Abu Dhabi Commercial Bank

Transcription

1 Flashnote MENA research ADCB addresses its Basel III capital deficit ADCB has sold its 25% stake in RHB to Aabar at a fair price but could have realized a higher exit price by waiting for a potential merger The sale has largely addressed ADCB s capital deficit under Basel III We think sale will lead to double digit earnings dilution but do not expect extraordinary dividends; maintain UW but raise TP to reflect capital gain 25% stake in RHB Capital sold to Aabar Investments: ADCB sold its 25% stake in RHB to Aabar, owned by the Abu Dhabi government, for MYR10.8/share. The deal means that Abu Dhabi remains a substantial shareholder, supportive of a potential merger, but ADCB may have given away some upside that could have resulted from a takeover by Maybank or CIMB. Sale addresses capital deficit under Basel III: We expect the sale to impact ADCB s estimated Basel III core equity Tier 1 (CET1) ratio positively, thanks to a net capital gain of AED1bn and a release of AED5.5bn in associate investments. We expect the Basel III CET1 to improve to 10.3% from 6.3% and Basel II CET1 to increase 2% to 14.4%. ADCB s Basel III CET1 remains well below its Tier 1 under Basel II, as we expect risk weighted assets to jump due to securitization (which will be grossed up) and high reliance on Tier 1 hybrids (AED4bn). Substantial bonus dividends not expected: We do not expect the proceeds to be paid out as the sale was made to address ADCB s capital deficit. The capital gain of AED1.5bn might be transferred to distributable earnings, however. On the other hand, ADCB is likely to realize a AED623m forex hedge loss related to the stake, which should be charged against its income statement. High earnings dilution: Without RHB, ADCB would have made a loss in We estimate a forfeiture of 39% of earnings in 2011e, 34% in 2012e, 24% in 2013e, and 19% in 2014e. Conversely, we reduce our loan loss charge forecasts to 1.8% from 2% for 2011e and to 1.75% from 1.9% for 2012e, and include interest revenue on the increased cash position mitigating the negative impact. We also cut loan growth and NIMs slightly following 1Q. Net, we raise our earnings forecast 2% for 2011e (ex exceptional capital gain), but cut forecasts 6% for 2012e, 20% for 2013e, and 17% for 2014e. Increase TP: We increase our SOTP to AED2.5 from AED1.89, leaving 24% downside. The increase reflects the capital gain on the sale and the reduced loan book deduction from our updated asset quality screen. The downside reflects ADCB s poor returns and continued asset quality concerns. The cut to its capital deficit is partly offset by a drop in the value of its banking franchise. Key indicators 2010a 2011e 2012e 2013e P/E 41.5x 7.3x 10.7x 8.2x P/tNAV 1.0x 1.1x 1.0x 0.9x Source: Company data, HC Underweight Target price (AED) 2.5 Current price (AED) 3.3 Potential return 24% Bloomberg Reuters ADCB UH ADCB.AD Mcap (AEDm) 15,825 Mcap (USDm) 4,312 Free float 44% Daily volume (USDm) 1.4 Foreign own. limit 49.0% Foreign ownership 3.16% Note: All prices as of 19 June 2011 Price performance FMAM J J A S OND J FMAM J ADCB ADX Jaap Meijer, MBA, CFA Head of the financials team jaap.meijer@hc si.com Janany Vamadeva Analyst janany.vamadeva@hc si.com Please refer to important disclosures and analyst certifications on pages of this report.

2 Valuation methodology Our valuations are made up of 3 core elements: (1) valuation of operations, (2) capital surplus/deficit, and (3) various other adjustments (underprovisioning, investment losses on real estate, etc). (1) Valuing the banking operations: We start by valuing the core operations of the bank. We adjust net earnings for distributions that are not subtracted from reported earnings (such as social contributions) and for coupons on Tier 1 bonds, then add noncash amortizations (such as goodwill amortization). We do not include realized bond gains in our forecasts. We use a discount of c11% for UAE banks, representing a risk free rate of 5% and an equity risk premium of 6%. We use a perpetual growth rate of 4% for ADCB. We calculate earnings based on a normalized capital structure (11% of risk weighted assets plus investments in financial associates). The returns on excess capital or the capital deficit are added to/subtracted from the earnings to arrive at an underlying earnings pattern given an adequate capital base. (2) Valuing the capital surplus/deficit: We calculate available capital as follows: (1) we calculate the common equity of the bank; (2) we add minorities as they are part of the capital structure; (3) we deduct all intangibles and goodwill; (4) we deduct all noncommon equity elements such as preferred shares, convertibles, subordinate debt, and other bridge capital; (5) we include mandatory convertibles; (6) we do not deduct deferred tax assets as they represent cash flows for shareholders; and (7) we do not deduct positive available for sale reserves as these are easy to free up by selling the positions. We calculate capital requirements as follows: (1) we estimate the risk weighted assets under Basel III; (2) we set a minimum core Tier 1 of 11%; and (3) we include all financial associates (we do not use the 10% threshold the Basel Committee has agreed upon). (3) We add or subtract other elements such as provisioning needs that are above and beyond those in our 4 year forecast period and stem from our asset quality screen, and potential losses on associates and other investments (real estate, equities, structured credit, and level 3 assets). All in all, our target prices provide a very informed view of the most important value drivers of a bank, such as its returns and capital strength. Key risks Key upside risks include (1) benign loan loss charges as we currently use very conservative (harsh) assumptions regarding asset quality, (2) any improvement in net interest margins, (3) a general reduction in equity risk premiums that would reduce the cost of capital and hence increase ADCB s valuation, and (4) better than expected loan and deposit growth. 2

3 MENA bank valuation screen Rec Mcap (USDm) Curr Current price Target price Upside P/E (x) Target CAGR P/tNAV (x) ROE Dividend yield P/PPP (x) 10a 11e 12e P/E 12e 11 14e 10a 11e 12e 10a 11e 12e 10a 11e 12e 10a 11e 12e ADCB UW 4,312 AED % % % 11.7% 6.9% 0.0% 1.2% 2.0% ADIB N 2,192 AED % % % 13.0% 12.6% 6.5% 2.2% 2.4% CBD OW 1,587 AED % % % 12.5% 12.0% 6.7% 3.9% 4.0% DIB N 2,173 AED % % % 6.3% 6.3% 4.8% 2.4% 2.5% ENBD OW 6,906 AED % % % 13.0% 8.4% 4.4% 4.1% 4.0% FGB OW 7,364 AED % % % 14.9% 14.6% 3.3% 2.9% 3.2% NBAD OW 9,306 AED % % % 16.7% 15.9% 2.5% 2.1% 2.4% UNB OW 2,599 AED % % % 10.1% 10.0% 2.6% 2.7% 2.9% Shuaa UW 295 AED % (4.8) (71.9) % % 1.0% 1.9% 0.0% 0.0% 2.6% (13) (59) 39.6 Tamweel OW 262 AED % % % 2.9% 3.9% 0.0% 0.0% 0.0% UAE 36,995 3% % 12.8% 11.0% 3.2% 2.7% 2.9% CBQ OW 4,745 QAR % % % 13.2% 13.5% 10.0% 8.6% 8.6% Doha OW 2,947 QAR % % % 16.2% 13.8% 9.6% 9.6% 9.6% QIB OW 5,089 QAR % % % 14.4% 14.7% 6.4% 6.4% 6.4% QNB OW 24,449 QAR % % % 19.6% 17.5% 2.6% 2.5% 3.5% Qatar 41,969 32% % 17.0% 16.1% 3.6% 4.0% 5.0% CAE N 549 EGP % % % 15.6% 17.3% 11.1% 6.7% 8.4% CIB UW 3,220 EGP % % % 16.0% 17.8% 3.2% 2.5% 3.1% HDB N 391 EGP % % % 7.9% 11.8% 0.0% 3.6% 5.8% NSGB UW 2,448 EGP % % % 18.2% 20.5% 3.3% 3.3% 4.4% EFG UW 1,484 EGP % % % 7.5% 8.5% 13.8% 2.2% 2.0% Egypt 8,091 13% % 12.5% 14.5% 5.5% 3.0% 3.8% Audi N 2,439 USD % % % 12.5% 12.8% 3.2% 5.1% 5.7% BLOM OW 1,828 USD % % % 17.1% 16.1% 5.3% 4.9% 5.2% Byblos N 1,031 USD % % % 9.8% 9.3% 7.1% 4.8% 4.9% Lebanon 5,298 24% % 13.4% 13.1% 4.6% 4.9% 5.3% ANB UW 6,767 SAR % % % 13.5% 13.7% 2.6% 2.7% 2.7% Al Rajhi OW 29,000 SAR % % % 23.7% 24.6% 2.1% 3.8% 3.8% BSFR N 8,293 SAR % % % 15.4% 16.3% 2.3% 2.3% 3.5% Riyad N 9,480 SAR % % % 8.3% 10.0% 5.5% 5.5% 5.5% Samba OW 12,000 SAR % % % 15.7% 15.3% 3.3% 3.3% 3.3% SABB N 8,360 SAR % % % 14.8% 16.9% 1.6% 1.6% 1.6% KSA 73,899 19% % 14.6% 15.6% 2.7% 3.4% 3.5% MENA 166,253 19% % 14.3% 14.0% 3.3% 3.4% 3.9% Source: Bloomberg, HC 3

4 valuation (AEDm) 2010a 2011e 2012e 2013e 2014e Perp. Subtotal % total DCF Net profit 381 2,167 1,482 1,938 2,743 2,743 Other adj (comprehensive inc and GW amrt) Less: Excess return on surplus capital Risk free rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Tax shelter 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Adjusted net profit 512 1,963 1,268 1,724 2,529 2,529 Capital requirements 22,992 18,296 19,361 20,745 22,843 22,843 ROECC 2.2% 10.7% 6.6% 8.3% 11.1% 11.1% Cost of capital 11.2% 11.2% 11.2% 11.2% 11.2% 11.2% Capital charge 2,575 2,049 2,168 2,323 2,558 2,558 Economic profit 2, Discount factor NPV of economic profit DCF EVA forecast period 1, % Perpetual growth rate (nominal GDP) 4.0% Terminal value 299 Terminal value discounted % Required capital 17, % Value of bank operations 16, % Capital surplus/deficit Available capital Shareholder equity ,573 17,586 18,835 20,231 22,318 Minorities Less: Goodwill and intangibles Less: Non equity elements reported in equity Less: Associates Tangible equity 15,573 17,586 18,835 20,231 22,318 Capital needs RWA (Basel I in 2011, Basel II/III starting 2012) 135, , , , ,701 RWA (Basel III) 160, , , , ,701 Equity as a % of RWA 11% 11% 11% 11% 11% Financial stakes 5, Capital requirements 22,992 18,296 19,361 20,745 22,843 Surplus capital 7, , % Release capital (associates) 5,253 New surplus capital (YE2010) 2,166 Other adjustments Real estate losses 76 Corporate bond fair value losses Under/overprov not covered in forecast period 1,294 Level 3 assets 110 Capital gain on sale of RHB Capital 1,547 Total adjustments % Total fair value YE , % Number of shares 4,810 Conversion of mandatory convertibles 786 Fully diluted number of shares 5,596 Fair value/share (AED) 2.5 Current share price (AED) 3.3 Potential return 23.8% Implied P/E 6.3x 9.7x Implied P/B 0.8x 0.8x Source: HC 4

5 financial statements (AEDm) 2008a 2009a 2010a 2011e 2012e 2013e 2014e Income statement Interest income 5,946 6,898 7,376 8,000 8,786 9,487 10,223 Interest expense 3,465 3,622 3,694 3,945 4,261 4,540 4,895 Net interest income 2,481 3,276 3,682 4,055 4,526 4,948 5,328 Fees and commissions ,009 1,079 1,165 Forex income Investment income Other income Noninterest income 1,738 1,284 1,318 1,340 1,402 1,497 1,608 Total income 4,219 4,560 5,001 5,395 5,928 6,445 6,936 Total operating expenses 1,525 1,539 1,649 1,739 1,855 1,985 2,125 Pre provisions income 2,694 3,020 3,352 3,656 4,073 4,460 4,811 Loan loss provision charges 1,498 3,753 3,287 2,463 2,512 2,416 1,914 Associate and other income , Pretax income 1,367 (510) 400 2,292 1,567 2,052 2,906 Income tax Net income after tax 1,358 (513) 391 2,258 1,544 2,019 2,857 Minority interest Net income reported 1,237 (559) 381 2,167 1,482 1,938 2,743 Adjustments Net income adjusted 1,237 (679) 141 1,927 1,242 1,698 2,503 Balance sheet Assets Cash and due from CB 3,911 4,139 5,888 22,897 25,054 26,902 28,606 Due from banks 17,528 18,349 18,398 16,847 18,194 19,650 21,222 Investments 3,423 4,459 8,263 4,305 5,054 5,458 5,895 Gross loans 111, , , , , , ,551 Provisions 2,258 4,232 6,296 6,296 7,559 9,521 11,487 Net loans 108, , , , , , ,064 Other assets 13,473 15,859 21,881 11,832 12,818 13,883 15,036 Net fixed assets , Total assets 147, , , , , , ,799 Liabilities Total deposits 84,361 86, , , , , ,653 Due to banks 6,905 4,738 4,842 11,663 14,371 9,233 9,011 Borrowings 30,567 41,541 33,926 30,044 29,163 32,163 35,163 Other liabilities 9,980 12,539 17,796 16,785 16,785 16,785 16,785 Total liabilities 131, , , , , , ,481 Shareholder equity 15,915 15,090 15,573 17,586 18,835 20,231 22,318 Source: Company data, HC 5

6 financial ratios 2008a 2009a 2010a 2011e 2012e 2013e 2014e Profitability ratios Net interest margin 2.12% 2.36% 2.46% 2.46% 2.49% 2.52% 2.52% Cost/income 37.7% 33.8% 33.0% 32.2% 31.3% 30.8% 30.6% Net interest income/average earning assets 2.1% 2.4% 2.5% 2.5% 2.5% 2.5% 2.5% Noninterest income/average earning assets 1.3% 0.9% 0.9% 0.8% 0.8% 0.8% 0.8% Net interest income/total income 61.4% 71.9% 73.6% 75.2% 76.3% 76.8% 76.8% Noninterest income/total income 38.6% 28.1% 26.4% 24.8% 23.7% 23.2% 23.2% Fees and commissions/total operating income 24.3% 21.6% 19.1% 17.6% 17.0% 16.7% 16.8% Trading gains/total operating income 2.2% 2.7% 1.2% 1.9% 1.6% 1.6% 1.6% Total income/average earning assets 3.5% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% Noninterest expenses/total operating income 37.7% 33.8% 33.0% 32.2% 31.3% 30.8% 30.6% ROA 1.0% 0.4% 0.1% 1.1% 0.6% 0.8% 1.1% ROE 9.1% 4.4% 0.9% 11.7% 6.9% 8.7% 11.8% Revenue/RWA 3.24% 3.29% 3.69% 3.86% 3.38% 3.43% 3.36% Costs/RWA 1.22% 1.11% 1.22% 1.24% 1.06% 1.06% 1.03% PPP/RWA 2.02% 2.18% 2.47% 2.61% 2.33% 2.38% 2.33% Cost of risk/rwa 1.20% 2.71% 2.43% 1.76% 1.43% 1.29% 0.93% RORWA 0.99% 0.49% 0.10% 1.38% 0.71% 0.90% 1.21% Asset quality ratios Nonperforming loans/total loans 1.13% 5.17% 11.06% 12.06% 11.86% 11.66% 10.66% Loan loss provisions/total loans 2.0% 3.5% 3.3% 4.6% 5.1% 5.9% 6.5% Coverage 179% 68% 30% 38% 43% 51% 61% Loan loss provision charge/total loans 0.8% 2.6% 2.6% 1.8% 1.7% 1.5% 1.1% Loan loss provision charge/operating income 30.2% 98.3% 98.1% 67.4% 61.7% 54.2% 39.8% Funding and liquidity ratios Deposits/liabilities 64% 59% 65% 66% 67% 71% 71% Core deposits/loans 76% 71% 82% 81% 83% 87% 87% Loans/deposits 132% 140% 122% 123% 120% 115% 115% Capital and leverage ratios Tier 1 ratio 11.4% 12.4% 12.0% 14.9% 12.9% 13.0% 13.0% Total capital ratio 11.4% 17.4% 16.7% 21.4% 18.4% 18.1% 17.6% Tangible equity/assets 10.8% 9.4% 8.6% 9.3% 9.2% 9.2% 9.4% Total equity/total liabilities 12.1% 10.4% 9.6% 10.4% 10.3% 10.2% 10.5% Growth Asset growth 39% 8% 11% 5% 8% 8% 8% Earning asset growth 33% 7% 8% 12% 8% 8% 8% Net loan asset growth 44% 7% 5% 6% 7% 8% 8% Deposit growth 48% 2% 23% 5% 11% 14% 9% Net income growth 38% 145% 168% 469% 32% 31% 41% Source: Company data, HC 6

7 snapshot Loan portfolio (as of 2010) AED124bn 20% 4% 27% Total assets (as of 2010) caed178bn 5% 6% 3% 3% 10% 19% 31% 72% Mortgage Property and construction Corporate: other Retail: non mortgage SME Cash Associates Interbank Loan Investment securities Other 2.6% 50% 2.5% 2.4% 2.3% 2.36% 2.46% 2.46% 2.49% 2.52% 2.52% 40% 30% 45% 2.2% 20% 2.1% 2.0% 2.12% 10% 0% 9% 7% 6% 8% 9% 9% e 2012e 2013e 2014e Net interest margin e 2012e 2013e 2014e Loan growth Deposit growth 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 0.5% 1.0% 1.20% 0.99% 2.71% 0.49% 2.43% 0.10% 1.76% 1.38% 1.43% 0.71% 1.29% 0.90% 1.21% 0.93% 14% 12% 10% 8% 6% 4% 2% 0% 200% 180% 160% 140% 120% 100% 80% 60% 40% e 2012e 2013e 2014e PPP/RWA Cost of risk/rwa RORWA e 2012e 2013e 2014e NPL ratio (LHS) Coverage (RHS) 24% 22% 21.4% 11.0% 10.5% 10.8% 20% 18% 16% 14% 12% 11.4% 17.4% 16.7% 18.4% 18.1% 17.6% 10.0% 9.5% 9.0% 8.5% 9.4% 8.6% 9.3% 9.2% 9.2% 9.4% 10% 8.0% e 2012e 2013e 2014e Tier I CAR e 2012e 2013e 2014e Tangible equity to assets Source: Company data, HC 7

8 Probability of default and loss given default P&C % of loan book Probability of default (PD) (%) Weig Non Other Non Other hted SME Mortg P&C SME Mortg P&C retail P&C retail PD P&C Loss given default (LGD) (%) Weig hted LGD Expected loss (EL) (bps) UAE ADCB , , ADIB , , CBD , , DIB , , ENBD , , , FGB , NBAD UNB , Tamweel , , Qatar QNB QIB % Doha % CBQ % Egypt CIB NSGB CAE HDB EFG/CL Lebanon Audi BLOM Byblos KSA Samba Riyad Al Rajhi BSFR SABB ANB Source: HC Non P&C SME Mortg Other retail P&C Non P&C SME Mortg Other retail Total EL (bps) Annu al EL (bps) 8

9 Asset quality screen (LCYm) Curr Total private lending Expected loss from corp. P&C EL from corp. non P&C EL from SME EL from mortg EL from other retail Total EL 10 13e Total EL 10 13e (bps) Avg EL 10 13e (bps) Stock of prov n YE2009 Remaining NPL prov ning (after deducting EL for existing NPLs) EL to be covered 10 13e Prov n forecast 10e Remaining prov n 11 13e Forecast prov n 11 13e Add to (deduct from) val n ADCB AED 119,274 4,155 3,381 1, ,900 11, , ,159 3,287 6,872 5,578 1,294 ADIB AED 41, ,465 3, , , ,186 3, CBD AED 27, ,836 1, , ,012 1, DIB AED 47,691 3, ,096 1, , , ,166 4, ENBD AED 172,573 6,890 8,224 1, ,535 20,213 1, ,948 2,883 17,330 2,926 14,404 10,772 3,632 FGB AED 92,576 3,186 2, ,225 8, , ,453 1,639 5,814 5, NBAD AED 118,841 2,251 2,126 1, ,921 7, ,658 1,411 6,243 1,114 5,129 3,604 1,525 UNB AED 45,108 1,449 1, , , ,234 2, Tamweel AED 10, UAE 64, ,026 CBQ QAR 29, Doha QAR 24, QIB QAR 23, QNB QAR 60, , , ,831 1,963 Qatar 5, ,217 CIB EGP 28, ,444 1, ,174 1,381 NSGB EGP 27, , , , CAE EGP 8, HDB EGP 6, EFG/CL EGP 7, Egypt 3, ,311 Audi LBP 10,490,761 24, ,701 68,681 34,665 58, , ,227 8, ,767 47, , ,752 18,512 BLOM LBP 6,263,579 18, , , , ,946 23, ,554 26, , ,061 58,652 Byblos LBP 5,103, , ,395 58, , ,117 31, ,595 30, , ,584 19,647 Lebanon 712, ,916 Samba SAR 84, , , ,376 1,297 1, ,000 2,103 1,103 Riyad SAR 107, , , , , ,597 2,993 1,396 Al Rajhi SAR 128, , ,189 5, ,192 1,133 4,090 1,909 2,181 4,886 2,706 BSFR SAR 78, , , , , ,571 1, SABB SAR 75, , , , ,125 1,243 1,882 2, ANB SAR 68, , ,008 2, , , ,403 2, KSA 1, Source: Company data, HC 9

10 Disclaimer HC Brokerage, which is an affiliate of HC Securities & Investment (referred to herein as HC ) a full fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services is exclusively responsible for the content of this report. JonesTrading Institutional Services LLC ( JonesTrading ), a member of SIPC/FINRA, has not had any input informing or determining the content of this report. The information used to produce this document is based on sources that HC believes to be reliable and accurate. This information has not been independently verified and may be condensed or incomplete. HC does not make any guarantee, representation, or warranty and accepts no responsibility or liability for the accuracy and completeness of such information. Expression of opinion contained herein is based on certain assumptions and the use of specific financial techniques that reflect the personal opinion of the authors of the commentary and is subject to change without notice. The information in these materials reflects HC s equity rating on a particular stock. HC, its affiliates, and/or their employees may publish or otherwise express other viewpoints or trading strategies that may conflict with the views included in this report. Please be aware that HC and/or its affiliates, and the investment funds and managed accounts they manage, may take positions contrary to the included equity rating. This material is for informational purposes only and is not an offer to sell or the solicitation of an offer to buy. Ratings and general guidance are not personal recommendations for any particular investor or client and do not take into account the financial, investment, or other objectives or needs of, and may not be suitable for, any particular investor or client. Investors and clients should consider this only a single factor in making their investment decision, while taking into account the current market environment. Foreign currency denominated securities are subject to fluctuations in exchange rates, which could have an adverse effect on the value or price of, or income derived from, the investment. Investors in securities such as ADRs, the values of which are influenced by foreign currencies, effectively assume currency risk. Neither HC nor any officer or employee of HC accepts liability for any direct, indirect, or consequential damages or losses arising from any use of this report or its contents. Copyright No part or excerpt of this research report s content may be redistributed, reproduced, or conveyed in any form, written or oral, to any third party without prior written consent of the firms. The information within this research report must not be disclosed to any other person until HC has made its information publicly available. Issuer of report: HC Brokerage Building F15 B224, Smart Village KM28 Cairo Alexandria Desert Road 6 October 12577, Egypt Telephone: Fax: Website: si.com Pursuant to Rule 15a 6, this report is only available in the United States to Major US Institutional Investors and is being distributed pursuant to an agreement between JonesTrading and HC. The Alembic Global Advisors trade name is licensed by JonesTrading. Brokerage services in the United States are made available through JonesTrading. JonesTrading Institutional Services LLC Lindero Canyon Road, Suite 208 Westlake Village, CA Telephone: Website: Alembic Global Advisors 780 Third Avenue, 8th Floor New York City, NY Telephone: Website: 10

11 IMPORTANT DISCLOSURES Analyst certification: The analysts preparing and contributing to this report are not associated persons of JonesTrading, are not registered/qualified as research analysts with FINRA, and are not subject to the NASD Rule 2711 and incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. We, Jaap Meijer and Janany Vamadeva, certify that the views expressed in this document accurately reflect our personal views about the subject securities and companies. We also certify that we do not hold a beneficial interest in the securities traded. Analyst disclosures: The analyst or a member of the analyst s household does not have a financial interest in the securities of the subject company (including, without limitation, any option, right, warrant, future, long or short position). The analysts or a member of the analysts household do not serve as an officer, director, or advisory board member of the subject company. The analysts compensation is not based upon HC s investment banking revenues and is also not from the subject company in the past 12 months. HC disclosures: Company name: Disclosures: 5 and 6 1. HC or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company. 2. HC or its affiliates have managed or co managed a public offering of securities for the subject company in the past 12 months. 3. HC or its affiliates have received compensation for investment banking services from the subject company in the past 12 months. 4. HC or its affiliates expect to receive or intend to seek compensation for investment banking services from the subject company in the next 3 months. 5. HC has received compensation for products or services other than investment banking services from the subject company in the past 12 months. 6. The subject company currently is, or during the 12 month period preceding the date of distribution of this research report was, a client of HC. 7. HC makes a market in the subject company s securities at the time this report was published. The HC Rating System consists of 3 separate ratings: Overweight, Neutral, and Underweight. The appropriate rating is determined based on the estimated total return of the stock over a forward 12 month period, including both share appreciation and anticipated dividends. Overweight rated stocks include a published 12 month target price. The target price represents the analysts best estimate of the market price in a 12 month period. HC cautions that target prices are based on assumptions related to the company, industry, and investor climate. As such, target prices remain highly subjective. The definition of each rating is as follows: Overweight (OW): Estimated total potential return greater than or equal to 20% Neutral (N): Estimated total potential return greater than or equal to 0% and less than 20% Underweight (UW): Estimated total potential return less than 0% NR: Not Rated SP: Suspended Stocks rated Overweight are required to have a published 12 month target price, while it is not required on stocks rated Neutral and Underweight. Distribution of HC ratings Rating Count Percent Percent provided investment banking services in past 12 months Overweight (OW) Neutral (N) Underweight (UW)

12 as of 19/06/ Date Recommendation Target price 04/03/2009 Neutral AED /08/2009 Neutral AED /11/2009 Neutral AED /03/2010 Neutral AED /04/2010 Neutral AED /03/2011 Underweight AED /06/2011 Underweight AED2.50 All HC employees and its associate persons, including the analyst(s) responsible for preparing this research report, may be eligible to receive non product or service specific monetary bonus compensation that is based upon various factors, including total revenues of HC and its affiliates, as well as a portion of the proceeds from a broad pool of investment vehicles consisting of components of the compensation generated by directors, analysts, or employees and may affect transactions in and have long or short positions in the securities (options or warrants with respect thereto) mentioned herein. Although the statements of fact in this report have been obtained from and are based upon recognized statistical services, issuer reports or communications, or other sources that HC believes to be reliable, we cannot guarantee their accuracy. All opinions and estimates included constitute the analysts judgment as of the date of this report and are subject to change without notice. HC may affect transactions as agent in the securities mentioned herein. This report is offered for information purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such would be prohibited. Additional information available upon request. 12