Aramex. Resilient play, upgrading to Overweight. Overweight. 6 April 2011

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Company note Aramex MENA research Resilient play, upgrading to Overweight Aramex will still be able to grow its earnings modestly despite regional turmoil, in our view, given its geographical

1 Company note Aramex MENA research Resilient play, upgrading to Overweight Aramex will still be able to grow its earnings modestly despite regional turmoil, in our view, given its geographical diversification Share price performance likely to be muted until there is better visibility and because we expect 1Q11e results to be relatively weak Upgrade to Overweight but cut TP 4% to AED2.17/share We believe Aramex will grow its earnings modestly in 2011 despite regional turmoil given its geographical diversification and the recent momentum of its ex MENA business. Revenue from Aramex s MENA business grew 8% y o y in 2010 versus 28% for its Asian, European, and North American businesses (29% of 2010 revenue). Also, Aramex s 2 largest MENA markets (UAE and KSA) are mostly unaffected by unrest. Assuming a 15% drop in earnings from countries including Egypt, Bahrain, and Syria (10% 12% of earnings on our estimates) and low single digit growth elsewhere, Aramex would still post earnings growth of 2% 3% in 2011e. We cut our revenue and net income estimates 2% on average (5% cut to 2011e bottom line). Overweight Target price (AED) 2.17 Current price (AED) 1.79 Potential return 21% Bloomberg Reuters ARMX UH ARMX.DU Mcap (AEDm) 2,621 Mcap (USDm) 714 Number of shares (m) 1,464.1 Free float 90% Daily volume (USDm) 1.8 Foreign own. limit 49% Foreign ownership 49% Note: All prices as of 5 April 2011 Price performance 2.5 Share price performance will be muted in the short term, in our view, following possibly weak 1Q11e results and until there is better visibility on revenue and cost outlook. We expect the company to post mostly flat earnings in 1Q11e due to regional disruptions. Also, investors are likely to remain cautious until there are clear signs regarding (1) how revenue outlook will change in countries like Egypt as life gradually returns to normal and (2) how the company will be able to manage high transport costs (given high oil prices) and pressures to raise salaries (we expect staff costs to increase c11% y o y in 2011e versus 5% in 2010 and 8% in 2009). Cautious expansion into mostly underpenetrated markets in Asia and sub Saharan Africa is materializing; positive in medium to long run, in our view. The acquisitions are relatively small (Turkey, Bangladesh, and Malaysia acquisitions cost less than USD10m collectively) and will serve as footholds from which to expand further in time. We expect more acquisition announcements, mostly in Asia and Africa. Also, the start of a dividend history is positive in our view. Aramex is proposing a DPS of 7.5 fils (4% yield, 54% DPO, ex dividend date 9 May pending AGM approval on 30 April). We upgrade Aramex to Overweight from Neutral following recent weakness ( 14% y t d) but cut our TP 4% to AED2.17/share (21% upside). Aramex is trading at a 2011e P/E of 12.5x, which is at a 7% discount to peers and is below its mid cycle P/E range of 14x 16x (we value the stock at 15x). Key indicators (AED) e 2012e 2013e EPS DPS Source: Company data, AlembicHC A M J J A S O N D J F M A ARMX DFMGI Hatem Alaa, CFA Senior analyst hatem.alaa@hc si.com Disclaimer: See page 8

2 Aramex s recently announced expansions Country Turkey Malaysia Bangladesh Vietnam Kenya Ireland Details Increased shareholding to 100% in Aramex Turkey, formerly a partially owned subsidiary Acquired a majority stake in Avanti, a leading express courier company Acquired a majority stake in Expo Express Services, formerly a partially owned subsidiary Formed a JV partnership with Masan Services to launch advanced logistics solutions; planning to establish a third party logistics center Acquired 2 local delivery companies: One World Courier and In Time Couriers; planning to establish third party logistics centers in Nairobi and Mombasa Acquired Aquaship Agencies, a small liner agent and freight forwarder, mainly in order to benefit from synergies with TwoWay Vanguard, an Ireland based freight operation that Aramex already owned Aramex estimate revisions 2011e 2012e 2013e 2014e 2015e Revenue new (AEDm) 2,431 2,761 3,162 3,640 4,202 Revenue old (AEDm) 2,488 2,826 3,236 3,726 4,301 % change 2% 2% 2% 2% 2% EBITDA new (AEDm) EBITDA old (AEDm) % change 6% 4% 3% 1% 1% EBITDA margin new 11.7% 11.6% 11.3% 11.0% 10.9% EBITDA margin old 12.2% 11.8% 11.4% 10.9% 10.8% Net income new (AEDm) Net income old (AEDm) % change 5% 2% 2% 2% 2% Net margin new 8.7% 8.4% 8.3% 8.0% 8.0% Net margin old 8.9% 8.4% 8.2% 7.9% 8.0% Source: AlembicHC Aramex s revenue breakdown by region (2010) Aramex s MENA versus ex MENA revenue growth North America, 2% 35% 29% 34% 30% Europe, 18% Asia, 9% 25% 15% 5% 1% 2% 15% 1% 9% 9% 5% 20% 7% MENA, 71% 5% 15% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 6% 25% 35% 23% 28% 23% MENA revenue growth Ex MENA revenue growth 2

3 Valuation We upgrade Aramex to Overweight from Neutral but cut out our target price 4% (as we lower revenue and net income estimates 2% on average) to AED2.17/share, which offers 21% upside to the current market price. We apply a WACC of 11.4% and a terminal growth rate of 3.0%. We believe current price levels are attractive following recent weakness (stock is down 14% y t d, underperforming the market by 8%) even after discounting a somewhat weaker outlook in the short term. Aramex is trading at a 2011e P/E of 12.5x, which is at a 7% discount to peers and is below its mid cycle P/E range of 14x 16x. Our valuation implies a P/E of 15x, and valuing the stock at the higher end of its historical P/E range (16x) would yield a value of AED2.30/share, which would offer 28% upside to the current market price. Aramex valuation summary (AEDm) 2009a 2010a 2011e 2012e 2013e 2014e 2015e EBITDA Taxes (11) (15) (15) (17) (19) (21) (24) Appropriations (1) (2) (2) (2) (2) (3) (3) Change in working capital 9 (37) (34) (39) (44) (51) (59) Net CAPEX (49) (135) (207) (83) (70) (80) (92) Free cash flows Risk free rate 6.7% Beta 0.72 Equity risk premium 6.5% Cost of equity 11.4% Equity weight 100.0% WACC 11.4% Terminal growth rate 3.0% PV of FCFs Terminal value 3,442 Enterprise value 2,734 Net cash 445 Investments 23 Minority interest (26) Equity value 3,177 Number of shares (m) 1,464.1 Value/share (AED)

4 EPS CAGR versus P/E (2011e) across peers 20x 18x P/E (2011e) 16x 14x 12x 10x Singapore Post Aramex TNT Freightways DHL UPS Sinotrans Mainfreight Kintetsu FedEx 8x 6x 0% 5% 10% 15% 20% 25% 30% 35% EPS CAGR (2010a 12e) Source: Bloomberg, AlembicHC 4

5 Aramex segmental breakdown (AEDm) 2009a 2010a 2011e 2012e 2013e 2014e 2015e Domestic express Revenue Growth 2.2% 9.5% 9.3% 13.0% 14.0% 14.5% 15.0% Cost of service (66) (74) (82) (93) (106) (121) (140) Gross profit Gross margin 78.2% 77.6% 77.4% 77.3% 77.3% 77.2% 77.2% Contribution to revenue 15.4% 15.0% 14.9% 14.8% 14.7% 14.7% 14.6% Contribution to gross profit 21.3% 21.6% 21.7% 21.9% 22.2% 22.6% 22.8% International express Revenue ,066 1,219 Growth 2.7% 10.0% 8.4% 11.5% 12.7% 13.7% 14.4% Cost of service (201) (229) (256) (298) (357) (438) (525) Gross profit Gross margin 67.9% 66.8% 65.7% 64.2% 61.9% 58.9% 57.0% Contribution to revenue 32.0% 31.2% 30.7% 30.2% 29.7% 29.3% 29.0% Contribution to gross profit 38.4% 38.7% 38.1% 37.1% 35.9% 34.5% 33.5% Freight forwarding Revenue ,029 1,187 1,378 1,606 1,871 Growth 16.9% 21.8% 11.4% 15.3% 16.1% 16.6% 16.5% Cost of service (519) (661) (741) (857) (998) (1,165) (1,358) Gross profit Gross margin 31.7% 28.5% 28.0% 27.8% 27.6% 27.5% 27.5% Contribution to revenue 38.7% 41.8% 42.3% 43.0% 43.6% 44.1% 44.5% Contribution to gross profit 21.7% 22.1% 22.3% 22.9% 23.5% 24.2% 24.8% Logistics Revenue Growth 6.2% 16.6% 13.1% 18.9% 20.0% 19.8% 19.6% Cost of service (29) (21) (24) (29) (35) (42) (51) Gross profit Gross margin 76.8% 79.5% 79.6% 79.4% 79.2% 79.0% 78.7% Contribution to revenue 6.3% 4.7% 4.8% 5.1% 5.3% 5.5% 5.7% Contribution to gross profit 8.6% 6.9% 7.3% 7.7% 8.2% 8.7% 9.1% Others Revenue Growth 15.5% 10.3% 7.0% 10.0% 10.1% 10.2% 10.3% Cost of service (38) (37) (40) (43) (47) (51) (56) Gross profit Gross margin 74.1% 77.5% 77.5% 77.7% 78.0% 78.2% 78.5% Contribution to revenue 7.6% 7.4% 7.2% 7.0% 6.7% 6.4% 6.1% Contribution to gross profit 9.9% 10.7% 10.5% 10.4% 10.2% 10.0% 9.8% 5

6 Aramex financial statements and ratios (AEDm) 2009a 2010a 2011e 2012e 2013e 2014e 2015e Income statement Revenue 1,961 2,212 2,431 2,761 3,162 3,640 4,202 Growth 5.7% 12.8% 9.9% 13.6% 14.5% 15.1% 15.4% Cost of service (853) (1,022) (1,143) (1,320) (1,543) (1,818) (2,129) Gross profit 1,108 1,190 1,288 1,441 1,619 1,823 2,073 Gross margin 56.5% 53.8% 53.0% 52.2% 51.2% 50.1% 49.3% SG&A expenses (458) (487) (529) (593) (668) (757) (863) Other operating expenses (399) (429) (474) (529) (592) (665) (751) JV income 0 (0) EBITDA EBITDA margin 12.8% 12.4% 11.7% 11.6% 11.3% 11.0% 10.9% Growth 14.8% 9.2% 3.9% 12.2% 12.3% 11.8% 14.3% Depreciation (45) (48) (51) (61) (67) (78) (86) Net interest expense Other income (0) Pretax income Taxes (11) (15) (15) (17) (19) (21) (24) Pre minority net income Minority interest (22) (25) (26) (29) (32) (36) (41) Net income Net margin 9.4% 9.2% 8.7% 8.4% 8.3% 8.0% 8.0% Growth 25.1% 10.7% 3.1% 10.2% 12.8% 11.0% 15.4% Balance sheet Cash Receivables Other current assets Total current assets 938 1,056 1,037 1,173 1,352 1,552 1,786 Net fixed assets Investments Intangibles Other noncurrent assets Total noncurrent assets 1,120 1,230 1,385 1,408 1,410 1,412 1,419 Total assets 2,058 2,286 2,423 2,580 2,762 2,964 3,205 Short term debt Payables Distributions payable Other current liabilities Total current liabilities Long term debt Other noncurrent liabilities Total noncurrent liabilities Shareholder equity 1,624 1,694 1,788 1,891 2,008 2,137 2,287 Cash flow statement Net income before minority interest Noncash items Net change in working capital 9 (37) (34) (39) (44) (51) (59) Operating cash flows Net CAPEX (49) (135) (207) (83) (70) (80) (92) Other investments (32) (36) Investing cash flows (81) (171) (207) (83) (70) (80) (92) Financing cash flows (46) (34) (140) (148) (164) (183) (203) Change in cash (92)

7 Aramex financial statements and ratios (continued) 2009a 2010a 2011e 2012e 2013e 2014e 2015e Key financial ratios Net debt/equity 0.29x 0.32x 0.25x 0.27x 0.30x 0.33x 0.37x Net debt/ebitda 1.91x 1.95x 1.56x 1.60x 1.69x 1.78x 1.83x ROAA (1) 16.5% 15.6% 14.2% 14.2% 14.5% 14.6% 15.1% ROAE (1) 26.5% 25.7% 24.2% 24.0% 24.3% 24.2% 25.0% Key price ratios EV/EBITDA 12.47x 10.10x 8.97x 7.94x 6.80x 5.67x 4.71x P/E 8.6x 7.6x 7.7x 6.5x 5.5x 4.7x 3.8x P/B (1) 3.4x 3.2x 2.9x 2.6x 2.3x 2.1x 1.9x Dividend yield 4.2% 4.4% 4.9% 5.5% 6.1% 7.0% FCF yield 7.5% 3.3% 1.0% 6.8% 8.5% 9.4% 10.7% Note: (1) Ex goodwill and other intangibles 7

8 Rating scale Recommendation Potential return Overweight Greater than 20% Neutral 0% to 20% Underweight Less than 0% Disclaimer This document was issued by HC Brokerage, which is an affiliate of HC Securities and Investment (henceforth referred to as HC ) a fully fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services and Alembic Global Advisors, which is registered with US based broker dealer Pulse Trading Inc. (collectively the Firms ). The information used to produce this document is based on sources that the Firms believe to be reliable and accurate. This information has not been independently verified and may be condensed or incomplete. The Firms do not make any guarantee, representation, or warranty and accept no responsibility or liability for the accuracy and completeness of such information. Expression of opinion contained herein is based on certain assumptions and with the use of specific financial techniques that reflect the personal opinion of the authors of the commentary and is subject to change without notice. The information in these materials reflects the Firms equity rating on a particular stock. The Firms, their affiliates, and/or their employees may publish or otherwise express other viewpoints or trading strategies that may conflict with the views included in this report. Please be aware that the Firms and/or their affiliates and the investment funds and managed accounts they manage may take positions contrary to the included equity rating. This material is for informational purposes only and is not an offer to sell or the solicitation of an offer to buy. Ratings and general guidance are not personal recommendations for any particular investor or client and do not take into account the financial, investment, or other objectives or needs of, and may not be suitable for any particular investor or client. Investors and clients should consider this only a single factor in making their investment decision while taking into account the current market environment. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived from, the investment. Investors in securities such as ADRs, the values of which are influenced by foreign currencies, effectively assume currency risk. Neither HC nor any officer or employee of HC accepts liability for any direct, indirect, or consequential damages or losses arising from any use of this report or its contents. Disclosures I, Hatem Alaa, certify that the views expressed in this document accurately reflect my personal views about the subject securities and companies. I also certify that I do not hold a beneficial interest in the securities traded. The Firms are not a market maker in the securities of the subject company. The Firms, their affiliates, and/or directors and employees may own or have positions in and effect transactions of companies mentioned in this document. The firms and their affiliates may also seek to perform or have performed investment banking services for companies mentioned in this memorandum. Copyright No part or excerpt of its content may be redistributed, reproduced, or conveyed in any form, written or oral, to any third party without prior written consent of the Firms. The information within this research report must not be disclosed to any other person if and until the Firms have made their information publicly available. Issuer of report: HC Brokerage Building F15 B224, Smart Village KM28 Cairo Alexandria Desert Road 6 October 12577, Egypt Telephone: Fax: Website: si.com Alembic Global Advisors 780 Third Avenue, 8th Floor New York, NY Telephone: Website: US distributor of report: Pulse Trading 2 Liberty Square, 2nd Floor Boston, MA Telephone: Website: 8

9 Research si.com Karim Khadr Head of Research (ME)/Telecoms si.com Sarah Shabayek Telecoms sarah.shabayek@hc si.com Hassan Ahmed Head of Research (US)/Chemicals hassan.ahmed@alembicglobal.com Registered with US based broker dealer Pulse Trading Inc. Lovetesh Singh Chemicals lovetesh.singh@hc si.com Jaap Meijer, CFA Financials jaap.meijer@hc si.com Janany Vamadeva Financials janany.vamadeva@hc si.com Saumya Agarwal Financials saumya.agarwal@hc si.com Majed Azzam Real Estate & Construction majed.azzam@hc si.com Ankur Khetawat Real Estate & Construction ankur.khetawat@hc si.com Nermeen Abdel Gawad Real Estate & Construction nermeen.abdelgawad@hc si.com Sapna Sharma Real Estate & Construction sapna.sharma@hc si.com Hatem Alaa, CFA Diversified hatem.alaa@hc si.com Mennatallah El Hefnawy Diversified menna.elhefnawy@hc si.com Mai Nehad Diversified mai.nehad@hc si.com Tudor Allin Khan, CFA Chief Economist tudor.allin khan@hc si.com Amr Abdel Khalek Economist amr.abdelkhalek@hc si.com Danielle Bouchard Editor danielle.bouchard@hc si.com Mohamed El Saiid, MFTA Head of TA Research melsaiid@hc si.com Sameh Khalil, CFTe Technical Analyst skhalil@hc si.com Sales and Trading Cairo, Egypt salesandtrading@hc si.com Shawkat El Maraghy Managing Director selmaraghy@hc si.com Aboubakr Shaaban Sales aboubakr.shaaban@hc si.com Hossam Wahid Sales Trading hwahid@hc si.com Hassan Kenawi Sales Trading hkenawi@hc si.com Nihal Hany Sales Trading nhany@hc si.com Ahmed Nabil Sales Trading anabil@hc si.com Sales and Trading Dubai, UAE Hassan Aly Choucri Managing Director/Sales Trading hassan.choucri@hc si.com Nadia Kabbani Sales nadia.kabbani@hc si.com Samer Azzam Sales samer.azzam@hc si.com Anne Marie Browne Sales Trading annemarie.browne@hc si.com Mohamed Galal Sales Trading mohammed.galal@af hc.com Wael Atta Sales Trading wael.atta@hc si.com Sales and Trading New York, US Stephen Matthews Sales stephen.matthews@alembicglobal.com Registered with US based broker dealer Pulse Trading Inc. 9

Aramex. Waiting for Expansions to Roll Out. Flash Note 17 May 2010

Aramex. Waiting for Expansions to Roll Out. Flash Note 17 May 2010 Research Department UAE - Transport & Logistics Aramex Flash Note 17 May 2010 Waiting for Expansions to Roll Out 2010e shaping up to be another relatively strong year with underlying margin trend holding