Palestine Development & Investment (PADICO) Palestine Stock Exchange

Transcription

1 August 22, 2011 Flash Result Report - 1H 2011 Palestine Development & Investment (PADICO) Palestine Stock Exchange Ticker Sector Trading Currency ISIN Free Float Current Price Forward PE Market Capitalization $ 52 Week high 52 Week low PADICO Investment USD PS % x 282,500, Company Background Palestine Development & Investment Company - PADICO Holding - is a public shareholding company that is traded in Palestine Exchange (PEX) with a paid up capital of $250 million. It is engaged - together with its subsidiaries - in investment activities in diversified sectors, including tourism, real estate, infrastructure, manufacturing, finance, telecommunications and agriculture. Since its inception in 1993, its mission has been to develop and strengthen the Palestinian economy by investing in vital economic sectors, and the mission is being fulfilled through a well-structured, focused, and resourceful group of subsidiaries and affiliates that invest in major sectors in line with the company s overall strategy. The Company has been listed on the Palestine Exchange (PEX) since PADICO Holding s shareholders profile is diverse and includes major investors from Palestine as well as international markets, exceeding 10,000 shareholders. PADICO s share price is currently calculated in Al Quds Index formula and weighs around 15%. Also, its is the largest investment company in the PEX in terms of market capitalization. Major Shareholder Ownership as of 2010 Sabih Masri and related parties 12.68% Blakeney Management 8.39% Munib Masri and related parties 4.97% Palestine Investment Fund 4.89% Massar International 3.01% Kingdom Holding Co. 2.57% Nidal Sukhtian and related parties 2.31% Arab Bank 1.64% Paltel Group 1.38% His Highness Sheikh Mohammad Bin Hamad Al Thani and related parties 0.97% Social Security Institution 0.96% Al Said Group 0.74% Major News for PADICO in 1H 2011 The company in the first half of 2011 established the Jericho Gate Investment Company with a total capital of JD35 million, contributed both by PADICO holding and PALTEL Group by 50% each. The company aims to initiate a huge real estate development project in Jericho, and includes the development of large areas at the southern entrance to the city of Jericho, during the next 10 years. Regarding the merger and restructuring process in the Real Estate and Tourism sector; many procedures during the first half of this year have finished, and the process of the actual implementation of the process through shares exchange has started. The concentration in phase 1 is focusing on the exchange of shares owned by PADICO Holding and its subsidiaries and affiliates, resulting in the formation of holding companies in which each is operating in an economic sector specialized in this sector. PADICO Holding has concluded all preparations required to issue the first corporate bonds in Palestine, under the supervision of regional financial advisors and lead bond issuance managers including Ithmar Invest and AB Invest. Preparations were also carried out through coordinating with involved public entities, notably the Palestinian Capital Market Authority. The bonds will be privately placed to local and regional banking institutions operating in Palestine, because these institutions are highly knowledgeable of the local political situation and are familiar with PADICO Holding s ability to deal with political risk mitigation. The bonds will therefore be issued without a credit rating. Bonds value will be used as follow: $25 million will be used in repaying outstanding loans on PADICO, $35 million in financing new projects and $15 to be invested in the subsidiary ; Palestine Real Estate Investment PRICO. It is expected that the completion of the process of bond issuing is in the coming days, after the approval of the extraordinary General Assembly had been obtained. PADICO holding signed an agreement with Bank of New York Mellon to launch the first Global Depositary Receipts GDR in Palestine. This program will enable foreign investors to purchase PADICO HOLDING s shares in the local market through acquiring certificates issued by Bank of New York Mellon in international markets; five common shares will form one GDR. The fact that the GDR will introduce a new investment tool for the Palestinian market, this will contribute to promoting the local financial market s stability and increasing trading volumes. Launching the programme will also help PADICO HOLDING to retain a wider international coverage by diversifying and expanding its shareholders base, thereby positively impacting the company s share price and its stability.

2 Projects to be executed in the Gaza Strip Palestine Development and Investment (PADICO Holding) is preparing to start implementing a number of strategic projects that are at the top priorities of the needs of the Gaza Strip. These projects are in the areas of waste recycling, water desalination and sites organization of the craft facilities by providing a suitable area for establishing these facilities away from residential areas. Waste recycling project PADICO had held discussions and meetings in the recent months with local government institutions and the Council of solid waste in the northern of Gaza Strip, in addition to its discussions with international institutions such as UNRWA and United Nations Development Program UNDP, noting that the parties welcomed the trends of the company's investment in these projects. The waste in the Gaza Strip is estimated at around 1,500 tons per day where 1,000 tons are in the central and northern areas of the sector, and thus PADICO will do recycling for this amount through the establishment of two recycling projects in theses regions. The cost of these projects is estimated at $10 million. Water desalination project PADICO Holding s vision in providing quick solutions to the problem of the shortage of drinking water through a desalination project that will be completed within six months and have the ability to produce seven million cups every year. Such a huge project requires high electric capacity that is not available in the Gaza Strip as well as a network to transfer water among the sector in addition to its five-year executing, therefore PADICO will provide urgent solutions that have a direct impact in the short term through a establishing a desalination plant that needs an electric power of 5 MW to provide 7 million cups every year. However, the project of PADICO holding cost about $30 million. Expansion of Industrial Zones in Gaza PADICO Holding tends to reactivate the industrial zone of Gaza through providing a space within the industrial area of a total 500 dunams, as part of this space will be assigned to a crafts complex within the region. This project targets primarily various craft enterprises that are deployed in residential areas that cause environmental pollution, pointing out that a comprehensive survey had been conducted by PADICO for the main polluting installations. PADICO s Direct & Indirect Investments Company's subsidiaries Palestine Development & Investment 100% Palestine Real Estate Investment 79.97% Palestine Industrial Investment 56.72% Jerusalem Tourism Investment 95.24% Palestine Stock Exchange 77.57% Palestine Industrial Estate Investment 77.87% Al Mashtal Tourism Investment 70.01% Jerusalem Development & Investment 100% Rawan International Investment 100% Palestine General Trading Company 100% Palestine Company for the Transfer of Technology 100% Palestine Company for Canning and Packaging 100% Palestine Company for Basic Chemical Products 100% PADICO Services 100% Major Associates 2010 Palestine Tourism Investment 43.95% Nakheel Palestine for Agricultural Investment 40.00% Mawaqif Investment 39.20% Vegetable Oil Industries 31.84% Palestine Telecommunications 31.39% Pal Akar 25.02% National Carton Industry 21.26% Arab Hotels 21.24% Gloden Wheat Mills 18.21% Jordan Vegetable Oil Industries 17.00% Palestine Power Generation 15.00% During 2011, Palestine Development & Investment PADICO sold its shares in the Vegetable Oil Industries VOIC to Palestine Industrial Investment PIIC, therefore raising PIIC s shareholding percentage to be the second major shareholder in VOIC as of June 30, Page 2

3 Income Statement PADICO reported a growth in total revenues by 10.69% in 1H 2011 compared to 1H 2010, amounting to $53.84 million. This increase came in a result of a growth in both of the operating revenues and the company s share of profit of associates. Operating revenues which contribute by 54.35% in total revenues in 1H 2011 grew by 16.33% compared to 1H 2010, to stand at $29.26 million enhanced mainly by the advance in the operating revenues of Palestine Industrial Investment Company, a subsidiary of PADICO. The share of the company in associates profits the second constituent of revenues also grew by 18.46% in 1H 2011 settling at $22.17 million, attributed to an improvement in the profits of Palestine Telecommunications Company and the Vegetables Oil Industries Company. On the other hand, gains from financial assets portfolio decreased by 7.86% to reach $1.66 million in 1H 2011 that was accompanied with a decline in the investment in that category. Item 1H H 2011 Total Revenues 48,640,000 53,838, % Operating Expenses 15,910,000 24,210, % G&A Expenses 8,643,000 9,056, % Operating Income 19,314,000 18,164, % Net income 20,388,000 16,204, % Operating expenses witnessed a sharp increase in 1H 2011 by 52.17% to value at $24.21 million opposed to $15.91 million in 1H This significant change was attributed to the reported increase in the direct costs of the new projects that were initiated during the year, therefore reporting low profit margins; i.e the Slaughter House, Al Mashtal Hotel, Park Plaza, Nakheel and the waste recycling projects. In addition, some of the projects are still under establishment, therefore incurring establishments costs; i.e Al Shurfat project, Businessmen Club and Jericho Gate. In the same context, subsidiaries companies like Palestine Poultry Company and Palestine Real Estate Investment company reported lower gross margins in 1H 2011 compared to 1H On the other hand, general and administrative expenses reported a slight increase of 4.78% to reach $9.06 million in 1H % 3% 2% 54% Sources of Revenues Operating Revenues Share of profit of associates Gain from Financial Assets portfolio In consequence, the increase in the direct costs led the operating income to stand at $18.16 million in 1H 2011; a drop by 5.95% compared to 1H 2010, recording an operating margin of 33.74% in 1H 2011 opposed to 39.71% in 1H PADICO incurred interest expenses by $3.92 million in 1H 2011 increasing by 22.61% compared to 1H In the bottom line, PADICO reported a net income of $16.20 million with a drop rate of 20.52%. Others Balance Sheet Total assets grew by 4.41% in 1H 2011 to hit $ million compared to $ million in This growth came in effect of an increase in both current and noncurrent assets. Current assets reached $77.12 million in 1H 2011 recording a growth of 5.71% compared to the settled figure of 2010 to contribute by 11.58% of the total assets, attributed to an increase of 7.29% in the accounts receivables to reach $39.47 million at the end of the period and account for 51.19% from current liabilities, representing short term commercial receivables of several subsidiaries. In addition, cash and short term deposits which account for 25.20% of the current assets increased by 39.31% compared to the end of On the other hand, inventory and ready for sale properties declined by 25.42% in 1H 2011 to stand at $9.20 million compared to $12.33 million at the end of The major constituent of PADICO s assets by 88.42% - noncurrent assets grew by 4.25% to settle at $ million in 1H This increase came amid a semi balanced change among the noncurrent assets items that resulted in the net change. Item H 2011 Current assets 72,951,000 77,116, % Noncurrent assets 565,028, ,016, % Total assets 637,979, ,132, % Current liabilities 74,327, ,877, % Noncurrent liabilities 100,132,000 86,588, % Total liabilities 174,459, ,465, % Retained Earnings 126,289, ,307, % Outstanding Shares 250,000, ,000, % Shareholders Equity 463,520, ,667, % Page 3

4 Noncurrent assets aggregated at $ million in 1H 2011 increasing by 4.25% compared to The growth resulted from an increase in the investment in associates by 6.04% when reached $ million accounting for 60.74% of noncurrent assets, due to PADICO s investment of $21 million in Jericho Gate Project. In addition, investment in properties, machines and equipments grew by 54.53% to reach $87.11 million in 1H 2011 after completing the Hotel project in Gaza and two broilers farms that were transferred from the projects in progress into investment in properties. Accordingly, projects in progress declined from $40.92 million in 2010 to settle at $20.27 million in 1H While real estate investments did not witness a significant change in 1H 2011 standing at $62.68 million. Total liabilities increased by 19.49% in 1H 2011 amounting to $ million in effect of a major increase in the current liabilities. Current liabilities soared by 63.97% in 1H 2011 to stand at $ million and to be the major constituent to total liabilities by 58.46%. The increase was attributed to two main reasons; the first regarding the significant advance in the short term loans and credit facilities by an amount of $22 million-39.00%- to hit a figure of $78.47 million in 1H 2011 and to account for 64.38% of current liabilities; representing credit facilities and banking loans granted by PADICO s subsidiaries. Also, other payables increased by % to amount $31.07 million in 1H 2011 increasing from $10.54 million at the end of 2010, this increase figure represented by the liability to the shareholders of the approved cash dividends distribution by an amount of $20 million for the fiscal year of On the other hand, noncurrent liabilities declined by 13.53% to reach $86.59 million in 1H 2011, attributed to a drop in the long term loans balance by 14.40% to settle at $81.21 million. Long term loans and the current short term loans and facilities account for 76.60% of total liabilities. 0.41% 8.32% 60.74% Property Plant and Investment Investment Properties Investment in associates Investment in Company's shares 94,868,000 56,451,000 Long Term Loans 14.79% 1.65% 10.64% Intangible assets 3.44% Projects in Progress Investment in mutual projects 81,206,000 78,469,000 Short Term Loans & Credit Facilities H 2011 Total shareholders equity dropped by 1.26% in 1H 2011 standing at $ million, in effect of the slight decline in the retained earnings balance by 1.57% to reach $ million attributed to the cash dividends distribution for the year 2010 considering the period s profits. In addition, the reserve for cumulative change in fair value increased by an amount of $4.06 million to amount at $22.13 million in 1H 2011 compared to $18.07 million in It should be mentioned that equity attributable to owners of the parent accounted for 86.21% of total shareholders equity standing at $ million. Financial Ratios PADICO reported a noticeable growth in its main operating revenues in 1H 2011, reflecting the development in its subsidiaries operating performance that was seen along the previous periods. The sharp increase in the direct costs for several subsidiaries in addition to the low profitability margins of the new initiated projects led to drop the operating margin in 1H In addition, bottom line profitability indicators were affected in the period. According to PADICO s management it is expected to see lower effects of the increase in direct costs gradually in the coming period in a way that comply with the growth in operating revenues and the acceleration in these new projects in parallel to attaining a suitable market share in the near future. Short term liquidity for PADICO witnessed a drop compared to the five previous quarters, affected by the increase in short term loans and credit facilities especially for those attained by Palestine Real Estate Investment Company and Palestine Poultry Company and Jerusalem Tourism Investment Company despite the reported increase in the account receivables, cash and short term deposits. Also, operating liquidity was affected significantly for the same reason. Book value-considering total shareholders equity-increased by $0.02 in 1H 2011 compared to 1H 2011, but dropped by $0.06 compared to the end of Ratios 1H H 2011 EPS BV Operating Margin 39.71% 33.74% Net Margin 41.92% 30.10% ROA 3.23% 2.43% ROE 4.51% 3.54% Current Ratio Debt Ratio 28.37% 31.29% Equity ratio 71.63% 68.71% loans to equity 33.90% 34.89% loans to assets 24.28% 23.97% Total asset turnover 7.70% 8.08% working capital 7,053,000-44,761,000 working capital turnover % % Page 4

5 Market Indicators PADICO s share price declined by 16.55% in 1H 2011 compared to 1H 2010 and by 3.33% compared to the end of 2010, recording a market capitalization of $290 million. The share is trading below its book value, and currently recording 63.36% compared to it. Estimated PE ratio recorded an attractive level at the end of 1H 2011 with no significant change due the price drop; 8.66x compared to an actual PE of 8.22x in Item 1H H 2011 Price P/BV 76.84% 63.36% Market Capitalization 347,500, ,000,000 Trading Volume 37,467,693 37,967,362 Turnover 14.99% 15.19% PADICO s Share Performance in 1H For further information, please contact the research department at Sahem Trading & Investment Company: Sahem Trading & Investment Co, Ramallah, Palestine P.O.Box 2187 Direct line: or Research@sahem-inv.com DISCLAIMER Disclaimer: This report is not an offer to buy or sell nor a solicitation to buy or sell any of the securities mentioned within. The information contained in this report were prepared using information available to the public and sources Sahem Trading & Investment Co believes to be reliable. Sahem Trading & Investment Co does not guarantee the accuracy of the information contained within this report and accepts no responsibility or liability for losses or damages incurred as a result of investment decisions taken based on information provided or referred to in this report. Any analysis of historical facts and data is for information purposes only and past performance of any company or security is no guarantee or indication of future results. Page 5