Egypt Equity Strategy Report, Sep. 2011 - Jazira capital

JAZIRA SECURITIES BROKERAGE Monday, September 05, 2011

EGYPT Equity Strategy Report

The US and most of the key European states are expected to see their economies begin to accelerate by early 2013, while the remaining European states, although will have less default risk, austerity measures, to come at par with the EU requirements, will keep them from recovering at the same pace. Once both the US and EU economies start to pick-up, we expect emerging economies will begin growing at a faster pace. Egypt’s most critical challenge, since the toppling of Hosni Mubarak, in February 2011, will be the parliamentary elections, which is expected to be held in November 2011. Once the structure of the parliament is confirmed, the degree of uncertainty regarding the shape of Egypt’s political future, will start to subside, and with us putting the odds at 4:1, that it turn for the better, we expect the state of congestion in the economy and indi-vidual spending will start to unwind, at an accelerative pace, by early 2012. Egypt’s real GDP in 3Q FY11 ending March, declined by 4.2% on a yoy basis, as the hotels & restaurants sector income fell by 1/3. The manufacturing, construction, building materials, transport, wholesale & retail sectors, were also hit, but to a lesser extent, by the state of instability Egypt witnessed during February and March 2011. We expect Egypt’s real GDP growth to culminate at 1.6% in FY11 ending June 2011, with expectations of GDP falling 1.2% yoy in 4Q. While we expect GDP to grow by 3.6% in FY12, essentially driven by public spending, while the private sector will start to recover by end of 2011, once the parliamentary elections have been completed. BOP recorded a 3Q FY11 deficit of US$6.1 billion, against an 1H FY11 surplus of US$572 mn. The deficit came on the back of a US$5.5 bn portfolio investments outflow and tourism income falling 34% on a qoq basis. We expect the full year deficit to ex-pand to US$8.6 bn, and FX reserves have already been reported to have dropped by US$9.4 bn in 2H FY11, bringing Egypt’s FX - import coverage ratio to its lowest level in over a decade. We expect a milder BOP deficit in FY12, supported by donors injec-tions, while a pick-up in tourism and private capital inflows will begin by 2H FY12. The government has set an ambitious budget for FY12, it will certainly assist in calming down the level of discontent among Egypt’s large low-income public sector workforce, but we expect its impact on the economy will be undermined by private consumers’ spending contraction, which may start to unwind by the end of 2011. Furthermore, we expect budget deficit in FY12 to reach 13.3% of GDP, while government expects an 8.6%, on the back of both higher expenditure and lower income expectations. The EGX30 fell 35% YTD, while a selected 19 peer emerging markets have dropped 9% YTD. However, Egypt is only discounted by 19% compared to the peers’ 2011 PER. Im-plying that on an equity pricing level, most of the EGX correction, was to adjust for lower earnings and higher tax rates, rather than a straightforward political concern. Our favorite sectors on the EGX, are still those of defensive nature, such as food, oil and pharmaceuticals. However, some cyclical stocks have corrected to a degree, that accumulating exposure in them, from now to end of year, can prove rewarding once the market starts to pick-up, if all goes well. Our stock picks are:

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Analyst: Mohamed Fahmy

Email : [email protected]

Mobile: +2012 2157312

When politics means business EGP/1US$ 5.96

Population (mn) 80

Nominal GDP (US$ bn) FY11e 225

GDP/Capita FY11 (US$) e 2,796

Real GDP Growth FY11e 1.6%

Annual Inflation (Jun. 2011) 11.8%

Unemployment Rate (Jun. 2011) 12%

Fiscal deficit % of GDP FY11e -10%

Public Debt % of GDP FY11e 75%

External Debt % of GDP FY11e 12%

Trade Balance FY11 (US$ bn) e -24

Net Service FY11 (US$ bn) e 8.3

Transfers FY11 (US$ bn) e 11.9

Current Acc. FY11 (US$ bn) e -3.7

Capital Acc. FY11 (US$ bn) e -3.4

BOP Balance FY11 (US$ bn) e -8.6

FX reserves (US$ bn) Jul. 11 25.7

EGX Market Cap (US$ bn) 40

EGX30 PER 2011 e 9.5x

EGX30 DY 2011 e 4.9%

EGX30 YTD Change -35%

EGX Avg. Daily Trading Value 2011 (EGP mn) 780

The most Favorite of our Picks

AMOC Juhayna Sidi Kerir Petrochemicals NSGB OT

Delta Sugar Maridive Aracemco CIB Telecom Egypt

National Maize OCI EIPICO EFIC TMG

Glaxo Abu kier Fertilizers Mobinil GB Auto Amer

Pachin Minapharm Alexandria Spinning SODIC Palm Hills

The least Favorite of our Picks

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JAZIRA SECURITIES BROKERAGE September 5, 2011


Table of Content

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Page 3-4 Global Economies Page 5-6 Egyptian Politics Page 7-11 Egyptian Economy

GDP p7

Inflation p8

BOP p8

Foreign Aid p9

Tourism p9

FX Reserves p10

State Budget p10-11

Page 12 Egyptian Stock Market Page 13 Comparable Analysis Page 14-22 Sectorial Analysis

Banks & Finance p15

Construction & Related p16

Durable Goods p17

Food & Fertilizers p18

Milling p19

Oil Related p19

Pharmaceutical p19

Real Estate p20

Telecom, Media & IT p21-22

Textiles & Related p22

Page 23 Page 24 Disclosure

Jazira Capital Focus Companies Price & Multiples Sheet



It seems the World won’t get out of the rat-hole until 2013 The developed world is stuck on first gear, there may be some better economic figures coming out here and there, but not with enough momentum to shift the developed economies forward.

US stuck until elections

The US has been performing relatively well in economic terms compared to 2008, but the re-publicans, with nearly half the seats on the con-gress, won’t give Obama an easy time, a year ahead of the, upcoming November 2012, presi-dential elections, and the democrats just aren’t fierce enough to subdue the republicans intent.

There are talks emerging in the US about con-sumer debt forgiveness or “write-offs”. A similar action was taken in the great recession back in the 1930s. There is just so much consumer debt, that it is choking any potential, for a real growth in US consumer spending, which represents around 71% of the US’ GDP and have grown by only 0.2% over the past 14 months. From our stand point, if there will be more quantitative eas-ing measures, it would be better spent on consumers directly, by reducing their debt, rather than more injections of funds into the debt market.

We disregard S&P’s US debt downgrade, the US will always be able to print more dollars, de-fault is not an issue. However, more dollars around can cause further US dollar devaluation and hikes in US inflation.

EU & Merkel’s efforts to bring German efficiency to remaining states

Euro Zone issues are more significant, with a high contagion risk, as around half the debt of states such as, Spain and Italy, are held by institutions from other countries.

The core issue with the EU debt enigma, is that although the Euro currency is the PIIGS’ nation-al currency, it isn’t really theirs to print more of, and the large EU countries, Germany and France, aren’t making them forget that.

So, the only way out for the PIIGS, right now, is applying austerity measures, in hopes they prove to Merkel and Sarkozy, that they won’t get into more trouble, if bailed-out.

Japan’s public sector debt is very high. Howev-er, Japan has a high savings rate, which makes it easier for the government to finance the debt with 90% of the Japanese debt is owned by Japa-nese institutions and individuals, while in the case of the US savings rate is low and 25% of US debt is owned by foreigners.

While in the case of Spain, nearly half the debt is owned by non-Spaniards, and with currency that they can’t print more of on their own, com-pounded by a negative GDP growth, a sizable real estate inventory, tightened mortgage policies and a high unemployment levels, all of which mean that austerity measures would be met by further public dismay, and may cause an extend-ed economic recession.

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Republicans will give Obama hard time to do much for the economy, with a year left on the presidential elections Consumers debt write-off may be US’ way-out of the rate-hole The US can’t really default on its debt, but more dollars go-ing around, can initiate a new wave of currency devaluation Germany & France can’t af-ford that any EU country de-fault on its debt, not for the sake of the EU community health, but as not to expose their own financial systems, so eventually they must cave-in EU countries default risk lies in the fact that all of these countries’ debt is effectively in a currency they can’t control or print more of based on their economies’ requirements We aren’t concerned that some EU states remain in recession, as long as they don't drag the larger economies with them

0 50 100 150 200 250

SpainNetherlands

UKGermanyPortugal

FranceIreland

USAItaly

GreeceJapan

Public Debt % of GDP (2010)

0 5 10 15 20 25 30 35

SwedenDenmarkGermany

ItalyNetherlands

Euro (17)FranceJapan

PortugalSpainUSA

UKGreeceIreland

Budget Def icit % of GDP

0 5 10 15 20

Netherlan…Japan

GermanyDenmark

UKBelgium

ItalyUSA

FranceEuro (17)PortugalGreeceIrelandSpain

Unemployment %

‐5 ‐3 ‐1 1 3

JapanGermany

USABelg iu m

NetherlandsEuro (17)DenmarkFrance

UKPortugal

ItalySpain

IrelandGreece

Real GDP Growth (%)

Source: WB, Eurostat & JC estimates

Source: WB, Eurostat & JC estimates



It seems the World won’t get out of the rat-hole until 2013(Continued) China: All the bases covered

Much of the Chinese government stimulus efforts, from 2008 to 2010, were left to the financial institutions, the banks lent over US$1.5 trillion to investment vehicles, which then directed the borrowed funds into infrastructure and real-estate ventures. But it is currently estimated that US$450 bn of these loans have went bad, threatening the balance-sheets of the banks that grant-ed the loans. However, it may all be resolved behind the red curtain, with China’s over US$3 trillion FX reserves, a central government public debt representing less than 20% GDP and since most of the lent funds were in Yuan.

Commodity prices remain relatively high

Commodities have been correcting, but not at an enough rate, to release some of the pressures that are on both governments and individuals’ income, in order to create some much needed eco-nomic growth.

The fundamental issue with the world’s economy, isn’t really financial, but is that the world has reached some kind of a peak in its prevailing productivity line, and requires a major technologi-cal shift in the methods of production of commodities and energy, to create a new super econom-ic growth cycle. Until then, the world’s economic cycles will suffer longer and sharper reces-sions.

Next expansionary cycle may start in early 2013

Our analysis of the US, goes inline with the US Fed’s announcement in early August, that it will keep key lending rates at zero percent to mid 2013, implying the current economic slow-down may take longer than it had previously expected.

So, with our expectations of the US will start recovering by early 2013, and EU mainly bail-ing out Italy and Spain during 2012, we can see headline risk decreasing in 2013, thereby infusing more confidence into producers and consum-ers’ spending on both sides of the Atlantic and gradually bringing the world out of its current slowdown toward a new expansionary economic cycle by mid 2013.

Some developing countries are still delivering healthy economic growth

Some countries are still performing well, such as Turkey, which delivered an 11% real GDP growth in 1Q 11, although there are worries of the Turkish economy is overheating with a wid-ening trade deficit, low interest rates, and over 30% annual loans growth.

China has delivered a 9.5% real GDP in 2Q 11. This was China’s lowest quarterly GDP growth since Q3 09. In addition to world economic slowdown, China has raised interest rates and clamped down on bank lending to ease inflation, which has certainly reduced domestic spending.

Other emerging countries are, as seen in the corresponding chart, still delivering some good economic growth figures. However, the conditions in the US and Europe are certainly holding back the po-tential growth of emerging markets in gen-eral.

On the medium term, following Europe bailing its ailing economies over the com-ing year, it will need to go into further austerity measures in order to curb future hikes in budgetary deficits, which is ex-pected to bring the EU’s consumers’ dis-posable income lower, and can increase the demand on the cheaper emerging markets goods.

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China’s banks may have accu-mulated bad-debt of around US$450 bn from 2008 to 2011 Commodities have not correct-ed enough to support a new positive economic wave World economic growth is peaking at the current produc-tion technological level We expect the developed countries to clear their troubles in 2012, and initiate a new expansionary economic cycle by early 2013 Turkey’s recent robust eco-nomic growth is expected to normalize at between 5-6% EU austerity measures can actually benefit emerging mar-kets to a degree

Source: Reuters & JC estimates

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6.0%

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12.0%

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Real GDP Growth 2011

World GDP Growth 3.8% 4.0% 3.6% High Income Countries 2.7% 2.2% 1.9% Developing Countries 7.3% 6.3% 6.0%

World GDP (US$ bn) 63,049 67,778 72,590 World GDP per Capita (US$) 9,197 9,789 10,380

Middle Income 3,980 4,338 4,663 Lower Middle Income 1,748 1,906 2,020

2010a 2011e 2012e

Source: WB & JC estimates



Through the looking glass at Egypt’s Political Future The Supreme Council of Armed Force - SCAF has been in command of Egypt since the toppling of former president, Mohamed Hosni Mubarak, in February 2011. SCAF has been acting like a Zen master since then, exerting a minimum level of action, in order to control the country’s in-ternal and external issues, considering the delicacy required in these troubled times. The SCAF wishes to bring an end to the current turbulent situation, and needs to remain aloof from every-one, since there are so many conflicting notions on the Egyptian political arena and street. Prime Minister, Essam Sharaf has been at the helm of the government since early March 2011, and had a cabinet reshuffle in July that introduced 12 new ministers to the cabinet’s lineup, in-cluding the replacement of finance minister Samir Radwan with Hazem El-Beblawi. Sharaf’s cabinet is essentially operating at a “damage control” mode, which is what is expected from this cabinet, given the size of task at hand and the fact that it isn’t backed by any elected political structure that can give it the vindication, to apply proper reform. The goal of the SCAF, in our opinion, is to sterilize the heightened emotional state on the Egyp-tian street prior to the parliamentary elections. For the elections to go smoothly, it requires a high degree of restraint and security level, in order to avoid friction between opposing parties. At any rate, the real challenges for Egypt are yet to come, in what is promising to be a very stormy winter. The parliamentary elections are expected to be held in November, although as we mentioned, it will be very hard for the SCAF to give a go ahead for the elections, unless it feels the street will deal with it maturely. The challenges in the elections, will include the campaigning phase, the elections itself, which will take around 45 day, as the SCAF proclaimed that the election for both the People's Assem-bly and the Shura Council will be held at the same time, on three rounds, with a 15-day intervals in-between each. But the real challenge is how the losers will accept the results. The SCAF has said, it will not permit foreign monitoring of the elections, since this would fringe the sovereignty of the Egyptian state. Although the argument is valid, foreign monitoring can provide a support against those whom will later claim the elections were rigged. The Egyptian citizens have been in a state of confusion since January 11, with so many variables are in motion, in a pace, that they are not accustomed with. And will get even more confused with around 35 parties are either registered or attempting to register, in time for the elections. Out of these parties at least 10 are non-secular parties. We think that Islamic based political parties will win in total a significant portion of the parlia-ment's seats, given their reach into the Egyptian community, the dismantling of the National Democratic Party, which was the sole Egyptian political group with more connections and ties specially in the communities outside the major cities than those of parties that branched out from the Muslim Brotherhood. Furthermore, if parties programs fail to grab the interest of the non-politically oriented Egyp-tians, their options will be not to vote, seek the highest bidder on their voice, tribal connections or simply identify with those parties which are identified with similar religion. Islamic based parties are currently fragmented between at least around 5 parties that spun-off the Muslim Brotherhood, and nearly the same number out the more radical Salafi movement. What will happen during or after the elections? Would these parties align their goals or fail and drift further from each others? It can go either way... How the Egyptian public will vote in the first free parliamentary elections, is yet unknown. Even the level of participation may not fair well, given that in the constitutional amendments referen-dum, that were held in March, less than two months after the toppling of Mubarak, had a show rate of less than 41% of the eligible 45 million voters. Gallup’s, Abu Dhabi Center issued, in June 2011, the correspond-ing survey results, on the expected outcome of the 2011 parlia-mentary elections. It does give a hint that Islamic parties are some-how ahead of the other parties, since if we disregard those unde-cided, Freedom & Justice Party has garnered 38% of those whom have already decided on which party they will vote for.

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SCAF acting like a Zen master to control a fluid situation Sharaf’s cabinet is operating on damage control mode SCAF goal is to have a firm security grip at the time of the elections in order to avoid friction between opposing parties The real challenge for Egypt is to cross the parliamentary elections smoothly There are nearly 35 parties planning to compete in the upcoming parliamentary elec-tion We expect non-secular parties to capture a significant yet not controlling chunk of the up-coming parliament’s seats Gallup’s survey tells that 38% of decided voters are leaning toward voting for MB’s FJP party

FJP (MB) 15% Wasat 5% Wafd 9% NDP 10% Undecided 61%

Egypt’s parliament 2011 outcome survey by Gallup

Source: Gallup, Abu Dhabi Center



Through the looking glass at Egypt’s political future (Continued) More importantly, what will be the reaction of the secular parties, out of which the Tahrir Square youth are? Will their be more riots if Islamic groups do have a significant representation in par-liament? We expect that the SCAF and security forces will show heightened resolve with any-one, who would object to the elections outcome in any manner that will disrupt the peace. Another issue, is the fragmentation among secular parties, will they have a joint front that would bring balance to the parliament against the Islamic parties? or will they have separate agendas that would weaken their impact? The second hurdle is the drafting of the new constitution, which is expected to start following the formation of parliament and to take from three to six months to be finalized. The SCAF has issued its declaration of basic principles to guide the drafting of the upcoming constitution, in a bid to answer liberals’ requests for some binding statement of rights to protect them against the possibility of an Islamist takeover. The Turkish military assigned itself a similar supervisory role after its 1980 coup. However, without a public referendum on accepting these principles and explicitly giving the Army the upper hand over the parliament, when it comes to fringing any of these principles, this declaration constitutes little value in itself. Freedom & Justice Party, the flagship party that spun-off the MBs, has said that it will endorse a constitution that doesn’t fringe on individuals private lives and wouldn’t go to drafting laws based on applying Islamic Shariaa. If the FJP align with other parties that agree with this ap-proach, there is a good chance that Egypt’s coming constitution will provide an actual reform from the previous one, but will not change the loosely secular nature of the country. The other alternative, which is an Islamic shariaa based constitution and what would this have on creating laws that would fringe on individuals lives provides an enigma, from an economic standpoint. Both since there are indefinite levels and interpretations of what is Shariaa, and each level will have its implications on tourism, foreign investment and even the migration of some of Egypt’s capital and talented workforce. The third hurdle is the presidential elections, which if the parliamentary and constitution are completed in time, is expected to be held sometime between May and July 2012. However, once the parliament and constitution are in place, this step is not expected to be as challenging. So from now, to the end of year, heightened uncertainty prevails, and an apparent political struc-ture will not formulate at least until the second half of 2012. There is good possibility that mat-ters will develop in a manner that wouldn’t deter economic growth or foreign investment. How-ever, it will remain a speculative environment until at least the end of the current year, and from there on, the level of uncertainty will start to gradually reside. Egypt’s finance minster, at the time, Samir Radwan, said in July 11, that Egypt will not draw-down on the US$3 bn loans offered by the World Bank and IMF. This came at the request of SCAF, on the basis that it doesn’t wish to increase Egypt’s foreign debt levels. However, the WB may have tagged, as usual, a batch of demands that the SCAF didn't see in favor of Egypt or won’t be taken well by the public. In August, the newly appointed finance minister, Hazem El-Beblawi, said Egypt may do draw-down on the aforementioned loans. Anyway, if our assumptions are true that the reasons for SCAF refusal, are due to a political dif-ferences in opinion, then Egypt may have upset the gatekeeper to foreign funding, and would have also shown adrift of what the US wishes. This may create a shortage of foreign funding for the period until matters are resolved one way or another. Following the death of 5 Egyptian army and security force personal, in fights that included Israe-li military forces, whom have crossed the boarders into Egypt on August 18th, to follow Palestin-ian assailants, whom have killed 7 Israelis on the same day, in the close to the border, Eilat town, have caused the level of tension between the two countries to escalate. Talks about withdrawing the Egyptian ambassador to Israel were rumored. In response, Israel’s defense minister, Ehud Barak, said two days later, that Israel deeply regrets the death of the Egyptian soldier, and launched an investigation into the matter. It isn’t in the benefit of neither Egypt nor Israel to es-calate the situation. However, the level of hostility to Israel has spiked on the Egyptian street, and will take sometime and a more formal type of apology from Israel to neutralize the situation. However, the real issue is the increased lack of security specially in Sinai (detailed in page 9) and the resurgence of militant groups in the peninsula, which can, until resolved, have a negative impact on tourism, in areas such as Sharm El-Sheikh, which has been already suffering.

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Secular parties may need to work better together to have an impact in the coming parlia-ment The basic principles can’t be enforced by the SCAF without having powers superseding those of parliament There is an 80% chance that the coming constitution will be secular with the guidance from Islamic Shariaa, not far from the previous one in this respect The future Egyptian political structure will start to take shape by the end of the year Egypt attempts to remain inde-pendent in its path toward de-mocracy may upset foreign funding gatekeepers Anti-Israeli sentiment rise on the Egyptian street

Egyptian Army launches oper-ation “Eagle” to eradicate mil-itant group from Sinai



The Egyptian Economy The Egyptian GDP dropped 4.2% in real terms, over the quarter from January to March 2011 com-pared to the same quarter in 2010, as economic ac-tivity nearly froze from January 28th to February 11th, in addition to the ensuing workers strikes, which reduced productivity, as well as the elevated lack of security, and capital and consumers’ spend-ing contraction.

The section of the economy that was hit the most during that quarter, was the restaurants & ho-tels sector, which witnessed a 33% yoy drop in its income to EGP6 billion in 3Q FY11 down from EGP9.0 billion in the same period of 2010. Furthermore, its contribution to the private sec-tor portion of GDP dropped from 6.9% in 3Q FY10 to 5.0% in the last reported quarter.

The tourism sector employs over 1.4 million person, representing around 6% of the Egypt’s 26 million workforce and has an indirect impact on the economy, which have been estimated in FY10 to bring the full impact of the sector to about EGP155 bn, or 13% of GDP.

The drop in tourism, was essentially the main attribute to the surge in unemploy-ment rate to 11.9%, at the end of June 2011, compared to 9.7% a year before.

Other sectors that were hit in 3Q FY11, included the manufacturing, construc-tion & building materials, transport and the wholesale & retail sectors, the drops in these respective sectors were 11.4%, 9.1%, 9.7% and 7.9%, respectively.

On the other hand, Suez Canal income showed a robust 11% yoy growth dur-ing the quarter to EGP6.8 billion, which was partially supported by the minor devaluation of the Egyptian pound by 4% during the quarter vs. a year before.

We project a milder GDP drop in 4Q FY11 ending June 2011, than the 3Q FY11 drop, with real GDP estimated to have declined in 4Q by 1.2% compared to the same quarter the past year.

The 4Q drop is expected to come essentially from the private sector GDP contribution, which we predict will drop on a yoy basis by 2.4%, while have dropped 7.0% in 3Q FY11.

Based on our 4Q FY11 GDP expectations, we estimate that FY11 will close, with an annual GDP growth of 1.6%, driven by 5.5% and 5.6% growth recorded in the year’s first two quarters.

Over FY12, we expect a 3.6% real growth in the Egyptian economy. The growth will be essen-tially driven by the public contribution to GDP. The private sector is estimated to grow by 2.9% over the fiscal year, but the bulk of this growth is expected to be delayed to the second half of the year, following the completion of the parliamentary elections and some kind of vision starts to materialize with regards to Egypt’s political direction for the coming period. Furthermore, 2H FY12 will be compared to an already weak 2H FY11, which will boost its growth rate levels.

We expect that if parliamentary elections pass smoothly and in the right direction, the Egyptian economy will enjoy attractive growth levels over the period of the coming global economic ex-pansionary cycle, which we predict will kick-off by early 2013.

With corruption more contained, a continuity of leadership policies in place, and less politically frustrated population, all together will encourage foreign and local investment as well as spend-ing.

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Egypt’s GDP falls 4.2% yoy in 3Q FY11 Hotel and restaurants sector take the hardest hit during the quarter Tourism employs 6% of Egypt’s workforce and have a full impact representing 13% of GDP Unemployment rise to 11.9% at the end of June 2011 com-pared to 9.7% a year before Suez Canal robust revenue growth was supported by the minor Egyptian pound devalu-ation

We expect 4Q FY11 real GDP to show a yoy drop of 1.2% We project FY11 GDP to grow by 1.6%, lifted-up by a robust 1st and 2nd quarters’ of the year performance We expect FY12 GDP to grow by 3.6% supported by higher public spending

FY ending June 2010a 2011e 2012e

Population (mn) 79 80 82

Workforce (mn) 26.2 26.4 26.6

Unemployment 9.7% 11.9% 12.1%

Inflation (CPI) 12% 11% 10%

Inflation (PPI) 5% 20% 12%

Real GDP Growth 5.1% 1.6% 3.6%

Public 3.1% 3.2% 4.7%

Private 6.4% 0.6% 2.9%

GDP Breakdown

Public 37.0% 37.6% 38.0%

Private 63.0% 62.4% 62.0%

Nominal GDP (EGP bn) 1,151 1,306 1,490

Nominal GDP (US$ bn) 209 225 246

GDP per Capita (EGP) 14,620 16,242 18,136

GDP per Capita (US$) 2,653 2,796 2,998

EGP/USD 5.51 5.81 6.05

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1Q 2Q 3Q 4Q

Quarterly Real GDP Growth (yoy)

FY10 FY11

Source: CBE, MoF & JC estimates

Source: MoF & JC estimates



Producers endure lower margins Egypt’s producer price index - PPI, has shown an inflation level of over 20% in the year ending June 2011, while the consumer price index has shown cost of living has inflated by 11.8% over the same period.

The intriguing point here, is that the PPI components, which shown the highest inflation, were those of basic in-put components of production, while the finished goods price increase was even below the CPI overall annual growth. This implies that somewhere down the chain, pro-ducers were not able to pass the increased cost to the end consumer, i.e, producers margins have been shrinking.

Looking at the cost of living, tobacco, food & beverages and education were the three sections that witnessed the highest inflation in the year ending June 2011, and we be-lieve their inflation would impact the general population in a manner that can well make consumers less able or at least less willing to spend over the coming period on more non-essential types of spending.

External account witness huge deficit Egypt recorded its largest BOP quarterly deficit in over a decade, in 3Q FY11 ending March. A whopping US$6.1 billion deficit was reported in the quarter vs. a BOP surplus of US$555 mn in 3Q FY10.

The deficit came essentially on the back of portfolio investment recording outflows of funds of US$5.5 billion during the quarter com-pared to US$5.6 billion inflows during 3Q FY10.

FDIs also shown a negative figure in the latest reported quarter of US$164 million, not a big figure, but its comparable figure in 3Q FY10 was a net inflow of US$1.7 billion.

Tourism related revenues, also witnessed a 15% and 34% yoy and qoq respective drop during 3Q FY11 to US$392 million.

We predict the BOP will report a deficit of US$2.9 billion in 4Q FY11, as a result of a 25% yoy drop in travel income, although it would be a 5% rise on a quarterly basis. also, transfers will be impacted by the turbulent situ-ation in Lybia, and Yamen and some expats may see no sense into transferring money to Egypt until the picture becomes more clear.

Furthermore, we expect the capital account to record a deficit of US$1.6 bn in 4Q FY11, as a continuation of portfolio investment outflow.

We expect a smaller deficit in 2012, as a result of hopes that the promises of regional and inter-national loans start to materialize, while we expect real FDI and portfolio investment inflows to recover by 2H FY12, with its influx pace depending on the political situation at that time.

Egypt Refinery Company - ERC, which is currently being established, at an investment cost of US$3.7 bn, will produce once operational, 4 mn tons of refined petroleum products per annum, including 1.5 mn tons of diesel. This will reduce Egypt refined petroleum products import bill significantly, which currently represent around 11% of Egypt’s imports value.

8

PPI rise 70% over CPI in the year ending June 11 Both raw materials & energy witnessed significant spikes in prices Food & beverages, tobacco and education were the 3 spending criteria of the Egyp-tian cost of living that wit-nessed the highest inflation in FY11 Egypt reports a US$6.1 bn BOP deficit in 3Q FY11 The major reasons for the defi-cit are capital flight... ...FDIs shifting to a negative figure,... ...& tourism revenues 15% yoy fall in 3Q FY11 We expect a deficit of US$2.9 bn in 4Q FY11, on the back of lower tourism revenue, expat transfers and further portfolio investment outflows A lower deficit in FY12 on expectations of capital account turning positive on hopes of donors promises materializing and private funds turning to inflows by 2H FY12

PPI by Processing Classification

Year to June 2011

Fuel 35.2% Cotton 89.5% Raw Materials 25.8% Semi-Finished Goods 6.2% Finished Goods 9.4% Overall PPI 20.1%

CPI Inflation Overall CPI 11.8% Food & Beverages 19.0% Tobacco 69.9% Clothing 2.2% Housing & Utilities 1.1% Furniture 2.5% Medical Care 1.9% Transportation 1.1% Communication 0.1% Entertainment 5.9% Education 24.3% Hotels & Restaurants 12.1%

FY Ending June (US$ bn) 2010a 2011e 2012e Trade balance (25.1) (23.9) (22.6)

Export Proceeds 23.9 25.4 27.6 Import Payments (49.0) (49.3) (50.2)

Services (Net) 10.3 8.3 8.5 Service Receipts 23.6 21.8 21.6

Transportation 7.2 8.0 8.9 Travel 11.6 10.7 9.2

Payments (13.2) (13.5) (13.1) Goods & Services (14.8) (15.6) (11.6) Transfers 10.5 11.9 12.2 Current Account (4.3) (3.7) (2.9) Capital Account 8.3 (3.4) 2.1 Net errors & omissions (0.7) (1.6) (0.6) Overall Balance 3.4 (8.6) (1.4) FX Reserve 35.2 26.6 25.2 FX Reserve/Imports (months) 8.6 6.5 6.0

(6)

(4)

(2)

0

2

4

1Q 2Q 3Q 4Q

BO P Balance (US$ bn)

FY10 FY11

Source: CBE, MoF & JC estimates

Source: Ministry of Finance



Donors Promises The United Arab Emirates promised that it would give Egypt US$3 billion in financial assistance, which includes a US$1.5 billion fund for small to medium businesses, US$750 million in loans, and a US$750 million grant.

Saudi Arabia pledged US$4 billion, out of which US$500 mil-lion are a grant to help finance the budget deficit, US$500 mil-lion in loans, and US$500 million in Egyptian bond purchases.

Qatar promised Egypt a ballpark figure of US$10 billion, which probably will be mostly invest-ments, but the country has also given some grants. In the weeks that Egypt was revising its budg-et, so not to take on IMF loan, Qatar provided US$500 million grant to help the budget.

However, Hazem El-Biblawy, Egypt’s newly appointed finance minister and deputy PM, said that he has not fully ruled out that Egypt may tape into the US$3 billion offered by the IMF.

The US promised to offer US$1 billion in debt forgiveness and another US$1 billion in loan guarantees as support to nurture and advance the democratic strivings. The last part has steered some controversy among the Egyptian community and even in the government, since it had the implication of supporting groups that the US favor or have connections with.

The sum of the aforementioned funds will be injected over a long period, of more than a year, not all will materialize, and some will not impact the BOP in the way it should.

Tourism woes under security concerns Tourists arrivals fell 45% in 3Q FY11, following the outbreak of violence on the backdrop of the January and February 2011 demonstrations.

Security is still weak all over Egypt in general, and Sinai’s lack of security is now capturing world’s headlines, with gunmen, in late July 2011, have attacked Northern Sinai capital, Arish, police station in a shootout that continued for 9 hours and with an outcome of five killed, includ-ing one police and one army officers. The injured were estimated to be 21 in total. Not far away from Arish, saboteurs have blew-up Egypt’s gas supply pipeline to Israel and Jordan over 4 times since last February.

No attacks have targeted tourists, but the feel of insecurity has rippled to potential visitors. The Egyptian army and security forces initiated in early August, operation “Eagle” to flush out the Sinai militant groups, but it will take time to bring peace to the Sinai peninsula, and all this was compounded by a rise in the tension, over the last couple of weeks, on the borders between Egypt and Israel.

All this have and will continue to have an impact on Egypt’s hotels occupancy rate, which fell from 94.3% in 1H FY11, to less than 49% from January to May 2011.

1H FY11 witnessed a 14% and 16% increase in tourist arrivals and revenues, while we expect the drop in both items in 2H FY11, will cause a whole FY11 drop in both indicators to culminate to 12% and 8% respectively.

A more significant drop in tourism arri-vals, revenue and occupancy rates in FY12, compared to FY11, although FY12 tourism activity is expected to be better than that of 2H FY11 estimates.

9

Arab states promised over US$17 bn to support Egypt’s economy Indecision on whether to ac-cept or reject IMF loans Tourist arrivals drop 45% yoy in 3Q FY11 Lack of security and militant groups in Sinai have relatively turned-off tourists for now... In response the army launched operation “Eagle” to restore security to the Sinai peninsula We expect hotel occupancy in FY11 to stand at 70% support-ed with 1H’s 94% high occu-pancy levels In FY12, occupancy will fall to 62%, however, still much better than 2H FY11 estimated rate of 48.7%

Promised funds US$ bn Saudi Arabia 4 Qatar 10 UAE 3 IMF 3 USA 2 Total Promised Funds 22

1H (Jul. - Dec.) 3Q (Jan. - Mar.) Apr.-May 2H (Jan. - Jun.) 2010a 2011a 2010a 2011a 2011a 2010a 2011e Number of Tourist Arrivals (k) 6,824 7,796 3,464 1,894 1,509 6,934 4,350 Growth 13% 14% 0% -45% n/a 11% -37% Average Tourists per Month 1,137 1,299 1,155 631 754.5 1,156 725 Number of Tourist Nights (k) 70,666 81,680 31,958 21,083 14,050 65,704 42,158 Tourism Related Income (US$ k) 6,007 6,943 2,716 1,792 n/a 5,584 3,745 Growth 5% 16% 24% -34% n/a 18% -33% Income/Tourist (US$) 880 891 784 946 n/a 805 861 Occupancy Rate (e. 2.2 tourist per room) 83.2% 94.3% 75.2% 48.7% 48.6% 77.4% 48.7%

FY ending June 2010a 2011e 2012e Number of Tourist Arrivals (k) 13,758 12,146 11,055 Growth 12% -12% -9% Average Tourists per Month (k) 1,147 1,012 921 Number of Tourist Nights (k) 136,370 123,838 109,578 Tourism Related Income (US$ mn) 11,591 10,688 9,242 Growth 11% -8% -14% Income/Tourist (US$) 842 880 836 Hotel Rooms (k) 215 219 219 Occupancy Rate (e. 2.2 tourist per room) 79% 70% 62%

JC Database

Source: MoF, CAPMAS & JC estimates



BOP deficit weighed heavily on FX reserves The BOP’s high deficit level in 3Q FY11 and the estimat-ed one for 4Q FY11, have resulted in a net drop of over US$9.4 billion in Egypt’s official FX reserves from the end of December 10 to end of June 11. July FX reserves figure showed a further US$860 million drop to US$25.71 bn, or a US$10.3 billion YTD drop in Egypt’s FX re-serves .

Based on our projections for the BOP in FY12, we expect a minor drop in reserves to 25.2. Not a big drop, but this assumption depend largely on donors fulfilling at least a portion of their promises.

We don’t expect real FDIs or portfolio investments influx, prior to the beginning of 2012.

Government formulates a generous budget for FY12 With the government stuck between managing a healthy budget, on one side, and on the other side, needed to adhere to popular demands to see the impact of the Egyptian revolution rippling through higher wages and benefits right away, have chosen to cave-in to the latter. Thereby for-mulating a budget, which underlined a 22% spike in the government’s annual payroll bill and increasing healthcare and educa-tion budget by 17% and 10%, re-spectively compared to FY11 budget figures.

The budget underline some as-sumptions, which we are not sure it can achieve.

Although government spending will spike, general sentiment isn’t that strong, government expansion-ary budget will most probably im-pact the basic goods segments of the economy, causing increase in demand and inflation in these seg-ments, but we don’t expect it to have much impact on the other segments of the economy.

Furthermore, output may grow, but cost has increased too, partially due to higher wages, which will yield a lower return on sales, and consequently taxable income would grow at a lower rate than nominal GDP.

10

FX reserves drop by US$10.3 billion from the beginning of the year to the end of July The FY11 end of year FX re-serve level, translates to Egypt’s lowest Import and trade deficit coverage ratios in over a decade. Egypt had to go for easing policies through higher deficit to reduce public’s discontent with government The main theme of the FY12 budget is a 22% spike in pub-lic employees’ compensations to represent 36% of the gov-ernment's revenues Even with the new budget’s 5% increase in income tax bracket for corporates taxable income over the EGP10 mn threshold, which the govern-ment estimates will generate around an extra EGP4.8 bn. of income tax revenues, we as-sumed lower than the FY12 budgeted income tax revenues, on lower overall taxable in-come expectations

In USD bn USD/€ In € bn In USD bn In USD bn Months Months 2000 15.1 0.93 16.4 17.9 11.5 10.1 15.8 2001 14.2 0.90 15.9 16.4 9.4 10.4 18.3 2002 14.1 0.95 15.0 14.7 7.5 11.6 22.6 2003 14.8 1.13 13.1 14.8 6.6 12.0 26.9 2004 14.8 1.24 11.9 18.3 7.8 9.7 22.7 2005 19.3 1.25 15.5 24.2 10.4 9.6 22.4 2006 22.9 1.26 18.3 30.4 12.0 9.0 23.0 2007 28.6 1.37 20.8 38.3 16.3 8.9 21.0 2008 34.6 1.47 23.5 52.8 23.4 7.9 17.7 2009 31.3 1.39 22.5 50.3 25.2 7.5 14.9 2010 35.2 1.33 26.5 49.0 25.1 8.6 16.8 2011 26.6 1.39 19.1 49.3 23.9 6.5 13.3

FY ending June

Net Int’l Reserves Net Int’l

Reserves Imports Trade Deficit Imports Coverage

Trade Deficit Coverage

‐3.5

‐3

‐2.5

‐2

‐1.5

‐1

‐0.5

0Jan‐11 Feb‐11 Mar ‐11 Apr ‐11 May ‐11 Jun‐11 Jul‐11FX Reserve Monthly Change (US$ bn)

FY ending June (EGP bn) 2010a 2011e 2012b 2012e Tax Revenues 171 200 232 212

out of which: Income & Capital Tax 77 93 110 97 Taxes on Goods & Services 67 77 85 80

Grants 4 5 10 10 Other Revenues 93 90 107 103 Total Revenues 268 294 350 325 Employees Compensations (85) (96) (117) (117) Purchase of Goods & Services (28) (29) (30) (30) Interest Expense (72) (87) (106) (130) Subsidies & Social Benefits (103) (140) (158) (167)

out of which:: - - - - Food Commodities (17) (28) (19) (26) Petroleum (67) (82) (96) (96) Electricity n/a (1) (5) (5) Export Incentives (3) (3) (3) (3)

Other Expenses (29) (37) (32) (32) Investments (48) (41) (47) (47) Total Expenditures (366) (428) (491) (523) Budget Surplus (deficit) (98) (133) (141) (198) % of GDP -8.5% -10.2% -8.6% -13.3%

Gross Domestic Budget Debt 808 979 1,109 1,183 External Debt 149 160 165 175 Gross Budget Debt 957 1,140 1,274 1,359 Budget Sector Deposits 145 153 156 154 Net Debt 813 987 1,118 1,205

Gross Debt % of GDP 83% 87% 82% 91% Net Debt % of GDP 71% 76% 74% 81%

Source: MoF & JC calculations

b: government budget figures Source: MoF & JC estimates

Source: CBE



Government formulate a generous budget for FY12 (Continued) Also, the budgeted food commodities subsidy plan of EGP19 billion for FY12, compared to an estimate of EGP28 billion to have been spent on food subsidies through FY11, seems very low. We assume that this budgeted 32% drop in food subsidy, is based on the government’s expecta-tions of a drop in commodities prices and increased local output. But those two assumptions won’t bring subsidies that low.

Prices of wheat and corn, two of Egypt’s most essen-tial imported food commodities for instance, have dropped 14% and 6% respectively during the two months to July 2011. However, have shown another upward movement in August 11, and now wheat and corn prices are 14% and 24% higher than their 12 month average price in the period of the Egyptian government’s FY11, ending June 2011.

Another expense item, which we expect to record higher than the government’s FY12 budget figure, is debt service. Interest rates on 91 TBs, as an example, have spiked 26% since end of January 2011. We as-sumed that the all interest rates will continue at their current levels for the FY12, and concluded that it will cost the government around an extra EGP24 billion of interest expense in FY12, than it had budgeted.

We believe the FY12 budget, is the most appropriate for Egypt’s current political and social conditions. The SCAF and government need to deflate the Egyptian street’s heightened emotional state, that it has been experiencing since late January, in order to be able to go through the upcoming parliamentary elections in the best manner possible.

The government may for the coming couple of years, as it highlighted in the FY12 budget press release, will put a priority on improving the wellbeing of the low income segments of the com-munity. There is a wide gap between the low income and the middle income segments of the population and actually narrowing it down, would on the long-term support Egypt’s economic appeal. However, this may to a degree come at the account of the business community. The de-gree this will have on the business community and how the current interim government and the future governments, will strike a balance between improving low-income citizens wellbeing, while not dampening the business environment, will be the main determinate for their success.

Finance minister, Dr. Hazem El-Beblawi, said in early August 11, that the government is as-sessing methods to rationalize petroleum products consumption, with one of the options on the table is to remove all energy subsidies from industries such as cement, steel, fertilizers and ce-ramics.

Energy subsidies alone consume 28% of the governments revenues and if the energy intensive industry energy subsidy is removed, it would reduce budgetary pressure by EGP19 bn, implying a 4% reduction in the budget’s expenditures. It is estimated that energy intensive industries, which include fertilizers, cement, chemicals, iron & steel, aluminum, and other industries, cap-ture around 20% of Egypt’s government energy subsidies.

A major adjustment in diesel and petrol prices, would provide a more significant reduction in deficit, but will be met by fierce resistance by the Egyptian community at the time being.

Egypt has a crude oil reserves to production - R/P ratio of 16 years, versus an African and Global ratios of 36 and 46 years respectively. Even natural gas, which Egypt is said to have an abun-dance of, has its R/P ratio at 35 years, while Africa and World ratios stand at 77 and 46 years, respectively.

Egypt depends on oil and natural gas for 44% and 50% of its energy needs, respectively. The negative impact of energy subsidies is somehow subdued, since Egypt is a net exporter of crude oil by a ratio of 2:1 to its imports of petroleum products, so for the time being, it is hedged from global oil price volatility. However, the fiscal budget can’t withstand indefinite deficit levels, and more hikes in public debt levels, can get interest rates and inflation spiraling and further currency devaluation can ensue.

11

We believe the government has underestimated food com-modity subsidy value in FY12 budget Both wheat & corn prices up-ward trend has not been thwarted yet We expect higher than budget-ed debt service given the spike in the government’s notes in-terest rates since the revolution The interim government has emphasized in its FY12 budget on focusing on low income segment of the Egyptian com-munity, a pattern we expect to continue, although a balance will be needed between im-proving the wellbeing of low income citizens and in the same time, not chocking the business community The government is studying to eliminate subsidies on indus-tries that are energy intensive, which represent around 20% of Egypt’s energy subsidy cost Energy subsidy represent 28% of the budget revenues Egypt’s crude oil R/P stands at 16 years Egypt is currently a net export-er of crude oil by a ratio of 2:1 to its petroleum products im-ports

Source: Reuters

7%

8%

9%

10%

11%

12%

13%

J-10

M-1

0

M-1

0

J-10

S-10

N-1

0

J-11

M-1

1

M-1

1

J-11

91 day TB Interest RateSource: USDA

100

150

200

250

300

350

400

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep-

10O

ct-1

0N

ov-1

0D

ec-1

0Ja

n-11

Feb-

11M

ar-1

1A

pr-1

1M

ay-1

1Ju

n-11

Jul-1

1A

ug-1

1

Wheat & Corn Prices (US$/ton)

Wheat

Corn



Market turnover & indices performance nosedived Investors became jittery once demonstrations turned serious in Tunisia by January 5th 2011, and by January 27th, the last day of trading for nearly 2 months, the EGX30 and EGX70 had already rec-orded a YTD drop of 21% and 25% respectively.

Market reopened on Wednesday March 23rd, and by the next day close, the EGX30 & EGX70 rec-orded 12% and 6% drop, respectively, compared to January 27th close.

Since the second week of resuming trading, EGX30 recorded a 6% drop, while the EGX70 gained 13%, as investors have, early on, discounted all the headlines risks that surfaced until now.

The EGX70 with less liquidity and interest from foreigners, was able to fair better than all of the EGX30, MSCI World and MSCI Emerging indices over the last 6 months.

The market was also hit by a drop in liquidity, since market reopening, partly due to investors concern on market outlook, but mainly due to sus-pension of the same-day trading activity.

Daily average market trading value dropped 37% YTD to EGP0.8 bn compared to EGP1.2 bn record-ed during 2010.

The main buyers in the market, since the beginning of the year, have been local investors, as non-Arab foreign investors have been net sellers on the EGX since the beginning of the year to date, by EGP3.4 bn, compared their net buyers position of EGP8.3 bn in 2010. Furthermore, in 2010, foreign investors used to represent on average 17% of the EGX’s market trading activity, but since the beginning of the year their representation has grown to 27%, as they are pushing the market to sell.

Arabs have been net buyers by EGP0.6 bn since the beginning of the year, with January as the only month they were net sellers in, by EGP0.5 bn.

Institutional investors have been net sellers by EGP1.8 bn since the market resumed trading on March 23rd, to date. We presume that the non-Arab foreign institutional investors had a determinant factor in turning institutional investors to net sellers. Furthermore, institutional trading have in-creased to represent 56.5% YTD of the total market trading value vs. 51.0% in 2010.

12

Investors wary from the conta-gion effect of Tunisia’s revo-lution on Egypt, sold the mar-ket aggressively in January

The market reopened on a Wednesday, March 23rd, and the EGX30 lost another 12% by March 24 market close

Since then the market has been trading sideways, with all the weak earnings and headline risk discounted in the market

EGX70 has performed at a much better rate than EGX30, MSCI World and Emerging Markets indices

Suspension of same-day trad-ing has negatively impacted market liquidity Non-Arab foreign trading ac-tivity has turned to a net seller, by EGP3.4 bn YTD vs. net buyer by EGP8.3 bn. in 2010, and with their representation of trading activity increasing to represent 27% of the market Arabs represented 5% of the market turnover in 2011, vs. 6% last year

MSCI-W MSCI-EM EGX30 EGX70

3 Month -13% -15% -16% -12% 6 Month -15% -12% -17% 6% 9-Month -7% -10% -30% -22% 1-Year 2% 1% -28% -5% Relative to MSCI World 3 Month -2% -3% 1% 6 Month 3% -3% 24% 9-Month -2% -25% -16% 1-Year -1% -29% -7%

Index Change

0.00

0.50

1.00

1.50

2.00

2.50

Jan. Feb. Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

Daily Avg. Value Trading (EGP bn)

2010 2011

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

Jan. Mar Apr May Jun Jul Aug

Daily Avg. Trading Value 2011:2010

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

J-10

F-10

M-1

0

A-1

0

M-1

0

J-10

J-10

A-1

0

S-10

O-1

0

N-1

0

D-1

0

J-11

F-11

M-1

1

A-1

1

M-1

1

J-11

J-11

A-1

1

Net Trading Buying Value (EGP bn)

Arabs Foreigners

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

J-10

F-10

M-1

0

A-1

0

M-1

0

J-10

J-10

A-1

0

S-10

O-1

0

N-1

0

D-1

0

J-11

F-11

M-1

1

A-1

1

M-1

1

J-11

J-11

A-1

1

Contribution to Trading Retail

Institutions

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

S-10 O-10 N-10 D-10 J-11 F-11 M-11 A-11 M-11 J-11 J-11 A-11

Institutions Net Trading Buying Value (EGP bn)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

J-10

F-10

M-1

0

A-1

0

M-1

0

J-10

J-10

A-1

0

S-10

O-1

0

N-1

0

D-1

0

J-11

F-11

M-1

1

A-1

1

M-1

1

J-11

J-11

A-1

1

Contribution to Trading

Foreigners

Arabs

Egyptians

70

80

90

100

110

120

130

D-0

9

J-10

F-10

M-1

0

A-1

0

M-1

0

J-10

J-10

A-1

0

S-10

O-1

0

N-1

0

D-1

0

J-11

F-11

M-1

1

A-1

1

M-1

1

J-11

J-11

Indices Relative PerformanceMSCI-WMSCI-EMEGX30EGX70

Source: Reuters & EGX



EGX corrected to become inline with emerging peers multiples The Egyptian market sharp correction, since the beginning of the year, has brought the EGX30’s value down by 35%, have made the index trading at a 2011 earning multiple to 9.5x, while if we remove Orascom Tele-com and Orascom Construction earnings and capitalization from the calculation, the adjusted EGX30 multiple would be 11.4x*.

While the corresponding selected 19 peer markets have an estimated average price-earnings multiple of 11.7x based on 2011 earnings.

This imply that EGX30 is discount-ed by 19% compared to the select-ed peers.

Furthermore, if we remove the two aforementioned leading stocks from Egypt’s PER calculation, the EGX30 would be trading, nearly at par with its peer group.

EGX30’s earnings, excluding those of OCI and OT, are expected to drop 19% in 2011, following the drop in economic activity since February, in addition to the impact of the increase in corporate taxes by 5% for taxable income over EGP10 million, that the govern-ment has approved in its FY12 budget.

On the other hand, the peer markets’ earnings are estimated to grow by an average of 6% in 2011.

This has meant that in order for the EGX30 to adjust to its peer markets multiples, it had to fall 2.2x more than the peers’ YTD drop, which we calculated to have dropped at an average of 9.4%.

Based on 2011 price-earning ratio comparable, investors have not penalized Egypt much on political risk, as it seems that investors have brought the market downward based on revised earnings forecast, with just an 19% discount from its peers, if both OCI and OT are included in the calculation, which still imply investors are mostly looking at the Egyptian stocks from an earnings game perspective, rather than from a heightened political risk one, until now.

13

The EGX30 is trading at an 19% discount to selected peer group markets on 2011 PER If we remove OT and OCI from the calculation, the re-maining EGX30 stocks, would be trading nearly at par with the selected peers’ 2011 PER The EGX30 sharp YTD drop that was 2.7x more than the average peers drop of 9%, was ultimately a factoring for weak economy and higher tax brack-et impact on Egyptian stocks’ earnings, with only 19% of the drop may be directly attributed to political concern The 19 peer markets earnings are estimated to grow yoy by 6% on average in 2011 The 2011 earnings adjustment alone to peers’ earnings multi-ple required the EGX to fall 2.2x more than the peers’ av-erage drop or representing 79% of the index YTD fall

4

6

8

10

12

14

16

18

Paki

stan

Bra

zil

Turk

ey

Hun

gary

Kor

ea

Pola

nd

EGX

30

Chi

le

EGX

30*

Sout

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fric

a

Thai

land

Peru

Taiw

an

Indi

a

Cze

ch

Chi

na

Phili

ppin

es

Indo

nesi

a

Mal

aysi

a

Mor

occo

Mex

ico

Price-Earning multiple 2011

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Indo

nesi

a

Phili

ppin

es

Thai

land

Mex

ico

Sout

h A

fric

a

Mal

aysi

a

Mor

occo

Kor

ea

Paki

stan

Peru

Chi

na

Pola

nd

Bra

zil

Taiw

an

Cze

ch

Chile

Turk

ey

Hun

gary

Indi

a

EGX

30

YTD Major Indices Performance

Source: Reuters & JC estimates



Weak quarterly corporate earnings in 1Q & 2Q 11 The EGX30 index YTD drop, is relatively inline with the yoy drop, in the combined bottom line, of 31% and 15%, for the 79 companies, we follow, in 1Q and 2Q 11, respectively, after excluding Orascom Telecom and Orascom Construction earnings from the analysis.

Adding both OT and OCI would have cer-tainly distorted 1Q bottom line, since the former recorded a net income of around EGP4.9 bn in 1Q 11 vs. a loss of EGP0.9 bn in 1Q 10. OCI also had its bottom line rise by 89% on a yoy basis in 1Q 11 to EGP1.2 bn. Both companies EGP6.1 bn 1Q 11 profit represented around 62% of the 79 compa-nies’ 1Q 11 quarter earnings.

Sectors’ performance varied on the stock market, with the worst hit sectors were the real estate and banking & finance sectors, as these sectors respective stocks prices fell by an avg. of 54% and 40% YTD.

The real estate sector bottom line perfor-mance during 1H 11, came inline with its stocks’ market performance, as the com-bined earnings of the 10 real estate com-panies we follow, reported a 56% yoy earning decline in 1H 2011.

The banking & finance sector, 1Q 11 bottom line fell yoy by 62%, mainly driven by a 93% drop in EFG-Hermes profits and Citadel recording a wider loss along with Naeem reporting a loss of EGP15 mn during 1Q 11. Commercial banks we follow, recorded a combined 39% yoy drop in 1Q 11 net income. Dur-ing 2Q 11, banks & finance corporates all together reported only a 5% yoy drop, while showed a qoq rise of 37%.

Our focus companies that reported by now, 2Q 11 earnings, had their combined earnings with-out OT, showing a qoq mild pick-up of 6.3% vs. 1Q 11, while on a yoy basis, the rate of quar-terly earnings decline have slowed down to 15% or half the 1Q 11 rate of 31%.

For the whole of 2011, we expect EGX30 bottom line to drop 19% without OT, OCI and Cita-del bottom lines, while our focus companies combined bottom line to drop 23%. The sectors that we expect to perform better than the market are food, milling, oil related and pharmaceuti-cals. While worst performers would be durable goods, real estate and textiles.

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The 79 companies, we follow, which include all the EGX30 constituents, have reported a combined earnings yoy drop of 31% and 15% in 1Q & 2Q 2011, while excluding both OT and OCI from the calcula-tion. The worst hit sectors on the stock market, with respect to their stocks’ prices, were the real estate and banking & fi-nance sectors The real estate sector also rec-orded a steep 56% yoy drop in 1H 11 earnings Banking & finance sector showed better earnings perfor-mance in 2Q 11 than 1Q’s results Focus companies 2Q 11 quar-terly bottom line yoy drop halved that of 1Q 11 We expect the EGX30 at-tributable income to drop 19% excluding OT, OCI and Cita-del Capital’s bottom lines

Bottom Line % Change YoY Q1 11 Q2 11 Q1 11 Q2 11 Focus Companies ▲53.8 ▼9.9 ▲92.6 ▼55.4 Focus Companies1&2 ▼30.7 ▼15.0 ▼24.0 ▲6.3 Banking & Finance ▼62.2 ▼5.1 ▼21.0 ▲37.0 Construction & Related ▲15.4 ▼42.3 ▼6.4 ▼13.1 Construction & Related1 ▼25.7 ▼42.3 ▼24.9 ▼13.1 Durable Goods - ▼58.9 - - Food & Related ▼12.6 ▲48.3 ▼36.7 ▲12.9 Mills ▲63.8 ▼30.3 ▼25.6 ▼23.5 Oil Related ▲42.0 ▲61.3 ▼9.3 ▲24.6 Pharmaceuticals ▲19.4 ▼8.4 ▼14.7 ▲0.6 Real Estate & Related ▼58.3 ▼54.2 ▼52.0 ▼14.1 Telecom, Media & IT ▲242.6 ▼31.9 n/a ▼89.8 Telecom, Media & IT 2 ▼33.2 ▼42.7 ▼1.2 ▼17.0 Textile & Related ▲4.6 ▲7.7 ▼66.6 ▼30.8

QoQ

PER NAI % Change (YOY) 2010a 2011e 2012f 2010a 2011e 2012f 2010a 2011e 2012f EGX30 11.1 9.5 9.2 5.5% 4.9% 5.8% ▼3.8 ▲16.1 ▲3.9 EGX301,2 & 3 9.2 11.4 9.3 6.6% 3.9% 5.5% ▼2.6 ▼18.9 ▲21.7 Focus Companies 10.9 10.4 9.5 5.8% 5.0% 5.7% ▲0.9 ▲5.5 ▲9.1 Focus Companies1,2 & 3 9.0 11.7 9.8 6.6% 4.4% 5.4% ▲9.8 ▼22.8 ▲19.6 Banking & Finance 13.9 14.3 9.0 5.5% 2.2% 5.2% ▼16.7 ▼3.1 ▲58.8 Banking & Finance3 9.5 11.6 8.8 5.7% 2.3% 5.4% ▲21.2 ▼18.1 ▲31.8 Construction & Related 10.9 11.3 9.3 6.5% 5.8% 6.9% ▲19.2 ▼3.3 ▲21.1 Construction & Related1 7.6 11.5 9.3 8.6% 5.1% 6.1% ▲12.3 ▼33.7 ▲22.7 Durable Goods 16.9 44.7 21.1 3.1% 0.0% 0.0% ▲8.9 ▼62.2 ▲112.0 Food & Related 14.0 11.7 10.0 4.2% 6.9% 5.8% ▲7.3 ▲20.2 ▲16.9 Milling 10.5 8.6 7.8 7.4% 9.1% 0.0% ▼3.7 ▲22.3 ▲10.0 Oil Related 8.7 8.1 7.4 8.3% 8.4% 9.0% ▲24.2 ▲7.7 ▲9.5 Pharmaceuticals 9.1 8.8 7.7 5.5% 6.2% 7.7% ▲26.5 ▲2.7 ▲14.2 Real Estate & Related 7.8 19.5 17.8 1.5% 0.4% 0.4% ▲6.2 ▼60.1 ▲10.1 Telecom, Media & IT 10.5 6.5 8.9 6.4% 6.5% 5.9% ▼21.5 ▲61.6 ▼26.6 Telecom, Media & IT2 8.5 11.0 10.0 9.6% 5.6% 6.8% ▼9.4 ▼22.5 ▲10.0 Textile & Related 10.9 17.3 13.6 7.7% 3.0% 3.6% ▲54.3 ▼36.8 ▲27.1

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1without OCI, 2without OT, 3without Citadel Source: companies financials, Reuters& JC estimates

Source: Reuters & JC calculations

Source: companies financials & JC calculations

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Banking & Finance The CBE has took actions to relax some of the banks’ requirements during 1H 2011. as it gave banks guidance, on not to book any retail related delayed payments on loans for the three months following the revolution, as non-performing, and not asking for penalty charges on the-se late payments.

CBE went even further, by instructing banks to reschedule tourism related loans and credit fa-cilities due payments, for the period from January 2011 to June. Furthermore, the CBE request-ed that banks review all its corporate clients positions, and assess the appropriate loans restruc-turing procedures, based on the state of the economy and the related sectors current conditions.

Although these steps have certainly eased the pressure on the business community and retail clients to remain afloat, it can be masking an un-quantified non-performing loans amount, that will not start to show on banks’ financials, at least until 3Q or 4Q 2011. However, if the size of this non-performing loans grows, CBE or the banks through restructuring schemes can soften its impact on the short to medium term.

On the other hand, Egyptian banks have been conservative for over a decade with respect to extending loans, resulting in a sector wide loans to deposits ratio of 50% at the end of March 2011 up from 49% at the end of December 2010.

The private businesses and retail clients represented 39% and 20% of the banking sector loans portfolio respectively at the end of April 2011. We estimate a maximum of 15% of those loans can turn non-performing, which imply a hike of no more than 9% in NPLs to total loans. Given that most banks have one digit NPL to loans ratio, ample liquidity and an excuse to restructure, we don’t expect a significant issue unless the economy takes longer than expected to recover.

Our focus banks all reported a drop in their yoy 1Q earnings, with the exception for NSGB, which reported a 3% yoy increase in 1Q 11. Furthermore, NSGB reconfirmed its resilience against the economic conditions, and delivered a 14% yoy increase in its 2Q 11 earnings, there-by, achieving an 8% yoy 1H 11 net income growth.

Baraka Bank also delivered a strong 2Q earning growth of 42% yoy, which boosted its 1H 11 results to come 3% higher than the comparable period of 2010.

With the Egyptian stock market turnover, performance and even number of trading days have been much less this year compared to the previous year, EFG-Hermes reported a major drop in 1Q earnings, although the comparable period income was inflated with Bank Audi’s stake sale capital gain proceeds of EGP716 mn. Excluding Bank Audi sale impact, 1Q 11 yoy bottom line drop would be 60%. However, its 2Q 11 bottom line showed only an 18% yoy drop and a 119% qoq rise.

Naeem Holding reported a loss in both 1Q and 2Q 11, while Pioneers would have reported a loss also, but capital gains income distorted 1Q 11 bottom. Pioneers 2Q net income was re-leased showing a continuation to the strong 1Q performance, with bottom line soaring 67x and 3x in 1Q and 2Q 11 respectively, on a yoy basis.

All in all, the 12 banks and finance corporates we follow, reported a 62% and 21% decline in 1Q combined earnings compared to the respective figures reported in 1Q 10 and 4Q 10.

In the second quarter of 2011, the sector recovered significantly, with all but Citadel reporting its 2Q 11 results by the time of issuing this report, the sector shown a combined earnings yoy drop of just 5% and a qoq rise by 37%.

Although Citadel Capital has reported a net loss in 1Q 11 of EGP111 million, and we expect it to continue delivering weak results this year, the stock has much locked-in value, which it can realize, once both the economy and capital markets start to pick-up.

Sector picks: CIB, NSGB and Baraka Bank on PER and 2012 growth

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CBE instructed banks to be lenient on retail clients de-layed payments during 1Q 11 And to reschedule tourism related loans dues till the end of June 11 Postponing banks’ due pay-ments and rescheduling will ease the pressure on banks’ customers Private businesses and retail customers represent a cumula-tive 59% of the banking sys-tem loans balance NSGB & Baraka bank report-ed an 8% and 3% yoy growth in their respective 1H 11 bot-tom lines EFG 1Q 11 yoy net income dropped 60% after excluding 1Q 10 sale of Audi Bank stake impact EFG Q2 11 earnings show an 18% yoy drop while a 119% qoq spike Pioneers report strong perfor-mance on capital gain profits

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Construction & Related Corporates The construction, building materials & other related companies, we cover, delivered a 15% increase in 1Q 11 earnings, as a result of OCI delivering a yoy 89% increase in bottom line 1Q 11 to EGP1.2 bn, while representing 59% of the sector’s earnings power during the quarter.

Excluding OCI, the remaining 16 corporates, we cover in the sector, recorded a 26% decline in its 1Q 11 earnings.

Sector’s corporates that reported 2Q 11 results until now, have shown a 42% yoy decline in earnings, while OCI haven’t reported its 2Q 11 results yet.

The main attributes for 2Q’s sharper drop, were a 61% yoy drop in Suez Cement 2Q 11 earn-ings vs. the company reporting a 10% yoy decline in 1Q 11, also ASEC Mining recording a wider loss in 2Q of EGP54 million, while reported a 1Q 11 loss of EGP18 mn.

We see the sector will remain in this weak state until mid 2012, while we expect recovery to kick-in from that point forward.

OCI is our leading pick in the Sector

OCI remain a favorite, with the ability to build-up its construction backlog at relatively good margins (16.4% in 1Q 11), while benefiting from its recent added fertilizers capacity. OCI may well soon be moved from this sector, since two thirds of OCI value comes from its fertilizers operations. Maybe it’s the company’s name, that made us leave it, till now, in the construction sector.

With urea and ammonia prices continuing their upward trend driven by strong farmers demand, with both commodities respective, US FOB, prices reaching US$500/ton and US$510/ton, re-flecting a 28% and 18% YTD price increases, respectively; we expect OCI to remain delivering good results for the remaining of the year.

Aracemco attractive on valuation as well as multiples

We have factored Aracemco’s, yoy 42% and 28% respective 1Q 11 and 2Q 11 drop in profita-bility in our latest update issued in June 2011. Aracemco utilization rate fell to 62% in February and March 2011, but has bounced back to full utilization by June 11.

The company benefits from targeting lower income segment, as well as implementing upgrade and expansionary projects, that will cut cost by 5-6% once completed by the end of 2011. This will compensate for the rise in workers’ compensations that occurred in 1Q 11.

Although, we forecast a 28% drop in 2011 bottom line, the company is trading at a low 2011 PER, and with the expected expansions in place next year, we forecast an attractive dividend yield in 2012.

Our Aracemco valuation is very conservative on figures and discount rates, however, remain providing around 20% upside from the stock’s current market price.

Pachin, nice on multiples, bad 2H bottom line on Libyan plant concern

Paints & Chemicals Industries has a decent earnings multiple and dividend yield. However, have reported a 62% and 32% yoy drop in its 3Q and 4Q FY11 ending June 2011 earnings. Revenues dropped 4% yoy in 3Q FY11, but bounced back with a 5% yoy increase in 4Q FY11.

Full year detailed financials are not yet available, but 3Q FY11 financials, show that although gross profit dropped by just 5% yoy, the sharp bottom line drop was a result of the company’s concern about the fate of its Libyan plant and has written-off assets related to the Libyan opera-tion worth EGP9.6 million in 3Q FY11. We don’t know the conditions of the Libyan operation at the time being, but as things calm down now, after the Gadaffi regime came to an end, there is possibility of recovering some of these written-off amounts.

Low income housing isn’t expected to slowdown, as much as, that of middle and upper income segments of the market, which provide Pachin with a relative opportunity to perform. We ex-pect Pachin to achieve a 10% increase in bottom line in FY12 ending June 2012.

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OCI earnings grew 77% in 1Q 11 in US$ terms & 89% in its EGP consolidated statements, on the back of its fertilizer sales volumes increasing 2.3x in 1Q 11 vs. 1Q 10 amounts

The sector excluding OCI had a 26% drop in its 1Q 11 earn-ings

Ezz Steel & Ezz Dekhila have neither reported their 1Q 11 nor 2Q 11 results yet. OCI had a construction back-log of US$5.1 bn at the end of Q1 11, out of which Egyptian contracts represented less than a 1/4 Fertilizers prices continue their upward trend, which we ex-pect to downplay the impact of higher energy prices on OCI’s Egyptian fertilizer operations Aracemco new sanitary ware and glazing facilities are ex-pected to reduce cost by 5-6% starting 2012 Pachin disappointing 3Q FY11 results came mostly on the back of concern on its Libyan operations We expect as the situation improves in Libya by time, the discounts factored for compa-nies like Pachin, Sewedy Elec-tric, and Aracemco for lost business there, will start to subside


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Durable Goods GB Auto, reported an 89% then 35% yoy decline in 1Q 11 and 2Q 11 earnings respectively. Management said signs of recovery were seen in 2Q 11, as passengers cars sales grew 72% compared to 1Q 11 and bottom line increased 6.5x on a qoq basis. We expect GB Auto will record around 40% drop in its annual 2011 earnings, but would grow by 35% in 2012 compared to expected 2011 figures.

Although demand is expected to bounce back, uncertainty is increasing day by day as GB’s assembly contract with Hyundai will expire at the end of 2013, and GB has not yet found a sub-stitute.

However, with GB Auto capturing nearly one-third of the personal cars market, along with its experience, nationwide outlets and service centers, we see the odds are more favorable that GB will be able to find a suitable brand to locally assemble in time.

Following some delay earlier in the year, Olympic Group's parent company Paradise Capital, which owns 52% stake of Olympic, has reached an agreement with Sweden's Electrolux where-by the latter would buy the former’s stake in Olympic at a deal, which valued the company at EGP2.4 billion or EGP40.6/share down from pre-revolution valuation of EGP2.7 billion.

Later, Electrolux has initiated a compulsory bid to acquire the remaining of Olympic’s shares at the same price of EGP40.6/share. The bid started on August 3, 2011 and will expire by Septem-ber 4, and will be executed 5 days following the bid close.

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GB Auto has seen all its lines of business recovering in 2Q 11 from the prior quarter’s slump except commercial ve-hicles & construction equip-ment Electrolux is taking Olympic private



Food & Fertilizers The earnings of food & fertilizer sector corporates, we follow, have declined 13% yoy in 1Q 11, but bounced back on a yoy basis by 48% in 2Q 11. The strong rebound in the sector’s 2Q 11 earnings, was essentially driven by Abu Kier Fertilizers and Delta Sugar delivering 23% and 188%, respective yoy growth in 2Q 11. The huge growth combined with their earnings power representation in the sector, which came at 84% in 2Q 11 have supported the cumulative sector quar-terly growth.

Juhayna showed resilience in 2Q 11, as its bot-tom line grew 54% on a yoy basis after experienc-ing a 17% 1Q 11 yoy earnings drop, while EFIC delivered a 2Q 11 bottom line similar to its 2Q 10’s, which was good news after a 1Q 11 reported bottom line yoy drop of 88%.

The food sector was one of our picks in our Feb-ruary 2011 Egypt report, and has performed as expected on the stock market, as its companies’ collective market capitalization, remain close to its beginning of the year levels, while witnessed some trading opportunities during the period.

From a financial performance perspective, the sector had the best performance among the sec-tors we follow in 2Q 11. We expect this performance to continue, as the sector benefit from higher government employees wages, which will essentially ripple down into basic commodi-ties spending.

Top Picks: Juhayna, Delta Sugar & National Maize

Our top picks in the food sector are Juhayna Food Industries, Delta Sugar and National Maize for expected operational growth in 2012 and resilient 2011 performance, against the economic slowdown. Furthermore, Delta Sugar and National Maize are attractive on multiples.

Fertilizer companies are expected to benefit from increased food production

Food prices hikes were at the core of what instigated the populace dismay that brought Mubar-ak’s regime to an end. Both the current interim government and any future one, will put food production and managing its prices at the top of their agendas, if they don’t wish for more riots.

The interim government has already increased the price it will buy wheat from farmers by 25% and promised to provide high yielding seeds. Egypt produces only 60% of its needs from wheat and consumes over 16.5 million tons, out of which 9 million tons are directed to bread produc-tion. The interim government said it hopes to increase wheat production by 25% this year, and there are plans to double production over the medium term.

Furthermore, talks have emerged again concerning the use of the right proportion between the different types of fertilizers, in order to enhance crops yield, which would bode well to the ben-efit of EFIC, since Egyptian farmers relatively neglect the right proportion of phosphate ferti-lizers.

The Egyptian food predicament, is a global one, neither food nor fertilizer prices have globally corrected enough, given the global economic slowdown. We see the trend of increase in both food and fertilizers demand will remain persistent putting more pressure on its prices.

We Pick Abu Kier on DY and growth, EFIC on expectations of a turnaround

Abu Kier Fertilizers said it will propose a EGP22/share cash dividend and a 2:3 stock divi-dend for shareholders approval at the next AGM, which is expected to be in September 2011. This provides an attractive dividend yield combined with our projections of around 15% growth in next year’s bottom line.

EFIC’s MD has recently said, that the highly priced raw materials inventories issues, which have been weighing on the company’s performance for the past years, are close to be complete-ly resolved. This compounded with our expected robust fertilizer’s demand, encourage us to choose the company among our picks.

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Food & fertilizer sector profits dropped 13% yoy in 1Q 11 but bounced back with a 48% yoy growth in 2Q 11 Juhayna came back strong in 2Q 11 after a weak 1Q results, however, its margins will be somehow weakened in 2H 11 by the new raw milk purchase pricing policy Some of the sector’s compa-nies provide attractive PER levels With plans to increase Egypt’s agricultural footprint and crop yields combined with global rise in fertilizers prices, we expect improvement in de-mand and prices of fertilizer products, which should com-pensate for the risk of higher energy prices for local produc-ers EFIC doesn’t depend much on energy, as it uses sulfur, chain reaction, to generate most of its energy needs


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Milling Sector The listed milling sector companies, have reported a combined 37% growth in FY11 ending June 2011 bot-tom line and all of them have contributed to this growth in varying degrees.

However, milling companies’ 4Q FY11 ending June results, which corresponds to 2Q 11 calendar year, have shown a combined net income drop by 30%.

Higher wages, as part of Egypt’s lower income work-force movement to capitalize on the weaker security grip and pressuring management for either higher compensation or they will take their compa-nies on strike, is the main culprit for the milling sector’s weak 2Q 11 results.

We are concerned that higher wages would impact FY12 profitability. However, as Gouda Ab-del Khalek, Egypt’s minister of social solidarity & justice, has approved raising the fee it pays for wheat grinding to EGP112.5/ton up from EGP75.0/ton, the risk of this higher cost pressure cascading on FY12 results should be limited. However, the new fee rate will not become effec-tive until sealed by an approval from the minster of finance.

We are bullish on the announcement, but as industry officials commented that most of the in-crease will be eroded by the increase in workers’ compensations, consequently, we assumed an average 10% increase in the sector’s FY12 earnings.

Picks: Middle & West and Upper Egypt Mills

Both Upper Egypt and Middle & West Flour Mills, remain providing the potential for a good dividend yield rates in 2011, even though their stocks’ prices have appreciated YTD, by over 20%.

Oil Related Sector As expected the sector showed strong resilience and actually reported a combined yoy earnings growth in 1Q and 2Q 11 of 42% and 61% respectively.

AMOC’s stock rose over 46%, since the beginning of the year and still promises a 2012, dividend yield of over 14.6%, while its 2011 dividend, which had its record date on August 24th reflect a dividend yield of 14.1%.

All the sector’s stocks are appealing

All of AMOC, Sidi Kerir and Maridive provide good growth potential, specially in such times, given the sector’s defensive nature. In Maridive’s case, this is combined with a huge backlog of over US$450 mn, most of which is located outside Egypt.

Pharmaceutical Sector Pharmaceutical companies, we follow reported a com-bined yoy earnings growth of 19% in 1Q 11, but then reported a yoy decline of 8% in 2Q 11.

Public sector pharmaceutical companies suffered the most in both quarters, while GlaxoSmithKline has been delivering some eye-catching profitability growth levels, supported by EBITDA growth of over 94% yoy in 1H 11, while also benefited from lower provisioning.

EIPICO, Glaxo & Minapharm on PER, EIPICO & Glaxo on DY

Our picks all have a good PER with growth potential ahead, given our expectations of an in-crease in government spending on healthcare. Cairo Pharmaceutical also looks attractive on earning multiples despite a disappointing 2Q 11 results. However, it’s engaged in a relocation program worth EGP365 million and will take 3 years to complete, which will limit its capability to distribute cash dividends over the coming couple of years.

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Milling sector companies de-livered a 37% increase in FY11 combined net income, but witnessed a weakness in their 4Q results on the back of higher works’ compensations Talks on raising government grinding fee to wheat milling companies by 50% All of the Oil related stocks reported growth in both their Q1 & Q2 11 bottom lines Glaxo has been performing superbly as of late




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Real Estate Sector Turbulent time for the sector! If concerns for real estate firms was solely with respect to the economic conditions, all would have been required, would be revising 2011 and 2012 perfor-mance downward, significant downward revision, as it may prove, the situation looks bleaker. The sector’s leading companies are facing much scrutiny from the public and were dragged to court for purchasing land plots at lower than market prices, and may lose a portion of their land bank in the process or at least up the price they have paid for a portion of their land bank.

Furthermore, questions arose concerning the affiliation between members of these companies boards with the former regime, and whether that was the main reason for these land transactions were executed in that manner. This have created an uncertainty even regarding the companies’ land bank and future outlook.

Post-revolution; uncertainty rise with regards to some real estate companies land bank; such as:

Palm Hills Development: Court ruled the annulment of the 2006 contract for 966k m2 Palm Hills’, Katameiya land, located in New Cairo City. Then, based on the company’s request, a land contract for 9.4 mn m2 in Matrouh was canceled. Finally, talks the ministry of housing may well cancel a Palm Hills’ contract for 882k m2 land plot, located in Sixth of October City.

SODIC: New Urban Communities Authority - NUCA gave SODIC, 6 months to develop 46.2k m2 land plot located in Six of October City or it will withdraw the land from the company.

TMG: The case regarding Madinaty’s 33.6 mn m2 land contract was postponed to October 4, 2011, to give time, to an advisory committee, to provide its opinion with regards to the contract. The committee came back with an outcome that the contract is in compliance with the prevail-ing laws and recommended the waiver of the case against the company. However, the advisory committee opinion is merely a recommendation and not essentially to be adopted by the court.

Amer Group: The company returned to the governorate of Matrouh, 2.5mn m2 land plot, which was designated for Porto Marina Golf third phase.

Egyptian Resorts: The Tourism development Authority – TDA has decided to cancel the pre-liminary contract for ERC’s Sahl Hasheesh phase 3, 20 mn m2 and an administrative court has decided to postpone ERC’s Shahl Hasheesh land case in to December 12, 2011

Furthermore, it was said that the TDA has decided to revalue the sale price for land plots it has withdrawn from developers in tourist locations, to a range from US$5/m2 to US$12/m2 up from US$1/m2 in the initial contracts. The tourism agency will return the lands to the developers, if they agree to pay the new rates, with land plots belonging to 179 developer have been with-drawn because less than 1% of each of these land plots have been developed.

This may well up ERC’s Sahl Hasheesh’s phase 3 cost, from US$1/m2 to between US$5/m2 and US$12/m2,

Weak financial performance

All in all, the news on the sector are not positive, and the combined earnings of the 10 companies we follow in the sector, have suffered a yoy 58% and 54% decline in 1Q and 2Q 11, respectively.

Companies in the sector that have previously been focusing on catering the upper and upper-middle income home buyers, are currently realigning their strategy to move more into middle and low in-come segments, with SODIC announcing such plans already.

No safe picks, but deep market correction justify some exposure

Demand for the upper and upper-medium income segments on real estate is not expected to recover prior to 2H 2012, and cancelations may increase over this period. However, after the sector’s stocks fell at an average of 55% since the beginning of the year, buying stocks such as, SODIC, Amer Group, TMG and Palm Hills, at the current prices, can prove a rewarding ven-ture in the medium term.

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Projections for 2011 & 2012 real estate companies have been dramatically revised downward, combined with increased uncertainty regard-ing their land bank An advisory committee to the court, gave its recommenda-tion to disregard Madinaty case ERC may need to pay TDA a 5x to 12x more on Sahl Hash-eesh’s phase III land, in order to keep it Real estate sector bottom line falls 58% and 54% yoy in 1Q & 2Q 11 respectively Deep real estate stocks’ cor-rections may have well provid-ed the potential for good up-side in their market prices, once economy picks-up & dust settles on their lands’ inquisi-tions

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Telecom, Media & IT Sector Orascom Telecom reported a consolidated 1H 11 profit of EGP4.70 bn vs. EGP0.15 bn loss reported in 1H 10.

The sole driver for this outstanding 1H profit, is OT’s sale on January 4th 2011, of its entire stake in Orascom Tunisia Holding and Carthage Con-sortium, through which OT owned 50% of Orascom Telecom Tunisia - Tunisiana, for a total cash consideration of US$1.2 billion and a capital gain of around US$754 mn (EGP4.4 bn).

Orascom Telecom has received its shareholders’ approval on April 14, 2011, on three corporate restructuring board suggestions. First, the refinancing plan, to restructure the company’s out-standing secured and high yield debt together with certain derivative transactions in an amount of approximately US$2.7 bn. Second, to increase OT’s authorized share capital to EGP 14 bn, while issued and paid-in capital remain unchanged. Third, the shareholders approved the planned demerger from OTH of Orascom Telecom Media and Technology Holding S.A.E. - OTMT, a company to be formed at the time of the demerger. OTMT will hold certain assets of OTH that are not intended to be part of the VimpelCom-Wind Telecom merger, going forward, including OTH’s direct and indirect interest in Egyptian Company for Mobile Services - Mo-binil, North Korea’s mobile operator, koryolink, Orascom Telecom Ventures, as well as other investments in the media and technology sectors, including undersea cable assets.

On a quarterly basis, 2Q 11 showed a consolidated loss of EGP172.5 mn, which was essentially due to net financing cost soaring to EGP1.4 bn up from EGP349 mn reported in the prior quar-ter. The reason for this exceptionally high financing cost in 2Q 11, was that OT has refinanced most of its debt obligations during that quarter, which resulted in an extra-ordinary one-off US$164 mn (EGP967 mn) refinancing cost due to early redemptions.

The problem with OT nowadays, is that its business model is becoming less understandable, the Algerian government has not yet came back with its bid on Djezzy, limitations on managing Djezzy network efficiently, and almost all of its operations are getting very mature, all this com-bined with the uncertainties, with regards to the pricing of the planned spin-off entity and OT’s chairman plans to buy back some of the spin-off assets. However, all this have made the compa-ny trade at relatively attractive earning multiple and with the company’s debt service expected to start to decline significantly, we see the current price levels provide a good point for accumu-lation.

Mobinil operates in a matured market, as Egypt’s mobile penetration is currently over the 91% level, combined with the current economic conditions, which have spurred competition between rival mobile networks over customers. All this have resulted in Mobinil reporting 1% and 15% decline in1H 11 revenues and EBITDA, respectively. Furthermore, net income before unusual items fell to EGP88 mn in 1H 11 vs. EGP732 mn in 1H 10. However, based on the recommen-dation of its tax advisor, Mobinil booked a non-cash one-off expense of EGP174 million, in 2Q 11, as an adjustment to its deferred tax balance due to the new tax code implication on that bal-ance, which resulted in recording a bottom line loss of EGP86 mn in 1H 11.

In late June 2011, Mobinil's founder Naguib Sawaris, was criticized for mocking Islam after tweeting a cartoon of Mickey and Minnie Mouse dressed in conservative Muslim attire. The image was already widely circulated online, but the telecom tycoon's reposting, has sparked angry reactions with tens of thousands of Egyptians condemning Sawiris’ actions and demand a boycott of his companies, even though he apologized several times after.

The impact of the boycott can’t be identified yet, since detailed figures of market shares and customers for July have not been released, but it seems to have made an impact, as it got Mo-binil’s management rattled and complaining to the NTRA, of competing networks capitalizing on the public’s sentiment towards the company, through offering mobile migration campaigns. In response the NTRA has requested from Mobinil’s competitors to limit their mobile migration promotions. The impact of this boycott will be reflected on 3Q 11 results.

Continued next page

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OT deliver outstanding 1H results, on the back of the US$754 mn capital gain from the sale of Tunisiana Shareholders approved debt restructuring, raise in author-ized capital & assets spin-off Debt restructuring result in a one-off expense of US$164 mn recorded in 2Q 11 Egypt’s mobile communica-tion market is getting very mature with penetration level well over 90% Mobinil may suffer some loss of customers on the back of the boycott


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Telecom, Media & IT Sector (continued) We believe both mobile and fixed line telecommunication have long peaked in Egypt, if not in the world in general and are currently going downhill. However, in the case of Mobinil at the current market price, we can’t help to imagine the upside, if the put option that Orascom Tele-com has on its Mobinil’s shares is executed at EGP221.7/share, once it becomes effective in September 2012. The option execution would technically require France Telecom, the buyer in this put option, to issue a bid on all of Mobinil’s free float shares at the same price, which can provide an upside of over 126% from the current market price.

Telecom Egypt is still suffering in its retail operation, which is compensated by the growth in wholesale international mobile and cable businesses. TE doesn’t provide much of a story with a 10% decline in each of 1Q and 2Q 11 bottom lines. However, have relatively low price-earnings multiple and still can provide an adequate dividend yield.

Picks: OT & Mobinil on corporate actions, and TE on multiples

You can’t avoid OT with all the action going around, the spin-off, as well as it is trading at low 2012 PER levels. We don’t see OT remaining on the market for long, it will be either bought fully by Vimpelcom, or broken and sold to highly leveraged buyers. With the telecom market consolidating all the time, since it’s the best way for growth in this sector nowadays, we expect rewarding valuation levels from buyers. For Mobinil, its all about the upside, if the put option is executed.

Telecom Egypt reads well on multiples and its key potential lies in that once political stability materialize, Egypt can continue its growth in call centers operations, which TE can benefit ei-ther directly by expanding its call service operations or through providing the infrastructure to others. High speed internet services and its infrastructure also can support TE’s growth in the future.

Textiles & Related Sector The sector has suffered from a spike in workers’ com-pensations that occurred earlier in the year and from imported goods from countries such as China and India.

However, three textile companies grabbed our attention, as they preformed superbly well, during the 1Q 11, which corresponded to the 3rdQ of their fiscal year.

Arab Cotton Ginning had its quarter ending March 2011, revenues growing 57%, while operational expens-es to revenues ratio nearly slashed by half, and ultimate-ly more than doubling its 1Q 11 bottom line on a yoy basis.

Alexandria Spinning & Weaving bottom line increased in 1Q 11 by 66% as a result of a 7% increase in revenues and a major drop in its operating expenses to sales ratio as GP margin in-creased from 18% in 1Q 10 to 38% in 1Q 11.

Alex. Spinning also issued its FY11 full year bottom line, showing its 4Q FY11, which corre-sponds to 2Q 11 bottom line, have increased 6x, yoy. However, detailed financials are not yet available, to analyze the reasons for this spike.

The last company that grabbed our attention in this sector, is Nile Cotton Ginning. However, this company didn’t perform well on its operational level in 1Q 11, but rather on the back of capital gain, it garnered from the sale of 2 poultry stations it used to own, in addition to income it generates from its real estate properties. Furthermore, Nile’s 2Q 11 bottom line was a loss.

Arab Cotton has been performing financially well for the last period, while Alexandria Spinning management have said they expect FY12 turnover to improve even furtherer, after the comple-tion of its Sadat City new production facility last April.

Alex. Spinning comes out as our sole pick from the sector

Arab Cotton is expensive on multiples, if it is able to continue the high growth levels it has been doing, it can prove a good pick, but for now, on normal expectations of growth, Alexandria Spinning comes out as our only pick from the sector, on the grounds of cheap price-earnings multiple and growth potential.

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Mobinil’s appeal, on the mere possibility of OT executing its put option on Mobinil shares next year with over 126% up-side from current market price, can’t be avoided We don’t expect OT to stay on the market much longer, it will be either bought by Vimpel-com or broken down and sold on the market Both Arab Cotton & Alex. Spinning have been perform-ing operationally well Nile Cotton recorded a 13x qoq profit increase in 1Q 11 on sale of assets, but went into deep losses in 2Q 11


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Sectors / Companies Reuters Last YTD % Market Cap % Free Weight Weight PER (x) DY (% )Prices are in EGP unless stated otherwise Code Price Change (EGP mn) Float in EGX in Focus 2010 (a) 2011 (e) 2012 (f) 2010 (a) 2011 (e) 2012 (f)EGX30 .EGX30 4,661 ▼34.7 198,506 40 100% 74.6% 11.1 9.5 9.2 5.5 4.9 5.8Jazira Securities Focus Companies ▼28.0 267,752 36 NI 100.0% 10.9 10.4 9.5 5.8 5.0 5.7Banking & Finance ▼40.3 47,929 61 34.6% 29.9% 13.9 14.3 9.0 5.5 2.2 5.2Al Baraka Bank* SAUD 9.6 ▼22.6 737 18 0.2% 0.1% 6.9 9.8 7.9 - - -Ahli Investment and Development AFDI 9.2 ▼40.3 185 37 NI 0.1% 12.6 31.5 22.5 - - -Arab Gathering Investment* AMIA 46.5 ▼46.7 572 15 0.1% 0.1% 10.2 14.6 11.2 8.6 5.5 7.1Commercial International Bank* COMI 27.1 ▼42.8 16,071 90 18.1% 15.1% 9.2 11.7 9.4 3.7 2.6 5.3Citadel Capital* CCAP 3.7 ▼59.8 1,841 44 1.1% 0.8% n/a n/a 18.4 - - -Credit Agricole Egypt Bank CIEB 8.8 ▼43.5 2,528 21 NI 0.6% 6.0 9.2 6.8 13.6 6.2 8.8EFG-Hermes Holding* HRHO 16.4 ▼51.2 6,280 74 5.8% 4.8% 9.6 17.4 11.6 12.2 - 4.3Egyptian Kuwaiti Holding (USD)* EKHO 1.2 ▼32.0 5,743 79 5.7% 4.7% 6.6 6.3 5.3 6.5 - 7.6Naeem Holding (USD) NAHO 0.3 ▼42.0 534 52 NI 0.3% 3.7 n/a 7.2 16.4 - -National Development Bank DEVE 3.7 ▼37.3 642 31 NI 0.2% n/a n/a n/a - - -National Societe Generale Bank* NSGB 28.6 ▼36.2 10,491 22 2.8% 2.4% 8.6 8.5 7.7 4.4 4.1 5.9Pioneers Holding* PIOH 4.6 ▲44.1 2,305 34 1.0% 0.8% 211.7 105.8 75.6 - - -Construction & Related ▼22.9 87,629 34 29.9% 30.8% 10.9 11.3 9.3 6.5 5.8 6.9Aracemco CERA 24.5 ▼21.6 613 24 NI 0.2% 6.6 9.0 7.6 12.2 8.2 12.2ASEC Company for Mining ASCM 9.3 ▼26.9 324 31 NI 0.1% 74.6 n/a 23.2 - - -Egyptian Electrical Cables ELEC 1.1 ▲12.2 546 88 NI 0.5% 8.7 10.3 8.9 6.8 5.8 6.7Ezz Aldekhela Steel IRAX 600.0 ▼23.5 8,019 9 NI 0.8% 12.8 21.3 17.8 5.8 3.3 3.9Ezz Steel Rebars* ESRS 8.6 ▼56.4 4,667 35 2.0% 1.7% 21.5 39.0 32.5 - - -General Ceramics & Porcelain* PRCL 6.6 ▲38.7 332 35 0.1% 0.1% 27.5 22.0 20.9 2.3 3.2 3.3Giza General Contracting* GGCC 19.8 ▼24.6 198 43 0.1% 0.1% 12.2 11.3 13.9 - - -Lecico Egypt LCSW 8.2 ▼35.7 653 61 NI 0.4% 7.3 14.6 14.3 9.2 4.6 4.7Misr Beni Suef Cement MBSC 64.8 ▼7.3 2,594 40 NI 1.1% 8.9 11.2 9.7 7.7 6.2 7.1Misr Cement (Qena) MCQE 100.0 ▼1.0 2,988 20 NI 0.6% 8.1 9.2 8.0 16.0 9.2 10.6Orascom Construction Industries* OCIC 239.9 ▼16.7 50,114 38 24.0% 20.1% 16.1 11.1 9.3 5.0 6.3 7.6Paint & Chemicals Industries PACH 39.0 ▼27.8 780 58 NI 0.5% 5.4 6.3 5.7 11.5 9.5 10.5Sewedy Cables* SWDY 27.3 ▼49.1 4,688 33 1.9% 1.6% 5.9 7.8 6.5 3.7 3.8 4.6Sinai Cement* SCEM 38.0 ▼21.1 2,657 30 1.0% 0.8% 3.0 4.7 3.9 25.0 16.3 19.6South Valley Cement SVCE 3.8 ▼24.9 1,892 24 NI 0.5% 37.2 53.1 44.2 2.6 - -Suez Cement SUCE 33.1 ▼12.9 6,016 19 NI 1.2% 4.9 8.2 6.9 14.8 6.1 7.2Upper Egypt Contracting* UEGC 1.5 ▲19.7 551 92 0.6% 0.5% 8.9 7.1 7.9 6.8 6.8 6.8Durable Goods ▼25.5 6,017 26 NI 1.6% 16.9 44.7 21.1 3.1 - -Ghabour Auto AUTO 28.1 ▼35.4 3,625 27 NI 1.0% 15.3 23.4 17.4 3.6 - -Olympic Group OLGR 39.8 ▼3.0 2,392 25 NI 0.6% 19.9 n/a 31.2 2.5 - -Food & Related ▼0.6 20,467 20 1.4% 4.1% 14.0 11.7 10.0 4.2 6.9 5.8Ajwa for Food Industries * AJWA 3.9 ▲14.0 393 38 0.2% 0.2% 154.8 33.0 30.0 - - -Abu Kier Fertilizers ABUK 236.0 ▲19.8 11,912 13 NI 1.6% 14.4 12.9 11.2 5.5 9.3 7.1Delta Sugar SUGR 22.0 ▼2.2 2,720 11 NI 0.3% 8.7 6.0 5.0 5.7 8.3 10.0Egypt Poultry EPCO 2.5 ▼33.9 119 94 NI 0.1% 51.6 68.8 62.6 - - -Egyptian Financial & Industrial EFIC 12.4 ▼33.6 859 54 NI 0.5% n/a 17.2 13.2 - - -Juhayna Food Industries* JUFO 5.0 ▼17.5 3,596 27 1.2% 1.0% 17.8 19.1 16.6 - - -International Agricultural Products IFAP 3.9 ▼25.4 294 47 NI 0.1% 38.4 21.3 18.5 - - -National Co. for Maize Products NCMP 15.9 ▼20.7 468 34 NI 0.2% 7.1 7.6 6.3 6.9 6.4 7.7Sharkia National for Food Security SNFC 6.5 ▼19.2 106 75 NI 0.1% 62.3 24.9 22.7 1.4 3.5 3.8Milling ▲9.5 1,544 0 NI 0.7% 10.5 8.6 7.8 7.4 9.1 -Alexandria Flour Mills AFMC 19.8 ▼11.6 79 30 NI 0.0% 24.4 21.3 19.4 3.5 4.2 4.6East Delta Flour Mills EDFM 37.8 ▲18.2 227 51 NI 0.1% 13.2 14.6 13.2 8.9 6.2 6.8Middle & West Delta Flour Mills WCDF 43.3 ▲21.9 324 63 NI 0.2% 8.0 7.4 6.8 9.0 11.4 12.6Middle Egypt Flour Mills CEFM 10.0 ▼17.1 147 26 NI 0.0% 18.1 9.3 8.4 - 7.6 8.3North Cairo Mills MILS 19.5 ▲4.7 209 20 NI 0.0% 18.9 14.0 12.7 7.7 6.4 7.1South Cairo Flour Mills SCFM 29.8 ▼14.3 89 30 NI 0.0% n/a 9.4 8.5 4.5 8.5 9.4Upper Egypt Flour Mills UEFM 67.0 ▲22.6 469 51 NI 0.2% 6.3 6.1 5.6 9.0 11.4 12.5Oil Related ▼1.5 18,413 24 5.3% 4.6% 8.7 8.1 7.4 8.3 8.4 9.0Alexandria Minerals Oil Company* AMOC 64.1 ▲46.2 5,515 20 1.4% 1.2% 5.6 5.2 4.8 8.6 14.1 14.6Egypt Gas EGAS 77.5 ▲1.7 930 20 NI 0.2% 7.0 6.9 6.5 8.4 8.6 9.1Maridive & Oil Services (USD)* MOIL 2.7 ▼25.2 4,880 31 1.9% 1.6% 19.0 15.6 12.5 2.2 2.6 3.2Sidi Kerir Petrochemicals* SKPC 13.5 ▼5.3 7,088 23 2.0% 1.7% 9.6 9.2 8.7 10.4 8.1 8.6Pharmaceutical ▼18.2 5,191 0 NI 0.7% 9.1 8.8 7.7 5.5 6.2 7.7Cairo Pharmaceuticals CPCI 25.6 ▼5.8 306 30 NI 0.1% 6.5 7.1 6.4 - - -Egyptian International Pharma. Ind. (EIPICO) PHAR 35.0 ▼5.5 2,777 7 NI 0.2% 9.2 8.8 7.8 7.1 8.0 9.0Glaxo Smith Kline BIOC 11.9 ▼24.6 995 5 NI 0.0% 11.9 9.5 8.2 6.3 7.9 9.1Memphis Pharmaceuticals MPCI 23.8 ▼29.2 134 30 NI 0.0% 9.4 24.7 10.4 8.3 3.0 7.2Minapharm Pharmaceuticals MIPH 46.1 ▼52.1 570 32 NI 0.2% 8.0 7.5 6.7 2.5 3.3 3.7Nile Pharmaceuticals NIPH 40.4 ▲5.7 409 23 NI 0.1% 7.7 10.0 9.0 - - 6.7Real Estate & Related ▼54.3 20,170 39 8.0% 8.2% 7.8 19.5 17.8 1.5 0.4 0.4Amer Group* AMER 1.4 ▼51.8 2,663 21 0.7% 0.6% 4.8 6.6 9.5 - - -Cairo Housing ELKA 5.0 ▼20.1 466 64 NI 0.3% 12.8 21.3 17.7 8.0 1.4 1.7Egyptian Resorts Company* EGTS 1.1 ▼47.5 1,103 43 0.6% 0.5% n/a n/a n/a - - -Heliopolis Housing HELI 16.1 ▼34.5 1,793 23 NI 0.4% 13.3 14.2 16.7 5.4 3.5 3.0Nasr City Housing MNHD 15.9 ▼47.5 1,668 46 NI 0.8% 23.4 42.6 35.5 - - -Palm Hills Development Company* PHDC 1.8 ▼72.1 1,835 35 0.8% 0.7% 3.5 n/a n/a - - -Remco for Touristic Villages Construction RTVC 2.7 ▼36.5 664 25 NI 0.2% 4.8 n/a n/a - - -SODIC* OCDI 17.0 ▼60.0 1,541 60 1.2% 1.0% 13.4 n/a n/a 9.4 - -T M G Holding* TMGH 3.9 ▼54.4 8,089 45 4.5% 3.8% 8.6 13.2 11.8 - - -United Housing & Development* UNIT 4.0 ▼37.9 347 67 0.3% 0.2% 15.3 19.1 16.3 7.5 3.9 4.6Telecom, Media & IT ▼24.3 54,078 30 19.8% 16.9% 10.5 6.5 8.9 6.4 6.5 5.9Mobinil* EMOB 96.7 ▼41.1 9,666 27 3.3% 2.7% 8.1 18.5 12.3 12.8 - 4.1Egyptian Media Production City MPRC 3.8 ▼31.1 717 20 NI 0.1% 7.9 9.0 7.8 - - -Orascom Telecom Holding* ORTE 3.4 ▼20.4 17,993 48 10.8% 9.1% 20.4 3.6 7.3 - 8.3 4.1Raya Holding RAYA 4.3 ▼27.2 267 61 NI 0.2% 6.3 10.5 9.0 - - -Telecom Egypt* ETEL 14.9 ▼17.9 25,435 18 5.7% 4.8% 8.7 9.5 9.3 8.7 7.9 8.1Textile & Related ▼16.6 6,313 38 0.9% 2.5% 10.9 17.3 13.6 7.7 3.0 3.6Alexandria Spinning & Weaving SPIN 1.3 ▼27.2 391 38 NI 0.2% 32.7 9.8 8.9 4.6 4.6 6.8Arab Cotton Ginning* ACGC 4.1 ▼6.2 1,116 63 0.9% 0.7% 6.8 14.6 13.3 23.1 2.0 2.3Arab Polvara Spinning & Weaving Co. APSW 2.3 ▼40.6 211 69 NI 0.2% 7.0 n/a n/a - - -Arafa Holding (USD) AIVC 0.5 ▼12.4 1,007 32 NI 0.3% 9.9 33.9 18.8 3.1 - -Nasr Clothes & Textiles (Kabo) KABO 0.8 ▼30.2 274 37 NI 0.1% n/a n/a n/a - - -Nile Cotton Ginning NCGC 10.8 ▼34.0 570 70 NI 0.4% n/a 25.5 36.5 - - -Oriental Weavers ORWE 30.5 ▼10.9 2,745 21 NI 0.6% 9.0 11.2 9.5 6.6 5.3 6.3

As of September 4, 2011 closing prices *EGX constituent Source: Reuters, companies’ financials & JC calculations and estimates

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Egypt Equity Strategy Report, Sep. 2011 - Jazira capital

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