About Ahli Investment Banking Group

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1 About Ahli Investment Banking Group Invest confidently with the power of Jordan Ahli Bank behind you. We have put together our best minds to conduct research and prepare in depth reports on Amman Stock Exchange, sectoral reports, equity valuations and comprehensive reviews of companies performance. Engage the market directly with our Ahli Brokerage Company, invest wisely with our professional asset management team, transform your private enterprise into a public shareholding company, issue bonds, save money. Make Jordan Ahli Bank your investment advisor and venture forth into a promising, exciting future. For more information please contact us at: Ahli Investment Banking / investment@ahlibank.com.jo Basel Khraisheh Executive Manager Ahli Investment Banking Group Basel.khraisha@ahlibank.com.jo Rabe Al Bataineh Research & Studies Department Ahli Investment Banking Group researchdept@ahlibank.com.jo Hazem Copty Corporate Finance Ahli Investment Banking Group hazem.copty@ahlibank.com.jo Murad Hijazeen Ahli Investment Banking Group murad.hjazeen@ahlibank.com.jo 1

2 Report Dated: December 16, 2008 Company Profile Listing Reuter Code Market Main Sector Sub-Sector Capital (Outstanding Shares) Par Value Amman Stock Exchange <RJAL.AM> First Services Transportation 84,373,350 JD1/share Company Outlook Report Royal Jordanian Plc <RJAL.AM> Closing Price (As of 16/12/2008) Company Market Value Free Float Shares to Capital (%) JD1.76/share 148,497, Fair Value (JOD) 1.86 Stock Performance (year-to-date( High Price JD4.02/share Low Price JD1.63/share Trading Value (JOD) JD434,286,330 Trading Volume (Shares) Number of Contracts 123,122,939 85,364 2

3 Company Profile His Majesty the Late King Hussein bin Talal issued a royal decree in 1963 for setting up a national air carrier, where it was first named Alia when it launched its operations, then later renamed to Royal Jordanian. Being backed up by a royal decree, the company was established with a paid-up capital of JD40 million. In February of 2001, the company was turned into a public shareholding company, yet its shares were unlisted on the Amman Stock Exchange. Royal Jordanian s services include carrying out all kinds of air transportation, local and international, in addition to receiving and departing all types of aircrafts that lands on and takes-off the kingdom s airports ground. As of February 2002, the Jordan Civil Aviation Authority granted Royal Jordanian an exclusive right lasting 4 years to proceed with international air flights on a regular schedule, which was then extended for another 4 years as of February Consequently, Royal Jordanian s granted exclusiveness enabled it to carry its operations across 49 international destinations, in addition to 4 international shipping stations. One of the company s most recent and important achievements was joining the elite membership of the OneWorld airline alliance in April 2007, in addition to being the first Arab airline company and regional air carrier to join any of the three global airline alliances (OneWorld, SkyTeam, and Star Alliance), and the first airline to join OneWorld in the last five years. As a result, Royal Jordanian s destination network expanded from 55 cities to around 700 international cities by forming the alliance. Another accomplishment Royal Jordanian has achieved was the privatization of the company, which was considered as the most successful privatization process to take place in Jordan in terms of the easiness and accountability of how the whole process went through, in addition to the positive end results that each participating party benefited from; the Jordanian Government, shareholders and company employees. The final stages of the privatization process commenced near the end of year 2006 when Citibank was assigned as the company s financial consultant and provided feasibility and valuation report 7 months later proposing that a strategic partner was not necessary. Consequently, 71% of the company capital (equivalent to JD 84.3 million) was offered to the public, local and international, with a minimum stake of 51% for local Jordanians, which include a 26% portion for the Jordanian government and another 3% for the Armed Forces according to the royal decree will of His Majesty King Abdullah II. Royal Jordanian s stock price was initially set between JD 2.75/share and JD3.08/share at which the initial public offering closed in December At the final stages when the offering was closed, the Jordanian government was supplied with around JD164.5 million towards the country s treasury after the privatization process was completed, and the company s stock subscription price was fixed at JD3.08/share and began its first trading day on the 17th of December,

4 Company s Board of Directors: The company s BOD consists of 6 members holding 9 board seats, as of the 15th of December Board Members Nationality No. of Seats No. of Shares 1 Government of the Hashemite Kingdom of Jordan Jordanian 3 24,468,271 2 MINT TRADING MIDDLE EAST LIMITED British Virgin Islands 2 16,030,937 3 Social Security Corporation Jordanian 1 8,693,975 4 Amro Fakhri Mohammad Ali Al-Bilbeisi Jordanian 1 7,001 5 Mohammad Sharif Ali Sharif Al-Zo bi Jordanian 1 5,000 6 Samer Anees Mansour Al-Muasher Jordanian 1 3,000 With regards to major investors, they hold around 77.66% of the company s paid-up capital as of the 15th of December, 2008, where the bulk belongs to the Government of the Hashemite Kingdom of Jordan owning 29%, and the second largest investor is MINT TRADING MIDDLE EAST LIMITED holding a 19% stake in the company. In addition, the social security corporation owns 12.65% and the Gulf General Investment Company owns another 10.30%, as it is illustrated in the table and graph below showing major investors portion and the free floated shares of the company s JD84.37/share million paid-up capital. Board Members No. of Shares Company's Subscribed and Paid-up Capital 84,373,350 Government of the Hashemite Kingdom of Jordan 24,468,271 MINT TRADING MIDDLE EAST LIMITED 16,030,937 Social Security Corporation 8,693,975 Gulf General Investment Company 10,670,698 Company Employee Saving Fund 8,693,830 Ownerships ranging from 1% to less than 5% 5,312,146 TOTAL BOD OWNERSHIP 49,208,184 Number of Free Floated Shares 10,488,492 4

5 Fundamental Analysis Financial Position (Balance Sheet): Financial Analysis was based on the company s statements for the past 5 years, starting from 2004 until the third quarter of the current year (2008). The following findings were obtained from the balance sheet items: - Current assets of the company grew at a CAGR of 6.7% during the sample period, where total current assets as of the end of the third quarter of 2008 registered JD117.5 million compared to JD106.6 million as of December 2007, marking an increase of more than 10.3%. The main items that contributed to the significant increase were other current assets and accounts receivables, where the former sore 18% to reach JD18.6 million, and the latter increased by 23.5% reaching JD48.8 million, compared to year end of Total Assets also rode the upward trend increasing as of September 2008 at a CAGR of 12.7%, where the main determinants of such an increase came from the record high growth of non-current assets, especially property and equipment that increased more than 28.8% as of September 2008 to reach JD226.5 million compared to JD175.8 million registered in December More specifically, aircrafts that have been leased account for the most part by increasing JD41.4 million, in addition to capitalized operating and engine maintenance expenses, and spare parts for the leased aircrafts. 5

6 - Moving on to the other side of the balance sheet, current liabilities grew at a CAGR of 15.7%, recording a total of JD207.4 million by the end of the third quarter of 2008 compared to JD167.9 million registered by the end of 2007 to mark an increase of 23.5%. Deferred revenues also witnessed a large increase of 17.1% to settle at JD54.9 million compared to JD46.9 million of year-end Items included in the deferred revenues category, which happens to be in the current section, are ticket sales, shipping and other unutilized expenses, deferred revenues for the Jordan Aircraft Maintenance Company and the Jordan Aircraft Training and Simulation. - As for the company s Total Liabilities, the figure marked JD267.4 million as of September 2008 with an increase of 27.3% from 2007 s year-end JD217.2 million. - Regarding non-current liabilities, the company issued JD40 million worth of bonds in July of 2004, part of which were issued in US Dollars, that will mature in Details of the bond issues are as follows: million bonds priced in Jordanian Dinars worth JD33.8 million, issued at an interest rate of 6% with a 3 year maturity million bonds priced in US Dollars worth USD8.75 million (JD6.2 million), issued at LIBOR +2%. - With respect to Shareholder s Equity, the sequential increases in net profits for the year 2004 until 2007 have caused shareholder s equity to rise year-on-year due to the retained earnings account that has been accumulating over the mentioned period. It is worth noting that the company had an accumulated loss of JD12 million by the end of 2004, which reversed into the positive territory in 2005 registering JD6.4 in accumulated profits; in other words, due to the fascinating profits for the fiscal year 2005, the company was able to recover its JD12 million accumulated loss and save another JD6.4 million in excess. 6

7 Financial Position (Income Statement): Moving on to the Income Statement, we highlight the following points: - The company was able to maintain a constant growth in its operational revenues to achieve a CAGR of 10.6%, especially since the company s revenues surged 21.4% to register JD542.6 million as of the end of 2007 compared to the corresponding period in 2006 when revenues were JD million. As for revenues for the third quarter of 2008, the company was able to achieve JD533.2 million compared to JD399.4 million registered during the third quarter of Of the JD533.2 million, the company was able to earn JD218.5 million since the beginning of July until the end of September of the current year. - Operating expenses and other revenues for year 2005 were significantly higher than the previous year marking JD21.4 million for the former and JD17.5 million for the latter. As for year-end 2006, this figure dropped to JD6.4 million then rose slightly to JD9 million as of year-end Net profits for the company rose by 210% to JD20.4 million by the end of 2007 compared to JD6.6 million realized by the end of year Such an increase was mainly due to operational revenues earned from scheduled flights, shipping, and extra weight luggage fees, in addition to air postal services and other operational activities. Noteworthy is the fact that the company incurred a loss of around JD2.2 million during the third quarter of 2008 compared to a gain of JD17 million for the first nine months of

8 Company s Financial Statements Balance Sheet Item Dec-04 Dec-05 Dec-06 Dec-07 Sept-08 Assets Cash and Bank Balances 35,847,000 34,048,000 40,593,000 46,570,000 44,507,000 Accounts Receivable net 41,285,000 41,618,000 33,036,000 39,539,000 48,813,000 Spare Parts and Other Supplies 3,980,000 3,887,000 4,462,000 4,699,000 5,599,000 Other Current Assets 9,609,000 5,474,000 19,173,000 15,738,000 18,568,000 Money-market derivatives Total Current Assets 90,721,000 85,027,000 97,264, ,546, ,487,000 Property and Equipment 139,225, ,762, ,484, ,799, ,492,000 Advances on Purchase and Modification of Aircraft 297, ,000 9,861,000 12,544,000 5,466,000 Available for Sale Investments 598, ,000 2,188,000 2,183,000 2,151,000 Investments in Associates 812,000 9,375,000 11,988,000 13,184,000 14,380,000 Restricted Cash Against Lease Contracts 6,336,000 10,751,000 14,849,000 16,063,000 17,353,000 Property and Equipment held for Sale - - 5,736, Total Assets 237,989, ,794, ,370, ,319, ,329,000 Liabilities Current Portion of Bank Loan 1,773, ,560,000 6,560,000 Accrued Expenses 63,297,000 60,813,000 16,134,000 24,863,000 46,310,000 Accounts Payable and other Current Liabilities 1,182,000-68,904,000 84,190,000 76,825,000 Income Tax Provision 100, , ,000 2,995,000 1,026,000 Deferred Revenues 24,371,000 24,956,000 40,068,000 46,927,000 54,942,000 Current Obligations Under Finance Leases 8,168,000 8,457,000 8,142,000 2,385,000 4,743,000 Other Current Liabilities 16,937,000 17,010, ,022,000 Total Current Liabilities 115,828, ,536, ,986, ,920, ,428,000 Bank Loan 40,000,000 40,000,000 40,000,000 17,494,000 12,027,000 Long Term Obligations Under Finance Leases 18,601,000 10,103, ,000 29,241,000 54,356,000 Other L.T Liabilities 4,668,000 5,555,000 4,064,000 2,566,000 2,605,000 Total Liabilities 179,097, ,194, ,635, ,221, ,416,000 Shareholder s Equity Paid-in Capital 66,000,000 66,000,000 72,536,000 84,373,000 84,373,000 Advance Payments on Capital Increase 3,344,000 6,536, Statutory Reserve 1,557,000 3,682,000 4,362,000 6,574,000 6,574,000 Voluntary Reserve - - 1,026, Retained Earnings (12,009,000) 6,382,000 10,811,000 18,151,000 15,966,000 Total Shareholder s Equity 58,892,000 82,600,000 88,735, ,098, ,913,000 Total Liabilities & Shareholder s Equity 237,989, ,794, ,370, ,319, ,329,000 8

9 Income Statement Item Dec-04 Dec-05 Dec-06 Dec-07 Sept-08 Revenues 362,840, ,166, ,049, ,584, ,243,000 Cost of Revenues 329,924, ,013, ,112, ,592, ,987,000 Gross Profit 32,916,000 42,153,000 12,937,000 32,992,000 24,256,000 Operating Expenses Share of Profit of Associates 987,000 2,045,000 3,180,000 3,215,000 2,592,000 Other Income 4,101,000 2,001,000 11,960,000 10,970,000 5,257,000 G&A Expenses -12,088,000-14,954,000-14,931,000-15,901,000-15,042,000 Sundry Provision & Employees Bonus -4,719,000-3,790,000-1,274,000-2,009,000-50,000 Gain (Loss) from Foreign Exchange 193,000-1,644, ,000 1,549, ,000 Financing Costs -5,251,000-4,464,000-5,036,000-4,108,000-3,163,000 Loss (Gain) on disposal of Aircrafts, engines and components -573,000-99,000 3,368, ,000 2,020,000 Miscellaneous fees -139, , , ,000 - Change of fair value for money-market financial derivatives ,022,000 Other Expenses ,416,000-1,636,000 Impairment Loss of Property and Equipment Held for Sale ,817,000 - Total Operating Expenses -17,489,000-21,437,000-6,364,000-8,954,000-26,130,000 Earning before Tax 15,427,000 20,716,000 6,573,000 24,038,000-1,874,000 Income Tax Expense 100, , ,000 3,675, ,000 Net Profit 15,327,000 20,516,000 6,135,000 20,363,000-2,185,000 Earning (Loss) Per Share (.026) Weighted Average Outstanding Shares 66,000,000 66,000,000 72,536,000 84,373,000 84,373,000 9

10 Relative Valuation: Paid-up Capital Net Income - 07 EPS 2007 Q3 EPS Trailing EPS (mrq) Closing Prices - 16/12/2008 JETT 10,800,000 1,711, NAQL 12,100, , RJAL 84,373,000 20,363, * SHIP 12,075,000 3,180, Total Transportation Sector P/E 7.95 Average Transportation Sector P/E 8.62 P/E - trailing * The JD (-17.02) million change in money market financial derivatives value was added back since it is non-recurring and distorts the company s fair value per share calculation. Fair Value According to Average Transportation Sector P/E - JD / Share

11 Disclaimer: The data contained in this report has been obtained from sources considered by Jordan Ahli Bank to be reliable in all material respects. However, the accuracy, fairness and completeness thereof are not guaranteed by Jordan Ahli Bank and its third-party suppliers shall have no liability for errors or omissions with respect to the service or its delivery, regardless of the cause or source of such error or omission. This is not an invitation to buy or sell stocks traded in Amman Stock Exchange. The reader should not make any investment decision solely based on the information contained in this report and she/he should consult with her/his investment advisor before investing. This report is a copyright of the Jordan Ahli Bank and should not be reproduced or redistributed partially or fully in any shape or manner without the express written consent of the Jordan Ahli Bank. 11

Ahli Investment Banking

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