GCC EQUITY REPORT OVERWEIGHT RESEARCH. Etihad Etisalat Company (7020.SE) Quarterly Update. CMP SAR Target SAR Upside 27.

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Dominic Singleton
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RESEARCH GCC EQUITY REPORT Etihad Etisalat Company (7020.SE) OVERWEIGHT CMP SAR 55.00 Target SAR 70.00 Upside 27.3% MSCI GCC Index 425.24 Tadawul All Share Index 6,616.

1 RESEARCH GCC EQUITY REPORT Etihad Etisalat Company (7020.SE) OVERWEIGHT CMP SAR Target SAR Upside 27.3% MSCI GCC Index Tadawul All Share Index 6, Key Stock Data Sector Telecom Reuters Code 7020.SE Bloomberg Code EEC AB Equity Net Out. Shares (bn) Market Cap (SAR bn) Market Cap (USD bn) Avg. 12m Vol. (mn) Volatility (30 day) Volatility (180 day) Stock Performance (%) 52 week high / low (SAR) / M 3M 12M Absolute (%) Relative (%) Shareholding Pattern (%) Corporate Government Public Mobily and Tadawul All Share Index Quarterly Update Mobily s revenues increased 22.6% to SAR 16,013 million during 2010, driven by expansions in mobile broadband and other service segments. Net profit was up 39.7% YoY to SAR 4,211 million, boosted by top-line growth and lower operating and interest expenses. We have raised our FY2011 sales estimate by 10.0% to SAR 17,763 million. Accordingly, our net profit estimate stands revised 32.8% higher. We reiterate our OVERWEIGHT recommendation on Mobily with a revised DCF target price of SAR 70.00, implying an upside of 27.3%. Overview SAR Million 2009A 2010A 2011E 2012E 2013E Services revenue 13,058 16,013 17,763 19,595 20,895 EBITDA 4,837 6,165 6,870 7,669 8,274 EBITDA Margin 37.0% 38.5% 38.7% 39.1% 39.6% Net Profit 3,014 4,211 4,628 5,154 5,503 Net Profit Margin 23.1% 26.3% 26.1% 26.3% 26.3% Adjusted EPS (SAR) Total Assets 30,822 33,430 36,663 39,229 41,418 RoAE 27.4% 30.3% 26.9% 25.3% 23.4% Revenues Total revenues reached SAR 16,013 million during 2010, up 22.6% from SAR 13,058 million during Expenses Cost of services increased 31.2% to SAR 7,230 million from SAR 5,512 million in Depreciation and amortisation expenses were up 11.1% to SAR 1,810 million. Selling and marketing expenses rose by a marginal 0.3% to SAR 1,096 million from SAR 1,093 million, whereas general and administrative expenses declined 5.8% to SAR 1,523 million from SAR 1,617 million. Backed by a strong top-line, cost-to-income ratio improved 263 bps to 72.8% from 75.4% in A substantial drop in long-term loans dropped finance costs 28.3% to SAR million. Zakat more than doubled to SAR 67 million from about SAR 31 million in Profitability Net income advanced 39.7% to SAR 4,211 million from SAR 3,014 million, boosted by robust total revenues and lower finance charges. Accordingly, net profit margin increased 322 bps to 26.3% from 23.1% in Call us on or us at research@taib.com

2 Peer Comparison We have considered Zain Saudi and Saudi Telecom (STC) for peer comparison of telecom companies in Saudi Arabia. Financial Performance of Telecom Companies Zain Saudi STC Mobily (SAR Million) Sales 3,004 5,934 50,780 51,787 13,058 16,013 YoY change N/A 97.5% 7.0% 2.0% 21.0% 22.6% EBITDA -1, ,612 19,625 4,837 6,165 YoY change N/A % -5.2% -4.8% 27.5% 27.5% Net Profit -3,099-2,358 10,863 9,440 3,014 4,211 YoY change N/A -23.9% -1.6% -13.1% 44.1% 39.7% Total Assets 27,830 28, , ,709 30,822 33,430 YoY change 4.4% 0.8% 9.8% 1.0% 13.4% 8.5% Shareholders' Equity 8,622 6,129 42,035 44,998 12,243 15,580 YoY change -26.4% -28.9% 11.7% 7.1% 25.5% 27.3% Ratios: Total Assets Turnover Ratio EBITDA Margin -35.7% 5.6% 40.6% 37.9% 37.0% 38.5% Net Profit Margin % -39.7% 21.4% 18.2% 23.1% 26.3% RoAE -30.5% -32.0% 27.3% 21.7% 27.4% 30.3% RoAA -11.4% -8.4% 10.4% 8.6% 10.4% 13.1% Market Indicators: Adj. EPS (SAR) P/E (x) Adj. BVPS (SAR) P/BV (x) Current Market Capitalisation (SAR Million) 11,130 11,130 81,000 81,000 38,500 38,500 NA: Not Applicable

3 New Projects and Updates During January 2011, Mobily appointed Ciena Corporation to build the strategic next-generation network to address traffic growth and for rolling out new services. The portfolio of services selected includes Carrier Ethernet service delivery, optical transport and switching, as well as management and maintenance services. During December 2010 Mobily and Ericsson jointly launched Mobily mhealth solution - a telecom-enabled e-health solution, which provides wireless patient healthcare monitoring and gathering of vitals at predefined intervals and duration. Endeavouring to provide integrated and innovative telecom solutions using IP telephony, Mobily launched the Business Soft Phone, offering business customers the opportunity to make calls and send SMS from their PCs from anywhere in the world. Mobily also secured a one-year SAR 1.2 billion Islamic financing deal through a consortium of five Saudi banks (Samba Financial Group, National Commercial Bank, Saudi British Bank, Banque Saudi Fransi and Riyad Bank). During the same month, Bayanat Al-Oula, a Mobily subsidiary, signed an agreement with real estate developer Thabat to develop and provide advanced telecom services to the Nesmat Al-Riyadh housing project in Al-Rimmal neighbourhood. Mobily will collaborate with telecom operators such as Jordan Telecom, Syrian Telecom, Superonline (Turkey), Zain Jordan, Emirates Telecommunications Corporation to build a Regional Cable Network (RCN) at an estimated cost of USD 500 million. Expected to become operational during the second quarter of 2011, the RCN will extend from Fujairah in the UAE, crossing through Riyadh in Saudi Arabia, Amman in Jordan, Tartous in Syria, to reach Istanbul in Turkey and then Europe and serve as an Internet gateway. Risks and Concerns to Valuation: We have factored in the company s expansion initiatives and innovative offerings in our revenue forecast, any significant deviation in the likely success of these planned initiatives may impact our estimates. Valuation Methodology: We have used the DCF valuation method to arrive at the fair value of Mobily, as explained below: Assumptions: (i) Risk free Rate (Rf) of 3.17%, equivalent to 12-months average yield on a 10-year US T-bill; (ii) Levered Beta of 0.64; (iii) Terminal growth rate of 2.0%. Based on the above and using the Capital Asset Pricing Model (CAPM), we have arrived at a Cost of Equity of 11.19% and a WACC of 9.58%.

4 DCF Calculation DCF Valuation (FCFF Model) (SAR Million) 2011E 2012E 2013E 2014E 2015E Operating Profit (EBIT) 4,756 5,261 5,580 5,874 6,191 Zakat on EBIT Effective Tax Rate 1.6% 1.6% 1.6% 1.6% 1.6% NOPAT 4,681 5,178 5,492 5,782 6,093 Add: Depreciation and Amortisation 2,114 2,408 2,694 2,985 3,229 Less: Capex 3,921 3,785 3,683 3,750 3,145 Less: Change in Net Working Capital ,261 Operating Free Cash Flows to Firm (OFCFF) 2,459 3,292 3,809 4,063 4,916 Non-Operating Income Tax on Non-Operating Income Add: Non-Opearting Cash Flows (After Tax Non-Operating Income) Free Cash Flow to Firm (FCFF) 2,537 3,380 3,906 4,168 5,028 WACC (Ko) 9.58% 9.58% 9.58% 9.58% 9.58% Present Value / Discount Factor Long-Term Growth Rate (g) 2.0% Terminal Multiple Nominal Terminal Value 67,632 Present Value of Free Cash Flows 2,316 2,815 2,968 2,890 3,182 Calculation of Equity Value and Fair Value Per Share NPV of Free Cash Flows (during Explicit Forecast Period) 14,171 Terminal Value: Residual Cash Flow (FCFF of 2015E) 5,028 WACC 9.58% Long-Term/Terminal Growth Rate (g) 2.00% Divided by Capitalisation Rate (WACC - g) 7.58% Equals Nominal Terminal Value 67,632 Implied Multiple of 2015E EBITDA 7.18 Times PV/Discount Factor 0.63 Present Value of Terminal/Residual Value 42,798 Enterprise Value 56,969 Implied Multiple of 2015E EBITDA 6.05 Less: Market Value of Long-term Debt 7,972 Equity Value 48,998 Net shares outstanding (Million) 700 Fair Value Per Share (SAR) * figures in SAR Million unless specified

5 Sensitivity Analysis The following tables present a sensitivity analysis and indicate the probable nominal terminal value, discounted terminal value and enterprise value, given different growth rate and WACC assumptions. The shaded areas represent the most probable outcomes. Sensitivity Analysis of Nominal Terminal Value (SAR Million) Long-Term Growth Rate Discount Factor 1.00% 1.50% 2.00% 2.50% 3.00% 7.58% 77,141 83,895 91, , , % 66,969 72,051 77,905 84,721 92, % 59,167 63,138 67,632 72,761 78, % 52,993 56,187 59,753 63,760 68, % 47,986 50,614 53,518 56,740 60,338 Sensitivity Analysis of Discounted Terminal Value (SAR Million) Long-Term Growth Rate Discount Factor 1.00% 1.50% 2.00% 2.50% 3.00% 7.58% 53,526 58,212 63,737 70,349 78, % 44,367 47,734 51,612 56,128 61, % 37,442 39,954 42,798 46,044 49, % 32,046 33,977 36,133 38,556 41, % 27,740 29,260 30,938 32,801 34,882 Sensitivity Analysis of Enterprise Value (SAR Million) Long-Term Growth Rate Discount Factor 1.00% 1.50% 2.00% 2.50% 3.00% 7.58% 68,542 73,228 78,753 85,365 93, % 58,951 62,318 66,196 70,712 76, % 51,612 54,125 56,969 60,215 63, % 45,821 47,752 49,908 52,331 55, % 41,136 42,656 44,334 46,197 48,277 Investment Opinion The Middle East telecom sector has witnessed remarkable growth and development during the past decade. Penetration rates are improving, even as new licences are issued for mobile, fixed and Internet service providers (ISPs). Mobile subscriptions crossed the 200 million mark in 3Q10 to reach 202 million at the end of September and the figure is likely to surpass the 300 million mark by 2014 and hit 327 million by 2015, according to Informa Telecoms & Media. GCC telecom operators lead in terms of infrastructure investment - most providers are trialing long-term evolution (LTE) technology, reaching speeds of 150Mbps. Within the GCC, Saudi Arabia is the largest market reaching 52 million mobile subscribers by the end of Growth is likely to remain steady in the near future with mobile subscriptions expected to register a CAGR of more than 10% between 2010 and Going forward, mobile broadband and digital media will be key growth drivers. Further, driven by a large youth population s demand for new gadgets such as smartphones and internet-enabled devices, content development is receiving more focus and investment. In Saudi Arabia, about 50 terabytes of data is downloaded per day - about four times the average in Scandinavia, which has the highest mobile download rates in Europe. Taking advantage of the growing demand for data services, Saudi operators have started preparing for the next generation mobile network technology, namely Long Term Evolution (LTE). Therefore, Saudi Arabia will remain an attractive destination for mobile telephony, given the right mix of a young population, rising income levels, and expatriates. Migrating to next generation technologies such as 3G, 4G and LTE will be pivotal to expanding the mobile subscriber base further. At present, 3G subscribers constitute nearly 14% of the subscriber base and this is expected to reach around 32% by the end of The next five years will see a dramatic rise in broadband users from 3.2 million in 2010 to 5.9 million in 2014.

6 Investment Opinion (contd.) As Saudi Arabia fastest growing mobile communications and technology provider - presently covering 414 cities, towns and governorates in Saudi Arabia - Mobily is focused on supporting high-bandwidth applications, including mobile TV, video on demand and high-speed Internet access. To maintain its leadership in the mobile broadband segment, Mobily is investing in technology upgrades, and selectively in the fixed-line segment to maintain and maximise market share. After completing Long Term Evolution (LTE) trials during 2010, Mobily plans to launch 4G wireless services by mid-2011, initially in 33 cities across Saudi Arabia. The company recently selected Ciena Corporation for building its strategic next-generation network. Ciena s Packet-Optical Transport platforms will increase capacity by ten-fold, enabling scalability and optimisation of Mobily s network and to support the delivery of advanced services and applications. As part of its growth strategy for the next five years, Mobily has adopted GED (growth, efficiency, and differentiation), aimed at providing integrated telecom services built around fixed and mobile broadband technologies. To strengthen its brand value, the company has also been expanding its online presence through social networking platforms and collaborative partnerships. Going forward, among other products, Mobily plans to launch its Digital Kiosk, the first-of-its-kind digital library in Saudi Arabia and the Middle East. The Digital Kiosk content can be downloaded on to a variety of devices and smart phones, and customers can preview the material before purchasing. Mobily s total revenues grew at a CAGR of 57.3% during The company posted impressive results in 2010, with total revenues increasing 22.6% to SAR 16,013 million, and net income advancing 39.7% to SAR 4,211 million. EBITDA was up 27.5% to SAR 6,165 million, compared to SAR 4,837 million in Gross profit margin expanded by 104 bps to 54.9%; EBITDA margin increased 197 bps to 38.5%; operating margin rose 216 bps to 27.2%, while lower financing charges boosted net profit margin by 245 bps to 26.3% from 23.8% in Mobily s board has approved a cash dividend of SAR 2 per share (SAR 1.25 per share for 2009) for 2010, and the proposal is awaiting AGM approval. Mobily s selective investments in Bayanat Al Oula, Zajil (a leading Saudi ISP), the Saudi National Fibreoptic Network (SNFN) and its WiMax network has improved exposure to the government and corporate sectors. Mobily s investment in TGN Gulf Cable System is expected to be completed in 2011, thus enabling increased capacity for Internet and data applications. Further, speeds of up to 1.2 Terabits/second will allow Mobily to meet the growing demand from government and corporate customers. Going forward, services to the corporate sector will be pivotal to Mobily s future revenue growth and profitability. Therefore, the stock continues to remain a value pick, given its strong fundamentals. We had updated Mobily on December 08, 2010 with an OVERWEIGHT recommendation (target price of SAR and an upside of 26.4%). The stock has gained 23.0% in the last twelve months as compared to a gain of 6.3% registered by the Tadawul All Share Index. Currently, the company s stock is trading at a P/E multiple of 8.32x and 7.47x on 2010E and 2011E earnings, and at a P/BV multiple of 2.05x and 1.76x on 2010E and 2011E BVPS, respectively. Considering the above factors, we have revised our earlier price target to SAR 70.00, which represents an upside of 27.3% over the closing price of SAR (as of February 07, 2011). Accordingly, we reiterate our earlier OVERWEIGHT recommendation on Mobily. Financial Statements Consolidated Income Statement (SAR Million) 2009A 2010A 2011E 2012E 2013E Services revenue 13,058 16,013 17,763 19,595 20,895 Cost of services -5,512-7,230-7,899-8,525-8,891 Gross profit 7,547 8,783 9,864 11,069 12,005 Selling and marketing expenses -1,093-1,096-1,260-1,439-1,587 General and administrative expenses -1,617-1,523-1,734-1,961-2,144 Depreciation and amortization -1,629-1,810-2,114-2,408-2,694 Provisions Total operating expenses -4,339-4,429-5,108-5,809-6,425 Operating profit 3,208 4,355 4,756 5,261 5,580 Finance charges Other income Income before zakat 3,045 4,279 4,702 5,236 5,591 Zakat Net Income 3,014 4,211 4,628 5,154 5,503

7 Consolidated Balance Sheet (SAR Million) 2009A 2010A 2011E 2012E 2013E ASSETS Current Assets Cash and cash equivalents 933 1,661 1,873 1,865 1,827 Short term investments Accounts receivable, net 5,481 5,736 6,606 7,556 8,458 Due from a related party Inventories Prepaid expenses and other assets 1,256 1,249 1,553 1,760 2,065 Total Current Assets 8,473 9,415 10,842 12,030 13,231 Non Current Assets Property and equipment, net 10,370 12,457 14,789 16,692 18,206 Licenses acquisition fees, net 10,450 10,028 9,503 8,977 8,451 Goodwill 1,530 1,530 1,530 1,530 1,530 Total Non Current Assets 22,349 24,015 25,822 27,198 28,187 Total Assets 30,822 33,430 36,663 39,229 41,418 LIABILITIES AND EQUITY Current Liabilities Short term loans Current portion of long term loan 1,777 1,843 1,661 1,387 1,007 Accounts payable 6,167 6,198 6,642 7,098 7,329 Due to related parties Accrued expenses and other liabilities 3,552 3,335 3,547 3,678 3,759 Total Current Liabilities 12,084 12,256 12,797 13,121 13,044 Non Current Liabilities Long term loan 6,448 5,529 4,982 4,162 3,021 Provision for employees end-of-service indemnities Total Non- Current Liabilities 6,495 5,595 5,059 4,246 3,109 Total Liabilities 18,579 17,851 17,856 17,367 16,153 Shareholders' Equity Authorized, issued and outstanding share capital 7,000 7,000 7,000 7,000 7,000 Statutory reserve 649 1,070 1,532 2,048 2,598 Retained earnings 4,595 7,510 10,275 12,814 15,667 Total Shareholders' Equity 12,243 15,580 18,808 21,862 25,265 Total Liabilities & Equity 30,822 33,430 36,663 39,229 41,418

8 Consolidated Cash Flow Statement (SAR Million) 2009A 2010A 2011E 2012E 2013E OPERATING ACTIVITIES Income before Zakat 3,045 4,279 4,702 5,236 5,591 Adjustments to reconcile income before Zakat to net cash from operating activity Depreciation 1,105 1,284 1,589 1,882 2,168 Amortization of license acquisition fees Provision for doubtful debts Finance charges Operating income before changes in working capital 4,998 6,366 7,101 7,931 8,565 Changes in working capital: Accounts receivable -2, ,021-1,121-1,095 Due from a related party Inventories Prepaid expenses and other assets Accounts payable 1, Due to related parties Accrued expenses and other liabilities Provision for employees end-of-service indemnities paid Zakat paid Finance charges paid Net cash provided from operating activities 4,246 5,470 6,204 6,941 7,247 INVESTING ACTIVITIES Short term investments Purchase of property and equipment -3,292-3,288-3,921-3,785-3,683 Disposal of property and equipment Acquisition of licenses Net cash used in investing activities -2,889-3,227-3,921-3,785-3,683 FINANCING ACTIVITIES Net proceeds from short term loans -1, Net proceed from long term loan ,094-1,521 Cash dividends ,400-2,100-2,100 Net cash provided from (used in) financing activities -1,687-1,516-2,071-3,165-3,603 Net change in cash and cash equivalents Cash and cash equivalents, beginning of the year 1, ,661 1,873 1,865 Cash and cash equivalents, end of the year 933 1,661 1,873 1,865 1,827

9 Financial Ratios 2009A 2010A 2011E 2012E 2013E Liquidity Ratios: Current Ratio (x) Quick Ratio (x) Inventory Conversion Period (Days) Average Collection Period (Days) Length of Operating Cycle (Days) Average Payment Period (Days) Length of Cash Cycle (Days) Activity Ratios: Debtors Turnover Ratio (x) Creditors' Turnover Ratio (x) Total Assets Turnover Ratio (x) Equity Turnover Ratio (x) Profitability Ratios: Gross Profit Margin 57.8% 54.9% 55.5% 56.5% 57.5% EBITDA Margin 37.0% 38.5% 38.7% 39.1% 39.6% Operating Profit Margin 24.6% 27.2% 26.8% 26.8% 26.7% Net Profit Margin 23.1% 26.3% 26.1% 26.3% 26.3% Return on Average Equity 27.4% 30.3% 26.9% 25.3% 23.4% Return on Average Assets 10.4% 13.1% 13.2% 13.6% 13.6% Leverage Ratios: Debt to Equity (D/E) Ratio (x) Shareholders' Equity to Total Assets Ratio (x) Total Liabilities to Total Assets Ratio (x) Current Liabilities to Equity Ratio (x) Growth Rates: YoY Growth in Revenue 21.0% 22.6% 10.9% 10.3% 6.6% YoY Growth in Operating Profit 28.6% 35.8% 9.2% 10.6% 6.1% YoY Growth in EBITDA 27.5% 27.5% 11.4% 11.6% 7.9% YoY Growth in Net Profit 44.1% 39.7% 9.9% 11.4% 6.8% YoY Growth in Total Assets 13.4% 8.5% 9.7% 7.0% 5.6% YoY Growth in Shareholders' Equity 25.5% 27.3% 20.7% 16.2% 15.6% Ratios used for Valuation: Adj. EPS (SAR) Adj. BVPS (SAR) P/E Ratio (x) P/BV Ratio (x) Current Market Price (SAR) **CMP as on February 07, 2011

10 TAIB Securities WLL Tel: TAIB Tower, Diplomatic Area Fax: Post Box 20485, Manama, Kingdom of Bahrain DISCLAIMER: All reasonable care has been taken to ensure that the information contained herein is not misleading or untrue at the time of publication, but we make no representation as to its accuracy or completeness. All information is for the private use of the person to whom it is provided without any liability whatsoever on the part of TAIB Securities WLL, any associated company or the employees thereof. Nothing contained herein should be construed as an offer to buy or sell or a solicitation of an offer to buy or sell. The value of any investment may fall as well as rise. Past performance is no guide to the future. The rate of exchange between currencies may cause the value of the investment to increase or diminish. Consequently, investors may not get back the full value of their original investment

GCC EQUITY REPORT NEUTRAL RESEARCH. Zain (ZAIN.KW) Quarterly Update. CMP KWD Target KWD Upside 6.3% Overview

GCC EQUITY REPORT NEUTRAL RESEARCH. Zain (ZAIN.KW) Quarterly Update. CMP KWD Target KWD Upside 6.3% Overview RESEARCH GCC EQUITY REPORT Zain (ZAIN.KW) Quarterly Update NEUTRAL CMP KWD 0.950 Target KWD 1.010 Upside 6.3% Kuwait Stock Exchange Index 5,908.200 Key Stock Data Sector Telecom Reuters Code ZAIN.KW Bloomberg