NEUTRAL. National Investment Company (NINV.KW)

Transcription

1 National Investment Company (NINV.KW) NEUTRAL CMP KWD Target KWD Potential Upside 2.2% MSCI GCC Index Kuwait Stock Exchange Index 8, Key Stock Data Sector Investments Reuters Code NINV.KW Bloomberg Code NINV KK Equity Net Out. Shares (mn) Market Cap (KWD mn) Market Cap (USD mn) Avg. 12m Vol. (mn) Volatility (30 day) Volatility (180 day) Stock Performance (%) 52 week high / low (KWD) / M 3M 12M Absolute (%) Relative (%) Shareholding Pattern (%) Mohamed Abdulmohsin Al Kharafi and Sons Company [via Al Khair National for Stocks and Real Estate Company] Public IFA and Kuwait Stock Exchange Index Executive Summary Established in 1987, National Investments Company (NINV) is primarily engaged in investment activities and related financial services in local and international projects including real estate, hotels and industrial companies; trading in local and international financial markets. The company s assets under management stood at KWD 2.24 billion in NINV s total income dropped 70.1% in 1Q09 The company s total income dropped 70.1% in the first quarter of this year to KWD 7.81 million compared to KWD million in 1Q08 mainly due to a loss on financial investments and lower income. Moreover, it incurred a loss of KWD 1.05 million on financial assets compared to a gain of KWD 3.66 million in 1Q08. Additionally, declines in dividend income and management & advisory fees by 69.3% and 51.9% to KWD 0.88 million and KWD 1.66 million respectively, for the quarter negatively impacted income. At the same time, incentive fees fell to zero compared to KWD million in 1Q08. Added to this, interest income also fell 87.9% to KWD million as overall market conditions continued to remain weak. On the other hand, other income rose to KWD 3.5 million from nil. Finance costs and administrative expenses declined 54.1% and 81.7%, respectively. As a result, a net loss of KWD 3.86 million was booked as against a net profit of KWD million in 1Q08. Adjusted loss per share (LPS) stood at KWD as against an EPS of KWD in 1Q08. Outlook and valuation Kuwait s investment sector witnessed a tremendous rise with the growth in credit facilities and investments on the back of hydrocarbon led surplus until 1H08. However, amid the global financial turmoil and weak capital markets, this sector was hurt by the volume of investment losses and impairment charges. The value of assets declined almost USD 32 billion held by all the 99 Kuwaiti investment companies during the six months of 2008 and till January At the same time, the real estate sector has also been witnessing declining property prices, weakening demand and delays/postponements in major infrastructure projects. This had a coupling effect on the companies performance in the sector, as most of them booked losses in their books. However, on the other hand, huge infrastructure spending in Kuwait and the company s thrust to grow by making investments in new geographies is expected to keep its longterm growth drivers intact. Based on these factors, we recommend a cautious outlook on the stock until the economic revival in Kuwait. To determine the fair value of the company, we have used the GGM valuation method. Currently, NINV s stock is trading at a P/E multiple of 15.80x and 10.25x on 2009E and 2010E earnings, and at a P/B multiple of 1.27x and 1.26x on 2009E and 2010E BVPS, respectively. Meanwhile, the stock has lost 32.4% since the beginning of this year as against a rise of 4.2% by the Kuwait Stock Exchange. Considering the above factors, we revise downwards our earlier price target of KWD (October 09, 2006) to KWD 0.353, which exhibits a potential upside of 2.2% from its closing price of KWD (as on July 02, 2009). Therefore, we downgrade our earlier opinion of OVERWEIGHT to NEUTRAL on National Investment Company. KWD Millions 2007A 2008A 2009E 2010E 2011E Total Income % Change YoY Net Profit % Change YoY NA Adj. EPS (KWD) Total Assets RoAE (%) Call us on or us at research@taib.com

2 Background NINV operations range from asset management to real estate activities National Investments Company (NINV) established in 1987, is primarily engaged in investment activities and related financial services in local and international projects including real estate, hotels and industrial companies; trading in local and international financial markets. In 1994, after re-listing on the Kuwait Stock Exchange, it started financial and wealth management services to both institutional and private investors, and expanded its services to include fund and portfolio management, treasury services, international brokerage and corporate finance. NINV Services Funds Asset & Portfolio management Real Estate Corporate finance Private Equity Treasury International Brokerage Research Forward Trading Equity funds o Al-Wataniya o Al-Safwa o Al-Darij o Zajil o Mawarid o Al-Mada Alternative funds o Al-Tahawut Hedge Fund Money market funds o Al-Wataniya Money market Fund Source: NINV Provides a chain of financial services along with funds The company focuses on creating value for its clients by offering unique and diversified investment opportunities, delivering superior returns, and providing excellent service. It manages equity funds in the local and GCC markets. NINV is also the first company to develop, manage and launch a single manager hedge fund in the Middle East - Al Tahawut. It also has a money market fund called Al- Wataniya Money Market Fund, which aims to achieve returns in excess of three-month Kuwaiti Dinar deposit rates by investing in short-term money market instruments. The company is currently one of the leaders in regional asset and portfolio management in Kuwait, in terms of performance and assets under management. Assets under management witnessed a substantial growth to reach over KWD 2.24 billion in NINV s Corporate Finance division provides services in areas such as capital raising, mergers and acquisitions, and corporate and financial restructuring in the local and Arab markets. The company has extensive experience in real estate related investments. It owns and manages real estate in Kuwait, Europe, the Middle East, and in the GCC, managed in cooperation with internationally renowned corporations. In this segment, NINV is actively involved in property trading, development, direct acquisition, and capital improvement. It also provides local real estate management and advisory services to its institutional and private clients. NINV s Treasury department offers a comprehensive range of money market and forex products, and offers execution and advisory services for both institutional and private clients at highly competitive rates. Its International Brokerage division provides execution and advisory services in international equities, futures, commodities and options.

3 Business Model Board of Directors Chaired by Mr. Fouzan Mohammed Al-Faris Mr. Asaad Ahmed Al- Banwan Vice Chairman Mr. Ibrahim Abdulrahman Al-Asfour Mr. Bassem Abdullah Al- Othman Mr. Basem Saoud Al- Rashid Mr. Sulaiman Khalid Al- Sahli Mr. Yousef Sager M. Al- Sager Source: NINV Strategic alliances with local and international entities for its growth and to expand its presence NINV is primarily provides financial services including asset management, investments and treasury NINV Focusing on cost optimisation, it introduced new technology to integrate its operations Through its subsidiaries, the company operates across multi-sectors including hotel, tourism, cement and real estate Subsidiaries/Associates/Affiliates of NINV NINV has a number of subsidiaries, associates and investments. SUBSIDIARIES/ASSOCIATES/INVESTMENTS COUNTRY % SHARE Al Bawwaba National General Trading & Contracting Company Kuwait National Investments Company - Lebanon Lebanon National Tradegate Kuwait Gulf Investments Company Bahrain Gulf Cement Company - UAE [directly 48% and indirectly 5.5% UAE via Al Wataniya Investment Fund] Seera Investment Bank Bahrain INVESTMENTS First Investment Company Kuwait Kuwait Syrian Holding Company Kuwait 7.49 Kuwait Financial Centre [via Al Wataniya Investment Fund] Kuwait 6.64 Heavy Engineering Industries & Shipbuilding Company Kuwait 6.42 Al Safat Investment Company Kuwait 5.98 Gulf Investment House [via Al Wataniya Investment Fund] Kuwait 5.36 Ekttitab Holding Company [2.46% via Al Wataniya Investment Kuwait Fund and 1.68% via Al Safwa Investment Fund] 4.14 Dar SSH International Engineering Consultants Kuwait - Ijara House Holding Company Kuwait - FUNDS Al Darij Investment Fund Kuwait - Al Mada Fund Kuwait - Al Safwa Investment Fund Kuwait - Al Tahawut Hedge Fund Kuwait - Al Wataniya Investment Fund Kuwait - Al-Wataniya Money Market Fund Kuwait - Mawarid Industrial and Petroleum Services Fund Kuwait - Zajil Services & Telecommunications Fund Kuwait - Source: Zawya

4 Industry Scenario Middle East likely to grow at a lower rate of 2.3% in 2009 Kuwait s real GDP is expected to post a negative growth of 1.1% in 2009 The global credit crunch has set off by far the deepest worldwide recession since the great depression. According to the IMF, the world output is likely to post a negative growth of 1.3% in 2009, after achieving a growth rate of 3.2% in However, with the expectation of reversing the current scenario in 2010, the world output is forecast to attain a growth of 1.9%. On the other hand, the Middle East region s real GDP, which registered a healthy growth rate of 6.0% and 5.4% in 2007 and 2008, is likely to slow to 2.3% in 2009, before improving to 3.8% in Within the region, the GCC countries are expected to grow at 1.3% in 2009 and 4.2% in Kuwait s economy is largely dependent on hydrocarbon-related activities (oil & natural gas sector and refined petroleum products), which accounted for 56.8% of the nominal GDP and 94.9% of the total export earnings during Therefore, driven by the high oil prices and subsequent economic development, Kuwait s real GDP grew at an average rate of 7.1% over the period and is estimated to grow by 6.3% in However, with the impending global economic crisis and plunging export volumes, according to the IMF, the country s real GDP is expected to register negative growth of 1.1% during 2009 before rebounding to 2.4% in Moreover, Kuwait recorded a budget surplus of USD 21.0 billion for the fiscal 2008/09 led by rising oil prices during the first half of Oil revenues accounted for nearly 94% of the total revenues of USD 72.3 billion that exceeds the projections by 66.7%. On the other hand, budgetary deficit is likely to be KWD 4.8 billion for 2009/10 on the budgeted revenues of KWD 8.1 billion Nominal GDP and Growth 45% 30% 15% 0% -15% -30% -45% P 2010P Nominal GDP (USD Billions) GDP Grow th (%) 42.6% Sectoral Contribution to GDP (2007) 0.6% 56.8% Crude Oil & Natural Gas Sector (incld. Petroleum Products) Non-oil Sectors Import Duties Source: Economic Intelligence Unit Source: Central Bank of Kuwait The investment sector in Kuwait includes 46 conventional investment companies, regulated by the Central Bank of Kuwait (CBK). Most investment companies earn their revenues from investments, while a few derive revenues through lending activities. The investment sector in the country witnessed tremendous growth in its credit facilities, investments and assets given the ample liquidity and rising money inflow owing to the high oil revenues till the first half of 2008 and the subsequent economic development. Total assets within the sector grew at a CAGR of 23.9% over 2004 till 1H08, while domestic investments and foreign assets rose at a CAGR 33.0% and 17.1%, respectively. However, subsequent to the financial turmoil during 2H08, the total assets, domestic investments and foreign assets declined 7.7%, 18.1% and 8.2% respectively, over the six months ending December Furthermore, the effect has been extended to the first five months of 2009, as reflected from the plunging domestic investments and foreign assets that fell by 19.5% and 11.5% respectively, in the period. Total Assets of Conventional Investment companies in Kuwait Assets (KWD Millions) Q Q09 May 09 Cash Balances with CBK Balances with Local Banks Credit Facilities to Residents ,030 1,009 1,055 1, Domestic Investments 1,201 2,226 2,462 2,967 3,263 2,601 2,400 2,446 Foreign Assets 2,625 2,859 3,810 4,380 4,556 4,160 4,091 3,973 Other Assets ,061 1,298 1,527 1,465 Grand Total 4,872 6,679 8,324 9,388 10,313 9,443 9,335 9,116 No. of Companies Source: CBK

5 Kuwaiti investment companies shed almost USD 32 billion in the six months to January 2009 Total Liabilities of Conventional Investment companies in Kuwait Liabilities (KWD Millions) Q Q09 May 09 Financing from Residents ,263 1,564 1,598 2,162 1,985 1,797 Bonds and Debentures Foreign Liabilities 1,578 1,559 2,058 2,486 2,352 2,017 1,839 1,888 Own Funds 1,476 2,398 2,962 3,358 4,072 3,315 3,338 3,231 Other Liabilities 738 1,117 1,214 1,260 1,494 1,111 1,284 1,338 Grand Total 4,872 6,679 8,324 9,388 10,313 9,443 9,335 9,116 No. of Companies Source: CBK The value of assets held by all 99 Kuwaiti investment companies, dropped almost USD 32 billion in the six months to January 2009 as a result of the financial turmoil and global economic meltdown. This plunge reflects a 45% or USD 26 billion decline in holdings of companies listed on the Kuwaiti bourse, as well as fall in local mutual funds and investments abroad. Consequently, a number of local investment firms have defaulted on loans estimated at USD 18 billion, including USD 8 billion owed to foreign banks. Moreover, in February 2009, the CBK asked 27 local investment companies to appoint international financial advisors to help these companies reschedule their debts, in order to benefit from the proposed financing programme prepared by the central bank. Asset Management Industry The global asset management industry is becoming increasingly aware of the rapidly increasing wealth of the region fuelled by oil and gas revenues. Interestingly, the fund management industry in the GCC is in a nascent stage and has immense potential. According to McKinsey, the industry grew at an average annual rate of 19% between 2001 and The projected Middle East onshore assets under management are expected to increase from USD 57 billion in 2007 to more than USD 100 billion in The compounded annual growth for asset management from , for volumes and revenues, is estimated to be between 20% and 30%. It expects the market to continue its growth trend, with revenue growth lagging behind volume growth. Similarly, in early 2009, Cerulli Associates estimated that the Middle East assets under management would rise to USD 100 billion by However, in line with world stock markets, regional exchanges have been volatile off-late. Market capitalisation in the GCC markets grew at a compound annual growth rate of 40% between 2002 and There are around 600 listed companies in the GCC with an average capitalisation of approximately USD 1.8 billion in With an estimated wealth of USD 3 trillion the region presents immense growth potential. In the wake of the current crisis, the water and agriculture industry has emerged as a new asst class for Islamic investment, especially as sustainable investments. Real Estate Projects worth USD 296 billion are currently planned or underway in Kuwait Rapid population growth, unprecedented expansion of the construction sector & industrial projects and huge investments in the GCC infrastructure led to a surge in the real estate sector. According to the Middle East Economic Digest (MEED), projects worth USD 2.21 trillion are either planned or underway in the region, which in turn promises attractive growth prospects for the real estate sector. Kuwait is ranked third in terms of infrastructure spending after the UAE and Saudi Arabia with investments to the tune of USD billion. However, the recent global credit crisis and cautious spending in the sector has slowed down the growth. The sector has been more prone to price correction and projects being delayed or postponed in the recent times. Meanwhile, declining oil prices is expected to impact oil revenues and further affect the governments future investment plans.

6 1000 Total GCC Projects (June 22, 2009) 70% In USD billion % 50% 40% 30% 20% 10% 0 Bahrain Kuw ait Oman Qatar Saudi Arabia UAE 0% Projects planned and under w ay Projects on hold % YoY change Source: MEED Real estate trading dipped 5.8% in 1Q09 reflecting weak trends The real estate sector in Kuwait is highly fragmented and dominated by small to medium sized players. There are 58 real estate companies, of which 35 are listed. Since the economy is not vastly diversified, real estate as a sector receives a large portion of the bank credit. In 2008, the real estate sector in Kuwait was marred by promulgation of Laws 8 and 9 in late February which prevented all sole proprietorships from buying, selling, placing lien on and issuing letters of assignment to third parties and prevented Islamic banks from financing the residential housing. While real estate prices witnessed a 10%-30% decline in certain areas, real estate trading decreased 37% YoY in The trend continued in 1Q09 with trading reportedly down by 5.8% to KWD billion. Real estate trading (KWD Billion) Change in Real estate trading (YoY) 5, % 4, % 3, % 2, % 1, % % 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 Source: Estate Registration & Authentication Dept. Ministry of Justice Commercial real estate investment transactions witness a surprise jump to KWD billion Private housing transactions decreased 12.4% sequentially to KWD billion in 1Q09 as transactions declined from 998 in 4Q08 to 738 in 1Q09. Furthermore, real estate investment transactions were lower by 24.2% sequentially at KWD billion in 1Q09 mainly due to the continued negative impact of recession. However, commercial real estate trading witnessed a surprise increase of 38.5% sequentially to KWD billion as cash-trapped companies resorted to selling real estate for paying off their debts. The global economic downturn continues to negatively impact the Kuwaiti real estate sector with reduced transactions and weakening real estate prices. On the other hand, the Kuwaiti government remains committed to adopting measures to minimise the impact and bail out the economy from the economic crisis. The government has set up the Real Estate Clearing Company (RECC) to highlight the problems in the real estate market, to improve regulatory clarity and extend quality market information. Moreover, to reduce inflation the government has also implemented a new regulation, which refrain investment companies from trading in residential properties. In addition, the central bank has also implemented other regulations that limit monthly interest and repayment instalments for private borrowers seeking a new loan to the equivalent of 40% or less of their salaries compared to the previous ceiling of 50%, which further affect property sales. Going forward, even though the short-term outlook for the sector looks weak on declining prices and demand, infrastructure spending lined up for the sector and government s bid to diversify the economy from its oil-dependence promises hope in the long-term. With an improvement in overall economic conditions along with tremendous growth in credit facilities and investments provided ample liquidity, thanks to rise in oil prices till first half to However, the investment sector has been negatively affected by investment losses and impairment charges due to economic downturn and weak capital markets. At the same time, fall in property prices coupled with weak demand and delays/postponements in major infrastructure projects, has made real estate sector unattractive. Government s support is expected to provide more income earning opportunities in the coming years.

7 Financial Performance FY 2008 Losses and impairment charges on investments negatively impacts performance in 2008 plunging 56% Income NINV s total income plunged 56.4% to KWD million compared to KWD million in 2007, mainly due to negative impact of the weak financial market in Kuwait. Additionally, net loss on financial asset amounted to KWD million for 2008 compared to a profit of KWD million in 2007, while losses on change in fair value amounted to KWD 0.41 million compared to a gain of KWD 3.41 million in NINV s financial performance was also negatively impacted by the performance of its subsidiaries. The company reported KWD 0.50 million as losses from its share in associated companies compared to a profit of KWD 4.97 million in Rental income declined 7.9% to KWD 1.42 million from KWD 1.54 million in Management & advisory fees fell 4.6% to KWD million and incentive fees decreased 21.3% to KWD million in With declines in cash & cash equivalents, the company s interest income plummeted 69.5% to KWD 1.42 million from KWD 4.65 million in the previous year. However, the downfall was partially offset by improved dividend income and property management. The company s gains on financial assets improved 78.5% to KWD 7.61 million in 2008 compared to KWD 4.26 million a year ago. Net gain form foreign exchange amounted to KWD 2.68 million from a loss of KWD 2.47 million. The dividend income swelled 59.4% to KWD million from KWD 6.40 million in the previous year. Segment-wise, Investment services posted a loss of KWD 1.57 million compared to an income of KWD million. Real estate income declined 61.9% to KWD 1.93 million from KWD 5.06 million in 2007, led by a decline in real estate prices. Asset management and advisory income fell 14.2% to KWD million. All these declines were attributed to deteriorating overall economic conditions. Conversely, treasury income increased 87.8% to KWD 4.10 million and other income rose 59.4% to KWD 0.34 million in Expenses NINV s administrative expenses increased 66.7% to KWD million from KWD 6.57 million a year ago, while finance costs fell 45.5% to KWD 4.43 million from KWD 8.12 million in Furthermore, the company incurred an impairment loss of KWD million compared to a profit (reversal of impairment loss) of KWD 0.62 million in Weak operating performance results in losses for 2008 Profitability A relatively weak performance at the income level along with rising expenses negatively impacted NINV s operating performance in As a result, the company reported an operating loss of KWD million compared to an operating profit of KWD million in Consequently, the company reported a loss of KWD million in 2008 compared to a profit of KWD million in the previous year. NINV s adjusted LPS stood at KWD in 2008 compared to an EPS of KWD in the previous year.

8 Chart Gallery Total Operating Income (KWD Millions) Net Profit KWD Millions) A 2007A 2008A 1Q08 1Q A 2007A 2008A 1Q08 1Q09 Total Assets (KWD Millions) Shareholder's Equity (KWD Millions) A 2007A 2008A 1Q08 1Q A 2007A 2008A 1Q08 1Q09 RoAA RoAE 30% 24% 18% 12% 6% 0% -6% -12% 2006A 2007A 2008A 1Q08 1Q09 30% 24% 18% 12% 6% 0% -6% -12% 2006A 2007A 2008A 1Q08 1Q09

9 Size of the Company The salient features of the balance sheet are: Total assets fell 39% in 1Q09 NINV s total assets decreased 38.7% to KWD million in 1Q09 from KWD million in 1Q08, as all heads across assets decreased. Other assets fell 85.2% to KWD 9.55 million from KWD million. Its share in the total assets also decreased from 14.9% to 3.6% in 1Q09. NINV s financial assets at fair value decreased 75.1% to KWD million in 1Q09 from KWD million in the same period previous year. This can be attributed fall in values of local securities. The share in the total assets also decreased from 18.1% to 7.4% in 1Q09. Investments in associated companies fell 22.9% to KWD million from KWD million in 1Q08. Conversely, its share in total assets rose to 17.2% from 13.7%. Investment properties marginally fell 1.5% to KWD million from KWD million a year ago. During 1Q09, NINV reported a 53.1% decline in cash and cash equivalents to KWD 8.56 million from KWD million in 1Q08, despite a 30.3% increase in net cash from operating activities to KWD 4.31 million in 1Q09. Further, the share of cash and cash equivalents in the total assets also decreased from 4.2% to 3.2% in 1Q09. In addition, property held for sale declined 43.1% to KWD 2.17 million compared to KWD 3.81 million in 1Q08, as the realty sector collapsed impacted by the global financial crisis. Its share in the total assets also declined to 0.8% from 0.9% in 1Q08. On the liabilities side, total liabilities decreased 48.1% to KWD million from KWD million in 1Q08 as its share in the total balance sheet decreased from 26.9% to 22.8% in 1Q09. This was mainly on account of lower payables along with decreased borrowings. While payables fell 67.5% to KWD million in 1Q09, borrowings received decreased 40.9% to KWD million. NINV s shareholders equity declined 35.2% to KWD million compared to KWD million in 1Q09 mainly due to lower retained earnings, which even offset the increase in share capital. Retained earnings declined 71.5% at KWD million from KWD million in 1Q08 due to the loss incurred by the company during the quarter. The company s cumulative change in fair value reserve fell 92.1% in 1Q09. Conversely, treasury share reserve rose 17.2% to KWD million from KWD million in 1Q08, while foreign currency translation reserve amounted to a negative KWD 0.31 million in 1Q09 compared to a negative KWD 3.36 million in the prior year same quarter. The share of shareholders equity in the total balance sheet increased from 73.1% in 1Q08 to 77.2% in the current quarter. Total income drops 70% Financial Performance Analysis 1Q09 NINV witnessed a 70.1% drop in its total income to KWD 7.81 million compared to KWD million in 1Q08 mainly due to loss on financial investments and lower income. The company incurred a loss of KWD 1.05 million on financial assets compared to a gain of KWD 3.66 million in 1Q08. Moreover, gains on financial assets available for sale also stood at KWD 0.09 million compared to KWD 1.25 million a year ago. At the same time, incentive fees fell to zero compared to KWD million in 1Q08 that severely impacted the company s total income for the quarter. Additionally, declines in dividend income and management & advisory fees by 69.3% and 51.9% to KWD 0.88 million and KWD 1.66 million, respectively for the quarter negatively impacted the income. Added to this, interest income also fell 87.9% to KWD 0.06 million during the quarter as overall market conditions continue to remain weak. Even though other income rose to KWD 3.5 million from nil and 54.1% and 81.7% decline in finance cost and administrative expenses respectively, weak operating performance led to an operating loss of KWD 3.86 million compared to an operating profit of KWD million in 1Q08.. Moreover, the company reported a net loss of KWD 3.86 million as against a net profit of KWD million in 1Q08. Adjusted LPS stood at KWD as against an EPS of KWD in 1Q08. Segment-wise, investment services fell 99.3% to KWD million compared to KWD 9.51 million. Real Estate income decreased 5.0% to KWD 0.33 million as against KWD 0.34 million in 1Q08. Asset management and advisory income fell 91.0% to KWD 1.59 million, due to a decline in overall economic conditions. Conversely, Treasury posted an income of KWD 2.33 million compared to a net loss of KWD 1.28 million in 1Q08 and other income rose to KWD 3.50 million from KWD 1,000 in 1Q08.

10 Peer Comparison In order to do a peer comparison, we have taken comparable companies engaged in investment activities within Kuwait that includes, Kuwait Investment Co. (KIC), Noor Financial Investment Co. (NFIC), International Financial Advisors (IFA) and National Investments Co. (NINV) Peer Analysis (in KWD Millions) IFA KIC NFIC NINV Q Q Q Q09 Total Income/(Loss) % YoY Growth NA NA -17.0% NA NA Total Operating Profit % YoY Growth NA NA NA NA NA Net Profit % YoY Growth NA NA NA NA NA NA NA Total Assets % YoY Growth Total Liabilities % YoY Growth Shareholders' Equity % YoY Growth Operating expenses to income ratio NA 468.3% 43.9% NA 4.0% 10.0% 33.7% 12.6% Equity to Total Assets Ratio 32.3% 26.6% 42.1% 41.3% 33.0% 29.2% 74.8% 77.2% RoAA (%) * * * * RoAE (%) * * * * Sources: Zawya, NINV s Financial statements * Annualised

11 New Projects and Strategies Launched funds to tap the infrastructural growth NINV s growth initiatives entail expanding its presence both regionally and internationally through acquisitions and increased investments. The company already has a diversified presence across multiple sectors like real estate and cement. In order to strengthen its presence, NINV acquired 6.0% Al Safat Investment Company. Further, in July 2008, NIV along with Kharafi National launched a fund for investment in the infrastructure sector of the Middle East and North Africa region with a variable capital ranging between USD 1 billion and USD 2 billion. In May 2008, it also launched Al-Mada Investment Fund to actively invest in GCC Shariah-compliant listed equities. The fund is open ended with a variable capital of USD 20 million to USD 300 million. SWOT Analysis STRENGTHS Presence across a host of financial services including asset management, investments and treasury Diversified presence across sectors including real estate and cement. Wide geographical presence WEAKNESS Higher impairment losses amid falling capital markets, higher investment assets may affect the company s profitability THREATS Real estate projects might face delay or postponement following the liquidity crisis If the negative trend in the financial markets continue, investments might face increased losses and impairments OPPORTUNITIES Focus on diversifying towards a nonoil economy to provide opportunities of investments Government s initiatives to inject liquidity in the economy to act as catalyst for growth Risks and Concerns: The current economic downturn has led to a liquidity crunch across economies in the GCC with lower oil prices proving detrimental to the budget surpluses enjoyed by them. The dearth of liquidity has forced the central governments to curtail/postpone their ambitious infrastructure expansion plans. The slow economic growth has indeed negatively impacted the demand across the real estate and construction sectors. Going forward, if the economic growth remains weak, companies engaged in real estate activities might face restrained bottom-line growth. Companies engaged in the tourism and aviation sector might also feel the heat of a prolonged economic downturn as lower disposable income leads to reduced level of activity in the sector. Over exposure to investment in securities and financial instruments in a weak financial market pose liquidity risks.

12 Valuation Methodology: We have used one valuation methods for arriving at the fair value of NINV, as explained below: I. Target P/BV approach based on the Gordon Growth Model (GGM) Target P/BV Multiple Approach using the Gordon Growth Model (GGM) The model uses the sustainable return on average equity (RoAE), cost of equity (Ke) and expected growth in earnings (g) to arrive at the target P/BV of the company under review using the formula: Target P/BV = (RoAE - g) / (Ke - g) Subsequently, we have multiplied the target P/BV multiple for 2009E with the 2009E BVPS to arrive at the fair value of the company over a medium-term investment horizon. Cost of Equity: 11.07% We have made the following assumptions to arrive at the target P/B multiple for 2009E of the bank: i. For sustainable RoAE, we have considered the 5-year average RoAE of the company over 2009E-2013E. ii. We have estimated the cost of equity using Capital Asset Pricing Model (CAPM): a. Risk free rate of return (Rf) of 3.28%, which is 12-months average yield on 10-year US T-bill. b. Cost of Equity 11.07% iii. We have assumed a terminal growth rate (g) of 2.00%. GGM Valuation Summary Sustainable RoAE (%) Cost of Equity (Ke) (%) Perpetual Growth Rate (%) 2.00 Target P/BV Multiple for 2009E (x) E BVPS (KWD) Fair Value per Share using Target P/BV (KWD) CMP (KWD) Upside/(Downside) 2.2% Sensitivity Analysis The tables below exhibits the sensitivity analysis for the estimated fair value per share based on various terminal growth rates, cost of equity and RoAE. The shaded area represents the most probable outcomes. Sensitivity Analysis - GGM (Ke vs. g) Terminal/Perpetual Growth Rate (g) 1.00% 1.50% 2.00% 2.50% 3.00% 9.07% Cost of Equity (Ke) 10.07% % % % Cost of Equity (Ke) Sensitivity Analysis - GGM (Ke vs. RoAE) Return on Average Equity (RoAE) 11.79% 12.79% 13.79% 14.79% 15.79% 9.07% % % % %

13 Return on Average Equity (RoAE) Sensitivity Analysis - GGM (RoAE vs. g) Terminal Growth Rate (g) 1.00% 1.50% 2.00% 2.50% 3.00% 11.79% % % % % Investment Opinion Fair Value: KWD Investment Opinion: NEUTRAL As a result of high oil prices and subsequent economic development, Kuwait s real GDP grew at an average of 7.1% over the period and is estimated to grow by 6.3% in However, with the impending global economic crisis, low oil prices and falling exports volumes, is expected to have a negative impact on the country s growth. Consequently, the growth in the country s real GDP is expected to contract by 1.1% in 2009 before expected recovery of 2.4% in In addition to this, the budget deficit is also likely to be around KWD 4.8 billion for 2009/10. These are in turn expected to keep the investment as well as infrastructural activities in the economy at a relatively slower pace. As a result of the upbeat economic performance, the investment sector also witnessed tremendous growth with rise in credit facilities and investments given the ample liquidity and rising money inflow on high oil prices until 1H08. However, the sector was badly hit following the global economic crisis, which negatively impacted the availability of funds. The weak capital markets resulted in huge investment losses and impairment charges for the companies operating in the financial services sector. This in turn has led to depletion the assets held by the investment companies. The value of assets held by all the 99 Kuwaiti investment companies declined almost USD 32 billion in the later half of 2008 till January At the same time, the real estate sector has also been feeling the heat of the economic crisis, with several projects being put on hold or cancelled on liquidity crisis and reduced demand and price level. Going forward, on a positive note, the government remains focused on reviving the economy through much needed regulations and bail-outs. In order to revive the real estate sector, it has set up the RECC to highlight real estate problems and improve regulatory clarity. Further, the long-term drivers of the sector also look intact with investments to the tune of USD billion in a variety of projects. However, with the ongoing financial turmoil, the company s investments have been badly hit. The company booked millions of losses, thereby denting its performance. NINV has also been generating lower fees and commission income as a result of downturn hit asset management business. However, the government s initiatives to revive the economy along with a reversal in this downtrend expected in 2010 show a ray of hope for the companies. Further, huge infrastructure investments are expected to keep the long-term growth drivers of the sector intact. The company s thrust to grow by expanding its investments horizon is likely to provide more income earning opportunities in the coming years. Currently, NINV s stock is trading at a P/E multiple of 15.80x and 10.25x on 2009E and 2010E earnings, and at a P/B multiple of 1.27x and 1.26x on 2009E and 2010E BVPS, respectively. Meanwhile, the stock has lost 32.4% since the beginning of this year as against a rise of 4.2% by the Kuwait Stock Exchange. Considering the above factors, we revise downwards our earlier price target of KWD (October 09, 2006) to KWD 0.353, which exhibits a potential upside of 2.2% from its closing price of KWD (as on July 02, 2009). Therefore, we downgrade our earlier opinion of OVERWEIGHT to NEUTRAL on National Investment Company.

14 Financial Statements Consolidated Balance Sheet (in KWD 000) 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E ASSETS Cash and balances with banks and financial institutions 53,769 11,673 18,258 8,555 5,143 5,284 7,163 Financial assets at fair value through income statement 88,831 19,509 78,681 19,561 20,282 21,694 23,855 Property held for sale 3,810 2,167 3,810 2,167 2,381 2,664 3,033 Financial assets available-for-sale 162, , , , , , ,506 Investment in associates 59,102 45,090 59,399 45,819 49,102 53,962 60,247 Investment properties 19,280 18,911 19,302 19,010 19,684 21,669 24,505 Other assets 30,535 9,183 64,680 9,550 8,455 8,715 9,157 Total assets 417, , , , , , ,466 LIABILITIES Due to banks and other short-term borrowings 99,707 57,937 84,916 50,206 44,037 59,369 85,068 Accounts payable and accruals 22,752 12,123 31,871 10,364 10,096 10,630 11,404 Total liabilities 122,459 70, ,787 60,570 54,134 69,999 96,472 EQUITY Share capital 79,656 87,622 79,656 87,622 87,622 87,622 87,622 Share premium 49,593 49,593 49,593 49,593 49,593 49,593 49,593 Statutory reserve 22,796 22,796 22,796 22,796 22,796 22,796 22,796 Treasury shares -27,478-27,877-32,717-28,127-28,127-28,127-28,127 Treasury shares reserve 29,142 37,598 32,071 37,589 37,589 37,589 37,589 Foreign currency translation reserve -2,424-1,143-3, Cumulative changes in fair value 51,819 3,425 58,347 4,632 4,632 4,632 4,632 Retained earnings 91,879 35, ,602 31,553 53,710 55,641 57,166 Equity attributable to the equity holders of the Parent Company 294, , , , , , ,994 Minority interest TOTAL EQUITY 295, , , , , , ,994 Total Liabilities and Equity 417, , , , , , ,466

15 Consolidated Income Statement (in KWD 000) 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E Income Realised/Unrealised gains/(losses) gains on financial assets at fair value through income statement 19,448-18,410 3,661-1,053 1,825 3,037 4,532 Realised gains on financial assets available-forsale 4,262 7,608 1, ,919 4,491 5,332 Profit on sale of investment property Profit on sale of property held for sale Change in fair value of investment properties 3, Rental income 1,539 1, ,104 1,540 1,987 Dividend income 6,397 10,200 2, ,980 6,815 7,911 Management and advisory fees 13,772 13,139 3,457 1,662 10,564 11,029 11,736 Incentive fees 18,583 14,623 14, ,045 11,018 12,306 Interest income 4,651 1, Share of results of associates 4, , ,399 Gain (loss) on foreign exchange trading -2,471 2,675-1,692 2,310 2,836 3,020 3,231 Other income ,500 3, OPERATING INCOME OF THE GROUP 74,585 32,552 26,130 7,814 40,841 42,379 49,037 Finance costs -8,116-4,425-1, ,340-4,297-6,149 Administrative expenses -6,571-10,956-5, ,217-8,628-9,318 Impairment loss (reversal of impairment loss) , ,280-10, Loss (gain) on foreign currency translation Total operating expenses -14,053-53,285-6,548-11,670-21,652-12,925-15,467 PROFIT FROM OPERATIONS 60,532-20,733 19,582-3,856 19,189 29,454 33,570 KFAS National Labour Support tax (NLST) -1, Zakat Directors remuneration PROFIT FOR THE YEAR 58,238-20,733 18,723-3,856 18,301 28,217 32,193

16 Consolidated Cash Flow Statement (in KWD 000) 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E OPERATING ACTIVITIES Profit/(loss) from Operations 60,532-20,733 19,582-3,856 19,189 29,454 33,570 Adjustments for: Unrealised losses (gains) on financial assets at fair value through income statement -7,703 23,103 1,279 1,007-1,825-3,037-4,532 Profit on sale of financial assets available-for-sale -4,262-7,608-1, ,919-4,491-5,332 Profit on sale of investment property Change in fair value of investment properties -3, Dividend income -6,397-10,200-2, ,980-6,815-7,911 Interest income -4,651-1, Profit on sale of property held for sale Share of results of associates -4, , ,399 Finance costs 8,116 4,425 1, ,340 4,297 6,149 Depreciation Impairment loss (reversal of impairment loss) , ,280 10, Changes in operating assets and liabilities: Blocked deposit , Financial assets carried at fair value through income statement -14,081 15,437 8,871-1, ,412-2,161 Property held for sale 1,669 2, Other assets 1,818 20,764-31, Accounts payable and accruals 10,268-8,541 8,346-1,744-2, Cash from operations 35,804 56,400 2,714 4,204 16,896 16,606 17,857 Interest received 4,899 1, Paid to KFAS National labour support tax paid -1,175-1, Zakat paid Directors remuneration paid Cash flows from Operating activities 39,017 55,688 3,309 4,310 17,316 16,163 17,223 Investing activities Net of financial assets available-for-sale -27,368-54,976-19, ,356-9,050-14,149 Addition to investment property ,985-2,836 Dividend received 6,397 10, ,980 6,815 7,911 Associates (Net) -6,214 14, ,012-4,860-6,285 Net cash used in investing activities -27,155-30,636-18,775 1,060-4,162-9,080-15,359 Financing activities Proceeds from capital increase 34, Dividend paid -12,822-27, ,287-30,668 Sale of treasury shares 46,576 55,293 12, Purchase of treasury shares -29,503-47,236-15, Distribution to minority interest Short-term borrowings (repaid) taken 20,000-15,000 1,064 1,166-13,900 15,332 25,699 Finance costs paid -8,389-4,808-1, ,340-4,297-6,149 Capital repayment to Minority shareholders Net cash (used in) from financing activities 50,000-39,473-3, ,499-15,252-11,118 (Decrease)/increase in cash and cash equivalents 61,862-14,421-18,576 5,687-4,344-8,169-9,254 Cash and cash equivalents at the beginning of the year -89,092-27,230-27,230-41,651-41,651-45,995-54,164 Cash and cash equivalents at the end of the year -27,230-41,651-45,806-35,964-45,995-54,164-63,418

17 Common Size Statements Common-Size Consolidated Balance Sheet 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E ASSETS Cash and balances with banks and financial institutions 12.9% 4.2% 4.2% 3.2% 1.8% 1.8% 2.2% Financial assets at fair value through income statement 21.3% 7.0% 18.1% 7.4% 7.2% 7.2% 7.3% Property held for sale 0.9% 0.8% 0.9% 0.8% 0.8% 0.9% 0.9% Financial assets available-for-sale 38.9% 61.6% 43.7% 60.6% 62.7% 61.9% 60.9% Investment in associates 14.1% 16.2% 13.7% 17.2% 17.5% 18.0% 18.4% Investment properties 4.6% 6.8% 4.4% 7.1% 7.0% 7.2% 7.5% Other assets 7.3% 3.3% 14.9% 3.6% 3.0% 2.9% 2.8% Total assets 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% LIABILITIES Due to banks and other short-term borrowings 23.9% 20.9% 19.6% 18.9% 15.7% 19.8% 26.0% Accounts payable and accruals 5.4% 4.4% 7.3% 3.9% 3.6% 3.6% 3.5% Total liabilities 29.3% 25.2% 26.9% 22.8% 19.2% 23.4% 29.5% EQUITY Share capital 19.1% 31.6% 18.4% 33.0% 31.1% 29.3% 26.8% Share premium 11.9% 17.9% 11.4% 18.6% 17.6% 16.6% 15.1% Statutory reserve 5.5% 8.2% 5.3% 8.6% 8.1% 7.6% 7.0% Treasury shares -6.6% -10.0% -7.5% -10.6% -10.0% -9.4% -8.6% Treasury shares reserve 7.0% 13.5% 7.4% 14.1% 13.4% 12.6% 11.5% Foreign currency translation reserve -0.6% -0.4% -0.8% -0.1% -0.2% -0.1% -0.1% Cumulative changes in fair value 12.4% 1.2% 13.5% 1.7% 1.6% 1.5% 1.4% Retained earnings 22.0% 12.8% 25.5% 11.9% 19.1% 18.6% 17.5% Equity attributable to the equity holders of the Parent Company 70.6% 74.8% 73.1% 77.2% 80.8% 76.6% 70.5% Minority interest 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% TOTAL EQUITY 70.7% 74.8% 73.1% 77.2% 80.8% 76.6% 70.5% Total Liabilities and Equity 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

18 Common-Size Consolidated Income Statement 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E Income Realised/Unrealised gains/(losses) gains on financial assets at fair value through income statement 26.1% -56.6% 14.0% -13.5% 4.5% 7.2% 9.2% Realised gains on financial assets available-forsale 5.7% 23.4% 4.8% 1.2% 9.6% 10.6% 10.9% Profit on sale of investment property 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Profit on sale of property held for sale 0.0% 2.4% 0.0% 0.0% 0.0% 0.0% 0.0% Change in fair value of investment properties 4.6% -1.3% 0.0% 0.0% 0.0% 0.0% 0.0% Rental income 2.1% 4.4% 1.2% 3.8% 2.7% 3.6% 4.1% Dividend income 8.6% 31.3% 10.9% 11.2% 14.6% 16.1% 16.1% Management and advisory fees 18.5% 40.4% 13.2% 21.3% 25.9% 26.0% 23.9% Incentive fees 24.9% 44.9% 55.7% 0.0% 24.6% 26.0% 25.1% Interest income 6.2% 4.4% 1.8% 0.7% 1.0% 1.0% 1.2% Share of results of associates 6.7% -1.5% 4.8% 1.0% 1.6% 2.3% 2.9% Gain (loss) on foreign exchange trading -3.3% 8.2% -6.5% 29.6% 6.9% 7.1% 6.6% Other income 0.0% 0.0% 0.0% 44.8% 8.6% 0.0% 0.0% OPERATING INCOME OF THE GROUP 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Finance costs -10.9% -13.6% -4.9% -7.6% -8.2% -10.1% -12.5% Administrative expenses -8.8% -33.7% -20.6% -12.6% -20.1% -20.4% -19.0% Impairment loss (reversal of impairment loss) 0.8% % 0.7% % -25.2% 0.0% 0.0% Loss (gain) on foreign currency translation 0.0% -0.6% -0.3% 2.4% 0.5% 0.0% 0.0% Total operating expenses -18.8% % -25.1% % -53.0% -30.5% -31.5% PROFIT FROM OPERATIONS 81.2% -63.7% 74.9% -49.3% 47.0% 69.5% 68.5% KFAS -0.7% 0.0% -0.7% 0.0% -0.4% -0.6% -0.6% National Labour Support tax (NLST) -2.0% 0.0% -1.9% 0.0% -1.2% -1.7% -1.7% Zakat 0.0% 0.0% -0.8% 0.0% 0.0% 0.0% 0.0% Directors remuneration -0.3% 0.0% 0.0% 0.0% -0.6% -0.6% -0.5% PROFIT FOR THE YEAR 78.1% -63.7% 71.7% -49.3% 44.8% 66.6% 65.7%

19 Financial Ratios 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E Profitability Return on Average Assets (RoAA) 15.9% -6.0% 17.6%* -5.7%* 6.5% 9.7% 10.3% Return on Average Equity (RoAE) 24.7% -8.3% 24.5%* -7.5%* 8.4% 12.4% 14.0% Margins Total Operating Expenses to Total Income Ratio 8.8% 33.7% 20.6% 12.6% 20.1% 20.4% 19.0% Capital Adequacy Shareholders' Equity to Total Assets 70.6% 74.8% 73.1% 77.2% 80.8% 76.6% 70.5% Total Debt to Shareholder's Equity 33.8% 27.9% 26.8% 24.4% 19.4% 25.9% 36.8% Total Liabilities to Shareholder's Equity 41.5% 33.8% 36.8% 29.5% 23.8% 30.5% 41.8% Operating Performance % YoY Change in Total Income NA % YoY Change in Operating Income NA % YoY Change in EBITDA NA % YoY Change in Net Profit NA NA % YoY Growth in Total Assets NA % YoY Growth in Shareholders' Equity NA Valuation Ratios Adj. EPS (KWD) * * Adj. BVPS (KWD) P/E (x) 4.96 NA 3.86 NA P/BV (x) CMP (KWD) * Annualised

20 Call us on or us at DISCLAIMER: All reasonable care has been taken to ensure that the information contained herein is not misleading or untrue at the time of publication, but we make no representation as to its accuracy or completeness. All information is for the private use of the person to whom it is provided without any liability whatsoever on the part of TAIB Securities WLL, any associated company or the employees thereof. Nothing contained herein should be construed as an offer to buy or sell or a solicitation of an offer to buy or sell. The value of any investment may fall as well as rise. Past performance is no guide to the future. The rate of exchange between currencies may cause the value of the investment to increase or diminish. Consequently, investors may not get back the full value of their original investment