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1 Q3 Update Recommendation: Maintain Hold December 30, Figure 1: Shareholder Structure Dar Al Dawa Development and Investment Company Third Quarter and Nine Months Results 6% 5% 3% 3% 80% Ticker: DADI 3% Social Security Corporation (6%) Abdel Rahim Jardaneh & Sons Co. (5%) Abu Jaber Brothers Co. (3%) Mr. Akram Jerab (3%) Others (3%) Free Float (80%) Last (December 30, ): JD 3.76 Year low (November 23, ): JD 3.28 Year High (January 8, ): JD 5.15 Long Term Fair Value: JD 4.23 Haya Qadoumi Research Analyst Awraq Investments Dar Al Dawa, a manufacturer and distributor of generic pharmaceutical products in the Middle East, North Africa, Europe and Asia reported financial results for the third quarter and nine months of results. For the third quarter of, the company reported consolidated revenue of JD12.3 million, a 128% increase from JD5.4 million reported for the same period last year. The company reported consolidated revenue of JD31.6 million for the nine month ending, up 47% from JD21.6 million reported in the same period of Cost of sales for the third quarter of was JD7.3 million compared to JD2.5 million for the same period in 2007 and cost of sales for the nine months ending was at JD17.3 million, an increase of 89% from the same period the year before. The increase in cost was mainly due to the increase in production. It is worth mentioning that most, if not all, of the raw material used in the manufacturing process by pharmaceutical companies in Jordan, including DADI, are imported from Europe. Payments are made in the Euro while revenues are collected in USD or USD-pegged Jordanian Dinar. The change in the exchange rate between the Euro and the US dollar has affected the local pharmaceutical sector including Dar Al Dawa. Gross Profit and gross profit margin for the nine months ending September were JD14.3 million and 45.2% compared to JD12.4 million and 57.5% for the same period in Dar Al Dawa reported a profit of JD1.98 million in the third quarter ended September 30,, compared to a loss of JD0.89 million in the same period last year. So far this year, DADI has recorded a net profit of JD5 million, compared to a net profit of JD3.5 million for the first three quarters in Earnings per share for the first nine months of were JD0.25 compared to earnings per share of JD0.17 for the corresponding period of Total operating expenses were JD9.3 million in the first nine months of, a 7% increase over JD8.7 million reported for the same period last year. As a percentage of sales, operating expenses in the first nine months of were 29%, a significant improvement from the 41% result reported for the same period last year.

2 Balance Sheet & Cash Flow From the balance sheet side, at the end of September, the company had a current ratio of 4.3 to 1. Shareholders equity was JD 55.6 million, with total assets of JD73.4 million and total liabilities of JD 17.7 million. The size of the balance sheet grew by 15% in the first nine months of to reach JD73.4 million from JD64 million in the first nine months of Total assets increased by JD9.4 million from JD64 million at the end of December 2007 to JD73.4 million on September 30,. On the other hand, cash decreased by 70% to reach JD1.5 million, in the same period. Total inventory increased by a significant amount in the first nine months of to reach JD13.6 million, a 61% increase from December Inventory turnover ratio decreased to 2.3x in the first nine months of from 2.5x by year end of Accounts payable turnover ratio increased to 4x by the end of the first nine months, up from 3.2x from year end of Days sale outstanding for the first nine months of were 304 days compared to 271 days by end of Total shareholder s equity increased to JD55.6 million by the end of September, up 6% from the corresponding period in Both ROA and ROE increased to 6.8% and 9% respectively. For the first nine months of, the company s cash from operations recorded a negative amount of JD4.8 million compared to a positive amount of JD2.9 million in the same period in The decrease in cash flow was primarily attributed to an increase in inventory of JD5.2 million and the increase of JD9.9 million in accounts receivables due to the company s growth in sales. Figure 2: Net Cash Used In Operating Activities (2004-9M ) JD Million M -4.8 [2]

3 JD million Dar Al Dawa Development and Investment Company (DADI) Figure 3: Financial Highlights Income Statement Q3 Q Change % Nine Months Nine Months 2007 Change % Revenues 12,342,087 5,406, % 31,631,043 21,565,068 47% Cost of Goods Sold 7,317,420 2,520, % 17,323,613 9,172,282 89% Gross Profit 5,024,667 2,886,691 74% 14,307,430 12,392,786 15% Selling and Distribution (2,107,687) (1,444,090) (46%) (6,953,271) (5,124,293) (36%) General and Administrative (649,152) (522,634) (24%) (1,805,011) (1,531,876) (18%) Research and Development (209,028) (190,524) (10%) (564,935) (540,359) (5%) Provision for Doubtful Debts - (1,500,000) - - (1,500,000) - Change in value of financial assets trading - (5,051) - (14,173) (7,751) - Div from companies 6, , Gains from sale of available for sale investments , Gains from sale of trading assets , Other Expenses - (80,676) - - (138,343) - Other income 114,592 6, % 154, ,243 20% Interest Income 7,481 36,331-79% 34, ,200-76% Interest Expense (123,498) (35,344) (249%) (305,644) (130,332) (135%) Income from Associates , Income before Tax 2,064, , % 5,202,342 3,692,275 41% Income Tax 77,144 40,000 93% 197, ,000-10% Net Income 1,987, , % 5,005,198 3,472,275 44% Figure 4: Revenues (2003-9M ) Figure 5: Gross Profit, EBIT & Net Profit Margins (2003-9M ) M 70% 60% 50% 40% 30% 20% 10% 0% 54% 59% 57% 53% 47% 45% 23% 25% 24% 25% 26% 24% 26% 25% 16% 10% 11% 17% M Gross Profit Margin Net Profit Margin EBIT Margin [3]

4 JD Million Dar Al Dawa Development and Investment Company (DADI) Figure 6: Financial Highlights Balance Sheet 30-Sep- 31-Dec-2007 Change % ASSETS Current Assets Inventory 13,690,477 8,487,978 61% A/R 31,972,933 22,056,034 45% Other Receivables 1,217,769 4,367,341-72% Trading Investments 71, ,421-76% Cash at Banks 1,496,688 4,969,561-70% Non- Current Assets Fixed Assets 8,154,274 7,278,133 12% Projects in Progress 258, , % Investments in Associates 9,205,631 9,006,366 2% Investments in Subsidiaries 5,487,146 4,969,256 10% Available for sale securities 6,750 85,398-92% Due from related companies 1,879,837 2,406,788-22% Total Assets 73,441,799 64,033,617 15% Figure 7: Total Shareholders Equity, Total Liabilities & Total Assets (2004-9M ) months Shareholders Equity Total Liabilities Total Assets Balance Sheet 30-Sep- 31-Dec-2007 Change % LIABILITIES Current Liabilities A/P 4,344,094 5,821,835-25% CPTD 1,179, Banks Payable 1,652,266 2, % Income Tax Provision 219, ,962-20% Other Current 3,880,219 5,145,795-25% Liabilities Non- Current Liabilities End of Service 454, ,287-9% Provision Long term loans 2,065, Due to related parties 3,968, Total Liabilities 17,763,951 11,744,206 51% Shareholders Equity 30-Sep- 31-Dec-2007 Change % Shareholders Equity Paid up Capital 20,000,000 20,000,000 - Statutory Reserve 9,260,627 9,260,627 - Voluntary Reserve 9,372,759 9,372,759 - Additional Reserve 4,902,203 4,902,203 - Reserves for renewal and replacement of fixed assets 3,982,550 3,982,550 - Translation Difference 2,310,766-41, % Change in Fair Value of Associate 403, ,642 - Companies Retained Earnings 5,180,657 4,152,331 25% Minority Interest 264, ,713 0 Total Shareholders Equity 55,677,848 52,289,411 6% [4]

5 ذ Figure 8: Ratio Analysis Figure 9: Accounts Receivable Collection Period Profitability Ratios Ratio Analysis Nine Months Nine Months 2007 Return on Assets ( %) 6.8% 5.4% Return on Equity (%) 9.0% 6.6% Earnings Per Share (JD) Margin Analysis Gross Profit Margin (%) 45.2% 57.5% Net Profit Margin (%) 15.8% 16.1% EBIT Margin (%) 17.4% 17.7% Months Figure 10: Days Payable Asset Turnover Total Assets Turnover (x) Fixed Assets Turnover (x) A/R Turnover (x) Inventory Turnover (x) Credit Ratios Current Ratio (x) Quick Ratio (x) Months Figure 11: Days Payable Long Term Solvency Total Debt/ Equity (x) Total Liabilities/Total Assets (x) Growth over Prior Year Total Revenue (%) 47% -24% Gross Profit (%) 15% -24% Net Income (%) 44% -52% Cash from Operations (%) -262% 222%, Awraq Research Months [5]

6 Valuation On May 28,, Awraq Investments initiated coverage for Dar Al Dawa with a Hold recommendation. The company witnessed an average growth in revenues of 6% over the past five years. The company is expected to observe sustainable growth over the coming few years. About 80% of DADI s sale is generated from exports and the company is focusing on expanding its export market base in order to expand its export revenue. DADI has strong presence locally and in certain areas in the MENA region. The company s largest markets are Saudi Arabia, Jordan and Algeria. As percentage of total sales in 2007, these markets accounted for 21.3%, 20.7% and 24.6% respectively. DADI also exports to Holland, Denmark, Sweden and Germany and is planning to enter more countries the European market. In this report, we have used the same valuation methods that were used in our previous report, but we have excluded the EV/EBITDA method. We have weighted them differently in accordance with the industry and the company s operations. DADI has a history of paying out dividends consistently. According to the management, the company is planning to continue its dividend payout policy. As a result, our valuation was weighted more towards the Dividend Discount Model (DDM). In our previous report we have estimated the net income for the company would increase by the end of to reach JD 4.4 million in compared to JD3.5 million recorded in In fact, by the end of the third quarter of, net income for the company exceeded our expectation and stood at JD5 million. As for the peer analysis, we have excluded Jordan Pharmaceuticals Manufacturing (JPHM) and Middle East Pharmaceuticals (MPHA) as they have negative trailing earnings and we have chosen Gulf Pharmaceutical Industries (JULPHAR) of U.A.E, and Saudi Pharmaceutical Industries & Medical Appliances Co. (SPIMACO). Following the valuation, and in light of our detailed forecast, we have determined the long term fundamental target price for Dar Al Dawa to be around JD Thus, DADI is undervalued at the current price of JD3.76, by around 12.5%. However, given the current market conditions and the increased levels of volatility and uncertainty, we maintain our recommendation on DADI as HOLD. Figure 12: Valuation Estimated Fair Value Multiple Weighting Target Value Discounted Cash Flow Method (DCF) 20% JD4.61 Dividend Discount Model (DDM) 70% JD3.91 Price to Book Value Multiple 5% JD10.03 Price to Earnings 5% JD1.38 Weighted Average Fair Value Source: Awraq Research Division JD4.23 [6]

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