Daman Annual Press Briefing. 16th January 2017

Daman Annual Press Briefing 16th January 2017

Key Sections A. Recap of the markets B. Outlook for FY 2017 C. Daman plans going forward 2

A. Recap of the markets 3

Recap of the markets Nov 14 Press Briefing Event: Nov 14 Press Briefing Daman Projections: Strong finish to 2014 and we forecast rally to extend towards Q1 2015. Beyond Q1 2015, the outlook becomes ambiguous at best, given the increase in capital market activities in the form of IPO's. Our retail dominated markets will go through cycles of liquidity shortage depending on the size and the timing of the IPO's. Both Dubai and Abu Dhabi are trading at premiums to book value as compared to yesteryears. 80% 60% 40% 20% 0% -20% -40% -25.2%-22.6% % Returns after the Nov-14 Press Conference -9.4% -9.1% 65.6% 61.9% -30.8% -27.3% DFMGI ADSMI Daman Fifth Fund Daman Second Emirates Fund 12M 18M Projected Outlook: Negative / Expensive Valuations Source: Bloomberg, Daman Investments 4

Recap of the markets Sept 13 Press Briefing Event: Sept 13 Press Briefing Daman Projections: We do not expect any significant reversal in the current rally and in fact we are in the midst of a strong multi-year bull cycle. 400% 300% % Returns after the Sept-13 Press Conference 244.4% 368.7% Given the heavy real estate component of the DFM Index (ca.20%) and the benign outlook for the sector for the rest of the year, we believe from a sentiment perspective the market remains well supported. We continue to be optimistic about the prospects for dividends in 2013 given the strong trends in corporate profitability, which will result in higher dividends in absolute terms. 200% 100% 0% 83.1% 41.9% 30.1% 15.8% 66.6% 34.2% DFMGI ADSMI Daman Fifth Fund Daman Second Emirates Fund 12M 18M Projected Outlook: Positive Source: Bloomberg, Daman Investments 5

Recap of the markets Sept 12 Press Briefing Event: Sept 12 Press Briefing Daman Projections: Despite strong run in our markets in Q1'12 (DFM +21.8% and ADX +6.3%), the market remains attractively valued from a historical P/E basis and on a P/B versus ROAE basis. Dubai is still the cheapest market in the GCC on a price to book basis. Therefore, the valuation case for Dubai continues to be an argument for further upward potential. Q1 rally was not a mirage given strong macroeconomic numbers and robust earnings momentum from corporates but a lot of good things need to happen in order to maintain suitable rally. 200% 160% 120% 80% 40% 0% 75.0% 181.9% % Returns after the Sept-12 Press Conference 47.5% 87.9% 165.8% 26.5% 22.1% 102.9% DFMGI ADSMI Daman Fifth Fund Daman Second Emirates Fund 12M 18M Projected Outlook: Positive Source: Bloomberg, Daman Investments 6

Recap of the markets Sept 11 Press Briefing Event: Sept 11 Press Briefing Daman Projections: % Returns after the Sept-11 Press Conference The Fixed Income window of opportunity has closed down...this may be precursor to the resurgent appeal in equities after a 5-year downward journey. 30% 25% 20% 27.8% 19.4% 15% However, we do not expect a sharp or sudden reversal of fortune for equities just yet... 10% 5% 10.3% 2.8% 3.4% 8.1% 6.0% Daman views the present and year ahead as the most attractive investment environment in the UAE since the crash of 2008. However, this in no way means a bull market ahead, as there are still no signs of investors gaining confidence to declare the crisis over. 0% -5% -0.9% DFMGI ADSMI Daman Fifth Fund Daman Second Emirates Fund 12M 18M Projected Outlook: Positive Source: Bloomberg, Daman Investments 7

B. Outlook for FY 2017 8

2016 proved to be a difficult year from macroeconomic perspective 2017 may not improve dramatically The Average fiscal deficit for the GCC countries is expected to deteriorate from 7.1% of GDP in 2015 to 9.4% in 2016. GCC Fiscal deficit to remain at 6.7% in 2017. Oman has highest exposure of Oil and Gas revenues at 87.9% of total government revenues compared to 63.5% for the UAE. 40% 30% 20% 10% Fiscal Balances as a % of GDP Kuwait & UAE expected to report lowest fiscal deficit in 2016 among GCC peers 90% 80% 70% Oil Revenues as a % of Total Government Revenues, 2014 0% 60% -10% -20% Bahrain Kuwait Oman Qatar KSA UAE Average 2009-14 2015 2016E 2017E 50% 40% Bahrain Kuwait Oman Qatar KSA UAE Source: IMF, Regional Statistics Offices & Regional Ministries of Finance Source: IMF, Regional Statistics Offices & Regional Ministries of Finance 9

GCC market indices have remained sluggish over the last 24 months 120 Market performance of key indices (Jan 2015 - Dec 2016) Rebased 110 100 90 80 +2.2% -4.3% -12.4% 70 60 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 DFMGI ADSMI MSCI GCC Source: Bloomberg, Daman Investments DFMGI = Dubai Financial Market General Index ADSMI = Abu Dhabi Securities Market Index MSCI GCC = MSCI GCC Countries Index 10

Market volumes in the UAE have remained lackluster in the last 12-24 months 2,500 2,000 DFMGI Average Daily Value Traded (AEDmn) Jan 15 (AED 693.8mn) 1,200 1,000 ADSMI Average Daily Value Traded (AEDmn) Jan 15 (AED 207.9mn) AED mn 1,500 1,000 800 600 400 500 200 0 0 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 AED mn Source: Bloomberg, Daman Investments 11

High Beta stocks have performed better than blue-chip stocks in 2016 Dubai Financial Market - 31st December 2016 Small/Mid-Cap Stocks Market Cap (AED mn) Dec'16 Q4'16 2016 Union Properties 4,488.13 23.6% 51.7% 52.3% GFH Financial Group 4,468.04 14.7% 82.9% 313.4% SHUAA Capital 1,565.55-1.3% 66.7% 264.5% Gulf Navigation Holding 893.70 1.3% 40.0% 159.7% Hits Telecom Holding 410.92-0.6% 15.8% 51.0% Large-Cap Stocks Market Cap (AED mn) Dec'16 Q4'16 2016 Emaar Properties 51,406.93 4.5% 0.4% 25.3% Emirates NBD 46,685.31 5.1% 4.0% 14.7% Emaar Malls 33,967.32 0.8% -3.7% -5.1% DU 28,342.86 8.2% -4.6% 21.6% Dubai Islamic Bank 27,478.57 6.3% 2.8% -9.9% Abu Dhabi Securities Market - 31st December 2016 Small/Mid-Cap Stocks Market Cap (AED mn) Dec'16 Q4'16 2016 Eshraq Properties Co 2,371.50 5.1% 25.3% 89.1% Emirates Driving Co 2,229.54 27.6% 18.1% 27.6% Union Insurance Co 722.78 15.0% 11.8% 59.4% BILDCO 195.00 8.3% 20.4% 44.4% Methaq Takaful Insurance 150.00 7.1% 2.3% 50.0% Large-Cap Stocks Market Cap (AED mn) Dec'16 Q4'16 2016 Etisalat 163,933.81 0.8% -6.0% 16.8% First Gulf Bank 57,600.00 10.8% 8.9% 1.6% NBAD 52,878.69 6.3% 8.8% 25.5% ADCB 38,329.84 11.3% 7.0% 4.7% Aldar Properties 20,442.84 6.0% -1.5% 13.4% Dubai Financial Market General Index 302,932.22 5.06% 1.63% 12.06% Abu Dhabi Securities Market Index 443,490.84 5.51% 1.56% 5.55% Source: Bloomberg, Daman Investments 12

UAE seems to be better positioned among the GCC economies 600% Financial reserves as % of GDP vs. Oil as % GDP vs. Government subsidies as % of GDP (2015) Most of the GCC governments have taken several actions to bridge fiscal deficits such as: Financial Reserves as a % of GDP 500% 400% 300% 200% 100% UAE Qatar KSA Kuwait Bahrain Oman Size of bubble reflects Government Subsidies as a % of GDP 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% Oil as a % of total GDP Subsidy reforms Access to debt market Introduction of taxes (VAT) Divestment of stateowned enterprises Consolidation of business entities Source: IMF, Regional Ministries of Finance, Daman investments; Note: Financial Reserves in 2015 = Official Reserves + Sovereign Wealth Fund Assets 13

Introduction of VAT in the UAE: Myth vs. Reality Myth 1: VAT will lead to increase in prices of essential commodities UAE plans to exempt healthcare and education sector and 150 essential food items from VAT, thus, limiting the negative impact on welfare spending. An introduction of 5% VAT by UAE in 2018 is too low to significantly impact selling prices of consumables. Myth 2: VAT implementation will lead to higher inflation Academic papers studying the impact of implementation of VAT in Canada, UK and the US shows that introduction of VAT at a rate of 5%-10% have only marginal impact on inflation. UK s introduction of VAT at 10% in April 1973 have not meaningful impact on inflation. Whilst Canada s introduction of Goods & Sales (GST) tax at 7% in January 1991 lead to rise in inflation from 5% to 7% in 4 months. Myth 3: VAT will have negative impact on FDI Rather than merely a tax-free status, UAE s appeal resides in economic and political stability, world-class business infrastructure, free trade zones, access to growth markets in Asia and Africa, competitive labor, and less trade barriers. UAE government expects to generate revenues worth AED10-12bn in the first year of implementation of VAT that is expected to help government maintain fiscal stability and improve business competitiveness in the long-term. Source: IMF, CFA Society Emirates, Daman Investments 14

Market valuations remain attractive 2.0 "Expensive" Price-to-Book vs ROE Price-to-book 1.5 1.0 Kuwait KSA Oman Qatar Dubai Abu Dhabi UAE companies appear to be appealing vs. GCC peers 0.5 "Cheap" 0% 4% 8% ROE 12% 16% 31st December 2016 31st December 2015 Source: Bloomberg, Daman Investments 15

GCC equities are trading at attractive valuations compared to their historic 5-year averages. 25 Average P/E ratio of major GCC markets 20 15 10 5 0 DFMGI ADSMI TADAWUL DSM MSCI UAE Domestic Average (2011-2015) 2016 MSCI GCC Source: Bloomberg, Daman Investments 16

KSA & UAE will continue to lead when it comes to projects Total GCC = USD 2,020 bn* UAE 34.84% Net value of projects in pre-execution in the GCC - By Country Bahrain 2.97% Kuwait 8.22% Oman 6.49% Qatar 8.57% Power 10.97% Net value of projects in pre-execution in the GCC - By Sector Chemical 5.50% Gas 4.00% Oil 4.26% Water 2.31% Industrial 1.49% Total GCC = USD 2,020 bn*bn Construction 52.43% KSA 38.91% Transport 19.03% * Note: Value of Projects as of H1 2016 Source: Deloitte, MEED, Daman Investments 17

UAE government spending has remained resilient in 2016 140 UAE Govt. Spending in USD bn 40% UAE Govt. Spending as a % of GDP 120 100 30% 80 60 20% 40 20 10% 0 2013 2014 2015 2016E 0% 2013 2014 2015 2016E Dubai is currently working on multi-billion dollar projects. Some of the key projects are as follows: Dubai Metro Extension: Estimated cost of approx. USD 3bn Al Maktoum Airport: Estimated cost of approx. USD 33bn Expo 2020 event: Estimated cost of approx. USD 2.7bn USD 3.3bn Source: : IMF, Various National Media, Daman Investments 18

Crude oil prices expected to remain range-bound between USD50-USD60 in 2017 Crude oil prices have stabilized from a free fall to a more stable environment. 60 55 The consensus view is that the oil prices will be range-bound within USD 50-USD60. We tend to agree with this view. USD per barrel 50 45 40 35 30 25 4-Jan-16 19-Jan-16 3-Feb-16 18-Feb-16 4-Mar-16 19-Mar-16 3-Apr-16 18-Apr-16 3-May-16 18-May-16 2-Jun-16 17-Jun-16 2-Jul-16 17-Jul-16 1-Aug-16 16-Aug-16 WTI Crude Oil Prices 31-Aug-16 15-Sep-16 30-Sep-16 15-Oct-16 30-Oct-16 +105% 14-Nov-16 29-Nov-16 14-Dec-16 29-Dec-16 This is the first time in several years that OPEC has taken concrete steps to cap production, which implies the following: A predictable crude oil price environment Improvement in investor sentiments in the GCC due to the predictable nature of key commodity prices and clarity of macroeconomic policies and government actions. We believe that a stable and predictable oil price trajectory will be a positive for the economies in 2017. Source: Bloomberg, Daman Investments 19

Views on the Geopolitical situation Syria remains a long drawn problem in the region; however, we believe that the general security situation in the regions remains in control. We believe Iran will continue to strive to be integrated with the global mainstream economy. Inward investments into the country is the need of the hour. However, the process of integration will be evolutionary rather than a sudden gush. Daman s view: The GCC region has withstood several difficult periods in the recent past such as Global Credit Crisis (2008-09), Arab Spring (2011) etc. The region has shown resilience in the past and has the ability to adapt to the difficult and changing environment and emerge stronger from these crisis events. We believe that the GCC environment will be able to withstand the current low oil prices environment on the back of initiatives such as: Subsidy reforms Access to debt market Introduction of taxes (VAT) Divestment of state-owned entities / Consolidation of business enterprises 20

UAE Banking sector UAE banks remains well-capitalized with average dividend yields on offer at ca. 6% for 2016E. UAE bank s P/L hurt by higher provision charges in 2016. With the introduction of Basel III, we expect to see increase in provisions for banks. This will likely dampen bank s P/L in short-term, however, it remains long-term positive for banking industry. Limited improvement is expected in the Net Interest Margins (NIMs) due to rising Cost of Funds and the banks inability to reprice assets upwards due to stiff competition. Sector consolidation remains long-term positive in the UAE give high credit penetration vs. GCC peers ; but we see this as a long-term story. Source: Bloomberg, Daman Investments 21

UAE Real Estate sector Oversupply in the real estate sector in Dubai led to 22% y-o-y decline in the value of total real estate transactions in 2016. Dubai s Residential Property Sales price Index has been declining since Q2 15; however, the pace of decline has slowed recently. Dubai developers remains less prone to the impact of cancellations/defaults on projects that are under construction due to strict payment plans and attractive rental yields. In terms of valuation, Dubai remains an affordable investment destination vs. other global cities with average 2015 P/E ratio at 4.3x vs. 5.9x for New York and 19.0x for Hong Kong. 6% Gross Rental Yield 20.0 Average 2015 price/earnings ratio 5% 16.0 4% 3% 2% 12.0 8.0 4.0 0.0 1% 0% Dubai UAE New York London Hong Kong Abu Dhabi Dubai Singapore Mumbai New York London Hong Kong Source: Bloomberg, Dubai Land Department, Halifax, Daman Investments 22

Key Conclusions on Market Outlook for 2017 Daman has a proven track record when it comes to gauging investor sentiments and projecting market outlook. From macroeconomic perspective, 2017 may not turn out to be significantly different from the difficult period seen in 2016. However, we believe that 2017 remains an important year for what it holds for the bright outlook that we see ahead. We believe that 2017 will provide a spring-board to benefit from the investment opportunities on the back of: Subsidy reforms Access to debt market Introduction of taxes (VAT) Divestment of state-owned enterprises Consolidation of business entities Rise in Event-driven activities (e.g. Expo 2020 in the UAE) 23

C. Daman plans going forward 24

Asset Management Daman Asset Management offers international-calibre investment management services with a local presence. Current Offerings include: Daman Asset Management Mutual Funds Discretionary Portfolios Structured Products Non-Discretionary Portfolios Provide best-in-class bespoke portfolio management services investment products focusing on core competencies GCC / MENA / Africa. Coming up with new family of funds with targeted offerings to include: Equities and debt-based absolute return funds on GCC / MENA countries & regions Alternative investments focusing on specialist themes, strategies Engagement with institutions to widen distribution network. 25

Daman Mutual Funds Performance versus Benchmark Indices Daman Funds 2016 2015 2014 Daman Second Emirates Fund 10.00% -26.27% 20.85% Daman Islamic Fund 5.79% -25.07% 8.49% Daman Speculator Fund 25.92% -48.23% -26.82% Daman Fifth Fund -4.10% 46.82% 269.59% Country Indices 2016 2015 2014 Dubai Financial Market General Index 12.06% -16.51% 11.99% Abu Dhabi Securities Market Index 5.55% -4.89% 5.56% Saudi Stock Exchange Index (TASI) 4.32% -17.06% -2.37% MSCI UAE Domestic Index 7.92% -17.88% 10.76% MSCI GCC Countries Index 5.07% -16.72% -2.17% 26

Deal Structuring & Advisory Department Offering Daman s Deal Structuring & Advisory (DSA) offers Unparalleled &Unique Investment Opportunities in the PE and VC space. Current product portfolio includes: PE & VC Platforms Tech platform F&B platform Hotel platform Advisory M&A Advisory Restructuring IPO Advisory Corporate Advisory Hospitality Food & Beverage Tech and Others 27

Daman Securities (Brokerage) Mobile Trading App got awarded DFM GITEX Award for 2016. Extending trading services to NASDAQ Dubai. Providing market research services for client knowledge and informed decisions. Real time call center for customers. Extending geographies by entering new markets. New Advanced online trading through Daman Mobile App Daman Pro (standalone trading software) Daman web-trading platform 28

Key Conclusions Daman Plans for 2017 Daman focus has been to diversify its income streams away from the traditional areas of Investments. Asset Management: The division is working towards: Creating bespoke products to cater to inbound and outbound GCC funds Improving its distribution reach by partnering with established entities Creating white-labelled products for targeted clients Developing client-centric Wealth Management solutions for Ultra-High Net Worth individuals and institutional clients Deal Structuring & Advisory: Along with continuing advisory functions in M&A, Corporate Finance and Restructuring, we have also made strides into lucrative and promising sectors which are aligned with the UAE 2021 vision, such as: F&B Technology Hospitality Daman Securities: This company is working towards: Improving its reach through the launch of mobile trading app and online trading support Providing margin-trading support Focused on acquiring new trading accounts and deepening existing relationships Extending geographies by entering new markets 29

Thank You! 30

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