NEUTRAL. Kuwait Projects Company (KPRO.KW)

Kuwait Projects Company (KPRO.KW) NEUTRAL CMP KWD 0.510 Target KWD 0.549 Potential Upside 7.7% MSCI GCC Index 384.05 Kuwait Stock Exchange Index 7,545.70 Key Stock Data Sector Investments Reuters Code KPRO.KW Bloomberg Code KPROJ KK Equity Net Out. Shares (mn) 1,057.514 Market Cap (KWD mn) 539.18 Market Cap (USD mn) 1,857.317 Avg. 12m Vol. (mn) 3.901 Volatility (30 day) 51.901 Volatility (180 day) 71.777 Stock Performance (%) 52 week high / low (KWD) 1.240 / 0.280 1M 3M 12M Absolute (%) -12.1-7.3-51.9 Relative (%) -3.2-9.6-6.1 Shareholding Pattern (%) Al Futtooh Holding Company 49.65 United American Company for Real Estate Services 7.52 Bahaeddine Rafik Al Hariri 5.00 Public 37.83 KIPCO and Kuwait Stock Exchange Index Executive Summary Established in 1987, Kuwait Projects Company (KIPCO) is one of the largest diversified holding companies with assets of more than USD 19 billion in 2008. The group s ownership interests range across a portfolio of over 50 companies spread across 21 countries. Its main business sectors include financial services and media and through its subsidiaries it holds interests in real estate, manufacturing, healthcare and management advisory sectors. Total income fell 12% in 1Q09 KIPCO s total income in 1Q09 was KWD 112.36 million, down 12.1% from KWD 127.84 million in 1Q08 mainly due to loss on share of associate result s and lower investment income. Income from investments fell 70.7% to KWD 9.86 million from KWD 33.69 million a year ago. The company incurred a loss of KWD 1.05 million on share from associates compared to a gain of KWD 4.18 million in 1Q08. Conversely, interest income rose 6.0% to KWD 55.91 million during the quarter. Its other income surged more than five times to KWD 5.91 million from KWD 1.17 million. During the quarter, interest expenses and general & administrative expenses fell 13.7% and 13.6%, respectively. The net profit attributable to equity shareholders was KWD 9.23 million, down 69.3% from KWD 30.03 million in 1Q08. Adjusted EPS stood at KWD 0.035 as against KWD 0.114 in 1Q08. Outlook and Valuation The MENA region s investment sector witnessed a high growth period until 1H08, supported by growth in credit facilities and investments, on ample liquidity powered by high oil prices. Recently, the investment sector was negatively impacted by the global economic slowdown and weak capital markets, because of which the volume of investment losses and impairment charges has been on the higher side across the sector. At the same time, the real estate sector has also been witnessing a slowdown, amid weak demand and delays/postponements in major infrastructure projects. In this extremely difficult market condition, KIPCO performed well despite its impairment losses increasing in the last financial year. However, the sector continues to gain support from the governments as they continue to invest in big infrastructural projects and apply other techniques to uplift economies across the region. The company s expansion drive aimed at making investments in new geographies is expected to keep its long-term growth drivers intact. Based on these factors, we recommend a cautious outlook on the stock until the economic revival. To determine the fair value of the stock, we have used the GGM valuation method. Currently, KIPCO s stock is trading at a P/E multiple of 9.24x and 7.50x on 2009E and 2010E earnings, and at a P/B multiple of 0.95x and 0.91x on 2009E and 2010E BVPS, respectively. Meanwhile, the stock has gained 4.1% since the beginning of this year as against a loss of 3.0% by the Kuwait Stock Exchange. Considering the above factors, we initiate our coverage with a price target of KWD 0.549, which exhibits an upside potential of 7.7% from its closing price of KWD 0.510 (as on July 15, 2009). Therefore, we initiate our coverage with a NEUTRAL opinion on Kuwait Project Company. KWD Millions 2007A 2008A 2009E 2010E 2011E Total Income 885 440 476 529 597 % Change YoY 287.6-50.2 8.0 11.3 12.7 Net Profit 522 24 58 72 87 % Change YoY 941.9-95.4 141.8 23.2 21.1 Net Spread 5.4% 4.3% 3.9% 4.0% 4.1% Net Interest Margin 1.2% 2.4% 2.3% 2.4% 2.5% Adj. EPS (KWD) 0.493 0.023 0.055 0.068 0.082 RoAE (%) 116.5 4.0 10.5 12.4 14.2 Call us on +973 17549499 or email us at research@taib.com

Background One of the largest diversified holding groups in the MENA Incorporated in 1975, Kuwait Projects Company (KIPCO) was known as Kuwait Investment Projects Company until 1999. The KIPCO Group is one of the largest diversified holding companies in the MENA region, with consolidated assets of more than USD 19 billion. The group s ownership interests ranges across a portfolio of over 50 companies spread across 21 countries. Main business sectors are the financial services and media. Through the subsidiaries and affiliates of its core companies, KIPCO also holds interests in the real estate, manufacturing, healthcare, and the management advisory sector. KIPCO s financial services interests include holdings in commercial and investment banking, private equity, asset management and insurance companies. The group s biggest holdings in this sector include those in Burgan Bank, United Gulf Bank and Gulf Insurance Company. In the media sector, it has controlling share in Showtime, a leading pay-tv operator in the region. KIPCO Financial Services Real Estate Industrial Services Source: KIPCO The company focuses Media on creating & value for its clients by offering Healthcare, unique and diversified investment opportunities, delivering Technology superior returns, and providing excellent Management service. & KIPCO s holdings in the financial services sector include investments in commercial Advisory banks, investment banks, asset management companies and insurance companies. KIPCO Group companies are based in countries such as: Kuwait, Jordan, Bahrain, Tunisia, Algeria, Saudi Arabia and Syria. Most of these companies are leaders in their local markets. The group runs its real estate and construction operations through 13 different entities that offer opportunities to corporate real estate clients and private investors to invest, sell, or lease commercial properties in major markets in the MENA, UK and USA. The group has a highly diversified industrial portfolio including 27 companies operating in different countries across the MENA region. These include significant interests in manufacturing companies in Kuwait, Bahrain, Egypt, Lebanon, Qatar, Saudi Arabia and the UAE. The widespread regional and sectoral operations of the industrial portfolio constitute a diversified income stream from the group. Kuwait Projects Company employs over 8,000 employees worldwide. Standard & Poor s Ratings Services has affirmed the company s corporate long and short-term credit ratings as BBB+/A-2, with a Negative outlook. Business Model Board of Directors Chaired by Mr. Hamad Sabah Al-Ahmad Al- Sabah Mr. Faisal Hamad Al- KIPCO is primarily an investment holding company

Subsidiaries/Associates/Affiliates of KIPCO KIPCO has a number of subsidiaries, associates and investments. SUBSIDIARIES/ASSOCIATES/INVESTMENTS COUNTRY % SHARE Hunter Capital Company USA 100.00 United Gulf Management (Boston) USA 100.00 United Gulf Management (London) UK 100.00 Kuwait United Consultancy Company Kuwait 98.00 United Gulf Bank Bahrain 90.70 Showtime Arabia (via Gulf DTH) UAE 80.00 Gulf Insurance Company Kuwait 66.65 Al Raouche Holding Lebanon 55.00 Burgan Bank Kuwait 52.27 Zaksat General Trading Company Kuwait 50.00 Gulf Egypt Hotels & Tourism Egypt 48.95 United Cables Company Kuwait 48.00 United Real Estate Jordan Jordon 47.40 United Warehousing & Refrigeration Company Kuwait 45.00 Royal Capital Company UAE 44.00 Dhiyafa Holding Company Kuwait 36.00 Kuwait Hotels Company Kuwait 36.00 North Africa Holding Company Kuwait 35.00 United Medical Services Company Kuwait 30.00 Salem Al Marzouk & Sabah Abi Hanna Company Kuwait 29.00 Arab Leadership Academy Company Kuwait 25.00 Dhow Development Capital UK 20.00 United Universal Real Estate Company Kuwait 20.00 Gulf DTH UAE - Middle East likely to grow at a lower rate of 2.3% in 2009 INVESTMENTS Abdali Investment & Development Company Jordon 12.50 United Real Estate Company (via Kuwait United Consultancy Kuwait Company) 11.29 Nafais Holding Kuwait 8.42 Red Sea Housing Services Saudi Arabia 5.60 Jordan Kuwait Bank Jordon - Source: Zawya Industry Scenario

Kuwaiti investment Total Liabilities of Conventional Investment companies in Kuwait Liabilities (KWD Millions) 2004 2005 2006 2007 2Q08 2008 1Q09 May 09 Financing from Residents 730 931 1,263 1,564 1,598 2,162 1,985 1,797 Bonds and Debentures 350 674 827 720 797 836 889 862 Foreign Liabilities 1,578 1,559 2,058 2,486 2,352 2,017 1,839 1,888 Own Funds 1,476 2,398 2,962 3,358 4,072 3,315 3,338 3,231 Other Liabilities 738 1,117 1,214 1,260 1,494 1,111 1,284 1,338 Grand Total 4,872 6,679 8,324 9,388 10,313 9,443 9,335 9,116 No. of Companies 28 33 40 40 45 46 46 46 Source: CBK The value of assets held by all 99 Kuwaiti investment companies dropped almost USD 32 billion in the

However, in line with world stock markets, regional exchanges have been volatile off-late. Market capitalisation in the GCC markets grew at a CAGR of 40% between 2002 and 2007. There are around 600 listed companies in the GCC with an average capitalisation of approximately USD 1.8 billion in 2007. With an estimated wealth of USD 3 trillion, the region presents immense growth potential. In the wake of the current crisis, the water and agriculture industry has emerged as a new asset class for Islamic investment, especially as sustainable investments. Insurance Kuwait s insurance industry has 26 takaful insurance companies, including 16 local firms, 7 Arabdomiciled and 3 foreign insurers. Over the last few years, the industry grew at an impressive CAGR of 16.2% from 2003 to 2008 on the back of tremendous growth in the financial sector. Increased access to financial services and products led to higher demand for insurance services. Healthy regulatory framework has also supported insurance growth. Consequently, the Kuwait s total premium grew 52.4% to USD 914 million in 2008 from USD 599.70 million in 2007. Non-life insurance was the biggest contributor with 81%, while life insurance accounts for 19% of the total market.

Value of Projects in GCC (in USD billion as of July 06, 2009) Value of Projects On Hold in GCC (in USD billion as of July 06, 2009) 1,000 420 800 336 600 252 400 168 200 84 - Bahrain Oman Qatar Kuw ait Saudi Arabia UAE - Bahrain Qatar Oman Kuwait Saudi Arabia UAE Source: MEED Real estate trading dipped 5.8% in 1Q09 reflecting weak trends The real estate sector in Kuwait is highly fragmented and dominated by small- to medium-sized players. There are 58 real estate companies, of which 35 are listed. Since the economy is not vastly diversified, real estate as a sector receives a large portion of the bank credit. During 2008, the real estate sector in Kuwait was marred by promulgation of Laws 8 and 9 in late February which prevented all sole proprietorships from buying, selling, placing lien on and issuing letters of assignment to third parties and prevented Islamic banks from financing the residential housing. While real estate prices witnessed a 10%-30% decline in certain areas, real estate trading decreased 37% YoY in 2008. The trend continued in 1Q09 with trading reportedly down by 5.8% to KWD 467.59 billion.

Financial Performance FY 2008 Total income declined 50% in 2008, due to stake sale in 2007 KIPCO s total income plunged 50.2% to KWD 440.30 million compared to KWD 884.68 million, mainly due to the negative impact of the weak financial market in Kuwait and gain from sale of investments in associates (Wataniya stake sale) in 2007. Qatar Telecommunications (Qtel) acquired 51% stake in National Mobile Telecommunications Co. (Wataniya). KIPCO had made a net gain of KWD 468.11 million from the sale in 2007. Additionally, net loss on share of results from associates amounted to KWD 3.00 million for 2008 compared to a profit of KWD 52.74 million in 2007, while losses on foreign exchange amounted to KWD 5.92 million compared to a gain of KWD 15.79 million in 2007. The company s financial performance was also negatively impacted by a decline in investment income reported at KWD 52.98 million compared to KWD 554.85 million in 2007, as it made a profit on sale of investments in Wataniya amounting to KWD 468.11 million in 2007. Fees & commission income declined 5.1% to KWD 53.99 million from KWD 56.87 million in 2007. However, the decline was offset by improved interest income and other income. The company s interest income increased 91.7% to KWD 232.02 million in 2008 compared to KWD 1,221.0 million a year ago. Net insurance premium earned was KWD 40.06 million, up 5.7% from KWD 37.90 million. The other income grew multi-fold to KWD 17.30 million from KWD 1.44 million in the previous year. Income from digital satellite television services grew 19.9% to KWD 52.88 million in 2008. Excluding the stake sale, the company s income increased by 5.7% during the year 2008. Segment-wise, investment services income plunged 83.1% to KWD 98.45 million from KWD 583.27 million a year ago. Insurance income declined 36.9% to KWD 55.03 million from KWD 87.25 million in 2007, led by a decline in premium earned. Other income fell 85.0% to KWD 10.97 million. All these declines were attributed to deteriorating overall economic conditions. Conversely, banking income increased 29.4% to KWD 304.25 million and income from digital satellite television services rose 18.1% to KWD 52.88 million in 2008. Expenses KIPCO s total expenses rose 34.0% to KWD 394.32 million compared to KWD 294.26 million in 2007. The company s interest expenses increased 58.5% to KWD 171.14 million, led by a rise in interest bearing liabilities. Rising impairment provisions affecting bottom-line EPS of KWD 0.023 in 2008 Digital satellite television services expenses increased 35.5% to KWD 50.49 million from KWD 37.26 million in 2007. Impairment of financial assets held for sale grew multi-fold to KWD 22.75 million from KWD 1.94 million, due to deteriorating market conditions. Provision for credit losses amounted to KWD 37.34 million compared to a profit (reversal of impairment loss) of KWD 1.55 million in 2007. Its net insurance claims and insurance related fees & commission fees expenses declined 3.7% and 5.4%, respectively. General & administrative expenses decreased 27.3% to KWD 80.87 million, despite rise in staff costs. Profitability On increasing expenses amid rising impairment losses, KIPCO s operating performance was negatively impacted in 2008. As a result, the company reported a profit before tax of KWD 45.98 million compared to KWD 590.42 million in 2007. Consequently, the company reported net profit attributable to shareholders of KWD 24.13 million in 2008 compared to a profit of KWD 521.69 million in the previous year. KIPCO s adjusted EPS stood at KWD 0.023 in 2008 compared to KWD 0.493 in the previous year.

Chart Gallery Total Operating Income (KWD Millions) Net Profit (KWD Millions) 1,000 600 800 600 400 200 0 2006A 2007A 2008A 1Q08 1Q09 500 400 300 200 100 0 2006A 2007A 2008A 1Q08 1Q09 Overall Business Volume (KWD Millions) Total Assets (KWD Millions) 3000 6,000 2000 1000 4,800 3,600 2,400 0 2006A 2007A 2008A 1Q08 1Q09 Loan & advances Deposits from Customers 1,200 0 2006A 2007A 2008A 1Q08 1Q09 Return on Investment Ratios Interest Margins 140% 120% 100% 80% 60% 40% 20% 0% 2006A 2007A 2008A 1Q08 1Q09 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2007A 2008A 1Q08 1Q09 ROAA ROAE Net Spread Net Interest Margin

Size of the Company The salient features of the balance sheet are: Total assets increased 17% to KWD 5.5 billion KIPCO s total assets increased 16.8% to KWD 5,542.45 million in 1Q09 from KWD 4,744.35 million in 1Q08, led by an increase in loans & advances and intangible assets. KIPCO s loans & advances increased 41.7% to KWD 2,627.79 million in 1Q09 from KWD 1,855.0 million in the same period previous year. This can be attributed to a rise in corporate loans. The share in the total assets also increased from 39.1% to 47.4% in 1Q09. Investments in associate companies fell 4.0% to KWD 239.62 million from KWD 249.73 million in 1Q08. Its share in total assets declined to 4.3% from 5.3%. Investment properties fell 9.8% to KWD 7.28 million from KWD 8.07 million a year ago. During 1Q09, KIPCO reported a 12.1% decline in treasury bills and bonds to KWD 369.94 million from KWD 420.87 million in 1Q08. Further, the share of cash & cash equivalents in the total assets also decreased from 23.8% to 21.8% in 1Q09. In addition, financial assets at fair value declined 70.0% to KWD 63.59 million compared to KWD 211.83 million in 1Q08, due to a decline in regional stock markets impacted by the global financial crisis. Financial assets available for sale increased 2.5% to 277.93 million from KWD 271.16 million and financial assets held to maturity rose 37.5% to KWD 10.71 million from KWD 7.79 million. Property and equipment was KWD 68.65 million, up 24.4% from KWD 55.20 million a year ago. Intangible assets rose 34.4% to KWD 441.44 million and other assets increased 11.1% to KWD 229.43 million. On the liabilities side, total liabilities increased 22.9% to KWD 4,726.52 million from KWD 3,846.58 million in 1Q08 as its share in the total balance sheet increased from 81.1% to 85.3% in 1Q09. This was mainly on account of 57.2% increase in deposits from customers and 22.4% surge in loan payables. While due to banks & financial institutions fell 11.6%, medium-term notes declined 36.8% during the quarter. KIPCO s shareholders equity declined 14.3% to KWD 518.36 million from KWD 604.62 million in 1Q08 mainly due to lower retained earnings. Retained earnings declined 12.9% to KWD 297.37 million from KWD 341.36 million in 1Q08 due to a decline in profits of the company during the quarter. The company s cumulative change in fair value reserve was negative KWD 24.00 million in 1Q09 compared to positive KWD 10.85 million. Conversely, foreign currency translation reserve rose stood positive at KWD 27.03 million from a negative KWD 6.16 million in 1Q08 in the prior year same quarter. The share of shareholders equity in the total balance sheet decreased from 12.7% in 1Q08 to 9.4% in the current quarter. Total income fell due to the negative business environment Financial Performance Analysis 1Q09 KIPCO s total income dropped 12.1% to KWD 112.36 million from KWD 127.84 million in 1Q08 mainly due to loss on share of associates result s and lower investment income. The company incurred a loss of KWD 1.05 million on share of associates compared to a gain of KWD 4.18 million in 1Q08. Moreover, income from investments fell 70.7% to KWD 9.86 million from KWD 33.69 million a year ago. Conversely, interest income rose 6.0% to KWD 55.91 million during the quarter. Its other income swelled more than five times to KWD 5.91 million from KWD 1.17 million. During the quarter, interest expenses and general & administrative expenses fell 13.7% and 13.6%, respectively. The net profit attributable to equity shareholders was of KWD 9.23 million, down 69.3% from KWD 30.03 million in 1Q08. Adjusted EPS stood at KWD 0.035 as against KWD 0.114 in 1Q08. Segment-wise, investment services fell 24.9% to KWD 25.63 million from KWD 34.14 million due to a decline in overall economic conditions. Banking income decreased 9.0% to KWD 61.73 million as against KWD 67.81 million in 1Q08. Insurance income fell 4.0% to KWD 19.70 million. Conversely, media income rose 23.5% to KWD 15.00 million compared to KWD 12.14 million in 1Q08 and other income rose to KWD 3.82 million from KWD 1.14 million in 1Q08.

Seeking to acquire assets of local private companies New Projects and Strategies KIPCO s growth initiatives entail expanding its presence both regionally and internationally through acquisitions and increased investments. The company already has a diversified presence across multiple sectors like real estate, banking, insurance and media. In order to support the local economy and contribute in helping companies to restructure their assets and to overcome the results of financial crisis, the company is seeking to acquire assets of local private companies for a total of KWD 100 million, via cash or asset swap or by way of subscription in a capital increase. It is also considering investing in initial public offerings in emerging markets, mainly China, to improve its investment returns under the current market scenario. Recently, KIPCO merged its satellite broadcast company Showtime with Orbit, one of the region s leading television companies. The deal brings together the Showtime and Orbit brands and operating platforms. The new company will offer over 70 exclusive channels. In order to diversify its funding base, enhance financial flexibility and its reach to investors from other regions, it updated prospectus of its USD 2 billion Euro Medium Term Note (EMTN) Programme, which is traded on the London Stock Exchange. The company has issued two tranches under this programme for EUR 200 million and USD 350 million. The EUR 200 million note was repaid in November 2008 and the USD 350 million note will mature in April 2011. SWOT Analysis STRENGTHS Presence across a host of financial services including asset management, investments and treasury Diversified presence across sectors including real estate, media, financial services and advisory services Wide geographical presence WEAKNESS Higher impairment losses amid falling capital markets, higher investment assets may affect the company s profitability THREATS Real estate projects might face delay or postponement following the liquidity crisis If the negative trend in the financial markets continue, investments might face increased losses and impairments OPPORTUNITIES Focus on diversifying towards a nonoil economy to provide opportunities of investments Government s initiatives to inject liquidity in the economy to act as catalyst for growth Risks and Concerns: The current economic downturn has led to a liquidity crunch across economies in the GCC with lower oil prices proving detrimental to the budget surpluses enjoyed by them. The dearth of liquidity has forced the central governments to curtail/postpone their ambitious infrastructure expansion plans. The slow economic growth has indeed negatively impacted the demand across the real estate and construction sectors. Going forward, if the economic growth remains weak, companies engaged in real estate activities might face restrained bottom-line growth. Companies engaged in the tourism and aviation sector might also feel the heat of a prolonged economic downturn as lower disposable income leads to reduced level of activity in the sector. Over exposure to investment in securities and financial instruments in a weak financial market pose liquidity risks.

Valuation Methodology: We have used one valuation methods for arriving at the fair value of KIPCO, as explained below: I. Target P/BV approach based on the Gordon Growth Model (GGM) Target P/BV Multiple Approach using the Gordon Growth Model (GGM) The model uses the sustainable return on average equity (RoAE), cost of equity (Ke) and expected growth in earnings (g) to arrive at the target P/BV of the company under review using the formula: Target P/BV = (RoAE - g) / (Ke - g) Subsequently, we have multiplied the target P/BV multiple for 2009E with the 2009E BVPS to arrive at the fair value of the company over a medium-term investment horizon. Cost of Equity: 13.78% We have made the following assumptions to arrive at the target P/B multiple for 2009E of the bank: i. For sustainable RoAE, we have considered the 5-year average RoAE of the company over 2009E-2013E. ii. We have estimated the cost of equity using Capital Asset Pricing Model (CAPM): a. Risk free rate of return (Rf) of 3.27%, which is 12-months average yield on 10-year US T-bill. b. Cost of Equity 13.78% iii. We have assumed a terminal growth rate (g) of 2.00%. GGM Valuation Summary Sustainable RoAE (%) 14.0 Cost of Equity (Ke) (%) 13.8 Perpetual Growth Rate (%) 2.0 Target P/BV Multiple for 2009E (x) 1.02 2009E BVPS (KWD) 0.538 Fair Value per Share using Target P/BV (KWD) 0.549 CMP (KWD) 0.510 Upside/(Downside) (%) 7.7 Sensitivity Analysis The tables below exhibits the sensitivity analysis for the estimated fair value per share based on various terminal growth rates, cost of equity and RoAE. The shaded area represents the most probable outcomes. Sensitivity Analysis - GGM (Ke vs. g) Terminal/Perpetual Growth Rate (g) 1.00% 1.50% 2.00% 2.50% 3.00% 11.78% 0.650 0.655 0.661 0.668 0.675 Cost of Equity (Ke) 12.78% 0.595 0.597 0.600 0.603 0.606 13.78% 0.548 0.549 0.549 0.550 0.550 14.78% 0.508 0.507 0.506 0.505 0.503 15.78% 0.474 0.472 0.469 0.467 0.464 Cost of Equity (Ke) Sensitivity Analysis - GGM (Ke vs. RoAE) Return on Average Equity (RoAE) 12.03% 13.03% 14.03% 15.03% 16.03% 11.78% 0.551 0.606 0.661 0.716 0.771 12.78% 0.500 0.550 0.600 0.650 0.700 13.78% 0.458 0.503 0.549 0.595 0.640 14.78% 0.422 0.464 0.506 0.548 0.590 15.78% 0.391 0.430 0.469 0.508 0.547

Return on Average Equity (RoAE) Investment Opinion Sensitivity Analysis - GGM (RoAE vs. g) Terminal Growth Rate (g) 1.00% 1.50% 2.00% 2.50% 3.00% 12.03% 0.464 0.461 0.458 0.454 0.450 13.03% 0.506 0.505 0.503 0.502 0.500 14.03% 0.548 0.549 0.549 0.550 0.550 15.03% 0.590 0.592 0.595 0.597 0.600 16.03% 0.632 0.636 0.640 0.645 0.650 Fair Value: KWD 0.549 Investment Opinion: NEUTRAL Kuwait s real GDP grew at an average 7.1% over the period 2004-2007 and is estimated to have grown at 6.3% in 2008, as a result of high oil prices and subsequent economic development. However, with the impending global economic crisis and low oil prices, export volumes and value will likely decline. Consequently, the growth in the country s real GDP is expected to contract 1.1% in 2009 before expected recovery of 2.4% in 2010. These are in turn expected to keep the investment as well as infrastructural activities in the economy at a relatively slower pace. As a result of the upbeat economic performance, the investment sector also witnessed tremendous growth with rise in credit facilities and investments given the ample liquidity and rising money inflow on high oil prices. However, the sector was badly hit following the global economic crisis, which negatively impacted the availability of funds. The weak capital markets resulted in huge investment losses and impairment charges for the companies operating in the financial services sector. At the same time, the real estate sector has also been feeling the heat of the economic crisis, with several projects being put on hold or cancelled on liquidity crisis and reduced demand and price level. Going forward, on a positive note, the government remains focused on reviving the economy through much needed regulations and bail-outs. Further, the long-term drivers of the sector also look intact with investments to the tune of USD 267.41 billion in a variety of projects. KIPCO performed well, despite difficult market conditions across the region. However, the current economic slowdown did affect its businesses and associated companies as well. KIPCO is a leading financial group with a strong capital base, low leverage and healthy track record. The government s initiatives to revive the economy along with a reversal in this downtrend expected in 2010, promises hope in the upcoming years. Further, huge infrastructure investments are expected to keep the longterm growth drivers of the sector intact. The company s thrust on expanding its investments to newer territories is likely to provide more income earning opportunities in the coming years. Currently, KIPCO s stock is trading at a P/E multiple of 9.24x and 7.50x on 2009E and 2010E earnings, and at a P/B multiple of 0.95x and 0.91x on 2009E and 2010E BVPS, respectively. Meanwhile, the stock has gained 4.1% since the beginning of this year as against a loss of 3.0% by the Kuwait Stock Exchange. Considering the above factors, we initiate our coverage with price target of KWD 0.549, which exhibits a potential upside of 7.7% from its closing price of KWD 0.510 (as on July 15, 2009). Therefore, we initiate our coverage with NEUTRAL opinion on Kuwait Project Company.

Financial Statements Consolidated Balance Sheet (in KWD 000) 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E ASSETS Cash in Hand & at banks 878,576 972,021 1,129,620 1,206,065 1,112,676 1,202,888 1,271,031 Treasury bills and bonds 433,709 387,378 420,870 369,942 378,316 420,825 467,603 Loan & advances 1,696,456 2,518,992 1,854,995 2,627,793 2,795,434 3,117,457 3,483,527 Financial assets at fair value through profit & loss 204,309 75,853 211,826 63,591 83,031 97,209 113,245 Financial assets available for sale 264,362 266,327 271,157 277,929 297,197 325,711 356,652 Financial assets held to maturity 6,872 15,367 7,787 10,710 18,238 19,988 21,887 Other assets 165,070 212,039 206,597 229,430 237,771 263,690 292,140 Investments in associates 246,393 238,889 249,730 239,623 233,155 261,737 293,402 Investment Properties 7,958 7,003 8,072 7,278 7,722 8,463 9,267 Property & Equipment 56,488 67,180 55,197 68,650 76,371 86,804 98,451 Intangible assets 318,805 416,886 328,496 441,437 427,995 406,942 394,586 Total assets 4,278,998 5,177,935 4,744,347 5,542,448 5,667,906 6,211,715 6,801,790 LIABILITIES Due to banks & other financial institutions 829,614 917,125 1,074,837 950,492 981,238 1,069,171 1,150,331 Deposits from customers 1,622,298 2,484,034 1,765,426 2,774,752 2,836,559 3,144,302 3,492,492 Loan Payable 297,943 396,969 354,482 433,798 462,872 519,706 582,679 Bonds 64,829 50,995 65,405 50,830 0 0 0 Medium term notes 202,754 122,605 202,826 128,195 122,905 123,205 123,505 Other liabilities 279,126 362,560 383,600 388,453 361,388 386,602 396,505 Total liabilities 3,296,564 4,334,288 3,846,576 4,726,520 4,764,963 5,242,987 5,745,512 EQUITY Share capital 104,962 115,458 115,458 115,458 115,458 115,458 115,458 Share premium 3,111 3,111 3,111 3,111 3,111 3,111 3,111 Treasury shares -24,363-65,908-18,561-65,116-65,116-65,116-65,116 Statutory reserve 74,822 77,234 74,822 77,234 83,069 90,254 98,954 Voluntary reserve 74,547 76,959 74,547 76,959 82,794 89,979 98,679 Treasury share reserve 7,147 9,620 8,570 8,974 8,974 8,974 8,974 Cumulative changes in fair value 12,259-14,690 10,851-24,004-24,004-24,004-24,004 Foreign currency translation reserve -3,766 9,816-6,162 27,034 27,034 27,034 27,034 Employee stock option plan reserve 611 1,243 619 1,345 1,927 2,734 3,673 Retained Earnings 414,059 330,944 341,360 297,366 335,330 345,236 367,263 Equity attributable to equity holders 663,389 543,787 604,615 518,361 568,577 593,660 634,026 Minority Interest 319,045 299,860 293,156 297,567 334,366 375,069 422,252 Total Equity 982,434 843,647 897,771 815,928 902,943 968,728 1,056,278 Total Liabilities and Equity 4,278,998 5,177,935 4,744,347 5,542,448 5,667,906 6,211,715 6,801,790

Consolidated Income Statement (in KWD 000) 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E Revenues: Interest income 121,002 232,018 52,744 55,906 250,051 280,295 320,011 Investment income 554,847 52,975 33,693 9,857 47,678 51,492 55,611 Fee and commission income 56,874 53,989 11,942 12,628 51,290 53,341 56,008 Share of results of associates 52,735-3,002 4,178-1,052 6,251 12,252 19,602 Net insurance premium earned 37,903 40,055 11,970 14,153 44,292 49,198 54,944 Digital satellite television services income 44,095 52,883 12,143 14,960 57,076 61,660 66,672 Foreign exchange (loss) gain 15,787-5,924 0 0 0 0 0 Other income 1,438 17,302 1,170 5,909 19,032 21,126 23,661 Revenues 884,681 440,296 127,840 112,361 475,669 529,363 596,508 Expenses: Interest expense 107,954 171,139 41,512 35,840 178,940 200,055 224,379 Net insurance claims incurred 24,916 23,984 6,338 8,221 26,143 28,757 31,920 Insurance related fee and commission expense 8,192 7,747 4,880 6,252 9,684 11,330 13,369 Digital satellite television services expense 37,257 50,493 11,496 14,092 54,028 58,080 62,726 General and administrative expenses 111,201 80,865 21,030 18,166 80,320 88,933 99,617 Provision (reversal) for credit losses -1,546 37,343 3,826 5,097 21,024 20,284 19,140 Impairment of financial assets available for sale 1,939 22,745 0 1,809 1,809 0 0 Goodwill impairment loss 4,095 0 0 0 0 0 0 Board of Directors remuneration 250 0 0 0 0 0 0 Foreign Exchange loss or gain 0 0-7,196 3,143 3,143 0 0 Expenses 294,258 394,316 81,886 92,620 375,090 407,438 451,152 Profit before taxation 590,423 45,980 45,954 19,741 100,580 121,925 145,357 Taxation -14,671-3,534-480 -1,986-7,731-9,371-11,172 Profit for the year 575,752 42,446 45,474 17,755 92,849 112,554 134,185 Attributable to: Equity holders of the Parent Company 521,691 24,125 30,034 9,226 58,344 71,851 87,001 Minority interest 54,061 18,321 15,440 8,529 34,506 40,703 47,183

Consolidated Cash Flow Statement (in KWD 000) 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E OPERATING ACTIVITIES Profit before taxation 590,423 45,980 45,954 19,741 100,580 121,925 145,357 Adjustments for: Unrealised loss (gain) on financial assets at fair value through Profit or loss -9,172 28,011-2,069 4,152 6,145-7,266-9,516 Gain on sale of investments -538,778-70,816-28,084-8,274-8,274 0 0 Gain from investment properties -651-24 0 0 0 0 0 Share of results of associates -52,735 3,002-4,178 1,052-6,251-12,252-19,602 Interest expense on loans and bonds 34,069 74,741 31,701 15,330 68,714 73,573 81,636 Depreciation and amortisation 9,554 17,367 2,386 3,929 20,507 23,308 26,436 Impairment of financial assets available for sale 1,939 22,745 0 1,809 1,809 0 0 Foreign exchange gain on loans payable and medium term notes -2,756-8,715-4 6,713 6,713 0 0 Provision for employee stock option plan 377 632 8 102 684 806 940 Provision (reversal) for credit losses -1,546 37,343 3,826 5,097 21,024 20,284 19,140 Impairment of goodwill 4,095 0 0 0 0 0 0 34,819 150,266 49,540 49,651 211,651 220,379 244,391 Changes in operating assets and liabilities: Deposits with original maturities exceeding three months -190,388 148,680 37,370-366,183-268,430-7,667 7,022 Treasury bills and bonds 21,093 86,148 12,839 17,436 9,062-42,509-46,778 Loans and advances 23,295-340,569-162,365-113,898-299,870-331,632-378,142 Financial assets at fair value through profit or loss -56,457 85,787 574 10,252-7,178-14,178-16,036 Financial assets available for sale 24,758 55,840 5,166-23,020-30,870-28,515-30,941 Other assets -53,232-47,553-43,240-22,484-25,732-25,919-28,450 Due to banks and other financial institutions -299,009-8,592 245,223 33,367 64,113 87,934 81,159 Deposits from customers 158,051 341,162 143,128 290,718 329,097 298,134 336,119 Other liabilities 52,176-16,885-377 -15,292-1,172 25,214 9,903 Taxes paid 0-11,259 0 0-3,534-7,731-9,371 Net cash from (used in) operating activities -284,894 443,025 287,858-139,453-22,861 173,510 168,876 INVESTING ACTIVITIES Investment properties -514 979-115 -275-719 -741-804 Financial assets held to maturity 1,287-8,494-915 4,657-2,871-1,750-1,899 (Purchase)/sale of investment in associates 641,666-40,107-1,932-2,423 5,734-28,582-31,665 Acquisition of a subsidiary, net of cash acquired 366,639 140,496 0 0 0 0 0 Dividends received from associates 17,740 6,057 6,057 0 0 4,121 6,594 Minority interest -95,884-119,841-10,210-23,775-23,775 0 0 Net cash (used in) from investing activities 930,934-20,910-7,115-21,816-21,631-26,951-27,774 FINANCING ACTIVITIES Loans payable -29,871 93,363 56,538 36,829 65,903 56,834 62,972 Medium term notes 0-71,478 0-1,165 300 300 300 Bonds -23,295-13,834 576-165 -50,995 0 0 Purchase of treasury shares -36,611-64,638-10,335-602 -602 0 0 Proceeds from sale of treasury shares 15,740 25,566 17,560 748 748 0 0 Interest paid on loans and bonds -36,225-62,398-19,211-18,871-68,714-73,573-81,636 Dividends paid -51,411-91,515 0-10 -42,289-47,575-47,575 Dividend Paid to Non controlling stake 0 0-33,345-6,545-6,545 0 0 Net cash used in financing activities -161,673-184,934 11,783 10,219-102,193-64,013-65,938 Foreign currency translation adjustment -8,560 4,945-4,112 18,911 18,911 0 0 NET INCREASE IN CASH AND CASH EQUIVALENTS 475,807 242,126 288,414-132,139-127,775 82,545 75,165 Cash and cash equivalents at 1 January 205,405 681,212 681,212 923,338 923,338 795,563 878,108 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 681,212 923,338 969,626 791,199 795,563 878,108 953,273

Common Size Statements Common-Size Consolidated Balance Sheet 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E ASSETS Cash in Hand & at banks 20.5% 18.8% 23.8% 21.8% 19.6% 19.4% 18.7% Treasury bills and bonds 10.1% 7.5% 8.9% 6.7% 6.7% 6.8% 6.9% Loan & advances 39.6% 48.6% 39.1% 47.4% 49.3% 50.2% 51.2% Financial assets at fair value through profit & loss 4.8% 1.5% 4.5% 1.1% 1.5% 1.6% 1.7% Financial assets available for sale 6.2% 5.1% 5.7% 5.0% 5.2% 5.2% 5.2% Financial assets held to maturity 0.2% 0.3% 0.2% 0.2% 0.3% 0.3% 0.3% Other assets 3.9% 4.1% 4.4% 4.1% 4.2% 4.2% 4.3% Investments in associates 5.8% 4.6% 5.3% 4.3% 4.1% 4.2% 4.3% Investment Properties 0.2% 0.1% 0.2% 0.1% 0.1% 0.1% 0.1% Property & Equipment 1.3% 1.3% 1.2% 1.2% 1.3% 1.4% 1.4% Intangible assets 7.5% 8.1% 6.9% 8.0% 7.6% 6.6% 5.8% Total assets 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% LIABILITIES Due to banks & other financial institutions 19.4% 17.7% 22.7% 17.1% 17.3% 17.2% 16.9% Deposits from customers 37.9% 48.0% 37.2% 50.1% 50.0% 50.6% 51.3% Loan Payable 7.0% 7.7% 7.5% 7.8% 8.2% 8.4% 8.6% Bonds 1.5% 1.0% 1.4% 0.9% 0.0% 0.0% 0.0% Medium term notes 4.7% 2.4% 4.3% 2.3% 2.2% 2.0% 1.8% Other liabilities 6.5% 7.0% 8.1% 7.0% 6.4% 6.2% 5.8% Total liabilities 77.0% 83.7% 81.1% 85.3% 84.1% 84.4% 84.5% EQUITY Share capital 2.5% 2.2% 2.4% 2.1% 2.0% 1.9% 1.7% Share premium 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.0% Treasury shares -0.6% -1.3% -0.4% -1.2% -1.1% -1.0% -1.0% Statutory reserve 1.7% 1.5% 1.6% 1.4% 1.5% 1.5% 1.5% Voluntary reserve 1.7% 1.5% 1.6% 1.4% 1.5% 1.4% 1.5% Treasury share reserve 0.2% 0.2% 0.2% 0.2% 0.2% 0.1% 0.1% Cumulative changes in fair value 0.3% -0.3% 0.2% -0.4% -0.4% -0.4% -0.4% Foreign currency translation reserve -0.1% 0.2% -0.1% 0.5% 0.5% 0.4% 0.4% Employee stock option plan reserve 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% Retained Earnings 9.7% 6.4% 7.2% 5.4% 5.9% 5.6% 5.4% Equity attributable to equity holders 15.5% 10.5% 12.7% 9.4% 10.0% 9.6% 9.3% Minority Interest 7.5% 5.8% 6.2% 5.4% 5.9% 6.0% 6.2% TOTAL EQUITY 23.0% 16.3% 18.9% 14.7% 15.9% 15.6% 15.5% Total Liabilities and Equity 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Common-Size Consolidated Income Statement 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E Revenues: Interest income 13.7% 52.7% 41.3% 49.8% 52.6% 52.9% 53.6% Investment income 62.7% 12.0% 26.4% 8.8% 10.0% 9.7% 9.3% Fee and commission income 6.4% 12.3% 9.3% 11.2% 10.8% 10.1% 9.4% Share of results of associates 6.0% -0.7% 3.3% -0.9% 1.3% 2.3% 3.3% Net insurance premium earned 4.3% 9.1% 9.4% 12.6% 9.3% 9.3% 9.2% Digital satellite television services income 5.0% 12.0% 9.5% 13.3% 12.0% 11.6% 11.2% Foreign exchange (loss) gain 1.8% -1.3% 0.0% 0.0% 0.0% 0.0% 0.0% Other income 0.2% 3.9% 0.9% 5.3% 4.0% 4.0% 4.0% Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Interest expense 12.2% 38.9% 32.5% 31.9% 37.6% 37.8% 37.6% Net insurance claims incurred 2.8% 5.4% 5.0% 7.3% 5.5% 5.4% 5.4% Insurance related fee and commission expense 0.9% 1.8% 3.8% 5.6% 2.0% 2.1% 2.2% Digital satellite television services expense 4.2% 11.5% 9.0% 12.5% 11.4% 11.0% 10.5% General and administrative expenses 12.6% 18.4% 16.5% 16.2% 16.9% 16.8% 16.7% Provision (reversal) for credit losses -0.2% 8.5% 3.0% 4.5% 4.4% 3.8% 3.2% Impairment of financial assets available for sale 0.2% 5.2% 0.0% 1.6% 0.4% 0.0% 0.0% Goodwill impairment loss 0.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Board of Directors remuneration 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Foreign Exchange loss or gain 0.0% 0.0% -5.6% 2.8% 0.7% 0.0% 0.0% Expenses 33.3% 89.6% 64.1% 82.4% 78.9% 77.0% 75.6% Profit before taxation 66.7% 10.4% 35.9% 17.6% 21.1% 23.0% 24.4% Taxation -1.7% -0.8% -0.4% -1.8% -1.6% -1.8% -1.9% Profit for the year 65.1% 9.6% 35.6% 15.8% 19.5% 21.3% 22.5% Attributable to: Equity holders of the Parent Company 59.0% 5.5% 23.5% 8.2% 12.3% 13.6% 14.6% Minority interest 6.1% 4.2% 12.1% 7.6% 7.3% 7.7% 7.9%

Financial Ratios Profitability 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E Return on Average Assets (RoAA) 18.5% 0.5% 2.7% 0.7% 1.1% 1.2% 1.3% Return on Average Equity (RoAE) 116.5% 4.0% 18.9% 6.9% 10.5% 12.4% 14.2% Net Interest Income / Total Income 1.5% 13.8% 8.8% 17.9% 14.9% 15.2% 16.0% Margins Interest Expense / Interest Income 89.2% 73.8% 78.7% 64.1% 71.6% 71.4% 70.1% Interest Income / Average Loans distributed 11.0% 9.2% 9.6% 7.5% 8.2% 8.3% 8.5% Interest Expense/ Average term loans -5.5% -4.9% -5.1% -3.5% -4.2% -4.3% -4.4% Net Spread 5.4% 4.3% 4.5% 4.1% 3.9% 4.0% 4.1% Net Interest Margin 1.2% 2.4% 2.0% 2.7% 2.3% 2.4% 2.5% Total Operating Expenses to Total Income Ratio -20.5% -37.0% -34.2% -41.6% -35.8% -35.3% -34.8% Liquidity & Assets Quality Credit to Loan (deposits) Ratio 104.6% 102.8% 105.1% 94.7% 99.3% 99.8% 100.3% Term Loan to Shareholders' Equity 44.9% 73.0% 58.6% 83.7% 81.4% 87.5% 91.9% Provisions / Gross Instalment debtors 0.0% 1.3% 0.0% 0.0% 0.7% 0.6% 0.5% Capital Adequacy Shareholders' Equity to Total Assets 15.5% 10.5% 12.7% 9.4% 10.0% 9.6% 9.3% Shareholders' Equity to Gross Instalment debtors 39.1% 21.3% 32.6% 19.7% 20.2% 18.9% 18.1% Operating Performance % Change in Net-Interest Income NA 366.6-255.9 78.7 16.8 12.8 19.2 % Change in Total Income 287.6-50.2 71.6-12.1 8.0 11.3 12.7 % Change in Net Profit 941.9-95.4-92.1-69.3 141.8 23.2 21.1 Valuation Ratios Adj. EPS (KWD) 0.493 0.023 0.114 0.035 0.055 0.068 0.082 Adj. BVPS (KWD) 0.627 0.514 0.572 0.490 0.538 0.562 0.600 P/E (x) 1.03 22.35 4.49 14.61 9.24 7.50 6.20 P/BV (x) 0.81 0.99 0.89 1.04 0.95 0.91 0.85 CMP (KWD) 0.510 0.510 0.510 0.510 0.510 0.510 0.510 * Annualised

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