Financial statement analysis

income statement

• ABK announced a net profit of KD 4.09 million for 3Q2009, 84% lower than the net profit in 3Q2008. For the 9M2009 period, ABK’s net profit stood at KD 24 million, 66% lower than 9M2008, on the back of weak non-interest income and large provisioning charges.

• Core earnings were strong as net interest income grew by 13% compared with 9M2008. However, fees and commissions, and net investment income were weaker, declining by 18% and 73%, respectively.

• Total operating income reached KD 84 million, down 11% compared to 9M2008. Total operating costs increased by just 5% during 9M2009.

• ABK took net loan loss provisions of KD 16 million during 2Q2009 and another KD 13 million in 3Q2009. Investment provisions also increased from KD 1.5 million in 9M2008 to KD 5 million in 9M2009. This brought net profit for 9M2009 down to KD 24 million (66% YoY drop).

• ABK recorded net profits of KD 46 million in 2008, 39% lower than the KD 76 million achieved in 2007. Net interest income growth was slow at 3%, as interest expenses grew slightly faster than interest income. Operating income growth was hurt despite a surge in fee and commission income (+33% growth YoY), primarily due to weaker net investment income, which declined by 27% during the year. The bank was aggressive in terms of provisioning, with loan loss provisions of KD 15 million and investment provisions of KD 26.6 million lowering overall net income. ABK also recorded a one-time gain of KD 4.8 million from the sale of land; excluding that, the bank’s 2008 profits would have recorded a decline of 46% YoY.

• ABK maintained a fairly stable cost-to-income ratio between 2005 and 2007, averaging around 22%. In 2008, however, the ratio crept up each quarter, taking the FY2008 ratio to 25.6%. The increase was due to weaker operating income. In fact, costs were well controlled in 2008, growing by only 7%, compared to the double-digit growth of more than 20% seen in each of the previous three years. The cost-to-income ratio for 9M2009 increased further to stand at 27.3%, once again due to weak operating income. A senior bank official stated earlier in 2009 that ABK was aiming to control costs going forward, given the expected general slowdown in 2009 banking profits; this cost control strategy included curbing expansion plans in the coming years.

Al Ahli Bank of Kuwait (ABK)


Companies in Focus



aviation lease anD FinanCe CoMpany (alaFCo)

highlights

• Aviation Lease and Finance Company (ALAFCO) is a Shari'ah-based commercial aircraft leasing company.

• ALAFCO has a very diverse client base, from Asia to the Middle East, Africa, and the United States. Additionally, many of ALAFCO’s clients are government entities, which represent less risk.

• ALAFCO’s main revenue stream comes from operating leases, effectively turning the company into an asset-heavy company.

• ALAFCO recorded revenue of KD 27 million in FY2008-2009, a decline of 1% from KD 27.3 million in FY2007-2008.

• As of FY2008-2009, ALAFCO reported net profit of KD 10.2 million, a 1.3% growth from the KD 10 million reported in FY2007-2008.

Key Data

KSE Code ALAFCO.KSE 52-week avg. volume 1,741,271 Reuters Code ALAF.KW 52-week avg. value (KD) 281,149

Closing Price 0.202 YTD 63.0%52-week High/Low 0.082 / 0.213 1-Year Period 198.0%

Million KD 150.01 Latest (million) 743

Public: 34.91%

General Liquidity


Market Capitalization Shares Outstanding

Ownership StructureClosely Held: 65.09%

Price as of close on January 18, 2010 Sources: Zawya and NBK Capital

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Key Ratios

FY2004-2005 FY2005-2006 FY2006-2007 FY2007-2008 FY2008-2009

EBIT (KD Millions) 6.1 9.6 15.3 16.2 13.6EBIT Margin 43% 42% 57% 59% 50%Net Profit Margin 15% 36% 34% 37% 38%

Investment-to-equity 0% 0% 2% 0% 0%Net debt-to-equity 1.2 1.5 1.4 1.4 2.1Interest Coverage Ratio 1.9 1.9 2.0 2.5 2.2

ROA (%) 2% 3% 4% 4% 3%ROE (%) 6% 11% 12% 12% 11%


analyst

Badder Al Ghanim






overview

Aviation Lease and Finance Company (ALAFCO) is a provider of Shari'ah-based commercial aircraft leasing products. Headquartered in Kuwait, ALAFCO was established in 1992 and listed on the Kuwait Stock Exchange in 2000. ALAFCO also offers a variety of consultative services in relation to aircraft acquisition and disposal, lease management, and technical monitoring. Currently, 54% of the company is owned by Kuwait Finance House; Kuwait Airways owns 11%, and the remaining 35% is publicly listed.

ALAFCO has a diverse client base with clients from Asia, the Middle East, Africa, and the United States. The company’s largest client base comes from China and Turkey, but a recently announced agreement with Saudi Arabian Airlines will add another large client.

latest news

• January 19, 2010: ALAFCO reported preliminary first quarter results (quarter ending December 31, 2009). The company posted a 53.8% YoY increase in net profit to KD 2.23 million but did not provide further details. ALAFCO also plans on delivering 16 additional aircraft on lease in CY2010 to various customers bringing the total number of aircraft in its portfolio to 47.


income statement

• ALAFCO saw a marginal decline of 1% in total revenue for FY2008-2009 to KD 27 million. This decline was driven by an 80% drop in consultancy and service income during the year.

• Operating lease income represented 97.4% of total revenue in FY2008-2009, up from 89% in FY2007-2009. Consultancy income represented 2.1% of income during the same period, down from 10.4% during FY2007-2008. Finally, finance lease income accounted for 0.5%, the smallest contributor to the top line.

• Asia is the region with the highest contribution to ALAFCO’s revenue, as this region contributed 52% of the FY2008-2009 top line. In FY2008-2009, the Middle East contributed 24% of total revenue, overtaking Europe as the second-largest contributor to revenue.

• On the expense front, total expenses grew by 21% year on year in FY2008-2009. Staff costs and other operating expenses increased by 24% and 65%, respectively.

• ALAFCO has reported steady growth in operating profit over the previous four fiscal years up to FY2007-2008 at a CAGR of 31%. As for the last full-year financials, the story is a little different: ALAFCO reported a 16% decline in operating profit to KD 13.6 million for FY2008-2009. Furthermore, ALAFCO’s operating profit margin has fluctuated historically between 42% and 59%. In FY2008-2009, ALAFCO achieved an operating profit margin of 50%.

• ALAFCO reported KD 10.2 million in net profit for FY2008-2009, a 1.3% increase from KD 10 million in FY2007-2008. Moreover, the net profit margin expanded slightly to 38% for FY2008-2009, up from 37% in FY2007-2008.

• Throughout the years, ALAFCO has had some non-recurring contributors to its bottom line: gain on disposal of available for sale investments and gain on disposal of property and equipment. After adjusting net income for the impact of these non-recurring items, we notice a 28% decline in adjusted net profit for FY2008-2009 to KD 7 million from the KD 9.7 million reported in FY2007-2008.

Adjusted Net Income

FY2005-2006 FY2006-2007 FY2007-2008 FY2008-2009

Net income (KD million) 8.2 9.1 10.1 10.2Net Income Margin (%) 36% 34% 37% 38%

Net income ex. Non-recurring items (KD million) 4.8 7.6 9.7 7.0Adjusted Net Income Margin (%) 21% 29% 36% 26%


Balance sheet

• Naturally, ALAFCO is a very asset-heavy company, as the majority of the company’s leases are structured as operating leases. Thus, the asset is recorded on ALAFCO’s balance sheet as property, plant, and equipment (PP&E).

• Examining PP&E, we notice that ALAFCO had an addition of KD 120 million under aircraft and engine that resulted in 61% growth in PP&E during the last full year. This addition is in line with ALAFCO’s announcement that the company had agreed to buy four new Airbus aircraft with delivery between 2009 and 2010.

• According to the FY2008-2009 financials, ALAFCO is a zero investment company, an indication of the company’s focus on core operations.

• As of FY2008-2009, ALAFCO has total debt amounting to KD 225 million, up 85% from FY2007-2008. However, only 12% of the total debt is short term. Additionally, the company has a net debt-to-equity ratio of 2.1x, up from 1.4x from FY2007-2008.

• Although the net debt-to-equity ratio has grown considerably over the last full year, ALAFCO has maintained solid interest coverage numbers. As of FY2008-2009, ALAFCO recorded an interest coverage ratio of 2.2x.

Aviation Lease and Finance Company (ALAFCO)




• Looking at cash flows, we notice an increase in PP&E by KD 79.8 million in FY2008-2009, which we believe was financed by KD 106 million of financing facilities obtained during the year.

• Examining the return on assets (ROA) and return on equity (ROE) for ALAFCO, we notice strong numbers for both categories. ALAFCO currently has an ROA of 3% for FY2008-2009, down from 4% the previous year. Additionally, ROE for FY2008-2009 stands at 11%, down from 12% the previous year.


Income Statement (KD '000) FY2005-2006 FY2006-2007 FY2007-2008 FY2008-2009

Operating lease income 22,356 26,317 24,278 26,291 Consultancy and service income 296 471 2,840 561 Finance lease income - 39 165 141 Total Revenue 22,652 26,827 27,282 26,993

Murabaha income 554 526 339 103 Gain on disposal of AFS - - 313 - Gain on disposal of PP&E 2,509 1,482 - 3,173 Gain on foreign exchange 904 - - - Other income - - 237 134 Staff costs (861) (679) (1,043) (1,297) Depreciation (10,831) (10,287) (9,465) (11,194) Finance costs (5,163) (7,775) (6,553) (6,294) Other operating expenses (1,406) (580) (550) (904) Directors fees (60) (60) (60) (60) Profit before tax 8,298 9,454 10,501 10,653

Zakat - - (86) (107) KFAS (75) (86) (95) (96) NLST - (238) (264) (268) Profit for the Year 8,222 9,130 10,055 10,182

Balance Sheet (KD '000) FY2005-2006 FY2006-2007 FY2007-2008 FY2008-2009

PP&E 225,940 205,332 186,338 299,518 Capital advances - 26,077 63,004 59,538 AFS - 1,448 - - Investment in joint venture 1 - - - Receivables 737 440 200 1,651 Finance lease receivables - 2,669 2,128 1,817 Cash and balances 16,425 9,105 9,264 27,706 Total Assets 243,103 245,070 260,935 390,230

Due to financial institutions 122,269 118,829 121,720 224,887 Security deposits 6,646 9,228 14,798 30,782 Maintenance reserve 4,859 6,466 5,764 7,032 Other liabilities 36,677 31,985 37,506 33,971 Total Liabilities 170,450 166,507 179,788 296,672

Total Equity 72,652 78,563 81,147 93,558

Total Liabilities & Equity 243,103 245,070 260,935 390,230


Aviation Lease and Finance Company (ALAFCO)


Companies in Focus



BanK oF KuWait anD the MiDDle east (BKMe)

highlights• The Bank of Kuwait and the Middle East (BKME) was

established in 1941 as the first banking and financial institution in Kuwait. The bank currently holds a 6% share of total assets in the Kuwait banking sector. Ahli United Bank (AUB) took control of 48% of the bank’s capital in 2002, and increased this to 74.8% in August 2005.

• In January 2010, BKME announced that it had converted into an Islamic bank and that the name of the bank was changed to Ahli United Bank. The bank is set to start transactions in compliance with Islamic Shari’ah laws by 2H2010. This followed a resolution passed by the Central Bank of Kuwait (CBK) in December 2009, recognizing the transition of BKME into a Shari’ah-compliant bank.

• BKME has displayed strong profitability in the past, which has been historically supported by both net interest income and non-interest income. Return on average assets (RoAA) and return on average equity (RoAE) have been stable at around 2.3% and 20%, respectively, over the past four years.

• Strong competition has eroded BKME’s market share since 2005. BKME’s share of total sector deposits has fallen from 7% in 2005 to 4.9% at the end of September 2009.

• BKME’s capital adequacy ratio (CAR), albeit lower than the level in 2007, was strong at 14.8% as of December 2008. BKME benefits from comfortable asset quality indicators — the non-performing loan (NPL) coverage ratio has generally exceeded 100%.

• At the end of September 2009, Fitch affirmed BKME’s ratings with a stable outlook. Earlier that month, Moody’s rating agency downgraded BKME’s long-term foreign currency deposits rating to A3 from A1 and BKME’s bank financial strength rating to D+ from C-.

Key Data

KSE Code BKME.KSE 52-week avg. volume 376,088 Reuters Code BKME.KW 52-week avg. value (KD) 180,717


Million KD 448.00 Latest (million) 878.43

General Liquidity




Price as of close on January 18, 2010, Sources: Reuters, Zawya and NBK Capital

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analyst

Munira Mukadam


Key Ratios

2005 2006 2007 2008 9M2009

Growth in Loans -7.8% 21.8% 35.6% 17.7% 4.8%Growth in Deposits -1.7% 13.8% 19.7% 12.0% -6.0%Growth in Net Profit 75.3% 13.0% 6.8% 6.6% -70.0%Growth in Operating Income 42.9% 3.4% 20.1% 14.3% -28.9%

Loans-to-Assets 47.0% 47.8% 55.9% 65.8% 69.1%NPLs-to-Gross Loans 3.49% 3.27% 2.67% 3.05% N/ANPL Coverage 136% 122% 127% 127% N/ACapital Adequacy N/A 18.14% 15.60% 14.80% N/A

Growth in Costs 30.2% 14.5% 22.2% 3.9% -15.5%Cost-to-Income 29.2% 32.3% 32.9% 29.9% 30.2%Net Interest Income-to-Operating Income 50.8% 54.9% 45.9% 40.0% 63.4%

RoAA * 2.4% 2.5% 2.3% 2.3% 0.9%RoAE * 19.9% 20.5% 19.1% 20.0% 8.8%

* Annualized figures Sources: Company’s financial statements and NBK Capital





asset Quality

• Asset quality indicators for BKME have generally improved since 2003. However, there was a slight deterioration in 2008.

• After dropping for two consecutive years (2006 and 2007), the non-performing loans (NPLs)-to-gross loans ratio increased to 3.05% in 2008, due to 35% growth in NPLs compared to 18% growth in total loans.

• Total NPL coverage has exceeded 120% since 2004 and stood at 127% as of December 2008. The specific provisions-to-NPLs ratio for post-liberation impaired loans averaged between 58% and 62% between 2005 and 2008. BKME’s pre-liberation NPLs accounted for only 4% of the total NPLs at the end of 2008, much lower than most of the bank's peers.

NPLs-to-Gross Loans and NPL Coverage Ratio

2.96%3.12%

3.49%3.27%

2.67%3.05%

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2003 2004 2005 2006 2007 2008

NPLs-to-Gross Loans (Left) Total NPL Coverage (Right)


NPL Analysis - Pre-invasion versus Post-liberation

KD '000 2004 2005 2006 2007 2008


KD '000 2004 2005 2006 2007 2008


Post-LiberationNPL Growth - 5% 14% 11% 37%Provisions Growth - 50% 8% 18% 33%NPL Coverage 43% 61% 58% 62% 60%

KD '000

NPLs 26,685 27,750 31,439 34,543 46,728Specific Provisions 12,645 17,819 19,092 22,105 28,794Total Provisions 32,537 37,692 38,476 43,766 59,423

Pre-invasion

Post-liberation

Total


overview

The Bank of Kuwait and the Middle East (BKME) was established in 1941, making it the first banking and financial institution in Kuwait. BKME was initially established as the Kuwaiti branch of a British bank (the Iranian Imperial Bank at the time), and was later acquired by the HSBC Group in 1959. In 1971, the Kuwait Investment Authority (KIA) took over the bank, following local regulations that restricted foreign ownership of banks. In 2002, AUB took control of 48% of the bank’s capital, which AUB increased to 74.8% in August 2005. The bank offers a full range of services, including retail, corporate, treasury, and investment management services. At the end of 2007, the bank had a network of 23 branches and 56 ATMs across Kuwait. At the end of September 2009, BKME’s total assets stood at KD 2.2 billion, accounting for nearly 6% of the total banking sector assets. In June 2008, BKME received approval from the CBK to convert into a fully Shari’ah-compliant bank. In January 2010, the bank announced that it had converted into a purely Islamic bank. The bank’s principal subsidiary is the Kuwait and Middle East Financial Investment Company (KMEFIC), which offers investment and portfolio management services. BKME currently owns a 50.2% stake in KMEFIC, one of the largest brokerage houses in Kuwait, with operations in Oman, UAE, Jordan, and Egypt.

latest news

• January 2010: BKME announced that it had converted into an Islamic bank and that the name of the bank was changed to Ahli United Bank. The bank is set to start transactions in compliance with Islamic Shari’ah laws by 2H2010. This followed a resolution passed by the Central Bank of Kuwait (CBK) in December 2009, recognizing the transition of BKME to a Shari’ah-compliant bank. In June 2008, BKME had received initial approval from the CBK to take appropriate action for the conversion process with a one-year deadline.

• September 2009: Fitch affirmed BKME’s ratings with a stable outlook. The long-term and short-term issuer default ratings of A- and F2 reflect the high probability of support from the Kuwaiti authorities.

• September 2009: Moody’s rating agency downgraded BKME’s long-term foreign currency deposit rating to A3 from A1 and BKME’s bank financial strength rating to D+ from C-. The downgrade was based on the weakening credit conditions, added pressure on asset quality, lower market-related revenues, and exposure to high-risk sectors, including real estate and construction, in addition to the risk of transitioning into an Islamic bank.

Bank of Kuwait and the Middle East (BKME)




• Total deposits reported a lower CAGR of 11% between 2004 and 2008. In 2008, deposit growth was slightly slower than loan growth, at 12%. Deposits fell to KD 1.3 billion at the end of September 2009, down 6% since December 2008.

• BKME has consistently been losing market share in deposits over the past four years. In 2005, BKME’s total deposits accounted for 7% of total sector deposits. However, as of September 2009, this share had dropped to 4.9% due to tough competition in the corporate sector.




Fees and Commissions 24,763 23,019 18,434 11,578Foreign Exchange Income 4,749 5,015 4,468 2,998Net Investment Earnings 20,012 35,629 37,218 10,016Other Operating Income 599 (149) 392 (37)Total Operating Income 92,662 105,944 94,461 67,174

Staff Expenses (16,948) (18,222) (14,755) (12,683)Depreciation (2,010) (2,153) (1,375) (1,739)Other Expenses (11,506) (11,267) (7,902) (5,874)Total Operating Expenses (30,464) (31,642) (24,032) (20,296)

Loan Loss Prov. (5,466) (15,848) (12,840) (33,712)Investment and Other Prov. 258 (2,683) - -Other Income / (Exp.) (1,515) (2,243) (2,483) (720)Minority Interest (7,296) (2,163) (4,707) 2,669Net Income 48,179 51,365 50,399 15,115


AssetsCash and Cash Equivalents 495,685 430,336 490,032 395,973Due From Banks 248,105 297,128 43,424 105,670Loans and Advances 922,987 1,251,476 1,472,932 1,544,311Net Investments 192,321 172,758 128,804 88,766Investment in Associates - 8,774 8,048 8,142Net Fixed Assets 20,178 35,503 49,772 52,107Others 50,130 42,574 44,006 39,600Total Assets 1,929,406 2,238,549 2,237,018 2,234,569

Liabilities and Shareholders' EquityDue to Banks and Oth.Fin.Inst. 428,766 609,790 483,271 605,408Customers' Deposits 1,068,443 1,278,618 1,432,511 1,346,011Borrowings 132,414 - - -Other Liabilities 42,852 46,877 49,344 41,616Total Liabilities 1,672,475 1,935,285 1,965,126 1,993,035


Minority Interest 21,834 33,380 28,826 26,196




income statement

• BKME recorded a net profit of KD 15 million during 9M2009, 70% lower than 9M2008. The 3Q2009 net profits were only KD 891 thousand. The bank earned KD 16 million in net interest income during the quarter, but loan loss provisions of KD 13.8 million wiped out almost all of these earnings.

• For 9M2009, net interest income growth was strong at 25%, as the cost of funds continued to drop. Furthermore, during 9M2009, fees and commissions remained weak, dropping 37% YoY, and investment earnings also showed no signs of improvement. This led to a 29% decline in total operating income during 9M2009.

• Total operating costs declined by 16% during the period. However, the bigger drop in operating income pushed the cost-to-income ratio up to 30% compared to 25% in 9M2008.

• In 2008, the bank posted 7% growth in earnings that reached KD 51.4 million. Net income for 9M2008 stood at KD 50.4 million, indicating that 4Q2008 profits were almost flat. Operating income in 2008 was supported by large gains in the investment portfolio. Specifically, during 2Q2008, BKME recorded a profit of KD 20.6 million when the bank sold its share in Bank of Bahrain and Kuwait (BBK). BKME took KD 15.8 million in net loan loss provisions in 2008, compared to KD 5.5 million in the previous year.

• Net interest income growth was flat in 2007 and 2008 despite rapid growth in lending — the primary reason being higher funding costs due to intense competition in the corporate sector.

Balance sheet

• BKME’s total assets grew by a CAGR of 6% between 2004 and 2008. Following a decline in assets in 2005, 2006 and 2007 were strong years, with assets growing by 20% and 16%, respectively. However, between December 2007 and September 2009, assets remained nearly flat at KD 2.2 billion.

• Total loans followed a similar trend: declining slightly in 2005 (-8%), and then growing rapidly by 22% and 36% in 2006 and 2007, respectively. Lending growth in 2008, although not as rapid as in prior years, was still impressive at 18%, given the change in the operating environment. During 9M2009, loans grew by only 5%, reaching KD 1.5 billion at the end of September 2009.

Bank of Kuwait and the Middle East (BKME)


Companies in Focus



BouByan petRoCheMiCal

highlights

• Due to Boubyan Petrochemical’s dependence on income from investments, the company must effectively be looked at as an investment vehicle.

• Boubyan’s most notable single investment is the company’s stake in EQUATE—a private company founded in 1995 as a joint venture between government-owned Petrochemical Industries Company (PIC) and Union Carbide Corporation, now a wholly owned subsidiary of the Dow Chemical Company, and Boubyan Petrochemical Company.

• Boubyan’s net profit figure is highly dependent on two non-core income streams, dividend income and investment income.

• Boubyan Petrochemical reported a net profit of KD 20.3 million in FY2008-2009, a drop of 61% year-on-year. As for 1H2009-2010, Boubyan reported a net profit of KD 8.4 million, a 55% drop from the KD 18.6 million achieved in 1H2008-2009.

• Boubyan’s balance sheet sheds light on the company’s investment dependence as investments total 87% of total assets.

• With the exception of EQUATE, we are uncertain about the exact composition of the majority of Boubyan’s investments.

Key Data

KSE Code BPCC.KSE 52-week avg. volume 2,936,260 Reuters Code BPCC.KW 52-week avg. value (KD) 1,339,654



Closely Held: 13.36% Public: 86.64%Ownership Structure

General Liquidity




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52-week High: KD .560


Key Ratios

2005-2006 2006-2007 2007-2008 2008-2009 1H2009-2010

Net debt to Equity 25.9% 30.5% 34.0% 68.5% 80.7%Investments/Total Assets 88.2% 91.0% 86.6% 86.6% 87.4%Investments/Equity 115.4% 123.4% 126.1% 154.7% 167.4%

ROA 8.8% 12.6% 13.1% 5.1% N/AROE 11.5% 17.2% 19.0% 9.1% N/A


May Zuaiter


analysts

Badder Al Ghanim



mailto:may.zuaiter%40nbkcapital.com?subject=




for sale, without which the company would have recorded a net profit figure of KD 72.4 million, an increase of 38% above the previous recorded full-year net profit figure of KD 52.6 million in FY2007-2008.

1H2009-2010 (May – October 2009)

• Boubyan reported a net profit figure of KD 8.4 million in 1H2009-2010, a 55% drop from the KD 18.6 million achieved during the same period last year.

• The company’s bottom line was highly dependent on dividend and investment income. In 1H2009-2010, Boubyan Petrochemical recorded dividend income of KD 2.9 million, 50% higher than the KD 1.9 million recorded the same period last year. In addition, Boubyan Petrochemical recorded KD 10.2 million in net investment income for 1H2009-2010, a drop of 45% from the KD 18.6 million recorded in 1H2008-2009.

• Net profit was also negatively affected by a 64% increase in general and administrative expenses, as well as a 23% increase in finance costs.

• Boubyan Petrochemical impaired investments in 1H2009-2010 to the tune of KD 3.6 million, without which the company would have recorded a net profit figure of KD 12 million for the period, a decrease of 35% year on year. Boubyan Petrochemical had no impairments in 1H2008-2009.

Balance sheet

• Boubyan Petrochemical’s asset portfolio effectively transforms the company into an investment entity. The chart below breaks down Boubyan’s asset portfolio.

Boubyan Asset Breakdown

Total AssetsKD 408 million

Operating AssetsKD 37.7 million

9.2%

InvestmentsKD 370.3 million

90.8%

Investment in Associates

KD 13.7 million3.7%

OtherKD 236.6 million

63.9%

Equate (AFS)KD 120 million

32.4%

Held for TradingKD 36.8 million

AFSKD 199.8 million


overview

Boubyan Petrochemical, operationally, is a company that acts as a third party between customers and petrochemical manufacturers that specialize in products such as polyethylene and ethylene glycol.

However, taking into account Boubyan’s operational structure and its dependence on core and non-core investments, the company must be analyzed as an investment company above anything else. The size of Boubyan’s investment portfolio greatly outweighs the company’s core operation, which is highlighted by Boubyan’s stake in EQUATE—the company’s most notable investment.

eQuate overview

EQUATE Petrochemical Company is a private company founded in 1995 as a joint venture between government-owned Petrochemical Industries Company (PIC) and Union Carbide Corporation, now a wholly owned subsidiary of the Dow Chemical Company, and Boubyan Petrochemical Company.

Currently, both Dow Chemical Company & PIC own 42.5% of EQUATE. Boubyan Petrochemical Company holds 9%, and the remaining 6% is owned by Qurain Petrochemical Industries Company, a publicly traded company established in Kuwait in 2004. Producing polyethylene and ethylene glycol for the markets of Asia, the Middle East, Africa, and Europe, EQUATE owes its success to Kuwait’s rich hydrocarbon resources. In 2008, EQUATE reported net income of USD 683 million, a decline of 11% from FY2007.


income statement

FY2008-2009

• Boubyan Petrochemical’s dependence on investments has rendered typical income statement analysis, such as EBITDA analysis, meaningless, as the majority of the story lies in the company’s balance sheet.

• With that said, the company is highly dependent on two sources for income—dividend income and investment income. In FY2008-2009, Boubyan Petrochemical recorded dividend income of KD 23.6 million and investment income of KD 52.9 million.

• The company recorded a net profit figure of KD 20.3 million in FY2008-2009, a drop of 61% year on year. For the same period, Boubyan Petrochemical took an impairment of KD 52.1 million for investments available

Boubyan Petrochemical





Income Statement (KD '000) 2007-2008 2008-2009 1H2008-2009 1H2009-2010

Sales 16,782 25,189 11,635 14,417 EBIT (1,209) 1,365 1,099 2,485

Dividend income 23,625 23,641 1,945 2,926 Net investment income 32,592 52,900 18,614 10,235 Share of results of associates 3,266 2,784 591 (259) Finance cost (5,728) (6,682) (2,736) (3,756) Other Income 2,571 (20) 160 1,524 Profit before impairment 55,116 73,988 19,675 13,154

Impairment of investments AFS - (52,105) - (3,641) Taxes (2,109) (936) (819) (372) Minority Interest (378) (612) (291) (734) Profit for the year after impairment 52,630 20,335 18,565 8,407

Balance Sheet (KD'000) 2006-2007 2007-2008 2008-2009 Oct-09

Cash and cash equivalents 3,387 17,797 7,590 8,228 Accounts receivable & prepayments 6,635 6,422 8,756 9,981 Inventories 1,987 2,525 2,620 3,200 Investments carries at fair value 43,229 46,983 35,508 36,804 Total Current Assets 55,238 73,728 54,474 58,212

Investments AFS (Equate) 125,565 131,500 120,000 120,000 Investments AFS (Others) 123,443 170,549 189,459 199,849 Investments in associates 9,893 13,544 14,674 13,685 Exchange of deposits 314 602 7,250 3,808 Property, plant and equipment 5,063 10,525 10,080 9,910 Goodwill 1,717 2,575 2,575 2,575 Total Assets 321,232 403,023 398,512 408,038

Accounts payable and accruals 6,564 11,435 11,271 9,755 Murabaha payable - - - 10,000 Dividends Payable 1,767 1,640 2,334 2,962 Term loans 75,593 111,814 160,330 170,191 Total Liabilities 83,925 124,889 173,935 192,908

Share capital 42,000 46,200 48,510 48,510 Share premium 2,400 2,400 2,400 2,400 Treasury shares (457) (457) (1,130) (462) Treasury shares reserves - - 659 951 Statutory reserve 12,343 17,817 19,944 19,944 Voluntary reserve 12,343 17,817 19,944 19,944 Revaluation reserve - 1,363 1,363 1,363 Cumulative changes in fair value 125,756 132,644 90,796 83,520 Retained earnings 42,465 59,017 40,556 36,857 Equity attributable to Parent Co. 236,850 276,800 223,043 213,027

Minority interest 457 1,333 1,534 2,103

Total Equity 237,307 278,134 224,577 215,130

Total Liabilities and Equity 321,232 403,023 398,512 408,038


• The chart above highlights the vast difference in size between Boubyan’s operating assets and its investments. The majority of the investments are classified as available for sale (AFS), which in total amounts to 78% of Boubyan’s total assets. Broken down, AFS includes investments in EQUATE as well as quoted and unquoted investments (for which information is limited).

• Examining Boubyan Petrochemical’s cash flows, we notice additions to AFS of KD 27.6 million and proceeds from the sale of AFS of KD 15 million, resulting in a net movement of KD 12.6 million for 1H2009-2010.

• Boubyan currently has a net debt-to-equity ratio of 81% for 1H2009-2010, up from 69% in FY2008-2009. This is due to a 5% decline in equity and a 13% increase in net debt.

Boubyan Petrochemical


Companies in Focus



BuRgan BanK (BuRgan)

highlights

• Burgan Bank was established in 1977. Kuwait Investment Projects Company (KIPCO) currently owns 54.60% of the bank. As of September 2009, Burgan held approximately 10% of the total banking assets in Kuwait.

• In January 2010, Burgan became a majority shareholder of Bank of Baghdad (BOB), after purchasing an additional 5.3% stake for USD 10.7 million from United Gulf Bank (UGB), which increased Burgan's total ownership in BOB to 50.6%. In April 2009, the bank had transferred 45.31% of the shares of the BOB and 60% of the shares of Algeria Gulf Bank (AGB) from UGB. Burgan completed the acquisition of Jordan Kuwait Bank (JKB) by purchasing a 43.86% stake from UGB in July 2008.

• Burgan has experienced rapid loan growth over the past few years (+50% in 2007 and 2008). However, lending slowed down during 9M2009, with Burgan recording 7% growth between December 2008 and September 2009. Total deposits, which grew by 11% during 1Q2009, fell in 2Q2009 and 3Q2009, resulting in 9M2009 deposit growth of negative 3%.

• Burgan’s 3Q2009 net profit fell by 91% YoY to KD 1.7 million, putting the 9M2009 net profit at KD 14 million, down 78% YoY, on the back of high provisioning. However, net interest income (NII) growth was strong, up 50% over 9M2008, as funding costs declined sharply.

• Burgan displays strong asset quality indicators: non-performing loans (NPLs)-to-gross loans stood at 1.39%, while NPL coverage exceeded 300% at the end of 2008. Burgan’s capital adequacy ratio (CAR) fell to 13.77% at the end of December 2008 from 16.58% at the end of December 2007.

• In January 2010, Burgan received approval from its shareholders to increase its share capital by KD 36 million.

• On August 26, 2009, Moody’s downgraded Burgan’s bank financial strength rating to D+ from C-.

Key Data

KSE Code BURG.KSE 52-week avg. volume 2,311,573 Reuters Code BURG.KW 52-week avg. value (KD) 926,891


Million KD 323.76 Latest (million) 1,011.76

Price Performance



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2005 2006 2007 2008 9M2009

Growth in Deposits 11.3% 6.1% 33.2% 46.6% -2.8%Growth in Net Profit 43.2% 31.5% 34.3% -49.5% -78.4%Growth in Operating Income 28.8% 25.8% 20.7% 14.6% 15.8%

Loans-to-Assets 42.3% 42.8% 49.9% 54.5% 57.2%NPLs-to-Gross Loans 4.00% 3.42% 1.71% 1.39% N/ANPL Coverage 148% 165% 224% 321% N/ACapital Adequacy 18.37% 16.50% 16.58% 13.77% N/A

Growth in Costs 18% 15% 18% 15% 55%Cost-to-Income 29.6% 27.1% 26.4% 26.5% 27.1%Net Interest Income-to-Operating Income 62% 61% 48% 56% 64%

RoAA * 2.3% 2.7% 3.0% 1.1% 0.5%RoAE * 18.1% 22.0% 24.5% 11.4% 5.9%


analyst

Munira Mukadam






to “Stable” to factor in the lower likelihood of a near-term upgrade, resulting primarily from a weaker operating environment and the uncertainties surrounding Burgan’s expansion strategy.

expansion strategy

• Although the bank has operated only within the country, in 2008, Burgan announced its expansion strategy involving the purchase of JKB, AGB, BOB, and Tunis International Bank (TIB).

• The shares of these banks were to be bought from UGB for KD 194 million. UGB, an investment bank based in Bahrain, is also majority-owned (88%) by KIPCO.

• In July 2008, Burgan acquired a 43.86% equity stake in JKB. Burgan had previously owned 7.24% of JKB; the acquisition of this stake increased Burgan's total ownership to 51.1%. As of December 2008, JKB’s financials have been consolidated. JKB accounts for approximately 20% of Burgan’s consolidated assets.

• In January 2010, the bank acquired a 5.30% stake of BOB’s shares from UGB. Burgan previously held 45.31% of BOB, so the bank's total ownership increased to 50.61%. In 2Q2009, the bank completed the transfer of 60% of AGB’s shares, increasing Burgan's total ownership to 65.11%.

• The transfer of TIB’s shares from UGB to Burgan has not yet been completed. Burgan currently owns a 76.5% stake in TIB, which will increase by 10%.

Post-transaction Shares in Subsidiaries

Burgan

Algeria Gulf Bank

65.11%

Bank of Baghdad

50.61%

Jordan Kuwait Bank

51.1%

Tunisia International Bank*

86.5%

* Note: Burgan currently owns 76.5% of TIB Source: NBK Capital


income statement

• Burgan’s 9M2009 net profit stood at KD 14 million, 78% lower than 9M2008. The bank recorded a net profit of KD 11.3 million in 1Q2009, which compared favorably to the net losses of KD 28.5 million posted in 4Q2008.

overview

Established in 1977, Burgan Bank (Burgan) is the youngest commercial bank in Kuwait. Burgan was primarily government owned for two decades. The bank underwent a major structural change in 1997, when Kuwait Investment Projects Company (KIPCO), Kuwait’s leading holding company, took over the government’s share to become the largest shareholder. KIPCO currently owns 54.60% of the bank. Along with the change in ownership came a shift in strategic focus and management style. The bank is now among the country’s top banks and has created a strong presence with a wide network of 22 branches and more than 130 ATMS around Kuwait as of the end of 2008. The bank’s activities can be broadly divided into four main categories: retail banking, corporate banking, private and international banking, and treasury and investments. As of September 2009, with an asset base of KD 3.9 billion, Burgan held approximately 10% of the country’s total banking assets. Burgan operates on the three main strategic pillars of client delight and care, leveraging its operational and technological capabilities, and nurturing its staff. Thus, the bank has focused its efforts on bringing innovative products and services to the market, enhancing customer satisfaction, and improving delivery channels. The long-term strategy remains focused on transforming branches and taking a more customer-centric approach. Burgan is the only bank in the GCC with ISO 9001:2000 certification for all its banking business.

latest news

• January 2010: Burgan became a majority shareholder of Bank of Baghdad (BOB), after purchasing an additional 5.3% stake for USD 10.7 million from United Gulf Bank (UGB), which increased Burgan's total ownership in BOB to 50.6%.

• January 2010: Burgan received approval from the shareholders, at the general assembly meeting, to increase the bank's share capital by KD 36 million. The bank plans on issuing 360 million shares for the price of KD 0.100 and a premium of KD 0.180 per share, increasing the total subscription value to KD 100.8 million.

• August 26, 2009: Moody’s downgraded Burgan’s bank financial strength rating to D+ from C-. Consequently, Burgan’s long-term global currency and long-term foreign currency deposit ratings were also downgraded to A2 from A1.

• February 2009: S&P placed Burgan (along with four other Kuwaiti banks) on “credit watch negative” for a possible downgrade, given the exposure to the distressed local investment sector. Previously, in October 2008, the agency had revised its outlook on the bank from “Positive”

Burgan Bank (Burgan)




and September 2009. Total deposits, which grew by 11% during 1Q2009, fell in 2Q2009 and 3Q2009, resulting in 9M2009 deposit growth of negative 3%.

• Burgan adopted IAS 39 in October 2008, thereby reclassifying some of the bank’s “trading” securities as “available for sale.” As of September 2009, the bank had recorded unrealized losses of KD 1.04 million within its equity. Had the investments not been reclassified, an unrealized profit of KD 194 thousand would have been recorded on the interim income statement.




Fees and Commissions 17,089 22,416 16,257 22,371Foreign Exchange Income 4,363 (237) 4,436 3,984Net Investment Earnings 32,256 26,435 26,039 5,095Other Operating Income 868 4,474 3,430 9,810Total Operating Income 105,689 121,105 100,015 115,794

Staff Expenses (12,641) (17,985) (11,654) (15,474)Other Expenses (15,241) (14,100) (8,538) (15,850)Total Operating Expenses (27,882) (32,085) (20,192) (31,324)

Loan Loss Provisions (264) (36,396) (6,863) (50,205)Investment Provisions - (10,158) - (2,304)Other Income / (Exp.) (2,725) (5,331) (4,406) (4,585)Minority Interest - 646 (2,650) (13,172)Net Income 74,818 37,781 65,904 14,204 Balance Sheet (KD '000) 2006 2007 2008 Sep-09

AssetsCash and Cash Equivalents 677,237 864,899 938,333 927,896Due From Banks 411,801 380,568 532,412 408,884Loans and Advances 946,317 1,421,104 2,132,990 2,276,063Net Investments 120,735 110,146 107,404 115,687Investment in Associates - - - 15,280Net Fixed Assets 18,062 17,804 30,618 34,935Others 36,063 53,026 173,455 197,569Total Assets 2,210,215 2,847,547 3,915,212 3,976,314

Liabilities and Shareholders' EquityDue to Banks and Oth.Fin.Inst. 525,959 732,112 795,486 962,595Customers' Deposits 1,237,936 1,648,538 2,416,101 2,349,019Borrowings 138,540 42,998 197,943 123,351Other Liabilities 47,626 72,759 147,601 143,807Total Liabilities 1,950,061 2,496,407 3,557,131 3,578,772

Minority Interest - - 47,728 67,119




However, the combined net profits of 2Q2009 and 3Q2009 stood at a mere KD 2.9 million, due to a surge in provisioning charges.

• Net interest income growth in 9M2009 was robust, increasing by 50%, as funding costs continued to decline since 4Q2008. Income from fees and commissions grew by 38%, while foreign exchange income and net investment income declined by 10% and 80%, respectively.

• A one-off gain amounting to KD 4.2 million pushed “other income” up during 9M2009. Total operating income witnessed an increase of 16%, supported primarily by the growth in net interest income.

• A 55% increase in operating costs added further pressure on the bottom line. Burgan’s cost-to-income ratio crept up to 27.1% in 9M2009, compared to 20.2% during 9M2008. However, this was still in line with the average cost-to-income ratio of approximately 27% over the previous four years.

• In 2008, the bank posted a 50% drop in earnings to KD 37.8 million. However, operating income grew by 15% to KD 121.1 million, supported by strong net interest income, which increased by 33%.

• Income from fees and commissions grew by 31%, while foreign exchange income declined from KD 4.4 million in 2007 to a loss of KD 237 thousand in 2008.

• Net loan loss provisioning charges were KD 36.4 million in 2008, compared to KD 264 thousand in the previous year. The bank also took impairment charges on its investments amounting to KD 10.2 million in 2008.

Balance sheet

• Burgan’s total assets recorded a CAGR of 22% between 2004 and 2008. Growth in total assets in 2005 was moderate at 9%. However, in 2006, 2007, and 2008, total assets grew by 17%, 29%, and 37%, respectively.

• The growth in the balance sheet was supported by a rapid increase in the bank’s loan book, as well as by a surge in the funding base. Net loans and advances grew by a CAGR of 30% between 2004 and 2008, underpinned by a 4-year CAGR of 23% in customer deposits.

• In 2008, loans advanced by 50%, while deposits grew by 47%. However, lending slowed down during 9M2009, with Burgan recording 7% growth between December 2008

Burgan Bank (Burgan)


Companies in Focus



BuRgan Co. FoR Well DRilling, tRaDing anD MaintenanCe (BuRgan Well DRilling)

highlights

• Burgan Well Drilling offers a full range of services to the oil sector, most notably equipment maintenance and manpower for the operation of oil rigs.

• Burgan Well Drilling is focused on its core operations, as it lacks any investments in equity markets.

• Burgan Well Drilling is a high-margin business with FY2008-2009 (fiscal year ends in March) EBITDA and net profit margins at 36.5% and 23%, respectively.

• This trend has carried over to the 1H2009-2010 margins as EBITDA and net profit margins were reported at 38% and 25%, respectively.

• The company’s loan book and net debt-to-equity ratio are growing as the company has recently taken on new debt. During 1H2009-2010, Burgan Well Drilling secured an Islamic Ijara facility amounting to KD 35.8 million. This influx in new debt has caused the company’s net debt-to-equity ratio to expand to 1.2x, a high relative to the company's previous four fiscal years. The company reported that this new loan was taken to finance the purchase of four new oil rigs.

Key Data

KSE Code BURG.KSE 52-week avg. volume 437,598 Reuters Code BURG.KW 52-week avg. value (KD) 256,872



Ownership StructureClosely Held: 82.29% Public: 17.71%

General Liquidity




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Key Ratios

FY2005-2006 FY2006-2007 FY2007-2008 FY2008-2009 1H2009-2010

EBITDA (KD millions) 6.2 11.2 12.1 10.9 8.0EBITDA Margin 40.6% 48.3% 45.1% 36.5% 38.3%EBIT (KD millions) 5.3 9.9 10.5 9.6 6.7Gross Margin 44.2% 42.8% 39.5% 32.3% 32.0%Operating Margin 36.2% 39.0% 35.7% 27.3% 28.3%Net Profit Margin 31.8% 36.1% 35.4% 23.0% 25.4%

Quick Ratio 0.3 1.4 0.6 0.1 0.3Current Ratio 0.5 1.7 1.1 0.3 0.5Net Debt to Equity 0.7 0.0 0.3 0.7 1.2Interest Coverage Ratio 7.8 11.0 16.5 6.1 9.8

ROA 12.0% 14.0% 14.5% 7.0% 3.9%ROE 26.6% 26.6% 24.7% 14.9% 10.0%


analyst

Badder Al Ghanim






• Gross profit increased by 32% in 1H2009-2010 to KD 6.7 million, an increase that is slightly lower that the 40% increase in revenue. Accordingly, the gross profit margin contracted from 34% in 1H2008-2009 to 32% in 1H2009-2010.

• EBITDA for the period grew 33% year on year to KD 8 million, but the EBITDA margin declined to 38% in 1H2009-2010 from 40% in 1H2008-2009. Burgan Well Drilling reported a net profit figure of KD 5.3 million in 1H2009-2010, 33% higher than the KD 4 million in 1H2008-2009.

Balance sheet

• During 1H2009-2010, Burgan Well Drilling's loan book has grown substantially. As of 1H2009-2010, the company reported total loans of KD 60.4 million, 168% higher than the KD 22.5 million reported by end of FY2008-2009. This is mainly due to an Ijara facility amounting to KD 35.8 million taken by Burgan Well Drilling to purchase four new oil rigs. The Ijara facility is repayable over 11 quarterly installments commencing December 2009 and carries a contracted cost of LIBOR plus 3.5%. Additionally, of this total debt, short-term debt accounts for KD 18.4 million

• This growth in loans has naturally led to an expansion in the company’s net debt-to-equity ratio. As of 1H2009-2010, the company reported a net-debt-to equity ratio of 1.2x, up considerably from 0.7x reported in FY2008-2009. Though the net debt-to-equity ratio has increased during the year, Burgan Well Drilling has a strong interest coverage ratio of 10x.

• With Burgan Well Drilling taking on new loans as well as further advances from KOC for future projects, the company's current and quick ratios remain low, settling at 0.5 and 0.3, respectively.

overview

Burgan Company for Well Drilling, Trading and Maintenance (Burgan Well Drilling) is an oil service company that provides manpower for well drilling and rig mobilization, as well as repair and maintenance services for Burgan Well Drilling-owned and non-owned wells and rigs. Burgan Well Drilling’s sole source of revenue are service contracts with various government-operated oil companies. The company has operations principally in Kuwait and Bahrain and has a longstanding relationship with Kuwait Oil Company (KOC) and its parent, Kuwait Petroleum Corporation. Burgan Well Drilling was founded in 1970 and was listed on the Kuwait Stock Exchange in 2005.


income statement

FY 2008-2009

• Burgan Well Drilling reported revenue of KD 30 million in FY2008-2009, 11% higher than the previous year. In addition, revenue has grown at a CAGR of 23% since 2004-2005. Burgan reports revenue using the percentage of completion method.

• Offsetting growth in revenue is a 25% increase in contract costs—mainly due to a 28% rise in staff costs as well as an increase of 52% in repair and maintenance costs.

• Uneven growth in revenue and contract costs resulted in a 9% decline in gross profit for the year. Nonetheless, the gross profit margin remains at a healthy level of 32%.

• EBITDA dropped 10% in FY2008-2009, year on year, though it has historically grown at a CAGR of 22%. This drop is due to the combination of the aforementioned decline in gross profit and the considerable growth in SG&A for the year. The decline in EBITDA resulted in the EBITDA margin declining to 37% in FY2008-2009 from 45% in FY2007-2008.

• The company reported a net profit figure of KD 7 million for FY2008-2009, a 28% decline from the previous year due to a 143% increase in finance costs. Naturally, net profit margins declined as well, from 35% in FY2007-2008 to 23% in FY2008-2009.

1H2009-2010

• Examining half-year numbers for Burgan Well Drilling, it is safe to say that the company has had a solid fiscal year thus far. Revenue for 1H2009-2010 was reported at KD 21 million, a 40% increase when compared to the KD 15 million reported during the same period last year.

Burgan Well Drilling





Income Statement (KD '000) FY2007-2008 FY2008-2009 1H2008-20091H2009-2010

Contract revenue 26,846 29,870 14,952 20,908 Contract costs (16,247) (20,234) (9,880) (14,218) Gross Profit 10,599 9,636 5,071 6,690

SG&A (959) (1,387) (682) (776) Depreciation (58) (83) (41) - Operating Profit 9,582 8,166 4,348 5,914

Profit/(loss) on sale of PP&E 3 (5) (8) - Other income 933 580 316 321 Finance costs (640) (1,557) (473) (682) Profit Before Taxes 9,877 7,183 4,183 5,553

Contribution to KFAS (89) (65) (38) (50) NLST (247) (184) (105) (139) Zakat (33) (74) (41) (55) Net Profit for the Year 9,509 6,861 4,000 5,309

Balance Sheet (KD '000) 2006-2007 2007-2008 2008-2009 Sep-09

Cash on hand and at banks 9,778 916 185 556 Contract receivable 6,931 4,313 4,277 8,225 Unbilled contract receivables 102 237 139 1,579 Prepayments and other receivables 477 678 782 2,732 Inventory & construction in progress 2,588 3,731 5,490 5,062 Total Current Assets 19,876 9,875 10,872 18,154

Property, plant and equipment 39,984 55,603 86,781 118,164 Total Assets 59,860 65,478 97,653 136,318

Due to bank 1,968 - 1,906 2,078 Term loans - current portion 3,823 3,139 10,939 4,370 Ijara Payable - current portion - - 11,916 Advances from KOC 741 1,302 1,179 2,232 Notes Payable - - 1,277 1,200 Murabaha contract - - 8,754 - Accounts payable 5,071 4,369 8,406 12,074 Total Current Liabilities 11,603 8,809 32,462 33,871

Term loans - non-current portion 4,673 7,654 9,711 18,106 Ijara Payable - non-current portion - - 23,922 Advances from KOC 11,814 10,271 9,214 7,045 Provision for indemnity 253 319 354 343 Total Liabilities 28,343 27,053 51,741 83,286

Total Equity 31,516 38,425 45,912 53,032



Burgan Well Drilling


Companies in Focus



Key Data

KSE Code ALTIJARIA.KSE 52-week avg. volume 2,183,000 Reuters Code CRCK.KW 52-week avg. value (KD) 226,124

Closing Price 0.116 YTD -3.3%52-week High/Low 0.150 / 0.077 1-Year Period 19.6%



General Liquidity


Market Capitalization Outstanding Shares


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CoMMeRCial Real estate CoMpany (altiJaRia)

highlights

• The Kuwait-based Commercial Real Estate Company (Altijaria) is a Shari'ah-compliant real estate investment, development, and management company. Its main focus is residential and commercial property development, along with investment in Kuwait and the region.

• Altijaria has major projects across various business segments and geographic locations.

• Historically, both top-line and bottom-line growth has been driven mainly by the change in the fair value of real estate properties (revaluation gains on real estate properties) and profit from the sale of available-for-sale (AFS) investments. Changes in the fair value of real estate properties and profit from AFS investments accounted for an average of 64% of net profit over the past five years (2004-2008), with the percentage rising to almost 95% in 9M2009.

• The company’s investment book (both available-for-sale (AFS) and held-for-trading) stood at KD 44.2 million according to the 9M2009 financials, accounting for 19% of shareholder equity. Almost 82% of AFS investment is in the unquoted category.

Key Ratios

2005 2006 2007 2008 9M2009

Rental Income (% of Real estate related rev.) 23% 34% 16% 30% 18%

Profit from sale of real estate (% of real estate-related rev.) 33% 32% 34% 8% 19%

Change in fair value (% of Real estate-related rev.) 19% 32% 49% 62% 63%

Revaluation gains as a % of net profit 56% 43% 59% 86% 95%

EBITDA (KD million) 16.2 14.2 37.4 19.5 24.0

EBITDA Interest Cover (x) 4.3 3.9 5.8 2.5 3.0

Net Debt-to-Equity (x) 0.3 0.2 0.4 0.7 0.7

Operating Profit Margin 76% 77% 89% 83% 90%

Net Profit Margin 135% 191% 105% 61% 68%

Adjusted Net Profit Margin 60% 58% 73% 50% 61%

Investment Book (% of Total Assets) 17% 9% 12% 12% 11%

Investment Book (% of Total Equity) 25% 14% 18% 22% 19%


analyst

Mariam Al-Bahar



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



overview

The Kuwait-based Commercial Real Estate Company (Altijaria) is a Shari'ah-compliant real estate investment, development, and management company. The main focus of the company is residential and commercial property development and investment in Kuwait and in the region. The company was established in 1968 and was listed on the Kuwait Stock Exchange at the end of 2004. Altijaria aims to drive growth by seizing investment and real estate opportunities and expanding abroad in order to diversify the company's revenue stream. The company has adopted the following business model:

• Altijaria engages in business activities related to commercial and residential real estate. Within the real estate sphere, the company handles the sale, purchase and lease of land and property.

• Altijaria’s network expansion through alliances and consortiums with various firms in the Gulf Cooperation Council (GCC) drives the company's focus toward developing large-scale projects rather than smaller residential and commercial projects.

The company’s latest ventures and acquisitions, like First Investment Bank (Islamic Bank), are radically strengthening its business model in favor of greater diversification.

latest news

• October 2008: Commercial Real Estate Company acquired an 8.3% stake in Bahrain First Investment Bank.

• October 2008: Commercial Real Estate is a part of a consortium consisting of regional and international development companies, which has been entrusted with the development of the Jeddah Central District Project. The endeavor is the first of its kind in terms of size and the partnership between the private and public sectors. The project will cover an area of 6 million sq. m. in Jeddah.

Major projects

Major completed projects - Kuwait

Al-Manar – Located in Bnaid Al Gar, this project consists of a 16-floor residential tower (two- and three-bedroom apartments) and six townhouses. One of the most important features of this super-deluxe residential complex is its sea view.

Al Yarmouk Villas, Phase 1 – Located in the Yarmouk area, the development consists of 18 plots, each 400 sq. m. in size. The built-up area of each plot ranges from 460 sq. m. to 550 sq. m.

Al Yarmouk Villas, Phase 2 – This project includes 14 plots, each covering an area of around 386 sq. m. The built-up area is around 450 sq. m. per plot.

Rester Beach Resort – Located on the Gulf beach in the Al-Egila area, the project consists of 31 townhouses, each of which has two floors, a garden, and private parking. The resort includes other facilities such as squash courts, a health club, landscaped gardens, and a swimming pool.

Al-Shrooq Tower – Located on Jaber Al-Mubarak Street in the Sharq area, this tower consists of 21 floors and includes commercial shops in the basement, on the ground floor, and on the mezzanine.

Budoor Tower – Located in Sharq area on the Ahmed Al Jaber Street, this office tower consists of 17 floors and includes commercial shops in the basement, on the ground floor and on the mezzanine.

Major ongoing projects - Kuwait

Symphony – This is a mixed-use project located in Salmiya and is built on an area of 11,500 sq. m., consisting of commercial shops (divided into a basement, ground floor, mezzanine, and first floor) with two towers on top. The office tower is composed of 11 floors, and the other tower is a hotel with 20 floors.

Al Tijaria Tower – This is another mixed-use project and will include malls and office space. The tower is located in the Sharq area and is built on an area of 4,295 sq. m. The top part of the tower is designated for office space and consists of 40 floors.

The Dome – Located in Abu-Halifa on the coastal road, the project is built on an area of 15,195 sq. m. and consists of restaurants, coffee shops, and facilities for entertainment activities.

Juman Residential Complex – Built on an area of 7,950 sq. m., this residential project is located in Mahboula, facing the Fahaheel Express Road. The project consists of two buildings of 12 floors each, which includes apartments, penthouses, and townhouses. The project also includes swimming pools, a paradise island for children, a waterfall, and other facilities such as tennis courts, a gymnasium, and commercial shops.

Major upcoming projects - Kuwait

X-Zone Project – This will be an entertainment project on an area of 5,940 sq. m. It will consist of restaurants, coffee shops, a games area, two movie theaters, and other advanced entertainment facilities.

Ruba – The Ruba Project will be a residential building located in Mahboula, and will be built on an area of 5,373 sq. m.

Commercial Real Estate Company (Altijaria)




adjacent to the Fahaheel Expressway. The project will consist of 15 floors, and will contain a mix of dwelling units such as individual townhouses and penthouses. The project will also include provisions for outdoor and indoor recreational activities.

Salmiya Park – This is one of the most important tourism projects launched in Kuwait and is spread over an area of 380,000 sq. m. The estimated cost of the project is KD 19 million.

Kuwait International Tennis Complex – Built over an area of 70,000 sq. m., this will be a one-of-a-kind project in the region. The project will include a hotel, a commercial complex, a major adapted and covered stadium, and tennis and squash courts, all for an estimated investment of KD 28 million.

Major international projects

House Towers Project – Hajer and Al Mukam Towers are residential towers that will be located very close to Kaaba in Saudi Arabia. This project will cater mainly to the housing needs of pilgrims. The Hajer Tower will be a mixed-use project and will consist of 31 floors, 10 floors of which will be occupied by the Mövenpick Hotel. The remaining floors will consist of furnished hotel apartments. Al Mukam Tower, also a mixed-use tower, will consist of 45 floors and will include a hotel and hotel apartments.

Ain Athari – Bahrain Park – This is an international build-operate-transfer (BOT) project and will be developed in participation with two other companies in the region. It is located in Bahrain and will be built over an area of 170,000 sq. m.


income statement

• Real-estate-related revenue increased by 16% to KD 26.8 million in 9M2009 compared to KD 23.1 million in 9M2008––entirely due to the profit from land and real estate held for trading.

• Historically, change in the fair value of real estate properties has been one of the main drivers of real-estate-related revenue. The contribution of the change in the fair value of real estate properties to real-estate-related revenue averaged 38% in the last five years (2004-2008). In 9M2009, the change in the fair value of real estate properties accounted for 63% of the total real-estate-related revenue.

• The company’s real estate recurring income (rental income and hotel income) declined from KD 12 million in 2005

to KD 7 million in 2008, mainly due to the significant decrease in hotel income. In 9M2009, the real estate recurring income decreased slightly, by 6% to 4.9 million (year on year), entirely due to the decline in rental income.

• The company’s rental income decreased slightly, by 8%, to KD 4.8 million in 9M2009, compared to the same period last year. Historically, rental income grew at a five-year CAGR of 18% for the period from 2003 to 2008 accounting for 24% of real estate-related revenue in the last five years.

• Operating profit increased by 26% to KD 24.2 million in 9M2009, compared to 19.1 million in 9M2008. This resulted from the increase in total real-estate-related revenue and a decline in administrative expenses.

• Net profit decreased by 35% to KD 18.1 million in 9M2009, compared to KD 27.8 million in 9M2008. This was due mainly to the decrease in the group’s share of associate results, profit from AFS investments and foreign exchange losses.

Balance sheet

• The company had a net debt-to-equity ratio of 0.7x as of September 2009, with 85% of the company’s debt due within a year.

• The company’s investment book (both AFS and held-for-trading) stood at KD 44.2 million according to the 9M2009 financials. The company’s investment book accounts for 19% of shareholder equity. Almost 82% of the AFS investment is in the unquoted category.


Income Statement (KD' 000) 2007 2008 9M2008 9M2009

Rental Income 6,830 7,075 5,233 4,794

Hotel income 403 6 0 101

Gain from investment properties 21,177 16,549 17,853 18,771

Investment Income 5,865 -2,370 1,690 354

Other operating income 15,366 241 50 3,302

Total income 48,269 21,411 24,771 27,112

Operating expenses -6,086 -4,032 -3,901 -2,698

Operating profit 46,477 16,285 22,149 21,689

Net Profit 44,650 14,465 27,750 18,119

Balance Sheet (KD' 000) 2006 2007 2008 Sep-09

Cash and Bank Balances 38,589 535 4,284 1,167

Investment Properties 84,173 123,248 128,825 158,544

Total Assets 311,077 337,493 398,697 410,557

Short-Term Debt 23,146 29,727 102,565 134,833

Long-Term Debt 50,019 55,489 46,512 23,852

Total Debt 73,166 85,216 149,077 158,685

Total Liabilities 112,556 112,039 179,959 176,476

Shareholders' Equity 198,521 225,455 218,738 234,080


Sources: Company’s financial statements, and NBK Capital

Commercial Real Estate Company (Altijaria)


Companies in Focus



Key Data

KSE Code CABL.KSE 52-week avg. volume 159,227 Reuters Code CABL.KW 52- week avg. value (KD) 224,834

Closing Price 1.440 YTD -12.2%52-week High/Low 1.980/0.900 1-Year Period 44.0%


Ownership Structure

Closely Held: 39.9% Public: 60.1%

General Liquidity




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gulF CaBle anD eleCtRiCal inDustRies CoMpany (gulF CaBle)

highlights

• Gulf Cable and Electrical Industries Company (Gulf Cable) is the market leader in Kuwait, with the largest market share in the electric cable business.

• Gulf Cable set up new plants in 2009 across the GCC. The company boosted production capacity to 75,000 tons/year from the previous 50,830 tons/year.

• The company has large investments in the financial markets. Investments represent more than 100% of shareholders’ equity and 75.9% of total assets. Investment income accounts for 62.7% of total net income.

• Gulf Cable gained a foothold in the regional market in 2006 by acquiring 94.5% of a cable producer in Jordan (KD 8 million investment) capable of producing an additional 20,000 tons of cable per year.

• Acting as a regional player allows Gulf Cable to take advantage of the increased spending by governments on major development projects (e.g., infrastructure). Approximately 50k to 60k MW of power generation capacity is likely to be added within the Middle East region over the next four years. According to Middle East Electricity, Arab nations are expected to spend up to USD 120 billion on power projects between 2008 and 2012.

• Copper prices (Gulf Cables' main raw material) dropped from USD 288/lbs in 9M2008 to USD 283.15/lbs in 9M2009.

Key Ratios

2005 2006 2007 2008 9M2009

Gross Margin* 32.0% 34.2% 31.1% 21.2% 17.2%EBITDA Margin 29.6% 31.0% 27.2% 17.6% 13.3%EBIT Margins 27.9% 29.3% 26.1% 16.4% 11.2%Net Income Margin 31.0% 30.4% 32.0% 2.9% 17.3%

Investment Book-to-Assets 79.5% 70.0% 75.6% 54.2% 75.9%Investment Book-to-Equity 93.7% 73.9% 87.1% 84.7% 111.3%Investment Income-to-Net Income 17.7% 17.2% 31.4% -400.7% 62.7%

ROAA 11.8% 11.2% 10.1% 1.1% -3.7%ROAE 13.5% 12.4% 11.3% 1.5% -5.3%Adjusted ROAA 37.5% 27.2% 23.0% 14.9% 1.3%

Debt-to-Equity 12.6% 2.2% 12.3% 50.9% 41.9%

* Depreciation included Sources: Company’s financial statements and NBK Capital

analyst

Wadie Khoury






overview

With a production capacity of 75,000 tons/year, Gulf Cable is one of the most dominant regional players in the manufacturing and supply of cables. Established in 1975, the company has core operations around cables to distribute electricity. These cables are strictly low- and medium-voltage cables made of copper (approximately 70% of total produced cables) or aluminum (approximately 30%). Gulf Cable’s production facilities allow it to produce other forms of cables such as data transmission cables, conductors, and telephone cables. Furthermore, Gulf Cable has its own copper rod plants, enabling it to produce 12,000 tons of copper per year (the main raw material used in the production of cables). The group is composed of the parent company along with its subsidiary Gulf Cable and Multi Industries Company–JSC, located in Jordan. The company sells its products within the Middle East, including the United Arab Emirates (UAE), Oman, Jordan, Qatar, Bahrain, and Saudi Arabia.

latest news

• October 2009: Gulf Cable signed a 10-month contract with the Kuwait Ministry of Electricity and Water to supply welding materials for tension power cables. The contract is valued at KD 1.9 million.

• April 2009: Gulf Cable signed a nine-month contract, valued at KD 1.4 million, to supply the Ministry of Electricity and Water with electric cables.


income statement

• Sales have shown an upward trend, growing at a CAGR of 32.8% between 2005 and 2008. There was a large increase in credit sales during the period. Sales declined by 34% in 9M2009 compared to 9M2008. This affected gross profit margins as the cost of goods sold did not decline as fast as sales. Gross margins dropped from 27% in 9M2008 to 17% in 9M2009.

• The company’s bottom line is highly dependent on income from investments. In 2008, the loss from investments stood at KD 12.9 million. The losses incurred in 2008 wiped out any profits made from investments in 2006 and 2007. In 9M2009, income from investments stood at KD 8.8 million, a 32.6% decline from 9M2008. The income generated from investments represented 62.7% of total income in the first nine months of 2009.

• Net income fell by 62.5% in 9M2009 mainly due to the drop in revenue by 33.9% and drop in investment income by 32.6%.

• Looking at net profit strictly from an operational point of view (i.e., excluding any profit from investments), we find that the adjusted net income was more stable. Looking at the company’s return on average assets (ROAA) and the company’s adjusted return on assets (excluding investment income), we find that the company would produce better returns strictly from operations, as shown in the figure below:

Return on Assets

2006 2007 2008 9M2009ROAA 11.2% 10.1% 1.1% -3.7%Adjusted ROAA 27.2% 23.0% 14.9% 1.3%

Sources: Company report and NBKC

Balance sheet

• The company has a significant portion of assets allocated to market investments. As of 2008, the company had available-for-sale (AFS) investments (fair value of KD 128.5 million) accounting for 85% of the total shareholders’ equity (54% of total assets). By the end of September 2009, AFS increased to KD 230.4 million, accounting for 111% of total equity (76% of total assets).

• Since the AFS portfolio is counted at fair value, any mark-to-market gains or losses are reflected in the revaluation reserve account. Per the 2008 results, the fair value reserve account dropped to KD 35.1 million, from KD 163.9 million in 2007, knocking off KD 128.8 million of shareholders’ equity due to the effects of the financial crisis. The fair value reserve account rallied to KD 95.3 million in September 2009.

• Looking at Gulf Cable from an operational standpoint, 5.4% of the company’s assets consists of property, plant, and equipment (PP&E). This represents KD 16.3 million as of September 2009, an increase of 9% since the beginning of the year.

• Inventory balances increased at a CAGR of 54% between 2005 and 2008 to reach KD 48.8 million. In September 2009, the inventory balance fell to KD 33.7 million due to the decline in the price of raw materials (raw materials dropped from KD 20.4 million in 2008 to KD 6.1 million in September 2009). It is worth noting that the company was able to improve its ability to convert inventory into cash in 2008, as the average dropped from 195 days in 2007 to 173 days in 2008. In 9M2009, days inventory outstanding increased to a high of 223 days (ttm).

Gulf Cable and Electric Industries Company (Gulf Cable)




• In 2008, days receivable on hand increased to 108 days from 100 days in 2007. The company then improved receivable collection in the first nine months of 2009 as days receivable outstanding decreased to 99 days.

Days Sales Outstanding and A/R as a Percentage of Sales

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• The debt-to-equity ratio increased from 13% in 2005 to 51% in 2008. However, by September 2009, the debt-to-equity ratio had dropped to 42%, indicating that the company has paid part of its debt obligations back through cash generated from better management of working capital (i.e., decreases in accounts receivable and inventory). This is further explained in the cash flow analysis.

Cash Flow

• In 2007, a cash dividend payment of KD 8 million (30% of profits) was made. The dividend payments were made from raising debt as cash flow from operations was negative.

• In 2008, Gulf Cable took out KD 54.9 million worth of loans. Only KD 4.6 million was used for capital expenditure, leaving the company with KD 50.3 million. Gulf Cable paid off KD 11.6 million in short-term debt in 2008, bringing the balance down to KD 38.7 million. The company also continued with the purchase of investments (KD 31 million purchased in 2008) and payment of dividends (KD 8.1 million in 2008), adding up to just over KD 38.7 million.

• In 9M2009, things changed. Cash flow from operations increased to KD 46 million in 9M2009 from KD 0.6 million in 9M2008 due to an improvement in management of working capital. This comes from declining inventory and receivables. The results come as a surprise; however, additional details have not been provided to shed more light on the matter.

• The company continued to purchase investments with the additional cash. However, debt was also paid down, and additional dividends were paid out.



Total Revenue 83,983 109,858 77,584 51,248 Cost of Revenue (58,765) (87,817) (56,812) (42,456) Gross Profit 25,217 22,041 20,772 8,792 Selling/General/Admin Expenses (3,328) (4,027) (2,553) (3,029) Operating Income 21,889 18,014 18,219 5,763 Inv. Income (Exp), Net Non-Op. 6,308 (15,360) 6,604 2,235 Other, Net (98) 919 (121) 1,297 Net Income before Taxes 28,099 3,573 24,702 9,294 Contributions to KFAS (281) (36) (247) (93) NLST (624) - (486) (101) Zakat (15) - (182) (31) Directors Remuneration (310) (310) (233) (233) Net Income 26,868 3,227 23,555 8,836


Property, plant and equipment 11,849 11,627 14,975 16,318 Available for sale investment 142,039 248,450 128,446 230,397 Good will 760 - - - Non-Current Assets 154,648 260,078 143,421 246,716 Inventories 26,055 34,713 48,756 33,721 Trade Account Receivable 18,536 27,519 37,351 19,069 Other Reveivable and prepayments 126 3,064 4,913 1,415 Fixed deposit 2,639 201 186 387 Cash and bank balances 1,009 2,983 2,403 2,346 Current Assets 48,365 68,479 93,609 56,939 Total Assets 203,013 328,556 237,030 303,655 Long term provisions 1,203 1,376 1,229 1,294 Long term loans 3,233 2,574 12,925 10,857 Non Current Liabilities 4,437 3,950 14,155 12,152 Trade A/P 667 1,019 1,089 1,607 Other Payables and accruals 4,737 5,635 5,771 7,096 Current Portion of LT loans 359 572 4,939 5,128 Short term loans - 27,399 56,412 68,000 Due to banks 689 4,683 2,936 2,741 Current Liabilities 6,452 39,307 71,147 84,573 Total Liabilities 10,889 43,257 85,301 96,724 Fair Value reserve 90,736 163,861 35,076 95,931 Other Equity 101,388 121,437 116,653 110,999 Total Equity 192,124 285,299 151,729 206,931



Gulf Cable and Electric Industries Company (Gulf Cable)


Companies in Focus



gulF insuRanCe CoMpany (giC)

highlights

• Gulf Insurance Company (GIC) is the largest insurance company in Kuwait in terms of written and retained premiums.

• Approximately 66.7% of GIC is owned by KIPCO (the largest major shareholders are the Al Sabah family).

• GIC holds an investment book worth KD 85.9 million as of September 2009, which represents 34% of total assets, or 127% of total equity.

• Looking at the company's underwriting profit, GIC is paying out KD 0.990 in claims for every KD 1.000 underwritten in contracts. If the discounts on claims are included, the claims paid out tops KD 1.000.

• A large portion of GIC’s assets are liquid, allowing sufficient payback of claims. In addition, the company has high cash balances capable of paying off 88.7% of outstanding claim reserves. The company shares a large portion of its risks, passing on more than 50% of claims to reinsurers.

• GIC is a relatively illiquid stock; the average daily value traded reaches KD 30,669.

Key Data

KSE Code GINS.KSE 52-week avg. volume 68,606 Reuters Code GINS.KW 52- week avg. value (KD) 31,132

Closing Price 0.420 YTD 0.0%52-week High/Low 0.800/0.365 1-Year Period -42.9%


Ownership Structure


General Liquidity




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2005 2006 2007 2008 9M2009

Premiums written Growth N/A 63.1% 5.0% 16.9% 17.7%Underwriting Profit Growth N/A -16.5% -16.9% 264.2% -35.8%

Loss Ratio 68.2% 77.7% 70.9% 61.0% 73.5%Expense Ratio 23.3% 19.2% 26.1% 25.3% 25.5%Combined Ratio 91.5% 96.9% 97.0% 86.3% 99.0%

Adjusted RoAA 5.1% 5.2% 3.8% 1.5% 8.3%Adjusted RoAE 11.5% 13.8% 10.6% 4.3% 28.2%

Inv Book-to-total Assets 49.4% 43.5% 41.8% 38.2% 33.9%Inv Book-to-total Equity 111.7% 134.6% 107.7% 118.9% 126.6%


analyst

Wadie Khoury






overview

Gulf Insurance Company (GIC) is the largest insurance company in Kuwait in terms of written and retained premiums. Established in 1962, GIC covers life and non-life segments throughout the region through subsidiaries. Areas of non-life insurance covered involve risks associated with motor, marine and aviation, and property and casualty insurance.

latest news

• June 2009: GIC increased its stake in the Arab Orient Insurance Company, Jordan’s largest insurance company, to 55%, making GIC the largest shareholder of the company.

• April 2009: Saudi Arabia’s Buruj Cooperative Insurance Company, a subsidiary of GIC, is preparing an IPO, selling off 40% of the company’s shares.

• March 2008: S&P maintained a BBB+ credit rating for GIC.


income statement

• In the insurance industry, there are two main drivers for revenue growth. The first involves the number of issued insurance contracts alongside the level of risk associated with those contracts. The higher the risk, the higher the expected premiums, and, hence, the higher the potential revenue from written premiums. The second driver of revenue involves the investment income/gains from investing premiums received from clients.

• Examining underwriting profit is the most important indicator in the insurance industry. This determines how well the company is generating profits strictly from its core business. The underwriting business involves premiums earned, as well as commission on reinsurance and issuance fees less any operating expenses (i.e., claims incurred and changes in expense accounts). GIC has produced a profit from its underwriting business throughout the years, as a result of a large contribution from commissions received on ceded reinsurance. Underwriting profit jumped from KD 2.5 million in 2006 to KD 7.6 million in 2008. However, the company’s underwriting profit declined by 35.8% in 9M2009 to KD 3.5 million as a result of a spike in claims incurred throughout the first nine months.

Underwriting Profit

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• “Commissions received on ceded reinsurance” are fees received from reinsurers to share costs for a share of the profits from premiums. We examined the effect if these were removed from the underwriting profits. Excluding these from the equation drops GIC’s underwriting profit significantly; the company would have incurred a loss of KD 2.4 million in 2006 and a loss of KD 3.8 million in 2007 only to reach a profit of KD 0.8 million in 2008. This will be clarified further when we take a look at its combined ratio. Underwriting profit (excluding commissions from ceded reinsurance) dropped to a loss of KD 2.6 million in 9M2009 from a KD 0.20 million profit in 9M2008.

• The quality of earnings is measured by the company’s combined ratio. The combined ratio determines how much a company is paying out on claims versus how much it is making on claims. A combined ratio of more than 100% indicates the company is paying out more in claims than it is taking in, and a ratio of less than 100% means the company is making more on claims than it is giving out. GIC displayed a significant improvement in the company’s combined ratio, which dropped from 91.5% in 2005 to 86.3% in 2008. This means that for every KD 1.000 in written contracts, GIC paid out KD 0.860 in claims in 2008. However, the company’s combined ratio increased in 9M2009 to 99%, up from 90.3% in 9M2008. The calculations were conducted without including discounts on claims offered by GIC. If these were included in the calculation, the combined ratio would have been pushed to higher than 100%.

Gulf Insurance Company (GIC)




Coverage Ratio

68.2%

77.7%

70.9%

61.0%

73.5%

23.3%19.2%

26.1% 25.3% 25.5%

91.5%

96.9% 97.0%

86.3%

99.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 9M2009

Loss Ratio Expense Ratio Combined Ratio

Source: Company financial statements

• Investment income is an integral part of generating profits as well. GIC has broken up its income generated from investments into life insurance and non-life insurance investments. On the life insurance front, GIC invested in three types of securities: investments held for trading, debt securities, and time and call deposits. The relatively safer investments, the debt securities as well as time and call deposits, were responsible for generating interest income of KD 1.6 million, while investments held for trading reported unrealized losses of KD 1.1 million in 2008.

• On the non-life insurance front (the larger of the two investment portfolios), GIC ran into a loss of KD 1 million. This can be attributed to unrealized losses on investments of KD 4.07 million in 2008. The gain from the available-for-sale (AFS) investments of KD 6.2 million was not enough to offset the losses due to large impairment provisions of up to KD 4.7 million.

• Looking at historical values, we find that profits increased by 54% in 2007 due to a significant increase in investment income. This is attributed to the fact that GIC sold its 51% stake in Wataniya to Q-tel for a realized gain of KD 29.9 million in 2007. After adjusting for this, we find that the profit increased by 3% in 2007, and then by 2% in 2008.

Balance sheet

• AFS investments constituted the largest portion of GIC’s assets as of December 2008, contributing 27% of total assets. This share dropped to 23.4% as of September 2009. The “lion’s share” of these investments is allocated to quoted securities. The remaining AFS investments are unquoted securities and managed funds recorded at cost.

• Running an insurance business requires an investment book of premiums collected from clients. GIC held an investment book worth KD 85.9 million as of September 2009. The main criterion here is to determine how risky these investments are. This is difficult to tell, as the breakdown of these investments is formed under general categories; however, just to get an idea, held for trading (HFT) investments and AFS investments in quoted securities represented more than 47% of the company’s total investments as of September 2009.

• The success of an insurance business is determined by whether the company is capable of paying insurance claims through premiums on its investments. The outstanding claims account under liabilities determines how much GIC owes in claims that have been reported. The company reported outstanding claims of KD 66.9 million as of September 2009, of which KD 37.4 million has been reinsured (56% reinsured). Taking these factors into consideration, we find that GIC’s total liquid investments (HFT and AFS) will cover up to 2.5 times the insurance claims. Even if reinsurance claims are not taken into account, the company’s AFS investments alone will be able to cover 1.1x of total claims reported. Furthermore, the company’s cash balance of KD 59.3 million covers 2.1x of total outstanding claims reported (reinsurance recoverable accounted for). So GIC is in a good condition to pay off the company’s claims.

• The company’s claims coverage ratios have been declining since 2006 due to an increase in the outstanding claims reserve. The majority of the increase in claim reserves comes from an increase in contracts written on casualties between 2007 and 2008. Although claims on insurance properties have also increased, more than 90% of these claims were passed on to reinsurers in 2007 and 2008.

• The majority of GIC’s liabilities come from the required reserves. These reserves are divided into four categories: 1) outstanding claim reserve, 2) unearned premium reserve, 3) life mathematical reserve, and 4) additional reserve. The reserves make up 63.6% of the total liabilities and 42.7% of the total assets. The outstanding claims reserve makes up 41.5% of the total reserves (adjusted for reinsurance recoverable on outstanding claims), the largest of all reserves. This reserve represents all the claims that have yet to be paid out.

• Another significant chunk of the liability pie is insurance payable. It represents 20.4% of the total liabilities. This includes any premium to the reinsurance business and policyholders.





• The total debt accumulated by GIC reached KD 12.8 million as of September 2009, up from KD 7 million at the end of 2008. This increased the company’s total debt-to-equity ratio to 0.19x in September 2009, up from 0.09x in September 2008.

• Other assets were subject to a 12% increase in 2008, and currently represent 5% of the total assets. This is a result of KD 5 million in premiums ceded in advance. This means that GIC has made a payment in advance to reinsurers.

• The company witnessed an increase in writing insurance on credit at a CAGR of 22% between 2006 and 2008. Furthermore, GIC also witnessed an increase in passing on the associated risk on claims to reinsurers at an astonishing CAGR of 68% between 2006 and 2008.



Premiums written 74,085 86,609 62,749 73,831 Reinsurance premiums ceded (35,385) (44,211) (29,218) (33,025) Net premiums written 38,700 42,398 33,531 40,806 Movement in unearned premiums (797) (901) (437) (1,449) Net premiums earned 37,903 41,497 33,094 39,357 Commission on ceded reinsurance 5,897 6,723 5,205 6,116 Policy issuance fees 1,194 1,434 961 1,390 Net Inv. income from life insurance 2,384 480 837 1,735 Net Revenue 47,378 50,134 40,097 48,597 Claims incurred (24,916) (23,984) (18,327) (25,924) Commission and discounts (6,147) (6,263) (3,912) (4,386) Inc. in life mathematical reserve (1,198) (693) (2,367) (2,408) Inc. in additional reserve (59) (192) (237) (70) Maturity & cancel of life ins. policy (694) (450) (309) (533) Gen. and Admin. expenses (9,903) (10,506) (8,657) (10,045) Expenses (42,917) (42,088) (33,810) (43,365) Net Underwriting Results 4,461 8,046 6,287 5,232 Net Investment (loss) income 39,123 (1,048) 7,542 3,935 Sundry Income 95 59 153 96 Other Charges (4,628) (2,158) (1,797) (2,173) Net Income 39,052 4,899 12,185 7,090


Property and Equipment 5,666 6,192 6,459 5,586 Investments in ass. comp. 982 4,051 5,371 5,551 Intangible assets 2,700 2,725 2,934 8,309 Financial Instruments 81,422 92,775 90,820 85,185 Loans sec.by life ins. policies 127 438 732 719 Prem. and insurance receivable 18,668 22,961 27,842 37,757 Reins. recoverable on out.claims 15,806 22,225 37,231 37,431 Property held for sale 1,314 291 229 192 Other Assets 6,230 6,365 12,164 13,408 Cash and Cash Equivalents 54,514 65,009 56,195 59,313 Total Assets 187,429 223,031 239,976 253,452 Total liab. from ins. contracts 64,826 76,232 95,258 108,341 Bank Overdraft 8,727 7,889 7,016 12,805 Premiums received in advance 5,768 2,737 6,320 6,836 Isurance payables 27,300 25,507 30,771 31,412 Other liabilities 6,773 11,011 11,196 10,581 Amt. to policy holders-Takaful fund - - - 290 Total Liabilities 113,393 123,376 150,560 170,265 Equity 60,565 86,571 76,977 67,861 Minority interest 13,470 13,084 12,440 15,325 Total Equity 74,036 99,655 89,416 83,186

Total liabilities and equity 187,429 223,031 239,976 253,452




Companies in Focus



haJ & uMRah seRviCes ConsoRtiuM Co. (MashaeR)

highlights

• Mashaer is a Kuwait-based company that provides a range of services (such as accommodation and transportation packages) for Haj and Umrah pilgrims.

• Mashaer acts as a “middle man” by providing Haj and Umrah services. As a result, gross margins are extremely low.

• People will continue to attend Haj and Umrah, thus ensuring a sustainable revenue stream going forward. Risks, such as the swine flu epidemic, could have a significant effect on the company’s revenue stream going forward.

• The company is increasing its investments in associates. These associates perform similar functions as the company, whereby they tailor services to the Hajj and Umrah demographic. As a result, investments in associates are increasingly contributing to operating profits and net income.

• There was a large discrepancy in sales between 2007 and 2008. The difference arose as a result of a sale of property in 2008 to repay debt to one of the company's subsidiaries. The sale of this property was included as part of revenue, causing a large difference.

• The company managed to pay back a significant portion of its debt in September 2009 by liquidating the collateral pledged against the debt (including murabaha investments, a commercial complex, and land). Total debt dropped by 46% from 2008 to the end of September 2009. This is expected to decrease finance charges (one of the largest portion of expenses) going forward. The liquidation of the company’s collateral affected the company’s liquidity, causing some concern about how Mashaer will pay its current debt of KD 22.4 million.

Key Data

KSE Code MASHAER.KSE 52-week avg. volume 1,034,746 Reuters Code MASK.KW 52- week avg. value (KD) 235,692

Closing Price 0.310 YTD 17.0%52-week High/Low 0.310/0.118 1-Year Period 74.2%


General Liquidity



Ownership Structure



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2005 2006 2007 2008 9M2009

Sales Growth N/A 49.6% 13.6% 157.4% N/ANet Income Growth N/A 85.1% 60.1% -353.5% N/A

Gross Margin 10.9% 10.9% 14.6% 8.7% 5.1%EBITDA Margin 0.0% -3.3% -1.6% 13.0% -0.1%Net Profit Margin 61.4% 76.0% 107.2% -105.6% 214.8%

Investment Book-to-Equity 76.6% 72.7% 24.7% 21.0% 17.3%Associates Contribution to Net Profit 0.0% 0.0% 1.2% -11.2% 28.4%

Debt-to-Equity 27.1% 21.9% 41.9% 64.8% 32.9%Interest Coverage Ratio 0.0 x -0.7 x -0.1 x 1.3 x 0.0 x


analyst

Wadie Khoury






Gross Margin Breakdown

Margins 2007 2008

Properties under development 35.9% 6.9%

Hotel Reservation 13.9% 5.6%

Tickets 4.6% 10.1%

Transport 7.3% 15.5%

Other 14.5% 13.3%


• Investment income contributed KD 4.4 million, the single largest contributor to net income in 9M2009. As a matter of fact, investment income was the sole reason for the positive net income in 9M2009. The company suffered a loss on the operational front, as EBITDA generated was negative KD 2.5 million. Net income improved significantly YoY, as Mashaer rallied from a loss of KD 2.8 million in 9M2008 to a profit of KD 3.8 million in 9M2009.

• The largest contributor to investment income is unrealized gain on the revaluation of investment property, valued at KD 2.9 million. The valuation of these properties was conducted by an independent expert. In addition, the company included provisions that are no longer required, valued at KD 1 million. This is due to a receivables settlement with a debtor, whereby the debtor transferred its stake in Al-Ofoq Real Estate Investment Company to Mashaer valued at KD 1.1 million.

• Share of profits from associates provides a significant contribution to Mashaer’s operations. In 9M2009, Mashaer reported a negative EBITDA of KD 0.002 million; however, excluding profits from associates, the company would have reported a larger decline in EBITDA of KD 1.1 million. Profits from associates declined 29.2% in 9M2009 from 9M2008; however, we expect this to be an important and recurring source of income for Mashaer as the company is continually investing in associates. This will be discussed further in the balance sheet analysis section.

• In 9M2009, finance costs made up the largest portion of expenses as a result of the company’s debt. However, it is important to highlight that finance costs dropped by 46% compared to 9M2008.

Balance sheet

• Mashaer’s total debt, as of December 31, 2008, was KD 41.6 million. The majority (78.1%) was short-term debt (STD). The company’s current ratio stood at 0.64x at the end of 2008. As a matter of fact, in 2008, Mashaer’s total current assets were insufficient to pay off just short-term debt.

overview

Haj & Umrah Services Consortium Company (Mashaer) is a Kuwait-based company that provides a range of services for Haj and Umrah pilgrims in accordance with Islamic Shari'ah. The services include providing hotel reservations and transportation packages; trading and leasing real estate, warehouses, and means of transportation; importing and exporting of foodstuff and consumable items; organizing conferences, seminars, and exhibitions; and providing medical services arrangements.

latest news

• June 2009: Mashaer announced that its board of directors has appointed Jassem Mohammed Al Awadi as the company’s new CEO as of May 10, 2009.

• March 2009: Mashaer announced that its board of directors has decided not to pay any dividend for the fiscal year ending December 31, 2008. In the previous year, the cash dividend was KD 0.030 per share.


income statement

• Sale of properties under development was included as part of sales in 2008. This is the sole reason for the jump in sales, and a blow to gross margins, which dropped from 14.6% in 2007 to 8.3% in 2008. The reason Mashaer included this line item as part of sales is unclear; however, we do know why the company sold properties under development in 2008. Mashaer sold these properties, valued at KD 10.5 million, to Hajer Tower (one of Mashaer’s associates) to settle a portion of the company’s debt. The company recognized a profit of KD 0.13 million, thus generating a gross margin of 1.4%. This dragged down the overall gross margins for the remainder of the year.

• Without the sale of properties, revenues would have actually decreased in 2008, dropping from KD 5.7 million to KD 4.5 million. The breakdown of sales for 9M2009 has not been provided in the financials.

• Normally, gross margins from properties under development have the highest margins (in 2007, margins hit 36%, compared to 7% in 2008). The settlement clearly brought margins down in 2008. Under hotel reservations, there was a large decline in margins, which dropped from 14% in 2007 to 6% in 2008. Tickets and transport margins both increased YoY. Looking at the 9M2009 results, the gross margin declined to 5.1% from 15.6% in 9M2008. This comes mainly as a result of a 23.2% decline in revenues (COGS dropped by 13.7%).

Haj & Umrah Services Consortium Co. (Mashaer)




• The largest portion of assets is in investments in associates, which make up 23.5% of the company’s total assets as of September 2009. Going forward, we can expect this block on the balance sheet to rise because of the increased contributions to entities under establishment amounting to KD 19.5 million as of September 2009.

• Mashaer’s investments in associates have grown by more than six times over the past three years. Investments in associates grew by 12.2% in the first nine months of 2009. Due to this increase in investments in associates, their contribution to net profit has increased over the years.

Investments in Associates

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• The company’s holdings in available-for-sale (AFS) investments grew at a CAGR of 18% over the past three years. The breakdown of these investments include local quoted shares, local unquoted shares, and foreign unquoted shares. Local unquoted shares made up 64% of AFS in 2008. All companies that fall under the local unquoted shares category are recorded at cost less impairments (if any). Increases or decreases in the value of these assets have no bearing on equity due to the difficulty in determining the fair value of the unquoted securities; however, according to management, no impairment charges were recorded for the year ending 2008.

• Another large contributor to assets is properties under development. In 2007, properties under development were the largest portion of assets, making up 23.5% of total assets. In 2008, the value of properties under development dropped significantly (43% decline between 2007 and 2008) because several of the properties under development were sold to settle a debt account with one of Mashaer’s associates—Hajer Tower. This explains the significant increase in the absolute value of the company’s revenue and the decrease in the margins.

Short-term Debt vs. Current Assets

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Current Assets Short-term Debt


• In the first nine months of 2009, the company’s total debt balance fell by 46.1% to KD 22.4 million. Mashaer’s STD decreased to KD 21.6 million, and the long-term debt was completely wiped out. The company was able to repay its debt mainly from the liquidation of the pledged collateral. By September 2009, the company settled a tawarruq finance facility of KD 7.5 million from pledged murabaha collateral, and transferred investment property rights valued at KD 8.1 million. Over and above, the company settled KD 2.1 million of debt in cash. As a result, the company’s cash balance declined to KD 0.3 million in 9M2009 from KD 1.6 million in 9M2008, and investment properties declined by 60% to KD13.3 million within the same period.

• The majority of debt was used for investment in properties and as contributions to entities under establishment. The investments in properties include a commercial complex used as a housing facility for pilgrims in Saudi Arabia that is expected to be completed by the end of 2009. The contribution to entities under establishment includes capital contributed by Mashaer in companies that will eventually become associates or subsidiaries. The entities are expected to provide services tailored to the same demographic as Mashaer, and will be treated as operating activity.

• We are a little concerned about the company’s ability to pay off its upcoming debt. Although some of the debt is pledged against collateral, the company’s liquidity has declined, and the upcoming debt due is valued at KD 22.4 million.







Sales 7,325 18,857 2,333 1,792 COGS (6,259) (17,210) (1,969) (1,700) Gross Profit 1,067 1,647 363 92 SG&A (1,603) (1,276) (817) (920) Share of Results from Associates 94 2,225 1,546 1,094 Net Rental Income (Expense) 324 (144) (120) (268) EBITDA (118) 2,453 972 (3) Depreciation and Ammortization (563) (2,240) (385) (249) EBIT (681) 213 587 (252) Comission Income on Marketing 8,519 8 - - Net Investment Income (Expense) 527 (20,299) (3,489) 4,358 Interest 21 87 - - Other Income 50 55 47 7 EBT 8,436 (19,936) (2,855) 4,113

Taxes (571) - - (206) Net Income (before Minority Interest) 7,865 (19,936) (2,855) 3,907 Minority Interest 13 (27) (35) 58 Net Income 7,853 (19,910) (2,820) 3,849


AFS Investments 9,554 13,814 13,353 11,720 Associates & Contribution to Entities 3,366 30,976 38,261 42,547 Prop. Under Development 2,326 30,319 17,356 - PP&E 222 417 1,640 1,673 Intangible Assets - 24,281 11,000 11,000 Other Non Current Assets 231 6,418 6,175 13,570 Total Non Current Assets 15,699 106,225 87,785 80,511 HFT Investments 290 4,908 110 96 C&CE, Deposits, Murabaha 1,319 2,059 8,640 763 A/R and Other Receivables 1,625 15,921 17,038 16,676 Total Current Assets 3,234 22,888 25,787 17,536 Total Assets 18,933 129,113 113,572 98,046 Total Equity 13,545 76,172 64,571 68,587 Loans - 21,315 9,109 - Other Non Current Liabilites 36 73 58 56 Total Non Current Liabilities 36 21,387 9,168 56 Loans 2,967 10,475 32,493 22,404 A/P and Due to Related Parties 2,384 21,079 7,340 6,998 Total Current Liabilities 5,351 31,554 39,833 29,403 Total Liabilities 5,387 52,941 49,001 29,459 Total Liabilities and Equity 18,933 129,113 113,572 98,046




Companies in Focus



inJazzat Real estate DevelopMent CoMpany (inJazzat)

highlights

• Injazzat Real Estate Development Co. (Injazzat) is a Kuwait-based real estate development company and operates across various segments, including commercial, residential, hotels, and entertainment. The company also owns a portfolio of indirect investments in funds and shares in real estate companies. Injazzat is diversified across regions and countries.

• Real-estate-related revenue for Injazzat increased significantly by 33%, to KD 22 million in 9M2009 compared to KD 16.6 million in 9M2008. This increase was mainly due to a significant increase in management and placement fees, profit from the sale of investment properties, and an increase in rental income.

• Historically, both top-line and bottom-line growth has been driven mainly by a change in the fair value of investment properties and profit from the sale of investment properties.

• Injazzat has major projects that are currently under construction. We feel that upcoming projects in Kuwait, the Middle East, Europe, and the United States will act as income boosters and provide the company with further diversification, both region-wise and project-wise.

Key Data

KSE Code INJAZZAT.KSE 52-week avg. volume 811,934 Reuters Code INJA.KW 52-week avg. value (KD) 186,019




General Liquidity




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Key Ratios

2005 2006 2007 2008 9M2009

Rental Income (% of Total Income) 4% 3% 5% 12% 10%

Change in Fair Value of Inv. Prop.(% of Real-Estate Related Rev.) 54% 62% 49% 37% 28%

Change in Fair Value of Inv. Prop. (% of Net Profit) 63% 73% 61% 65% 43%

Investment Income (% of Total Income) 3% 15% 13% 1% 6%

Investment Income (% of Net Profit) 3% 21% 19% 2% 10%



Debt-to-Equity 0.4 0.5 0.9 1.0 1.0

Net Profit Margin 84% 72% 69% 56% 62%




analyst

Mariam Al-Bahar






overview

Established in 1998, Injazzat is a Kuwait-based company that was listed on the Kuwait Stock Exchange in 2002. The company is active in owning and operating residential properties, retail development, mixed-use commercial development, build-operate-transfer (BOT) projects, and hospitality and entertainment properties. The company also engages in real estate activities and investments, including direct and indirect investments, buying and selling of real estate and management of properties within Kuwait, the Middle East, Europe, and the United States.

Shareholder Structure

Name Type Country Holding

Alshaya Group Corportate Kuwait 25.26%A H Alsager and brothers Corportate Kuwait 18.81%International Gulf Company for Investment Corportate Kuwait 8.58%Shurooq Investment Fund Corportate Kuwait 5.33%Public - - 42.02%

Open to GCC Investors 100.00%Open to Foreign Investors 100.00%

Foreign Ownership Structure


Major projects

Major completed projects – Kuwait

Al Dhow Tower

This office tower consists of 33 floors and a total built-up area of 24,129 sq. m. The tower is strategically built in Sharq on an approximate total land area of 2,000 sq. m. Al Dhow Tower is an income-generating asset.

Al Dajeej Ministries Building

Injazzat acquired the Al Dajeej Ministries Building, located in Farwaniya, in 2003 as another source of rental income. The property has an office space area of 10,634 sq. m. and is fully occupied by the departments of various ministries under long-term leases.

Major upcoming projects – Kuwait

Shuwaikh Project

The company acquired a plot of 25,300 sq. m. in the Shuwaikh industrial area to develop a multi-use complex. This complex will include commercial shops and offices, with a total built-up area of 96,900 sq. m. The project is expected to be completed by the end of 2010.

Injazzat Tower

This office tower is located next to the Dhow Tower in Sharq on 1,000 sq. m. The tower consists of 28 floors covering a built-up area of about 15,750 sq. m. The tower is due for completion in 2010.

Major completed projects – international

Al Qouz Residential Project

The project consists of two labor accommodations buildings providing 620 rooms along with offices and commercial shops. Located in Dubai, the project is built on an area of 100,000 sq. feet with an estimated total built-up area of approximately 224,180 sq. feet. In June 2007, subsequent to the project reaching full occupancy, the company sold 50% of its share in the project to a Kuwaiti company.

Al Muhaisna Project (Labor Accommodation)

This project is situated in the Al Muhaisna area in Dubai and covers an area of about 56,914 sq. feet. The project consists of two floors and is composed of 401 rooms. It has been fully leased for five years. Injazzat acquired this project in 2007, a 50% joint venture with First Real Estate Co. (Bahrain), as part of the company’s strategy of holding income-generating properties.

land trading

An integral part of Injazzat’s investment activities involves land trading, which includes buying parcels of land for direct resale or to be split into sub-plots and sold to one or more buyers. The company has experience in land trading in Kuwait, Bahrain, and several other international venues.

Kuwait

Al Mal and Aqar Joint Projects Company was established in 2005, in cooperation with Aqar Real Estate Investment Company (Aqar). Injazzat owns 66.7% of the company, while Aqar owns a 33.3% stake. The new company merged Injazzat’s two plots with Aqar’s plot in Sharq, covering an area of 3,000 sq. m., to develop an office tower with a built-up area of nearly 35,000 sq. m.

Bahrain

The company acquired several well-situated parcels in Al Seef, Ras Al Zuwaid, Al Janabeah Bahrain Investment Wharf, and the Sar areas in Bahrain.

Injazzat Real Estate Company




saudi arabia

In December 2007, the company acquired, in association with other parties, a multi-use plot of land in the eastern area of Damam, covering an area of 223,372 sq. m. The company intends to develop part of the land and sell the rest.

Qatar

The company acquired several lands in the Lusail area for development and trading. In addition, the company has acquired shares in a Qatari company that owns land in the Al Khor area resort.

uae

The company acquired various plots of land in Um Al Quwain in the United Arab Emirates (UAE). One group of land, covering an area of about 56,700 sq. m., is situated at Um Al Tho’oub, and the second one, covering an area of about 6,272 sq. m., is situated in the Al Maidan area. The aim is to hold on to these parcels and sell them at a gain.

Bulgaria

Injazzat has invested in a land acquisition program in Luilin on the northeastern side of Sofia and Bistritsa Hills on the southwestern side of Sofia, Bulgaria.

united states

Injazzat, in partnership with other investors, purchased two adjacent tracts of land totaling 28.71 acres in McKinney, Texas, in the United States, for trading purposes.


income statement

• The company’s total income increased by 13% in 9M2009, to KD 20.5 million, compared to KD 18.1 million in 9M2008, entirely due to the increase in real-estate-related revenue. Real-estate-related revenue accounted for 94% of the company’s total income in 9M2009, compared to an average of 89% in the last five years (2004-2008).

• Real-estate-related revenue for the company increased significantly by 33%, to KD 22 million in 9M2009 compared to KD 16.6 million in 9M2008. This increase was due to a significant increase in management and placement fees, profit from the sale of investment properties, and an increase in rental income.

• Rental income more than quadrupled to KD 2.2 million in 9M2009, compared to KD 0.5 million in 9M2008. As a result, rental income as a percentage of total income jumped from 3.1% in 9M2008 to 10.2% in 9M2009.

• Injazzat’s rental income has not been sufficient to meet operating expenses in addition to the finance charges, resulting in deficits of KD 5.1 million and KD 5.7 million for 2007 and 2008, respectively. This has been the trend for 9M2009 with a deficit of KD 4.5 million.

• Historically, both top-line and bottom-line growth has been mainly driven by a change in the fair value of investment properties and profit from the sale of investment properties.

• Income from the sale of investment properties increased by 30% to KD 9.1 million in 9M2009, compared to KD 7.1 million in 9M2008. Income from the sale of investment properties accounted for 41.5% of total real-estate-related revenue in 9M2009, compared to 33.7% in 2008.

• The change in the fair value of investment properties decreased by 21% to KD 6.2 million in 9M2009, compared to KD 7.8 million in 9M2008, due to the decline in real estate prices. The change in the fair value of investment properties accounted for an average of 54% of the real-estate-related revenue in the last five years (2004-2008), with the share dropping to 28% in 9M2009. The change in the fair value of investment properties accounted, on average, for 67% of the net profit in the last five years (2004-2008), with the share dropping to 43% in 9M2009.

• Operating profit increased significantly to KD 19.8 million in 9M2009, compared to KD 15.4 million in 9M2008, due to the increase in real-estate-related revenue.





• Investment income decreased slightly by 7%, to KD 1.4 million in 9M2009, compared to KD 1.5 million in 9M2008. Investment income accounted for 6% of total income in 9M2009, compared to an average of 11% in the last five years (2004-2008).

• Net profit increased by 6% to KD 14.5 million in 9M2009, compared to KD 13.7 million in 9M2008. This increase is mainly due to the rise in real-estate-related revenue. Injazzat is one of the few listed real estate companies in Kuwait that posted profits during 9M2009.

Balance sheet

• The company’s investment book stood at KD 28 million as of 9M2009, which accounted for 14% of total assets and 34% of total equity. Although the investments-to-equity ratio is quite high, we would like to highlight that the company’s available-for-sale investments primarily represent investments in real estate development projects and portfolios through specialized real estate investment managers.

• The company has maintained an average debt-to-equity ratio of 0.5x over the five years from 2003 to 2007. The company’s debt-to-equity ratio increased significantly from 0.3x in 2003 to 1.0x in 9M2009. The company’s equity and total debt stand at KD 82.6 million and KD 80.96 million, respectively, as of 9M2009. A closer look at the debt shows that the increase was mainly due to short-term loans, which currently account for 49% of the total debt, as of 9M2009.



Rental Income 1,112 3,264 516 2,237

Profit on sale of dev. properties 0 0 0 0

Management and placement fees 450 3,752 351 3,676

Income from sale of inv. properties 7,576 9,182 7,036 9,137

Change in fair value of inv. properties 10,132 9,953 7,808 6,181

Other operating income 1,450 1,097 851 760

Total real-estate-related revenue 20,720 27,246 16,563 21,992

Operating expenses 2,245 2,946 1,150 2,196

Operating profit 18,475 24,300 15,413 19,796

Investment Income 3,052 280 1,511 1,400

Total Income 23,772 27,526 18,073 23,392

Total expenses 6,254 8,943 3,886 6,781

Net Profit 16,479 15,326 13,705 14,476

Balance Sheet (KD '000) 2007 2008 9M2008 Sep-09

Cash and Bank Balances 14,705 22,882 19,521 6,362


Total Assets 167,021 203,026 149,403 204,335

Short-Term Debt 11,000 52,722 18,403 39,496

Long-Term Debt 49,535 29,241 37,416 41,490

Total Debt 60,535 81,963 55,819 80,986





Sources: Company’s financial statements, and NBK Capital



Companies in Focus



KuWait CeMent CoMpany

highlights

• Kuwait Cement Company is a dominant player in the local cement market, with a production capacity of 3.8 million tons.

• Kuwait Cement has a large investment book on the company’s balance sheet. Among the largest of the company's investments is an 8.92% share in National Industries Group (NIG). NIG is one of the largest companies in terms of market capitalization on the Kuwait Stock Exchange (KSE).

• Major development projects have been delayed. Since oil is the main source of revenue in Kuwait, government spending on large projects may be put on hold or cancelled. As a result, the demand for cement will decrease, affecting revenues for cement companies.

• Saudi Arabia’s excess cement production may cause a commotion in the Kuwaiti market due to the competitive advantage of Saudi cement producers. This is the result of subsidies provided by the Saudi government on energy costs.

• Kuwaiti companies enjoy a geographic advantage in terms of access to the Iraqi market. Kuwait Cement’s planned capacity addition is likely to play an important role in exporting cement for the reconstruction activity in Iraq.

Key Data

KSE Code KCEM.KSE 52-week avg. volume 120,706 Reuters Code KCEM.KW 52- week avg. value (KD) 65,074




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2005 2006 2007 2008 9M2009

Sales Growth 17.4% 13.9% 14.0% 4.8% -27.9%

Net Income Growth 95.6% 6.6% 36.1% -92.1% -25.9%

Gross Profit Margin 39.1% 40.2% 50.0% 32.1% 30.6%

EBITDA Margin 35.3% 37.2% 46.9% 28.6% 24.9%

Profit Margin 59.5% 55.7% 66.5% 5.0% 31.9%

Adj Profit Margin (w/o Investment Income) 19.9% 27.9% 26.2% 17.7% 18.1%

Investment Book-to-Assets 71.4% 76.1% 83.3% 52.5% 52.2%

Investment Book-to-Equity 89.4% 97.9% 100.4% 94.3% 80.6%

ROAA 18.5% 14.9% 16.8% 1.4% -0.3%

Adjusted ROAA 17.4% 29.5% 35.4% 13.4% 10.4%

ROAE 24.1% 18.9% 20.9% 2.0% -0.5%

Debt-to-Equity 20.0% 24.6% 17.2% 72.9% 46.0%

Interest Coverage Ratio 8.6 x 8.5 x 8.1 x 5.2 x 4.4 x


analyst

Wadie Khoury






(in spite of the still large investment books); however, a reversal on impaired property, plant, and equipment (PP&E) valued at KD 24 million helped boost net income to KD 14.9 million in 9M2009.

• Kuwait Cement operates better as a cement company than as an asset management firm. Looking at the operational return on assets (adj. ROAA) vs. the actual return on assets (ROAA), we notice a more stable set of returns. Between 2005 and 2008, operational ROAA fell from 17% to 13%; whereas actual ROAA (including investments) fell from 19% to 1%. In 9M2009, ROAA was -0.3%, while operational ROAA reached 10%.

• EBITDA margins also dropped from 29% in 9M2008 to 25% in 9M2009. This was a result of a 23% increase in sellilng, general, and administrative (SG&A) costs.

• EBIT margins also dropped in spite of a decline in depreciation charges. The reason for the drop in depreciation is unclear; however, one possibility could be a result of the halt in charging depreciation costs for some of the company’s larger assets due to the length of time these assets were held for.

• Interest coverage ratios dropped from 7x in 9M2008 to 4.4x in 9M2009 as a result of a 31% deline in EBIT and a 10% increase in finance charges due to increased debt. The company has been able to pay some of its debt back since its peak in 1Q2009.

Balance sheet

• Kuwait Cement has significant exposure to the stock market, whereby the investment book made up 81% of shareholders’ equity as of September 2009.

• Amendments to IAS 39 allowed Kuwait Cement to prevent showing any losses on the income statement associated with mark-to-market changes in AFS investments going forward. The amendments were made in the third quarter of 2008, whereby the fair value of the reclassified investments was KD 34.2 million.

• Shareholders’ equity fell by 56% between 2007 (KD 302.7 million) and 2008 (KD 133.3 million) as a result of a major drop in the fair value from investments, as well as a drop in retained earnings. By the end of September 2009, shareholders’ equity increased to KD 162.5 million as fair value reserves and retained earnings improved. The retained earnings value would have been far lower had the company not reversed the impairment on its PP&E (extraordinary item).

overview

Kuwait Cement Company is one of the three cement players in Kuwait. Kuwait Cement is the largest local cement player involved in the production and distribution of ordinary cement, sulphate resistant Portland cement, Portland cement for industrial purposes as well as other types of cement. The company has the capacity to produce up to 3.8 million tons of cement, and a clinker capacity of 4 million tons per year, with the majority of Kuwait Cement’s core operations driven by the housing market. The company strictly caters to the Kuwaiti market, which consumes approximately 5.5 to 6 million tons of cement a year.

latest news

• January 28, 2009: Kuwait Cement signed a deal worth USD 53.5 million with Descon Engineering, a Pakistan-based company, to expand its cement plant in Shuaiba. This will increase clinker capacity from 2.5 million tons to 5 million tons.


income statement

• Despite an increase in sales, gross margins dropped from 50% in 2007 to 32% in 2008. The decline was a result of a 30.7% YoY increase in the cost of raw materials (which constitute 84% of the cost of sales) in 2008.

• The 9M2009 results showed a similar trend. Sales dropped 28% in 9M2009 compared to 9M2008, taking gross profit margin down from 32.5% to 30.6% within the same time frame. This comes despite a 29% drop in cost of goods sold (COGS).

• The drop in COGS is mainly due to the 32% drop in raw material costs, as well as the 39.7% decline in maintenance and spare parts (the second largest contributor to COGS).

• Operationally, the company started to feel the pinch of the economic slowdown; however, historically, the bulk of Kuwait Cement’s profit was driven by non-operational investments. This explains the large volatility in the profit margin.

• Normally, the largest contributor to profits comes from non-operating income (i.e., investment income). Between 2004 and 2007, non-operating income contributed an average of 59.4% of net income throughout that period. In 2008, investment income actually accounted for a loss of KD 15.6 million (not including any adjustments to AFS). In 9M2009, investment income contributed a loss to income

Kuwait Cement Company






Total Revenue 82,432 86,399 64,904 46,764 Cost of Revenue (54,004) (63,572) (47,003) (33,173) Gross Profit 28,429 22,827 17,901 13,591 Selling/General/Admin Expenses (2,635) (2,991) (2,147) (2,650) Other Operating income 2,366 (610) 1,016 (808) Provisions & Impairment (13,204) - 33 16,799

Operating Income 14,955 19,226 16,802 26,931 Inv. Income (Exp), Net Non-Op 39,599 (15,564) 3,521 (10,920) Associate Results 2,153 833 480 (344) Net Income before Taxes 56,707 4,495 20,803 15,666 Contributions to KFAS (569) (43) (208) (153) NLST (1,146) - (244) (360) Zakat (27) - (90) (218) Directors Remuneration (161) (140) (105) - Net Income 54,803 4,312 20,156 14,936


AFS Investments 135,370 197,555 107,616 115,676 PP&E 25,864 8,430 12,807 45,887 Other Non Current Assets 10,864 11,944 16,189 15,687 Total Non Current Assets 172,098 217,929 136,612 177,251 HFT Investments 82,140 106,090 17,727 14,987 C&CE 8,358 17,143 41,516 26,555 Other Current Assets 23,729 23,963 43,529 32,034 Total Current Assets 114,227 147,195 102,771 73,577 Total Assets 286,325 365,125 239,384 250,828 Total Equity 222,463 302,711 133,339 162,516 Loans 13,519 11,200 38,798 21,072 Other Non Current Liabilites 1,290 1,291 1,498 1,515 Total Non Current Liabilities 14,809 12,491 40,296 22,587 Loans 41,180 40,750 58,356 53,641 Other Current Liabilities 7,874 9,174 7,392 12,084 Total Current Liabilities 49,054 49,923 65,748 65,725 Total Liabilities 63,863 62,414 106,044 88,312 Total Liabilities and Equity 286,325 365,125 239,384 250,828


• AFS contributes the largest portion of assets, taking up 46.1% of total assets as of September 2009. From 2008 to the end of September 2009, AFS increased by 7.5%, mainly due to an increase in the fair value of the assets. Kuwait Cement’s largest position held in AFS is an 8.92% stake in a cross holding with NIG. This investment alone constitutes 29.7% of the total assets. The value of this investment increased from KD 46.8 million in 2008 to KD 52.3 million in 9M 2009.

• PP&E increased significantly from KD 12.8 million in 2008 to KD 45.9 million in September 2009. This is a result of a reversal on impairment of KD 24.1 million. PP&E actually increased to KD 21.8 million in September 2009 (only a 70% increase from 2008) if the reversal on impairment is not taken into account.

• The company has increased its production capacity to 3.8 million tons of cement per year, with expectations of reaching 5 million tons. The clinker capacity expansion would require approximately an additional KD 15 million capex going forward. How will this be financed? The KD 26.6 million in cash will come in handy to help finance the project.

• Kuwait Cement has raised plenty of debt over the years. Total debt has grown from KD 40.7 million in 2005 to KD 97.2 million in 2008. Despite the increase in debt over the years, the company’s debt dropped to KD 74.7 million in September 2009. Kuwait Cement took the initiative to pay back KD 22.4 million of debt as of September 2009.

• In 2006 and 2007, Kuwait Cement used the bulk of the company’s cash flows from operations (CFFO) along with non-core sources of cash (dividends from investments) to purchase AFS investments and pay out dividends. In 2008, the company took on KD 45.2 million in debt to help pay out dividends and purchase additional AFS and PP&E. This changed in September 2009, whereby debt was being repaid, more AFS investments were being sold than purchased, and the largest portion of Kuwait Cement’s CFFO was being invested in PP&E (KD 7.2 million).

• Kuwait Cement’s CFFO (adjusted for investments at fair value) improved from KD 8.8 million in 9M2008 to KD 19.4 million in 9M2009. More importantly, free cash flows (using the adjusted cash flow from operations) jumped from KD 1.8 million in 9M2008 to KD 9.8 million in 9M2009.

Kuwait Cement Company


Companies in Focus



KuWait FinanCe house (KFh)

highlights

• Kuwait Finance House (KFH) was established in 1977 as the first fully Shari’ah-compliant bank in Kuwait, and is currently the largest Islamic bank in Kuwait and the second-largest Islamic bank in the world. As of September 2009, KFH’s assets accounted for 28% of Kuwait’s total banking assets.

• In November 2009, KFH-Turkey received a license to operate in the Dubai International Financial Center. Earlier, in September 2009, the bank also won a license to open the first Islamic banking branch in Germany.

• KFH has been expanding aggressively, purchasing stakes in companies domestically and abroad, over the past few years. As of December 2008, KFH had 12 consolidated subsidiaries and seven associates in the region.

• KFH announced a net profit of KD 106 million for 9M2009, 52% lower than the 9M2008 net profit, on the back of surging provisioning charges during the period. Balance sheet growth during the period was muted as total assets grew by just 5%, while total financing and deposits grew by 6% each.

• KFH is the market leader in terms of deposit accumulation, holding more than a quarter of the total banking sector customers’ deposits as of September 2009. Due to the inaccessibility of borrowing options typically available to conventional banks, KFH’s deposits base is the prime source of funding for KFH’s lending portfolio.

• KFH reported a strong total capital adequacy ratio (CAR) of 21.7% as of December 2008, higher than the 18.9% recorded in 2006, according to Basel I requirements.

• KFH saw a significant deterioration in asset quality during 2008 as non-performing receivables (NPRs)-to-gross receivables surged to 12.6% and NPR coverage declined to 47%.

Key Data

KSE Code KFIN.KSE 52-week avg. volume 5,282,998 Reuters Code KFIN.KW 52-week avg. value (KD) 6,171,408


Million KD 2,456.23 Latest (million) 2,274.29


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Key Ratios

2005 2006 2007 2008 9M2009

Growth in Receivables 41.7% 32.0% 43.6% 19.9% 5.3%Growth in Leased Assets 19.3% 7.4% 43.6% 27.0% 7.0%Growth in Depositors' Accounts 24.4% 16.9% 43.7% 23.3% 6.1%Growth in Net Financing Income ** 8.7% 76.9% 33.2% 65.9% 48.0%Growth in Operating Income 97.3% 42.1% 41.1% 12.2% 0.0%Growth in Net Profit 59.5% 36.5% 69.9% -43.0% -51.8%

NPRs-to-Gross Receivables 4.4% 4.1% 3.8% 12.6% N/ANPR Coverage 150.6% 136.8% 97.0% 46.6% N/ACapital Adequacy N/A 18.9% 23.3% 21.7% N/A

Growth in Costs 132.5% 59.9% 3.4% 30.6% 24.7%Cost-to-Income 34.8% 39.1% 28.7% 33.3% 43.1%Net Financing Income-to-Operating Income 25.8% 32.1% 30.3% 44.9% 46.1%

RoAA * 2.92% 2.95% 3.64% 1.62% 1.31%RoAE * 25.63% 24.87% 28.79% 12.81% 11.46%

* Annualized figures. ** Financing Income less distribution to depositors’ accounts less murabaha and ijara costs Sources: Company’s financial statements and NBK Capital

analyst

Munira Mukadam






overview

Kuwait Finance House (KFH) is the second-largest bank (28% market share of the total banking assets in Kuwait as of September 2009), and the largest Islamic bank in Kuwait. KFH is also the world’s second-largest Islamic bank. KFH was established in 1977 as Kuwait’s premier Shari’ah-compliant banking institution and has since grown to hold the lion’s share of the country’s Islamic banking business. The government of Kuwait is the largest shareholder, holding approximately 43% of the bank’s share capital via several public institutions, including the Kuwait Investment Authority (24.1%), the Public Authority for Minors’ Affairs (10.5%), and the Kuwait Awqaf Public Foundation (8.2%). KFH’s activities can be broadly divided into retail and corporate banking, treasury, and investments. The bank provides solely Shari’ah-compliant products and services through nearly 50 branches in Kuwait. KFH is also the leader in auto and real estate financing in Kuwait. An aggressive expansion strategy over the past few years has helped the bank expand its international network to Bahrain, Saudi Arabia, the United Arab Emirates (UAE), Turkey, and Malaysia, wherein KFH offers Islamic banking, investments, real estate, and leasing services via subsidiaries and associates.

Subsidiaries and Associates as of December 2008

Kuwait Finance House (Malaysia) Berhad Malaysia 100% Islamic banking services

KFH Private Equity Ltd. Cayman 100% Islamic investments

Al Muthana Investment Co. Kuwait 100%Islamic finance and investments

Al Nakheel United Real Estate Co. Kuwait 100%Real estate development and leasing

Development Enterprises Holding Co. Kuwait 100%Infrastructure and Industrial investments

Baitak Real Estate Investment Co. Saudi Arabia 100%Real estate development and investment

Kuwait Finance House Bahrain 93% Islamic banking services

Kuwait Turkish Participation Bank Turkey 62% Islamic banking services

Aref Investment Group Kuwait 52% Islamic investments

ALAFCO - Aviation Lease and Finance Co. Kuwait 52%Aircraft leasing and financing services

Al Enma'a Real Estate Company Kuwait 51%

Real estate, investment, trading and real estate mgmt.

Liquidity Management House Kuwait 100%Islamic finance and investments

Direct Investments

First Takaful Insurance Co. Kuwait 27% Islamic Takaful Insurance

Gulf Investment House Kuwait 20% Islamic investments

Liquidity Management Centre Co. Bahrain 25%Islamic banking and financial services

National Bank of Sharjah UAE 20% Islamic banking services

Indirect Investments

A'ayan Leasing and Investment Co. Kuwait 16%Leasing and Islamic investment

Munsha'at Real Estate Projects Co. Kuwait 30%Real estate projects management

Sokouk Real Estate Development Co. Kuwait 49% Real estate development

Associates Country Stake Principal Activities

Consolidated Subsidiaries Country Principal ActivitiesStake


latest news

• November 2009: KFH-Turkey received a “Category Five” license, designed for Islamic banking activities, from the Dubai Financial Services Authority (DFSA), to operate in the Dubai International Financial Center (DIFC) in the UAE. This makes KFH-Turkey the first Category 5 entity to operate in the DIFC.

• September 2009: KFH-Turkey also won a license to open the first Islamic banking branch in Germany.

asset Quality

KFH saw a significant deterioration in asset quality during 2008. Non-performing receivables (NPRs), which grew by a CAGR of 17% between 2004 and 2007, shot up by more than 300% to KD 642 million in 2008. This took the NPRs-to-gross receivables ratio to 12.6% in 2008, compared with the low-single digit figures seen in prior years. The increase in impaired loans (ILs) in 2008, according to Fitch Ratings, was due to a reclassification of performing loans as non-performing in 4Q2008, based on sector-wide concerns primarily relating to KFH’s exposure to domestic investment companies. Furthermore, despite rapidly growing provisions during the year (from KD 151 million in 2007 to KD 299 million in 2008), the NPR coverage ratios fell to 47%, much lower than the levels seen during the boom years until 2007, and one of the lowest in the Kuwaiti banking sector. We would like to note that our ratios do not include leased assets, another form of financing, as information on impaired leased assets is unavailable. According to a credit analysis report by Fitch Ratings in November 2009, KFH’s impaired loans as of December 2008 stood at KD 665 million, compared with KD 175 million in the previous year. Thus, ILs-to-gross financing (including receivables and leased assets) stood at 10.6% in 2008, compared to 3.7% at the end of 2007, indicating the weakening in asset quality mentioned previously.

Kuwait Finance House (KFH)




NPRs-to-Gross Receivables and NPR Coverage Ratio

6.1%

4.4%4.1%

3.8%

12.6%

125%

151%

137%

97%

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NPRs-to-Gross Receivables NPR Coverage


NPR Analysis – Pre-invasion versus Post-liberation

KD '000 2004 2005 2006 2007 2008

NPRs 31,790 31,737 31,693 6,368 6,309Specific Provisions 31,790 31,737 31,693 6,368 6,309% of total NPRs 32% 32% 26% 4% 1%

KD '000 2004 2005 2006 2007 2008

NPRs 66,526 67,189 88,531 149,663 635,859Specific Provisions 55,486 59,050 67,954 71,866 158,428% of total NPRs 68% 68% 74% 96% 99%

Post-LiberationNPR Growth 1% 32% 69% 325%Provisions Growth 6% 15% 6% 120%NPR Coverage 83% 88% 77% 48% 25%

KD '000

NPRs 98,316 98,926 120,224 156,031 642,168Specific Provisions 87,276 90,787 99,647 78,234 164,737

Pre-invasion

Post-liberation

Total



income statement

• KFH announced a net profit of KD 106 million for 9M2009, 52% lower than the 9M2008 net profit, on the back of surging provisioning charges during the period. Despite slightly weaker core earnings, net financing income posted robust growth of 48% year on year (YoY), supported by large declines in financing costs.

• However, operating income remained flat at KD 405 million during the period, owing to weaker fee and commission income (down 13%), foreign exchange losses, and investment income (down 28%) in 9M2009.

• Operating costs grew by 25%, taking the cost-to-income ratio up to 43% for 9M2009, compared to 33% during FY2008, higher than the ratios of most of the bank’s

peers in the region. Islamic banks typically operate on a higher cost base than their conventional peers. KFH’s lower operating efficiency further pertains to the building of a wider international network, the implementation of Basel II reporting systems, and continuous improvements in information technology (IT).

• The 9M2009 bottom line was heavily impacted by impairments of KD 137 million taken during the period, toward exposures in the high-risk real estate sector as well as troubled investment companies. Income before provisions, however, increased by 2% over 9M2008.

• KFH’s 2008 net profit fell by 43% to KD 157 million, on the back of soaring provisions of KD 211 million in 2008 versus KD 38 million in 2007. Income before provisions, however, increased by 17% during 2008. Core earnings, in the form of financing income, grew by 20%, while distribution to depositors declined by 11%. Fee and commission income improved (up 25%), but investment income, which is the second-largest contributor to the bottom line (see the figure below), declined by 21%, due to depressed valuations and higher impairment charges than in 2007. Operating costs were up 31%, in line with KFH’s expansion strategy, taking the cost-to-income ratio up to 33%, compared to 29% in FY2007.

• In 2008, KFH took impairment provisions of KD 211 million, primarily due to a weakening in the local murabaha and wakala portfolio (specifically real estate exposures), and deterioration in the investment portfolio. Impairments for local murabahas and wakalas increased from KD 9.8 million to KD 125 million, while investment impairments increased from KD 7 million to KD 48.4 million between 2007 and 2008.

Operating Income Breakdown

47%

26%32% 30%

45%

37%

54%49% 51%

36%

11%13% 12% 11% 12%

6% 8% 7% 8% 7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006 2007 2008

Net Financing Income * Investment Income Fee and commission Income Other Income

* Net financing Income = Financing Income less distribution to depositors’ accounts less murabaha and ijara costs Sources: Company’s financial statements and NBK Capital





Balance sheet

• KFH’s balance sheet grew by a robust compound annual growth rate (CAGR) of 37% between 2004 and 2007. In 2008, however, as the global financial crisis reached the Gulf Cooperation Council (GCC), this rapid growth slowed down to 20%. In the following nine months, the bank’s assets grew by only another 3%.

• As with most other Kuwaiti banks, KFH’s lending book grew substantially between 2004 and 2007, with receivables and leased assets growing at a CAGR of 39% and 23%, respectively. Receivables' growth slowed down slightly in 2008 but was still strong at 20%, while leased assets continued their momentum, expanding by 27%. Growth in 2009 was conservative as receivables and leased assets reached KD 5.04 billion (up 5% during 9M2009) and KD 1.26 billion (up 7% during 9M2009) as of September 2009.

• KFH’s total customer deposits stood at KD 7.02 billion as of September 2009, accounting for more than a quarter of the total deposits in the Kuwaiti banking sector. The deposit base is the primary source of funds for KFH’s lending portfolio as Islamic banks are restricted from accessing longer-term wholesale funding, due to issues surrounding Shari’ah law. KFH is, however, able to borrow via short-term murabaha facilities (equivalent to interbank borrowing, which increased by 34% in 2008 but declined by 5% in 9M2009), issuing Sukuks, or Shari’ah-compliant structured financing.

• KFH’s investment portfolio stood at KD 1.04 billion at the end of December 2008 with direct and indirect equity investments accounting for nearly 70% of the total portfolio. By the end of September 2009, this portfolio stood at KD 1.08 billion, up 4% during 9M2009. KFH also held investments in properties worth KD 290 million as of September 2009, up 4% in 9M2009.

• KFH reported a strong total CAR of 21.7% as of December 2008, higher than the 18.9% recorded in 2006. The Central Bank of Kuwait (CBK) requires all conventional banks to calculate and report CARs per Basel II regulations as of January 1, 2005. However, this is not yet binding for Islamic banks. Therefore, KFH and the other Islamic banks in Kuwait currently report CAR based on Basel I norms. However, KFH is in the process of implementing systems to enable the bank to report based on Basel II requirements, if and when the CBK directives require the Islamic banks to do so.

Receivables Breakdown

59%

46%

34%26% 28%

19%

31%45%

54%43%

21%17% 17% 15%

17%

1%6% 5% 6%

13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006 2007 2008

Trading and Manufacturing Banks and financial institutions

Construction and real estate Other




Financing Income 466,893 561,271 416,776 401,975Distribution to Depositors (242,528) (216,800) (233,970) (170,283)Murabaha and Ijara costs (65,712) (81,194) (56,530) (44,780)Net Financing Income 158,653 263,277 126,276 186,912

Fee and commission Income 56,125 70,140 53,753 47,026Foreign Exchange Income 14,696 13,547 11,138 (3,837)Investment Income 266,397 209,897 191,709 138,982Other Income 27,037 29,998 22,432 36,321Operating Income 522,908 586,859 405,308 405,404

Impairments (38,179) (210,940) (17,287) (137,250)Staff Costs (73,783) (96,254) (66,721) (84,450)Gen and Admin expenses (48,134) (70,873) (51,575) (62,264)Depreciation (27,939) (28,547) (21,772) (27,917)Operating Profit 334,873 180,245 247,953 93,523

Other expenses (9,478) (5,593) (8,860) (4,746)Minority Interest (50,129) (17,692) (18,507) 17,610Net Income 275,266 156,960 220,586 106,387


AssetsCash and bank balances 231,996 553,565 368,062 548,960Short-term international 1,050,599 1,067,291 1,312,153 1,094,667Receivables 2,778,166 3,988,131 4,779,788 5,035,208Trading properties 90,463 126,413 57,590 51,461Leased Assets 647,939 930,657 1,181,825 1,264,597Investments 583,351 896,098 1,038,602 1,076,259Investments in associates 210,538 341,279 449,496 410,748Investment properties 191,407 247,300 279,574 290,282Other assets 128,327 239,694 485,713 509,110Fixed assets 401,005 407,488 591,339 809,997Total Assets 6,313,791 8,797,916 10,544,142 11,091,289

Liabilities and Sh. EquityDue to banks and fin. inst. 1,080,004 1,186,391 1,595,452 1,517,277Depositor's Accounts 3,729,930 5,361,155 6,611,556 7,015,196Other liabilities 289,325 380,853 394,033 529,595Total Liabilities 5,099,259 6,928,399 8,601,041 9,062,068

Minority Interest 137,443 196,094 354,545 351,730Deferred Revenue 299,263 374,608 344,426 463,835Fair Value Reserve 66,654 86,843 11,394 (21,181)Foreign Currency Trans. Res. 8,683 1,972 (7,548) (1,073)

Total Shareholders' Equity 702,489 1,210,000 1,240,284 1,235,910

Total Liabilities & Sh. Equity 6,313,791 8,797,916 10,544,142 11,091,289




Companies in Focus



Key Data

KSE Code MARKAZ.KSE 52-week avg. volume 1,545,514 Reuters Code MARKZ.KW 52-week avg. value (KD) 177,545




General Liquidity




stock performance

0

2

4

6

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10

12

14

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0.040

0.060

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0.120

0.140

0.160


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KuWait FinanCial CenteR (MaRKaz)

highlights

• Kuwait Financial Center (Markaz) was established in 1974 and has become one of the leading asset management and investment banking institutions in the Middle East and North Africa (MENA) region.

• Since the invasion in 1990, Markaz has gone through a major restructuring process, divested non-core assets, increased its paid-up capital, and listed on the Kuwait Stock Exchange (KSE).

• Markaz was the first to offer a derivatives trading platform in 2005, and is currently the only options market maker for KSE-listed stocks.

• Markaz recorded a net profit of KD 1.9 million during 3Q2009, increasing the 9M2009 net profit to KD 4.2 million, compared to net losses of KD 973 thousand logged during 9M2008, supported primarily by an improvement in investment income. Almost all the other income components dropped compared to 9M2008; however, operating expenses declined by 31% YoY.

• Markaz’s operating income breakdown has not been consistent over the years. Since 2004, management fees and investment income have continually changed roles as the largest contributor to operating income.

• Furthermore, Markaz’s cost-to-income ratio has been equally volatile, primarily due to the nature of the operating income. As of September 2009, Markaz’s cost-to-income ratio stood at 52%.

• Markaz’s assets under management (AUMs) grew by a CAGR of 24% between 2003 and 2007 to reach KD 1.2 billion, with most of the growth achieved in the first two years of the period in question. In 2008, the AUMs declined by 34% to KD 820 million, as liquidity tightened and investors became more cautious. Between December 2008 and September 2009, the AUMs increased slightly to KD 886 million.

Key Ratios

2005 2006 2007 2008 9M2009

Management fees and comm-to-Op.Income 30.7% 89.5% 42.4% -102.6% 66.9%RoAA * 30.5% 3.6% 16.4% -11.7% 4.4%RoAE * 36.8% 4.6% 22.8% -18.1% 6.9%

Total Debt-to-Total Equity 13.7% 31.2% 38.7% 66.8% 38.5%Net Debt-to-Total Equity 10.9% 28.3% 36.8% 51.9% 31.7%Interest Coverage Ratio 75.91 4.02 13.18 -5.81 5.81Operating Cash Flow Ratio 0.71 2.77 -1.74 2.61 2.62

Liquid Assets-to-Total Assets 41.8% 38.5% 39.7% 39.7% 41.0%Debt-to-Assets 11.6% 23.1% 26.8% 36.6% 26.8%Equity-to-Assets 85.0% 74.1% 69.9% 58.0% 69.7%


analyst

Munira Mukadam






• In the US, Mar-Gulf Management Incorporated (Mar-Gulf) has acted as Markaz’s asset management arm since 1988. The fully owned subsidiary is involved in the ownership and development of industrial, retail, and commercial properties in the Los Angeles area in California. Other major subsidiaries include an asset management firm in Syria, real estate development and investment companies in Jordan and Saudi Arabia, and some consultancies in Kuwait.

Major Subsidiaries

Proportion

of Ownership

Mar-Gulf Management Inc. USA 100% Asset Management

KFC Lone Star, Inc USA 100% Asset Management

KFC Lone Star 1, Inc USA 100% Asset Management

Kuwait Financial Center - Syria Syria 100% Asset Management

Markaz Real Estate Development Company Jordan 100% Real Estate

Markaz Real Estate Investment Company Saudi Arabia 100% Real Estate

First Management and Economic Consultancy Co. Kuwait 100% Economic Consultancy

Marsoft for Computer Programming, Operations and Consultancy Services Co. Kuwait 67% Computer Consultancy

Subsidiary Country Principal Activity

Source: Company’s financial statements and NBK Capital


income statement

• Markaz recorded a net profit of KD 1.9 million during 3Q2009, increasing the 9M2009 net profit to KD 4.2 million, compared to net losses of KD 973 thousand logged during 9M2008, supported primarily by an improvement in investment income. Almost all the other income components dropped compared to 9M2008; however, operating expenses declined by 31% YoY.

• Markaz recorded a net loss of KD 3.4 million in 1Q2009, much smaller than the net losses of KD 10 million and KD 17.8 million recorded in 3Q2008 and 4Q2008, respectively. In 2Q2009 and 3Q2009, however, there was an improvement as Markaz recorded net profits, supported by higher management fees and commissions, improved income on the trading portfolio, and lower operating costs.

• Management fees and commissions were up 22% QoQ during 3Q2009, but dropped by 29% YoY during 9M2009. The trading portfolio posted positive results of KD 3 million during 9M2009, supported by a KD 5.4 million net gain in 2Q2009 (the highest in the past seven quarters). The income from the available-for-sale (AFS) portfolio, however, continued to weaken, posting losses of KD 2.4 million during 9M2009. Total operating income reached KD 9 million, up 54% compared to 9M2008.

overview

Kuwait Financial Center (Markaz) was established in 1974 and has become one of the leading asset management and investment banking institutions in the MENA region. The primary services of the company include investment management, corporate financing, investment and financial advisory services, private equity, mutual funds and real estate fund management, money market, and foreign exchange. Following the invasion in 1990, Markaz went through a major restructuring process as the company began divesting a substantial portion of non-core assets, affiliates, and subsidiaries abroad. Markaz then increased its paid-up capital and listed on the Kuwait Stock Exchange (KSE) by April 1997. Markaz has since expanded its operations via subsidiaries in the United States (US), Syria, Jordan, and Saudi Arabia and representative offices in Algeria and Lebanon. Markaz has brought several innovative products to the markets, including Kuwait’s first domestic mutual fund, the first Real Estate Investment Trust (REIT), and the first derivative products trading platform. In fact, Markaz is the only options market maker for stocks listed on the KSE since 2005. As of September 30, 2009, Markaz’s assets under management (AUMs) were close to KD 900 million (USD 3.1 billion).

latest news

• October 2009: Markaz revealed its plans to raise its real estate exposure in Syria, Saudi Arabia, and Egypt. The company’s real estate assets in the Middle East and the US stood close to USD 800 million.

• July 2009: Markaz announced that it had received approval from the Central Bank of Kuwait (CBK) to buy back up to 10% of the company's shares within a six-month period, effective July 23, 2009.

strategy

• Markaz embarked on a rapid expansion strategy across the globe soon after the company’s incorporation in 1974. In 1976, Markaz established its first merchant bank in Korea in partnership with Hyundai Engineering and Construction Company. In 1978, Markaz began its real estate activity in Los Angeles, California. A year later, the company acquired a majority stake in the Bank of Lebanon and Kuwait. Although the 1990 invasion resulted in a halt of major operating activities, Markaz maintained its ground, focusing on the management of existing investments. As the restructuring process was completed in 1999, Markaz once again began looking for investment opportunities in the region.

Kuwait Financial Center (Markaz)




• Markaz’s costs improved during 9M2009, as general and administrative expenses fell by 24% and finance costs dropped by 51%, compared to 9M2008.

• During 2008, Markaz reported a net loss of KD 18.8 million. Management fees were down 31% compared to 2007, at KD 10.9 million, due to a steep decline in AUMs. However, losses in both the trading and AFS portfolios weighed heavily on the operating income. The total operating loss at the end of 2008 stood at KD 10.6 million.

• Operating costs decreased by 17% last year, while finance costs increased by 19%.

• Markaz’s operating income breakdown has not been consistent over the years. Since 2004, management fees and investment income have continually changed roles as the largest contributor to operating income.

• Furthermore, Markaz’s cost-to-income ratio has been equally volatile, primarily due to the nature of the operating income. As of September 2009, Markaz’s cost-to-income ratio stood at 52%.

Operating Income Breakdown

7.214.1 11.4

15.710.9

6.0

7.5

25.6

-8.9

12.2

-23.8

3.0

(30)

(20)

(10)

0

10

20

30

40

50

2004 2005 2006 2007 2008 9M2009

KD

Mill

ion

Management Fees and Commissions FVIS Portfolio AFS Portfolio Others


Balance sheet

• As of September 30, 2009, total assets had dropped by 8% to KD 122 million, compared to the end of 2008. On the asset side, the trading investments portfolio grew by 14% to KD 42 million. The AFS investment portfolio and the loans to customers, however, fell by 3% and 14%, respectively. Short-term financing has been declining continuously since December 2008, down 51% at the end of September 2009.

• In terms of financing, Markaz’s short-term borrowings rose to KD 4 million in September 2009, after falling to KD 861 thousand in June 2009, from KD 20.8 million at the end of December 2008. Shareholders’ equity increased to KD 85 million during 3Q2009.

• During 2008, total assets fell by 30% to KD 132 million, due to a steep decline in the investment portfolio.

• As the stock markets plunged in 2008, Markaz’s trading portfolio bore the brunt of the crisis as the investments’ value halved during the year to KD 37 million.

• The AFS portfolio also declined by 34% during the year, to KD 51 million. Shareholders' equity fell by 42% compared to the end of 2007, not only due to negative earnings but also because of a massive drop in the fair value reserve, which fell from KD 23 million in 2007 to KD 1.7 million in 2008.

• Markaz’s AUMs grew by a CAGR of 24% between 2003 and 2007 to reach KD 1.2 billion, with most of the growth achieved in the first two years of the period in question. In 2008, however, the AUMs declined by 34% to KD 820 million, as liquidity tightened and investors became more cautious. Between December 2008 and September 2009, the AUMs increased slightly to around KD 900 million.

Assets Under Management

0.71

1.231.18

1.24

0.820.89

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2004 2005 2006 2007 2008 Sep-09

KW

D B

illio

n








Interest and Dividend Income 2,408 3,206 2,605 1,469Management fees and commissions 15,700 10,854 8,451 6,032Net gain/(loss) from FVIS Invest. 12,168 (23,834) (8,366) 2,974Net gain/(loss) from AFS Invest. 7,709 (858) 3,515 (2,371)Net income on sale of Invest. Prop. - 428 609 - Provision for credit losses (145) (131) 9 143Foreign Exchange gain/ (loss) (824) (302) (984) 749Other Income - 61 15 16Total Operating Income 37,016 (10,576) 5,854 9,012

General and admin expenses (6,567) (5,436) (4,968) (3,784)Finance Costs (2,310) (2,758) (1,847) (900)Total Operating Expenses (8,877) (8,194) (6,815) (4,684)

Other expenses (1,110) - - (193)Minority Interest (12) (14) (12) 20Net Income 27,017 (18,784) (973) 4,155


AssetsCash and Cash Equivalents 3,006 2,430 11,416 5,768Trading Investments 51,842 66,978 37,153 42,241AFS Investments 66,704 76,829 50,954 49,581Acc. Receivables and Oth. Assets 4,187 12,211 9,206 4,650Short-term financing - 5,207 3,972 1,955Loans to customers 16,439 20,388 17,472 15,078Invest. Prop and Prop. Under Development 36 3,101 1,321 1,931Fixed Assets 269 574 738 608Total Assets 142,483 187,718 132,232 121,812

Liabilities and Shareholders' EquityDue to banks and fin. Inst. 12 432 2,774 19Acc. Payables and Oth. Liabilities 3,345 5,336 3,900 3,758Dividends Payable 562 424 416 379Short term borrowings 32,894 22,990 20,820 4,009Bonds - 27,300 27,595 28,660Total Liabilities 36,813 56,482 55,505 36,825

Minority Interest 54 66 80 60


Total Liabilities and Sh. Equity 142,483 187,718 132,232 121,812




Companies in Focus



Key Data

KSE Code FOOD.KSE 52-week avg. volume 132,358 Reuters Code FOOD.KW 52-week avg. value (KD) 194,013




Liquidity

Price Performance

Shares Outstanding

General

Price (KD)

Market Capitalization

Ownership Structure


stock performance

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KuWait FooD gRoup (aMeRiCana)

highlights

• Operationally, Americana has solid revenue numbers as well as healthy margins historically. This is evident as Americana posted an 8% increase in revenue for 9M2009 year on year.

• Americana reports revenues in three different segments: restaurants, industries, and commercial and retail, with the former contributing the majority to annual sales.

• Additionally, gross profit and EBITDA have grown considerably, by 14% and 18%, respectively. This only confirms Americana’s operational stability.

• Top line numbers aside, the company has a sizable investment portfolio with investments accounting for 31% of total assets and 63% of total equity as of the end of September 2009.

• Americana’s dependence on investment income has led the company to have a very volatile net profit figure. Currently, a sharp drop in investment income has led Americana to a 56% drop in net income during 9M2009 compared to 9M2008.

• Americana has consistently paid dividends over the last five years.

Key Ratios

FY2005 FY2006 FY2007 FY2008 9M2009

EBITDA (KD millions) 28.77 52.68 61.21 103.82 65.41EBITDA Margin 12% 16% 67% 111% 51%Gross Profit Margin 18% 22% 19% 22% 17%Net Profit Margin 22% 10% 13% 6% 4%Operating Margin 18% 22% 19% 22% 17%

ROE (%) 26% 14% 17% 14% 5%ROA 17% 8% 9% 6% 3%Net Debt to Equity 0.02 0.20 0.27 0.58 0.43Current Ratio 1.96 1.24 1.25 0.95 0.91Quick Ratio 0.62 0.42 0.40 0.31 0.33

Day Sales Outstanding (DSO) 24 31 30 27 N/AInterest Coverage 9.80 11.08 8.08 9.96 5.94Investment/Equity 0.74 0.75 0.75 0.51 0.62


analyst

Badder Al Ghanim






overview

Kuwait Food Group (Americana) is a franchising and restaurant management company established in 1964. Americana’s most notable assets across the MENA region include franchise rights to KFC, Hardees, Pizza Hut, and TGI Fridays.

Since 1988, when Americana had 166 stores distributed across seven chains, the company’s store portfolio has grown exponentially. As of FY2008, Americana boasted 1,064 outlets, under 18 different chains, across 17 countries. In 2008 alone, Americana opened 179 new outlets, which translates into a new outlet opening every two days.

Additionally, Americana’s portfolio includes a range of consumer food products that are manufactured in 18 company-owned plants, such as Americana Meat. The company opened the first factory for meat products in the Middle East in 1973 in Kuwait. Since then, the number of commercial and industrial affiliated companies reached 22 by the end of FY2008.


income statement

• When we consider Americana on an operational basis, we see a stable company with healthy operational numbers and solid operational margins. The company’s operational strength is evident historically as Americana has posted strong revenue growth, with revenue growing at a CAGR of 32% over 2005-2008. This trend of strong top-line performance did not subside in 9M2009 as Americana posted an 8% increase in revenue to KD 457 million versus KD 423 million in 9M2008.

• Americana breaks down revenue into three segments: restaurants, industries, and commercial and retail. The restaurants’ segment, which consists of Americana’s endeavors into fast food and quality service restaurants, generated 50% of the company’s total revenue in 9M2009. Americana’s manufacturing activities, such as Americana Meat and Americana Cake, are represented through the industries sector, which contributed to 46% of total revenue in 9M2009. Finally, commercial and retail contributed to 4% of total revenue in 9M2009.

• With respect to gross profit, Americana has been able to consistently grow this figure in line with revenue. On a four-year basis (2005-2008), gross profit has actually outpaced revenue with a CAGR of 41%. As for 9M2009, gross profit grew to KD 79 million, an increase of 14% year on year.

• Over the years, Americana has had a fairly consistent gross profit margin trend with the margin fluctuating between a high of 22% and a low of 18% during 2005-2008. As

for 9M2009, the gross profit margin remained flat from 9M2008 to 9M2009 at 17%. Although the company has yet to witness any expansion in gross profit margin for the year, Americana seems to show a trend of stronger gross profit margins during the second half of the year, as was the case in 2H2007 and 2H2008.

• Historically, Americana has posted impressive EBITDA growth. Over 2005-2008, EBITDA has grown at a CAGR of 53%. Although this growth is impressive, it must be noted that EBITDA growth hasn’t been stable, with fluctuations from 83% growth in 2006 to 16% in 2007. Americana has kept up EBITDA growth in 9M2009 as it grew by 18% to KD 65 million compared to KD 56 million in 9M2008. Additionally, the EBITDA margin saw a small increase to 14% in 9M2009, up from 13% in 9M2008.

• Operationally, Americana appears to be a sound company, but the exposure the company has to non-core investments has a substantial impact on the company’s net profit. Americana’s income from AFS and investments at fair value dropped by 134% in 9M2009 over 9M2008. This resulted in a 56% decline in net profit year on year from KD 38 million in 9M2008 to KD 17 million in 9M2009. Due to the company’s dependence on investments, Americana’s bottom line has been rather volatile. According to FY2008 financials, Americana moved KD 53 million worth of investments at fair value to AFS and currently shows no investments at fair value on the balance sheet.

Balance sheet

• Americana has a sizable investment book with an array of cross investments with other Al-Kharafi-owned counterparts. As of September 2009, Americana’s investment book represents 31% of total assets. As of 9M2009, Americana’s investment to equity ratio is at 63%, though this ratio has declined over the years from 75% in FY2006. Americana’s most notable investments are in National Investments Company, Gulf Cable and Gulf Franchising. The table on the following page illustrates the change in value of Americana’s three main investments at three different time periods.

Kuwait Food Group (Americana)




Americana Investments

As of Company % ownership MCAP (millions) Value (millions)National Investments Company 6.61% 613 40.5Gulf Cable 9.09% 281 25.6Gulf Franchising Company 7.33% 12 0.9

National Investments Company 6.61% 324 21.4Gulf Cable 9.09% 269 24.4Gulf Franchising Company 7.33% 9 0.6

National Investments Company 6.61% 359 23.7Gulf Cable 9.09% 390 35.5Gulf Franchising Company 7.33% 5 0.4

Dec. 30 2008

Nov. 1 2009

June 1 2009


• Examining Americana’s day sales outstanding (DOS), we notice that the number declined from 30 days in FY2007 to 27 days in FY2008, which indicates more efficient collection of outstanding receivables.

• Americana has a net debt-to-equity ratio of 0.4x as of September 2009, with total debt amounting to KD 150 million. Short-term debt accounts for 62% of the total debt. Americana has a solid interest coverage ratio of 6x based on 9M2009 financials, which indicates that the company is well positioned to service its debt.

• Finally on the dividend front, the company has paid dividends in each of the last five years, but with a very inconsistent payout ratio ranging between 15% and 83%.



Sales 434,873 557,449 423,182 457,188 Cost of sales (354,208) (435,934) (353,327) (377,898) Gross Profit 80,665 121,515 69,855 79,290

Other income 312 453 363 245 Selling and marketing expenses (34,130) (40,277) (29,720) (36,822) General and administrative (2,972) (3,405) (3,995) (3,245) Amortization (1,112) (1,541) (1,095) - Gain/ Losses from investments 23,681 12,060 12,060 (5,395) Gains from AFS 4,572 4,055 4,055 - Loss from drop of value in AFS - (36,872) - - Share of associates results 569 745 564 1,639 Net foreign exchange gain/losses 470 (978) 1,029 (241) Borrowing Cost (7,572) (10,425) (8,375) (11,018) Profit Before Taxes 64,483 45,330 45,836 24,453

Income tax of subsidiaries (3,208) (2,965) (1,851) (2,030) Contribution to KFAS (490) (259) (259) (171) National Labour Support Tax (1,320) (791) (848) (352) Zakat (31) (305) (237) (151) Board of Directors' remuneration (72) (72) - - Net Profit for the Year 59,362 40,938 42,641 21,749


Net Profit Attributable to Parent Co. 54,964 35,223 37,968 16,731


Inventories 41,801 67,603 91,280 78,807 Trade receivables and others 27,390 35,324 40,729 46,268 Other debit balances 19,274 26,224 33,878 36,257 investments at fair value 47,021 52,768 - - Cash and cash equivalent 27,812 34,572 21,662 19,486 Total Current Assets 163,298 216,491 187,549 180,818

Property, plant and equipment 111,611 167,720 223,792 233,011 Biological assets - 2,151 2,444 2,978 Intangible assets 8,999 10,684 13,557 13,576 Investments in associates 1,728 1,849 2,662 3,383 Available for sale investments 128,227 185,221 124,602 189,586 Investments in subsidiaries 2,435 - - - Total Assets 416,298 584,116 554,606 623,352

Loans and bank facilities 52,849 77,414 109,438 92,507 Payables and other credit balances 79,043 96,279 88,813 107,009 Total Current Liabilities 131,892 173,693 198,251 199,516

Loans 22,341 42,297 55,805 57,431 Provision for indemnity 12,361 14,157 17,029 18,425 Total Liabilities 166,594 230,147 271,085 275,372

Total Equity 249,704 353,969 283,521 347,980



Kuwait Food Group (Americana)


Companies in Focus



KuWait anD gulF linK tRanspoRt CoMpany (Kgl)

highlights

• Kuwait and Gulf Link Transport Company offers a full range of transportation and logistics services, namely overland cargo transport, passenger transport through buses, and car rental services.

• Of the company’s associates, the largest two are KGL Logistics and KGL Ports International. KGL owns 45.9% of KGL Logistics and 41.7% of KGL Ports International. KGL Logistics, which is publicly listed, focuses on warehousing, freight forwarding, and stevedoring, while KGL Ports International develops and manages container terminals.

• KGL’s operational profitability has improved, as the company recorded a 31% increase in EBITDA for 9M2009 despite a 3% year-over-year (YoY) decrease in revenue.

Key Ratios

2005 2006 2007 2008 9M2009

Sales (KD million) 40.8 52.8 57.8 58.0 40.8EBITDA (KD million) 17.1 13.0 18.9 20.3 18.6Net Income to Shareholders (KD million) 16.8 24.2 10.6 -8.3 -1.4

Gross Profit Margin (%) 39.6% 20.1% 29.6% 26.5% 30.0%

Net Profit Margin (%) 41.2% 45.8% 18.3% -14.4% -3.4%

EBITDA Margin (%) 42.0% 24.7% 32.7% 35.0% 45.6%

ROA 10.5% 13.8% 4.4% -3.3% N/A

ROE 25.0% 36.2% 12.9% -10.6% N/A

Current Ratio (X) 0.41 0.76 0.61 0.87 0.97

Quick Ratio (X) 0.39 0.74 0.59 0.84 0.95

Debt to Assets (X) 0.45 0.50 0.52 0.55 0.54

Net Debt to Equity (X) 0.99 1.25 1.45 1.67 1.68

Interest Coverage Ratio (X) 12.11 0.53 1.01 0.33 0.81

Investment to Equity (X) 0.09 0.07 0.12 0.08 0.04


analyst

May Zuaiter


Key Data

KSE Code KGL.KSE 52-week avg. volume 4,606,585 Reuters Code KGL.KW 52-week avg. value (KD) 685,776




General Liquidity



Price as of close on January 18, 2010, Sources: Zawya and NBK Capital

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overview

Established in 1982, Kuwait and Gulf Link Transport Company is one of the leading providers of transport-related services in the Gulf region. Headquartered in Kuwait, KGL provides integrated supply chain management services throughout the Gulf and MENA (Middle East and North Africa) region.

KGL’s core business lies in logistics, transportation, port management, shipping, and freight forwarding. Through the company’s transportation unit, KGL provides overland cargo transportation services for manufactured goods, consumables, petroleum, raw materials, and heavy equipment. KGL’s passenger transport service includes bus transportation through local and international lines, in addition to private taxi and limousine operations. The company’s car rental unit focuses on renting and leasing vehicles to commercial, corporate, and government clients within Kuwait.

Kgl logistics

KGL Logistics, a 45.9%-owned associate of KGL, provides supply chain services specializing in warehousing, freight forwarding, and stevedoring. The warehousing unit offers second-, third-, and fourth-party logistics services. Freight forwarding includes air, sea, and land transport in addition to customs clearance and cargo insurance. The stevedoring function entails the establishment of partnerships with port authorities and shipping lines within Kuwait and the Gulf Cooperation Council (GCC).

Kgl ports international

A 41.7%-owned associate of KGL, KGL Ports International covers the development, operations, and management of container terminals and roll-on-roll-off operations. This company is headquartered in Kuwait and has additional operations within Egypt and the United Arab Emirates (UAE). Locally, KGL PI manages and operates the terminal at Shuaiba Port.

latest news

• January 2010: KGL reported that the company’s wholly owned subsidiary, KGL Car Rental Company, won a KD 9.7 million contract to rent cars to Kuwait Petroleum Company. KGL Car Rental’s contract is for 30 months, effective January 7, 2010.

• May 2008: KGL along with the Al Khorafi Group invested in Egypt’s transport sector. The company is expected to operate the port of Dimyat for 40 years in a contract worth USD 650 million.

Kuwait and Gulf Link Transport Company (KGL)

• April 2008: KGL shipping, a subsidiary of KGL, officially launched the “Ameer al Koloub” vessel in Mina Shuwaikh. This makes KGL Shipping the owner of one of the fastest passenger transport catamarans in the GCC.


income statement:

9M2009 Performance

• In 9M2009, KGL reported revenue of KD 40.8 million, representing a slight decline of 3% from 9M2008. The three reporting segments for KGL are land transport, passenger and petrol transport, and car rental. Land transport remained the highest contributor to revenue with a 70% share. The second-highest contributor was car rental at 14%, passenger and petrol transport at 13%, followed by other unallocated revenue at 4%.

• KGL continued to post growth in its operational performance, as EBITDA increased by 31% from KD 14.2 million in 9M2008 to KD 18.6 million in 9M2009. Moreover, the EBITDA margin expanded from 34% in 9M2008 to 46% in 9M2009.

• KGL registered a net loss attributable to shareholders of KD 1.4 million in 9M2009 compared to the net profit of KD 1.2 million achieved in 9M2008. Though the performance in 9M2009 may appear weak at first glance, the company’s performance has actually improved as net income in 9M2008 was buoyed by an unrealized gain on investments at a fair value of KD 7 million.

income statement:

2008 Performance

• KGL reported revenue of KD 58 million in FY2008. We note that revenue has grown at a CAGR of 12.5% since 2005. In 2008, land transport was the highest contributor to total revenue with a 58% share.

• In 2008, KGL demonstrated improved profitability at the operating level, as EBITDA increased by 8% from KD 18.9 million in 2007 to KD 20.3 million in 2008. In contrast, revenue growth was flattish on a YoY basis in 2008. KGL’s EBITDA margin has witnessed some volatility over the past years, as the margin dropped from 42% in 2005 to 25% in 2006 before increasing to 33% and 35% in 2007 and 2008, respectively.



Kuwait in Focus - January 2010Kuwait and Gulf Link Transport Company (KGL)

• Net profit, however, declined from KD 10.6 million in 2007 to a net loss of KD 8.3 million in 2008. This came about because of the following factors: a) a KD 5.5 million allowance for doubtful debt and b) an 86% increase in finance costs, to KD 11.5 million, in 2008.

Balance sheet

• As of September 30, 2009, the company had a current ratio of almost 1.0x, which represented an improvement from the current ratio of December 31, 2008, of 0.9x.

• KGL’s property, plant, and equipment (PP&E), which stand at KD 123.5 million as of September 30, 2009, accounted for 53% of total assets.

• As of September 30, 2009, the current portion of the term loans was 30% of the total outstanding term loans of KD 106.3 million. The company’s net debt-to-equity ratio on September 30, 2009, stood at 1.7x, which was relatively unchanged compared to year-end 2008.

• KGL’s interest coverage ratio increased to 0.8x in 9M2009 from 0.3x in 2008.

• The company has very little exposure to equity markets, with just KD 2.8 million in available-for-sale investments, most of which are quoted securities.



Revenue 57,755 57,972 41,935 40,836 Cost of Sales (40,680) (42,600) (32,675) (28,601) Gross Profit 17,074 15,373 9,260 12,234

Share of results of associates 3,998 206 330 748 Gain on sale of associates - 1,431 1,431 - Gain on Sale of share of subsidiaries - 2,069 - - Gain/Loss on sale of AFS - (2,962) 1,338 369 Unrealized gain on inv.at fair value - 7,001 7,001 - Share of results of unconsol. subsidiaries (340) - - - Increase in fair value of inv. property 3,797 139 - - Unrealized gain on investment property - - - - Profit on sale of investment property 2,101 433 430 - Gain/Loss on sale of PP&E (13) (1,957) (1,178) (1,573) Impairment loss of investments - (2,308) (2,099) (255) Impairment on loss in joint venture - (116) - - Allowance for doubtful debts (55) (5,500) (1,700) (500) Other income 1,875 1,386 2,927 1,271 G&A expenses (10,795) (11,575) (7,942) (6,048) Provision for impairment of receivables - - - - Finance costs (6,190) (11,531) (8,103) (7,639) Profit Before Taxes 11,453 (7,911) 1,697 (1,393)

KFAS (218) - (70) - NLST (281) - (42) - Zakat (10) - (35) - Directors Remuneration (170) - - - Profit for the Year 10,775 (7,911) 1,550 (1,393)

Minority Interest 223 426 348 7 Net Profit 10,552 (8,338) 1,201 (1,400)


Property, plant, and equipment 98,402 142,168 134,904 123,524 Intangible assets 868 857 1,029 1,029 Investment properties 2,510 13,257 7,156 7,185 Investment in associates 18,087 21,454 14,565 15,037 Investment in uncon.subsidiaries 1,944 4,563 5,178 5,260 Investment in joint venture 244 116 - - Available-for-sale investments 4,489 10,337 5,613 2,826 Total non-current assets 126,545 192,751 168,445 154,861

Inventory and spare parts 1,696 1,267 2,352 1,555 Land held for trading - - - 3,006 Receivables 20,464 35,798 29,912 27,354 Due from related part ies 14,193 9,468 19,406 27,063 Other debit balances 8,002 - - - Cash and cash equivalents 4,784 7,508 6,414 7,275 Investments at FV through IS - - 13,467 13,467 Total current assets 49,139 54,041 71,551 79,720

Total assets 175,683 246,792 239,996 234,581

Equity attributable to shareholders 66,404 79,250 70,581 67,275

Minority interest 500 4,063 4,089 3,958

Total equity 66,904 83,313 74,670 71,233

Provision for employees' indemnity 1,664 2,068 1,829 2,051 Non-current port ion of term loans 37,022 64,775 74,184 74,316 Non-current Murabaha payable 5,814 7,696 6,737 5,050 Total non-current liabilit ies 44,501 74,540 82,750 81,417

Current port ion of term loans 34,198 41,584 28,557 31,980 Current port ion of Murabaha payable 3,752 6,410 4,361 8,603 Bonds issued 6,000 - - - Trade Payables 7,576 11,206 7,654 8,169 Due to related part ies 557 9,847 6,399 9,009 Other credit balances 10,816 12,227 18,501 16,928 Bank overdraft 1,379 7,665 17,104 7,244 Total current liabilit ies 64,279 88,939 82,576 81,932

Total liabilit ies 108,779 163,479 165,325 163,349

Total equity and liabilit ies 175,683 246,792 239,996 234,581



Companies in Focus



Key Data

KSE Code KCIN 52-week avg. volume 503,512 Reuters Code KCIN.KW 52-week avg. value KD 474,300




General Liquidity




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KuWait national CineMa CoMpany (KnCC)

highlights

• Kuwait National Cinema Company (KNCC) is a Kuwait-based company engaged in the cinema and entertainment industry in Kuwait. The company imports and distributes video and cinema film and equipment; KNCC is also involved in the construction of cinema theatres and handles the operations of those cinemas.

• In 2008, operating revenue grew by 28% and reached KD 12 million. As for 9M2009, this revenue declined by 1% to KD 8.5 million compared to 9M2008.

• The company’s operating costs outpaced revenue growth, which pushed down the gross profit margin from 32% in 2007 to 24% in 2008. As for the first nine months of 2009, despite the flat top-line growth, the gross profit margin improved from 22% at the end of 9M2008 to 25% at the end of 9M2009, mainly because the company reduced its operating costs by 4%.

• In 2008, the company had several impairments related to property and equipment, intangible assets, and inventory, which amounted to a little more than KD 9 million; these impairments resulted in an operating loss of KD 6.5 million. At the end of 9M2009, the company had an operating profit of KD 2.4 million, compared to an operating loss of KD 2.4 million during 9M2008.

• In 2007 and 2008, KNCC did not generate profits from its core operations; rather, it was counting on gains from available-from-sale (AFS) investments, gains from associates, and gains from the sale of investment properties to generate positive profit. Net income declined by 48% in 2008 and reached KD 4.7 million compared to 2007. As for 9M2009, the company’s bottom line declined by 79%, mainly due to the above-mentioned gains in 9M2008 that boosted net income at the time.

• KNCC has a debt-to-equity ratio of 0.4x. Total debt at the end of September 2009 stood at KD 18.3 million. Key Ratios

2005 2006 2007 2008 9M2009

Gross Profit Margin (%) 26.4% 23.6% 31.8% 23.6% 24.8%Operating Profit Margin (%) 29.5% 36.7% 24.2% -54.1% 28.4%Net Profit Margin (%) 136.2% 106.6% 96.6% 39.2% 25.9%

ROA 31.1% 19.0% 15.5% 7.3% 3.3%ROE 39.7% 22.8% 20.9% 10.4% 4.6%Current Ratio (X) 0.5 0.4 0.1 0.5 0.6Quick Ratio (X) 0.5 0.4 0.1 0.5 0.6Debt to Assets (X) 0.1 0.1 0.2 0.2 0.3Debt to Equity (X) 0.1 0.1 0.3 0.3 0.4

Receivables Turnover Ratio 5.3 3.5 4.3 9.6 1.7Inventory Turnover Ratio 40.4 59.5 25.0 32.5 27.4Payables Turnover ratio 4.2 3.2 2.3 2.4 1.4

Source: NBK Capital

analyst

Lisa Fernandes






overview

Kuwait National Cinema Company (KNCC) was established in 1954. KNCC, an affiliate of Tamdeen Real Estate Company and formerly known as Kuwait Cinema Company, is a Kuwait-based company engaged in the cinema and entertainment industry in Kuwait. The company imports and distributes video and cinema film and equipment; KNCC is also involved in the construction of cinema theatres and handles the operations of those cinemas. In addition, the company invests in foreign shares and funds. In 2005, KNCC enhanced its corporate and consumer image by rebranding as “Cinescape.”

The company has investment stakes in Tamdeen Shopping Centers Company (30%), Tamdeen Entertainment Company (25%), and Tamdeen Holding Company (20%).

KNCC has been listed on the Kuwait Stock Exchange since 1984. The company’s stock is relatively illiquid, with a 12-month average daily trading volume of 502 thousand.


income statement

• Before 2006, KNCC had two business lines: the cinema division and the video division. However, KNCC discontinued the video division in 2006 since this segment was witnessing declining profitability.

• In 2008, operating revenue grew by 28% and reached KD 12 million. As for 9M2009, this revenue witnessed almost flat growth compared to 9M2008 and reached KD 8.5 million. Given the limited opportunities for entertainment in Kuwait, KNCC is one of the few sources of entertainment for the population of Kuwait, and hence, the company has the capability to continue to generate revenue over the foreseeable future.

• In 2008, the company’s operating costs outpaced revenue growth, which pushed down the gross profit margin from 32% in 2007 to 24% in 2008. Since we do not have a breakdown of the company’s operating costs, we cannot analyze the reason behind this increase. We believe that, with the increase in the number of cinemas across Kuwait, the cost could be spread over a larger number of cinemas and would therefore decrease as a percentage of revenue. As for the nine months of 2009, despite the flat top-line growth, the gross profit margin improved from 22% at the end of 9M2008 to 25% at the end of 9M2009, mainly because the company reduced its operating costs by 4%.

• In 2008, the company had several impairments related to property and equipment, intangible assets, and inventory,

which amounted to a little more than KD 9 million; these impairments resulted in an operating loss of KD 6.5 million. At the end of 9M2009, the company had an operating profit of KD 2.4 million, compared to an operating loss of KD 2.4 million during 9M2008.

• In 2008, the company disposed of an investment property representing the value of a real estate portfolio of one of KNCC’s associate companies, Tamdeen Shopping Centers. As a result, the company recognized a gain of KD 6.2 million from the sale.

• In 2007 and 2008, KNCC did not generate profits from its core operations; rather, it was counting on gain from available-from-sale investments, gain from associates, and gain from the sale of investment properties to generate positive profit. In 2008, despite a weak set of operational results, the saving grace for the company’s bottom line came from the KD 6.2 million gain from the sale of the investment property; as a result, the decline in net income was limited to 48%, and net income reached KD 4.7 million compared to KD 9 million in 2007. As for 9M2009, the company’s bottom line declined by 79%, mainly due to the inclusion of the above-mentioned gains in 9M2008 that boosted net income. From an operations’ point of view, the company performed better in 9M2009 than it did in 9M2008.

• In May 2009, a cash dividend of KD 0.040 per share for 2008 was approved by the shareholders of the parent company.

Balance sheet

• In March 2008, the company’s share capital was increased from KD 8 million to a little more than KD 10 million, through a stock dividend of 25% of outstanding shares.

• KNCC’s investments in associates consist of a 30% stake in Tamdeen Shopping Centers, a 25% stake in Tamdeen Entertainment, and a 20% stake in Tamdeen Holding. This makes up 43% of total assets at the end of September 2009, compared to 45% at the end of December 2008.

• At the end of September 2009, the company had AFS investments amounting to KD 5.9 million, out of which the majority lay in unquoted investments; these unquoted investments include investments carried at cost that amount to KD 459 thousand as of September 2009 since the fair value of this portion cannot be reliably measured.

Kuwait National Cinema Company (KNCC)




• During the nine months of 2009, KNCC sold projects under progress to Tamdeen Shopping Centers Development, with KD 5.5 million representing their book value at the date of disposal. This amount was classified under trade and other receivables.

• KNCC has a debt-to-equity ratio of 0.4x. Total debt at the end of September 2009 stood at KD 18.3 million; the debt was classified as short-term loans, with an effective interest rate of 5.5%.

Kuwait National Cinema Company (KNCC)



Operating Revenues 9,405 12,002 8,528 8,470Operating Costs -6,419 -9,164 -6,613 -6,369Gross Profit 2,986 2,838 1,915 2,102Other operating income 3,458 4,056 2,924 2,637G&A -1,098 -1,971 -1,211 -934Gain/Loss from inv. at fair value through P&L-4 -162 -175 -14Impairment in value of P&E -489 -8,294 -3,200 0Impairment in intangible assets 0 -921 -921 0Impairment in inventory 0 -137 -137 0Contingent liabilities provision 0 0 -304 0Other operating exp. -2,514 -1,883 -1,284 -1,078Provision for doubtful debts -63 -18 -18 -310Dec. in inv.'s net realizable val. 0 0 0 0Operating Profit 2,276 -6,492 -2,410 2,402Impairment in AFS -107 -522 0 0Gains from available for sale investments7,540 493 486 120Gain from associates 218 6,111 7,446 575Gain on sale of inv. prop. 0 6,235 6,235 0Finance costs -424 -810 -701 -812Board of Directors renum. -90 -90 0 0Net Profit before tax 9,413 4,924 11,057 2,286Contribution to KFAS -95 -45 -102 -15National Labour Support Tax -230 -121 -272 -56Zakat -6 -52 -111 -20Net Profit for the year 9,081 4,707 10,573 2,195


PP&E 18,472 22,611 17,737 14,989Intangible Assets 0 1,366 1,074 1,116Inv. Property 8,564 14,487 0 0Inv. In associates 8,794 17,577 28,237 28,399Available for sale investments 11,916 7,559 5,889 5,943Adv. payment to purchase films 0 907 687 1,172Total Non Current Assets 47,746 64,506 53,625 51,620

Inventories 173 341 223 241Trade and other recievables 2,137 831 1,076 6,596Inv. At fair value through P&L 923 0 62 501Cash 252 214 7,323 7,722Total Current Assets 3,485 1,386 8,684 15,060Total Assets 51,231 65,892 62,308 66,680

Share Capital 8,085 8,085 10,106 10,106Treasury Shares 0 -841 -903 -903Statutory reserve 4,244 4,244 4,745 4,745Gen Reserve 4,210 5,160 5,662 5,662Land revaluation reserve 8,870 8,808 8,144 8,144Change in fair value reserve 2,383 2,742 615 256Retained earnings 13,853 17,196 16,745 14,943Total Equity 41,645 45,394 45,114 42,952

Post Employment benefits 337 401 461 515Total Non Current Liabilities 337 401 461 515

Trade and other payables 1,893 3,683 3,986 4,223Dividend payables 471 582 478 650Due to a related party 830 223 0 0Loans and bank facilities 6,055 15,608 12,270 18,340Total Current Liabilities 9,249 20,097 16,734 23,213Total Liabilities 9,586 20,498 17,195 23,728

Total Equity and Liabilities 51,231 65,892 62,308 66,680



Companies in Focus



KuWait pRoJeCts (KipCo)

highlights

• Kuwait Projects (KIPCO) is one of the region’s largest investment holding companies, with a significant stake held by Kuwait’s ruling family. The company has investments in over 50 companies across different industries and regions.

• The investment holding company has four main subsidiaries: a) Burgan Bank (refer to pg. 40), b) United Gulf Bank, c) Showtime, and d) Gulf Insurance Company (refer to pg. 52). The subsidiaries are fully consolidated, and make up the largest portion of KIPCO's assets.

• The largest portion of KIPCO's assets is made up of loans and advances (46.5% of assets). Of the total KD 2.4 billion in loans and advances, Burgan Bank is responsible for KD 2.3 billion.

• Burgan Bank and United Gulf Bank, both subsidiaries of KIPCO, have completed several transactions over the past year; whereby, United Gulf Bank sold several of its subsidiaries and an associate (which include banks within the region) to Burgan Bank. The subsidiaries and associate sold include Jordan Kuwait Bank, Algeria Gulf Bank, and Bank of Baghdad.

• Showtime, the subsidiary that provides media services within the MENA region, entered into a joint venture agreement with its largest competitor, Al Mawarid (Orbit TV), to form the largest pay-satellite television service in the Middle East.

• KIPCO's total revenue declined by 3.7% between 9M2008 and 9M2009 due to respective declines of 3.5% and 44.1% in the company's two largest revenue generators, the commercial banking and asset management sectors.

• Net income fell 45.4% between 9M2008 and 9M2009 as a result of a decline in sales coupled with an increase in expenses. Furthermore, the company experienced a decline in profit margins across the majority of its business units.

Key Data

KSE Code KPROJ.KSE 52-week avg. volume 2,826,768 Reuters Code KPROJ.KW 52- week avg. value (KD) 1,256,270




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Key Ratios

2005 2006 2007 2008 9M2009

Current Ratio 0.88 0.62 1.14 1.08 1.11Net Debt-to-Equity 1.44 1.48 -0.47 -0.74 -0.73

Investment -to-Equity (HFT + AFS) 112.7% 123.8% 71.7% 65.8% 63.0%

Profit Margin 32.1% 21.9% 59.0% 5.5% 12.4%Growth In Revenue N/A 92.6% 287.6% -50.2% -3.7%

Source: NBK Capital

analyst

Wadie Khoury






overview

Kuwait Projects (KIPCO) is one of the region’s largest investment holding companies and one of the largest Kuwaiti companies in terms of assets. It currently has direct and indirect stakes in more than 50 companies (subsidiaries and associates) across 21 countries. The company’s primary lines of investment are in banking (commercial and investment), insurance, and digital satellite services. The company was incorporated in 1975, and is largely held by members of the royal family.

Some of KIPCO’s direct investments include the following:

KIPCO’s Major Direct Investments as of 2008

Subisidary Country of Incorporation KIPCO interestUnited Gulf Bank Bahrain 92%Burgan Bank Kuwait 56%Gulf Insurance Company Kuwait 69%Gulf DTH (Showtime) Cayman Islands 78%United Gulf Management Incorporation USA 100%United Gulf Management Ltd. UK 100%Hunter Capital Company USA 100%Kuwait United Consultancy Company Kuwait 98%Kuwait Projects Company Cayman Islands 100%KIPCO Private Equity Company Cayman Islands 100%Global Direct Television for General Trading and Contracting Company Kuwait 100%

Source: KIPCO financials

latest news

• January 2010: Burgan Bank, one of KIPCO's subsidiaries, announced itself as the majority stakeholder in the Bank of Baghdad in an attempt to diversify the bank's regional footprint.

• October 2009: The National Bank of Kuwait signed a five-year KD 80 million loan agreement with Kuwait Projects.

• October 2009: KIPCO issued a USD 500 million bond, the first out of Kuwait in 2009. The bond was oversubscribed, whereby subscriptions reached more than USD 3.3 billion.


Balance sheet

• KIPCO is Kuwait’s largest investment holding company, and we therefore need to look at some of its important subsidiaries. The company has more than 50 investments in different companies; however, there are four main subsidiaries we need to focus on:

Burgan Bank

Established in 1977, Burgan Bank is the youngest commercial bank in Kuwait. Burgan Bank was primarily government owned for two decades. It underwent a major structural change in 1997, when KIPCO purchased the government’s share to become the largest shareholder.

For more details on Burgan Bank, please refer to page 40.

Gulf Insurance Company

Gulf Insurance Company is the largest insurance company in Kuwait in terms of written and retained premiums. Established in 1962, GIC covers life and non-life segments throughout the region through subsidiaries.

For more details on Gulf Insurance Company, please refer to page 52.

Gulf DTH L.D.C. (“Showtime”)

Overview

Showtime Arabia operates as a digital satellite pay television network in the MENA region. The company began operations in 1996 as a joint venture between KIPCO (majority stakeholder) and CBS Corporation (minority stakeholder). The company is recognized for broadcasting famous shows from Hollywood.

Financial Overview

• Although information on Showtime’s financial performance is limited, it is evident the company has been operating at a loss. Despite this, there have been signs of improvement.

• Revenue steadily increased year on year between 2006 and 2008. The trend continued even in the first nine months of 2009, as revenue increased by 18.4% between 9M2008 and 9M2009.

• Net losses improved over the years, but declined between 2006 and 2008. However, net losses increased by 14.2% between 9M2008 and 9M2009. Although details are not provided, some of the losses may be attributed to the costs associated with the newly established joint venture.

Orbit Showtime Deal

• As of August 2009, KIPCO entered into a joint venture agreement with Al Mawarid Investments and other companies to form Panther. The newly established joint venture is responsible for distributing pay-satellite television services throughout the MENA region.

Kuwait Projects (KIPCO)




• Panther acquired Showtime, Global Direct Television, and Orbit in order to carry out its designated service.

• KIPCO owns 60.5% of Panther, and Al Mawarid the remaining 39.5%. Moreover, Al Mawarid holds a call option to purchase an additional 10.5% stake in the company between November 2010 and February 2011. If Al Mawarid decides to exercise the entire call option, each company will have a 50% stake in Panther.

• The merger of Orbit and Showtime marks the widest choice of premium channels offered in the Middle East on a single platform. The new service gives subscribers access to 75 channels with up-to-date Hollywood shows.

• As the company looks to improve profitability, the merger between the two could be the solution to climb into profit. There will be higher economies of scale, resulting in declined costs and improved efficiency, and buying power will increase as competition declines.

United Gulf Bank (UGB)

Overview

The United Gulf Bank (UGB) was incorporated in 1980 and was acquired by KIPCO in 1988. KIPCO increased its ownership to 91.72% by the end of 2008.

Financial Overview

UGB Income Statement Analysis

• Total income (including investment income, income from fees, commissions, foreign exchange (FX)revaluation and the share of results from associates) was weaker in 2008 than 2007, despite a stronger performance in investment income. The result comes from a 62.5% drop in fees and commissions, as well as a loss of USD 17.8 million from associates. The 9M2009 results were similar. Total income dropped 78.3% year on year as a result of lower profit from investment income and a loss in results from associates. Details of the significant decline in the nine-month results are not provided, so the reason for the steep drop is still unknown.

• The drop in total income trickled down to operating income. Operating profit from continuing operations (after provisions) declined by 96.9% between 9M2008 and 9M2009.

• UGB recognized an impairment loss of USD 15.7 million in the first nine months of operation in 2009. This played a role in the drop in net income.

• In 2008, the company realized USD 53.8 million in profits from discontinued operations due to the transfer of its subsidiary, Jordan Kuwait Bank, to Burgan Bank. This is discussed in more detail in the Balance Sheet Analysis section.

UGB Balance Sheet Analysis

• UGB’s balance sheet experienced a major transition between 2007 and 2008 as the bank was expected to sell some of its major subsidiaries and an associate to its sister company, Burgan Bank. The subsidiaries and associate included Jordan Kuwait Bank (JKB), which was sold in July 2008, Algeria Gulf Bank (AGB) and Bank of Baghdad (BOB), which were sold in the first quarter of 2009, and Tunis International Bank (TIB), which is expected to be sold in the first quarter of 2010.

• UGB experienced a significant drop in loans between 2007 and 2008 as a result of the signed transfer of its subsidiaries and associate (i.e., AGB, TIB, and BOB) to Burgan Bank. The assets held by the banks were reclassified as held for sale. Loans and advances from TIB and AGB alone accounted for USD 388 million in December of 2008. UGB recorded loans and advancements of USD 7.8 million in 2008, down from USD 291.9 million in 2007. By September 2009, loans and advancements had increased to USD 81.6 million.

• The largest portions of UGB’s assets are classified under non-trading investments, which are composed of available-for-sale (AFS) investments. At the end of 2008, non-trading investments represented 30.6% of total assets, with the bulk of UGB’s investments coming from unquoted debt securities. By September 2009, non-trading investments represented 34.4% of total assets. No details about the allocation of investments have been provided.

• Another large portion of UGB’s assets include investments in associated companies. As of September 2009, these made up 34.4% of total assets. Some of the company’s recognized investments in associates include KAMCO, the Kuwait Education Fund, Syria Gulf Bank, and United Cable Company.





• Looking at the entire KIPCO group, the following graph shows the company’s holdings and the change in its proportionate stake in each of its main subsidiaries.

Proportionate Stake in KIPCO's Main Subsidiaries

0%

51%56%

37%

68% 69%

78% 78% 78%76%

88%92%

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Burgan Bank Gulf Insurance Company Showtime United Gulf Bank


• Burgan Bank, historically treated as an associate, was fully consolidated in 2007 as a result of KIPCO purchasing a controlling stake. In the same year, the company (along with the proportional stakes held by KIPCO's subsidiaries) sold its entire stake in National Mobile Telecommunications Company (Wataniya) to Qtel for a gain of KD 468.1 million.

• Of KIPCO's total assets, 46.5% consists of loans and advances as of September 2009, mainly due to the consolidation of Burgan Bank’s KD 2.3 billion loans and advances. However, despite the increase in Burgan Bank’s and UGB's loans and advances in the first nine months of 2009, KIPCO’s loans and balance account actually dropped by 5.2% in that period. The reason for the drop is unclear.

• The company is in a solid position to repay its KD 530 million debt, as its cash balance represents the second largest asset (KD 935 million) as of September 2009. This puts the company’s net debt at negative KD 405 million.

income statement

• KIPCO divides its revenue generation into five major sectors: a) commercial banking, b) asset management and investment banking, c) insurance, d) media, and e) others. Total revenue declined by 3.7% between 9M2008 and 9M2009 due to respective declines of 3.5% and 44.1% in its two largest revenue generators, the commercial banking and asset management sectors. The losses in these sectors were slightly offset by growth in the company’s insurance, media, and other sectors, which grew by 15.7%, 18.4%,

and 127.6% respectively. The calculation of the growth does not take into consideration the effects of inter-segmental operations.

• The largest portion of KIPCO's revenue is derived from interest income, stemming mainly from the company's 56% holding in Burgan Bank, which accounted for more than 97.4% of KIPCO's total interest income. Interest income increased more than nine times between 2006 and 2007. The large jump comes as a result of the full consolidation of Burgan Bank in 2007. As KIPCO displayed impressive growth from interest income in 2008 (almost doubling from 2007 levels), the trend halted as the company experienced a 7% decline in net income in 9M2009 compared to 9M2008.

• Under investment income, KIPCO recognized KD 43 million based on the fair value of the businesses acquired by Panther.

• Net income fell 45.4% between 9M2008 and 9M2009 as a result of a decline in sales coupled with an increase in expenses. Furthermore, the company experienced a decline in profit margins across the majority of its business units.

Net Income and Profit Margin Breakdown by Segment

9M2008 9M2009 9M2008 9M2009

Commercial Banking 67,678 25,906 33.9% 13.5%

Asset Management and Investment Bank 126,533 56,679 71.8% 57.5%

Insurance 12,185 7,090 25.1% 12.6%

Media (6,118) (6,989) -16.3% -15.8%

Others 1,519 1,947 50.4% 28.4%

Inter-segmental (72,311) (19,999)

Total 129,486 64,634 33.9% 17.6%

MarginsNet Income

Sources: Company reports and NBK Capital

• Although interest expense (the company’s largest expense, contributing 30.2% of total expenses) declined by 27.3% between 9M2008 and 9M2009, the company incurred large losses on provisions and impairments on investments amounting to KD 67 million in 9M2009 compared to KD 7.4 million in 9M2008. Burgan Bank contributed KD 50.2 million to provisions from credit losses, and an additional KD 2.3 million to impairments on investments. However, there was a different reason for the decline in profits of KIPCO's investment in the Gulf Insurance Company (GIC). The insurance company seemed to incur more claims in 9M2009 compared to the same period last year, thus affecting the company's margins (for additional details, refer to page 52).







Interest income 121,002 232,018 170,739 158,794

Investment Income 554,847 52,975 81,106 73,127

Fees and commission income 56,874 53,989 40,930 37,759

Share of results from associates 52,735 (3,002) 11,549 360

Net insurance premium earned 37,903 40,055 32,073 37,970

Digital satellite television services 44,095 52,883 37,454 44,276

Foreign exchange gain 15,787 (5,924) 4,668 1,514

Other Income 1,438 17,302 3,642 14,118

Total Revenue 884,681 440,296 382,161 367,918

Total Expenses (294,258) (394,316) (252,675) (303,284)

Profit Before Tax 590,423 45,980 129,486 64,634

Tax (14,671) (3,534) (2,743) (4,616)

Profit for the year 575,752 42,446 126,743 60,018

Parent Company 521,691 24,125 83,561 45,615



Cash in Hand and at Banks 212,381 878,576 972,021 935,324

T Bills and Bonds - 433,709 387,378 383,054

Loans and advances 71,870 1,696,456 2,518,992 2,386,977

Fair Value thru profit and loss 112,856 204,309 75,853 53,404

Financial Assets Available for sale 166,117 264,362 266,327 283,898

Financial assets held to maturity 8,159 6,872 15,367 11,368

Other Assets 79,310 165,070 212,039 227,084

Investments in Associates 536,060 246,393 238,889 245,617


Property and Equipment 22,738 56,488 67,180 63,980

Intangible Assets 142,245 318,805 416,886 530,382

Total Assets 1,358,528 4,278,998 5,177,935 5,132,167

Liabilities

Due to banks and Fin. Institutions 209,199 829,614 917,125 1,022,604

Deposits from customers 113,242 1,622,298 2,484,034 2,321,784

Loans payable 262,446 297,943 396,969 363,634

Bonds 88,123 64,829 50,995 48,886

Medium term notes 205,214 202,754 122,605 117,732

Other Liabilities 154,555 279,126 362,560 369,537

Total Liabilities 1,032,779 3,296,564 4,334,288 4,244,177

Total Equity 325,749 982,434 843,647 887,990

Total Liabilities and Equity 1,358,528 4,278,998 5,177,935 5,132,167




Companies in Focus



MaBanee CoMpany

highlights

• Mabanee owns the Avenues project, which is a landmark development in Kuwait’s retail industry and the largest shopping mall of its kind in the country.

• The company is currently the largest Kuwaiti real estate company in terms of market capitalization. Mabanee is a pure rental play in the retail segment. Though Mabanee is a Kuwaiti story now, the company has plans to expand regionally.

• The company plans to embark on a strategy of consolidating its position by executing Phase lll of the Avenues, resulting in a unique mix of a mass market and luxury/concept mall under the same umbrella.

• We would like to highlight that the Avenues boasts high occupancy rates backed by tenants that are well-known all across the Gulf Cooperation Council (GCC).

• The company has grown significantly in terms of rental income since completing Phase Il of the Avenues project. Rental revenue increased appreciably, by 38.6%, to KD 22.9 million in 9M2009, compared to KD 16.5 million in 9M2008.

• The company owns investment properties (Phases l and ll of the Avenues Mall) that are worth around KD 340 million (December 2008) per an independent valuation, compared to a book cost of KD 164 million as of September 30, 2009, resulting in a mark-to-market gain (MTM) of around KD 176 million.

Key Data

KSE Code MABANEE.KSE 52-week avg. volume 849,739 Reuters Code MABK.KW 52-week avg. value (KD) 561,228




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Key Ratios

2007 2008 9M2008 9M2009

Rental Income (% of Total Income) 40% 102% 51% 80%

Investment Income (% of Total Income) 43% -58% 22% 5%

Investment Income (% of Net Profit) 65% -217% 34% 9%

EBITDA (KD million) 12.8 28.4 20.4 19.6

EBITDA Interest Cover (x) 4.8 4.7 5.4 4.9

Net Debt-to-Equity 0.6 0.8 0.8 0.6

Operating profit margin 59% 71% 74% 67%

Adjusted Net Profit Margin 40% 54% 55% 53%

Net Profit Margin 115% 17% 83% 58%

Investment Book (% of Total Assets) 21% 11% 15% 9%

Investment Book (% of Total Equity) 45% 27% 34% 18%


analyst

Mariam Al-Bahar








Alshaya Group [via AlShaya United Commercial Company] Corportate Kuwait 36.45%National Industries Group Holding Corportate Kuwait 20.01%Orient Investment Company Corportate Kuwait 6.59%Public - - 36.95%



*Per 1Q2009 financials. Sources: Company’s financial statements and NBK Capital

The Avenues Project

The Avenues - Key Statistics Phase l Phase ll Phase lll

Segment Mass Market Upmarket Luxury/Concept

Completion April 2007 April 2008 4Q2011

Occupancy Rate* (%) 97% 86% -

Net Leasable Area (sq.m.) 124,608 42,089 99,000

No. of stores 445

Development Cost KD 99 million

426

KD 164 million



income statement

• Real-estate-related revenue (mainly rental income and placement fees) for the company reached KD 26 million in 9M2009, 3% higher than KD 25.3 million in the same period a year before, driven entirely by the increase in rental income. Placement fees dropped to KD 1.5 million in 9M2009 from KD 7.5 million in 9M2008. Placement fees were higher last year due to the opening of phase II.

• The company reported significant growth in rental income as a result of the completion of Phase ll. Rental revenue increased significantly, by 38.6%, to KD 22.8 million in 9M2009, compared to KD 16.5 million in 1H2008.

• Operating expenses increased by 32%, to KD 6.41 million, in 9M2009, compared to KD 4.9 million in 9M2008. Increase in both leasable area and repairs and maintenance expenses led to the overall increase in operating expenses.

• As a result of the increase in operating expenses, EBITDA dropped by 4%, to KD 19.6 million from KD 20.4 million, in 9M2008. Accordingly, EBITDA margins decreased to 75% in 9M2009 compared to 81% in 9M2008.

• The company’s investment income decreased significantly, from KD 7.1 million in 9M2008 to KD 1.4 million in 9M2009, due to large hits taken on its investment book, as well as a reclassification of certain investments (per IAS 39 in 2008). This affected the net profit for 9M2009.

overview

Mabanee, a pure rental play in the Kuwaiti retail segment, is currently the largest real estate company in terms of market capitalization. The company owns the Avenues mega-mall, which is a landmark development in Kuwait’s retail industry and the largest shopping mall of its kind in the country. Mabanee plans to embark on a strategy to consolidate its position by executing Phase lll of the Avenues, resulting in a unique mix of a mass market and luxury/concept mall under the same umbrella. Though Mabanee is a Kuwaiti story now, the company has plans to expand regionally.

the avenues project

The Avenues is the first-of-its-kind mega-mall in Kuwait, with no other comparable retail mall in terms of leasable area (166,697 sq. m. – Phases I and II only). The mall is divided into three phases built over 425,000 sq. m. of land located in the Al Rai area. Phases I and II of the project were completed in April 2007 and April 2008, respectively. Meanwhile, the development of Phase III is currently in progress and should be completed in 4Q2011. Upon the completion of Phase lll, the Avenues will have a net leasable area (NLA) of 265,697 sq. m. and a parking lot that can accommodate more than 14,000 cars. Phase lll of the Avenues will include an Old Souk, Gold Souk, Bazaar, Luxury Mall, SOKU, Grand Avenue Mall, and three underground parking lots.

• Old Souk: will deliver a traditional Kuwaiti Souk atmosphere, and will consist of many smaller stores with local sellers.

• The Bazaar will be a vivid and vibrant section, similar to the Istanbul Bazaar, featuring large household items and goods.

• The Luxury Mall will include designer boutiques and high-end stores.

• The SOKU area is inspired by New York’s SoHo, and will evoke a youthful experience.

• The Grand Avenue will be an indoor avenue with an outdoor feeling; it will be flanked by flagship stores on each side.

The 37% ownership stake by the regional retail giant Alshaya group gives the company a strategic advantage over its competitors. Alshaya-run stores comprise a sizeable area of the Avenues, which lends a degree of stability to the tenant profile. The company has pulled in major retail groups, and these groups constitute 86% of all of tenants in Phase l and 54% in Phase ll. Also worth highlighting is the long waiting list for tenants, which is likely to be advantageous in times of adversity.

Mabanee Company






Rental Income 13,326 23,556 16,482 22,848Placement fees 4,688 11,007 7,511 1,464Other Inv. properties revenue 855 1,750 1,272 1,694Total Inv. properties revenue 18,868 36,312 25,266 26,005Inv. properties expenses 3,905 5,588 3,733 5,103Gross Profit 14,963 30,724 21,533 20,902General & administrative expenses 2,201 2,296 1,127 1,307EBITDA 12,762 28,427 20,406 19,595

Depreciation 1,572 2,528 1,792 2,237EBIT 11,189 25,899 18,614 17,358

Finance costs 2,659 6,068 3,797 4,026EBT 8,530 19,831 14,817 13,332

Net (loss) gain from investments 14,205 (13,485) 7,081 1,419Other Income (130) 225 113 1,090Net Profit 21,751 6,225 21,078 15,170

Balance Sheet (KD '000) 2007 2008 Sep-09

Cash & Cash Equivelant 3,916 24,017 8,944

Investment properties 100,653 157,122 164,427

Investment Book 41,726 26,267 20,107

Total Assets 195,239 230,819 217,970

Short-term loans 32,903 66,184 60,925

Long-term loans 37,857 40,779 22,857

Total liabilities 102,242 133,211 105,223

Shareholders' Equity 92,997 97,608 112,747

Total liabilities and SHE 195,239 230,819 217,970


• The company’s net profit decreased by 28% to KD 15.2 million in 9M2009, compared to KD 21.1 million in 9M2008. This decrease resulted mainly from the significant decline in investment income.

Balance sheet

• The company owns investment properties (Phases l and ll of the Avenues Mall) that are worth around KD 340 million (December 2008) per an independent valuation, compared to a book cost of KD 164 million as of September 30, 2009, resulting in MTM of around KD 176 million.

• Mabanee owns 9,516 sq. m. of a plot in Salmiya. According to company sources, this Salmiya land is worth KD 39 million, 10 times higher than its book cost of KD 3.9 million.

• The company owns an 186,692 sq. m. piece of land adjacent to the Avenues Mall in Al Rai. Of this land, 99,327 sq. m. is set aside for the construction of Phase lll of the Avenues. The remaining portion of the land is worth KD 59.2 million (per the valuation performed by independent property assessors). Mabanee also owns a 40% stake in a 223,000 sq. m. piece of land in Saudi Arabia, and a 10% stake in a 5.5 million sq. m. piece of land in Abu Dhabi.

• The company’s net debt-to-equity ratio decreased slightly, from 0.81 in 2008 to 0.62 in 9M2009. Mabanee’s total debt stood at KD 69 million in 9M2009, compared to KD 103.5 million in 2008. The company’s EBITDA interest cover increased slightly, from 4.7x in 2008 to 4.9x in 9M2009. Taking into account Mabanee’s robust core operations and healthy cash-generating abilities, we believe that it is comfortably placed to service its debt obligations.

• Mabanee’s investment book (both available-for-sale (AFS) and held for trading) stood at KD 20.1 million as of 9M2009, accounting for a significant 17.8% of shareholders’ equity and a notable 9.2% of total assets. Unquoted investments make up 43% of the AFS investments in 9M2009 while the remaining 67% is invested in locally listed securities.

Mabanee Company


Companies in Focus



MoBile teleCoMMuniCations CoMpany (zain)

highlights

• In November 2009, Zain’s CEO lowered the company’s 2009 revenue guidance by USD 1 billion from the previous guidance of USD 9 billion. The company’s CEO blamed the global financial crisis, which has changed usage patterns, and foreign exchange rate losses.

• In September 2009, the Kuwait Stock Exchange (KSE) announced that National Investments Co. (NIC), owned by the Kharafi Group, reported that one of its portfolio clients, Al Khair National for Stocks & Real Estate Co., was set to sell up to 46% of Zain to a Malaysian-Indian consortium. The consortium consists of Malaysia’s al-Bukhary Group and India’s Bharat Sanchar Nigam Ltd. (BSNL), Mahanagar Telephone Nigam Ltd. (BSNL), and the Vavasi Group. This 46% stake is a combination of various shareholders’ stakes in Zain. However, since then uncertainty has prevailed, with news reports of the Indian telecom players, especially BSNL, reportedly dropping out of the deal.

• The company reported a 24% increase in total revenue to KD 1.78 billion for the nine months of 2009. EBITDA reached KD 757.3 million, with the EBITDA margin increasing to 43%, compared to 38% at the end of 9M2008. The company’s net profit was hit by currency fluctuations of KD 37.3 million, as well as increased financing and depreciation costs due to Zain’s network expansion. As a result, at the end of 9M2009, the company reported a 17% decline in the parent company’s net profit to KD 195.7 million. At the end of September 30, 2009, the company’s total debt stood at a little more than KD 2 billion. Zain’s growth and expansion through various mergers and acquisitions came at the expense of increased leverage. The debt-to-equity ratio stood at 0.73x at September 30, 2009, up from 0.36x at the end of 2005.

Key Data

KSE Code ZAIN 52-week avg. volume 11,951,024 Reuters Code ZAIN.KW 52-week avg. value KD 14,095,016


Million KD 4,190 Latest (million) 4,275.18


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2005 2006 2007 2008 9M2009

Gross Profit Margin (%) 84.3% 78.8% 77.3% 77.0% 73.1%EBITDA Margin (%) 47.3% 43.7% 41.0% 37.3% 42.6%Operating Profit Margin (%) 34.4% 30.8% 26.9% 19.0% 25.6%Net Profit Margin (%) 31.4% 22.7% 19.1% 16.1% 11.0%

ROA 13.4% 10.6% 8.2% 6.6% N/AROE 22.6% 21.7% 19.7% 15.5% N/ACurrent Ratio (X) 0.81 0.66 0.54 0.69 0.59

Debt to Equity (X) 0.36 0.92 1.14 0.79 0.73

Debt to Assets (X) 0.21 0.40 0.45 0.35 0.33

Investment/Equity 32.7% 10.8% 26.4% 13.7% 12.9%

Receivables Turnover Ratio 1.41 9.81 7.79 7.42 N/AInventory Turnover Ratio 21.12 25.19 20.70 17.57 N/APayables Turnover Ratio 0.49 0.82 0.77 0.63 N/A


analyst

Lisa Fernandes





Kuwait in Focus - January 2010Mobile Telecommunications Company (Zain)

overview

Zain is a leading telecom operator, on regional as well as global levels. Operating under the brand name “Zain,” Mobile Telecommunications Company was established in Kuwait in 1983 as the Gulf’s first mobile operator. The company’s shares are listed on the Kuwait Stock Exchange (KSE); Zain’s largest shareholder is the Kuwait Investment Authority with a 24.6% stake. Zain’s main strategic objective is to become one of the top 10 mobile telecommunications companies in the world in 2011, with 150 million customers and an EBITDA of USD 6 billion. To reach this goal, Zain initiated the “Drive 11” program in May 2009 that “will focus on customer-facing services and commercial activities while centralizing or outsourcing some back-office, non-core functions to strategic partners.” Zain has grown to become the fourth-largest operator in the world in terms of geographic footprint. At the end of September 2009, the company’s number of active subscribers reached around 72 million. Currently, the company is the leading mobile operator in 16 countries, and the second or third player in a majority of other countries.

Zain’s relatively mature Middle East operations fuel its growth prospects in Africa. Through acquisitions, the company has diversified its business operations into markets with different dynamics, mainly in two distinct geographic clusters, namely the Middle East and Africa, which include 24 countries. The Middle Eastern markets are characterized by high gross domestic product (GDP) per capita, high average revenue per user (ARPU), a high penetration rate, and lower potential growth. On the other hand, the African markets have low GDP per capita, low ARPU, a low penetration rate, and higher growth potential. The African and the Middle Eastern clusters cover a population of 600 million. The company’s exposure to Africa has put more pressure on Zain’s margin as the company is operating in low-ARPU countries that involve significant investments in network roll-outs. A direct effect of expanding the network is the increase in Zain’s depreciation expenses and finance costs. However, in our view, these costs should allow Zain to fuel its longer-term growth prospects in Africa.

Zain’s stock price has been volatile recently given the news of the potential sale of a 46% stake. Recently, Zain has been in the news frequently, as one of the company’s major shareholder, the Kharafi Group, has expressed interest in selling its stake. In September 2009, the KSE announced that National Investments Co. (NIC), owned by the Kharafi Group, reported that one of its portfolio clients, Al Khair National for Stocks and Real Estate Co., was set to sell up to 46% of Zain to a Malaysian-Indian consortium. The consortium consisted of Malaysia’s al-Bukhary Group and India’s Bharat Sanchar Nigam Ltd. (BSNL), Mahanagar Telephone Nigam Ltd. (BSNL), and the Vavasi Group. This 46% stake was a

combination of various shareholders’ stakes in Zain. However, since then uncertainty has prevailed with news reports of the Indian telecom players, especially BSNL, reportedly dropping out of the deal. All these news reports have affected the performance of Zain’s stock, which has been very volatile.

What is the story in zain’s Key Markets?

Kuwait: Fierce Competition

As we have stated in our previous publications, with the award of the third mobile license to a consortium led by STC (branded as Viva, which formally launched its services in September 2008), Kuwait witnessed a revival of competition in the mobile market. Over the previous years, the Kuwaiti mobile market had drifted into a lull compared to neighboring countries where fierce competition was raging, as both Zain and Wataniya had been enjoying duopoly status. The first significant move with the entry of Viva was the cancellation of the long-standing called-party-pays fees. Both Zain and Wataniya were directly affected. Zain’s Kuwaiti operation reported a 15% year-over-year (YoY) decrease in revenues and a decrease in the EBITDA margin from 52% in 9M2008 to 51% in 9M2009. As for Wataniya, it seems that the company was more affected by the cancellation of incoming calls fees compared to Zain. The company witnessed a 20% YoY decrease in revenues from Kuwait, and a decrease in the EBITDA margin from 51% in 9M2008 to 47% in 9M209. We believe that Zain will continue to witness weak growth due to the aggressive competition among the three operators. However, due to the importance of the Kuwaiti operation to Zain Group (the third-highest contributor to group revenue, after Iraq and Nigeria, and the highest ARPU in the group), the company should strive to differentiate itself from the other operators.

Nigeria: A Challenge for Zain

Backed by a liberalization program, the Nigerian mobile market witnessed a boom in the past few years. The entry of new telecom operators, the expansion of coverage, and the provision of low-cost services pushed the penetration rate from 1.2% in 2002 to around 45% at the end of September 2009. Today, Nigeria is the largest and most attractive market in Africa. As of 9M2009, the total number of mobile subscribers in Nigeria reached around 70 million, representing around 16% of the African mobile subscribers. Three mobile operators out of 12, namely MTN, Zain-Nigeria, and Glomobile, lead the mobile market, controlling 89% of the market. However, Zain is facing many challenges in Nigeria, especially given that the market is overcrowded with 12 operators (GSM and CDMA). The strong competition has led to lower growth in the number of subscribers, while putting pressure on revenue and




EBITDA levels. According to Zain’s management, the company took new measures to overcome the obstacles by appointing a new CEO for Zain-Nigeria, restructuring and outsourcing the network to Ericsson and Nokia Siemens, and restructuring sales and distribution.

Sudan: Good Performance

We believe that there is still plenty of room for growth in Sudan. With increased competition, the mobile market is growing at a rapid pace: the penetration rate increased from 12% in 2006 to 40% as of 9M2009. Zain is the market leader in Sudan (58% market share as of September 30, 2009); the company was able to grasp around 50% of the net additional subscribers since December 2008.

Iraq: More Competition on the Way

Increased competition could put pressure on Zain-Iraq’s margin. Back in 2004, the three mobile operators in Iraq did not fully compete with each other as each operator was licensed to cover separate parts of the country. It was not until 2007 that real competition started after the regulator awarded nationwide licenses. The number of mobile subscribers grew at a CAGR of 86% between 2004 and 2008, and the penetration rate reached 71% at the end of September 2009. Zain-Iraq is the market leader, commanding a market share of around 49% at the end of September 2009. Zain-Iraq achieved several major steps over the past two and a half years by winning a 15-year mobile license, fully integrating MTC Atheer and Iraqna, and increasing the company’s ownership to 71.67%. During 2009, the competition intensified, and Asiacell adopted a very aggressive acquisition strategy to the extent that during 3Q2009 Zain-Iraq witnessed a slight decrease in its subscriber base. We believe that the mobile market will witness increased competition, which could put pressure on Zain-Iraq’s margin.

latest news

• January 2010: Due to a disagreement over the quality of service in Niger, the country’s communication ministry stated that it has cut the license duration of its two mobile operators, Zain and Moov (majority owned by Etisalat), until the operators' services returns to the stated levels of service quality. The 15-year license awarded to Zain in 2000 has been reduced by five years, and the 15-year license awarded to Moov (also in 2000) has been reduced by three years.

• November 2009: Zain halted the merger between its Jordanian unit and Palestine Telecommunications Co. after failing to receive regulatory approval.

• November 2009: Zain’s CEO lowered the company’s 2009 revenue guidance by USD 1 billion from the previous

guidance of USD 9 billion. The company’s CEO blamed the global financial crisis, which has changed usage patterns, and foreign exchange rate losses.

• September 2009: The Kuwait Stock Exchange (KSE) announced that National Investments Co. (NIC) reported that one of its clients, Al Khair National for Stocks & Real Estate Co., is set to sell up to 46% of Zain. However, since then uncertainty has prevailed, with news reports of the Indian telecom players, especially BSNL, reportedly dropping out of the deal.

• August 2009: Zain’s board of directors voted to remove limits on the company’s share ownership. Shareholders in Zain agreed to amend company regulations that included removing caps that restrict a shareholder to owning no more 2% of the company’s capital or subscribe to no more than 1,000 shares.

• May 2009: Given the impact of the financial crisis, Zain announced a new strategy, “Drive2011.” The new strategy will focus on the operating model: (a) consolidating and reducing advertising and marketing expenses and (b) enhancing the company’s control over company functions by either centralizing them or outsourcing them to strategic partners.

• May 2009: Zain acquired 56.53% of the equity shares and voting rights of Paltel, in exchange for Zain’s 96.156% equity shares and voting rights in Pella Investment Company in Jordan. Pella is still a subsidiary of Zain as the group retains 56.53% of the equity shares and voting rights in Pella through Paltel. The Palestinian operation was expected to join Zain’s “One Network,” which would encourage the relatively large Palestinian community living in Jordan to use Zain’s network and enjoy the low tariffs. This acquisition in turn would be an added benefit for Zain in Jordan. However, the merger between Zain’s Jordanian unit and Palestine Telecommunications Co. was called off in November.

• March 2009: Through a joint venture with Al Ajial Investment Fund Holding, Zain invested USD 324 million to acquire 31% of Wana Telecom, the third mobile operator in Morocco.


income statement

• Looking for growth outside Zain’s saturated home market, over the past few years, the company has gone on a lavish spending spree, acquiring existing telecom companies and/or greenfield licenses. The company believed that future growth would depend on Zain’s ability to expand regionally

Mobile Telecommunications Company (Zain)




as management forecasted that Zain’s home market would eventually face increased competition and reach saturation. Zain’s top line grew at an impressive CAGR of around 51% between 2005 and 2008. In 2008, Zain’s consolidated revenue grew by 19% to exceed KD 2 billion. Zain benefited on the top-line level from the company’s diversification strategy: the Nigerian operation (included in sub-Saharan Africa in the figure below) was the highest contributor to the group’s top line (22%); this operation witnessed significant growth, 40%, in 2008. The reason behind this increase was the 55% growth in the mobile subscriber base. The company’s home operation, Kuwait, was the second-highest contributor to total revenue (19%). Another high contributor to the group’s consolidated revenue was Sudan (12%).

• In 9M2009, the company’s total revenues grew by 24% to KD 1.78 billion compared to the same period in 2008. This growth is mainly due to the effect of the consolidation of the Iraqi operation and the merger of the Paltel operation in May 2009. Zain announced at the end of November 2009 that the merger agreement between Paltel and Zain-Jordan would not take place as Zain did not receive the required government approvals. Hence, we expect Zain’s revenue to be negatively affected. The cancellation of called-party-pays fees in Kuwait had an impact on Kuwait’s mobile operators in the beginning of 2009. If we look at revenue from the Kuwaiti operation, we will notice that revenues declined by 15% YoY, and the contribution to the total group revenue declined from 20% in 9M2008 to 15% in 9M2009. Iraq and Nigeria were the main contributors to the group’s total revenues, at 16% each, while Sudan contributed 12% in 9M2009. Consolidated revenues from African operations were highly affected by the deprecating value of their local currencies relative to the US dollar. Total foreign exchange (FX) losses doubled in 9M2009 versus 9M2008 to reach roughly USD 130 million.

Revenue Breakdowns by Geography

Kuwait, 19%

Sudan, 12%

Iraq, 3%Sub-Saharan Africa, 56%

Others, 10%

2008

Kuwait, 15%

Sudan, 12%

Iraq, 16%Sub-Saharan Africa, 44%

Others, 13%

9M2009


• On the EBITDA front, Zain’s EBITDA grew at a CAGR of 40% between 2005 and 2008. However, if we look at the EBITDA margin, we will notice that it decreased from 47% in 2005 to 38% in 2008 mainly due to Zain’s aggressive expansion plan. The “Drive 11” initiative has had a positive impact in 2009. Zain has focused on controlling operating expenses related to marketing and distribution during 2009.

• The 9M2009 EBITDA (in KD) grew by 37% to KD 757.3 million implying an EBITDA margin of 42.5%, up from 38% in 9M2008. This improvement is due to the program, “Drive 11,” that Zain adopted earlier in 2009. Iraq, Kuwait, Sudan, and Nigeria together accounted for 64% of the consolidated group EBITDA in 9M2009. Kuwait and Iraq were the highest contributors to group EBITDA, with each contributing around 18% to the total group EBITDA. With the cancellation of called-party pays, Kuwait’s approximate contribution to the total group EBITDA declined from 27% in 9M2008 to 18% in 9M2009. According to management, Zain is planning to continue improving margins through more cost-cutting on an operational level as a way to limit the pressure on revenue growth due to competition and the ongoing economic instability.

• As for the bottom line, although the company still displays solid financial results, its profitability has been decreasing; the net profit margin dropped to 16% in FY2008 compared to 31% in FY2005. In 2008, the bottom line witnessed flat growth and reached around KD 322 million. This was mainly because of a loss of KD 37.1 million due to currency revaluation. Four key markets saw major currency weakness against the USD in 2008: Zambia, Nigeria, Tanzania, and Democratic Republic of Congo (DRC), with currency depreciation of 24%, 18%, 14%, and 9%, respectively.

• After growing at CAGR of 16% over 2005–2008, net income (in KD) witnessed a decline of 17% during 9M2009. Several factors were behind this YoY decline in 9M2009, including the following:

• Zain’s share of the loss from the company’s associate Zain-KSA was included in the bottom line.

• A direct effect of the expansion plan was the increase in fixed costs from depreciation and amortization and finance costs.

• An increase in provision for doubtful debts from KD 2.9 million to KD 9 million,

• A loss of KD 3.1 million from investment income.





• The share of loss of associates reached KD 50.1 million, compared to KD 5.2 million in 9M2008.

EBITDA and Net Income Profile in USD Billions

0.96

2.02

2.43 2.65

3.38

0.65 1.04 1.12 1.13 0.99

47%

44%

41%

38%

41%

32%

23%

19%

16%

12%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

-

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1.00

1.50

2.00

2.50

3.00

3.50

4.00

2005 2006 2007 2008 LTM2009

EBITDA Net Income EBITDA Margin Net Income Margin


Balance sheet

• The growth in assets has been funded by a mix of debt and equity. The use of equity to fund growth has helped contain leverage, albeit at the expense of lower returns. Zain’s growth and expansion through various mergers and acquisitions came at the expense of increased leverage; Zain has a net debt-to-equity ratio of 0.74x as of September 2009.

Net Debt-to-Equity Ratio

0.12x

0.67x

1.09x

0.69x 0.74x

-

0.20

0.40

0.60

0.80

1.00

1.20

2005 2006 2007 2008 9M2009


• As of September 30, 2009, the company’s total debt stood at KD 2.1 billion. Zain does not have significant debt repayments before 2011. In 2009, the company will have a cash outflow related to its Iraqi operations. Zain

needs to pay a final installment of USD 725 million for the Iraqna acquisition (by the end of 2009), and has paid a USD 200 million tranche for the Iraqi mobile license (the company restructured USD 600 million license payables for three years, so Zain will need to pay USD 200 million in 2010 and 2011). In the following figure, we list Zain’s debt maturity profile over 2010—2013.

Zain Debt Maturity Profile in USD Millions*

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2010e 2011e 2012e 2013e

* Figures are approximate. Source: NBK Capital

Debt Capacity sensitivities

• Our analysis reveals Zain has limited capacity to take on additional debt. As of September 2009, Zain has a net debt-to-LTM EBIT ratio of 3.5x. We performed a debt capacity sensitivity analysis to determine the incremental debt capacity of Zain. We noticed that the company has limited headroom to take on additional debt.

Debt Capacity Sensitivity in USD Millions

Net Debt/ LTM EBIT 3.5x 4.0xLTM EBIT 1,777 1,777Net Debt Capacity 6,220 7,109Add: Current Cash Balance 1,157 1,157Total Debt Capacity 7,378 8,266Less: Existing Debt 7,443 7,443Incremental Debt Capacity -66 823








Revenue 1,677,270 2,003,080 1,439,349 1,779,607 Cost of Goods sold (381,206) (461,070) (409,469) (478,487) Gross Profit 1,296,064 1,542,010 1,029,880 1,301,120 Distribution, Mktg. and OPEX (461,655) (577,348) (342,376) (375,918) G&A (142,873) (210,749) (130,564) (158,922) Depreciation & Amortization (236,062) (303,363) (212,304) (302,421) Impairment losses-Goodwill - (63,262) - - Prov. For doubtful debt (3,832) (6,587) (2,873) (8,956) Operating Income 451,642 380,701 341,763 454,903 Interest Income 26,289 31,489 19,623 8,586 Investment Income 21,537 (599) 7,222 (3,140) Inc. from sale of shares in subs. - - 26,543 - Share of loss of associates (3,135) (20,659) (5,187) (50,133) Fair val. gain on prev. held equity int. - 152,413 - - Other income 6,092 21,470 21,872 9,546 Finance Costs (123,586) (128,002) (93,798) (118,596) Loss of currency revaluation 13,144 (37,091) (16,573) (37,334) Board of directors renum. (28) (32) (21) (24) Contribution to KFAS (2,973) (2,978) (2,430) (2,029) Nat. Labor Support Tax & Zakat (5,447) (5,877) (5,434) (5,194) Profit before Tax 383,535 390,835 293,580 256,585 Taxes (40,874) (53,720) (45,974) (33,282) Profit for the year 342,661 337,115 247,606 223,303 Minority interest 22,206 15,113 12,442 27,612 Shareholders of the company 320,455 322,002 235,164 195,691


Cash and bank balances 474,322 261,263 367,871 329,859 Trade and other receivables 184,485 246,276 293,903 517,990 Loan to an associate - - 79,673 57,280 Inventories 14,791 22,047 30,427 33,662 Inv. - at fair val. through P&L 18,455 23,002 16,676 15,368 Current Assets 692,053 552,588 788,550 954,159 Deferred tax assets 40,618 64,724 88,805 112,405 Investments - AFS 134,842 179,468 96,904 110,667 Investment in associates 8,026 259,640 216,389 251,412 Loan to associates - 170,875 - 82,665 Property and equipment 1,131,189 1,495,602 2,026,790 2,213,111 Intangible assets 1,477,557 1,637,255 2,234,423 2,609,691 Other financial assets 6,648 6,850 2,378 2,591 Total Non Current Assets 2,798,880 3,814,414 4,665,689 5,382,542 Total Assets 3,490,933 4,367,002 5,454,239 6,336,701 Trade and other payables 427,396 557,889 908,773 1,164,292 Due to banks 460,721 453,747 231,138 453,743 Due to non-control. int. holders 155,262 18,509 - - Current Liabilities 1,043,379 1,030,145 1,139,911 1,618,035 Due to banks 921,117 1,531,512 1,670,788 1,667,608 Deferred tax liabilities 9,980 31,763 30,283 33,455 Other non current liabilities 16,023 25,276 212,128 97,642 Non Current Liabilities 947,120 1,588,551 1,913,199 1,798,705 Total Liabilities 1,990,499 2,618,696 3,053,110 3,416,740 Share capital 126,182 189,398 427,240 428,059 Share premium 624,465 624,465 1,690,772 1,690,772 Treasury shares (15,576) (15,576) (567,834) (567,834) Legal reserve 63,091 94,699 127,788 127,788 Voluntary reserve 63,091 63,091 63,091 63,091 Foreign currency translation res. (24,390) (26,014) (97,692) (53,283) Treasury shares reserve - - 1,967 1,967 Equity issue trans. cost of assoc. - - (1,746) (1,812) Investment fair valuation res. 41,778 67,704 (9,201) 5,949 Share based compensation res. 5,736 12,222 20,395 23,949 Hedge reserve - - (60,382) (53,645) Retained earnings 470,055 571,938 625,014 762,128 Non- controlling interests 146,002 166,379 181,717 492,832 Total equity 1,500,434 1,748,306 2,401,129 2,919,961 Total Liabilities and Equity 3,490,933 4,367,002 5,454,239 6,336,701




Companies in Focus



Key Data

KSE Code NIND.KSE 52-week avg. volume 10,129,593 Reuters Code NIND.KW 52-week avg. value (KD) 3,809,005


Million KD 407.96 Latest (million) 1,295


General Liquidity




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national inDustRies gRoup holDing (nig)

highlights

• National Industries Group Holding (NIG) is one of the largest listed investment holding companies in Kuwait. Established in 1961, NIG was listed on the Kuwait Stock Exchange in 1984.

• NIG’s net profit figure is highly dependent on investment income. For 9M2009, income from investments dropped by 49% to KD 62 million, down from KD 121 million in 9M2008.

• NIG has investments spread across several regions spanning an array of industries. As of 9M2009, NIG’s investments account for almost 79% of total assets.

• NIG’s net profit in 9M2009 fell to KD 0.43 million from KD 102 million in 9M2008, a drop of almost 100%.

Key Ratios

2006 2007 2008 9M2009

Net Debt to Equity 67% 84% 238% 168%Investments/Total Assets 73% 81% 77% 79%Investments/Equity 128% 155% 273% 222%

ROA 14% 10% 4% N/AROE 25% 19% 13% N/A


May Zuaiter


analysts

Badder Al Ghanim







overview

National Industries Group Holding (NIG) is one of the largest listed investment holding companies on the Kuwait Stock Exchange since its initial public offering in 1984. Incorporated in 1961, NIG was established with the sole purpose of participating in the advancement of Kuwait’s infrastructure and promoting its progression through the development of Kuwait’s building materials industry. In its early stages, NIG was instrumental in the development of Kuwait’s industrial base through the company’s establishment of companies such as Kuwait Cement Company, Kuwait Metal Pipes Industries, and Gulf Cables. As the company grew throughout the years, it embarked on a policy of product diversification and international expansion during the latter decade, with the GCC serving as its first target market outside Kuwait. As a result, NIG has a web of operations across the GCC, Pakistan, Europe, and the Americas spanning several industries, including petrochemicals, infrastructure, and financial services.

latest news

• December 02, 2009: NIG filed a lawsuit against a unit of U.S. private equity firm Carlyle Group over a USD 25 million investment loss. NIG has taken provisions to cover this investment loss in 2008. Thus, this loss will not affect 2009 results, according to the company.

• June 23, 2009: NIG subsidiary, Ikarus Petroleum Industries Company, announced the acquisition of 11% of the shares in Saudi Arabia-based International Acetyl Company and International Vinyl Company. The shares were valued at SR 240 million.


income statement

• NIG reported a 20% drop in sales during 9M2009 when compared to 9M2008. NIG’s revenue is broken down into three major segments: investments, specialist engineering, and building materials.

• In 9M2009, NIG recorded a gross profit figure of KD 12.5 million, a 32% drop from 9M2008. Additionally, gross profit margin declined from 21% in 9M2008 to 18% in 9M2009.

• NIG’s bottom line is highly affected by investment income as is evident in 9M2008 when this line item accounted for 119% of net income. As for 9M2009, income from investments dropped by 49% year on year.

• NIG’s net profit in 9M2009 fell to KD 0.43 million from KD 102 million in 9M2008, a drop of almost 100%.

Balance sheet

• As a holding company, NIG’s balance sheet is naturally dominated by a sizable investment book. The company’s latest financials show that investments account for 79% of total assets.

• The KD 1.3 billion that NIG has in investments is dominated by available-for-sale investments (KD 890 million), followed by investments in associates (KD 258 million). The remaining KD 184 million is distributed among held for trading, property investments, and Murabaha and Wakala investments.

• NIG investments are spread in different regions of the world. Below is a list of subsidiaries and associates that fall within NIG’s investment book based on the company’s latest financial statements.

NIG Subsidiaries and Associates

Local Subsidiaries % Ownership Associates % Ownership Foreign Subsidiaries % OwnershipNational Industries Co. 51% Kuwait Privatization 28% Proclad Companies 100%Proclad International 100% Kuwait Cement 25% NIG Bahrain 100%Eagle Propriety 100% Kuwait National Real Estate 16% NIC Holding Guernsey 100%Ikarus Petroleum 72% Marsa Alam Holding 20% NIG Guernsey LTD 100%Noor Financial 51% Al Rayah 23% Gw/Gas Division 100%Lulua National Industries 100% Eastern United Petroleum 20% NIC Holding UK 100%Gas & Oil Field Services 100% Kuwait Rocks 38%NIC for Combined Energy 100% Karachi Electric 40%National Land Transport 100% Meezan Bank 45%National Combined Health 100% Noor Telecom 39%Al Durra Real Estate 100%Denham Investment 100%

National Industries Group Holding (NIG)


National Industries Company

• NIG’s 51%-owned subsidiary, National Industries Company (NIC), is one of the largest building materials manufacturers in the region. Listed on the Kuwait Stock Exchange with a market cap of KD 140 million, NIC is principally engaged in the provision of complementary products to meet the demands of housing and infrastructure projects. The company has production facilities in both Kuwait and Saudi Arabia, with a product portfolio that includes aerated concrete blocks, sand lime bricks, ready mix and concrete pipes.

Ikarus Industrial Petroleum (Ikarus), Saudi International Petroleum (SIPCHEM), and National Industrialization Company (Tasnee)

• Ikarus is an investment vehicle with a range of investments in petrochemicals and the oil and gas sector within the MENA region. Incorporated in Kuwait, Ikarus was listed on the Kuwait Stock Exchange in 2008. The company’s current business strategy entails investing in start-ups or acquisitions of at least a 20% stake in large and mature operations with stable cash flows.





• Key investments of Ikarus include SIPCHEM and Tasnee. The former was founded in 1998 in Saudi Arabia and produces butandiol, methanol, acetic acid, vinyl acetate monomer, and carbon monoxide. Tasnee, on the other hand, was established in Saudi Arabia in 1985 and produces various chemical and metallurgical products such as polypropylene, HDPE, LDPE, and lead. Ikarus owns an 8% and 5.3% stake in SIPCHEM and Tasnee, respectively.

Noor Financial Investments (Noor)

• Noor Financial Investment Company is a Kuwaiti company, engaged in investment activities and financial services primarily in Kuwait, the Middle East, Asia, and other emerging markets. Noor provides a range of financial services, which include advisory services, underwriting, syndications, and asset management. Noor follows a diversified investment strategy with major investments in private equity and direct investments in the capital markets. Noor actively invests in the Kuwaiti capital markets and diversifies its investments through the international capital markets, which include other GCC countries, emerging markets such as Pakistan, China, and India, and limited exposure in the developed markets of the United States and Europe. In addition to serving independent clients, Noor plays a vital role in advising NIG and its subsidiaries on investment transactions.

Meezan Bank

• Meezan Bank is one of NIG’s international investments. Meezan is a Pakistan-based Islamic bank. The bank currently has 166 branches across 40 cities in Pakistan, making Meezan Bank the largest Islamic bank in Pakistan. In 2006, Noor Financial acquired a 16% stake in Meezan Bank, whose shares are listed on the Karachi Stock Exchange. During the fourth quarter of 2007, Noor acquired additional shares in Meezan, which increased Noor’s shareholding to 45%.

Kuwait Privatization Project Holding Co. (KPPHC)

• Kuwait Privatization Project Holding Co. (KPPHC) was established in 1994 and is currently listed on the Kuwait Stock Exchange with a market cap of KD 54 million. The major shareholders are NIG and Kuwait Financial Center (which is 12% owned by NIG).

• The objective of KPPHC is to finance, evaluate, and provide consulting services to a selected group of Kuwaiti companies and regional projects, with a focus on controlling stakes in entities providing services in different sectors such as energy, infrastructure and real estate, as well as participating in BOT government projects.

Mabanee

• Mabanee, a pure rental play in the Kuwaiti retail segment, is currently the largest real estate company in Kuwait in terms of market capitalization. NIG currently owns 20% of Mabanee. For more information, please refer to page 89.



Sales 117,458 112,821 85,598 68,201 Cost of sales (90,102) (89,782) (67,370) (55,726) Gross Profit 27,356 23,039 18,228 12,475

Income from investments 250,129 37,088 121,184 61,984 Profit from disposal of subsidiary - 1,653 Share of profits of associates 19,737 2,451 15,236 7,571 Income on disposal of associate - - - 5,753 Changes in fair value of investment properties - 5,697 7,689 3,996 Interest and other operating income 22,122 31,509 29,443 11,596 Distribution costs (7,979) (6,612) (4,202) (2,864) General, administrative and other expenses (24,127) (22,815) (17,071) (17,917) Operating Profit 287,238 70,357 170,507 84,247

Finance costs (52,220) (67,609) (49,880) (40,771) Profit on disposal of PP&E 2,215 - - - Impairment in value of AFS investments (2,000) (326,305) (10,681) (29,647) Impairment in value of wakala investments - (2,485) - (2,498) Impairment in value of goodwill (2,608) - - - Impairment in value of associates (6,084) - - - (Loss)/gain on foreign exchange 19,790 (11,514) 8,624 (13,068) Profit before taxes and directors remuneration 246,331 (337,556) 118,570 (1,737)

Taxes and directors remuneration (7,670) (314) (3,781) (150) Profit for the year 238,661 (337,870) 114,789 (1,887)

Minority Interest 29,297 (55,907) 12,977 (2,316) Profit attributable to shareholders 209,364 (281,963) 101,812 429


Goodwill 13,586 10,697 8,231 8,267 Property, plant and equipment 31,465 34,304 40,506 49,065 Investment in associates 125,912 286,301 303,079 257,506 Investment properties 552 - 22,645 33,498 Available for sale investments 426,399 846,206 634,900 764,093 Deferred tax 151 132 108 133 Total Non-current Assets 598,065 1,177,640 1,009,469 1,112,562

Inventories 23,960 23,323 22,992 21,571 Available for sale investments - - 178,114 126,045 Accounts receivables 56,330 129,232 89,635 80,847 Murabaha and wakala investments 57,608 33,883 29,800 15,178 Investments at fair value 456,165 590,542 158,816 135,214 Short term deposits 248,758 187,079 214,999 135,572 Bank balances and cash 16,258 17,894 29,325 49,504 Total Current Assets 859,079 981,953 723,681 563,931

Total Assets 1,457,144 2,159,593 1,733,150 1,676,493

Bonds issued and trust certificates 45,857 171,227 158,720 164,936 Long term borrowing 79,710 165,190 177,837 17,721 Leasing creditors 59 375 608 719 Provisions 11,638 9,558 8,369 8,957 Total Non-current Liabilities 137,264 346,350 345,534 192,333

Accounts payable 52,203 74,569 80,545 57,479 Bonds issued - - 14,431 - Short term borrowing 403,185 571,211 767,124 784,028 Due to banks 31,652 37,046 39,719 41,991 Total Current Liabilities 487,040 682,826 901,819 883,498

Total Equity 832,840 1,130,417 485,797 600,662

Total Equity and Liabilities 1,457,144 2,159,593 1,733,150 1,676,493

Source: Company’s financial statements and NBK Capital



Companies in Focus



Key Data

KSE Code NINV.KSE 52-week avg. volume 1,587,848 Reuters Code NINV.KW 52- week avg. value (KD) 775,422

Closing Price 0.325 YTD -7.1%52-week High/Low 0.690/0.236 1-Year Period -33.3%


Price Performance


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General Liquidity

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national investMent CoMpany (niC)

highlights

• National Investment Company (NIC) is one of the largest asset management companies in Kuwait, with a market capitalization of around KD 262 million.

• The hit on the investment portfolio in 2008 decreased fair value reserves, resulting in a decline in equity. The company’s investment portfolio shrank by 93% in 2008, whereby cumulative changes in fair value dropped from KD 51.8 million to KD 3.4 million. By 9M2009, cumulative changes in fair value rallied slightly to KD 8.2 million.

• A significant portion of the company’s investments are liquid. This allows NIC to convert investments into cash relatively quickly, making it easy to repay debt.

• There has been a change in the company’s reporting methods, whereby NIC has taken advantage of the amendments to IAS 39, allowing the company to convert “held for trading” (HFT) securities to the “available for sale” (AFS) portfolio.

• Assets under management (AUM) grew from KD 1 billion in 2004 to KD 2.24 billion in 2008.

Key Ratios

2005 2006 2007 2008 9M2009

Net Income Growth 181.8% -27.7% 136.2% -135.6% -111.9%Management and Advisory Fees Growth 74.0% -84.0% 0.8% -4.6% -44.7%AUM Growth 114.0% 3.7% 65.4% -38.8% N/A

AFS-to-Assets 33.1% 35.7% 34.3% 61.6% 64.6%AFS-to-Equity 48.1% 60.5% 55.0% 82.4% 78.5%

ROAA* 30.6% 13.2% 15.4% -6.0% -20.1%ROAE* 42.8% 20.4% 22.9% -7.2% -25.2%

Debt-to-Equity 28.5% 69.8% 33.7% 27.9% 17.1%


analyst

Wadie Khoury






a weak performance as operating profit fell by 84% YoY due to a 44.7% drop in management fees and a complete wipeout of incentive fees. This slashed EBIT margins from 65% in 9M2008 to 45% in 9M2009.

• Between 2004 and 2008, management fees as a percentage of average assets under management (AAUM) were consistently below 1%. This figure declined from 0.94% in 2005 to 0.44% in 2008. Furthermore, incentive fees as a percentage of AAUM also fell from 0.77% in 2005 to 0.49% in 2008. This could be due to the effects of the financial crisis, whereby fees related to the management of funds were affected in one way, and incentive fees were not paid due to the difficulty in outperforming the benchmark.

Assets Under Management

1.0

2.1 2.2

3.7

2.2

1.51%

1.71%

1.39%

1.10%

0.94%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

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1.5

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2.5

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2004 2005 2006 2007 2008

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AUMs Management fees + Incentive fees as % of AAUMs

Sources: Company annual reports and NBK Capital

• As of July 1, 2008, NIC adopted amendments to IAS 39 enabling the company to reclassify trading investments with a carrying value of KD 30.8 million from the “fair value through income statement” category to the “available for sale” category. The company recorded unrealized losses of KD 7.8 million effective July 1, 2008, which contributed to the loss incurred in FY2008.

Balance sheet

• Assets declined by 5.7% in the first nine months of 2009, due to a significant decline in unquoted equity investments. Quoted investments picked up by 35.2% between 2008 and September 2009, helping offset larger declines in assets for the first nine months of the year.

• The most notable effect on the assets side of the balance sheet in 2008 is the 78% decline in investments at fair value through the income statement (HFT), due to market performance and the implementation of the amendments of IAS39. The largest contributor to this decline was

overview

NIC is involved in investment management. This includes equity trading, private equity investments, and asset management services. The company is responsible for managing several funds, including equity, alternative, and money market funds. Some of the most notable equity funds include the Al-Wataniya Fund (investing in Kuwaiti listed equities), the Al-Safwa Fund (Shari’ah-compliant equity investments), and the Al-Darji Fund (GCC Shari’ah-compliant equities). NIC has a large proprietary book from which it tries to derive most of its profits.

latest news

• November 02, 2009: National Investments Company announced its request to buy back 10% of its shares within a six-month period starting November 21, 2009.


income statement

• With the company’s business operations revolving around market investments, NIC’s earnings are volatile. Earnings between 2004 and 2008 fluctuated significantly, from a high of KD 59.1 million in 2005 to a loss of KD 20.7 million in 2008. Similarly, earnings dipped from KD 42.4 million in 9M2008 to a loss of KD 5.1 million in 9M2009.

• A significant portion of the company’s reported income derives from market investments (which include realized and unrealized gains, sales of available-for-sale investments, and dividend income). Between 2005 and 2008, income from market investments averaged 30% of total income. In 9M2009, market investments contributed KD 9.4 million to total income, down from KD 25.2 million in 9M2008. This was mainly due to KD 4.9 million in realized investment losses in 9M2009 compared to a gain of KD 11.5 million in 9M2008. Unrealized gains made up the largest portion of investment income, contributing 34% of the company’s income in 9M2009.

• We define an investment company’s profit from operations as income generated from management and advisory fees less general and administrative costs. This gives a clearer picture as to how well the company has been able to generate a stable income stream from investing clients’ funds. Operating profit increased by a CAGR of 51.2% in the three years ending in 2007. In 2008, we could see the effect of the financial crisis take a toll on the company’s operating profits as they dropped by 34.8% compared to 2007 results. The first nine months of 2009 displayed

National Investment Company (NIC)




the local quoted security investments portfolio, which decreased significantly from KD 80.9 million in 2007 to KD 8.5 million in 2008. The reclassification resulted in a jump in the AFS portfolio from 39% of assets in 2007 to 62% in 2008.

• The majority of NIC’s assets fall under private and public investments in securities, both HFT and AFS. In 2007, HFT made up 30% of the total shareholders’ equity but declined to 9% of shareholders’ equity in 2008.

• Between 2007 and 2008, equity was severely affected by the devaluation of investments. Shareholders’ equity dropped by 30% due to changes in fair value and a drop in retained earnings. The company’s equity balance increased in the first nine months of 2009 as the value of investments more than doubled within this time period, leading to a 3.9% increase in shareholders’ equity.

• NIC’s debt-to-equity ratio decreased from 28% in December 2008 to 17% in September 2009. It is worth noting that NIC has taken on only short-term debt. With liquid assets totaling KD 94.2 million as of September 2009, repaying short-term debt of KD 36.9 million should not be an issue for NIC.



Realized/Unrealized gain on invest. 27,142 (10,426) 11,987 6,034 Investment Income 44,942 40,799 37,345 8,797 Foreign Exchange Trading (2,471) 2,675 1,104 444 Share of Results from Associates 4,972 (496) 3,699 (150) Other Income - - 2,250 3,500

Income 74,585 32,552 56,385 18,625 Selling/General/Admin Expenses (6,571) (10,956) (8,753) (3,259) Operating Income 68,014 21,596 47,632 15,366 Finance Costs (8,116) (4,425) (3,485) (1,746) Other, Net 634 (37,904) 212 (18,677) Net Income before Taxes 60,532 (20,733) 44,359 (5,057) Share of Associate tax - - - - Zakat (37) - (444) - Contribution to KFAS (509) - (379) - NLST (1,513) - (1,109) - Directors' fees (235) - - - Net Income 58,238 (20,733) 42,427 (5,057)


Cash and Cash Equivalents 35,340 53,769 11,673 12,700 Investments 174,306 251,434 190,459 185,863 Other Assets 103,138 112,727 75,351 63,215 Total Assets 312,784 417,930 277,483 261,778 Short Term Debt 123,704 99,707 57,937 36,932 Accounts Payable and Accruals 11,777 22,752 12,123 9,352 Total Liabilities 135,481 122,459 70,060 46,284 Total Equity 177,303 295,471 207,423 215,494 Total Liabilities and Equity 312,784 417,930 277,483 261,778


National Investment Company (NIC)


Companies in Focus



national Real estate CoMpany (nReC)

highlights

• National Real Estate Company (NREC) is one of the largest real estate companies in Kuwait in terms of market capitalization. The company is primarily a rental player, and has its presence all across the region.

• The company is part of the Sultan Group, and holds a 22.4% stake in Agility, according to the 9M2009 financials. NREC’s stake in Agility appears at a cost of KD 207.9 million on the balance sheet as of September 30, 2009. The Agility stake, as of January 18, 2010, is valued at KD 145.4 million, 30% lower than the value reported in the 9M2009 financials. The Agility stake accounts for almost 24.6% of the total assets and 59.6% of total shareholders’ equity. Therefore, any material change in the value of Agility could have a significant impact on NREC’s shareholders’ equity.

• A back-of-the-envelope calculation shows Souq Sharq accounts for the majority of the company’s rental income. NREC owns quite a few other income-generating properties in Kuwait, but our main concern is the old age of those properties.

• In 9M2009, NREC’s proportionate share of Agility’s net profit was more than NREC’s net profit (KD 25.9 million vs. NREC’s reported net profit of KD 20.6 million), which means that the core real estate operations of the company are reporting losses. This was the trend for 2006 and 2008 as well.

Key Data

KSE Code NRE.KSE 52-week avg. volume 3,871,270 Reuters Code NREK.KW 52-week avg. value (KD) 1,021,894

Closing Price 0.206 YTD 4.0%52-week High/Low 0.355 / 0.174 1-Year Period -3.7%



General Liquidity




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Key Ratios

2005 2006 2007 2008 9M2009

Rental Income (% of Total Income) 23% 24% 13% 18% 13%

Net Share in the Associate's Results (% of Total Income) 51% 56% 61% 70% 52%

Net Share in the Associate's Results (% of Net Profit) 67% 113% 93% 172% 126%

EBITDA (KD million) 6.2 6.2 -4.4 -9.7 -4.6

EBITDA Interest Cover (x) 3.7 1.8 -0.8 -2.9 -2.1

Net Debt-to-Equity 0.3 0.1 0.4 0.7 0.7

ROAA (%) 25% 13% 12% 4% 4%

Adjusted ROAA (%) 2% -12% -4% -6% -2%

ROAE (%) 35% 17% 18% 8% 9%

Capital Work in Progress (% of Total Assets) 1% 6% 10% 44% 43%

Investment in Associates (% of Total Assets) 56% 61% 47% 33% 36%

Investment in Associates (% of Total Equity) 81% 80% 81% 85% 86%




analyst

Mariam Al-Bahar






overview

National Real Estate Company (NREC) is one of the largest Kuwaiti real estate companies in terms of market capitalization. The company was established in 1973, and was listed on the Kuwait Stock Exchange in 1984. NREC specializes in developing, trading, and managing commercial and industrial real estate properties, including shopping centers, office properties, resorts and hotels, and retail centers, both locally and internationally. The company is part of the Sultan Group, and holds a 22.4% stake in Agility, according to the 9M2009 financials.

Completed Projects

Country Project Location Use Year of completion Leasable Area (sq. m)

Mishal Tower Sharq Commercial Offices, Retail 2008 -

Sharq Marke Sharq Retail 1998 28,300

El Joan Resort Juliaa Resort - -

Watya Complex Qebla Commercial Complex 1979 11,186

Souq Al Wataniya Mirqab Commercial Complex 1978 12,971

Al Wataniya Tower Kuwait City Commercial Complex 1989 3,332

Bobyan Complex Farwaniya (Dhajeej Area) Commercial Complex 1993 9,916

Dasman Complex Dasman Commercial Complex 1979 16,081

Kuwait


Upcoming Projects

Country Project Location Use

Najmat Abu Dhabi Reem Island, Abu Dhabi Mega Commercial Center

TECOM Dubai Dubai Media City Hotel, Commercial Offices

SHAMS Abu Dhabi Reem Island, Abu Dhabi Hotel, Commercial Offices, Residential

Iraq Erbil Mega Erbil Shopping mall, Appartments, Hotel, Offices

Egypt TELAL 6th of October Residential Villas

Aqaba AL-Aqaba city Offices, Warehouse

Amman Zahran road, Amman Mix Use

Agricola Project Al Romail Residential

West End Project Pastor street, Gemmayze Commercial Offices

Libya Palm city residences Janzour Residential Appartments, Commercial Center

Pakistan Canal Residence Lahore Luxury Residential Villas

Lebanon

Jordan

UAE



income statement

• The company’s rental income increased by 5% in 2008, to KD 8 million, compared to 2007. Following the same trend, rental income increased by 7.9% in 9M2009, to KD 6.5 million, compared to the same period a year before.

• However, NREC’s rental income decreased by 52.8% in 2007, to KD 7.7 million, compared to the same period a year before, due mainly to the cancellation of a management contact for the Kuwait Free Trade Zone. NREC has appealed against this outcome and is still waiting for a final court ruling on the matter.

• Rental income for the company decreased at a five-year CAGR of 13.5% for the period 2003 to 2008 mainly due to the same reasons that were instrumental in the decline

in 2007. Thus, rental income as a percentage of total income decreased steadily, from 45% in 2003 to 22% in 9M2009.

• A back-of-the-envelope calculation shows Souq Sharq accounts for the majority of the company’s rental income. NREC owns quite a few other income-generating properties in Kuwait, but our main concern is the old age of those properties.

• A closer look at the financials shows that the company reported losses at the EBITDA level of KD 4.38 million and KD 9.67 million for 2007 and 2008, respectively. This was the trend in 9M2009 as well.

• The company’s net share in the associates’ results is entirely due to the share of Agility’s profit. According to the 9M2009 financials, NREC’s share of Agility’s profit accounted for 100% of the net share of the associates’ results.

• The net share of associates’ results reached KD 25.9 million in 9M2009, which is flat compared to the same period a year before. However, proportionate profits from associated companies (as a percentage of total income) increased steadily, from 26% in 2003 to 90% in 9M2009.

• The net share of associates’ results as a percentage of net profit increased steadily, from 41% in 2003 to 126% in 9M2009. As of 9M2009, NREC’s proportionate share of Agility’s net profit was more than the company’s net profit (KD 25.9 million vs. NREC’s reported net profit of KD 20.6 million), which means that NREC’s core real estate operations reported losses. This was the trend for 2006 and 2008 as well.

• Net profit remained flat in 9M2009, at KD 20.9 million, compared to the same period a year before.

• The apparent loss from the real estate operations can be further justified by comparing the return on average assets (ROAA) for the whole company and specifically for the real estate operations. We observe that the ROAA for the company decreased significantly from 25% in 2005 to 4% in 9M2009. However, to calculate the return on core real estate assets, we adjusted the ROAA by excluding investment gains/losses and share in the associates’ result from the net profit and excluded the available-for-sale investment portfolio and investments in associates from the total assets. The adjusted ROAA for the real estate operations decreased from a positive 2% in 2005 to a negative 6% in 2008.

National Real Estate Company (NREC)




Balance sheet

• The company is part of the Sultan Group, and holds a 22.4% stake in Agility, according to the 9M2009 financials. NREC’s stake in Agility appears at a cost of KD 207.9 million on the balance sheet as of September 30, 2009. The Agility stake, as of January 18, 2010, is valued at KD 145.4 million, 30% lower than the value reported in the 9M2009 financials. The Agility stake accounts for almost 24.6% of the total assets and 59.6% of total shareholders’ equity. Therefore, any material change in the value of Agility could have a significant impact on NREC’s shareholders’ equity.

• The company’s capital work in progress increased significantly from KD 38.2 million in 2007 to KD 255.8 million in 9M2009 mainly due to new projects undertaken by the company. Capital work in progress accounted for 43% of the company’s total assets as of September 30, 2009.

• The company had a net debt-to-equity ratio of 0.68 at the end of 9M2009. Of that debt (KD 189 million as of September 2009 end), 33.8% is due within one year. With only KD 15.2 million in cash, the company will have to refinance that debt. However, refinancing KD 63.8 million of short-term debt may not be easy in the current situation.

• We would like to highlight that NREC is exposed in a limited way in terms of market investments compared to some of its Kuwaiti counterparts. The company’s investment book stood at KD 21.6 million as of 9M2009, which accounted for 9% of shareholders’ equity, in line with the last five years' average.



Rental Income 7,677 8,030 4,192 6,460

Operating Expenses 11,611 12,961 9,471 7,600

Net Share in the Associate's Results 36,201 31,465 16,832 25,934

Investment Income 9,304 3,454 81 84

Total Income 59,452 44,759 21,721 49,980

Net Profit 39,021 18,292 13,366 20,562


Cash & Cash Equivelant 8,020 12,960 15,160 15,139

Investment in Associates 169,309 185,405 177,843 210,402


Capital Work in Progress 16,876 38,217 235,429 255,802

Total Assets 277,598 396,276 532,949 589,756

Bank Facilities 34,517 114,807 156,556 181,700





National Real Estate Company (NREC)


Companies in Focus



oula Fuel MaRKeting CoMpany (oula)

highlights

• Oula Fuel Marketing Company (Oula) is one of the two publicly listed operators of fuel stations in Kuwait. The company’s operating assets consist of 40 gas stations acquired from the government. Oula was listed on the Kuwait Stock Exchange (KSE) on December 18, 2006.

• Oula has a major presence in the Kuwaiti retail petrol market. The company along with its closest publicly listed competitor, Soor, dominate the retail petrol market with a combined market share north of 60%, in our estimate.

• Oula’s business model is simple and stable, if not especially lucrative. The company has no control over prices or direct costs of sales. The government of Kuwait sets the retail price of petrol. Oula procures petrol from the state and is allowed to market the petrol at a specified gross profit margin, which thus far has been established at 12.8%. In terms of fundamental drivers, Oula’s top-line growth is largely predicated on the demand for petrol and the company’s ability to open up new fuel stations. Given that demand for petrol is relatively inelastic, the company’s revenues grew by 3.9% in 9M2009 compared to 9M2008 despite the economic slowdown. Operating margins remain low, around the 3% to 4% mark.

• Oula remains debt-free given that the company has a limited scope of expansion beyond the company’s existing footprint in Kuwait. As of September 30, 2009, Oula had a cash balance (including term deposits with maturities within one year) of KD 8.7 million. Oula has paid KD 0.010 per share in cash dividends for FY2007 and FY2008.

• Unlike many Kuwaiti companies, Oula does not have an overwhelmingly significant investment book. Investments made up 20.2% of shareholders’ equity as of September 30, 2009, up from 15% at the end of 2008.

Key Data

KSE Code OULAFUEL.KSE 52-week avg. volume 88,512

Reuters Code OULA.KW 52-week avg. value (KD) 30,445

Closing Price 0.420 YTD -2.0%

52-week High/Low 0.210 / 0.480 1-Year Period 81.0%


Ownership Structure


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52-week High: KD .480


Key Ratios

2005 2006 2007 2008 9M2009

Sales Growth N/A 76.2% -1.6% 6.3% 3.9%Operating Profit Growth N/A 54.6% 31.7% 24.2% -19.0%EBITDA Growth N/A 8.8% -23.1% 24.3% 13.8%

Gross Profit Margin 12.8% 12.8% 12.8% 12.8% 12.8%Operating Profit Margin 3.2% 2.8% 3.7% 4.4% 3.3%EBITDA Margin 8.4% 5.2% 4.0% 4.7% 5.0%Net Profit Margin 3.1% 4.6% 5.5% 4.1% 4.3%

ROA 2.5% 6.7% 7.9% 6.9% N/AROE 4.2% 10.0% 10.4% 8.2% N/A

Current Ratio 1.25 1.56 1.83 1.64 1.34Quick Ratio 1.24 1.54 1.81 1.60 1.30Investment to Equity 0.0% 0.6% 7.0% 15.0% 20.2%Net Cash (KD Millions) 24.8 24.5 20.6 10.6 8.7


analyst

May Zuaiter






overview

Oula is one of the only two publicly listed operators of fuel stations in Kuwait. Established in May 2004, the company derives the majority of its revenues from retail petrol sales through 40 petrol stations in Kuwait. Oula also generates income from 1) customer service centers in fuel stations, 2) automotive services (car wash, oil change, car maintenance, etc.), 3) filling and storing fuel, and 4) shipping and trading in petroleum products. Historically, the company has been involved in buying, leasing, and selling real estate assets related to its operating activities and has invested a portion of its financial surplus in various financial investments. Oula has a wholly owned subsidiary, Oula National Market Services, and owns 25% of Petronet Global Computer Services. The government has a 24% stake in Oula through the Kuwait Petroleum Corporation (KPC).

Major Shareholders

Major Shareholders Type Country Holding

Alfa Energy Corporate United Kingdom 24.61%Kuwait Petroleum Corporation Government Kuwait 24.00%Kharafi National Corporate Kuwait 12.00%Others 0.69%Public 38.70%

Source: Zawya

latest news

• November 2009: Oula announced the appointment of a new chairman, Ahmed Abdulaziz Al-Ghannam, effective November 16, 2009.

• March 2009: The board of directors recommended a distribution of 10% cash dividends representing KD 0.010 per share, for the fiscal year ending December 31, 2008. Oula paid a similar dividend for FY2007, while no dividends were paid for FY2006.


income statement

• The relatively inelastic demand for petrol continues to drive steady growth in Oula’s top line. Despite the overall economic slowdown, the company’s revenues grew by 3.9% in 9M2009 following 6.3% annual growth in 2008.

• Gross margins have remained at 12.8% since inception given Oula’s business model. Simply stated, the retail price of petrol is set by the government. Oula procures petrol from the state and is allowed to market the petrol at a specified gross profit margin, which thus far has been established at 12.8%.

• Since Oula has no control over gross margins, the company’s operating profitability is predicated on management’s ability to streamline operating costs. Our analysis shows that Oula’s 9M2009 profitability improved on an EBITDA basis, but operating profits fell because of significantly higher depreciation and amortization expenses.

• The company was able to improve profitability on a cash basis given that EBITDA increased by 13.8% and 24.3% in 9M2009 and 2008, respectively. Consequently, Oula’s EBITDA margin increased to 5% in 9M2009 versus 4.6% and 4.7% in 9M2008 and 2008, respectively.

• However, Oula’s operating profit declined by 19.0% in 9M2009 after increasing by 24.2% in FY2008. The fall in 9M2009 operating profit was due to 1) a 14.5% increase in general and administrative expenses and 2) more importantly, an increase in the company’s recorded depreciation and amortization expenses, which skyrocketed by almost 5.5x as the majority of Oula’s non-current assets were reclassified as property, plant, and equipment (PP&E) instead of intangibles (mostly goodwill, in our view). While the total non-current assets eked out 5.8% growth versus September 2008, this significant rise in depreciation and amortization expenses was driven by the aforementioned reclassification. Essentially, Oula was able to get an independent valuation of the company’s acquisition of the 40 fuel stations. This allowed the company to reallocate its total cost of acquiring these fuel stations to PP&E, leasehold rights (a three-year period from the government and renewable), and the commercial license in 2009. Previously, Oula allocated a significant portion of the company’s acquisition costs to intangible assets (goodwill), which does not require periodic depreciation and amortization charges. Operating profit increased in 2008, primarily driven by a reduction in certain expenses, including fuel station management fees, general and administrative expenses, lease rentals, and “other” operating expenses.

• The 9M2009 decline in net income outpaced the decline in operating income given lower interest income on reduced cash balances and lower income on investments. Cash and term deposits fell 28% relative to September 2008, while the effective yield on murabaha investments fell to 4.25% in September 2009 from 7.75% in 3Q2008. The company also suffered a realized loss of approximately KD 40,000 on the sale of available-for-sale (AFS) investments in 9M2009 versus a gain of roughly KD 374,000 in 9M2008. All these factors contributed to lowering net income by 33.8% in 9M2009, implying a net margin of 4.3% versus 6.8% in 9M2008.

Oula Fuel Marketing Company (Oula)




Balance sheet

• Oula remains debt-free given the limited scope of expansion beyond the company’s existing footprint in Kuwait. The company had a cash balance (including term deposits with maturities within one year) of KD 8.7 million as of September 30, 2009.

• Unlike many Kuwaiti companies, Oula does not have an overwhelmingly significant investment book. As we have stated previously, the company invests a part of excess capital in financial investments. Oula’s investment book made up 20.2% of the company’s shareholders’ equity in September 30, 2009, up from 15% in December 31, 2008. AFS investments, which include unquoted local investments more susceptible to impairment (as they are recorded at cost since their fair values cannot be reliably determined), dropped to 58% of the overall investment book in September 30, 2009 versus 74% in 2008. This is because the company started investing in somewhat lower-risk wakala investments, while increasing its exposure to murabaha investments.

Breakdown of Available-for-Sale Investments

Financial Investments (KD '000) 2007 2008 9M2008 9M2009

Available for sale investments 2,740 4,347 4,628 4,570

Of which, held in unquoted investments 805 1,916 1,355 1,777

Murabaha investments - 1,500 1,500 1,700

Wakala investments - - - 1,545

Total Financial Investments 2,740 5,847 6,128 7,815

Investment to Equity 7.0% 15.0% 15.8% 20.2%

Source: Company’s financial statements



Revenue 73,949 78,634 58,137 60,390 Cost of Sales (64,484) (68,569) (50,695) (52,660) Gross Profit 9,465 10,065 7,441 7,730

Operating Costs (4,810) (4,833) (3,472) (4,019) General & Admin. Expenses (1,884) (1,791) (1,481) (1,696) Operating Income 2,771 3,441 2,488 2,015

Depreciation & Amortization 216 272 187 1,029 EBITDA 2,987 3,713 2,675 3,043

Loss in of FV of AFS - (1,400) - - Cash Dividend - 155 156 24 Loss on Sale of AFS (0) (220) 374 (40) Loss on Disposal of PP&E (62) - - - Interest income 1,242 918 818 347 Other Income 281 490 301 401 EBT 4,232 3,383 4,137 2,747

KFAS (38) (30) (33) (25) NLST (106) (81) (100) (68) Zakat (3) (32) (40) (28) Board of Directors Remuneration (45) (45) - - Profit for year 4,040 3,195 3,964 2,626


Property, plant, and equipment 953 2,127 3,957 27,141 Available for sale investments 210 2,740 4,347 4,570 Intangible assets 23,965 23,965 23,965 1,738 Murabaha investments - - 1,500 1,700 Investment in associates - - 466 466 Total Non-Current Assets 25,127 28,831 34,235 35,616

Inventory 386 321 324 375 Trade and other receivables 1,970 1,324 1,358 2,343 Time deposits 20,723 16,308 3,030 6,000 Wakala investments - - - 1,545 Cash and cash equivalents 3,728 4,324 7,552 2,716 Total Current Assets 26,807 22,278 12,264 12,979

Total Assets 51,934 51,109 46,499 48,594

Share Capital 29,973 29,973 29,973 29,973 Statutory reserve 498 921 1,259 1,259 Voluntary reserve 498 921 1,259 1,259 Fair value reserve - 94 (82) 118 Retained Earnings 3,803 6,997 6,517 6,145 Total Equity 34,771 38,906 38,927 38,755

Provision for staff indemnity 16 61 105 181 Total Non-Current Liabilities 16 61 105 181

Trade payables 25 456 357 1,095 Notes payable 137 Accrued expenses &staff leave pay 89 74 136 115 KFAS 45 38 68 93 NLST 91 106 187 255 Zakat - 3 35 63 Dividends payable to shareholders - - 602 725 Board of Directors remuneration 45 45 45 - Advances received - 58 35 2 Other 12 10 25 49 Due to related parties 16,703 11,353 5,975 7,261 Total Current Liabilities 17,147 12,142 7,467 9,658




Oula Fuel Marketing Company (Oula)


Companies in Focus



taMDeen investMent CoMpany (taMDeen)

highlights

• Tamdeen Real Estate Company is the majority shareholder in Tamdeen Investment Company, with a 51.37% stake. Fatah Al Khair Holding Group, a Kuwaiti family-owned business, owns 15% of the company, while Kuwait Portland Cement Company has a 10% stake.

• Of the company’s available-for-sale (AFS) investments, quoted investments in foreign securities account for roughly 86% as of September 30, 2009. These investments are in equities, which tend to be volatile. This increases the risk associated with these securities.

• Although the company does not have any financial assets carrying interest rates, the company faces interest rate risk through floating interest rate loans from banks and bank facilities.

• Tamdeen Investment has no long-term debt but has increased its short-term debt via banking facilities. With roughly KD 57.3 million in short-term debt (short-term loans and bank facilities) and lackluster earnings from core operations, the company may face a reduced ability to repay the debt.

• In 9M2009, the company reported a net profit of KD 2.43 million, reflecting a decline of 41%. The third quarter of 2009 resulted in a net profit of KD 262 thousand, compared to a loss of KD 968 thousand in 3Q2008.

Key Data

KSE Code TAMI 52-week average volume 605,455 Reuters Code TAMI.KW 52-week average value KD 94,945




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analysts

Lisa Fernandes


May Zuaiter


Key Ratios

2005 2006 2007 2008 9M2009

Net Profit Margin (%) 64.5% 67.5% 59.2% 21.6% 23.8%

ROA 3.2% 2.9% 3.6% 1.2% N/AROE 3.5% 3.7% 5.1% 2.2% N/A

Current Ratio (X) 0.25 0.12 0.03 0.08 0.45Debt to Assets (X) 0.05 0.18 0.27 0.42 0.41Debt to Equity (X) 0.06 0.24 0.39 0.78 0.71

AFS-to-Assets 92.8% 85.2% 80.4% 66.5% 57.2%AFS-to-Equity 100.2% 110.3% 114.0% 124.0% 100.4%Equity-to-Assets 92.6% 77.2% 70.6% 53.6% 57.0%







holding long-term strategic shares in Kuwaiti and foreign stockholding companies.)

• The company did not report any gains from investment property sales in 2008. This is in contrast to 2007, when Tamdeen Investment reported a gain on the sale of investment properties amounting to KD 2.5 million; this accounted for 17% of total revenue in 2007.

• Moreover, gains from AFS investments accounted for 92% of total revenue in 2008, and actually declined by 30% YoY.

• In 2008, Tamdeen Investment reported positive growth in only two revenue segments: subscription and portfolio management fees (these grew by 363% and 32%, respectively, and reached KD 1.3 million in total).

• Net-net, in FY2008, total revenue showed negative growth of 43% compared to 2007.

• During 9M2009, investment companies continued to bear the brunt of the financial crisis. However, Tamdeen Investment witnessed a 13% YoY increase in revenues.

• During 9M2009, the company recorded KD 5 million in gain from sales of investments in associate companies that made up 49% of total revenue; Tamdeen Investment did not record any such gains in 9M2008. During 3Q2009, the company sold its entire stake in Barwat Al Doha Real Estate Company for a profit of roughly KD 4.6 million. During 2Q2009, the company sold its entire stake in British Industries Printing and Packaging Company to an associate company, which resulted in a net profit of KD 383,171.

• During 9M2009, Tamdeen Investment’s share of associates recorded a 21% increase to represent 10% of total revenues.

• Gains from AFS investments declined 42% YoY to make up 37% of total revenues in 9M2009.

• Subscription and portfolio management fees declined by 89% YoY in 9M2009.

• Since Tamdeen Investment deals with financial instruments in USD and Qatari Riyals, the company is exposed to foreign exchange risk. The company reported a foreign exchange loss of KD 90,640 in 2008, versus a foreign exchange profit of KD 386,643 in 2007 (these figures were reported as part of other revenue in 2007 and 2008). In 9M2009, the company reported a foreign exchange loss of KD 79,711, versus a gain of KD 11,046 in 9M2008.

overview

In 1997, Tamdeen Investment (formerly known as Gulf Investment Projects Company) was established and registered as an investment company with the Central Bank of Kuwait. The company was listed on the Kuwait Stock Exchange (KSE) in May 2006.

Tamdeen Real Estate Company is the majority shareholder in the company, with 51.37% ownership. Fatah Al Khair Holding Group, a Kuwaiti family-owned business, holds a 15% stake in Tamdeen Investment; Fatah Al Khair also owns a 25% stake in Tamdeen Real Estate Company. Kuwait Portland Cement owns 10% of the investment company, and the balance of the equity is publicly traded.

The company’s main focus areas are the following:

• Managing financial investment transactions related to securities, including the acquisition and sale of private sector shares and bonds.

• Providing consultation services to clients on asset utilization, as well as consultation and advisory services on mergers and acquisitions (M&A) and business succession to corporate clients.

• Delivering investment and portfolio management services. The company holds many direct investments. Its primary investments are in Ahli United Bank and Kuwait National Cinema Company.

Tamdeen Investment had an asset base of around KD 141 million and shareholders’ equity amounting to around KD 80 million as of September 30, 2009. The company’s stock is relatively illiquid, with a 12-month average daily trading value of KD 96,789.


income statement

• The unimpressive 2008 financial results for Tamdeen Investment are a consequence of the current financial crisis and the resulting poor performance of the company’s portfolios. Since the company’s business operations revolve around market investments, Tamdeen Investment’s earnings are expected to be volatile.

• Revenue dropped by 83% year on year (YoY) in 3Q2008, and turned negative in 4Q2008 due to losses reported by the group’s associate companies. The share of profits from associates turned negative in 2008 due to the performance of Tamdeen Holding, which reported a loss of KD 6 million. (Tamdeen Holding is a 25%-owned subsidiary that deals with acquiring, establishing, managing, developing, and

Tamdeen Investment Company (Tamdeen)




• Total expenses and other charges recorded a 10% increase in 2008 and reached KD 6.6 million, with finance costs being the major contributor (77%). In 9M2009, total expenses and other charges increased by 59% and reached approximately KD 7.8 million. The rising expenses are attributable to the impairment of investment in 9M2009, which were roughly KD 4 million, accounting for 51% of total expenses. Of this impairment, KD 2.5 million was attributable to a decrease in the value of investment in associates, while the remaining charge came from a decrease in the value of AFS investments.

• On the back of negative growth in operating profit, Tamdeen Investment’s net profit declined by 79% during 2008, with losses incurred in the last two quarters of the year. For 9M2009, net income declined by 41% to KD 2.4 million. The net profit margin declined from 46% in 9M2008 to 24% in 9M2009.

Balance sheet

• The asset base of the company decreased by 10% in the first nine months of 2009. As of September 30, 2009, AFS investments accounted for 57% of total group assets and 100% of total equity.

• Of the AFS investments, quoted investments in foreign securities account for roughly 86% as of September 30, 2009. These investments are in equities, which tend to be volatile. This increases the risk associated with these securities.

• On the liabilities side, the company’s loan book declined by 14% by September 30, 2009, compared to September 30, 2008; this loan book currently accounts for 95% of Tamdeen Investment’s total liabilities. It is important to note that Tamdeen Investment had only short-term debt (short-term loans and banking facilities), representing 41% of total assets as of September 30, 2009. (In 2007, the company’s long-term debt accounted for 40% of total debt, but this debt was retired in 1Q2008.) Between September 30, 2008, and September 30, 2009, short-term loans were reduced by around 18%. However, the company increased its bank facilities by 8% during the same time period. These loans and bank facilities carry floating interest rates and are secured against AFS investments. With more than KD 57 million in short-term debt and lackluster earnings from core operations, the company may face a reduced ability to repay the debt.

• In 2008, equity fell by 50% as a result of a 72% decline in the fair value reserve. As of September 30, 2009, the shareholders'-equity-to-total-assets ratio was 57%.

• The group manages portfolios for clients; the value of these portfolios amounted to around KD 134.5 million as of September 30, 2009.



Gains from AFS investments 11,107 7,766 6,606 3,803 Gains from sale of inv. properties 2,499 - - Gains from sale of inv. in ass. co. - - - 4,984 Share from associates’ results 210 (986) 844 1,023 Subscription fees 239 1,107 1,050 43 Loss/gain from FX 11 (80) Portfolio management fees 170 225 163 93 Other revenue 500 300 320 336 Total revenue 14,726 8,411 8,994 10,202

General and administrative costs (331) (632) (814) (903) Staff costs (555) (838) - - Finance costs (4,801) (5,080) (3,955) (2,811) Impairment of Investment - - - (3,972) Other Expenses (327) (43) (131) (85) Tot. expenses and other charges (6,014) (6,593) (4,899) (7,771)

Net profit for the year 8,712 1,818 4,095 2,431


AssetsCash and cash equivalents 55 633 4,413 6,458 Receivables & other debit bal. 1,242 572 1,545 20,791 Available for sale investments 146,782 192,817 103,960 80,552 Investments in associates 1,528 44,828 45,421 31,947 Land & R/E under dev. 14,895 817 894 918 Properties and equipment 19 30 205 181 Investment properties 7,053 Projects under progress 750 Total Assets 172,323 239,695 156,438 140,848

LiabilitiesPayables and other credit bal. 7,536 5,075 7,120 3,265 Loans and bank facilities 31,726 65,376 65,410 57,280 End of service indemnity 25 60 48 68 Total Liabilities 39,287 70,511 72,578 60,613

- - EquityShare capital 28,350 28,350 31,185 31,185 Share premium 10,000 10,000 10,000 10,000 Changes in fair value reserve 88,679 119,892 33,426 26,152 Retained earnings 5,159 9,592 8,388 10,819 Other Liabilities 848 1,350 861 2,079 Total Equity 133,036 169,184 83,860 80,235

- (1)Total Liabilities and Equity 172,323 239,695 156,438 140,848


Tamdeen Investment Company (Tamdeen)


Companies in Focus



highlights

• Tamdeen Real Estate Company (Tamdeen Group) specializes in developing, trading, and managing commercial and industrial real estate properties, including retail centers, office properties, and hotels―locally and internationally.

• The company operates through several subsidiaries, namely Tamdeen Shopping Centers Company, Tamdeen Holding Company, Tamdeen Investment Company, and Tamdeen Entertainment.

• Tamdeen Group has several major projects that are currently under construction. We feel that upcoming projects, in Kuwait and in other countries in the Gulf Corporation Council (GCC), will act as income boosters and provide the company with further diversification―region-wise and project-wise.

• Total recurring income (which includes operational income, fees from managing real estate and investment portfolios, and other operating income) for the company decreased by 6% in 9M2009 to KD 9 million, compared to KD 9.6 million in 9M2008. This decrease is entirely due to the decrease in operational income.

taMDeen gRoup

Key Data

KSE Code TAM.KSE 52-week avg. volume 439,404 Reuters Code TAMK.KW 52-week avg. value (KD) 126,224




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Key Ratios

2005 2006 2007 2008 9M2009

Operating Income (% of Total Income) 34% 46% 31% 31% 50%Total Recurring Income (% of Total Income) 40% 54% 35% 32% 56%Investment Income (% of Total Income) 34% 34% 44% 24% 16%

EBITDA (KD million) 1.67 3.39 2.69 -1.28 2.19EBITDA Interest Cover (x) 0.4 0.7 0.3 -0.1 0.3Net Debt-to-Equity (x) 0.6 0.7 0.8 1.7 2.1

ROAA (%) 3% 1% 3% 3% 0%Adjusted ROAA (%) -3% -2% -4% 10% -1%

Investment Book (% of Total Assets) 41% 47% 46% 27% 21%Investment Book (% of Total Equity) 83% 106% 102% 103% 93%


analyst

Mariam Al-Bahar






overview

Tamdeen Real Estate Company is one of Kuwait’s leading real estate companies. Originally established in 1982, the company was recently rebranded as Tamdeen Group. The company is engaged in real estate investment and development activities in and outside Kuwait. Tamdeen Group specializes in developing, trading, and managing commercial and industrial real estate properties, including retail centers, office properties, and hotels. The company sold its flagship property Al-Fanar Mall in 2008 and recently completed the 360° mall. Tamdeen Group also manages third-party properties, establishes and manages real estate investment funds, conducts real estate studies, provides consultancy services, and invests in companies with similar activities. Tamdeen Group operates through several subsidiaries, namely Tamdeen Shopping Centers Company, Tamdeen Holding Company, Tamdeen Investment Company, and Tamdeen Entertainment.



Fateh Al Khair Group Holding Company Corporate Kuwait 25%Al Salemiya United Real Estate Company Corporate Kuwait 20%KIPCO Asset Management Company Corporate Kuwait 15%Mashaal Jassem Al Marzouk Private Kuwait 12%Public - - 28%

Open to GCC Investors 100%Open to Foreign Investors 100%


Sources: Company’s financial statements, Zawya, and NBK Capital

Subsidiaries

Name Country Holding

Tamdeen Housing Company [80% Directly, 20% via Tamdeen Holding Company Kuwait 100.00%

Tamdeen Investment Company Kuwait 51.37%

Manshar Real Estate Company Kuwait 50.00%

Tamdeen Entertainment Company Kuwait 45.00%

Tamdeen Holding Company Kuwait 43.00%

Fu-com Central Markets Company Kuwait 33.00%

Tamdeen Shopping Center Development Company Kuwait 30.00%

Ajmal Holding Company Bahrain 29.00%

Beyoo Leasing and Finance Company Kuwait 21.00%

Sources: Company’s financial statements, Zawya, and NBK Capital

Major projects

Major completed projects

Madinat Al Fahaheel

Madinat Al Fahaheel is a mixed-use development project spread over 300,000 sq. m. in Fahaheel. The project has two main components: Al Kout and Al Manshar Towers and Complex.

Al Kout

The shopping center offers a mix of international, regional, and local brands complemented by a food court and a yacht club. The shopping center is acclaimed due to its design and has won several accolades.

Al Manshar Towers and Complex

Just a short walk from Al Kout, Al Manshar Towers and Complex is a mixed-use commercial and residential real estate project. It features a shopping mall, food court, four residential towers, an office tower, and the five-star Al Manshar Rotana Hotel.

Al Manshar Rotana Hotel

This five-star hotel with 200 rooms spread across 18 floors is located to the west of the Al Manshar Complex and Towers. The hotel was completed in April 2007.

360° Mall

360° Mall is a shopping mall destination developed at the intersection of King Faisal Highway and 6th Ring Road. The mall is strategically located in a busy and rapidly growing residential area and has a unique circular design. The mall has a shopping area of more than 82,000 sq. m. and is the second-largest mall in Kuwait after the Avenues. The mall was completed in June 2009.

Major upcoming projects

Mall Of Kuwait

The Mall of Kuwait will be located between the two highways linking Kuwait City to the south in the Sabahiya area. The mall will have a massive retail area of 150,000 sq. m., and will have a hypermarket, five anchor stores, and entertainment facilities. However, sources have led us to believe that the project may be delayed or even cancelled.

Baraya

The Baraya project is a joint venture of Tamdeen Group, Imtiaz Investment Company, and Barwa Real Estate Company from Qatar. This mixed-use project, located in the heart of Doha, is part of the renovation of the downtown. The project will incorporate a premium shopping mall with 70,000 sq. m. of leasable area, a five-star business hotel, and a 25-storey class A office tower with a leasable area of around 30,000 sq. m.

Sarab Al Areen

Sarab Al Areen is located in the Al Areen development in the south of the Kingdom of Bahrain. Sarab Al Areen will offer the only retail component in this prestigious development, with an estimated gross leasable area of 175,000 sq. m.

Tamdeen Group





income statement

• Total recurring income (which includes operational income, fees from managing real estate and investment portfolios, and other operating income) for the company decreased by 6% in 9M2009 to KD 9 million, compared to KD 9.6 million in 9M2008. This decrease is entirely due to the decrease in operational income (mainly rental income).

• Operational income for the company decreased by 10% in 9M2009 to KD 8.1 million, compared to KD 9 million in 9M2008. In 2008, operational income reached KD 11.7 million, which was flat compared to 2007. However, operational income increased by a significant 40.9% to KD 11.63 million in 2007, compared to the same period a year before, due mainly to the completion of the Madinat Al Fahaheel project.

• Operational income accounted for 50% of the total income in 9M2009, compared to the five-year average of 35% for the period 2004–2008.

• Operational expenses decreased by 38% in 9M2009 to KD 2.4 million, compared to KD 3.8 million in 9M2008.

• A closer look at the real estate–related income shows that the company reported losses at the EBITDA level in 2008. The company reported negative EBITDA of KD 1.3 million for 2008, mainly due to the increase in operating expenses. However, Tamdeen Group reported positive EBITDA of KD 2.2 million in 9M2009.

• Net profit decreased significantly from KD 35.4 million in 9M2008 to KD 2 million in 9M2009. We would like to highlight that the 9M2008 net profit was influenced by the gain from the sale of the Al-Fanar complex. The company sold the Al-Fanar complex for KD 55 million, resulting in a gain of KD 36.2 million in 2008.

• Though boosted by the Al-Fanar sale, the net profit for 2008 was significantly offset by impairment in the value of investment properties (the waterfront in Fahaheel) worth KD 18.7 million. As a result, the net profit for 2008 increased by 18% in 2008 to KD 13.6 million, compared to KD 11.6 million in 2007. This impairment was was due to the significant increase in the rental charges of the project that was officially claimed by the Ministry of Finance.

• Investment income decreased by 67% to KD 2.5 million in 9M2009, compared to KD 7.7 million in 9M2008. As a result, investment income as a percentage of total income decreased to 16% in 9M2009 compared to the five-year average of 37% for the period 2004–2008.

• The return on average asset (ROAA) for the company was 0.4% in 9M2009, compared to 3.1% in 9M2008.

• Adjusted net profit (excluding non-core real estate income and investment gains/losses) decreased significantly from a profit of KD 27.1 million in 9M2008 to a loss of KD 2.9 million in 9M2009. However, as mentioned earlier, the impressive adjusted net profit in 2008 is entirely due to the profit recorded from the sale of the Al-Fanar complex.

Balance sheet

• The company had a net debt-to-equity ratio of 2.0x at the end of 9M2009, compared to a five-year average of 0.9x for the period 2004–2008. The significant increase in total debt and sale proceeds from the Al-Fanar complex sale was used to fund the 360° mall and other projects that are currently in progress.

• The company’s equity and total debt stand at KD 104 million and KD 221 million, respectively, as of September 30, 2009. We would like to highlight that this debt was raised against the mortgaging of investment properties, available-for-sale (AFS) investments, and projects in progress.

• Tamdeen Group holds a 51.34% stake in Tamdeen Investment Company. Hence, all reported financials for the Tamdeen Group are consolidated. The total debt of KD 221 million is not entirely due to the parent company. Tamdeen Investment Company, which had KD 57.3 million of debt outstanding as of September 30, 2009, accounted for 13% of the total debt for Tamdeen Group.

• The company’s investment book (both AFS and held for trading) stood at KD 97 million at the end of September 2009, accounting for 93% of the shareholders’ equity and 21% of the total assets. Of the KD 97 million, 43% is due to the consolidation of Tamdeen Investment Company (investment portfolio of KD 80.55 million as of September 2009).

Tamdeen Group






Operational Income 11,625 11,676 8,990 8,119Operational Expenses 4,511 5,655 3,827 2,382Net Operating Income 7,114 6,021 5,163 5,737

Other Operating Income 1,302 422 433 784Fees from Management of RE & Inv. Portfolios 136 225 163 93Profit from Sale of Share in a Subsidiary 753 0 0 383Profit form Sale of Investment Properties 3,726 36,227 36,227 0Impairment in Value of Investment Properties 0 -18,741 0 0Profit from Sale of Inv. in Lands & RE HFT 0 39 39 0Sale of Land included in Projects in Progress 1,850 0 0 0Net Investments Income 16,207 8,951 7,665 2,535Share of (loss)/Profit in associated companies 482 -3,508 581 1,920Impairment in Value of Inv.in an associated Co. 0 0 0 -2,489Other Income 729 2,748 2,062 2,445Foreign Currency Exchange (loss)/Profit 351 -90 1 -70Expenses and other ChargesStaff Costs 3,057 3,794 2,785 1,988General and Administrative Expenses 2,805 4,157 2,937 2,438Finance Costs 10,026 10,028 8,172 6,458Profit for the year before KFAS, NLST & Zakat 16,762 14,315 38,440 454

Contribution to KFAS -139 -143 -359 -33Contribution to Zakat -9 -135 -432 -93Provision for NLST -405 -328 -1,061 -137Board of Directors' remuneration -170 -243 0 0Profit for the yearShareholders of the Parent Company 11,562 13,593 35,427 2,018Minority interest 4,477 -127 1,161 -1,827Net Profit 16,039 13,466 36,588 191


AssetsNon-current assetsAvailable-for-sale investments 163,461 197,463 119,065 95,898Investments in associated companies 7,073 51,113 52,668 59,579Investments in unconsolidated subsidairy Co. 0 0 9,125 9,125Investment properties 90,088 86,759 48,333 47,606Projects in progress 69,523 68,450 179,671 210,201Machines and equipment 215 696 802 1,413Total non-current assets 330,360 404,481 409,664 423,822

Current AssetsCash and bank balances 1,272 1,595 8,535 6,409Short-term deposits 6,604 4,347 11,776 10,726Inv. at fair value through statement of income 17 18 204 994Accounts receivable and other debit balances 4,092 7,120 10,352 8,238Inv. in lands and real estate held for trading 8,600 14,522 4,813 12,031Total current assets 20,585 27,602 35,680 38,398Total assets 350,945 432,083 445,344 462,220

Liabilities and Shareholders' EquityTotal equity - Parent company 154,523 193,157 116,049 104,053Minority interest 57,911 63,908 102,956 101,487Total equity 212,434 257,065 219,005 205,540

Liabilitiesnon-current laiabilitiesTerm loans 83,807 85,600 119,250 158,150Bonds Issued 19,792 19,848 0 0Refundable rental deposits 2,051 2,077 3,697 4,049Provision for end of service indemnity 445 402 470 522Total non-current liabilities 106,095 107,927 123,417 162,721

Current liabilitiesBank facilities 4,928 4,172 14,221 15,280Accounts payable and other credit balances 21,338 18,029 20,526 31,164Current portion of term loans 6,150 44,890 68,175 47,515Total current liabilities 32,416 67,091 102,922 93,959Total liabilities 138,511 175,018 226,339 256,680Total equity and liabilities 350,945 432,083 445,344 462,220


Tamdeen Group


Companies in Focus



the tRanspoRt anD WaRehousing gRoup (tWg)

highlights

• In 9M2009, both the travel and tourism business line and the transportation business line witnessed a decline in revenue; the revenue of the travel and tourism business line decreased by 12%, and that of the transport business declined by 5%. Total revenues, however, grew 8% year on year (YoY) to KD 9.6 million, given the top-line contribution of KD 1.2 million from the warehousing and real estate segment (details below).

• The 9M2009 EBITDA increased by 5% and reached KD 3 million, compared to KD 2.9 million in 9M2008. On the positive side, the increase in the cost of sales did not keep pace with revenue growth, increasing 3% YoY. However, general and administrative (G&A) expenses increased 32% in 9M2009, depressing margins. Depreciation charges increased 25% from 9M2008. Net-net, EBITDA margins declined from 32.4% in 9M2008 to 31.6% in 9M2009.

• The 9M2009 results witnessed a sharp incline of 75% in net income, mainly due to the gain on the acquisition of the warehousing business, which resulted in a one-off gain in 1Q2009 amounting to KD 2.7 million. If we exclude this one-off event, the company’s net profit declined by 34% in 9M2009.

• TWG had a total debt-to-equity ratio of 0.15x as of September 30, 2009. The company is well positioned to service its debt through its high liquidity and strong cash-generating capabilities.

Key Data

KSE Code TRANSPORT 52-week avg. volume 20,392 Reuters Code TTGC.KW 52-week avg. value KD 13,004



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Key Ratios

2005 2006 2007 2008 9M2009

Gross Profit Margin (%) 60.4% 48.8% 47.7% 45.9% 47.9%Operating Profit Margin (%) 37.8% 23.2% 17.4% 16.3% 17.2%Net Profit Margin (%) 36.9% 42.6% 30.0% 24.6% 16.8%

ROA 66.1% 11.3% 8.5% 9.7% N/AROE 74.2% 14.3% 10.2% 11.5% N/A

Current Ratio (X) 9.42 3.80 5.70 4.76 1.80Debt to Assets (X) 0.05 0.14 0.10 0.05 0.12Debt to Equity (X) 0.06 0.18 0.12 0.06 0.15

Receivables Turnover Ratio 2.08 1.90 1.58 2.00 N/AInventory Turnover Ratio 26.93 20.56 18.44 15.01 N/APayables Turnover ratio 0.59 2.29 2.49 2.55 N/A


analysts

Lisa Fernandes


May Zuaiter







and administrative (G&A) expenses increased by 32% in 9M2009, depressing margins. Depreciation charges increased by 25% from 9M2008. Net-net, the EBITDA margin declined from 32.4% in 9M2008 to 31.6% in 9M2009. In 2008, EBITDA declined by 4% to stand at KD 3.4 million; the EBITDA margin dropped from 29.9% in 2007 to around 28.6% in 2008. These 2008 results can be attributed to the fact that the growth of the company’s cost of sales has outpaced the growth in revenues.

• The 9M2009 results witnessed a sharp increase of 75% in net income, mainly due to the gain on the acquisition of the warehousing business, which resulted in a one-off gain in 1Q2009 amounting to KD 2.7 million. This “unusual” accounting gain arose as the purchase price of the warehousing business was determined to be lower than the provisional fair value of the net assets acquired. If we exclude this one-off event, the company’s net profit would have declined by 34% in 9M2009. In 2008, net profit declined by 18% to reach KD 2.9 million; this was mainly due to the decline in other income by 32%. Other income is mainly composed of interest income, which declined by 40% in 2008.

Balance sheet

• Liquidity concerns are not a source of worry for this company; TWG’s debt-to-equity ratio stood at 0.15x at the end of September 30, 2009 with cash and cash equivalents amounting to roughly KD 2.3 million. This was a considerable drop since December 31, 2008, when cash and cash equivalents stood at KD 15.4 million. This drop in cash occurred because the company spent a considerable portion of this cash to pay for acquiring the warehousing business.

• A study was conducted in our monthly publication, MENA in Focus, dated December 4, 2008, that examined the degree of exposure that companies in Kuwait have to investments. The study also examined the solvency of these companies in the short-term and their ability to meet the debt obligations from their operations. Per the December 2008 study, TWG fell under the category of companies with good solvency and low investment exposure; as of September 30, 2009, the company had no investment exposure and a favorable quick ratio of 1.7.

overview

The Transport and Warehousing Group Co KSC (TWG) is a public limited company listed on the Kuwait Stock Exchange (KSE) with a paid-up capital of KD 9.83 million. TWG is engaged in a variety of activities related to land, sea, and air transport through the company’s four fully owned subsidiaries:

• Transport and Warehousing Real Estate Group Company

• Boodai Aviation Company

• Boodai Aviation Agencies Company

• Abar Oilfield Services Company

latest news

• January 2009: TWG’s wholly owned subsidiary, Transport and Warehousing Real Estate Group, acquired 100% of the net assets of the real estate division of Al Masar United Company for a cash consideration of KD 9.5 million.


income statement

• In 9M2009, both the travel and tourism business line and the transportation business line witnessed a decline in revenue; the revenue of the travel and tourism business line decreased by 12%, and that of the transport business declined by 5%. Total revenues, however, grew by 8% to reach KD 9.6 million, due to the top-line contribution of KD 1.2 million from the warehousing and real estate segment. In January 2009, TWG’s wholly owned subsidiary, Transport and Warehousing Real Estate Group, acquired 100% of the net assets of the real estate division of Al Masar United. As a result, TWG has an additional source of revenue generated from the warehousing and real estate segment in 2009. In 9M2009, this new revenue stream accounted for 12% of the total revenue. In 2008, TWG’s revenue grew by just 0.4%, compared to the increase of almost 7% seen in 2007. This was mainly due to the slowdown in the travel and tourism business line, which decreased by 40% in 2008. With the global financial crisis, this business line has faced difficulties. A closer look at the total revenues reveals that the transport business is still the main contributor to total revenues (88% during 2008); this line item grew by roughly 11% in 2008.

• The 9M2009 EBITDA increased by 5% and reached KD 3 million compared to KD 2.9 million in 9M2008. On the positive side, the increase in cost of sales (+3%) was lower than revenue growth (+8%). However, general

The Transport and Warehousing Group (TWG)






Revenue 11,861 11,903 8,942 9,617 Cost of Goods sold 6,203 6,443 4,858 5,011 Gross Profit 5,658 5,460 4,084 4,605 G & A expenses 2,115 2,056 1,191 1,571 EBITDA 3,542 3,404 2,893 3,034 Depreciation 1,481 1,462 1,104 1,376 Operating Income 2,062 1,942 1,789 1,658 Others 1,637 1,136 793 235 Profit before Tax 3,699 3,078 2,582 1,893 Taxes 143 150 125 274 Profit from Ordinary Activities 3,556 2,928 2,457 1,620 Gain on purchase of warehousing bus. 2,676 Profit for the Year 3,556 2,928 2,457 4,295


Cash and cash equivalents 1,890 13,525 15,382 2,271 Trade and other receivables 2,999 3,935 3,215 4,048 Due to related parties 11,906 12,185 730 1,095 Inventories 276 336 429 518 Current Assets 17,071 29,982 19,756 7,931

Fixed-assets-PP&E 13,870 11,886 10,305 25,923 Due from related party 10,995 Total Non Current Assets 24,865 11,886 10,305 25,923 Investment in associate 45 Total Assets 41,936 41,868 30,061 33,899

Current portion of loan 2,006 2,767 1,625 1,680 Trade and other payables 2,487 2,493 2,526 2,724 Current Liabilities 4,492 5,260 4,151 4,404

Non current portion of loan 4,066 1,387 - 2,220 Post employment benefits 425 499 543 561 Non Current Liabilities 4,490 1,886 543 2,781 Total Liabilities 8,983 7,146 4,694 7,185

Share Capital 8,933 9,827 9,827 9,827 Legal reserve 4,467 4,837 5,144 5,144 General Reserve 4,467 4,837 5,144 5,144 Retained Earnings 15,087 15,223 5,251 6,598 Total Equity 32,953 34,722 25,367 26,714



The Transport and Warehousing Group (TWG)


Companies in Focus



uniteD Real estate CoMpany

highlights

• United Real Estate Company (United Real Estate) is one of the premier real estate companies in Kuwait. The company is a real estate developer in Kuwait with a major focus on hospitality, commercial, and retail properties. The company’s real estate portfolio includes commercial complexes, hotels, resorts, residential buildings, shopping malls, high-rise office buildings as well as mixed-use projects.

• United Real Estate has major projects across business segments and geographic locations. We feel this diversification not only lends strength to the business model but also insulates the company from downturns in any particular region or country.

• The company’s land bank is worth highlighting as it has a book cost of KD 77.6 million and accounts for 24% of total assets according to the 9M2009 financials. We feel this is significant when compared to the current market capitalization of the company, which stood at KD 63.8 million as of December 21, 2009.

• The company’s net profit decreased significantly from a profit of KD 7.4 million in 9M2008 to KD 1.9 million in 9M2009. This decrease was mainly due to the decline in non-operating income and the increase in total expenses.

• We feel it is worth highlighting that the company’s investment book stood at KD 27.8 million as of 9M2009, accounting for 18% of the shareholders’ equity and 9% of the total assets. The investment book as a percentage of equity is an area of concern.

Key Data

KSE Code URC.KSE 52-week avg. volume 1,153,021 Reuters Code UREK.KW 52-week avg. value (KD) 103,726




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2005 2006 2007 2008 9M2009

Rental Income (% of Total Income) 56.2% 39.6% 43.4% 57.1% 59.9%

Non–Operating Income (% of Total Income) 33.6% 42.1% 31.7% 17.3% -13.0%

Non–Operating Income (% of Net Profit) 59.8% 91.7% 84.3% 66.3% -120.0%



Net Debt-to-Equity (x) 25.0% 35.1% 71.4% 51.3% 53.3%

ROAA 7.0% 7.0% 4.7% 2.2% 0.2%

Adjusted ROAA (%) 9.7% 14.6% 11.4% 7.5% 7.1%

ROAE (%) 13.0% 13.6% 9.5% 4.8% 0.4%

Investment in Associates (% of Total Assets) 13% 30% 27% 21% 22%

Lands for Development (% of Total Assets) 8% 0% 6% 24% 24%

Investment Book (% of Total Assets) 1.8% 6.0% 8.1% 9.1% 8.6%

Investment Book (% of Total Equity) 3.6% 11.3% 17.5% 20.4% 19.4%


analyst

Mariam Al-Bahar






latest news

• October 14, 2009: Abdali Investment and Development reported that the Abdali Urban Regeneration Project will open in 2010. The entire project will consist of 12 buildings, including hotels, retail outlets, restaurants, apartments, and offices. United Real Estate is a part of the joint venture responsible for the development of the project.


income statement

• United Real Estate reported total real-estate-related income of KD 19.9 million in 9M2009, up 42% compared with the same period a year before. The growth was mainly due to the sale of properties held for trading (growing by more than five times) to KD 5.1 million during 9M2009 compared to the same period last year.

• Growth in rental income increased by 7% YoY, amounting to KD 10.6 million in 9M2009 compared to KD 9.9 million in 9M2008. This growth is almost double compared to that of the historical growth rates; whereby, the company’s rental income increased at a five-year CAGR of 3.9% for the period from 2003 to 2008. As a result, rental income as a percentage of total revenue increased slightly, from 53% in 2003 to 57% in 2008.

• Non-operating income decreased significantly from a surplus of KD 6 million in 9M2008 to a loss of KD 2.3 million in 9M2009. This decline was mainly due to foreign exchange losses that amounted to KD 3.5 million.

• Total expenses increased by 26% to KD 15.8 million in 9M2009 compared to KD 12.5 million in 9M2008 due to the inclusion of the carrying value of the sold properties. If we are to exclude this value, total expenses dropped by 9.5% in 9M2009 from 9M2008.

• The company’s net profit decreased significantly from KD 7.4 million in 9M2008 to KD 1.9 million in 9M2009. This decrease was mainly due to the decline in non-operating income as well as the inclusion of the carrying value of properties sold.

overview

Originally founded in 1973, United Real Estate Company is one of the premier real estate companies in Kuwait, and is part of KIPCO Group. A real estate developer in Kuwait, the company focuses on hospitality, commercial, and retail properties. The company develops properties and rents and manages third-party properties. The company studies the location and economic activity of the targeted property, and then outsources the construction. The company has major projects across various business segments and geographic locations.



United Gulf Bank Corporate Bahrain 28.91%Kuwait Projects Company (via Kuwait United Consultancy Company) Corporate Kuwait 11.29%Public - 59.80%




Company projects

existing projects

Project Location Use

Al-Shaheed Tower Sharq, Kuwait City Office Building

City Tower Sharq, Kuwait City Office Building

Al Mutahida Complex Kuwait City Offices and Shopping Mall

Al Maseel Complex Kuwait City Offices and Shopping Mall

Saleh Shehab Resort Al Jela'aa Chalet Resort

Marina World Salmiya Shopping Mall and Hotel

Sheraton Helioplis Egypt Five-star Hotel

Bhamdoun Hotel and Commercial Center Bhamdoun, Lebanon Four-star Hotel and Commercial Center

Rawcheh Hotel Rawcheh in Beirut, Lebanon Five-star Hotel

Major completed projects - Kuwait

Major completed international projects

Sources: Company’s annual report and NBK Capital

Major upcoming projects

• United Tower

This office tower is located close to the Al-Shaheed and Madina buildings in the Sharq area of Kuwait City. The tower is designed on a land space of 4,852 square meters, and construction is expected to be completed in 2010.

• Regional expansion in Egypt, Jordan, and Qatar

United Real Estate Company




• We observe that the return on average assets (ROAA) for the company decreased significantly from 8.5% in 2004 to 2.2% in 2008. To calculate the return on core real estate assets, we adjusted the ROAA by excluding investment gains/losses and change in fair value from the net profit and excluding the available-for-sale investment portfolio from the total assets. The adjusted ROAA for the real estate operations decreased from 11.4% in 2007 to 7.5% in 2008.

Balance sheet

• The company’s total assets stood at KD 316.8 million in 2008, growing by 30% compared to 2007 (9M2009 KD 323.3 million). This was mainly due to the increase in properties held for sale, land for development, investment available for sale, and the increase in projects under development.

• Development land worth KD 61.27 million was acquired in Syria, Qatar, Dubai, and Egypt for various projects in 2008, while an increase in unquoted securities was mainly responsible for the increase in investments available for sale.

• The company holds land that appears at a value of KD 77.6 million on the balance sheet according to the 9M2009 financials. The land for development accounts for almost 24% of the total assets and 49% of total shareholders’ equity in 9M2009. Since the current market cap of United Real Estate Company is KD 63.8 million as of December 21, 2009, we feel it is worth highlighting.

• Investment in associates increased significantly from KD 24.8 million in 2005 to KD 68 million in 2008 (9M2009, KD 72.6 million). As a result, the investment in associates as a percentage of total assets increased significantly from 13% in 2005 to 22% in 2008. We would like to highlight that, despite the increase, the contribution of the investment in associates to net profit is minimal.

• The company’s net debt-to-equity ratio stood at 0.53x in 9M2009, compared to the last four years' average of 0.69x from 2005 to 2008. United real estate's equity and total debt stood at KD 143.3 million and KD 83.9 million as of September 2009, respectively. A closer look at the debt serviceability shows that the EBITDA-interest cover increased from 2x in 2008 to 2.7x in 9M2009.

• The company’s investment book stood at KD 27.8 million as of 9M2009, accounting for 19% of shareholders’ equity and 9% of total assets. We feel the investment book as a percentage of equity is quite high.


Income Statement (KD' 000) 2007 2008 9M2008 9M2009

Rental Income 11,811 13,380 9,908 10,599

Net Hotel Opearting Income 1,426 1,670 1,227 981

Sale of properties held for trading 1,400 895 872 5,432

Other Operating Income 1,907 2,785 1,817 2,897

Share of results of associates 2,040 646 178 29

Real estate related income 18,583 19,376 14,002 19,938

Change in fair value of inv.properties 846 468 0 0

Investment income 3,200 3,894 3,634 1,259

Other non-operating income 1,006 782 782 0

Foreign exchange (loss) gain 3,555 -1,092 1,550 -3,489

Total Non-operating Income 8,607 4,052 5,966 -2,230

Total Income 27,190 23,428 19,967 17,708

Total Expenses 16,617 16,949 12,522 15,776

Net Profit 10,215 6,114 7,369 1,855

Balance Sheet (KD' 000) 2006 2007 2008 Sep-09

Cash and cash equivalents 7,633 13,490 12,336 7,570

Account receivable and prepayments 11,310 16,461 7,293 12,905

Properties held for trading 127 10,904 10,413 5,291

Available for sale investments 11,547 19,628 28,925 27,845

Investment in associates 58,520 64,604 67,984 72,582

Lands for development 350 14,035 75,831 0

Projects under construction 0 498 9,559 0

Investment properties 90,880 92,926 94,232 187,543

Property and equipment 12,377 10,911 10,237 9,534

Total assets 192,744 243,458 316,810 323,270

Accounts payable and accruals 16,236 14,544 66,024 71,613

Interest bearing loans and borrowing 43,586 93,429 85,174 83,910

Bonds 30,250 10,250 10,250 10,250

Total liabilities 90,072 118,223 161,449 165,773

Share capital 54,191 59,610 78,797 78,797

Share premium 3,770 3,770 14,351 14,351

Treasury shares -4,096 -4,096 -4,630 -4,506

Statutary reserve 10,293 11,356 11,998 11,998

Voluntary reserve 2,583 2,583 2,583 2,583

Treasury shares reserve 980 980 980 810

Cumulative changes in fair value 536 599 791 224

Foreign currency translation reserve -478 -1,198 -664 -662

Employees' share option reserve 26 48 57 57

Retained earnings 34,533 38,266 37,776 39,631

Equity attributable to equity holders 102,338 111,917 142,039 143,283

Minority interests 334 13,318 13,322 14,214

Equity 102,672 125,235 155,361 157,497

Total Liabilities and equity 192,744 243,458 316,810 323,270


United Real Estate Company


Companies in Focus



yiaCo MeDiCal CoMpany

highlights

• YIACO Medical Company’s principal activities are focused on the import and sale of medical, chemical, and dental products and equipment.

• Kuwait Finance House owns 9.89% of YIACO, and Al Nakhil United Real Estate Company owns 5.54%, with the balance held by the general public.

• The company has witnessed consistent growth in its revenue stream; revenue grew at a CAGR of 13% between 2005 and 2008. In 9M2009, the company’s pharmaceutical supply business accounted for 64% of total revenue.

• In 2008, the company recorded impairment charges of around KD 1.66 million due to impairments of accounts receivables, an impairment of goodwill, and an impairment of investments in associates.

• YIACO’S board of directors did not pay any dividends for FY2008.

• Given the nature of YIACO’s business, accounts receivable and inventories totaled approximately KD 35.6 million as of September 30, 2009, and accounted for the majority (66%) of total assets.

• As of September 30, 2009, the company continues to have a low debt-to-shareholders’-equity ratio of 0.26x. The net debt-to-shareholders'-equity ratio also remains low at 0.18x.

Key Data

KSE Code YIACO 52-week avg. volume 1,093,876 Reuters Code YIAC.KW 52-week avg. value KD 184,937




General Liquidity




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Key Ratios

2005 2006 2007 2008 9M2009

Gross Profit Margin (%) 20.5% 25.1% 24.9% 27.2% 23.9%Operating Profit Margin (%) 2.6% 5.1% 4.8% 5.6% 5.1%Net Profit Margin (%) 3.8% 5.3% 4.7% 1.4% 4.4%

ROA 3.1% 5.4% 5.0% 1.6% N/AROE 7.5% 11.4% 10.3% 3.4% N/A

Current Ratio (X) 1.12 1.35 1.35 1.32 1.38Debt to Assets (X) 0.08 0.05 0.01 0.05 0.12Debt to Equity (X) 0.20 0.10 0.02 0.10 0.26Investment to Equity 49.3% 35.7% 34.6% 31.3% 29.2%

Receivables Turnover Ratio 2.82 2.04 2.33 2.46 N/AInventory Turnover Ratio 2.85 4.13 3.10 2.42 N/APayables Turnover Ratio 2.36 2.32 2.55 2.61 N/A


analysts

Lisa Fernandes


May Zuaiter







overview

YIACO Medical was incorporated in Kuwait in 1952 as the sole marketing agent for numerous multinational, research-focused pharmaceutical manufacturers. The company was known as Yusuf Ibrahim Alghanim and Company until March 2002. The company’s principal activities are focused on the import and sale of medical, chemical, and dental products and equipment.

The company has two key divisions:

• Pharmaceutical business encompassing four areas: Pharmacies, Skin Care, Animal Health, and Crop Protection Retail Pharmacies.

• A medical, scientific, and dental division encompassing Medical Projects Division, Scientific Division, Dental Division, Imaging Division, Physiotherapy Division, Rehabilitation and Home Health Care Division, Key Accounts Division, and Medical Furniture Division.

YIACO currently acts as an envoy for diversified, multinational research-based companies such as Abbott, Bayer GSK, Intervet, Schering, Pfizer, Merck, Roche, Phillips, and Johnson & Johnson. The company owns and provides health care services through the largest chain of pharmacies in Kuwait; YIACO also owns the Apollo Medical Center, the Canadian Medical Center, and the Adan Diagnostic Center.

YIACO was listed on the Kuwait Stock Exchange in November 2007. In 2007, the company acquired Al Raya Health Care Company and City Medical, as part of YIACO’s expansion plans. YIACO operates mainly in Kuwait and Egypt. During 2008, YIACO had a significant increase in board representation at Al Salam hospital and, as a result, transferred the investment in Al Salam hospital from available for sale (AFS) to investment in associate.

Kuwait Finance House owns 9.89% of YIACO’s shares; Al Nakhil United Real Estate Company owns 5.54%, and the remaining balance of shares is held by the general public.


income statement

• In 9M2009, YIACO Medical Company’s revenue increased by 25% to reach KD 52.65 million, with pharmaceutical supplies the largest contributor (64%) to total revenue. As for FY2008, YIACO’s revenue grew by 12% YoY and reached KD 54 million.

• Administrative expenses constitute the largest component of total operating expenses; in 9M2009, administrative expenses accounted for 77% of operating expenditures (OPEX); as for FY2008, it accounted for 76% of OPEX.

• Weakened performance of operating income and improved results from associates, as well as lower finance charges, were seen in 9M2009. Operating income decreased by 3%, from KD 2.75 million in 9M2008 to KD 2.67 million in 9M2009. The share of results from associates increased from KD 145,092 in 9M2008 to 174,631 in 9M2009, reflecting a 20% increase. Finance charges decreased by 7% from KD 566,888 in 9M2008 to KD 529,134 in 9M2009. Consequently, net profit attributable to shareholders increased by 8% and reached KD 2.3 million from KD 2.13 million in 9M2008.

• During 2008, finance costs grew by 63% from KD 470,955 in 2007 to KD 766,998 in 2008, fueled by high growth in bank overdraft interest (348%) and term loan interest (369%). At the end of 2008, due to the various investment losses and impairments, net profit attributable to shareholders declined by 66% YoY, and reached KD 778,786, down from KD 2.3 million in 2007.

• The company carries its investments at fair value through the income statement, and these include an “Equity Securities Fund”; the first nine months of 2009 saw an improvement in the Equity Securities Fund, with the company reporting a profit of KD 34,877, versus a loss of KD 342,050 in 9M208. For FY2008, these equity investments yielded a loss of KD 735,718, compared to a profit of KD 24,000 in 2007.

Balance sheet

• Given the nature of YIACO’s business, accounts receivable and inventories combined stood at around KD 35.6 million as of September 30, 2009, and accounted for the majority (66%) of total assets.

• Investments in associates and investments carried at fair value through the income statement together stood at around KD 7.2 million as of September 30, 2009, and accounted for around 13% of total assets and for the majority of YIACO’s investments.

• The company continues to have a low debt-to-shareholders’-equity ratio of 0.26x. The net debt-to-shareholders'-equity ratio also remains low at 0.18x as of September 30, 2009.

YIACO Medical Company






Revenue 48,251 54,080 42,283 52,648 Cost of Sales (36,219) (39,348) 31,097 (40,057) Gross Profit 12,032 14,732 11,186 12,591 Selling/Distribution/Admin. Exp. (9,712) (11,711) (8,441) (9,921) Operating Income 2,320 3,020 2,746 2,670 Other Income 692 867 462 314 Share of results of associates - 236 145 175 Unrealized loss/gain on inv. 24 (736) (342) 35 Finance Cost (471) (767) (567) (529) Management Fees (133) (44) (110) (150) Profit before Tax 2,432 913 2,334 2,515 Income Taxes (103) (83) (81) (76) Other Expenses (38) (38) (111) (119) Profit for the Year 2,291 792 2,142 2,320 Minority Interest (13) (13) (13) (15) Shareholders of the parent co. 2,277 779 2,129 2,305


Bank balances and cash 1,731 1,442 1,562 1,934 Accounts receivable and others 16,871 15,568 15,970 22,209 Inventories 8,362 11,701 16,264 13,393 Current Assets 26,964 28,711 33,796 37,537 Fixed-assets-PP&E 8,547 7,933 8,486 8,512 Intangible Assets 533 87 - 113 Other Non Current Assets 1,199 823 431 317 Goodwill - 135 - - Investment in associates 13 13 5,374 5,549 Investments carried at fair value 2,331 2,355 1,619 1,654 AFS 5,256 5,256 118 118 Total Non Current Assets 17,878 16,601 16,027 16,263 Total Assets 44,842 45,313 49,823 53,800 Share Capital 15,000 15,000 16,500 16,500 Statutory reserve 1,722 1,954 2,035 2,035 Voluntary reserve 121 121 121 121 General Reserve 637 637 637 637 F/X Translation Reserve 150 109 80 96 Retained Earnings 3,538 4,083 3,280 5,585 Shareholders Equity 21,167 21,904 22,654 24,975 Non-Controlling Interest 92 104 89 108 Total Equity 21,260 22,008 22,743 25,083 Borrowing 1,300 550 2,255 6,550 Accounts payable and accruals 14,852 14,225 15,068 16,112 Murabaha payable 3,307 5,706 2,516 2,813 Bank overdraft 489 865 5,695 1,689 Current Liabilities 19,948 21,346 25,534 27,164

Employees end-of-serv. benefits 926 932 510 1,185 Murabaha payable 1,808 1,027 1,036 368 Non Current Liabilities 3,634 1,959 1,546 1,553 Total Liabilities 23,583 23,305 27,080 28,716 Total Liabilities and Equity 44,842 45,313 49,823 53,800


YIACO Medical Company



Kuwait Market statistics

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MENA Research


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in K

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7




RisK anD ReCoMMenDation guiDe

Recommendation upside (Downside) potential

Buy more than 20%

accumulate between 10% and 20%

hold between -5% and 10%

Reduce between -10% and -5%

sell less than -10%

RisK level

low Risk high Risk

1 2 3 4 5

DisClaiMeR

This document and its contents are prepared for your personal information purposes only and do not constitute

an offer, or the solicitation of an offer, to buy or sell a security or enter into any other agreement. Projections of

potential risk or return are illustrative, and should not be taken as limitations of the maximum possible loss or gain.

The information and any views expressed are given as of the date of writing and are subject to change. While

the information has been obtained from sources believed to be reliable, we do not represent that it is accurate

or complete and it should not be relied on as such. Watani Investment Company (NBK Capital), its affiliates and

subsidiaries accept no liability for any direct, indirect or consequential loss arising from use of this document or

its contents. At any time, the employees of NBK Capital and its affiliates and subsidiaries may, at their discretion,

hold a position, subject to change, in any securities or instruments referred to, or provide services to the issuer of

those securities or instruments.

© CopyRight notiCe

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

Capital.




Kuwait

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inteRnational netWoRK

Bahrain

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

Saudi Arabia

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

United Arab Emirates

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

Jordan

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

Lebanon

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

Iraq

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

Egypt

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

United States of America

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

United Kingdom

National Bank of Kuwait (Intl.) PlcHead Office13 George Street, London W1U 3QJ, UKT. +44 20 7224 2277F. +44 20 7224 2101

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

France

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

Singapore

National Bank of Kuwait SAKSingapore Branch9 Raffles Place #51-01/02Republic Plaza, Singapore 048619T. +65 6222 5348F. +65 6224 5438

Vietnam

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

China

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

assoCiates

Qatar

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

Turkey

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

national BanK oF KuWait

Kuwait

Head Office38th Floor, Arraya IIAl Shuhada Street, Block 6, SharqP.O.Box 4950, Safat 13050KuwaitT. +965 2224 6900F. +965 2224 6905

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

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

United Arab Emirates

NBK Capital LimitedPrecinct Building 3, Office 404Dubai International Financial CenterP.O.Box 506506,DubaiUnited Arab EmiratesT. +971 4 365 2800F. +971 4 365 2805

Turkey

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

nBK Capital



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