MENA-2 THURSDAY MORNING ROUND-UP  

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  Egypt  

Tourism arrivals decline 35% Y-o-Y in April; Arab tourism arrivals see 4% Y-o-Y decline in April, Abdel Nour says   GB Auto 1Q2011 net profit 10% ahead of forecasts on stronger core operations, lower minority interest   CIB’s 1Q2011 earnings below forecast on higher costs and provisions   MCQC 1Q2011 net profit 10% above estimates on non-operational income   Damac to resort to international arbitration against Egypt for prison sentence ruling for its Chairman  

  Saudi Arabia  

SITC initial public offering 2.94x over subscribed  

  EFG Hermes Research  

MENA Strategy - Go With The Flow: Inflows Accelerate Across the Board; GCC and ME Equities Lag April Issue 11 May 2011   Orascom Construction Industries (OCI) - 1Q2011 Results Beat Estimates, Construction Backlog Deteriorates Further; Reiterate Neutral - Flash Note 11 May 2011  

Agenda  
Egypt   Thu 12 May >> Credit Agricole Egypt (CAE) 1Q2011 results (estimated)   12-15 May >> Juhayna 1Q2011 results (expected)   15-19 May >> Elsewedy Electric 1Q2011 results (expected)   Wed 18 May >> Orascom Telecom (OT) 1Q2011 results   Thu 19 May >> Mobinil AGM   Mon 23 May >> Orascom Development Holding (OD Holding) AGM   Tue 24 May >> Telecom Egypt (TE) ex-dividend date for EGP1.3 cash DPS   Sun 29 May >> Maridive ex-dividend date for USD0.06 cash DPS   Saudi Arabia   Wed 1 June >> Alujain AGM  

   

   

Egypt News  
Tourism arrivals decline 35% Y-o-Y in April; Arab tourism arrivals see 4% Y-o-Y decline in April, Abdel Nour says   Tourist arrivals declined by 35% Y-o-Y in April 2011, Al Mal quoted Minister of Tourism Mounir Fakhry Abdel Nour as saying. Abdel Nour also added that Arab tourism arrivals declined 4% Y-o-Y in April. (Al Mal)   GB Auto 1Q2011 net profit 10% ahead of forecasts on stronger core operations, lower minority interest  

 

GB Auto (AUTO.CA) 1Q2011 total revenue fell 2% Y-o-Y, 26% Q-o-Q, but came in 10% ahead of our forecast of EGP1.3 billion. The Y-o-Y performance was made possible by much higher sales volumes in Iraq, 349% Y-o-Y to 5,876 cars, and a strong recovery in two and three wheeler volumes, 43% Y-o-Y to 14,463 units, following supply constraints. GB Auto’s passenger car volumes in Egypt fell 52% Y-oY to 6,306 cars on: i) a 48% Y-o-Y decline (-52% Q-o-Q) in Egypt’s total passenger car volumes to 23,225 cars; and ii) decline of c200bps Y-o-Y in Hyundai market share to 27.2%. Volumes in Iraq disappointed, but this was more than offset by stronger-than-expected passenger car and two and three wheeler volumes in Egypt. Growth in tire sales and revenue from the financing business were also strong in 1Q2011, up 373% Y-o-Y and 122% Q-o-Q, albeit the revenue contributed by these two operations combined was minor at around 4%. EBITDA came in 24% above our estimate at EGP94 million. EBITDA margin of 7.3% beat our estimated 6.4%, despite weaker-than-expected gross margins for passenger cars and commercial vehicles. The positive surprise from operations was offset by a stronger-than-expected surge in finance costs on the back of exceptionally high inventory levels as well as an FX loss of EGP8 million. Net profit came in at EGP7.7 million, down 89% Y-o-Y and 81% Q-o-Q. Net profit was 10% ahead of our EGP7 million forecast after a positive surprise from core operations and minority interest offset higher-than-forecasted finance costs and an FX loss. We reiterate our Buy rating as our fair value (FV) of EGP33.4/share offers 19% upside potential.     GB Auto: EGP28.00, Rating: Buy, FV: EGP33.4, MCap: USD608 million, AUTO EY / AUTO.CA   CIB’s 1Q2011 earnings below forecast on higher costs and provisions   Commercial International Bank’s (CIB’s) [COMI.CA] core banking income was resilient in 1Q2011, however, earnings of EGP308 million fell 42% Y-o-Y, 47% Q-o-Q and came in 36% below our forecast on weak noninterest income, higher operating costs (18% higher than expected) and higher provisions (EGP130 million versus our EGP74 million forecast). We believe that CIB management was conservative in its provisioning charge in 1Q2011, however, the increase in past due loans and the unsettled political conditions could mean further pressure for corporate clients’ cash flows (tourism in particular) in the coming quarters. We see downside risk to our FY2011 net profit forecast of EGP1.8 billion. Multiples are now attractive, especially for 2012 (estimated 7.7x earnings, 1.7x book value, ROAE of 23%). We believe, however, that there are no tangible triggers for a short-term re-rating of the stock. Key catalysts are a stabilisation of political conditions and increased visibility on a pickup in economic activity in 2012, in our view. (Company Disclosure, Elena Sanchez-Cabezudo)   CIB: EGP28.55, Rating: Neutral, FV: EGP35.8, Mcap: USD2,836 million, CMIB. EY / COMI.CA

 

 

   

MCQC 1Q2011 net profit 10% above estimates on non-operational income   Misr Cement Qena Company (MCQC) [MCQC.CA] has announced net income of EGO102.5 million, down 11% Y-o-Y, 10%Q-o-Q, but 10% above our EGP93 million estimate. Full financials have not yet been released, however, we estimate the miss might be due to non-operational income that could possibly be related to FX gains. MCQC’s local sales volumes reached c430,000 tonnes in 1Q2011, down 21% Y-o-Y and 18% Q-o-Q, mainly on: i) lower local demand, down 9% Y-o-Y and 5% Q-o-Q; and ii) higher competition from new neighboring plants, such as those belonging to Al Sewedy Cement and Misr Beni Suef Cement (MBSC) [MBSC.CA]. MCQC’s market share contracted to 3.8% in 1Q2011 from 4.4% in 1Q2010 and 4Q2010. (Company Disclosure, Malak Youssef)   MCQC: EGP102.4, Rating: Sell, FV: EGP61, MCap: USD517 million, MCQE EY / MCQE.CA   MBSC: EGP69, Rating: Neutral, FV: EGP60, MCap: USD465 million, MBSC EY / MBSC.CA   Damac to resort to international arbitration against Egypt for prison sentence ruling for its Chairman   Damac Properties UAE (Damac) has announced that it will resort to international arbitration at the International Centre for Settlement of Investment Disputes against Egypt for having issued the company’s Chairman Hussain Sajwani a five year prison sentence as well as a fine, Al Mal reported. The court ruling against Sajwani was issued in absentia for the case he is involved in with the former Minister of Tourim, Zoheir Garranah. The court case concerned a land contract that allocated 30 million square metres (sqm) to Damac in Gamsha Bay. (Al Mal)  

   

Saudi Arabia News  
SITC initial public offering 2.94x over subscribed  

   

Saudi Integrated Telecommunications Company's (SITC’s) initial public offering (IPO) has been 294% over subscribed. The SAR300 million IPO raised SR880.7 million, Zawya Dow Jones quoted AlBilad Investment Company, SITC’s financial adviser, IPO lead manager and leader underwriter of the IPO, as saying. The final allocation of shares and surplus refund to all subscribers will take place on 14 May 2011 after all participating banks have completed the auditing and settlement processes of the IPO, which ended on 8 May 2011. The operator offered 30 million shares, or 30% of its capital, at SAR10 each to Saudi investors. Another 5 million shares were allocated to the General Organization for Social Insurance. The firm, which will be the third to offer fixed-line and data services in Saudi Arabia, will use subscription proceeds to pay off licence fees, Reuters said, quoting a top SITC official last week. (Zawya Dow Jones, Reuters)  

EFG Hermes Research  
   
MENA Strategy - Go With The Flow: Inflows Accelerate Across the Board; GCC and ME Equities Lag April Issue 11 May 2011   Egypt Inflows Accelerate; GCC Funds See Higher Outflows: Egypt funds recorded strong positive inflows during every week of April. In contrast, the GCC region recorded strong outflows for the month, although the first week of April accounted for the bulk of net redemptions. Saudi Arabia saw the highest outflows, followed by Kuwait.   MEA-Dedicated Fund Outflows Ease Further: Outflows from Middle East and Africa (MEA) dedicated funds eased further in April due mostly to a reversal of the previous month’s redemptions into Africa and EMEA funds. Middle East & Africa funds were the only regional group to see outflows worsen M-o-M.   GEM Funds Modestly Reduce Exposure to MEA: GEM funds reduced their exposure to MEA in March 2011, albeit modestly. The reduction was mostly in two off-benchmark territories, Qatar and Saudi Arabia, although its impact was somewhat compensated for by a slight increase in the allocation to the UAE and Egypt.   Improvement in Developed Equity Inflows Outdoes Emerging Equity: The increased inflow into equity funds was led by a strong increase into developed equity funds, led by North America funds. Emerging market equity funds lagged, but still recorded a substantial improvement in inflows, with diversified GEM funds accounting for the bulk of inflows and Asia ex-Japan funds seeing the previous month’s net outflows reverse direction. Frontier market funds recorded meagre inflows for April, although this was nevertheless an improvement from March’s net redemptions.   Emerging Bond Inflows More Than Double; Developed Bonds Resilient: Emerging bond fund inflows continued to fall behind their developed market peers in absolute terms, but all regional groups saw inflows increase at least twofold M-o-M. Inflows into developed bond funds remained resilient, despite a M-o-M drop in inflows to North America funds as developed Europe and Asia funds recorded a sharp increase in inflows. (Fahd Iqbal, Simon Kitchen, Ahmed Difrawy, Ahmed Hesham Hassan)   Orascom Construction Industries (OCI) - 1Q2011 Results Beat Estimates, Construction Backlog Deteriorates Further; Reiterate Neutral - Flash Note 11 May 2011   1Q2011 Results Beat Estimates; Risks/Returns Balanced; Maintain Neutral: OCI’s 1Q2011 net income of USD206 million was well above our estimated USD173 million and Bloomberg consensus estimate of USD171 million. We attribute the strong beat to: i) higher margins across the board, ii) higher FX gains, and iii) significantly higher-than-expected investment income of USD31 million (management guidance was USD40 million for all of 2011). We believe that OCI’s strong fundamentals are balanced given the operating risk environment in its key markets of operations. We maintain our Neutral rating as our fair value (FV) implies 10% upside potential.   Revenue In line, Margins Outperform Across the Board: Revenue in 1Q2011 of USD1.26 billion was 3% below our forecasts. EBITDA was 7% ahead of estimates on stronger margins for construction (16% vs our 14% estimate) and fertilisers (42% vs our 39% estimate). Weak construction deliveries partly offset strong margins in 1Q2011. In fertilisers, we believe the beat on margins could be due to lower-than-estimated gas prices and higher melamine margins at OCI Nitrogen.   Construction Backlog Continues to Decline; New Awards A Key Concern: Construction backlog declined 21% Y-o-Y and 9% Q-o-Q to USD5.11 billion. New awards in 1Q2011 remained weak at USD330 million, partially justified by instability and the curfew in Egypt during the quarter. We expect further deterioration in

 

   

 

 

 

 

 

OCI’s backlog balance on significant delays in Egypt’s PPP awards and a lacklustre construction outlook in the GCC region (ex-Saudi Arabia). We also expect weaker construction margins as new, lower margin awards start contributing to the top-line.   Management to Host Investor Conference Call Today: The conference call is today at 1:30 PM GMT (9:30 AM EDT, 2:30 PM BST, 3:30 PM Cairo time). The dial in number is: +44 (0) 1452 555 566; Conference Code: 66295915. (Ahmed Shams El Din, Rita Guindy)  
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