Saudi Cement Company SSE Code: 3030 Reuters Code: 3030.SE Bloomberg Code: SACCO AB Current Market Price: SAR 73 (As of Apr 07, 2010)

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1 Stock Volatility Kuwait Financial Centre Markaz R E S E A R C H Saudi Cement Company SSE Code: 3030 Reuters Code: 3030.SE Bloomberg Code: SACCO AB Current Market Price: SAR 73 (As of Apr 07, 2010) Low Medium High Expected Return () Low Medium High Markaz Research is available on Bloomberg Type MRKZ <Go> Thomson Financial Reuters Knowledge Zawya Investor Noozz M.R. Raghu CFA, FRM Head of Research rmandagolathur@markaz.com Layla Al-Ammar Investment Analyst lammar@markaz.com Ext: 1205 Kuwait Financial Centre Markaz P.O. Box 23444, Safat 13095, Kuwait Tel: Fax: Saudi Cement Company (SACCO) outperformed the Tadawul (TASI) by gaining 27% YTD compared to the latter s 10.6%. SACCO s stock price advanced 1.8%, while the index rose 27% for the year SACCO currently trades at a P/E of 12.6X, an increase of 27% on an YTD basis. The company s PE expanded 9% in We place the fair value PE at 13x, indicating limited upside potential. SACCO s revenues increased 7% YoY to USD 358 Mn in 2009 due to higher sales volumes. The company s sales volume increased to 5.54 Mn tpa in 2009 from 5.37 Mn tpa in However, an increase in costs led to a 6% YoY decline in SACCO s net income to USD 155 Mn in SACCO has commissioned two new production lines with a production capacity of 10,000 tpd each and has replaced one of its existing less efficient long dry process kilns with more efficient and economical larger capacity production plants. This is likely to have a positive impact on its margins. SACCO s competitive advantage lies in its proximity to the Abdulaziz port at Dammam; this port is an export terminal completely owned and operated by SACCO. Furthermore, the company s production plant is close to the port (at a distance of approximately Km), which reduces the transportation cost and facilitates exports. Although the government is not likely to lift the conditional export ban in the near-term, we expect it to happen eventually, given the continued overcapacity as new companies venture into the sector. SACCO is likely to be a major beneficiary of this due to its ability to scale up production and its proximity to cement deficient markets such as Bahrain and Qatar. We remain concerned about SACCO s rising clinker inventory level, which increased 91.6% YoY to 2.8 Mn tons in 2009, primarily due to the export ban. An increase in clinker inventory could lead to a rise in the company s operating costs. We expect SACCO s margins to expand in 2010 as the company has replaced its less efficient production facilities with larger and more efficient facilities. We expect this to offset the adverse impact of sluggish cement prices in As a result, we estimate SACCO s net income to grow 6% YoY to USD 165 mn in USD mn F Revenues Net Income P/E (LFY) P/B (LFI) M. Cap (USD mn) 2,318 3,870 2,674 3,447 1,534 1,561 1,992 Stock Returns 67% -31% 29% -56% 2% 27% (YTD) 2010 figures - P/E, P/B on 2009 ending results and M.Cap. as on 05 Apr 2010 Source: Reuters Knowledge, Tadawul Stock Exchange

2 Industry Overview Saudi cement sector s total production capacity expected to increase to 53.0 mn tons in 2010 Saudi Cement Company is the Tier I company with a 14.6% of total market share Cement production capacity in Saudi Arabia is estimated at around 46.0 mn tonnes in 2009 and is expected to reach 53.0 mn tons in According to the Ministry of Commerce and Industry, demand for cement in Saudi Arabia is expected to increase by around 22% in 2010, while production capacity is expected to register a 15.2% growth. The cement industry is among the growing sectors in the Kingdom as it benefits from the abundance of natural resources like natural gas and limestone. Until 1956, the Kingdom was completely dependent on imports to meet cement demand. Since then, the Saudi Cement industry has shown a positive trend, with the entry of new cement producers enhancing its domestic production capacity and reducing its dependence on imports. The Saudi Arabian cement industry comprises three sub classes - Tier I, Tier II, and Tier III. Tier I has companies with high market share and contributes 63% of the Kingdom s total cement production capacity, while Tier II and Tier III have companies with medium and low market share, accounting for 17% and 20%, respectively. Tier I cement companies include SACCO (14.63% of total market share), Yamama Cement (13.67%), Southern Cement (13.61%), Qassim Cement (11.23%) and Yanbu Cement (10.36%). Figure 1: Cement Industry in Saudi Arabia * Excludes new entrant Western cement Source: Yamamah Cement, Markaz Research New entrants grab market share from leaders Tier II includes Eastern Cement (8.5%) and Arabian Cement (8%), while, Tier III consists of new entrants such as Riyadh Cement (4.5%), Najran Cement (4.2%), Madina (4.2%), Western Cement (3.9%) and Tabuk Cement (3.4%). New Tier III players Al Jouf Cement and Al Safwa Cement are also expected to commence production sometime this year. The Saudi cement industry, with 12 major players, is relatively concentrated; the top five accounted for 63% of the total cement produced in Competition has intensified with the entry of four new players in 2008; Riyad Kuwait Financial Centre Markaz 2

3 Cement, Madina Cement, Najran Cement and Western Cement have increased their combined market share to 16.7% in 2009 from 11.4% in The market shares of Yanbu and Saudi Cement dipped by 5% and 3%, respectively. Table 1: Shift in market share since 2007 Companies Inc/Dec in Mkt Share Yanbu 15.3% 13.1% 10.4% -5% Eastern 11.5% 9.5% 8.5% -3% Saudi 17.4% 16.3% 14.6% -3% Yamama 15.4% 13.3% 13.7% -2% Southern 15.2% 14.9% 13.6% -2% Arabian 9.3% 8.3% 7.9% -1% Tabuk 4.5% 3.5% 3.4% -1% Qassim 11.4% 9.8% 11.2% 0% Riyadh 4.2% 4.4% 4% Najran New Entrants 2.4% 4.2% 4% Madina 3.3% 4.2% 4% Western 1.4% 3.9% 4% Source: Markaz Research Capacity addition by existing players and the advent of new players are expected to further intensify competition in the Saudi cement industry. Two new companies, Al Jouf Cement Co. and Al Safwa Cement Co, are expected to start production this year and add 3 mn tonnes. Arabian Cement and Tabuk Cement also are expected to increase their production capacities by 2.5 mn tonnes and 1.5 mn tonnes, respectively. Saudi Ministry of commerce and trade withdrew the export ban in Oct 09; local market price of cement to fix at USD 2.67 per bag Cement exports had reached 3.5 million tons in 2007 and were growing before the government banned exports in July 2008 to curb rising cement prices at home. The industry, though, had something to cheer about when the Saudi Ministry of Commerce and Industry conditionally lifted the ban in October 2009, as inflation eased and demand decreased. Saudi cement companies can now export cement provided they sell at USD 2.67 per bag (USD 53.4 per ton) in the local market and maintain 10% reserve stock. In 2009, the industry witnessed an improvement in cement inventory, with stocks as a percentage of sales declining to 1.7% from 2.2% in This improvement was driven by the 22.9% YoY growth in domestic sales in 2009, compared to the 15.1% YoY increase in production. However, clinker stock increased 47% YoY in 2009, resulting in a combined 11.4 mn tonnes of cement and clinker inventory at the end of 2009; this factor is expected to apply pressure on cement prices in Expected recovery in the construction market is likely to boost demand for cement in the Kingdom In 2010, we expect construction activity to pick up in Saudi Arabia, with projects worth USD Bn 1 either ongoing or announced as of February However, the conditional ban on exports and rising competition are likely to keep cement prices under pressure through Nevertheless, volume growth, led by an expected recovery in construction and real estate activity, issuance of new licenses for the production of cement, lifting of the 1 Source: MEED Projects, GIH Real Estate report March Kuwait Financial Centre Markaz 3

4 ban on exports and improved plant utilization rates, is likely to drive profitability in the sector. Company Overview Saudi Cement is the largest cement producer in Saudi Arabia with a capacity of 6.6 MTPA of clinker Saudi Cement Company, established in 1955 and headquartered in Dammam, is the largest producer of cement in Saudi Arabia. The company contributes approximately 16% of the total cement and clinker produced in the Kingdom. The company is primarily engaged in the production of cement, cement products, besides investing in cement related areas. The company used to operate through two cement plants Hofuf and Ain Dar in the eastern province. In 2009, the company closed these facilities and started two facilities with combined installed capacity of 6.6 million tons per annum (mtpa) of clinker (7.0 mtpa of cement) in Hofuf. SACCO s shareholders include General Organization for Social Insurance (8.50% stake), Khaleed Abdulrahman Al Rajhi (7.90%), Public Pension Agency (5%), with the rest being free float. Figure 4: Shareholding pattern (as of March 2010) 9% 8% 5% General Organisation For Saudi Insurance Khaleed Abdulrahman Saleh Al Rajhi Public Pension Agency Public 78% Source: Zawya SACCO s investment profile consists of a 36% stake in United Cement Company (Bahrain) and a 33.30% stake in Cement Product Industry Company (Saudi Arabia). Table 2: Investments by SACCO Company Country Stake United Cement Company Bahrain 36.00% Cement Product Industry Company Source: Zawya Saudi Arabia 33.30% SACCO primarily produces OPC, SRC and oil well cement SACCO s operations include clinker production, cement production and cement grinding. The Company has ten clinker kilns, nine cement mills and a cement grinding facility. SACCO primarily produces ordinary Portland cement (OPC), sulphate resisting cement (SRC) and oil well cement (OWC). The company operates in both the local and export markets and was among the Kuwait Financial Centre Markaz 4

5 Thousand TPA R E S E A R C H three firms to export cement in Exports are mainly targeted to other GCC countries (namely Bahrain, Kuwait and Qatar) and to countries in Europe, Africa and the US. Figure 5: Operating Performance - Production Trends ,000 7,000 6,000 5,000 4,000 3,000 2,000 1, % 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% Cement Production Change in Avg Selling Prices (%) Clinker Production Source: Yamamah Cement, Markaz Research Investment Highlights Saudi Cement commissioned two new production lines of 10,000 tpd each in 2009 SACCO owns and operates export terminal King Abdulaziz port New production lines to enhance performance SACCO has closed its high cost long dry process kilns to operate larger and more efficient plants. The company commissioned two new production lines with a total capacity of 10,000 tpd of clinker each in April This translates to an annual capacity of 6.6 mtpa of clinker (7.0 mtpa of cement). We expect SACCO s strategy to operate its more efficient and larger plants to increase the effectiveness of its production process and reduce operating costs, thereby improving profitability, going forward. Proximity to Abdulaziz port provides competitive edge SACCO s competitive advantage lies in its proximity to the Abdulaziz port at Dammam; this port is an export terminal owned and operated by SACCO, with the capacity to load 700 tons per hour (tph) of clinker and 800 tph of cement. SACCO s production plant is situated in the eastern province and is close to the port (about Km), significantly reducing the company s transportation cost, a key contributor to cement companies total operating cost. Furthermore, we expect the company s proximity to the port to facilitate exports, once the conditional ban is lifted, to undersupplied GCC markets, such as Bahrain and Qatar, where cement prices are higher than in the Saudi market. Rising clinker stock warrants caution SACCO s growing clinker stock post the ban on exports is a cause for concern. The company exported about 22% and 19% of its total production in 2007 and 2008, respectively, to other GCC markets. However, post the ban, SACCO s cement exports fell 26.3% YoY (13.5% of total production) in 2009, and clinker inventory as a proportion of monthly sales surged to over six months during that year. With excess clinker inventory, the company will have to bear clinker storage costs besides being forced to reduce production, Kuwait Financial Centre Markaz 5

6 Thousand Tons No. of Months Thousand tonnes R E S E A R C H factors that are likely to squeeze its margins. Furthermore, storage of clinker for a longer duration could lower the quality of cement produced (Figure 6). Figure 6: Clinker Stock as proportion of monthly sales trend Figure 7: Exports Vs local sales 3, ,000 2, ,000 2,000 1,500 1, ,000 3,000 2,000 1, Clinker Stock Reserve for no. of Months Local Sale Exports Source: Yamamah Cement, Markaz Research Source: Yamamah Cement, Markaz Research Discussion Notes Looking Back 2009 Results Higher sales volumes led to a 7% YoY increase in revenues in 2009 Rise in operating costs dented SACCO s profitability in 2009 SACCO s revenues increased 7% YoY to USD 358 Mn in 2009, primarily due to higher sales volumes. While the company s sales volumes increased to 5.54 mtpa in 2009 from 5.37 mtpa in 2008, average realized prices were relatively flat and stood at USD per ton (SAR per ton) in 2009 compared to USD 63.8 per ton (SAR per ton) in However, an increase in operating cost led to a YoY contraction of 368 basis points (bps) in the company s operating margin to 44.4% in SACCO s cost of revenues as a percentage of total sales increased to 49.5% in 2009 from 44.1% in 2008, primarily due to the closure of manufacturing lines. In absolute terms, the company s operating costs grew 20.1% YoY to USD Mn in Dividend Trend SACCO dividend payout ratio increased 383 bps YoY in 2009 to 61% (Figure 8). The company paid a dividend of USD 95 mn during the year. The company plans to distribute cash dividends of USD 0.93 per share in Furthermore, the company has approved the bonus issue of one share for every two shares held in the company in March Kuwait Financial Centre Markaz 6

7 USD Mn USD Mn R E S E A R C H Figure 8: Net profit and Dividend Trend On a quarterly basis, SACCO witnessed a YOY growth in its revenue of 2.3% in 1Q % 80% 70% 60% 50% Net Profit Dividend Paid Dividend Payout % (RHS) Source: Reuters Knowledge, Markaz Research On a quarterly basis, SACCO witnessed a YOY growth in its revenue of 2.3% in 1Q09 (0.4% in 1Q08), 2% in 2Q09 (0.4% in 2Q08) and a significant growth of 37% in 4Q09 (-27.6% in 4Q08). SACCO s revenue grew to USD 88 mn in 4Q09 from USD 64 mn in 4Q08, mainly due to the conditional withdrawal of the export ban (Figure 9). Figure 9: Total Revenue (Sales) Quarterly Growth Trend Cement prices in Saudi Arabia are expected to decline due to the combined effect of new entrants and capacity additions undertaken by existing ones Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 Total Revenue Source: Reuters Knowledge, Markaz Research Operating margin (%) - RHS 55% 50% 45% 40% Looking forward 2010 Cement prices in Saudi Arabia are expected to decline due to the combined effect of new entrants and capacity additions undertaken by existing ones. This is likely to result in an oversupply situation in the market which will apply downward pressure on cement prices. Having said that, we expect SACCO s efficient production lines to help the company save on cost and drive margin growth in Construction activity showing signs of recovering in recent months, coupled with the Saudi government s focus on infrastructure development, is likely to boost demand for cement. Furthermore, we expect the government s policy Kuwait Financial Centre Markaz 7

8 USD mn R E S E A R C H We estimate the company s net income to increase 6% YoY to USD 165 Mn in 2010 to allow conditional exports to augment SACCO s top-line growth. Consequently, in spite of weakness in cement prices in Saudi Arabia, we expect SACCO s revenues to increase 3.7% YoY to USD 371 Mn in Furthermore, we estimate the company s net income to increase 6% YoY to USD 165 Mn in Table 3: Broker estimates Vs Markaz estimates -2010f Broker Estimate Table (2010 f) Annual (USD mn) NCBC GIH TAIB Beltone Markaz Date of Estimates Mar-10 Aug-09 Jun-09 Dec-09 Apr-10 ROA: % 11.6% ROE: % % 18.8% Revenue: EBITDA: Net Profit: Growth -2% 63% -3% -10% 6% Source: Zawya, Reuters Knowledge, Markaz Research Our call on 2010 net profit is a weighted product of three scenarios - the Bull Case (with a 18% growth in earnings, and a 15% probability of occurring), a Base Case (with a 7% growth in net earnings and a 60% probability of occurring), and finally, a Bear Case (with a decline of -2% and a 25% probability of occurring) (Figure 10). Figure 10: Net Income Trend F Probable (6%) Bull (18%) Base (7%) Bear (-2%) Source: Reuters Knowledge, Markaz Research Kuwait Financial Centre Markaz 8

9 Valuation SACCO s stock price rose 27% YTD, outperforming the TASI, which increased 10.6%. In contrast, the company s stock price advanced 1.8% in 2009, while the index added 27% in 2009 (Figure 11). The company s current PE stands at 12.6x; its PE multiple has expanded 9% since 2009, we would place fair value PE at 13x indicating limited upside potential. SACCO has replaced its less efficient production lines with new ones. Improved production capacity, coupled with proximity to its own export terminal (King Abdulaziz port), will give the company a substantial edge over rivals. The company s proximity to other undersupplied regional markets, such as Bahrain and Qatar, is another positive. We expect SACCO s net income to increase by 6% YoY to USD 165 Mn on a 4% YoY growth in revenue to USD 371 Mn in SACCO Cement s Turnover Velocity increased to 27% in 2009 (from 24% in 2008) due to weak trade values. In terms of risk, though the stock has a volatility band which is wider than the index (Figure 11), it is trading at the lower end of its band leading us to expect the stock will provide for Low return coupled with Low volatility. Figure 11: Price & Volume Trend Figure 12: PE Trend & Fair Value Source: Bloomberg Source: Bloomberg, Markaz Research Figure 11: Markaz Volatility Index (March 2010) Source: Bloomberg, Markaz Research Kuwait Financial Centre Markaz 9

10 Appendix 1: Key Statistics ` e Income Statement Revenues Gross Profit Gross Margin % 50% 47% 56% 55% 56% 50% 50% Operating Profit Net profit Balance Sheet Non-Current Assets ,019 1,037 Total Assets ,027 1,206 1,312 Non-Current Liabilities Total Liabilities Total Shareholder's Equity Analytics Return on Equity (%) 21.5% 24.6% 26.3% 25.1% 21.8% 19.0% 18.8% Return on Assets (%) 19.5% 21.9% 23.6% 17.8% 13.7% 11.8% 11.6% Revenue Growth (%) 8.6% 18.7% 7.5% 13.5% -7.5% 6.8% 3.6% Earnings Growth (%) 8.7% 10.7% 31.7% 7.6% -9.5% -6.3% 6.4% Historical EV (USD mn) 2,318 3,870 2,674 3,447 1,606 1,690 P/E Price/Book EPS (USD) BVPS (USD) DPS Market Price (SR) Assets Growth (%) -2% 22% 43% 17% 9% Equity Growth (%) -3% 23% 13% 4% 8% Annual Trading Volume (mn) 88, , ,519 26,086 22,994 27,511 Annual Trading Value (USD mn) 1,902 8,181 6, Turnover Velocity N/A 264% 204% 21% 23.63% 27.47% M Cap (USD mn) 2,318 3,870 2,674 3,447 1,534 1,561 Source: Reuters Knowledge, Company Accounts, Markaz Research Appendix 2: Cement Industry Key Statistics Company Cement Production (000 TPA) Clinker Production (000 TPA) Clinker Capacity (million TPA) Yamamah Cement 5,172 5, Saudi Cement 5,537 6, Eastern Cement 3,205 2, Qassim Cement 4,250 3, Yanbu Cement 3,920 3, Arabian Cement 2,997 2, Southern Cement 5,151 5, Tabuk Cement 1,301 1, Riyadh Cement 1,679 1, Najran Cement 1,586 2, Madina Cement 1,580 1, Western Cement 1,469 1, Source: Yamamah Cement Kuwait Financial Centre Markaz 10

11 Markaz Research Offerings Strategic Research Kuwait Capital Market Law (Mar-10) GCC Banks: Done with Provisions (Jan-10) What to expect in 2010 (Jan-10) What is left for 2009? (Sept-09) Kuwait Investment Sector (Jun-09) Missing The Rally (Jun-09) Shelter in a Storm (Mar-09) Diworsification: The GCC Oil Stranglehold (Jan-09) This Too Shall Pass (Jan-09) Fishing in Troubled Waters(Dec-08) Down and Out: Saudi Stock Outlook (Oct-08) Mr. GCC Market-Manic Depressive (Sept-08) Global Investment Themes (June-08) To Yield or Not To Yield (May-08) The Golden Portfolio (Apr-08) Banking Sweet spots (Apr-08) The Vicious Square Monetary Policy options for Kuwait (Feb-08) China and India: Too Much Too Fast (Oct-07) A Potential USD 140b Industry: Review of Asset Management Industry in Kuwait (Sep-07) A Gulf Emerging Portfolio: And Why Not? (Jun-07) To Leap or To Lag: Choices before GCC Regulators (Apr-07) Derivatives Market in GCC (Mar-07) Managing GCC Volatility (Feb-07) GCC for Fundamentalists (Dec-06) GCC Leverage Risk (Nov-06) Daily Periodic Research Markaz Daily Morning Brief Markaz Kuwait Watch Daily Fixed Income Update Weekly KSE Market Weekly Review International Market Update Real Estate Market Commentary Monthly Mena Mergers & Acquisitions Option Market Activity GCC Quants Market Review GCC Corporate Earnings Quarterly GCC Equity Funds Thought Speaks Equity Research Statistics Infrastructure Sector Research GCC Power GCC Ports GCC Water GCC Airports GCC Roads & Railways GCC ICT Real Estate Market Outlook Kuwait Real Estate Outlook(Dec-09) Abu Dhabi Residential (Nov-09) Office Investment in KSA (Jul-09) Saudi Arabia Residential Real Estate Outlook (Jun-09) Saudi Arabia (Sep-08) Abu Dhabi (July-08) Algeria (Mar-08) Jordan (Mar-08) Kuwait (Feb-08) Lebanon (Dec-07) Qatar (Sep-07) Saudi Arabia (Jul-07) U.S.A. (May-07) Syria (Apr-07) Real Estate Strategic Research GCC Distressed Real Estate Opportunities (Sep-09) GCC Real Estate Financing (Sept-09) Real Estate Earnings (May-09) Supply Adjustments Are we done? (Apr-09) Dubai Real Estate Meltdown (Feb-09) Kuwait Financial Centre Markaz 11

12 Saudi Arabia Saudi Cement (Apr-10) Southern Cement (Mar-10) Saudi Electricity Company(Feb-10) Saudi Arabian Mining (Feb-10) Yamama Cement (Feb-10) Etihad Etisalat (Feb-10) Al Marai Company (Dec-09) Arab National Bank (Oct-09) SAFCO (Oct-09) Al Rajhi Bank (Aug-09) Riyad Bank (Jul-09) Saudi Telecom Co. (May-09) Sabic (Mar-09) Samba Financial Group (Feb-09) Saudi Investment Bank (Jan-09) Savola Group (Dec-08) Kingdom Holding Co (Dec-08) Saudi Kayan Petro Co. (Aug-08) Banque Saudi Fransi (Jun-08) Markaz Research Offerings Company Research UAE Qatar Bahrain Dubai Financial Market (Sept-09) Commercial Bank of Qatar (Mar-10) Gulf Finance House (Oct-08) ADCB (Jun-09) Qatar Telecom (Jun-09) Esterad Investment Company DP World (Jun-09) Industries Qatar (Apr-09) (Aug-08) NBAD (Feb-09) Qatar National Bank (Feb-09) Bahrain Islamic Bank (Aug-08) Sorouh Real Estate (Feb-09) United Development Co. (Feb-09) Ithmaar Bank (July-08) Aldar Properties (Feb-09) Qatar Fuel Co. (Dec-08) Tameer (July-08) Gulf Cement Company (Jan-09) Qatar Shipping Co (Dec-08) Batelco (July-08) Abu Dhabi National Hotels (Dec-08) Barwa Real Estate Co. (Nov-08) Dubai Investments (Dec-08) Qatar Int l Islamic bank (Nov-08) Egypt Arabtec Holding (Dec-08) Qatar Insurance Co. (Nov-08) Egypt Kuwait Holding (Mar-10) Air Arabia ( Nov-08) Qatar Gas Transport Co. (Oct-08) Commercial Int l Bank (Oct-08) Union Properties (Nov-08) Doha Bank (Aug-08) Orascom Telecom (Sep-08) Dubai Islamic bank (Oct-08) QEWC (July-08) Mobinil (Sep-08) Union National Bank (Aug-08) QISB (July-08) Telecom Egypt (Aug-08) Emaar Properties (July-08) Masraf Al-Rayan (Jun-08) EFG-Hermes (Jun-08) Dana Gas (July-08) FGB (July-08) Etisalat (Jun-08) Oman Galfar Engineering & Cont. (Nov-08) Oman Telecommunications (Sept-08) Bank Muscat(Sept-08) Oman Cement (Sept-08) Raysut Cement Company (Aug-08) National Bank of Oman (Aug-08) OIB (July-08) Jordan Arab Bank (Sept-08) Cairo Amman Bank (Oct-08) Morocco Maroc Telecom (Mar-10) Markaz Research is available on: Bloomberg Type MRKZ <GO>, Thomson Financial, Reuters Knowledge, Zawya Investor & Noozz. To obtain a print copy, kindly contact: Kuwait Financial Centre Markaz Client Relations & Marketing Department Tel: Ext Fax: Postal Address: P.O. Box 23444, Safat, 13095, State of Kuwait info@markaz.com markaz.com Markaz Company Research Coverage MSCI Arabian Markets Conventional MSCI Arabian Markets Islamic Local Index Saudi Arabia 48% 37% 71% Kuwait 70% 68% 42% Qatar 92% 90% 97% UAE 46% 25% 60% Bahrain 58% 74% 23% Oman 61% 87% 50% Egypt 60% 85% 40% Jordan 39% 0% 32% Morocco 50% 70% 24% MENA 55% 47% 57% Kuwait Financial Centre Markaz 12

13 Analyst Certification Each research analyst(s), strategist(s) or research associate(s) responsible for the preparation and content of this research report hereby certifies that, with respect to each issuer or security that the research analyst, strategist or research associate covers in this research report, all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities. Each research analyst(s) strategist(s) or research associate(s) also certify that no part of their compensation w as, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst, strategist or research associate in this research report. Important Disclosures Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Kuwait Financial Center S.A.K. Markaz ("the Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability, which includes revenues from other business units including Investment Banking. Investment ratings are determined by the ranges described herein at the time of initiation of coverage, a change in investment and/or risk rating,. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock's expected performance and risk. Definitions - Return Low Where the potential return is less than 10% Medium Where the potential return is between 10% and 25% High Where the potential return is greater than 25% Definitions Volatility (Risk) High Where the Current MVX and band width of stock is more than the respective country benchmark Medium Where the current MVX is lower than benchmark and band width higher than or lower than benchmark Low Where the current MVX is lower than the benchmark and the band width lower than the benchmark MVX refers to Markaz Volatility Index calculated by Markaz based on in-house proprietary model Disclaimer This report has been prepared and issued by Kuwait Financial Centre S.A.K (Markaz), which is regulated by the Central Bank of Kuwait. The report is intended to be circulated for general information only and should not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. The information and statistical data herein have been obtained from sources we believe to be reliable but no representation or warranty, expressed or implied, is made that such information and data is accurate or complete, and therefore should not be relied upon as such. Opinions, estimates and projections in this report constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinion of Markaz and are subject to change without notice. This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors are urged to seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and to understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security s price or value may rise or fall. Investors should be able and willing to accept a total or partial loss of their investment. Accordingly, investors may receive back less than originally invested. Past performance is historical and is not necessarily indicative of future performance. Kuwait Financial Centre S.A.K (Markaz) does and seeks to do business, including investment banking deals, with companies covered in its research reports. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of Markaz, Markaz has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to Markaz s own website material) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through this report or Markaz s website shall be at your own risk. Kuwait Financial Centre Markaz 13