MENA-2 TUESDAY MORNING ROUND-UP

Egypt
GB Auto reports 2Q2011 net profit of EGP51 Million, 26% ahead of forecast EZDK releases audited standalone and consolidated figures for FY2010 Ezz Steel releases headline figures for FY2010; 4Q2010 net income misses estimate at EGP9.5 million Al Baraka Bank Egypt reports net profit of EGP64 million, up 2% Y-o-Y , for 1H2011 Sixth of October City Authorities to offer residential land plots by end-September NUCA will not provide subsidy for Ibni Beitak units delivered in September 2011, Al Mal reports

Saudi Arabia
Maaden phosphate JV to send first DAP shipment to India

Jordan
APOT expects output to rise by 25% by year-end

Lebanon
Lebanese banks Syrian assets contract 8.4 % in June 2011 vs December 2010 on ongoing political turmoil

Syria
Syrias third mobile licence to be presented to government

EFG Hermes Research

MENA Macroeconomic Quarterly - 3Q2011: Inflation Differentiating MENA from Other Emerging Markets - 08 August 2011 MENA Strategy Note - Sharp Sell-Off to be Short-Lived, but Stay Defensive; Add CIB, Remove NBK from MENA Top 20 List - 08 August 2011 Egyptian Resorts Company (ERC) - Phase III Could be Back But Pricing and Payment Terms are Key - Flash Note 08 August 2008

Agenda
Egypt Wed 10 August >> Commercial International Bank (CIB) 2Q2011 results (10pm Cairo time) Wed 10 August >> Orascom Telecom (OT) 2Q2011 results Mon 15 August >> Telecom Egypt (TE) 2Q2011 results (EAS) Mon 15 August >> Lecico 2Q2011 results (expected) Tue 16 August >> Telecom Egypt (TE) AGM and EGM

Egypt News
GB Auto reports 2Q2011 net profit of EGP51 Million, 26% ahead of forecast GB Auto (AUTO.CA) has reported a net profit of EGP51 million for 2Q2011, down 35% Y-o-Y, but significantly above 1Q2011s EGP8 million. Net profit came in 26% higher than our estimate, mostly on the back of higher-thanestimated revenue and operating margin. Revenue grew 7% Y-o-Y to EGP1.86 billion and came 6% ahead of our estimate. This Y-o-Y growth was largely driven by: i) a 29% Y-o-Y growth in passenger car revenue from Iraq on increased supplies, and an improved consumer and product mix; and ii) a 79% Y-o-Y increase in revenue from twoand three-wheelers on increased demand. Revenue surged 43% Q-o-Q, driven largely by a recovery in passenger car revenue from Egypt (+89% Q-o-Q) as: i) Egypts total market sales volume started to recover (+48% Q-o-Q), ii) GB Auto's market share expanded to 32.4% from 27.2% in 1Q2011, and iii) the company introduced new models.

EBITDA declined 9% Y-o-Y to EGP167 million, but exceeded our estimate by 20% on better-than-estimated revenue and margins. The EBITDA margin fell 155 bps to 9.0% mostly due to the lower gross profit margin, which was negatively impacted by one-off costs related to the launch of new passenger car models, currency hedging and relocating the Alexandria branch. Management is bullish on 3Q2011, which includes the summer high season, and expects the bottom line to show significant Q-o-Q growth. We believe that 3Q2011 will be positively impacted by the launch of new passenger car models in Egypt. Our FY2011 forecasts call for revenue of EGP6.5 billion and net profit of EGP248 million; revenue may exceed our expectation, but we believe that this will be offset by higher depreciation and finance costs. A weaker-than-expected 4Q2011 is a main risk to our forecasts. (Company disclosure, Wafaa Baddour, Khaled Sadek) GB Auto: EGP30.5, Rating: Neutral, FV: EGP33.4, MCap: USD661 million, AUTO EY / AUTO.CA EZDK releases audited standalone and consolidated figures for FY2010 Al Ezz Dekheila (EZDK) [IRAX.CA] disclosed its long-awaited audited standalone and consolidated FY2010 financial statements to the stock exchange on 8 August, according to MistNews. EZDK revised its 2010 standalone net income downwards to EGP681 million from EGP724 million, announced on 16 May 2011. This brings 4Q2010 standalone net income to EGP74 million, down 69% Y-o-Y and 15% Q-o-Q. On a consolidated level (consolidating EZDKs 55% stake in EFS (Ezz Flat Steel)), FY2010 net income stood at EGP678 million, implying consolidated 4Q2010 net income of EGP97 million, down 57% Y-o-Y, but up 64% Q-o-Q. This is well-below our 4Q2010 estimate of EGP111 million, which was based on the unaudited figure for EZDK (standalone) of EGP117 million. According to MistNews, trading on EZDK will resume today. The stock has been suspended from trading since 25 July 2011 as the company missed the deadline specified by the exchange to publish 2010 earnings. We will provide more analysis on the results once we receive full financials. (MIST, Rita Guindy, Ahmed Shams el Din) EZDK: EGP641.44, Rating: Neutral, FV: EGP693, MCap: USD1,438 million, IRAX EY / IRAX.CA Ezz Steel releases headline figures for FY2010; 4Q2010 net income misses estimate at EGP9.5 million Ezz Steel (ESRS.CA) has just posted headline figures for 2010 results showing 4Q2010 revenue of EGP5.03 billion, 7% below our estimates, but up 24% Q-o-Q and 58% Y-o-Y. The gross profit margin for 4Q2010 came in line at 10%, while gross profit came slightly below our EGP517 million estimate at EGP497 million. EBITDA was EGP533 million, up 44% Q-o-Q and +17% Y-o-Y, but 2% below our estimate. Net income before taxes and minority was EGP113 million, 5% ahead of our EGP107 million estimate, and net income after taxes and minority interest came in wellbelow our EGP29 million estimate at EGP9.5 million. (Company Disclosure, Rita Guindy) Ezz Steel: EGP8.58, Rating: Buy, FV: EGP12.10, MCap: USD782 million, ESRS EY / ESRS.CA Al Baraka Bank Egypt reports net profit of EGP64 million, up 2% Y-o-Y , for 1H2011 In a regulatory filing today , Al Baraka Bank Egypt, a subsidiary of Bahrains Al Baraka Banking Group, announced that 1H2011 net profit rose 2% Y-o-Y to EGP64 million compared to EGP62.6 million in 1H2010. Al Baraka Bank Egypt is one of the few shariah-compliant banks in Egypt. Faisal Islamic Bank of Egypt is the largest Islamic bank in the country, while National Development Bank (an associate of Abu Dhabi Islamic Bank (ADIB) [ADIB.AD]) and Al Watany Bank (a subsidiary of National Bank of Kuwait (NBK) [NBKK.KW]) have some Islamic branches in Egypt. (Bloomberg, Mohamed El Hefny) NBK: KWD1.04, Rating: Neutral, FV: KWD1.2, MCap: USD12,599million, NBK KK / NBKK.KW ADIB: AED3.27, Rating: Buy, FV: AED3.75, MCap: USD2,107 million, ADIB UH / ADIB.AD Sixth of October City Authorities to offer residential land plots by end-September Sixth of October City Authorities plan to offer a total of 70 feddans (294,000 square metres (sqm)) in the first phase of Sixth of October Citys family housing project, Al Borsa reported. Individual plot sizes will range 200-250 sqm. These plots will be delivered to buyers by end-2011. The first phase includes 30,000 land plots, of which 5,000 plots will have infrastructure works completed, while remaining plots will receive infrastructure works over an 18-month period. About 130,000-140,000 land plots will be offered over five years for this project. (Al Borsa) NUCA will not provide subsidy for Ibni Beitak units delivered in September 2011, Al Mal reports The New Urban Communities Authority (NUCA) has decided not to provide the subsidy of EGP10,000 for each Ibni Beitak (Build Your Home, part of the national budget housing project) unit that is scheduled for delivery in September 2011 and thereafter. The authority reportedly made the decision as the project's execution period has ended, Al Mal reported. The contract between the authority and contractors stipulates that NUCA will provide the subsidy to beneficiaries only if the units meet all conditions stipulated by the Ministry and upon completion and delivery of the unit. (Al Mal)

Saudi Arabia News

Maaden phosphate JV to send first DAP shipment to India The Saudi Arabian Mining Company (Maaden) [1211.SE] has announced that its 70%-owned joint venture (JV), the Maaden Phosphate Compay (MPC), is currently in the process of loading its first diammonium phosphate (DAP) shipment for export to India. The shipment will contain c22,000 tonnes of DAP and is expected to leave the Ras Al Khair (previously Ras Az Zawr) port within the next few days. MPC is also 30%-owned by SABIC (2010.SE). (Tadawul, Zawya Dow Jones) SABIC: SAR97.50, Rating: Buy, FV: SAR133, MCap: USD78,000 million, SABIC AB / 2010.SE

Jordan News
APOT expects output to rise by 25% by year-end Annual production capacity at the Arab Potash Company (APC) [APOT.JO] is set to reach 2.5 million tonnes by year-end, a 25% increase over current production levels of around two million tonnes, the companys Chairman, Nabih Salameh, said to Jordan Times on 8 August. The companys overall production in 2010 stood at 2.08 million tonnes, but with the new production facilities opened last year, production will reach 2.5 million by end-2011, he said. King Abdullah inaugurated a USD500 million potash production plant in Ghor Al Safi in October 2010. Stating that companys share in the international market is currently around 4%, Salameh indicated that India is APCs main export destination, followed by China and Malaysia. (Jordan Times)

Lebanon News
Lebanese banks Syrian assets contract 8.4 % in June 2011 vs December 2010 on ongoing political turmoil The financial results of Lebanons seven banks with operations in Syria showed an 8.4% decline in total assets in June 2011 vs December 2010 to SYP359 billion (USD7.6 billion). The decline was driven by a 16% YTD average contraction in the assets of the three largest private commercial banks by assets, including BEMO Saudi Fransi, Bank Audi Syria, the Syrian subsidiary of Bank Audi (AUSR.BY, and Bank of Syria & Overseas(BSO), BLOM Banks (BLOM.BY) subsidiary in Syria. Loans for both Bank Audi Syria and BSO have dropped 17.3% YTD. Customer deposits dropped by 22.7% YTD for Bank Audi Syria and by 17.8% YTD for BSO. Byblos Bank Syria, the Syrian subsidiary of Byblos Bank (BYB.BY), has seen its deposits grow 11.8% YTD. The average loans-to-deposit ratio for Lebanese banks operating in Syria remained sound at 51.8% in June 2011 compared to 44.7% in December 2010. Net profit for Byblos Bank Syria increased 10.4% Y-o-Y in 1H2011, whereas net profit for Bank Audi Syria and BSO grew by less than 2% Y-o-Y on average for the same period. (The Daily Star) Bank Audi: USD 6.85, Rating: Buy, FV: USD8.6, Mcap: USD 2,358million, AUDI LB / AUSR.BY Byblos Bank: USD1.66, Rating: Neutral, FV: USD1.9, Mcap: USD702 million, BYB LB / BYB.BY BLOM Bank: USD8.80, Rating: Buy, FV: USD10.7, Mcap: USD2,112million, BLBD LB / BLOM.BY

Syria News
Syrias third mobile licence to be presented to government Syrias third mobile licence will soon be presented for government discussion, Al-Hayat newspaper quoted the Syrian Minister of Communication and Technology Emad Sabouni as saying. The auction for the licence was scheduled for 27 April, however, it was delayed due to the change of government, which included the ministerial committee that was supervising the auction, he added. Only two operators were participating in the auction previously: Saudi Arabias Saudi Telecom Company (STC) (7010.SE) and Qatars Qtel (QTEL.QA). Etisalat (ETEL.AD), France Telecom (FT) and Turkcell withdrew from the auction earlier on. The ministry will not expect the new operator to launch commercial services until next year. (Al-Hayat) STC: SAR34.0, Rating: Neutral, FV: SAR41.4, MCap: USD23,975 million, STC AB / 7010.SE Qtel: QAR152.5, Rating: Buy, FV: QAR174.5, MCap: USD7,374 million, QTEL QD / QTEL.QA Etisalat: AED10.4, Rating: Neutral, FV: AED12.54, MCap: USD22,404 million, ETISALAT UH / ETEL.AD

EFG Hermes Research

MENA Macroeconomic Quarterly - 3Q2011: Inflation Differentiating MENA from Other Emerging Markets - 08 August 2011 Inflation Contained in 1H2011, with Fewer Drivers than Emerging Markets: Inflation across the MENA region was relatively contained in 1H2011, with more than half of our countries under our coverage seeing flat or lower inflation levels compared to end-2010. Jordan was the only MENA country to increase its benchmark lending rates in 1H2011. Drivers of inflation have been narrower versus most emerging markets (with generally ample economic slack and limited asset price inflation), although rising food prices have been a common theme across the MENA region. Thus, monetary tightening would have been limited in lowering inflation levels, in our view. Interest Rates Still on Hold in 2H2011; Negative Interest Rates to Remain: We now generally expect a weaker rise in upward inflation as a result of: i) government measures to stabilise food and fuel price increases; ii) signs of stabilisation in global food prices; and iii) indications of weaker global producer price inflation. We lower our average annual 2011 inflation forecast for a number of countries including Saudi Arabia We now expect to see deflation in Bahrain. We expect interest rates to remain on hold for MENA countries in 2011. We still see the most likely risk to this outlook as another cut in Qatars lending rate. Most MENA countries will continue to see negative interest rates, in our view. However, we note that credit growth will likely be driven by increasing domestic demand. Country Focus: Egypt Update: We revised our estimate for real GDP contraction in 2011 to 3.3% Y-o-Y from 2.5%. GDP declined by 4.2% in 1Q2011. Despite signs of a pickup in private consumption in 2Q2011, consumption remains significantly down on a Y-o-Y basis. We expect a weaker recovery in investment, which will require greater clarity on the political environment. We currently forecast Egypt to see positive real growth in 2012 of 3.0%, led by a recovery in private consumption and supported by increased tourism, although political developments remain a key factor. We believe the new budget, out in July, attempts to balance between providing support to domestic demand and containing the widening deficit. We forecast deficit of 9.9% of GDP in FY2011-2012 and we expect government spending to provide some support to private consumption in 2011. We expect the current account deficit to narrow to 1.6% of GDP in 2011, primarily due to the sharp fall in imports due to the weakened domestic demand environment. This, coupled with stabilisation in capital outflows, leads us to expect that the EGP will remain supported at EGP5.96 in 2011 and EGP6.00 in 2012 against the USD. (Monica Malik, Mohamed Abu Basha, Mohamed Al Hajj) MENA Strategy Note - Sharp Sell-Off to be Short-Lived, but Stay Defensive; Add CIB, Remove NBK from MENA Top 20 List - 08 August 2011 Expect Sharp Sell-Off to be Short; MENA to Outperform Global Markets: Early signs indicate that the current sharp sell-off in MENA markets is unlikely to last for more than a few days, unlike the sustained selling pressure we saw in mid-2008. We do not believe that the US credit rating downgrade is itself enough to cause prolonged market weakness, although the Eurozone remains a major source of risk. We note that investors are far less leveraged than in 2008, and foreign investors are relatively un-invested in the region. MENA markets typically outperform global markets during periods of weakness, principally due to higher dividend yields, in our opinion. Global Markets Pricing in Weaker Growth Outlook; We Stay Defensive: Global markets are in the process of discounting a weaker growth outlook, and a negative feedback cycle is possible if developed markets see sustained sharp losses. We still prefer stocks geared to MENA domestic demand and continue to prefer banks over materials names. Our favoured markets are the UAE, as a recovery trade, and Qatar, due to its strong earnings outlook; both markets are priced at an unwarranted discount to MENA and emerging markets. We remain neutral on Egyptand Saudi Arabia, although recent weakness has made valuations more attractive. Opportunity to Accumulate Positions in MENA: The current sell-off should be viewed as an opportunity to build positions, in our opinion, as: i) we expect the sell-off to be fairly short-lived; and ii) much of the selling has been indiscriminate, with stocks with more defensive traits (like QEWC, Union National Bank, and Aldrees from our MENA Top 20 List) substantially underperforming their respective national benchmarks. We expect that investors will increasingly focus on companies with high dividend yields as the end of the year approaches. Expect Recovery in Volumes Post-Ramadan; Add CIB to MENA Top 20 List: We do not expect to see a sustained recovery in volumes until Ramadan ends and 3Q2011 earnings season approaches. Until then, any recovery in MENA markets is likely to be only short term, after which we may see markets resuming their sideways and range-bound performance. Further weakness in the Egyptian market means that we now see little additional downside potential for Commercial International Bank (CIB), the most liquid of the traded banks; we add the stock to our MENA Top 20 List. We remove National Bank of Kuwait (NBK), given the lack of any improvement in Kuwaits market. (Fahd Iqbal, Simon Kitchen)

Egyptian Resorts Company (ERC) - Phase III Could be Back But Pricing and Payment Terms are Key - Flash Note 08 August 2008 TDA Revises Phase III Land Plot Price: Egyptian Resorts Company (ERC) may have the opportunity to restore its ownership of 28 million square metres (sqm) of land in Phase III of its Sahl Hasheesh project. The Tourism Development Authority (TDA) announced that it will return land plots withdrawn from developers in April, but stipulated that land valuations will change. The Price tag for Phase III has been set at USD8.75/sqm rather than the USD1.5/sqm rate at which it was purchased. It remains unclear if ERC is interested in reacquiring the land. The company has received no official notification regarding the subject yet, according to management. Payment Terms Should Determine ERCs Decision: While we see the land revaluation as challenging and unjustified by the current economic environment and subsequent pressing need to stimulate investment, we believe that ERCs reacquisition of Phase III land will largely depend on the TDAs proposed payment conditions. We think that the repurchase would be economically viable only if land payments were tied to progress in land sales rather than to a fixed annual schedule. We also believe that ERC will be cautious of accepting the new valuation without a guarantee from the authorities that Phases I and II will not be re-priced as well, although these have not been withdrawn by TDA. Available Liquidity Insufficient For Repurchase: ERC ended 1Q2011 with a total cash amount of EGP233 million, receivables of EGP362 million, and an outstanding development liability of EGP115 million. This implies that ERC could not afford payment for Phase III at its new price (EGP1.4 billion). Even if the payment was distributed over 10 years, it would be a significant burden on ERC, especially since it has failed to sell any land plots since 2008. (Jan Pawel Hasman, Shaza El Kady)
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