KSA Stock Market Outlook, 2016

Transcription

1 Kuwait Financial Centre Markaz R E S E A R C H KSA Stock Market Outlook, 2016 January 2016 Research Highlights: Analysis of KSA s stock market performance in 2015 and providing outlook for 2016 based on four-factor model. Outlook Neutral Expectation 2016 Current Expectations Economic Factors Valuation Attraction Saudi Arabia Negative Neutral Markaz Research is available on Bloomberg - Type MRKZ <Go> Thomson Research, Reuters Knowledge Nooz Zawya Investor ISI Emerging markets Capital IQ FactSet Research Connect TheMarkets.com M.R. Raghu CFA, FRM Head of Research RMandagolathur@markaz.com N. C. Karthik Ramesh Manager - Research Ext : 4611 KRamesh@markaz.com Irfan A Naheem Analyst Ext: 4607 INaheem@markaz.com Kuwait Financial Centre K.P.S.C Markaz P.O. Box 23444, Safat 13095, Kuwait Tel: Fax: markaz.com Earnings Growth Potential Market Liquidity Current Recommendation Source: Markaz Research Neutral Positive Neutral The year 2015 was challenging for KSA economy, with the decline in oil prices impacting its economic growth. Standard & Poor s cut KSA sovereign credit rating for long-term foreign and local currency by one notch to 'A-plus/A-1'. The slowdown of Chinese market exerted more pressure on the Tadawul market performance, to the already contracting market due to lower oil prices causing it to decline by c.17% during KSA took some positive steps towards liberalizing its market by allowing direct participation of foreign institutions in Tadawul which commenced from June 15, Given the steep fall in oil prices, the fiscal revenue has contracted significantly and is expected to remain contracted through 2016 as well. The decline in revenue and continued expenditure results in fiscal deficit of 5.5% of GDP in Going forward, we evaluate the attractiveness of the KSA stock market based on four-factor model. Economy: Negative The lower oil price would have a ripple effect on the overall economy in the form of lower GDP growth which is expected to slow down to 2.2% in The fiscal deficit is expected to be c.19.6% for the year 2016, considering the fiscal surplus of 5.8% of the GDP for the year 2013, this will be a significant deterioration. The current account deficit is expected by IMF to be at around 4.7% of the GDP as against 3.5% of GDP during However, the inflation is expected to remain under 3%. Decline in revenue due to lower oil prices and growing fiscal and current account deficit are major worries for the KSA economy. Hence, we are negative on this front. Valuation: Neutral The lower anticipated economic activity growth rate would translate into lower investor confidence and lower earnings potential growth for the companies operating in KSA. This is likely to result in depressed valuation for the companies. However, KSA s PE of 13x appears to be trading at elevated

2 Corporate earnings growth is expected to contract in 2015 by 8.2% and further by 1.9% in Stock turnover ratio stood at 89% in 2015 as value traded for the year fell by 15% to USD 462bn. valuation levels, given that MSCI emerging markets constituents UAE (10x) and Qatar (11X) are trading at a lower valuation and MSCI Emerging Market Index trading at a PE of 13x. This can pose a challenge to QFIIs participation as historically Tadawul s PE has been lower than emerging market s PE during the low oil price period 1. Earnings: Neutral We expect corporate earnings growth to contract in 2015 by 8.2% and further by 1.9% in 2016 led by commodities sector which majorly comprises petrochemical industry. Petrochemical prices are closely linked to those of oil, the slump in crude prices has reduced Saudi producers' margins, thus affecting the profitability. Earnings for construction and its ancillary sectors are also expected to take a hit during We expect the earnings for the banking sector to grow by 5% during 2016 compared to However, all the other sectors in KSA are expected to witness moderate growth in earnings. Market Liquidity: Positive Stock turnover ratio stood at 89% in 2015 as value traded for the year fell by 15% to USD 462bn from USD 543bn registered a year back. Saudi Arabia still continues to be the most liquid market in the GCC region. With foreign investors permitted since June 2015, the liquidity is expected to improve in the future. Though in the short term there will be marginal decline in trading activity due to the depressed investor sentiment, it is more likely to improve as the economy recovers. Overall, we maintain a neutral outlook for KSA for Monthly Performance What Happened in 2015? Markets Jan'15 Feb'15 Mar'15 Apr'15 May'15 Jun'15 July'15 Aug'15 Sep'15 Oct'15 Nov'15 Dec' YTD Saudi (TASI) 6.5% 4.9% -5.7% 12.0% -1.5% -6.2% 0.1% -17.3% -1.6% -3.8% 1.6% -4.5% -17.1% S&P GCC 2.8% 4.4% -6.9% 10.1% -2.3% -3.5% 0.1% -13.2% -1.1% -2.7% -2.3% -2.4% -17.4% IPE Brent -7.6% 18.1% -11.9% 21.2% -1.8% -3.0% -17.9% 3.7% -10.7% 2.5% -10.0% -16.4% -35% Source: Reuters 2015 started with the oil price hovering around USD 55.8 per barrel and was expected to be range bound between USD 70 USD 100 per barrel during the medium-term horizon. Backed by increased demand in the US, and from European refineries, and supply disruption in Libya, marginal improvement in Chinese manufacturing activity resulted in the oil price rally in the initial months of 2015 reaching USD 63 per barrel by the end of February 2015 and USD per barrel at the end of April 2015 on the back of weakening dollar, due to weak US economic data, and sentiment regarding easing of the supply glut. On August 24 th, referred to as Black Monday, Shanghai Composite Index collapsed by nearly 9% triggering a wave of panic across the world. The collapse 1 Bloomberg Kuwait Financial Centre Markaz 2

3 Shanghai Composite Brent India Saudi Tadawul France Germany FTSE Japan Nikkei S&P GCC U.S (S&P 500) MSCI World Qatar Kuwait Dubai Gold MARKAZ RESEARCH of Shanghai Index had a domino effect on Tadawul index and oil prices, resulting in a decline of 5.9% and 6.1% respectively. With the decline of 17.3%, Saudi Arabian markets suffered the most during August month stock market rout set-in motion by the Chinese equities markets. The August decline wiped out all gains made by the stock market since the beginning of the year. Black Monday (24 Aug 15) 0% -1% -2% -3% -4% -5% -6% -7% -8% -9% -8.5% -6.1% -5.9% -5.9% -5.3% -4.7% -4.7% -4.6% -4.0% -3.9% -3.7% -1.7% -1.6% -1.4% -0.5% Source: Reuters The weak oil prices caused the oil and petrochemical industry within Saudi Arabia to slowdown. The TASI index performance has been inconsistent during the last decade. The index touched its 10-year low in 2008 during the financial crisis and recovered through 2009 and Despite the strong domestic macroeconomic factors, the market declined during 2011 due to the Arab spring. The strong oil price during 2012 and 2013 helped the index to perform better only to decline marginally during 2014 and drop by 17% during 2015 due to the drop in oil prices. However, fall in Chinese manufacturing activity, lifting of economic sanctions imposed on Iran and record production from OPEC and Russia continued to exert pressure on crude oil prices. As a result Saudi Arabia witnessed weakened economic growth and strain on funding sources. The weak oil prices caused the oil and petrochemical industry within Saudi Arabia to slowdown. Moreover, Saudi Arabian corporate earnings fell during the third quarter of Combined net income of 166 listed companies for which data was available dropped 14.0% from a year earlier to USD 7.4bn (SAR 27.6bn) in the July-September quarter. Kuwait Financial Centre Markaz 3

4 Tadawul Index, Performance (in %), % 40% 39% 27% 26% 20% 8% 6% 0% -3% -2% -20% -17% Hotel & Tourism sector players are the 3 rd largest constituents of Tadawul Index. -40% -60% -56% -80% Source: Reuters Banking and petrochemical sector stocks account for almost 50% of the market capitalization of the Tadawul index. Tadawul Index, Sector-wise weights, % 1% 2% 2% 4% 4% 4% 4% 6% 6% 10% 1% 0.4% 27% 24% Banks Petrochem Hotel & Tour Transport Media & Publishing Multi Investment Cement Energy and Utilities Industrial Investment Retail Insurance Agri, Food Telecom Construction Real Estate Source: Reuters Kuwait Financial Centre Markaz 4

5 60% Tadawul Index, Sector-wise gains/loss, % 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% The decline in banking sector index by 14.9% during 2015 establishes the challenges in the form of liquidity tightening. Tadawul Index -17.1% Media and Publish 7.5% Transport Source: Reuters 1.4% 0.8% Energy and Utilities Real Estate Industrial Investment -2.5% Insurance -2.5% Multi Investment -16.5% -19.1% -10.3% -15.0% -21.8% -14.9% -27.0% -30.4% -33.7% Majority of the sectors underperformed during 2015, with Media & Publication, Transport, Energy and Utilities and Real Estate being the exceptions. The Saudi construction and cement were the worst hit sectors and they lost 34% and 30% respectively. The labour law reforms such as private sector employees banned from working for more than 12 hours a day and a 30 minute break every five hours had posed a significant challenge to the construction industry. In addition decline in new projects allocation and slow payments to contractors working on projects has significantly impacted the profitability of the companies operating in this sector. The impact of underperformance of the construction industry has rubbed onto the Saudi cement sector. Factors such as decline in projects and all time high inventory despite production cuts severely impacted the performance of the cement sector. The cement producers offered discounts during 2015 and are expected to continue to offer during 2016 to reduce the high inventory levels. Banking & Financial Hotel & Tourism Telecom & IT Retail Agri and Food Petrochem Construction Cement Petrochemical prices are closely linked to those of oil, so the slump in crude prices has reduced Saudi producers' margins. The drop in index reflects the consistent drops in petrochemical prices. All the major petrochemical producers have lowered prices of their products. Additionally, there is a lot of inventory that has built up among petrochemicals producers as China, one of the key markets, has been posting lower demand. Kuwait Financial Centre Markaz 5

6 Tadawul index comprises of 171 stocks out of which 5 were suspended from trading as of December 23 rd The decline in banking sector index by 14.9% during 2015 establishes the challenges in the form of liquidity tightening, as a consequence of low oil prices and increased government borrowings that will impact the banking sector. As Saudi banks fund the state debt by purchase of sovereign bonds, this is expected to absorb liquidity in the banking system. The bank s deposit levels have declined in KSA due to decline in government and government related entities deposits which further impacts liquidity. However, countercyclical government spending will continue to support the non-oil sectors to which most banks lending is directed, and will help to moderate the negative effect. International Monetary Fund (IMF), credit rating agencies and independent banking analysts expect Saudi banking sector to face slowdown in loan growth. Standard and Poor s expects to see bad loans edge higher by the end of 2016 and suggested that there was a clear link between non-performing loans and oil prices. According to data collected by the rating agency, after oil prices sunk to a low of around USD 30 per barrel in late 2008, the ratio of bad loans more than doubled in the subsequent months. The number of large, medium and small cap stocks is 59, 23 and 89 respectively. The Tadawul index comprises of 171 stocks out of which five were suspended from trading as of December 23 rd The number of large, medium and small cap stocks is 59, 23 and 89 respectively. Stocks with market cap in excess of USD 1bn are classified as large cap, stocks with market cap between USD 500mn and USD 1bn are classified as mid cap and stocks with market cap lesser than USD 500mn are classified as small cap. Tadawul Index constituents based on Market Cap, 2015 Large Cap, 35% Small Cap, 52% Mid Cap, 13% Source: Reuters Kuwait Financial Centre Markaz 6

7 Large Cap 2 MARKAZ RESEARCH Saudi Research and Marketing Group (SRMG) gained 246% in 2015 which can be attributed to improved financial performance of the company. The high PE ratio of 140x, affirms the high anticipated future growth of SRMG by the market. SRMG reported a profit of USD 8.15mn for 9m 2015 compared to a loss of USD 5.06mn during 9m The company owns more than 15 publications with various periodicities (daily, weekly and monthly). Additionally, the company also deals with marketing, advertising and distributing services across the MENA region and Europe. Saudi Research and Marketing Group (SRMG) gained 246% in With less than 1% penetration, the insurance sector in Saudi Arabia can be considered as one of the fastest growing markets in the GCC. This fast growth is evident with two insurance companies presence amongst the top 5 large cap gainers during The 9m profit for Company for Cooperative Insurance (Tawuniya) gained 32.16% from c. USD 145mn during 2015 compared to c. USD 110mn during The BUPA Arabia 9m net profit for 2015 was USD 116mn an increase by %. Consequently, the stocks rose 57% and 35%, respectively. Companies National Shipping Company of Saudi Arabia (Bahri) disclosed Q preliminary financial results posting net profit of USD 136mn skyrocketing 501% YoY. In 9M 2015, bottom line grew 205% coming in at USD 333mn compared to USD 109mn in 9M This stellar YoY growth is primarily attributable to increasing revenues as result of the increase in VLCC fleet from 26 to 31 VLCCs, 5 product tankers and 1 floating storage after completing the merger of Vela Marine International Ltd. assets and operations with Bahri assets and operations. Top Five Gainers-Large Caps Sector M. Cap (USD mn) Last Close 2015 P/E P/B Beta Div. Yield Saudi Research and Consumer Marketing Group Cyclicals 1, % High Company for Cooperative Insurance Financials 2, % High National Shipping Company of Saudi Arabia JSC Industrials 4, % High Bupa Arabia for Cooperative Insurance Co Financials 2, % High Makkah Construction and Development Co Financials 4, % High Source: Reuters, ADTV Average Daily Traded Value 3 ADTV The petrochemical segment of Saudi Arabia is one of the worst hit sectors due to the lower oil prices. Decline in oil price leads to lower petrochemical product prices and this is clearly evident with top three large cap losers from the petrochemical segment. National Industrialization Company has reported losses 2 Stocks listed in KSA with market capitalization value of greater than USD 1,000mn have been considered as large caps for our analysis 3 ADTV is considered high if the value traded is above USD 811,903, low if the value is below USD 507,439 and rest are considered as average Kuwait Financial Centre Markaz 7

8 in all the 3 quarters of It has reported an aggregate loss of USD 196mn in 9m 2015 compared to a net profit of USD mn during 9m The significant drop in net profit is attributable to lower average sales prices and lower sales volumes. The petrochemical segment of Saudi Arabia is one of the worst hit sectors due to the lower oil prices. The underperformance of the Saudi Industrial Investment Group in addition to the lower product prices is attributable to decline in earnings from the company s 50%-owned subsidiary, Petrochem, and its major JV projects, namely, Saudi Chevron Phillips (SCP) and Jubail Chevron Phillips (JCP). Moreover, SCP and JCP shut down their petrochemical plants in October for scheduled maintenance. This is expected to further impact the financial performance. The bottom-line for Saudi International Petrochemical (Sipchem) declined by c.46% resulting in 9m 2015 net profit of USD 70mn compared USD mn in 9m Top Five Decliners-Large Cap Company Name National Industrialization Co JSC Saudi International Petrochemical Co Saudi Industrial Investment Group Sector Basic Materials Basic Materials Basic Materials Mcap (USD mn) Price Close YTD P/E P/B Div Yield Beta ADTV 1, % nm High 1, % High 1, % High Bank Aljazira JSC Financials 1, % High Basic Arabian Cement Co Materials Source: Reuters 1, % High Kuwait Financial Centre Markaz 8

9 Mid Cap 4 There were only 3 gainers among the mid cap segment of KSA, reflecting pressure on this category. National Agriculture 9M 2015 net profit amounted to USD 28.52mn compared to USD 23.23mn in the same period last year, an increase of 22.7%. National Agriculture Development Company s control on production cost in spite of the growth of selling, general and administrative expenses as well as financing burdens to match the expansions are some of the reasons for its positive performance in the mid cap segment. National Medical Care reported 14.01% increase in its 9m 2015 profit of USD 26mn. The other top gainer in the Midcap segment is National Medical Care which reported 14.01% increase in its 9m 2015 profit of USD 26mn compared USD 22.32mn for the same period in The outlook for the medical services in Saudi Arabia is positive as population growth, increasing life expectancy, proliferation of chronic diseases and the changes in patterns of life have propped up demand. Healthcare companies in KSA embarked on ambitious capacity expansions to accommodate the flourishing demand for healthcare services and this expansion is reflected in their respective PE ratio as in the case of National Medical Care which is trading at a PE of 23.6x as against the Tadawul index average of 13x. Company Name National Agriculture Development Co Abdulmohsen Al Hokair Group for Tourism and Development Co CJSC National Medical Care Co JSC Top Gainers-Mid Cap Sector Consumer Non- Cyclicals Consumer Cyclicals Source: Reuters Mcap (USD mn) Price Close YTD P/E P/B Dividend Yield Beta, 3yr (weekly) ADTV % High % na 3.8 High Healthcare % High Mediterranean and Gulf Cooperative Insurance and Reinsurance Co CJSC reported a loss of USD 36.11mn for 9m 2015 compared to a profit of USD 37.75mn during the same period in MedGulf KSA's losses appear to be specific to the company; the Saudi insurance sector as a whole is still seeing a market improvement in premium pricing. The negative outlook for the cement industry due to factors such as decline in domestic consumption due to drop in projects and all time high inventory despite production cuts have resulted in cement companies stock prices trading at a discount to the year s starting prices. Stocks of Najran Cement and Eastern Province Cement have lost 44% and 43% respectively. Najran Cement reported a net profit of USD 53.8mn in 9m 2015, c.13% increase compared to USD 47.77mn during the same period in On the contrary, Eastern Province 4 Stocks listed in KSA with market capitalization value of lesser than USD 1,000mn but greater than USD 500mn have been considered as large caps for our analysis Kuwait Financial Centre Markaz 9

10 reported a net profit of USD 65.03mn in 9m 2015, c.17% decrease compared to USD 78.43mn during the same period in Top Five Decliners-Mid Cap Najran Cement and Eastern Province Cement are trading at a discount of 40% and 39% respectively. Company Name Mediterranean and Gulf Cooperative Insurance and Reinsurance Co CJSC Najran Cement Co Eastern Province Cement Co Saudi Ceramic Co City Cement Co CJSC Source: Reuters Sector Mcap (USD mn) Price Close YTD P/E P/B Dividend Yield Beta ADTV Financials % nm High Basic Materials Basic Materials Consume r Cyclicals Basic Materials % High % Avera ge % High % High Kuwait Financial Centre Markaz 10

11 Saudi Transport and Investment Company gained 119.6% YTD. Small Cap 5 The top gainers in the small cap segment enjoyed high liquidity. Saudi Transport and Investment Company, with gain of 109% in 2015 topped the list of small cap gainers. Despite the decline in profit by c.18% for 9m 2015 to USD 10.31mn compared to USD 12.31mn during the same period in The rally in the stock price of Saudi Transport and Investment Company can be attributed to the strong anticipated performance on the backdrop of its income diversification and expansionary strategy adopted. The high investor confidence is also reflected by the high PE (36X) at which it is trading. Company Name Top Five Gainers-Small Cap Sector Mcap (USD mn) Price Close YTD P/E P/B Dividend Yield Beta, 3yr (weekly) ADTV Saudi Transport and Investment Co Industrials % High Saudi Printing and Packaging Co Industrials % High Jazan Development Consumer Co Non-Cyclicals % High Allianz Saudi Fransi Cooperative Financials % High Insurance Co Al Sagr Cooperative Insurance Co Financials % High Source: Reuters The top 3 stocks discussed in the table below.i.e. Tihama Advertising, Solidarity Saudi Takaful and Middle East Cables have significant levels of accumulated losses. Continued losses in 9m 2015 have resulted in further decline in prices of these stocks. Top Five Decliners Small Cap Company Name Tihama Advertising Public Relations and Marketing Holding Solidarity Saudi Takaful Co JSC Middle East Specialized Cables Co National Agriculture Marketing Co Sector Consumer Cyclicals Mcap (USD mn) Price Close Financials Industrials Consumer Non- Cyclicals Aljazira Takaful Taawuni Co Financials Source: Reuters YTD P/E P/B - 67% - 64% - 58% - 50% - 48% Dividend Yield Beta, 3yr (weekly) ADTV nm High nm High nm High High High 5 Stocks listed in KSA with market capitalization value of lesser than USD 500mn have been considered as large caps for our analysis Kuwait Financial Centre Markaz 11

12 What to expect for 2016? We base our analysis on a set of four factors which we believe will influence and impact market performance. We have assigned weights to each of these factors based on our assumption about the degree of influence it would have on the stock market performance as a whole in An explanatory note for all the five factors can be found in Appendix 1. Four-Force Framework The aggregate earnings of Saudi corporates at the end of 9m 2015 declined by 14.8% to USD 21,580mn. Valuation Attraction 25% Earnings Growth Potential 40% KSA Stock Market Assessment Market Liquidity 10% Economic Factors 25% Source: Markaz Research 1. Earnings Growth Potential The aggregate earnings of Saudi corporates at the end of 9m 2015 declined by 14.8% to USD 21,580mn compared to USD 25,343mn at the end of 9m Banking and financial services sectors were the only two segments that witnessed growth in earnings at 6% and 22% respectively. Conglomerates, Telecommunications and Real Estate were some of the worst hit sectors in KSA. On an aggregate basis, overall earnings for the year 2015 are expected to decline by 8% compared to Kuwait Financial Centre Markaz 12

13 Earnings Trend Saudi Arabia (USD mn) Earnings, USD mn (LHS) Earnings Growth (RHS) 35, % The continued expected lower oil price in 2016 is expected to exert further pressure on corporate earnings. 30,000 25,000 20,000 15,000 10,000 5,000 29,742 30,303 26,976 27,556 27,804 27, % 21,252 22,835 22, % 17,744 48% 16,221 37% 50% 20% 7% 27% 22% 8% 0% 12,791 2% 2% -2% -8% -44% -50% e 2016f -100% Source: Thomson Reuters Eikon, Markaz Research The continued expected lower oil price in 2016 is expected to exert further pressure on corporate earnings. Domestic bond placement by the KSA government with the local banks and lower deposit mobilization is expected to affect the credit offtake. Lower credit offtake and increasing cost of funds due to liquidity squeeze is expected to impact the bank earnings. KSA, with a P/E ratio of 13x appears to trade at elevated valuation levels. The commodities related sector, especially the large petrochemical segment of KSA is expected to contract due to lower price realization of its products, resulting in almost 15% decline in earnings for companies operating in the commodities segment in 2016 compared to The lower anticipated growth rate is likely to translate into flat growth rate for real estate sector and result in contraction of the construction related sectors. The contraction of the construction related sector can be attributed to the deferred infrastructure projects due to decline in oil price. Overall, our rating on this parameter is negative for Valuation Attraction On a standalone basis, KSA, with a P/E ratio of 13x appears to trade at elevated valuation levels, given that MSCI emerging markets constituents UAE and Qatar were trading at a lower premium. On P/B basis, KSA market is the second expensive among all GCC nations after Qatar. Dividend yield for KSA stands at 4.2%. On an overall basis, we adopt a neutral view on this parameter. Kuwait Financial Centre Markaz 13

14 Valuation Parameters Summary MARKAZ RESEARCH The continued expected lower oil price in 2016 is expected to exert further pressure on corporate earnings. KSA, with a P/E ratio of 13x appears to trade at elevated valuation levels. P/E (TTM) Saudi Arabia Kuwait UAE Qatar Oman Bahrain P/B Saudi Arabia Kuwait UAE Qatar Oman Bahrain na Dividend Saudi Yld (TTM) Arabia Kuwait UAE Qatar Oman Bahrain Qualitative Assessment Neutral Neutral Positive Positive Positive Positive Source: Zawya, Markaz research 3. Market Liquidity Value traded in KSA markets plunged by 15% Y-o-Y in 2015 after its 51% increase in The reduced confidence has restricted active investor participation in the equity market of KSA. Not just the value traded but the volume traded too declined from 65bn during 2014 to 59bn during Aggregate value traded of equities in KSA reached a value of USD 461.6bn in This represents a 15% lower value from the value traded registered in The drop in value traded can be attributed to lean trading triggered by the negative investor sentiment due to lower oil prices. However, this is expected to marginally increase to 93% of market cap during As per Zawya - Volume traded from Jan 1 st to December 21 st for both 2014 & 2015 Kuwait Financial Centre Markaz 14

15 Value traded (in USD Mn) and Y-o-Y change (in %), The KSA market liquidity is expected to remain high during 2016 as well. 1,600 1,400 1,200 1, % 27% -51% Value Traded (USD bn) -23% -36% -40% Source: Zawya; Data as of Dec 13, 2015 The trading activity on Tadawul is dominated by the retail investors with the institutional investors contributing only 9% of trading volume on Tadawul exchange. The low level of trading by the institutional investors can be attributed to regulatory constraints on foreign investor s participation and small universe of domestic institutional investors. However, with the relaxation of rules with regards to foreign investment in Tadawul, this institutional investment can be expected to grow. The stock market turnover ratio for KSA has been consistenly high compared to the other GCC markets. The KSA market liquidity is expected to remain high during 2016 as well. Therefore, our rating on this parameter is positive for % 76% Growth -30% 51% -15% -6% f 150% 100% 50% 0% -50% -100% Stock Market Turnover Ratio (Value traded/market cap) 500% 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% 167% 432% 132% Source: Zawya, Markaz Research; Data as of Dec 13, Economic Factors 213% 106% 57% 86% 139% 88% 103% 89% 93% f Based on our assessment, we have maintained a neutral view on KSA due to tepid growth expectations. Kuwait Financial Centre Markaz 15

16 i. Real GDP Growth Forecast Saudi Arabia s GDP is projected to grow at 3.4% in 2015, a drop from previous year growth of 3.5%. The GDP growth is expected to slow down to 2.2% in Non-hydrocarbon sector growth is expected to be the slowest at 3.8% during 2016 and this is the least growth level in the last five years. Saudi Arabia s GDP is projected to grow at 3.4% in Oil accounts for around 80 percent of government revenue and 45 percent of GDP. Lifting of economic sanctions imposed on Iran by US and other countries and record production from OPEC and Russia continue to exert pressure on crude oil prices resulting in lower hydrocarbon revenue. At the same time the moderated spending due to decreased revenue will limit the non-oil sector growth. Real GDP growth rates (%) Real GDP Growth KSA Kuwait UAE Qatar Oman Bahrain ( Avg) (2013) (2014) (2015 e) (2016 f) Source: IMF Hydrocarbon Real GDP growth rates (%) The inflation in KSA is expected to be at 2.3% in 2016 by IMF. Hydrocarbon GDP Growth KSA Kuwait UAE Qatar Oman Bahrain ( Avg) (2013) (2014) (2015 e) (2016 f) Source: IMF Non-hydrocarbon Real GDP growth rates (%) Non-Hydrocarbon GDP Growth KSA Kuwait UAE Qatar Oman Bahrain ( Avg) (2013) (2014) (2015 e) (2016 f) Source: IMF Kuwait Financial Centre Markaz 16

17 ii. Inflation MARKAZ RESEARCH The inflation in KSA is expected to be at 2.3% in 2016 by IMF. The availability of low-wage expatriate labor in the private sector has helped contain cost pressures during periods of strong growth, thereby helping deliver relatively low inflation, limited real exchange rate appreciation, and flexibility to an economy with a pegged exchange rate. However, the labor law reforms are likely result in higher wages and thus exerting cost pressure which would translate into inflation. Saudi Arabia s public debt is among the world s lowest. The current account deficit is estimated to be at 3.5% of GDP in 2015 for KSA. Inflation rate (%) Inflation, annual change KSA Kuwait UAE Qatar Oman Bahrain ( Avg) (2013) (2014) (2015 e) (2016 f) Source: IMF iii. Fiscal Balance The projected c.0.06% increase in Government spending even considering some decline in capital spending and drop in revenues due to lower oil prices is expected to result in a fiscal deficit of about 21.6 of GDP %. However, slow growth in Government expenditure, absence on one-off spending of USD 32bn in the form of bonuses during 2015, budgeted spending on existing ventures and postponement of some of the projects is likely reduce the fiscal deficit during 2016 compared to 2015 levels. Additionally, Saudi Arabia s public debt is among the world s lowest 7, with a gross debt-to-gdp ratio of less than 2% in This provides the ability to raise debt and to service its expenditure. Fiscal Balance as % of GDP Fiscal Balance KSA Kuwait UAE Qatar Oman Bahrain ( Avg) (2013) (2014) (2015 e) (2016 f) Source: IMF; Note: Fiscal balance is computed as difference between general government revenue streams (oil revenues, taxes, grants receivable and others) and general government expenditures (capital expense, social benefits, governmental wages and other current expenses) iv. Current Account Balance The current account deficit is estimated to be at 3.5% of GDP in 2015 for KSA. It is expected to increase further to 4.7% of GDP in 2016 due to plummeting oil exports revenue and higher imports of goods and services. As the domestic liquidity tightens, the external investment from KSA would reduce, on the contrary, with the opening of the equity market to foreign investors, the foreign investment is likely to increase. 7 Bloomberg Kuwait Financial Centre Markaz 17

18 Based on the four force analysis, the 2016 outlook for KSA is Neutral. In July 2014, Government of Saudi Arabia gave its nod to allow direct participation of foreign institutions. Current Account Balance as % of GDP Current Account Balance KSA Kuwait UAE Qatar Oman Bahrain ( Avg) (2013) (2014) (2015 e) (2016 f) Source: IMF; Note: Current account balance calculated as the sum of trade balance and the balance on services, income and transfers. Economic Parameters Summary Overall Scores Economic Growth Inflation Fiscal Balance Current Account Balance Overall assessment Source: IMF, Markaz KSA Stock Market Expectation Factors Earnings Growth Potential Valuation Attraction Economic Factors Market Liquidity Kuwait Neutral Positive Negative Negative Negative Marmore View Negative Neutral Neutral Positive 2016 Market Expectation Neutral Source: Markaz Research Based on the four force analysis, the 2016 outlook for KSA is Neutral. Due to its strong reserves and low levels of debt, KSA will manage to weather low oil price era without significant troubles. However, this would certainly slow the economic engines to a certain extent which will be reflected in the corporate earning during The low investor confidence will reflect in the valuation of the stocks. However, KSA will continue to be a highly liquid market in the region and participation of Qualified Foreign Institutional Investors (QFIIs) will complement the existing liquidity status of the market. The gates are opened but where are the international investors? In July 2014, Government of Saudi Arabia gave its nod to allow direct participation of foreign institutions and the foreign investment in Tadawul commenced from June 15, Some of the core objectives that were aimed to be achieved with the opening of KSA markets were as follows: This was marked as a strategy bolster for the non-oil sector and further facilitate its economic diversification which is presently predominantly dependent on the petrochemical sector. Kuwait Financial Centre Markaz 18

19 Permitting QFII s to invest in Tadawul would facilitate QFII s voting in general assembly meetings and nominate board members thus impacting the companies to be more governace oriented and result in greater disclosure and transparency. It would take some time for global investor appetite to feed through to actual Tadawul-equity buying demand. Expedite the goal to achieve MSCI emerging market index which it presently aims by Mid-2017 by improving the regulatory framework. The granting of access to foreign investors was expected to bring foreign investment in the range of USD 20bn 50bn. However, 6 months after granting of access to the foreign investment, total (QFI, approved QFI clients and Swap) ownership by market value is at around 1% 8. This clearly showcases that the inflow of investments hasn t been very positive even post the opening of the markets. It would take some time for global investor appetite to feed through to actual equity buying demand. Investment is likely to occur over a period of time and in phases. The first phase is the flow of funds happening at present from QFIIs to invest in the Tadawul index and the next phase of the inflow will be post the MSCI inclusion. A few reasons why foreign invesment in Tadawul hasn t met the expectations are as follows: Stringent norms to screen the QFIIs reduces the investor universe significantly. Stringent norms to screen the QFIIs reduces the investor universe significantly. As per the rules set by CMA, foreign institutional investors (QFIIs) with minimum assets under management (AuM) of USD 5 billion and those who have been in the business of security activities for over five years would be eligible participants. Though this clearly marks the preference for long-term investors than short-term speculators, a more liberal approach as adopted by other nations such as India and China would be a more encouraging factor. Comparative QFII Criteria Country QFI Criteria KSA USD 5bn AuM & 5yrs exp USD 500mn China & 3yrs exp USD 2bn & avg net profit India of USD50mn in last 3 yrs Source: Jadwa Investment Max. Foreign Institutional Ownership 20% Total Inv Limit for QFIs 10% of stock market value Max. Limit for each QFI for Single Stock 5% Market Cap USD 0.58tr 30% USD 150bn 10% USD 2.7tr Sectorial Caps 10% of stock market value 5% USD 1.3tr 8 As of 16 th December 16, 2015 Tadawul Website Kuwait Financial Centre Markaz 19

20 In 2008, when the oil languished to the current levels the Saudi Equities traded cheaper than the emerging markets. Restriction in terms of not all companies listed on Tadawul being open to the foreign ownership. General Investment Authority's negative list prohibits foreign investment in certain sectors such as the prohibition on investing in shares of real estate companies operating in the holy cities of Makkah and Madinah and Saudi Arabia's lucrative mining industry. The continued drop in oil prices has also significantly hurt investor confidence and hinders investment in the KSA market. Moreover, the valuations on the Tadawul All Share Index haven t dropped to the anticipated levels due to the drop in the oil price. The index continues to be more expensive than the MSCI Emerging Market Index. In 2008, when the oil languished to the current levels the Saudi Equities traded cheaper than the emerging markets 9. The QFIIs require sufficient risk management tools such as derivatives to hedge the portfolio risk. The absence of these tools in the domestic market can post a challenge to the QFIIs. Therefore, measures to improve the sophistication of the market by developing these instruments can give more confidence to the investors. 9 Bloomberg Kuwait Financial Centre Markaz 20

21 Appendix: Blue Chip Stocks SABIC Code: 2010.SE Current market price: SAR Mcap: USD 61.3bn SABIC s Q revenue decreased by 23.4% to USD 9.9bn compared to USD 13bn at the end of Q Its Q3 net profit declined by 9.4% to USD 1.5bn, however, this is greater than the profit anticipated. SABIC managed to limit the impact of drop in sales by decreasing the cost of sales by 22%. The analyst revenue estimate for the year 2015 is USD bn, given the current performance of the company, it is highly unlikely that SABIC will meet the current revenue forecasts. Historical Financial Highlights (SAR mn) m 2015 Income Statement Revenues 150, , , , , , , ,011 Net Income 22,030 9,074 21,529 29,242 24,780 25,278 23,347 15,709 Balance Sheet Total Assets 271, , , , , , , ,180 Total Liabilities 168, , , , , , , ,381 Total Equity 102, , , , , , , ,798 Key Ratios Current Ratio (in %) na Net Profit Margin (in %) na Debt/Equity ROE, % na ROA, % na EV/EBITDA P/E P/B Dividend Yield 5.8% 1.8% 3.3% 5.2% 5.6% 4.5% 6.5% 6.4% Sources: Reuters Analyst Estimates (Mean) 2015e 2016f 2017f 2018f Revenue (SAR mn) 159, , , ,185 EBITDA (SAR mn) 46,295 48,361 50,286 52,073 Net Profit (SAR mn) 19,953 20,736 21,530 22,019 CapEx (SAR mn) 15,046 15,673 16,020 NULL EPS (SAR) RoA, % RoE, % Source: Reuters Kuwait Financial Centre Markaz 21

22 Saudi Telecom Code: 7010.SE Current market Price: SAR Mcap: USD 36.3bn MARKAZ RESEARCH Saudi Telecom Company reported a 31% drop in third-quarter net profit. The former monopoly made a net profit of USD 618.7mn in the three months to September 30, 2015 down from USD 890mn the same period year before. Historical Financial Highlights (SAR mn) m 2015 Income Statement Revenues 47,469 50,780 51,787 55,662 44,745 45,605 45,826 37,590 Net Income 11,038 10,863 9,436 7,729 7,276 9,897 10,959 7,384 Balance Sheet Total Assets 99, , , ,402 82,505 87,370 90,869 96,259 Total Liabilities 62,124 64,789 65,785 64,493 31,168 31,140 30,447 35,904 Total Equity 37,638 42,035 44,996 46,908 51,337 56,230 60,422 60,355 Key Ratios Current Ratio (in %) na Net Profit Margin (in %) na Debt/Equity ROE, % na ROA, % na EV/EBITDA P/E P/B Dividend Yield 7.6% 6.8% 7.0% 5.9% 4.6% 4.2% 5.3% 6.0% Sources: Reuters Analyst Estimates (Mean) 2015e 2016f 2017f 2018f Revenue (SAR mn) 48,793 50,270 51,153 52,803 EBITDA (SAR mn) 19,945 20,574 20,851 21,333 Net Profit (SAR mn) 11,028 11,888 12,110 12,202 CapEx (SAR mn) 7,272 7,287 7,123 7,615 EPS (SAR) Book Value/Share (SAR) RoA, % RoE, % Sources: Reuters Kuwait Financial Centre Markaz 22

23 National Commercial Bank Code: 1180.SE Current market Price: SAR 51 Mcap: USD 27bn MARKAZ RESEARCH National Commercial Bank (NCB), the kingdom's largest bank by assets, reported a 6.7% rise in Q net profit. NCB made a net profit of USD mn in the three months to Sept. 30, 2015 up from USD mn in the same period of The increase in profit is attributed to higher quarterly income which increased 4.8% Y-o-Y to USD 1.14bn and profits from special commissions which increased by 15% to USD 856mn during the same period. (SAR mn) m 2015 Income Statement Net Interest Income 7,776 8,046 8,150 8,581 8,960 10,096 11,279 9,371 Net Income 2,031 4,040 4,724 6,012 6,453 7,852 8,655 6,963 Balance Sheet Total Assets 221, , , , , , , ,311 Total Liabilities 195, , , , , , , ,457 Total Equity 26,115 29,271 31,272 34,165 37,704 40,934 45,214 50,855 Key Ratios Net Loan Growth, % na Deposits Growth, % na NPL (% loans) Loan loss provision (% loans) Loans/Deposit 58% 51% 52% 52% 55% 58% 60% 59% Tier 1 Capital Ratio ROA, % na EV/EBITDA P/E NM NM NM NM NM NM P/B Dividend Yield na na na na na na 1.2% 2.8% Sources: Reuters Analyst Estimates (Mean) 2015e 2016f 2017f 2018f Revenue (SAR mn) 17,645 19,429 21,409 23,691 Net Profit (SAR mn) 9,396 10,009 11,112 12,380 EPS (SAR) NULL Book Value/Share (SAR) NULL RoA, % RoE, % Sources: Reuters Kuwait Financial Centre Markaz 23

24 Al Rajhi Bank Code: 1120.SE Current market Price: SAR 52 Mcap: USD 22.5bn MARKAZ RESEARCH Al Rajhi Bank reported a 3.6% rise in third-quarter net profit. The bank made USD million Q3 of 2015, up from USD bn in the same period in The first rise in net profit in nine quarters is attributed to lower expenses. Al Rajhi Bank s net interest income is under pressure from weakening loan growth and competition, especially in the retail market. Historical Financial highlights (SAR mn) m 2015 Income Statement Net Interest Income 8,602 9,394 9,122 9,070 9,341 9,649 9,817 7,472 Net Income 6,525 6,767 6,771 7,378 7,885 7,438 6,836 5,181 Balance Sheet Total Assets 163, , , , , , , ,213 Total Liabilities 136, , , , , , , ,253 Total Equity 27,032 28,741 30,318 33,489 36,469 38,498 41,896 44,960 Key Ratios Net Loan Growth, % na Deposits Growth, % na NPL (% loans) Loan loss provision (% loans) Loans/Deposit 115% 88% 81% 78% 77% 79% 80% 77% Tier 1 Capital Ratio ROA, % na EV/EBITDA P/E P/B Dividend Yield 5.4% 3.9% 3.6% 4.7% 5.0% 3.3% 3.4% 2.6% Sources: Reuters Analyst Estimates Mean 2015e 2016f 2017f 2018f Revenue (in SAR mn) 13,719 14,815 16,434 19,952 Net Profit (in SAR mn) 6,787 7,235 8,154 9,811 EPS NULL BVPS NULL RoA RoE Sources: Reuters Kuwait Financial Centre Markaz 24

25 Kingdom Holding Code: 4280.SE Current market Price: SAR 15.7 Mcap: USD 15.5bn MARKAZ RESEARCH Kingdom Holding posted a 10% rise in Q net profit amid an increase in returns on its investments. Kingdom made a net profit of USD 78mn riyals during the Q3 of 2015, up from USD 71m in the same period in The rise in net profit is attributed to an increase in profits and gains from investments. Kingdom Holding s assets and equity has declined marginally as of end of Q compared to the 2014 year-end. Historical Financial highlights (SAR mn) m 2015 Income Statement Revenues 6,159 4,754 3,743 3,202 3,478 3,133 3,398 2,411 Net Income (29,911) Balance Sheet Total Assets 50,715 49,990 42,188 39,782 41,843 46,247 46,722 43,243 Total Liabilities 29,100 25,411 15,107 14,335 13,653 14,641 14,466 14,483 Total Equity 21,615 24,579 27,081 25,446 28,190 31,606 32,256 28,760 Key Ratios Current Ratio (in %) na NPM (in %) na Debt/Equity ROE, % na ROA, % na EV/EBITDA P/E NM P/B Dividend Yield na na 6.1% 5.6% 2.4% 2.0% 2.8% 2.7% Sources: Reuters Analyst Estimates (Mean) 2015e 2016f 2017f Revenue (SAR mn) 3,640 3,918 4,226 EBITDA (SAR mn) 1,686 1,814 1,960 Net Profit (SAR mn) 987 1,120 1,245 CapEx (SAR mn) EPS (SAR) Book Value/Share (SAR) RoA, % NULL NULL NULL RoE, % NULL Sources: Reuters Kuwait Financial Centre Markaz 25

26 Saudi Arabia Large Cap Companies Saudi Basic Industries Corp Saudi Telecom Co National Commercial Bank Al Rajhi Banking and Investment Corp Saudi Electricity Co Sector M. Cap (USD mn) MARKAZ RESEARCH Last Close 2015 P/E P/B Beta Div. Yield ADTV Energy 61, % High Telecommunications Services 36, % High Financials 27, % na 2.8 High Financials 22, % High Utilities 17, % High Kingdom Holding Co Financials 15, % High Jabal Omar Development Co Almarai Co Samba Financial Group Saudi Arabian Mining Co Source: Reuters Saudi Arabia Mid-Cap Companies Abdulmohsen Al Hokair Group for Tourism and Development Co CJSC Saudia Dairy and Foodstuff Co Financials 13, % High Consumer Non- Cyclicals 12, % High Financials 12, % High Basic Materials 10, % High Sector Consumer Cyclicals Consumer Non- Cyclicals M. Cap (USD mn) Last Close 2015 P/E P/B Beta Div. Yield ADTV % na 3.8 High % Low Saudi Chemical Co Healthcare % High Aseer Trading Tourism and Manufacturing Co Industrials % High City Cement Co CJSC Basic Materials % High Saudi Real Estate Co Mediterranean and Gulf Cooperative Insurance and Reinsurance Co CJSC Eastern Province Cement Co Northern Region Cement Co Dur Hospitality Co Source: Reuters Financials % High Financials % nm High Basic Materials % Average Basic Materials % High Consumer Cyclicals % Low Kuwait Financial Centre Markaz 26

27 Saudi Arabia Small Cap Companies Al Hassan Ghazi Ibrahim Shaker Co Aldrees Petroleum and Transport Services Co Astra Industrial Group Saudi Printing and Packaging Co Mohammad Al Mojil Group Co Electrical Industries Co JSC Umm Al Qura Cement Co Red Sea Housing Services Co United Electronics Co JSC Saudi Vitrified Clay Pipe Co Source: Reuters Sector Industrials Energy Industrials Industrials Industrials M. Cap (USD mn) Industrials 407 Basic Materials 397 Consumer Cyclicals 389 Consumer Cyclicals 384 Consumer Cyclicals 376 KSA High Dividend Yield Stocks Companies Arabian Cement Co Tabuk Cement Co Northern Region Cement Co Yamama Cement Co National Industrialization Co JSC Yanbu Cement Co Saudi International Petrochemical Co Saudi Chemical Co Qassim Cement Co Saudi Cement Co Source: Reuters M. Cap Sector (USD mn) Basic Materials 1,266 Basic Materials 348 Basic Materials 717 Basic Materials 1,700 Basic Materials 1,890 Basic Materials 1,826 Basic Materials 1,368 Healthcare 961 Basic Materials 1,679 Basic Materials 2,651 Last Close 2015 P/E P/B Beta Div. Yield ADTV % High % High % High % High na nm 0.0 na 0.0 Low % na 4.4 High % nm 2.9 na 0.0 Low % Average 40-40% High 94 4% Low Category Large Cap Small Cap Last Close 2015 P/E P/B Beta Div. Yield ADTV % High % Low Mid Cap % High Large Cap Large Cap Large Cap Large Cap % High % nm High % Average 14-48% High Mid Cap 57-2% High Large Cap Large Cap 70-22% Low 65-32% Average Kuwait Financial Centre Markaz 27

28 KSA High Beta Stocks Companies Mediterranean and Gulf Cooperative Insurance and Reinsurance Co CJSC Emaar The Economic City Aljazira Takaful Taawuni Co Wafrah for Industry and Development Rabigh Refining and Petrochemical Co Dar Al Arkan Real Estate Development Co Amana Cooperative Insurance Co Saudi Industrial Export Co Malath Cooperative Insurance and Reinsurance Co Saudi International Petrochemical Co Source: Reuters Sector Financials Financials M. Cap (USD mn) 736 2,934 Financials 313 Consumer Non-Cyclicals 136 Energy Financials Financials Industrials Financials 2,860 1, Basic Materials 1,368 Category Last Close 2015 P/E P/B Beta Div. Yield ADTV Mid Cap % nm High Large Cap Small Cap Small Cap Large Cap Large Cap Small Cap Small Cap Small Cap Large Cap % High % High % nm High % High % High % nm High % High % High 14-48% High Kuwait Financial Centre Markaz 28

29 Asset Classes: Risk-Return Profile (5) 2015 Returns - (%) Abu Dhabi 2015 Risk (%) (10) (15) (20) KWT Wt Idx Kuwait Price Idx Bahrain Oman Qatar MSCI EM S&P GCC KSA Dubai (25) (30) (35) IPE Brent (40) Source: Reuters Eikon, Markaz Research Risk-Return Profile ( ) Annualized Returns, % ( ) Dubai 10 Abu Dhabi 5 - (5) (10) Qatar S&P GCC Bahrain Oman KWT Wt Idx Kuwait Price Idx KSA MSCI EM Annualized Risk (%) ( ) (15) IPE Brent (20) Source: Reuters Eikon, Markaz Research Kuwait Financial Centre Markaz 29

30 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 MARKAZ RESEARCH PE Band Chart PE Band of TASI TASI Index 10x 15x 20x 30x 25,000 20,000 15,000 10,000 5,000 0 Source: Reuters Monthly Index Returns TASI Index TASI Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD Value of $1 Invested in 2009 Jan % -9% 7% 20% 5% -5% 3% -2% 12% -1% 1% -4% 27% % 3% 6% 1% -11% 0% 3% -3% 5% -1% -1% 5% 8% % -7% 10% 2% 0% -2% -3% -6% 2% 2% -2% 5% -3% % 10% 8% -4% -8% -4% 3% 4% -4% -1% -4% 4% 6% % -1% 2% 1% 3% 1% 6% -2% 3% 1% 3% 3% 26% % 4% 4% 1% 2% -3% 7% 9% -2% -8% -14% -3% -2% % 5% -6% 12% -1% -6% 0% -17% -2% -4% 2% -5% -17% 1.44 Source: Reuters Eikon Kuwait Financial Centre Markaz 30

31 Stock Metrics Companies M. Cap (USD mn) Category Last Close 2015 P/E P/B Beta Div. Yield ADTV Industrials Astra Industrial Group 422 Al Abdullatif Industrial Investment Co 650 Al Sorayai Trading And Industrial Group Co 161 Basic Chemical Industries Co 150 Filing and Packing Materials Manufacturing Co 116 Al Hassan Ghazi Ibrahim Shaker Co 475 National Metal Manufacturing and Casting 192 Co Saudi Arabian Mining Co 10,339 Middle East Paper Co 338 Saudi Chemical Co 961 Saudi Industrial Export Co 114 Saudi Pharmaceutical Industries and Medical 1,062 Appliances Corp Saudi Paper Manufacturing Co 222 Takween Advanced Industries 347 National Company for Glass Industries 210 Multi Investment Al Baha Investment and Development Co 54 Al Ahsa Development Co 161 Aseer Trading Tourism and Manufacturing Co 787 Kingdom Holding Co 15,507 Saudi Advanced Industries Co 181 Saudi Arabian Refineries Co 164 Saudi Industrial Services Co 266 Telecom Etihad Atheeb Telecommunication Co Etihad Etisalat Co Saudi Telecom Co 229 5,787 36,381 Small Cap % High Mid Cap 30-11% Low Small Cap % nm Average Small Cap % Average Small Cap % High Small Cap % High Small Cap % High Large Cap % High Small Cap 25.4 na na 0.0 Low Mid Cap 57-2% High Small Cap % High Large Cap % High Small Cap % nm High Small Cap % High Small Cap % High Small Cap 13.5 na nm 0.0 na 0.0 Low Small Cap % High Mid Cap % High Large Cap % High Small Cap % High Small Cap % High Small Cap % High Small Cap % nm High Large Cap % nm High Large Cap % High Kuwait Financial Centre Markaz 31

32 Mobile Telecommunications Company Saudi Arabia Hotel & Tourism 1,307 Abdulmohsen Al Hokair Group for Tourism and 971 Development Co CJSC Al Tayyar Travel Group Holding Co 3,851 Dur Hospitality Co 712 Tourism Enterprises Co 116 Insurance ACE Arabia Cooperative Insurance Co 145 Allied Cooperative Insurance Group 92 Arabia Insurance Cooperative Co 80 Al Ahlia for Cooperative Insurance Co 64 Al Alamiya for Cooperative Insurance Co 634 Al Rajhi Company for Cooperative Insurance 237 Al Sagr Cooperative Insurance Co 209 Alahli Takaful Co 197 Allianz Saudi Fransi Cooperative Insurance Co 220 Amana Cooperative Insurance Co 70 Arabian Shield Cooperative Insurance Co 141 Alinma Tokio Marine Co 289 AXA Cooperative Insurance Co 200 Bupa Arabia for Cooperative Insurance Co 2,457 Buruj Cooperative Insurance Co 120 Gulf General Cooperative Insurance Co 109 Gulf Union Cooperative Insurance Co 71 Malath Cooperative Insurance and Reinsurance 174 Co Mediterranean and Gulf Cooperative Insurance and 736 Reinsurance Co CJSC MetLife AIG ANB Cooperative Insurance Co 261 SABB Takaful Co 298 Large Cap % nm High Mid Cap % na 3.8 High Large Cap % High Mid Cap % Low Small Cap % High Small Cap % High Small Cap % High Small Cap % High Small Cap % nm High Mid Cap % High Small Cap % High Small Cap % High Small Cap % High Small Cap % High Small Cap % nm High Small Cap % High Small Cap % nm High Small Cap % High Large Cap % High Small Cap % High Small Cap % High Small Cap % Average Small Cap % High Mid Cap % nm High Small Cap 56 4% nm High Small Cap % High Kuwait Financial Centre Markaz 32

33 Saudi Arabian Cooperative Insurance Co 119 Salama Cooperative Insurance Co 87 Sanad Cooperative Insurance and Reinsurance 80 Saudi Enaya Cooperative Insurance Co 177 Saudi Re for Cooperative Reinsurance Co 192 Saudi Indian Company for Cooperative Insurance JSC 74 Solidarity Saudi Takaful Co JSC 109 Aljazira Takaful Taawuni Co 313 Company for Cooperative Insurance 2,092 Trade Union Cooperative Insurance Co 158 United Cooperative Assurance Co 159 Saudi United Cooperative Insurance Co 116 Wataniya Insurance Co 172 Weqaya Takaful Insurance and Reinsurance Co JSC 103 Cement Al Jouf Cement Co Arabian Cement Co 367 1,266 City Cement Co CJSC 756 Eastern Province Cement Co 727 Hail Cement Co 374 Najran Cement Co 664 Northern Region Cement Co 717 Qassim Cement Co 1,679 Saudi Cement Co 2,651 Southern Province Cement Co 2,612 Tabuk Cement Co 348 Umm Al Qura Cement Co 397 Yanbu Cement Co Yamama Cement Co Energy & Utilities 1,826 1,700 National Gas and Industrialization Co 510 Small Cap % High Small Cap % High Small Cap 15.1 na nm 0.0 na 0.0 Low Small Cap % nm High Small Cap % nm High Small Cap % nm High Small Cap % nm High Small Cap % High Large Cap % High Small Cap % High Small Cap % nm High Small Cap % nm High Small Cap % High Small Cap 19.3 na nm 0.0 na 0.0 Low Small Cap % High Large Cap % High Mid Cap 15-34% High Mid Cap % Average Small Cap % Average Mid Cap % High Mid Cap % High Large Cap 70-22% Low Large Cap 65-32% Average Large Cap 70-36% Low Small Cap % Low Small Cap % nm 2.9 na 0.0 Low Large Cap % Average Large Cap % High Mid Cap % Low Kuwait Financial Centre Markaz 33

34 Saudi Electricity Co Banks 17,490 Al Rajhi Banking and Investment Corp 22,521 Alinma Bank Arab National Bank Bank Aljazira JSC Bank Albilad 5,897 6,303 1,727 3,265 Banque Saudi Fransi 8,995 National Commercial Bank 27,186 Riyad Bank 9,915 Saudi British Bank 9,895 Samba Financial Group 12,447 Saudi Hollandi Bank 4,402 Saudi Investment Bank 2,988 Media Saudi Printing and Packaging Co 421 Saudi Research and Marketing Group 1,231 Tihama Advertising Public Relations and Marketing 119 Holding Real Estate Saudi Real Estate Co 736 Arriyadh Development Co 649 Dar Al Arkan Real Estate Development Co 1,785 Emaar The Economic City 2,934 Jabal Omar Development Co 13,748 Knowledge Economic City Co 1,397 Makkah Construction and Development Co 4,085 Taiba Holding Co 1,483 Large Cap % High Large Cap 52 1% High Large Cap % High Large Cap % Average Large Cap % High Large Cap % High Large Cap 28-11% Average Large Cap 51-7% na 2.8 High Large Cap % High Large Cap % Average Large Cap % High Large Cap % Low Large Cap % Average Small Cap % High Large Cap % High Small Cap % nm High Mid Cap 23-32% High Mid Cap % High Large Cap % High Large Cap % High Large Cap % High Large Cap % nm High Large Cap 93 20% High Large Cap % High Kuwait Financial Centre Markaz 34

35 Retail Al Hammadi Company for Development and 1,570 Investment Fawaz Abdulaziz Alhokair Co 3,946 Al Khaleej Training and Education Co 368 Aldrees Petroleum and Transport Services Co 459 National Medical Care Co JSC 663 Dallah Healthcare Holding 1,105 Fitaihi Holding Group 221 Jarir Marketing Co 3,826 Mouwasat Medical Services Co 1,616 Abdullah Al Othaim Markets Co 1,064 Saudi Company for Hardware 636 Saudi Marketing Company CJSC 569 Saudi Automotive Services Co 320 National Agriculture Marketing Co 107 United Electronics Co JSC Agri, Food Saudi Fisheries Co Almarai Co 12,513 Anaam International Holding Group Co 114 Bishah Agricultural Development Co - Halwani Brothers Co JSC 535 Herfy Food Services Co 1,241 Al Jouf Agricultural Development Co 266 Jazan Development Co 229 National Agriculture Development Co 659 Qassim Agriculture Co 179 Saudi Airlines Catering Co 2,699 Saudia Dairy and Foodstuff Co 970 Savola Group Co 7,087 Ash Sharqiyah Development Co 110 Large Cap % na 1.3 High Large Cap % High Small Cap % High Small Cap % High Mid Cap % High Large Cap % High Small Cap % High Large Cap % High Large Cap % Low Large Cap % High Mid Cap 99.5 na na 0.0 High Mid Cap 61-26% na 2.5 Average Small Cap % High Small Cap 40-50% High Small Cap 40-40% High Small Cap % nm High Large Cap % High Small Cap % High Small Cap NULL na nm 0.0 na 0.0 Low Mid Cap % Low Large Cap % Low Small Cap % Average Small Cap % High Mid Cap % High Small Cap % nm High Large Cap % High Mid Cap 112-5% Low Large Cap % High Small Cap 55-24% High Kuwait Financial Centre Markaz 35

36 Tabuk Agricultural Development Co 155 Wafrah for Industry and Development 136 Transport National Shipping Company of Saudi Arabia JSC 4,890 Saudi Transport and Investment Co 338 Saudi Public Transport Co 558 Saudi Ground Services Co 2,265 United International Transportation Co 583 Petrochemicals Advanced Petrochemical Co 1,648 Alujain Corp 264 Methanol Chemicals Co 230 Nama Chemicals Co 245 National Petrochemical Co 2,117 Rabigh Refining and Petrochemical Co 2,860 Saudi Basic Industries Corp 61,367 Saudi Arabia Fertilizers Co 9,190 Sahara Petrochemical Co 1,199 Saudi Kayan Petrochemical Co 2,719 Saudi Industrial Investment Group 1,661 Saudi International Petrochemical Co 1,368 National Industrialization Co JSC 1,890 Yanbu National Petrochemicals Co 4,872 Construction Al Babtain Power and Telecommunication Co 350 Abdullah Abdul Mohsin Al Khodari Sons Co 227 Saudi Arabian Amiantit Co 274 Arabian Pipes Co 143 United Wire Factories Co JSC 257 Bawan Co Electrical Industries Co JSC Small Cap % High Small Cap % nm High Large Cap % High Small Cap % High Mid Cap % High Large Cap 45.2 na nm 3.0 na 0.0 High Mid Cap 43-23% High Large Cap % High Small Cap % High Small Cap % nm High Small Cap % nm High Large Cap % Average Large Cap % High Large Cap % High Large Cap % High Large Cap % High Large Cap % nm High Large Cap % High Large Cap 14-48% High Large Cap % nm High Large Cap % High Small Cap % High Small Cap % High Small Cap % High Small Cap % nm High Small Cap % Average Small Cap % na 5.4 High Small Cap % na 4.4 High Kuwait Financial Centre Markaz 36

37 National Gypsum Co 135 Middle East Specialized Cables Co 149 Mohammad Al Mojil Group Co 418 Red Sea Housing Services Co 389 Saudi Ceramic Co 621 Saudi Cable Co JSC 156 Saudi Industrial Development Co 150 Small Cap % High Small Cap % nm High Small Cap na nm 0.0 na 0.0 Low Small Cap % Average Mid Cap % High Small Cap % nm Average Small Cap % nm High Saudi Steel Pipes Co 295 Small Cap % Average Saudi Vitrified Clay Pipe Co 376 Small Cap 94 4% Low Zamil Industrial Investment Co 518 Mid Cap % High Source: Reuters, Markaz Research Kuwait Financial Centre Markaz 37

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