Misr Fertilizers Production Co. (MOPCO) Pre-Trading Company Note Equities Fertilizers Egypt Wednesday, 7 September 2016

Transcription

1 Misr Fertilizers Production Co. (MOPCO) Pre-Trading Company Note Equities Fertilizers Egypt Back in the game, just in time for its huge expansions to deliver Not Rated Mai El-Sayed, CFA Senior Equity Analyst MTR Price Target: EGP39.75 IFA Fair Value: EGP52.18 After 18 years since its IPO, MOPCO s just about to start trading today, 7 September. The largest fertilizers producer in Egypt by capacity boasting high profitability amongst its global peers, thanks in part to the favorable pricing of its feedstock (natural gas). Our multiples-based PT is EGP39.75/share, 24% below the IFA s fair value of EGP52.18/share. Shareholder structure (locked vs. available-for-trading shares The listing story: In 1998, MOPCO (MFPC.EGX) had offered 35% of its shares at its establishment through an IPO. In March 2016, MOPCO shares (229.1mn shares with a par value of EGP10 each) were listed on EGX. And since the company meets all regulatory requirements related to trading on EGX, it was decided that MOPCO shares will start trading on EGX today, 7 September 2016, with no price limits only in the first trading session. The stock s opening price will be EGP10/share, but we believe it will fetch a higher price when it starts trading. IFA s fair value set at EGP52.18/share, but there is a lock-up period for founders: To value MOPCO, its independent financial advisor (IFA) used a discounted cash flow sum-of-the-parts model, coming up with a fair value of EGP52.18/share. This is more than 4x MOPCO s par value and its opening price. Meanwhile, as per EGX listing rules, founding shareholders must maintain 51% of their ownership of the company s stock which in total should not be less than 25% of the entire number of shares of the company. In MOPCO s case, after Agrium Egyptian Holdings rejected the listing of the company s shares on EGX, the remaining founding shareholders decided to fill in Agrium s place to meet the above-mentioned criteria. As a result, the founding shareholders (excluding Agrium) will have 74.3% of their respective shares locked up for a period up to two years from the first trading date. Our view MOPCO s PT is EGP39.75/share: Using multiples-based valuation models, we have Page 1 reached a price target (PT) of EGP39.75/share or 24% lower than the IFA fair value. We believe MOPCO is an attractive investment opportunity, provided the market price is below our PT, for the following reasons: Majority owned by government entities, MOPCO is the largest fertilizers producer in Egypt by capacity with current expansions allowing the company to grow its market share further (c.29%). It boasts one of the highest profitability among its global peers (2015 EBITDA margin of 51.7% vs. a global peers average of 28.5%), thanks to its favorable pricing of its feedstock (natural gas). A potential EGP devaluation should provide the company with a competitive edge in exports. Against the backdrop of the fertilizers industry s high barriers to entry, market demand should be sustained given a growing population and the Egyptian government s plan to expand arable land by 1.5mn feddans over the coming few years. Key risks: We note several risks to keep in mind when investing in MOPCO: Declining fertilizers prices. New global capacities coming on stream over through 2018 with urea capacity increasing 20% over the period to 113mn tons p.a. Any surprise increase in feedstock (natural gas) prices will negatively affect MOPCO s profitability. Natural gas supply shortage can disrupt production. Any measures taken by the Egyptian government to ban exports to meet local demand. MOPCO is highly leveraged (debt-to-equity of 145% in 2015). Summary KPIs EGP mn 2013a 2014a 2015a 2016e* 2017e* 2018e* Revenue 1,589 1, ,112 3,697 3,953 EBITDA ,827 2,160 2,294 Net Income Revenue Growth (%) 117.1% -34.3% -40.8% 404.1% 18.8% 6.9% EBITDA Growth (%) 203.0% -41.3% -48.2% 601.0% 18.2% 6.2% Net Income Growth (%) 235.7% -87.1% 726.4% -28.0% 158.6% 29.4% EBITDA Margin (%) 53.7% 47.9% 41.7% 58.7% 58.4% 58.0% Net Margin (%) 18.3% 3.6% 50.1% 7.2% 15.6% 18.9% Net Debt (Cash) 4,836 5,418 7,410 NA NA NA EPS (EGP) BVPS (EGP) NA NA NA DPS (EGP) NA NA NA PER (x) 6.9x 53.2x 7.4x 10.3x 4.0x 3.1x PBV (x) 0.4x 0.4x 0.4x NA NA NA Dividend Yield (%) 0.0% 23.0% 5.0% NA NA NA *All forecasted figures are the result of summing MOPCO s and ENPC s forecasted financials from the IFA valuation report, using an exchange rate of EGP7.83/USD as per the study., IFA valuation report

2 Misr Fertilizers Production Co. (MOPCO) Egypt Pre-Trading Company Note Corporate Profile Misr Fertilizers Production Company MOPCO was founded in July 1998 inside Damietta s free zone in northern Egypt. The company was originally set to operate in the petroleum sector but later on expanded its activity to include fertilizers production. In 2009, MOPCO started fertilizers production in its production train MOPCO 3 with an annual capacity of 635,000 tons of urea and 396,000 tons of ammonia. Historical background ENPC (formerly E-Agrium): In 2006, E-Agrium was established as a joint venture (JV) between Canada s Agrium, the Egyptian Petrochemicals Holding Company (ECHEM), the Egyptian Gases Holding Company (EGAS), the Egyptian Natural Gases Holding Company (GASCO), and Arab Petroleum Investment (Apicorp) to establish and operate a fertilizers complex with two production trains 1 and 2. By August 2008, E-Agrium was acquired by MOPCO through a share swap. The deal resulted in MOPCO owning 100% of E-Agrium (which was renamed to ENPC), while Agrium received a 26% stake in MOPCO. According to the deal, all applicable contracts for the engineering, procurement and construction for the two additional urea trains as well as the gas supply agreement, off-take marketing agreements and various other commitments were retained in relation to the second and third production trains. In 2016, MOPCO started the commercial operations of ENPC s two production trains 1 and 2 with an annual capacity of 1.26mn tons of urea and 788,000 tons of ammonia. This brought total annual capacity of MOPCO s facilities to 1.9mn tons of urea and 1.2mn tons of ammonia. Spinning off the petroleum business: In 2011, the EGM of MOPCO had approved splitting the company into two separate entities: MOPCO Damietta for Fertilizers Production and Suez Petroleum Services Company (SUPSC) in Suez for petroleum services and trading of petroleum products. Environmental issues: Since its establishment, MOPCO s factory has been confronted by neighboring residents for concerns over pollution. Protests against the factory heightened in 2008 and also delayed the establishment of E-Agrium facilities 1 and 2, prompting MOPCO to enter into an agreement with E-Agrium s shareholders to acquire their stake in E-Agrium in the aforementioned share swap deal. In 2011, then-egypt s Prime Minister Mr. Essam Sharaf issued a decision to shut down operations in the disputed MOPCO 3 in Damietta after an outrage of protests claiming that the factory s operating production line does not adhere to environmental regulation and pollutes the Nile River. In January 2013, Mansoura Administrative Court revoked the resolution that was released by the Cabinet for suspending expansions in MOPCO 1 and 2, ruling that construction shall be resumed. The court also revoked the decision made by the Governor of Damietta and decided to resume operation of MOPCO 3. In 2014, MOPCO s lenders decided to resume the facility they provided to MOPCO for expansions on MOPCO 1 and 2. Total bank financing for the expansion plan amounted to USD1.05bn, while total investment cost reached USD1.9bn. During May 2016, MOPCO launched the commercial operations of MOPCO 1 and 2. Current shareholder structure Milestones 1998 Established as a company operating in the petroleum sector Share swap agreement with Canada s Agrium to acquire E-Agrium (ENPC) Started production in MOPCO 3 with an annual capacity of 635,000 tons of urea and 396,000 tons of ammonia The company split into two separate entities: MOPCO and SUPSC : Resumption of construction work in MOPCO 1 and : Commercial operation of MOPCO 1 and 2. Page 2, MubasherTrade Research

3 Misr Fertilizers Production Co. (MOPCO) Egypt Pre-Trading Company Note Valuation & Recommendation Valuation models: We used two different relative valuation models to value MOPCO: P/E and EV/ton. 1. P/E FV of EGP41.35/share: We valued MOPCO based on a global peers median forward P/E (2017) of 16.4x and 2017e net income (IFA forecasts). The IFA valuation report forecast 2017 stand-alone MOPCO s and ENPC s net income at EGP458.7mn EGP117.7mn, respectively. Consolidating both figures resulted in an EPS of EGP2.52 for At 16.4x 2017e earnings, we value MOPCO at EGP41.35/share. 2. EV/ton FV of EGP38.15/share : Since MOPCO produces only nitrogen fertilizers, we used a universe of global nitrogen fertilizer producers. The median EV/ton for MOPCO s global peers was c.usd940. Based on MPOCO s urea capacity (including ENPC s capacity), we reached a fair value of EGP38.15/share. Our PT is EGP39.75/share based on equal weights: We note that we set our PT as the simple average of both valuation methods. This resulted in a PT of EGP39.75/share, which is incidentally 24% below IFA valuation report fair value of EGP52.18/share. Also, the IFA valuation implies an EV/ton of c.usd1,135, some 20% above global peers median. Method FV (EGP/sh.) Weight P/E % EV/ton % Weighted average Relative valuation EV/ton Country Company name Source: Bloomberg, MubasherTrade Research EV (mn USD) Capacity (mn tons) EV/ton Egypt Abou Kir Fertilizers & Chemica 1, $764 Netherlands OCI NV 11, $3,447 Saudi Arabia Saudi Arabian Fertilizer Co 8, $2,602 United States Terra Nitrogen Co LP 1, $943 Global Peers' Average $1,939 Global Peers' Median $943 Egypt Misr Fertilizers Production Co 1, $560 Relative valuation P/E EBITDA Margin PER EV/EBITDA Net Debt/EBITDA Country Company name Canada Potash Corp of Saskatchewan In 42.9% 41.4% 35.0% 38.9% 18.8x 11.2x 34.0x 25.6x 10.9x 7.1x 13.6x 11.3x 1.3x 1.6x 3.0x 2.5x Canada Agrium Inc 10.6% 14.4% 12.5% 13.1% 18.1x 12.7x 19.1x 16.9x 10.5x 8.1x 10.8x 9.9x 2.5x 2.3x 2.8x 2.5x United States Mosaic Co/The 22.8% 22.7% 15.5% 17.9% 15.3x 10.2x 55.9x 28.0x 8.9x 6.1x 12.0x 10.0x 0.7x 1.3x 2.6x 2.3x United States CF Industries Holdings Inc 58.2% 38.8% 31.4% 33.2% 13.6x 10.6x 23.2x 22.3x 6.0x 9.1x 10.2x 9.0x 0.9x 3.2x 2.9x 2.2x Norway Yara International ASA 15.8% 19.5% 16.6% 15.8% 12.1x 13.0x 12.4x 12.0x 7.2x 5.6x 5.7x 5.8x 0.8x 0.6x 1.0x 1.2x Israel Israel Chemicals Ltd 20.5% 27.8% 19.1% 19.9% 19.8x 10.2x 13.5x 11.9x 9.5x 5.7x 8.8x 8.0x 2.1x 2.2x 3.0x 2.8x Netherlands OCI NV 19.5% 11.2% 31.8% 33.9% 16.9x n/a 21.5x 13.9x 22.5x 40.8x 11.0x 8.4x 8.0x 17.4x 5.4x 3.7x United States Terra Nitrogen Co LP 60.7% 58.9% n/a n/a 8.1x 9.3x n/a n/a 4.6x 5.2x n/a n/a -0.3x -0.3x n/a n/a China Stanley Agricultural Group Co 10.4% 10.7% 10.7% 11.8% 22.5x 30.4x 20.1x 16.2x 17.6x 25.7x 17.4x 13.1x -1.4x 0.4x n/a n/a Egypt Abou Kir Fertilizers & Chemica 31.5% 29.7% n/a n/a 10.1x 15.2x n/a n/a 10.0x 10.9x n/a n/a -2.7x -2.1x n/a n/a Russia Acron PJSC 33.4% 36.8% 35.9% 35.0% 16.6x 10.3x 5.3x 5.3x 6.0x 5.8x 5.1x 4.8x 2.1x 1.2x 1.3x 0.9x Pakistan Engro Corp Ltd/Pakistan 16.4% 23.5% 25.3% 22.8% 14.9x 10.6x 11.9x 10.9x 5.9x 4.9x 5.4x 6.0x 1.5x 1.1x 1.0x 2.0x China Shindoo Chemical Industry Co L 15.4% 14.5% n/a n/a 50.7x 69.6x 45.8x 24.8x 12.3x 23.1x n/a n/a 4.0x 3.8x n/a n/a China China BlueChemical Ltd 25.0% 20.6% 12.6% 17.5% 110.1x 9.8x 42.5x 10.3x 3.1x 2.8x 3.8x 2.5x -1.1x -1.4x -3.0x -2.3x Taiwan Taiwan Fertilizer Co Ltd 13.3% 17.7% 7.7% 6.3% 17.8x 17.4x 27.5x 30.0x 24.3x 9.1x 23.3x 26.1x 0.9x -4.5x -9.6x -10.8x Saudi Arabia Saudi Arabian Fertilizer Co 74.6% 68.1% 54.3% 57.2% 14.8x 16.1x 19.7x 16.7x 13.6x 13.4x 16.0x 13.6x -0.5x -0.7x -0.6x -0.6x Egypt Misr Fertilizers Production Co 52.9% 51.7% n/a n/a n/a 7.4x n/a n/a n/a 29.5x n/a n/a 9.5x 22.4x n/a n/a Global Peers' Average 29.4% 28.5% 23.7% 24.9% 23.8x 17.1x 25.2x 17.5x 10.8x 11.5x 11.0x 9.9x 1.2x 1.6x 0.8x 0.5x Global Peers' Median 21.6% 23.1% 19.1% 19.9% 16.8x 11.2x 20.8x 16.4x 9.8x 7.6x 10.8x 9.0x 0.9x 1.2x 1.9x 2.1x Source: Bloomberg, Page 3

4 Misr Fertilizers Production Co. (MOPCO) Egypt Pre-Trading Company Note Financial Summary Balance Sheet (EGPmn) Per-Share Data FY End: December 2013a 2014a 2015a 2013a 2014a 2015a Current Assets Price Cash & Cash Equivalent # Shares (WA,in mn) Accounts & Notes Receivable 1-1 EPS Other Current Assets DPS Total Current Assets BVPS Fixed Assets (net) 1,702 1,594 1,490 Other Non-Current Assets 8,971 9,836 12,319 Valuation Indicators Net Intangibles a 2014a 2015a Total Assets 11,667 12,155 14,654 PER (x) 6.9x 53.2x 7.4x Liabilities & Equity PBV (x) 0.4x 0.4x 0.4x Short-Term Debt EV/Sales (x) 4.3x 7.1x 15.7x Current Portion of LT Debt ,600 EV/EBITDA 8.0x 14.7x 37.2x Accounts Payable Dividend Payout Ratio 0.0% % 37.0% Other Current Liabilities 1,140 1,145 1,658 Dividend Yield 0.0% 23.0% 5.0% Total Current Liabilities 1,855 1,580 3,312 Long-Term Debt 4,499 5,215 5,948 Profitability & Growth Ratios Other Non-Current Liabilities a 2014a 2015a Total Liabilities 6,691 7,127 9,545 Minority Interest Revenue Growth 117.1% -34.3% -40.8% Total Equity 4,976 5,028 5,109 EBITDA Growth 203.0% -41.3% -48.2% Total Liabilities & Equity 11,667 12,155 14,654 Net Income Growth % -87.1% 726.4% EBITDA Margin 54.0% 48.2% 42.2% Income Statement (EGPmn) Net Margin 18.3% 3.6% 50.1% 2013a 2014a 2015a ROAE 6.1% 0.7% 6.1% Total Revenue 1,589 1, ROAA 2.5% 0.3% 2.3% COGS GP 1, Liquidity & Solvency Multiples Other operating (exp.)/ Inc a 2014a 2015a EBITDA D&A, Others (130) (129) (124) Net Debt/(Cash) 4,836 5,418 7,410 Net finance exp., taxes (576) (192) (20) Net Debt/Equity 97.2% 107.8% 145.0% NP Before XO & MI Net debt to EBITDA 5.6x 10.8x 28.4x XO & Minority Interest 139 (145) 194 Debt to Assets 0.44x 0.46x 0.52x Net Income Current ratio 0.5x 0.5x 0.3x Cash Flow Statement (EGPmn) Estimates of FV study 2013a 2014a 2015a 2016e 2017e 2018e Revenues 3,112 3,697 3,953 Cash from Operating MubasherTrade Research vs. Consensus NA NA NA Cash from Investing (865) (971) (2,244) Net Income Cash from Financing (36) 394 1,738 MubasherTrade Research vs. Consensus NA NA NA Net Change in Cash (20) (150) (25) Fwd PER (x), Last Price Fwd PER (x), Price Target Capex (869) (885) (2,506) Source: Company data, FV study Page 4 a = Actual; e = Estimate

5 Misr Fertilizers Production Co. (MOPCO) Egypt Pre-Trading Company Note Business Model Capacities: MOPCO operates three production facilities in Damietta s free zone. MOPCO 3 is the oldest facility which started operation in 2009 and has an annual capacity of 635,000 tons of urea and 396,000 tons of ammonia. MOPCO 1 and 2, the production facilities of its subsidiary ENPC, started commercial production in May 2016 with an annual capacity 1.26mn tons of urea and 788,000 tons of ammonia. Total annual capacities of the three facilities amount to 1.9mn tons of urea and 1.2mn tons of ammonia, placing MOPCO as the largest fertilizers producer in Egypt with a 29% market share. Production and sales strategy: Current products offered by MOPCO include urea and ammonia fertilizers, with the majority of the production of the latter utilized as an intermediary in the production of urea fertilizers. MOPCO generates revenues from the sale of urea and ammonia to local and international markets. For urea, the company supplies a certain portion of its production to the Egyptian Ministry of Agriculture based on pre-determined subsidized prices. The remaining portion of urea is split between local sales at free market prices and exports based on international prices. For ammonia, most of the production is directed to the production of urea, while the surplus quantities are sold in the local market at free market prices. ENPC has entered into an off-take agreement with Canada s Agrium to export c.90% of its urea production, while the remaining 10% will be directed to the local market, along side the surplus ammonia quantities. Financial performance: Over the past four years, the company s performance has been affected by several external factors that hindered profitability. In 2012, the production stoppage due the environmental concerns led to losses, where the company registered very low utilization rates. Performance returned to normal levels in 2013 and 2014 before dipping again in 2015 due to the shortage in natural gas supplies. During 2015, revenues dropped 41% YoY to EGP617mn, and EBITDA declined 48% YoY, implying a lower EBITDA margin of 42% vs. 48% in Net income however, jumped 8 times to EGP310mn on the back of forex gains amounting to EGP305mn. H witnessed the launch of MOPCO 1 and 2: Revenues of H ended June more than doubled to EGP482mn, mainly due to the start of production of MOPCO 1 and 2 as well as the stabilization of gas supplies. EBITDA jumped to EGP233mn vs. EGP0.1mn in H1 2015, implying an EBITDA margin of 48% vs. almost 0% in the comparable period a year ago. Meanwhile, net income grew 216% YoY to EGP404mn. Excluding the FX gain impact, MOPCO reported an adjusted net income of EGP106mn in H vs. an adjusted net loss of EGP81mn in the year-ago period. Market structure of urea producers in Egypt Helwan Fertilizers 10% Alex Fert 10% Delta Fertilizers 10% Abu Qir Fertilizers 18% EBITDA (EGPmn) 1, % % EBITDA 48% 503 EBITDA Margin 42% 261 Mopco 29% Egyptian Fertilizers 23% % 2012a 2013a 2014a 2015e H1 2015e H1 2016e 60% 48% 50% 40% 30% 20% 10% 0% Revenues (EGPmn) (100) (200) (300) Net Income (EGPmn) -29% (214) % 4% Net profit % NPM 57% % a 2013a 2014a 2015e H1 2015e H1 2016e 100% 80% 60% 40% 20% 0% -20% -40% Page 5

6 Investment Rating Disclosure Appendix Important Disclosures METHODOLOGY: We strive to search for the best businesses that trade at the lowest valuation levels as measured by an issuer s intrinsic value on a per-share basis. In doing so, we follow both topdown and bottom-up approaches. Under the top-down approach, we attempt to study the most important quantitative and qualitative factors that we believe can affect a security's value, including macroeconomic, sector-specific, and company-specific factors. Under the bottom-up approach, we focus on the analysis of individual stocks by running our proprietary scoring model, including valuation, financial performance, sentiment, trading, risk, and value creation. COUNTRY MACRO RATINGS: We analyze the four main sectors of a country s macroeconomics, then we assign,, and star for low risk, Low Risk, and high risk, respectively. We use different weights for each economic sector: (a) Real Sector (30% weight), (b) Monetary Sector (10% weight), (c) Fiscal Sector (25% weight), (d) External Sector (15% weight), and (e) Credit Rating and Outlook (20%). STOCK MARKET RATINGS: We compare our year-end price targets for the subject market index on a total-return basis versus our calculated required rate of return (RRR). Taking into account our Country Macro Rating, we set the Neutral borderline (below which is Underweight ) as 20% of RRR for Country Macro Rating, 40% of RRR for Country Macro Rating, and 60% of RRR for Country Macro Rating. That said, our index price targets are based on the average of two models. Model (1): Estimated index levels based on consensus price targets of all index constituents. Stocks with no price targets are valued at market price. Model (2): Estimated index levels based on our expected re-pricing (whether re-rating, de-rating, or unchanged rating) of the forward price-earnings ratio (PER) of each index in addition to consensus earnings growth for the forward year. SECTOR RATINGS: On the sectors level, we focus on six major sectors, namely (1) Consumer and Health Care, (2) Financials, (3) Industrials, Energy, & Utilities, (4) Materials, (5) Real Estate, and (6) Telecom Services & IT. To assess each sector, we use the SWOT analysis to list the strengths, weaknesses, opportunities, and threats in each country. We then translate our qualitative SWOT analysis into a quantitative model to evaluate all six sectors across countries. Each of the measures we used, although mostly subjective, is assigned a score as either +1 (high impact), 0 (medium impact), or -1 (low impact). At a later stage, when assigning the final rating Overweight, Neutral, or Underweight for each sector in each country, we realize that sometimes it is unfair to assign equal weights for the sub-sectors in each major sector assessed. Hence, some of the sub-sectors are given different weights for their significant profile in each country. Additionally, the final rating for each sector in each specific country is assigned based on a relative calculation comparing this sector to all other sectors in this country. SECURITY INVESTMENT RATINGS: We combine intrinsic value, relative valuation, and market sentiment into a single rating. Our three-pronged methodology involves (1) discounted cash flows DCF valuation model(s), (2) relative valuation metrics, and (3) overall sentiment. Whenever possible we attempt to apply all three aspects on the issuers or securities under review. In certain cases where we do not have our own financial and valuation models, we attempt to scan the market for other analysts value estimates and ratings (i.e. consensus view) on average. We compliment this with relative valuation and sentiment drivers, such as positive/neutral/negative news flows. For all issuers/securities covered, we have three investment ratings (Buy, Hold, or Sell), comparing the security s expected total return (including both price performance and expected cash dividend) over a 12-month period versus its Required Rate of Return RRR as calculated using the Capital Asset Pricing Model CAPM and adjusted for the Risk Rating we attach to each security. Our price targets are subjective and are estimates of the analysts where the securities covered will trade within the next 12 months. Price targets can be derived from earnings-based valuation models (e.g. Discounted Cash Flow DCF ), asset-based valuation models (e.g. Net Asset Value NAV ), relative valuation multiples (e.g. PER, PBV, EV/EBITDA, etc.), or a combination of them. In case we do not have our own valuation model, we use a weighted average of market consensus price targets and ratings. We review the investment ratings periodically or as the situation necessitates. SECURITY RISK RATINGS: We assess the risk profile of each issuer/security covered and assign one of three risk ratings (High, Moderate, or Low). The risk rating is weighted to reflect different aspects specific to (1) the sector, (2) the issuer, (3) the security under review, and (4) volatility versus the market (as measure by beta) and versus the security s average annualized standard deviation. We review the risk ratings at least annually or as the situation necessitates. Other Disclosures MFS does not have any proprietary holding in any securities. Only as a nominee, MFS holds shares on behalf of its clients through Omnibus accounts. MFS is not currently a market maker for any listed securities. If Total Return is Buy (B) Hold (H) Sell (S) Not Rated (NR) Not Covered (NC) Low (1) Moderate (2) High (3) Higher than RRR Higher than RRR Higher than RRR Between RRR and 20% of RRR Lower than 20% of RRR Risk Rating Between RRR and 40% of RRR Lower than 40% of RRR Between RRR and 60% of RRR Lower than 60% of RRR We have decided not to publish a rating on the stock due to certain circumstances related to the company (i.e. special situations). We do not currently cover this stock or we are restricted from coverage for regulatory reasons.

7 Analyst Certification I (we), Mai El-Sayed, Senior Equity Analyst, employed with Mubasher International, a company under the National Technology Group of Saudi Arabia being a shareholder of Mubasher Financial Services BSC (c) as author(s) to this report, hereby certify that all the views expressed in this research report accurately reflect my (our) views about the subject issuer(s) or security(ies). I (we) also certify that no part of my (our) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or view(s) expressed in this report. Also, I (we) certify that neither myself (ourselves) nor any of my (our) close relatives hold or trade into the subject securities. Head of Research Certification I, Amr Hussein Elalfy, Global Head of Research of Mubasher Financial Services BSC (c) confirm that I have vetted the information, and all the views expressed by the Analyst in this research report about the subject issuer(s) or security(ies). I also certify that the author(s) of this report, has (have) not received any compensation directly related to the contents of the Report. Disclaimer This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Mubasher Financial Services BSC (c) ( MFS ) has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; MFS makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the document are based upon publicly available information at the time of publication and are subject to change without notice. This document is not intended for all recipients and may not be suitable for all investors. Securities described in this document are not available for sale in all jurisdictions or to certain category of investors. The document is not substitution for independent judgment by any recipient who should evaluate investment risks. Additionally, investors must regard this document as providing stand-alone analysis and should not expect continuing analysis or additional documents relating to the issuers and/or securities mentioned herein. Past performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and may be subject to change without notice. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognized market, it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. References to ratings/recommendations are for informational purposes only and do not imply that MFS adopts, supports or confirms in any way the ratings/recommendations, opinions or conclusions of the analysts. This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MFS or its affiliates to any registration or licensing requirements within such jurisdiction. MFS accepts no liability for any direct, indirect, or consequential damages or losses incurred by third parties including its clients from any use of this document or its contents. Copyright Copyright 2016, Mubasher Financial Services BSC (MFS), ALL RIGHTS RESERVED. No part or excerpt of this document may be redistributed, reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of MFS. MubasherTrade is a trademark of Mubasher Financial Services BSC. Mubasher Financial Services BSC (c) is an Investment Business Firm Category 1, licensed and regulated by the Central Bank of Bahrain. Issuer of Report Mubasher Financial Services BSC (c) is an Investment Business Firm Category 1, licensed and regulated by the Central Bank of Bahrain. Website: Research@MubasherTrade.com

8 Sales & Research Contact Details INSTITUTIONAL SALES RETAIL SALES RESEARCH MENA Bahrain UAE Research Team Call Center: Call Center: Egypt Egypt Institutions-Egy@Mubasher.net Egypt@MubasherTrade.com Call Center: /