February 2020 - Volume 14, No 157

Summary Equity Markets The TEDPIX index and junior Farabourse (IFB) market expanded 13% and 9% in IRR terms over the month, respectively. Based on the unofficial exchange rate, the month-on-month gain in dollar terms accelerate by 10% in TSE and 6% in Farabourse market. This was mainly due to 3% depreciation of IRR exchange rate over the month.

Debt Markets For the start of the Iranian calendar year (March 2019) to end January, total issuance on the fixed income market reached 5.9 billion US$ based on the unofficial exchange rate. Yield to maturity (YTM) remained stable at 19.76% at the end of January.

Economic Review This issue reviews the updates on investment share in GDP and industrial production statistics published by Monetary and Banking Research Institute, Chamber of Commerce and IMF. In addition, we have included a separate report covering the latest macroeconomic data published by relevant organizations and senior macroeconomic strategists in a fact-sheet summary, as well as an economic calendar released by local and international statistics centres.

Tochal Mountain, Tehran Photo: Kourosh Odouli 1 Investment Monthly Table of Contents 3 Market Overview 3 Market Update

4 Performance & Updates

5 Historic Trends & Sector Insight

6 Industry at a Glance

7 Market Snapshot

8 TSE & Junior Market Performance

9 Top Ranked Companies

10 Iran’s Fixed Income Market 12 Economic Review

12 Latest Updates

14 Macroeconomic Data 15 News & Views

15 Recent Brokerage Reports

15 Turquoise News

2 Iran Investment Monthly Market Overview February 2020 - Volume 14, No 157

Market Update

The (TSE) maintained its positive performance in January, second best performing month since October 2019 in local currency terms, as the overall index rose by 13% in Iranian Rial.

The government’s decision to offer a tax exemption to the listed companies on their asset’s revaluation has boosted stock market sentiment and pushed the equity prices of asset rich companies significantly higher.

The increasing number of individual investors in stock market with no experience or background knowledge is the other key reasons of the ongoing upward trend. As a result, the monthly trade value has increased 95% compared to the one-year average in USD terms.

The chart below portrays how the market has been flocked by new investors Shervin Shahriari Chief Investment Officer over the course of the past few months.

TSE Trade Volume (million USD)

5000 4142 4000

3000 One Year Average: 2123 Million USD

2000

1000 US$

Million 0 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Source: TSE

The Automotive and pharma sectors led the gains by recording rises 17% and 13% in IRR terms in their respective sub-indices. However, it should be of no surprise that sectors such as banks, pharmaceuticals, automotive and telecommunication have been unable to adjust their topline in line with the devaluing currency. That is why we think that the impact of this revaluation on the stock prices will be short lived since the free cash flow they generate are not affected by this development.

3 Iran Investment Monthly Market Overview February 2020 - Volume 14, No 157

Performance & Updates

11 - Year Average (2008-2019)1 Market Capitalization (billion US$) 2 108 TSE & Farabourse Junior Market P/E 6.6 x TSE Dividend Yield (%) 11 % TSE Market Cap / GDP 35 % TSE & Farabourse Dividend Growth Rate 23 % TSE Total Turnover (billion US$), Average Annual 16 TSE TSE Overall Index Average Annual Growth (US$) 16 % TSE

1 Annual data from 2008 to January 2020 2 Calculated based on unofficial IRR per US$ exchange rates.

Summary - January 2020 Market Capitalization (billion US$) 154 TSE & Farabourse Junior Market Free Float 22 % TSE & Farabourse Junior Market Number of Listed Companies1 620 TSE & Farabourse Junior Market

TSE Index Performance (US$)2,4 10.1 % (MTD) 10. 1% (YTD) TSE Total Turnover (million US$)2 7,250 TSE & Farabourse Junior Market Dividend Yield (%) 3 8.3 % TSE P/E 8.6 x

1 172 companies are listed in Over-The-Counter (OTC) or off-exchange market named as “Base Market” in Farabourse junior market which trading of these companies are done directly between two parties. 2 Calculated based on unofficial IRR per US$ exchange rates. 3 Calculated based on the latest market data 4 TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index)

Tehran Stock Exchange & Junior Market Trade by Value1 - January 2020

Iran Farabourse (Junior Market) Trade Volume (million US$)

Tehran Stock Exchange (Main Market)Trade Volume (million US$)

Over the past 11 months, both the Tehran Stock Exchange and the Iran Fara Bourse Market have performed incredibly well. We have seen both exchanges reach record highs with the performance of the TSE and IFB to 143% and 136% in IRR terms respectively. In hard currency terms, the performance has been equally as impressive, with a positive return of 139% on the TSE and 132% on the IFB (March 2019 - January 2020). In January 2020, the market’s total trade value expanded to 7250 million US$ from the 3957 million US$ historic 12-month average. The total number of shares traded on the TSE expanded by 34% compared to the one-year historic average of 81 billion shares. . US$ Million

Source: Tehran Stock Exchange Iran Farabourse Company All figures in US$ are converted from IRR at the free market rate 1 Trading volume month on month in US$ term - TSE includes mainly equity while Farabourse has more fixed income instruments and smaller equities.

4 Iran Investment Monthly Market Overview February 2020 - Volume 14, No 157

Historic Trends & Sector Insight

Long-Term Overall Index (Normalized in USD) Long-Term Iranian Market Cap ( Normalized in USD)

Historic Average: 161 Historic Average: 156 January 2020: 267 January 2020 : 230

TSE Best Performing Sectors & Overall Index (Normalized in USD)

117

Banks 112 Pharmaceuticals 108 Auto 108 Overall

TSE Large Sectors (% Market Capitalization)

22% 14% 9% 8% 7% 5% 5% 4% 26% Other Mining Banks Metals* Pharma Telecom Chemicals Diversified

Source: TSE, Bonbast, as of Jan 2020 *Metals sector includes , copper and aluminum

5 Iran Investment Monthly Market Overview February 2020 - Volume 14, No 157

Industry at a Glance - January 2020

Top Performing Companies Market Cap YTD Return (%) 1 Year Return 5-Year Return (%) Sector in January 2020 (MOM %) (Million USD) in USD Trailing (%) in USD in USD

Sadid Industrial Group 246 45% -61% -25% Metals* Iran Mineral Processing Company 81 34% -59% -5%

Kavian Steel Company 108 68% -8% -

Bafgh Mining Co. 168 -77% 117% 14%

Mining Bama 192 36% 97% -31%

Damavand Mining Co. 21 26% 199% 234%

Pars Oil 388 9% 44% -57%

Petroleum Oil Industry Investment Company 135 12% 63% -27%

Pasargad Oil 265 11% 270% -81%

Amir kabir Petrochemical 1193 50% 83% 64%

Chemical Jahrom Petro 57 51% 34% -71%

Tolypers 19 41% 219% 9%

Ayandeh Bank 361 20% 27% -36%

Banks Tourism Bank1 130 11% - -

Sarmayeh Bank 68 9% 124% -

TSE Large Sectors 5-Year Performance (Normalized in USD)

Metals 176 Petroleum Mining Chemical 130 Banks 118 118

67

Source: TSE, Bonbast, as of ending January 2020 1The company is recently being listed on stock exchange *Metals sector includes steel, copper and aluminum

6 Iran Investment Monthly Market Overview February 2020 - Volume 14, No 157

Market Snapshot -January 2020 Iran & Regional Markets

Iran: A 25-Year Snapshot, Asset Class Annualized Return in US$ (%) P/E Multiple Comparison 11% MSCI Morocco 21.3 Kuwait 16.9 Qatar 14.0 6% MSCI Arabian Markets 15.7 5% MSCI GCC Countries 15.8 MSCI 10.3 Saudi Arabia 18.2 1% UAE 10.1

% Iran 8.6

Note: Annual data from 1995 to January 2020 Source: CBI, TSE, IFB Turquoise Iran Fund* 5.7 All figures in US$ are converted from IRR at the free market rate Sub Fund B/C, as of ending January 2020

Iran & International Markets

3 4 Tehran Stock Exchange MSCI Emerging Markets MSCI Frontier Markets

Average P/E Average P/E Average P/E 8.6 14.6 13.5 1 1-Year Performance in $ 1-Year Performance in $ 1-Year Performance in $ 141% 4.2% 12.9% Annualized 10 Year in $ 2 Annualized 10 Year in $ Annualized 10 Year in $ 10.6% 4.1% 5.9%

22.4 Chemicals 23.8 Financials 54.6 Financials 13.7 Basic Metals 16.1 Information Technology 12.9 Communication Services 8.9 Refined Petroleum 14.3 Consumer Discretionary 10.0 Real Estate 7.6 Metal Ores Mining 11.5 Communication Services 6.9 Consumer Staples 7.3 Monetary intermediation 7.3 Energy 4.5 Industrials

Sector Breakdown (%) 40.1 Others Sector Breakdown (%) 27.15 Others Sector Breakdown (%) 11.2 Others

1.TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index) performance calculated in US$ for the Period of Jan 2019 to Jan 2020 2.TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index)10 year annualized performance calculated in US$ 3.MSCI Emerging Markets Index (US$) - Jan 2020 4.MSCI Frontier Markets Index (US$) - Jan 2020 Source: Tehran Stock Exchange - Central Bank of Iran - MSCI Inc., Kamcoonline. All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

7 Iran Investment Monthly Market Overview February 2020 - Volume 14, No 157

TSE & Junior Market Performance Tehran Stock Exchange: TEDPIX*, January 2020

Normalised in US$ Normalised in US$

Volume million shares Million Shares

Source: Tehran Stock Exchange *TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index) All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

Iran Farabourse (Junior Market): IFX*,January 2020

Normalised in US$ Normalised in US$

Volume million shares Million Shares

Source: Iran Farabourse Company *Iran Farabourse (Junior Market) Overall Index (Total Return) All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

8 Iran Investment Monthly Market Overview February 2020 - Volume 14, No 157

Top Ranked Companies - January 2020 Turnover Value % Total Turnover (million US$)

Maaden & Felezat 0.4% Established in 1995, MMDIC invests in a wide range of mining 15.5 and metal manufacturing projects. Investment Co

Iran Khodro Founded in 1962, Industrial Group (also known 0.2% as IKCO) is the leading Iranian vehicle manufacturer. 8.4 IKCO produces c.%65 of all domestic vehicles, and is the largest automotive manufacturer in the .

Founded in 1991, Saipa Azin manufactures the Saipa Azin 7.5 0.2% automotive interior parts.

Glucosan is the leading manufacturer of starch and glucose derivatives in Iran. The Glucosan 0.2%

Top 5 Traded by Value Traded 5 Top company was founded in 1970, in Qazvin, 6.6 in the Alborz region of Iran and since then, has been the market leader in corn related products. Iran Chemical Founded in 1984, ICIIC produce a 0.2% wide range of chemicals including Industries 6.5 detergents raw material, normal- Investment paraffin, Linear Alkyl Benzene (LAB), and Heavy Alkylate (HAB). Market Cap % Total Market Cap. (million US$) Persian Gulf PGPIC was established in the first phase of the privatization of Iran’s petrochemical Petrochemical 5.8% sector when the National Petrochemical Company (NPC) transferred its shares in a 6,530 number of petrochemical companies to PGPIC, paving the way for the formation of Iran’s Industry first private petrochemical holding company. NPC has continued in its role as a policy making body.

Esfahan Steel Company, one of the largest industrial Mobarakeh Steel complexes in the country, started its operation in 1991 with a nominal 5.2% capacity of 2.4 million tons per annum. The company produces Manufacturing 5,880 more than 50% of Iran’s steel and operates in seven industrial complexes.

In 1972, Sarcheshmeh Copper Mines Joint Stock Co of National Iranian Kerman was established and, later, in 1976, it was renamed 4.0% to National Iranian Copper Industries Co. to cover all copper Copper Ind. Co. 4,508 mines operations throughout the country. This company is active in extraction & utilization of copper mines, production of copper concentrates & manufacturing copper products. Pars Petrochemical Co. manufactures and Pars Petrochemical markets petroleum and petrochemical products. 2.5% The company offers ethane, propane, butane, 2,798 ethyl benzene, and ethylene. The company was founded in 1998 and is based in Asaluyeh, Iran and was listed in 2018. Pars Petrochemical Co. Golgohar Mining Top 5 by Market Capitalization Top Founded in 1991, Golgohar Mining & Industrial and Industrial Company is one of the largest iron ore and iron 2.4% pellet producers in Iran. The company operates in Company 2,748 combined plants among six iron mine zones about 55 km southwest of Sirjan city near Kerman province.

Source: Tehran Stock Exchange, Firouzeh Brokerage. All figures in US$ are converted from IRR at the unofficial rate.

9 Iran Investment Monthly Market Overview February 2020 - Volume 14, No 157

Iran’s Fixed Income Market For the start of the Iranian calendar year (March 2019) to end-January, total issuance on the fixed income market reached 5.9 billion US$ based on the unofficial exchange rate. Yield to maturity (YTM) remained stable at 19.76% at the end of January.

Iran’s Debt Securities Market - January 2020 0.30 7.7 Tehran Stock Exchange Iran Farabourse (Junior Market)

Market Value (billion US$)* 4.28 14.1 Tehran Stock Exchange Iran Farabourse (Junior Market)

Average Daily Trading Value (million US$)* 2,350,822 576,282 Iran Farabourse (Junior Market)

Average Daily Trading Volume (bonds)

* As of 31 January 2020

Value & Breakdown of Sukuk Issuance in Iran’s Capital Markets, 2020 (1398)** - (billion US$)

58% Islamic T-Bills 26% 6% Other Musharakah Sukuk

9%

Salaf (Salam) Sukuk 1% Murabaha Sukuk

Source: Iran Farabourse **Calculated by the unofficial exchange rate in the period of issuance, percentages have been rounded and may not total to 100.

10 Iran Investment Monthly Market Overview February 2020 - Volume 14, No 157

Iran’s Fixed Income Market

Snapshot of the Highest Yielding Debt Securtites1 - January 2020

Issuer Type YTM (p.a.) Maturity

Corporate Fixed Income 0.244 21-Oct-22

Corporate Ijara 0.241 31-Jan-22

Corporate Fixed Income 0.241 2-Feb-22

Government Ijara 0.239 14-Mar-21

Corporate Fixed Income 0.239 2-Feb-22

Government Murabaha 0.237 6-Feb-21

Corporate Murabaha 0.237 11-Nov-21

Corporate Ijara 0.235 24-May-21

Corporate Fixed Income 0.234 2-Feb-22

Corporate Sukuk 0.233 22-Jul-21

1 This snapshot is a selection of the highest yielding securities with minimum one year maturity in Iran’s debt markets and should not be considered as a solicitation or recommendation by Turquoise Partners.

Iran’s T-bills YTM in IRR Term

19.76% Jan 2020

Source: Tehran Stock Exchange - Iran Farabourse - Central Bank of Iran - Bonbast All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

11 Iran Investment Monthly Economic Review February 2020 - Volume 14, No 157

Latest Updates

Investment Share in GDP As a result of tightening sanctions and a further expected government budget deficit, the share of investment in GDP is expected to remain under pressure. Between 2011 and 2018, the share of investment in GDP declined on average by 4% per year. Savings and private investments declined over the past 8 years and government efforts to reduce fuel subsidies and reform taxation showed slow progress. According to the IMF, fuel subsidies cost 1.6% of GDP in 2017/18; meanwhile, the government seeks to improve targeting cash transfers by removing the richest 20 percent of households from the beneficiary list. According to the IMF and Tehran Chamber projections, the Iranian economy and investment will start to recover gradually from 2020 onwards.

Investment Share in GDP : History & Projections

Construction Investment Share in GDP Machinery Investment Share in GDP

Source:Tehran Chamber of Commerce According to IMF and Tehran Chamber projections, the Iranian economy and investment will start to recover gradually from 2020 afterwards. .

GDP Growth Investment Share Growth Rate in GDP

Source: IMF, Tehran Chamber of Commerce

12 Iran Investment Monthly Economic Review February 2020 - Volume 14, No 157

Industrial Production Over the past year, production in the country has gone through two major shocks coming due to foreign trade and foreign exchange rate developments. As illustrated in the chart below between March 2018 and March 2019, industrial production started to decline at a high pace. In March 2019, industrial production declined by a further 10% compared to the same month the previous year. A study published by the Monetary and Banking Research Institute shows that the major decline of production in the aforementioned period was in industries heavily relying on imports such as automotive and automotive parts sectors. Chemical and metal sectors, as two major export sectors, are in a better position. Consumer sectors such as food and beverage, paper, pharmaceutical, machineries and mining registered positive growth rates between March 2019 and November 2019.

Industrial Production Index (Growth rate vs. same period last year)

Industrial Production Index of Listed Companies in TSE Industrial Production Index Published by Statistical Center

Source: Tehran Chamber of Commerce Note: Industrial production index of listed companies in TSE is calculated by analyzing monthly industries’ data published by Tehran Stock Exchange and the overall industrial production is calculated by Statistical Center of Iran.

Production Y/Y (% Chg.) 20

15

10

5

0

-5

-10

-15

-20 Auto Textile Paper Food Refined Plastic Chemical Metals Electrical Non-Metal Mining Pharma Machineries Petroleum Machineries Ores

13 Iran Investment Monthly Economic Review February 2020 - Volume 14, No 157

Macroeconomic Data Iran Economic & Market Data Data Macroeconomic Forecast Calendar Unit 2019/ 20 2020/ 21 2021/ 22

SCI: A Selection of Labour Force Survey Nominal GDP (Billion US$) 486 495 515 Results: Autumn 1398 Released: 5 February 2020 Real GDP Growth (%) -9.5 0.2 0.9

Inflation (%) 36 31 29

Government Net Lending Borrowing (% GDP) -4% -4% -5%

Current Account Balance (% GDP) -0.4% -0.6% -0.8%

Actual Macroeconomic Data Unit Period Value Comments

Population Growth % 2011- 2016 1.24% -

Fall Unemployment Rate % 10.60% - 2019 Jan-20 Inflation Rate % 37% 2016 = 100 (Y/Y)

Non-oil GDP Growth % 2018 -2.40% 2011 = 100

2019 GDP Growth % -7.60% 2011 = 100 (9m 1398)

Sources: IMF, Central Bank of Iran, Statistical Center of Iran

14 Iran Investment Monthly News & Views February 2020 - Volume 14, No 157

Recent Brokerage Report Turquoise News

Iran Daily Market Update – February 2020 February 9, 2020 The Turquoise Venture Capital Fund started its public market February 29, 2019 subscription on the Iran Farabourse exchange from February 9th 2020 for a period of 7 days. The Fund however was oversub- February 26, 2019 scribed on the 3rd day and was able to raise money from a solid February 25, 2019 mix of both institutional and private investors. This public market subscription set a new record within the Iranian capital markets February 24, 2019 for the venture capital funds, which was a positive news for the Iranian startup ecosystem. February 23, 2019 More Information in Persian

October 2, 2019 Turquoise Partners unveiled an online system to ease investment in start-ups at Iran National Library. More Information

September 17, 2019 On Tuesday, September 17, 2019, the Director of Trade, Invest- ment and Innovation Department at the United Nations Industri- al Development Organization (UNIDO) and his colleagues had a meeting with Turquoise Partners. In this meeting, which was held at the Turquoise Office, entrepreneurial opportunities in the Iranian tech scene and frontier markets were discussed. More Information

15 Iran Investment Monthly News & Views February 2020 - Volume 14, No 157

Asset • EU Regulated Equity Fund Management • EU Regulated Fixed Income Fund • Domestic Fixed Income Fund • Domestic ETF TSE-30 • Domestic Mutual Fund • Managed Accounts

Investment • Banking Services • M&A • ECM • DCM • Private Placement • Institutional Equity Sales • Retail Equity Sales • Market Entry Strategy

Principal Strategic Investments

16 Iran Investment Monthly February 2020 - Volume 14, No 157 Turquoise Partners 7th floor, Mahdyar Building, Salehi Street, Niavaran Ave. Tehran, Iran Tel: + 98 21 22 70 62 38 Fax: +98 21 881 07 746 Email: [email protected]

Firouzeh Asia Brokerage 5th Floor No. 11, Mirza Hassani St. Ghaem Magham Farahani Ave. Tehran, Iran Tel: +98 21 881 06 106 Fax: +98 21 881 07 746 Email: [email protected]

DISCLAIMER This document has been issued by Turquoise Partners for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell any security or other financial instrument or to any particular category of investors in jurisdictions in which such an offer or solicitation to the public or to any particular category of investors is illegal. Although the material in this report is based on information that Turquoise Partners considers reliable, Turquoise Partners does not make any warranty or representation (express or implied) in relation to the accuracy, completeness or reliability of the information contained herein. Any opinions expressed herein reflect a judgment at the date of publication and are subject to change. Turquoise Partners accepts no liability whatsoever for any direct, indirect or consequential loss or damage of any kind arising out of the use of all or any of this material. Where Turquoise Partners provides information in the document, it is provided exclusively for information purposes. The information does not constitute any form of recommendation related to the personal circumstances of investors or otherwise, nor does it constitute any specific or general recommendation to buy, hold, or sell financial instruments and does not thus create any relationship between Turquoise Partners and any investor. The document may not include all the up-to-date information required to make investment decisions. Other more accurate and relevant sources of information may exist. Investors should thus diligently inform themselves about the chances and risks of the investments prior to taking investment decisions. In addition to the financial aspects, this should include, in particular, the legal and tax aspects of the investments. It is strongly recommended that any potential investor should contact a financial adviser and, where required, a lawyer or tax adviser. Furthermore, it should also be considered that the future performance of financial instruments and their return cannot be inferred from their past performance. The value of investments may go down as well as up and investors in financial instruments should be capable of bearing a total loss of investment. Neither Turquoise Partners nor any third party content provider shall be liable for any errors, inaccuracy, delay or updating of the published content of the provided document. Turquoise Partners expressly disclaims all warranties as to the accuracy of the content provided, or as to the use of the information for any purpose, as far as legally possible. This material is for the use of intended recipients only and neither the whole nor any part of this material may be duplicated in any form or by any means. Neither should any of this material be redistributed or disclosed to anyone without the prior consent of Turquoise Partners. PERSONS DOMICILED, RESIDENT OR BASED IN THE UNITED STATES OF AMERICA ITS TERRITORIES OR POSSESSIONS OR WHO MAY OTHERWISE BE CONSIDERED AS UNITED STATES PERSONS, INCLUDING REPRESENTATIVES OF UNITED STATES COMPANIES OR NON-UNITED STATES SUBSIDIARIES OF UNITED STATES COMPANIES SHOULD NOT CARRY OUT ANY ACTION IN BREACH OF U.S. SANCTIONS LAWS.

17 Iran Investment Monthly