arqaam capital€¦ · september 12 2012 tawuniya insurance © copyright 2012, arqaam capital...

S e c t o r C o v e r a g e

S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +9714 507 1744

Loubna ElHassan Michael Malkoun Nisreen Assi Jonathan Milan Christine Kalindjian Zeina Nasreddine Arqaam Capital Research offshore s.a.l.

Changes in core portfolios Strong performance core portfolios: The Core Buy portfolio has generated a positive return of 9.6% vs. a negative performance of the S&P Arabia of (0.13%), resulting in a relative outperformance of over 9.7%. The largest positive contribution came from CAE and COMI, while Muscat worked against us. The Avoid portfolio has generated a negative return of (2.7%) vs. a negative performance of the S&P Arabia of (0.13%), resulting in a positive contribution from our sells of 2.55%. The largest positive contribution came from MASQ and Medgulf, while EGB worked against us. All in all, the long/short portfolio generated an alpha of 12.3%. We have substantially increased our TPs for Egyptian banks We have increased the TPs for Egyptian banks and we continue to strongly recommend CIB and CAE. The support from the GCC has been even stronger with Qatar unveiling an investment plan of USD18bn, which should address the balance of payment deficit and significantly boost the GDP and reduces the macro risk, while as we expected QNB is looking actively at Egypt for inorganic expansion. Elsewhere we have also increased our TPs and EPS for Albilad, while we have cut the EPS FY12e for most Kuwaiti banks due to a higher cost of risk in FY12e. We remove RJHI and Salama include Samba. We close our long positions in Al Rajhi and replace it with Samba as the net interest margin compression has come to a standstill and the bank is re-leveraging, while competition in retail banking should continue to affect Al Rajhi’s net interest margins. We expect a poor Q3 12 for Salama, but underwriting margins should improve as of Q4 12. We close our shorts in Mashreq and Shuaa. We close our short positions in Shuaa and Mashreq after their sharp falls. We cannot rule out renewed speculation about a break-up of Shuaa given the very low valuation, while our TP for Mashreq now points to upside. We continue to strongly recommend QNB, with any M&A acquisition unlocking value, while we continue to see UNB, FGB and CBD as the preferred plays in UAE. We see strong value in bank Muscat after the poor share price performance, even though we reduced our TP to reflect further net interest margin pressure. The consolidated profits of the MENA financials increased 3.8% y/y and 1.2% sequentially. The largest y/y increase was achieved by the Egyptian banks (44.4%), helped by stronger margins, followed by Omani (+18.9%), KSA (10.9%), Qatari (9.1%) and Bahraini banks (5.9%). UAE (-8.2%), Kuwaiti (-0.9%) and Lebanese banks (-2.4%) reported lower earnings.

Core Buy Portfolio

Company Ticker UNB UH

Price Target AED 4.7 Upside (%) 49.7

Company Ticker BKMB OM Price Target OMR 0.81

Upside (%) 46.7

Company Ticker CBD UH

Price Target AED 4.2 Upside (%) 45.3

Company Ticker QNBK QD Price Target QAR 193.0 Upside (%) 44.7

Company Ticker FGB UH Price Target AED 13.9

Upside (%) 41.2

Company Ticker AAAL AB

Price Target SAR 37.3 Upside (%) 38.5

Company Ticker SAMBA AB Price Target SAR 64.7

Upside (%) 38.2

Company Ticker COMI EY

Price Target EGP 44.2 Upside (%) 34.4

Company Ticker CIEB EY

Price Target EGP 15.5 Upside (%) 28.2

Company Ticker BURG KK Price Target KWD 0.6

Upside (%) 14.7

© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.

See Important Notice.

mailto:[email protected]

September 12 2012

Banks

Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 2

Table of Contents

Core Portfolio performance .................................................................... 3

KSA Banks: positive stance ................................................................... 13

UAE Banks: Be selective ........................................................................ 19

Qatar Banks: Play QNB ......................................................................... 25

Egyptian Banks: Plenty of upside left in COMI & CIEB .......................... 30

Lebanese Banks: Not investable now ................................................... 35

Kuwaiti Banks: Avoid, with one exception: Burgan .............................. 39

Omani Banks: Play Bank Muscat ........................................................... 43

Bahrain Banks: Better value elsewhere ................................................ 47

Insurance: Very disappointing Q2, improvements still uncertain ........ 49

Commercial International Bank ............................................................ 71

National Societe Generale Bank ........................................................... 75

Credit Agricole Egypt ............................................................................ 79

Qatar National Bank ............................................................................. 83

Albilad Bank .......................................................................................... 87

Al Rajhi Bank ......................................................................................... 91

National Bank of Kuwait ....................................................................... 95

Bank Muscat ......................................................................................... 99

MedGulf Insurance ............................................................................. 103

Qatar Insurance Company .................................................................. 107

Salama Insurance ................................................................................ 111

Tawuniya Insurance ............................................................................ 115

September 12 2012

Banks


Core Portfolio performance

The Core Buy portfolio has generated a positive return of 9.6% vs. a performance of the S&P

Arabia of (0.13%), resulting in a relative outperformance of 9.74%. The largest positive

contribution came from CIB and CAE.

CAE and COMI increased substantially on the back of a perceived improvement in the Egyptian

political situation, the election of a new president and the renewed (M&A) interest of GCC

countries in Egypt. We believe foreign investors still have to step in and could provide a further

boost for the shares. We are also less concerned about the macro picture. We argue that a

strong devaluation is unlikely given the potential social unrest (80% of food is imported), the

potential impact on interest rates (every 1% hike in interest increases the deficit by 0.6%

within 12 months), while a fiscal deficit of c. 10% is consistent with a stable net debt/GDP ratio.

We expect funds from the Middle East and IMF, in addition to a credible fiscal consolidation to

stabilize the current account.

Burgan Bank is our second best performer, and still offers substantial value and stronger

growth (supported by the Tekfen acquisition). FGB and UNB performed well, helped by lower

impact of new retail banking regulation in UAE and investors hunting deep value. We expect

UNB to increase its pay-out and further increase its net interest margins, which should allow it

to absorb a higher cost of risk.

Bank Muscat worked against us, due to the rights issue, and now shows the second highest

upside in the sector. We very positive on the macro outlook of Oman, which a very balanced

growth, strong loan growth related to projects, growth in Islamic finance, partly offset by

continued margin pressure in retail, and relatively below average returns.

Exhibit 1: Core Buy Portfolio Performance

Source: Bloomberg, Company Data, Arqaam Capital Research

The Avoid portfolio has generated a negative return of -2.77% vs. a performance of the S&P

Arabia of -0.13%, resulting in a positive contribution from our Sells of 2.52%. The largest

positive contribution came from Medgulf (on very disappointing claims in Q2 12), Shuaa (due

to ongoing operational losses) and Mashreq (due to its unjustified valuation premium), while

BJAZ and EGB (renewed M&A speculation after QNB doing a due diligence of NSGB) worked

Bank Curr TP Upside YTD Initiation Investment case

CBD AED 4.2 45.3% 5.00% 3.57% Share buy-back of potentially 35% of market cap

FGB AED 13.9 41.2% 28.03% 10.44% Good entry point after pull back due to impatience on buy back

UNB AED 4.7 49.7% 8.65% 8.62% Offers deepest value, higher NIMs absorbing higher loan losses

QNB QAR 193.0 44.7% (2.30%) --% Best LT growth, strong RORWA & capital, acquisitions unlocking value

CAE EGP 15.5 28.2% 54.53% 34.15% Take-over target, positive outlook FY12 after transitional FY11

CIB EGP 44.2 34.4% 79.68% 28.54% Growing when others do not, helped by higher NIMs, and very low valuation

Al Rajhi SAR 94.9 28.6% 5.76% 0.68% Best geared to benefit from retail growth, strong RORWA to be maintained

SHB SAR 37.3 38.5% 8.72% (1.10%) Very cheap, potential to cut C/I, new potential core shareholder a positive catalyst

Muscat OMR 0.8 46.0% (14.53%) (4.19%) Two capital increases should bolster its growth outlook, cheap entry point

Burgan KWD 0.6 14.7% 14.95% 25.30% Best Kuwait growth story. Tekfen could add 12% to EPS and 3% to loan growth CAGR

Salama AED 0.8 20.1% 22.14% (0.29%) Deep value. RoE to improve due to growing GWP, improve underwriting margins & yields

Average 36% 19.15% 9.61%

S&P Arabia 4.98% (0.13%)

Outperformance 14.17% 9.74%

September 12 2012

Banks


against us. We continue to keep both in our Avoid portfolio, as we expect an earnings dilutive

capital increase for BJAZ, while for EGB we cannot justify its M&A premium. However, EGB

significantly underperformed CIB and CAE. Boubyan did not perform despite the bid from NBK,

and after acquiring 57% of the shares, we see downside risk, as the M&A support has

effectively disappeared.

Exhibit 2: Avoid Portfolio Performance

Source: Company Data, Arqaam Capital Research

Our Buys of our entire coverage across MENA financials have performed well (+10.7%). Our

Holds gave a negative return of -5.9%, while our average Sell recommendation gave a negative

return of -1.9% since our initiation (23 May 2012).

Exhibit 3: Banks performance since initiation


NSGB was the strongest performer in our universe, followed by CAE and CIB. We missed NSGB

as we saw CAE as a more likely take-over candidate, as the bank is smaller in size and the

capital position of Credit Agriciole SA, the parent company of Credit Agricole Egypt, is a lot

tighter as compared to SocGen, the parent company of NSGB.

Bank Curr TP Upside YTD Initiation Investment case

DIB AED 1.75 (10%) 0.52% 2.63% Substantial hidden losses on associates, real estate, provisions and fair value reserves

MASQ AED 62.45 19% --% (21.42%) Unjustified premium, below average fundamentals

Khaliji QAR 14.1 (19%) 2.56% 0.99% Low quality of earnings

EGB USD 1.16 (32%) 11.18% 13.33% Unjustified M&A premium

BOB USD 10.5 (45%) (2.06%) --% Weakest capital base of sector due to high reliance on preference shares

BJAZ SAR 22.0 (20%) 64.60% 10.00% Sector-worst returns and asset quality

HBMO OMR 0.22 (1%) (21.17%) (6.44%) Merger synergies fully factored in its valuation

Boubyan KWD 0.29 (52%) 3.39% (1.64%) Valuation artificially high

KFH KWD 0.60 (13%) (18.40%) (5.48%) Capital gains should come down

Gulf Bank KWD 0.34 (14%) (18.68%) (3.66%) Valuation fully reflects earnings recovery

MedGulf SAR 19.3 (26%) (5.00%) (11.49%) Exposed to higher claims in medical, expensive and high capitalized goodwill

Shuaa AED 0.63 (1%) 11.82% (9.43%) Break-up unlikely and upside too low to play this scenario.

DFM AED 0.74 (23%) 15.00% (2.26%) Only option value

Average (18%) 3.37% (2.68%)

S&P Arabia 4.98% (0.13%)

Outperformance 1.61% 2.55%

Total alpha (Core Buy & Core Sells) 15.78% 12.29%

-29.0%

-19.0%

-9.0%

1.0%

11.0%

21.0%

31.0%

41.0%

NSG

BC

IEB

CO

MI

HD

BK

BU

RG

TAM

WEE

LEG

BE

SALA

MA

ENB

DFG

BA

LBI

HR

HO

BJA

ZU

NB

AD

CB

AD

IBC

BQ

KQ

IIKA

LIN

MA

KC

BK

CB

DD

IBM

AR

KQ

NB

KQ

IBK

DFM

NB

AD

RA

KB

AN

KA

AA

LB

OU

BYA

NR

JHI

KFI

NB

OB

BK

MB

SAM

BA

DH

BK

RIB

LA

RN

BSI

BC

BLO

MO

IBB

GB

KQ

ATI

BYB

BK

SBSA

BB

AU

DI

NB

KM

EDG

ULF

AU

BTA

WU

NIY

AB

SFR

SHU

AA

MA

SQ

Core buy in green

Core sell in red

September 12 2012

Banks


Exhibit 4: Target Price vs. Current Market Price

Source: Bloomberg, Arqaam Capital Research

RAK now shows the highest upside in our universe, followed by BMBK, NBAD and UNB. We do

not play RAKbank as we remain wary of future retail regulation, while we shy away from

Lebanon due to the spillover effects of Syria, while NBAD’s growth strategy could be severely

impacted by new regulation capping single party exposures.

We see the largest downside in Boubyan (the valuation support of NBK has fallen away, and

the stock is trading over 4x P/tNAV12e), BOB (very tight capital position), EGBE (unjustified

M&A premium), KCBK (investment income unsustainable) and BJAZ (upcoming dilutive capital

increase).

Exhibit 5: Core buy portfolio performance since initiation

Source: Company Data, Bloomberg, Arqaam Capital Research

Exhibit 6: Core sell portfolio performance since initiation

Source: Company Data, Bloomberg, Arqaam Capital Research

Egypt doing best: The consolidated profits of the MENA financials increased 3.8% y/y and 1.2%

sequentially. The largest y/y increase was achieved by the Egyptian banks (44.4%), helped by

stronger margins, followed by Omani (+18.9%), KSA (10.9%), Qatari (9.1%) and Bahraini banks

-60%

-40%

-20%

0%

20%

40%

60%

RA

KB

AN

KN

BA

DU

NB

BK

MB

CB

DQ

NB

KB

LOM

FGB

RIB

LA

AA

LSA

MB

AA

RN

BC

OM

IA

UD

ITA

MW

EEL

RJH

IC

IEB

ALB

ISI

BC

MA

SQA

UB

SAB

BB

SFR

NB

KB

UR

GA

LIN

MA

BK

SBEN

BD

QIB

KD

HB

KC

BQ

KA

DC

BQ

IIKM

AR

KN

SGB

HD

BK

HB

MO

BYB DIB

AD

IBK

FIN

GB

KB

JAZ

KC

BK

EGB

EB

OB

BO

UB

YAN

0.0%

-2.2%

1.4%

5.8%

9.6%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

May Jun Jul Aug Sep

Core Buy S&P Arab Index

0.0%

-1.3%

-4.2%

-2.8%-2.9%

-4.5%

-4.0%

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

May Jun Jul Aug Sep

Core Sell S&P Arab Index

September 12 2012

Banks


(5.9%). UAE (-8.2%), Kuwaiti (-0.9%) and Lebanese banks (-2.4%) reported lower earnings, for

the latter two due to higher loan loss charges, while for UAE this was caused by exceptional

items in Q2 11 for ADCB & ENBD (excluding these two banks, net earnings would have

increased 5.4% y/y). Without those, the consolidated group profits of our financials coverage

would have increased 8.3% and 1.6% respectively.

The sequential earnings growth was 1.2%. The largest q/q increase was Egypt again (12.2%),

Oman (+9.3%), Bahrain (8.5%), KSA (3.7%), Qatar (3.3%), UAE (2.3% (without ENBD & ADCB

4.7%)). Lebanon’s earnings were virtually flat (0.9% vs Q1 12), while the Kuwaiti banks were

very disappointing due to general provisions (-24.6% vs. Q1 12).

Exhibit 7: Consolidated Net Income by Company


-150%

-100%

-50%

0%

50%

100%

150%

200%

KFI

NB

JAZ

ALB

IEG

BA

LIN

MA

CA

EC

IBB

KSB

SHB

BK

MB

NSG

BQ

NB

KR

akb

ank

FGB

RJH

IM

ASQ

UN

BB

OU

BYA

NR

IBL

KC

BK

HB

MO

SAB

BC

BQ

KA

UB

SIB

CB

OB

SAM

BA

DH

BK

AN

BB

UR

GA

DIB

MA

RK

NB

AD

AU

DI

QIIK

BLO

MB

SFR

DIB

QIB

KEN

BD

CB

DB

YB QIC

Tam

we

el

Sala

ma

GB

KN

BK

AD

CB

Taw

un

iya

Me

dG

ulf

y/y q/q

September 12 2012

Banks


Exhibit 8: Consolidated Net Income by Country


Changes to our Core Buy portfolio:

We have penciled in a higher net interest margin compression due to the increased rivalry in

the retail segment, particularly affecting Al Rajhi, which has 60% of its loans in this segment,

and we remove Al Rajhi from our Core Buy portfolio, given the lower upside. We include

Samba as a Core Buy after slightly exceeding our forecasts, and maintaining its net interest

margins. Samba’s net interest margin has come to an end (at least on a sequential basis) and

the bank is actively re-leveraging its balance sheet.

We remove 2 stocks from our Avoid portfolio: Mashreq and Shuaa

Mashreq fell substantially, while we have increase our forecasts for the stock post a strong Q2

12. We also remove Shuaa from our Avoid portfolio after a fall of 15%. At the current

valuation, potentially renewed talk could re-emerge, though we view a break-up still unlikely.

We calculate a break-up value of AED 1.11 per share.

-60%

-40%

-20%

0%

20%

40%

60%

Egypt Oman KSA Qatar Bahrain Lebanon Kuwait UAE Insurance Sector

y/y q/q

September 12 2012

Banks


Exhibit 9: Breakup value for Shuaa shows significant upside

Item Value Comments

Total equity 1,140,939

Goodwill 34,111

NAV 1,106,828

Adjustments third party investments 0

Adjustments investments 0

Adjustment Gulf Finance House 64,234 1-1.9x bv (12% equity allocation)

Adjustment for asset management 35,706 0.39% of AuM

Adjustment for stock listing 10,000

Redemption staff -34,546 3 months salaries 222 staff

Adjustment for net debt 0

Total break-up value 1,182,222

Shares outstanding 1,065,000

Value per share 1.11


Islamic Portfolio

We also introduce our portfolios comprising solely of Sharia compliant banks. We include

Tamweel, QIB, Albilad, Alinma and Al Rajhi as Core Buys, while we highlight DIB, ADIB, BJAZ,

Boubyan and QIIB as the least attractive Islamic banks.

Exhibit 10: Islamic portfolio


Bank Curr TP Upside FY 13e P/E FY 12e P/tNAV YTD Investment case

TAMWEEL AED 1.7 32% 12.5x 0.5x 90.7% Very low valuation, best geared towards improving sukuk market and real estate market

QIB QAR 85.7 11% 10.8x 1.6x (8.3%) Impressive loan growth, strong capital base

Albilad SAR 36.0 22% 11.3x 2.0x 36.0% Strong fee generation, coupled with strong commercial momentum and margins

Alinma SAR 15.4 13% 21.5x 1.2x 41.7% Burgeoning bank with ample capital to grow

Al Rajhi SAR 94.9 29% 12.3x 3.1x 6.5% Best geared to benefit from retail growth, strong RORWA to be maintained

Average 21% 13.7 1.7 33.3%

Short Islamic Portfolio

Bank Curr TP Upside FY 13e P/E FY 12e P/tNAV YTD Investment case

DIB AED 1.75 (10%) 8.0x 0.8x (2.6%) Substantial hidden losses on associates, real estate, provisions and fair value reserves

ADIB AED 2.87 (13%) 7.1x 1.1x (1.9%) Unjustified premium, below average fundamentals

BJAZ SAR 22.8 (17%) 14.7x 1.5x 50.4% Sector-worst returns and asset quality

Boubyan KWD 0.29 (52%) 40.8x 4.1x 3.4% Valuation artificially high

QIIB KWD 53.15 3% 11.9x 1.6x (7.5%) Worst quality of earnings among islamic banks in Qatar, to be impacted by normalization of capital gains

Average (18%) 16.5 1.8 8.4%

September 12 2012

Banks


Buys:

Al Rajhi

Blue chip bank with strong returns (RORWA), high commercial momentum, coupled with a strong capital and liquidity base.

Margin compression is concern, and we have increased NIM compression due to the retail exposure, but performance continues to be impressive.

TP of SAR 94.9 with upside of 29%. Bank is trading at a P/E13e of 12.3x and P/tNAV12e of 3.1x and has an ROTE12e of 23.8% and RORWA of c. 4%. We removed it from our Core Portfolio, but we include it in the Sharia compliant portfolio given the smaller universe.

Albilad

Improving Islamic banks, with highest returns among KSA banks and impressive lending growth of 30% in FY 12e.

Strong growth prospects, ample capital and liquidity.

TP of SAR 36.0 offers 21% upside. Bank is trading at a P/E13e of 11.3x and a P/tNAV12e of 2.1x and has an ROTE12e of 16.5%.

Alinma

Youngest bank in KSA with high growth potential given ample capital reserves.

We estimate 39% FY 12e net lending growth with pristine asset quality.

TP of SAR 15.4 offers 12.3% upside. Bank is trading at a P/E13e 33.5x and P/tNAV of 1.3x and has an ROTE12e of 5.6%, but the bank has substantial surplus capital and deploying it at solid returns should unlock value.

Tamweel

Tamweel is most geared towards an improving real estate market. It reported an increase of 10-15% in sales price over the last 18 months. Higher selling prices have a direct effect on LGD and an indirect effect on NPLs. We use an average NPL of 19.2% (vs. 10% YE 2011) and a loss given default of 45%. A fall of 1% in NPLs increases our TP by 2.6% and a fall in LGD of 10pp increases our TP by 11.3%.

Tamweel could benefit from lower funding costs depending on successful placements of Sukuks. Demand for Sukuks could triple between 2012-2017, outstripping supply (E&Y study).

RoE could be boosted by an increasing leverage. Tamweel has the lowest leverage in UAE, with a CET1 of >20% even when risk-weighting the real estate investment book at 1250% (i.e. 100% equity allocation for the real estate investment).

Our TP of AED 1.7 (just 0.7 P/tNAV) offers 39% upside. The stock is the cheapest within UAE banking sector in terms of P/tNAV after the re-rating of UNB.

QIB

Impressive loan growth in Q2 12A, much stronger than expected and capturing most of the growth in Qatar. We expect higher NIMs and fees, along with lower provisioning after removing the Arcapita exposure.

We expect QIB to regain market share and has ample capital to do so.

TP of QAR 85.7, offering an 11% upside. Bank is trading at a P/E13e of 10.8x and P/tNAV of 1.6x and has an ROTE12e of 14.2%.

September 12 2012

Banks


Avoids:

DIB

Large hidden losses from (1) valuation from associates (though they have increased y-t-d), 2) aggressive valuation of Tamweel, 3) real estate portfolio not fully impaired 4) fair value losses not deducted from capital ratios

Severe asset quality concerns due to high exposure to commercial real estate and low pre-provisioning earnings capacity

Low P/tNAV of 0.7 fully warranted due to tight capital and hidden losses

ADIB

Weakest capital base in UAE under Basel III:(1) low capital base (2) high reliance on Tier-1 debt and 3) dividends not deducted from capital

ADIB plans to rebuild capital ratios, but that should go at the expense of its growth.

Average return bank, valuation not fully reflecting the low capital base.

BJAZ

Low returns and weak asset quality

Capital increase of 10% anticipated, diluting EPS

High growth already reflected in its valuation

Boubyan

Strong fundamentals (growth, capital, returns)

RORWA to improve, strong EPS growth

However, Boubyan is the most expensive stock in our universe, while valuation support from NBK has disappeared after NBK acquired 58% of the shares.

QIIB

NIM compression continues unabated, strong liquidity negatively affects NIMs, and we have cut our EPS forecasts significantly.

Highest real estate exposure and high concentration risk

Fully valued at P/E13e of 11.9x and P/tNAV12e of 1.6x.

September 12 2012

Banks


Exhibit 11: Composition of Tier 1 (Basel III FY 13e)

Source: Arqaam Capital Research

Audi 11.9% 1.2% 0.0% 0.3% 0.2% 0.0% 0.0% 0.0% 0.0% 10.5%

Blom 12.9% 1.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11.8%

Byblos 13.9% 3.1% 0.0% 0.0% 0.0% 1.1% 0.4% 0.0% 0.0% 11.5%

BOB 12.9% 6.3% 0.0% 0.5% 0.2% 0.0% 0.0% 0.0% 0.0% 6.4%

Lebanon 12.9% 3.0% 0.0% 0.2% 0.1% 0.3% 0.1% 0.0% 0.0% 10.0%

QNB 23.8% 0.0% 0.0% 2.5% 1.9% 0.0% 0.0% 0.0% 0.0% 23.2%

Doha 11.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11.1%

QIB 21.0% 0.0% 0.0% 2.5% 2.5% 0.0% 0.0% 0.0% 0.0% 21.0%

CBQ 13.2% 0.0% 0.0% 5.6% 2.8% 0.0% 0.0% 0.0% 0.0% 10.4%

MARK 15.1% 0.0% 0.0% 1.1% 1.1% 0.0% 0.0% 0.0% 0.0% 15.1%

Khaliji 15.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 15.6%

QIIB 18.8% 0.0% 0.0% 0.8% 0.4% 3.0% 2.8% 0.0% 0.0% 18.7%

Qatar 17.0% 0.0% 0.0% 1.8% 1.3% 0.4% 0.4% 0.0% 0.0% 16.4%

NBK 20.3% 0.0% 0.0% 5.9% 4.9% 0.0% 0.0% 0.0% 0.0% 19.4%

Burgan 13.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13.9%

GBK 14.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 14.8%

KFH 11.7% 0.0% 0.0% 1.1% 0.6% 0.0% 0.0% 0.0% 0.0% 11.1%

Boubyan 21.5% 0.0% 0.0% 2.5% 1.2% 0.0% 0.3% 0.0% 0.0% 20.3%

Kuwait 16.5% 0.0% 0.0% 1.9% 1.3% 0.0% 0.1% 0.0% 0.0% 15.9%

Muscat 12.2% 0.0% 1.2% 0.8% 0.5% 0.0% 0.0% 0.0% 0.0% 11.0%

Sohar 9.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 9.3%

OIB 13.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13.3%

Oman 11.3% 0.0% 0.4% 0.3% 0.2% 0.0% 0.0% 0.0% 0.0% 10.8%

CIB 12.9% 0.0% 0.0% 0.2% 0.0% 3.5% 0.9% 0.5% 0.1% 14.8%

CAE 10.6% 0.0% 0.0% 0.0% 0.0% 2.2% 1.0% 0.0% 0.0% 11.8%

NSGB 12.7% 0.0% 0.0% 0.2% 0.0% 3.0% 1.0% 0.0% 0.0% 14.4%

HDB 15.5% 0.0% 0.0% 4.1% 4.1% 1.6% 0.7% 0.0% 0.0% 16.5%

EGB 18.7% 0.0% 0.0% 3.1% 0.0% 0.0% 0.6% 0.0% 0.0% 15.1%

Egypt 14.1% 0.0% 0.0% 1.5% 0.8% 2.0% 0.8% 0.1% 0.0% 14.5%

ADCB 14.5% 0.0% 2.4% 0.1% 0.0% 0.0% 0.5% 0.0% 0.0% 11.6%

ADIB 12.8% 0.0% 2.7% 1.1% 0.0% 0.0% 0.6% 0.0% 0.0% 8.4%

NBAD 14.7% 0.0% 1.7% 0.0% 0.0% 0.0% 0.5% 0.0% 0.0% 12.5%

FGB 17.7% 0.0% 2.3% 0.3% 0.0% 0.0% 1.5% 0.0% 0.0% 13.6%

UNB 15.8% 0.0% 2.2% 0.0% 0.0% 0.0% 0.7% 0.0% 0.0% 12.9%

ENBD 12.8% 0.0% 1.7% 0.0% 0.0% 0.0% 0.3% 0.0% 0.0% 10.8%

DIB 10.5% 0.0% 0.0% 0.6% 0.0% 0.0% 0.4% 0.0% 0.0% 9.5%

CBD 17.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 17.0%

Mashreq 15.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.4% 0.0% 0.0% 15.4%

Rakbank 23.2% 0.0% 0.0% 0.0% 0.0% 0.0% 2.6% 0.0% 0.0% 20.7%

Tamweel 22.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.5% 0.0% 0.0% 22.4%

UAE 16.2% 0.0% 1.2% 0.2% 0.0% 0.0% 0.7% 0.0% 0.0% 14.1%

SAMBA 16.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.0% 15.8%

RIYAD 13.7% 0.0% 0.0% 0.1% 0.1% 1.6% 0.5% 0.0% 0.0% 14.8%

ALRAJHI 14.8% 0.0% 0.0% 0.0% 0.0% 4.0% 1.7% 0.0% 0.0% 17.1%

BSFR 14.2% 0.0% 0.0% 0.1% 0.1% 0.0% 0.4% 0.0% 0.0% 13.7%

SABB 12.4% 0.0% 0.0% 0.4% 0.2% 1.9% 0.4% 0.0% 0.0% 13.6%

ANB 14.0% 0.0% 0.0% 0.3% 0.2% 0.0% 0.0% 0.0% 0.0% 13.9%

SHB 12.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 12.3%

SIB 17.8% 0.0% 0.0% 2.0% 1.0% 0.0% 0.7% 0.0% 0.0% 16.2%

ALBILAD 15.6% 0.0% 0.0% 0.0% 0.0% 2.7% 0.3% 0.0% 0.0% 18.0%

BJAZ 13.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.4% 0.0% 0.0% 12.7%

ALINMA 24.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 24.8%

KSA 15.3% 0.0% 0.0% 0.3% 0.1% 0.9% 0.4% 0.0% 0.0% 15.7%

AUB 11.3% 0.5% 0.0% 2.7% 1.3% 1.7% 0.6% 0.0% 0.0% 10.5%

Bahrain 11.3% 0.5% 0.0% 2.7% 1.3% 1.7% 0.6% 0.0% 0.0% 10.5%

Intangibles CET1Allowed

minorities

(Dividends)Tier-1 (Basel 3) (Preference

shares)

(Subordinated

debt)

(Associates) Associates already

deducted

Current year

earnings

September 12 2012

Banks


QNB to acquire NSGB: attractive financial impact

QNB has recently expressed an interest in NSGB. The discussions between SocGen and QNB are preliminary and there can be no certainty as to whether an agreement will be reached, and the potential deal is currently subject to due diligence. NSGB had previously denied that SocGen would be willing to sell, but SocGen never ruled out a sale. We assign a probability of a deal at well above 50%. We expect an attractive ROI of 12% & QNB's EPS would increase 6.3%, with a manageable negative impact on CET1 of -5.9% & Tier-1 of -6.2% if executed at 31.8 (price as of takeover news) which valued NSGB at a P/E 13e of 8.2x and P/tNAV 1.7x leaving QNB’s CET1 at a still solid 16.5%. This would imply that QNB is to buy listed shares (23%), given Egyptian take-over regulation (enforced by EFSA), and hence minority shareholders could reap additional benefits. QNB might even pay at yesterday’s closing price of EGP 39.9x, which has surged 26% since takeover news. We believe this should be considered an extremely full price (P/E 13e of 11.2 and P/tNAV12e of 2.13x vs. RoTE of 20%). QNB has shown to have a very disciplined approach on M&A opportunities, it has previously shied away from acquiring Denizbank and we believe this could be the ceiling QNB could be willing to pay. We do, however, add a 10% take-over/control premium to our old TP. We expect the deal should unlock value for QNB, as the market does not value QNB's surplus capital base. The news also supports our very positive view on Egypt. With QNB’s potential acquisition, QNB acquires a strong foothold in Egypt, the most

promising market for the next few decades in financial services in the MENA region. QNB can

increase NSGB’s growth by allocating more capital or reducing dividends, as SocGen was

constrained by its capital position. The sale of NSGB should bolster the capital ratios of SocGen

and reduce its capital deficit. SocGen is also in the process of selling its Greek subsidiary, as is

Credit Agricole.

Exhibit 12: M&A scenario


at 31.8 at 39.9

QNB Acquisition of NSGB FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e

EPS: old (QAR) 12.01 13.72 15.47 12.01 13.72 15.47

EPS: new (QAR) 12.78 14.59 16.58 12.62 14.43 16.42

Change 6.4% 6.3% 7.2% 5.1% 5.2% 6.1%

Return on investment (earnings/price paid)11.2% 12.1% 14.0% 8.9% 9.6% 11.2%

Tier-1 ratio: old 21.9% 22.2% 21.7% 21.9% 22.2% 21.7%

Tier-1 ratio: new 16.1% 16.8% 16.8% 15.0% 15.9% 16.1%

Net impact on T1 from the acquisition(5.9%) (5.4%) (4.8%) (6.9%) (6.2%) (5.6%)

CET1 ratio: old 21.4% 21.5% 21.4% 21.4% 21.5% 21.4%

CET1 ratio: new 15.8% 16.5% 16.8% 14.8% 15.6% 16.0%

Net impact on CET1 from the acquisition(5.6%) (5.0%) (4.6%) (6.6%) (5.9%) (5.3%)

tNAV: old 59.85 68.23 77.14 59.85 68.23 77.14

tNAV: new 55.42 64.61 74.51 52.68 61.85 71.75

Net impact on tNAV (7.4%) (5.3%) (3.4%) (12.0%) (9.3%) (7.0%)

September 12 2012

Banks


KSA Banks: positive stance

We are generally positive on KSA with an average upside of 27%. The sector is trading at a

P/E13e of 10.8x and a P/tNAV12e of 1.6x. The sector has decent returns, with a ROTE12e of

13.3%, in addition to ample capital and liquidity.

We generally revised our lending assumptions upwards slightly, following very strong

sector growth in H1 12A coming in at 10.0% y-t-d and 15.6% y/y, mainly driven by an

increase in private sector lending.

We see a significant amount of margin contraction in the sector as competition increases in

the retail space primarily. Al Rajhi is the most affected, while other banks, like Albilad and

Samba, are able to offset the margin compression by significantly increased net lending

(increasing the loan/deposit ratio).

We prefer to play the sector through SHB, which continues to trade at very attractive

multiples while performing very well this year. We continue to believe that a new potential

core shareholder would be a positive catalyst. Moreover, we remove RJHI from our core

portfolio, and include Samba as the latter’s NIM compression seems to have abated and

the bank is re-leveraging, putting it in a good position to grow further. We choose to

continue to avoid BJAZ as earnings have continued to disappoint and we expect a dilutive

capital hike.

Exhibit 13: KSA valuation summary


We revise our EPS estimates for KSA banks following the Q2 results. We increase our FY 12e

EPS estimates for ARNB, RJHI, ALBI, BJAZ, and Alinma; while we cut our estimates for BSFR

and RIBL.

We maintain our recommendations for all banks except Albilad, which we upgrade from

Hold to Buy, and we have increased our EPS estimates reflecting the stronger fee

generation and higher loan growth.

Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG

USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e

ANB BUY 6,403 SAR 24,012 28.1 38.5 37.0 10.1 8.7 7.3 10.0 18.6 0.5 1.3 1.2 1.1 12.8 13.6 14.8 3.9 4.4 5.0 8.0 7.0 6.0

Al Rajhi BUY 29,399 SAR 110,250 73.8 94.9 28.6 13.0 11.5 10.4 13.4 13.1 0.9 3.1 2.8 2.5 23.1 23.8 23.8 4.4 4.8 5.2 11.2 9.9 8.9

BSFR HOLD 7,666 SAR 28,748 31.9 37.1 16.1 9.6 8.9 8.4 9.8 7.3 1.2 1.2 1.1 1.0 13.3 12.3 11.7 2.2 2.5 2.8 8.4 7.6 7.1

Riyad BUY 9,280 SAR 34,800 23.2 32.4 39.8 10.1 9.5 8.3 11.6 13.2 0.7 1.1 1.1 1.0 10.9 11.1 12.0 5.8 6.3 6.7 8.4 7.9 7.0

Samba BUY 11,304 SAR 42,390 46.8 64.7 38.2 9.4 8.6 7.8 10.8 13.4 0.6 1.4 1.2 1.1 14.7 14.5 14.6 3.7 4.1 4.5 8.6 7.8 7.0

SABB HOLD 8,506 SAR 31,899 31.7 37.0 16.8 12.6 8.2 7.6 8.9 13.4 0.6 1.4 1.3 1.2 14.5 13.5 13.6 2.1 2.2 2.4 8.9 7.8 7.0

SHB BUY 2,858 SAR 10,716 26.9 37.3 38.5 9.4 8.9 7.9 10.9 11.2 0.8 1.2 1.1 1.0 13.7 12.7 13.2 3.7 4.1 4.5 8.0 7.2 6.4

Albilad BUY 2,376 SAR 8,910 29.5 36.0 21.9 9.0 11.3 9.8 12.0 2.7 4.2 2.0 1.7 1.5 24.5 16.0 15.8 -- 0.8 0.8 10.4 9.3 8.3

Aljazeera SELL 2,232 SAR 8,370 27.5 22.8 (17.3) 17.1 14.2 12.1 10.0 22.1 0.6 1.5 1.4 1.3 9.6 10.0 10.9 2.0 2.0 2.2 13.3 11.2 9.4

SIB BUY 2,398 SAR 8,993 16.3 19.6 20.6 11.5 9.7 8.4 10.2 18.2 0.5 1.0 0.9 0.9 8.6 9.6 10.3 3.4 3.7 4.0 8.4 8.1 7.3

Alinma HOLD 5,520 SAR 20,700 13.7 15.4 12.7 31.7 20.4 14.6 16.4 44.3 0.5 1.2 1.2 1.1 3.8 5.6 7.3 -- -- 2.9 24.9 16.6 12.0

KSA banks 87,940 329,788 27.2 12.0 10.8 9.6 13.7 1.6 1.5 1.3 13.3 13.5 13.9 2.6 2.8 3.0 9.8 8.7 7.7

P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)

September 12 2012

Banks


Exhibit 14: KSA Banks EPS and TP changes


The KSA banking sector growth exceeded our forecasts. All 11 KSA banks exhibited

continued growth with aggregate net profit growing 3.7% q/q and 10.9% y/y, slightly ahead

of our estimates (1.7% above). SHB, ANB, Samba and SIBC exceeded our forecasts, while

BJAZ, RJHI, SABB and BSFR came in below our forecasts. RJHI came in slightly below our

estimates (3.6%) due to lower than expected NII, though ahead of consensus, while SHB

surprised positively (13.6% ahead). ANB and SAMBA, both buys, came in above our

estimates, while RIBL was in line. Our core sell, BJAZ, came in at 11.7% below estimates.

Loans and deposits increased 4.3% q/q, more or less in line with our estimates. However,

lending growth outpaced deposits over the past year; 15.6% vs. 10.7% respectively, taking

the sector L/D ratio from 79% to 82%, reducing some of the excess liquidity and improving

the NIM outlook. On the other hand, Alinma’s growth in deposits was very impressive and

it has addressed part of its weak liquidity profile.

Exhibit 15: Earnings Summary


Previous New ∆ Old New ∆ Old New ∆ Old New ∆

ARNB 39.04 38.50 (1.4%) 2.78 2.79 0.3% 3.31 3.24 (2.3%) 3.84 3.84 0.0% No significant changes

RJHI 100.49 94.85 (5.6%) 5.65 5.69 0.7% 6.52 6.43 (1.4%) 7.39 7.09 (4.0%) Lower margins on new retail book

BSFR 40.89 37.05 (9.4%) 3.43 3.32 (3.1%) 3.60 3.60 (0.0%) 3.79 3.78 (0.3%) Lower NII and fee generation, coupled with higher cost of equity

RIBL 33.09 32.43 (2.0%) 2.30 2.29 (0.2%) 2.49 2.45 (1.5%) 2.82 2.79 (0.9%) No significant changes

SAMBA 65.63 64.67 (1.5%) 5.09 4.99 (2.0%) 5.51 5.42 (1.6%) 6.16 6.01 (2.5%) Conservative loan loss charges, higher than expected

SABB 37.08 37.02 (0.2%) 2.51 2.51 0.0% 3.85 3.85 0.0% 4.19 4.18 (0.3%) Higher operating profits offset by higher provisioning

AAAL 38.31 37.26 (2.7%) 2.93 2.88 (1.9%) 3.12 3.03 (3.0%) 3.46 3.42 (1.1%) No significant changes

ALBI 30.94 35.97 16.3% 2.91 3.28 12.7% 2.15 2.60 21.1% 2.52 3.00 19.2% Earnings beat on the back of higher fee generation and margins

BJAZ 22.12 22.75 2.9% 1.60 1.61 0.3% 1.89 1.94 2.4% 2.22 2.28 2.6% Negative earnings surprise as a result of higher costs and provisioning charges

SIBC 19.77 19.59 (0.9%) 1.54 1.41 (8.6%) 1.71 1.67 (2.2%) 1.95 1.93 (1.2%) Higher loan loss charges

ALINMA 15.44 15.44 (0.0%) 0.43 0.43 0.6% 0.67 0.67 0.2% 0.94 0.94 (0.1%) No significant changes

Key reasonsEPS FY12eTP EPS FY13e EPS FY14e

NII (mn) Rev (mn) NP (mn) Loans (bn) Deposits (bn) NII Rev NP Loans Deposits NII Rev NP Loans Deposits NII Rev NP Loans DepositsSHB 343.8 554.9 332.3 41.9 49.6 6.8 2.8 14.6 4.3 4.3 12.2 12.1 26.2 16.6 11.9 3.3 2.5 13.6 1.2 0.3

ANB 843.0 1,255.0 718.0 80.7 94.8 9.1 5.0 9.4 6.8 6.8 4.7 8.4 3.0 16.9 12.2 8.6 5.9 13.4 4.7 1.9

SAMBA 1,099.0 1,745.0 1,158.0 96.0 142.0 3.3 (2.8) 1.2 3.5 3.5 (3.0) 6.8 5.1 16.6 2.3 0.4 1.6 5.1 1.3 (0.4)

RJHI 2,344.0 3,427.0 2,093.0 158.0 186.0 0.7 (0.0) 4.1 4.1 4.1 2.9 12.3 13.6 23.6 11.8 (3.2) (1.0) (3.6) 1.5 (2.5)

SABB 827.0 1,378.0 915.0 94.7 117.6 6.7 11.6 7.1 3.8 3.8 6.2 2.2 7.4 15.0 16.7 1.7 3.5 5.3 0.0 0.1

ALINMA 346.0 484.0 179.0 30.0 26.0 4.7 37.2 10.9 8.8 8.8 22.1 57.5 74.6 24.8 63.8 1.5 12.8 1.5 0.0 10.7

SIBC 306.0 419.0 222.0 29.8 38.1 5.3 (8.6) 4.6 6.5 6.5 (5.1) (1.4) 5.7 (2.2) 3.9 5.4 3.1 13.4 3.9 0.2

RIBL 1,095.0 1,826.0 914.4 115.1 137.1 2.5 9.3 1.4 1.2 1.2 2.7 16.3 9.4 2.6 3.6 (1.7) 7.6 (1.0) (1.0) (4.3)

BSFR 844.0 1,283.0 757.0 101.0 109.0 5.3 5.1 (4.0) 3.6 3.6 7.0 10.3 (2.1) 18.5 9.3 (0.6) 1.8 (5.2) 1.3 (4.4)

ALBI 205.6 444.5 153.5 16.2 23.6 6.0 5.9 11.0 7.6 7.6 15.2 31.5 87.9 24.5 31.5 0.0 13.1 11.1 (1.8) (2.2)

BJAZ 241.0 409.0 129.0 27.2 37.3 10.2 (4.2) (9.8) 8.6 8.6 25.7 32.7 98.8 25.0 21.8 4.9 1.9 (11.7) 5.5 5.6

Sector 8,494.4 13,225.4 7,571.2 790.7 961.0 4.0 3.8 3.7 4.3 4.3 4.4 12.1 10.9 15.6 10.7 0.3 3.1 1.7 1.3 (1.1)

q/q (%) y/y (%)Results (SAR) vs AC est (%)

September 12 2012

Banks


Exhibit 16: Net Interest Income: Margin pressure offset by lending increase for most banks


Exhibit 17: Operating Income still strong on the back of strong brokerage activity


Exhibit 18: Lending growth highest for Islamic banks


Exhibit 19: Deposits growing in-line with loans


-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

ALI

NM

A

BJA

Z

ALB

I

RIBL

RJH

I

SHB

BSFR

AN

B

SAM

BA

SABB

SIBC

y/y q/q

-10%

-5%

0%

5%

10%

15%

ALB

I

ALI

NM

A

RIBL

AN

B

SABB

SHB

BJA

Z

BSFR

SAM

BA

RJH

I

SIBC

vs. AC est.

-5%

0%

5%

10%

15%

20%

25%

30%

35%

ALI

NM

A

ALB

I

RJH

I

BJA

Z

SHB

BSFR

SABB

SAM

BA

AN

B

RIBL

SIBC

y/y ytd q/q

-4%

-2%

0%

2%

4%

6%

8%

10%

AN

B

SIB

C

BJA

Z

SHB

SAB

B

ALI

NM

A

SAM

BA

ALB

I

BSF

R

RIB

L

RJH

I

vs. AC est.

-20%

0%

20%

40%

60%

80%

100%

120%

ALI

NM

A

ALB

I

BJA

Z

SHB

SABB

AN

B

RJH

I

BSFR

SAM

BA

SIBC

RIBL

y/y q/q

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

ALI

NM

A

BJA

Z

AN

B

SHB

SIBC

SABB

SAM

BA

ALB

I

RJH

I

RIBL

BSFR

vs. AC est.

September 12 2012

Banks


Exhibit 20: Net profit growth highest for the Islamic Banks and our top picks


Exhibit 21: SAMBA deviation table


Exhibit 22: RJHI deviation table


-20%

0%

20%

40%

60%

80%

100%

BJA

Z

ALB

I

ALI

NM

A

SHB

RJH

I

RIBL

SABB

SIBC

SAM

BA AN

B

BSFR

y/y q/q

-15%

-10%

-5%

0%

5%

10%

15%

SHB

AN

B

SIBC

ALB

I

SAM

BA

ALI

NM

A

RIBL

RJH

I

BSFR

SABB

BJA

Z

vs. AC est.

Reported AC est

SARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y

NII 1,099.0 1,095.1 0.4 1,064.1 3.3 1,133.4 (3.0)

Total Revenues 1,745.0 1,716.9 1.6 1,796.2 (2.8) 1,634.5 6.8

Operating Costs 526.0 497.5 (5.4) 514.0 2.3 521.3 0.9

Pre-provision operating income 1,219.0 1,219.4 0.0 1,282.2 (4.9) 1,113.2 9.5

Loan Loss Provisions 60.9 98.1 61.2 137.5 (55.8) 11.0 451.1

Net Profit 1,158.0 1,101.9 5.1 1,144.5 1.2 1,102.2 5.1

Cost to Income 30% 29% 29% 32%

Net Interest Margin 4.66% 4.62% 4.70% 5.54%

Annualised charge % loans 0.25% 0.41% 0.59% 0.05%

Loan to Deposit 68% 66% 66% 59%

Net Loans 96.0 94.7 1.3 92.8 3.5 82.4

Deposits 142.0 142.6 (0.4) 139.9 1.5 138.8

Annualized ROE 15.9%

Annualized ROA 2.3%

EPS 1.29 1.22

Reported AC est


NII 2,344.0 2,421.3 (3.2) 2,327.7 0.7 2,278.4 2.9

Total Revenues 3,427.0 3,462.8 (1.0) 3,427.4 (0.0) 3,050.6 12.3

Operating Costs 955.9 987.4 3.3 949.4 0.7 860.7 11.1

Pre-provision operating income 2,471.1 2,475.4 0.2 2,478.1 (0.3) 2,189.8 12.8

Loan Loss Provisions 378.3 303.7 (19.7) 466.7 (18.9) 346.8 9.1

Net Profit 2,093.0 2,171.7 (3.6) 2,011.3 4.1 1,843.1 13.6





Net Loans 158.0 155.7 1.5 151.8 4.1 127.8

Deposits 186.0 190.7 (2.5) 186.1 (0.1) 166.4

Annualized ROE 6.2%

Annualized ROA 6.2%

EPS 1.40 1.45

September 12 2012

Banks


Exhibit 23: SABB deviation table


Exhibit 24: ALINMA deviation table


Exhibit 25: RIBL deviation table


Exhibit 26: ALBI deviation table


Exhibit 27: SHB deviation table


Exhibit 28: ANB deviation table


Reported AC est


NII 827.0 812.8 1.7 775.0 6.7 778.9 6.2

Total Revenues 1,378.0 1,331.0 3.5 1,235.0 11.6 1,347.8 2.2

Operating Costs 390.3 408.4 4.6 385.0 1.4 405.5 (3.8)

Pre-provision operating income 987.7 922.6 (6.6) 850.1 16.2 942.3 4.8

Loan Loss Provisions 115.1 74.4 (35.3) 36.6 214.3 126.1 (8.7)

Net Profit 915.0 869.0 (5.3) 854.2 7.1 851.6 7.4





Net Loans 94.7 94.7 -- 91.2 3.8 82.4

Deposits 117.6 117.5 0.1 111.6 5.4 100.8


Annualized ROA 2.5%

EPS 0.92 0.87

Reported AC est


NII 346.0 341.0 1.5 330.4 4.7 283.4 22.1

Total Revenues 484.0 428.9 12.8 352.9 37.2 307.2 57.5

Operating Costs 227.8 233.9 2.7 225.7 0.9 199.7 14.1


Loan Loss Provisions 67.4 18.7 (72.3) 16.9 299.5 5.0 1,238.9

Net Profit 179.0 176.3 1.5 161.4 10.9 102.5 74.6




Loan to Deposit 116% 128% 129% 152%

Net Loans 30.0 30.0 -- 27.6 8.8 24.1

Deposits 26.0 23.5 10.7 21.3 21.7 15.9

Annualized ROE 4.4%

Annualized ROA 2.4%

EPS 0.12 0.12

Reported AC est


NII 1,095.0 1,113.9 (1.7) 1,068.5 2.5 1,066.6 2.7

Total Revenues 1,826.0 1,696.3 7.6 1,671.1 9.3 1,569.7 16.3

Operating Costs 615.5 651.0 5.8 616.7 (0.2) 646.2 (4.8)

Pre-provision operating income 1,210.5 1,045.3 (13.6) 1,054.3 14.8 923.4 31.1

Loan Loss Provisions 386.6 120.5 (68.8) 152.9 152.9 87.4 342.0

Net Profit 914.4 924.1 (1.0) 901.5 1.4 836.0 9.4





Net Loans 115.1 116.3 (1.0) 113.7 1.2 112.1

Deposits 137.1 143.2 (4.3) 139.5 (1.8) 132.3


Annualized ROA 2.0%

EPS 0.61 0.62

Reported AC est


NII 205.6 205.5 -- 193.9 6.0 178.5 15.2

Total Revenues 444.5 393.1 13.1 419.8 5.9 338.0 31.5

Operating Costs 233.2 213.0 (8.7) 215.7 8.1 206.0 13.2


Loan Loss Provisions 57.8 41.9 (27.5) 65.7 (12.0) 50.3 15.1

Net Profit 153.5 138.1 11.0 138.3 11.0 81.7 87.9





Net Loans 16.2 16.5 (1.8) 15.1 7.6 13.0

Deposits 23.6 24.1 (2.2) 22.9 3.1 18.0


Annualized ROA 2.1%

EPS 0.51 0.46

Reported AC est

SAR Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y

NII (mn) 343.8 332.8 3.3 322.0 6.8 306.5 12.2

Rev (mn) 554.9 541.4 2.5 539.9 2.8 495.2 12.1

NP (mn) 332.3 292.6 13.6 290.1 14.6 263.3 26.2


Loans to deposits 84% 84% 84% 81%

Net Loans (bn) 41.9 41.4 1.2 40.2 4.3 35.9 16.6

Deposits (bn) 49.6 49.4 0.3 47.8 3.9 44.3 11.9

EPS 0.84 0.74

Reported AC est


NII (mn) 843.0 776.3 8.6 772.7 9.1 805.3 4.7

Rev (mn) 1,255.0 1,185.3 5.9 1,195.7 5.0 1,158.2 8.4

NP (mn) 718.0 633.3 13.4 656.1 9.4 696.9 3.0



Net Loans (bn) 80.7 77.1 4.7 75.6 6.8 69.1 16.9

Deposits (bn) 94.8 93.1 1.9 90.7 4.5 84.5 12.2

EPS 0.84 0.74

September 12 2012

Banks


Exhibit 29: SIB deviation table


Exhibit 30: ALBI deviation table


Exhibit 31: BJAZ deviation table


Reported AC est


NII (mn) 306.0 290.2 5.3 290.7 5.3 322.4 (5.1)

Rev (mn) 419.0 406.4 (8.6) 458.6 (8.6) 424.8 (1.4)

NP (mn) 222.0 195.8 13.0 212.2 4.6 210.0 5.7



Net Loans (bn) 29.8 28.7 3.9 28.0 6.5 30.5 (2.2)

Deposits (bn) 38.1 38.0 0.2 36.9 3.1 36.6 3.9

EPS 0.40 0.36

Reported AC est


NII (mn) 844.0 849.1 (0.6) 801.8 5.3 788.7 7.0

Rev (mn) 1,283.0 1,260.1 1.8 1,220.2 5.1 1,162.7 10.3

NP (mn) 757.0 798.3 (5.1) 788.9 (4.0) 773.4 (2.1)



Net Loans (bn) 101.0 99.7 1.3 97.5 3.6 85.2 18.5

Deposits (bn) 109.0 114.1 (4.4) 112.6 (3.2) 99.7 9.3

EPS 0.84 0.88

Reported AC est


NII (mn) 241.0 229.8 4.9 218.6 10.2 191.7 25.7

Rev (mn) 409.0 401.4 1.9 427.1 (4.2) 308.3 32.7

NP (mn) 129.0 146.2 (11.7) 143.0 (9.8) 64.9 98.8



Net Loans (bn) 27.2 25.8 5.5 25.1 8.6 21.8 25.0

Deposits (bn) 37.3 35.3 5.6 34.6 7.7 30.6 21.8

EPS 0.43 0.49

September 12 2012

Banks


UAE Banks: Be selective

We are positive on UAE despite a 4.4% YTD rally, as we still observe very

compelling valuations (P/E13e of 7.5x, P/tNAV13e of 0.9x, and P/PPP13e of 4.1x

and an average dividend yield of 5.6%). We see an average upside potential of

27.8% in the UAE banks under coverage.

In the UAE, we play FGB, UNB and CBD and we keep them in our core portfolio on

the back of attractive valuation, more than adequate capital positions and

attractive earnings outlook; Tamweel is our preferred play in Islamic banks.

Exhibit 32: UAE valuation summary


We revise our EPS estimates for the UAE banks after Q2 12 results. ADCB, MASQ and Rakbank delivered impressive earnings on the back of improved margins driven by better asset yields, improved cost of funding, and lending growth; while CBD and UNB came in line with our expectations.

We increased our TP estimate for ADCB from AED 3.0 to AED 3.7 and its EPS on the back of impressive margins driven by improved asset yield accompanied with enhanced cost efficiency.

MASQ beats estimates on the back of improved margins driven by better cost of funding management and lower provisioning; we upgrade to stock from core sell to hold and increase its TP from AED 57.0 to AED 62.4 and EPS by an average of 10.1% for the period FY12-14e, helped by wider NIMs.

We are positive on Rakbank which has reported positive net profit as its net interest income has been less affected by retail regulation; very attractive stock but remains vulnerable for future regulatory changes.

We decrease our EPS estimates for ADIB in FY 14e driven by the banks plans to rebuild Tier 1 to over than 15% from its 13.4% level which in turn will lead to lower loan growth potential.

We maintain our recommendations for all the banks except for MASQ, which we upgrade

from core sell to hold.



ADCB HOLD 5,134 AED 18,857 3.4 3.7 9.3 7.0 6.7 6.2 6.7 11.7 0.6 0.9 0.9 0.8 12.0 12.0 12.1 4.5 4.7 5.2 3.8 3.6 3.4

ADIB SELL 2,105 AED 7,733 3.3 2.9 (12.6) 6.9 7.1 6.4 5.6 9.7 0.7 1.1 1.0 1.0 15.0 13.6 14.0 5.2 5.2 5.6 3.9 3.9 3.8

CBD BUY 1,609 AED 5,911 2.9 4.2 45.3 7.6 7.1 6.1 8.8 15.0 0.5 0.8 0.8 0.7 16.2 16.5 18.2 7.3 7.7 8.3 4.4 4.1 3.9

DIB SELL 2,016 AED 7,404 2.0 1.8 (10.3) 8.7 8.0 6.6 6.0 21.7 0.4 0.8 0.7 0.7 9.2 9.5 10.8 6.5 6.0 5.9 3.5 3.1 3.1

ENBD HOLD 4,660 AED 17,118 3.0 3.4 11.2 9.0 9.4 7.6 8.4 38.4 0.2 0.7 0.6 0.6 6.4 5.8 7.2 4.8 4.5 4.7 2.6 2.7 2.5

FGB BUY 8,078 AED 29,670 9.8 13.9 41.2 7.4 6.7 6.0 8.4 13.6 0.5 1.2 1.1 1.0 15.5 15.7 16.4 7.6 8.5 9.6 5.3 5.0 4.6

NBAD BUY 9,325 AED 34,251 8.8 13.2 49.9 8.1 6.5 5.7 8.5 19.6 0.3 1.3 1.2 1.0 16.6 18.2 18.2 2.9 3.4 4.0 6.0 4.9 4.4

UNB BUY 2,133 AED 7,836 3.2 4.7 49.7 5.6 5.4 4.9 7.3 14.0 0.4 0.7 0.6 0.6 11.4 11.0 11.6 6.5 8.4 8.3 3.4 3.4 3.2

Tamweel BUY 362 AED 1,330 1.3 1.7 31.8 15.5 12.5 12.2 16.1 12.6 1.0 0.5 0.5 0.5 3.6 4.4 4.4 3.9 3.9 4.7 7.9 6.5 5.8

Mashreq HOLD 2,424 AED 8,902 52.7 62.4 18.6 10.1 8.9 7.8 9.2 23.3 0.4 0.7 0.6 0.6 6.9 7.4 8.1 4.3 4.1 4.0 4.6 4.3 4.0

Rakbank BUY 1,730 AED 6,354 1.5 6.4 333.6 1.9 1.9 2.0 8.5 2.3 0.8 0.4 0.4 0.3 23.7 20.4 17.9 24.1 23.7 23.0 1.4 1.4 1.5

UAE banks 39,578 145,367 42.0 8.3 7.5 6.6 10.7 1.0 0.9 0.8 11.8 12.0 12.6 5.2 5.6 6.0 4.3 4.1 3.8


September 12 2012

Banks


Exhibit 33: UAE Banks EPS and TP changes


The UAE banking sector have reported a decent net profit of AED 5,462mn, up by 2.3% q/q but down by -8.2% y/y. The main contributor for the q/q growth was DIB and FGB by 27.7% and 8.8% respectively.

Total revenues have increased by 1.6% q/q and 4.0% y/y mainly driven by ADCB and FGB’s growth of 11.7% and 6.3% q/q and 24.4% and 11.6% y/y respectively. The catalyst behind the aggregate revenue growth is the growth in NII of 2.5% q/q and 6.2% y/y.

Lending growth have surpassed that of deposits and the aggregate L/D stood at 99.9% in Q2 12A up from 94.8% in Q1 12A and 94.5% in Q2 11A. ADIB and FGB have gained lending market share from ADCB, NBAD and UNB. However, NBAD was the main contributor for the drop in deposits growth as the bank have lost more than expected government deposits which have temporarily parked with the bank in Q1 12A.

Margins results have come in mixed as NBAD has witnessed a margin compression on the back of government deposits while ADCB, DIB and MASQ have experienced margin improvements.

The provisioning cycle have narrowed down in the UAE banking sector as a whole as the LLP has dropped by -0.3% q/q and -18.4% y/y driven by some normalization in the cost of risk.

Efficiency have came in flat as C/I ratio stood at 33.8% with some improvement in DIB, MASQ and FGB but higher C/I for NBAD driven by the bank’s strategic domestic and international expansion.

Exhibit 34: UAE Results Summary



ADCB 2.98 3.69 23.7% 0.37 0.48 29.3% 0.44 0.51 14.4% 0.50 0.55 10.9% Impressive margins on the back of improved asset yields

ADIB 2.71 2.87 5.7% 0.42 0.47 13.1% 0.46 0.46 0.1% 0.52 0.51 (2.4%) Plans to build up capital implying lower loan growth

CBD 4.18 4.21 0.7% 0.39 0.38 (1.4%) 0.41 0.41 (1.0%) 0.48 0.48 (0.1%) No major surprises

DIB 1.76 1.75 (0.5%) 0.23 0.23 (1.8%) 0.25 0.24 (2.5%) 0.30 0.29 (3.2%) No significant changes

ENBD 3.21 3.37 4.9% 0.29 0.34 16.3% 0.32 0.32 (0.3%) 0.39 0.40 2.2% Higher capital gain and lower than expected provisioning

FGB 13.44 13.89 3.4% 1.30 1.32 1.5% 1.48 1.47 (0.7%) 1.67 1.65 (0.9%) No significant changes

NBAD 13.03 13.24 1.6% 1.05 1.09 3.2% 1.30 1.35 4.2% 1.51 1.56 2.8% Lower than expected provisioning

UNB 4.57 4.72 3.2% 0.55 0.56 1.7% 0.58 0.58 (0.8%) 0.63 0.64 1.4% No significant changes

TAMWEEL 1.67 1.67 0.2% 0.09 0.08 (3.9%) 0.10 0.10 1.1% 0.09 0.10 18.5% Dissapointing net interest income and F&Cs

MASQ 56.97 62.45 9.6% 4.61 5.21 13.1% 5.46 5.89 7.9% 6.21 6.78 9.1% Beat expectations on the back of improved cost of funding and lower provisioning

RAKBANK 6.08 6.37 4.8% 0.67 0.79 18.1% 0.70 0.77 11.1% 0.75 0.75 0.5% New retail regulation biting less hard than expected


NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits

ADCB UH 1,383 1,769 1,232 492 733 123,463 111,247 15.7 11.7 14.3 71.6 (8.6) (0.3) (2.8) 33.6 24.4 43.0 (47.4) (45.1) 5.1 4.6 14.6 14.0 21.5 (5.9) 39.8 (2.2) (3.3)

ADIB UH 724 887 509 187 323 53,508 60,546 0.2 1.8 3.2 0.3 5.0 7.8 5.2 0.2 (2.4) (7.6) (26.8) 2.3 11.2 13.8 1.7 3.4 3.7 (19.3) 21.6 8.0 3.1

CBD UH 341 470 331 105 226 27,918 29,074 3.3 0.7 (0.3) 18.1 (7.0) 1.3 2.6 0.7 (0.3) 0.7 54.2 (13.3) 6.9 3.3 5.3 1.2 1.8 1.9 1.7 0.3 (0.4)

DIB UH 659 923 566 241 323 53,237 68,289 0.9 2.2 5.0 (19.3) 27.7 1.3 0.2 4.8 2.1 5.0 14.5 (5.8) (4.2) (12.1) 1.1 (7.1) (7.3) (34.4) 27.6 1.5 (1.8)

Emirates UH 1,639 2,499 1,586 955 647 208,154 208,417 (7.7) (7.0) (8.0) (13.3) 1.0 2.0 (0.1) (5.3) (2.9) (8.1) (2.7) (13.0) 17.7 3.9 (6.4) 7.4 5.0 (13.9) 61.3 4.7 2.0

FGB UH 1,350 1,778 1,436 414 1,017 110,949 104,774 4.1 6.3 6.5 0.3 8.8 6.1 1.0 10.7 11.6 10.3 0.7 14.2 12.5 4.4 1.9 4.2 6.3 8.2 5.1 0.9 (2.9)

MASQ UH 468 958 508 177 325 39,611 43,677 6.4 2.2 5.6 0.6 8.3 6.6 (1.7) (2.0) (10.4) (16.8) (43.4) 10.3 4.0 (15.9) 5.3 4.4 8.9 (34.0) 67.6 4.4 (3.6)

NBAD UH 1,526 2,071 1,366 292 1,046 162,801 160,452 4.5 2.0 (1.3) (6.7) 0.6 (0.3) (14.5) 3.4 3.2 (1.4) (11.9) 2.0 6.4 9.0 (0.2) (1.5) (3.1) (19.3) 2.8 (5.0) (12.8)

UNB UH 625 780 586 120 460 57,302 60,004 1.2 (0.2) (1.8) 3.1 (3.2) (1.4) (5.3) 5.0 3.5 2.2 (20.5) 9.7 1.9 2.6 1.6 3.6 4.6 (43.0) 33.1 (4.3) (9.0)

Tamweel UH 48 56 32 14 19 9,399 0 (15.7) (24.9) (34.0) (55.8) 2.7 1.1 na (19.8) (16.6) (22.2) 0.0 (33.0) 28.5 na (23.4) (24.6) (33.2) (40.8) (26.3) (0.9) na

Rakbank UH 550 716 398 54 343 19,551 20,277 2.2 3.3 3.1 (10.5) 5.6 3.6 9.1 12.7 11.5 8.7 (22.3) 16.0 11.6 19.0 8.5 8.4 10.0 (41.9) 28.1 2.5 5.9

Sector 9,314 12,906 8,549 3,049 5,462 865,893 866,757 2.5 1.6 1.7 (0.7) 2.3 2.0 (3.1) 6.2 4.0 3.2 (18.4) (8.2) 8.9 3.1 2.0 4.0 4.9 (16.9) 21.8 0.4 (3.6)

vs AC est (%)Results (AED mn) q/q (%) y/y (%)

September 12 2012

Banks


Exhibit 35: Net interest income the main catalyst for profitability growth


Exhibit 36: Operating Income still strong on interest income growth


Exhibit 37: FGB increasing lending market share


Exhibit 38: Deposits growing less than loans


-30%

-20%

-10%

0%

10%

20%

30%

40%

AD

CB

MA

SQ

NB

AD

FGB

CB

D

Rak

ban

k

UN

B

DIB

AD

IB

EN

BD

Ta

mw

ee

l

q/q y/y

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

vs AC est

-30%

-20%

-10%

0%

10%

20%

30%

AD

CB

FG

B

Ra

kb

an

k

DIB

MA

SQ

NB

AD

AD

IB

CB

D

UN

B

EN

BD

Ta

mw

ee

l

q/q y/y

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

AD

CB

Ra

kb

an

k

EN

BD

MA

SQ

FG

B

UN

B

AD

IB

CB

D

NB

AD

DIB

Ta

mw

ee

l

vs AC est

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

AD

IB

MA

SQ

FG

B

Ra

kb

an

k

EN

BD

DIB

CB

D

Ta

mw

ee

l

NB

AD

AD

CB

UN

B

q/q y/y

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

AD

CB

Ra

kb

an

k

EN

BD

MA

SQ

FG

B

UN

B

AD

IB

CB

D

NB

AD

DIB

Ta

mw

ee

l

vs AC est

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Rak

ban

k

AD

IB

CB

D

FGB

DIB

ENB

D

MA

SQ

AD

CB

UN

B

NB

AD

q/q y/y

-15%

-10%

-5%

0%

5%

10%

Ra

kb

an

k

AD

IB

EN

BD

CB

D

DIB

FG

B

AD

CB

MA

SQ

UN

B

NB

AD

vs AC est

September 12 2012

Banks


Exhibit 39: Net profit growth highest for DIB & FGB


Exhibit 40: ADCB deviation table


Exhibit 41: ADIB deviation table


-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

DIB

FGB

MA

SQ

Rak

ban

k

AD

IB

Tam

we

el

ENB

D

NB

AD

UN

B

CB

D

AD

CB

q/q y/y

-50%

0%

50%

100%

150%

200%

MA

SQ

ENB

D

AD

CB

UN

B

Rak

ban

k

DIB

AD

IB

FGB

NB

AD

CB

D

Tam

we

el

vs AC est

Reported AC est

AED mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y

NII 1383 1207 15% 1195 16% 1036 34%

Total Revenues 1769 1552 14% 1584 12% 1422 24%

Operating cost 537 537 (0%) 506 6% 560 (4%)

Pre-provision operating income 1232 1015 21% 1078 14% 862 43%

Loan loss provision 492 537 (8%) 287 72% 935 (47%)

Net Profit 733 524 40% 802 (9%) 1335 (45%)




Loan to Deposit 111% 110% 108% 110%

Net Loans 123,463 126,284 123,866 117,430

Deposits 111,247 115,034 114,462 106,351


Annualized ROA 1.6%

EPS 0.13

Reported AC est


NII 724 712 2% 723 0% 723 0%

Total Revenues 887 857 3% 871 2% 908 (2%)

Operating cost 378 366 3% 377 0% 357 6%

Pre-provision operating income 509 491 4% 493 3% 551 (8%)


Net Profit 323 265 22% 307 5% 315 2%





Net Loans 53,508 49,542 49,615 48,128

Deposits 60,546 58,701 57,550 53,192


Annualized ROA 1.7%

EPS 0.14

September 12 2012

Banks


Exhibit 42: CBD deviation table


Exhibit 43: DIB deviation table


Exhibit 44: ENBD deviation table


Exhibit 45: FGB deviation table


Exhibit 46: MASQ deviation table


Exhibit 47: NBAD deviation table


Reported AC est


NII 341 324 5% 331 3% 339 1%

Total Revenues 470 464 1% 466 1% 471 (0%)

Operating cost 139 139 (0%) 135 3% 143 (3%)

Pre-provision operating income 331 325 2% 331 (0%) 328 1%

Loan loss provision 105 139 (25%) 89 18% 68 54%

Net Profit 226 222 2% 242 (7%) 260 (13%)





Net Loans 27,918 27,831 27,565 26,128

Deposits 29,074 29,193 28,343 28,153


Annualized ROA 2.3%

EPS 0.11

Reported AC est


NII 659 652 1% 653 1% 629 5%

Total Revenues 923 994 (7%) 903 2% 904 2%

Operating cost 357 383 (7%) 364 (2%) 365 (2%)

Pre-provision operating income 566 611 (7%) 539 5% 539 5%

Loan loss provision 241 383 (37%) 299 (19%) 210 15%

Net Profit 323 253 28% 253 28% 343 (6%)





Net Loans 53,237 52,435 52,532 55,571

Deposits 68,289 69,516 68,153 77,645


Annualized ROA 1.4%

EPS 0.09

Reported AC est


NII 1639 1752 (6%) 1777 (8%) 1731 (5%)

Total Revenues 2499 2326 7% 2686 (7%) 2574 (3%)

Operating cost 913 816 12% 963 (5%) 849 8%

Pre-provision operating income 1586 1510 5% 1723 (8%) 1725 (8%)

Loan loss provision 955 816 17% 1101 (13%) 981 (3%)

Net Profit 647 401 61% 641 1% 744 (13%)





Net Loans 208,154 198,794 204,130 176,882

Deposits 208,417 204,371 208,541 200,513

Annualized ROE 7.4%

Annualized ROA 0.9%

EPS 0.12

Reported AC est


NII 1350 1325 2% 1297 4% 1220 11%

Total Revenues 1778 1707 4% 1673 6% 1593 12%

Operating cost 343 357 (4%) 326 5% 292 18%


Loan loss provision 414 357 16% 413 0% 411 1%

Net Profit 1017 967 5% 935 9% 890 14%




Loan to Deposit 106% 102% 101% 98%

Net Loans 110,949 109,923 104,580 98,598

Deposits 104,774 107,930 103,779 100,394


Annualized ROA 2.5%

EPS 0.34

Reported AC est


NII 468 444 5% 440 6% 477 (2%)

Total Revenues 958 917 4% 937 2% 1069 (10%)

Operating cost 450 450 (0%) 456 (1%) 458 (2%)

Pre-provision operating income 508 467 9% 481 6% 611 (17%)


Net Profit 325 194 68% 300 8% 295 10%





Net Loans 39,611 37,930 37,159 38,095

Deposits 43,677 45,309 44,421 51,942


Annualized ROA 1.7%

EPS 1.92

Reported AC est


NII 1526 1529 (0%) 1460 5% 1475 3%

Total Revenues 2071 2102 (1%) 2030 2% 2007 3%

Operating cost 705 692 2% 645 9% 622 13%

Pre-provision operating income 1366 1410 (3%) 1384 (1%) 1385 (1%)

Loan loss provision 292 692 (58%) 313 (7%) 331 (12%)

Net Profit 1046 1017 3% 1041 1% 1026 2%




Loan to Deposit 101% 93% 87% 104%

Net Loans 162,801 171,336 163,225 152,957

Deposits 160,452 183,945 187,699 147,196


Annualized ROA 1.5%

EPS 0.27

September 12 2012

Banks


Exhibit 48: UNB deviation table


Exhibit 49: TAMWEEL deviation table


Exhibit 50: RAKBANK deviation table


Reported AC est


NII 625 616 2% 618 1% 595 5%

Total Revenues 780 752 4% 782 (0%) 753 4%

Operating cost 194 192 1% 185 5% 180 8%

Pre-provision operating income 586 560 5% 597 (2%) 573 2%


Net Profit 460 345 33% 475 (3%) 419 10%





Net Loans 57,302 59,851 58,091 56,244

Deposits 60,004 65,929 63,393 58,463


Annualized ROA 2.2%

EPS 0.18

Reported AC est


NII 48 63 (23%) 57 (16%) 60 (20%)

Total Revenues 56 74 (25%) 74 (25%) 67 (17%)

Operating cost 24 26 (9%) 26 (7%) 26 (8%)


Loan loss provision 14 26 (48%) 31 (56%) 14 --

Net Profit 19 25 (26%) 18 3% 28 (33%)




Loan to Deposit #DIV/0! #DIV/0! #DIV/0! #DIV/0!

Net Loans 9,399 9,488 9,299 7,317

Deposits - - - -

Annualized ROE 3.3%

Annualized ROA 0.7%

EPS 0.02

Reported AC est


NII 550 507 9% 538 2% 488 13%

Total Revenues 716 660 8% 693 3% 642 12%

Operating cost 318 299 6% 307 4% 276 15%


Loan loss provision 54 299 (82%) 60 (10%) 70 (22%)

Net Profit 343 268 28% 325 6% 296 16%




Loan to Deposit 96% 100% 102% 103%

Net Loans 19,551 19,067 18,877 17,516

Deposits 20,277 19,147 18,589 17,045


Annualized ROA 5.4%

EPS 0.23

September 12 2012

Banks


Qatar Banks: Play QNB

We are positive on Qatar with an average upside of 26%. Qatar banks are trading at a

P/E13e of 10.4x and P/tNAV12e of 1.7x which do not fully cater in the country solid returns

(high ROTE of 15.1% in FY 12e), ample liquidity, strong double digit loan growth, and

relatively exceptional Basel 3 capital position. We think the potential inclusion in MSCI

Emerging market indices should be a positive catalyst. We expect continued loan growth of c15% pa, of which 10% stemming from projects, while

the public sector should keep outpacing the corporate loan demand. We see continued pressure on margins across the Qatari sector due upward pressure on

deposit rates. We see no asset quality issues raised and expect pressure on cost efficiency

due to investments in expansionary plans. We still prefer to play growth through QNB only, which is the cheapest Qatari bank that still

does not have its excellent capital, strong growth and high return fully priced in. QNB

should outpace the sector at the expense of the other banks (especially CBQ and Doha)

Exhibit 51: Qatar valuation summary


We revise our EPS estimates for Qatari banks post mixed Q2 results. While QNB and QIB

generated much stronger loan growth than expected, capturing most of the growth in

Qatar, we were disappointed in the quality of earnings of CBQ, Doha, QIIB and Al Khaliji.

We decrease our EPS forecasts for the latter banks as substantial capital gains offsetting

NIM contraction and lack of core revenues, would not be sustainable for the long term. We

expect CBQ and Doha to lose market share as are both tightly capitalized under Basel III

and face capital shortfall by FY 13e. We also decreased our EPS forecasts for MARK mainly

due continued pressure on NIM, lower provisioning and non-recurring items in other

income.

We increase QNB EPS by 1% for FY 12e as higher loan growth was partly offset by pressure

on asset yield and slower growth in F&C, and increase QIB EPS by a substantial 31% for FY

12e mainly after removing the provisioning previously triggered on Arcapita exposure

which was swapped with Land collateral before the insolvency.

We reiterate our recommendations for all the banks except for QIIB, which we downgrade

from Buy to Hold, as the bank is severely impacted by lower net interest margins and an

anticipated improvement in net interest margins in Q2 12 failed to materialize.

Company Rating Mkt. Cap. Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG


CBQ HOLD 4,893 18,163 72.0 80.1 11.2 9.2 8.9 8.1 9.0 7.8 1.1 1.2 1.2 1.1 13.1 13.1 13.8 8.3 8.3 6.0 9.3 8.5 7.8

Doha HOLD 3,190 11,616 56.0 61.7 10.1 9.9 10.2 9.4 10.3 3.1 3.3 1.5 1.5 1.4 16.0 14.0 15.0 8.9 8.9 5.2 8.3 8.5 7.7

QIB HOLD 5,062 18,431 78.0 85.7 9.9 12.5 10.8 10.1 11.1 8.9 1.2 1.6 1.6 1.5 12.8 14.2 14.4 5.1 6.9 7.3 10.1 9.0 8.2

QNB BUY 25,714 93,624 133.8 193.0 44.2 10.9 9.5 8.4 12.2 13.5 0.7 2.0 1.7 1.5 18.8 18.9 18.8 3.6 4.1 4.6 9.6 8.5 7.5

MARK HOLD 5,582 20,325 27.1 27.8 2.6 14.5 13.2 11.2 11.5 15.7 0.8 2.1 2.0 1.8 15.2 15.2 16.5 3.7 3.7 3.7 13.4 11.1 9.4

Khaliji SELL 1,732 6,307 17.5 13.9 (20.6) 13.2 16.5 14.5 11.5 2.8 6.0 1.2 1.2 1.2 9.0 7.1 8.1 5.7 5.7 5.7 11.9 13.1 10.8

QIIB HOLD 2,129 7,750 51.2 53.2 3.8 11.8 11.8 11.4 11.8 5.6 2.1 1.5 1.5 1.5 12.9 12.7 13.0 7.3 7.7 7.9 10.7 10.7 9.7

Qatar banks 48,303 176,216 26.1 11.4 10.4 9.3 13.1 1.7 1.6 1.5 15.1 15.4 15.8 5.0 5.4 5.5 9.9 8.9 7.9


September 12 2012

Banks


Exhibit 52: Qatar Banks EPS and TP changes

Source: Company Data, Arqaam Capital

Qatar banks Q2 earnings results came in 12% ahead of our estimates (+3% q/q, +9% y/y).

The highest beat was from QIB due to much lower LLP (we accounted for Arcapita). Doha,

CBQ and Al Khaliji reported poor quality of earnings (unsustainable capital gains) while QIIB

and MARK were a bit disappointing on NIM (which can be lumpy for Islamic banks). QNB

reported the highest quality of earnings although earnings were 1% short.

Qatar Loan growth slow downed in June (+2.1% M/M vs. 5% in May and 13.8% Ytd). QNB

and QIB captured most of the growth leaving a much smaller share for the other banks. We

saw NIM contraction by an average 28bps from a year ago due to pressure on asset yield

and funding costs. Cost efficiency weakened across the sector with C/I up to 24% vs. 22%

last year, except for some improvement in QIIB and Al Khaliji.

Exhibit 53: Earnings Summary



CBQK 82.1 80.1 (2.5%) 7.55 7.85 3.9% 8.05 8.06 0.2% 8.94 8.85 (1.0%) Lower NII and fee generation offset by lower provisioning and unsustainable capital gains

DHBK 68.0 61.7 (9.3%) 5.70 5.68 (0.4%) 5.89 5.49 (6.9%) 6.51 5.96 (8.4%) Disappointing loan growth, pressure on NIM and F&C offset by unsustainable capital gains

QIBK 79.8 85.7 7.3% 4.75 6.23 31.0% 6.62 7.24 9.3% 7.31 7.71 5.4% Lower provisioning (after removing Arcapita exposure), higher loan growth, NII and F&C

QNBK 189.2 193.0 2.0% 12.21 12.32 0.9% 13.51 14.07 4.1% 15.32 15.86 3.6% Much stronger than expected loan growth

MARK 30.9 27.8 (10.1%) 1.97 1.87 (4.8%) 2.39 2.05 (14.1%) 2.78 2.42 (12.9%) Lower than expected NIM, lower costs, non-recurring items in Other income

KCBK 14.1 13.9 (1.5%) 1.01 1.33 31.7% 1.17 1.06 (9.5%) 1.29 1.22 (5.2%) Margin contraction, slower loan growth

QIIK 60.5 53.2 (12.2%) 4.79 4.33 (9.5%) 5.04 4.34 (13.9%) 5.22 4.50 (13.8%) NIM compression


NII Rev

Op.

Profit LLP NP Loans Deposits NII Rev

Op.


Op.


Op.

Profit LLP NP Loans Deposits

QNBK 2,240 2,794 2,312 272 2,112 234,653 245,902 (0%) 1% (0%) 3% 5% 17% 13% 28% 22% 20% 59% 17% 56% 25% (1%) (4%) (4%) (11%) (1%) 14% 10%

QIIK 129 212 176 12 165 11,425 18,481 (1%) (15%) (14%) (61%) (6%) 8% 1% (16%) (5%) 2% 17% 1% 13% 8% (19%) (11%) 1% (13%) 2% 4% (1%)

DHBK 410 609 398 47 350 29,667 30,339 (7%) (1%) (7%) 26% (10%) 0% (3%) (6%) 5% 3% (1%) 3% 7% 4% (9%) 3% (2%) (16%) 0% (3%) (7%)

CBQK 464 726 482 8 546 43,927 40,556 (3%) 7% 3% (84%) 16% 5% 7% (3%) (0%) (5%) (84%) 7% 10% 17% (5%) (0%) (2%) (86%) 17% 1% 2%

QIBK 374 644 447 102 349 35,771 33,445 (2%) (4%) (6%) 20% (10%) 12% 12% 23% 16% 19% (1,465%) (9%) 45% 28% 4% 3% 5% (71%) 388% 10% 6%

MARK 235 436 349 (15) 372 37,982 51,191 (2%) (5%) (8%) (164%) 5% 6% 5% 40% (19%) (23%) (121%) 2% 34% 26% (9%) (15%) (17%) (120%) 8% 1% (1%)

KCBK 136 243 150 4 140 11,321 12,752 (0%) 12% 16% 10% 15% (2%) 6% (13%) (9%) 1% (72%) 8% 34% 28% (4%) 20% 60% (80%) 97% (7%) 1%

Sector 3,988 5,663 4,315 429 4,033 404,747 432,666 (2%) 0% (2%) (13%) 3% 12% 9% 16% 9% 9% 19% 9% 40% 22% (3%) (2%) (2%) (51%) 12% 8% 6%

vs AC esty/yq/qResults (QAR mn)

September 12 2012

Banks


Exhibit 54: Net Interest Income: Pressure on asset yields and funding costs across the sector (especially for QIIB, DHB, CBQ and KCBK)


Exhibit 55: Revenues: We are concerned about the low quality of earnings of CBQ, DHB, QIIK and KCBK


Exhibit 56: QNB eating market share particularly at the expense of CBQ and DHB


Exhibit 57: Deposit growth generally outpaced by loan growth pushing L/D up for most of Qatari Banks


-20%

-10%

0%

10%

20%

30%

40%

50%

MARK QNBK QIBK CBQK DHBK KCBK QIIK

q/q y/y

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

QIBK QNBK KCBK CBQK DHBK MARK QIIK

vs AC est

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

QNBK QIBK DHBK CBQK QIIK KCBK MARK

q/q y/y

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

KCBK QIBK DHBK CBQK QNBK QIIK MARK

vs AC est

-10%

0%

10%

20%

30%

40%

50%

60%

QNBK QIBK MARK KCBK QIIK CBQK DHBK

q/q y/y

-10%

-5%

0%

5%

10%

15%

QNBK QIBK QIIK CBQK MARK DHBK KCBK

vs AC est

-5%

0%

5%

10%

15%

20%

25%

30%

35%

QIBK KCBK MARK QNBK CBQK QIIK DHBK

q/q y/y

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

QNBK QIBK CBQK KCBK MARK QIIK DHBK

vs AC est

September 12 2012

Banks


Exhibit 58: Net Interest Income: QIB beat was due to premature provisioning for Arcapita


Exhibit 59: NIM contraction across the sector


Exhibit 60: QNB deviation table


Exhibit 61: QIIB deviation table


-15%

-10%

-5%

0%

5%

10%

15%

20%

QNBK KCBK CBQK DHBK MARK QIIK QIBK

q/q y/y

-50%

0%

50%

100%

150%

200%

250%

300%

350%

400%

QIBK KCBK CBQK MARK QIIK DHBK QNBK

vs AC est

-100

-80

-60

-40

-20

0

20

40

60

KCBK QIIK QNBK QIBK MARK DHBK CBQK

q/q (bps) y/y (bps)

-80

-70

-60

-50

-40

-30

-20

-10

0

10

QIBK QNBK KCBK CBQK MARK DHBK QIIK

vs. AC (bps)

Reported AC est

QARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y

NII 2240 2270 (1%) 2247 (0%) 1751 28%

Total Revenues 2794 2898 (4%) 2769 1% 2291 22%

Operating Costs 482 502 (4%) 450 7% 365 32%

Operating Income 2312 2396 (4%) 2319 (0%) 1926 20%

Loan Loss Provisions 272 307 (11%) 266 3% 172 59%

Net Profit 2112 2137 (1%) 2004 5% 1809 17%





Net Loans 234,653 206,500 201,210 150,526

Deposits 245,902 223,477 218,393 196,279

Annualized ROE 20.2% 20.4%

Annualized ROA 2.8% 2.8%

EPS 12.07 12.21

Reported AC est


NII 129 159 (19%) 129 (1%) 153 (16%)

Total Revenues 212 238 (11%) 249 (15%) 224 (5%)

Operating Costs 36 64 (44%) 43 (17%) 51 (29%)

Operating Income 176 175 1% 206 (14%) 173 2%

Loan Loss Provisions 12 13 (13%) 30 (61%) 10 17%

Net Profit 165 161 2% 176 (6%) 163 1%



Annualised charge % loans -- 0.49% 0.38% 0.40%


Net Loans 11,425 10,990 10,531 10,122

Deposits 18,481 18,659 18,286 17,067



EPS 1.09 1.07

September 12 2012

Banks


Exhibit 62: DHB deviation table


Exhibit 63: CBQ deviation table


Exhibit 64: QIB deviation table


Exhibit 65: MARK deviation table


Exhibit 66: Al Khaliji deviation table


Reported AC est


NII 410 449 (9%) 439 (7%) 435 (6%)

Total Revenues 609 593 3% 613 (1%) 580 5%

Operating Costs 211 189 12% 184 15% 192 10%

Operating Income 398 404 (2%) 429 (7%) 387 3%

Loan Loss Provisions 47 55 (16%) 37 26% 47 (1%)

Net Profit 350 349 0% 390 (10%) 339 3%





Net Loans 29,667 30,601 29,543 27,714

Deposits 30,339 32,684 31,365 29,197



EPS 1.69 1.69

Reported AC est


NII 464 489 (5%) 478 (3%) 477 (3%)

Total Revenues 726 727 (0%) 680 7% 726 (0%)

Operating Costs 243 233 4% 211 15% 217 12%

Operating Income 482 494 (2%) 469 3% 509 (5%)

Loan Loss Provisions 8 58 (86%) 51 (84%) 49 (84%)

Net Profit 546 467 17% 471 16% 509 7%



Annualised charge % loans (0.12%) -- 0.42% 0.35%

Loan to Deposit 108% 110% 111% 115%

Net Loans 43,927 43,427 42,011 39,788

Deposits 40,556 39,637 37,856 34,737



EPS 2.21 1.89

Reported AC est


NII 374 359 4% 383 (2%) 305 23%

Total Revenues 644 626 3% 672 (4%) 556 16%

Operating Costs 196 200 (2%) 195 1% 180 9%

Operating Income 447 426 5% 477 (6%) 376 19%

Loan Loss Provisions 102 350 (71%) 85 20% (7) (1,465%)

Net Profit 349 72 388% 388 (10%) 382 (9%)



Annualised charge % loans 1.14% 4.30% 1.06% (0.12%)

Loan to Deposit 107% 104% 106% 95%

Net Loans 35,771 32,574 31,898 24,727

Deposits 33,445 31,457 29,982 26,031



EPS 1.48 0.30

Reported AC est


NII 235 257 (9%) 239 (2%) 168 40%

Total Revenues 436 511 (15%) 460 (5%) 536 (19%)

Operating Costs 87 91 (4%) 82 6% 84 3%

Operating Income 349 421 (17%) 378 (8%) 452 (23%)

Loan Loss Provisions (15) 77 (120%) 24 (164%) 75 (121%)

Net Profit 372 344 8% 353 5% 363 2%



Annualised charge % loans (0.16%) 0.81% 0.27% 1.06%


Net Loans 37,982 37,763 35,965 28,331

Deposits 51,191 51,466 48,744 40,626



EPS 0.50 0.46

Reported AC est


NII 136 142 (4%) 137 (0%) 156 (13%)

Total Revenues 243 202 20% 216 12% 266 (9%)

Operating Costs 93 109 (15%) 87 7% 118 (21%)

Operating Income 150 94 60% 129 16% 148 1%

Loan Loss Provisions 4 20 (80%) 4 10% 15 (72%)

Net Profit 140 71 97% 122 15% 130 8%



Annualised charge % loans 0.14% 0.54% (0.04%) 0.69%


Net Loans 11,321 12,112 11,557 8,456

Deposits 12,752 12,673 12,067 9,969



EPS 1.56 0.79

September 12 2012

Banks


Egyptian Banks: Plenty of upside left in COMI & CIEB

We reiterate on positive stance on Egypt with an average upside of 16%, with even more

upside in COMI & CIEB, our Core Buys. The sector trades at a P/E13e of 8.7x with a

P/tNAV12e of 1.8x and a decent FY 12e ROTE of 18%. The Egyptian banking sector also

commands (along with Lebanon) the strongest liquidity positions. We have increased our

TPs on the back of lower macro risk and increased earnings estimates. We are just

beginning to see foreign interest in Egypt.

We generally revised our margin estimates upwards, following the sequential hike in asset

yields in H1 12A coming in at 4.25% vs. 3.55% in H1 11A driven by surging T-bill rates.

We reduced our loan growth estimates for CIB following stagnant activity in H1 and lower

forecasts on management guidance while we increased CAE’s loan and deposit estimates

following the bank’s strong commercial momentum in H1 12A.

We strongly prefer to play Egypt through COMI and CIEB, which are still at c20% earnings

discount to the sector post rally. COMI is our top pick in Egypt given its strong and

improving fundamentals (stronger margins, cost of risk under control, solid liquidity and

capital position and highest RORWA among coverage). We continue to see Credit Agricole

Egypt as an eligible take-over target, due to its parent’s high capital deficit and the bank’s

improved fundamentals. We think the M&A premium for EGB is too high, while we see

potential for EFG to close the gap to its sum of the parts of EGP16.6.

Exhibit 67: Egypt valuation summary

Source: Company data, Arqaam Capital Research

We revise our EPS estimates for Egyptian banks post Q2 results. We increase our FY 12e

EPS estimates for CAE, CIB and EGB while we lowered our EPS estimates for NSGB and

HDB as we continue to believe the bank is most vulnerable to a deterioration in asset

quality (exposure to lower & middle income consumer loans).

We reiterate our recommendations for all Egyptian banks, but revise our TP up by an

average of 15% on lower cost of capital (reflecting the reduced macro risk) and increase

EPS forecasts for some. We add a 10% take-over/control premium to our TP for NSGB as

the acquisition could unlock value for QNB and could position the bank for the strong

anticipated growth in the Egyptian financial services for the next few decades and ease

NSGB’s growth potentials given the tight capital position of parent company.



CAE BUY 578 EGP 3,521 12.1 15.5 28.2 7.6 7.2 6.2 8.0 14.1 0.5 1.6 1.4 1.2 20.0 18.4 19.0 5.4 5.8 6.2 4.6 4.5 3.9

CIB BUY 3,293 EGP 20,067 32.9 44.2 34.4 8.7 7.2 6.4 8.6 18.5 0.4 1.8 1.6 1.3 23.7 23.3 22.5 3.3 3.7 3.8 5.7 5.1 4.5

HDB HOLD 285 EGP 1,737 14.3 14.2 (0.3) 11.7 8.0 6.4 6.4 33.6 0.2 0.7 0.6 0.6 5.8 8.1 9.6 3.4 5.0 6.2 6.7 4.9 3.9

NSGB HOLD 2,897 EGP 17,653 39.9 39.9 0.2 11.2 10.3 8.9 8.9 13.3 0.8 2.1 1.9 1.7 20.3 19.3 19.7 3.1 3.4 3.9 7.4 6.9 6.0

EGB SELL 338 USD 2,030 1.7 1.16 (31.8) 16.3 15.8 14.8 60.9 9.3 1.7 1.8 1.7 1.5 11.5 10.8 10.8 1.8 1.9 2.0 1.8 1.7 1.6

Egypt banks 7,391 45,008 16.2 10.0 8.7 7.6 10.1 1.8 1.6 1.4 18.2 18.3 18.4 3.3 3.6 4.0 6.4 5.8 5.1


September 12 2012

Banks


Exhibit 68: Egypt Banks EPS and TP changes


All banks beat our profit estimates with the exception of CIB, who fell 10% short on

substantially higher loan loss charges, however the H1 trends remain very satisfactory.

Both CAE and NSGB kicked off the quarter beating our estimates: NSGB Q2 profits rose

18% y/y, 25% q/q beating our estimates by 22% on improved cost efficiency and higher

trading income while CAE marked a staggering 67% rebound y/y and 13% ahead of our

estimates on higher trading and investment income but low quality of earnings.

CAE has already beaten our old full year estimates for loans and deposits, while NSGB

posts sluggish YTD figures falling short of our expectations. Provisioning came in lower

than estimates but remain conservative and on the rise with an annualized 82 bps and 105

bps for CAE and NSGB respectively vs. 53 bps and 86 bps in Q1 12A and our estimates of

88 bps and 124 bps. EGB also posted better than expected results.

Exhibit 69: Earnings summary



CIEB 11.99 15.46 28.9% 1.34 1.60 19.0% 1.54 1.66 8.0% 1.86 1.93 3.6% Earnings beat fuelled by investment income, decent commercial momentum and rising margins

COMI 35.57 44.21 24.3% 3.74 3.79 1.5% 4.29 4.55 6.0% 5.03 5.16 2.6% Revised loan estimates down for FY12e but compensated by spiking margins

HDBK 12.99 14.20 9.3% 1.26 1.22 (3.3%) 1.83 1.77 (2.8%) 2.28 2.21 (2.9%) Vulnerable to a deterioration in asset quality

NSGB 32.83 39.94 21.7% 3.57 3.56 (0.1%) 3.84 3.86 0.6% 4.45 4.48 0.6% Improved cost efficiency but provisions yet to increase

EGBE 1.09 1.16 6.1% 0.08 0.10 24.7% 0.09 0.11 17.1% 0.11 0.11 6.4% Higher margins and improved cost efficiency but remains significantly underprovisioned

HRHO 16.64 16.64 -- 0.87 0.87 -- 1.00 1.00 -- 1.11 1.11 -- Qinvest still uncertain, IB continues to be a drag



CAE 252 386 211 27 137 12,848 22,938 2.1 7.8 12.3 55.5 8.1 1.7 10.8 27.9 35.1 53.9 41.8 67.4 14.0 10.2 (8.2) 8.3 17.8 (6.4) 12.9 0.9 8.1

CIB 932 1,247 847 143 523 40,771 76,767 7.1 5.1 11.2 762.7 3.6 1.8 3.4 35.0 32.5 47.4 28.6 66.6 9.5 14.1 3.2 (0.9) 3.7 73.3 (9.8) (3.1) 1.9

NSGB 643 905 627 98 436 35,889 51,566 4.4 7.6 13.8 10.1 24.5 3.5 (1.6) 25.5 22.8 35.7 249.3 18.0 6.3 2.1 1.2 (0.1) 7.8 (15.5) 22.5 (0.3) (4.4)

EGB 69 91 55 7 43 3,242 5,968 20.7 20.2 67.7 (283.0) 29.2 4.1 7.4 38.1 32.5 57.9 (40.0) 84.4 (1.4) 29.5 18.5 19.5 49.0 (42.7) 153.0 1.1 6.9

Sector 1,827 2,538 1,741 275 1,096 89,508 151,271 5.9 6.8 13.5 131.5 12.2 2.5 2.9 30.8 29.3 44.0 61.4 44.4 8.4 9.8 1.3 1.2 7.8 14.6 6.1 (1.4) 0.7

vs AC est (%)Results (EGP mn) q/q (%) y/y (%)

September 12 2012

Banks


Exhibit 70: Net Interest Income: Margins on a sequential hike


Exhibit 71: Strong revenue growth reverses earnings contraction


Exhibit 72: CAE beats loan growth estimates while CIB falls short of expectations


Exhibit 73: Deposits growth outpaces loan growth


0%

5%

10%

15%

20%

25%

30%

35%

40%

EGB CIB CAE NSGB

y/y q/q

-10%

-5%

0%

5%

10%

15%

20%

EGB CIB NSGB CAE

vs AC est

0%

5%

10%

15%

20%

25%

30%

35%

40%

CAE CIB EGB NSGB

y/y q/q

-5%

0%

5%

10%

15%

20%

EGB CAE NSGB CIB

vs AC est

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

CAE CIB NSGB EGB

y/y q/q

-4%

-3%

-3%

-2%

-2%

-1%

-1%

0%

1%

1%

2%

EGB CAE NSGB CIB

vs AC est

-5%

0%

5%

10%

15%

20%

25%

30%

EGB CIB CAE NSGB

y/y q/q

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

CAE EGB CIB NSGB

vs AC est

September 12 2012

Banks


Exhibit 74: CAE deviation table


Exhibit 75: NSGB deviation table


Exhibit 76: CIB deviation table


Exhibit 77: EGB deviation table


Egypt Macro Overview

We think the risk of a devaluation has been mitigated by commitments of Qatar to invest

USD18bn in Egypt over the next 5 years, boosting GDP by 1.4% pa and reducing the

balance of payment deficit by c60%. We expect more banks to be interested in inorganic

expansion, and we see CAE and the BNP’s operations as attractive take-over targets

amongst others.

Egypt could further balance the balance of payments through:

o Normalization in tourism.

o A return in FDIs, helped by a favorable investment climate and influx of capital

inflows from the gulf.

o Return of portfolio investments (particularly when Egypt launches a credible fiscal

policy).

Reported AC est

EGP mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y

NII 252 275 (8.2%) 247 2.1% 197 27.9%

Total Revenues 386 356 8.3% 358 7.8% 285 35.1%

Operating Costs 174 177 (1.3%) 170 2.8% 148 17.6%

Pre-provision operating income 211 179 17.8% 188 12.3% 137 53.9%

Loan Loss Provisions 27 29 (6.4%) 17 55.5% 19 41.8%

Net Profit 137 122 12.9% 127 8.1% 82 67.4%





Net Loans 12,848 12,738 12,636 11,274

Deposits 22,938 21,216 20,699 20,812



EPS 0.48 0.42

Reported AC est


NII 643 635 1.2% 616 4.4% 512 25.5%

Total Revenues 905 906 (0.1%) 841 7.6% 737 22.8%

Operating Costs 278 324 (14.3%) 290 (4.1%) 275 1.0%


Loan Loss Provisions 98 116 (15.5%) 89 10.1% 28 249.3%

Net Profit 436 356 22.5% 350 24.5% 369 18.0%





Net Loans 35,889 36,006 34,683 33,752

Deposits 51,566 53,955 52,384 50,516



EPS 1.08 0.88

Reported AC est


NII 932 903 3.2% 870 7.1% 690 35.0%

Total Revenues 1247 1259 (0.9%) 1187 5.1% 941 32.5%

Operating Costs 400 442 (9.4%) 426 (5.9%) 367 9.2%


Loan Loss Provisions 143 82 73.3% 17 762.7% 111 28.6%

Net Profit 523 580 (9.8%) 505 3.6% 314 66.6%





Net Loans 40,771 42,068 40,053 37,248

Deposits 76,767 75,333 74,220 67,288


Annualized ROA 2.5%

Reported AC est


NII 69 59 18.5% 58 20.7% 50 38.1%

Total Revenues 91 76 19.5% 76 20.2% 69 32.5%

Operating Costs 36 39 (8.5%) 43 (16.4%) 34 6.0%


Loan Loss Provisions 7 13 (42.7%) -4 (283.0%) 12 (40.0%)

Net Profit 43 17 153.0% 33 29.2% 23 84.4%



Annualised charge % loans 0.80% 1.40% (0.45%) 1.32%


Net Loans 3,242 3,208 3,113 3,289

Deposits 5,968 5,582 5,554 4,606


Annualized ROA 2.6%

September 12 2012

Banks


Exhibit 78: Economic indicators

Source: IMF

We are not too concerned about the fiscal deficit, even though it hits 11% the fiscal year

2011/12. A deficit of 8-10% is already leading to a fall in net debt/GDP ratio if the nominal

GDP bounces back as expected. The fiscal deficit is absorbed by the very liquid domestic

banking system.

Exhibit 79: Egypt Balance of Payment

Source: Egypt Central Bank

The recent increases in net international reserves have been fueled by one-offs including;

o The first US$ 500 MM tranche of the US$ 2 bn Qatari aid

o The Central Bank’s sale of US$ 642 MM worth of EUR-denominated T-bills

At current levels, net reserves are enough to cover around 3 months of imports.

International reserves are expected to stabilize at current rates before increasing again by

the end of FY 12e.

Exhibit 80: Reserves have drastically fallen vs. FY 10A levels

Source: Egypt Central Bank

Macro Forecasts 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Primary deficit/GDP (3.8%) (4.7%) (5.3%) (4.5%) (4.3%) (5.8%) (5.1%) (2.3%) (1.0%) (0.2%) 0.3%

Total deficit/GDP (9.2%) (7.5%) (7.8%) (6.8%) (7.8%) (9.9%) (10.0%) (7.8%) (6.6%) (5.3%) (3.8%)

Deficit with stable net debt/GDP (10.5%) (13.3%) (11.2%) (9.6%) (9.5%) (8.8%) (8.1%) (10.8%) (10.4%) (10.0%) (9.1%)

Above/below sustainable deficit 1.3% 5.7% 3.5% 2.8% 1.6% (1.1%) (1.9%) 3.0% 3.8% 4.7% 5.3%

Nominal GDP growth (%) 14.7% 20.6% 20.2% 16.4% 15.8% 13.7% 11.8% 15.9% 15.7% 15.8% 15.2%

Real GDP growth (%) 6.8% 7.1% 7.2% 4.7% 5.1% 1.8% 1.5% 3.3% 5.0% 6.2% 6.5%

Net debt/GDP 71% 64% 56% 59% 60% 64% 68% 68% 67% 63% 60%

Q1 08A Q2 08A Q3 08A Q4 08A Q1 09A Q2 09A Q3 09A Q4 09A Q1 10A Q2 10A Q3 10A Q4 10A Q1 11A Q2 11A Q3 11A Q4 11A Q1 12A Potential delta Potential

Trade Balance (5,521) (6,626) (7,000) (7,628) (4,866) (5,680) (6,254) (5,675) (6,608) (6,583) (7,134) (6,692) (5,543) (5,369) (7,823) (7,775) (7,929) -- (7,929)

Services (net) 4,049 4,170 4,060 3,406 2,158 2,878 3,302 2,983 2,478 1,577 2,623 2,961 1,265 1,030 1,622 1,501 676 700 1,376

o/w Suez 1,235 1,409 1,456 1,260 960 1,045 1,107 1,155 1,104 1,151 1,254 1,254 1,230 1,316 1,360 1,323 1,246 -- 1,246

o/w Tourism (net) 1,981 1,868 2,490 1,732 1,525 2,002 2,516 2,175 2,254 2,319 3,021 2,694 1,400 1,361 2,075 1,669 1,429 700 2,129

Transfers 2,165 2,945 1,974 2,675 1,790 1,808 2,459 1,903 2,807 3,295 3,205 3,132 2,829 3,971 4,026 4,395 4,915 -- 4,915

Balance of Current Account 693 489 (966) (1,547) (918) (994) (493) (790) (1,323) (1,711) (1,306) (599) (999) (369) (2,175) (1,879) (2,339) 700 (1,639)

Capital Account (0.2) (0.1) 0.7 (0.9) 0.1 (2.5) (14.0) (2.4) (0.4) (19.4) (7.9) (11.5) (4.8) (8.1) (20.5) (11.8) (46.5) -- (46.5)

Financial Account 507 3,933 2,186 (159) (1,347) 704 2,851 452 1,877 3,182 1,040 1,797 (4,589) (3,039) 523 (2,902) (1,210) 2,465 1,255

o/w FDIs 3,482 1,985 1,655 2,373 1,211 2,875 1,731 895 1,706 2,426 1,597 656 (164) 99 440 (858) 636 -- 636

o/w Portfolio investments in Egypt 383 (23) (3,485) (3,902) (1,503) (321) 1,186 378 5,548 768 5,900 (1,329) (5,540) (1,582) (1,730) (1,579) (1,260) 2,000 740

o/w other investmensts (2,825) 2,702 4,847 1,818 (969) (1,463) 69 (590) (4,401) 145 (6,115) 2,615 1,469 (1,322) 1,955 (349) (505) 465 (40)

Overall Balance 1,828 506 459 (1,006) (1,796) (1,035) 2,052 600 455 250 15 557 (6,071) (4,255) (2,356) (5,649) (3,165) 3,165 (0)

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Dec 08A Jun 09A Dec 09A Jun 10A Dec 10A Jun 11A Dec 11A Jun 12A

Net International Reserves Growth (m/m)

September 12 2012

Banks


Lebanese Banks: Not investable now

We avoid Lebanese banks, despite very attractive valuations for Bank Audi and BLOM, as

the unrest in Syria could further spill over in Lebanon. Valuations generally remain low but

we believe are unlikely to move. We expect a lackluster FY 12e because of higher

provisioning. BLOM remains our favorite pick in Lebanon due to its conservative strategy,

strong management, cost efficiency, very cheap multiples and resilience under weak

economic conditions. We remain negative on BOB, mainly due to the very tight capital

base, as its Tier-1 is highly dependent on preference shares.

We maintain our recommendations for all banks but slightly decrease our TPs to reflect

the increased uncertainty.

Exhibit 81: Lebanon valuation summary


We revise our estimates down for all Lebanese banks as macro levels remain contingent to

troubled Syria and due to unrest in the country. The sector trades at a P/E13e of 5.9x and

a P/tNAV12e of 0.61x with a ROTE of 15.8%.

We decreased EPS estimates for both BLOM and BYB, following lackluster results and flat

earnings. BOB has beaten our estimates on the back of lower loan loss charges, but we

now factor in the high amount of dividends on preference shares in our EPS forecasts.

Exhibit 82: Lebanon Banks EPS and TP changes


Subdued profits across sector as the country remains contingent to troubled Syria:

Stagnant core profits came in line with our estimates for the sector, flat q/q but down

2.4% y/y pulled by the 17% earnings fall posted by Byblos Bank while BOB topped our

coverage exhibiting a 5% increase y/y, 7% ahead of our estimates.

Top line figures look better with 6.5% growth y/y: All banks posted revenue growth y/y

except Byblos Bank while BOB outcast q/q numbers being the only bank recording positive

growth. Margins came in 6 bps higher q/q but 8 bps down y/y falling short of our forecasts

by 9 bps. All banks substantially missed our net margin estimates except BLOM (+4 bps vs

AC estimates). No major surprises for Bank Audi as the sale of insurance inflated the

second quarter earnings.



Audi BUY 1,917 USD 1,917 5.5 7.3 32.3 4.9 5.4 4.8 6.4 6.3 0.9 0.9 0.8 0.8 19.9 16.1 16.4 7.7 7.0 7.9 3.3 3.5 3.1

BLOM BUY 1,591 USD 1,591 7.4 10.5 41.4 5.0 4.9 4.3 6.0 12.7 0.4 0.8 0.8 0.7 17.8 16.3 16.7 6.0 6.8 8.2 3.4 3.3 2.9

Byblos HOLD 843 USD 843 1.5 1.4 (4.1) 6.0 5.7 5.0 4.8 12.2 0.5 0.6 0.6 0.6 11.1 10.7 11.4 6.6 6.8 7.8 3.2 3.0 2.6

BOB SELL 959 USD 959 19.0 10.5 (44.8) 13.3 11.7 10.0 5.5 16.9 0.7 1.8 1.7 1.5 14.3 15.1 16.1 3.0 3.9 4.5 7.0 6.1 5.3

Lebanon banks 5,309 5,309 15.3 5.8 5.9 5.2 6.8 0.6 0.6 0.5 15.8 14.2 14.7 6.1 6.3 7.3 2.5 2.4 2.1



AUDI 7.28 7.28 0.0% 1.42 1.12 (21.1%) 1.00 1.01 0.7% 1.13 1.14 0.8% Overestimated gains from sale of insurance

BLOM 10.99 10.46 (4.8%) 1.55 1.47 (5.0%) 1.59 1.52 (4.6%) 1.81 1.74 (4.1%) Lacklustre Fy12e with continued conservative provisioning

BYB 1.53 1.44 (6.0%) 0.25 0.25 0.7% 0.27 0.26 (4.8%) 0.31 0.30 (4.1%) Flat earnings with lower loan growth estimates

BOB 10.53 10.49 (0.4%) 1.85 1.42 (23.1%) 2.04 1.63 (20.1%) 2.28 1.90 (16.9%) Massively underprovisioned with lower loan and deposit estimates


September 12 2012

Banks


Stagnant loan and deposit growth in line with estimates: Loans increased 3.8% YTD, 2.8%

q/q, while deposits rose 1.8% YTD, 1.3% q/q vs 3.6% YTD and 1.3% q/q for the sector. L/D

flat and low at 34% giving room to take on more leverage. Both AUDI and BLOM exceeded

our loan loss charges forecasts with annualized charges of 158 bps and 71 bps respectively

vs our estimates of 108 bps and 64 bps, while BOB still stands far below industry peers

with an annualized 12 bps, but we expect charges to increase for BOB, particularly if

Lebanon is affected even more by Syria.

Exhibit 83: Earnings summary


Exhibit 84: Net Interest Income: Loan growth partly offsets weak margins


Exhibit 85: Operating Income: BOB beats our estimates and tops revenue growth



AUDI 209 403 231 55 135 13,682 37,245 (5.6) (1.8) (1.1) 18.0 (4.8) 2.4 1.3 3.6 12.4 19.1 71.7 1.2 6.0 (2.2) (5.9) 2.6 9.4 47.7 (0.5) 1.6 0.3

BLOM 200 262 161 16 121 8,747 31,384 3.8 (21.4) (27.4) (75.3) (4.1) 2.2 0.9 7.4 3.3 9.1 343.8 0.0 5.0 2.5 1.7 (5.6) (1.9) 10.2 (4.4) (0.7) (1.6)

BYB 99 165 86 8 62 6,172 20,005 10.1 (7.7) (0.8) (45.4) 5.9 1.6 1.3 (5.7) (4.6) (2.4) 370.2 (17.1) 4.3 5.4 (9.3) (6.3) (0.7) (24.1) 4.2 (1.3) (2.6)

BOB 63 111 56 2 45 5,115 11,484 19.2 17.2 39.0 369.6 36.1 6.7 2.6 (12.5) 13.3 9.4 (78,050) 5.1 6.4 9.0 (5.5) 5.4 2.6 (71.4) 7.1 (0.3) (2.3)

Sector 570 941 533 82 363 33,717 100,118 2.5 (7.5) (8.4) (36.2) 0.9 2.8 1.3 1.1 6.5 11.1 116.3 (2.4) 5.5 1.9 (4.0) (1.1) 3.4 18.7 (0.2) 0.2 (1.2)

vs AC est (%)Results (LBP bn) q/q (%) y/y (%)

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

BLOM AUDI BYB BOB

y/y q/q

-10%

-8%

-6%

-4%

-2%

0%

2%

BLOM BOB AUDI BYB

vs AC est

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

BOB AUDI BLOM BYB

y/y q/q

-8%

-6%

-4%

-2%

0%

2%

4%

6%

BOB AUDI BLOM BYB

vs AC est

September 12 2012

Banks


Exhibit 86: Loan growth positive but modest across sector


Exhibit 87: Deposit growth outpaced by loan growth


Exhibit 88: Profits beat expectations (except BLOM) but remain subdued


0%

1%

2%

3%

4%

5%

6%

7%

8%

BOB AUDI BLOM BYB

y/y q/q

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

AUDI BOB BLOM BYB

vs AC est

-4%

-2%

0%

2%

4%

6%

8%

10%

BOB BYB BLOM AUDI

y/y q/q

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

AUDI BLOM BOB BYB

vs AC est

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

AUDI BOB BLOM BYB

y/y q/q

-10%

0%

10%

20%

30%

40%

50%

60%

AUDI BOB BYB BLOM

vs AC est

September 12 2012

Banks


Exhibit 89: AUDI deviation table


Exhibit 90: BLOM deviation table


Exhibit 91: BYB deviation table


Exhibit 92: BOB deviation table


Reported AC est

LBPbn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y

NII 209 222 (5.9%) 221 (5.6%) 201 3.6%

Total Revenues 403 392 2.6% 410 (1.8%) 358 12.4%

Operating Costs 172 181 (5.3%) 176 (2.6%) 164 4.5%

Pre-provision operating income 231 211 9.4% 233 (1.1%) 194 19.1%

Loan Loss Provisions 55 38 47.7% 47 18.0% 32 71.7%

Net Profit 135 136 (0.5%) 142 (4.8%) 134 1.2%





Net Loans 13,682 13,465 13,365 12,914

Deposits 37,245 37,133 36,766 38,091



EPS 0.58 0.39

Reported AC est


NII 200 196 1.7% 192 3.8% 186 7.4%

Total Revenues 262 278 (5.6%) 333 (21.4%) 254 3.3%

Operating Costs 101 113 (10.9%) 111 (9.2%) 106 (4.8%)

Pre-provision operating income 161 164 (1.9%) 222 (27.4%) 148 9.1%

Loan Loss Provisions 16 15 10.2% 65 (75.3%) 4 343.8%

Net Profit 121 127 (4.4%) 127 (4.1%) 121 0.0%





Net Loans 8,747 8,810 8,558 8,329

Deposits 31,384 31,882 31,104 30,624



EPS 0.56 0.59

Reported AC est


NII 99 109 (9.3%) 90 10.1% 105 (5.7%)

Total Revenues 165 176 (6.3%) 179 (7.7%) 173 (4.6%)

Operating Costs 80 90 (11.6%) 93 (14.1%) 85 (6.9%)

Pre-provision operating income 86 86 (0.7%) 86 (0.8%) 88 (2.4%)

Loan Loss Provisions 8 11 (24.1%) 15 (45.4%) 2 370.2%

Net Profit 62 59 4.2% 58 5.9% 74 (17.1%)





Net Loans 6,172 6,252 6,073 5,916

Deposits 20,005 20,539 19,749 18,987



EPS 0.11 0.10

Reported AC est


NII 63 67 (5.5%) 53 19.2% 72 (12.5%)

Total Revenues 111 105 5.4% 94 17.2% 98 13.3%

Operating Costs 55 51 8.3% 55 1.3% 47 17.6%


Loan Loss Provisions 2 5 (71.4%) 0 369.6% 0 (78,050%)

Net Profit 45 42 7.1% 33 36.1% 43 5.1%





Net Loans 5,115 5,129 4,795 4,807

Deposits 11,484 11,753 11,193 10,531



EPS 0.89 0.83

September 12 2012

Banks


Kuwaiti Banks: Avoid, with one exception: Burgan

We remain negative on Kuwait with an average downside of 2.6%, despite the country’s

support for high oil prices and government surplus, structural political gridlock continues to

slow down the Kuwaiti economy affecting the banking system in Q2.

All the Kuwaiti banks concerned about the slowdown in Kuwait were forced to take

additional provisions in Q2. The sector is trading at a P/E13e of 13.9x and a P/tNAV12e of

2.2x. The sector has decent returns, with ROTE12e and ROTE13e of 13.0% and 13.9

respectively.

We prefer to play the sector through Burgan, which continues to trade at attractive

multiples, and it offers a growth story as a result of its Tekfen acquisition. We continue to

believe that a new potential acquisition would add 3% to annual loan growth.

We maintain our lending assumptions as we don’t see much variation to our forecast,

coming in at 4.3% y-t-d and 7.0% y/y for all Kuwaiti banks under coverage.

Exhibit 93: Kuwait valuation summary


We revise our EPS estimates for Kuwaiti banks following the Q2 results. We cut our FY 12e

EPS estimates for KFIN, GBK, and BOUBYAN; while leaving our estimates for NBK and BURG

more or less unchanged.

We maintain our recommendations for all banks.

Exhibit 94: Kuwait Banks EPS and TP changes


Disappointing earnings for Kuwaiti banks driven by loan loss charges surprise in Q2 12, with

earnings falling by 25% q/q and 7.9% y/y. NBK was impacted as well by higher loan loss

charges, despite its low NPLs. Boubyan on the other hand looked better, despite sharply

higher provisioning, earnings grew by 10% y/y and 4% q/q. KFIN earnings beat our

expectation on the back of exceptionally high non recurring income despite higher loan loss

charges, leaving a growth of 68% q/q and 179%y/y.

Loans increased by 2% q/q with stagnant deposit growth q/q, more or less in line with our

estimates. Net loans growing in line with our forecast with deposits arriving only 2% below

our estimate.



NBK HOLD 14,710 KWD 4,136 1.0 1.1 15.0 12.8 12.5 12.6 14.5 2.4 5.1 2.2 2.1 2.0 16.1 17.6 16.8 3.8 3.9 3.9 10.3 10.0 10.0

KFH SELL 7,024 KWD 1,975 0.7 0.59 (13.8) 18.2 14.0 8.7 7.5 34.3 0.4 1.6 1.5 1.2 9.1 11.0 14.6 1.4 1.3 2.9 6.4 6.2 5.0

Gulf Bank SELL 3,699 KWD 1,040 0.4 0.34 (14.1) 30.5 19.4 16.8 14.5 40.1 0.5 2.2 2.0 1.8 9.1 10.7 11.1 -- -- 1.3 8.8 8.3 7.8

Burgan BUY 2,857 KWD 803 0.5 0.60 14.7 13.6 11.0 9.6 11.0 20.7 0.5 2.4 2.1 1.9 19.5 20.5 20.8 1.8 1.8 3.8 6.9 6.2 5.5

Boubyan SELL 3,793 KWD 1,066 0.6 0.29 (52.3) 79.9 40.8 30.7 14.7 44.0 0.9 4.1 3.7 3.3 5.2 9.5 11.4 -- 0.3 0.3 37.3 27.7 22.5

Kuwait banks 32,084 9,021 (2.6) 16.6 13.9 11.8 13.6 2.2 1.9 1.7 13.0 13.9 14.7 2.2 2.3 2.8 9.3 8.6 7.7



NBK 1.12 1.09 (2.8%) 0.07 0.07 (0.9%) 0.07 0.08 2.3% 0.08 0.08 (0.5%) Consolidating financials after 58.34% ownership in Boubyan.

KFIN 0.60 0.59 (0.3%) 0.04 0.04 (10.1%) 0.05 0.05 2.1% 0.08 0.08 1.5% Higher provisions and lower interest income on the back of slightly lower loan growth.

GBK 0.34 0.34 (0.9%) 0.02 0.01 (21.9%) 0.02 0.02 2.7% 0.02 0.02 1.1% Higher loan loss charges

BURG 0.60 0.60 (1.0%) 0.04 0.04 1.1% 0.05 0.05 (1.1%) 0.06 0.05 (1.1%) Despite higher LLPs in Q2, in line with our forecast.

BOUBYAN 0.28 0.29 2.0% 0.01 0.01 (15.7%) 0.02 0.01 (3.5%) 0.02 0.02 (7.8%) Loan loss provisioning higher than expected.


September 12 2012

Banks


Exhibit 95: Earnings Summary Review


Exhibit 96: KFIN beating BURG’s NII on the back of higher Margins


Exhibit 97: KFIN highest Q/Q growth in revenue on the back of 190% q/q investment income growth


NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit NP Loans Deposits

NBK KK 94 127 84 N/A 40 8,389 7,251 -1% -2% -8% N/A -51% 1% 1% 1% -2% -5% N/A -40% 7% 12% -4% -6% -11% -51% 1% 1%

KFIN KK 83 174 103 N/A 32 6,880 8,894 7% 32% 80% N/A 68% 2% -3% 11% 27% 54% N/A 179% 5% 6% -1% 17% 44% -11% -1% -4%

BOUBYAN KK 13 15 8 N/A 2 1,155 1,301 6% 9% 14% N/A 4% 6% 4% 27% 121% -3083% N/A 10% 26% 19% 4% 3% 11% -37% 5% 3%

GBK KK 30 41 29 N/A 5 3,428 3,252 3% -7% -3% N/A -26% 2% -1% 13% -6% -13% N/A -36% 4% 1% 5% 2% 2% -49% 0% -3%

BURG KK 30 48 29 N/A 16 2,592 3,164 7% 13% 10% N/A -7% 8% 4% 4% 13% 8% N/A 2% 20% 27% 1% 5% 5% 0% 6% 0%

Kuwait Sector 250 405 253 0 96 22,444 23,863 3% 12% 20% N/A -25% 2% 0% 7% 13% 6% N/A -8% 8% 10% -1% 5% 11% -35% 1% -2%

q/q (%) y/y (%) vs AC est (%)Results (LCmn)

-5%

0%

5%

10%

15%

20%

25%

30%

KFIN KK BURG KK BOUBYAN KK GBK KK NBK KK

q/q (%) y/y (%)

-6%

-4%

-2%

0%

2%

4%

6%

GBK KK BOUBYAN KK BURG KK KFIN KK NBK KK

vs AC est (%)

-20%

0%

20%

40%

60%

80%

100%

120%

140%

KFIN KK BURG KK BOUBYAN KK NBK KK GBK KK

q/q (%) y/y (%)

-10%

-5%

0%

5%

10%

15%

20%

KFIN KK BURG KK BOUBYAN KK GBK KK NBK KK

vs AC est (%)

September 12 2012

Banks


Exhibit 98: Higher LLPs this quarter affecting Net Profits, which fell substantially


Exhibit 99: BURG highest q/q loan book growth beating our forecast


Exhibit 100: BURG and NBK q/q deposit growth in line with our forecast


Exhibit 101: Higher NIMs for all Kuwaiti Banks this quarter, KFIN witnessing highest NIM expansion


-100%

-50%

0%

50%

100%

150%

200%

KFIN KK BOUBYAN KK BURG KK GBK KK NBK KK

q/q (%) y/y (%)

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

BURG KK KFIN KK BOUBYAN KK GBK KK NBK KK

vs AC est (%)

0%

5%

10%

15%

20%

25%

30%

BURG KK BOUBYAN KK GBK KK KFIN KK NBK KK

q/q (%) y/y (%)

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

BURG KK BOUBYAN KK NBK KK KFIN KK GBK KK

vs AC est (%)

-5%

0%

5%

10%

15%

20%

25%

30%

BOUBYAN KK BURG KK NBK KK GBK KK KFIN KK

q/q (%) y/y (%)

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

BOUBYAN KK NBK KK BURG KK GBK KK KFIN KK

vs AC est (%)

-30

-20

-10

0

10

20

30

40

50

KFIN KK BURG KK GBK KK BOUBYAN KK NBK KK

q/q (bps) y/y (bps)

-15

-10

-5

0

5

10

15

NBK KK KFIN KK BURG KK BOUBYAN KK GBK KK

AC (bps)

September 12 2012

Banks


Exhibit 102: NBK deviation table


Exhibit 103: KFIN deviation table


Exhibit 104: BOUBYAN deviation table


Exhibit 105: GBK deviation table


Exhibit 106: BURG deviation table


Reported AC est

LCmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y

NII 94 99 (4%) 95 (1%) 93 1%

Total Revenues 127 135 (6%) 130 (2%) 129 (2%)

Operating Cost 43 42 4% 39 11% 41 6%


Net Profit 40 82 (51%) 81 (51%) 66 (40%)




Loan to Deposit 116% 116% 115% 121%

Net Loans 8,389 8,346 8,271 7,866

Deposits 7,251 7,207 7,197 6,495



EPS 0.01 0.02

Reported AC est


NII 83 84 (1%) 78 7% 75 11%

Total Revenues 174 148 17% 132 32% 137 27%

Operating Cost 71 77 (8%) 75 (5%) 70 1%


Net Profit 32 36 (11%) 19 68% 11 179%





Net Loans 6,880 6,972 6,769 6,536

Deposits 8,894 9,274 9,182 8,360



EPS 0.01 0.01

Reported AC est


NII 13 12 4% 12 6% 10 27%

Total Revenues 15 14 3% 13 9% 7 121%

Operating Cost 7 7 (4%) 7 4% 7 3%

Pre-provision operating income 8 7 11% 7 14% 0 (3,083%)

Net Profit 2 4 (37%) 2 4% 2 10%

Cost to Income 48% 52% 104% 51%




Net Loans 1,155 1,102 1,092 920

Deposits 1,301 1,261 1,249 1,091



EPS 0.00 0.00

Reported AC est


NII 30 28 5% 29 3% 26 13%

Total Revenues 41 40 2% 44 (7%) 44 (6%)

Operating Cost 12 12 1% 15 (14%) 11 13%

Pre-provision operating income 29 28 2% 30 (3%) 33 (13%)

Net Profit 5 11 (49%) 7 (26%) 9 (36%)




Loan to Deposit 105% 102% 103% 102%

Net Loans 3,428 3,429 3,365 3,288

Deposits 3,252 3,347 3,281 3,223



EPS 0.00 0.00

Reported AC est


NII 30 30 1% 28 7% 29 4%

Total Revenues 48 46 5% 43 13% 43 13%

Operating Cost 19 18 5% 16 17% 16 21%


Net Profit 16 16 0% 18 (7%) 16 2%





Net Loans 2,592 2,447 2,406 2,152

Deposits 3,164 3,161 3,040 2,500



EPS 0.01 0.01

September 12 2012

Banks


Omani Banks: Play Bank Muscat

We remain positive on Oman with an average upside of 41.1%. The sector is trading at a

P/E13e of 7.9x and a P/tNAV12e of 1.0x. The sector has decent returns, with ROTE12e and

ROTE13e of 12.1% and 13.1 respectively.

We maintain our view on Oman, as we still view Bank Muscat as an attractive opportunity

in the Omani market. Despite slightly disappointing Q2 numbers we continue to believe

that our TP of Bank Muscat offers an attractive upside, especially given that the bank has

largely addressed its weak capital base.

HSBC Oman remains too expensive and already factors in all merger synergies.

Exhibit 107: Oman valuation summary


We revise our EPS estimates for Omani banks following the Q2 results. We have reduced

our estimates for BKMB as we pencil in further NIM pressure. Nevertheless, we reiterate

our recommendations for all banks.

Exhibit 108: Oman Banks EPS and TP changes


All banks posted revenue growth y/y, however with relatively stable q/q growth. Operating

profit dropped by 2% q/q on the back of 6% q/q drop in Bank Muscat’s operating profit.

Bank Sohar surprisingly reported the highest growth in NII, growing by 9% q/q vs. 2% for

banks under coverage. No surprises for HSBC Oman, operating profit came in 5% below our

forecast with 22% q/q growth and 26% y/y.

Despite disappointing NIMs earnings beat our estimate. Omani banks witnessed NIM

contraction over the past quarter except for Bank Sohar. Bank Muscat’s earnings increased

by 5% q/q and 19% y/y despite lower NIMs, beating our estimate by 10% on the back of

lower LLCs. Bank Sohar on the other hand reported a drop in earnings by 6% q/q.

Balance sheet expansion was inflated by HSBC merger. Loans and deposits increased 11%

and 14% q/q respectively, slightly above our estimates, 5% and 9% respectively. Net

lending only grew by 4% q/q for Bank Muscat and Bank Sohar, with HSBC achieving 72%



Muscat BUY 2,929 OMR 1,127 0.55 0.80 46.0 7.8 7.4 6.5 9.5 14.6 0.5 1.2 1.0 0.9 15.6 14.8 15.1 3.8 4.1 4.5 5.9 5.2 4.7

Sohar HOLD 389 OMR 150 0.14 0.15 12.2 8.0 7.4 6.2 7.0 14.2 0.5 1.0 0.9 0.8 13.0 12.4 13.5 4.4 4.4 4.4 5.5 4.9 4.1

HBMO SELL 1,133 OMR 436 0.22 0.22 (1.1) 13.1 11.6 10.0 9.9 13.2 0.9 1.3 1.3 1.2 9.8 11.1 12.1 4.6 4.6 4.6 13.9 9.1 7.6

Oman banks 4,450 1,713 31.1 9.5 8.0 6.9 10.4 1.2 1.1 1.0 12.9 13.9 14.4 3.0 3.2 3.5 6.7 5.7 4.9



BKMB 0.89 0.80 (9.5%) 0.07 0.07 1.5% 0.08 0.07 (6.3%) 0.09 0.08 (8.8%) Lower NIMs, higher number of shares

BKSB 0.15 0.15 1.7% 0.01 0.02 16.2% 0.02 0.02 2.3% 0.02 0.02 1.2% Higher interest income on the back of higher loan book growth and strong Q2 numbers.

OIBB 0.22 0.22 -- 0.02 0.02 -- 0.02 0.02 -- 0.02 0.02 -- No major surprises for HSBS Oman reporting below our estimate despite synergies with HSBC.


September 12 2012

Banks


growth q/q. HSBC Oman net loans growth only 0.4% short our FY 12e and deposits were

2.8% short our FY 12e forecast.

Exhibit 109: Earnings Summary Review


Exhibit 110: BKSB net interest income growth beating BKMB


Exhibit 111: BKMB disappointing revenue growth


NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit NP Loans Deposits

BKMB OM 54 76 43 192 35 5,181 5,040 0% -4% -6% 3% 5% 4% 2% 4% 7% 5% -3% 19% 21% 20% -6% -7% -10% 10% 1% 0%

BKSB OM 10 13 7 24 5 1,101 1,309 9% 2% 5% 7% -6% 4% 10% 19% 19% 37% 26% 30% 12% 32% 4% 5% 17% 28% 2% 9%

HBMO OM 8 14 6 104 4 1,215 1,806 6% 33% 22% 18% 145% 72% 77% 8% 37% 40% 29% 8% 95% 128% -7% 10% -5% -7% 32% 48%

Oman Sector 73 103 55 320 44 7,497 8,156 2% 0% -2% 8% 9% 11% 14% 7% 12% 13% 8% 19% 28% 36% -5% -3% -7% 10% 5% 9%

Results (LCmn) q/q (%) y/y (%) vs AC est (%)

0%

5%

10%

15%

20%

25%

BKSB OM HBMO OM BKMB OM

q/q (%) y/y (%)

-8%

-6%

-4%

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0%

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6%

BKSB OM BKMB OM HBMO OM

vs AC est (%)

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HBMO OM BKSB OM BKMB OM

q/q (%) y/y (%)

-8%

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12%


vs AC est (%)

September 12 2012

Banks


Exhibit 112: BKMB looking better on the net level


Exhibit 113: HBMO high loan growth on the back of merger, Net loans growth only 0.4% short our FY 12e


Exhibit 114: Deposit growth for HBMO 2.8% short our FY 12e


Exhibit 115: Lower NIMS across the Omani banks except for Sohar


-20%

0%

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HBMO OM BKMB OM BKSB OM

q/q (%) y/y (%)

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0

20


q/q (bps) y/y (bps)

-15

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-5

0

5

10

15

20

25

BKMB OM HBMO BKSB

AC (bps)

September 12 2012

Banks


Exhibit 116: BKMB deviation table


Exhibit 117: BKSB deviation table


Exhibit 118: HBMO deviation table


Reported AC est


NII 54 58 (6%) 54 0% 52 4%

Total Revenues 76 81 (7%) 79 (4%) 71 7%

Operating Cost 33 33 (2%) 34 (2%) 30 10%

Pre-provision operating income 43 48 (10%) 45 (6%) 41 5%

Loan loss provisions 192 0 186 3% 198 (3%)

Net Profit 35 32 10% 33 5% 29 19%




Loan to Deposit 103% 102% 101% 102%

Net Loans 5,181 5,138 4,988 4,267

Deposits 5,040 5,058 4,959 4,200



EPS 0.02 0.02

Reported AC est


NII 10 10 4% 10 9% 9 19%

Total Revenues 13 12 5% 13 2% 11 19%

Operating Cost 6 6 (5%) 6 (0%) 6 4%


Loan loss provisions 24 0 22 7% 19 26%

Net Profit 5 4 28% 5 (6%) 4 30%





Net Loans 1,101 1,077 1,056 982

Deposits 1,309 1,203 1,191 995



EPS 0.00 0.00

Reported AC est


NII 8 9 (7%) 8 6% 8 8%

Total Revenues 14 13 10% 11 33% 10 37%

Operating Cost 8 7 23% 6 42% 6 36%

Pre-provision operating income 6 6 (5%) 5 22% 4 40%

Loan loss provisions 104 0 89 18% 81 29%

Net Profit 4 5 (7%) 2 145% 4 8%





Net Loans 1,215 920 708 623

Deposits 1,806 1,223 1,019 794



EPS 0.00 0.00

September 12 2012

Banks


Bahrain Banks: Better value elsewhere

We continue to have a neutral view on Ahli United Bank, the country largest bank. AUB is

currently trading at P/E 13e of 8.0x and P/tNAV of 1.7x, which is fully factors the bank poor liquidity, tight capital and below sector average (RoRWA of 1.6%, 1.2% if adjusted for associates' interest). We prefer other value play banks in MENA such as UNB, FGB and CBD as they have much better capital positions and offer more attractive valuations.

Exhibit 119: Bahrain valuation summary


We continue to expect loan growth to stand at a 7% for FY 12e and forecast a CAGR of 9%

over our forecasted period. We expect less than 10% structural loan growth for the country.

We expect NIM to remain stable and stand at 2.31% and earnings growth to remain decent at 13% CAGR helped by lower C/I and lower provisioning.

Exhibit 120: Bahrain Bank EPS and TP changes


We believe the bank should address its poor liquidity and negative cash and interbank

position (-10% of assets) by issuing substantial issuance of wholesale debt.

We think AUB will be hit by Basel 3 capital regulation, due high investments in associates, and some reliance on preference shares. Its CET1 of 10% is below our minimum requirement we have set for the region of 12%. The bank might have to cut payout, limit loan growth or raise fresh equity.

AUB earnings results were almost in line with our estimates, with no major surprises. We

reiterate our Hold recommendation and TP of USD 0.63.



Ahli United HOLD 3,066 BHD 3,066 0.5 0.63 17.4 7.9 7.1 6.3 8.4 12.3 0.6 1.5 1.3 1.1 19.6 19.4 19.3 5.6 5.6 5.6 5.1 4.7 4.3

Bahrain banks 3,066 3,066 17.4 8.6 7.7 6.9 9.1 4.7 4.2 3.7 19.6 19.4 19.3 1.7 1.7 1.7 5.1 4.7 4.3



AUB 0.63 0.634 -- 0.07 0.07 -- 0.08 0.08 -- 0.09 0.09 -- In line with our estimates, no major surprises


September 12 2012

Banks


Exhibit 121: Ahli United Bank deviation table


AUB BI Reported AC

In QARm Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y

NII 156 155 1% 151 4% 143 9%

Total Revenues 206 206 (0%) 195 6% 198 4%

Operating Costs 66 67 (1%) 63 5% 64 3%


Total provisions 26 34 (24%) 46 (44%) 44 (41%)

Net income 88 89 (2%) 82 6% 84 4%

Cost to income 32.2% 32.5% 32.6% 32.4%

Net interest margin 2.36% 2.3% 2.24% 2.36%

Annualized Loan loss charges as % loans 0.64% 0.84% 1.16% 1.19%

Loans/Deposits 88.2% 88.1% 88.0% 85.5%

Net loans 16,182 16,233 15,946 14,877

Total deposits 18,341 18,424 18,127 17,405



EPS 0.02 0.02

September 12 2012

Banks


Insurance: Very disappointing Q2, improvements still uncertain

The insurance sector performed far worse than anticipated, with claims rising

beyond expectations. The overall hike in net loss ratios has pushed combined ratios

close to 100% for FY 12e. We expect an improvement in underwriting profitability in

FY 13e and FY 14e, due to increased rates and lower catastrophe related claims.

Rising net loss ratios in Saudi medical segment: The Saudi medical insurance sector

witnessed a substantial surge in net claims, pushing combined ratios beyond 100% for

the companies under coverage. Although we expect an improvement in underwriting

profitability in H2, we expect combined ratios to remain north of 97%, diminishing

underwriting profitability compared to post FY 11A.

Non-motor reinsurance segment still affected by disasters in the Far East: Two of the

companies under coverage (QIC and Salama) have non-motor reinsurance operations

in the Far East and have been severely affected by the Thai floods, Japanese tsunami

and New Zeeland earthquakes in FY 11A and even further in FY 12e. Although net

claims caused a deterioration in earnings, both companies seem to have dealt with

the majority of claims as of H1 12A (though Salama expects further claims in Q3) and

are expected to report much better performance in FY 13e.

QIC still capable of achieving strong investment returns: We increased QIC’s return

on investment by 80bps from FY 13e moving forward. The company is proving capable

of maintaining strong investment yields despite poor market performance in Q2 12A.

Mixed top level results: Tawuniya reported a 10.7% y/y (28.1% q/q) increase in GWP

in Q2 12A. However NEPs did not see similar growth recording a 23.8% y/y growth

and 1.1% drop q/q. QIC reported 16.6% growth q/q with little change y/y, however

due to rising cession ratios q/q and higher changes in unearned premiums, NEPs fell

12% q/q (-1.8% y/y).

Surge in claims flows into Q2: MedGulf suffered the most from surging claims,

recording an increase of 18.1% y/y (27.3% q/q), along with an 18.5% rise in net loss

ratios y/y (14.2% q/q), and surprised the most. QIC’s net claims dropped 9.4% q/q

(27.5% increase y/y) while net loss ratios rose 2.2% q/q (17.4% y/y). Tawuniya’s claims

dropped 4.5% q/q while net loss ratios declined 3.0% q/q, though less than expected.

Sector-wide dive in net earnings: Amid soaring claims, MedGulf reported an SAR

11mn loss during Q2 12A. Tawuniya reported a 46.8% drop q/q (78.3% y/y). QIC net

earnings also dropped by 54% q/q (31% y/y) as the company took further provisioning

for unearned premiums, incurred higher claims, while recovered less from reinsurers.

The worst is almost over? The insurance sector has seen overall disappointing H1 12A

results, and 2012 may be the worst year yet. However we expect a better

performance in FY 13e and FY 14e amid better claims management in the medical

segment, higher reinsurance rates and lower claims from catastrophes in the Far East.

September 12 2012

Banks


Exhibit 122: Despite recent performance, we still the majority of the stocks as undervalued based on anticipated earnings growth


Salama severely affected by family Takaful and non-motor: Very poor performance

in the family Takaful segment due to tough competition resulted in a surprising drop

in GWP and rising claims. Adjusting for the latter has resulted in a substantial drop in

underwriting profits for that segment. Higher than anticipated claims from the Thai

floods have also contributed to the drop in EPS.

QIC still paying down claims from New Zeeland quakes: management is targeting

combined ratios ranging between 85% and 90% from FY 13e onwards. We increased

our net loss ratio forecast from FY 13e onwards accordingly, aiming for 87%-88%

combined ratio.

Tawuniya reported disappointing investment income and higher claims: Claims from

the medical segment were higher than anticipated in FY 12e and reported investment

income for Q2 12A fell. Adjusting for both resulted in a severe reduction in our

forecasts for FY 12e.

MedGulf severely affected by soaring net loss ratios in several segments: Although

an increase in net loss ratios in the medical segment was anticipated, the actually

increase YTD was much higher and was accompanied by a 10% increase in net loss

ratio for the motor segment. Both have resulted to sharply lowered EPS estimates.

Exhibit 123: We have seen disappointing results in the insurance sector as a whole mostly due to higher claims



USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e

Salama BUY 229 AED 841 0.7 0.8 20.1 16.2 7.7 8.3 9.3 28.9 0.3 0.6 0.5 0.5 3.5 6.9 6.0 -- -- --

Qatar Insurance BUY 1,722 QAR 6,270 70.2 85.3 21.6 11.2 9.7 9.4 11.8 6.7 1.4 1.8 1.7 1.7 15.7 17.9 17.9 8.5 8.8 9.0

Tawuniya BUY 870 SAR 3,263 43.5 52.8 21.3 11.2 9.4 7.0 11.4 21.8 0.4 1.6 1.4 1.3 14.8 16.2 19.4 3.1 3.7 5.0

MedGulf SELL 567 SAR 2,128 26.2 19.3 (26.4) 28.6 14.4 9.7 10.6 49.9 0.3 2.9 2.6 2.2 10.3 18.8 24.8 1.6 3.1 4.6

P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)


SALAMA 0.93 0.817 (12.2%) 0.05 0.04 (22.9%) 0.10 0.09 (16.1%) 0.11 0.08 (25.1%) Higher claims in family takaful and non-motor segment

QATI 94.90 85.330 (10.1%) 6.44 6.26 (2.8%) 8.07 7.26 (10.1%) 7.91 7.47 (5.5%) Rising claims from New Zeeland quake

TAWUNIYA 61.10 52.784 (13.6%) 4.70 3.88 (17.5%) 5.33 4.64 (12.9%) 6.50 6.23 (4.1%) higher than anticiapted net loss ratio in medical segment

MEDGULF 24.60 19.274 (21.7%) 2.23 0.91 (58.9%) 2.56 1.82 (28.9%) 3.35 2.71 (19.2%) Soaring net loss ratios in medical and motor segments


September 12 2012

Banks


Exhibit 124: Tawuniya reported disappointing bottom line results


Exhibit 125: MedGulf reported an SAR 11mn loss during Q2 12A due to high loss ratios


Exhibit 126: Despite a surge in GWP, QIC reported a drop in net earnings


Reported AC est


Gross written premiums 1,383 1,274 8.5% 1,079 28.1% 1,249 10.7%

Net earned premiums 917 883 3.9% 927 (1.1%) 741 23.8%

Net claims 749 669 12.0% 785 (4.5%) 559 34.1%

Claims ratio 81.7% 75.7% 6.0% 84.7% (3.0%) 75.5% 6.2%

Investment income 37 63 (40.8%) 79 (52.7%) 23 60.8%

Net income 28 104 (73.0%) 53 (46.8%) 129 (78.3%)

Reported AC est


Gross written premiums 734 761 (3.5%) 871 (15.7%) 604 21.4%

Net earned premiums 515 529 (2.7%) 477 7.9% 544 (5.4%)

Net claims 480 414 16.0% 377 27.3% 407 18.1%

Claims ratio 93.2% 78.2% 15.0% 79.1% 14.2% 74.7% 18.5%

Investment income 2 5 (66.6%) 0 386.4% 2 (4.8%)

Net income (11) 43 (125.5%) 50 (122.1%) 55 (119.9%)

Reported AC est


Gross written premiums 791 635 24.5% 678 16.6% 793 (0.3%)

Net earned premiums 345 351 (1.9%) 392 (12.0%) 351 (1.8%)

Net claims 261 221 18.2% 289 (9.4%) 205 27.5%

Claims ratio 75.8% 62.9% 12.9% 73.6% 2.2% 58.4% 17.4%

Investment income 108 78 37.8% 178 (39.3%) 72 49.3%

Net income 95 298 (68.1%) 208 (54.2%) 138 (31.0%)

September 12 2012

Banks


Exhibit 127: Strong GWP growth for Tawuniya


Exhibit 128: Lower NEP for QIC despite GWP growth


Exhibit 129: Surge in claims in sector as a whole so far


Exhibit 130: MedGulf hit the most by rising claims ratios


-20%

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September 12 2012

Banks


Exhibit 131: Mixed results in investment income – Meaningless for MedGulf


Exhibit 132: Overall deterioration in net income throughout the sector due to rising claims ratios


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July 4 2012

Region – Banks

July 9 2012

Banks


Exhibit 133: MENA banks valuation screen


Ticker Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG


ADCB UH ADCB HOLD 5,134 AED 18,857 3.4 3.7 9.3 7.0 6.7 6.2 6.7 11.7 0.6 0.9 0.9 0.8 12.0 12.0 12.1 4.5 4.7 5.2 3.8 3.6 3.4

ADIB UH ADIB SELL 2,105 AED 7,733 3.3 2.9 (12.6) 6.9 7.1 6.4 5.6 9.7 0.7 1.1 1.0 1.0 15.0 13.6 14.0 5.2 5.2 5.6 3.9 3.9 3.8

CBD UH CBD BUY 1,609 AED 5,911 2.9 4.2 45.3 7.6 7.1 6.1 8.8 15.0 0.5 0.8 0.8 0.7 16.2 16.5 18.2 7.3 7.7 8.3 4.4 4.1 3.9

DIB UH DIB SELL 2,016 AED 7,404 2.0 1.8 (10.3) 8.7 8.0 6.6 6.0 21.7 0.4 0.8 0.7 0.7 9.2 9.5 10.8 6.5 6.0 5.9 3.5 3.1 3.1

EMIRATES UHENBD HOLD 4,660 AED 17,118 3.0 3.4 11.2 9.0 9.4 7.6 8.4 38.4 0.2 0.7 0.6 0.6 6.4 5.8 7.2 4.8 4.5 4.7 2.6 2.7 2.5

FGB UH FGB BUY 8,078 AED 29,670 9.8 13.9 41.2 7.4 6.7 6.0 8.4 13.6 0.5 1.2 1.1 1.0 15.5 15.7 16.4 7.6 8.5 9.6 5.3 5.0 4.6

NBAD UH NBAD BUY 9,325 AED 34,251 8.8 13.2 49.9 8.1 6.5 5.7 8.5 19.6 0.3 1.3 1.2 1.0 16.6 18.2 18.2 2.9 3.4 4.0 6.0 4.9 4.4

UNB UH UNB BUY 2,133 AED 7,836 3.2 4.7 49.7 5.6 5.4 4.9 7.3 14.0 0.4 0.7 0.6 0.6 11.4 11.0 11.6 6.5 8.4 8.3 3.4 3.4 3.2

TAMWEEL UHTamweel BUY 362 AED 1,330 1.3 1.7 31.8 15.5 12.5 12.2 16.1 12.6 1.0 0.5 0.5 0.5 3.6 4.4 4.4 3.9 3.9 4.7 7.9 6.5 5.8

MASQ UH Mashreq HOLD 2,424 AED 8,902 52.7 62.4 18.6 10.1 8.9 7.8 9.2 23.3 0.4 0.7 0.6 0.6 6.9 7.4 8.1 4.3 4.1 4.0 4.6 4.3 4.0

RAKBANK UHRakbank BUY 1,730 AED 6,354 1.5 6.4 333.6 1.9 1.9 2.0 8.5 2.3 0.8 0.4 0.4 0.3 23.7 20.4 17.9 24.1 23.7 23.0 1.4 1.4 1.5

UAE banks 39,578 145,367 42.0 8.3 7.5 6.6 10.7 1.0 0.9 0.8 11.8 12.0 12.6 5.2 5.6 6.0 4.3 4.1 3.8

CBQK QD CBQ HOLD 5,002 QAR 18,212 72.8 80.1 10.0 9.3 9.0 8.2 9.0 7.9 1.1 1.2 1.2 1.1 13.1 13.1 13.8 8.2 8.2 5.9 9.4 8.6 7.9

DHBK QD Doha HOLD 3,190 QAR 11,616 56.0 61.7 10.1 9.9 10.2 9.4 10.3 3.2 3.2 1.5 1.5 1.4 16.0 14.0 15.0 8.9 8.9 5.2 8.3 8.5 7.7

QIBK QD QIB HOLD 5,062 QAR 18,431 77.5 85.7 10.6 12.4 10.7 10.1 11.1 9.0 1.2 1.6 1.5 1.5 12.8 14.2 14.4 5.1 6.9 7.4 10.0 8.9 8.1

QNBK QD QNB BUY 25,944 QAR 94,463 133.4 193.0 44.7 10.8 9.5 8.4 12.2 13.5 0.7 2.0 1.7 1.5 18.8 18.9 18.8 3.6 4.1 4.6 9.5 8.4 7.5

MARK QD MARK HOLD 5,613 QAR 20,438 27.2 27.8 2.4 14.5 13.2 11.2 11.5 15.7 0.8 2.1 2.0 1.8 15.2 15.2 16.5 3.7 3.7 3.7 13.4 11.2 9.4

KCBK QD Khaliji SELL 1,741 QAR 6,340 17.4 13.9 (20.1) 13.1 16.4 14.3 11.4 3.1 5.3 1.2 1.2 1.2 9.0 7.1 8.1 5.7 5.7 5.7 11.9 13.0 10.8

QIIK QD QIIB Hold 2,174 QAR 7,917 51.8 53.2 2.6 12.0 11.9 11.5 11.8 5.5 2.2 1.6 1.5 1.5 12.9 12.7 13.0 7.2 7.6 7.9 10.9 10.8 9.9

Qatar banks 48,727 177,417 26.2 11.5 10.5 9.4 13.2 1.7 1.6 1.5 15.1 15.3 15.8 4.8 5.3 5.1 9.9 9.0 8.0

CIEB EY CAE BUY 578 EGP 3,521 12.1 15.5 28.2 7.6 7.2 6.2 8.0 14.1 0.5 1.6 1.4 1.2 20.0 18.4 19.0 5.4 5.8 6.2 4.6 4.5 3.9

COMI EY CIB BUY 3,293 EGP 20,067 32.9 44.2 34.4 8.7 7.2 6.4 8.6 18.5 0.4 1.8 1.6 1.3 23.7 23.3 22.5 3.3 3.7 3.8 5.7 5.1 4.5

HDBK EY HDB HOLD 285 EGP 1,737 14.3 14.2 (0.3) 11.7 8.0 6.4 6.4 33.6 0.2 0.7 0.6 0.6 5.8 8.1 9.6 3.4 5.0 6.2 6.7 4.9 3.9

NSGB EY NSGB HOLD 2,897 EGP 17,653 39.9 39.9 0.2 11.2 10.3 8.9 8.9 13.3 0.8 2.1 1.9 1.7 20.3 19.3 19.7 3.1 3.4 3.9 7.4 6.9 6.0

EGBE EY EGB SELL 338 USD 2,030 1.7 1.16 (31.8) 16.3 15.8 14.8 60.9 9.3 1.7 1.8 1.7 1.5 11.5 10.8 10.8 1.8 1.9 2.0 1.8 1.7 1.6

Egypt banks 7,391 45,008 16.2 10.0 8.7 7.6 10.1 1.8 1.6 1.4 18.2 18.3 18.4 3.3 3.6 4.0 6.4 5.8 5.1

AUDI LB Audi BUY 1,917 USD 1,917 5.5 7.3 32.3 4.9 5.4 4.8 6.4 6.3 0.9 0.9 0.8 0.8 19.9 16.1 16.4 7.7 7.0 7.9 3.3 3.5 3.1

BLOM LB BLOM BUY 1,591 USD 1,591 7.4 10.5 41.4 5.0 4.9 4.3 6.0 12.7 0.4 0.8 0.8 0.7 17.8 16.3 16.7 6.0 6.8 8.2 3.4 3.3 2.9

BYB LB Byblos HOLD 843 USD 843 1.5 1.4 (4.1) 6.0 5.7 5.0 4.8 12.2 0.5 0.6 0.6 0.6 11.1 10.7 11.4 6.6 6.8 7.8 3.2 3.0 2.6

BOB LB BOB SELL 959 USD 959 19.0 10.5 (44.8) 13.3 11.7 10.0 5.5 16.9 0.7 1.8 1.7 1.5 14.3 15.1 16.1 3.0 3.9 4.5 7.0 6.1 5.3

Lebanon banks 5,309 5,309 15.3 5.8 5.9 5.2 6.8 0.6 0.6 0.5 15.8 14.2 14.7 6.1 6.3 7.3 2.5 2.4 2.1

ARNB AB ANB BUY 6,403 SAR 24,012 28.1 38.5 37.0 10.1 8.7 7.3 10.0 18.6 0.5 1.3 1.2 1.1 12.8 13.6 14.8 3.9 4.4 5.0 8.0 7.0 6.0

RJHI AB Al Rajhi BUY 29,399 SAR 110,250 73.8 94.9 28.6 13.0 11.5 10.4 13.4 13.1 0.9 3.1 2.8 2.5 23.1 23.8 23.8 4.4 4.8 5.2 11.2 9.9 8.9

BSFR AB BSFR HOLD 7,666 SAR 28,748 31.9 37.1 16.1 9.6 8.9 8.4 9.8 7.3 1.2 1.2 1.1 1.0 13.3 12.3 11.7 2.2 2.5 2.8 8.4 7.6 7.1

RIBL AB Riyad BUY 9,280 SAR 34,800 23.2 32.4 39.8 10.1 9.5 8.3 11.6 13.2 0.7 1.1 1.1 1.0 10.9 11.1 12.0 5.8 6.3 6.7 8.4 7.9 7.0

SAMBA AB Samba BUY 11,304 SAR 42,390 46.8 64.7 38.2 9.4 8.6 7.8 10.8 13.4 0.6 1.4 1.2 1.1 14.7 14.5 14.6 3.7 4.1 4.5 8.6 7.8 7.0

SABB AB SABB HOLD 8,506 SAR 31,899 31.7 37.0 16.8 12.6 8.2 7.6 8.9 13.4 0.6 1.4 1.3 1.2 14.5 13.5 13.6 2.1 2.2 2.4 8.9 7.8 7.0

AAAL AB SHB BUY 2,858 SAR 10,716 26.9 37.3 38.5 9.4 8.9 7.9 10.9 11.2 0.8 1.2 1.1 1.0 13.7 12.7 13.2 3.7 4.1 4.5 8.0 7.2 6.4

ALBI AB Albilad BUY 2,376 SAR 8,910 29.5 36.0 21.9 9.0 11.3 9.8 12.0 2.7 4.2 2.0 1.7 1.5 24.5 16.0 15.8 -- 0.8 0.8 10.4 9.3 8.3

BJAZ AB Aljazeera SELL 2,232 SAR 8,370 27.5 22.8 (17.3) 17.1 14.2 12.1 10.0 22.1 0.6 1.5 1.4 1.3 9.6 10.0 10.9 2.0 2.0 2.2 13.3 11.2 9.4

SIBC AB SIB BUY 2,398 SAR 8,993 16.3 19.6 20.6 11.5 9.7 8.4 10.2 18.2 0.5 1.0 0.9 0.9 8.6 9.6 10.3 3.4 3.7 4.0 8.4 8.1 7.3

ALINMA AB Alinma HOLD 5,520 SAR 20,700 13.7 15.4 12.7 31.7 20.4 14.6 16.4 44.3 0.5 1.2 1.2 1.1 3.8 5.6 7.3 -- -- 2.9 24.9 16.6 12.0

KSA banks 87,940 329,788 27.2 12.0 10.8 9.6 13.7 1.6 1.5 1.3 13.3 13.5 13.9 2.6 2.8 3.0 9.8 8.7 7.7


July 4 2012

Region – Banks

July 9 2012

Banks


Exhibit 134: MENA banks valuation screen (continued)


Exhibit 135: MENA diversified financials valuation screen




NBK KK NBK HOLD 14,710 KWD 4,136 1.0 1.1 15.0 12.8 12.5 12.6 14.5 2.4 5.1 2.2 2.1 2.0 16.1 17.6 16.8 3.8 3.9 3.9 10.3 10.0 10.0

KFIN KK KFH SELL 7,024 KWD 1,975 0.7 0.59 (13.8) 18.2 14.0 8.7 7.5 34.3 0.4 1.6 1.5 1.2 9.1 11.0 14.6 1.4 1.3 2.9 6.4 6.2 5.0

GBK KK Gulf Bank SELL 3,699 KWD 1,040 0.4 0.34 (14.1) 30.5 19.4 16.8 14.5 40.1 0.5 2.2 2.0 1.8 9.1 10.7 11.1 -- -- 1.3 8.8 8.3 7.8

BURG KK Burgan BUY 2,857 KWD 803 0.5 0.60 14.7 13.6 11.0 9.6 11.0 20.7 0.5 2.4 2.1 1.9 19.5 20.5 20.8 1.8 1.8 3.8 6.9 6.2 5.5

BOUBYAN KKBoubyan SELL 3,793 KWD 1,066 0.6 0.29 (52.3) 79.9 40.8 30.7 14.7 44.0 0.9 4.1 3.7 3.3 5.2 9.5 11.4 -- 0.3 0.3 37.3 27.7 22.5

Kuwait banks 32,084 9,021 (2.6) 16.6 13.9 11.8 13.6 2.2 1.9 1.7 13.0 13.9 14.7 2.2 2.3 2.8 9.3 8.6 7.7

BKMB OM Muscat BUY 2,929 OMR 1,127 0.55 0.80 46.0 7.8 7.4 6.5 9.5 14.6 0.5 1.2 1.0 0.9 15.6 14.8 15.1 3.8 4.1 4.5 5.9 5.2 4.7

BKSB OM Sohar HOLD 389 OMR 150 0.14 0.15 12.2 8.0 7.4 6.2 7.0 14.2 0.5 1.0 0.9 0.8 13.0 12.4 13.5 4.4 4.4 4.4 5.5 4.9 4.1

HBMO OM HBMO SELL 1,133 OMR 436 0.22 0.22 (1.1) 13.1 11.6 10.0 9.9 13.2 0.9 1.3 1.3 1.2 9.8 11.1 12.1 4.6 4.6 4.6 13.9 9.1 7.6

Oman banks 4,450 1,713 31.1 9.5 8.0 6.9 10.4 1.2 1.1 1.0 12.9 13.9 14.4 3.0 3.2 3.5 6.7 5.7 4.9

AUB BI Ahli United HOLD 3,066 BHD 3,066 0.5 0.63 17.4 7.9 7.1 6.3 8.4 12.3 0.6 1.5 1.3 1.1 19.6 19.4 19.3 5.6 5.6 5.6 5.1 4.7 4.3

Bahrain banks 3,066 3,066 17.4 8.6 7.7 6.9 9.1 4.7 4.2 3.7 19.6 19.4 19.3 1.7 1.7 1.7 5.1 4.7 4.3

MENA banks' avg. 228,544 24.7 10.7 9.6 8.5 12.0 1.4 1.3 1.2 14.1 14.4 15.0 3.5 3.8 4.0 8.2 7.6 6.9




SHUAA UH Shuaa SELL 178 AED 655 0.6 0.63 (1.0) (21.7) (49.7) 228.2 (49.2) na na 0.6 0.6 0.6 (2.7) (1.2) 0.3 -- -- -- (27.5) (61.2) 889

HRHO EY EFG BUY 1,036 EGP 6,313 13.3 16.6 25.1 15.3 13.3 12.0 16.6 12.2 1.1 1.8 1.6 1.5 5.5 6.7 7.1 30.1 2.1 3.6 8.2 6.9 6.0

DFM UH DFM SELL 2,104 AED 7,728 1.0 0.74 (22.8) 161.0 44.7 33.5 34.5 83.1 0.5 3.6 3.4 3.1 0.6 2.2 2.9 -- -- -- 160.2 44.5 33.3

SALAMA UHSalama BUY 229 AED 841 0.7 0.8 20.1 16.2 7.7 8.3 9.3 28.9 0.3 0.6 0.5 0.5 3.5 6.9 6.0 -- -- -- na na na

QATI QD Qatar Insurance BUY 1,722 QAR 6,270 70.2 85.3 21.6 11.2 9.7 9.4 11.8 6.7 1.4 1.8 1.7 1.7 15.7 17.9 17.9 8.5 8.8 9.0 na na na

TAWUNIYA ABTawuniya BUY 870 SAR 3,263 43.5 52.8 21.3 11.2 9.4 7.0 11.4 21.8 0.4 1.6 1.4 1.3 14.8 16.2 19.4 3.1 3.7 5.0 na na na

MEDGULF ABMedGulf SELL 567 SAR 2,128 26.2 19.3 (26.4) 28.6 14.4 9.7 10.6 NA NA 2.9 2.6 2.2 10.3 18.8 24.8 1.6 3.1 4.6 na na na

MENA financials' avg. 235,251 24.3 11.0 9.9 8.7 12.2 1.5 1.4 1.2 13.9 14.2 14.8 3.5 4.0 4.0 8.5 7.8 7.1


July 4 2012

Region – Banks

July 9 2012

Banks


Exhibit 136: MENA financials: Earnings estimates (LCY)


Company Currency

FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e

ADCB HOLD AED 0.54 0.48 0.51 0.55 3.21 3.67 3.97 4.31 0.20 0.15 0.16 0.18 0.35 0.46 0.51 53% 5% (1%) 9.6 7.3 6.6

ADIB SELL AED 0.49 0.47 0.46 0.51 2.78 2.88 3.12 3.42 0.24 0.17 0.17 0.18 0.49 0.56 0.62 1% (15%) (25%) 6.8 5.9 5.3

CBD BUY AED 0.42 0.38 0.41 0.48 3.26 3.44 3.64 3.89 0.20 0.21 0.22 0.24 0.52 0.56 na (19%) (32%) na 5.6 5.2 na

DIB SELL AED 0.27 0.23 0.24 0.29 2.41 2.51 2.62 2.80 0.13 0.13 0.12 0.12 0.28 0.33 0.41 (5%) (32%) (40%) 7.0 5.9 4.8

ENBD HOLD AED 0.46 0.34 0.32 0.40 4.52 4.62 4.77 5.00 0.20 0.15 0.14 0.14 0.43 0.57 0.80 7% (41%) (60%) 7.1 5.3 3.8

FGB BUY AED 1.24 1.32 1.47 1.65 7.55 8.54 9.18 9.92 0.50 0.75 0.83 0.94 1.23 1.43 1.78 0% (8%) (17%) 8.0 6.9 5.5

NBAD BUY AED 0.96 1.09 1.35 1.56 5.77 6.57 7.60 8.80 0.22 0.26 0.30 0.35 1.04 1.19 1.44 (8%) (9%) (6%) 8.5 7.4 6.1

UNB BUY AED 0.60 0.56 0.58 0.64 4.28 4.64 4.97 5.30 0.15 0.20 0.27 0.26 0.58 0.66 0.79 4% (15%) (27%) 5.4 4.8 4.0

Tamweel BUY AED 0.10 0.08 0.10 0.10 2.32 2.34 2.39 2.43 0.05 0.05 0.05 0.06 0.10 0.16 0.19 3% (49%) (46%) 12.7 7.9 6.7

Mashreq HOLD AED 4.85 5.21 5.89 6.78 72.53 77.74 81.38 86.02 2.00 2.25 2.14 2.08 na na na na na na na na na

Rakbank BUY AED 0.79 0.79 0.77 0.75 3.08 3.58 3.99 4.40 0.30 0.35 0.35 0.34 na na na na na na na na na

CBQ HOLD QAR 7.61 7.85 8.06 8.85 57.51 59.14 60.99 63.60 6.00 6.00 6.00 4.31 8.41 9.48 10.62 (9%) (15%) (17%) 8.7 7.7 6.9

Doha HOLD QAR 6.00 5.68 5.49 5.96 34.26 37.96 38.31 39.12 5.00 5.00 5.00 2.91 6.32 7.04 8.29 (5%) (22%) (28%) 8.9 8.0 6.8

QIB HOLD QAR 5.78 6.23 7.24 7.71 46.49 48.07 51.15 53.30 4.50 3.98 5.36 5.71 6.69 7.50 8.44 (14%) (3%) (9%) 11.6 10.3 9.2

QNB BUY QAR 10.73 12.32 14.07 15.86 59.85 68.23 77.14 87.12 3.64 4.80 5.49 6.19 12.60 14.24 16.26 (15%) (1%) (2%) 10.6 9.4 8.2

MARK HOLD QAR 1.88 1.87 2.05 2.42 11.34 12.66 13.67 15.03 0.00 1.00 1.00 1.00 1.93 2.18 2.22 (2%) (6%) 9% 14.1 12.5 12.3

Khaliji SELL QAR 1.35 1.33 1.06 1.22 14.22 14.52 14.55 14.74 1.00 1.00 1.00 1.00 na na na na na na na na na

QIIB Hold QAR 4.31 4.33 4.34 4.50 32.32 33.05 33.53 33.99 3.50 3.74 3.93 4.07 na na na na na na na na na

CAE BUY EGP 1.07 1.60 1.66 1.93 6.76 7.72 8.73 9.96 0.64 0.65 0.70 0.75 1.11 1.36 1.69 (4%) 22% 15% 10.9 8.9 7.2

CIB BUY EGP 2.72 3.79 4.55 5.16 14.00 18.00 21.07 24.70 1.00 1.10 1.20 1.25 3.15 3.70 4.33 (14%) 23% 19% 10.4 8.9 7.6

HDB HOLD EGP 1.30 1.22 1.77 2.21 20.65 21.37 22.44 23.76 0.52 0.49 0.71 0.88 1.58 2.33 2.64 (18%) (24%) (16%) 9.0 6.1 5.4

NSGB HOLD EGP 3.36 3.56 3.86 4.48 16.42 18.74 21.25 24.16 1.25 1.25 1.35 1.57 3.57 4.14 4.68 (6%) (7%) (4%) 11.2 9.6 8.5

EGB SELL EGP 0.04 0.10 0.11 0.11 0.86 0.96 1.03 1.10 0.03 0.03 0.03 0.03 na na na na na na na na na

Audi BUY USD 0.99 1.12 1.01 1.14 5.28 5.97 6.60 7.31 0.38 0.43 0.38 0.43 0.98 1.13 na 1% (11%) na 5.6 4.9 na

BLOM BUY USD 1.44 1.47 1.52 1.74 7.77 8.80 9.82 10.94 0.43 0.44 0.50 0.61 1.34 1.60 na 8% (5%) na 5.5 4.6 na

Byblos HOLD USD 0.26 0.25 0.26 0.30 2.12 2.36 2.53 2.72 0.10 0.10 0.10 0.12 0.24 0.27 0.27 8% (2%) 10% 6.2 5.6 5.5

BOB 1.49 1.42 1.63 1.90 9.51 10.37 11.26 12.31 0.59 0.57 0.73 0.85 na na na na na na na na na

ANB BUY SAR 2.55 2.79 3.24 3.84 19.52 21.12 23.03 25.35 1.00 1.10 1.25 1.40 2.84 3.30 3.88 (10%) (2%) (1%) 9.9 8.5 7.2

Al Rajhi BUY SAR 4.92 5.69 6.43 7.09 21.88 23.92 26.35 29.10 3.25 3.25 3.55 3.85 5.51 6.39 7.29 (11%) 1% (3%) 13.4 11.5 10.1

BSFR HOLD SAR 3.22 3.32 3.60 3.78 21.74 27.07 29.97 32.94 0.56 0.70 0.80 0.90 3.55 4.03 4.60 (9%) (11%) (18%) 9.0 7.9 6.9

Riyad BUY SAR 2.10 2.29 2.45 2.79 20.11 20.86 21.94 23.25 1.30 1.35 1.45 1.55 2.24 2.58 3.01 (6%) (5%) (7%) 10.4 9.0 7.7

Samba BUY SAR 4.78 4.99 5.42 6.01 31.23 34.35 37.93 41.97 1.65 1.75 1.90 2.10 5.26 5.99 6.84 (9%) (10%) (12%) 8.9 7.8 6.8

SABB HOLD SAR 2.71 2.51 3.85 4.18 17.17 21.93 24.41 27.22 0.56 0.65 0.70 0.75 3.12 3.59 4.07 (13%) 7% 3% 10.2 8.8 7.8

SHB BUY SAR 2.60 2.88 3.03 3.42 18.67 22.17 24.11 26.33 0.95 1.00 1.10 1.20 2.85 3.26 3.73 (9%) (7%) (8%) 9.4 8.2 7.2

Albilad BUY SAR 1.10 3.28 2.60 3.00 11.39 14.57 17.09 19.76 0.00 0.00 0.25 0.25 1.76 2.45 2.94 (37%) 6% 2% 16.8 12.0 10.1

Aljazeera SELL SAR 1.01 1.61 1.94 2.28 15.78 18.07 19.39 21.10 0.53 0.55 0.55 0.60 1.58 2.10 2.54 (36%) (8%) (10%) 17.4 13.1 10.8

SIB BUY SAR 1.29 1.41 1.67 1.93 15.56 16.36 17.44 18.72 0.59 0.55 0.60 0.65 1.51 1.72 1.92 (15%) (3%) 1% 10.8 9.5 8.5

Alinma HOLD SAR 0.29 0.43 0.67 0.94 10.60 11.01 11.64 12.74 0.00 0.00 0.00 0.40 0.46 0.70 1.16 (37%) (3%) (19%) 29.8 19.7 11.9

Rating BBG consensus PEEPS tNAV DPS BBG EPS consensus Deviation vs consensus

July 4 2012

Region – Banks

July 9 2012

Banks


Exhibit 137: MENA financials: Earnings estimates (LCY)


Exhibit 138: MENA diversified financials: Earnings estimates (LCY)


Company Currency


NBK HOLD KWD 0.07 0.07 0.08 0.08 0.49 0.44 0.46 0.47 0.04 0.04 0.04 0.04 0.07 0.09 0.10 (4%) (14%) (22%) 13.0 10.8 9.8

KFH SELL KWD 0.03 0.04 0.05 0.08 0.41 0.43 0.47 0.58 0.01 0.01 0.01 0.02 0.04 0.06 0.08 (33%) (22%) (0%) 16.4 11.0 8.7

Gulf Bank SELL KWD 0.01 0.01 0.02 0.02 0.17 0.18 0.20 0.22 0.00 0.00 0.00 0.01 na na na na na na na na na

Burgan BUY KWD 0.03 0.04 0.05 0.05 0.18 0.22 0.24 0.28 0.01 0.01 0.01 0.02 0.04 0.05 0.05 (16%) 3% 1% 13.3 11.3 9.6

Boubyan SELL KWD 0.00 0.01 0.01 0.02 0.14 0.15 0.16 0.18 0.00 0.00 0.00 0.00 na na na na na na na na na

Muscat BUY OMR 0.1 0.1 0.1 0.1 0.43 0.48 0.53 0.58 0.02 0.02 0.02 0.02 0.07 0.08 0.10 (11%) (12%) (12%) 7.4 6.5 5.7

Sohar HOLD OMR 0.0 0.0 0.0 0.0 0.13 0.14 0.15 0.17 0.01 0.01 0.01 0.01 0.02 0.02 na (19%) (3%) na 7.6 7.2 na

HBMO SELL OMR 0.0 0.0 0.0 0.0 0.18 0.17 0.17 0.19 0.01 0.01 0.01 0.01 0.02 0.02 0.02 (7%) (6%) 9% 10.9 10.9 10.9

AUB HOLD BHD 0.06 0.07 0.08 0.09 0.33 0.37 0.41 0.47 0.03 0.03 0.03 0.03 na na na na na na na na na


Company Currency


Shuaa SELL AED (0.28) (0.03) (0.01) 0.00 1.07 1.04 1.03 1.03 -- -- -- -- (0.17) (0.01) na 63% 16% na (3.7) (57.6) na

EFG BUY EGP 0.28 0.87 1.00 1.11 8.60 7.57 8.29 8.93 1.00 4.00 0.29 0.48 0.38 0.74 0.96 (28%) 36% 16% 34.6 18.1 13.9

DFM SELL AED (0.00) 0.01 0.02 0.03 0.25 0.27 0.28 0.31 -- -- -- -- 0.02 0.03 0.04 (105%) (29%) (23%) 56.1 31.8 25.8

Salama BUY AED 0.05 0.04 0.09 0.08 1.19 1.23 1.33 1.41 -- -- -- -- na na na na na na na na na

Qatar InsuranceBUY QAR 6.64 6.26 7.26 7.47 39.57 40.01 41.23 42.49 5.66 5.95 6.17 6.35 na na na na na na na na na

Tawuniya BUY SAR 5.76 3.88 4.64 6.23 25.14 27.29 30.14 33.95 2.00 1.36 1.63 2.18 na na na na na na na na na

MedGulf SELL SAR 2.56 0.91 1.82 2.71 8.67 9.17 10.17 11.66 1.25 0.41 0.82 1.22 na na na na na na na na na


July 4 2012

Region – Banks

July 9 2012

Banks


Exhibit 139: MENA banks: Assets and returns


Company Arqaam Currency CET1

Rating FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 11A FY 12e FY 13e

ADCB HOLD AED 137.6 154.3 164.0 1.6% 12.1% 6.3% 2.0% 1.4% 1.4% 15.9% 14.5% 14.6% 11.5% 16.7% 12.0% 12.0%

ADIB SELL AED 60.6 69.5 72.8 (2.0%) 14.6% 4.8% 1.7% 1.4% 1.3% 14.2% 12.7% 12.9% 8.0% 16.3% 15.0% 13.6%

CBD BUY AED 35.2 36.6 38.4 1.1% 4.0% 4.8% 2.3% 2.0% 2.1% 16.6% 17.0% 17.1% 16.6% 18.8% 16.2% 16.5%

DIB SELL AED 75.3 97.2 99.4 (4.9%) 29.1% 2.3% 1.3% 0.9% 0.9% 13.6% 11.0% 10.3% 12.1% 11.0% 9.2% 9.5%

ENBD HOLD AED 222.1 238.9 246.2 0.7% 7.6% 3.1% 1.0% 0.7% 0.6% 13.0% 12.4% 12.3% 10.5% 9.3% 6.4% 5.8%

FGB BUY AED 136.0 157.8 172.5 12.7% 16.0% 9.3% 2.6% 2.4% 2.4% 18.5% 17.9% 17.5% 13.3% 16.6% 15.5% 15.7%

NBAD BUY AED 174.8 206.8 228.5 15.3% 18.3% 10.5% 2.0% 1.9% 2.2% 15.6% 14.7% 15.0% 11.9% 16.3% 16.6% 18.2%

UNB BUY AED 76.7 81.9 86.0 0.4% 6.9% 4.9% 1.8% 1.6% 1.5% 16.7% 18.0% 18.2% 13.1% 13.7% 11.4% 11.0%

Tamweel BUY AED 10.0 10.2 10.5 (7.5%) 1.4% 2.8% 1.0% 0.8% 1.0% 22.9% 23.0% 22.9% 22.4% 4.8% 3.6% 4.4%

MASQ HOLD AED 77.9 84.4 89.7 2.1% 8.4% 6.3% 1.1% 1.0% 1.1% 16.2% 16.1% 15.8% 15.5% 6.8% 6.9% 7.4%

RAKBANK BUY AED 15.8 19.1 20.7 9.1% 20.7% 8.1% 7.6% 6.3% 5.7% 22.0% 21.8% 23.3% 19.1% 28.6% 23.7% 20.4%

CBQ HOLD QAR 61.3 70.5 79.8 23.0% 15.1% 13.2% 3.0% 2.7% 2.4% 16.4% 14.6% 13.3% 12.5% 13.7% 13.1% 13.1%

Doha HOLD QAR 49.9 52.7 59.4 18.7% 5.5% 12.8% 2.4% 2.4% 2.0% 10.7% 12.6% 11.3% 10.1% 18.5% 16.0% 14.0%

QIB HOLD QAR 34.0 43.2 47.3 (9.4%) 27.1% 9.5% 3.9% 3.3% 3.5% 23.0% 19.9% 19.4% 21.8% 13.3% 12.8% 14.2%

QNB BUY QAR 156.4 179.8 205.3 39.6% 15.0% 14.2% 4.7% 4.7% 4.7% 22.0% 21.9% 22.2% 21.2% 22.3% 18.8% 18.9%

MAR HOLD QAR 35.2 46.4 54.0 5.2% 31.8% 16.4% 3.9% 3.0% 2.8% 21.8% 17.6% 16.2% 20.1% 17.6% 15.2% 15.2%

Khaliji SELL QAR 20.8 28.0 31.3 16.4% 34.7% 11.5% 2.3% 1.7% 1.2% 22.0% 17.7% 15.9% 16.3% 9.5% 9.0% 7.1%

QIIB Hold QAR 16.5 19.3 22.2 27.3% 17.2% 14.9% 3.9% 3.3% 2.9% 24.3% 22.0% 19.2% 22.6% 14.6% 12.9% 12.7%

CAE BUY EGP 14.6 18.0 20.5 9.9% 22.9% 13.8% 1.9% 2.3% 2.1% 11.6% 10.2% 10.3% 12.0% 13.6% 20.0% 18.4%

CIB BUY EGP 55.4 64.2 72.5 13.9% 15.9% 13.0% 2.6% 3.2% 3.4% 12.5% 13.5% 13.9% 13.4% 19.8% 23.7% 23.3%

HDB HOLD EGP 8.0 20.7 22.7 1.4% 157.2% 9.9% 1.9% 0.7% 0.9% 23.0% 9.2% 8.5% 20.8% 6.3% 5.8% 8.1%

NSGB HOLD EGP 42.7 51.2 58.2 11.6% 20.0% 13.6% 3.2% 2.8% 2.7% 12.8% 12.5% 12.7% 13.4% 21.6% 20.3% 19.3%

EGB SELL EGP 4.5 5.2 5.8 (6.2%) 17.0% 11.9% 1.2% 2.2% 2.0% 21.4% 19.1% 18.4% 17.4% 5.0% 11.5% 10.8%

Audi BUY USD trn 27.3 28.9 30.3 7.6% 5.7% 4.9% 1.9% 2.0% 1.7% 10.4% 11.2% 11.9% 8.5% 18.7% 19.9% 16.1%

BLOM BUY USD trn 20.1 23.6 25.7 12.9% 17.6% 8.6% 2.3% 2.0% 1.9% 12.8% 12.8% 13.0% 11.2% 18.9% 17.8% 16.3%

Byblos HOLD USD trn 16.2 16.9 18.7 11.7% 4.6% 10.6% 1.3% 1.2% 1.1% 13.3% 14.5% 13.9% 10.3% 12.3% 11.1% 10.7%

BOB SELL USD trn 9.4 10.7 11.4 15.8% 14.1% 6.8% 1.2% 1.0% 1.1% 14.5% 13.7% 13.4% 6.1% 14.5% 14.3% 15.1%

ANB BUY SAR 104.4 124.2 140.6 8.3% 19.0% 13.2% 1.7% 1.8% 1.8% 15.0% 13.8% 13.4% 14.0% 10.9% 12.8% 13.6%

Al Rajhi BUY SAR 173.0 206.0 235.1 11.9% 19.1% 14.1% 3.8% 3.9% 3.8% 14.7% 14.1% 14.2% 14.6% 21.0% 23.1% 23.8%

BSFR HOLD SAR 138.5 158.2 173.7 10.2% 14.2% 9.8% 2.1% 1.9% 1.8% 13.9% 13.7% 13.9% 13.0% 15.2% 13.3% 12.3%

Riyad BUY SAR 181.1 194.0 208.8 10.5% 7.2% 7.6% 1.7% 1.7% 1.7% 14.8% 14.6% 14.3% 15.3% 10.1% 10.9% 11.1%

Samba BUY SAR 156.1 196.4 217.6 8.8% 25.8% 10.8% 2.7% 2.2% 2.2% 18.1% 15.9% 15.8% 14.8% 15.5% 14.7% 14.5%

SABB HOLD SAR 120.0 138.5 162.1 10.0% 15.4% 17.0% 2.2% 2.0% 1.9% 11.8% 13.5% 12.8% 13.4% 16.2% 14.5% 13.5%

SHB BUY SAR 53.1 62.7 69.4 5.8% 18.1% 10.7% 1.6% 1.8% 1.7% 12.7% 12.4% 12.3% 12.9% 12.5% 13.7% 12.7%

Albilad BUY SAR 20.0 26.3 29.7 10.0% 31.5% 12.9% 1.6% 3.6% 2.6% 15.4% 13.2% 14.6% 15.6% 10.1% 24.5% 16.0%

Aljazeera SELL SAR 34.7 43.2 50.5 16.1% 24.5% 16.8% 0.8% 1.2% 1.2% 13.6% 13.8% 12.7% 11.7% 6.3% 9.6% 10.0%

SIB BUY SAR 42.5 48.0 54.1 (5.3%) 13.0% 12.6% 1.6% 1.6% 1.6% 17.2% 17.8% 16.7% 16.1% 8.2% 8.6% 9.6%

Alinma HOLD SAR 36.3 54.2 70.5 74.6% 49.3% 30.1% 0.7% 1.1% 1.4% 43.8% 30.5% 24.8% 39.0% 1.6% 3.8% 5.6%

RORWARWA GrowthRWA (bn) Tier I Ratio RotE

July 4 2012

Region – Banks

July 9 2012

Banks


Exhibit 140: MENA banks: Assets and returns (continued)


Company Arqaam Currency CET1

Rating FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 11A FY 12e FY 13e

NBK HOLD KWD 8.6 10.6 11.3 6.1% 23.6% 6.7% 3.5% 3.0% 3.1% 18.3% 16.5% 17.5% 15.9% 14.8% 16.1% 17.6%

KFH SELL KWD 10.4 12.4 13.6 4.0% 19.2% 9.3% 0.8% 0.9% 1.0% 13.5% 11.9% 11.7% 11.0% 6.8% 9.1% 11.0%

Gulf Bank SELL KWD 3.0 3.1 3.3 6.2% 5.0% 6.4% 1.0% 1.1% 1.6% 13.6% 14.1% 14.8% 13.6% 7.3% 9.1% 10.7%

Burgan BUY KWD 3.0 3.7 3.7 12.3% 23.4% 0.7% 1.7% 1.6% 2.0% 14.7% 14.6% 15.6% 14.3% 19.7% 19.5% 20.5%

Boubyan SELL KWD 0.9 1.0 1.3 12.2% 13.7% 24.3% 0.9% 1.3% 2.0% 25.5% 24.3% 21.5% 22.2% 3.3% 5.2% 9.5%

Muscat BUY OMR 6.6 8.0 9.2 16.6% 20.6% 14.9% 1.8% 1.7% 1.7% 11.9% 11.4% 12.7% 9.1% 15.9% 15.6% 14.8%

Sohar HOLD OMR 1.3 1.5 1.7 15.0% 16.2% 12.2% 1.1% 1.2% 1.2% 9.3% 9.6% 9.3% 9.3% 11.5% 13.0% 12.4%

HBMO SELL OMR 1.0 1.9 2.1 7.2% 101.4% 7.5% 1.9% 1.7% 1.8% 13.6% 13.4% 13.3% 12.1% 10.5% 9.8% 11.1%

AUB HOLD BHD 19.9 21.9 23.6 1.7% 9.9% 7.8% 1.5% 1.6% 1.7% 11.5% 11.2% 11.3% 10.3% 18.2% 19.6% 19.4%

RORWARWA GrowthRWA (bn) Tier I Ratio RotE

July 4 2012

Region – Banks

July 9 2012

Banks


Exhibit 141: MENA banks: Key performance indicators


Company Arqaam Currency

Rating FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 10A FY 11A

ADCB HOLD AED 9.6% 21.4% 10.8% 4.4% 7.1% 25.1% 6.3% 5.4% 2.5% (3.7%) 4.5% (1.0%) 33.0% 34.0% 32.6% 32.9% 80.3% 150.9% 110.6% 92.0%

ADIB SELL AED 21.2% 11.4% 1.9% 2.2% 31.0% 11.4% 3.3% 4.9% (9.8%) 0.0% (1.5%) (2.7%) 42.5% 42.5% 43.1% 44.3% 358.4% 216.7% 127.4% 102.3%

CBD BUY AED 6.9% (1.7%) 0.7% 4.9% 1.4% 4.0% 2.8% 3.9% 5.5% (5.7%) (2.1%) 1.0% 28.7% 30.4% 31.1% 30.8% 46.3% 100.0% 155.6% 101.7%

DIB SELL AED (3.1%) 10.5% (0.1%) 7.4% 2.0% 8.2% 0.0% 1.4% (5.0%) 2.4% (0.2%) 6.0% 42.3% 41.4% 41.4% 39.1% 201.8% 269.8% 108.7% 116.5%

ENBD HOLD AED (9.9%) 2.1% 0.5% (2.0%) (13.7%) 14.4% 0.3% (2.6%) 3.7% (12.3%) 0.2% 0.6% 32.4% 36.3% 36.2% 36.0% 100.3% 80.8% 91.6% 94.2%

FGB BUY AED 3.4% 2.3% 7.0% 8.5% 3.8% 9.1% 13.2% 13.8% (0.4%) (6.8%) (6.1%) (5.3%) 17.7% 18.9% 19.9% 20.9% 144.2% 134.5% 83.7% 87.2%

NBAD BUY AED 12.2% 9.8% 9.5% 18.3% 15.2% 17.3% 12.5% 13.3% (3.0%) (7.5%) (3.0%) 5.0% 30.5% 32.5% 33.4% 32.0% 76.8% 68.9% 74.5% 81.1%

UNB BUY AED 20.6% 11.1% 7.4% 2.5% 10.2% 1.9% 3.5% 7.6% 10.4% 9.2% 4.0% (5.0%) 28.0% 25.7% 24.7% 25.9% 139.2% 143.9% 91.8% 100.4%

Tamweel BUY AED (10.6%) (4.1%) (3.3%) 14.8% (23.4%) 2.6% 1.6% 3.8% 12.8% (6.7%) (4.9%) 11.0% 34.8% 37.3% 39.2% 35.4% na 29.4% 309.8% 100.5%

Mashreq HOLD AED (11.6%) (11.7%) (1.9%) 5.8% (0.4%) 1.7% 2.9% 5.3% (11.2%) (13.4%) (4.7%) 0.4% 40.2% 46.3% 48.6% 48.4% 218.1% 162.8% 127.4% 113.3%

Rakbank BUY AED 28.4% 19.2% 5.0% 1.7% 26.1% 20.4% 6.6% 4.2% 2.3% (1.2%) (1.6%) (2.6%) 42.5% 43.0% 43.6% 44.7% 79.9% 81.9% 210.8% 95.9%

CBQ HOLD QAR (7.8%) 11.8% 0.6% 9.8% 3.7% 11.2% 10.9% 10.2% (11.4%) 0.6% (10.3%) (0.4%) 30.7% 30.6% 33.7% 33.8% 191.1% 167.2% 93.9% 71.2%

Doha HOLD QAR 4.6% 9.1% 3.1% 2.4% 9.8% 10.0% 10.5% 11.4% (5.2%) (0.9%) (7.4%) (9.0%) 33.8% 34.1% 36.5% 39.7% 119.9% 123.2% 128.4% 91.6%

QIB HOLD QAR (4.3%) 19.7% 23.4% 11.4% 0.5% 57.1% 12.5% 9.0% (4.9%) (37.4%) 10.9% 2.4% 26.5% 34.8% 31.7% 31.0% 157.5% 187.1% 111.0% 74.4%

QNB BUY QAR 37.5% 35.5% 17.9% 13.6% 16.7% 24.1% 25.3% 17.7% 20.7% 11.4% (7.4%) (4.1%) 17.5% 16.0% 17.0% 17.6% 198.8% 162.5% 53.7% 88.7%

MAR HOLD QAR 21.0% 31.2% 3.8% 19.9% 15.3% 33.0% 10.9% 17.3% 5.7% (1.7%) (7.1%) 2.6% 17.3% 17.5% 18.7% 18.3% 129.7% 126.0% 131.2% 107.3%

Khaliji SELL QAR 45.6% 23.7% 0.6% (2.0%) 290.5% (1.0%) 7.0% 6.8% (244.9%) 24.6% (6.4%) (8.8%) 51.7% 41.4% 44.1% 48.0% 154.2% 159.1% 291.5% 66.7%

QIIB Hold QAR 8.1% 18.8% 6.3% 2.8% (12.1%) 39.3% 3.7% 10.0% 20.2% (20.4%) 2.5% (7.2%) 19.1% 22.4% 21.9% 23.4% 460.9% 965.9% 340.6% 137.7%

CAE BUY EGP 15.1% 8.5% 17.2% 4.5% 9.2% 17.6% 8.3% 7.0% 5.9% (9.1%) 8.9% (2.5%) 48.0% 52.0% 48.1% 49.2% 72.1% 117.2% 201.8% 127.0%

CIB BUY EGP 21.6% 1.2% 25.3% 11.6% 54.7% (0.1%) (3.9%) 10.5% (33.1%) 1.3% 29.2% 1.1% 42.6% 42.1% 32.3% 32.0% 47.2% 249.9% 104.6% 110.2%

HDB HOLD EGP 13.1% (5.4%) 3.5% 17.0% 24.1% 3.6% 5.8% 5.9% (11.0%) (9.0%) (2.3%) 11.1% 58.3% 63.8% 65.3% 59.1% 14.0% 84.1% 233.7% 126.7%

NSGB HOLD EGP 17.8% 7.8% 14.1% 7.8% 6.8% (18.2%) 8.9% 9.1% 11.0% 26.0% 5.2% (1.3%) 44.7% 33.9% 32.4% 32.8% 87.2% 135.4% 102.8% 113.3%

EGB SELL EGP 21.5% (20.8%) 51.2% 7.7% (0.8%) 6.4% 7.0% 8.0% 22.4% (27.1%) 44.2% (0.3%) 46.9% 63.0% 44.6% 44.7% 75.2% 97.2% 453.4% 94.4%

Audi BUY USD 20.1% 14.1% 5.4% (0.2%) 17.2% 9.8% 4.7% 7.3% 2.9% 4.2% 0.7% (7.5%) 47.4% 45.7% 45.3% 48.7% 440.6% 854.5% 245.3% 199.4%

BLOM BUY USD 19.6% 7.3% 5.1% 4.9% 12.8% 8.1% 7.1% 8.0% 6.8% (0.9%) (2.0%) (3.1%) 38.4% 38.7% 39.4% 40.6% 594.4% 426.0% 132.3% 168.6%

Byblos HOLD USD 19.6% 4.0% 1.4% 7.9% 20.4% (3.4%) 9.1% 8.6% (0.8%) 7.4% (7.8%) (0.7%) 46.6% 43.3% 46.6% 46.9% 321.5% na 104.8% na

BOB SELL USD 24.8% 11.5% 7.8% 11.1% 15.3% 21.0% 6.7% 7.6% 9.4% (9.5%) 1.1% 3.6% 46.3% 50.3% 49.7% 48.1% 346.7% na 64.5% na

ANB BUY SAR (0.4%) 0.8% 6.7% 11.6% 2.7% 7.9% 3.8% 7.2% (3.1%) (7.1%) 2.9% 4.3% 36.5% 39.1% 38.0% 36.5% 172.2% 169.2% 133.0% 130.1%

Al Rajhi BUY SAR 0.2% 7.2% 10.6% 11.9% 0.1% 16.7% 7.9% 8.7% 0.1% (9.5%) 2.6% 3.2% 25.9% 28.2% 27.5% 26.7% 202.6% 200.0% 88.2% 118.0%

BSFR HOLD SAR 2.3% 4.3% 9.0% 9.5% 8.7% 19.2% 5.7% 7.3% (6.3%) (14.8%) 3.3% 2.2% 28.6% 32.7% 31.7% 31.1% 177.2% 180.6% 100.3% 131.2%

Riyad BUY SAR 0.3% 5.7% 6.0% 7.1% 5.1% 8.9% 2.6% 6.5% (4.8%) (3.2%) 3.3% 0.6% 38.6% 39.7% 38.5% 38.2% 160.6% 139.2% 69.4% 119.2%

Samba BUY SAR (2.9%) (4.9%) 4.6% 8.8% (2.1%) 2.4% 1.4% 5.3% (0.8%) (7.3%) 3.2% 3.5% 27.7% 29.8% 28.9% 28.0% 242.2% 193.1% 142.6% 157.9%

SABB HOLD SAR (6.2%) 1.2% 6.2% 11.7% 4.6% (8.5%) 1.8% 8.1% (10.8%) 9.7% 4.3% 3.6% 36.2% 32.8% 31.4% 30.4% 221.8% 194.8% 108.7% 137.9%

SHB BUY SAR (9.0%) 2.6% 9.0% 8.8% (4.9%) 3.9% 5.3% 6.7% (4.0%) (1.2%) 3.8% 2.1% 39.5% 40.0% 38.6% 37.9% 224.9% 185.0% 157.1% 150.6%

Albilad BUY SAR 20.9% 25.0% 26.4% 10.0% (9.7%) 10.4% 11.4% 9.2% 30.6% 14.6% 15.1% 0.7% 65.3% 57.6% 50.8% 50.4% 280.8% 349.3% 253.8% 119.7%

Aljazeera SELL SAR (1.4%) 4.6% 33.1% 14.1% 5.3% 9.2% 11.0% 10.6% (6.6%) (4.6%) 22.1% 3.5% 66.2% 69.1% 57.6% 55.8% 309.2% 242.8% 153.7% 238.5%

SIB BUY SAR 15.3% (7.6%) 5.7% 5.8% 3.7% 11.6% 2.8% 8.7% 11.6% (19.2%) 2.9% (3.0%) 32.0% 38.6% 37.6% 38.6% 164.7% 89.7% 127.2% 132.1%

Alinma HOLD SAR (30.6%) 109.6% 27.3% 34.0% 0.9% 29.2% 13.2% 20.3% (31.5%) 80.4% 14.1% 13.7% 97.3% 59.9% 53.3% 47.9% 238.3% 136.1% 159.1% 109.7%

Rev Growth Cost Growth Jaws Cost / Income Ratio NSFRLCR

July 4 2012

Region – Banks

July 9 2012

Banks


Exhibit 142: MENA banks: Key performance indicators (Continued)


Company Ticker Arqaam Currency

Rating FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 10A FY 11ABanks

NBK NBK KK HOLD KWD (7.0%) 7.5% 14.4% 8.7% (11.6%) 1.8% 20.6% 5.7% 4.6% 5.6% (6.2%) 3.0% 32.7% 31.0% 32.7% 31.8% 83.7% 78.5% 347.1% 100.5%

KFH KFIN KK SELL KWD 6.9% 14.0% (8.4%) 4.0% 6.3% 20.4% 0.3% 4.0% 0.6% (6.5%) (8.7%) (0.1%) 43.3% 45.7% 50.1% 50.1% 104.6% 103.2% 365.3% 93.4%

Gulf Bank GBK KK SELL KWD 38.3% (16.1%) 8.7% 6.0% (1.6%) 10.0% (4.7%) 4.8% 39.8% (26.1%) 13.4% 1.3% 25.9% 34.0% 29.8% 29.5% 141.0% 126.9% 946.9% 89.9%

Burgan BURG KK BUY KWD 7.1% (0.9%) 13.6% 9.5% 49.9% (5.9%) 13.1% 5.5% (42.8%) 5.0% 0.5% 4.1% 39.6% 37.6% 37.4% 36.0% 131.7% 116.0% 1066.6% 114.2%

Boubyan BOUBYAN KK SELL KWD 498.1% 7.1% 33.5% 22.7% 13.0% 14.4% 11.7% 10.8% 485.1% (7.3%) 21.7% 11.9% 56.2% 60.0% 50.2% 45.3% 223.5% 242.6% 3828.0% 135.0%

Muscat BKMB OM BUY OMR (8.8%) 10.8% 12.9% 13.2% 25.3% 17.5% 10.5% 11.5% (34.1%) (6.7%) 2.3% 1.2% 38.8% 41.1% 40.2% 39.7% 315.3% 220.8% 631.0% 101.4%

Sohar BKSB OM HOLD OMR 20.9% 22.6% 18.0% 10.9% 13.8% 18.3% 6.5% 9.8% 7.2% 4.2% 11.4% 1.1% 55.6% 53.7% 48.5% 48.0% 145.5% 139.0% 2733.0% 104.8%

HBMO HBMO OM SELL OMR (6.9%) 5.1% 62.9% 36.8% 7.3% 18.5% 50.9% 23.2% (14.2%) (13.4%) 12.0% 13.6% 51.9% 58.5% 54.2% 48.8% 533.1% 172.2% 2511.8% 108.2%

AUB AUB BI HOLD BHD 7.2% 11.7% 5.0% 8.1% 7.6% 7.8% (1.7%) 6.3% (0.4%) 3.9% 6.8% 1.8% 36.0% 34.8% 32.5% 32.0% 76.1% 99.5% 66.9% 67.6%

NSFRLCRRev Growth Cost Growth Jaws Cost / Income Ratio

July 4 2012

Region – Banks

July 9 2012

Banks




Company Arqaam Currency

Rating FY 09 FY 10 FY 11 FY 12e FY 13e FY 09 FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13e

ADCB HOLD AED 2.4% 2.47% 2.91% 3.10% 3.03% 2.6% 2.3% 1.6% 1.5% 1.4% 11.1% 4.6% 5.9% 6.6% 44.1% 94.8% 86.0% 86.5%

ADIB SELL AED 4.0% 4.02% 4.08% 4.14% 4.08% 2.5% 0.9% 1.1% 1.2% 1.3% 7.1% 8.7% 8.8% 9.0% 63.6% 66.8% 78.3% 88.4%

CBD BUY AED 3.9% 3.91% 3.75% 3.69% 3.64% 1.3% 1.8% 1.6% 1.8% 1.8% 5.8% 13.1% 13.2% 13.3% 76.7% 47.4% 52.2% 53.4%

DIB SELL AED 3.2% 2.87% 3.33% 3.23% 3.21% 1.2% 1.1% 1.6% 2.0% 2.2% 8.3% 14.5% 15.0% 15.0% 59.0% 48.8% 48.4% 62.7%

ENBD HOLD AED 2.9% 2.62% 2.79% 2.65% 2.66% 1.4% 1.4% 2.2% 2.0% 2.0% 10.0% 13.8% 15.5% 16.5% 40.7% 43.4% 50.7% 58.5%

FGB BUY AED 3.6% 3.51% 3.71% 3.58% 3.57% 1.9% 1.7% 1.5% 1.4% 1.2% 4.6% 4.0% 4.5% 4.8% 72.1% 84.2% 65.1% 49.8%

NBAD BUY AED 2.6% 2.69% 2.70% 2.47% 2.54% 1.1% 0.8% 0.9% 0.8% 0.8% 2.6% 3.3% 3.6% 3.9% 101.6% 89.9% 84.0% 95.1%

UNB BUY AED 2.5% 2.60% 3.05% 3.16% 3.13% 0.5% 0.8% 1.0% 1.4% 1.3% 4.3% 3.7% 4.0% 4.3% 47.5% 74.7% 71.8% 66.9%

Tamweel BUY AED 2.4% 1.86% 2.41% 2.27% 2.53% 1.3% 1.1% 0.2% 0.4% 0.6% 6.7% 10.0% 11.0% 12.3% 51.7% 35.4% 33.6% 33.7%

Mashreq HOLD AED 2.5% 2.81% 2.63% 2.48% 2.53% 2.8% 3.2% 2.3% 2.3% 2.2% 11.9% 12.6% 12.8% 12.9% 61.0% 52.1% 59.9% 68.5%

Rakbank BUY AED 8.3% 8.75% 9.07% 8.90% 8.31% 2.0% 1.8% 1.7% 1.8% 1.8% 2.5% 2.5% 2.8% 3.2% 74.8% 71.3% 66.6% 61.7%

CBQ HOLD QAR 3.1% 3.32% 3.22% 2.80% 2.79% 1.4% 0.5% 0.6% 0.4% 0.7% 3.2% 1.2% 0.9% 1.4% 89.7% 107.8% 141.5% 119.7%

Doha HOLD QAR 3.0% 3.39% 3.63% 3.19% 3.10% 0.5% 1.1% 0.9% 0.6% 0.6% 4.9% 3.4% 3.5% 3.6% 73.8% 73.1% 104.4% 101.1%

QIB HOLD QAR 4.3% 3.21% 2.88% 3.48% 3.25% 0.1% 0.2% 0.0% 0.2% 0.7% 1.5% 1.2% 1.6% 1.9% 83.2% 97.7% 65.3% 83.9%

QNB BUY QAR 2.4% 2.95% 3.08% 2.95% 2.86% 0.3% 0.4% 0.6% 0.6% 0.5% 1.0% 1.1% 1.2% 1.3% 117.7% 118.9% 124.0% 128.7%

MAR HOLD QAR 3.4% 3.73% 1.64% 1.75% 1.87% 0.1% 0.0% 0.2% 0.3% 0.6% 0.0% 0.3% 0.5% 0.9% 100.5% 82.2% 159.1% 179.4%

Khaliji SELL QAR 2.5% 3.23% 2.70% 2.01% 2.14% 3.1% (0.9%) 0.4% 0.2% 0.6% 1.4% 0.5% 0.9% 1.3% 161.1% 296.5% 183.6% 154.0%

QIIB Hold QAR 4.5% 3.86% 3.72% 2.85% 2.88% 0.2% 0.1% 0.2% 0.2% 0.6% 3.9% 1.8% 2.0% 2.4% 30.6% 84.3% 68.6% 70.0%

CAE BUY EGP 3.1% 3.32% 3.54% 3.92% 3.77% 0.3% 0.3% 1.2% 1.1% 0.9% 2.6% 1.9% 3.0% 2.9% 107.6% 163.9% 110.4% 116.3%

CIB BUY EGP 3.5% 3.38% 3.48% 4.22% 4.02% 0.0% 0.0% 0.8% 0.8% 0.7% 2.8% 2.8% 3.1% 3.1% 125.4% 120.6% 121.0% 125.4%

HDB HOLD EGP 3.5% 3.48% 3.37% 3.48% 3.49% 0.3% 0.9% 0.7% 1.0% 1.0% 5.6% 6.0% 6.0% 5.0% 97.2% 91.1% 103.0% 131.2%

NSGB HOLD EGP 3.5% 3.43% 3.56% 4.02% 3.79% (1.0%) (0.2%) 0.4% 1.0% 0.8% 3.4% 3.0% 3.5% 3.3% 93.8% 101.3% 94.8% 100.6%

EGB SELL EGP 3.0% 3.41% 3.40% 3.89% 3.67% (0.6%) 0.5% 0.8% 0.8% 12.4% 11.2% 14.1% 14.1% 122.6% 126.3% 70.3% 70.7%

Audi BUY USD 1.9% 1.72% 1.94% 1.99% 2.03% 0.4% 0.4% 1.0% 1.3% 0.9% 3.3% 3.9% 3.8% 3.5% 55.0% 70.5% 83.3% 92.2%

BLOM BUY USD 2.2% 2.36% 2.33% 2.28% 2.29% (0.1%) 0.3% 0.7% 1.0% 0.9% 2.2% 2.2% 2.7% 3.3% 70.4% 73.5% 121.6% 138.9%

Byblos HOLD USD 2.2% 1.98% 1.85% 1.61% 1.73% 0.6% 0.5% 0.7% 0.8% 0.9% 3.2% 3.3% 3.8% 4.0% 142.6% 140.5% 151.7% 163.2%

BOB SELL USD 2.01% 1.47% 1.64% 1.62% (0.0%) 0.1% 0.5% 0.6% 0.6% 0.5% 0.8% 0.8% 160.8% 231.9% 191.6% 232.7%

ANB BUY SAR 3.1% 2.88% 2.81% 2.75% 2.72% 0.7% 1.4% 0.9% 0.8% 0.8% 3.0% 2.4% 2.4% 2.4% 108.1% 146.0% 150.0% 154.0%

Al Rajhi BUY SAR 5.8% 5.30% 4.61% 4.12% 4.00% 1.5% 1.5% 1.1% 0.9% 0.8% 2.2% 1.7% 1.8% 1.8% 135.8% 148.4% 150.3% 152.6%

BSFR HOLD SAR 2.6% 2.64% 2.50% 2.41% 2.43% 0.7% 0.4% 0.2% 0.4% 0.5% 1.2% 1.2% 1.3% 1.4% 147.0% 136.4% 131.3% 134.3%

Riyad BUY SAR 2.7% 2.45% 2.46% 2.44% 2.41% 0.6% 0.9% 0.6% 0.7% 0.6% 1.7% 1.6% 1.6% 1.5% 126.2% 106.3% 112.5% 123.9%

Samba BUY SAR 2.9% 2.53% 2.39% 2.29% 2.29% 0.6% 0.7% 0.3% 0.4% 0.5% 3.7% 3.0% 3.0% 3.1% 118.1% 124.4% 133.3% 129.0%

SABB HOLD SAR 2.7% 2.66% 2.37% 2.29% 2.25% 1.9% 1.6% 0.6% 0.6% 0.6% 3.4% 1.9% 2.1% 2.1% 100.0% 124.0% 120.7% 119.4%

SHB BUY SAR 2.7% 2.35% 2.39% 2.27% 2.20% 3.0% 1.0% 0.4% 0.5% 0.6% 2.6% 1.9% 2.0% 2.0% 124.4% 145.4% 150.0% 155.0%

Albilad BUY SAR 3.4% 3.37% 2.96% 2.88% 2.83% 3.1% 2.0% 1.8% 1.5% 0.8% 5.5% 4.7% 4.2% 4.2% 89.4% 129.0% 145.2% 151.2%

Aljazeera SELL SAR 2.4% 2.40% 2.27% 2.32% 2.23% 2.6% 2.0% 0.3% 0.6% 0.5% 9.1% 7.7% 7.5% 7.2% 62.0% 64.4% 96.0% 113.0%

SIB BUY SAR 2.1% 2.74% 2.52% 2.32% 2.26% 1.7% 2.3% 0.9% 1.1% 0.8% 5.4% 6.1% 5.8% 5.7% 110.4% 124.6% 129.8% 128.4%

Alinma HOLD SAR 5.8% 2.56% 3.78% 3.45% 3.43% --% 0.0% 0.6% 0.6% 0.6% --% 0.0% 0.4% 0.7% --% 1260.1% 125.0% 71.4%

Net Interest Margin CoverageNPL RatioLoan Loss Charge / Avg Loans

July 4 2012

Region – Banks

July 9 2012

Banks




Company Ticker Arqaam Currency NPL Ratio

Rating FY 09 FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13e FY 09a FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13eBanks

NBK NBK KK HOLD KWD 3.2% 3.00% 3.11% 3.16% 3.00% 0.1% 0.6% 0.5% 0.5% 1.8% 1.6% 1.5% 1.8% 1.5% 208.7% 243.0% 194.6% 257.6%

KFH KFIN KK SELL KWD 3.3% 3.41% 3.24% 3.05% 3.10% 2.0% 2.4% 2.0% 1.5% 11.0% 13.3% 10.0% 12.0% 12.0% 59.4% 77.3% 129.9% 135.7%

Gulf Bank GBK KK SELL KWD 1.9% 2.25% 2.30% 2.40% 2.41% 3.3% 1.9% 2.0% 1.7% 30.3% 18.7% 14.4% 14.0% 14.0% 36.1% 38.1% 51.2% 60.4%

Burgan BURG KK BUY KWD 2.7% 2.79% 2.59% 2.53% 2.52% 3.1% 1.3% 1.3% 1.1% 10.0% 6.1% 11.5% 11.0% 11.0% 72.9% 35.3% 42.5% 49.3%

Boubyan BOUBYAN KK SELL KWD 2.6% 2.81% 2.90% 2.96% 2.98% 1.4% 1.1% 1.3% 0.8% 11.7% 0.7% 0.5% 2.9% 3.1% 1257.4% 2286.6% 332.7% 317.0%

Muscat BKMB OM BUY OMR 3.1% 3.36% 3.42% 3.23% 3.16% 0.8% 0.6% 0.7% 0.7% 5.2% 4.2% 3.0% 4.0% 4.0% 105.9% 118.4% 75.6% 74.5%

Sohar BKSB OM HOLD OMR 2.5% 2.74% 2.64% 2.86% 2.92% 0.4% 0.3% 0.4% 0.5% 0.2% 0.9% 1.5% 1.9% 2.3% 212.5% 133.6% 131.8% 131.8%

HBMO HBMO OM SELL OMR 3.3% 3.02% 2.79% 2.78% 2.78% (0.1%) (0.4%) 0.3% 0.4% 10.5% 10.8% 10.9% 10.7% 10.6% 42.7% 38.8% 48.1% 47.4%

AUB AUB BI HOLD BHD --% 2.24% 2.26% 2.31% 2.35% 1.1% 0.8% 0.8% 0.8% --% 2.4% 2.5% 3.0% 3.2% 119.5% 135.3% 130.7% 135.7%

CoverageNPL RatioLoan Loss Charge / Avg LoansNet Interest Margin

July 4 2012

Region – Banks

July 9 2012

Banks


Exhibit 145: MENA financials: Share price performance


Company Arqaam Currency Share Peformance

Rating Price High Low High Low 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d since initiation

ADCB HOLD AED 3.2 3.4 2.6 6% 20% (0.6) (2.5) 7.5 8.6 10.5 13.3 0.1 (1.1) 5.2 0.0 10.1 7.0 (0.2) (0.7) 7.8 8.9 17.7 10.6 9.7

ADIB SELL AED 3.1 3.7 2.9 16% 6% (1.6) (2.2) (8.8) (1.9) 0.6 (1.9) (0.8) (0.9) (11.1) (10.5) 0.2 (8.2) (1.2) (0.4) (8.6) (1.7) 7.9 (4.6) 3.8

CBD BUY AED 2.8 3.4 2.7 18% 5% -- 1.8 (5.1) (5.4) (8.2) (3.4) 2.2 10.7 5.7 1.4 6.1 5.2 2.6 12.0 (2.4) (12.4) (1.0) (12.5) 3.6

DIB SELL AED 1.9 2.3 1.8 18% 3% (3.6) (4.5) (12.1) (6.0) (12.9) (2.6) (1.4) 4.3 (1.3) 0.9 1.3 6.1 (1.0) 5.6 (9.4) (13.0) (5.7) (11.6) 2.6

ENBD HOLD AED 2.7 4.6 2.7 41% 3% (2.9) (5.2) (4.9) (16.3) (28.2) (7.5) (0.7) 3.7 5.8 (9.5) (14.0) 1.2 (0.3) 4.9 (2.2) (23.3) (21.1) (16.5) 11.8

FGB BUY AED 8.8 11.0 6.9 20% 26% (1.0) (4.8) (1.6) 16.8 (5.8) 13.4 (0.2) (3.4) (3.9) 8.2 (6.3) 7.1 (0.6) (3.0) (1.3) 17.0 1.4 10.7 10.4

NBAD BUY AED 8.8 9.2 7.4 4% 19% (0.6) 2.1 10.5 13.7 4.2 8.5 0.2 3.4 8.2 5.1 3.8 2.2 (0.1) 3.9 10.8 13.9 11.4 5.8 1.4

UNB BUY AED 2.9 4.0 2.8 26% 4% (1.0) (1.7) (2.3) (0.3) (17.8) 0.7 (0.2) (0.3) (4.7) (8.9) (18.2) (5.6) (0.6) 0.1 (2.1) (0.1) (10.6) (2.0) 8.6

Tamweel BUY AED 1.2 1.6 0.5 29% 119% 3.3 (4.5) 2.7 0.5 (31.9) 36.2 4.1 (3.1) 0.4 (8.1) (32.4) 29.9 3.7 (2.7) 3.0 0.8 (24.7) 33.5 9.5

Mashreq HOLD AED 1.0 1.3 0.7 28% 41% (1.7) (7.3) 41.5 60.8 22.3 90.7 (0.9) (5.9) 39.1 52.2 21.9 84.4 (1.3) (5.5) 41.7 61.1 29.6 88.0 (21.4)

Rakbank BUY AED 0.6 1.0 0.5 39% 29% (5.0) (15.9) 14.0 (1.2) (23.3) 14.2 (4.3) (14.5) 11.7 (9.8) (23.7) 7.8 (4.6) (14.1) 14.3 (1.0) (16.1) 11.4 (64.7)

UAE

CBQ HOLD QAR 70.0 87.2 67.6 20% 4% (2.8) (6.8) (12.7) (14.7) (4.4) (16.7) (2.6) (5.5) (10.0) (9.6) (6.8) (10.2) (1.7) (3.8) (11.7) (11.4) (2.5) (13.0) 2.7

Doha HOLD QAR 58.0 67.2 49.9 14% 16% 1.0 (3.2) (6.5) (7.9) 7.8 (9.5) 1.2 (1.9) (3.8) (2.8) 5.4 (3.1) 2.1 (0.2) (5.4) (4.6) 9.7 (5.8) (2.8)

QIB HOLD QAR 77.3 86.1 71.3 10% 8% (0.6) (0.3) (3.6) (6.0) (3.6) (8.3) (0.5) 1.1 (0.9) (0.9) (6.0) (1.9) 0.4 2.7 (2.6) (2.7) (1.7) (4.6) (0.8)

QNB BUY QAR 133.6 142.7 121.8 6% 10% 0.4 (0.4) -- (3.3) 1.4 (3.3) 0.6 0.9 2.7 1.9 (1.0) 3.1 1.5 2.6 1.0 0.0 3.3 0.4 --

MAR HOLD QAR 26.7 28.6 22.1 6% 21% (0.7) (0.6) 1.9 0.8 14.6 (4.1) (0.6) 0.8 4.6 5.9 12.3 2.3 0.3 2.4 2.9 4.1 16.5 (0.4) 1.1

Khaliji SELL QAR 17.0 18.3 16.0 7% 6% 4.2 3.4 0.3 (2.0) (5.2) (1.0) 4.3 4.7 3.0 3.1 (7.6) 5.4 5.3 6.4 1.3 1.3 (3.3) 2.7 1.0

QIIB Hold QAR 50.0 56.5 45.0 12% 11% (1.5) (2.1) (7.3) (10.2) 6.3 (7.5) (1.3) (0.7) (4.6) (5.1) 3.9 (1.1) (0.4) 0.9 (6.3) (6.9) 8.1 (3.8) 3.6

Qatar

CAE BUY EGP 9.1 12.0 7.7 24% 18% 1.9 3.0 (3.5) 7.8 (23.5) 14.2 2.1 4.3 (0.8) 13.0 (25.8) 20.7 4.4 (1.7) (2.0) (10.7) (17.7) (20.8) 34.1

CIB BUY EGP 25.5 32.3 18.5 21% 38% (2.0) 5.0 9.4 7.6 (12.8) 36.6 (1.8) 6.3 12.1 12.7 (15.2) 43.0 0.5 0.4 11.0 (11.0) (7.1) 1.6 28.5

HDB HOLD EGP 11.9 20.0 10.5 41% 13% (5.2) (8.6) (5.6) (8.2) (36.3) 7.7 (5.0) (7.2) (3.0) (3.1) (38.7) 14.1 (2.7) (13.2) (4.1) (26.8) (30.5) (27.3) 26.8

NSGB HOLD EGP 30.0 35.2 18.4 15% 63% 0.8 8.3 9.0 38.9 (6.9) 47.8 1.0 9.6 11.7 44.0 (9.3) 54.2 3.3 3.6 10.6 20.3 (1.2) 12.8 28.6

EGB SELL EGP 1.5 2.0 1.3 27% 15% 2.8 5.7 (8.6) (8.6) (23.7) (2.6) 3.0 7.0 (6.0) (3.5) (26.1) 3.8 5.3 1.1 (7.1) (27.2) (18.0) (37.6) 13.3

Egypt

Audi BUY USD 6.0 7.1 5.6 15% 7% (0.8) -- (0.2) 0.3 (14.3) 3.3 0.2 1.3 2.7 5.1 (2.4) 6.4 (0.5) 0.9 0.7 0.4 0.8 3.4 (7.1)

BLOM BUY USD 7.8 8.9 7.0 12% 11% (0.1) 0.5 5.0 5.0 (12.0) 5.0 (0.7) 1.3 2.5 5.4 (16.7) 9.7 0.2 1.4 5.8 5.0 3.1 5.2 (5.0)

Byblos HOLD USD 1.6 1.8 1.6 12% 2% (1.3) (1.3) (3.7) (1.3) (12.2) (3.1) 0.0 1.8 7.7 10.1 (14.4) 11.4 (0.9) (0.3) (2.8) (1.2) 2.9 (2.9) (5.7)

BOB SELL USD 19.3 20.0 18.9 4% 2% -- (0.1) (0.1) (0.8) 1.5 (0.6) (1.1) 0.1 (1.0) 3.9 (14.6) 3.4 0.4 0.9 0.8 (0.8) 16.7 (0.4) --

Lebanon

ANB BUY SAR 29.4 34.1 26.2 14% 12% (1.7) (5.8) -- 5.4 (9.8) 6.9 0.3 1.9 (3.9) (5.7) (9.4) (3.6) 0.0 (0.3) (4.2) (8.8) (16.6) (3.7) (2.8)

Al Rajhi BUY SAR 74.0 83.3 65.0 11% 14% (2.0) (5.1) 1.0 7.6 (1.7) 6.5 0.0 2.5 (2.9) (3.5) (1.2) (4.0) (0.3) 0.4 (3.2) (6.5) (8.4) (4.2) 0.7

BSFR HOLD SAR 36.8 40.6 29.7 9% 24% (0.5) (5.4) 6.2 10.6 (5.7) 9.3 1.5 2.2 2.3 (0.5) (5.3) (1.2) 1.1 0.1 2.0 (3.6) (12.5) (1.4) (10.9)

Riyad BUY SAR 24.0 27.2 22.2 12% 8% (1.6) (4.4) (1.4) 1.9 (6.3) 3.0 0.4 3.2 (5.3) (9.2) (5.8) (7.5) 0.0 1.1 (5.7) (12.2) (13.0) (7.6) (1.7)

Samba BUY SAR 48.2 57.0 42.1 15% 14% (1.4) (10.3) (0.2) 1.7 (12.0) 3.4 0.6 (2.7) (4.1) (9.4) (11.5) (7.0) 0.3 (4.8) (4.4) (12.5) (18.7) (7.2) (1.9)

SABB HOLD SAR 34.5 37.2 27.8 7% 24% (1.4) (6.0) 6.7 15.0 2.4 13.0 0.6 1.6 2.8 3.9 2.9 2.6 0.3 (0.5) 2.5 0.8 (4.3) 2.4 (9.4)

SHB BUY SAR 27.0 29.7 21.0 9% 29% (2.9) (6.9) 4.5 17.0 6.9 8.7 (0.9) 0.7 0.6 5.8 7.4 (1.7) (1.2) (1.4) 0.3 2.8 0.2 (1.9) (1.1)

Albilad BUY SAR 27.0 35.4 16.5 24% 64% (1.5) (14.6) 11.1 45.6 40.3 36.0 0.5 (6.9) 7.2 34.4 40.7 25.6 0.2 (9.1) 6.9 31.4 33.5 25.4 9.7

Aljazeera SELL SAR 25.5 33.9 15.1 25% 69% (2.3) (13.6) 25.3 54.1 29.4 50.4 (0.3) (5.9) 21.4 43.0 29.9 40.0 (0.6) (8.1) 21.1 39.9 22.7 39.8 10.0

SIB BUY SAR 17.0 21.4 15.5 21% 10% (3.1) (10.5) (2.3) 4.9 (10.5) 5.3 (1.1) (2.9) (6.2) (6.2) (10.1) (5.2) (1.5) (5.0) (6.5) (9.2) (17.3) (5.4) (6.3)

Alinma HOLD SAR 13.3 16.9 8.8 21% 51% (5.4) (12.8) 25.6 43.2 30.5 41.7 (3.4) (5.2) 21.7 32.1 31.0 31.2 (3.7) (7.3) 21.4 29.1 23.8 31.1 5.0

KSA

Relative Performance (vs. market) %Relative Performance (vs. sector) %Absolute Performance %% to 52 week52 Week

July 4 2012

Region – Banks

July 9 2012

Banks


Exhibit 146: MENA financials: Share price performance (Continued)


Exhibit 147: MENA diversified financials: Share price performance




NBK HOLD KWD 1040.0 1127.3 900.0 8% 16% (3.7) (1.9) (1.4) (1.4) (6.2) 2.1 (3.7) (1.6) (2.9) (0.0) 2.0 1.4 (1.4) (0.0) (2.2) (0.3) 3.3 1.2 (10.4)

KFH SELL KWD 690.0 963.0 680.0 28% 1% (2.8) (9.2) (11.3) (17.2) (26.9) (17.2) (2.8) (8.9) (12.8) (15.9) (18.7) (18.0) (0.5) (7.4) (12.1) (16.1) (17.4) (18.1) (5.5)

Gulf Bank SELL KWD 420.0 542.9 410.0 23% 2% (1.2) (2.3) (9.1) (15.2) (22.6) (13.5) (1.2) (2.0) (10.6) (13.9) (14.4) (14.3) 1.2 (0.5) (9.9) (14.1) (13.1) (14.5) (3.7)

Burgan BUY KWD 415.0 514.3 405.0 19% 2% (3.5) (2.4) (5.3) (7.3) (17.8) (8.3) (3.5) (2.0) (6.8) (6.0) (9.6) (9.0) (1.2) (0.5) (6.1) (6.2) (8.2) (9.2) 25.3

Boubyan SELL KWD 610.0 610.0 530.0 0% 15% 1.7 1.7 7.0 -- 1.7 3.4 1.7 2.0 5.5 1.3 9.9 2.6 4.0 3.5 6.2 1.1 11.2 2.4 (1.6)

Kuwait

Muscat BUY OMR 0.6 0.7 0.6 13% 4% (1.2) (7.9) (5.8) (5.3) (6.2) (12.3) (1.2) (7.6) (7.4) (3.9) 2.0 (13.1) 0.4 (2.0) (5.9) (7.7) 0.0 (11.7) (4.2)

Sohar HOLD OMR 0.2 0.2 0.1 9% 13% (2.0) (6.2) (2.6) (3.2) (1.3) (5.1) (2.0) (5.9) (4.2) (1.9) 6.9 (5.8) (0.4) (0.4) (2.7) (5.7) 4.9 (4.4) (10.5)

HBMO SELL OMR 0.2 0.3 0.2 17% 8% -- (2.8) (9.7) (15.2) (6.1) (12.5) (150.0) 13.9 (109.7) (915.2) (906.1) (55.3) 1.6 3.0 (9.8) (17.7) 0.1 (11.8) (6.4)

Oman

AUB HOLD BHD 0.6 0.7 0.6 14% 3% -- -- (4.4) (12.3) (12.9) (3.7) -- (0.3) 1.6 (1.3) (8.2) 0.8 0.7 (0.1) 0.9 0.1 8.1 0.1 (10.0)

Bahrain




Shuaa SELL AED 0.7 1.1 0.4 33% 74% 3.3 (4.5) 2.7 0.5 (31.9) 36.2 5.5 15.0 (5.0) 0.2 (10.5) 22.4 5.9 5.7 5.4 (6.5) (24.7) 27.2 (9.4)

EFG BUY EGP 11.7 18.6 9.3 37% 27% (12.0) 2.9 (5.6) (3.9) (24.6) 17.2 (4.8) 0.1 0.5 (7.7) (3.5) (0.4) (9.5) (1.8) (4.0) (22.5) (18.8) (17.8) 19.1

DFM SELL AED 1.0 1.3 0.7 28% 41% (5.0) (15.9) 14.0 (1.2) (23.3) 14.2 (2.8) 3.6 6.3 (1.6) (1.9) 0.4 (2.4) (5.7) 16.7 (8.2) (16.1) 5.1 (2.3)

Salama BUY AED 0.6 1.0 0.5 39% 29% (8.5) (17.9) (5.3) 0.7 (18.1) 7.2 (6.0) (12.8) (5.8) (1.3) (13.4) 3.4 (5.9) (7.7) (2.6) (6.3) (10.9) (1.8) (0.3)

Qatar InsuranceBUY QAR 74.9 78.3 63.3 4% 18% 0.4 (2.1) 4.4 16.0 7.6 15.8 (0.0) 0.0 (0.1) (0.1) (0.1) (0.1) 1.5 0.9 5.4 19.3 9.5 19.5 (5.3)

Tawuniya BUY SAR 49.4 66.8 46.4 26% 6% 0.8 (9.4) (16.6) 1.2 (24.3) (4.5) na na na na na na 2.5 (3.9) (20.9) (12.9) (31.0) (15.2) (11.2)

MedGulf SELL SAR 29.2 37.5 23.9 22% 22% (3.6) (13.4) (13.4) 12.7 (0.7) 4.3 na na na na na na (1.9) (7.9) (17.6) (1.4) (7.4) (6.3) (11.5)


July 4 2012

Region – Banks

July 9 2012

Banks


Exhibit 148: Interest rates

Source: Arqaam Capital Research

FY 11A FY 14e Change FY 11A FY 14e ChangeLoan

margins

Impact increased

liquidity

T-bill rate

impact

T-bill

investment

Retail

caps

Credit

card caps

Retail vs

Corporate Loans

Public vs

Private Loans

(bps)

Local vs

USDFY 11A FY 14e Change

Deposit

margins

Deposit

mix

Net wholesale

debt issuance

ADCB 2.91% 2.95% 0.03% 4.79% 4.50% (0.29%) (0.18%) (0.11%) (0.00%) 2.07% 1.71% (0.36%) (0.32%) 0.02% (0.05%)

ADIB 4.08% 4.07% (0.01%) 5.36% 5.33% (0.03%) 0.01% (0.03%) (0.01%) 1.37% 1.35% (0.02%) (0.08%) 0.06% (0.01%)

CBD 3.75% 3.60% (0.15%) 4.94% 4.64% (0.30%) (0.25%) (0.05%) (0.01%) 1.39% 1.20% (0.19%) (0.25%) 0.09% (0.03%)

DIB 3.33% 3.16% (0.17%) 5.06% 4.79% (0.27%) (0.22%) (0.05%) (0.00%) 1.82% 1.72% (0.10%) (0.14%) 0.05% (0.00%)

ENBD 2.79% 2.66% (0.13%) 4.45% 4.08% (0.37%) (0.26%) (0.08%) (0.03%) 1.80% 1.55% (0.25%) (0.47%) 0.02% 0.20%

FGB 3.71% 3.55% (0.16%) 5.17% 4.90% (0.27%) (0.16%) (0.03%) (0.07%) (0.01%) 1.62% 1.50% (0.12%) 0.13% (0.17%) (0.07%)

NBAD 2.70% 2.51% (0.19%) 3.73% 3.50% (0.23%) 0.38% (0.57%) (0.04%) 1.11% 1.10% (0.01%) 0.06% (0.01%) (0.06%)

UNB 3.05% 3.10% 0.05% 4.91% 4.84% (0.07%) (0.16%) 0.11% (0.03%) 2.10% 1.93% (0.17%) (0.06%) (0.09%) (0.02%)

TAMWEEL 2.41% 2.50% 0.09% 5.82% 5.60% (0.22%) (0.22%) 0.01% --% 4.35% 4.00% (0.35%) (0.73%) 0.09% 0.28%

MASQ 2.63% 2.54% (0.09%) 4.58% 4.10% (0.48%) (0.37%) (0.09%) (0.02%) 2.40% 1.90% (0.50%) (0.50%) 0.00%

RAKBANK 9.07% 7.77% (1.30%) 10.81% 9.15% (1.66%) (1.64%) (0.03%) --% 2.09% 1.70% (0.39%) (0.17%) (0.20%) (0.02%)

UAE banks

CBQK 3.22% 2.73% (0.49%) 4.78% 4.17% (0.61%) (0.46%) 0.07% (0.02%) (0.03%) (0.05%) 1.83% 1.58% (0.25%) (0.23%) (0.05%) 0.03%

DHBK 3.63% 3.07% (0.55%) 4.76% 4.20% (0.56%) (0.14%) (0.21%) (0.03%) (0.01%) (0.05%) 1.29% 1.30% 0.01% 0.03% (0.00%) (0.01%)

QIBK 2.88% 3.22% 0.34% 4.13% 4.45% 0.32% 0.42% 0.13% (0.04%) (0.01%) (0.05%) 1.21% 1.02% (0.19%) (0.30%) (0.10%) 0.21%

QNBK 3.08% 2.80% (0.28%) 4.23% 3.95% (0.28%) (0.15%) 0.15% (0.02%) (0.09%) (0.05%) 1.31% 1.30% (0.01%) (0.04%) 0.04% (0.01%)

MARK 1.64% 2.02% 0.37% 2.98% 3.18% 0.20% 0.43% 0.01% --% (0.06%) (0.05%) 1.58% 1.28% (0.30%) (0.10%) (0.30%) 0.10%

KCBK 2.70% 2.17% (0.52%) 3.70% 3.25% (0.45%) (0.04%) (0.11%) (0.11%) (0.02%) (0.05%) 1.28% 1.26% (0.02%) 0.13% (0.26%) 0.11%

QIIK 3.72% 2.82% (0.90%) 5.35% 4.19% (1.16%) (1.22%) 0.27% (0.02%) (0.01%) (0.05%) 1.64% 1.28% (0.36%) (0.48%) 0.07% 0.05%

Qatar banks

CIEB 3.54% 3.64% 0.10% 7.51% 7.66% 0.15% (0.09%) (0.10%) 0.24% 0.01% 0.06% --% 0.04% 4.36% 4.35% (0.01%) (0.20%) 0.19% (0.00%)

COMI 3.48% 3.80% 0.32% 7.07% 7.62% 0.55% 0.39% (0.32%) 0.42% (0.02%) 0.04% --% 0.04% 3.98% 4.30% 0.32% 0.06% 0.26% 0.00%

HDBK 3.37% 3.47% 0.10% 8.98% 8.66% (0.32%) (2.13%) (0.02%) 1.86% (0.07%) --% --% 0.04% 6.40% 7.81% 1.41% 1.23% 0.32% (0.15%)

NSGB 3.56% 3.72% 0.16% 7.39% 7.53% 0.14% (0.04%) (0.12%) 0.19% 0.01% 0.06% --% 0.04% 4.38% 4.39% 0.01% (0.01%) 0.04% (0.01%)

EGBE 3.40% 3.39% (0.01%) 7.39% 7.55% 0.16% (0.23%) (0.13%) 0.41% 0.01% 0.06% --% 0.04% 4.70% 4.70% (0.00%) (0.10%) 0.10% (0.00%)

Egypt banks

AUDI 1.94% 2.03% 0.10% 4.98% 5.10% 0.12% 0.46% (0.40%) 0.06% (0.00%) 3.27% 3.22% (0.05%) 0.14% (0.19%) (0.01%)

BLOM 2.33% 2.32% (0.01%) 5.53% 5.32% (0.21%) 0.02% (0.29%) 0.06% --% 3.50% 3.24% (0.26%) (0.38%) 0.13% (0.01%)

BYB 1.85% 1.72% (0.13%) 5.51% 5.32% (0.19%) 0.06% (0.31%) 0.06% --% 3.95% 3.98% 0.03% 0.24% (0.17%) (0.04%)

BOB 1.47% 1.61% 0.14% 5.06% 5.35% 0.29% 0.60% (0.37%) 0.06% --% 3.82% 3.85% 0.03% 0.29% (0.19%) (0.07%)

Lebanon banks

ARNB 2.81% 2.71% (0.10%) 3.06% 2.98% (0.08%) (0.13%) 0.04% 0.01% (0.00%) 0.29% 0.30% 0.01% (0.14%) 0.17% (0.01%)

RJHI 4.61% 3.88% (0.73%) 4.74% 3.99% (0.75%) (0.80%) 0.01% 0.04% --% 0.15% 0.13% (0.02%) (0.19%) 0.17% --%

BSFR 2.50% 2.38% (0.12%) 2.89% 2.77% (0.12%) (0.24%) 0.11% 0.01% (0.00%) 0.46% 0.43% (0.03%) 0.05% 0.11% (0.18%)

RIBL 2.46% 2.41% (0.05%) 2.88% 2.79% (0.09%) 0.14% (0.24%) 0.01% (0.00%) 0.50% 0.46% (0.04%) (0.13%) 0.06% 0.03%

SAMBA 2.39% 2.24% (0.15%) 2.65% 2.42% (0.23%) (0.24%) 0.00% 0.01% (0.01%) 0.31% 0.21% (0.10%) (0.37%) 0.24% 0.03%

SABB 2.37% 2.22% (0.15%) 2.76% 2.62% (0.14%) (0.32%) 0.18% 0.01% (0.00%) 0.45% 0.45% 0.00% (0.16%) 0.14% 0.02%

AAAL 2.39% 2.20% (0.19%) 2.90% 2.71% (0.19%) (0.18%) (0.02%) 0.01% (0.00%) 0.59% 0.58% (0.01%) (0.65%) 0.59% 0.06%

ALBI 2.96% 2.79% (0.17%) 3.07% 2.86% (0.21%) (0.78%) 0.56% 0.01% --% 0.12% 0.08% (0.04%) (0.63%) 0.55% 0.04%

BJAZ 2.27% 2.18% (0.09%) 2.81% 2.65% (0.16%) (0.38%) 0.21% 0.01% --% 0.61% 0.50% (0.11%) (0.01%) (0.06%) (0.03%)

SIBC 2.52% 2.18% (0.34%) 3.18% 2.87% (0.31%) (0.28%) (0.04%) 0.01% (0.00%) 0.76% 0.87% 0.11% (0.45%) 0.57% (0.02%)

ALINMA 3.78% 3.40% (0.38%) 4.03% 3.63% (0.40%) (0.57%) 0.17% 0.01% (0.01%) 0.47% 0.29% (0.18%) (0.36%) 0.18% --%

KSA banks 0.43% 0.39%

NBK 3.11% 2.95% (0.16%) 4.00% 4.00% 0.00% 0.11% (0.14%) 0.04% --% 1.01% 1.20% 0.19% (0.31%) 0.49%

KFIN 3.24% 3.06% (0.18%) 5.34% 4.58% (0.76%) (0.51%) (0.30%) 0.04% --% 2.01% 1.47% (0.54%) (0.54%) --%

GBK 2.30% 2.42% 0.12% 3.74% 3.65% (0.09%) 0.02% (0.15%) 0.04% --% 1.59% 1.38% (0.21%) (0.09%) (0.11%) (0.01%)

BURG 2.59% 2.52% (0.07%) 4.13% 4.00% (0.13%) (0.02%) (0.14%) 0.04% --% 1.69% 1.62% (0.07%) (0.05%) (0.02%)

BOUBYAN 2.90% 2.98% 0.08% 3.88% 3.77% (0.11%) 0.14% (0.28%) 0.04% --% 1.14% 0.90% (0.24%) (0.24%) --%

Kuwait banks

BKMB 3.42% 3.09% (0.33%) 4.63% 4.32% (0.31%) (0.39%) 0.04% 0.04% (0.00%) 1.41% 1.42% 0.01% (0.50%) 0.60% (0.09%)

BKSB 2.64% 3.00% 0.36% 4.62% 4.67% 0.05% (0.09%) 0.10% 0.04% (0.00%) 2.20% 1.81% (0.39%) (0.33%) (0.06%) 0.01%

OIBB 2.79% 2.78% (0.01%) 3.38% 3.35% (0.03%) (0.00%) (0.07%) 0.04% (0.00%) 0.68% 0.65% (0.03%) (0.39%) 0.36% --%

Oman banks

AUB 2.26% 2.38% 0.12% 3.89% 4.04% 0.15% 0.15% 0.08% (0.00%) 1.70% 1.76% 0.06% (0.01%) (0.09%) 0.16%

Bahrain banks

NIM Asset yield Of Which Funding costs Of which

July 4 2012

Region – Banks

July 9 2012

Banks


Exhibit 149: TP and EPS revision



ADCB 2.98 3.69 23.7% 0.37 0.48 29.3% 0.44 0.51 14.4% 0.50 0.55 10.9% Impressive margins on the back of improved asset yields

ADIB 2.71 2.87 5.7% 0.42 0.47 13.1% 0.46 0.46 0.1% 0.52 0.51 (2.4%) Plans to build up capital implying lower loan growth

CBD 4.18 4.21 0.7% 0.39 0.38 (1.4%) 0.41 0.41 (1.0%) 0.48 0.48 (0.1%) No major surprises

DIB 1.76 1.75 (0.5%) 0.23 0.23 (1.8%) 0.25 0.24 (2.5%) 0.30 0.29 (3.2%) No significant changes

ENBD 3.21 3.37 4.9% 0.29 0.34 16.3% 0.32 0.32 (0.3%) 0.39 0.40 2.2% Higher capital gain and lower than expected provisioning

FGB 13.44 13.89 3.4% 1.30 1.32 1.5% 1.48 1.47 (0.7%) 1.67 1.65 (0.9%) No significant changes

NBAD 13.03 13.24 1.6% 1.05 1.09 3.2% 1.30 1.35 4.2% 1.51 1.56 2.8% Lower than expected provisioning

UNB 4.57 4.72 3.2% 0.55 0.56 1.7% 0.58 0.58 (0.8%) 0.63 0.64 1.4% No significant changes

TAMWEEL 1.67 1.67 0.2% 0.09 0.08 (3.9%) 0.10 0.10 1.1% 0.09 0.10 18.5% Dissapointing net interest income and F&Cs

MASQ 56.97 62.45 9.6% 4.61 5.21 13.1% 5.46 5.89 7.9% 6.21 6.78 9.1% Beat expectations on the back of improved cost of funding and lower provisioning

RAKBANK 6.08 6.37 4.8% 0.67 0.79 18.1% 0.70 0.77 11.1% 0.75 0.75 0.5% New retail regulation biting less hard than expected

CBQK 82.1 80.1 (2.5%) 7.55 7.85 3.9% 8.05 8.06 0.2% 8.94 8.85 (1.0%) Lower NII and fee generation offset by lower provisioning and unsustainable capital gains

DHBK 68.0 61.7 (9.3%) 5.70 5.68 (0.4%) 5.89 5.49 (6.9%) 6.51 5.96 (8.4%) Disappointing loan growth, pressure on NIM and F&C offset by unsustainable capital gains

QIBK 79.8 85.7 7.3% 4.75 6.23 31.0% 6.62 7.24 9.3% 7.31 7.71 5.4% Lower provisioning (after removing Arcapita exposure), higher loan growth, NII and F&C

QNBK 189.2 193.0 2.0% 12.21 12.32 0.9% 13.51 14.07 4.1% 15.32 15.86 3.6% Much stronger than expected loan growth

MARK 30.9 27.8 (10.1%) 1.97 1.87 (4.8%) 2.39 2.05 (14.1%) 2.78 2.42 (12.9%) Lower than expected NIM, lower costs, non-recurring items in Other income

KCBK 14.1 13.9 (1.5%) 1.01 1.33 31.7% 1.17 1.06 (9.5%) 1.29 1.22 (5.2%) Margin contraction, slower loan growth

QIIK 60.5 53.2 (12.2%) 4.79 4.33 (9.5%) 5.04 4.34 (13.9%) 5.22 4.50 (13.8%) NIM compression

CIEB 11.99 15.46 28.9% 1.34 1.60 19.0% 1.54 1.66 8.0% 1.86 1.93 3.6% Earnings beat fuelled by investment income, decent commercial momentum and rising margins

COMI 35.57 44.21 24.3% 3.74 3.79 1.5% 4.29 4.55 6.0% 5.03 5.16 2.6% Revised loan estimates down for FY12e but compensated by spiking margins

HDBK 12.99 14.20 9.3% 1.26 1.22 (3.3%) 1.83 1.77 (2.8%) 2.28 2.21 (2.9%) Vulnerable to a deterioration in asset quality

NSGB 32.83 39.94 21.7% 3.57 3.56 (0.1%) 3.84 3.86 0.6% 4.45 4.48 0.6% Improved cost efficiency but provisions yet to increase

EGBE 1.09 1.16 6.1% 0.08 0.10 24.7% 0.09 0.11 17.1% 0.11 0.11 6.4% Higher margins and improved cost efficiency but remains significantly underprovisioned

HRHO 16.64 16.64 -- 0.87 0.87 -- 1.00 1.00 -- 1.11 1.11 -- Qinvest still uncertain, IB continues to be a drag

AUDI 7.28 7.28 0.0% 1.42 1.12 (21.1%) 1.00 1.01 0.7% 1.13 1.14 0.8% Overestimated gains from sale of insurance

BLOM 10.99 10.46 (4.8%) 1.55 1.47 (5.0%) 1.59 1.52 (4.6%) 1.81 1.74 (4.1%) Lacklustre Fy12e with continued conservative provisioning

BYB 1.53 1.44 (6.0%) 0.25 0.25 0.7% 0.27 0.26 (4.8%) 0.31 0.30 (4.1%) Flat earnings with lower loan growth estimates

BOB 10.53 10.49 (0.4%) 1.85 1.42 (23.1%) 2.04 1.63 (20.1%) 2.28 1.90 (16.9%) Massively underprovisioned with lower loan and deposit estimates

ARNB 39.04 38.50 (1.4%) 2.78 2.79 0.3% 3.31 3.24 (2.3%) 3.84 3.84 0.0% No significant changes

RJHI 100.49 94.85 (5.6%) 5.65 5.69 0.7% 6.52 6.43 (1.4%) 7.39 7.09 (4.0%) Lower margins on new retail book

BSFR 40.89 37.05 (9.4%) 3.43 3.32 (3.1%) 3.60 3.60 (0.0%) 3.79 3.78 (0.3%) Lower NII and fee generation, coupled with higher cost of equity

RIBL 33.09 32.43 (2.0%) 2.30 2.29 (0.2%) 2.49 2.45 (1.5%) 2.82 2.79 (0.9%) No significant changes

SAMBA 65.63 64.67 (1.5%) 5.09 4.99 (2.0%) 5.51 5.42 (1.6%) 6.16 6.01 (2.5%) Conservative loan loss charges, higher than expected

SABB 37.08 37.02 (0.2%) 2.51 2.51 0.0% 3.85 3.85 0.0% 4.19 4.18 (0.3%) Higher operating profits offset by higher provisioning

AAAL 38.31 37.26 (2.7%) 2.93 2.88 (1.9%) 3.12 3.03 (3.0%) 3.46 3.42 (1.1%) No significant changes

ALBI 30.94 35.97 16.3% 2.91 3.28 12.7% 2.15 2.60 21.1% 2.52 3.00 19.2% Earnings beat on the back of higher fee generation and margins

BJAZ 22.12 22.75 2.9% 1.60 1.61 0.3% 1.89 1.94 2.4% 2.22 2.28 2.6% Negative earnings surprise as a result of higher costs and provisioning charges

SIBC 19.77 19.59 (0.9%) 1.54 1.41 (8.6%) 1.71 1.67 (2.2%) 1.95 1.93 (1.2%) Higher loan loss charges

ALINMA 15.44 15.44 (0.0%) 0.43 0.43 0.6% 0.67 0.67 0.2% 0.94 0.94 (0.1%) No significant changes


July 4 2012

Region – Banks

July 9 2012

Banks


Exhibit 150: TP and EPS revision (Continued)



NBK 1.12 1.09 (2.8%) 0.07 0.07 (0.9%) 0.07 0.08 2.3% 0.08 0.08 (0.5%) Consolidating financials after 58.34% ownership in Boubyan.

KFIN 0.60 0.59 (0.3%) 0.04 0.04 (10.1%) 0.05 0.05 2.1% 0.08 0.08 1.5% Higher provisions and lower interest income on the back of slightly lower loan growth.

GBK 0.34 0.34 (0.9%) 0.02 0.01 (21.9%) 0.02 0.02 2.7% 0.02 0.02 1.1% Higher loan loss charges

BURG 0.60 0.60 (1.0%) 0.04 0.04 1.1% 0.05 0.05 (1.1%) 0.06 0.05 (1.1%) Despite higher LLPs in Q2, in line with our forecast.

BOUBYAN 0.28 0.29 2.0% 0.01 0.01 (15.7%) 0.02 0.01 (3.5%) 0.02 0.02 (7.8%) Loan loss provisioning higher than expected.

BKMB 0.89 0.80 (9.0%) 0.07 0.07 1.0% 0.08 0.07 (6.6%) 0.09 0.08 (8.6%) Lower NIMs, higher number of shares

BKSB 0.15 0.15 1.7% 0.01 0.02 16.2% 0.02 0.02 2.3% 0.02 0.02 1.2% Higher interest income on the back of higher loan book growth and strong Q2 numbers.

OIBB 0.22 0.22 -- 0.02 0.02 -- 0.02 0.02 -- 0.02 0.02 -- No major surprises for HSBS Oman reporting below our estimate despite synergies with HSBC.

AUB 0.63 0.634 -- 0.07 0.07 -- 0.08 0.08 -- 0.09 0.09 -- In line with our estimates, no major surprises

SHUAA 0.63 0.628 -- (0.03) -0.03 -- (0.01) -0.01 -- 0.00 0.00 -- No major surprises

DFM 0.74 0.736 -- 0.01 0.01 -- 0.02 0.02 -- 0.03 0.03 -- No major surprises

SALAMA 0.93 0.817 (12.3%) 0.05 0.04 (22.9%) 0.10 0.09 (16.1%) 0.11 0.08 (25.1%) Drop in GWP and higher claims in family takaful and non-motor segment

QATI 94.90 85.330 (10.1%) 6.44 6.26 (2.8%) 8.07 7.26 (10.1%) 7.91 7.47 (5.5%) Rising claims from New Zeeland quake

TAWUNIYA 61.10 52.784 (14.6%) 4.70 3.88 2.1% 5.33 4.85 (9.0%) 6.50 6.23 (1.7%) higher than anticiapted net loss ratio in medical segment

MEDGULF 24.60 19.274 (21.7%) 2.23 0.91 (58.9%) 2.56 1.82 (28.9%) 3.35 2.71 (19.2%) Soaring net loss ratios in medical and motor segments


July 4 2012

Banks


Exhibit 151: RORWA FY 12e vs. FY 12-15e Loan CAGR


Exhibit 152: P/E FY 15e vs. P/tNAV FY 12e


ADCBADIB

CBD

DIBEMIRATES

FGBNBAD

UNB

TAMWEEL

MASQ

RAKBANK

CBQK

DHBK

QIBK

QNBK

MARK

KCBK

QIIKCIEB

COMI

HDBK

NSGB

EGBEAUDI

BLOM

BYB BOB

ARNB

RJHI

BSFR

RIBL

SAMBA

SABB

AAAL

ALBI

BJAZ

SIBCALINMA

NBK

KFIN

GBK BURGBOUBYAN

BKMB

BKSB

HBMO

AUB

0%

1%

2%

3%

4%

5%

6%

0% 5% 10% 15% 20% 25% 30% 35%

High returns, low growth

Low returns, high growth

Low returns, low growth

Sweet SpotHigh returns, low growth

Low returns, high growth

Low returns, low growth

ADCB ADIB

CBD

DIB

EMIRATES

FGB

NBAD

UNB

TAMWEEL

MASQ

CBQK

DHBK

QIBK

QNBK

MARK

KCBK

QIIK

CIEBCOMI

HDBK

NSGB

EGBE

AUDI

BLOM

BYB

BOB

ARNB

RJHI

BSFR

RIBL

SAMBA

SABB

AAAL

ALBI

BJAZ

SIBC

ALINMA

NBK

KFIN

GBK

BURG

BKMB

BKSB

OIBB

AUB

HRHO

SALAMA

QATI

TAWUNIYA

MEDGULF

3.0x

5.0x

7.0x

9.0x

11.0x

13.0x

15.0x

0.0x 0.5x 1.0x 1.5x 2.0x 2.5x 3.0x 3.5x

Expensive

Cheap

July 4 2012

Banks


Exhibit 153: P/tNAV12e vs. RoRWA12e


ADCBADIB

CBD

DIB

EMIRATES

FGB

NBAD

UNB

TAMWEEL

MASQ

CBQK

DHBK

QIBK

QNBK

MARK

KCBK

QIIK

CIEB COMI

HDBK

NSGB

EGBE

AUDI

BLOM

BYB

BOB

ARNB

RJHI

BSFRRIBL

SAMBA

SABB

AAAL

ALBI

BJAZ

SIBC

ALINMA

NBK

KFIN

GBK

BURG

BOUBYAN

BKMB

BKSB

OIBB

AUB

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

0% 1% 2% 3% 4% 5% 6%

Expensive

Cheap

C o m p a n y U p d a t e

S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +97145071744

Christine Kalindjian Arqaam Capital Research Offshore s.a.l.

Commercial International Bank Our top pick in Egypt

Price Performance

60

72

84

96

108

120

Sep/11 Dec/11 Mar/12 Jun/12

COMI EY EGX



BUY

Banks / EGYPT Bloomberg code COMI EY

Market index EGX

Price target (local) 44.2

Upside (%) 34.4

Market data 11/09/2012

Last closing price 32.9

52 Week range 18.5-34.8

Market cap (EGP mn) 19,637

Market cap (USD mn) 3,223

Average daily volume (EGP mn) 28.9

Average daily volume (USD mn) 4.8

Year-end (local mn) 2011 2012e 2013e 2014e

Revenues 4,035 5,056 5,642 6,412

Pre-provision Operating Profit

2,337 3,424 3,840 4,369

EPS 2.72 3.79 4.55 5.16

P/E (x) (mkt price) 12.1 8.7 7.2 6.4

BVPS 14.73 18.18 21.22 24.81

Tangible BVPS 14.00 18.00 21.07 24.70

P/B (x) (mkt price) 2.2 1.8 1.5 1.3

P/TBVPS (x) ((mkt price) 2.3 1.8 1.6 1.3

DPS 1.00 1.10 1.20 1.25

Div. yield (%) 3.0 3.3 3.7 3.8

RoAA (%) 2.0 2.5 2.6 2.5

RoRWA (%) 2.6 3.2 3.4 3.3

RoAE (%) 19.6 23.3 23.3 22.5

Loan/ Deposit ratio (%) 57.5 59.6 61.9 66.7

Risk weighted assets (bn) 55 64 72 86

Core Equity Tier 1 ratio (%)

13.4 15.2 15.8 15.9

Tier 1 capital ratio (%) 12.5 13.5 13.9 13.8

Total capital ratio (%) 14 15 15 15

NPL ratio (%) 2.8 3.1 3.1 3.0

Coverage ratio (%) 120.6 121.0 125.4 127.8

TP upped to EGP 44.2 from 35.6, 34% upside,

despite rally, due to lower macro risk, higher NIMs,

and an expected upturn in corporate loan demand,

controlled provisioning and improved efficiency:

24% FY11-15 CAGR in net profits.

Best positioned to capture corporate loan growth

and still at significant discount to sector despite

fully justified re-rating.

We have increased our EPS estimates for FY12e by 1.5% and by 3.6%

for FY13e-FY15e on the back of an improvement in cost efficiency and

higher margin forecasts (an addition of 29bps for FY 12e), partly offset

by lower loan growth estimates for FY 12e.

Spike in margins covers for stagnant lending activity: Sluggish loan

growth in H1 12A, slightly down YTD (mainly due to interbank lending),

while deposits rose 7% YTD. We have lowered our loan growth

estimates and forecast 5%-7% growth for FY 12e, mainly on the back

of a pickup in corporate demand in Q4 12e. CIB maintained the

highest loan market share of all private-sector banks at 8.45% as of

Jun 12A.

No asset quality concerns: We increase our loan loss charge estimates

by 5bps to 75bps for FY 12e but we are not concerned about the

bank’s credit quality as it remains well covered due to its prudent risk

management. Annualized loan loss charges in Q2 12A amounted to

133bps vs. only 16bps in Q1 12A, 206bps in Q2 11A. With impaired

loans ratio almost flat y/y, coverage climbed even higher to 159% from

147% in Q2 11A.

We reiterate CIB as a Core Buy: The bank is trading at a P/E13e of

7.2x, P/tNAV12e of 1.8x with an annualized ROAE of 24.5%, already up

c23% post initiation, but still trading at a 16% earnings discount to the

sector. We strongly reiterate COMI as a Core Buy and our top pick in

Egypt given its strong and improving fundamentals (stronger margins,

still strong y/y loan growth, cost of risk remaining under control, solid

liquidity, solid capital position with CT1 13e at 14.3% (Basel 3), highest

RORWA among coverage forecasted at 3.2% for FY 12e and cheap

multiples (strong discount to the sector). We are just beginning to see

foreign interest in the Egyptian markets.

EGP 44.2

September 12 2012

Commercial Internation Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 72

Abacus Arqaam Capital Fundamental Data

Profitability

NIM

Credit Quality

Capital Ratios

Growth

4.71%

4.22%

5.34% 5.30% 5.10% 5.24%

0.01%0.58% 0.54% 0.50% 0.50%

0.54%

3.68%

2.57%3.19% 3.39%

3.33% 3.40%

0%

1%

2%

3%

4%

5%

6%

FY10 FY11 FY12e FY13e FY14e FY15e

PPP/RWA Cost of risk/RWA RORWA

3.38% 3.48%

4.22% 4.02% 3.80% 3.77%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%


Net interest margin

2.8%

2.9%

3.0%

3.1%

3.2%

110%

115%

120%

125%

130%

135%

140%

FY12e FY13e FY14e FY15e

NPL Cov ratio (%) NPL as % of tot loans

15.7%

12.5%13.5% 13.9%

13.8% 13.9%

16.9%

13.8%14.8% 15.1% 15.1% 15.1%

10%

12%

14%

16%

18%


Core Tier 1 (Base III) Tier 1 CAR

28%

17%

7%

13%18%

18%16% 13%

3%9% 10%

18%

0%

20%

40%


Loan growth Deposit growth

Commercial Internation Bank

Year-end 2010 2011 2012e 2013e 2014e 2015e

Performance analysis

Net Interest Margin (%) 3.38 3.48 4.22 4.02 3.80 3.77

Cost/Income (%) 42.6 42.1 32.3 32.0 31.9 30.7

Net Interest Income/ total income (%) 56.6 66.7 73.3 71.8 70.5 70.5

Fees and commissions / Operating income (%) 21.4 20.9 17.5 18.2 19.1 19.2

Trading gains / Operating income (%) 13.6 5.7 4.3 5.0 5.0 4.9

RoAE (%) 27.8 19.6 23.3 23.3 22.5 22.9

Pre Prov.ROE (%) 26.0 22.4 26.6 26.2 25.5 26.2

RoAA (%) 2.9 2.0 2.5 2.6 2.5 2.5

Revenue / RWA (%) 8.21 7.29 7.88 7.78 7.49 7.56

Costs / RWA (%) 3.50 3.07 2.54 2.49 2.39 2.32

PPP / RWA (%) 4.71 4.22 5.34 5.30 5.10 5.24

Cost of risk / RWA (%) 0.01 0.58 0.54 0.50 0.50 0.54

RoRWA (%) 3.68 2.57 3.19 3.39 3.33 3.40

RoRWA (%) (adjusted for gross-up of associate) 3.59 2.51 3.12 3.31 3.25 3.32

Year-end 2010 2011 2012e 2013e 2014e 2015e

Asset Quality

Charge offs / Avg gross loans (%) — 0.8 0.8 0.7 0.7 0.7

NPL/Gross Loans (%) 2.8 2.8 3.1 3.1 3.0 2.9

Provision coverage (%) 125.4 120.6 121.0 125.4 127.8 134.4

Provision/Avg gross loans (%) 3.6 3.0 3.2 3.3 3.3 3.2

Loan Loss Charge/Operating Income (%) 0.3 13.7 10.1 9.5 9.8 10.3

Year-end 2010 2011 2012e 2013e 2014e 2015e

Funding and Liquidity

Net loans/Deposits (%) 55.5 57.5 59.6 61.9 66.7 66.7

Cash and Interbank / assets (%) 15.1 14.8 15.5 11.7 5.4 5.9

Deposits/Liabilities (%) 94.8 93.1 86.5 80.3 73.8 73.1

Year-end 2010 2011 2012e 2013e 2014e 2015e

Capital and leverage ratios

Core Tier 1 ratio (Basel III) (%) 17.3 13.4 15.2 15.8 15.9 16.2

Tier 1 ratio (%) 15.7 12.5 13.5 13.9 13.8 13.9

Total capital ratio (%) 16.9 13.8 14.8 15.1 15.1 15.1

Tangible equity / assets (%) 11.4 10.3 11.3 11.3 11.1 11.0

RWA / assets (%) 64.4 64.7 67.0 64.7 64.2 63.3

Year-end 2010 2011 2012e 2013e 2014e 2015e

Growth

Asset growth (%) 17.4 13.4 12.0 17.0 19.0 19.0

Net loan growth (%) 28.2 16.7 6.7 12.9 18.0 18.0

Deposit growth (%) 15.9 12.8 2.8 8.7 9.6 18.0

Net income growth (%) 13.4 (20.1) 39.5 19.9 13.4 19.9

September 12 2012



Company Profile

Established in 1975, Commercial International Bank is the largest privately owned bank in Egypt with EGP 86.5bn in total assets, 9% lending market share and 7% deposit market share. The bank operates a network of 110 branches employing over 4,495 employees and provides commercial and investment banking services with c90% in corporate lending. CIB is 62% held by the public with the bank of New York Mellon and Actis CIB Mauritius Limited owning 9.5% and 9.2% stakes respectively.

Loan Breakdown by Sector

Loan Breakdown by Country

13%

87%

Retail

Corporate

100%

Egypt

Commercial International Bank

Year-end 2010 2011 2012e 2013e 2014e 2015e

Income statement (EGPmn)

Interest income 4,525 5,471 7,549 8,066 9,085 10,433

Interest expense 2,268 2,781 3,845 4,017 4,561 5,079

Net interest income 2,258 2,690 3,705 4,049 4,523 5,354

Fee income 854 843 885 1,027 1,222 1,454

Net Investment income 375 167 150 167 198 228

Other operating income 501 335 316 399 469 556

Total Operating Income 3,988 4,035 5,056 5,642 6,412 7,592

Total Operating expenses 1,700 1,698 1,631 1,803 2,043 2,328

Pre-provision operating profit 2,288 2,337 3,424 3,840 4,369 5,264

Net provisions 6 321 345 363 429 540

Other provisions/Impairment (106) (48) 39 — — —

Operating profit 2,388 2,064 3,041 3,476 3,940 4,724

Associates (4) (8) 5 10 13 17

Pre-tax profit 2,384 2,056 3,046 3,486 3,953 4,741

Taxation 362 442 792 784 889 1,067

Net profit 2,022 1,614 2,254 2,702 3,064 3,674

Minorities 1 (1) 2 2 3 3

Tier 1 Coupon — — — — — —

Attributable net profit 2,021 1,615 2,252 2,699 3,061 3,671

Diluted EPS 3.03 2.40 3.45 4.14 4.80 5.75

DPS 1.00 1.00 1.10 1.20 1.25 1.30

BVPS 14.52 14.73 18.18 21.22 24.81 29.31

Tangible BVPS 13.61 14.00 18.00 21.07 24.70 29.23

Year-end 2010 2011 2012e 2013e 2014e 2015e

Balance sheet (EGPmn)

Gross loans and advances 36,432 42,523 45,515 51,437 60,708 71,657

Less: Loan loss provisions 1,258 1,457 1,707 1,981 2,327 2,793

Net loans and advances 35,175 41,065 43,808 49,456 58,381 68,864

Cash and central bank 14,496 16,753 23,206 31,298 39,178 48,952

Due from banks 7,055 8,528 8,622 8,967 9,337 11,111

Investment, net 15,624 16,255 17,360 19,175 22,806 25,543

Fixed assets 708 631 777 857 941 1,029

Other assets 2,367 2,302 2,026 2,331 2,737 3,224

Total assets 75,425 85,534 95,798 112,084 133,380 158,722

Customer deposits 63,364 71,468 73,502 79,862 87,506 103,257

Due to banks 1,322 3,341 8,380 16,468 27,944 34,821

Debt 129 99 142 174 206 238

Other liabilities 1,996 1,840 2,937 2,937 2,937 2,937

Total liabilities 66,812 76,748 84,960 99,441 118,593 141,254

Total Equity 8,614 8,786 10,838 12,643 14,787 17,468

Risk weighted assets (bn) 49 55 64 72 86 100

Average interest-earning assets 66,751 77,353 87,681 100,827 119,173 141,946

Average interest-paying liabilities 60,008 69,862 78,466 89,264 106,080 126,987

Common shareholder’s equity 8,030 8,310 10,680 12,503 14,657 17,347

Core Equity Tier 1 (Basel III) 8,486 7,442 9,743 11,468 13,629 16,261

Tier 1 capital 7,613 6,938 8,673 10,050 11,852 13,944

Jaap Meijer, MBA, CFA Christine Kalindjian [email protected] Arqaam Capital Research Offshore s.a.l.

+97145071744

September 12 2012


Commercial International Bank valuation (EGPmn)

Year-end 2010 2011 2012e 2013e 2014e 2015e perp subtotal % of total

1. DCF

Net profit 2,021 1,615 2,252 2,699 3,061 3,671 3,671

Other adjustments (comprehensive income and GW amortization) 93 51 168 214 192 241 241

Minus: excess return excess capital 133 80 185 247 290 361 361

Risk free rate 10.4% 10.4% 10.4% 10.4% 10.4% 10.4% 10.4%

Tax shelter 16.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0%

Adjusted net profit 1,795 1,484 1,899 2,238 2,578 3,069 3,069

Capital requirements 5,969 6,791 7,818 8,839 10,438 12,250 12,250

RoEcC 30.1% 21.9% 24.3% 25.3% 24.7% 25.0% 25.0%

Cost of capital 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0%

Capital charge 955 1,087 1,251 1,414 1,670 1,960 1,960

Economic profit 840 397 648 824 908 1,109 1,109

Discount factor -- -- -- 0.93 0.80 0.69 0.69

NPV of Economic Profit -- -- -- 765 727 765 765

DCF EVA Forecast period

2,257 8.6%

Perpetual growth rate (nominal GDP)

10.0%

Terminal Value

18,477

Terminal value discounted

12,749 48.6%

Required Capital

7,818 29.8%

Value of the bank operations

22,824 87.0%

2. Capital surplus/deficit

Available capital:

Shareholders’ equity 8,614 8,786 10,838 12,643 14,787 17,468

Less Goodwill & intangibles (537) (430) (110) (90) (70) (50)

Less non equity elements reported shareholders equity

Less Dividends (if included in reported equity) (590) (593) (653) (713) (744) (771)

Tangible equity 7,487 7,763 10,075 11,841 13,973 16,648

Capital needs

RWAs (Basel I in FY 11A, Basel II/III starting FY 12e) 48,599 55,367 64,152 72,495 85,593 100,437

RWAs (Basel III) 48,935 55,703 64,152 72,495 85,593 100,437

Equity as % RWA 0 0 0 0 0 0

Financial stakes 97 107 119 140 166 198

Capital Requirements 5,969 6,791 7,818 8,839 10,438 12,250

Surplus capital 1,518 972 2,258 3,001 3,536 4,397

2,258 8.6%

3. Other adjustments

Real estate losses

Corporate bond fair value losses

Equity investment losses

Under/overprovisioning not covered in forecast period

500

Level 3 assets

Total adjustments

500 1.9%

4. Dividends

653 2.5%

Total Fair Value

26,235 100.0%

Fully diluted number of shares

593

Fair value per share

44.2

Current share price

32.9

Upside

34.4%

Implied P/E (x)

12.8 10.7

Implied P/tNAV (x)

2.46 2.10




National Societe Generale Bank QNB has other options

HOLD

Banks / EGYPT Bloomberg code NSGB EY

Market index EGX


Upside (%) 0.2



52 Week range 16.8-42.1






Revenues 3,096 3,534 3,811 4,303


2,046 2,390 2,562 2,935

EPS 3.36 3.56 3.86 4.48

P/E (x) (mkt price) 11.9 11.2 10.3 8.9

BVPS 16.63 18.95 21.46 24.37

Tangible BVPS 16.42 18.74 21.25 24.16

P/B (x) (mkt price) 2.4 2.1 1.9 1.6


DPS 1.25 1.25 1.35 1.57

Div. yield (%) 3.1 3.1 3.4 3.9

RoAA (%) 2.4 2.4 2.3 2.3

RoRWA (%) 3.2 2.8 2.7 2.7

RoTE (%) 21.6 20.3 19.3 19.7




13.4 14.0 14.1 13.9



NPL ratio (%) 3.0 3.5 3.3 3.1

Coverage ratio (%) 101.3 94.8 100.6 97.7

TP upped to EGP 39.9 from EGP 36.5, including a

large take-over/control premium

We forecast a 12% FY11e-15e net profit CAGR.

The acquisition of NSGB should lead to attractive

ROI and EPS accretion for QNB, but NSGB is already

at large M&A premium.

The acquisition of NSGB should lead to attractive ROI of c10% and EPS accretion for QNB of c5-6%: We continue to see other French banks potentially willing to sell local assets, the likes of BNP’s Egyptian franchise and CAE which we view as an easier and preferred target given its smaller size, improving fundamentals and parent Credit Agricole’s larger capital hole. Profitability bound by higher provisions: NSGB's profitability is not recovering as much as its Egyptian peers as it took very light provisions in FY 11A (only 40bps) compared to other local banks and its parent company. Unlike CIB and CAE, our EPS estimates for NSGB edged down for FY 12e on the back of lower margins vs. a slight increase of c1% for FY13e-FY15e. Commercial momentum to improve: We forecast a 10% loan growth for FY12e, after a mere 2.7% YTD loan growth (driven by credit card and personal loans rising 10%, while corporate loans were up only 1%) vs. 3.5% for the sector while deposits slipped 0.3% YTD. We forecast L/D at c69%, among highest in our coverage but still providing room for growth. NSGB currently has a 7.4% lending market share. Loan loss charges spike as expected: We expect 100bps in provision charges for FY 12e vs. 40bps in FY11A. Provisions were up in H1 12A by an annualized 140bps vs. only 25bps in H1 11A, covering for the rise in NPL to 3.34% from 3.04% YE 11A and the very low provision costs in FY 11A. QNB could pay less than the current share price: We think the shares are fully valued (note that NSGB recently issued 10% bonus shares) at a P/E13e of 10.3x, a P/tNAV12e of 2.13x and a FY 12e ROATE of 20.3%. The stock is up c33% since initiation and 26% post announcement of QNB’s interest on Aug 30, and SocGen and QNB could agree on a price below the current market capitalization. NSGB’s acquisition could unlock value for QNB’s surplus capital base and ease NSGB’s growth potentials given the tight capital position of parent company SocGen.

EGP 39.9



Price Performance

64

83

102

121

140

159

178


NSGB EY EGX

September 12 2012

National Societe Generale Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 76


Profitability

NIM

Credit Quality

Capital Ratios

Growth

4.15% 4.79% 4.67% 4.40%4.35% 4.37%

0.01%0.62% 0.78% 0.63% 0.57% 0.67%

3.18% 3.17% 2.84% 2.71% 2.71% 2.66%

0%

1%

2%

3%

4%

5%

6%



3.43%3.56%

4.02%

3.79%3.72% 3.70%

3.0%

3.2%

3.4%

3.6%

3.8%

4.0%

4.2%


Net interest margin

2.6%

2.8%

3.0%

3.2%

3.4%

3.6%

90%

92%

94%

96%

98%

100%

102%



12.7% 12.8% 12.5% 12.7% 12.5% 12.1%

15.4% 14.8%12.9% 13.0% 12.8% 12.3%

10%

14%

18%

22%

26%



18% 12%9%

14%16%

18%15%

3% 8%12%

20%

18%

0%

20%

40%



National Societe Generale Bank

Year-end 2010 2011 2012e 2013e 2014e 2015e



Cost/Income (%) 32.1 33.9 32.4 32.8 31.8 30.2




RoTE (%) 22.7 21.6 20.3 19.3 19.7 20.1

Pre Prov.ROE (%) 20.5 23.3 25.1 23.2 23.3 24.5

RoAA (%) 2.3 2.4 2.4 2.3 2.3 2.3

Revenue / RWA (%) 7.50 7.25 6.90 6.55 6.37 6.26

Costs / RWA (%) 3.35 2.46 2.23 2.15 2.03 1.89

PPP / RWA (%) 4.15 4.79 4.67 4.40 4.35 4.37

Cost of risk / RWA (%) 0.01 0.62 0.78 0.63 0.57 0.67

RoRWA (%) 3.18 3.17 2.84 2.71 2.71 2.66


Year-end 2010 2011 2012e 2013e 2014e 2015e

Asset Quality

Charge offs / Avg gross loans (%) (0.2) 0.4 1.0 0.8 0.7 0.9

NPL/Gross Loans (%) 3.4 3.0 3.5 3.3 3.1 3.0



Loan Loss Charge/Operating Income (%) (4.5) 6.7 16.7 14.2 13.1 15.2

Year-end 2010 2011 2012e 2013e 2014e 2015e





Year-end 2010 2011 2012e 2013e 2014e 2015e



Tier 1 ratio (%) 12.7 12.8 12.5 12.7 12.5 12.1



RWA / assets (%) 62.8 68.2 73.8 73.5 73.5 73.5

Year-end 2010 2011 2012e 2013e 2014e 2015e

Growth

Asset growth (%) 14.4 2.7 11.0 14.0 16.0 18.0

Net loan growth (%) 18.0 12.0 9.4 14.1 16.3 18.1

Deposit growth (%) 14.6 3.2 8.2 12.3 20.1 18.0

Net income growth (%) 3.5 11.3 6.1 8.4 16.0 15.8

September 12 2012



Company Profile

Incorporated in 1978, National Societe Generale Bank is the 2

nd largest listed bank in Egypt with EGP

63.6bn in total assets with 83% of loan book in corporate lending. NSGB has a lending market share of 7.4% and a deposit market share of 5%. Headquartered in Cairo, the bank operates 161 branches employing 4,200 employees and provides retail and corporate banking services. Parent company Groupe Societe Generale owns a majority stake in the bank with a 77% holding.



18%

82%

Retail

Corporate

100%

Egypt

National Societe Generale Bank

Year-end 2010 2011 2012e 2013e 2014e 2015e


Interest income 3,866 4,420 5,180 5,479 6,253 7,329



Fee income 685 718 797 900 1,022 1,165






Net provisions (71) 138 399 364 386 530

Other provisions/Impairment 75 128 — — — —


Associates 7 21 10 12 14 16

Pre-tax profit 1,591 1,802 2,001 2,210 2,563 2,967

Taxation 253 312 420 497 577 668

Net profit 1,338 1,490 1,581 1,713 1,987 2,300

Minorities — — — — — —



Diluted EPS 2.74 3.05 3.56 3.86 4.48 5.18

DPS 1.03 1.25 1.25 1.35 1.57 1.81

BVPS 14.93 16.63 18.95 21.46 24.37 27.74

Tangible BVPS 14.69 16.42 18.74 21.25 24.16 27.53

Year-end 2010 2011 2012e 2013e 2014e 2015e






Due from banks 4,724 4,977 6,943 7,915 9,182 10,835

Investment, net 5,612 5,676 6,492 7,243 8,401 9,914

Fixed assets 700 793 852 914 978 1,046

Other assets 1,000 1,083 1,135 1,281 1,471 1,719

Total assets 60,885 62,552 69,433 79,154 91,818 108,345


Due to banks 942 110 1,482 2,898 1,112 1,915

Debt 892 961 947 947 1,032 1,125



Total Equity 6,621 7,377 8,404 9,518 10,809 12,304






Tier 1 capital 4,868 5,449 6,381 7,373 8,413 9,620


+97145071744

September 12 2012


National Societe Generale Bank valuation (EGPmn)


1. DCF

Net profit 1,338 1,490 1,581 1,713 1,987 2,300 2,300

Other adjustments (comprehensive income) 121 138 126 137 159 184 184


Risk free rate 10.4% 10.4% 10.4% 10.4% 10.4% 10.4% 10.4%

Tax shelter 16.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0%



RoEcC 22.3% 22.5% 21.3% 20.2% 20.4% 20.4% 20.4%

Cost of capital 15.2% 15.2% 15.2% 15.2% 15.2% 15.2% 15.2%

Capital charge 768 851 950 1,079 1,253 1,477 1,477

Economic profit 361 409 382 357 431 502 502

Discount factor -- -- -- 0.93 0.81 0.70 0.70



1,033 6.4%

Perpetual growth rate (GDP)

10.0%

Terminal Value

9,645


6,772 42.0%

Required Capital

6,251 38.8%


14,055 87.3%


Available capital:





Tangible equity 6,058 6,729 7,758 8,825 10,020 11,405

Capital needs


RWAs (Basel III) 41,344 45,767 51,223 58,193 67,520 79,643

Equity as % RWA 12% 12% 12% 12% 12% 12%



Surplus capital 1,006 1,128 1,507 1,723 1,780 1,686

1,507 9.4%


Real estate losses




(9)

Level 3 assets

Total adjustments

(9) (0.1%)

4. Dividends

553 3.4%

Total Fair Value

16,106 100.0%


444


36.3

10% premium over price prior announcement

39.9

Current share price

39.9

Upside

0.0%

Implied P/E (x)

11.2 10.3

Implied P/tNAV (x)

2.1 1.9




Credit Agricole Egypt Our preferred M&A candidate

BUY

Banks / EGYPT Bloomberg code CIEB EY

Market index EGX


Upside (%) 28.2



52 Week range 7.7-13.0


Market cap (USD mn) 568




Revenues 1,233 1,446 1,511 1,695


592 751 768 885

EPS 1.07 1.60 1.66 1.93

P/E (x) (mkt price) 11.3 7.6 7.2 6.2

BVPS 6.98 7.93 8.94 10.18

Tangible BVPS 6.76 7.72 8.73 9.96

P/B (x) (mkt price) 1.7 1.5 1.3 1.2


DPS 0.64 0.65 0.70 0.75

Div. yield (%) 5.3 5.4 5.8 6.2

RoAA (%) 1.2 1.7 1.5 1.5

RoRWA (%) 1.9 2.3 2.1 2.2

RoAE (%) 14.9 22.0 20.2 20.7




12.0 11.5 11.4 11.5



NPL ratio (%) 1.9 3.0 2.9 2.8

Coverage ratio (%) 163.9 110.4 116.3 123.2

TP upped to EGP 15.5 from EGP 12, 28% upside.

We forecast a 21% FY11e-15e net profit CAGR, on a

pickup in loan growth, wider NIM and lower LLP.

Credit Agricole may sell its Egyptian operations to

strengthen its own capital base like SocGen (NSGB).

FY12e earnings outlook improved: We have increased our EPS

estimates by 19% for FY 12e and c6% for FY 13e-FY15e helped by

wider NIMs. This follows the 88% y-o-y rise in H1 12A profits on the

back of the continuing upward trend in margins (an estimated 38bps

spike in FY 12e), investment income, FX gains and improving cost

efficiency. We have reduced the pay-out in line with FY 11A levels.

We have increased FY12e growth markedly: We increase our loan

and deposit growth estimates to 16% and 20% respectively for FY 12e.

YTD figures mark accelerating lending and deposit growth up 12% and

13% YTD vs. a yet stagnant sector with a mere 3.5% and 3.8% YTD

growth in loans and deposits respectively. Loan to deposit ratio

currently stands at a low 56% giving room to take on more leverage.

Improving asset quality: Loan loss charges estimates for FY 12e should

remain in check at 105bps vs. 121bps in FY 11A. Annualized loan loss

charges in Q2 12A amounted to 82 bps vs. 66 bps in Q2 11A. With

impaired loans ratio shrinking sequentially to 1.5% from 2.2% in Q2

11A, the bank’s credit quality is on its way to recovery as coverage

climbed even higher to 220% from already elevated levels.

We reiterate CAE as a take-over target: The bank trades at a P/E13e

of 7.2x, P/tNAV12e of 1.56x with a forecasted FY 12e ROATE of c21%.

The stock is up c33% since initiation but trades at a 17% earnings

discount to the sector. CAE remains among our top picks in Egypt, our

Core Buy portfolio and an eligible acquisition target particularly if QNB

fails to purchase NSGB. We see CAE as an easier target than NSGB, due

to its smaller size, a higher capital deficit of its parent company and

hence more willing to offload its majority stake and higher financial

synergies (CAE could benefit more from QNB’s capital position). On

the other hand, we do not rule out an offer of QNB for NSGB which is

below NSGB’s current market price given QNB’s interest in operations

of other banks (e.g. BNP Egypt, CAE, Arab Bank to name just a few).

EGP 15.5



Price Performance

68

83

98

113

128

143


CIEB EY EGX

September 12 2012

Credit Agricole Egypt © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 80


Profitability

NIM

Credit Quality

Capital Ratios

Growth

4.44%

4.04%4.18%

3.75%3.80% 3.95%

0.29%0.95% 0.83% 0.72% 0.71%

0.72%

3.04%

1.90% 2.31%2.12% 2.19% 2.29%

0%

1%

2%

3%

4%

5%



3.32%

3.54%

3.92%

3.77%

3.64% 3.62%

3.0%

3.2%

3.4%

3.6%

3.8%

4.0%


Net interest margin

2.6%

2.7%

2.8%

2.9%

3.0%

3.1%

100%

110%

120%

130%

140%



13.3%11.6%

10.2% 10.3%10.2% 10.1%

14.6%12.8%

11.5% 11.5% 11.5% 11.4%

0%

5%

10%

15%

20%



30%

6%15%

15% 15%

16%8%-4%

20%

8% 13%

14%

-20%

0%

20%

40%



Credit Agricole Egypt

Year-end 2010 2011 2012e 2013e 2014e 2015e



Cost/Income (%) 48.0 52.0 48.1 49.2 47.8 45.4




RoAE (%) 21.2 14.9 22.0 20.2 20.7 21.8

Pre Prov.ROE (%) 22.0 20.9 28.1 25.8 26.2 27.5

RoAA (%) 1.9 1.2 1.7 1.5 1.5 1.6

Revenue / RWA (%) 8.54 8.43 8.04 7.39 7.29 7.23

Costs / RWA (%) 4.10 4.38 3.86 3.63 3.48 3.29

PPP / RWA (%) 4.44 4.04 4.18 3.75 3.80 3.95

Cost of risk / RWA (%) 0.29 0.95 0.83 0.72 0.71 0.72

RoRWA (%) 3.04 1.90 2.31 2.12 2.19 2.29


Year-end 2010 2011 2012e 2013e 2014e 2015e

Asset Quality

Charge offs / Avg gross loans (%) 0.3 1.2 1.1 0.9 0.9 0.9

NPL/Gross Loans (%) 2.6 1.9 3.0 2.9 2.8 2.8




Year-end 2010 2011 2012e 2013e 2014e 2015e





Year-end 2010 2011 2012e 2013e 2014e 2015e



Tier 1 ratio (%) 13.3 11.6 10.2 10.3 10.2 10.1



RWA / assets (%) 52.5 57.0 62.6 61.4 60.2 60.2

Year-end 2010 2011 2012e 2013e 2014e 2015e

Growth

Asset growth (%) 11.0 1.2 12.0 16.0 16.0 16.0

Net loan growth (%) 30.1 6.3 15.3 15.4 15.4 15.9

Deposit growth (%) 8.4 (3.7) 19.9 7.9 12.7 14.2

Net income growth (%) 12.8 (31.1) 49.3 4.6 17.4 21.1

September 12 2012



Company Profile

Established in 2006, Credit Agricole Egypt is the 4th

largest bank in Egypt with EGP 27.4bn in total assets with 2% market share in loans and deposits. The bank operates a network of 72 branches employing over 1,997 employees. The bank provides retail, private and corporate banking services with a focus on corporate lending that comprises 76% of total loan book. CAE is majorly held by parents company Groupe Credit Agricole who owns 47% of the bank with El Mansour and El Maghraby Investment and Development Company owning a 17.5% stake.



24%

76%

Retail

Corporate

100%

Egypt

Credit Agricole Egypt

Year-end 2010 2011 2012e 2013e 2014e 2015e


Interest income 1,630 1,842 2,101 2,334 2,673 3,085

Interest expense 860 973 1,072 1,202 1,403 1,616

Net interest income 770 869 1,028 1,132 1,270 1,468

Fee income 208 225 241 272 309 355




Total Operating expenses 545 641 695 744 810 887

Pre-provision operating profit 591 592 751 768 885 1,066

Net provisions 32 136 144 148 165 194

Other provisions/Impairment 7 4 4 — — —

Operating profit 553 452 602 620 720 872

Associates — — — — — —

Pre-tax profit 553 452 602 620 720 872

Taxation 108 151 145 143 166 201

Net profit 447 307 458 478 554 672


Tier 1 Coupon 42 28 42 43 44 54

Attributable net profit 404 278 416 435 510 618

Diluted EPS 1.41 0.97 1.45 1.51 1.78 2.15

DPS 1.10 0.64 0.65 0.70 0.75 0.80

BVPS 7.75 6.98 7.93 8.94 10.18 11.76

Tangible BVPS 7.54 6.76 7.72 8.73 9.96 11.55

Year-end 2010 2011 2012e 2013e 2014e 2015e



Less: Loan loss provisions 310 377 453 533 630 755



Due from banks 3,077 5,003 5,748 6,667 7,734 8,972

Investment, net 2,949 2,940 3,276 3,800 4,409 5,159

Fixed assets 283 268 318 324 330 337

Other assets 658 723 637 729 836 959

Total assets 25,352 25,660 28,739 33,337 38,671 44,859


Due to banks 851 2,297 1,219 3,460 5,212 6,593

Debt 41 33 — — — —

Other liabilities 1,155 1,024 904 1,057 950 1,111


Total Equity 2,225 2,003 2,277 2,567 2,921 3,376






Tier 1 capital 1,768 1,696 1,834 2,105 2,384 2,731


+97145071744

September 12 2012


Credit Agricole Egypt valuation (EGPmn)


1. DCF

Net profit 440 303 441 459 534 649 649

Other adjustments (comprehensive income) 42 28 41 41 43 52 52

Minus: excess return excess capital 19 (2) (10) (13) (13) (15) (15)

Risk free rate 10.4% 10.4% 10.4% 10.4% 10.4% 10.4% 10.4%

Tax shelter 20.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0%

Adjusted net profit 379 276 411 430 504 612 612


RoEcC 23.2% 15.4% 19.0% 17.5% 18.1% 18.9% 18.9%

Cost of capital 15.3% 15.3% 15.3% 15.3% 15.3% 15.3% 15.3%

Capital charge 250 274 330 376 427 496 496

Economic profit 129 2 81 55 77 116 116

Discount factor -- -- -- 0.93 0.81 0.70 0.70



194 4.7%


10.0%

Terminal Value

2,183


1,529 36.8%

Required Capital

2,157 51.9%


3,881 93.4%


Available capital:


Minorities 12 12 14 17 19 22




Tangible equity 1,860 1,769 2,032 2,300 2,628 3,060

Capital needs


RWAs (Basel III) 13,604 14,927 17,979 20,456 23,267 27,009

Equity as % RWA 12% 12% 12% 12% 12% 12%

Financial stakes -- -- -- -- -- --


Surplus capital 227 (22) (126) (155) (164) (181)

(126) (3.0%)


Real estate losses




221

Level 3 assets

Total adjustments

221 5.3%

4. Dividends

181 4.4%

Total Fair Value

4,156 100.0%


287


14.5

Current share price

12.1

Upside

20.1%

Implied P/E (x)

10.4 10.0

Implied P/tNAV (x)

1.89 1.68



Loubna El Hassan Arqaam Capital Research Offshore s.a.l.

Qatar National Bank Great play on public growth

BUY

Banks / Qatar Bloomberg code QNBK QD

Market index


Upside (%) 44.7



52 Week range 126.1-142.7

Market cap (QAR mn) 94,463


Average daily volume (QAR mn) 20.3



Revenues 10,018 11,811 13,415 15,305


8,415 9,803 11,052 12,525

EPS 10.73 12.32 14.07 15.86

P/E (x) (mkt price) 12.4 10.8 9.5 8.4

BVPS 60.05 68.43 77.34 87.32

Tangible BVPS 59.85 68.23 77.14 87.12

P/B (x) (mkt price) 2.2 1.9 1.7 1.5


DPS 3.64 4.80 5.49 6.19

Div. yield (%) 2.7 3.6 4.1 4.6

RoAA (%) 2.8 2.6 2.5 2.4

RoRWA (%) 4.7 4.7 4.7 4.6

RoTE (%) 22.3 18.8 18.9 18.8




21.2 21.4 21.5 21.4



NPL ratio (%) 1.1 1.2 1.3 1.5

Coverage ratio (%) 118.9 124.0 128.7 123.2

We have recemtly increased our EPS estimates for FY12e by 1% and

by 4% for FY13e-FY15e on the back of much stronger than expected

loan growth for FY12e, partly offset by pressure on asset yields

margins and slower growth in fees & commissions.

Very strong commercial momentum: We increase our FY loan growth

forecast to as much as 28% (from 11%) for FY 12e, post the loan

growth acceleration recorded in Q2 12A (56% y/y, 17% q/q and 21%

Ytd), which is extremely impressive considering the strong growth of

47% recorded in FY11. We expect QNB to continue outpacing the

sector and to marginally increase its market shares in H1 12A,

supported by its strong capital base and capital generation. Even

though the Qatari banks sector is well capitalized as a whole, CBQ and

Doha are not. In particular, we expect QNB to grow at the expense of

these banks, if the banks fail to address their capital deficits.

NIM should pick up in Q3 12e: Note that most of Q2 12A lending

growth took place late in June which may explain part of the NIM

compression of 24bps recorded in Q2 12A. We should thus expect the

corresponding improvement in NIM to hit Q3 and Q4 12A. We expect

loan growth to continue outpacing deposits, though QNB enjoys

strong access to deposits outside Qatar.

Fees & commissions: Since QNB amortizes commissions over the life

of the loan book, we should not expect a sharp increase in fees &

commissions on the back of high lending growth.

Asset quality to remain excellent: We expect QNB asset quality to

remain excellent and average loan loss charges should remain in check

at c 55bps. The average risk weighting of assets also dropped from

52% of assets to 51% of assets by H1-12. The strong growth hardly

affects QNB’s capital ratios thanks to its strong capital generation.

Cheapest Qatari bank: We recentlty increase our TP by 2% to QAR 193

(slightly less than the EPS increase, due to the higher capital

requirements stemming from the strong growth). QNB is trading at

P/E 13e of 9.5x and P/tNAV12 of 1.9x (vs. an RoE of 18.8%), in line

with the sector. If QNB uses the excess capital for M&A, P/E13e falls to

8x; if it uses it for organic growth to just 6x. QNB is one of the best

capitalized bank and is exposed to the sweet spot – high growth

coupled with a high RORWA. The acquisition of NSGB would unlock

11-16% value in a typical Gordon growth model.

QAR 193.0



Price Performance

87

93

99

105

111

117


QNBK QD

September 12 2012

Qatar National Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 84


Profitability

NIM

Credit Quality

Capital Ratios

Growth

5.45%

5.38%5.45% 5.38%

5.28% 5.28%

0.54% 0.64% 0.77% 0.71% 0.73% 0.87%

4.99% 4.70% 4.67% 4.67%4.56% 4.42%

0%

1%

2%

3%

4%

5%

6%



2.95%3.08%

2.95%2.86% 2.80% 2.80%

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

3.2%

3.4%


Net interest margin

0.0%

0.5%

1.0%

1.5%

2.0%

115%

120%

125%

130%



15.3%

22.0% 21.9% 22.2% 21.7% 21.2%15.3%

22.0% 21.9% 22.2% 21.7% 21.2%

10%

14%

18%

22%

26%



21%

47%

28%16%

19%

20%

31%21%

27%

16% 19%

20%

0%

20%

40%

60%



Qatar National Bank

Year-end 2010 2011 2012e 2013e 2014e 2015e



Cost/Income (%) 17.5 16.0 17.0 17.6 18.2 18.2




RoTE (%) 25.4 22.3 18.8 18.9 18.8 18.9

Pre Prov.ROE (%) 27.9 25.3 21.8 21.7 21.8 22.6

RoAA (%) 2.8 2.8 2.6 2.5 2.4 2.3

Revenue / RWA (%) 6.60 6.41 6.57 6.53 6.45 6.46

Costs / RWA (%) 1.15 1.02 1.12 1.15 1.17 1.18

PPP / RWA (%) 5.45 5.38 5.45 5.38 5.28 5.28

Cost of risk / RWA (%) 0.54 0.64 0.77 0.71 0.73 0.87

RoRWA (%) 4.99 4.70 4.67 4.67 4.56 4.42


Year-end 2010 2011 2012e 2013e 2014e 2015e

Asset Quality


NPL/Gross Loans (%) 1.0 1.1 1.2 1.3 1.5 1.7




Year-end 2010 2011 2012e 2013e 2014e 2015e



Cash and Interbank / assets (%) 19.8 3.1 — 1.1 5.3 6.6


Year-end 2010 2011 2012e 2013e 2014e 2015e



Tier 1 ratio (%) 15.3 22.0 21.9 22.2 21.7 21.2



RWA / assets (%) 50.1 51.8 50.5 50.1 49.1 48.7

Year-end 2010 2011 2012e 2013e 2014e 2015e

Growth

Asset growth (%) 24.6 35.2 18.0 15.0 18.0 18.0

Net loan growth (%) 21.1 47.3 27.8 15.8 18.8 19.7

Deposit growth (%) 31.5 20.9 27.0 16.0 19.0 20.0


September 12 2012



Company Profile

Qatar National Bank is the largest bank in Qatar by both assets and market capitalization and maintains respectively 50% and 63% of loans and deposit market share within the Qatari banking sector as of Q1 12A. QNB provides a full range of banking services including retail, corporate, treasury, investment and wealth management services but is mainly focused on the public sector. The bank has presence in 24 countries supported by more than 670 ATMS and employs around 7,600 staff. It recently acquired 49% of Bank of Commerce and Development in Libya and increased its stake in Mansour Investment Bank in Iraq to 51%. The Qatar Investment Authority is the largest shareholder with a 50% stake. Loan Breakdown by Segment


58%

32%

10%

Public

Corporate

Retail

86%

3%

9%

0% 2%

Qatar

Other GCC

Europe

North America

Others

Qatar National Bank

Year-end 2010 2011 2012e 2013e 2014e 2015e

Income statement (QARmn)

Interest income 9,932 10,695 12,979 14,789 16,979 20,073



Fee income 1,121 1,297 1,427 1,641 1,903 2,208


Other operating income 422 610 739 873 1,032 1,217




Net provisions 538 1,035 1,384 1,460 1,737 2,406

Other provisions/Impairment 62 (31) 6 6 6 6


Associates 216 166 251 309 375 410

Pre-tax profit 5,718 7,578 8,664 9,895 11,157 12,675

Taxation 16 24 43 49 56 63

Net profit 5,702 7,554 8,621 9,846 11,101 12,611

Minorities (2) 45 — — — —

Tier 1 Coupon 118 152 216 246 278 315


Diluted EPS 9.32 10.51 12.01 13.72 15.47 17.57

DPS 3.26 3.64 4.80 5.49 6.19 7.03

BVPS 40.43 60.05 68.43 77.34 87.32 98.71

Tangible BVPS 40.43 59.85 68.23 77.14 87.12 98.51

Year-end 2010 2011 2012e 2013e 2014e 2015e

Balance sheet (QARmn)





Due from banks 24,687 38,566 35,631 40,975 48,351 57,054

Investment, net 28,696 55,086 62,754 69,504 64,366 63,686

Fixed assets 915 979 1,036 1,099 1,171 1,253

Other assets 3,476 2,961 3,563 8,195 9,670 11,411

Total assets 223,382 301,955 356,307 409,753 483,509 570,541


Due to banks 14,345 39,482 40,910 39,145 41,359 48,344

Debt 12,136 12,152 5,437 13,000 20,000 20,000



Total Equity 24,793 42,635 48,772 55,143 62,311 70,496






Tier 1 capital 17,119 34,358 39,465 45,540 51,451 58,953

Jaap Meijer, MBA, CFA Loubna El Hassan [email protected] Arqaam Capital Research Offshore s.a.l. +97145071744

September 12 2012


Exhibit 154: Qatar national Bank Valuation (QARmn)

Year-end 2010 2011 2012e 2013e 2014e 2015e perp Subtotal % of total

1. DCF

Net profit 5,704 7,509 8,621 9,846 11,101 12,611 12,611 Other adjustments (comprehensive income) 118 152 216 246 278 315 315 Minus: excess return excess capital 232 809 929 1,063 1,195 1,325 1,325 Risk free rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Tax shelter 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% Adjusted net profit 5,355 6,547 7,476 8,536 9,629 10,972 10,972 Capital requirements 18,177 23,678 26,593 29,795 33,826 38,810 38,810 RoEcC 29.5% 27.7% 28.1% 28.7% 28.5% 28.3% 28.3% Cost of capital 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% Capital charge 1,999 2,605 2,925 3,277 3,721 4,269 4,269 Economic profit 3,355 3,943 4,551 5,259 5,908 6,702 6,702 Discount factor -- -- -- 0.95 0.86 0.77 0.77 NPV of Economic Profit -- -- -- 4,992 5,052 5,163 5,163 DCF EVA Forecast period

15,207 11.3%


3.7%

Terminal Value

91,813


70,729 52.4%

Required Capital

26,593 19.7%


112,529 83.3%


Available capital:

Shareholders’ equity 24,793 42,635 48,772 55,143 62,311 70,496 Less Goodwill & intangibles -- (142) (142) (142) (142) (142) Less non equity elements reported shareholders equity

Less Dividends (if included in reported equity) (1,957) (2,544) (3,362) (3,840) (4,329) (4,918) Tangible equity 22,835 39,949 45,268 51,162 57,840 65,435 Capital needs

RWAs (Basel I in FY 11A, Basel II/III starting FY 12e) 112,003 156,382 179,811 205,347 237,255 277,890 RWAs (Basel III) 112,738 158,124 179,811 205,347 237,255 277,890 Equity as % RWA 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% Financial stakes 4,648 4,703 5,015 5,153 5,355 5,464 Capital Requirements 18,177 23,678 26,593 29,795 33,826 38,810 Surplus capital 4,659 16,271 18,676 21,367 24,014 26,625

18,676 13.8%


Real estate losses




547

Level 3 assets

(83)

Total adjustments

464 0.3%

4. Dividends 3,362 2.5%

Total Fair Value

135,030 100.0%

Number of shares (after 10% capital hike)

699.7


699.7


193.0

Current share price

133.4

Upside

44.7%

Implied P/E (x)

16.1 14.1

Implied P/tNAV (x)

2.8 2.5



Michael Malkoun Arqaam Capital Research Offshore s.a.l

Albilad Bank Showing strong improvement

BUY

Banks / SAUDI ARABIA Bloomberg code ALBI AB

Market index Saudi Arabia


Upside (%) 21.9



52 Week range 17.8-35.4

Market cap (SAR mn) 8,850


Average daily volume (SAR mn) 34.3



Revenues 1,374 1,737 1,910 2,120


582 855 947 1,068

EPS 1.10 3.28 2.60 3.00

P/E (x) (mkt price) 26.8 9.0 11.3 9.8

BVPS 11.39 14.57 17.09 19.76

Tangible BVPS 11.39 14.57 17.09 19.76

P/B (x) (mkt price) 2.6 2.0 1.7 1.5


DPS — — 0.25 0.25

Div. yield (%) — — 0.8 0.8

RoAA (%) 1.3 3.3 2.2 2.3

RoRWA (%) 1.6 3.6 2.6 2.6

RoAE (%) 10.1 24.5 16.0 15.8




15.6 16.8 16.9 17.5



NPL ratio (%) 4.7 4.2 4.2 4.2

Coverage ratio (%) 129.0 145.2 151.2 153.6

Returns among highest in the sector

Strong growth, capital & liquidity

TP of SAR 36 offers 21% upside

We increase our EPS estimates for FY 12e by 12.7% as a result of stronger than expected H1 12A results. We increase fee generation, supported by a much stronger than expected loan growth, and slightly upped net interest margins post the strong Q2 12 results. We increase our TP from SAR 30.9 to SAR 36.0. Despite a share price increase of 9.7% since our initiation, we still see room to upgrade our recommendation to BUY. Commercial momentum to improve: Following an 18% y-t-d net lending increase in H1 12A, we revise our FY 12e lending forecasts upwards from 20% to 30%, the 2nd highest in KSA after only Alinma and ahead of Al Rajhi. In addition, the bank has the 2nd highest capital position in KSA with a CET1 of 16.8% in FY 12e, despite the high loan growth; a highly conducive position for further balance sheet growth. Returns should improve markedly: Albilad Bank is expected to generate a strong pre-provision return on RWA of 3.3% in FY 12e, second among KSA banks, and largely due to the bank’s prominent fee income which makes up a sector high 39% of operating income (with remittances accounting for c. 57% of total fees). However, this year’s net income is partially skewed by extraordinary real estate gains in Q1 12A. We expect cost/income to fall from current levels. Improving asset quality: Our asset quality screen suggests a cumulative loss of 330 bps over the next 5 years (66bps pa), coming from both the corporate and retail sectors, well below the loan loss charge of 1.8% in FY 11A. The bank’s NPL ratio is relatively high compared to peers, albeit improving in H1 12A to 3.9% from 4.7% at FY 11A, while improving its coverage ratio from 129% to 150%. Asset quality remains a risk for Albilad given that retail lending makes up c. 40% of the loan book, and has yet to fully mature. Very strong liquidity: We calculate an NSFR of c. 119% and an LCR of c. 349%. The strong liquidity is further corroborated by the bank’s industry-low LTD of 60% and net cash position of c. 52%. We upgrade our recommendation to a buy: Albilad is currently trading at average multiples, with a P/E13e of 11.3x and a P/tNAV12e of 2.1x, fully justified by the estimated ROE12e of 16.5%, its strong capital and liquidity position and RORWA of 2.6%.

SAR 36.0



Price Performance

87

107

127

147

167

187


ALBI AB Saudi Arabia

September 12 2012

Albilad Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 88


Profitability

NIM

Credit Quality

Capital Ratios

Growth

2.10% 2.91%

3.25% 3.19%3.21% 3.33%

1.33% 1.26%0.93%

0.55% 0.50%0.48%

0.51%

1.65%

3.63%

2.55% 2.62% 2.76%

0%

1%

2%

3%

4%



3.37%

2.96%2.88% 2.83% 2.79% 2.86%

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

3.2%

3.4%


Net interest margin

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

135%

140%

145%

150%

155%



16.6%15.4%

13.2%14.6%

15.1% 15.5%

17.4% 18.3% 18.0% 18.4% 18.9% 19.5%

10%

14%

18%

22%

26%



12%

12%

30%

16% 15%

15%

23%

36%

12% 11%11%

14%

0%

20%

40%



Albilad Bank

Year-end 2010 2011 2012e 2013e 2014e 2015e



Cost/Income (%) 65.3 57.6 50.8 50.4 49.6 47.9




RoAE (%) 3.0 10.1 24.5 16.0 15.8 16.1

Pre Prov.ROE (%) 11.0 17.9 31.5 19.9 19.3 19.4

RoAA (%) 0.5 1.3 3.3 2.2 2.3 2.4

Revenue / RWA (%) 6.05 6.87 6.61 6.43 6.37 6.38

Costs / RWA (%) 3.95 3.96 3.35 3.24 3.16 3.06

PPP / RWA (%) 2.10 2.91 3.25 3.19 3.21 3.33

Cost of risk / RWA (%) 1.33 1.26 0.93 0.55 0.50 0.48

RoRWA (%) 0.51 1.65 3.63 2.55 2.62 2.76


Year-end 2010 2011 2012e 2013e 2014e 2015e

Asset Quality


NPL/Gross Loans (%) 5.5 4.7 4.2 4.2 4.2 4.2




Year-end 2010 2011 2012e 2013e 2014e 2015e





Year-end 2010 2011 2012e 2013e 2014e 2015e



Tier 1 ratio (%) 16.6 15.4 13.2 14.6 15.1 15.5



RWA / assets (%) 86.0 72.1 80.3 80.3 80.4 80.8

Year-end 2010 2011 2012e 2013e 2014e 2015e

Growth

Asset growth (%) 21.3 31.3 18.0 13.0 12.0 12.0

Net loan growth (%) 11.6 12.1 29.9 15.7 14.9 14.5

Deposit growth (%) 23.4 36.1 11.8 11.5 10.7 14.0

Net income growth (%) (137.2) 257.0 189.4 (20.5) 15.4 18.3

September 12 2012



Company Profile

One of the most recently established banks under coverage, Albilad began its operations 2004 providing Islamic commercial banking services through its c. 83 branches and c. 650 ATMs, all in KSA and in which it employees over 2,100 employees. Albilad also generates significant revenue from its remittance service. The bank currently has a c. 1.4% lending market share and a 2.1% deposit market share. Major shareholders include Mohammed Ibrahim Mohammed Al Subeaei with 11.67%, Abdullah Ibrahim Mohammed Al Subeaei with 11.14%, First Investment Company with 7.43%, Abulrahman Saleh Abdulaziz Al Rajhi with 6.97%, Abdulrahman Abdulaziz Saleh Al Rajhi with 6.57%, and a public free float of 50%

Loan breakdown by Sector

Loan breakdown by Country

38.5%

61.5%

Retail

Corporate

100%KSA

Albilad Bank

Year-end 2010 2011 2012e 2013e 2014e 2015e

Income statement (SARmn)

Interest income 646 728 848 945 1,053 1,210

Interest expense 21 25 20 22 25 28

Net interest income 625 703 828 923 1,028 1,182

Fee income 342 458 651 716 809 915




Total Operating expenses 717 792 882 963 1,052 1,146

Pre-provision operating profit 382 582 855 947 1,068 1,247

Net provisions 242 252 245 165 166 180

Other provisions/Impairment 47 — — — — —

Operating profit 92 330 610 782 902 1,067


Pre-tax profit 92 330 610 782 902 1,067

Taxation — — — — — —

Net profit 92 330 984 782 902 1,067

Minorities — — — 782 902 1,067

Tier 1 Coupon — — 30 23 27 32

Attributable net profit 92 330 954 758 875 1,035

Diluted EPS 0.31 1.10 3.28 2.60 3.00 3.55

DPS — — — 0.25 0.25 0.25

BVPS 10.34 11.39 14.57 17.09 19.76 22.95

Tangible BVPS 10.34 11.39 14.57 17.09 19.76 22.95

Year-end 2010 2011 2012e 2013e 2014e 2015e

Balance sheet (SARmn)


Less: Loan loss provisions 633 884 1,163 1,404 1,640 1,739



Due from banks 4,032 6,454 8,186 8,577 9,317 10,667

Investment, net 2,912 1,552 1,909 2,264 1,843 1,296

Fixed assets 342 328 598 609 622 636

Other assets 344 378 1,636 1,664 1,863 2,087

Total assets 21,117 27,727 32,718 36,971 41,408 46,377


Due to banks 382 422 359 305 259 220

Debt — — 361 402 445 507

Other liabilities 699 851 1,868 2,418 2,989 2,525


Total Equity 3,103 3,416 4,370 5,128 5,927 6,886






Tier 1 capital 3,011 3,087 3,457 4,336 5,019 5,818

Jaap Meijer, MBA, CFA Michael Malkoun [email protected] Arqaam Capital Research Offshore s.a.l

+97145071744

September 12 2012


Bank Albilad valuation (SARmn)


1. DCF

Net profit 92 330 984 781 901 1,066 1,066

Other adjustments (Zakat) 0 0 30 23 27 32 32


Risk free rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%

Tax shelter -- -- -- -- -- -- --



RoEcC 2.5% 10.9% 28.1% 19.0% 19.3% 20.2% 20.2%

Cost of capital 10.7% 10.7% 10.7% 10.7% 10.7% 10.7% 10.7%

Capital charge 277 281 338 381 428 481 481

Economic profit (213) 5 550 295 344 426 426

Discount factor -- -- -- 0.95 0.86 0.78 0.78



906 8.4%


3.5%

Terminal Value

5,912


4,585 42.5%

Required Capital

3,154 29.2%


8,645 80.1%


Available capital:


Minorities -- -- -- -- -- --

Less Goodwill & intangibles -- -- -- -- -- --


Less Dividends (if included in reported equity) -- -- -- (75) (75) (75)

Tangible equity 3,103 3,416 4,370 5,053 5,852 6,811

Capital needs

RWAs (Basel I in FY 11A, Basel II/III after FY 12e) 18,160 19,982 26,286 29,689 33,306 37,490

RWAs (Basel III) 21,539 21,877 26,286 29,689 33,306 37,490

Equity as % RWA 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%



Surplus capital 518 791 1,216 1,490 1,855 2,313

1,216 11.3%


Real estate losses

93




851

Level 3 assets

(15)

Total adjustments

929 8.6%

4. Dividends

-- --

Total Fair Value

10,790 100.0%


300


36.0

Current share price

29.5

Upside

21.9%

Implied P/E (x)

11.0 13.8

Implied P/tNAV (x)

2.47 2.10



Michael Malkoun Arqaam Capital Research Offshore s.a.l

Al Rajhi Bank Balance sheet momentum continues

BUY

Banks / SAUDI ARABIA Bloomberg code RJHI AB

Market index Saudi Arabia


Upside (%) 28.6



52 Week range 67.0-83.3






Revenues 12,333 13,636 15,262 16,857


8,854 9,881 11,180 12,420

EPS 4.92 5.69 6.43 7.09

P/E (x) (mkt price) 16.6 13.9 12.3 11.1

BVPS 21.88 23.92 26.35 29.10

Tangible BVPS 21.88 23.92 26.35 29.10

P/B (x) (mkt price) 3.4 3.1 2.8 2.5


DPS 3.25 3.25 3.55 3.85

Div. yield (%) 4.4 4.4 4.8 5.2

RoAA (%) 3.3 3.6 3.5 3.4

RoRWA (%) 3.8 3.9 3.8 3.7

RoAE (%) 21.0 23.1 23.8 23.8




14.6 16.2 16.4 16.7



NPL ratio (%) 1.7 1.8 1.8 1.8

Coverage ratio (%) 148.4 150.3 152.6 154.3

Margin compression continues in retail

Blue chip qualities remain, with strong RORWA & growth

TP of SAR 94.9 still offers a 29% upside

We cut our FY 12e EPS forecasts for Al Rajhi by 1%, and our FY 13-15e estimates by 5% as a result of further NIM compression emanating from the retail network, despite an increase in expected loan growth for FY12e. We therefore reduce our TP by 5.6% to SAR 94.9 from SAR 100.5, which offers upside of 29%. The stock price has remained virtually unchanged since our initiation report. Significant margin compression: We expect Al Rajhi to face noticeable pressure on net interest margins in the retail segment (60% of its loan book). New consumer loans are yielding 5.25% as compared to 6.25% of the existing book and the margin pressure will take 5 years to fully filter through to the net interest margins, with little room to reduce funding costs going forward. Nevertheless, we expect Al Rajhi to remain at near the forefront of lending growth in KSA and to grow their loan book in FY 12e by 20%, as opposed to our 17% estimate, thus continuing to build on strong 13% y-t-d lending growth in H1 12A. It should continue to capture a large share of the Islamic finance growth, even though the pure Islamic peers can outgrow Al Rajhi. Industry leading returns across all metrics: Al Rajhi is expected to continue generating stellar pre-provisioning returns of c. 5% of RWA; second only to RAKBank. The net RORWA should be c. 4% despite above average loan loss charges emanating from the bank’s retail tilt. High capital generation: We calculate CET1 of 16.2% for FY 12e, higher than Al Rajhi’s reported Tier-1, which does not include current year’s earnings. We expect CET1 to improve by 0.5-0.6% pa, driven by the bank’s high returns, partly offset by its high pay-out and RWA growth. Sufficient liquidity: With an NSFR of 118% and LCR of 200%, Al Rajhi appears to be sufficiently liquid despite some maturity mismatches between assets and liabilities. The bank’s net cash balance is 18%. Strong asset quality: Our asset quality screen suggests a cumulative loss of 416 bps over the next 5 years (83bps pa), particularly due to its increasing retail exposure, although Al Rajhi should be able to easily absorb those charges. The bank’s NPL ratio of 1.7% and coverage ratio of 147% are both towards the top end of the industry spectrum. We reiterate our buy recommendation despite margin compression. Al Rajhi offers 29% upside and very attractive returns (ROTE12e of 23.1% and RORWA of 3.9%). The high multiples are justified by the strong RORWA, growth, capital generation and balance sheet.

SAR 94.9



Price Performance

86

96

106

116

126

136


RJHI AB Saudi Arabia

September 12 2012

Al Rajhi Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 92


Profitability

NIM

Credit Quality

Capital Ratios

Growth

5.51%

5.12% 4.80% 4.76%4.66% 4.79%

1.13%0.85% 0.65% 0.65% 0.67%

0.69%

3.89% 3.83% 3.85% 3.82%3.71% 3.81%

0%

1%

2%

3%

4%

5%

6%



5.30%4.61%

4.12% 4.00% 3.88% 3.99%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%


Net interest margin

0.0%

0.5%

1.0%

1.5%

2.0%

145%

150%

155%

160%

165%



15.2% 14.7% 14.1% 14.2%14.4% 14.8%

20.6% 20.0% 20.1% 20.1% 20.0% 20.4%

10%

14%

18%

22%

26%



7%

17% 20% 17% 15%

14%

16%

21%

19%16%

14%

13%

0%

20%

40%



Al Rajhi Bank

Year-end 2010 2011 2012e 2013e 2014e 2015e



Cost/Income (%) 25.9 28.2 27.5 26.7 26.3 25.1




RoAE (%) 20.4 21.0 23.1 23.8 23.8 24.8

Pre Prov.ROE (%) 28.9 28.0 28.8 29.7 29.9 31.1

RoAA (%) 3.4 3.3 3.6 3.5 3.4 3.4

Revenue / RWA (%) 7.44 7.13 6.62 6.49 6.32 6.40

Costs / RWA (%) 1.93 2.01 1.82 1.74 1.66 1.61

PPP / RWA (%) 5.51 5.12 4.80 4.76 4.66 4.79

Cost of risk / RWA (%) 1.13 0.85 0.65 0.65 0.67 0.69

RoRWA (%) 3.89 3.83 3.85 3.82 3.71 3.81


Year-end 2010 2011 2012e 2013e 2014e 2015e

Asset Quality


NPL/Gross Loans (%) 2.2 1.7 1.8 1.8 1.8 1.8




Year-end 2010 2011 2012e 2013e 2014e 2015e





Year-end 2010 2011 2012e 2013e 2014e 2015e



Tier 1 ratio (%) 15.2 14.7 14.1 14.2 14.4 14.8



RWA / assets (%) 83.7 78.4 79.7 79.1 79.1 79.3

Year-end 2010 2011 2012e 2013e 2014e 2015e

Growth

Asset growth (%) 8.3 19.5 17.0 15.0 13.5 12.5

Net loan growth (%) 7.1 16.9 19.8 17.0 15.0 13.9

Deposit growth (%) 16.4 21.2 18.6 15.6 13.7 12.7

Net income growth (%) (6.5) 10.1 19.8 13.0 10.3 15.9

September 12 2012



Company Profile

Al Rajhi was established in 1976 and has gone on to become the largest Islamic bank in the world and the largest publicly traded bank in KSA. Al Rajhi has a 13.5% lending market share and a 15.7% deposit market share. The bank operates c. 500 branches and c. 3000 ATMs in KSA, with over 3,000 employees, and has been expanding its operations internationally, primarily to Malaysia with c. 23 branches while establishing a presence in Kuwait and Jordan. Al Rajhi provides both commercial and investment banking services, all according to the principles of Islam. Major shareholders include Suleiman Bin Abdulaziz Saleh Al Rajhi at 19.9%, Saleh Bin Abdulaziz Saleh Al Rajhi at 15.1%, the General Organization for Social Insurance – KSA at 9.9%, Abdullah Bin Abdulaziz Saleh Al Rajhi with 5.9%, with the remaining 49.2% as free float.



59.5%

40.5% Retail

Corporate

Government

96.7%

0.1% 3.2%

KSA

Other Middle East

South East Asia

Al Rajhi Bank

Year-end 2010 2011 2012e 2013e 2014e 2015e

Income statement (SARmn)

Interest income 9,353 9,324 9,878 11,103 12,283 14,226



Fee income 1,634 2,298 2,976 3,274 3,585 3,908

Net Investment income — — — — — —

Other operating income 749 964 1,072 1,197 1,321 1,455




Net provisions 1,754 1,476 1,346 1,537 1,782 2,071

Other provisions/Impairment — — — — — —



Pre-tax profit 6,771 7,378 8,535 9,643 10,639 12,333

Taxation 750 750 597 675 745 863

Net profit 6,771 7,378 8,535 9,643 10,639 12,333


Tier 1 Coupon 750 750 597 675 745 863


Diluted EPS 4.01 4.42 5.29 5.98 6.60 7.65

DPS 3.00 3.25 3.25 3.55 3.85 4.15

BVPS 20.21 21.88 23.92 26.35 29.10 32.59

Tangible BVPS 20.21 21.88 23.92 26.35 29.10 32.59

Year-end 2010 2011 2012e 2013e 2014e 2015e

Balance sheet (SARmn)





Due from banks 11,118 14,600 16,793 19,312 21,919 24,659

Investment, net 29,270 39,968 42,757 46,200 49,065 53,301

Fixed assets 3,395 3,624 4,089 4,597 5,150 5,753

Other assets 2,230 2,597 3,100 3,565 4,047 4,552

Total assets 184,841 220,813 258,352 297,104 337,214 379,365


Due to banks 5,414 7,021 1,755 878 702 562

Debt — — — — — —



Total Equity 30,318 32,821 35,884 39,527 43,646 48,891






Tier 1 capital 23,547 25,443 29,104 33,422 38,286 44,394

Jaap Meijer, MBA, CFA Michael Malkoun [email protected] Arqaam Capital Research Offshore s.a.l

+97145071744

September 12 2012


Exhibit 155: Al Rajhi Bank valuation (SARmn)


1. DCF

Net profit 6,771 7,378 8,535 9,643 10,639 12,333 12,333

Other adjustments (Zakat) 750 750 597 675 745 863 863


Risk free rate 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5%

Tax shelter -- -- -- -- -- -- --



RoEcC 28.2% 28.6% 31.0% 30.8% 30.1% 31.0% 31.0%

Cost of capital 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6%

Capital charge 2,167 2,353 2,608 2,976 3,377 3,808 3,808

Economic profit 3,616 4,021 5,047 5,723 6,253 7,367 7,367

Discount factor -- -- -- 0.95 0.86 0.78 0.78

NPV of Economic Profit -- -- -- 5,443 5,380 5,733 5,733


16,556 11.6%


4.0%

Terminal Value

112,467


87,524 61.5%

Required Capital

24,719 17.4%


128,798 90.5%


Available capital:


Minorities -- -- -- -- -- --


Less non equity elements reported shareholders equity -- -- -- -- -- --

Less Dividends (if included in reported equity) (4,500) (4,875) (4,875) (5,325) (5,775) (6,225)

Tangible equity 25,818 27,946 31,009 34,202 37,871 42,666

Capital needs

RWAs (Basel I in FY 11A, Basel II/III after FY 12e) 154,636 173,017 205,988 235,078 266,707 300,771

RWAs (Basel III) 171,161 185,887 205,988 235,078 266,707 300,771

Equity as % RWA 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%



Surplus capital 5,278 5,640 6,290 5,993 5,866 6,574

6,290 4.4%


Real estate losses




2,521

Level 3 assets

(205)

Total adjustments

2,316 1.6%

4. Dividends

4,875 3.4%

Total Fair Value

142,279 100.0%


1,500


94.9

Current share price

73.5

Upside

29.1%

Implied P/E (x)

17.9 15.9

Implied P/tNAV (x)

3.96 3.60



Zeina Nasreddine Arqaam Capital Research Offshore s.a.l

National Bank of Kuwait Remains fully valued

HOLD

Banks / KUWAIT Bloomberg code NBK KK

Market index Kuwait


Upside (%) 15



52 Week range 0.93-1.11

Market cap (KWD mn) 4,136


Average daily volume (KWD mn) 1,378.9

Average daily volume (USD mn) 4,932.0


Revenues 523 598 650 700


361 403 444 480

EPS 0.07 0.07 0.08 0.08

P/E (x) (mkt price) 13.6 12.8 12.5 12.6

BVPS 0.54 0.57 0.58 0.59

Tangible BVPS 0.49 0.44 0.46 0.47

P/B (x) (mkt price) 1.8 1.7 1.6 1.6


DPS 0.04 0.04 0.04 0.04

Div. yield (%) 3.8 3.8 3.9 3.9

RoAA (%) 2.3 2.1 2.1 2.1

RoRWA (%) 3.5 3.0 3.1 3.1

RoAE (%) 16.6 20.1 24.8 22.6




15.9 15.6 16.7 17.4



NPL ratio (%) 1.5 1.8 1.5 1.0

Coverage ratio (%) 243.0 194.6 257.6 412.8

Consolidating financials after 58.34% ownership in Boubyan

Boubyan acquisition reduce FV as expected reducing NBK’s tNAV

Acquisition previously accounted for, minor TP change

NBK acquires majority stake in Boubyan: NBK offering of KWD 630

per share for Boubyan. The number of shares tendered were only

11.05%, bringing NBK's stake to 58.34%. We believe NBK's offer at

630/share was extremely generous (P/tNAV 4.0x), and reduces the FV

and tNAV of NBK. However, our old TP already included the negative

impact of the purchase of this stake.

Negative effect on capital ratios and tNAV: The acquisition increases

RWAs by over KWD 1bn, resulting in lower pre provisioning of 3.92%,

0.27% below our previous estimate. We calculate a negative effect on

NBK's Tier-1 of 2.1% and CET1 of 1.9% and a negative effect on

tangible NAV of 10.5%.

Improves RoE, but hardly supports EPS: The impact on EPS is

insignificant. The banks RoTE increases to 20.1% in FY 12e vs. our

previous forecasts 14.9% due to relatively lower tNAV base.

Growth outlook supported by acquisition: We expect NIMs to pick up

by 10bps as a result of acquisition. We also increased the loan growth

for FY13e and beyond by 1% helped by the acquisition after a jump of

21% in FY12e, of which 12.5% comes from the acquisition of Boubyan.

We take into account modest cost synergies.

We continue to see a weak liquidity profile for the company, with an

NSFR of 101% as of FY 11A and a very low LCR of 79%. Cash &

interbank stood at -17% of total assets FY 11A, though part of this

comes from government institutions and NBK should be able to have

strong access to wholesale markets to address the low liquidity.

Fully valued: The acquisition of Boubyan had a negative effect on

capital ratios, tangible net asset base and has created significant

goodwill, though it moderately increases NBK’s growth outlook. We

have slightly reduced our TP from KWD 1.12 to KWD 1.09. We

recommend shareholders in Boubyan to sell their shares as the

valuation support from M&A has disappeared. We reiterate our Hold

recommendation for NBK.

KWD 1.1



Price Performance

86

93

100

107

114

121


NBK KK Kuwait

September 12 2012

National Bank of Kuwait © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 96


Profitability

NIM

Credit Quality

Capital Ratios

Growth

4.05%4.21% 3.80% 3.92%

3.93% 4.01%

0.25%0.67% 0.69% 0.54% 0.59%

0.52%

3.73% 3.52%3.04% 3.15%

3.10% 3.24%

0%

1%

2%

3%

4%

5%



3.00%3.11% 3.16%

3.00% 2.95% 2.93%

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

3.2%

3.4%


Net interest margin

0.0%

0.5%

1.0%

1.5%

2.0%

0%

200%

400%

600%

800%

1000%



18.2% 18.3%16.5%

17.5%18.2%

18.9%

18.3% 18.3%16.8%

17.8% 18.6% 19.3%

10%

14%

18%

22%

26%



0%

4%

20%8% 8%

9%-3%

6%

26%

7% 8%

9%

-20%

0%

20%

40%



National Bank of Kuwait

Year-end 2010 2011 2012e 2013e 2014e 2015e



Cost/Income (%) 32.7 31.0 32.7 31.8 31.4 30.4




RoAE (%) 19.5 16.6 20.1 24.8 22.6 22.2

Pre Prov.ROE (%) 15.5 15.6 16.2 15.8 15.6 15.9

RoAA (%) 2.3 2.3 2.1 2.1 2.1 2.2

Revenue / RWA (%) 6.02 6.09 5.64 5.74 5.73 5.76

Costs / RWA (%) 1.97 1.89 1.84 1.82 1.80 1.75

PPP / RWA (%) 4.05 4.21 3.80 3.92 3.93 4.01

Cost of risk / RWA (%) 0.25 0.67 0.69 0.54 0.59 0.52

RoRWA (%) 3.73 3.52 3.04 3.15 3.10 3.24


Year-end 2010 2011 2012e 2013e 2014e 2015e

Asset Quality


NPL/Gross Loans (%) 1.6 1.5 1.8 1.5 1.0 0.5




Year-end 2010 2011 2012e 2013e 2014e 2015e



Cash and Interbank / assets (%) (16.9) (16.5) 1.6 1.4 3.5 2.9


Year-end 2010 2011 2012e 2013e 2014e 2015e



Tier 1 ratio (%) 18.2 18.3 16.5 17.5 18.2 18.9



RWA / assets (%) 62.7 63.0 64.1 63.9 63.9 63.8

Year-end 2010 2011 2012e 2013e 2014e 2015e

Growth

Asset growth (%) (0.1) 5.6 21.5 7.0 8.0 9.0

Net loan growth (%) 0.5 4.2 20.1 7.9 7.7 8.8

Deposit growth (%) (3.3) 6.5 25.8 7.5 8.0 9.0


September 12 2012



Company Profile

National Bank of Kuwait (NBK) provides commercial banking services directly and through subsidiaries across the MENA region, Turkey, China, Singapore, Vietnam, Switzerland, US and UK. It was established in 1952, it has 5,000 employees, and a network of 70 branches located in Kuwait. The bank holds a market share of 32%, the largest market share in terms of loans, and 21% of market share in terms of deposits. NBK is corporate focused bank, with 73% of its loan book consisting of corporate loans. The bank’s main operations are in the Middle East and North Africa region with 94% of NBK’s loan book in FY 11A coming from that region. The bank’s free float is 49%.



73%

27%Corporate

Retail

94%

1%3% 1% 1%

MENA

North America

Europe

Asia

Other

National Bank of Kuwait

Year-end 2010 2011 2012e 2013e 2014e 2015e

Income statement (KWDmn)

Interest income 482 490 585 642 692 755


Net interest income 359 381 443 481 510 554

Fee income 98 104 118 130 146 165



Total Operating Income 487 523 598 650 700 767


Pre-provision operating profit 328 361 403 444 480 534

Net provisions 12 52 68 55 66 63

Other provisions/Impairment 8 5 5 6 6 7


Associates 12 17 14 5 7 7

Pre-tax profit 320 321 345 388 416 471

Taxation 17 17 19 20 22 25

Net profit 303 304 326 368 394 447

Minorities 1 1 4 12 15 16



Diluted EPS 0.07 0.07 0.07 0.08 0.08 0.08

DPS 0.03 0.04 0.04 0.04 0.04 0.04

BVPS 0.51 0.54 0.57 0.58 0.59 0.60

Tangible BVPS 0.46 0.49 0.44 0.46 0.47 0.49

Year-end 2010 2011 2012e 2013e 2014e 2015e

Balance sheet (KWDmn)





Due from banks 716 788 1,377 1,063 1,148 1,251

Investment, net 2,260 2,485 2,392 2,516 2,696 2,883

Fixed assets 174 174 198 211 232 255

Other assets 301 330 666 673 680 689

Total assets 12,899 13,627 16,553 17,711 19,128 20,850


Due to banks 4,074 4,310 2,766 2,926 2,843 3,352

Debt — — 2,000 2,500 3,000 3,000

Other liabilities 209 181 212 239 253 276


Total Equity 2,231 2,337 2,609 2,850 3,100 3,396






Tier 1 capital 1,474 1,570 1,752 1,982 2,223 2,510

Jaap Meijer, MBA, CFA Zeina Nasreddine [email protected] Arqaam Capital Research Offshore s.a.l

+97145071744

September 12 2012


National Bank of Kuwait valuation (KWDmn)

2010 2011 2012e 2013e 2014e 2015e perp subtotal % of total

1. DCF

Net profit 302 302 322 356 379 431 431

Other adjustments (comprehensive income) -- -- -- -- -- -- --


Risk free rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Tax shelter 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%



RoEcC 18.4% 17.4% 20.7% 21.4% 21.0% 22.0% 22.0%

Cost of capital 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% 10.5%

Capital charge 164 173 153 162 173 186 186

Economic profit 123 114 149 167 173 204 204

Discount factor -- -- -- 0.95 0.86 0.78 0.78



467 9.8%


3.3%

Terminal Value

2,813


2,192 46.1%

Required Capital

1,460 30.7%


4,119 86.6%


Available capital:

Shareholders’ equity 2011 2,231 2,337 2,609 2,850 3,100 3,396




Tangible equity 1,858 1,964 1,866 2,091 2,328 2,610

Capital needs


RWAs (Basel III) 8,805 9,302 10,609 11,320 12,217 13,308

Equity as % RWA 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%



Surplus capital 298 320 406 551 684 841

406 8.5%


Real estate losses



73

Level 3 assets

Total adjustments

73 1.5%

4. Dividends

158 3.3%

Total Fair Value

4,756 100%


4,353


1.09

Current share price

0.95

Upside

15.0%

Implied P/E (x)

14.8 14.4

Implied P/tNAV (x)

2.50 2.39



Zeina Nasreddine Arqaam Capital Research Offshore s.a.l

Bank Muscat Lower TP but still our best pick in Oman

BUY

Banks / OMAN Bloomberg code BKMB OM

Market index Muscat


Upside (%) 46.0




Market cap (OMR mn) 1,127


Average daily volume (OMR mn) 0.5



Revenues 294 333 376 423


173 199 227 257

EPS 0.07 0.07 0.07 0.08

P/E (x) (mkt price) 8.3 7.8 7.4 6.5

BVPS 0.43 0.48 0.53 0.58

Tangible BVPS 0.43 0.48 0.53 0.58

P/B (x) (mkt price) 1.3 1.2 1.0 0.9


DPS 0.02 0.02 0.02 0.02

Div. yield (%) 4.0 3.8 4.1 4.5

RoAA (%) 1.8 1.8 1.8 1.8

RoRWA (%) 1.8 1.7 1.7 1.7

RoTE (%) 15.9 15.6 14.8 15.1




9.1 11.3 11.0 10.8



NPL ratio (%) 3.0 4.0 4.0 4.0

Coverage ratio (%) 118.4 75.6 74.5 74.4

Bank Muscat capital hike out of the way, still upcoming private placement of USD150m in Q4 planned

TP slightly adjusted for higher than expected discount and NIM compression

Muscat shows one of the highest upside in the sector after lackluster share price performance

Bank Muscat is a medium return bank, but with a favorable macro

environment. We have slightly reduced our net interest margin forecasts

(NIM cut by up to 13bps by FY15e) on the back of slightly disappointing

Q2 results and increased competition and the effect of existing regulatory

caps on personal loans. We expect RORWA to remain at c 1.7% vs. 1.8-

1.9% previously.

Capital shortfall largely addressed: Core Equity Tier-1 stood at 9%, but

should improve to 11.3% by FY 12e helped by the capital hikes. It

successfully placed a1:8 rights issue raising OMR96.7m, which increased

the number of shares by 226.5m.The remaining capital hike of USD

150mn as private placement is expected by Q4 of this year. Ideally, we

would like to see a higher CET1, but in Oman context, Bank Muscat is well

capitalized.

Strong growth: We expect strong loan growth in Oman of c14% pa, of

which 10% stems from project related lending, and helped by strong

support from Islamic finance, which has been recently introduced to the

country. We expect bank Muscat to acquire its fair share, while we expect

HSBC Oman to focus on its internal merger process rather than acquiring

market share in the next 2 years. We also think the capital increases of

pure Islamic banks are too small to provide those banks a large share of

the Islamic opportunities in Oman.

Cost of risk under control: We expect a structural loan loss of 67bps,

more or less unchanged from previous years.

National champion at a discount: We think the shares are offering a

cheap entry point. The stock is trading at a P/tNAV12e of 1.2x (with a

RoTE of 15%) and a P/E13e of 7.4x, despite taking into account the

dilutive effect of two capital increases. Our TP offers a very substantial

upside, despite factoring in slightly lower net interest margins.

OMR 0.8



Price Performance

77

85

93

101

109

117


BKMB OM Muscat

September 12 2012

Bank Muscat © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 100


Profitability

NIM

Credit Quality

Capital Ratios

Growth

2.85%

2.61% 2.49% 2.47% 2.45% 2.50%

0.56% 0.51% 0.47% 0.47% 0.47%0.49%

1.78%1.77% 1.73% 1.73% 1.73% 1.77%

0%

1%

2%

3%



3.36%3.42%

3.23%3.16%

3.09% 3.09%

2.8%

3.0%

3.2%

3.4%

3.6%


Net interest margin

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

74%

74%

75%

75%

76%

76%



15.2% 14.8%15.9% 16.8% 16.4% 15.7%

10%

14%

18%

22%

26%

FY10 FY11 FY12e FY13e FY14e FY15eCore Tier 1 (Base III) Tier 1 CAR

4%

20%

16%15% 15%

15%15%

35%

13% 15% 15%

15%

0%

20%

40%



Bank Muscat

Year-end 2010 2011 2012e 2013e 2014e 2015e



Cost/Income (%) 38.8 41.1 40.1 39.7 39.3 38.3




RoTE (%) 14.7 15.9 15.6 14.8 15.1 15.7

Pre Prov.ROE (%) 19.0 19.5 19.2 18.3 18.7 19.6

RoAA (%) 1.7 1.8 1.8 1.8 1.8 1.8

Revenue / RWA (%) 4.66 4.43 4.16 4.09 4.03 4.05

Costs / RWA (%) 1.81 1.82 1.67 1.62 1.59 1.55

PPP / RWA (%) 2.85 2.61 2.49 2.47 2.45 2.50

Cost of risk / RWA (%) 0.56 0.51 0.47 0.47 0.47 0.49

RoRWA (%) 1.78 1.77 1.73 1.73 1.73 1.77


Year-end 2010 2011 2012e 2013e 2014e 2015e

Asset Quality


NPL/Gross Loans (%) 4.2 3.0 4.0 4.0 4.0 4.0




Year-end 2010 2011 2012e 2013e 2014e 2015e





Year-end 2010 2011 2012e 2013e 2014e 2015e



Tier 1 ratio (%) 11.6 11.9 11.4 12.7 12.2 12.0



RWA / assets (%) 97.4 91.9 96.3 96.2 95.4 94.7

Year-end 2010 2011 2012e 2013e 2014e 2015e

Growth

Asset growth (%) — 23.5 15.0 15.0 15.0 15.0

Net loan growth (%) 4.4 20.2 15.6 15.1 15.0 14.9

Deposit growth (%) 14.9 34.7 13.1 15.0 15.0 15.0


September 12 2012



Company Profile

Bank Muscat, the best player in Oman, holding 40% and 38% in terms of loans and deposits market share respectively, it was established in 1982, with 2,904 employees and a network of 130 branches. Bank Muscat launched its Islamic banking operations, in December 2011, Meethaq. The bank’s loan book consists mainly of corporate and retail loans with 56% and 39% respectively in FY 11A. The bank’s main operations are in Oman, with 94% in FY 11A coming from Sultanate of Oman and 4% from other GCC countries. Major shareholders include Royal Court Affairs with 24.8% stake, Dubai Financial Group holding 15% and HSBC A/C The Bank of New York International with 13% stake. It has a free float of 49%.



56%

1%4%

39%

Corporate

Sovereign

Financial institution

Retail

94%

4% 2%

Sultanate of Oman

Other GCC countries

Others

Bank Muscat

Year-end 2010 2011 2012e 2013e 2014e 2015e

Income statement (OMRmn)

Interest income 275 287 330 374 424 487


Net interest income 187 212 239 269 303 349

Fee income 52 61 71 81 92 105



Total Operating Income 265 294 333 376 423 485


Pre-provision operating profit 163 173 199 227 257 299

Net provisions 33 31 37 43 49 59

Other provisions/Impairment (1) 3 — — — —


Associates (13) (4) (1) 1 4 6

Pre-tax profit 118 136 161 185 211 246

Taxation 16 19 23 26 30 34

Net profit 102 118 139 159 181 212




Diluted EPS 0.06 0.07 0.06 0.07 0.08 0.10

DPS 0.02 0.02 0.02 0.02 0.02 0.03

BVPS 0.40 0.43 0.48 0.53 0.58 0.65

Tangible BVPS 0.40 0.43 0.48 0.53 0.58 0.65

Year-end 2010 2011 2012e 2013e 2014e 2015e

Balance sheet (OMRmn)




Cash and central bank 726 826 1,108 1,275 1,471 1,700

Due from banks 550 869 831 956 1,099 1,264

Investment, net 322 392 474 545 627 721

Fixed assets 75 72 78 86 95 105

Other assets 170 249 249 287 330 379

Total assets 5,851 7,228 8,312 9,559 10,993 12,642


Due to banks 760 731 940 1,258 1,433 1,755

Debt 334 502 502 511 511 511

Other liabilities 514 482 482 482 681 785


Total Equity 716 764 1,019 1,134 1,267 1,425




Common shareholder’s equity 716 764 1,019 1,133 1,267 1,425

Core Equity Tier 1 (Basel III) 599 656 902 1,009 1,132 1,279

Tier 1 capital 675 755 1,017 1,124 1,263 1,410

Jaap Meijer, MBA, CFA Zeina Nasreddine [email protected] Arqaam Capital Research Offshore s.a.l

+97145071744

September 12 2012


Bank Muscat valuation (OMRmn)

2010 2011 2012e 2013e 2014e 2015e perp subtotal % of total

1. DCF

Net profit 102 118 138 158 180 211 211

Other adjustments (comprehensive income) -- -- -- -- -- -- --

Minus: excess return excess capital (line 6 x line 29 x tax shelter) (7) (10) (7) (8) (10) (11) (11)

Risk free rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Tax shelter 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%


Capital requirements 825 924 1,016 1,158 1,313 1,491 1,491

RoEcC 13.2% 13.8% 14.3% 14.4% 14.5% 14.9% 14.9%

Cost of capital 11.2% 11.2% 11.2% 11.2% 11.2% 11.2% 11.2%

Capital charge 92 103 113 129 146 166 166

Economic profit 17 24 32 37 44 55 55

Discount factor -- -- -- 0.95 0.85 0.77 0.77



115 6.8%


3.5%

Terminal Value

724


556 32.8%

Required Capital (adjusted for release associates)

1,016 60.0%


1,686 99.6%


Available capital:

Shareholders’ equity 716 764 922 1,035 1,167 1,324




Tangible equity 683 725 877 987 1,114 1,265

Capital needs


RWAs (Basel III) 6,416 7,242 8,006 9,196 10,486 11,970

Equity as % RWA 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%


Capital Requirements 825 924 1,016 1,158 1,313 1,491

Surplus capital (142) (199) (138) (171) (199) (226)

(138) (8.2%)


Real estate losses




106

Level 3 assets

(6)

Total adjustments

100 5.9%

4. Dividends

45 2.7%

Total Fair Value

1,693 100%


2,175


0.78

Current share price

0.55

Upside

41.8%

Implied P/E (x)

12.1 10.6

Implied P/tNAV (x)

1.81 1.61



Jonathan Milan Arqaam Capital Research Offshore s.a.l

MedGulf Insurance Further downside amid deteriorating margins

SELL

Insurance / KSA Bloomberg code MEDGULF AB

Market index TASI


Upside (%) -26.4



52 Week range 24.3-37.5






Gross Written Premiums 2,811 3,071 3,417 3,786

Underwriting Profit 492 255 356 457

EPS 2.56 0.91 1.82 2.71

P/E (x) (market price) 10.2 28.6 14.4 9.7

BVPS 14.67 15.17 16.17 17.66

Tangible BVPS 8.67 9.17 10.17 11.66

P/B (x) (market price) 1.8 1.7 1.6 1.5

P/TBVPS (x) (market price) 3.0 2.9 1.9 1.7

DPS 1.3 0.4 0.8 1.2

Div. yield (%) 4.8 1.6 3.1 4.6

RoAA (%) 5.2 1.7 3.1 4.0

RoAE (%) 32.0 10.3 18.8 24.8

Investments/Assets (%) 8.6 16.0 21.1 23.6

Investment Yield (%) 0.8 0.8 1.2 1.7

Net Loss Ratio 73.4 86.3 83.3 80.9

Combined Ratio 94.2 103.9 100.3 97.8

Underwriting Profit Margin

7.3 0.4 2.5 4.2

Net Profit Margin 7.3 2.4 4.3 5.7

Policy Reserves/Equity 176.5 215.0 239.7 259.8

Soaring net loss ratio in medical segment to reduce

underwriting profit by 61% in FY 12e

Motor segment records an unanticipated hike in claims,

resulting in diminishing underwriting profit

MedGulf reported a SAR 11mn loss in Q2 12A as a result of

escalating net claims in the medical and motor segments.

We reduce our EPS estimate for FY 12e and FY 13e by 58% and 30% respectively, after a very poor performance in Q2 12A: In the medical segment we expect 90% and 87% net loss ratios for FY 12e and FY 13e respectively; we thereafter forecast net loss ratio of 84%, compared to 80% previously. We forecast a net loss ratio for the motor segment of 84.5% and 81% for FY12e and FY 13e respectively. The sudden hike in motor net loss ratio up to 85% compared to 75% in previous years was especially disappointing. We believe that is the result of increasing competition and increasing repair costs.

Underwriting profitability severely reduced for FY12e and FY13e: As a result of rising net loss ratios we forecast combined ratio of 104% and 100% for FY 12e and FY13e respectively. The latter leading to a significant reduction in underwriting profit margin down to 0.4% and 2.5% for FY12e and FY 13e respectively, compared to 8.2% and 7.3% for FY 10A and FY 11A. We forecast combined ratio of 98% from FY 14e onward in anticipation of higher policy premiums and better claims management. Investment income remains unchanged at SAR 4mn for FY 12e barely contributing to net earnings.

We reduce our TP by 22% to SAR 19.3 and reiterate our SELL recommendation and it remains in our Avoid portfolio: MedGulf’s deteriorating performance in the medical and motor segment will continue to weaken earnings while investment income fails to contribute significantly. We reduce our TP down to SAR 19.3 with 26% downside, P/E 12e of 21.1x and P/B 12e of 2.1x. Medgulf remains the most expensive insurance stock in our universe. It is also at risk of having to impair the large capitalized intangibles. The share price has not yet fully reflected the poorer earnings outlook in our view and we keep the stock in our Avoid portfolio.

SAR 19.3



Price Performance

60

100

140

180


MEDGULF AB TASI

September 12 2012

MedGulf Insurance © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 104


Profitability

Investment Yield

Investment Exposure

Solvency ratios & reserve adequacy

Growth

8% 7%

0%

3% 4% 4%

8% 7%

2%

4%

6% 6%

0%

5%

10%

FY10 FY11 FY12e FY13e FY14e FY15eNet Underwriting Margin Net Earnings Margin

2% 1% 1% 1% 2% 2%

0.0%

10.0%

20.0%

FY10 FY11 FY12e FY13e FY14e FY15eInvestmentYield

60%

70%

80%

10%

20%

30%

40%

FY10 FY11 FY12e FY13e FY14e FY15eInvestments/Assets Equities/Investments

0.72x 0.74x 0.85x 0.91x 0.97x 1.03x

1.75x 1.77x2.15x

2.40x 2.60x 2.78x

0.0x

2.0x

4.0x

FY10 FY11 FY12e FY13e FY14e FY15ePolicy Reserves/Gross Premiums Policy Reserves/Equity

42%7% 9% 11% 11% 10%

-29%

82%112%

49%

27% 26%

-100%

0%

100%

200%


Growth in GrossPremiums Gross in Investments

MedGulf Insurance

Year-end 2010 2011 2012e 2013e 2014e 2015e


Cession Ratio 26.2 31.8 27.5 26.4 25.9 25.4

Net Loss Ratio 71.9 73.4 86.3 83.3 80.9 81.0

Expense Ratio 19.1 20.8 17.6 17.0 16.9 16.8

Combined Ratio 91.0 94.2 103.9 100.3 97.8 97.8

Underwriting Profit Margin 8.2 7.3 0.4 2.5 4.2 4.1

Investment Yield 2.1 0.8 0.8 1.2 1.7 2.4

Net Margin 7.7 7.3 2.4 4.3 5.7 5.9

RoAE 39.3 32.0 10.3 18.8 24.8 24.6

RoAA 5.9 5.2 1.7 3.1 4.0 4.0

Net Premiums/Equity 1.7 1.6 1.6 1.8 1.9 1.9

Gross Premiums/Equity 2.5 2.4 2.5 2.6 2.7 2.7

Claims Reserve/NPE 0.3 0.4 0.5 0.5 0.5 0.6

Investment Income/Total Income 0.3 0.1 0.2 0.5 0.8 1.3

Year-end 2010 2011 2012e 2013e 2014e 2015e

Investment Exposure

Investments/Assets 4.7 8.6 16.0 21.1 23.6 26.4

Equities/Investments 10.1 5.5 5.5 5.5 5.5 5.5

Equity/Assets (%) 27.3 29.9 27.1 25.7 24.7 23.9

Year-end 2010 2011 2012e 2013e 2014e 2015e

Liquidity/Leverage

Policy Reserves/Gross Premiums 0.7 0.7 0.8 0.9 1.0 1.0

Policy Reserves/Net Earned Premiums 1.0 1.1 1.3 1.3 1.4 1.5

Policy Reserves/Equity 1.8 1.8 2.2 2.4 2.6 2.8

Debt/Capital — — — — — —

Debt/Equity (x) — — — — — —

Year-end 2010 2011 2012e 2013e 2014e 2015e

Growth

Gross Premiums 41.8 7.2 9.2 11.3 10.8 10.2

Net Earned Premiums 37.8 4.4 4.5 19.9 11.6 11.0

Investments (29.0) 82.5 112.0 48.6 27.0 26.4

Assets 32.2 0.2 14.1 12.7 13.5 13.1

Total Reserves 37.1 10.5 26.0 18.9 18.4 17.3

Equity 15.5 9.8 3.4 6.6 9.2 9.6

Year-end 2010 2011 2012e 2013e 2014e 2015e

Valuation

P/B(x) (current price) 2.0 1.8 1.7 1.6 1.5 1.4

P/B(x) (target price) 1.4 1.3 1.3 1.2 1.1 1.0

P/E(x) (current price) 10.3 10.2 28.6 14.4 9.7 8.5

P/E(x) (target price) 7.6 7.5 21.1 10.6 7.1 6.3

September 12 2012



MedGulf

MedGulf is the 2ndlargest insurer in Saudi Arabia by GWP. The company maintained a c. 15.7% market share of total premiums in FY 11A. The company operates solely in Saudi Arabia with c. 700 employees and 56 representative offices. The company’s main shareholders are MedGulf Bahrain with 40% and Saudi Investment Bank with 19%. The majority of GWP arise from the medical segment, accounting for 72% of total GWP, motor for 6.6% and other segments (including life) combine to form 21.6% of total GWP.

MedGulf Insurance

Year-end 2010 2011 2012e 2013e 2014e 2015e

Income statement (mn)

Gross Written Premiums 2,623 2,811 3,071 3,417 3,786 4,174

Ceded Premiums 688 895 844 902 981 1,062

Retained Premiums 1,935 1,916 2,227 2,515 2,805 3,112

Movement in Unearned Premiums 143 45 271 171 189 209

Net Premiums Earned 1,792 1,871 1,956 2,344 2,615 2,903

Commissions Received on Ceded Reinsurance 54 98 89 92 100 107

Gross Claims Paid — — — — — —

Claims recovered — — — — — —

Movement in Outstanding Claims 216 283 381 529 764 1,024

Net Claims 1,288 1,373 1,687 1,953 2,115 2,352

commissions paid 116 104 103 128 143 157

Underwriting Profit 442 492 255 356 457 500

Investment Income 5 3 4 11 21 37


Total Income 471 537 319 438 556 622

Interest Expense — — — — — —

General & Administrative 226 286 242 270 300 329

Operating Profit 245 251 77 168 257 292

Other income/(loss) (13) (13) 7 (1) (8) (9)

Tax 29 33 11 22 32 37

Minority Interest — — — — — —

Net Income 203 205 73 146 217 247

Reported EPS 2.5 2.6 0.9 1.8 2.7 3.1

Year-end 2010 2011 2012e 2013e 2014e 2015e

Balance sheet (mn)

Cash 734 680 506 292 235 230

Reinsurers Share of Outstanding Claims 317 538 623 762 899 1,070

Reinsurers Share of Unearned Premiums 438 453 568 653 748 767

Investment Properties — — — — — —

Investments 185 338 717 1,066 1,354 1,711

Associates — 14 14 14 14 14

Insurance Receivables 1,224 979 1,119 1,311 1,514 1,715

Fixed Assets 57 67 80 89 95 96

Other Assets 957 853 849 859 865 872

Total Assets 3,914 3,922 4,476 5,045 5,724 6,475

Outstanding Claims 616 754 906 1,142 1,428 1,834

Unearned Contribution Reserves 1,259 1,318 1,704 1,960 2,244 2,472

Debt — — — — — —

Insurance Payables 294 371 377 372 355 329

Other Liabilities 677 306 275 276 285 292

Total Liabilities 2,845 2,749 3,262 3,751 4,311 4,926

Shareholders Equity 1,069 1,174 1,214 1,294 1,413 1,549


Total Equity 1,069 1,174 1,214 1,294 1,413 1,549

BVPS 13.4 14.7 15.2 16.2 17.7 19.4

Jaap Meijer, MBA, CFA Jonathan Milan [email protected] Arqaam Capital Research Offshore s.a.l

+97145071744

September 12 2012


MedGulf valuation (SAR mn)

2012e 2013e 2014e 2015e 2020e perp subtotal % of total

1 DCF

Net profit 73,178 145,821 216,541 246,555 415,364 415,364

Other adjustments (comprehensive income) -- -- -- -- --

Minus: excess return excess capital (16,536) (20,720) (23,440) (25,447) (29,726) (29,726)

Return on excess capital 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%

Tax shelter 13.0% 13.0% 13.0% 13.0% 13.0% 13.0%

Adjusted net profit 89,713 166,541 239,981 272,002 445,090 445,090

Capital requirements 1,146,174 1,306,681 1,467,590 1,643,273 2,634,777 2,634,777

RoEcC 7.8% 12.7% 16.4% 16.6% 16.9% 16.9%

Cost of capital 12.6% 12.6% 12.6% 12.6% 12.6% 12.6%

Capital charge 144,418 164,642 184,916 207,052 331,982 331,982

Economic profit (54,705) 1,899 55,065 64,949 113,108 113,108

Discount factor 0.00 0.94 0.84 0.74 0.41 0.41

NPV of Economic Profit -- 1,790 46,086 48,276 46,447 113,108


354,134


3.0%

Terminal Value

1,178,206


483,819

Required Capital

1,146,174


1,984,127 128.7%

2 Capital surplus/deficit

Available capital:

Shareholders’ equity 1,213,753 1,293,955 1,413,052 1,548,657 2,513,984

Less Goodwill & intangibles 509,810 517,055 521,580 525,666 546,480

Less dividends 32,930 65,620 97,443 110,950 186,914

Tangible equity 671,013 711,280 794,029 912,041 1,780,590

Capital needs

Gross written premium (GWP) 3,070,769 3,416,836 3,786,100 4,173,601 6,169,461

Technical reserves

Equity investments 176,226 261,913 332,631 420,496 1,046,320

Investment properties

Associates 14,000 14,000 14,000 14,000 14,000

Equity as % GWP 34.0% 34.0% 34.0% 34.0% 34.0%

Equity as % Technical reserves

Equity as % of investments 50% 50% 50% 50% 50%

Equity as % of investment properties

Equity as % of associates 100% 100% 100% 100% 100%

Capital Requirements 1,146,174 1,306,681 1,467,590 1,643,273 2,634,777

Surplus capital (475,161) (595,400) (673,561) (731,231) (854,187)

(475,161) (30.8%)

3 Other adjustments

Total adjustments

4. Dividends

32,930 2.1%

Total Fair Value YE 2011

1,541,896


19.3

Current share price

26.2

Upside

(26.4%)

Implied P/E 21.1x 10.6x

Implied P/B 2.1x 1.9x




Jonathan Milan Arqaam Capital Research Offshore s.a.l

Qatar Insurance Company High expectations for H2 12A

BUY

Insurance / Qatar Bloomberg code QATI QD

Market index Qatar


Upside (%) 21.0



52 Week range 63.3-78.3

Market cap (QAR mn) 6,288


Average daily volume (QAR mn) 2.1





EPS 6.64 6.26 7.26 7.47

P/E (x) (market price) 10.6 11.2 9.7 9.4

BVPS 39.57 40.01 41.23 42.49

Tangible BVPS 39.57 40.01 41.23 42.49

P/B (x) (market price) 1.8 1.8 1.7 1.7


DPS 5.7 5.9 6.2 6.4

Div. yield (%) 8.1 8.5 8.8 9.0

RoAA (%) 7.6 6.3 6.8 6.6

RoAE (%) 16.8 15.7 17.9 17.9



Net Loss Ratio 65.1 71.7 61.7 61.5

Combined Ratio 92.8 99.7 88.9 88.4


4.0 0.2 6.1 6.5



Worst almost over; entire claims related to New Zeeland

quake to be paid by end FY 12e.

Combined ratios to drop drastically in FY 13e-14e, boosting

underwriting profit.

Higher investment income softened the drop from rising net

loss ratios. Investment yields consistently high.

We reduce our EPS estimate for FY 12e and FY 13e by 2.8% and 10.1% respectively as a result of higher claims: We reduce underwriting profit margin to 0.2% from 3.9% for FY 12e and 6.1% from 9.2% in FY 13e as a result. This translated into a 26% and 15% drop in underwriting profit respectively. QIC experienced higher than anticipated claims from the New Zeeland quake, pushing net loss ratios up to 75%, combined ratios above 100% and underwriting profit margins down to 7.4% in H1 12A.

Revised net loss ratio substantially higher: We augmented the net loss ratio by 5.9%, to 71.7% for FY 12e, and 4.6% to 61.7% for FY13e. Management anticipates that most claims have been paid, hence loss ratios in H2 12e are expected to be lower. We expect the combined ratio to drop to 99.7% for FY 12e as a result of lower claims in H2 12e. Moving forward we forecast combined ratios to average 88.4% with net loss ratios of 61.6% and an underwriting profit margin of 6.5%. We increased net loss ratios by 3.5%-4.0% from our initial forecasts to account for the possibility of other disasters of the same magnitude as the previous one.

Consistently strong investment returns soften the drop resulting from higher claims: We upgrade our forecasts for FY 12e by 21%, with investment income totaling QAR 497mn compared to our initial QAR 410mn. We further increase return on investments by 30bps and 80bps for FY13e and FY 14e-FY 15e respectively. Investment income rose 29% y/y during H1 12A by QAR 65mn, reducing the drop in earnings resulting from the QAR 94mn in lower underwriting income. Management seems confident that returns won’t drop anytime soon.

We reduce our TP by 10%, down to QAR 85/share: We maintain our BUY recommendation with an upside of 21.6%, P/B 12e-13e of 2.1x and P/E 13e of 11.8x, despite a potential 10% capital increase. We see the drop in profitability as only temporary and expect a strong recovery in FY 13e-14e although not to pre-FY 11A levels.

QAR 85.3



Price Performance

80

100

120

140


QATI QD Qatar

September 12 2012

Qatar Insurance Company © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 108


Profitability

Investment Yield

Investment Exposure


Growth

10%

4% 0%

6%

6% 6%

27% 25%

21% 23% 21% 20%

0%

5%

10%

15%

20%

25%

30%


8%10% 11%

9% 8% 7%

0.0%

10.0%

20.0%

30.0%


0%

20%

40%

60%

40%

50%

60%

70%


1.27x 1.37x1.57x 1.59x 1.61x 1.63x

0.82x0.98x

1.22x 1.31x 1.41x 1.51x

0.0x0.2x0.4x0.6x0.8x1.0x1.2x1.4x1.6x1.8x


0%

11% 10% 9% 9% 9%11%

-5%

3%4%

5% 5%

-8.00%

-2.00%

4.00%

10.00%



Qatar Insurance Company

Year-end 2010 2011 2012e 2013e 2014e 2015e


Cession Ratio 45.8 41.9 42.2 41.7 41.3 41.3

Net Loss Ratio 52.3 65.1 71.7 61.7 61.5 61.6

Expense Ratio 28.7 27.8 28.0 27.3 26.9 26.8

Combined Ratio 81.0 92.8 99.7 88.9 88.4 88.4



Net Margin 27.4 24.8 21.4 22.7 21.4 20.0

RoAE 18.1 16.8 15.7 17.9 17.9 17.6

RoAA 8.2 7.6 6.3 6.8 6.6 6.3





Year-end 2010 2011 2012e 2013e 2014e 2015e

Investment Exposure



Equity/Assets (%) 46.1 42.9 38.1 36.5 35.3 34.1

Year-end 2010 2011 2012e 2013e 2014e 2015e

Liquidity/Leverage




Debt/Capital 0.1 0.1 0.1 0.1 0.1 0.1

Debt/Equity (x) 0.1 0.1 0.1 0.1 0.1 0.1

Year-end 2010 2011 2012e 2013e 2014e 2015e

Growth

Gross Premiums 0.2 10.7 9.6 9.4 9.1 8.9


Investments 11.3 (5.0) 2.6 4.5 5.5 5.4

Assets 6.5 7.5 13.5 7.5 6.5 6.5

Total Reserves 30.6 19.0 25.5 11.2 10.6 9.8

Equity 17.0 — 0.8 2.9 2.9 2.9

Year-end 2010 2011 2012e 2013e 2014e 2015e

Valuation


P/B(x) (target price) 2.2 2.2 2.1 2.1 2.0 1.9


P/E(x) (target price) 12.9 12.9 13.6 11.8 11.4 11.2

September 12 2012




Qatar Insurance Company is the largest insurer in Qatar by GWP, having over 50% market share. Founded in 1964, the company operates outside Qatar as well, with 54% of GWP received from outside the state. The company engages in reinsurance, accounting for c.20% of total GWP. Along with the 2nd and 3rd largest insurers in Qatar, QIC accounts for c.68% of total GWP. The Qatari government is the largest shareholder with 12% ownership, followed by QNB and Burooq Trading Co. each with 5% ownership. Free float is estimated to be 72%.

GWP Breakdown by Segment

86%

14%Fire & General

Marine & Aviation


Year-end 2010 2011 2012e 2013e 2014e 2015e



Ceded Premiums 987 1,000 1,103 1,191 1,286 1,399




Commissions Received on Ceded Reinsurance — — — — — —

Gross Claims Paid 976 1,123 1,190 1,331 1,457 1,591

Claims recovered 447 532 495 543 595 650

Movement in Outstanding Claims 56 268 317 188 206 225

Net Claims 585 859 1,011 976 1,068 1,165





Total Income 836 845 832 942 982 1,017

Interest Expense — — (5) (7) (8) (7)

General & Administrative (214) (244) (260) (279) (299) (323)


Other income/(loss) — 2 3 3 4 5

Tax — — — — — —

Minority Interest 33 11 11 12 13 14

Net Income 590 592 558 647 667 679

Reported EPS 6.6 6.6 6.3 7.3 7.5 7.6

Year-end 2010 2011 2012e 2013e 2014e 2015e

Balance sheet (mn)

Cash 1,736 2,081 2,591 2,882 3,095 3,351

Reinsurers Share of Outstanding Claims 1,160 1,282 1,701 1,824 1,930 2,016


Investment Properties 385 453 453 454 454 454

Investments 2,860 2,718 2,787 2,912 3,071 3,238

Associates 62 64 66 70 74 79

Insurance Receivables 549 630 680 735 794 855

Fixed Assets 29 26 26 25 25 25

Other Assets — — — — — —

Total Assets 7,237 7,777 8,827 9,489 10,106 10,763

Outstanding Claims 1,789 2,180 2,916 3,226 3,538 3,849

Unearned Contribution Reserves 950 1,080 1,176 1,323 1,491 1,674

Debt 229 182 217 348 289 248

Insurance Payables 746 807 950 914 997 1,086

Other Liabilities — — — — — —




Total Equity 3,522 3,529 3,568 3,677 3,790 3,905

BVPS 39.5 39.6 40.0 41.2 42.5 43.8


+97145071744

September 12 2012


Qatar Insurance Company valuation (QAR mn)


1 DCF

Net profit 558,429 647,343 666,624 678,847 843,589 873,115


Minus: excess return excess capital 35,362 33,444 31,497 30,860 18,359 19,002


Tax shelter 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%



RoEcC 24.3% 26.8% 26.1% 25.3% 24.4% 24.4%

Cost of capital 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%

Capital charge 258,430 274,915 292,322 306,831 405,351 419,538

Economic profit 264,637 338,983 342,806 341,156 419,880 434,576

Discount factor 0.00 0.94 0.84 0.75 0.43 0.43



1,857,118


3.5%

Terminal Value

5,112,653


2,185,300

Required Capital

2,153,587


6,196,005 81.4%


Available capital:

Shareholders’ equity 2010 3,568,153 3,677,306 3,790,075 3,905,444 4,553,950

Less Goodwill & intangibles -- -- -- -- --

Less dividends 530,508 550,241 566,631 577,020 717,051

Tangible equity 3,037,645 3,127,065 3,223,445 3,328,424 3,836,899

Capital needs


Technical reserves 2,915,723 3,226,319 3,538,435 3,849,220 5,220,354

Equity investments 2,172,150 2,273,918 2,378,769 2,422,363 2,933,954

Investment properties 453,495 453,767 454,039 454,312 455,676

Associates 66,349 69,666 73,846 79,016 110,823

Equity as % GWP 34.0% 34.0% 34.0% 34.0% 34.0%


Equity as % of investments 50.0% 50.0% 50.0% 50.0% 50.0%

Equity as % of investment properties 25.0% 25.0% 25.0% 25.0% 25.0%

Equity as % of associates 100.0% 100.0% 100.0% 100.0% 100.0%


Surplus capital 884,058 836,107 787,432 771,500 458,977

884,058 11.6%

3 Other adjustments

Total adjustments

4. Dividends

530,508 7.0%

Total Fair Value YE 2011

7,610,571


85.3

Current share price

70.2

Upside

21.6%

Implied P/E 13.6x 11.8x 11.4x

Implied P/B 2.1x 2.1x 2.0x




Jonathan Milan Arqaam Capital Research Offshore s.a.l.

Salama Insurance Still attractive despite setback

BUY

Insurance / UAE Bloomberg code SALAMA UH

Market index UAE


Upside (%) 20.1




Market cap (AED mn) 841


Average daily volume (AED mn) 3.9





EPS 0.05 0.04 0.09 0.08

P/E (x) (market price) 13.8 16.2 7.7 8.3

BVPS 1.34 1.39 1.48 1.57

Tangible BVPS 1.19 1.23 1.33 1.41

P/B (x) (market price) 0.5 0.5 0.5 0.4


DPS — — — —

Div. yield (%) — — — —

RoAA (%) 1.4 1.0 2.0 1.8

RoAE (%) 4.2 3.5 6.9 6.0



Net Loss Ratio 59.3 62.7 57.1 57.6

Combined Ratio 101.0 104.4 98.5 99.0


1.5 — 4.0 3.6



Rising claims in Non-Motor segment push combined ratio to

104% in FY 12e; drop back below 100% from FY 13e onward.

Selective policy on contracts in motor segment to reduce net

loss ratios, but at the expense of diminishing GWP.

Disappointing family Takaful performance; diminishing GWP

and rising loss ratio collude to shrinking underwriting profit.

We reduce our EPS estimate for FY 12e and FY 13e by 22.8% and 16.2% respectively as a result of lower GWP and investment income. We have reduced motor and family Takaful GWP forecasts, and hence net earned premiums. We forecast an 18% drop in motor GWP for FY 12e. The drop is the result of the company’s new policy of only renewing contracts that deem highly profitable. We expect net loss ratio to drop to 43% and 46% in FY 12e and FY 14e onwards compared to 63.7% in FY 11A in motor. We expect motor underwriting profit to increase by 207% during FY 12e. We now expect GWP in family Takaful to diminish by 2% only for FY 12e, compared to our initial 15% increase in GWP. We forecast 75% net loss ratio for FY 12e and only 2% increase in GWP, resulting in an overall AED 54mn underwriting loss for FY 12e in the non-motor segment. We forecast non-motor to be far less profitable in the future than in previous years as a precaution against possible future disasters. As per management guidance Salama needs to invest in highly liquid, safe sukuks to meet capital requirements, hence we reduced investments returns by 60bps down to 3.0%.

Disappointing topline: After over 4 years of double digit growth in GWP, Salama recorded a 1.6% decrease in GWP during H1 12A driven by a severe 10.6% drop in motor GWP, with further drops in Q3 12 ahead of us as Salama ended contracts. GWP in the family Takaful segment diminished by c. 4.8% during H1 12A y/y, even though individual Takaful (mainly investment products with life wrappers) in UAE continues to be successful. The disappointing growth in GWP is a result of increased competition. The drop in GWP was accompanied by a hike in net claims, particularly in group life, resulting in a plummeting in underwriting profit.

12% reduction in TP to AED 0.82. We maintain our BUY recommendation with 21% upside, P/E 13e of 9.3x and P/B 13e of 0.55x, but we remove it from our Core Buy portfolio, due to the challenging Q3 12, as Salama’s subsidiary Best Re deals with claims from the Thai floods. As of FY13e we expect improving underwriting profits.

AED 0.82



Price Performance

0

100

200


SALAMA UH UAE

September 12 2012

Salama Insurance © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 112


Profitability

Investment Yield

Investment Exposure


Growth

3%

1%

4%

4% 4%

3%

3% 2%

5% 4% 4%

0%

5%


3% 3% 4% 3% 3% 3%

0.0%

10.0%

20.0%

30.0%


60%

70%

80%

10%

20%

30%

40%


0.79x0.90x

1.06x 1.03x 1.06x 1.11x0.92x

1.26x1.37x 1.30x 1.35x 1.41x

0.0x0.2x0.4x0.6x0.8x1.0x1.2x1.4x1.6x


17%23%

-4%4% 6% 6%9% 6% 3%

14%

13% 12%

-20.00%

0.00%

20.00%

40.00%



Salama Insurance

Year-end 2010 2011 2012e 2013e 2014e 2015e


Cession Ratio 15.9 15.1 16.6 15.9 16.0 16.1

Net Loss Ratio 55.8 59.3 62.7 57.1 57.6 57.7

Expense Ratio 44.6 41.8 41.8 41.5 41.4 41.1

Combined Ratio 100.3 101.0 104.4 98.5 99.0 98.8

Underwriting Profit Margin 2.7 1.5 — 4.0 3.6 3.8


Net Margin 2.7 2.6 2.3 4.7 4.1 4.3

RoAE 3.7 4.2 3.5 6.9 6.0 6.2

RoAA 1.4 1.4 1.0 2.0 1.8 1.8





Year-end 2010 2011 2012e 2013e 2014e 2015e

Investment Exposure



Equity/Assets (%) 42.7 34.7 33.3 33.0 32.5 32.1

Year-end 2010 2011 2012e 2013e 2014e 2015e

Liquidity/Leverage




Debt/Capital 0.1 0.1 0.1 0.2 0.2 0.2

Debt/Equity (x) 0.1 0.1 0.1 0.3 0.3 0.3

Year-end 2010 2011 2012e 2013e 2014e 2015e

Growth

Gross Premiums 17.1 23.1 (4.2) 4.3 6.0 6.0

Net Earned Premiums 24.7 25.3 (5.2) 6.0 5.2 5.8

Investments 9.1 5.7 3.5 14.1 12.6 12.1

Assets 11.9 27.1 8.0 7.5 7.5 7.5

Total Reserves 38.3 67.8 5.5 (5.3) 4.1 6.1

Equity 4.2 3.3 3.5 6.6 5.8 6.1

Year-end 2010 2011 2012e 2013e 2014e 2015e

Valuation


P/B(x) (target price) 0.6 0.6 0.6 0.6 0.5 0.5


P/E(x) (target price) 19.8 16.6 19.4 9.3 10.0 9.1

September 12 2012



Salama

Salama was established in 1979, operates 6 branches in the UAE with 150 employees. The company provides Islamic non-life insurance, life insurance and Islamic reinsurance services. The majority of the company’s GWP arise from the Far East (Malaysia, mainly reinsurance) accounting for 62%, and 19% from the Middle East (mostly UAE). The company recently launched a Sharia compliant life insurance segment that has been experiencing strong double digit growth. Noor al Ain Management Services is the largest shareholder with 13.7% ownership, Ajyad Management services with 10% ownership and 56% owned by several investors, with a remaining 20% free float.

GWP Breakdown by Segment

9.4%2.1%

28.8%59.7%

TakafulMedicalMotorNon-motor

Salama Insurance

Year-end 2010 2011 2012e 2013e 2014e 2015e



Ceded Premiums 292 342 361 361 384 409







Movement in Outstanding Claims 76 180 (148) 102 109 115

Net Claims 793 1,057 1,059 1,023 1,087 1,151





Total Income 280 289 291 375 386 410

Interest Expense 22 17 16 29 41 44



Other income/(loss) (22) (17) (15) (18) (19) (20)

Tax 9 7 9 17 16 18

Minority Interest 5 — 6 5 6 6

Net Income 50 60 51 106 99 109

Reported EPS — — — 0.1 0.1 0.1

Year-end 2010 2011 2012e 2013e 2014e 2015e

Balance sheet (mn)

Cash 209 435 537 831 957 1,055

Reinsurers Share of Outstanding Claims 218 478 728 521 489 492


Investment Properties 83 275 280 286 292 297

Investments 1,389 1,468 1,519 1,733 1,952 2,189

Associates 57 58 59 61 63 65

Insurance Receivables 826 1,103 1,042 1,087 1,152 1,220

Fixed Assets 72 107 107 107 107 107

Other Assets 773 685 685 688 691 693

Total Assets 3,679 4,676 5,050 5,429 5,836 6,274

Outstanding Claims 953 1,393 1,495 1,390 1,466 1,584

Unearned Contribution Reserves 500 659 803 940 1,091 1,251

Debt 214 160 240 480 540 567


Other Liabilities 158 126 129 132 134 137




Total Equity 1,572 1,623 1,680 1,791 1,896 2,011

BVPS 1.3 1.3 1.4 1.5 1.6 1.7


+97145071744

September 12 2012


Salama valuation (AED in mn)


1 DCF

Net profit 50,936 106,450 98,640 109,132 199,461 199,461


Minus: excess return excess capital 13,321 15,648 16,641 17,752 27,191 27,191


Tax shelter 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%



RoEcC 3.4% 7.9% 6.7% 6.9% 9.6% 9.6%

Cost of capital 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%

Capital charge 133,169 138,660 147,816 157,896 214,076 214,076

Economic profit (95,553) (47,858) (65,818) (66,515) (41,805) (41,805)

Discount factor 0.00 0.94 0.84 0.75 0.43 0.43

NPV of Economic Profit -- (45,224) (55,536) (50,115) (17,881) (41,805)


(302,152)


3.0%

Terminal Value

(465,016)


(198,895)

Required Capital

1,110,663

Value of the insurance operations

609,617 61.7%


Available capital:

Shareholders' equity 1,679,513 1,791,165 1,895,555 2,011,042 2,767,505


Less dividends -- -- -- -- 19,946

Tangible equity 1,489,088 1,601,021 1,705,593 1,821,199 2,557,911

Capital needs


Technical reserve 2,298,207 2,330,055 2,557,062 2,835,529 4,741,464

Equity investments 117,933 134,579 151,596 170,004 283,244


Associates 59,002 60,772 62,899 65,415 79,588

Equity as % GWP 34% 34% 34% 34% 34%

Equity as % Technical reserves 8% 8% 8% 8% 8%

Equity as % of investments 50% 50% 50% 50% 50%

Equity as % of investment properties 25% 25% 25% 25% 25%

Equity as % of associates 100% 100% 100% 100% 100%


Surplus capital 378,425 444,554 472,765 504,305 772,459

378,425 38.3%


Total adjustments

4. Dividends

Total Fair Value

988,042


0.82

Current share price

0.68

Upside

20.1%


Implied P/BV 0.59x 0.55x




Jonathan Milan Arqaam Capital Research Offshore s.a.l.

Tawuniya Insurance Growing medical GWP could prove problematic

BUY

Insurance / KSA Bloomberg code TAWUNIYA AB

Market index KSA


Upside (%) 21.3



52 Week range 41.7-66.8








EPS 5.76 3.88 4.64 6.23

P/E (x) (market price) 7.6 11.2 9.4 7.0

BVPS 27.32 29.84 32.86 36.91

Tangible BVPS 25.14 27.29 30.14 33.95

P/B (x) (market price) 1.6 1.5 1.3 1.2


DPS 2.0 1.4 1.6 2.2

Div. yield (%) 4.6 3.1 3.7 5.0

RoAA (%) 5.8 3.8 4.2 5.0

RoAE (%) 24.7 14.8 16.2 19.4



Net Loss Ratio 67.6 79.2 77.4 75.3

Combined Ratio 91.0 101.2 99.0 96.7


9.6 2.2 3.8 5.5



Strong GWP growth in medical segment increases dilutes

underwriting margins.

Combined ratio to reach 101% in FY 12e and 99% in FY 13e as

a result of rising claims in medical segment.

Cheaper than Medgulf

We reduce our EPS estimate by 17.6% and 12.9% for FY 12e and FY 13e respectively: Disappointing results from Tawuniya render the next 6 months very crucial. We forecast a combined ratio of 101% and 99% for FY12e and FY13e respectively. We expect combined ratio to stabilize at c. 97% from FY 14e onwards. Our increase in combined ratio results from higher net claims in the medical segment and higher than anticipated growth in medical GWP, diluting profitability. We forecast 13% 5 year CAGR in medical GWP compared to 5.6% and 4.9% 5 year CAGR in motor and P&C GWP growth respectively. Tawuniya’s growing dependence on the less profitable medical segments will mean higher combined ratios and lower profitability despite double digit growth in GWP, due to difficulty to increase rates (increased competition in KSA), increased claims and rising cost per claims.

Profitability expected to improve post FY 13e: We forecast net loss ratio of 89% for FY 12e in the medical segment. However we expect higher policy premiums and better cost management to reduce net loss ratio down to 85% and 81.5% for FY 13e and FY 14e respectively. We expect a small decline in underwriting profitability in the motor segment as a result of toughening competition. We expect net loss ratios to increase to 64.5% by FY 14e compared to 63% for FY 12e. In line with H1 12A performance, we expect net loss ratios in the P&C segment to drop down to 26% in FY 12e, compared to 31.4% in FY 11A. Due to rising net loss ratios in the P&C industry elsewhere, we gradually increase net loss ratios to 27.5% by FY 14e. We expect the investment yield to drop from H1 12A, as we view this level was unsustainable, though it represented a welcome support to compensate for the weak underwriting profitability.

We reduce our TP by 13.6% to SAR 52.8/share. We reiterate our BUY recommendation with 20% upside, and P/E 12e-13e of 13.6x and 11.4x respectively and P/B 12e of 1.8x, given the high RoE, robust capital position and improving trend in H2. The pullback offers an attractive entry point, though the company could underperform our forecasts once again (like in Q2).

SAR 52.8



Price Performance

80

120

160


TAWUNIYA AB KSA

September 12 2012

Tawuniya Insurance © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 116


Profitability

Investment Yield

Investment Exposure


Growth

11% 10%

2% 4%

5% 6%

13%

10%

6% 6% 8% 8%

0%

5%

10%

15%


2% 2%5% 4% 4% 4%

0.0%

10.0%

20.0%

30.0%


60%

70%

80%

10%

20%

30%

40%


0.93x 0.82x 0.77x 0.80x 0.84x 0.88x

2.20x

1.77x 1.73x 1.80x 1.83x 1.87x

0.0x0.2x0.4x0.6x0.8x1.0x1.2x1.4x1.6x1.8x2.0x2.2x2.4x


4%6%

10% 9% 9%

0%

5%

11%

12%

-8.00%

-2.00%

4.00%

10.00%



Tawuniya Insurance

Year-end 2010 2011 2012e 2013e 2014e 2015e


Cession Ratio 30.8 22.5 20.1 19.2 19.0 18.8

Net Loss Ratio 58.2 67.6 79.2 77.4 75.3 75.4

Expense Ratio 28.4 23.3 22.0 21.5 21.4 21.1

Combined Ratio 86.6 91.0 101.2 99.0 96.7 96.5



Net Margin 13.3 9.7 5.8 6.3 7.7 8.0

RoAE 38.6 24.7 14.8 16.2 19.4 19.4

RoAA 7.4 5.8 3.8 4.2 5.0 5.0





Year-end 2010 2011 2012e 2013e 2014e 2015e

Investment Exposure



Equity/Assets (%) 23.5 27.7 29.1 29.4 29.5 29.5

Year-end 2010 2011 2012e 2013e 2014e 2015e

Liquidity/Leverage




Debt/Capital — — — — — —

Debt/Equity (x) — — — — — —

Year-end 2010 2011 2012e 2013e 2014e 2015e

Growth

Gross Premiums 3.5 6.0 13.4 10.1 9.2 8.7


Investments 24.2 — 5.4 10.6 12.0 14.3

Assets 7.4 (2.0) 4.0 9.3 11.8 12.2

Total Reserves 13.4 (6.6) 6.8 14.5 14.3 14.4

Equity 25.4 15.8 9.2 10.1 12.3 12.3

Year-end 2010 2011 2012e 2013e 2014e 2015e

Valuation


P/B(x) (target price) 2.2 1.9 1.8 1.6 1.4 1.3


P/E(x) (target price) 7.1 9.2 13.6 11.4 8.5 7.5

September 12 2012



Tawuniya

Established in 1986, Tawuniya is the largest insurer in the Kingdom and the region by GWP. The company operates 10 branches with 1,500 employees. Tawuniya provides Shariah compliant non-life insurance including medical, motor, fire and property, marine and aviation, and energy insurance. The company also provides life insurance and reinsurance. Medical insurance accounts for 56.5% of total GWP, motor 25.2% and the remaining 18% among the other lines. The company operates a non-life insurance provider in Bahrain, the United Insurance Company, which provides car insurance.

Tawuniya Insurance

Year-end 2010 2011 2012e 2013e 2014e 2015e



Ceded Premiums 1,288 995 1,010 1,061 1,146 1,232







Movement in Outstanding Claims 131 (221) 61 114 139 151

Net Claims 1,548 2,095 3,026 3,258 3,467 3,785





Total Income 984 908 784 895 1,081 1,188

Interest Expense — — — — — —



Other income/(loss) (80) (209) (202) (230) (263) (289)

Tax 27 35 20 24 32 37


Net Income 555 432 291 348 467 525

Reported EPS 7.4 5.8 3.9 4.6 6.2 7.0

Year-end 2010 2011 2012e 2013e 2014e 2015e

Balance sheet (mn)

Cash 165 254 276 227 325 348

Reinsurers Share of Outstanding Claims 977 739 715 830 963 1,145


Investment Properties — — — — — —

Investments 3,714 3,714 3,916 4,332 4,851 5,545

Associates 153 156 156 156 156 156

Insurance Receivables 1,297 1,392 1,460 1,607 1,755 1,908

Fixed Assets 147 177 192 200 201 202

Other Assets 431 442 443 453 467 477

Total Assets 7,532 7,384 7,679 8,394 9,381 10,523

Outstanding Claims 1,688 1,229 1,264 1,493 1,765 2,098

Unearned Contribution Reserves 2,204 2,406 2,615 2,948 3,313 3,712

Debt — — — — — —


Other Liabilities 1,044 1,136 1,145 1,083 1,143 1,219




Total Equity 1,769 2,049 2,238 2,464 2,768 3,109

BVPS 23.6 27.3 29.8 32.9 36.9 41.5


+97145071744

September 12 2012


Tawuniya valuation (SAR mn)


1. DCF

Net profit 290,806 348,374 467,338 525,067 821,805 821,805


Minus: excess return excess capital (17,220) (19,820) (19,957) (19,087) (2,729) (2,729)


Tax shelter 6.5% 6.5% 6.5% 6.5% 6.5% 6.5%



RoEcC 12.6% 13.8% 16.7% 17.0% 17.1% 17.1%

Cost of capital 12.2% 12.2% 12.2% 12.2% 12.2% 12.2%

Capital charge 297,116 325,520 355,822 389,974 588,913 588,913

Economic profit 10,910 42,673 131,473 154,179 235,620 235,620

Discount factor 0.00 0.94 0.84 0.75 0.42 0.42



801,900


3.0%

Terminal Value

2,561,090


1,080,136

Required Capital

2,435,373


4,317,409 109.1%


Available capital:

Shareholders’ equity 2,267,882 2,464,325 2,768,095 3,109,388 5,375,682


Less dividends 101,782 121,931 163,568 183,773 287,632

Tangible equity 1,974,951 2,138,261 2,382,956 2,686,164 4,754,194

Capital needs


Technical reserves

Equity investments 1,135,552 1,256,341 1,406,886 1,608,193 2,982,407


Associates 155,936 155,936 155,936 155,936 155,936

Equity as % GWP 34.0% 34.0% 34.0% 34.0% 34.0%


Equity as % of investments 50.0% 50.0% 50.0% 50.0% 50.0%

Equity as % of investment properties 25.0% 25.0% 25.0% 25.0% 25.0%

Equity as % of associates 100.0% 100.0% 100.0% 100.0% 100.0%


Surplus capital (460,422) (529,937) (533,614) (510,348) (72,965)

(460,422) (11.6%)


Total adjustments

4. Dividends

101,782 2.6%

Total Fair Value

3,958,769


52.8

Current share price

43.5

Upside

21.3%


Implied P/B 1.8x 1.6x


September 12 2012


Important Notice

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Hold -10% < Total return < 20%

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