November 11, 2008

EGYPT | TABLE OF CONTENTS

Sector/Co. Page No.

STRATEGY 3

ECONOMY 11

INDUSTRY
BANKING 22
CEMENT 30
FERTILIZERS 41
POULTRY 50
REAL ESTATE 58
STEEL 67
SUGAR 80
TELECOM 91
WHITE CONSUMER GOODS 101

EQUITY
AL-EZZ CERAMICS & PORCELAIN (GEMMA) 107
ARAB COTTON GINNING CO. (ACGC) 109
COMMERCIAL INTERNATIONAL BANK (CIB) 111
CREDIT AGRICOLE EGYPT (CAE) 113
DELTA SUGAR 115
EASTERN COMPANY (EC) 117
EGYPTIAN FINANCIAL & INDUSTRIAL CO. (EFIC) 119
EIPICO 121
EZZ AL-DEKHEILA STEEL 123
EZZ STEEL (ES) 125
MARIDIVE & OIL SERVICES 127
MISR BENI SUEF CEMENT (MBSC) 129
MISR CEMENT (QENA) 131
MOBINIL 133
NASR CITY HOUSING & DEVELOPMENT (NCHD) 135
NATIONAL SOCIETE GENERALE BANK (NSGB) 137
OLYMPIC GROUP 139
ORASCOM CONSTRUCTION INDUSTRIES (OCI) 141
ORASCOM TELECOM (OT) 143
ORIENTAL WEAVERS CARPETS (OWC) 145
PAINTS & CHEMICAL INDUSTRIES (PACHIN) 147
PALM HILLS DEVELOPMENTS 149
RAYA HOLDING 151
SINAI CEMENT 153
TELECOM EGYPT (TE) 155
TMG HOLDING 157
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EGYPT | STRATEGY

AN OASIS OF GROWTH AND VALUE THAT SURPASSES RISK

Welcome to CI Capital Research (CICR)'s first Egypt Book, where we look from
the top to drill down through 9 sectors and into 26 companies, which we think
demonstrates a wide and deep knowledge of the market.

WHY HERE? WHY NOW?

The Egyptian market has been hit hard by factors not of its own making. Ever
since its reformist government has been in place it has managed c.7% p.a.
growth, and now, despite global events, is widely recognized as a market of least
risk characteristics for its ability to continue delivering growth. Yet, as high com-
modity prices brought inflation to emerging markets and as the dawning realization
that the global financial crisis would have a global economic impact, then the
Egyptian market was hit by an outflow of (largely foreign) portfolio investments.
This saw the market plummet some 50% year-to-date.
This is despite the potential to grow, despite the robustness of its banking system,
despite the lack of toxic financial products, and despite economic growth being
driven nearly 3/4's by local demand. In short, this has left investors with a market
with the potential to grow through these turbulent times, the potential for strong
long-term growth, a market of low-cost production, and at valuations often lower
than their developed and emerging market peers. We conclude, therefore, that
whilst the Warren Buffet approach of buying value for the long-term at times like
these is correct, it is entirely possible that the returns may be seen rather sooner.
Compelling macro backdrop
Egypt’s reformist government is determined to keep growth going, to minimize
risk, and to complete a program to bring rising living standards to the masses. It is
a consumer-led environment, stimulated by investments, and gradually lowering
interest rates. Long-term growth is assured by demographics and geographic loca-
tion.
Summary macro snapshot
Actual Forecasts
2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12
Real GDP Growth (%) 6.8% 7.1% 7.2% 5.0% 4.4% 5.7% 6.3%
Population (000) 71,347 72,798 74,357 75,844 77,361 78,908 80,486
Avg. Population (>15<45 yrs old) 35,531 36,253 37,030 37,770 38,526 39,296 40,082
GDP/Capita, Current (US$) 1,527 1,792 2,191 2,305 2,455 2,698 3,026
Private Sector Credit Growth 5.3% 9.1% 13.4% 10.5% 9.0% 12.3% 14.0%
Fiscal Deficit % GDP 8.0% 7.3% 6.6% 6.5% 6.0% 5.7% 5.3%
Source: CBE and CICR forecast

FIVE TOP PICKS

We suggest below five interesting investments spread between a wealth of oppor-
tunities and investment requirements. We have chosen these from among the lar-
ger stocks, although within the body of the report there are exciting stories for
those interested in smaller stocks.
Top recommendations
LE m LE LE 2008 2009 2008 2009 2008 2009 2008 2009
Up-
12M side EV/ EV/
Name M.Cap Price FV % PER PER PBV PBV EBITDA EBITDA Yield Yield
NSGB 5,468 18.1 35.8 98% 5.4 4.8 1.27 1.07 N/A N/A 2.8% 4.1%
EFIC 2,064 29.8 50.1 68% 9.7 4.5 2.91 2.33 6.5 3.3 2.9% 3.7%
Mobinil 11,537 115.4 206.0 79% 6.2 5.5 8.54 6.51 3.9 3.6 13.9% 14.6%
Ezz Steel 5,949 11.0 34.2 212% 3.3 4.4 0.99 0.81 1.8 2.1 2.7% 2.1%
EIPICO 1,763 24.5 43.7 79% 6.6 5.9 1.50 1.36 3.2 2.6 7.8% 9.2%
Source: CICR forecast

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EGYPT | STRATEGY

VALUATION AND STOCK SELECTION

Our analysts use one main method of valuation, namely a discounted cash flow
(DCF) model. This discounts the explicitly forecast free cash flow for our 5 year
forecast period, then a terminal value at an assumed long-term growth rate. For
the real estate companies, the analyst discounts only the expected performance of
the known projects. Our basic cost of equity (COE) is taking a risk-free rate of
11.5% (derived from a 10-year bond) and 8% equity risk premium, which is con-
siderably higher than the traditional 5-5.5% seen in global equity research for
emerging markets. Individual company models have different COE, adjusting for
specific risk and leveraged beta. Basically we think you want to see at least 20%
upside potential from a share price performance in the current environment.
After the steep market fall, it is unsurprising that every stock has a significant up-
side potential to the thus-calculated methodology. Clearly in times like these, the
sensitivities of DCF go awry, not least as the market perception is perhaps saying
that the required rates of return have gone stratospheric. Whilst we are indeed
debating changing the valuation methods (in addition to DCF) and how we choose
a target price and recommendation, it is convenient to leave this in place, if noth-
ing else to emphasize the fact that EGYPT is way below its long-term potential
and indeed the whole market may be a “BUY”.
For the purposes of this report, rather than a simple relative ranking between the
stocks versus DCF upside potential, we have developed an “S” Score (or Subjec-
tive) rating in order to rank the stocks in some order of preference. We do this by
looking at a number of “screens” for Profitability, Momentum and Valuation, and by
looking at some charts to highlight this relative positioning.
We bring this together by including a number of factors, with weights to then pro-
vide a ranking order of the stocks, and from this derive a focus list of five compa-
nies drawn from different sectors. The factors and weightings we use include our
relative assessment of: management, size and tradability of the shares, valuation
from PER, PBV and EV/EBITDA, profitability from ROE or ROIC, balance sheet
risk from gearing, industry risk from our top-down view, and relative DCF upside.
We weight the factors subjectively, having higher weights for management and
industry risk than DCF upside potential. We also add a factor if we think the com-
pany may be an acquisition target. We only produce the result here in the form of
a ranked chart and is only one factor in considering our assessment of our top rec-
ommendations.

FROM THE TOP - SECTORS

From our view on the sustainability of growth in the economy, and with reducing
but high inflation, we try to think about which sectors are most and least at risk.
Given that the economy is 70% driven by local consumption, and given the gov-
ernment’s desire to sustain economic growth, we generally think the least risky
sectors should be the ones that would benefit from any investment program and
are linked to domestic consumption.
More risky
In this global environment, it is perhaps easier to think about where nerves should
settle, or where risks are increasing. The sectors below - we think - are relatively
high risk:

Housing & construction, particularly at the high-end of the market. De-

mand has been falling away here and the market looks somewhat satu-
rated. If economic growth continues and inflation abates, then there should
be reducing pressure on the middle classes, and this is reflected in the
housing companies’ shift towards the middle classes away from the top-
end. It is worth noting that there has not been the property boom to the ex-
tent there has been in parts of the Middle East, and property is still consid-

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 November 11, 2008
EGYPT | STRATEGY

ered more affordable in Egypt than in the Gulf. PALM HILLS DEVELOPMENTS,
SODIC, and TMG HOLDING are companies in this segment
Tourism: Falling global demand should place tourist receipts at risk. In re-
cent years, tourists have been coming not only from Europe and the Middle
East but increasingly from CIS. Egypt is a relatively low-cost location, with
good-all-year weather. Nonetheless, in our macro estimates, we pare the
growth of tourist receipts and think this sector potentially at risk.
Export oriented: With the slowdown in global trade expected, so too ex-
ports, particularly of consumer goods, are at risk. Egypt has some advan-
tage in that it is generally considered to be a low-cost producer. In addition,
we expect some currency weakness and export incentives to mitigate this
slowdown. Companies such as ORIENTAL WEAVERS CARPETS and OLYMPIC
GROUP (the latter to a lesser extent; only 10% of sales come from exports to
Arab and African countries) spring to mind as exporters in categories that
may suffer from falling global consumption, and yet these companies will
also spend efforts in focusing on domestic consumption as the export mar-
kets weaken.
Less Risky
Agriculture: We think food and food services is an interesting sector from
the top-down. Firstly, food is needed whatever the economy. Secondly,
after the rapid rise in basic food staples last year, Egypt realizes it has to
make more of its fertile crescent, and we think this is a sector which will
receive investment. Fertilizer, sugar, poultry ,and flour mills all make inter-
esting sectors. Included in this report are EFIC (fertilizers), DELTA SUGAR,
and EASTERN COMPANY (tobacco). (Our industry team would be happy to
help with bespoke requests on sectors, such as the milling sector, and
companies not included in this report.)

Non-housing construction: Since we think that there will be investment in

infrastructure and help for strategic sectors, then construction per se should
still be an activity going on in Egypt. Included in this should also be building
services and materials companies. OCI is the principal company in this
sector, but the larger proportion of its construction activity is outside of
Egypt (mainly GCC). However, its main profit growth driver comes from the
fertilizer segment. Other construction-related companies include EZZ STEEL
(virtual monopoly in Egypt). In addition, we include cement companies,
which is a sector wrongly out of favor – in our view. Within this, there are
speculative investments (MISR CEMENT – QENA) and totally mispriced (MISR
BENI SUEF CEMENT) and which foreigners can buy.

Oil & oil services: We think the energy sector is also a strategic sector for
further development. Mostly, we think this will benefit construction compa-
nies in the quoted sector. MARIDIVE & OIL SERVICES is an oil services com-
pany and has most of its earnings generated globally. Mostly, we think we
shall see continuing foreign direct investments (FDIs) in this sector as in-
deed recent press articles have continued to highlight the foreign interest in
the sector.

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EGYPT | STRATEGY

DRILLING DOWN
In this section we drill down from the top, running several screens and charts for
consideration. We only show the top and bottom companies in each screen, so
our top picks, including our "S" Score chart, may have companies that have not
featured in these tables, but nonetheless in our opinion do well.

PE versus growth
12.0

10.0
OCIC
SUGR MCQE
8.0 ETEL
09E PER

ACGC EAST
MOIL
6.0 PHAR
IRAX EMOB
PACH NSGB
ORWE CIEB OLGR COMI
RAYA4.0 ESRS MBSC
SCEM
2.0

0.0
-10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40%
3-year EPS CAGR

Source: CICR forecast

The downward sloping trend line perhaps indicates that growth is not the main
factor on investors’ minds at the moment, or even that the very high growth rates
are disbelieved. In any case, as the cycle goes round, growth should undoubtedly
come back into fashion and now is the time to look at companies and markets with
the potential for long-range growth – Egypt!
Noteworthy above is Palm Hills Developments (PHDC), but this growth is coming
off a very low base. We circled the "Sweet Spot" i.e. companies growing at a
credible pace at under 6x earnings.

ROE vs. PBV and ROIC vs. WACC

The ROE versus PBV is in effect a diagram of the PER, and the slope of the line
greatly affected by the outliers. The correlation is low, r-squared is just 0.25, but
pictorially it does give a snapshot and prompt one to think about whether stocks in
the bottom right hand corner really are cheap. The PBV, or Market Value to In-
vested Capital, compared to the ROIC/WACC, or in a banks case ROE/COE, al-
lows some comparison across sectors, adjusted for risk. The ROE/COE implies
the level at which the equity or book value or invested capital should trade, and
then (ignoring growth) can be compared to the PBV.

ROE vs. PBV ROIC (ROE) vs. WACC (COE)

3.5 45%
OCIC 40% EMOB
09E ROIC (ROE for banks)

3.0
MCQE 35% COMI
2.5 EFIC EFIC
SUGR IRAX IRAX CIEB
30%
MCQE
09E PBV

2.0 SCEM NSGB

25%
EAST MOIL CIEB SUGR PACH PHAR
1.5 ORTE 20% PHDC
PHAR COMI MOIL EAST MBSC
ETEL NSGB PACH OLGR
PHDC 15% OCIC OLGR ESRS
1.0 ECAP ORTE RAYA TMGH
ESRS MBSC 10%
ORWE ORWE ETEL
0.5 ECAP MNHD
SCEM 5%
RAYA ACGC
TMGH
- 0%
0% 10% 20% 30% 40% 50% 60% 7% 9% 11% 13% 15% 17% 19% 21% 23%
09E ROE WACC (COE for banks)
Source: CICR forecast Source: CICR forecast

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EGYPT | STRATEGY

VALUATION
Company 2008E 2009E Company 2008E 2009E
Cheapest PER PER Cheapest PBV PBV
Sinai Cement 4.0 2.5 TMG Holding 0.35 0.32
Palm Hills Developments 4.4 2.9 Arab Cotton Ginning 0.48 0.46
TMG Holding 4.1 3.4 Raya Holding 0.55 0.50
Misr Beni Suef Cement 3.6 3.5 Oriental Weavers 0.65 0.60
Raya Holding 4.1 3.6 Sinai Cement 0.83 0.65
Dearest PER PER Dearest PBV PBV
Delta Sugar 9.0 8.9 EFIC 2.91 2.33
OCI 9.5 9.4 Misr Cement (Qena) 2.95 2.52
Orascom Telecom Holding 12.3 9.5 OCI 2.82 3.16
Al-Ezz Ceramics 13.4 22.4 Mobinil 8.54 6.51
Nasr City Housing & Dev. 36.4 33.4 Nasr City Housing & Dev. 15.31 12.99

Company 2008E 2009E Company 2008E 2009E

Highest Yield Yield Cheapest EV/EBITDA EV/EBITDA
Mobinil 14% 15% Sinai Cement 3.3 1.5
Credit Agricole Bank-Egypt 10% 12% Palm Hills Developments 2.2 1.6
Ezz Al-Dekheila 14% 11% Arab Cotton Ginning 2.5 1.9
Misr Beni Suef Cement 6% 10% Misr Beni Suef Cement 2.9 2.0
Olympic Group 7% 9% Ezz Steel 1.8 2.1
Lowest Yield Yield Dearest EV/EBITDA EV/EBITDA
Al-Ezz Ceramics 0% 0% Olympic Group 5.5 5.2
Maridive & Oil Services 0% 0% Delta Sugar 4.9 5.3
PACHIN 0% 0% Misr Cement (Qena) 5.5 5.3
Palm Hills Developments 0% 0% OCI 8.9 11.7
TMG Holding 0% 0% Nasr City Housing & Dev. 28.5 25.4

MOMENTUM
Company 2009E 3yr CAGR Company 2009E 3yr CAGR
Fastest EPS EPS Fastest EBITDA EBITDA
Palm Hills Developments 52% 100% Palm Hills Developments 42% 105%
EFIC 116% 69% TMG Holding -1% 95%
TMG Holding 21% 47% EFIC 86% 62%
Al-Ezz Ceramics -40% 42% OCI -12% 41%
OCI 1% 40% Olympic Group 30% 25%
Slowest EPS EPS Slowest EBITDA EBITDA
Nasr City Housing & Dev. 9% -3% Eastern Company 2% 5%
Delta Sugar 1% -5% Ezz Al-Dekheila -20% 5%
Arab Cotton Ginning 10% -6% Nasr City Housing & Dev. 13% 1%
Raya Holding 14% -6% Misr Cement (Qena) -4% -2%
Orascom Telecom Holding 30% -27% Delta Sugar -7% -6%

Company 2009E 3yr CAGR Company 2009E 3yr CAGR

Fastest CASH CASH Fastest BVPS BVPS
Sinai Cement 1389% 244% Maridive & Oil Services 29% 48%
Maridive & Oil Services 5% 200% Ezz Steel 22% 36%
Palm Hills Developments -4% 78% CIB 28% 29%
EFIC 70% 53% Ezz Al-Dekheila 19% 26%
TMG Holding 37% 45% Misr Beni Suef Cement 20% 25%
Slowest CASH CASH Slowest BVPS BVPS
Ezz Steel -28% -2% Delta Sugar 7% 7%
Misr Beni Suef Cement 1033% -8% Arab Cotton Ginning 5% 5%
Ezz Al-Dekheila -12% -11% PACHIN 5% 5%
Raya Holding 5% -19% Telecom Egypt 4% 4%
Nasr City Housing & Dev. -14% -24% Nasr City Housing & Dev. 18% 1%
Source: CICR forecast

The cheapest rated stocks, (PER) tend to come from the sectors out of favor, such
as cement, real estate, and IT services, with steel not far behind. Similarly the
highest yields are found there. Dividend yields are approaching money market
rates, which should enhance any total return for an investment. Whilst a sector like
cement is out of favor with investors, there really appears a good longer-term op-
portunity. Consider that the government is trying to sustain growth through invest-
ment, and there continues to be much need for infrastructure investment in Egypt to
such an extent that the companies are finding it necessary to increase their capac-
ity (see the industry section), and there is some sector consolidation to consider.

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EGYPT | STRATEGY

PROFITABILTY & RISK

ROE 2008 2009 EBITDA Margin 2008 2009
Best Best
Mobinil 120% 135% Palm Hills Developments 66% 59%
EFIC 32% 58% Misr Cement (Qena) 53% 53%
Ezz Al-Dekheila 74% 45% Telecom Egypt 50% 52%
Palm Hills Developments 43% 43% TMG Holding 39% 51%
Nasr City Housing & Dev. 36% 42% Misr Beni Suef Cement 56% 46%
Worst 2008 2009 Worst 2008 2009
Oriental Weavers 13% 13% PACHIN 20% 20%
Telecom Egypt 10% 12% Ezz Steel 22% 20%
TMG Holding 9% 10% Oriental Weavers 17% 17%
Arab Cotton Ginning 6% 6% Olympic Group 15% 16%
Al-Ezz Ceramics 7% 4% Raya Holding 6% 6%

NET DEBT/EQUITY 2008 2009 Net Interest/Revenue 2008 2009

Best Best
Al-Ezz Ceramics 54% 37% Arab Cotton Ginning 33% 35%
Orascom Telecom Holding 78% 50% OCI 8% 11%
Olympic Group 51% 78% TMG Holding 8% 11%
OCI 52% 113% EIPICO 5% 5%
Misr Cement (Qena) 2% 4%
Worst 2008 2009 Worst 2008 2009
PACHIN -20% -22% Oriental Weavers -12% -10%
Palm Hills Developments -36% -33% Mobinil -9% -10%
EIPICO -41% -45% Orascom Telecom Holding -21% -18%
Misr Cement (Qena) -32% -45% Raya Holding -25% -19%
Delta Sugar -48% -46% Olympic Group -16% -19%
Source: CICR forecast

Mobile telephony may start to benefit from sector rotation as recent results from
MOBINIL suggest the concerns of a downturn in subscriber activity may have
been overdone. Clearly, the market also fears the housing and real estate com-
panies which seem already to be discounting a major downturn in real estate
prices. This also is a sector where consolidation may occur, especially amongst
smaller players, as in this environment the larger companies seek to acquire land
banks.
If our analysts are right there is considerable momentum still to be seen in Egypt.
Even those ranking in the “worst section” have reasonable growth expectations.

EZZ STEEL, almost a steel monopolist in Egypt, stands out as lowly rated and
growing quickly. The catalyst again should be construction volumes as it can
control its margin. MISR BENI SUEF CEMENT also falls into this category and looks
potentially mispriced.
EFIC has fast growing earnings and is cash generative, and a look at the com-
pany pages shows that it too is not highly rated. This is in a strategically-
important sector as the government wants to increase the agriculture capacity
and is still benefiting from better pricing even if fertilizer prices are well off their
peak.
The lowly-rated housing and cement sector rank well on EBITDA margin, and
MOBINIL in terms of returns on shareholders’ equity, but this latter is also one of
the most highly leveraged, just escaping our list of bottom 5. Reducing interest
rates, now that the cycle is turning may be of some help, but this is increased
financial risk for the returns. Even the worst appear to have reasonable returns
measured as EBITDA margin.

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EGYPT | STRATEGY

"S" SCORE
Given the weightings and factors we include, the highest ranked stocks do not
necessarily have the most compelling valuations. In this way, OCI has come out
highly paced, and is indeed one of Egypt’s premier blue chips, with a well-
regarded management. The banks as cheap and tradable come out well in this
scoring too.

“S” Score ranking

140

120

100

80

60

40

20

RAYA
ORTE

IRAX
MNHD

SUGR

PHAR

TMGH
MOIL

ETEL

EAST
ORWE

ESRS

CIEB

NSGB
PACH

OLGR

PHDC

EFIC

OCIC
SCEM
ECAP

MCQE

EMOB
ACGC

MBSC

Source: CICR forecast

CI Capital Research Universe

LE m LE LE 2008 2009 2008 2009 2008 2009 2008 2009
Up-
Price 12M side EV/ EV/ Div. Div.
Name M.Cap (11/6/08) FV % PER PER PBV PBV EBITDA EBITDA Yield Yield
Al-Ezz Ceramics 254 5.0 7.2 45% 13.4 22.4 0.80 0.78 5.6 4.2 0.0% 0.0%
Arab Cotton Ginning 1,020 4.1 10.1 148% 8.0 7.3 0.48 0.46 2.5 1.9 3.8% 4.1%
CIB 8,989 30.7 N/A N/A 5.1 4.3 1.69 1.32 N/A N/A 3.3% 4.1%
Credit Agricole Bank-Egypt 2,959 10.3 15.3 49% 5.6 4.9 1.68 1.52 N/A N/A 9.7% 12.1%
Delta Sugar 2,170 22.0 32.3 47% 9.0 8.9 2.42 2.27 4.9 5.3 8.3% 8.4%
Eastern Company 5,450 218.0 305.6 40% 7.1 7.1 1.75 1.54 4.7 4.4 6.7% 7.0%
EFIC 2,064 29.8 50.1 68% 9.7 4.5 2.91 2.33 6.5 3.3 2.9% 3.7%
EIPICO 1,763 24.5 43.7 79% 6.6 5.9 1.50 1.36 3.2 2.6 7.8% 9.2%
Ezz Al-Dekheila 12,249 896.2 1,501.9 68% 4.2 5.4 2.62 2.21 3.4 4.1 14.4% 11.2%
Ezz Steel 5,949 11.0 34.2 212% 3.3 4.4 0.99 0.81 1.8 2.1 2.7% 2.1%
Maridive & Oil Services 3,781 2.6 5.1 99% 7.8 6.5 1.85 1.44 5.9 4.6 0.0% 0.0%
Misr Beni Suef Cement 936 46.8 152.5 226% 3.6 3.5 1.11 0.92 2.9 2.0 5.5% 10.0%
Misr Cement (Qena) 2,310 77.0 98.5 28% 8.5 7.8 2.95 2.52 5.5 5.3 7.1% 7.7%
Mobinil 11,537 115.4 206.0 79% 6.2 5.5 8.54 6.51 3.9 3.6 13.9% 14.6%
Nasr City Housing & Dev. 3,122 31.2 42.8 37% 36.4 33.4 15.31 12.99 28.5 25.4 1.7% 1.8%
NSGB 5,468 18.1 35.8 98% 5.4 4.8 1.27 1.07 N/A N/A 2.8% 4.1%
OCI 42,192 196.5 330.5 68% 9.5 9.4 2.82 3.16 8.9 11.7 2.3% 2.9%
Olympic Group 1,450 24.1 55.1 128% 5.5 4.2 1.51 1.23 5.5 5.2 7.2% 9.4%
Orascom Telecom Holding 33,116 36.8 96.1 161% 12.3 9.5 1.46 1.28 3.9 3.3 2.7% 3.5%
Oriental Weavers 1,708 22.9 48.3 111% 5.3 4.6 0.65 0.60 5.0 4.2 6.8% 7.8%
PACHIN 585 29.2 83.4 185% 5.3 4.5 1.14 1.09 4.1 3.4 0.0% 0.0%
Palm Hills Developments 3,774 8.1 24.3 199% 4.4 2.9 1.25 1.20 2.2 1.6 0.0% 0.0%
Raya Holding 259 4.6 11.5 152% 4.1 3.6 0.55 0.50 3.6 3.0 8.0% 9.1%
Sinai Cement 1,150 32.9 93.0 183% 4.0 2.5 0.83 0.65 3.3 1.5 5.0% 8.0%
Telecom Egypt 26,801 15.7 24.3 55% 9.9 7.9 1.00 0.96 5.6 4.8 6.6% 8.2%
TMG Holding 7,857 3.9 12.8 231% 4.1 3.4 0.35 0.32 3.0 2.4 0.0% 0.0%
Source: CICR forecast
*Maridive & Oil Services share price is in US dollar

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EGYPT | STRATEGY

CONCLUSIONS
Summarizing the charts, tables and data above, these are the main conclusions
we draw:

A. Mispriced in our opinion:

SINAI CEMENT - Heavily sold off and half the value of its peers.
RAYA HOLDING - Consumer electronics, slow growth, and its net debt rank-
ing belies a liquid balance sheet and investments into a growing service
sector.
EIPICO – Low PER, high yield, decent (defensive - pharmaceutical)
growth, good margins and profitability.
The banks (see industry section) do not make most of the screens but are rela-
tively well placed as well capitalized and liquid, profitable, growing, and cheaply
rated. Now that the interest rate cycle has stabilized, interest may return to this
segment, not least as it is one banking sector in the world capable of lending to
a market with the potential to grow.

B. Speculative interest:
RAYA HOLDING - Cheap liquid balance sheet could be made to sweat
more.
MISR CEMENT (QENA) - Cement in the right place at the right time, and
ASEC is building a stake.

Our top five picks

From the above and from our “S” Score, we highlight the following investment
opportunities from different sectors and in no particular order:
NSGB: profitable, good returns, sound balance sheet, and still gaining
restructuring benefits, trading at 4.8x 2009E earnings, 1.1x 2009E BV,
ROE 24%, while earnings growing at 31% over next three years.
EFIC: Sound high returning growth in a strategically-important agricul-
tural sector, valued at 4.5x 2009E earnings.
EIPICO: Defensive play in the healthcare sector. Stable earnings with
long-range potential as health becomes an increasingly important issue
in Egypt.
MOBINIL: Mobile operator which has just beat consensus 3Q08 earnings.
It pays a generous dividend and sweats the equity. Interest rate and lev-
erage risk should be declining and has ongoing cost efficiency program.
We think there is some rotation back to Telcos, which should benefit from
stimulated consumer.
EZZ STEEL: Virtual monopoly position in Egypt, with controlled margins,
cheaper than foreign competition. Benefit from any rally in commodity
prices, and more fundamentally from the continued (non-housing) con-
struction investment we think will continue in Egypt.

10
 November 11, 2008

EGYPT | ECONOMY

DEMAND & INVESTMENT: A DARING CHALLENGE POTENTIALS

From the beginning of 2008 emerging economies watched Populous economy with inherent sizable
the global tornado from afar. Now with a vanishing confi- demand.
dence, foreign capital has fled compelling the waning of Domestic investments represent the bulk –
around 60% - of implemented investments.
many emerging economies stock markets. Yet, we deem
Well capitalized, under leveraged Banking
Egypt's economy will reveal distinguished resilience sector flushed with liquidity.
amidst the headwinds from the developed economies. Re- Solid BOP position even with the weaken-
inforced by its diversified GDP, liquid banking system, ing at the margins.
and an under-leveraged economy; Egypt is expected to Favorable factors of production and benign
maintain a modest GDP growth rate of 5% in FY08/09 – business environment that allows Egypt to
based on the GoE's ability to promote local investments, act as an investment hub within the region.
with a focus on SMEs. Underlying potential in a number of sectors
including fertilizers, infrastructure, agribusi-
Consumer-led recovery “the guardian” for growth: Reap- ness and pharmaceutical.
ing the fruits of bold reforms implemented to date and a grow-
ing investors’ confidence, Egypt's economy has leapfrogged
both on its economic and fiscal management platforms. RISKS
Thanks to the export-led strategy adopted, which led to the
witnessed domestic demand boom, GDP jumped to a growth
The current global challenges that is ex-
rate of 7.2% in FY07/08. pected to negatively impact exports growth.
FDI, a perfect exhale: Given Egypt’s fertile business soil and Highly affected FX earning sectors, namely
the increasing investors’ confidence in a reformist government, tourism, Suez Canal and FDI.
FDI soared reaching US$13.2 bn in FY07/08 up from US$3.9 Inability to rely on fiscal pumping to pro-
bn in FY04/05. Yet, it is expected to be hardly hit by the global mote growth with the prevailing fiscal defi-
cit.
downturn and exacerbated by investors’ panic all over the
globe.
Sustained high inflation jeopardy fading away: Like other SELECTED MACRO INDICATORS
open economies, Egypt was hit hard by the surge in interna- 2006/7 2007/8 2008/9F
GDP (Current, LE bn) 744.8 896.5 1,002.8
tional oil and food prices with inflation recording a double-digit Real GDP GR (%) 7.1% 7.2% 5.0%
growth of 11.7% in FY07/08. However, complying with the ex- GDP/Capita (Current, US$) 1,792 2,191 2,305
Inflation (CPI %) 10.9% 11.7% 17.0%
pected decline in international markets, we believe inflation to FDI (US$ mn) 11,053 13,237 6,364
simmer down driving the wheel for strengthened domestic de- Investments (LE bn) 155.3 179.3 190.8

mand.
ALIA MAMDOUH
BOP surplus maintained while current account deterio- ALIA.MAMDOUH@CICH.COM.EG
rates: Expenses of the robust domestic demand has been re-
flected in a deteriorating current account reaching US$0.9 bn
in FY07/08 and turning into a deficit of US$ 3.3 bn in FY08/09 EGYPT’S ECONOMIC PERFORMANCE
given the widening trade deficit and the relatively static ser- Real GDP GR Investment GR
8.0% 25.0%
vices growth. Yet, still BOP reflects low vulnerability given the
performance of the capital and financial account outweighing 7.0%

20.0%

such pitfalls. 6.0%

5.0%
Fiscal deficit restructuring, right on track: Despite the huge 15.0%

hike in expenditures due to increased subsidies, driven by the 4.0%

spiraling rise of oil prices; fiscal deficit to GDP narrowed to 3.0%

10.0%

6.6% in FY07/08 down from 7.3% in FY06/07. This is mainly 2.0%

5.0%
attributable to the revenues growth, powered by tax revenues' 1.0%

increase as well as other revenues including proceeds from 0.0% 0.0%

cement licenses worth of around LE 1.14 bn in FY07/08. 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12

11
 November 11, 2008
EGYPT | ECONOMY

REAL SECTOR
Economic growth in recent years has been aggravated by a diversified output
Fueled by an ex-
strategy that was reflected in the strong growth in tourism, construction, real es-
panded output strat-
tate, communications, oil and gas and trade sectors. The inflow of foreign invest-
egy, economic
ments as DAMAC and Emaar helped flourishing the construction and real estate
growth has been
sectors that in turn fed the building materials industry. In addition, the entrance of
maintained over the
the third mobile operator, Etisalat Misr, lifted up the communications sector. Export
past years
volumes, despite the strengthening of the Egyptian pound against the US$ helped
the manufacturing sectors to record a growth of 8% in FY07/08 up from 5.9% in
FY05/06.

Real GDP growth breakdown GDP growth by sector

2006/7 2007/8
Private consumption Government consumption 30.0%
Gross Capital Formation Net Exports
100%
25.0%
90%

80% 20.0%

70%
15.0%
60%
10.0%
50%

40% 5.0%

30%
0.0%

Construction

Real Estate
Financial
Oil & Gas

Industries

Others
Tourism
Communications

Wholesale &

services
20%

Trade
10%

0%
2004/5 2005/6 2006/7 2007/8

Source: CBE Source: CBE

SMEs have been one of the pillars of the Egyptian private sector, compromising An economy with an
the bulk - above 90% - of the operating private non-agricultural establishments. increasing say for
Micro, small and medium enterprises contribute with around 80% of total value SME’s and the infor-
added and attract 47% of total investments. Moreover, their input to the country’s mal sector
exports reached around 20%; of which chemical products represent the lion’s
share of 38%.

SME’s contribution to Industrial GDP

2006E
2000

Small, 12%

Large, 38% Small, 14%

Large, 48%

Medium, 40%
Medium, 50%

Source: CICR database

12
 November 11, 2008
EGYPT | ECONOMY

As SMEs provide affordable goods and services that suits the lower and lower- High level of infor-
middle income groups - which represents 57% of the population - they are highly mality is the main im-
interrelated to the informal economy. Such high level of informality limits SMEs pediment facing
access to a wide range of formal services, most importantly credit facilities. Rec- SMEs. Yet, they enjoy
ognizing their vital role, GoE launched an Exchange market for growing medium increasing GoE sup-
and small companies, Nilex, to facilitate access to capital as well as exposure to port
foreign investors. We highly believe that increasing SMEs support is crucial to sus-
tain high growth levels by promoting entrepreneurship, job creation and attracting
domestic investments.

INVESTMENTS
The package of bold reforms implemented on all fronts, namely (1) reducing the Vibrant investment
minimum capital requirement of incorporation to LE 1,000, (2) corporate tax cut by appetite
half reaching 20%, (3) reducing weighted average custom tariffs from 14% to
6.9%, (4) tariff bands streamlined and reduced from 27 to 6, and (5) customs on
capital assets capped at 5% have created an attractive environment for invest-
ment. Moreover, with the country's favorable factors of production and competitive
energy prices, both investment and FDI recorded buoyant growth.

Based on weighted growth, the services sectors accounted for the bulk of new Services sectors led
investments. In FY07/08, investment in transportation and communication wit- investment growth
nessed the highest flow of 7.8%; followed by hydrocarbon investments, namely in
the upstream activities which recorded a weighted growth of 7.1%. Infrastructure
investments come next with a rate of 5% - especially in water and electricity sta-
tions.

Investment breakdown FY07/08 Investments weighted growth by sector

9.0%
Others,
Health,
8% Agriculture, 4%
2% 8.0%

Education, 3% 7.0%
Crude Oil & NG,
Real Estate, 7% 17% 6.0%

5.0%
Tourism, 3%
4.0%

Financial
3.0%
Intermediaries, 1%
Manufacturing & Oil
Products, 2.0%
Wholesale & Retail
22%
Trade, 1.0%
3%
0.0%
Transp. & Com.

Tourism

Others
Manuf.& Oil

Suez Canal

Real Estate

Education
Agriculture

Crude Oil & NG

Financial Sector
Wholesale Trade
Electricity & Water

Construction

Health
Products

Transp. & Com.,

20%

Construction &
Electricity & Water, 8%
Building, 2%

Source: CBE Source: CBE

Rising confidence in the country's economic performance loosened the wheel for Mounting FDI inflows
FDI flows which maintained their high growth levels reaching US$13.2 bn in were reflected in a
FY07/08 up from US$3.9 bn in FY04/05. FDI constitutes around 8.2% of the coun- strengthened cur-
try's GDP in FY07/08. The petroleum sector held the major chunk of 38% of such rency and an ex-
inflows, while the contribution of the real-estate still maintains a low level of 0.8% panded output
in FY07/08, despite its strong growth reaching US$90.6 mn up from US$39 mn in
FY06/07. Within the non-petroleum investments, the financial sector accounted for
the lion’s share of 40% followed by industrial activities (32%) and the services sec-
tors (15%).

13
 November 11, 2008
EGYPT | ECONOMY

Investment & FDI & Shares in GDP Non-Petroleum FDI Breakdown FY07/08
US$ mn FDI Implemented Investments CIT, 0.3%
FDI % of GDP Investment % of GDP
35,000 25.0% Real Estate, 1.8% Tourism, 2.2%

30,000 Services, 15.3%

20.0%
25,000

15.0% Industry, 31.6%

20,000

15,000
10.0%

10,000 Financial Sector,

40.1% Agriculture, 1.4%
5.0%
5,000 Construction,
7.3%
0 0.0%
2004/5 2005/6 2006/7 2007/8

Source: CBE Source: Ministry of Investment

However, sustaining such strong FDI levels is doubtful, especially after the re- However, sustaining
moval of tax exemptions from the free zones for energy-intensive industries cou- such strong FDI in-
pled with the increase in energy prices that were announced in May 2008. More- flows is of a concern
over, the current global financial turmoil is expected to have a negative impact on
the inflow of FDI, as 70% of such inflows comes from the US and EU countries.
Yet, with GCC surplus such decline is expected to be mitigated. We expect net
FDI inflows to reach US$6.4 bn in FY08/09, followed by US$5.9 bn in FY09/10. On
a different note, GoE expects FDI to reach around US$10 bn in FY08/09.

Despite the global gloom, announcements of new projects are still in the head- A positive aspect is
lines: Al Kharafi Group confirmed plans to pump US$2 bn in new investments in that announcements
the steel industry; Schneider Electric will establish a new electricity plant with an of new foreign invest-
investment cost of around US$ 45.5 mn; GlaxoSmithkline plans to buy the Egyp- ments are still in the
tian mature products business of Bristol-Myers Squibb Co. for US$210 mn, and headlines
Solvay SA, the world's largest soda- ash maker, bought Alexandria Sodium Car-
bonate Co. in a deal worth US$137.5 mn. Moreover, the fertilizers sector is to wit-
ness further investments including EBIC, Agrium and Egyphos.

Key pipeline projects over 2008-12

Sector Project Investments Completion Date
El-Swedy Cement US$350 mn 2010
North Sinai Cement LE 1,500 mn 2010
Cement
Al-Nahda Industries LE 1,600 mn 2011
Al-Wady Cement LE 1,000 mn 2012
Four new steel raw materials factories; Ezz Steel (ES), Suez
Steel Steel Company, Tiba for Iron & Steel and the Egyptian US$15 bn NA
Company for Sponge Iron.

Almaza City Center by Al-Futtaim US$0.5 bn 2008

Hyde Park by Damac US$5.5 bn 2011
Real Estate Cairo Nile Corniche Towers project by Qatari Diar LE 5.75 bn 2011
West Town Cairo, in Sheikh Zayed by SODIC US$2.4 bn 2011
East Town Cairo, in Katameya US$1.6 bn 2011

Port Ghalib by El-kharafi Group US$1.2 bn 2009

Serrenia resort by Shaheen Bus.& Inv, Group US$2.5 bn 2010
Tourism Porto Sokhna by Amer Group LE 1.5 bn 2010
Marassi by Emaar US$1.74 bn 2012
Almaza Bay Resort by Travco LE 2.56 bn 2012

Egyptian Basic Industries Co. (EBIC) US$432 mn 2008

Egyptian Fertilzers Co. (EFC) US$250 - 300 mn 2010
Fertilizers
Agrium US$1400 mn 2010
Egyphos US$680 mn 2011

Source: CICR

14
 November 11, 2008
EGYPT | ECONOMY

As domestic investments represent the bulk of total implemented investments in Another positive as-
Egypt, of which SMEs bears a considerable contribution, the GoE's commitment to pect is the GoE's
support SMEs investments as well as providing them with export facilities – commitment to focus
through tapping new potential markets – is expected to mitigate a reduced FDI on SMEs and con-
inflows. Moreover, the GoE's decision of freezing any increase in energy prices till tinuing infrastructural
the end of 2009 is another measure that can drive further investments. In addition development
to the continued infrastructural development with US$8.9 bn worth of transport
investments expected to pour into the country over the coming three years. We
expect total implemented investments to reach LE 190.8 bn in FY08/09. Against
this backdrop and given the purchasing power resilience of the upper and upper
middle classes of the society and their influence on the informal sector domestic
demand growth will likely maintain its levels. Thus, we believe Egypt to maintain a
modest growth amidst such turbulence and negative sentiments with expected
GDP growth rates of 5% and 4.4% in FY08/09 and FY09/10, respectively. Said
moderate setback in growth is to be also supported by the country’s diversified
GDP, liquid banking system with loans to deposits ratio of 53% and an under-
leveraged economy.

We highly believe a 5% GDP growth is still significantly higher than that witnessed
during the slowdown early in the decade, reflecting a better-off economic structure
with stronger spine and foundations. Overall, we believe economic slowdown will
worsen in FY09/10 given the steep decline in oil prices and the maintained global
slowdown affecting large emerging markets, including Russia and China.

Our estimates are considered conservative, yet there might be upside surprises if
the GoE succeeded to attract higher than expected FDI levels and support export-
oriented industries.

FDI & Investment Outlook

LE bn Investment FDI US$ mn
300.0 14,000

12,000
250.0

10,000
200.0

8,000
150.0
6,000

100.0
4,000

50.0
2,000

0.0 -
2005/06 2006/07 2007/8 2008/9 2009/10 2010/11

Source: CICR forecast

Public-private partnerships (PPP) are integral to investments, as well as sustained Public-private part-
economic growth as it aims at lifting-off some of the burden on the government nership, another
budget, particularly in terms of infrastructural investments. PPP is considered an mechanism for sup-
important supporting tool for the private sector as well benefiting from the govern- porting investments
ment endorsement in fast-tracking the projects permits. One of the main sectors
that witnessed PPP projects is the transport sector with Cairo-Alexandria highway
project that will be awarded to a private firm under the PPP model in January 2009
with an estimated investment cost of LE 1.9 bn. In addition to the Mediterranean
Coastal highway with an investment cost of LE 1.5 bn. There are still a number of
PPP opportunities in infrastructure development, including water facilities and sani-
tation as well as electricity plants with Egyptian Contracting Co. (Mokhtar Ibrahim)
winning a project for expanding a water utility in Obour City with an investment cost
of LE 280 mn. We highly believe that endorsing PPP will enhance sustaining mod-
erate economic growth levels without imperiling the existing fiscal deficit.

15
 November 11, 2008
EGYPT | ECONOMY

MONETARY SECTOR

INFLATION
Rising global oil prices as well as international commodities prices, namely food – High levels of infla-
as Egypt is a net importer - lifted up local products' prices, leading CPI reading of tion imposed a threat
11.7% in FY07/08. Yet, the full impact should be reflected in FY08/09 by which to growth
CPI reading is expected to reach 17%. In an effort to curb inflationary pressure,
the GoE raised up interest rates; reduced imports tariff to 6.9% from 9%; and im-
posed tariffs on certain export commodities (steel, cement, rice), yet, inflation
maintained its increase – with CPI reading reaching the peak of 23.6% in August
2008. Bearing the highest weight in CPI (44%), food & non-alcoholic beverages
drove up the hike being highly influenced by changes in oil prices. In an attempt to
alleviate inflationary pressures on the public, as Egyptians spend around 45% of
their income on food items expanding to 60% for the lowest income groups, GoE
increased wages by 30% in May 2008. Yet, sustained high levels of inflation out-
weighed such efforts and eroded the Egyptian's purchasing power and real in-
comes.

CPI, food & oil prices

CPI Food prices Oil prices US$/barrel
35.0% 160.0

30.0% 140.0

120.0
25.0%

100.0
20.0%
80.0
15.0%
60.0

10.0%
40.0

5.0% 20.0

0.0% 0.0
May-07

May-08
Mar-07

Mar-08
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07

Apr-07

Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08

Apr-08

Jun-08
Jul-08
Aug-08
Sep-08
Oct-08

Source: CAPMAS & Bloomberg

The decline in global oil prices witnessed since July 2008 was filtered down to Yet, inflation started
food commodities' prices which started to cool-off since September 2008, bringing cooling-off
down the CPI reading to 20.2% in October 2008. We believe inflation will not re-
cord its 2008 skyrocketing readings, not only due to the cool-off in international
prices but also due to the absence of the low base of the consumer price index
effect. We expect inflation to start exhibiting lower levels in FY09/10, enhancing
the purchasing power and driving up domestic demand.

As a measure to counteract inflation, the Central Bank of Egypt (CBE) raised inter- Monetary tightening
est rates for six consecutive times starting February 2008. The overnight deposits was the first re-
and lending rates rose from 8.75% and 10.75% in December 2007 reaching sponse
11.5% and 13.5%, respectively in September 2008. Consequently, broad money
supply and liquidity (M2) witnessed slower growth of 15.7% in FY07/08 down from
18.2% in FY06/07. We do not believe that the monetary tightening have been to-
tally effective in curbing inflation mainly due to the slow pass of changes in corri-
dor interest rates to general interest rates in the banking system. In addition to, the
relatively low loan-to-deposits ratio of 53% that flushed the banks with excess li-
quidity, along with the nature of the Egyptian economy – which bears a significant
contribution from the informal sector.

16
 November 11, 2008
EGYPT | ECONOMY

With easing inflation readings coupled with expected risk of a downturn, the tight- Policy rates is a tool
ening monetary cycle seems to come to an end. The pressing need to support the to support growth
economy in facing the impact of the global economic downturn should be through
driving up local investments. Therefore, monetary policy is expected to be loos-
ened with lending rates to decline to 12% in FY09/10.

CPI & interest rate Money supply growth & lending rates
LE bn Domestic Liquidity (M2) Lending Rates
Deposits Lending CPI 900.0 14.0%
16.00% 25.0%
800.0
14.00% 12.0%

20.0% 700.0
12.00% 10.0%
600.0
10.00% 8.0%
15.0% 500.0
8.00% 400.0 6.0%
10.0%
6.00% 300.0
4.0%
4.00% 200.0
5.0%
2.0%
2.00% 100.0

0.0 0.0%
0.00% 0.0%

May-07

May-08
Nov-06

Mar-07

Nov-07

Mar-08
Jul-06
Aug-06
Sep-06
Oct-06

Dec-07
Jan-07
Feb-07

Apr-07

Jun-07
Jul-07
Aug-07
Sep-07
Oct-07

Dec-07
Jan-08
Feb-08

Apr-08

Jun-08
May-07

May-08
Nov-06

Mar-07

Nov-07

Mar-08
Jul-06
Aug-06
Sep-06
Oct-06

Dec-06
Jan-07
Feb-07

Apr-07

Jun-07
Jul-07
Aug-07
Sep-07
Oct-07

Dec-07
Jan-08
Feb-08

Apr-08

Jun-08
Jul-08
Aug-08
Sep-08
Oct-08

Source: CAPMAS & CBE Source: CBE

EXTERNAL SECTOR
The extensive growth in capital flows, exports revenues as well as FDI inflows, Strong Egyptian
contributed to the rebound in the Egyptian pound’s confidence leading to the pound, yet, not
pound’s appreciation to an average of 5.503 LE/US$ in FY07/08 up from 5.710 for long
LE/US$ in FY06/07. We believe such appreciation will not likely to continue with
the strength gained by the US$ against the EUR and the declining oil prices. In
addition to the decline in FDI flows and the expected current account deficit that
will exert more pressure on the Egyptian pound. We expect the LE to depreciate
reaching an average of 5.735 LE/US$ in FY08/09, followed by further depreciation
in FY09/10 reaching an average of 5.819 LE/US.

Exchange rates
US$ EUR/USD LE/USD LE
1.60 6.40

1.40 6.20

1.20
6.00
1.00
5.80
0.80
5.60
0.60
5.40
0.40

0.20 5.20

0.00 5.00
2003/4

2004/5

2005/6

2006/7

2007/8

2008/9

2009/10

2010/11

2011/12

Source: Bloomberg & CICR forecasts

17
 November 11, 2008
EGYPT | ECONOMY

Egypt's Balance of Payment (BoP) ran an overall surplus of US$5.4 bn in FY07/08 Consumption boom
supported by the combined effect of a net inflow of US$7.1 bn on the capital and led to a higher trade
financial account, and a current account surplus of US$0.9 bn. On the other hand, deficit
Egypt’s trade balance reflected an increasing trade deficit despite exports’ growth
recording 19% in FY06/07 and 33% in FY07/08 - mainly led by the 43% increase
in oil exports. But, the hike in domestic consumption pushed imports growth higher
recording 26% and 38% in FY06/07 and FY07/08, respectively. Imports growth
was mainly attributed to petroleum payments registering the highest growth of
131% in FY07/08 due to the rising international oil prices. Yet, the services bal-
ance surmounted such deficit led by the strong growth of tourism revenues, which
resulted in a current account surplus of US$888 mn in FY07/08. It is worth high-
lighting that the current account is experiencing a shrinking surplus with a declin-
ing share in GDP of 0.5% in FY07/08 down from 1.7% in FY06/07 exacerbated by
the growing trade deficit.

Current account & trade balance Current account inflows

US$ mn
Trade Balacne Current account balance LE bn US$ mn Oil Exports Suez canal Tourism Remittances
Consumption
30,000.0 700.0 16,000

14,000
600.0
20,000.0

12,000
500.0
10,000.0
10,000
400.0
8,000
0.0

300.0
6,000
(10,000.0)
200.0 4,000

(20,000.0)
100.0
2,000

0
(30,000.0) 0.0
2004/5 2005/6 2006/7 2007/8
2004/5 2005/6 2006/7 2007/8

Source: CBE Source: CBE

Even before we consider the impact of the global slowdown, trade balance has Trade balance, the
been on the edge with expectations of a growing deficit, given the extensive pitfall of the current
growth in imports driven, as previously mentioned, by the buoyant domestic de- account
mand. Looking ahead, the global shrinking demand, particularly hitting developed
economies, especially the US and EU, our main trade partners, are expected to
force exports to witness a notable setback in its previous strong growth levels. We
believe exports to exhibit a growth of 14% in FY08/09 supported by the weaker
pound, and the already signed contracts; while imports are expected to grow with
18% in the same year. As imports' growth is expected to continue exceeding that
of exports, a growing trade deficit will remain a major drawback for the current ac-
count as it is not expected to be outweighed in the medium-term given the static
services growth.

Trade Deficit & Current account

US$ bn Imports Exports Current Account US$ bn
80.0 4.0
2.9
2.3
60.0 2.0
1.8 0.9
40.0
0.0

20.0
-2.0

0.0 (3.3)
-4.0
-20.0
-6.0
-40.0
-8.0
-60.0 (8.5)

-10.0
-80.0
(11.0)
-12.0
-100.0

-120.0 -14.0
(13.7)

-140.0 -16.0
2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12

Source: CBE & CICR forecasts

18
 November 11, 2008
EGYPT | ECONOMY

Tourism, one of the main FX earnings pillars, witnessed dramatic growth over the Tourism receipts is
past two years. Both, international tourist arrivals (ITA) and international tourism the first to be hit
receipts (ITR) recorded significant respective growth of 18.3% and 32.3% in
FY07/08. Such buoyancy has been mainly supported by the weakness of the
Egyptian pound against the euro and GCC currencies, where Europe accounts for
the bulk of ITA representing 69%, followed by the Middle East 18.8%. Yet, such
exceptional tourism performance is expected to be at risk, being faced by the an-
ticipated slowdown in the global economy with ITR expected to reach US$11.1 mn
and US$11.8 mn in FY08/09 and FY09/10, respectively.

Boosted by the rising global trade and high oil prices; Suez Canal receipts re- With expectation of a
corded magnificent growth of 17.2% and 23.6% in FY06/07 and FY07/08, reaching declining global
US$5.2 bn. Yet, the anticipated slowdown in global trade is expected to impact trade, Suez canal re-
Suez Canal receipts leading to a lower growth levels reaching US$5.6 bn. ceipts will be nega-
tively impacted

Suez Canal Receipts & Traffic International tourists arrivals & receipts
Number No. of Vessels Oil Tankers Suez Canal Receipts US$ mn US$ mn Tourism Reciepts Tourists Arrivals Visitor
2,000.0 600.0
12,000.0 14,000.0

1,800.0
500.0 12,000.0
1,600.0 10,000.0

1,400.0 10,000.0
400.0
8,000.0
1,200.0
8,000.0
1,000.0 300.0
6,000.0
800.0 6,000.0
200.0
600.0 4,000.0
4,000.0
400.0
100.0
200.0 2,000.0
2,000.0

0.0 0.0
May-

May-

May-
Mar-06

Mar-07

Mar-08
Jun-05
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06

Apr-06

Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07

Apr-07

Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08

Apr-08

Jun-08

0.0 0.0
2004/5 2005/6 2006/7 2007/8

Source: IDSC & CBE Source: CBE

Remittances of Egyptian workers have been one of the main drivers to the current Remittances remains
account surplus, through an extensive growth of 25.6% and 35.4% in FY06/07 and an important source
FY07/08, respectively. Growth in remittances has been mainly driven by inflows for Egypt’s BOP
from GCC – the major contributor to remittances with 51% - which recorded a 42%
growth in FY07/08 up from 19% in FY06/07. Given that GCC countries will main-
tain current account surplus, yet at lower levels due to lower oil prices, we expect
that it will mitigate the risk of the anticipated decline of remittances from the US.

Remittances
US$ mn GCC US Europe
10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0
2004/5 2005/6 2006/7 2007/8

Source: CBE

19
 November 11, 2008
EGYPT | ECONOMY

Provoked by the widening trade deficit and the declining growth in net services, Current account ex-
the current account is expected to leave its surplus era, which has been prevail- hibiting high vulner-
ing since FY01/02, heading towards a growing deficit reaching US$3.3 bn in ability to growing
FY08/09 deteriorating further to US$8.5 bn in FY09/10. We believe current ac- trade deficit
count deficit will reach 1.9% of GDP in FY08/09 shifting from a surplus of 0.5% of
GDP in FY07/08. .

FISCAL SECTOR

With a committed government embarking on a restructuring scheme for revenues

and expenditures targeting a fiscal deficit of 3% of GDP by FY10/11, it managed Despite fiscal restruc-
to ease fiscal deficit from a GDP share of 9.6% in FY04/05 to 6.6% in FY07/08. turing, subsidies is
Backed by maintained economic growth and enhanced tax payers’ compliance, still a heavy burden
tax revenues witnessed strong growth of 16.9% and 20% in FY06/07 and
FY07/08, respectively, pushing revenues to LE 218.5 bn in FY07/08. However,
the surge in oil and food commodities prices exerted more pressure on subsides,
besides the 30% increase in wages, putting more pressures on the expenditures
side which grew by 25% in FY07/08. Even with the subsidies restructuring
scheme (an average energy price increase of 27% July 2006 and 40% in May
2008) that was outlined to alleviate the increasing burden; expenditures reflected
signs of rigidity with the oil subsidies accounting for around 48% of the total
subsidies.

Revenues & Expenditure Expenditure Breakdown FY07/08

Revenues Expenditures Fiscal Deficit/ GDP
LE mn
300,000 12.0%
Others
8%
Wages & Salaries
250,000 10.0% Purchase of Non- 22%
Financial Assets
12%
200,000 8.0%

Purchase of Goods
150,000 6.0% & Services
6%

100,000 4.0%

Interest Payments
Subsidies
18%
50,000 2.0% 34%

0 0.0%
2004/5 2005/6 2006/7 2007/8

Source: MOF Source: MOF

Tax buoyancy has been improving and is expected to progress further with Declining interna-
planned reforms in sales tax and the introduction of value-added tax, the newly tional oil prices trim-
introduced real estate tax law, and the new traffic law. We believe revenues will ming fiscal deficit
continue to grow reaching LE 269.9 bn in FY08/09. Bearing in mind, the decline in share in GDP
international oil prices that will simmer down subsidies’ growth and the new indus-
trial energy policy that reduces fuel subsidies for energy-intensive industries as
well as the reduction in imports payments, we believe expenditure will grow at a
slower pace. We believe the GoE’s economy rescue package of increasing sup-
port for exports; offering financing and export-related facilities for SMEs; and ex-
panding infrastructure investments could be implemented from expenditures' sav-
ings. We believe this will help reduce the fiscal deficit to 6.5% of GDP in FY08/09
and 5.3% in FY11/12. It is unlikely to hit the target of 3% of GDP unless more re-
structuring on the expenditures side takes place, which is unlikely to be attainable
in the mean time.

20
 November 11, 2008
EGYPT | ECONOMY

Reforms also improved Egypt’s debt position with net domestic debt to GDP fal- A downsized public
ling to 43.2% in FY07/08 down from 52.3% in FY04/05. Moreover, net budget debt
sector debt declined reaching 53.4% in FY07/08 from 67.4% in FY04/05. Interest
payment as well recorded significant improvement recording a growth of 5.6% in
FY07/08 well down from its high levels of 29.6% in FY06/07.

Debt Growth & Debt-to-GDP

Gross Domestic Public Debt Net Domestic Public Debt
LE mn
Net Domestic Debt % GDP
600,000 60.0%

500,000 50.0%

400,000 40.0%

300,000 30.0%

200,000 20.0%

100,000 10.0%

0 0.0%
2004/5 2005/6 2006/7 2007/8

Source: MOF

Egypt’s economic outlook

Actual Forecasts
2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12
Real Sector
GDP, Current (LE bn) 632.8 744.8 896.5 1,002.8 1,105.1 1,243.2 1,412.1
GDP, Current (US$ bn) 108.9 130.4 162.9 174.8 189.9 212.9 243.6
Real GDP Growth (%) 6.8% 7.1% 7.2% 5.0% 4.4% 5.7% 6.3%
Population (000) 71,347 72,798 74,357 75,844 77,361 78,908 80,486
GDP/Capita, Current (US$) 1,527 1,792 2,191 2,305 2,455 2,698 3,026
Investments (LE bn) 85.0 155.3 179.3 190.8 205.3 223.9 251.6
External Sector
Balance of Goods & Services (US$ bn) (3.80) (4.79) (8.45) (13.27) (18.77) (22.24) (26.13)
Tourism Revenues (US$ bn) 7.23 8.18 10.83 11.12 11.84 13.34 14.81
Suez Canal Revenues (US$ bn) 3.56 4.17 5.16 5.61 6.00 6.93 8.02
Transfers (US$ bn) 5.55 7.06 9.34 10.02 10.25 11.20 12.40
Current Account (US$ bn) 1.8 2.3 0.9 (3.3) (8.5) (11.0) (13.7)
Current Account % GDP 1.6% 1.7% 0.5% -1.8% -4.3% -4.9% -5.3%
Exports % GDP 31.8% 33.0% 32.6% 34.7% 34.4% 34.6% 36.8%
FDI (US$ mn) 6,111 11,053 13,237 6,364 5,865 7,496 10,118
FDI % GDP 5.6% 8.5% 8.1% 3.6% 3.1% 3.5% 4.2%
LE/USD Exchange Rate (Period Avg) 5.810 5.710 5.503 5.735 5.819 5.840 5.798
Monetary Sector
Inflation (CPI %) 4.2% 10.9% 11.7% 17.0% 11.7% 12.9% 14.19%
Lending Rate (%) 12.71% 12.64% 12.22% 12.75% 12.00% 11.75% 11.50%
Credit Growth 5.3% 9.1% 13.4% 10.5% 9.0% 12.3% 14.00%
Fiscal Sector
Expenditure % GDP 32.8% 29.8% 30.9% 33.4% 32.7% 32.7% 32.6%
Revenues % GDP 23.9% 24.2% 24.4% 26.9% 26.8% 27.2% 27.5%
Fiscal Deficit (LE mn) 50,385 54,697 59,234 65,215 66,455 70,563 74,299
Fiscal Deficit % GDP 8.0% 7.3% 6.6% 6.5% 6.0% 5.7% 5.3%
Source: CBE, MOF & CICR forecasts

21
 November 11, 2008

EGYPT | BANKING

RISING UP TO THE CHALLENGE DRIVERS

Given the global financial crises and amid concerns of a
global recession, the Egyptian banking sector is well-
positioned with its balanced loans/deposits ratio of 53%
implying both high liquidity and funding surplus, vs. fund-
ing gaps in some credit crunch economies. Next to the
mounting banking losses related to bad assets in the
global market, Egypt has no significant exposure to sub-
prime assets. Sitting in an under-penetrated emerging mar-
ket like Egypt with inherent growth potential and achiev-
able high profitability levels with a ROAE of 16% for the
sector, and leveraging on the readily available liquidity
suggested by the said level of loans/deposits, success is
not far.
Banking sector outperformed the economy since 2001:
Banking assets outperformed the nominal GDP growth since
2001, with a total banking assets/GDP ratio reaching a multiple
of 1.2x as at June 2008.
A real & non-inflated balance sheet: Lending and other as-
sets in the banking system are funded by existing core depos-
its, with minimal dependence on foreign inter-bank.
Not highly exposed in an under-penetrated market: At a
loans/deposits ratio of just 53%, the banking sector is not
highly exposed and able to withstand expansions leveraging
on only the readily available liquidity, in a market that is eager
for growth and under-penetrated (15% penetration) .
A highly profitable sector.
Under-penetrated market with huge growth po-
tential.
A balanced total loans/deposits ratio at 53%
implies a funding surplus and readily available
liquidity.
A real and non-inflated balance sheet.
Improved asset quality through reforms and
consolidations.
No significant exposure to sub-prime crises
places the sector at an advantage vs. others.
RISKS
A large global recession and the risk of other
exogenous factors that might impact the sector.
A wider than expected GDP slowdown due to
wider exports and FDI deceleration can trigger
lower deposits’ growth and eventually weak
loans’ growth.
Lower GDP and GDP per capita could heighten
corporate and retail default rates, negatively
affecting asset quality.
Increased liquidity pressures on foreign currency
could create an FX squeeze.
Currency depreciation could trigger some FX
losses.
Interest rate risks related to increased pricing
pressures of funds.
KEY PERFORMANCE INDICATORS
Banking assets CAGR (02/3-07/8,%) 13.4
Deposits CAGR (02/3-07/8, %) 13.3

Faster deposits’ growth, yet high NIMs and ROAEs: De- Loans CAGR (02/3-07/8, %) 7.1
spite that deposits had been growing faster than loans for long, Loans/deposits ratio (2007/8, %) 52.9
still, banks particularly major ones record high NIMs and Equity/assets (2007/8,%) 5.3
ROAEs, as evidenced by an average NIM and ROAE of 3.2% ROAE (2007/8, %) 16
and 33.4% for the 3 covered banks, respectively.
Improving credit quality & a much stronger sector: With BANKS COVERED PAGE #
the termination of the CBE’s first phase of reforms that had CIB 111
started in 2003, including enhancing capitalization, provisional
accumulation and consolidations, the banking sector now is CAE 113
much stronger. NSGB 137
Opportunities include potential capital that used to mi- ALIA ABDOUN
grate to distressed economies: If the banking sector working ALIA.ABDOUN@CICH.COM.EG
with the local investors rise up to the challenge, potential capi-
tal that previously targeted the currently distressed economies SECTOR PERFORMANCE | 2002/3 - 2007/8
could be diverted to Egypt thereby generating further growth. In LE bn
Nominal GDP Banking Assets Banking Assets/GDP
Assets/GDP multiple

1,200 1.4x
1.4x

1.4x
1,000 1.3x
1.2x
1.3x 1.3x
1.3x
1.2x
800 1.3x

1.3x
600

1.2x 1.2x

400
1.2x

200
1.1x

- 1.1x
2000/1 2001/2 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8

22
 November 11, 2008
EGYPT | BANKING

BANKING SECTOR STRUCTURE

ASSETS
Looking back since 2001, Egypt’s banking assets had been growing at an aver- The Egyptian banking
age of 14.3%, outperforming the nominal GDP growth by an average of 27% over sector outperformed
the same period, with a total banking assets/GDP ratio standing at a multiple of the economy since
1.2x as at June 2008. 2001

Banking assets to GDP Trend of Assets/GDP ratio

Nominal GDP Banking Assets Banking Assets/GDP

In LE bn Assets/GDP
Assets/GDP multiple
1.4x
1,200 1.4x 1.4x
1.4x
1.4x
1.4x
1,000 1.3x
1.2x
1.3x 1.3x
1.3x 1.3x
1.3x
1.3x
1.2x 1.3x
800 1.3x
1.3x
1.3x
1.3x
600
1.2x 1.2x
1.2x 1.2x
1.2x 1.2x

400
1.2x 1.2x

200 1.1x
1.1x

- 1.1x 1.1x
2000/1 2001/2 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2000/1 2001/2 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8

Source: CICR & CBE Source: CICR & CBE

Figures of June 2008 confirm the rich liquidity of the Egyptian banking system, Loans represent the
with a loans/assets ratio of only 37.1%, followed by domestic inter-bank assets at main investment; at
25.7%. It is noteworthy that trading securities & T- Bills represent 18.6% of total only 37% of assets…
assets, of which 73% representing 13% of total assets are in T-Bills, while foreign
inter-bank represented only 11.3% of the total.

Banking assets by type, June 2008 Funding by type, June 2008

Reserves Capital Provisions

Cash Securities & TBs Domestic Interbank
Other liabilities Obligations to banks in Egypt Total deposits
Balances banks abroad Loans & discounts Other assets Obligations to banks abroad Long term loans&Bonds
100% 100% 2.1%
6.3%
1.2%
90% 90%

80% 37.1% 80%

70% 70%
69.0%
60% 60%

50% 11.3% 50%

40%
40%
25.7% 30%
30%
9.1%
20%
20% 7.9%
18.6% 10% 5.8%
10%
3.4%
0.9% 0% 1.5%
0% Liabilities
Assets

Source: CICR & CBE Source: CICR & CBE

23
 November 11, 2008
EGYPT | BANKING

Not only does the banking system benefit from liquidity, but also its liquidity stems ….while core deposits
from internal core deposits which capture 69% of total funding, whereas domestic generate the main
and foreign inter-bank liabilities barely represent 9.1% and 1.2% of financing, re- funding at 69%
spectively. Core internal deposit financing represents a safety haven against ex-
ternal shocks.

DEPOSITS
Total banking sector deposits having been growing at an average of 13% for the Steady deposits
past 5 years, an average multiple of 0.9x of GDP. growth, composing an
average of 90% of GDP

From the deposit breakdown by type, it is apparent that the household sector has Household sector as
long been the major depositor, the second place has shifted from the government major depositor, fol-
deposits to private business sector starting 2006/7, indicating the wider role the lowed by a strength-
private sector has been taking up, thanks to all the reform efforts taking place in ened private business
Egypt during the last three decades including deregulation and privatization of the sector
economy and the sector.

Total deposits growth relative to GDP Deposits breakdown by depositors

Total Deposits Nominal GDP Deposits/GDP Government deposits Private sector business deposits Public sector business deposits
In LE bn
Household sector Non-resident (external sector)

1,000 1.0x 100% 0.1% 0.1% 0.5% 0.4% 0.7% 0.6%

897
900 1.0x
90%
1.0x
800 0.9x 745 756 1.0x 80%

700 658 70% 63.9%

59.3%
633 65.3% 65.1% 66.5% 63.8%

600 571 0.9x 60%

551 0.9x
522 0.9x
485
500 464 50%
405 418
0.8x
400 0.9x 40%
5.1%
4.1% 4.1% 4.0% 4.6%
300 30% 4.6%

13.6% 14.0% 13.6% 23.4%

200 0.8x 20% 14.1% 19.2%

100 10% 16.7% 17.9% 16.8% 14.4% 11.7% 11.6%

- 0.8x 0%
2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8

Source: CICR & CBE Source: CICR & CBE

Deposits dollarization had been easing in the aftermath of the complete currency Local currency domi-
floatation that took place in 2003, standing at only 25.8% of total deposits as at nates the deposits
June 2008. base

Although the constitution of deposits is mainly captured by time and saving de- Household sector as
posits, still, demand deposits and blocked deposits hold a significant 16%, offer- major depositor, fol-
ing an advantage for the banks to benefit from either interest free or low interest lowed by a strength-
bearing deposits, partially cushioning against funding pricing pressures. ened private business
sector

24
 November 11, 2008
EGYPT | BANKING

Deposits breakdown by currency Breakdown by types of deposits

LCY FCY Demand deposits Time & Saving deposits Blocked or retained deposits

100% 100%
4%

90% 90%
28.8% 28.4% 25.8%
30.8% 32.5% 29.4%
80% 80%

70% 70%

60% 60%
84%
50% 50%

40% 40%
71.2% 71.6% 74.2%
69.2% 67.5% 70.6%
30% 30%

20% 20%

10% 10%
12%
0% 0%
2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 Total Deposits

Source: CICR & CBE Source: CICR & CBE

LOANS

Total loans hovered around 50% of GDP during the last 5 years, with the indus- Lending remained at an
trial sector capturing the lion’s share, followed by the services sector. Loans dol- average of 50% of GDP,
larization rate reached 33.3% as at June 2008. Further, FCY loans/deposits ratio with the industry sector
has started to exceed LCY loans/deposits ratio since 2006/7, indicating an in- as main lender
creased activity on the foreign currency side.

Loans growth relative to GDP Loans breakdown by lender

Loans Nominal GDP Loans/GDP Government Agriculture Industry Trade Services Household & external sector
In LE bn
100%
1000 0.8x
12.8% 13.1% 14.1%
0.4x 17.2% 18.0%
897 90% 21.4%
900
0.7x
0.7x 0.5x 80%
800 745
0.6x 25.6% 25.2% 24.7%
0.5x
0.6x
70% 25.5% 26.9%
700 0.6x 25.5%
633
0.5x 60%
600 551
485 20.7% 20.3% 18.7%
500 0.4x 50% 17.7% 13.9%
14.4%
418
399
400 352
40%
323 0.3x
295 307
283
300 30%
0.2x 34.0% 33.3% 31.4%
34.4% 31.4% 29.4%
200 20%
0.1x
100 10% 2.2% 1.5%
2.1% 1.8%
1.7% 1.9%
4.7% 5.5% 7.2% 6.5% 7.6% 7.8%
0 0.0x 0%
2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8

Source: CICR & CBE Source: CICR & CBE

25
 November 11, 2008
EGYPT | BANKING

Loans breakdown by currency Loans/deposits ratio by currency

LCY FCY LCY FCY

100% 90.0%

90% 23.1% 22.9% 80.0% 77.8%

24.3% 26.2%
29.7% 72.7%
33.3%
80% 68.2%
70.0%
62.5%
70% 59.0%
60.0% 56.0%
52.4% 52.6%
60% 49.6% 50.5%
50.0% 47.5%
44.9%
50%
40.0%
40% 76.9% 77.1% 75.7% 73.8%
70.3%
66.7% 30.0%
30%

20.0%
20%

10% 10.0%

0% 0.0%
2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8

Source: CICR & CBE Source: CICR & CBE

With the commencement of the reform program around 2003, total loans/deposits Loans to deposits ratio
ratio has declined from 70% to 52.9% in 2007/2008. Even at the current deposits at a favorably reason-
level and without expanding the deposits base, the readily available liquidity level able 53%, implies both
suggested by the system’s total loans/deposits ratio of just 52.9% as at June liquidity and room for
2008, indicating that the sector can withstand further loan growth without jeopard- growth…
izing a reasonable liquidity position.

Total loans/deposits of the system Egypt’s loans/deposits vs. others

75.0% 140.0%

121.3%
120.0%
70.0% 70.0%

99.9%
100.0% 94%
91%
65.0% 85%
63.6%
80.0%

60.0%
58.8% 60.0% 52.9%
56.5%
55.0% 40.0% 32.8%
53.5%
52.9%

50.0% 20.0%

0.0%
45.0% Lebanon Egypt Turkey Saudi UAE U.S.A U.K
2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 Arabia

Source: CICR & CBE Source: CICR, Central Banks& Bloomberg

With the system’s LCY loans/deposits ratio of 47.5% and FCY loans/deposits ra- Better position; no
tio of 68.2% as at June 2008, it can be argued that in both cases funding is gener- funding gap in Egypt
ated from actual core deposits; meaning, demand is still below supply, implying a and insignificant expo-
funding surplus vs. a funding gap in some countries; according to the Bank of sure to distressed
England, the UK for example had a funding gap worth around GBP740 bn as at economies
June 2008, the same case as some other credit crunch economies.

Egypt also is in a healthier position with no significant exposure to sub-prime mar-

kets and without a high exposure to real-estate; where real-estate represented
6.5% of total implemented investments in 2007/8, vs. many gulf countries that are
relatively more exposed to global markets and some highly exposed to real-

26
 November 11, 2008
EGYPT | BANKING

estate, additional to having much higher loans/deposits ratios indicating lower

liquidity - not a favorable situation concurrent with the easing of oil prices.

Following the reforms through banking law no. 88/2003 and its amendments, the Over the last 5 years,
CBE had implemented strict supervision over banks including enhancing their improving credit qual-
provisioning base to hedge against low asset quality, to the extent of forcing some ity in Egypt & a much
banks to book their entire returns in provisions and record nil profits. Reforms also stronger sector
included increasing capitalization, cleaning bad loan portfolios and consolidations,
the banking sector now is considered much stronger. Unlike the private sector
banks, non-performing loans are particularly concentrated in the public banks -
less the privatized Bank of Alexandria (BoA) which had gone through a strong
clean up and restructure before its sale. The government is still considering the
sale of Banque du Caire, but waiting for the right time.

PROFITABILITY
Being in an emerging market, Egyptian banks enjoy decent interest spreads, es- Deposits had been
pecially the leading banks with superior asset liability management which enables growing faster than
them to efficiently manage their spreads in both rising and declining interest rates loans, yet, Egyptian
environments. banks generate high
NIMs & high ROAEs

Profitability of leading banks Leading 2009 multiples

NIM ROAE
P/E 2009P P/BV 2009P
50.0%
6.0x

45.0%
4.9x
40.0% 5.0x

4.3x
35.0%
4.0x 3.7x
30.0%

25.0% ROAE, 42.6%

3.0x

20.0% ROAE, 32.0%

15.0% ROAE, 25.6% 2.0x

1.5x
1.3x
10.0%
0.9x
1.0x
5.0%
NIM, 3.7% NIM, 3.3% NIM, 2.7%
0.0%
0.0x
CIB NSGB CAE
CIB NSGB CAE

Source: CICR & Banks’ financials as at June 2008 Source: CICR projections
*NSGB’s ROAE is ex-goodwill *NSGB’s P/E is ex-goodwll

In June 2008 our analysis, using the maximum 3M USD deposit rate and the 1M Widening FCY spread
LIBOR reveals an increased spread vs. June 2007. Since then there has been until June 2008, par-
some reversal due to the international scene, and the increased demand on USD. tially narrowing in Sep-
However, this may not truly reflect the experience of the private banks, as our tember 2008...
discussions with them indicate that especially in the case of fixed lending rates
(unlike floating) related to long-term loans that were booked previously but not re-
valued, benefiting from larger spreads. Domestically, banks are still considered
liquid in both currencies, so there are no liquidity pressures on the FCY yet.

Meanwhile, the LCY side benefits from high spreads, despite funding pricing pres- …Significant LCY
sures resulting from the consecutive CBE hikes the in the corridor rates totaling spread
2.75% since early 2008. Said rise in rates did not seem to filter with a large mag-
nitude in the price of funds as evidenced from the 1H08 of the covered banks,
particularly CIB and NSGB. Fortunately, Egyptian banks rely more on core de-

27
 November 11, 2008
EGYPT | BANKING

posit financing rather than inter-bank, therefore enjoy a cost advantage interval;
as deposit rates’ rates’ adjustment to rises in interest rates lag behind inter-bank
rates. Meanwhile, banks benefit from rate increases with regards to lending port-
folios that are benchmarked to the discount rate. We expect the CBE to start re-
ducing rates to boost economic activity starting 2009.

LCY interest spread FCY indicator of spread

LCY less 1-year deposit rate LCY less 1-year lending rate USD 3M average deposit rate USD 1M libor rate Lending rate
8.0%
14.0%
7.33%
12.6%
12.0% 12% 7.0%
12.0%
6.06%
6.0%
10.0% 5.33%
5.1%
4.93%
5.0%

8.0% 4.06%
7.1% 7.2%
6.9% 4.0%

6.0% 3.06%
2.93%
3.0% 2.7%

4.0% 2.0%

2.0% 1.0%

0.0%
0.0%
2006/7 2007/8 Sep-08
2006/7 2007/8 Jul-08

Source: CICR & CBE (July is the latest available) Source: CICR, CBE, British Banking Association
*Assumed lending rate as USD 1M libor plus 2%

BALANCE SHEET OUTLOOK

In line with our internal forecast entailing the softening of nominal GDP growth Total loans/deposits to
rates in the coming two years, followed by a slight pick up over the subsequent remain stable for the
years, we project slower deposits’ and banking assets’ growth in said years, fol- next two years followed
lowed by a smooth pick up. Starting 2010/11 as the consequences of the global by a slight rise…
crises on the local market become quantifiable, we project lending to slightly pick
up leveraging on the already available liquidity, in view of the fact that it had origi-
nally fallen from the 70%-level in 2002/3.

Balance Sheet outlook for the sector

In LE bn 2006/7 2007/8 2008/9P 2009/10P 2010/11P 2011/12P

Assets 938 1,083 1,197 1,305 1,455 1,651
23.2% 15.5% 10.5% 9.0% 11.5% 13.5%
Deposits 658 756 835 910 1,015 1,152
15.2% 14.8% 10.5% 9.0% 11.5% 13.5%
Loans 352 399 441 481 540 616
9.1% 13.4% 10.5% 9.0% 12.3% 14.0%
Loans/Deposits 53.5% 52.9% 52.9% 52.9% 53.3% 53.5%
-298 bps -67 bps 0 bps 0 bps 38 bps 25 bps

Source: CBE & CICR projections

We expect the 3 covered private banks to outperform the sector thereby win mar- Comparative forecasts
ket share starting 2009, then to continue steady growth in the following years. for the 3 covered banks

28
 November 11, 2008
EGYPT | BANKING

Deposits growth of the 3 banks

Deposits Forecast 2008P 2009P 2010P 2011P 2012P

CIB 27% 13% 13% 12% 12%
NSGB* 5% 13% 13% 12% 11%
CAE 14% 16% 16% 16% 14%
Average 15% 14% 14% 13% 12%

Source: CICR projections

*NSGB 2008 deposits’ growth is low due to the decline in 2Q08 partially related to the withdrawal of
Asset Manager deposits.

Loans growth of the 3 banks

Loans Forecast 2008P 2009P 2010P 2011P 2012P

CIB 26.6% 17.0% 15.9% 13.6% 12.6%
NSGB 21.7% 18.1% 15.9% 12.6% 12.6%
CAE* 60.2% 26.2% 22.7% 20.6% 18.1%
Average 36% 20% 18% 16% 14%

Source: CICR projections

*CAE 2008 loans’ growth is 2008 is high due to strong growth in 1H08

29
 November 11, 2008

EGYPT | CEMENT

SURVIVAL ON THE BACKLOG DRIVERS

Given the current fears from the negative impact of the Removal of export duties & export ban.
expected global recession, maybe the picture for the Abundance of raw materials.
Egyptian cement industry is not that gloomy—supported High margins compared to regional peers.
by the massive backlog of real-estate projects which will New capacities on stream.
secure cement consumption despite of some expected Outstanding real-estate projects secure de-
mand for cement.
delays in these projects. Against the backdrop of an im-
The expanding existence of foreign compa-
proved mortgage scheme, the middle-income group may nies in the local market allows for efficient
exert some demand pressures for real-estate—especially operation and signals market potential.
that the mortgage loans almost doubled reaching LE 3 bn
in October 2008 up from LE 1.4 bn in June 2007. In addi-
tion to the GoE’s commitment to push further local invest- RISKS
ments through building commercial and industrial zones
in many governorates which will increase the demand for Anticipated slowdown in construction activi-
the retail segment. On the exports front, the GoE’s re- ties.
moval of the export ban and duties will give the local ce- Rising cost on inputs.
ment producers more competitive edge—namely that the Sudden governmental decisions as imposing
Egyptian cement exports prices is considered one of the exports bans and duties.
cheapest in the region. Most notably, the expanded for- Massive regional capacity additions which
eign ownership reaching 79% in 2008, highlights the mar- intensifies rivalry.
ket’s growth potential. We believe that the industry with
its current concentration level—3 cement groups control-
ling 62.1% of the local market—is capable of weathering
the coming challenges, yet the market still sustains fur- KEY PERFORMANCE INDICATORS
ther consolidations.
Cement production CAGR (04-07,%) 10.2

Availability & proximity to high-grade limestone: The Cement consumption CAGR (04-07,%) 13.5
abundant raw materials in Egypt, gives the industry a cost Cement exports CAGR (04-06,%) 20.9
advantage compared to some of its regional peers that relies
on imported clinker. Average surplus (04-07,mn tons) 5.1
Average utilization rate (04-07,%) 86.1
The expanding potential of utilizing natural gas gives an
edge to further reduce cost: The growing natural gas re- COMPANIES COVERED PAGE #
serves expands the industry’s potential to utilize a relatively
cheaper energy source and hence, enhance the margins of Misr Beni Suef Cement 129
the companies utilizing natural gas. Moreover, it is an environ- Misr Cement (Qena) 131
mental friendly energy source compared to mazot.
Sinai Cement 153

The industry enjoys higher margins: The local cement play-

ers enjoy higher margins averaging a gross profit margin of BASMA SHEBETA
54.6% in 1H08 versus a regional average of 36.3%. BASMA.SHEBETA@CICH.COM.EG

Cement demand is to be secured by the backlog: In light of SECTOR PERFORMANCE | 2004-2008

the expected slowdown in real-estate demand cement con- mn tons Production
Supply Growth
Demand
Demand Growth
45 25%
sumption is to be secured by the backlog of the developers
40
projects. Yet, with the anticipated pick-up in the economy 20%

35

which will trigger the inflow of projects the demand for cement 30
15%

will regain its strength. 25 10%

20 5%

15
0%
10

-5%
5

0 -10%
2004 2005 2006 2007 8M08

30
 November 11, 2008
EGYPT | CEMENT

CEMENT MARKET IN EGYPT

Over the first eight months in 2008, Egypt's cement market reached 26 mn tons, Consumption outpaced
up by 12.7% from the same period a year earlier. Yet, production growth lagged production growth
behind with a 3.5% increase reaching 26.8 mn tons.

MARKET STRUCTURE

Currently, the designed grinding capacity is 46.1 mn tons, with foreign compa- Designed capacity
nies holding the bulk of 74%. The total companies operating in the cement sec- reached 46 mn tons
tor is 13; 8 of which are foreign companies, 4 are private; and one is a public with foreign companies
company. Moreover, total grinding capacity reached 46.1 mn tons split between bearing the bulk
gray cement (97.1%) and white cement (2.9%). It is worth highlighting that Ara-
bian Cement company which started operations in 2008 is currently producing
clinker only till its own grinding mills are up and running.
Cement capacity by product in 2008 Cement capacity by ownership in 2008

White
2.9% Public
7.6%

Private
18.4%

Foreign
Gray
74.0%
97.1%

Source: CICR Database Source: CICR Database

KEY MARKET FACTS

The wave of acquisitions activity by foreign companies to local cement compa- An expanding foreign
nies started since 1999 with Lafarge & Cemex acquiring 76% & 96%, respec- ownership confirms the
tively of Beni Suef Cement and Assiut Cement companies and ending with La- market's potential
farge acquiring 100% of OCI Cement Group namely, Egypt Cement Company
(ECC). The deal became effective by the end of January 2008, moving up for-
eign ownership share – in terms of local sales- from 20.8% in 1999 to 78.9% in
2008 - hence, emphasizing the market's potential.

Local cement market shares in 1999 & 8M08

1999 2008E

7.8%
Public
12.9%

13.3%
Private
66.3%

78.9%
Foreign
20.8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Source: Ministry of Investment

31
 November 11, 2008
EGYPT | CEMENT

The consolidation wave within Egypt's cement market increased the concentration Increasing market
level of the largest three players from 47.3% in 1999 to 62.1% in 2008.* concentration

1999 Local cement market shares 8M08 Local cement market shares
ECC Misr Beni Suef
Torah
7.4% Misr Cement Qena 3.8%
15.6%
4.0% Italicementi
Sinai (Torah, Helwan &
Suez 5.5% Suez)
16.5% 29.4%
National
Helwan
7.8%
11.4%

Beni Suef
5.7%
Alexandria
Lafarge (ECC)
4.3%
19.6%

Amereyah
11.0% National Cemex (Assiut)
12.9% 13.1%
Titan (Beni-Suef Cimpor
Cemex & Alexandria) (Ameriyah)
15.2% 8.1% 8.6%

Source: Ministry of Investment Source: Ministry of Investment

Boosted by the construction & real-estate boom within Egypt, cement market re- A shrinking surplus
versed its growth pattern with demand growth exceeding that of supply (14% vs.
6.2%, respectively) in 2007 and (12.7% vs. 3.5%) during the first eight months of
2008, hence depressing market surplus to 0.74 mn tons.

Cement market development pattern (2004-8M08) Cement market surplus pattern (2004-8M08)
mn tons Production Demand mn tons
Production Growth Demand Growth 7
45 25%
5.99
40 6
20%
35 5.21
5.05
15% 5
30
4.01
25 10% 4

20 5% 3

15
0% 2
10
-5% 1 0.74
5

0 -10% 0
2004 2005 2006 2007 8M08 2004 2005 2006 2007 8M08

Source: Ministry of Investment Source: Ministry of Investment

As demand has been following a higher growth pattern than that of supply, hence … and tighter
tighter utilization rates were achieved, reaching its peak of 92.2% in 2007. utilization rates

* In terms of local sales

32
 November 11, 2008
EGYPT | CEMENT

Added capacity, demand & utilization rate (2004- Added capacity, demand & utilization rate
2007) (8M06-08)
mn tons Added Capacity Added Demand Utilization Rate mn tons Added Capacity Added Demand Utilization Rate
6 95% 3.5 63.0%
62.6%
62.5%
5 92.2% 3.0
62.2% 62.0%
90%
4
87.0% 2.5 61.5%

3 61.0%
86.8% 85% 2.0
60.5%
2
60.0%
1.5
1
78.3% 59.5%
80%
59.5%
0 1.0 59.0%
2004 2005 2006 2007
-1 58.5%
75% 0.5
58.0%
-2
0.0 57.5%
-3 70% 8M06 8M07 8M08

Source: Ministry of Investment Source: Ministry of Investment

As demand has been boosted, triggered by the real-estate boom, cement prices Prices are following
have been following a rising trend. Cement ex-factory prices reached an average higher levels
of LE 435/ton over the first eight months of 2008 up from an average price of LE
362/ton in 2007.

Cement prices by month* (Jan 2006-Aug 08)

LE/ton Second increase
Imposing a ban of
470 in energy prices
6-month period on
460
cement exports
450 Increasing the
levied duties on
440
cement exports to
430
LE 85/ton
420
410
400
390 imposing fees on
LE 65/ton levied duties
clay amounting to
380 on cement exports
LE 35.1 per 1 ton of
370 cement produced
360 First increase in
350 energy prices
340
330
320
310
300
Ju -06

Ju -07

Ju -08
Fe -06
M -06
Ap -06

Ju 0 6

Se -06
O 06

D -06
Ja -06
Fe -07
M -07
Ap -07

Ju 07

Se -07
O 07

D -07
Ja -07
Fe -08
M 08
Ap -08

Ju 0 8

08
M r-06

Au l-06

N t-06

M r-07

Au l-07

N t-07

M r-08

Au l-08
n-

n-

n-
p-

p-

b-

g-
ay

ay

ay
ar

ar

ar
n
b

n
b

n
ov
ec

ov
ec
c

c
Ja

Source: Ministry of Investment

Energy accounted for the highest share in cement production costs, yet, varying Energy is the major
based on the type of feedstock used. Energy contribution during 3Q08 registered contributor to cost
a lower share of 51.2% in the cost structure of the companies using natural gas
against 53.9% for those using mazot such as Misr Cement (Qena).

* Ex-factory including transportation cost

33
 November 11, 2008
EGYPT | CEMENT

3Q08E Cost structure for companies using natural 3Q08E Cost structure for the company using ma-
gas as feedstock zot

Transportation Others Raw Materials

1.5% 1.1% Raw materials Maintenance 8.2%
8.7% 18.8%
Packaging
13.7% Resource Dev.
Packaging
Fees
19.1%
10.2%

Asec
13.6%

Energy
Energy
53.9%
51.2%

Source: CICR estimates Source: CICR estimates

MARKET DYNAMICS

Domestic
Market

Governmental Demand
Measures Driver
Supply-Related
Factors
- Removal of export duties & - Construction boom
export ban
- Modifying anti-monopoly law - Raw materials availability
- Raising energy prices - Rising cost of inputs
- Raising raw materials prices - Higher margins
- New licenses - Observed tight supply
- Impact from export ban & duties
- Impact of strict conditions on
new capacities
- Electricity availability

GOVERNMENTAL MEASURES

Ever since the beginning of 2007, the government has taken several actions and
decisions to regulate the cement industry's trading activity as well as new capaci-
ties.

Recent governmental measures

Measure Date Description Impact

Revoking the export ban & export 19-Oct-08 Calling-off the 6-month export ban previously imposed by the POSITIVE
duties Ministry of Trade & Industry on cement exports starting from March
29, 2008. Soon after, the GoE decided to remove the LE 85/ton
duties imposed on cement exports.
Modifying Anti Monopoly Law Jul-08 By raising the minimum level of fines charged per violator from LE NEGATIVE
30k to LE 100k and the maximum level from LE 10 mn/violator to LE
300 mn.
Raising energy prices Sep-07 Raising natural gas & electricity prices by 37.3% & 20.1% NEGATIVE
respectively.
Jan-08 Increasing mazot prices in early January 2008 by 100% to record LE NEGATIVE
1000/ton.

Source: CICR Database

34
 November 11, 2008
EGYPT | CEMENT

Measure Date Description Impact

Increasing clay prices
New licenses
Raising duties on cement exports
Imposing duties on cement exports
6-May-08 Imposing on cement companies a resource development fees on NEGATIVE
the clay amounting to LE 35.1/ton of cement produced.
Oct-07 Offering 7 licenses through a public auction: 5 licenses for POSITIVE
Greenfield operations, and 2 licenses for expansion purposes of
existing companies. In addtion, a license was offered for free to a
Greenfield company namely, New Valley as it was the only bidder
for New Valley license
Aug-07 Raising the duties previousely levied on cement exports by 31% to NEGATIVE
reach LE 85/ton
Mar-07 Imposing an export duty of LE 65/ton on cement exports NEGATIVE

Source: CICR Database

According to the GoE plan, planned capacity additions will be complete by 2012;
raising local gray cement capacity to 62.5 mn tons up from its current level of 42.9
mn tons. The following table illustrates the details of the gray cement capacity
additions over 2009-2011:

Gray cement capacity additions over 2009-2011

Greenfield Licenses Governorate License Cost Capacity in

(LE mn) 000 tons
Wadi Al Nile Cement Co. (WNCC) Beni Suef 251 1500
Al-Swedy Cement Suez 201 1500
Arab National Cement Co. (ANCC) El Meniah 200 1500
Al-Nahda Industries Qena 83 1500
North Sinai Cement North Sinai 44 1500
Building Materials Industries Assuit 22 1500
Al-Wadi Cement New Valley Free 1500
Expansion Fees Governorate License Cost Capacity in
(LE mn) 000 tons
Assiut Cement Company Assuit 202 1500
Beni Suef Cement Company Beni Suef 135 1500
Reconciliation Fees Governorate Fees Charged Capacity in
(LE mn) 000 tons
Arabian Cement Suez NA 1500
Sinai Cement Sinai 44 1500
Medcom Aswan Aswan NA 1000
Misr Beni Suef Cement Beni Suef 251 1500
South Valley Cement Beni Suef 251 1500
Source: CICR Database and IDA

SUPPLY-RELATED FACTORS
Despite the minimal share of raw materials in the production cost of cement – an Raw materials
average of 8.45% in 3Q08E, their availability, proximity and quality are crucial to availability
expanding cement production. The fact that Egypt has abundance of limestone,
gypsum, and slag in moderate and high quality pushed the cement industry to
expand and grow, and will even drive its potential further in the future.
Since cement is an energy-intensive industry – with energy estimated to consti- Rising cost of in-
tute an average of 52.5% of total production cost in 3Q08– raising natural gas & puts
electricity prices by 37.3% & 20.1% effective September 2007, followed by a
100% increase in mazot prices effective January 2008 have negatively impacted
the industry's margin. Consequently, the average EBITDA margin for gray cement
producers declined from 50.8% in 2006 to 46% in 2007; and from 50% in 1H07 to
47% in 1H08. It is worth noting that the impact of the LE 35.1/ton of resource de-
velopment fees for clay imposed on May 6, 2008 was not yet significantly re-
flected on the 1H08 margins, however, it should be mirrored in 3Q08 margins.

35
 November 11, 2008
EGYPT | CEMENT

Average EBITDA margins for the cement industry (2006-2008)

52%
50.8%
51%
50.0%
50%

49%

48%
47.0%
47%
46.0%
46%

45%

44%

43%
2006 2007 1H07 1H08
Annual Semi-Annual

Source: Company’s Reports

The high gross profit margins for the Egyptian cement industry compared with Yet, local produc-
their regional peers played a key role in boosting the industry's expansions, in ad- ers enjoy higher
dition to encouraging a wave of acquisitions by foreign companies. margins compared

Regional gross profit margins in 1H08

80%

70% 67.3% 66.1%

63.1%

60% 57.9%

49.0% 50.2%
50% 45.8%
40.1%
40%
32.7%
30%
22.8%
20%
14.0%

10%

0%
Arabian Yamama Gulf Fujairah Ras Al- Sinai Misr Beni Misr Helwan Suez Torah
Cement Cement Cement Cement Khaimah Cement Suef Cement Cement Cement cement
Cement Cement (Qena)
KSA UAE Egypt

Source: Company’s Reports

Despite witnessed capacity additions over 2004-2007 averaging 1.7 mn tons per Despite capacity
annum, expanding cement consumption maintained the industry’s utilization rate additions, still
at high levels - with an average of 86%. Over the aforementioned period, cement supply is tight
capacity increased by a CAGR of 4% to reach 42 mn tons in 2007 vs. a CAGR of
13.5% for demand recording 34.5 mn tons. It is worth highlighting that such tight
market status led to further capacity additions in order to satisfy the market needs.

36
 November 11, 2008
EGYPT | CEMENT

Cement supply status (2004-2007) Cement utilization rates (2004-2007)

mn tons Capacity Production Demand

95%
45
92.2%
40
90%
35

30 87.0%
86.8%
85%
25

20 80%

15 78.3%

10 75%

70%
0
2004 2005 2006 2007
2004 2005 2006 2007

Source: Ministry of Investment Source: Ministry of Investment

Imposing tariffs on cement in 2007, followed by a 6-month export ban which Imposing the export
started by the end March 2008, led to a 28% drop in 2007, followed by a further ban and duties led
decline of 73.2% in 8M08 versus 8M07. Yet, to mitigate the negative impact of the to a huge drop in
anticipated global economic slowdown the GoE decided to call off the export ban exports
and the export duties on cement exports.

Cement exports pattern (2004-8M08)

mn tons
7

6 5.9

5.2
5 4.7
4.2
4
3.2
3

1 0.7

0
2004 2005 2006 2007 8M07 8M08

Source: Ministry of Investment

The GoE set strict standards for investors in order to participate in the Greenfield Strict conditions in
& expansions auctions. In addition, new licenses include strict terms in order to new licenses to pre-
grant that new capacities start on schedule such as, the founder can not sell the vent any delay in
Greenfield license until the production starts, yet the GoE allowed the investor to the new capacities
sell a stake, which may open the door for another wave of consolidation in the entrance
local market.

One of the major constraints facing any capacity additions is the electricity avail- Electricity availabil-
ability. It is worth mentioning that in order to implement the declared new capaci- ity
ties, companies will be required either to establish their own power stations to
secure their needs from electricity or to pay the investment cost of the power sta-
tion to the GoE which will handle its establishment. It is worth mentioning that the
investment cost for establishing a power station may reach LE 125 mn.

37
 November 11, 2008
EGYPT | CEMENT

CONSTRUCTION DRIVER
The massive construction activity witnessed in Egypt has triggered demand for
cement. Over 2004-2007, the construction sector grew with a CAGR of 7.4%,
pushing further cement consumption from 23.6 mn tons in 2004 to 34.5 mn tons in
2007 – reflecting the strong ties between both variables which is emphasized by
the high coefficient correlation of 0.910.

Construction activity vs. cement consumption (2004-2008)

LE bn Construction Cement Consumption mn tons
40 40

35 35

30 30

25 25

20 20

15 15

10 10

5 5

0 0
2004 2005 2006 2007 2008E

Source: CBE, Ministry of Investment & CICR estimates

FUTURE OUTLOOK

Against the backdrop of the global economic turmoil and the expected slow down Outstanding real-
in construction and real-estate activities worldwide and in Egypt, the demand for estate projects will
cement is expected to grow at a slower pace, an AAGR of 1.36% over 2009 and secure cement
2010. Nevertheless, cement consumption is expected to gain back its momentum consumption over
by 2011 with the anticipated pick-up in the economy and the expected inflow of 2009 and 2010, with
new projects, concurrently cement consumption will grow by a AAGR of 9.4% an anticipated pick-
over 2011-2012 reaching 47.9 mn tons by 2012. It is worth mentioning that de- up afterwards
mand for cement over 2009 & 2010 will be mainly secured by the outstanding
real-estate contracts, as the existing contractors are expected to continue their
construction works, yet at a slower pace.

Future cement outlook

mn tons
50

45

40

35

30

25

20

15

10

0
2006 2007 2008E 2009F 2010F 2011F 2012F

Source: CICR Database and estimates

38
 November 11, 2008
EGYPT | CEMENT

Planned grinding capacity additions is expected to expand gray cement capaci- Huge capacity addi-
ties to 62.53 mn tons by 2012 up from its current level of 42.86 mn; of which tions of 20 mn tons
year 2011 will witness the highest capacity additions of 9 mn tons. Most notably, till 2012
Greenfield is to contribute with almost 51% of total additions, highlighting the
market’s potential.

Planned gray cement grinding capacities

Company Name 2006 2007 2008E 2009F 2010F 2011F 2012F

Torah Cement 3,330 3,330 3,330 3,330 3,330 3,330 3,330
Helwan Cement 4,500 4,500 4,500 4,500 4,500 4,500 4,500
National Cement 3,500 3,500 3,500 3,500 3,500 3,500 3,500
Cemex 5,000 5,000 5,000 5,000 5,375 6,500 6,500
Al-Amreyah+Cimpor 3,700 3,700 3,700 3,700 3,700 3,700 3,700
Titan 3,000 3,000 3,000 3,375 4,500 4,500 4,500
Suez Cement 4,200 4,200 4,200 4,200 4,200 4,200 4,200
Lafarge 10,000 10,000 10,000 10,300 10,300 10,300 10,300
Sinai Cement 1,500 1,500 1,750 3,000 3,000 3,000 3,000
Misr Cement Qena 1,500 1,500 1,500 1,500 1,500 1,500 1,500
Misr Beni Suef Cement 1,500 1,500 1,500 2,250 3,000 3,000 3,000
Arabian Cement - - - - 1,500 1,500 1,500
Madcom-Aswan - - - 750 1,000 1,000 1,000
Arab National Cement Co. (ANCC) - - - - - 1,125 1,500
Wadi Al Nile Cement Co. (WNCC) - - - - 1,375 1,500 1,500
El-Sweedy Cement - - - - 375 1,500 1,500
North Sinai Cement - - - - 125 1,500 1,500
South Valley Cement - - 875 1,500 1,500 1,500 1,500
Al-Nahda Industries - - - - - 1,500 1,500
Building Materials Industries - - - - - 1,125 1,500
Al-Wadi Cement - - - - - 1,500 1,500
Total Effective Capacities 41,730 41,730 42,855 46,905 52,780 61,780 62,530

Source: CICR Database and estimates

Expected slowdown in construction activity over 2009-2010, coupled with around Utilization rate to
10 mn tons of capacity additions will ease utilization rates to 76% by 2010. De- strengthen by 2012
spite the expected pick-up in cement consumption starting 2011, utilization rate
will further decline to 74% due to the huge capacity additions of 9 mn tons in that
year. Yet, by 2012, utilization rate will rebound reaching 79%.
Cement supply status (2006-2012) Market utilization rate (2006-2012)
mn tons Cement Capacity Production Demand 100%
70
91.1%
65 90% 92.2% 84.8%
60 86.8%
80% 76.1% 78.7%
55
70% 74.2%
50
45
60%
40
35 50%

30
40%
25
20 30%

15
20%
10
5 10%

0 0%
2006 2007 2008E 2009F 2010F 2011F 2012F
2006 2007 2008E 2009F 2010F 2011F 2012F

Source: CICR Database and estimates Source: CICR Database and estimates

39
 November 11, 2008
EGYPT | CEMENT

Local & export cement prices will continue increasing yet, at a decelerating rate Increased cement
over 2009-2010 due to the weakened demand for cement in the local and export prices
markets over the aforementioned years. However, with the expected recovery in
local & international economies, local & export cement prices will start increasing
at an accelerating rate over 2011-2012, yet, still below historical growth rates due
to the rising competition from regional peers.

Local & export cement prices* (2006-2012)

LE/ton Local Prices Exports Prices US$/ton

700 120

600
100

500
80

400
60
300

40
200

20
100

0 0
2006 2007 2008E 2009F 2010F 2011F 2012F

Source: CICR estimates

* Local prices include transportation cost, while exports prices are ex-factory prices

40
 November 11, 2008

EGYPT | FERTILIZERS

POUNCE AND ROAR DRIVERS

Rising global food demand to support the increasing The abundance of cheap natural gas prices
population, and the international move towards expand- in the range of US$1.72 - 3/MMBtu com-
ing sources of clean energy renders the need for fertiliz- pared with an international price of US$6.3/
ers as a key supportive industry. With the developed re- MMBtu – based on Henry Hub – as well as
gion, namely Europe, restricting further set-up of environ- phosphate rocks support magnified local
mental-polluting production units as fertilizers, invest-
companies' margins.
ments are to shift to the developing regions. With Egypt
Phosphate fertilizers enjoy no government
being in central geographical location, and China's slash-
interventions, whether in terms of export ban
ing of 30% of global fertilizers trade with its levied export
or price caps; which allows for cost passing
tariff, Egypt's fertilizers exports are highly valued. On the
local front, strong fertilizers demand is to be maintained ability.
Egypt enjoys a strategic location for export-
as the GoE plans to expand the agricultural land and re-
ing to different regions and strong local dis-
claim an additional 150k feddans/annum. Moreover, given tribution network.
the country's cheap cost of production coupled with the
abundance of natural gas and phosphate rocks gives
Egypt an edge in nitrogen and phosphate segments. Most RISKS
notably the higher margins that the fertilizers industry
enjoys compared to its global peers adds to the country's
investment potential. Phosphate mines are state owned, which
reflects the monopolistic stance of the gov-
Good prospects in the local and export markets: Against ernment.
the backdrop of the growing global food needs, and increas- The GoE intervenes in the nitrogen fertilizers
sector (mainly companies located outside
ing bio-fuels demand the global fertilizers consumption is ex-
the free zones) in the form of export ban and
pected to maintain its strength. In the local scene, a sustained price caps.
strong demand growth is anticipated driven by the expanding Sulfur - a basic raw material for sulfuric acid
agricultural land.
production - is imported which subjects the
industry to FX risk.
Cheap factors of production and availability of raw mate-
rials are key strengths: With significant price differential that
Egypt offers to investors, as natural gas prices being main- KEY PERFORMANCE INDICATORS
tained at US$1.25 – 3/MMBtu against the international prices Fertilizers production CAGR (05-08,%) 10
of US$6-7/MMBtu, and the cheap abundant phosphate rocks
at LE250/ton (less than US$46/ton) in 1Q08 versus N production CAGR (05-08,%) 11
c.US$200/ton – based on Casablanca benchmark –total fertil-
izers production reached 15.8 mn tons in FY07/08 (of which Fertilizers exports CAGR (05-08,%) 26
7.5 mn tons targeted the export markets) up from 11.2 in
Added annual capacities (2010,mn tons) 2.5
FY05/06 (of which 2.8 mn tons targeted the export markets).
Such growth was namely due to the Greenfield capacity of 3.9
mn tons/year from both, Helwan and Alexandria fertilizers
companies.
COMPANY COVERED PAGE #
EFIC 119
Still more investment to come on stream: Egyptian Basic
fertilizers Industries (EBIC) will launch its operations in 4Q08,
with its full potential in 2009 with an annual ammonia produc- MUHAMMAD EL EBRASHI
MUHAMMAD.ELEBRASHI@CICH.COM.EG
tion capacity of 750k. In addition the Canadian fertilizers com-
pany, Agrium is expected to start production by 2010 with a SECTOR PERFORMANCE | FY04/05-07/08
total annual capacity of 2.2 mn tons for urea and ammonia
combined. Moreover, Egypt's fertilizers portfolio will include k tons
Production Exports Imports Consumption Sales
18,000
DAP/MAP production as the result of the growing global need
16,000
and the availability of the required feed stock.
14,000

12,000
To capitalize on higher margins: With EBITDA margins reg-
istering higher levels than its global peers in both, nitrogen 10,000

and phosphate fertilizers, Egypt has an edge in supporting 8,000

future investments. As for nitrogen, free zone companies' 6,000

EBITDA margin average 80% versus an average of 30% for 4,000

the global margin; while phosphate fertilizers bear a local in- 2,000

dustry average EBITDA margin of 30% compared with 20% -

2004/05 2007/08

for the global margin in 2007.

41
 November 11, 2008
EGYPT | FERTILIZERS

MARKET STRUCTURE

Egypt represented 7.5% of the global fertilizers market and 4% of the phosphate A dominating nitrogen
fertilizers segment. Total fertilizers market in Egypt reached 12.4 mn tons in market
FY06/07, up 13% over FY05/06, of which phosphate fertilizers consumption con-
tributed 1.6 mn tons. It is worth noting that the recommended NPK ratio is
1:1/3:1/6 ton for nitrogen (N)*, phosphate (P)**, and potassium (K), respectively.

Egypt's fertilizers market structure

Source: Higher Council for Fertilizers

There are currently 10 fertilizers-producing companies; of which 8 are nitrogen- A concentrated mar-
based, while 2 are phosphate-based entities. Concerning the former, 3 compa- ket structure in both,
nies are located in the free-zone – by which their production is mostly targeting nitrogen and phos-
the international market – while the remaining 5 companies are directing their phate fertilizers
sales to the local market. It is worth noting that the nitrogen-based market is con-
centrated with the production of the top five companies (Abu Qir, Delta, EFC,
Alexandria, Helwan) dominate 97% of total production in FY07/08. As for phos-
phate fertilizers, EFIC Group leads the market with 64% market share of total
local sales of phosphate fertilizers in FY07/08, including its subsidiary SCFP. It
is worth noting that EFIC's stand-alone market share amounted to 47%.

Egyptian phosphate fertilizers producers

Company Ownership Production Establishment Year
Nitrogen Helwan Fertilizers Private Ammonia and urea 2004
Alexfert Private Ammonia and urea 2003
El Delta Fertilizers Company Public Ammonium nitrates and urea fertilizers 1999
Egyptian Fertilizers Company Private (100% owned by OCI in 2008) Ammonia and granular urea fertilizers 1998
Abu Qir Fertilizers & Chemical Industries Public Ammonia, urea, ammonium nitrate fertilizers 1976
Ammoniom nitrate, coal tar, and metallurgical
El Nasr Coke and Chemicals Company Public 1964
coke
Egyptian Chemical Industries (Kima) Public Ammonium nitrate and urea fertilizers 1956
El Nasr Fertilizer and Chemicals (SEMADCO) Public Ammonium nitrates and urea 1946
Phosphate Suez Company for Fertilizers Production Public - (99.8% owned by EFIC) Soft and granulated SSP and TSP 2007

Polyserve for Fertilizers and Chemicals Private Soft and granulated SSP and TSP fertilizers 1990

Soft and granulated SSP and TSP fertilizers,

Private- (99.03% owned by Polyserve for fertilizers and
Abu Zaabal Fertilizers and Chemicals phosphate rock, phosphoric acid and sulfuric 1947
Chemicals)
acid
Egyptian Financial & Industrial (EFIC) Public Soft and granulated SSP fertilizers 1929

Source: CICR database

* All nitrogen fertilizers weights are based on a (15.5%) basis. To translate urea to 15.5%, its weights had to be multiplied by a factor of
(3). As for ammonium nitrate and ammonium sulphate, their factors are (2.16) and (1.33), respectively.

** All phosphate fertilizers weights are based on SSP (15%) basis. To translate TSP to SSP, its weights have to be multiplied by a fac-
tor of 2.46.

42
 November 11, 2008
EGYPT | FERTILIZERS

MARKET KEY DEVELOPMENTS

SUPPLY & DEMAND PATTERN

Over FY04/05–07/08, local market production outpaced local consumption. Over Nitrogen fertilizers'
the same period, nitrogen fertilizers production increased by an AAGR of 11.9% production covers
recording 14.3 mn tons in FY07/08 versus 11.7 mn tons of consumption which consumption, yet due
increased by an AAGR of 5.8%. Yet, due to the price cap set by the GoE to price capping a
(excluding companies in free zones), local fertilizers manufacturers endeavored considerable volume
to increase their exports at the expense of their local sales. In FY07/08, exports is directed to the in-
amounted to 49% of nitrogen fertilizers production. As a result of the excessive ternational market
fertilizers export activities, manufacturers persistently did not meet local demand.
Thus, the nitrogen fertilizers market was characterized with deficits, which grew
by a CAGR of 37% during FY04/05–07/08, reaching a total deficit of c. 4.3 mn
tons in FY07/08.

Egypt's nitrogen fertilizers market

Production Exports Imports Consumption Sales
k tons
16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

-
2004/05 2007/08

Source: Higher Council for Fertilizers

Over FY04/05-07/08 phosphate fertilizers consumption outpaced production in Phosphate fertilizers

terms of growth, with 4-year AAGRs of 11.9% and 7.9%, respectively. Yet, local enjoy higher contribu-
production covered 1.2x of consumption with local sales contributing 72% to the tion in local sales ver-
local phosphate fertilizers market in FY07/08. Such tendency towards satisfying sus total production,
local market needs is confirmed through the declining imports by a CAGR of 4% since no price cap-
and increased exports levels by 5% over FY04/05-07/08. ping is applied

Egypt's phosphate fertilizers market

Production Exports Imports Consumption Sales
k tons
1,600

1,400

1,200

1,000

800

600

400

200

-
2004/05 2007/08

Source: Higher Council for Fertilizers

43
 November 11, 2008
EGYPT | FERTILIZERS

MARKET DYNAMICS

DEMAND DRIVERS

Rising fertilizers consumption is fueled by population growth - which followed an Population growth
annual rate of 2% over FY03/04-07/08 - creating a growing need for food. The
strong link between fertilizers consumption and population growth is illustrated in
the high correlation coefficient of 0.731 over the same time span.
To cope with the increasing need for food, agricultural land has been witnessing Expanding agricul-
a rising pattern reaching 8.37 mn feddans in FY06/07. Consequently, demand for tural land
fertilizers expanded by a 3-year CAGR of 4.1%, with phosphate fertilizers grow-
ing by 6.4% over the same time span (FY03/04-06/07), surpassing the industry's
growth rate. It is worth mentioning that phosphate fertilizers are highly associ-
ated with preparing the soil in reclaimed areas, especially those plots located in
the desert areas. (The GoE's plan is to reclaim 150k feddans p.a.) In addition,
phosphate fertilizers are utilized during the plant development phases and in
plant cells division. Also, agricultural land and fertilizers demand exhibited a
strong correlation coefficient of 0.717 over FY03/04-06/07.
Demand for all fertilizers is seasonal. Crops are cultivated in three agriculture Demand seasonality
seasons:

(1) Winter crops extend from November to May;

(2) Summer crops extend from March to September; and
Nile crops extend from May to October.

Although Summer and Winter cropping zones are almost equal in terms of area
(6.4 mn feddans for Summer and 6.6 mn feddans for Winter), the former are
characterized by their heavy consumption of nitrogen fertilizers. Yet, the case is
different for phosphate fertilizers, with consumption being heavier during Septem-
ber-December. Moreover, phosphate fertilizers are required during the early
stages of treating and preparing alkaline soils in Upper Egypt (East Owaynat)
and North Sinai.

44
 November 11, 2008
EGYPT | FERTILIZERS

SUPPLY DRIVERS
Natural gas: The potential for growth in the nitrogen fertilizers industry is heavily Feedstock availability:
dependent on the availability of feedstock, namely natural gas. Egypt enjoys an an increasing pool of
increasing level of proven natural gas reserves which reached 2,060 bn cu.m in natural gas reserves
2007. and a broad base of
phosphate rocks, yet
Phosphate rock: Phosphate rock and sulfuric acid are the basic raw materials sulfur is imported
for phosphate fertilizers production. In terms of volume, the former contributes
62-66% and the latter 34-38% of total inputs in SSP production – the main phos-
phate fertilizer produced in Egypt. Phosphate rock is extracted from the Red Sea
coast with the government-owned El-Nasr Mining Co. controlling 80% of the mar-
ket and Red Sea Co. and National Phosphate Co. (both private sector) producing
20%* collectively. It is worth noting that Egypt's phosphate rocks production ca-
pacity was close to 2.4 mn tons in FY06/07, of which 1.6 mn tons were P1. It
was reported that around 80% of P1 phosphate rock grade is exported, while the
remaining is used by the local fertilizers industry**.
Sulfuric acid: Sulfuric acid is a key input for phosphate fertilizers production, of
which sulfur (the main raw material for its production) is imported. Starting 2004,
sulfuric acid demand by other industries (such as water desalination projects,
petrochemicals, glass, and pharmaceuticals) began to pick up. Hence, to achieve
greater diversification, integration, and to meet the rising local needs, EFIC ex-
panded its sulfuric acid production line in SCFP with an added annual capacity of
425k tons, which commenced its operations in the second half of December
2007***.
In order to meet up with mounting demand, both, expansions and green-field de- Added capacities
velopments took place in the fertilizers industry. Helwan fertilizers and Alexandria boosts supply further
Fertilizers companies were established in 2006/07 adding 2.4 mn/year of produc-
tion increasing to 3.9 mn tons/year after the Helwan's plant came to its full poten-
tial. EFIC increased its PSSP production capacity by 33% in 2005 to reach
1,200k tons/year. Moreover, the new SCFP ammonium sulphate production line
started operation in 2007 with an annual capacity of 150k tons.

COST-RELATED DRIVERS

Although the GoE scaled feed stock prices up to US$3/MMBtu, Egyptian compa- Price capping for ni-
nies are paying US$1.25 – 3/MMBtu, which is still less than there international trogen fertilizers pre-
peers paying US$6 – 7/MMBtu. Accordingly, natural gas cost Egyptian fertilizers vents cost passing
plants 40 – 60% of total production costs compared with the international range
of 75 – 90%. It is worth mentioning that an increase of US$1 MMBtu should re-
sult in a US$32.5 increase in ammonia per ton cost; thus emphasizing the cost
advantage the Egyptian market offers to global investors. Although the GoE's
decision to increase the natural gas prices starting September 2007 was applica-
ble on local companies, excluding some companies in the free zones, affected
their margins. This is because some of them have price caps by the GoE and/or
prevented from exporting as highlighted later. However, some companies negoti-
ated some export contracts to catch the hike in fertilizers prices.

* An interview with Eng. Yehia Kotb, Chairman, EFIC.

** An interview with Eng. Samir Abdul Naby, Production Manager, Abu Zaabal Fertilizers.
*** Al-Alam Al-Youm newspaper, December 25, 2007.

45
 November 11, 2008
EGYPT | FERTILIZERS

Nitrogen fertilizers financial highlights

Sales - L Gross Profit - L EBIDTA - L NI - L

US$ Gross Margin - R EBIDTA Margin - R Net Margin - R
450,000 70%

400,000
60%
350,000
50%
300,000

250,000 40%

200,000 30%

150,000
20%
100,000
10%
50,000

- 0%
2006 2007

Source: Abu Qir Fertilizers Company financials

On a different note by Minister Rachid Mohamed on October 16, 2008, the GoE …Energy prices are
will temporarily freeze prices some industries pay for energy to help Egypt's put on "hold"
economy withstand a global financial crisis.

Phosphate rocks and sulfuric acid, combined, represent the bulk of total cost of On the other hand,
phosphate fertilizers production. Despite the c. 50% increase in local phosphate phosphate fertilizers
rock prices in 2007 vs. 2006, it is still lower than international prices (based on enjoys cost passing
North Africa FOB export price). In 1H08, phosphate rocks were in the vicinity of ability, since no price
LE 300/ton. As for sulfuric acid, it depends on the cost of imported sulfur, which capping is imposed
increased by around 75% in 2007 vs. 2006. In 1H08, sulfur prices were in the
range of US$700/ton. Such price hikes were driven by the rapid growth of the
military industry, which created heavy international demand for sulfuric acid. In
contrary to nitrogen fertilizers, phosphate fertilizers enjoy no price caps levied by
the GoE, which allows producers to pass the cost to end customers. Indeed,
EFIC's margins have expanded in 2007 versus 2006.

Phosphate fertilizers financial highlights

Sales Gross Profit EBITDA NI Gross Margin EBITDA MArgin Net Margin

600,000 40%

35%
500,000

30%

400,000
25%

300,000 20%

15%
200,000

10%

100,000
5%

0 0%
2006 2007

Source: Egyptian Financial and Industrial Company financials (consolidated)

46
 November 11, 2008
EGYPT | FERTILIZERS

REGULATORY DRIVERS

The government’s spree to unify domestic and international prices has come to An increased nitrogen
impact the fertilizers industry. Prime Minister, Dr. Ahmed Nazif, approved a 100% fertilizers prices
increase in nitrogen fertilizers prices effective March 1, 2008. Accordingly, the
GoE will save LE 800 – 850/ton from the new price scheme, which will be used to
subsidize imported nitrogen fertilizers, which we reckon will be partially sourced
from companies located in Egypt's free zones.
The GoE is moving with steadfast steps towards the deregulation of the nitrogen PBDAC restructuring
fertilizers market. The Principal Bank for Development & Agriculture Credit
(PBDAC) will increase its capital from LE 1.8 bn to LE 3 bn following the new
Parliamentary cycle approval for changing the bank's name to the Egyptian Agri-
culture Bank, as a public specialized bank. Following the bank's regulatory law,
the bank can establish agricultural projects including fertilizers. It is worth men-
tioning that the bank has finalized a study to establish a new nitrogen fertilizers
project with expected investment cost of US$500 mn in Upper Egypt and with
annual production capacity of 2.2 mn tons. It is believed that changing the bank's
bylaws is one step towards diminishing its monopolistic distribution role in the
local fertilizers market. Moreover, involving the bank in fertilizers manufacturing
projects will increase the available capacities for the local market. Consequently,
the export ban might be unleashed soon. This will give chance for local compa-
nies banned from exporting.

Nitrogen fertilizer price mechanism (LE/ton) Nitrogen local market prices post 100% price

ex factory price Pre GoE decision Additions to ex factory price Post GoE decision
Customer price - Post GoE decision
LE/ton
Factory 1,800

1,600

Pre-Government Post-Government 1,400

Decision Decision
1,200

LE 550-650 LE 700-800 1,000

800
PBDAC
600

400

Pre-Government Post-Government 200

Decision Decision
0
Prilled Urea Granulated Urea Zinc Urea Ammonium Ammonium
LE 1,500 - 1,650 Urea Magnesium Nitrate Sulphate
LE 700 - 800

Consumer

Source: High Council of Fertilizers, CICR Source: CICR database

47
 November 11, 2008
EGYPT | FERTILIZERS

FUTURE OUTLOOK

GROWING DEMAND

Against the backdrop of the growing need for food coupled with the GoE's plan to
reclaim an additional 150k feddans p.a. – which requires the utilization of fertiliz-
ers, namely phosphate – the demand for fertilizers is expected to follow a strong
growth pattern of 5-year CAGR of 4.1% and that of phosphate to follow an even
higher growth of 12.7% over FY06/07-11/12.

Future local fertilizers demand

Nitrogen fertilizers demand Phosphate fertilizers demand
mn tons
20 5-year CAGR 20
18 18
15.80
16 5.2% 16
2.17
14 12.36 14
7.0%
12 1.56 12
10 10
8 8
13.63
6 5.0% 6
10.80
4 4
2 2
0 -
2006/07 2011/12

Source: CICR estimates

CAPACITIES

Within the framework of the GoE's strategy to expand the phosphate fertilizers New capacities on
industry, fresh investments are expected to come on stream confirmed by the stream for the final
approval granted by the Minister of Trade & Industry to establish a phosphate products as well as
fertilizers industrial zone in Aswan, including phosphate rock mines and 12 new raw materials to en-
phosphate fertilizers plants. The first phase includes 5 plants with an annual ca- sure vertical integra-
pacity of 3 mn tons and an investment cost of LE 1 bn.* It is worth highlighting tion
that vertical integration with ensure a cost-efficient operation. For example, Indo-
Egyptian Fertilizers Company is building a phosphoric acid solution plant and
sulfuric acid facility in Edfu with respective capacities of 1.5k/day and 4.5k/day to
commence operations by 2010.**

Future local fertilizers

Ammonia Urea Other N Fertilizers PSSP Other P Fertilizers

tons
18,000,000

16,000,000
1,055k
14,000,000
Phosphate 1,800k
1,055k fertilizers
12,000,000 1,440k
1,800k
10,000,000
1,440k

8,000,000 6,040k

4,610k Nitrogen
6,000,000
fertilizers
4,000,000

5,257k
2,000,000 4,145k

-
2008 2010

Source: CICR database

48
 November 11, 2008
EGYPT | FERTILIZERS

It is worth mentioning that a DAP/MAP project is expected to be launched on two

phases, the first is due in 2010, while the second is due in 2013. Thus increasing
the production capacity for phosphate fertilizers starting the respective years.

PRICES

Starting 2008, sustained high demand for phosphate fertilizers (driven by the
strong demand for bio-fuels due to the flaring-up of oil prices) coupled with up-
beat sulfur consumption (triggered by the tension in the Middle East) pushed
prices to enormously high levels. According to EFIC, GSSP export prices
reached a current level of c. US$400/ton, while PSSP local prices recorded LE
1,800/ton, hence driving up prices to much higher levels of US$299/ton and LE
1,101/ton on average for 2008 vs. US$91/ton and LE 512/ton in 2007, respec-
tively. Prices are expected to reach their peak by 2010 and cool off starting 2011
when new capacities come on stream. Against the backdrop of an anticipated
slowdown in oil prices growth pattern; a reduced pace of growth for bio-fuels de-
mand; and the expected expansions in phosphate fertilizers capacities, phos-
phate fertilizers prices are to maintain their high level, yet growth is to follow a
slower pace over 2009-2012.

On the nitrogen fertilizers side, the local ex-factory prices will be locked for a 2-
year period to align with GoE's directions to maintain energy prices; however,
once the situation is clearer, we expect ex-factory fertilizers prices to follow the
implementation of the previously announced energy plan, with a possible in-
crease in energy prices by 2010.
Urea price forecast PSSP and GSSP price forecast – based on
EFIC prices
Urea Middle East FoB price Local Urea Caped price Local Urea selling price LE/ton US$/ton
PSSP local prices GSSP export prices
US$/ton
600 1,200 200
180
1,000
500 160
140
800
400
120
600 100
300
80
400
200 60
40
200
100 20
- 0
0 2007 2008 2009 2010 2011 2012
2007 2008 2009 2010 2011 2012

Source: Bloomberg and CI Capital Research estimates Source: Egyptian Financial and industrial Company, IFA
and CICR estimates

*. Al-Ahram newspaper, January 1, 2008.

** IFC website and Higher Council for Fertilizers.

49
 November 11, 2008

EGYPT | POULTRY

CHEK-INS TO THE POULTRY INDUSTRY DRIVERS

Poultry is considered a real support to the Egyptian Econ- The rising consumer health awareness, ris-
omy, through providing a healthy, cheap and self-sufficient ing per capita income and growing popula-
tion will further expand poultry consumption
kind of protein. As Europe and Asia restrict the establish-
levels.
ment of poultry farms, future expansions will be shifted to GoE’s plan to locally cultivate yellow corn to
South America and Africa. Egypt’s poultry industry has minimize the effect of international price
witnessed a remarkable increase in production reaching fluctuations.
700k tons in 2007 up from 195k tons in 1990. Yet, still po- New International law preventing the estab-
tential exists as the country’s 2007 per capita consumption lishment of poultry farms in Europe and
of poultry reached 10.2 kg/annum versus a global average Asia, will direct poultry production to South
of 12.5 kg/annum. With the country’s population growth, America and African countries.
rising GDP/capita, and the diversification of diets the de-
mand for poultry is expected to reach a per capita level of RISKS
13.4 kg/annum by 2012. As for poultry producers, the shift
is towards vertical integration as to ensure a hygienic cy-
cle and a cost-efficient operation. The dependence on imported fodder ex-
poses producer to international price fluctua-
tions.
Rising Consumption/capita in developing countries: While
Entrance of small-scale producers during
per capita consumption in high income countries increases only peak prices disrupts the market balance,
marginally, rising incomes and the subsequent diversification of and leads to price decline.
diets led to a shift towards significantly higher white meat con- Disease breakout, as Avian Influenza (AI),
sumption in developing countries. impacts supply and demand for poultry.
Tariffs reduction on Imported frozen chicken
Poultry is still threatened by AI outbreak, yet is becoming intensifies competition.
more immune: The advent of the Avian Influenza (AI) at the
end of 2006 heavily impacted poultry consumption and resulted KEY PERFORMANCE INDICATORS
in huge losses for poultry producers and the farms’ owners.
Industry experts expect that it will not be before 2010 when the Poultry production (2007, k tons) 700
occurrence of such disease will end, yet the industry’s devel-
Local consumption/capita (2007,kg 10.2
oped immune system should alleviate the impact of the AI dis- p.a.)
ease.
Global consumption/capita (2007,kg 12.5
As fodder is a key contributor to cost, the witnessed de- p.a.)
cline in its prices is an advantage to poultry suppliers: As Current fodder prices (LE/ton) 1,200
prices of yellow corn (the main component in poultry fodder) is
strongly linked to the global oil prices—as factories shift to yel- MARY MILAD
low corn for bio-fuel products as a cheap substitute for oil as oil MARY.MILAD@CICH.COM.EG
prices kept rising—the current decline in oil prices decreased
fodder prices reaching around LE 1,200/ton. The anticipated
low levels of oil prices is expected to maintain fodder prices at
reasonable levels, thus, enhancing the companies margins. SECTOR PERFORMANCE | 2004-2007
Moreover, the GoE’s plan to locally cultivate yellow corn will Consumption/capita Growth rate
minimize the effect of international price fluctuations. 14
Kg/annum
8.9% 10%
12 10.2
9.8 8%
The industry’s shift towards vertical integration: To ensure 10 8.5 9.0
8 6%
the implementation of a more hygienic poultry cycle in order to 5.9%
6 4%
avoid the outbreak of the AI disease, poultry companies are 4
2.4% 4.1%
2%
targeting vertical integration. Moreover, such integrated busi- 2
ness model ensures a more cost-efficient operation. Thus, in- 0 0%
2004 2005 2006 2007
vestment in slaughterhouses started to kick-off with “Al Wa-
taneya Poultry” planning to establish 5 slaughterhouses with a
capacity of 500K chicken/day.

50
 November 11, 2008
EGYPT | POULTRY

MARKET HIGHLIGHTS

Since 1990, the poultry industry has witnessed a remarkable increase in pro- Expanding produc-
duction on the local level, as poultry companies increased their production by tion levels
almost 301%, reaching 700K tons up from 195K tons over 1990-2007, following
a CAGR of 7%. Yet, still Egypt’s production represents a minor share of 1% of
global poultry production.

Local consumption followed the same increasing trend as that of Global Mar- Growing consump-
ket. Consumption per capita reached around 10.2 Kg/annum in 2007 up from tion, yet, still
7.9 Kg in 2000; reflecting the fact that the increase in poultry meat consumption untapped potential
mainly depends on the increase in income and not only related to population.
Yet, still the country's per capita consumption is below the global average of
12.5 kg/annum.

RECENT DEVELOPMENTS

Though local production is currently sufficient to cover local consumption, how- Slashing import
ever, around 25-30K tons of frozen chickens are imported from Europe and tariffs as a tool to
Brazil. Following the protection of the GoE to the industry, over 1986-2007, reduce monopolistic
through the ban it imposed on imports, in July 1997 the ban was lifted up and power of suppliers
imports were allowed with an 80% tariff (plus an additional charge of 4%) on
imported frozen poultry and poultry products. Moreover, in September 2004
tariffs slashed to 32%, and then further reduced to 30%. Said act, is a govern-
ment tool to control monopoly imposed by local producers on poultry prices.
Hence, profit margins attract traders, who were unable to neither invest in poul-
try business nor bear the losses encountered in case of any disease outbreak;
consequently trade is the optimum option to enter the poultry business. Such
practice created an over supply, leading to a drop in selling prices.

Ex-farm prices
LE/KG
7.0

6.0

5.0 Slashing import

tariff from 80% to
32% in
4.0

3.0

2.0

1.0

0.0
1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Poultry Industry Experts

51
 November 11, 2008
EGYPT | POULTRY

Poultry is considered a strategic industry – as the income of many families in The advent of the AI
Egypt depends on this industry – in addition to its importance as a source of disease heavily hit
protein to the Egyptian families. However, the advent of the Avian Influenza the industry
(AI) heavily impacted consumption and resulted in huge losses for poultry pro-
ducers and the farms’ owners. It is worth noting that losses encountered by AI
disease during the end of 2006 and the beginning of 2007 due to the AI dis-
ease reached around LE 3-4 bn (hitting 50% of parent chickens flocks and
around 70% in layers flocks). Moreover, consumers started to shift to substi-
tutes as fish and meat, as a safe meal to ensure their required protein intake.
The impact of AI, which occurred during end 2006, was remarkable later in
2007, as consumption per capita growth dropped drastically from 9% to 4%.

Local consumption/capita
Kg/annum Consumption/capita Growth rate

10.5 10%

8.9% 10.2
9%

10.0
9.8 8%

7%
9.5
5.9% 6%

9.0
9.0 5%

4%
8.5 4.1%
8.5
3%

2.4% 2%
8.0

1%

7.5 0%
2004 2005 2006 2007

Source: Poultry Industry Experts

MARKET STRUCTURE

The poultry industry in Egypt is subdivided into 3 main segments: (1) commercial Commercial and
Chickens; (2) Balady Chickens; and (3) other poultry. Both commercial & balady Balady Chickens are
chickens are, in turn, subdivided into broilers & Layers leading to the following the main segments
four sub-segments:
Commercial Broilers: This segment concerns chickens (specifically interna-
tional breeds) which are reared for the production of white meat.
Commercial Chicken Layers: This segment concerns chickens (specifically in-
ternational breeds) which are reared for the production of eggs for consumption.
It partially contributes to the production of white meat.
Balady Chicken Broilers & Layers: This segment concerns local breeds reared
by individuals in their backyards.
Other Poultry: This segment concerns birds, other than chickens, raised for
meat production and it includes; ducks, geese, turkeys and pigeons. It is further
subdivided into commercial and backyard operations

52
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EGYPT | POULTRY

There are many players in the market; varying from small-scale producers and A fragmented market,
farmers to well established companies. Moreover, poultry business consists of yet, five key players
several production phases; companies’ contribution to the market vary from control the field
one stage to another; accordingly, the contribution of market players, on aver-
age, can be summarized in the below pie chart.

Poultry market players

Other
Cairo
Players
Poultry
38%
30%

Wataneya
Poultry Misr Arab
4% Wadi Poultry
Holdings 19%
Dakahleya 4%
Poultry
5%

Source: Poultry Industry Experts

MARKET DYNAMICS

MARKET
DYNAMICS

Socio-economic Market-related Fodder-related

Drivers Factors Factors

Income/Capita Seasonality Fodder Availability

Population Diseases Fodder Prices

Substitutes

53
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EGYPT | POULTRY

SOCIO-ECONOMIC DRIVERS

As the level of income increases, new social levels enter into the poultry con- Income/capita
suming population, hence expand consumption.

Income/capita vs. consumption/capita

LE Kg/annum
Income per Capita Consumption per Capita
6,000 12.0

5,000 10.0

4,000 8.0

3,000 6.0

2,000 4.0

1,000 2.0

0 0.0
2003 2004 2005 2006 2007

Source: Poultry Industry Experts

It has been witnessed that consumption of poultry increased over years with Population
the growing population, as demand for poultry and population illustrate high
correlation co-efficient of 0.94.

Population vs. consumption

ton Consumption Population mn

900,000 76
800,000 74

700,000 72
70
600,000
68
500,000
66
400,000
64
300,000
62
200,000 60
100,000 58
- 56
20

20

20

20

20

20

20

20
00

01

02

03

04

05

06

07

Source: CICR Estimates

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EGYPT | POULTRY

MARKET-RELATED DRIVERS

Poultry consumption is seasonal, as increased consumption levels are wit- Seasonality of

nessed during religious occasions and summer vacations. On the supply level, demand and Sup-
the global production of fodder, which is the main input in poultry industry, vary ply
according to climate conditions under which seeds (yellow corn and soybean)
are cultivated.

The emergence of diseases, such as Avian Influenza, impacts both supply and Diseases impact
demand for poultry, evidenced by the decline in global production and consump- both demand and
tion which occurred during 2003 and 2006 as a natural result of the discovery of supply
AI cases. It is worth highlighting that the outbreak of the disease was witnessed
late in 2006, thus, impacting 2007 levels.

Global demand vs. supply

Demand Supply Demand Growth Supply Growth

000' Tons
100,000 5.00%
80,000 4.00%
60,000 3.00%
40,000 2.00%
20,000 1.00%
- 0.00%
2000 2001 2002 2003 2004 2005 2006 2007

Source: FAO STAT Database

The rising consumer health awareness and the discovery of FMD (Foot and Substitutes
Mouth Disease) and BSE (Bovine Spongiform Encephalopathy, commonly
known as Mad Cow Disease (MCD)) cases negatively affect red meat consump-
tion, yet, boost the demand for poultry and fish – as they represent perfect sub-
stitutes for meat in terms of protein intake. Nevertheless, the occurrence of AI
disease impacts the demand for poultry and expands consumption of substitutes
– as meat and fish.

FODDER-RELATED DRIVERS

Fodder constitutes the bulk of poultry production cost; the production of fodder
relies, in turn, on yellow corn and soybean, the importation of which depends on
the availability of seeds in the Global commodities market. Moreover, fodder
prices are determined by commodities’ global prices. It is worth noting that yel-
low corn prices is strongly linked to oil global prices as factories shift to yellow
corn for bio-fuel products as a cheap substitute for oil, which justifies the tremen-
dous increase in fodder prices in the first half of 2008. However, with the de-
crease witnessed in oil prices, fodder prices declined reaching a current level of
LE 1,200/ton; with an expectation of further decrease.

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 November 11, 2008
EGYPT | POULTRY

Oil vs. fodder prices

Oil prices Fodder prices

160 3500
140 3000
120 2500
100 2000
80
60 1500
40 1000
20 500
0 0

ec 7
Ju -07

08
A r-07

A r-08
u 7
ep 7

N t-07
Ju -07

Ju -08
b- 7

b 8
M 07

M -08
O -07

Ja -07
ay 7

ay 8
D -0
S g-0
A l-0
Fe -0

Fe -0
M r-0

M -0

n-
n

ov
n

pr
c
a

a
p
Ja

Source: CICR Estimates & Poultry Industry Experts

Most notably, as fodder constitutes around 65% of poultry total production cost,
volatility of fodder prices is consequently reflected in poultry selling prices as
illustrated in the graph below.

Fodder vs. poultry selling prices

LE/ton Fodder prices Selling prices LE/Kg

3500 12.00

3000 10.00
2500
8.00
2000
6.00
1500
4.00
1000

500 2.00

0 -
n- 8
n 7

ec 7
c 7
7

pr 8
7

Ju -07

p 7

08
ar 7

ay 7

a 8

ay 8
ov 7
7

Ju -0
Ju -0

D -0

A r-0
Ap -0
Fen-0

O -0

Ja -0
Fen-0
M b-0

M b-0
M r-0

Seg-0

M -0
N t-0
Au l-0
Ja

Source: Poultry Industry Experts

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EGYPT | POULTRY

FUTURE OUTLOOK

Poultry is considered a real support to the Egyptian Economy, through providing a Anticipated decline
healthy, cheap and self-sufficient kind of protein. The anticipated decline in oil in yellow corn
prices will be reflected on a reduced demand for yellow corn as a bio-fuel substi- prices is a plus
tute, hence a downward slope for its prices which will be mirrored on the fodder
prices. Moreover, the GoE plan to cultivate yellow corn will alleviate the exposure
of poultry suppliers to the volatility of international prices, enhance their margins,
and attract new market players.

Still the outbreak of AI represents a threat to the industry's supply and demand Still fears from the
sides. As per industry specialists, the occurrence of the disease is still a risk until outbreak of AI as a
2010. Therefore, we anticipated demand to be depressed during 2009 and 2010, threat, yet it is an-
yet, it will resume higher growth levels throughout the remaining period of our fore- ticipated to end by
cast. Given the growing population rate and increasing income per capita, poultry 2010
consumption is expected to grow over 2008-2012 by an average of 7.8% annually
to reach a per capita consumption of 13.4 Kg/annum by 2012

Future Consumption

000 ton Consumption Growth rate

1,200 12.0%

1,000 10.0%

800 8.0%

600 6.0%

400 4.0%

200 2.0%

0 0.0%
2006 2007 2008 2009 2010 2011 2012
Source: CICR Estimates

To ensure the implementation of a more hygienic poultry cycle in order to avoid the More integration is
outbreak of the AI disease, poultry companies are targeting vertical integration. anticipated
Moreover, such integrated business model ensures a more cost-efficient operation.
Hence, investment in slaughterhouses started to kick-off with “Al Wataneya Poul-
try” planning to establish 5 slaughterhouses with a capacity of 500K chicken/day.

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EGYPT | REAL ESTATE & MORTGAGE FINANCE

SHELTERS ARE A MUST DRIVERS

Given the strong ties linking the real estate market with Growing population, namely urban, coupled
the economy, the anticipated economic slowdown will be with growth in marriages are key engines to
reflected on real estate prospects, which owes much of the expanding residential demand.
its boom to the boost in high-end segment demand. Yet, Rising real GDP/Capita enriches wealth ac-
the cool-off in raw materials prices along with an ex- cumulation activities, which acts as a poten-
pected decline in mortgage lending rates will shape up an tial for real estate demand.
The availability of land for projects develop-
affordable product to the middle-income group; thus,
ment.
help materialize its unmet demand, and alleviate the ex-
The unmet demand, namely in the medium
pected simmering down of the high-end demand which is to lower income classes represents an op-
on the brink of saturation. Retail, is another key segment portunity for developers in these categories.
driven by the GoE's commitment to support local invest- Foreign ownership is allowed.
ments – namely SMEs – and building commercial and Declining raw materials prices will increase
industrial zones in many governorates, thus, highlighting affordability of real estate units for middle
the positive prospects of office and commercial seg- and lower income classes, hence will ex-
ments – which are still undersized. Moreover, the highly pand their demand potential.
competitive property prices in Egypt versus its regional
peers may foster foreign investments.
RISKS
Developers are to weather the storm with a solid ground:
Developers are expected to withstand the anticipated slow- The underdeveloped infrastructure and trans-
down in the real estate market with a much solid ground than portation facilities act as a limitation for po-
tential real estate investments.
earlier in the decade, capitalizing on their sell-off plan model.
The undeveloped mortgage finance scheme
limits its full application.
Other drivers may expand the added supply units beyond Lower oil prices might affect the liquidity flow-
the completion of outstanding projects: The completion of ing into the real estate from the GCC.
outstanding projects is expected to ensure growth in supply.
Yet, the negative sentiments for the financial market, may act KEY PERFORMANCE INDICATORS
as a potential for liquidity transfer from equity markets to the
Av. annual added residential urban demand 508
perceived safe real-estate market. Moreover, the expected (04-07,k units)
growth in real GDP/capita leads to wealth accumulation and
Av. annual added residential urban supply 134
expands demand for real estate. (04-07,k units)
Added urban supply units 442
Mortgage scheme development enhances affordability: (2010,k units)
The anticipated improvements in the mortgage scheme and Cairo average residential selling prices 1,006
the expected decline in mortgage lending rates along with the (US$/sqm)
cooling off in raw materials prices are expected to create af- MENA average residential selling prices 3,068
fordable residential units for the middle-income group. Hence, (US$/sqm)
alleviate the expected cool off in high-end demand.
COMPANIES COVERED PAGE #
A bright side for retail: The GoE's commitment to support Nasr City H&D 135
local investments – namely SMEs – and building commercial
and industrial zones in many governorates highlights the po- Palm Hills Developments 149
tential for office and commercial segments, which are still TMG Holding 157
undersized.
MUHAMMAD EL EBRASHI
MUHAMMAD.ELEBRASHI@CICH.COM.EG
Highly competitive prices: The recent reforms that helped
streamlining the process of property purchase in Egypt, facili- SECTOR PERFORMANCE | RESIDENTIAL SUPPLY
tating the purchases for overseas buyers, may render the Luxury Medium Lower Cost

country's highly competitive real estate prices, compared to its 140,000

Additional Units

regional peers, as a base to foster foreign investments. 120,000

100,000

80,000

60,000

40,000

20,000

-
2004/05 2005/06 2006/07 2007/08

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EGYPT | REAL ESTATE & MORTGAGE FINANCE

KEY MARKET FACTS

The strong ties between real estate and economic performance drove up real Real estate bears
estate investments by 77% over FY03/04-07/08 – the period when the economy strong ties with the
was booming. Egypt's strengthening economy prompted investors to undertake economy
residential, office, and retail developments, with total real estate investments
reaching LE 13 bn in FY07/08, with Gulf investors being at the forefront of a con-
siderable number of developments.

Real estate investments versus economic growth

Real Estate Investment Real Estate Growth GDP Growth

14,000 40%

12,000 35%

30%
10,000

25%
8,000
20%
6,000
15%

4,000
10%

2,000 5%

- 0%
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

Source: Central Bank of Egypt bulletin

Despite the dramatic increase in real estate prices, they are still much lower com- Highly competitive
pared to regional peers, hence adding to the sector's potential. prices

Average selling prices US$/sqm during 2008

Cairo MENA average
US$ per s.qm
6,000

5,175
5,000

4,000

2,960 3,068
3,000

2,000

1,006
1,000

-
Average office sales price Average residential sales price

Source: Bank Audi

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EGYPT | REAL ESTATE & MORTGAGE FINANCE

MARKET DEVELOPMENTS
Sliding Phase Recovery Phase An Uptrend
2000 - 2003 2004 - 2005 2006 - Current

* The real estate market entered a
downward phase.
* High-end supply outweighed demand.
* Depreciated real estate prices.
* Weak real estate demand.
* Real Estate started its recovery.
* Intense development of new urban
communities.
* Appreciated real estate prices.
* Strong real estate demand.
* Launch of the Real Estate tax law
* Growing real estate market.
* Influx of international developers.
* Appreciating land and property prices.

* The initiation of the mortgage scheme
concept.
* Strict foreign ownership regulations.
* Mortgage law was put into effect.
* The first two mortgage companies started
operation.
* Banks started to offer household credit to
finance residential ownership.
* Laxed foreign ownership regulations.
* Increasing rental yields.
* Demand maintained its strength.
* Banks started to offer seven to ten years loans.
* The establishment of the Egyptian Company for
Mortgage Refinancing.
* Reduction in property tax from 46% to 10%.

* Reduction of property registration fees from 12%

of property value to a max of LE 2000 per property.

* Increasing number of financing institutions.

* Structural gap.

Source: CI Capital Research

The buoyant sentiment surrounding Egypt’s real-estate market growth coupled Positive sentiments
with a strengthened economy laid solid grounds for further expanded real-estate coupled with a
investments. With the announcement of billion of dollars worth of emergent pro- strengthened econ-
jects including residential, offices, commercial and touristic projects that were omy encouraged for-
introduced to the market through local and foreign investors, Egypt is introduced eign investments in-
to a new era of intense activity designed to propel it to the global spot light. flow

High oil prices have resulted in a dramatic increase in the wealth of the major oil Led by GCC invest-
producers. The GCC in particular are generating huge current account surplus ment inflows which
reaching US$210 bn in 2007; which finds their way through local and overseas were further fostered
investments. With the downturn in the US and some European housing markets, by the boosted sur-
which has already dented their economic performance through declines in resi- plus from high oil
dential investment and construction activities, along with Egypt undertaking an prices
extensive development program, several Gulf investors have directed much of
their appetite towards Egypt, developing several mega projects.
Key foreign real estate developers
Developer Project Investment (bn) Delivery Year
Emaar New Cairo City - Cairo Gate - EGP 42.67 Master planned - 2013
Marassi - Up town Cairo
Kharafi Group Port Ghalib EGP 9.20 2013

Barwa Qatamiyya EGP 7.50 2013

Qatari Diar Cairo Nile Corniche Towers project - EGP 7.65 2012
Tourist Development
Al Futtaim Group Cairo festival city EGP 20.10 2011

Damac Gamsha bay - Park Avenue - Hyde EGP 107.00 2011 - 2018
Park
Total EGP 194.12 Master planned - 2018

Source: CICR

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EGYPT | REAL ESTATE & MORTGAGE FINANCE

New Cairo communities galloped ahead on their competitive tracks and experi- The advent of the inte-
enced a dramatic increase in residential property supply especially in the con- grated project con-
struction of high-end properties. Commercial activity also picked up lately; how- cept and new housing
ever, the office market remains untapped. Moreover, the rising flow of tourist arri- convention…
vals attracted investments not only in hotels but also in integrated touristic devel-
opments. Egypt's buoyant economic performance stimulated investors to set up
retail developments illustrated by the inflow of hypermarkets as well as super-
markets, by both international and local chains. It is worth noting that there are
about c. 26 shopping malls in Greater Cairo; by which the advent of professional
retailing and mall construction started in 2005 through the development of the
US$1-bn City Stars investment, including a shopping mall, two hotels, cinemas,
as well as residential and commercial units according to internationally accepted
standards.
Such witnessed investment inflow increased the number of added units; by which Residential and com-
the yearly additional residential units averaged 195k units over 2004-08 com- mercial additions
pared to an average of 159k units over 2000-03. Commercial activity witnessed were lifted up
growth as well, however, the office market remains untapped.

Estimated Urban additions for Residential Units

additional Units
900,000

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

-
1995-99 2000-03 2004-08

Source: CAPMAS & CICR estimates

The bulk of inflows were concentrated in the high-end property segment whose Yet, a structural gap
spiraling development dominates headlines in the sector, while the added hous- exists
ing units to medium and low-income inhabitants who constitute the vast majority
of Egyptians are limited. As supply failed to keep apace with the rising demand of
the medium and low- income housing units, the real-estate market is faced by a
structural gap between the high-end property market and that of the medium to
low-end segment.

Estimated Urban Supply/Demand additions for Residential Units (by sector)

Luxury Medium Lower Cost

Additional Units
140,000

120,000

100,000

80,000

60,000

40,000

20,000

-
2004/05 2005/06 2006/07 2007/08

Source: CAPMAS & CICR estimates

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MARKET DYNAMICS

Source: CICR

SOCIO-ECONOMIC FACTORS
Population growth coupled with rural urban migration is key engine for residential Population Growth
demand. Egypt's population reached 74 mn inhabitants by 2007; growing with with significant urban
1.9% on average. Rural-urban migration coupled with the normal growth of urban share
inhabitants pushed urban population to contribute with a share of 42.9% of total
inhabitants.

With the current age distribution, 50% of the population is below the age of 20, Population structure
while c. 30% of the country's population lies within the age bracket of 20-39 years adds further to de-
– this represents the marriage group that stimulates demand for new residential mand potential
units. As for the 45-year and older age bracket, which represents around 16% of
the population, it creates demand for new properties through relocating, or by
buying a secondary property. Moreover, huge demand potential still lies ahead,
fostered by the fact that 50% of the population is below 20 years, signaling future
real-estate demand.
Marriages have reached an estimated level of 669k contracts in 2007/08, and Marriages & Divorces
grew at an average annual rate of 5.6% over 2002/03-2007/08. Moreover, cases
of divorce have recorded 73.1k cases in 2007/08. Both, marriages and divorces
create demand for residential units.
Demand for property is closely tied to growth in per capita income. The rise in Per Capita Income
real GDP/capita averaging 5% annually throughout FY05/06-07/08, allowed for
the accumulation of wealth, hence drove up the real-estate market by an annual
average of 10%.

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REGAULATORY FRAMEWORK

Currently, the property tax law is being amended, by which all unfinished units Property tax law
within the cities or in new urban areas will be subject to the property tax law. This
will encourage the developers to accelerate the delivery of units to buyers. Pass-
ing this law will force owners to sell their properties to avoid paying property tax.
It is believed that such law will increase the property sale turnover in Egypt; thus,
residential property liquidity will surge, bringing prices to more competitive levels,
and accordingly expands affordability. Moreover, a tax of 2.5% is charged on
money earned from a property sale. In addition to taxes of 20% on rental income
with a basis threshold for taxation of LE 10,800 per annum.
Recent reforms helped streamlining the process of property purchase in Egypt, Enhancing registra-
facilitating the purchases for overseas buyers, and focusing investors' attention tion scheme
on Egypt as a prime location for real-estate buyers as well as developers.
In an effort to boost the real-estate market and expand its base, in April 2005, Allowing foreign own-
Egypt revamped the property ownership law to extend identical ownership rights ership
and privileges to foreigners as those enjoyed by native Egyptians. Ownership
follows a freehold model with the only exception being in Sinai, where the owner-
ship is based on a 99-year long lease system, usufruct system.*

Although the mortgage finance scheme was initiated in 2000, it was not put in Mortgage law
effect until 2004. Compared to the deferred installment system, a developed
mortgage finance system makes purchasing a house more affordable for more
people through longer amortization terms and lower prices, which ultimately
stimulates and develops the property market. It is worth mentioning that total
mortgage loans exceeded LE 2 bn in December 2007 compared with LE 1 bn in
December 2006, fueling further the purchase of properties. The launch in the
mortgage law was to catch the segment of population with annual salary ranging
from LE 1.5 k to LE 6.2 k (22% of the population) and thus can afford to pay the
40% monthly installments of LE 0.6k to LE 2.5k. further improvements in the law
could allow the mortgage finance companies and banks to address a further 20%
of the population with wages in the range of LE 1 – 1.2 k month.

MORTGAGE FINANCE

Despite the introduction of the mortgage finance system to the market, it is still Limited application of
faced with some obstacles. Red tape; the limited number of mortgage finance mortgage finance
providers; and the low amount of finance offered – a ceiling of LE 5 mn - hinder scheme
the efficient application of the mortgage finance scheme. Although mortgage
loans experienced a two fold increase reaching LE 2.8 bn in 3Q08 vs. LE 1.9 bn
in 3Q07, still it represents less than 1% of the country's GDP versus 8.1% in the
UAE in December 2007.

Mortgage Finance Market

MFC Banks Mortgage loans as percentage of GDP (current)
LE mn
4,500 1.40%

4,000
1.20%

3,500
1.00%
3,000

2,500 0.80%
2,054 2,130

2,000 1,906
0.60%

1,500 1,369
1,067 0.40%
1,000
1,000 871
714
502 0.20%
500
193 208
0 0.00%
3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08

Source: Ministry of Finance and Euromoney Conferences

*
Usufruct system: It is the right to use and exploit property belonging to another person.

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Currently there are 10 key major players (banks and companies) in the mortgage Rising number of
finance market up from 9 in 2007. In addition, several investors, both local and players
regional, showed their interest to enter Egypt's mortgage market by setting their
mortgage companies. For instance, Naeem Holding is preparing to submit a re-
quest to acquire a license to establish a mortgage finance company with an au-
thorized and paid-in capital of LE 1 bn and LE 100 mn, respectively - pending
finalization of license procedures with the Mortgage Finance Authority (MFA). In
addition, Tamweel PJSC, the largest provider of real estate finance in the UAE,
has announced that it has received a mortgage finance license from Egypt’s
Mortgage Finance Authority (MFA) during March 2008 to launch operations in the
Arab world’s most populous nation, with an authorized capital of LE 500 mn and
a paid-in capital of LE 100 mn.

Figure 15 Key operating Mortgage Finance Institutions

Provider Available to Type of Unit Mortgage Tenor Interest Rate Max. Loan Amount Min Salary (LE) Charges Buy-To-Let

Amlak Egyptians, Residential A maximum monthly 13.5%-decreasing 90% of property Min monthly salary LE 150 for application form, LE Requires
Expatriates, installment of 20 value (up to LE 5 LE1,000 1000 for the appraiser, and Financer
and non- years/maximum age of 65 mn) - monthly 2% administrative fee are paid Approval
Egyptians years. installment can not once.
exceed 40% of
Egyptians, Commercial A maximum monthly 14%-decreasing 80% of property Min monthly salary LE 150 for application form, LE Requires
Expatriates, installment of 20 value (up to LE 5 LE2,000 1000 for the appraiser, and Financer
and non- years/maximum age of 65 mn) - monthly 2% administrative fee are paid Approval
Egyptians years. installment can not once.
exceed 40% of
EHFC Egyptians, Residential A maximum monthly 9.3% Fixed 80% of property Min monthly salary LE150 for application form and Requires
Expatriates, installment of 15 value (up to LE 2.5 LE2,000 LE1000 for the appraiser. Financer
and non- years/maximum age of 65 mn) Approval
Egyptians years.

Taamir Egyptians, Residential A maximum monthly 10% Fixed 85% of property Single person: min 2% administrative fee from Requires
Mortgage Expatriates, installment of 20 value LE18,000 annually; Total whole loan balance are paid Financer
company and non- years/maximum age of 65 family income: LE24,000 once. Approval
Egyptians years.

Bank of Egyptians, Residential A maximum monthly 12.4% declining for 90% of property Min monthly salary 1.5% administrative fee from Requires
Alexandria Expatriates, installment of 15 2 years 13% value (up to LE 5 LE2,000 & max loan whole loan balance are paid Financer
and non- years/maximum age of 65 declining for 13 mn) installement is 40% of once. Approval
Egyptians years. years monthly salary.

Bloom Bank Egyptians, Residential Monthly installment 12.5% declining for 70% of property Min monthly salary 1% administrative fee from yes
Expatriates, ranging from 5-15 3 and 5 years and value in Cairo and LE1,000 & max loan whole loan balance are paid
and non- years/maximum age of 60 13% declining for other governorate, installement 40% of once (min LE 500 and max of
Egyptians years. 10 and 15 years 75% of property monthly salary. LE 25K).
value in new Cairo,
80% construction
activities, and 45%
finishing activites.

CIB Egyptians, Residential Monthly installment 11.5% fixed for five 75% of property Min monthly salary LE1,000 is paid for apartments yes
Expatriates, ranging from 5-15 years. 12% value (min LE 120k LE4,000. and LE2,000 for villas. In
and non- years/maximum age of 60 declining for the up to LE 5 mn) addition to 0.25% is paid
Egyptians years. next 10 years annually on the remaining
balance of the loan & 1.5% of
loan amount is paid once (max
LE 30,000) at the begining of
the loan and deducted from
the loan balance.

Egyptian Egyptians Residential A maximum monthly 8.2% 90% of property Min monthly salary LE 500 and insurance 2.5% of Requires
Saudi Finance installment of 10 value LE1000 & max loan loan Financer
Bank years/maximum age of 60 installement 40% of Approval
years. monthly salary.

Egyptian Arab Egyptians Residential A maximum monthly 9% fixed for Cairo - 85% of property Min monthly salary NA Requires
Land Bank installment of 15 years for 9.6% fixed for new value LE1000 & max loan Financer
cairo and 20 years for new cities installement 40% of Approval
cities/maximum age of 65 monthly salary.
Housing & Egyptians, A maximum monthly 13 - 14% 75% of property Max loan installement 0.1% Administrative fees. yes
Development Expatriates, installment of 10 value 40% of monthly salary.
Bank and non- years/maximum age of 60
Egyptians years.
NSGB Egyptians Residential Monthly installment 12.5% declining for 80% of property Min monthly salary one time administrative fee Requires
ranging from 5-15 5 years - 13% value (min 50k - up LE2,000 which is 1% of total loan. Financer
years/maximum age of 60 declining for 10 to LE 5 mn) - Approval
years. years - 13.5% monthly installment
declining for 15 can not exceed
years 40% of gross salary

Source: CICR database

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Cost is now by far the most important selection criteria for the bulk of the resident The anticipated lower
workforce in Egypt. The witnessed inflationary pressures within 2008 had placed inflationary levels is
increasing emphasis on affordability, as rising interest rates limits an expanded to have its positive
application of the mortgage finance scheme. Given the decline in CPI readings impact on the mort-
starting September 2008 along with the anticipated lower inflationary levels going gage finance scheme
forward, interest rates are expected to adjust to the downside, thus, would bring
down with it mortgage lending rates. A fact that is expected to enhance the af-
fordability of such scheme and ensures an expanded utilization.

OIL PRICES

The witnessed strengthening of oil prices reflected growing surpluses in oil ex- Peaking oil prices en-
porting countries, namely those of the GCC region, which registered a current forced an upbeat for
account surplus of US$210 bn in 2007. Oil windfall pushed upward the private the real-estate market,
wealth which further boosted the recycling of the petrodollars in value added op- yet their anticipated
portunities as the real-estate market of prospective destinations, including Egypt, drop is expected to
thus, stretching further the demand potential as well as expanding the develop- depress such growth
ers' capacities to invest in the real-estate sector. Moreover, the attractive real-
estate prices compared to those in traditional markets created demand for a sec-
ond-home within Egypt. However, with the anticipated decline in oil prices, GCC
surplus will be depressed, and will impact their investments inflow to Egypt. Yet,
FDIs in real-estate remains untapped with a minimal share of less than 1% of
total FDIs inflows to the country, and a contribution of around 4% to total real-
estate investments in FY07/08. Hence, we believe the impact will be limited.

RAW MATERIALS

The strong real-estate demand witnessed despite the hiking raw materials prices Strong demand de-
– reaching a peak of LE 6,600/ton in 2008 for steel and a high of LE 462/ton in spite the hiking raw
2008 for cement – proved the strong belief of the positive prospects of such sec- materials prices, yet,
tor by investors – local and international – and the outweighing of the demand with the cooling off in
drivers over those of supply, resembled in the dramatic increase in real estate steel and cement
prices caused by the rising steel and cement prices. Yet, the anticipated global prices still demand is
economic slowdown which will be reflected on the Egyptian economy is expected expected to be de-
to outweigh the anticipated decline in raw materials prices - leaving the real es- pressed
tate market cushioned by the outstanding projects.

DEVELOPERS' SELF-FINANCING MODEL

Capitalizing on their self financing model (sell-off plan), developers are to
weather the slowdown in demand on a more solid ground than during the down- With the de-leveraged
turn that occurred earlier in the decade. Hence, reversing the previous high work- standing of develop-
ing capital needs with developers’ financial leverage averaging 0.9x in 2007. ers, they are to
weather the storm
with a solid ground

FUTURE OUTLOOK

The coming two years are expected to witness a depressed demand with the Depressed demand
pace of growth being based upon the completion of outstanding projects. Yet, a for residential units,
more developed mortgage scheme with expected lower interest rates – following yet, with expected
the expected decline in lending rates as a measure to expand investments – cou- lower mortgage lend-
pled with the cool-off in raw materials prices could allow for the entry of the mid- ing rates units to the
dle-income class, as residential units can become more affordable. We have ac- middle-income class
counted for a more conservative picture for demand on real estate to incorporate could be affordable
the impact of such economic slowdown. Real estate residential demand is ex-
pected to grow at a decelerated rate over 2009 and 2010, and a pick-up is to fol-
low afterwards.

65
 November 11, 2008
EGYPT | REAL ESTATE & MORTGAGE FINANCE

As supply mainly targets the high-end, its growth is expected to be based upon Middle-income group;
completing the outstanding projects. However, the unsatisfied demand that is “every cloud has a
expected to stem from the middle-income class is likely to alleviate the expected silver lining”
cool-off in the high-end demand.

Future additional demand and supply

Additional Urban Supply Additional Urban Demand

600,000

500,000

400,000

300,000

200,000

100,000

0
2006 2007 2008 2009 2010 2011 2012

The GoE's commitment to support local investments – namely SMEs - and build- A bright side for the
ing commercial and industrial zones in many governorates highlights the poten- retail segment
tial for office and commercial segments, which are still undersized.

66
 November 11, 2008

EGYPT | STEEL

REBARS IS MORE LIKELY TO WITHSTAND THE

DRIVERS
STORM THAN FLAT STEEL
Against the backdrop of anticipated downturn in the Outstanding real estate projects secure
global economy and a slowdown in trade activities, flat demand.
steel is expected to be more affected than rebars, as the Strengthened margins.
Declining raw materials prices, coupled with
former is highly involved in the export markets with 56%
declining freight costs.
of its sales is directed internationally in 2007. On the
Removal of export ban.
other hand, the demand for rebars will be secured by the Foreign companies' entry is expected to
massive backlog of real-estate projects. In addition to the improve the industry's efficiency.
GoE’s commitment to push further local investments
through building commercial and industrial zones in
many governorates which will increase the demand for RISKS
the retail segment. In an effort to give local steel products
a competitive edge against competition in the global mar- Heavy reliance on imported raw materials.
ket, the GoE removed the LE 160/ton export tariffs on Sudden governmental decisions as impos-
steel exports. Another forward move is the vertical inte- ing duties on steel exports.
gration enforcement through the GoE issuance of license Anticipated slowdown in the global and lo-
for the production of billets, sponge iron and direct re- cal economies.
duced iron (DRI), key raw materials in steel production.
Such move should alleviate the impact of the volatile KEY PERFORMANCE INDICATORS
steel raw materials prices on the local product, as Egypt’s Rebars production CAGR (04-07,%) 10.8
steel industry heavily relies on imported raw materials.
Rebars consumption CAGR (04-07,%) 11.6
Flat steel is expected to be highly affected: As 56% of flat Flat production CAGR (04-07,%) 6.2
steel sales is directed to the export markets, the anticipated
global downturn is expected to highly affect the flat steel com- Flat consumption CAGR (04-07,%) 10.7
panies’ sales.
COMPANIES COVERED PAGE #
Removal of export tariffs will give steel products a com- Ezz Al-Dekheila Steel-Alex. 123
petitive edge: In mid-October 2008, the levied LE 160/ton
Ezz Steel 125
export tariff on steel exports was removed, in an effort to
make steel prices more competitive in the international mar-
kets – against the backdrop of an anticipated global recession
spurred by the financial turmoil. BASMA SHEBETA
BASMA.SHEBETA@CICH.COM.EG

Local industry is moving towards more integration: SECTOR PERFORMANCE|REBARS2003-2008

Egypt's heavy reliance on imported raw materials drove the mn tons Local Sales Exports Share of exports/ total sales
5.0 21%
GoE to issue in 2007 four licenses for the production of billets
4.5
and sponge iron with a combined annual production capacity 4.0
18%

of 8 mn tons, and an investment cost of US$15 bn. The four 3.5 15%

winners are Ezz Steel (ES), Suez Steel Company, Tiba for 3.0
12%
Iron & Steel and the Egyptian Company for Sponge Iron. 2.5

Most notably, two licenses were offered to two foreign inves- 2.0
9%

tors for the first time. With investments flowing to steel feeding 1.5 6%

industry, margins are expected to improve. 1.0

3%
0.5

0.0 0%

Rebars demand is to be secured by the backlog: In light of 2003 2004 2005 2006 2007 2008E

the expected slowdown in real-estate demand rebars con- SECTOR PERFORMANCE|FLAT 2003-2008
sumption is to be secured by the backlog of the developers mn tons Local Sales consumption Imports mn tons

projects. Yet, with the anticipated pick-up in the economy 1.2 0.25

which will trigger the inflow of projects the demand for rebars 1.0
0.20
will regain its strength.
0.8

0.15

0.6

0.10

0.4

0.05
0.2

0.0 0.00
2003 2004 2005 2006 2007 2008E

67
 November 11, 2008
EGYPT | STEEL

STEEL GLOBAL DYNAMICS

CRUDE STEEL
Both sides of crude steel market – supply and demand – witnessed strong Strong growth on
growth; with the former increasing by a CAGR of 7.6% and the latter growing by both, demand and
a CAGR of 7.4% over 2001-2008, reaching the respective levels of 1,420 mn supply sides
tons and 1,279 mn tons in 2008.

Global crude steel demand & production (2001- Global added capacity, demand & operating rates
2008) (2002-2008)
mn tons Production Demand mn tons Added capacity Added demand
1,600 Utilization Rate
140 87.0%

1,400 86.5%
120
1,200 86.0%

100 85.5%
1,000
85.0%
80
800
84.5%
60
600 84.0%

40 83.5%
400
83.0%
200 20
82.5%

0 0 82.0%
2001 2002 2003 2004 2005 2006 2007 2008E 2002 2003 2004 2005 2006 2007 2008E

Source: www.worldsteel.org & CICR Database Source: www.worldsteel.org, Tata & CICR Database

Over 2001-2007, Asia and the Middle East recorded the highest production Developing regions
growth rates with respective CAGRs of 13.4% & 5.8%. Moreover, in terms of are the industry's
consumption, both regions recorded the highest CAGRs of 11.2% and 10.3%, growth engine
respectively, during the same time span. Asia was ranked as the largest steel
producing & consuming region with respective shares of 56.1% & 56.7% of
global steel production & consumption in 2007.

CAGRs of regional crude steel production & con- Regional share in global steel production & con-
sumption (2001-2007) sumption in 2007
CAGR of Production CAGR of Consumption Share in Global Steel Production Share in Global Steel Consumption
16%

Oceania
14%

12% Africa

10% Middle East

8%
South America

6%
North America
4%
Europe
2%
Asia
0%
Asia Middle South Africa Europe Oceania North World
0% 10% 20% 30% 40% 50% 60%
East America America

Source: www.worldsteel.org Source: www.worldsteel.org

Asia's prominence in the world's steel industry was mainly attributable to the With China leading
presence of China; which witnessed an outstanding growth in its steel produc- such growth
tion & consumption levels over 2001-2007 with the former growing by a CAGR
of 21.6% and the latter enjoying a CAGR of 17.1%, thus, contributing with
36.4% & 33.8% respectively in global steel production & consumption in 2007. It
is worth noting that steel is a considered a concentrated market, with the top 4
countries representing 54% of the global steel consumption.

68
 November 11, 2008
EGYPT | STEEL

World's largest steel producing countries in World's largest steel consuming countries in
2007 2007
Others Others
22.8% 28.4%
China China
36.3% 33.8%

Italy
2.4%
Turkey
Brazil
2.0%
2.5%
Spain
Ukraine 2.0%
3.2%
Italy
Germany United States
3.1%
3.6% 9.0%
Japan Germany
India 3.2% Japan
8.9% Russia 6.6%
3.8%
South Korea United States 3.3% India South Korea
3.8% Russia 4.5%
7.3% 4.2%
5.4%

Source: www.worldsteel.org Source: www.worldsteel.org

Towards the end of 2008, steel prices shifted their hiking trend that was witnessed A shift in steel
throughout the first eight months of 2008, mimicking the pattern of the raw materi- prices hiking trend
als prices. It is worth noting that such declining pattern is namely due to the slow-
down in global demand.

International steel prices vs. raw materials prices (Feb 2006-Oct 2008)
US$/ton US Hot Rolled Coils US Import Rebar Price
Scrap Pig Iron
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
Ju -06

Ju -07

Ju -08
ep 6
O -06

ec 6
Ja -06

ep 7
O -07

ec 7
Ja -07

ep 8
O -08
ar 6
A -06
ay 6

Ju -06

o 6

7
ar 7
A 07
ay 7

Ju 07

o 7

8
ar 8
A -08
ay 8

Ju -08

8
ug 6

ug 7

ug 8
S -0

D v-0

S -0

D v-0

S -0
M b-0

M b-0

M b-0
M r-0

N t-0

Fe -0

M r-0

N t-0

Fe -0

M r-0

-0
A l-0

A l-0

A l-0
-

n-
n

ct
c

c
p

p
p
Fe

Source: Bloomberg

STEEL MARKET IN EGYPT

MARKET STRUCTURE

At present, there are 20 steel producers in the local market with a total capacity of Rebars segment
9.60 mn tons split between rebars and flat steel products, with the former holding bears the lion's
a share of 72.9% of local steel capacity in 2008 and the latter had a share of share in local steel
27.1%. capacity

69
 November 11, 2008
EGYPT | STEEL

Local steel capacity by product type in 2008

Flat
27.1%

Rebars
72.9%

Source: ES

After acquiring a stake in Al Ezz Dekheila Steel Company-Alexandria (EDZK) and Ezz Steel has the up-
establishing a new steel company in Al-Sokhna free zone area namely Al Ezz Flat per hand in local
Steel (EFS), Al Ezz Steel (ES) -previously known as Al Ezz Steel Rebars (ESR) – steel market
became the largest player in the domestic market with respective shares of 65%
& 60% of rebars & flat steel local sales during 9M08. Currently, ES owns 90.73%
of Al Ezz Steel Mills (ESM); 75.15% of EFS and 53.24% of EDZK. It is worth men-
tioning that the Egyptian Iron & Steel Company (EISCO) is the only public sector
player in the flat steel market, while Delta Steel Mills is the only state-owned com-
pany in the rebars steel market.

9M08 Local rebars market shares* 9M08 Local flat steel market shares*

Imports
Others
18%
14.0%

Kouta
1.9%

El Bourieni
2.1%
Al Attal
5.0%
EISCO El EZZ Steel
22% 60%

El EZZ Steel
Beshay
65.0%
12.0%

Source: ES Source: ES

Raw materials account for the highest contribution to the total production cost, yet Raw materials, a key
their shares vary depending upon the producer's level of integration. Raw materi- contributor to pro-
als accounted for the respective shares of 68% & 75% in EZDK & in ES of the duction cost
total production cost in 1H08. The variance in feedstock's share in the cost struc-
ture between EZDK & ES is due to the variances between feedstock mixes used
by EZDK and ESR & EFS, as the former uses a DRI/scrap mix of 80/20 while
ESR & EFS use a DRI/scrap mix of 15/85 and 25/75, respectively. Worthy to
mention is that local manufacturers fully import their raw materials either in the
form of iron ore, scrap or billets exemplifying Egypt's heavy reliance on imported
raw materials.

* market shares are in terms of local sales.

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 November 11, 2008
EGYPT | STEEL

EZDK cost structure in 1H08 ES* –consolidated - cost structure in 1H08

Salaries Salaries
Depreciation 3% Depreciation
2%
8% 6%
Energy
7%
Energy
10%
Overhead
10%

Overhead
11%

Raw Materials
68% Raw Materiald
75%

Source: ES Source: ES

REBARS SEGMENT

Rebars demand grew at a higher pace than that of capacity over 2003-2008 re- Demand growth
cording respective CAGRs of 7.6% and 1.6%. Hence, reaching 4.40 mn tons for exceeded that of
the former & 7 mn tons in 2008 for the latter. Capacity expansion was due to the capacity
entrance of new players, such as Al Attal, Sarhan Steel, Al Megharbel, Fair Trade
and Al Marakbi; in addition to the upgrading of one of the existing facilities
namely, Beshay Steel raising its capacity from 400k tons in 2000 to 1.4 mn tons in
2002. In 2005, utilization rates started witnessing an up-trend triggered by an un-
matched added demand.

Rebars capacity & demand (2003-2008) Rebars added capacity, demand & utilization rate
(2003-2008)
mn tons Capacity Demand mn tons Added Capacity Added Demand Utilization Rate %
8 1.0 80%

7 72.0%
0.8 67.1% 70%
70.3%

6 0.6 62.8% 60%

5
0.4 53.8% 50.7% 50%

4
0.2 40%

3
0.0 30%
2003 2004 2005 2006 2007 2008E
2
-0.2 20%
1
-0.4 10%
0
2003 2004 2005 2006 2007 2008E -0.6 0%

Source: ES & CICR estimates Source: ES & CICR estimates

About 85% on average approximately of steel rebars sales were directed to the The majority of re-
local market over the period 2003-2006. Yet in 2007 & 2008, local sales share bars production is
increased reaching 87% & 91% due to the flourishing of the real-estate activity sold in the local
over these two years. As for rebars exports, they reached their peak in 2006 with market
950k tons, representing 20.7% of total market sales. However, exports' share de-
creased to 12.9% in 2007 and is estimated to reach 9% only in 2008, due the ro-
bust local demand on steel, and to the imposition of duties on steel exports in
2007 –which lasted from February 2007 until October 19, 2008.

*Al Ezz Steel is the consolidation of Al Ezz Dekheila, Al Ezz Steel Rebars & Al Ezz Flat Steel

71
 November 11, 2008
EGYPT | STEEL

Rebars local sales & exports (2003-2008)

mn tons Local Sales Exports Share of exports/ total sales
5.0 21%

4.5
18%
4.0

3.5 15%

3.0
12%
2.5
9%
2.0

1.5 6%
1.0
3%
0.5

0.0 0%
2003 2004 2005 2006 2007 2008E

Source: ES & CICR estimates

FLAT STEEL SEGMENT

Exports represented a considerable share – an average of 59%- in total Flat steel Exports dominate
sales over 2003-2007. Such high exports contribution is mainly attributed to the flat steel sales, yet
fact that flat steel is used in the advanced industries, besides EFS- the largest flat potential growth ap-
steel producer in the local market- is located in Al-Sokhna free zone directed pears locally
around 82% of its sales to the international markets in 1H08. Yet since 2004, flat
steel consumption have showed growth potentials growing by a CAGR of 10.7%
over 2004-2007 compared with a CAGR of 5.2% over 2001-2004, thus increasing
local sales from 0.49 mn tons in 2001 to 0.88 mn tons in 2007.

Flat steel production vs. local sales (2003-2008) Flat steel exports and its contribution to total
sales (2003-2008)
mn tons Production Local Sales mn tons Exports Share of Exports/Total sales
2.7 1.4 66%

2.4 64%
1.2
2.1 62%
1.0
1.8 60%

1.5 0.8 58%

1.2 56%
0.6

0.9 54%
0.4
0.6 52%
0.2
0.3 50%

0.0 0.0 48%

2003 2004 2005 2006 2007 2008E 2003 2004 2005 2006 2007 2008E

Source: ES & CICR estimates Source: ES & CICR estimates

Despite growing flat steel production, the gap between local sales & demand wid- Flat steel supply
ened from 33k tons in 2003 to 167k tons in 2007, and an estimated gap of 193K shortfall is widening
tons in 2008. The widened gap is mainly attributed to the expanded demand in
the local market by a CAGR of 13.3% over 2003-2007, in addition to an esti-
mated growth of 2.5% in 2008. It is worth noting that such growth in local de-
mand is driven by the country's strengthening economy, resulting in an increas-
ing imports reaching 167k tons in 2007.

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 November 11, 2008
EGYPT | STEEL

Flat steel consumption vs. local sales & imports Flat steel utilization rates (2003-2008)
(2003-2008)
mn tons Local Sales consumption Imports mn tons 100%
1.2 0.25
90% 89.2%
85.4%
1.0 80%
0.20 80.5%
70% 75.8%

0.8 67.2%
60%
0.15
50% 57.0%
0.6
40%
0.10
0.4 30%

0.05 20%
0.2
10%

0.0 0.00 0%
2003 2004 2005 2006 2007 2008E 2003 2004 2005 2006 2007 2008E

Source: ES & CICR estimates Source: ES & CICR estimates

RECENT DEVELOPMENTS
On October 19, 2008, the levied LE 160/ton tariff on steel exports was removed, Lifting up duties
in an effort to make steel prices more competitive in the international markets – imposed on exports
against the backdrop of the anticipated global recession spurred by the financial
turmoil.

Egypt's heavy reliance on imported raw materials drove the GoE to issue in 2007 Investment inflow
four licenses for the production of billets and sponge iron with a combined annual in the feeding in-
production capacity of 8 mn tons, and an investment cost of US$15 bn. The four dustry with a for-
winners are Ezz Steel (ES), Suez Steel Company, Tiba for Iron & Steel and the eign tint, for the
Egyptian Company for Sponge Iron. Most notably, by the beginning of 2008, an- first time
other two licenses were offered to two foreign investors for the first time. The first
was awarded by Arcelor Mittal – the world's largest steel producer – won the bid
in February 2008 with planned annual capacity of 3 mn tons in direct reduced iron
(DRI) and billets. The former's capacity is set at 1.6 mn tons, while that of the lat-
ter is planned to reach 1.4 mn tons. The second license was awarded by MAC
Holding for Industries; a subsidiary of the Kuwaiti-based Al Kharafi Group, for the
production of direct reduced iron with planned capacity of 1.6 mn tons and at the
same price at which Arcelor Mittal won the tender

Through its license acquisition, ES will establish, at EFS, an electric furnace to A move towards
produce DRI with an annual capacity of 1.7 mn tons and a melt shop to produce integration
1.35 mn tons of molten steel distributed as follows: 0.8 mn tons for flat steel at
EFS, and 0.55 mn tons for billets which will be directed to ESR to replace its im-
ported billets. It is worth mentioning that said expansion is expected to commence
operation by the beginning of 2011 and is expected to positively impact ESR rela-
tive margins.

Local steel prices are closely tied with international raw materials trends, as The decline in inter-
around 85-90% of it are imported. The slowdown in global demand reversed the national raw materi-
up-trend followed by international steel prices since July 2008; by which a drop of als prices reversed
56% & 42% respectively in scrap & pig iron prices was witnessed over the past the steel prices' up-
three months. Consequently, a sharp decline of 41% occurred in local rebars trend
prices during the same period, reaching LE 3,900/ton by the end of October

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 November 11, 2008
EGYPT | STEEL

Local rebars prices vs. international pig iron Local rebars prices vs. international scrap
prices (Mar 08-Oct 08) prices (Mar 08-Oct 08)
LE/ton Local Rebar Price Pig Iron US$/ton LE/ton Local Rebar Price Scrap US$/ton
7,000 1,100 7,000 700

1,000
6,000 6,000 600
900

5,000 800 5,000 500

700
4,000 4,000 400
600

500 3,000 300

3,000
400
2,000 2,000 200
300

200
1,000 1,000 100
100

0 0 0 0
Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 24-Oct- 25-Oct- Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 24-Oct- 25-Oct-
08 08 08 08

Source: ES & Bloomberg Source: ES & Bloomberg

MARKET DYNAMICS

Domestic
Market

Governmental Demand
Measures Driver
Supply-Related
- Removal of export duties Factors - Construction boom
- Modifying anti-monopoly law - Solid growth in
- Offering licenses for steel - Strengthening EBITDA dependant industries
feeding industries - New capacities for steel
feeding industries on stream
- Impact from export tariffs

GOVERNMENTAL MEASURES

Since 2007, the government has been taking several actions and decisions to
regulate the steel industry's expansions & trading activity which greatly influ-
enced the steel industry. The following table summarized the recent actions
taken by the GoE:
Recent governmental measures
Measure Date Description Impact
Revoking the export duties 19-Oct-08 Calling-off the LE 160/ ton duties previously imposed POSITIVE
by the Ministry of Trade & Industry on steel exports.

Modifying Anti Monopoly Law Jul-08 Raising fines the minimum level of fines charged per POSITIVE
violator from LE 30k to LE 100k and the maximum
level from LE 10 mn/violator to LE 300 mn.

Offering 2 licenses for steel Feb-08 the first to Arcelor Mittal and the second to MAC POSITIVE
feeding industries to foreign Holding for Industries in order to produce direct
investors for the first time reduced iron & billets.

Source: CICR Database

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 November 11, 2008
EGYPT | STEEL

Measure Date Description Impact

Offering 4 licenses for steel Oct-07 Lienses were offered to local producers for the POSITIVE
feeding industries production of billets and sponge iron.

Imposing duties on steel Feb-07 Imposing an export duty of LE 160/ton on steel NEGATIVE
exports exports.

Source: CICR database

SUPPLY-RELATED FACTORS

The monopolistic status of the steel industry, as ES currently controls 44.3% Strengthening
and 84.6% of rebars and flat steel capacities, respectively, enables the industry EBITDA
players to pass the increased production cost to the consumer. Despite that raw
materials prices hiked by 55.3% during 1Q08, ES EBITDA margin increased to
26.7% vs 24.1% in 2007. Yet, the company's EBITDA margin decreased to
23.7% in 2Q08 due to the 58.6% increase in raw materials prices over the same
period. Nevertheless, in terms of absolute values, the company's Earnings be-
fore Interest Taxes Depreciation & Amortization (EBITDA) grew by 32.7% and
by 25% during 1Q08 and 2Q08 compared to the same period one year earlier,
reaching the respective levels of LE 1.3 bn and LE 1.4 bn.

ES EBITDA margin vs. imported raw materials ES EBITDA vs. raw materials prices by quarter
prices by quarter (1H07-1H08) (1H07-1H08)
US$/ton Raw Materials Prices EBITDA Margin US$/ton Raw Materials Prices EBITDA LE bn
800 28% 800 1.6
734 734

700 700 1.4

27.3% 27% 1.4
26.7% 1.3
600 26.3% 600 1.2
26%
1.1
500 463 500 463 1.0
25% 1.0
400 400 0.8
323 314 323
314 24%
300 300 0.6
23.7%
23%
200 200 0.4

100 22% 100 0.2

0 21% 0 0.0
1Q07 2Q07 1Q08 2Q08 1Q07 2Q07 1Q08 2Q08

Source: ES & Bloomberg Source: ES & Bloomberg

The LE 160/ton export tariff which was levied on steel producers by the end of Imposing the export
February 2007, led to a 34.6% drop in Egypt's rebars exports during 2007 reach- duties led to a huge
ing 0.62 mn tons. Similarly, after imposing said tariffs, the share of exports in ES drop in exports
total sales decreased from 47.4% in 1H07 to 26.4% by the end of 2007, followed
by a further decline to 22.9% in 1H08. Yet, to mitigate the negative impact of the
anticipated global economic slowdown the GoE decided to call off the export
duties on steel exports on October 19, 2008.

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 November 11, 2008
EGYPT | STEEL

Egyptian rebars export pattern (2006-1H08) ES rebars export pattern (2006-1H08)

mn tons 0.95 50%
1.0 47.4%
45%
0.9
40%
0.8
35%
0.7 30.8%
0.62
30%
0.6 26.4%
25% 22.9%
0.5 0.45
20%
0.4
15%
0.3
10%
0.2

0.1 5%

0.0 0%
2005 2006 2007 2006 2007 1H07 1H08

Source: ES & CAPMAS Source: ES

DEMAND-PULL FORCES

Steel consumption is closely tied to the mushrooming construction activity evi- Construction boom
denced in the correlation co-efficient of 0.871 between both factors. Construction
activity in Egypt grew by a CAGR of 7.4% over 2004-2007, triggering rebars con-
sumption to grow by a CAGR of 15.9% over the same time span
Construction activity vs. rebars consumption (2004-2008)
LE bn Construction Activity Rebars Consumption mn tons
40 5.0

4.5
35
4.0
30
3.5
25
3.0

20 2.5

2.0
15
1.5
10
1.0
5
0.5

0 0.0
2004 2005 2006 2007 2008E

Source: ES & CAPMAS

Consumer goods and the locally assembled vehicles (Completely Knock down – Flat steel is
CKD) are key consumers of flat steel, hence, exhibiting strong co-efficient correla- closely tied with
tion of 0.952 and 0.961, respectively. Growing production levels in both industries manufacturing
drove up the demand for flat steel which enjoyed a CAGR of 13.3% over 2004- industries
2007.

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 November 11, 2008
EGYPT | STEEL

Flat steel consumption vs. consumer goods Flat steel consumption vs. completely knock-
production (2004-2008) down (CKD) vehicles (2004-2008)
mn units Consumer goods production Flat Steel Consumption mn tons 000 units Locally Assembled Vehicles Flat Steel Consumption mn tons
9.9 1.2 45 1.2

9.6 40
1.0 1.0
35
9.3

0.8 30 0.8
9.0
25
8.7 0.6 0.6
20
8.4
0.4 15 0.4
8.1
10
0.2 0.2
7.8 5

7.5 0.0 0 0.0

2004 2005 2006 2007 2008E 2004 2005 2006 2007 2008E

Source: ES & CICR estimates Source: ES & CICR estimates

FUTURE OUTLOOK
With an anticipated slow down in economic activities over the coming two years, Rebars market
the real-estate market, the main driver for steel rebars, will witness depressed will be mainly tar-
growth, as it will mainly depend on existing projects. Hence, the demand for steel geting existing
rebars is expected to grow with an AAGR of % over 2009 and 2010. Yet, after- projects, as the
wards the market will resume higher growth levels of 9.7% over 2011 and 2012, economy slows
as the economy regains its strength. It is worth noting, that as there is no stated down over the
capacity additions in the rebars segment, utilization rates are expected to strongly coming two years
decline over 2009 & 2010, yet as the economy regains its strength utilization rates
will record high levels.
Rebars consumption, production & utilization rate (2006-2012)
mn tons Rebars Production Rebars Consumption Utilization Rate
7 90%

83.8% 80%
6 72.0%
69.8% 76.2%
70%
70.3%
5 66.9%
67.1%
60%

4 50%

3 40%

30%
2
20%
1
10%

0 0%
2006 2007 2008E 2009F 2010F 2011F 2012F

Source: ES & CICR estimates

The coming two years will have much of an impact on flat steel rather than on re- The country's an-
bars steel, as the former is extensively involved in the export market (around 56% ticipated economic
of its sales is directed to the international markets in 2007) besides its sales to the slowdown coupled
local market. As the economy slows down, growth in manufacturing industries – with an expected
namely consumer goods and CKD – will follow a depressed pace. Local flat steel decelerated global
market and exports are expected to decline by an average of 157k tons tons over trade will have a
2009 and 2010, yet with an expected recovery in both, local and international mar- dual impact on flat
kets, demand for flat steel is to gain its strength, with demand & exports growing steel over the com-
by a CAGR of 13.5% & 17.4% respectively over 2011 and 2012. It is worth men- ing two years
tioning that the decrease in capacity utilization rate in 2011 is mainly due to the
start of the commercial production of the added 0.8 mn tons of flat steel at EFS by
the beginning of 2011.

77
 November 11, 2008
EGYPT | STEEL

Flat steel consumption, production & utilization rates

(2006-2012)
mn tons Flat Production Flat Consumption Utilization Rate %
2.5 100%

89.2% 90%
85.4%
2.0 80%
80.5%
71.7% 70%
61.6%
62.3%
1.5 60%
59.6%
50%

1.0 40%

30%

0.5 20%

10%

0.0 0%
2006 2007 2008E 2009F 2010F 2011F 2012F

Source: ES & CICR estimates

As it has been the case in historical trends, local & export rebars and flat steel Local & export
prices are expected to follow the same pattern as the international raw materials rebars and flat
prices over 2008-2012. It is worth mentioning that international raw materials prices will follow
prices are expected to continue declining in 2009 due to the slow down in global international raw
demand, yet starting from 2010; their prices will pick up to grow by a CAGR of materials prices
15.5% with the global economy gaining back its momentum. Local & export rebars
prices are expected to decline in 2009, then to grow by a CAGR of 10.8% & 8.7%
respectively over 2010-2012. As for flat steel, its local & export prices are ex-
pected to decline in 2009, then to grow by a CAGR of 8.7% & 9.9% respectively
over the same time span.

Rebars local prices vs. international raw materials Rebars exports prices vs. international raw mate-
prices (2006-2012) rials prices (2006-2012)
LE/ton Rebars Local Raw Materials Prices US/ton US$/ton Raw Materials Prices Rebars Exports
6,000 1,000 1,200
900
5,000 1,000
800

700
4,000 800
600

3,000 500 600

400
2,000 400
300

200 200
1,000
100
0
0 0
2006 2007 2008E 2009F 2010F 2011F 2012F
2006 2007 2008E 2009F 2010F 2011F 2012F

Source: ES & CICR estimates Source: ES & CICR estimates

78
 November 11, 2008
EGYPT | STEEL

Flat local prices vs. international raw materials Flat exports prices vs. international raw materials
prices (2006-2012) prices (2006-2012)
LE/ton Flat Local Raw Materials Prices US$/ton US$/ton Flat Exports Raw Materials Prices
7,000 1,000 1,200

900
6,000
1,000
800

5,000 700
800
600
4,000
500 600
3,000
400
400
2,000 300

200
200
1,000
100

0 0 0
2006 2007 2008E 2009F 2010F 2011F 2012F 2006 2007 2008E 2009F 2010F 2011F 2012F

Source: ES & CICR estimates Source: ES & CICR estimates

79
 November 11, 2008

EGYPT | SUGAR

UPBEAT FOR BEET DRIVERS

Despite the looming fear of global recession and the an-
ticipated slowdown in the country’s economic perform-
ance, the demand for a strategic commodity as sugar
counts as a safe bet. The GoE’s promotion for beet culti-
vation over cane as a means of mitigating the challenges
posed by the scarce water resources and land; coupled
with the former’s high tolerance to salinity and ability to
produce high yields under saline soil, the focus has been
directed to sugar beet. Hence, uplifting its share of total
sugar production from 13% to 39% over 1998-2007. With
the country’s growing population and expanding GDP/
capita, and the increasing demand for bio-fuels, further
room for growth is anticipated—especially that around
42% of the country’s sugar demand is imported. Most no-
tably, the current decline in wheat procurement prices add
to the beet’s growth potential. It is worth noting that the
local beet industry enjoys higher margins than its peers.
A defensive industry with Strong demand drivers: Egypt’s
growing population and strengthening GDP/capita ensures a
strong demand for sugar.
Good prospects for beet: Against the backdrop of a highly
supportive government towards an expanded beet cultivation
areas and higher productivity levels, beet cultivated areas
grew with a CAGR of 12.7% over 2004-2008 reaching 228k
feddans versus a declining trend in cane cultivated areas re-
cording 310k feddans in 2008 down from 322k feddans in
2004.
GoE’s plan to expand beet cultivated area
(horizontal) and enhance beet productivity
(vertical).
The planned increase in automated beet planting
will ensure higher yield.
The growing sales of dependant-industries will
ensure strong sugar demand.
Growing population and GDP/Capita will main-
tain a strong demand for sugar.
As sugar producers can shift to refining, it acts
as a hedge in case the amount of crops supplied
declines.
RISKS
The ease of shifting to wheat cultivation forces
producers to increase their beet procurement
price, which impacts their margins, as procure-
ment cost constitutes the bulk of sugar beet
production cost.
As beet seeds are imported, exposure to FX risk
exists.
Exogenous factors as bad weather and crop
diseases can impact the amount of supplied crop
to producers.
The expected decline in shipping cost might
intensify competition from imported sugar.
The anticipated decline in sugar by-products
prices may impact the overall margin.
KEY PERFORMANCE INDICATORS
Total sugar production CAGR (04-07) 5.7

Enhanced yield and supply shortfall support an inflow of Sugar beet production CAGR (04-07) 19.5
investments: Besides the government support to expand beet Beet procurement price (2008,LE/ton) 225
cultivation areas, higher yields are targeted. Moreover, supply
Added annual capacities (2010,k tons) 245
shortfall—with imports covering almost 42% of sugar de-
mand— encouraged fresh investments. A new license was Self-sufficiency ratio (2007,%) 67
granted to Nile Company for sugar beet production which will
be located at Nubareya. The company's annual production COMPANY COVERED PAGE #
capacity is 125k tons and is expected to commence operations Delta Sugar 115
by 2009, starting off with refining activities and then followed
by sugar beet production by 2010. Another line is expected to
come on-stream in 2010 by Dakahlia Sugar Co. with an annual BASMA SHEBETA
capacity of 120K tons. BASMA.SHEBETA@CICH.COM.EG
Wheat is a key competing crop, yet beet’s increasing yield FADWA HOSSAM ISSA
gives it a more competitive stance: The increase in wheat FADWA.HOSSAM@CICH.COM.EG
procurement price, definitely, has its negative impact on ex-
panding beet cultivated areas. The rise in wheat procurement SECTOR PERFORMANCE | 2004-2008
price in 2008 to LE 380/ardab versus LE 225/ton for beet pro- Sugar Cane Production Sugar Beet Production
curement price dropped the beet cultivated areas by around Growth in beet Growth in cane
8%. Yet, the current decline in wheat procurement prices of LE 000 tons
1,200 40%
180/ardab versus an announced beet procurement price for 35%
1,000 30%
2009 of LE 335/ton adds to the beet’s potential. Moreover, the
25%
enhanced beet productivity by 8% throughout 2004-2007 com- 800 20%
pared with a declining pattern of 1.4% for wheat, fosters the 600
15%
10%
beet’s future growth. 5%
400
0%
Higher margins than peers: EBITDA margin for the beet in- 200 -5%
dustry in Egypt enjoyed a strong average of 37% in 2007, reg- -10%
istering a higher margin than that of its international peers that 0 -15%
2004 2005 2006 2007 2008E
recorded 28% during the same year.

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 November 11, 2008
EGYPT | SUGAR

EGYPT SUGAR INDUSTRY IN EGYPT

AN ADVANCED GLOBAL RANKING
Egypt's cane yield per feddan recorded 50.8 tons in 2007/08 - about 1.5 times Ranked 2nd in terms
as high as that of the world's cane yield-placing the country at the second rank of cane yield
after Peru, which achieved a yield of 51.1 tons per feddan
Top 20 countries in cane yield per feddan in FY07/08
World 29.8

Swaziland 39.6

Ethiopia 41.5

Burkina Faso 42.0

Sudan 43.8

Zambia 43.8

Malawi 45.7

Senegal 48.8

Tanzania 50.2

Egypt 50.8

Peru 51.1

0 10 20 30 40 50 60
Tons/Feddan

Source: USDA & CICR estimates

Egypt is ranked 15th worldwide, in terms of sugar per-capita consumption which

Ranked 15th in terms
recorded 36.1 Kg in FY07/08 - about 1.6 times as high as the worldwide's per
of per capita con-
capita consumption during the same year. Such manifested jump (from a rank
sumption
of 21 in FY1997/98) of per capita consumption pushed Egypt to be among the
world's top 20 sugar producing countries in FY07/08, with a total sugar produc-
tion of 1.66 mn tons - representing a share of 1% in global sugar production.
On the regional level, Egypt enjoys the highest contribution of 24.1% in terms
of consumption, while is ranked 2nd with its 31.9% share in terms of sugar pro-
duction, following Turkey

Top 20 countries in sugar per capita consump- Top 20 countries in sugar production in FY07/08
tion in FY07/08
Kg 000 tons
70
35,000
60
30,000

50 25,000

40 20,000

30 15,000

20 10,000

10 5,000

0 0
Mexico
Malaysia

Morocco
Brazil

Venezuela
Cuba

Australia

Canada
Argentina
Russia & Ukraine
Algeria

South Africa
Peru

Mexico
Thailand
Indonesia

South Korea
USA
Guatemala

Colombia

Egypt
Brazil

Turkey
India
China

Thailand

Australia
Pakistan
South Africa

Indonesia

Iran
Russia & Uraine

Cuba
Japan
USA

Colombia

Guatemala
Philippines
Egypt

Argentina
World

Source: USDA & CICR estimates Source: USDA & CICR estimates

81
 November 11, 2008
EGYPT | SUGAR

MARKET STRUCTURE
At present, the market consists of five public companies with a combined pro- Cane holds the lion's
duction capacity of 1.64 mn tons divided between cane & beet companies with share
the former holding a share of 61% and the latter a share of 39%. There is only
a sole sugar cane producer in the local market namely, Sugar Integrated Indus-
tries Company (SIIC) which controls 62.83% of total sugar capacity, 61%
through its sugar cane facility and 1.83% through its sugar beet facility. The
remaining four companies in the market use beet in producing sugar and hold a
combined share of 37.2% of total sugar capacities. It is worth mentioning that
Delta sugar is the largest Egyptian sugar beet producer with a share of 38.3%
in local sugar beet capacities.
Local sugar capacity in 2008 Local sugar beet capacity in 2008

SIIC
Nubareyya 4.69%
Sugar
Dakahlia Sugar 19.53%
7.33%

Sugar cane Fayyoum Sugar

SIIC 7.33% Delta Sugar
Sugar beet
61% 38.28%
39%
Fayyoum Sugar
Nubareyya 18.75%
Sugar
SIIC 7.57%
Delta Sugar 1.83%
Dakahlia Sugar
14.94%
18.75%

Source: CICR Database Source: CICR Database

MARKET DEVELOPMENTS
Cane and beet cultivated areas grew by a CAGR of 3.8% during 2004-2008, Beet cultivated areas
triggered by the rise in beet cultivated areas which recorded a CAGR of 12.7% were on the rise, yet a
reaching approximately 228k feddans in 2008 up from 141k feddans in 2004, drop was witnessed
whereas cane cultivated areas decreased from 322k feddans to 310k feddans in 2008
over the same time span primarily due to its low procurement price amounting
to LE 182/ton, in addition to the continuous decline in the amount of water per
capita in Egypt reaching 850cu.m in 2008 down from 927cu.m in 1995. Such
growth pattern contributed in raising beet's share in both, cane and beet culti-
vated areas combined to 42.3% in 2008 up from 30.4% in 2004 and reducing
cane's share from 69.6% in 2004 to 57.7% in 2008. Yet, in 2008 beet cultivated
areas declined by 8.3% versus 2007 due to the significant rise in wheat pro-
curement prices -the major competitor crop to beet- reaching LE 380/ardab
(where 1 ton = 6.7 ardab) surpassing that of beet which amounted to LE 225/
ton. Therefore, farmers were more inclined to grow wheat than beet during that
season

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 November 11, 2008
EGYPT | SUGAR

Beet and cane cultivated areas (2004-2008) Share of beet & cane in the combined (cane &
beet) cultivated areas (2004-2008)
000 feddans Beet Cultivated Area Cane Cultivated Area Cane Share Beet Share
Growth in Beet Cultivated Areas Growth in Cane Cultivated Areas
400,000 40%
2008E
35%
350,000
30%
300,000 2007
25%

250,000 20%

15% 2006
200,000
10%
150,000 5%
2005
0%
100,000
-5%
50,000 2004
-10%

0 -15%
0% 10% 20% 30% 40% 50% 60% 70% 80%
2004 2005 2006 2007 2008E

Source: Ministry of Agriculture & CICR estimates Source: Ministry of Agriculture & CICR estimates

Over 2004-2007 sugar production grew by a CAGR of 5.7% over 2004-2007 to Rising sugar beet
reach 1,757k tons in 2007, driven by the rising sugar beet production which production drives up
increased by a CAGR of 19.5% over the same period to reach 682k tons in sugar production
2007; while sugar cane production declined by 0.4% reaching 1,075k tons in
2007, production is thus expected to record a decline of 5.5% in 2008 reaching
1,660K tons down from 1,757K tons in 2007. Said growth pattern of sugar beet
& sugar cane over 2004-2008 contributed in raising the former's share from
total sugar production to 37.8% in 2008 up from 26.9% in 2004 on the account
of the latter's share in total sugar production which decreased from 73.1% to
62.2% over the same period

Sugar beet & sugar cane production growth Share of sugar beet & sugar cane production
pattern (2004-2008 in total sugar production (2004-2008)
Sugar Cane Production Sugar Beet Production Sugar Beet Share Sugar Cane Share
000 tons
Growth in beet Growth in cane
1,200 40%
2008E
35%
1,000 30%

25% 2007
800
20%

15% 2006
600
10%

5%
400 2005
0%

200 -5%
2004
-10%

0 -15%
2004 2005 2006 2007 2008E 0% 10% 20% 30% 40% 50% 60% 70% 80%

Source: Bloomberg, Al Ahram El Ektesady & CICR estimates Source: Bloomberg, Al Ahram El Ektesady & CICR estimates

83
 November 11, 2008
EGYPT | SUGAR

Sugar consumption is not expected to follow suit production in 2008, growing Rising production
by 2.5% to reach 2,682k tons vs. a 5.5% decline in sugar production to reach coverage, with a drop
1,660k tons; thus reducing local production coverage from sugar to 61.9% in in 2008
2008 down from 67.2% in 2007. It is worth noting that ever since 2005 produc-
tion growth has been outstripping that of consumption with the former recording
an AAGR of 5.8% vs. 2.3% for the latter. Concurrently, local production cover-
age from sugar has been on the rise reaching its peak of 67.2% in 2007

Sugar production & consumption growth pat- Local sugar production coverage ratio
tern (2004-2008) (2004-2008)
Sugar Production Sugar Consumption
000 tons Sugar Production Growth Rate Sugar Consumption Growth Rate
3,000 14% 2008E 61.9%

12%
2,500 10%
2007 67.2%
8%
2,000
6%
4% 2006 61.6%
1,500
2%
0%
1,000
2005 61.1%
-2%

500 -4%
-6% 2004 60.9%
0 -8%
2004 2005 2006 2007 2008E
56% 58% 60% 62% 64% 66% 68%

Source: Bloomberg , Al Ahram El Ektesady & CICR estimates Source: Bloomberg, Al Ahram El Ektesady & CICR estimates

In an attempt to meet up with rising demand, most sugar companies engage in Beet companies en-
sugar refining activities during the beet off season which starts from July till De- gage in refining
cember amounting to a total capacity of 2 mn tons. It is worth mentioning that in activity during off
early 2008, a new company specialized in sugar refining began operations namely season
the Saudi based Savola at Ain El Sokhna with an annual capacity of 750K tons

Egypt has been a major importer of sugar due to the widening gap between local Imports cover ap-
production and consumption, which pushed the country to rely on imported raw & proximately 42% of
refined sugar to cover approximately 42% of its needs. Moreover, raw sugar used Egypt's sugar re-
to hold the lion's share 75% of total sugar imports with the remaining 25% directed quirements
to refined sugar. Yet, 2008 witnessed a significant rise in refined imports reaching
a share of 56% of total imported sugar, mainly due to the arrival of the heavily sub-
sidized refined sugar from India which was sold locally at a cheaper price of LE
2,200/ton versus that of LE 2,500/ton for the Egyptian sugar

Sugar imports pattern (2004-2008) Share of refined & raw sugar imports in total
sugar imports (2004-2008
000 tons Share of Raw Sugar Imports Share of Refined Sugar Imports
Sugar Imports Imports Growth Rate
1,400 25%

2008E
20%
1,200

15%

1,000 2007
10%

800
5%
2006

0%
600

-5%
2005
400

-10%

200
-15% 2004

0 -20%
2004 2005 2006 2007 2008E 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

Source:USDA & CICR estimates Source: CAPMAS, Delta Sugar & CICR estimates

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 November 11, 2008
EGYPT | SUGAR

Market Dynamics

Sugar Market

Supply Factors Cost-Related Demand Factors Government

Factors Initiatives

Facilities to Beet Population Promoting Beet

Farmers Procurement Growth over Cane
Price

Wheat Cost of Beet GDP per Capita High

Competition Seeds Procurement
Prices

Prices of Sugar Sugar Horizontal &

By-products Dependant Vertical
Industries Expansion

Supply-Push Forces
Sugar beet production is closely tied to beet yield, evidenced in the correlation co- Facilities offered by
efficient of 0.997 between both factors. Beet yield has been on the rise recording a sugar beet compa-
CAGR of 2.7% during 2004-2007 to record 21.98 tons/feddan in 2007; thus boosting nies triggered in-
sugar beet production to grow by a CAGR of 19.5% over the same period reaching crease in beet yield
682k tons in 2007. It is worth mentioning that sugar beet companies offer farmers
several facilities to lure them to expand beet cultivation and prevent them from shift-
ing into its main competing crops, namely wheat. Facilities offered include:
providing farmers with beet seeds on credit to be repaid when the crop is har-
vested;
supplying farmers with the needed pesticides and fertilizers' usage guide; and

Beet yield development pattern (2004-2007) Beet yield vs. sugar beet production (2004-
2007)
Tons/Feddan 000 tons Sugar Beet Production Beet Yield Tons/Feddan
22.5 800 22.5

700 22.0
22.0

600
21.5 21.5
CAGR 2.7%
500
21.0 21.0
400
20.5 20.5
300

20.0 20.0
200

19.5 100 19.5

19.0 0 19.0
2004 2005 2006 2007 2004 2005 2006 2007

Source: Ministry of Agriculture Source: Ministry of Agriculture & Al Ahram El Ektesady

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 November 11, 2008
EGYPT | SUGAR

Over the last few years, wheat has become a major competitor to beet as they Wheat competes
are both winter crops and farmers can easily shift between them. The relation heavily with sugar
between both crops is reflected in strong inverse correlation co-efficient of - beet, especially in
0.9997, implying that the increase in the former's cultivated areas lead to a de- 2008
crease in the latter's cultivated areas. In 2008, the decline in beet cultivated ar-
eas is mainly due to the significant rise in wheat procurement price by almost
73% over 2007 reaching LE 380/ardab compared with LE 225/ton for beet. A pat-
tern that occurred before in 2006 when beet procurement price reached LE 188/
ton compared with LE 169/ardab for wheat, as such the former's cultivated areas
recorded a growth of 11.4% vs a mere 2.6% growth for the latter. It is worth men-
tioning that in an attempt to enhance beet cultivation, sugar beet companies de-
cided as of 2009 to increase beet procurement price by 49% to reach LE 335/ton.

Growth in beet cultivated area vs. growth in Sugar beet production vs. wheat production
wheat cultivated areas (2006-2008) (2006-2008)
000 tons 000 tons
Growth in Beet Cultivated Area Growth in Wheat Cultivated Area Sugar Beet Production wheat production
40% 800 9,000

35% 700
30% 8,500
600
Beet procurement
25%
price LE 191/ton
Wheat procurement
Beet procurement price LE 380/ardab 500
20% 8,000
price LE 188/ton
15% 400
10% 7,500
Wheat procurement 300
5% price LE 169/ardab
200
0%
7,000
2006 2007 2008E
-5% Wheat procurement 100
price LE 220/ardab
-10% Beet procurement price
LE 225/ton 0 6,500
-15% 2006 2007 2008E

Source: Ministry of Agriculture, FAPRI & CICR estimates Source: Al Ahram El Ektesady, Ministry of Agriculture, FAPRI &
CICR estimates

COST-RELATED FACTORS
The rising costs of imported beet seeds, farmers cultivating beet witnessed an in- Beet procurement
creasing cost of beet seeds/feddan over the period 2004-2007 recording a CAGR of price bears a key
8% reaching LE 285/feddan in 2007 compared with LE 226/feddan in 2004. More- contribution
over, the cost of beet seeds per feddan coupled with the procurement price are the
major factors farmers take into consideration while determining beet cultivation, thus
exposing sugar beet companies to the consistent pressure of raising beet procure-
ment price following the increase in the seeds' cost. Such link was illustrated in the
strong correlation co-efficient of 0.723 between the change in beet procurement
price and the cost of beet seed/feddan.
As such beet procurement price holds the lion share in total sugar beet production
cost amounting to 71% followed by industrial costs (which includes fuel cost and
spare parts) holding a share of 10.6% while the remaining 18.4% falls to wages,
transportation, subsidies, packaging and depreciation costs.

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 November 11, 2008
EGYPT | SUGAR

Growth pattern of beet procurement price vs. Delta Sugar production cost breakdown
seed cost/feddan (2003-2007) (2007)
Change in Cost/feddan Change in Procurment Price/feddan
Depreciation, 4.9%
160% 45% Packaging material,
2.4%
140% 40%
Wages, 5.4%
120%
35%
Industrial costs
100% (fuel+spare parts),
30%
10.6%
80%
25%
60%
20% Beet related cost
40% (subsidy+transportat Beet procurement
ion), 5.6% price & bonus for
15%
20% early harvesting,
71.0%
10%
0%
2003 2004 2005 2006 2007
-20% 5%

-40% 0%

Source: CAPMAS & Ministry of Agriculture Source: Delta Sugar Co

The rising prices of sugar beet by products-molasses and fodder- which took place Increasing prices of
in 2007 helped sugar beet companies mitigate the squeeze in their margins resulting sugar beet by-
from the sugar beet production rise. Delta's gross profit from sugar declined from products
43% in 2006 to an expected 23% in 2008 yet, the company's overall gross profit
margin (including molasses and fodder in addition to sugar) did not witness the
same decline reaching 40% in 2008 down from 42% in 2006. It is worth mentioning
that both molasses & fodder are directed mainly to the export market since the for-
mer is mainly used in the manufacturing of alcoholic beverages as well as in the
manufacturing of bio-fuels namely, ethanol, while the latter is used in feeding live-
stock. Furthermore, the local industry's EBITDA margin scored an average of 37%
over 2007, compared with an average of 28% for international peers.

Sugar beet gross profit margins vs overall Sugar beet margins vs. International Peers 2007
gross profit margins (2006-2008)
Overall Gross Profit Margin Sugar Beet Gross Profit Margin
45% 40%
42.0% 42.8% 37%
41.3% 40%
40% 35%

35%
30% 28%
30%
26.4% 25%
25% 23%
20%
20%
15%
15%
10%
10%
5%
5%

0%
0%
Local Margins International Peers
2006 2007 2008E

Source: Delta Sugar Co Source: Delta Sugar Co & Bloomberg

DEMAND-PULL FORCES
Rising sugar consumption has long been fueled by rising population and GDP per
Population growth
capita registering a strong correlation of 0.998 with the former and 0.984 with the
along with evolving
later. Over the period 2005-2008, population increased to reach 75 mn in 2008 fol-
GDP per Capita spur
lowed by a rising level of income reaching US$2,247 up from US$1,412 in 2005
sugar consumption
stimulating sugar per capita consumption from 35 kg/annum to 36 kg/ annum over
the same time span.

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 November 11, 2008
EGYPT | SUGAR

Population vs. sugar consumption (2005-2008) GDP per capita vs. sugar consumption (2005-
2008)
000 Inhabitants Population Sugar Consumption 000 tons US$ 000 tons
GDP Per Capita Sugar Consumption
76,000 2,700 2,500 2,700

75,000 2,650 2,650

2,000
74,000 2,600 2,600

73,000 2,550 2,550

1,500

72,000 2,500 2,500

71,000 2,450 1,000

2,450

70,000 2,400 2,400

500
69,000 2,350 2,350

68,000 2,300 0 2,300

2005 2006 2007 2008E 2005 2006 2007 2008E

Source: IDSC, Bloomberg & CICR estimates Source: CBE, Bloomberg & CICR estimates

Said increase in per capita income is mostly accompanied with a rise in the aver- Expanded demand by
age consumer spending, thus boosting sales of confectionary products & soft sugar-dependant in-
drinks i.e. expanding sugar consumption. Correlation co-efficient between sugar dustries
consumption and the former is 0.993 while with the latter is 0.986.
Confectionary sales vs. sugar consumption Soft drinks sales vs. sugar consumption (2005-
(2005-2008) 2008)
000 tons Confectionary Sales Sugar Consumption 000 tons US$ mn Soft Drink sales Sugar Consumption 000 tons
87.5 2,700 800 2,700

2,650 700 2,650

87.0
2,600 600 2,600

86.5
2,550 500 2,550

86.0 2,500 400 2,500

2,450 300 2,450

85.5
2,400 200 2,400

85.0
2,350 100 2,350

84.5 2,300 0 2,300

2005 2006 2007 2008E 2005 2006 2007 2008E

Source: BMI , Bloomberg & CICR estimates Source: BMI, Bloomberg & CICR estimates

GOVERNMENT-INITIATIVES
Despite that Egypt's cane yield is ranked among the highest worldwide, the Promoting beet
GoE's policy has been recently promoting beet cultivation, in an attempt to miti- cultivation over that
gate the challenges posed by scarce water and land resources. The GoE is pro- of cane
moting beet cultivation through vertical (yield) and horizontal (acreage) expan-
sions. Although beet crop is relatively new as it was first introduced in 1981; it
has gained wide importance due to its tolerance to salinity along with its ability to
produce high yields under saline soil compared with most other traditional winter
crops
In order to endorse farmers to cultivate beet and to control cane cultivation, the …through higher
government increased the former's procurement price from LE 191/ton in 2007 to procurement prices
LE 225/ton in 2008 whereas it increased the latter's procurement price by LE 17/
ton to LE 182/ton in 2008.

88
 November 11, 2008
EGYPT | SUGAR

It is worth mentioning that beet cultivated in newly reclaimed lands grew by a …horizontal
CAGR of 74.8% over the period 2004-2007 reaching 14.6k feddans, whereas expansion
cane cultivated areas in newly reclaimed land witnessed a CAGR of 5.7% over
the same time span.
Beet cultivated areas in newly reclaimed lands Cane cultivated areas in newly reclaimed lands
(2004-2007) (2004-2007)

Feddans Feddans
25,000 40,000

39,000

20,000 38,000

37,000
CAGR 74.8% CAGR 5.7%
15,000 36,000

35,000

10,000 34,000

33,000

5,000 32,000

31,000

0 30,000
2004 2005 2006 2007 2004 2005 2006 2007

Source: Ministry of Agriculture Source: Ministry of Agriculture

FUTURE OUTLOOK
To meet unsatisfied demand plans are underway to establish new sugar beet Beet drives future
production plants . By 2010 Dakahlia Sugar Company will begin operating its capacity expansions
second production line with a capacity of 120K tons, while Nile Company
(Sawiris) will start operating its 125K ton production line raising total sugar beet
production capacities from 1,390K tons in 2008 to 1,635K tons in 2010 including
the 750K tons of Savola's sugar beet refinning plant which began operation early
2008. Following the government plan to promote beet area over cane, no sugar
cane capacity expansions are expected in the future thus total sugar capacities
are expected to reach 2,635K tons by 2010 up from 2,390K tons in 2008 driven
only by expansions in sugar beet

The existence of a production-consumption gap amounting to 1,022K tons in Growth potential

2008 being satisfied by imports, represents potential for further investments in resides in sustainable
the sugar industry – not only to meet up with the rising sugar consumption but sugar demand
also to eat up from the imports bulk. Given the GoE plans to expand beet culti-
vated areas, it is expected that over 2008-2012 beet cultivated areas will grow by
a CAGR of 10.7% - pushing production to reach around 2 mn tons by 2012

89
 November 11, 2008
EGYPT | SUGAR

Sugar production vs sugar deficit (2006-2012) Sugar consumption vs. sugar imports (2006-
2012)
000 Tons Sugar Production Production-Consumption Deficit 000 Tons Sugar Consumption Sugar Imports
2,500 3,500

3,000
2,000
2,500

1,500 2,000

1,500
1,000

1,000

500
500

- -
2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012

Source: CICR estimates Source: CICR estimates

Sugar beet ex-factory prices are expected to record an upward trend over the Beet procurement
coming five years recording a CAGR of 10.3% over 2008-2012 reaching LE prices drive future
3,862/ton in 2012 up from LE 2,606/ton in 2008 driven by the increase in beet sugar beet ex-factory
procurement prices recording an expected CAGR of 18.6% over the same period prices

Beet procurement prices vs sugar beet ex-factory prices (2008-2012)

Beet Procurment Prices Sugar Beet Ex-Factory Prices
500 4,500

450 4,000

400
3,500
350
3,000
300
2,500
250
2,000
200
1,500
150
1,000
100

50 500

0 0
2008 2009 2010 2011 2012

Source: CICR estimates

90
 November 11, 2008

EGYPT | TELECOM

MOBILE, A RISING RING AMID AN ECONOMIC

SWING
The global telecom segment has been generating colossal
revenues, which grew by a CAGR of 9% over 2004-2007
reaching US$1.8 trillion in 2007. Nevertheless, the outbreak
of the global credit crunch and the subsequent regional
economic slowdown are expected to derail the sector from
its accelerating pace. However, the Egyptian telecom sec-
tor growth is expected to deviate from such path exhibiting
resilience to the upcoming storm; driven by its competitive
burgeoning mobile segment – registering a CAGR of 51%
over 2003-2007 - which is expected to stimulate a spillover
effect in the other segments; primarily growth in the inter-
net segment, driven by the recent application of 3G tech-
nologies which enabled mobile operators to provide high
speed internet services in new guise. Secondly, competi-
tion in the fixed-line segment which, despite its monopolis-
tic status and delayed liberalization, has been witnessing
successive promotions by its incumbent operator to
counter the flow of fixed-mobile substitution (FMS). Subse-
quently, the sector's growth potential mainly resides in the
mobile segment whose services are still not yet accessible
to half of the population, and the under penetrated internet
market, with its registered 13% penetration rate in 2Q08.
Defensive demand sustained by socio-economic drivers:
Escalating GDP per capita coupled with the expanding youth
population have been generating sustainable demand for tele-
com services.
DRIVERS
Egypt youth-based population secures a
sustainable market for telecom services.
Relatively low mobile penetration, compared
to other regional peers, provides room for
growth.
Narrow broadband penetration rate provides
significant growth potential.
Acquisitions of 3G licenses by three opera-
tors will open door for the provision of new
services.
RISKS
Global credit crunch are likely to limit the
inflow of investments.
Fluctuating GDP per capita is expected to
decelerate growth in internet subscribers.
The delayed introduction of competition to
the fixed-line market will sustain the dimin-
ishing growth rate of fixed-line subscribers.
KEY PERFORMANCE INDICATORS
Mobile subscribers CAGR (03-07,%) 51
Internet Users CAGR (03-07,%) 30
Fixed-line subscribers CAGR (03-07,%) 7

Mobile penetration rate (3Q08,%) 54.4

Intensifying competition fuels growth in the mobile: The
introduction of competition following the entrance of the third Internet penetration rate (2Q08,%) 13
mobile operator, Etisalat Misr (EM), have triggered exceptional
mobile subscribers growth registering a Y-o-Y growth of 47% - COMPANIES COVERED PAGE#
reaching 41 mn subscribers and 54.4% penetration rate in
3Q08. Mobinil 133
Orascom Telecom (OT) 143
3G technology opens new battlegrounds for mobile opera-
tors: The acquisition of 3G license, which entails the transfer of Telecom Egypt (TE) 155
non-voice data in addition to voice data, allowed mobile opera-
tors to enter the internet market and compete over the provi-
NORAN ALI
sion of high speed connection in new guise—via mobile inter- NORAN.ALI@CICH.COM.EG
net and portable USB modems. Accordingly, Vodafone Egypt
(VFE) revealed that around 12% of its mobile subscribers had MAYAN EL MENSHAWY
MAYAN.ELMENSHAWY@CICH.COM.EG
used mobile internet in October 2008.
SECTOR PERFORMANCE | 2004-2Q2008
Broadband stimulates internet growth: High-speed internet
connections (broadband) have been the primary driver behind 60
mn subs Telecom subs Mobile GR Fixed-line GR Internet users GR
80%

the growth in internet users registering a CAGR of 206% com-

pared to 36% recorded by free users, over 2003-2007. 50
70%

60%

Mobile mania sweeps fixed-line: The exceptional growth in 40

mobile came at the expense of a contracting fixed-line market 50%

triggered by fixed to mobile substitution wave. Hence, TE has 30 40%

been launching a number of promotional campaigns to counter
such trend. 20
30%

20%

10
10%

- 0%
2004 2005 2006 2007 2Q08

91
 November 11, 2008
EGYPT | TELECOM

GLOBAL TELECOMMUNICATIONS INDUSTRY

Telecommunications have played a vital role in spurring economic development Telecom: a key role
through the generation of substantial revenues which grew by a CAGR of 9% in in the economy, yet
only three years time, reaching US$1.8 trillion in 2007 compared to US$1.4 trillion such growth may be
in 2004. Looming global recession started to impose some obstacles on the ac- hindered by ex-
celerating path of the telecom industry, most notably investments - given the capi- pected global reces-
tal-intensive nature of such industry. This was manifested in cases of major com- sion
panies that started to reconsider expanding their activities in other area, such as
Vodafone which decided to delay its service initiation in Qatar to 1Q09, due to
lack of liquidity.

The telecommunications market has been driven by mobile and internet users; Mobile and internet,
which scored above average growth records, registering a CAGR of 24% and the engine for tele-
19%, respectively over 2000-2007. Fixed lines lagged way behind with its 4% com growth
CAGR during the same time span.

CAGRs of the global telecom market segments by number of subscribers

over (2000-2007)
30%

25% 24%

20% 19%

16%
15%

10%

5% 4%

0%
World Total subs. Fixed line subs. Mobile subs. Internet subs.

Source: ITU

Despite the fact that the developed countries are the most penetrated region in Developing region is
mobile services with a rate of 95% in 2007, developing countries have been driving mobile and
achieving a faster growth with subscribers base growing by a CAGR of 36.6% internet growth
during 2000-2007 compared to 12.1% recorded by developed countries over the
same time span. The same applies for the internet segment; by which developing
region enjoyed a CAGR of 32% during 2000-2007, compared with 12% for devel-
oped countries.

EGYPT TELECOM MARKET PROFILE

Over FY05/06-07/08, the exceptional telecommunications growth has been a key An engine for
driving force to the Egyptian economy registering a CAGR of 51% - outpacing the growth
19% CAGR witnessed by the country's GDP, during the same period. Accord-
ingly, telecom revenues surged by 42% reaching LE 27.2 bn in FY07/08 up from
LE 11.9 bn in FY05/06 ; thus enlarging its share of GDP from 1.9% to 3 %, over
the same time span

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 November 11, 2008
EGYPT | TELECOM

In line with the global developments, mobile expansions led telecommunications Mobile, the flagship
growth with a CAGR of 51% over 2003-2007, followed by internet users. for telecom growth

Growth of telecom market segments' subscribers (CAGR 2003-2007)

Mobile subs. 51%

Internet users 30%

Fixed line subs. 7%

0% 10% 20% 30% 40% 50% 60%

Source: ITU; Telecom Operators, MCIT

KEY RECENT DEVELOPMENTS : THE MOBILE SEGMENT

May 2007 witnessed the entrance of the third mobile operator - EM - following its The entrance of the
license acquisition a year earlier for LE16.7 mn; entailing the provision of 2G/3G third mobile operator
technologies. Such act triggered VFE to acquire the 3G license in January 2007 with its 3G technology
yet, operation started following EM. Eventually, Mobinil which launched its 3G
service by September 2008. It is worth mentioning that the entrance of EM has
eaten up the market shares of both operators with VFE incurring the largest drop
of 5% compared to 3% in Mobinil’s share in 3Q08 compared to the same period
a year earlier. Yet, Mobinil continues to dominate 46% of the market with 18.9
mn subscriber’s base, followed by VFE with 41% market share and a total of
16.6 mn subs, and then EM with its 13% market share and a total of 5.3 mn
subs.
Progressive market shares of mobile operators’ (2006-3Q08)
EM VFE Mobinil

3Q08

2007

2006

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Source: Telecom Operators

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 November 11, 2008
EGYPT | TELECOM

The last obstacle on the path of free competition was removed in April 2008 with MNP paves the road
the launch of Mobile Number Portability (MNP) service by the National Telecom for free competition
Regulatory Authority (NTRA) for LE 75 service charge for subscribers who have at
least one year subscription with a mobile operator, thus excluding EM subscrib-
ers*. Subsequently, MNP intensified subscribers transfer to the new operator, re-
flected in the growth in EM subscribers which registered an exceptional Q-o-Q
growth of 110% in 3Q08, reaching 5.3 mn subscribers. Thus, nearly doubling its
market share to 13% in 3Q08 compared to 7% a quarter earlier, in addition to the
escalating churn rates borne by other operators, most notably Mobinil whose rate
surged to 9.5% in 3Q08 up from 5.8% in 2Q08.** On the whole, subscribers re-
corded a 16% Q-o-Q growth reaching 40.8 mn subscribers, over the same time
span.

QoQ Mobile Subscribers by operator

Mobinil VFE EM
mn Subs.
45

40

35

30

25

20

15

10

0
4Q07 1Q08 2Q08 3Q08

Source: Telecom Operators

MARKET DYNAMCIS

Internet
Basic Drivers
Drivers

Expanding youth Growing IT clubs & ISPs

GPD per capita Broadband growth

Telecom Drivers

Mobile
Drivers

Pre-paid growth
Intensified competition
Technological advancement

*
Mobile Number Portability (MNP) is a newly-developed telecom service that enables the mobile subscriber to
change his operator without changing his own number. The MNP gives the subscriber all freedom to port his number
to another operator without forcing him to lose his number.
**
Al Gomhuria, 30 October 2008

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 November 11, 2008
EGYPT | TELECOM

Egypt's favorable demographics acts as a driving force for mobile and internet Expanding youth-
services, especially that the country's innate demographic structure entails a denominated
significant share of youth within the age bracket of 15-45 years accounting for population
50% of the total population. Powerful links exist between mobile subscribers,
internet users and population growth, exhibited in strong co-efficient correlations
of 0.88 and 0.98, respectively. In addition, the significant share of 21% held by
the age group of 5-15 years lays solid potential for expanding demand.
Rising per capita income, namely following the cut in income tax to a flat rate of Growing GDP per
20% in July 2006, fostered the affordability of telecom services. Accordingly capita
GDP per capita has been strongly correlated with mobile subscribers' and inter-
net users with a coefficient correlation of 0.99 for both factors.
Mobile subscribers & internet users vs. GDP per capita
mn Mob subs Internet users GDP per capita US$
35 2,000

1,800
30
1,600

25 1,400

1,200
20
1,000
15
800

10 600

400
5
200

- -
2005 2006 2007

Source: IMF, Mobile Operators

MOBILE-RELATED DRIVERS
The pre-paid segment is the key driving force behind increasing mobile subscrib- Pre-paid driven
ers, which recorded an extraordinary Y-o-Y growth of 74%, compared to 17% re- market
corded by post-paid in 2007. Consequently, pre-paid segment held the lion’s
share of 95% of the total mobile subscribers' base compared to 5% held by post-
paid segment in 3Q08.* Pre-paid dominance is attributed to Egypt's low income
level; in addition to the intensified competition initiated by EM’s price war on the
pre-paid front by removing 15% sales taxes on recharge cards. Thereafter, the
other two operators pursued the same price cuts on pre-paid cards to secure their
wide pre-paid base.
Mobile market subscribers quarterly market mix over 4Q07-3Q08
Prepaid Post-paid
mn
40

35

30

25

20

15

10

0
4Q07 1Q08 2Q08 3Q08

Source: IMF, Mobile Operators

*
Etisalat Misr subscribers mix is estimated from actual 3Q08 subscribers' figures.

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 November 11, 2008
EGYPT | TELECOM

Intensified competition characterizes the mobile market, namely in the pre-paid Intensified
segment – offering lower per minute tariff and additional benefits in the form of competition
free minutes, SMS and cheaper handsets; thus, fostering mobile affordability extends to the
and widening the addressable mobile market. Yet, competition was extended to international
the international call market when the NTRA offered the license to operators in market
October 2007 for a payment of LE 100 for each existing subscriber and LE 20
for each additional subscriber in addition to revenue sharing fees at a maximum
of 6%. EM was the only operator to acquire the license for LE 200 mn, while the
other operators continued providing the services through Telecom Egypt (TE).
Quarterly growth in mobile subscribers
20%
VFE Free Bouquet EM combined
VFE on-net
LE 0.3/min+free mins Options offer
promotion
18% Mobinil Star & controlled LE 0.20
Mobinil Business offer monthly bill+ mobile-to-
Alohat per LE0.22/min+free LE0.32 /min mobile
16% sec. bill & mins Mobinil & VFE rate+free sms
removal of Life time validity
admin fees Mobinil on-net
14% VFE Super promotion LE 0.20
mobile-to-mobile
EM Ahlan LE EM on-net
12% 0.39/min+removal of promotion LE 0.15
pre-paid card sales mobile-to-mobile
taxes
10% VFE Easy
Mobinil Ahsan nas
LE0.20/min for
8% selected nos.

6%

4%

2%

0%
2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08

Source: Newspapers; Telecom operators

The adoption of advanced technology—namely the 3G - is another front through Opting for
which mobile market growth was boosted. 3G technology is a key for upgrading technological
operators’ capacities and the provision of data services such as mobile TV, video edge
calling and high internet speed. EM initiated competition in technology adoption
through adopting its 3.5G technology in May 2007, followed by its 3.75G adop-
tion in November 2007.
Launch date of 3G technologies in Egypt
Operator EM VFE EM Mobinil

Technology 3.5G 3G 3.75G 3G

Operation
Date May 07 May 07 Nov 07 Sept 08

Source: CICR

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 November 11, 2008
EGYPT | TELECOM

To accommodate the rapid technological advancement, mobile operators have Invest to grow
been keen to allocate considerable investments. For instance, to expand its net-
work that currently covers 95% of Egypt, EM is expected to pump LE 2.5 bn by
*
2009.

INTERNET DRIVERS
Over 2003-2007, internet users grew by a 30% CAGR. 2007 witnessed a pick up A growing IT
in users' growth which surged by a 43% Y-o-Y growth to 8.6 mn subscribers and clubs and ISPs,
12% penetration rate. Such growth was triggered by the rise in free users which the backbone
grew by 52% in 2007 compared to 24% a year earlier, as a result of regained rise for internet
in the number of IT clubs that grew by 30% in 2007 compared to 14% a year ear- growth
lier.** In 2Q08, internet users reached 9.7 mn and a 13% penetration rate. The
growth in internet users was supported by increasing Internet Service Providers
(ISPs) which reached 222 providers in 2007 up from 214 providers in 2004 and an
expanding international internet bandwidth which grew by eight folds reaching
14866 Mb/s in 2007 up from 1595 Mb/s, over the same time span. Despite growth
in numbers, internet adoption is still growing at a slow rate reflected in the drop in
Egypt's e-readiness rank from the 55th rank in 2006, out of a total of 69 countries,
with an index score of 4.30 to the 58th rank in 2007 with a score of 4.26.*** Limited
adoption was attributed to low PC penetration rate estimated to be currently
around 7% of the families****; the concentration of government initiative such as
the PC for Every home and IT clubs initiatives in large metropolitans, Cairo and
Alexandria; language barrier and the unavailability of enough Arabic content and
the relatively expensive access fees.

Internet users' growth pattern and penetration rate (2003-2007)

Internet Users Internet Users GR
mn subs P t ti t
10 70%

9
60%
8

7 50%

6
40%
5
30%
4

3 20%

2
10%
1

0 0%
2003 2004 2005 2006 2007

Source: MCIT, ITU

*
Al-Gomhuria, October 30th 2008
**
IT Clubs are units established by MCIT, in collaboration with the private sector, to offer access to computers
and the Internet at nominal fees, as well as IT training programs and electronic libraries. The purpose of the
initiative is to offer communal solution to the problems of IT accessibility and awareness.
***
E-readiness index is a ranking composed annually by the Economist Intelligence Unit EIU which measures the
country’s information and communications technology (ICT) infrastructure and the ability of its consumers, busi-
nesses and governments to use ICT to their benefits. The e-readiness rankings are a weighted collection of
nearly 100 quantitative and qualitative criteria, organized into six distinct categories measuring the various com-
ponents of a country’s social, political, economic and of course technological development.
****
BMI, "Egypt Telecommunications Report Q32008."

97
 November 11, 2008
EGYPT | TELECOM

Over 2003-2007, the growth in internet users have been fueled by broadband High speed
subscribers which recorded the highest growth rate of a CAGR of 206%, replac- internet generates
ing dial-up users which grew by 36% CAGR. Broadband growth was stimulated high growth
by a number of government-led tariff restructuring initiatives. Recently, TE al-
lowed customers to jointly apply for a fixed-line and broadband line through its
partnership with TEData. *
Broadband subscribers vs. internet users (2003-2007 )
mn Users Internet users Broadband subs 000 subs
10 600
53% drop in
9 monthly charge
to LE 45 500
8

7
37% drop in 400
Broadband initiative monthly charge
6
50% drop in to LE 95
monthly charge to
5 300
LE 150

4
200
3

2
100
1

0 0
2003 2004 2005 2006 2007 Mar-08

Source: MCIT, ITU, NTRA

Mobile operators have recently entered the internet services market via the 3G Mobile operators,
technology, which entails the transfer of both voice data (a telephone call) and new comers to the
non-voice data (such as downloading information, exchanging email, and instant internet market
messaging). Accordingly, mobile operators started a wave of buying stakes in op-
erating ISPs, mainly Class A **, exemplified in EM’s acquisition of leading stakes in
Nile Online (NOL) and the Egyptian Company for Networks (EgyNet) in 2008;
VFE's acquisition of 69.9% in Raya Telecommunications 2007; and Mobinil's
strong affiliation to LINKdotNET through their common parent company, Orascom.
Since May 2007, mobile operators have been racing in providing advanced ser-
vices at competitive prices such as mobile internet, currently for LE1/day, USB
modems and associated bundle services such as EM's offer which entails paying
6 or 12 months subscription fees and getting the USB for free; recent Mobinil's
offer providing a laptop and USB modem for an average price of LE 1,600.*** Cus-
tomers started to gravitate towards these services, in October 2008 VFE reported
that almost 12% of its 17 mn customer base had used mobile internet service.

*
Al-Gomhuria, 30 October 2008
**
Three categories of license are granted to those ISPs as follows: Class A are entitled to points of presence
(POPs) in TE’s exchanges and the right to lease ports to other ISPs; Class B data carriers are given the same
rights as Class A except for the leasing rights of ports to other ISPs; Class C provide Internet services to custom-
ers.
***
Richard Daly, CEO Vodafone Egypt , Euro-money conference

98
 November 11, 2008
EGYPT | TELECOM

FIXED LINE MARKET

Fixed-line subscribers have been growing at a diminishing annual rate which sig- A diminishing
nificantly slumped to 3.8% in 2006 compared to 9.5% a year earlier. Such drop growth due to FMS
was fueled by the intensified competition between mobile operators which had trend
taken its toll on Telecom Egypt (TE)'s retail revenues which witnessed escalating
drops from 2% in 2007 to 3% in 2Q08. Contraction in fixed-line growth can be
also attributed to low rural penetration reaching 7% in 2006, despite the concen-
tration of the majority of 57% of the population in these areas. TE has launched a
number of promotional campaigns to reduce the fixed-mobile substitution (FMS)
trend ending with its recent offer to remove the installation and administrative
fees for new residential and commercial fixed lines till end of November 2008.
Previous offers had negligible impact on subscribers' growth, illustrated in its
70% discount on installation fees promotion offered till December 2007, after
which subscribers grew by declining Y-o-Y rate of 3.7% compared to 3.8% a year
earlier.
Fixed line pattern (2001-2007)
Fixed-line subs Available lines Penetration rate
mn subs
16 16%

14 14%

12 12%

10 10%

8 8%

6 6%

4 4%

2 2%

0 0%
2001 2002 2003 2004 2005 2006 2007 Jan-08

Source: Telecom Egypt (TE)

In July 2008, TE adopted a new fixed-line tariff rebalance that aimed to stimulate New tariff
added fixed-lines by slashing installation fees by 50% for both residential and rebalance and a
commercial lines to LE 250 and LE 500 respectively; cutting fixed-to-mobile min- mild growth in
ute tariff by 33% in peak times and 14% in off-peak times to LE 0.30/min lower fixed-line
than the average LE 0.40/min charged by the mobile operators on mobile-to-fixed subscribers
calls; in addition to reducing long distance call per minute rate by 20% to reach LE
0.16 (for more than 60 km) and LE 0.08 ( for less than 60 km). Such tariff is ex-
pected to marginally lift up the number of added lines which was reflected in 1%
growth recorded in September 2008 compared to July, two months after new tar-
iffs implementation.

In September 2008, the National Telecommunication Regulatory Authority Delayed

(NTRA) decided to finally postpone the auction for the second fixed-line license, competition due to
after several delays, for a year due to uprising inflation in addition to the recent credit crunch
financial turmoil which made lending more difficult, especially in sectors requiring
huge investments as the telecom sector (initial investments reach around US$1
bn for fixed-line network). The delay is expected to be extended for a period of
two years until the next upturn in the global economy which is projected to occur
by 2010.

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 November 11, 2008
EGYPT | TELECOM

FUTURE OUTLOOK
The recent entrance of the new operator and the subsequent aggressive com- Mobile growth on
petition has recently boosted mobile proliferation with penetration rate reaching the peak for the
54.4% in 3Q08. Over 2008-2009, mobile subscribers are projected to strongly short-run
rise by an average of 33% , due to the rolling-out of 3G network and services
coupled with the existence of a considerable addressable market. Such trend
will be reversed by 2010, as the market reaches its saturation stage; accord-
ingly mobile growth is projected to grow by a diminishing rate. By 2012, mobile
subscribers will approach the addressable market level estimated to reach 84%
of the population, due to existence of inaccessible impoverished segment; thus,
reaching 66.2 mn subscribers and an 82% penetration rate.
Mobile outlook ( 2008-2012)
Thousands Population Addressable subs Mobile Subs.
90,000

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

-
2008 2009 2010 2011 2012
Source: CICR

Growth in internet users will be driven by the broadband segment, projected Internet growth :an
to grow by a CAGR of 34% compared to 15% by free users during the period upward trend stifled
of 2008-2012. Internet users' growth rate is expected to level off during 2008- by short downturn
2010, due to anticipated economic slowdown, growing by a projected annual
growth rate of 18% compared to 31% recorded over 2005-2007; with internet
users projected to reach 14.2 mn users and 18% penetration rate by 2010.
Such trend will be reversed in 2011, driven by the anticipated pick-up in GDP
per capita. Accordingly, internet penetration is expected to reach 24%, and
that of broadband to reach 2.5% by 2012, given the existence of internet barri-
ers manifested in high illiteracy rates and low income.
Internet outlook ( 2008-2012)
Internet users Broadband subs
mn Users mn Subs
25 2.50

20 2.00

15 1.50

10 1.00

5 0.50

0 -
2008 2009 2010 2011 2012

Source: CICR

100
 November 11, 2008
EGYPT | WHITE CONSUMER GOODS (WCG)
EGYPT | WHITE CONSUMER GOODS (WCG)

LIMITED EXPORTS IS A BLESSING POTENTIALS

Until recently, limited export potential has been one of the Growing population with favorable demo-
main deficiencies of the WCG industry and a key chal- graphic structure, as 48% of the population
is below the age of 45, thus expanding mar-
lenge. Yet, nowadays given the anticipated global down-
riage rates prospects.
turn which is expected to reflect negatively on trade activi- Limited exposure to international markets.
ties, limited exports seems to be the industry's life-jacket Well established base of feeding industries
amid the global storm. The white consumer goods industry (components and packaging).
(WCG) is a defensive industry, gaining particular strength Various products targeting different social
with Egypt's growing population and the developed base classes.
of feeding industries. However, driven by its strong corre- Despite the rising cost of energy it is still
lation with GDP per capita and interrelation with the real- lower than the global average.
estate market that are expected to witness lower growth GoE's plan to pump LE 300 mn new invest-
levels; WCG demand is expected to continue growing yet ments in stoves production.
with a slower pace registering 3% in 2009.
RISKS
Limited exports: Despite of the increasing WCG exports still
they represent a minimal contribution averaging 6% of total
local production over 2004-2007. Economic slowdown.
Growing competition with a minimal cost
Resilience stemming from targeting different social passing ability.
classes: The WCG market features a wide range of products Decrease in propensity to purchase with
with varying prices that suit the different social income classes, the overall slowdown in the economy.
whereas imports - due to its relatively high price scheme - tar-
get mainly the high end consumers constituting class A that
represents only 2% of the population.
KEY PERFORMANCE INDICATORS
WCG production CAGR (04-07,%) 4.6
Real-estate boom pushed demand higher: The real-estate
WCG consumption CAGR (04-07,%) 4.5
boom witnessed in the past couple of years along with the
strengthened GDP per capita and increasing marriage con- Imports CAGR (04-07,%) 24
tracts exerted a pull towards WCG demand that registered a Coverage ratio (2007,%) 104
CAGR of 4.5% over 2004-07.
COMPANY COVERED PAGE #
Electric water heaters, a star performer: The move to the
outskirt destinations as 6th of October and New Cairo and the Olympic Group 139
absence of natural gas distribution networks in these destina-
tions diverted the demand from gas to electric water heaters
that was ranked the first in terms of growth registering a CAGR
ALIA MAMDOUH
of 12.4% over 2004-07.
ALIA.MAMDOUH@CICH.COM.EG

SECTOR PERFORMANCE | 2004-2008

WCG Demand WCG Production

2008E

2007

2006

2005

2004

0 2,000 4,000 6,000 8,000 10,000

K Units

101
 November 11, 2008
EGYPT | WHITE CONSUMER GOODS (WCG)

The White Consumer Goods (WCG) market bears a number of special A special industry en-
characteristics: joying a strong con-
A high level of seasonality by nature where the summer usually witnesses sumer leverage
strong levels of demand due to the high marriage rates; the increasing demand
for touristic real estate units. Moreover, the time span of religious feasts
witness high levels of marriages.
A relatively strong consumers' bargaining power due to the variety of products
matching different income levels. On the other hand, the well-established
feeding industries with various suppliers tend to give suppliers a low bargaining
power before consumer goods manufacturers.
A cyclical industry, driven by the health of the economy in general and activity
in the real estate and housing sector in particular
Starting 2006 the WCG market leapfrogged by 5.1% versus a growth of 3.4% in Strong demand led by
2005 – fueled namely by the jump in GDP/capita growth rate which recorded electric water heaters
8.2% in 2006 compared to 5.8% in 2005. 2007 followed through with an increase
of 4.8% reaching 8.4 mn units. Electric water heaters led such growth with 18.9%
in 2007— attributed to the move to the outskirt destinations as 6th of October
and New Cairo and the absence of natural gas distribution networks in these
destinations which diverted the demand from gas to electric water heaters.

WCG Market Demand Growth by segment

K Units WCG Production WCG Demand Washing machines Refrigerators
Stoves Electric Water Heaters
9,000 Gas Water Heaters Total Market
20%

18%
8,500
16%

14%
8,000
12%

10%
7,500
8%

6%
7,000
4%

2%
6,500
0%
2004 2005 2006 2007 2006 2007

Source: IDA & CAPMAS Source: IDA & CAPMAS

Due to the necessity of after-sales services and the need to have an easy access Demand is mostly
to maintenance centers, production coverage maintained its high level of 1.04x. covered by local pro-
duction

2007 imports registered higher growth rate of 52% - representing 83.5k of the 2007 witnessed a
added units – compared to an increase of 36% in 2006. Yet, imports still hold a higher growth in im-
minimal share of 3% from the total WCG market. It is worth noting that the major- ports
ity of imported products target the high-end consumers. Despite the minimal
share of 8% in the total imports, stoves registered the highest growth of 108% in
2007 – driven by the modern hi-tech stoves. On the other hand, exports wit-
nessed slower growth of 3.9% than that of 2006 (14%), led by the electric water
heaters accounting for 38% of total exports.

Generally, WCG market features a limited number of companies that bear a large A private sector ori-
size as it is the case in Olympic Group and El-Araby; followed by a second tier of ented industry with
companies as Kiriazi, Electrostar, Alaska, Universal and Fresh. Olympic Group different concentra-
and Kiriazi dominate the washing machines and refrigerators segments, while tion levels throughout
Olympic Group and Fresh dominate the electric water heaters segment. How- each segment
ever, when it comes to stoves, the market is very fragmented giving consumers a
relatively strong bargaining power due to the presence of a number of producers
with products addressing different segments of the society.

102
 November 11, 2008
EGYPT | WHITE CONSUMER GOODS (WCG)

WCG main players

Refrigerators Stoves Water Heaters
One-door Universal Electric
Olympic Group Olympic Group Olympic Group
Alaska Kiriazi Fresh
Toshiba Fresh GMC
Two-door Washing Machines Gas
Kiriazi Olympic Group El Masanaa
Olympic Group Kiriazi Universal
Electro Star Zanussi Olympic Group
Alaska GMC Fresh
National
Source: Kompass

GROWTH DRIVERS
Urban housing demand—marriage contracts and the demand for 2nd housing Urban housing de-
units — highly affects WCG consumption . Urban demand has been witnessing a mand affects the de-
CAGR of 3.1% over 2004-07 which contributed to the growth in WCG market. It mand for WCG
is worth highlighting that the expanding demand for second housing units –
namely in the outskirt destinations – coupled with the demand for touristic real-
estate units in the coastal areas act as driver to the rising WCG consumption.

Urban Demand vs. WCG Demand

K units WCG Demand Total Urban Demand units
8,600 560,000

8,400 550,000

8,200 540,000

8,000 530,000

7,800 520,000

7,600 510,000

7,400 500,000

7,200 490,000

7,000 480,000

6,800 470,000
2004 2005 2006 2007

Source: IDA& IDSC

Strong ties exist between WCG demand and levels of GDP/capita bearing a cor- High GDP/capita
relation coefficient of 0.997. Over 2004-07, levels of GDP/capita registered ro- strengthened the pur-
bust growth of 7% (CAGR) peaking in 2006 with a y-o-y growth of 8.2% - hence, chasing power
strengthening consumer purchasing power where private consumption/head wit-
nessed a CAGR of 15.4% over 2004-07.

GDP/capita vs. WCG consumption

US$ GDP per Capita WCG Demand K units

6,000 8,600

8,400
5,000
8,200

4,000 8,000

7,800
3,000
7,600

2,000 7,400

7,200
1,000
7,000

0 6,800
2004 2005 2006 2007

Source: IDA& CAPMAS

103
 November 11, 2008
EGYPT | WHITE CONSUMER GOODS (WCG)

KEY CHALLENGES
Steel prices, one of the main components of the WCG cost of production, Risk lies in rising raw
skyrocketed over 2003-07 where flat steel prices grew at a CAGR of 16% materials prices, yet,
recording a high level in 2007, reaching LE 3,601/ton with a y-o-y growth of 19% not for long
driven by the increase in its raw materials prices (iron ore, scrap and billets).
Over and above, WCG production utilizes a more fine tuned type of flat steel that
is relatively more expensive. Combined with the increasing plastic prices, another
raw material used in the production process, moving in line with the increase in
polyethylene price level driven by the recent surge in oil prices, WCG producers
face immense risk with respect to their margins. However, with the current
decline in oil and commodities prices, production costs challenges should fade
away.

Flat steel prices

LE
3,700

Increase of 19%
3,600 due to the hike
Decline of 3%
in raw materials
due to the
prices (iron ore,
3,500 transformation
billets, ect..)
of China from
net importer to
3,400 net exporter

3,300

3,200

3,100

3,000

2,900

2,800

2,700
2004 2005 2006 2007

Source: Bloomberg

Increasing competition is another threat facing both the concentrated and the Growing competition
fragmented segments of the WCG market. Within the concentrated segments of and the minimal cost
the market - washing machines, refrigerators and electric water heaters – the passing ability
main players face competition from foreign producers in terms of high tech im-
ported products. Nevertheless, stoves - one of the highly fragmented segments
in the market - are relatively competitive as well due to the presence of a number
of local producers offering different categories that match the varying income lev-
els. Such expanding competition is the main reason behind the industry’s partial
cost passing ability, where main players could not pass on the entire increase in
production costs over the past year in order to ensure maintaining their market
shares.

Despite the slight improvement in the factors that hindered export contribution in Limited export now
the past years represented mainly in the inactive trade agreements, the market is acts as the only res-
still faced by a number of challenges within this respect. One of the main defi- cue
ciencies within the produced goods is the limited designs within each segment
along with the appreciating Egyptian pound versus the US$ which might exert
more pressure on the industry's export potential. Yet, nowadays this pitfall turned
out to be this industry’s life-jacket amidst the expected decline in exports driven
by the global slowdown and shrinking external demand.

104
 November 11, 2008
EGYPT | WHITE CONSUMER GOODS (WCG)

FUTURE OUTLOOK
Affected by the slowdown in urban housing units demand; the expected slow A growing industry
growth in GDP/capita shedding its reflections on marriages rate, demand on serving domestic de-
WCG is expected to continue growing, yet at a slower pace of 3% in 2009. mand

Demand outlook
Washing Machines Refrigerators Stoves
K units Elec Water Heat. Gas Water Heat.
3,500

3,000

2,500

2,000

1,500

1,000

500

0
2007 2008 2009 2010 2011

Source: IDA, CAPMAS, CICR Forecasts

105
 November 11, 2008

THIS PAGE IS INTENTIONALLY LEFT BLANK

106
 November 11, 2008

EGYPT | FURNISHING

12M FAIR VALUE | LE 7.59

AL-EZZ CERAMICS & PORCELAIN (GEMMA)
BUY | MODERATE RISK
Al-Ezz Ceramics & Porcelain (GEMMA) is a well-known
brand of tiles in Egypt. Its main activities include produc-
SHARE DATA
ing ceramics and porcelain tiles in addition to trading sani- Reuters; Bloomberg ECAP.CA , ECAP EY
tary ware. GEMMA targets the replacement market, with a Recent price as of 6-Nov-08 LE 4.98
6% market share, so any expected slowdown in the real No. of O/S shares 51.1 mn
Market cap LE 0,254.2 mn
estate sector should have no effect on GEMMA's sales. 52-wk high / low LE 19.62/ LE 3.2
Expansion of the company’s 6-mn sqm p.a. is underway Avg. daily volume / turnover 0.46 mn / LE 6.62 mn
and expected to start production early 2009. We believe
said expansion will boost GEMMA's sales in both the local
and international markets. Our DCF-led valuation indi- COMPANY SYNOPSIS
cates a 52% upside to LE 7.59, warranting a BUY with a
Al-Ezz Porcelain (GEMMA) was established in 1981
MODERATE RISK rating. under Law No. 159/1981 for the purpose of
manufacturing, trading and distributing ceramics,
porcelain, sanitary ware, taps and its related
contracting works.
New factory expansion expected to start in 2009 with LE
Currently, it is specialized in the production and
270 mn in capex: A 50% capacity increase from 12 mn sqm to trade of high-quality ceramics and porcelain tiles.
18 mn sqm is in process in order to meet expected local and In 1998, Al-Ezz Porcelain bought a 97.82% stake in
international growth in demand for ceramic and porcelain prod- Al-Ezz Ceramics and, accordingly, its name was
changed into Al-Ezz Ceramics & Porcelain
ucts. Having reached the maximum production capacity with a (GEMMA).
utilization rate of around 91%, GEMMA was in need for expan-
In 2004, Al-Ezz Ceramics was merged in Al-Ezz
sion - as we noted in our report dated May 3, 2007. Ceramics & Porcelain (GEMMA). On the operational
front, GEMMA has a 6% market share with a total
Exports are a strategic target: GEMMA’s strategic target is production capacity of 12 mn sqm per annum.
to penetrate new markets, such as the US - the largest im- Currently, GEMMA has an authorized capital of LE
porter of tiles all over the world, to benefit off higher selling 1.8 bn and an issued capital of LE 255.2 mn,
prices in addition to maintain existing markets in Greece, Saudi distributed over 51.05 mn fully paid shares at a par
value of LE 5/share.
Arabia, and the Middle East. Similar to other local companies,
GEMMA has a comparative advantage of low manufacturing
cost, especially labor. We believe said advantage will be a
positive catalyst for GEMMA to penetrate these markets, espe-
cially the US which has a higher labor cost.
Distribution channels: GEMMA’s sales are generated SHAREHOLDER STRUCTURE
through four channels: showrooms, projects (such as hospitals, Al-Ezz Holding 63.9%
Financial Holding Int'l Limited 5.7%
hotels, and touristic villages), agents, and exports. In 2007, Others 0.1%
said projects and showrooms accounted for around 14% of Free Float 30.3%
GEMMA's total sales. Total 100.0%

Has been a tax payer since 2007: GEMMA has historically

benefited off a 10-year tax exemption (for its factory located in
Al-Sadat City) which ended in December 2006. Starting 2007,
GEMMA began paying income taxes.
Growth drivers: While demand for tiles should be driven in AHMED ABDEL-GHANI
part by growth in the real estate sector, GEMMA mainly targets AHMED.ABDELGHANI@CICH.COM.EG
the replacement market. We believe that GEMMA's effective
distribution channels, targeting exports, in addition to its capac-
ity increase should all reflect positively on its sales growth. STOCK PERFORMANCE | 52 WEEKS
Volume ECAP CASE 30 - rebased
Valuation and recommendation: On a DCF basis, we
reached a 12-month target fair value of LE 7.59/share for GEM- 20
LE mn shares
4.5
MMA, implying a 52% upside potential. Traded at 12.6x 2009 18 4.0
16 3.5
expected earnings. Accordingly we rate this stock at BUY at 14 3.0
MODERATE RISK. 12
2.5
10
2.0
8
6 1.5
4 1.0
2 0.5
0 -
Nov-07

Jan-08

Jun-08
Jul-08
Dec-07

Feb-08

Mar-08

Apr-08

May-08

Aug-08
Sep-08

Oct-08

107
 November 11, 2008
EGYPT | FURNISHING | GEMMA

Balance Sheet (LE mn) 2007A 2008F 2009F 2010F Cash Flow 2007A 2008F 2009F 2010F
Assets NOPAT 45.4 50.4 71.2 84.0
Cash & Cash Equivalent 12.3 14.1 19.6 24.3 Dep. & Amor. 19.1 19.3 26.8 34.4
Net Receivables 149.3 122.6 178.7 226.9 COPAT 64.5 69.7 98.0 118.4
Total Inventory 118.5 131.0 182.5 226.9 WI Change 29.0 16.4 (82.3) (70.8)
Advance Payments 7.2 8.2 11.4 14.2 Other Current Items 0.1 0.0 0.0 0.0
Other Trading Assets 0.0 0.0 0.0 0.0 CF After Current Oper. 93.5 86.1 15.7 47.6
Other Current Assets 0.0 0.0 0.0 0.0 Financing Payments (65.1) (78.2) (92.6) (95.6)
Total Current Assets 287.4 276.0 392.3 492.4 Cash Before LT. Use 28.4 7.9 (76.9) (48.1)
Net Plant 257.6 435.5 465.5 442.9 Net Plant Change (40.7) (197.1) (56.8) (11.9)
Long-Term Investments 1.1 1.1 1.1 1.1 FCFF 52.7 (111.0) (41.1) 35.7
Other Trading Non-Current Assets 2.9 2.9 2.9 2.9 Others (2.0) 0.0 0.0 0.0
Other Non-Current Assets 2.3 2.3 2.3 2.3 CF Before Financing (14.3) (189.2) (133.7) (59.9)
Intangibles 0.0 0.0 0.0 0.0 Short-Term Debt (5.1) 9.2 137.9 37.5
Total Assets 551.3 717.7 864.0 941.6 Long-Term Debt 19.2 107.6 0.0 25.8
Net-worth 0.0 72.9 (0.0) 0.0
Liabilities & Shareholders' Equity Grey Area 1.3 1.3 1.3 1.3
Short-Term Debt 72.2 81.4 219.2 256.7 Dividends 0.0 0.0 0.0 0.0
Current Portion Of LTD 46.7 41.6 47.2 45.0 Change in Cash 1.1 1.8 5.5 4.7
Accounts Payable 50.3 50.0 69.7 86.6
Accrued Expenses 3.9 5.3 7.4 9.2
Down Payments 15.2 17.3 24.1 29.9 Fact Sheet 2007A 2008F 2009F 2010F
Taxes Payable 5.5 5.5 5.5 5.5 ROE 4.3% 6.0% 6.0% 9.6%
Dividends Payable 0.0 0.0 0.0 0.0 ROS 3.1% 5.3% 4.1% 5.8%
Other Spontaneous Finance 2.4 2.4 2.4 2.4 ROA 1.8% 2.6% 2.3% 3.8%
Other Current Liabilities 1.8 1.8 1.8 1.8 ROIC 9.6% 7.9% 9.5% 10.4%
Total Current Liabilities 198.1 205.3 377.4 437.2
Total Long-Term Debt 117.7 183.7 136.5 117.3
Other Non-Current Liab. 0.0 0.0 0.0 0.0
LTerm Spontaneous Fin. 0.0 0.0 0.0 0.0 EBITDA Margin 21.1% 21.2% 21.0% 20.9%
Total Liabilities 315.8 389.0 513.9 554.5 ATO 0.6 0.5 0.6 0.7
Deferred Taxes 9.6 10.8 12.1 13.4 WI/ Sales 65.8% 53.1% 54.8% 55.7%
Other Provisions 1.4 1.4 1.4 1.4 ALEV 2.5 2.3 2.6 2.5
Minority Interest 0.0 0.0 0.0 0.0
Shareholders' Equity 224.6 316.5 336.7 372.3 Debt/ Tangible Networth 1.4 1.2 1.5 1.5
Total Liabilities & Net worth 551.3 717.7 864.0 941.6 Current Ratio 1.5 1.3 1.0 1.1

Income Statement (LE mn) 2007A 2008F 2009F 2010F Per Share Ratios 2007A 2008F 2009F 2010F
Capacity '000 Units 12,000 12,000 18,000 18,000 Share Price 4.98 4.98 4.98 4.98
Units Sold '000 10,659 11,326 14,820 17,496 No. Of Shares '000 51,045 51,045 51,045 51,045
Revenues 313.2 357.5 495.9 615.6 EPS 0.19 0.37 0.40 0.70
COGS (201.0) (228.8) (317.9) (395.2) Div/Share 0.00 0.00 0.00 0.00
Gross Profits 112.2 128.7 178.0 220.4 Revenues/Share 6.13 7.00 9.71 12.06
SG&A (46.2) (53.0) (73.7) (91.8) BV/Share 4.40 6.20 6.60 7.29
EBITDA 65.9 75.7 104.3 128.5
Gross Cash Flow/Share 1.26 1.37 1.92 2.32
Dep. & Amort. (19.1) (19.3) (26.8) (34.4)
FCFF/Share 1.03 -2.17 -0.81 0.70
EBIT 46.8 56.4 77.5 94.1
EBITDA/Share 1.29 1.48 2.04 2.52
Interest Expense (32.1) (31.5) (51.0) (48.4)
EV/Share 9.37 10.71 12.49 12.71
Provisions 0.0 0.0 0.0 0.0
Interest Income 0.0 0.0 0.0 0.0
Investment Income 0.0 0.0 0.0 0.0
Other Non-Operating Inc. (0.6) 0.0 0.0 0.0
Other Non-Operating Exp. (3.2) 0.0 0.0 0.0 Multiples 2007A 2008F 2009F 2010F
EBT 10.9 25.0 26.5 45.7 P/E 26.3 13.4 12.6 7.1
Taxes (including deferred taxes) (1.3) (6.0) (6.3) (10.2) Div Yield % 0.0% 0.0% 0.0% 0.0%
NPAT 9.7 19.0 20.2 35.6 P/ Revenue 0.8 0.7 0.5 0.4
Minority Interest 0.0 0.0 0.0 0.0 EV/ Revenues 1.5 1.5 1.3 1.1
Extraordinary Items 0.0 0.0 0.0 0.0 P/ COPAT 3.9 3.6 2.6 2.1
Attributable Profits 9.7 19.0 20.2 35.6 EV/ COPAT 7.4 7.8 6.5 5.5

P/ FCFF 4.8 -2.3 -6.2 7.1

EV/ FCFF 9.1 -4.9 -15.5 18.2
P/ EBITDA 3.9 3.4 2.4 2.0
EV/ EBITDA 7.3 7.2 6.1 5.0
P/ BV 1.1 0.8 0.8 0.7
Source: Company reports and CICR estimates.

108
 November 11, 2008

EGYPT | TEXTILES

12M FAIR VALUE | LE 10.1

ARAB COTTON GINNING CO. (ACGC)
BUY | MODERATE RISK
DNA change
SHARE DATA

Reuters; Bloomberg ACGC.CA; ACGC EY

Recent price as of 6-Nov-08 LE 4.10
Unlike other ginning companies, Arab Cotton Ginning Co. No. of O/S shares 251.7 mn
(ACGC) is now recognizing business opportunities that Market cap LE 1,032.0 mn
would be better achieved through a holding company. 52-wk high / low LE 14.44/ LE 3.17
Avg. daily volume / turnover 4.15 mn / LE 40.15 mn
Indeed, ACGC revealed its intention to establish a holding
company with ginning being one of the new entity's activi-
ties. We believe this “DNA change" will positively affect COMPANY SYNOPSIS
ACGC's share allocation in investors' portfolios. To press Arab Cotton Ginning Company is a shareholding service
ahead, the company retained most of its 2007 profits for company established in 1977 according to ministerial
decree #411/1963. The company’s main activities are
future planned expansions including c. 16% (direct and cotton ginning, pressing, trading & marketing, exporting &
indirect) stakes in Upper Egypt Flour Mills (UEFM), which importing, in addition to spinning synthetics, silk, and
has a large base of unutilized assets. polyester.

After a series of changes and capital increases, ACGC

Excess liquidity: ACGC formed a consortium to acquire
UEFM, which has unutilized assets - cash, land bank, ware-
houses, and cargo fleet. The latter allows UEFM to have a
sizable market share in the shipping business in Upper Egypt.
Also, ACGC is studying several other investment opportuni-
ties , including real estate, according to which the company
will diversify its operations and to press ahead with its holding
company concept.
current authorized capital is LE 5,000 mn and the paid-in
capital is LE 1,258.7 mn distributed over 251.7 mn shares
with a par value of LE 5/share.
According to its AGM dated October 8, 2008, the company
announced its intent to establish a holding company by
which ACGC’s management is considering changing its
main activities from a pure ginning company to a holding
company with ginning being one of its activities. It is
expected that a share swap will be offered to existing
company’s shareholders in the “will be” new formed
holding company.

Simple company structure: ACGC acquired 56.75% of Am-

wal Al-Arabia through a share swap with Amwal El-Khaleej,
bringing its total ownership in Amwal Al-Arabia to 100%. In
addition, Amwal Al-Arabia acquired 39.64% of El-Nasr Clothes SHAREHOLDER STRUCTURE
& Textiles (KABO) in June 2008 from its fully-owned subsidi-
ACGC BoD 2.4%
ary Modern Nile Cotton (MNC). Thus, ACGC had grouped its Public sector 3.9%
operations under two main subsidiaries: Amwal Al-Arabia and Companies 20.7%
Egypt Cotton Ginning. Such a strategic move should further Employees shareholders 5.0%
Association
simplify the group's structure and management. Free Float 68.0%
Total 100.0%
Vertical integration: Investment in Amwal Al-Arabia will facili-
tate ACGC’s both backward and forward integrations through
its newly-restructured group of companies within the textiles
and clothes industry. With this vertical integration, ACGC will
be operating throughout the cotton value chain from ginning,
exporting raw cotton, to spinning and weaving and textiles.

Financial summary: Separate revenues grew by 58% to LE MUHAMMAD EL EBRASHI

62.4 mn in FY07/08 ended June 30, 2008 vs. LE 39.5 mn in MUHAMMAD.ELEBRASHI@CICH.COM.EG
FY06/07. Said increase was driven by a 50% increase in the
quantity ginned and pressed in addition to price increases. On STOCK PERFORMANCE | 52 WEEKS
a consolidated basis, the company’s financial results were not Volume ACGC CASE 30 - rebased
comparable to those of previous years’ as ACGC has under- LE mn shares
16 35.0
gone major restructuring.
14 30.0
12 25.0
Valuation and recommendation: Based on our DCF valua- 10
20.0
tion on a consolidated level, we reached a 12-month fair value 8
15.0
of LE 10.1/share, hence we rate the stock a BUY. Said price 6
10.0
4
implies an upside potential of 146%. Our DCF valuation in- 5.0
2
cludes consolidated operations, company’s investments, and 0 -
land values. We believe the company’s land makes up over
Nov-07

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08

Mar-08
Apr-08
May-08

Aug-08
Sep-08

Oct-08

50% of the stock’s value, which explains management’s inten-

sion to set-up its own real-estate company.

109
 November 11, 2008
EGYPT | TEXTILES | ACGC

Balance Sheet (LE mn) Jun-08 Jun-09 Jun-10 Jun-11 Fact Sheet Jun-08 Jun-09 Jun-10 Jun-11
Assets ROE 14.5% 6.0% 6.3% 6.8%
Cash & Cash Equivalent 786.4 902.0 1,031.5 1,157.7 ROS 25.4% 10.1% 10.2% 10.9%
Net Receivables 168.6 211.1 268.2 326.0 ROA 9.2% 3.9% 4.1% 4.5%
Total Inventory 398.5 395.8 475.6 527.0 ROIC 0.1% 3.8% 4.3% 4.1%
Advance Payments to Suppliers 8.7 2.4 13.6 14.5 EBITDA Margin 16.8% 20.8% 20.5% 20.1%
Other Trading Assets 36.6 36.6 36.6 36.6
Other Current Assets 24.0 24.0 24.0 24.0 ATO 0.4 0.4 0.4 0.4
Total Current Assets 1,422.8 1,571.9 1,849.5 2,085.8 WI/ Sales 52.5% 50.1% 56.9% 61.0%
Net Plant 1,115.7 1,040.8 914.8 779.8
Long-Term Investments 87.2 87.2 87.2 87.2 ALEV 2.1 2.0 2.0 1.9
Other Trading Non-Current Assets 40.1 38.2 38.2 38.2 Debt/ Tangible Networth 0.4 0.3 0.3 0.3
Other Non-Current Assets 0.8 0.8 0.8 0.8 Current Ratio 2.8 3.3 3.7 4.5
Intangibles 511.3 511.3 511.3 511.3
Total Assets 3,177.9 3,250.1 3,401.6 3,503.0

Liabilities & Shareholders' Equity Cash Flow (LE mn) Jun-08 Jun-09 Jun-10 Jun-11
Short-Term Debt 317.3 307.4 331.3 293.9 NOPAT 1.7 97.9 117.1 115.1
Current Portion Of Long-Term Debt 25.8 18.9 21.3 18.9 Depreciation & Amortization 116.2 117.9 128.8 138.0
Accounts Payable 45.8 47.9 52.0 55.4 Gross Cash Flow (COPAT) 117.8 215.7 245.9 253.0
Accrued Expenses 0.0 0.0 0.0 0.0 WI Change (497.4) (31.5) (143.9) (106.8)
Down Payments to Customers 0.1 0.1 0.1 0.1 Other Current Items 55.8 2.0 0.0 0.0
Taxes Payable 17.0 0.0 0.0 0.0 Cash After Current Operations (323.8) 186.2 102.0 146.3
Dividends Payable 13.0 13.0 13.0 13.0 Financing Payments (52.7) (78.2) (72.8) (67.8)
Other Spontaneous Finance 0.0 0.0 0.0 0.0 Cash Before Long-Term Use (376.5) 108.0 29.2 78.5
Other Current Liabilities 85.2 85.2 85.2 85.2 Net Plant Change (1,014.6) (42.9) (2.8) (3.0)
Total Current Liabilities 504.3 472.5 502.9 466.4 FCFF (1,394.1) 141.3 99.2 143.2
Total Long-Term Debt 91.0 73.3 52.3 33.5 Others 182.6 91.2 113.9 127.6
Other Non-Current Liabilities 9.7 1.2 1.2 0.0 Cash Before Financing (1,208.5) 156.3 140.3 203.0
Long-Term Spontaneous Finance 0.0 0.0 0.0 0.0 Short-Term Debt 315.6 (10.0) 24.0 (37.4)
Total Liabilities 605.0 547.0 556.4 499.9 Long-Term Debt 116.4 1.2 0.2 0.1
Deferred Taxes 15.1 15.1 15.1 15.1 Net-worth 1,215.8 6.4 7.0 7.9
Other Provisions 56.3 90.8 128.0 167.5 Grey Area 35.9 0.0 0.0 0.0
Minority Interest 482.9 482.9 482.9 482.9 Dividends (194.4) (38.3) (42.0) (47.4)
Shareholders' Equity 2,018.5 2,114.3 2,219.2 2,337.7 Change in Cash 280.8 115.6 129.5 126.2
Total Liabilities & Equity 3,177.8 3,250.1 3,401.6 3,502.9

Income Statement (LE mn) Jun-08 Jun-09 Jun-10 Jun-11 Per Share Ratios Jun-08 Jun-09 Jun-10 Jun-11
Revenues 1,154.5 1,269.9 1,371.5 1,453.8 Share Price 4.10 4.10 4.10 4.10
COGS (879.6) (916.8) (995.1) (1,060.1) Actual No. Of Shares '000 251,744 251,744 251,744 251,744
Gross Profits 274.9 353.1 376.4 393.7 New No. Of Shares '000 251,744 251,744 251,744 251,744
SG&A (80.4) (88.4) (95.5) (101.3) EPS 1.16 0.51 0.56 0.63
EBITDA 194.4 264.7 280.9 292.5 Diluted EPS 1.16 0.51 0.56 0.63
Depreciation & Amortization (116.2) (117.9) (128.8) (138.0) Div/Share 0.30 0.15 0.17 0.19
EBIT 78.3 146.8 152.1 154.5 Revenues/Share 4.59 5.04 5.45 5.78
Interest Expense (52.7) (52.4) (53.9) (46.5) Units Sold/Share 2.4 2.2 2.2 2.0
Provisions (31.3) (34.5) (37.2) (39.5) BV/Share 8.02 8.40 8.82 9.29
Interest Income 64.1 86.3 98.9 112.2 Gross Cash Flow/Share 0.47 0.86 0.98 1.01
Investment Income 260.5 15.6 17.1 18.8 FCFF/Share (5.54) 0.56 0.39 0.57
Other Non-Operating Income 9.7 9.7 9.7 9.7 EBITDA/Share 0.77 1.05 1.12 1.16
Other Non-Operating Expenses (11.9) (11.9) (11.9) (11.9) EV/Share 1.22 1.22 1.22 1.22
EBT 316.7 159.6 174.9 197.4
Taxes (22.4) (31.9) (35.0) (39.5)
NPAT 294.3 127.7 139.9 157.9
Multiples Jun-08 Jun-09 Jun-10 Jun-11
Minority Interest (7.5) 0.0 0.0 0.0
P/E 3.5 8.1 7.4 6.5
Extraordinary Items 6.2 0.0 0.0 0.0
Diluted P/E 3.5 8.1 7.4 6.5
Attributable Profits 292.9 127.7 139.9 157.9
Div Yield % 7.3% 3.7% 4.1% 4.6%
P/ Revenue 0.9 0.8 0.8 0.7
EV/ Revenues [ EV/ Rev] 0.3 0.2 0.2 0.2
P/ COPAT 8.8 4.8 4.2 4.1
EV/ COPAT 2.6 1.4 1.2 1.2
P/ FCFF (0.7) 7.3 10.4 7.2
EV/ FCFF (0.2) 2.2 3.1 2.1
P/ EBITDA 5.3 3.9 3.7 3.5
EV/ EBITDA 1.6 1.2 1.1 1.0
P/ BV 0.5 0.5 0.5 0.4
Note: A = Actual; F = Forecasted
Source: ACGC and CICR forecasts

110
 November 11, 2008

EGYPT | BANKS

12M FAIR VALUE | NA*

COMMERCIAL INTERNATIONAL BANK (CIB)

Re-asserting leadership
SHARE DATA
Reuters; Bloomberg COMI.CA/ COMIQ.L;
COMI EY
Commercial International Bank (CIB) has successfully Recent price as of 6-Nov-08 LE 30.73
maintained its position as Egypt’s largest and most profit- No. of O/S shares 292.5 mn
Market cap LE 8,988.5 mn
able private bank. Despite strong inflationary pressures, 52-wk high / low LE 65.99/ LE 23.87
CIB has maintained a cost-to-income ratio of 31.9%. Avg. daily volume / turnover 0.88 mn / LE 46.5 mn
Amidst the global financial crisis, CIB is a bank that deliv-
ers double-digit growth with an ROAE of 42.6% vs. an in- COMPANY SYNOPSIS
dustry average of around 16%. Against the looming Commercial International Bank (CIB) was founded by
global liquidity, CIB is highly liquid with a loans-to- National Bank of Egypt (NBE) and Chase Manhattan Bank
deposits ratio of 53%, holding the leading market share in (CMB) in 1975 under the Open Door Policy. CIB became
the leading private-sector bank in Egypt, providing
both amongst private banks. The stock trades at 2009 diversified services to multinationals along with private-
PER and PBV of only 4.3x and 1.3x, respectively. sector industrial companies. Since its successful IPO in
September 1993, the bank’s stock had represented one of
the blue chips in the Egyptian stock market.

CIB offers a high quality exposure to a full-fledged

Growth across the board with an eye on the capital mar- business varying among corporate and retail banking,
ket: Following a stellar performance in 1H08 where the bal- investment banking, securities brokerage, mutual funds,
ance sheet revealed an 18% expansion in assets to in excess asset management, and insurance.
of LE 56 bn and bottom-line growth of 45% to LE 962 mn, CIB Global finance magazine recently accredited CIB with 3
increased its stake in CI Capital Holding (CICH) from 50.09% awards namely “Best Bank in Egypt”, “Best Trade Finance
Provider in Egypt” and “Best Foreign Exchange Provider in
to 100%. CICH is a full-fledged investment bank with broker- Egypt” for 2008.
age, asset management, investment banking, and research
arms. CIB is currently present with 147 branches and units and
targets 155 by year-end 2008.
Efficient cost-to-income ratio despite slight upward pres-
sures filtered through 1H08: In spite of pressures related to
headcount increase, benefits adjustments, and inflation, the
cost-to-income ratio still settled at a reasonable level of 31.9%.
Loan growth potential, high asset quality: With a CAR ratio
of 12.8% (excluding interim profits), 1H08 showed a net loans- SHAREHOLDER STRUCTURE
to-deposits ratio of 53% - indicative of liquidity - next to a su- Ripplewood Consortium 18.7%
perb asset quality as evident in a 2.8% NPLs/loans ratio and a Free Float 81.3%
167% provisions coverage ratio. As we expect a risk- Total 100.0%
conscious growth in Egypt as inflationary pressures start eas-
ing, CIB is poised to benefit from its strict risk assessment pol-
icy which qualifies it for corner-to-corner loan growth including
corporate, private, SMEs, retail, and mortgage loans. It is
worth highlighting that CIB has neither sub-prime exposure nor
any positions in banks currently under duress.
Regional agenda: CIB’s regional expansion plans include ALIA ABDOUN
Algeria through two phases: (1) filing for the license which had ALIA.ABDOUN@CICH.COM.EG
been done and (2) start of operations pending the Algerian
approval. STOCK PERFORMANCE | 52 WEEKS
Low multiples despite strong performance: CIB currently Volume COMI CASE 30 - rebased
trades at 2009 PER and P/BV of 4.3x and 1.3x versus a LE mn shares
80 5.0
MENA average of 10.6x and 2.2x, respectively. 70 4.5
4.0
60
We forecast YoY earnings growth of 37% for 2008: In line 3.5
50 3.0
with strong 1H08 performance, we expect 2008 to exhibit a 40 2.5
37% growth to LE 1,759.3 mn. We project a 5-year CAGR of 30 2.0
1.5
25% for both net banking income (NBI) and earnings. 20
1.0
10 0.5
0 -
Nov-07

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08

Mar-08

Apr-08
May-08

Aug-08

Sep-08
Oct-08

*We have discontinued making a recommendation or target price on CIB since

CIB now owns 100% of CI Capital.

111
 November 11, 2008
EGYPT | BANKS | CIB

Balance Sheet (In LE mn) Dec-07 Dec-08 Dec-09 Dec-10 Profitability & Efficiency Ratios Dec-07 Dec-08 Dec-09 Dec-10
Assets Net Interest Margin (NIM) 3.23% 3.53% 3.81% 4.23%
Cash & Due from Banks 4,953.2 7,665.0 8,177.8 8,979.0
RoAA 3.01% 3.27% 3.26% 3.66%
Interbank Assets 13,883.2 14,401.7 14,562.9 15,054.7
T-Bills & Government Securities 2,951.6 3,784.5 4,737.3 5,999.8
RoAE 34.62% 37.54% 34.20% 33.86%
Net Trading Investments 683.8 892.8 1,004.9 1,131.0 Cost/Income 31.11% 34.23% 32.80% 31.54%
Available for Sale Investments 2,286.2 3,674.0 4,216.1 4,838.0 Earning Assets / Total Assets 85.46% 82.37% 82.45% 82.53%
Brokers-Debit Balances 122.9 227.1 255.9 289.9
Reconcilation Accounts 21.1 5.8 6.5 7.4 Productivity & Asset Quality Ratios Dec-07 Dec-08 Dec-09 Dec-10
Net Loans & Advances 20,478.6 25,919.7 30,322.4 35,133.1
Held-to-Maturity Investments 443.9 494.7 557.3 631.6 Net Loans / Customer Deposits 51.88% 51.90% 53.70% 55.25%
Investments in Subsidiaries 90.7 70.2 70.2 70.2 Interbank Ratio 5.8 6.0 8.5 11.5
Accrued Income & Other Assets 1,035.2 1,442.5 1,616.0 1,820.9 Liquid Assets / Total Deposits 62.72% 60.91% 57.91% 56.62%
Deferred Tax 51.9 25.8 28.9 32.6 Assets Utilization 10.03% 10.28% 10.29% 10.80%
Net Fixed Assets 620.2 909.7 1,459.6 1,913.5 Capitalization Ratio 8.48% 8.91% 10.11% 11.42%
Good Will 140.6 260.4 260.4 260.4
NPLs / Total Loans 3.00% 2.80% 2.80% 2.80%
Total Assets 47,763.2 59,774.0 67,276.2 76,162.0
Provision Coverage Ratio 166.3% 176.7% 176.5% 175.3%
Liabilities and Shareholders' Equity
Growth & Market Ratios Dec-07 Dec-08 Dec-09 Dec-10
Interbank Liabilities 2,378.6 2,400.3 1,713.3 1,309.1
Customer Deposits 39,476.1 49,941.7 56,466.3 63,589.3 Net Loans Growth 17.3% 26.6% 17.0% 15.9%
Accrued Expenses & Other Liabilities 798.4 827.3 832.3 889.4
Customer Deposits Growth 25.1% 26.5% 13.1% 12.6%
Brokers-Credit Balances 162.4 234.3 260.2 290.3
EPS (LE) * 6.59 6.01 7.09 8.97
Reconcilation Accounts 1.3 0.0 0.0 0.0
Dividends Payable 336.7 486.4 594.2 728.0 P/E 7.0x 5.1x 4.3x 3.4x
Provisions 397.9 441.0 499.0 559.2 DPS (LE) 1.00 1.00 1.25 1.50
Medium-/Long-Term Loans 161.4 119.7 108.2 97.7 Dividend Yield 2% 3% 4% 5%
Debt Securities 0.0 0.0 0.0 0.0 Retroactive BV/Share (LE) 13.85 18.20 23.26 29.74
Total Liabilities 43,712.7 54,450.6 60,473.4 67,463.0 P/BV 2.2x 1.7x 1.3x 1.0x
Paid-in Capital 1,950.0 2,925.0 2,925.0 2,925.0 * EPS based on NPAUI
Reserves 2,095.2 2,389.7 3,859.5 5,745.2
** Cost/Income is based on Total non interest expense/ Total interest & non-interest income
Retained Earnings 0.0 0.0 0.0 0.0
Minority Interest 5.3 8.7 18.2 28.7
Source: CIB and CICR forecasts
Tier I Capital 4,045.2 5,314.7 6,784.5 8,670.2
Tier II Capital 0.0 0.0 0.0 0.0
Total Shareholders' Equity 4,050.5 5,323.4 6,802.8 8,699.0
Total Liabilities & Shareholders' Equity 47,763.2 59,774.0 67,276.2 76,162.0
Contingent Liabilities 11,529.0 13,664.4 15,985.4 18,700.6
Total Footing 59,292.2 73,438.3 83,261.5 94,862.6

Income Statement (In LE mn) Dec-07 Dec-08 Dec-09 Dec-10

Total Interest Income 2,998.4 3,574.9 4,320.4 5,105.4

Interest Paid to Clients & Banks 1,797.8 1,938.1 2,258.6 2,520.5
Net Interest Income (NII) 1,200.5 1,636.7 2,061.8 2,584.9
Provisions 251.0 317.0 357.2 377.6
Net Interest Income AP 949.5 1,319.8 1,704.6 2,207.3
Fees and Commissions Income 665.2 883.1 1,071.8 1,289.0
Investment Income 71.5 274.5 355.1 444.2
Foreign Exchange Income 167.8 384.2 518.9 615.5
Other Incomes 374.6 410.4 273.4 293.6
Ownership profits from subidiary company 0.0 0.0 0.0 0.0
Non-Interest Income 1,279.2 1,952.2 2,219.2 2,642.4
Operating Income (BP) 2,479.7 3,589.0 4,281.0 5,227.2
Operating Income (AP) 2,228.7 3,272.0 3,923.8 4,849.7
G&A Expenses and Depreciation 697.7 973.7 1,171.3 1,393.1
Other Expenses 73.6 254.9 232.7 255.7
Non-Interest Expense 771.4 1,228.7 1,404.0 1,648.8
Net Operating Income 1,457.4 2,043.3 2,519.8 3,200.9
Taxation 170.1 282.9 436.7 566.2
NPAT 1,287.3 1,760.5 2,083.1 2,634.7
Unusual Items 1.3 5.0 0.0 0.0
Net Profit Before Minority Interest 1,288.5 1,765.5 2,083.1 2,634.7
Minority Interest -2.7 -6.3 -9.5 -10.5
Net Profit After Minority Interest 1,285.8 1,759.3 2,073.6 2,624.2
Less: Non-Appropriation Items 0.0 193.9 228.5 289.2
Net Attributable Income (NAI) 1,285.8 1,565.4 1,845.0 2,335.0

112
 November 11, 2008

EGYPT | BANKS

12M FAIR VALUE | LE 15.32

CREDIT AGRICOLE EGYPT (CAE)
BUY | MODERATE RISK
Cheap rating as growth re-ignites
SHARE DATA

Reuters; Bloomberg [CIEB.CA; CIEB EY]

Recent price as of 6-Nov-08 LE 10.31
Crédit Agricole Egypt (CAE) is a successful medium sized No. of O/S shares 287.0 mn
Egyptian bank with an asset base of LE 22 bn and a NIM Market cap LE 2,959.0 mn
of 2.7%, generating a ROAE of 26% vs. a market average 52-wk high / low LE 28.48/ LE 8.94
Avg. daily volume / turnover 0.29 mn / LE 6.7 mn
of 16%, amid concerns of a global recession. Despite
global liquidity issues, CAE is highly liquid with a loans-
to-deposits ratio of only 35% which it plans to expand in COMPANY SYNOPSIS
an under-penetrated and profitable market. The bank’s
stock trades at projected 2009 PER and PBV of 4.9x and Crédit Agricole Indosuez-Egypt started operations in 2001
1.5x, respectively. Our DCF-based 12-month fair value im- when it acquired, along with El Mansour & El Maghraby for
Investment & Development (MMID) 93.3% of Crédit
plies a 49% upside potential, therefore we rate it BUY with International d’Egypte (CIE), previously owned by Crédit
MODERATE RISK. Commercial de France (CCF) and the National Bank of
Egypt (NBE).

Gifted good; capturing the fundamentals: 1H08 witnessed
tapering growth largely due to a one-off expense related to the
restructuring cost of an interest rate SWAP transaction worth
LE 48 mn. Yet, we believe CAE enjoys the necessary funda-
mentals to have a growth story. Apart from its high profitability
ratios, CAE enjoys a reasonable asset quality including an
NPLs/loans ratio of 6.5%, a provisions coverage ratio of 91%,
and a CAR of 19.3% as of 1H08. With one-off costs behind,
we believe CAE will start showing an improvement in 2009.
In 2005, Crédit Agricole Indosuez-Egypt merged with
Crédit Lyonnais (Egypt Branch), thus jointly founding
CALYON Bank-Egypt, this came after France’s Crédit
Agricole acquired France’s Crédit Lyonnais. In February
2006, Crédit Agricole Group along with MMID acquired
74.6% of Egyptian American Bank (EAB).
Based on the decision of the EGM held on June 2006, the
merge of the operations of EAB and CALYON Bank-Egypt
under the name of Crédit Agricole Egypt (CAE) took place
in September 2006.
CAE currently operates a network of 56 branches.

Loan growth opportunities for a highly liquid bank: CAE is

well positioned for loan growth leveraging on a high CAR ratio
of 19.3% and a strong liquidity position through a loans-to-
deposits ratio of only 35%. Its loans portfolio exhibited a
strong expansion of 45% in 1H08. CAE targets full-fledged
loan growth across all LoBs. SHAREHOLDER STRUCTURE
Crédit Agricole S. A. 59.4%
MMID 17.1%
Significant cost-to-income ratio, but benefited from provi- Local institutions 7.0%
sion reversals & tax losses carried forward: 1H08 Retail 16.6%
Total 100.0%
unraveled a cost-to-income ratio of 58.8% (or 48.6% excluding
one-off charges) vs. 48.2% in 1H07. We expect the ratio to
start improving starting 2009 onwards. Counteracting this,
CAE had been benefiting from some positive surprises in its
P&L during 2H07 including provision reversals and nil tax
charges triggered by tax losses carried forward.

Cheap multiples as growth reignites: CAE trades at 2009 ALIA ABDOUN

ALIA.ABDOUN@CICH.COM.EG
PER and P/BV of 4.9x and 1.5x compared to a MENA average
of 10.6x and 2.2x, respectively.
STOCK PERFORMANCE | 52 WEEKS
Valuation and recommendation: We lowered our 12M target Volume CIEB CASE 30 - rebased
to LE 15.3/share mainly due to (1) a higher risk-free rate on LE mn shares
30 6.0
the back recent hikes in benchmark rates by the Central Bank
of Egypt (CBE) and (2) a higher risk premium to reflect the 25 5.0

ongoing global financial crisis and potential consequences on 20 4.0

Egypt. Still, the stock offers a 49% upside potential, urging us 15 3.0
to maintain our BUY recommendation with its MODEARATE 10 2.0
RISK rating. 5 1.0
0 -
Nov-07

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08

Mar-08

Apr-08
May-08

Aug-08

Sep-08
Oct-08

113
 November 11, 2008
EGYPT | BANKS | CAE

Balance Sheet (In LE mn) Dec-07 Dec-08 Dec-09 Dec-10 Profitability & Efficiency Ratios Dec-07 Dec-08 Dec-09 Dec-10

Assets Net Interest Margin (NIM) 2.99% 2.90% 3.05% 3.12%

Cash & Due from Banks 1,703.9 2,691.4 3,076.0 3,523.0 RoAA 2.81% 2.30% 2.29% 2.30%
Interbank Assets 10,700.1 10,722.5 11,191.1 12,053.9 RoAE 35.18% 31.67% 32.53% 34.13%
T-Bills & Government Securities 3,421.1 2,438.5 3,155.7 3,850.0 Cost/Income 49.25% 50.20% 44.09% 43.04%
Earning Assets / Total Assets 89.84% 86.86% 86.94% 87.02%
Net Trading Investments 223.8 301.7 339.6 382.2
Available for Sale Investments 46.1 88.0 107.0 130.0 Productivity & Asset Quality Ratios Dec-07 Dec-08 Dec-09 Dec-10
Net Loans & Advances 4,662.3 7,471.1 9,432.2 11,574.4
Held-to-Maturity Investments 232.6 263.6 321.2 371.0 Net Loans / Customer Deposits 24.89% 34.95% 38.10% 40.30%
Investments in Subsidiaries 25.3 25.7 25.7 25.7 Interbank Ratio 37.6 30.2 30.2 30.2
Accrued Income & Other Assets 334.7 364.7 417.6 479.0 Liquid Assets / Total Deposits 85.91% 75.98% 72.18% 69.42%
Net Fixed Assets 145.7 166.8 196.5 230.9 Assets Utilization 9.29% 8.82% 8.98% 8.93%
Good Will 0.0 0.0 0.0 0.0 Capitalization Ratio 7.32% 7.19% 6.91% 6.61%
Total Assets 21,495.6 24,534.1 28,262.4 32,620.2 NPLs / Total Loans 9.00% 6.16% 4.76% 3.96%
Provision Coverage Ratio 101.0% 94.6% 97.2% 99.0%

Liabilities and Shareholders' Equity Growth & Market Ratios Dec-07 Dec-08 Dec-09 Dec-10
Interbank Liabilities 284.9 355.0 370.5 399.1
Customer Deposits 18,735.2 21,376.7 24,756.3 28,720.6 Net Loans Growth 27.9% 60.2% 26.2% 22.7%
Customer Deposits Growth 36.5% 14.1% 15.8% 16.0%
Accrued Expenses & Other Liabilities 434.7 562.5 618.9 689.1
EPS (LE) * 1.83 1.84 2.11 2.44
Dividends Payable 336.8 337.2 416.2 497.1
P/E 5.6x 5.6x 4.9x 4.2x
Provisions 130.8 138.3 147.7 157.4
DPS (LE) 1.00 1.00 1.25 1.50
Medium-/Long-Term Loans 0.0 0.0 0.0 0.0
Dividend Yield 10% 10% 12% 15%
Debt Securities 0.0 0.0 0.0 0.0 Retroactive BV/Share (LE) 5.48 6.15 6.80 7.52
Total Liabilities 19,922.4 22,769.7 26,309.6 30,463.3 P/BV 1.9x 1.7x 1.5x 1.4x
Paid-in Capital 1,148.0 1,148.0 1,148.0 1,148.0 * EPS based on NPAUI
Reserves 162.2 353.5 541.9 746.0 ** Cost/Income is based on Total non interest expense/ Total interest & non-interest income
Retained Earnings 262.9 262.9 262.9 262.9 Source: CAE and CICR forecasts
Tier I Capital 1,573.2 1,764.4 1,952.8 2,156.9
Tier II Capital 0.0 0.0 0.0 0.0
Total Shareholders' Equity 1,573.2 1,764.4 1,952.8 2,156.9
Total Liabilities & Shareholders' Equity 21,495.6 24,534.1 28,262.4 32,620.2
Contingent Liabilities 16,363.6 10,581.6 12,862.0 15,633.9
Total Footing 37,859.2 35,115.7 41,124.5 48,254.1

Income Statement (In LE mn) Dec-07 Dec-08 Dec-09 Dec-10

Total Interest Income 1,320.7 1,572.6 1,820.5 2,093.5

Interest Paid to Clients & Banks 811.7 971.4 1,102.7 1,245.3
Net Interest Income (NII) 509.1 601.2 717.8 848.3
Provisions -57.4 -3.2 23.0 40.3
Net Interest Income AP 566.5 604.4 694.8 808.0
Fees and Commissions Income 196.1 229.3 266.5 306.5
Investment Income 50.2 9.2 10.1 11.1
Foreign Exchange Income 77.1 144.0 173.2 199.2
Other Incomes 85.7 74.9 100.5 107.1
Non-Interest Income 409.0 457.3 550.3 623.9
Operating Income (BP) 918.1 1,058.5 1,268.2 1,472.2
Operating Income (AP) 975.6 1,061.7 1,245.1 1,431.9
G&A Expenses and Depreciation 449.0 494.5 556.4 630.7
Other Expenses 3.2 36.9 2.7 2.9
Non-Interest Expense 452.2 531.4 559.2 633.6
Net Operating Income 523.4 530.4 686.0 798.3
Taxation 0.0 2.0 81.4 97.1
NPAT 523.4 528.4 604.6 701.2
Unusual Items 0.5 0.1 0.0 0.0
NPAUI 523.9 528.4 604.6 701.2
Less: Non-Appropriation Items 0.0 50.2 57.4 66.6
Net Attributable Income (NAI) 523.9 478.2 547.1 634.6

114
 November 11, 2008

EGYPT | FOOD & BEVERAGES

12M FAIR VALUE | LE 32.8

DELTA SUGAR
BUY | LOW RISK
Sugar beet leader taps the bio-fuel market
SHARE DATA

Reuters; Bloomberg SUGR.CA; SUGR EY

Recent price as of 6-Nov-08 LE 22.00
Delta Sugar (SUGR) is the local market leader in sugar
No. of O/S shares 98.7 mn
beet manufacturing. The company managed over the last Market cap LE 2,170.3 mn
three years to operate above 100% utilization rate, while 52-wk high / low LE 64.7/ LE 13.11
Avg. daily volume / turnover 0.18 mn / LE 7.08 mn
maintaining a low finished goods inventory level at year-
ends. With a global market that started to use agricultural
crops for the production of bio-fuel, SUGR is conducting COMPANY SYNOPSIS
feasibility studies for the establishment of an ethanol unit Delta Sugar was established in 1978 as an Egyptian joint
to start operations in 2010. We estimate said new revenue stock company under the provision of investment law No.
stream directed to exports will add 3% increase to our 230 of 1989 amended by Investment Guarantees and
Incentives Law No. 8 of 1997 for the manufacturing of
DCF 12-month fair value to LE 32.8/share, which implies a sugar beet and its byproducts namely molasses and
49% upside potential, hence we rate it a BUY at LOW fodder. SUGR contracts with farmers during the last
quarter of the year for the quantity supplied of beet as it
RISK. does not own cultivated lands and starts production from
February to June, During its off-season period extending
from July to December, SUGR refines raw sugar for others
An ongoing study for the establishment of an ethanol in exchange of a fee. SUGR operates one factory located
in Kafr El-Sheikh comprising of two production lines with a
unit with an initial capex of US$15 mn, a new revenue combined annual production capacity of 245K tons of
stream directed to the export market. With rising oil prices sugar beet, 100K tons of molasses and 100K tons of
fodder.
and the global trend towards bio-fuel usage, SUGR is con-
ducting feasibility studies for the establishment of an ethanol The company is the second key player in the Egyptian
unit located in its current factory. According to its recent study, sugar market occupying 19% market share in 2007
following Sugar and Integrated Industries Co. (SIIC) - the
the unit will start operations by 2010 with an initial production sole sugar cane producer-while occupying the lion's share
capacity of 10k tons of ethanol manufactured from molasses in sugar beet manufacturing with a market share of 48% in
2007.
and an initial investment cost of US$15 mn, entirely financed
from the shareholders' equity. SUGR's authorized capital is LE 1 bn and an issued and
paid-in capital of LE 493,252,500 distributed over
Investment update: SUGR has currently frozen its expansion 98,650,500 shares at a par value LE 5/share.
for the establishment of a new sugar beet factory in Sharkia as SHAREHOLDER STRUCTURE
the company did not obtain the regulatory approvals for the Sugar & Integrated Industries C 55.7%
required land. Said freeze will jeopardize SUGR's market Misr Insurance Company 13.0%
Public Banks 9.6%
share in view of the entry of new capacities, namely Nubaria Egyptian Endowment Auth. 6.4%
Sugar - 30% owned by SUGR - which started operations in KIMA 6.3%
2008, Dakahlia Sugar's expansion of a second production line, Free Float 9.1%
Total 100.0%
and the Greenfield Nile Sugar starting in 2010.
Growth drivers: As sugar is a strategic commodity with an
inelastic demand, SUGR's revenues will grow at a 4-year
CAGR of 14% over 2008-2012 with sugar beet sales leading
the lion's share contributing with an average 72% of the sales
mix.
Risks: SUGR has encountered a harsh 2008 season due to MIRETTE MOHAMED GHOZZI
MIRETTE.GHOZZI@CICH.COM.EG
the shortage of beet crop as farmers converted to wheat culti-
vation, enjoying a higher procurement price. Hence, sugar
STOCK PERFORMANCE | 52 WEEKS
beet companies raised the beet procurement price for the fol-
lowing season, implying a 38% increase in beet costs per 1 Volume SUGR CASE 30 - rebased
ton of sugar. Said increase will be partially passed on through LE mn shares
70 1.8
selling prices with the other part absorbed by the company, 1.6
60
pressuring SUGR's margins downward. 1.4
50
1.2
Valuation and recommendation: SUGR stock is traded at 40 1.0
8.9x expected 2009 earnings compared to a peer average of 30 0.8
0.6
10.2x. In our DCF, we used a WACC of 14.5%, suggesting a 20
0.4
49% upside potential to LE 32.8/share. This valuation takes 10 0.2
into account the establishment of the ethanol unit which would 0 -
Nov-07

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08

Mar-08

Apr-08
May-08

Aug-08

Sep-08
Oct-08

add 3% upside potential to our valuation. Accordingly, we initi-

ate coverage on the stock with a BUY at LOW RISK.

115
 November 11, 2008
EGYPT | FOOD & BEVERAGES | DELTA SUGAR

Balance Sheet (LE mn) Dec-07 A Dec-08 F Dec-09 F Dec-10 F Cash Flow (LE mn) Dec-07 A Dec-08 F Dec-09 F Dec-10 F
NOPAT 312.9 248.4 223.8 248.7
Assets Dep. & Amor. 33.1 33.9 35.4 36.7
Cash & Cash Equivalent 310.0 427.1 443.5 520.7 COPAT 346.0 282.3 259.2 285.4
Net Receivables 3.1 3.1 4.2 4.4 WI Change (4.3) (2.7) (9.6) (3.5)
Total Inventory 143.1 147.6 178.3 187.7 Other Current Items 16.6 0.0 0.0 0.0
Advance Payments 3.6 10.4 17.1 18.0 CF After Current Oper. 358.3 279.6 249.5 281.8
Other Trading Assets 0.0 0.0 0.0 0.0 Financing Payments (36.2) (4.3) (4.3) (4.3)
Other Current Assets 41.4 41.4 41.4 41.4 Cash Before LT. Use 322.1 275.3 245.3 277.6
Total Current Assets 501.2 629.5 684.5 772.2 Net Plant Change (17.9) (17.1) (80.1) (53.3)
Net Plant 481.6 466.1 510.8 527.4 FCFF 323.8 262.5 169.4 228.6
Long-Term Investments 235.4 240.4 240.4 240.4 Others (16.1) (9.7) 24.6 26.8
Other Trading Non-Current Assets 0.0 0.0 0.0 0.0 CF Before Financing 288.0 248.5 189.8 251.1
Other Non-Current Assets 0.0 0.0 0.0 0.0 Short-Term Debt 0.0 (0.0) 0.0 0.0
Intangibles 0.0 0.0 0.0 0.0 Long-Term Debt (22.7) 0.0 0.0 0.0
Total Assets 1,218.1 1,335.9 1,435.6 1,539.9 Net-worth (37.9) 0.0 0.0 0.0
Grey Area 14.9 39.8 7.2 9.1
Liabilities & Shareholders' Equity Dividends (69.5) (171.1) (180.5) (183.1)
Short-Term Debt 0.0 0.0 0.0 0.0 Change in Cash 172.9 117.1 16.4 77.2
Current Portion of LT Debt 0.0 0.0 0.0 0.0
Accounts Payable 4.0 4.4 7.2 7.6 Fact Sheet Dec-07 A Dec-08 F Dec-09 F Dec-10 F
Accrued Expenses 0.0 0.0 0.0 0.0 ROE 38.3% 26.8% 25.5% 26.4%
Down Payments 64.0 72.1 98.2 104.8 ROS 29.8% 26.5% 19.7% 20.5%
Taxes Payable 0.0 0.0 0.0 0.0 ROA 26.3% 18.0% 17.0% 17.6%
Dividends Payable 171.1 180.5 183.1 203.4 ROIC 35.3% 25.2% 21.2% 22.0%
Other Current Liabilities 91.8 91.8 91.8 91.8 Gross Margin 41.3% 40.1% 27.8% 28.8%
Total Current Liabilities 330.9 348.8 380.3 407.6 EBITDA Margin 40.1% 38.9% 26.6% 27.6%
Total Long-Term Debt 0.0 0.0 0.0 0.0 ATO 0.9x 0.7x 0.9x 0.9x
Other Non-Current Liab. 0.0 0.0 0.0 0.0 WI/ Sales 7.6% 9.3% 7.6% 7.4%
Total liabilities 330.9 348.8 380.3 407.6 Net Debt/EBITDA (0.7x) (1.2x) (1.3x) (1.4x)
Deferred Taxes 15.0 24.8 31.5 40.2 Debt/ Tangible Equity 0.4x 0.4x 0.4x 0.4x
Other Provisions 35.5 65.5 65.9 66.4 Current Ratio 1.5x 1.8x 1.8x 1.9x
Minority Interest 0.0 0.0 0.0 0.0
Shareholders' Equity 836.7 896.9 957.9 1,025.7 Per-Share Ratios (LE) Dec-07 A Dec-08 F Dec-09 F Dec-10 F
Total Liabilities & Equity 1,218.1 1,335.9 1,435.6 1,539.9 Share Price 22.00 22.00 22.00 22.00
Recent no. of shares (000) 98,651 98,651 98,651 98,651
EPS 3.25 2.44 2.47 2.75
Income Statement (LE mn) Dec-07 A Dec-08 F Dec-09 F Dec-10 F DPS 1.35 1.37 1.39 1.55
Revenues/Share 10.90 9.22 12.53 13.38
Revenues 1,075.5 909.9 1,236.5 1,320.2 BV/Share 8.48 9.09 9.71 10.40
COGS (630.8) (544.6) (892.9) (940.1) Gross Cash Flow/Share 3.51 2.86 2.63 2.89
Gross Profits 444.7 365.3 343.6 380.0 FCFF/Share 3.28 2.66 1.72 2.32
SG&A (13.2) (11.0) (15.0) (16.0) EBITDA/Share 4.37 3.59 3.33 3.69
EBITDA 431.5 354.4 328.6 364.0 EV/Share 18.86 17.67 17.50 16.72
Dep. & Amort. (33.1) (33.9) (35.4) (36.7)
EBIT 398.4 320.5 293.3 327.4
Interest Expense (10.4) (4.3) (4.3) (4.3) Multiples Dec-07 A Dec-08 F Dec-09 F Dec-10 F
Provisions (0.4) (30.0) (0.4) (0.5) P/E 6.8x 9.0x 8.9x 8.0x
Interest Income 5.7 12.0 12.3 14.6 Div Yield % 6.1% 6.2% 6.3% 7.0%
Investment Income 4.0 4.0 4.0 4.0 P/ Revenue 2.0x 2.4x 1.8x 1.6x
Net Other Non-Operating Inc./(Exp.) 8.7 8.7 8.7 8.7 EV/ Revenues 1.7x 1.9x 1.4x 1.2x
EBT 406.0 310.9 313.6 349.9 P/ COPAT 6.3x 7.7x 8.4x 7.6x
Taxes (85.5) (72.0) (69.5) (78.7) EV/ COPAT 5.4x 6.2x 6.7x 5.8x
NPAT 320.5 238.9 244.1 271.2 P/ FCFF 6.7x 8.3x 12.8x 9.5x
Minority Interest 0.0 0.0 0.0 0.0 EV/ FCFF 5.7x 6.6x 10.2x 7.2x
Extraordinary Items 0.3 1.8 0.0 0.0 P/ EBITDA 5.0x 6.1x 6.6x 6.0x
Attributable Profits 320.8 240.7 244.1 271.2 EV/ EBITDA 4.3x 4.9x 5.3x 4.5x
P/ BV 2.6x 2.4x 2.3x 2.1x
Source: Company reports and CICR estimates.

116
 November 11, 2008

EGYPT | FOOD & BEVERAGES

12M FAIR VALUE | LE 306

EASTERN COMPANY (EC)
BUY | LOW RISK
Back to a defensive company
SHARE DATA
Reuters; Bloomberg EAST.CA; ESTC EY
Recent price as of 5-Nov-08 LE 217.99
Eastern Company (EC) is a state monopoly tobacco pro- No. of O/S shares 25.0 mn
Market cap LE 5,449.8 mn
ducer in Egypt, producing its own brands with an 83% 52-wk high / low LE 530/ LE 177.91
market share. The remaining balance is covered by for- Avg. daily volume / turnover 0.02 mn / LE 5.8 mn
eign brands also produced in EC through toll manufactur-
ing for international producers. Owing to the non-cyclical
nature of its goods, demand is expected to be maintained COMPANY SYNOPSIS
in the future. Yet, importing tobacco leaves remains the
Eastern Company (EC) is a state monopoly tobacco pro-
company's main concern. EC is expected to grow its net ducer with an 83% local market share for its own branded
income at a 5-year CAGR of 11%. Trading at 7x 2008/09 portfolio and the balance also catered through EC's toll
manufacturing for foreign producers like Philip Morris (PM),
earnings vs. a peer average of 12.6x, EC is trading at a British American Tobacco (BAT) and International Tobacco
45% discount. We reached a 12-month DCF fair value of and Cigarette Company (ITCC) of Jordan. Its product
LE 306, implying a 40% upside potential, hence we reiter- range includes cigarettes, water pipe tobacco, cigars and
minced tobacco. EC operates 20 factories in Giza, Tal-
ate our BUY recommendation at LOW RISK. beya, Alexandria, Monouf, Tanta, and Assuit. Currently,
EC is establishing a new integrated industrial complex in
the Sixth of October City over a land with a size of 357
acres. Total estimated investment cost of the said complex
A defensive producer of a strategic commodity: Ciga- is LE 3.2 bn. EC's major raw material is imported tobacco
leaf, which represents about 60% of EC's total cost. For-
rettes (a cheap source of pleasure) are considered a strategic bidden by law from growing tobacco in Egypt, EC imports
commodity in Egypt where a healthy growth potential for the all its needs of tobacco leaves from Zimbabwe, Malawi,
tobacco business is provided even if the economy slows. China, India, Europe and Brazil. Lately when the COMESA
agreement became effective, EC started importing 35% of
Given the inelastic demand for its products, we expect top-line its leaf requirements from the COMESA region. EC is
to maintain its growth post the recently-announced September subject to the volatility in the cultivation environment, price
fluctuations of the imported tobacco leaf, in addition to the
price increase of LE 0.25/pack on eight local brands. How- intensifying exposure to FX risk.
ever, a slight shift from foreign to local brands is anticipated
this year in the wake of May 5 measures which applied an
average of 22% sales tax on the former versus only 11% on
the latter.
Relocation to a new complex late 2010: Currently, EC is
SHAREHOLDER STRUCTURE
establishing a new industrial complex in the Sixth of October
Holding Co. for Chemical Ind. 52.8%
City with an estimated capex of LE 3.2 bn. New production Empl. Shareholders' Assoc. 5.3%
techniques will be fully implemented once the factories are Public sector 4.7%
relocated, resulting in higher cost savings. Going forward, we Free Float 37.2%

believe demand for tobacco will be sustained, driven mostly

by a low health awareness, a growing population, and in-
creasing smoking habits among youth in the 15-35 age
bracket, 34% of Egypt’s population.
An acquisition target? British American Tobacco (BAT), an
international tobacco manufacturer, was said to be interested INGY EL-DIWANY
in Egyptian and Algerian cigarette monopolies as reported INGY.ELDIWANY@CICH.COM.EG
early 2008. BAT has effected a few M&A deals in 2008 for
Turkish and Scandinavian tobacco companies, executed at an
STOCK PERFORMANCE | 52 WEEKS
average of 11.3x 2007 EBITDA. We believe there is no inten-
tion to sell EC in the short- to medium-term having postponed Volume EAST CASE 30 - rebased
the establishment of its real estate company - prerequisite to LE mn shares
600 0.8
privatization - to manage the sale of its LE 2 bn-worth land 0.7
500
plots till relocation is completed. 0.6
400 0.5
Valuation and recommendation: We lowered our DCF 300 0.4
valuation by 40% to LE 306/share vs. our previous 12-month 0.3
200
fair value of LE 508/share dated November 28, 2007. This 0.2
100
mainly came as a result of the 300-bps increase in risk-free 0.1
rate and market risk premium apiece used in our DCF model 0 -
Nov-07

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08

Mar-08

Apr-08

Sep-08

Oct-08

in addition to the inclusion of debt and lease needed to fi-

nance the expansions. Our 12 month value under the sale of
land scenario is LE 386/share. EC is traded at 7x 2008/09
earnings vs. a peer average of 12.6x, a 45% discount.

117
 November 11, 2008
EGYPT | FOOD & BEVERAGES | EASTERN COMPANY

Balance Sheet (LE mn) Jun-08 A Jun-09 P Jun-10 P Jun-11 P Cash Flow (LE mn) Jun-08 A Jun-09 P Jun-10 P Jun-11 P
Assets NOPAT 1,314 803 834 930
Cash & Cash Equivalent 224 726 746 1,080 Depreciation & Amortization 161 161 164 167
Net Receivables 36 33 35 37 Gross Cash Flow (COPAT) 1,475 964 998 1,097
Total Inventory 2,043 2,054 2,085 2,151 WI Change (351) 7 (13) (56)
Advance Payments to Suppliers 0 0 0 0 Other Current Items 18 27 25 27
Other Trading Assets 0 0 0 0 Cash After Current Operations 1,142 999 1,011 1,068
Other Current Assets 0 0 0 0 Financing Payments (28) (48) (192) (178)
Total Current Assets 2,304 2,814 2,866 3,268 Cash Before Long-Term Use 1,113 951 819 891
Net Plant 3,288 3,679 4,010 4,085 Net Plant Change (1,406) (553) (495) (242)
Long-Term Investments 53 53 53 53 FCFF (282) 419 491 799
Other Trading Non-Current Assets 0 0 0 0 Others 4 27 28 29
Other Non-Current Assets 49 52 55 58 Cash Before Financing (288) 425 353 678
Intangibles 0 0 0 0 Short-Term Debt 538.4 (538.4) 0.0 0.0
Total Assets 5,694 6,598 6,984 7,463 Long-Term Debt 0 600 0 0
Net-worth 328 39 40 45
Liabilities & Shareholders' Equity Grey Area (24) 0 0 0
Short-Term Debt 538 0 0 0 Dividends (710) (24) (372) (389)
Current Portion Of Long-Term Deb 0 120 120 120 Change in Cash (156) 502 20 334
Accounts Payable 208 220 234 242
Accrued Expenses 90 92 98 101 Fact Sheet Jun-08 A Jun-09 P Jun-10 P Jun-11 P
Down Payments to Customers 9 10 10 11 ROE 28.2% 25.1% 22.2% 22.2%
Taxes Payable 1,086 1,086 1,086 1,086
ROS 19.7% 19.4% 18.6% 20.2%
Dividends Payable 24 372 389 443
ROA 13.2% 11.9% 11.3% 12.1%
Other Spontaneous Finance 0 0 0 0
ROIC 34.5% 18.6% 18.0% 18.5%
Other Current Liabilities 467 494 520 547
Gross Profit Margin 31.1% 30.7% 30.1% 31.6%
Total Current Liabilities 2,423 2,395 2,457 2,550 EBITDA Margin 29.1% 28.7% 28.2% 29.6%
Total Long-Term Debt 0 480 360 240 ATO 0.7 0.6 0.6 0.6
Other Non-Current Liabilities 0 0 0 0 WI/ Sales 46.4% 43.7% 41.8% 41.0%
Long-Term Spontaneous Finance 0 0 0 0 ALEV 2.1 2.1 2.0 1.8
Total Liabilities 2,423 2,875 2,817 2,790 Debt/ Tangible Networth 0.9 0.9 0.8 0.7
Deferred Taxes 241 244 246 248 Current Ratio 1.0 1.2 1.2 1.3
Other Provisions 363 363 363 363
Minority Interest 0 0 0 0 Per Share Ratios Jun-08 A Jun-09 P Jun-10 P Jun-11 P
Shareholders' Equity 2,667 3,117 3,559 4,062 Share Price 217.99 217.99 217.99 217.99
Total Liabilities & Equity 5,694 6,598 6,984 7,463 Actual No. Of Shares '000 25,000 25,000 25,000 25,000
EPS 30.1 31.3 31.6 36.1
Diluted EPS 30.1 31.3 31.6 36.1
Income Statement (LE mn) Jun-08 A Jun-09 P Jun-10 P Jun-11 P Div/Share 14.0 14.9 15.5 17.7
Net Sales 3,819 4,041 4,249 4,473 Revenues/Share 152.8 161.7 170.0 178.9
COGS (2,633) (2,802) (2,969) (3,062) BV/Share 106.7 124.7 142.3 162.5
Gross Profits 1,186 1,240 1,280 1,411 Gross Cash Flow/Share 59.0 38.6 39.9 43.9
SG&A (76) (80) (84) (89) FCFF/Share -11.3 16.7 19.6 32.0
EBITDA 1,110 1,160 1,196 1,323 EBITDA/Share 44.4 46.4 47.8 52.9
Depreciation & Amortization (161) (161) (164) (167) EV/Share 230.6 212.9 207.3 189.2
EBIT 949 999 1,032 1,155
Interest Expense (28) (48) (72) (58) Multiples Jun-08 A Jun-09 P Jun-10 P Jun-11 P
Provisions (2) (2) (2) (2) P/E 7.3 7.0 6.9 6.0
Interest Income 13 13 14 14 Diluted P/E 7.3 7.0 6.9 6.0
Investment Income 1 1 1 1 Div Yield % 6.4% 6.8% 7.1% 8.1%
Other Non-Operating Income 44 44 44 44 P/ Revenue 1.4 1.3 1.3 1.2
Other Non-Operating Expenses (44) (27) (27) (27) EV/ Revenues [ EV/ Rev] 1.5 1.3 1.2 1.1
EBT 932 978 989 1,127 P/ COPAT 3.7 5.7 5.5 5.0
Taxes (181) (196) (198) (225) EV/ COPAT 3.9 5.5 5.2 4.3
P/ FCFF -19.3 13.0 11.1 6.8
NPAT 751 783 791 901
EV/ FCFF -20.4 12.7 10.6 5.9
Minority Interest 0 0 0 0
P/ EBITDA 4.9 4.7 4.6 4.1
Extraordinary Items 0 0 0 0
EV/ EBITDA 5.2 4.6 4.3 3.6
Attributable Profits 751 783 791 901 P/ BV 2.0 1.7 1.5 1.3
Note: A = Actual; P = Projected
Source: EC and CICR forecasts

118
 November 11, 2008

EGYPT | CHEMICALS

12M FAIR VALUE | LE 50.10

EGYPTIAN FINANCIA & INDUSTRIAL CO. (EFIC)
BUY | LOW RISK
Leading the way through expansion
SHARE DATA
Reuters; Bloomberg EFIC.CA; EFIC EY
Recent price as of 6-Nov-08 LE 29.79
No. of O/S shares 69.3 mn
EFIC is a successful fertilizers company, specialized Market cap LE 2,064.4 mn
mainly in the production of phosphate fertilizers with a 52-wk high / low LE 75/ LE 21.08
70% local market share in SSP. In view of concerns over Avg. daily volume / turnover 0.5 mn / LE 23.29 mn
global recession, we believe slower sales growth would
mostly be driven by selling prices rather than volumes,
thanks to demand inelasticity of fertilizers. Moreover, COMPANY SYNOPSIS
Egypt is the largest country in the Middle East producing Egyptian Financial & Industrial Company (EFIC) is a
high-quality SSP, unlike other countries in the region joint-stock company founded in 1929. EFIC's main
which produce mainly other types of phosphate fertilizers. activities are producing and trading phosphate
fertilizers and chemicals. It produces two main
Hence, we do not expect demand for EFIC’s products to products:
falter. Our DCF-based 12-month fair value indicates a 68%
upside potential to LE 50.1, hence we rate the stock a BUY i. Single super phosphate (SSP) in two forms
powdered (PSSP) and granulated (GSSP)
with LOW RISK. ii. Sulfuric acid.
Locking sulfur cost: Global sulfur prices have decreased by EFIC is the largest producer of phosphate fertilizers
24.7% to US$550/ton in September 2008 vs. US$730 in July in Egypt, dominating around 70% of SSP local
2008. However , EFIC will not benefit from said decline having market sales volume in 2007. Such a market share
takes into account sales from Suez Co. for
locked its sulfur requirements till June 2009 at US$700/ton. Fertilizers Production (SCFP), EFIC's 99.88%-
We believe that EFIC exports’ sales (around 30% of sales) will owned subsidiary.
be slightly affected. On the local front, such a decrease in sul-
EFIC has an authorized capital of LE 700 mn and an
fur prices will not affect EFIC’s local sales, thanks to its 70% issued capital of LE 693 mn, distributed over 69.3
market share of SSP and no price caps levied by the govern- mn shares at a par value of LE 10/share.
ment on phosphate fertilizers. Thus, we believe that local
EBITDA margin will balance the export EBITDA decrease.
New factory expansion: In order to increase its capacity,
EFIC acquired a 256k-sqm land plot in Ain Al-Sokhna through
its wholly-owned subsidiary Suez Company for Fertilizers
Production (SCFP) for LE 38.4 mn. SHAREHOLDER STRUCTURE
Holding Company 25.3%
Diversifying the product mix: EFIC will start the production Banks 12.8%
Insurance Companies 0.9%
of di-calcium phosphate in November 2008 with a total capac- Others 12.0%
ity of 20k tpa, split evenly between the local and export mar- Free Float 49.0%
Total 100.0%
kets.
A new fertilizers project: With six other companies, EFIC
signed a memorandum of understanding (MoU) to establish a
new plant - Egyphos - to produce phosphate fertilizers in
Egypt. The new plant will be established in the city of Edfu in AHMED ABDEL-GHANI
two phases, the first of which has a total investment cost of AHMED.ABDELGHANI@CICH.COM.EG
US$680 mn (split US$300 mn and US$380 mn in equity and
debt, respectively) and an authorized capital of US$1.5 bn.
STOCK PERFORMANCE | 52 WEEKS
Growth drivers: While fertilizers consumption should be
driven in part by population growth, EFIC's revenue growth Volume EFIC CASE 30 - rebased
should be positively affected by its diversified product mix and
LE mn shares
the Government of Egypt's plan to increase arable land over 80 3.0
the coming few years. Moreover, growing demand for bio-fuels 70
2.5
60
will drive demand for fertilizers as farmers look to improve land 2.0
50
productivity and yield. In our opinion, this will be an opportu- 40 1.5
nity for EFIC to take an advantage of, as the company em- 30 1.0
barks on a strategic plan to grow its exports. 20
10 0.5
Valuation and recommendation: Our DCF-based model 0 -
Nov-07

Jan-08

Jun-08

Jul-08

yielded a 12-month fair value of LE 50.1/share, implying a

Dec-07

Feb-08

Mar-08

Apr-08
May-08

Aug-08

Sep-08
Oct-08

68% upside potential. EFIC’s stock is currently traded at 4.5x

2009 expected earnings, a 41% discount to regional peers.
Accordingly, we rate the stock a BUY with LOW RISK.

119
 November 11, 2008
EGYPT | CHEMICALS | EFIC

Balance Sheet (LE mn) Dec-07A Dec-08F Dec-09F Dec-10F Cash Flow Dec-07A Dec-08F Dec-09F Dec-10F
Assets NOPAT 129.2 250.8 488.3 569.3
Cash & Cash Equivalent 69.1 127.3 216.2 246.1 Dep. & Amor. 15.9 21.5 44.3 66.8
Net Receivables 48.0 107.2 183.6 209.2 COPAT 145.1 272.3 532.6 636.1
Total Inventory 110.5 262.7 436.6 489.2 WI Change 14.5 (113.1) (138.0) (44.2)
Advance Payments 3.1 7.5 12.4 13.9 Other Current Items 3.0 0.0 0.0 0.0
Other Current Assets 56.2 56.2 56.2 56.2 CF After Current Oper. 162.6 159.2 394.7 591.9
Total Current Assets 286.9 560.8 905.0 1,014.5 Financing Payments (63.5) (118.9) (100.0) (83.5)
Net Plant 923.4 1,025.4 1,036.8 1,045.4 Cash Before LT. Use 99.0 40.3 294.7 508.3
Long-Term Investments 179.2 195.7 213.8 233.5 Net Plant Change (93.5) (123.5) (55.7) (75.4)
Other Non-Current Assets 1.5 1.5 1.5 1.5 FCFF 66.1 35.7 338.9 516.5
Intangibles 0.0 0.0 0.0 0.0 Others 0.1 4.1 6.7 8.5
Total Assets 1,390.9 1,783.4 2,157.1 2,294.9 CF Before Financing 5.7 (79.1) 245.6 441.4
Short-Term Debt (0.5) 219.4 (22.2) (126.1)
Liabilities & Shareholders' Equity Long-Term Debt 18.5 2.3 (2.5) 0.0
Short-Term Debt 295.6 515.1 492.9 366.7 Net-worth (19.3) (25.5) (55.2) (67.0)
Current Portion Of LTD 60.3 47.2 44.8 44.8 Grey Area 0.2 0.0 0.0 0.0
Accounts Payable 74.5 177.1 294.4 329.8 Dividends (52.9) (58.9) (76.8) (218.3)
Dividends Payable 84.4 132.0 285.3 458.2 Change in Cash (48.3) 58.2 88.9 29.9
Other Current Liabilities 25.0 25.0 25.0 25.0
Total Current Liabilities 539.8 896.3 1,142.4 1,224.5 Fact Sheet Dec-07A Dec-08F Dec-09F Dec-10F
Total Long-Term Debt 175.7 130.9 83.5 38.7 ROE 18.5% 30.0% 52.0% 56.7%
Other Non-Current Liab. 0.0 0.0 0.0 0.0 ROS 22.1% 18.4% 23.4% 25.0%
Total Liabilities 715.5 1,027.2 1,225.9 1,263.2 ROA 8.4% 11.9% 21.3% 24.3%
Deferred Taxes 10.5 10.5 10.5 10.5 ROIC 10.7% 17.3% 31.5% 38.4%
Other Provisions 36.0 36.0 36.0 36.0 Gross margin 36.1% 30.8% 32.5% 33.6%
Minority Interest 0.1 0.1 0.1 0.1 EBITDA Margin 31.3% 27.5% 30.1% 31.3%
Shareholders' Equity 628.7 709.6 884.5 985.1 ATO 0.4 0.6 0.9 1.0
Total Liabilities & Net worth 1,390.9 1,783.4 2,157.1 2,294.9 WI/ Sales 16.6% 17.3% 17.2% 17.1%
ALEV 2.2 2.5 2.4 2.3
Income Statement (LE mn) Dec-07A Dec-08F Dec-09F Dec-10F Debt/ Tangible Networth 1.1 1.4 1.4 1.3
Current Ratio 0.5 0.6 0.8 0.8
Revenues 525.0 1,157.0 1,965.2 2,237.2
COGS (335.6) (800.2) (1,326.4) (1,486.1)
Per-Share Ratios Dec-07A Dec-08F Dec-09F Dec-10F
Gross Profits 189.4 356.8 638.8 751.1
Share Price 29.79 29.79 29.79 29.79
SG&A (25.1) (38.8) (46.9) (51.8)
No. Of Shares '000 69,302 69,302 69,302 69,302
EBITDA 164.4 318.0 591.9 699.4
EPS 1.68 3.07 6.64 8.06
Dep. & Amort. (15.9) (21.5) (44.3) (66.8)
DPS 5.00 1.54 3.32 5.64
EBIT 148.4 296.5 547.6 632.6
Revenues/Share 7.58 16.69 28.36 32.28
Interest Expense (31.5) (58.6) (52.8) (38.7)
BV/Share 9.07 10.24 12.76 14.21
Provisions 0.0 0.0 0.0 0.0
Interest & Investment Income 17.1 19.2 23.3 26.7
Gross Cash Flow/Share 2.09 3.93 7.69 9.18
Other Non-Operating Inc. 1.4 1.4 1.4 1.4
FCFF/Share 0.95 0.51 4.89 7.45
Other Non-Operating Exp. 0.0 0.0 0.0 0.0
EBITDA/Share 2.37 4.59 8.54 10.09
EBT 135.6 258.5 519.5 622.1
EV/Share 36.47 37.95 35.63 32.74
Taxes (19.3) (45.7) (59.3) (63.3)
NPAT 116.3 212.9 460.2 558.7 Multiples Dec-07A Dec-08F Dec-09F Dec-10F
Minority Interest (0.0) 0.0 0.0 0.0
P/E 17.7 9.7 4.5 3.7
Extraordinary Items 0.1 0.0 0.0 0.0
Dividend Yield 16.8% 5.2% 11.1% 18.9%
Attributable Profits 116.4 212.9 460.2 558.7
P/ Revenue 3.9 1.8 1.1 0.9
EV/ Revenues 4.8 2.3 1.3 1.0
P/ COPAT 14.2 7.6 3.9 3.2
EV/ COPAT 17.4 9.7 4.6 3.6

P/ FCFF 31.2 57.9 6.1 4.0

EV/ FCFF 38.2 73.8 7.3 4.4
P/ EBITDA 12.6 6.5 3.5 3.0
EV/ EBITDA 15.4 8.3 4.2 3.2
P/ BV 3.3 2.9 2.3 2.1
Source: Company reports and CICR estimates.

120
 November 11, 2008

EGYPT | PHARMACEUTICALS

12M FAIR VALUE | LE 43.68

EIPICO
BUY | LOW RISK
Expansion underway
SHARE DATA

Reuters; Bloomberg PHAR.CA;PHAR EY

Recent price as of 6-Nov-08 LE 24.50
EIPICO is a successful generic pharmaceutical company. No. of O/S shares 72.1 mn
It is a low-cost producer in a sector of insensitive price Market cap LE 1,766.5 mn
demand, and is cash rich benefiting from high interest 52-wk high / low LE 40.95/ LE 18
Avg. daily volume / turnover 0.07 mn / LE 2.32 mn
rates. In a highly volatile market amid concerns of a
global recession, this company is capable of producing a
steady double-digit growth, and an unrevealed ROE of COMPANY SYNOPSIS
EIPICO was established in 1980 but started
23% versus a WACC of 17.10%. With a PER of just 6x production in 1985. Currently, the company's
2009 earnings it is undemanding to expect this to expand product mix is comprised of 247 products, with a
to 8x. Our DCF led target price indicates some 78% up- generic/under-licensed mix of 80%/20%,
respectively. The largest local private-sector
side to LE 43.68, and our rating therefore is BUY at LOW pharmaceuticals producer, EIPICO’s market share
RISK. hovers around 8%. It also exports to about 64
countries. Currently, EIPICO is in the process of
expanding its factory. EIPICO has two subsidiaries:
the first is the Egyptian International Ampoule
Cash-rich, debt-free: EIPICO should benefit in a high inter- Manufacturing Company (EIACO), a 99.7%
est environment. We also think that EIPICO's growth is robust ownership, and the second is Saudi Arabia-based
even if the economy slows, thanks to the inelastic demand for Universal, a 30% ownership.

its products. Hence, we do not expect demand for its products EIPICO has an authorized capital of LE 850 mn and
to falter; not least that its products are already competitively an issued capital of LE 721 mn, distributed over
priced versus private sector peers. 72.1 mn shares at a par value of LE 10/share.

New factory expansion to start in 2010 with capex of only

LE 80 mn – less than 10% of 2008 revenues: EIPICO's new
expansion plans should require around LE 80 mn in capex
with target start date in 2010. While management has not re-
vealed which products will be produced in the new extension,
we reckon that it will gradually add 30% of incremental reve-
nues starting 2010.
Investments update: EIPICO has discontinued its 98.6%- SHAREHOLDER STRUCTURE
ACDIMA 43.1%
owned subsidiary EIPICO Tech, which was mainly estab- Medical Union Investment 5.6%
lished to develop research of incurable diseases (such as Banks & Insurance Companies 0.4%
AIDS and cancer), due to its high investment cost required. Others 0.2%
Free Float 50.7%
Meanwhile, EIACO started production in July 2007 with an Total 100.0%
authorized capital of LE 200 mn and a paid-in capital of LE 80
mn. EIACO's current capacity is 100 mn ampoules p.a. and is
expected to reach 800 mn ampoules p.a. over the next 3-4
years
Growth drivers: While drug consumption should be driven in
part by population growth, an increasing health awareness
AHMED ABDEL-GHANI
and Egypt's new comprehensive medical insurance program AHMED.ABDELGHANI@CICH.COM.EG
should reflect positively on EIPICO's revenues. Moreover , the
inauguration of Technological Center for Pharmaceutical In- STOCK PERFORMANCE | 52 WEEKS
dustries & Cosmetics (TCPIC), will enhance drug companies
to improve their research and development. Volume PHAR CASE 30 - rebased

LE mn shares
Valuation and recommendation: The stock is traded at a 45 0.9
40 0.8
PER of 6x 2009 expected earnings with a current dividend 35 0.7
yield of 7%, which we think attractive for defensive 5-year 30 0.6
earnings CAGR of 14%. Shorter-term valuation techniques 25 0.5
20 0.4
imply it is undemanding to see the price rise 30% to a 8x 2009 15 0.3
expected earnings, and our DCF-based fair value indicates an 10 0.2
78% upside to LE 43.68/share. Both the shorter-term and 5 0.1
0 -
longer-term valuations are significantly above the 17.10%
Nov-07

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08
Mar-08
Apr-08
May-08

Aug-08

Sep-08

Oct-08

WACC we use. This valuation does not take into account its
30%-owned Saudi operation, which could indicate further up-
side potential when sufficient information is available. Accord-
ingly we rate this stock a BUY at LOW RISK.

121
 November 11, 2008
EGYPT | PHARMACEUTICALS | EIPICO

Balance Sheet (LE Millions) Dec-07 A Dec-08 F Dec-09 F Dec-10 F Cash Flow (LE Millions) Dec-07 A Dec-08 F Dec-09 F Dec-10 F
Assets NOPAT 247.8 277.1 310.7 355.4
Cash & Cash Equivalent 416.9 483.3 582.8 709.0 Depreciation & Amortization 53.1 53.9 56.2 60.8
Net Receivables 227.9 249.0 281.0 323.2 Gross Cash Flow (COPAT) 300.9 331.0 367.0 416.2
Total Inventory 338.8 354.1 395.1 449.2 Working Investments Change (93.6) (38.2) (70.5) (92.8)
Advance Payment to Suppliers 0.0 0.0 0.0 0.0 Other Current Items (10.9) 0.0 0.0 0.0
Other Trading Assets 0.0 0.0 0.0 0.0 Cash After Current Operations 196.4 292.8 296.5 323.4
Other Current Assets 0.0 0.0 0.0 0.0 Financing Payments (2.2) (0.4) 3.0 6.1
Total Current Assets 983.5 1,086.4 1,259.0 1,481.3 Cash Before Long Term Use 194.2 292.4 299.5 329.5
Net Plant 339.4 413.9 436.8 437.7 Net Plant Change (68.3) (109.9) (60.6) (43.3)
Long Term Investments 39.3 39.3 39.3 39.3 FCFF 139.0 182.9 235.9 280.2
Other Trading Non-Current Assets 0.0 0.0 0.0 0.0 Others 48.1 21.3 22.7 23.1
Other Non-Current Assets 27.5 27.5 27.5 27.5 Cash Before Financing 174.0 203.8 261.5 309.3
Intangibles 217.4 198.9 180.4 161.9 Short-Term Debt 0.0 0.0 0.0 0.0
Total Assets 1,607.1 1,765.9 1,942.9 2,147.7 Long-Term Debt 0.0 0.0 0.0 0.0
Networth (22.4) 0.0 0.0 0.0
Liabilities & Shareholders' Equity Grey Area (10.2) 0.0 0.0 0.0
Short-Term Debt 0.0 0.0 0.0 0.0 Dividends (100.7) (137.4) (162.0) (183.2)
Current Portion of Long-Term Debt 0.0 0.0 0.0 0.0 Change in Cash 40.7 66.4 99.5 126.2
Accounts Payable 26.2 24.3 26.9 30.3
Accrued Expenses 0.0 0.0 0.0 0.0 Fact Sheet Dec-07 A Dec-08 F Dec-09 F Dec-10 F
Down Payments to customers 0.0 0.0 0.0 0.0
ROE 21.7% 22.8% 23.1% 23.7%
Taxes Payable 0.0 0.0 0.0 0.0
ROS 27.3% 28.7% 29.0% 29.1%
Dividends Payable 137.4 162.0 183.2 209.7
ROA 14.4% 15.2% 15.4% 15.9%
Other Current Liabilities 73.7 73.7 73.7 73.7
ROIC 21.5% 21.2% 21.0% 21.3%
Total Current Liabilities 237.2 260.0 283.8 313.7
Gross Margin 45.4% 46.0% 46.2% 46.4%
Total Long-Term Debt 0.0 0.0 0.0 0.0
EBITDA Margin 42.9% 43.3% 43.5% 43.7%
Other Non-Current Liabilities 0.0 0.0 0.0 0.0
ATO 0.5 0.5 0.5 0.5
Long-Term Spontaneous Finance 0.0 0.0 0.0 0.0
WI/ Sales 63.6% 61.9% 62.7% 63.3%
Total Liabilities 237.2 260.0 283.8 313.7
ALEV 1.9 1.8 1.7 1.7
Deferred Taxes 73.8 73.8 73.8 73.8
Liabilities/Tangible Networth 0.3 0.3 0.3 0.2
Other Provisions 227.4 255.5 286.6 321.7
Current Ratio 4.1 4.2 4.4 4.7
Minority Interest 0.2 0.2 0.2 0.2
Shareholders Equity 1,068.4 1,176.3 1,298.5 1,438.2 Per Share Ratios Dec-07 A Dec-08 F Dec-09 F Dec-10 F
Total Liab. & Shareholders' Eq. 1,607.1 1,765.9 1,942.9 2,147.7
Share Price 24.50 24.50 24.50 24.50
No. Of Shares (mn) 72.1 72.1 72.1 72.1
Income Statement (LE Millions) Dec-07 A Dec-08 F Dec-09 F Dec-10 F EPS 3.22 3.72 4.16 4.73
Revenues 850.2 935.3 1,035.8 1,171.5 Div/Share 1.70 2.25 2.54 2.91
COGS (incl. marketing expenses) (464.1) (505.0) (557.3) (627.9) Revenues/Share 11.79 12.97 14.36 16.24
Gross Profit 386.1 430.2 478.5 543.6 BV/Share 14.81 16.31 18.00 19.94
G&A (21.6) (25.3) (28.0) (31.6) Gross Cash Flow/Share 4.17 4.59 5.09 5.77
EBITDA 364.4 405.0 450.6 511.9 FCFF/Share 1.93 2.54 3.27 3.88
Depreciation & Amortization (53.1) (53.9) (56.2) (60.8) EBITDA/Share 5.05 5.61 6.25 7.10
EBIT 311.3 351.1 394.4 451.1 EV/Share 18.72 17.80 16.42 14.67
Interest Expense (2.2) (2.2) (2.2) (2.2)
Provisions (25.2) (28.1) (31.1) (35.1) Multiples Dec-07 A Dec-08 F Dec-09 F Dec-10 F
Interest Income 16.5 21.2 22.6 23.0 P/E 7.6 6.6 5.9 5.2
Investment Income 0.0 0.0 0.0 0.0 Div Yield % 7% 9% 10% 12%
Other Non-Operating Income 0.0 0.0 0.0 0.0 P/ Revenue 2.1 1.9 1.7 1.5
Other Non-Operating Expenses 0.0 0.0 0.0 0.0 EV/ Revenues 1.6 1.4 1.1 0.9
Previous year gain/loss (5.0) 0.0 0.0 0.0 EV/ FCFF 9.7 7.0 5.0 3.8
P/ EBITDA 4.8 4.4 3.9 3.5
EBT 295.4 342.0 383.7 436.8
EV/ EBITDA 3.7 3.2 2.6 2.1
Taxes (63.5) (73.9) (83.6) (95.7)
P/ BV 1.7 1.5 1.4 1.2
NPAT 231.9 268.1 300.1 341.1
Source: EIPICO and CICR estimates
Minority Interest 0.2 0.0 0.0 0.0
Extraordinary Items (0.0) 0.0 0.0 0.0
Attributable Profits 232.2 268.1 300.1 341.1

122
 November 11, 2008

EGYPT | STEEL

12M FAIR VALUE | LE 1,502

EZZ AL-DEKHEILA STEEL - ALEXANDRIA (EZDK)
BUY | MODERATE RISK
Company efficiency vs. market deficiency
SHARE DATA

Reuters; Bloomberg IRAX.CA; IRAX EY

Recent price as of 6-Nov-08 LE 896.23
EZDK is the largest integrated steel plant in Egypt and the No. of O/S shares 13.7 mn
lowest cost producer of steel in Egypt and the region, giv- Market cap LE 12,251.5 mn
ing the company an edge with the current expected slow- 52-wk high / low LE 1579.99/ LE 706.02
Avg. daily volume / turnover 0.02 mn / LE 22.89 mn
down in global economies. EZDK has a total capacity of
2.8 mtpa of long and flat steel, with no expansion plans.
With the current turmoil over the short- to medium-term, COMPANY SYNOPSIS
we expect EZDK to face a reduction in utilization rates, yet Al-Ezz Dekheila for Steel - Alexandria (EZDK), previ-
a stable profit margin given the cost-price relationship of ously known as Alexandria National Iron & Steel Com-
its business model. With a WACC of 18%, our DCF model pany (ANSDK), was established in 1982 under the
provisions of law no. 43 as a joint venture between
indicates a 68% upside to a 12-month fair value of LE Egyptian public sector companies, Nippon Kokan,
1,502/share, thus retaining our BUY recommendation at a Kobe Steel & Tomen, and the International Finance
Corporation (IFC). EZDK currently operates under law
MODERATE RISK. no. 8/1997.

Competitive advantage: EZDK is considered the lowest cost EZDK is the largest fully integrated steel factory in
Egypt that produces both long and flat products with a
producer in Egypt with a gross, EBITDA, and net margins of total capacity of 2.8 mtpa, 64% of which is for long
40.2%, 37.8%, and 26%, respectively. Said cost advantage products with flat products making up the balance.
comes on the back of: (1) utilizing iron ore as the main input in
the production process, (2) a higher production per worker Ezz Steel owns a majority stake in EZDK amounting to
(883 tpa vs. an international average of 588 tpa), and (3) a 53.24%, which provided synergies for the whole group,
created a strong entity that is capable of competing both
lower labor cost (US$13/ton in 2006 vs. an international aver- locally and internationally.
age of US$76/ton).
Synergies: EZDK is 53.24% owned by Ezz Steel (ES) in June
2008, resulting in synergies via increasing local market share,
a better world ranking, strong product recognition, and a re-
duction in operational and administrative costs that would en-
hance financial position. SHAREHOLDER STRUCTURE
Growth drivers: Given Egypt's demographics, local construc-
Ezz Steel 53.2%
tion activity will always be the main growth driver for EZDK.
National Investment Bank 10.5%
Yet, we expect the current slowdown in real-estate activity to Misr Insurance Co. 7.8%
result in a mild slowdown in the construction activity which General Petro. Association 4.7%
Banks, Ins Co. and Others 18.6%
should take place over the coming years to fulfill the currently- Free Float 5.2%
contracted real-estate projects. On the global front, we expect
a slowdown in the industrialization process*, resulting in a
lower rate of utilization.
Industry dynamics: Because of international competition, the
expected reductions in inputs' costs* will result in lower selling HANY MOHAMED SAMY, CFM
HANY.SAMY@CICH.COM.EG
prices; yet, margins are expected to be maintained but with
lower bottom line figures.
Government intervention: The recent removal of steel export STOCK PERFORMANCE | 52 WEEKS
tariffs of LE 160/ton should have a positive impact on EZDK, Volume IRAX CASE 30 - rebased
where 15% of production was exported in 1H08. LE mn shares
1,800 1.4
Valuation and recommendation: Our DCF model - using a 1,600 1.2
1,400
perpetual growth rate of 1% and a WACC of 18% - yielded a 1,200
1.0
12-month fair value of LE 1502/share, implying a 68% upside 1,000 0.8
potential. Commodity plays are currently out of favor, but 800 0.6
600
EZDK is part of the steel quasi-monopoly, and maintains a 400
0.4
stable margin. Lower steel prices should therefore stimulate 200 0.2

construction volumes, providing a catalyst. Hence, we reiter- 0 -

Nov-07

Jan-08

Jun-08
Jul-08
Dec-07

Feb-08
Mar-08
Apr-08
May-08

Aug-08
Sep-08
Oct-08

ate our BUY recommendation on EZDK with a MODERATE

RISK rating.

* Please refer to our industry section.

123
 November 11, 2008
EGYPT | STEEL | EZDK

Balance Sheet (LE mn) 2007A 2008F 2009F 2010F Cash Flow (LE mn) 2007A 2008F 2009F 2010F
Assets NOPAT 2,431.8 2,671.4 2,413.3 2,710.8
Cash & Cash Equivalent 1,674.6 514.3 450.7 1,189.7 Depreciation & Amortization 431.7 440.2 452.4 477.2
Net Receivables 326.8 455.2 397.8 433.5 Gross Cash Flow (COPAT) 2,863.5 3,111.6 2,865.7 3,188.1
Total Inventory 1,390.9 2,045.6 1,871.1 2,013.7 Working Investments Change (17.7) (561.0) 172.7 (129.9)
Advance Payment 0.0 0.0 0.0 0.0 Other Current Items 168.1 0.0 0.0 0.0
Other Trading Assets 0.0 0.0 0.0 0.0 Cash After Current Operations 3,013.9 2,550.6 3,038.4 3,058.2
Other Current Assets 0.0 0.0 0.0 0.0 Financing Payments (789.3) (683.3) (635.6) (646.9)
Total Current Assets 3,392 3,015 2,720 3,637 Cash Before Long Term Use 2,224.6 1,867.3 2,402.8 2,411.3
Net Plant 5,664 5,835 5,907 5,983 Net Plant Change (38.0) (611.9) (523.9) (553.8)
Long-Term Investments 62.9 48.9 48.9 48.9 FCFF 2,975.9 1,938.7 2,514.5 2,504.4
Long-Term Loans Receivalbe 6.0 5.7 5.7 5.7 Others 419 (226) 51 136
Other Non-current Assets 0.0 0.0 0.0 0.0 Cash Before Financing 2,605.6 1,029.2 1,929.9 1,993.5
Intangibles 0.0 0.0 0.0 0.0 Short-Term Debt 691.1 (570.1) (58.9) 332.1
Total Assets 9,125 8,905 8,681 9,675 Long-Term Debt (214.5) (90.2) 0.0 0.0
Networth (816.2) 435.8 114.3 128.6
Liabilities & Shareholders' Equity Grey Area (156.4) 472.3 (524.2) 0.0
Short-Term Debt 1,353 783 724 1,056 Dividends (957.7) (2,437.3) (1,524.8) (1,715.1)
CP of Long Term Debt 376.2 372.1 372.1 372.1 Change in Cash 1,151,769 (1,160,300) (63,625) 739,079
Accounts Payable 427.4 628.5 574.9 618.7
Accrued Expenses 44.7 65.8 60.2 64.8
Down Payments 0.0 0.0 0.0 0.0 Fact Sheet 2007A 2008F 2009F 2010F
Taxes Payable 579.9 140.7 140.7 140.7 ROE 70.4% 62.8% 41.2% 39.4%
Dividends Payable 478.8 0.0 0.0 0.0 ROS 26.0% 23.9% 21.2% 22.0%
Royalties Payables / Due to Sister Co. 5.4 5.4 5.4 5.4 ROA 25.2% 33.0% 26.3% 26.6%
Other Current Liabilities 22.5 22.5 22.5 22.5 ROIC 34.2% 33.6% 30.6% 30.7%
Total Current Liabilities 3,288 2,018 1,900 2,280 Gross Profit Margin
Total Long-Term Debt 2,064.7 1,602.4 1,230.3 858.3 EBITDA Margin 37.8% 34.9% 31.9% 32.7%
Other Non-Current Liabilities 460.0 85.9 0.0 0.0 ATO 1.0 1.4 1.2 1.2
Total Liabilities 5,813 3,706 3,130 3,139 WI/ Sales 14.1% 14.7% 15.2% 15.1%
ALEV 2.8 1.9 1.6 1.5
Deferred Taxes 0.0 472.6 0.0 0.0
Liabilities/Networth 1.8 0.8 0.6 0.5
Other Provisions 51.9 51.6 0.0 0.0
Current Ratio 1.0 1.5 1.4 1.6
Minority Interest 0.0 0.0 0.0 0.0
Shareholders' Equity 3,260 4,675 5,551 6,536
Per-Share Ratios 2007A 2008F 2009F 2010F
Total Liab. & Equity 9,125 8,905 8,681 9,675
Share Price 896.23 896.23 896.23 896.23
No. Of Shares (000) 13,668 13,668 13,668 13,668
Income Statement (LE mn) 2007A 2008F 2009F 2010F
EPS 22.96 29.37 22.87 25.72
Sales 8,826 12,295 10,774 11,708
DPS 14.25 19.58 15.25 17.15
Cost of Sales (5,279) (7,764) (7,121) (7,643) Revenues/Share 88.26 122.94 107.73 117.07
Gross Profit 3,547 4,531 3,653 4,065 Capacity/Share N/A N/A N/A N/A
SG&A (208) (246) (215) (234) BV/Share 32.60 46.74 55.51 65.36
EBITDA 3,339 4,285 3,437 3,831 Gross Cash Flow/Share 28.63 31.11 28.66 31.88
Depreciation & Amortization (432) (440) (452) (477) FCFF/Share 29.76 19.39 25.14 25.04
EBIT 2,908 3,845 2,985 3,354 EBITDA/Share 33.39 42.85 34.37 38.31
Interest Expense (294) (307) (264) (275) EV/Share 143.7 144.9 141.2 133.5
Provisions 0 0 0 0
Interest Income 109 30 34 33 Multiples 2007A 2008F 2009F 2010F
Investment Income 0 0 0 0 P/E 39.0 30.5 39.2 34.8
Other Non-Operating Income 216 103 103 103 Dividend Yield 2% 2% 2% 2%
Other Non-Operating Expenses (6) 0 0 0 P/ Revenue 10.2 7.3 8.3 7.7
EBT 2,931 3,671 2,858 3,215 EV/ Revenues 1.6 1.2 1.3 1.1
Taxes (635) (734) (572) (643) P/ COPAT 31.3 28.8 31.3 28.1
NPAT 2,296 2,937 2,287 2,572 EV/ COPAT 5.0 4.7 4.9 4.2
Minority Interest 0 0 0 0 P/ FCFF 30.1 46.2 35.6 35.8
Extraordinary Items 0 0 0 0 EV/ FCFF 4.8 7.5 5.6 5.3
Attributable Profits 2,296 2,937 2,287 2,572 P/ EBITDA 26.8 20.9 26.1 23.4
EV/ EBITDA 4.3 3.4 4.1 3.5
P/ BV 27.5 19.2 16.1 13.7

Note: A = Actual; F = Forecasted

Source: EZDK and CICR forecasts

124
 November 11, 2008

EGYPT | STEEL

12M FAIR VALUE | LE 34.2

EZZ STEEL (ES) BUY | MODERATE RISK

The long-term vision SHARE DATA

Ezz Steel (ES) is a leading local and regional steel pro-
ducer with a 63% local market share. Even with the cur-
rent global economic slowdown, ES is taking a longer-
term perspective by expanding its capacities from a cur-
rent 5.3 mtpa to 8 mtpa over the coming five years. Over
the short- to medium-term, we expect ES to face a reduc-
tion in utilization rates, yet a stable profit margin, given
the cost-price relationship of its business model. With a
WACC of 18%, our DCF model indicates a 212% upside to
a 12-month fair value of LE 34.2/share, thus retaining our
BUY recommendation with a MODERATE RISK.
More acquisitions: Continuing its expansion strategy, ES
increased its stake in Ezz Al-Dekheila for Steel - Alexandria
(EZDK) from 50.28% in December 2007 to 53.24% in June
2008 to increase its stake in EZDK's earnings, and to enhance
the decision making process.
More long-term expansions: From a longer term perspec-
tive, ES is in the process of expanding capacities, both locally
and regionally. Local expansion is intended to: (1) increase flat
steel production by 0.8 mtpa and (2) replace the 0.55 mtpa of
imported billets with locally-produced ones to enhance profit
margins and reduce FX exposure. Regional expansion of 3
mtpa is intended to diversify markets to mitigate risks. Said
expansions will take place over the coming five years, with a
total estimated investment cost of US$3 bn.
Expansion financing: During 3Q08, ES increased its capital
via a 2-to-1 rights issue, representing 11% of total expansion
Reuters; Bloomberg ESRS.CA; /AEZDq.L |
ALES EY
Recent price as of 6-Nov-08 LE 10.95
No. of O/S shares 543.3 mn
Market cap LE 5,948.7 mn
52-wk high / low LE 38.53/ LE 8.11
Avg. daily volume / turnover 1.34 mn / LE 35.29 mn
COMPANY SYNOPSIS
Ezz Steel (ES) - previously known as Al-Ezz Steel Re-
bars Co. (ESR) - is a joint stock company established in
April 1994, to manufacture steel rebars in Sadat City. In
1995, ES acquired 90.7% of National Al-Baraka for Iron &
Steel, - currently known as Al-Ezz Rolling Mills (ERM) -
which produces straight and coiled rebars in 10th of
Ramadan. ES facilities in Sadat and 10th of Ramadan
have a combined production capacity of 1.4 mn tpa.
Furthermore, ES owns 75.15% stake in Al-Ezz Flat Steel
(EFS), which was established in July 1998 under the
provisions of Law no. 8 (free zone systems), with a ca-
pacity of 1.2 mn tpa of flat steel, most of which is directed
to the export markets. EFS is planning to increase capac-
ity by an additional 0.8 mn tpa by 2011.
ES owns a 53.24% stake in Al-Ezz Dekheila for Steel-
Alexandria (EZDK), previously known as Alexandria
National Iron & Steel Company (ANSDK). EZDK is the
largest integrated steel plant in Egypt with a capacity of
1.78 mn tpa of long products and 1 mn tpa of flat prod-
ucts.
ES is expanding regionally in Algeria with an additional 3
mn tpa of steel rebars. Finally, ES is planning to produce
internally the imported billets as to enhance profitability
margins.

costs with internal financing and external debt making up the Said structure created a strong entity that is capable of
balance. As ES has an excellent credit history, local banks will competing both locally (63% market share for long and
flat products) and internationally (ranged within the top 60
not be reluctant to finance expansions. Additionally, cost of steel producers worldwide
machinery will be financed by the supplier via selling to ES on
installment bases. SHAREHOLDER STRUCTURE
Al-Ezz Holding 38.1%
Growth drivers: Given Egypt's demographics, local construc- Egy Int'l Com Invest Co. 11.2%
tion activity will always be the main growth driver for ES. Yet, Egy Int'l Ind Invest 7.4%
Dev Co For Metal Invest 7.4%
we expect the current slowdown in real-estate activity to result Banks, Ins Co. and others 1.1%
in a mild slowdown in the construction activity which should Free Float 34.8%
take place over the coming years to fulfill the currently-
contracted real-estate projects. On the global front, we expect
a slowdown in the industrialization process,* resulting in a
lower rate of utilization. HANY MOHAMED SAMY, CFM
HANY.SAMY@CICH.COM.EG
Industry dynamics: Because of international competition, the
expected reductions in inputs' costs* will result in lower selling STOCK PERFORMANCE | 52 WEEKS
prices; yet, margins are expected to be maintained but with Volume ESRS CASE 30 - rebased
lower bottom line figures. mn shares
LE
45 6.0
Government intervention: The recent removal of steel export 40
5.0
tariffs of LE 160/ton should have a positive impact on ES, 35
30 4.0
where 24% of production was exported in 1H08. 25
3.0
20
Valuation and recommendation: Our DCF model - using a 15 2.0
perpetual growth rate of 1% and a WACC of 18% - yielded a 10
1.0
12-month fair value of LE 34.2/share, implying a 146% upside 5
0 -
potential. Commodity plays are currently out of favor, but ES is
Nov-07

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08

Mar-08

Apr-08
May-08

Aug-08

Sep-08
Oct-08

a quasi-monopoly steel producer, and maintains a stable mar-

gin. Lower steel prices should therefore stimulate construction
volumes, providing a catalyst. Hence, we reiterate our BUY
recommendation on ES with a MODERATE RISK rating.
* Please refer to our industry section
125
 November 11, 2008
EGYPT | STEEL | EZZ STEEL

Balance Sheet (LE mn) 2007A 2008F 2009F 2010F Cash Flow (LE mn) 2007A 2008F 2009F 2010F
Assets NOPAT 2,715 3,712 2,739 3,462
Cash & Cash Equivalent 1,891.8 2,477.8 1,777.8 1,777.8 Depreciation & Amortization 659 695 726 818
Net Receivables 265.4 378.0 331.3 367.2 Gross Cash Flow (COPAT) 3,374 4,407 3,465 4,280
Total Inventory 2,547.6 3,644.2 3,271.7 3,514.7 Working Investments Change 215 (700) 215 (133)
Advance Payment 125.3 184.1 165.2 177.5 Other Current Items (43) (264) 0 0
Other Trading Assets 0.6 18.8 18.8 18.8 Cash After Current Operations 3,546 3,442 3,680 4,147
Other Current Assets 157.2 367.6 367.6 367.6 Financing Payments (1,529) (2,409) (2,043) (1,706)
Total Current Assets 4,988 7,070 5,932 6,224 Cash Before Long Term Use 2,016.93 1,033 1,636 2,441
Net Plant 10,601 11,338 13,543 16,947 Net Plant Change (18) (1,432) (2,930) (4,222)
Long-Term Investments 63.0 55.9 55.9 55.9 FCFF 3,528 2,010 749 (75)
Long-Term Loans Receivalbe 189.3 5.7 0.0 0.0 Others 346 (95) 185 174
Other Non-current Assets 6.3 0.4 0.4 0.4 Cash Before Financing 2,345 (494) (1,109) (1,607)
Intangibles 0.0 315.2 315.2 315.2 Short-Term Debt (203) (1,271) 141 1,346
Total Assets 15,848 18,786 19,847 23,542 Long-Term Debt 891 1,549 325 325
Networth (1,292) (662) (1,061) (1,175)
Liabilities & Shareholders' Equity Grey Area (474) 1,435 1,129 1,267
Short-Term Debt 1,370 99 240 1,586 Dividends (58) 29 (125) (155)
CP of Long Term Debt 1,901.1 1,616.4 1,167.3 1,167.3 Change in Cash 1,209 586 (700) 0
Accounts Payable 701.3 954.0 856.5 920.1 Note: A = Actual; F = Forecasted
Accrued Expenses 113.9 167.3 150.2 161.4 Source: ES and CIBC forecasts
Down Payments 616.3 877.9 769.3 852.8 Fact Sheet 2007A 2008F 2009F 2010F
Taxes Payable 615.8 593.0 593.0 593.0 ROE 31.4% 30.2% 18.6% 20.2%
Dividends Payable 137.2 328.5 328.5 328.5 ROS 6.9% 7.9% 6.7% 8.2%
Royalties Payables / Due to Sister Co. 5.4 1.9 1.9 1.9 ROA 7.1% 9.7% 6.9% 7.8%
Other Current Liabilities 148.3 72.2 72.2 72.2 ROIC 21.2% 25.2% 17.1% 17.7%
Total Current Liabilities 5,609 4,711 4,179 5,683 Gross Profit Margin 26.7% 24.4% 22.5% 24.9%
Total Long-Term Debt 3,892.1 3,824.7 2,982.2 2,139.7 EBITDA Margin 24.4% 22.1% 20.2% 22.6%
Other Non-Current Liabilities 708.9 754.7 754.7 754.7 ATO 1.0 1.2 1.0 0.9
WI/ Sales 10.5% 9.6% 9.9% 9.5%
Total Liabilities 10,210 9,290 7,916 8,578
ALEV 4.4 3.1 2.7 2.6
Deferred Taxes 0.0 0.0 0.0 0.0
Liabilities/Networth 2.9 1.5 1.1 0.9
Other Provisions 91.7 91.7 91.7 91.7
Current Ratio 0.9 1.5 1.4 1.1
Minority Interest 1,970.9 3,405.7 4,534.9 5,801.8
Shareholders' Equity 3,575 5,998 7,304 9,071
Total Liab. & Equity 15,848 18,786 19,847 23,542 Per-Share Ratios 2007A 2008F 2009F 2010F
Share Price 10.95 10.95 10.95 10.95
Income Statement (LE mn) 2007A 2008F 2009F 2010F
No. Of Shares (000) 543,261 543,261 543,261 543,261
Sales 16,159 23,016 20,225 22,359 EPS 2.1 3.3 2.5 3.4
COGS x-dep (11,852) (17,410) (15,673) (16,792) DPS 0.3 0.3 0.2 0.3
Gross Profit 4,308 5,606 4,552 5,568 Revenues/Share 29.7 42.4 37.2 41.2
SG&A (371) (528) (464) (513) Capacity/Share N/A N/A N/A N/A
EBITDA 3,937 5,078 4,088 5,055 BV/Share 6.6 11.0 13.4 16.7
Depreciation & Amortization (659) (695) (726) (818) Gross Cash Flow/Share 6.2 8.1 6.4 7.9
EBIT 3,278 4,383 3,362 4,236 FCFF/Share 6.5 3.7 1.4 -0.1
Interest Expense (710) (508) (427) (539) EBITDA/Share 7.2 9.3 7.5 9.3
Provisions (6) 0 0 0 EV/Share 20.7 16.6 15.8 16.7
Interest Income 67 37 32 27
Investment Income (0) 0 0 0 Multiples 2007A 2008F 2009F 2010F
Other Non-Operating Income 246 147 147 147 P/E 5.3x 3.3x 4.4x 3.3x
Other Non-Operating Expenses 0 0 0 0 Dividend Yield 3% 3% 2% 3%
EBT 2,875 4,060 3,114 3,871 P/ Revenue 0.4 0.3 0.3 0.3
Taxes (653) (812) (623) (774) EV/ Revenues 0.7 0.4 0.4 0.4
NPAT 2,222 3,248 2,491 3,097 P/ COPAT 1.8 1.3 1.7 1.4
Minority Interest (1,100) (1,435) (1,129) (1,267) EV/ COPAT 3.3 2.0 2.5 2.1
Extraordinary Items 0 0 0 0 P/ FCFF 1.7 3.0 7.9 79.3-
Attributable Profits 1,122 1,813 1,362 1,830 EV/ FCFF 3.2 4.5 11.4 (120.9)
P/ EBITDA 1.5 1.2 1.5 1.2
EV/ EBITDA 2.8 1.8 2.1 1.8
P/ BV 1.7x 1.0x 0.8x 0.7x

Source: Company reports and CICR estimates

126
 November 11, 2008

EGYPT | OIL & GAS

12M FAIR VALUE | US$5.1

MARIDIVE & OIL SERVICES (MOS)
BUY | MODERATE RISK
Competitive global player
SHARE DATA
Maridive & Oil Services (MOS) sustained earnings growth
with its fleet size growing from 3 vessels and 4 mooring Reuters; Bloomberg MOIL.CA; MOIL EY
Recent price as of 6-Nov-08 US$ 2.57
boats in 1979 to 57 marine units in 2008. MOS continues No. of O/S shares 256.0 mn
to grow its fleet, having contracted for 16 new marine Market cap US$ 0,657.9 mn
units, as well as upgrading its existing fleet to meet de- 52-wk high / low US$ 7.3/ US$ 2.3
Avg. daily volume / turnover 0.73 mn / US$ 1.75 mn
mand. MOS’s projects are global – with 80% of its reve-
nues generated outside Egypt. Its share price, however,
seems to have been suffering from waning oil prices, a COMPANY SYNOPSIS
risk - therefore - of lower E&P demand. Yet, MOS is well Maridive & Oil Services Company (MOS) is a free-zone
placed due to its relatively low-cost structure, offering joint stock company established in 1978. MOS operates
under Investment Law No. 8/1997. The company is located
competitive rates than its peers. As such it trades at 6.5x in Port Said with offices in Cairo, Alexandria, and Abu
2009e PER, and 99% below our SOTP 12-month fair value Dhabi.
of US$5.1/share. We initiate coverage on the stock with a Maridive's major objective is to provide Offshore Support
BUY and MODERATE RISK rating. Vessels (Marine services) and Offshore Construction
Services (Project services) to oil exploration and
production companies. The company's operations are
executed through the mother company as well as its
Global demand: Global demand for oil as a primary source of subsidiaries: Maritide Offshore Oil Services, Valentine
Maritime, and Maridve Offshore Projects (MOP).
energy triggered exploration and production (E&P) activities in
untapped offshore oil and gas reserves. Accordingly, MOS Maridive, with an experience of over 30 years, is currently
the largest Egyptian marine and offshore oil services
contracted for 16 new marine units. company and one of the largest regional players in terms
of fleet size owned. The company owns 57 marine units.
Highly-integrated business model: MOS is a horizontally- The company contracted for 16 marine units (vessels and
integrated company providing offshore construction and sup- barges) which will be gradually delivered by 2011.
port to oil E&P companies. These services cover a wide range Maridive's operations have widely expanded. The group
of both operational and production levels. won a number of contracts in the Gulf region, Persian Gulf,
Caspian Sea, Gulf of Mexico as well as North, West, and
Barriers to entry: There are high barriers prevailing against East Africa in addition to the Far East.
the entrance of potential players into the market owing to the
capital-intensive nature of the industry with high initial invest-
ment and operational costs as well as strong technical capa-
bilities required. Also, MOS has the edge to offer competitive SHAREHOLDER STRUCTURE
daily rates than its competitors owing to its ability to source Offshore Oil Projects 21.4%
Eleish Family 13.2%
labor with lower packages compared to international markets. Zeid Family 13.2%
Nadim Family 13.2%
Risks - global financial crisis and lower oil prices: The CIB 7.1%
global financial crisis may have an impact on MOS's require- Horus PE Fund III 2.9%
ments for financial facilities and foreign currencies to finance Free Float 29.0%
Total 100.0%
its operations and expansion plans. Meanwhile, should oil
prices continue in their downtrend, offshore operations could
reduce their production. Thus, demand for oil services - pro- MOHAMED HAMDY
vided by MOS - may feel the pinch. MOHAMED.HAMDY@CICH.COM.EG

Difficult weather conditions: This industry can be affected

by difficult weather conditions that could damage vessels and
equipment and result in the suspension of operations. The STOCK PERFORMANCE | 52 WEEKS
industry is seasonal depending on the storms that hit the re-
gions in different times. The monsoon hits India, where the Volume MOIL CASE 30 - rebased
US$
bulk of the Far East revenues are generated from, starting 8.0
mn shares
25.0
June till end of September. However, this is mitigated by the 7.0
20.0
company's geographical diversification, such as Australia 6.0
where the monsoon hits from December till early March. It is 5.0 15.0
4.0
worth highlighting that one barge sank in June 2007 south of 10.0
3.0
Pakistan due to the monsoon. 2.0
5.0
1.0
Valuation and recommendation: We used sum-of-the-parts
0.0 -
(SOTP) valuation to value MOS’s businesses. We reached a
Nov-08
Jun-08

Jul-08
May-08

Aug-08

Sep-08

Oct-08

12-month fair value of US$5.1/share, implying a 99% upside

potential and 45% above the IPO price. We initiate coverage
on the stock with a BUY recommendation and MODERATE
RISK.

127
 November 11, 2008
EGYPT | OIL & GAS | MARIDIVE

Balance Sheet (US$ mn) 2007A 2008F 2009F 2010F Cash Flow (US$ mn) 2007A 2008F 2009F 2010F
Assets NOPAT 82.5 78.1 109.8 152.7
Cash 6.3 163.9 170.4 246.7 Depreciation & Amortization 11.6 16.0 21.8 28.1
Time Deposits 3.1 4.1 5.5 7.5 Gross Cash Flow (COPAT) 94.1 94.1 131.6 180.8
Net Receivables 98.9 81.9 113.6 158.3
WI Change (28.0) (0.3) (15.3) (18.1)
Total Inventory 5.8 6.0 8.3 12.0
Advance Payments to Suppliers 0.3 0.4 0.5 0.7 Other Current Items (1.1) 31.1 (3.7) (5.3)
Other Trading Assets 0.3 0.3 0.3 0.3 Cash After Current Operations 65.0 124.9 112.6 157.4
Other Current Assets 38.8 10.8 14.6 19.9 Financing Payments (13.4) (28.6) (17.9) (23.6)
Total Current Assets 153.6 267.4 313.2 445.4 Cash Before Long-Term Use 51.6 96.3 94.6 133.7
Net Plant 192.3 326.1 404.0 451.8 Net Plant Change (91.4) (139.8) (99.8) (75.8)
Long-Term Investments 0.0 0.0 0.0 0.0 FCFF (25.3) (46.0) 16.6 86.8
Other Trading Non-Current Assets 1.9 1.9 1.9 1.9 Others 2.4 (0.8) (1.7) (2.3)
Other Non-Current Assets 0.1 0.8 0.8 0.8
Cash Before Financing (37.5) (44.2) (6.9) 55.6
Intangibles 9.8 9.8 9.8 9.8
Short-Term Debt 17.2 (24.5) 0.0 0.0
Total Assets 357.7 606.0 729.8 909.7
Long-Term Debt 49.6 79.3 38.3 13.9
Liabilities & Equity Net-worth (33.5) 114.3 7.8 6.8
Short-Term Debt 24.5 0.0 0.0 0.0 Grey Area 0.2 0.3 0.0 0.0
Current Portion of LT Debt 24.1 9.7 17.6 27.2 Dividends 0.3 32.4 (32.8) 0.0
Accounts Payable 40.8 11.3 15.6 21.2 Change in Cash (3.8) 157.6 6.5 76.3
Accrued Expenses 6.7 11.3 15.6 21.2
Down Payments to Customers 2.1 10.0 20.3 39.6
Fact Sheet 2007A 2008F 2009F 2010F
Taxes Payable 0.0 0.0 0.0 0.0
Dividends Payable 0.3 32.8 0.0 63.7 OCS revenue growth 2.6% -13.4% 30.5% 41.2%
Other Current Liabilities 4.2 7.4 7.4 7.4 OSV revenue growth 22.2% 58.0% 44.8% 25.0%
Total Current Liabilities 102.8 82.4 76.4 180.2 Revenue growth 5.6% -0.6% 34.6% 36.2%
Total Long-Term Debt 64.2 133.8 154.6 141.3
Other Non-Current Liabilities 0.0 0.0 0.0 0.0 OCS gross profit growth 20.8% -13.5% 22.1% 41.1%
Total Liabilities 167.0 216.3 231.0 321.5 OSV gross profit growth 45.9% 57.3% 50.9% 28.3%
Deferred Taxes 0.2 0.0 0.0 0.0 Gross profit growth 25.1% 0.8% 31.2% 36.4%
Other Provisions 1.7 2.1 2.1 2.1
Minority Interest 22.5 33.9 41.7 48.5
Paid-in capital 85.0 102.4 102.4 102.4 OCS EBITDA growth 24.7% -15.6% 22.2% 43.3%
Additional paid-in capital 0.0 85.5 85.5 85.5 OSV EBITDA growth 51.9% 60.9% 54.0% 29.4%
Treasury shares 0.0 0.0 0.0 0.0 EBITDA growth 29.1% -1.2% 32.0% 38.3%
Reserves 11.7 11.7 11.7 11.7
Retained earnings 69.6 154.1 255.3 338.0 Earnings growth 49.8% 5.5% 19.8% 44.6%
Shareholders' Equity 166.3 353.7 454.9 537.6
Total Liab. & Equity 357.7 606.0 729.8 909.7
Revenue mix
Income Statement (US$ mn) 2007A 2008F 2009F 2010F OCS 82.1% 71.5% 69.4% 71.9%
OCS 216.8 187.8 245.1 346.0 OSV 17.9% 28.5% 30.6% 28.1%
OSV 47.3 74.7 108.2 135.2
Revenues 264.1 262.5 353.3 481.3 EBITDA mix
OCS 81.1% 69.2% 64.1% 66.4%
OCS (117.7) (102.1) (140.4) (198.4) OSV 18.9% 30.8% 35.9% 33.6%
OSV (22.3) (35.4) (48.8) (59.1)
Cost of Revenues (including provisions) (140.0) (137.5) (189.2) (257.5) ROE 48.2% 23.9% 22.3% 27.2%
ROA 22.4% 13.9% 13.9% 16.1%
OCS 99.1 85.7 104.7 147.7 ROIC 27.4% 14.7% 16.4% 20.2%
OCS gross margin 45.7% 45.6% 42.7% 42.7%
OSV 25.0 39.3 59.4 76.1 ATO 0.7 0.4 0.5 0.5
OSV gross margin 52.9% 52.7% 54.9% 56.3% WI/ Sales -10.6% -0.1% -4.3% -3.8%
Gross Profit (including provisions) 124.1 125.0 164.0 223.8 ALEV 2.2 1.7 1.6 1.7
Gross Margin 47.0% 47.6% 46.4% 46.5% Liabilities/Networth 1.0 0.6 0.5 0.6
Current Ratio 1.5 3.2 4.1 2.5
OCS (11.4) (11.7) (14.2) (18.1)
As a % of revenues 5.2% 6.2% 5.8% 5.2% Per-Share Ratios 2007A 2008F 2009F 2010F
OSV (4.6) (6.5) (8.7) (10.7) Share Price $2.57 $2.57 $2.57 $2.57
As a % of revenues 9.7% 8.6% 8.1% 7.9% No. of Shares ('000) 256,000 256,000 256,000 256,000
SG&A (16.0) (18.2) (23.0) (28.7)
As a % of revenues 6.0% 6.9% 6.5% 6.0% EPS 0.31 0.33 0.40 0.57
DPS 0.00 0.00 0.00 0.25
OCS 87.7 74.0 90.4 129.6 DIV./NPAUI 0% 0% 0% 44%
OCS EBITDA margin 40.5% 39.4% 36.9% 37.4% Revenues/Share 1.03 1.03 1.38 1.88
OSV 20.4 32.9 50.6 65.5 BV/Share 0.65 1.38 1.78 2.10
OSV EBITDA margin 43.2% 44.0% 46.8% 48.4% Gross Cash Flow/Share 0.37 0.37 0.51 0.71
EBITDA (including provisions) 108.1 106.9 141.0 195.1 FCFF/Share (0.10) (0.18) 0.06 0.34
EBITDA Margin 41.0% 40.7% 39.9% 40.5% EBITDA/Share 0.43 0.43 0.57 0.79
EV/Share 2.97 2.47 2.56 2.24
EBITDA (excluding provisions) 110.6 109.9 145.7 201.2
EBITDA Margin 41.9% 41.9% 41.2% 41.8%
Multiples 2007A 2008F 2009F 2010F
Depreciation & Amortization (11.6) (16.0) (21.8) (28.1) P/E 8.2x 7.8x 6.5x 4.5x
EBIT 96.5 90.8 119.2 167.0 Dividend Yield 0.0% 0.0% 0.0% 9.7%
Interest Expense (3.3) (6.1) (11.4) (10.7) P/ Revenue 2.5x 2.5x 1.9x 1.4x
Interest Income 0.2 1.8 3.4 4.9 EV/ Revenues 2.9x 2.4x 1.9x 1.2x
Investment Income 0.0 0.0 0.0 0.0 P/ FCFF -26.0x -14.3x 39.7x 7.6x
Other Non-Operating Income 0.5 1.3 0.0 0.0 EV/ FCFF -30.1x -13.8x 39.5x 6.6x
Other Non-Operating Exp. (0.1) (0.5) (0.5) (0.5) P/ EBITDA 5.9x 6.0x 4.5x 3.3x
EBT 93.8 87.2 110.7 160.7 EV/ EBITDA 6.9x 5.8x 4.5x 2.8x
Taxes (1.7) (1.4) (1.7) (2.3) P/ BV 4.0x 1.9x 1.4x 1.2x
NPAT 92.2 85.9 109.0 158.3 Source: Maridive and CICR forecasts
Minority Interest (12.3) (11.4) (7.8) (12.0)
Extraordinary Items 0.2 10.1 0.0 0.0
Net Profits 80.1 84.5 101.3 146.4
Net Margin 30.3% 32.2% 28.7% 30.4%

128
 November 11, 2008

EGYPT | CEMENT

12M FAIR VALUE | LE 153

MISR BENI SUEF CEMENT (MBSC)
BUY | MODERATE RISK
Very cheaply rated versus peer group
SHARE DATA

Reuters; Bloomberg MBSC.CA; MBSC EY

Misr Beni Suef Cement (MBSC), a grey cement producer Recent price as of 6-Nov-08 LE 46.79
since 2003, comprises a mono-production line cement No. of O/S shares 20.0 mn
Market cap LE 935.8 mn
factory of 1.5 mtpa capacity. In view of the imposed li- 52-wk high / low LE 141.49/ LE 45
cense fees of LE 251 mn for its new 1.5 mtpa production Avg. daily volume / turnover 0.03 mn / LE 3.63 mn
line, MBSC booked a significant provision of LE 156 mn in
2007. Yet, MBSC did not pay that fee till date awaiting the COMPANY SYNOPSIS
authorities' reply concerning its appeal stating that Beni
Misr Beni Suef Cement (MBSC) was incorporated under
Suef Cement (Titan Group) won at the auction held in Oc- Law no. 8/1997 in November 1997 as a shareholding
tober 2008 an expansion license in the same governorate company, with the objective of producing all kinds of
for just LE 134.5 mn. The stock is traded at PER of 3.5x cement and all other associated products. In August 1999,
MBSC had its shares listed on the Egyptian Exchange
2009 earnings vs. a peer average of 7.5x, which may imply (EGX).
acquisitive interest. Our DCF-based valuation of LE 152.5/
The company was established with a paid-in capital of LE
share suggests a 226% upside potential with a BUY at 120 mn distributed over 12 mn shares at a par value of LE
MODERATE RISK rating. 10/share. Currently, MBSC has an authorized capital of LE
500 mn with a paid-in capital of LE 200 mn distributed over
20 mn shares with a par value of LE 10/share.

New production line: Said new line is expected to release its
initial production by H209, with a required investment cost esti-
mated at LE 1.2 bn.
Overcapacity utilization to be hit by 2010: We expect
MBSC to maintain the same trend, outpacing the market ca-
pacity utilization over 2008-12. Given the new capacities en-
In December 2006, MBSC signed a supplying & installation
contract with the French company Polysius to expand its
daily clinker production to 10k tpd.
MBSC reached 2% local market share in 2007, selling
837k tons and 4% in 8M08, selling 961k tons. Meanwhile,
21% export market share in 2007, exporting 869k tons (c.
51% of production) and 23% in 8M08, exporting 169k tons
(c. 15% of production).

tering the cement market, we expect the 100%+ utilization rate

by MBSC which registered 113% (the third highest rate) in
2007 to be hit gradually to 96% in 2012 - yet still higher than
79% for the market then.
Competitive post ban export price: MBSC was one of the SHAREHOLDER STRUCTURE
first two companies permitted to export to Sudan during the 6- Top Management 20.5%
National Investment Bank 20.1%
month export ban that ended in October 2008. MBSC had Individuals 6.3%
acquired a 16% export market share during April-August 2008, Others 2.6%
failing to obtain a better share relative to others permitted by Free Float 50.5%
Total 100.0%
the same time. We believe MBSC will be able to strengthen its
export market share as exports resumed after the ban at
US$75/ton - a competitive price compared to other local play-
ers exporting at a minimum of US$85/ton.
Temporary cost advantage: MBSC did not pay the LE 35.1/
cement ton produced clay resource development fees till date, GHADA REFKY
awaiting for the authorities to reply to its appeal stating that (1) GHADA.REFKY@CICH.COM.EG
clay usage rate used to calculate said fee is incorrect, (2) a
contract with the governorate was established to deliver clay STOCK PERFORMANCE | 52 WEEKS
at a fixed fee of LE 2.25/ton, and (3) several other industries
use clay, such as the ceramics industry and - accordingly - Volume MBSC CASE 30 - rebased

should be charged the same fee as well. 180

LE mn shares
0.5
160
Valuation and recommendation: Based on a cost of equity 140 0.4
of 17.6%, our DCF model resulted in a 12-month fair value of 120
0.3
LE 152.5/share, implying a 226% upside potential. Accord- 100
80
ingly we rate this stock a BUY at MODERATE RISK. 60
0.2

40 0.1
20
0 -
Nov-07

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08
Mar-08
Apr-08

May-08

Aug-08
Sep-08

Oct-08

129
 November 11, 2008
EGYPT | CEMENT | MBSC

Balance Sheet (LE mn) Dec-07 Dec-08 Dec-09 Dec-10 Cash Flow (LE mn) Dec-07 Dec-08 Dec-09 Dec-10
Assets NOPAT 321.0 294.1 284.2 371.0
Cash & Cash Equivalent 548.3 7.8 88.4 427.2 Depreciation & Amortization 63.3 64.7 157.1 190.8
Net Receivables 0.2 0.2 0.4 0.5 Gross Cash Flow (COPAT) 384.3 358.8 441.3 561.7
Total Inventory 30.9 14.8 45.2 119.7 Working Investment Change 14.4 130.6 0.8 (55.6)
Advance Payments 1.4 0.7 2.8 5.4 Other Current Items 17.3 (57.5) (3.4) 0.0
Other Trading Assets 0.0 0.0 0.0 0.0 Cash After Current Operations 416.1 432.0 438.7 506.1
Other Current Assets 0.0 0.0 0.0 0.0 Financing Payments (19.6) (11.6) (5.9) (5.1)
Total Current Assets 580.9 23.6 136.8 552.7 Cash Before Long-Term Use 396.5 420.4 432.8 501.0
Net Plant 776.3 1,477.5 1,562.0 1,421.8 Net Plant Change (244.4) (765.8) (241.6) (50.5)
Long-Term Investments 10.0 0.0 0.0 0.0 FCFF 154.4 (276.4) 200.4 455.5
Other Trading Non-Current Assets 0.0 0.0 0.0 0.0 Others (190.0) 567.1 (39.9) (188.0)
Other Non-current Assets 12.5 0.0 0.0 0.0 Cash Before Financing (37.9) 221.7 151.3 262.5
Intangibles 0.0 0.0 0.0 0.0 Short-Term Debt 5.6 86.3 (45.4) (6.5)
Total Assets 1,379.7 1,501.1 1,698.9 1,974.5 Long-Term Debt 104.7 (177.2) 0.0 0.0
Net Worth (7.7) (0.0) 0.0 0.0
Liabilities & Shareholders' Equity Grey Area (3.2) (20.0) 0.0 0.0
Short-Tem Debt 6.3 92.6 47.2 40.7 Dividends (54.3) (119.5) (93.3) (147.1)
CP Of Long-Term Debt 0.0 0.0 0.0 0.0 Change in Cash 7.2 (8.7) 12.6 108.9
Accounts Payable 54.1 88.8 153.9 197.6
Accrued Expenses 6.7 29.6 40.9 18.1 Fact Sheet Dec-07 Dec-08 Dec-09 Dec-10
Down Payments 13.6 69.9 26.9 27.5 ROE 30.3% 30.6% 26.2% 29.7%
Taxes Payable 0.0 0.0 0.0 0.0 ROS 32.8% 40.5% 27.2% 29.3%
Dividends Payable 67.8 0.0 0.0 0.0 ROA 14.0% 17.2% 15.7% 18.6%
Other Spontaneous Finance 0.0 0.0 0.0 0.0 ROIC 27.3% 22.5% 19.2% 21.4%
Other Current Liabilities 60.9 3.4 0.0 0.0 Gross Margin 69.3% 57.6% 47.5% 47.3%
Total Current Liabilities 209.3 284.3 268.9 283.9 EBITDA Margin 67.4% 55.8% 45.6% 45.4%
Total Long Term Debts 180.6 0.0 0.0 0.0 ATO 0.4 0.4 0.6 0.6
Other Non-Current Liabilities 0.0 0.0 0.0 0.0 WI/ Sales -7.1% -27.0% -17.7% -9.4%
Long Term Spontaneous Finance 0.0 0.0 0.0 0.0 ALEV 2.2 1.8 1.7 1.6
Total Liabilities 389.9 284.3 268.9 283.9 Liabilities/Net worth 0.6 0.3 0.3 0.2
Tax Provision 0.0 0.0 0.0 0.0 Current Ratio 2.8 0.1 0.5 1.9
Other Provisions 351.4 371.4 411.4 451.4
Minority Interest 0.0 0.0 0.0 0.0 Per Share Ratios Dec-07 Dec-08 Dec-09 Dec-10
Shareholders' Equity 638.4 845.3 1,018.5 1,239.2 Share Price 46.79 46.79 46.79 46.79
Total Liabilities & Equity 1,379.7 1,501.1 1,698.9 1,974.5 New No. Of Shares '000 20,000 20,000 20,000 20,000
Actual No. Of Shares '000 20,000 20,000 20,000 20,000
Income Statement (LE mn) Dec-07 Dec-08 Dec-09 Dec-10 EPS 9.66 12.94 13.32 18.39
Capacity '000 Tons 1,500 1,500 2,250 3,000 Diluted EPS 9.66 12.94 13.32 18.39
Tons Sold '000 1,706 1,649 2,258 2,780 DPS 3.39 2.59 4.66 7.36
Revenues 588.3 639.6 980.8 1,255.0 Revenues/Share 29.41 31.98 49.04 62.75
Cost of Goods Sold (180.6) (270.9) (515.3) (661.8) Tons Sold/Share 0.09 0.08 0.11 0.14
Gross Profits 407.7 368.6 465.5 593.3 Capacity/Share 0.08 0.08 0.11 0.15
SG&A (11.0) (11.7) (18.0) (23.0) BV/Share 31.9 42.3 50.9 62.0
EBITDA 396.7 356.9 447.5 570.3 Gross Cash Flow/Share 19.22 17.94 22.07 28.09
Depreciation & Amortization (63.3) (64.7) (157.1) (190.8) FCFF/Share 7.72 -13.82 10.02 22.78
EBIT 333.4 292.2 290.4 379.5 EBITDA/Share 19.84 17.85 22.38 28.51
Interest Expense (3.1) (11.6) (5.9) (5.1) EV/Share 28.72 51.03 44.73 27.47
Provisions (156.5) (40.0) (40.0) (40.0)
Interest Income 0.0 0.2 4.3 18.1 Multiples Dec-07 Dec-08 Dec-09 Dec-10
Investment Income 0.0 0.0 0.0 0.0 P/E 4.84 3.62 3.51 2.54
Other Non-Operating Income 23.8 23.8 23.8 23.8 Diluted P/E 4.84 3.62 3.51 2.54
Other Non-Operating Expenses 0.0 0.0 0.0 0.0 Div Yield % 7.2% 5.5% 10.0% 15.7%
EBT 197.6 264.7 272.6 376.3 P/Revenues 1.59 1.46 0.95 0.75
Taxes (4.5) (6.0) (6.2) (8.5) EV/ Revenues 0.98 1.60 0.91 0.44
NPAT 193.1 258.7 266.5 367.8 P/ COPAT 2.43 2.61 2.12 1.67
Minority Interest 0.0 0.0 0.0 0.0 EV/ COPAT 1.49 2.84 2.03 0.98
Extraordinary Items 0.0 0.0 0.0 0.0 P/ FCFF 6.06 -3.39 4.67 2.05
Attributable Profits 193 259 266 368 EV/ FCFF 3.72 -3.69 4.46 1.21
EV/ Ton 382.89 680.39 397.59 183.11
P/ EBITDA 2.36 2.62 2.09 1.64
EV/ EBITDA 1.45 2.86 2.00 0.96
P/ BV 1.47 1.11 0.92 0.76
Source: Misr Beni Suef Cement & CICR forecast

130
 November 11, 2008

EGYPT | CEMENT

12M FAIR VALUE | LE 99

MISR CEMENT (QENA) (MCQE)
BUY | MODERATE RISK
Strategically placed for acquisitive interest
SHARE DATA
Misr Cement (Qena) (MCQE), a cement producer since
Reuters; Bloomberg MCQE.CA; MCQE EY
2002, comprises a mono-production line cement factory Recent price as of 6-Nov-08 LE 76.99
of 1.5 mtpa capacity, with no revealed intension to ex- No. of O/S shares 30.0 mn
pand locally. Owing to its low capacity, no headway to its Market cap LE 2,309.7 mn
52-wk high / low LE 90/ LE 55
recently announced projects, forecasted significant low Avg. daily volume / turnover 0.02 mn / LE 1.57 mn
debt profile and cash-rich position, we believe MCQE
could be a good acquisition target. ASEC Cement Hold- COMPANY SYNOPSIS
ing has been increasing its stake in MCQE to 26.18% via
Misr Cement (Qena) (MCQE) was incorporated under
direct purchases from the stock market. With an 8% free Law no. 159/1981 in May 1997 as a shareholding
float, MCQE will be a fruitful target if the public stake is company, with the objective of producing and selling all
negotiated to be offered for sale. Although MCQE is kinds of cement and all other related construction products.
In May 2000, MCQE had its shares listed on the Egyptian
traded at a PER of 7.8x 2009 earnings, 8% premium to a Exchange (EGX).
peer average of 7.3x due to current unfavourable mar- The company was established with an authorized capital of
kets' conditions, our DCF-based valuation suggest a 28% LE 600 mn, and an issued and paid-in capital of LE 300
mn distributed over 30 mn shares with a par value of LE
upside potential, hence we assign a BUY with a MODER- 10/share, maintaining said position till date.
ATE RISK rating. MCQE had provided FLSmidth in June 1999 the
mechanical equipment supply, plant management, &
equipment installation of its production line that had a total
Overcapacity utilization to be hit by 2010: We expect capacity of 1.4 mta. The plant had a total investment cost
of LE 750 mn, releasing its production to the market in
MCQE to maintain the same trend, outpacing the market ca- April 2002.
pacity utilization over 2008-12. Given the new capacities en-
The company had provided the technical management, the
tering the cement market with 41% heading to Upper Egypt, maintenance operations & supervising the operation &
we expect the 100%+ utilization rate by MCQE which regis- delivery of the queries' raw materials to Arab Swiss
Engineering Company "ASEC"
tered 119% (the second highest rate) in 2007 to be hit gradu-
ally to 92% in 2012 - yet still higher than 79% for the market MCQE has reached 3% local market share in 2007, selling
1,199k tons and 4% in 8M08, selling 1,019k tons.
then. Meanwhile, 14% export market share was achieved in
Exports heading south: Benefiting from its location in Upper 2007, exporting 585k tons (c. 33% of production) and 41%
in 8M08, exporting 301k tons (c. 23% of production).
Egypt, MCQE exports mainly to Sudan and other neighboring
countries, which we believe is currently a better export market SHAREHOLDER STRUCTURE
than that of Europe given the recent global financial crisis. Asec Cement 26.2%
Misr Insurance 20.1%
Confirming its location advantage (according to figures re- Egyptian Investment Projects 10.0%
leased by the Ministry of Investment), MCQE managed to ob- Egyptian Kuwaiti Investment 9.8%
tain the highest export market share of 71% during April- Al-Ahly Capital Holding Co. 7.5%
Banque Misr 7.5%
August 2008 period over the other players permitted to export Others 10.9%
during the 6-month export ban which ended in October 2008. Free Float 8.0%
Total 100.0%
Permanent cost advantage: In May 2008, a resource devel-
opment fee for clay – an essential raw material for the cement
production process – was imposed on cement producers
amounting to LE 35.1/cement ton produced, which is expected GHADA REFKY
to constitute around 10% of producers' cement cost bill in GHADA.REFKY@CICH.COM.EG
3Q08. Since MCQE's extracted limestone contains the
needed clay, MCQE has secured a cost advantage by not STOCK PERFORMANCE | 52 WEEKS
having to pay said fee.
Volume MCQE CASE 30 - rebased
A new market and a new business: MCQE is eyeing ce- mn shares
LE
ment expansion in Oman and a new phosphate fertilizer pro- 120 0.15

ject in Egypt. Yet, we have not incorporated such develop- 100

ments in our DCF valuation till further details are made avail- 80 0.10
able. 60

Valuation and recommendation: Based on a cost of equity 40 0.05

of 15.7%, our DCF model resulted in a 12-month fair value of 20

LE 98.54/share. This valuation did not incorporate any of the 0 -
Nov-07

Jan-08

Jun-08
Jul-08
Dec-07

Feb-08
Mar-08
Apr-08
May-08

Aug-08
Sep-08
Oct-08

recently-announced projects, which could indicate further up-

side potential. Although trading at higher multiples than its
peers we think it is strategically placed and note the stake
building by ASEC. Accordingly we rate this stock a BUY at
MODERATE RISK.
131
 November 11, 2008
EGYPT | CEMENT | MISR CEMENT (QENA)

Balance Sheet (LE mn) 2007A 2008F 2009F 2010F Fact Sheet 2007A 2008F 2009F 2010F
Assets ROE 43.1% 34.8% 32.3% 25.2%
Cash & Cash Equivalent 293.5 251.4 412.0 571.1 ROS 46.3% 39.1% 43.9% 42.7%
ROA 28.5% 29.2% 27.3% 21.5%
Net Receivables 3.5 3.8 3.5 2.7
ROIC 43.8% 37.3% 29.9% 23.1%
Total Inventory 36.5 47.7 46.6 44.9
Gross Profit Margin 60.0% 56.9% 56.6% 55.9%
Advance Payments 0.3 1.6 1.6 1.5 EBITDA Margin 57.5% 53.4% 53.0% 52.2%
Other Trading Assets 0.0 0.0 0.0 0.0 ATO 0.6 0.7 0.6 0.5
Other Current Assets 0.0 0.0 0.0 0.0 WI/ Sales 0.1% 0.7% 0.7% 0.9%
Total Current Assets 333.8 304.5 463.6 620.2 Net Profit Margin 46% 39% 44% 43%
Net Plant 617.5 603.4 593.5 583.2 ALEV 1.5 1.2 1.2 1.2
Liabilities/Net worth 48% 10% 8% 6%
Long-Term Investments 0.8 0.8 0.8 0.8
Current Ratio 1.3 4.1 6.4 9.3
Other Trading Non-Current Assets 0.1 0.1 0.1 0.1
Other Non-current Assets 19.4 23.4 23.4 23.4
Cash Flow (LE mn) 2007A 2008F 2009F 2010F
Intangibles 0.0 0.0 0.0 0.0
NOPAT 291.5 319.8 302.4 267.8
Total Assets 971.7 932.3 1,081.5 1,227.8 Depreciation & Amortization 39.3 41.1 43.0 44.9
Gross Cash Flow (COPAT) 330.9 360.9 345.4 312.7
Liabilities & Equity Working Investment Change 2.5 (4.3) 0.2 (0.9)
Short-Tem Debt 0.0 1.1 1.0 0.8 Other Current Items 11.2 (11.3) 0.0 0.0
CP Of Long-Term Debt 0.0 0.0 0.0 0.0 Cash After Current Operations 344.6 345.3 345.6 311.8
Accounts Payable 25.3 31.1 30.4 28.3 Financing Payments (3.0) (2.5) (2.5) (2.2)
Accrued Expenses 0.1 0.1 0.1 0.1 Cash Before Long-Term Use 341.6 342.8 343.1 309.6
Down Payments 14.5 17.1 16.6 15.2 Net Plant Change (9.7) (27.0) (33.1) (34.6)
Taxes Payable 2.4 2.4 2.4 2.4 FCFF 323.7 329.6 312.6 277.2
Dividends Payable 177.9 0.0 0.0 0.0 Others (167.8) (9.3) (126.5) (93.4)
Other Spontaneous Finance 0.0 0.0 0.0 0.0 Cash Before Financing 164.1 306.5 183.6 181.6
Other Current Liabilities 33.6 22.4 22.1 20.0 Short-Term Debt 0.0 1.1 (0.1) (0.1)
Long-Term Debt (15.0) 0.0 0.0 0.0
Total Current Liabilities 253.9 74.3 72.6 66.9
Net Worth (46.6) 31.3 14.8 13.2
Total Long Term Debts 0.0 0.0 0.0 0.0 Grey Area (14.2) 0.0 0.0 0.0
Other Non-Current Liabilities 52.1 2.1 0.0 0.0 Dividends (81.5) (341.2) (177.3) (145.2)
Long Term Spontaneous Finance 0.0 0.0 0.0 0.0 Change in Cash 6.7 (2.3) 20.9 49.5
Total Liabilities 305.9 76.4 72.6 66.9
Tax Provision 0.0 0.0 0.0 0.0 Per Share Ratios 2007A 2008F 2009F 2010F
Other Provisions 24.0 74.0 94.0 114.0 Share Price 76.99 76.99 76.99 76.99
Minority Interest 0.0 0.0 0.0 0.0 New No. Of Shares '000 30,000 30,000 30,000 30,000
Shareholders' Equity 641.7 781.9 914.9 1,046.8 Actual No. Of Shares '000 30,000 30,000 30,000 30,000
Total Liabilities & Equity 971.7 932.3 1,081.5 1,227.8 EPS 9.21 9.07 9.85 8.80
Diluted EPS 9.21 9.07 9.85 8.80
DPS 4.96 5.44 5.91 4.84
Income Statement (LE mn) 2007A 2008F 2009F 2010F Revenues/Share 19.91 23.18 22.43 20.60
Capacity '000 Tons 1,500 1,500 1,500 1,500 Units Sold/Share 0.06 0.06 0.05 0.05
Tons Sold '000 1,784 1,759 1,575 1,386 Capacity/Share 0.05 0.05 0.05 0.05
BV/Share 21.4 26.1 30.5 34.9
Revenues 597.3 695.4 673.0 617.9 Gross Cash Flow/Share 11.03 12.03 11.51 10.42
Cost of Goods Sold (239.2) (299.8) (291.9) (272.2) FCFF/Share 10.79 10.99 10.42 9.24
Gross Profits 358.1 395.6 381.1 345.7 EBITDA/Share 11.44 12.38 11.89 10.76
SG&A (15.0) (24.3) (24.5) (22.9) EV/Share 67.21 68.65 63.29 57.98
EBITDA 343.2 371.3 356.6 322.8
Depreciation & Amortization (39.3) (41.1) (43.0) (44.9) Multiples 2007A 2008F 2009F 2010F
EBIT 303.8 330.1 313.7 277.9 P/E 8.35 8.49 7.82 8.75
Interest Expense (0.5) (0.1) (0.1) (0.1) Diluted P/E 8.35 8.49 7.82 8.75
Div Yield % 6.4% 7.1% 7.7% 6.3%
Provisions (21.8) (50.0) (20.0) (20.0)
P/Revenues 3.87 3.32 3.43 3.74
Interest Income 9.1 8.3 12.5 15.4
EV/ Revenues 3.38 2.96 2.82 2.81
Investment Income 0.3 0.0 0.0 0.0 P/ COPAT 6.98 6.40 6.69 7.39
Other Non-Operating Income (Expense 0.7 0.7 0.7 0.7 EV/ COPAT 6.09 5.71 5.50 5.56
FX Gains (Losses) (4.7) (6.5) 0.0 0.0 P/ FCFF 7.14 7.01 7.39 8.33
EBT 287.0 282.5 306.8 273.9 EV/ FCFF 6.23 6.25 6.07 6.27
Taxes (10.5) (10.3) (11.2) (10.0) EV/ Ton 1344 1373 1266 1160
NPAT 276.4 272.2 295.5 263.9 P/ EBITDA 6.73 6.22 6.48 7.16
Minority Interest 0.0 0.0 0.0 0.0 EV/ EBITDA 5.88 5.55 5.32 5.39
Extraordinary Items 0.0 0.0 0.0 0.0 P/ BV 3.60 2.95 2.52 2.21
Source Misr Cement (Qena) & CICR forecast
Attributable Profits 276.4 272.2 295.5 263.9

132
 November 11, 2008

EGYPT | TMT

12M FAIR VALUE | LE 206

MOBINIL
BUY | MODERATE RISK
Two in one: high growth...high dividend yield
SHARE DATA

Reuters; Bloomberg EMOB.CA; EMOB EY

Recent price as of 6-Nov-08 LE 115.37
Mobinil's 3Q08 results proved strong despite macro, regu- No. of O/S shares 100.0 mn
latory, and market challenges. While revenues were in Market cap LE 11,537.0 mn
line, the driver for beating the bottom line forecast was 52-wk high / low LE 243/ LE 87
Avg. daily volume / turnover 0.1 mn / LE 19.18 mn
lower costs, thanks to on-net traffic and a "cost efficiency
program". This helped the company achieve its highest
EBITDA margin in 2 years, albeit not sustainable going COMPANY SYNOPSIS
forward. One of the key investment catalysts for Mobinil Egyptian Company for Mobile Services “ECMS” (Mobinil)
is its high dividend yield of around 14% but with a high was established in November 1997 under the Investment
Law No. 8/1997, granting it a 5-year tax holiday that ended
leverage. Having revised our model, we reached an 8% in December 2003. The company started operation on May
higher DCF value of LE 206 (+79% upside). With the stock 21, 1998, when all the mobile-related assets of Telecom
traded at a 37% discount to EMEA peers, we rate it a BUY. Egypt were sold off to Mobinil Telecommunications
(Mobinil Telecom), a consortium comprised of one local
and two international telecom giants, Orascom Telecom
Holding (OTH), France Telecom Mobiles International
(FTMI), and Motorola, respectively. Mobinil Telecom
Positive results: 3Q08 results beat our and consensus esti- controls ECMS through its 51% combined stake. Early
mates by 26% and 32%, respectively. While no surprise came 2001, ownership of that consortium changed as Motorola
divested its international mobile investments. Accordingly,
on the top-line performance, substantial bottom-line growth both FTMI and OT purchased Motorola’s stake on a pro-
was driven by lower-than-expected cost of revenues and opex, rata basis. In July 2002, FTMI was replaced by Orange as
a shareholder in the consortium, controlling 71.25% of
thanks to on-net traffic growth and a "cost efficiency program". Mobinil Telecom. On April 18, 1998, ECMS was formally
This allowed Mobinil to achieve the highest EBITDA margin in awarded a 15-year license, renewable for a 5-year period
the last 2 years. However, such a level may not be sustainable to operate and expand the existing GSM 900 network. In
2005, ECMS was granted an access to 7.5 mhz of the
going forward due to the 3G 2.5% revenue sharing. We be- 1800 mhz spectrum for a total payment of LE 1.24 bn. In
lieve at least the 45% target in 2008 is achievable. July 2007, Mobinil decided to apply for 3G license for LE
3.4 bn to launch its commercial services in early
Enduring challenges: Blended ARPU stabilized at LE 47 September 2008. ECMS represents today the largest local
GSM mobile operator in the Egyptian market in terms of
QoQ on 5% higher usage. While this elasticity may be seen as subscribers (c. 19 mn subs). ECMS’s network currently
a bear point for those concerned about inflation in Egypt, infla- covers most of the urban areas in Egypt. As of September
2008, Mobinil had 3,691 sites and 34 switches.
tion rates seem to be coming down. In view of the global finan-
cial crisis, Mobinil is adequately liquid despite boasting the
highest net debt/equity ratio of 4.5x; Mobinil’s interest cover-
age ratio stands at a comfortable 4.7x. It had secured all its
financial requirements for 2008 and also has the flexibility to
do so in 2009 due to its low net debt-to-EBITDA of 1.3x vs. an SHAREHOLDER STRUCTURE
industry average of 2x. Mobinil Telecom 51.0%
FT Orange Group 71.3%
Interconnection dispute: TE filed a complaint with the Na- OTH 28.8%
tional Telecom Regulatory Authority (NTRA) to change inter- OTH 20.0%
Free Float 29.0%
connection prices with mobile operators, the result of which Total 100.0%
came in TE’s favor. Mobinil informed the NTRA of its rejection
to the decision citing lack of a legal basis. Mobinil’s manage-
ment confirmed that they will continue with the existing inter- MOHAMED HAMDY
MOHAMED.HAMDY@CICH.COM.EG
connection agreement with TE "for years".
Valuation and recommendation: We revised our model in STOCK PERFORMANCE | 52 WEEKS
view of 3Q08 results and now-lower management guidance for
Volume EMOB CASE 30 - rebased
capex and reached a 12-month fair value of LE 206/share
LE mn shares
(+8% vs. our previous valuation), suggesting a 79% upside. 300 1.4
Should Mobinil maintain its dividend policy - as we believe, a 250 1.2
key investment catalyst for Mobinil would be its high dividend 200
1.0
yield of around 14% vs. an EMEA average of 10.8%. The 150
0.8
stock is traded at a PER of 6.2x 2008 expected earnings, a 0.6
100
37% discount to an EMEA average of 9.8x. As such, we reit- 0.4
50 0.2
erate our BUY recommendation with the same MODERATE
0 -
RISK rating.
Nov-07

Jan-08

Jun-08
Jul-08
Dec-07

Feb-08

Mar-08
Apr-08
May-08

Aug-08
Sep-08

Oct-08

133
 November 11, 2008
EGYPT | TMT | MOBINIL

Balance Sheet (LE mn) 2007A 2008F 2009F 2010F Cash Flow (LE mn) 2007A 2008F 2009F 2010F
Assets NOPAT 1,994 2,622 2,840 3,010
Cash & Cash Equivalent 415 458 583 651 Depreciation & Amortization 1,286 1,585 1,760 2,115
Net Receivables 264 319 368 410 Gross Cash Flow (COPAT) 3,279 4,208 4,600 5,125
Total Inventory 116 145 177 194 Working Investments Change 411 387 524 333
Advance Payment 32 40 52 59 Other Current Items 187 0 0 0
Other Trading Assets 0 0 0 0 Cash After Current Operations 3,878 4,595 5,124 5,458
Other Current Assets 0 0 0 0 Financing Payments (548) (985) (1,750) (1,725)
Total Current Assets 826 962 1,179 1,314 Cash Before LT Use 3,329 3,609 3,374 3,733
Net Plant 7,626 9,060 10,265 10,924 Net Plant Change (3,581) (2,898) (2,743) (2,553)
Long-Term Investments 1 1 1 1 FCFF 297 1,697 2,381 2,905
Prepaid Exp. 126 126 126 126 Others (72) (2,425) (84) (1,051)
Other Non-current Assets 403 403 403 403 Cash Before Financing (323) (1,713) 546 129
Intangibles 1,072 3,130 2,908 3,787 Short-Term Debt 217 197 1,173 1,942
Total Assets 10,053 13,681 14,882 16,554 Long-Term Debt* 1,984 3,715 25 (301)
Networth (34) (668) 0 0
Liabilities & Equity Grey Area 57 111 68 38
Short-Term Debt 369 567 1,739 3,682 Dividends (1,715) (1,600) (1,686) (1,740)
CP of Long Term Debt 327 327 816 816 Change in Cash 185 43 125 68
Accounts Payable 1,112 1,418 1,811 2,065 * Including LT creditors license fees
Accrued Expenses 632 806 1,030 1,175 Fact Sheet 2007A 2008F 2009F 2010F
Down Payments 0 0 0 0 ROE 104.1% 138.1% 118.8% 98.5%
Taxes Payable 372 372 372 372 ROS 22.2% 18.7% 18.4% 17.0%
Dividends Payable 42 42 42 42 ROA 18.1% 13.6% 14.1% 13.1%
Current portion of License fees 158 775 25 0 ROIC 37.2% 48.4% 40.7% 37.9%
Other Current Liabilities 924 924 924 924 EBITDA Margin 45.1% 45.3% 44.0% 43.5%
Total Current Liabilities 3,937 5,230 6,758 9,075
Total Long-Term Debt 3,433 5,645 4,829 4,258 ATO 0.8 0.7 0.8 0.8
Other Non-Current Liabilities 236 247 247 247 WI/ Sales -18.4% -29.3% -23.5% -19.2%
LT creditors license fees 145 545 545 0 ALEV 5.7 10.1 8.4 7.5
Total Liabilities 7,751 11,669 12,380 13,580 Liabilities/Networth 4.4 8.6 7.0 6.2
Deferred Taxes 0 0 0 0 Current Ratio 0.2 0.2 0.2 0.1
Other Provisions 547 657 723 759
Minority Interest 4 5 7 9 Per-Share Ratios 2007A 2008F 2009F 2010F
Shareholders' Equity 1,752 1,350 1,772 2,207 Share Price 115.37 115.37 115.37 115.37
Total Liab. & Equity 10,053 13,681 14,882 16,554 No. of Shares ('000) 100,000 100,000 100,000 100,000
No. Of Shares (,000)
Income Statement (LE mn) 2007A 2008F 2009F 2010F EPS 18.24 18.65 21.06 21.73
Yearend Subs (k) 15,118 20,283 23,493 25,606 DPS 16.70 16.00 16.86 17.40
Revenues 8,200 9,950 11,429 12,766 DIV./NPAUI 92% 86% 80% 80%
Cost of Revenues (1,656) (2,118) (2,697) (3,077) Revenues/Share 82.00 99.50 114.29 127.66
Gross Profit 6,545 7,832 8,732 9,689 Subscribers/1,000 Shares 151.2 202.8 234.9 256.1
SG&A (2,845) (3,325) (3,705) (4,138) BV/Share 17.52 13.50 17.72 22.07
EBITDA 3,700 4,507 5,027 5,551 Gross Cash Flow/Share 32.79 42.08 46.00 51.25
Depreciation & Amortization (1,286) (1,585) (1,760) (2,115) FCFF/Share 2.97 16.97 23.81 29.05
EBIT 2,414 2,922 3,267 3,436 EBITDA/Share 37.00 45.07 50.27 55.51
Interest Expense (124) (446) (535) (753) EV/Share 153 176 183 196
Imputed Interest 0 (200) (128) 0
Provisions 0 62 0 0 Multiples 2007A 2008F 2009F 2010F
Interest Income 30 43 44 49 P/E 6.3x 6.2x 5.5x 5.3x
Investment Income 0 0 0 0 Dividend Yield 14.5% 13.9% 14.6% 15.1%
Other Non-Operating Income 3 0 0 0 P/ Revenue 1.4 1.2 1.0 0.9
Other Non-Operating Expenses (3) (37) 0 0 EV/ Revenues 1.9 1.8 1.6 1.5
EBT 2,319 2,345 2,647 2,732 P/ COPAT 3.5 2.7 2.5 2.3
Taxes (496) (478) (540) (557) EV/ COPAT 4.7 4.2 4.0 3.8
NPAT 1,823 1,867 2,108 2,175 P/ FCFF 38.9 6.8 4.8 4.0
Minority Interest (2) (2) (2) (2) EV/ FCFF 51.4 10.4 7.7 6.8
Extraordinary Items 3 0 0 0 EV/Sub (US$) $188 $162 $146 $143
Attributable Profits 1,824 1,865 2,106 2,173 P/ EBITDA 3.1 2.6 2.3 2.1
EV/ EBITDA 4.1x 3.9x 3.6x 3.5x
Dividends (1,670.0) (1,600.0) (1,686.0) (1,739.8) P/ BV 6.6x 8.5x 6.5x 5.2x
Note: A = Actual; F = Forecasted
Source: Mobinil and CICR forecasts

134
 November 11, 2008

EGYPT | HOUSING & REAL ESTATE

12M FAIR VALUE | LE 42.7

NASR CITY HOUSING & DEVELOPMENT (NCHD)
BUY | HIGH RISK
Surviving the storm
SHARE DATA

Reuters; Bloomberg MNHD.CA; NCHR EY

Recent price as of 6-Nov-08 LE 31.22
Nasr City Housing & Development (NCHD) is a one of the No. of O/S shares 100.0 mn
oldest local real-estate developer, targeting mainly the Market cap LE 3,122.0 mn
middle class. However, it is currently diversifying more 52-wk high / low LE 82.45/ LE 18.32
Avg. daily volume / turnover 0.67 mn / LE 37.01 mn
into the luxurious market and the low-end housing. NCHD
is a cash-rich, low-debt company with a well-located land
bank, albeit with some disputes. With a WACC of 19%, our COMPANY SYNOPSIS
DCF model indicates a 37% upside to a 12-month fair Nasr City Housing and Development was
value of LE 42.7/share, warranting a BUY recommendation established in 1959 via presidential decree No.
with a HIGH RISK rating given its land disputes. 815/1959 as a public company. With the issuance
of Law No. 97/1983, the company became a
subsidiary of the “Public Sector Housing Authority.”
In 1991, the company followed law No. 203/1991,
Solving its land bank disputes: During 1Q08, the Egyptian where the company became a subsidiary of
“National Company for Construction and
Civil Aviation Authority granted NCHD a building heights li- Development.”
cense ranging between 12 and 18 meters for its land in Al-
In 1995, NCHD’s shares were listed on Cairo and
Nasr Gardens (ANG) amounting to 3.8 mn sqm. This will help Alexandria Stock Exchanges (CASE), and in 1996,
the company pursue its development activities in a well- 75% of the company’s shares were floated, with
located area in New Cairo. Regarding its conflicts with the NCHD becoming a shareholding company following
Law No. 159/1981. Currently, NCHD has authorized
Ministry of Defense over the Alternative Land which amounts capital of LE 150 mn, with issued capital of LE 100
to 5.6 mn sqm, negotiations are underway; however, no partial mn distributed over 100 mn shares at a par value
settlement has been reached yet*. of LE 1/share.

Increasing its land bank and targeting the middle class: NCHD’s main activities are real estate and land
development. The former contributed on average
NCHD was able to acquire 179,634 sqm in the Sixth of Octo- 72% of total executed work during FY06/07 and
ber City, through the national housing project, for a total con- FY07/08, while the latter makes up the balance.
sideration of LE 37 mn. Said land bank is earmarked for eco- NCHD has c.10.2 mn sqm in Nasr City, New Cairo
and Sixth of October City, 64% or c.6.5 mn sqm, of
nomic housing projects that will embrace apartments of 63-80 which, are sellable. Additionally, 92% of the current
sqm. An additional 555,366 sqm will be acquired in the same land bank is facing disputes.
area over the coming years. Said transaction will help the
SHAREHOLDER STRUCTURE
company diversify its target clientele by approaching the lower
end of the middle class that represents a huge market with Nat. Co. for Const. and Dev. 15.1%
unsatisfied demand. Beltone Group 30.9%
Banks, Ins Co., Others 17.1%
More diversification: At the onset of 2008, NCHD announced ESOP 5.0%
Free Float 32.0%
a joint venture contract with New Cairo for Real Estate Invest- Total 100.0%
ments (Katameya Heights) to construct a resort on ANG land
owned by NCHD at a total cost of LE 5 bn. Said move would
help NCHD diversify its clientele by targeting the high-end
market to capitalize in its well-located land bank in the New
Cairo area.
HANY MOHAMED SAMY, CFM
Cash-rich, low-leverage company: As of June 30, 2008,
HANY.SAMY@CICH.COM.EG
NCHD had a cash position of LE 238 mn and receivables of
LE 591 mn, representing 20% and 50% of total assets, re- STOCK PERFORMANCE | 52 WEEKS
spectively. On the other hand, total debt amounted to LE 29
Volume MNHD CASE 30 - rebased
mn, only 2% of total assets. As such, NCHD should benefit
LE mn shares
from the current high interest rate environment. 90 10.0
80 9.0
Valuation and recommendation: We valued NCHD using the 70 8.0
60 7.0
DCF method, yielding a 12-month fair value of LE 42.7/share, 6.0
50
suggesting a 37% upside potential. Hence, we rate the stock 40
5.0
4.0
a BUY with a HIGH RISK rating. 30 3.0
20 2.0
10 1.0
0 -
Nov-07

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08

Mar-08
Apr-08
May-08

Aug-08
Sep-08

Oct-08

* Please refer to our report “Struggling for rights…struggling for

wealth”, dated November 26, 2006, for a full description of NCHD's
land problems.

135
 November 11, 2008
EGYPT | HOUSING & REAL ESTATE | NASR CITY H&D

Balance Sheet (LE mn) Jun-08 A Jun-09 P Jun-10 P Jun-11 P Cash Flow (LE mn) Jun-08 A Jun-09 P Jun-10 P Jun-11 P
Assets NOPAT 84.9 31.4 92.0 99.5
Cash & Cash Equivalent 238.1 143.6 123.6 103.6 Depreciation & Amortization 0.9 1.2 1.4 1.4
Net Receivables 55.3 81.6 109.7 140.6 Gross Cash Flow (COPAT) 85.8 32.7 93.3 101.0
Total Inventory 212.3 178.8 174.3 174.0 WI Change 7.7 (36.4) (56.5) (42.5)
Advance Payments to Suppliers 75.8 63.8 65.3 69.5 Other Current Items (18.4) (25.6) (31.2) (31.2)
Other Trading Assets 0.0 0.0 0.0 0.0 Cash After Current Operations 75.1 (29.3) 5.7 27.3
Other Current Assets 22.3 16.7 16.7 16.7 Financing Payments (4.1) (12.3) (14.1) (13.6)
Total Current Assets 603.9 484.5 489.7 504.4 Cash Before Long-Term Use 71.0 (41.6) (8.4) 13.7
Net Plant 12.9 13.3 13.8 14.2 Net Plant Change 4.1 (1.6) (1.8) (1.9)
Long-Term Investments 13.1 13.1 13.1 13.1 FCFF 97.6 (5.3) 35.1 56.6
Other Trading Non-Current Assets 540.2 592.1 623.1 631.8 Others (14.5) 73.1 27.2 28.1
Other Non-Current Assets 0.0 0.0 0.0 0.0 Cash Before Financing 60.6 29.9 17.0 39.9
Intangibles 3.8 3.8 3.8 3.8 Short-Term Debt (0.6) 72.8 14.1 (3.8)
Total Assets 1,173.9 1,106.8 1,143.5 1,167.3 Long-Term Debt (7.7) 0.0 0.0 0.0
Net-worth 12.9 (103.3) 0.0 0.0
Liabilities & Shareholders' Equity Grey Area (47.1) 5.5 5.9 6.4
Short-Term Debt 12.8 85.7 99.8 96.0 Dividends (80.3) (56.0) (57.0) (62.5)
Current Portion of Long-Term Debt 0.3 0.3 0.3 0.3 Change in Cash (62.3) (51.0) (20.0) (20.0)
Accounts Payable 199.0 200.4 199.8 200.4 Note: A = Actual; F = Forecasted
Accrued Expenses 0.0 0.0 0.0 0.0 Source: NCHD and CIBC forecasts
Down Payments 4.8 4.4 4.7 5.1
Taxes Payable 53.2 0.0 0.0 0.0
Dividends Payable 3.7 0.0 0.0 0.0 Fact Sheet Jun-08 A Jun-09 P Jun-10 P Jun-11 P
Other Current Liabilities 466.5 435.4 404.2 373.1 ROE 38.3% 42.0% 38.9% 36.5%
Total Current Liabilities 740.4 726.1 708.8 674.8 ROS 32.8% 28.7% 29.3% 30.0%
Total Long-Term Debt 16.0 15.7 15.4 15.1 ROA 8.9% 7.7% 8.2% 8.8%
Other Non-Current Liabilities 0.0 0.0 0.0 0.0 ROIC 19.2% 6.8% 17.3% 17.0%
Long Term Spontaneous Fin. 0.0 0.0 0.0 0.0 EBITDA Margin 39.9% 36.3% 38.4% 38.9%
Total Liabilities 756.3 741.8 724.2 689.9
Deferred Taxes 0.0 0.0 0.0 0.0 ATO 0.3 0.3 0.3 0.3
Other Provisions 122.2 134.0 145.8 157.6 WI/ Sales 122.3% 93.9% 89.6% 87.9%
Minority Interest 21.6 27.1 33.1 39.5
Shareholders' Equity 273.7 203.9 240.4 280.3 ALEV 4.3 5.5 4.8 4.2
Total Liab. & Shareholders' Equity 1,173.9 1,106.8 1,143.5 1,167.3 Debt/ Equity 2.8 3.7 3.1 2.5
Current Ratio 0.8 0.7 0.7 0.7

Income Statement (LE mn) Jun-08 A Jun-09 P Jun-10 P Jun-11 P

Sales 320.3 298.2 319.0 341.5 Share Ratios Jun-08 A Jun-09 P Jun-10 P Jun-11 P
Cost of Sales (165.1) (166.3) (170.8) (181.2) Share Price 31.22 31.22 31.22 31.22
Gross Profit 155.2 132.0 148.2 160.3 No. Of Shares '000 100,000 100,000 100,000 100,000
SG&A (27.3) (23.9) (25.5) (27.3) EPS 1.05 0.86 0.94 1.02
EBITDA 127.9 108.1 122.6 133.0 Div/Share 0.80 0.52 0.57 0.62
Depreciation & Amortization (0.9) (1.2) (1.4) (1.4) Revenues/Share 3.20 2.98 3.19 3.42
EBIT 127.0 106.9 121.3 131.5 BV/Share 2.74 2.04 2.40 2.80
Interest Expense (3.8) (12.0) (13.8) (13.3) Gross CF/Share 0.86 0.33 0.93 1.01
Provisions (13.6) (11.8) (11.8) (11.8) FCFF/Share 0.98 -0.05 0.35 0.57
Interest Income 13.3 15.3 10.7 9.1 EBITDA/Share 1.28 1.08 1.23 1.33
Investment Income 7.9 9.1 10.5 12.0 EV/Share 29.13 30.80 31.14 31.30
Other Non-Operating Income 13.0 12.1 12.9 13.8
Other Non-Operating Expenses (9.8) (6.9) (6.9) (6.9)
EBT 133.9 112.6 122.8 134.5 Multiples Jun-08 A Jun-09 P Jun-10 P Jun-11 P
Taxes (22.0) (21.4) (23.4) (25.6) P/E 29.7 36.4 33.4 30.5
NPAT 111.9 91.2 99.5 108.9 Div Yield % 2.6% 1.7% 1.8% 2.0%
P/ Revenue 9.7 10.5 9.8 9.1
Minority Interest (5.8) (5.5) (5.9) (6.4)
EV/ Revenues 9.1 10.3 9.8 9.2
Extraordinary Items (1.1) 0.0 0.0 0.0
P/ COPAT 36.4 95.6 33.5 30.9
NPAUI 105.0 85.7 93.5 102.5
EV/ COPAT 33.9 94.3 33.4 31.0
P/ FCFF 32.0 -584.0 89.0 55.2
EV/ FCFF 29.8 -576.2 88.8 55.3
P/ EBITDA 24.4 28.9 25.5 23.5
EV/ EBITDA 22.8 28.5 25.4 23.5
P/ BV 11.4 15.3 13.0 11.1

Source: Company reports and CICR estimates

136
 November 11, 2008

EGYPT | BANKS

12M FAIR VALUE | LE 35.76

NATIONAL SOCIETE GENERALE BANK (NSGB)
BUY | MODERATE RISK
Unleashing growth potential
SHARE DATA

Reuters; Bloomberg NSGB.CA

Recent price as of 6-Nov-08 LE 18.05
National Société Générale Bank (NSGB) is the second No. of O/S shares 302.9 mn
largest private bank in Egypt following the successful ac- Market cap LE 5,468.1 mn
quisition of Misr International Bank (MIBank). Against the 52-wk high / low LE 45.45/ LE 17
Avg. daily volume / turnover 0.15 mn / LE 5.76 mn
global financial issues and concerns of global recession,
NSGB is able to steadily generate a double-digit ROAE of
24.1% that adjusts to 32% when excluding goodwill amor- COMPANY SYNOPSIS
tization vs. a market average of 16%. The stock is traded
at 2009 PER and PBV of 4.8x - adjusts to 3.7x upon ex- National Société Générale Bank (NSGB) was established
cluding goodwill expense - and 0.9x, respectively. Our in April 1978, by the French Société Générale Bank (SGB);
one of the largest financial services group in the Eurozone,
DCF-based 12-month fair value suggests a 98% upside and National Bank of Egypt (NBE); Egypt’s largest public
potential to LE 35.76, therefore we rate it a BUY with MOD- bank.
ERATE RISK. In September 2005, NSGB acquired 90.7% of Egypt’s
second largest private bank at the time; Misr International
Bank (MIBank). NSGB is currently one of the largest
private banks in Egypt.
Strong 1H08; considering a half year dividend: NSGB
The bank operates in key businesses including retail
demonstrated an outstanding 62% growth in bottom-line prof- banking, corporate and investment banking, alongside
its for 1H08, mostly driven by a one-off income worth LE 278.6 other activities offered through its affiliates such as leasing
mn in reversed provisions and a 48% growth in total banking via “Sogelease”, NSGB Life Insurance company and ALD
Automotive specialized in car rentals and fleet
income. Conversely, the bank is also burdened with the an- management.
nual amortization charge worth LE 362 mn related to the good-
Currently, Société Générale owns 77.2 % of NSGB after
will of MIBank, ending 3Q10. The bank called for an EGM and acquiring NBE’s 18% stake in addition to another 6% in
AGM on November 12, 2008, to amend articles of incorpora- August 2005.
tion and accordingly approve the proposed half year DPS As at September 2008, NSGB runs a network of 121
worth LE 0.25. branches.

Core lending capacity and asset quality: NSGB enjoys a

CAR ratio of 13.35% and a decent liquidity demonstrated by a
net loans/deposits ratio of 61%, following a 13% growth in the
loans portfolio in 1H08. NSGB targets diversified loan growth
across all LoBs. The NPLs/loans is 8.5% at end of 1H08, SHAREHOLDER STRUCTURE
Société Générale Bank (SGB) 77.2%
down from 16% post MIBank acquisition. Free Float 22.8%
Total 100.0%
Improved cost-to-income ratio in 2008: NSGB benefited
from a positive surprise in its 1H08 P&L, namely one-off re-
versed provisions, which led to an improved cost-to-income
ratio of 41% - adjusts to 34.2% when excluding the said one-
off item and ex-goodwill, compared to 56% - 35.1% ex-
goodwill—in 1H07. We expect the ratio to show an improved
trend throughout the projected period.
ALIA ABDOUN
2008 forecast implies very cheap leading multiples :We ALIA.ABDOUN@CICH.COM.EG
forecast an earnings growth rate of 51% in 2008 to LE 1,018.8
mn. NSGB trades at leading 2009 PER and PBV of 4.8x (3.7x STOCK PERFORMANCE | 52 WEEKS
ex-goodwill) and 0.9x, respectively, much cheaper than the Volume NSGB CASE 30 - rebased
2009 MENA average of 10.6x and 2.2x, respectively.
LE mn shares
60 1.4
Valuation and recommendation: Using a risk-free rate of
50 1.2
11.5% and a market premium of 8% to reflect the contempo- 1.0
40
rary global and local risks, we re-initiate our coverage on the 0.8
bank with a 12-month fair value of LE 35.76/share, suggesting 30
0.6
a 98% upside potential, therefore we rate it a BUY with 20
0.4
MODEARATE RISK rating. 10 0.2
0 -
Nov-07

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08

Mar-08

Apr-08
May-08

Aug-08

Sep-08
Oct-08

137
 November 11, 2008
EGYPT | BANKS | NSGB

Balance Sheet (In LE mn) Dec-07 Dec-08 Dec-09 Dec-10 Profitability & Efficiency Ratios Dec-07 Dec-08 Dec-09 Dec-10

Assets Net Interest Margin (NIM) 3.16% 3.45% 3.84% 4.16%

Cash & Due from Banks 3,315.7 3,920.2 4,820.2 5,826.3 RoAA 1.56% 2.09% 2.12% 2.51%
Interbank Assets 13,537.5 12,498.9 12,365.2 12,952.7 RoAE 17.65% 21.83% 20.93% 24.06%
T-Bills & Government Securities 3,946.0 2,958.8 3,827.5 4,906.6 Cost/Income 55.25% 43.33% 44.53% 39.10%
Net Trading Investments 241.1 147.4 165.9 186.7 Earning Assets / Total Assets 87.91% 87.46% 87.54% 87.62%
Available for Sale Investments 3,632.1 3,746.7 4,135.6 4,564.9
Net Loans & Advances 19,735.6 24,016.8 28,367.3 32,867.8 Productivity & Asset Quality Ratios Dec-07 Dec-08 Dec-09 Dec-10
Held-to-Maturity Investments 413.2 467.8 527.0 598.3
Net Loans / Customer Deposits 50.22% 58.45% 60.90% 62.30%
Investments in Subsidiaries 39.2 41.7 41.7 41.7
Interbank Ratio 8.6 7.6 7.6 7.6
Accrued Income & Other Assets 634.5 880.9 985.2 1,110.3
Liquid Assets / Total Deposits 62.78% 56.63% 54.35% 53.90%
Net Fixed Assets 676.1 767.5 869.8 994.1
Assets Utilization 8.31% 8.91% 9.27% 9.61%
Good Will 1,085.8 723.8 361.9 0.0
Capitalization Ratio 9.11% 10.02% 10.24% 10.63%
Total Assets 47,256.7 50,170.5 56,467.4 64,049.6
NPLs / Total Loans 11.30% 8.12% 6.72% 5.72%
Provision Coverage Ratio 82.7% 95.4% 99.2% 102.2%
Liabilities and Shareholders' Equity
Interbank Liabilities 1,580.0 1,644.6 1,627.1 1,704.4 Growth & Market Ratios Dec-07 Dec-08 Dec-09 Dec-10
Customer Deposits 39,299.4 41,092.6 46,580.2 52,757.3
Accrued Expenses & Other Liabilities 1,143.6 1,153.4 1,009.5 1,051.5 Net Loans Growth 26.2% 21.7% 18.1% 15.9%
Dividends Payable 130.4 244.4 330.4 441.1 Customer Deposits Growth 18.0% 4.6% 13.4% 13.3%
Provisions 740.1 950.1 1,087.6 1,238.8 EPS (LE) * 2.45 3.36 3.73 5.00
Medium-/Long-Term Loans 58.8 57.2 51.3 46.1 P/E 8.1x 5.4x 4.8x 3.6x
Debt Securities 0.0 0.0 0.0 0.0 DPS (LE) 0.25 0.50 0.75 1.00
Total Liabilities 42,952.3 45,142.3 50,686.1 57,239.2 Dividend Yield 1% 3% 4% 6%
Paid-in Capital 2,754.0 3,029.4 3,029.4 3,029.4 Retroactive BV/Share (LE) 14.21 16.60 19.08 22.48
Reserves 777.9 1,276.9 2,077.8 3,151.6 P/BV 1.3x 1.1x 0.9x 0.8x
Retained Earnings 0.4 0.4 0.4 0.4 * EPS based on NPAUI
Tier I Capital 3,532.4 4,306.8 5,107.7 6,181.4 ** Cost/Income is based on Total non interest expense/ Total interest & non-interest income
Tier II Capital 772.0 721.5 673.6 629.0 Source: NSGB and CICR forecasts
Total Shareholders' Equity 4,304.4 5,028.2 5,781.3 6,810.4
Total Liabilities & Shareholders' Equity 47,256.7 50,170.5 56,467.4 64,049.6
Contingent Liabilities 15,816.4 17,090.5 19,993.5 23,389.6
Total Footing 63,073.1 67,261.1 76,460.9 87,439.2

Income Statement (In LE mn) Dec-07 Dec-08 Dec-09 Dec-10

Total Interest Income 3,047.3 3,317.4 4,030.0 4,745.5

Interest Paid to Clients & Banks 1,834.4 1,818.3 2,201.3 2,496.2
Net Interest Income (NII) 1,212.9 1,499.1 1,828.7 2,249.3
Provisions 90.3 305.0 202.7 218.7
Net Interest Income AP 1,122.6 1,194.1 1,626.0 2,030.6
Fees and Commissions Income 447.5 599.3 713.9 828.1
Investment Income 13.6 16.8 20.7 23.2
Foreign Exchange Income 15.7 28.2 63.6 73.2
Other Incomes 80.0 378.6 113.2 119.4
Non-Interest Income 556.7 1,022.9 911.5 1,043.9
Operating Income (BP) 1,769.7 2,522.0 2,740.2 3,293.2
Operating Income (AP) 1,679.3 2,217.0 2,537.5 3,074.5
G&A Expenses and Depreciation 984.5 1,094.7 1,220.3 1,287.5
Other Expenses -6.8 -1.9 0.0 0.0
Non-Interest Expense 977.7 1,092.8 1,220.3 1,287.5
Net Operating Income 701.6 1,124.2 1,317.2 1,787.0
Taxation 29.3 105.4 185.9 272.1
NPAT 672.3 1,018.7 1,131.3 1,514.9
Unusual Items 1.8 0.1 0.0 0.0
NPAUI 674.2 1,018.8 1,131.3 1,514.9
Less: Non-Appropriation Items 0.0 92.9 103.2 138.2
Net Attributable Income (NAI) 674.2 925.9 1,028.1 1,376.7

138
 November 11, 2008

EGYPT | CONSUMER

12M FAIR VALUE | LE 55.1

OLYMPIC GROUP (OG)
BUY | MODERATE RISK
Away from global headache; yet inflation is a concern
SHARE DATA
Reuters; Bloomberg OLGR.CA / OLGR EY
Recent price as of 6-Nov-08 LE 24.13
Olympic Group (OG) maintained a remarkable market No. of O/S shares 60.1 mn
share of 30% in 2007 owing to its well diversified portfo- Market cap LE 1,450.2 mn
lio. Classifying its products as durables associated with a 52-wk high / low LE 89/ LE 17.75
Avg. daily volume / turnover 0.1 mn / LE 6.76 mn
one-time buy rather than replacement, we believe that the
global slowdown will not have a serious impact on local
demand. Yet, inflationary pressures remain a concern.
Growth in the coming few years is expected to be sus- COMPANY SYNOPSIS
tained from the delivery of housing units in new com- Established in 1995, Olympic Group (OG) dates back to
pounds, while long-term growth is expected to be driven the 1930s. It has factories in Cairo, the Tenth of Ramadan
City, and the Sixth of October City. Since its acquisition of
from the new agreement with Electrolux. OG is traded at 79% of Ideal late 1997, OG has been maintaining a leading
5.5x 2008 earnings vs. peers' average of 7.6x. Our 12 position in Egypt's white goods market. OG's portfolio is
well segmented with products targeting different income
month fair value is LE 55.1/share, with a 128% upside po- classes. Exports contribute less that 10% of OG's top line.
tential. Thus, we reiterate our BUY recommendation with OG procures around 50% of the components used in
Moderate risk. manufacturing locally either from subsidiaries within the
group or through other local suppliers. Meanwhile, OG
procures 40% of its steel requirements locally, and the
remaining balance is imported. Over the last five years,
OG has been consolidating its business. In 2003 and
Growth profile to be maintained. We believe that future de- 2004, OG consolidated five companies and increased its
mand will be driven from the delivery of most of the housing paid-in capital from LE 340 mn to LE 547.8 mn through (1)
a stock dividend distribution and (2) a capital increase of
units of newly established compounds in 2010 in addition to LE 148 mn at par. In 2005, OG increased its stake in Ideal
growing urbanization and new marriages. Yet, inflationary to 93% through a 1:2 share swap (one OG share to two
pressures are expected to increase demand on lower priced Ideal shares). Accordingly, OG's paid-in capital increased
by LE 52.9 mn to LE 600.7 mn. In early September 2008,
brands and lower replacement market. Long-term earnings OG announced the spin-off of Namaa and B.Tech through
growth, estimated at a 5-year CAGR of 19%, is expected to be the distribution of 0.5 shares of Namaa and 0.4 shares of
B.tech to OG shareholders as of September 9, 2008 for
achieved on the back of alliance signed with Electrolux. More every 1 share owned in OG or the equivalent in cash (i.e.
capacity is required to be added to expand with Electrolux with LE 5/OG share and LE 0.4/OG share, respectively).
an estimated capex figure of LE 1.12 bn. The alliance, part of
Electrolux's strategy to relocate its factories to low cost na-
tions, is expected to add around LE 513 mn to EBITDA over
the next 5 years. OG will export products produced on an SHAREHOLDER STRUCTURE
OEM basis to Electrolux. Paradise Capital 52.0%
Foreign Institutions 37.0%
Future cost savings ahead. We believe that the current slow- Local Institutions 8.0%
Retail 3.0%
down in steel prices is expected to give the company an edge
for future savings in light of its hedging strategy to purchase its
steel requirements 3-6 months in advance.
Valuation and recommendation. We downgraded our 12-
month fair value using DCF to LE 55.1/share vs. LE 58.1/
share in our previous update, reflecting i) 50-bps and a 200
bps increase in the discount rate and the market risk premium INGY EL-DIWANY
INGY.ELDIWANY@CICH.COM.EG
to 11.5% and 8%, respectively ii) a 100 bps decrease in the
perpetuity growth rate to 3% reflecting inflationary pressures.
Given that OG is traded at a 56% discount to fair value, thus STOCK PERFORMANCE | 52 WEEKS
we still maintain our BUY recommendation. Yet, we need to
Volume OLGR CASE 30 - rebased
highlight the downside risk to our valuation which is the slow-
mn shares
down in sales of consumer durables mirroring the global slow- 120
LE
0.7
down. It is worth highlighting that our valuation incorporates 100 0.6
(1) lower estimates of steel prices and (2) OG's exact stakes 80
0.5
in Namaa and B.Tech post spin-off, announced early Septem- 0.4
60
ber, where OG shareholders were given the option to request 0.3
40
shares or cash. Since a larger than expected amount of 0.2
shareholders requested cash, OG now has controlling stakes 20 0.1
in Namaa and B.Tech. OG is traded at 5.5x 2008 expected 0 -
Nov-07

Jan-08

Jun-08
Jul-08
Dec-07

Feb-08

Mar-08
Apr-08
May-08

Aug-08
Sep-08

Oct-08

earnings vs. peers traded at 7.6x expected earnings.

139
 November 11, 2008
EGYPT | CONSUMER | OLYMPIC GROUP

Balance Sheet (LE mn)* 2007P 2008F 2009F 2010F Cash Flow (LE mn) 2007P 2008F 2009F 2010F
Assets NOPAT 245 186 385 493
Cash & Cash Equivalent 115 112 83 154 Depreciation & Amortization 31 38 41 42
Net Receivables 161 228 275 334 Gross Cash Flow (COPAT) 276 224 425 535
Total Inventory 434 524 628 758 Working Investments Change (101) (147) (119) (148)
Advance Payment 0 62 74 90 Other Current Items (7) (22) 14 17
Other Trading Assets 0 0 0 0 Cash After Current Operations 169 54 320 404
Other Current Assets 0 0 0 0 Financing Payments (89) (103) (153) (295)
Total Current Assets 710 926 1,061 1,336 Cash Before Long Term Use 80 (49) 167 108
Net Plant 444 589 1,130 1,487 Net Plant Change (82) (182) (581) (398)
Long-Term Investments 515 251 259 269 FCFF 86 (128) (261) 5
Other Non-Current Assets 235 119 139 166 Others (3) 462 51 67
Other Non-current Assets 0 111 111 111 Cash Before Financing (5) 230 (363) (223)
Intangibles 1 1 1 1 Short-Term Debt (1) 104 4 446
Total Assets 1,906 1,998 2,702 3,370 Long-Term Debt 100 153 459 5
Networth (112) (556) (284) (347)
Liabilities & Shareholders' Equity Grey Area 9 (40) 25 31
Short-Term Debt 208 312 316 762 Dividends 0 106 129 158
CP of Long Term Debt 42 62 154 155 Change in Cash (10) (3) (29) 71
Accounts Payable 153 190 228 276
Accrued Expenses 0 14 17 21 Fact Sheet 2007P 2008F 2009F 2010F
Down Payments 0 20 24 29 ROE 20.2% 27.6% 29.2% 29.2%
Taxes Payable 0 7 7 7 ROS 12.0% 11.1% 12.0% 12.1%
Dividends Payable 0 0 0 0 ROA 11.9% 13.3% 12.7% 12.5%
Other Current Liabilities 73 67 80 97 ROIC 14.6% 11.0% 16.4% 16.8%
Total Current Liabilities 476 672 826 1,347 Gross Margin 27.5% 26.9% 27.4% 27.7%
Total Long-Term Debt 137 228 533 384 EBITDA Margin 15.7% 14.8% 16.0% 16.5%
Other Non-Current Liabilities 0 6 6 6 Adjusted EBITDA Margin** 17.2% 15.9% 16.9% 17.6%
Total Liabilities 612 905 1,365 1,736 ATO 1.0 1.2 1.1 1.0
WI/ Sales 35.7% 29.7% 29.5% 29.4%
Other Provisions 99 68 72 76
ALEV 1.7 2.1 2.3 2.3
Minority Interest 68 64 89 120
Liabilities/Networth 0.5 0.9 1.2 1.2
Shareholders' Equity 1,127 962 1,176 1,438 Current Ratio 1.5 1.4 1.3 1.0
Total Liab. & Equity 1,906 1,998 2,702 3,370
-0.99 -0.04 0.81 -0.96 Per-Share Ratios 2007P 2008F 2009F 2010F
Income Statement (LE mn) 2007P 2008F 2009F 2010F
Share Price 24.13 24.13 24.13 24.13
Revenues 1,899 2,385 2,870 3,481 No. Of Shares (,000) 60,076 60,076 60,076 60,076
Cost of Revenues (1,376) (1,743) (2,085) (2,517) EPS 3.8 4.4 5.7 7.0
Gross Profit 523 642 785 964 DPS 1.5 1.7 2.3 2.8
SG&A (225) (289) (327) (390) Revenues/Share 31.6 39.7 47.8 57.9
EBITDA 298 353 458 574 BV/Share 18.8 16.0 19.6 23.9
Adjusted EBITDA** 326 378 486 611 Gross Cash Flow/Share 4.6 3.7 7.1 8.9
Depreciation & Amortization (31) (38) (41) (42) FCFF/Share 1.4 (2.1) (4.3) 0.1
EBIT 266 316 417 532 EBITDA/Share 5.0 5.9 7.6 9.6
Interest Expense (51) (61) (91) (142) EV/Share 28.6 32.3 39.4 43.2
Provisions 0 (4) (4) (4)
Interest Income 2 4 3 4 Multiples 2007P 2008F 2009F 2010F
Investment Income (2) 3 7 10 P/E 6.4x 5.5x 4.2x 3.5x
Other Non-Operating Income 47 53 70 90 P/ Revenue 0.8x 0.6x 0.5x 0.4x
Other Non-Operating Expenses (1) (0) (0) (0) EV/ Revenues 0.9x 0.8x 0.8x 0.7x
EBT 261 310 401 490 P/ COPAT 5.2x 6.5x 3.4x 2.7x
Taxes (20) (25) (32) (39) EV/ COPAT 6.2x 8.7x 5.6x 4.9x
NPAT 241 285 369 451 P/ FCFF 16.8x -11.3x -5.6x 267.5x
Minority Interest (13) (20) (25) (31) EV/ FCFF 20.0x -15.1x -9.1x 479.2x
Extraordinary Items - - - - P/ EBITDA 4.9x 4.1x 3.2x 2.5x
Attributable Profits 228 265 344 420 EV/ EBITDA 5.8x 5.5x 5.2x 4.5x
P/ BV 1.3x 1.5x 1.2x 1.0x
Note: P = Pro forma; F = Forecast NA= Not Available
*Figures exclude Namaa and B.Tech
**Adjusted EBITDA excludes lease expense but includes export subsidies.
Source: OG and CICR forecasts

140
 November 11, 2008

EGYPT | CONSTRUCTION & FERTILIZERS

12M FAIR VALUE | LE 330.5

ORASCOM CONSTRUCTION INDUSTRIES (OCI)
BUY | MODERATE RISK
Black pearl
SHARE DATA

Reuters; Bloomberg OCIC.CA; OCIC EY

Orascom Construction Industries (OCI) is one of the larg- Recent price as of 6-Nov-08 LE 197.00
est regional construction groups with diversified busi- No. of O/S shares 214.8 mn
Market cap LE 42,309.9 mn
nesses and a shrewd management team. Besides its
52-wk high / low LE 485/ LE 182.09
"conventional" construction business, it once had a Avg. daily volume / turnover 0.27 mn / LE 88.23 mn
global cement business that was cashed out early 2008
with good timing and valuation only to shift gears towards
COMPANY SYNOPSIS
the high-growth fertilizers sector. OCI's current fertilizers
business model focuses on nitrogen fertilizers in Egypt Orascom Construction Industries is incorporated under
Law no. 159/1981 in April 1998 as a shareholding
and Algeria with a low-cost advantage of natural gas company, to undertake contracting activities and other
prices (between US$0.57-2/MMBtu). OCI is also looking related activities. OCI's operations encompass
construction, fertilizers (nitrogen), and previously cement in
into the phosphate fertilizers as a complement. The stock US, Europe, MENA, and GCC regions. Currently, OCIC
is currently traded at a 40% discount to intrinsic value but has an authorized and paid-in capital of LE 1,073.8 mn
a 30% premium vs. peers based on 2008 EV/EBITDA multi- distributed over 214.77 mn shares with a par value of LE 5.

ple due to asymmetric market conditions and the fact that In 1999, OCI joined in the cement business and had its
Algeria’s operation is yet to start by 2010. We re-initiate shares listed on the Egyptian Exchange (EGX).
Afterwards, it owned and operated a group including
coverage with a BUY. cement, ready-mix concrete and cement bag
manufacturing operating in Egypt, Algeria, northern Iraq,
Pakistan, UAE, Turkey and Spain, with a combined annual
designed production capacity of 35 mn tons. In January
Modeling the fertilizers business: OCI's fertilizers business 2008, OCI divested the cement LoB to Lafarge S.A., that
paid EUR8.8 bn (US$12.9 bn) and assumed US$2 bn in
is evolving and should benefit from expected demand in the debt, the deal was executed on the EGX.
different fertilizers sub-segments (nitrogen and phosphate).
Starting 2008, OCI ventured in the fertilizers business by
Management vision: OCI's management believes in growth merging Egyptian Fertilizers Company (EFC), a subsidiary
of ABRAAJ Capital (Abraaj) - a UAE company. The deal
via establishing new fertilizers plants or acquiring stakes in amounted to US$1.59 bn (cash and shares), also OCI
existing ones (á la EFC type-of-deal). Hence, we should ex- assumed EFC's US$1.1 bn net debt. Through EFC, OCI
pect further expansion in 2008 and beyond, further boosting owns a 20% stake in Notore Fertilizers, a Nigerian
company. In addition, OCI established Egyptian Basic
both revenues and investment income. Industries Company (EBIC), another fertilizer plant in
Egypt's Suez free zone, to be launched in 4Q08. A third
Capacities ramp-up: New capacities are on schedule with fertilizers plant, Sorfert, is underway in Algeria, to be
Egyptian Basic Industries Co. (EBIC) and Nigeria-based No- launched in 2H10. Also, OCI acquired 20% stake in
Gavilon, a US fertilizer distribution company. Furthermore,
tore Fertilizers (NCIL) coming on stream in 4Q08 with full ca- OCI schemed a DAP/MAP project – phosphate fertilizers –
pacity starting 2009, helping OCI take advantage of the cur- in Algeria or Morocco.
rent slack in global nitrogen fertilizers capacities. In addition,
EFC's production capacity will increase in 2010, concurrent
with the launch of OCI's Algerian fertilizers plant, Sorfert.
SHAREHOLDER STRUCTURE
Nitrogen fertilizers prices rally: Although urea prices re- Sawiris Family 60.0%
Free Float 40.0%
verted back to its normal levels (c. US$300/ton), ammonia Total 100.0%
prices are rallying up the scale reaching c. US$900/ton begin-
ning 4Q08, just in time for the launch of EBIC - an ammonia
producer. Thus, EBIC is expected to ride the ammonia peck. MUHAMMAD EL EBRASHI
MUHAMMAD.ELEBRASHI@CICH.COM.EG
Guaranteed output sales: OCI's fertilizers output is sold
through both the retail and wholesale channels, with the latter STOCK PERFORMANCE | 52 WEEKS
backed with long-term take-or-pay agreements.
Volume OCIC CASE 30 - rebased
Cheap natural gas prices: OCI's fertilizers business is LE mn shares
500 1.6
backed by long-term gas agreements with prescribed gas vol- 450 1.4
umes and price formulas in the range of US$1.25-2/MMBtu 400
1.2
350
valid for 20 years in Egypt and US$0.57/MMBtu valid for a 300 1.0
similar period in Algeria. 250 0.8
200 0.6
Valuation and recommendation: We valued OCI based on a 150
0.4
100
sum-of-the-parts basis and using the DCF model for its two 50 0.2
main lines of business: construction and fertilizers. We 0 -
Nov-07

Jan-08

Jun-08
Jul-08
Dec-07

Feb-08

Mar-08
Apr-08
May-08

Aug-08
Sep-08

Oct-08

reached a 12-month fair value of LE 330/share, implying an

upside potential of 68%.

141
 November 11, 2008
EGYPT | CONSTRUCTION & FETILIZERS | OCI

Balance Sheet (in US$ mn) Dec-07 Dec-08 Dec-09 Dec-10 Fact Sheet Dec-07 Dec-08 Dec-09 Dec-10
Assets ROE 13.8% 29.6% 44.3% 47.6%
Cash & Cash Equivalent 4,260.7 1,678.3 1,222.6 1,232.2 ROS 10.3% 21.5% 24.7% 26.8%
Net Receivables 959.8 1,346.6 1,548.0 1,791.0 ROA 1.2% 12.3% 14.7% 15.8%
Total Inventory 130.3 201.5 234.0 307.5 ROIC 8.6% 16.3% 11.4% 14.0%
Advance Payments to Suppliers 0.0 3.8 4.0 9.1 EBITDA Margin 18% 27% 21% 25%
Other Trading Assets 13,843.3 233.1 292.7 335.4
Other Current Assets 0.0 5.4 5.4 5.4 ATO 0.1 0.6 0.6 0.6
Total Current Assets 19,194.1 3,468.6 3,306.6 3,680.7 WI/ Sales 588.9% 17.4% 18.9% 19.8%
Net Plant 614.0 2,267.1 2,868.8 3,628.1
Long-Term Investments 558.7 602.5 653.8 703.4 ALEV 11.6 2.7 3.4 3.4
Other Trading Non-Current Assets 129.2 38.6 45.1 50.5 Debt/ Equity 1164% 125% 187% 182%
Other Non-Current Assets 0.0 0.0 0.0 0.0 Current Ratio 1.3 2.4 1.7 1.7
Intangibles 11.5 278.0 278.0 278.0
Total Assets 20,507.5 6,654.8 7,152.3 8,340.8
Liabilities & Shareholders' Equity
Cash Flow (in US$ mn) Dec-07 Dec-08 Dec-09 Dec-10
Short-Term Debt 1,888.9 0.0 276.5 315.3
NOPAT 693.1 803.6 602.4 876.7
Current Portion of LT Debt 46.9 0.0 0.0 46.9
Depreciation & Amortization 163.9 98.3 102.1 158.6
Accounts Payable 817.6 976.8 1,103.6 1,270.9
Gross Cash Flow (COPAT) 857.0 901.9 704.5 1,035.3
Accrued Expenses 0.0 0.0 0.0 0.0
WI Change (272.5) (566.0) (108.1) (145.1)
Down Payments to Customers 0.0 9.0 8.3 17.5
Other Current Items (13,293.1) 199.1 (29.8) (19.1)
Taxes Payable 33.8 33.8 33.8 33.8
Cash After Current Operations (12,708.5) 535.0 566.6 871.0
Dividends Payable 11,146.6 0.0 0.0 0.0
Financing Payments (107.3) (105.3) (54.7) (74.0)
Other Spontaneous Finance 161.0 177.8 207.5 231.2
Cash Before Long-Term Use (12,815.8) 429.7 511.9 797.1
Other Current Liabilities 239.0 259.8 259.8 259.8
Net Plant Change (777.9) (2,108.3) (446.7) (660.8)
Total Current Liabilities 14,333.8 1,457.3 1,889.6 2,175.5
FCFF (193.3) (1,772.3) 149.8 229.4
Total Long-Term Debt 6,211.7 1,650.0 2,025.0 2,353.1
Others 9,981.8 (1,005.1) 210.9 204.6
Other Non-Current Liabilities 0.0 0.0 0.0 0.0
Cash Before Financing (3,611.9) (2,683.7) 276.1 340.9
Sales Tax 0.0 0.0 0.0 0.0
Total Liabilities 20,545.6 3,107.3 3,914.6 4,528.6 Short-Term Debt 1,888.9 (580.1) 856.6 38.7
Long-Term Debt 183.6 1,650.0 375.0 375.0
Deferred Taxes 0.0 0.0 0.0 0.0
Net-worth 1,211.0 1,866.3 (1,224.0) (674.1)
Other Provisions 409.3 409.3 409.3 411.0
Grey Area 595.3 783.1 78.3 181.2
Minority Interest 0.0 373.9 452.3 633.7
Dividends 0.0 (175.5) (217.9) (251.0)
Shareholders' Equity 1,776.7 2,764.3 2,376.2 2,767.5
Total Liab. & Equity 22,731.6 6,654.8 7,152.3 8,340.8

Income Statement (in US$ mn) Dec-07 Dec-08 Dec-09 Dec-10 Share Ratios Dec-07 Dec-08 Dec-09 Dec-10
Revenues 2,391.7 3,799.4 4,261.4 4,913.6
Share Price 35.65 35.65 35.65 35.65
COGS (1,818.1) (2,547.4) (3,141.9) (3,411.4)
New No. Of Shares '000 214,771 214,771 214,771 214,771
Gross Profits 573.6 1,252.0 1,119.5 1,502.2
Actual No. Of Shares '000 214,771 214,771 214,771 214,771
SG&A (135.5) (215.3) (244.7) (281.6)
EPS 1.15 3.81 3.72 4.94
EBITDA 438.1 1,036.7 874.9 1,220.7
Div/Share 51.90 0.82 1.01 1.17
Depreciation & Amortization (163.9) (98.3) (102.1) (158.6)
Revenues/Share 11.14 17.69 19.84 22.88
EBIT 274.2 938.4 772.8 1,062.0
Units Sold/Share 95.66 14.47 18.23 21.09
Interest Expense (107.3) (105.3) (54.7) (74.0)
Provisions (15.2) (20.4) (24.0) (28.5)
BV/Share 8.27 12.87 11.06 12.89
Interest Income 57.3 79.9 96.9 107.2 Gross CF/Share 3.99 4.20 3.28 4.82
Investment Income 22.9 32.0 112.0 106.9 FCFF/Share -0.90 -8.25 0.70 1.07
Other Non-Operating Income 20.6 20.7 23.9 26.6 EBITDA/Share 2.04 4.83 4.07 5.68
Other Non-Operating Expenses 8.0 13.0 15.1 16.8 EV/Share 42.56 35.52 40.67 42.56
EBT 260.5 958.2 942.0 1,217.1
Taxes (14.5) (139.8) (143.4) (155.8) Multiples* Dec-07 Dec-08 Dec-09 Dec-10
NPAT 246.0 818.4 798.6 1,061.3 P/E 31.1 9.4 9.6 7.2
Div Yield % 145.6% 2.3% 2.8% 3.3%
P/ Revenue 3.2 2.0 1.8 1.6
EV/ Revenues 3.8 2.0 2.0 1.9
P/ COPAT 8.9 8.5 10.9 7.4
EV/ COPAT 10.7 8.5 12.4 8.8
P/ FCFF -39.6 -4.3 51.1 33.4
EV/ FCFF -47.3 -4.3 58.3 39.8
P/ EBITDA 17.5 7.4 8.8 6.3
EV/ EBITDA 20.9 7.4 10.0 7.5
P/ BV 4.3 2.8 3.2 2.8

142
 November 11, 2008

EGYPT | TMT

12M FAIR VALUE | LE 96.1

ORASCOM TELECOM (OT)
BUY | HIGH RISK
A strategy shift or no EM growth in sight?
SHARE DATA
Reuters; Bloomberg ORTE.CA/ORTEq.L;
Orascom Telecom (OT) managed to maintain leading mar- ORTE EY
ket positions in its key markets, Djezzy (73% of OT's Recent price as of 6-Nov-08 LE 35.98
value) enjoys a high market share of 63%. While Mobinil No. of O/S shares 899.4 mn
Market cap LE 32,360.5 mn
and Tunisiana continued their strong performance, mar- 52-wk high / low LE 94.46/ LE 27
gins and growth of Asian subsidiaries are affected by po- Avg. daily volume / turnover 1.11 mn / LE 74.42 mn
litical, economic, and competitive factors. Thus, we cut
our valuations for all GSM subsidiaries in the wake of the COMPANY SYNOPSIS
global financial crisis and a higher interest rate environ- Orascom Telecom Holding (OTH) is one of the leading
ment. Said downgrade was offset by the addition of OT's regional mobile operators and among the largest in the
Middle East and Africa. OTH’s GSM networks cover 5
investments in Canada and North Korea. Longer term, OT main countries with a total population of more than 430
will build value through mobile banking and investing in mn. OTH operates GSM operations in Egypt, Pakistan,
Africa. Our SOTP 12-month fair value is some 167% Algeria, Tunisia, and Bangladesh. In December 2005, OTH
had acquired 19.3% of Hutchison Telecom International
higher, trading at 11.3x adjusted earnings a 6% discount Limited (HTIL) for US$1.3 bn. After receiving US$793 mn
to other regional operators. in special dividends from HTIL's sale of Hutch Essar, OTH
sold its entire stake in HTIL for a total value of US$1.3 bn.
Historically, OTH had restructured its operation with a
Canada - a key catalyst to rescue value: In partnership with wave of divestiture, selling its stakes in the Jordanian
mobile operator, Fastlink and nine GSM mobile operators
Canada-based Globalive, OT has won AWS spectrum in Can- in Africa, in addition to Loteny (Ivory Coast), Oasis
ada at a price of C$442 mn to provide its services in all prov- Telecom (DRC), and Libertis Telecom (Congo Brazzaville).
inces except the Quebec. OT intends to invest US$500-700 In December 2007, OTH sold its GSM operator in Iraq to
MTC-Atheer (Zain) for US$1.2 bn.
mn with an IRR of 20%. OTH will enjoy operating in a high-
income market with low penetration of 61% and a high ARPU By end of January 2008, OTH has been granted the first
25-year commercial license to provide mobile services in
of US$55 vs. OT's global ARPU of US$6.6. We valued OT's the Democratic People’s Republic of Korea (DPRK) or
share in Globalive at US$1,530 mn, representing 10% of OT's North Korea, using 3G technology with an exclusivity
period of four years. In partnership with Canada-based
total value. Globalive, OTH won an AWS spectrum in Canada to start
operations by mid 2009.
Building value through mobile banking and Africa: OT
plans to further create value and develop its business through
two key venues: (1) Mobile banking: Western Union (WU)
and OT announced an alliance to introduce mobile remittance
services in selected markets. Mobile banking is likely to appeal
to a wide base of OT's users as it will ease financial and bank- SHAREHOLDER STRUCTURE
Weather Investments 51.9%
ing transactions. Consequently, we expect a positive impact Free Float 48.1%
on OT's ARPU over the medium- to long-term. (2) Targeting Total 100.0%
small-sized investments: OT's management is targeting
small-sized investment opportunities in Africa via Telecel
Global.

Very few opportunities in emerging markets: We reckon

that the scarcity of investment opportunities in emerging mar-
MOHAMED HAMDY
kets compelled OT to seek opportunities elsewhere in devel- MOHAMED.HAMDY@CICH.COM.EG
oped markets and to continue its share buyback program.
However, if investment opportunities pop up, OT may find it STOCK PERFORMANCE | 52 WEEKS
difficult to shore up funds for acquisitions, especially in such
battered global credit markets. Volume ORTE CASE 30 - rebased

LE mn shares
120 6.0
Valuation and recommendation: Following 2Q08 results we
100 5.0
cut our sum-of-the-parts (SOTP) valuation by 9% to LE 96.1/
80 4.0
share (US$86.8/GDR), which still implies a 167% upside po-
tential over the recent market price. The stock is down 60% 60 3.0

YTD and appears oversold over negative news flow from 40 2.0

Asian markets. However, it trades at a PER of 11.3x expected 20 1.0

2008 earnings (adjusted for one-time items), 6% below the 0 -
Nov-07

Jan-08

Jun-08
Jul-08
Dec-07

Feb-08

Mar-08
Apr-08
May-08

Aug-08
Sep-08

Oct-08

regional operators, the likes of Etisalat, MTC, Vodafone

Group, and MTN. Until there is a positive news catalyst the
shares are unlikely to reach its longer-term potential in the cur-
rent environment. Yet, our DCF-based recommendation matrix
places the stock as a BUY, albeit with a HIGH RISK rating.
143
 November 11, 2008
EGYPT | TMT | ORASCOM TELECOM

Balance Sheet (LE mn) 2007A 2008F 2009F 2010F Cash Flow (LE mn) 2007A 2008F 2009F 2010F
Assets NOPAT 7,165 4,715 6,447 7,210
Cash & Cash Equivalent 6,893 11,409 11,563 11,798 Depreciation & Amortization 4,257 5,206 5,917 6,367
Net Receivables 4,375 4,881 5,398 6,083 Gross Cash Flow (COPAT) 11,422 9,921 12,365 13,577
Total Inventory 617 773 855 963 Working Investments Change (287) (417) 564 749
Advance Payment 0 0 0 0 Other Current Items (4,624) (353) 0 0
Other Trading Assets 5,144 100 100 100 Cash After Current Operations 6,511 9,151 12,929 14,326
Other Current Assets 3,501 3,838 3,838 3,838 Financing Payments (6,441) (12,807) (7,257) (6,769)
Total Current Assets 20,530 21,001 21,753 22,782 Cash Before LT Use 70 (3,656) 5,672 7,557
Net Plant 26,689 31,483 32,681 32,767 Net Plant Change (7,811) (9,195) (6,310) (5,648)
Long-Term Investments 0 2,778 2,653 2,227 FCFF (1,300) (44) 6,619 8,678
Intangibles 12,187 12,267 10,511 8,767 Others 8,236 4,252 1,128 1,304
Other Non-current Assets 3,975 1,324 1,324 1,324 Cash Before Financing 495 (8,599) 490 3,212
Goodwill 0 0 0 0 Short-Term Debt 0 0 0 0
Total Assets 63,381 68,854 68,922 67,868 Long-Term Debt 8,501 10,356 (29) (1,489)
Networth (4,776) 3,653 854 (0)
Grey Area (563) 0 0 0
Liabilities & Equity Dividends (1,100) (893) (1,163) (1,488)
ST Debt 10,234 4,634 4,581 3,130 Change in Cash 2,557 4,517 153 235
Payables 13,277 12,704 13,867 15,410
Accrued Expenses 0 0 0 0 Fact Sheet 2007A 2008F 2009F 2010F
Down Payments 0 0 0 0 ROE 66.8% 11.8% 13.5% 15.3%
Put Option Liabilities 0 0 0 0 ROS 43.2% 9.0% 10.6% 12.0%
Other Current Liabilities 378 362 362 362 ROA 18.2% 3.9% 5.1% 6.5%
Total Current Liabilities 23,890 17,701 18,810 18,902 ROIC 15.3% 8.9% 12.5% 14.7%
Total Long-Term Debt 18,792 24,515 19,905 15,286 EBITDA Margin 43.7% 43.3% 42.6% 42.2%
Other Non-Current Liabilities 2,877 3,078 3,078 3,078
LT creditors license fees 0 0 0 0 ATO 0.4 0.4 0.5 0.5
Total Liabilities 45,559 45,293 41,794 37,267 WI/ Sales 14.6% 17.5% 8.8% 1.1%
Deferred Taxes 0 0 0 0 ALEV 4 3 3 2
Other Provisions 0 0 0 0 Liabilities/Networth 3 2 2 1
Minority Interest 521 817 1,200 1,735 Current Ratio 0.9 1.2 1.2 1.2
Shareholders' Equity 17,301 22,743 25,928 28,865
Total Liab. & Equity 63,381 68,854 68,922 67,868 Per-Share Ratios 2007A 2008F 2009F 2010F
Share price 35.98 35.98 35.98 35.98
Income Statement (LE mn) 2007A 2008F 2009F 2010F No. of shares ('000) 899,403 899,403 899,403 899,403
Yearend Subs (k) 70,089 83,538 94,732 105,041
Proportionate Yearend Subs (k) 57,861 67,726 76,436 84,950 EPS 12.86 2.98 3.88 4.92
Revenues 26,754 29,773 32,836 37,008 DPS 1.22 0.99 1.29 1.65
Djezzy 9,955 11,414 12,407 13,354 Revenues/Share 29.75 33.10 36.51 41.15
Mobilink 7,138 6,963 6,610 7,072 BV/Share 19.24 25.29 28.83 32.09
Mobinil 3,997 4,757 5,384 5,911 Gross Cash Flow/Share 12.70 11.03 13.75 15.10
CHEO 0 14 550 1,381 FCFF/Share (1.45) (0.05) 7.36 9.65
Tunisiana 1,499 1,875 2,056 2,131 EBITDA/Share 13.01 14.33 15.56 17.38
Banglalink 1,091 1,569 2,051 2,582 EV/Share 60.59 55.70 50.35 43.34
Telecel 0 0 0 0
GSM 23,679 26,593 29,059 32,430 Multiples 2007A 2008F 2009F 2010F
Non GSM 3,075 3,180 3,777 4,578 P/E 2.8x 12.1x 9.3x 7.3x
EBITDA 11,699 12,886 13,991 15,628 Dividend Yield 3.4% 2.8% 3.6% 4.6%
Djezzy 6,346 7,032 7,444 7,879 P/ Revenue 1.2 1.1 1.0 0.9
Mobilink 3,163 2,891 2,775 3,041 EV/ Revenues 2.0 1.7 1.4 1.1
Mobinil 1,816 2,128 2,263 2,455 P/ COPAT 2.8 3.3 2.6 2.4
CHEO 0 1 99 410 EV/ COPAT 4.8 5.0 3.7 2.9
Tunisiana 776 1,042 1,028 1,023 P/ FCFF (24.9) (735) 4.9 3.7
Banglalink (241) (118) 244 556 EV/ FCFF (41.9) (1,137) 6.8 4.5
Telecel (28) 0 0 0 P/ EBITDA 2.8 2.5 2.3 2.1
GSM 11,832 12,977 13,853 15,364 EV/ EBITDA 4.7x 3.9x 3.2x 2.5x
Non GSM (133) (90) 137 264 P/ BV 1.9x 1.4x 1.2x 1.1x
Depreciation & Amortization (4,257) (5,206) (5,917) (6,367) Note: A = Actual; F = Forecasted
Others (193)
EBIT 7,441 7,488 8,073 9,261 Source: OTH and CICR forecasts
Net Interest Exp./Inc. (2,731) (2,512) (2,446) (1,825)
Share of Income/(Loss) of Associates 4,316 0 (125) (425)
Net Profit from discont. operations 5,213 0 0 0
Capital Gain (1) 0 0 0
Gain (loss) from sale of Inv. (28) 149 0 0
Non-Operating Inc., Net of Exp. 298 (161) 0 0
EBT 14,507 4,964 5,502 7,011
Taxes (2,571) (1,985) (1,626) (2,051)
NPAT 11,935 2,978 3,876 4,960
Minority Interest (372) (296) (383) (535)
Extraordinary Items 0 0 0 0
Attributable Profits 11,563 2,682 3,493 4,425

144
 November 11, 2008

EGYPT | CONSUMER

12M FAIR VALUE | LE 48.3

ORIENTAL WEAVERS CARPETS (OWC)
Diverting to the local haven
Oriental Weavers Carpets (OWC), a vertically-integrated
rug manufacturer, maintains a leading position in the lo-
cal market and a strong footing in global markets. Faced
with the challenges of a slowdown in its major markets,
US and Europe, OWC started diverting unutilized capaci-
ties to the local market in addition to penetrating new
markets. Improvement in the company's margins is fore-
seen on cooling-down of polypropylene prices. OWC’s
earnings are expected to grow at a 5-year CAGR of 7%.
The stock is traded at 5.3x 2008 earnings vs. a peer aver-
age of 11.5x. Our 12-month fair value is LE 48.3/share,
implying a 111% upside potential. Hence, we reiterate our
BUY recommendation with High risk.
Tapping new channels – cooling-down of polypropylene
prices. To offset the US and the European slowdown, OWC
diverted unutilized capacities to the local market to meet
strong demand. Also, OWC started penetrating new markets
such as Chile, Brazil and Mexico. Furthermore, OWC opened
new sales channels in the Gulf and Asia in addition to continu-
ous diversification of its product mix towards high-end seg-
ments. However, the US market remains OWC's center of at-
tention, where steps to increase distribution network are taken
to achieve further growth once the market picks up. On a dif-
ferent front, gross margins were suppressed in 2007 on the
back of the hike in polypropylene prices. However, polypropyl-
ene prices started to cool down, on falling oil prices, which will
help improve the company's margins over the coming period.
Establishing an LE 1.3-bn complex with a capacity of 42
mn sqm. We believe that the new industrial complex, planned
to partially commence operation in 2009, will add further
growth to the company. The project, planned to be built over
three phases in nine years' time till 2016, will be financed with
55% debt and 45% equity. Owing to the global turmoil, plans
BUY | HIGH RISK
SHARE DATA
Reuters; Bloomberg ORWE.CA; ORWE EY
Recent price as of 6-Nov-08 LE 22.89
No. of O/S shares 74.6 mn
Market cap LE 1,707.6 mn
52-wk high / low LE 52.87/ LE 17.12
Avg. daily volume / turnover 0.17 mn / LE 6.95 mn
COMPANY SYNOPSIS
Oriental Weavers Carpets (OWC) was established in 1981
and is operating under Investment Law #8/1997. OWC is
part of the Orientals Holding Co., which is involved in
diversified fields including floor coverings, textiles, petro-
chemicals, real-estate development, and investment. OWC
is the leading Egyptian carpet manufacturer with a local
market share of 85%. Also, OWC has a very strong posi-
tion in the global market, retaining a decent market share
of 14% in 2006. In the US, OWC had a market share of 6%
in the area rugs market in 2007, while MAC had around
19% market share. Exports contributed around 63% of
OWC's top line in 1H08 with sales to the US and Europe
constituted almost 79% of exports. OWC adopts the verti-
cal and horizontal integration methods in its manufacturing
process. OWC processes its own polypropylene fiber,
which is converted into yarn, and it manufactures and
distributes finished products. OPC, a 12% owned subsidi-
ary, supplies 80-90% of OWC's requirement of polypropyl-
ene granules. Total fiber requirements are supplied through
its subsidiaries OWF and EFCO. Carpets and rugs produc-
tion processes are carried out through its main subsidiaries
namely: Oriental Weavers Carpets (OWC), Oriental Weav-
ers International (OWI), MAC, OW China, and OW USA.
Lately, OWC diversified its portfolio to include new prod-
ucts, such tapestry and Axminster which are free of poly-
propylene. A series of developments took place in OWC's
paid-in capital. Lately, in 2008 OWC distributed a 1:3 stock
dividend, whereby the company’s paid-in capital reached
LE 373 mn distributed over 74.6 mn shares.
SHAREHOLDER STRUCTURE
Moh.Farid Khamis & Family 66.0%
Institutions 23.0%
Fitaihi Holding Group Co. 5.0%
Amwal Al Khaleej 1.7%
Free float 4.3%

to proceed with the phases of the complex will more likely de-
pend on the global market situation.
Valuation and recommendation: We downgraded our latest INGY EL-DIWANY
INGY.ELDIWANY@CICH.COM.EG
valuation dated September 22, 2008 by 4% to LE 48.3/share.
This reflected the following: (1) the 200-bps increase in the
STOCK PERFORMANCE | 52 WEEKS
market risk premium to 8%, (2) the 100-bps reduction in the
perpetuity growth to 3% on the back of the global slowdown, Volume ORWE CASE 30 - rebased
and (3) a slight reduction in the expected utilization rate of the LE mn shares
70 1.6
new complex. We incorporated lower estimates of polypropyl- 1.4
60
ene prices than the estimates we previously used. Still, the 1.2
50
stock offers 111% upside potential vs. current market price, 40
1.0
hence we reiterate our BUY recommendation. However, the 30
0.8
ongoing US slowdown - expected to pick up in 2010 - coupled 0.6
20 0.4
with the gradual decline of export rebates are still our main 10 0.2
concerns for the company. Thus, we still maintain our HIGH 0 -
RISK profile for OWC. OWC is currently traded at 5.3x 2008
Nov-07

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08

Mar-08

Apr-08
May-08

Aug-08

Sep-08
Oct-08

earnings versus an international peer average of 11.5x.

145
 November 11, 2008
EGYPT | CONSUMER | OWC

Balance Sheet (LE mn) 2007A 2008F 2009F 2010F Cash Flow (LE mn) 2007A 2008F 2009F 2010F
Assets NOPAT 314 292 344 399
Cash & Cash Equivalent 134 165 140 173 Depreciation & Amortization 163 200 219 237
Net Receivables 625 670 740 851 Gross Cash Flow (COPAT) 477 492 563 636
Total Inventory 1,245 1,453 1,585 1,834 Working Investments Change (118) (183) (143) (250)
Advance Payment 14 16 17 20 Other Current Items 94 12 3 16
Other Trading Assets 41 41 41 41 Cash After Current Operations 454 321 424 402
Other Current Assets 0 0 0 0 Financing Payments (199) (148) (219) (368)
Total Current Assets 2,059 2,344 2,522 2,919 Cash Before Long Term Use 254 174 205 34
Net Plant 1,801 1,822 1,855 1,866 Net Plant Change (232) (221) (253) (248)
Long-Term Investments 88 105 105 105 FCFF 222 100 171 155
Other Non-Current Assets 107 115 121 129 Others 102 126 143 146
Intangibles 697 697 697 697 Cash Before Financing 125 78 95 (68)
Total Assets 4,752 5,083 5,300 5,716 Short-Term Debt 9 (212) (173) 243
Long-Term Debt 51 127 182 7
Liabilities & Shareholders' Equity Networth (169) (1) (55) (59)
Short-Term Debt 531 318 145 388 Grey Area (3) 47 56 59
CP of Long-Term Debt 78 153 275 288 Dividends (131) (7) (130) (149)
Accounts Payable 508 573 625 723 Change in Cash (119) 31 (25) 34
Accrued Expenses 22 24 27 31
Down Payments 59 63 70 80 Fact Sheet 2007A 2008F 2009F 2010F
Taxes Payable 38 38 38 38 ROE 13.7% 12.2% 12.9% 12.9%
Dividends Payable 7 130 149 161 ROS 10.7% 9.8% 10.2% 9.6%
Other Current Liabilities 92 105 109 125 ROA 6.9% 6.4% 7.0% 7.0%
Total Current Liabilities 1,335 1,405 1,437 1,835 ROIC 9.4% 8.4% 9.6% 10.3%
Total Long-Term Debt 734 708 614 333 EBITDA Margin 16.9% 16.5% 17.0% 16.6%
Other Non-Current Liabilities 0 0 0 0 ATO 0.6 0.6 0.7 0.7
Total Liabilities 2,068 2,112 2,051 2,168 WI/ Sales 45.7% 48.4% 48.0% 47.9%
Deferred Taxes 0 0 0 0 ALEV 2.0 1.9 1.9 1.8
Other Provisions 68 67 67 67 Liabilities/Networth 0.9 0.8 0.7 0.7
Minority Interest 213 261 317 376 Current Ratio 1.5 1.7 1.8 1.6
Shareholders' Equity 2,402 2,642 2,865 3,104
Total Liab. & Equity 4,752 5,083 5,300 5,716 Per-Share Ratios 2007A 2008F 2009F 2010F
Recent Share Price 22.89 22.89 22.89 22.89
Income Statement (LE mn) 2007A 2008F 2009F 2010F New No. Of Shares ('000)* 55,249 74,607 74,607 74,607
Revenues 3,067 3,295 3,631 4,175 EPS* 5.94 4.33 4.97 5.37
Cost of Revenues (1,859) (2,102) (2,286) (2,646) DPS* 1.50 1.55 1.78 1.92
Gross Profit 1,208 1,194 1,345 1,529 Revenues/Share 55.5 44.2 48.7 56.0
SG&A (690) (649) (726) (835) Capacity/Share N/A N/A N/A N/A
EBITDA 517 545 618 694 BV/Share 43.5 35.4 38.4 41.6
Depreciation & Amortization (163) (200) (219) (237) Gross Cash Flow/Share 8.6 6.6 7.5 8.5
EBIT 354 344 399 457 FCFF/Share 4.0 1.3 2.3 2.1
Interest Expense (97) (70) (66) (93) EBITDA/Share 9.4 7.3 8.3 9.3
Provisions 0 0 0 0 EV/Share 44.8 36.5 34.9 34.1
Interest Income 5 3 5 6
Investment Income 3 4 5 5 Multiples 2007A 2008F 2009F 2010F
Other Non-Operating Income 121 129 138 138 P/E 3.9x 5.3x 4.6x 4.3x
Other Non-Operating Expenses 6 3 0 5 P/ Revenue 0.4 0.5 0.5 0.4
EBT 392 414 482 518 EV/ Revenues 0.8 0.8 0.7 0.6
Taxes (13) (43) (55) (58) P/ COPAT 2.7 3.5 3.0 2.7
NPAT 379 371 426 460 EV/ COPAT 5.2 5.5 4.6 4.0
Minority Interest (51) (48) (56) (59) P/ FCFF 5.7 17.1 10.0 11.0
Extraordinary Items 0 0 0 0 EV/ FCFF 11.1 27.3 15.2 16.4
P/ EBITDA 2.4 3.1 2.8 2.5
Attributable Profits 328 323 370 401
EV/ EBITDA 4.8 5.0 4.2 3.7
P/ BV 0.5x 0.6x 0.6x 0.6x
* Adjusted for 1-to-3 stock dividend.
Note: A = Actual; F = Forecasted
Source: Company reports and CICR forecasts

146
 November 11, 2008

EGYPT | BUILDING MATERIALS

12M FAIR VALUE | LE 57.7

PAINTS & CHEMICAL INDUSTRIES (PACHIN)
BUY | MODERATE RISK
Wonders of colors SHARE DATA
Reuters; Bloomberg PACH.CA; PCLDq.L PACH
PACHIN remains Egypt’s largest paint producer with a EY
Recent price as of 6-Nov-08 LE 30.45
diversified product portfolio of architectural and industrial No. of O/S shares 20.0 mn
paints, capturing a 42% market share. Furthermore it is Market cap LE 609.0 mn
the sole local printing ink producer with a market share of 52-wk high / low LE 81/ LE 27.5
Avg. daily volume / turnover 0.03 mn / LE 1.74 mn
10%. PACHIN is considered a lucrative investment oppor-
tunity, offering a 90% upside potential to our 12-month fair
COMPANY SYNOPSIS
value. The stock is traded at 2007/08 P/E of 5.5x , with a PACHIN was established in 1958 as an Egyptian joint
53% discount to an international peer average of 11.8x. stock company with a paid-in capital of LE 15 mn
distributed over 150k shares at a par value of LE
100/share. PACHIN was nationalized in 1961. In 1962
and 1963 the Ammonia & Chemical Co., the Hinshold
Perpetual exclusivity license: PACHIN had acquired a per- Paints & Oil Co. and Bahari Paints Co. were merged
within PACHIN. On August 21, 1993, PACHIN executive
petual exclusive license for the Danish DYRUP trademark regulations were amended to be in accordance with
back in December 2006, covering sale and production in Public Sector Law #203/1991 and became affiliated to
the Holding Company for Chemical Industries. In
Egypt, Sudan, Libya, and Ethiopia. Its existence in such diver- January 1994, paid-in capital was increased to LE 80 mn.
sified markets allows PACHIN to reap the fruits of the real- In May 1994, paid-in capital was further increased to LE
100 mn. In August 1996, a stock split at a ratio of 10-to-1
estate booms in those markets, further balancing sales. took place to bring the number of shares to 10 mn. In
October 1997, the company's article of incorporation was
Enjoying a 10-year tax exemption: PACHIN for Ink was es- amended, by virtue of which, it became under the
tablished before the new Income Tax Law came into effect, umbrella of Law #159/1981 as PACHIN became a private
sector company, with a 27% stake floated on London
thus it enjoys a 10-year tax exemption starting 2009. Stock Exchange (LSE) via a GDR offering. Finally, in
February 2000, PACHIN paid-in capital was doubled to
Growth in the H&RE sector: The Egyptian real-estate sector LE 200 mn distributed over 20 mn shares at a par value
of LE 10/share financed from reserves. The main
is growing at an average annual growth rate of 7-9%. Said business of the company is the production of paints,
growth should positively impact the company's performance varnishes, printing inks, and animal bone products.
PACHIN monopolized the Egyptian paints' market till
over the coming five years, especially in the decorative seg- early 1990s when low barriers-to-entry enticed many
ment, which is PACHIN'S main sales contributor (by 81%). players to step in. PACHIN’s product mix also includes
animal charcoal, used in sugar refining. Furthermore,
Decorative paints' growth led by synthetic paints: PACHIN it produces resins and sells the surplus to its
competitors.
boasts the largest market share (52%) in synthetic paints,
thanks to scattered sales outlets all over Egypt. As such, this SHAREHOLDER STRUCTURE
Holding Co. for Chemical Ind. 37.4%
segment is poised to post the highest profit margin in view of Insurance companies 3.4%
the company's cost-passing ability of any increase in raw ma- Funds & Instit. Investors (incl. 40.0%
1% GDRs)
terials prices. Free Float 19.2%
Solid operational performance: PACHIN showed a strong Total 100.0%
growth historically with an earnings 4-year CAGR of 15% over
FY02/03-FY06/07. Moreover the company was able to sustain
its profitability margins with an EBITDA margin ranging be-
tween 20-22% over the same periods. 9M FY07/08 revealed
a bottom line profit of LE 85.8 mn, which is in line with our esti-
mates of LE 110 mn for FY07/08. MARY MILAD
MARY.MILAD@CICH.COM.EG
Valuation and recommendation: Applying our DCF valuation
we reached a 12-month fair value of LE 57.7/share (US$3.4/ STOCK PERFORMANCE | 52 WEEKS
GDR), implying a hefty upside potential of 90%. Thus, we up-
Volume PACH CASE 30 - rebased
grade the stock from HOLD to BUY recommendation with a
mn shares
MODERATE RISK rating. It is worth mentioning that company 90
LE
0.8
officials had revealed their intent to eventually dispose of Al- 80 0.7
70 0.6
Amireya idle land post relocation to Al-Obour City. Incorporat- 60 0.5
ing this plot of land NAV of LE 80 mn into our valuation en- 50
0.4
40
hances our valuation by another LE 4/share. 30 0.3
20 0.2
10 0.1
0 -
Nov-07

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08

Mar-08

Apr-08
May-08

Aug-08

Sep-08
Oct-08

147
 November 11, 2008
EGYPT | BUILDING MATERIALS| PACHIN

Balance Sheet (LE mn) Jun-07 A Jun-08 P Jun-09 P Jun-10 P Fact Sheet Jun-07 A Jun-08 P Jun-09 P Jun-10 P
Assets ROE 20.6% 21.5% 24.1% 25.6%
Cash & Cash Equivalent 114.6 118.8 124.9 136.6 ROS 19.3% 18.9% 19.2% 19.5%
Net Receivables 65.6 64.9 62.9 69.4 ROA 16.4% 17.1% 19.3% 20.6%
Total Inventory 165.1 171.0 198.9 218.9 ROIC 18.2% 18.7% 21.1% 22.4%
Advance Payments to Suppliers 0.0 0.0 0.0 0.0 EBITDA Margin 20.9% 20.4% 20.4% 20.5%
Other Trading Assets 0.0 0.0 0.0 0.0
Other Current Assets 0.0 0.0 0.0 0.0 ATO 0.9 0.9 1.0 1.1
Total Current Assets 345.3 354.7 386.8 424.8 WI/ Sales 40.1% 37.1% 34.2% 33.7%
Net Plant 208.1 228.0 225.1 222.3
Long-Term Investments 1.3 2.3 2.3 2.3 ALEV 1.30 1.29 1.28 1.27
Other Trading Non-Current Assets 33.8 34.8 33.8 33.8 Debt/ Tangible Networth 0.18 0.18 0.17 0.16
Other Non-Current Assets 9.5 9.5 9.5 9.5 Current Ratio 4.3 3.9 4.4 4.7
Intangibles 16.0 14.4 12.8 11.2
Total Assets 613.9 643.4 670.0 703.6
Cash Flow Jun-07 A Jun-08 P Jun-09 P Jun-10 P
Liabilities & Shareholders' Equity NOPAT 95.0 103.9 121.7 135.7
Short-Term Debt 8.0 17.5 7.1 3.0 Depreciation & Amortization 11.9 13.0 14.2 15.0
Current Portion Of Long-Term Debt 0.0 0.0 0.0 0.0 Gross Cash Flow (COPAT) 106.8 116.9 135.9 150.6
Accounts Payable 35.2 33.1 38.5 42.3 WI Change (39.9) (5.1) (16.9) (19.9)
Accrued Expenses 8.4 9.4 10.9 12.0 Other Current Items (2.5) (1.0) 1.0 0.0
Down Payments to Customers 11.6 12.9 15.0 16.5 Cash After Current Operations 64.5 110.8 120.0 130.7
Taxes Payable 7.1 7.1 7.1 7.1 Financing Payments (2.9) (1.9) (0.8) (0.3)
Dividends Payable 0.0 0.0 0.0 0.0 Cash Before Long-Term Use 61.6 108.8 119.2 130.4
Other Spontaneous Finance 0.0 0.0 0.0 0.0 Net Plant Change (19.4) (32.8) (11.4) (12.1)
Other Current Liabilities 9.9 9.9 9.9 9.9 FCFF 47.6 78.9 107.6 118.6
Total Current Liabilities 80.3 89.9 88.6 90.9 Others 26.8 1.9 7.1 1.7
Total Long-Term Debt 0.0 0.0 0.0 0.0 Cash Before Financing 69.1 77.9 114.9 120.0
Other Non-Current Liabilities 3.8 0.0 0.0 0.0 Short-Term Debt 1.9 9.5 (10.4) (4.1)
Long-Term Spontaneous Finance 0.0 0.0 0.0 0.0 Long-Term Debt (3.0) 0.0 0.0 0.0
Total Liabilities 84.0 89.9 88.6 90.9 Net-worth 0.2 5.5 6.5 7.2
Deferred Taxes 39.2 40.8 42.8 45.0 Grey Area 6.4 1.2 1.5 1.8
Other Provisions 0.6 0.6 0.6 0.6 Dividends (70.2) (93.5) (110.2) (123.2)
Minority Interest 0.0 0.0 0.0 0.0 Change in Cash 4.3 0.6 2.4 1.7
Shareholders' Equity 490.0 512.0 538.0 566.9
Total Liabilities & Equity 613.9 643.4 670.0 703.6

Per Share Ratios Jun-07 A Jun-08 P Jun-09 P Jun-10 P

Income Statement (LE mn) Jun-07 A Jun-08 P Jun-09 P Jun-10 P
Share Price 30.45 30.45 30.45 30.45
Net Sales 522.2 580.9 675.6 744.6
Actual No. Of Shares '000 20,000 20,000 20,000 20,000
COGS (399.5) (447.3) (520.2) (572.5)
New No. Of Shares '000 20,000 20,000 20,000 20,000
Gross Profits 122.6 133.6 155.4 172.2
EPS 5.04 5.50 6.48 7.25
SG&A (13.5) (15.0) (17.5) (19.2)
Diluted EPS 5.04 5.50 6.48 7.25
EBITDA 109.1 118.6 137.9 152.9
Div/Share 3.50 4.68 5.51 6.16
Depreciation & Amortization (11.9) (13.0) (14.2) (15.0)
Revenues/Share 26.11 29.05 33.78 37.23
EBIT 97.28 105.6 123.7 137.9
Units Sold/Share 4.20 4.50 4.43 4.55
Interest Expense (2.9) (1.9) (0.8) (0.3)
BV/Share 24.50 25.60 26.90 28.35
Provisions (0.1) (0.5) (0.5) (0.5)
Gross Cash Flow/Share 5.34 5.84 6.79 7.53
Interest Income 3.3 4.8 5.0 5.5
FCFF/Share 2.38 3.95 5.38 5.93
Investment Income 3.4 3.7 4.1 4.5
EBITDA/Share 5.46 5.93 6.90 7.65
Other Non-Operating Income 2.1 2.1 2.1 2.1
EV/Share 26.43 26.43 26.43 26.43
Other Non-Operating Expenses (0.5) (2.0) (2.0) (2.0)
EBT 102.5 111.8 131.6 147.2
Taxes (1.6) (1.7) (2.0) (2.2)
NPAT 100.9 110.1 129.7 145.0
Minority Expense (0.0) (0.1) (0.1) (0.1) Multiples Jun-07 A Jun-08 P Jun-09 P Jun-10 P
Extraordinary Items 0.0 0.0 0.0 0.0 P/E 6.0 5.5 4.7 4.2
Attributable Profits 100.9 110.1 129.6 144.9 Diluted P/E 6.0 5.5 4.7 4.2
Div Yield % 11.5% 15.4% 18.1% 20.2%
P/ Revenue 1.2 1.0 0.9 0.8
EV/ Revenues [ EV/ Rev] 1.0 0.9 0.8 0.7
P/ COPAT 5.7 5.2 4.5 4.0
EV/ COPAT 4.9 4.5 3.9 3.5
P/ FCFF 12.8 7.7 5.7 5.1
EV/ FCFF 11.1 6.7 4.9 4.5
P/ EBITDA 5.6 5.1 4.4 4.0
EV/ EBITDA 4.8 4.5 3.8 3.5
P/ BV 1.24 1.19 1.13 1.07
Note: A = Actual; P = Projected
Source: PACHIN & CICR estimates

148
 November 11, 2008

EGYPT | HOUSING & REAL ESTATE

12M FAIR VALUE | LE 18.8

PALM HILLS DEVELOPMENTS
BUY | HIGH RISK
Excavation for diversification
SHARE DATA

Reuters; Bloomberg PHDC.CA; PHDC EY

Palm Hills Developments (PHD) is an elite local real-estate
developer, with its name associated with high-end resi-
dential real-estate and resort projects, targeting mainly
the upper class. PHD's key strength lies in its experi-
enced management, well-recognized designs and finish-
ing, a well diversified land bank all over Egypt amounting
to 48.3 mn sqm, and a vertically-integrated business
model. With a WACC of 22.7%, our DCF model indicates a
132% upside to our 12-month fair value of LE 18.76/share.
We initiate a BUY recommendation with a MODERATE
RISK rating.
Diversifying into the middle class: As the luxurious market
reaches saturation, PHD has targeted the middle class via
Village Gate – Phase I project that encompasses residential
apartments of 88 sqm. PHD was able to sell 62% of the pro-
ject within 30 days of its lunch in June 2008. PHD is diversify
more into the middle class to overcome the current saturation
in the high-end.
Regional expansion: To capitalize on the growing demand in
Saudi Arabia, PHD announced the establishment of two pro-
Recent price as of 6-Nov-08 LE 8.10
No. of O/S shares 465.9 mn
Market cap LE 3,774.0 mn
52-wk high / low LE 25/ LE 7.06
Avg. daily volume / turnover 0.6 mn / LE 5.16 mn
COMPANY SYNOPSIS
PHD was incorporated in 2005 as a joint stock company,
working under the provisions of the Investment Guarantees
and Incentives Law No. 8/1997 and the Companies' Law
No. 159/1981, and the statutes of Capital Market Law No.
95/1992.
PHD was established as a sister company of Al Ethadia to
benefit from Law No. 8/1997 provisions. In January 2008,
PHD acquired all the assets of Al Ethadia that was estab-
lished in 1997 with the objective of developing residential
housing projects in 6th of October City.
PHD's core activities includes construction of integrated
projects and management of its residential compounds
post completion, resorts and associated entertainment
activities, investment in real estate, and sale and lease of
properties.
In this regards, PHD owns 11 subsidiaries, and entered
into strategic partnerships to pursue its development pro-
jects over a land bank amounting to 48.3 mn sqm.

jects in Riyadh and Jeddah with an estimated value of LE 3

bn, with PHD's share amounting to 51%. Both projects spread
over 6.7 mn sqm. Such a regional expansion is expected to
widen the company's scope of operation and enhance its
value.
Increasing its land bank: since the beginning of the year, SHAREHOLDER STRUCTURE
PHD was able to increase its land bank by 31%, to reach 48.3
MMID 48.6%
mn sqm, by acquiring: (1) 6.6 mn sqm in Saudi Arabia, (2) 0.8 Goldman Sachs 5.3%
mn sqm in the Sixth of October City, (3) 0.2 mn sqm in New Banks, Ins Co., Others 14.7%
Cairo, (4) 1.3 mn sqm on the North Coast, and (5) 1 mn sqm Free Float 31.4%
Total 100.0%
in Aswan.
Unrecognized revenues: 9M08 unit reservations grew by
54% to reach an all-time high of LE 3,668 mn compared to LE
2,377 mn in a year ago period. The increase in reservations
had no effect on 9M08 consolidated net sales figure due to the
revenue recognition method used by PHD where it recognizes HANY MOHAMED SAMY, CFM
HANY.SAMY@CICH.COM.EG
its villas and town houses revenues from land upon signature
of a contract, while revenues from construction are recognized
on a percentage of completion basis with a minimum threshold STOCK PERFORMANCE | SINCE IPO
of 50%. Revenues from apartments and multi tenant buildings
Volume PHDC CASE 30 - rebased
are recognized upon delivery.
LE mn shares
25 18.0
A vertically integrated business model: PHD has secured 16.0
exclusive affiliation with Shehab Mazhar (a prominent de- 20 14.0
signer), is cooperating with Coldwell Banker (a well-known 15
12.0
10.0
real-estate broker), and signed a joint venture agreement with 8.0
10
Hassan Allam Sons (a resourceful contractor). All above cre- 6.0
ate a highly-efficient, vertically-integrated business model. 5 4.0
2.0
Valuation and recommendation: We used the DCF method 0 -
Jun-08

Jul-08
May-08

Aug-08

Sep-08

Oct-08

to value PHD, yielding a 12-month fair value of LE 18.76/

share, implying a 132% upside potential. Hence, we initiate
coverage on the stock with a BUY recommendation and a
MODERATE RISK rating.

149
 November 11, 2008
EGYPT | HOUSING & REAL ESTATE | PALM HILLS DEVELOPMENTS

Balance Sheet (LE mn) 2007A 2008F 2009F 2010F Cash Flow (LE mn) 2007A 2008F 2009F 2010F
Assets NOPAT 281 959 1,389 2,056
Cash & Cash Equivalents 386 1,106 1,066 2,166 Depreciation & Amortization 2 4 8 8
Net Receivables 287 1,088 1,753 2,293 Gross Cash Flow (COPAT) 283 964 1,396 2,064
Total Inventory 3,768 3,797 4,561 4,654 Working Investments Change (866) (1,092) (529) (1,319)
Advance Payment 15 49 98 310 Other Current Items 102 430 0 0
Other Trading Assets 0 0 0 0 Cash After Current Operations (481) 302 867 746
Other Current Assets 74 0 0 0 Financing Payments (42) (202) (5) (5)
Total Current Assets 4,531 6,041 7,478 9,423 Cash Before Long Term Use (523.88) 100 862 741
Net Fixed Assets 480 509 508 507 Net Plant Change (451) (33) (7) (8)
Long-Term Investments 109 120 120 120 FCFF (933) 269 860 738
Long -Term Real Estate Investments 0 0 0 0 Others (112) 2 278 593
Long-Term Loans 0 0 0 0 Cash Before Financing (1,087) 68 1,134 1,326
Other Non-Current Assets 626 4,158 6,679 8,447 Short-Term Debt 486 (466) 8 (0)
Intangibles 0 0 0 0 Long-Term Debt 182 0 0 (0)
Total Assets 5,746 10,828 14,786 18,497 Networth 502 1,127 (911) 85
Grey Area 73 (9) (9) (9)
Liabilities & Shareholders' Equity Dividends 0 0 (261) (302)
Short-Term Debt 486 20 28 28 Change in Cash 156 720 (40) 1,100
CP of Long Term Debt 183 1 1 1
Accounts Payable 789 274 283 350
Accrued Expenses 1 2 4 14 Fact Sheet 2007A 2008F 2009F 2010F
Deferred Revenues 1,000 5,171 8,886 10,371 ROE 18.3% 28.7% 41.8% 34.2%
Taxes Payable 33 1 1 1 ROS 35.3% 47.0% 45.2% 25.9%
Dividends Payable 0 0 0 0 ROA 3.3% 8.0% 8.9% 8.2%
Royalties Payables 0 0 0 0 ROIC 7.7% 20.2% 27.8% 28.8%
Other Current Liabilities 265 621 621 621 Gross Profit Margin 73.8% 75.8% 69.2% 51.7%
Total Current Liabilities 2,757 6,089 9,823 11,385 EBITDA Margin 52.9% 65.8% 59.2% 41.7%
Long-Term Debt 3 3 2 1 ATO 0.1 0.2 0.2 0.3
Long-Term Land Purchase Liability 1,856 1,455 1,198 929 WI/ Sales 426.3% -27.9% -94.9% -59.3%
Other Non-Current Liabilities 0 0 0 0 ALEV 5.6 3.6 4.7 4.2
Liabilities/Networth 4.5 2.5 3.5 2.8
Total Liabilities 4,616 7,547 11,023 12,315
Current Ratio 1.6 1.0 0.8 0.8
Deferred Taxes 0 0 0 0
Other Provisions 0 178 536 1,670
Minority Interest 99 90 81 72
Shareholders' Equity 1,032 3,014 3,146 4,440
Per-Share Ratios 2007A 2008F 2009F 2010F
Total Liab. & Equity 5,746 10,828 14,786 18,497
Share Price 8.10 8.10 8.10 8.10
No. Of Shares (000) 465,920 465,920 465,920 465,920
Income Statement (LE mn) 2007A 2008F 2009F 2010F
EPS 0.4 1.9 2.8 3.3
Net Revenues 535 1,839 2,909 5,863
DPS 0.0 0.0 0.6 0.6
Cost of Revenues (140) (446) (895) (2,835) Revenues/Share 1.1 3.9 6.2 12.6
Gross Profit 395 1,393 2,014 3,029 Capacity/Share N/A N/A N/A N/A
SG&A (112) (184) (291) (586) BV/Share 2.2 6.5 6.8 9.5
EBITDA 283 1,210 1,723 2,442 Gross Cash Flow/Share 0.6 2.1 3.0 4.4
Depreciation & Amortization (2) (4) (8) (8) FCFF/Share (2.0) 0.6 1.8 1.6
EBIT 281 1,205 1,715 2,434 EBITDA/Share 0.6 2.6 3.7 5.2
Interest Expense (42) (19) (4) (4) EV/Share 8.7 5.8 5.9 3.5
Interest on Land Purchase Liability (47) (53) (117) (117)
Provisions 0 (178) (358) (1,134) Multiples 2007A 2008F 2009F 2010F
Interest Income 8 5 7 11 P/E 20.0x 4.4x 2.9x 2.5x
Amortization of Notes Receivables Discount 5 104 383 694 Diluted P/E 20.0 4.4 2.9 2.5
Investment Income 0 0 0 0 P/ Revenue 7.1 2.1 1.3 0.6
Other Non-Operating Income 5 5 5 5 EV/ Revenues 7.6 1.5 0.9 0.3
EBT 210 1,069 1,631 1,889 P/ COPAT 13.3 3.9 2.7 1.8
Taxes (30) (214) (326) (378) EV/ COPAT 14.4 2.8 2.0 0.8
NPAT 180 855 1,305 1,511 P/ FCFF (4.0) 14.0 4.4 5.1
Minority Interest 9 9 9 9 EV/ FCFF (4.4) 10.0 3.2 2.2
Extraordinary Items 0 0 0 0 P/ EBITDA 13.3 3.1 2.2 1.5
Attributable Profits 189 864 1,314 1,520 EV/ EBITDA 14.4 2.2 1.6 0.7
P/ BV 3.7x 1.3x 1.2x 0.8x

Source: Company reports and CICR estimates

150
 November 11, 2008

EGYPT | TMT

12M FAIR VALUE | LE 11.5

RAYA HOLDING
BUY | MODERATE RISK
An option on future growth
SHARE DATA
Reuters; Bloomberg RAYA.CA; RAYA EY
Recent price as of 6-Nov-08 LE 4.55
No. of O/S shares 56.9 mn
Raya Holding (RAYA) maintains a high market share in Market cap LE 0,258.9 mn
the mobile distribution segment and is considered the 52-wk high / low LE 16.4/ LE 3.8
largest contact center in Egypt. We believe that the con- Avg. daily volume / turnover 0.71 mn / LE 8.83 mn
tribution of the Trade LoB (76% contribution to top line)
will decrease because of the forthcoming slower pace of
net adds of mobile subscribers. Still, RAYA is tapping COMPANY SYNOPSIS
more growth channels that will add value over the longer Raya Holding (RAYA) is initially the offspring of a merger
run. Furthermore, an M&A scenario is quite possible conducted in 1999 between seven companies in the IT and
given that the stock is traded at a 9% lower than its par mobile distribution fields. Operating under Law 95/1992,
RAYA’s activities encompass currently three main lines of
value of LE 5. Traded at 4.1x 2008 earnings vs. a peer av- business (LoBs), namely retail & distribution, contributing
erage of 10x yields a fair value that it is almost consistent to around 76% of the company’s operations, IT, and
Contact Center business after the sale of the Telecom
with our DCF valuation of LE 11.5/share. Thus, we reiter- LoB. Since its inception, the company underwent four
ate our BUY recommendation with MODERATE RISK. development phases: 1) a merger phase, 2) a
diversification phase that occurred in 2000 and 2001
whereby three companies were acquired and seven new
companies were established. 3) Streamlining phase where
mergers between small companies were effected and
Trade: main revenue generator, but ex-growth: RAYA's subsidiaries were renamed to consolidate the RAYA brand
core operations of mobile handsets retail and distribution, IT name in 2002. 4) Expansion phase starting 2003 and
and call center businesses have been better reflected in bot- onwards, in which RAYA set its eyes on regional and
international expansion. Currently, RAYA stands as one of
tom-line profits since 2007. We believe the Trade LoB (the the flagships in Egypt’s CIT industry, commanding a high
major revenue generator with a 76% contribution) will con- market share in the local mobile distribution market, and
capturing a considerable part of the IT segment with a
tinue to be RAYA's main segment. However, RAYA will be broad array of services offered. In the IT LoB, RAYA has
exposed to the forthcoming slower pace of net adds of mobile presence in Algeria, Nigeria, Saudi Arabia, Kuwait, UAE,
and lately the US. On the retail level, RAYA is currently
subscribers along with growing competition from other mobile planning to reach a total of 105 outlets in Egypt by end of
retailers and distributors. We expect Trade LoB contribution to 2009, up from 62 outlets in 2Q08. In 1H07, RAYA
top line will decrease to 71% by end of 2012. We also reckon launched Kazza Mizza retail chain addressing C and D
classes. With 5 outlets in Algeria, RAYA also shop-in-shop
that RAYA's market share lies within the range of 30-35%. agreements with 25 shops of Nedjma, the third mobile
operator in Algeria.
Tapping more growth channels that will add more value
over the longer run: For further expansions in the call center
business, RAYA is planning to bid for the establishment of the
contact center park in Maadi. Also, RAYA opened a new con-
tact center with a capacity of 1,000 agents. In June 2008.
RAYA inaugurated Nokia Maintenance Center in Egypt. Said SHAREHOLDER STRUCTURE
Financial Holding Int'l LTD 12.0%
center is considered the largest regional maintenance hub.
Medhat Khalil & Family 4.1%
Also, RAYA started penetrating the outsourcing, the con- El-Tawil Family & others 5.8%
sumer bill payment and the lease businesses. Public Sector 9.4%
Free float 68.8%
Catalysts and risks: Participation in the contact center park
and the penetration of its trade LoB to a new market are the INGY EL-DIWANY
main catalysts for further growth. Yet, competition remains the INGY.ELDIWANY@CICH.COM.EG
company's main risk. Competition is faced from local distribu-
tors and retailers in the trade LoB whereas RAYA's IT LoB STOCK PERFORMANCE | 52 WEEKS
faces competition from Indian suppliers in the gulf.
Volume RAYA CASE 30 - rebased
A good acquisition target: We believe that RAYA could still
LE mn shares
be a potential target for acquisition, given that the stock is 20 8.0
18
traded at 43% and 9% discount to book value and its par 16
7.0
6.0
value of LE 5, respectively. 14
12 5.0
Valuation and recommendation: Our 12-month fair value is 10 4.0
8 3.0
cut down from LE 15.2/share to LE 11.5/share after incorporat- 6
2.0
ing (1) a higher discount rate and (2) revising our forecasts 4
1.0
2
going forward, still offering a 152% upside potential – hence 0 -
Nov-07

we reiterate our BUY recommendation. Due to the recent mar-

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08

Mar-08

Apr-08
May-08

Aug-08

Sep-08
Oct-08

ket sell-off, RAYA is traded at 4.1x 2008 earnings vs. interna-

tional peers' average of 10x expected earnings.

151
 November 11, 2008
EGYPT | TMT | RAYA HOLDING

Balance Sheet (LE Millions) 2007A 2008F 2009F 2010F Cash Flow (LE mn) 2007A 2008F 2009F 2010F
Assets NOPAT 82.1 69.6 93.3 94.7
Cash & Cash Equivalent 124 59 62 65 Depreciation & Amortization 16 22 27 32
Net Receivables 279 288 294 310 Gross Cash Flow (COPAT) 98 92 120 126
Total Inventory 294 301 321 339 Working Investments Change 23 (6) (9) (19)
Advance Payment to Suppliers 10 11 11 12 Other Current Items (48) 2 6 6
Other Trading Assets 0 0 0 0 Cash After Current Operations 73 88 117 113
Other Current Assets 0 0 0 0 Financing Payments (33) (57) (51) (45)
Total Current Assets 708 658 688 726 Cash Before Long Term Use 40 31 66 67
Net Plant 232 270 270 271 Net Plant Change (94) (60) (27) (33)
Long-Term Investments 28 30 30 30 FCFF (21) 28 90 80
Other Trading Non-Current Assets 63 77 77 77 Others 94 (2) 16 16
Other Non-current Assets 76 80 80 80 Cash Before Financing 41 (31) 55 51
Intangibles 67 78 78 78 Short-Term Debt 15 (43) (25) (19)
Total Assets 1,175 1,193 1,223 1,261 Long-Term Debt 32 10 0 0
Networth (47) (4) (1) (2)
Liabilities & Shareholders' Equity Grey Area 27 11 (3) (3)
Short-Term Debt 246 203 177 158 Dividends (62) (8) (21) (24)
Current Portion of Long-Term Debt 21 20 19 19 Change in Cash 6 (65) 3 3
Accounts Payable 171 175 187 197 0 0 (0) 0
Accrued Expenses 48 49 53 55 Fact Sheet 2007A 2008F 2009F 2010F
Down Payments to customers 28 32 34 36 ROE 21.9% 13.4% 13.8% 13.7%
Taxes Payable 18 10 10 10 ROS 4.2% 2.7% 2.9% 3.0%
Dividends Payable 8 21 24 26 ROA 8.1% 5.3% 5.9% 6.2%
Other Spontaneous Finance 0 0 0 0 ROIC 11.1% 9.5% 12.7% 12.7%
Other Current Liabilities 94 96 102 108 Gross Margin 13.2% 14.4% 14.4% 14.5%
Total Current Liabilities 634 607 607 610 Trade LoB 10.7% 12.5% 12.5% 12.6%
Total Long-Term Debt 69 59 40 21 IT LoB 17.3% 16.7% 16.0% 15.8%
Other Non-Current Liabilities 1 1 1 1 Call Center LoB 41.5% 41.5% 40.7% 40.0%
Long-Term Spontaneous Finance 0.0 0 0 0 EBITDA Margin 4.9% 5.8% 5.8% 5.8%
Total Liabilities 704 667 648 633 ATO 1.9 2.0 2.0 2.1
Deferred Taxes 31.5 46 46 46 WI/ Sales 0.2 0.2 0.2 0.2
Other Provisions 0 0 0 0 ALEV 2.7 2.5 2.4 2.2
Minority Interest 6 8 9 11 Liabilities/Networth 1.6 1.4 1.2 1.1
Shareholders Equity 433 472 519 572 Current Ratio 1.1 1.1 1.1 1.2
Total Liab. & Shareholders' Equity 1,175 1,193 1,223 1,261
4% 3% Per-Share Ratios 2007A 2008F 2009F 2010F
Income Statement (LE Millions) 2007A 2008F 2009F 2010F Share Price 4.6 4.6 4.6 4.6
Revenues 2,273 2,342 2,493 2,631 No. Of Shares (mn) 57.0 57.0 57.0 57.0
Trade LoB 1,951 1,833 1,912 1,976 EPS 1.7 1.1 1.3 1.4
IT LoB 374 452 505 569 DPS 1.2 0.4 0.4 0.5
Call Center LoB 67 79 98 110 Revenues/Share 39.9 41.1 43.7 46.2
intercompany sales (119) (22) (23) (24) BV/Share 7.6 8.3 9.1 10.0
Cost of Revenues (1,972) (2,005) (2,133) (2,249) Gross Cash Flow/Share 1.7 1.6 2.1 2.2
Gross Profits 301 337 360 382 FCFF/Share (0.4) 0.5 1.6 1.4
SG&A (190) (201) (216) (229) EBITDA/Share 1.9 2.4 2.5 2.7
EBITDA 110 135 144 153 EV/Share 8.3 8.5 7.6 6.9
Depreciation & Amortization (16) (22) (27) (32)
EBIT 94 113 118 121 Multiples 2007A 2008F 2009F 2010F
Interest Expense (24) (37) (31) (26) P/E 2.7x 4.1x 3.6x 3.3x
Provisions (13) (8) (8) (8) Dividend Yield 27% 8% 9% 10%
Interest Income 3 3 4 4 P/ Revenue 0.1x 0.1x 0.1x 0.1x
Investment Income 9 8 8 9 EV/ Revenues 0.2x 0.2x 0.2x 0.1x
Other Non-Operating Income 47 7 7 7 P/ COPAT 2.6x 2.8x 2.2x 2.1x
Other Non-Operating Expenses 0 0 0 0 EV/ COPAT 4.8x 5.2x 3.6x 3.1x
EBT 115 86 97 107 P/ FCFF -12.5x 9.2x 2.9x 3.2x
Taxes (21) (22) (24) (27) EV/ FCFF -22.7x 17.2x 4.8x 4.9x
NPAT 94 65 73 80 P/ EBITDA 2.3x 1.9x 1.8x 1.7x
Minority Interest 1 (2) (1) (2) EV/ EBITDA 4.3x 3.6x 3.0x 2.6x
Extraordinary Items - - - - P/ BV 0.6x 0.5x 0.5x 0.5x
Attributable Profits 95 63 72 79 Source: Raya Holding and CICR estimates

152
 November 11, 2008

EGYPT | CEMENT

12M FAIR VALUE | LE 93

SINAI CEMENT
BUY | MODERATE RISK
Awaiting nearby competition with vigilance
SHARE DATA

Reuters; Bloomberg SCEM.CA; SCEM EY

Recent price as of 6-Nov-08 LE 32.86
Sinai Cement (SCEM), a grey cement producer since No. of O/S shares 35.0 mn
2001, comprises a mono-production line cement factory Market cap LE 1,150.1 mn
52-wk high / low LE 78.89/ LE 29.02
of 1.5 mtpa capacity with production off its second 1.5- Avg. daily volume / turnover 0.05 mn / LE 3.45 mn
mtpa line expected by end of 2008. By 2010 we believe
that the Sinai market will witness competition between
COMPANY SYNOPSIS
two grey cement players as the new player North Sinai
Cement, a Greenfield license winner in October 2007, en- Sinai Cement (SCEM) was incorporated under Law no.
8/1997 in 1998 as a shareholding company; with the
ters the market. The stock is traded at a PER of 2.5x 2009 objective of producing cement, packages and all other
earnings, a 67% discount to a peer average of 7.6x. Our cement products. In July 2000, SCEM had its shares listed
on the Egyptian Exchange (EGX).
DCF concluded 183% upside potential with a BUY at
MODERATE RISK rating. The company was established with a paid-in capital of LE
250 mn distributed over 25 mn shares at a par value of LE
10/share. Currently, SCEM has an authorized capital of LE
1 bn mn with a paid-in capital of LE 350 mn distributed
New production line: Early August 2008, SCEM announced over 35 mn shares with a par value of LE 10/share.
the completion of all installation activities for its second 1.5- In August 2006, SCEM signed a contract with ASEC,
mpta production line. Total required investment cost is esti- ARASCO and FL Smidth to install an additional clinker
capacity of 4k tpd equivalent to a cement capacity of 1.5
mated at LE 950 mn. mtpa, commencing construction in September 2006.
Overcapacity utilization to be hit by 2010: Given the new SCEM reached 5% local market share in 2007, selling
capacities entering the cement market, we expect SCEM’s 1,565k tons and 5% in 8M08, selling 1,404k tons.
utilization rate (132% in 2007 and the highest in the market) Meanwhile, 10% export market share in 2007 was
reached, exporting 418k tons (c. 21% of production) and
to decline gradually over 2008-12 to 100% in 2012 – yet still 4% in 8M08, exporting 31k tons (c. 2% of production).
higher than 79% for the market then.
Immediate post ban exports: Although not permitted to ex-
port during the 6-month export ban that ended in October
2008, SCEM was able to resume exporting as it immediately
initiated export contracts at prices higher than SCEM's own SHAREHOLDER STRUCTURE
expectations given the global slowdown. Said exports are Vica Misr Cement Industries 39.6%
mainly heading to the South (e.g. Eritrea, Djibouti, and Ethio- Sama Cement 9.4%
Socisl Insurance Fund 9.4%
pia), which we believe is currently a better export market than Al-Arabia Co. for Indust. Inv. 5.8%
that of Europe given the recent global financial crisis. Others 9.6%
Free Float 26.1%
Investments: SCEM holds a 25.4% stake in Sinai White Ce- Total 100.0%
ment (SWCC), which comprises a production line of white
cement, had acquired a license for a second production line in
October 2007. Our DCF valuation includes such an invest-
ment. On the other hand, SCEM is currently considering the
ready-made concrete business. Yet, we have not incorpo- GHADA REFKY
rated such development in our DCF valuation till further de- GHADA.REFKY@CICH.COM.EG
tails are made available.
Acquisitions? We understand that winners of recent licenses STOCK PERFORMANCE | 52 WEEKS
are permitted to join others during the pre-production phase,
Volume SCEM CASE 30 - rebased
then can sell the whole investment by the initial production
LE mn shares
release if desired so. As such, we believe that SCEM may 100 0.5
consider buying if and when it came available to re-seize con- 90
80 0.4
trol of the whole area. 70
60 0.3
Valuation and recommendation: Based on a cost of equity 50
40 0.2
of 17.7%, our DCF model resulted in a 12-month fair value of 30
LE 92.97/share, implying a 183% upside potential. This valua- 20 0.1
10
tion did not incorporate the ready-made concrete business, 0 -
which could indicate further upside potential. Accordingly we
Nov-07

Jan-08

Jun-08
Jul-08
Dec-07

Feb-08

Mar-08
Apr-08
May-08

Aug-08
Sep-08

Oct-08

rate this stock a BUY at MODERATE RISK.

153
 November 11, 2008
EGYPT | CEMENT | SINAI CEMENT

Balance Sheet (LE mn) Dec-07 Dec-08 Dec-09 Dec-10 Fact Sheet Dec-07 Dec-08 Dec-09 Dec-10
Assets ROE 30.1% 20.9% 25.9% 19.7%
ROS 52.0% 36.7% 33.5% 33.3%
Cash & Cash Equivalent 18.1 23.5 350.0 740.0
ROA 25.2% 16.9% 21.6% 17.1%
Net Receivables 7.2 8.4 14.8 13.6
ROIC 28.3% 21.5% 24.6% 18.1%
Total Inventory 53.0 104.5 220.4 202.1 Gross Margin 70.86% 56.54% 47.50% 47.63%
Advance Payment to Suppliers 4.5 8.0 16.9 15.5 EBITDA Margin 58.03% 48.16% 40.52% 40.00%
Other Trading Assets 0.0 0.0 0.0 0.0 ATO 0.5 0.5 0.6 0.5
Other Current Assets 0.2 0.2 0.2 0.2 WI/ Sales -1.6% 3.6% 4.7% 4.7%
Total Current Assets 83.0 144.6 602.2 971.4 ALEV 1.2 1.2 1.2 1.2
Net Plant 1,151.4 1,444.1 1,392.7 1,358.3 Liabilities/Net worth 0.2 0.2 0.2 0.1
Long-Term Investments 80.2 103.1 103.1 103.1 Current Ratio 0.4 0.5 2.0 3.4
Other Trading Non-Current Assets 0.4 0.4 0.4 0.4
Other Non-current Assets 39.4 18.3 18.3 18.3 Cash Flow (LE mn) Dec-07 Dec-08 Dec-09 Dec-10
Intangibles 0.0 0.0 0.0 0.0 NOPAT 326.1 326.7 453.5 400.0
Depreciation & Amortization 37.2 50.0 99.4 103.1
Total Assets 1,354.4 1,710.5 2,116.7 2,451.5
Gross Cash Flow (COPAT) 363.3 376.8 552.9 503.0
Working Investment Change 20.1 (38.3) (36.1) 5.4
Liabilities & Equity
Other Current Items 55.1 0.0 0.0 0.0
Short-Tem Debt 4.6 121.0 44.7 40.4
Cash After Current Operations 438.4 338.5 516.8 508.4
CP Of Long-Term Debt 0.0 0.0 0.0 0.0
Financing Payments 0.0 (15.1) (16.6) (16.0)
Accounts Payable 48.3 56.0 118.0 108.3
Cash Before Long-Term Use 438.4 323.4 500.2 492.3
Accrued Expenses 8.4 15.0 31.6 29.0 Net Plant Change (516.5) (342.7) (47.9) (68.7)
Down Payments 18.6 22.2 38.7 35.6 FCFF (133.2) (4.2) 468.9 439.7
Taxes Payable 0.0 0.0 0.0 0.0 Others 144.0 (1.2) (168.8) (127.5)
Dividends Payable 61.1 0.0 0.0 0.0 Cash Before Financing 65.8 (20.5) 283.5 296.1
Other Spontaneous Finance 0.0 0.0 0.0 0.0 Short-Term Debt 4.6 116.4 (76.3) (4.3)
Other Current Liabilities 62.8 72.9 71.8 71.8 Long-Term Debt 0.0 11.0 11.0 11.0
Total Current Liabilities 203.8 287.1 304.8 285.0 Net Worth (17.4) 14.4 22.9 20.9
Grey Area (0.2) (20.0) 0.0 0.0
Total Long Term Debts 0.0 0.0 0.0 0.0
Dividends (42.3) (118.9) (91.6) (83.7)
Other Non-Current Liabilities 1.1 22.0 11.0 0.0
Change in Cash 10.5 (17.6) 149.5 240.0
Long Term Spontaneous Finance 0.0 0.0 0.0 0.0
Total Liabilities 204.9 309.1 315.8 285.0 Per Share Ratios Dec-07 Dec-08 Dec-09 Dec-10
Tax Provision 0.0 0.0 0.0 0.0 Share Price 32.86 32.86 32.86 32.86
Other Provisions 15.6 21.9 31.9 41.9 New No. Of Shares '000* 35,000 35,000 35,000 35,000
Minority Interest 0.0 0.0 0.0 0.0 Actual No. Of Shares '000* 35,000 35,000 35,000 35,000
Shareholders' Equity 1,133.9 1,379.5 1,769.0 2,124.6 EPS 9.76 8.26 13.09 11.95
Total Liabilities & Equity 1,354.4 1,710.5 2,116.7 2,451.5 Diluted EPS 9.76 8.26 13.09 11.95
DPS 1.25 1.65 2.62 2.39
Revenues/Share 18.75 22.47 39.06 35.93
Income Statement (LE mn) Dec-07 Dec-08 Dec-09 Dec-10 Units Sold/Share 0.06 0.06 0.09 0.08
Capacity '000 Tons 1,500 1,750 3,000 3,000 Capacity/Share 0.04 0.05 0.09 0.09
Tons Sold '000 1,983 2,072 3,316 2,918 BV/Share 32.4 39.4 50.5 60.7
Gross Cash Flow/Share 10.38 10.76 15.80 14.37
Revenues 656.4 786.4 1,367.2 1,257.4
FCFF/Share -3.81 -0.12 13.40 12.56
Cost of Goods Sold (191.3) (341.7) (717.9) (658.5) EBITDA/Share 10.88 10.82 15.83 14.37
Gross Profits 465.1 444.6 649.4 598.9 EV/Share 32.47 35.65 24.14 12.87
SG&A (84.2) (65.9) (95.4) (95.9)
EBITDA 380.9 378.7 554.0 503.0 Multiples Dec-07 Dec-08 Dec-09 Dec-10
Depreciation & Amortization (37.2) (50.0) (99.4) (103.1) P/E 3.37 3.98 2.51 2.75
EBIT 343.7 328.7 454.6 400.0 Diluted P/E 3.37 3.98 2.51 2.75
Interest Expense 0.0 (15.1) (5.6) (5.0) Div Yield % 3.8% 5.0% 8.0% 7.3%
Provisions (6.3) (26.3) (10.0) (10.0) P/Revenues 1.75 1.46 0.84 0.91
EV/ Revenues 1.73 1.59 0.62 0.36
Interest Income 5.7 2.2 19.0 33.3
P/ COPAT 3.17 3.05 2.08 2.29
Investment Income 0.0 0.0 0.0 0.0
EV/ COPAT 3.13 3.31 1.53 0.90
Other Non-Operating Income 0.0 0.2 0.2 0.2
P/ FCFF -8.63 -272.51 2.45 2.62
Other Non-Operating Expenses (1.7) 0.4 0.0 0.0 EV/ FCFF -8.53 -295.61 1.80 1.02
EBT 341.5 290.1 458.2 418.4 EV/ Ton 757.73 712.91 281.60 150.16
Taxes 0.0 0.0 0.0 0.0 P/ EBITDA 3.02 3.04 2.08 2.29
NPAT 341.5 290.1 458.2 418.4 EV/ EBITDA 2.98 3.29 1.53 0.90
Minority Interest 0.0 0.0 0.0 0.0 P/ BV 1.01 0.83 0.65 0.54
Extraordinary Items 0.0 (1.1) 0.0 0.0 * Not counting for the recently announced 100% stock dividend
Attributable Profits 341.5 289.0 458.2 418.4 Source Sinai Cement & CICR forecasts

154
 November 11, 2008

EGYPT | TMT

12M FAIR VALUE | LE 24.3

TELECOM EGYPT (TE)
BUY | MODERATE RISK
It's time to go regional
SHARE DATA
Telecom Egypt (TE) should benefit off tariff rebalancing Reuters; Bloomberg ETEL.CA/ETELq.L; ETEL
starting 2H08, while its November promotion should have EY
a positive impact beginning 2009. With the three mobile Recent price as of 6-Nov-08 LE 15.60
No. of O/S shares 1707 mn
operators competing in voice calls and broadband ser- Market cap LE 26,629.2 mn
vices, TE is leveraging on the mobile sector growth pass- 52-wk high / low LE 23.9/ LE 10.7
ing through its network related infrastructure leasing. Avg. daily volume / turnover 1.85 mn / LE 35.18 mn

With TE’s investment in Vodafone Egypt (VFE) contribut-

ing significantly to the former’s bottom line. Capturing the
growth in bandwidth demand, TE realized so far US$170
mn from its submarine cable project. Through its ISP pro-
vider, TE has a leading market share of 56%. TE is looking
for acquisitions given its low financial leverage. We reit-
erate out BUY with 12M fair value of LE 24.3 (+56%).
Tariff rebalancing to revive top-line growth: Despite the
decelerated growth pattern of fixed-line business and fixed-
mobile substitution, thanks to noticeable competition from mo-
bile operators, TE should start reaping the fruits of the tariff
rebalancing applied effective July 2008 in addition to exploiting
wireless traffic growth in its wholesale segment in 3Q08.
COMPANY SYNOPSIS
Delivering on its promise to privatize its state-run telecom
company, the Government of Egypt (GoE) first transformed
its Arab Republic of Egypt National Telecommunication
Organization (ARENTO) into a jointstock company in 1998
according to Law No. 19/1998. Separating the regulatory
and operating bodies, National Telecommunication
Regulatory Authority (NTRA) was established in the same
year to oversee the legal environment in Egypt and grant
the company independence to operate on a commercial
basis. Subsequently, ARENTO became known as Telecom
Egypt (TE), truly reflecting its scope of business. TE is
Egypt's sole fixed-line telecommunication operator offering
retail telecommunication services including access, voice,
and internet and data through its subsidiary TE Data.
Further, it is the sole provider of wholesale services
including broadband capacity leasing to ISPs, national and
international interconnection services.

Wireless operators weigh down on revenues: TE is still the TE is the largest provider of fixed-line services in the
sole fixed-line operator in Egypt and should continue to be so Middle East & Africa with more than 11.3 mn subscribers
as of June 2008, implying a penetration rate of c.15%. TE
for at least the next 1-2 years after the government postponed participates in the growth story of Egypt’s fast-growing
the second fixed-line auction till 2009. However, the company mobile market through its 44.8% stake in Vodafone Egypt
(VFE), the second largest mobile operator in Egypt in
suffers from competition by mobile operators, particularly with terms of subs.
the liberalization of the international market. All three mobile
operators compete by offering lower tariffs for voice calls and
launching wireless broadband offers, now a key threat to TE's
ADSL services. On the other hand, we believe competitive
roaming rates offered by mobile operators may also place fur- SHAREHOLDER STRUCTURE
Government of Egypt (GoE) 80.0%
ther pressure on TE's international call revenues. Free Float 20.0%
Total 100.0%
But TE is capitalizing on mobile market growth: Despite
said competitive pressure from mobile operators, TE is lever-
aging on the mobile sector growth through its wholesale seg-
ment. TE exploits such growth through its mobile-to-fixed, mo-
bile-to-international calls (mainly from Mobinil customers), and
leasing infrastructure. Furthermore, the 44.8% investment in
Vodafone Egypt (VFE) has a significant contribution to TE's
bottom-line profits (as investment income) and cash flow (as MOHAMED HAMDY
MOHAMED.HAMDY@CICH.COM.EG
dividends).
It's time to go regional: At time when global telecoms are STOCK PERFORMANCE | 52 WEEKS
feeling the pinch from an overall negative sentiment and a Volume ETEL CASE 30 - rebased
looming global slowdown, we believe it's time for TE to go for LE mn shares
30 12.0
regional expansion at currently low valuation multiples.
25 10.0
Valuation and recommendation: We revised our financial 20 8.0
forecasts slightly. However, we lowered our 12-month fair 15 6.0
value by 3% to LE 24.3/share, mainly on account of recent
10 4.0
interest rate hikes by the Central Bank of Egypt (CBE). This
5 2.0
compelled us to raise the risk-free rate by 200 bps from 9.5%
0 -
to 11.5%. In our view, VFE investment accounts for around
Nov-07

Jan-08

Jun-08

Jul-08
Dec-07

Feb-08

Mar-08
Apr-08
May-08

Aug-08
Sep-08

Oct-08

34% of TE's value. Given the current deterioration of TE's

market price, our fair value still implies an upside potential of
56%; hence, we reiterate our BUY recommendation with a
MODERATE RISK rating.

155
 November 11, 2008
EGYPT | TMT | TELECOM EGYPT

Balance Sheet (LE mn) 2007A 2008F 2009F 2010F Cash Flow (LE mn) 2007A 2008F 2009F 2010F
Assets NOPAT 1,960 1,776 2,159 2,640
Cash & Cash Equivalent 1,397 2,379 1,926 2,474 Depreciation & Amortization 2,923 2,811 2,914 3,005
Net Receivables 3,101 3,213 3,453 3,743 Gross Cash Flow (COPAT) 4,883 4,587 5,073 5,645
Total Inventory 508 565 613 638 Working Investments Change (74) (184) (254) (287)
Advance Payment 79 85 92 96 Other Current Items 251 0 0 0
Other Trading Assets 0 0 0 0 Cash After Curr. Ops. 5,060 4,403 4,819 5,358
Total Current Assets 5,085 6,242 6,084 6,952 Financing Payments (1,890) (2,242) (2,106) (1,265)
Net Plant 20,216 18,923 17,772 16,224 Cash Before LT Use 3,170 2,161 2,713 4,093
Long-Term Investments 7,027 7,020 7,562 8,131 Net Plant Change (1,020) (1,492) (1,727) (1,422)
Prepaid Exp. 0 0 0 0 FCFF 4,040 2,911 3,092 3,935
Other Non-current Assets 2,039 2,243 2,467 2,714 Others 1,263 1,195 750 821
Intangibles 224 149 114 79 Cash Before Financing 3,413 1,864 1,736 3,492
Total Assets 34,591 34,576 33,999 34,099 Short-Term Debt (86) (7) 0 0
Long-Term Debt (1,127) 889 (0) 400
Liabilities & Equity Networth 354 0 0 0
Short-Term Debt 7 0 0 0 Grey Area (152) 5 7 5
CP of Long-Term Debt 1,027 1,077 857 658 Dividends (1,716) (1,768) (2,195) (3,349)
Bonds 800 800 400 400 Change in Cash 685 982 (453) 548
Accounts Payable 130 132 143 149
Accrued Expenses 193 188 204 213 Fact Sheet 2007A 2008F 2009F 2010F
Down Payments 202 196 210 228 ROE 9.8% 10.2% 12.1% 14.6%
Taxes Payable 736 698 751 814 ROS 25.4% 26.7% 30.8% 35.2%
Dividends Payable 1 1 1 2 ROA 7.3% 7.9% 9.9% 12.3%
Other Current Liabilities 1,905 1,910 1,905 1,900 ROIC 7.6% 6.8% 8.3% 10.1%
Total Current Liabilities 5,001 5,002 4,471 4,363 EBITDA Margin (pre prov.) 53.9% 50.7% 52.1% 54.2%
Total Long-Term Debt 2,351 1,763 906 248 EBITDA Margin (post prov.) 52.3% 49.5% 51.9% 54.0%
Bonds 800 400 0 0 ATO 0.3 0.3 0.3 0.3
Other Non-Current Liabilities 331 331 331 331 WI/ Sales 31.7% 32.8% 32.8% 32.7%
Total Liabilities 8,483 7,495 5,707 4,942 ALEV 0.7 0.8 0.8 0.8
Other Provisions 324 340 362 386 Liabilities/Networth 0.3 0.3 0.2 0.2
Minority Interest 40 45 51 56 Current Ratio 1.0 1.2 1.4 1.6
Shareholders' Equity 25,744 26,696 27,878 28,716
Total Liab. & Equity 34,591 34,576 33,999 34,099 Per-Share Ratios 2007A 2008F 2009F 2010F
Share Price 15.60 15.60 15.60 15.60
Income Statement (LE mn) 2007A 2008F 2009F 2010F No. of Shares ('000) 1,707,072 1,707,072 1,707,072 1,707,072
Yearend ALIS ('000) 11,229 11,470 11,734 11,930
Yearend ADSL ('000) 222 386 620 831 EPS 1.48 1.59 1.98 2.45
Access 1,907 2,079 2,335 2,361 DPS 1.0 1.0 1.3 2.0
Voice 3,289 3,099 3,107 2,823 DIV./NPAUI 67% 65% 65% 80%
Internet & Data 1,271 1,125 1,376 1,749 Revenues/Share 5.85 5.97 6.42 6.96
Retail Revenues 6,466 6,303 6,817 6,934 BV/Share 15.08 15.64 16.33 16.82
Domestic* 767 1,160 1,553 2,415 Gross Cash Flow/Share 2.86 2.69 2.97 3.31
International 2,699 2,735 2,591 2,532 FCFF/Share 2.37 1.71 1.81 2.31
Wholesale Revenues 3,466 3,895 4,144 4,948 EBITDA/Share 3.06 2.96 3.33 3.76
Sales of telephone sets 61 EV/Share 17.23 16.10 15.50 14.68
Revenues 9,993 10,198 10,961 11,881
Cost of Revenues (3,306) (3,437) (3,727) (3,884) Multiples 2007A 2008F 2009F 2010F
Gross Profit 6,687 6,761 7,234 7,997 P/E 10.5x 9.8x 7.9x 6.4x
SG&A (1,298) (1,589) (1,523) (1,560) Dividend Yield 6.4% 6.6% 8.2% 12.6%
EBITDA before provisions 5,389 5,172 5,711 6,437 P/ Revenue 2.7x 2.6x 2.4x 2.2x
Provisions (0) (16) (22) (24) EV/ Revenues 2.9x 2.7x 2.4x 2.1x
Release of unused provision 116 17 0 0 P/ COPAT 5.5x 5.8x 5.2x 4.7x
Impairment loss (281) (124) 0 0 EV/ COPAT 6.0x 6.0x 5.2x 4.4x
EBITDA after provisions 5,224 5,050 5,690 6,413 P/ FCFF 6.6x 9.1x 8.6x 6.8x
Depreciation & Amortization (2,923) (2,811) (2,914) (3,005) EV/ FCFF 7.3x 9.4x 8.6x 6.4x
EBIT 2,301 2,239 2,776 3,408 EV/Sub (US$) $489 $447 $421 $392
Interest Expense (600) (501) (265) (83) P/ EBITDA 5.1x 5.3x 4.7x 4.2x
Interest Income 81 169 125 171 EV/ EBITDA 5.6x 5.4x 4.7x 3.9x
Investment Income 1,070 1,304 1,446 1,564 P/ BV 1.0x 1.0x 1.0x 0.9x
Other Non-Operating Income 296 143 0 0 Note: A = Actual; F = Forecast
Other Non-Operating Expense (94) (67) 0 0 Source: TE and CICR forecasts
EBT 3,054 3,286 4,082 5,061
Taxes (513) (552) (686) (851)
NPAT 2,541 2,734 3,396 4,210
Minority Interest (7) (14) (19) (23)
Extraordinary Items 0 0 0 0
Attributable Profits 2,534 2,721 3,378 4,187

* Includes TE North revenues - - 693 711

156
 November 11, 2008

EGYPT | HOUSING & REAL ESTATE

12M FAIR VALUE | LE 12.8

TMG HOLDING
BUY | MODERATE RISK
Stronghold in the face of the storm
SHARE DATA

Reuters; Bloomberg TMGH.CA; TMGH EY

TMG Holding (TMG) is a leading local and regional real Recent price as of 6-Nov-08 LE 3.87
No. of O/S shares 2030.2 mn
estate developer, with a reputable track record and a 50- Market cap LE 7,856.9 mn
mn sqm land bank. TMG is mitigating the current risk of a 52-wk high / low LE 15.5/ LE 3.03
slowing local real-estate market by targeting the middle Avg. daily volume / turnover 10.05 mn / LE 84.13 mn

class, expanding regionally, and diversifying its opera-

tions. TMG’s reputation was the main reason behind in-
creasing its sales over 1H08 even with a slower industry,
leading to an LE 29.4 bn of almost secured, unrecognized
sales to be booked onto the income statement over the
coming 3.5 years. With a WACC of 16.3%, our DCF model
indicates a 231% upside to our 12-month fair value of LE
12.8/share. Thus, we retain our BUY recommendation at a
MODERATE RISK.
Sufficient sales to meet the slowdown: Assuming no other
sales have taken place, which will not be the case, TMG will
be able to overcome the current slowdown swiftly where total
accumulated sales for undelivered units as of August 2008
reached LE 29.4 bn, to be recognized over the coming 3.5
years. This would translate into a net profit of LE 9 bn (a 30%
net margin). We expect said figures to be achieved, consider-
ing that 7.5% of contracted value will be deducted as a penalty
in case the client returns the unit which would be a deterrent.
Targeting the middle class: As the luxurious market reaches
saturation, TMG is currently targeting unsatisfied housing
needs of the middle class which represents 26% of total popu-
lation. TMG introduced in June 2008 its new products for the
COMPANY SYNOPSIS
Talaat Mostafa Group Holding Company was incorporated
in April 2007 and currently has a paid-in capital of LE
20.302 bn, of which 49.85% is owned by the Talaat
Mostafa family.
TMG is a fully fledged touristic, housing, and real-estate
company. With more than 20 years of experience in the
development industry, TMG is considered one of the
leading businesses operating in Egypt. TMG's vision is
"community development" through establishing self-
sustained residential city and community complexes for the
upper and middle classes.
TMG's activities also extend to the Hotels & Resorts
segment. Its three hotels, Nile Plaza in Cairo, San Stefano
in Alexandria and Four Seasons in Sharm El Sheikh are
managed by the internationally reputable Four Seasons
chain. A fourth hotel, Nile Hotel, is still under development.
Soft opening is scheduled for late 2008. Finally, Arab for
Hotels & Tourism Investment (ICON), 74% owned by TMG
signed a 50-year renewable concession right agreement
for Sultana Malak land in Luxor earmarked for constructing
a luxury hotel and a 5-star Nile cruiser, both to be
managed by the Four Seasons Hotel management.
The group also started a JV in KSA to develop 3.1 mn
sqm. At a total cost of LE SAR 6 bn.
In July 2006, the group started the “Madinaty” project, over
33.6 mn sqm of land, making it the biggest all-inclusive
enclosed city in the Middle East.

middle class (residential apartments of 80-110 sqm) which SHAREHOLDER STRUCTURE

were welcome by a high demand: 8,900 units sold generating
LE 5.8 bn over 40 days. MMID 48.6%
Goldman Sachs 5.3%
Diversifying revenues: In July 2008, TMG signed a 50-year Banks, Ins Co., Others 14.7%
renewable concession right agreement for Sultana Malak land Free Float 31.4%
Total 100.0%
in Luxor in Upper Egypt earmarked for constructing a luxury
hotel and a 5-star Nile cruiser, both to be managed by the
Four Seasons Hotel management.
Expanding in Saudi Arabia: With the potential strong de- HANY MOHAMED SAMY, CFM
mand in Saudi Arabia, TMG announced a 50-50 joint venture HANY.SAMY@CICH.COM.EG
with the Al-Ola Development Co. to establish a mega housing
project with 4,200 units in Riyadh at a total cost of SAR 6 bn STOCK PERFORMANCE | SINCE IPO
over 3.1 mn sqm. Additionally, TMG acquired an additional 1
Volume TMGH CASE 30 - rebased
mn sqm in Riyadh, and signed an agreement to buy a 3.8-mn
LE mn shares
sqm land plot in Jeddah to construct an integrated residential 18 140.0
city over a 6-year period with a total investment cost of SAR 16 120.0
14
5.5 bn. 12
100.0
10 80.0
Valuation and recommendation: We used the DCF model in 8 60.0
valuing TMG, yielding a 12-month fair value of LE 12.8/share 6
40.0
and a 231% upside potential. Hence, we reiterate our BUY 4
2 20.0
recommendation on TMG with a MODERATE RISK rating. 0 -
Nov-07

Jan-08

Jun-08
Jul-08
Dec-07

Feb-08
Mar-08
Apr-08
May-08

Aug-08
Sep-08
Oct-08

157
 November 11, 2008
EGYPT | HOUSING & REAL ESTATE | TMG HOLDING

Balance Sheet (LE mn) Dec-07 A Dec-08 P Dec-09 P Dec-10 P Cash Flow (LE mn) Dec-07 A Dec-08 P Dec-09 P Dec-10 P
Assets NOPAT 541.1 2,150.3 1,867.0 3,513.0
Cash & Cash Equivalent 3,490.0 4,345.2 5,945.2 10,645.2 Depreciation & Amortization 58.5 142.7 147.7 158.1
Net Receivables 1,730.6 3,838.5 3,196.0 3,412.7 Gross Cash Flow (COPAT) 599.6 2,293.0 2,014.7 3,671.1
Total Inventory 4,013.8 12,917.9 10,074.1 10,826.8 WI Change (747.5) (3,682.1) (1,916.9) (905.7)
Advance Payments to Suppliers 716.4 0.0 0.0 0.0 Other Current Items 1,068.8 (970.2) (120.0) 620.0
Other Trading Assets 0.0 28.5 28.5 28.5 Cash After Current Operations 920.9 (2,359.4) (22.2) 3,385.3
Other Current Assets 0.0 1,040.7 1,160.7 540.7 Financing Payments (13.7) (442.7) (553.9) (502.5)
Total Current Assets 9,950.8 22,170.9 20,404.5 25,454.0 Cash Before Long-Term Use 907.1 (2,802.0) (576.1) 2,882.9
Net Plant 2,839.9 3,653.6 3,274.9 3,423.8 Net Plant Change (2,898.4) (956.5) 231.0 (306.9)
Long-Term Investments 1,024.9 967.7 1,236.7 1,505.6 FCFF (3,046.3) (2,345.6) 328.8 2,458.4
Other Trading Non-Current Assets 7,832.0 10,422.5 10,008.2 10,287.5 Others (24,971.1) 7,766.7 1,504.8 1,804.2
Other Non-Current Assets 4,754.4 10.3 10.3 10.3 Cash Before Financing (26,962.3) 4,008.3 1,159.7 4,380.1
Intangibles 16,579.4 15,418.2 14,257.0 13,095.8 Short-Term Debt 51.8 167.6 542.4 310.5
Total Assets 42,981.4 52,643.3 49,191.7 53,777.0 Long-Term Debt 4,215.9 239.9 (116.7) (97.3)
Net-worth 20,482.9 (1,374.2) 91.2 213.0
Liabilities & Shareholders' Equity Grey Area 2,272.5 (402.3) (76.6) (106.3)
Short-Term Debt 51.8 219.5 761.8 1,072.3 Dividends 0.0 0.0 0.0 0.0
Current Portion of Long-Term Debt 357.1 414.2 338.1 300.8 Change in Cash 60.7 2,639.3 1,600.0 4,700.0
Accounts Payable 301.8 14,633.9 5,153.5 2,732.4 Note: P = Projected
Accrued Expenses 0.0 6.8 6.3 9.0 Source: TMG and CIBC estimates
Down Payments 13,243.4 8,098.2 11,761.5 14,522.9
Taxes Payable 3.3 150.4 150.4 150.4
Dividends Payable 0.0 0.0 0.0 0.0 Fact Sheet Dec-07 A Dec-08 P Dec-09 P Dec-10 P
Other Spontaneous Finance 0.0 1.5 1.5 1.5 ROE 6.1% 8.7% 9.4% 14.5%
Other Current Liabilities 1,068.8 1,176.7 1,176.7 1,176.7 ROS 71.5% 28.5% 46.1% 54.4%
Total Current Liabilities 15,026.3 24,701.1 19,349.8 19,966.0 ROA 3.1% 3.7% 4.8% 7.9%
Total Long-Term Debt 3,858.8 3,684.4 3,229.7 2,831.5 ROIC 4.6% 16.3% 11.2% 15.9%
Other Non-Current Liabilities 0.0 0.0 0.0 0.0 EBITDA Margin 34.2% 38.7% 51.2% 60.5%
Long Term Spontaneous Fin. 0.0 0.0 0.0 0.0
Total Liabilities 18,885.1 28,385.5 22,579.4 22,797.5 ATO 0.0 0.1 0.1 0.1
Deferred Taxes 0.0 0.0 0.0 0.0 WI/ Sales 39.9% 65.8% 125.8% 93.1%
Other Provisions 6.0 0.0 0.0 0.0
Minority Interest 2,266.5 1,870.2 1,793.5 1,687.2 ALEV 8.2 7.6 4.7 3.3
Shareholders' Equity 21,823.9 22,387.6 24,818.7 29,292.3 Debt/ Equity 3.6 4.1 2.1 1.4
Total Liab. & Shareholders' Equity 42,981.4 52,643.3 49,191.7 53,777.0 Current Ratio 0.7 0.9 1.1 1.3

Income Statement (LE mn) Dec-07 A Dec-08 P Dec-09 P Dec-10 P Share Ratios Dec-07 A Dec-08 P Dec-09 P Dec-10 P
Revenues 1,875.7 6,791.3 5,072.9 7,830.1 Share Price 3.87 3.87 3.87 3.87
Cost of Revenues (966.6) (3,925.1) (2,297.1) (2,822.0) No. Of Shares '000 2,030,204 2,030,204 2,030,204 2,030,204
Gross Profits 909.2 2,866.2 2,775.8 5,008.0 EPS 0.66 0.95 1.15 2.10
SG&A (267.0) (235.8) (176.1) (271.9) Div/Share 0.00 0.00 0.00 0.00
EBITDA 642.2 2,630.4 2,599.7 4,736.2 Revenues/Share 0.92 3.35 2.50 3.86
Depreciation & Amortization (58.5) (142.7) (147.7) (158.1) BV/Share 10.75 11.03 12.22 14.43
EBIT 583.7 2,487.7 2,452.0 4,578.1 Gross CF/Share 0.30 1.13 0.99 1.81
Interest Expense (13.7) (85.6) (139.7) (164.4) FCFF/Share -1.50 -1.16 0.16 1.21
Provisions 0.0 0.0 0.0 0.0 EBITDA/Share 0.32 1.30 1.28 2.33
Interest Income 78.3 304.2 416.2 745.2 EV/Share 4.25 3.86 3.07 0.70
Investment Income 1,097.8 108.3 268.9 268.9
Other Non-Operating Income 40.6 0.0 0.0 0.0
Other Non-Operating Expenses (3.5) 4.1 4.1 4.1 Multiples Dec-07 A Dec-08 P Dec-09 P Dec-10 P
EBT 1,783.2 2,818.7 3,001.5 5,431.9 P/E 5.9 4.1 3.4 1.8
Taxes (45.9) (484.5) (585.0) (1,065.1) Div Yield % 0.0 0.0 0.0 0.0
NPAT 1,737.3 2,334.3 2,416.5 4,366.8 P/ Revenue 4.2 1.2 1.5 1.0
EV/ Revenues 4.6 1.2 1.2 0.2
Minority Interest (396.3) (396.3) (76.6) (106.3)
P/ COPAT 13.1 3.4 3.9 2.1
Extraordinary Items 0.0 0.0 0.0 0.0
EV/ COPAT 14.4 3.4 3.1 0.4
NPAUI 1,341.0 1,937.9 2,339.9 4,260.5
P/ FCFF -2.6 -3.3 23.9 3.2
EV/ FCFF -2.8 -3.3 19.0 0.6
P/ EBITDA 12.2 3.0 3.0 1.7
EV/ EBITDA 13.4 3.0 2.4 0.3
P/ BV 0.4 0.4 0.3 0.3

Source: Company reports and CICR estimates

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