April 2011
KUWAIT IN FOCUS Contents
Kuwait Economic Brief...... 2 Oil Market and Budget Developments...... 3 Monetary Developments February 2011...... 7 Real Estate Activity...... 11 Public Finance...... 15
Companies in Focus...... 18 Ahli United Bank (Almutahed)...... 19 Al Ahli Bank of Kuwait (ABK) ...... 22 Aviation Lease and Finance Company (ALAFCO)...... 25 Boubyan Petrochemical...... 28 Burgan Bank (Burgan)...... 31 Burgan Co. for Well Drilling, Trading and Maintenance (Burgan Well Drilling).....34 City Group...... 37 Commercial Real Estate Company (Altijaria)...... 40 Gulf Cable and Electrical Industries Company (Gulf Cable)...... 43 Gulf Insurance Company (GIC)...... 46 Injazzat Real Estate Development Company (Injazzat)...... 50 Kuwait Cement Company...... 54 Kuwait Finance House (KFH)...... 57 Kuwait Financial Center (Markaz)...... 61 Kuwait Food Group (Americana)...... 64 Kuwait and Gulf Link Transport Company (KGL)...... 67 Kuwait National Cinema Company (KNCC)...... 70 Kuwait Projects (KIPCO)...... 73 Kuwait Real Estate Company (KREC)...... 77 Mashaer Holding Company (Mashaer)...... 80 Mobile Telecommunications Company (Zain)...... 83 National Industries Group Holding (NIG)...... 87 National Investment Company (NIC)...... 91 National Real Estate Company (NREC)...... 94 Oula Fuel Marketing Company (Oula)...... 97 Tamdeen Group...... 100 Tamdeen Investment Company (Tamdeen)...... 104 United Real Estate Company (United Real Estate)...... 107 YIACO Medical Company (YIACO)...... 110
Economic Statistics...... 113
Kuwait Market Statistics...... 117
1 | nbkcapital.com Kuwait Economic Brief
• Oil Market and Budget Developments
• Monetary Developments February 2011
• Real Estate Activity
• Public Finance
National Bank of Kuwait NBK Economic Research T. +965 2259 5500 F. +965 2224 6973 E. [email protected]
Disclaimer and Copyright While every care has been taken in preparing this publication, National Bank of Kuwait accepts no liability whatsoever for any direct or consequential losses arising from its use. The Economic Brief is distributed on a complimentary and discretionary basis to NBK clients and associates. This report and previous issues can be found in the “Reports” section of the National Bank of Kuwait’s web site. © Copyright Notice: NBK Economic Brief is a publication of National Bank of Kuwait. No part of this publication may be reproduced or duplicated without the prior consent of NBK.
2 | nbkcapital.com Kuwait Economic Brief Kuwait in Focus - April 2011
Oil Market and Budget Developments
The price of KEC climbed to USD 117 in early April on concerns over Libyan output and weakness in the US dollar.
Demand growth is expected to slow to 1.4 mbpd (1.6%) in 2011, following last year’s demand ‘shock’. But OPEC may still have to lift production this year to avoid a drawdown in global stocks.
An average oil price of USD 94-121 pb in FY2011/12 could yield a budget surplus of KD 9.2 bn for Kuwait’s government, following a KD 4-5 bn surplus in FY2010/11.
Oil prices
Oil prices took yet another leg up in early April. The price of Kuwait Export Crude (KEC) jumped to USD 117 per barrel (pb) on April 8th, up from USD 108 at the end of last month and a similar average for March as a whole. Other major benchmark crude prices also rose. The price of Brent crude – the main European blend – breached the USD 120 mark for the first time since August 2008. The price of West Texas Intermediate (WTI) rose by USD 8 from late March to USD 112, but continues to trade at a discount to other crudes because of oversupply issues at its US delivery point.
Two key factors are responsible for the latest price rise. First, fierce fighting between government and opposition forces has strengthened perceptions that Libyan oil will be shut-in for an extended period. Although a rebel-controlled oil company was set to make its first oil export shipment of some 1 million barrels in early April, the military superiority of the government forces has led some analysts to speculate about the possible targeting of the country’s oil infrastructure in order to choke-off rebel funding. African output was also disrupted by a strike by oil workers in Gabon, which normally produces some 240,000 barrels per day (bpd).
The second key factor has been the growing expectation – subsequently realized on April 7th – of a rise in official interest rates in the Euro area. By widening the spread between Euro and US rates, the US dollar tends to be weakened, which typically boosts the price of dollar- denominated commodities. Something like this occurred in mid-2008, when a surprise hike in Euroland interest rates generated a USD 16 pb jump in crude prices in the space of just two days.
Kuwait Export Crude (USD/barrel)
130
120
110
100
90
80 National Bank of Kuwait NBK Economic Research 70 4Q10 1Q11 2Q11F 3Q11F 4Q11F 1Q12F T. +965 2259 5500 F. +965 2224 6973 E. [email protected] Future projections correspond to NBK’s price scenarios. Source: NBK Economic Research Department
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Oil demand outlook
After last year’s huge rise of 2.9 million bpd (3.4%) – the second largest increase in 25 years –global oil demand growth is set to moderate in 2011. This is largely the result of reduced economic growth prospects as both monetary and fiscal policy are tightened. But in addition, high oil prices are themselves expected to provide a drag on demand, particularly in the slow- growth OECD region. The disaster in Japan is expected to reduce oil demand there in the very short-term. But this may be partially offset for 2011 as a whole by stronger oil demand as lost nuclear power generation capacity is replaced by conventional facilities. Japan accounts for around 5% of global oil demand.
The Centre for Global Energy Studies (CGES) and the International Energy Agency (IEA) both expect oil demand growth of 1.4 mbpd (1.6%) in 2011, bsed on flat-to-falling demand in the OECD region and growth of 3.3 to 3.7% in non-OECD countries. Within this overall figure, however, growth is expected to slow considerably in the second half of the year as the impact of policy tightening begins to feed through.
Kuwait Export Crude Price Scenarios
Scenario $/barrel Low Base High 2010 76.2 76.2 76.2 1Q11 99.4 99.4 99.4 FY10/11 82.5 82.5 82.5 2Q11f 101.1 105.8 109.3 3Q11f 97.1 107.7 118.1 4Q11f 89.5 106.7 127.5 2011f 96.8 104.9 113.6 1Q12f 89.5 106.7 127.5 FY11/12f 94.3 106.7 120.6
Source: NBK Economic Research Department
Oil supply outlook
Output of the OPEC-11 countries (excluding Iraq) rose by 132,000 bpd (0.5%) in February. This was its third big consecutive month-on-month increase and leaves output 0.7 mbpd above the level in November 2010. These figures do not include the full impact of the crisis in Libya on production levels, which should materialise in March’s data. Libyan output dropped 0.23 mbpd to 1.4 mbpd in February, but is anticipated have dropped to 0.2-0.3 mbpd since. February’s drop in Libyan output was more than offset by a strong 280,000 bpd rise in Saudi Arabian output to 8.9 mbpd. It is likely to have risen further in March. Other countries, such as Venezuela, the UAE, and Kuwait have also seen significant increases in output in recent months.
Analysts’ expectations of the rise in non-OPEC oil supply that likely this year range between 0.5 and 1.3 mbpd, which includes around 0.5 mbpd of OPEC natural gas liquids (NGLs). This arithmetic suggests that OPEC may have to raise production significantly over and above that needed to compensate for Libya if the world oil market is to avoid another inventory drawdown this year. And if it does, markets could become increasingly edgy over the continued erosion of the organization’s spare production capacity (which some analysts put at below 3 mbpd), and therefore its ability to react to future shocks.
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Price projections
Our latest central projection for oil prices assumes that oil demand increases by the consensus' projection of 1.4 mbpd. Meanwhile, non-OPEC oil production (including OPEC NGLs) is projected to rise by an above-consensus 1.2 mbpd, with increases from Brazil, Candada and the Former Soviet Union. If stocks are to be rebuilt to more comfortable levels, OPEC may still need to increase its own production by some 1.6 mbpd.
Given the problems in Libya, the sluggish supply repsonse from OPEC so far and, the potential for new supply disruptions – in Nigeria, for example – OPEC output seems unlikely to climb that far; a 0.9 mbpd increase might be more realistic. Under those conditions, stock levels remain more or less unchanged this year. The price of KEC would remain in the USD 105 to USD 110 pb range into early 2012.
It is possible, however, that OPEC output will fail to rise by even this much, either due to unexpected supply disruptions or because MENA policy makers become distracted by local political unrest. An OPEC production increase by 0.7 mbpd this year would generate a drop in stock levels, sending crude prices higher for the rest of this year. The price of KEC would finish the year close to USD 130 pb.
On the other hand, the growth in global oil demand could turn out to be weaker than expected, either because of the impact on economic growth of policy tightening, or perhaps because of the disruption to Japanese exports and the knock-on effect on the global supply chain. If global oil demand rises by just 1.2 mbpd this year, the price of KEC could drop back to USD 90 by the year-end. This may not be a big enough drop to cause OPEC to cut back on its production levels.
Budget projections
The price of KEC averaged USD 82.1 pb in FY 2010/11, up 20% on FY 2009/10. Although official figures have not yet been released, we expect this to have generated budget oil revenues – which account for around 95% of all budget revenues– of some KD 19.7 billion, or 19% higher than in the closing accounts of the year before. If, as we expect, actual government spending comes in 5-10% below budget, last year’s budget surplus should end-up near KD 4.7 billion before allocations to the Reserve Fund for Future Generations (RFFG). This incorporates unplanned spending of KD 1.1 billion arising from the Amiri cash grant paid to citizens in February.
The three price scenarios described above generate oil prices of between USD 94 and USD 121 pb in FY 2011/12 and would be very likely to yield another big budget surplus. Based upon preliminary government statements, total budget spending may be set at KD 17.9 billion this year. Based upon our assumptions, this would yield a surplus of between KD 5.6 billion and KD 14.2 billion, before allocations to the RFFG. This compares with the government’s current projection of a KD 4.5 billion deficit.
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Budget Forecasts for Fiscal Years 2010-2011 and 2011-2012
Under Alternative Oil Price Scenarios FY 2010/11 FY 2011/12 Official Low Base High Prelim. Low Base High (million KD, unless otherwise noted) Budget Case Case Case Budget Case Case Case
Oil Price ($/barrel) 43.0 82.5 82.5 82.5 60.0 94.3 106.7 120.6
Total Revenues 9,719 20,776 20,776 21,012 13,445 22,679 25,835 30,359 Oil Revenues 8,617 19,674 19,674 19,910 12,307 21,541 24,697 29,221 Non-Oil Revenues 1,102 1,102 1,102 1,102 1,138 1,138 1,138 1,138
Expenditures (official) 16,160 16,160 16,160 16,160 17,932 17,932 17,932 17,932 Surplus (deficit) -6,441 4,616 4,616 4,852 -4,487 4,747 7,903 12,427 After RFFG -7,413 2,539 2,539 2,751 -5,832 2,479 5,319 9,391
Expenditures (NBK estimate) 16,452 16,048 15,644 17,035 16,587 16,139 Surplus (deficit), NBK estimate 4,324 4,728 5,368 5,644 9,248 14,221 After RFFG 2,247 2,651 3,267 3,376 6,664 11,185
Source: NBK Economic Research Department
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Monetary Developments—FEBRUARY 2011
Large jump in February money supply thanks to Amiri grant…credit flat on month
During February, money supply (M2) expanded 6.3% m/m (up KD 1.6 billion), largely caused by the payment of the KD 1.13 billion Amiri grant on February 22nd. The grant counted as an injection of money, since the government transferred money from an overseas account to complete the payment. As a result, the Central Bank of Kuwait’s (CBK) net foreign assets showed a large 29.6% m/m increase (up KD 1.5 billion).
Monetary Highlights
Change Feb 2011 One Month Twelve Month Year-Over-Year (KD Millions, unless otherwise noted) mn KD % mn KD % mn KD %
Local Bank Assets 42,561 2.9 955 2.3 1,761 4.3 of which: Claims on Government 1,878 -1.3 -24 -1.2 -46 -2.4 Credit to Residents 25,254 0.0 180 0.7 108 0.4 Foreign Assets 7,316 1.8 -162 -2.2 -9 -0.1
Money Supply (M2) 26,981 6.3 1,543 6.1 1,336 5.2
Private Deposits 25,917 5.6 1,275 5.2 1,076 4.3 KD Sight Deposits 5,345 13.2 576 12.1 1,009 23.3 KD Savings Deposits 3,412 13.7 445 15.0 553 19.3 KD Time Deposits & CDs 14,913 0.3 133 0.9 -53 -0.4 FC Deposits 2,247 14.2 122 5.7 -434 -16.2
Source: NBK Economic Research Department
Outstanding credit to residents was almost flat in February, down only KD 6 million m/m. Growth slipped to 0.4% y/y as a result, down from 0.6% in January.
Credit Indicators (Percent Growth)
16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11
y/y rate Last 3 months annualized
Source: NBK Economic Research Department
National Bank of Kuwait Personal facilities fell KD 37 million m/m, largely led by a KD 28 million decline in loans for the NBK Economic Research purchase of securities. Also, lending to the household/consumer sector, which had seen steady growth recently, fell KD 9 million m/m. The decline is understandable in light of the large grant, T. +965 2259 5500 F. +965 2224 6973 which drove many consumers to either put off taking out new loans or to repay some of their E. [email protected] outstanding loans.
nbkcapital.com | 7 Kuwait Economic Brief Kuwait in Focus - April 2011
Otherwise, real estate loans fell KD 24 million. The declines were however offset by a KD 65 million increase in loans to “productive” sectors (trade, industry, and construction).
Resident deposits rose KD 1.4 billion m/m, as Amiri grant payments made their way into beneficiaries’ accounts. Most of the money was still in sight and savings accounts at the month- end, as consumers looked forward to spend the grant over subsequent days.
Average rates offered on KD private deposits, although up slightly in February, remain close to record lows on the back of an ample liquidity backdrop for the banks. The 3-month and 6-month KD deposits rates were up 1 bp in February to 1.18% and 1.45%, respectively. The 12-month rate rose 2 bps to 1.74%. The 1-month rate was flat at 0.97%.
Monetary Indicators Interest Rates
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0% Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10
Discount Rate 1-month KIBOR 1-month Dep. Rate
Source: NBK Economic Research Department
The inflow of grant money left banks with sizeable excess liquidity. CBK issued KD 203 million in bonds and accepted KD 344 million in time deposits to mop up this liquidity. Meanwhile, banks kept an additional KD 345 million in cash balances, probably in anticipation of further withdrawals from the fresh grant money. All in all, bank assets rose KD 1.2 billion m/m.
During the first quarter of 2011, the Dinar fell around 4% against the Euro, while improving around 1% against the US dollar. This has largely been the result of a stronger Euro during the period.
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Monetary Indicators Exchange Rates (Fils per foreign currency)
0.31 0.45
0.43 0.30
0.41 0.29
0.39
0.28 Stronger Dinar 0.37
0.27 0.35
0.26 0.33
Dinar / Dollar (LHS axis) Dinar / Euro (RHS axis)
Source: NBK Economic Research Department
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Monetary Highlights – February 2011
Cha ng e Feb-11 1-Mo nth 3-Mo nth 12-Mo nth mn KD mn KD % mn KD % mn KD % To ta l Syste m Liquidity (M2) 26,981 1,607 6.3 1,543 6.1 1,336 5.2 1) Currency in Circulation 1,064 242 29.4 268 33.7 260 32.4 2) Private Sector Deposits 25,917 1,365 5.6 1,275 5.2 1,076 4.3 KD Deposits 23,670 1,085 4.8 1,154 5.1 1,509 6.8 Sight Deposits 5,345 623 13.2 576 12.1 1,009 23.3 Savings Deposits 3,412 412 13.7 445 15.0 553 19.3 Time Deposits & CDs 14,913 50 0.3 133 0.9 -53 -0.4 Time Deposits 14,913 50 0.3 133 0.9 -53 -0.4 CDs 0 0 0 0 FC Deposits 2,247 280 14.2 122 5.7 -434 -16.2
To ta l B a nk Asse ts 42,561 1,197 2.9 955 2.3 1,761 4.3
Liquid Assets 6,710 926 16.0 873 15.0 1,296 23.9 Cash and CBK Balances 636 382 149.9 306 92.8 324 104.0 Cash 500 357 250.4 367 275.4 341 215.2 CBK Deps 137 25 22.0 -60 -30.6 -17 -10.9 CBK Bonds 1,547 203 15.1 203 15.1 305 24.5 Public Debt Instruments 1,878 -25 -1.3 -24 -1.2 -46 -2.4 Inter-Local Bank Deposits 902 23 2.6 241 36.4 122 15.6 Time Deposits w/ CBK 1,746 344 24.5 147 9.2 591 51.2
Cre dit Fa c ilitie s 25,254 -6 0.0 180 0.7 108 0.4 Trade 2,282 8 0.4 -89 -3.7 24 1.1 Industry 1,641 20 1.3 42 2.6 129 8.5 Construction 1,781 37 2.1 12 0.7 -26 -1.5 Agriculture and Fishing 8 0 1.2 -3 -25.0 -3 -28.8 Non-Bank Fin. Inst. 2,824 0 0.0 -5 -0.2 -57 -2.0 Personal Facilities 8,417 -37 -0.4 8 0.1 72 0.9 Purchase of Securities 2,651 -28 -1.0 10 0.4 -138 -4.9 Other Pers. Facs. 5,766 -9 -0.2 -3 0.0 210 3.8 Consumer Loans 723 4 0.5 32 4.6 93 14.7 Installment Loans 4,806 -7 -0.1 -21 -0.4 199 4.3 Other 238 -7 -2.7 -14 -5.7 -82 -25.7 Real Estate 6,551 -24 -0.4 108 1.7 -17 -0.3 Crude Oil & Gas 212 3 1.5 -5 -2.5 -17 -7.2 Public Services 0 0 0.0 … … … … Other 1,539 -14 -0.9 113 7.9 3 0.2 Foreign Assets 7,316 131 1.8 -162 -2.2 -9 -0.1 Other Assets 3,283 146 4.6 64 2.0 366 12.5
To ta l B a nk Lia bilitie s 36,732 1,191 2.4 855 -9.3 956 3.2
Total Deposit Liabilities 30,441 1,240 4.2 1,319 4.5 1,026 3.5 Private Sector Deps 25,917 1,365 5.6 1,275 5.2 1,076 4.3 Gov't Deposits 3,685 -154 -4.0 -154 -4.0 -109 -2.9 Interbank 838 28 3.4 198 30.9 59 7.6 Interbank 902 23 2.6 241 36.4 122 15.6 Foreign Liabilities 2,911 -113 -3.7 -243 -7.7 178 6.5 Other Liabilities 3,380 64 1.9 -221 -6.1 -248 -6.8
Equity 5,830 7 0.1 101 1.8 805 16.0 Source: NBK Economic Research Department
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Real Estate Activity
February: Strong activity in investment real estate
In February, real estate activity continued to show improvement, spurred primarily by sales in the residential and investment sectors. Total sales reached KD 217 million, and have been close to, or above, the KD 200 million mark for the past three months.
Total sales were more than twice the level of 1-year ago, and were up 12% on the month (KD value, m/m). Overall sales have been trending higher since the middle of 2009 when the Kuwait and the world economies started recovering from the financial crisis.
Total Real Estate Sales
300 300
250 250
200 200
150 150
100 100
50 50
0 0 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11
3-month average Actual total sales
Source: Ministry of Justice
The residential sector achieved sales of KD 91.2 million. In January-February, sales averaged over KD 100 million for the first time since mid-2010, when sales benefitted from a rise in the distribution of plots/units by the government. The average transaction size is rising as well, possibly pointing to firmer values or to better quality units or both. The transaction size has risen significantly from under KD 225,000, for most of 2010, to about KD 280,000 in February 2011.
Farah Zubaid Research Assistant Economics Department T. +965 2259 5352 E. [email protected]
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Residential Sales
160 550
140 500
450 120
400 100 350 80 300
60 250
40 200
20 150 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11
Average transaction size (KD 000s, RHS) Sales (KD mn, LHS)
Source: Ministry of Justice
In the investment sector (apartments and buildings), sales posted a very solid volume of KD 122.6, their best level since July 2007, pushing the 3-month average to a recent high of KD 86 million. (Chart 3 and Table). The average transaction size was pushed up significantly due to some large transactions in the month. The higher transaction value, again, could indicate higher prices and/or larger and better quality properties. This adds credence to reports that Kuwaiti investors are looking favorably on this “income generating” sector.
Apartment Sales
140 2,200
2,000 120 1,800
1,600 100 1,400
80 1,200
1,000 60 800
600 40 400
20 200 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11
Average transaction size (KD 000s, RHS) Sales (KD mn, LHS)
Source: Ministry of Justice
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Activity in the commercial sector is typically volatile and influenced by erratic large transactions. With that in mind, commercial property sales declined for the second consecutive month to register KD 3.2 million from 4 transactions. Recently, KD sales are averaging better than levels witnessed in 2009 and 2010, suggesting slowly improving conditions.
Commercial Sales
70 22
20 60 18
50 16 14 40 12
10 30 8
20 6
4 10 2
0 0 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11
Average transaction size (KD mn, RHS) Sales (KD mn, LHS)
Source: Ministry of Justice
SCB Loan Approvals
650 300
600 250 550 200 500 150 450
400 100
350 50 300 0 250 -50 200
150 -100 2009 2010 2011
Number of loans (LHS) KD value of loans (%y/y, RHS)
Source: Ministry of Justice
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Real Estate Sales and SCB Housing Loans
Monthly Avg. De c Ja n Fe b % % Real Estate Sales 2009 2010 2010 2011 2011 M/M Y/Y Sales Values (mn KD) 108.7 166.1 236.4 193.6 217.0 12.1 118.2 Residential Property 55.5 91.7 103.0 121.4 91.2 -24.8 72.3 Apartments 36.9 54.4 71.3 63.3 122.6 93.8 187.6 Commercial 16.3 20.0 62.1 9.0 3.2 -64.9 -18.8 Number of Transactions 382 561 601 533 407 -23.6 6.3 Residential Property 277 425 471 394 290 -26.4 13.7 Apartments 100 130 118 133 113 -15.0 -8.9 Commercial 6 6 12 6 4 -33.3 0.0 Average Transaction Size ('000 KD) 281.2 302.2 393.3 363.3 533.2 46.8 105.3 Residential Property 199.3 215.8 218.6 308.1 314.6 2.1 51.5 Apartments 373.3 437.4 604.2 475.7 1085.1 128.1 215.6 Commercial 2880.6 3295.2 5176.7 1498.8 789.5 -47.3 -18.8
Monthly Avg. De c Ja n Fe b % % SCB Housing Loans 2009 2010 2010 2011 2011 M/M Y/Y Value of Approved Loans (mn KD) 13.5 7.8 6.4 7.6 7.4 -3.8 -3.0 New Construction 8.0 2.3 2.0 2.4 2.1 -10.5 -18.6 Purchase of Existing Homes 3.9 3.9 3.0 3.4 3.3 -1.5 1.6 Additions & Renovations 1.6 1.6 1.4 1.9 1.9 0.6 12.0 Number of Approved Loans 371 265 169 199 199 0.0 -27.4 New Construction 126 44 36 41 35 -14.6 -30.0 Purchase of Existing Homes 77 83 61 70 70 0.0 2.9 Additions & Renovations 167 138 72 88 94 6.8 -39.7 Value of Disbursed Loans (mn KD) 12.8 11.4 10.2 8.9 7.3 -18.2 -38.0 New Construction 7.8 5.9 5.2 5.0 3.7 -25.3 -42.7 Purchase of Existing Homes 3.3 3.7 3.2 2.4 2.2 -8.4 -40.7 Additions & Renovations 1.6 1.7 1.7 1.5 1.4 -10.5 -11.8
Source: Ministry of Justice
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public finance
FY10/11: Kuwait still heading towards huge surplus even after Amiri grant
Eleven months into the fiscal year 2010/2011, budget spending seems to be very much on track compared to previous years. Yet, despite the increased spending, high oil prices are leading Kuwait towards another massive annual budget surplus, its 12th in a row.
Total spending is up 43% compared to the same period last year. This increase was due to both special and genuine factors. Two special intra-government transfers were: a one-off payment to the social security fund and the impact of higher oil prices on fuel subsidies. Excluding these government transfers and other items deemed insignificant to economic growth, demand- impacting spending1 was up a notable 27% on the period.
Revenues and Expenditures – Eleven Months of Fiscal Year 2010/2011
11mos: Actual to Budget Le ve ls Cha ng e FY10/11 Ave ra g e * mn KD mn KD % %
Total Revenues 18,668 2,650 192.1 200.2 Oil revenues 17,479 2,309 202.9 214.9 Non-oil revenues 1,189 341 107.8 99.5 Total Expenditures 10,973 3,288 67.9 62.4 Wages & Salaries 2,060 16 57.6 59.5 Goods & Services 1,632 104 55.6 61.5 Vehicles and Equipment 77 -73 34.2 26.4 Projects, Maintenance and Land Purchases 1,173 348 55.9 41.2 Misc. Exp. and Transfers 6,030 2,894 82.4 70.3
Surplus (before RFFG) 7,695 … … … Demand Impacting Expenditures 7,245 1,518 67.6 56.6
* Average for similar period, last 5 years. Demand impacting expenditures are those spending categories that drive domestic demand. They exclude items such as transfers to Public Institute for Social Security, transfers abroad, spending on military procurement, fuel costs and subsidies, and housing loan forgiveness. Source: NBK Economic Research Department.
Up until the previous reported monthly figures, demand-impacting spending was up a decent 9% year on year (y/y). Growth was driven primarily by the increase in capital spending, clearly as part of the government’s commitment to the development plan. The revision with this month’s data to a 27% rise came as a result of the KD 1.1 bn Amiri grant. So far this year, demand- impacting spending is at 68% of budget, well above the historic average of 57%.
Sara Ghazzawi Analyst Economics Department T. +965 2259 5355 E. [email protected]
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Full Fiscal Year (KD Billion)
12 30
25 10
20 8
15
6
10
4 5
2 0
0 -5 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11E
Demand impacting expenditures (LHS) Growth in demand-impacting spending (RHS)
Source: NBK Economic Research Department
The increase in expenditures so far this year was not only driven by a larger budget but also by a more adamant commitment by the government to stay on track with its spending plan. Eleven months into the year, total spending is at 68% of budget, in good comparison with the historic average. But more importantly this performance is led by capital spending (Chapter 4): 56% of the annual budget has already been spent, compared to just 41% on average. Although these rates still appear low, reported spending typically speeds up in the final months of the year and is also adjusted further upwards in the closing statements.
Total revenues were up 17%, largely reflecting the rise in oil prices. At USD 80 per barrel on average in the first 11 months, oil prices were 18% higher than a year ago. The increase in oil revenues accounted for 87% of the total increase in revenues, while non-oil revenues were also up an impressive 40%. This was partly due to a 15% increase in customs receipts, reflecting an improvement in trade activity. However, the bulk of the increase represented large payments from the United Nations Compensation Committee (UNCC) for losses arising from the 1990 Iraqi invasion.
Oil & Non-oil Revenues (%, YoY, 3mma)
150 150
100 100
50 50
0 0
-50 -50
-100 -100 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Oil revenues Non-oil revenues
Source: NBK Economic Research Department
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With one month to go in FY10/11 the budget shows a surplus of KD 7.7 bn. However, when the final accounts are due and all spending is accounted for, we expect Kuwait’s 12th consecutive surplus to be KD 4.5 billion.
Projects, maintenance & land purchases (Spending rate: % actual spending / budget)
60 60
50 50
40 40
30 30
20 20
10 10
0 0 Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar
5 year historical average FY10/11
Source: NBK Economic Research Department
Budget Surplus- Full Fiscal Year
10
9
8
7
6
5
4
3
2
1
0 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11E 11/12F
Source: NBK Economic Research Department
nbkcapital.com | 17 Companies in Focus
• Ahli United Bank (Almutahed) • Al Ahli Bank of Kuwait (ABK) • Aviation Lease and Finance Company (ALAFCO) • Boubyan Petrochemical • Burgan Bank (Burgan) • Burgan Co. for Well Drilling, Trading & Maintenance (Burgan Well Drilling) • City Group • Commercial Real Estate Company (Altijaria) • Gulf Cable and Electrical Industries Company (Gulf Cable) • Gulf Insurance Company (GIC) • Injazzat Real Estate Development Company (Injazzat) • Kuwait Cement Company • Kuwait Finance House (KFH) • Kuwait Financial Center (Markaz) • Kuwait Food Group (Americana) • Kuwait and Gulf Link Transport Company (KGL) • Kuwait National Cinema Company (KNCC) • Kuwait Projects (KIPCO) • Kuwait Real Estate Company (KREC) • Mashaer Holding Company (Mashaer) • Mobile Telecommunications Company (Zain) • National Industries Group Holding (NIG) • National Investment Company (NIC) • National Real Estate Company (NREC) • Oula Fuel Marketing Company (Oula) • Tamdeen Group • Tamdeen Investment Company (Tamdeen) • United Real Estate Company (United Real Estate) • YIACO Medical Company (YIACO)
NBK Capital MENA Research T. +965 2224 6663 F. +965 2224 6905 E. [email protected]
18 | nbkcapital.com Companies in Focus Kuwait in Focus - April 2011
Ahli United Bank (Almutahed)
Key Data Highlights
General Liquidity • Ahli United Bank (Almutahed) was previously known as
KSE Code ALMUTAHED.KSE 52-week avg. volume 400,108 The Bank of Kuwait and the Middle East and it operated Reuters Code ALMUTAHED.KW 52-week avg. value (KD) 238,233 as a conventional banking institution until early 2010, Price (KD) Price Performance when it converted into an Islamic bank offering complete Closing Price 0.750 YTD 19.2% Shari’ah-compliant services. Ahli United Bank in Bahrain 52-week High/Low 0.829 / 0.457 1-Year Period 48.5% currently owns 75% of Almutahed. Market Capitalization Shares Outstanding Million KD 760.94 Latest (million) 1,014.59 • Almutahed witnessed a 92% rebound in net profit in Ownership Structure FY2010 to KD 27.44 million, on the back of a 77% Closely Held: 87% Public: 13% decline in net impairment charges for financing receivables Price as of close on April 18, 2011. Sources: Zawya and NBK Capital and loans. Net interest income growth was moderate at 4%; however, weak non-interest income resulted in a 9% decline in operating income. The bank controlled cost Stock Performance growth to just 3% in FY2010, despite transitioning from a conventional bank to an Islamic bank. Loan growth 0.900 3 remained weak at 3%, while deposits declined by 12% in 0.850 52-week High: KD 0.829 2.5 FY2010. 0.800
0.750 • Almutahed’s shareholders approved a cash dividend of 2 0.700 KD 0.014 per share, which translates into a dividend
0.650 1.5 payout of 49% for FY2010 and a dividend yield of 1.8%.
Millions Almutahed did not pay a cash dividend for FY2009. The Price (KD) Price 0.600 52-week Low: KD 0.457 1 shareholders also approved a stock dividend of 5% of the 0.550 existing shares, which increased the number of outstanding 0.500 0.5 shares from 1.073 billion to 1.127 billion. 0.450
0.400 0 • Almutahed’s asset quality indicators improved in FY2010 Apr-10 Jun-10 Jul-10 Sep-10 Oct-10 Dec-10 Jan-11 Mar-11 Apr-11 as the non-performing loans (NPLs)-to-gross loans ratio Volume Close declined to 2.9% from 4.9% as of December 2009. The Sources: Zawya and NBK Capital NPL coverage ratio also improved to 113% in 2010 from 107% in 2009.
Analyst
Munira Mukadam T. +971 4 365 2858 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Growth in Loans * 21.8% 35.6% 17.7% 6.0% 3.1% Growth in Deposits 13.8% 19.7% 12.0% 1.9% -11.8% Growth in Net Profit 13.0% 6.8% 6.6% -72.2% 92.4% Growth in Operating Income 3.4% 20.1% 14.3% -19.7% -9.0%
NPLs-to-Gross Loans 3.3% 2.7% 3.0% 4.9% 2.9% NPL Coverage 122% 127% 127% 107% 113% Capital Adequacy 18.1% 15.6% 14.8% 16.8% N/A
Growth in Costs 14.5% 22.2% 3.9% -12.3% 3.1% Cost-to-Income 32.3% 32.9% 29.9% 32.6% 37.0%
RoAA 2.5% 2.3% 2.3% 0.6% 1.2% RoAE 20.5% 19.1% 20.0% 6.3% 12.0%
*Loans includes financing receivables and conventional loans and advances for 2010. Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 19 Ahli United Bank (Almutahed) Kuwait in Focus - April 2011
Overview • Overall, Almutahed’s asset quality indicators improved in FY2010 as the total NPLs-to-gross loans ratio declined to Ahli United Bank (Almutahed) was previously known as The 2.91%, from a peak of 4.92% as of December 2009. NPL Bank of Kuwait and the Middle East and it operated as a coverage also improved slightly to 113% as of December conventional banking institution until early 2010. It was the 2010 compared with 107% as of December 2009. first banking and financial institution incorporated in Kuwait in 1941, when the bank was launched as a branch of a British Asset Quality Indicators bank in Kuwait, namely The Iranian Imperial Bank. In 1971, 6.0% the bank was converted into a 100% Kuwaiti bank, following 140% 127% 127% regulations that restricted foreign ownership in local banks. 122% 5.0% 4.9% 113% 120% The majority of the bank has been owned by Ahli United Bank 107%
(AUB) in Bahrain since 2002. AUB currently owns 74.9% of 4.0% 100%
Almutahed. Its operations can be broadly broken down into 3.3% 3.0% 80% 3.0% 2.9% three main segments: retail banking, private banking and 2.7% wealth management, and corporate banking and treasury. 60% The bank operates via a network of 27 domestic branches. At 2.0% 40% an extraordinary general meeting held on March 28, 2010, 1.0% Almutahed shareholders approved the conversion of the bank 20% into an Islamic bank and changing the name of the bank from 0.0% 0% The Bank of Kuwait and the Middle East to Ahli United Bank. 2006 2007 2008 2009 2010 The bank commenced operations as an Islamic bank on April NPLs-to-Gross Loans NPL Coverage 1, 2010. The bank’s principal subsidiary is the Kuwait and Sources: Company’s financial statements and NBK Capital Middle East Financial Investment Company (KMEFIC), which offers investment and portfolio management services, and in which Almutahed held a 50.18% stake as of December 2010. NPL Analysis – Pre-invasion versus Post-liberation
Almutahed is rated by international agencies Moody’s and Pre-invasion Fitch as A3 and A-, respectively. KD Thousands 2006 2007 2008 2009 2010 NPLs 1,970 1,870 1,860 1,943 - Specific Provisions 1,970 1,870 1,860 1,943 - Latest News % of Total NPLs 6% 5% 4% 2% N/A Post-liberation KD Thousands 2006 2007 2008 2009 2010 • March 2011: Almutahed’s shareholders approved a cash NPLs 29,469 32,673 44,868 79,191 48,469 Specific Provisions 17,122 20,235 26,934 48,263 17,204 dividend of KD 0.014 per share (14% of the par value, % of Total NPLs 94% 95% 96% 98% 100% 49% dividend payout for 2010) at the annual general Post-Liberation NPL Growth 14% 11% 37% 76% -39% meeting (AGM) held on March 28, 2011. This translated Provisions Growth 8% 18% 33% 79% -64% NPL Coverage 58% 62% 60% 61% 35% into a dividend yield of 1.8%. Almutahed did not pay a KD Thousands Total
cash dividend for FY2009. The shareholders also approved NPLs 31,439 34,543 46,728 81,134 48,469 a stock dividend of 5% of the existing shares, which Total Provisions 38,476 43,766 59,423 87,143 54,876 increased the number of outstanding shares from 1.073 NPL Coverage 122% 127% 127% 107% 113% NPLs-to-Gross Loans 3.27% 2.67% 3.05% 4.92% 2.91% billion to 1.127 billion. Sources: Company’s financial statements and NBK Capital
Asset Quality Financial Statement Analysis • Total NPLs at Almutahed registered a sharp drop from KD 81.13 million as of December 2009 to KD 48.47 Income Statement million as of December 2010. Pre-invasion NPLs stood at KD 1.9 million as of December 2009, accounting for 2.4% • Almutahed saw a rebound in net profit in FY2010 to of Almutahed’s total NPLs in 2009, much lower than KD 27.44 million, an increase of 92% compared with most of the bank’s peers. At the end of December 2010, the net profit in FY2009. The surge was driven by a sharp however, the bank did not carry any pre-invasion NPLs. decline in loan loss provisioning charges in FY2010.
nbkcapital.com | 20 Ahli United Bank (Almutahed) Kuwait in Focus - April 2011
• Net interest income (including financing income from Financial Statements Islamic lending and the distribution to depositors) grew marginally by 4%, following a 36% increase in FY2009. Income Statement (KD '000) 2007 2008 2009 2010 * Non-interest income continued to trend downward as fees Interest Income 130,163 139,945 109,350 100,431 and commissions declined by 29%, foreign exchange Interest Expense (87,624) (97,515) (51,817) (40,756) Net Interest Income 42,539 42,430 57,533 59,675 income decreased by 12%, and net investment earnings Fees and Commissions 24,763 23,019 14,468 10,291 dropped by 61%. Foreign Exchange Income 4,749 5,015 3,879 3,432 Net Investment Earnings 20,012 35,629 9,365 3,622 • On a positive note, the bank’s associate, the Middle East Other Operating Income 599 (149) (197) 374 Total Operating Income 92,662 105,944 85,048 77,394 Investment Company, of which Almutahed has a 30% Staff Expenses (16,948) (18,222) (17,087) (16,511) share, contributed positively, although marginally, to Depreciation (2,010) (2,153) (2,336) (3,024) Almutahed’s operating income. However, total operating Other Expenses (11,506) (11,267) (8,313) (9,073) Total Operating Expenses (30,464) (31,642) (27,736) (28,608) income suffered as it stood at KD 77.39 million in FY2010 Loan Loss Prov. (5,466) (15,848) (27,979) (6,554) compared with KD 85.05 million FY2009, a decline of Investment and Other Prov. 258 (2,683) (19,092) (17,939) 9%. This was the second consecutive year of decline for Other Income / (Exp.) (1,515) (2,243) (701) (1,324) Minority Interest (7,296) (2,163) 4,722 4,475 Almutahed’s operating income, as it dropped by 20% in Net Income 48,179 51,365 14,262 27,444 FY2009, also driven by weak non-interest income. Balance Sheet (KD '000) 2007 2008 2009 2010 • Despite the bank’s transition into an Islamic bank, which Assets typically operate from a higher cost base than conventional Cash and Cash Equivalents 430,336 490,032 374,483 383,270 banks, Almutahed was able to control cost growth to a Due from Banks 297,128 43,424 153,596 327,117 Financing Receivables - - - 1,554,043 moderate 3% in FY2010. The bank’s cost-to-income ratio Loans and Advances 1,251,476 1,472,932 1,561,104 55,943 (CIR) reached a peak of 37% in FY2010 due to the weak Net Investments 172,758 128,804 75,591 50,754 Investment in Associates 8,774 8,048 8,231 8,273 operating income. In FY2009, costs declined by 12%, and Net Fixed Assets 35,503 49,772 46,176 48,062 the CIR stood at 32.6%. Others 42,574 44,006 41,352 26,875 Total Assets 2,238,549 2,237,018 2,260,533 2,454,337
• As previously mentioned, there was a steep decline in loan Liabilities and Shareholders' Equity loss provisioning charges, which stood at KD 6.55 million Due to Banks and Oth.Fin.Inst. 609,790 483,271 527,777 859,715 Customers' Deposits 1,278,618 1,432,511 1,460,255 1,287,527 in FY2010 compared with KD 27.98 million in FY2009, Other Liabilities 46,877 49,344 35,165 41,800 a drop of 77%. The drop in provisioning was driven by Total Liabilities 1,935,285 1,965,126 2,023,197 2,189,042 net recoveries in 4Q2010. Overall, the bank’s risk cost Total Shareholders' Equity 269,884 243,066 213,159 245,679 dropped from 1.76% in FY2009 to 0.4% in FY2010. Minority Interest 33,380 28,826 24,177 19,616 Furthermore, investment provisions also dropped by 25%, Total Liabilities and Equity 2,238,549 2,237,018 2,260,533 2,454,337 from KD 16.23 million in FY2009 to KD 12.11 million in *Interest Income and Interest expense include those from Islamic financing. Sources: Company’s financial statements and NBK Capital FY2010.
Balance Sheet
• As of December 2010, Almutahed reported net financing receivables of KD 1.55 billion, while conventional loans stood at KD 55.94 million as the bank wound down its conventional banking business. Together, they represented an increase of 3% compared to total conventional loans as of December 2009.
• Deposits, on the other hand, declined by 12% in FY2010, decreasing each quarter after 1Q2010 to stand at KD 1.29 billion at the end of December 2010. Total assets grew by 8.6% to reach KD 2.45 billion at the end of December 2010, driven by the increase in lending to customers as well an increase in net interbank borrowing.
nbkcapital.com | 21 Companies in Focus Kuwait in Focus - April 2011
Al Ahli Bank of Kuwait (ABK)
Key Data Highlights
General Liquidity • Al Ahli Bank of Kuwait is a mid-sized bank in Kuwait with a 7% market share of total assets. The bank was established KSE Code ABK.KSE 52-week avg. volume 243,485 Reuters Code ABKK.KW 52-week avg. value (KD) 128,148 in 1967 by the Behbehani group, which currently own approximately 31% of the bank’s total share capital. Price (KD) Price Performance
Closing Price 0.620 YTD -11.4% • In FY2010, ABK recorded a net profit of KD 53.18 million, 52-week High/Low 0.710 / 0.460 1-Year Period 25.3% an increase of 36% above FY2009, driven primarily by
Market Capitalization Shares Outstanding a 66% decrease in loan loss provisioning charges. Net Million KD 884.36 Latest (million) 1,426 interest income and operating income declined by 7%
Ownership Structure and 4%, respectively. Lending was muted as net loans Closely Held: 51% Public: 49% remained flat at KD 2.01 billion at the end of December 2010. Deposits, on the other hand, surged in 4Q2010, to Price as of close on April 18, 2011. Sources: Zawya and NBK Capital reach KD 2.02 billion by the end of December 2010, up 10% compared with December 2009.
Stock Performance • ABK’s shareholders approved a cash dividend of KD 0.020 per share, representing a 33% increase over FY2009, and 0.800 3.5 translating into a dividend payout of 54% for FY2010 and 52-week High: KD 0.710 0.700 3.0 a dividend yield of 3%. In FY2009, ABK had paid a cash
0.600 2.5 dividend of KD 0.015 per share, representing a dividend
0.500 payout of 44%. 52-week Low: KD 0.460 2.0 0.400 • Following a rights issue in May 2010, ABK’s capital base
1.5 Millions Price (KD) Price increased by KD 101 million. This also helped boost the 0.300
1.0 bank’s capital adequacy ratio, which reached 25.5% as of 0.200 December 2010, compared with 17.23% as of December 0.100 0.5 2009.
0.000 0.0 Apr-10 Jun-10 Jul-10 Sep-10 Oct-10 Nov-10 Jan-11 Feb-11 Apr-11 • ABK witnessed a slight improvement in its asset quality Volume Close indicators, as the bank wrote off its legacy pre-invasion non-performing loans (NPLs), effectively reducing the Sources: Zawya and NBK Capital NPLs-to-gross loans ratio to 4.3% as of December 2010, from 6.0% as of December 2009. The NPL coverage ratio Analyst also improved from 113% in 2009 to 116% in 2010, despite a decline in net provisioning charges in FY2010. Munira Mukadam T. +971 4 365 2858 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Growth in Loans 16.6% 30.4% 13.9% -5.0% -0.9% Growth in Deposits 13.0% 40.0% -9.8% -7.7% 10.0% Growth in Net Profit 27.6% 26.7% -39.5% -14.9% 35.7% Growth in Operating Income 34.6% 13.2% -3.7% -2.3% -4.0%
NPLs-to-Gross Loans 3.6% 3.0% 2.5% 6.0% 4.3% NPL Coverage 187% 169% 209% 113% 116% Capital Adequacy 15.3% 14.0% 14.7% 17.2% 25.5%
Growth in Costs 21.6% 29.1% 7.4% 5.5% 8.0% Cost-to-Income 20.1% 23.0% 25.6% 27.6% 31.1%
RoAA 2.7% 2.8% 1.5% 1.3% 1.8% RoAE 22.8% 26.1% 14.6% 12.2% 13.3%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 22 Al Ahli Bank of Kuwait (ABK) Kuwait in Focus - April 2011
Overview Asset Quality
Al Ahli Bank of Kuwait is a mid-sized bank in Kuwait with a • ABK witnessed a noticeable decrease in NPLs, which market share of 7% of total assets. The bank was established fell from KD 130.28 million as of December 2009 to in 1967 by the Behbehani group, which currently own KD 91.65 million as of December 2010. approximately 31% of the bank’s total share capital. Another • Pre-invasion NPLs stood at KD 37.95 million as of 20% is owned by government and public institutions. ABK December 2009, representing nearly one-third of ABK's operates via a small network of 27 branches in Kuwait and NPLs in 2009. At the end of December 2010, however, two branches in the United Arab Emirates (UAE; one each in the bank no longer carried any pre-invasion NPLs, which Dubai and Abu Dhabi). However, the bank recently announced was the key driver of the decline in total NPLs in FY2010. that it intended to expand further into the Middle East market, Post-liberation NPLs also witnessed a slight decline of either by opening a new branch in Qatar or by acquiring a 0.7% from KD 92.33 million as of December 2009 to strategic stake in an existing Qatari bank. ABK has created a KD 91.65 million as of December 2010. strong franchise in corporate and commercial banking, with an increasing focus on retail banking. In addition to these • Overall, ABK’s asset quality indicators improved during services, the bank provides asset management services, as the year as the total NPLs-to-gross loans ratio declined to well as investment banking services via its wholly owned 4.34% as of December 2010, from a peak of 6.0% as of subsidiary, Ahli Capital Investment Company. ABK is rated December 2009. NPL coverage also improved slightly to by international agencies Standard and Poor’s, Moody’s, 116% as of December 2010 compared with 113% as of and Fitch as BBB+, A2, and A-, respectively. Following a December 2009. This occurred despite a decline in the rights issue in May 2010, ABK boosted its capital base by net provisioning charges in FY2010, which resulted in a KD 101 million, which pushed the bank’s capital adequacy large drop in ABK’s risk cost (defined as net provisioning ratio up to 25.5% as of December 2010, compared with charges divided by average gross loans) from 1.46% in 17.23% as of December 2009. FY2009 to 0.5% in FY2010.
Latest News Asset Quality Indicators
7.0% 250% • April 2011: ABK announced its preliminary results for 209% 6.0% 1Q2011. Net profit reached KD 16.3 million in 1Q2011, 6.0% 200% 7% above 1Q2010 and 40% above 4Q2010, which was 187% 5.0% the weakest quarter in FY2010 in terms of net profit. 169% 4.3% 150% 4.0% • March 2011: ABK announced that it is seeking to enter 3.6% 113% 116% the Qatari banking market by opening a new branch or by 3.0% 3.0% acquiring a stake in an existing Qatari bank. The move is 2.5% 100%
in line with ABK’s expansion plans in the Gulf Cooperation 2.0%
Council (GCC), as the bank already has a presence in the 50% UAE via two branches. 1.0%
• March 2011: ABK’s shareholders approved a cash dividend 0.0% 0% of KD 0.020 per share (20% of the par value, 54% 2006 2007 2008 2009 2010 dividend payout for 2010) at the annual general meeting NPLs-to-Gross Loans NPL Coverage (AGM) held on March 12, 2011. This translated into a Sources: Company’s financial statements and NBK Capital dividend yield of 3%. On a per-share basis, the dividend is 33% higher than in 2009.
• February 2011: International rating agency Fitch Ratings affirmed ABK’s Long-term Issuer Default Rating (IDR) at A-, with a Stable Outlook. The Short-term IDR stood at F2, with the individual rating at C/D.
nbkcapital.com | 23 Al Ahli Bank of Kuwait (ABK) Kuwait in Focus - April 2011
NPL Analysis – Pre-invasion versus Post-liberation Balance Sheet
Pre-invasion KD Thousands 2006 2007 2008 2009 2010 • ABK’s loan book declined for the second consecutive NPLs 38,628 36,463 36,863 37,949 - year, to KD 2.01 billion at the end of December 2010, Specific Provisions 38,628 36,463 36,863 37,949 - % of Total NPLs 69% 61% 66% 29% N/A resulting in a slight decline in market share from 7.5% as
Post-liberation of December 2009, to 7.4% as of December 2010. KD Thousands 2006 2007 2008 2009 2010
NPLs 17,093 23,191 18,757 92,334 91,646 • In contrast, deposits surged by 10% in 4Q2010, after Specific Provisions 16,675 12,588 8,446 16,696 14,594 having remained flat in 9M2010. Total deposits stood at % of Total NPLs 31% 39% 34% 71% 100%
Post-Liberation KD 2.02 billion at the end of December 2010, accounting NPL Growth 8% 36% -19% 392% -1% for 7.1% of total deposits in the Kuwaiti banking sector, Provisions Growth 25% -25% -33% 98% -13% NPL Coverage 98% 54% 45% 18% 16% compared with 6.5% at the end of December 2009. The KD Thousands Total increase in deposits was primarily driven by “cheaper” NPLs 55,721 59,654 55,620 130,283 91,646 sight deposits, which were up 30% in FY2010, accounting Total Provisions 103,965 100,881 116,451 147,185 106,671 for nearly 60% of the increase in total deposits. NPL Coverage 187% 169% 209% 113% 116% NPLs-to-Gross Loans 3.62% 3.03% 2.48% 6.00% 4.34% Sources: Company’s financial statements and NBK Capital Financial Statements
Income Statement (KD '000) 2007 2008 2009 2010 Financial Statement Analysis Interest Income 175,002 185,341 138,227 119,192 Interest Expense (108,610) (116,869) (56,453) (43,510) Net Interest Income 66,392 68,472 81,774 75,682
Income Statement Fees and Commissions 18,415 24,493 20,296 22,977 Foreign Exchange Income 5,135 5,073 3,650 3,602 Net Investment Earnings 11,951 8,729 3,162 3,040 • ABK recorded net profit growth of 36% in FY2010, driven Other Operating Income 15,412 6,235 1,514 659 almost entirely by a drop in provisioning. Net profit stood Total Operating Income 117,305 113,002 110,396 105,960 at KD 53.18 million FY2010 compared with KD 39.17 Staff Expenses (17,355) (18,393) (19,943) (21,692) Depreciation (1,645) (1,238) (1,764) (1,807) million in FY2009. Other Expenses (7,938) (9,302) (8,816) (9,472) Total Operating Expenses (26,938) (28,933) (30,523) (32,971) • Interest income dropped for the second consecutive year, Loan Loss Prov. (1,872) (15,213) (32,174) (10,911) declining by 14% in FY2010, as total lending remained Investment and Other Prov. (8,544) (19,489) (5,324) (4,981) muted. However, the low-interest rate environment Other Income / (Exp.) (3,910) (3,331) (3,201) (3,919) Net Income 76,041 46,036 39,174 53,178 supported a 23% decline in interest expenses, despite healthy growth in the deposit book. Overall, net interest
income declined by 7% in FY2010, and stood at Balance Sheet (KD '000) 2007 2008 2009 2010
KD 75.68 million. As s e ts Cash and Cash Equivalents 842,748 679,916 773,718 701,170 • Fees and commissions grew by 13% in FY2010, after Loans and Advances 1,870,012 2,129,103 2,023,694 2,005,785 having declined by 17% in FY2009. Foreign exchange Net Investments 205,095 159,273 109,455 180,189 Net Fixed Assets 13,956 33,822 31,786 29,460 income and net investment earnings remained flat in Others 29,346 34,845 27,335 32,494 FY2010. Total operating income declined by 4% in Total Assets 2,961,157 3,036,959 2,965,988 2,949,098 FY2010 and stood at KD 105.96 million. Liabilities and Shareholders' Equity Due to Banks and Oth.Fin.Inst. 335,401 648,567 740,313 397,334 Customers' Deposits 2,207,998 1,991,676 1,837,673 2,022,052 • The key driver of net profit growth was lower loan Other Liabilities 98,664 84,304 57,516 61,076 loss provisioning charges, which declined from To tal Liabilitie s 2,642,063 2,724,547 2,635,502 2,480,462 KD 32.17 million in FY2009 to KD 10.91 million Total Shareholders' Equity 319,094 312,412 330,486 468,636 in FY2010 (down 66%). Investment provisions To tal Liabilitie s and Equity 2,961,157 3,036,959 2,965,988 2,949,098
also decreased from KD 5.42 million in FY2009 to Sources: Company’s financial statements and NBK Capital KD 2.82 million in FY2010.
• The bank witnessed an increase in the cost-to-income ratio (CIR) for the fourth consecutive year, to 31.1%, as costs grew by 8% in FY2010. The bank had maintained the CIR below 30% for the previous seven years.
nbkcapital.com | 24 Companies in Focus Kuwait in Focus - April 2011
Aviation Lease and Finance Company (ALAFCO)
Key Data Highlights
General Liquidity • Aviation Lease and Finance Company (ALAFCO) is a KSE Code ALAFCO.KSE 52-week avg. volume 3,078,673 Shari’ah-based commercial aircraft leasing company, with Reuters Code ALAF.KW 52-week avg. value (KD) 914,116 an extremely diverse client base, from Asia, Middle East, Price (KD) Price Performance Europe, and Africa. Additionally, many of ALAFCO’s clients Closing Price 0.375 YTD 17.2% 52-week High/Low 0.405 / 0.150 1-Year Period 93.3% are government entities, which mitigates counterparty risk to an extent. The company owned 47 aircraft at the end Market Capitalization Shares Outstanding Million KD 292.41 Latest (million) 779.772 of 2010, and plans to increase its leased fleet to 100
Ownership Structure by 2015. ALAFCO’s main revenue stream comes from Closely held: 65.09% Public: 34.91% operating leases, effectively turning it into an asset-heavy Price as of close on April 18, 2011. Sources: Zawya and NBK Capital company.
• Recently, ALAFCO filed for USD 70 million in damages Stock Performance against Wataniya Airways, after the airline operator ceased operations in mid March 2011. ALAFCO has three aircraft
0.450 35.0 leased to Wataniya Airways on a contract running from 52-week High: KD 0.405 2009 to 2017, and has requested compensation for loss 0.400 30.0 of revenue.
0.350 25.0 • ALAFCO’s 1Q2010-2011 revenues grew by 44% year-
0.300 over-year (YoY) to KD 12.3 million, while operating profits 20.0 grew by 35% YoY to KD 5.7 million (representing an 0.250 EBIT margin of 46% versus 49% in 1Q2009-2010). Net 15.0 Millions Price (KD) Price 0.200 profit for the quarter came in at KD 21.8 million (versus 10.0 KD 2.2 million in 1Q2009-2010) due to a record KD 19.7 0.150
52-week Low: KD 0.150 million gain from the cancellation of aircraft agreements, 5.0 0.100 excluding which, net profit would have declined by 3% YoY
0.050 0.0 to KD 2.2 million. Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close • ALAFCO’s FY2009-2010 revenues grew by 47% YoY to KD 39.7 million, on account of healthy growth in revenues Sources: Zawya and NBK Capital from the Middle East region and Europe. Operating profits grew by 44% YoY to KD 19.6 million, representing a stable operating margin of 50%. The strong operating performance, however, was dampened to a certain extent Analyst by a 44% YoY growth in finance costs. As a result, net profit for the year grew by only 6% YoY to KD 10.8 million. Alok Nawani The company paid a cash dividend of 5 fils per share and T. +971 4365 2856 offered shareholders 5% in bonus shares (five shares per E. [email protected] one hundred shares held). Key Ratios
FY2006-2007 FY2007-2008 FY2008-2009 FY2009-2010 1Q2010-2011
EBIT (KD Millions) 15.3 16.2 13.6 19.6 5.7 EBIT Margin 57% 59% 50% 50% 46% Net Profit Margin 34% 37% 38% 27% 176%
Investment-to-equity 2% 0% 0% 0% 0% Net Debt-to-equity 1.4 1.4 2.1 3.4 3.4 Interest Coverage Ratio (EBIT / Net Int. Exp.) 2.1 2.6 2.2 2.3 2.2
ROA (%) 4% 4% 3% 2% N/A ROE (%) 12% 13% 12% 11% N/A
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 25 Aviation Lease and Finance Company (ALAFCO) Kuwait in Focus - April 2011
Overview Full Year 2009-2010
• ALAFCO’s FY2009-2010 revenues grew by 47% YoY to Aviation Lease and Finance Company (ALAFCO) was established KD 39.7 million, on account of 50% YoY growth in in 1992 and listed on the Kuwait Stock Exchange in October operating lease income to KD 39.3 million. Revenues 2006. The company’s major shareholders are Kuwait Finance from Asia (representing 40% of total revenues) grew by House (53.62%) and Kuwait Airways Corporation (11.47%), a marginal 1% YoY. However, the Middle East region and with the remaining shares publicly traded. Europe came in as the major drivers for the year, with Headquartered in Kuwait, the company is primarily a provider revenues growing by 66% YoY and 65% YoY, respectively. of Sharia’ah-based commercial aircraft leasing products, The figure below highlights the geographical revenue split offering both operating leases and sale & leasebacks to a for ALAFCO over the past four fiscal years. As can be seen, number of regional and international airlines. The company the Middle Eastern and European components have gained owned 47 aircraft at the end of 2010, and plans to increase more prominence in the company’s revenue stream over its fleet to 100 by 2015. In addition, the company also offers the past two years. a variety of consulting services relating to aircraft acquisition and disposal, lease management, and technical monitoring. ALAFCO Revenue Split
In FY2009-2010, nearly 40% of ALAFCO’s revenues came 100% 1% 2% from Asia, while the Middle East and Europe generated 30% 90% 24% 28% 23% 28% and 28%, respectively. 80%
70% Latest News 60%
50% 55% 52% 40% • April 2011: ALAFCO filed for USD 70 million in damages 57% 40% against Wataniya Airways, after the airline operator ceased operations in mid March 2011. ALAFCO has three aircraft 30% leased to Wataniya Airways on a contract running from 20% 30% 24% 10% 21% 2009 to 2017, and has requested compensation for loss 15%
of revenue. 0% FY2006-2007 FY2007-FY2008 FY2008-2009 FY2009-2010
Middle East Asia Europe Africa Financial Statement Analysis Sources: Company financial statements and NBK Capital Income Statement • Due to healthy revenue growth, operating profits 1Q2010-2011 grew by 44% YoY to KD 19.6 million, representing a • Total revenues grew by 44% YoY to KD 12.3 million, stable operating margin of 50%. The strong operating while operating profits grew by 35% YoY to KD 5.7 performance, however, was dampened to a certain extent million and represented an EBIT margin of 46% (versus by 44% YoY growth in finance costs to KD 9.1 million. 49% in 1Q2009-2010). While healthy revenue growth As a result, net profit for the year grew by only 6% YoY to has largely trickled down to operating profits, the EBIT KD 10.8 million. margin has witnessed slight contraction due to 53% • The company paid a cash dividend of 5 fils per share and growth in depreciation expenses to KD 5.9 million and as offered shareholders 5% in bonus shares (five shares per a result of other operating expenses more than doubling to one hundred shares held). approximately KD 340,000. • While nonrecurring line items did not feature in ALAFCO’s • Net profit, however, came in at KD 21.8 million (versus FY2009-2010 financial statements, through the past KD 2.2 million in 1Q2009-2010), largely on account of a years, ALAFCO has had some nonrecurring contributors gain of KD 19.7 million that resulted from the cancellation to its bottom line (such as, gain on disposal of available- of an agreement for the purchase and subsequent sale of for-sale investments and gain on disposal of property and eight Boeing aircraft. Excluding this one-off item, we note equipment). After adjusting net income for the impact of that adjusted net profit would have declined by 3% YoY these non-recurring items, a 28% decline in adjusted net to KD 2.2 million. Operating cash flows for the quarter profit for FY2008-2009 to KD 7 million from the KD 9.7 stood at KD 8.4 million (versus negative KD 979,000 - million reported in FY2007-2008. Operating cash flows for approximately). the year declined by 17% to KD 22 million.
nbkcapital.com | 26 Aviation Lease and Finance Company (ALAFCO) Kuwait in Focus - April 2011
Adjusted Net Income Financial Statements
(KD Millions) FY2006-2007 FY2007-2008 FY2008-2009 FY2009-2010 Income Statement (KD '000) FY2008-2009 FY2009-2010 1Q2009-2010 1Q2010-2011 Net Income 9.1 10.1 10.2 10.8 Net Income Margin (%) 34% 37% 38% 27% Operating lease income 26,291 39,326 8,553 12,292 Net Income ex. Non-recurring 7.6 9.7 7.0 10.8 Consultancy and service income 561 253 50 93 Adj. Net Income Margin (%) 29% 36% 26% 27% Finance lease income 141 78 30 - Total Revenue 26,993 39,657 8,633 12,385 Sources: Company financial statements and NBK Capital Murabaha income 103 406 95 135 Gain on cancl. of aircraft agrmt. - - - 19,692 Gain on disposal of AFS - - - - Gain on disposal of PP&E 3,173 - - - Balance Sheet Gain on foreign exchange - - - - Other income 134 373 21 20 Staff costs (1,297) (1,536) (372) (436) Depreciation (11,194) (17,726) (3,845) (5,874) • Naturally, ALAFCO is a very asset-heavy company and the Finance costs (6,294) (9,068) (2,043) (2,733) Other operating expenses (904) (765) (161) (340) majority of its leases are structured as operating leases. Directors' fees (60) (75) - - Hence, the related assets (recorded on ALAFCO’s balance Profit before tax 10,653 11,266 2,329 22,849 Zakat (107) (113) (23) (228) sheet as aircraft, engines, and equipment) represent KFAS (96) (102) (21) (206) 93% of total assets. We note that aircraft, engines, and NLST (268) (284) (58) (571) Net Income 10,182 10,767 2,226 21,844 equipment grew by nearly 16% quarter-on-quarter (QoQ) to Balance Sheet (KD '000) FY2007-2008 FY2008-2009 FY2009-2010 Dec-2010 KD 548 million by the end of December 2010 – which is Assets reflected in the fact that the company delivered seven new Aircraft, engines & equipment 186,338 299,518 471,032 547,719 Capital advances 63,004 59,538 43,614 15,661 aircraft during the quarter. AFS - - - - Receivables 200 1,651 284 9,661 • Additionally, ALAFCO has no exposure to market Finance lease receivables 2,128 1,817 - - Cash and balances 9,264 27,706 20,636 16,086 investments, an indication of the company’s focus on its Total Assets 260,935 390,230 535,567 589,127 core operations. Liabilities and Shareholders' Equity Due to financial institutions 121,720 224,887 369,959 419,279 Security deposits 14,798 30,782 31,326 13,248 • As of December 2010, ALAFCO had net debt amounting Maintenance reserve 5,764 7,032 12,696 15,233 Other liabilities 37,506 33,971 18,833 18,194 to KD 403 million, and a net debt-to-equity ratio of 3.4x Dividend Payable - - - 3,713 (versus 2.1x at the end of September 2009). Although Total Liabilities 179,788 296,672 432,814 469,667 Total Equity 81,147 93,558 102,753 119,460 the net debt-to-equity ratio has grown considerably since Total Liabilities & Equity 260,935 390,230 535,567 589,127 September 2009, ALAFCO has maintained consistent Sources: Company financial statements and NBK Capital levels of interest coverage. For FY2009-2010, ALAFCO recorded an interest coverage ratio (EBIT/Finance Cost) of 2.3x and more recently 2.2x in 1Q2010-2011.
• ALAFCO had an ROA of 2% for FY2009-2010, down from 3% in the previous year. Additionally, ROE for FY2009- 2010 stood at 11%, down from 12% in the previous year. Although both statistics have declined slightly, we still consider these to be strong results.
nbkcapital.com | 27 Companies in Focus Kuwait in Focus - April 2011
Boubyan Petrochemical
Key Data Highlights • Boubyan Petrochemical Company’s (Boubyan General Liquidity Petrochemical) dependence on income from investments KSE Code BPCC.KSE 52-week avg. volume 1,212,327 Reuters Code BPCC.KW 52-week avg. value (KD) 634,275 means that the company must effectively be analyzed as a
Price (KD) Price Performance holding company. As of January 2011, investment assets
Closing Price 0.540 YTD 0.0% accounted for 83% of the company’s total assets, while 52-week High/Low 0.570 / 0.465 1-Year Period 3.8% operating assets constituted the remaining 17%. Hence, Market Capitalization Shares Outstanding the company’s net profit figure is highly dependent on Million KD 262 Latest (million) 485 dividend and investment income. Ownership Structure Closely held: 13.18% Public: 86.82% • Operationally, 9M2010-2011 was difficult for Boubyan
Price as of close on April 18, 2011. Sources: Zawya and NBK Capital Petrochemical. Revenues declined by 10% YoY to KD 17.9 million, while the company generated an operational loss of approximately KD 346,000 (versus an operating profit Stock Performance of KD 3 million in 9M2009-2010). • In 9M2010-2011, the investment portfolio recorded a 0.600 14.0 mix of both negative and positive results. On the negative 52-week High: KD 0.570 12.0 side, investment income declined by 60% YoY to KD 10.4
0.550 million and the share of losses from associates widened 10.0 to approximately KD 816,000 (versus approximately KD 234,000 in 9M2009-2010). In terms of the positives, 8.0
0.500 dividend income (primarily from EQUATE and TKOC) stood at
6.0 Millions
Price (KD) Price KD 23.1 million (versus KD 3.5 million in 9M2009-2010). Overall, as a result of stronger investment performance 52-week Low: KD 0.465 4.0 0.450 versus operating performance, the net profit for the period
2.0 more than doubled to KD 19.5 million.
0.400 0.0 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close
Sources: Zawya and NBK Capital
Analyst
Alok Nawani T. +971 4365 2856 E. [email protected]
Key Ratios
FY2006-2007 FY2007-2008 FY2008-2009 FY2009-2010 9M2010-2011
Net Debt to Equity 0.30 0.34 0.68 0.67 0.63 Investments/Total Assets 91.0% 86.6% 86.6% 85.2% 82.1% Investments/Equity 123.4% 126.1% 154.7% 151.1% 146.5%
ROA (%) 14.2% 14.5% 5.1% 5.1% N/A ROE (%) 19.0% 20.5% 8.1% 9.1% N/A
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 28 Boubyan Petrochemical Kuwait in Focus - April 2011
Overview Financial Statement Analysis
Boubyan Petrochemical was established in 1995 as a public Income Statement shareholding company, which currently has a free-float of 89%. The company’s primary activity has been making direct 9M2010-2011 investments in industrial projects in general, with a particular focus on petrochemical projects in particular. Essentially, • Operationally, 9M2010-2011 has been difficult for Boubyan Petrochemical is a company that acts as a third Boubyan Petrochemical. Revenues declined by 10% YoY to party between customers and petrochemical manufacturers KD 17.9 million. Additionally, general and administrative that specialize in products such as polyethylene and ethylene expenses grew by 63% YoY to KD 4 million. As a result, glycol. the company generated an operating loss of approximately KD 346,000 (versus an operating profit of KD 3 million in The company’s primary investments include Equate 9M2009-2010). Petrochemical Company (EQUATE - 9% stake) and The Kuwait Olefins Company (TKOC - 9% stake), which are both • The investment portfolio recorded a mix of negative and Kuwait-based petrochemical companies. While the company positive results. In terms of the negatives, investment primarily makes direct investments in unlisted companies in income declined by 60% YoY to KD 10.4 million and the the industrial sector, its investment portfolio also has exposure share of losses from associates widened to approximately to listed companies and private equity investments. Boubyan KD 816,000 (versus approximately KD 234,000 in Petrochemical’s total investment portfolio represents nearly 9M2009-2010). On the positive front, dividend income 83% of the company’s total assets, and generated 77% of the (primarily from EQUATE and TKOC) came in at KD 23.1 FY2009-2010 profits. In addition, the company also conducts million (versus KD 3.5 million in 9M2009-2010). We manufacturing and trading activities through its subsidiaries note that during FY2009-2010 dividends from EQUATE – which generated 23% of the FY2009-2010 profits. Hence, and TKOC were received in the three months ended April taking into account Boubyan Petrochemical’s operational 2010. However, the dividend income of KD 23.1 million for structure and the company’s dependence on its core and non- 9M2010-2011 compares favorably even to the FY2009- core investments, Boubyan Petrochemical must be analyzed 2010 dividend income of KD 14.6 million. as a holding company. • Overall, as a result of a stronger investment versus operating performance, the net profit for the period more Latest News than doubled to KD 19.5 million.
• September 2010: EQUATE Petrochemical Company FY2009-2010 signed a deal with Aquatech International to build a water recycling plant (part of a comprehensive environmental • FY2009-2010 was a year of negative revenue growth project by EQUATE, that is valued at more than USD 11 but heightened operational efficiency for Boubyan million). The plant is expected to reduce the company’s Petrochemical. The company’s revenues declined by water consumption and cut carbon emissions associated 8% YoY to KD 23 million. Operating profit came in at with water purification. However, EQUATE did not disclose KD 5.3 million (versus only KD 1.4 million in FY2008- the value of the contract. 2009), representing an EBIT margin of 23% (versus 5% in FY2008-2009). The improvement in the EBIT margin • June 2010: Boubyan Petrochemical increased its can largely be accredited to a 14% YoY decline in the ownership in Oman’s Muna Noor Incorporated to 100% company’s cost of sales and a KD 3.1 million reversal of from its previous 80% stake. The company bought the provisions made during the year. additional 20% stake in Muna Noor Incorporated for KD 4.7 million. • The company’s profits have always been highly dependent on dividend and investment income. However, during • May 2010: Boubyan Petrochemical announced the FY2009-2010, dividend income declined by 24% purchase of a 24% stake in Al Kout Industrials Projects for YoY, while net investment income dropped 47% YoY. KD 8.2 million from Shuaa Capital via an auction on the Furthermore, the share of results from associates also bourse. Al Kout is engaged in the production and marketing declined by 92% YoY. As a result, profit before impairment of salt, chlorine, and other similar products. declined by 39% YoY, to KD 45.4 million.
nbkcapital.com | 29 Boubyan Petrochemical Kuwait in Focus - April 2011
• Net income for the year grew by 5% YoY to KD 21.4 million. Financial Statements This increase was largely due to a 58% YoY reduction in impairment charges associated with available-for-sale Income Statement (KD '000) FY2008-2009 FY2009-2010 9M2009-2010 9M2010-2011 Sales 25,189 23,079 19,792 17,884 investments to KD 22 million. Cost of Sales (19,206) (16,454) (14,388) (14,263) General and administrative expenses (4,618) (1,294) (2,434) (3,967) EBIT 1,365 5,331 2,970 (346) Balance Sheet Dividend income 19,101 14,552 3,456 23,073 Net investment income 57,440 30,702 25,838 10,394 Share of results of associates 2,784 230 (234) (816) Finance cost (7,301) (7,817) (5,583) (6,647) • Boubyan Petrochemical’s asset portfolio effectively makes Other Income 599 2,434 2,919 1,380 it a holding company. The chart below highlights the Profit before impairment 73,988 45,432 29,367 27,038 Impairment of investments AFS (52,105) (21,965) (18,395) (6,823) vast difference in size between Boubyan Petrochemical’s Taxes (861) (968) (443) (782) Directors' fees (75) (75) - - operating assets and its investments. Operating assets Minority Interest (612) (1,016) (1,001) 42 account for only 13% of total assets, while financial Net Income 20,335 21,407 9,527 19,475 investments and the investment in EQUATE account for Balance Sheet (KD '000) FY2007-2008 FY2008-2009 FY2009-2010 Jan-2011
53% and 29%, respectively, of the total asset base. Cash and cash equivalents 17,797 7,590 10,006 23,205 Accounts receivable 6,422 8,756 9,335 8,683 Inventories 2,525 2,620 3,775 3,492 Boubyan Petrochemical’s Asset Structure – January 2011 Investments carried at fair value 46,983 35,508 56,712 66,229 Total Current Assets 73,728 54,474 79,828 101,609 Investments AFS (EQUATE) 131,500 120,000 130,500 130,500 Investments AFS (Others) 170,549 189,459 182,762 173,139 Investments in associates 13,544 14,674 13,594 20,321 Associates, 5% Exchange of deposits 602 7,250 6,630 4,528 Property, plant, and equipment 10,525 10,080 14,778 14,315 Operating Assets, Goodwill 2,575 2,575 6,002 6,002 13% Total Assets 403,023 398,512 434,095 450,414 Accounts payable and accruals 11,435 11,271 10,875 10,450 Dividends payable 1,640 2,334 2,663 3,059 Bank overdraft - - 268 - Islamic financing payables - - 45,000 63,000 Term loans 111,814 160,330 129,334 120,032
Financial Equate, 29% Total Liabilities 124,889 173,935 188,139 196,541 Investments, 53% Total Shareholders' Equity 276,800 223,043 244,927 252,487
Minority Interest 1,333 1,534 1,028 1,386
Total Liabilities and Sh. Equity 403,023 398,512 434,095 450,414 Sources: Company’s financial statements and NBK Capital
Sources: Company’s financial statements and NBK Capital
• EQUATE is considered to be a key strategic investment for the company since Boubyan Petrochemical has board representation and is involved in the decision-making process.
• Boubyan Petrochemical’s net debt-to-equity ratio declined slightly to 0.63x at the end of January 2011, versus 0.67x at the end of April 2010.
nbkcapital.com | 30 Companies in Focus Kuwait in Focus - April 2011
Burgan Bank (Burgan)
Key Data Highlights
General Liquidity • Burgan Bank was established in 1977 and for two decades
KSE Code BURG.KSE 52-week avg. volume 3,356,573 was primarily owned by the government. Then KIPCO took Reuters Code BURG.KW 52-week avg. value (KD) 1,450,323 over the government’s share. KIPCO is currently Burgan’s Price (KD) Price Performance largest shareholder with a 41% stake, followed by United Closing Price 0.510 YTD 1.0% Gulf Bank (UGB), which holds a 17% share. 52-week High/Low 0.552 / 0.286 1-Year Period 55.0%
Market Capitalization Shares Outstanding • In FY2010, Burgan recorded a drop in net profit for the Million KD 736.89 Latest (million) 1,444.88 third consecutive year, to KD 4.66 million, 25% below Ownership Structure the net profit in FY2009, despite moderate growth (+7%) Closely Held: 68% Public: 32% in total operating income. The drop in net profit can be Price as of close on April 18, 2011. Sources: Zawya and NBK Capital primarily attributed to a surge in operating costs (+50%). Furthermore, net provisioning charges remained high (risk cost of 3.1% in FY2010) during the year, putting further Stock Performance pressure on the bottom line.
0.600 60 • As of December 2010, Burgan had consolidated results from Tunis International Bank (TIB) and Bank of Baghdad 0.550 52-week High: KD 0.552 50 (BoB), after acquiring additional 6.48% and 76.56% 0.500 stakes in TIB and BoB, respectively, in 1H2010. 40 0.450 • Burgan conducted a rights issue in June 2010, which 0.400 30 boosted the bank’s capital base by KD 36 million. Millions Price (KD) Price 0.350 Consequently, the bank’s capital adequacy ratio increased 20
0.300 to 21% as of December 2010, compared to 16.9% as of 52-week Low: KD 0.286 10 December 2009. 0.250 • Burgan’s asset quality indicators improved in FY2010 as 0.200 0 Apr-10 Jun-10 Jul-10 Sep-10 Oct-10 Nov-10 Jan-11 Feb-11 Apr-11 non-performing loans (NPLs) declined by 42% during the Volume Close year, taking the NPL ratio down from 10% in FY2009 to Sources: Zawya and NBK Capital 6.1% in FY2010. The NPL coverage ratio also improved from 49% in FY2009 to 73% in FY2010.
Analyst
Munira Mukadam T. +971 4 365 2858 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Growth in Loans 18.3% 50.2% 50.1% 5.3% -4.9% Growth in Deposits 6.1% 33.2% 46.6% 0.4% 5.8% Growth in Net Profit 31.5% 34.3% -50.5% -83.2% -25.1% Growth in Operating Income 25.8% 20.7% 14.6% 27.7% 6.6%
NPLs-to-Gross Loans 3.5% 1.7% 1.4% 10.0% 6.1% NPL Coverage 119% 165% 199% 49% 73% Capital Adequacy 16.50% 16.58% 13.77% 16.86% 20.99%
Growth in Costs 15.0% 17.6% 20.1% 30.0% 49.9% Cost-to-Income 27.1% 26.4% 27.7% 28.1% 39.6%
RoAA 2.7% 3.0% 1.1% 0.2% 0.1% RoAE 22.0% 24.5% 11.2% 2.0% 1.2%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 31 Burgan Bank (Burgan) Kuwait in Focus - April 2011
Overview by S&P, and was oversubscribed by more than 3.8x. This was the first-ever international Tier II issuance in Kuwait. Burgan Bank (Burgan) is a subsidiary of Kuwait Investments Projects Company (KIPCO), a leading holding company in Asset Quality Kuwait, which has a 41% stake in Burgan’s capital. United Gulf Bank (UGB) is the next largest shareholder, with a 17% • Following a spike in NPLs in 2009, like most other Kuwaiti stake of Burgan’s total capital. Burgan Bank was established banks, Burgan’s NPLs dropped from KD 237 million as of in 1977 and for two decades was primarily owned by the December 2009, to KD 137 million as of December 2010 government. Then KIPCO took over the government’s share (down 42%). to become the largest shareholder. Burgan’s operations can • Pre-invasion NPLs stood at 5.05 million as of December be broadly divided into retail and corporate banking, treasury 2009, accounting for a marginal 2% of total NPLs in 2009. and investment banking, and international banking. The In 2010, these NPLs were written off as approved by the bank operates via a network of 23 domestic branches. As Central Bank of Kuwait. Accordingly, the decline in NPLs part of Burgan’s expansion strategy, the bank completed its was driven by a drop in the post-liberation NPLs, which acquisition of majority stakes in four banks in the Middle stood at KD 137 million as of December 2010, compared East and North Africa (MENA) region during 2009 and 2010: with KD 232 million as of December 2009. Jordan Kuwait Bank (JKB) (51.19%), Algeria Gulf Bank (AGB) • Overall, Burgan’s asset quality indicators improved in (91.09%), Bank of Baghdad (BoB) (51.79%), and Tunis FY2010 with the NPL ratio dropping to 6.1%, compared International Bank (TIB) (86.56%). Burgan also successfully to a peak of 10% as of December 2009. NPL coverage completed a rights issue in June 2010, which boosted also significantly improved, reaching 73% as of December Burgan’s capital base by KD 36 million, pushing its capital 2010, up from 49% as of December 2009. adequacy ratio up to 21% as of December 2010, compared with 16.9% as of December 2009. Burgan is the only bank in the Gulf Cooperation Council (GCC) with ISO 9001:2000 Asset Quality Indicators certification for all its banking operations. The bank is rated by 12% 250% international agencies Standard and Poor’s (S&P) and Moody’s 10.0% 10% 199% as BBB+ and A2, respectively. 200%
165% 8% Burgan Bank - Subsidiaries 150% 6.1% 119% 6% Burgan 100% 4% 3.5% 73%
49% 50% 2% 1.7% 1.4% Jordan Kuwait Bank Bank of Baghdad Algeria Gulf Bank Tunis International Bank 51.19% 51.79% 91.09%* 86.56% 0% 0% 2006 2007 2008 2009 2010 *TIB owns a 30% stake in AGB, increasing Burgan’s effective ownership in AGB. NPLs-to-Gross Loans NPL Coverage Sources: NBK Capital Sources: Company’s financial statements and NBK Capital
Latest News NPL Analysis – Pre-invasion versus Post-liberation • March 2011: Burgan’s shareholders approved a stock Pre-invasion dividend of 5% of the existing shares at the annual general KD Thousands 2006 2007 2008 2009 2010 NPLs 5,111 4,949 4,952 5,050 - meeting (AGM) held on March 15, 2011. This increased Specific Provisions 5,111 4,949 4,952 5,050 - the number of outstanding shares from 1.401 billion to % of Total NPLs 15% 20% 16% 2% N/A Post-liberation 1.471 billion. KD Thousands 2006 2007 2008 2009 2010
NPLs 29,183 20,341 26,050 231,645 137,030 • January 2011: Burgan announced that it had received Specific Provisions 17,487 13,392 16,989 70,136 56,591 % of Total NPLs 85% 80% 84% 98% 100% approval from the Central Bank of Kuwait to extend the Post-Liberation buyback period for up to 10% of Burgan’s shares by an NPL Growth 1% -30% 28% 789% -41% Provisions Growth 22% -23% 27% 313% -19% additional six months, beginning February 5, 2011. NPL Coverage 60% 66% 65% 30% 41% KD Thousands Total • September 2010: Burgan completed the issuance of a NPLs 34,294 25,290 31,002 236,695 137,030 Total Provisions 40,938 41,686 61,695 117,073 99,839 10-year USD 400 million subordinated bond, with a fixed NPL Coverage 119% 165% 199% 49% 73% interest rate of 7.875%, maturing on September 29, NPLs-to-Gross Loans 3.5% 1.7% 1.4% 10.0% 6.1% 2020. The issuance was rated ‘A3’ by Moody’s and ‘BBB’ Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 32 Burgan Bank (Burgan) Kuwait in Focus - April 2011
Financial Statement Analysis contributed 53% of the total increase in loans in the year. At the end of 2010, corporate loans accounted for around Income Statement 80% of total loans, compared to a share of 85% two years before.
• Burgan had a third consecutive year of declining net profit • The bank continued to strengthen its funding base, as (-25%), to KD 4.66 million in FY2010, compared with deposits grew by 6% in FY2010, to stand at KD 2.56 KD 6.21 million in FY2009. The drop in net profit was billion as of December 2010. driven by higher operating costs and relatively high provisioning charges. Financial Statements • Net interest income grew by a moderate 5% to KD 106.85 million in FY2010. Income from fees and commissions Income Statement (KD '000) 2007 2008 2009 2010 also grew by 9% to KD 32.6 million in FY2010. Foreign Interest Income 167,713 208,744 201,996 173,672 Interest Expense (116,600) (140,727) (100,167) (66,823) exchange income reached a record high of KD 7.1 million Net Interest Income 51,113 68,017 101,829 106,849 in FY2010. Net investment income reached KD 13.89 Fees and Commissions 17,089 22,416 29,966 32,623 million in FY2010, compared with KD 5.08 million Foreign Exchange Income 4,363 (237) 4,499 7,092 Net Investment Earnings 32,256 26,435 5,077 13,893 in FY2009. However, investment income in FY2010 Income from Associate - - 786 - included a gain of KD 10.91 million from the re-valuation Other Operating Income 868 4,474 12,552 4,416 Total Operating Income 105,689 121,105 154,709 164,873 of TIB and BoB. During the year, the acquisition of an Staff Expenses (12,641) (17,985) (20,994) (27,286) additional 6.48% stake in BoB and a 76.56% stake in TIB Other Expenses (15,241) (15,501) (22,542) (37,973) resulted in these entities being accounted for as Burgan’s Total Operating Expenses (27,882) (33,486) (43,536) (65,259) subsidiaries. These entities were previously classified as Loan Loss Provisions (264) (36,396) (79,389) (71,756) Investment Provisions 0 (10,158) (3,448) 11 “investment in an associate” and “financial asset available Other Income / (Exp.) (2,725) (5,331) (7,732) (12,347) for sale,” respectively. Total operating income grew by Minority Interest 0 1,331 (14,393) (10,867) Net Income 74,818 37,065 6,211 4,655 7% to reach KD 165 million in FY2010, compared with
KD 155 million in FY2009. Balance Sheet (KD '000) 2007 2008 2009 2010
• Burgan also witnessed a decline in net provisioning charges Assets Cash and Cash Equivalents 864,899 938,333 1,019,137 1,208,520 in FY2010, although to a lesser extent than some of the Due from Banks 380,568 532,412 407,427 369,047 bank’s Kuwaiti peers. Net provisioning charges declined Loans and Advances 1,421,104 2,132,990 2,246,949 2,135,789 Net Investments 110,146 107,404 140,952 132,578 from KD 79.39 million in FY2009 to KD 71.76 million in Investment in Associates - - 15,434 - FY2010, a drop of 10%. Accordingly, the bank’s risk cost Net Fixed Assets 17,804 30,607 36,664 49,375 Others 53,026 201,253 235,208 254,600 remained high at 3.1% in FY2010, compared with 3.5% Total Assets 2,847,547 3,942,999 4,101,771 4,149,909 in FY2009. Liabilities and Shareholders' Equity Due to Banks and Oth.Fin.Inst. 732,112 795,486 977,804 811,492 • Total costs continued to grow rapidly at Burgan, increasing Customers' Deposits 1,648,538 2,416,101 2,424,981 2,564,826 Borrowings 42,998 197,943 123,022 109,075 by 50% in FY2010, after growing by 30% in the previous Other Liabilities 72,759 147,668 139,903 123,371 year. Thus, the bank’s cost-to-income ratio (CIR) jumped Total Liabilities 2,496,407 3,557,198 3,665,710 3,608,764 from 28% in FY2009 to 39.6% in FY2010. Burgan had Minority Interest - 75,515 110,586 116,738 maintained a CIR of between 26% to 30% in the previous Total Shareholders' Equity 351,140 310,286 325,475 424,407 five years. Total Liabilities and Equity 2,847,547 3,942,999 4,101,771 4,149,909 Sources: Company’s financial statements and NBK Capital Balance Sheet
• Burgan’s net loans declined by 5% in FY2010, to stand at KD 2.14 billion at the end of December 2010. A closer look reveals that the decline was led by a drop in corporate loans, which fell by 7.5% in FY2010. Retail loans, on the other hand, increased by a moderate 4% during the year, outperforming the corporate book for the second consecutive year. In FY2009, when Burgan was able to increase the corporate and retail book, the latter
nbkcapital.com | 33 Companies in Focus Kuwait in Focus - April 2011
Burgan Co. for Well Drilling, Trading and Maintenance (Burgan Well Drilling)
Key Data Highlights • Burgan Well Drilling principally operates in Kuwait and General Liquidity Bahrain and has a longstanding relationship with Kuwait KSE Code BURG.KSE 52-week avg. volume 49,545 Reuters Code ABAR.KW 52-week avg. value (KD) 23,680 Oil Company (KOC) and its parent, Kuwait Petroleum
Price (KD) Price Performance Corporation. The company’s main customers are: KOC, The
Closing Price 0.470 YTD -2.1% Joint Operations of Chevron-Texaco and Kuwait Gulf Oil 52-week High/Low 0.530 / 0.425 1-Year Period -7.8% Company, and Bahrain Petroleum Co. Market Capitalization Shares Outstanding Million KD 98.52 Latest (million) 210 • Burgan Well Drilling is a high-margin business with annual EBITDA margins ranging between 37% and 48% over the Ownership Structure Closely held: 82.29% Public: 17.71% past few years. However, this trend reversed over the second
Price as of close on April 18, 2011. Sources: Zawya and NBK Capital half of FY2009-2010, with the FY2009-2010 EBITDA margin coming in at 28% (versus 37% in FY2008-2009). This was driven by a 52% YoY increase in contract costs Stock Performance (ex-depreciation) and an 82% YoY increase in depreciation costs. 0.600 0.6 • Over the same period, net margins have ranged between 52-week High: KD 0.530 0.550 0.5 23% and 36%; however, the FY2009-2010 net margin came in at 7%. This decrease was primarily driven by the 0.500 0.4 decline in operating performance during 2H2009-2010 and by a 78% YoY increase in finance costs. 0.450 0.3
Millions • 9M2010-2011 witnessed a continuation of recent trends, Price (KD) Price
0.400 0.2 whereby revenues continued to see growth while EBITDA
52-week Low: KD 0.425 margins contracted. During the period, revenues grew by 0.350 0.1 9% YoY to KD 32.4 million. However, EBITDA declined by 21% YoY to KD 7.5 million on account of growth in 0.300 0.0 contract costs and in general and administrative expenses. Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close As a result, the EBITDA margin declined to 23% from
Sources: Zawya and NBK Capital 32% in 9M2009-2010. Overall, net profit for the period declined by 73% YoY to KD 1.2 million, on account of Analyst 39% YoY growth in depreciation costs.
Alok Nawani T. +971 4365 2856 E. [email protected] Key Ratios
FY2006-2007 FY2007-2008 FY2008-2009 FY2009-2010 9M2010-2011
EBITDA (KD millions) 11.2 12.1 10.9 10.8 7.5 EBITDA Margin 48% 45% 37% 28% 23% EBIT (KD millions) 9.1 9.6 8.2 5.8 2.7 EBIT Margin 39% 36% 27% 15% 8% Adj. Gross Margin 52% 49% 41% 32% 28% Net Profit Margin 36% 35% 23% 7% 4%
Quick Ratio 1.4 0.6 0.1 0.2 0.3 Current Ratio 1.7 1.1 0.3 0.4 0.5 Net Debt to Equity 0.0 0.3 0.7 1.5 1.6 Interest Coverage Ratio (EBIT / Net Int. Exp.) 10.1 23.3 5.2 2.1 1.0
ROA 16.8% 15.2% 8.4% 2.3% N/A ROE 33.8% 27.2% 16.3% 6.0% N/A Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 34 Burgan Well Drilling Kuwait in Focus - April 2011
Overview • Overall, net profit for the period declined by 73% YoY to KD 1.2 million. However, in light of the weak net profit Burgan Company for Well Drilling, Trading, and Maintenance performance, the operating cash flow performance during (Burgan Well Drilling) was founded in 1970 and listed on the period has been somewhat comforting, recording 36% the Kuwait Stock Exchange in 2005. The company’s primary YoY growth to KD 5.9 million. business activities include exploration for new oil and gas wells (on and off-shore), oil well development, shallow oil FY2009-2010 well drilling, and workover services. The company’s principal • Over the past four full fiscal years, the company’s revenues operations are in Kuwait and in Bahrain and it has a have grown at a CAGR of 19%. However, due to rampant longstanding relationship with Kuwait Oil Company (KOC) and growth in contract costs (ex-depreciation) at a CAGR of its parent, Kuwait Petroleum Corporation. The company’s main 33%, and general and administrative expenses at a CAGR customers are: KOC, The Joint Operations of Chevron-Texaco of 23%, the EBITDA margin for the group has been in and Kuwait Gulf Oil Company, and Bahrain Petroleum Co. constant decline over the same period. Latest News Burgan Well Drilling Financial Highlights
• August 2010: Burgan recently announced its intention to 45 60%
add 10 more drilling rigs next year, to bring the company’s 40 48% 50% total number of rigs to 41. Management claims to have 35 45% a market share of nearly 50% in Kuwait’s oil exploration 30 40% sector (with 31 rigs at the end of March 2010). The 37% company has also appointed advisors to restructure its 25 30% debt. 20 28% KD Millions KD
• March 2010: Burgan was awarded a contract to supply six 15 20%
oil rigs worth KD 58.5 million to state-owned Kuwait Oil 10 Co. over a period of five years. 10% 5
0% Financial Statement Analysis FY2006-2007 FY2007-2008 FY2008-2009 FY2009-2010 Revenues Net Profit EBITDA Margin
Income Statement Sources: Company’s Financial Statements and NBK Capital
9M2010-2011 • FY2009-2010 has been no exception to the historical trend with revenues growing by 30% YoY to KD 38.9 • The 9M2010-2011 revenues grew by 9% YoY to KD 32.4 million. However, EBITDA declined by 1% YoY to KD 10.8 million. However, EBITDA declined by 21% YoY to KD 7.5 million on account of 52% YoY growth in contract costs million on account of 22% YoY growth in contract costs (ex-depreciation) to KD 26.6 million, and 12% YoY growth (ex-depreciation) to KD 23.2 million, and 56% YoY growth in general and administrative expenses to KD 1.5 million. in general and administrative expenses to KD 1.7 million. As a result, the EBITDA margin declined to 28% from As a result, the EBITDA margin declined to 23% from 37% in FY2008-2009. 32% in 9M2009-2010. • Net profit for FY2009-2010 came in at KD 2.9 million, • In terms of positives below the EBITDA line, the company down 58% YoY. Aside from slight weakness in annual recorded foreign exchange gains of approximately EBITDA, this decline was primarily driven by 82% YoY KD 1 million (versus approximately KD 329,000 in growth in depreciation to KD 5 million (in line with 9M2009-2010) and no provisions for bad debts (versus KD 52 million in additions to the company’s fixed asset approximately KD 295,000 in 9M2009-2010). On the base during the year), while finance costs grew by 78% negative side, however, depreciation expenses increased YoY to KD 2.8 million. by 39% YoY to KD 4.7 million, and these largely mitigated the aforementioned positives below the EBITDA line. • Despite a decline in net profit over FY2009-2010, cash flows from operating activities remained relatively stable at KD 10.3 million (versus KD 10.5 million in FY2008- 2009).
nbkcapital.com | 35 Burgan Well Drilling Kuwait in Focus - April 2011
Balance Sheet Financial Statements
• By the end of December 2010, Burgan’s loan book grew by Income Statement (KD '000) FY2008-2009 FY2009-2010 9M2009-2010 9M2010-2011 Contract revenue 29,870 38,942 29,640 32,407 a marginal 2% QoQ to KD 80.9 million. Short-term debt Contract costs* (17,571) (26,624) (19,122) (23,241) represented 42% of total debt. The company’s debt-to- Adjusted Gross Profit 12,298 12,318 10,517 9,166 SG&A (1,387) (1,547) (1,078) (1,686) equity ratio remained stable QoQ at 1.6x. Depreciation (2,745) (5,002) (3,412) (4,734) Operating Profit 8,166 5,769 6,027 2,746 • We note that the interest coverage ratio of 2.1x observed in Provision for bad debts - (295) (295) - Profit/(loss) on sale of PP&E (5) - - - FY2009-2010 is the lowest interest coverage recorded by Other income 580 307 202 352 Finance costs (1,557) (2,775) (1,679) (2,869) the company over the last six years. As for 9M2010-2011, Foreign exchange gain (loss) - - 329 1,012 the company’s interest coverage ratio had declined to 1x, Profit Before Taxes 7,183 3,006 4,585 1,241 Contribution to KFAS (65) (27) (41) (11) from 3.6x in 9M2009-2010. NLST (184) (75) (116) (33) Zakat (74) (30) (46) (13) Net Income 6,861 2,874 4,382 1,183
Balance Sheet (KD '000) FY2007-2008 FY2008-2009 FY2009-2010 Dec-2010
Cash on hand and at bank 916 185 335 136 Contract receivables 4,313 4,277 8,776 18,654 Unbilled contract receivables 237 139 10 117 Prepayments and other receivables 678 782 4,634 5,863 Inventory & construction in progress 3,731 5,490 5,685 5,113 Total Current Assets 9,875 10,872 19,440 29,884
Property, plant, and equipment 55,603 86,781 133,454 137,700 Total Assets 65,478 97,653 152,894 167,584
Due to bank - 1,906 3,815 3,054 Term loans - current portion 3,139 10,939 4,906 4,995 Ijara payable - current portion - - 11,964 13,177 Advances from KOC 1,302 1,179 1,990 1,777 Notes payable - 1,277 8,127 10,536 Murabaha contract - 8,754 - 17,608 Accounts payable 4,369 8,406 18,548 27,465 Total Current Liabilities 8,809 32,462 49,350 78,612
Term loans - non-current portion 7,654 9,711 28,047 24,139 Ijara Payable - non-current portion - - 18,172 7,379 Advances from KOC 10,271 9,214 6,427 5,309 Provision for indemnity 319 354 301 364 Total Liabilities 27,053 51,741 102,296 115,804
Total Equity 38,425 45,912 50,597 51,780
Total Liabilities and Equity 65,478 97,653 152,894 167,584 *Excludes depreciation. Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 36 Companies in Focus Kuwait in Focus - April 2011
City group
Key Data Highlights
Ge ne ra l Liquidity • City Group’s total revenue stood at KD 17.98 million KSE Code TRANSPORT.KSE 52-week avg. volume 6,053 in FY2010, a 42% increase from KD 12.68 million in Reuters Code TTGC.KW 52-week avg. value (KD) 3,608 FY2009. Transportation, the largest contributor to total Pric e (KD) Price Performance revenue (approximately 85%), increased by 60% year- Closing Price 0.580 YTD 0.0% 52-week High/Low 0.700/ 0.530 1-Year Period 2.7% over-year (YoY) and reached KD 15.20 million in FY2010. However, the travel and tourism and the warehousing Market Capitalization Outstanding Shares Million KD 65.55 Latest (million) 113.01 business segments decreased by almost 7% YoY and 16%
Ownership Structure YoY, respectively. Closely Held: 90.52% Public: 9.48% • FY2010 EBITDA increased by around 12% to reach Price as of close on April 18, 2011. Sources: Zawya and NBK Capital KD 4.63 million, compared to KD 4.16 million in FY2009. Although EBITDA increased, it was under pressure due Stock Performance to the 54% YoY increase in general and administrative expenses. This translated into an EBITDA margin of 26%
0.700 0.02 in FY2010 down from 33% in FY2009. Depreciation 52-week High: KD 0.700 and amortization charges increased by around 113% in FY2010.
0.650 • The FY2010 net profit attributable to shareholders decreased by 57% and reached KD 1.26 million. However, if we exclude the KD 2.7 million gain on the acquisition 0.600 0.01 of the warehousing business in 2009, the company’s
Millions net profit would have increased considerably (316%) in Price (KD) Price 52-week Low: KD 0.530 FY2010. 0.550 • City Group’s debt-to-equity ratio remained flat at 0.45x in 4Q2010. 0.500 0.00 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close
Sources: Zawya and NBK Capital
Analyst
May Zuaiter T. +965 2224 5597 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Gross Profit Margin (%) 48.8% 47.7% 45.9% 46.8% 41.0% Operating Profit Margin (%) 23.2% 17.4% 19.7% 17.8% 3.2% Net Profit Margin (%) 42.6% 30.0% 28.0% 38.1% 7.0%
ROAA 5.4% 8.5% 8.1% 9.7% 2.8% ROAE 6.3% 10.5% 9.7% 11.7% 4.1%
Current Ratio (X) 3.80 5.70 4.76 1.96 1.49 Debt-to-Assets (X) 0.14 0.10 0.05 0.11 0.29 Debt-to-Equity (X) 0.18 0.12 0.06 0.14 0.45
Receivables Turnover Ratio 4.33 3.42 3.33 3.42 3.34 Inventory Turnover Ratio 25.82 20.24 16.83 13.43 13.32 Payables Turnover Ratio 1.14 2.49 2.57 2.69 3.40
*From continuing operations and adjusted for one-off items such as impairment and gain on asset acquisitions. Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 37 City Group Kuwait in Focus - April 2011
Overview • FY2010 EBITDA increased by around 12% to reach KD 4.63 million, compared to KD 4.16 million in FY2009. City Group Co. KSC, formerly known as The Transport and Although EBITDA increased, it was under pressure due Warehousing Group Co. KSC, is a public limited company to the 54% YoY increase in general and administrative listed on the Kuwait Stock Exchange (KSE) with paid-up expenses. This translated into an EBITDA margin of 26% capital of KD 11.3 million. City Group engages in a variety of in FY2010, down from 33% in FY2009. Depreciation activities related to land, sea, and air transport. At present, the and amortization charges increased by around 113% in company operates 400 buses across 19 routes in Kuwait and FY2010. has become the country’s leading listed public transportation • The FY2010 net profit attributable to shareholders operator through its Citybus division. Below we list the decreased by 57% and reached KD 1.26 million. However, company’s four fully-owned subsidiaries: if we exclude the KD 2.7 million gain on the acquisition • Transport and Warehousing Real Estate Group Company of the warehousing business in 2009, the company’s net profit would have increased considerably (316%) in • Boodai Aviation Company FY2010. • Boodai Aviation Agencies Company Balance Sheet • Abar Oilfield Services Company
Latest News • During 2010, the company acquired a controlling interest in two subsidiaries: a 51% interest in Comprehensive Multiple Transportation Company (CMTC) by acquiring • March 2011: The company launched a new range of an additional 50% of the shares for KD 6.15 million and Citybus passes, and has taken delivery of 50 new Citybus recognized goodwill of KD 0.53 million; and a 100% buses designed for use on City Group routes in Kuwait. interest in Kuwait China Bus Company by acquiring an • February 2011: City Group announced that its board of additional 55% of the shares for KD 0.16 million and directors had decided not to pay dividends for FY2010. recognized goodwill of KD 0.06 million.
• September 2010: City Group signed a USD 30 million • Intangible assets stood at KD 9.5 million at the end of loan agreement with the International Finance Corporation December 2010. Those assets represent licenses held (IFC), a member of the World Bank, for a period of seven by foreign subsidiaries and issued by relevant transport years. This loan will support the company in acquiring authorities, giving those subsidiaries the rights and companies within the region, as well as facilitating the privileges to operate in a specific area. Total assets stood purchase of environmentally-friendly buses. at KD 58.2 million as of December 31, 2010, compared to KD 52.1 million at the end of September 2010. The largest Financial Statement Analysis component of assets was property, plant, and equipment (PP&E), which accounted for 62% of total assets.
Income Statement • City Group’s debt-to-equity ratio remained flat at 0.45x in 4Q2010. Total debt increased to KD 16.6 million at the • City Group’s total revenue stood at KD 17.98 million end of December 2010 from KD 14.8 million at the end of in FY2010, a 42% increase from KD 12.68 million in September 2010. Secured term loans represented 80% of FY2009. Transportation, the largest contributor to total total borrowings as of December 2010. During 2010, the revenue (approximately 85%), increased by 60% year- group obtained a term loan of KD 8.47 million from the over-year (YoY) and reached KD 15.20 million in FY2010. IFC and in two tranches. The proceeds of this loan funded However, the travel and tourism and the warehousing the aforementioned acquisitions. In addition, secured term business segments decreased by almost 7% YoY and 16% loans included borrowing KD 7.2 million from the banks of YoY, respectively. a foreign subsidiary. • Overshadowing revenue growth, cost of goods sold (COGS) grew by 57% YoY and reached KD 10.60 million in FY2010. Fleet operation and maintenance, the largest portion of COGS, increased by 67% YoY and stood at KD 4.88 million in FY2010. Gross profit for the year stood at KD 7.37 million compared to KD 5.93 million, representing a 24% increase for the period.
nbkcapital.com | 38 City Group Kuwait in Focus - April 2011
Financial Statements
Income Statement (KD '000) 2007 2008 2009 2010
Revenue 11,861 11,903 12,679 17,976 Cost of Goods Sold 6,203 6,443 6,750 10,601 Gross Profit 5,658 5,460 5,930 7,375 General and admin expenses 2,115 1,652 1,775 2,741 EBITDA 3,542 3,808 4,155 4,633 Depreciation & amortization 1,481 1,462 1,903 4,057 Operating Income 2,062 2,346 2,252 576 Other income 2,068 521 509 1,130 Share of income from associates - - 42 - Provision for bad debt - (63) (331) (11) Finance costs (432) (213) (84) (942) Profit before Tax 3,699 2,591 2,387 754 Taxes (143) (150) (226) (110) Profit from continued operations 3,556 2,441 2,161 643 Gain on purchase of warehousing bus. - 891 2,676 - Impairment of fixed assets - (404) (1,858) - Minority Interest - - - (616) Ne t Inc o me 3,556 2,928 2,979 1,260
Balance Sheet (KD '000) 2007 2008 2009 2010
Cash and cash equivalents 13,525 15,382 1,845 2,105 Trade and other receivables 3,935 3,215 4,205 6,558 Due from related parties 12,185 730 1,371 2,056 Inventories 336 429 576 1,016 Current Assets 29,982 19,756 7,997 11,735
Fixed-assets-PP&E 11,886 10,305 23,752 35,895 Intangible assets - - - 9,531 Goodwill - - - 587 Deferred tax assets - - - 411 Investment in associates - - 87 - Investment in securities - - 104 1 Total Non Current Assets 11,886 10,305 23,943 46,425 Total Assets 41,868 30,061 31,940 58,160
Current portion of loan 2,767 1,625 1,580 4,113 Trade and other payables 2,493 2,526 2,501 3,738 Current Liabilities 5,260 4,151 4,081 7,851
Non-current portion of loan 1,387 - 1,850 12,474 Post employment benefits 499 543 612 696 Non-Current Liabilities 1,886 543 2,462 13,170 Total Liabilities 7,146 4,694 6,543 21,021
Share Capital 9,827 9,827 9,827 11,301 Legal reserve 4,837 5,144 5,465 5,602 General Reserve 4,837 5,144 5,465 5,602 Retained Earnings 15,223 5,251 4,641 4,153 Foreign exchange translation reserve - - - (219) Non-controlling interest - - - 10,701 Total Equity 34,722 25,367 25,397 37,139 Total Liabilities and Equity 41,868 30,061 31,940 58,160
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 39 Companies in Focus Kuwait in Focus - April 2011
Commercial Real Estate Company (Altijaria)
Key Data Highlights
General Liquidity • The Kuwait-based Commercial Real Estate Company KSE Code ALTIJARIA.KSE 52-week avg. volume 2,870,717 (Altijaria) is a Shari’ah-compliant real estate investment, Reuters Code CRCK.KW 52-week avg. value (KD) 234,979 development, and management company. The company’s Price (KD) Price Performance main focus is residential and commercial property Closing Price 0.073 YTD -11.3% 52-week High/Low 0.096 / 0.062 1-Year Period -25.3% development in Kuwait and within the Gulf Cooperation Council (GCC) region. Market Capitalization Outstanding Shares Million KD 133.94 Latest (million) 1,834.81 • The company’s investment properties are shown at a market Ownership Structure value of KD 229 million as of December 2010, which is Closely Held: 17.46% Public: 82.54% significantly higher than the company’s current market Price as of close on April 18, 2011. Sources: Zawya and NBK Capital capitalization of KD 134 million. Investment properties accounted for 56% of total assets as of December 31, Stock Performance 2010. • EBITDA dropped by almost half to 21 million in 2010, 0.120 40.0 compared to 41.8 million in 2009. This was mainly due to
35.0 the change in fair value of real estate properties.
0.100 30.0 • The change in the fair value of real estate properties fell 52-week High: KD 0.096
25.0 to KD 7 million in 2010 (lowest in the last four years), compared to KD 33 million in 2009. Historically, change 0.080 20.0
Millions in the fair value of real estate properties has been one Price (KD) Price 15.0 of the main drivers of real-estate-related revenue. The
0.060 52-week Low: KD 0.062 10.0 contribution of the change in the fair value of real estate properties accounted for 28% of real-estate-related 5.0 revenue in 2010, and averaged 47% over the last five 0.040 0.0 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 years (2005-2009). Volume Close
Sources: Zawya and NBK Capital
Analyst
Mariam Al-Bahar T. +965 2259 5138 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Rental Income (% of real-estate-related rev.) 33.6% 16.1% 29.7% 13.1% 22.5% Profit from sale of real estate (% of real-estate-related rev.) 32.3% 34.4% 8.2% 14.7% 49.1% Change in fair value (% of real-estate-related rev.) 31.6% 48.6% 62.0% 72.0% 28.3% Revaluation gains (% of net profit) 42.7% 59.3% 86.8% 162.3% 137.4%
EBITDA Interest Cover (x) 3.9 5.8 2.5 4.0 2.1 Net Debt-to-Equity (x) 0.2 0.4 0.7 0.7 0.6
Operating Profit Margin 77.0% 88.6% 81.9% 91.2% 84.7% Net Profit Margin 191.1% 105.3% 60.2% 41.5% 22.4% Adjusted Net Profit Margin 57.7% 73.3% 49.3% 68.4% 43.4%
Investment Book (% of Total Assets) 8.9% 12.3% 12.3% 10.1% 9.5% Investment Book (% of Total Equity) 13.9% 18.4% 22.4% 17.8% 16.0%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 40 Commercial Real Estate Company (Altijaria) Kuwait in Focus - April 2011
Overview Major ongoing projects – Kuwait
The Kuwait-based Commercial Real Estate Company (Altijaria) The Dome – Located in Abu-Halifa on the coastal road, the is a Shari’ah-compliant real estate investment, development, project is built on an area of 15,195 sq. m. and consists of and management company. The company’s main focus is restaurants, coffee shops, and facilities for entertainment residential and commercial property development in Kuwait activities. and within the GCC region. The company has a mix of rental Juman Residential Complex – Built on an area of 7,950 sq. and real estate development business. Altijaria was established m., this residential project is located in Mahboula, facing the in 1968 and was listed on the Kuwait Stock Exchange at the Fahaheel Express Road. The project consists of two buildings end of 2004. The company aims to drive growth by seizing of 12 floors each, which include apartments, penthouses, and investment and real estate opportunities and plans to expand townhouses. abroad to diversify geographically.
Altijaria’s network expansion through consortiums and alliances Major upcoming projects – Kuwait with various firms within the GCC drives the company’s focus on developing large-scale projects across the region. X-Zone Project – This will be an entertainment complex built on an area of 5,940 sq. m. The project will consist of Major Projects restaurants, coffee shops, a games area, two movie theaters, and other advanced entertainment facilities.
Major projects completed – Kuwait Ruba – The Ruba Project will be a residential building located in Mahboula, and will be built on an area of 5,373 sq. m. Symphony – This mixed-use project is located in Salmiya and adjacent to the Fahaheel Expressway. The project will consist is built on an area of 11,500 sq. m. The project consists of of 15 floors, and will contain a mix of dwelling units, such as commercial shops with two towers above. The office tower has individual townhouses and penthouses. The project will include 11 floors, and the other tower is a hotel with 20 floors. provisions for outdoor and indoor recreational activities.
Al Tijaria Tower – This is another mixed-use project and will Salmiya Park – This is one of the most important tourism- include malls and office space. The tower is located in the related projects launched in Kuwait and is spread over an area Sharq area and is built on an area of 4,295 sq. m. The top part of 380,000 sq. m. The estimated cost of the project is KD 19 of the tower, designated for office space, consists of 40 floors. million.
Al-Manar – Located in Bnaid Al Gar, this project consists of a Kuwait International Tennis Complex – Built over an area of 16-floor residential tower (two- and three-bedroom apartments) 70,000 sq. m., this will be a one-of-a-kind project in the and six townhouses. region. The project will include a hotel, a commercial complex, Al Yarmouk Villas, Phase 1 – Located in the Yarmouk area, this a major adapted and covered stadium, and tennis and squash development consists of 18 plots, with the built-up area of courts—all for an estimated investment of KD 28 million. each plot ranging from 460 sq. m. to 550 sq. m. Major international projects Rester Beach Resort – Located on the Gulf beach in the Al-Egila area, the project consists of 31 townhouses, each House Towers Project – The Hajer and Al Mukam Towers are of which has two floors, a garden, and private parking. The residential towers that will be located very close to Kaaba in resort includes facilities such as squash courts, a health club, Saudi Arabia. This project will mainly serve the housing needs landscaped gardens, and a swimming pool. of pilgrims. The Hajer Tower will be a mixed-use project and Al-Shrooq Tower – Located on Jaber Al-Mubarak Street in will consist of 31 floors, of which 10 floors will be occupied the Sharq area, this tower consists of 21 floors and includes by the Mövenpick Hotel. The remaining floors will consist of commercial shops. furnished hotel apartments. Al Mukam Tower, also a mixed-use Budoor Tower – Located in the Sharq area on the Ahmed tower, will consist of 45 floors and will include a hotel and Al Jaber Street, this office tower consists of 17 floors and hotel apartments. includes commercial shops in the basement, on the ground Ain Athari – Bahrain Park – This is an international build- floor, and on the mezzanine. operate-transfer (BOT) project and will be developed in cooperation with two other companies in the region. The project is located in Bahrain and will be built over an area of 170,000 sq. m.
nbkcapital.com | 41 Commercial Real Estate Company (Altijaria) Kuwait in Focus - April 2011
Financial Statement Analysis • Altijaria had a net debt-to-equity ratio of 0.61x as of December 31, 2010, slightly lower than the 2009 figure Income Statement of 0.67x (the average net debt-to-equity ratio was 0.44x from 2005 to 2009). The company’s equity and total debt • Real-estate-related revenue decreased significantly by stood at KD 243 million and KD 151 million, respectively, 46% to KD 24.8 million in 2010, compared to KD 45.9 as of December 31, 2010. million in 2009, mainly due to the decline in the change • A closer look at the debt serviceability shows that the in the fair value of real estate properties. company’s EBITDA interest coverage stood at 2.1x in • The change in the fair value of real estate properties 2010, compared to 4x for 2009. decreased significantly to KD 7 million in 2010, compared • Altijaria’s investment book (both available for sale [AFS] to KD 33 million in 2009. Historically, change in the fair and held for trading) stood at KD 38.8 million according to value of real estate properties has been one of the main the 2010 financial statements, and this accounts for 16% drivers of real-estate-related revenue. The contribution of shareholders’ equity. Almost 84% of the AFS investment of the change in the fair value of real estate properties is in the unquoted category. accounted for 28% of real-estate-related revenue in 2010 and averaged 47% in the last five years (2005-2009). Financial Statements • The company’s rental income decreased by 7%, to KD 5.6 Income Statement (KD' 000) 2007 2008 2009 2010 million in 2010 compared to KD 6 million in 2009. The Real estate rental Income 6,830 7,075 6,012 5,595 rental income accounted for 23% of the real-estate-related Profit from land and real estate held for trading 14,570 1,956 6,731 12,194 revenue in 2010. Change in fair value 20,600 14,744 33,021 7,023 Hotel income 403 6 101 19 • Profit from land and real estate held for trading increased Total Real Estate Revenue 42,403 23,781 45,865 24,831 Other operating income 1,372 35 238 707 by 81% to KD 12.2 million in 2010, compared to Operating expenses (1,139) (1,112) (894) (1,051) Administrative expenses (4,948) (3,074) (3,376) (3,458) KD 6.7 million in 2009. However, this increase was offset EBITDA 37,689 19,631 41,833 21,029
by the decline in the change of the fair value of real estate Depreciation (140) (153) (150) (67) properties. EBIT 37,550 19,477 41,684 20,962 Finance charges (6,449) (7,762) (10,473) (10,250) • As a result, EBITDA dropped by almost half to KD 21 Net Income 44,650 14,465 19,057 5,551
million in 2010, compared to KD 41.8 million in 2009 Balance Sheet (KD' 000) 2007 2008 2009 2010
mainly due to the change in fair value of real estate Property plant and equipment 6,846 6,825 33,787 33,539 properties. Project in Progress 52,612 79,033 17,931 6,015 Investment Properties 123,248 128,825 191,478 228,677 • The company’s share of associates’ results was a loss of Investments in associates 61,853 70,704 63,800 49,838 Investments available for sale 41,373 48,890 41,838 37,836 KD 5.3 million in 2010, compared to a profit of KD 4.1 Total non current assets 288,358 334,578 348,835 355,904 million in 2009, which significantly influenced the net Cash and Bank Balances 535 4,284 2,410 3,923 Lands and real estate held for trading 23,103 23,322 25,079 18,841 profit. Total current assets 49,136 64,119 64,201 53,673 Total Assets 337,493 398,697 413,035 409,577 • Net profit decreased by 71% to KD 5.6 million in 2010, Short-Term Debt 29,727 102,565 64,738 102,932 Long-Term Debt 55,489 46,512 94,952 47,997 compared to KD 19.1 million in 2009. Total Debt 85,216 149,077 159,690 150,929 Total Liabilities 112,039 179,959 177,760 166,742 Balance Sheet Shareholders' Equity 225,455 218,738 235,275 242,835 Total Liabilities and Equity 337,493 398,697 413,035 409,577
Sources: Company’s financial statements and NBK Capital • The company’s investment properties are shown at a market value of KD 229 million as of December 2010, which is significantly higher than the company’s current market capitalization of KD 134 million. Investment properties accounted for 56% of total assets as of December 31, 2010.
nbkcapital.com | 42 Companies in Focus Kuwait in Focus - April 2011
Gulf Cable and Electrical Industries Company (Gulf Cable)
Key Data Highlights
General Liquidity • Gulf Cable and Electrical Industries Company (Gulf Cable) KSE Code CABL.KSE 52-week avg. volume 82,630 is the market leader in Kuwait, with the largest market Reuters Code CABL.KW 52- week avg. value (KD) 153,586 share in the electric cable business. Price (KD) Price Performance • The company has large investments in the financial Closing Price 1.680 YTD -16.0% 52-week High/Low 2.240/1.460 1-Year Period -1.2% markets. Investments represented more than 100%
Market Capitalization Outstanding Shares of shareholders’ equity and 72% of total assets as of Million KD 352.7 Latest (million) 209.9 December 2010. Investment income (derived mainly from Ownership Structure dividends) contributed a significant 105% of net income. Closely Held: 46.4% Public: 53.6% • Gulf Cable reported strong growth in sales in FY2010, Price as of close on April 18, 2011. Sources: Zawya and NBK Capital growing by 31% YoY to reach KD 93.2 million. The improvement in sales came after a weak performance in Stock Performance 2009, stemming from the lingering effects of the financial crisis.
2.400 0.8 • EBITDA levels declined on the back of higher operating
0.7 52-week High: KD 2.240 expenses. Despite the improvement in sales, a 44% jump 2.200
0.6 in the cost of goods sold coupled with an increase in 2.000 administrative and commercial expenses pushed EBITDA 0.5 levels down to KD 6.2 million in FY2010 (a 46% YoY 1.800 0.4 drop). Price (KD) Price Millions 0.3 1.600 • Gulf Cable showed a significant increase in net profit, 52-week Low: KD 1.460 0.2
1.400 improving from KD 10.5 million in 2009 to KD 26.4 0.1 million in 2010. This was largely due to higher dividend 1.200 0.0 income. As a result, the net profit margin rallied by 136 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close basis points YoY to 28.3% in FY2010.
Sources: Zawya and NBK Capital • Acting as a regional player allows Gulf Cable to take advantage of the increased spending by governments on major development projects (e.g., infrastructure). Approximately 50k to 60k MW of power generation capacity is likely to be added within the Middle East region over the next four years. According to Middle East Electricity, Arab Analyst nations are expected to spend up to USD 120 billion on power projects between 2008 and 2012. Wadie Khoury T. +965 2259 5118 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
EBITDA Margin 31.0% 27.2% 17.6% 16.0% 6.6% EBIT Margin 29.3% 26.1% 16.4% 14.0% 4.7% Net Income Margin 30.4% 32.0% 2.9% 14.8% 28.3%
Investment Book-to-Assets -77.3% 75.6% 54.2% 69.4% 72.3% Investment Book-to-Equity 73.9% 87.1% 84.7% 113.3% 100.7% Investment Income-to-Net Income 17.2% 31.4% -400.7% 41.7% 104.5%
ROAA 11.2% 10.1% 1.1% 4.2% 9.0% ROAE 12.4% 11.3% 1.5% 6.8% 13.4% Adjusted ROA 27.2% 23.0% 14.9% 7.8% -1.3%
Debt-to-Equity 2.2% 12.3% 50.9% 55.4% 33.5%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 43 Gulf Cable and Electric Industries Company (Gulf Cable) Kuwait in Focus - April 2011
Overview government, for 2010 is expected to have increased to KD 5 billion, around 14% higher than FY2009. Moreover, With a production capacity of 75,000 tons/year, Gulf Cable the company underwent a capacity expansion program that and Electrical Industries (Gulf Cable) is one of the most was completed in 2009, ramping up production capacity dominant regional players in the manufacture and supply of from 50,000 tons to 75,000 tons. The full effect of the cables. Established in 1975, the company’s core operations capacity expansion was reflected in 2010 results, as we revolve around the production of cable used to distribute believe that expansion helped push sales higher. electricity. The cables are strictly low- and medium-voltage • EBITDA levels declined on the back of higher operating cables made of copper (approximately 70% of total produced expenses. Despite the improvement in sales, a 44% jump cables) or aluminum (approximately 30%). Gulf Cable’s in the cost of goods sold, coupled with an increase in production facilities allow it to produce other kinds of cable administrative and commercial expenses, pushed EBITDA as well, such as data transmission cables, conductors, and levels down to KD 6.2 million in FY2010 (a 46% YoY telephone cables. Furthermore, Gulf Cable has its own copper drop). Commodity prices have been on the rise since the rod plants, enabling it to produce 12,000 tons of copper per beginning of 2010. Copper prices showed a 31% increase year. The group is composed of the parent company and its in 2010, which most likely negatively impacted EBITDA subsidiary, Gulf Cable and Multi Industries Company–JSC, levels. Consequently, the EBITDA margin took a hit, located in Jordan. The company sells its products within dropping to 6.6% in FY2010 from 16% in FY2009. the Middle East, including the United Arab Emirates (UAE), Oman, Jordan, Qatar, Bahrain, and Saudi Arabia. • Weaker operating profits were offset by growth in investment income. Gulf Cable showed a significant increase in net Latest News profit, improving from KD 10.5 million in 2009 to KD 26.4 million in 2010. As a result, the net profit margin rallied by 136 basis points YoY to 28.3% in FY2010. The increase • April 2011: Gulf Cable received two contract orders from in net profit was largely due to higher dividend income. Kuwait’s Ministry of Electricity and Water for a combined Dividend income alone contributed KD 23.6 million to the value of KD 22.2 million. bottom line. The large contribution of investment income • March 2011: Gulf Cable received a contract valued at has caused high volatility in the company’s bottom line KD 1.6 million from the Ministry of Electricity and Water over the past five years, ranging from KD 3.2 million in for the delivery of low-tension power cables. FY2008 to KD 26.9 million in FY2010.
• November 2010: Gulf Cable was awarded a contract by the • The Board approved a dividend distribution of KD 0.065 Ministry of Electricity and Water for the supply of medium- per share on the back of improved results. This results in tension power cables over a period of eight months. The a 52% dividend payout ratio and a dividend yield of 3.9% total value of the contract is KD 21.9 million. as of April 11, 2011.
Financial Statement Analysis Return on Assets 2007 2008 2009 2010 Income Statement ROAA 10.1% 1.1% 4.2% 9.0% Adjusted ROAA 23.0% 14.9% 7.8% -1.3% Sources: Company's report and NBK Capital • Gulf Cable reported strong growth in sales in FY2010, growing by 31% YoY to reach KD 93.2 million. The Balance Sheet improvement in sales came after a weak performance in 2009, stemming from the lingering effects of the financial crisis. Throughout 2009, several projects were put on hold • Available-for-sale (AFS) investments dominate the balance and as a result, prices and volumes declined by 11% and sheet. AFS investments represented close to 72% of 27%, respectively. total assets as of December 2010 and over 100% of total shareholders’ equity. AFS investments are largely • A stronger economy in Kuwait, coupled with a capacity dominated by managed portfolios, which represent close improvement, may have helped improve sales in 2010. to 86% of total AFS investments. Gulf Cable continues to With the effects of the financial crisis subsiding, we show interest in investment activities, as total investments believe Gulf Cable’s sales in 2010 benefited from the have grown by a five-year CAGR of 14.2% to reach improved Kuwaiti economy. Over 88% of Gulf Cable’s sales KD 240 million by the end of 2010. This is the highest come from within Kuwait. Capital spending by the Kuwaiti level achieved over the past five years.
nbkcapital.com | 44 Gulf Cable and Electric Industries Company (Gulf Cable) Kuwait in Focus - April 2011
• Gulf Cable improved its debt position in FY2010. Debt Financial Statements levels dropped by 9% in FY2010, which reduced the debt-to-equity ratio from 0.55x to 0.33x in FY2010. The Income Statement (KD '000) 2007 2008 2009 2010 Total Revenue 83,983 109,858 71,125 93,159 majority of the debt is in short-term loans, which make Cost of Revenue (58,765) (87,817) (55,246) (79,531) up 90% of the total. Although the company has sufficient Gross Profit 25,217 22,041 15,878 13,629 Selling/General/Admin Expenses (3,328) (4,027) (5,943) (9,273) current assets to pay off its short-term debt, we believe EBIT 21,889 18,014 9,935 4,356 Other Income 8,330 (12,504) 5,768 27,723 most of this debt will be refinanced because Gulf Cable Other Expenses (2,120) (1,937) (4,588) (4,921) Earnings Before Taxes 28,099 3,573 11,115 27,158 has historically maintained relatively high short-term debt Taxes (1,231) (346) (620) (760) levels. Net Income 26,868 3,227 10,495 26,399 Minority Interest - 10 28 4 Net Income of Parent Co. 26,868 3,217 10,467 26,394 • A significant portion of Gulf Cable’s operations comes from Kuwait’s Ministry of Electricity and Water, resulting Balance Sheet (KD '000) 2007 2008 2009 2010 Property, plant and equipment 11,627 14,975 15,920 14,616 in assurance regarding the payment of receivables going Available for sale investment 248,450 128,446 178,452 239,789 forward. Moreover, in FY2010, Gulf Cable managed to Goodwill - - - - Non-Current Assets 260,078 143,421 194,372 254,405 improve its receivables collection period, which dropped Inventories 34,713 48,756 34,248 36,777 Trade Account Receivable 27,519 37,351 21,087 27,943 from 149 days in FY2009 to 96 days in FY2010. Other Reveivable and prepayments 3,064 4,913 1,268 678 Fixed deposit 201 186 388 396 • Cash flow from operations (CFO) took a hit in FY2010 on Cash and bank balances 2,983 2,403 5,591 11,505 Current Assets 68,479 93,609 62,582 77,299 the back of weaker operating results. Moreover, an increase Total Assets 328,556 237,030 256,954 331,704 Long term provisions 1,376 1,229 1,324 1,512 in working capital added pressure on the CFO, pushing it Long term loans 2,574 12,925 10,564 7,665 down to a negative KD 0.3 million compared to a positive Non Current Liabilities 3,950 14,155 11,888 9,177 Trade A/P 1,019 1,089 1,650 2,146 KD 50 million in FY2009. Other Payables and accruals 5,635 5,771 9,238 10,142 Current Portion of LT loans 572 4,939 5,132 5,008 Short term loans 27,399 56,412 71,500 67,000 Due to banks 4,683 2,936 49 79 Days Sales Outstanding and A/R as a Percentage of Current Liabilities 39,307 71,147 87,569 84,376 Sales Total Liabilities 43,257 85,301 99,457 93,553 Fair Value reserve 163,861 35,076 44,826 109,693 Other Equity 121,437 116,348 112,382 128,180 160 40% Total Equity 285,299 151,424 157,208 237,873 Minoirty Interest 305 289 278 140 34% 35% Total Liabilities and Equity 328,556 237,030 256,954 331,704 33% 30% 30% Sources: Company’s financial statements and NBK Capital 120 28% 30%
100 25%
80 20% 150
Number of Days of Number 60 15% 108 100 96 Sales percentageof as A/R 40 77 10%
20 5%
0 0% 2006 2007 2008 2009 2010
Days Sales Outstanding (DSO) A/R as % of Sales
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 45 Companies in Focus Kuwait in Focus - April 2011
Gulf Insurance Company (GIC)
Key Data Highlights
General Liquidity • Gulf Insurance Company (GIC) is the largest insurance KSE Code GINS.KSE 52-week avg. volume 404,534 company in Kuwait in terms of written and retained Reuters Code GINS.KW 52- week avg. value (KD) 215,358 premiums. Price (KD) Price Performance • Approximately 43.5% of GIC is owned by KIPCO (the Closing Price 0.619 YTD 8.4% 52-week High/Low 0.648/0.367 1-Year Period 47.4% largest major shareholders are the Al Sabah family). Market Capitalization Outstanding Shares • GIC displayed strong growth in written premiums over the Million KD 105.01 Latest (million) 169.65 past five years, increasing at a CAGR of 22.6%. Moreover, Ownership Structure in FY2010, written premiums also improved at a similar Closely Held: 84.8% Public: 15.2% pace. Price as of close on April 18, 2011. Sources: Zawya and NBK Capital • A significant portion of the company’s risks are shared with reinsurers. Half of the total claims are passed on to Stock Performance reinsurers. Sharing risks with reinsurers has helped the company maintain positive net income.
0.700 6.0 52-week High: KD 0.648 • If we look at the company’s underwriting profit, GIC
5.0 is paying out KD 0.950 in claims for every KD 1.000 0.600 underwritten in contracts. If the discounts on claims are 4.0 included, the claims paid out top KD 1.000.
0.500 3.0 • GIC held an investment book worth KD 90.1 million at the Price (KD) Price Millions
2.0 end of December 2010, which represented 35% of total 0.400 assets. 1.0 52-week Low: KD 0.367 • GIC’s liquid investments alone are capable of paying more 0.300 0.0 than 100% of total claims. The strength of the company’s Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close balance sheet goes further. Cash as well as time deposits (very liquid assets) alone cover up to 85% of total claims Sources: Zawya and NBK Capital • GIC reported a 52% increase in net profit in FY2010 to reach KD 7.7 million. The strong growth in the bottom line came as no surprise as the company experienced both an improvement in writing premiums and an overall growth in the net investment income.
Analyst
Wadie Khoury T. +965 2259 5118 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Loss Ratio 77.7% 70.9% 61.0% 75.5% 72.1% Expense Ratio 19.2% 26.1% 25.3% 23.6% 23.0% Combined Ratio 96.9% 97.0% 86.3% 99.1% 95.0%
Adjusted RoAA 5.2% 3.8% 1.6% 2.0% 3.0% Adjusted RoAE 13.8% 10.6% 4.4% 7.0% 11.2%
Inv Book-to-total Assets 43.4% 41.6% 37.8% 29.4% 34.6% Inv Book-to-total Equity 134.4% 107.2% 118.0% 112.0% 128.2%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 46 Gulf Insurance Company (GIC) Kuwait in Focus - April 2011
Overview point). GIC’s underwriting profit jumped from KD 3.6 million in FY2009 to KD 6.8 million in FY2010—a 91% Gulf Insurance Company (GIC) is the largest insurance increase YoY. company in Kuwait in terms of both written and retained • Commissions received on ceded reinsurance refer to premiums. Established in 1962, GIC covers life and non- fees received from reinsurers to share risks (i.e., costs) life segments throughout the region through its subsidiaries. associated with claims incurred in return for a share of the Areas of non-life insurance covered include motor, marine and profits from written premiums. We examined the effects aviation, and property and casualty insurance. of stripping out this commission from the underwriting profits. Our findings suggest that GIC’s operating profit Latest News would drop significantly, to the extent that the company would incur a loss of KD 2.8 million in FY2010. • February 2011: GIC announced its Board of Directors has recommended the distribution of a 25% cash dividend Underwriting Profit representing KD 0.025 per share (dividend payout of 55% 8.0 and dividend yield of 4%), in addition to 5% bonus shares 7.6 for FY2010. 7.0 6.8
• December 2010: GIC purchased a 21.94% stake in 6.0 Arab Orient Insurance from United States Fire Insurance 5.0 Company. As a result, GIC’s total stake in Arab Orient
Insurance increased to 76.89%. 4.0 3.6 KD Millions KD 3.0 • September 2010: KIPCO sold a 39.2% stake in GIC to 3.0 2.5 Fairfax (a global insurance and reinsurance group based 2.1 in Canada). 2.0
1.0 Financial Statement Analysis 0.0 2005 2006 2007 2008 2009 2010 Income Statement Source: Company reports
• Two major factors make up the growth in written premiums • The combined ratio determines the quality of the company’s for an insurance company: i) the number of issued contracts claims by assessing how much the company is making in and ii) the risk level associated with each contract. GIC has premiums compared to the claims incurred. A combined consistently managed to increase written premiums over ratio of more than 100% indicates the company is paying the past five years. In 2010, the company reported 23% out more in claims than it is making from premiums, and growth in written premiums year-over- year (YoY), reaching a ratio of less than 100% means the company is making KD 120 million. Written premiums on engineering- and more on premiums than it is paying out in claims. GIC medical-related insurance led the growth in FY2010. recorded a combined ratio of 95% in FY2010, improving Although no specific data on the structure of each contract by 410 basis points YoY. This means that for every is provided, looking at historical claim rates, insurance KD 1.000 in written premiums, GIC paid out KD 0.950 as related to engineering activity had the lowest claim rate in claims. The calculations were conducted without including FY2010; only 4% of claims were incurred. The claim rate discounts on premiums offered by GIC. If these are to be on medical insurance stood at 36% in FY2010. included in the calculation, the combined ratio would be • Underwriting profit is the most important indicator in the above 100%. insurance industry. This determines how well the company • In addition to writing premiums, another important aspect is generating profits strictly from its core business. The of an insurance company stems from its ability to generate underwriting business includes premiums earned, as well strong investment returns on the money received through as commission on reinsurance and issuance fees less written premiums. GIC has broken up its income generated any operating expenses (i.e., claims incurred and other from investments into two main categories: i) life insurance, expenses). GIC has consistently managed to maintain and ii) non-life insurance. On the life insurance front, GIC positive underwriting results, largely due to contributions invests in four types of securities: held-for-trading (HFT) from ceded reinsurance (explained further in the next investments, available-for-sale (AFS) investments, debt
nbkcapital.com | 47 Gulf Insurance Company (GIC) Kuwait in Focus - April 2011
securities, and time and call deposits. Investment earnings Balance Sheet from life insurance stood at KD 1.7 million in FY2010. The relatively safer investments, debt securities, and the • GIC has showed renewed interest in market investments time and call deposits were responsible for 46% of total in FY2010. After investments declined in 2009, the investment income. The non-life insurance segment has a company invested close to KD 9 million in AFS investments larger variety of investment options and has contributed in FY2010, putting the account at KD 50 million as of more to total investment income. Combining both the life December 2010. Nevertheless, GIC still maintains a and non-life investment income, GIC generated a gain of strong cash and time deposit balance, standing at KD 60.8 KD 5.8 million in 2010, pushing investment income down million as of December 2010, representing 23.4% of total 22% YoY. assets—the largest portion.
• GIC reported a 52% increase in net profit in FY2010 to • The main criterion here is to determine how risky the reach KD 7.7 million. The strong growth in the bottom line investment portfolio is in order to determine how effective came as no surprise as the company experienced both an the company will be in terms of being able to pay its claims. improvement in writing premiums and an overall growth in This remains difficult to determine as the breakdown of the net investment income. investments is formed under general categories. However, • GIC recommended a divided payment of KD 0.025 per just to get an idea, HFT investments and AFS investments share. This represents a dividend payout ratio of 55% for in quoted securities represented 40% of the company’s FY2010 and a dividend yield of 4% using the closing price total investments in 2010, while debt securities, held-to- as of April 18, 2011. maturity securities, and other AFS investments made up the rest of the investments.
Coverage Ratio • One measure of success for an insurance business is determined by whether the company has enough liquidity 120% to pay off insurance claims. The outstanding claims
100% account recorded under liabilities determines how much GIC owes in reported claims. The company reported
80% outstanding claims of KD 71.5 million as of December 2010, of which KD 40 million (56%) has been reinsured. 60% Taking these factors into consideration, we find GIC’s cash balance is capable of covering up to 1.9 times the net 40% outstanding claims. Even if reinsurance claims are not taken into account, the company’s cash balance can cover 20% up to 85% of total claims reported. Hence, we believe GIC is in a good position to pay off its outstanding claims. 0% 2005 2006 2007 2008 2009 2010 • The company maintains negligible debt levels and had a Loss Ratio Expense Ratio Combined Ratio sufficient cash balance as of December 2010 to make any
Source: Company financial statements required payments. GIC’s debt-to-equity ratio stood at 0.2x as of December 2010, with a negative net debt balance.
nbkcapital.com | 48 Gulf Insurance Company (GIC) Kuwait in Focus - April 2011
Financial Statements
Income Statement (KD '000) 2007 2008 2009 2010
Premiums written 74,085 86,609 97,219 119,775 Reinsurance premiums ceded (35,385) (44,211) (44,958) (60,301) Net premiums written 38,700 42,398 52,260 59,474 Movement in unearned premiums (797) (901) (755) (5,562) Net premiums earned 37,903 41,497 51,505 53,912 Commission on ceded reinsurance 5,897 6,723 7,899 9,425 Policy issuance fees 1,194 1,434 2,280 2,727 Net Inv. income from life insurance 2,384 480 1,586 1,691 Net Revenue 47,378 50,134 63,270 67,755 Claims incurred (24,916) (23,984) (35,918) (38,531) Commission and discounts (6,147) (6,263) (7,089) (7,982) Inc. in life mathematical reserve (1,198) (693) (2,159) 1,187 Inc. in additional reserve (59) (192) (110) (361) Maturity & cancel of life ins. policy (694) (450) (702) (1,139) Gen. and Admin. expenses (9,903) (10,506) (12,135) (12,392) Expenses (42,917) (42,088) (58,113) (59,219) Net Underwriting Results 4,461 8,046 5,156 8,536 Net Investment (loss) income 39,123 (1,048) 3,772 4,033 Sundry Income 95 59 123 150 Other Charges (4,628) (2,158) (2,978) (3,200) Net Income 39,052 4,899 6,073 9,518 Minority Interest 1,386 1,292 1,023 1,825 Net Income (Parent Co.) 37,666 3,607 5,049 7,692
Balance Sheet (KD '000) 2007 2008 2009 2010
Property and Equipment 6,192 6,459 5,528 7,353 Investments in ass. comp. 4,051 5,371 2,272 3,197 Intangible assets 2,725 2,934 8,307 8,305 Financial Instruments 92,775 90,820 74,725 90,117 Loans sec.by life ins. policies 438 732 862 911 Prem. and insurance receivable 22,961 27,842 37,242 39,995 Reins. recoverable on out.claims 22,225 37,231 38,053 39,993 Property held for sale 291 229 176 223 Other Assets 6,365 12,164 10,353 9,451 Cash and Cash Equivalents 65,009 56,195 76,873 60,822 Total Assets 223,031 239,976 254,391 260,367 Total liab. from ins. contracts 76,232 95,258 107,867 115,374 Bank Overdraft 7,889 7,016 17,019 14,962 Premiums received in advance 2,737 6,320 1,265 1,241 Isurance payables 25,507 30,771 36,079 33,141 Other liabilities 11,011 11,196 10,718 13,071 Amt. to policy holders-Takaful fund - - - - Total Liabilities 123,376 150,560 172,948 177,788 Total Equity 86,571 76,977 66,711 70,280 Minority interest 13,084 12,440 14,731 12,299 Total Liabilities and Equity 223,031 239,976 254,391 260,367
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 49 Companies in Focus Kuwait in Focus - April 2011
Injazzat Real Estate Development Company (Injazzat)
Key Data Highlights
General Liquidity • Injazzat Real Estate Development Co. (Injazzat) is a KSE Code INJAZZAT.KSE 52-week avg. volume 943,333 Kuwait-based real estate company that operates across Reuters Code INJA.KW 52-week avg. value (KD) 92,332 commercial, residential, and hotel segments. The company Price (KD) Price Performance also owns a portfolio of indirect investments in funds and Closing Price 0.106 YTD 1.9% 52-week High/Low 0.142 / 0.068 1-Year Period -1.9% shares of real estate companies. Market Capitalization Outstanding Shares • Injazzat holds investment properties that appear at a Million KD 36.64 Latest (million) 345.65 market value of KD 105 million according to the 2010 Ownership Structure Closely Held: 13.3% Public: 86.7% financial statements. Since the market capitalization of the company was KD 36.6 million as of April 18, 2011, we Price as of close on April 18, 2011. Sources: Zawya and NBK Capital feel this fact is worth highlighting. Investment properties accounted for 65% of total assets as of December 31, Stock Performance 2010. • The company’s rental income decreased by 33%, to 0.160 25.0 KD 2.3 million in 2010 compared to KD 3.4 million in 2009. Rental income has not been sufficient to meet 0.140 52-week High: KD 0.142 20.0 operating expenses in addition to finance charges, resulting in a deficit of KD 4.1 million in 2010. This was the trend 0.120 15.0 for 2008 and 2009, with deficits of KD 5.7 million and KD 3.4 million, respectively. 0.100 Millions
Price (KD) Price 10.0 • The company recorded a gain of KD 1.7 million relating 0.080 to a change in the fair value of investment properties in 2010, compared to a loss of KD 18.9 million in 2009. 52-week Low: KD 0.068 5.0 0.060 Historically, both top-line and bottom-line growth have been mainly driven by a change in the fair value of investment 0.040 0.0 properties and profit from the sale of investment properties. Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close
Sources: Zawya and NBK Capital
Analyst
Mariam Al-Bahar T. +965 2259 5138 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Rental Income (% of Total Income) 2.7% 4.7% 11.9% nmf 33% Change in Fair Value of Inv. Prop.(% of Real-Estate-Related Rev.) 61.7% 48.9% 36.5% nmf 30% Change in Fair Value of Inv. Prop. (% of Net Profit) 72.5% 61.5% 64.9% nmf 131% Investment Income (% of Total Income) 15.0% 12.8% 1.0% nmf 18%
EBITDA (KD million) 10.7 18.6 24.5 -13.2 4.0 EBITDA Interest Cover (x) 8.9 4.6 4.1 -2.8 0.9 Net Debt-to-Equity 0.4 1.0 0.9 1.6 1.6 Net Profit Margin 72.2% 69.3% 55.7% nmf 18.6%
Investment Book (% of Total Assets) 16.2% 15.1% 13.9% 9.8% 9.4% Investment Book (% of Total Equity) 29.7% 39.6% 33.0% 30.7% 28.7%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 50 Injazzat Real Estate Company Kuwait in Focus - April 2011
Overview property has an office space of 10,634 sq. m. and is fully occupied by the departments of various ministries under long- Established in 1998, Injazzat is a Kuwait-based company term leases. that was listed on the Kuwait Stock Exchange in 2002. The company is active in owning and operating residential Major upcoming projects – Kuwait properties, retail development, mixed-use commercial development, build-operate-transfer (BOT) projects, and Shuwaikh Project hospitality and entertainment properties. Injazzat also engages The company has acquired a plot of 25,300 sq. m. in the in real estate activities and investments, including direct and Shuwaikh industrial area to develop a multi-use complex. This indirect investments, buying and selling of real estate, and complex will include commercial shops and offices, with a management of properties within Kuwait, the Middle East, total built-up area of 96,900 sq. m. Europe, and the United States.
Latest News Major projects completed – International
Al Qouz Residential Project • March 2011: Injazzat plans to issue new shares allocated to shareholders of Aqar Real estate Investments Company The project consists of two labor accommodation buildings through a share swap. The company also announced that providing 620 rooms along with offices and commercial shops. the board of directors had approved the acquisition of a Located in Dubai, the project is built on a block of 100,000 51% stake in Aqar Real Estate Investment Company, by sq. feet with an estimated total built-up area of approximately issuing 156.17 million shares resulting in a swap ratio 224,180 sq. feet. In June 2007, after the project reached full of 1:1.5. The transaction still awaits the approval of the occupancy, the company sold 50% of its share in the project general assembly. to a Kuwaiti company. • December 2010: The company announced that it has sold all of the remaining floors in Al-Dhow Tower for a Al Muhaisna Project (Labor Accommodation) total value of KD 11.8 million, realizing a profit of KD 3.4 This project is situated in the Al Muhaisna area of Dubai and million. This sale was reflected in the company’s financial covers an area of about 56,914 sq. feet. The project consists statements for the fourth quarter ending December 31, of two floors, and the building is composed of 401 rooms. 2010. It has been fully leased for five years. Injazzat acquired this project in 2007, a 50% joint venture with First Real Estate Major Projects Co. (Bahrain), as part of the company’s strategy of holding income-generating properties. Major projects completed – Kuwait
Land Trading Al Dhow Tower An integral part of Injazzat’s investment activities involves This office tower is strategically located in the Sharq area land trading, which includes buying parcels of land for direct covering a total area of almost 2,000 sq. m. The tower has resale or to be split into sub-plots and sold on to one or more 33 floors in addition to the ground floor and a basement, buyers. The company has experience in land trading in Kuwait, and the total built-up area is 24,129 sq. m. This project was Bahrain, and several other international venues. completed in 2006.
Kuwait Injazzat Tower The Al Mal and Aqar Joint Projects Company was established This office tower is located next to the Dhow Tower in Sharq in 2005, in cooperation with Aqar Real Estate Investment on a 1,000 sq. m. block. The tower consists of 28 stories Company (Aqar). Injazzat owns 66.7% of the company, while covering a built-up area of about 15,750 sq. m. Construction Aqar has a 33.3% stake. The new company merged Injazzat’s of Injazzat Tower was completed in August 2010. two plots with Aqar’s plot in Sharq, covering an area of 3,000 sq. m., to develop an office tower with a built-up area of nearly Al Dajeej Ministries Building 35,000 sq. m. Injazzat acquired the Al Dajeej Ministries Building, located in Farwaniya, in 2003 as another source of rental income. The
nbkcapital.com | 51 Injazzat Real Estate Company Kuwait in Focus - April 2011
Bahrain • The company recorded a gain of KD 1.7 million relating to a change in the fair value of investment properties in The company has acquired several well-situated parcels in Al 2010, compared to a loss of KD 18.9 million in 2009. The Seef, Ras Al Zuwaid, Al Janabeah Bahrain Investment Wharf, change in the fair value of investment properties accounted and the Sar areas in Bahrain. for 30% of the company’s real-estate-related revenue and 131% of the net profit in 2010. Saudi Arabia • Historically, top-line and bottom-line growth have been In December 2007, the company acquired, in association with mainly driven by a change in the fair value of investment other parties, a multi-use 223,372 sq. m. plot of land in the properties and profit from the sale of investment properties. eastern area of Dammam. Injazzat intends to develop part of The change in the fair value of investment properties the land and to sell the rest. accounted for an average of 54% of the real-estate-related revenue and 67% of the net profit, in the last five years Qatar (2004-2008).
The company acquired several parcels of land in the Lusail • Rental income decreased by 33%, to KD 2.3 million in area for development and trading purposes. Injazzat has also 2010, compared to KD 3.4 million in 2009. The company’s acquired shares in a Qatari company that owns land in the Al rental income has not been sufficient to meet operating Khor area resort. expenses in addition to finance charges, resulting in a deficit of KD 4.1 million in 2010. This was the trend for 2008 and 2009, with deficits of KD 5.7 million and KD UAE 3.4 million, respectively. Injazzat has acquired plots of land in Umm Al Quwain in the • Income from the sale of investment properties increased United Arab Emirates (UAE). One parcel of land, covering an significantly to KD 3 million in 2010 compared to KD 0.05 area of about 56,700 sq. m., is situated in Umm Al Tho’oub, million in 2009 mainly due to the sale of floors in the Al and the second one, covering an area of about 6,272 sq. m., is Dhow tower. Income from the sale of investment properties situated in the Al Maidan area. The aim is to hold on to these accounted for 53% of total real-estate-related income in parcels and sell them at a gain. 2010.
Bulgaria • A closer look at the financials shows that the company reported a profit at the EBITDA level of KD 4 million in Injazzat invested in a land acquisition program in Luilin on the 2010, compared to a loss of KD 13.2 million in 2009, due northeastern side of Sofia, Bulgaria, and in the Bistritsa Hills to the increase in real-estate-related income. on the southwestern side of Sofia. • Investment income decreased by 65% to KD 1.2 million in 2010, compared to KD 3.5 million in 2009. United States • Injazzat reported a net profit of KD 1.3 million in 2010 Injazzat, in partnership with other investors, purchased two compared to a net loss of KD 20.2 million in 2009. We adjacent tracts of land totaling 28.71 acres in McKinney, would like to highlight that the net loss in 2009 was Texas, for trading purposes. entirely influenced by the decrease in the change in the fair value of investment properties. Financial Statement Analysis Balance Sheet Income Statement • The company holds investment properties that appear at • Real-estate-related income for the company increased a market value of KD 105 million, according to the 2010 significantly to a profit of KD 5.7 million in 2010 compared financial statements. Since the market capitalization of to a loss of KD 11.3 million in 2009. This increase was the company was KD 36.6 million as of April 18, 2011, we due to a gain in fair value of investment properties in 2010 feel this fact is worth highlighting. Investment properties compared to a loss in 2009. Increased profit from the sale accounted for 65% of total assets as of December 31, of investment properties also boosted real-estate-related 2010. income.
nbkcapital.com | 52 Injazzat Real Estate Company Kuwait in Focus - April 2011
• Injazzat’s investment book stood at KD 15.7 million as Financial Statements of December 31, 2010, which accounted for 9% of total assets and 29% of total equity. Although the investments Income Statement (KD '000) 2007 2008 2009 2010 as a percentage of equity are quite high, we would like to Rental income 1,112 3,264 3,417 2,295 Profit on sale of dev. properties - - - - highlight that the company’s available-for-sale investments Management and placement fees 450 3,752 324 474 primarily represent investments in real estate development Income from sale of inv. properties 7,576 9,182 52 3,042 Change in fair value of inv. properties 10,132 9,953 (18,886) 1,704 projects and portfolios managed through specialized real Other operating income 1,450 1,097 3,818 (1,772) estate investment managers. Total real-estate-related rev. 20,720 27,246 (11,275) 5,743
Operating expenses 2,245 2,946 2,116 1,915 • The company’s net debt-to-equity ratio stood at 1.65x as of Operating profit 18,475 24,300 (13,391) 3,829
December 31, 2010, compared to 1.56x as of 2009. The Investment Income 3,052 280 3,513 1,231 total equity and debt stood at KD 55 million and KD 100 Total Income 23,772 27,526 (7,762) 6,974 Total expenses 6,254 8,943 6,835 6,377 million, respectively, as of December 31, 2010. Net Income 16,479 15,326 (20,197) 1,300
Balance Sheet (KD '000) 2007 2008 2009 2010
Cash and Bank Balances 14,705 22,882 16,316 9,538 Investment Properties 102,411 125,232 110,494 104,977 Total Assets 167,021 203,026 170,697 167,768 Total Debt 77,403 98,544 101,281 99,819 Total Liabilities 98,171 112,611 110,414 108,249
Shareholders' Equity 63,920 85,305 54,606 54,740
Minority Interest 4,929 5,109 5,677 4,779
Total Liabilities and Equity 167,021 203,026 170,697 167,768
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 53 Companies in Focus Kuwait in Focus - April 2011
Kuwait Cement Company
Key Data Highlights
General Liquidity • The Kuwait Cement Company is a dominant player in the KSE Code KCEM.KSE 52-week avg. volume 157,977 local cement market, with a production capacity of 3.8 Reuters Code KCEM.KW 52- week avg. value (KD) 98,934 million tons. Price (KD) Price Performance • Kuwait Cement has a large investment book on its balance Closing Price 0.600 YTD -10.0% 52-week High/Low 0.695/0.543 1-Year Period -4.2% sheet. Among the largest of the company’s investments
Market Capitalization Outstanding Shares is an 8.92% stake in National Industries Group (NIG). Million KD 364.4 Latest (million) 607.3 NIG is one of the largest companies on the Kuwait Stock
Ownership Structure Exchange (KSE) in terms of market capitalization. Closely Held: 63.4% Public: 36.6% • Major development projects are under way. With oil the Price as of close on April 18, 2011. Sources: Zawya and NBK Capital main source of revenue in Kuwait, government spending on large projects will persist. As a result, the demand for cement will increase, improving revenues for cement Stock Performance companies.
0.750 1.6 • Saudi Arabia’s excess cement production may cause a
1.4 52-week High: KD 0.695 commotion in the Kuwaiti market due to the competitive
1.2 advantage of Saudi cement producers. This is the result of 0.650 the Saudi government subsidizing energy costs. 1.0
0.8 • Kuwaiti companies enjoy a geographic advantage in terms
52-week Low: KD 0.543 Millions Price (KD) Price of access to the Iraqi market. Kuwait Cement’s planned 0.6 0.550 capacity addition is likely to play role in exporting cement 0.4 for reconstruction in Iraq. 0.2 • In 2010, sales dropped by 28% year-over-year (YoY). 0.450 0.0 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Despite the slump in sales, gross profit margin actually Volume Close improved by 600 basis points. Sources: Zawya and NBK Capital
Analyst
Wadie Khoury T. +965 2259 5118 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Gross Profit Margin 36.2% 34.5% 26.4% 33.5% 39.5% EBITDA Margin 0.0% 49.7% 29.1% 29.3% 42.0% Profit Margin 55.7% 66.5% 5.0% 20.7% 29.9% Adj Profit Margin (w/o Investment Income) 31.6% 28.9% 18.1% 21.6% 36.8%
Investment Book-to-Assets 76.1% 83.3% 52.5% 38.7% 40.5% Investment Book-to-Equity 97.9% 100.4% 94.3% 70.2% 66.8%
ROAA 14.9% 16.8% 1.4% 5.2% 3.7% Adjusted ROAA 32.4% 36.8% 17.9% 10.0% 10.7% ROAE 18.9% 20.9% 2.0% 9.5% 5.9%
Debt-to-Equity 24.6% 17.2% 72.9% 59.2% 53.8% Interest Coverage Ratio 9.5 x 8.9 x 5.2 x 5.8 x 6.5 x
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 54 Kuwait Cement Company Kuwait in Focus - April 2011
Overview total income to a significant extent. Investment losses stood at KD 1.6 million in 2010, compared to losses of The Kuwait Cement Company is one of three cement players KD 16 million in 2009. in Kuwait. It is the largest local cement player involved in • Kuwait Cement operates better as a cement company than the production and distribution of ordinary cement, sulphate- as an asset management firm. Looking at the operational resistant Portland cement, Portland cement for industrial return on assets (adjusted ROAA) vs. the actual return on purposes, and other types of cement. Kuwait Cement has the assets (ROAA), we notice a more stable set of returns. capacity to produce up to 3.8 million tons of cement and a Our calculation for the adjusted ROAA involved looking clinker capacity of 4 million tons per year, with the majority of strictly at core operations by stripping out any investments its core operations driven by the housing market. The company from the balance sheet and investment earnings from the strictly caters to the Kuwaiti market, which consumes income statement. Between 2005 and 2010, the company approximately 5.5–6 million tons of cement a year. experienced a drop in its adjusted ROAA from 18% to 10%, while the actual ROAA (including investments) fell Latest News from 19% to 4%.
• Interest coverage ratios improved from 6.0x in 2009 • March 2011: Kuwait Cement Company KSC announced to 6.5x in 2010 as a result of a 9% decline in finance that its Board of Directors recommended the distribution charges. The reason for the change is uncertain, as total of 15% cash dividends, representing KWD 0.015 per debt increased on Kuwait Cement’s balance sheet. share (a dividend yield of 2.3% as of the last closing price) and 5% bonus shares for 2010. Balance Sheet Financial Statement Analysis • Kuwait Cement has significant exposure to investments, whereby the company’s investment book accounted for Income Statement 67% of shareholders’ equity by 2010.
• Sales declined from KD 86.3 million in 2008 to KD 61.7 • AFS investments represented the largest portion of assets, million in 2009. Despite the drop in sales, gross margins making up 36% of total assets by the end of 2010. Kuwait improved from 26% in 2008 to 34% in 2009. The Cement’s largest position in AFS investments is an 8.92% improvement in margins came as a result of a 34% decline stake in NIG Holding Company. This investment alone is in the company’s raw material costs (the largest portion currently (as of April 18, 2011) valued at KD 29.5 million, of costs) in 2009. In 2010, sales dropped by 28% year- comprising 11% of total assets. over-year (YoY). Despite the slump in sales, the gross profit • Property, plant, and equipment (PP&E) increased margin actually improved by 600 basis points, increasing significantly from KD 65.8 million in 2009 to KD90 from 33.5% in 2009 to 39.5% in 2010. million in 2010. This comes as a result of KD 25.8 million • On an operational front, EBITDA improved by 4% between in additions. The company has a signed contract valued at 2009 and 2010 to reach KD 18.7 million. The stronger KD 94 million for the construction of a new kiln factory. results came on the back of declining raw material prices Thus far, only KD 53.7 million has been used. Therefore, (37% drop YoY) and lower supply and maintenance costs going forward, we can expect PP&E to increase until the (38% drop YoY) in FY2010. new kiln factory is completed.
• As mentioned in past issues, the company’s exposure • Kuwait Cement has raised plenty of debt over the years. to investments is cause for some concern. A significant Total debt grew from KD 40.7 million in 2005 to KD 97.2 portion of income comes from investments, thus million in 2008, with the majority of debt being short-term. introducing a high degree of volatility in earnings. Losses By 2009, the company changed its strategy. After paying from investments grew from a loss of KD 11.7 million KD 16.2 million throughout 2009, total debt dropped to in 2008 to a loss of KD 16 million in 2009. Kuwait KD 81.2 million by the end of the year. Moreover, Kuwait Cement still focuses on investments as a key source of Cement refinanced a significant portion of its total debt income; however, the company seems to be deviating so that long-term debt would account for a larger portion from this strategy and is beginning to focus more on of total debt. By the end of 2010, total debt declined to core operations. If the company continues down this KD 84.3 million. path, we can expect more stability in earnings going • In 2006 and 2007, Kuwait Cement used the bulk of the forward. In 2010, income from investments did not affect company’s cash flows from operations (CFFO) along with
nbkcapital.com | 55 Kuwait Cement Company Kuwait in Focus - April 2011
non-core sources of cash (dividends from investments) Financial Statements to purchase AFS investments and pay out dividends. In 2008, the company took on KD 45.2 million in debt to Income Statement (KD '000) 2007 2008 2009 2010 Total Revenue 82,432 86,399 61,792 44,673 help pay out dividends and purchase additional AFS and Cost of Revenue (54,004) (63,572) (41,074) (27,049) PP&E. In 2009, things changed; debt was being repaid, Gross Profit 28,429 22,827 20,718 17,624 Selling/General/Admin Expenses (2,635) (2,991) (3,510) (3,167) more AFS investments were being sold than purchased, Other Operating income 2,366 374 (341) 2,743 Operating Income 28,159 20,210 16,867 17,201 and the largest portion of Kuwait Cement’s CFFO was Finance Charges (3,179) (3,850) (2,894) (2,631) being invested in PP&E (KD 12.5 million). Similarly, in Other Income/Expenses 31,726 (11,866) (372) (515) Net Income before Taxes 56,707 4,495 13,601 14,055 2010, the company’s focus seemed to shift towards more Contributions to KFAS (27) (43) (129) (122) core operations as KCEM continued investing in plant NLST (569) - (302) (121) Zakat (1,146) - (204) (303) operations (KD 25 million) in 2010; AFS investments Directors Remuneration (161) (140) (154) (140) Net Income 54,803 4,312 12,813 13,368 remained negligible. Balance Sheet (KD '000) 2007 2008 2009 2010
• Kuwait Cement’s CFFO (adjusted for investments at AFS Investments 197,555 107,616 84,278 93,129 fair value) improved from KD 2.7 million in 2008 to PP&E 8,430 12,807 65,771 89,996 Other Non Current Assets 11,944 16,189 15,856 16,365 KD 23.9 million in 2009. The improvement in cash flow Total Non Current Assets 217,929 136,612 165,905 199,489 HFT Investments 106,090 17,727 12,022 11,566 from operations is a result of stronger working capital, C&CE 17,143 41,516 38,017 13,170 mainly due to the decline in inventory. However, in Other Current Assets 23,963 43,529 33,115 34,081 Total Current Assets 147,195 102,771 83,154 58,817 2010, the company’s cash flow from operations dropped Total Assets 365,125 239,384 249,059 258,306 Total Equity 302,711 133,339 137,139 156,770 significantly to KD 2.8 million, largely due to a decrease Loans 11,200 38,798 54,938 49,147 Other Non Current Liabilites 1,291 1,498 1,544 1,642 in payables. Total Non Current Liabilities 12,491 40,296 56,481 50,789 Loans 40,750 58,356 26,233 35,132 Other Current Liabilities 9,174 7,392 29,205 15,615 Total Current Liabilities 49,923 65,748 55,439 50,747 Total Liabilities 62,414 106,044 111,920 101,536 Total Liabilities and Equity 365,125 239,384 249,059 258,306
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 56 Companies in Focus Kuwait in Focus - April 2011
Kuwait Finance House (KFH)
Key Data Highlights • Kuwait Finance House (KFH), the largest Islamic bank in General Liquidity Kuwait, was established in 1977 as the first purely Islamic KSE Code KFIN.KSE 52-week avg. volume 2,908,369 Reuters Code KFIN.KW 52-week avg. value (KD) 3,019,587 banking institution. The bank has expanded domestically,
Price (KD) Price Performance holding a 30% market share of total assets of the Kuwaiti banking sector as of December 2010, and internationally, Closing Price 1.100 YTD 2.4% 52-week High/Low 1.204 / 0.861 1-Year Period 10.0% via an aggressive expansion policy. The bank now has a
Market Capitalization Shares Outstanding presence in Kuwait, Saudi Arabia, United Arab Emirates Million KD 2,935.75 Latest (million) 2,668.87 (UAE), Bahrain, Malaysia, the Cayman Islands, and Turkey. Ownership Structure KFH’s branch network, including affiliate branches, Closely Held: 48% Public: 52% reached nearly 210 branches as of March 2011, of which Price as of close on April 18, 2011. Sources: Zawya and NBK Capital 52 are domestic. As of December 2010, KFH had 15 consolidated subsidiaries and eight associates around the world. Stock Performance • KFH’s net profit declined by 11% in FY2010, on the back 1.300 16 of lower investment earnings. Net financing income grew
14 by 10%; however, weak non-financing income resulted in 52-week High: KD 1.204 1.200 sluggish growth (+1.7%) in operating income. 12 52-week Low: KD 0.861 1.100 • The bank kept its costs well under control, despite making 10 additional investments in its infrastructure and information 1.000 8
Millions technology, as well as the opening of new branches abroad. Price (KD) Price 6 However, the cost-to-income ratio (CIR) crept up to 48% in 0.900
4 FY2010 due to weaker operating income. Net impairments
0.800 also remained high in FY2010, accounting for 65% of 2 income before provisions (IBP), compared with 63% in 0.700 0 FY2009. Apr-10 Jun-10 Jul-10 Aug-10 Oct-10 Nov-10 Jan-11 Feb-11 Apr-11 Volume Close • KFH’s shareholders approved a cash dividend of KD 0.020
Sources: Zawya and NBK Capital per share, which translates into a dividend payout of 47% for FY2010 and a dividend yield of 1.7%. The shareholders also approved a stock dividend of 8% of the existing shares, which increased the number of outstanding shares Analyst from 2.49 billion to 2.69 billion.
Munira Mukadam • KFH’s capital adequacy ratio declined slightly from T. +971 4 365 2858 15.21% as of December 2009 to 14.22% as of December E. [email protected] 2010. Key Ratios
2006 2007 2008 2009 2010
Growth in Receivables 32.0% 43.6% 19.9% 6.5% 8.9% Growth in Leased Assets 7.4% 43.6% 27.0% 9.0% -1.2% Growth in Depositors' Accounts 16.9% 43.7% 23.3% 9.8% 5.3% Growth in Operating Income 42.1% 41.1% 12.2% -11.5% 1.7% Growth in Net Profit 36.5% 69.9% -43.0% -24.3% -10.7%
NPRs-to-Gross Receivables 4.1% 3.8% 12.6% 12.8% 15.1% NPR Coverage 137% 97% 47% 53% 53% Capital Adequacy 18.9% 23.3% 21.7% 15.2% 14.2%
Growth in Costs 59.9% 3.4% 30.6% 22.0% 6.3% Cost-to-Income 39.1% 28.7% 33.3% 45.9% 48.0%
RoAA 2.9% 3.6% 1.6% 1.1% 0.9% RoAE 24.9% 28.8% 12.8% 9.6% 8.4%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 57 Kuwait Finance House (KFH) Kuwait in Focus - April 2011
Overview KFH Network
•52 operating branches Kuwait Finance House (KFH) was established in 1977 as Kuwait •Plan to open five more •38 branches have sections for women the first fully Shari’ah-compliant banking institution and it •141 operating branches has since become the second-largest bank in Kuwait. As of •Plan to open 15 more •Recently opened branches in Mannheim, Germany and December 2010, KFH accounted for 30% of the total assets of KFH - Turkey Dubai, United Arab Emirates •Launched first of its kind Gold Investment Fund the Kuwaiti banking sector. The Kuwait Investment Authority •Completed Sukuk Transaction worth USD 100 million, Oversubscribed by 150% owns the largest stake, 24.08%, in KFH. Additionally, other KFH - Bahrain •8 operating branches public institutions own approximately 24% of the company’s •3 showrooms capital. The bank has created a strong foothold, both •8 operating branches KFH – Malaysia •Plan to open three more domestically and internationally, with a total network of nearly 210 branches in various countries. The bank has subsidiaries Source: NBK Capital and associates in Kuwait, Saudi Arabia, UAE, Bahrain, Malaysia, the Cayman Islands, and Turkey, offering a variety of services, including Islamic banking, investments, real Latest News estate, and leasing services. The bank is rated by international agencies Standard and Poor’s, Moody’s, and Fitch as A-, Aa3, • March 2011: KFH – Turkey plans to issue another Sukuk and A+, respectively. worth USD 500 million by the end of 2011, following the success of the previous issue of USD 100 million.
Subsidiaries and Associates as of December 2010 • March 2011: KFH announced that it had received approval from the Central Bank of Kuwait to extend the buyback Consolidated Subsidiaries Country Stake Principal Activities period for up to 10% of the bank’s shares by an additional Kuwait Finance House (Malaysia) Berhad Malaysia 100% Islamic banking services six months. The original buyback period expired on April KFH Private Equity Ltd. Cayman Islands 100% Islamic investments Intl. real estate 19, 2011. development and KFH Financial Service Ltd. Cayman Islands 100% investments • March 2011: KFH’s shareholders approved a cash Islamic finance and Al Muthana Investment Co. Kuwait 100% investments dividend of KD 0.020 per share (20% of par value, 47% Real estate development Al Nakheel United Real Estate Co. Kuwait 100% and leasing payout for 2010) at the annual general meeting (AGM) and Infrastructure and extraordinary general meeting (EGM) held on March 15, Development Enterprises Holding Co. Kuwait 100% industrial investments Real estate development 2011. This translated into a dividend yield of 1.7%. The Baitak Real Estate Investment Co. Saudi Arabia 100% and investment Islamic finance and shareholders also approved a stock dividend of 8% of the Liquidity Management House Kuwait 100% investments existing shares, which increased the number of outstanding Saudi Kuwait Finance House Saudi Arabia 100% Islamic investments Computer maintenance, shares from 2.49 billion to 2.69 billion. In FY2009, KFH consultancy, and software International Turnkey Systems Co. Kuwait 97% services paid a cash dividend of KD 0.025 per share (25% of par Kuwait Finance House Bahrain 93% Islamic banking services value), which translated into a dividend payout of 48%. Kuwait Turkish Participation Bank Turkey 62% Islamic banking services Aref Investment Group Kuwait 52% Islamic investments • January 2011: Moody’s Investors Service affirmed KFH’s Aircraft leasing and ALAFCO - Aviation Lease and Finance Co. Kuwait 53% financing services Bank Financial Strength Rating (BSFR) at C-. The rating Real estate, investment, trading, and real estate agency also maintained the bank’s long-term and short- Al Enma'a Real Estate Company Kuwait 50% mgmt. term issuer default ratings at Aa3/Prime-1. Associates Country Stake Principal Activities
Direct Investments Asset Quality First Takaful Insurance Co. Kuwait 27% Islamic Takaful insurance Gulf Investment House Kuwait 20% Islamic investments Sharjah Islamic Bank UAE 20% Islamic banking services • In FY2010, while the banking sector witnessed a slowdown First Investment Co. Kuwait 9% Islamic investments in non-performing loan (NPL) formation, in general, KFH Indirect Investments Sokouk Real Estate Development Co. Kuwait 49% Real estate development saw its non-performing receivables (NPRs) jump by 31% Real estate projects to KD 911 million. Munsha'at Real Estate Projects Co. Kuwait 25% management Islamic banking and Liquidity Management Centre Co. Bahrain 25% financial services • Thus, the NPR-to-gross receivables ratio reached a peak of Leasing and Islamic A'ayan Leasing and Investment Co. Kuwait 16% investment 15.1% as of December 2010, compared with 12.8% as of December 2009. The bank maintained high provisions for Sources: Company’s financial statements and NBK Capital receivables, thereby sustaining the NPR coverage ratio at 53%. However, this ratio was much lower than the levels seen during the pre-crisis period.
nbkcapital.com | 58 Kuwait Finance House (KFH) Kuwait in Focus - April 2011
• The bank continued to carry legacy pre-invasion NPRs • There was no major movement in fee and commission on its balance sheet, amounting to KD 6.25 million, income, which grew by just 2.8% in FY2010. Foreign representing a marginal 0.7% of total NPRs. exchange income contributed positively, although marginally, to operating income in FY2010 at KD 3.11 Asset Quality Indicators million. In FY2009, KFH incurred foreign exchange losses of KD 2.25 million. Net investment income dropped by 16.0% 160% 15.1% 17% in FY2010, almost entirely negating the increase
137% 14.0% 140% in net financing income. Thus, total operating income 12.6% 12.8% registered a marginal 1.7% increase in FY2010, to stand 12.0% 120% at KD 528.56 million. 97% 10.0% 100% • Cost growth slowed down in FY2010, as operating costs 8.0% 80% grew by just 6% during the year, taking the cost-to- income ratio (CIR) up to 48%, compared with 46% in 6.0% 53% 53% 60% 47% FY2009. KFH continued its expansion process in FY2010, 4.1% 4.0% 3.8% 40% opening up several international branches during the year.
2.0% 20% Furthermore, the bank installed new automated systems to improve the compilation process of financial and 0.0% 0% 2006 2007 2008 2009 2010 administrative data between KFH and its affiliates.
NPRs-to-Gross Receivables NPR Coverage • Net impairment charges remained high in FY2010, at Sources: Company’s financial statements and NBK Capital KD 198.63 million, but were down 3% compared to FY2009. A closer look reveals that impairments on receivables increased by 19% in FY2010 along with NPR Analysis – Pre-invasion versus Post-liberation impairments on leased assets, which nearly tripled during
Pre-invasion the year. However, impairments on investments halved in KD Thousands 2006 2007 2008 2009 2010 FY2010 to KD 24.45 million, from KD 53.13 million in NPRs 31,693 6,368 6,309 6,275 6,253 Specific Provisions 31,693 6,368 6,309 6,275 6,253 FY2009, contributing to the overall drop in net impairment % of total NPRs 26% 4% 1% 1% 1% charges. Post-liberation KD Thousands 2006 2007 2008 2009 2010 • The bank’s risk cost (measured as impairments on NPRs 88,531 149,663 635,859 690,488 904,602 Specific Provisions 67,954 71,866 158,428 212,644 386,346 receivables-to-average gross receivables) remained high % of total NPRs 74% 96% 99% 99% 99% at 3.5%, compared with 3.9% in FY2009, indicating Post-Liberation NPR Growth 32% 69% 325% 9% 31% continued pressure on asset quality. Provisions Growth 15% 6% 120% 34% 82% NPR Coverage 77% 48% 25% 31% 43% KD Thousands Total Operating Income Analysis NPRs 120,224 156,031 642,168 696,763 910,855 Total Provisions 164,455 151,355 299,107 368,128 485,855
NPR Coverage 137% 97% 47% 53% 53% • KFH has witnessed a significant shift in the bank’s operating NPRs-to-Gross Receivables 4.1% 3.8% 12.6% 12.8% 15.1% income mix. Since 2005, the share of net financing Sources: Company’s financial statements and NBK Capital income in total operating income has gradually increased. Accordingly, net investment income, which accounted for more than 50% of the bank’s operating income in 2005, Financial Statement Analysis now represents less than 20% of operating income.
Income Statement • In 2010, net financing income accounted for the majority (59%) of operating income, compared with 2005, when • KFH recorded a decline in net profit for the third net financing income represented just 26% of operating consecutive year, as net profit reached KD 105.98 million income. The tremendous increase indicates the bank’s in FY2010, 11% below FY2009, on the back of weak non- increased focus on generating earnings from core-operating financing income. activities, which are more sustainable in the long run.
• Net financing income continued to grow in FY2010, up 10% compared to FY2009, reaching a record high of KD 309.84 million. The increase was driven by declining funding costs, as opposed to improved financing income.
nbkcapital.com | 59 Kuwait Finance House (KFH) Kuwait in Focus - April 2011
Breakdown of Operating Income: 2005 vs. 2010 • Depositors’ accounts increased by 5% in FY2010 to stand at KD 7.65 billion at the end of 2010. However, 2005 2010 the majority of the increase in the bank’s funding base was driven by higher interbank borrowing, which rose from 8% 12% KD 1.46 billion as of December 2009, to KD 2.21 billion 13% 26% at the end of December 2010, an increase of 51%. 12%
59% Financial Statements
54% 17% Income Statement (KD '000) 2007 2008 2009 2010
Financing Income 466,893 561,271 528,411 517,573 Distribution to Depositors (242,528) (216,800) (192,584) (162,866) Murabaha and Ijara costs (65,712) (81,194) (54,543) (44,871) Net Financing Income * Fee and commission Income Net Financing Income 158,653 263,277 281,284 309,836 Investment Income Other Income Fee and Commission Income 56,125 70,140 63,406 65,211 *Net financing Income = Financing income less distribution to depositors’ accounts less Foreign Exchange Income 14,696 13,547 (2,250) 3,111 Murabaha and Ijara costs. Sources: Company’s financial statements and NBK Capital Investment Income 266,397 209,897 111,613 92,287 Other Income 27,037 29,998 65,523 58,117 Operating Income 522,908 586,859 519,576 528,562
Impairments (38,179) (210,940) (203,885) (198,633) Balance Sheet Staff Costs (73,783) (96,254) (111,893) (114,131) Gen and Admin Expenses (48,134) (70,873) (86,757) (91,306) Depreciation (27,939) (28,547) (40,031) (48,186) • Receivables declined in 4Q2010 by 1.6%, the first Operating Profit 334,873 180,245 77,010 76,306
quarterly decline since 3Q2008. However, moderate Other Expenses (9,478) (5,593) (5,190) (4,526) growth in receivables in each of the first three quarters of Minority Interest (50,129) (17,692) 46,921 34,203 Net Income 275,266 156,960 118,741 105,983 2010 resulted in FY2010 growth of 9%. Balance Sheet (KD '000) 2007 2008 2009 2010 • Total receivables stood at KD 5.55 billion as of December Assets 2010, compared to KD 5.09 billion as of December 2009. Cash and Bank Balances 553,565 368,062 444,943 447,585 Short-term Intl. Murabaha 1,067,291 1,312,153 1,257,573 1,597,372 The increase was led by growth in the “Other” sector, which Receivables 3,988,131 4,779,788 5,090,398 5,545,915 grew by 36%, and the “Trading and Manufacturing” sector, Trading properties 126,413 57,590 126,386 221,226 Leased Assets 930,657 1,181,825 1,288,066 1,272,703 which was up 18% in FY2010. Lending to the “Banks Investments 896,098 1,038,602 1,042,026 1,183,050 and Financial Institutions” sector declined for the third Investments in Associates 341,279 449,496 410,838 339,307 Investment Properties 247,300 279,574 506,464 561,377 consecutive year, bringing the sector’s share down to 31% Other Assets 239,694 485,713 522,394 629,293 compared with 43% two years ago. Fixed Assets 407,488 591,339 601,606 750,671 Total Assets 8,797,916 10,544,142 11,290,694 12,548,499
Liabilities and Sh. Equity Receivables Breakdown Due to Banks and Fin. Inst. 1,186,391 1,595,452 1,460,925 2,211,580 Depositor's Accounts 5,361,155 6,611,556 7,261,827 7,649,082 100% Other Liabilities 380,853 394,033 563,451 602,135 5% 6% 13% Total Liabilities 6,928,399 8,601,041 9,286,203 10,462,797 18% 90% 22% 17% 15% Minority Interest 196,094 354,546 324,138 311,999 80% 17% Deferred Revenue 374,608 344,426 464,602 515,874 Fair Value Reserve 86,843 11,394 (33,597) (42,999) 70% 29% Foreign Currency Trans. Res. 1,972 (7,548) 7,531 10,498 28% 60% 45% Total Shareholders' Equity 1,210,000 1,240,283 1,241,817 1,290,330 54% 50% 43% Total Liabilities and Equity 8,797,916 10,544,142 11,290,694 12,548,499 40% Sources: Company’s financial statements and NBK Capital 35% 31% 30%
20% 34% 26% 28% 10% 19% 20%
0% 2006 2007 2008 2009 2010
Trading and Manufacturing Banks and financial institutions Construction and real estate Other
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 60 Companies in Focus Kuwait in Focus - April 2011
Kuwait Financial Center (Markaz)
Key Data Highlights
General Liquidity • Kuwait Financial Center (Markaz) was established in 1974 KSE Code MARKAZ.KSE 52-week avg. volume 1,545,256 and has become one of the leading asset management Reuters Code MARKZ.KW 52-week avg. value (KD) 206,335 and investment banking institutions in the Middle East Price (KD) Price Performance and North Africa (MENA) region. The institution provides Closing Price 0.135 YTD -6.6% 52-week High/Low 0.152 / 0.090 1-Year Period 8.5% conventional and Islamic asset management and is
Market Capitalization Shares Outstanding currently the third-largest Gulf Cooperation Council (GCC) Million KD 64.91 Latest (million) 480.80 fund manager, with a market share of approximately 7.5% Ownership Structure in terms of total assets managed. Closely Held: 21% Public: 79% • Markaz was the first to offer a derivatives trading platform Price as of close on April 18, 2011. Sources:Zawya and NBK Capital in 2005, and is currently the only options market maker for stocks listed on the Kuwait Stock Exchange (KSE). Stock Performance Total traded contracts declined by 19%, from 9,000 in 2009 to 7,277 in 2010. The total underlying value of
0.160 30 these contracts declined by 27%, from KD 117 million in
52-week High: KD 0.152 0.150 FY2009 to KD 85.13 million in FY2010. 25 0.140 • Markaz posted a net profit of KD 8.12 million in FY2010,
0.130 20 216% higher than FY2009, on the back of improved
0.120 investment earnings and controlled operating costs. Total 15
0.110 Millions fees and commissions from management income, however, Price (KD) Price continued to decline by 3% in FY2010. The company’s 0.100 10 assets under management (AUMs) reached KD 1.03 0.090 52-week Low: KD 0.090 5 billion at the end of December 2010, an increase of 29% 0.080 compared to December 2009. 0.070 0 Apr-10 Jun-10 Jul-10 Sep-10 Oct-10 Nov-10 Jan-11 Feb-11 Apr-11 • Markaz’s shareholders approved a cash dividend of Volume Close KD 0.010 per share (10% of par value), translating into a Sources: Zawya and NBK Capital payout of 68% for 2010, and representing a dividend yield of 7%. The shareholders also approved a stock dividend of 5% of the existing shares, which increased the number of outstanding shares from 506 million to 531.3 million. Analyst Markaz did not pay any dividends for FY2009.
Munira Mukadam T. +971 4 365 2858 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Management fees and comm-to-Op.Income 89.5% 42.4% -102.6% 92.7% 53.0% RoAA 3.6% 16.4% -11.7% 2.0% 6.3% RoAE 4.6% 22.8% -18.1% 3.2% 9.3%
Total Debt-to-Total Equity 31.2% 38.7% 66.8% 39.8% 40.2% Net Debt-to-Total Equity 28.3% 36.8% 51.9% 25.1% 34.0% Interest Coverage Ratio 4.02 13.18 -5.81 3.23 10.95 Operating Cash Flow Ratio 2.77 -1.74 2.61 3.27 -0.76
Liquid Assets-to-Total Assets 38.5% 39.7% 39.7% 44.6% 42.4% Debt-to-Assets 23.1% 26.8% 36.6% 27.3% 24.6% Equity-to-Assets 74.1% 69.9% 58.0% 68.7% 68.1%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 61 Kuwait Financial Center (Markaz) Kuwait in Focus - April 2011
Overview Major Developments in 2010
Kuwait Financial Center (Markaz) was established in 1974 Expansions and it has become one of the leading asset management and investment banking institutions in the MENA region. • Markaz established two fully-owned subsidiaries, MDI The institution provides conventional and Islamic asset Holding Ltd. and MDI Management Ltd., during the year, management. The company’s primary services include and later disposed of a 33.33% stake in each company. investment management, corporate finance, investment and Markaz recorded a gain of KD 3,000 on the disposal of financial advisory services, private equity, mutual funds and these stakes. The firm continues to exercise control of both real estate fund management, money market, and foreign companies, via the company’s remaining 66.67% stake. exchange. The company is the leading fund manager in Kuwait, • In 2010, Markaz also established Markaz Offshore Ltd., a with a market share of around 21.5%. Markaz is also the wholly owned subsidiary, located in the Cayman Islands, third-largest among the GCC fund managers in terms of assets providing investment services in fixed income securities. managed, with a market share of around 7.5%. Following the 1990 invasion, Markaz went through a major restructuring Disposals process as the company began divesting a substantial portion of its non-core assets, affiliates, and subsidiaries abroad. Markaz then increased its paid-up capital and was listed on • Markaz disposed of Marsoft for Computer Programming, the KSE in April 1997. The company has since expanded its Operations and Consultancy Services Company – WLL, and operations via subsidiaries in the United States, Kuwait, and realized a loss of KD 12,000 on the sale. the Cayman Islands and representative offices in Algeria and • Markaz also disposed of its ownership in KFC Lone Star Lebanon. Markaz has brought several innovative products to Inc., which provides asset management services in the the market, including Kuwait’s first domestic mutual fund, United States. Markaz realized a net loss of KD 24,000 the first Real Estate Investment Trust (REIT), and the first on the disposal. derivative products trading platform. Markaz is currently the only options market maker for stocks listed on the KSE. At Financial Statement Analysis the end of 2010, the number of stocks covered in the Options Market on the KSE stood at 57. Income Statement
Subsidiaries – December 2010 • Markaz recorded a net profit of KD 8.12 million in FY2010,
Voting Capital Subsidiary Country Principal Activity compared with KD 2.57 million in FY2009. The 216% Held Mar-Gulf Management Inc. USA 100% Asset Management rebound in net profit was primarily driven by improved KFC Lone Star 1, Inc USA 100% Asset Management investment earnings. MDI Holding Limited Cayman Island 66.66% Fund Management MDI Manamgent Limited Cayman Island 66.66% Fund Management • Management fees and commissions continued their Investment in Fixed downward trend, declining for the third consecutive year, Markaz Offshore Ltd. Cayman Island 100.00% Inc. Securities First Management and Economic Consultancy Co. Kuwait 100% Economic Consultancy although to a smaller extent than in the previous two years. Source: Company’s financial statements and NBK Capital These fees and commissions stood at KD 8.09 million in FY2010, 3% lower than FY2009.
Latest News • Investment income, on the other hand, improved to KD 5.75 million in FY2010, compared to net investment losses of KD 2.63 million in FY2009. The investment • March 2011: Markaz’s shareholders approved a cash earnings resulted from higher value of trading investments dividend of KD 0.010 per share (10% of par value, 68% and lower impairments on the available-for-sale (AFS) payout for 2010) at the annual general meeting (AGM) and investments. Total operating income reached KD 15.27 extraordinary general meeting (EGM) held on March 17, million in FY2010, 70% above FY2009. 2011. This translated into a dividend yield of 7%. The shareholders also approved a stock dividend of 5% of the • Markaz continued to keep tight control over operating costs, existing shares, which increased the number of outstanding which increased by a modest 4% in FY2010, following two shares from 506 million to 531.3 million. Markaz did not years of declining costs. pay any dividends for FY2009.
nbkcapital.com | 62 Kuwait Financial Center (Markaz) Kuwait in Focus - April 2011
Operating Income Breakdown Financial Statements
50 Income Statement (KD '000) 2007 2008 2009 2010
40 Interest and Dividend Income 2,408 3,206 1,888 1,620 Management fees and 30 commissions 15,700 10,854 8,338 8,088 25.6 Net gain/(loss) from FVIS 12.2 20 Invest. 12,168 (23,834) (904) 4,593 Net gain/(loss) from AFS 10 4.6 Invest. 7,709 (858) (1,730) 1,152 15.7 14.1 11.4 10.9 8.3 8.1 Net income on sale of Invest. KD Millions KD 0 -0.9 Prop. - 428 - (230) -8.9 Provision for credit losses (145) (131) 653 30 (10) Foreign Exchange gain/ (loss) (824) (302) 735 12 -23.8 Other Income - 61 17 6 (20) Total Operating Income 37,016 (10,576) 8,997 15,271 General and Admin Expenses (6,567) (5,436) (5,140) (5,698) (30) Finance Costs (2,310) (2,758) (1,194) (874) 2005 2006 2007 2008 2009 2010 Total Operating Expenses (8,877) (8,194) (6,334) (6,572) Management Fees and Commissions FVIS Portfolio AFS Portfolio Others Other Expenses (1,110) - (123) (531) Sources: Company’s financial statements and NBK Capital Minority Interest (12) (14) 33 (45) Net Income 27,017 (18,784) 2,573 8,123
Balance Sheet (KD '000) 2007 2008 2009 2010 Balance Sheet Assets Cash and Cash Equivalents 2,430 11,416 12,061 5,677 Trading Investments 66,978 37,153 41,165 52,097 • Markaz’s total assets recorded 14% growth in FY2010, AFS Investments 76,829 50,954 47,187 56,823 reaching KD 136.42 million. The company’s total assets Acc. Receivables and Oth. Assets 12,211 9,206 4,690 6,164 declined for the past two years, by 30% and 10%, in Short-term Financing 5,207 3,972 54 - FY2009 and FY2010, respectively. Loans to Customers 20,388 17,472 11,873 12,893 Invest. Prop and Prop. Under • The growth in assets was primarily driven by a 27% increase Development 3,101 1,321 1,931 2,340 Fixed Assets 574 738 573 426 in the trading investments portfolio, which increased from Total Assets 187,718 132,232 119,534 136,420
KD 41.17 million as of December 2009 to KD 52.1 million Liabilities and Shareholders' Equity as of December 2010. Furthermore, the AFS investments Due to Banks and Fin. Inst. 432 2,774 3 3,753 Acc. Payables and Oth. portfolio also grew by a healthy 20% in FY2010, further Liabilities 5,336 3,900 4,253 4,871 supporting asset growth at Markaz. Dividends Payable 424 416 368 344 Short-term Borrowings 22,990 20,820 4,012 5,500 • Markaz’s assets under management (AUMs) grew by 29%, Bonds 27,300 27,595 28,680 28,060 Total Liabilities 56,482 55,505 37,316 42,528 to reach KD 1.03 billion as of December 2010. This rapid Minority Interest 66 80 47 967 growth followed two weak years, where AUMs declined by Total Shareholders' Equity 131,170 76,647 82,171 92,925 34% and 3%, in FY2009 and FY2010, respectively. Total Liabilities and Equity 187,718 132,232 119,534 136,420 Sources: Company’s financial statements and NBK Capital Assets under Management
1,400
1,228 1,241 1,200 1,182
1,030 1,000
821 799 800
KD Millions KD 600
400
200
0 2005 2006 2007 2008 2009 2010
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 63 Companies in Focus Kuwait in Focus - April 2011
Kuwait Food Group (Americana)
Key Data Highlights
General Liquidity • Operationally, Americana has traditionally posted solid KSE Code FOOD.KSE 52-week avg. volume 99,476 revenue numbers as well as healthy margins. This is evident Reuters Code FOOD.KW 52-week avg. value (KD) 151,666 as Americana posted a 10% year-on-year (YoY) increase Price (KD) Price Performance in revenue for FY2010 to KD 681 million. Americana Closing Price 1.500 YTD -8.5% 52-week High/Low 1.700 / 1.320 1-Year Period 0.0% generates revenues from three distinct segments: restaurants, industries, and commercial and retail, which Market Capitalization Shares Outstanding Million KD 603 Latest (million) 402 contributed 51.9%, 45.5%, and 2.6%, respectively, to
Ownership Structure FY2010 revenues. Closely held: 66.8% Public: 33.2% • Historically, EBITDA has grown consistently on a yearly Price as of close on April 18, 2011. Sources: Zawya and NBK Capital basis, but FY2009 has been an exception with EBITDA declining by 16% YoY. However, FY2010 has witnessed Stock Performance the resumption of growth, with EBITDA growing by 8% YoY to KD 94 million, while the EBITDA margin remained
1.800 1.2 stable at 14%.
52-week High: KD 1.700 • Top-line numbers aside, the company has a sizable 1.0 investment portfolio, with available-for-sale investments 1.600
0.8 accounting for 29% of total assets and 55% of total equity at the end of December 2010. As a result of Americana’s
1.400 0.6 dependence on investment income, the net profit figure
52-week Low: KD 1.320 Millions
Price (KD) Price tends to be volatile. During FY2010, the company recorded 0.4 a gain of KD 11.6 million on available-for-sale investments 1.200 (versus a loss of KD 7.5 million in FY2009). Furthermore, 0.2 borrowing costs declined by 30% during the year to approximately KD 9 million. Overall, net profit during the 1.000 0.0 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 year grew by 27% YoY to KD 46 million. In Addition, cash Volume Close flows from operating activities (before changes in working Sources: Zawya and NBK Capital capital) grew by 21% YoY KD 115.2 million.
• Americana announced a cash dividend of KD 0.065 per Analyst share on FY2010 earnings (versus KD 0.060 per share on FY2009 earnings), representing a payout ratio of 57% Alok Nawani versus 66% in FY2009. T. +971 4365 2856 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
EBITDA (KD millions) 53 61 104 87 94 EBITDA Margin 16% 14% 19% 14% 14% Gross Profit Margin 21% 18% 22% 17% 18% Operating Margin 12% 10% 14% 8% 8% Net Profit Margin 10% 13% 6% 6% 7%
ROE (%) 15% 20% 12% 14% 15% ROA (%) 9% 11% 6% 6% 8% Net Debt to Equity 0.20 0.27 0.58 0.34 0.19 Current Ratio 1.24 1.25 0.95 1.03 1.15 Quick Ratio 0.42 0.40 0.31 0.44 0.50
Receivables Days Sales Outstanding (DSO) 31 30 27 26 25 Interest Coverage (EBIT / Net Interest Expense) 8.0 5.6 7.3 3.9 6.2 Investment/Equity 0.75 0.75 0.51 0.53 0.55 Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 64 Kuwait Food Group (Americana) Kuwait in Focus - April 2011
Overview Americana Financial Highlights
800 20%
19% Kuwait Food Group (Americana) is a franchising and 18% 700 restaurant management company that was established in 16% 16% 1964. Americana’s most notable assets across the MENA 600 14% 14% 14% 14% region include franchise rights to KFC, Hardees, Pizza Hut, 500 12% and TGI Fridays. Since 1988, when Americana had 166 stores distributed across seven chains, the company’s store portfolio 400 10% 8% has grown exponentially. As of December 2009, Americana 300 boasted over 1,200 outlets under 19 different chains and 6% 200 spread across 18 countries. In 2009 alone, the company 4%
100 added 93 new restaurants. 2%
Additionally, Americana’s portfolio includes a range of 0% FY2006 FY2007 FY2008 FY2009 FY2010 consumer food products spanning 10 brands. The company Revenues Net Profit EBITDA Margin opened its first meat products factory in the Middle East in Sources: Company’s financial statements and NBK Capital 1973 in Kuwait. Since then, the number of commercial, industrial, and agricultural affiliated companies has grown, • Americana generates its revenue from three segments: reaching 21 by the end of FY2009. restaurants, industries, and commercial & retail. The restaurants segment, which consists of Americana’s foray Latest News into fast food and quality service restaurants, generated 51.9% of the company’s total revenue in FY2010. • December 2010: TGI Fridays announced that it intends Americana’s manufacturing activities, including Americana to further expand its reach in the Middle East by opening Meat and Americana Cake, are represented through the 30 additional restaurants in the region, in partnership with industries sector, which contributed to 45.5% of total Americana. revenue in FY2010. Finally, the commercial and retail • October 2010: Americana has signed a formal area segment contributed to 2.6% of total revenue in FY2009. development agreement with the US based Darden We note that while the revenue generated by both the Restaurants Inc., for the introduction of three new restaurants and industries sectors grew by 13% and 9%, restaurant brands in the Middle East. The three brands respectively, over the year, commercial and retail revenue are Darden’s Red Lobster, Olive Garden, and LongHorn declined by 18%. Steakhouse. The agreement calls for Americana to initially • Between 2006 and 2010, EBITDA grew at a CAGR of develop a minimum of 60 restaurants in Bahrain, Egypt, 16%. FY2009 was the exception, with EBITDA declining Kuwait, Lebanon, Qatar, Saudi Arabia, and United Arab by 16% YoY. However, FY2010 witnessed the resumption Emirates over the next five years. of growth with EBITDA growing by 8% YoY to KD 94 million, while the EBITDA margin remained stable at 14%. Financial Statement Analysis • Operationally, Americana appears to be a sound company, Income Statement but its exposure to non-core investments has had a substantial impact on the company’s net profit. For instance, in FY2010 the company recorded a gain of • When we consider Americana on an operational basis, we KD 11.6 million from available-for-sale investments (versus see a stable company with healthy operational numbers a loss of KD 7.5 million in FY2009). Due to the company’s and solid operational margins. The company’s operational dependence on investments, Americana’s bottom line has strength is evident from the fact that Americana has been rather volatile. posted strong revenue growth, with revenue growing at a CAGR of 20% between FY2006 and FY2010. This trend • Furthermore, borrowing costs declined by 30% during of delivering healthy top-line growth continued in FY2010 the year to approximately KD 9 million. Overall, net profit as Americana posted a 10% increase in revenues to during the year grew by 27% YoY to KD 46 million. In KD 681 million. addition, cash flows from operating activities (before changes in working capital) grew by 21% YoY to KD 115.2 million.
nbkcapital.com | 65 Kuwait Food Group (Americana) Kuwait in Focus - April 2011
• Americana announced a cash dividend of KD 0.065 per Financial Statements share on FY2010 earnings (versus KD 0.060 per share Income Statement (KD '000) 2007 2008 2009 2010 on FY2009 earnings), representing a payout ratio of 57%, Sales 434,873 557,449 616,425 680,729 versus 66% in FY2009. Cost of sales* (355,320) (437,475) (511,165) (560,505) Gross Profit 79,553 119,974 105,260 120,224 Balance Sheet Selling and marketing expenses (34,130) (40,277) (46,582) (55,269) General and administrative (2,972) (3,405) (3,573) (4,290) Other operating expenses - - (3,497) (2,918) EBIT 42,451 76,292 51,608 57,747 • Americana has a sizable investment book with available- Other income 312 453 557 332 for-sale investments representing 29% of its total assets Gains/losses from investments 23,681 12,060 - - and 55% of shareholders’ equity at the end of December Gains from AFS 4,572 4,055 (7,454) 11,626 Loss from drop of value in AFS - (36,872) - - 2010. Examining Americana’s day sales outstanding Gain on sale of stake in related co. - - 2,038 - (DSO), we notice that the figure declined from 31 days in Gain from investment in associates 569 745 16,844 - Net foreign exchange gain/losses 470 (978) (490) 449 FY2006 to 25 days in FY2009, indicating more efficient Borrowing Cost (7,572) (10,425) (13,174) (9,262) collection of outstanding receivables. Profit Before Taxes 64,483 45,330 49,929 60,892 Income tax of subsidiaries (3,208) (2,965) (5,560) (4,916) • Americana had a net debt-to-equity ratio of 0.19x as at Contribution to KFAS (490) (259) (345) (459) National Labour Support Tax (1,320) (791) (865) (985) the end of December 2010, with total debt amounting to Zakat (31) (305) (375) (448) KD 108 million. Americana had a solid interest coverage Board of Directors' remuneration (72) (72) (72) (72) Net Profit for the Year 59,362 40,938 42,712 54,012 ratio of 6.2x based on FY2010 financials (versus 3.9x Minority Interest 4,398 5,715 6,436 7,792 in FY2009), which indicates that the company is well Net Income 54,964 35,223 36,276 46,220 positioned to service its debt. Balance Sheet (KD '000) 2007 2008 2009 2010
Inventories 67,603 91,280 74,498 81,271 Trade receivables and others 35,324 40,729 43,476 45,940 Other debit balances 26,224 33,878 33,846 34,234 Investments at fair value 52,768 - - - Cash and cash equivalent 34,572 21,662 37,448 43,549 Total Current Assets 216,491 187,549 189,268 204,994
Property, plant and equipment 167,720 223,792 233,105 221,213 Biological assets 2,151 2,444 3,615 1,147 Intangible assets 10,684 13,557 13,656 13,750 Investments in associates 1,849 2,662 - - Available-for-sale investments 185,221 124,602 150,107 184,470 Total Assets 584,116 554,606 589,751 625,574
Loans and bank facilities 77,414 109,438 70,668 59,217 Payables and other credit balances 96,279 88,813 112,391 119,553 Total Current Liabilities 173,693 198,251 183,059 178,770
Loans 42,297 55,805 62,671 49,157 Provision for indemnity 14,157 17,029 18,802 22,217 Total Liabilities 230,147 271,085 264,532 250,144
Total Equity 353,969 283,521 325,219 375,430
Total Liabilities and Equity 584,116 554,606 589,751 625,574
*Cost of sales includes depreciation and amortization. Sources: Company financial statements and NBK Capital
nbkcapital.com | 66 Companies in Focus Kuwait in Focus - April 2011
Kuwait and Gulf Link Transport Company (KGL)
Key Data Highlights
Ge ne ra l Liquidity • Kuwait and Gulf Link Transport Company (KGL) released KSE Code KGL.KSE 52-week avg. volume 3,004,449 only preliminary results for FY2010; KGL reported a net Reuters Code KGL.KW 52-week avg. value (KD) 592,780 loss of KD 4.4 million for the year versus a net profit of Pric e (KD) Price Performance KD 0.61 million for FY2009. In 9M2010, however, KGL Closing Price 0.134 YTD -14.1% 52-week High/Low 0.320 / 0.126 1-Year Period -58.1% was profitable, reporting a net profit of KD 0.36 million compared to a loss of KD 1.4 million in 9M2009. Market Capitalization Outstanding Shares Million KD 34.88 Latest (million) 264.27 • KGL’s revenue stood at KD 38.6 million in 9M2010 Ownership Structure Closely Held: 15.4% Public: 84.6% compared to KD 40.8 million in 9M2009, a decrease of 5% year-on-year (YoY). The three reporting segments of Price as of close on April 18, 2011. Sources: Zawya and NBK Capital KGL are land transport, passenger and petrol transport, and car rental. Land transport remained the highest Stock Performance contributor to revenue with a 70% share. • The 9M2010 results revealed a drastic decline in gross 0.350 25.0 profit, from KD 12.2 million in 9M2009 to KD 6.8 million in 9M2010, a decrease of 45%. The company’s operational 0.300 52-week High: KD 0.320 20.0 performance also weakened, as EBITDA declined by 23% 0.250 YoY.
15.0 0.200 • KGL offers a full range of transportation and logistics services, namely, overland cargo transport, passenger
0.150 Millions Price (KD) Price 10.0 transport through buses, and car rental services.
0.100 • Of the company’s associates, the largest two are KGL
52-week Low: KD 0.126 5.0 Logistics and KGL Ports International. KGL owns 45.9% of 0.050 KGL Logistics and 41.7% of KGL Ports International. KGL Logistics, which is publicly listed, focuses on warehousing, 0.000 0.0 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 freight forwarding, and stevedoring, while KGL Ports Volume Close International develops and manages container terminals. Sources: Zawya and NBK Capital
Analyst
May Zuaiter T. +965 2259 5597 E. [email protected]
Key Ratios
2006 2007 2008 2009 9M2010
Gross Profit Margin (%) 20.1% 29.6% 26.8% 26.8% 17.6% Net Profit Margin (%) 45.8% 18.3% -14.5% 1.1% 0.9% EBITDA Margin (%) 24.7% 32.7% 35.4% 43.2% 37.0%
ROAA 14.4% 5.0% -3.4% 0.8% NA ROAE 36.2% 14.5% -11.1% 2.7% NA
Current Ratio (X) 0.76 0.61 0.85 0.96 0.90 Quick Ratio (X) 0.74 0.59 0.84 0.94 0.88 Debt-to-Assets (X) 0.50 0.52 0.55 0.55 0.52 Net Debt-to-Equity (X) 1.25 1.45 1.67 1.59 1.51 Interest Coverage Ratio (X) 4.81 3.05 1.77 2.92 2.41 Investment to Equity (X) 0.07 0.12 0.08 0.03 0.06
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 67 Kuwait and Gulf Link Transport Company (KGL) Kuwait in Focus - April 2011
Overview • January 2010: KGL reported that the company’s wholly owned subsidiary, KGL Car Rental Company, won a Established in 1982, Kuwait and Gulf Link Transport Company KD 9.7 million contract to rent cars to Kuwait Petroleum is one of the leading providers of transport-related services Company. KGL Car Rental’s contract is for 30 months, and in the Gulf region. Headquartered in Kuwait, KGL provides became effective January 7, 2010. integrated supply chain management services throughout the Gulf and MENA (Middle East and North Africa) region. Financial Statement Analysis
KGL’s core business lies in logistics, transportation, port Income Statement management, shipping, and freight forwarding. Through the company’s transportation unit, KGL provides overland cargo 9M2010 transportation services for manufactured goods, consumables, petroleum, raw materials, and heavy equipment. KGL’s • KGL’s revenue stood at KD 38.6 million in 9M2010 passenger transport service includes bus transportation compared to KD 40.8 million in 9M2009, a decrease of through local and international lines, in addition to private 5% YoY. The three reporting segments for KGL are land taxi and limousine operations. The company’s car rental transport, passenger and petrol transport, and car rental. unit focuses on renting and leasing vehicles to commercial, Land transport remained the highest contributor to revenue corporate, and government clients within Kuwait. with a 70% share.
KGL Logistics • Gross profit for 9M2010 declined by at drastic 45%, from KD 12.2 million in 9M2009 to KD 6.8 million in 9M2010. This was due to higher growth in cost of goods sold (COGS) KGL Logistics, a 45.9%-owned associate of KGL, provides relative to growth in revenue– an 11% increase versus supply chain services specializing in warehousing, freight a 5% decrease. The period also witnessed a weakening forwarding, and stevedoring. The warehousing unit offers operational performance, as EBITDA declined by 23% second-, third-, and fourth-party logistics services. Freight YoY. Accordingly, the EBITDA margin decreased to 37% in forwarding includes air, sea, and land transport in addition 9M2010, compared to 46% in 9M2009. to customs clearance and cargo insurance. The stevedoring function entails establishing partnerships with port authorities • Net profit shifted from a loss of KD 1.4 million in 9M2009 and shipping lines within Kuwait and the Gulf Cooperation to a net profit of KD 0.36 million for 9M2010. Council (GCC). 2009 KGL Ports International • In 2009, KGL reported revenue of KD 53.24 million, representing a decline of 7% from 2008. Of the three A 41.7%-owned associate of KGL, KGL Ports International reporting segments, land transport remained the highest covers the development, operations, and management of contributor to revenue with a 58% share. container terminals and roll-on-roll-off operations. This company is headquartered in Kuwait and has additional • Operational performance improved as the EBITDA margin operations within Egypt and the United Arab Emirates (UAE). expanded from 35% in 2008 to 43% in 2009. EBITDA Locally, KGL PI manages and operates the terminal at Shuaiba increased by 13% from KD 20.4 million in 2008 to KD 23 Port. million in 2009.
• KGL reported a net profit attributable to shareholders of Latest News KD 0.61 million in 2009. This performance may appear weak at first glance; however, there was improvement • March 2011: The company released preliminary results for compared to the net loss of KD 8.34 million registered in FY2010; KGL reported a net loss of KD 4.4 million for the 2008. Improving from a negative 15% net profit margin year versus a net profit of KD 0.61 million in FY2009. in 2008, the company achieved a 1% net profit margin • April 2010: The company announced that KGL in 2009. Transportation Company, KGL’s fully owned subsidiary, was awarded a three-year contract worth KD 3.6 million to rent buses to transport Public Authority for Applied Education and Training students.
nbkcapital.com | 68 Kuwait and Gulf Link Transport Company (KGL) Kuwait in Focus - April 2011
Balance Sheet Financial Statements
• The current portion of term loans as of September Income Statement (KD '000) 2008 2009 9M2009 9M2010 Revenue 57,495 53,242 40,836 38,611 30, 2010, accounted for 37% of total term loans of Cost of Sales (42,062) (38,977) (28,601) (31,827) KD 104.2 million. Furthermore, the company’s net debt- Gross Profit 15,433 14,265 12,234 6,783 Share of results of associates 206 852 748 2,766 to-equity ratio as of September 2010, stood at 1.51x Gain on sale of associates 1,431 - - - compared to 1.59x at year-end 2009. Gain on sale of share of subsidiaries 2,069 - - - Gain/Loss on sale of AFS (2,962) 312 369 - Unrealized gain on inv.at fair value 7,001 7,535 - - • As of September 30, 2010, the company had a current Increase in fair value of inv. property 139 (58) - - ratio of 0.90x, a slight deterioration from 0.96x as of year- Profit on sale of investment property 433 - - - Gain/Loss on sale of PP&E (1,957) (3,283) (1,573) 7 end 2009. Impairment loss of investments (2,308) (255) (255) - Impairment on loss in joint venture (116) - - - • KGL’s property, plant, and equipment (PP&E), which stood Allowance for doubtful debts (5,500) (3,489) (500) (637) Other income 1,382 1,844 1,271 3,531 at KD 114 million as of September 30, 2010, accounted G&A expenses (11,545) (8,687) (6,048) (5,915) Finance costs (11,531) (7,861) (7,639) (5,944) for 50% of the company’s total assets. Profit from continued operations (7,825) 1,174 (1,393) 592 Loss from discontinued operations (86) (395) - -
• Increasing the company’s exposure to equity markets, KFAS - (38) - (59) KGL’s available-for-sale investments (which mainly consist NLST - (19) - (13) Zakat - (79) - (68) of quoted securities) increased by 37% to reach KD 4.7 Directors' Remuneration - (50) - - Profit for the Year (7,911) 593 (1,393) 452 million at the end of September 2010 versus KD 3.4 Minority Interest 426 (13) 7 91 million at the end of June 2010. Ne t Inc o me (8,338) 606 (1,400) 361
Balance Sheet (KD '000) 2007 2008 2009 Sep-10
Property, plant, and equipment 142,168 133,583 119,551 113,897 Intangible assets 857 1,029 853 823 Investment properties 13,257 9,561 9,538 9,575 Investment in associates 21,454 15,776 16,482 19,126 Investment in uncon.subsidiaries 4,563 3,967 4,590 4,380 Investment in joint venture 116 - - - Available-for-sale investments 10,337 5,613 2,385 4,676 Projects in progress - 475 635 679 Total non-current assets 192,751 170,005 154,034 153,155
Inventory and spare parts 1,267 792 1,598 1,892 Land held for trading - - - - Receivables 35,798 29,912 25,674 23,441 Due from related parties 9,468 19,406 16,949 21,387 Other debit balances - - - - Cash and cash equivalents 7,508 6,414 7,202 5,510 Investments at FV through IS - 13,467 21,232 21,232 Total current assets 54,041 69,991 72,654 73,461
Total assets 246,792 239,996 226,688 226,617
Share capital 20,329 26,427 26,427 26,427 Treasury shares (541) (633) (772) (772) Share premium 26,241 30,307 30,307 30,307 Statutory reserve 8,046 8,046 8,046 8,051 Voluntary reserve 8,046 8,046 8,046 8,051 Foreign currency translation reserve (549) (607) (790) (1,029) Employee stock option reserve 1,000 1,000 1,000 1,000 Fair value reserve (1,267) (1,449) (2,931) (1,712) Retained earnings 17,946 (556) 50 401
Equity attributable to shareholders 79,250 70,581 69,383 70,724
Minority interest 4,063 4,089 3,733 3,740
Total equity 83,313 74,670 73,115 74,463
Provision for employees' indemnity 2,068 1,829 1,938 2,189 Non-current portion of term loans 64,775 74,184 72,199 65,703 Non-current Murabaha payable 7,696 6,737 3,625 2,864 Total non-current liabilities 74,540 82,750 77,761 70,756
Current portion of term loans 41,584 28,557 37,147 38,769 Current portion of Murabaha payable 6,410 4,361 8,528 5,254 Trade payables 11,206 7,654 9,339 29,879 Due to related parties 9,847 6,399 3,207 1,832 Other credit balances 12,227 18,501 15,314 - Bank overdraft 7,665 17,104 2,277 5,664 Total current liabilities 88,939 82,576 75,812 81,397
Total liabilities 163,479 165,325 153,573 152,153
Total Equity and Liabilities 246,792 239,996 226,688 226,617
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 69 Companies in Focus Kuwait in Focus - April 2011
Kuwait NATIONAL CINEMA COMPANY (KNCC)
Key Data Highlights • Kuwait National Cinema Company (KNCC) is engaged in Ge ne ra l Liquidity the cinema and entertainment industry in Kuwait. The KSE Code KCIN.KSE 52-week avg. volume 21,053 Reuters Code KCIN.KW 52-week avg. value (KD) 15,839 company enjoyed a monopolistic position in operating
Pric e (KD) Price Performance cinema theatres in Kuwait until October 2004. Currently,
Closing Price 0.950 YTD 9.2% KNCC imports and distributes videos and cinema films 52-week High/Low 0.950 / 0.660 1-Year Period 18.8% and equipment; KNCC is also involved in constructing Market Capitalization Outstanding Shares cinema theatres, revamping older ones, and handling their Million KD 96.01 Latest (million) 101.06 operation. Ownership Structure Closely Held: 59.99% Public: 40.01% • In FY2010, operating revenue rose by 30% year-over-year
Price as of close on April 18, 2011. Sources: Zawya and NBK Capital (YoY) to reach KD 14.6 million. Although KNCC lost its monopoly status in cinema operations in 2004, no other player has set foot in the playing field. KNCC remains the Stock Performance sole cinema operator in Kuwait.
• KNCC’s investments in associates consist of a 30% 1.000 16.0 stake in Tamdeen Shopping Centers and a 20% stake in 0.950 52-week High: KD 0.950 14.0 Tamdeen Holding. KNCC had a 25% stake in Tamdeen
0.900 12.0 Entertainment that was sold to a related party in 2009. Investments in associates accounted for 43% of total 0.850 10.0 assets at the end of December 2010.
0.800 8.0 • Net profit for the year stood at KD 5.02 million, a 68% Millions Price (KD) Price 0.750 6.0 increase from KD 2.99 million in FY2009. The net profit margin increased to 34% in FY2010, from 27% in 0.700 4.0 FY2009.
0.650 52-week Low: KD 0.660 2.0 • KNCC has an acceptable level of leverage, with a debt-to- 0.600 0.0 equity ratio of 0.4x as of December 2010. However, we Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close note that all of the company’s debt is short term. Total debt at the end of December 2010 stood at KD 18.1 million. Sources: Zawya and NBK Capital • In March 2011, a cash dividend of KD 0.040 per share for FY2010 was approved by the shareholders of the parent Analyst company, representing a dividend yield ratio of 0.80%. In May Zuaiter February 2010, a cash dividend of KD 0.036 per share T. +965 2259 5597 for FY2009 was approved and distributed (dividend yield E. [email protected] ratio of 1.2%). Key Ratios
2006 2007 2008 2009 2010
Gross Profit Margin (%) 23.6% 31.8% 23.6% 20.5% 17.4% Operating Profit Margin (%) 36.7% 24.2% -54.1% 15.0% 27.7% Net Profit Margin (%) 106.6% 96.6% 39.2% 26.5% 34.4%
ROAA 19.0% 15.5% 7.3% 4.5% 7.2% ROAE 22.8% 20.9% 10.4% 6.7% 11.4%
Current Ratio (X) 0.4 0.1 0.5 0.7 0.6 Debt-to-Assets (X) 0.1 0.2 0.2 0.3 0.3 Debt-to-Equity (X) 0.1 0.3 0.3 0.4 0.4
Receivables Turnover Ratio 4.6 6.3 12.6 9.2 12.4 Inventory Turnover Ratio 59.5 25.0 32.5 40.6 47.2 Payables Turnover Ratio 3.2 2.3 2.4 1.9 2.2
Source: Company's financial statements and NBK Capital
nbkcapital.com | 70 Kuwait National Cinema Company (KNCC) Kuwait in Focus - April 2011
Overview receivables decreased from KD 0.31 million in FY2009 to KD 0.06 million in FY2010, a drop of 81%. In addition, KNCC was established in 1954. An affiliate of Tamdeen other operating expenses decreased from KD 2.67 million Real Estate Company and formerly known as Kuwait Cinema in FY2009 to KD 1.55 million in FY2010, down 42%. Company, KNCC is a Kuwait-based company engaged in the • Operating profit reached KD 4.04 million in FY2010, cinema and entertainment industry in Kuwait. The company an increase of 139% YoY. Moreover, available-for-sale imports and distributes videos and cinema films and investments drastically increased to KD 0.62 million as equipment; KNCC is also involved in constructing cinema of December 2010, from KD 0.03 million one year earlier, theatres and handling the operation of those cinemas. In contributing to the boost in operating profits. addition, the company invests in foreign shares and funds. In 2005, KNCC enhanced its corporate and consumer image by • Gains from associates increased by 47% to reach rebranding as Cinescape. KD 1.46 million in FY2010. However, no gain from the sale of associates was recorded in 2010. Additionally, finance The company has investment stakes in Tamdeen Shopping costs decreased by approximately 30% in FY2010 to reach Centers Company (30%) and Tamdeen Holding Company KD 0.87 million. This decrease resulted in a higher net (20%). profit for the year, which stood at KD 5.02 million, a 68% KNCC has been listed on the Kuwait Stock Exchange since increase from KD 2.99 million in FY2009. The net profit 1984. The company’s stock is relatively illiquid, with a margin increased to 34% in FY2010 from 27% in FY2009. 12-month average daily trading volume of 21 thousand shares. • In March 2011, a cash dividend of KD 0.040 per share for FY2010 was approved by the shareholders of the parent Latest News company, representing a dividend yield ratio of 0.80%. In February 2010, a cash dividend of KD 0.036 per share • March 2011: A cash dividend of KD 0.040 per share for for FY2009 was approved and distributed (dividend yield FY2010, representing a dividend yield ratio of 0.80%, was ratio of 1.2%). approved by the shareholders of the parent company. In February 2010, a cash dividend of KD 0.036 per share Balance Sheet (a dividend yield ratio of 1.2%) for FY2009 was approved and distributed. • KNCC’s investments in associates consist of a 30% stake in Tamdeen Shopping Centers and a 20% stake in Financial Statement Analysis Tamdeen Holding. KNCC had a 25% stake in Tamdeen Entertainment that was sold to a related party in 2009. Income Statement Investments in associates accounted for 43% of total assets at the end of December 2010. • In FY2010, operating revenue rose by 30% to reach • Real estate investments held for trading stood at KD 14.6 million, compared to KD 11.3 in the previous approximately KD 7 million at the end of December 2010 year. Although KNCC lost its monopoly status in cinema and represented around 47% of current assets. We have no operations in 2004, no other player has set foot in the further information regarding those real estate investments. playing field. KNCC remains the sole cinema operator in Kuwait. • Shareholders of the subsidiary, Mall of Kuwait Real Estate Company decided to liquidate the company, so • However, operating costs increased by 35% in FY2010 to KNCC stopped consolidating the subsidiary’s financial reach KD 14.60 million, outpacing the growth in operating statements starting from the liquidation date (June 2, revenues for the year. Therefore, the gross profit margin 2010), and around KD 1 million was transferred to KNCC’s dropped from 20.5% in 2009 to 17.4% in 2010. investments in unconsolidated subsidiaries. Mall of Kuwait • EBITDA increased by approximately 60% to reach Real Estate Company’s losses amounted to KD 1,188 for KD 7.2 million compared to KD 5.60 million in FY2009. the period ended June 2, 2010. The EBITDA margin increased accordingly from 40% in • KNCC has an acceptable level of leverage, with a debt-to- FY2009 to 49% in FY2010. equity ratio of 0.4x as of December 2010. However, we • A lower impairment of trade and other receivables note that all of the company’s debt is short term. Total debt marked the FY2010 results, in addition to a decrease in at the end of December 2010 stood at KD 18.1 million. other operating expenses. Impairment of trade and other
nbkcapital.com | 71 Kuwait National Cinema Company (KNCC) Kuwait in Focus - April 2011
Financial Statements
Income Statement (KD '000) 2007 2008 2009 2010
Operating Revenues 9,405 12,002 11,270 14,598 Operating Costs (6,419) (9,164) (8,959) (12,053) Gross Profit 2,986 2,838 2,312 2,545 Other operating income 3,458 4,056 3,640 4,392 G&A (1,098) (1,971) (1,277) (1,290) Gain/Loss from inv. at fair value through P&L (4) (162) - - Impairment in value of P&E (489) (9,215) - - Impairment of trade and other receivables (63) (18) (310) (60) Impairment in inventory - (137) - - Other operating exp. (2,514) (1,883) (2,672) (1,547) Operating Profit 2,276 (6,492) 1,692 4,040 Impairment in AFS (107) - - - Gains from available-for-sale investments 7,540 (30) 34 619 Gain from associates 218 6,111 995 1,461 Gain from sale of associates - - 79 - Gain on sale of investment property - 6,235 1,607 83 Finance costs (424) (810) (1,201) (872) Board of Directors remuneration (90) (90) (90) (90) Net Profit before tax 9,413 4,924 3,118 5,241 Contribution to KFAS (95) (45) (19) (42) National Labour Support Tax (230) (121) (79) (138) Zakat (6) (52) (29) (43) Ne t Inc o me 9,081 4,707 2,991 5,018
Balance Sheet (KD '000) 2007 2008 2009 2010
PP&E 22,611 17,737 14,581 14,691 Intangible Assets 1,366 1,074 1,177 928 Inv. Property 14,487 - - - Inv. In associates 17,577 28,324 28,552 30,079 Available for sale investments 7,559 5,889 5,911 9,241 Advance payments to purchase films 907 687 952 122 Total Non-Current Assets 64,506 53,712 51,172 55,060
Inventories 341 223 218 292 Trade and other receivables 831 1,076 1,363 997 Real estate held for trade - - 6,995 6,995 Inv. at fair value through profit and loss - 62 729 - Cash 214 7,323 8,843 6,500 Total Current Assets 1,386 8,684 18,148 14,785 Total Assets 65,892 62,395 69,320 69,845
Share capital 8,085 10,106 10,106 10,106 Treasury shares (841) (903) (903) (854) Statutory reserve 4,244 4,745 5,053 5,053 General reserve 5,160 5,662 5,983 6,516 Land revaluation reserve 8,808 8,144 8,144 8,144 Change in fair value reserve 2,742 615 (304) (261) Translation reserve - 87 504 23 Retained earnings 17,196 16,745 15,110 15,960 Total Equity 45,394 45,200 43,692 44,687
Post Employment benefits 401 461 546 670 Total Non-Current Liabilities 401 461 546 670
Trade and other payables 3,683 3,986 5,301 5,851 Dividend payables 582 478 605 548 Due to a related party 223 - - - Loans and bank facilities 15,608 12,270 19,177 18,089 Total Current Liabilities 20,097 16,734 25,083 24,488 Total Liabilities 20,498 17,195 25,629 25,158
Total Equity and Liabilities 65,892 62,395 69,320 69,845 Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 72 Companies in Focus Kuwait in Focus - April 2011
Kuwait PROJECTS (KIPCO)
Key Data Highlights
General Liquidity • Kuwait Projects (KIPCO) is one of the region’s largest KSE Code KPROJ.KSE 52-week avg. volume 1,645,317 investment holding companies, with a significant stake held Reuters Code KPROJ.KW 52- week avg. value (KD) 641,169 by Kuwait’s ruling family. The company has investments in Price (KD) Price Performance more than 60 companies across different industries and Closing Price 0.400 YTD -3.4% regions. 52-week High/Low 0.467/0.286 1-Year Period -2.4%
Market Capitalization Outstanding Shares • KIPCO has two main subsidiaries: a) Burgan Bank (refer Million KD 484,925 Latest (million) 1,212,312 to pg. 32), b) United Gulf Bank. The subsidiaries are fully
Ownership Structure consolidated and constitute a large portion of KIPCO’s Closely Held: 62.4% Public: 37.6% assets. Before the third quarter of the year, KIPCO had
Price as of close on April 18, 2011. Sources: Zawya and NBK Capital a significant stake in Gulf Insurance Company; but sold a 39% stake to Fairfax Insurance (a company based in Canada).
Stock Performance • Burgan Bank and United Gulf Bank have completed several transactions in recent years; United Gulf Bank sold several 0.500 40 of its subsidiaries and an associate (including banks within 52-week High: KD 0.467 35 the region) to Burgan Bank. The subsidiaries and associate
30 sold include Jordan Kuwait Bank, Algeria Gulf Bank, and
0.400 25 Bank of Baghdad.
20 • Showtime, once a subsidiary of KIPCO, provides media Price (KD) Price Millions 52-week Low: KD 0.286 15 services within the MENA region. KIPCO entered into 0.300 a joint venture agreement with its largest competitor, 10 Al Mawarid (Orbit TV), to form the largest pay-satellite 5 television service in the Middle East. 0.200 0 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 • The largest portion of KIPCO’s revenue is derived from Volume Close interest income (KD 169.7 million in FY2010) , Sources: Zawya and NBK Capital • most likely derived from the company’s 59% holding in Burgan Bank, which recorded total interest income of KD 174 million in FY2010.
• Despite the weakness in the top line and a drop in expenses, net income improved by 22% YoY to reach KD 45 million due to a jump in profit from discontinued operations. This is due to the sale of Gulf Insurance Company during the year, which contributed KD 24.8 million to the bottom line. Analyst
Wadie Khoury T. +965 2259 5118 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Profit Margin 21.9% 59.0% 5.5% 9.4% 11.8%
Current Ratio 0.62 1.14 1.08 1.13 1.14 Net Debt-to-Equity 1.48 -0.47 -0.74 -0.66 -0.33
Investment -to-Equity (HFT + AFS) 123.8% 71.7% 65.8% 64.3% 54.0%
Source: Company's financial statements and NBK Capital
nbkcapital.com | 73 Kuwait Projects (KIPCO) Kuwait in Focus - April 2011
Overview Gulf Insurance Company
Gulf Insurance Company (GIC) is the largest insurance Kuwait Projects (KIPCO) is one of the region’s largest company in Kuwait in terms of written and retained investment holding companies and one of the largest Kuwaiti premiums. Established in 1962, GIC covers life and companies in terms of assets. KIPCO currently has direct and non-life segments throughout the region through indirect stakes in more than 60 companies (subsidiaries and subsidiaries. In 2010, KIPCO sold a 39% stake in associates) across 24 countries. The company’s primary lines GIC to Fairfax Insurance Company in order to improve of investment are in banking (commercial and investment), growth opportunities. As a result, KIPCO’s stake in insurance, and digital satellite services. The company was GIC dropped to 43%, and GIC is no longer accounted incorporated in 1975, and is largely held by members of the for as a subsidiary of KIPCO. For more details on Gulf Kuwaiti royal family. Insurance Company, please refer to page 46.
Latest News Panther Media Group (PMGL)
Overview • February 2011: KIPCO’s Board of Directors recommended the distribution of 20% cash dividends, representing KIPCO entered into a joint venture agreement with Al KWD 0.020 per share (54% dividend payout ratio and a 5% Mawarid Investments to form Panther Media Group dividend yield), and the distribution of 5% bonus shares, (PMGL) in 2009. The newly established joint venture equivalent to five shares for every 100 shares owned. brought together the two heavy weight players in the pay-satellite television service (Orbit and Showtime) • November 2010: United Gulf Bank (UGB) announced that and put them on one broadcasting platform. The it had increased its stake to 17% in Burgan Bank. KIPCO platform is present across 24 countries, and provides has a 96% stake in UGB, and an 58% stake in Burgan subscribers access to 85 premium channels (including Bank. 12 High Definition channels). KIPCO owns 60.5% of • September 2010: KIPCO announced that it will sell a PMGL, and Al Mawarid the remaining 39.5%. 39.2% stake in Gulf Insurance Company for KD 60 million. PMGL Financial Overview Financial Statement Analysis In its first full year of operation (FY2010), PMGL reported revenue of KD 46.8 million. This KIPCO's Balance Sheet represented a decline of 18.5% compared with FY2009. • KIPCO is Kuwait’s largest investment holding company, with investments in over 60 companies. KIPCO divides At the net profit level, PMGL reported a loss of KD 18 its core operations into four main business segments: million in FY2010, which was 13% higher than the commercial banking, asset management/investment loss incurred in FY2009. The merger could prove to banking, insurance, and media. We focus on four key be a contributor to the improvement in profitability, companies that operate in each of these segments: as economies of scale might result in declining costs and improved efficiency. Moreover, the joint Burgan Bank efforts of the two major players in the region will increase their bargaining power as a result of the Established in 1977, Burgan Bank was primarily reduced competition. government owned for two decades. The bank underwent a major structural change in 1997, when PMGL is continuously striving to become profitable. KIPCO purchased the government’s share to become The company’s main focus for 2011 is to increase the largest shareholder. Between 2009 and 2010, the its subscriber base from its current 442,500 bank acquired several investments previously owned by subscribers. In addition, PMGL has moved at the the United Gulf Bank. These include a 51.2% stake in end of 2010 to a more secure “CAS platform” Jordan Kuwait Bank (JKB), a 91.09% stake in Algeria attempting to eliminate piracy across the region. On Gulf Bank (AGB), a 51.8% stake in Bank of Baghdad a macro level, there is a relatively low penetration (BoB), and an 86.6% stake in Tunis International Bank rate of pay-TV in the region, at just 6%, compared to (TIB). For more details on Burgan Bank, please refer other parts of the world, such as USA (91%), Poland to page 31. (83%), and the UK (55%), according to KIPCO’s 2011 presentation.
nbkcapital.com | 74 Kuwait Projects (KIPCO) Kuwait in Focus - April 2011
United Gulf Bank (UGB) Baghdad (BOB), which were sold in the first quarter of 2009, and Tunis International Bank (TIB), which Overview was sold in 2010. United Gulf Bank (UGB) was incorporated in 1980 Investment in associates makes up the largest and was acquired by KIPCO in 1988. UGB is mainly portion of UGB’s balance sheet, representing more involved in asset management, investment banking, than half of total assets (53.5%) as of December corporate finance, and brokerage-related activities. 2010. This is largely due to the significant increase in UGB’s stake in Burgan Bank, increasing from nil UGB's Income Statement in 2009 to 17% in 2010. Another major contributor to total assets are non-trading investments, which Total income (including investment income, income make up 20% of total assets. These are mainly from fees and commissions, foreign exchange [FX] equity investments (both quoted and unquoted) and revaluation, and the share of results from associates) managed funds. grew by 31% YoY largely due to growth in investment income and fees and commission. Investment KIPCO's Balance Sheet (continued) income increased by 15% in FY2010 to USD 108.5 million, as a result of the completion of the final • Historically treated as an associate, Burgan Bank was phase of the “master transfer agreement” (MTA), consolidated in 2007 as a result of KIPCO purchasing a which required UGB to transfer four key investments controlling stake in the company. In 2009, KIPCO sold to Burgan Bank. In June 2010, UGB completed the its stake in Showtime to Panther (in which KIPCO owns final phase of the MTA, giving ownership of Tunis a large stake); therefore, Showtime is no longer treated Bank to Burgan Bank for a total consideration as a subsidiary. Moreover, Gulf Insurance Company, once of USD 120 million. Another contributor to the KIPCO’s largest investment in an insurance company, was growth in investment income came from acquiring deconsolidated as a result of selling a 39% stake to Fairfax a significant stake in Burgan Bank, which added Insurance. USD 69.6 million to investment income. This is an accounting treatment; whereby, UGB's previously • KIPCO’s total assets continued to grow in FY2010, held equity interest in Burgan Bank is fair valued, increasing by 6% to reach KD 5.7 billion by the end of the and the USD 69.6 million gain is recognized in the year. Loans and advances still make up the lion’s share of income statement. total assets at 40%; however, loans and advances dropped by 6% YoY. The two main contributors to KIPCOs total The growth in total income pushed operating profits assets came from an increase in investment properties, (total income less interest expenses, salaries and which grew by more than five times to KD 317 million. In benefits, and general and administrative expenses) addition, the 11% growth in KIPCOs cash balance further to USD 36.3 million – more than double the level in helped spur total asset growth. FY2009. As a result, net profit increased by 78% in FY2010 to reach USD 38.7 million. • The majority of loans and advances stem from KIPCO’s 59.1% stake in Burgan Bank. KIPCO has loans and Overall, the company’s performance improved advances of KD 2.3 billion, of which Burgan Bank in FY2010. Return on assets (ROA) improved accounted for 94% as of December 2010. significantly, increasing to 2.0% in FY2010 compared to 0.8% in FY2009. Return on equity • Going forward, KIPCO is interested in expanding its core (ROE) also showed much improvement, jumping operations to include two other operations: i) Savings & from 4% in FY2009 to 7% in FY2010. Pensions and ii) “Retakaful”. KIPCO has already signed an MoU with Munich Re, which will provide specialized UGB's Balance Sheet services for the saving and pension venture.
As a result of the MTA, UGB’s balance sheet KIPCO’s Income Statement experienced a major transition between 2007 and 2010. The bank sold some of its major subsidiaries • KIPCO provides a revenue breakdown for the following and an associate company to its sister company, segments: a) commercial banking, b) asset management Burgan Bank. The subsidiaries and the associate and investment banking, c) insurance, d) media, and e) included Jordan Kuwait Bank (JKB), which was sold others (industrial, real estate, and others). Revenue from in July 2008, Algeria Gulf Bank (AGB) and Bank of
nbkcapital.com | 75 Kuwait Projects (KIPCO) Kuwait in Focus - April 2011
each division dropped YoY, pushing total revenue down by Financial Statements 3% to stand at KD 380 million in FY2010. Income Statement (KD '000) 2007 2008 2009 2010
• The largest portion of KIPCO’s revenue is derived from Interest Income 121,002 232,018 203,063 169,705 interest income (KD 169.7 million in FY2010) , most likely Investment Income 554,847 52,975 72,662 95,418 Fees and commission income 56,874 53,989 39,722 38,898 derived from the company’s 59% holding in Burgan Bank, Share of results from associates 52,735 (3,002) (1,037) 4,890 Net insurance premium earned 37,903 40,055 - - which recorded total interest income of KD 174 million Digital satellite television services 44,095 52,883 57,453 46,818 in FY2010. Interest income represents 44.7% of KIPCO’s Foreign exchange gain 15,787 (5,924) 2,054 15,777 Other Income 1,438 17,302 19,245 8,474 total income, followed by investment income, which made Total Revenue 884,681 440,296 393,162 379,980 up 25% of total income in FY2010. Total Expenses (294,258) (394,316) (344,079) (333,065) Profit from Discontinued Ops - 6,073 28,185 Profit Before Tax 590,423 45,980 55,156 75,100 • Total expenses dropped by a similar amount as revenue, Tax (14,671) (3,534) (8,103) (13,118) falling by 3% in FY2010 to stand at KD 333 million. The Profit for the year 575,752 42,446 47,053 61,982 Minority Interest 54,061 18,321 10,243 16,955 decline in provisioning charges was a key factor behind Net Income (Parent Company) 521,691 24,125 36,810 45,027
the slight drop in total expenses. Provisioning charges Balance Sheet (KD '000) 2006 2007 2008 2010
fell by 24% YoY to stand at KD 62 million in FY2010. In Cash in Hand and at Banks 212,381 878,576 972,021 1,143,822 addition, a lower interest expense played a part in lowering T Bills and Bonds - 433,709 387,378 466,969 Loans and advances 71,870 1,696,456 2,518,992 2,271,122 total operating expenses, which fell by 14% to stand at Fair Value thru profit and loss 112,856 204,309 75,853 43,403 Financial Assets Available for sale 166,117 264,362 266,327 251,193 KD 101 million despite the increase in total debt. Financial assets held to maturity 8,159 6,872 15,367 7,997 Other Assets 79,310 165,070 212,039 157,261 • Despite the weakness in the top line and a drop in expenses, Investments in Associates 536,060 246,393 238,889 328,044 net income improved by 22% YoY to reach KD 45 million, Investment Properties 6,792 7,958 7,003 317,277 Property and Equipment 22,738 56,488 67,180 174,721 due to a jump in profit from discontinued operations. This Intangible Assets 142,245 318,805 416,886 499,354 Total Assets 1,358,528 4,278,998 5,177,935 5,661,163 is due to the sale of Gulf Insurance Company during the Due to banks and Fin. Institutions 209,199 829,614 917,125 837,286 year, which contributed KD 24.8 million to the bottom Deposits from customers 113,242 1,622,298 2,484,034 2,573,197 Loans payable 262,446 297,943 396,969 418,543 line. If we strip out the gains from discontinued operations, Bonds 88,123 64,829 50,995 57,169 Medium term notes 205,214 202,754 122,605 481,728 KIPCO’s net profit would have declined by 52% YoY to Other Liabilities 154,555 279,126 362,560 281,250 stand at KD 22 million. Total Liabilities 1,032,779 3,296,564 4,334,288 4,649,173 Equity (Parent Company) 231,866 663,389 543,787 559,940 Minority Interest 93,883 319,045 299,860 452,050 Total Liabilities and Equity 1,358,528 4,278,998 5,177,935 5,661,163
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 76 Companies in Focus Kuwait in Focus - April 2011
Kuwait REAL ESTATE COMPANY (KREC)
Key Data Highlights
General Liquidity • Established in 1972, Kuwait Real Estate Company (KREC) KSE Code KRE.KSE 52-week avg. volume 4,209,756 is a pure Kuwaiti rental play. KREC’s activities include Reuters Code KREK.KW 52-week avg. value (KD) 268,144 purchasing, selling, renting, and leasing land and property; Price (KD) Price Performance developing and constructing buildings; and investing in Closing Price 0.055 YTD -5.2% 52-week High/Low 0.078 / 0.049 1-Year Period -29.5% real estate projects and portfolios managed by specialized fund managers. Market Capitalization Outstanding Shares Million KD 49.87 Latest (million) 906.71 • The company holds investment properties that appear Ownership Structure at a market value of KD 92.9 million (a land bank worth Closely Held: 39.37% Public: 60.63% KD 16.8 million and a real estate property portfolio worth Price as of close on April 18, 2011. Sources: Zawya and NBK Capital KD 76.1 million) according to the company’s 2010 balance sheet. Investment properties accounted for almost 56% of total assets and 80% of total shareholders’ equity as Stock Performance of December 31, 2010. The investment properties alone are almost double KREC’s current market capitalization of 0.100 40.0 KD 50 million as of April 18, 2011.
35.0 • Anecdotal evidence suggests that the company has an aged
0.080 52-week High: KD 0.078 30.0 property portfolio. However, the company has been able to generate high rental yield on its real estate portfolio. 25.0 KREC’s gross rental yield and net rental yield were 14.3% 0.060 20.0 and 8% in 2010, respectively. Millions Price (KD) Price 15.0 52-week Low: KD 0.049 • KREC is significantly exposed to investments in the equity markets compared to some of its Kuwaiti peers. The 0.040 10.0 company’s investment book, both held-for-trading (HFT) 5.0 and available-for-sale investments (AFS), stood at KD 49.8
0.020 0.0 million as of December 31, 2010, which accounted for Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 43% of total shareholders’ equity and almost 30% of total Volume Close assets. Sources: Zawya and NBK Capital
Analyst
Mariam Al-Bahar T. +965 2259 5138 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
EBITDA Margin (%) 27% 41% 55% 56% 56% EBITDA Interest Cover (x) 0.9 1.7 3.0 2.9 2.6 Net Debt-to-Equity (x) 0.15 0.11 0.27 0.21 0.26
Investment properties (% of Total Assets) 30% 33% 57% 54% 56% Investment properties (% of Total Equity) 43% 43% 80% 73% 80% Investment Book (% of Total Assets) 56% 49% 31% 33% 30% Investment Book (% of Total Equity) 80% 63% 43% 45% 43%
Source: Company's financial statements and NBK Capital
nbkcapital.com | 77 Kuwait Real Estate Company (KREC) Kuwait in Focus - April 2011
Overview Financial Statement Analysis Established in 1972, Kuwait Real Estate Company (KREC) is a Kuwait-based rental player. The company’s activities include Income Statement purchasing, selling, renting, and leasing land and property; developing and constructing buildings; and investing in real • Rental income increased by 5% to KD 10.9 million in estate projects and portfolios managed by specialized fund 2010, compared to KD 10.4 million in 2009. However, managers. total real estate expenses increased by 5.2% to KD 4.8 million in 2010 compared to 2009. This increase was mainly due to the increase in operating costs. Shareholder Structure:
Name Type Country Holding • The company›s gross rental yield and net rental yield were
Kuwait International Investment Co. Corporate Kuwait 13.63% 14.3% and 8% in 2010, respectively. Which is worth Mohammed Abdulrahman Al Bahar Private Kuwait 11.15% mentioning in the current challenging environment within Diwan Al Omdah Trading Co. Corporate Kuwait 9.59% its Kuwaiti real estate sector. Kuwait Finance and Investment co. Corporate Kuwait 3.20% Public 62.43% • The company’s EBITDA increased by 5% to KD 6.1 million Foreign Ownership Limits in 2010, compared to KD 5.8 million in 2009, mainly due GCC Nationals 100% to the increase in rental income. Accordingly, the EBITDA Foreigners 100% margin was flat as it reached 56% in 2010, compared to Sources: Zawya and NBK Capital 2009 (an average of 56% during the last three years).
• KREC’s finance cost increased by 18% to KD 2.3 million Completed Projects: in 2010, compared to KD 1.98 million in 2009.
● Al-Durar Complexes ● Court Complexes ● Reem Center • The company recorded a loss of KD 15.4 million relating to ● Al Waheg ● Lalie Al Fintas ● Souk Al-Kabir ● Bin Khaldon ● Lulua Al-Marzook ● Souk Al-Kuwait change in the fair value of investment properties in 2010, ● Block 107 ● Lulua Al-Maseel compared to a loss of KD 2.9 million in 2009. This was Sources: Zawya and NBK Capital due to an impairment loss on a land in Egypt amounting to KD 15.2 million in 2010. The company did this because the seller (who was supposed to take necessary actions Project under Construction to convert the land from an agricultural to a commercial land), did not fulfill its obligations. Accordingly KREC’s KREC is currently executing the Arabella project in Al Bida’a management decided to impair the carrying amount of the area, at a total project cost of KD 12 million. The project, land in Egypt, and continued to show it as an agricultural which is spread over 11,500 sq. m., will comprise a chain land valued at KD 0.7 million. of restaurants, 36 commercial units, spas, etc. The Arabella project is expected to be operational by mid-2011. The • KREC also recorded an impairment loss on available-for- company also plans to develop similar projects in Abu Halifa sale investments of KD 9.2 million in 2010, compared to and Abu Hasaniya. a loss of KD 0.2 million in 2009. • The company reported losses of KD 20.7 million in 2010 Latest News compared to a profit of KD 2.1 million in 2009, due to the losses arising from the change in the fair value of • February 2011: KREC announced it will launch an investment properties and the impairment losses on AFS SAR 140 million property portfolio in Saudi Arabia. The investments. portfolio will seek to provide housing units priced at SAR 50 thousand per unit. The renewable five-year portfolio is Balance Sheet expected to attract individuals and corporate shareholders from Kuwait and other Gulf Cooperation Council (GCC) • The company holds investment properties that appear countries. at a market value of KD 92.9 million (a land bank worth KD 16.8 million and a real estate property portfolio worth KD 76.1 million) according to the company’s 2010 balance sheet. Investment properties accounted for almost 56% of total assets and 80% of total shareholders’ equity as of December 31, 2010. The investment properties alone
nbkcapital.com | 78 Kuwait Real Estate Company (KREC) Kuwait in Focus - April 2011
are almost double KREC’s current market capitalization of Financial Statements KD 50 million as of April 18, 2011 Income Statement (KD '000) 2007 2008 2009 2010
• The company boasts a land bank in the UAE (Sharjah), Rental income 8,882 10,343 10,369 10,887 Operating costs (4,154) (3,871) (3,864) (4,060) Bahrain, and Egypt and plans to develop it for new projects. Net rental income 4,728 6,472 6,505 6,827 We have limited information on the size of the land bank. General & administrative expenses (1,075) (742) (682) (715) EBITDA 3,653 5,730 5,823 6,112 • KREC’s equity and total debt stood at KD 116 million and Depreciation (15) (12) (17) (27) Share of results of associates (201) (162) 122 181 KD 36 million, respectively, as of December 31, 2010; Share of results from unconsolidated subsidiaries (469) 67 72 (352) EBIT 2,969 5,624 6,000 5,805
long-term debt accounted for 98% of the total debt. A Finance costs (2,183) (1,903) (1,978) (2,342) closer look at debt serviceability shows that the company’s Other Income and expenses 30,607 (50,564) (1,810) (24,174) Net Income 30,253 (46,844) 2,138 (20,712) EBITDA-interest cover decreased slightly to 2.6x in 2010, Balance Sheet (KD '000) 2007 2008 2009 2010 from 2.9x in 2009. Cash & Cash Equivelant 8,805 3,223 4,899 5,080 Investment properties 72,690 102,031 100,251 92,917 • KREC is highly exposed in terms of market investments Available for sale investments 77,051 54,758 60,880 49,300 compared to some of its Kuwaiti counterparts. The Total Assets 217,469 177,454 184,319 164,624 Short-term loans 0 10,600 12,958 805 company’s investment book (both HFT and AFS) stood Long-term loans 28,000 26,400 21,512 35,000 Total Liabilities 48,373 50,055 46,194 48,147 at KD 49.8 million as of December 31, 2010, which Shareholders' Equity 169,096 127,399 138,125 116,477 accounted for 43% of total shareholders’ equity and Total Liabilities and Equity 217,469 177,454 184,319 164,624 30% of total assets. Almost 87% (KD 48 million) of the Sources: Company’s financial statements and NBK Capital AFS portfolio is invested in local shares and a managed portfolio. In the last four years, the investment portfolio has accounted for an average of 58% of equity and 42% of total assets. Significant market investments have adversely impacted the company’s financials in the last five years. The company reported net losses in three of those years, mainly due to losses arising from the market portfolio.
nbkcapital.com | 79 Companies in Focus Kuwait in Focus - April 2011
Mashaer holding company (Mashaer)
Key Data Highlights
General Liquidity • Mashaer is a Kuwait-based company that provides a range KSE Code MASHAER.KSE 52-week avg. volume 803,990 of services (such as accommodation and transportation Reuters Code MASK.KW 52- week avg. value (KD) 155,220 packages) for Haj and Umrah pilgrims. The company acts Price (KD) Price Performance as a “middleman” by providing services to Haj and Umrah Closing Price 0.124 YTD -12.7% pilgrims; as a result, the company’s operating margins 52-week High/Low 0.296/0.100 1-Year Period -56.8% have historically been low. Market Capitalization Outstanding Shares Million KD 22.9 Latest (million) 185.0 • People will continue to attend Haj and Umrah, thus Ownership Structure ensuring a sustainable revenue stream going forward; Closely Held: 36.8% Public: 63.2% however, this does not come without risk. Risks such as flu
Price as of close on April 18, 2011. Sources: Zawya and NBK Capital epidemics or political unrest could affect the company’s revenue stream.
Stock Performance • The company changed its reporting method in 2009 by no longer strictly defining revenue. Instead, the company reported a breakdown of income. The company’s operating 0.350 12.0 52-week High: KD 0.296 income improved from KD 4.6 million in 2008, to KD 9.5 0.300 10.0 million in 2009. In 9M2010, Mashaer reported operating
0.250 income of KD 2.9 million, a 5% improvement over 9M2009 8.0 of KD 2.8 million. 0.200 6.0 • The company repaid a significant portion of its debt in
Price (KD) Price 0.150 Millions
52-week Low: KD 0.100 4.0 2009 by liquidating the collateral pledged against that 0.100 debt (including murabaha investments, a commercial 2.0 0.050 complex, and land). Total debt dropped by 40% in 2009.
0.000 0.0 We expect that this decrease in debt will reduce finance Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 charges (one of the company’s largest expenses) going Volume Close forward. Liquidating the company’s collateral affected Sources: Zawya and NBK Capital liquidity, raising some concern about how Mashaer will pay its short term debt of KD 16 million, as of September 2010. It is worth highlighting that KD 8.4 million of this credit facility is secured against shares of subsidiaries, associates, and investment properties.
Analyst
Wadie Khoury T. +965 2259 5118 E. [email protected]
Key Ratios
2008 2009 3Q2010
Investment Book-to-Equity 12.1% 10.9% 6.5% Net Debt-to-Equity 52.9% 36.4% 33.4%
Real Estate Income as % of Operating income 35.9% 90.9% 78.4% Haj and Umrah as % of Operating Income 14.3% 0.6% 15.4% Associates as % of Operating Income 48.6% 8.6% 8.4%
Interest Coverage Ratio 0.9 x 5.3 x 1.7 x
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 80 Mashaer Holding Company (Mashaer) Kuwait in Focus - April 2011
Overview • In 2009, real estate income contributed 91% of total operating income. Although the fact that the company’s Mashaer is a Kuwait-based company that provides a range of land value increased over the past year justifies this, services for Haj and Umrah pilgrims in accordance with Islamic the concern is that all operating segments have shown a Shari’ah. These services include providing hotel reservations decline in income generation over the past year. Income and transportation packages; trading and leasing real estate, from Haj and Umrah services declined 92% year-over- warehouses, and means of transportation; importing and year (YoY) while JVs and associates dropped by more than exporting foodstuffs and consumable items; organizing 63% during the same period. Services provided for Haj conferences, seminars, and exhibitions; and providing medical and Umrah should be a fee-based income generator. The service arrangements. drop in this segment’s income destabilizes the company’s earnings. Although Mashaer experienced some difficulty Latest News throughout 2009, the company displayed significant improvements in 2010. Looking at 9M2010, operating income improved 5% to reach KD 2.9 million. This comes • October 2010: Mashaer Holding Co. KSCC announced as a result of improvements from all sectors (with the that the Board of Directors approved a capital increase exception of associates). from KD 17.9 million to KD 18.5 million, through a rights issue offering of 5.6 million shares at a nominal value of • The significant decline in result from associates was KD 0.1 per share. enough to push EBITDA lower YoY. EBITDA dropped from KD 1.1 million in 9M2009, to KD 0.5 million in 9M2010. Financial Statement Analysis However, on a quarterly basis, Mashaer was able to improve EBITDA from a loss of KD 0.4 million in 3Q2009 to a Income Statement profit of KD 0.3 million in 3Q2010. • Weaker operating results trickled down to the bottom line. • Haj and Umrah Consortium Company changed its name Mashaer recorded a net loss of KD 0.8 million in 9M2010, to Mashaer Holding Company in 2009, along with its coming down from a profit of KD 3.9 million in 9M2009. accounting policies. One of the most important changes is The loss in 9M2010 came as a result of a KD 1.5 million related to the company’s operating segments and revenue impairment in available for sale (AFS) investments. recording. In 2008, Haj and Umrah Services Consortium Excluding that, the company would have recorded a net Company broke its revenue down into five main categories: profit. properties under development, hotel reservations, tickets, transportation, and other. In 2009, the company did not Balance Sheet provide a clear indication of its revenue stream, but broke down total income into several segments, including Haj • Mashaer’s total debt as of December 2009, was KD 24.8 and Umrah services, real estate, investment income, and million, all of which was short-term debt. This result is JVs and associates, among many other income generators. a significant improvement over last year’s debt level of • Because Mashaer’s current reporting method does not KD 41.6 million. The company repaid its debt, mainly by clearly specify a revenue breakdown, we looked at the liquidating the pledged collateral. By the end of 2009, the company’s income generated strictly from operating company had settled a tawarruq finance facility of KD 7.5 activities. We defined the company’s operating income as million from pledged murabaha collateral, and transferred income that was generated from Haj and Umrah services, investment property rights valued at KD 8.1 million. In real estate income, and JVs and associates. The company’s addition, the company paid KD 2.1 million of debt in cash. operating income doubled between 2008 and 2009 to By September 2010, the company maintained similar debt reach KD 9.5 million. This resulted mainly from a jump in levels (KD 22.4 million); whereby, short-term debt made the revaluation of a hotel property in Saudi Arabia, whereby up 71% of total debt. the company recorded KD 6.6 million in unrealized gains. • Mashaer’s current debt situation is putting some strain As a matter of fact, if we strip out the unrealized gains on liquidity. Nevertheless, the company has come a long from real estate income, operating income actually would way since 2008, reducing its short term debt levels down have dropped year-over-year (YoY). In 9M2010, real estate from KD 32 million in December 2008 to KD 16 million income continued to display strong growth YoY, increasing by September 2010. Moreover, the company has KD 8.4 72% to reach KD 2.8 million. Moreover, the strong growth million of its short term debt (representing over half of total in real estate income was driven by rental income, a short term debt) secured against shares of subsidiaries, relatively secure source of income.
nbkcapital.com | 81 Mashaer Holding Company (Mashaer) Kuwait in Focus - April 2011
associates, and investment properties, reducing the risk Financial Statements of default. Income Statement (KD '000) 2008 2009 3Q2009 3Q2010
• The largest portion of assets is investments in properties, Operating Income 4,577 9,516 169 1,009 which accounted for 42% of the company’s total assets as Operating Expenses (2,429) (2,971) (548) (673) EBITDA 2,148 6,545 (378) 335 of September 2010. These properties include developed Depreciation and Amortization (2,045) (235) (78) (111) EBIT 103 6,310 (457) 224 properties, jointly controlled properties, and properties Investment Income (loss) (2,509) 1,290 475 34 Other Income (loss) 88 26 (3) 10 under development. Finance Charges (2,342) (1,226) (219) (200) Impairment Losses (reversals) (15,277) (1,421) 1,000 (1,530) • Investment in associates continues to make an increased EBT (19,936) 4,978 796 (1,463) Taxes - (240) (52) 36 contribution to total assets, growing to KD 22.6 million, Net Income (19,936) 4,738 744 (1,427) Minority Interest (26.5) 93.6 10 (35) and making up 23% of total assets as of September Net Income of Parent Company (19,910) 4,644 734 (1,392) 2010. Masher introduced Rawaheel Holding Company as Balance Sheet (KD '000) 2008 2009 Sep-10 part of its investments in associates in 2010. Previously, Investment Properties 40,965 41,118 42,372 classified under AFS investments, Rawaheel was deemed Goodw ill 11,000 11,000 12,225 Investment in Associates 18,645 21,354 22,647 an associate due to the significant influence Mashaer had Available-for-Sale 13,353 10,834 6,408 Other 1,951 681 1,237 on its operations. Rawaheel is responsible for providing Non Current Assets 85,914 84,988 84,889 transportation services for Haj and Omrah. Amount due to related parties 10,708 6,417 6,992 Investment deposits and Murabaha 7,698 230 240 Cash and Cash Equivalents 942 202 232 • Mashaer’s holdings of available-for-sale (AFS) investments Other 6,440 8,522 5,642 Current Assets 25,787 15,371 13,106 dropped by 19% in 2009. The breakdown of these Total Assets 111,702 100,359 97,995 investments includes local quoted shares, local unquoted Tuw arruq and Murabaha Facilities 41,602 24,824 22,414 Other Liabilities 7,399 8,128 9,020 shares, and foreign unquoted shares. Local unquoted Total Liabilities 49,001 32,952 31,434 Total Equity 62,700 67,407 66,561 shares made up 62.5% of AFS investments in 2009. Total Liabilities and Equity 111,702 100,359 97,995 The decline results from a drop in local unquoted Sources: Company’s financial statements and NBK Capital shares, which slipped from KD 8.5 million in 2008 to KD 6.8 million in 2009. The company has not yet provided a breakdown for September 2010; however, Mashaer had managed to maintain its AFS value at 7% of total assets.
nbkcapital.com | 82 Companies in Focus Kuwait in Focus - April 2011
Mobile Telecommunications Company (Zain)
Key Data Highlights • Zain’s FY2010 revenues grew by 7% to KD 1.35 billion. General Liquidity Adjusted EBITDA grew by 6% to KD 622 million, boosted KSE Code ZAIN 52-week avg. volume 3,653,936 Reuters Code ZAIN.KW 52-week avg. value 4,823,219 primarily by healthy revenue growth and this equated to Price (KD) Price Performance a stable adjusted EBITDA margin of 46%. Sudan and Closing Price 1.160 YTD -23.7% Iraq delivered the healthiest EBITDA growth, up 21% and 52-week High/Low 1.560 / 1.040 1-Year Period -12.1% 7%, respectively. Net profit for the year stood at KD 1.06 Market Capitalization Outstanding Shares billion. Excluding the gain on the sale of Zain Africa BV, Million KD 4,985 Latest (million) 4,297 net profit for the year grew by 50% to KD 293 million, Ownership Structure Closely Held: 35.47% Public: 64.53% boosted by a 41% decline in finance costs.
Price as of close on April 18, 2011. Sources: Zawya and NBK Capital • Following the sale of Zain Africa BV, the debt profile of the company has improved, as a substantial portion of the company’s debt (relating to the African operations) is no Stock Performance longer a feature of Zain’s balance sheet. Zain had a debt- to-equity ratio of 0.08x at the end of December 2010, 1.700 30.0 52-week High: KD 1.560 versus 0.94x at the end of December 2009. 1.600 25.0 1.500 • In early April 2011, Zain Group signed a “term sheet” agreement, with a consortium composed of Batelco and 1.400 20.0 Kingdom Holding, for the sale of a 25% stake in Zain Saudi 1.300 Arabia for USD 950 million in cash. The deal includes 1.200 15.0 several conditions imposed by Zain Group, including Zain 52-week Low: KD 1.040 Millions Price (KD) Price1.100 Saudi repaying USD 250 million in debt owed to Zain 10.0 1.000 Group. The Kingdom Holding and Batelco consortium
0.900 will commence its due diligence process after receiving 5.0 approval from Zain Saudi Arabia. 0.800
0.700 0.0 • On 19 March 2011, Etisalat announced that it had Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close terminated discussions with Zain Group for the purchase of a 46% stake in the operator, citing the results of its due Sources: Zawya and NBK Capital diligence process and regional political instability, among other reasons. Analyst
Alok Nawani T. +971 4365 2856 E. [email protected]
Key Ratios
2006 2007 2008 2009* 2010*
Gross Profit Margin (%) 78.8% 77.3% 77.0% 74.2% 73.7% Adjusted EBITDA Margin (%) 43.9% 41.2% 37.6% 46.4% 46.0% Operating Profit Margin (%) 30.8% 26.9% 19.0% 34.3% 33.3% Net Profit Margin (%) 22.7% 19.1% 16.1% 15.4% 78.6%
ROA 10.6% 8.2% 6.6% 3.5% 22.6% ROE 23.2% 21.8% 16.9% 8.6% 43.0% Current Ratio (X) 0.66 0.54 0.69 0.48 1.58 Debt to Equity (X) 1.02 1.25 0.86 0.94 0.08 Debt to Assets (X) 0.40 0.45 0.35 0.38 0.06 Investment/Equity 11.9% 29.2% 14.9% 13.8% 9.9%
Receivables Turnover Ratio 7.03 6.81 6.82 3.12 2.86 Inventory Turnover Ratio 18.57 17.29 15.15 10.00 26.76 Payables Turnover Ratio 0.64 0.68 0.51 0.35 0.60 *Operating statistics exclude the impact of Zain Africa BV. Sources: Company's financial statements and NBK Capital
nbkcapital.com | 83 Mobile Telecommunications Company (Zain) Kuwait in Focus - April 2011
Overview Zain has been focusing on ARPU maintenance with the blended ARPU during 2010 declining by 4% to USD 54 Mobile Telecommunications Company is a leading regional (versus a 14% decline in 2009). This compares to Wataniya’s telecom operator. Operating under the brand name “Zain,” blended ARPU of USD 39 (6% lower than the 2009 blended the company was established in Kuwait in 1983 as the Gulf’s ARPU of USD 41). The discrepancy between Zain’s blended first mobile operator. The company’s shares are listed on the ARPU levels versus Wataniya’s can be explained by the higher Kuwait Stock Exchange (KSE); Zain’s largest shareholder is concentration of post-paid subscribers in Zain’s mobile the Kuwait Investment Authority with a 24.6% stake. subscriber base at 33.8% (at the end of December 2010), versus a much lower 19% for Wataniya (post-paid and mobile Zain, which was once on its way to becoming a global telecom broadband users as a percentage of total subscribers). operator, has clearly reverted to the path of a regional player. Post the sale of Zain’s African assets, the scope of the In terms of strategy, we find that during 2010, Zain invested company’s operations has been reduced to nine countries in optimizing its network performance and targeted high- from 24 countries, with Iraq, Kuwait, Sudan, Jordan, Bahrain, value customers via loyalty and retention programs, while and Palestine being the major revenue sources, together with also launching products such as prepaid BlackBerry services. a management contract in Lebanon, and associates in Saudi On the other hand, Wataniya invested heavily in a brand re- Arabia and Morocco. At the end of 2010, Zain’s subscriber launch, giving it a modern and more youthful look – while base (excluding Africa, but including Sudan) stood at 37.2 targeting the smart phone and youth segments. Meanwhile, million, which compares to Zain’s 30.3 million subscribers at Viva maintained its focus on the pre-paid and international the end of 2009. call segments.
Zain’s relatively mature Middle East operations have proved to From a regulatory stand-point, the Ministry of Communication be a source of reliable cash flow for the group. After the sale of (MOC) in Kuwait is looking to implement per-second billing in its African assets, the company’s exposure will be focused on the Kuwaiti mobile market, and started dialogue with Kuwaiti the Middle East. The Middle Eastern markets are characterized mobile operators in September 2010. Furthermore, the MOC by high gross domestic product (GDP) per capita, high average has also issued a notice with regards to the implementation revenue per user (ARPU), a high penetration rate, and of mobile number portability (MNP). While we believe these moderate growth potential. The company’s exposure to Africa developments will make Kuwait’s mobile market more had put pressure on Zain’s margins as the company operated competitive, we are yet to see the issuance of any imminent in low-ARPU countries that involved significant investments deadlines for the implementation of these measures. in network roll-outs. A direct effect of expanding the network is the increase in Zain’s depreciation expenses and finance Sudan: Maintaining strong market leadership costs. However, with the successful completion of the sale of We believe that there is still plenty of room for growth in Sudan. Zain’s African assets, we expect the company’s future sales With increased competition, the mobile market is growing at a and profitability mix to change considerably. rapid pace: the penetration rate increased from 12% in 2006 to 45% in 2010 (source: Zain’s earnings release). A View of Zain’s Key Markets Zain is the market leader in Sudan, with a market share of Kuwait: Fierce Competition 59% at the end of 2010. While maintaining a dominant position in the market, Zain is looking for means to stimulate With the award of the third mobile license to a consortium growth in mobile usage by focusing on data services and the led by STC (branded as Viva, which formally launched its introduction of new value-added services. Examples of such services in September 2008), Kuwait witnessed a revival of efforts include the soft launch of a Facebook service and competition in the mobile market. The key highlight during unlimited daily broadband offers. Zain has also been focusing 2009 was Viva’s rampant subscriber acquisition (the operator on further customization of its offers to target different market captured 63% of subscriber net additions during the year). segments. During 1H2010, the operator also invested in However, Viva lost steam during 2010, with Wataniya taking increasing its network coverage and successfully rolled out the lead and capturing 53% of subscriber net additions during 113 new sites. the year, while Viva secured 40% of subscriber net additions. Zain Sudan’s reported blended ARPU during 2010 at USD 10, The overall market positioning still remains unchanged, with versus USD 12 in 2009. Zain Kuwait maintaining its leading market share of 42% (versus 46% in 2009), followed by Wataniya with 40%, and Viva with 19%.
nbkcapital.com | 84 Mobile Telecommunications Company (Zain) Kuwait in Focus - April 2011
Iraq: Thriving in the Face of Competition Latest News
In 2004, the three mobile operators in Iraq did not fully • April 2011: As of early April 2011, Zain Group signed a compete with each other, as each operator was licensed to “term sheet” agreement with a consortium composed of cover separate parts of the country. It was not until 2007 that Batelco and Kingdom Holding, for the sale of a 25% stake real competition began after the regulator awarded nationwide in Zain Saudi Arabia for USD 950 million in cash. The licenses. As a result, the number of mobile subscribers in Iraq deal contains several conditions imposed by Zain group, has grown at a CAGR of 25% between 2006 and 2010, while including Zain Saudi repaying USD 250 million in debt the penetration rate reached 76% at the end of 2010 (from owed to Zain Group. 33% at the end of 2006). As of March 2011, France Telecom has acquired an indirect 20% stake into Korek Telecom, • March 2011: Etisalat announced that it had terminated hence, we expect competition to further intensify in the Iraqi discussions with Zain Group for the purchase of a 46% mobile market and spur overall market growth. stake in the operator, citing the results of its due diligence process and regional political instability, among other During 2010, the overall growth in Iraq’s mobile subscriber reasons. base continued to be robust, growing by 15% year-over-year (YoY) to reach 23.4 million. Zain Iraq captured a 58% share of the subscriber net additions during the year, while Asiacell Financial Statement Analysis and Korek Telecom captured 25% and 17%, respectively. As a related point. However, we note that during 1Q2011, the Income Statement Iraqi telecoms regulator levied a fine of USD 262 million on Zain Iraq for issuing 5 million SIM cards without permission FY2010 (Zain Iraq is currently appealing against the fine), and has • In its financial statements starting in 1Q2010, the Zain ordered all telecom companies to immediately discontinue Group classified the results of its African operations under their interconnection with unlicensed lines under threat of “discontinued operations.” litigation. Hence, it is possible that the analysis of the share of net additions during FY2010 may be distorted by this event. • Full year revenues grew by 7% to KD 1.35 billion, on account of strong revenue growth in Sudan (up 15%) and However, overall, Zain Iraq still maintains a strong leadership Iraq (up 11%). Sudan and Iraq together represent 56% of position in the mobile market, with a 52% market share at the the group’s FY2010 revenues. In contrast, revenues from end of December 2010, followed by Asiacell with 35%, and Kuwait (representing 26% of group revenues) declined by Korek Telecom with 14%. Zain Iraq’s blended ARPU levels 2% YoY. during FY2010 have remained stable at USD 11.
In terms of focus, Zain Iraq intends to strengthen its position Revenue Breakdowns by Geography (Excluding Africa) by on-net focus in the South of Iraq, postpaid and hybrid focus 2010 2009 in central Iraq, and by rolling out its network into the Kurdistan region (which the operator commenced in March 2011).
Additionally, we note that a fourth Iraqi mobile license is expected
Kuwait, 26% Iraq, 31% to be awarded by the end of 2011. The telecommunications Iraq, 32% Kuwait, 28% minister estimates that the license (including installation and infrastructure costs) will cost between USD 1-2 billion. Jordan, 11% Jordan, 11% The winning operator is expected to have a 35% stake in the Bahrain, 5% Sudan, 23% venture, with 25% owned by the public, while the remaining Sudan, 24% Lebanon, 2% Bahrain, 35% will be owned by the Iraqi Communications Ministry. The Lebanon, 2% 6% license will include the provision of both 2G and 3G services throughout Iraq. Furthermore, the winner will be subject to a Source: Company reports 30% revenue share with the government. We note that Etisalat, MTN, Turkcell, Vodafone, Verizon, and Orange Telecom have • Adjusted EBITDA grew by 6% to KD 622 million, showed interest in the subject license. largely driven by healthy revenue growth. The adjusted EBITDA margin remained stable at 46%. Sudan and Iraq delivered the healthiest EBITDA growth, up 21% and 7%, respectively.
nbkcapital.com | 85 Mobile Telecommunications Company (Zain) Kuwait in Focus - April 2011
• Net profit for the year came in at KD 1.06 billion (inclusive Financial Statements of KD 770.3 million in gains from the sale of Zain Africa BV). Excluding such gains, net profit grew by 50% to Income Statement (KD '000) 2007 2008 2009* 2010* KD 293 million. Additionally, net profit growth was boosted Revenue 1,677,270 2,003,080 1,263,039 1,351,681 Cost of Goods sold (381,206) (461,070) (325,535) (354,836) by a 41% decline in finance costs. Gross Profit 1,296,064 1,542,010 937,504 996,845 Distribution, Mkt. and OPEX (461,655) (577,348) (237,082) (266,956) • The BoD also recommended a cash dividend of KD 0.200 G&A (142,873) (210,749) (113,847) (107,947) Depreciation & Amortization (236,062) (303,363) (149,673) (166,279) per share (subject to OGM approval on 12 April 2011). Impairment Losses-Goodwill - (63,262) - - Prov. for Doubtful Debt (3,832) (6,587) (3,110) (6,184) Operating Income 451,642 380,701 433,792 449,479 Balance Sheet Interest Income 26,289 31,489 11,167 17,813 Investment Income 21,537 (599) (8,231) (1,945) Sh. of loss of associates (3,135) (20,659) (61,145) (45,018) • Following the sale of Zain Africa BV, the debt profile of Sh. of loss on jointly contr. entity - - (4,229) (4,836) FV gain on prev. held equity int. - 152,413 - - the company has improved, as a substantial portion of Other income 6,092 21,470 14,366 20,038 the company’s debt (relating to its African operations) Finance Costs (123,586) (128,002) (93,736) (55,254) Gain (Loss) of currency revaluation 13,144 (37,091) (47) 12,517 is no longer a feature of Zain’s balance sheet. Zain had Board of directors remuneration (28) (32) (32) (32) Contribution to KFAS (2,973) (2,978) (1,818) (2,335) a debt-to-equity ratio of 0.08x at the end of December Nat. Labor Support Tax & Zakat (5,447) (5,877) (7,694) (8,244) 2010, versus 0.94x at the end of December 2009. As Profit before Tax 383,535 390,835 282,393 382,183 Profit (Loss) from discont. ops. - - (34,392) 741,809 of December 2010, the company’s total debt stood at Taxes (40,874) (53,720) (36,760) (36,174) KD 220 million (down 90% since December 2009), this Profit for the year 342,661 337,115 211,241 1,087,818 Minority interest 22,206 15,113 16,233 25,013 compares to a cash balance of KD 644 million (up 141% Net Income 320,455 322,002 195,008 1,062,805 since December 2009). Balance Sheet (KD '000) 2007 2008 2009 2010
Cash and bank balances 261,263 367,871 267,175 644,215 Debt-to-Equity Ratio Trade and other receivables 246,276 293,903 405,434 472,570 Loan to an associate - 79,673 - - Inventories 22,047 30,427 32,554 13,258 1.25x Invs. - at fair value through P&L 23,002 16,676 7,464 7,465 Deferred tax assets 64,724 88,805 134,049 375 Investments - available-for-sale 179,468 96,904 98,492 98,641 1.02X Investment in associates 259,640 216,389 165,771 116,096 Investment in jointly cont. ent. - - 44,063 40,270 0.94x Loan to associates 170,875 - 141,996 187,263 0.86x Property and equipment 1,495,602 2,026,790 2,151,768 793,686 Intangible assets 1,637,255 2,234,423 2,245,453 1,304,449 Other financial assets 6,850 2,378 2,539 31,649
Total Assets 4,367,002 5,454,239 5,696,758 3,709,937 Trade and other payables 557,889 908,773 939,944 593,221 Due to banks 1,985,259 1,901,926 2,152,466 219,667 Due to non-contr. Int. holders 18,509 - - - Liabilities of disp. group HFS - - - - Deferred tax liabilities 31,763 30,283 38,704 - Other non-current liabilities 25,276 212,128 87,166 149,132 0.08x Due to minority interest holders - - - -
Total Liabilities 2,618,696 3,053,110 3,218,280 962,020 2006 2007 2008 2009 2010 Total Shareholders' Equity 1,581,927 2,219,412 2,296,602 2,646,990 Sources: Company's reports and NBK Capital Minority Interest 166,379 181,717 181,876 100,927
Total Liabilities and Equity 4,367,002 5,454,239 5,696,758 3,709,937 *Operating performance excludes the impact of Africa. Sources: Company's financial statements and NBK Capital
nbkcapital.com | 86 Companies in Focus Kuwait in Focus - April 2011
National Industries Group Holding (NIG)
Key Data Highlights
General Liquidity • National Industries Group Holding (NIG) is one of the KSE Code NIND.KSE 52-week avg. volume 3,134,553 largest listed investment holding companies in Kuwait. Reuters Code NIND.KW 52-week avg. value (KD) 1,003,471 Established in 1961, NIG was listed on the Kuwait Stock Price (KD) Price Performance Exchange in 1984. Closing Price 0.270 YTD -21.7% 52-week High/Low 0.400 / 0.226 1-Year Period -28.9% • NIG’s revenue is broken down into three major segments: Market Capitalization Shares Outstanding investments, specialist engineering, and building Million KD 350 Latest (million) 1,295 materials. During FY2010, revenues for the company Ownership Structure grew by 2% year-over-year (YoY) to KD 98.1 million. Gross Closely held: 26.23% Public: 73.77% profit, however, grew by 17% YoY to KD 22.6 million, on Price as of close on April 18, 2011. Sources: Zawya and NBK Capital account of both revenue growth and a 2% reduction in the cost of sales. Overall, the gross profit margin for the year Stock Performance increased to 23% from 20% in FY2009. • During FY2010, investment income declined by 46% to 0.450 14.0 KD 32.4 million, while the share of profits from associates increased significantly to KD 29.7 million (from KD 4.4 12.0 0.400 52-week High: KD 0.400 million in FY2009). Impairments on available-for-sale
10.0 investments and finance costs have been fairly prominent 0.350 features of the company’s income statement over the past 8.0 three years. The net loss for FY2010 declined by 17% YoY 0.300 52-week Low: KD 0.226 to KD 19.2 million, due to a 28% YoY decline in finance 6.0 Millions Price (KD) Price costs and foreign exchange gains coming in at KD 5.4 0.250 4.0 million (versus losses of KD 12.5 million in FY2009.
0.200 2.0 • NIG has investments spread across several regions and spanning an array of industries. As of the end of FY2010, 0.150 0.0 the value of NIG’s total investments stood at approximately Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close KD 1.05 billion, accounting for 64% of total assets and 2.3x shareholders’ equity. Sources: Zawya and NBK Capital
Analyst
Alok Nawani T. +971 4365 2856 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Net Debt to Equity 0.4 0.8 2.6 2.0 1.7 Investments/Total Assets 0.6 0.7 0.6 0.6 0.6 Investments/Equity 1.2 1.5 2.9 2.4 2.3
ROA (%)* 11% 12% nmf nmf nmf ROE (%)* 20% 25% nmf nmf nmf
*ROA and ROE are recorded as ‘nmf’ in years when the company has recorded losses. Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 87 National Industries Group Holding (NIG) Kuwait in Focus - April 2011
Overview amounts in subsequent years (around KD 43 million in 2009 and 2010). However, finance costs, which peaked in Since its initial public offering in 1984, National Industries FY2008, have been easing YoY. The net loss for FY2010 Group Holding (NIG) has grown to become one of the largest declined by 17% YoY to KD 19.2 million, due to a 28% listed investment holding companies on the Kuwait Stock YoY decline in finance costs and foreign exchange gains Exchange. Incorporated in 1961, NIG was established with coming in at KD 5.4 million (versus losses of KD 12.5 the sole purpose of participating in the advancement of million in FY2009. Kuwait’s infrastructure and promoting its progression through the development of Kuwait’s building materials industry. In NIG - Net Profit Trends its early years, NIG was instrumental in the development 300 of Kuwait’s industrial base through the establishment of companies such as Kuwait Cement Company, Kuwait Metal 200 Pipes Industries, and Gulf Cables. As the company grew, it embarked on a policy of product diversification and 100 international expansion, with the GCC serving as its first target market outside Kuwait. As a result, NIG has a web of operations 2006 2007 2008 2009 2010 across the GCC, Pakistan, Europe, and the Americas, spanning Millions KD -100 several industries, including petrochemicals, infrastructure, and financial services. -200
Latest News -300
• March 2011: Moody’s downgraded the corporate family -400 and probability of default rating for NIG (from B2 to B1) Sources: Company’s financial statements and NBK Capital along with debt ratings on the USD 475 million sukuk issued by NIG Sukuk Ltd. This move follows a previous rating downgrade to B1 from Ba3, in January 2010. Balance Sheet
Financial Statement Analysis • As a holding company, NIG’s balance sheet is naturally dominated by a sizable investment book. The company’s latest financials show that investments account for 64% Income Statement of total assets, while standing at 2.3x total shareholders’ equity. Total investments held by NIG grew by 8% YoY to • NIG’s revenue is broken down into three major segments: KD 1.05 billion. investments, specialist engineering, and building materials. During FY2010, revenues for the company grew • NIG’s investments are largely dominated by available- by 2% YoY to KD 98.1 million. Gross profit, however, grew for-sale investments at KD 790 million. The remaining by 17% YoY to KD 22.6 million, on account of revenue investments are distributed between held-for-trading growth and a 2% reduction in cost of sales. Overall, the investments and investment properties. gross profit margin for the year increased to 23% from • The company’s net debt-to-equity ratio declined to 1.7x at 20% in FY2009. the end of FY2010 from 2x at the end of FY2009, which is • During FY2010, investment income declined by 46% to consistent with the decline in finance costs over the year. KD 32.4 million, while the share of profits from associates • NIG’s investments are spread across different regions of saw a strong increase to KD 29.7 million (from KD 4.4 the world. The following is a list of some of the subsidiaries million in FY2009). and associates that fall within NIG’s investment book; these • Impairments on available-for-sale investments and finance are based on the company’s FY2010, financial statements. costs have been fairly prominent features of the company’s income statement over the past three year. As a result, net income for the company has remained in the red over the past three years (although net losses have been narrowing – see chart below). Impairments, which peaked in FY2007 (at KD 326 million), have still been recorded in fairly large
nbkcapital.com | 88 National Industries Group Holding (NIG) Kuwait in Focus - April 2011
NIG Subsidiaries and Associates international capital markets, including GCC countries,
National Industries Group Holding (NIG) emerging markets such as Pakistan, China, and India, and Local Subsidiaries % Ownership Associates % Ownership Foreign Subsidiaries % Ownership Economic Holding Co. 100% Meezan Bank 49% NIG Bahrain 100% limited exposure in the developed markets of the United National Land Transport 100% Kuwait Rocks Co. 38% NIC Holding Guernsey 100% Nat. Comb. Ind. Hldg. Co. for Energy 100% Privatization Holding Co. 31% NIG Guernsey LTD 100% Al Durra Real Estate 100% Kuwait Cement Co. 25% NIC Holding UK 100% States and Europe. In addition to serving independent Ikarus Petroleum Ind. Co. 72% Al Raya Intl. Real Estate 23% BI Group 100% National Industries Co. 51% Marsa Alam Holding Co. 20% Eagle Proprietary Inv. 100% clients, Noor advises NIG and its subsidiaries on investment Noor Financial Inv. Co. 51% Eastern United Petroleum 20% Proclad Group 100% Noor Telecom. Co. 51% Mabanee 20% Denham Inv. Ltd. 85% transactions. Sources: Company’s financial statements and NBK Capital
Kuwait Privatization Project Holding Co. (KPPHC)
National Industries Company • Kuwait Privatization Project Holding Co. (KPPHC) was • NIG’s 51%-owned subsidiary, National Industries established in 1994 and is currently listed on the Kuwait Company (NIC), is one of the largest building materials Stock Exchange. manufacturers in the region. Listed on the Kuwait Stock • The objective of KPPHC is to finance, evaluate, and provide Exchange, the company has production facilities in both consulting services to a select group of Kuwaiti companies Kuwait and Saudi Arabia, with a product portfolio that and regional projects, with a focus on controlling stakes includes aerated concrete blocks, sand lime bricks, ready in entities providing services in the different sectors mix, and concrete pipes. such as energy, infrastructure, and real estate, as well as participating in build-operate-transfer (BOT) government Ikarus Industrial Petroleum (Ikarus), Saudi International projects. Petroleum (SIPCHEM), and National Industrialization Company (Tasnee) Mabanee
• Ikarus, NIG’s 72% owned subsidiary, is an investment • Mabanee, a pure rental play in the Kuwait retail segment, vehicle with a range of investments in petrochemicals is currently the largest real estate company in Kuwait in and the oil and gas sector within the MENA region. terms of market capitalization. NIG currently owns 20% Incorporated in Kuwait, Ikarus was listed on the Kuwait of Mabanee. Stock Exchange in 2008. The company’s current business strategy entails investing in start-ups or acquisitions of at least a 20% stake in large and mature operations with stable cash flows.
• Key investments of Ikarus include SIPCHEM and Tasnee. The former was founded in 1998 in Saudi Arabia and produces butandiol, methanol, acetic acid, vinyl acetate monomer, and carbon monoxide. Tasnee, on the other hand, was established in Saudi Arabia in 1985 and produces various chemical and metallurgical products such as polypropylene, HDPE, LDPE, and lead. Ikarus owns an 8% and 5.3% stake in SIPCHEM and Tasnee, respectively.
Noor Financial Investments (Noor)
• Noor Financial Investment Company (Kuwait), NIG’s 51% owned subsidiary, is engaged in investment activities and financial services primarily in Kuwait, the Middle East, Asia, and other emerging markets. Noor provides a range of financial services, which include advisory services, underwriting, syndications, and asset management. Noor follows a diversified investment strategy with major investments in private equity and direct investments in the capital markets. Noor actively invests in the Kuwait's capital markets and diversifies its investments through the
nbkcapital.com | 89 National Industries Group Holding (NIG) Kuwait in Focus - April 2011
Financial Statements
Income Statement (KD '000) 2007 2008 2009 2010
Sales 117,458 112,821 96,191 98,072 Cost of sales (90,102) (89,782) (76,865) (75,522) Gross Profit 27,356 23,039 19,326 22,550
Income from investments 250,129 37,088 59,864 32,390 Profit from disposal of subs - - 1,653 646 Share of profits of associates 19,737 2,451 4,379 29,680 Income on disposal of assoc. - - 5,753 - Changes in FV of inv. property - 5,697 3,610 (3,015) Interest and other opr. income 22,122 31,509 13,414 4,426 Distribution costs (7,979) (6,612) (4,495) (4,720) G&A (24,127) (22,815) (23,634) (21,949) Finance costs (52,220) (67,609) (51,582) (37,359) Profit on disposal of PP&E 2,215 - - - Imprm. in value of AFS inv. (2,000) (326,305) (43,183) (42,830) Imprm. in value of wakala - (2,485) (7,483) - Imprm. in value of rec. & other - - - (6,603) Imprm. in value of goodwill (2,608) - - (1,326) Imprm. in value of inv. in assoc. (6,084) - - (397) Prov. For onerous prop. leases - - (578) (2,693) (Loss)/gain on foreign exchg. 19,790 (11,514) (12,456) 5,403 Profit before taxes and dir. rem. 246,331 (337,556) (35,412) (25,797)
Taxes and directors' rem. (7,670) (314) (116) (411) Net income for the year 238,661 (337,870) (35,528) (26,208)
Minority Interest 29,297 (55,907) (12,341) (7,008) Net Income 209,364 (281,963) (23,187) (19,200)
Balance Sheet (KD '000) 2007 2008 2009 2010
Assets Goodwill 10,697 8,231 8,333 6,718 PPE 34,304 40,506 49,421 67,201 Investment in associates 286,301 303,079 263,487 272,494 Investment properties - 22,645 33,742 36,642 Available for sale inv. 846,206 634,900 703,807 790,353 Deferred tax 132 108 - - Inventories 23,323 22,992 22,571 20,053 Available for sale inv. - 178,114 108,406 104,514 Accounts receivables 129,232 89,635 84,918 59,182 Murabaha and wakala inv. 33,883 29,800 10,201 15,263 Investments at fair value 590,542 158,816 128,332 119,118 Short-term deposits 187,079 214,999 131,464 104,565 Bank balances and cash 17,894 29,325 30,132 38,002
Total Assets 2,159,593 1,733,150 1,574,814 1,634,105
Liabilities and Shareholders' Equity Bonds and trust cert. 171,227 158,720 150,773 133,523 Long-term borrowing 165,190 177,837 35,145 165,688 Leasing creditors 375 608 683 446 Provisions 9,558 8,369 9,055 11,364 Total Non-current Liabilities 346,350 345,534 195,656 311,021 Accounts payable 74,569 80,545 44,440 43,387 Bonds issued - 14,431 14,306 14,010 Short-term borrowing 571,211 767,124 732,481 594,948 Due to banks 37,046 39,719 43,603 33,278 Total Current Liabilities 682,826 901,819 834,830 685,623 Total Liabilities 1,029,176 1,247,353 1,030,486 996,644
Total Shareholders' Equity 933,418 347,870 400,500 463,245
Minority Interest 196,999 137,927 143,828 174,216
Total Equity and Liabilities 2,159,593 1,733,150 1,574,814 1,634,105 Sources: Company financial statements and NBK Capital
nbkcapital.com | 90 Companies in Focus Kuwait in Focus - April 2011
National Investment Company (NIC)
Key Data Highlights
General Liquidity • National Investment Company (NIC) is one of the largest KSE Code NINV.KSE 52-week avg. volume 2,645,547 asset management companies in Kuwait, with a market Reuters Code KINV.KW 52- week avg. value (KD) 1,084,433 capitalization of around KD 250 million. Price (KD) Price Performance • Operating profit drops year-over-year (YoY) on the back of Closing Price 0.290 YTD -36.3% 52-week High/Low 0.560/0.255 1-Year Period -18.3% higher general and administrative expenses. We defined
Market Capitalization Outstanding Shares NIC’s core operating profit (or EBIT) as management Million KD 254.1 Latest (million) 876.2 and incentive fees less any general and administrative Ownership Structure expenses. Closely Held: 68.1% Public: 31.9% • Net profit rebounds from a loss to settle in positive territory Price as of close on April 18, 2011. Sources: Zawya and NBK Capital in FY2010. With total income up 80% in FY2010 and total expenses down by 49%, the company has managed Stock Performance to generate a net profit of KD 4.4 million in FY2010, up from a loss of KD 26 million in FY2009.
0.600 30.0 • NIC has yet to release the latest set of AUMs for FY2010; 52-week High: KD 0.560 however, looking back, the company reported AUMs of 25.0
0.500 KD 2.6 million as of December 2009.
20.0 • In spite of the company’s large debt position, a significant
0.400 15.0 portion of NIC’s investments are liquid. This allows NIC to Price (KD) Price Millions convert investments into cash relatively quickly, making it 10.0 easy to repay debt. 0.300 52-week Low: KD 0.255
5.0
0.200 0.0 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close
Sources: Zawya and NBK Capital
Analyst
Wadie Khoury T. +965 2259 5118 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Management Fees as Percentatge of Avg. AUMs 0.5% 0.5% 0.4% 0.3% 0.0% Advisory Fees as Percentage of Avg. AUMs 0.9% 0.6% 0.5% 0.0% 0.0%
AFS-to-Assets 34.3% 38.9% 61.6% 65.3% 68.3% AFS-to-Equity 60.7% 55.1% 82.4% 81.2% 85.9%
ROAA 13.2% 15.9% -6.0% -10.3% 1.8% ROAE 20.4% 24.6% -7.2% -13.4% 2.2%
Debt-to-Equity 69.8% 33.7% 27.9% 20.3% 21.9%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 91 National Investment Company (NIC) Kuwait in Focus - April 2011
Overview • Net profit rebounds from a loss to settle in positive territory in FY2010. With total income up 80% in FY2010 and The National Investment Company (NIC) is involved in total expenses down by 49%, the company has managed investment management, including equity trading, private to generate a net profit of KD 4.4 million in FY2010, up equity investments, and asset management services. The from a loss of KD 26 million in FY2009. NIC continues company is responsible for managing several funds, including to display large volatility in yearly net profit, ranging equity, alternative, and money market funds. Some of the most from a profit of KD 58 million in FY2007, to a loss of notable equity funds include the Al-Wataniya Fund (investing KD 26 million in FY2009. This is largely due to the high in Kuwaiti listed equities), the Al-Safwa Fund (Shari’ah- dependence on investment earnings and the provisioning compliant equity investments), and the Al-Darij Fund (GCC that might accompany it. Shari’ah-compliant equities). NIC has a large proprietary book from which it tries to derive most of its profits. Assets under Management
4.0 1.8% 1.71% 3.7
Latest News 3.5 1.51% 1.6%
1.39% 1.4% 3.0
• December 2010: The Central Bank of Kuwait approved 1.10% 2.6 1.2% 2.5 NIC’s request to buy back or sell a maximum of 10% of its 2.2 2.2 2.1 1.0% 2.0 outstanding shares. 0.94%
KD Billions KD 0.8%
1.5 0.6% 1.0 Financial Statement Analysis 1.0 0.4%
0.33% 0.5 0.2% Income Statement 0.0 0.0% 2004 2005 2006 2007 2008 2009 • Total income rallies by 80% in FY2010. As one of the AUMs Management fees + Incentive fees as % of AAUMs premier investment companies in Kuwait, NIC divides its Sources: Company’s financial statements and NBK Capital financial statements into two distinct sections: income and expenses. The “income section” combines any income Balance Sheet derived by the company, whether from core operations or investment activities. The “expense section” gives a • AFS investments continue to represent the largest portion breakdown of all expenses incurred and is similarly not of assets, standing at 68% as of December 2010. In 2010, divided by operational significance. When we refer to “total AFS investments increased by 23.1% to reach KD 183 income” in this report, we mean total income derived by million. This is the highest level of AFS investments the the company; “net profit” will represent the bottom line company has experienced. This growth directly impacted figure. NIC reported a significant growth in income largely shareholders’ equity, helping push it up by 16.4% to on the back of gain on foreign exchange, a share of results KD 213 million as of December 2010. Also worth noting from associates, and growth in dividend income. is that AFS investments have resulted in some volatility in shareholders’ equity over the past five years. • Operating profit drops year-over-year (YoY) on the back of higher general and administrative expenses. We defined • Debt proves no threat to the company, despite the fact that NIC’s core operating profit (or EBIT) as management all borrowings are short-term. NIC’s liquid assets (cash and and incentive fees less any general and administrative HFT investments) stood at KD 28.3 million at the end of expenses. This gives us a clearer picture as to how the 2010, enough to repay more than 60% of its total debt. company is able to generate stable income streams from For additional assurance, the company’s net debt-to-equity investing clients’ capital. Although core operating income ratio stood at 0.2x as of December 2010. remained stable between 2009 and 2010 at KD 7.9 • Recap of Assets under Management (AUM). NIC has yet to million, general and administrative expenses increased by release the latest set of AUMs for FY2010; however, looking 4%, pushing total operating profit down by 6% (YoY). back, the company reported AUMs of KD 2.6 million as • Investment income continues to show strong signs of of December 2009. Management fees as a percentage growth. We define our calculation for investment income of AUMs have been on a declining trend, dropping from as income generated from available-for-sale (AFS) 0.49% in 2006 to 0.33% in 2009. Similarly, incentive investments or held-for-trading (HFT) investments. In fees as a percentage of AUMs also dropped over the same 2010, investment income grew by 41% to KD 8.1 million. period.
nbkcapital.com | 92 National Investment Company (NIC) Kuwait in Focus - April 2011
Financial Statements
Income Statement (KD '000) 2007 2008 2009 2010
Realized/Unrealized gain on invest. 27,142 (10,426) 3,318 1,860 Investment Income 44,942 40,799 11,189 15,814 Foreign Exchange Trading (2,471) 2,675 638 3,216 Share of Results from Associates 4,972 (496) (4,900) 3,891 Other Income - - 3,500 - Income 74,585 32,552 13,745 24,781 Selling/General/Admin Expenses (6,571) (10,956) (4,692) (4,882) Operating Income 68,014 21,596 9,053 19,899 Finance Costs (8,116) (4,425) (2,247) (2,472) Other, Net 634 (37,904) (32,882) (13,000) Net Income before Taxes 60,532 (20,733) (26,076) 4,427 Share of Associates' tax - - - - Zakat (37) - - - Contribution to KFAS (509) - - - NLST (1,513) - - - Directors' fees (235) - - - Net Income 58,238 (20,733) (26,076) 4,427 Minority Interest - - - 1 Net Income Parent Company 58,238 (20,733) (26,076) 4,426
Balance Sheet (KD '000) 2007 2008 2009 2010
Cash and Cash Equivalents 53,769 11,673 10,745 9,711 Investments 251,434 190,459 163,430 201,413 Other Assets 112,727 75,351 53,311 56,393 Total Assets 417,930 277,483 227,486 267,517 Short Term Debt 99,707 57,937 37,132 46,661 Accounts Payable and Accruals 22,752 12,123 7,510 8,100 Total Liabilities 122,459 70,060 44,642 54,761 Total Equity 295,471 207,423 182,844 212,756 Total Liabilities and Equity 417,930 277,483 227,486 267,517
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 93 Companies in Focus Kuwait in Focus - April 2011
National Real Estate Company (NREC)
Key Data Highlights
General Liquidity • National Real Estate Company (NREC) is primarily a rental KSE Code NRE.KSE 52-week avg. volume 1,092,593 player and operates across the Middle East and North Reuters Code NREK.KW 52-week avg. value (KD) 176,468 Africa (MENA) region. Price (KD) Price Performance
Closing Price 0.104 YTD -38.1% • The company is part of the Sultan Group and holds a 52-week High/Low 0.214 / 0.097 1-Year Period -44.1% 22.4% stake in Agility, according to the 2010 financial Market Capitalization Outstanding Shares statements. NREC’s stake in Agility appeared at a cost Million KD 84.68 Latest (million) 814.20 of KD 185 million on the balance sheet as of December Ownership Structure 31, 2010. While, the Agility stake, as of April 18, 2010, Closely Held: 40.52% Public: 59.48% has a market value of KD 92.6 million, and accounts for Price as of close on April 18, 2011. Sources: Zawya and NBK Capital almost 16% of NREC’s total assets and 44% of the total shareholders’ equity.
Stock Performance • A back-of-the-envelope calculation shows Souq Sharq accounts for the majority of NREC’s rental income. NREC 0.250 14.0 owns other income-generating properties in Kuwait, but our main concern is the age of those properties. 52-week High: KD 214 12.0 0.200 • The company’s net share in the associates’ results for 10.0 2010 is entirely due to the share of Agility’s profit. This 0.150 8.0 has been the historical trend as well. The net share of the associates’ results reached KD 5.3 million in 2010,
6.0 Millions Price (KD) Price 0.100 which was 85% lower than in 2009. The proportionate 52-week Low: KD 0.097 profits from associate companies (as a percentage of total 4.0 income) decreased significantly, from 54% in 2009 to 0.050 2.0 23% in 2010.
0.000 0.0 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close
Sources: Zawya and NBK Capital
Analyst
Mariam Al-Bahar T. +965 2259 5138 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Rental Income (% of Total Income) 23.7% 12.9% 17.9% 13.2% 44.8% Net Share in the Associates' Results (% of Total Income) 56.4% 60.9% 70.3% 54.1% 22.9% Net Share in the Associates' Results (% of Net Profit) 113.3% 92.8% 172.0% 119.5% -15.5%
EBITDA (KD million) 6.2 -4.4 -9.7 11.2 -4.6 EBITDA Interest Cover (x) 1.8 -0.8 -2.9 3.8 -1.2 Net Debt-to-Equity 0.1 0.4 0.7 0.7 0.9
Capital Work in Progress (% of Total Assets) 6.1% 9.6% 44.2% 19.3% 19.1% Investment in Associates (% of Total Assets) 61.0% 46.8% 33.4% 35.2% 32.5% Investment in Associates (% of Total Equity) 79.8% 81.2% 84.6% 86.7% 88.6% Investment Book (% of Total Assets) 3.4% 5.2% 3.7% 3.0% 2.5% Investment Book (% of Total Equity) 4.5% 9.0% 9.3% 7.4% 6.9%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 94 National Real Estate Company (NREC) Kuwait in Focus - April 2011
Overview Financial Statement Analysis
The company was established in 1973, and was listed on Income Statement the Kuwait Stock Exchange in 1984. NREC specializes in developing, trading, and managing commercial and industrial • The company’s rental income increased by 22%, to real estate properties, including shopping centers, office KD 10.4 million in 2010, compared to KD 8.6 million properties, resorts and hotels, and retail centers, both locally in 2009. We have witnessed healthy trend in rental and internationally. income growth in the last two years. NREC’s rental income increased by 7% in 2009 to KD 8.6 million compared to Completed Projects 2008.
Country Project Location Use Year of completion Leasable Area (sq. m) • The company’s net share in the associates’ results for Mishal Tower Sharq Commercial Offices, Retail 2008 - Sharq Marke Sharq Retail 1998 28,300 2010 is entirely due to the share of Agility’s profit. The net El Joan Resort Juliaa Resort - - share of the associates’ results reached KD 5.3 million in Watya Complex Qebla Commercial Complex 1979 11,186 Kuwait Souq Al Wataniya Mirqab Commercial Complex 1978 12,971 2010, which is 85% lower than in 2009. The proportionate Al Wataniya Tower Kuwait City Commercial Complex 1989 3,332 Bobyan Complex Farwaniya (Dhajeej Area) Commercial Complex 1993 9,916 profits from associate companies (as a percentage of total Dasman Complex Dasman Commercial Complex 1979 16,081 income) decreased significantly, from 54% in 2009 to Libya Palm City Residences Janzour Residential Appartments, Commercial2010 Center - 23% in 2010. Sources: Company’s financial statements and NBK Capital • Change in fair value of investment properties decreased significantly to a loss of KD 3.1 million in 2010, compared Upcoming Projects to a profit of KD 15.2 in 2009.
Country Project Location Use • A closer look at the financial statements shows that the Najmat Abu Dhabi Reem Island, Abu Dhabi Mega-Commercial Center UAE TECOM Dubai Dubai Media City Hotel, Commercial Offices company reported negative EBITDA of KD 4.6 million in SHAMS Abu Dhabi Reem Island, Abu Dhabi Hotel, Commercial Offices, Residential 2010, compared to positive EBITDA of KD 11.2 million Iraq Erbil Mega Erbil Shopping mall, Appartments, Hotel, Offices Egypt TELAL 6th of October Residential Villas in 2009. However, NREC’s positive EBITDA of KD 11.2 Aqaba AL-Aqaba City Offices, Warehouse Jordan million in 2009 is mainly influenced by the significant rise Amman Zahran Road, Amman Mix Use Agricola Project Al Romail Residential Lebanon in the fair value of investment properties. West End Project Pastor Street, Gemmayze Commercial Offices Pakistan Canal Residence Lahore Luxury Residential Villas • National Holding Group Company (Lebanese Shareholding Sources: Company’s financial statements and NBK Capital Company), a wholly owned subsidiary of NREC, sold two of its subsidiaries in Lebanon for a total value of KD 6.3 Latest News million and realized a profit of KD 4.6 million in 2010. • Though the gain on the sale of the subsidiaries boosted the • April 2011: NREC announced that it has signed a contract 2010 net profit, the impact was offset by the decrease in with a Saudi company to construct 10 residential blocks, the share of the associates’ results and the change in fair which will be conducted during the next 10 months, value of investment properties. providing a good turnover for investors of phase one of the company’s real estate portfolio. Phase II of the portfolio is • As a result, the company reported a net loss of KD 34.4 governed by Islamic Sharia financial laws and will focus on million in 2010, compared to a profit of KD 29.4 million Saudi Arabia’s Eastern province, with a working capital of in 2009. SAR 140 million. Balance Sheet • March 2011: The company announced that it has not seen its residential project in Libya suffer any damage from • The company is part of the Sultan Group and holds a the ongoing crisis, and that the project was implemented 22.4% stake in Agility, according to the 2010 financial by Mediterranean Investments Holding, or MIH, a joint statements. NREC’s stake in Agility appeared at a cost venture equally owned by NREC and Malta-based Corinthia of KD 185 million on the balance sheet as of December Group. MIH is awaiting stability to return in Libya as it 31, 2010. While, the Agility stake, as of April 18, 2010, plans to expand the Palm City Residences project this has a market value of KD 92.6 million, and accounts for year and also to embark on the Medina Tower residential almost 16% of NREC’s total assets and 44% of the total project. The company also added that its projects in Egypt shareholders’ equity. Since the market capitalization of the are being implemented on schedule, despite the recent company was KD 85 million as of April 18, 2011, we feel events in the country. this is worth highlighting.
nbkcapital.com | 95 National Real Estate Company (NREC) Kuwait in Focus - April 2011
• The company had a net debt-to-equity ratio of 0.89x at the Financial Statements end of 2010, compared to 0.72x at the end of 2009. The company’s equity and total debt stood at KD 211 million Income Statement (KD '000) 2007 2008 2009 2010 and KD 200 million, respectively, as of December 31, Rental income 7,677 8,030 8,587 10,443 Change in fair value of inv. properties (445) (4,734) 15,157 (3,135) 2010. NREC has short-term debt of KD 38 million and Staff costs (4,848) (4,046) (5,061) (5,016) KD 13 million in cash. General and administrative (6,762) (8,915) (7,434) (6,910) EBITDA (4,379) (9,666) 11,249 (4,617) • Compared to its Kuwaiti counterparts, NREC’s exposure to Depreciation & amortization (239) (437) (495) (778) market investments appears to be limited. The company’s EBIT (4,617) (10,102) 10,755 (5,395) Net Share in the Associates' Results 36,201 31,465 35,108 5,345 investment book stood at KD 14.6 million as of December Investment Income 9,304 3,454 155 867 31, 2010, which accounted for 7% of shareholders’ Net Income 39,021 18,292 29,387 (34,449)
equity, almost the same as the average over the last five Balance Sheet (KD '000) 2007 2008 2009 2010
years of 8%. Cash & Cash Equivalent 12,960 16,678 11,081 13,242 Investment in Associates 185,405 177,843 218,299 186,673 Investment Properties 66,412 66,680 199,633 197,325 Capital Work in Progress 38,217 235,429 119,800 109,653 Total Assets 396,276 532,949 620,057 574,266
Bank Facilities 114,807 156,556 192,432 199,904
Total Liabilities 146,362 300,185 344,907 337,920
Minority Interest 21,542 22,647 23,248 25,727
Shareholders' Equity 228,372 210,117 251,902 210,620
Total Liabilities and Equity 396,276 532,949 620,057 574,266
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 96 Companies in Focus Kuwait in Focus - April 2011
Oula Fuel Marketing Company (Oula)
Key Data Highlights
Ge ne ra l Liquidity • Oula Fuel Marketing Company (Oula) is one of two publicly- KSE Code OULAFUEL.KSE 52-week avg. volume 340,651 listed fuel station operators in Kuwait. The company’s Reuters Code OULA.KW 52-week avg. value (KD) 137,329 operating assets consist of 40 gas stations acquired from Pric e (KD) Price Performance the government. Oula was listed on the Kuwait Stock Closing Price 0.330 YTD -16.5% 52-week High/Low 0.420 / 0.305 1-Year Period -4.3% Exchange (KSE) on December 18, 2006. Market Capitalization Outstanding Shares • Oula has a major presence in the Kuwaiti retail petrol Million KD 98.91 Latest (million) 299.73 market. The company, along with its closest publicly-listed Ownership Structure Closely Held: 61.3% Public: 38.7% competitor, Soor, dominates the market with a combined market share north of 60%, according to our estimate. Price as of close on April 18, 2011. Sources: Zawya and NBK Capital • Oula’s business model is simple and stable, if not especially lucrative. The company has no control over prices or Stock Performance the direct costs of sales. The government of Kuwait sets the retail price of petrol. Oula procures petrol from the 0.430 0.05 state, which allows the company to market that petrol at 52-week High: KD 0.420 0.410 a specified gross profit margin. In terms of fundamental
0.04 drivers, Oula’s top-line growth is largely predicated on the 0.390 demand for petrol and the company’s ability to open new 0.370 fuel stations. The relatively inelastic demand for petrol 0.03 0.350 drives steady growth in Oula’s top line. However, revenue
0.330 Millions slightly declined (2%) in FY2010, from KD 80.3 million in 0.02
Price (KD) Price FY2009 to KD 78.8 million in FY2010. 0.310 52-week Low: KD 0.305
0.290 • The gross margin fell in FY2010 to 12.4%. This is the 0.01 first year in which Oula’s gross margin has declined below 0.270 the 12.8% mark since the company’s inception. Oula’s 0.250 0.00 gross margins have remained relatively stable because the Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close government sets the retail price of petrol. Gross profit for FY2010 declined by 4.7% compared to FY2009. Sources: Zawya and NBK Capital • For FY2010, net profit stood at KD 8.88 million, a decrease of 4% compared to KD 9.23 million in FY2009.
Analyst
May Zuaiter T. +965 2224 5597 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Gross Profit Margin 12.8% 12.8% 12.8% 12.8% 12.4% EBITDA Margin 5.2% 4.0% 4.7% 12.3% 4.3% Operating Profit Margin 2.8% 3.7% 4.4% 10.5% 2.5% Net Profit Margin 4.6% 5.5% 4.1% 11.5% 3.7%
ROAA 6.7% 7.8% 6.5% 19.4% 6.1% ROAE 10.5% 11.0% 8.2% 23.6% 7.6%
Current Ratio 1.56 1.83 1.84 1.49 1.53 Quick Ratio 1.54 1.81 1.80 1.45 1.49 Investment-to-Equity 0.6% 7.0% 15.0% 14.7% 14.2%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 97 Oula Fuel Marketing Company (Oula) Kuwait in Focus - April 2011
Overview Financial Statement Analysis
Oula is one of only two publicly-listed fuel station operators Income Statement in Kuwait. Established in May 2004, the company derives the majority of its revenues from retail petrol sales via 40 • The relatively inelastic demand for petrol drives steady petrol stations in Kuwait. Oula also generates income from growth in Oula’s top line. However, revenue declined 1) running customer-service centers at the fuel stations, 2) slightly (2%) from KD 80.3 million in FY2009, to KD 78.8 providing automotive services (car washes, oil changes, car million in FY2010. maintenance, etc.), 3) filling and storing fuel, and 4) shipping • The gross margin fell in FY2010 to 12.4%. This is the and trading petroleum products. Historically, the company has first time that Oula’s gross margin has declined below been involved in buying, leasing, and selling real estate assets the 12.8% mark since the company’s inception. Oula’s related to its operational activities and has invested a portion gross margins have remained relatively stable because the of its financial surplus in various financial investments. Oula government sets the retail price of petrol. Oula procures has a wholly-owned subsidiary, Oula National Market Services, petrol from the state, which allows the company to market and owns 25% of Petronet Global Computer Services. The that petrol at a specified gross profit margin. Gross profit Kuwaiti government has a 24% stake in Oula through the for FY2010 declined by 4.7% compared to FY2009. Kuwait Petroleum Corporation (KPC). • Given the set retail price of petrol, Oula has no control Shareholder Structure over gross margins, and therefore the company’s operating profitability depends almost entirely on management’s Major Shareholders Type Co untry Ho lding ability to streamline operating costs. Oula’s FY2010 Alfa Energy Corporate United Kingdom 24.61% Kuwait Petroleum Corporation Government Kuwait 24.00% EBITDA declined by 16%, from KD 4.1 million in FY2009 Kharafi National Corporate Kuwait 12.00% Others 0.69% to KD 3.4 million in FY2010. Accordingly, Oula’s EBITDA Public 38.70% margin decreased to 4.3% in FY2010 from 5.0% in FY Sources: Zawya and NBK Capital 2009.
• Operating profit decreased by 6.4% YoY, from KD 1.34 Latest News million in FY2009 to KD 1.16 million in FY2010. Operating costs declined by 3% in FY2010.
• April 2011: The board of directors proposed a distribution • In FY2010, net profit stood at KD 8.88 million, a decrease of 10% bonus shares, such that the new outstanding of 4% compared to KD 9.23 million in FY2009. shares will stand at 329 million. This decision still awaits the general assembly’s approval. Balance Sheet • July 2010: The company announced that its board of directors had approved the election of a new board of • Oula remains debt-free due to the limited scope of directors for a three-year term, including Chairman Abdul expansion beyond the company’s existing footprint in Hussein Al-Sultan and Vice Chairman Sheikh Talal Al- Kuwait. Cash and cash equivalents declined by 77% in Sabah. 2010, to stand at KD 1.70 million at the end of December 2010, compared to KD 7.39 million in December 2009. • April 2010: Oula announced that its board of directors has Historically, short-term deposits were the largest portion of accepted the resignation of its chairman, Ahmed Abdul cash and cash equivalents, and accounted for 55% of the Aziz Ahmed Al Ghannam, effective April 22, 2010. total cash balance at the end of 2009. Short-term deposits • April 2010: The board of directors recommended did not increase in 2010. However, longer term deposits a distribution of 10% cash dividends, representing (with maturities exceeding three months) increased from KD 0.010 per share, for the fiscal year ending December KD 4.60 million at the end of 2009 to KD 9.25 million as 31, 2009. Oula paid a similar dividend for FY2008 and of December 2010. FY2007, but paid no dividends for FY2006. • Leasehold rights— the rights to use land for fuel stations— were reclassified from property, plant, and equipment (PP&E) and stood at KD 20.47 million at the end of 2010, compared to KD 21.32 million at the end of December 2009. These rights are amortized over a useful economic life of 26 years.
nbkcapital.com | 98 Oula Fuel Marketing Company (Oula) Kuwait in Focus - April 2011
• Unlike many Kuwaiti companies, Oula does not have a Financial Statements significant investment book. However, the company does invest part of its excess capital in financial investments. Income Statement (KD '000) 2007 2008 2009 2010 Revenue 73,949 78,634 80,332 78,787 Oula’s investment book made up 14.2% of the company’s Cost of Sales (64,484) (68,569) (70,049) (68,992) shareholders’ equity on December 31, 2010, 50 bps lower Gross Profit 9,465 10,065 10,282 9,795 Operating Costs (4,810) (4,833) (5,833) (5,993) compared with December 31, 2009. AFS investments General & Admin. Expenses (1,884) (1,791) (1,815) (1,870) represented 100% of the total investment book as of Operating Income 2,771 3,441 8,467 1,932 December 2010, almost unchanged compared with Depreciation & Amortization 216 272 1,420 1,493 EBITDA 2,987 3,713 9,887 3,426 December 2009. Impairment of AFS - (1,400) (19) - Loss on Sale of AFS (0) (220) (53) (114) Group share of results from assoc. (1) - (13) (2) Cash Dividend - 155 24 36 Breakdown of Available-for-Sale Investments Loss on Sale of AFS (1) - - - Loss on Disposal of PP&E (62) - - - Financial Investments (KD '000) 2007 2008 2009 2010 Interest income 1,242 918 450 328 Available-for-sale investments 2,740 4,347 5,761 5,386 Other Income 281 490 573 886 Murabaha investments - 1,500 - - EBT 4,231 3,383 9,430 3,066 Wakala investments - - - - KFAS (38) (30) (32) (28) Total Financial Investments 2,740 5,847 5,761 5,386 NLST (106) (81) (89) (76) Investment-to-Shareholders' Equity 7.0% 15.0% 14.7% 14.2% Zakat (3) (32) (37) (31) Board of Directors' Remuneration (45) (45) (45) (45) Source: Company’s financial statements Net Income 4,039 3,195 9,226 2,887
Balance Sheet (KD '000) 2007 2008 2009 2010
PP&E and Intangibles 26,092 27,922 7,403 7,196 Leasehold rights 21,325 20,472 Available-for-sale investments 2,740 4,347 5,761 5,386 Investment in associates - 466 453 451 Total Non-Current Assets 28,831 32,735 34,942 33,506
Inventory 321 324 343 336 Trade and other receivables 1,324 1,358 1,423 2,181 Time deposits 16,308 3,030 4,575 9,250 Murabaha investments - 1,500 - - Cash and cash equivalents 4,324 7,552 7,387 1,705 Total Current Assets 22,278 13,764 13,727 13,472
Total Assets 51,109 46,499 48,670 46,978
Share Capital 29,973 29,973 29,973 29,973 Treasury Shares (1,507) Statutory reserve 921 1,259 1,619 1,926 Voluntary reserve 921 1,259 1,619 1,926 Fair value reserve 94 (82) (127) 195 Retained Earnings 6,997 6,517 6,194 5,470 Total Equity 38,906 38,927 39,278 37,982
Provision for staff indemnity 61 105 190 164 Total Non-Current Liabilities 61 105 190 164
Trade and other payables 789 1,492 1,786 2,167 Due to related parties 11,353 5,975 7,416 6,664 Total Current Liabilities 12,142 7,467 9,202 8,831
Total Liabilities 12,203 7,572 9,392 8,996
Total Liabilities and Equity 51,109 46,499 48,670 46,978
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 99 Companies in Focus Kuwait in Focus - April 2011
TAMDEEN GROUP
Key Data Highlights
General Liquidity • Tamdeen Real Estate Company (Tamdeen Group) specializes KSE Code TAM.KSE 52-week avg. volume 629,454 in developing, trading, and managing commercial and Reuters Code TAMK.KW 52-week avg. value (KD) 182,891 industrial real estate, including retail centers, office Price (KD) Price Performance properties, and hotels in local and international markets. Closing Price 0.255 YTD -5.6% 52-week High/Low 0.345 / 0.226 1-Year Period -26.1% • The company operates through its four subsidiaries: Market Capitalization Outstanding Shares Tamdeen Shopping Centers Development Company, Million KD 95.15 Latest (million) 373.12 Tamdeen Holding Company, Tamdeen Investment Ownership Structure Closely Held: 73.63% Public: 26.37% Company, and Tamdeen Entertainment.
Price as of close on April 18, 2011. Sources: Zawya and NBK Capital • The Tamdeen Group has several major projects currently under construction. We feel that these upcoming projects in other countries in the Gulf Cooperation Council (GCC) Stock Performance will boost income, diversify the company’s portfolio, and broaden its regional base. 0.400 6.0 • Operational income increased by 23% in 2010, to KD 16.9
5.0 million, compared to KD 13.7 million in 2009. Although 0.360 no breakdown of operational income was provided, we 52-week High: KD 0.345 4.0 feel that the increase is primarily attributable to a boost 0.320 in rental income from the 360° Mall—which opened in
3.0 mid-2009. Millions
Price (KD) Price 0.280 2.0
0.240 1.0 52-week Low: KD 0.226
0.200 0.0 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close
Sources: Zawya and NBK Capital
Analyst
Mariam Al-Bahar T. +965 2259 5138 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Operating Income (% of Total Income) 46% 31% 31% 56% 52% Total Recurring Income (% of Total Income) 54% 35% 32% 64% 54% Investment Income (% of Total Income) 34% 44% 24% 13% 17%
EBITDA (KD million) 3.39 5.10 1.13 5.17 4.78 EBITDA Interest Cover (x) 0.7 0.5 0.1 0.6 0.5 Adjusted EBITDA Interest Cover (x) 1.4 1.1 0.6 0.9 0.7 Net Debt-to-Equity (x) 0.7 0.8 1.9 2.4 1.3
ROAA (%) 1% 3% 3% 1% 1% Adjusted ROAA (%) -2% -4% -1% -1% 0%
Investment Book (% of Total Assets) 47% 46% 26% 19% 35% Investment Book (% of Total Equity) 106% 102% 119% 100% 101%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 100 Tamdeen Group Kuwait in Focus - April 2011
Overview Major Projects
Tamdeen Real Estate Company is one of Kuwait’s leading real Major projects completed estate companies. Originally established in 1982, the company was recently rebranded as Tamdeen Group. It is engaged in 360° Mall real estate investment and development activities inside and outside Kuwait. Tamdeen Group specializes in developing, The 360° Mall is a shopping mall destination situated at trading, and managing commercial and industrial real estate the intersection of King Faisal Highway and 6th Ring Road. properties, including retail centers, office properties, and The mall, strategically located in a busy and rapidly growing hotels. The company sold its flagship property, Al-Fanar Mall residential area, has a unique circular design. Completed in in 2008 and completed the 360° Mall in June 2009. Tamdeen June 2009, the mall has a shopping area of more than 82,000 Group operates through four subsidiaries: Tamdeen Shopping sq. m. and is the second largest in Kuwait, after the Avenues. Center Development Company, Tamdeen Holding Company, Tamdeen Investment Company, and Tamdeen Entertainment. Madinat Al Fahaheel
Madinat Al Fahaheel is a mixed-use development spread Shareholder Structure over 300,000 sq. m. in Fahaheel. The project has two main Name Type Country Holding components: Al Kout and Al Manshar Towers and Complex. Fateh Al Khair Group Holding Company Corporate Kuwait 25% Al Salemiya United Real Estate Company Corporate Kuwait 20% KIPCO Asset Management Company Corporate Kuwait 15% Al Kout Mashaal Jassem Al Marzouk Private Kuwait 12% Public - - 28% Foreign Ownership Structure The Al Kout shopping center offers a mix of international, Open to GCC Investors 100% regional, and local brands complemented by a food court and Open to Foreign Investors 100% a yacht club. The shopping center is acclaimed for its design Sources: Zawya and NBK Capital and has won several accolades.
Subsidiaries Al Manshar Towers and Complex
Name Country Holding Just a short walk from Al Kout, Al Manshar Towers and Complex Tamdeen Housing Company [80% Directly, 20% via Tamdeen Holding Company Kuwait 100.00% Tamdeen Investment Company Kuwait 51.37% is a mixed-use commercial and residential real estate project, Manshar Real Estate Company Kuwait 50.00% featuring a shopping mall, a food court, four residential towers, Tamdeen Entertainment Company Kuwait 45.00% Tamdeen Holding Company Kuwait 43.00% an office tower, and the five-star Al Manshar Rotana Hotel. Fu-com Central Markets Company Kuwait 33.00% Tamdeen Shopping Center Development Company Kuwait 30.00% Ajmal Holding Company Bahrain 29.00% Al Manshar Rotana Hotel Beyoo Leasing and Finance Company Kuwait 21.00%
Sources: Company’s financial statements, Zawya, and NBK Capital This five-star hotel with 200 rooms on 18 floors is located to the west of the Al Manshar Towers and Complex. The hotel was completed in April 2007.
Major upcoming projects
Baraya
The Baraya project is a joint venture between Tamdeen Group, Imtiaz Investment Company, and Barwa Real Estate Company from Qatar. This mixed-use project, located in the heart of Doha, is part of the renovation of Doha’s downtown. The project will incorporate a premium shopping mall with 70,000 sq. m. of leasable retail space, a five-star business hotel, and a 25-storey class A office tower, with a leasable area of around 30,000 sq. m.
nbkcapital.com | 101 Tamdeen Group Kuwait in Focus - April 2011
Sarab Al Areen Balance Sheet
Sarab Al Areen is located in the Al Areen development in the • Tamdeen Group’s net debt-to-equity ratio declined to south of the Kingdom of Bahrain. Sarab Al Areen will be the 1.3x at the end of 2010, from 2.4x at the end 2009. On sole retail component in this prestigious development, with an December 31, 2010, the company’s equity and total debt estimated gross leasable area of 175,000 sq. m. stood at KD 104 million and KD 137 million, respectively. We would like to highlight the fact that this debt was raised Financial Statement Analysis by mortgaging investment properties, available-for-sale (AFS) investments, and projects in progress. Income Statement • Tamdeen Group fully consolidates Tamdeen Investment Company, as the parent company holds a 51.37% stake in • Operational income grew by 23% in 2010, to KD 16.9 this subsidiary. Thus, the total debt of KD 137 million is million, compared to KD 13.7 million in 2009. Although not entirely attributable to the parent company. Tamdeen no breakdown of operational income was provided, we Investment Company, which had KD 56.1 million of debt feel that the increase is primarily attributable to a boost outstanding as of December 31, 2010, accounted for 41% in rental income from the 360° Mall (completed in mid- of Tamdeen Group’s total debt. 2009). • The company’s investment book (both AFS and held for • The company’s operational income accounted for 52% of trading) stood at KD 106 million at the end of December total income in 2010, compared to an average of 39% over 2010, accounting for 101% of the shareholders’ equity the previous five years. and 35% of the total assets. Of this amount, KD 98.6 • Total recurring income for Tamdeen Group, which includes million (93%) is due to the consolidation of Tamdeen operational income, fees from managing real estate Investment Company’s as of December 2010). and investment portfolios, and other operating income, increased by 12% in 2010, to KD 17.6 million, compared to KD 15.7 million in 2009; this increase was entirely due to the increase in operational income.
• Total operating expenses increased by 8% to KD 13 million in 2010, compared to KD 12 million in 2009, mainly due to the increase in general and administrative expenses
• The company’s EBITDA decreased to KD 4.8 million in 2010, compared to KD 5.2 million for 2009. This decrease was entirely due to the increase in general and administrative expenses.
• Tamdeen Group’s EBITDA interest coverage stood at 0.46x in 2010, compared to 0.56x in 2009. This apparently low EBITDA interest coverage does not take dividend income into account. Adjusted EBITDA interest coverage (including dividend income), stood at 0.74x in 2010, compared to 0.95x in 2009. Although no breakdown was provided in the financial statements, we believe that dividend income is mainly from Tamdeen Group’s indirect ownership of the Ahli United Bank (AUB) in Bahrain.
• Investment income increased significantly by 83% in 2010, to KD 5.6 million compared to KD 3.1 million in 2009, providing a boost to the company’s net profit.
• As a result, net profit increased by 71%, to KD 4.6 million in 2010, compared to KD 2.7 million in 2009, while the company’s net profit margin increased to 14% in 2010 compared to 11% in 2009.
nbkcapital.com | 102 Tamdeen Group Kuwait in Focus - April 2011
Financial Statements
Income Statement (KD '000) 2007 2008 2009 2010
Operational Income 11,625 11,676 13,735 16,871 Operational Expenses 4,511 5,655 4,558 4,809 Net Operating Income 7,114 6,021 9,177 12,062
Other Operating Income 1,302 422 1,935 701 Fees from Management of RE & Inv. Portfolios 136 225 72 43 Staff Costs (3,057) (3,794) (3,536) (3,233) General and Administrative Expenses (2,805) (4,157) (3,924) (4,927) EBITDA 5,096 1,132 5,169 4,783 Depreciation (2,406) (2,415) (1,445) (137) EBIT 2,690 (1,283) 3,724 4,646 Net Investments Income 16,207 8,951 3,093 5,648 Finance Costs 10,026 10,028 9,221 10,466 Shareholders of the Parent Company 11,562 13,593 2,703 4,625
Minority interest 4,477 (127) (1,908) 5,339 Net Income 16,039 13,466 795 9,964
Balance Sheet (KD '000) 2007 2008 2009 2010
Assets Non-current assets Available-for-sale investments 197,463 119,065 85,378 104,759 Investments in associated companies 51,113 52,668 52,922 74,528 Investments in unconsolidated subsidairy Co. - 800 - 540 Investment properties 86,759 48,333 124,619 48,725 Projects in progress 68,450 179,671 80,396 4,014 Machines and equipment 696 802 3,104 651 Total non-current assets 404,481 401,339 346,419 233,217
Current Assets Cash and bank balances 1,595 11,214 13,593 4,808 Short-term deposits 4,347 11,776 1,217 7,593 Inv. at fair value through statement of income 18 204 995 812 Accounts receivable and other debit balances 7,120 22,277 29,053 17,092 Inv. in lands and real estate held for trading 14,522 4,813 53,978 41,007 Total current assets 27,602 50,284 98,836 71,312
Total assets 432,083 451,623 445,255 304,529
Liabilities and Shareholders' Equity Total equity - Parent company 193,157 100,230 86,023 104,593 Minority interest 63,908 125,050 114,673 50,125 Total equity 257,065 225,280 200,696 154,718
Liabilities Non-current liabilities Term loans 85,600 119,250 150,847 67,000 Bonds Issued 19,848 - - - Refundable rental deposits 2,077 3,697 4,173 1,185 Provision for end of service indemnity 402 470 570 473 Total non-current liabilities 107,927 123,417 155,590 68,658
Current liabilities Bank facilities 4,172 14,221 17,289 15,168 Accounts payable and other credit balances 18,029 20,530 21,173 10,985 Current portion of term loans 44,890 68,175 50,507 55,000 Total current liabilities 67,091 102,926 88,969 81,153
Total liabilities 175,018 226,343 244,559 149,811
Total Equity and Liabilities 432,083 451,623 445,255 304,529
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 103 Companies in Focus Kuwait in Focus - April 2011
Tamdeen Investment Company (Tamdeen)
Key Data Highlights
Ge ne ra l Liquidity • Total revenue for the period declined by 30%, from KSE Code TAMI.KSE 52-week avg. volume 784,979 KD 11.40 million in FY2009 to KD 7.95 million in Reuters Code TAMI.KW 52-week avg. value (KD) 252,890 FY2010. However, if we exclude gains on sale of associates Pric e (KD) Price Performance in FY2009 (KD 5.06 million), then total revenue for the Closing Price 0.186 YTD -28.5% 52-week High/Low 0.435 / 0.128 1-Year Period 45.3% year would have increased by 25% year-over-year (YoY). Market Capitalization Outstanding Shares • In April 2010, Tamdeen Investment Company (Tamdeen), Million KD 56.13 Latest (million) 311.85 along with other investors, agreed to sell a 25% stake in Ownership Structure Closely Held: 76.37% Public: 23.63% Ahli United Bank (AUB) for USD 1.35 billion to a group of Qatari investors; Tamdeen estimated its profit from the Price as of close on April 18, 2011. Sources: Zawya and NBK Capital transaction at USD 340 million.
• Tamdeen Real Estate Company is Tamdeen’s majority Stock Performance shareholder, with a 51.37% stake. Fatah Al Khair Holding Group, a Kuwaiti family-owned business, owns 15% of 0.500 12.0 Tamdeen, and the remaining shares are publicly traded. 0.450 52-week High: KD 0.435 10.0 • Quoted investments in foreign securities accounted 0.400 for roughly 87% of Tamdeen’s available-for-sale (AFS) 0.350 8.0 investments as of December 31, 2010. These investments 0.300 are in equities, which tend to be volatile. This increases
0.250 6.0 the risk associated with these securities. Millions Price (KD) Price 0.200 • Although the company owns no interest-earning financial 4.0 0.150 assets, Tamdeen faces interest rate risk through floating
0.100 52-week Low: KD 0.128 interest rate loans from banks and other banking facilities. 2.0 0.050 • Tamdeen has no long-term debt; the company has KD 56 0.000 0.0 million in short-term debt (short-term loans and banking Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close facilities) as of December 2010.
Sources: Zawya and NBK Capital
Analyst
May Zuaiter T. +965 2259 5597 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Net Profit Margin (%) 67.5% 59.2% 21.4% 19.9% 43.3%
ROAA 3.5% 4.2% 0.9% 1.6% 2.4% ROAE 4.2% 5.8% 1.4% 3.0% 4.1%
Current Ratio (X) 0.12 0.03 0.08 0.09 0.12 Debt-to-Assets (X) 0.18 0.27 0.42 0.45 0.35 Debt-to-Equity (X) 0.24 0.39 0.78 0.84 0.56
AFS-to-Assets 85.2% 80.4% 66.5% 54.0% 62.4% AFS-to-Equity 110.3% 114.0% 124.0% 100.3% 98.2% Equity-to-Assets 77.2% 70.6% 53.6% 53.8% 63.5%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 104 Tamdeen Investment Company (Tamdeen) Kuwait in Focus - April 2011
Overview Financial Statement Analysis
In 1997, Tamdeen Investment (formerly known as Gulf Income Statement Investment Projects Company) was established and registered as an investment company with the Central Bank of Kuwait. • In FY2010, the company recorded a KD 5.27 million gain The company was listed on the Kuwait Stock Exchange (KSE) from available-for-sale (AFS) investments, which made up in May 2006. 66% of total revenue for the period and represented a 20% Tamdeen Real Estate Company is Tamdeen’s majority increase YoY. On closer inspection, the gain on sale of AFS shareholder, with 51.37% ownership. Fatah Al Khair Holding investments accounted for KD 2.49 million from the total Group, a Kuwaiti family-owned business, holds a 15% stake AFS investment gains, versus KD 0.98 million in 2009. in Tamdeen Investment; Fatah Al Khair also owns a 25% stake • Share of associates’ results marked a 26% increase YoY to in Tamdeen Real Estate Company. Kuwait Portland Cement reach KD 1.63 million in FY2010 from KD 1.30 million owns 7.88% of the investment company, and the balance of in FY2009. This period’s figure represented 20% of total the equity is publicly traded. revenues. Also during the year, the company recorded a The company’s main activities are as follows: gain from the sale of investment properties of KD 0.09 million while no such gains were recorded in FY2009. • Managing financial investment transactions related to securities, including acquiring and selling private sector • Total revenue for the period declined by 30%, from shares and bonds. KD 11.40 million in FY2009 to KD 7.95 million in FY2010. However, if we exclude gains on sale of associates • Providing consulting services to clients on asset utilization, in FY2009 (KD 5.06 million), then total revenue for the as well as consulting and advisory services on mergers and year would have increased by 25% year-over-year (YoY). acquisitions (M&A) and business succession to corporate clients. • Total expenses and other charges decreased by 51% in FY2010 to reach KD 4.51 million, compared with • Delivering investment and portfolio management services. KD 9.13 million in FY2009. The major contributor to total The company holds many direct investments. Its primary expenses was finance costs (63%), which decreased from investments are in Ahli United Bank and Kuwait National KD 3.63 million in FY2009 to KD 2.83 million in FY2010. Cinema Company. • On the back of positive growth in operating profit, Tamdeen’s • Tamdeen had an asset base of around KD 158 million net profit increased by 52% in FY2010 to reach KD 3.44 and shareholders’ equity amounting to around KD 102 million. The company’s net profit margin increased from million as of December 31, 2010. The company’s stock 20% in FY2009 to 43% in FY2010. is relatively illiquid, with a 12-month average daily trading volume of KD 784,979. Balance Sheet
Latest News • The company’s asset base as of December 31, 2010, showed an increase of 25% compared to December • March 2011: Tamdeen’s board of directors recommended 31, 2009. This was mainly due to the increase in AFS the distribution of 6% cash dividends, representing investments, which stood at KD 98.6 million at the end KD 0.006 per share, for FY2010. The company paid the of the year, compared to KD 68.3 million as of December same cash dividend for FY2009; however, Tamdeen paid 2009. AFS investments accounted for 63% of total assets no cash dividend for FY2008. and almost 100% of total shareholders’ equity.
• April 2010: Tamdeen Investment Company, along with • Quoted investments in foreign securities accounted other investors, agreed to sell a 25% stake in Ahli United for roughly 87% of Tamdeen’s AFS investments as of Bank (AUB) for USD 1.35 billion to a group of Qatari December 31, 2010. These investments are in equities, investors; Tamdeen estimated its profit from the transaction which tend to be volatile. This increases the risk associated at USD 340 million. with these securities.
nbkcapital.com | 105 Tamdeen Investment Company (Tamdeen) Kuwait in Focus - April 2011
• On the liabilities side, the company’s loan book decreased Financial Statements by only 2% in 2010; this book currently accounts for 97% of Tamdeen’s total liabilities. Tamdeen had only short-term Income Statement (KD '000) 2007 2008 2009 2010 Gains from AFS investments 11,107 7,766 4,385 5,265 debt (short-term loans and banking facilities), representing Gains from sale of inv in associates 2,499 - 5,059 - Gain from sale of lands held for trading - - - 91 35% of the company’s total assets as of December 31, Share from associates’ results 210 (986) 1,294 1,629 2010. These loans and bank facilities carry floating Provisions no longer required - - - 305 Management fees 409 1,332 177 152 interest rates and are secured against AFS investments. Other revenue 500 390 483 510 Total revenue 14,726 8,502 11,398 7,952 The company’s short-term debt stands at around KD 56 General and administrative costs (331) (1,470) (1,299) (1,464) million. Staff costs (555) - - - Finance costs (4,801) (5,080) (3,632) (2,828) Loss in fair value - - (4,000) - • Tamdeen manages portfolios for clients, the value of which Other Expenses (327) (134) (201) (219) amounted to around KD 254 million as of December 31, Total expenses & other charges (6,014) (6,684) (9,132) (4,512) Ne t Inc o me 8,712 1,818 2,266 3,440 2010. Balance Sheet (KD '000) 2007 2008 2009 2010
Asse ts Cash and cash equivalents 633 4,413 4,570 5,926 Receivables & other debit balances 572 1,545 562 936 Available-for-sale investments 192,817 103,960 68,299 98,601 Investment properties - - 22,286 - Investments in associates 44,828 45,421 29,634 31,392 Land & R/E under development 817 894 919 982 Real estate held for trading - - - 19,951 Properties and equipment 30 205 181 280 Total assets 239,695 156,438 126,451 158,068
Liabilities Payables and other credit balances 5,075 7,120 1,100 1,507 Loans and bank facilities 65,376 65,410 57,186 56,090 End of service indemnity 60 48 76 92 Total liabilities 70,511 72,578 58,362 57,689 - - Equity Share capital 28,350 31,185 31,185 31,185 Share premium 10,000 10,000 10,000 10,000 Changes in fair value reserve 119,892 33,426 14,778 46,922 Retained earnings 9,592 8,388 10,416 11,685 Other Liabilities 1,350 861 1,710 586 Total equity 169,184 83,860 68,089 100,379 - (1) Total Liabilities and Equity 239,695 156,438 126,451 158,068 Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 106 Companies in Focus Kuwait in Focus - April 2011
United Real Estate Company
Key Data Highlights
General Liquidity • United Real Estate Company (United Real Estate) is one of KSE Code URC.KSE 52-week avg. volume 2,434,753 the premier real estate companies in Kuwait. The company Reuters Code UREK.KW 52-week avg. value (KD) 170,355 develops real estate, with a major focus on hospitality, Price (KD) Price Performance commercial, and retail properties. United Real Estate’s Closing Price 0.080 YTD -16.7% 52-week High/Low 0.119 / 0.076 1-Year Period -14.0% real estate portfolio includes commercial complexes, hotels, resorts, residential buildings, shopping malls, high- Market Capitalization Outstanding Shares Million KD 95.04 Latest (million) 1,187.97 rise office buildings, as well as mixed-use projects.
Ownership Structure • United Real Estate has major projects across various Closely Held: 17% Public: 83% business segments and geographic locations. We feel this Price as of close on April 18, 2011. Sources: Zawya and NBK Capital diversification not only lends strength to the business model but also insulates the company from downturns in Stock Performance any particular region or country. • The company holds land and developed properties that 0.140 20.0 appear at a value of KD 67.7 million and KD 96.7 million, 18.0 respectively, on the balance sheet according to the 2010
16.0 financial statements. Since United Real Estate’s current 0.120 52-week High: KD 0.119 14.0 market cap was KD 95 million as of April 18, 2011, we feel this is worth highlighting. 12.0
0.100 10.0 • The company’s investment book stood is at KD 19.7 Millions
Price (KD) Price 8.0 million as of December 31, 2010, accounting for 10% of the shareholders’ equity and 5% of the total assets. 6.0 0.080 52-week Low: KD 0.076 4.0
2.0
0.060 0.0 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close
Sources: Zawya and NBK Capital
Analyst
Mariam Al-Bahar T. +965 2259 5138 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Rental Income (% of Total Income) 39.6% 39.6% 51.2% 49.9% 56.2% Non–Operating Income (% of Total Income) 42.1% 28.9% 15.2% 1.2% 7.0% Non–Operating Income (% of Net Profit) 91.7% 84.3% 58.0% 9.4% 32.6%
EBITDA (KD million) 12.1 13.2 13.4 16.5 11.3 EBITDA Interest Cover (x) 2.2 2.3 2.7 2.9 1.9 Net Debt-to-Equity (x) 0.6 0.8 0.6 0.6 0.4
Investment in Associates (% of Total Assets) 30.4% 26.5% 19.9% 21.9% 20.4% Lands for Development (% of Total Assets) 0.2% 5.8% 25.0% 25.3% 18.6% Investment Book (% of Total Assets) 6.0% 8.1% 9.1% 6.8% 5.4% Investment Book (% of Total Equity) 11.3% 17.5% 20.4% 15.4% 10.4%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 107 United Real Estate Company Kuwait in Focus - April 2011
Overview • Sale of properties held for trading decreased significantly by 83% to KD 0.9 million in 2010, compared to KD 5.4 Founded in 1973, United Real Estate Company is one of the million in 2009. premier real estate companies in Kuwait, and is part of the • Accordingly, the company’s EBITDA decreased to KIPCO Group. The company was listed on the Kuwait Stock KD 11.3 million in 2010, compared to KD 16.5 million Exchange in 1984. United Real Estate focuses on hospitality, in 2009. commercial, and retail properties and develops properties and rents and manages third-party properties. The company • United Real Estate’s non-operating activities increased has major projects across various business segments and significantly to KD 1.8 million in 2010, compared to geographic locations; namely, the United Arab Emirates KD 0.36 million in 2009. Lower income from non-operating (UAE), Qatar, Oman, Egypt, Jordan, Lebanon, and Syria. activities in 2009 was due to the foreign exchange losses. • On the back of higher non-operating income, United Real Shareholder Structure Estate company’s net profit increased by 47% to KD 5.6 million in 2010, compared to KD 3.8 million in 2009. The Name Type Country Holding
United Gulf Bank Corporate Bahrain 28.91% company’s net profit margin increased to 21% in 2010 Kuwait Projects Company (via Kuwait United Consultancy Company) Corporate Kuwait 11.29% from 13% in 2009. Public - 59.80% Foreign Ownership Structure Open to GCC Investors 100.00% Balance Sheet Open to Foreign Investors 100.00%
Sources: Zawya and NBK Capital • The company holds land that appears at a value of KD 67.7 million on the balance sheet according to the Company Projects 2010 financial statements. The land for development accounted for almost 20% of the total assets and 36% of Existing Projects total shareholders’ equity as of December 31, 2010. United Real Estate also holds developed properties that appear at Project Location Use
Major completed projects - Kuwait a market value of KD 96.7 million on the balance sheet, Al-Shaheed Tower Sharq, Kuwait City Office Building according to the 2010 financial statements. Since United City Tower Sharq, Kuwait City Office Building Real Estate’s current market cap is KD 95 million as of Al Mutahida Complex Kuwait City Offices and Shopping Mall
Al Maseel Complex Kuwait City Offices and Shopping Mall April 18, 2011, we feel this issue is worth highlighting.
Saleh Shehab Resort Al Jela'aa Chalet Resort
Marina World Salmiya Shopping Mall and Hotel • Investment in associates increased significantly from Major completed international projects KD 24.8 million in 2005 to KD 74.3 million in 2010 Sheraton Helioplis Egypt Five-star Hotel (KD 71.5 million in 2009). Thus, the investment in Bhamdoun Hotel and Commercial Center Bhamdoun, Lebanon Four-star Hotel and Commercial Center associates as a percentage of total assets increased Rawcheh Hotel Rawcheh in Beirut, Lebanon Five-star Hotel significantly from 13% in 2005, to 20% in 2010. We Sources: Company’s annual report and NBK Capital would like to highlight that, despite the increase, the contribution of the investment in associates to net profit Financial Statement Analysis remains minimal. • The company maintained a low net debt-to-equity ratio, Income Statement which stood at 0.45x in 2010, compared to the average of 0.68x for the last five years (2005-2009). The company’s • Real-estate-related income decreased by 16% in 2010, equity and total debt stood at KD 189 million and KD 112 amounting to KD 24 million, compared to KD 28.5 million million as of December 31, 2010, respectively. A closer in 2009. This decline was mainly due to the decrease in look at the debt serviceability shows that the EBITDA the sale of properties held for trading. interest coverage decreased from 2.9x in 2009, to 1.9x in 2010. • Rental income was almost flat as it reached KD 14.5 million in 2010, compared to KD 14.4 million in 2009 (a slight 2.8% increase in 2010). Rental income as a percentage of real-estate-related income stood at 60% in 2010, compared to 50% in 2009.
nbkcapital.com | 108 United Real Estate Company Kuwait in Focus - April 2011
• Total debt increased to KD 112 million in 2010, compared Financial Statements to KD 99.5 in 2009. This increase is mainly due to the issuance of bonds (KD 40 million) maturing in 2013. Income Statement (KD' 000) 2007 2008 2009 2010 Rental Income 11,811 13,380 14,374 14,526 • United Real Estate’s investment book stood at KD 19.7 Hotel Operating Income 4,066 4,395 4,298 4,055 million as of December 31, 2010, accounting for 10% of Sale of properties held for trading 1,400 895 5,432 938 Other Operating Income 1,907 2,852 3,890 4,275 shareholders’ equity and 5% of the total assets. Share of results of associates 2,040 646 472 251 Real estate related income 21,224 22,168 28,466 24,046
Change in fair value of inv.properties 846 468 3,243 (2,399) Investment income 3,200 3,288 269 772 Other non-operating income 1,006 782 - - Foreign exchange (loss) gain 3,555 (1,092) (3,798) 437 Total non-operating Income 8,607 3,985 356 1,808
Total Income 29,831 26,153 28,822 25,854 Total Expenses 19,258 18,919 24,743 21,510 Net Income 10,215 6,868 3,788 5,553
Balance Sheet (KD' 000) 2007 2008 2009 2010
Cash and cash equivalents 13,490 12,336 6,973 27,822 Accounts receivable and prepayments 16,461 9,962 16,664 38,400 Properties held for trading 10,904 10,413 4,935 4,059 Available-for-sale investments 19,628 28,925 22,159 19,706 Investment in associates 64,604 63,335 71,523 74,342 Lands for development 14,035 79,714 82,680 67,723 Projects under construction 498 9,559 15,330 26,438 Investment properties 92,926 94,232 97,243 96,748 Property and equipment 10,911 10,237 9,269 8,562
Total assets 243,458 318,713 326,775 363,799
Accounts payable and accruals 14,544 67,927 69,362 49,834 Interest bearing loans and borrowing 93,429 85,174 99,454 72,164 Bonds 10,250 10,250 - 40,000
Total liabilities 118,223 163,352 168,816 161,998
Equity attributable to equity holders 111,917 142,039 143,661 188,752
Minority interests 13,318 13,322 14,297 13,049 Equity 125,235 155,361 157,959 201,801 Total Liabilities and Equity 243,458 318,713 326,775 363,799
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 109 Companies in Focus Kuwait in Focus - April 2011
YIACO Medical Company
Key Data Highlights
General Liquidity • Yiaco Medical Company (YIACO) reported a net profit of KSE Code YIACO 52-week avg. volume 472,320 KD 4.5 million in FY2010, an increase of 223% compared Reuters Code YIAC.KW 52-week avg. value 128,841 to KD 1.4 million in FY2009. Price (KD) Price Performance
Closing Price 0.360 YTD 9.1% • YIACO’s principal activities focus on importing and selling 52-week High/Low 0.370 / 0.202 1-Year Period 73.1% medical, chemical, and dental products and equipment. Market Capitalization Outstanding Shares Million KD 59.40 Latest (million) 165.00 • Kuwait Finance House owns 9.89% of YIACO, Al Nakhil
Ownership Structure United Real Estate Company owns 5.54%, and Al Safwa Closely Held: 17% Public: 83% Investment Fund owns 5.0%; the balance is held by the Price as of close on April 18, 2011. Sources: Zawya and NBK Capital general public. • YIACO’s board of directors proposed the distribution of Stock Performance 10% (KD 0.010 per share) cash dividends for the fiscal year ending December 31, 2010. The company distributed
0.420 8 5% (KD 0.005 per share) cash dividends for FY2009.
7 • Given the nature of YIACO’s business, accounts receivable 52-week High: KD 0.370 0.370 and inventories combined stood at around KD 43.3 million 6 as of December 31, 2010, an increase of 18% compared 0.320 5 to KD 36.7 million as of September 30, 2010. Accounts receivable and inventories contributed the majority (65%) 0.270 4 of total assets. Price (KD) Price Millions 3 0.220 • The company continued to maintain a low debt-to- 52-week Low: KD 0.202 2 shareholders’ equity ratio, which stood at 0.61x. The 0.170 company’s current ratio increased slightly from 1.25x in 1 December 2009 to 1.30x in December 2010. 0.120 0 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Volume Close
Sources: Zawya and NBK Capital
Analyst
May Zuaiter T. +965 2259 5597 E. [email protected]
Key Ratios
2006 2007 2008 2009 2010
Gross Profit Margin (%) 25.1% 24.9% 27.2% 23.9% 20.4% Operating Profit Margin (%) 5.1% 4.8% 5.6% 3.4% 5.4% Net Profit Margin (%) 5.3% 4.7% 1.5% 2.0% 5.5%
ROAA 5.4% 5.1% 1.6% 2.6% 7.2% ROAE 12.2% 10.6% 3.5% 6.1% 18.3%
Current Ratio (X) 1.35 1.35 1.32 1.25 1.30 Debt-to-Assets (X) 0.17 0.18 0.22 0.24 0.24 Debt-to-Equity (X) 0.37 0.37 0.51 0.60 0.61 Investment-to-Equity 36% 35% 31% 31% 29%
Receivables Turnover Ratio 3.36 2.97 3.43 3.74 3.67 Inventory Turnover Ratio 3.67 3.61 2.81 3.07 3.41 Payables Turnover Ratio 2.52 2.49 2.69 3.01 3.02
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 110 YIACO Medical Company Kuwait in Focus - April 2011
Overview Financial Statement Analysis
YIACO was incorporated in Kuwait in 1952, as the sole Income Statement marketing agent for numerous multinational, research-focused pharmaceutical manufacturers. The company was known as • YIACO’s revenue stood at KD 82.0 million in FY2010, an Yusuf Ibrahim Alghanim and Company until March 2002. increase of 18% compared to KD 69.7 million in FY2009. YIACO’s principal activities are importing and selling medical, However, growth in cost of goods sold (COGS), at 35%, chemical, and dental products and equipment. outpaced revenue growth, to reach KD 65.29 million in The company has two key divisions: the pharmaceutical FY2010. Accordingly, the gross profit margin decreased by division and the medical, scientific, and dental division. approximately 400 basis points, from 24% in FY2009 to 20% in FY2010. The pharmaceutical business encompasses four areas: Pharmacies, Skin Care, Animal Health, and Crop Protection • At 76%, administrative expenses constituted the largest Retail Pharmacies. component of total operational expenditures (OPEX) in FY2010. These expenses had accounted for about 75% of The medical, scientific, and dental division encompasses the OPEX in FY2009. Medical Projects, Scientific, Dental, Imaging, Physiotherapy, Rehabilitation and Home Health Care, Key Accounts, and • A drastic increase in operating income marked FY2010; an Medical Furniture divisions. 87% increase took operating income from KD 2.40 million in FY2009 to KD 4.47 million in FY2010. Accordingly, the YIACO currently acts as an envoy for diversified, multinational, operating margin improved from 2.0% in FY2009 to 5.5% research-based companies such as Abbott, Bayer GSK, in FY2010. Results from associates also increased for the Intervet, Schering, Pfizer, Merck, Roche, Phillips, and Johnson period, from KD 0.3 million in FY2009 to KD 0.5 million & Johnson. The company owns and provides health care in FY2010, representing an increase of 71%. services through the largest chain of pharmacies in Kuwait; YIACO also owns the Apollo Medical Center, the Canadian • Finance charges and management fees increased for Medical Center, and the Adan Diagnostic Center. the period; finance charges stood at KD 0.74 million in FY2010, compared to KD 0.69 million in FY2009, while YIACO was listed on the Kuwait Stock Exchange (KSE) in management fees sharply shot up from a mere KD 0.09 November 2007. During that year, as part of the company’s million FY2009 to KD 0.33 million in FY2010 expansion plans, YIACO acquired Al Raya Health Care Company and City Medical. YIACO operates mainly in Kuwait and Egypt. • Net profit attributable to equity holders stood at KD 4.5 During 2008, YIACO significantly increased its representation million in FY2010, a considerable increase of 223% on Al Salam Hospital’s board of directors and, as a result, compared to KD 1.4 million in FY2009. transferred its investment in that hospital from available for • The company carries its investments at fair value through sale (AFS) to investment in associate. the income statement, and these include an equity Kuwait Finance House owns 9.89% of YIACO’s shares, Al securities fund. During FY2010, the company recorded a Nakhil United Real Estate Company owns 5.54%, and Al KD 1.6 million gain, versus a gain of KD 1.33 million in Safwa Investment Fund owns 5.00%; the balance is held by FY2009. the general public. Balance Sheet
• Given the nature of YIACO’s business, accounts receivable and inventories combined stood at around KD 43.3 million as of December 31, 2010, an increase of 18% compared to KD 36.7 million as of September 30, 2010. Accounts receivable and inventories contributed the majority (65%) of total assets.
• Bank and cash balances stood at KD 7.3 million as of December 31, 2010, marking a 10% decrease from KD 8.1 million as of September 30, 2010.
nbkcapital.com | 111 YIACO Medical Company Kuwait in Focus - April 2011
• Investments in associates and investments carried at fair Financial Statements value through the income statement together stood at around KD 7.6 million as of December 31, 2010, and Income Statement (KD '000) 2007 2008 2009 2010 Revenue 48,251 54,080 69,742 81,991 accounted for the majority (98%) of YIACO’s investments. Cost of Sales (36,219) (39,348) (53,062) (65,286) Gross Profit 12,032 14,732 16,680 16,705 Selling/Distribution/Admin. Exp. (9,712) (11,711) (14,290) (12,238) • As of December 31, 2010 current liabilities totaled Operating Income 2,320 3,020 2,390 4,467 Other Income 692 867 575 638 KD 39.0 million, a 17% increase from KD 33.4 million Share of results of associates - 236 305 522 Loss on sale of PP&E and intangibles - - - (192) on September 30, 2010. Accounts payable and accruals Unrealized loss/gain on inv. 24 (736) (290) 264 Finance Cost (471) (767) (693) (741) also increased, by 20%, since September 2010; however, Impairment - (1,663) (721) (177) Profit before Tax 2,565 957 1,566 4,781 short-term borrowing remained at the zero level. Income Taxes (103) (83) (80) (30) Other Expenses (38) (38) (79) (238) • The company continued to maintain a low debt-to- Profit for the Period 2,424 836 1,408 4,513 Minority Interest (13) (13) (15) (15) shareholders’ equity ratio, which stood at 0.61x. YIACO’s Ne t Inc o me 2,410 822 1,392 4,498 current ratio increased slightly from 1.25x in December Balance Sheet (KD '000) 2007 2008 2009 2010
31, 2009, to 1.30x in December 31, 2010. Bank balances and cash 1,442 1,562 2,455 7,265 Accounts receivable and others 15,568 15,970 21,370 23,305 Inventories 11,701 16,264 18,351 19,968 • Finally, on the dividend front, YIACO’s board of directors Current Assets 28,711 33,796 42,176 50,539 proposed the distribution of 10% (KD 0.010 per share) Fixed-assets-PP&E 7,933 8,486 8,612 7,429 Intangible Assets 87 - - - cash dividends for the fiscal year ending December 31, Other Non-Current Assets 823 431 360 1,421 Goodwill 135 - - - 2010. The company had distributed 5% (KD 0.005 per Investment in associates 13 5,374 5,599 5,992 Investments carried at fair value 2,355 1,619 1,328 1,592 share) cash dividends for FY2009. AFS investments 5,256 118 118 118 Total Non-Current Assets 16,601 16,027 16,018 16,551 Total Assets 45,313 49,823 58,194 67,091 Share Capital 15,000 16,500 16,500 16,500 Statutory reserve 1,954 2,035 2,182 2,656 Voluntary reserve 121 121 121 121 General Reserve 637 637 637 637 F/X Translation Reserve 109 80 174 69 Retained Earnings 4,083 3,280 3,307 6,379 Equity attributable to owners of the pa re nt 21,904 22,654 22,922 26,361 Non-Controlling Interest 104 89 86 198 Total Equity 22,008 22,743 23,008 26,560 Borrowings 550 2,255 1 - Accounts payable and accruals 14,225 15,068 20,150 23,060 Murabaha payable 5,706 2,516 13,512 15,922 Bank overdraft 865 5,695 - - Current Liabilities 21,346 25,534 33,663 38,982
Borrowings - - - 4 Employees end-of-service benefits 932 510 1,176 1,275 Murabaha payable 1,027 1,036 346 274 Non-Current Liabilities 1,959 1,546 1,522 1,549 Total Liabilities 23,305 27,080 35,186 40,531 Total Liabilities and Equity 45,313 49,823 58,194 67,091
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 112 Economic Statistics
• Credit growth: still flat into 2011
• Investment real estate very strong
• Implementation of new budget and plan still key
• Inflation: pressured on the back of food inflation
National Bank of Kuwait NBK Economic Research T. +965 2259 5500 F. +965 2224 6973 E. [email protected]
113 | nbkcapital.com Economic Statistics Kuwait in Focus - April 2011
Total Bank Credit (%) Consumer Credit vs Productive Sectors Credit (YoY%)
20 25 30
25 20
20 10 15
15 10 10
0 5 5
0 0
-10 -5 -5 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11
Y/Y Rate Last-3-Months-annualized Personal Facilities Excluding Securities Productive Sectors (Ind.,Trd. & Const.)
Credit: Continues flat into 2011 Credit: Households steady, productive sectors await 5-year plan
Total Deposits and M2 (YoY%) Consumer Confidence Index (ARA)
25 30 140
130 25 20 120
20 110 15
15 100
10 90 10
80 5 5 70
0 0 60 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11
Total Deposits M2 Consumer Confidence Index Future Economic Condition Current Economic Condition
Deposits: Large jump in February money supply thanks to Amiri grant Consumer: Sentiment improves significantly in February
Current Employment and Durable Goods Consumer Value of Transactions (YoY%) Sentiment ARA
50 200
40 180
30 160
20 140
120 10
100 0
80 -10
60 -20 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10
Current Employment Durable Goods Plan POS ATM
Consumer: Sentiment better on jobs and spending Consumer: Spending on track in Q4, and expected up in Q1
nbkcapital.com | 114 Economic Statistics Kuwait in Focus - April 2011
Real Estate Sales (3-mth average, KD million) Kuwait Stock Exchange
140 45 9,000 90
40 80 120
35 70 100 30 8,000 60
80 25 50
60 20 40
15 7,000 30 40 10 20
20 5 10
0 0 6,000 0 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11
Residential (LHS) Apartments (LHS) Commercial (RHS) Daily Average Value Traded (RHS, mnKD) Price Index (LHS)
Real Estate: Investment strong, commercial recovering slowly KSE: Down in Q1 on political turmoil
Consumer Price Index (YoY%) Business Confidence Index (Dunn & Bradstreet)
16 70
14 60
12 50
10 40 8 30 6
20 4
2 10
0 0 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Sales Volume Net Profits New Orders Level Of Selling Level of Stocks Number of Received Prices Employees CPI Housing (27% of CPI) 2Q10 3Q10 4Q10 1Q11
Inflation: February 5.3% y/y, pressured by food Business: Confidence up in Q1
Interest Rates (%) FX Rates (fils)
4 7 300 430
420 6 290 410 3 5 400 280 4 390 2 380 3 270 370 2 1 360 260 1 350
0 0 250 340 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11
1m Kibor Discount rate KD/USD (LHS) KD/Euro (RHS)
Rates unchanged KD: Dinar gains against the dollar, falls against the Euro
nbkcapital.com | 115 Economic Statistics Kuwait in Focus - April 2011
Key Indicators 2007 2008 2009 2010f
Nominal GDP (KDbn) 32.6 39.8 31.1 35.0 Nominal GDP (growth, %) 10.6 22.1 -21.8 12.5 Oil (growth, %) 5.7 36.3 -38.4 17.2 Non-Oil (growth, %) 17.5 3.8 6.0 8.0 Real GDP (growth, %) 4.4 3.0 -3.3 3.0 Oil (growth, %) -2.3 1.7 -10.0 1.4 Non-Oil (growth, %) 9.7 4.0 1.4 4.0 Consumer prices (Change, %) 5.5 10.6 4.0 4.2
Government balance (KDbn) 9.3 7.8 5.8 4.4 Government revenue (KDbn) 19.0 21.0 13.7 18.6 Oil revenue (KDbn) 17.7 19.7 12.5 17.9 Government expenditure (KDbn) 9.7 13.2 11.3 14.2
Population (mn) 3.40 3.44 3.48 3.58 Population (growth, %) 6.8 1.2 1.3 2.7 Expatriates 2.35 2.35 2.37 2.41 Expatriates (growth, %) 14.7 0.4 0.5 2.0 Labor force (mn) 2.09 2.09 2.09 2.18 Labor force (growth, %) 6.6 -0.2 0.2 4.0
Money supply (M2) (KDbn) 19.0 22.0 24.9 na Domestic credit (KDbn) 20.1 23.7 25.1 na Deposits (KDbn) 20.3 24.8 28.1 na Exchange rate, average-period (KD:USD) 0.284 0.269 0.289 0.289
nbkcapital.com | 116 Kuwait Market Statistics
• March Market Statistics
NBK Capital MENA Research T. +965 2224 6663 F. +965 2224 6905 E. [email protected]
117 | nbkcapital.com Kuwait Market Statistics Kuwait in Focus - April 2011 `
Rebased Performance Summary Best Performers Close % Chg. 105 MSCI Kuwait (% Chg.) 646 (-5.0%) TIJK.KW The Commercial Real Estate Co. 0.075 10.3% % of stocks trading above 1yr avg. price* 23% AINS.KW Al Ahleia Insurance Co. 0.510 9.7% Advance/Decline Ratio* 0.09 TTGC.KW City Group Company 0.580 9.4% 100 52 week High / Low 715 / 516 MABK.KW Mabanee Co. 0.680 8.4% KSE General Index (% Chg.) 6,296 (-2.9%) OULA.KW Oula Fuel Marketing Co. 0.323 7.6% KSE General Index 52 week High / Low 8,371 / 6,651 95 97 Market Cap. (KWD '000) 29,160,863
90 88 Highest Turnover Turnover (KWD) Worst Performers Close % Chg. 85 ZAMobile Telecommunications Co. 4,455,457 MENA.KW Mena Holding 0.033 -50.0% N National Bank of Kuwait 3,725,617 MARI.KW Contracting and Marine Services Co. 0.242 -21.9% K Kuwait Finance House 3,471,787 KTIN.KW Kuwait Pipe Industries & Oil Services Co 0.172 -21.8% 80 K Kuwait International Bank 2,731,270 NINV.KW National Investments Company 0.275 -21.4% Dec-10 Jan-11 Feb-11 Mar-11 A Advanced Technology Company 1,456,850 KCLIN.KWKuwait Medical Services Co. 0.080 -20.0%
S&P GCC MSCI Kuwait
Quotes Monthly 52-Week % Change Trailing Market Cap. Company Name Close* Avg. Turnover Avg. volume % Chg. High Low High Low on high YTD 12 mths (KWD '000) PE* PB* ('000) ('000) A ACICO Industries Company 0.330 -5.7% 0.360 0.320 45,254 134 0.405 0.319 -18.5% -8.3% -2.4% 74,467 19.7 1.0 A Advanced Technology Company 0.640 1.3% 0.640 0.632 1,456,850 2,281 0.800 0.558 0.0% 1.3% 43.4% 96,000 21.0 3.3 A Agility 0.375 1.4% 0.400 0.320 501,948 1,336 0.660 0.275 -43.2% -27.9% -37.5% 392,564 4.3 0.4 A Ahli United Bank - Kuwait 0.720 -4.3% 0.829 0.705 158,578 210 0.830 0.590 -13.9% 0.7% 5.9% 1,343,553 13.4 1.5 A Al Ahleia Insurance Co. 0.510 9.7% 0.510 0.440 5,140 11 0.540 0.400 -5.6% -3.8% 14.6% 87,675 10.7 1.1 A Al Ahli Bank of Kuwait 0.610 -9.0% 0.670 0.610 64,638 100 0.710 0.426 -14.1% -12.9% 43.2% 879,120 16.5 1.9 A Al Safat Inv. Co. 0.060 -1.6% 0.066 0.051 250,904 4,221 0.144 0.051 -58.3% -4.8% -55.9% 46,379 nmf 0.4 S Al Soor Fuel Marketing Co. 0.310 0.0% 0.315 0.300 7,243 24 0.375 0.300 -17.3% -10.1% -4.6% 92,947 20.3 2.5 T Al Themar Intl. Holding Co. 0.051 0.0% 0.051 0.050 3,000 60 0.120 0.098 -15.0% -10.5% -13.6% 103,275 nmf 1.0 A Alafco Aviation Lease and Fin. Co. 0.350 -6.7% 0.360 0.325 1,151,565 3,369 0.405 0.150 -13.6% 9.4% 85.2% 272,920 9.0 2.3 A AREF Energy Holding Co. 0.116 3.6% 0.142 0.099 228,217 1,863 0.260 0.099 -55.4% -35.6% -54.5% 87,000 nmf 1.2 B Boubyan Bank 0.560 -6.7% 0.600 0.560 570,826 993 0.660 0.445 -15.2% -11.1% 5.7% 979,012 nmf 4.1 B Boubyan Petrochemical Co. 0.500 -5.7% 0.540 0.480 641,973 1,284 0.570 0.465 -12.3% -7.4% -9.1% 242,550 7.7 1.0 B Burgan Bank 0.475 1.8% 0.486 0.410 961,539 2,149 0.552 0.286 -13.9% -5.9% 42.2% 698,914 nmf 1.6 A Burgan Co. for Well Drilling 0.470 0.0% 0.470 0.470 0.540 0.425 -13.0% -2.1% -13.0% 98,524 nmf 1.9 C Coast Inv. and Dev. Co. 0.086 -15.7% 0.100 0.085 185,930 2,063 0.168 0.085 -48.8% -28.3% -44.2% 53,775 nmf 1.0 C Combined Grp Contracting Co. 2.020 -8.2% 2.100 1.860 258,122 132 2.200 1.509 -8.2% 1.0% 32.3% 177,449 20.4 4.9 C Commercial Bank of Kuwait 0.940 1.1% 0.960 0.930 61,113 65 0.960 0.710 -2.1% 2.2% 1.1% 1,195,701 29.6 2.5 F Commercial Facilities Co. 0.375 -2.6% 0.380 0.370 113,865 304 0.400 0.300 -6.3% -1.3% 13.6% 201,286 11.7 1.2 M Contracting and Marine Services Co. 0.242 -21.9% 0.285 0.242 7,745 29 0.560 0.242 -56.8% -29.9% -48.8% 47,907 20.3 1.1
*Price as of close on March 31, 2011. Sources: Reuters, Zawya, and NBK Capital
nbkcapital.com | 118 Kuwait Market Statistics Kuwait in Focus - April 2011
Monthly 52-Week % Change Trailing Market Cap. Company Name Close* Avg. Turnover Avg. volume % Chg. High Low High Low on high YTD 12 mths (KWD '000) PE* PB* ('000) ('000) T Credit Rating and Collection Co. 0.150 1.4% 0.160 0.148 8,167 53 0.400 0.148 -62.5% -44.4% -64.3% 24,750 nmf 1.3 G Global Investment House 0.041 -16.3% 0.047 0.040 41,014 945 0.108 0.040 -62.0% -21.2% -62.0% 53,810 nmf 0.7 G Gulf Bank 0.510 2.0% 0.520 0.450 615,522 1,273 0.580 0.360 -12.1% -10.5% 39.7% 1,278,928 nmf 3.1 C Gulf Cable and Electrical Industries Co. 1.560 -3.7% 1.700 1.460 87,057 55 2.240 1.460 -30.4% -22.0% -13.3% 327,493 12.4 1.4 G Gulf Insurance Co. 0.619 6.6% 0.629 0.571 49,514 86 0.680 0.385 -4.4% 8.3% 46.1% 110,273 14.3 1.6 S Heavy Eng. Industries & Shipbuilding Co. 0.335 1.5% 0.365 0.270 19,400 59 0.485 0.270 -30.9% -10.7% -26.4% 54,767 12.4 2.0 IF IFA Hotels & Resorts 0.475 -6.9% 0.510 0.470 34,290 72 0.600 0.445 -20.8% -12.0% -13.6% 215,594 nmf 3.9 IK Ikarus Petroleum Industries Co. 0.136 -6.8% 0.146 0.132 31,095 227 0.170 0.118 -20.0% -8.1% -6.8% 102,000 29.1 0.8 IP Independent Petroleum Grp. 0.485 5.4% 0.485 0.460 12,467 27 0.485 0.430 0.0% 6.6% 11.5% 73,841 16.5 1.1 IF International Finance Co. 0.255 0.0% 0.285 0.250 17,520 69 0.285 0.230 -10.5% -7.3% -10.5% 118,757 nmf 1.5 JA Jazeera Airways 0.049 3.2% 0.051 0.042 90,910 1,893 0.228 0.097 -48.2% -4.8% -39.8% 25,960 nmf 1.7 K KIPCO Asset Management Co. 0.285 -9.5% 0.315 0.285 9,780 34 0.405 0.285 -29.6% -10.9% -29.6% 75,041 41.2 0.9 K Kuwait Cement Co. 0.581 -7.6% 0.629 0.562 78,815 135 0.730 0.570 -16.4% -12.9% -11.1% 370,448 27.7 2.4 K Kuwait Finance House 1.060 -1.3% 1.093 0.982 3,471,787 3,336 1.204 0.861 -12.0% -1.3% 0.4% 2,850,383 26.9 2.3 F Kuwait Food Co. 1.480 0.0% 1.580 1.320 92,055 64 1.700 1.320 -12.9% -9.8% -7.5% 594,963 12.9 1.8 K Kuwait Foundry Co. 0.680 2.5% 0.680 0.627 27,300 40 0.752 0.627 -9.6% -2.9% -14.3% 90,599 15.4 1.6 K Kuwait International Bank 0.310 0.0% 0.320 0.265 2,731,270 9,220 0.380 0.188 -18.4% -8.8% 33.6% 321,571 19.2 1.6 K Kuwait Invest Holding Co. 0.220 0.0% 0.220 0.220 0.230 0.170 -4.3% 0.0% -0.9% 71,975 nmf 1.6 K Kuwait Medical Services Co. 0.080 -20.0% 0.100 0.080 8,533 107 0.120 0.076 -33.3% -15.8% -38.5% 6,098 41.2 0.5 K Kuwait National Cinema Co. 0.950 3.3% 0.950 0.920 4,800 5 0.950 0.660 0.0% 9.2% 37.7% 96,009 19.1 2.1 P Kuwait Pipe Industries & Oil Services Co. 0.172 -21.8% 0.210 0.166 127,986 728 0.390 0.166 -55.9% -36.3% -47.1% 38,757 nmf 1.2 P Kuwait Portland Cement Co. 1.455 -11.1% 1.545 1.364 921,026 650 1.860 1.060 -14.0% -3.6% 15.9% 132,224 5.9 1.7 K Kuwait Projects Co. (Holding) 0.355 -4.4% 0.414 0.352 306,752 805 0.467 0.286 -24.0% -14.3% -22.3% 451,889 10.0 0.8 C Livestock Transport & Trading Co. 0.305 1.7% 0.305 0.280 12,311 43 0.340 0.275 -10.3% 3.4% -11.6% 66,060 nmf 1.4 M Mabanee Co. 0.680 8.4% 0.691 0.555 317,741 511 0.809 0.491 -15.9% -6.5% 10.0% 377,826 20.2 3.0 M Mena Holding 0.033 -50.0% 0.065 0.033 138,611 3,342 0.264 0.033 -87.5% -78.3% -87.5% 21,780 2.3 0.1 Z Mobile Telecommunications Co. 1.320 -4.3% 1.420 1.280 4,455,457 3,330 1.560 1.040 -15.4% -13.2% -4.3% 5,672,603 17.7 2.1 N National Bank of Kuwait 1.140 -10.4% 1.218 1.100 3,725,617 3,198 1.345 0.939 -15.2% -12.9% 13.2% 4,511,807 14.7 2.1 N National Industries Co. 0.330 -13.2% 0.380 0.330 26,043 76 0.410 0.295 -19.5% -15.4% -15.4% 114,227 37.7 1.5 N National Industries Grp. Holding 0.255 -12.1% 0.280 0.242 938,504 3,637 0.420 0.226 -39.3% -26.1% -34.6% 330,251 nmf 0.7 N National Investments Company 0.275 -21.4% 0.325 0.255 811,655 2,844 0.560 0.255 -50.9% -39.6% -32.9% 240,959 nmf 1.1 N Wataniya 1.760 0.0% 1.780 1.580 175,800 105 1.960 1.580 -10.2% -7.4% 10.0% 887,098 11.4 1.8 N National Real Estate Co. 0.104 -10.3% 0.118 0.097 150,600 1,364 0.214 0.097 -51.4% -38.1% -49.5% 84,676 4.4 0.3 O Oula Fuel Marketing Co. 0.323 7.6% 0.323 0.277 19,000 63 0.540 0.305 -34.3% -10.1% -19.3% 106,403 36.9 2.8 A Qurain Petrochemicals Industries Co. 0.174 -1.1% 0.188 0.166 116,417 647 0.250 0.158 -30.4% -7.4% -7.4% 191,400 nmf 1.0 S Salhia Real Estate Co. 0.236 -3.8% 0.240 0.236 42,867 182 0.295 0.234 -15.3% -15.3% -3.8% 95,015 9.9 0.9 S Sultan Center Food Products Co. 0.126 -16.0% 0.146 0.122 55,132 424 0.214 0.122 -41.1% -30.8% -37.6% 92,613 nmf 0.6 T Tamdeen Investment Co. 0.182 -7.1% 0.200 0.168 128,504 705 0.435 0.168 -58.2% -30.0% -31.3% 95,114 16.5 0.6 T Tamdeen Real Estate Co. 0.255 2.8% 0.270 0.226 69,624 279 0.370 0.226 -31.1% -5.6% -16.4% 95,146 20.6 0.9 A The Commercial Real Estate Co. 0.075 10.3% 0.077 0.062 155,496 2,150 0.099 0.062 -24.2% -6.3% -24.2% 137,611 24.8 0.6 T The Investment Dar Co. 0.074 0.0% 0.074 0.074 - - 0.0% 0.0% 0.0% 70,607 nmf 0.4 S The Securities House 0.130 0.0% 0.130 0.130 - - 0.0% 0.0% 0.0% 88,400 nmf 3.3 U United Real Estate Co. 0.078 -8.2% 0.087 0.076 174,400 2,080 0.119 0.076 -34.5% -18.8% -17.0% 92,662 16.7 0.5
*Price as of close on March 31, 2011. Sources: Reuters, Zawya, and NBK Capital
nbkcapital.com | 119 Kuwait in Focus - April 2011
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