The Year Ahead 2019 PDF

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Table of Contents
Executive Summary
Strategy Themes
Sectors 21
Country Analysis 63
Coverage Tables 97
Contacts & Disclaimer 105

Executive Summary
THE YEAR AHEAD - 2019
The Year Ahead – Executive Summary
In our 2019 Year Ahead report, we look at the 263 equity stocks that we cover across 21 markets
in FEM and highlight what we believe will be the key trends and the stocks we expect to
outperform and underperform.
Sustained FEM recovery unlikely until Fed ends tightening cycle; short rallies are
possible
Consensus expects a rate hike in December, and three more in 2019 - we assume tightening until at least
mid-2019. Any sustained recovery in EM flows - and performance - requires an end to the US rate hike
cycle. For emerging markets, we think, in aggregate, EM currencies could move lower from here – CNY
will set the tone. The MSCI EM currency index is still 13% above 2016’s lows. However, there will be
divergence between countries, depending on the strength of external positions and their ability to attract
FX inflows. Oil was far more volatile than we expected in 2018, and we believe this will continue to be
the case for as long as the Fed is raising rates, and the global growth outlook is uncertain. Futures curves
shifted dramatically in the past few months, but longer-dated oil is – so far – sufficient for many tight oil
producers in the US to make profit. We assume a Brent average of USD70/bbl in 2019. Chinese demand,
which has been a key source of growth for EM and FM countries for more than a decade, is likely to
moderate, and we assume a weaker CNY in 2019. Against this backdrop, we favour inexpensive markets
with some ability to cut interest rates (Egypt and Nigeria) and those set to benefit from index inflows
(KSA and Kuwait).
Overweight on Egypt, Kuwait, Saudi Arabia, Pakistan and Nigeria

Egypt remains undervalued after the correction from April’s high, while the macro story is improving,
with better twin deficits and a pick-up in growth – any cuts to rates would drive a rally, while valuations
remain attractive. Kuwait and Saudi Arabia should both rally on passive inflows next year. Saudi Arabia’s
index inclusion trade was on pause in 4Q18, but will resume in 2019 as it becomes one of the Top 10
EM markets – we expect cUSD16bn (2x current foreign ownership) in passive inflows from March 2019
to March 2020. For Kuwait, the stable macro outlook, index inclusion story (potential upgrade to MSCI
EM) and low foreign ownership mean that Kuwait is likely to be well-supported. For Pakistan, we believe
the market is close to rock bottom. We like that the SBP has allowed the PKR to weaken, and we see a
good chance of an IMF deal in early 2019. We expect stocks will be volatile, but history suggests good LT
returns from here. Nigeria is trading at its lowest levels since the global financial crisis, pricing in a very
poor macro outlook, but 2019’s earnings visibility is good. Elections, or an EM rally, could drive a re-
rating – and, in the meantime, equity yields are attractive for those in the market.
2
Executive Summary
Neutral on Kenya and Vietnam and underweight on Qatar and Bangladesh

The Kenyan market finally priced in macro constraints in 2018, and we see limited downside from here –
however, an IMF SBA and relaxation of the rate cap are possible catalysts. Vietnam is everyone’s long-
term darling (we also like its LT consumer story) and, while valuations look more reasonable after the
2018 sell-off, price discovery remains an issue, and we are wary of high PSC/GDP and trade linkages to
China. Qatar’s valuation is too rich (well above historical average), and we expect it to see the highest
foreign outflows in our coverage in 2019-20e on EM rebalancing (China-A and KSA). Counter-intuitively,
if the Qatar embargo is lifted, this could support our UW call, as local institutions are sitting on large
gains and could decide to cash in. For Bangladesh, we think that the market remains expensive, relative
to peers, having performed in line with EM in 2018. Overdue reforms will be headwinds to growth in
2019, and BDT weakness is possible; however, we note that elections could be a catalyst.
Our top picks for 2019

For 2019, we highlight our three top picks in MENA: i) RJHI (largest Saudi retail bank with high
proportion of sticky CASA deposits, strong capital position, sector leading ROE and the biggest
beneficiary of passive and active inflows in Saudi Arabia); ii) GBK (FTSE inclusion in March (+USD46mn)
and a play on retail loan growth in Kuwait); and iii) JUFO (playing consumer recovery in Egypt at mid-
teens 2019e P/E (x) vs 20x for EM staples. Volume and margin recovery will continue in 2019). Our top
three picks in Frontier are: i) MWG (leading O2O retail chain in Vietnam has delivered on growth in
mobiles and consumer electronics; its mini-grocery mart chain is poised for EBITDA breakeven this year,
with a large-scale rollout in 2019e); ii) MCB Bank (one of the best deposit franchises in Pakistan, high
CASA deposit mix and lower cost of funding – this strength should be more visible in a high interest rate
environment; also, NPL recoveries should keep credit costs low); and iii) GTB remains amongst the most
profitable banks within our universe, with a 2019e ROE of +30%; a favourable outcome during the
Nigerian Presidential election could catalyse an upward re-rating.
3
Strategy Themes
FEM in 2019 – Summary, assumptions and country weights
We focus on ten key MENA and Frontier Emerging countries in our 2019 yearbook: Bangladesh, Egypt,
Kenya, Kuwait, Nigeria, Pakistan, Qatar, Saudi Arabia, the UAE and Vietnam.
The opening section summarises our assumptions for 2019 and looks at cross-country themes such as
currencies, interest rates and valuation. Ten country sections follow, highlighting key strategy and macro
themes, and overviews for major sectors in our coverage. We conclude with a valuation table for the 263
stocks in our coverage across twenty one markets.
Assumptions & themes

Fed will keep raising rates until mid-2019; the USD to remain strong
A sustained FEM rally is unlikely until the Fed ends its tightening cycle; short rallies are possible.
Oil prices will remain volatile – we assume USD70/bbl for 2019
China rebalancing, weaker CNY implies pressure on EM, and trade tensions will continue
We like markets that are less vulnerable to EM volatility, or that have already adjusted
Elections and political decisions are critical in Nigeria, Bangladesh, Kenya & Pakistan
FEM countries will find it hard to cut interest rates – Egypt, Nigeria are possible exceptions
Index flows likely to drive re-rating in KSA, Kuwait; policy can drive markets higher in Pakistan, Kenya
Country calls
Overweight: Egypt, Kuwait, Saudi Arabia, Pakistan, and Nigeria
Neutral: Kenya, Vietnam, and the UAE
Underweight: Qatar and Bangladesh
Figure 1: Country valuation

Valuations for MSCI Standard Indices and Bloomberg consensus earnings
YTD TR P/E(x) P/B (x) DY (%) ROE (%) EPS CAGR PEG ratio
Rating (%) 2017 2018e 2019e 2018e 2018e 2018e 2018-20e (%)
DM -0.7 19.4 15.4 14.2 2.2 2.6 12.5 14.2% 1.4

EM -12.0 13.0 11.6 10.6 1.5 3.0 12.7 11.1% 1.2
FM -13.9 11.6 12.5 10.3 1.7 3.7 17.5 13.0% 0.9
FM-x-GCC -20.8 12.6 12.1 9.9 1.7 3.5 19.0 19.0% 0.7
FEM -13.2 14.4 13.4 11.4 1.8 3.1 15.8 15.1% 1.0
MENA 13.6 15.1 13.1 12.1 1.7 4.1 13.3 10.6% 1.4
Emerging Markets
Saudi Arabia OW 16.7 16.5 14.2 13.0 1.8 4.2 12.2 11.0% 1.5
Pakistan OW -7.8 10.1 9.5 7.5 1.2 6.0 13.8 15.1% 0.7
Egypt OW -12.2 16.9 9.7 8.2 2.6 3.5 31.0 34.3% 0.5
UAE Neutral -7.9 10.2 8.8 8.4 1.2 5.7 13.7 8.8% 1.2
Qatar UW 31.9 16.1 13.8 13.0 2.1 3.5 24.7 9.3% 1.7
Frontier Markets
Kuwait OW 16.7 16.4 14.8 12.7 1.6 5.4 11.8 14.3% 1.2
Vietnam Neutral -6.2 24.0 19.8 16.2 4.1 1.4 20.5 28.3% 0.8
Nigeria OW -14.3 8.0 6.8 6.2 0.6 6.9 21.1 12.6% 0.6
Kenya Neutral -6.7 12.4 9.8 8.9 2.7 5.7 43.9 15.4% 0.8
Bangladesh UW -12.2 19.3 15.4 13.2 3.3 2.3 25.1 19.2% 1.0
Source: Bloomberg, EFG Hermes
4
Strategy Themes

MENA and FEM stock picks
Add BURG to MENA Top 20 list, remove MEZZAN

We expand our FEM Top Picks List to 15 names, taking advantage of our broader coverage of stocks
across Frontier Emerging Markets
Add – Square (Bangladesh), Masan (Vietnam), GTB (Nigeria), Safaricom (Kenya), MCB (Mauritius), Gulf
Bank (Kuwait), UBL (Pakistan), and ASA International (London listing)
Remove – VPBank (Vietnam), FNB (Nigeria), and Mezzan (Kuwait)
Our FEM sell list is unchanged
Figure 2: MENA Top 20 list

Price as of 30 November 2018
Ticker Country Price TP Rating Perf. Mcap ADVT P/E (x) P/B (x) D/Y (%)
(LCL) (LCL) YTD (%) (USDbn) (USDmn) 2017a 2018e 2019e 2018e 2018e
SWDY EY Egypt 16.03 23.00 Buy 8.7 2.0 1.6 5.5 6.9 6.9 2.2 7.5
TMGH EY Egypt 9.63 15.00 Buy (1.7) 1.1 0.8 15.0 12.4 8.1 0.7 1.6
EMFD EY Egypt 3.12 5.60 Buy (12.1) 0.8 0.5 6.1 5.6 5.0 1.1 0.0
ESRS EY Egypt 19.21 30.00 Buy (7.6) 0.6 0.7 N/R N/R 17.3 2.1 0.0
JUFO EY Egypt 10.99 14.50 Buy 4.4 0.6 0.7 51.6 20.5 13.6 4.1 1.8
NBK KK Kuwait 0.83 0.92 Buy 19.7 17.2 10.1 16.0 14.6 12.3 1.7 3.6
GBK KK Kuwait 0.27 0.31 Buy 13.0 2.7 2.9 16.3 13.3 11.8 1.2 3.7
BURG KK Kuwait 0.28 0.31 Neutral (3.4) 2.1 2.2 10.7 10.0 9.3 0.9 2.8
HUMANSFT KK Kuwait 3.34 6.30 Buy (10.7) 1.4 1.6 14.5 13.0 11.4 9.0 5.7
RJHI AB Saudi 85.60 95.00 Buy 32.5 37.1 68.0 15.9 15.5 13.9 2.8 5.3
SAMBA AB Saudi 30.95 34.00 Buy 31.7 16.5 15.4 14.1 12.8 11.6 1.5 5.6
RIBL AB Saudi 17.50 20.00 Buy 40.0 14.0 6.0 15.2 13.1 11.6 1.4 4.6
ALMARAI AB Saudi 48.90 56.00 Buy (9.0) 13.0 4.5 20.5 21.1 20.5 3.6 1.5
YANSAB AB Saudi 65.00 80.00 Buy 10.5 9.8 8.8 15.4 12.8 14.2 2.1 6.9
MOUWASAT AB Saudi 75.00 120.00 Buy (0.9) 2.0 2.8 22.3 18.3 15.9 4.8 2.4
AOTHAIM AB Saudi 68.30 90.00 Buy 11.1 1.6 1.8 18.3 17.0 16.0 3.8 2.9
BUDGET AB Saudi 27.45 36.00 Buy 0.9 0.5 2.9 11.9 12.3 11.8 1.9 5.5
DPW DU UAE 16.36 24.00 Buy (34.6) 13.6 2.9 11.2 11.8 11.1 1.2 2.5
DIB UH UAE 5.24 6.40 Buy (4.9) 9.4 5.5 9.7 8.5 7.9 1.6 7.6
EMAAR UH UAE 4.50 7.00 Buy (35.2) 8.8 8.1 5.6 5.0 4.0 0.6 4.4
Source: Company data, EFG Hermes estimates
Figure 3: MENA Sell Ideas

QNBK QD Qatar 199.50 153.00 Sell 58.3 50.6 10.5 14.5 13.7 13.1 2.8 3.0
QIBK QD Qatar 151.90 125.00 Sell 56.6 9.9 3.3 16.3 14.4 13.4 2.5 3.6
CHEMANOL AB Saudi 9.67 7.50 Sell (2.9) 0.3 9.6 N/R N/R 32.9 1.1 0.0
5
Strategy Themes
Figure 4: FEM Top Picks

JUFO EY Egypt 10.99 14.50 Buy 4.4 0.6 0.7 51.6 20.5 13.6 4.1 1.8
TMGH EY Egypt 9.63 15.00 Buy (1.7) 1.1 0.8 15.0 12.4 8.1 0.7 1.6
NBK KK Kuwait 0.83 0.92 Buy 19.7 17.2 10.1 16.0 14.6 12.3 1.7 3.6
GBK KK Kuwait 0.27 0.31 Buy 13.0 2.7 2.9 16.3 13.3 11.8 1.2 3.7
SQUARE BD Bangladesh 263.50 302.00 Buy (6.6) 2.4 1.0 19.5 17.6 15.7 3.6 1.4
KNOC KN Kenya 18.85 22.10 Buy 34.6 0.3 1.1 8.2 6.5 6.0 1.9 3.9
SAFCOM KN Kenya 23.75 27.90 Buy (11.2) 9.3 2.3 19.6 17.2 14.6 7.7 4.1
GUARANTY NL Nigeria 34.35 53.20 Buy (15.7) 2.8 2.1 6.0 6.0 5.8 1.6 7.9
ZENITHBA NL Nigeria 23.20 40.00 Buy (9.5) 2.0 1.9 4.1 4.1 4.0 0.8 11.7
UBL PA Pakistan 141.53 212.00 Buy (24.7) 1.3 3.3 6.6 8.9 5.7 1.0 9.2
MCB PA Pakistan 206.10 254.00 Buy (2.9) 1.8 0.7 11.1 11.1 8.2 1.5 7.8
MWG VN Vietnam 84,500 139,800 Buy (14.0) 1.6 2.6 22.9 14.1 11.2 4.4 1.9
MSN VN Vietnam 80,000 116,400 Buy 4.3 3.6 3.0 28.9 21.6 14.6 4.8 1.4
MCBG MP Mauritius 278.00 331.00 Buy 1.8 1.9 0.5 9.9 10.1 8.9 1.4 3.3
ASAI LN UK 4.55 5.50 Buy - 0.6 0.2 20.0 20.8 11.7 7.0 1.9
Figure 5: FEM Sell Ideas

BKSB OM Oman 0.12 0.10 Sell (11.7) 0.6 0.1 9.5 11.7 11.0 0.9 4.1
VCB VN Vietnam 55,400 33,529 Sell 2.0 8.5 3.6 26.3 19.8 16.6 3.3 1.4
PAEL PA Pakistan 28.49 26.00 Sell (40.0) 0.1 1.7 4.3 11.2 15.1 0.5 1.8
EFOODS PA Pakistan 86.68 71.00 Sell 7.9 0.5 0.1 N/M 94.4 45.2 6.6 0.8
6
Strategy Themes

2018 review – fading momentum, but (most) FEM FX holds ground
Review of key calls from 2018 yearbook

USD and oil were more volatile in 2018 than we expected
Key index calls in Kuwait, Saudi Arabia, and the UAE (FAB) worked well; Qatar surprised post-upgrade
Tight monetary policies meant disappointment on our Egypt and Nigeria overweight calls
Underweights on Kenya & Pakistan (macro issues) and Vietnam (valuation) were successful
Strong start, but lost momentum by mid-year

2018 was a difficult year for FEM markets. A strong start to the year quickly lost momentum in the second
quarter, as markets once again began to focus on global macro trends and country-specific issues – BoP in
Pakistan, a truncated easing cycle in Egypt, a tortuous budget process in Kenya, the conundrum of higher
oil prices and lower FX reserves in Nigeria. Even the upgrade cycle in Saudi Arabia – the closest thing that
FEM markets have to a sure thing these days – ran out of momentum in 4Q18 as political noise and falling
oil prices prompted profit-taking. Meanwhile, the Qatari market continued to outperform in 2H18 despite
rising valuations.
Figure 6: Strong starts faded in most markets by mid-2018 – ex-GCC, markets were more volatile than their GCC peers
MSCI IMI country indices – Q-o-Q local currency performance of key MENA and FEM markets (4Q18 until end-November)
1Q18 2Q18 3Q18 4Q18

25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
Qatar Kuwait KSA Pakistan UAE Vietnam Egypt Kenya Nigeria Bangladesh
Source: Bloomberg
7
Strategy Themes

Only Pakistan has seen a big FX impact on total returns in 2018
Total USD returns in FEM markets were generally unaffected by FX moves in 2018, despite USD appreciation
against major currencies, the continuing CNY weakness and major devaluations in Argentina and Turkey.
Pakistan was the exception, with the latest devaluation on 30 November marking the end of a cumulative
USD-PKR devaluation of c19% that was the most important driver of USD returns in 2018.
High interest rates helped keep the EGP and NGN stable in 2018 despite significant capital outflows mid-
year as EM risk appetite faded. KES bucked the trend, appreciating slightly in early 2018 before giving up
most of those gains later in the year. KES stability remains a source of concern for foreign investors, given
persistent twin deficits and a relatively high debt-to-GDP ratio.
Figure 7: Pakistan saw major FX adjustments in 2018, but many FEM markets lagged the big shifts in EM FX
2018 change in selected DM, EM and FM currencies (until 30 November 2018)
FEM focus countries Other EM & FM Majors including CNY

5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
ARS
BDT
JPY
PKR
ZAR
EUR
MYR
THB
TND
KZT
GHS
COP
GBP
PHP
PEN
TWD
TZS
VND
MAD
NGN
EGP
KES
TRY
ZMW
CNY
LKR
KRW
IDR
MUR
Note: Argentinian Peso devaluation of 52% cut off for clarity

Source: Bloomberg, EFG Hermes calculations
8
Strategy Themes

Key global assumptions for 2019
Valuations look more attractive today than a year ago, but 10-year global cycle is maturing
US rates and USD – more hikes in 1H19, and a strong USD; no lasting EM rally until Fed ends the cycle
Oil – likely to be volatile, we assume USD70/bbl for 2019
China – diminishing returns from stimulus, rebalancing means less demand for EM exports
Further CNY weakness means further EM FX pressure & tight global liquidity, trade tensions will persist
Politics – Bangladesh & Nigeria elections, decisions in Kenya & Pakistan, MENA tensions will persist
US rates and the USD - we assume Fed hikes in December and two or three in 2019…
Consensus expects another hike in December 2018, and three more hikes in 2019 taking total hikes since
December 2015 to 12. This leaves the federal fund rates (upper bound) at 3.25% below the LT average of
5.4%. We agree with consensus and expect further Fed rate hikes in 1H19, but further tightening will
depend on US growth and asset prices. Any sustained recovery in EM flows – and performance - requires an
end to the US rate hike cycle.
Figure 8: Consensus expects another hike in 2018 and three hikes in 2019, taking total hikes since end-2015 to 12
Federal funds target rate upper bound with median consensus estimates for 4Q18e-4Q19e
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Source: Bloomberg
…what does this mean for the USD?

Considering the pace of rate hikes and the relative strength of the US economy, we could see USD strength
continuing in 1H19. The DXY index has gained 10% from the 2018 low, but it is still 6% off the 2017 high,
despite the fact that US rates are now 1.5% higher and other major central banks are not (yet) raising rates.
It seems that the pace of rate hikes (actual vs expectations) is the key driver of USD as opposed to the
direction of rates where consensus expects rates to go higher. As such, any changes in US rate expectations
(i.e. slower pace in hikes, or 2019 hike expectations firmly moving from three to two) could likely lead the
USD lower. We note the markets’ strong reaction to Fed Chair Jerome Powell’s language in late November
about benchmark rates being “just below” neutral.
For emerging markets, we think in aggregate EM currencies could trend lower from here. The MSCI EM
currency index is still 13% above 2016’s lows. However, there will clearly be divergence between countries
depending on the strength of external positions and their ability to attract FX inflows. Within our coverage,
we expect GCC pegs to remain firm and see no risk to those in the medium term. The EGP is likely to
remain relatively stable, helped by further improvement in the current account in 2019 and a relatively
strong reserve position. However, the closure of the repatriation mechanism in December 2018 may herald
greater USD/EGP flexibility in 2019 (there has been limited flexibility since the EGP devalued in 2016).
9
Strategy Themes

Figure 9: Rate hikes did not necessarily result in a stronger USD from Figure 10: EM currencies have stabilised recently, but if the USD
Jan 2017 to Feb 2018, but DXY is +10% from 2018’s low, albeit resumes its upward trend further downside can be expected
still 6% below 2017’s high
USD Index (LHS), Federal Funds Target Rate (RHS) USD Index and MSCI EM currency index
DXY Index Federal Funds Target Rate Upper Bound MSCI EM currency Index (LHS) USD Index (RHS)
105 2.50% 1,750 105
103
1,700
100 2.00% 101
1,650 99
95 1.50% 1,600 97
95
90 1.00% 1,550 93
1,500 91
85 0.50% 89
1,450
87
80 0.00% 1,400 85
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
Jul-18
Oct-18
Jan-15
Apr-15
Jul-15
Jan-16
Apr-16
Jul-16
Jan-17
Apr-17
Jul-17
Jan-18
Apr-18
Jul-18
Oct-15
Oct-16
Oct-17
Oct-18
Source: Bloomberg Source: MSCI, Bloomberg
A tight monetary policy has also kept the NGN stable in 2018. Lower oil prices are likely to increase pressure
on NGN in 2019, though exchange rate policy may also depend on the results of elections in February 2018.
KES levels are likely to remain in question in 2019 thanks to years of REER appreciation and consistent twin
deficits. PKR is at risk of further currency weakness in 2019, but we think that the worst is behind us. BDT
may need to resume depreciation in 2019 to maintain competitiveness in the face of EM FX weakness.
Will EM inflows suffer another rout?

The first fed rate (Dec 2015) hike was followed by cUSD3bn out of EM ETFs in Jan 2016. Trump’s election in
Nov 2016 led to cUSD3.2bn worth of outflows from EM ETFs. Since then, EM ETFs have seen consecutive
months of inflows being disrupted by EM/FM volatility in Apr/May 2018, higher oil prices, rising US rates,
and rising USD.
Figure 11: Rising rates & USD led to three months of outflows from EM ETFs (USD12bn); however, EM ETFs took in cUSD2.7bn in November
EM ETFs flows in USDmn
15
10
(5)
(10)
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jul-16
Aug-16
Sep-16
Nov-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jul-17
Aug-17
Sep-17
Nov-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jul-18
Aug-18
Sep-18
Nov-18
Jun-16
Oct-16
Dec-16
Jun-17
Oct-17
Dec-17
Jun-18
Oct-18
10
Strategy Themes

Outflows have stabilised since July 2018, with EMs attracting decent inflows in November 2018 on the back
of attractive valuation, and falling oil prices. It is hard to predict if these inflows will last should Fed raise
rates four times by end-2019 and USD strengthens.
Oil - despite volatility, we stick with Brent assumption of USD70/bbl for 2019
Oil was far more volatile than we had expected in 2018, and we expect this to remain the case for as long
as the Fed is raising rates and the global growth outlook is uncertain. Futures curves shifted dramatically in
the past few months, but longer-dated oil is – so far – sufficient for many tight oil producers in the US to
make a profit. The Brent-WTI spread widened significantly since mid-2018, but new pipeline capacity in the
US should narrow the spread in 2019-20.
There are some upside risks to oil prices in the short term, should OPEC and Russia agree on production cuts
or we see further disruption to exports from Venezuela and Libya. We note that major exporters continue to
plan for upstream capacity increases and/or the development of downstream assets to lock in demand. For
now, our macro forecasts assume a Brent average of USD70/bbl for 2019 and 2020. Persistent oil price
weakness will limit Saudi Arabia’s ability to drive growth in the next few years, and is a risk to our one-year
OW call on Nigeria. As a general point, higher oil prices do not quickly translate into better growth outlooks
for most oil exporters. Lower oil prices could offer some relief to Pakistan, Kenya, and Egypt, among other
importers, but they do not remove the need for rebalancing in the former two countries.
Figure 12: As you were: short-dated Brent reached too high in 2018 Figure 13: Will pipelines close the Brent-WTI spread in 2019?
Brent futures (1M, 1Y, 2Y, 3Y, 4Y, 5Y) over the past three years (USD/bbl) Front month Brent and WTO (USD/bbl)
1 12 24 36 48 60 Brent WTI Spread (RHS)

80 90 12
75 85
10
80
70
75
8
65 70
60 65 6
55 60
4
55
50
50
2
45 45
40 40 0
Feb-18
Oct-18
Nov-17
Dec-17
Jan-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Nov-18
Nov-15
Nov-16
Nov-17
May-18
Nov-18
Source: Company data, EFG Hermes estimates Source: Company data, EFG Hermes estimates
11
Strategy Themes

The China factor – Cannot stimulate enough to support EM; CNY & trade are sources of risk
Chinese demand has been a key source of growth for EM and FM countries for more than a decade. The
ongoing rebalancing of the Chinese economy away from an investment-heavy model will mean weaker
demand for industrial commodities, limiting export growth in many FEM markets. We do not think that
current Chinese efforts to stimulate growth will be sufficient to support broader EM growth – after a
decade of leveraging up, Chinese stimulus is offering diminishing returns.
Figure 14: China stimulus is slowing; limited room for more in 2019 Figure 15: China has been a major driver of global liquidity
Total lending in GDP, Broad Money & Private Sector Lending (Y-o-Y, RHS) Y-o-Y change in global base money (FX reserves plus US reserves) by source
Total Social Finance in GDP M3 (RHS) PSC (RHS) China FX rsrvs. Other FX rsrvs. US Fed
250% 40% 30%
35% 25%
200%
30% 20%
25% 15%
150%
20% 10%
100% 15% 5%
10% 0%
50%
5% -5%
0% 0% -10%
Sep-03
Jul-04
May-05
Mar-06
Jan-07
Nov-07
Sep-08
Jul-09
May-10
Mar-11
Jan-12
Nov-12
Sep-13
Jul-14
May-15
Mar-16
Jan-17
Nov-17
Sep-18
Nov-03
Feb-12
Aug-06
Jul-07
May-09
Jan-13
Nov-14
Aug-17
Jul-18
Dec-02
Oct-04
Sep-05
Jun-08
Apr-10
Mar-11
Dec-13
Oct-15
Sep-16
Note: Private Sector Lending is to non-financials

Source: Bloomberg Source: Bloomberg, EFG Hermes calculations
However, demand for oil and gas should be relatively robust as private consumption growth continues – gas
demand will be supported by China’s continuing shift towards cleaner energy sources. Countries, like
Vietnam, that produce value-added products demanded by Chinese consumers should fare better than
exporters of simple industrial commodities.
Figure 16: China’s energy mix is shifting, benefitting gas exporters Figure 17: CNY has further to fall (and therefore so does EM FX)
Breakdown of total primary energy consumption by source USD-CNY and MSCI EM FX Index (rebased to USDCNY at November 2008)
Oil Gas Coal Nuclear Hydro Renewables USDCNY MSCI EM FX (rebased)
100% 4.5
5.0
75%
5.5
6.0
50%
6.5
25% 7.0
7.5
Nov-08
May-09
Nov-09
May-10
Nov-10
May-11
Nov-11
May-12
Nov-12
May-13
Nov-13
May-14
Nov-14
May-15
Nov-15
May-16
Nov-16
May-17
Nov-17
May-18
Nov-18
0%
2007
2017
Source: BP Statistical Review 2008 and 2018 Source: Bloomberg
12
Strategy Themes

China’s marginal shift away from investment-led growth and slowing overall growth will mean continuing
capital flight in 2019 that puts pressure on CNY. This will be an additional source of pressure on FEM
currencies (apart from that are credibly pegged to the USD), particularly for those ASEAN members such as
Vietnam. Bangladesh may also face pressure on BDT given its relatively undiversified export base.
Figure 18: Chinese energy consumption faltered in 2015-16… Figure 19: …a slowdown reflected in Asian exports until 2017
Monthly per capita energy consumption Vietnam & Bangladesh exports Y-o-Y, with estimated Y-o-Y EM Asia exports
VN exports BD exports EM Asia exports

700 30%
650
25%
600
550 20%
500
15%
450
400 10%
350 5%
300
0%
250
200 -5%
Jul-09
Jan-10
Aug-10
Mar-11
May-12
Jul-13
Feb-14
Sep-14
Apr-15
May-16
Jul-17
Feb-18
Sep-18
Oct-11
Dec-12
Oct-15
Dec-16
-10%
2014
2015
2016
2017
2018
Source: Bloomberg Source: cpb.nl, customs.gov.vn, Bangladesh Bank, EFG Hermes estimates
We do not think that the current trade dispute between China and the US will be easily resolved. President
Trump has a long-standing suspicion on current trading arrangements, and takes pride in keeping his
campaign promises. Moreover, there is broad mistrust between the US and China on a range of issues –
notably security - that makes a breakthrough on trade difficult to achieve. We also think that the potential
for a military clash between the US and China, likely in the South China Sea, is rising; this is not sufficiently
appreciated by markets.
Politics: forks in the road mean that end-of-year calls are contingent upon political outcomes
Politics will also matter at a national level in key FEM markets in 2019. In Nigeria, election results in February
could drive a rapid re-rating of the market, as they did in 2013, while a changing of the guard at the CBN
may mean a more flexible monetary policy. Imran Khan won a landslide victory in Pakistan in 2018, but a
pay-off for our overweight call requires a quick agreement in talks with the IMF in 2019. Similarly, reforms
in Kenya will require “political heavy lifting” mid-year. A more optimistic view on Bangladesh would require
the new government – likely to be the re-elected Awami League - to take difficult decisions in 2019.
Elections are not a factor in our MENA calls, but Saudi Arabia’s government needs to work hard in 2019 to
improve private sector sentiment if it is to deliver on its programme to diversify sources of growth.
Meanwhile, broader political considerations will affect Egyptian policymaking at it enters the third year of a
stringent IMF programme – the inflation and interest rate paths will depend on these policy choices.
13
Strategy Themes

Factors in focus – FEM currencies, real interest rates and valuation
Strong USD, weak CNY keep FX in play: KES, BDT look pricey; PKR will move, what about EGP & NGN?
Balance sheets are critical – watch reserves and ST obligations for danger
Global borrowing costs have risen for Kenya and Pakistan – IMF programmes are necessary
Already low real interest rates make it hard to cut rates – Egypt and Nigeria are the exceptions
Rate cuts could drive multiples re-rating – other drivers in play for Kuwait, Saudi Arabia, and Kenya
Saudi upgrade cycle is unlike others: growth is weak, and market wants signs of a better outlook
CNY weakness and major currency devaluations in Argentina and Turkey in 2018 mean that FEM currencies
remain in the spotlight. Of the major MENA and FEM countries in focus in this note, only Pakistan saw a
meaningful nominal and REER depreciation in 2018. Nigeria and Egypt both saw REER appreciation, thanks
to high inflation differentials, but they were able to manage capital outflows, thanks to abundant reserves
and high interest rates. We expect that FEM currencies will remain in focus for as long as the Fed is raising
interest rates and the CNY is weakening.
Real effective exchange rates have proved a useful tool for gauging overvaluation in recent FEM FX episodes
in Egypt, Nigeria, and Pakistan. In each case, the REER rose close to (Egypt) or above (Pakistan and Nigeria)
two standard deviations above the LT average before devaluing. Currently, the REERs in Kenya and
Bangladesh are well above their long-term average, and these currencies will face particular scrutiny in
2019.
Figure 20: Can productivity gains fully explain KES & BDT stability? Figure 21: Funding needs suggest Kenya will resume talks with IMF
Real Effective Exchange Rates (REER) relative to LT avg., 2018 YTD perf. Latest foreign reserves over gross external financing need for 2019
REER vs LT average YTD Other FEM Focus markets

40% 3.5
30% 3.0
20% 2.5
10% 2.0
0% 1.5
-10% 1.0
-20% 0.5
-30% 0.0
KE
PK
NG
EG
UG
BD
VN
KW
MU
KSA
MA
TN
TZ
OM
LB
JO
TN
MU
VN
KE
TZ
PK
LK
LB
JO
EG
NG
BD
GH
GE
Note: LT average is 17-18 years for all countries except Jordan (12 years) Source: IMF Debt Sustainability Analysis, Bloomberg, EFG Hermes
Source: Bloomberg, EFG Hermes calculations calculations
However, REERs remain a relatively blunt instrument for assessing FX risk, in particular because they do not
take into account changes in productivity – that can justify higher wage growth – over time. The example of
Vietnam is instructive. The REER has appreciated slowly but steadily since the beginning of the decade. At
the same time, Vietnam has developed high value-added export industries, displacing dependency on ready-
made garment (RMG) exports. Bangladesh has seen similar REER appreciation, but it has not been able to
move away from the RMG sector. Bangladesh has seen recent CA pressure that may augur a corrective BDT
move in 2019, though reserve cover is high relative to peers.
14
Strategy Themes
Figure 22: Bangladesh lags Vietnam on productivity upgrade Figure 23: Rising productivity could justify some KES strength
Vietnam & Bangladesh – key export revenues (USDbn) Kenya GDP per capita (constant PPP USD, rebased to 2003) and REER
VN RMG & textiles VN electronics & machinery BD RMG GDP per capita (PPP constant USD) REER
90 170
80 160
70 150
60 140
50 130
40 120
30 110
20 100
10 90
0 80
2013
2014
2015
2016
2017
2018
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Note: Vietnam data for year to mid-October, Bangladesh for 10 months
Source: customs.gov.vn, Bangladesh Bank, EFG Hermes calculations Source: IMF WEO October 2018, EFG Hermes calculations
Kenya’s REER also looks overvalued, but its twin deficits have been relatively stable for some time, and
remittances and regional capital flows have been important in supporting nominal KES. It is possible that
productivity gains – perhaps thanks to a well-developed mobile banking system – can justify some of the
REER appreciation in recent years. However, looming debt repayments mean that it is important for Kenya
to make serious reforms and lock in a new IMF SBA in 2019.
Interest rates – few FEMs can cut rates in 2019, Egypt and Nigeria are the exceptions
FX questions restrict the ability of MENA and FEM central banks to cut interest rates in response to slowing
growth. GCC central banks are more-or-less tied to US interest rate policy, and can be expected to follow
any Fed rate rises (even though real interest rates are above LT averages in the UAE and Qatar). Outside the
GCC, real interest rates are already below average in most countries, meaning that there is limited room for
rate cuts, and some potential for rate rises. However, Egypt and Nigeria appear to have room to cut rates in
2019. Egypt has more room to make cuts, not just because of a higher differential relative to the LT
average, but also as its current account dynamics are on a stronger footing. However, the inflation path
remains critical for Egypt’s rate path.
15
Strategy Themes

Figure 24: Egypt & Nigeria can cut rates; hands tied in UAE & Qatar Figure 25: CDS - Vietnam & Egypt relatively unmoved by EM sell-off
Current real policy rate in percentage points above/below LT average 2018 change in five-year CDS spreads (bps), five-year spread (bps, RHS)
2018 Chg. 5yr CDS spread (RHS)

2.5 160 600
2.0 140
500
120
1.5
100
400
1.0 80
0.5 60 300
0.0 40
200
20
(0.5)
0
100
(1.0) (20)
UAE
Qatar
Kuwait
Pakistan
Vietnam
Egypt
Bangladesh
Saudi Arabia
Kenya
Nigeria
(40) 0
Pakistan
Dubai
Kenya
Qatar
Kuwait
Egypt
KSA
Vietnam
Abu Dhabi
Nigeria
Source: Bloomberg, EFG Hermes calculations Source: Bloomberg
Inflation is clearly on an upswing in Pakistan, and the SBP is moving aggressively to counteract this, hiking
rates by150bps in late November 2018, the biggest move this year (bringing total hikes to 425bps in 2018).
Rate changes have limited impact in Vietnam, where the central bank sets quantitative targets. It seems
likely that these targets will be lower in 2019.
Rate cuts should have a beneficial impact on overall borrowing costs in Egypt in 2019-20 – the primary
balance moved into surplus in 2018, but still-high benchmark rates have limited the improvement in the
overall balance. Egypt’s external borrowing costs – reflected in five-year CDS spreads - changed minimally in
2018, but those for Nigeria, Kenya, and Pakistan widened sharply. Nigeria managed to sell Eurobonds in
late 2018, albeit at a steep price, but Kenya and Pakistan will likely have to make fresh agreements with the
IMF before revisiting Eurobond markets. The need is less pressing for Kenya, given its stronger reserve
position, but the Kenyan authorities will not want to raise new funds at current prices.
Valuations – High risk-free rates cap Egypt and Nigeria multiples

High risk-free rates are keeping a lid on valuations in a number of our markets. The effect is most striking in
Egypt – where the 2019 earnings yield is well below the current yield on T-bills – and also in Nigeria where
the tight monetary policy means that banks are trading at mid-single digit P/E multiples. As discussed above,
both markets have the potential to see interest rates cuts in 2019 that could support a re-rating of
suppressed equities. In both cases, local fund managers have been reluctant to increase their equity
allocations when risk-free returns are so high.
In the GCC, index flows are likely to drive a temporary expansion in valuations in KSA and Kuwait in 2019,
with the effect lingering in Kuwait until what we expect will be an MSCI EM upgrade in 2020. Saudi
Arabia’s MSCI upgrade is unlike recent upgrades in the UAE & Qatar (both 2014) and Pakistan (2017) in
that it will not come at the climax of an economic upswing. Saudi Arabia has seen solid earnings growth in
2018, but underlying economic growth has been weak due to weak government investment, rising costs for
consumers and companies, and weak sentiment in the private sector. KSA stocks are trading well below the
peak forward P/E multiples seen in 2014 and 2015.
16
Strategy Themes
Figure 26: Market looks skeptical of Egypt’s earnings growth; should Bangladesh be trading at a premium?
2018 P/E multiples and 2018-20e EPS CAGR based on consensus earnings for MSCI IMI indices
20
2018 PE VN
15
KSA KW
QA
BD
10 EG
UAE KE
PK
NG
5
5% 10% 15% 20% 25% 30%
18-20 EPS CAGR
Source: Bloomberg
Elsewhere in the GCC, Qatari stocks look very expensive having outperformed in 2018, and we see little
chance of further re-rating – even an end to the KSA-UAE-Egypt-Bahrain embargo would be more likely to
drive a sell-off on profit taking, we think. The UAE is as cheap as Qatar is expensive, but we see few
catalysts for a re-rating in 2019.
It is hard to see a cut in risk-free rates supporting the Pakistan and Kenyan markets in 2019 – rather we
think that rising rates and a weaker PKR will support stronger earnings growth in Pakistan, while the
relaxation of rate caps and a fresh IMF agreement are possible catalysts for Kenya.
Elsewhere in FEM, we are not convinced that stocks in Bangladesh – which performed more or less in line
with EM and FM aggregates in 2018 – should be trading at significant premium to peers. There is limited
upside to our target prices for our Bangladesh coverage, and we have concerns about structural issues in
the banking sector.
17
Strategy Themes

Country weights – Overweight Egypt, Kuwait, Nigeria, Pakistan, Saudi Arabia
We weigh our MENA picks against the MSCI Arabian Markets Index. We weigh our FEM picks against the
MSCI Frontier Emerging Markets Index.
Bangladesh (FEM – Underweight) – We think that the market remains expensive relative to peers, having
performed in line with EM in 2018. Overdue reforms will be headwinds to growth in 2019, and BDT
weakness is possible.
Egypt (MENA & FEM – Overweight) – Egypt’s macro is improving with better fiscal and current account
deficits and a pick-up in growth. The correction from Apr 2018’s highs means valuations are more attractive
on a multi-year view. We need lower interest rates for a sustained rally in the market.
Kenya (FEM – Neutral) – The market finally priced in macro constraints in 2018, and we think that an IMF
SBA and the relaxation of the rate cap are possible catalysts for 2019. The KNOC M&A story remains in play
in 1H19.
Kuwait (MENA & FEM – Overweight) – Stable macro, index inclusion (potential upgrade to MSCI EM), and
low ownership mean Kuwait is likely to be well-supported through May 2020. Banks (54% of MCap) offer
some of the best fundamentals in the GCC.
Nigeria (FEM – Overweight) – The market is trading at post-GFC lows, pricing in a very poor macro outlook,
but we have good visibility on 2019 earnings growth. Elections or an EM rally could drive a re-rating, and
yields are attractive in the meantime.
Pakistan (FEM – Overweight) – The SBP has allowed PKR to weaken, and we think that there is a good
chance of an IMF deal in early 2019. Stocks will be volatile, but history suggests good LT returns from here.
Qatar (MENA – Underweight) – Non-oil growth is well below peak, while valuation is above historical
average. There is no FOL catalyst in 2019, and QIBK, QNBK and IQCD look expensive. We expect Qatar to
see the highest foreign outflows in our coverage in 2019-20e on EM rebalancing (China-A and KSA).
Saudi Arabia (MENA – Overweight) – Saudi’s index inclusion trade was on pause in 4Q18, but this will
resume in 2019 as KSA becomes one of the Top 10 EMs, and one of the Top 3 in EM EMEA. We see
cUSD16bn (2x current foreign ownership) in passive inflows alone in Mar 2019 to Mar 2020. EPS growth for
banks and petchems (70% of Mcap) will be supportive for the trade.
UAE (MENA – Neutral) – Still the most foreign-owned MENA market, the UAE is cheap, but with no catalyst
in sight. FOL increases, similar to those seen in Qatar in 2018, could provide a boost, but so far only ENBD
(pending) and ADIB have taken steps to boost FOLs. DU, DIB, FAB and ETISALAT are key names to watch.
Vietnam (FEM – Neutral) – Valuations look more reasonable after the 2018 sell-off, though price discovery
remains an issue. We like the LT consumer story but are wary of high PSC/GDP and trade linkages to China.
18
Strategy Themes
Index Matters - How will EM, FM, and FEM indices look in 2019-20?
MSCI
Saudi Arabia, Argentina set to join MSCI EM in 2019, China-A’s weight could quadruple
Within Frontier/Frontier Emerging, Argentina is expected to leave in 2019…
…Kuwait could follow in 2020
FTSE
FTSE will include Saudi Arabia in EM indices over five tranches Mar 2019 to Mar 2020
FTSE will include China-A shares over three tranches June 2019, Sep 2019 and Mar 2020
In addition, FTSE has Argentina, Vietnam, and Romania on its watch list for potential upgrades to EM
Figure 27: MSCI EM weights and flows simulations by May 2020
Weight (%) Est. Passive Flows
Current By Aug-19 By May-20 (USDmn)
Brazil 7.6% 7.2% 7.0% (2,277)

Chile 1.1% 1.1% 1.0% (305)
China 29.9% 28.9% 28.6% (5,500)
Colombia 0.4% 0.4% 0.4% (121)
Czech Republic 0.2% 0.2% 0.2% (48)
Egypt 0.1% 0.1% 0.1% (36)
Greece 0.2% 0.2% 0.2% (61)
Hungary 0.3% 0.3% 0.3% (86)
India 8.7% 8.2% 8.2% (2,387)
Indonesia 2.1% 2.0% 1.9% (570)
Korea 14.2% 13.4% 13.2% (3,876)
Malaysia 2.4% 2.3% 2.3% (660)
Mexico 2.8% 2.6% 2.6% (762)
Pakistan 0.0% 0.0% 0.0% (11)
Peru 0.4% 0.4% 0.4% (117)
Philippines 1.0% 1.0% 0.9% (276)
Poland 1.2% 1.1% 1.1% (332)
Qatar 1.1% 1.0% 1.0% (297)
Russia 3.9% 3.6% 3.6% (1,053)
South Africa 6.1% 5.7% 5.7% (1,657)
Taiwan 11.6% 10.9% 10.8% (3,170)
Thailand 2.5% 2.4% 2.3% (682)
Turkey 0.6% 0.6% 0.6% (165)
United Arab Emirates 0.8% 0.7% 0.7% (216)
Argentina* 0.0% 0.3% 0.3% 1,255
Saudi Arabia** 0.0% 2.6% 2.5% 10,443
Kuwait*** 0.0% 0.0% 0.5% 2,020
China-A**** 0.7% 2.8% 3.3% 10,744
*Argentina will be joining MSCI EM end-May 2019
**Saudi Arabia will be included in MSCI EM over two-tranches over May and August 2019
***Decision on Kuwait’s potential upgrade will be made in June 2019 with implementation in May 2020
****Decision on proposal to increase China-A weight will be made on or before 28 Feb 2018 with implementation in May and August 2019 and May 2020
Source: MSCI, EFG Hermes estimates
19
Strategy Themes
Figure 28: MSCI Frontier Emerging Index Figure 29: MSCI Frontier Index
Weight (%) Jun-19 Jun-20 Weight (%) Jun-19 Jun-20
Philippines 24.2% 26.5% 30.3% Kuwait* 22.1% 26.3% 0.0%

Kuwait** 11.6% 12.6% 0.0%
Vietnam 16.2% 19.2% 26.1%
Colombia 9.6% 10.5% 12.0%
Argentina** 16.0% 0.0% 0.0%
Peru 9.5% 10.4% 11.9%
Vietnam 8.5% 9.3% 10.6% Morocco 8.0% 9.5% 12.9%
Argentina* 8.4% 0.0% 0.0% Nigeria 6.7% 8.0% 10.9%

Morocco 4.2% 4.6% 5.2% Kenya 4.9% 5.9% 8.0%
Nigeria 3.5% 3.9% 4.4%
Romania 4.6% 5.5% 7.5%
Egypt 2.8% 3.0% 3.5%
Bahrain 4.2% 5.0% 6.8%
Kenya 2.6% 2.8% 3.2%
Romania 2.4% 2.6% 3.0% Bangladesh 2.8% 3.4% 4.6%
Bahrain 2.2% 2.4% 2.8% Mauritius 2.2% 2.6% 3.5%
Bangladesh 1.5% 1.6% 1.9% Lebanon 1.9% 2.3% 3.1%
Pakistan 1.4% 1.5% 1.7%
Croatia 1.6% 2.0% 2.7%
Mauritius 1.1% 1.2% 1.4%
Lebanon 1.0% 1.1% 1.2% Slovenia 1.6% 2.0% 2.7%
Croatia 0.9% 0.9% 1.1% Oman 1.6% 2.0% 2.7%

Slovenia 0.9% 0.9% 1.1% Jordan 1.2% 1.5% 2.0%
Oman 0.9% 0.9% 1.1%
Sri Lanka 1.1% 1.4% 1.8%
Jordan 0.7% 0.7% 0.8%
Kazakhstan 0.8% 1.0% 1.3%
Sri Lanka 0.6% 0.6% 0.7%
Kazakhstan 0.4% 0.5% 0.5% Senegal 0.7% 0.8% 1.1%
Senegal 0.4% 0.4% 0.5% Tunisia 0.7% 0.8% 1.1%
Tunisia 0.3% 0.4% 0.4% Estonia 0.3% 0.3% 0.5%
Estonia 0.2% 0.2% 0.2%
Serbia 0.2% 0.3% 0.4%
Serbia 0.1% 0.1% 0.2%
Lithuania 0.2% 0.3% 0.4%
Lithuania 0.1% 0.1% 0.1%
Ivory Coast 0.1% 0.1% 0.1% Ivory Coast 0.1% 0.1% 0.2%
*As of now MSCI said it will not be eligible to remain in FEM, but final *EM upgrade decision in June 2019
decision will be made in February 2019 **Upgrade effective close of end-May
**Kuwait EM upgrade decision in June 2019 2019
Source: MSCI, EFG Hermes calculations Source: MSCI, EFG Hermes calculations
20
Sectors
Financials 21
Consumer 27
Industrials 35
Materials 39
Real Estate 49
Telecom 53
Healthcare 57
Financials Sector
MENA banks – Margins to remain a key driver of earnings growth in

2019
Key Buys
Riyad Bank in Saudi Arabia (TP: SAR20.0, RIBL AB) – Strong retail franchise undergoing a makeover
Riyad Bank is well-positioned in retail (it is the third largest retail bank, in terms of loans and branches), and
it offers the biggest scope for improvement in CASA collection (in 2017, it had the lowest CASA per
branch).
Dubai Islamic Bank in the UAE (TP: AED6.4, DIB UH) – Shifting gears
We prefer Dubai banks over Abu Dhabi ones on valuation, and within Dubai banks, DIB has recapitalised,
built liquidity and a potential strategic shift from growth to profitability in 2019.
Gulf Bank in Kuwait (TP: KWD0.31, GBK KK) - Renewed focus on growth
The bank is focusing on growth again after several years of restructuring. It has one of the highest
provisions to gross loans ratio (c32% of shareholders’ equity), a strong focus on retail and one of the
highest share of CASA deposits in Kuwait. It trades at a large discount to the sector.
CIB (TP: EGP105.0, COMI EY) and Credit Agricole Egypt (TP: EGP53.1, CIEB) in Egypt – Highest ROEs in
MENA; downside to earnings due to tax changes should be limited
Both banks exhibit high ROEs (30% for CIB, 45% for CAE) and are well-positioned for the transition to IFRS
9 (both have provisions to NPLs of c200%). We expect loan growth at c15% for both banks next year, but
CIB should grow earnings at a faster pace than CAE (c25% for CIB vs. c15% for CAE) because of CIB’s
stronger focus on EGP deposit growth (CAE has a strategy that is less deposit-driven). CAE offers a good
dividend yield of c9%. The upcoming changes to the Tax Law should not have an impact on earnings until
2020, and this should give banks enough time to shift their asset mix in order to minimise the tax impact on
earnings.
Key Sells
QIB in Qatar (TP: QAR125.0, QIBK QD) – Turnaround has run its course
Fundamentally, there is nothing particularly alarming about QIB, as it is a strong retail Islamic franchise in
Qatar, with good credit quality indicators relative to the sector, but after the increase in its FOL in Apr 2018
(cQAR300mn in passive inflows), the stock has become expensive (c40% premium to average P/B in the
past five years). There are no major drivers for ROE expansion next year.
21
Financials Sector
Key country themes

Egypt – Recovery in capex might be delayed to 2020, but we expect solid loan growth of 15%, driven by
working capital and stronger retail lending demand. The delay in CBE monetary easing cycle should mean
that banks can sustain high margins and ROEs (average at 30%) in 2019. Banks will adopt IFRS 9 in early
2019, but we are not expecting any shock to capital adequacy, as most banks have large provisioning
buffers. The changes to the Tax Law have not been finalised as we speak, but its impact will not be
meaningful until 2020.
Saudi Arabia (banks and insurers) – Rates are likely to remain an important driver of earnings, with three
more potential Fed rate hikes until end of 2019. Loan growth is likely to be mid-single digit, driven by home
financing, which should benefit retail-focused banks. Bank stocks will be underpinned by passive inflows of
cUSD6bn in 2019 (median 21x ADVT). For insurers, we expect premium growth to recover after a weak
2018, driven by medical, on inclusion of domestic helpers, pilgrims and a portion of uninsured Saudis.
UAE – Bank-specific factors, such as M&A, FOL increases and spinoffs, rather than macro themes are likely
to drive stocks. We expect modest expansion in NIM, as the benefit of rising rates will be diluted by: i)
erosion of CASA; and ii) competitive pressures. We expect corporate-led, mid-single digit loan growth in
2019, as the macro outlook is encouraging, with the Central Bank and IMF expecting a stronger economy
next year.
Kuwait – Adoption of IFRS 9, most likely in Jan 2019, might bring some positive news for the cost of risk, as
precautionary provisions will no longer be there. But even assuming no substantial change in the cost of
risk, the earnings growth outlook for Kuwait banks is one of the best in MENA: we forecast 15% growth in
earnings, driven by c8% loan growth, margin expansion and a slight decline in provisioning costs.
Qatar – Qatar’s economy has been resilient post blockade; the Central Bank has rebuilt its FX reserves, and
the govt. has pushed for business-friendly reforms. As the capex cycle of the govt. is bottoming out, loan
growth has slowed down, and we expect mid-single digit growth next year, while margins should be stable,
as there is no new pressure on liquidity. The aggregate cost of risk should fall slightly this year because of a
high base for some banks in 2018 (Doha Bank and, to a lesser extent, CBQ).
Oman – Loan growth is likely to be corporate-led (large-scale gov’t projects). Appetite for retail lending is
likely to be subdued due to rate caps. NIM to improve slightly on improving liquidity and upward repricing
of assets. Fee income to recover from a low base on loan growth and banks’ focus on ancillary fees.
Morocco – 2019 should be another year of low single-digit lending expansion, as we do not expect strong
acceleration in non-agricultural GDP growth. The cost of risk should continue to fall gradually in Morocco,
and this should drive mid- to high-single-digit growth in earnings in 2019e.
Lebanon – An improvement in confidence hinges upon Lebanon forming a new cabinet (after parliamentary
elections were held in mid-2018). Much needed economic reforms, including a reduction in fiscal deficit and
public debt to GDP, could improve investment, and the international community has pledged USD10bn in
soft loans towards Lebanon’s investment plan, but these are dependent on reforms. In the absence of these,
Lebanon banks will continue to see sluggish loan and deposit growth.
Jordan – IMF-backed fiscal consolidation measures and an uncertain geopolitical backdrop are likely to
weigh on business confidence and credit appetite. The tourism sector has shown a robust recovery, 15% Y-
o-Y in 1H18; however, tourism, hotels and restaurants account for just 2% of total lending.
22
Financials Sector
Frontier banks – Credit growth returning (except Georgia)
Key Buys
MCB Bank in Pakistan (TP: PKR254.0, MCB PA)
MCB has one of the strongest deposit franchises in Pakistan, reflected in its high CASA deposit mix and
lower cost of funding. This strength should become more visible in a high interest rate environment as the
bank should see strong NIM expansion. Moreover, NPL recoveries from NIB’s portfolio that MCB acquired
last year should keep credit costs low.
TBC in Georgia (TP: GBP22.4, TBCG LN) – A strong macro environment supportive of earnings growth
Earnings CAGR was 29.0% in 2012-17, and we expect a further 17.8% in 2018, driven by: i) continued
strong loan growth (albeit lower-than-historical levels, on new regulations introduced by the NBG); ii)
improving efficiency; and iii) benign asset quality, supported by strong GDP growth. On the latter, we rank
Georgia amongst the most attractive economies within our universe, as: i) we expect strong GDP growth of
around 5%; ii) we expect inflation in the low single digits; iii) the fiscal and external balances are stable and
well-managed; and iv) the government is focused on key reforms aimed at establishing the country as a
regional transport and logistics hub within the region.
GTB in Nigeria (TP: NGN53.2, GUARANTY NL) – Best-in-class

GTB remains amongst the most profitable banks within our universe, with a 2018e ROE of +30%. We
believe ROE will be at a similar level in 2019, due to: i) its above-peer-average NIMs; ii) more efficient cost
base; iii) better asset quality; and iv) accelerating NIR growth as it continues to roll out digital banking
channels. Apart from its top-of-the-range ROE, the bank’s corporate governance and management quality
continue to be well-regarded by the investment community. We, therefore, believe a favourable outcome
during the Presidential election (scheduled for 1Q19) could catalyse an upward re-rating on its 2019e P/B of
1.5x.
Vietnam Prosperity Bank (VPB) (TP: VND40,530, VPB VN) – Strong franchise
VPB has 2.2mn active card holders (c30% market share) who spend USD424/month and USD11.3bn/year
(5% of GDP); yet, its current market cap represents only 1% of GDP (USD2.2bn). Furthermore, VPB’s 5.6mn
customers have built USD12.7bn of banking assets (5% of GDP) and can generate normalised returns of
20%, with a capital buffer of 290bps (2023e). In our opinion, VPB’s franchise is worth c2% of GDP.
Furthermore, we would stress that VPB is the best-listed play on the rapidly growing consumer segment
through its consumer finance business (FE Credit), which represents 23% of the Group’s FY17 loan book.
On the back of its exposure to FE Credit, VPB’s FY17 NIMs (8.7%) were around 520bps higher than the
average NIM of its peers (3.4%).
Key Sells
Bank for Foreign Trade (VCB) in Vietnam (TP: VND33,529, VCB VN) – Over-valued
We have a Sell rating on VCB for the following three key reasons: i) valuation is full at our TP; we calculate a
negative total expected return of more than -15%; ii) upward revisions in consensus estimates would have
to be substantial enough to prompt us to reassess our valuation approach. Currently, our 2018 and 2019
net profit forecasts are 24% and 11%, respectively, ahead of consensus; and iii) continued high exposure to
SOEs – within our coverage universe of Vietnamese banks, VCB has the largest exposure to SOEs (20% of
total loans). Until the government executes the planned reform of its SOEs, this exposure will remain a risk
to credit quality.
23
Financials Sector
Key country themes
Pakistan - Rising interest rates will drive higher spreads as banks benefit from the high current (average
33%) and savings (average 37%) deposit mix. Loan growth, however, should slow down as a sharp increase
in rates will dent consumer and corporate credit appetite. We expect the cost of risk to also pick up, albeit
at a gradual pace, as momentum of NPL recoveries slow down. Earnings growth should recover strongly
from a subdued base in 2018, which was affected by a series of one-off costs related to pension, deposit
insurance costs and normalisation of investment gains.
Vietnam – Credit growth will be broadly stable at current year levels, as guided by the State Bank of
Vietnam. Lower cost of risk as most VAMC bonds will be fully provided for in 2018, and loan growth in
unsecured consumer credit slows down. Stable margins as banks focus on reducing funding costs and
improving their business mix towards higher margin retail loans. Recoveries remain a potential boost to
bank earnings in 2019e; risks to our earnings forecasts are on the upside.
Georgia – Slowing credit growth as new regulations are introduced by the Central Bank. However, margins
are expected to be higher as mix in GEL loans increases. Alternative banking channels to reduce costs and
support non-interest income growth.
Kenya – Although loan growth should accelerate, rate caps will limit growth. Margins expected to hold as
banks continue to focus on improving their operating efficiency. Other East African operations to further
support group earnings growth.
Mauritius – Credit growth expected to accelerate as real GDP growth returns to 4% p.a. on the back of
strong growth in tourism. Margins are expected to widen as loan penetration of the balance sheet
increases, while the cost of risk remains benign.
Nigeria – Credit growth is expected to pick up modestly in 2019 (positive base effect), as margins widen, on
the back of higher yield interest rate environment. Earnings should accelerate as opex costs moderate and
cost of risk normalises.
Rwanda – Banks, like the economy, will need to continue adjusting for the drop in net development
assistance from abroad. Scale remains the other key challenge, as the absolute size of the economy is small;
however, we expect credit growth to strengthen as margins hold in the coming year.
Tanzania – Whilst the scope for growth remains very attractive, regulatory uncertainties are clouding
visibility in the banks’ growth trajectory. Encouragingly, asset quality is expected to improve following years
of aggressive write-offs. Key theme over the coming years will be consolidation, and we expect Bank of
Tanzania to continue to play a leading role in this regard.
Uganda – Credit growth to pick up as banks’ risk appetite increases. This should see margins expand
significantly. Notably, the higher rate environment should bolster the margin outlook of our banks further.
Deterioration in asset quality is a key risk to our earnings outlook.
24
Financials Sector
Figure 1: MENA and Frontier banks heat map
Loan growth Spreads Cost of risk Earnings growth ROE
MENA banks
Egypt Stable Stable Slightly higher Stable Stable
Morocco Slightly higher Stable Lower Slightly higher Stable
KSA Stronger Higher Higher Decelerating Higher
UAE Flattish Higher Higher Decelerating Stable
Kuwait Stable Higher Stable Stable Stable
Qatar Stable Lower Lower Higher Stable
Oman Flattish Higher Stable Accelerating Higher
Lebanon Lower Stable Stable Stable Stable
Jordan Flattish Stable Higher Decelerating Stable
Frontier banks
Pakistan Slower Higher Higher Higher Higher
Vietnam Stable Stable Lower Higher Higher
Nigeria Stronger Stable Higher Stable Lower
Kenya Stronger Lower Higher Stable Lower
Uganda Accelerating Higher Lower Higher Higher
Mauritius Stronger Higher Higher Accelerating Higher
Tanzania Stronger Stable Elevated Stable Stable
Georgia Slower Stable Stable Decelerating Stable
Rwanda Stronger Stable Stable Stable Lower
25
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0%
5%
10%
15%
20%
25%
30%
Nigeria 45% Rwanda 21%
Vietnam 34% Vietnam 19%
Rwanda 28% Georgia 17%
Financials Sector
Pakistan 24% Uganda 16%

Tanzania 19% Mauritius 15%

Frontier
Frontier
Uganda 14% Pakistan 15%
Georgia 13% Tanzania 14%
Figure 2: Loan growth (FY19e)
Mauritius 11% Kenya 12%
Figure 4: Earnings growth (FY19e)

Kenya 10% Nigeria 10%
Egypt 18% Egypt 24%

Kuwait 13% Lebanon 10%
Lebanon 13% Oman 8%
Morocco 10% Morocco 7%
KSA 9% Kuwait 7%
MENA
UAE 8% Qatar 5%
MENA
Oman 7% KSA 5%
Qatar 6% UAE 5%
Jordan 5% Jordan 4%
26
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Georgia 22.6% Rwanda 10.0%

Vietnam 21.2% Tanzania 9.7%
Uganda 18.4% Uganda 8.6%
Kenya 18.0% Kenya 6.8%
Figure 5: ROE (FY19e)
Nigeria 17.8% Nigeria 6.0%

Frontier
Pakistan 16.5% Georgia 5.5%

Frontier
Tanzania 16.4% Vietnam 4.6%

Rwanda 16.0% Pakistan 3.9%
Mauritius 13.1% Mauritius 3.0%
Figure 3: Net interest margin (FY19e)

Egypt 26.4% Egypt 4.4%

UAE 19.0% Morocco 3.8%
Lebanon 15.0% KSA 3.3%
Qatar 14.8% Jordan 2.9%
KSA 13.5% Kuwait 2.8%
MENA
Morocco 13.3% UAE 2.7%

MENA
Jordan 10.6% Oman 2.6%

Kuwait 10.2% Lebanon 2.4%
Oman 10.2% Qatar 2.3%
Consumer Sector
MENA Consumer & Retail
Structural demand growth outlook remains weak in the GCC, given a declining population, subsidy
reforms and rising competition
GCC food names are set for a tough time, as they are most exposed to macro trends; however, we still
like Almarai and SADAFCO
Select retailers offer the best opportunity heading into 2019e as plays on market consolidation; Budget
KSA, eXtra and Al Othaim are our top picks
Strong consumer recovery underway in Egypt; we continue to like food names and GB Auto as a play
on cyclical recovery
Positive on MENA education, with Kuwait’s Humansoft and Egypt’s CIRA offering unique exposure to
the sector
Top Picks
Budget Saudi (Saudi Arabia, Buy, TP: SAR36.0; BUDGET AB): Should see consolidation benefits accelerate
(100% Saudisation in place in Mar 2018), as recently issued executive regulations governing car rentals
come into effect and used-car sales improve.
CIRA (Egypt, Buy, TP: EGP9.2, CIRA EY): Fast-growing Egypt education name operating in both K-12 and
higher education (both largely undersupplied), with a solid profitability profile that is set to improve further.
eXtra (Saudi Arabia, Buy, TP: SAR75.6; EXTRA AB): Major consolidation benefits to play out in 2019e, given
that the 70% Saudisation requirement was implemented in Nov 2018 for electronics retailers.
GB Auto (Egypt, Buy, TP: EGP7.50, AUTO EY): Best play on Egypt’s discretionary consumption recovery, with
its auto business showing a strong pick-up in revenue and margins, while its NBFI GB Capital continues to
deliver robust growth and high returns.
Humansoft (Kuwait, Buy, TP: KWD6.3, HUMANSFT KK): The leading private university operator in Kuwait’s
severely undersupplied market, with a best-in-class profitability profile.
Juhayna (Egypt, Buy, TP: EGP14.50, JUFO EY): Top pick within Egypt food names; the leading dairy and juice
player is set for continued strong earnings momentum as volumes recover further and margins improve,
aided by cost-cutting efforts implemented in 2017.
Al Othaim Markets (Saudi Arabia, Buy, TP: SAR90.0; AOTHAIM AB): Strong geographic expansion and no-
frills proposition have enabled the grocery retailer to gain market share, with margins holding up
surprisingly well.
Least Preferred Names

Nadec (Saudi Arabia, Sell, TP: SAR24.0, NADEC AB): The dairy and juice player will face pressure in 2019e,
as it imports animal feed and earnings normalise in the volatile agriculture division; we also believe it will
have to raise fresh dairy prices (following Almarai), erasing part of its market share gains in 2018.
Savola (Saudi Arabia, Neutral, TP: SAR30.0, SAVOLA AB): Market will continue to assign no value to its
consolidated loss-making grocery retail and food businesses until a turnaround is clear.
Shaker (Saudi Arabia, Sell, TP: SAR8.7, SHAKER AB): AC and electronics retailer (with minority stake in AC
manufacturing plant) will find it challenging to reverse losses, given weak top-line trends (recovery
contingent upon improved real estate market) and stretched balance sheet.
27
Consumer Sector
Saudi Arabia: Consumer & retail names face another year of structural demand challenges
Challenges to structural demand growth (in KSA and the GCC at large) showed minimal signs of easing in
2018, driven by further expat departures and high cost of living. While typically consumer sentiment
improves with the announcement of gov’t handouts, the decision to axe public sector pay cuts did not fully
offset other demand-side pressures. Given slowing revenue momentum companies have, once again, turned
to trimming the fat and searched for opportunities to expand market share in an effort to support bottom-
line growth. Key factors that weighed down on growth in 2018 included:
i) Expat departures and implementation of the expat levy – first-time imposition of levy on
dependents (SAR100 a month in Jul 2017, rising to SAR200 in 2018 and SAR400 in 2020) has
reportedly driven a decline in the expat population, which will likely affect food names more
than retailers (where a good portion of clientele are nationals). Most corporates did not bear
the expat levy on dependents, but are incurring extra costs as additional and new levies are
introduced for expat employees in 2018.
ii) Imposition of 5% VAT starting 1 Jan 2018 (c85% of the consumer basket is exposed to it)
created some pre-purchasing for retailers in 4Q17 and smaller-scale retailers (grocery) faced
coinage issues that disrupted sales initially.
iii) Subsidy reforms (higher electricity and at-the-pump fuel prices) – this could remain a drag in
2019e if there is another wave of increases at beginning of year.
Changing landscape for dairy players on animal fodder ban, shrinking population and long-awaited fresh
dairy price hike
Food names have been affected by a shrinking population, as well as revved-up competition (particularly in
the long-life milk space, due to a surplus of raw milk). Margins will likely remain affected by competition
and rising costs – Saudisation pressures and the impending ban on animal fodder cultivation in KSA from
Jan 2019 (as part of Saudi Arabia’s strategy to conserve water). In Jul 2018, Almarai hiked the prices of six
fresh dairy SKUs for the first time in 10 years (excl. VAT impact in Jan 2018), which allowed other players to
gain market share and shifted consumption to cheaper long-life dairy; however, we expect fresh dairy
players to follow suit in 2019 on the back of increasing cost pressure and especially given their weaker
earnings profile. We like Almarai, as we believe it is best-positioned to weather these cost changes and will
benefit from index flows. While operational catalysts are limited, we still see SADAFCO‘s valuation as
depressed and the recent 10% share buy-back announcement is positive. Nadec’s recent performance
improvement will be short-lived, in our view, as it increases fodder importation and the volatile agriculture
segment accounts for nearly half of its earnings.
Playing market consolidation via select retailers still the best theme
The last significant round of retail consolidation kicked off at end-2016, on the requirement of 100%
Saudisation at mobile retail shops (resulted in closure of 3k retailers), which drove strong earnings growth
and share price performance for eXtra and Jarir. While electronics retailers continued to show solid results in
2018, we expect accelerated growth in 2019 as another round of market consolidation begins with the
implementation of 70% Saudisation for 12 retail activities (including electronics) over 4Q18-1Q19. While
there have been no regulatory changes in the grocery retail space, organised players have grown market
share at the expense of smaller traditional outlets (baqalas – c3-4k closed down in 2018e), with Al Othaim
the best play on that theme. We note that 4Q18 growth could be muted for some retailers, due to a high
comparable base (pre-VAT purchases in 4Q17). Benefits from 100% Saudisation for car rental offices, which
was implemented in March 2018, have been palpable for Budget Saudi, but this will play out gradually in
2019, aided by recently issued executive regulations governing car rentals.
28
Consumer Sector
Figure 1: Saudi Arabia’s consumer electronics market remains on a Figure 2: 70% Saudisation requirement in new retail sectors
downtrend, but organised players growing on share gains
In SARbn
Electronics market Growth Mar ‘18 Car rental offices*

56%
50 60% Ready-made garments, kidswear, men's accessories
45 50% Cars & motorcycles
36% Sep ‘18
40 40% Home and office furniture
35 30% Houseware
30 12% 20% Watches
25
-2% 1% 10% Nov ‘18 Glasses/sunglasses
20
15 -10% 0%
-13% Electronics and appliances
-20% -17% -10%
10 Medical equipment and supplies
5 -20%
Confectionaries
0 -30%
Jan ‘19 Automotive spare parts
2010
2011
2012
2013
2014
2015
2016
2017
8M2018
Construction materials
Carpets and rugs
*100% Saudisation requirement
Source: Company data Source: EFG Hermes estimates
Figure 3: Y-o-Y growth in revenue: food names are seeing the most pressure while some retailers benefitting from market share gains
2017 9M18
60% 53%
40%
20% 12% 13%
2% 7% 6% 5% 5% 2% 4%
0% 1%
1%
0%
-2% -1% -4% -4% -2%
-1% -3% -1% -2% -2% -9% -5%
-20% -9% -7% -9% -10% -9%
-15% -12%
-40% -27%
-37%
-60%
Halwani
Retail
SADAFCO
Total
Aldrees
Almarai
Budget
Catering
eXtra
Jarir
Herfy
Hokair
Nadec
Savola
Shaker
Farm
Source: Company data Food
Figure 4: Y-o-Y change in EBTIDA margin: focus shifts on improving margins as top-line slows, but difficult given rising cost pressures
(staff, etc.) and competition
2017 9M18
4% 3.1% 3.0% 3.0%
2.6%
3%
2% 1.3% 0.9%
0.4% 0.5% 0.3% 0.6% 0.5%
1%
0%
-1% -0.3% -0.2% -0.2% -0.6% -0.2%
-0.4% -0.6%
-2% -1.0% -0.9% -1.0% -0.7%
-1.2% -1.4% -1.0%
-1.7%
-3% -2.2%
-4% -2.8% -3.1%-3.0% -3.2%
-5% -4.1%
Retail
SADAFCO
Almarai
Total
Aldrees
Budget
Catering
eXtra
Jarir
Halwani
Herfy
Hokair
Nadec
Savola
Farm
Food
29
Consumer Sector
Figure 5: Y-o-Y recurring earnings growth: a handful of names have managed to grow their bottom-line
2017 9M18
87%
100%
50% 22% 19% 17% 17%

9% 0% 0% 10%
0%
-2% -2% 0% -6% -9%
-7% -7% -10% -7% -14%
-28% -17%
-50% -30% -35% -32% -28% -21% -27%
-41%
-71% -59%
-100% -76%
-94%
-150%
Retail
Total
Catering
eXtra
Jarir
Halwani
Hokair
Savola
SADAFCO
Farm
Almarai
Aldrees
Budget
Herfy
Nadec
Food
Egypt consumer recovery to continue

2018 was proof that Egypt’s consumer recovery is underway, with more expected in 2019e. A resumption
of interest rate cuts and stronger wage growth are key catalysts for the sector. We still like Egyptian food
names as volumes and margins continue to improve, with pricing flexibility a plus (the small price increases
in 2018 were a positive surprise after 2017’s unprecedented round of price hikes post the EGP floatation.
Leading dairy and juice player Juhayna and cheese producer Domty are our preferred food names.
We are also more confident in the recovery in Egypt’s discretionary spending, evident in the pick-up in auto
sales (+38% in 9M18). We play this via GB Auto, which also has a strong NBFI platform through its
subsidiary, GB Capital.
MENA education: A few opportunities, but worth the time

We like the MENA education sector, as it is massively undersupplied with considerable growth
opportunities. Egypt’s CIRA is an integrated player operating in both the K-12 and higher education
sectors, offering significant growth in a nascent sector with limited regulatory risks. We also like
Humansoft, Kuwait’s largest private university owner and operator that still trades at a compelling
valuation, while boasting a best-in-class profitability profile.
30
Consumer Sector
Frontier Consumer & Retail
For Pakistan, cyclical headwinds (inflation, FX and interest rates) are likely to keep earnings under
pressure, with low visibility for Pakistan consumer names in 2019
Investors should continue to focus on high-quality stocks to ride out this storm – we have Buy ratings
on Indus Motor and Honda Atlas Cars
Bangladesh has a rosier consumer outlook, but it is mostly priced in; Marico Bangla is our preferred pick
For Vietnam, rising competition and premiumisation in key staples have seen some slowdown in large
cap earnings, as 2018 was more about heavy spending in consumer discretionary categories; Mobile
World Investment JSC (MWG) is still our top pick, as it has the best growth profile in the sector
Top Picks
Indus Motor Co. (Pakistan, Buy, TP: PKR2,091, INDU PA): Best-in-class auto player, with strong pricing
power, robust balance sheet and diversified consumer base that is best-positioned to weather macro
headwinds. With the stock trading below replacement cost, the market is giving no credence to the brand
equity and supply chain that Indus has built in Pakistan over the years.
Marico Bangladesh (Bangladesh, Buy, TP: BDT1,428, MBL BD): The market leader in hair oil is seeing its
reliance on slow growth Parachute Coconut Hair Oil business moderate, while higher growth categories like
Value Added Hair Oil (VAHO) are seeing rising revenue contribution, improving overall growth trajectory –
lower input costs are likely to provide an additional profitability kicker in the ST.
Mobile World Investment, (Vietnam, Buy, TP: VND139,800, MWG VN): The leading O2O retail chain in
Vietnam has delivered on growth in both mobiles and consumer electronics in 2018, with 2019e looking to
remain just as strong. Its nascent mini-grocery mart chain is poised for EBITDA breakeven this year, and a
large-scale rollout is set to start in 2019e.
Least preferred names

Guinness Nigeria (Nigeria, Sell, TP: NGN65, GUINNESS NL): GN’s competitive advantage lies in segments that
are relatively small in the industry (stout and spirits) and which we believe are less likely to outperform in the
current macro environment. Moreover, in contrast with its peers, GN still has non-domestic denominated
debt, which, in our opinion, constitutes an additional FX risk.
Pak Elektron (Pakistan, Sell, TP: PKR26.0, PAEL PA): Leading producer of electricity distribution products and
home appliances in Pakistan that we expect will struggle with slowing demand, weaker margins and rising
funding costs. Weak cash flows and a deteriorating balance sheet leave limited margin for error, especially
in a rising rate environment, in our view.
Vinamilk (Vietnam, Neutral, TP: VND119,300, VNM VN): The growth profile of Vietnam’s largest dairy player
appears muted as domestic dairy consumption growth has slowed to single-digit levels. New export growth
verticals in Southeast Asia will take time to develop, and margins remain exposed to raw material costs and
high advertising & promotional spending.
31
Consumer Sector
Pakistan consumers: A volatile period ahead, but some auto stocks look attractively valued
The next 12 months are likely to be quite tough for Pakistan consumer stocks, as higher inflation and rising
interest rates hit disposable incomes, while PKR weakness results in higher input costs and faltering margins.
However, this is nothing new, and we have seen similar (and even worse) cycles play out historically – our
analysis of the 2008/09 cycle highlights that as interest rates moved up 4ppt (to c14%), the PKR devalued
c30% and GDP growth slowed to 0.4%, with car sales down 51% from the peak; however, as the excesses
were washed out, both volumes and profit started to recover despite interest rates remaining quite high. The
key to highlight here is that Indus Motor’s strong pricing power and more diversified customer base provided
much more downside protection, relative to peers (in terms of profit hit) and a much quicker recovery.
For now, earnings forecasts are a moving target, given the PKR volatility; thus, we resort to more non-cyclical
valuation measures – on EV/capacity, all three stocks within our coverage are trading below replacement cost,
with the market giving them no credence for their brand equity and supply chains. Furthermore, balance
sheets are solid (except for Pak Suzuki), which gives them the ability to tough out difficult periods. In our
opinion, investors should use any share price weakness over the next 12 months to take LT positions in these
intrinsically low-priced stocks (Indus and Honda Atlas) to benefit from Pakistan’s LT motorisation story.
Figure 6: EBITDA trends through the previous downturn (PKRmn) – Figure 7: Net cash (PKRmn - excluding customer advances) – Indus
Indus’ profitability recovered quicker than peers has c25% of its market cap in net cash
PSMC INDU HCAR
35,000
6,000
30,000
5,000 25,000
20,000
4,000 15,000
10,000
3,000
5,000
2,000 0
(5,000)
1,000 (10,000)
(15,000)
0 Pak Suzuki Motor Honda Atlas Cars Indus Motor
2007 2008 2009 2010 Company Company
Source: Company reports, EFG Hermes calculations Source: Company data, EFG Hermes calculations
Outside the automotive space, we think Pak Elektron is going to have a tough period over the next 12 months
as the impact of slowing demand and weaker margins is further exacerbated by higher funding costs (weak
cash flows have led to rising debt levels); in our opinion, they do not have much room for error, given a weak
balance sheet; thus, we recommend investors to steer clear of this value trap. Last, we still believe Engro
Foods’ profitability is likely to remain subdued, given rising competition, and that valuations are just too pricey
– we are Sellers of both names.
Bangladesh consumers: Robust outlook, but valuations are rich for the most part
The consumption outlook in Bangladesh remains quite robust; however, in a lot of cases, valuations are
discounting this positive outlook. Marico Bangladesh is our preferred pick, where we see credible signs of a
growth inflection point – its reliance on its ex-growth Parachute Coconut Hair Oil business has continued to
moderate, while higher growth categories like Value Added Hair Oil (VAHO) and adjacent categories (edible
oils, etc.) are gaining much more prominence – we also see some cyclical tailwinds to profitability in the form
of lower copra prices (coconut – input cost), which should provide a ST kicker to profitability.
32
Consumer Sector
Figure 8: Marico – revenue contribution from adjacent higher Figure 9: Over the ST, falling copra (coconut) prices are likely to be
growth categories continues to ramp up an additional kicker to Marico’s profitability
40% 120,000
36%
35%
31% 100,000
30%
26% 80,000
25% 23%
BDT/mt
20%
19% 60,000
20%
15% 13% 13% 40,000

10%
10%
20,000
5%
0
0%
Jan-08
Sep-08
May-09
Jan-10
Sep-10
May-11
Jan-12
Sep-12
May-13
Jan-14
Sep-14
May-15
Jan-16
Sep-16
May-17
Jan-18
2012
2013
2014
2015
2016
2017
2018
2019e
2020e
Source: Company data, EFG Hermes estimates Source: World Bank, EFG Hermes calculations
After a strong run, we feel Singer Bangladesh’s share price is likely to take a breather as valuations have risen.
Olympic Industries remains too rich, even though it seems to be moving aggressively towards expanding its
product portfolio to reboot its growth. Last, we remain Neutral on BAT Bangladesh as the tobacco industry is
going through a large structural shift, whereby continued growth in regulated prices has led to illicit tobacco
making up c10% of the market (vs. only 1-2% a year ago) – thus, while overall cigarette consumption
continues to rise, legitimate trade has taken a knock that makes the volume outlook much weaker than we
had initially anticipated.
Vietnam consumers: Discretionary spending to remain strong; cautious on staples

Looking forward to early 2019, the sizable valuation correction has made Vietnam attractive, once again, with
real GDP growth targeted at c6.8% for 2019, and inflation likely to be 4-5%. Our favourite stock in the
Vietnamese consumer sector remains Mobile World Investment (MWG VN). The company is scaling up its
fresh-food urban grocery channel (c400 locations) and has begun planning loyalty initiatives and new
channels, such as pharmacies. We estimate MWG will grow its overall store count 3.3x to 4,185 locations by
2022e, with a five-year CAGR of 22.4% for revenue and 26% for EBITDA.
Figure 10: Mobile World’s revenue by category (Jan-Jul 2018) Figure 11: Mobile World’s revenue forecasts
In VNDbn In VNDbn
Food & Other TGDD Channel DMX Channel

FMCG Services BHX Channel VuiVui.Com & Others
1,952 4% 1,034 2% 200,000
8,997
180,000
6,520
160,000
3,704
140,000
59,152
White & Phones, 120,000
Browngoods Tablets & 490 22,185
100,000
20,790 Accessories 4,614
40% 80,000
27,910 71,335
60,000 1,387 50,487 66,417
54%
40,000 30,245
- 4,482
20,000 34,708 32,489
20,749 36,850 38,245
0
2015a 2016a 2017a 2018e 2019e 2020e 2021e 2022e
Source: Company data Source: Company data, EFG Hermes estimates
33
Consumer Sector
Nigerian brewers: likely to remain under pressure – too early to turn positive
While we think the Nigerian brewery sector offers long-term potential, in the short term the sector
fundamentals are likely to remain under pressure as: i) the recent improvements seen in macroeconomic data
have not yet translated into acceleration in private consumption (the macroeconomic outlook does not seem
particularly positive given political uncertainties arising from the 2019 general elections); ii) the recent change
in excise duties is and will likely continue to affect companies’ cost base negatively; and iii) the level of price
competition is intense, following International Breweries’ (IB) strategy of gaining market share. Furthermore,
the recent sector results (3Q18) confirmed our current bearish view on the sector. As a result, we continue to
think there is downside risk to our numbers, and we estimate industry profits to remain below 2017 levels
over the coming two years. Returns are likely to continue to be under pressure, not covering WACC and COE.
We also view the sector as not cheap on multiples. The three stocks are still not offering positive risk-reward,
despite the sharp drop in share prices and lower multiples.
Figure 12: Nigerian brewers – aggregate revenue of NB, GN and IB Figure 13: Nigerian brewers – aggregate net profit of NB, GN and IB
In NGNmn In NGNmn
755,668
679,770
67,101
800,000 75,000
625,900
597,568
700,000
528,049
55,439
65,000
52,133
454,919
600,000
439,196
428,768
48,777
403,505
45,831
55,000
44,667
500,000
37,676
400,000 45,000
29,578
300,000
35,000
21,065
200,000
25,000
100,000
0 15,000
2013 2014 2015 2016 2017 2018e 2019e 2020e 2021e 2013 2014 2015 2016 2017 2018e 2019e 2020e 2021e
34
Industrials Sector
Industrials – Logistics & Infrastructure
Container-handling companies are trading at compelling multiples…

…privatisation of Egyptian container handlers could add depth to the market
E-commerce is likely to heat up in MENA
Key Buys
DP World (UAE, Buy; TP: USD24, DPW DU) – Trade war pressure overdone; time to buy
A best-in-class container-handling operator in MENA, with global presence and aspirations to add more
trade-enabling activities. 2019 should be a promising year for DPW as its expansion/acquisition strategies
should begin to pan out and translate into cash flows. With the stock taking a nosedive in 2018 on trade-
war concerns, now we see a good entry point to Buy the name in 2019. At nearly all-time-low multiples, the
market seems to have priced in an unfair scenario of earnings deterioration; hence, we think an opportunity
has emerged, and the stock will likely be a top performer in 2019.
Aramex (UAE, Buy; TP: AED5.3, ARMX EY) – MENA’s courier of choice
As e-commerce trade expands in MENA, Aramex is set to enjoy growth. We expect 10% EPS CAGR, as it is
well-positioned for growth, despite potential for price cuts. This should be achieved through: i) volume
growth; and ii) cost-cutting measures. Today, the stock is trading near the low-end of historical multiples at
c12x and is no longer pricing in any growth. A key overhang driving such a multiple contraction, in our
view, is the 49% FOL being full. Accordingly, any increase in FOLs during 2019 would likely drive the stock
to re-rate.
Alexandria Containers (Egypt, Buy; TP: EGP 22.5, ALCN EY) – Liquidity event likely to be in 2019
As a play on Egyptian trade, ALCN is the best-suited play, given that it handles the lion’s share of Egypt’s
containerised trade (import/export). The government has indicated that it will be selling down c15-30% of
the company in the market, an event that is likely to take place in 2019. We think ALCN is attractive, given
its: i) solid fundamentals (+55% ROAEs); ii) attractive pricing (c9x 2019e P/E); iii) defensive USD-linked cash
flow nature; and iv) volume growth potential (c5% CAGR).
Elsewedy Electric (Egypt, Buy; TP: EGP23, SWDY EY) – One of Egypt’s leading industrial conglomerates
Within Egypt, SWDY continues to be a clear play on infrastructure spending across the Middle East and
Africa. The conglomerate will likely enjoy a solid 2019 as it continues to secure new sizable power-
generation projects in Africa and GCC in its turnkey segment, while we expect its cable, transformer and
meter divisions will continue to sell more volumes across its key markets. Also, with interest rates in Egypt
likely to remain elevated throughout most of 2019, we think SWDY will enjoy a net interest balance as it
invests its sizable cash pile in EGP bills.
35
Industrials Sector
Key Themes
Playing global container trade
Despite an overhang from a stronger USD and trade tensions between US and China, MENA container-
handling companies remain well-positioned to emerge unscathed as the dust settles. DPW’s global reach, in
particular, should allow the company to enjoy high growth, and given the defensive nature of MENA
markets, this should provide a solid buffer (Jebel Ali represents c15.4mn TEUs of the group’s throughput).
While competition seems to be heating up between MENA ports, it continues to be centred upon low-
margin transshipment volumes. Accordingly, we think focus should be on high-margin O&D players.
Egypt’s privatisation programme to offer depth in the container-handling space

Egypt’s privatisation programme may not have run at full steam in 2018, but 2019 will likely be the year
when it takes off. A part of this programme is the sell-down of equity stakes in: i) Alexandria Containers; ii)
Port Said Container Handling Company (PSCH); and iii) Damietta Container Handling Company (DCHC).
Cumulatively, the three operators handle c3mn TEUs of Egypt’s total throughput. This, in our view, will offer
depth to a sector that is generating superb returns (+60% ROAIC). While PSCH and DCHC are still fully
owned by the government, Canal Shipping Agencies (a small-cap name in Egypt) is listed on the EGX and
owns a 20% stake in both names.
E-commerce activity will likely expand in 2019

MENA markets continue to enjoy growth in e-commerce activity as more e-tailers emerge as they try to
capture rising penetration rates. While there is no listed direct e-commerce exposure in the MENA equity
space, courier service companies, such as Aramex, stand out and offer healthy exposure. c40% of Aramex’s
express revenue is generated from e-commerce trade, which management expects will rise to c50% in 2019
as penetration rates rise. So, while there will likely be margin pressure on a more diversified revenue mix and
as prices are cut, growth would still come through.
Figure 1: Global B2C E-commerce growth Figure 2: Global container trade has been growing consistently
In % In mn TEUs
800
25%
700
20% 600
500
15%
400
10% 300
200
5%
100
0% 0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2011
2012
2013
2014
2015
2016
2017
Source: E-commerce foundation Source: APM Terminals
36
Industrials Sector
Industrials – Energy & Utilities
High oil prices could likely mean revisions in day rates for oil & gas services companies
Looking for yield from utilities in 2019
Key Buys
ADES (UK, Buy; TP: USD27, ADES LN) – Rig capacity acquired cheaply; time to monetise
With oil prices inching up Y-o-Y and stabilising above cUSD70/bbl, there is a high likelihood that day rates
for oil and gas services will follow suit. ADES is, in our view, a well-positioned play to benefit from such a
trend, especially considering that it had recently acquired a sizable rig fleet in 2018 at ‘bargain’ prices. With
the bulk of capex now behind us, we think ADES will generate attractive FCF generation of c10% in 2019,
which will only expand afterwards to +17% in 2020e onwards. With such sizable FCF generation, we think
it is likely the company will begin to pay out dividends in 2020 (c12% yield).
EK Holding (Egypt, Buy; TP: USD1.5, EKHO EY) – A cheap asset with optionality
We think EK ticks a number of boxes when it comes to the attractiveness of its offerings. EK offers exposure
to a number of industrial/material themes that are playing out, such as: i) energy deregulation, which bodes
well for its utilities division; ii) urea price recovery; iii) expansions into MDF production; and iv) improved
upstream gas production. The key story to captivate investors during 2019 is the potential for EK to be
sitting on a sizable multi-TCF gas reserve base. This is an option that is offered totally for free on top of a
fundamentally exceptional business model. Management is expecting to announce the results of the studies
ascertaining the size of the reserves during 2019, which, if positive, could change EKHO’s landscape.
QEWC (Qatar, Buy; TP: QAR225/share, QEWS QD Equity) – New projects are in the pipeline
As Qatar introduced new electricity capacity (Umm Al Houl), it has also de-commissioned RAF A and cut the
tariffs for RAF B. This has, to a great extent, reduced QEWS’s attractiveness; however, some silver lining may
emerge in the form of: i) further generation upgrades in Qatar (be it in renewables or conventional); and ii)
expansions abroad through Nebras.
Oil and Gas Development Company (Pakistan, Buy; TP: PKR177, OGDC PA) – Largest Pakistan producer to
benefit from stronger oil prices
Oil and gas production has been slightly weak this year (down 6% and 2% Y-o-Y, respectively) for OGDC;
however, considering the company’s exploratory (especially in Soghri) and development efforts (operated:
Nashpa and Mela, and non-operated: Tal), we believe the production number will pick up pace. Moreover,
with stronger oil prices and weaker PKR (potential IMF programme likely to require further PKR
depreciation), we expect Pakistan’s largest oil and gas producer to benefit the most.
Pakistan Petroleum (Pakistan, Buy; TP: PKR231, PPL PA) – Higher production and favourable pricing are key
positives
In addition to higher oil prices and weaker PKR, our positive view on PPL can be further explained by: i) Sui
Mining Lease conversion to D&P lease, which has raised Sui wellhead gas prices by over 80% and should
encourage the operator to drill deep in the field - where initial estimates suggest nearly 500bcf of gas
reserves from the deep pockets; and ii) more discoveries and higher flows from Gambat South, Tal and
Nashpa leases, which - with ongoing developments in Dhok Sultan block - should continue to augment the
company’s hydrocarbon production.
37
Industrials Sector
Key Themes
Could oil and gas services’ day rates recover in 2019?
Oil and gas servicing companies have witnessed sizable cuts in day rates since oil prices began to fall in
2014. Today, with oil prices stabilising above USD60/bbl, we think: i) rig and vessel day rates will likely inch
up; and ii) upstream capex activity will potentially see an uptick, as well. This typically occurs with a lag and,
accordingly, 2019 should see the beginning of a recovery. In MENA, we think this theme bodes well for
ADES and MOIL; however, we prefer ADES on a stronger management team that can deliver on growth.
How to play IMO 2020e regulations in MENA?

As a play on the soon-to-be-implemented International Marine Organization (IMO 2020) regulations, we
think the few listed MENA refineries will need to improve their product mix to meet the higher quality/lower
sulphur requirements. We think the best-suited refinery to enjoy significant margin expansion, on the back
of IMO, is Qalaa Holdings’ ERC (uncovered). As for AMOC, there are plans to improve the currently poor
quality product mix and configuration, ahead of IMO.
Utility companies offer lacklustre dividend yields, but may surprise with growth
As a play on dividends, we think MENA utilities do not offer particularly attractive yields, considering the
rising rates in EM markets. On average, the three listed MENA (ex-Oman) utility stocks are offering yields of
c4-5%, while Omani listed utility names are offering yields of +6%. So, if you are looking for something
more than just yields from MENA utilities, then the two options are: i) Tabreed, due to its elevated FCF
returns and potential for growth outside of GCC; and i) QEWS, which could decide to keep expanding.
Pakistan oil and gas sector – oil prices and weaker PKR are key
Stable oil prices and weaker PKR bode well for Pakistan upstream players
Stable oil prices above USD60/bbl, coupled with weaker PKR (expectations of further depreciation from
current levels on a potential IMF programme), should drive earnings for the sector, as oil sales and wellhead
gas prices are priced in USD. One key upside risk would be any potential disbursement from the govt. on
circular debt, which would help address the sector’s cash-crunch issues.
Sticky volumes to remain a major drag for downstream players

While MOGAS and HSD demand is expected to remain strong, which should support revenues, weaker FO
sales (following a shift in the power generation mix) will emerge as a potential drag. On the margin front,
MOGAS is linked to inflation; therefore, in an inflationary environment, margins should improve. Also, diesel
margins are deregulated (government keeps a strict check on diesel margins through market prices).
Figure 3: Oil prices vs. jack-up rig day rates Figure 4: MENA utility stocks’ dividend yields
LHS: Oil prices in USD/bbl; RHS: average jack-up day rates in ‘000’ USD/day Dividend yield as a %
Oil Prices Average Jackup Dayrates Dividend Yield 2018 Dividend Yield 2019
160 160 9.00%
140 140 8.00%
120 120 7.00%

6.00%
100 100
5.00%
80 80
4.00%
60 60 3.00%
40 40 2.00%
20 20 1.00%
0 0 0.00%
DGC
TABRE
SEC
QEWS
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
ED
Source: Bloomberg Source: EFG Hermes estimates
38
Materials Sector
MENA Materials
Petrochemicals: A generally strong outlook in 2019 amidst MSCI flows, but more cautious beyond that
Fertilisers: Still on an uptrend; MENA producers an ideal way to play price recovery
Cement: Awaiting the start of a recovery phase
Key Buys
Advanced (Saudi Arabia, Buy, TP: SAR58.5, APPC AB) – Expect a record year ahead
Should benefit from the recent correction in oil, and we have a favourable view on PP-to-propane spreads in
2019, which we believe will help deliver a record year for Advanced. The company’s 6% sustainable
dividend yield should remain a major support factor and acts as an anchor.
Sipchem (Saudi Arabia, Buy, TP: SAR26, SIPCHEM AB) – Attractive value and offering growth
The company’s CO2 recovery project could boost methanol volumes by 30%, a game changer, given that
methanol is its most profitable product historically. The stock trades at a 2019e P/E of 10-11x, and earnings
are underpinned further by a favourable price outlook.
Yansab (Saudi Arabia, Buy, TP: SAR77, Yansab AB) – Our top dividend pick
The company has fully paid down its debt and is generating an FCF yield in excess of 10%, which bodes
well for the dividend outlook (we expect 7.5-8% yield in 2019).
OCI NV (Netherlands, Buy, TP: EUR32, OCI NA) – Best way to play urea and methanol prices
We are structurally positive on the outlook for fertilisers and methanol and believe OCI NV offers the best
way to play these products, given its: i) large exposure to both products; ii) attractive valuation (2019e
EV/EBITDA of 7x); and iii) elevated operating leverage.
Yanbu Cement (Saudi Arabia, Buy, TP: SAR28.70, YNCCO AB) – A play on megaprojects
The largest cement producer from the high-demand Western region, with access to NEOM projects and
export markets for its clinker. Valuation looks reasonable (2020e EV/EBITDA of 9.2x vs. sector average of
10.5x), and a healthy balance sheet, along with no major capex plans, should support dividends.
City Cement (Saudi Arabia, Buy, TP: SAR11.5, CITY AB) – Cement price revival story
Presence in the high-demand Central region and maintains a cash-rich balance sheet (cash makes up c15%
of market cap). Valuation is attractive (2020e EV/EBITDA of 7.5x vs. sector average of 10.5x).
Arabian Cement (Egypt, Buy, TP: EGP9.0, ARCC EY) – The most efficient producer in Egypt
The most efficient cement producer in Egypt, with capacity utilisation well above the sector average.
Valuation is undemanding (2020e EV/EBITDA of 4.6x, EV/tonne of USD31/tonne vs. brownfield cost of
USD90/tonne), and the company’s balance sheet is solid (2018e net debt/EBITDA of 1.1x).
Key Sells
Chemanol (Saudi Arabia, Sell, TP: SAR8.5, CHEMANOL AB) – Turnaround more than priced in
The cost-cutting measures implemented in 2018 are more than priced in now, and we have concerns over
the long-term viability of the business, given thin margins and potential feedstock price hikes ahead.
Al Jouf Cement (Saudi Arabia, Sell, TP: SAR6.46, JOUF AB) – Our least preferred play
Based in the low-demand Northern region, where significant pressure on cement prices has driven losses at
the EBITDA level in 3Q18. Valuation is stretched (2020e EV/EBITDA of 14.4x vs. sector average of 10.5x),
cash flows are weak, and it has the highest leverage ratio in the sector – net debt/EBITDA of 8.7x.
39
Materials Sector
MENA petrochemicals: Generally strong, with a few exceptions

We are positive on the outlook for chemical prices in 2019, as supply additions are generally limited, and
while demand is likely to slow down vs. 2017 and 2018, we still expect healthy demand growth.
Fundamentals in the sector are generally strong, and we remain closer to peak pricing than normalised
pricing, in our view. Please see below our highlights on the main chemical products in MENA.
Polyethylene: PE-spreads-to-naphtha (the key benchmark for global PE producer profitability) saw a
substantial correction in 2018, falling c16%, which was beyond our 5-10% expectation, as massive supply
additions in LDPE and LLDPE pressured the market. HDPE, however, remained strong as expected, on a
structurally tight market, a situation that we expect to continue in the medium term. Looking ahead into
2019, we expect LDPE and LLDPE prices and spreads to bounce back on very limited supply additions, and
we think the weaker market in 2018 is more than priced in. We also expect HDPE prices and spreads to
strengthen, albeit not to the same extent. Overall, we expect almost flat to slightly higher prices and a c5%
expansion in spreads.
Polypropylene: PP to naphtha spreads ended up c5% higher in 2018, slightly better than our 2%
expectation, as demand growth was better than expected in the first half of the year. Supply additions are
expected to be higher in 2019 than in 2018, but we still expect a strong PP market and believe operating
rates will end up stable relative to 2018, which is why we have assumed flat spreads to naphtha Y-o-Y. With
that said, we still expect record earnings for PDH producers, as we think propane prices are likely to trade at
lower levels in 2019 (Saudi PDH producers utilise propane as their feedstock).
MEG: Prices rose c8% Y-o-Y in 2018, slightly better than our 5-6% expectation, as demand in the
downstream polyester market continued to grow at high levels, and supply additions were not substantial.
However, we have some concerns on prices going forward as supply additions accelerate starting in 2019e
and polyester demand growth is vulnerable to the US-China trade war as a 10% tariff has been applied to
most polyester fibres being imported into the US from China. We only expect a 4% correction in prices in
2019, as we believe a decent chunk of the new capacity is likely to be delayed by 6-12 months, as is
typically the case.
Methanol: Methanol prices delivered the biggest surprise to our forecasts in 2018, rising 20% Y-o-Y (vs. our
4% expectation) as demand continued at a robust pace, underpinned by Chinese MTO projects, and as oil
prices were supportive. We are positive on the outlook for methanol, despite the recent oil price correction,
as supply additions have fallen to 2-3mtpa from c6mtpa over the past decade, and as demand growth
should remain underpinned by the product’s strong versatility and environmental friendliness. In addition,
the reintroduction of sanctions against Iran could be a further boost in 2019, as Iran is a major global
exporter. Overall, we expect a slight correction in prices (-2%) on lower oil prices and a weaker ethylene
outlook (which could have a negative impact on MTO demand).
Figure 1: PE operating rates to recover in 2019 Figure 2: Methanol market structurally tightening
LHS: Capacity/demand in mn tonnes; RHS: operating rates in % LHS: Capacity/demand in mn tonnes; RHS: operating rates in %
Capacity Demand Operating rates Supply Demand Operating rates
140 88% 140 75%

120 74%
120 86% 73%
100 100 72%
84%
80 80 71%
82% 70%
60 60 69%
80% 68%
40 40
78% 67%
20 20 66%
0 76% 0 65%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2016
2017
2018
2019
2020
2021
Source: IHS, EFG Hermes estimates Source: IHS, EFG Hermes estimates
40
Materials Sector
Propane prices cool off, setting the stage for a more normal 2019
After a tight market in end-2017 and 2018, initially triggered by the impact of Hurricane Harvey in the US,
propane markets appear to have finally settled down in 4Q18. We expect lower propane prices in 2019, in
light of: i) increasing shale production in the US, and with plenty of pipeline and export capacity built out,
there are no logistical constraints here; ii) inventory levels going into the winter season being at an adequate
level this year, unlike last year; and iii) global production continuing to expand in the Middle East, Canada
and Australia. Given that propane is the main liquid feedstock utilised by Saudi producers, this bodes well
for Saudi Arabian chemicals.
Figure 3: US propane product dynamics

Propane production at natural gas processing Propane/ propylene net exports (in mbpd)
Propane US total inventory (in mn barrels)
plants (in mbpd)
1.8
1.2
120
1.6
1.0
1.4 100
0.8
1.2
80
1 0.6
60
0.8 0.4
0.6 40
0.2
0.4
0.0 20
0.2
0 (0.2) 0
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Source: EIA
Regional chemical producers positioned for strong showing
We expect 2019 to be a good year for MENA chemical stocks, as prices are generally expected to hold up
well, in light of minimal supply additions globally – with a few exceptions – and as demand could see some
support, following the recent correction in oil prices (we forecast oil at USD70/bbl in 2019, flat to slightly
lower). On aggregate, we expect earnings to improve next year, on a combination of higher volumes (2018
saw a large amount of shutdowns, and a few names are adding incremental capacity) and lower feedstock
costs as propane prices are easing, which should support margins further. In addition, we expect multiples
in the sector to continue to expand on the sizeable FTSE/MSCI flows expected to materialise in 2019.
With that said, we have concerns on the longer-term outlook for the sector, as: i) prices are closer to peak
levels than to normalised levels, implying potential downside for pricing in the long term; ii) valuations are
rich when put in context of long-term normalised earnings, particularly if one assumes higher feedstock
prices in Saudi Arabia; and iii) US tariffs on the imports of Chinese products could slow down end-user
demand growth. With that in mind, we focus on stocks that have some or all of the following
characteristics: i) attractive, sustainable dividend yields that could act as an anchor if trends were to reverse,
or as a catalyst if favourable trends continue; ii) volume growth that could partially offset any potentially
lower pricing in the long term; iii) exposure to products that are in a structural recovery; and/or iv)
undemanding valuation.
Our top picks in petrochemicals are: Sipchem, Advanced and Yansab (see first page of materials section for
more details on why), but we also have a Buy rating on Sahara in Saudi Arabia and Sidpec in Egypt.
41
Materials Sector
Nitrogen fertilisers: Overweight on structural price recovery

Urea prices averaged USD270/tonne in 2018, improving 22% Y-o-Y and coming in slightly ahead of our
estimated USD265/tonne as capacity shutdowns in China were larger than expected and ended up
outpacing new capacity additions globally.
Looking ahead, we still expect the long-term structural recovery to continue in 2019 and beyond, as: i)
capacity additions remain minimal at 2-3mtpa, well below the 8-9mtpa added to the global market
between 2015 and 2017; ii) the higher energy price environment has shifted the global urea cost curve
upwards, which should also be supportive of prices; and iii) the sanctions on Iran could be supportive, given
that they export upwards of 3mn tonnes a year.
Overall, we forecast urea price of USD295/tonne in 2019, 8% higher than in 2018e, and expect urea prices
to reach their normalised levels of USD350/tonne within the coming three to four years. The main upside
risk to our forecasts is a major drop in Iranian exports (which we do not assume in our base case), while the
largest downside risk is lower-than-expected curtailments in China.
Figure 4: Urea and ammonia prices are recovering Figure 5: Urea demand growth is set to outpace supply
In USD/tonne In mn tonnes
Urea Ammonia Net Additions Demand

750 20
650 15
550
10
450
5
350
250 0
150
(5)
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
2015
2016
2017
2018
2019
2020
2021
2022
Source: Bloomberg, Fertecon Source: CF industries
Bullish on fertiliser stocks in 2019
We are still bullish on fertiliser stocks in 2019 and beyond, as we believe urea prices are on a long-term
structural uptrend, given a substantial decline in capacity additions. Our top pick is OCI NV, as the stock is
strongly leveraged to urea prices and is undervalued, in our view, but we also like several stocks in the
MENA fertiliser space. SAFCO is the simplest, purest urea play in MENA and has amongst the highest
operating leverages, making it an ideal candidate to play the urea price recovery, although its valuation is
less enticing.
In Egypt, ABUK is similarly slightly richer than some of the other names in the market, but also offers the
cleanest play on nitrogen fertilisers in Egypt, and the stock looks better priced, following the recent
correction. We are also Buyers of MOPCO, but this is a much higher risk play, given the tax issues at
MOPCO.
While we are less positive on phosphate names, given a large amount of supply in the pipeline, EFIC and
JOPH look interesting from a valuation perspective, but both names are illiquid and are relatively high risk, in
our view. We are Neutral on Maaden, as its valuation is somewhat too high for our liking, but the stock is a
major beneficiary of MSCI/FTSE flows in 2019.
42
Materials Sector
Saudi Arabian cement sector: Awaiting the start of a recovery phase

2018 story so far: Saudi Arabia’s cement sector has seen a 13% decline in sales volume YTD (local sales),
while clinker inventories have grown 18% (sector inventory at 41.5mn tonnes; equivalent to 14 months of
sector level clinker requirements), as project awards did not pick-up as much as expected in 2018. This has
driven intense competition in the market, with producers fighting for market share in order to prevent
further inventory build-up. Not surprisingly, this has led to a slide in cement prices to uneconomical levels of
SAR135/tonne (USD36) during 3Q18.
Painful as we touch bottom, but recovery phase should emerge in 2020: Although we expect the short term
to remain challenging, given weak construction activities in Saudi Arabia, we believe demand has already
bottomed out and, as such, volumes should stabilise in 2019 and begin to pick up gradually over 2020, as
the implementation of the proposed projects by the government progress. We expect the main drivers of
the cement demand recovery to be: i) an expansionary budget over 2019 and beyond; ii) the
implementation phase of the USD500bn Red Sea project (NEOM); iii) the entertainment city (USD60bn+);
and the proposed housing projects; along with iv) the infrastructure developments across the Kingdom.
Figure 6: Project awards have not quite picked up yet… Figure 7: …but there is a strong pipeline of USD1.0trn at various
stages of progress
In USDmn In USDbn
Chemical Construction Gas Industrial Oil Power Transport Water
25,000 Contract bid Study

(16bn) (673bn)
20,000
15,000
Bid Evaluation
10,000 (34bn)
5,000
FEED (102bn)
0
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
Main contract PQ
(46bn) Design (107bn)
Source: MEED Source: MEED
Export opportunities could open up in the medium term: The Yemen ceasefire, if it materialises, could open up
some export opportunities for the Saudi cement sector, as the World Bank estimates Yemen’s reconstruction will
cost cUSD90bn, while the country does not have sufficient cement supply to meet that demand (we assume
c8mtpa demand). Saudi Arabian (especially Southern-based) companies have a geographical advantage due to
their close proximity to Yemen and as they can access the country by road. Saudi cement producers could also
target a few regional countries (potentially Iraq), where Iran exports cement, as the recent US sanctions on Iran
could open up some room for Saudi producers to jump in, in our view.
We maintain our positive view, on: i) Yanbu Cement (access to three key markets – high-demand Western region,
direct beneficiary of NEOM project and could tap into export markets; it has a decent valuation too); ii) Arabian
Cement (Western region, beneficiary of the improvement in the Jordanian market and attractive valuation –
EV/tonne of USD100 vs. sector’s USD140); iii) City Cement; iv) Qassim Cement (high-demand region, access to
entertainment city and cash-rich balance sheet); and v) Eastern Province Cement (stable cement prices in the
Eastern region, access to key export markets, beneficiary of Yemen ceasefire through its associate, and cash-rich
balance sheet).
But with a few hurdles: The key hurdles we see in the cement sector over the short term are: i) the high level of
clinker inventory, which is a major overhang on the cement sector’s profitability. As the inventory becomes too
large to simply work down, we see two potential scenarios – aggressively selling the inventory by undercutting
prices and/or writing down inventories; ii) feedstock (HFO/natural gas) prices, as they are set to increase in 2019
(no official announcement on how large the increase will be, but we conservatively assume fuel prices will double
over 2020); and iii) any slowdown in investment due to the current geopolitical situation and/or crude price
volatility.
43
Materials Sector
Egypt cement sector: Challenges to persist in 2019, but a few stocks are exciting
We expect Egypt’s cement demand growth to remain flat in 2019, at c54mtpa, as the current economic
conditions and the high interest rate expected over the short term do not offer any incentive for significant
construction activity, in our view. The new capacity from the army (12mtpa capacity) has further pressured
an already-weak cement price, which is trending at uneconomical levels of EGP710/tonne (cUSD40/tonne).
Moreover, the current inflationary environment from electricity/energy price hikes in an oversupplied market
has had a significant impact on the profitability of the sector, and a few companies are on the verge of
closure. However, we expect demand to re-emerge once interest rates normalise, as Egypt is the most
populous Arab country and offers a strong growth trajectory over the medium term from housing projects
and the private/government investment cycle.
Maintain positive view on ARCC: We expect cement prices to remain weak in 2019, but to gradually
improve to USD50/tonne levels as the market gradually rebalances. We maintain a positive view on Arabian
Cement, as: i) it remains the most efficient cement producer in Egypt, with capacity utilisation well above
the sector average; and ii) its valuation is undemanding (2020e EV/EBITDA of 4.6x, EV/tonne of
USD31/tonne vs. brownfield cost of USD90/tonne and greenfield cost of USD150/tonne), and the company
has a strong balance sheet.
Anti-dumping measures could be a game changer for the GCC ceramics sector
An anti-dumping investigation has been started by the General Secretariat of the Gulf Cooperation Council
(GCC) against imports of ceramics and porcelain products of Indian, Chinese and Spanish origin to the GCC.
The reports also suggest that the committee is considering imposing temporary anti-dumping duties while it
completes its investigation.
Although it is still unclear how the investigation will conclude, if the committee finds any dumping or
predatory pricing by these countries, it would implement anti-dumping duties, or measures like minimum
landing prices for the tiles. We see two possibly positive outcomes from this: i) it could boost pricing, as it
would increase the import parity price; and ii) it could help local producers grab more market share, if it
made imports unfeasible for some foreign producers. Companies that are more reliant on regional markets,
such as Saudi Ceramics, Al Anwar Ceramic (Oman) and, to an extent, RAK Ceramics, would be the main
beneficiaries of such measures, in our view.
44
Materials Sector
Frontier Materials
Pakistan cement - Although the cut in public spending will affect local dispatches, CPEC, private
projects and potential housing scheme should help drive c7% growth in FY19, while exports should
increase on weaker PKR Margin erosion to continue on not-so-strong cement prices and escalated costs
Valuations look attractive; we recommend investors let the dust settle (macro- and sector-specific
issues) and stick to quality names like LUCK PA
Pakistan Fertlisers - Dynamics are improving, Fauji Fertlizers best positioned to take advantage.
SSA cement remains in the mire due to over-capacity, low utilisation and insufficient demand growth to
change the industry outlook
Key Buys
Lucky Cement (Pakistan, Buy; TP: PKR713, LUCK PA) – Most cost-efficient, strongest balance sheet and
diversified exposure set it apart
Lucky is well positioned to benefit from growth in its core business, while enjoying accretive earnings
through its diversified business portfolio. In a turbulent macro environment, Lucky has the ability to weather
tough storms as it: i) has the strongest B/S (debt-free on an unconsolidated basis, making it immune to
interest rate hikes); ii) is the most efficient cement producer (complete in-house power generation); iii) has
access to both regions in Pakistan (North and South), in addition to its presence in Iraq and Congo; and iv)
has exposure to the chemicals and consumer segments through ICI Pakistan.
Fauji Fertilizers (Pakistan, Buy, TP: PKR114, FFC PA) – Well positioned in an improving enviroment
With a dominant market share of 43%, it is well positioned to continue benefitting from an improving urea-
pricing outlook. We believe the company can grow earnings sustainably (c7%+ CAGR over five years), while
providing investors with a consistent dividend stream
Tanzania Portland Cement (Tanzania, BUY, TP: TZS2,477, TWIGA TZ) – Higher prices, cost rationalization
and capacity increases to drive strong 2019
We expect 2019 to be a good year, driven by: i) price recovery to cUSD80/tonne (from USD60 in 2016) and
volume growth (2019e 1.8mt, +5% Y-o-Y), which should lead to revenue growth of 5.5% Y-o-Y; ii) a still-
effective cost-rationalisation programme (production cost of cUSD52/tonne over 2019-22e); and iii) an
ongoing increase in clinker capacity, up 1,000ktpa over 2018 and 2019, which bodes well for its cost-
optimisation strategy. Upon completion of the clinker capacity upgrade, we estimate a minimum 12%
increase in volumes and cUSD15/tonne in cost savings.
45
Materials Sector
Pakistan cement – Tough ride ahead; stick to quality

Local dispatches taking a breather; exports to help
Post an impressive showing in FY18 (+15% Y-o-Y), growth in local dispatches has slowed YTD (+0.8% Y-o-
Y), as the new government has cut public spending and given a high comparable base. We expect local
dispatches to grow c7% Y-o-Y in FY19, as we believe that private projects and CPEC will fill some of this
gap (lower public spending), where the PM’s housing scheme stands as a key upside risk. On the exports
front, PKR devaluation has helped manufacturers increase exports (+25% Y-o-Y in past 12 months). Going
forward, we believe exports will continue to grow (c20% in FY19) on weaker PKR and potential cuts in
cement supplies from Iran and China.
Figure 8: Local dispatch growth in FY18; will be difficult to replicate Figure 9: Exports, however, should pick up pace, given PKR
in the coming years weakness
LHS: local dispatches in mn tonnes, RHS: Y-o-Y growth LHS: Exports in mn tonnes, RHS: Y-o-Y growth
mn tonnes Y-o-Y mn tonnes Y-o-Y

60 20% 12 30%
50 15% 10 20%
40 10% 8 10%
30 5% 6 0%
20 0% 4 -10%
10 -5% 2 -20%
0 -10% 0 -30%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19e
FY20e
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19e
FY20e
Source: APCMA, EFG Hermes estimates Source: APCMA, EFG Hermes estimates
Escalated costs and not-so-strong prices to keep margins under pressure
Weaker retention prices (higher dealer discounts, increased federal excise duty and not-so-impressive
cement prices) and escalated costs (expensive fuel and power, higher distribution and depreciation charges)
have had a substantial impact on margin profiles (our Pakistan cement coverage universe’s GM fell 8ppts
and 9ppts Y-o-Y in FY18 and Q1FY19, respectively). We expect margins to remain under pressure as
continuous supply additions will keep pricing in check, in our view, whereas we do not expect any sizeable
cuts in costs (unless coal prices fall off significantly).
Gearing ratios are up for cement players; monetary tightening will be a pain
To finance expansions, cement players have geared up their balance sheets considerably (our Pakistan
coverage universe D/E is up from 28% in Q1FY18 to 60% in Q1FY19, excluding Lucky and Fauji Cement as
they have an ungeared BS) – this has already started to increase borrowing costs. Going forward, with
inflation picking up pace and a potential IMF programme to push for higher interest rates, we expect
finance costs to remain a key driver of deteriorating earnings.
46
Materials Sector
Pakistan fertiliser market dynamics are improving

Pakistan’s fertiliser industry over the years has seen stable demand especially for urea; however, following
last year’s price decline, the fertiliser sector is seeing signs of improvement. The demand and supply gap has
narrowed aided by the government’s timely allowance of urea exports, coupled with lower domestic
production (c7% Y-o-Y in 9M18), which has cleared the way for industry players to push for price increases.
Figure 10: Stable demand outlook for fertiliser industry Figure 11: Higher prices to support earnings
In mn tonnes Price changes in %
6.00 25%
5.80 20%
5.60 15%
5.40 10%
5.20 5%
5.00 0%
4.80 -5%
4.60 -10%
4.40 -15%
4.20 -20%
4.00 -25%
CY12
CY13
CY14
CY15
CY16
CY17
CY18e
CY19e
CY12
CY13
CY14
CY15
CY16
CY17
CY18e
CY19e
47
Materials Sector
SSA cement: Bearish sentiment across the board

Our bearish sentiment is explained by the harsh trading environment, characterised by excess production
capacity, low utilisation rates and subdued demand growth across the markets we cover.
East Africa cement

Lack of clinker sufficiency, weak demand and industry woes look like they are set to continue in 2019. We
calculate total grinding capacity of 24.43mtpa with utilisation at 63.7% in 2019e. In terms of clinker
capacity, we estimate 11.26mtpa, implying that the region is largely clinker deficient. We believe there are
only five players (out of 22) that are clinker self-sufficient or working towards that objective. Kenya and
Tanzania dominate both grinding (76.7%) and clinker (88.0%) in the region. We expect a 2017-22e
demand CAGR of 6.4%, substantially down from 9% CAGR in 2012-17 with Kenya and Tanzania
accounting for 75% of total regional demand (15.14mt) in 2019.
West Africa cement

The picture in West Africa is one of low utilisation and slow demand growth. We estimate production
capacity of 84.05mtpa with 59.5% utilisation in 2019e. Nigeria continues to dominate production capacity
with 46.6mtpa (Dangote Cement 29.25mtpa, Lafarge Africa 10.35mtpa, BUA Group 7mtpa) in 2019e with
muted utilisation of 49.4%. We calculate a regional demand CAGR of 3.8% for 2017-22e; a dip vs. 4.5%
CAGR in 2012-17. We estimate total regional demand of 47.25mt. We expect Dangote Cement to remain
the king of this region.
48
Real Estate Sector
MENA property: Focus on players with strong cash flow position
In the UAE, we expect a slowdown that will be pressured by relatively weaker demand drivers and
increased supply hitting the market; market leaders to outperform. Implementation of the amendments
in residency visas might be a short-term positive trigger; however, we think that positive fundamental
implications will be in the LT
In Egypt, price stability and muted growth in contracted sales will dominate the scene. We expect
developers to continue offering extended payment terms, in an attempt to revive sales activity. Land
costs will continue to be a burden that might spur some mergers and acquisitions amongst developers
MENA property ideas: Favour Emaar Malls Group (UAE) and Talaat Mostafa Group (Egypt)
Key Buys
Emaar Malls (UAE, Buy, TP: AED3.00, EMAARMLS UH)

Amongst our property coverage in the UAE, we prefer Emaar Malls Group (EMG). Although we do not see
evident positive stock catalysts to drive stock prices, we think that EMG stock will outperform the general
index and other property stocks in 2019. Current valuations are unjustifiably low, in our view, given the
company’s ownership of prime assets and its strong market positioning that allows it to outperform general
market trends. EMG’s assets have positively surprised since the slowdown in retail activity started to emerge
back in 2015, with occupancy rates showing strength, despite increasing concerns from the potential threat
from e-commerce, the successful lease of the Fashion Avenue expansion (opened its doors in Mar 2018),
and base rents still showing growth (despite lower than the 7% annual increase threshold for the TDM that
was communicated by management). Thus, we believe the stock price will re-rate to reflect the company’s
key operating matrix. The key risk to our call is the valuation of the planned acquisitions for the TDM
expansion, where we expect the Zabeel expansion to be acquired in 2019. Future acquisitions will place
pressure on the company’s cash flow and, in turn, its ability to pay out dividends.
TMG (Egypt, Buy, TP: EGP18.00, TMGH EY)

Our top pick in Egypt’s property coverage is TMG. We think that the stock offers an attractive investment
opportunity, given: i) the company’s positioning as a market leader with a strong brand name that enables it
to outperform peers, in terms of new contracted sales, even amidst soft market conditions; ii) access to land
bank with favourable prices and relatively limited land obligations; iii) a significant backlog with an
estimated receivable value of EGP23bn (c50% to be collected within the coming two years) indicating
strong visibility of cash flow; and iv) a potential to increase the significance of recurring income through its
ownership of premium hotel assets. Positive stock triggers will also include: i) successful launch of units in
the ‘Spine’ (Madinaty), which is expected to be targeting the high-end market segment; ii) new successful
launches, in terms of size; and iii) sales of commercial land plot and/or new lucrative agreements to be
concluded with third party; thus, speeding up the pace of monetisation of the commercial land.
49
Real Estate Sector
UAE property: Market softness to continue in 2019; government initiatives to bear fruit in the
longer term, in our view
The UAE property market, in general, has been witnessing a period of slowdown in 2018, with pressure on
rental rates and an evident decline in property sale transactions in Dubai and Abu Dhabi. There have been
some initiatives on the macro side, including amendments to the UAE federal policies that were announced
in 3Q18, which will encourage expatriates’ participation through the introduction of 100% ownership of
UAE-based enterprises for foreign investors, along with granting residency visas for up to 10 years for
investors, retirees and key professionals and their families. In general, we believe the implementation of
such amendments will have a positive impact on the UAE property market, encouraging more expatriates to
benefit from the new residency visa regulations.
Further macro initiatives, including a number of government policy reforms, have been announced by the
government of Abu Dhabi in 2018, which we think will have a positive impact on the wider economy;
hence, bringing about a potential revival of real estate activity in the emirate. The Abu Dhabi government
announced a stimulus package with a total value of AED50bn (USD13.6bn), while the Supreme Petroleum
Council (SPC) approved ADNOC’s ambitious investment plan that entails a five-year capex plan of
AED486bn (USD132bn). Given the significance of the government as a major spender in the emirate, we
believe increased public expenditure will eventually have a positive effect on the real estate sector, with rent
rates showing an uptrend, along with signs of improved activity in sales transactions for primary launches;
however, we think that such positive trends will go beyond the short term; thus, we will closely monitor the
pace of implementation of the policy reforms over the coming year. We, therefore, expect soft market
conditions to continue to prevail over the coming year; Aldar will eventually benefit from the government
policy reforms, in our opinion, given its wide investment portfolio base across all real estate segments
(residential, office, retail, etc.).
As for the Dubai property market, we expect the market to continue its sideway trend. Although the overall
market transaction value, up until 9M18, has seen an increase Y-o-Y, this has been driven primarily by
higher land value transactions. On the other hand, the residential market, both primary launches and
secondary (resale) market, have been weak, with aggregate sales for leading developers, Emaar and Damac,
falling 30% Y-o-Y. Despite changes in the Federal Law that would allow extended residency visas, we
believe this will not lure demand in the short term; thus, we expect average selling prices for residential
property to still be under pressure, especially given the planned supply that will be delivered in 4Q18 and
throughout 2019. We expect developers to attempt to increase their contracted sales and gain market
shares by offering more attractive payment terms to potential buyers; extended payment terms beyond
delivery dates (up to 36 months) will continue. We see Emaar as one of the top developers being able to
offer relaxed payment terms, given its strong financial backing, solid balance sheet and visibility of cash
inflows; hence, the relatively limited negative implications of such relaxed payment terms on its consolidated
cash flow position.
50
Real Estate Sector
Figure 1: Overall market activity increased in 2018 Y-o-Y, but was Figure 2: …however, residential activity weakened Y-o-Y; a trend
driven by land transactions… we expect will continue in 2019…
In AEDbn In AEDbn
Land Residential Office Others Sales Off-plan Mortgages

80 25.0
70
20.0
60
50 15.0
40
30 10.0
20
5.0
10
0 0.0
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
Source: REIDIN Source: REIDIN
Figure 3: …with 25,430 units being sold in 9M18 vs. 30,485 units Figure 4: Developers’ sales, primarily Emaar and Damac, have seen
in the same comparable period weakness in 9M18 sales, with their combined sales down 30%
In AEDbn In AEDbn
Transaction value No. of units sold Total market Emaar Damac

25 14,000 20.0
18.0
12,000
20 16.0
10,000 14.0
15 8,000 12.0
10.0
10 6,000
8.0
4,000 6.0
5 4.0
2,000
2.0
0 0 0.0
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
Source: REIDIN Source: REIDIN, Companies’ data 3Q18
Egypt property market: Attempts to revive sales through extending payment terms
Although we are still positive on long-term sector fundamentals, we expect market stability and relatively
lower demand for new launches, which started to be evident in 2018, to continue over the coming year.
Major trends that we expect to see include:
Fewer new project launches; new projects with attractive product offering entice higher demand. We
believe increased affordability concerns, interest rates being maintained at their current high level, weak
activity in the secondary (resale) market and a pressured rental market will all result in subdued demand
levels to continue. Thus, we expect developers to launch fewer new projects and/or offer a smaller
number of units in launches, given such soft market conditions. Yet, demand will continue to be
relatively strong for new project launches with attractive product offering/prices, in our view, similar to
the recent launch of TMG’s Celia (New Capital City) and PHD’s Badya (West Cairo); both projects
attracted strong demand relative to the companies’ launches for various phases in existing projects.
51
Real Estate Sector
Thus, despite strong demand for new products, we see a cannibalisation impact that will result in
relatively muted growth in companies’ aggregate new contracted sales numbers.
Selling price increases in line with inflation rates. We believe the relatively soft market conditions will
continue to place pressure on developers’ ability to increase selling prices for new launches. We expect
stability in total cost of development that will be driven primarily by relatively stable land costs, while
construction costs will continue to increase in line with inflation, in our view. Thus, we think that muted
increases in selling prices will not significantly burden the profitability of project launches during the
year. We note that projects with high land costs (through direct acquisition or revenue-sharing
agreements) will have pressured margins, given the stagnant pricing environment, especially should this
trend continue in the long term.
Extended payment terms, in an attempt to revive new demand. The overall market trend of extending
payment terms for new launches (started in 2018) will continue over the short term, in our view. We
expect developers to continue to make further extended payment terms available, currently offering
payment up to eight years, on average, to attract more demand. This will, in turn, place pressure on
companies’ cash flow, especially amidst the current land inflationary cost environment, with implied
land costs representing a burden on total development costs. We believe companies with mounting
land obligations and/or fixed debt payments will likely underperform in such an environment, with cash
flows being pressured; hence, will typically revert to debt/equity raise to bridge the financing gap. For
example, PHD has recently raised cEGP1.5bn in capital and is planning to continue with its securtisation
programme to lower its leverage and provide liquidity to meet its operating obligations.
Mergers/acquisitions to overcome challenges related to access to prime land plots. We still see land
costs and access to prime-location plots as the main challenges facing developers seeking to expand,
which might lead to a wave of mergers and/or acquisitions. Amongst the larger players that are seeking
to merge are SODIC and MNHD, with the former offering to acquire MNHD through a share-swap.
Figure 5: Our peer group* to realise sales worth EGP50bn, on Figure 6: We expect TMG to lead its peers, in terms of sales over the
average, per annum over the coming five years coming five years
In EGPmn
West Cairo East Cairo Central Cairo

60,000 Emaar Misr
23%
50,000
40,000
30,000 TMG 52%
20,000
10,000 PHD 25%
0
2016 2017 2018 2019 2020 2021 2022
*Includes TMG, PHD, SODIC, Emaar Misr, MNHD and Porto Group
Source: Companies’ data, EFG Hermes estimates Source: EFG Hermes estimates
52
Telecom Sector
Telecoms
Our 2018 call that the sector would remain under pressure materialised; most themes came true
2019 will be challenging, due to aggressive competition and regulatory pressure, but these will be
offset partially by price rationalisation, growth in data, deleveraging, and service diversification
One of the key themes for the next two-three years will be 5G introduction in most markets we cover,
raising concerns about capex hikes and FCF pressures
Key Buys: Mobily, TE, Safaricom; special situations: GTH, du, RCC; flow plays: STC, Zain Group
Key Buys
Mobily (KSA, Buy; TP: SAR20.00, EEC AB) – Deleveraging and growing, as turnaround bears fruit
To date, Mobily’s EBITDA grew for five consecutive quarters, indicating a turnaround is on track, despite
challenges. Price rationalisation, cost efficiency and network modernisation are key drivers. Deleveraging is
going well (net debt/EBITDA at 2.8x vs. 3.4x last year), and valuation multiples are at historical lows, which is
unjustified, given lower risks. The stock will get passive flows of cUSD219mn, most of which will be by mid-
2019.
TE (Egypt, Buy; TP: EGP15.75, ETEL EY) – Capitalising on solid growth in data demand
The market is undervaluing TE’s businesses ex-VFE (Vodafone Egypt), which is unwarranted, given that most
of the earnings growth comes from fixed services. It is benefiting from a strong data story, both on the retail
(residential + enterprise) and wholesale (infrastructure services) sides. Despite a surge in spending to revamp
its infrastructure and roll out its mobile network, TE’s solid growth will still enable it to pay healthy
dividends.
Safaricom (Kenya, Buy; TP: KES27.9, SAFCOM KN) – Champion of the MMT business
Despite macro challenges and competition, Safaricom continues to deliver some of the best growth and
returns across the sector, thanks to its unparalleled model and strong cash cushion. The stock is trading
currently at low levels vs. historical forward multiples, which is unwarranted, given the company’s solid
fundamentals. The main risk to our call is the rather bearish sentiment on Kenya’s macro fundamentals,
which is likely to protract well into 2019.
Special situations
GTH (Egypt, Buy; TP: EGP6.50, GTHE EY) – The cheapest telco in EM, and a consolidation target
The story is marred by a stand-off between majority and minority shareholders, causing record discounts to
its valuations (cheapest telco in EM). Also, cash upstream to the holdco is insufficient, forcing GTH to seek
other potential financing options (debt extension, rights issue). Veon is working on solving the deadlock,
which we expect to result in a buyout for minority shareholders in 2019/20.
du (UAE, Buy; TP: AED6.50, DU UH) – Clean play on a healthy duopoly, with free option on FOL
The stock could open up to foreign ownership like its larger competitor Etisalat, which would lead to a
sizeable re-rating. du offers exposure to one of the most benign competition environments in MENA and
has a clean balance sheet. Valuations are quite cheap, and it offers an attractive, stable dividend yield.
RCC (Egypt, Buy; TP: EGP18.00, RACC EY) – Unique story, capacity expansion, and cheap valuation
One of the largest business process outsourcing players in MENA, set to grow via major capacity expansions
in 2019, backed by a solid balance sheet. Over 70% of revenue is in FC, while most of its cost is in EGP,
positioning it well in the event of further EGP devaluation. The stock is very cheap due to low trading
liquidity, while it offers attractive earnings growth, and the company remains an acquisition target for larger
global competitors.
53
Telecom Sector
Top plays on passive flows

STC (KSA, Neutral; TP: SAR71.00, STC AB) – One of the largest beneficiaries of EM upgrade in 2019
STC was one of our top picks in 2018 and it outperformed the sector considerably, due in part to KSA’s EM
upgrade. The stock will benefit from significant passive flows in 2019 as the upgrade takes effect, which
could make the valuation argument less relevant. Moreover, an increase in dividends and/or a resolution of
the government receivables issue would act as a strong catalyst.
Zain Group (Kuwait, Neutral; TP: KWD0.457, ZAIN KK) – EM upgrade to benefit a market favourite
Another one of our 2018 top picks that outperformed its peers. There could be more room for re-rating in
2019 when the EM upgrade takes effect. Despite challenging conditions in most markets, we see positive
developments (e.g. Kuwait, Iraq), which could help support a decent dividend yield.
Key themes
MEA telcos within our space have had another tough year in 2018, as the sector continued to be dominated
by various challenges, in line with our expectations for the year. In 2019, we continue to see some risks such
as slower growth, higher taxation and ongoing competition; however, we see positive trends that could
help offset the pressure, such as price rationalisation in some markets. We expect the 5G theme to become
more dominant starting 2H19 and going into 2020/21, as it will raise questions about higher capex needs.
Figure 1: YTD stock performance shows ongoing pressure on telcos within our space (covered and not covered);
those highlighted in green should fare better in 2019
30% 25% 120%

19%
20% 11%
6% 6% 100%
10% 4% 2%
1%
0% 80%
-1% -1%
-10%
-10% -11% 60%
-20% -14%
-17% -18%
-30% -22% 40%
-29% -30%
-40% -33%
20%
-50% -45%
-60% -52% 0%
VFQ
Zain Gp.
Maroc Tel.
Etisalat
Ooredoo Gp.
Jordan Tel.
Omantel
Ooredoo Kw.
Batelco
STC
Viva
du
TE
Mobily
OIH
RCC
Etihad Atheeb
GTH
Safaricom
Zain KSA
Ooredoo Om.
Source: Bloomberg
Theme #1: 5G – capex on the rise again?

The commercialisation of 5G globally has begun already, with spectrum auctions having taken place in
Europe, North America, and developed Asia. Markets in our coverage space are beginning to catch up; the
introduction of 5G is starting to happen in GCC countries mainly, on a rather narrow scale. However, other
markets under our coverage in Africa and emerging Asia are still behind, as these are mostly in the 4G
introduction and/or expansion phases; this will create some disparity in capex trends between these two
groups in the next couple of years, we believe.
54
Telecom Sector
For GCC-based operators, we expect 5G-related capex spending to start rising in 2H19, in preparation for
wider coverage and availability starting 2020. So far, we have only seen planned and/or actual 5G rollouts in
KSA, the UAE, Kuwait, Qatar, and Oman (details in table below). The remaining countries in our coverage
space (particularly Egypt, Kenya, and other African and Asian countries) are unlikely to launch 5G any time
before 2021, we believe.
To us, 5G raises questions about capex needs and ensuing FCF pressure (at least in initial years) for stocks
we cover. While we certainly see the long-term benefit of 5G for our coverage universe, we believe its
success in MEA hinges upon the following key factors:
1) Spectrum availability (and harmonisation) – it could take time to vacate crucial frequency ranges
2) Spectrum pricing – expensive prices by regulators could hinder service expansion
3) Spectrum policy – insufficient long-term visibility from regulators could discourage investments
Figure 2: Statements/comments from GCC-based entities on 5G deployment
Country Entity Comments

The Communications and Information Technology Commission (CITC) began issuing licences for network testing in May
KSA CITC 2018, allowing the three operators to pilot-test 5G technologies until end of 2019 by utilising 100MHz channels in the 3.6-
3.8GHz band. The regulator is planning to convert test-and-trial licences to full 5G spectrum awards by mid-2019
STC Launched 5G network in the eastern region. The company is gradually building the network across the Kingdom
In its 3Q18 results call, Mobily said talks on 5G and potential spectrum allocation were still at a relatively early stage, limiting
Mobily visibility on timeline and investment costs, but that it was working closely with the regulator and the Ministry of
Communications to adopt the new technology
Launched 5G network in three cities. The company said it is currently testing the network and aims to launch commercial
Zain KSA
service in 2019
In Dec 2017, the Telecommunications Regulatory Authority (TRA) announced that the deployment of 5G networks in the
UAE TRA
UAE will begin in early 2018, with allocated bands of 1,427-1,518MHz, 3,300-3,800MHz and 24.25-27.5GHz
Launched the first phase of the commercial 5G network in May 2018 in selected locations in the UAE, and said it would
Etisalat
gradually expand to other parts of the country, depending on consumer demand and requirements
In May 2018, du's Chief Infrastructure Officer said the company would roll out limited 5G service over the remainder of the
du
year, but the commercial availability of 5G terminals is expected in 2019
Announced launching its 5G network, adding that it would continue developing and expanding the network gradually
Kuwait Zain Kuwait
across the country until the devices become available, which is expected during the course of 2019
Ooredoo Kuwait Launched 5G on a number of test sites, with internet speeds reaching 2Gbps, according to a press release
5G network is currently live across 50 sites on fixed Wifi. In its 3Q18 results call, the company said that required capex for
Qatar Ooredoo Qatar
network licence and roll-out would be announced in 2019
In Aug 2018, the Telecommunications Regulatory Authority (TRA) announced it would roll out 5G international mobile data
telecommunications networks in Oman and has established a national level team, including members from the TRA and
Oman TRA
mobile network operators, to develop a 5G strategy that will facilitate the deployment of the network and address the
challenges likely to surface during implementation
Source: Regulators, Company data
Figure 3: 5G launch plans – GCC operators amongst first movers globally

2018 Kuwait, Lesotho, Qatar, San Marino, Saudi Arabia, United Arab Emirates, USA
2019 Australia, Bahrain, Czech Republic, Finland, Philippines, Spain, South Korea, UK
Bosnia and Herzegovina, Bulgaria, Canada, Croatia, France, Germany, Hong Kong, Hungary, India, Ireland, Italy, Japan, Latvia, Macao, Macedonia,
2020
Malaysia, Mexico, New Zealand, Nigeria, Norway, Peru, Portugal, Russia, Singapore, Sri Lanka, Sweden, Switzerland, Taiwan, Turkey
Source: GSMA
Theme #2: Competition – price rationalisation

Perhaps one of the most interesting trends we saw in 2018 was price rationalisation, which began to take
place in KSA and Kuwait mainly. We expect this to persist in 2019 and could even spill over into other
markets in our universe. While competition could remain aggressive in some markets, we do not expect any
deterioration in competitive dynamics, generally speaking. More rational competition in our universe is a key
driver, in light of the slower growth in general and sector maturity.
55
Telecom Sector
Figure 4: Barring the impact of acquisitions/consolidation (Omantel, Zain Group, Zain KSA), price rationalisation
drove revenue growth in KSA, Kuwait and, to a lesser extent, the UAE
Y-o-Y revenue growth
FY17 9M18
300% 279%
250%
200%
150%
100%
44% 31% 31%
50% 10% 7% 18%
2% 3% 1% 2% 5% 2% 4% 2%
0%
-50% -1% -1% -5% -7% -10% -1% -4% -2% -7%
Ooredoo Gp.
Zain Gp.
Mobily
TE
GTH
Safaricom
Omantel
STC
Etisalat
Ooredoo Kw.
du
Zain KSA
Source: Company data
Theme #3: Regulatory – risk of higher/additional taxation

There is always a risk of higher taxation, given governments’ general perception of telecoms as cash cows.
The sector has seen various increases in 2018, and we expect this to continue into 2019.
Figure 5: New taxes/fees imposed in 2018 across our universe, as well as potential new taxes/fees in 2019
Country New taxes/fees
KSA VAT imposed

UAE VAT imposed
GCC countries Potential VAT implementation for those who are yet to enact it
Egypt VAT imposed, as well as a one-time fee of EGP50 (USD2.8) on new SIM cards
A new tax law passed in January 2018 imposed an additional 1% tax on revenues (0.5% on revenue and 0.5% on recharge transfer
Algeria
between operators and distributors)
Jordan Potential 2019 hike in corporate taxes to 26% from 24%, and an additional 1% solidarity tax
i) Excise duty on voice, data and SMS raised to 15% from 10%; ii) Excise duty on MMT fees raised to 12% from 10%. Risk of new taxes:
Kenya
a) corporate tax to 35% from 30%; b) hike in excise duty on MMT, as bank excise charge on transaction fees increased to 20% in 2018
Uganda Introduction of a daily social media tax of UGX200/day (USD0.054/day)
New licence fee for online content providers, TV streaming and radio, at a cost of TZS1mn (USD267), TZS200,000 (USD53) and
Tanzania
TZS200,000 (USD53), respectively, as well as a minimum TZS5mn (USD1,335) fine on anyone who violates these regulations
East Africa Potential introduction of excise tax, following Kenya's footsteps
West Africa There are some discussion on new taxes in parliaments of various countries
Sri Lanka Tower taxes have been imposed
Source: Company data, Regulators, News sites
Theme #4: Deleveraging to continue

Last year, we highlighted that deleveraging would be a key theme in 2018, as a result of increasing sector
maturity and higher interest rates. We expect growth to continue to slow down in 2019, despite still-healthy
fundamentals in the data segment. Moreover, 2019 will be an even higher interest rate environment than
2018; hence, we believe operators will continue to deleverage across the board, especially as initial
investments in 5G (see theme #1) will likely be somewhat modest. A notable achiever in reducing debt, thus
far in 2018, is Mobily, which should continue to deleverage over the next few years, we expect.
56
Healthcare Sector
Healthcare & pharma
Saudi healthcare players are primed to capture the sector’s growth potential and increased gov’t
business, but insurance downgrades, expat departures and slow MoH payments are still an issue;
Mouwasat is the best name in the sector (highest quality and unique pricing flexibility)
Underpenetrated Egypt healthcare & pharma sector seeing volumes recover after a muted 2017 –
diagnostics lab operator IDH is our preferred play
We like the Bangladeshi pharma sector, given its strong structural growth potential; Square Pharma is
our top pick
Top picks
Integrated Diagnostics Holdings (Egypt, Buy, TP: USD5.85, IDHC LN): Egypt’s largest diagnostics labs
operator has seen a strong pick-up in volumes, while sustaining its pricing flexibility, which improves visibility
on what we believe to be robust earnings growth prospects. Furthermore, solid returns and FCF generation
warrant a premium.
Mouwasat (Saudi Arabia, Buy, TP: SAR120, MOUWASAT AB): Best quality healthcare name in Saudi Arabia;
strong foothold in the Eastern region gives it pricing power (increased prices with key corporate and
insurance clients which improves earnings visibility heading into 2019e).
Square Pharma (Bangladesh, Buy, TP: BDT302, SQUARE BD): Best-in-class pharma company in Bangladesh,
which is well positioned to benefit from continued growth in pharmaceutical spending, given its market
leadership and as consumer incomes and healthcare access continue to rise. We expect FY18/19 to be a better
year, especially as H2FY17/18 was a low base (irrational competition) and macro headwinds subside.
Least preferred names

Dallah Healthcare (Saudi Arabia, Neutral, TP: SAR60, DALLAH AB): Leading hospital brand in Riyadh is facing
challenges from insurance policy downgrades and increase in co-pay that are jeopardising its premium
positioning at a time when it is adding large capacity (Namar launched in 2018).
Middle East Healthcare Co. (Saudi Arabia, Neutral, TP: SAR34, MEH AB): Operator of the Saudi German
Hospital brand across the Kingdom. We see the stock as the riskiest Saudi healthcare name as we have
limited comfort on the margin turnaround and given that it has the highest receivables in the sector.
Saudi Arabia: A lot of capacity added, but a few challenges remain

Saudi hospital operators face rough ride in 2018
The Saudi healthcare sector has seen a generally weak 2018 (four out of the five listed hospital providers
posted lower earnings Y-o-Y in 9M18) as companies witnessed challenges from a host of issues, including:
i) Expat departures pressuring patient numbers;
ii) Insurance policy downgrades and the increase in co-pay (20% of bill up to a maximum
SAR300 from SAR100 previously) have caused a shift to more affordable B-category hospitals
(Dallah was particularly affected by this);
iii) Higher expat levy fees and caregiver expenses (expats account for over 95% of physicians and
nurses hired in the private sector);
iv) Fierce competition on large capacity additions, especially in Riyadh; and
v) Lengthier receivable collection period for MoH business (delays of up to 18 months), which has
been a growing segment for most hospital operators.
57
Healthcare Sector
Hospitals prepped for revenue growth given capacity additions…

The majority of Saudi Arabia’s healthcare players added capacity in 2018 (most significant capacity additions
were at Hammadi with the launch of Nuzha hospital and Dallah with the launch of Namar; both are Riyadh-
focused operators), which should support future growth. Given significant capacity additions in Riyadh,
geographic diversification should also be a key advantage to some players, particularly the under-penetrated
Eastern region, where Mouwasat is currently dominant.
Figure 1: Dallah & Hammadi nearly doubled capacity in 2018e Figure 2: Annual revenue growth: Mouwasat stands out; Hammadi
boosted by MSS acquisition in 2018
Number of beds
2017 2018 2019 2016 2017 9M18

1,600 1,528 30% 28%
24%
1,400 25%
21%
1,200 1,137 1,120 650 20% 18% 17%
17%
150
1,000 220 15%
825 848
800 10% 8%
170
400 4%
600 5% 1% 3%
987 900
400 878 0%
655
200 448 -5% -3% -2%
-5%
-10% -6% -7%
0
Care Dallah MEAHCO Mouwasat Hammadi Hammadi Dallah Mouwasat MEAHCO CARE
Source: Company data, EFG Hermes estimates Source: Company data
…but to be achieved via increased MoH business, which stresses working capital
We believe hospital operators will have to increase their government business (especially with the MoH) to
ramp up capacities, given weak macro dynamics, particularly as the government is leveraging growth in the
private sector to meet the Kingdom’s growing healthcare needs. The flipside of the increased reliance on
MoH business is a weaker cash-conversion cycle, given slow payments (delays of up to 18 months currently).
Medium-term growth could also be driven by wider healthcare coverage as universal insurance coverage is
implemented.
Figure 3: Contribution of government business to revenue and Figure 4: Growth in insurance premiums declining because of weak
receivables macro
Receivables Revenue GWPs growth (Y-o-Y) Claims growth (Y-o-Y)
80% 40% 36%
34%
70% 66% 67% 35%
61%
60% 54% 30%
25% 22% 22%
50% 21%
19%
20%
40% 16% 17%
33% 12% 14% 13%
15% 11%
30% 11%
23% 10%
20% 6%
20% 14% 5%
8% 2%
10% 4% 0%
0% -5% -2%
Hammadi CARE Dallah MEAHCO Mouwasat* 2010 2011 2012 2013 2014 2015 2016 2017
*Mouwasat contribution to receivables based on EFG Hermes estimate

Source: Company data Source: SAMA
58
Healthcare Sector
Figure 5: All healthcare players seeing margin pressures on rising Figure 6: Mouwasat is the only player that has consistently been
staff and hospital start-up costs; CARE is an exception as new delivering earnings growth, owing to its best-in-class management
management has a mandate to turn around margins and strong pricing power
Change in EBITDA margin Y-o-Y earnings growth
2016 2017 9M18 2016 2017 9M18

8% 60%
5.4% 48%
6% 37% 35%
40% 34%
4% 2.4% 2.6% 30%
1.9% 1.4%
2% 0.9% 0.7% 23%
0.3% 20% 15%
0%
-2% -1.0% -0.9% 0%
-4%
-6% -7% -7% -8%
-5.2% -5.2% -20%
-8% -6.5% -17%
-10% -7.7%
-40%
-12% -40%
-48% -53% -47%
-14% -12.3% -60%
Hammadi Dallah Mouwasat MEAHCO CARE Hammadi Dallah Mouwasat MEAHCO CARE
Players looking to diversify into other medical services; buoyant M&A scene
Some healthcare companies have diversified into pharmaceutical production and distribution, including
Dallah and Hammadi (which bought a pharma distributor and is looking for more opportunities), falling in
line with the Kingdom’s strategy to increase local production self-sufficiency. While margins in the
pharmaceutical business are quite varied, they offer an avenue for added growth to the business
(particularly for Hammadi, which has seen its pharmaceutical business contribute c40% of its bottom-line in
9M18).
Moreover, the M&A scene has been active in KSA as UAE-based NMC Healthcare has picked up a couple of
assets and is in talks for a share swap with GOSI/Hassana for a stake in Care (Hammadi had previously
looked to merge with Care, but talks were scrapped this year).
59
Healthcare Sector
Saudi’s healthcare expenditure is unjustifiably low; ample room for structural growth
Figure 7: Bed and hospital numbers in Saudi Arabia: public sector Figure 8: Number of beds per capita is well below global peers
dominates
In 000
Public Private
120% 6
5.4
419 431 57.9k 60.7k
100% 5
35% 35% 29% 29% 3.8

80% 4
60% 3
2.2 2.3
2.1 2.1
40% 2 1.7
65% 65% 71% 71% 1.2
1.1
20% 1 0.5
0% 0
Qatar
Brazil
UAE
Oman
Saudi Arabia
Bahrain
Kuwait
OECD
EU
Egypt
2015
2017
2015
2017
Hospitals Beds
Source: Ministry of Health Source: World Bank
Figure 9: Saudi Arabia’s healthcare expenditure per capita is significantly below other countries
10,000
Health expenditure per capita, PPP (USD)
United States
9,000
8,000
Germany Switzerland
7,000
Austria
6,000 Australia Belgium Denmark Norway
Sweden
Canada France Netherlands Ireland
5,000
Malta Japan Iceland
4,000 Finland
Spain
3,000 New Zealand United Kingdom Saudi Arabia
Italy
2,000 Lebanon Czech Republic
Jordan Slovak Republic
1,000 Algeria
Egypt
0
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000
GDP per capita, PPP (USD)
Source: World Bank, IMF
60
Healthcare Sector
Egypt: Volume momentum improving after a challenging 2017

Egypt’s healthcare and pharma sector has shown an improved performance after muted volumes in 2017 as
prices of drugs and healthcare services were increased post the EGP floatation. Egypt’s largest diagnostics
labs operator, IDH, is our preferred play on the back of rising volumes (strong growth in walk-ins), while it
continues to have pricing power (10-15% per year). While pharma producer EIPICO has seen a pick-up in
local volumes, growth has been slower than the industry’s, indicating market share losses. Also, its exports
dropped and margins fell significantly on changes in the sales mix and normalisation as 2017 benefitted
from some inventory sourced pre-EGP floatation (with product prices up in early 2017 – c50% for best
sellers).
Figure 10: Egypt’s pharma market has posted robust growth on volume recovery and better mix as 1H17 witnessed overstocking by
pharmacies and price revisions implemented in Jan 2017 of +50% for select drugs below EGP50, +40% for EGP50-100, +30% for more
than EGP100)
In EGPbn
Market value Growth (Y-o-Y)

60 35%
31% 32% 31%
31% 30%
50
25%
40
20% 20%
30
14%
15%
13%
20
10% 10%
10 5%
0 0%
2012 2013 2014 2015 2016 2017 1Q17 1H17 9M17 1Q18 1H18 9M18
Source: IMS Health, Ibnsina Pharma
61
Healthcare Sector
Bangladesh: Robust pharma market with strong structural growth potential

The Bangladeshi pharmaceuticals sector is our preferred play in frontier, as we believe rising income levels and
increasing access to healthcare services are likely to result in pharmaceutical sales continuing to grow at c14-
15% per annum over the foreseeable future. Given a largely branded generic market, we believe the key
competitive advantage lies in brand equity and scale, as we believe these factors will lead to superior margins
and cash conversion.
In this context, market leader Square Pharmaceuticals is our preferred pick in the sector. We expect FY18 to
be a better year for Square, especially as H2FY18 was quite weak due to competition affecting
revenue/margins negatively and as macro headwinds emanating from a weaker pricing environment (going
into an election period) also subside.
Based on recent trends, Beximco’s Q1FY19 earnings have surprised positively, positioning them to beat our
full-year earnings expectations, but we would like to see more of those earnings translating into cash flows
before we take a more positive view on the stock (we remain Neutral for now), while we believe Renata is
just too expensive on valuation despite robust earnings growth (thus we maintain our Sell rating).
Figure 11: Healthcare expenditure as a % of GDP Figure 12: EPS growth expectations for pharma names (Y-o-Y)
2018a 2019e
7.0 18%
5.9 6.1
6.0 5.7 16%
5.2 5.3
14%
5.0
3.9 12%
4.0 3.6
3.0 10%
3.0 2.6 2.7
8%
2.0 6%
1.0 4%
0.0 2%
Pakistan
India
Kenya
China
Vietnam
Nepal
Bangladesh
Sri Lanka
Nigeria
Ghana
0%
Square
Beximco
Source: World Health Statistics 2017, EFG Hermes calculations Source: Company data, EFG Hermes estimates Renata
62
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Country Analysis
Egypt (Overweight)
Market is cheap, but lower interest rates are key for re-rating
Market is down 27% from year’s high in April, and multiples have significantly de-rated
Recent proposed tax law amendments are negative for banks, high rates could cap re-rating ex-banks
We prefer non-banks: food players are the best play, we also like select industrials/materials/real estate
Top 20 List: SWDY, JUFO, TMGH, EMFD, and ESRS
Still OW, monetary easing resumption is the key catalyst needed for the market
We have been OW on Egypt since Nov 2016; the market had a great run until 26 Apr 2018 on the back of
EGP devaluation, earnings growth and falling T-bill yields. From Apr 2018 onwards, the market saw a
significant correction as the Central Bank halted rate cuts on the back of rising oil prices, EM/FM volatility,
and higher oil prices.
Figure 1: Rising yields from April led to sharp multiple de-rating… Figure 2: …which was reflected on performance and liquidity
EGX30 next year P/E (LHS), Egypt 12-month T-bill yield (RHS) EGX30 Index (LHS), 30-day ADVT USDmn (RHS)
P/E (x) 12-month Yield (%) EGX30 Index 30day ADVT USDmn
13 23.0% 20,000 130
18,000 120
12 22.0%
16,000 110
11 21.0% 14,000 100
12,000 90
10 20.0%
10,000 80
9 19.0% 8,000 70
6,000 60
8 18.0%
4,000 50
7 17.0% 2,000 40
6 16.0% 0 30
Feb-17
Nov-16
Jan-17
Jul-17
Aug-17
Jan-18
Feb-18
May-18
Jul-18
Aug-18
Dec-16
Mar-17
Apr-17
Jun-17
Sep-17
Oct-17
Dec-17
Mar-18
Apr-18
Sep-18
Oct-18
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Sep-17
Oct-17
Apr-17
May-17
Jul-17
Aug-17
Nov-17
Dec-17
Jan-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Oct-18
Aug-18
Nov-18
Source: Bloomberg, EFG Hermes calculations Source: Bloomberg, EFG Hermes Calculations
Earnings growth in 2018 has remained strong, especially for consumer names in 2Q-3Q18; however,
sentiment in general has taken a hit, and we now see limited catalysts for the market in the short term apart
from slight potential re-rating for non-banking names due to very low valuations. Having said that, the oil
price risk and EM/FM volatility risks seem more subdued, with oil prices back to cUSD60/barrel at the time of
writing, and EM ETFs taking in some inflows.
Going forward, the main catalyst for the market remains resumption in monetary easing, which could start
in 2H19. This should help lower COEs, improve liquidity and lead to a re-rating in multiples following a
massive de-rating in 2018. Another important point is that the bulk of net selling from Apr 2018 onwards
came from local institutions, which have net sold nearly cEGP4bn of Egyptian stocks in 2018, but they have
now turned net Buyers (from early November). We think they could drive the market from this point
onwards if they deploy more cash – falling interest rates would further support that move, in our view.
63
Country Analysis
Non-banks offer better value/upside, proposed tax amendments for banks support that call
We see better value in non-banks vs. banks, as banks ROEs have peaked, while non-bank ROEs have further
room to grow, in our view. Also banks are more expensive, valuation-wise, than the market. We have
recently removed COMI from our MENA Top 20 and FEM Top Picks lists as the proposed Tax Law
amendments pose an overhang, in our view. While the impact is unlikely to be fully felt until 2020, we are
unlikely to see investors rushing to the sector (especially since COMI is already very well owned by foreign
investors) until there are signs that banks will be able to succeed in shifting their asset mix.
Figure 3: There is better value outside banks even before tax Figure 4: ...especially as an ROE recovery for non-banks is still
amendments… underway, while banks’ ROEs likely peaked
Price-to-book (x) 12-month rolling ROEs for banks and non-banks listed on EGX
COMI P/B (x) MSCI Egypt Small Caps P/B (x) Banks Non-Banks
6 35%
5 30%
25%
4
20%
3
15%
2
10%
1 5%
0 0%
1Q2006
4Q2006
3Q2007
2Q2008
1Q2009
4Q2009
3Q2010
2Q2011
1Q2012
4Q2012
3Q2013
2Q2014
1Q2015
4Q2015
3Q2016
2Q2017
1Q2018
Nov-13
Feb-14
Aug-14
Nov-14
Feb-15
Aug-15
Nov-15
Feb-16
Aug-16
Nov-16
Feb-17
Aug-17
Nov-17
Feb-18
Aug-18
May-14
May-15
May-16
May-17
May-18
Source: Bloomberg, MSCI, EFG Hermes Source: Bloomberg, EFG Hermes
Will COMI’s leader status be replaced by a basket of other heavyweights? While it is true that historically
COMI and the market have moved in the same direction, since devaluation COMI has actually
underperformed by 17% (peak underperformance was 41% on 26 Apr 2018). This is best illustrated by the
decline in COMI’s weight within EGX30 from a peak of c40% in 2016 to c30% now. We think COMI’s
weight in the benchmark could fall further on the back of continued underperformance; after all, it was
only 21.8% of EGX30 at end-2010. Foreign investors’ holdings in Egypt are concentrated in COMI and
account for 53% of total disclosed holdings by funds. Thus, potentially, foreign investors that are still bullish
on Egypt could partially rotate out of COMI, which would be supportive of other heavyweights (i.e. SWDY,
TMGH, etc.).
64
Country Analysis
Egypt – Favourable outlook, with higher rates remaining a key challenge
Egypt’s economy is set in 2019 for a combination of stable GDP growth of 5%, elevated interest rate
environment and further fiscal measures to rein in the budget deficit. We, therefore, expect growth to
remain strong; nevertheless, policymakers will continue to face the challenge of stimulating growth in the
private sector amidst a high inflation/interest rate environment.
We expect economic growth to remain robust at +5%, thanks to a strong recovery in tourism, gas
production and public investment. These have been largely the same driving forces in the economy in the
past two years, and we see further room for growth there in 2019. Tourism is recording a wide-ranging
recovery, where revenues have nearly tripled in the past three years to USD9.8bn in FY17/18, with further
potential for upside if and when Russia removes its travel ban on flights to Red Sea destinations. On the gas
side, production in the Zohr field, which started in Dec 2017, continues to ramp up, aiming to reach 3bcfd
by Jun 2019. The country has officially announced that it has stopped importing gas and that it has started
exporting some small quantities to Jordan. Finally, the government is pressing ahead with its megaprojects
in both infrastructure and housing.
Figure 5: Tourism’s recovery has been a strong driving force for the Figure 6: …also complemented by a significant increase in domestic
overall economy… natural gas production
Tourism revenues in USDbn (LHS), in Y-o-Y % change (RHS) Natural gas production in thousands of tonnes
Revenues Y-o-Y change (RHS)

3.0 300% 5
250%
2.5 4
200%
2.0
150% 3
1.5 100%
2
50%
1.0
0% 1
0.5
-50%
0
0.0 -100%
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
Source: CBE Source: CAPMAS
Meanwhile, domestic demand, at large, is likely to continue its muted recovery as it faces a persistently
elevated interest rate environment. For consumers, inflationary pressures have been gradually subsiding, but
they are not completely vanishing, with a fourth fuel price increase in three years set for Jun 2019 (when
the government is set to liberalise fuel prices). Slow growth in private consumption (most companies are still
running on below 2016 volumes) and an extended period of high interest rates point to another year of
slow recovery in private sector capex, in our view.
We forecast inflation to remain within the range of 13-14% for the next couple of years, considering the
upcoming fuel subsidy cuts. The latter, in addition to global tightening conditions, feeds our expectations of
a stable policy rate environment for most of next year. Hence, we do not see rate cuts before 4Q19, when
the last inflationary wave should subside post June’s fuel price hike. Obviously, the trend for oil prices will
remain a decisive factor for the inflation outlook.
65
Country Analysis
The macro management of the economy amidst this elevated inflation environment clearly poses challenges
to policymakers and is likely to ensure that any future easing of monetary policy would be largely gradual.
This is likely to continue, given that we are expecting the EGP to come under pressure at the time when the
Central Bank of Egypt (CBE) will be pressing ahead with an easing cycle later in 2019. We, therefore, expect
to see some weakness in the range of 3-5%, setting later in 2019 or early 2020.
Figure 7: CAD narrowed considerably in the past two years… Figure 8: …helping build up a strong reserve position
Current account deficit in USDbn (LHS), in % of GDP (RHS) Foreign reserves in USDbn
CA % of GDP (RHS) NIR Tier II

0 0% 60
-1%
(5) 50
-2%
40
(10) -3%
30
(15) -4%
20
-5%
(20)
-6% 10
(25) -7% 0
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
Source: CBE Source: CBE
Generally, we do not see major short-term pressures on the currency, with CBE enjoying a strong reserve
position, manageable current account deficit at 2.5% of GDP and interest rates remaining elevated
(ensuring both attractiveness of the local currency and muted domestic demand growth). In addition, our
real effective exchange rate model still indicates that the EGP remains an undervalued currency. The higher
inflation and stable currency over the past two years, however, has meant that the EGP has appreciated
significantly in real terms, meaning that weakness in the EGP in 2019 would be healthy for long-term
fundamentals.
Figure 9: Local rates remain elevated… Figure 10: …driving the still-large, but narrowing fiscal deficit
Average yields on 12-month Treasury bill In % of GDP
Primary Overall
22% 2%
0%
21%
-2%
20%
-4%
19% -6%
-8%
18%
-10%
17% -12%
16% -14%
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Source: CBE Source: Ministry of Finance, EFG Hermes estimates
66
Country Analysis
Egypt Macroeconomic Indicators (Year-end Jun)

2015a 2016a 2017e 2018e 2019e
Real Sector
Nominal GDP (USDbn) 332.2 332.4 233.9 265.1 315.9
Real GDP growth 4.4% 4.3% 4.2% 4.7% 5.2%
Population (mn) 89.0 90.9 92.9 95.0 97.0
Per capita GDP (USD) 3,734 3,656 2,518 2,792 3,255
CPI inflation (%, Avg.) 11.0% 10.2% 23.3% 21.6% 12.5%
External Sector
Trade balance (USDbn) (39.1) (38.7) (36.2) (37.6) (37.7)
Services balance (USDbn) 10.7 6.5 6.8 11.5 14.5
Tourism (USDbn) 7.4 3.8 4.4 9.2 11.2
Suez canal (USDbn) 5.4 5.1 4.9 5.5 5.6
Private transfers (net) (USDbn) 19.2 16.7 18.3 23.4 21.0
Current account balance (USDbn) (12.1) (19.8) (15.4) (8.1) (8.0)
Current account balance (% of GDP) -3.7% -6.0% -6.6% -3.1% -2.5%
FDI (USDbn) 6.2 6.8 7.7 8.3 9.8
Fiscal Sector
Tax revenues (USDbn) 41.6 43.2 31.1 35.6 43.6
Subsidies (USDbn) 20.4 17.0 13.7 14.3 11.7
Primary balance (% of GDP) -3.5% -3.5% -1.8% -0.4% 1.4%
Fiscal balance (USDbn) (38.0) (41.7) (25.6) (26.0) (24.9)
Fiscal balance (% of GDP) -11.4% -12.5% -10.3% -9.8% -7.9%
Net domestic budget sector debt (% of GDP) 76.4% 84.4% 72.9% 60.2% 55.9%
Gross external government debt (% of GDP) 14.1% 18.3% 41.3% 32.1% 25.7%
Monetary Sector
NFAs in the banking system (USDbn) 7.2 (9.8) 3.4 10.8 15.8
Foreign reserves (USDbn) 20.1 17.5 31.3 43.4 45.1
Exchange rate versus USD (Avg.) 7.36 8.15 14.83 17.71 17.60
Benchmark lending interest rate (end of period) 9.8% 12.8% 17.8% 17.8% 17.8%
Broad money growth 16.4% 18.6% 39.3% 14.0% 17.7%
Private sector credit growth (%, eop) 16.7% 14.2% 38.0% 10.5% 19.5%
Private sector credit (% of GDP) 25.5% 26.3% 28.3% 23.1% 23.3%
Source: Central Bank of Egypt, Ministry of Finance, CAPMAS and EFG Hermes estimates
67
Country Analysis
Kuwait (Overweight)
Stable macro and flows should keep the market supported in 2019
Index inflows could continue until May 2020, Argentina’s upgrade will increase FM’s weight in May
2019
Ownership levels and fund holdings imply many investors are still UW
Top 20 Names: NBK, GBK, HUMANSFT, and BURG
We remain bullish on Kuwait due to: i) a stable macro outlook; ii) Index-inclusion driven inflows, potentially
lasting until May 2020; and iii) low ownership by regional and global funds relative to Frontier peers. We have
been OW on Kuwait since Mar 2017. MSCI Kuwait is trading at 1.1x PEG, which is in line with MSCI EM, but
at a premium to the MSCI Frontier Emerging Index’s 0.8x. Kuwait’s premium is justified considering: i) safer
USD returns from a FEM context due to low currency risk; and ii) one of the lowest country risk premiums, with
five-year CDS spreads at 65bps vs. 313bps average for other major Frontier markets.
Figure 11: Index Matters – Red letter days for the Kuwaiti market
20 Dec 2018 15 Mar 2019 31 May 2019 Mid-Jun 2019 (TBC) 31 May 2020
•Kuwait's weight to •We expect AUB •Argentina joins •MSCI country •Kuwait joins MSCI
almost double to (USD98.4mn MSCI EM... classification results EM with a 0.46%
0.5% within FTSE inflows), GBK weight and should
EM indices... (USD45.8mn), and •...Kuwait's weight in •We expect Kuwait to see cUSD1.7bn of
BURG (USD23.1mn) MSCI FM moves to be upgraded to passive inflows
•...leading to to join FTSE indices c26% from c22% MSCI EM effective
cUSD465mn passive in Mar 2019 currently May 2020
inflows
•INTEGRAT is also a • If AUB's merger
potential small cap with KFH
addition (cUSD9mn) materialises it would
add another 2.7%
to Kuwait's weight
x
Source: MSCI, FTSE, EFG Hermes estimates
Kuwait has received USD709mn of net foreign inflows in 2018 (as of Oct) mainly led by passive inflows from
FTSE trackers, which puts 2018 on track to be the biggest year for net foreign inflows on record. We expect
this to continue in 2019, as weight increases in FM should lead to more active FM inflows, especially as
these funds are still UW on Kuwait in aggregate (as Argentina gets upgraded and KFH potentially merges
with AUB). The inflows will become more evident if MSCI upgrades Kuwait to EM in 2019.
Figure 12: EFG Hermes simulated list for MSCI Kuwait should the market be upgraded to MSCI EM
We include names that pass size and liquidity requirements for MSCI EM as existing constituents
Est. MSCI EM weight Est. flows 20-day ADVT Flows / ADVT
Ticker
(%) (USDmn) (USDmn) (x)
NBK KK Equity* 0.15% 568 5.7 99
KFH KK Equity* 0.11% 416 6.1 69
ZAIN KK Equity* 0.06% 223 4.8 46
AGLTY KK Equity* 0.04% 152 2.7 56
BPCC KK Equity** 0.03% 97 1.1 92
BOUBYAN KK Equity* 0.02% 87 1.1 81
GBK KK Equity** 0.02% 78 3.1 25
MABANEE KK Equity* 0.02% 68 0.6 120
BURG KK Equity** 0.01% 47 2.8 17
*Part of MSCI’s simulated list as of 23 Apr 2018
**According to our calculations these should be potential additions to MSCI’s original simulation
Source: MSCI, EFG Hermes estimates
68
Country Analysis
Kuwait – Safe sailing on strong fundamental tailwinds
Kuwait’s growth environment will continue to remain stable, in our view, isolated from oil price volatility
due to its solid fiscal position. We estimate the country’s budget breakeven oil price will remain below
USD60/barrel, providing the government with support to continue its investment programme.
Public investment was up a strong 13% Y-o-Y in FY17/18 and we expect 10% p.a. growth over the
following two years. The pace of project awards remained healthy in 2018, though lacking any major
awards, supporting our view of double-digit growth in investment spending.
The government’s implementation rate of investment, i.e. actual investment vs. budgeted, has been
sustained at 78% over the past four years compared to 65% in the preceding four years. Barring delays in
some projects due to tendering issues, the government has been able to deal with all other problems, most
importantly parliamentary approval, and implement its investment plans.
Complementing the government’s expansionary fiscal policy, the Central Bank of Kuwait has also provided
the corporate sector with an accommodative monetary policy. CBK has been intermittently skipping
matching Fed rate hikes in order to maintain favourable lending rates to the local economy. We expect
more of the same next year, with CBK skipping at least one of the potential upcoming Fed rate hikes.
As a result, we forecast the pick-up in non-oil GDP to continue; we expect non-oil GDP growth to accelerate
further to 2.8% in 2018 and 3.2% in 2019. Overall GDP growth, however, might remain weak in light of
OPEC’s policy of production cuts, which have curtailed oil production at around 2.8mbpd.
Private consumption should continue to pick up, thanks to higher government spending and modest
inflation environment. Further fiscal consolidation measures, whether the excise tax, value-added tax or
further fuel subsidy cuts, have been pushed back by at least a couple of years.
Figure 13: Growth set to continue accelerating in 2019 Figure 14: Expect stable investment growth
Real non-oil GDP growth Public investments in KWDbn (LHS), In Y-o-Y % change (RHS)
Public investment Y-o-Y change (RHS)

6% 3.5 16%
5% 3.0 12%
2.5
4% 8%
2.0
3% 4%
1.5
2% 0%
1.0
1% 0.5 -4%
0% 0.0 -8%
2013
2014
2015
2016
2017
2018
2019
2013
2014
2015
2016
2017
2018
2019
Source: Central Bank of Kuwait, EFG Hermes estimates Source: Ministry of Finance, EFG Hermes estimates
69
Country Analysis
Kuwait Macroeconomic Indicators (Year-end Dec)

2015a 2016a 2017e 2018e 2019e
Real Sector
Real GDP growth 0.6% 2.9% -3.5% 1.0% 2.0%
Real non-oil growth 0.4% 1.6% 2.2% 2.8% 3.2%
Population (mn) 4.2 4.4 4.6 4.7 4.9
Oil price (Brent, USD/b Avg.) 52.3 44.1 54.3 72.0 70.0
External Sector
Trade balance (USDbn) 27.9 20.0 23.6 36.7 33.8
HC exports (USDbn) 48.4 41.3 45.7 60.7 59.8
Non-HC exports (USDbn) 6.0 5.0 5.2 5.5 5.8
Services balance (USDbn) (20.0) (21.0) (21.7) (23.3) (24.5)
Net transfers (USDbn) (16.6) (17.3) (15.9) (16.5) (17.3)
Current account (USDbn) 4.0 (5.0) (0.3) 11.6 7.5
Current account (% of GDP) 3.5% -4.6% -0.2% 8.8% 5.6%
FDI (USDbn) (5.1) (4.1) (2.0) (2.5) (3.5)
Fiscal Sector
HC revenues (USDbn) 40.1 38.6 47.4 52.0 51.3
Other revenues (USDbn) 19.2 20.7 21.0 21.6 20.7
Spending (USDbn) 60.6 52.9 55.7 52.4 55.5
Primary balance (% of GDP) -1.1% 5.5% 10.0% 15.0% 11.2%
Fiscal balance (USDbn) (1.3) 6.4 12.6 20.6 15.9
Fiscal balance (% of GDP) -1.1% 5.8% 10.6% 16.0% 12.2%
Budget breakeven oil price (USD/b) 58.6 42.0 50.8 45.0 50.2
Net domestic claims on government (% of GDP) -14.9% -13.2% -9.5% -7.9% -9.7%
Monetary Sector
NFAs in the banking system (USDbn) 51.5 56.1 54.7 62.3 67.3
Source: Central Bank of Kuwait, Ministry of Finance, IMF and EFG Hermes estimates
70
Country Analysis
Qatar (Underweight)
FOL-driven rally in 2018 leaves no upside, QNBK/QIBK are expensive
Market is expensive, and QNBK/QIBK are trading at all-time-high valuations

We prefer select mid-caps (ORDS/QATI/QEWS) over large-caps (QNBK/QIBK/IQCD)
No Qatari stocks in MENA Top 20, but QNBK, and QIBK are in our MENA Sell Ideas
We have been UW on Qatar since Mar 2017; since then, the DSM Index has underperformed MENA by
15% due to post FTSE-phase two correction in March and the GCC embargo in June. This is despite DSM’s
outperformance of 25% since the low of Nov 2017. We see our UW call in 2019 as supported by: i)
expensive valuations for index heavyweights (QNBK/QIBK); and ii) passive outflows over 2019/20 due to Saudi
Arabia/China-A. We have no Qatari stocks in our MENA Top 20 list and only three stocks in our Qatar
coverage offer upside – ORDS, QATI and QEWS. However, we do not see clear ST catalysts for ORDS and
QEWS, although downside looks limited vs. other stocks. QATI could join FTSE in Mar 2019 (was deleted in
Mar 2018), which could be a catalyst for the name (USD57mn inflows, 32x ADVT). Having said that, we
recommend an outperformance trading call within our Qatari coverage by going Long QATI/ORDS/QEWS /
Short QNBK/QIBK/IQCD weighted by float market cap.
Figure 15: QNBK is way above 5-year average price to book Figure 16: Liquidity fell sharply post index events, but the market
continued to rally on weak volumes. This will reverse, led by QNBK
12-month forward price-to-book with average DSM index (LHS), rolling 3M ADVT USDmn (RHS)
DSM Index 3MADVT USDmn (RHS)

2.8 11,000 180
2.6 10,500 160
2.4 10,000
140
2.2 9,500
120
2.0 9,000
100
1.8 8,500
80
1.6 8,000
7,500 60
1.4
7,000 40
1.2
02-Jan-18
23-Jan-18
10-Jul-18
31-Jul-18
21-Aug-18
13-Feb-18
06-Mar-18
27-Mar-18
17-Apr-18
08-May-18
29-May-18
19-Jun-18
11-Sep-18
02-Oct-18
23-Oct-18
1.0
Nov-13
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Feb-16
May-16
Aug-16
Nov-16
Feb-17
May-17
Aug-17
Nov-17
Feb-18
May-18
Aug-18
Nov-18
Source: Bloomberg, EFG Hermes Source: Bloomberg, EFG Hermes
Risks to our UW call are: i) locals continuing to limit supply, but we doubt local institutions and individuals will
sit on paper gains forever; ii) Qatar looking to boost LNG output growth by 2024 to 110mn (43% growth
from here) – which is more of a medium-term/long-term catalyst, and the main direct beneficiary of this from a
stock market perspective would be QGTS; iii) continued shift from active to passive funds in EM, which
replaces an UW (active) by Neutral (passive). Counter-intuitively, we think the potential lifting of the Qatar
embargo (still no clarity) could support our UW call, as local institutions, which are sitting on large gains, could
choose to take profit and deploy liquidity elsewhere.
71
Country Analysis
Qatar – Sailing quietly
High oil and gas prices and a comfortable fiscal position ensures a relatively favourable macroeconomic
outlook in 2019. The economy has already managed to recover from the embargo imposed by Saudi Arabia,
the UAE, Egypt and Bahrain in mid-2017. Alternative trade routes have been established, enabling the
economy to swiftly move around the embargo and in a short period of time. The government also managed
to plug the funding gap in light of deposit outflows, deploying more than USD20bn from QIA, which
helped stabilise the system with non-resident deposit inflows resuming in the final months of 2018.
In parallel, private investment – with support from the government – has been directed towards increasing
the economy’s domestic productive capacity to reduce its reliance on imports, especially in the food sector.
Stable public investment plans have also managed to ensure limited interruption to growth. As such, non-oil
GDP growth has been on an accelerating trend in 1H18, effectively back to 2H16’s high of +5%.
We expect the same strong growth environment to continue in 2019, driven by increased government
spending as it wraps up preparation for FIFA World Cup 2022. Higher oil and gas prices and resumed access
to international markets for the banking sector, largely through the recovery of non-resident deposit
inflows, mean the economy has the funding needed to grow. Construction, manufacturing and
transportation are likely to remain the main sectors driving growth. Tourism and real estate though are likely
to remain a drag on growth given overcapacity; half the tourist base was lost because of the embargo.
We note, though, that Qatar’s long-term growth outlook is tilted towards slower growth in light of a largely
mature investment programme. With the World Cup approaching in 2022, the government has already
delivered most of the bigger projects, meaning the country’s investments in the non-oil economy has likely
peaked. This is clearly reflected by slowing project awards over the past three years, when the level has
effectively fallen to pre-2010 levels.
It is in this context of slowing growth that the government, in our view, decided to turn its attention back to
the natural gas sector. Qatar Petroleum announced earlier in 2018 that it will lift a self-imposed moratorium
with a plan to raise LNG production capacity by 30% to 100mn tonnes in five to seven years from its
current 77mn tonnes. We believe the investment plan is also driven by Qatar’s willingness to ensure its
dominant position in the global natural gas market, pushing for such sizeable investment, especially with a
favourable cost position, given that most infrastructure already exists, in order to deter others.
Figure 17: GDP growth recovering after embargo Figure 18: Investment cycle has likely peaked
Real non-oil GDP growth Project awards in USDbn
6% 40
5%
30
4%
3% 20
2%
10
1%
0% 0
2010
2011
2012
2013
2014
2015
2016
2017
2018
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
Source: Ministry of Planning and Statistics Source: MEED Projects
72
Country Analysis
Qatar Macroeconomic Indicators (Year-end Dec)

2015a 2016a 2017e 2018e 2019e
Real Sector
Real GDP growth 3.6% 2.2% 2.3% 2.5% 2.5%
Population (mn) 2.4 2.6 2.8 2.9 3.0
External Sector
HC exports (USDbn) 64.5 46.7 52.6 60.5 65.6
Current account (USDbn) 13.8 (8.3) 0.1 4.1 6.3
Current account (% of GDP) 8.6% -5.5% 0.0% 2.1% 3.1%
FDI (USDbn) (3.0) (7.1) (5.9) (6.2) (5.5)
Fiscal Sector
Spending (USDbn) 68.4 53.8 55.7 58.1 59.3
Primary balance (% of GDP) -1.2% -21.2% -20.3% -11.9% -8.6%
Fiscal balance (USDbn) 2.0 (7.7) (7.6) (4.2) (2.2)
Fiscal balance (% of GDP) 1.2% -5.1% -4.5% -2.1% -1.1%
Net domestic claims on government (% of GDP) 22.5% 35.6% 38.0% 35.4% 37.5%
Monetary Sector
NFAs in the banking system (USDbn) 13.0 (16.3) (17.6) (9.5) (2.7)
Broad money growth 3.4% -4.6% 7.3% 7.7% 5.8%
Source: Qatar Central Bank, Ministry of Planning and Statistics, IMF and EFG Hermes estimates
73
Country Analysis
Saudi Arabia (Overweight)
Outflows in 4Q18 hit reset on index trade, re-rating expected in 2019
Saudi is still an index inclusion trade for 2019, it is still under owned, and we still see cUSD16bn inflows
Multiples have actually contracted YTD, which is unusual for an EM inclusion trade
We still prefer banks and select petchems/consumers/healthcare for 2019
Top 20 List: RJHI, SAMBA, YANSAB, ALMARAI, BUDGET, AOTHAIM, RIBL, and MOUWASAT
The Index inclusion trade

We have been OW on Saudi Arabia since 19 Feb 2018. We still see a potential for a strong total return by
mid-2019. We expect the EM upgrades to drive cUSD16bn total passive inflows and if foreign ownership in
Saudi Arabia increases to Qatar or UAE’s levels, we should get an additional cUSD15-25bn worth of active
foreign inflows. Saudi Arabia had received cUSD3.4bn by 7 Jun 2018; however, developments in October
led to cUSD1.9bn worth of Swaps and QFIs outflows in a span of six weeks, almost hitting the reset button
on swaps inflows for 2018, and substantially reducing QFIs net inflows. As a result, foreigners still own
1.4% of Saudi’s market cap, well below the 8% in Qatar and 10% in the UAE.
Figure 19: 57% drawdown (USD1.9bn) from peak 2018 flows Figure 20: Saudi trade has a lot of room to go
Cumulative 2018 net flows in USDmn
Perf. Decision 12-month Forward Multiple
Swaps + QFIs Swaps QFIs to Inclusion P/E (x) expansion
4,000
(%) Decision Inclusion (%)
3,500
3,000 MSCI UAE* 98% 13.5 22 63%
2,500
MSCI Qatar* 54% 10.9 16.3 49%
2,000
1,500
MSCI Pakistan** 28% 8.8 10.5 18%
1,000
500 Saudi Arabia*** -7% 14.2 12.9 -9%
0 *Watch list addition was 2008, decision was 11 Jun 2013, implementation
(500) 29 May 2014
**Watch list 9 Jun 2015, decision 14 Jun 2016 , and implementation 31 May
4-Jan-18
25-Jan-18
15-Feb-18
8-Mar-18
29-Mar-18
12-Jul-18
2-Aug-18
23-Aug-18
13-Sep-18
15-Nov-18
4-Oct-18
25-Oct-18
19-Apr-18
10-May-18
31-May-18
21-Jun-18
2017 (peak returns for MSCI Pakistan were as of 24 May 2019, +39% from
decision)
***Saudi Arabia was upgraded on 20 Jun 2018, multiple and performance
shown under Inclusion is current multiple, but actual inclusion into MSCI
indices will be end-May 2019 and end-Aug 2019
Source: Tadawul. EFG Hermes
Source: MSCI, Bloomberg, EFG Hermes calculations
The MSCI Saudi Arabia standard index has outperformed the small-cap index by 24% since 20 Jun 2017 and
21% YTD (MSCI’s review list addition). We think this will continue until at least mid-2019, as the UAE and
Qatar markets show that most foreign ownership is in standard indexes (80-90%), and Saudi Arabia will likely
follow this. Surprisingly, the multiple has contracted since 20 Jun 2018, and as such, once the dust settles, we
expect a strong re-rating for the Tadawul in 2019 as we get closer to MSCI’s May 2019 event.
74
Country Analysis
Saudi Arabia’s inclusion timeline and expected flows

14 Mar 2019 – FTSE phase 1, cUSD0.5bn inflows
18 Apr 2019 – FTSE phase 2, cUSD0.8bn inflows
30 May 2019 – MSCI phase 1, cUSD5.5bn inflows
20 Jun 2019 – FTSE phase 3, cUSD1.3bn inflows
29 Aug 2019 – MSCI phase 2, cUSD5.5bn inflows
19 Sep 2019 – FTSE phase 4, cUSD1.3bn inflows
19 Dec 2019 – FTSE phase 5, cUSD1.3bn inflows
Earnings growth and valuation

We expect banks’ earnings to grow 10% in 2019e, and materials to grow 6%. These two sectors account
for 70% of the Tadawul index and have been the main reason for the 9% Y-o-Y EPS growth seen in 9M18
despite weak results from other sectors.
In terms of valuation, the index is trading at 12.9x forward P/E (x) below the 13.3x historical average, and
well below the 16.2x peak in Jun 2015, which was when Tadawul was preparing to open up for QFIs.
Continued aggregate EPS growth in 2019e supported by banks and materials, and index inclusion driven
inflows should support re-rating of the market. Reaching peak multiple from current levels implies a 25%
upside for the Tadawul index. Such a move would still put Tadawul returns from announcement to
implementation below returns seen in Pakistan, Qatar and the UAE.
Figure 21: Tadawul is trading below the avg. P/E and well below Figure 22: Tadawul‘s EPS rose 9% Y-o-Y in 9M18, led by the key
peak valuation sectors, while the rest of the market was weak
Tadawul 12-month forward P/E (x) with average and 1-standard deviation 9M18 Y-o-Y growth in earnings
17 40%
30%
16
20%
15 10%
0%
14 -10%
13 -20%
-30%
12 -40%
-50%
11
-60%
Materials
Financials
Health Care
Industrials
Energy
Telcos
Cons. Stap.
Cons. Disc.
Real Estate
10
Feb-16
Feb-17
Feb-18
Feb-14
Feb-15
May-18
May-16
May-17
Aug-17
Nov-17
Aug-18
May-14
May-15
Nov-15
Aug-16
Nov-16
Nov-13
Aug-14
Nov-14
Aug-15
Source: Bloomberg, EFG Hermes Source: Bloomberg, EFG Hermes calculations
Risks to our Saudi Arabia call

Key risks to our call are a sharp correction in oil prices and/or renewed geopolitical concerns. However, we
believe MENA equities as an asset class are at risk from these events, and arguably MENA-ex-KSA could face
larger downside risks than KSA as: i) local institutions supported by GREs have played a stabilising role in the
Saudi market at key inflection points; and ii) foreign ownership in Saudi Arabia is low, which limits the scope
of foreign selling around negative developments.
75
Country Analysis
Saudi Arabia – Looking for more normalised growth environment
We expect economic growth in the non-oil sector to continue accelerating in 2019 and reach 2.7% from an
expected 2.2% in 2018. Overall GDP growth is likely to remain volatile, depending on the oil production
policy. The Kingdom has been recently pumping record amounts of crude into the market (around 11mn
barrels per day), which could reverse at the beginning of 2019 if OPEC decides to re-commit to production
cuts in order to counterbalance the sharp correction in oil prices.
Improved non-oil growth will be driven by continued expansionary fiscal stance; the 2019 budget is yet to
be announced, but the preliminary budget saw the government’s plans to increase spending by 7.4% Y-o-Y
to USD295bn. This comes after the government revised its spending estimates for both 2018 and 2019 by
10%, clearly reflecting a more comfortable position to increase spending, thanks to higher oil prices.
In addition, we see it as significant that 2019 is set to be the first year in three, when consumers would not
be faced with any headwinds to their incomes from fiscal measures. This, in parallel with rising overall
spending and full restoration of allowances, should help for an incremental improvement in consumer
confidence.
The government’s initiative in the housing sector has been clearly supportive to growth and has been, in
fact, the core driver of lending growth in 2018. Indeed, the number of new residential mortgages provided
by the banks jumped 43% Y-o-Y in 3Q18 to 10k. The higher number of contracts partially helped drive a
relatively strong recovery in household credit at a time when corporate credit growth has just barely moved
to positive territory by 2Q18.
Figure 23: Non-oil growth set to pick up, driven by the public Figure 24: Exodus of expat labour likely to continue in 2019
sector
Weighted % of real non-oil GDP growth Q-o-Q change in number of employed expats
Public Private Non-oil

6% 0
5%
(50)
4%
(100)
3%
(150)
2%
1% (200)
0% (250)
-1%
(300)
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
Source: General Authority for Statistics Source: General Authority for Statistics
Growth, however, will continue to face a number of headwinds. Key amongst those is the exodus of expat
labour, which has been clearly weighing on overall aggregate demand negatively. Official numbers point to
1mn expat workers having left the Kingdom in the 18 months to Jun 2018; the number would rise to
1.2mn when considering departing independents. A further rise in the expat levy, a third is planned for
2019, as well as continued Saudisation policies are likely to ensure the trend continues; the latest wave of
Saudisation came into effect in November, when 12 retail services were nationalised. With no major new
ones announced so far, we think it is fair to expect a decelerated rate of job losses in 2019.
76
Country Analysis
Another likely key headwind is the pace and capacity of the government to deliver on the various
investment initiatives it announced, where the Public Investment Fund is effectively the single institution
taking care of funding and physical execution of all the leading projects (including the Entertainment City,
NEOM, religious tourism). Indeed, we are yet to see any signs of a pick-up in project awards, which are likely
to remain flat in 2018 for the third straight year. Picking up the pace of project execution is key, given that
private money is likely to remain on the sidelines amidst elevated political and geopolitical risks.
Figure 25: Project awards were weak in 2018 for third consecutive Figure 26: Personal credit picking up, while corporate remains
year muted
In USDbn In Y-o-Y % change
Construction Power Transport Oil & Gas Corporate Household
Water Industrial Chemical
70 15%
60
10%
50
5%
40
30
0%
20
-5%
10
0 -10%
2013
2014
2015
2016
2017
2018
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
Source: MEED Projects Source: SAMA
In addition to capacity, funding the sizeable projects would be another medium-term challenge for the
investment plans we would like to flag. As it stands, the government has managed to considerably narrow
its budget deficit to low single-digits. There are, however, two factors to consider here: first, the narrowing
of the deficit has been so far entirely driven by rising oil prices; non-oil fiscal deficit has been consistently
expanding since 4Q17. Second, the budget’s capacity is still short of funding the ambitious capex plans,
with budget break even oil prices at USD74/b; hence, the government needs to look for other sustainable
sources, most notably privatisation.
Figure 27: Oil has been the saviour for the budget Figure 28: Budget still at deficit at current oil prices
Non-oil fiscal balance in SARbn (LHS), in Y-o-Y % change (RHS) Budget break-even oil price in USD
Nno-oil fiscal balance Y-o-Y change (RHS)

0 30% 100
(50) 80
20%
(100) 60
10%
(150) 40
0%
(200) 20
(250) -10% 0
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
2013
2014
2015
2016
2017
2018
2019
77
Country Analysis
Saudi Arabia Macroeconomic Indicators (Year-end Dec)

2016a 2017a 2018e 2019e 2020e
Real Sector
Real GDP growth 1.7% -0.7% 1.7% 2.4% 2.8%
Population (mn) 31.8 32.4 33.1 33.7 34.4
CPI inflation (%, Avg.) 2.1% -0.8% 2.3% 1.2% 1.5%
External Sector
HC exports (USDbn) 136.2 170.2 225.6 224.2 228.6
Current account (USDbn) (23.9) 15.2 77.6 70.3 64.8
Current account (% of GDP) -3.7% 2.2% 10.1% 8.9% 8.0%
FDI (USDbn) (1.5) (4.2) (5.5) (5.0) (3.0)
Fiscal Sector
Spending (USDbn) 221.3 246.9 274.1 281.8 293.1
Net domestic claims on government (% of GDP) -28.8% -18.8% -12.8% -9.3% -6.7%
Monetary Sector
Broad money growth 3.5% -1.0% 9.5% 8.7% 4.0%
Private sector credit growth (%, eop) 2.4% -0.8% 5.0% 8.0% 13.0%
Source: SAMA, General Authority for Statistics, IMF and EFG Hermes estimates
78
Country Analysis
UAE (Neutral)
Dubai is cheap, but there are no catalysts to support a strong rally
We prefer Dubai heavyweights over Abu Dhabi heavyweights going into 2019
Valuation, especially in Dubai, is very attractive and downside looks limited…
…but there are no catalysts (FOL increases?) and the market is still well owned vs regional peers
Top 20 List: DIB, DPW, and EMAAR
We believe the premium for ADSMI Index vs. DFMGI is unsustainable – which is due, in part, to FAB’s strong
performance in 2018, while EMAAR’s weak performance has weighed on DFMGI. We see downside for FAB
given that the name was supported by the MSCI November Review inflows, while upside for ETISALAT is
limited and ST upside at ADCB/UNB is also constrained, in our view. On the other hand, EMAAR offers one
of the highest upside potentials in MENA, although this is unlikely to materialise in the ST, while Dubai
banks in general are more attractive on valuation than Abu Dhabi banks.
Figure 29: The UAE (especially Dubai) is attractive on valuation… Figure 30: …but market is well owned and there are no catalysts
MSCI indices 12-month forward P/E (x) Non-local ownership as a % of market cap
UAE MENA EM
14 18.0%
13 16.0%
14.0%
12
12.0%
11 10.0%
8.0%
10
6.0%
9
4.0%
8 2.0%
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
0.0%
Dubai Abu Dhabi Qatar Kuwait Saudi Arabia
Note: excluding foreign strategic stakes for Saudi; Kuwait data shows only
banks which account for c54% of market cap
Source: Bloomberg Source: EFG Hermes calculations
We remain Neutral on UAE equities, despite the attractive valuation in Dubai, as the market still lacks a
catalyst and remains well owned by regional and global funds. The low hanging fruit for UAE equities is FOL
increases, in our view, as they could provide the catalyst needed for the market, in our view. Of the names
that could raise FOLs, ADIB has increased its FOL to 25% (19 Nov), Emirates NBD approved the FOL increase
to 20% in 1H18 (yet to be implemented). Other names that could potentially increase FOLs are DU, DIB,
ETISALAT, and FAB.
We calculate that a blanket 49% FOL for UAE companies (in line with the companies’ law) would lead to
UAE’s weight in EM increasing from 0.7% to c1.3% and drive cUSD3.5bn of passive inflows.
79
Country Analysis
UAE – Awaiting a catalyst
The UAE’s economic activity is set to slightly turn a corner in 2019, accelerating for the first time in four
years. We forecast real non-oil GDP growth to accelerate slightly to 2.7% in 2019 from our estimated 2.4%
in 2018, marking higher growth for the first time since 2014. The marginal acceleration in growth will be
driven predominantly by further easing in Abu Dhabi’s fiscal policy, thanks to the announced AED50bn
stimulus package to be spent over the next three years. Growth will also be driven by Dubai’s continued
investments in preparation for Expo 2020 as the event edges closer. Finally, the economy’s construction
sector is likely to remain vibrant and lead economic growth.
Nevertheless, the country’s growth outlook remains largely muted in light of a mixture of unfavourable
cyclicality and policy making, as well as persistent structural challenges. As the GCC’s most open economy,
a strong dollar will continue to weigh on external demand weighing on the key sectors of tourism,
transportation and property. Weakness of key trading partners, including India, Pakistan, Iran and the
Philippines, have clearly weighed on these sectors in 2018, and we foresee pressure persisting in 2019.
In addition, the stronger dollar is exacerbating the country’s loss of competitiveness, as far as attracting
inward foreign investment, especially for Dubai. The UAE’s economy has been on a structural plateau of
growth, in our view, as the rising cost of doing business has hindered the ability of businesses, especially
small and medium enterprises, to continue depending on Dubai as their base in the region. Indeed, numbers
over the past three years have pointed to successive declines in the number of new business licences, while
also showing an increase in the number of cancelled ones.
Abu Dhabi’s fiscal stance is also another headwind for growth: while fiscal consolidation is receding, the
government is yet to restore growth to pre-2014 levels. Indeed, the recently approved stimulus package
clearly shows a still largely conservative fiscal stance as it only implies 6% p.a. additional spending despite a
very comfortable fiscal position. Moreover, the authorities’ continued “efficiency drive” is driving further
mergers in public entities.
As such, the UAE’s policymakers are yet to demonstrate what kind of steps they will take to stimulate
growth. Authorities have been pressing the right buttons with announcements of extended visas and more
flexible investment legislation (whether opening-up sectors for 100% foreign investment or reducing
business-related fees). The market is awaiting the details of these initial announcements before giving a
verdict to the extent that they would provide support to growth.
Figure 31: Tourism market slowing in both Dubai and Abu Dhabi Figure 32: New business licences keep diminishing
Y-o-Y % change in tourism arrivals Weighted % change in new business licences by type
Dubai Abu Dhabi Commercial Others Total

20% 20%
15% 10%
0%
10%
-10%
5%
-20%
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
0%
2015 2016 2017 8M18
Source: DTCM, DCT Source: Dubai Statistics Center
80
Country Analysis
UAE Macroeconomic Indicators (Year-end Dec)

2016a 2017a 2018e 2019e 2020e
Real Sector
Real GDP growth 3.0% 0.8% 1.7% 2.4% 2.9%
Population (mn) 9.9 10.1 10.4 10.7 11.1
External Sector
HC exports (USDbn) 46.5 58.2 82.5 89.6 91.7
Current account (USDbn) 13.2 27.5 51.1 60.6 62.3
Current account (% of GDP) 3.7% 7.2% 12.0% 13.9% 13.7%
FDI (USDbn) (4.0) (3.7) (2.5) (2.0) (1.0)
Fiscal Sector
Spending (USDbn) 114.4 122.6 130.8 134.4 138.5
Primary balance (% of GDP) -4.2% -4.1% 0.4% 2.0% 2.2%
Fiscal balance (USDbn) (14.6) (15.3) 2.2 9.4 10.5
Fiscal balance (% of GDP) -4.1% -4.0% 0.5% 2.2% 2.3%
Monetary Sector
Source: Central Bank of UAE, IMF and EFG Hermes estimates
81
Country Analysis
Bangladesh (Underweight)
Long to-do list for election winner
Big challenges ahead of first proper elections in 10 years: banks, taxation, exports, governance
Consumer stocks are not cheap (or liquid), banks face headwinds, and foreign companies in crosshairs
We add Square to our enlarged FEM top picks list – a strong pharma franchise
Some of the bloom came off the Bangladesh market in 2018 after a strong rally since mid-2016, but the
YTD performance was not much worse than in EM and FEM aggregates, and we think there is further
downside. A post-election bounce is possible in early 2019, but with difficult choices ahead for the post-
election government. Whoever wins, it will be hard for Bangladesh equities to outperform over 2019.
Short-term priorities include:

 Reforming the National Savings Certificate (NSC) scheme, which drained liquidity from banks;
 Introducing the long-awaited VAT (currently scheduled for mid-2019);
 Clarifying central bank policy on NPLs, SOCBs and liquidity after a year of mixed messages;
 Putting energy pricing on a more sustainable footing;
 Allowing greater flexibility in USD-BDT as the CA remains under pressure.
On consensus numbers, Bangladesh stocks trade at a premium to most FEM peers on P/E multiples and PEG
ratios. We do not think that this is justified. Our current Bangladesh coverage – focused on pharma and
consumer stocks – offers little upside from current levels. Our top Bangladesh pick – Marico – is relatively
small and illiquid, though it has a good long-term growth outlook.
Figure 33: Volumes are weak; post-election bounce is possible Figure 34: Foreigners net sold smaller banks, BEXIMCO in 9M18
DSEX index, ADVT (20-day average in USDmn, RHS) Foreign ownership at end-3Q18 (USDmn), change in FO in 9M18 (pp, RHS)
DSEX Index ADVT 20d (RHS) FO (USDmn) Change in FO in MCAP in 9M18 (RHS)
7,000 250 600 3%
6,500 2%
500
200
6,000 1%
400
5,500 150 0%
5,000 300
-1%
4,500 100
200
-2%
4,000
50 100 -3%
3,500
0 -4%
3,000 0
OLYMPI
ISLAMI
SQUARE
CITYBA
DBHF
BATBC
BRAC
RENATA
BXPHAR
GRAM
Apr-18
Jul-13
Dec-13
Jun-14
Dec-14
Jun-15
Nov-15
May-16
Nov-16
Oct-17
Oct-18
May-17
Source: Dhaka Stock Exchange, EFG Hermes calculations Source: Dhaka Stock Exchange, EFG Hermes calculations
Risks to our Underweight call: Swift action on NSCs and a more credible approach from the central bank
would be welcomed by markets, and may even shift liquidity into the equity market. The rapid introduction
of VAT would reduce the risk of predatory tax policies targeting major taxpayers.
82
Country Analysis
Bangladesh – Weathering the storm
Bangladesh is likely to maintain its stable growth outlook because of robust macroeconomic foundations.
The main manufacturing sector, the ready-made garment sector (a labour intensive low-cost sector),
continues to attract high levels of investment. The sustainability of the growth environment remains
dependent on several structural reforms, including revamping the tax administration system and introducing
stronger banking reform policies.
The IMF expects Bangladesh’s GDP to grow at around 7.1% in 2019, led by strong domestic consumption
and investment. Inflation should average 6.1% for the coming period, supported by the relative stability of
the Taka/USD. Reserves continue to cover eight months of imports and are expected to remain sturdy in
2019 and serve as a strong buffer to any potential external shocks.
The current account deficit is expected to remain wide on the back of a substantial increase in large capital
imports related to mega-projects and an increase in crude oil and petroleum imports. Exports, driven by
ready-made garments, are expected to grow at a slower pace than imports would, leading to the widening
of the CAD. The latter may weaken the BoP and lead to a deceleration in net foreign asset growth.
Short-term risks include repercussions arising from the political unrest in the weeks leading up to the
general elections in Dec 2018, which are expected to lead to an increase in economic and political tensions.
The ramifications have already started in October, with the police clashing with protestors, leading to
injuries on both ends and the arrests of newspaper publishers linked to the opposition by security forces.
Authorities, however, believe risks from the run-up to the elections are minimal.
For Bangladesh to maintain its robust economic growth outlook, it must move forward with structural
reforms. IMF staff advised authorities to introduce reforms on the banking and tax fronts in order to bolster
the financial health of the economy. Increasing NPLs and weak governance in the banking sector could
impair banks’ abilities to extend credit and promote economic growth. The latter comes as NPLs made up
around 30% of SOCB loans. Thus, strengthened banking sector regulations, an accelerated resolution of
NPLs, risk management systems and better supervision are necessary to address the weakness in the sector.
The IMF also underscored the importance of raising revenues to finance the needed infrastructure
investments and accordingly noted the pressing need to reform the tax administration system and raise its
revenues.
Figure 35: Public debt to slightly pick-up but remains low Figure 36: Current account deficit to narrow in 2019 on lower food
imports
Gross government debt as % of GDP Current account as % of GDP
37 3
36
2
36
35 1
35 0
34
(1)
34
33 (2)
33
(3)
32
32 (4)
2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019
Source: IMF Source: IMF
83
Country Analysis
Figure 37: Bangladesh Macroeconomic Indicators
2015 2016 2017 2018 2019 2020
Real GDP growth (%) 6.8 7.2 7.4 7.3 7.1 7.0
Nominal GDP (BHDbn) 16,243 18,543 21,086 23,939 27,192 30,863
Nominal GDP (USDbn) 208.3 235.6 261.5 286.3 313.5 342.6
GDP per capita (USD) 1,303 1,459 1,603 1,736 1,882 2,035
Inflation (annual average) 6.2 5.7 5.6 6.0 6.1 6.1
Population (mn) 159.9 161.5 163.2 164.9 166.6 168.3
Fiscal balance (% of GDP) -4.0 -3.4 -3.3 -4.3 -4.5 -4.3
Primary balance (% of GDP) -1.9 -1.5 -1.6 -2.6 -2.7 -2.4
General government gross debt (% of GDP) 33.7 33.3 33.1 33.4 33.8 34.0
Current account balance (USDbn) 3.9 1.4 -5.3 -9.0 -8.4 -7.2
Current account balance (% of GDP) 1.9 0.6 -2.0 -3.2 -2.7 -2.1
84
Country Analysis
Kenya (Neutral)
Risks are mostly priced in; 2019 should be a better year
Market down 35% from Apr 2018 peak – history suggests limited downside for multiples
2019 potential catalysts: further relief on rate caps, renewed IMF SBA, return of local & foreign flows
Downside risks: political noise around reforms, reduced support for KES in 2019
Add SAFCOM to FEM Picks List, and keep KNOC as we wait for buyout
We are more optimistic on Kenya now than we were last year, as we believe the underlying macro risks are
now better priced-in. The MSCI IMI Kenya is trading at c8x 12m fwd PE, a level last seen in Jul 2015, and we
see limited downside to multiples from here. Despite a strong multiples correction, earnings have remained
fairly sturdy in 2018, and we expect 30% Y-o-Y growth in our coverage earnings in 2019, driven by the
banking sector. We add SAFCOM to our FEM picks list – we believe it is finally trading at a relatively
attractive valuation, while new products (M-PESA Global) and regional expansion plans in Ethiopia mean
that the company can better weather changes in local regulations and taxation and other macro-related
shocks.
Foreigners were net sellers of equities throughout 2018 and sold USD277mn in the 12 months until Oct
2018. A seasonal market surge in early 2018 created an opportunity to take profit, but this continued over
the summer as EM stress, combined with a drawn-out budget process and failure to repeal the rate cap law
hit the market. In the background, many foreigners remain concerned by an unnaturally-stable KES, which
finally weakened (slightly) in late 2018. Locals have also been cautious, and are keeping a heavy allocation
to fixed-income investments. Local appetite may improve if the rate cap is relaxed, while we think that
foreign appetite will improve if Kenya is able to renew its SBA with the IMF – we think that recent
comments from the IMF suggest a willingness to accept a partial, rather than total, removal of the rate cap.
Figure 38: Stocks back to 2015-16 lows after risks are priced-in Figure 39: Multiple contraction balanced by best earnings since
2015
MSCI Kenya IMI, with bands showing 12m fwd P/E multiples MSCI Kenya IMI - drivers of annual USD total returns
2,800 Multiple change* EPS Dividend FX TR (USD)

80%
2,400 14x
60%
12x
2,000 40%
10x
20%
1,600
8x
0%
1,200 6x
-20%
800
-40%
400 -60%
May-11
Aug-12
Jan-13
Nov-13
Apr-14
Sep-14
Feb-15
Jul-15
May-16
Aug-17
Jan-18
Nov-18
Dec-10
Oct-11
Mar-12
Jun-13
Dec-15
Oct-16
Mar-17
Jun-18
-80%
2011 2012 2013 2014 2015 2016 2017 2018
Source: Bloomberg, EFG Hermes calculations Source: Bloomberg, EFG Hermes calculations
Risks to our greater optimism on Kenya: Continuing political noise and the related challenges of an
apparently overvalued KES and a high debt budget are still the key downside risks for 2019. The
government is likely to pursue further fiscal reforms, as well as further relax the rate cap. However,
parliament is unlikely to let these measures pass without a fight. Meanwhile the economy is not firing on all
cylinders: banks’ earnings will be strong, but the private sector is still under pressure. Our assumption of
USD strength and CNY weakness means that the KES will remain in focus - the sustainability of transfer
flows and a renewed IMF SBA are key points to watch.
85
Country Analysis
Kenya – Remain wary as economy is not firing on all cylinders
The Kenyan economy has recovered in 2018, underpinned by receding political uncertainty and increased
agricultural sector output. Economic activity normalised post presidential elections and the prolonged
drought cycle faded away. We believe the economy is likely to remain in recovery mode in 2019, with the
IMF forecasting growth to remain fairly robust at around 6% in 2019. Strong growth is likely to be driven by
agriculture, regional capital inflows (prompted by disruptive reforms in Tanzania and ongoing distress in
Somalia), tourism and rising remittances.
Nevertheless, we remain wary that the economy is now firing on fewer cylinders. Three years ago, the
economy was driven by fiscal stimulus, strong credit growth and capital/remittance inflows. Today, credit
growth and fiscal stimulus are weakening; transfers, likely boosted by the tax amnesty, is the only driver that
is holding up well. Rising public debt is constraining the available space for fiscal policy to continue boosting
economic growth. In parallel, the continued existence of the rate cap will continue to dent credit growth as
banks continue to shy away from lending.
The KES, the best performing currency in Frontier Emerging Markets YTD, might come under some pressure
in 2019, though we do not foresee any major risks, given sustained inflows of remittances and regional
inflows. In addition, foreign reserves’ import cover stands at a healthy 5.3 months and expected
international debt issuances in 1H19 will allow the country to refinance debt repayments worth USD1.6bn
in 2019, in our view. We note, though, that borrowing costs are likely to escalate in light of no renewal of
the IMF SBA facility. Finally, the current account deficit might actually narrow, according to the IMF, to
5.3% of GDP in 2019 from 6.3% in 2018, supported by rising transfers and a better trade balance.
Finally, we expect inflation to remain largely stable at above 5%, remaining within the MPC’s target range,
with the key risk being oil prices. Inflation picked up slightly in 2H18 following the introduction of a number
of tax measures, most notably the 8% VAT on fuel, which had the largest effect on headline inflation.
Figure 40: Growth environment to remain favourable… Figure 41: …nevertheless, current account deficit set to narrow
Real GDP growth in % Current account balance in % of GDP
7% 0%
6% -1%
5% -2%
4% -3%
3% -4%
2% -5%
1% -6%
0% -7%
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
86
Country Analysis
Figure 42: Kenya Macroeconomic Indicators
2015 2016 2017 2018 2019 2020
Real GDP growth (%) 5.7 5.9 4.9 6.0 6.1 6.2
Nominal GDP (KHSbn) 6,284 7,194 8,196 9,151 10,272 11,488
Population (mn) 44.2 45.5 46.7 48.0 49.4 50.7
Current account balance (USDbn) -4.3 -3.7 -5.0 -5.1 -5.2 -5.1
Current account balance (% of GDP) -6.7 -5.2 -6.3 -5.6 -5.3 -4.8
Source: Company data, IMF, EFG Hermes estimates
87
Country Analysis
Nigeria (Overweight)
Elections are key, but LT upside limited by oil & EM cycle
Nigerian stocks are trading at extremely attractive valuations, close to their post-GFC lows
Elections are in focus and could be the catalyst for a rapid rally…
…but medium-term view is constrained by tight monetary policy, uncertain oil prices & structural issues
We add GTB to our FEM Top Picks List, and keep Zenith as a high-yield, high-beta option
Nigerian stocks are trading at c6x 12m fwd P/E - this level has been a floor for the market in the post-global
financial crisis (post-GFC) period. Stocks briefly broke below 6x in Sep 2018; the last time the market traded
below 6x was in early 2016, when oil prices were reaching new post-GFC lows and the Buhari honeymoon
– the market had spiked 20% following his election in Mar 2015 – was definitely over. Current levels
represent a massive de-rating since the Jan 2018 peak, though foreign selling (averaging net USD18mn a
month since February) is well below levels seen in 2015-16.
We see limited downside from here, with reasonable visibility on earnings growth. Consensus calls for 11%
earnings growth in 2019; the slightly-higher growth forecast of 13% for our coverage mostly comes (+80%
of the incremental earnings) from FBN (coming off a low 2018 base) and Lafarge and Dangote Cement.
However, the market is unlikely to re-rate until February’s elections at the earliest. Other potential drivers
include the composition of the new government and any changes to CBN monetary policy.
Figure 43: Post-GFC trough multiples limit risks ahead of elections… Figure 44: ...with continuing EPS recovery led by FBN and cement
MSCI Nigeria IMI with with bands showing 12m fwd P/E multiples EFGH Nigeria coverage earnings (NGNbn), total USD earnings (RHS, USDbn)
Breweries Other banks
FBN Cement
2,100
1,200 4.5
1,900 10x
4.0
1,700 9x 1,000
3.5
1,500 8x
800 3.0
1,300 7x
2.5
1,100 6x
600
2.0
900 400 1.5
700 1.0
200
500 0.5
Dec-10
May-11
Apr-12
Sep-12
Feb-13
Jul-13
Jan-14
Jun-14
Mar-16
Nov-14
Apr-15
Aug-16
Jan-17
Jul-17
Dec-17
May-18
Oct-11
Oct-15
Oct-18
0 0.0
2014 2015 2016 2017 2018 2019e 2020e
Note: 2019 USD earnings assume USDNGN unchanged at NGN363
Source: Bloomberg, EFG Hermes calculations Source: EFG Hermes estimates
Risks to our Overweight call on Nigeria: The principle risk to our 2019 view is a tight monetary policy. As
seen in Egypt, high interest rates have limited equity market performance. 12m NGN T-bills were effectively
yielding over 16% in auctions in late 2018, implying little equity risk premium, even though equities look
cheap. Local institutions are unlikely to increase their equity allocations when risk-free returns are so
generous. Foreigners do not appear to have reduced their equity exposure significantly since early 2018, but
EM sentiment remains important in this high-beta market.
Oil price volatility is an additional source of risk for 2019 and in the medium term. 2018 showed that there
is no clear linear relation between oil prices and FX reserves, but a stable and relatively high price is
necessary for a more relaxed monetary policy that can support an equity market recovery. Structural reforms
are also important, but discussions on this topic are unlikely to trouble markets until 2H19 at the earliest. A
Brent crude price of cUSD60/bbl may be sufficient for Nigeria should the authorities unify exchange rates,
address fuel subsidies, and allow the CBN to focus on the monetary policy.
88
Country Analysis
Nigeria – No end in sight for macro weakness
Nigeria is likely to see its stalled recovery continue in 2019 as political uncertainty ahead of and shortly after
elections and a lack of structural reforms will keep weighing on the growth outlook. Economic activity has
shown an anemic recovery in 2018 (real non-oil GDP growth of 1.4% in 1H18), and we expect largely flat
growth in 2019 as the economy continues to face a number of headwinds.
First, monetary policy is likely to remain tight as CBN centres its policy on a stable naira, leaving short-term
interest rates quite elevated. Indeed, the dry-out of capital inflows since May – as a result of tightening
global monetary conditions – drove CBN to re-tighten the monetary policy, again through open market
operations, resulting in one-year Treasury bill yields shooting up to a one-year high despite falling inflation.
Second, the fiscal angle is likely to remain absent with another year of a delayed budget process.
Finally, uncertainty surrounding the 2019 elections – to be held in February – is likely to continue weighing
on confidence. Current President Muhammadu Buhari faces opposition candidate Atiku Abubakr in what is
increasingly proving to be a tight race. It remains to be seen to what extent the results of the next elections
could change the current challenging macro conditions: a re-election of Buhari could hint to more of the
same, while the election of Atiku could raise hope for change, though no policy change is guaranteed.
None of the incumbents have so far provided enough clarity on the extent to which they are prepared to
push for structural reforms, which is the key to jumpstart the Nigerian economy.
The past couple of years have clearly shown that a lack of structural reforms is the biggest driver of the
currently stalled economic recovery. Higher prices and production of oil proved insufficient to boost
Nigeria’s economy; despite higher oil revenues (income from hydrocarbons rose 45% Y-o-Y in 1H18),
foreign reserves were on a falling spree in 2H18.
This comes as no big surprise, given that aside from the currency’s few devaluation rounds over the past
couple of years and the successful introduction of the NAFEX window, the country has not seen major
economic reforms. A multiple exchange rate regime continues to exist and fuel subsidies keep rising,
thereby reducing the net benefit from rising oil prices. In addition, deteriorating security conditions,
especially the conflict between farmers and herdsmen in the Northern region, have weighed on confidence
and have led to the weakest growth in crop production since 1987.
Figure 45: Foreign reserves have dropped in the past few months… Figure 46: …driving CBN to notably re-tighten the monetary policy
Foreign reserves in USDbn In %
12-month T-bills MPR CPI

50 17%
16%
15%
40
14%
13%
30 12%
11%
10%
23-Jan-18
6-Mar-18
27-Mar-18
8-May-18
10-Jul-18
31-Jul-18
21-Aug-18
17-Apr-18
29-May-18
19-Jun-18
11-Sep-18
2-Oct-18
23-Oct-18
13-Nov-18
2-Jan-18
13-Feb-18
20
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Source: CBN Source: CBN, Bloomberg
89
Country Analysis
Nigeria Macroeconomic Indicators (Year-end Dec)

2016a 2017a 2018e 2019e 2020e
Real Sector
Real GDP growth -1.6% 0.8% 1.3% 1.9% 2.7%
Real non-oil growth -0.2% 0.5% 1.2% 1.8% 2.5%
Population (mn) 183.6 188.7 193.9 199.2 204.7
External Sector
Trade balance (USDbn) (0.5) 13.1 22.1 19.3 18.2
HC exports (USDbn) 32.0 42.3 54.4 55.7 59.3
Net transfers (USDbn) 19.9 22.0 25.4 27.8 30.4
Current account (USDbn) 2.7 10.4 22.0 19.3 21.8
Current account (% of GDP) 0.7% 3.0% 6.4% 5.2% 5.5%
FDI (USDbn) 3.1 3.2 3.5 3.7 4.0
Fiscal Sector
Spending (USDbn) 19.6 22.7 22.3 21.3 22.8
Monetary Sector
Private sector credit growth (%, eop) 15.8% -1.0% 10.0% 12.0% 15.0%
Source: Central Bank of Nigeria, National Bureau of Statistics, IMF and EFG Hermes estimates
90
Country Analysis
Pakistan (Overweight)
In transition year, rising rates cut both ways
Further monetary and fiscal reforms are looming – 2019 will be tough for cement and autos
FX weakness and rising rates mean positive earnings growth, led by banks and E&P
Positive USD returns in 2019? – UBL joins MCB in the FEM Picks List
USD returns have been negative for the past two years: multiples contracted after the MSCI upgrade in 2017,
and the PKR was devalued in stages in 2018. More PKR weakness is likely in the next 12 months (we see
USD/PKR at PKR150 by end-2019e), but we believe the worst is over for the market. History suggests double-
digit annualised USD returns from these valuation levels, and there is also some light at the end of the tunnel
as Pakistan continues talks with the IMF. Pakistan scores well on cyclical valuation measures, and there are
signs that PKR adjustment is bearing fruit - the remaining hurdle is to lock in BoP financing for 2019-20.
However, rebalancing will mean lower growth, higher interest rates and inflation. This will be negative for
cyclical businesses, many of which have rallied strongly in late 2018 on news of Saudi financial support and
which have outperformed from 2011-16. We now expect earnings growth and share price performance in
2019 will be led by index heavyweights, such as banks and USD-hedged (and unleveraged) E&P companies.
Earnings drivers will include wider NIMs for banks as interest rates rise, and PKR weakness and rising interest
income for E&P companies. Earnings growth is more sustainable for banks than for oil companies, and we
have MCB and UBL in our FEM Top Picks List.
Figure 47: Room for USD returns after FX loss, multiple Figure 48: …but rising interest rates could threaten volume recovery
contraction…
MSCI Pakistan IMI – drivers of annual USD returns (2018 is until 20 Nov) MSCI Pakistan IMI relative performance and turnover (USDmn, RHS)
Multiple change* EPS Dividend FX TR (USD) 20D ADVT USDmn (RHS) Index relative to MSCI EM
50% 140 100
40%
120
30% 80
100
20% 60
80
10%
60 40
0%
40
-10%
20
-20% 20
-30% 0 0
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
May-13
May-14
May-15
May-16
May-17
May-18
-40%
2011 2012 2013 2014 2015 2016 2017 2018
*: Multiple change is used for charting, and calculated as the difference

between the price return and real EPS growth
Source:Bloomberg
Downside risks to our OW call are: i) higher-than-expected FX depreciation that hits USD returns in 2019; ii) an
aggressive interest rate tightening cycle that squeezes liquidity from the equity market and creates risks to
credit quality; iii) a muddle-through policy with no IMF agreement that leaves the economy and market in
limbo in 2019; iv) further oil price weakness would be net positive for Pakistan’s balance of payments, but
would weigh on expected earnings – and prices – of E&P companies.
91
Country Analysis
Pakistan – Further macro adjustment still lies ahead
2019 is likely to prove the year of macro adjustment for Pakistan. One of the country’s strongest growth
phases over the past five years – fueled by a rare combination of accommodative monetary and fiscal
policies, low inflation, low oil prices and improved security – has led to major economic imbalances with
fiscal and current account deficits at above 6% of GDP each.
An IMF programme is clearly unavoidable if the government wants to avoid a sudden stop to the economy,
given such large economic imbalances and foreign reserves with less than two months import cover. The
government recently received a USD6bn support package from Saudi Arabia and is claiming a similar-sized
package from China, although details have not yet been announced. This should be just enough to fund
FY19’s funding gap, but leaves question marks on the gap for the following two years, especially with the
sizeable deficits needing a quick fix.
Striking the deal is likely to be an extensive process, with authorities seemingly calling for a more extended
implementation of macro adjustment to avoid inflicting financial pain on the public. Meanwhile, the IMF is
looking for a more rapid approach to deal with the economy’s sizeable misalignment. The earliest for an IMF
board approval for a programme is now mid-Jan after the first round of negotiations were inconclusive.
The government has already taken a number of measures to reduce economic imbalances: gas and
electricity tariffs were hiked, currency was devalued 20% YTD and interest rates were hiked 250bps. While
these measures are all in the right direction, we think they still fall short of setting the economy on a more
sustainable path. We, therefore, see further devaluation of USD-PKR (5-10%), as well as interest rates hikes
(100-150bps). The government will also likely have to increase electricity tariffs by a larger magnitude in
order to resolve the lingering circular debt, in our view.
Clearly all these measures will result in accelerated inflation, which has been rising in the past few months
(core inflation is already running at a four-year high). Higher inflation and tighter monetary and fiscal
policies would weigh negatively on economic growth. As a result, we forecast real GDP growth to
decelerate to 4.1% in FY19 and 3.8% in FY20 from 5.7% in FY17.
Figure 49: Foreign reserves are at a critical level Figure 50: Inflation on the rise with core rising to four-year high
Central bank’s foreign reserves in USDbn In Y-o-Y % change
Headline Core
20 10%
16 8%
12 6%
8 4%
4 2%
0
0%
Jul-17
Jul-18
Jan-17
Mar-17
May-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Sep-18
Nov-18
Jan-13
May-13
Jan-14
May-14
Jan-15
May-15
Jan-16
May-16
Jan-17
May-17
Jan-18
May-18
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Source: State Bank of Pakistan Source: Pakistan Bureau of Statistics
92
Country Analysis
Pakistan Macroeconomic Indicators (Year-end Dec)

2017a 2018a 2019e 2020e 2021e
Real Sector
Real GDP growth 5.7% 5.4% 4.1% 3.8% 4.8%
Population (mn) 199.1 202.9 206.8 210.7 214.7
External Sector
Trade balance (USDbn) (26.7) (31.1) (28.0) (27.6) (27.5)
Private transfers (net) (USDbn) 19.4 19.6 20.0 20.8 22.1
Current account balance (USDbn) (12.6) (18.0) (14.0) (12.4) (11.0)
Current account balance (% of GDP) -4.1% -5.8% -4.8% -4.3% -3.6%
FDI (USDbn) 2.7 2.8 2.6 2.3 2.5
Fiscal Sector
Tax revenues (USDbn) 37.9 40.6 38.0 37.6 41.0
Net domestic debt (% of GDP) 46.5% 47.7% 48.3% 48.3% 48.9%
Monetary Sector
NFAs in the banking system (USDbn) 5.7 (1.7) (2.8) (3.6) (1.2)
Foreign reserves (USDbn) 17.6 11.4 9.9 11.1 12.0
Source: State Bank of Pakistan, Ministry of Finance, EFG Hermes estimates
93
Country Analysis
Vietnam (Neutral)
Much cheaper, but cyclical concerns are still in play
Outperforming FEM peers in 2017, and still pricey

Price discovery is a problem; vulnerable to China, credit slowdown
LT story is rosey: Add MSN to MWG in FEM Top Picks List
We were cautious on the Vietnamese market in late 2017 and early 2018 after a rapid run-up in 2H17,
supported by rising levels of margin-driven retail activity, which left the market at very punchy multiples. At
end-2017, the investable MSCI Vietnam IMI was trading at 20x 12m fwd P/E, while the broader VNIndex
was at 17x 12 fwd P/E. The market continued to rally in 1Q18, but by late 2018 forward P/E multiples had
fallen 20-25% to more reasonable levels.
However, we believe that it is too early to turn outright bullish on the market. For one thing, low foreign
ownership limits mean that posted prices and valuation multiples must be taken with some skepticism.
Anecdotal evidence suggests that foreigners are paying 15-30% premiums for shares in low-FOL names
such as MWG and VPB. This is roughly in line with the average premium of the investable MXVI IMI over the
VNIndex. Price discovery is unlikely to improve in 2019.
The second question is: how will Vietnam be affected by rising trade tensions? Vietnamese exports are more
diverse than those of FEM peers, and its proximity to China’s consumer market is a great advantage.
However, increasing tariffs and other disruptions to trade may mean weaker export growth – last seen in
2015-16 – and lower FDI. This could have a knock-on impact on credit growth, after five years of rising
credit penetration. Moreover, a cyclical slowdown is to be expected after a decade of strong GDP growth.
Figure 51: Data-derived foreign premium ranges 15-25% Figure 52: Foreign interest picks up again during 4Q18 selloff
VNIndex, average valuation premium – MXVI IMI over VNIndex (RHS) VNIndex, W-o-W change in foreign ownership in Mcap (RHS)
VNIndex MSCI/VNIndex premium (RHS) WoW change in FO (RHS) VNIndex

1,300 30% 1,050 0.6%
1,200 1,000 0.4%

25%
1,100
950 0.2%
20%
1,000
900 0.0%
900 15%
850 -0.2%
800
10%
700 800 -0.4%
5%
600 750 -0.6%
500 0%
700 -0.8%
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
30-Jan
20-Feb
20-Nov
9-Jan
7-Aug
28-Aug
17-Jul
13-Mar
3-Apr
24-Apr
15-May
9-Oct
30-Oct
5-Jun
26-Jun
18-Sep
Note: Average P/E, P/E fwd & P/B multiples for MSCI Vietnam IMI and Note: FO estimate based on a sample of 42 large & mid-caps
VNindex
Source: Bloomberg, EFG Hermes calculations Source: Bloomberg, EFG Hermes calculations
Risks to our Neutral call: In a bull case scenario, strong export growth and FDIs could lead to a strong
multiple re-rating for banks; capital market reforms, including a solution to the problem of low FOLs, could
allow for more transparent price discovery and greater foreign participation. In a bear case scenario, CNY
weakness and rising trade barriers could threaten export-led growth, undermine credit quality after several
years of strong growth, while rising inflation remains an underlying risk
94
Country Analysis
Vietnam – Strong growth outlook marred by risk of global trade wars
Vietnam is set to maintain a stable growth of 6.5% in 2019 (vs. 6.6% in 2018), according to the IMF.
Recent growth has been driven by solid results in the industrial, construction and manufacturing sectors: the
latter was boosted by improved global and domestic demand. We expect this growth momentum will
continue into 2019, with inflation expected to remain in line with the SBV’s target of 4% for the coming
period. Real GDP growth was already above c7% in 1H18, indicating a favourable external environment and
laying the foundation for sustained growth moving forward.
The current account surplus is also set to hold in 2019, according to the IMF, driven by the foreign-invested
manufacturing sector. Exports are expected to remain competitive in the global market and to contribute to
maintaining the trade surplus, as exports should continue outpacing imports. Electronics remain the largest
contributor to exports, making up c33% of total exports in 2017, followed by textiles at c12%. Exports of
electronics alone have increased by c34% between 2016 and 2017, and are expected to continue growing
into 2019. We also expect a narrower CA surplus on some pressure from the services and income accounts
The CA is projected to drop from 2.2% of GDP in 2018 to 2.0% in 2019.
External risk uncertainties are increasing, including the risk from protectionist policies in advanced
economies that could disrupt trade, which poses a concern for Vietnam, given its heavy reliance on exports
as a major driver of growth. The ongoing China-US trade war could also continue to threaten the stability of
the global economy, and this would definitely have an effect on export-oriented economies such as
Vietnam.
Upholding the strong growth outlook depends on carrying through with structural reforms. The IMF noted
that the improvement in most large banks was driven by the faster disposal of NPLs, which has enhanced
their profit and asset quality. However, structural weaknesses remain, as evident from thin capital buffers.
Thus, further efforts are needed to reduce the risks to financial stability and contribute to higher medium-
term growth. The IMF recommends enhancing banking supervision by resolving NPLs in state-owned
commercial banks and reinforcing capital buffers.
Figure 53: Vietnam’s inflation is rising, albeit marginally Figure 54: Fiscal deficit expected to widen slightly in 2019
Average annual inflation in % Fiscal balance in % of GDP
5% 0%
-1%
4%
-2%
3%
-3%
-4%
2%
-5%
1%
-6%
0% -7%
2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
95
Country Analysis
Figure 55: Vietnam Macroeconomic Indicators
2015 2016 2017 2018 2019 2020
Real GDP growth (%) 6.7 6.2 6.8 6.6 6.5 6.5
Nominal GDP (VNDbn) 4,192,862 4,502,733 5,005,975 5,506,449 6,139,316 6,843,335
Population (mn) 91.7 92.7 93.6 94.6 95.5 96.4
Current account balance (USDbn) -0.1 5.9 5.4 5.2 5.2 5.0
Current account balance (% of GDP) -0.1 2.9 2.5 2.2 2.0 1.7
Source: IMF
96
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最礀瀀琀
䈀愀
渀最氀
愀搀攀猀
栀
䨀
漀爀搀愀
渀䈀漀琀
猀眀愀
渀愀
䬀甀眀愀
椀琀䜀攀漀爀
最椀愀

䰀
攀戀愀
渀漀渀䴀愀
甀爀椀甀猀
䴀漀爀
漀挀挀
漀一椀
最攀爀
椀愀
伀洀愀
渀倀愀
欀椀猀
琀愀渀
儀愀
琀愀爀刀眀愀
渀搀愀
匀
愀甀搀椀

䄀爀愀
戀椀愀吀
愀渀稀
愀渀椀
愀
唀䄀䔀唀最
愀渀搀愀
嘀椀
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EFG Hermes Coverage
Figure 1: Egypt
Price as of 4 December 2018
Company Price TP Rating YTD Perf. ADVT M Cap P/E (x) P/B (x) DY (%)
(EGP) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Consumer
Arab Cotton Ginning 1.7 3.5 Buy (64.1) 0.4 0.0 2.1 2.8 3.5 0.3 17.3
Arabian Food Industries (Domty) 9.5 14.0 Buy (4.7) 0.1 0.1 61.3 19.1 11.4 4.2 1.7
CIRA 8.0 9.2 Buy N/A 1.4 0.2 82.3 36.5 23.0 9.4 0.7
Dice Sport & Casual Wear 15.2 35.0 Buy (37.9) 0.0 0.0 4.7 3.7 3.3 2.0 0.0
Edita Food Industries 14.0 22.5 Buy (16.7) 0.2 0.6 44.6 26.0 15.8 7.6 1.8
GB Auto 4.9 7.5 Buy 8.0 0.2 0.3 N/M 9.8 6.7 1.5 0.0
Juhayna 11.0 14.5 Buy 4.6 0.7 0.6 51.7 20.5 13.6 4.1 1.8
Obour Land For Food Industries* 8.0 14.0 Buy (27.2) 0.1 0.2 14.8 12.7 10.5 5.3 3.1
Oriental Weavers 10.1 12.5 Buy (39.1) 0.5 0.2 6.3 7.7 7.7 0.7 14.9
Energy
ADES International Holding** 14.5 27.0 Buy 9.0 0.7 0.6 12.8 12.4 6.8 1.6 0.0
Maridive** 0.4 0.7 Buy (0.8) 0.1 0.2 7.3 5.5 5.3 0.4 0.0
Financials
Abu Dhabi Islamic Bank - Egypt 10.7 17.5 Buy (31.3) 0.1 0.1 3.5 2.2 1.8 0.7 0.0
Al Baraka Bank Egypt 13.6 22.0 Buy 11.2 0.0 0.1 3.4 2.9 2.6 0.8 7.4
CIB 70.5 105.0 Buy (8.8) 4.8 4.6 12.3 9.9 8.2 2.5 2.1
Credit Agricole Egypt 39.5 53.1 Buy (5.6) 1.0 0.7 6.9 6.4 5.6 2.5 7.6
EK Holding 1.1 1.5 Buy 27.1 1.0 1.1 9.2 10.6 8.2 2.1 5.6
Faisal Islamic Bank of Egypt 1.0 1.2 Neutral (9.1) 0.0 0.4 4.1 3.1 2.9 0.6 6.1
Housing & Dev. Bank 44.1 70.4 Buy (8.2) 0.4 0.3 4.8 3.7 3.2 1.1 4.5
Healthcare
EIPICO 104.0 113.0 Neutral (32.0) 0.4 0.5 12.1 15.0 14.4 3.6 4.3
Integrated Diagnostics Holdings** 4.0 5.9 Buy (13.3) 0.1 0.6 27.8 22.2 17.7 6.1 5.0
Industrials
Alex. Containers and Goods 14.2 22.5 Buy (13.6) 0.1 1.2 10.2 9.1 9.8 4.8 11.9
Canal Shipping 10.9 19.0 Buy (9.9) 0.2 0.1 14.0 8.0 7.3 3.0 9.3
Elsewedy Electric 14.5 23.0 Buy (2.0) 1.5 1.8 5.0 6.3 6.2 1.9 8.3
General Silos 37.9 65.0 Buy (37.6) 0.0 0.0 5.3 4.1 4.7 1.4 6.6
Giza General Contracting 1.1 1.7 Sell (29.8) 0.0 0.0 3.5 3.4 3.0 0.6 0.0
Orascom Construction Limited 110.5 170.0 Buy (21.3) 0.2 0.7 9.7 5.2 4.7 1.4 5.3
Upper Egypt Contracting 0.6 0.5 Sell (24.2) 0.2 0.0 6.5 5.8 4.8 0.5 0.0
Materials
Abu Qir Fertilizers 25.4 32.0 Buy 17.9 0.3 1.8 16.7 14.5 11.1 6.6 4.3
Al Ezz Dekheila 950.6 1,500.0 Buy 31.1 0.0 0.7 8.9 5.2 4.3 2.0 16.8
AMOC 6.2 9.0 Neutral (33.2) 0.9 0.4 4.8 5.4 6.9 2.2 13.8
Arabian Cement Company (Egypt) 5.3 9.0 Buy (30.3) 0.2 0.1 9.3 8.6 15.9 1.3 8.1
EFIC 9.4 13.0 Buy (45.6) 0.1 0.0 4.4 5.6 8.5 0.6 8.5
Egyptian Chemical Industries 6.3 6.5 Neutral (18.0) 0.4 0.3 26.7 55.5 50.5 1.5 0.0
Ezz Steel 18.2 30.0 Buy (12.6) 0.7 0.5 N/M N/M 16.4 2.0 0.0
MOPCO 74.3 120.0 Buy (21.2) 0.1 0.9 25.2 10.8 6.6 1.3 6.7
OCI NV*** 20.0 32.0 Buy (4.8) 8.0 4.8 N/M 26.3 8.1 3.8 0.0
Sidi Kerir 17.0 23.0 Buy (32.9) 0.3 0.5 8.8 8.1 7.1 2.4 9.4
South Valley Cement 2.4 6.5 Buy (52.8) 0.1 0.1 27.7 N/M N/M 0.4 0.0
Real Estate & Hospitality
Egyptian Resorts Company 1.9 1.3 Neutral 26.5 1.1 0.1 47.1 44.3 21.0 1.9 0.0
Emaar Misr for Development 3.0 5.6 Buy (15.2) 0.5 0.8 5.9 5.4 4.8 1.0 0.0
Heliopolis Housing 16.5 40.0 Buy (53.0) 1.1 0.4 20.7 27.7 29.3 11.5 0.0
Orascom Development Egypt 6.0 8.0 Buy 25.2 0.8 0.4 22.9 16.8 13.6 3.2 3.7
Palm Hills 2.3 4.7 Buy (40.1) 1.5 0.4 6.7 6.6 5.5 0.7 0.0
Porto Group 0.8 1.8 Neutral (49.6) 0.2 0.0 2.6 2.2 1.7 0.7 0.0
TMG Holding* 9.2 18.0 Buy (6.3) 0.8 1.1 14.3 12.6 8.7 0.6 2.0
Telecom Services
Global Telecom Holding 3.1 6.5 Buy (57.7) 3.7 0.8 N/M 15.4 9.6 N/M 0.0
OIH 0.5 0.5 Sell (24.9) 0.8 0.2 5.9 6.5 7.5 0.5 0.0
Telecom Egypt 12.0 15.7 Buy (10.9) 0.6 1.1 5.7 7.0 5.9 0.6 8.4
Information Technology
Raya Contact Center 11.0 18.0 Buy (18.5) 0.1 0.1 7.9 6.5 6.1 2.5 7.7
*Price as of 5 December 2018
**Currency in USD
***Currency in EUR
97
EFG Hermes Coverage
Figure 2: Jordan
(JOD) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Financials
Arab Bank 5.9 7.2 Buy 6.1 0.6 5.4 7.4 6.8 6.1 0.6 5.9
Bank of Jordan 2.0 2.5 Neutral (32.7) 0.1 0.6 8.5 8.0 7.7 1.1 8.9
Cairo Amman Bank 1.3 2.0 Neutral (10.7) 0.1 0.3 6.4 5.9 5.5 0.7 7.5
Housing Bank For Trading & Finance 8.4 5.0 Sell 0.0 0.0 3.7 21.0 19.2 17.6 2.7 4.8
Jordan Ahli Bank 1.1 1.1 Neutral (5.7) 0.1 0.3 15.4 8.2 7.6 0.6 6.1
Materials
Jordan Phosphate Mines 2.9 2.9 Neutral 13.7 0.2 0.3 N/M 70.0 10.6 0.3 0.0
Figure 3: Kuwait
(KWD) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Consumer
Humansoft 3.4 6.3 Buy (9.1) 1.7 1.4 14.8 13.2 11.6 9.1 5.6
Mezzan Holding 0.6 0.9 Buy (26.5) 0.6 0.6 13.4 11.3 10.3 1.6 4.4
Financials
Burgan Bank 0.3 0.3 Buy (1.0) 2.2 2.4 12.1 9.6 9.4 1.0 3.0
Commercial Bank of Kuwait 0.5 0.5 Neutral 37.2 0.3 3.0 16.3 19.1 16.5 1.4 3.8
Gulf Bank 0.3 0.3 Buy 12.2 3.1 2.7 16.1 13.2 11.7 1.2 3.7
Kuwait Finance House 0.6 0.6 Neutral 16.1 8.7 12.7 20.0 17.6 15.7 2.1 3.1
National Bank of Kuwait 0.8 0.9 Buy 20.6 9.8 17.1 16.1 14.7 12.4 1.7 3.6
Industrials
Combined Group Contracting 0.3 0.5 Neutral (25.5) 0.0 0.2 23.6 14.3 10.7 1.2 5.7
Integrated Holding Company 0.9 1.3 Buy N/A 1.3 0.6 14.2 9.7 9.7 2.9 4.3
Telecom Services
Ooredoo Kuwait 0.7 1.0 Buy (33.1) 0.0 1.2 9.2 15.3 12.1 0.6 5.5
Zain Group 0.5 0.5 Neutral 8.8 5.8 6.7 12.0 12.9 13.3 1.4 6.4
Figure 4: Lebanon
(USD) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Financials
Bank Audi GDR 4.7 7.2 Buy (19.3) 0.0 1.9 3.9 3.6 3.2 0.6 9.7
BLOM Bank 9.3 14.7 Buy (27.2) 0.2 2.0 3.8 3.3 2.9 0.7 11.3
Byblos Bank 1.4 1.6 Neutral (12.5) 0.0 0.8 6.7 5.6 4.6 0.6 10.5
Figure 5: Morocco
(MAD) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Financials
Attijariwafa Bank 459.0 417.0 Neutral (5.2) 1.4 9.8 17.1 15.6 14.1 2.1 2.7
BCP 285.0 231.0 Neutral (3.1) 1.0 5.5 18.4 16.7 15.4 1.7 2.0
BMCE Bank 186.0 226.0 Neutral (13.1) 0.3 3.5 11.7 10.7 9.6 1.6 3.2
Materials
Ciments du Maroc 1,477.0 1,057.0 Sell (12.6) 0.3 2.2 20.7 19.9 19.5 3.7 4.0
98
EFG Hermes Coverage
Figure 6: Oman
(OMR) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Energy
Renaissance Services 0.4 0.4 Neutral 29.3 0.1 0.4 N/M 20.5 9.9 2.3 0.0
Shell Oman Marketing Co 1.5 1.6 Neutral (16.6) 0.0 0.4 11.5 13.0 11.9 3.0 5.4
Financials
Bank Dhofar 0.2 0.1 Sell (14.9) 0.2 1.3 10.7 12.2 12.0 0.9 3.4
Bank Muscat 0.5 0.5 Buy 20.5 1.3 3.5 7.5 7.7 6.8 0.8 6.1
Bank Sohar 0.1 0.1 Sell (11.7) 0.1 0.6 9.5 11.7 11.0 0.9 4.1
National Bank Of Oman 0.2 0.2 Neutral (2.9) 0.1 0.8 8.6 7.6 7.6 0.7 6.5
Industrials
Al Anwar Ceramics 0.1 0.2 Buy (34.1) 0.1 0.1 11.4 9.1 7.2 0.6 9.3
Galfar Engineering & Contracting 0.1 0.1 Sell 25.3 0.3 0.1 N/M N/M 13.7 0.7 0.0
Oman Cables Industry 1.0 1.3 Neutral (9.7) 0.0 0.2 13.4 13.0 10.7 0.9 4.9
Materials
Al Jazeera Steel Products 0.3 0.3 Neutral (0.4) 0.0 0.1 7.4 7.7 7.9 0.8 8.4
Oman Cement 0.3 0.5 Neutral (25.9) 0.0 0.3 10.0 8.8 8.2 0.6 8.6
Raysut Cement 0.4 0.5 Buy (48.2) 0.1 0.2 13.9 31.3 15.2 0.5 3.2
Telecom Services
Omantel* 0.9 1.0 Neutral (28) 0.2 1.7 8.2 8.6 5.7 1.1 5.8
Utilities
Dhofar Generating Company 0.2 0.3 Buy N/A 0.3 0.1 N/M N/M 33.0 1.0 8.2
*Price as of 5 December 2018
Figure 7: Qatar
(QAR) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Consumer
Al Meera Consumer Goods 150.0 141.0 Neutral 3.5 0.5 0.8 18.5 18.1 17.1 2.5 6.0
Financials
Commercial Bank of Qatar 42.2 36.1 Neutral 45.8 1.8 4.7 46.9 11.9 10.6 1.1 3.6
Doha Bank 22.9 22.1 Neutral (19.7) 3.5 1.9 8.0 12.5 9.9 0.9 7.6
Masraf Al Rayan 42.0 36.6 Neutral 11.2 3.6 8.6 15.5 14.5 13.8 2.7 5.4
Qatar Insurance Co. 36.5 43.0 Buy (19.3) 1.6 3.2 24.2 17.5 11.3 1.5 4.1
Qatar Islamic Bank 156.8 125.0 Sell 61.6 3.4 10.2 16.8 14.9 13.9 2.6 3.5
Qatar National Bank 199.0 153.0 Sell 57.9 11.4 50.5 14.5 13.7 13.0 2.8 3.0
Materials
Industries Qatar 139.0 130.0 Neutral 43.3 5.2 23.1 25.4 16.5 15.2 2.3 5.4
Telecom Services
Ooredoo Group 81.0 118.0 Neutral (10.8) 2.1 7.1 8.5 7.5 6.8 0.7 7.4
Utilities
Qatar Electricity & Water 183.0 225.0 Buy 2.8 1.7 5.5 12.5 13.6 13.2 1.9 4.2
99
EFG Hermes Coverage
Figure 8: Saudi Arabia

(SAR) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Consumer
Al Hassan Ghazi Ibrahim Shaker 8.9 8.7 Sell (23.7) 1.4 0.1 N/M N/M N/M 0.7 0.0
Al Hokair 23.1 23.0 Neutral (24.1) 3.5 1.3 11.5 33.9 20.4 2.2 0.0
Al Othaim 70.9 90.0 Buy 15.3 1.8 1.7 19.0 17.6 16.6 3.9 2.8
Almarai 51.7 56.0 Buy (3.8) 4.5 13.8 21.7 22.3 21.7 3.8 1.5
Budget Saudi 28.0 36.0 Buy 2.9 3.0 0.5 12.1 12.5 12.1 2.0 5.4
Halwani Brothers 46.5 48.0 Neutral (8.5) 0.3 0.4 18.6 17.9 15.9 2.9 5.4
Herfy 45.7 59.0 Buy (1.1) 1.1 0.8 14.6 15.0 14.0 3.4 4.6
Jarir Marketing Co. 157.0 163.0 Buy 42.7 6.9 5.0 21.6 19.8 18.7 13.0 4.7
NADEC 28.5 24.0 Sell (11.9) 1.0 0.6 52.0 97.2 55.6 1.7 0.0
SACO 103.0 114.0 Neutral (6.0) 2.5 0.7 18.3 25.3 17.5 4.0 1.9
SADAFCO 96.0 130.0 Buy (26.7) 1.3 0.8 10.3 12.0 15.0 2.5 4.2
Saudi Airlines Catering (Catering) 88.2 88.0 Neutral 9.9 2.8 1.9 15.0 15.4 15.2 6.1 6.3
Saudi Marketing (Farm Superstores) 17.2 21.5 Neutral (26.7) 0.5 0.2 13.2 15.3 14.8 1.2 4.4
Savola 28.0 30.0 Neutral (29.2) 6.2 4.0 23.1 N/M 34.4 1.8 1.8
United Electronics Company 59.7 75.6 Buy 44.1 4.9 0.8 19.1 19.3 13.8 5.2 3.2
Energy
Aldrees Petroleum & Transport Services 36.5 28.0 Neutral 32.2 3.3 0.5 28.0 20.3 16.6 2.9 3.4
Financials
Al Rajhi Bank 87.9 95.0 Buy 36.0 69.9 38.1 16.3 15.9 14.2 2.8 5.1
Al Rajhi Insurance 69.0 63.0 Neutral 16.8 4.6 0.7 16.5 16.8 15.0 3.6 0.0
Alawwal Bank 14.9 18.0 Buy 25.5 2.9 4.5 14.1 17.8 13.8 1.2 0.0
Arab National Bank 31.5 31.0 Neutral 27.5 3.6 8.4 13.3 11.5 10.9 1.3 4.4
Bank Albilad 25.5 16.5 Sell 24.5 3.0 4.1 17.4 15.3 13.3 1.8 1.6
Bank Aljazira 14.6 15.0 Neutral 25.7 11.7 3.2 9.2 13.4 12.0 1.0 2.6
Banque Saudi Fransi 33.0 29.0 Sell 15.4 4.8 10.6 12.3 11.3 11.2 1.2 4.4
Bupa 77.8 86.7 Buy 25.5 3.8 2.5 22.2 21.0 15.5 3.6 1.9
Buruj Cooperative Insurance Company 24.9 30.0 Neutral (24.9) 1.0 0.2 7.1 9.5 8.8 1.4 1.9
Malath Insurance 12.0 21.0 Buy (24.8) 2.9 0.2 N/M 18.7 12.2 1.2 0.0
Riyad Bank 17.8 20.0 Buy 42.7 6.1 14.3 15.5 13.4 11.8 1.4 4.5
SAIB 17.4 14.0 Neutral 15.1 4.6 3.5 10.6 9.8 8.7 0.9 3.7
Samba Financial Group 31.1 34.0 Buy 32.3 15.2 16.6 14.1 12.8 11.6 1.5 5.6
Saudi British Bank 33.5 37.0 Buy 24.1 3.3 13.4 14.1 12.4 11.7 1.6 4.6
Tawuniya 61.8 60.0 Neutral (34.5) 4.2 2.1 N/M 69.9 21.4 3.3 0.0
Wala'a Insurance 22.1 32.7 Neutral (24.7) 1.6 0.3 7.5 7.6 7.9 1.3 0.0
Healthcare
Al Hammadi Co. 24.9 30.0 Buy (32.9) 4.6 0.8 27.7 31.3 23.2 2.0 0.0
Dallah Healthcare Holding Company 61.1 60.0 Neutral (39.5) 3.4 1.0 11.8 25.7 27.8 2.2 2.0
Middle East Healthcare Co. (MEAHCO) 35.3 34.0 Neutral (34.5) 5.7 0.9 10.8 19.4 21.7 2.4 2.8
Mouwasat 78.4 120.0 Buy 3.6 3.0 2.1 23.3 19.1 16.7 5.0 2.3
SPIMACO 29.6 30.0 Neutral (1.4) 0.6 0.9 25.0 28.4 25.6 1.3 3.4
Industrials
Abdullah A. M. Al-Khodari Sons Co. 7.1 6.5 Sell (25.6) 0.5 0.1 N/M N/M N/M 0.7 0.0
National Industrialization Company 17.0 18.0 Neutral 3.8 11.3 3.0 15.9 8.9 11.1 1.2 0.0
Saudi Ceramics 21.3 24.3 Buy (4.2) 1.9 0.3 N/M 54.1 34.1 0.7 2.3
Materials
Advanced Petrochemicals 53.0 58.5 Buy 15.5 3.6 2.8 16.5 14.1 12.1 3.2 5.3
Al Jouf Cement Company 7.9 6.5 Sell (21.2) 1.1 0.3 27.6 N/M N/M 0.7 0.0
Arabian Cement Company (Saudi) 23.2 28.7 Buy (32.4) 1.2 0.6 8.8 N/M 26.6 0.8 0.0
Chemanol 9.9 8.5 Sell (0.7) 9.6 0.3 N/M 15.8 15.6 1.0 0.0
City Cement Company 9.5 11.5 Buy (19.3) 1.3 0.5 19.3 49.0 39.3 0.9 2.0
Eastern Province Cement Company 19.4 25.9 Buy (26.4) 0.5 0.4 15.6 28.1 18.7 0.8 3.6
Maaden 50.8 47.0 Neutral (2.1) 7.4 15.8 83.0 29.3 27.9 2.1 0.0
Northern Region Cement Company 8.4 8.2 Neutral (21.2) 0.7 0.4 28.9 N/M 21.7 0.7 0.0
Qassim Cement Company 34.9 40.2 Buy (22.5) 0.6 0.8 12.5 31.4 21.9 1.8 4.3
SABIC 121.2 125.0 Neutral 18.9 128.1 96.9 19.7 15.6 15.0 2.1 4.1
SAFCO 79.4 85.0 Buy 22.0 8.5 8.8 37.7 19.8 15.1 4.3 3.1
Sahara Petrochemicals 16.0 18.5 Buy (3.1) 7.6 1.9 15.8 13.3 11.7 1.3 7.8
Saudi Cement Company 48.2 49.1 Neutral 1.6 1.6 2.0 16.3 20.2 19.1 2.6 5.2
SIPCHEM 21.3 26.0 Buy 22.1 5.7 2.1 17.9 11.9 10.9 1.0 4.7
Southern Province Cement Company 38.4 41.1 Neutral (20.8) 1.6 1.4 14.5 31.8 24.6 1.7 3.3
Tabuk Cement Company 11.5 12.5 Neutral (17.5) 1.0 0.3 N/M N/M N/M 0.9 0.0
Yamama Cement Company 13.7 15.0 Neutral (22.4) 0.9 0.7 25.4 N/M N/M 0.8 1.5
Yanbu Cement Company 24.5 28.7 Buy (27.6) 1.4 1.0 12.1 49.4 30.5 1.2 4.1
YANSAB 69.5 77.0 Buy 18.1 9.3 10.4 16.5 15.2 13.4 2.2 6.1
Telecom Services
Etihad Etisalat 17.4 20.0 Buy 17.5 10.2 3.6 N/M N/M N/M 1.0 0.0
Saudi Telecom Company 84.0 71.0 Neutral 22.4 8.9 44.8 16.3 16.6 16.3 2.6 4.8
Zain KSA 6.7 6.4 Neutral (8.8) 6.0 1.0 N/M N/M N/M 1.1 0.0
100
EFG Hermes Coverage
Figure 9: UAE
(AED) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Consumer
Agthia 4.0 5.9 Buy (17.7) 0.2 0.6 11.9 11.6 10.7 1.3 3.2
Energy
ADNOC Distribution 2.3 3.2 Buy (12.1) 0.8 7.9 16.8 14.2 12.3 10.5 5.0
Financials
AD Commercial Bank 8.2 9.0 Buy 19.9 3.6 11.5 10.3 9.5 9.1 1.6 5.5
AD Islamic Bank 4.0 4.5 Neutral 11.5 3.3 3.9 7.2 7.1 6.9 1.2 6.9
Commercial Bank of Dubai 4.0 3.9 Sell (2.0) 0.0 3.1 10.4 9.5 8.3 1.2 6.2
Dubai Islamic Bank 5.3 6.4 Buy (4.4) 5.6 9.5 9.8 8.6 8.0 1.6 7.6
Emirates NBD 9.2 13.0 Buy 12.2 1.3 13.9 6.6 5.5 5.3 1.0 4.9
First Abu Dhabi Bank 14.1 14.5 Neutral 37.6 21.2 41.8 14.6 13.1 11.6 1.8 5.5
RAK Bank 4.1 5.6 Buy (14.1) 0.2 1.9 8.0 7.2 6.2 1.0 9.2
Union National Bank 4.7 5.2 Neutral 23.7 3.4 3.5 8.3 8.0 7.5 0.8 5.3
Industrials
Air Arabia 1.0 1.1 Neutral (18.5) 1.4 1.3 8.4 9.4 10.1 1.0 6.9
Aramex 4.2 5.3 Buy (1.4) 1.0 1.7 14.3 12.7 11.3 2.3 4.3
DEPA 0.9 1.4 Buy (18.9) 0.0 0.2 3.5 11.6 8.3 0.4 4.3
DP World* 17.7 24.0 Buy (29.2) 3.1 14.7 12.2 12.7 12.0 1.3 2.3
RAK Ceramics 1.9 2.9 Buy (24.6) 0.2 0.5 6.5 8.9 7.6 0.6 8.5
Real Estate & Hospitality
Aldar Properties 1.6 2.8 Buy (27.3) 2.9 3.4 5.0 4.5 5.3 0.5 6.9
DAMAC Properties 1.9 1.8 Neutral (43.6) 0.6 3.1 4.1 7.2 8.2 0.8 5.4
DXB Entertainments 0.3 0.6 Neutral (54.5) 1.0 0.6 N/M N/M N/M 0.4 0.0
Emaar 4.6 7.0 Buy (34.0) 8.4 8.9 5.7 5.0 4.0 0.6 4.4
Emaar Development 4.9 6.7 Buy (3.1) 1.6 5.4 7.2 6.2 5.0 3.2 10.1
Emaar Malls Group 1.8 3.0 Buy (15.5) 1.8 6.4 11.2 9.7 9.1 1.3 5.6
Emirates REIT (CEIC) Limited* 0.9 1.3 Buy (10.0) 0.1 0.3 5.4 7.3 10.2 0.6 8.5
Telecom Services
du 5.0 6.5 Buy (2.5) 0.5 6.1 13.2 11.6 11.5 2.7 7.0
Etisalat 17.2 18.1 Neutral (1.8) 6.6 40.7 17.7 17.9 17.8 3.3 4.7
Utilities
Tabreed 1.5 2.3 Buy (16.5) 0.4 1.1 10.3 9.7 10.0 0.8 5.6
*Currency in USD
101
EFG Hermes Coverage
Figure 10: Bangladesh

(BDT) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Consumer
British American Tobacco Bangladesh 3,290.3 3,761.0 Neutral (3.3) 0.1 2.4 24.2 18.1 15.5 6.6 3.1
Marico Bangladesh Ltd 1,173.9 1,428.0 Buy 6.1 0.0 0.4 25.7 22.5 19.1 24.8 5.1
Olympic Industries 213.6 210.0 Neutral (25.9) 0.5 0.5 26.0 24.9 22.8 6.9 2.4
Singer Bangladesh 213.7 228.0 Neutral 9.3 0.8 0.2 22.1 18.4 15.8 7.2 4.9
Healthcare
Beximco Pharmaceuticals 80.0 89.0 Neutral (22.9) 0.2 0.4 14.6 12.8 12.3 1.2 1.9
Renata 1,129.7 766.0 Sell 15.6 0.1 1.1 34.0 29.3 25.1 6.0 0.8
Square Pharmaceuticals 259.9 302.0 Buy (7.9) 1.0 2.5 19.3 17.4 15.5 3.5 1.4
Figure 11: Botswana

(BWP) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Consumer
Choppies 0.7 2.2 Sell (71.5) 0.0 0.1 10.4 10.6 9.8 0.6 2.9
Figure 12: Georgia

(GBP) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Financials
Bank Of Georgia Group Plc 13.6 23.5 Buy (43.4) 1.1 0.8 4.9 5.1 4.8 1.2 5.9
TBC Bank Georgia 15.0 22.4 Buy (14.3) 0.4 1.0 7.5 6.3 5.3 1.3 3.9
Figure 13: Kenya

(KES) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Energy
KenolKobil Group 19.2 22.1 Buy 36.8 1.1 0.3 8.3 6.6 6.1 2.0 3.8
Total Kenya 26.5 46.4 Buy 12.8 0.0 0.0 6.4 5.3 4.8 0.3 5.6
Financials
Co-operative Bank of Kenya 14.7 14.1 Neutral (8.1) 0.1 0.8 7.4 7.2 6.9 1.2 5.2
Equity Group Holdings 39.9 42.2 Neutral 0.3 0.8 1.5 8.0 7.5 7.6 1.6 5.6
KCB Group 40.0 53.8 Buy (6.4) 0.7 1.2 6.2 5.6 5.4 1.2 7.5
Stanbic Holdings Limited 91.5 117.0 Buy 13.0 0.1 0.4 8.4 6.5 4.9 0.8 6.6
Materials
ARM Cement 5.6 2.2 Sell (57.3) 0.0 0.1 N/M N/M N/M 0.3 0.0
Bamburi Cement Co. 143.0 134.0 Sell (20.6) 0.0 0.5 31.5 31.0 36.5 1.5 1.6
East African Portland Cement Co. 13.8 8.7 Sell (49.1) 0.0 0.0 N/M N/M N/M 0.1 0.0
Telecom Services
Safaricom 23.6 27.9 Buy (11.8) 2.2 9.2 19.5 17.1 14.5 7.6 4.1
Utilities
Kenya Electricity Generating Co. 7.2 9.2 Buy (16.4) 0.0 0.5 5.2 5.4 5.4 0.2 0.0
102
EFG Hermes Coverage
Figure 14: Mauritius

(MUR) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Financials
MCB Group 278.0 331.0 Buy 1.8 0.0 1.9 9.9 10.1 8.9 1.4 3.3
SBM Holdings 6.1 8.6 Neutral (18.1) 0.0 0.5 6.9 6.9 6.3 0.6 6.5
Figure 15: Nigeria

(NGN) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Consumer
Guinness Nigeria 74.0 65.0 Sell (21.3) 0.1 0.5 57.9 22.4 19.8 2.1 0.9
International Breweries 30.8 20.0 Sell (43.6) 0.2 0.9 N/M N/M N/M 7.3 0.0
Nigerian Breweries 80.0 96.0 Neutral (40.7) 0.6 2.1 17.5 22.8 17.9 3.6 5.0
Financials
Access Bank 7.6 12.2 Neutral (27.8) 0.4 0.7 3.5 3.2 3.6 0.5 8.6
FBN Holdings 7.6 15.3 Buy (13.6) 0.3 0.9 6.3 14.6 4.0 0.4 3.4
Guaranty Trust Bank 36.0 53.2 Buy (11.8) 2.7 3.5 6.2 6.3 6.1 1.7 7.5
Stanbic IBTC Holdings 46.6 50.4 Neutral 13.3 0.3 1.5 10.2 9.1 8.2 2.2 2.6
United Bank for Africa 8.0 14.4 Buy (22.3) 0.3 0.9 3.6 3.7 3.5 0.5 10.6
Zenith Bank 24.0 40.0 Buy (6.4) 2.2 2.5 4.2 4.2 4.2 0.9 11.3
Materials
Dangote Cement 185.0 239.0 Neutral (19.6) 0.8 10.3 15.9 12.2 11.0 3.5 4.7
Lafarge Africa 12.8 14.3 Sell (71.5) 0.1 0.4 N/M N/M 10.9 0.8 0.4
Figure 16: Pakistan

(PKR) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Consumer
Engro Foods 83.7 71.0 Sell 4.2 0.1 0.5 N/M 91.2 43.6 6.3 0.8
Honda Atlas Cars 194.8 405.0 Buy (62.0) 0.5 0.2 4.7 4.6 5.3 1.6 9.3
Indus Motor Company 1,240.1 2,091.0 Buy (26.2) 0.1 0.7 7.6 6.6 7.2 2.6 10.6
Pak Suzuki Motor Co. 211.7 342.0 Neutral (57.5) 0.3 0.1 4.5 8.5 7.3 0.6 2.3
Energy
Mari Petroleum Company Limited 1,362.5 1,675.0 Buy 3.3 0.4 1.2 18.1 9.8 7.9 4.0 0.4
Oil & Gas Development Co. 147.9 177.0 Buy (9.2) 1.7 4.6 10.0 9.2 8.6 1.1 4.4
Pakistan Oilfields 490.7 553.0 Buy (0.9) 1.2 1.0 14.4 10.7 10.0 4.0 7.6
Pakistan Petroleum 173.0 201.0 Buy (3.4) 1.0 2.9 11.0 10.6 10.1 1.7 4.7
Pakistan State Oil Co. 248.2 352.0 Buy 1.6 1.3 0.7 5.3 4.9 5.3 0.8 7.1
Financials
Allied Bank 101.4 115.0 Neutral 19.3 0.1 0.8 9.0 8.3 7.2 1.0 6.9
Bank Alfalah 49.5 54.5 Buy 28.2 0.4 0.6 10.3 8.4 7.4 1.2 2.8
Habib Bank 138.1 204.0 Buy (17.3) 1.8 1.5 25.9 7.1 5.9 1.0 4.3
MCB Bank 206.5 254.0 Buy (2.8) 0.7 1.8 11.1 11.1 8.2 1.5 7.7
Meezan Bank 99.2 65.9 Neutral 62.7 0.3 0.8 17.5 15.1 12.2 2.5 2.3
National Bank Of Pakistan 48.3 45.5 Neutral (0.6) 0.4 0.7 5.4 4.9 4.6 0.5 0.0
United Bank 143.9 212.0 Buy (23.4) 3.2 1.3 6.7 9.1 5.8 1.0 9.0
Industrials
Pak Elektron 26.7 26.0 Sell (43.8) 1.7 0.1 4.1 10.5 14.1 0.5 1.9
Materials
Cherat Cement Co. 72.9 101.0 Neutral (34.3) 0.3 0.1 6.6 5.6 6.8 1.1 4.8
D.G. Khan Cement 89.8 145.0 Buy (32.9) 3.0 0.3 5.0 4.8 6.3 0.5 8.4
Engro Fertilizers 75.0 83.0 Buy 10.8 1.2 0.7 9.0 8.9 8.3 2.3 10.7
Fauji Cement Co. 22.5 25.0 Neutral (9.9) 0.9 0.2 11.9 10.9 8.3 1.5 6.9
Fauji Fertilizer Bin Qasim 38.4 39.7 Neutral 8.1 0.2 0.3 35.7 11.5 9.4 2.3 4.9
Fauji Fertilizer Company 94.0 114.0 Buy 18.8 0.4 0.9 10.4 9.5 9.0 2.2 8.0
Kohat Cement Co. 89.2 133.0 Buy (18.3) 0.1 0.1 5.1 6.3 6.7 1.0 3.4
Lucky Cement 462.5 713.0 Buy (10.6) 3.3 1.1 9.2 8.9 9.2 1.5 3.7
Maple Leaf Cement Factory 43.8 65.0 Buy (35.9) 1.9 0.2 4.8 5.4 4.2 0.9 6.8
Pioneer Cement 45.1 57.0 Neutral (28.6) 0.6 0.1 3.5 6.8 7.8 0.8 4.4
103
EFG Hermes Coverage
Figure 17: Rwanda

(RWF) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Financials
Bank of Kigali 279.0 332.0 Buy (7.0) 0.0 0.2 8.0 9.1 7.1 1.3 4.4
Figure 18: Tanzania

(TZS) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Financials
CRDB Bank 150.0 300.0 Buy (6.3) 0.0 0.2 5.8 3.7 3.0 0.5 7.3
National Microfinance Bank 2,340.0 2,665.0 Neutral (14.9) 0.0 0.5 22.2 6.2 5.1 1.3 5.5
Materials
Tanga Cement Co. 640.0 622.0 Sell (46.7) 0.0 0.0 N/M N/M N/M 0.2 0.0
Tanzania Portland Cement Co. 2,060.0 2,477.0 Buy 41.1 0.0 0.2 10.4 8.7 8.0 1.9 10.4
Figure 19: Uganda

(UGX) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Financials
Development Finance Company 845.0 1,089.0 Buy 24.3 0.0 0.2 4.5 5.9 5.3 0.8 5.1
Stanbic Bank Uganda 30.8 37.3 Buy 13.9 0.0 0.4 7.9 7.8 6.7 1.6 5.7
Figure 20: Vietnam

(VND) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Consumer
Masan Group Corp 84,100.0 116,400.0 Buy 9.6 3.0 3.8 30.4 22.7 15.4 5.0 1.3
Mobile World Investment Corp 88,000.0 139,800.0 Buy (10.4) 2.5 1.6 23.9 14.7 11.7 4.6 1.8
Vietnam Dairy Products 136,500.0 119,300.0 Neutral (21.5) 4.9 10.2 27.0 26.2 25.0 9.7 3.7
Financials
Asia Commercial Bank 31,100.0 36,349.0 Neutral 6.6 4.5 1.7 19.7 12.6 9.5 2.1 2.0
Bank For Foreign Trade 57,600.0 33,529.0 Sell 6.1 3.6 8.9 27.3 20.6 17.3 3.4 1.4
Military Commercial Joint 22,000.0 37,869.0 Buy (1.8) 5.4 2.1 13.5 9.3 6.9 1.4 2.8
Vietnam Prosperity Jsc Bank 22,400.0 40,530.0 Buy (6.4) 4.1 2.4 7.8 9.9 6.2 1.7 0.0
Vietnam Technological & Commercial Bank 27,800.0 33,226.0 Buy N/A 2.2 4.2 10.8 10.0 9.8 1.9 0.0
Figure 21: Other

(GBP) (%) (USDmn) (USDbn) 2017 2018 2019 2018 2018
Financials
ASA International Group Plc 4.5 5.5 Buy N/A 0.1 0.6 19.5 20.3 11.4 6.9 2.0
104
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CONTACTS
RESEARCH TEAM CONTACTS
NAME POSITION E-MAIL DIRECT NUMBER
Ahmed Shams El Din Managing Director - Head of Research ashamseldin@efg-hermes.com +20 2 35356143
Macro Team
Mohamed Abu Basha Director, Head of Macroeconomic Analysis mbasha@efg-hermes.com +20 2 36361157
Mohamed El Kholy Associate, Macroeconomic Analysis melkholy@efg-hermes.com +20 2 35356179
Strategy Team
Simon Kitchen Managing Director, Head of Strategy skitchen@efg-hermes.com +44 207 062 2163
Mohamed Al Hajj Vice President, Head of MENA Strategy mhajj@efg-hermes.com +971 4 364 1903
Vinita Kotedia Associate, Strategy vkotedia@efg-hermes.com +254713713242
Farah Hamza Analyst, Strategy fhamza@efg-hermes.com +20 2 35356289
Chemicals & Materials
Yousef Husseini Vice President, Chemicals yhusseini@efg-hermes.com +02 2 35356013
Sameer Kattiparambil Vice President, Materials skattiparambil@efg-hermes.com +968 2476 0023
Omar El Gharabawi Associate, Chemicals oelgharabawi@efg-hermes.com +02 2 35356145
Dina Hicham Analyst, Materials dhicham@efg-hermes.com +20 2 35356049
Consumer, Retail & Healthcare
Hatem Alaa, CFA Managing Director, Head of Consumer & Healthcare halaa@efg-hermes.com +20 2 35356156
Nada Amin Vice President, Consumer & Healthcare namin@efg-hermes.com +20 2 35356385
Ahmed Moataz Associate, Consumer & Healthcare amoataz@efg-hermes.com +20 2 35356515
Mirna Maher Associate, Consumer & Healthcare mmaher@efg-hermes.com +20 2 35356141
Seif Rageh Analyst, Consumer & Healthcare srageh@efg-hermes.com +20 2 35356103
Financials
Elena Sanchez-Cabezudo, CFA M

anaging Director, Head of Financials esanchez@efg-hermes.com +971 4 363 4007
Shabbir Malik Director, Financials smalik@efg-hermes.com +971 4 363 4009
Rajae Aadel Associate VP, Financials raadel@efg-hermes.com +971 4 363 4003
Ahmed El Shazly Associate, Financials aelshazly@efg-hermes.com +20 2 35356570
Industrials / Small & Mid-Caps
Ahmed Hazem Maher Vice President, Industrials / Small & Mid-Caps ahmaher@efg-hermes.com +20 2 35356137
Alaa Saleh Aly Analyst, Industrials / Small & Mid-Caps asaly@efg-hermes.com +20 2 35356563
Menna Khafaga Analyst, Industrials / Small & Mid-Caps mkhafaga@efg-hermes.com +20 2 35356387
Real Estate & Construction
Mai Attia Managing Director, Head of Real Estate & Construction maiattia@efg-hermes.com +20 2 35356434
Telecommunications
Omar Maher Vice President, Telecommuncations omaher@efg-hermes.com +20 2 35356388
Karim Mahmoud Sherif Analyst, Telecommuncations kmsherif@efg-hermes.com +20 2 35356152
105
CONTACTS
RESEARCH TEAM CONTACTS
NAME POSITION E-MAIL DIRECT NUMBER
Frontier
Kato Mukuru Managing Director, Head of Frontier kmukuru@efg-hermes.com +971 4 364 1904
Murad Ansari Managing Director, Head of Asia mansari@efg-hermes.com +971 4 363 4010
Adrian Cundy Director, Vietnam country analyst acundy@efg-hermes.com +65 94570707
Luis Colaco, CFA Director, Sub-Saharan Consumers lcolaco@efg-hermes.com +44 20 7062 2160
Ronak Gadhia Director, Sub-Saharan Banks rgadhia@efg-hermes.com +44 20 7062 2162
Fahad Shaikh Vice President, South Asian Consumer fshaikh@efg-hermes.com +971 4 363 4005
Jawad Shamim Associate VP, Cement / Bank support jawad.shamim@efg-hermes.com +9221 35141169
Moses Waireri Njuguna Associate VP, Cement / Consumer mnjuguna@efg-hermes.com +254 203743038
Muammar Ismaily Associate VP, Financials mismaily@efg-hermes.com +254 203743036
Muhammad Daniyal Kanani Associate, Power Utilities daniyal.kanani@efg-hermes.com +9221 35141158
Kazi Raquib Associate, Bangladesh Healthcare & Financials kraquib@efg-hermes.com +88 0173 0727 931
Rebia Qadri Associate, Fertilizers / Conglo. / Consumer rebia.qadri@efg-hermes.com +9221 35141163
Saleem John Associate, Data mangement saleem.john@efg-hermes.com +92 2135141118
Silha Rasugu Associate, Utilities / Telcos / Oil & Gas srasugu@efg-hermes.com +254 203743037
Farah Tasnim Huque Associate, Bangladesh Consumer fhuque@efg-hermes.com +88 0173 0727 913
Haris Imtiaz Associate, Macroeconomic Analysis Haris.Imtiaz@efg-hermes.com +9221 35141165
Editing Team
Russell Curtis Director, Supervisory Analyst rcurtis@efg-hermes.com +971 4 364 1902
Rehab El Kobtan Associate Director, Editor relkobtan@efg-hermes.com +20 2 35356179
Amr Shehata Associate VP, Editor ashehata@efg-hermes.com +20 2 35356284
Production & Distribution
Haidy Samir Director, Head of Production & Distribution hsfahmy@efg-hermes.com +20 2 35352180
David Nasr Associate, Production & Distribution dnasr@efg-hermes.com +20 2 35356500
Sandra Azer Analyst, Production & Distribution sazer@efg-hermes.com +20 2 35356469
Quantitative Research
Ahmed Difrawy Director, Head of Quantitative research adifrawy@efg-hermes.com +20 2 35356144
Refaat Mahmoud Vice President, Quantitative research rmahmoud@efg-hermes.com +20 2 35356095
Yousef Mourad Associate, Quantitative research ymourad@efg-hermes.com +20 2 35356572
Ahmed Abdelmeged Analyst, Quantitative research aabdelmeged@efg-hermes.com +20 2 35356065
Retail
Sandra Raef Vice President, Retail sraef@efg-hermes.com +20 2 35356059
Ahmed Nabil Sarhan Retail Strategist ansarhan@efg-hermes.com +20 2 35356442
Boulos Berzy Analyst bberzy@efg-hermes.com +20 2 35356597
Dina Yehia Analyst dyehia@efg-hermes.com +20 2 35356338
Admin
Fuyumi Archer Executive Support Manager, Research farcher@efg-hermes.com +971 4 363 4008
Nermeen Abdel Khalek Senior Executive Assistant, Research nabdelkhalek@efg-hermes.com +20 235356684
106
CONTACTS
SALES CONTACTS
NAME E-MAIL DIRECT NUMBER
Institutional Sales
Cairo Office
Mohamed Aly maly@efg-hermes.com +20 2 35356052
Wael El Tahawy weltahawy@efg-hermes.com +20 2 35356359
Ahmed Hashem ahashem@efg-hermes.com +20 2 35356286
Yasser Waly ywaly@efg-hermes.com +20 2 35356339
Carol Aziz caziz@efg-hermes.com +20 2 35356312
Dubai Office
Ramy El Essawy ressawy@efg-hermes.com +971 4 363 4093
Ayah Abou Steit asteit@efg-hermes.com +971 4 363 4091
London Office
Sruti Patel spatel@efg-hermes.com +44 2075182903
Ali Khalpey akhalpey@efg-hermes.com +44 7818444210
Claire te Riele cteriele@efg-hermes.com +44 207 518 2907
New York Office
Karim Baghdady kbaghdady@efg-hermes.com +1 2123151292
Miljana Asanovic masanovic@efg-hermes.com +1 2123151373
Nairobi Office
Muathi Kilonzo mkilonzo@efg-hermes.com +254 2037433032
Karachi Office
Saad Iqbal saad.iqbal@efg-hermes.com +92 2135141140
GCC High Net Worth Sales
Hatem Adnan hadnan@efg-hermes.com +20 2 35351083
Hany Ghandour hghandour@efg-hermes.com +20 2 35356007
Rami Samy rsamy@efg-hermes.com +971 4 363 4099
Loay Abdel Meneam labdelmeneam@efg-hermes.com +966 548800544
Individual Sales
Bassam Nour bassam@efg-hermes.com +20 2 35356069
107
DISCLAIMER
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Contacts & Disclaimer 105

The Year Ahead – Executive Summary

Overweight on Egypt, Kuwait, Saudi Arabia, Pakistan and Nigeria

Neutral on Kenya and Vietnam and underweight on Qatar and Bangladesh

Our top picks for 2019

FEM in 2019 – Summary, assumptions and country weights

Assumptions & themes

Figure 1: Country valuation

DM -0.7 19.4 15.4 14.2 2.2 2.6 12.5 14.2% 1.4

Add BURG to MENA Top 20 list, remove MEZZAN

Figure 2: MENA Top 20 list

Figure 3: MENA Sell Ideas

Figure 4: FEM Top Picks

Figure 5: FEM Sell Ideas

Review of key calls from 2018 yearbook

Strong start, but lost momentum by mid-year

1Q18 2Q18 3Q18 4Q18

FEM focus countries Other EM & FM Majors including CNY

Note: Argentinian Peso devaluation of 52% cut off for clarity

…what does this mean for the USD?

Will EM inflows suffer another rout?

Source: Bloomberg, EFG Hermes calculations

1 12 24 36 48 60 Brent WTI Spread (RHS)

Note: Private Sector Lending is to non-financials

Oil Gas Coal Nuclear Hydro Renewables USDCNY MSCI EM FX (rebased)

Source: BP Statistical Review 2008 and 2018 Source: Bloomberg

VN exports BD exports EM Asia exports

REER vs LT average YTD Other FEM Focus markets

2018 Chg. 5yr CDS spread (RHS)

Valuations – High risk-free rates cap Egypt and Nigeria multiples

Figure 27: MSCI EM weights and flows simulations by May 2020

Weight (%) Est. Passive Flows

Current By Aug-19 By May-20 (USDmn)

Brazil 7.6% 7.2% 7.0% (2,277)

Weight (%) Jun-19 Jun-20 Weight (%) Jun-19 Jun-20

Philippines 24.2% 26.5% 30.3% Kuwait* 22.1% 26.3% 0.0%

Argentina* 8.4% 0.0% 0.0% Nigeria 6.7% 8.0% 10.9%

Croatia 0.9% 0.9% 1.1% Oman 1.6% 2.0% 2.7%

MENA banks – Margins to remain a key driver of earnings growth in

Key country themes

Frontier banks – Credit growth returning (except Georgia)

GTB in Nigeria (TP: NGN53.2, GUARANTY NL) – Best-in-class

Key country themes

Figure 1: MENA and Frontier banks heat map

Loan growth Spreads Cost of risk Earnings growth ROE

Pakistan 24% Uganda 16%

Tanzania 19% Mauritius 15%

Mauritius 11% Kenya 12%

Figure 4: Earnings growth (FY19e)

Egypt 18% Egypt 24%

Source: Company data, EFG Hermes estimates

Georgia 22.6% Rwanda 10.0%

Nigeria 17.8% Nigeria 6.0%

Pakistan 16.5% Georgia 5.5%

Tanzania 16.4% Vietnam 4.6%

Source: Company data, EFG Hermes estimates

Egypt 26.4% Egypt 4.4%

Morocco 13.3% UAE 2.7%

Jordan 10.6% Oman 2.6%

MENA Consumer & Retail

Least Preferred Names

Electronics market Growth Mar ‘18 Car rental offices*

Source: Company data Food