Dar Al-Arkan Company 1Q 2011 Results Update. Research Division Company Reports May Please read Disclaimer on the back

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1 Dar Al-Arkan Company 1Q 2011 Results Update Research Division Company Reports May 2011 Please read Disclaimer on the back Page 1 of 34 All rights reserved, AlJAZIRA March CAPITAL 2010

2 Research Division Head of Research Abdullah Alawi a.alawi@aljaziracapital.com.sa Assistant Manager Saleh Al-Quati s.alquati@aljaziracapital.com.sa Assistant Manager Mohammed S. Javed s.mohammed@aljaziracapital.com.sa Brokerage Division General Manager - Brokerage Division Ala a Al-Yousef a.yousef@aljaziracapital.com.sa Regional Manager West and South Regions Abdullah Al-Misbahi a.almisbahi@aljaziracapital.com.sa Regional Manager Central Region Sultan Al-Mutawa s.almutawa@aljaziracapital.com.sa Area Manager - Qassim & Eastern Province Abdullah Al-Rahit aalrahit@aljaziracapital.com.sa Head of International and Institutional Brokerage Amjad Subeih a.subeih@aljaziracapital.com.sa Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), License No

3 1Q 2011 Results Update KSA Real Estate May 2011 REPORT SUMMARY Dar Al-Arkan Real Estate Development Company (DAAR) s top - and bottom-line performance was hurt during 2010 and 1Q 11 due to lower sales volumes of land and residential units and reduced profit margins. Following this poor performance throughout 2010 and 1Q 11 and project delays, we revise our estimates and 12 months price target downwards. Nevertheless, the company witnessed some enhanced activity in Land sales the largest revenue contributor as reflected in increased revenues during 4Q 10. Based on the above, we believe that land sales would be a key factor driving growth in 2011, until residential projects revenues start contributing in The stock has taken a beating primarily on debt concerns that were exaggerated, in our opinion, as next significant debt is repayable in 2012 by which time, we believe, DAAR would be in a better position financially. KEY INSIGHTS Following a 24.2% YoY decline in 2010, DAAR s revenues fell 16.6% YoY to SAR 955.2mn in 1Q 11 due to a sharp decline in revenues from the Residential and Land segments. Revenues dipped 8.6% YoY to SAR 938.5mn in the Land segment and 90.3% YoY to SAR 11.3mn in the Residential segment in 1Q 11. Total cost of sales, as a percentage of revenues, rose to 61.6% in 1Q 11 from 58.2% in 1Q 10. Consequently, gross profit contracted by 23.4% YoY to SAR mn during the period. Reduction in gross profit margins can be attributed to unfavorable geographic mix of land and reduced sales of residential units. Operating margin declined to 35.6% in 1Q 11 from 38.0% in 1Q 10, due to lower gross margins. Consequently, operating profit fell 22.0% YoY to SAR mn during the quarter. The company s bottom line replicated its operating performance with a 31.5% YoY decline in net income to SAR 273.1mn in 1Q 11. Net margin stood at 28.6% during the quarter compared to 34.8% in 1Q 10. STOCK PRICE DECLINED 33.2% SINCE OUR INITIATION DAAR s stock price witnessed a sharp correction (33.2%) since our initiation published on March 15, This was mainly led by investor concerns about the company s ability to service its debt obligations as well as finance large-ticket projects amid a weak financial performance during 2010 due to slower activity in regional real estate markets. The stock also underperformed the benchmark Tadawul All Share Index (TASI), which gained nominal 1.8% during the period. However, despite challenging market conditions, DAAR successfully raised SAR 1.7bn from a sukuk issue in February 2010, reflecting the underlying strength of its business model. This coupled with internal cash accruals enabled the company to repay SAR 2,250mn of debt in 2Q 10 that, in turn, helped lower the total debt to SAR 7,770.3mn in 2010 from SAR 8,354.7mn in Rating: Overweight Current Price: SAR Months Price Target: SAR Upside Potential:11.7% Price Chart Nov-09 DAAR TASI Key information Reuters code: 4300.SE Bloomberg code: ALARKAN AB Country: Saudi Arabia Sector: Real Estate Primary Listing: TASI M-Cap: SAR 9.9 bn 52 Weeks H/L: SAR 14.60/ Apr-11 Dar Al-Arkan Real Estate Development Company (DAAR) Established in 1994 by six prominent business families, Dar Al-Arkan is a leading real estate company in The Kingdom of Saudi Arabia. DAAR primarily focuses on three core businesses: land development (p u r c h a s i n g a n d d e v e l o p i n g infrastructure on raw land parcels), master-planned lifestyle communities (development of residential and commercial space), and property management (leasing and rental of residential, commercial and retail space). The company has its head office in Riyadh and substantial presence throughout the Kingdom through its branch offices in Mecca, Jeddah and Madinah Page 1 of 3 May 2011

4 RECENT DEVELOPMENTS On April 04, 2011, DAAR signed a memorandum of understanding with Abdulmuhsin Al Hokair Tourism and Development Group for the inauguration of an amusement park at Alqasr Mall. The leased space, 8,000 square meters for 10 years, will be used exclusively for establishing a world-class amusement and electronic games park. On January 12, 2011, DAAR signed a 14-year lease agreement with Saudi Hypermarkets Co. (Carrefour KSA), renting 8,700 square meters in Al Qasr Mall. In addition, in June 2010, the company completed a fixed-to-floating profit rate swap agreement for 50% of its new sukuk issues. The deal would reduce the annual coupon profit rate on these sukuk issues from 10.75% to the three-month Saudi Interbank Offered Rate, or Saibor rate, plus 7.95%. OUTLOOK DAAR reported weak financial performance in 2010 amid slow recovery in KSA s real estate sector that pushed prices and volumes lower, as well as delay in project completions. The company s prime residential project, Shams ArRiyadh, is facing execution delays and cost pressure. As of 2010-end, Shams ArRiyadh is only 28% complete, and hence is not likely to be completed by end of 2012 as scheduled earlier. Nonetheless, Land sales is likely to be a key revenue growth driver in 2011, with residential projects revenues start contributing meaningfully by Residential projects revenue is likely to peak at SAR 3.5bn in Rental income is likely to generate steady revenue, increasing from SAR 202mn in 2011 to SAR 330mn in Recent funding concerns have severely hurt DAAR s share price performance. However, the company is comfortably placed to repay its financial obligations, in our opinion, with no near-term debt maturities (next is due in 2012). Hence, we believe the current stock price hammering has more than priced in all the bad news. DAAR has a strong pipeline of residential projects, with significant exposure in the affordable housing segment that currently faces a supply shortage. Thus, we continue to maintain a positive outlook for the company s stock. REVISION IN ESTIMATES We have provided quarterly estimates for DAAR in addition to the annual forecast in our initiation dated March 15, The company s financial performance was weaker than expected throughout 2010 and 1Q Moreover, recovery in the real estate sector in KSA remains slow as evident from lower sales volume and profit margins during the year. Therefore, we have revised our annual estimates downward to reflect the change in volume and pricing assumptions. Consequently, we adjusted our revenue and net income forecast for Table 1: Key Financial and Valuation Data (Revision) Revision in estimates 2011E (All fig in SAR mn, unless otherwise 1Q11A 2Q11E 3Q11E 4Q11E Previous Revised stated) Sales , , , , ,194.7 Gross Profit , ,751.9 Margin 38.4% 40.0% 42.0% 45.8% 46.9% 41.8% EBIT , ,601.6 Margin 35.6% 36.8% 38.8% 40.9% 43.3% 38.2% Net Income , ,430.3 Margin 28.6% 32.6% 35.6% 38.5% 39.1% 34.1% EPS (SAR ) AlJazira Capital Page 2 of 3 May 2011

5 VALUATION Considering our revised outlook and estimates, we also adjusted our 12 Months Price Target of SAR 19.1 for DAAR s stock (provided in our initiation report) to SAR This implies an upside potential of 11.7% from the current price level. Our 12 Months Price Target is derived from a weighted average of Net Asset Value (NAV), Discounted Cash Flow (DCF) and peer comparison-based methods. We assigned equal weight to the three valuation methodologies to arrive at the company s 12 Months Price Target. Table 2: Weighted Average Valuation Summary (SAR) Methodologies Weights Previous 12 MPT (SAR) Revised 12 MPT (SAR) Weighted Average (SAR) 12 MPT using NAV approach 33.3% MPT using DCF approach 33.3% MPT using P/BV approach 33.3% Weighted Average 12 Months Price Target (12MPT) Current stock price (SAR) 9.15 Upside/ (Downside) potential (%) 11.7% AlJazira Capital INVESTMENT RISKS Delay in economic recovery and a correction in oil prices due to continued slowdown in the economy could hurt business activities and investor sentiment in the Kingdom. This, in turn, may adversely affect the real estate market in terms of lower demand and prices. Such a scenario is also likely to negatively impact our valuation. Our estimate for Land sales, a major contributor to total revenue, is based on the assumption of an average selling price (ASP) of SAR 615 per square meter during around 7.0% higher than that during , but almost 27% lower than the 2007 level. A further decline in ASP beyond our expectation could significantly impact our forecast. DAAR issued its fourth sukuk worth SAR 1.7bn (USD450mn) in February 2010, thereby enhancing its leverage. Thus, failure to secure financing or delay in development work due to non-availability of funds could undermine the company s ability to meet its debt obligations. Page 3 of 3 May 2011

6 Saudi Pharmaceutical Industries & Medical Appliances Corporation COMPANY PROFILE AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business. Rating Terminology 1. Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated Overweight will typically provide an upside potential of over 10% from the current price levels over next twelve months. 2. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated Underweight would typically decline by over 10% from the current price levels over next twelve months. 3. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated Neutral is expected to stagnate within +/- 10% range from the current price levels over next twelve months. 4. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company. For further queries about our special services, contact us at the toll free number Page 1 of 27 April 2010

7 Saudi Pharmaceutical Industries & Medical Appliances Corporation Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Aljazira Capital from sources believed to be reliable, but Aljazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Aljazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Aljazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report. This report has been produced independently and separately and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report. It should be also noted that the Research Division of Aljazira Capital had no information at the time of issuing this report regarding any conflict of interest between the company/companies mentioned in this report and any members of the board / executives / employees of Aljazira Capital or any of Bank Aljazira Group companies. No part of this document may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Aljazira Capital. Persons who receive this document should make themselves aware, of and adhere to, any such restrictions. By accepting this document, the recipient agrees to be bound by the foregoing limitations. Asset Management Brokerage Corporate Finance Custody Advisory Head Office: Madinah Road, Mosadia P.O. Box: 6277, Jeddah 21442, Saudi Arabia Tel: Fax: Page 2 of 27 April 2010