Voltamp Energy. TP : OMR 0.516/share. Page 1 of 17

Transcription

1 May-16 Jun-16 Aug-16 Sep-16 Nov-16 Dec-16 Feb-17 Mar-17 Apr-17 Voltamp Energy Date: 22 May 2017 Recommendation ACCUMULATE Upside / (Downside) 15.27% Bloomberg Ticker VOES OM Equity Current Market Price (OMR) wk High / Low (OMR) 0.48/ m Average Vol. (000) 36 Mkt. Cap. (USD/OMR mn) 82/31.7 Shares Outstanding (mn) 70.8 Free Float (%) 36% 3m Avg Daily Turnover 14,188 6m Avg Daily Turnover 20,790 PE 2017e (x) 8.4 PBv 2017e (x) 1.2 Dividend Yield '17e (%) 4.5% Price Perf. (1m/3m) (%) -2.61/ TP : OMR 0.516/share Wide range of products offerings Competition to keep the margins under check; slight drop expected Sizable projects in the sector at both government and private level to keep demand of Voltamp s product intact Expansion being discussed; hence not incorporated in our valuation model We initiate coverage on Voltamp with an ACCUMLATE rating with a fair value target of OMR 0.516/share, implying an upside of 15.27% to the last closing price. At the current market price, the stock is trading at PE of 8.4x and P/B of 1.2x against a ROaE of 15.9% on FY 17 estimates and a dividend yield of 4.5%. Voltamp Energy - A growth story Voltamp Energy is the sole manufacturer of the power transformers in Oman. The company is expected to continue posting double-digit growth in revenue over upcoming years. We believe the sound fundamentals of the power sector, wide range of its products, strong list of customers, minimal requirement for upgradation, the flexibility of adding and customizing new productions in addition to some long-term contracts, all in all will keep supporting the company s line of business. We expect the revenue to see a CAGR of 11.8% over and forecast EBITDA margin to stand at an average of 13.2% during which is near to its historical levels. This is mainly due to the successful strategy of controlling key expenses including raw materials which are hedged (mainly Copper). Net profit margins are expected to average 8% during Cash dividends will likely improve as we expect no further major CAPEX and lower interest expenses burden. The stock in our view is undervalued taking into consideration its long-term growth sustainability Volume, (000) Hettish Karmani Head of Research h.karmani@u-capital.net Tel: Ammar Salim Senior Research Analyst ammar.salim@u-capital.net Tel: Operating in a sector with immense growth potential Demand for Electricity in Oman (major market to the company) remains healthy. According to Oman Power and Water Procurement s (OPWP) 7-year statement, under high demand forecast, the annual growth is seen at 9%. Further, Oman Electricity Transmission Company (OETC) said that a total of 74 transmission projects is planned over the five years period. This is key demand driver for one of Voltamp Energy products. Other key driver is increase in demand for housing, which in return will result in more consumption of Voltamp products. At larger scale, in order to meet the expected rise in demand for power, GCC must expand on an average annual pace of 8% during , the Arab Petroleum Investments Corporation stated. We expect exports to grow sizably in the coming years. All the company-targeted sectors like oil and gas, utility, power and real estate are expecting to see variable growth rates in future despite economy challenges. Key Ratios e 2018e 2019e Gross Margin 22.1% 21.5% 21.1% 20.3% 20.0% Operating Margin 11.4% 11.0% 10.6% 10.6% 10.1% Net Profit Margin 9.2% 8.8% 8.3% 8.6% 8.3% ROAE 18.2% 17.7% 15.9% 15.7% 15.0% ROAA 9.6% 9.6% 9.5% 10.2% 10.1% EV/EBITDA (x) P/E Ratio (x) P/BV Ratio (x) Source: Company Reports, U Capital Research *P/E and P/B from 2017 onwards calculated on price of 5/22/2017 Page 1 of 17

2 Contents Valuation Methodology... 3 Sensitivity Analysis... 4 Peer Group Analysis... 4 Fact Sheet... 5 Industry Dynamic and Outlook... 6 Voltamp Energy Co. Key Arguments and Outlook... 9 SWOT Analysis About the Company Financial Statements Page 2 of 17

3 Valuation Methodology For arriving at the fair value of Voltamp Energy, we have used a blend of two valuation methods: Cash flow approach represented by the Discounted Cash Flow Method. Relative valuation approach based on 2017e EV/EBITDA of selected peers. Discounted Cash Flow Method DCF The DCF is based on a 5-year forecast of free cash flows to the firm ( ). The free cash flows for the forecasted period and the terminal value are then discounted back at the weighted average cost of capital (WACC) to arrive at the total net present value (NPV) of the company. Subsequently cash and non-operating assets are added while long-term debt is subtracted to arrive at the equity value. Cost of Equity is derived using the Capital Asset Pricing Model (CAPM). Relative Valuation Method We have used relative valuation based on 2017e EV/EBITDA of selected peers. The peers EV/EBITDA is based on weighted average 2017e EV/EBITDA of selected companies as per Bloomberg Definition. This sector EV/EBITDA is then multiplied with the forecasted 2017 EBITDA of the power companies to arrive at the fair value of the power company. Voltamp Energy SAOG DCF OMR PV of Dividends & Terminal Value Year 1 2,620,422 Year 2 1,373,544 Year 3 1,105,931 Year 4 901,850 Year 5 913,717 Terminal 46,274,446 Assumptions Growth Rate 5.0% Risk Free Rate 2.3% Risk Premium (Market Risk, Company Risk, Country Risk) 7.0% Country Premium 0.8% Beta WACC 7.1% Equity Value, OMR 36,881,778 Outstanding Shares 70,785,000 DCF Value per share, OMR 0.52 Relative Valuation Peer Group Multiple (x) 8.55 Price based on EV/EBITDA Multiple (OMR) Fair Value (OMR) Fair Value -DCF (80%) 0.52 Fair Value -RV (20%) 0.50 Fair Value, OMR Current Market Price OMR Upside/(Downside) 15.3% Recommendation ACCUMULATE Page 3 of 17

4 Sensitivity Analysis Voltamp Energy SAOG WAAC (%) Growth Rate (%) Cost of Equity (%) % 4.5% 5.0% 5.5% 6.0% % 7.5% 8.0% 8.5% 9.0% 5.1% % % % % % % % % % Cost of Debt (%) Peer Group Analysis Name EV/12M EBITDA, x YTD, % ROA, % ROE, % Dividend Yield, % P/E, x VOLTAMP ENERGY S ONE TECH HOLDING ELECTRICAL INDUS NA GULF CABLE & ELE ELSWEDY ELECTRI NA Mean Median Source: Bloomberg, U Capital Page 4 of 17

5 Fact Sheet Revenue, OMR Mn Operating Profit, OMR Mn Net Profit, OMR Mn Gross Profit Margin % 24.00% 20.00% 16.00% 12.00% 8.00% 21.60% 22.29% 22.54% 22.10% 21.49% % % Operating Profit Margin Net Profit Margin 12.00% 10.77% 11.37% 10.98% 10.00% 8.81% 9.22% 8.82% 10.00% 9.21% 8.96% 8.00% 7.56% 7.67% 8.00% 6.00% 6.00% 4.00% 4.00% 2.00% 2.00% 0.00% 0.00% ROAE ROAA 21.0% 18.0% 18.2% 17.7% 12.0% 10.0% 9.6% 9.6% 15.0% 12.0% 9.0% 6.0% 8.6% 12.5% 12.1% 8.0% 6.0% 4.0% 5.1% 7.7% 7.0% 3.0% 2.0% 0.0% 0.0% Source: Company Financials Page 5 of 17

6 Industry Dynamics and Outlook Demand for Electricity in Oman remains thirsty Oman Power and Water Procurement s (OPWP) stated in its 7-year statement that in all systems i.e. the Main Interconnected System, Dhofar Power System, Ad Duqm and Musandam Governorate, the Sultanate demand is expected to grow at 7.5% over to 6,276 MW under normal demand scenario. However, under high demand forecast, the annual growth is seen at 8.9%. Energy demand is seen to post a CAGR of 7.6% for at 52.9 TWh in 2023 under the expected demand scenario and a CAGR of 8.8% under high case demand scenario. Total Electricity Demand Projections, MW Total Energy Demand Projections, TWh 8,000 16% 70 7,000 14% 60 6,000 5,000 12% 10% 50 4,000 8% 40 3,000 6% 30 2,000 4% 20 1, Actual Expected Demand Low Case Demand High Case Demand 2% 0% Actual Exp. Dem. Growth (LHS) Low Case Dem. Growth (LHS) High Case Dem. Growth (LHS) Expected Demand High Case Demand Source: OPWP Data regarding electricity net production showed a CAGR of 8.4% during at 33,635.2 GW/H. Growth in population and number of mega projects have played great role in this growth. Electricity (Net Production), GW \H 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Source: NCSI Power Generation Capacity Requirements The 7-year statement by OPWP, in MIS system, revealed that the generation capacity likely to be balanced until After words, in 2022 and 2023, a surplus of 1,296 MW and 1,766 MW respectively might happen as per OPWP s 7-year statement ( ). According to an official working in the industry, there are currently four projects being executed by the private sector. These projects are in Musandam, Salalah, Ibri and Suhar with a total capacity of 3,784 megawatts. Page 6 of 17

7 30,034 30,628 31,451 26,850 25,490 Now, around 98% of urban areas are covered by power supply as the production capacity reached 8,000 megawatts by the end of 2016, the official added. Transmission planned projects are on track Oman Electricity Transmission Company (OETC), which owns and operates the main electricity transmission network, said in its latest Transmission Capability Statement (April 2016) that a total of 74 transmission projects are planned over the next five-year period. This will be the key demand driver for Voltamp Energy products. Investments in oil and gas production to create demand for power transformers Oman Ninth Five Year Development Plan ( ), estimated Oil and Gas production capital expenses to be around OMR 6.84bn. This equal to an average of 2.35% of the forecasted GDP during the same period on yearly basis. Total investment expenditure in the plan is projected at OMR 15.14bn. We see spending on oil and gas production will support demand for power equipment including power transformers and by default Voltamp energy especially the company is the sole manufacturer of the Power Transformers in Oman Demand for housing to boost power consumption Traded value of property in Oman has increased by more than 286% from 2012 to 2016 to OMR 6.6bn with an annual average growth of 41%. Moreover, Real estate services posted an increase of 6.2% YoY in 2016 at OMR 1.35bn forming 5.3% of GDP at market prices in the same year. It is forecasted that Oman real GDP and non-oil GDP growths to be around 2.8% and 4.3% respectively during 9 th Five Year Development Plan ( ). 35, % 7, , , % 5.0% 6, ,000 20,000 15,000 10, % 3.7% 3.9% 4.7% 4.5% 4.0% 3.5% 3.0% 5, , , , , , , , , % 1, % Q'17 GDP at market prices, OMR Mn Real estate services % GDP Traded value of property in Oman Source: NCSI The number of residential lands granted by governorates for 2015 and 2016 touched 71.2k. We assume that demand for housing to post reasonable performance and to increase by at least 4% annually in the coming period. This will further the demand for Voltamp products in the coming years. Page 7 of 17

8 GCC power construction contractor awards are encouraging The GCC power construction contractor awards are expected to see an increase of 14% YoY in 2017, reports published in one of recent GCC Power Market conferences. The GCC are likely to invest $ 252bn over the next five years in projects for setting up new power production plants, distribution systems, and supply grids 1. As per the Arab Petroleum Investments Corporation, GCC currently represents 47% or 148 GW of the current MENA power-generating capacity. To meet the expected rise in demand for power, GCC must expand at an average annual pace of 8% during This translates in $ 85bn for the addition of 69 GW of generating capacity and another $ 52bn for transmission and distribution over the next five years. At larger scale, Middle East business intelligence service (Meed) said that power generation capacity in the Mena countries should rise by 150GW to reach 440GW by The Middle East Distribution Transformer Market size is estimated to reach $ 3.92bn by Studies also reveal that global power transformer market size is estimated to reach $ 35.3bn by 2022 from $ 23bn in 2015 i.e. a CAGR of 7.07% from 2016 to LV Switchgear market will continue to dominate the overall GCC switchgear market The regional switchgear market is likely to grow at a CAGR of over 6% between , study by Global Information Company indicated. Among the three major categories i.e. low voltage, medium voltage and high voltage, low voltage segment is anticipated to maintain its dominance over the next five year due to its cheap cost compared to medium and high voltage switchgears in addition to the fact that majority of the consumers are mainly residential users. 1 GCC power construction Middle East Distribution Transformer Market size Page 8 of 17

9 81.44% 81.65% 83.15% 82.41% 18.56% 18.35% 16.85% 17.59% Key Arguments and Outlook Revenue to grow at a double digit rate over the forecasted period Voltamp Energy posted double digit growth in earnings over past years supported by its unique and wide range of products, introduction of power transformers and the impressive developments within the Power Sector, locally as well as and regionally. Company revenue registered a CAGR of 24.2% over Prior to year 2016, the group used to report two strategic business units i.e. transformers and low voltage switchgear and panels. However, from 2016 onwards, the group has changed its reportable segments to Supply of products and Services and others. Charts below indicate that transformers have played strong role in generating revenues. We believe that the company, in order to minimize concentration risk, will change this mix to 1/3 for each line of product. However, in the long run, power transformers will remain the key segment in our view. Revenue by Product 100% 100% 1.41% 80% 80% 60% 40% 60% 40% 98.6% 20% 20% 0% % 2016 Transformers LV Switch gears and Panels Supply of products Services and others Source: Company Finacials In 1Q 17, revenue stood at OMR 9.7mn up by 11.7% YoY. This represents the 11 th consecutive increase on yearly basis. Considering increasing competition and pressures on realizations, we expect the revenue to see a CAGR of 11.8% over This outlook generally goes in sync with the estimated growth of demand for electricity and power in Oman and the region over the coming years. We believe the efforts of expanding business regarding Medium Voltage Switchgear and exploring new markets will yield good results. 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000, e 2018e 2019e 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Revenue, OMR Growth, YoY Page 9 of 17

10 88.8% 86.0% 86.5% 87.4% 88.7% 88.2% 88.1% 88.0% 78.4% 77.7% 77.5% 77.9% 78.5% 78.9% 79.7% 80.0% 11.2% 14.0% 13.5% 12.6% 11.3% 11.8% 11.9% 12.0% 84.1% 89.6% 87.1% 91.7% 87.8% 87.0% 86.5% 86.0% 15.9% 10.4% 12.9% 8.3% 12.2% 13.0% 13.5% 14.0% Geographical segmentation shows that Oman maintains its dominant position among the company s targeted markets. Local market accounted for an average of 88% over In 1Q 17, Oman accounted for even higher share at 97% indicating healthy demand and the company s ability to compete despite competitive environment. Building on the company strategy of developing new markets in order to reduce the impact of the economy slowdown, we believe that the export segment will increase considering current and planned mega projects in power Industry within GCC countries especially Kuwait, Qatar and UAE. Revenue by Geography 100% 80% 60% 40% 20% 0% 2017e 2018e 2019e Oman Others Source: Company Finacials, U Capital Operating Margins largely to remain stable on effective hedging policy and cost control We expect EBITDA margin to stand at an average of 13.2% during compared to an average of 13% for The company succeeded historically in controlling key elements of its expenses like raw materials which eat - on average - 68% of total revenues. This is done by using hedging mechanism to minimize the impact of raw material price fluctuations especially Copper. Others like CRGO steel and transformer oil are also key inputs in production cost % 80.0% 21.6% 22.3% 22.5% 22.1% 21.5% 21.1% 20.3% 20.0% 100.0% 95.0% 60.0% 90.0% 40.0% 85.0% 20.0% 80.0% 0.0% 2017e 2018e 2019e 75.0% 2017e 2018e 2019e Cost of Sales as % Rev Others as % of Rev Others as % of cost of sales Cost of raw materials as % of cost of sales Source: Company Financials, U Capital We expect slightly higher cost of sales in future due to higher depreciation and other indirect cost. This shall be offset by lower general and selling expenses due to lack of Royalty fees in future on the agreement expiration as per the company guidance. We see an average EBIT margin of 10% over the forecasted years, almost similar to the previous five-year average. Page 10 of 17

11 Diminishing debt to equity ratio to help stabilizing net earnings Currently the company is highly leveraged with debt to equity ratio stands at This was due to investments in increasing capacities, building Sohar Plant and high working capital need. We forecast short term borrowing to be at around OMR 5mn taking into account the running working capital requirements especially in view of difficulties associated with collecting receivables due to current market liquidity conditions. On the other hand, we see reduction in long term loans as the company will start paying off one of its loan. This shall result in lower debt to equity ratio at 0.17 by 2019e and thus lower interest expenses going forward Debt / Equity (x) e 2018e 2019e Source: Company Financials, U Capital The rise in taxes from 12% to 15% from 2017 will affect net profit margins. We estimate an average net margin of 8% during against 8.4% during In 2017, we expect a net profit of OMR 3.78mn, up by 4.2% YoY. However, we see better performance from 2018 due to lack of Royalty fees on an expiration of the agreement in this regard. Net Profit, OMR Mn e 2018e 2019e 2020e Source: Company Financials No major CAPEX, stable earnings to sustain dividends We assume CAPEX to be 1% of the total revenue over as the company has not disclosed any major investments on the way. We believe one of the company advantages is the possibility of upgradation with minimal investments. Thus we expect gradual improvements in cash dividends in the coming years to 30% of share capital in 2019 versus 18% in We see dividend payout up from 30% in 2016 to 46% by Page 11 of 17

12 SWOT Analysis Strength The sole manufacturer of the Power Transformers in Oman Proximity to Sohar Industrial Port (Voltamp Power LLC). Thus, quicker connectivity to regional markets and lower delivery costs. Complete package of services. Voltamp is the only company in the Sultanate with capability of repairing transformers across all ratings and voltage class of up to 400kV Wide range of products Weakness Unable to control selling prices due to notable stake of raw material in production cost. Heavy concentration in local markets. Opportunities Possibility of upgradation with minimal investments Developing new products and new markets (even outside GCC) Adding suitable automation processes Threats Fluctuations in commodities linked raw materials. Rising cost of manpower Lower spending on infrastructure projects due to weak oil prices Increasing competition. Page 12 of 17

13 About the Company Voltamp Energy SAOG formerly known as Voltamp manufacturing Co. LLC, was established in 1987 as a LV Switchgear Manufacturing Unit. It s a franchisee panel builder of Schneider; France. In 1991, under collaboration with Babcock Transformers, UK Voltamp began manufacturing of Distribution Transformers up to 1000 KVA 11 kv under the name Voltamp Transformers Oman SAOC (VTO) as a fully owned subsidiary 4.The collaboration continued till In 2011, in Technical Collaboration with Tatung Company of Taiwan, Voltamp announced its Power Transformer manufacturing facility Voltamp Power LLC. The factory which was built at cost of around OMR 11mn, has an annual capacity to produce 6,500 MVA and the range extends up to 500 MVA 220 kv Class. Currently, Voltamp manufactures an extensive range of power and distribution transformers, low voltage switchgears and packaged sub-stations at their manufacturing facilities in Sohar and Rusayl with a capacity of 10,000 MVA. The Group comprise of three distinctive companies and one fullfledged independent division. Group customer base covers three key industries i.e. Oil and Gas, Utilities and Heavy Industry. Operational Profile Designed Capacities Type of Products 10,000 MVA Power Transformers Distribution Transformers LV Switchgear Admin Profile Board of Directors Mr. Qais bin Mohamed Al Yousef Sayyid Aymen bin Hamad AlBusaidi Mr. Abdulredha Mustafa Sultan Engineer Ahmed bin Hamed Al Subhi Mr. Hamad bin Mohammad Al Wahaibi Mr. Saibal Sen Mr. Sebastian Manavalan Position Chairman Vice Chairman Director Director Director Director Director Shareholding Structure Al Majaz Investment Co, 7.77% Public Authority of Social Insurance (PASI), 5.63% Al Anwar Holdings SAOG, 25.00% Ministry of Defence Pension Fund, 9.78% SABCO LLC, 12.53% Subsidiaries & Associates The Group comprise of three distinctive companies and one full-fledged independent division Company Name Country Principal Activity % Voltamp Transformers Oman SAOC Oman Voltamp Power LLC Oman Manufactures power transformers upto 500 MVA and 220 kv voltage 99.99% Oman Transformers India Pvt. Ltd India Vendor development, procurement of raw material,material inspectio 100% Source: Company website and financials Manufactures medium power transformers upto 10 MVA and 33 Kv class, distribution transformers upto 2500 KVA and 33 kv class and low voltage switchgear panels 99.99% 4 Company Website Page 13 of 17

14 Major Products Power transformers - High Voltage Power Transformers upto 500 MVA, 220 kv Class - Generator Transformers - Furnace Transformers upto 24 MVA 33KV Class - Booster Transformers - Rectifier Transformers Distribution Transformers - Distribution Transformers up to 3000KVA, 33 KV Voltage Class - Power Transformers up to 10 MVA, 33 KV Voltage Class - Special Transformers for the Oil & Gas Sector - Earthing Transformers - Engineering services including Erection, Testing, Commissioning, Servicing, Repairing, Maintenance, Overhauling of all types and makes of Transformers and Associated Equipment/Supply of Spares LV Switchgear - M.V. Switchgear (11KV) - L.V. Switchgear (415V) - Control Panels - Motor Control Center (MCC) - Power Control Center (PCC) - Intelligent MCCs Major Customers Voltamp Energy Co. key customers include bp, Baker Hughes, BEC group, Daleel Petroleum LLC, Dhofar Power, Kuwait Oil Company, Muscat Electricity Distribution Co., OXY, Petrofac, Sabic, the Zubair Corporation etc. Page 14 of 17

15 Financial Statements IS, OMR e 2018e 2019e 2020e Revenue 26,117,551 35,833,319 41,154,696 45,681,713 50,843,746 56,792,464 63,607,560 Cost of sales (20,230,948) (27,915,064) (32,312,505) (36,044,483) (40,522,466) (45,433,971) (50,886,048) Gross profit 5,886,603 7,918,255 8,842,191 9,637,229 10,321,280 11,358,493 12,721,512 Other income 200, , , , , , ,076 SG&A (3,273,795) (4,215,803) (4,685,198) (5,232,299) (5,416,798) (6,164,149) (7,031,062) Operating Profit 2,813,513 4,073,527 4,519,477 4,861,748 5,412,919 5,762,269 6,326,526 (Loss)/gain on investments (137,099) 11,303 (5,240) (6,032) 9,138 12,306 15,535 Finance income 42,236 29,423 14,272 16,806 16,955 17,106 17,259 Finance cost (318,764) (392,849) (485,512) (424,126) (314,485) (276,285) (280,016) PBT 2,399,886 3,721,404 4,042,997 4,448,396 5,124,528 5,515,396 6,079,304 Taxation (396,609) (416,592) (412,765) (667,259) (768,679) (827,309) (911,896) PAT 2,003,277 3,304,812 3,630,232 3,781,136 4,355,849 4,688,086 5,167,408 BS, OMR e 2018e 2019e 2020e Property, plant and equipment 10,117,234 9,751,642 9,565,324 9,062,825 8,401,856 7,606,762 6,652,649 Intangible assets 580, , , , , , ,839 AFS 2,760,477 3,154,654 2,972,973 3,002,703 3,032,730 3,063,057 3,093,688 Deposit with a finance company 0 360, , , , ,000 Deferred tax assets 76,174 91, , , , , ,355 Non Current Assets 13,534,093 13,960,535 13,914,715 13,472,890 12,872,892 12,139,069 11,246,530 Inventories 7,286,491 8,983,413 8,334,133 9,011,121 10,130,616 11,358,493 12,721,512 Trade and other receivables 9,168,121 12,293,401 15,891,504 16,919,153 19,555,287 22,716,986 26,503,150 Investments at fair value 1,688, ,267 13,376 13,376 13,376 13,376 13,376 Amounts due from related parties 0 1,471 77,609 77,609 77,609 77,609 77,609 Cash and bank balances 216, , ,506 1,624,918 1,626,507 2,483,824 3,412,326 Current Assets 18,860,243 22,726,121 24,981,128 27,646,177 31,403,395 36,650,287 42,727,973 Total Assets 32,394,336 36,686,656 38,895,843 41,119,067 44,276,287 48,789,356 53,974,503 Share Capital 6,050,000 6,050,000 6,050,000 7,078,500 7,078,500 7,078,500 7,078,500 Share Premium 5,236,345 5,236,345 5,236,345 5,236,345 5,236,345 5,236,345 5,236,345 Share based payments 336, ,639 1,110,633 1,577,627 2,044,621 2,511,615 2,978,609 Available for sale reserve 58, , , , , , ,675 legal reserve 2,153,259 2,377,497 2,431,926 2,955,563 3,140,285 3,325,008 3,509,731 Retained Earnings 3,157,688 4,725,762 6,486,565 8,963,571 11,852,588 14,741,050 17,754,908 Total Equity 16,992,187 19,420,599 21,521,144 26,017,281 29,558,015 33,098,193 36,763,768 Long term loans 2,696,645 3,975,133 2,655, , , ,130 69,565 Deferred government grant 21,950 14,541 7,020 5,820 4,620 3,420 2,220 End of service benefits 341, , , , , , ,152 Non Current Liabilities 3,060,225 4,411,310 3,141,192 1,479, , , ,937 Trade and other payables 5,193,263 7,195,113 6,889,373 7,509,267 8,442,180 9,465,411 10,601,260 Bank borrowings 6,030,024 4,278,681 5,596,851 5,408,733 5,176,465 5,248,855 5,638,756 Amounts due to related parties 53,153 52,033 19,730 55,000 55,000 55,000 55,000 Current portion of term loans 1,065,484 1,328,920 1,727, , ,130 69,565 34,783 Current Liabilities 12,341,924 12,854,747 14,233,507 13,622,275 13,812,775 14,838,831 16,329,798 Total Liabilities 15,402,149 17,266,057 17,374,699 15,101,786 14,718,272 15,691,163 17,210,736 Total Equity + Liability 32,394,336 36,686,656 38,895,843 41,119,067 44,276,287 48,789,356 53,974,503 Source: Company Financials, U Capital Page 15 of 17

16 CF, OMR e 2018e 2019e 2020e Cash flow from Operations -2,416, , ,228 2,731,664 1,533,132 1,321,741 1,154,074 Cash flow from Investing -1,966, , , , , , ,539 Cash flow from Financing 3,313,630 (513,222) (1,083,002) (2,213,077) (2,131,542) (1,198,248) (1,118,111) Net Cash at End 216, , ,506 1,624,918 1,626,507 2,483,824 3,412,326 Source: Company Financials, U Capital Key Ratios e 2018e 2019e 2020e Gross Margin 22.54% 22.10% 21.49% 21.10% 20.30% 20.00% 20.00% Operating Margin 10.77% 11.37% 10.98% 10.64% 10.65% 10.15% 9.95% PBT Margin 9.19% 10.39% 9.82% 9.74% 10.08% 9.71% 9.56% Net Profit Margin 7.67% 9.22% 8.82% 8.28% 8.57% 8.25% 8.12% Quick ratio (x) Debt / Equity (x) P/E Ratio (x) P/BV Ratio (x) Dividend Yield 7.9% 8.2% 4.3% 4.5% 5.6% 6.7% 7.8% ROAE 12.1% 18.2% 17.7% 15.9% 15.7% 15.0% 14.8% ROAA 7.0% 9.6% 9.6% 9.5% 10.2% 10.1% 10.1% EV/EBITDA (x) Source: Company Financials, U Capital Page 16 of 17

17 Recommendation BUY Greater than 20% ACCUMULATE Between +10% and +20% HOLD Between +10% and -10% REDUCE Between -10% and -20% SELL Lower than -20% Ubhar Capital SAOC (U Capital) Website: PO Box 1137 PC 111, Sultanate of Oman Tel: Fax: Disclaimer: This report has been prepared by research department in Ubhar Capital SAOC (U Capital), and is provided for information purposes only. Under no circumstances is to be used or considered as an offer to sell or solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained therein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such, and the bank accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. All opinions and estimates included in this document constitute U Capital s Research department judgment as of the date of production of this report, and are subject to change without notice. This report may not be reproduced, distributed or published by any recipient for any purpose. Page 17 of 17