MENAinFocus

February 06, 2012

Rebased Performance of Regional Indices

Inside This Issue

In Focus 1: Valuation versus Growth: A Different Perspective

120

110

100

90

80

70

60
Jan-10

Mar-10

May-10

S&P Pan Arab Large/Mid Composite

Jul-10

Sep-10

S&P GCC Large/Mid Composite

Nov-10

Jan-11

MSCI Jordan+Egypt+Morocco

In this report, we take a brief look at the performance of the

GCC stock markets versus their MENA peers as well as the BRIC
group, and compare the current valuations and expected GDP
growth of the markets respective countries. With a relatively
low PE combined with high real GDP growth, Qatar looks the
most attractive in the MENA. We also do a similar analysis
for a sample of our coverage universe in the GCC countries by
comparing their PE-to-growth (PEG) ratios, which incorporates
the expected EPS growth in the medium-term. Although the
Qatari companies under coverage have slightly higher PEG ratios
than their GCC peers, they offer some of the most generous
dividend yields.

MENA Market Caps

By: Munira Mukadam & Sara Kanaan

Saudi Arabia

39%

UAE

In Focus 2: Performance of the GCC Cement Stocks in 2011

14%

Qatar

14%

Kuwait

In this section, we analyze the performance of the Gulf

Cooperation Council (GCC) cement stocks by comparing the
performance of each GCC countrys cement index with that of
the respective countrys general price index. We further compare
the GCC cement indices against each other to highlight the
position of these stocks in 2011.

11%

Morocco

7%

Egypt

6%

Jordan

3%

Bahrain

2%

Oman

2%

Lebanon

1%

Tunisia

1%

Palestine

By: Shoug Al Khatrash

0%
0

50

100

150

200

(%) Share of MENA Market Cap

250

300

350

400

Market Cap. (USD billion)

Summary of Performance of MENA Indices

Index Level
as of
INDEX

% Change
52-Week High

52-Week Low
% below
52-Week High

31-Jan-12

% over
1-Month Period
52-Week Low

Market Cap
(USD
billions)

REGIONAL
S&P Pan Arab Large/Mid Composite
S&P GCC Large/Mid Composite
MSCI Jordan+Egypt+Morocco

122
127
1,056

132
137
1,250

113
112
887

-7.6%
-6.8%
-15.5%

8.0%
14.0%
19.0%

2.4%
1.4%
18.6%

914
729
143

241
806
944
1,013
153
215

295
954
1,160
1,052
158
263

218
778
892
852
124
194

-18.5%
-15.5%
-18.6%
-3.7%
-3.5%
-18.2%

10.3%
3.7%
5.9%
19.0%
23.1%
10.5%

-0.9%
0.2%
-3.2%
-2.4%
2.7%
5.5%

17
101
18
121
347
125

1,203
198
674
873
1,249
476

1,411
249
833
1,136
1,408
513

925
194
642
851
1,132
465

-14.7%
-20.7%
-19.1%
-23.1%
-11.3%
-7.2%

30.1%
2.1%
5.0%
2.6%
10.4%
2.5%

28.9%
-6.9%
4.1%
-1.3%
-1.5%
-0.2%

56
26
61
10
9
3

GCC
MSCI Bahrain
MSCI Kuwait
MSCI Oman
MSCI Qatar
S&P Saudi Arabia Large/Mid Composite
MSCI UAE
OTHER MENA
MSCI Egypt
MSCI Jordan
MSCI Morocco
MSCI Lebanon
MSCI Tunisia
Palestine SE

nbkcapital.com

MENAinFocus

February 06, 2012

IN FOCUS 1

Valuation versus Growth: A Different Perspective

Stock market performance in 2011
The year 2011 was another tumultuous period for stock markets around the world as the financial
crisis spread throughout the Eurozone. Political turmoil in some Middle East and North African
(MENA) countries further dampened investor confidence in the region. The Gulf Cooperation
Council (GCC) stock markets suffered, with five out of the six countries stock markets declining
in 2011. However, some of the GCC indices did not fare so badly when compared to the rest of the
MENA countries as well as the BRIC (Brazil, Russia, India, and China) group. The Qatar Exchange
was the outperformer, posting a miniscule increase of 1% in 2011, the only index in our sample
to end the year in positive territory. Saudi Arabias Tadawul All Shares Index (Tadawul) was the
next best performer, declining by just 3% in 2011, compared with a 49% drop in Egypts EGX30
Index and a 25% decrease in Indias Nifty Index.
Figure 1-1 Performance of the GCC Indices in 2011 versus MENA and BRIC Indices

0%

-5%

The Qatar Exchanges index

-10%

was the only one to end the

year in positive territory

-15%

-20%

-25%

-30%

-49%

Sources: Bloomberg and NBK Capital

So where do current valuations stand?

Munira Mukadam
T. +971 4365 2858
E. munira.mukadam@nbkcapital.com

Sara Kanaan
T. +971 4365 2812
E. sara.kanaan@nbkcapital.com

In Figure 1-2, we list the countries market capitalization-to-GDP ratios. For the market cap-to-GDP
as of 2011, we use the total market capitalization of all listed securities as of December 2011 and
nominal gross domestic product (GDP) for FY2011 as estimated by the International Monetary
Fund (IMF). This ratio can also be thought of as an economy-wide price-to-sales ratio. In our
sample, at the end of 2011, the weighted average ratio for the GCC countries stood at 51%,
compared with 35% for their MENA peers and 45% for the BRIC countries. The average for the
MENA peers seems low at first glance; however, excluding Egypt, which witnessed unusual political
events that led to a steep decline in the stock market in 2011, the MENA average increases to
50%. Although the aggregate data suggests that the GCC valuations are broadly in line with their
MENA and BRIC peers, we do see a few countries trading at very low ratios. Specifically, the
United Arab Emirates (UAE) and Oman had ratios as low as 25% and 27%, respectively. In fact,
Oman has historically traded at a similar low market cap-to-GDP ratio of around 26%. However,
the UAEs long-term average stood close to 53%, indicating there is room for growth.

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MENAinFocus

February 06, 2012

Figure 1-2 Market Capitalization-to-GDP: GCC versus MENA and BRIC

2000 - 2010
Long-Term
Average
Average
Period

The UAE is trading at a

market cap-to-GDP ratio well
below its historical average

2011

Mkt. Cap. Nominal GDP

(USD Billion)

GCC
Qatar
Saudi Arabia
United Arab Emirates
Oman
Kuwait
Bahrain
Average

123%
92%
64%
32%
111%
109%

91%
63%
53%
26%
87%
106%

1997-2009
1991-2010
1998-2010
1992-2009
1993-2009
1998-2009

73%
61%
25%
27%
55%
91%
51%

126
339
90
18
94
24

173
560
358
67
173
26

MENA ex. GCC

Egypt
Morocco
Tunisia
Lebanon
Jordan
Palestine
Average

56%
56%
14%
24%
153%
41%

33%
32%
12%
19%
103%
30%

1988-2010
1988-2010
1988-2010
1995-2010
1988-2010
1997-2010

22%
63%
22%
21%
89%
n/a
35%

49
59
10
9
25
n/a

224
94
43
41
28
n/a

55%
62%
68%
69%

34%
34%
42%
41%

1988-2010
1991-2010
1988-2010
1991-2010

56%
43%
63%
39%
45%

1,276
719
1,064
2,800

2,258
1,680
1,697
7,266

BRIC
Brazil
Russia
India
China
Average

Sources: World Bank, Bloomberg, IMF, and NBK Capital

We also looked at the countries trailing price-to-earnings (PE) multiples as of the end of December
2011 as another measure to assess the GCC markets valuation relative to the MENA and BRIC
countries (Figure 1-3A). Three of the GCC countries PEs fell in the lower end of the spectrum in
our sample. Oman had the lowest trailing PE multiple (12x) among the GCC and the third lowest
in the sample. Qatar and Saudi Arabia displayed the next lowest PEs in the GCC (around 13x).
The UAEs PE was surprisingly high due to the large negative trailing earnings recorded by several
companies. Excluding these, UAEs trailing PE would have stood at 8.5x (Figure 1-3B), the
second lowest (after Egypt) among the comparable PEs for the rest of the GCC, MENA, and BRIC
countries. Similarly, the adjusted PE ratios for Bahrain and Kuwait would also drop considerably
to 9.7x and 13.7x from 20.3x and 22.6x, respectively.
Figure 1-3 Trailing PE*: GCC versus MENA and BRIC
A All listed companies

B Excluding companies with negative trailing earnings

Russia

Russia

2302%

Kuwait
Bahrain

1673%

Tunisia

2025%

UAE

2302%

Morocco

2263%

1579%

China

1747%

1507%

Morocco

1719%

Kuwait

Tunisia

1711%

Jordan

1266%

Qatar

1264%

Jordan

1625%

China

India

1578%

Saudi Arabia
Qatar
India

1302%

Saudi Arabia

1301%

Oman

10

848%

Egypt

931%
0

971%

UAE

1178%

Egypt

1150%
1063%

Bahrain

1201%

Brazil

1231%
1207%

Brazil

1231%

Oman

1372%

15

20

25

830%
0

10

15

20

25

*As of December 31, 2011 Sources: Bloomberg and NBK Capital

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MENAinFocus

February 06, 2012

Valuation versus Growth: Country

In Figure 1-4, we plot the real GDP growth forecasted by the IMF for 2012 against the countries
forward PE multiples. The forward PE is calculated using the latest market cap and net profit
for 2012 based on consensus estimates. Hence, the sample of companies used to calculate the
forward PEs differs from those used to calculate the trailing PEs mentioned previously depending
on the availability of estimates.
Essentially, the countries falling in the top left quadrant of Figure 1-4 would be the most attractive,
trading at relatively lower valuations while offering higher economic growth. With a forward PE of
around 10x and expected real GDP growth of 6%, Qatar is the only country in the MENA that falls
in this section. The expansion of liquefied natural gas (LNG) production, proactive government
support of the banking system, and increased public spending supported the high growth rates in
Qatar during the financial crisis. However, we believe a key factor in realizing further growth, albeit
at a slower pace, will be expansion in the non-oil sector, as emphasized in the National Development
Strategy (2011-2016) unveiled by Qatar last year, as well as the broader Qatar National Vision
2030. We believe increased spending on infrastructure development, manufacturing, financial
services, trade, and tourism will drive non-oil sector growth.
Among the remaining GCC countries, the UAE trades at the lowest PE multiple. However, the UAE
is expected to post lower GDP growth than Qatar. We believe the UAEs low PE ratios represent
the generally tainted investor sentiment, driven by concerns about continued weakness in the real
estate market, financial distress at several large corporates, and the lack of credit growth, which
in turn are hampering economic growth.
Figure 1-4 Forward PE versus Real GDP Growth
10%
China

Qatar looks the most favorable

in the MENA with a relatively
low PE combined with higher
real GDP growth forecasted
for 2012

Real GDP Growth % (2012)

8%

India

Qatar

6%
Kuwait

4%

Lebanon

UAE

Russia
Bahrain
Jordan

Oman

Saudi Arabia
Brazil

Morocco
Tunisia

Egypt

2%

0%
6

10

12

14

16

2012 Forward PE

Sources: IMF, Bloomberg, and NBK Capital

PEG Ratio Analysis: A Different Perspective

We now take a closer look at our coverage universe in four GCC countries, namely, Qatar,
Saudi Arabia, the UAE, and Oman, which together account for more than 80% of the market
capitalization in the MENA region. We aim to analyze the stocks current valuation in each country
while incorporating the expected growth of earnings in the medium-term. For this, we computed
the PE-to-growth (PEG) ratio, taking each stocks trailing PE multiple and dividing that by the
expected earnings per share (EPS) growth over the next five years. Typically, a PEG ratio close to 1
denotes a fairly-valued stock while a ratio considerably below or above 1 indicates undervaluation
or overvaluation of the stock, respectively. However, this ratio is not the only way to analyze current

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MENAinFocus

February 06, 2012

valuation levels, and thus, the results of this study may not fall exactly in line with our current
recommendations on the stocks.
In Figure 1-5, we list the stocks and their respective PEG ratios. We see that all Qatari stocks in
the sample display a PEG ratio of more than 1, indicating their richer valuation. The sample
includes four large Qatari banks, which have strong fundamentals, although we believe these
banks have benefitted from better share price performance and display higher valuations.
Similarly, despite having a decent fundamental growth story, Qatar National Cements (QNCCs)
share price rallied at the end of 2010, after the 2022 FIFA World Cup was awarded. The stock
price increased by 41% in the 10 days following the announcement on December 2, 2010, and
ended the year up 48%. In 2011, the share has mostly traded sideways, and thus valuations have
remained steep, resulting in a high PEG ratio. In the case of Saudi Arabia, more than half of the
sampled stocks displayed a PEG ratio slightly below or close to 1 with the exception of Saudi
Telecom (STC) and Yamama Cement, for which we expect marginal EPS growth going forward.
Accordingly, Saudi Arabias average PEG (excluding the outliers) stood close to 1, compared to
1.2 for the Qatari stocks. The UAE and Omani stocks seemed the cheapest with an average PEG
of 0.9 (excluding outliers). DP World, Etisalat, and Oman Cement were the exceptions with PEG
ratios considerably exceeding 1.
Figure 1-5 PEG Ratios and Dividend Yields of the Coverage Universe

Although the Qatari stocks

look slightly expensive from
the PEG ratio perspective, they
look the most attractive from a
dividend perspective

Dividend
Yield

PE *

EPS CAGR
(2011F-2016F)

PEG

DPS
FY2011

Qatar
The Commercial Bank of Qatar
Doha Bank
Qatar National Bank
Qatar Islamic Bank
Qatar Electricity and Water Co.**
Qatar National Cement

11.4
11.3
13.9
12.9
10.1
13.2

11.2%
10.5%
10.2%
9.3%
4.2%
4.4%

1.02
1.08
1.37
1.40
2.41
2.99

7.00
4.50
4.00
4.50
7.00
4.25

8.3%
7.0%
2.6%
5.3%
5.0%
3.8%

Saudi Arabia
Riyad Bank
Arab National Bank
Saudi Hollandi Bank
Banque Saudi Fransi
Savola
Samba Financial Group
The Saudi British Bank
Almarai
Mobily
Saudi Telecom
Yamama Cement

11.1
11.1
9.6
10.3
20.3
9.8
11.6
17.6
7.6
8.8
13.33

13.7%
12.7%
11.0%
11.0%
20.0%
9.4%
10.5%
15.3%
4.4%
2.4%
1.8%

0.81
0.87
0.88
0.94
1.02
1.04
1.10
1.15
1.73
3.66
7.41

1.30
1.00
1.00
0.00
1.30
1.79
0.65
2.25
3.25
2.00
4.00

5.6%
3.6%
3.4%
0.0%
4.5%
3.8%
1.6%
2.3%
6.2%
5.9%
5.7%

United Arab Emirates

Union National Bank
First Gulf Bank
Abu Dhabi Islamic Bank
Agthia
Arabtec
National Bank of Abu Dhabi
Abu Dhabi Commercial Bank
Air Arabia
Aramex
du
Drake and Scull Intl.
DP World
Etisalat

4.7
6.5
7.1
10.8
15.9
8.5
5.4
10.4
12.6
12.9
11.3
17.7
10.1

9.8%
12.5%
12.8%
13.9%
20.5%
10.9%
6.5%
12.3%
10.0%
10.2%
6.8%
6.0%
2.6%

0.48
0.52
0.55
0.77
0.78
0.78
0.83
0.84
1.26
1.27
1.66
2.94
3.89

0.10
1.00
0.20
0.05
0.00
0.30
0.00
0.04
0.04
0.00
0.00
0.20
0.60

3.5%
6.5%
6.3%
2.9%
0.0%
2.7%
0.0%
7.2%
2.0%
0.0%
0.0%
2.1%
6.6%

Oman
National Bank of Oman
Bank Muscat
Raysut Cement
Oman Cement

10.6
10.2
10.9
10.8

14.9%
13.8%
8.9%
5.0%

0.71
0.74
1.22
2.16

0.02
0.03
0.07
0.02

5.5%
3.3%
9.2%
4.6%

Company

*As of December 31, 2011 **EPS CAGR for 2011-2017 Sources: Companies financial statements, Bloomberg, and NBK Capital

nbkcapital.com | 5

February 06, 2012

MENAinFocus

Although the Qatari stocks look slightly expensive from a PEG ratio perspective, they look the most
attractive from a dividend perspective, offering generous dividend yields ranging from around
3% for Qatar National Bank to 8% for The Commercial Bank of Qatar. Similarly, Omani stocks,
with a relatively lower average PEG of 0.9, also offer decent dividend yields ranging from 3% for
Bank Muscat up to 9% for Raysut Cement. The UAE stocks, on the other hand, present a good
opportunity when simply looking at the PEG ratio; however, they are expected to pay relatively
lower dividends in FY2011, with a few exceptions.
All in all, we believe Qatar is one of the strongest growth stories in the region driven by continued
government spending, political stability, and increased focus on the non-oil sector. Sector credit
growth in Qatar was the strongest in the GCC, at 28% in 2011. The Qatar Exchange outperformed
all of its MENA and BRIC peers but continues to display a market capitalization-to-GDP ratio
below its long-term historical average. Although the covered Qatari companies have slightly higher
PEG ratios than their GCC peers, they offer some of the highest dividend yields in the group.
We are also bullish on Saudi Arabia, which we believe continues to benefit from high oil prices,
allowing the government to shore up surpluses and reinvest in the economy. The expansionary
budget announced for 2012 is further testimony to the fact that government spending will remain
high. Thus, we expect the country to record decent GDP growth in FY2012. Furthermore, several
of the covered Saudi companies look undervalued, presenting an opportunity for stock selection,
in addition to those that offer decent dividend yields, namely, Mobily (6.2%; our top pick among
the Saudi telecom operators), STC (5.9%), Yamama Cement (5.7%), and Riyad Bank (5.6%; our
top pick among the Saudi banks).
We believe the continued financial woes in Dubai and Abu Dhabi will make 2012 more challenging
for the UAE than for its GCC peers. However, over-pessimism by investors has resulted in the
undervaluation of several players with decent fundamentals, such as First Gulf Bank (FGB), which
is also our top pick among the UAE banks.

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MENAinFocus

February 06, 2012

IN FOCUS 2

Performance of the GCC Cement Stocks in 2011

In this section, we analyze the performance of the Gulf Cooperation Council (GCC) cement stocks
by comparing the performance of each GCC countrys cement index with that of the respective
countrys general price index. We further compare the GCC cement indices against each other to
highlight the position of these stocks in 2011.
Methodology
In the absence of cement indices for Kuwait, the United Arab Emirates (UAE), Qatar, and Oman,
a synthetic weighted market capitalization index was created for each country. The constituents of
these indices comprise all publicly listed cement companies under each countrys stock exchange.
Figure 2-1 Synthetic Indices Constituents

Indices Consitituents

Market Cap (USD millions)

UAE
National Cement Company

293.0

Fujairah Cement Industries

92.0

Gulf Cement
Ras Al Khaimah Cement
Union Cement
Umm Al Qaiwain Cement Industries
A weighted market
capitalization index was
created for the UAE, Qatar,
Oman, and Kuwait

Sharjah Cement

210.1
81.7
189.5
65.2
105.4

Kuwait
Kuwait Cement
Hilal Cement
Kuwait Portland Cement

996.1
51.6
228.0

Oman
Oman Cement

368.5

Raysut Cement

367.8

Qatar
Qatar National Cement
Al Khalij Holding Company

1,530.5
491.7

Sources: Zawya and NBK Capital

Bahrain was excluded from the study due to the fact that Falcon Cement Company, the only
integrated cement plant operating in the country, is privately owned. There remains one GCC
country left to be examined: Saudi Arabia. Saudi Arabia already has an existing cement index,
which was used in this study.
Additionally, each respective countrys general price index was used as the comparable benchmark
with the exception of the UAE. In the UAEs case, the MSCI UAE was used as the comparable
benchmark to help capture both the Dubai and Abu Dhabi markets. We then analyzed the historical
performance of each countrys cement index versus the respective country general price index for
2011.
Shoug Al Khatrash
T. +965 2259 5294
E. shoug.alkhatrash@nbkcapital.com

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MENAinFocus

February 06, 2012

The Findings
Saudi Arabia
Figure 2-2 Saudi Arabias Cement Index vs. Tadawul All Share Index
150
140
130

The Saudi Arabian cement index

increased by 36% in 2011,
compared to the 3% decline of
Tadawuls All Share Index

120
110
100
90
80
70
60

Tadawul

Saudi Cement Index

Sources: Reuters and NBK Capital

With 10 publicly listed cement companies distributed among the provinces of Saudi Arabia, the
cement index outperformed Tadawul in 2011, increasing by 36%, compared to the 3% decline of
Tadawuls All Share Index for the year. The industry witnessed two entrants, Hail Cement and Al
Jouf Cement, which were listed on Tadawul at the end of 2010 and 2011, respectively.
Clinker and cement capacity exceeded demand by a factor of 15% to 20% during 2011. With
new cement players entering the scene, supply remains plentiful. In addition, exports from the
country remain negligible, as the ban on exports remains largely in place. However, pricing held
up remarkably throughout FY2011 (partly on the back of significant clinker inventory build-up).
Though oversupply seems to be a general theme for the GCC countries in 2011, the Saudi Arabian
cement index proved to be the star performer within the region. It is to be noted that the cement
industrys profitability in Saudi Arabia is exceptionally high, mainly due to the fuel subsidies
the cement companies enjoy (negating any possible competition from imports). In addition, the
massive government spending seen recently seems to be reflected in the index. Total government
expenditure in Saudi Arabia during 2011 is expected to touch SAR 804 billion (source: NBK
Economic Research). The governments Ninth Development Plan, covering the years 2010 to
2014, calls for extensive investments in both infrastructure and housing. As a result, the outlook
for cement demand in Saudi Arabia remains solid as the government continues to invest in
infrastructure.

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MENAinFocus

February 06, 2012

Qatar
Figure 2-3 Qatar Cement Index vs. Qatar General Price Index
120

110

During 2011, the Qatar

cement index increased by a
marginal 0.4%, as the Qatar
general price index rose by a

100

slight 1%.

90

80

Qatar General Index

Qatar Cement Index

Sources: Reuters and NBK Capital

The Qatar cement index is comprised of two constituents, Qatar National Cement (which remains
very much the dominant player in the country) and Al Khalij Holding Group. During 2011, the
Qatar cement index increased by a marginal 0.4%, as the Qatar general price index rose by a
slight 1%.
The National Development Strategy 2011-2016 and the Qatar National Vision 2030, have laid out
the governments determination to develop the non-oil sector through the budgeted government
expenditures of more than $125 billion over five years (source: GCC Economic Outlook: NBK).
Also, the government has claimed it will directly fund $65 billion in infrastructure investment and
manufacturing (including the 2022 FIFA World Cup 2022 development spending).
Looking closely at Qatar National Cements share price, the stock rallied on the back of the FIFA
World Cup announcement (on the 2nd of December 2010) by almost 40% at the end of FY2010.
However, the share gave back some since the stock rally. The share may have run ahead of itself
as we believe that projects related to the World Cup will not kick-off for at least another four years.
Also, it is to be noted that in 2011, delays were witnessed in project start-ups and execution
(examples include the Qatar to Bahrain causeway), which may have led to lower-than-expected
cement demand during the year.

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MENAinFocus

February 06, 2012

Oman
Figure 2-4 Oman Cement Index vs. Muscats General Price Index
110

100

The Oman cement index

witnessed a decline of 36% in

90

80

2011, compared to the 16%

decline in Muscats general
price index

70

60

50

40

Muscat SE General Index

Oman Cement Index

Sources: Reuters and NBK Capital

The Oman cement index consists of two stocks: Oman Cement and Raysut Cement. Though
government spending may have risen by more than 20% in 2011 (source: GCC Economic Outlook:
NBK), the cement stocks witnessed a decline of 36% in 2011, compared to Muscats general
price index, which declined 16%.
Such a decline may seem unfounded considering that the governments eighth Five-year
Development Plan (2011-2015), which includes massive infrastructure spending on new schools,
hospitals, and transportation. However, this decline may be more justified when factoring in the
situation of the UAE cement dumping. The Omani cement market was aggressively targeted
by the UAE cement players during 2011 as the UAE suffers from major oversupply, and Oman
basically represents the only country to which the UAE can export. This phenomenon is continuing
into 2012, and though both Oman-based companies have followed different strategies to shield
themselves from the UAE players, the cement index seems to have reflected these struggles.
Kuwait
Figure 2-5 Kuwait Cement Index vs. Kuwait Stock Exchange Weighted Index

110

100

90

The Kuwait cement index witnessed

a decline of 36% in 2011,
compared to the 16% decline in
the KSEs weighted index

80

70

60

50

40

KSE Weighted Index

Kuwait Cement Index

Sources: Reuters and NBK Capital

n b k c a p i t a l . c o m | 10

MENAinFocus

February 06, 2012

The Kuwait synthetic cement index, which consists of three operating companies, Kuwait
Cement Company (the only cement manufacturer in the country), Hilal Cement Company, and
Kuwait Portland Cement Company, declined by 36% during 2011, as the KSE weighted index
experienced a fall of 16%.
The previous Kuwaiti Parliament approved a mega-development plan worth USD 129 billion in
projects, expected to be completed during 2010-2014. According to Kuwaits National Assembly,
798 new projects are currently under construction in the country, and USD 17.5 billion is
scheduled to be spent on such projects during 2011-2012. We believe that the Kuwait cement
sector is likely to be one of the main beneficiaries of the countrys much talked about multi-billion
dollar development plan. However, delays in the implementation of these projects were witnessed
throughout 2011. Also, the country experienced some political unrest during 2011 which led to
the dissolution of the Kuwaiti Parliament in December 2011. It may still be surprising that the
Kuwait cement index had witnessed such a hard fall during the year, considering cement prices
in Kuwait have been the highest among the GCC countries, hovering around USD 79-85 per ton.
UAE
Figure 2-6 UAE Cement Index vs. MSCI UAE
110

100

90

The MSCI UAE dropped by

20% in 2011, as the UAE
cement index slumped 44%

80

70

during the year

60

50

40

MSCI UAE

UAE Cement Index

Sources: Reuters and NBK Capital

Currently, there are seven publicly listed cement companies across the UAE. All cement companies
are currently trading on the Abu Dhabi Stock Exchange, with the exception of National Cement
Company, which trades on the Dubai Stock Exchange. In 2011, the MSCI UAE dropped by 20%,
but the cement index slumped 44% during the year.
It has been a bumpy ride for the UAE cement industry ever since the collapse of the real estate
market in 2008-2009, when a steady shift in focus was seen from real estate and construction
to other sectors such as oil, gas, and power. Most UAE companies are currently running at or
close to cash break-even, putting a floor to prices. The UAE has the lowest domestic prices within
the region. In addition, the UAE cement players remain at a significant disadvantage in cost of
production as most gas prices are subsidized across the GCC, which is not the case in the UAE.
Therefore, it may come as no surprise for the cement index to witness such a decline over the year.

n b k c a p i t a l . c o m | 11

MENAinFocus

February 06, 2012

GCC
Figure 2-7 GCC Cement Indices
150
140
130
120
110

The GCC cement indices had

mixed performances during 2011

100
90
80
70
60
50
40

UAE Cement Index

Qatar Cement Index

Kuwait Cement Index

Saudi Cement Index

Oman Cement Index

Sources: Reuters and NBK Capital

It is obvious that the Saudi Arabian cement index surged during 2011 outperforming both its
countrys index, and its GCC peers cement indices. However, the performance of Kuwaits cement
index during 2011 may seem disappointing considering the countrys strong economic condition
and budgeted infrastructure projects. The country had also been tightly placed in terms of demand
as opposed to the overhang of supply in most GCC countries. In addition, Qatars cement index
performance may be considered unexceptional when looking at the countrys economic prospects.
The index, with marginal advancements, seemed to be experiencing a transitional year. Going
into 2012, the Saudi Arabian cement stocks may seem to be fairly valued, whereas one could
expect an increase in value for the Kuwait cement stocks. The UAE clearly underperformed all
of its GCC peers cement indices after experiencing a decline by almost half in 2011. We do not
believe that the situation will change for UAE cement players in the short-term. However, it should
be expected that eventually marginal players will disappear and the market will rationalize. The
countrys dull performance had also taken its toll on Oman. Though growth in the non-oil sector
for Oman is expected to remain strong at 5% in 2012 (source: NBK: Economic Outlook), UAE
cement dumping may continue to affect the countrys cement index performance.
Valuation
When comparing enterprise value (EV)/ton ratios, the averages of cement companies in Saudi
Arabia, Qatar and Kuwait, are trading above the GCC average. However, we feel it is necessary to
account for Kuwait Cements upcoming capacity, which would reduce the companys EV/ton value
by almost half. This would place it at par with its GCC peers. It is also not surprising that the UAE
EV/ton average is trading below that of its GCC peers. Overall, the regions cement stocks had
mixed themes during 2011, and whether these trends continue will be a test of time.

n b k c a p i t a l . c o m | 12

MENAinFocus

February 06, 2012

Figure 2-8 Valuation Table

Valuation
Company Name

Country

EV / Ton
(USD)

Stock Performance
YTD

1 yr

Southern Province Cement Co.

KSA

511.5

0%

43%

Yamama Cement Co.

KSA

401.3

7%

36%

Saudi Cement Co.

KSA

392.4

15%

70%

Qassim Cement

KSA

521.9

2%

25%

Yanbu Cement Co.

KSA

477.2

-2%

48%

Eastern Province Cement Co.

KSA

366.9

8%

35%

Arabian Cement Co.

KSA

254.2

2%

50%

Tabuk Cement

KSA

370.9

5%

30%

Al Jouf Cement

KSA

368.1

10%

45%

Hail Cement

KSA

nmf

19%

45%

KSA Average

407.2

Gulf Cement Co.

UAE

71.2

34%

-37%

Fujairah Cement Industries Co.

UAE

110.8

-10%

-17%
-31%

Union Cement Co.

UAE

42.1

-5%

Sharjah Cement Co.

UAE

36.1

40%

-8%

Umm Al Qaiwain Cement

UAE

127.7

22%

-8%

National Cement Company

UAE

154.9

49%

-12%

RAK Cement

UAE

65.9

-2%

-19%

UAE Average

86.9

Raysut Cement

Oman

135.6

-6%

-39%

Oman Cement

Oman

150.2

0%

-30%

Oman Average

142.9

Qatar National Cement

Qatar

352.8

1%

6%

Al Khalij Holding Co

Qatar

328.5

-6%

-6%

Qatar Average

340.6

Kuwait Cement Co.

Kuwait

486.9

-2%

-31%

Kuwait Portland Cement

Kuwait

nmf

-1%

-54%

Hilal Cement

Kuwait

nmf

-21%

-21%

GCC Average

272.7

Sources: Reuters and NBK Capital

n b k c a p i t a l . c o m | 13

MENAinFocus

February 06, 2012

Companies in Focus (Prices as of January 31, 2012)

Sector

Country

Currency

Closing
Price

Date of Last
Report

12-Month
Fair Value

Recommendation

PE
2011

2012

PB
2013

Latest

2012

2013

Banking
Abu Dhabi Commercial Bank

UAE

AED

2.93

26-Jan-12

3.30

Accumulate

5.4*

8.8

6.9

0.7*

0.7

0.7

Abu Dhabi Islamic Bank

UAE

AED

3.20

29-Dec-11

3.60

Accumulate

6.8

6.6

5.9

0.9

0.8

0.8

Arab National Bank

Saudi Arabia SAR

27.50

12-Jan-12

37.50

Buy

10.8*

8.9

7.7

1.4

1.2

1.1

BankMuscat

Oman

0.738

15-Jan-12

0.780

Hold

9.7*

9.3

7.9

1.3*

1.2

1.1

OMR

Banque Saudi Fransi

Saudi Arabia SAR

42.30

17-Jan-12

49.50

Accumulate

10.5*

9.3

8.2

1.6

1.4

1.2

Doha Bank

Qatar

QAR

62.90

19-Jan-12

70.60

Accumulate

10.5*

10.2

8.8

1.8*

1.8

1.7

First Gulf Bank

UAE

AED

17.15

30-Jan-12

20.00

Buy

6.9*

6.4

5.6

1*

0.9

0.8

National Bank of Abu Dhabi

UAE

AED

10.70

31-Jan-12

12.40

Accumulate

8.3*

7.5

6.7

1.2*

1.0

0.9

National Bank of Oman

Oman

OMR

0.319

24-Jan-12

0.320

Hold

10.1*

9.4

8.2

1.2*

1.2

1.1

Qatar Islamic Bank

Qatar

QAR

82.40

19-Jan-12

90.50

Accumulate

14.3*

11.6

10.5

1.7*

1.6

1.6

QAR

Qatar National Bank

Qatar

133.10

31-Jan-12

146.50

Accumulate

12.4*

11.2

10.0

2.2*

1.9

1.7

Riyad Bank

Saudi Arabia SAR

23.55

18-Jan-12

33.80

Buy

11.2*

10.0

8.6

1.2

1.1

1.0

Samba Financial Group

Saudi Arabia SAR

45.20

19-Jan-12

58.00

Buy

9.5*

8.3

7.5

1.5

1.2

1.1

Saudi Hollandi Bank

Saudi Arabia SAR

29.70

15-Jan-12

30.70

Hold

9.5*

9.3

8.1

1.4

1.2

1.1

The Commercial Bank of Qatar

Qatar

QAR

82.80

25-Jan-12

106.80

Buy

10.9*

9.2

8.2

1.4*

1.4

1.3

The Saudi British Bank

Saudi Arabia SAR

42.20

16-Jan-12

49.00

Accumulate

11*

9.5

8.4

1.9

1.6

1.4

Union National Bank

UAE

3.06

29-Dec-11

3.70

Buy

5.0

5.4

4.9

0.6

0.5

0.5

Closing
Price

Date of Last
Report

12-Month
Fair Value

Sector

Country

AED
Currency

Recommendation

PE
2011

2012

EV/EBITDA
2013

2011

2012

2013

Building Materials
Ezz Dekheila Steel

Egypt

EGP

449.33

Under Review

Under Review

na

na

na

na

na

na

Ezz Steel

Egypt

EGP

5.64

Under Review

Under Review

na

na

na

na

na

na

Lecico

Egypt

EGP

6.49

07-Dec-11

8.90

Buy

12.7

6.8

5.3

5.6

4.5

4.0

Oman Cement Co.

Oman

OMR

0.419

29-Jan-12

0.631

Buy

10.8*

8.6

7.6

7.2

6.7

6.0

Qatar National Cement Co.

Qatar

QAR

112.90

23-Oct-11

93.60

Reduce

14.4

11.2

11.3

11.7

9.5

9.7

Raysut Cement Co.

Oman

OMR

0.720

02-Nov-11

0.869

Hold

9.8

8.8

7.5

8.5

8.8

7.5

Yamama Cement

Saudi Arabia SAR

74.00

14-Nov-11

71.73

Accumulate

13.5*

7.1

7.1

9.9*

7.1

7.1

Contractors
Arabtec

UAE

AED

2.01

07-Dec-11

1.47

Hold

22.0

14.4

10.6

6.9

6.2

5.6

DEPA

UAE

USD

0.36

07-Dec-11

0.77

Buy

7.1

5.6

5.6

3.7

2.8

3.0

Drake and Scull

UAE

AED

0.88

20-Nov-11

1.05

Buy

8.5

9.1

8.4

6.4

6.5

6.1

Orascom Construction

Egypt

EGP

250.29

04-Dec-11

287.06

Buy

11.4

7.3

7.0

7.8

6.2

6.0

Emaar

UAE

AED

2.74

17-Nov-11

3.47

Buy

10.3

12.4

18.9

7.0

7.7

11.0

Mabanee

Kuwait

KWD

0.860

23-Nov-11

1.080

Buy

23.3

14.3

11.8

20.6

13.2

10.5

Salhia Real Estate Co.

Kuwait

KWD

0.206

25-Jan-12

0.300

Buy

15.3

21.0

22.0

11.4

11.7

12.1

Sorouh

UAE

AED

0.84

13-Nov-11

2.41

Buy

6.0

5.9

2.4

6.6

7.0

3.1

Batelco

Bahrain

BHD

0.394

24-Jan-12

0.560

Buy

7.1*

6.7

6.7

3.6*

3.6

3.6

du

UAE

AED

2.95

16-Nov-11

4.16

Buy

14.8

12.3

11.2

5.1

4.2

3.7

Etisalat

UAE

AED

9.50

09-Jan-12

10.42

Accumulate

10.5

10.1

9.7

4.5

4.4

4.3

Jordan Telecom

Jordan

JOD

5.54

05-Feb-12

4.45

Reduce

15.4*

15.7

15.5

7.1*

6.9

6.7

Mobily

Saudi Arabia SAR

58.50

19-Jan-12

77.00

Buy

8.1*

7.7

7.2

6.2*

5.8

5.4

Mobinil

Egypt

104.75

13-Dec-11

100.00

Accumulate

nmf

27.3

22.8

4.8

4.5

4.2

Real Estate

Telecommunications

EGP

Nawras

Oman

OMR

0.632

31-Jan-12

0.790

Buy

8.6*

9.0

9.0

4.5*

4.3

4.2

Omantel

Oman

OMR

1.309

07-Dec-11

1.450

Accumulate

8.9

9.7

10.1

4.2

4.4

4.4

QAR

Qatar Telecom

Qatar

146.00

30-Jan-12

180.00

Buy

9.8

9.2

10.0

3.2

3.2

3.1

Saudi Telecom

Saudi Arabia SAR

34.30

19-Jan-12

42.00

Buy

8.9*

9.0

8.8

4.6*

4.4

4.4

Telecom Egypt

Egypt

EGP

14.98

14-Nov-11

20.00

Buy

9.0

9.8

9.4

4.4

4.6

4.5

Vodafone Qatar

Qatar

QAR

7.30

22-Jan-12

8.47

Accumulate

nmf

nmf

nmf

nmf

nmf

16.5

Wataniya Telecom

Kuwait

KWD

2.000

30-Jan-12

2.690

Buy

10.6

11.4

11.6

3.6

3.5

3.5

Agility

Kuwait

KWD

0.370

Air Arabia

UAE

AED

0.65

02-Nov-11

Aramex

UAE

AED

1.77

DP World

UAE

USD

10.95

Jazeera Airways

Kuwait

KWD

0.460

AED

Transportation & Logistics

Under Review

nmf

na

na

6.9

na

na

0.75

Accumulate

12.3

14.3

13.7

5.1

3.6

2.7

05-Feb-12

2.20

Buy

12.3*

11.1

9.6

6.8

6.1

5.5

31-Jan-12

14.00

Buy

17.7

19.6

17.7

9.0

9.3

8.9

03-Nov-11

0.450

Accumulate

9.2

8.8

8.2

10.7

10.2

9.6

Under Review

Others
Agthia

UAE

Almarai

Saudi Arabia SAR

1.79

22-Dec-11

2.20

Buy

12.4*

10.9

9.5

8.2

6.5

5.6

102.00

18-Jan-12

117.00

Accumulate

18.0*

14.8

12.7

14.9*

12.5

10.7

Dana Gas

UAE

AED

0.40

GB Auto

Egypt

EGP

23.16

Under Review

Under Review

10.8

na

na

7.9

na

na

05-Dec-11

32.80

Buy

13.7

11.4

8.6

6.5

5.9

4.7

Oriental Weavers

Egypt

EGP

29.98

01-Dec-11

30.20

Hold

11.6

9.1

6.8

7.4

6.3

5.1

Juhayna

Egypt

EGP

4.71

11-Dec-11

5.50

Buy

15.6

12.9

10.0

8.0

6.5

5.4

Qatar Electricity and Water Co.

Qatar

QAR

141.20

21-Nov-11

167.00

Buy

10.2

10.0

9.5

10.4

10.2

10.0

Savola

Saudi Arabia SAR

31.40

18-Jan-12

30.00

Accumulate

13.1*

13.3

11.0

11.4*

10.7

9.4

* FY2011 actual results

n b k c a p i t a l . c o m | 14

MENAinFocus

February 06, 2012

RISK AND RECOMMENDATION GUIDE

RECOMMENDATION

UPSIDE (DOWNSIDE) POTENTIAL

BUY

MORE THAN 20%

ACCUMULATE

BETWEEN 5% AND 20%

HOLD

BETWEEN -10% AND 5%

REDUCE

BETWEEN -25% AND -10%

SELL

LESS THAN -25%

RISK LEVEL

LOW RISK

HIGH RISK

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n b k c a p i t a l . c o m | 15

MENAinFocus

February 06, 2012

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Credit Bank of Iraq
Street 9, Building 187
Sadoon Street, District 102
P.O.Box 3420, Baghdad, Iraq
T. +964 1 7182198/7191944
+964 1 7188406/7171673
F. +964 1 7170156
Egypt
Al Watany Bank of Egypt
13 Al Themar Street
Gameat Al Dowal AlArabia
Fouad Mohie El Din Square
Mohandessin, Giza, Egypt
T. +202 333 888 16/17
F. +202 333 79302

United Kingdom
National Bank of Kuwait (Intl.) Plc
Head Office
13 George Street,
London W1U 3QJ, UK
T. +44 20 7224 2277
F. +44 20 7224 2101
NBK Investment
Management Limited
13 George Street
London W1U 3QJ, UK
T. +44 20 7224 2288
F. +44 20 7224 2102
France
National Bank of Kuwait (Intl.) Plc
Paris Branch
90 Avenue des Champs-Elysees
75008 Paris, France
T. +33 1 5659 8600
F. +33 1 5659 8623
Singapore
National Bank of Kuwait SAK
Singapore Branch
9 Raffles Place #51-01/02
Republic Plaza, Singapore 048619
T. +65 6222 5348
F. +65 6224 5438

China
National Bank of Kuwait SAK
Shanghai Representative Office
Suite 1003, 10th Floor,
Azia Center, 1233 Lujiazui Ring Rd.
Shanghai 200120, China
T. +86 21 6888 1092
F. +86 21 5047 1011
ASSOCIATES
Qatar
International Bank of Qatar (QSC)
Suhaim bin Hamad Street
P.O.Box 2001
Doha, Qatar
T. +974 447 3700
F. +974 447 3710
Turkey
Turkish Bank
Head Office
Valikonagl Avenue No. 1
P.O.Box 34371 Nisantasi,
Istanbul, Turkey
T. +90 212 373 6373
F. +90 212 225 0353

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DUBAI

ISTANBUL

CAIRO