The company's operational revenues reached JD33.6 million by the end of 2006, achieving a year-on-year growth of 2.4% Key Financial Figures (%)

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2 Research Outcome: The following equity report was prepared for those who are interested in a deeper look at the Dar Al Dawa Development & Investment Company (DADI) s technical and fundamental analysis. As a result of the study carried out by Ahlibank, the following analytical summary was concluded: Due to a highly diversified range of products and more than 700 employees, the company's sales and marketing activities cover more than 20 international markets including the Middle East, North and East Africa and Eastern Europe. The fair economic value of DADI's shares, which is derived from the weighted average of the DCF and relative valuation models, is approximately JD5.00/share. The stock closed at JD4.66/share on 13/12/2007, which implies that the weighted average value of DADI's shares is JD0.34/share above the current market price. The company's operational revenues reached JD33.6 million by the end of 2006, achieving a year-on-year growth of 2.4% Stock Data (December 13th 2007) Key Financial Figures (%) Current Price (JD) 4.66 EBIT Margin Earning per Share (EPS) (Forward) Price-to-earning (P/E) (Forward) Price-to-Book Value (P/BV) Shares Outstanding (NOS) 0.23 NOP Margin Net Profit Margin Return on Assets (ROA) MN Return on Equity (ROE) Market Capitalization 93.2 MN Return on Capital Employed (ROCE)

3 TABLE OF CONTENTS 1. Company Overview General Profile 1.2 Board of Directors 1.3 Ownership Structure 1.4 Historical Stock Data 2. Associates & Subsidiaries Peers Analysis Financial Performance Revenues Analysis 4.2. COGS 4.3. Other Components of the Income Statement 4.4. DuPont Analysis 4.5. Company Assets & Liabilities 4.6. Technical Analysis 5. Financial Ratios Company Valuation Discounted Free Cash Flow Model (DCF) 6.2. Relative Market Valuation 7. Company Financial Statements

4 1. Company Overview: 1.1 General Profile: Dar Al Dawa Development & Investment Company (DADI) is part of Dar Al Dawa Group, which includes three other companies: Nutri Dar, DADVet and Cosmo Dar. Both Dar Al Dawa Development & Investment Company (DADI) and Nutri Dar (NADR) are public shareholding companies listed on the Amman Stock Exchange (ASE), while DADVet and Cosmo Dar are private companies. Established as a public shareholding limited company in 1975, the Company's core operations include developing, manufacturing and marketing branded generic pharmaceuticals. With a paid up capital that currently stands at JD20 million, Dar Al Dawa's spent around JD 63 million in capital expenditures during the year Dar Al Dawa's strategic plan features the following objectives: Formulating and manufacturing Dar Al Dawa s branded generics for global registration and marketing Marketing third party products in Dar Al Dawa s existing and new markets through cooperation agreements Formulating and manufacturing non-patented generics (Licensing Out) for third parties Partnership or alliance with European, East European, North American, South American and Asian manufacturers of generics to gain further entry into economic markets Acquisition of know-how for new products from reputable manufacturers and/or research organizations Licensing patent products from reputable firms Manufacturing specific active raw ingredients for Dar Al Dawa and third parties 4

5 Dar Al Dawa Products Dar Al Dawa manufactures and markets a broad range of pharmaceutical products and dosage forms, which cover more than 200 prescription and over-the-counter medications, including antibiotics, chemotherapeutics, cardiovascular products, dermatological products, ophthalmology, otology products, respiratory products, mouthwashes, vitamin preparations and many others. Accreditation & Qualifications All of the company's products are manufactured according to global standards including Current Good Manufacturing Practice (cgmp) and Food & Drug Agency (FDA) regulations. European Union (EU-cGMP) accreditation was obtained in 2002, which qualifies the company to register and export its products to Europe. Production & Markets Dar Al Dawa relies heavily on exporting its products, with more than 75% of the company's operational revenues originating from exports. Moreover, due to a diversified range of products and more than 700 employees, the company's sales and marketing activities cover more than 20 international markets including the Middle East, North and East Africa and Eastern Europe. Dar Al Dawa Plants In Jordan, the Company's plants and warehouses are located in the Na'our Area. Furthermore, Dar Al Dawa currently operates in a variety of geographical locations throughout the Middle East, North Africa, Europe and the Far East. The company has the following facilities and operations in Jordan, which manufacture a wide variety of pharmaceuticals and dosage forms including tablets, capsules, suspensions, ointments, creams, gels, suppositories, syrups, ophthalmic solutions and injectable solutions: Non-Betalactam Semi-Solids and Liquids Plant Non-Betalactam Solids Plant Betalactams Plant Cephalosporines Plant 5

6 1.2 The Board of Directors As of Dec. 13 th 2006 The following members make up the company's board of directors: Mr. Abdul Raheem Jardaneh Abu Jaber Brothers Company (Represented by Mr. Zeyad Abu Jaber) Mr. Sa'ed Qadomi Mr. Akram Jerab Mr. Munther Al Nabulsie Mr. Ousama Yaeesh Ms. Lina Jardaneh Al Nahda Financial Services Company Mr. Ramzi Salfiti Chairman Deputy Chairman Member Member Member Member Member Member Member 1.3 Ownership Structure As of Dec. 13 th 2006 As for the company's shareholding pattern, approximately 75.03% or million of DADI's shares are currently free floated, while around 24.97% or 5 million shares are held by BOD members and major shareholders. The following table illustrates that the Social Security Corporation holds the majority stake in DADI with a 5.54% ownership, around 5.39% lower than its ownership at the end of Al Nahda Financial Services Company comes in second by controlling around 4.89% of the company's shares. Ownership Breakdown Number of Shares % of Ownership Free Float 15,005, % Social Security Corporation 1,107, % Al Nahda Financial Services Company 977, % Abdul Raheem Jardaneh & Sons Company 951, % Abu Jaber Brothers Company 750, % Mr. Akram Jerab 673, % Mr. Sa'ed Qadomi 336, % Mr. Abdul Raheem Jardaneh 71, % Mr. Munther Al Nabulsie 68, % Mr. Ousama Yaeesh 25, % Ms. Lina Jardaneh 22, % Mr. Ramzi Salfiti 10, % 6

7 1.4 Historical Stock Data: The company's stock price grew slightly during the period , climbing to JD6.35/share by the end of 2005, compared with JD6.25/share in 2004 and JD5.38/share in However, DADI concluded the year at JD4.95/share, around 22% weaker than 2005's closing, after seeing a low of JD4.62/share and a high of JD6.60/share. This drop was a natural consequence of the downward trend that took ASE by storm in Another point worth mentioning is that the company's stocks have been witnessing decreasing trading volumes since 2003, which have resulted in lower turnover ratios for the stock. Stock Data Number of Shares Outstanding 12,000,000 20,000,000 20,000,000 20,000,000 20,000,000 Par Value Weighted Averages NOS 12,000,000 20,000,000 20,000,000 20,000,000 20,000,000 Closing Price (Market Price MPS) Year High Year Low Typical Price Average Trading Price Chg. In MPS (Capital Gain) -3.1% 16.2% 1.6% -22.0% Range (High - Low) Closing Distance from Year-Low 100.0% 21.8% 92.7% 30.9% 16.7% Closing Distance from Year-High 0.0% 78.2% 7.3% 69.1% 83.3% Market Capitalization 66,600, ,600, ,000, ,000,000 99,000,000 Number of Shares Traded 11,099,647 9,920,515 6,275,546 6,005,450 2,427,142 Value Traded 52,138,978 57,871,271 35,862,304 40,244,243 13,880,711 Transactions 21,212 23,144 11,151 9,397 3,766 Turnover Ratio (%) Cash Dividend History: DADI declared a 20% cash dividend in The company has a consistent record of paying dividends to its shareholders as the following table illustrates: Cash Dividends (JD) 3,000,000 4,000,000 4,400,000 4,000,000 4,000,000 Cash Dividends (%) 15.00% 20.00% 22.00% 20.00% 20.00% 7

8 Stock Price Analysis Closing Price (Market Price MPS) Year Low Year High Average Trading Price Annual Trading Activity Number of Shares Traded Value Traded JD Million

9 2. Associates & Subsidiaries: In its continuous effort to fulfill its objective of providing world-class products, Dar Al Dawa has entered into various joint ventures and alliances with global partners, which has enabled the company to advance its position on the global map, through the acquisition of new technologies, product lines and services. In addition, the company has toll manufacturing contracts for certain Dar Al Dawa products in Tunisia and Algeria. Some of the projects and ventures already implemented include: Associates: NutriDar (NDAR) NDAR is a public shareholding company based in Jordan, where the company is focused on manufacturing and marketing baby food. NDAR's sales reached JD8.25 million by the end of the first three quarters of Dar Al Dawa owns 43.5% of the company. DADVet A private shareholding company based in Jordan and aimed at manufacturing veterinary pharmaceuticals. Dar Al Dawa owns 33% of the company. Arab Pharmaceutical Industry Consulting Company Ltd. (APICO) A Jordan-based organization with the purpose of carrying out research, microbiology and clinical studies. Dar Al Dawa owns 36% of the company. Subsidiaries: Dar Al Dawa Algeria A private shareholding company based in Algeria, with the objective of marketing and distributing Dar Al Dawa's pharmaceutical products in Algeria. Dar Al Dawa owns 100% of its shares. Dar Al Dawa Pharma Romania A private shareholding company based in Romania and wholly owned by Dar Al Dawa. Its purpose is marketing and distributing Dar Al Dawa's pharmaceutical products in Romania. Dar Al Dawa Libya A private shareholding company based in Libya and directed towards manufacturing pharmaceuticals.dar Al Dawa controls 60% of the company. 9

10 Al Dar Al Arabia A private shareholding company based in Algeria, the purpose of which is to manufacture pharmaceuticals. Dar Al Dawa owns 50% of the company. JORAS A private shareholding company based in Algeria, which is directed towards manufacturing sterile drops pharmaceuticals. Dar Al Dawa owns 70% of the company. The following is a diagram representing Dar Al Dawa's associates & subsidiaries: Dar Al Dawa NutriDar (NDAR) (43.5%) DADVET (33%) Arab Pharmaceutical Consulting (36%) Dar Al Dawa Algeria (100%) Dar Al Dawa Pharma Romania (100%) Dar Al Dawa Libya (60%) Al Dar Al Arabia (50%) Joras (70%) 10

11 3. Peers Analysis: In order to judge the company's real efficiency we needed to see how the company stacks up against other players in the industry. DADI operates alongside six other public shareholding companies in the pharmaceuticals sector listed on the ASE. The following companies were included in our sample in accordance with data availability on the concerned companies: Company Code Total Assets Outstanding shares Owners' Equity Sales Revenues * Net Income Q Arab Center for Pharmaceuticals & Chemicals Middle East Pharma. & Chemical Ind. & Medical Appliances* The Jordanian Pharmaceutical Manufacturing Company* Hayat Pharmaceutical Industries * Arab Pharmaceutical Manufacturing*** Dar Al Dawa Development & Investment Company APHC 7,890,368 5,000,000 7,532, ,063-81,423 MPHA 23,401,634 9,869,583 13,013,382 9,675, ,900 JPHM 53,279,747 20,000,000 32,968,716 16,703, ,266 HPIC 12,478,792 9,500,000 10,693,613 3,317, ,459 APMC 70,213,966 20,000,000 57,850,485 33,462,483 5,128,625 DADI 58,852,465 20,000,000 51,577,000 33,582,321 3,472,275 Average 37,686,162 14,061,597 28,939,358 16,246,948 1,587,517 Average (exc. DADI) 33,452,901 12,873,917 24,411,830 12,779,874 1,210,565 * Based on first half results **Forecast Sales for 2007 *** Recently acquired by Al Hikma Pharmaceuticals PLC Total Assets The average total assets owned by companies in the industry reached JD33.45 million by the end of the first nine months of Notably, DADI's boasts the second highest total assets in the sector, standing at JD58.85 million, after APMC. Outstanding Shares The average capital of companies in the industry is around million shares. DADI's share capital currently stands at 20 million shares. Owners' Equity The industry enjoys an average owners' equity of JD24.4 million, versus DADI's JD51.58 million. Notably, APMC, which was recently acquired by Al Hikma Pharmaceuticals Plc, outperforms DADI on this front, with a higher owners ' equity standing at JD57.9 million. 11

12 Sales Revenues The pharmaceuticals industry is expected to achieve average sales revenues of around JD12.8 million by the end of the year 2007, against DADI's much higher predicted sales revenues of JD33.6 million. Moreover, Dar Al Dawa is expected to face strong competition from APMC in terms of market share, as illustrated by the following graph: Pharmaceuticals Sales (2007 Forecast) APHC 0.8% MPHA 9.9% DADI 34.4% JPHM 17.1% HPIC 3.4% APMC 34.3% In terms of gross profits, DADI has the second highest gross profit margin of 58.6% in the industry, against an average gross profit margin of 44.4% for the industry. HPIC's gross profit margin is around 10% higher than that of Dar Al Dawa, implying that the company still has room to improve on this front. Pharamceuticals Sector Gross Profit Margins (Q3-2007) 68.6% 49.7% 54.3% 54.1% 58.6% MPHA JPHM HPIC APMC DADI 12

13 Moreover, the company's net profit margin falls at 13.4%, which is still well above the industrial average of 6.7%, yet still falls short compared to some of the company's peers, as illustrated by the following graph. Peers Net Profit Margin Q % 15.1% 13.4% 8.4% 4.2% MPHA JPHM HPIC APMC DADI Concerning industrial multiples, DADI trades on a rather high forward price to earnings ratio of 20.1x, albeit, well below the industrial average of 30.69x Price-to-Earnings (P/E) comparison -times Industry Avg.30.69x MPHA JPHM HPIC DADI APMC 13

14 Furthermore, the company trades at a price to book value of 1.8 x, which is slightly higher than the industrial average of 1.6x. 3.5 Price-to-Book Value (P/BV) comparison -times Avg. P/BV 1.6x APHC MPHA JPHM HPIC APMC DADI Below is a graph showing DADI s stock price movement compared against the unweighted ASE Index, which in effect was used to calculate the company s Beta coefficient for measuring its price sensitivity to the entire market. 15% DADI vs ASE Unweighted Index 10% 5% 0% -5% -10% -15% -20% DADI 2005 ASE (Unweighted)

15 4. Financial Performance: 4.1 Revenues Analysis: "DADI's products are sold in more than 20 markets" The company's operational revenues reached JD33.6 million by the end of 2006, achieving a year-on-year growth of 2.4%. Furthermore, the company's top line operational revenues have been on an upward, if somewhat irregular, trajectory since 2002, growing at a CAGR of 5.51% during Revenues Projected Revenues ,720,686 27,879,786 28,710,499 32,840,156 33,632,378 33,582,321 35,261,437 38,082,352 41,890,587 42,895,961 5-year Revenue Projections Millions The company experienced increased production in several of its production lines in 2006 including : B-Lactam production rose by 35% over 2005 figures, reaching around 4.5 million tablets. Production of creams and ointments spiked by 70%, reaching around 3.5 million tubes. Production of suppositories went up by 30% in 2006, reaching around 15.7 million. 15

16 The following table illustrates that while the company relies heavily on exporting; its market share locally has been expanding as evidenced by the growing volume of sales to the local market, especially in the last 2 years. Sales Breakdown Exports Local Sales 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Noteworthy is the fact that, although local sales are at their highest since 2004, exports are also at their lowest since According to the company, there is no specific reason behind this apparent shift in patterns. The following table illustrates the percentage growth in the companys sales over the course of the last three years: Sales Breakdown Exports 79.0% 81.0% 76.0% Local Sales 21.0% 19.0% 24.0% Performance in Q : For the nine months ended 30 September 2007, the company's net sales weakened by 8.4% to JD25.99 million, compared to JD28.36 million recorded at the end of the same period in According to the company, this drop came about as a result of changes in the structure of upper management, which consequently slightly undermined confidence in the company's expected performance. However, this situation is not expected to prevail, as the company anticipates its flourishing performance to emphasize the stability of the company. 16

17 4.2 Cost of Goods Sold (COGS): "The increasing value of the Euro has resulted in higher costs of imported raw materials during the first three quarters of 2007" Mirroring the company's sales, DADI's COGS has also been rather unpredictable in the last 5 years. In 2006, COGS advanced by 1.23% to JD15.03 million, compared to a 20% increase in 2005 and a 3.7% decrease during the year Overall, the company's COGS grew at an average rate of around 6% during the period Performance in Q3-2007: The company's COGS shed approximately 11% to JD10.7 million, versus JD12.1 million filed at the end of the same period in This drop was in line with the 8.4% decrease in quarterly sales. The climbing Euro has also had an affect on the company's COGS, by raising the cost of imported raw materials. 4.3 Other Components of the Income Statement: Gross Profits: "The Company's gross profits rose at a CAGR of 6.4% during " Both higher sales and lower COGS contributed towards healthier gross profits for the company in 2006, which moved up by 3.4% to JD18.6 million, against around JD18 million at the end of Generally, gross profits grew at a CAGR of 6.4% in the last 5 years, with a marked slowdown in the growth rate during The company's gross profit margin has been on par with its COGS since 2002, reaching a peak at around 57% in 2004, when COGS slimmed down 3.7%, after which COGS jumped 20% in 2005, thus lowering the gross profit margin to 54.8%. Meanwhile, a much smaller increase of 1.23% in COGS, coupled with growing sales left the company's gross profit margin slightly higher at 55.3% by the end of DADI Gross Profit Margin ( ) Net Sales COGS Gross Profit Margin 40,000, % 35,000, % 57.0% 30,000, % 56.0% 25,000,000 20,000,000 15,000, % 53.9% 54.8% 55.0% 54.0% 53.0% 10,000, % 5,000, % % 17

18 Performance in Q : DADI's gross profits went down to JD15.24 million during the first three quarters of 2007, approximately 6.5% lower than gross profits filed during the corresponding period in Meanwhile, an 8.4% drop in sales was also accompanied by a drop in COGS, which slipped by 10.9%, thus raising the company's gross profit margin for the period to 58.6%, versus, 57.5% recorded at the end of the first three quarters of Operating Expenses: DADI's operating expenses advanced at a CAGR of 9.48% over the course of the last 5 years. In 2006, operating expenses were augmented by 8.52% to JD11.88 million, compared with an 18.48% increase seen during the year Selling & distribution expenses added around 8.10% during the year 2006 to JD10.17 million. Where, expenses pertaining to exporting products witnessed a notable drop in Selling & Distribution Expenses ,000,000-4,000,000-6,000,000-8,000,000-10,000,000-12,000,000 On the other hand, general & administrative expenses rose 16.45% to JD1.20 million in 2006, versus JD1.03 million recorded in This was mainly due to fact that salaries, which captured around 48.42% of the company's general & administrative expenses, advanced by around 8% in On a separate note, the company's provision for doubtful debts has been constant at JD500 over the course of the last five years. 18

19 Performance in Q3-2007: Operating expenses reached JD11.82 million by the end of the first nine months of 2007, creating a 29.47% increase, which was mainly due to the addition of JD1.5 million provisions for doubtful debt. The company decided to increase this provision as result of a higher number of clients that are evading payments. Net Operating Profits: In spite of healthy and growing operational revenues for the company, DADI's net operating income came in lower at the end of 2006, reaching JD6.72 million and consequently marking a 4.57% decrease over year-end Net operating margin dropped to approximately 20% by the end of 2006, compared to 21.46%, 24.72% and 23.14% at the end of the years 2005, 2004 and 2003, respectively. Performance in Q3-2007: Net operating profits suffered a 52.28% decline, moving down to JD3.42 million by the end of the period, versus JD7.17 million recorded at the end of Q Where, operating expenses jumped 29.47%, against a 6.51% drop in gross profits. Therefore, net operating margin for the first nine months of this year diminished to 13.17% from 25.29% reported at the end of the same period in Other Income & Expenses: The company's income from other sources reached JD1.11 million by the end of 2006, against JD1.22 million filed at the end of Of note, other revenues, which were mainly, comprised of investments, interest income and differences in exchange rates constituted around 16.91% of the company's net income in 2006 and around 16.53% of 2005's net income, against much lower percentages in previous years. Earnings before Interest & Tax (EBIT): EBIT touched JD7.83 million in 2006, around 5.24% weaker than year-end Thus, the company witnessed a weaker EBIT margin in 2006 at 23.28%, versus 25.16% filed in Performance in Q3-2007: EBIT also came in lower at JD3.69 million during the first three quarters of 2007, down 50.53% in contrast with the same period in

20 Net Profits: "DADI reported a 5.49% drop in net profits in 2006" Despite rising operational revenues, DADI achieved lower net profits in While gross profits rose by approximately 3.39% over 2005 year-end figures, operating expenses moved up 8.52% and income from other revenues weakened by 9.11%, therefore, lowering annual net profits to JD 7.3 million. The following table and graph depict the growth in the company's net profits and thus EPS over the last five years Net Income 6,457,371 6,466,715 7,190,164 7,712,951 7,289,886 EPS W.A NOS 12,000,000 20,000,000 20,000,000 20,000,000 20,000,000 DADI's EPS underwent a slight setback in 2006, when compared to a growth of 11.19% in EPS for the year 2004 and 7.27% for the year 2005, as reflected in net profits as well. Growth in EPS (% Chg.) 50.00% 40.00% 43.55% 30.00% 20.00% 10.00% 11.19% 7.27% 0.00% % % % % % % % Performance in Q3-2007: Net profits waned 51.82% to JD3.47 million, versus JD7.21 million recorded at the end of Q3-2006, with a net profit margin of 13.36% as compared to a much higher net profit margin of 25.41% in the previous period. 20

21 The following graph depicts DADI's net profits from 2002 to 2006 and its effect on the company's Return on Assets (ROA) and Return on Equity (ROE): ROA ROE Net Income Return On Assets vs. Return On Equity vs. Net Income 18% 16% 14% 12% 16.6% 14.5% 15.3% 13.2% 15.8% 13.6% 15.8% 13.3% 14.0% 11.6% 8,000 7,800 7,600 7,400 7,200 Thousands 10% 7,000 8% 6% 4% 2% 6,800 6,600 6,400 6,200 6,000 0% 5, DuPont Analysis: "Lower net profit margins depressed DADI's ROA & ROE in 2006" The DuPont model was employed in order to find out the main driving forces behind the company's Return on Assets (ROA) and Return on Equity (ROE), enabling us in the meantime to judge three points of performance for the company: net profit margin, total assets turnover and equity multiplier. A combination of weaker net profit margins and total asset turnovers depressed the company's ROA, from 13.27% in 2005 to 11.61% in A relatively constant equity multiplier left the company's ROE lower at 13.99%, compared to 15.80% filed the year before. Looking at the broader picture, DADI's ROA and ROE fell in 2006, after a stable performance on both fronts during the period The following table further depicts the company's performance in the last 5 years: The Traditional DuPont Model Net Profit Margin 25.11% 23.19% 25.04% 23.49% 21.68% x Total Asset Turnover = Return on Assets (ROA) 14.52% 13.24% 13.60% 13.27% 11.61% x Equity Multiplier = Return on Equity (ROE) 16.62% 15.28% 15.80% 15.80% 13.99% 21

22 4.5 Company Assets & Liabilities: "Dar Al Dawa's average payment period (APP) dropped to 108 days in 2006, approximately 9 days less when compared to 2005" Company Assets Total Assets stood at JD62.77 million by the end of 2006, marking an increase of 7.98% since year-end 2005, while growing steadily at a CAGR of 7.14% over the course of the last 5 years. Total asset turnover ratio has been relatively stable throughout the last four years, recording 0.56x by the end of 2006, against 0.59x recorded a year earlier. Performance in Q3-2007: Dar Al Dawa's total assets reached JD58.85 million, around 7.15% below the JD63.38 million recorded at the end of the first three quarters in However, this situation emerged partially as a result of paying out cash dividends of JD4 million, compared to net profits of JD3.5 million posted during the first 9 months of Current Assets Current assets rose 3.82% to JD41.54 million by the end of 2006, hence, recording a CAGR of 3.88% for the last 5 years. Growth in current assets was hindered by cash on hand & at banks, which came in at JD4.96 million, down 35.55% Y-O-Y. Meanwhile, Cheques under collection grew by 26.24% in Net accounts receivables, inventory and other debit balances saw increases of 13.74%, 11.76% and 8.92% in the last year, respectively. Net Accounts Receivable Net accounts receivable grew at a CAGR of 7.77% during the period The company witnessed a 13.74% rise to JD25.58 million in the year On one hand, local trade receivables accounted for 17.95% of the company's gross receivables in 2006, while on the other hand, foreign trade receivables contributed around 82.05% to gross receivables. Accordingly, the company's accounts receivable turnover ratio inched down from 1.44x in 2005 to 1.29x by the end of Therefore, it took about 283 days in 2006 for DADI to receive payment for the goods it sold, which is around 29 days longer than the company's average collection period in The fact that DADI's net accounts receivable are continuously growing is a result of the company's ascending sales and heavy reliance on slow-to-collect credit card revenues. Noteworthy, however, is the fact that the company recorded in 2006 the highest average collection period since the year Inventory In 2006, inventory went up by around 11.76%, from JD6.73 million in 2005 to JD7.52 million. As Dar Al Dawa's inventory has been concurrently increasing with its COGS, the company's inventory turnover ratio has exhibited some improvement since 2004, moving up from 1.90x at the time to 2.11x and 2.07x by the end of 2005 and 2006, respectively. Consequently, DADI's slightly improved inventory turnover 22

23 ratio has resulted in shorter days in inventory for the company, which changed from 192 days in 2004 to 173 and 177 days (around 2 weeks less) in 2005 and 2006, respectively. Cheques under Collection Dar Al Dawa's balance of cheques under collection reached JD2.28 million in 2006, up by around 26.24% when compared to Cash on Hand & at Banks After reaching a peak of JD10.09 million in 2004, the company has been seeing lower levels of cash on hand & at banks, which dropped 23.67% in 2005 and lost another 35.55% by the end of 2006, further demonstrating that the company needs to tighten its credit policy, especially in view of the company's increasing levels of accounts receivable and cheques under collection. Net Fixed Assets The company's net fixed assets grew by 7.89% in 2006, moving from JD6.66 million in 2005 to JD7.18 million. Overall, net fixed assets advanced at a CAGR of 3.62% during the period DADI's fixed assets are mainly constituted of machinery, equipment & furniture, which accounted for approximately 66.2% of the company's total assets in the last two years. Investments in Associates Notably, the company's investments in associates augmented at a CAGR of 28.70% in the last 5 years. During the year 2006, Dar Al Dawa's investments in associates increased by 31.54%, where the value of the company's investments in Nutri Dar and Arab House for Medical Industries/Algeria increased notably. The following table highlights the company's investments in associates for the period : Cost of Investments in Associates Ownership Nutri Dar 43.5% 1,856,478 2,893,977 2,893,977 4,872,700 6,656,349 Dar Al Dawa for Veterinary & Agricultural Industries Arab Pharmaceutical Consulting Al Nahdah for Financial Investments Arab House for Medical Industries/Algeria 33% 450, , , , ,541 36% 100, , , , ,000 40% 800, , ,000 1,200,000 1,200,000 50% - 443, ,540 1,831,880 2,721,511 Total 3,207,015 4,688,264 5,132,054 8,525,121 11,198,401 Provision for decline in investment value (48,907) (48,907) (48,907) (48,907) (48,907) Total 3,158,108 4,639,357 5,083,147 8,476,214 11,149,494 23

24 Investments in Subsidiaries The company's investments in subsidiaries advanced at a CAGR of 31.42% during the period However, growth has narrowed down in the last year. The following table depicts the company's subsidiaries: Investments in Subsidiaries Ownership Dar Al Dawa /Algeria 100% 7,080 92,280 92, , ,680 Joras /Algeria 70% 664, , , , ,404 Dar Al Dawa /Libya 60% - 137, ,700 1,715,850 1,776,715 Total 671, ,746 1,749,384 2,571,934 2,632,799 Available for Sale Securities DADI has the following securities held as available for sale. The company sold some of its shares in the University House for Consulting Company in 2006, resulting in 10.02% drop in this balance, after remaining constant during the period Available for Sale Securities Ownership United Glass Industries 5% 25,000 25,000 25,000 25,000 25,000 Palestine Development & Investment Company University House for Consulting 2.5% 71,000 71,000 71,000 71,000 71,000 N/A 46,000 46,000 46,000 46,000 31,775 Total 142, , , , ,775 Breakdown of Current Assets 100% 90% 80% 70% 60% 50% 40% 30% 20% Other Debit Balances Letters of Credit & Time Drafts Trading Financial Assets Inventories Accounts Receivable, Net Cheques Under Collection (Short-term) Cash on hand & at Banks 10% 0%

25 Company Liabilities: Dar Al Dawa's total liabilities, which are only comprised of current liabilities, added 14.48% during 2006 to record JD10.66 million, versus JD9.31 million filed at the end of Moreover, total liabilities moved up at a CAGR of 13.67% over the course of the last 5 years. DADI's current ratio slipped to 3.90x by the end of 2006 against 4.30x recorded in 2005, as a result of the company's current assets growing at a much slower pace than current liabilities, which, therefore, weakened the company's liquidity position. Accounts payable Accounts payable shed 8.46% during the year to JD3.06 million, versus JD3.45 million reported in Notably, the company's accounts payable have been on a downward trajectory since This drop is highlighted in the company's accounts payable turnover ratio, which has increased from 2.59x in 2004 to 3.11x and 3.37x in 2005 and 2006, respectively. Consequently, Dar Al Dawa's average payment period (APP) dropped to 108 days in 2006, approximately 9 days less than the company's APP in 2005 and 32 days better than the APP in The following chart breaks down the company's current liabilities for the period : Breakdown of Current Laibilities % Other Credit Balances 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Sundry Provisions Bills of Collection Accounts Payable Owners' equity DADI's owners' equity advanced at a CAGR of 6.05% in the last five years. In 2006, owners' equity stood at JD52.10 million, around 6.74% higher than 2005 figures. However, this rise was overshadowed by a steeper climb in the company's total liabilities, thus shifting up the company's debt to equity ratio to 20.5% in 2006, compared to 19.1% in

26 Performance in Q3-2007: Owners' equity stood at JD51.58 million, marginally less by 0.86% than figures recorded at the end of the corresponding period in Retained Earnings Retained earnings reached JD1.95 million by the end of 2006, up by around 8.83% over year-end 2005 figures. The Cash Conversion Cycle (CCC) Improvements in the company's average payment period and days in inventory in the last three years were not reflected on the company's cash conversion cycle in This was mainly due to longer average collection period, where the company's CCC was 42 days longer than Cash Conversion Cycle (CCC ) Average Collection Period Days Held in Inventory Average Payment Period

27 4.6 Technical Analysis: Dar Al Dawa Development & Investment Technical Leading Indicators Relative Strength Index Money Flow Index MFI Stochastic Oscillator SO 5-Day %K 0% Year-to-Date %K 0% Parabolic SAR MACD Rate of Change ROC Technical Lagging Indicators Moving Average 14-days Moving Average 25-Days Moving Average 50-Days Moving Average 100-Days MACD Zero-Line Crossover Technical Overview: Up until the past 5 trading sessions, DADI s stock price has been undergoing a rough sell-off period, partly due to a JD1.5 million provision for doubtful accounts receivable. Having said that, the stock price dropped from a high of JD6.60 marked on the 13 th of Feb. of this year down to JD4.38 as of the 6 th of Dec. 2007, resulting in a substantial decline to settle at a price that was last traded in September Thus, we expect that after such a descending serial of trades, traders will reposition their holdings in their portfolios causing the stock price to retrace upwards to a level that is considered fair and reasonable. However, it should be noted that such a trade is classified as purely speculative and inherits a high level of risk as all technical indicators demonstrate a declining trend and do not support our findings. Worth noting is the fact that the company bears a low Monthly Trading Activity Turnover Ratio of just 1.4% recorded in October 2007, yet at the same time enjoying a high free float rate of 54%, which assures that most investors are long-term holders of the stock with the existence of a few speculative traders. EMA 25 days 4.52 EMA 50 days 4.75 EMA 100 days Day Trend 5-Day High Day Low Day Typical Price 4.57 Year-to-Date Trend Year-to-Date High 6.60 Year-to-Date Low 4.38 Year-to-Date T.P Daily %K 100% First Support 4.46 First Resistance 4.80 Recommended 4.46 Price Target - within one month >5.00 Stop <

28 5. Financial Ratios: Financial Ratios Profitability Ratios Gross Profit Margin 53.0% 53.9% 56.9% 54.8% 55.3% EBIT Margin 26.81% 24.79% 26.72% 25.16% 23.28% Net Operating Margin 23.64% 23.14% 24.72% 21.46% 19.99% Net Profit Margin 25.11% 23.19% 25.04% 23.49% 21.68% Return on Assets (ROA) 14.52% 13.24% 13.60% 13.27% 11.61% Return on Equity (ROE) 16.62% 15.28% 15.80% 15.80% 13.99% Return on Capital Employed (ROCE) 16.62% 15.28% 15.80% 15.80% 13.99% Liquidity Ratios Current Ratio (x) Quick (Acid-Test) Ratio (x) Operating Efficiency Ratios Total Assets Turnover Accounts Receivable Turnover Average Collection Period (ACP) - Days Total Inventory Turnover Days in Inventory Accounts Payable Turnover Average Payment Period (APP) Cash Conversion Cycle (CCC) - Days Financial Solvency / Financial Leverage Debt to Equity Ratio 14.5% 15.4% 16.2% 19.1% 20.5% Equity Multiplier Stock Valuation Ratios Earning Per Share (EPS) Dividends Paid Per Share (DPS) Proposed Dividend Per Share (DPS) Book Value Per Share (BVPS) Sales Per Share (SPS) Total Debt Per Share EBIT Per Share Market Price Per Share Price to Earning Ratio (P/E) Price to Book Value (P/BV) Price to Sales (P/S)

29 6. Company Valuation: 6.1 Discounted Free Cash Flow Model (DCF): In order to price and arrive at a fair equity value for DADI using the Discounted Cash Flow approach (DCF), we have committed all our skills and efforts on laying out the most reasonable assumptions that we believe are fair and unbiased. The list below provides a briefing of our extended data and information that we cannot disclose due to confidentiality matters: The risk free rate used to value cost of equity (CAPM) was chosen in reference to the 30-year US Treasury Bond YTM, as of the 6 th of November 2007, observed as 4.64%. The Jordanian market total equity risk premium was extracted from Aswath Damodaran s Stern School of Business as 6.94% (last update January 2007). Beta Coefficient for the company was brought from Aswath Damodaran s Betas for Sectors, listed as 0.91 for the Pharmacy Services sector (unlevered for Cash and Capital Structure). Since the company does not owe its creditors any interest-bearing debt, Debt-to-Equity is equivalent to Zero, hence target Debt-to-Equity ratio has been assumed to remain the same. Cost of equity was calculated using the Capital Asset Pricing Model (CAPM) by means of the abovementioned assumptions, leading to a rate of 10.96%. The corporate tax rate used was the Industrial Statutory Tax rate of 15%. Assuming that the current interest-bearing Debt-to-Equity (D/E) ratio of 0% is the Target D/E, the Weighted Average Cost of Capital (WACC) should equal the Cost of Equity, which is 10.96%. Due to the JD1.5 million provisions set aside for the company s subsidiary in Algeria, we have presumed that Dar Al-Dawa will witness slightly lower revenues for the year-end After which, we expect the company to achieve an increase of 5%, 8% and 10% for the years following straightaway, respectively. As a mature company operating in a stable industry, we anticipate the perpetual growth rate to be equal to the country s population growth rate of 2.4% p.a. 29

30 A summary of the abovementioned figures is shown in the table below: Summary for Inputs Assumed - Risk free rate 4.64% - Total country risk premium 6.94% - Beta coefficient Cost of Equity (CAPM) 10.96% - Equity-to-Value (E/V) Debt-to-Value (D/V) Cost of Debt (RD) 0.00% - Tax Rate (Tc) 15.00% - Weighted Average Cost of Capital (WACC) 10.96% - High Growth Rate period 5-10% - Expected Perpetual Growth Rate 2.40% After taking into consideration all noted assumptions, in addition to other data and information that we have worked out, we were able to arrive at a fair equity value, using the DCF approach, of JD4.63/share. The illustration below shows a more detailed and precise prototype for our model: 30

31 DADI fair value Calculation (DCF Approach) Date 13/12/2007 Current Price 4.66 Expected Perpetual Growth 2.40% Growth Rate 2.40% Beyond 010 EBIT 7,829,955 4,799,958 6,347,059 7,616,470 10,472,647 10,723,990 less taxes (285,969) (719,994) (952,059) (1,142,471) (1,570,897) (1,608,599) NOPAT 7,543,986 4,079,964 5,395,000 6,474,000 8,901,750 9,115,392 less: CAPEX 1,322, ,497 1,029, ,497 1,786,497 Change in NWC 2,918,290 (1,487,287) 1,475,366 2,421,264 3,242,325 Total 3,303,349 4,580,755 2,890,137 3,066,239 3,872,928 add Depreciation 796, , , ,873 1,339,873 FCFF 4,100,203 5,320,627 3,662,259 3,806,112 5,212, ,545,477 Present Value Factor Discounted FCFF 5,274,733 3,272,188 3,064,942 81,109,552 Firm Value 92,721,415 MV of Stock Portfolio 224,010 Total Business Value (JD) 92,945,425 Cash on Hand & at Banks 3,563,830 Cash Dividends (4,000,000) Interest Bearing Debt 0 Fair Value of Equity (JD) 92,509,255 NOS 20,000,000 Fair Value per Share (JD)

32 6.2 Relative Market Valuation: The company is expected to achieve JD4.63 million in net profits for the year 2007, which is well below earnings reported at the end of the year A steep increase in the company's COGS is anticipated due to the soaring levels of the Euro and fuel prices, which will inadvertently raise the cost of production for the company. Consequently, DADI is currently trading at a forward P/E ratio of 20.1x. ASE's pharmaceuticals sector currently trades at a forward P/E ratio of 31x, while Dar al Dawa's P/E multiple falls well below this average, although when considered independently this number is rather high. On the other hand, DADI's price to book value P/BV ratio at 1.8x is higher than the industrial average of 1.6x. According to the weighted sum of the fair value of these market multiples, DADI's fair value falls around JD5.35/share, while it is currently priced as of the date of this report, at JD4.66/share, which is around JD0.69 /share below its fair value. Sectoral Multiples Sectoral Weights Fair Value Contribution P/E % 2.87 P/BV % 2.48 Fair Value

33 7. Company Financial Statements: Income Statement CAGR Net Sales 25,720,686 27,879,786 28,710,499 32,840,156 33,632, % COGS (12,091,765) (12,844,788) (12,375,055) (14,850,217) (15,032,450) 4.45% Gross Profit 13,628,921 15,034,998 16,335,444 17,989,939 18,599, % Selling & Distribution Expenses (6,622,205) (7,081,972) (7,689,464) (9,410,037) (10,171,930) 8.96% General & Administrative Expenses (926,950) (1,001,390) (1,047,422) (1,033,912) (1,203,960) 5.37% Provisions for doubtful debts (500,000) (500,000) (500,000) (500,000) Income from Operations 6,079,766 6,451,636 7,098,558 7,045,990 6,724, % Income (Loss) from Associates 248,304 Losses from Re-evaluation of Trading Financial Assets (58,338) (126,959) Other Revenues 567, , ,619 1,275,123 1,232,876 Earnings Before Interest and Tax 6,895,873 6,911,131 7,672,177 8,262,775 7,829, % Provision for Income Tax (196,250) (221,965) (236,940) (284,454) (285,969) Provision for Jordanian University fees Provision for BOD's Remuneration Provision for Scientific Research & Voc. Train. Technical & Vocational Education and Training Support Fund (68,959) (69,111) (76,722) (82,624) (78,300) (60,000) (50,000) (50,000) (55,000) (55,000) (68,959) (69,111) (76,722) (82,624) (78,300) (44,334) (34,229) (41,629) (45,122) (42,500) Net Income 6,457,371 6,466,715 7,190,164 7,712,951 7,289, % EPS W.A NOS 12,000,000 20,000,000 20,000,000 20,000,000 20,000,000 33

34 Balance Sheet CAGR Assets Cash on hand & at Banks 9,480,774 9,966,045 10,085,718 7,698,010 4,961, % Cheques Under Collection (Short-term) 1,371,222 1,587,300 1,574,271 1,803,373 2,276, % Accounts Receivable, Net 17,590,229 18,873,179 19,824,546 22,486,753 25,576, % Inventories 5,258,740 5,598,419 6,950,466 6,732,064 7,523, % Trading Financial Assets 325, ,761 Letters of Credit & Time Drafts 171, , , , , % Other Debit Balances 470, , , , , % Total Current Assets 34,343,542 36,703,214 39,201,490 40,012,152 41,542, % Available for Sale Securities 142, , , , , % Investments in Associates 3,158,108 4,639,357 5,083,147 8,476,214 11,149, % Investments in Subsidiaries 671, ,746 1,749,384 2,571,934 2,632, % Net Fixed Assets 6,015,317 6,314,109 6,431,023 6,659,404 7,184, % Construction in Process 134, , , , , % Total Assets 44,465,163 48,827,426 52,857,374 58,128,950 62,767, % Accounts Payable 2,987,733 3,460,872 3,410,471 3,346,287 3,063, % Bills of Collection 850,250 1,224,169 1,442,965 1,346,589 1,170, % Sundry Provisions 532, , ,209 1,436,727 1,268, % Other Credit Balances 1,248,953 1,180,579 1,870,600 3,184,608 5,160, % Total Current Liabilities 5,619,913 6,515,461 7,355,245 9,314,211 10,662, % Total Liabilities 5,619,913 6,515,461 7,355,245 9,314,211 10,662, % Shareholders' Equity Authorized & Paid-in Capital 12,000,000 20,000,000 20,000,000 20,000,000 20,000, % Additional Paid-in Capital 3,150,000 Statutory Reserves 5,804,417 6,495,530 7,262,748 8,088,991 8,871, % Voluntary Reserves 7,310,338 3,842,564 5,377,000 7,029,487 8,595, % Additional Reserves 3,213,974 3,713,974 4,097,583 4,510,705 4,902, % Reserve for Renewal & Replacement of Fixed Assets 2,100,000 2,600,000 2,983,609 3,396,731 3,788, % Proposed Dividends 3,000,000 4,000,000 4,400,000 4,000,000 4,000,000 Retained Earnings 2,266,521 1,659,897 1,381,189 1,788,825 1,946,830 Total Shareholders' Equity 38,845,250 42,311,965 45,502,129 48,814,739 52,104, % Total Liabilities & Shareholders' Equity 44,465,163 48,827,426 52,857,374 58,128,950 62,767, % 34

35 Disclaimer: The financial and descriptive data contained in this equity research report of the company has been obtained from sources considered by Jordan Ahli Bank to be reliable in all material respects. However, the accuracy, fairness and completeness thereof are not guaranteed by Jordan Ahli Bank and its thirdparty suppliers shall have no liability for errors or omissions with respect to the service or its delivery, regardless of the cause or source of such error or omission. The Purpose of this report is to provide information and analysis to assist investors and stock traders to obtain information to support their decisions. It is considered by no means an invitation or solicitation to buy or sell the stock of this company. The reader should not make any investment decision solely based on the information contained in this report and she/he should consult with her/his investment advisor before investing. This report is a copyright of Jordan Ahli Bank and should not be reproduced or redistributed partially or fully in any shape or manner without the express written consent of Jordan Ahli Bank. Sources: Dar Al Dawa Development and Investment Company Annual Reports ( ). TickerChart System 35