SICO Research GCC Equities Quarterly Results Preview 1Q18 April 1st, 2018 GCC Equities Quarterly Result Preview 3% YoY increase led by Petrochemicals Our GCC coverage universe aggregate 1Q18 are expected to increase 3%YoY (12% QoQ) led by petrochemicals. Banks - KSA banks will continue to report weak balance sheet performance, however will benefit from NIM expansion. UAE banks would report strong netinterest income growth, along with higher operating expenses. Strong balance sheet growth along with stable NIM to lead to strong net interest income growth for Qatari banks. Bahrain Banks growth to be driven by retail lending and higher fee income. Result boost: Alinma (TP: SAR 17.5), DIB (TP: AED 7.5), ENBD (TP: AED 12.0), Result drag: BSFR (TP: SAR 30), Doha Bank (TP: QAR 36). Petrochemicals On an aggregate level, we forecast to increase 10% YoY led by higher product prices. Average petrochemical product prices for a basket of major products gained 8% YoY and 5% QoQ during 1Q18. Result boost: Sipchem (TP SAR 22), YANSAB (TP SAR 73) and Saudi Kayan (TP SAR 14) Real Estate Earnings of UAE developers EMAARDEV and Aldar to be lifted from higher revenues recognition from properties under development; ability of the hospitality and mall retail segments to be weaker on unsupportive macros Result Boost: EMAARDEV (TP: AED 7.0/sh) Building materials Earnings weakness to continue amid slump in domestic demand. After brief strength in 4Q, pricing is likely to have weakened during 1Q. We model a 25% YoY drop in coverage net. Industrials Strength in pockets MEPCO 1Q18 up >8x YoY led by strength in paper prices. Yamamah (exposure to construction/ electricity T&D) & Saudi Electricity (no benefit from tariff hike + potential demand weakness) likely to see weakness. Earnings boost : MEPCO (TP SAR 27) Telecom Overall 1% decline in in the sector with no major triggers. Consumers Stocks will have a muted quarter due to VAT impact (Saudi and UAE) which led to strong 4Q (pre VAT purchases). Logistics and Transportation - Strong double digit YoY growth in both Aramex (driven by express segments) and Agility (driven by improving logistics segment performance). Result boost: Aramex (TP AED 6.0) Healthcare - On an aggregate level, we expect flat YoY and QoQ. Earnings at Care will likely double led by lower base. No. of Mcap Growth Income Growth Nishit Lakhotia, CFA, CAIA +973 1751 5021 Nishit.Lakhotia@sicobahrain.com companies USD bn YoY QoQ YoY QoQ Banks 21 255.9 10% 1% 2% 15% Petrochemicals 11 150.6 13% 2% 10% 36% Real Estate & construction 7 30.5 26% -1% -2% 20% Building Materials 7 9.2-12% -6% -25% -5% Industrials & Utilities 5 43.1 18% -2% 27% NM Telecom 9 112.0 0% -3% -1% 7% Consumer 6 21.9 2% -4% -4% -29% Logistics & Transportation 5 9.3 17% 1% 8% -37% Healthcare 5 7.2 7% -1% -5% 1% Total 76 639.7 8% 0% 3% 17% Note: Total interest income used as a proxy to revenue for banks Note: Total interest income used as a proxy to revenue for banks *excludes Saudi Electricity and Emaar Development SICO 2018 All Rights Reserved Attention is drawn to the disclaimer and other information in the end
Banks interest income Loans Al Rajhi KSA SAR mn 32.5 3,173 10% 0.5% 2,416 9% -1.5% 236,338 3% 1.2% Strong growth to be supported by healthy NIM expansion Alinma Bank KSA SAR mn 8.3 972 19% 0.5% 502 19% -10.5% 80,011 9% 1.2% Robust balance sheet performance and NIM expansion to lead to strong. Arab National Bank KSA SAR mn 7.9 1,230 15% 2.8% 756-2% 19.1% 115,688 0% 1.0% NIM expansion to be offset by weak non-interest income and high provisioning. Saudi Fransi KSA SAR mn 9.4 1,230 11% 1.3% 919-17% 117.2% 122,184-5% 0.2% High provisioning and weak non-interest income to negate positives from NIM expansion. NCB KSA SAR mn 34.3 3,395 1% 0.2% 2,438-10% -4.6% 251,727-1% 1.0% Weak non-interest income on a high base of 1Q16 and higher provisioning to impact. Riyad Bank KSA SAR mn 11.1 1,488 4% -0.7% 992-5% 1.9% 139,254-1% 0.3% Expect provisioning to remain at an elevated level, along with modest balance sheet performance Samba KSA SAR mn 14.5 1,530 13% -0.7% 1,320 7% 8.8% 118,273-5% 0.5% Earnings growth to come from decline in provisioning charges SABB KSA SAR mn 12.7 1,337 7% 2.5% 995-4% 40.9% 118,176-1% 1.0% Weak non-interest income on a high base of 1Q16 to impact. ADCB UAE AED mn 9.2 1,704 5% -0.8% 1,085-2% -1.9% 164,915 3% 1.0% Flattish performance across line items, balance sheet growth to remain modest too Dubai Islamic Bank UAE AED mn 7.1 1,415 15% 1.8% 1,131 12% -1.6% 110,665 14% 2.0% Strong balance sheet growth to continue, at the cost of marginal NIM contraction. Expect provisioning to rise. Emirates NBD UAE AED mn 16.3 2,823 14% 1.0% 2,082 11% -4.3% 307,134 4% 1.0% Robust overall performance to offset the impact of higher operating expenses First Abu Dhabi Bank UAE AED mn 33.8 1,840 11% 0.5% 2878-2% NM 203,038 NM 1.2% At the pre-merger level the bank's to decline by 2% YoY Union National Bank UAE AED mn 2.7 673 3% 1.1% 465 4% 61.7% 71,137-3% 0.0% Mild balance sheet growth along with flattish NIM to support Commercial Bank of Qatar Qatar QAR mn 3.3 684 14% 0.2% 259 NM -24.7% 91,350 11% 2.5% Healthy balance sheet growth and lower provisioning to revive Doha Bank Qatar QAR mn 2.3 600 15% -0.6% 304-17% 395.7% 60,402 2% 1.0% Lower non-interest income and higher provisioning charges to maar Qatar Islamic Bank Qatar QAR mn 6.2 734-7% 1.3% 507-9% -19.6% 104,153 5% 1.5% NIM contraction and lower non-interest income to negatively impact 2
interest income Loans Qatar National Bank Qatar QAR mn 32.8 4,744 14% 1.7% 3,425 7% 19.1% 590,162 10% 1.0% Earnings growth to come from robust balance sheet expansion despite higher lower provisioning charges Ahli United Bank Bahrain USD mn 5.4 236 16% -2.0% 155-3% 22.6% 19,694 4% 1.0% Strong net interest income from NIM expansion to be offset by higher provisioning charges National Bank of Bahrain Bahrain BHD mn 2.0 19 12% 0.3% 15 2% 30.0% 1,276 14% 4.0% We expect loan growth to continue support ' growth, however interest income is also expected to increase given increase in interest rates and cost of funds which will pressure topline growth BBK Bahrain BHD mn 1.3 25 9% 6.2% 16 5% 19.4% 1,775 0% 2.0% Earnings to be boosted by solid NIMs, and stronger fee income growth which is supported loan growth. Bank Muscat Oman OMR mn 2.8 74 7% 2.4% 46 5% -0.5% 8,579 7% 3.0% Earnings growth to be supported by lower YoY provisioning, higher loan growth and NIMs in line with 4Q17. 3
Petrochemicals EBIT SABIC KSA SAR mn 94.07 40,820 10% 1% 8,467 1% 27% 5,517 5% 50% Higher product prices YoY to positively impact Industries Qatar Qatar QAR mn 17.50 1,450 31% 0% 173 9% 11% 996 7% 0% Higher product prices YoY to positively impact Tasnee KSA SAR mn 3.54 2,910 17% 4% 720 111% 29% 290 181% -12% Higher product prices and restructuring exercise to positively impact Yansab KSA SAR mn 10.89 2,141 22% -1% 805 29% 3% 772 27% -1% Higher product prices YoY to positively impact Sipchem KSA SAR mn 2.10 1,312 9% 3% 391 69% 28% 173 89% 5% Strong methanol prices and higher utilisation rates to power the APC KSA SAR mn 2.67 534 2% -16% 94-20% -19% 100-20% -4% shutdown to impact, 1Q (PP- naphtha) spread is up 17% YoY and 13.5% QoQ Alujain KSA SAR mn 0.45 405 2% -6% 54-22% 19% 25-15% 24% 1Q (PP- naphtha) spread is up 17% YoY and 13.5% QoQ SAFCO KSA SAR mn 7.97 1,043 23% 69% 419 6% 724% 368-13% 488% Flat urea prices YoY Saudi Kayan KSA SAR mn 5.46 2,954 11% 28% 687 24% 5818% 407 53% NM Higher product prices and utilisation rates to positively impact SIIG KSA SAR mn 2.76 2,104 25% -3% 534-16% -31% 172-44% -55% SCP and JCP shutdown to impact overall performance Petrochem KSA SAR mn 3.18 2,104 25% -3% 544 98% -10% 279 66% -29% Higher product prices YoY to positively impact 4
Telecom Company Country Currency EBITDA Saudi Telecom KSA SAR mn 44.26 12,445-3% 0% 4,929 7% -3% 2,500-1% -6% Marginally weak quarter as revenue is pressurised from termination rate cut. Mobily KSA SAR mn 3.15 2,807-2% -1% 922-1% 1% (194) NM NM Impact from termination rate cut, expat exodus, higher amortisation fees and finance expense. Etisalat UAE AED mn 41.91 12,978 4% -4% 6,442 1% 5% 2,125 2% 8% Relatively stable operations with marginal growth in both Uae and international operations Du UAE AED mn 6.22 3,182 0% -8% 1,225 0% -5% 392 7% -8% Mobile segment to be weak while Fixed line will grow Zain Kuwait KWD mn 6.81 240.0-2.8% -8% 90.4-15.6% -8% 34.5-9.6% -8% Impact from Sudanese pound devaluation Viva Kuwait KWD mn 1.33 71.1 6.4% -3% 34.1 7.6% -5% 10.2 2.4% -14% Top-line growth YoY to be led by higher handset sales while growth relatively muted. Batelco Bahrain BHD mn 0.97 94.2 5% -8% 34.6 7% 3% 11.1 35% -151% 4Q was distorted by major one-offs hence not comparable. Ooredoo Qatar QAR mn 7.22 8,068.5 0.3% -2.3% 3,193.5-2.2% -1.7% 548.9-6.0% 34.6% QoQ improvement led by strong Myanmar Kyat. Zain Bahrain Bahrain BHD mn 0.094 18.5 1.0% 0.1% 5.3-5.4% 0.2% 1.25 148.5% -17.1% Recovery in YoY ARPUs 5
Real Estate and Construction Emaar Properties UAE AED mn 11.15 5,405 33% 1% 1,602 23% -1% 1,372-1% 1% Flat YoY s despite a 33%/24% growth in revenues/gross s as higher share of minority s post listing of EMAARDEV in 4Q17 to weigh on ability. Sequentially projected to be flattish on slowdown in lease and hospitality segment. Emaar Development UAE AED mn 5.88 2,674 NM 14% 957 NM 19% 767 NM 20% We estimate 1Q18 to grow by 20% QoQ to AED 767mn (company listed in 4Q17 1Q17 number not available); boosted by acceleration in revenue recognition from properties under development. Aldar UAE AED mn 4.73 1,765 12% -6% 568-7% 4% 593-7% 320% 1Q18 to fall by 7% YoY with decline due to lower GP margins (down 7ppts YoY) on lower land sales. QoQ, core (excluding FV revaluation losses and other income) forecast to increase by 7% YoY on lower opex. Recall, Aldar booked an AED 0.5bn in revaluation loss in 4Q17. DXB Entertainment UAE AED mn 1.00 191 19% 21% (271) 9% 27% (338) NM NM s forecast at AED 191mn for 1Q18 up 19% YoY / 21% QoQ with total park visits of 833k (+5% QoQ/ 42% YoY) and realized spend per visit at AED 145 (+5% QoQ / -32% YoY). Loss to expand by 33% QoQ on higher opex, depreciation and financial charges. Emaar Malls UAE AED mn 7.44 1,085 30% -4% 636 9% 1% 584 8% 1% 1Q18 s forecast to grow by 8% YoY on slight growth in rental income and cost rationalization. QoQ, estimate mall rentals to fall by 5% on lower turnover revenues; net to be flat QoQ on lower opex. Seef Properties Bahrain BHD mn 0.26 4.170-5% -2% 1.725-20% 10% 2.0-12% -34% Forecast core (ex-reval gains) to fall by 10% YoY on decline in mall rental income as well as hospitality segment revenues and compression in GP margins. Sequentially, core to be up 20% despite a small 2% fall in revenues on lower marketing expense. 6
Nass Corp. Bahrain BHD mn 0.06 42.000 5% -11% 0.454 NM -52% 0.439 NM -42% YoY better revenue and lower provisioning. Building Materials and Industrials Building Materials Yanbu Cement KSA SAR mn 1.43 211-30% 22% 46-56% 134% 45-55% 149% Pricing in 3Q17 was at decade lows, but we wouldn t rule out a year end fire sale given excess inventories Yamama Cement KSA SAR mn 0.95 156-33% -5% 41-33% 60% 45 3% 53% Base effects drive a marginal growth in ; downside risks from year end price discounting Arabian Cement KSA AED mn 0.94 201-16% 23% 56 26% 31% 36 41% 24% Optically while there is growth, we see more downside than upside risk given a) unusually low KSA production costs in 3Q which could warrant booking of higher expenses in 4Q b) Additional expenses related to the merger due-diligence (note: merger was called off recently). 4Q is also seasonally weakest for pricing, so cannot rule out discounting over decade low realizations in 3Q Saudi Cement KSA SAR mn 2.01 312-21% 25% 130-33% 39% 127-32% 46% SACCO has so far held on to pricing but has seen heavy drop in shipments. The price gap vs closest peer Eastern Province Cement is very wide (>SAR 50/t) and there is downside risk to 4Q17 topline Southern Province Cement KSA SAR mn 1.83 256-28% 19% 72-54% 18% 70-55% 22% Pricing likely to remain under pressure due to demand weakness and excess supply in the South-West. Base effects are pronounced 7
Qassim Cement KSA SAR mn 1.09 160-14% 22% 61-29% 30% 60-32% 18% Qassim has been aggressively pursuing market share; most likely at the cost of pricing RAK Ceramics UAE AED mn 0.65 692 6% -2% 49 47% -36% 40 nm -46% Seasonally weak quarter for ceramic companies. 4Q16 loss was due to impairments on inventory. There could be some downside risk from impairments in 4Q17 although magnitude likely to be lesser than 4Q16. Upsides could come from recovery in pricing and better than expected volumes. Industrials & Utilities Maaden KSA SAR mn 16.58 3,121 32% -1% 785 193% 28% 374 2352% 54% Solid growth to continue led by price recovery in Ma'aden's entire commodity basket. We believe there is some impairment risk in the Wa'ad Al Shamal project given IFRS provisions, although the risk of a substantial impairment has subsided a bit with recovery in DAP prices during Dec. Aluminium Bahrain Bahrain BHD mn 2.32 216 24% -8% 25 75% -7% 24 75% -6% Strong LME to power YoY but higher raw material prices to limit the sequential positive impact Yamama Steel Saudi SAR mn 0.33 309-5% 16% 33-22% 53% 27-23% 72% YoY decline due to slump in volumes, although we expect some QoQ recovery (proxy cement demand has recovered QoQ due to seasonal factors). Continued strength in steel prices could benefit. Pressures could come from higher imports into KSA and weaker than expected demand. Saudi Electricity Saudi SAR mn 23.26 10,580 0% -37% (762) NM NM (878) NM NM Seasonally weak quarter. Power demand through the year in the region is bell-shaped with 4Q & 1Q being the shoulder months 8
Consumer, Transportation and Healthcare Transportation Air Arabia UAE AED mn 1.46 818 1% -5% 36-49% -270% 78-19% NM Lower margins from flattish yields and higher fuel costs to hurt but likely benefit from derivatives. Aramex UAE AED mn 1.70 1,289 17% -3% 150 30% -26% 121 32% -26% Some slowdown in QoQ on sequential slowdown in e-commerce sales, still YoY growth to be robust at 32% buoyed by double digit growth in express segments as well as recovery in growth from the Freight Forwarding segment. Agility Kuwait KWD mn 3.81 393 23% 2% 25 25% 34% 18 24.1% -6.4% Strong double digit growth in YoY on back of growth in core logistics segment; higher financial charges and lower other income to pull down QoQ ability. Jazeera Airways Kuwait KWD mn 0.43 14.1 41% 33% 0.21 NM -112% 0.63 NM NM Expect higher load factor, passenger revenue and one extra plane to help top-line, but higher costs and flattish yield to impact. Saudi Ground Services KSA SAR mn 1.89 635-1% 9% 120-20% -75% 121-22% -74% Muted revenue and margin pressure from higher costs (expat levies) to hurt. Consumers Agthia UAE AED mn 0.72 504-3% 5% 48-7% 18% 47-10% 19% Impact from high competition and weak flour and feed business to affect Almarai KSA SAR mn 14.93 3,270-3% -4% 397-6% -34% 304-7% -41% YoY impact from Qatar operations will affect and high expat levy Jarir ing KSA SAR mn 4.36 1,790 5% -11% 217 2% -12% 226 2% -10% Stable operations but low growth as 4Q may have had pre-vat purchase affect. Herfy KSA SAR mn 0.82 292 6% -2% 48-15% -9% 43-18% -10% Continue to be affected by tough macro environment. Mezzan Holding Kuwait KWD mn 0.81 53-8% 13% 4.5-20% 80% 3.7-31% 46% Tough quarter due to soft UAE market, lower Red Bull sales and no new snacks or chips lines coming online. Top line growth to mainly come from Qatar and catering segment. Bahrain Cinema Bahrain BHD mn 0.26 3-48% -1% 1.0 26% 0% 1.4 67% -2% YoY comparison is meaningless after de consolidation of City center operations 9
Healthcare Care KSA SAR mn 0.67 233 15% 3% 31 124% 6% 31 103% 2% YoY growth will be led by lower base Mouwasat KSA SAR mn 2.32 399 10% -7% 102 10% -5% 93 9% -6% Better operating efficiency at existing assets should improve YoY Dallah KSA SAR mn 1.59 318 5% -2% 76-11% 2% 71-17% 12% continue to operate at full capacity Hammadi KSA SAR mn 1.16 198 10% 5% 38 10% -4% 30 8% -2% Better operating efficiency at existing assets should improve YoY Middle East Healthcare KSA SAR mn 1.41 424 0% 2% 75-26% 10% 78-25% 1% Receivable provisioning is the risk 10
GCC Equities 1Q18 Results Preview Contact Details NOTES BMB Centre, 1st Floor P.O Box 1331, Diplomatic Area Manama Kingdom of Bahrain Investment Research research@sicobank.com Head of Research Nishit Lakhotia, CFA, CAIA Tel: (Direct) +973 17515021 Head of Brokerage Mariam Isa Tel: (Direct): +973 17515210 Chief ital s Officer Fadhel Makhlooq Tel: (Direct): +973 17515202 Visit us at www.sicobank.com Disclaimer This report does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or any invitation to offer to buy or subscribe for any securities. The information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness and are subject to change without notice. Investors must make their own investment decisions. Past performance is not necessarily a guide to future performance. Nothing in this report should be construed as investment or financial advice or as an advice to buy or sell the securities of the company referred to in this report. SICO and/or its clients may have positions in or options on the securities mentioned in this report or any related investments, may affect transactions or may buy, sell or offer to buy or sell such securities or any related investments. The analyst(s) who is (are) responsible for producing the report certifies(y) that he (she) or any of their close relative have no beneficial ownership in the company s stock at the time of publishing the report. Any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Additional information on the contents of this report is available on request. Among stocks under our coverage, Ahli United Bank and National Bank of Bahrain owns 11.9% and 12.5% respectively in SICO. SICO does market making in Aluminum Bahrain (ALBA) and Zain Bahrain s shares. Copyright Notice Securities and Investment Company 2018. This report is being supplied to the recipient for information and not for circulation and may not be reproduced, redistributed or passed on to any other person or published, in whole or in part. 11