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1 Nov-15 Dec-15 Jan-16 Feb-16 Ma r-16 Apr-1 6 Ma y-16 Jun-16 Jul-1 6 Aug -16 Sep -16 Oct-1 6 Alexandria Mineral Oils Co. Initiation of Coverage Equities Energy & Utilities Egypt Amr ElDaly Senior Equity Analyst Mubasher International Amr.ElDaly@MubasherFS.com A play on oil recovery Initiate with a Sell Sell Moderate Risk Price Target: EGP40.74 Expected Total Return: +2.6% A diversified product mix with special focus on the high end. Should benefit off local market s eagerness for high-end petroleum products. Cash flow visibility backed by consistent demand. Potential for increase in market share via expansions. Rebound in oil prices is the catalyst. Initiate with Sell/Moderate Risk; PT EGP40.74/share (ETR: +2.6%). A second-stage refinery with a differentiated business model: AMOC is considered a unique business model among other local processing refineries in the industry commonly producing gasoline. AMOC also produces high-end refined products (base and specialty oils, naphtha, and butane), which have higher profitability margins. Growing demand for high-end petroleum products: With an annual growth in domestic oil consumption of 3% and the market s eagerness for high-end petroleum products, AMOC is in a position to maintain in margins as oil prices continue on a recovery path. We expect EBIT margin to average 9.65% vs. an average of 9.95% over the past 3 years. Stable cash flows stream: Demand for AMOC s product mix is relatively stable and is not impacted by any seasonality. Demand (in terms of quantities) for fuel oils and gas oils, the company s main output, is steady, which ensures a stable cash flow stream. The company also enjoys a debt-free balance sheet. Strong intention to unleash expansion constraints: AMOC is currently studying the possibility of establishing new naphtha/diesel and fuel oil processing units. The investment cost of the projects is estimated to be between USD mn, which should increase AMOC s market share. Value to be unlocked by a rebound in oil prices: AMOC is well positioned to an upturn in fortunes once oil prices rebound. Fundamentally, oil recovery translates into higher selling prices and thus improves margins. In general, the expected recovery in prices and rising consumption, should drive AMOC to a better financial performance. Yet, all is priced in; initiate with Sell/Moderate Risk; PT EGP40.74 (+2.6%): We initiate coverage on AMOC with a Sell/Moderate Risk rating and a one-year price target (PT) of EGP40.74/share based on a 5-year DCF valuation model. At our PT, AMOC would be valued at 9.7x FY16/17e PER. Meanwhile, growing dividends is one of AMOC s key positives with a solid dividend payout ratio averaging 91% over FY12/13-FY15/16. We expect the high dividend distribution trend to continue, albeit against a lower earnings base. Stock Performance & Details AMOC (EGP) vs. EGX30 Rebased AED Volume (RHS) AMOC EGX30 Rebased million 5.75mn shares Company Profile Sto ck D etails Last price (EGP) W High (EGP) W Low (EGP) M -ADVT (EGPmn) 3.87 % Chg: M om -0.7 % Chg: YoY % Chg: YTD 57.6 M ubasher Ticker AM OC.EGX Bloomberg Ticker AM OC EY C apital D etails No. of Shares (mn) 86.1 M kt Cap (EGPmn) 3,409.6 M kt. Cap (USDmn) Free Float (%) 19.0% Alexandria Mineral Oils Co. (AMOC) is a second-stage refinery company that operates in the petroleum industry. The company is specialized in refining an ample of mineral oils. It was established as an Egyptian joint stock company in 1997 by the Government of Egypt through related entities. AMOC started operating in 2002 and was listed on the Egyptian Exchange in 2005, offering 20% of its shares to the public. AMOC is located in Alexandria and has a total production capacity of 1.5mn tons per annum (tpa). EGPmn FY13/14 FY14/15 FY15/16 FY16/17 f FY17/18 f FY18/19 f Revenue 8,688 6,429 4,376 5,551 6,377 6,713 EBITDA Net Income Revenue Growth (%) 2.6% -26.0% -31.9% 26.9% 14.9% 5.3% EBITDA Growth (%) -12.8% -48.9% 13.0% -10.5% 21.2% 5.4% Net Income Growth (%) -12.3% -52.6% 28.0% -17.2% 20.4% 7.4% EBITDA Margin (%) 10.9% 7.5% 12.5% 8.8% 9.3% 9.3% Net Margin (%) 8.3% 5.3% 10.0% 6.5% 6.8% 6.9% Net Debt (Cash) (1,176) (973) (1,038) (819) (903) (1,009) EPS (EGP) BVPS (EGP) DPS (EGP) PER (x) 9.8x 10.7x 5.8x 9.5x 7.9x 7.3x PBV (x) 2.5x 1.5x 1.0x 1.5x 1.4x 1.3x Dividend Yield (%) 8.5% 11.8% 18.7% 8.9% 10.7% 11.5% Source: Company reports, MubasherTrade Research estimates Page 1

2 Oil Prices Cost of Equity (COE) Alexandria Mineral Oils Co. AMOC Egypt Initiation of Coverage Valuation & Recommendation DCF One year PT of EGP40.74/share Our discounted cash flow (DCF) valuation model discounts free cash flow to the firm (FCFF) based on an weighted average cost of capital (WACC) of 19.6%, derived as follows: Cost of equity (COE) of 19.6% based on a build-up method, starting with: o 10-year US Treasury yield of 1.7%. o Egypt s equity risk premium (ERP) of 11.9% derived from US equity risk premium of 6.1% and a country risk premium of 5.9% based on B- rating. o AMOC s adjusted 5-year monthly historical beta of No debt. A terminal growth rate (TGR): 2%. We reached a one-year PT of EGP40.74/share, implying a total expected return of +2.6% versus market price as of 31 October At our PT, AMOC would be valued at: FY16/17e PER of 9.7x. FY16/17e EV/EBITDA of 5.5x. Our FY16/17e forecast implies a dividend yield of c.9%. We opted not to include a weight for relative valuation in reaching our price target because we could not identify any listed companies within the MENA region that has the same business/operating model as AMOC (specifically a second-stage refinery). Hence, with a merely +2.6% expected total return, we initiate coverage on AMOC with a Sell/Moderate Risk rating. Investment Rationale AMOC s refined products (including gasoline, diesel and LPG) are the highest in demand, unlike the majority of second-stage refineries products in Egypt. EGP potential devaluation should benefit AMOC s margins since its entire output is priced according to global benchmark prices in USD and some of its cost are in local currency. Low-risk business model, driven by steady forecasted demand (in tonnage). Lucrative dividend payout ratio. High barriers to entry represented in high investment cost and a market dominated by state-owned complexes. Key Risks Concentration risk as EGPC is the sole feedstock supplier and main output buyer. Feedstock supply shortage (i.e. interruptions) from EGPC. Deterioration in the quality of feedstock which leads to lower margins. A low oil price environment will negatively impact AMOC s refinery margins. Unplanned delays in maintenance schedules can hamper earnings, thus reducing our valuation. The ability of AMOC to collect its dues from the government in a timely manner. Any future refinery processing capacities could reduce AMOC s market share. DCF valuation Economic Profit Analysis FY17/18 f FY18/19 f FY19/20 f FY20/21 f FY21/22 f TV ROIC (excluding goodwill & intangibles) 23.4% 24.4% 26.3% 28.3% 30.4% 26.5% WACC 19.6% 19.6% 19.6% 19.6% 19.6% 19.6% Terminal growth rate 2.0% EGPmn, except per-share figures FY17/18 f FY18/19 f FY19/20 f FY20/21 f FY21/22 f TV EBIT (1 - t) Non-Cash Items (D&A) Gross Cash Flow Change in Operating Working Capital (82) (24) (24) (46) (44) Capital Expenditures (30) (31) (33) (35) (36) Gross Investment (111) (55) (57) (80) (80) Free Cash Flow to the Firm (FCFF) ,100 Present Value of FCFF DCF Enterprise Value 2,214 (Net Debt) Cash 819 Long Term Investments 1 DCF Equity Value 3,034 Number of Shares Outstanding 86 DCF Price Target (EGP) DPS to be paid in year Price Target (EGP) Sensitivity analysis of our PT Terminal Growth Rate (TGR) % 1.5% 2.00% 2.5% 3.5% 17.57% % % % % Source: MubasherTrade Research estimates Assuming all factors are held constant, the below sensitivity shows the effect of increase/decrease in movements of oil prices on our PT over forecasted period (FY17/22) Terminal Growth Rate (TGR) % 1.5% 2.0% 2.5% 3.5% 10.0% % Base case % % Source: MubasherTrade Research estimates Page 2 Source: MubasherTrade Research estimates

3 Financial Summary Balance Sheet (EGPmn) Per-Share Data FY End: June FY13/14 FY14/15 FY15/16 FY16/17 f FY17/18 f FY18/19 f FY13/14 FY14/15 FY15/16 FY16/17 f FY17/18 f FY18/19 f Current Assets Price Cash & Cash Equivalent 1, , ,010 # Shares (WA,in mn) Marketable securities EPS Trade & other receivables DPS Other Current Assets BVPS Total Current Assets 2,006 1,649 1,651 1,613 1,813 1,967 Fixed Assets (net) 1,239 1,187 1,113 1,060 1, Valuation Indicators Other Non-Current Assets FY13/14 FY14/15 FY15/16 FY16/17 f FY17/18 f FY18/19 f Total Assets 3,272 2,853 2,771 2,680 2,834 2,947 Liabilities & Equity PER (x) 9.8x 10.7x 5.8x 9.5x 7.9x 7.3x Short-Term Debt PBV (x) 2.5x 1.5x 1.0x 1.5x 1.4x 1.3x Current Portion of LT Debt EV/Sales (x) 0.7x 0.4x 0.3x 0.5x 0.4x 0.4x Accounts Payable EV/EBITDA (x) 6.2x 5.5x 2.7x 5.3x 4.2x 3.8x Other Current Liabilities Dividend Payout Ratio 83.9% 126.5% 108.8% 84.0% 84.0% 84.0% Total Current Liabilities Dividend Yield 8.5% 11.8% 18.7% 8.9% 10.7% 11.5% Long-Term Debt Other Non-Current Liabilities Profitability & Growth Ratios Total Liabilities FY13/14 FY14/15 FY15/16 FY16/17 f FY17/18 f FY18/19 f Minority Interest Total Equity 2,809 2,472 2,440 2,326 2,457 2,559 Revenue Growth 2.6% -26.0% -31.9% 26.9% 14.9% 5.3% Total Liabilities & Equity 3,272 2,853 2,771 2,680 2,834 2,947 EBITDA Growth -12.8% -48.9% 13.0% -10.5% 21.2% 5.4% EPS Growth -12.3% -52.6% 28.0% -17.2% 20.4% 7.4% Income Statement (EGPmn) EBITDA Margin 10.9% 7.5% 12.5% 8.8% 9.3% 9.3% FY13/14 FY14/15 FY15/16 FY16/17 f FY17/18 f FY18/19 f Net Margin 8.3% 5.3% 10.0% 6.5% 6.8% 6.9% Total Revenue 8,688 6,429 4,376 5,551 6,377 6,713 ROAE 25.3% 12.9% 17.7% 15.1% 18.1% 18.6% COGS (7,647) (5,863) (3,750) (4,978) (5,688) (5,986) ROAA 21.6% 11.1% 15.5% 13.2% 15.7% 16.1% GP 1, Other operating (exp.)/ Inc. (94) (82) (78) (83) (96) (101) Liquidity & Solvency Multiples EBITDA FY13/14 FY14/15 FY15/16 FY16/17 f FY17/18 f FY18/19 f Depreciation & Amortization (82) (84) (84) (79) (75) (72) Interest Income Net Debt (Cash) (1,176) (973) (1,038) (819) (903) (1,009) Investment Income Net Debt/Equity -41.9% -39.4% -42.6% -35.2% -36.7% -39.5% Net finance exp., taxes (232) (140) (113) (116) (139) (149) Net debt to EBITDA -1.2x -2.0x -1.9x -1.7x -1.5x -1.6x NP Before XO & MI Debt to Assets 0.00x 0.00x 0.00x 0.00x 0.00x 0.00x XO & Minority Interest Current ratio 5.6x 5.8x 6.8x 5.9x 5.9x 5.9x Net Income Consensus Estimates (EGPmn) Cash Flow Statement (EGPmn) FY16/17 f FY17/18 f FY18/19 f FY13/14 FY14/15 FY15/16 FY16/17 f FY17/18 f FY18/19 f Revenues 5,676 6,272 6,640 Cash from Operating MubasherTrade Research vs. Consensus -2.2% 1.7% 1.1% Cash from Investing (7) (1) 20 (19) (23) (24) Net Income Cash from Financing (717) (619) (402) (416) (256) (310) MubasherTrade Research vs. Consensus -19.3% -6.4% -4.4% Net Change in Cash 14 (203) 65 (219) Fwd PER (x), Last Price 9.5x 7.9x 7.3x Fwd PER (x), Price Target 9.7x 8.1x 7.5x Capex (36) (22) (2) (26) (30) (31) Fwd DY (%), Last price 8.9% 10.7% 11.5% Source: Company data, MubasherTrade Research estimates a = Actual; f = Forecasted Share price at 31-Oct-16 Page 3

4 Industry Overview Egypt possesses a total crude oil refining capacity of 796,105 barrels per day (b/d): In terms of trade, Egypt imports crude oil from the Gulf countries, particularly Saudi Arabia, Kuwait, and Iraq. Meanwhile, the largest exports market for Egyptian liquids is India, which demands significant volumes of liquid petroleum gases (LPGs). According to BMI Research Report: Egypt Oil & Gas Report, Q3 2016, Egypt holds the largest refining capacity in Africa and is considered one of the highest underground potential. Although the refining sector has been disadvantaged and has witnessed minor investments in enhancing fuel product quality and operating efficiencies, it has now evolved to be a priority for the Egyptian government which intends to spend USD12.5bn over the next 4 years. Capacity expansions will begin to show their impact starting The refining industry in Egypt is made up of eight market players: With the country's two chief refining hubs are Alexandria (accounting for 39.5% of total crude distillation capacity) and Suez (accounting for 25.6%). While seven of the eight refineries in Egypt are over 40 years old in operations, the sector is highly inefficient and produces low quality products. In addition, utilization rates at Egyptian refineries average around 60-65%. In view of instability, significant fuel subsidies remain a prevailing phenomenon: Which in return, caused demand for oil and gas to remain stable. In Q1 2016, fuel consumption grew strongly, recording +7.3% YoY, while gasoline consumption rose 8.0%. Meanwhile, social instability and political uncertainty saw investment in the upstream oil and gas industry drop off, further exerting downward pressure on production. Subsequently, fuel subsidies minimize the profit potential in the Egyptian downstream (refinery) industry as well. While the Egyptian downstream is dominated by state-owned the Egyptian General Petroleum Corporation (EGPC), poor competition caused underinvestment and an extensive financial burden on the government. Page 4 Government measures to retain foreign investment in the oil & gas sector: In an attempt to alleviate the growing cost of imports and subsidies, the then-interim Egyptian government announced in 2014 several new incentives to keep foreign oil and gas companies from departing the country. The first step the government took was to repay a considerable amount of the levels of debt it owes to oil and gas companies. The then-oil Minister Mr. Sherif Ismail (who is now Prime Minister) has committed reimburse the approximately USD3.1bn of remaining debt to companies by the end of This has been a significant move to regain investor confidence in Egypt's oil and gas sector. Secondly, the government has opened up the opportunity to discuss gas pricing structures in new developments. Currently, gas producers receive a maximum of around USD2.65/mmbtu. Thirdly, the changes in contracts allow gas produced from new concessions to be sold in deals made directly with commercial producers. This enables companies to avoid selling gas directly to the government. Subsequent to these improvements, over the coming years a more stable operating environment is expected to prevail. The majority of Egypt's below-ground hydrocarbon potential has proven to be gas: With a significant proportion of new liquids production is likely to come from condensate output from major new gas projects. Given the majority of Egypt's challenges lie in increasing natural gas production for household and industrial consumption and with the low oil price environment, it is expected that there will be reduced interest in oil projects, with a greater focus on gas developments. Rising volumes of imported crude appear inevitable, particularly as Egypt improves its downstream sector. Moreover, the low complexity levels of Egyptian refineries further aggravates the situation as many domestic companies are incapable to produce higher end products from crude, such as gasoline, diesel and LPG, products in highest demand, while heavy-ends are in surplus. As a result, the country imports large volumes of refined products, particularly gasoline and diesel. This trend is expected to fall in 2018 as new expansion come on line, increasing domestic diesel and gasoline output. Despite these efforts, Egypt will remain a substantial net importer of refined products, unless further investment is put into the downstream. Expectations are towards a strongest growth in diesel consumption and to a lesser extent LPG ,000.4 Source: BMI Research Report, Egypt Oil & Gas Report, Q Crude oil prices forecasts (USD/barrel) f 2017f 2018f 2019f 2020f 2021f 2022f Source: World Bank oil forecasts

5 Industry Overview (Cont. d) Refineries in Egypt Refinery Name Location Capacity (b/d) Cairo Petroleum Refining Co. (CORC) Cairo Mostorod 145,000 Al-Nasr Petroleum Co. (NPC) Suez 142,000 Alexandria Petroleum Co. (APC) Alexandria - AlMax 140,000 Middle East Oil Refining Co. (Midor) * Alexandria 100,450 Asyut Oil Refining Co. (ASORC) Assiut 90,405 Amreya Petroleum Refining Co. (APRC) Alexandria 75,000 Suez Oil Processing Co. (SOPC) Suez 65,250 Tanta refinery operated by Cairo Oil Refining Company Tanta 38,000 Total capacity 796,105 Source: BMI Research Report, Egypt Oil & Gas Report, Q and MubasherTrade Research * Egypt s market is comprised of eight refineries all owned and operated by Egyptian General Petroleum Corporation (EGPC) with the exception of the privately owned, MIDOR Refinery. Processing Refineries in Egypt Refinery Name Location Capacity (b/d) Alexandria Minerals Oil Co. (AMOC) Alexandria 34,447 Alexandria National Refining and Petrochemicals Co. (ANRPC) Alexandria 16,547 The Egyptian Linear Alkyl Benzene Co. (ELAB) Alexandria 2,008 Alexandria Specialty Petroleum Products Co. (ASPPC) Alexandria 723 Alexandria For Petroleum Additives (ACPA) Alexandria 1,004 Total capacity 54,729 Source: Industry reports and MubasherTradeResearch calculation Refining Capacity Outlook In September 2014, the Egyptian government declared an investment of USD12.5bn for the refining sector through 2020, hinting that refining capacity can increase up to 1.7mn b/d, hand in hand with the improving domestic production of fuels and in particular diesel over the forecast period, reducing import needs. Following are the most auspicious new expansions: Mostorod Refinery Expansion: The building of 84,000 b/d of new refining capacity by Qalaa Holdings (CCAP.EGX) which is expected to be completed by Q which will have a substantial positive influence to decrease the import burden, specifically from distillate fuels. According to latest updates, the refinery reached 84% completion in March The main targets of this expansion are (1) converting surplus residual fuels from less efficient refiners in Egypt into middle distillate products (which are the main part of Egyptian fuel imports) and (2) increasing the production of diesel and jet fuel. MIDOR refinery upgrade: Increasing the capacity of MIDOR refinery near Alexandria to 160,000 b/d, from a current roughly 100,000 b/d, which according to BMI report, should be operational starting 2018, when a further drop in distillate fuel imports is expected. This upgrade focuses primarily on increasing diesel production. Moreover, it has an expected cost of USD1.4bn, 40% state-funded and 60% bank loans. Assiut modernization: Similarly, the Assiut refinery modernization program will focus on maximizing production of diesel fuel through processing residuals. This upgrade aims to back the increasing demand in the more rural southern region of the country with an expected cost of USD1.5bn. According to BMI Research Report, opportunities for new-build refineries, such as the proposed 500,000 b/d oil complex in Suez are low due to competition from new mega refineries in the Middle East and Asia. Further modernization programs are subject to introduction. Also, a new naphtha processing unit is grabbing attention for the Al-Mex refinery to double yields of high-octane gasoline. Over the longer term, fuel subsidy reform will be the essential tool to enticing foreign investment into the sector. Page 5

6 Industry Overview (Cont. d) Onshore and offshore oil production potential. Egypt holds the largest refining capacity in Africa with current production capacity of 796,000 barrels per day with expectations to reach 940,000 barrels per day in 2022 according to BMI. A growing domestic demand market of over 90mn consuming of about 821,000 barrels per day of refined products as for 2015 with expectations to reach 945,000 barrels per day in The state control of the refinery sector has driven underinvestment and inefficient operations into the industry. Low complexity levels of Egyptian refineries as many are unable to produce high-end products from crude. Investment in the sector will be government-led for the next 10 years Sector growth restrictions as prices are set by the state (below international prices), discouraging foreign investments. Plans to reforms to fuel subsidies by 30% by 2020 will make the Egyptian market more attractive to new investments as sales prices increase and may support stronger long-term consumption. The Western Desert remains under explored and has revealed noteworthy hydrocarbons potential. A USD12.5bn investment plan for new refineries buildups could increase output capacities to 1.7mnbpd of refined products. Policy slippage could discourage the investment environment given the government's decision to delay subsidy removal. Failure to pay back money owed to oil companies due to further currency devaluation making USD repayments more problematic. Rising competition from new mega refineries in the Middle East and Asia. Source: MubasherTrade Research Analysis Page 6

7 Business Model The largest second stage refinery in Egypt: Alexandria Mineral Oils Co. (AMOC) is an Egyptbased public company that operates in the petroleum industry. The company is a processing refinery facility that converts heavy fuel oils (HFO) into lighter products (naphtha, diesel, butane, etc.) with higher commercial value. AMOC started operating in 2002 with the purpose to fulfill local demand for petroleum products and to export excess production to international markets. The state-owned processing company was listed on the Egyptian Exchange in 2005, offering 20% of its shares to the public. AMOC is located in the Salina area in Alexandria, occupying a total manufacturing facility area of 500,000 sqm constituting of two complexes which together have a total production capacity of 1.5mn tons per annum (tpa) of hydrocarbon-cracking capacity that converts low-value HFO produced from the previous refining of crude oil into a higher-value mix of light oil products. Special agreement with EGPC secures feedstock and sales: AMOC buys its feedstock and sells most of its output to EGPC, which in return resells the output in the local market. Feedstock and output are sold and bought at international prices. The key raw material input for AMOC (representing around 95% of total production cost) is the distillate fuel oil (received from firststage refiners), unlike most refineries in the industry that use crude oil as their feedstock. AMOC also operates a wax hydro finishing unit that produces wax, a product that is entirely exported. Alexandria for Waxy Products (AWPC), a joint venture between AMOC (40%) and Sasol (60%), is solely responsible for marketing and selling AMOC s wax products which have captured an average of 6% of AMOC s revenues over the period from , earmarked for exports. Production takes place at two complexes, one producing fuels and the other mineral oils in addition to storage tanks and utility units: 1. The lube & special oils complex produces neutral oils (medium & heavy), paraffin waxes (medium & heavy) and special oils known as lube oils, including Automatic Transmission Fluid (ATF) and Transformer Oil (TO). The complex is made up of five units, constructed by US contractor Bechtel and in some parts modelled under license from ExxonMobil. 2. The gas oil maximization complex produces gas oil, naphtha, liquid petroleum gas (LPG) for local consumption, waxy distillates, and biological sulfur with a purity of 99%. The complex is made up of three units, constructed by Spanish contractor Technicas Reunidas. 3. AMOC has about 84 complete and integrated storage tanks which handle feed, intermediate and final products with different capacities according to international standards. The total storage capacity of all tanks is 200,000 tons. 4. Finally, the two complexes are backed by a number of integrated utility units to assist the operations production process. Boiler feed water treating units, a nitrogen production unit, and power stations and diesel generators. The company as well operates three laboratories conducting chemical analysis on products, in addition to, a research and environmental lab. Executive management Source: Company reports Shareholder structure Source: Company reports Page 7

8 Business Model (Cont. d) Production flow chart Top clients, 2016 Lubricant oil Distillate fuel oil Waxes Diesel Heavy Fuel Oil (HFO) Heating Butane Naphtha Source: Company reports, MubasherTrade Research estimates Although receivables fell from EGP199mn in FY13/14 to EGP166mn in FY15/16, days sales outstanding increased to two weeks Source: Company reports, MubasherTrade Research estimates Source: Company reports, MubasherTrade Research estimates Page 8

9 In EGPmn Alexandria Mineral Oils Co. AMOC Egypt Initiation of Coverage Business Model (Cont. d) Financial Highlights Net income for FY15/16 surges with margins improving: AMOC s bottom line for FY15/16 grew by 28% from to record EGP435.4mn vs. EGP340.3mn recorded a year earlier. The results came on the back of higher other operating income recording EGP98.8mn (+46% YoY) and lower COGS recording EGP3.7bn (-36% YoY). GPM and EBITDA margins improved markedly, jumping from 8.8% to 14.3% and from 8.7% to 14.1%, respectively. The healthier margins came as the fall in average selling prices (down 26%) was much less than the fall in average cost per feedstock (down 41%), which indicates that AMOC managed to mitigate the impact of the fall in oil prices and hence maintain healthier margins. Revenues were hammered: Top line fell 32% YoY to EGP4.38bn vs. EGP6.42bn a year earlier. Average oil prices over FY15/16 recorded USD42.12 per barrel, dropping 41% from FY14/15 prices of USD71.75 per barrel. The company s top line fell by 32% and 26%, respectively, for both years which indicates a high degree of sensitivity of the company s revenues towards oil prices. Revenues breakdown indicate the company s volumes sold remained almost flat (-0.3%) with the product mix remaining broadly unchanged with HFO s share in the product mix dropping by 5% to 55%, while diesel gained 5% to 28%. Low oil prices are beneficial: Over the past three fiscal years (FY13/14-FY15/16), the average cost per ton of feedstock mirrored the fall in average oil prices. This is mainly due to the fact that around 80% of AMOC s COGS are variable in nature. Indeed, the cost per ton of feedstock fell by a 3-year CAGR of 23%, while oil prices fell by 26% over the same period. Attractive dividends: AMOC maintained its lucrative dividends policy, especially after adjusting FY15/16 announced DPS of EGP4/share to EGP5.5/share, recording a dividend yield of 18.7%, according to the stock price on 30 June AMOC s payout ratio averaged 91% over the last four years. Historical financial results Source: Company data, MubasherTrade Research analysis FY13/14-FY15/16 profitability 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, % 11.9% 9.2% 8.8% 8.7% 6.6% 14.3% 14.1% 12.3% FY13/14 FY14/15 FY15/16 Revenues Gross profit EBITDA Profit for the period Source: Company data, MubasherTrade Research analysis Income statement 18% 15% 12% 9% 6% 3% 0% Revenue mix by segment Common size statement FY13/14 FY14/15 FY15/16 FY13/14 FY14/15 FY15/16 In EGP 000s (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) Lubricant oils 833, , , % 11.2% 15.6% Wax 482, , , % 6.7% 10.1% Diesel 2,434,570 1,773,556 1,413, % 27.6% 32.3% Naphtha 483, , , % 5.9% 5.5% Butane 175, ,785 92, % 2.0% 2.1% Heavy fuel oil (HFO) 4,277,809 2,992,916 1,505, % 46.6% 34.4% Revenues 8,688,211 6,428,837 4,375, % 100.0% 100.0% Cost of sales (7,646,634) (5,862,569) (3,750,196) -88.0% -91.2% -85.7% Gross profit 1,041, , , % 8.8% 14.3% G&A (77,341) (81,866) (101,366) -0.9% -1.3% -2.3% S&M (8,208) (8,994) (9,779) -0.1% -0.1% -0.2% Other operating income 2,138 16,468 41, % 0.3% 0.9% Other operating expenses (10,101) (7,394) (7,603) -0.1% -0.1% -0.2% EBITDA 948, , , % 7.5% 12.5% Depreciation (82,315) (83,523) (84,322) -0.9% -1.3% -1.9% EBIT 865, , , % 6.2% 10.6% Interest Income 58,080 58,391 65, % 0.9% 1.5% Finance Cost (1,268) % 0.0% 0.0% Share of Profit from Associates 26,731 21,044 19, % 0.3% 0.5% Deferred Tax 6,589 7,023 9, % 0.1% 0.2% Income Tax (237,758) (147,158) (122,462) -2.7% -2.3% -2.8% Profit for the period 718, , , % 5.3% 10.0% Source: Company data, MubasherTrade Research analysis Page 9

10 Business Model (Cont. d) Forecast Assumptions Revenues In our view, AMOC is a pure oil play. Our analysis demonstrated a strong correlation of 0.73 between the change in the price/ton (on an annual basis) for AMOC products with the change in the price per/ton for crude oil. Accordingly, we derived our forecast for selling prices per ton across different products from oil prices movements, with reference to World Bank estimates. Due to the stable nature of price movements in the wax segment, selling prices were estimated based on average historical selling prices of EGP7,000 per ton. With regards to volumes, we estimated AMOC s annual production based on our view of a market share of 4% of total annual refined products consumption forecasts, according to BMI Egypt Oil & Gas Report, Q In spite of nearly flattish growth in sales volumes over the past three years, we forecast a jump in total sales volumes in FY16/17 by c.7% on the back of recovery in demand for high-end refined products. Over our forecast period, we expect sales to grow at a 5-year CAGR of 2.5%. We assumed the shift in output composition towards more heavier fuel oil (55% as of 2016) from lighter products (gas oil, naphtha, butane) will continue throughout the projection years, backed by a historical weight mix and expectations of stronger growth in diesel consumption and to a lesser extent LPG. Profitability With the bulk of COGS driven by raw materials followed by salaries, we assumed the former will average 92% of total costs and 81% of total revenues. We also assumed salaries to grow at a rate of 5% p.a. based on average YoY growth rates of the government s annual salaries increments. Historically, COGS has declined by a 5-year CAGR of 10.5%, mirroring the revenues 5-year CAGR of 11.5% and to a lesser extent movements in oil prices. Hence, we expect gross margin to stabilize at an average of 11%. G&A/revenues to stand at 1.8% with salaries constituting the vast amount of 69% of total G&A. Despite the uncertainty in feedstock supply quality characteristics, we assumed that margins will slightly improve throughout the projections years on the back of selling higher volumes from HFO. We expect the company s EBITDA margin to narrow slightly from a historical average of 11.9% to 9.2% over the projection years (FY16/17-FY20/21). Dividends and leverage AMOC is well known for its high dividend payout. We assumed EPS to grow at a 5-year CAGR of 4.1% over FY17/18-FY20/21 and its dividend yield to remain in the range of 12-15% with an average dividend payout ratio of 89%. We did not factor in our projections any potential expansions since they are all in the study phase. Projected sales volumes Projected revenues breakdown As shown, the effect of low oil prices environment has clearly affecting selling prices of AMOC Projected profitability margins Our back test of historical volumes produced, especially in the last three years, has shown a close correlation between annual refined products consumption and actual output of AMOC. * AMOC s market share was calculated based on MTRe estimates of AMOC output capacity. The expected jump in AMOC s volumes produced from 1.6mtpa in FY15/16 to 1.8mtpa in FY16/17 is based on the expected strong demand growth to diesel by 16%. Average selling prices forecasts (EGP) We expect prices to pick up gradually as per the World Bank forecasts. DPS (EGP) & dividend payout Source: Company reports, MubasherTrade Research estimates Page 10

11 Investment Rating Disclosure Appendix Important Disclosures METHODOLOGY: We strive to search for the best businesses that trade at the lowest valuation levels as measured by an issuer s intrinsic value on a per-share basis. In doing so, we follow both topdown and bottom-up approaches. Under the top-down approach, we attempt to study the most important quantitative and qualitative factors that we believe can affect a security's value, including macroeconomic, sector-specific, and company-specific factors. Under the bottom-up approach, we focus on the analysis of individual stocks by running our proprietary scoring model, including valuation, financial performance, sentiment, trading, risk, and value creation. COUNTRY MACRO RATINGS: We analyze the four main sectors of a country s macroeconomics, then we assign,, and star for low risk, moderate risk, and high risk, respectively. We use different weights for each economic sector: (a) Real Sector (30% weight), (b) Monetary Sector (10% weight), (c) Fiscal Sector (25% weight), (d) External Sector (15% weight), and (e) Credit Rating and Outlook (20%). STOCK MARKET RATINGS: We compare our year-end price targets for the subject market index on a total-return basis versus our calculated required rate of return (RRR). Taking into account our Country Macro Rating, we set the Neutral borderline (below which is Underweight ) as 20% of RRR for Country Macro Rating, 40% of RRR for Country Macro Rating, and 60% of RRR for Country Macro Rating. That said, our index price targets are based on the average of two models. Model (1): Estimated index levels based on consensus price targets of all index constituents. Stocks with no price targets are valued at market price. Model (2): Estimated index levels based on our expected re-pricing (whether re-rating, de-rating, or unchanged rating) of the forward price-earnings ratio (PER) of each index in addition to consensus earnings growth for the forward year. SECTOR RATINGS: On the sectors level, we focus on six major sectors, namely (1) Consumer and Health Care, (2) Financials, (3) Industrials, Energy, & Utilities, (4) Materials, (5) Real Estate, and (6) Telecom Services & IT. To assess each sector, we use the SWOT analysis to list the strengths, weaknesses, opportunities, and threats in each country. We then translate our qualitative SWOT analysis into a quantitative model to evaluate all six sectors across countries. Each of the measures we used, although mostly subjective, is assigned a score as either +1 (high impact), 0 (medium impact), or -1 (low impact). At a later stage, when assigning the final rating Overweight, Neutral, or Underweight for each sector in each country, we realize that sometimes it is unfair to assign equal weights for the sub-sectors in each major sector assessed. Hence, some of the sub-sectors are given different weights for their significant profile in each country. Additionally, the final rating for each sector in each specific country is assigned based on a relative calculation comparing this sector to all other sectors in this country. SECURITY INVESTMENT RATINGS: We combine intrinsic value, relative valuation, and market sentiment into a single rating. Our three-pronged methodology involves (1) discounted cash flows DCF valuation model(s), (2) relative valuation metrics, and (3) overall sentiment. Whenever possible we attempt to apply all three aspects on the issuers or securities under review. In certain cases where we do not have our own financial and valuation models, we attempt to scan the market for other analysts value estimates and ratings (i.e. consensus view) on average. We compliment this with relative valuation and sentiment drivers, such as positive/neutral/negative news flows. For all issuers/securities covered, we have three investment ratings (Buy, Hold, or Sell), comparing the security s expected total return (including both price performance and expected cash dividend) over a 12-month period versus its Required Rate of Return RRR as calculated using the Capital Asset Pricing Model CAPM and adjusted for the Risk Rating we attach to each security. Our price targets are subjective and are estimates of the analysts where the securities covered will trade within the next 12 months. Price targets can be derived from earnings-based valuation models (e.g. Discounted Cash Flow DCF ), asset-based valuation models (e.g. Net Asset Value NAV ), relative valuation multiples (e.g. PER, PBV, EV/EBITDA, etc.), or a combination of them. In case we do not have our own valuation model, we use a weighted average of market consensus price targets and ratings. We review the investment ratings periodically or as the situation necessitates. SECURITY RISK RATINGS: We assess the risk profile of each issuer/security covered and assign one of three risk ratings (High, Moderate, or Low). The risk rating is weighted to reflect different aspects specific to (1) the sector, (2) the issuer, (3) the security under review, and (4) volatility versus the market (as measure by beta) and versus the security s average annualized standard deviation. We review the risk ratings at least annually or as the situation necessitates. Other Disclosures MFS does not have any proprietary holding in any securities. Only as a nominee, MFS holds shares on behalf of its clients through Omnibus accounts. MFS is not currently a market maker for any listed securities. If Total Return is Buy (B) Hold (H) Sell (S) Not Rated (NR) Not Covered (NC) Low (1) Moderate (2) High (3) Higher than RRR Higher than RRR Higher than RRR Between RRR and 20% of RRR Lower than 20% of RRR Risk Rating Between RRR and 40% of RRR Lower than 40% of RRR Between RRR and 60% of RRR Lower than 60% of RRR We have decided not to publish a rating on the stock due to certain circumstances related to the company (i.e. special situations). We do not currently cover this stock or we are restricted from coverage for regulatory reasons.

12 Analyst Certification I (we), Amr ElDaly, employed with Mubasher International, a company under the National Technology Group of Saudi Arabia being a shareholder of Mubasher Financial Services BSC (c) as Senior Equity Analyst and author(s) to this report, hereby certify that all the views expressed in this research report accurately reflect my (our) views about the subject issuer(s) or security(ies). I (we) also certify that no part of my (our) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or view(s) expressed in this report. Also, I (we) certify that neither myself (ourselves) nor any of my (our) close relatives hold or trade into the subject securities. Head of Research Certification I, Amr Hussein Elalfy, Global Head of Research of Mubasher Financial Services BSC (c) confirm that I have vetted the information, and all the views expressed by the Analyst in this research report about the subject issuer(s) or security(ies). I also certify that Amr ElDaly the author(s) of this report, has (have) not received any compensation directly related to the contents of the Report. Disclaimer This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Mubasher Financial Services BSC (c) ( MFS ) has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; MFS makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the document are based upon publicly available information at the time of publication and are subject to change without notice. This document is not intended for all recipients and may not be suitable for all investors. Securities described in this document are not available for sale in all jurisdictions or to certain category of investors. The document is not substitution for independent judgment by any recipient who should evaluate investment risks. Additionally, investors must regard this document as providing stand-alone analysis and should not expect continuing analysis or additional documents relating to the issuers and/or securities mentioned herein. Past performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and may be subject to change without notice. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognized market, it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. References to ratings/recommendations are for informational purposes only and do not imply that MFS adopts, supports or confirms in any way the ratings/recommendations, opinions or conclusions of the analysts. This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MFS or its affiliates to any registration or licensing requirements within such jurisdiction. MFS accepts no liability for any direct, indirect, or consequential damages or losses incurred by third parties including its clients from any use of this document or its contents. Copyright Copyright 2016, Mubasher Financial Services BSC (MFS), ALL RIGHTS RESERVED. No part or excerpt of this document may be redistributed, reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of MFS. MubasherTrade is a trademark of Mubasher Financial Services BSC. Mubasher Financial Services BSC (c) is an Investment Business Firm Category 1, licensed and regulated by the Central Bank of Bahrain. Issuer of Report Mubasher Financial Services BSC (c) is an Investment Business Firm Category 1, licensed and regulated by the Central Bank of Bahrain. Website: Research@MubasherTrade.com

13 Sales & Research Contact Details INSTITUTIONAL SALES RETAIL SALES RESEARCH MENA Bahrain UAE Research Team Call Center: Call Center: Egypt Egypt Institutions-Egy@Mubasher.net Egypt@MubasherTrade.com Call Center: /