gcc defensive bellwether stocks

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Kuwait Financial Centre MarkazR E S E A R C H GCC Defensive Bellwether Stocks Specific Look at Large Caps GCC stock markets were always about large caps; hence, we have endeavored to take a closer look. When we looked at the top 20 companies listed in the GCC stock markets (measured by market capitalization), certain themes emerged: They are dominant (48% of market cap, 23% of total value traded, 61% from KSA, 70% from just two sectors banking and chemicals) and therefore skew the set They enjoy large government ownerships (averaging 45%) and therefore sap liquidity (turnover velocity averages just 12%) & Offer high dividend yields (5% on average) However, the muted market performance during the last few years has seen them not deliver positive shareholder value. Measured in the short- term (last one year), only 3 of the 20 managed to beat their stock market index in terms of performance. Are they Risky? As a group, they share a medium to high risk profile measured in terms of standard deviation (ranging from 20% to 54%). Other key risk metrics like average monthly returns, monthly high/low, losing streaks, and drawdown also point to similar trend of medium to high risk. Hence, they would tend to exhibit more of the characteristics of a value stock than a growth stock. How are they correlated? Given the lack of market integration, the correlation looks mostly spurious. Otherwise how can you explain the highest positive correlation (95%) between Qatar National Bank and Saudi Arabian Fertilizer Co or highest negative correlation (-71%) between Saudi Telecom and Etihad Etisalat (both Saudi-based telecom companies). Hence, basing portfolio allocations on correlation may be misleading until markets integrate. In terms of stock picks, Qatar National Bank clearly stands out. Expected Risk/Return 2012f January 2012 Research Highlights: Analyzing Large Cap GCC stocks in terms of composition, stock performance, risk and challenges facing the segment Markaz Research is available on Bloomberg Type MRKZ<Go> M.R. Raghu CFA, FRM Head of Research +965 2224 8280 [email protected] Layla Al-Ammar Assistant Manager [email protected] +965 2224 8000 Ext: 1205 Madhu Soothanan Senior Research Analyst [email protected] +965 2224 8000 Ext: 4603 Kuwait Financial Centre S.A.K. MarkazP.O. Box 23444, Safat 13095, Kuwait Tel: +965 2224 8000 Fax: +965 2242 5828 www.markaz.com

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Page 1: GCC Defensive Bellwether Stocks

Kuwait Financial Centre “Markaz” R E S E A R C H

GCC Defensive Bellwether Stocks Specific Look at Large Caps

GCC stock markets were always about large caps; hence, we have endeavored to take a closer look. When we looked at the top 20 companies

listed in the GCC stock markets (measured by market capitalization), certain themes emerged:

They are dominant (48% of market cap, 23% of total value traded,

61% from KSA, 70% from just two sectors banking and chemicals)

and therefore skew the set They enjoy large government ownerships (averaging 45%) and

therefore sap liquidity (turnover velocity averages just 12%) &

Offer high dividend yields (5% on average)

However, the muted market performance during the last few years has

seen them not deliver positive shareholder value. Measured in the short-

term (last one year), only 3 of the 20 managed to beat their stock market index in terms of performance.

Are they Risky?

As a group, they share a medium to high risk profile measured in terms of

standard deviation (ranging from 20% to 54%). Other key risk metrics like

average monthly returns, monthly high/low, losing streaks, and drawdown also point to similar trend of medium to high risk. Hence, they would tend

to exhibit more of the characteristics of a value stock than a growth stock.

How are they correlated?

Given the lack of market integration, the correlation looks mostly spurious.

Otherwise how can you explain the highest positive correlation (95%) between Qatar National Bank and Saudi Arabian Fertilizer Co or highest

negative correlation (-71%) between Saudi Telecom and Etihad Etisalat

(both Saudi-based telecom companies). Hence, basing portfolio allocations on correlation may be misleading until markets integrate.

In terms of stock picks, Qatar National Bank clearly stands out.

Expected Risk/Return – 2012f

January 2012

Research Highlights: Analyzing Large Cap GCC

stocks in terms of composition, stock performance, risk and

challenges facing the segment

Markaz Research is

available on Bloomberg Type “MRKZ” <Go>

M.R. Raghu CFA, FRM

Head of Research +965 2224 8280 [email protected]

Layla Al-Ammar

Assistant Manager

[email protected] +965 2224 8000 Ext: 1205

Madhu Soothanan

Senior Research Analyst [email protected]

+965 2224 8000 Ext: 4603

Kuwait Financial Centre

S.A.K. “Markaz”

P.O. Box 23444, Safat 13095, Kuwait

Tel: +965 2224 8000

Fax: +965 2242 5828 www.markaz.com

Page 2: GCC Defensive Bellwether Stocks

R E S E A R C H January 2012

Kuwait Financial Centre “Markaz”

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Universe of Stocks

In order to arrive at our universe of Large Cap stocks, we have taken the full

group of listed stocks across the GCC markets, numbering 639, and have identified the stocks which account for a cumulative 48% of the total market

cap (Table 1).

This yielded a group of 20 stocks with a total market cap of USD 325 bn,

spanning four countries and five main industries (Figures 1 & 2). The largest stock is Sabic, with 11% of GCC market cap, followed distantly by Al Rajhi

Bank at 4%.

Value Traded for the group amounted to USD 59bn as of September 2011

(Appendix 1), though USD 31bn (53%) of that was accounted for by Sabic followed by Al Rajhi with 8% of total value traded. The average turnover

velocity for the group during the period was roughly 12%, relatively low given the high degree of government and institution holding of Large Caps in

addition to the overall decline in trading across the region.

The group has an average Dividend Yield of just over 5%, the highest yields

coming from the Chemicals and Telecom sectors. Average RoE and RoA came in at 18.6% and 8%, respectively, during the period.

Table 1: GCC Large Cap Stocks (As of Sept-11)

Market Cap

Company Domicile

USD mn % of Total

Gov’t Ownership

1 SABIC Saudi Arabia 73,992 11.0% 75.2

2 Al Rajhi Banking and Investment Co Saudi Arabia 27,697 4.1% 9.9

3 Qatar National Bank Qatar 24,861 3.7% 50

4 Emirates Telecommunications Corp. UAE 22,174 3.3% 60

5 Industries Qatar Qatar 18,716 2.8% 70.1

6 Saudi Telecom Co Saudi Arabia 18,131 2.7% 83.6

7 National Bank of Kuwait SAK Kuwait 15,239 2.3% 0

8 Saudi Electricity Company Saudi Arabia 14,776 2.2% 81.2

9 Mobile Telecommunications Co. (Zain) Kuwait 14,708 2.2% 24.6

10 Saudi Arabian Fertilizers Co Saudi Arabia 12,132 1.8% 59.6

11 Samba Financial Group Saudi Arabia 10,511 1.6% 49.3

12 Etihad Etisalat Co Saudi Arabia 9,892 1.5% 38.6

13 Riyad Bank Saudi Arabia 9,439 1.4% 49.8

14 Kuwait Finance House KSC Kuwait 8,791 1.3% 24.4

15 National Bank of Abu Dhabi UAE 8,284 1.2% 70.5

16 Saudi British Bank Saudi Arabia 7,859 1.2% 9.5

17 Banque Saudi Fransi Saudi Arabia 7,482 1.1% 12.8

18 Kingdom Holding Co Saudi Arabia 7,411 1.1% 0

19 Qatar Telecommunications (QTel) Qatar 7,096 1.1% 65

20 First Gulf Bank UAE 5,841 0.9% 5.3

Group Total 325,032 48%

Total Universe Market Cap 671,572

Source: Markaz Research, Reuters

Predictably, the geographical breakdown is skewed to Saudi Arabia, with 11

companies representing 61% of the total (Figure 1). This is followed by Qatar,

with 3 stocks represented, and 16% share. Kuwait and the UAE have 3

Value Traded for the group amounted to USD 59bn as of

September 2011, though USD

31bn (53%) of that was accounted for by Sabic

The group has an average

Dividend Yield of just over 5%, the highest yields coming from

the Chemicals and Telecom

sectors

Page 3: GCC Defensive Bellwether Stocks

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companies each while Oman and Bahrain have no presence in the large cap segment.

Figure 1: Geographical Breakdown by Weight and Number of Companies

In terms of sectors, the group is somewhat evenly split between Banks and Chemicals. These sectors represent 37% and 33% of market cap,

respectively. Ten banks are represented in the group while Chemicals are represented by three firms. Telecoms follow with 5 companies representing

15% of the market cap. Saudi Electricity Company is the only Utility to make

an appearance in the list, amounting to 5% of market cap.

Figure 2: Sector Breakdown by Weight and Number of Companies

GCC markets have been underperforming in 2011 due to poor corporate

news, regulatory issues, weak global cues and political turmoil which have rattled markets. Consequently, the Large Caps, which are Blue Chip stocks

that are heavily invested in by retail and institutional investors, have also taken some heavy hits along with the market.

16 of the group of 20 large caps are in negative territory for the year while over half are underperforming their exchanges. There doesn’t seem to be any

sector/geographical bias to the underperformers although all but one Qatari stock are outperforming the Doha Exchange which is at 1% YTD. The biggest

underperformance is in Zain, which due to poor corporate news has seen its

stock down by 40% for the year. The highest outperformance comes from Qatar National Bank which is up 14% followed by NBAD which is at a gain of

12%.

Page 4: GCC Defensive Bellwether Stocks

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Kuwaiti companies are all underperforming the Kuwait Weighted Index, which is down 15% for the year.

Islamic lenders Al Rajhi Bank and Kuwait Finance House are underperforming their indices by 11% and 1.2%, respectively.

Table : Stock Performance (As of 14th Dec 2011)

Annualized Returns

Company YTD

return Alpha 2Y 3Y 5Y

1 Qatar National Bank 13.9 12.9 33.5 30.1 20.0

2 National Bank of Abu Dhabi 12.3 22.3 10.2 19.9 5.4

3 Saudi Arabian Fertilizers Co 8.9 15.4 19.9 24.5 14.7

4 Qatar Telecommunications (Qtel) 0.7 -0.2 11.6 12.6 0.1

5 Industries Qatar -3.2 -4.1 8.3 18.6 14.6

6 Saudi Electricity Company -4.3 2.2 12.3 13.4 0.4

7 Saudi British Bank -4.7 1.8 -6.3 -3.3 -8.8

8 Etihad Etisalat Co -5.0 1.5 11.8 27.9 4.9

9 First Gulf Bank -7.1 2.9 7.6 23.8 9.0

10 Banque Saudi Fransi -8.3 -1.8 0.2 3.3 -6.8

11 Kingdom Holding Co -9.2 -2.7 -2.5 -4.0 NA

12 Saudi Basic Industries Corp -10.0 -3.5 8.9 17.3 0.9

13 National Bank of Kuwait SAK -11.4 3.6 15.6 1.6 -0.6

14 Emirates Telecommunications Corp. -11.5 -1.5 -1.7 0.5 -1.5

15 Riyad Bank -12.6 -6.1 -4.6 2.8 -7.3

16 Kuwait Finance House KSC -16.2 -1.2 -2.3 -13.6 -2.6

17 Al Rajhi Banking and Investment Co -17.5 -11.0 -1.9 4.7 -3.4

18 Saudi Telecom Co -21.8 -15.4 -12.9 -11.9 -17.4

19 Samba Financial Group -22.8 -16.3 -2.8 0.1 -12.6

20 Mobile Telecommunications Co. (Zain) -40.8 -25.8 -6.1 -7.0 -3.7

Note: Alpha is calculated versus each stock's exchange performance, Kuwait stocks against Kuwait Weighted Index

Source: Reuters Eikon, Markaz Research

Risk and Return

We conducted an analysis of the stock’s return and risk behavior over the

past three years in order to see who has managed to retain their return levels

through this crisis-ridden period.

The risk metrics involved encompassed eight parameters; Average return, Return Spread (disparity between highest and lowest return), Losing Streak,

Percentage of negative months, Maximum drawdown, Standard Deviation, and the Change in MVX (Markaz Volatility Index) value.

Average Returns

Returns over the past three years have fluctuated wildly in response to local, regional and international cues. About half of the group of 20 has managed to

maintain positive average monthly returns over the period; the highest of

which is an average monthly return of 2.21% for Qatar National Bank, followed by 1.49% for Etihad Etisalat.

Islamic lenders Al Rajhi Bank and Kuwait Finance House are

underperforming their indices by 11% and 1.2%,

respectively

Returns over the past three years have fluctuated wildly in

response to local, regional and

international cues

Page 5: GCC Defensive Bellwether Stocks

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The negative average monthly returns ranged from near zero for Al Rajhi Bank to an average monthly loss of 1.37% for STC.

Figure: Average Monthly Returns – 3 yrs

Highs and Lows

The tumultuous period of the last three years has seen stocks vacillate between highs and lows on a fairly regular basis. In our view, the wider the

spread between a stock’s Highest and Lowest returns, the riskier it is.

Kingdom Holding had the widest spread in the group; registering a high

monthly return of 61% in January 2010 and a low of 30% in October of 2008 following the collapse of Lehman Brothers and the on-set of the global credit

crisis. Kingdom Holding has investments in a number of US firms, including

Citigroup, News Corp, Time Warner and Apple.

Most firms had Highs and Lows in the (+/-) 20-30 range. The narrowest spread was in Saudi Electricity Company (SEC), which had a high monthly

return of 19% in June 2010, i.e. two months after its Low of 10% in April

2010. Figure: High/Low Spread – 3 yr (%)

The tumultuous period of the last three years has seen

stocks vacillate between highs and lows on a fairly regular

basis

Most firms had Highs and

Lows in the (+/-) 20-30 range

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Losing Streaks

Despite the wild fluctuations and highs/lows of the period, the Large Cap

group managed to contain themselves to relatively short losing streaks, i.e. consecutive months of declines. The majority of companies saw losing streaks

of 4-5 months; Qtel, Al Rajhi, BSF and Samba had streaks of 6 consecutive months while Qatar National Bank and SAFCO saw only two straight months

of declines during the whole period.

Figure: Largest Losing Streak (# of months) – 3 yr

Maximum Drawdown

Another consequence of the volatility of the recent period is an increase in

maximum drawdowns for the stocks. The drawdown illustrates the degree of

loss sustained by the stock after reaching its peak for the period.

Kuwait Finance House sustained the highest drawdown; registering a decline of 47% from its peak of KD1.42 in October 2008 to a low of KD 0.758 just

four months later. STC, Kingdom Holding and Samba also sustained high

drawdowns of between 40%-45%.

The lowest falls were seen in NBAD and Qtel, with drawdowns of less than 8%, indicating relatively stable trading.

Figure: Maximum Drawdown – 3 yr

Note: Max Drawdown refers to the percentage decline from peak to trough during the period

Despite the wild fluctuations

and highs/lows of the period, the Large Cap group managed

to contain themselves to relatively short losing streaks

The lowest falls were seen in

NBAD and Qtel, with drawdowns of less than 8%,

indicating relatively stable

trading

Page 7: GCC Defensive Bellwether Stocks

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Correlation

Long-term (3 years)

A look at correlation among the group of twenty over a three year period

(See: Appendix 2 for full results) showed some degree of convergence among the stocks; however, some notable observations were made:

- The highest correlation was found to be between Qatar National Bank and Saudi Arabian Fertilizer Co., at 95% followed by a 92% correlation between

SABIC and Qatar Telecom. Conversely, the lowest correlation (-71%) was seen between Saudi Telecom and Etihad Etisalat, the two dominant players

in the Saudi telecom market.

- Saudi Telecom had negative correlation with nearly every stock in the

group, barring six. Single-digit correlation was found between it and Zain and Riyad Bank while the highest was a 68% correlation with SABB.

- The only stock to have positive correlation with all companies was Riyad

Bank; the highest of which was with Al Rajhi Bank (87%) while the lowest

was 3.7% with STC.

Short-term (1 year)

Convergence was predictably higher for the stocks over the last one year

period (Appendix 2) as high volatility in the markets, brought on by regional and global cues, caused a generally negative sentiment to prevail. A few

markets and stocks have managed to buck the negative trend, but by-and-large, the effect has blanketed the markets in red.

- The highest correlation was found between two Saudi stocks, Al Rajhi Bank

and Saudi Telecom, at 94.8% followed very closely by Samba and Riyad

Bank which had a correlation of 94.7%. On the other end of the spectrum, Zain and NBAD had the lowest correlation at -77.6%.

- Over the last one year period, Qatar National Bank had negative correlation

with all stocks in the group except five; the highest of which was a 64%

correlation with SAFCO followed by 60% with NBAD. The lowest correlation was seen between the bank and Emirates Telecom (Etisalat) at -77%. A

46% and 33% correlation was observed, respectively, with fellow Qatari firms Qtel and Industries Qatar.

- SEC, Banque Saudi Fransi and Kingdom Holding had the highest cross-correlations among the group. Their correlations with twelve stocks came in

higher than 50%. The lowest were SAFCO and Etihad Etisalat who each only had one stock correlation that was higher than 50%.

Risk and Return: Analysis & Expectations

Long-term Risk/Return

Over a three-year period the stocks have exhibited a Medium to High degree of risk (Figure ) with annualized standard deviation ranging from a low of

20% for SEC to a high of 54% for Kingdom Holding.

Telecoms have shown annualized risk in the 30% range during the period.

The notable exception to this was Zain Group, which exhibited a standard

A look at correlation among

the group of twenty over a three year period showed

some degree of convergence among the stocks

Convergence was predictably higher for the stocks over the

last one year period

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deviation of 47% due to the extreme stock fluctuations throughout the year on account of corporate news.

On the annualized return front, nine of the stocks showed negative returns during the three-year period, the lowest of which was a loss of 18% in Saudi

Telecom while Riyad Bank managed to keep its loss to 2%. Of the eleven remaining stocks which showed positive three-year CAGRs, the highest was

30% in QNB followed by 25% for SAFCO.

Figure: Annualized Risk/Return (3-yr)

Expected Risk/Return

Following an in-depth analysis of each of the 20 stocks, we set about plotting

them in terms of both expected return and risk associated with the stock. The

return represents a combination of earnings forecast for 2012 and a call on valuation for the stock while Risk is a function of eight “Risk Metrics”

measured over a one year period.

Figure: Expected Risk/Return – 2012f

Source: Markaz Research

On the annualized return front,

nine of the stocks showed negative returns during the

three-year period

Of the eleven remaining stocks

which showed positive three-

year CAGRs

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The results of this exercise produced some interesting results;

- The majority of telecoms, regardless of domicile, ranked on the Medium scale in terms of risk; Zain is an exception again here, with a High risk

scoring given the largely negative corporate news associated with the firm. Furthermore, Qtel and STC scored low on the expected return front while

Zain, Etisalat and Etihad Etisalat have Medium return expectations given

declines suffered by the stocks this year (thereby giving upside potential) for Zain and Etisalat while Etihad Etisalat’s expectation comes from its

rapid attainment of market share in the Kingdom and high further growth potential.

- As for banks, which make up 50% of the number of companies, the results were far more dispersed;

o Four out of five Saudi banks showed Medium Returns and High Risk except Riyad Bank which scored Medium in terms of both Risk

and Return. o The two UAE banks, NBAD and FGB, both scored in Medium in

terms of expected return for 2012, but differed in their Risk.

NBAD shows Medium given relatively steady performance while FGB shows High risk potential having spent 6 of the last twelve

months in negative territory. o Kuwait had two banks in the group, NBK and KFH; the former had

Medium Risk/Medium Return profile while the latter had a

Medium Risk/High Return scoring, due to positive 2012 earnings forecast.

o QNB scored in the Low Risk/Medium Return quadrant; the only bank in the group to do so.

- The region’s petrochemical giants, SABIC and Industries Qatar, both

ranked Medium in terms of Risk; Industries Qatar showed a High return

expectation while Sabic scored Low given lower earnings expectations based on a slight slow-down in revenue growth.

- The sole Utility stock, Saudi Electricity Company, was ranked on the Low

Risk/Low Return scale due to steady, but relatively lower growth potential.

Challenges Facing Blue Chips in the Current Environment

- Liquidity

The majority of Blue Chips enjoy a high degree of government ownership and support, averaging 42% but going as high as 84% in some cases.

Government ownership can be a plus for the firm as it can lend increased stability and support, particularly in volatile times. However, on the flip side, it

can lower liquidity and trading on a stock, which can produce high spreads and consequently, exacerbate an already volatile market.

Additionally, Blue Chips are the stocks that tend to get hit first when a market starts going down, regardless of the fundamentals of a particular stock or its

growth prospects going forward, these names are typically on the front lines when investor sentiment starts going south.

The majority of telecoms,

regardless of domicile, ranked

on the Medium scale in terms of risk

The majority of Blue Chips enjoy a high degree of

government ownership and

support, averaging 42%

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- Shareholder Wealth

The Blue Chips are all, for the most part, leaders within their industries and

countries and are considered operationally sound. They’ve been producing high shareholder wealth through the years, with Dividend Yields averaging a

consistent 4%-5% while RoEs have averaged 19%.

The challenge for these firms is continuing to produce this high shareholder

wealth in increasingly uncertain market conditions and heightened competition.

- Sector-specific Challenges

Telecoms: These firms, most of which are incumbent operators, must contend with an environment of increasing competition in addition to lower

growth prospects in markets where they’ve acquired interest. Moreover, home markets across the region have reached saturation, characterized by

heightened penetration and declining ARPUs, and so revenue growth must come from value-added services rather than traditional means.

Banks: Lenders should see a better year in 2012, with loans growth expected to increase across the Gulf in addition to lower provisions in most cases. A

few select banks with exposure to distressed firms and sectors may face additional provisioning which would squeeze the bottom line and prove

detrimental to stock performance.

Petrochemicals: Sabic and Industries Qatar had a very good year in 2011

on account of high commodity process; however, these are expected to soften slightly in 2012 as demand eases in key international markets. The

challenge for these firms is in diversifying and expanding their value chains in order to cater to local demand, which remains healthy.

The challenge for these firms

is continuing to produce this high shareholder wealth in

increasingly uncertain market conditions

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The Large Caps

SABIC Code: 2010.SE | Country: Saudi Arabia | Current MP: SAR 93.01 | YTD Performance: -9.6% Mcap: USD74.4Bn | Ann. St. Dev: 23% | YTD Turnover Velocity: 35%

Background Saudi Basic Industrial Corporation (SABIC) was established in 1976 by royal decree to exploit the country's

natural gas supply to produce value-added commodities such as chemicals, polymers and fertilisers. Now,

SABIC is one of the world’s five largest petrochemicals manufacturers. SABIC has 6 main strategic business units which include: Basic Chemicals, Performance Chemicals, Innovative Plastics, Polymers, Fertilizers, and

Metals. According to Zawya, SABIC is the most profitable petrochemical company in the world and it is worthy to note that the government of KSA owns over 75% of SABIC which will ensure cheap feedstock and

continuous support in the foreseeable future.

SABIC holds equity stakes in major Saudi Arabian companies. Some of them are Saudi Arabian Fertilizers Co.

(42.99%), Saudi Kayan Petrochemical Co. (35%), and Yanbu National Petrochemicals Co. (51.95%).

Analysis: SABIC reported a good set of Q3 numbers with revenues increasing 29% YoY to USD 13.1bn. 3Q11 bottom-line grew 54% YoY (+1% QoQ) to USD 2.2bn. Finance costs decreased 19% over the quarter

and total operating expenses decreased 1.1%. Over the first nine months of 2011, revenues increased 29%

YoY to USD 38.1bn and net income grew 52% YoY to 6.4bn. Growth in net income is due to increase in production and sales volumes, improved product prices and lower financing charges.

Production from Saudi Kayan Petrochemicals, of which SABIC owns 35%, started in October 2011 and is

expected to further boost SABIC output when it is consolidated at the end of the year. Saudi Kayan’s Jubail

Petrochemicals Complex is expected to be fully operational in Q1 2013 with annual capacity of nearly 6mtpa2.

The company announced interim dividend of SAR 2/share, which amounts to nearly 40% of 1H11 earnings.

The company is expected to increase its dividend in 2H11, implying an attractive dividend yield of close to 5%. The stock is trading at 10x earnings and is down 10% YTD versus 5.3% fall in Tadawul index indicating

that market participants are pricing in slackening demand and lower prices. The stock has generated positive

returns over 2Y (+18%), 3Y (+62%) and 5Y (+5%) periods. We rate the stock as carrying Medium risk given that it carries a standard deviation of 23% and a max drawdown of 17% over the year.

Our Expectation

We expect SABIC to end 2011 with USD 8.5bn in earnings, on the back of expected contribution from Saudi

Kayan. Brokers expect SABIC’s FY12 net income to be between USD 7.95bn and 8.64bn but we expect USD 8.5bn in earnings given lower demand from Asia. The key risk will be softening of commodity prices.

1 As of 28th November 2011 2 Million Tonnes per annum

Sto

ck

Vo

lati

lity

Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -58% -11% -37% -21% -13% -12%

2007 89% -23% -2% 5% 2%

2008 -69% -29% -14% -13%

2009

60% 43% 23%

2010

27% 7%

2011

-10%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Total Revenue 23,024 33,659 40,221 27,498 40,530 50,298 58,648

Cost of Sales 13,628 20,870 28,016 19,865 27,583 32,660 40,086

Total Operating Expense 14,786 22,712 30,462 22,483 30,424 35,931 44,591

Net Income 5,412 7,207 5,875 2,420 5,742 8,496 8,616

Balance Sheet

Cash 10,550 12,235 13,609 15,254 13,508 15,683 16,953

Total Assets 44,429 67,670 72,478 79,173 84,699 91,559 98,060

Total Current Liabilities 6,652 8,983 7,089 8,580 11,816 14,522 17,412

Total Liabilities 24,991 43,359 45,026 50,301 52,486 55,583 58,306

Long Term Loans 8,964 20,119 23,568 26,813 25,029 30,010 43,485

Total Shareholder's Equity 19,438 24,311 27,452 28,872 32,213 35,976 39,754

Analytics

Return on Equity (%) 27.84 29.64 21.40 8.38 17.82 23.62 21.67

Return on Assets (%) 12.18 10.65 8.11 3.06 6.78 9.28 8.79

Revenue Growth (%) 10.32 46.19 19.50 -31.63 47.39 24.10 16.60

Earnings Growth (%) 5.92 33.15 -18.48 -58.81 137.26 47.97 7.04

Assets Growth (%) 21.64 52.31 7.11 9.24 6.98 8.10 7.10

Equity Growth (%) 16.91 25.07 12.92 5.17 11.57 11.68 10.50

Historical EV (USD Mn) 68,579 135,751 51,135 77,550 95,321 88,725

P/E 12.97 18.36 7.02 27.32 14.59 9.74

Price/Book 3.61 5.44 1.50 2.29 2.60 2.07

EPS (USD) 1.80 2.40 1.96 0.81 1.91 2.83

BVPS (USD) 6.48 8.10 9.15 9.62 10.74 11.99

DPS (USD) 0.89 0.22 0.80 0.40 0.93

Market Price (SAR) 88 165 52 83 105 93

Annual Trading Volume (mn) 1,416 703 1,660 2,443 1,054 1,403

Annual Trading Value (USD mn) 61,183 20,909 46,579 38,180 26,198 37,120

Turnover Velocity 51% 21% 55% 71% 35% 35%

M Cap (USD mn) 70,165 127,867 41,177 65,991 83,800 74,398

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats Average Monthly Return -2.00% 0.46% 0.82% 0.50% 0.41%

Highest Monthly Return 5.94% 12.87% 12.87% 36.55% 36.55%

Lowest Monthly Return -10.46% -10.46% -15.24% -32.07% -32.07%

Largest Losing Streak (# of Months) 4 4 4 4 5

% of Negative Months 67% 50% 83% 44% 47%

Maximum Drawdown* -17% -17% -17% -17% -78%

Standard Deviation 18.72% 23.34% 22.80% 44.97% 42.30%

%Change in MVX -25% -28% -48% -84% -56%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Al Rajhi Bank Code: 1120.SE | Country: Saudi Arabia | Current MP: SAR 67.253 | YTD Performance: -17.5% Mcap: USD26.9Bn | Ann. St. Dev: 14% | YTD Turnover Velocity: 15%

Background

Al Rajhi Bank is the largest lender in the Kingdom with a financing book worth USD 37.3 bn as of 3Q11. Al Rajhi offers a wide range of commercial banking and investment services complying with Islamic law.

Ownership is stable with AlRajhi family owning 39.9%. Apart from 466 branches in the Kingdom, the bank operates 19 branches in Malaysia, 2 in Jordan and 1 in Kuwait. Strong retail presence, access to low cost

funds and cost efficiency are the main reasons for Al Rajhi’s high RoE and NIMs.

Analysis: 3Q results showed a flat performance for Islamic Banking Activities with financing income

declining 3.6% YoY while being almost flat over the quarter. 9M11 Income from Islamic Banking was at USD 1.8bn, down 2.5% YoY. Other income (Investment, Fees & Commissions, ForEx) had a better showing,

growing 28% YoY to USD 710mn in 9M11. In 3Q11, fee income grew 84% YoY and 22% QoQ to USD 177mn. While provisioning costs grew 18% QoQ to USD 109mn, YTD provisions were down 19% to USD

295mn as banks have begun easing up on the hyper-prudential provisioning of the last three years.

Financing activities were up 16% YoY at September 2011 while Deposits surged 20% in the same period.

The bank maintains a healthy Tier 1 ratio of 14.9% and Total Capital ratio of 19.1% at the end of third quarter. Consequently, 3Q11 net income came in at USD 516mn, an 18% increase YoY (+5% QoQ) while

for 9M11 net income was at USD 1,461mn, a 7% increase. Based on these results, we would expect full year net income to amount to USD 1,833mn which would amount to a 2% annual growth.

The bank announced a half year dividend of SAR 1.25/share, which would amount to over half of 1H11’s bottom line. The bank is a good dividend play; 2010 Dividend yield was at 4.6% and is expected to hold at

the same level for 2011.

The stock is trading at 15x earnings and 3.3x tangible book value while exhibiting Medium volatility with

standard deviation of about 14% (ann.). The stock’s MVX value (Markaz Volatility Index) has increased 36% during the last one year. The stock has generated negative returns over 2Y (-4%) and 5Y (-16%) periods

but is up 15% over the last 3 years.

Our Expectation

We expect 2012 to be a profitable year for Saudi banks in general as provisions continue declining, thereby freeing up the bottom line. Spreads may become squeezed as interest rates remain low while high yield

deposits begin increasing (a trend witnessed among Saudi banks recently), but Al Rajhi should be able to sustain a wide margin, thereby boosting top line growth. Brokers expect FY12 net income to be between

USD 2.1bn and USD 2.4bn. We expect a net profit of USD 2.2bn backed by stronger profit from Islamic banking, lower provisioning and healthy financing growth.

3 As of 26th November 2011

Sto

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Vo

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -47% -15% -30% -19% -13% -13%

2007 35% -20% -6% -1% -5%

2008 -52% -22% -11% -13%

2009

27% 22% 7%

2010

16% -2%

2011

-17%

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Financial Analysis

Income Statement 2006 2007 2008 2009 2010 2011E 2012E

(USD mn)

Profit from Islamic Banking 2,047 2,289 2,513 2,647 2,491 2,273 2,812

Operating Income 711 427 555 574 680 847 850

Operating Expenses 521 648 753 794 795 856 1,074

Provisions 67 118 327 470 509 381 282

Net Profit 1,947 1,720 1,741 1,805 1,806 1,833 2,243

Balance Sheet

Cash 2,888 3,762 3,832 6,952 8,260

Loans 24,066 28,162 37,983 30,280 32,417 38,285 43,683

Deposits 20,243 24,732 31,991 33,173 38,627 46,044 53,042

Total Assets 28,406 33,719 44,111 46,097 49,907 59,618 68,024

Total Liabilities 22,958 27,346 36,812 38,337 41,721

Total Shareholder's Equity 5,448 6,374 7,299 7,760 8,186 8,738 9,328

Key Ratios Financing Growth (%) 11.5% 17.0% 34.9% -20.3% 7.1% 18.1% 14.1%

Deposits Growth (%) 5.0% 22.2% 29.4% 3.7% 16.4% 19.2% 15.2%

Loan/Deposits (%) 118.9% 113.9% 118.7% 91.3% 83.9% 83.1% 82.4%

Return on Assets (%) 6.9% 5.1% 3.9% 3.9% 3.6% 3.1% 3.3%

Return on Equity (%) 35.7% 27.0% 23.8% 23.3% 22.1% 21.0% 24.0%

Earnings Growth (%) 29.6% -11.7% 1.2% 3.7% 0.1% 1.5% 22.3%

Revenue Growth (%) 25.3% -1.5% 13.0% 5.0% -1.5% -1.6% 17.4%

Cost-to-Income (%) 18.9% 23.8% 24.5% 24.7% 25.1% 27.4% 29.3%

P/E 16.05 24.53 12.87 15.80 18.40 15.12 Price/Book 5.74 6.62 3.07 3.67 4.06 3.17 BVPS (USD) 4.04 4.72 4.87 5.17 5.46 5.83 Market Price (SAR) 86.85 117.23 56.00 71.25 83.00 69.30 EPS (USD) 1.44 1.27 1.16 1.20 1.20 1.22 Annual Trading Volume (mn) 341 484.6 566.1 466.6 305.0 232.5 Annual Trading Value (USD mn) 37,679 14,483 12,848 8,139 6,374 4,713 Turnover Velocity 84% 39% 40% 32% 21% 15% M Cap (USD mn) 31,270 42,208 22,403 28,504 33,204 27,723 Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats

Average Monthly Return -1.91% -0.99% -0.20% 0.00% -0.47%

Highest Monthly Return -0.72% 6.75% 13.25% 37.20% 37.20%

Lowest Monthly Return -3.13% -8.13% -8.13% -17.92% -32.32%

Largest Losing Streak (# of Months) 6 6 6 6 6

% of Negative Months 100% 75% 63% 61% 60%

Maximum Drawdown* -10% -17% -19% -45% -65%

Standard Deviation 3.31% 13.88% 17.15% 31.86% 41.39%

%Change in MVX -26% 36% -43% -84% -69%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Qatar National Bank Code: QNBK.QA | Country: Qatar | Current MP: QAR 142.44 | YTD Performance: 12.4% Mcap: USD24.88Bn | Ann. St. Dev: 24% | YTD Turnover Velocity: 7%

Background Qatar National Bank (QNB) was established in 1964 and is the largest lender with loans of USD 46.1bn as of

September 2011. Currently QNB employs over 1,300 personnel, serving 65 local branches and 9 international branches. QNB’s market share is close to 40% of Qatar’s banking sector assets. Its business

units include; full range retail banking, treasury, Wealth management, and corporate finance. The bank is

50% owned by the government of Qatar.

In October 2011, the group announced that it has entered into negotiation with DenizBank in Turkey with the aim of acquiring a controlling stake.

Analysis: 3Q11 net profit increased 31% YoY and 5% QoQ to USD 522mn. The strong numbers were as a

result of 63% YoY growth (+10.5% QoQ) in net interest income to USD 531mn partly offset by provisions, which more than doubled when compared to 3Q10. Loan loss provisions increased 20% sequentially to USD

69mn. Loan book increased 11.7% over the quarter to USD 46.1bn while deposits declined 0.5% to USD

53.6bn. Loans-to-deposit ratio is at 86%, giving the bank additional room to increase lending activity.

Results for the first nine months were impressive: loans jumped 36% while deposits surged 56%. During the period, the bank also took control of PT Bank Kesawan Tbk (Indonesia) by way of a 69.6% stake in for a

cash consideration of USD 108mn. 9M11 Net interest income was up 64% to USD 1,480mn as Interest

Income increased 31% to USD2.1bn while Interest expense was down 13%. Net interest margins saw a small decline from 2.89% in Sep-10 to 2.73% in Sep-11. Profit from Islamic Banking was not reported due

to a Qatar Central Bank directive requiring all commercial banks to divest themselves of any Islamic operations. Provisions doubled during the period, coming in at USD 175mn. Consequently, net profit came in

at USD 1,487mn, a 30% growth. NPL ratio stood at 1.1% with coverage of 124%.

The bank had a 25% Rights Issue in April of 2011, raising QAR 12.7 bn (USD 3.48bn) through 127mn

shares. The bank’s capital ratio has increased to 20.9% from 15.3% in 2010, giving it a high buffer against shocks. In September, QNB announced plans to develop a Euro Medium Term Note (EMTN) for USD 7.5bn

to fund the Bank’s normal operations.

The stock is trading at 13x and is up 12% for the year, bucking the market which is up by only 1%. The

stock has generated positive returns over 2Y (+78%), 3Y (+120%) and 5Y (+148%) periods. According to our Risk Metrics, the stock is of Low risk with an MVX value decline of 43% over the last year and only one

month of negative returns.

Our Expectation We expect QNB to report a net profit of USD 1,886mn in FY11 and USD 2,279mn in FY12, implying a growth

of 21% in both 2011 and 2012. Brokers estimate FY12 net income to be between USD 2,119mn and USD

2,806mn.

4 As of 25th September 2011

Sto

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Vo

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -19% -2% -2% 0% 11% 11%

2007 18% 8% 8% 20% 18%

2008 -2% 3% 20% 18%

2009

9% 33% 26%

2010

62% 35%

2011

12%

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Financials

Income Statement 2006 2007 2008 2009 2010 2011E 2012E

(USD mn)

Net Interest Income 463 530 778 1,023 1,558 2,090 2,505

Operating Income 741 952 1,397 1,553 2,088 2,610 3,083

Net Profit 548 688 1,002 1,149 1,566 1,886 2,279

Balance Sheet

(USD mn)

Cash 681 3,005 1,721 2,712 9,308

Loans 12,687 18,132 27,461 29,857 36,145 46,953 53,949

Deposits 15,312 21,782 28,613 34,547 45,415 54,498 62,673

Total Assets 19,669 31,387 41,711 49,219 61,310 75,411 90,493

Total Liabilities 17,352 27,584 37,143 43,789 54,657 67,761 82,078

Total Shareholder's Equity 2,317 3,803 4,568 5,429 6,652 7,650 8,415

Key Ratios

Loans Growth (%) 47% 43% 51% 9% 21.1% 29.9% 14.9%

Deposits Growth (%) 52.0% 42.3% 31.4% 20.7% 31.5% 20.0% 15.0%

Loan/Deposits (%) 82.9% 83.2% 96.0% 86.4% 79.6% 86.2% 86.1%

Return on Assets (%) 3.3% 2.7% 2.7% 2.5% 2.8% 2.8% 2.7%

Return on Equity (%) 23.3% 22.5% 23.9% 23.0% 25.9% 24.7% 27.1%

Earnings Growth (%) 30.0% 25.5% 45.6% 14.7% 36.2% 20.5% 20.8%

Revenue Growth (%) 23.5% 28.4% 46.8% 11.1% 34.5% 25.0% 18.1%

Cost-to-Income(%) 28.9% 25.9% 20.5% 19.6% 17.0% 14.8% 13.8%

P/E 15.12 9.95 11.03 8.76 10.88 12.91

Price/Book 5.53 2.09 2.46 1.86 1.84 3.18

Market Price (QAR) 119.29 74.16 104.54 93.78 113.88 150.30

EPS (USD) 2.17 2.04 2.60 2.94 2.87 3.20

Assets Growth (%) 43% 60% 33% 18% 25% 23%

Equity Growth (%) -3% 64% 20% 19% 23% 15%

Annual Trading Volume (mn) 22.9 38.6 46.8 18.0 1.8 53

Annual Trading Value (USD mn) 493 948 1,615 492 979 1,660

Turnover Velocity 6% 10% 15% 4% 6% 7%

M Cap (USD mn) 8,548 9,670 11,246 12,256 19,876 26,259

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats Average Monthly Return 1.79% 2.45% 2.43% 2.21% 1.83%

Highest Monthly Return 6.55% 8.65% 14.83% 30.56% 30.56%

Lowest Monthly Return 0.07% -17.41% -17.41% -34.39% -34.39%

Largest Losing Streak (# of Months) 0 1 1 2 4

% of Negative Months 0% 8% 13% 19% 32%

Maximum Drawdown* 0% -17% -17% -17% -17%

Standard Deviation 8.48% 24.43% 21.36% 40.49% 38.78%

%Change in MVX -62% -43% -69% -91% -61%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Emirates Telecom (Etisalat) Code: ETEL.AD | Country: UAE | Current MP: AED 9.75 | YTD Performance: -13.1% Mcap: USD21Bn | Ann. St. Dev: 14% | YTD Turnover Velocity: 3.78%

Background

Emirates Telecom (Etisalat) is one of two mobile operators mandated to operate in the UAE. The company is

over 60% owned by the government. Etisalat has a large regional/international presence, spanning 18 countries across two continents and serving 135mn subscribers. Etisalat’s 30-year monopoly was broken in

2005, when the Emirates Integrated Telecommunications Company (Du) won the license to become the second fixed-line and mobile operator in the country.

Analysis: Etisalat's 9M11 net profit declined 8.4% YoY despite a 3.3% increase in revenue. Revenues from UAE segment declined 0.8% during the nine month period. Strong competition from Du is denting Etisalat’s

revenue and squeezing margins. During 9M11, Etisalat’s UAE operations accounted for 75% of revenues, compared to 78% in 9M10. Etisalat’s active mobile market share slid to 54.8% at the end of October 2011,

versus 56.4% at the end of July 2011 and 59.8% at the end of December 20106. Du and Etisalat will be

sharing the fixed line network by as early as the end of 2011, which will further increase Du’s competitiveness in the segment.

Etisalat’s 3Q11 revenues grew 10% YoY and 1% QoQ to USD 2.2bn. Net income for the quarter came in at

USD 469mn (-1% YoY, +8% QoQ). The company suffered foreign exchange loss of USD 32mn in this quarter and there was also a 33% YoY increase in ‘other operating expenses’ line item which dented

margins. Based on these results, we expect 2011 full year net income to be USD 1.9bn, which would amount

to a 6% annual decrease. The firm’s attempted acquisition of a considerable stake in Kuwait’s Zain fell through during the year, but we would expect the firm to be on the lookout for attractive acquisition targets

in order to boost revenues through inorganic growth.

The stock is trading at 11x earnings and is down about 13% YTD versus 11% decline on the Abu Dhabi

Exchange. The stock has not shown large movements on either side over the medium / long term - 2Y (-3%), 3Y (+1%) and 5Y (-7%). The stock is of Low risk with an annualized standard deviation of 14% and a

70% decline in MVX from last year. The stock has a dividend payout of over 60% while the dividend yield was at 5.5% in 2010 and is expected to hold steady over the coming years. Large government ownership

(60%) and high institutional holding has resulted in low turnover velocity (3.8%) for the stock.

Our Expectation

Brokers expect FY12 net income to be between USD 1.8bn and USD 2.1bn. We expect a net profit of USD 2.05bn backed by a slight pickup in revenue and reduction in financing costs.

5 As of 24th November 2011 6 Du Investor Presentations

Sto

ck

Vo

lati

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -24% 7% -17% -6% -4% -5%

2007 50% -13% 1% 2% -1%

2008 -49% -17% -10% -11%

2009

34% 20% 8%

2010

7% -4%

2011

-13%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Net Revenue 4,434 5,809 7,992 8,392 8,691 8,259 8,509

Operating Profit 1,523 1,799 1,655 2,214 1,566 1,625 1,736

Net profit 1,581 1,829 2,178 2,336 2,022 1,891 2,048

Balance Sheet

Total Current Assets 3,801 3,512 4,752 5,332 5,257 5,265 5,760

Total Assets 12,496 14,276 17,126 19,429 20,580 21,229 22,322

Non-Current Liabilities 1,670 2,064 2,021 2,199 3,379 3,738 3,841

Total Liabilities 7,274 7,728 8,570 9,523 10,042 10,172 10,381

Total Shareholder's Equity 5,223 6,548 8,556 9,906 10,538 11,056 11,941

Analytics

Return on Equity (%) 30.3% 27.9% 25.5% 23.6% 19.2% 17.1% 17.2%

Return on Assets (%) 12.7% 12.8% 12.7% 12.0% 9.8% 8.9% 9.2%

Revenue Growth (%) 26.6% 31.0% 37.6% 5.0% 3.6% -5.0% 3.0%

Earnings Growth (%) 36.5% 15.7% 19.0% 7.3% -13.4% -6.5% 8.3%

Historical EV (USD Mn) 19,655 28,358 15,311 21,354 23,135 P/E 11.15 13.89 6.28 8.47 9.60 11.72

Price/Book 3.40 4.20 1.71 2.06 2.00 2.00 EPS (USD) 0.20 0.25 0.29 0.30 0.31 0.24 BVPS (USD) 0.66 0.83 1.08 1.25 1.46 1.40 Market Price (SR) 8.25 12.78 6.78 9.49 10.75 10.30 Assets Growth (%) 89% 14% 20% 13% 6% 3% Equity Growth (%) 22% 25% 31% 16% 6% 5%

Annual Trading Volume (mn) 389 542 615 279 259 298 Annual Trading Value (USD mn) 1,089 1,751 2,368 720 768 856 Turnover Velocity 5% 8% 11.25% 4.11% 3.53% 3.78% M Cap (USD mn) 17,754 27,503 14,591 20,423 23,135 22,174 Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats

Ave. Return 0.00% -0.28% -0.12% -0.23% 0.19%

Highest Return 6.80% 6.80% 8.33% 17.65% 22.95%

Lowest Return -6.82% -6.82% -12.82% -24.69% -24.69%

Largest Losing Streak (# of Months) 1 3 5 5 5

% of Negative Months 33% 50% 58% 53% 50%

Max. Drawdown* -7% -10% -12% -38% -55%

St. Dev. 14.95% 14.43% 18.20% 27.46% 27.54%

%Change in MVX -54% -70% -70% -91% -45%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Industries Qatar (IQCD) Code: IQCD.QA | Country: Qatar | Current MP: QAR 132.27 | YTD Performance: -3.3% Mcap: USD20Bn | Ann. St. Dev: 25% | YTD Turnover Velocity: 13%

Background Industries Qatar (IQCD) was established in 2003, the main objective of the company is to act as a holding

company, for different industrial corporations, including Qatar Steel Company (QATAR STEEL), which

manufactures steel billets and reinforcing bars; Qatar Petrochemical Company Limited (QAPCO), which manufactures and markets ethylene, polyethylene, hexane and other petrochemical products; Qatofin

Company Limited (QATOFIN), which is a producer of linear low-density polyethylene; Qatar Fertilizer Company (QAFCO), which manufactures and markets ammonia and urea; Qatar Fuel Additives Company

Limited (QAFAC), which is engaged in the production and export of methyl tertiary-butyl-ether and

methanol, and Fereej Real Estate Company, which is engaged in real estate investment, property management and rental activities8. The company is 70% owned by Qatar Petroleum.

Analysis: IQCD’s 3Q11 revenue of USD 1.2bn was a 44% increase YoY and 5% increase over the quarter.

Net Income of USD 569mn was up 46% YoY but flat on a QoQ basis.

In August 2011, Qatar Steel Company put on hold two planned steel plants, in the industrial city of

Mesaieed, worth USD 2.2b due to problems securing natural gas for the projects.

2011 was a good year for industrial/petrochemical firms as crude oil prices and those of other commodities saw a rally, specifically in the first quarter amid the political unrest in the region. Industries Qatar benefited

from the same, with 9M11 revenues growing 46% to USD 3.4bn while net profit was up 54% to USD 1.7bn.

Like all regional industrial firms, IQCD has a distinct advantage in the cost arena, with cheap feedstock, in this case Natural Gas, providing the company with a comfortable buffer in case of any decline in prices.

IQCD’s steel business will benefit from large public spending in Qatar and Saudi Arabia. Moreover, the company’s diversified businesses and broad range of products confines exposure to a single commodity. We

expect IQCD to deliver USD 2.2bn in FY11 earnings, implying a 45% growth over FY10.

The stock is trading at 9x earnings and is down 3% YTD versus the Qatar index which has shed about 1%.

The stock has generated positive returns over 2Y (+17%), 3Y (+67%) and 5Y (+97%) periods. As earnings have come back, the company is expected to post a higher dividend yield of around 6% in 2011 versus

around 4% in 2010. The stock, in our view, is also Medium risk with an annualized standard deviation of 25% for the last year and a max drawdown of 16% over the last year.

Our Expectation Broker estimates for FY12 net income are in the range of USD 2.3bn to USD 2.6bn but we expect the

company to do USD 3.1bn in earnings in 2012 on the back of increased revenues.

7 As of 29th November 2011 8 Excerpt from Reuters

Sto

ck

Vo

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -44% 1% -10% -4% 0% 0%

2007 82% 14% 14% 16% 12%

2008 -28% -10% 0% -1%

2009

14% 17% 10%

2010

21% 8%

2011

-3%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Total Revenue 2,135 2,560 4,046 2,705 3,384 4,403 5,513

Cost of Sales 1,123 1,206 2,034 1,575 1,757 1,940 2,194

Total Operating Expense 1,237 1,331 2,197 1,780 1,969 2,207 2,499

Net Income 993 1,368 1,997 1,361 1,530 2,223 3,090

Balance Sheet

Cash 1,270 1,694 2,592 1,644 1,452 1,841 2,132

Total Assets 4,084 5,528 7,534 7,529 8,757 10,167 11,713

Total Current Liabilities 460 1,056 1,389 563 934 883 931

Total Liabilities 1,045 1,777 2,527 2,299 2,788 2,953 3,124

Long Term Loans 538 647 925 1,610 1,679 1,474 1,556

Total Shareholder's Equity 3,039 3,751 5,007 5,230 5,969 7,214 8,589

Analytics

Return on Equity (%) 32.69 36.46 39.88 26.02 25.64 30.82 35.98

Return on Assets (%) 24.32 24.74 26.51 18.08 17.47 21.87 26.38

Revenue Growth (%) 18.24 19.90 58.09 -33.14 25.10 30.10 25.20

Earnings Growth (%) 12.62 37.69 46.00 -31.85 12.44 45.29 39.00

Assets Growth (%) 23.10 35.36 36.28 -0.07 16.32 16.10 15.20

Equity Growth (%) 18.37 23.44 33.48 4.46 14.13 20.86 19.05

Historical EV (USD Mn) 10,848 20,127 13,528 17,204 21,076 19,603

P/E 10.61 14.04 7.61 12.67 13.61 9.37

Price/Book 3.82 5.63 3.04 3.30 3.49 2.77

EPS (USD) 1.99 2.74 3.63 2.48 2.78 4.04

BVPS (USD) 5.53 6.82 9.10 9.51 10.85 13.12

DPS (USD) 1.25 1.00 2.20 1.37 1.51

Market Price (QAR) 77 140 101 114 138 132

Annual Trading Volume (mn) 62 88 124 117 74 73

Annual Trading Value (USD mn) 1,596 2,610 4,524 3,116 2,277 2,685

Turnover Velocity 10% 16% 25% 19% 12% 13%

M Cap (USD mn) 11,579 21,173 15,196 17,238 20,849 19,970

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats Average Monthly Return -1.51% 1.32% 0.52% 0.46% 1.57%

Highest Monthly Return 7.36% 10.61% 10.61% 32.18% 36.31%

Lowest Monthly Return -11.06% -11.06% -14.26% -28.35% -28.35%

Largest Losing Streak (# of Months) 2 2 3 3 4

% of Negative Months 67% 42% 46% 47% 47%

Maximum Drawdown* -16% -16% -16% -16% -67%

Standard Deviation 22.30% 24.67% 23.24% 45.46% 45.50%

%Change in MVX 7% 24% -41% -78% -18%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Saudi Telecom Code: 7010.SE | Country: Saudi Arabia | Current MP: SAR33.49 | YTD Performance: -21.6% Mcap: USD17.8Bn | Ann. St. Dev: 16% | YTD Turnover Velocity: 16%

Background

Saudi Telecom (STC), formed in 1998, has global presence in 10 countries spanning three continents with a total of 139m mobile and fixed line customers (2010 year end). STC was the only operator in Saudi Arabia

until the monopoly was broken by mobile operator Etihad Etisalat in 2005. Saudi Telecom accounts for about 46% of the local mobile market of around 54 million subscribers, representing a penetration rate of 195%10.

Major shareholders include the Public Investment Fund (70%), General Organization for Social Insurance

(6.9%).

Analysis: STC’s 3Q11 earnings, at USD 422mn (-52% YoY and -30% QoQ) was affected mainly by a USD 211mn foreign exchange loss and USD 36mn one-time cost. Revenues grew 6% YoY and 1% sequentially to

USD 3.8bn. Mobile broadband revenue increased 151% YoY led by higher usage and higher customer additions.

9M11 results were negative for the operator. 9M11 revenues were up 7% YoY to USD 11bn. About 34% of

the Group’s revenue comes from International markets which have taken on increasing importance for the

operator given intensifying local competition from Zain Saudi and Mobily. Consequently, in April 2011, STC increased its stake in PT Axis Telekom Indonesia (formerly NTS – Axis) to 80.1% from 51% leading to its full

consolidation into STC’s financials, thereby boosting revenue. Net Income in 9M11 was down 25% to USD 1,443mn, due mainly to the aforementioned FX losses and one-time costs.

STC is trading at about 9x and with a YTD decline of 22% is severely underperforming the broad index loss

of 5.3%. The stock has generated negative returns over 2Y (-24%), 3Y (-32%) and 5Y (-61%) periods.

However, the stock is trading at a lower valuation than other Blue Chips, and makes a good value play. Risk – as measured by the MVX – has been declining for the stock from the second quarter following market

swings in 1Q11. MVX-STC fell by half in 3Q and is down 63% over the last one year. STC, like most regional telecoms, constitutes a good dividend play for investors. The operator’s dividend yield averages between

6%-8% p.a., about 2% higher than its nearest competitor ‘Mobily’. The yield registered 8.5% in 2010 and is expected to come down to about 6% in 2011 before increasing to about 7% in 2012. Top line growth has

been slowing over the years; down to 7% and 2%, respectively, in 2009 and 2010, but has been showing

some resumption recently, fueled mainly by Broadband and Value Added Services. Despite solid revenue growth, volatility in “other” income, foreign exchange losses and increasing Finance Costs have dented

bottom line figures, with net income expected to decline about 25% in 2011 after a decline of 13% in 2010.

Our Expectation

We expect STC to report FY11 net income of USD 2.02bn and FY12 net income of USD 2.24mn. Broker estimates for FY12 net income range between USD 2.04bn and USD 2.34bn.

9 As of 06th December 2011 10 Communications and Information Technology Commission – Saudi Arabia, 1H11 report

Sto

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -40% -22% -29% -25% -21% -21%

2007 1% -23% -19% -15% -17%

2008 -41% -27% -20% -21%

2009

-10% -7% -12%

2010

-3% -13%

2011

-22%

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Financial Metrics

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Wireless Revenue 6,494 6,795 7,546 8,157 8,577 8,394 9,131

Fixed Line 2,626 2,509 5,266 5,554 5,405 5,620 5,159

Gross Revenue 9,120 9,304 12,812 13,711 13,982 14,014 14,291

Net profit 3,413 3,207 2,942 2,897 2,518 2,017 2,236

Balance Sheet

Cash 786 2,057 2,177 2,082 1,594

Total Assets 12,453 18,579 26,936 29,589 29,891 30,489 32,014

Total Current Liabilities 2,571 4,649 6,183 7,922 7,193

Long Term Loans - 3,515 7,582 6,132 5,869

Total Shareholder's Equity 9,222 9,687 10,162 11,349 12,150 12,879 13,522

Analytics

Return on Equity (%) 37.01 33.10 28.95 25.53 20.72 15.67 16.53

Return on Assets (%) 27.41 17.26 10.92 9.79 8.42 6.62 6.98

Revenue Growth (%) 3.81 2.01 37.71 7.01 1.98 0.23 1.97

Earnings Growth (%) 2.83 -6.05 -8.26 -1.52 -13.10 -19.87 10.82

Assets Growth (%) 3% 49% 45% 10% 1% 2% 5%

Equity Growth (%) 4% 5% 5% 12% 7% 6% 5%

Historical EV (USD Mn) 34,559 41,445 31,356 29,655 28,592

P/E 10.00 11.69 7.98 8.02 8.92 8.83

Price/Book 3.75 3.92 2.34 2.07 1.87 1.38

EPS (USD) 1.73 1.62 1.49 1.47 1.27 1.01

BVPS (USD) 4.61 4.84 5.08 5.67 6.07 6.44

DPS 1.73 1.62 1.49 1.47 1.27

Market Price (SR) 64.79 71.11 44.57 44.10 42.60 33.40

Annual Trading Volume (mn) 966 409 395 202 223 208

Annual Trading Value (USD mn) 38,589 7,589 7,103 2,534 2,426 3,336

Turnover Velocity 86% 21% 23% 11% 10% 16%

M Cap (USD mn) 34,559 37,930 23,774 23,523 22,723 17,816

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats Average Monthly Return -2.01% -0.98% -1.45% -1.37% -1.40%

Highest Monthly Return 3.31% 6.23% 7.22% 23.56% 23.56%

Lowest Monthly Return -5.71% -8.69% -15.80% -24.20% -24.20%

Largest Losing Streak (# of Months) 4 4 4 4 4

% of Negative Months 83% 58% 54% 56% 58%

Maximum Drawdown* -9% -20% -28% -44% -63%

Standard Deviation 10.52% 15.50% 19.74% 29.96% 30.40%

%Change in MVX -78% -63% -81% -91% -82%

*Largest decline from a previous high Source: Reuters, Markaz Research

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National Bank of Kuwait Code: NBKK.KW | Country: Kuwait | Current MP: KWD 1.1411 | YTD Performance: -12.9% Mcap: USD16Bn | Ann. St. Dev: 23% | YTD Turnover Velocity: 12%

Background National Bank of Kuwait (NBK), established in 1952, is the state’s largest lender with loans amounting to

USD 28.7bn at the end of September 2011. Apart from operating 70 branches in Kuwait, the bank’s

international network now comprises more than 175 branches, subsidiaries and representative offices in 17 countries, of which 10 are in the Middle East.

NBK offers a wide array of products including, retail banking, corporate banking, wealth management,

structured and trade Finance. Moreover, NBK has a dedicated investment center – NBK Capital, which offers portfolio management, fund management and brokerage services.

Analysis: The Bank reported a mixed set of numbers in 3Q with net income coming in at USD 286mn, an increase of 20% over 2Q11 but a decline of 0.5% over 3Q10. The bank booked increased provisions this

quarter which dragged earnings. NPL ratio improved slightly from 1.61% in 2Q11 (and 3Q10) to 1.59% in 3Q11.

In 9M11, net interest income was up 6% to USD 1,029mn as interest expense declined by 14% while interest income was flat at USD 1,325mn. Provisions were up nearly 5x to USD 126mn from just USD 26mn

in the same period of the previous year, but only amounting to 0.45% of loans. Fee and commissions growth was also muted, at just 3% over 9M10. Net profit was flat at USD 896mn. Loans grew at 2% for the

period to USD 28.7bn while deposits showed 4% growth to USD 23.4bn. Based on these results, we expect 2011 full year net income to be USD 1,071mn, a 2% annual decline.

In 2Q11, Fitch Ratings has assigned National Bank of Kuwait (International) plc, a subsidiary of NBK, a long-term Issuer Default Rating (IDR) of 'AA-', short-term IDR of 'F1+' and support rating of '1' , with a stable

outlook.

The stock is down 13% YTD and trading at 14x, which is significantly cheaper than its peers in the market

which are trading in the 26x-35x range. The stock has generated positive returns over 2Y (+34%) and 3Y (+5%) but is down 3% over the last 5 years. We find the stock to be of High risk; with an annualized

standard deviation of 23% and a max drawdown of 19% over the last year.

Our Expectation

Brokers expect FY12 net income to be between USD 1.25bn and USD 1.44bn. We expect a net profit of USD 1.24bn backed by lower provisioning and healthier top line growth.

11 As of 29th November 2011

Sto

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Vo

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 13% 11% -8% -5% 4% 1%

2007 9% -17% -10% 2% -1%

2008 -37% -19% 0% -4%

2009

4% 25% 11%

2010

51% 15%

2011

-13%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Interest Income 1,732 2,204 2,480 1,981 1,746 1,701 1,912

Net Interest Income 948 1,027 1,329 1,365 1,300 1,313 1,458

Loan Loss Provision 112 86 293 136 43 168 99

Net Income 917 991 925 961 1,093 1,071 1,242

Balance Sheet

Cash 3,064 6,442 5,068 5,877 4,246 4,398 4,556

Loans/Advances 15,615 21,449 25,199 28,321 28,453 29,050 30,096

Deposits 15,863 20,709 20,090 23,913 23,134 23,492 24,561

Total Assets 28,615 41,807 43,379 46,763 46,733 48,338 50,079

Total Liabilities 24,776 35,699 37,736 40,150 38,698 38,689 39,937

Total Shareholder's Equity 3,839 6,108 5,643 6,613 8,035 9,649 10,142

Analytics

Loans Growth (%) 28.13 37.37 17.48 12.39 0.46 2.10 3.60

Deposits Growth (%) 10.67 30.55 -2.99 19.03 -3.26 1.55 4.55

Loan/Deposits (%) 98.43 103.57 125.43 118.44 122.99 123.66 122.53

Return on Equity (%) 23.90 16.23 16.39 14.53 13.60 11.10 12.25

Return on Assets (%) 3.21 2.37 2.13 2.05 2.34 2.22 2.48

Revenue Growth (%) 44.42 27.22 12.52 -20.12 -11.86 -2.60 12.45

Earnings Growth (%) 23.15 8.03 -6.67 3.88 13.75 -1.99 15.96

Assets Growth (%) 27.38 46.10 3.76 7.80 -0.06 3.44 3.60

Equity Growth (%) 37.72 59.08 -7.61 17.19 21.50 20.10 5.10

Cost-to-Income (%) 25.02 26.65 31.25 38.20 33.53 29.64 29.03

P/E 13.44 14.68 10.41 10.86 16.36 14.25

Price/Book 3.42 2.56 1.69 1.69 2.33 1.68

EPS (USD) 0.33 0.33 0.29 0.29 0.29 0.27

BVPS (USD) 1.28 1.87 1.79 1.87 2.04 2.46

DPS (USD) 0.18 0.22 0.14 0.11 0.14

Market Price (KWD) 1210 1321 832 869 1309 1140

Annual Trading Volume (mn) 302 837 1,203 1,569 810 496

Annual Trading Value (USD mn) 1,243 3,929 5,376 4,942 3,180 2,127

Turnover Velocity 9% 24% 36% 43% 21% 12%

M Cap (USD mn) 14,709 18,523 11,558 11,612 18,425 16,008

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats Average Monthly Return -1.05% -1.36% 0.55% -0.08% 0.11%

Highest Monthly Return 10.53% 12.50% 20.75% 20.75% 20.75%

Lowest Monthly Return -6.90% -10.43% -10.43% -27.16% -27.16%

Largest Losing Streak (# of Months) 4 4 4 4 4

% of Negative Months 67% 67% 50% 47% 45%

Maximum Drawdown* -16% -19% -19% -19% -52%

Standard Deviation 21.29% 23.18% 27.18% 31.74% 26.91%

%Change in MVX -33% -24% -9% -60% -6%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Saudi Electricity Company Code: 5110.SE | Country: Saudi Arabia | Current MP: SAR 13.512 | YTD Performance: -2.9% Mcap: USD14.9Bn | Ann. St. Dev: 11% | YTD Turnover Velocity: 19%

Background Saudi Electricity Company (SEC) is the sole power generator in Saudi Arabia. The firm operates through

several subsidiaries in the power generation and distribution segment and is 74.3% owned by the

government and 6.9% owned by Saudi Aramco.

At the end of 2010, SEC owned 729 power generation units installed in 71 power stations with actual capacity of 40,697 MW. The company has an USD 80bn investment plan to increase its power generation

capacity by 30,000 MW by 2018.

Analysis: SEC made a net profit of USD 580mn for 3Q11, compared with USD 618mn in the same period a

year earlier. The decline in earnings is due to increase in depreciation expenses as well as purchased energy. On a quarterly basis net income is up 63%. Total revenue increased 5.4% YoY and 19% over the

quarter to USD 2.65bn.

9M11 Electricity sales revenue was up 10% to USD 5.85bn due to increase in tariff for industrial, commercial

and government customers. Operating expenses were up 10%. Net profit was up 5% to USD 730mn, comprised of USD 578mn in 3Q11, USD 356mn in 2Q11 and a net loss of USD 206mn in 1Q11. The second

and third quarters of the year are the most profitable for the firm due to higher seasonal demand during the summer months in addition to the Hajj season. Based on the results, we would expect full year net income

to amount to USD 868mn which is a 43% annual increase.

The stock is trading at 17x earnings and is down 3% for the year. The stock has generated positive returns

over 2Y (+26%), 3Y (+46%) and 5Y (+2%) periods. The company has a high dividend yield of 5.2%. We see the stock as being Low risk given an annualized standard deviation of 11% and a max drawdown of 8%

in the one year period; moreover, the stock’s MVX value has declined 60% in the last year.

Our Expectation

Brokers expect FY12 net income to be between USD 895mn and USD 911mn. We expect a net profit of USD 896mn backed by stable revenue growth.

12 As of 05th December 2011

Sto

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Vo

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -54% -28% -32% -21% -14% -12%

2007 13% -16% -5% 1% 1%

2008 -38% -13% -2% -2%

2009

22% 23% 14%

2010

24% 10%

2011

-3%

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Financials All Figures in USD Mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Electricity Sales 4,875 5,189 5,506 5,876 6,898 7,305 7,681

Gross Revenues 5,254 5,594 5,943 6,359 7,428 7,856 8,266

Total Operating Expenses 4,946 5,259 5,739 6,150 6,946 7,082 7,450

Operating Profit 308 335 204 209 481 774 816

Net profit 377 414 294 305 608 868 896

Balance Sheet

Total Current Assets 5,604 7,247 6,668 5,944 7,075

Total Assets 33,916 36,359 38,762 44,415 50,890 55,165 60,902

Non-Current Liabilities 7,675 9,309 9,890 12,422 14,867

Total Liabilities 21,351 23,563 25,817 31,371 37,384 41,066 45,111

Analytics

ROE % 3.0% 3.2% 2.3% 2.3% 4.5% 6.2% 6.2%

ROA % 1.1% 1.1% 0.8% 0.7% 1.2% 1.6% 1.5%

Asset Growth (%) 8% 7% 7% 15% 15% 8% 10%

Equity Growth (%) 2% 2% 1% 1% 4% 4% 4%

Revenue Growth % 5.0% 6.5% 6.2% 7.0% 16.8% 5.9% 5.2%

Net Profit Growth % -4.7% 9.8% -28.9% 3.5% 99.5% 42.9% 3.2%

Hist EV (USD Mn) 20,828 21,394 15,498 18,216 23,425

P/E (LFY) 38.24 39.86 34.26 41.67 25.55 16.61

P/B (LFI) 1.15 1.28 0.79 0.96 1.16 1.07

EPS (USD) 0.09 0.10 0.07 0.07 0.15 0.22

Book Value per share (USD) 3.02 3.07 3.11 3.13 3.24 3.37

DPS 0.03 0.03 0.03 0.19 0.19

Market Price (SAR) 13.00 14.75 9.25 11.25 14.05 13.50

Market Cap. (USD Mn) 14,442 16,386 10,276 12,498 15,608 14,944

Traded Volume (Mn) 7,922 2,205 1,527 564 1,023 840

Traded Value (USD Mn) 54,569 7,878 5,545 1,517 3,590 2,832

Turnover Velocity % 234% 51% 42% 13% 26% 19%

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats

Average Monthly Return -0.65% -0.73% 1.31% 0.84% -0.39%

Highest Monthly Return 2.31% 4.14% 18.69% 18.69% 18.69%

Lowest Monthly Return -3.18% -6.51% -9.96% -9.96% -21.74%

Largest Losing Streak (# of Months) 3 3 3 3 9

% of Negative Months 50% 50% 42% 44% 52%

Maximum Drawdown* -8% -8% -11% -11% -46%

Standard Deviation 8.63% 10.79% 21.39% 19.58% 23.15%

%Change in MVX -63% -60% -62% -83% -79%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Zain Group Code: ZAIN.KW | Country: Kuwait | Current MP: KWD 0.9113 | YTD Performance: -40.8% Mcap: USD14.2Bn | Ann. St. Dev: 19% | YTD Turnover Velocity: 11%

Background Zain Group was established in 1985 and was the first telecommunication company in the GCC. Zain started

its robust expansion in the MENA region, with operations in 6 ME countries and 13 African counties including Sudan. In 2010, Zain sold the majority of its African assets to focus on regional expansion. In 2010, Zain

booked a one-time gain of USD 2.7bn from sale of African assets to India’s Bharti Airtel for USD 10.7bn.

Kuwait Investment Authority (KIA) holds 24.61% of the firm while Al Khair National for Stocks & Real Estate Co. holds 12.67%.

Analysis: 3Q11 revenues were USD 1.2bn, down 2.6% YoY and 1.9% QoQ. Net income dropped 2.3% YoY

but increased 11.7% sequentially to USD 284mn.

Like most telecoms in the region, 9M11 results disappointed. Revenues were down 2% due to intensifying

competition. Net income showed a decline of 78% due to the booking of USD 2.7bn in extraordinary income in 2Q10. Excluding this gain, net income fell by 10% in 9M11. Zain’s FX losses totaled USD 100mn in the

first nine months of 2011. ARPUs continue to decline given the competition from Wataniya and Viva. The company added 6.1mn customers over the year and total active customer base as at September 2011 is

41.4mn. Based on these results, we expect Zain to end 2011 with a total net income of USD 1,099mn, which would be a 23% decline over adjusted FY 2010 net income.

Zain has been prominent in the news over the last couple of years due to high level strategic divestments, including the aforementioned African asset sale, in addition to a proposed sale of 46% of the company to

UAE telecom operator Etisalat for a proposed USD12bn. After months of negotiation and due diligence, Etisalat walked away from the deal at the beginning of the year citing regulatory issues and poor market

conditions. In September, Kingdom Holding Batelco Consortium scrapped their joint USD 950mn bid to buy 25% in Zain KSA as terms for the deal could not be met. Recently the Kharafi Group has reportedly said that

it will stick with its holding as the firm embarks on expansion plans.

Given the news and speculation on the company, it’s not a shock that the stock has been battered by

investors, losing 41% for the year and trading at 13x earnings. The stock has generated negative returns over 2Y (-12%), 3Y (-20%) and 5Y (-17%) periods. Moreover, according to our risk metrics, the stock is

highly volatile, with an annualized standard deviation of 19% and a max drawdown of 38% over the last

year.

Our Expectation Brokers expect Zain’s FY12 net income to be between USD 1.12bn to USD 1.55bn. We expect a net profit of

USD 1.11bn for FY12.

13 As of 30th November 2011

Sto

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Vo

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 8% 37% -7% -1% 8% -3%

2007 73% -14% -4% 7% -5%

2008 -57% -28% -8% -18%

2009

21% 35% 2%

2010

49% -7%

2011

-42%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Total Revenue 4,701 6,077 7,257 4,576 4,897 4,657 4,750

Cost of Revenue 995 1,381 2,069 1,179 1,286 1,260 1,293

Total Operating Expense 3,254 4,440 5,878 3,004 3,269 3,158 3,315

Net Income 1,069 1,161 1,167 707 3,851 1,099 1,111

Balance Sheet

Cash 1,347 537 1,333 968 2,334 2,466 1,263

Total Assets 12,648 15,822 19,983 20,639 13,441 13,623 14,031

Total Current Liabilities 3,780 3,732 4,352 5,349 2,602 2,878 2,079

Total Liabilities 12,648 15,822 19,983 20,639 13,441 4,117 4,158

Long Term Loans 3,337 5,549 6,053 5,855 343 1,231 1,455

Total Shareholder's Equity 4,907 5,731 8,041 8,321 9,590 9,506 9,873

Analytics

Return on Equity (%) 21.78 20.26 14.51 8.49 40.15 11.56 11.26

Return on Assets (%) 8.45 7.34 5.84 3.42 28.65 8.07 7.92

Revenue Growth (%) 123.89 29.28 19.43 -36.95 7.02 -4.90 2.00

Earnings Growth (%) - unadj 62.16 8.63 0.49 -39.44 445.00 -71.46 1.14

Assets Growth (%) 69.77 25.10 26.30 3.28 -34.88 1.35 3.00

Equity Growth (%) 14.23 16.80 40.30 3.48 15.26 -0.88 3.87

Historical EV (USD Mn) 14,721 31,484 17,724 20,091 19,303 12,923

P/E 14.27 21.90 9.33 17.00 19.00 13.38

Price/Book 3.04 4.49 1.46 1.71 2.22 1.33

EPS (USD) 0.29 0.33 0.33 0.22 0.29 0.28

BVPS (USD) 1.36 1.59 2.09 2.16 2.48 2.45

DPS (USD) 0.11 0.33 0.18 0.62 0.72

Market Price (KWD) 1142 1971 840 1020 1520 900

Annual Trading Volume (mn) 584 2,936 1,664 2,754 1,093 472

Annual Trading Value (USD mn) 2,192 19,762 9,435 11,370 5,025 2,019

Turnover Velocity 23% 101% 48% 81% 28% 11%

M Cap (USD mn) 12,731 26,473 13,004 15,205 21,294 14,158

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats Average Monthly Return -5.39% -2.89% -0.77% -0.38% 0.62%

Highest Monthly Return 0.00% 7.04% 40.66% 40.66% 40.66%

Lowest Monthly Return -13.33% -13.33% -16.42% -23.64% -23.64%

Largest Losing Streak (# of Months) 3 5 5 5 6

% of Negative Months 83% 67% 54% 53% 50%

Maximum Drawdown* -22% -38% -38% -40% -73%

Standard Deviation 17.45% 19.10% 39.88% 46.55% 43.31%

%Change in MVX -45% -23% -48% -73% -1%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Saudi Arabian Fertilizers Co. (SAFCO) Code: 2020.SE | Country: Saudi Arabia | Current MP: SAR 181.514 | YTD Performance: 10.5% Mcap: USD12.1Bn | Ann. St. Dev: 20% | YTD Turnover Velocity: 23%

Background Saudi Arabia Fertilizers Co. (SAFCO) is engaged in the production and sale of fertilizer products in Saudi

Arabia, Asia, Europe, and North America. It produces ammonia, urea, melamine and sulfuric acid. The ammonia and urea plants are located in Dammam, with an annual production capacity of 2.3 mn ton and 2.6

mn ton, respectively. SAFCO is also engaged in establishing, acquiring and operating chemical and non-

chemical factories as part of its expansion strategy. The company is 42.9% owned by SABIC and 16.7% owned by General Organization for Social Insurance (GOSI).

The Company has stakes in other companies, namely: National Chemicals Fertilizers Company (50%),

Arabian Industrial Fibers Company (3.7%) and Yanbu National Petrochemicals Company (1.69%).

Analysis: SAFCO reported a healthy YoY revenue and net income growth in 3Q11 on the back of increase in

product prices internationally. Revenues grew 55% YoY and 22% QoQ to USD 368mn while net income doubled over the year (+53% QoQ) to USD 323mn. 3Q total operating expense was USD 85mn (-11% YoY,

-15% QoQ).

9M11 revenue growth was also strong, up 43% to USD 946mn. Operating expenses were up 26% while

Income from associated companies increased 30%. Net income grew 28% to USD 756mn. If we exclude the one-off gain booked in 2Q10 from a land sale in Dammam net income growth would have amounted to

49%. We expect SAFCO to report USD 1,007mn in earnings for the full year 2011.

The stock is trading at 12x earnings and is up 10.5% for the year. The stock has generated positive returns

over 2Y (+44%), 3Y (+93%) and 5Y (+98%) periods. The company recently announced that it will pay SAR 7/share as dividend for second half in addition to SAR 6/share paid for period ending June 2011. SAFCO will

continue to maintain a dividend yield of around 7%, making it a good yield play. We classify the stock as Low risk with a losing streak of just 2 months over the last year and only four negative months in total.

Our Expectation

Broker estimates for FY12 earnings range from USD 873mn to USD 996mn but we expect USD 1,053mn in

FY12 earnings due to stable prices and continued demand from Asia.

14 As of 03rd December 2011

Sto

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Vo

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -57% -14% -25% -13% -6% -3%

2007 73% -1% 10% 15% 14%

2008 -43% -12% 0% 3%

2009

35% 33% 25%

2010

32% 21%

2011

11%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Total Revenue 488 828 1,396 731 1,011 1,244 1,345

Cost of Sales 198 218 239 275 293 307 326

Total Operating Expense 225 258 263 289 311 327 347

Net Income 307 589 1,141 481 863 1,007 1,053

Balance Sheet

Cash 158 420 1,045 791 602 812 833

Total Assets 1,795 2,156 2,627 2,349 2,235 2,282 2,444

Total Current Liabilities 157 216 197 275 168 159 158

Total Liabilities 531 552 484 478 332 312 318

Long Term Debt 284 220 157 94 43 40 47

Total Shareholder's Equity 1,264 1,604 2,143 1,871 1,903 1,970 2,126

Analytics

Return on Equity (%) 24.29 36.73 53.27 25.72 45.34 51.11 49.51

Return on Assets (%) 17.11 27.33 43.45 20.49 38.61 44.13 43.07

Revenue Growth (%) 0.40 69.54 68.64 -47.65 38.27 23.10 8.10

Earnings Growth (%) 4.65 91.89 93.72 -57.84 79.27 16.70 4.55

Assets Growth (%) 8.40 20.12 21.87 -10.58 -4.87 2.10 7.10

Equity Growth (%) -1.02 26.90 33.58 -12.69 1.70 3.53 7.92

Historical EV (USD Mn) 6,205 10,044 5,092 7,369 10,058 11,311

P/E 19.78 17.75 4.95 17.46 13.58 11.71

Price/Book 4.81 6.55 2.79 4.31 5.58 6.13

EPS (USD) 1.23 2.37 4.83 1.85 3.13 4.03

BVPS (USD) 5.06 6.42 8.57 7.48 7.61 7.88

DPS (USD) 0.64 1.07 3.47 3.20 3.20

Market Price (SAR) 91 158 90 121 159 181

Annual Trading Volume (mn) 416 114 246 119 48 43

Annual Trading Value (USD mn) 16,394 3,487 9,803 3,322 1,781 2,667

Turnover Velocity 164% 43% 121% 47% 19% 23%

M Cap (USD mn) 6,080 10,243 5,980 8,066 10,617 12,083

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats

Average Monthly Return -0.35% 2.12% 1.76% 0.62% 1.46%

Highest Monthly Return 6.74% 12.11% 12.40% 20.71% 24.34%

Lowest Monthly Return -8.60% -8.60% -12.86% -51.81% -51.81%

Largest Losing Streak (# of Months) 2 2 2 2 5

% of Negative Months 50% 33% 29% 28% 33%

Maximum Drawdown* -10% -10% -10% -10% -67%

Standard Deviation 20.40% 19.83% 21.49% 37.96% 38.18%

%Change in MVX -13% 139% 14% -85% -63%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Samba Financial Group Code: 1090.SE | Country: Saudi Arabia | Current MP: SAR 45.515 | YTD Performance: -23.4% Mcap: USD10.8Bn | Ann. St. Dev: 22% | YTD Turnover Velocity: 10%

Background

Samba Financial Group (Samba) was formed in 1980 as a result of takeover of the then existing branches of

Citibank, N.A. in Jeddah and Riyadh through partial sale of equity to Saudi nationals. Citigroup managed the bank until September 2003, when it handed over the management to Samba, and in May 2004 Citibank sold

its remaining 20% share capital to a Saudi agency. The bank currently is 22.9% owned by Public Investment Fund, 15% by Public Pension Agency and 11.4% by GOSI.

Samba offers a broad array of conventional and Islamic banking products and services, through a network of 68 branches across Saudi Arabia, as well as other three overseas branches.

Analysis: Samba reported 3Q11 net profit of USD 303mn, up 3% YoY and QoQ. This is mainly due to gain

on non-trading investments which grew 47% YoY. 3Q interest income decreased 7% YoY and 6% over the

quarter to USD 313mn even though loan portfolio grew by 9% YoY (+7% QoQ) to USD 23.5bn. Deposits declined 6% QoQ, pushing the L/D ratio from 59% to 65%.

In 9M11, the bank saw its net income decline 5% as top line growth was muted. Net Interest Income was

down 6% to USD 868mn as Interest Income was down 9% and Interest Expense was down 24%. Provisions were also down, by about half, to USD 52mn. Despite a 12% growth in Fees from Banking, the bank saw

non-interest income decline by 4%. Lending growth was better; loans grew 9% while deposits grew 2% to

USD 36bn. We expect Samba to report net income of USD 1,264mn for the year 2011, implying a 7% growth.

The stock is down 23% for the year and is trading at 10x earnings. The stock has generated negative

returns over 2Y (-6%) and 5Y (-49%) but is flat over the 3 year period. We rate the stock as High risk given

an annualized standard deviation of 22% and a maximum drawdown of 29% in the last year and a 15% increase in MVX.

Our Expectation

Brokers estimate Samba’s FY12 net income to be in the range of USD 1.3bn to USD 1.47bn. We expect the bank to earn USD 1.39bn in 2012 given stable loan growth and lesser provisioning.

15 As of 29th November 2011

Sto

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Vo

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -28% -4% -27% -21% -14% -16%

2007 29% -26% -18% -10% -13%

2008 -57% -35% -20% -21%

2009

-1% 9% -3%

2010

21% -4%

2011

-23%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Special Commission Income 1,864 2,237 2,247 1,694 1,385 1,332 1,487

Net Commission Income 1,147 1,319 1,350 1,352 1,210 1,199 1,302

Loan Loss Provision 70 113 122 161 149 66 48

Net Income 1,390 1,288 1,188 1,216 1,183 1,264 1,387

Balance Sheet

Cash 2,735 2,960 3,680 9,560 8,689 8,881 9,911

Loans/Advances 17,876 21,484 26,176 22,442 21,403 23,779 26,537

Deposits 25,467 30,887 35,799 39,239 35,595 36,164 39,455

Total Assets 33,075 41,182 47,710 49,478 49,984 55,178 61,579

Total Liabilities 28,994 36,423 42,417 43,528 43,202 47,507 52,903

Total Shareholder's Equity 4,080 4,759 5,293 5,950 6,782 7,671 8,675

Analytics

Loans Growth (%) 7.44 20.18 21.84 -14.26 -4.63 11.10 11.60

Deposits Growth (%) 11.46 21.28 15.90 9.61 -9.29 1.60 9.10

Loan/Deposits (%) 70.19 69.56 73.12 57.19 60.13 65.75 67.26

Return on Equity (%) 34.06 27.06 22.44 20.44 17.44 16.47 15.98

Return on Assets (%) 4.20 3.13 2.49 2.46 2.37 2.29 2.25

Revenue Growth (%) 31.36 19.96 0.47 -24.62 -18.21 -3.82 11.60

Earnings Growth (%) 29.67 -7.33 -7.76 2.39 -2.74 6.83 9.74

Assets Growth (%) 14.50 24.51 15.85 3.70 1.02 10.39 11.60

Equity Growth (%) 18.55 16.64 11.21 12.42 13.98 13.10 13.10

Cost-to-Income (%) 24.73 27.32 30.11 27.45 27.67 27.11 25.82

P/E 16.09 22.39 10.35 9.96 12.42 9.60

Price/Book 5.48 6.05 2.32 2.04 2.17 1.42

EPS (USD) 1.54 1.43 1.32 1.35 1.31 1.40

BVPS (USD) 4.53 5.29 5.88 6.61 7.54 8.52

DPS (USD) 0.61 0.00 0.48 0.48 0.48

Market Price (SAR) 93 120 51 51 61 45

Annual Trading Volume (mn) 185 69 114 132 54 53

Annual Trading Value (USD mn) 5,873 1,706 2,175 1,604 852 1,225

Turnover Velocity 22% 7% 11% 13% 6% 10%

M Cap (USD mn) 22,359 28,488 12,293 12,118 14,700 10,848

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats

Average Monthly Return -4.18% -2.83% -1.07% -0.56% -0.48%

Highest Monthly Return -0.23% 11.27% 11.27% 39.34% 39.34%

Lowest Monthly Return -9.67% -12.45% -12.45% -28.84% -28.84%

Largest Losing Streak (# of Months) 6 6 6 6 6

% of Negative Months 100% 83% 54% 56% 55%

Maximum Drawdown* -21% -29% -31% -42% -67%

Standard Deviation 11.32% 22.22% 22.18% 43.29% 45.73%

%Change in MVX -13% 15% -56% -70% 0%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Etihad Etisalat Code: 7020.SE | Country: Saudi Arabia | Current MP: SAR 50.7516 | YTD Performance: -6.3% Mcap: USD9.47Bn | Ann. St. Dev: 20% | YTD Turnover Velocity: 47%

Background Etihad Etisalat (EEC) is Emirates Telecommunication Company’s (Etisalat) Saudi arm. The company offers

wireless services across the Kingdom; the government (through GOSI) has an 11.2% stake in the company while Etisalat holds 27.4%. The company is the second largest operator in the Kingdom, after STC, and

holds about a third of the mobile market.

Analysis: Revenue growth for the firm has been strong as it continues to compete with the incumbent for a

larger share of the domestic market; 9M11 revenues were up 23% to USD 3.8bn while operating expenses increased 24% leading to a net profit growth of 23% to USD 903mn.

The growth in revenue has largely been driven by explosive growth in the domestic broadband market

(which comprises 15%-20% of the firm’s revenues) with the introduction of various smart phones and tablet

which require high speed data packages. Given that the mobile market in the Kingdom is highly saturated (with a penetration rate of over 180%), the operators have been engaging in bundling of services in order to

boost revenues and market share.

The company launched Long-Term-Evolution services (4G) in September 2011 which will help to strengthen

its position as the leader in mobile broadband services. Targeted areas exceed 32 cities and towns which covers 85% of the populated areas in Saudi Arabia. The company recently announced that it is close to

signing Islamic refinance agreements to acquire long-term loans for USD 2.7bn, made up of four tranches for a payback period between five to seven years.

EEC is trading at an attractive 8x earnings and is down 6.3% for the year. But the stock has generated

positive returns over 2Y (+25%), 3Y (+109%) and 5Y (+27%) periods. EEC began issuing semi-annual

dividend payouts this year with a 1H11 dividend of SAR1.25 and an expected payout of at least 40% for full year 2011 (Board authorized). This would boost EEC’s dividend yield from around 4%-5% to closer to 6%

(which brings it significantly closer to STC’s yield of between 6%-7%).

We rate the stock as having Medium risk given an annualized Standard Deviation of 20% and a max

drawdown of 17% for the last year.

Our Expectation We expect 2011 full year net income to come in at USD 1.3bn, which would amount to a 17% annual

growth. Brokers expect FY12 net income to be between USD 1.36bn and USD 1.5bn and we expect FY12 net profit of USD 1.41bn, implying a 7% earnings growth in 2012.

16 As of 26th November 2011

Sto

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Vo

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -63% -28% -35% -21% -13% -12%

2007 41% -13% 2% 8% 5%

2008 -47% -14% -2% -3%

2009

40% 34% 19%

2010

27% 9%

2011

-6%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Total Revenue 1,649 2,251 2,879 3,483 4,271 4,937 5,732

Cost of Revenue 710 1,011 1,272 1,470 1,928 2,215 2,553

Total Operating Expense 1,341 1,740 2,213 2,627 3,109 3,579 4,262

Net Income 187 368 558 804 1,123 1,315 1,407

Balance Sheet

Cash 146 188 337 249 443 425

Total Assets 4,718 5,302 7,252 8,220 8,916 8,746

Total Current Liabilities 3,079 1,608 2,867 3,223 3,269 2,992

Total Liabilities 3,509 3,725 4,651 4,955 4,761 4,280

Long Term Loans 427 2,110 1,771 1,720 1,475 1,280

Total Shareholder's Equity 1,209 1,577 2,601 3,265 4,155 4,467

Analytics

Return on Equity (%) 15.45 23.33 21.44 24.62 27.03 29.45 29.91

Return on Assets (%) 3.96 6.94 7.69 9.78 12.60 15.04 15.30

Revenue Growth (%) 267.98 36.50 27.89 20.97 22.63 15.60 16.10

Earnings Growth (%) N.M. 96.97 51.63 44.08 39.74 17.12 6.92

Assets Growth (%) 8.84 12.39 36.77 13.35 8.46 -1.90

Equity Growth (%) 14.47 30.43 64.98 25.52 27.25 7.50

Historical EV (USD Mn) 7,214 11,659 7,218 9,571 11,345 10,329

P/E 36.98 26.62 7.75 10.07 9.18 7.44

Price/Book 5.74 6.22 2.22 2.48 2.48 2.11

EPS (USD) 0.30 0.58 1.07 1.15 1.61 1.88

BVPS (USD) 1.91 2.49 3.72 4.66 5.94 6.38

DPS (USD) 0.00 0.10 0.20 0.33 0.53

Market Price (SAR) 41 58 31 43 55 51

Annual Trading Volume (mn) 602 206 313 259 234 274

Annual Trading Value (USD mn) 14,602 2,539 3,240 2,586 3,162 4,641

Turnover Velocity 114% 30% 42% 37% 34% 47%

M Cap (USD mn) 6,933 9,736 5,783 8,100 10,313 9,473

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats

Average Monthly Return 0.42% 0.11% 1.16% 1.49% 0.44%

Highest Monthly Return 3.38% 12.26% 12.26% 30.80% 42.86%

Lowest Monthly Return -2.80% -11.77% -11.77% -24.00% -25.96%

Largest Losing Streak (# of Months) 1 3 3 3 11

% of Negative Months 33% 42% 38% 42% 55%

Maximum Drawdown* -3% -17% -17% -17% -60%

Standard Deviation 7.74% 19.65% 19.35% 30.70% 39.58%

%Change in MVX -32% 20% -42% -85% -69%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Riyad Bank Code: 1010.SE | Country: Saudi Arabia | Current MP: SAR 23.317 | YTD Performance: -12.6% Mcap: USD9.3Bn | Ann. St. Dev: 17% | YTD Turnover Velocity: 8%

Background

Riyad Bank (Riyad) was established in 1957 and provides banking and investment services, including Shariah-compliant products, to its retail and corporate clients. Riyad Bank operates through 216 branches,

the third largest branch network after Al Rajhi and NCB. As of September 2011, the bank had USD 29.9bn in

loans and USD 35.3bn in deposits. The Saudi Public Investment Fund holds 21.7% in the bank while GOSI has 21.6%; other shareholders include Al Nahla Trading & Contr. (9.3%), Mohammad Al Issa (8.6%) and

SAMA (6.5%).

Analysis: 3Q11 net income came in at USD 212mn (+30% YoY, -5% QoQ). The growth was driven by

increase in non-interest income (+16.2% YoY) and a drop in provisioning (-49.6% YoY). Net Interest income was almost flat at USD 284mn. The Loan portfolio grew +1.4% QoQ to USD 29.9bn and deposits were

almost flat at USD 35.3bn.

In 9M11, Net Interest Income was flat at USD 831mn as top line growth was flat on low interest rates. Provisions came down by about half to USD 106mn leading to a net income growth of 15% to USD 632mn.

Loans and deposits grew 7% to USD 29.9bn and USD 35.3bn respectively giving an L/D ratio of 85%. The

bank maintains a healthy Tier 1 ratio of 15.1% (3Q10: 16%) and Capital Adequacy ratio of 17% (3Q10: 17.8%). NPL ratio stood at 1.58% (3Q10: 1.81%).

The stock is trading at about 11x earnings and is down over 13% for the year. The stock has generated

negative returns over 2Y (-9%) and 5Y (-31%) but is up 9% over the 3 year period. The bank maintains a

dividend yield of 5.5%-5.8% with a 52% payout in 1H11. We rate the stock as Medium risk with a standard deviation of 17% while its MVX has declined by 6% over the year.

Our Expectation

We expect Riyad Bank to end 2011 with a total net income of USD 824mn, implying a 9% growth. Our FY12 net income estimate is USD 959mn driven by stable growth in interest income and lower provisioning.

Broker estimates for FY12 earnings are in the range of USD 923mn to USD 1,064mn.

17 As of 04th December 2011

Sto

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Vo

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -53% -16% -33% -21% -18% -17%

2007 48% -21% -7% -6% -7%

2008 -57% -26% -19% -17%

2009

27% 12% 3%

2010

-1% -7%

2011

-13%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Special Commission Income 1,469 1,656 1,797 1,551 1,300 1,254 1,381

Net Commission Income 780 871 1,053 1,159 1,105 1,064 1,154

Loan Loss Provision 99 92 93 165 249 131 111

Net Income 776 803 704 808 753 824 959

Balance Sheet

Cash 1,380 4,422 2,955 6,246 6,182 4,882 5,655

Loans/Advances 13,917 17,960 25,718 28,407 28,279 30,570 33,658

Deposits 18,453 22,491 28,018 33,412 33,856 36,260 39,560

Total Assets 25,074 32,364 42,579 47,046 46,287 50,868 56,006

Total Liabilities 21,876 28,847 35,728 39,515 38,491 42,752 47,475

Total Shareholder's Equity 3,198 3,517 6,852 7,530 7,796 8,116 8,530

Analytics

Loans Growth (%) 14.42 29.05 43.20 10.46 -0.45 8.10 10.10

Deposits Growth (%) 30.73 21.88 24.57 19.25 1.33 7.10 9.10

Loan/Deposits (%) 75.42 79.85 91.79 85.02 83.53 84.31 85.08

Return on Equity (%) 24.25 22.84 10.27 10.73 9.66 10.15 11.24

Return on Assets (%) 3.09 2.48 1.65 1.72 1.63 1.62 1.71

Revenue Growth (%) 36.00 12.73 8.49 -13.69 -16.20 -3.46 10.10

Earnings Growth (%) 2.51 3.53 -12.37 14.84 -6.79 9.39 16.38

Assets Growth (%) 17.40 29.07 31.56 10.49 -1.61 9.90 10.10

Equity Growth (%) 10.11 9.96 94.82 9.91 3.53 4.10 5.10

Cost-to-Income (%) 32.85 35.05 43.07 38.78 37.13 39.58 35.89

P/E 13.87 19.74 12.05 13.32 14.15 11.08

Price/Book 3.36 4.51 1.24 1.43 1.36 1.15

EPS (USD) 0.65 0.67 0.47 0.54 0.50 0.55

BVPS (USD) 2.66 2.93 4.57 5.02 5.20 5.41

DPS (USD) 0.44 0.00 0.37 0.35 0.35

Market Price (KWD) 34 50 21 27 27 23

Annual Trading Volume (mn) 131 78 192 156 121 82

Annual Trading Value (USD mn) 1,993 689 1,767 1,015 903 801

Turnover Velocity 12% 5% 15% 11% 8% 8%

M Cap (USD mn) 10,750 15,254 8,475 10,759 10,640 9,320

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats

Average Monthly Return -1.78% -1.39% -0.88% -0.45% -0.37%

Highest Monthly Return 4.86% 9.09% 9.09% 28.88% 28.88%

Lowest Monthly Return -6.05% -7.28% -7.28% -21.73% -21.73%

Largest Losing Streak (# of Months) 3 3 3 5 6

% of Negative Months 67% 67% 58% 61% 57%

Maximum Drawdown* -10% -12% -23% -23% -60%

Standard Deviation 14.75% 17.09% 15.63% 29.25% 34.01%

%Change in MVX -10% -6% -47% -87% -57%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Kuwait Finance House Code: KFIN.KW | Country: Kuwait | Current MP: KWD 0.91018 | YTD Performance: -17.1% Mcap: USD8.84Bn | Ann. St. Dev: 16% | YTD Turnover Velocity: 18%

Background

Kuwait Finance House (KFH) was the first Islamic bank in Kuwait, established in 1977. The bank offers banking, investment, real estate, trading and leasing services through six business units: Banking,

Commercial, Corporate, Real Estate, Investment and Private Banking. The bank had financing amounting to USD 20.9bn as of September 2011 while deposits stood at USD 31.7bn. The bank is 24% owned by the

Kuwait Investment Authority (KIA); other major shareholders are, Public Authority for Minority Affairs (10.48%), Awqaf Public Foundation (8.29%), and Public Institution for Social Security (PIFFS) (5.63%).

Analysis: Top line growth for the bank was muted in 9M11; net financing declined 6% to USD 777mn. Financing Income was down 5% to USD 1,341mn while Distributions were down 3%. Provisions continued

to climb; increasing 27% in the period to USD 562mn. Other Expenses were also up as the bank encountered an FX loss of USD 33mn. Consequently, net income was down 27% in 9M11 to USD 257mn.

Financing was up 2% YoY to USD 20.9bn while deposits grew 18% to USD 31.7bn, giving the bank an L/D

ratio of 66%. As of 2010 (quarterly figures not reported), the bank had one of the highest NPL/Loan ratios, at 15%, with the coverage ratio at 0.43 as non-performing loans increased by almost 31% in 2010. Also as

of 2010, the bank had a Capital Adequacy Ratio (CAR) of 14%, on the lower end of its peer group. The bank went through a capital increase in the first half of the year, raising share capital by 8% to USD 974mn,

which should provide further buffer against any shocks.

In September, Fitch downgraded KFH’s Viability Rating to 'bb+' from 'bbb-', and affirmed Long-term Issuer

Default Rating at 'A+' with a Stable Outlook. The downgrade reflects the bank's weak asset quality ratios, high impairment charges, and capitalisation that is lower than some peers despite significant sector

concentrations in its financing book. Recently, the bank formed a partnership with Grosvenor Investment Management US to invest up to USD 600mn in healthcare-related real estate in the U.S.

The stock is down 17% for the year and is trading at 30x earnings; furthermore, we rate the stock as Medium risk given an annualized standard deviation of 16% and a max drawdown of 22% over the last

year. The stock has generated negative returns over 2Y (-5%), 3Y (-35%) and 5Y (-12%) periods.

Our Expectation

We expect KFH to report a net income of USD 320mn for FY11 and USD 508mn for FY12, implying a 59% growth in 2012.

18 As of 01st December 2011

Sto

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Vo

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 3% 33% 0% -2% 1% -3%

2007 72% -1% -4% 0% -4%

2008 -43% -28% -16% -17%

2009

-9% 2% -5%

2010

14% -3%

2011

-17%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Financing Income 1,187 1,692 2,033 1,914 1,875 1,684 1,880

Net Financing Income 432 575 954 1,019 1,123 981 1,122

Loan Loss Provision 98 138 764 739 720 711 648

Net Income 587 997 569 430 384 320 508

Balance Sheet

Cash/Balances with Bank 841 2,006 1,333 1,612 1,622 1,668 1,753

Loans/Advances 10,065 14,449 17,317 18,443 20,093 20,917 21,983

Deposits 13,514 19,423 23,954 26,310 27,713 32,729 37,671

Total Assets 22,875 31,875 38,201 40,906 45,463 46,383 48,749

Total Liabilities 20,330 27,491 33,708 36,407 40,788 41,669 43,322

Total Shareholder's Equity 2,545 4,384 4,494 4,499 4,675 4,715 5,427

Analytics

Loans Growth (%) 32.02 43.55 19.85 6.50 8.95 4.10 5.10

Deposits Growth (%) 16.95 43.73 23.32 9.84 5.33 18.10 15.10

Loan/Deposits (%) 74.48 74.39 72.29 70.10 72.50 63.91 58.36

Return on Equity (%) 23.06 22.75 12.66 9.56 8.21 6.79 9.36

Return on Assets (%) 2.57 3.13 1.49 1.05 0.84 0.69 1.04

Revenue Growth (%) 66.47 42.55 20.21 -5.85 -2.05 -10.18 11.63

Earnings Growth (%) 36.51 69.92 -42.97 -24.36 -10.75 -16.66 58.66

Assets Growth (%) 34.88 39.34 19.85 7.08 11.14 2.02 5.10

Equity Growth (%) 17.04 72.24 2.50 0.12 3.91 0.85 15.10

Cost-to-Income (%) 39.13 28.69 33.37 45.97 48.02 49.20 45.82

P/E 17.76 16.70 17.35 23.58 26.85 29.67

Price/Book 3.80 4.08 2.01 2.01 2.22 1.88

EPS (USD) 0.22 0.40 0.22 0.14 0.14 0.12

BVPS (USD) 1.02 1.63 1.88 1.70 1.76 1.75

DPS (USD) 0.11 0.00 0.11 0.07 0.07

Market Price (KWD) 1066 1837 1041 943 1074 910

Annual Trading Volume (mn) 391 807 1,036 1,582 689 468

Annual Trading Value (USD mn) 1,460 4,625 6,582 5,734 2,527 1,735

Turnover Velocity 17% 35% 47% 60% 26% 18%

M Cap (USD mn) 8,250 18,076 10,144 8,842 10,271 8,841

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats

Average Monthly Return -2.57% -1.36% -0.79% -1.18% 0.30%

Highest Monthly Return 2.27% 5.17% 13.46% 33.49% 33.49%

Lowest Monthly Return -12.00% -12.00% -12.00% -22.73% -22.73%

Largest Losing Streak (# of Months) 3 3 3 5 7

% of Negative Months 50% 58% 54% 56% 47%

Maximum Drawdown* -19% -22% -22% -47% -69%

Standard Deviation 18.45% 15.81% 20.28% 33.66% 34.08%

%Change in MVX -25% -34% -29% -63% 27%

*Largest decline from a previous high Source: Reuters, Markaz Research

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National Bank of Abu Dhabi Code: NBAD.AD | Country: UAE | Current MP: AED 10.819 | YTD Performance: 12.2% Mcap: USD8.4Bn | Ann. St. Dev: 21% | YTD Turnover Velocity: 2.7%

Background National Bank of Abu Dhabi (NBAD) is the second largest lender in the UAE and the largest in Abu Dhabi

with loans amounting to USD 42.6bn as of September 2011. The Bank has a network of more than 110 branches in the UAE and nearly 50 branches outside the UAE. NBAD is 70.48% owned by Abu Dhabi

Investment Council. NBAD is rated long term/short term A+/A-1 by Standard & Poor's, Aa3/P1 by Moody’s,

AA-/F1+ by Fitch.

Analysis: NBAD posted a 12% YoY increase in 3Q11 net income to USD 281mn. Net income growth was flat over the quarter. Interest income saw muted growth of 1.4% YoY to USD 516mn. Net income growth

was mainly on account of higher foreign exchange gain. Capital Adequacy was strong at 20.7% (3Q10: 22.1%), while Tier I ratio stood at 15.3% (3Q10: 15.7%).

During the first nine months, revenue growth was strong for the bank, driven by a surge in lending. Loans were up 12% in 9M11 to USD 42.6bn while deposits grew at 18% in the same period. Lending rates bucked

the UAE sector growth; where lending has been relatively flat overall. NBAD’s growth is driven by high government lending and deposits given its ownership structure. The bank’s L/D ratio is high at 110%. Net

Interest Income came in at USD 1,109mn in 9M11, a growth of 10% as Interest Income grew 9%. Provisions grew 30% to USD 277mn while non-interest expense was up 19% for the period. Consequently,

net income came in at USD 812mn, an increase of just 1.1%. The NPL ratio increased to 2.83% in

September 2011, up from 2.65% in 2Q11 and 2.3% in 4Q10. Net Interest margin was flat at 2.53% (9M10: 2.51%).

Continued high provisions remain a concern for NBAD even though the bank maintains a comfortable

coverage. Fitch has recently issued a statement that weak global economy and slowdown in Abu Dhabi will represent new headwinds for the UAE banking system.

NBAD is trading at 9x earnings and has gained 12% for the year. The stock has generated positive returns over 2Y (+21%), 3Y (+72%) and 5Y (+30%) periods. It also carries a dividend yield of about 2.5%-3%. We

see the stock as carrying a Low risk with a standard deviation of 21% and max drawdown of just 8% over the last year. Large government ownership (70.5%) and high institutional holding has resulted in low

turnover velocity (2.7%) for the stock.

Our Expectation

We expect NBAD to report a net profit of USD 960mn in FY11 and USD 1,199 in FY12, implying a growth of -4% in 2011 and +25% in 2012. Brokers estimate FY12 net income to be between USD 1,191mn and USD

1,400mn.

19 As of 06th December 2011

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -55% -19% -33% -17% -14% -10%

2007 44% -18% 1% 1% 3%

2008 -53% -16% -10% -5%

2009

52% 25% 21%

2010

3% 7%

2011

12%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Interest Income 1,486 1,929 1,996 1,823 1,946 1,953 2,232

Net Interest Income 550 655 973 1,209 1,366 1,383 1,623

Total Operating Income 805 998 1,443 1,742 1,954 1,995 2,282

Provisions 27 11 195 383 329 349 364

Net Income 573 682 822 822 1,003 960 1,199

Balance Sheet

Loans 16,389 22,477 31,370 36,910 38,362 43,867 49,724

Deposits 19,258 22,253 28,173 32,998 33,522 39,539 45,451

Total Assets 27,488 37,960 44,827 53,581 57,561 68,819 80,533

Total Shareholder's Equity 2,452 3,053 3,909 5,565 6,565 7,175 7,599

Key Ratios

Loans Growth (%)

37.1% 39.6% 17.7% 3.9% 14.4% 13.4%

Deposits Growth (%)

15.5% 26.6% 17.1% 1.6% 18.0% 15.0%

Loan/Deposits (%) 85.1% 101.0% 111.3% 111.9% 114.4% 110.9% 109.4%

Return on Assets (%) 2.1% 1.8% 1.8% 1.5% 1.7% 1.4% 1.5%

Return on Equity (%) 23.4% 22.3% 21.0% 14.8% 15.3% 13.4% 15.8%

Earnings Growth (%)

19.0% 20.5% 0.0% 22.0% -4.3% 24.9%

Revenue Growth (%)

24.0% 44.6% 20.7% 12.2% 2.1% 14.4%

Assets Growth (%)

38.1% 18.1% 19.5% 7.4% 19.6% 17.0%

Equity Growth (%)

24.5% 28.0% 42.4% 18.0% 9.3% 5.9%

Cost-to-Income (%) 23.7% 28.8% 28.2% 29.7% 30.5% 33.2% 30.1%

P/E 10.07 12.06 4.80 7.45 6.36 8.79

Price/Book 2.35 2.70 1.01 1.10 0.97 1.18

BVPS (USD) 1.06 1.31 1.64 2.33 2.74 2.50

Market Price (AED) 9.16 13.03 6.10 9.39 9.79 10.80

EPS (USD) 0.25 0.29 0.35 0.34 0.42 0.33

Annual Trading Volume (mn) 30 58.8 132.0 80.1 62.9 78

Annual Trading Value (USD mn) 265 349 676 248 200 199

Turnover Velocity

5.0% 11.1% 4.9% 3.2% 2.7%

M Cap (USD mn) 5,762 8,245 3,951 6,114 6,375 8,439

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats

Average Monthly Return 1.75% 0.83% 0.42% 0.71% 0.47%

Highest Monthly Return 16.49% 16.49% 21.66% 40.31% 40.31%

Lowest Monthly Return -7.83% -7.83% -15.00% -22.51% -22.51%

Largest Losing Streak (# of Months) 1 1 2 4 4

% of Negative Months 33% 33% 38% 39% 43%

Maximum Drawdown* -8% -8% -8% -8% -62%

Standard Deviation 28.23% 21.30% 27.17% 38.33% 37.84%

%Change in MVX -20% 124% 34% -76% -45%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Banque Saudi Fransi Code: 1050.SE | Country: Saudi Arabia | Current MP: SAR 40.420 | YTD Performance: -8.7% Mcap: USD7.9Bn | Ann. St. Dev: 29% | YTD Turnover Velocity: 5%

Background

Banque Saudi Fransi (BSF) operates through three main segments: Personal, Business and Wealth Management, and has a loan book of almost USD 24bn. The bank is 31.1% owned by Credit Agricole

Corporate and Investment Bank. Credit Agricole CIB is a member of the Credit Agricole Group. Its other

major shareholders include GOSI (12.8%), Rashid Al Rashid & Sons (9.8%) and Mohammad Al Issa (5%).

The bank has 2,439 employees and a network of 106 branches. The bank has entered into joint ventures to offer various services; Allianz Saudi Fransi to provide insurance services; CAAM Saudi Fransi a JV with Credit

Agricole Asset Management; Calyon Saudi Fransi to offer investment banking services; and a JV with

SOFINCO to operate in Saudi Arabian consumer credit market.

Analysis: In 3Q11, the bank’s bottom-line increased 22% YoY (-1.8% QoQ) to USD 203mn mainly on account of higher lending activity. Loan book increased 10.8% over the year and 6% over the quarter to

USD 24bn. Deposits saw a decline of 2% QoQ. Net interest income during 3Q11 amounted to USD 216mn (+3.9% YoY, +2.5% QoQ).

For the nine month period ending September 2011, net income grew 8% to USD 600mn as net interest income increased 3% to USD 628mn. Provisions continue to decline, dropping 65% to USD 27mn. Loans

grew at 11% to USD 24bn while deposits grew 7% to USD 26.1bn, giving the bank an L/D ratio of 92%. The bank’s fee income grew 22% while trading income decreased 42% due to market volatility. Based on these

results, we expect BSF to report a net income of USD 832mn of full year 2011.

Recently, the bank announced plans to sell its 27% stake in Bemo Saudi Fransi Syria and its 10% share in

Bemo Lebanon.

The stock is down 9% for the year and is trading at 10x earnings. The stock is flat over the 2Y period,

+10% over 3Y period and -30% over 5Y period. We rate the stock as High risk given a high annualized standard deviation of 29% and a max drawdown of 28% over the year.

Our Expectation

Brokers estimate BSF’s FY12 net income to be in the range of USD 942mn to USD 1,093mn. We expect USD 905mn, implying a growth of 9% for 2012.

20 As of 30th November 2011

Sto

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Vo

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -23% 4% -25% -16% -12% -11%

2007 40% -26% -14% -9% -9%

2008 -61% -33% -21% -18%

2009

17% 13% 5%

2010

9% 0%

2011

-9%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Special Commission Income 1,135 1,316 1,413 1,091 943 990 1,109

Net Commission Income 538 611 752 814 818 869 957

Loan Loss Provision 24 11 25 153 91 32 26

Net Income 802 723 748 659 747 832 905

Balance Sheet

Cash 906 2,708 1,540 3,369 2,897 3,362 3,769

Loans/Advances 13,636 15,962 21,567 20,887 21,596 24,426 27,381

Deposits 16,535 19,738 24,747 24,333 24,944 26,965 29,688

Total Assets 21,224 26,619 33,568 32,157 32,862 36,954 41,425

Total Liabilities 18,716 23,621 29,822 27,961 28,061 31,715 35,762

Total Shareholder's Equity 2,508 2,998 3,746 4,196 4,802 5,239 5,663

Analytics

Loans Growth (%) 18.97 17.05 35.12 -3.15 3.40 13.10 12.10

Deposits Growth (%) 21.34 19.37 25.38 -1.67 2.51 8.10 10.10

Loan/Deposits (%) 82.47 80.87 87.15 85.84 86.58 90.58 92.23

Return on Equity (%) 31.97 24.12 19.97 15.70 15.56 15.89 15.98

Return on Assets (%) 3.78 2.72 2.23 2.05 2.27 2.25 2.18

Revenue Growth (%) 41.36 15.90 7.38 -22.82 -13.50 4.91 12.10

Earnings Growth (%) 35.72 -9.84 3.49 -11.94 13.37 11.42 8.74

Assets Growth (%) 17.90 25.42 26.11 -4.20 2.19 12.45 12.10

Equity Growth (%) 35.72 19.52 24.97 12.00 14.43 9.10 8.10

Cost-to-Income (%) 21.36 25.61 34.19 28.71 28.61 30.20 30.23

P/E 15.48 24.01 9.04 11.96 11.55 10.05

Price/Book 4.95 5.79 1.81 1.88 1.80 1.49

EPS (USD) 1.11 1.00 1.03 0.91 1.03 1.15

BVPS (USD) 3.47 4.15 5.18 5.80 6.64 7.24

DPS (USD) 0.28 0.36 0.27 0.27 0.27

Market Price (SAR) 64 90 35 41 45 40

Annual Trading Volume (mn) 62 47 54 29 25 34

Annual Trading Value (USD mn) 1,290 730 814 340 299 447

Turnover Velocity 9% 5% 7% 5% 4% 5%

M Cap (USD mn) 12,420 16,804 6,761 7,887 8,621 7,907

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats

Average Monthly Return -3.52% -1.40% -0.37% -0.55% -0.42%

Highest Monthly Return -0.65% 18.14% 18.14% 19.35% 29.33%

Lowest Monthly Return -8.29% -15.35% -15.35% -17.99% -25.92%

Largest Losing Streak (# of Months) 6 6 6 6 6

% of Negative Months 100% 75% 67% 64% 57%

Maximum Drawdown* -16% -20% -20% -20% -61%

Standard Deviation 9.00% 28.72% 24.89% 30.36% 35.81%

%Change in MVX -20% -28% 11% -76% -36%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Saudi British Bank Code: 1060.SE | Country: Saudi Arabia | Current MP: SAR 3921 | YTD Performance: -4.7% Mcap: USD7.8Bn | Ann. St. Dev: 26% | YTD Turnover Velocity: 5%

Background

The Saudi British Bank (SABB) is an associated member of the HSBC Group and provides banking and non-interest bearing products through 81 branches across the kingdom. The bank operates through four main

business segments: Retail Banking, Corporate Banking, Treasury, and Others, which includes activities of its

wholly owned subsidiary, SABB Securities Limited. HSBC has a 40% stake in the bank while Olayan Saudi Investment Co. has 16.9% and GOSI owns 9.5%.

Analysis: SABB reported a net income of USD 168mn in 3Q11, up 50.4% YoY but down 26% QoQ.

Provisions dropped sharply over the year to USD 52mn. Interest income came in at USD 238mn, a decrease

of 0.6% over 3Q10 but a 2% increase QoQ. Loans & Advances increased 10% over the year and 3% over the quarter to USD 22bn while Deposits grew 11% YoY and 2% QoQ to USD 26.9bn.

Fitch Ratings recently affirmed SABB’s Long-term Issuer Default Rating at 'A' with a Stable Outlook. The

agency cited the bank's consistent profitability, comfortable liquidity and adequate capital position as reasons for the affirmation.

Net income was up 50% during 9M11 to USD 596mn despite an 8% decline in top line growth. Net income was boosted by a 61% decline in provisions to USD 105mn in addition to a 78% growth in Other Income

and a 25% decline in Other Expenses. Lending was up 11% YTD to USD 22bn while deposits grew 6% YTD to USD 26.9bn, thus keeping the L/D ratio at 82%. We expect the bank to report USD 714mn in earnings for

FY11, implying a 42% bottom-line growth for 2011.

The stock is down 5% for the year and is trading at 11x earnings. The stock has generated negative returns

over 2Y (-12%), 3Y (-10%) and 5Y (-37%) periods. We rate the stock as Medium risk given a high annualized standard deviation of 26% and a maximum drawdown of 14% in the last year.

Our Expectation Broker expectations for FY12 net income in the range of USD 718mn to USD 957mn. We expect a net

income of USD 838mn from SABB on the back of robust growth in net interest income and lower provisioning.

21 As of 01st December 2011

Sto

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -46% -19% -27% -21% -18% -16%

2007 21% -14% -10% -9% -8%

2008 -40% -22% -17% -14%

2009

0% -4% -4%

2010

-7% -6%

2011

-5%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Special Commission Income 1,183 1,392 1,564 1,220 993 877 1,030

Net Commission Income 689 816 855 917 865 768 891

Loan Loss Provision 60 106 99 399 329 153 147

Net Income 811 695 779 542 502 714 838

Balance Sheet

Cash 2,079 4,439 3,021 4,431 4,039 4,382 5,022

Loans/Advances 11,321 16,536 21,399 20,371 19,802 22,060 24,949

Deposits 15,804 19,162 24,717 23,786 25,249 27,749 30,829

Total Assets 20,586 26,193 35,114 33,828 33,437 36,829 41,515

Total Liabilities 18,078 23,413 32,011 30,349 29,391 32,180 36,396

Total Shareholder's Equity 2,508 2,780 3,103 3,479 4,046 4,649 5,119

Analytics

Loans Growth (%) 3.93 46.06 29.41 -4.80 -2.79 11.40 13.10

Deposits Growth (%) 22.09 21.25 28.99 -3.77 6.15 9.90 11.10

Loan/Deposits (%) 71.64 86.29 86.58 85.64 78.43 79.50 80.93

Return on Equity (%) 32.33 25.01 25.10 15.58 12.41 15.36 16.36

Return on Assets (%) 3.94 2.65 2.22 1.60 1.50 1.94 2.02

Revenue Growth (%) 39.94 17.65 12.36 -22.02 -18.56 -11.67 17.36

Earnings Growth (%) 21.40 -14.25 12.01 -30.40 -7.34 42.23 17.26

Assets Growth (%) 17.08 27.24 34.06 -3.66 -1.16 10.14 12.72

Equity Growth (%) 25.51 10.85 11.60 12.13 16.30 14.90 10.10

Cost-to-Income (%) 30.04 32.21 34.43 32.22 36.14 32.00 29.30

P/E 14.54 20.55 11.11 16.01 16.02 10.54

Price/Book 4.70 5.14 2.78 2.50 1.99 1.68

EPS (USD) 1.08 0.93 1.04 0.72 0.67 0.95

BVPS (USD) 3.34 3.71 4.14 4.64 5.40 6.20

DPS (USD) 0.53 0.50 0.23 0.00 0.18

Market Price (SAR) 59 72 43 43 40 39

Annual Trading Volume (mn) 54 28 32 30 26 30

Annual Trading Value (USD mn) 1,367 417 557 393 307 397

Turnover Velocity 8% 3% 5% 5% 4% 5%

M Cap (USD mn) 11,775 13,904 8,635 8,679 8,040 7,800

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats

Average Monthly Return -2.20% -1.16% -0.97% -0.56% -0.79%

Highest Monthly Return 1.11% 19.68% 19.68% 21.54% 27.89%

Lowest Monthly Return -5.44% -9.68% -15.73% -23.90% -23.90%

Largest Losing Streak (# of Months) 2 2 3 4 7

% of Negative Months 67% 58% 58% 58% 58%

Maximum Drawdown* -14% -14% -27% -33% -58%

Standard Deviation 9.31% 25.73% 25.34% 32.22% 36.14%

%Change in MVX -21% 5% -30% -74% -47%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Kingdom Holding Co Code: 4280.SE | Country: Saudi Arabia | Current MP: SAR 7.3522 | YTD Performance: -4.3% Mcap: USD7.3Bn | St. Dev: 27% | YTD Turnover Velocity: 17%

Background

Kingdom Holding Company (KHC), founded in 1980, is engaged in investment activities, with a focus on hotels and hotel management companies, within the Kingdom of Saudi Arabia and worldwide. Prince Al-

Waleed bin Talal owns 95% of the Company. Kingdom Holding has stakes in a number of global and regional companies, such as Apple Inc., Time Warner Inc., EBay Inc., Citigroup Inc., PepsiCo Inc., The Walt

Disney Company, Four Seasons Hotels Inc., and many others. KHC was listed in Tadawul Stock Exchange on July 2007.

Analysis: 9M11 revenues were down 11% to USD 658mn due to 21% decline in Hotels and other operating revenues. However, Income from Investments grew 80% in the nine month period to USD 80mn. Net

Income in 3Q was up 24% YoY to USD 53mn (+21% QoQ). Net income for 9M11 also increased 22% to USD 120mn on account of 11% drop in operating expenses. Total Investments (Available for Sale &

Investments in Associates) decreased 8% over the quarter to reach USD 6.7bn at the end of 3Q11. Cash &

Cash equivalents were USD 270mn (-13% YoY, -34% QoQ).

In June, KHC reached an agreement with Egyptian Ministry of agriculture regarding the Toshka land in Egypt. Under the agreement, KHC will retain 10,000 acres for current usage in addition to the right to

develop 15,000 acres ending in eventual ownership. KHC will also return the remaining 75,000 acres it had earlier purchased. Recently, Kingdom Holding Batelco Consortium scrapped their joint $950mn bid to buy

25% in Zain KSA as terms for the deal could not be met. The company has also signed contracts to build the

world’s tallest building (Kingdom Tower) in Saudi Arabia.

KHC is trading at about 43x and with a YTD decline of 4.3%, compared to broad index loss of 5.3%. The stock is down over the last 2Y (-5%) and 3Y (-11%) time period. KHC trades at a P/BV multiple of 1.1x.

Total Revenue and Costs decreased in 2010 due to a change in reporting for two investments from

consolidated method to the equity method. 2010 net income was USD 161mn, an increase of 50% over 2009. We expect Kingdom Holding to report 8% revenue decline in 2011 while net income is expected to

decrease by 12% mainly due to decrease in other income. Volatility in global capital markets will affect mark to market valuations of KHC’s financial assets.

Our Expectation We expect KHC to deliver USD 143mn in net profit for FY11 and USD 173mn in FY12 implying a 21%

bottom-line growth for FY12.

22 As of 26th November 2011

Sto

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Vo

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Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2008 2009 2010 2011

2008 -62% -39% -27% -22%

2009 0% 1% -1%

2010

3% -1%

2011

-4%

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Financial Metrics

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Total Revenue 83 1,983 1,642 1,206 893 822 823

Cost of Revenue 48 867 843 743 510 430 390

Total Operating Expense 82 1,500 1,383 1,122 814 684 651

Net Income -1 323 -7,977 107 161 143 173

Balance Sheet

Cash 661 616 505 596 346 237 357

Total Assets 24,654 21,724 13,526 13,332 11,252 11,263 11,499

Total Current Liabilities 462 579 660 599 605 588 587

Total Liabilities 7,118 8,063 7,761 6,777 4,029 3,944 3,940

Long Term Debt 4,653 4,777 4,001 3,588 2,888 3,152 3,149

Total Shareholder's Equity 17,536 13,661 5,765 6,555 7,223 7,318 7,559

Analytics

Return on Equity (%) 0.00 2.36 -138.38 1.64 2.23 1.95

Return on Assets (%) 0.00 1.49 -58.98 0.81 1.43 1.27

Revenue Growth (%) 16.35 2,289.12 -17.17 -26.59 -25.98 -7.90

Earnings Growth (%) N.M. N.M. N.M. N.M. 50.34 -11.66

Assets Growth (%) 5554.59 -11.89 -37.74 -1.43 -15.61 0.10

Equity Growth (%) 13270.81 -22.10 -57.80 13.72 10.18 1.33

Historical EV (USD Mn) 3,992 24,326 11,387 10,888 10,645 10,178

P/E N.M. 64.39 N.M. 72.64 51.25 42.65

Price/Book

1.54 1.37 1.20 1.12 1.01

EPS (USD) 0.00 0.09 -2.15 0.03 0.04 0.04

BVPS (USD) 4.73 3.69 1.56 1.77 1.95 1.97

DPS (USD) 0.00 0.13 0.00 0.00 0.13

Market Price (SAR)

21 8 8 8 7

Annual Trading Volume (mn)

654 611 625 879 282

Annual Trading Value (USD mn)

3,500 2,736 1,444 2,501 1,289

Turnover Velocity

17% 20% 18% 31% 17%

M Cap (USD mn)

20,165 7,892 7,895 8,104 7,264

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y

Monthly return stats

Average Monthly Return -3.06% -0.27% 0.63% -0.34%

Highest Monthly Return 4.09% 15.92% 60.64% 60.64%

Lowest Monthly Return -9.55% -10.80% -16.52% -29.86%

Largest Losing Streak (# of Months) 3 3 5 5

% of Negative Months 67% 58% 63% 64%

Maximum Drawdown* -17% -19% -43% -43%

Standard Deviation 17.98% 26.68% 51.23% 54.05%

%Change in MVX -57% 80% -45% -82%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Qatar Telecom (Qtel) Code: QTEL.QA | Country: Qatar | Current MP: QAR 148.223 | YTD Performance: 0.7% Mcap: USD7.3Bn | Ann. St. Dev: 29% | YTD Turnover Velocity: 6%

Background

Qatar Telecom (Qtel) is the incumbent player in the domestic market providing various services such as local and international fixed telephone, mobile, internet, data, and cable television services. It has holdings across

the Middle East and select Asian markets; most notably, its 52.5% stake in Wataniya Telecom (Kuwait). The

company has a total subscriber base of 82mn across 17 countries. The government of Qatar owns 55% of the company while Abu Dhabi Investment Authority owns 9.99%.

Analysis: Qtel reported revenues of USD 2.25bn for 3Q11, up 18% YoY and 1.8% QoQ. Net profit at USD

157mn, registered a YoY & QoQ decline of 13.0% & 15.8% respectively. Total customer base increased to

82.4mn, a YoY growth of 19.4%. The decrease in bottom-line is mainly attributed to seasonal promotions and foreign exchange losses.

Revenue was up 17.5% in 9M11 to USD 6.5bn. During the period, Qtel acquired an additional 25% in

Orascom Telecom Tunisie, bringing its overall stake to 75%, resulting in a full consolidation of the operation in Qtel’s numbers. Qtel recognized interest carried over from this consolidation with a minority interest

charge, which put a dent in net profit, causing an overall decline of 17.8% for the period to USD 554mn. We

expect FY11 net profit of USD 736mn from the company.

In November 2011, the company acquired 7.45% in StarHub, Singapore's second biggest telecom firm, through its Asia Mobile Holdings joint venture with Singapore Technologies Telemedia. Qtel's effective

holding now stands at 14.1%.

The stock is trading at 13x earnings and is up 1% for the year. The stock has generated positive returns

over 2Y (+25%), 3Y (+43%) and 5Y (+1%) periods. Qtel maintains a dividend yield in the 3%-3.5% range. Moreover, we rate the stock as having Medium risk due to a standard deviation of 29% while MVX has

increased 12% during the last year.

Our Expectation

Broker estimates for FY12 net income are in the range of USD 769mn to 898mn. We expect Qtel to report USD 832mn in FY12 earnings on the back of increased revenues from overseas markets with lower

penetration levels.

23 As of 01st December 2011

Sto

ck

Vo

lati

lity

Expected Return (2012)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -4% -2% -18% -8% -2% -2%

2007 0% -25% -9% -2% -1%

2008 -43% -14% -3% -2%

2009

32% 27% 18%

2010

23% 11%

2011

1%

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48

Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Wireless Revenue 833 2,487 4,904 5,798 6,856 7,614 8,653

Fixed Line 381 362 714 845 999 889 1,011

Gross Revenue 1,214 2,850 5,618 6,643 7,515 8,503 9,664

Net Profit 467 461 664 781 798 736 832

Balance Sheet

Cash 389 893 2,154 3,183 7,072 6,771 6,957

Total Assets 2,143 12,996 20,425 23,492 28,037 30,924 35,965

Total Current Liabilities 501 2,537 5,496 4,359 4,894 8,632 12,958

Total Liabilities 681 8,293 16,773 19,173 22,775 26,362 30,514

Long Term Debt 179 5,780 5,573 9,345 12,095

Total Shareholder's Equity 1,371 1,895 3,647 4,319 5,262 4,563 5,451

Analytics

Return on Equity (%) 34.06 24.31 18.22 18.09 15.18 16.12 15.26

Return on Assets (%) 21.80 3.54 3.25 3.33 2.85 2.38 2.31

Revenue Growth (%) 48.22 134.67 97.14 18.24 13.13 13.15 13.65

Earnings Growth (%) 42.84 -1.40 44.23 17.58 2.21 -7.89 13.10

Assets Growth (%) 22.36 506.34 57.16 15.01 19.35 10.30 16.30

Equity Growth (%) 17.14 38.18 92.47 18.41 21.84 -13.29 19.48

Historical EV (USD Mn) 5,977 11,156 7,830 12,008 12,223

P/E 13.41 13.56 6.22 7.52 9.07 13.10

Price/Book 4.58 3.31 1.22 1.36 1.38 1.58

EPS (USD) 3.33 3.29 4.07 4.44 4.54 4.18

BVPS (USD) 9.75 13.47 20.72 24.54 29.90 25.92

DPS (USD) 0.84 0.92 2.30 1.61 1.15

Market Price (QAR) 161 161 92 121 149 148

Annual Trading Volume (mn) 9 8 20 13 11 10

Annual Trading Value (USD mn) 391 378 796 377 413 414

Turnover Velocity 6% 6% 15% 7% 6% 6%

M Cap (USD mn) 6,187 6,268 4,411 5,846 7,199 7,327

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats

Average Monthly Return 1.56% 0.38% 0.92% 0.80% 0.03%

Highest Monthly Return 16.06% 16.06% 16.06% 18.19% 18.19%

Lowest Monthly Return -7.23% -17.14% -17.14% -17.14% -17.14%

Largest Losing Streak (# of Months) 2 3 3 6 10

% of Negative Months 50% 50% 42% 47% 50%

Maximum Drawdown* -8% -8% -8% -8% -58%

Standard Deviation 27.09% 28.68% 24.78% 27.55% 27.21%

%Change in MVX -57% 12% -67% -85% -34%

*Largest decline from a previous high Source: Reuters, Markaz Research

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49

First Gulf Bank Code: FGB.AD | Country: UAE | Current MP: AED 16.524 | YTD Performance: -10.8% Mcap: USD6.6Bn | Ann. St. Dev: 30% | YTD Turnover Velocity: 5%

Background First Gulf Bank (FGB) was established in 1979 and offers services through four primary business segments:

Corporate Banking, Retail Banking, Treasury & Investments and Real Estate Activities. Retail segment

contributes to 45% of the bank’s revenues and corporate segment contributes 41%. The bank operates through its 19 branches across the UAE, with staff strength of 897. FGB expanded geographically with

presence in Singapore, Qatar, India and London. In March 2011, the bank disassociated itself from its partially owned subsidiary in Libya.

FGB is the fourth largest bank in UAE in terms of Assets and Loans. Abu Dhabi ruling family owns 67% in

the bank with the remaining 33% held by public.

Analysis: 3Q11 net profit increased 8.5% YoY and 3.4% QoQ to USD 251mn. The strong numbers were as

a result of 26.5% YoY growth (+11.2% QoQ) in net interest income to USD 369mn. Provisions also saw 6.6% YoY decrease to USD 103mn. Non-interest revenue decreased 43.5% YoY to USD 73mn on account of

lower Fee Income (-65%). Loan book increased 3.4% over the quarter to USD 27.8bn while deposits declined 4.4% to USD 26.1bn.

Results for the first nine months were stable: loans jumped 6.7% while deposits grew 4.1%. 9M11 Net interest income was up 18% to USD 1,013mn as Interest Income increased 8% to USD1,430mn while

Interest expense was down 10%. Net interest margins saw a small increase from 3.6% in Dec-10 to 3.7% in Sep-11. Provisions decreased 5% over 9M10, coming in at USD 340mn. Consequently, net profit came in at

USD 731mn, a 5% growth. NPL ratio stood at 3.4% (4Q10: 3.7%) with coverage of 105.1% (4Q10: 89.4%).

Tier 1 ratio was 19.2% and Total Capital ratio was 22.3%.

Asset quality issues continue to haunt banks in the emirates. Recently, Fitch ratings issued a warning that weak global economy and slowdown in Abu Dhabi will represent new headwinds for the UAE banking

system. Fragile real estate sector, Dubai GRE's and several UAE corporates continue to pose asset quality challenges.

FGB is trading at 7x earnings and has lost 11% for the year. The stock has generated positive returns over 2Y (+16%), 3Y (+90%) and 5Y (+54%) periods. It carries a dividend yield of about 3.5%-4%. We see the

stock as carrying high risk given a standard deviation of 30% while MVX has increased 25% over the last year; the stock also had a max drawdown of 22% during the one year period.

Our Expectation

We expect FGB to report a net profit of USD 917mn in FY11 and USD 1,178mn in FY12, implying a growth of

28% in 2012. Brokers estimate FY12 net income to be between USD 1,050mn and USD 1,335mn.

24 As of 12th December 2011

Sto

ck

Vo

lati

lity

Expected Return (2011)

Low Medium High

Low

Medium

High

Year 2006 2007 2008 2009 2010 2011

2006 -36% 7% -20% -2% 1% -1%

2007 82% -10% 13% 13% 8%

2008 -55% -10% -3% -5%

2009

79% 42% 22%

2010

13% 0%

2011

-11%

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Financials

USD mn 2006 2007 2008 2009 2010 2011E 2012E

Income Statement

Interest Income 785 981 1,349 1,767 1,791 1,788 1,891

Net Interest Income 329 362 702 1,044 1,159 1,246 1,394

Loan Loss Provision 36 56 154 457 446 419 381

Net Income 418 547 818 901 931 917 1,178

Balance Sheet

Cash 1,136 2,444 1,362 1,510 2,321 2,483 2,695

Loans/Advances 6,849 12,088 21,603 24,603 26,030 28,138 30,980

Deposits 9,373 14,224 20,133 23,524 26,878 27,442 28,842

Total Assets 13,000 19,924 29,267 34,154 38,314 40,722 44,196

Total Liabilities 10,554 17,170 24,845 28,024 31,747 33,689 36,452

Total Shareholder's Equity 2,446 2,755 4,422 6,129 6,567 7,033 7,744

Analytics

Loans Growth (%) 84.95 76.50 78.71 13.89 5.80 8.10 10.10

Deposits Growth (%) 98.89 51.76 41.54 16.85 14.26 2.10 5.10

Loan/Deposits (%) 73.07 84.98 107.30 104.59 96.85 102.54 107.42

Return on Equity (%) 17.09 19.84 18.50 14.70 14.18 11.93 15.21

Return on Assets (%) 3.22 2.74 2.80 2.64 2.43 1.74 2.67

Revenue Growth (%) 52.42 24.92 37.59 30.92 1.37 -0.17 5.77

Earnings Growth (%) 45.49 30.75 49.65 10.15 3.33 -1.48 28.41

Assets Growth (%) 81.71 53.26 46.89 16.70 12.18 6.29 8.53

Equity Growth (%) 14.84 12.63 60.52 38.61 7.14 7.10 10.10

Cost-to-Income (%) 19.35 21.61 24.15 19.31 17.83 18.05 16.53

P/E 9.96 13.80 4.30 7.22 7.79 6.60

Price/Book 1.70 2.74 0.76 0.97 0.98 0.94

EPS (USD) 0.29 0.38 0.54 0.58 0.61 0.61

BVPS (USD) 1.69 1.91 3.07 4.31 4.81 4.69

DPS (USD) 0.17 0.17 0.09 0.13 0.16

Market Price (SAR) 11 19 9 15 17 16

Annual Trading Volume (mn) 185 366 500 186 157 79

Annual Trading Value (USD mn) 814 1,652 2,710 626 681 367

Turnover Velocity 15% 28% 50% 13% 11% 5%

M Cap (USD mn) 4,152 7,540 3,365 6,046 6,832 6,596

Source: Reuters Knowledge, Company Accounts, Markaz Research

Risk Metrics

6M 1Y 2Y 3Y 5Y

Monthly return stats Average Monthly Return -1.53% 0.37% -0.05% 0.51% 1.12%

Highest Monthly Return 14.38% 14.38% 14.38% 27.82% 35.59%

Lowest Monthly Return -10.63% -10.68% -16.08% -24.76% -30.50%

Largest Losing Streak (# of Months) 3 3 4 4 6

% of Negative Months 67% 50% 54% 53% 48%

Maximum Drawdown* -22% -22% -22% -22% -72%

Standard Deviation 30.99% 29.61% 29.49% 40.61% 41.97%

%Change in MVX -16% 25% 7% -79% 60%

*Largest decline from a previous high Source: Reuters, Markaz Research

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Appendix 1: Large Caps

Company Name Domicile

Market Cap

(USD mn)

Value Traded (USD mn)

Turnover Velocity

(%)

P/E Ratio

P/B Ratio

Dividend Yield

(%)

RoE, TTM (%)

RoA, TTM (%)

Govt. Ownershi

p

SABIC Saudi Arabia

73,992 31,235 39.6 9.5 2.1 4.2 24 13.9 75.2

Al Rajhi Bank Saudi Arabia

27,697 4,698 15.4 14.4 3.3 4 23.8 3.6 9.9

Qatar National Bank Qatar 24,861 1,653 7.4 12.2 2.4 3.1 22.2 2.9 50

Emirates Telecommunications Corp.

UAE 22,174 864 3.8 10.5 1.9 6.3 18.9 7.1 60

Industries Qatar Qatar 18,716 2,328 11.8 9.5 3 4.1 34.8 23.9 70.1

Saudi Telecom Co Saudi Arabia

18,131 1,763 8.6 8.7 1.5 6.8 17 7.1 83.6

National Bank of Kuwait Kuwait 15,239 1,918 11.4 15.7 2 3.4 14.3 2.4 0

Saudi Electricity Company

Saudi Arabia

14,776 2,829 18.7 23.2 1.1 5.2 4.7 1.2 81.2

Zain Group Kuwait 14,708 1,876 9.9 12.4 1.9 22.2 12.1 9 24.6

Saudi Arabian Fertilizers Saudi Arabia

12,132 1,764 15.5 11.3 6.3 6.9 59.5 50.5 59.6

Samba Financial Group Saudi Arabia

10,511 658 5.2 10 1.6 3.3 16.2 2.3 49.3

Etihad Etisalat Co Saudi Arabia

9,892 3,399 33.6 7.6 2.2 4.3 31.4 14.1 38.6

Riyad Bank Saudi Arabia

9,439 493 4.9 11.1 1.2 5.4 10.8 1.8 49.8

Kuwait Finance House Kuwait 8,791 1,573 16.5 30.2 1.9 2.2 6.2 0.4 24.4

National Bank of Abu Dhabi

UAE 8,284 199 2.5 9 1.2 2.7 15 1.6 70.5

Saudi British Bank Saudi Arabia

7,859 305 3.8 11 1.8 1.8 16.8 2 9.5

Banque Saudi Fransi Saudi Arabia

7,482 344 4.3 10 1.5 2.9 16 2.4 12.8

Kingdom Holding Co Saudi Arabia

7,411 619 8 39.7 1.1 6.7 2.7 1.7 0

Qatar Telecommunications

Qatar 7,096 368 5.1 10.8 1.3 3.3 12.7 5.5 65

First Gulf Bank UAE 5,841 367 5.8 6.9 0.9 3.7 14.4 2.5 5.3

Note: Market Cap and Value Traded are till Sep-11

Source: Reuters Knowledge, Markaz Research

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Appendix 2: Correlations

3 Year Correlations

1 Year Correlation

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Disclaimer This report has been prepared and issued by Kuwait Financial Centre S.A.K (Markaz), which is regulated by

the Central Bank of Kuwait. The report is owned by Markaz and is privileged and proprietary and is subject

to copyrights. Sale of any copies of this report is strictly prohibited. This report cannot be quoted without the prior written consent of Markaz. Any user after obtaining Markaz permission to use this report must clearly

mention the source as “Markaz “.This Report is intended to be circulated for general information only and should not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial

instruments or to participate in any particular trading strategy in any jurisdiction. The information and

statistical data herein have been obtained from sources we believe to be reliable but in no way are warranted by us as to its accuracy or completeness. Markaz has no obligation to update, modify or amend

this report.

This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors are urged to seek financial advice

regarding the appropriateness of investing in any securities or investment strategies discussed or

recommended in this report and to understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each

security’s price or value may rise or fall. Investors should be able and willing to accept a total or partial loss of their investment. Accordingly, investors may receive back less than originally invested. Past performance

is historical and is not necessarily indicative of future performance.

Kuwait Financial Centre S.A.K (Markaz) does and seeks to do business, including investment banking deals,

with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.

For further information, please contact ‘Markaz’ at P.O. Box 23444, Safat 13095, Kuwait. Tel: 00965

1804800 Fax: 00965 22450647. Email: [email protected]

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