MENA-1 WEDNESDAY MORNING ROUND-UP

UAE
Dubai Investments has 2Q2011 profit of AED135.2 million

Kuwait
Moodys downgrades National Industries Group

Qatar
QEWC 2Q2011 results: earnings beat estimates helped by one-off Qatars financial regulator signs MOU with Reserve Bank of India

Bahrain
Bahrain Islamic Bank and Al Salam Bank eye USD4.5 billion merger

EFG Hermes Research

MENA Strategy Note - MENA Still Pays More; High Yields Supportive During Current Sell-Off - 09 August 2011 Air Arabia - 2Q2011 Results: Solid Overall Performance; Upgrade to Buy on Better 2H2011 Outlook - Flash Note - 09 August 2011 Abu Dhabi Islamic Bank (ADIB) - 2Q2011 Results: Earnings Beat on Revenues; Downgrade to Neutral on Weak Outlook - Company Note - 09 August 2011 Oman Telecommunications Company (Omantel) - 2Q2011 Headline Figures Beat Estimates on Cable System; Reiterate Neutral - Flash Note - 09 August 2011

Agenda
Qatar Thu 11 August >> Barwa Real Estate Company 2Q2011 results Sun 14 August >> Qtel 2Q2011 results Sun 14 August >> Doha Insurance 2Q2011 results Sun 14 August >> Qatar German for Medical Devices Company 2Q2011 results Sun 14 August >> Ezdan Real Estate Company 2Q2011 results Sun 14 August >> Al Meera Consumer Goods Company 2Q2011 results Sun 14 August >> Qatar Fuel Company (Woqod) 2Q2011 results Mon 15 August >> Qatar German for Medical Devices Company press conference Mon 15 August >> Zad Holding Company 2Q2011 results Mon 15 August >> Salam International 2Q2011 results Mon 15 August >> The Qatar Company for Meat & Livestock Trading (Mawashi) 2Q2011 results

UAE News
Dubai Investments has 2Q2011 profit of AED135.2 million Dubai Investments (DINV.DU) had a net profit of AED135.2 million in 2Q2011, down 30% Y-o-Y. The company had total income of AED728.8 million in 2Q2011, compared to AED806.7 million in 2Q2010. Total assets stood at AED14.3 billion as at 30 June 2011, compared to AED14.1 billion as at 31 December 2011. Shareholders equity stood at AED8.46 billion as at 30 June 2011, compared to AED8.45 billion as at 31 December 2011. (Company Disclosure)

Kuwait News
Moodys downgrades National Industries Group

Moodys has downgraded National Industries Group Holdings (NIBM.KW) Corporate Family Rating to B3 from B2 with a stable outlook. Moodys also downgraded the companys USD475 million sukuk. The downgrade is attributed in part to the execution risk of the restructuring process for the companys debt. (Al Watan)

Qatar News
QEWC 2Q2011 results: earnings beat estimates helped by one-off Qatar Electricity and Water Company (QEWC) [QEWC.QA] reported 2Q2011 results, with revenues coming in at QAR1,202 million (up 49% Y-o-Y and 30% Q-o-Q ), only 2% shy of our QAR1,224 million estimate. While the Y-o-Y growth is mainly attributable to capacity additions, the Q-o-Q growth is due to the impact of seasonality and the full ramp-up of the Ras Girtas plant where the second phase was commissioned in April 2011. Gross profit of QAR758 million came in above our estimate of QAR733 million. As a result, the companys gross margin for 2Q2011 of 63.1% was above our forecast of 59.9%. Below the gross profit line, SG&A expenses of QAR51 million were broadly in line with our forecast and meant that the EBITDA margin of 58.9% still exceeded our estimate of 55.9% for 2Q2011. EBITDA came in at QAR707.8 million (versus our QAR684.6 million estimate). With depreciation expenses below our forecast, net operating profit of QAR581.6 million exceeded our QAR540.2 million forecast. These results suggest that the company has efficiently managed its cost base in 2Q2011, which explains the higher-than-expected operating margins despite the slightly weaker top line. Below the operating profit line, a combination of lower-than-expected net interest expenses and a positive contribution of QAR35.3 million from miscellaneous income (which we do not have in our forecasts) meant that net income of QAR443.6 million came in above our QAR370.1 million forecast and the Bloomberg consensus estimate of QAR369.3 million. The QAR35.3 million of miscellaneous income is a non-recurring, one-off income item, according to management related to the final settlement of liquidated damages. Our View: These results are overall strong and should offer some support to the shares, which have come under pressure over the last few days in the wake of the global financial turmoil. Our fair value (FV) of QAR183.20/share offers considerable upside potential to the current share price, which supports our Buy rating. We continue to believe that QEWC offers investors an attractive low-risk opportunity to gain exposure to Qatar, and we expect double-digit earnings growth of 19% in 2011 (and now could see potential upside to our FY2011 earnings forecasts, given the outperformance of 2Q2011 results). Dividends should remain attractive (estimating a yield of 5.8% for 2011), given the companys strong revenue and cash flow visibility. Moreover, QEWC is likely to drive future earnings from its foreign investments beyond 2011 (with domestic expansion plans coming to an end this year). We see any weakness in the shares over the next few days as an attractive entry point into the stock. (Company Disclosure, Abid Riaz, Nadine Hassouna) Qatar Electricity and Water Company: QAR133.00, Rating: Buy, FV: QAR183.20, MCap: USD3,643 million, QEWC QD / QEWC.QA Qatars financial regulator signs MOU with Reserve Bank of India Qatar Financial Centre Regulatory Authority (QFCRA) said that it signed a memorandum of understanding (MOU) to promote greater cooperation and the sharing of supervisory information with Mumbai-based Reserve Bank of India on 4 August 2011. QFCRAs Chief Executive Officer (CEO) said that the move would boost economic relations between India and Qatar. (Zawya Dow Jones)

Bahrain News
Bahrain Islamic Bank and Al Salam Bank eye USD4.5 billion merger Bahrain Islamic Bank (BISB.BH) and Al Salam Bank (SALAM.BH) are in merger talks, according to a statement on the Bahraini bourse website. The combined entity would have total assets of BHD1.7 billion (USD4.5 billion) and shareholders equity of BHD337 million, making it Bahrains third largest domestic bank in terms of total assets and the second largest in terms of equity, the statement added. (Reuters)

EFG Hermes Research

MENA Strategy Note - MENA Still Pays More; High Yields Supportive During Current Sell-Off - 09 August 2011

Estimated MENA Dividend Yield of 4.2% for 2011, Above MSCI EMs 3.2%: Higher dividend yields in the MENA region are supported by structurally higher payout ratios, which in turn are a function of relatively high levels of government ownership. Our MENA universe has an average payout ratio of 43% versus 32% for the MSCI Emerging Markets (EM) Index, and 34% for the MSCI World Index. In aggregate, MENA equities yield 4.2%, with several Egyptian stocks offering double-digit dividend yields. We believe that relatively high yields will offer some support to MENA markets during the current sell-off. We Screen for Liquid High-Yielding Stocks with a Payout Buffer: We have run two screens to highlight stocks that offer attractive dividend payouts. The first screen looks for liquid high-yielding stocks with payout ratios below 70% and excludes stocks whose dividends we expect to contract over the next two years. Four of the stocks - Mobily, Aldrees, QNav and QEWC are in our MENA Top 20 List. We Also Highlight Riskier Single-Payment, High-Yielding Stocks: Our second screen identifies the top 10 highest yield stocks that are expected to make a single annual dividend payment in early 2012 (based on 2011 earnings). We use a lower value traded constraint (ADVT of at least USD250,000). Two of the top 10 - SIDPEC and Oriental Weavers - are Egyptian companies and therefore dividends carry some FX risk. However, we note that our economists recently adjusted their EGP expectations for 2012 and now see the USD-EGP being relatively stable in 2012. None of these stocks are in our current MENA Top 20 List. (Simon Kitchen, Fahd Iqbal, Ahmed Difrawy) Air Arabia - 2Q2011 Results: Solid Overall Performance; Upgrade to Buy on Better 2H2011 Outlook - Flash Note - 09 August 2011 Upgrade to Buy on Yield Improvement and Lower Cost Pressure: Air Arabias 2Q2011 results reflect a resilient performance amidst currently challenging market conditions. While we maintain our FY2011 forecasts for now, we believe that there may be upside potential to our earnings estimate of AED281.6 million, buoyed by falling oil prices. This expected decline in fuel prices in 2H2011 and improvements seen in the carriers yield should be positive for Air Arabia and should act as catalysts to drive the shares in the short term, in our view. Although we expect the company to reduce its dividend payout to 60% in 2011 in order to meet its capex requirements, this still implies an attractive yield of 5.6%. We upgrade to Buy from Neutral, given the considerable upside potential suggested by our fair value (FV) of AED0.76/share. Revenue Misses Estimate by 3%: Air Arabia reported 2Q2011 revenues of AED592 million, up 22% Y-o-Y and 15% Q-o-Q, and 3% below our AED611 million estimate. The airline achieved a strong load factor of 82.5% and saw 16% Y-o-Y growth in revenue per passenger in 2Q2011. This Y-o-Y improvement in yield is attributable to: i) the addition of fuel surcharges to ticket prices, ii) increasing demand for inbound and outbound UAE flights, given regional political instability benefiting the Sharjah hub, and iii) an increase in last-minute bookings (given regional events), which enabled the carrier to achieve higher ticket prices. Operating Margin and Earnings Beat Estimates: The gross margin of 15.6% came in higher than our 13.5% forecast due to lowerthan-expected non-fuel costs. However, with SG&A expenses coming in higher than expected following the launch of the companys hotel in Sharjah, EBITDA came in at AED53.4 million, in line with our forecast. Below the operating line, we saw another positive contribution from an unrealised gain on the companys derivative (fuel hedging) of AED15.6 million. On a likefor-like basis, if we were to move this unrealised gain above the operating line, we would have seen a stronger net operating profit figure of AED43.8 million. However, this positive contribution was mitigated by lower-than-expected net interest income, which meant that net income of AED49.6 million was 6% above our AED46.7 million forecast. (Abid Riaz, Nadine Hassouna) Abu Dhabi Islamic Bank (ADIB) - 2Q2011 Results: Earnings Beat on Revenues; Downgrade to Neutral on Weak Outlook - Company Note - 09 August 2011 Core Earnings Strong, But Outlook Unflattering; Cutting Rating and FV: ADIB reported a 2Q2011 net profit of AED317 million (EPS: AED0.12), up 5.0% Y-o-Y and 4.4% Q-o-Q, and ahead of our AED279 million estimate mainly due to stronger-thanexpected revenues. However, loan growth in 1H2011 was an anaemic 0.6%, which makes our 9% full-year growth target optimistic. We cut our 2011 loan growth forecast to 4%, increase our provision estimates to account for higher risk of provisions in Burooj, and lower our 2011-2013 earnings estimates by an average of 9%. We downgrade the stock to Neutral from Buy, as our revised fair value (FV) of AED3.50/share (cut from AED3.75/share) implies only 8% upside potential. Wider Spread Drives Net Interest Income; Non-Interest Income Surprises: Net interest income rose 8.7% Q-o-Q to AED723 million mainly due to higher net spreads, which increased by c43bps Q-o-Q to 3.98% in 2Q2011. Non-interest income surprised positively, growing 32.7% Q-o-Q to AED187 million, in part because of higher investment gains and in part because ADIB largely shrugged off the impact of the central banks revised retail regulations despite having one of the largest retail portfolios. Fee income was supported by higher corporate and investment banking fees, and growth in customer base. Burooj Continues to Bleed; Asset Quality Headwinds Persist: Even though credit costs were better than expected, AED149 million in 2Q2011 compared to our AED165 million estimate, provisioning taken on ADIBs real estate subsidiary Burooj was a negative surprise. ADIB booked AED87 million in provisions on its real estate portfolio, compared to AED9 million in 1Q2011. Management expects Burooj to post further losses in 2011 on the back of provisions on its real estate portfolio. Meanwhile,

ADIBs NPL ratio increased sharply to 8.8% in 2Q2011 from 7.7% in 1Q2011, and the NPL coverage declined to 57.3% from 64.5% in 1Q2011, indicating that credit quality continues to face strong headwinds. (Murad Ansari, Shabbir Malik) Oman Telecommunications Company (Omantel) - 2Q2011 Headline Figures Beat Estimates on Cable System; Reiterate Neutral - Flash Note - 09 August 2011 Earnings Beat Estimate on Unexpected Cable Systems Capacity Sale: Omantel 2Q2011 earnings came in at OMR29 million, up 12% Q-o-Q and 29% ahead of our estimated OMR22.4 million. The quarters results were impacted by the sale of cable system capacity, whereas our estimates did not account for any revenue/cost of sale of indefeasible right of use (IRU), given the absence of management guidance. Omantel only started to book revenue and costs related to the cable system in 1Q2011; management did not provide any guidance on when or how much it would book in capacity sales. We reiterate our Neutral rating and our fair value (FV) of OMR1.222/share. We believe that the stock is likely to perform well in the short term due to its defensive nature and relatively high dividend yield (estimated at 9.5% in 2011), especially amidst the current sell-off across the MENA region. EBITDA Margin Beats 45.0% Estimate, Await Further Clarity: EBITDA margin for 2Q2011 reached 46.5% versus 44.5% in 1Q2011. We note that the part of the cable system that had been recognised in 1Q2011 had a low EBITDA margin and pressured the consolidated margin. Whether the part that was recognised in 2Q2011 is low or high margin is unclear, but we believe it is more than in 1Q2011. The terrestrial part of a cable is usually high margin, while the undersea part is low margin. Top Line Flat Q-o-Q, 10% Above OMR101.3 Million Estimate: Revenue came in at OMR111.8 million likely due to the cable system booking. Total subscribers stood at 3.348 million, implying total additions of 90,000 in 2Q2011. No breakdown between mobile, fixed-line and internet is yet available. (Omar Maher, Marise Ananian)
[Note EFG Hermes is not responsible for the accuracy of news items taken from other media.] _________________________________________________________________________________________________________________ Our investment recommendations take into account both risk and expected return. We base our fair value estimate on a fundamental analysis of the companys future prospects, after having taken perceived risk into consideration. We have conducted extensive research to arrive at our investment recommendations and fair value estimates for the company or companies mentioned in this report. Although the information in this report has been obtained from sources that EFG Hermes believes to be reliable, we do not guarantee its accuracy, and such information may be condensed or incomplete. Readers should understand that financial projections, fair value estimates and statements regarding future prospects may not be realized. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This research report is prepared for general circulation and is intended for general information purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. It is not tailored to the specific investment objectives, financial situation or needs of any specific person that may receive this report. We strongly advise potential investors to seek financial guidance when determining whether an investment is appropriate to their needs. No part of this document may be reproduced without the written permission of EFG Hermes.