Arabtec Holding PJSC

FY07 Update

Target Price Market Price Recommendation Upside Potential Investment Grade

AED17.82 AED11.80 Strong Buy 51% Growth

The construction sector continues to prove a key growth driver of the GCC's Share Data non hydrocarbon economies with MEED, yesterday, announcing updated Report Date March 31, 2008 Gulf project data, with aggregate numbers now illustrating over USD2 tril- Company Abbreviation Arabtec lion worth of announced and ongoing projects across the region, of which USD1.2 trillion fall under the construction sector. Sector Construction

Traded Market DFM The UAE meanwhile continues to dominate associated numbers, accounting Report Reason FY07 Update for ca. 37% of the region’s project market, equivalent to USD740 billion of Valuation Methodology DCF the total (3.3x GDP 2008f). The sector's contribution to GDP over the 5 year period ending 2007e has averaged ca. 8%, with this figure expected to ex- Previous Report Date April 2007 pand 300 bps by the end of the decade, while construction sector growth Previous Target AED5.83 has outpaced headline economic growth at the federal level over the past 2 Exchange Rate AED3.67US$ years. Stock Currency AED We estimate the company's current backlog to stand at ca. AED15.7 billion Reuters Code ARTC.DU with Arabtec contributing AED11.7 billion, Target adding AED1.3 billion and Outstanding Shares (mn) 598 international operations bringing up AED2.7 billion to the balance. Accord- Par Value/Share (AED) AED1 ingly, based on our numbers, ca. 25% of Arabtec's current aggregate backlog of work is now being derived from outside of the traditional Dubai based Financial Year Ending December civil works segment, where it continues to cement its positioning as a pre- Mkt. Cap (AED mn) 7,205 ferred contractor, in terms of sufficient resource capacity, timely delivery Weight to (PEMI) 1.29% and superior quality. We expect continued management commitment to Price Low – High (AED) (52Wk.) 4.33-12.45 geographical diversification to reflect itself in coming close to, if not achieving a 40% contribution from international operations by FY12. We are also Relative Performance (52Wk.) +373% foreseeing Arabtec's Target stake to continue serving the group well, in terms of leveraging on the subsidiary's solid market presence in the capital. Establishing a foot point in the aggressively growing construction sector of Shareholders Ownership Stake Abu Dhabi is central to Arabtec's continued success in the domestic market. Ryadh Burhan Kamal 10.5% Free Float 55% We are forecasting an 8.4% CAGR in backlog for 2008-2012 (versus management guidance of a comparable 10% figure), corresponding directly to a Others 34.5 revenue CAGR of 26% (reflected in a declining book/bill ratio from 2.8x in Prime Research Department FY08 to 1.6x in 2012) over the same period, phasing out the company's Phone +971 2 6910800 confirmed current backlog of AED15.7 billion, over the coming 5 years in line with completion dates (over 75% of the aggregate is to be delivered +971 4 4070100 and booked in FY08 and FY09), and factoring in our new project award as- Email [email protected] sumptions, less project deliveries for associated years. It is worth noting that Arabtec's current, existing and confirmed, backlog represents over 31% of our revenue forecast through 2012, and 65% of the top line, we expect, to be generated over the coming 3 financial years ending 2010. Stock Performance Chart (AED / Share) Our adjusted DCF model yields a value of AED17.8/share, affording a 51% increase over the current market price. Accordingly, we reiterate our strong buy recommendation for the share. 14 Fiscal Year 2006a 2007a 2008e 2009f 2010f 12 Revenues 2,810 4,273 5,958 8,484 9,675 10 Growth 8.0% 52.1% 39.4% 42.4% 14.0% EBITDA Margin 7.3% 11.2% 12.0% 12.1% 11.3% 8 Net Income 219 578 734 1,050 1,112 6 Net Attributable Income 217 535 680 973 1,031 4 EPS (AED) 0.36 0.90 1.14 1.63 1.72 EPS Growth 30.8% 146.8% 27.1% 43.1% 5.9% 2 DPS (AED) 0.13 0.50 0.65 0.85 0.90 0 Book Value / Share (AED) 1.18 1.59 2.08 2.86 3.69 4/30/07 8/19/07 12/8/07 3/28/08 P/E (x) 32.53 13.18 10.37 7.25 6.85 Dividend Yield 1.11% 4.24% 5.50% 7.17% 7.60% P/BV (x) 10.00 7.42 5.68 4.13 3.20

Please refer to disclaimer on last page Figures are in AED mn unless stated otherwise Source: Company Historical & Prime Estimates Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

The 6 nation council has Regional Sector Overview successfully generated a cumulative Current Ac- count surplus in the region A combination of rising energy prices effective 2003, compounded by a low interest rate environment and a of ca. USD750 billion over depreciating dollar have essentially set the tone for the unparalleled growth trajectory on which the GCC the 5 year period ending 2007. economies find themselves firmly entrenched. Against this favorable backdrop, the 6 nation council has successfully generated a cumulative Current Account surplus in the region of ca. USD750 billion over the 5 year

period ending 2007.

With the UAE home to 8% and 3% of the world's oil and gas reserves respectively, sporting a consumption level at ca. 16%, and oil prices breaching USD110/barrel earlier this month, the resulting petrodollar windfall has had massive implications for economic prosperity, both directly and indirectly. Direct benefits can be seen

in the form of solid Current Account (2007 17.6%/GDP) and State Budget (2007e 10.6%/GDP) surpluses, while indirect consequences as, if not more, importantly and in stark contrast to the oil boom of the 1980s, are evident in a boost of authorities’ confidence to embark on an unprecedented massive fiscal expansion drive, catalyzing GDP growth components of GFCF and consumption, fuelling a nominal GDP CAGR of 20.8% between 2003 and 2007e.

The construction sector The construction sector continues to prove a key growth driver of the GCC's non hydrocarbon economies with continues to prove a key growth driver of the GCC's figures for the last quarter of 2007 reflecting an estimated USD1.14 trillion worth of developmental projects non hydrocarbon econo- currently within their planned and ITB phase across the region, in addition to a further USD358 billion termed mies with figures for the as “under construction/recently completed”. As GCC country members continue on aggressive economic di- last quarter of 2007 reflecting an estimated versification drives, in an attempt to reduce dependency on hydrocarbons, infrastructure and real estate de- USD1.14 trillion worth of velopments, construction interdependent by nature, gain in prominence as key catalysts of the region's non developmental projects oil growth. It is worth noting that MEED, yesterday, announced updated GCC project data, with aggregate currently within their numbers now illustrating over USD2 trillion worth of announced and ongoing projects across the GCC, of planned and ITB phase across the region. which USD1.2 trillion fall under the construction sector. As further details concerning the new data are yet to be made available to us, we are unfortunately unable to fully incorporate the updated numbers into our

analysis.

GCC projects by Progress 2007 Under Construction or Re- (USD mil.) Planned or Under Bidding % of Total % of Total cently Completed

Bahrain 21,300 1.9% 10,135 2.8%

Kuwait 231,590 20.3% 21,072 5.9% Oman 25,684 2.3% 20,332 5.7% Qatar 70,429 6.2% 72,037 20.1% SA 272,306 23.9% 90,972 25.4% UAE 519,236 45.5% 143,748 40.1% Total 1,140,545 100% 358,296 100% Source: MEED

The UAE meanwhile continues to dominate construction activity across the region, accounting for ca. 45.5% The UAE continues to of the GCC's aggregate planned and ITB projects (according to 4Q07 numbers), valued at ca. USD519 billion dominate construction (2.7x GDP 2007e) and is home to 40%, or USD143.7 billion worth of those projects termed under construc- activity across the region, tion. Referring once again to the aforementioned new data released by MEED, the former number has report- accounting for ca. 45.5% of the GCC's aggregate edly surged to ca. USD740 billion as of March 2008. The sector's contribution to GDP over the 5 year period planned and ITB projects, ending 2007e has averaged ca. 8%, with this figure expected to expand 300 bps by the end of the decade, and is home to 40 projects while construction sector growth has outpaced headline economic growth at the federal level over the past 2 termed under construction. years.

GDP Break-Up FY06 vs. FY10f

Others Construction Real Estate Trade & Services Manufacturing Hydrocarbons

0% 10% 20% 30% 40%

2006 2010

Source: CBUAE, Prime Estimates

Prime Research 2 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

Key Sector Drivers

We update our views on local construction sector drivers, outlined in our August 2006 Initiation of Coverage report, and while we conclude a continuation of the growth momentum of the sector over the coming 5 years, we do note an escalation in industry risk, stemming from the combined effect of raw material price inflation and resource capacity constraints on margins.

Population:

We continue to monitor domestic population patterns, on the basis that population increases coupled with increasing disposable income serve as a major demand side growth driver for mixed use developments, as new residents fuel demand for both housing and office space. Based on our calculations, the UAE population has expanded at an average 7% per annum over the past 5 years, to settle at ca. 5.3 million in 2007e, with GDP per capita registering a more rapid 12.4% growth CAGR over the associated period, in turn translating

into a 11.8% construction per capita CAGR between 2003-2007e.

GDP per capita Construction per capita

2007 2007 2006 2006 2005 2005 2004 2004 2003 2003

0 40,000 80,000 120,000 160,000 0 2,000 4,000 6,000 8,000 10,000 12,000 AED AED

GDP per capita Construction per capita

Source: CBUAE, Prime Estimates

The growing number of Non-UAE citizens continue to represent the largest population segment, contributing 79% of the aggregate, expatriates is a dominant the majority of which fall into the UAE's workforce earning, category. The growing number of expatriates is a population-related growth dominant population-related growth driver for the construction sector as they create the bulk of the marginal driver for the construction sector as they create the annual increase in demand for commercial and residential units. In addition, they contribute significantly to bulk of the marginal an- pent up demand numbers. Our real estate analyst estimates a total residential roll out of ca.150k units by nual increase in demand 2010 in Dubai and 103K in Abu Dhabi for the same period while the market will continue to reflect on under- for commercial and residential units. supply situation for at least the next 4 years.

2007 Distribution of Population According to Gender and Nationality

Citizens Non-Citizens Total

No. (000) % No. (000) % No. (000) %

Number 1090 100 4194 100 5284 100

Males 517 14.5% 3052 85.5% 3569 68% Females 573 33.4% 1142 66.6% 1715 32%

Source: Prime Estimates

Tourism: The UAE is centrally positioned within the region's During 2007 international tourism arrivals registered a new record pertaining to 900 million. Despite ongoing tourism achievements, accounting for 16% of all regional political tensions, the Middle East continues to cement its positioning as one of the tourism success demand for Middle East stories of the decade with latest 2007 numbers suggesting an annual 13% expansion in arrivals, totaling 46 travel and tourism, with million, versus a 6% world average comparable. The UAE is of course centrally positioned within the region's the sector reflecting a 17% achievements, accounting for 16% of all demand for Middle East travel and tourism, with the sector reflecting CAGR 2004a-2008f, fuelled essentially by contributions a 17% CAGR 2004a-2008f, fuelled essentially by contributions from Dubai. The emirate’s associated success from Dubai. in attracting over 6 million visitors with tourism contributing 21% and 31%, directly and indirectly of Dubai's GDP in 2007 has spurred on the capital as well as the majority of the smaller northern emirates to launch their own individual aggressive tourism development plans, valued in excess of AED183.5 billion, while airport developments, comprising of both Greenfield and existing terminal overhauls and expansions are currently pegged at ca. AED50 billion.

Prime Research 3 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

Occupancy rates in Dubai Indeed occupancy rates in Dubai continue to Dubai Average Hotel Occupancy Rates continue to outpace those outpace those in major tourist hotspots of in major tourist hotspots of Hong Kong, London and Paris, averaging 75 10 0 % Hong Kong, London and to 85% in 2007, positioning it as one of the Paris, averaging 75 to 85% 80% in 2007, positioning the worlds most desired travel destinations. emirate as one of the Dubai’s most high profile ongoing mega worlds most desired travel projects, within the hospitality sector, in- 60% destinations. clude the development of the AED235 billion Dubailand and the AED121 billion Dubai 40% World Central. Tourism currently contributes 20% 31% of Dubai’s economy, and with existing and planned expansions, Dubai plans to 0% attract 10 million visitors by 2010. Abu 2000 2001 2002 2003 2004 2005 2006 2007 Dhabi as aforementioned has also embarked Room Bed on its own tourism strategy, targeting an increase in the number of leisure tourists to Source: Dubai Tourism and Commerce Department 1.2 million and business tourists to 1.55 million per annum by 2015. Hotel receipts on the level are expected

to rise fourfold by 2015 increasing from AED1 billion in 2005 to approximately AED4 billion over the associated period.

Dubai Hotel Statistics

2006 2007 % change Number of Guests 6,441,670 6,951,798 7.92% Number of Guestnights 17,590,026 20,535,475 16.74% Average Length of Stay (days) 2.73 2.96 8.42% Revenue (AED million) 10,835 13,263 22.41% Total Hotel Rooms Available 30,850 32,616 5.72% Total Hotel Rooms Occupied 25,303 27,527 8.79%

Source: Dubai Tourism and Commerce Department,

Accordingly, massive construction activity is ongoing in order to support official government targets on tourist numbers into the UAE. With regards to

hotel establishments specifically, room num- Duba i S ho pping M a ll C um ula tive S upply GLA s q. m bers are expected to increase at a CAGR of 5,000,000 32.7% over the 5 year period ending 2011 4,000,000 within Dubai, while Abu Dhabi is expected to roll out 4000 hotel rooms during the current 3,000,000 year in its plan to add up to 17000 hotel Retail space is expected to rooms by 2015. 2,000,000 witness massive expansions as the UAE positions 1,000,000 itself as a major fashion In addition, retail space, growing in parallel, 0 and shopping destination is expected to witness massive expansions 00 01 02 03 04 05 06 07 08 09 10 as part of its tourism attraction drive. as the UAE positions itself as a major fashion and shopping destination as part of its Source: Colliers International tourism attraction drive. In Dubai, where the growth in the sector is focused, shopping malls will witness an increment in Gross Leasable Area (GLA) from around 1.35 million sq.m in 2006 to over 4 million in 2010 with the upcoming mall of Arabia contributing 400,000 sq.m., The Dubai Mall contributing 344,000 sq.m. and Mirdiff City Center adding another 183,000 sq.m to name a few. Abu Dhabi will also undertake significant anticipated expansions with the GLA expected to more than double from 0.57 million sq.m in 2006 to 1.4 million in 2010.

Government Spending:

Although official Central Bank data is, for the most part, yet to be released, government expenditure across The government continues to play a major role in the the GCC is expected to have shown significant growth in 2007. As we pinpointed in our Initiation of Coverage ongoing economic boom, report on Arabtec, the government continues to play a major role in the ongoing economic boom, with petro- with petrodollar recycling, dollar recycling, through mega infrastructure projects development plans, aimed at fully diversifying the econ- through mega infrastructure projects development omy. The UAE government has significant direct and indirect influence on the local construction sector. Its plans, aimed at fully diver- role ranges from the granting of huge sums of land to domestic real estate developers, often for free or at sifying the economy. extremely subsidized rates, to the holding of major stakes in leading private real estate developers, including Emaar and Aldar. Alternatively, the state’s continual launch of mega infrastructural based projects, including the Dubai Metro System and airport developments (AED24.9 billion Abu Dhabi International Airport Expan- sion, AED15.4 billion Dubai International Airport expansions and AED29.7 billion Jebel Ali Greenfield) translate significant government business for large contracting players.

Prime Research 4 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

On a broader note, the UAE government’s zero Governmnet Development Expenditures tax status and intensive focus on attracting FDIs

into the country has positioned the UAE as the 800,000 25,000 premier regional business hub, in turn facilitating 700,000 construction activity, in the form of the establish- 600,000 20,000 ment of numerous free zones and commercial 500,000 15,000 areas. This, in the past, was truer of Dubai and a 400,000 300,000 10,000 number of other smaller northern emirates, as 200,000 5,000 these were the fist to permit 100% ownership by 100,000 non-nationals in associated facilities. In testi- 0 0 mony to this, the Jebel Ali Free Zone in particular 2003 2004 2005 2006 2007 has evolved into a world renowned facility,

pegged as the 3rd largest container terminal in GDP Development Expenditure the world. More recently, the Abu Dhabi Estab- lishment of the Higher Corporation for Special- Source: CBUAE, Prime Estimates ized Economic Zones (HCSEZ) is considered a major step in a series of measures to promote the capital’s industrial, financial and business clusters. These

free zones are a primary revenue driver for construction companies, with associated projects by nature characterized as large scale entailing substantial engineering and construction activity and effort accordingly re- turns.

Foreign Ownership Laws:

Regulatory developments related to land ownership, compounded with a zero tax policy, have added fuel to the already buoyant real estate and construction sectors as foreign ownership laws continue to witness increasing liberalization, attracting new investments in a real estate market characterized by a supply shortage across all segments. P roperty Ownership in UAE

Ira n ia n s Europeans Improved regulation of the sector, with 100% foreign 20% With 100% foreign free- freehold ownership now permitted in various desig- 12 % hold ownership now permitted in various desig- nated areas across the UAE, in addition to legislation nated areas across the regulating property registration and the enforcing of UAE, in addition to legisla- escrow accounts have all increased the attractiveness GCC, tion regulating property Arabs & of the country's real estate sector. The growing avail- Asians registration and the en- 40% UAE forcing of escrow accounts ability of mortgage financing (we estimate a ca. 50% Nationals have all increased the mortgage lending CAGR over the coming 5 years) and 28% attractiveness of the coun- a declining interest rate environment (current repo try's real estate sector. rate 2.5%) are also facilitating demand. Source: Global Property Guide

Regio nal Square Meter P rices Regional Rental Yields

UAE USD 4,066 Egypt 11. 3 5 %

Tunisia USD 2,667 Jordan 9.62%

Morocco USD 1,973 UAE 7.72% Jordan US D 1,261 Morocco 7.66% Lebanon US D 1,237 Lebanon 7.46% Egypt USD 406 Tunisia 5.62% 0 1,000 2,000 3,000 4,000 5,000

Source: Global Property Guide

While Dubai unarguably pioneered real estate sector liberalization, as early as 2003, and has accordingly reaped the first mover advantage benefits associated with the decision, Abu Dhabi and the other emirates have more recently adopted comparable steps in the same direction. Abu Dhabi laws which permit foreigners to own property in specified areas by virtue of a 99-year land title agreement or a renewable 50-year surface ownership deal, has recently been superseded with 100% freehold rights on Al Reem Island, with this, expected to extend to various other major developments in the near future, following the hike in demand, and skyrocketing of prices which followed (sq.ft. prices on Reem Island have more than doubled over the past year) associated legislation.

Prime Research 5 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

The Prominence of Abu Dhabi

In our Initiation of Coverage on Arabetc in August 2006, we highlighted the increasing significance of Abu Dhabi, and the smaller emirates to a lesser extent, within the framework of the capitals growing importance within the local construction sector. As a case in point we chose to look at Abu Dhabi market share of projects within their ITB and planned phases, respectively as a proxy for the geographical concentration of future construction projects within the UAE and concluded the capital's growth potential accounting for 34% of the top 10 ITB released projects, and its dominance in the top 10 planned projects in the country scoring 43% (versus 30% in Dubai), at the time. This cemented our view that while Dubai had led the country in terms of construction activity between 2003 and 2006, we were expecting a slowing in momentum in the medium term, to be overtaken by a kick off in the sector's growth cycle within Abu Dhabi. Indeed a recent report by the Abu Dhabi Chamber of Commerce and Industry (ADCCI) states that the value of projects an-

nounced in the emirate since January this year amounts to some AED768 billion, of which AED200 billion are to be executed over the coming 5 years.

“Plan Abu Dhabi 2030: An integral part of the aforementioned planned projects come under the auspice of the Abu Dhabi govern- Urban Structure Frame- work Plan” outlays AED2.2 ment's recently announced “Plan Abu Dhabi 2030: Urban Structure Framework Plan” a comprehensive plan trillion in investments for the development of the City of Abu Dhabi that will guide planning decisions through to 2030. The plan, across various develop- which was published in September 2007, outlays AED2.2 trillion in investments across various developmental mental projects, outlaying projects, outlaying a strategic approach to develop Abu Dhabi’s most vibrant economic sectors and also envi- a strategic approach to develop Abu Dhabi’s most sions and responds to the growth of population which is estimated to reach 3 million. vibrant economic sectors and also envisions and Plan Abu Dhabi 2030 responds to the growth of 2007 2013 2020 2030 population which is esti- Population (mn) 0.93 1.30 2.00 3.10 mated to reach 3 million. Residential Units (000) 180.00 251.00 411.00 686.00

Office Space (mn sq.m) 1.40 2.50 3.50 7.50 Retail Space (mn sq.m) 0.86 1.50 2.50 4.00 Industry Space (mn sq.m) 4.00 6.50 10.00 15.00 Annual Tourist Visits (mn) 1.80 3.30 4.90 7.90

Hotel Rooms (000) 10 21 50 75 Golf Courses 3 10 18 25 Schools 236 330 450 650 Tertiary Inst. 13 25 30 40 Hospital Beds (000) 2.8 4.5 6.5 10 Source: Abu Dhabi Government

Dubai

In Dubai, the total value of land transactions in 2007 scored AED175 billion, a 180% increase from AED62

billion in 2006. The average deal size in 2007 was AED12 million, up 65% from 2006. A number of mega- projects like the AED235 billion Dubailand and the expansions of Dubai’s coastlines which will grow from a current 70kms to 1000kms; including projects like The Palm, Waterfront and World Central, in addition to the developments of Jebel Ali Down Town Central are currently in the pipeline, and fueling growth of the real

While we share the view estate and construction sectors. The emirate is witnessing a massive increase in its land mass with the largest that real estate sector man made islands being made ready for commercial, residential and entertainment use. Large state develop- saturation will materialize, ers like Dubai’s Nakheel are estimated to be implementing projects worth AED220 billion in Dubai alone. in Dubai, sometime around the end of the current decade and construction It is important to note that while we share the view of the general consensus that real estate sector satura- activity in the emirate will tion will materialize, in Dubai, sometime around the end of the current decade and construction activity in the have slowed versus the emirate will have slowed versus the 2003 to date boom levels, a number of mega projects, as mentioned 2003 to date boom levels, a number of mega projects above, will prop up associated numbers. In short, over and above the roll out of a projected 150k residential will prop up associated units over the coming 3 years, the roll out of 4 million sq.m office space and 2 million sq.m retail space sug- numbers. gests to us that Dubai's construction sector is set to continue growing buoyantly for at least the coming 5 years.

Other New Market Dynamics

The market dynamics in terms of major market players has not, in our opinion, undergone significant change since our previous report. There remains a large number of local and international market participants com- peting within different phases of the construction industry.

International contractors like Lebanese ACC, Belgium’s Besix and South Korea’s Samsung continue to gain market share, specifically in large sophisticated projects that require intensive contracting capacities due to specific EPC requirements they can bring to the table. Meanwhile, major local contractors namely, Arabtec, Al-Habtoor and Al-Hamad, also continue to maintain their prime position in the market on the back of strong relationships across the industry and their extensively qualified and available resources.

Prime Research 6 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

Meanwhile, one important new feature of the One important new feature New Awards by Contractor Place of Origin (2006) of the UAE’s construction UAE’s construction industry is the evolution of industry is the evolution of numerous JV’s, specifically within mega-project numerous JV’s, specifically developments like Burj Dubai in which construc- Inte rna tio na l within mega-project devel- 17 % opments like Burj Dubai in tion work is shared between Samsung, Arabtec Arabtec 14% which construction work is and Besix. On one hand, associated JV’s have shared between Samsung, steepened the learning curve of local contrac- Arabtec and Besix. tors, and on the other have provided international contractors with the opportunity to benefit Lo c a l 42% Regional 27% from local expertise and also increase respective market shares. On many occasions contractors that compete for different projects during the

tendering phases are involved in JV’s together in Source: Meed the construction of other projects.

Labor

As the Gulf's construction boom persists, the sector players are finding it increasingly challenging to attract

the quantity of both skilled and unskilled labor required to get the growing number of planned projects off the ground.

The hiring of illegal work- A number of various factors exacerbated the acute shortage of manpower over 2007, including an estimated ers in the UAE is relatively 300k laborers, representing ca. 30% of the ca. 1 million construction workers within the UAE, returning common, be it directly or home, following the amnesty period declared by the government. The hiring of illegal workers in the UAE is through reliance on subcontractors for various relatively common, be it directly or through reliance on subcontractors for various construction works, on the construction works, on the basis of wage savings in a component that represents ca. 15% of overall contracting costs. Illegal worker basis of wage savings in a wages range from AED5-7/hour versus a higher AED10-13/hour for their legal peers according to their level component that represents ca. 15% of overall con- of skill. Moreover, with the majority of the associated workforce sourced from India, heightened inflation in tracting costs. the UAE, a rising Indian rupee against the USD and a booming construction sector in India has presented challenges in terms of replacing those which left.

Additionally, with a shift in the balance of power which occurred in the face of labor supply shortages, the UAE in 2007 also witnessed a number of high profile, well publicized labor strikes. The most renowned of which occurred in November of last year when 40,000 Arabtec workers holed up in their labor camps refused to go back to work until they received pay raises. The situation was resolved with the company agreeing to increase wages by 15-20% while heavy coverage by international media catalyzed the government to adopt various measures to improve workers conditions. In short, the effects of a labor supply shortage, in addition to the obvious byproduct of resulting in further delays, in often already behind schedule mega projects, are also pressuring costs, to above initial projections, with contractors now having to bear the burden of escalat- ing price wages, increasing expense outlays on new worker training programs and less working hours due to increased government regulation.

Raw Materials

Our views on raw materials in our last report were built on the assumption that the flourishing construction sector in the region will be associated with significant raw material shortages in the local market, and that this would lead to considerable price hikes. So far, the market has confirmed our assumptions witnessing massive price escalations which in turn have weighed significantly on sector margins.

Steel

African and Middle Eastern steel production accounts Steel Consumption in GCC Countries for only 1.2% of world steel production. Steel supply in the region is failing to keep pace with rising demand Per Capita Steel Year Consumption (mn t/y) in response to the rapid growth in construction and Consumption (KG) infrastructure projects. The Middle East’s crude steel production is projected to increase from 15.4 million 1980 3,754 282 tones in 2007 to more than 26 million tones by 2010. 1985 4,756 272 On the demand side steel requirements in the Middle 1990 3,561 169 East are expected to increase from 70 million tones in 2007 to around 90 million tones in 2010. Driven by 1995 6,741 282 the expansions in huge infrastructure projects in the 2000 8,728 315 region, the GCC states are among the principal con- sumers of steel and iron products in the world with 2005 10,910 340 individual consumption in the GCC states reaching over Source: MESteell

Prime Research 7 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

In the UAE, steel prices 378kg of steel per capita annually, versus a global average of 182kg. appreciated by ca. 70% during 2007, while the In the UAE, steel prices appreciated by ca. 70% during 2007, while the country is ranked amongst the top country is ranked amongst steel importers worldwide, currently importing approximately 5.5 million metric tones of steel per annum. the top steel importers worldwide, currently im- Amongst the Arab World, the UAE has the highest per capita consumption of steel at 801kg. In turn, the UAE porting approximately 5.5 government has plans to double production from five to ten metric million tones by 2010. State-owned Abu million metric tones of Dhabi Basic Industries Corp (ABDIC) announced it would invest AED23.9 billion to expand a steel plant, Al steel per annum. Ghurair Iron and Steel plant is also set to start its first line in March 2008 and in early February 2008 the Abu Dhabi government-owned General Holding Corporation signed an agreement with Italian construction company Danielito to boost installed capacity of Emirates Steel Industries.

USD /Ton CFR Dubai Import Steel Origin Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

Billets - Blooms CIS 245 - 250 360 - 370 390 - 400 330 - 340 730 - 750

Reinforcing Bars Turkey 290 420 - 440 450 - 460 405 - 410 750 - 770 Angles Turkey, CIS, China 280 - 290 400 - 410 490 - 510 405 - 430 780 - 820 Beams - Channels Various 280 - 300 420 - 460 520 - 620 440 - 530 800 - 850 Wire Rod China, CIS 280 -300 400 - 420 470 - 480 405 - 415 750 - 770 Hot Rolled Plates China, CIS 290 430 - 440 605 - 620 440 - 470 830 - 870 Hot Rolled Coils, >=2mm Iran, CIS, India 310 380 - 400 605 - 620 370 - 400 690 - 730 Cold Rolled Coils, 1mm CIS, Far East 420 480 - 490 660 - 700 485 - 490 740 - 760 Hot Dip Galv. Coils, HR base Far East, India 460 - 470 550 - 560 790 - 800 550 - 570 840 - 870 Hot Dip Galv. Coils, CR base Far East, India 510 - 530 570 - 590 790 - 830 590 - 610 950 - 1000 Stainless HR Coils 304 base Various 1450 -1500 2400 - 2500 2700 - 2800 2000 - 2100 3900 - 4000 Source: MESteell

Cement

Cement consumption globally has witnessed a strong uptrend over the past few years, driven primarily by the increasing dominance of Asian demand as well as flourishing real estate and construction sectors within the

Middle East. In the GCC region, cement prices appreciated by ca. 50% during 2007 to AED300/tonne, on the Currently, approximately back of heightened demand, compounded by rising fuel and energy prices as well as hikes in freight costs- 90% of the Middle East’s demand is fulfilled locally, owing to additional insurance fees charged on sea freight. while continuing price escalation has resulted in a Currently, approximately 90% of the Middle East’s demand is fulfilled locally, while continuing price escalation wave of regional investments into cement capac- has resulted in a wave of regional investments into cement capacity expansions - estimated at almost USD5.9 ity expansions - estimated billion. In the UAE rising energy costs and a vast shortage in clinker production have been the major con- at almost USD5.9 billion. tributors to production cost appreciation, in turn exerting further pressures on cement market prices, which have registered as high as AED340/tone in 1Q 2008. This is in significant excess to a mid 2007, Ministry of Economy price ceiling which was set at AED295/tonne. The gentlemen's agreement under which the decision was fostered was essentially abandoned late last year, when clinker prices surged ca. 50%, in turn pushing production costs, for producers which did not source clinker in-house, to above the ceiling selling price. More recent government intervention to stabilize prices has come about with a March 2008 decree, in which Dubai, followed by Abu Dhabi, waived all custom duties on the imports of steel and cement.

Said price hikes will have negative implications on construction companies, developers and end-customers. The extent of the effect of prices on construction companies however will largely be a function of respective market shares, in our opinion, with larger companies like Arabtec and ACC enjoying superior negotiating pow- ers, allowing them to set fixed forward contracts with cement suppliers at more favorable terms. Smaller players, with less bargaining power, will prove more exposed to price hikes and margin erosion.

Prime Research 8 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

Arabtec

Project Award Developments Since our FY07 Results Update

2 contracts awarded from Dubai Sports City: In April 2007, a JV between Arabtec and German Company Max Bogel, signed two contracts with Dubai Sports City to construct two stadiums with a total value of AED830 million. The work includes the design and construction of a 60,000 seat Multipurpose Outdoor Stadium, and the construction of a 10,000 seat Multipurpose Indoor Stadium at Dubai Sports City.

Contract awarded to expand an exhibition centre in Abu Dhabi: In June 2007, Arabtec announced that it had won an AED778 million contract to expand an exhibition centre in Abu Dhabi. The project encompasses construction of two parking structures and is scheduled for completion by August 2008.

A contract awarded by DAMAC: During the same month, Arabtec was awarded a contract by DAMAC Gulf Properties; worth AED650 million to build the Ocean Heights tower at Dubai Marina. The project is expected to be delivered in August 2010.

A letter of acceptance from Emaar Properties: Emaar Properties issued a Letter of Acceptance, in July 2007, to Arabtec Construction LLC for the design and construction of 277 villas in Umm Al Quwain Marina at Umm Al Quwain. The project is estimated at a total value of AED371 million and is scheduled for completion in phases over 25 months.

2 new contracts awarded at the Burj Dubai Lake Hotel Project: Also in July 2007, Stone Master LLC signed two contracts with Arabtec Construction LLC to execute painting works for Burj Dubai Lake Hotel at Burj Dubai Development and a villas project at Dubai Land. The contracts have a total value of AED13.5 million.

Contract for the construction of a hotel located in Sheikh Zaid Road: Arabtec Construction LLC and its joint venture partner Dubai Contracting Company (DCC) won, in July 2007, a contract of more than AED1 billion for work on a hotel located on Shaikh Zayed Road in Dubai. The work includes construction of the main hotel building comprising four basement levels, ground and mezzanine floors and 51 storeys.

A letter of acceptance from Emaar Properties: Emaar Properties issued, on July 2007, a Letter of Acceptance to Arabtec for the design and construction of 212 villas in the Arabian Ranches development. The total value of the order amounts to AED136 million, with the project scheduled to be completed over a period of 22 months.

A letter of Award from Dubai Silicon Oasis: Close to the end of July 2007, Dubai Silicon Oasis issued a Letter of Award to Arabtec for the design and construction of 1047 villas. The total value of the contract amounts to AED1.2 billion with the completion of the project scheduled over a period of 32 months.

Contract Award to build the UAE’s new horseracing project: In September 2007, a JV between Arabtec Construction and Malaysian builder WCT Engineering were awarded an AED4.6 billion contract to build the UAE's new horseracing project, the Meydan Racecourse. The contract includes construction of a one-kilometer grandstand with capacity of up to 60,000, a luxury hotel, more than 10 restaurants, a museum and covered 10,000 space car park.

Subsidiary receives a letter of Award: During early January 2008, the Arabtec Holding subsidiary; Arabtec Engineering Services LLC received a letter of award from Dubai Municipality to carry out Al Nahda 1 and Al Mamzar area projects.

A JV with ACC is awarded a project in Syria: During January 2008, the Arabtec Holding and Arabian Construction Company JV received a letter of acceptance from the Emaar Properties affiliate, Emaar IGO for the construction of the Eighth Gate Development in Syria, valued at AED152 million.

Arabtec wins AED227 million contract, along with a partner in Jordan: During late February 2008, the company announced that it won a contract worth AED227 million with Jordan's Engineering Enterprises Company to construct two buildings in Jordan. The two buildings, one 36-storey and the other seven storeys, at the Abdali Development Project in Amman will take 29 months to complete.

Target is awarded projects worth AED789 million in Abu Dhabi: In early March 2008, Target is awarded 3 projects in Abu Dhabi, the first is to construct a commercial centre at Khalidya area for a total of AED600 million to be completed in 60 months, while the other two were awarded by ADNOC for a total of AED189 million to construct a new laboratory building at Ruwais and a police complex at Das Island.

Shaikh Holding awards AED412 million contract to Arabtec Construction LLC: In late March 2008, Arabtec Construction LLC was awarded an AED 412 million contract to commence construction of its presitigious Sanctuary Falls villa development. Arabtec will commence construction of the 96 villas in April 2008 and is expected to deliver the project in 1Q10.

Prime Research 9 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

New Contract Awards and Backlog

We estimate the Group’s current backlog to stand at AED15.7 billion versus AED10 billion in 2006. Arabtec Construction and Arabtec Engineering Services contributed 74.5% of the group’s total backlog, equivalent to AED11.7 billion. The newly acquired Target, of which Arabtec Holding PJSC owns 60%, contributed AED1.3 billion; and International operations in Qatar, Pakistan, Syria and Jordan added the remaining AED2.7 billion to the aggregate.

Geographically, the group’s current backlog is broken-down into 3 main areas; maintaining a large market share in construction contracts in Dubai, establishing a foot point in the aggressively growing capital’s construction market. Abu Dhabi and extending international operations. As for the former, which has historically been Arabtec’s major square of operations, construction contracts continue to be awarded on the back of the company’s strong existence in the emirate. Arabtec continues to capitalize on the positive reputation acquired over the years due to its strong record of delivering projects in a timely manner with superior quality and safety awareness ensuring it secures a share in almost all mega-projects in the emirate.

As the Group seeks wider exposure to Target's Revenue Stream 2006 the fast developing Abu Dhabi construc- As the Group seeks wider exposure to the fast devel- tion sector, Arabtec Group acquired Marine, 23% oping Abu Dhabi construc- 60% of Target Engineering LLC in late tion sector, Arabtec Group 2007. Target operates mainly in Abu Civil, 4 2 % acquired 60% of Target Engineering LLC in late Dhabi and has a vast well established 2007. network in the capital. In addition, ap- Electrical, 11% proximately 40% of Target’s main profit stream stems from contracted construc-

tion works, whereas the remaining 60% Mechanical, 24% is generated from marine and oil and gas related works; thereby providing Source: Target Engineering LLC website Arabtec with a form of operational diversification. Contributing to Arabtec’s existence in Abu Dhabi, and adding to its current backlog, Target was

recently awarded three new projects in Abu Dhabi valued at AED798 million. According to company officials, Arabtec has the intention of increasing its existence in Abu Dhabi provided economically feasible acquisitions become available.

Arabtec Holding Company PJSC

Subsidiary Country Ownership Main Activities

Arabtec Construction LLC UAE 100% civil construction & related works

Austrian Arabian Ready Mix Concrete Co. LLC UAE 100% manufacture & transportation of ready mix

House of Equipment Co. LLC UAE 33.3% trading & leasing of construction equipment

Arabtec Construction LLC Qatar 49% civil construction & related works Arabtec Precast LLC UAE 100% manufacture of pre cast panels Additional Investments During 2007

Subsidiary Country Ownership Main Activities

Nasir Bin Khalid Factory Ready Mix Concrete Co. LLC Qatar 49% manufacture & transportation of ready mix

Emirates Falcon Electromechanical Co. LLC UAE 55% electrical, mechanical & plumbing contracts

Arabtec Engineering LLC UAE 100% infrastructure construction works

Arabtec International Co. LTD Mauritius 100% civil construction & related works

Arabtec Pakistan LTD Pakistan 60% civil construction & related works Target Engineering Construction Co. LLC UAE 60% marine, oil & gas related construction works Source: Arabtec Holding PJSC

Developments in International Markets

Delivering on its plans to expand internationally as a method of hedging against normal construction cycles, Delivering on its plans to the company has engaged in a number of oversees projects; specifically in Qatar and Pakistan. In Qatar, the expand internationally as a method of hedging against company has acquired a 49% stake in Arabtec Construction LLC – Qatar and another 49% in Nasir Bin Khalid normal construction cycles, Ready Mix Concrete. Arabtec, along with its partner, were awarded the mega-project of Al-Waab City. Stand- the company has engaged ing at AED6 billion, Al-Waab is considered the largest civil contract ever awarded in Qatar. The project con- in a number of oversees projects; specifically in tributes 85% to Arabtec’s International backlog equivalent to AED2 billion. Qatar and Pakistan.

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FY07 Update UAE

In Pakistan, Arabtec Holding signed a JV agreement with AMN Mauritius LLC to set up Arabtec Construction Mauritius LLC, of which Arabtec Holding's share stands at 60%. The new entity was awarded an AED500 million project to develop the two Karachi Financial Towers, which when completed, will constitute the tallest building structures in Karachi. Pakistan operations contribute the remaining 20% of total international backlog.

Furthermore, the company received in January 2008, along with its JV partner ACC, a letter of acceptance from Emaar IGO for the construction of the Eighth Gate Development in Syria and in late February Arabtec announced that it had won a contract worth AED227 million with Jordan's Engineering Enterprises Company to construct two buildings in Jordan.

Prime Research 11 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

Financial Assessment

Full Year Financial Highlights

FY07 saw the release of another strong set of results for Arabtec with the top line growing a healthy 52% y- o-y to AED4.3 billion while inflationary pressures stemming from raw materials and labor simultaneously FY07 saw the release of pushed up COGS 44% over the period settling at AED3.5 billion. The group's GPM for FY07 registered a solid another strong set of 17.3%, up 459 bps over FY06, with contracting revenues contributing 94.8% of the associated total, and results for Arabtec with the sporting an associated GPM of 16.8%. The group's various other sector's saw a 44.7% revenue expansion to top line growing a healthy AED222 million and as customary registered a higher blended GPM of 26.9% with associated revenues com- 52% y-o-y to AED4.3 billion while inflationary prising 5.2% of the aggregate. pressures stemming from raw materials and labor SG&A witnessed an annual increase of 66.5% in FY07 registering AED292 million, equivalent to 6.85% of simultaneously pushed up COGS 44% over the period sales on the back of wage inflation reflected in increases of service indemnity and employee benefits and settling at AED3.5 billion. bonuses which recorded a combined AED156 million up 67% y-o-y. EBITDA meanwhile expanded 133% to settle at AED479 million compared to AED205 million in the comparable period with the EBITDA margin regis-

tering 11.2% in FY07, up 389 bps over FY06.

The combined effect of a 200% jump in the group's finance costs to AED3.6 million, and expenses of AED7.4 million in fair value of non-current retentions, were offset by the increase in other operating income attributable to manpower and other charges to JV's which leapt over 3X to AED97.5 million as well as a 5X expansion in interest income to AED25.9 million, generated on a AED904 million cash balance. Capital gains of AED13.9 million on sale of investments and PP&E also propped up net non operating income's contribution to the bottom line.

Net income, for the year Finally, net income, for the year advanced 147% settling at AED535 million versus AED217 million in FY06 advanced 147% settling at corresponding to an aggressive improvement in NPM to 12.5% up from 7.7% registered in the previous year. AED535 million versus AED217 million in FY06 corresponding to an ag- Forecast Assumptions gressive improvement in NPM to 12.5% up from Backlog 7.7% registered in the previous year. We estimate the company's current backlog to stand at ca. AED15.7 billion with Arabtec contributing AED11.7 billion, Target adding AED1.3 billion and international operations brining up the AED2.7 billion balance. Ac- cordingly, based on our numbers, ca. 25% of Arabtec's current aggregate backlog of work is now being de-

rived from outside of the traditional Dubai based civil works segment.

International operations currently represent 17% of existing backlog with the one large Al-Waab city project

of Qatar contributing AED2 billion out of the associated total. We expect continued management commitment to geographical diversification to reflect itself in coming close to, if not achieving a 40% contribution from international operations by FY12.

We are also foreseeing Arabtec's Target stake to continue serving the group well, in Co ntributers to the Gro ups 's Backlo g Fo rmatio n terms of leveraging on the subsidiary's

solid market presence in the capital, with 10 0 % recent project awards proving increasingly 80% more skewed toward Abu Dhabi, which we

view as central to Arabtec's continued suc- 60%

cess in the domestic market. 40%

Moreover, with approximately 50% of Tar- 20%

With approximately 50% get's scope of work focused on the oil & 0% of Target's scope of work gas, electro-mechanical and marine works, 2007 2008 2009 2010 2011 2012 focused on the oil & gas, new expertise in associated arena's will electro-mechanical and allow Arabtec a competitive advantage over marine works, new exper- Arabtec Target In t e rn a t io n a l tise in associated arena's its previous standing in terms of success will allow Arabtec a com- within the bidding process for new pro- Source: Arabtec Holding PJSC, Prime Estimates petitive advantage over its jects. Finally, with the acquisition having previous standing in terms of success within the added ca. 4k in new labor to the group's team, capacity constraints, in this respect at least, are expected to bidding process for new be less pronounced going forward. projects. In short we are forecasting an 8.4% CAGR in backlog for 2008-2012 (versus management guidance of a comparable 10% figure), corresponding directly to a revenue CAGR of 26% (reflected in a declining book/bill ratio from 2.8x in FY08 to 1.6x in 2012) over the same period, phasing out the company's confirmed current

Prime Research 12 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

backlog of AED15.7 billion, over the coming 5 years in line with completion dates (over 75% of the aggregate is to be delivered and booked in FY08 and FY09), and factoring in our new project award assumptions, less

project deliveries for associated years. It is worth noting that Arabtec's current, existing and confirmed, backlog represents over 31% of our revenue forecast through 2012, and 65% of the top line we expect to be generated over the coming 3 financial years ending 2010.

As was conducted in our pervious modeling of Arabtec, we have opted to apply a 20% delay factor across all

delivery dates, both on existing projects and on our assumptions of the entirety of new project awards, to account for current tightness in the labor, raw materials, main contractor and subcontractor capacity markets.

Margins

Our forecasts for Arabtec's margins are a Revenues, COGS & GPM direct function of the company's ability to price its newly awarded projects at com- 16 , 0 0 0 18 . 5 % petitive rates as well as its ability to hedge 14 , 0 0 0 18 . 0 % against cost price escalations. With re- 12 , 0 0 0 17 . 5 % gards to the former, we believe Arabtec's 10 , 0 0 0 17 . 0 % positioning as one of the largest and most 8,000 16 . 5 % respected contractors within the UAE, as 6,000 16 . 0 % well as its advantage of being one of only 4,000 a handful of local players sporting neces- 2,000 15 . 5 %

sary EPC requirements for the undertaking 0 15 . 0 % of mega-projects to serve it well at the 07 08 09 10 11 12 negotiating table with regards to pricing Net Sales COGS GP M for as long as the current seller's market conditions prevail. With regards to the Source: Arabtec Holding PJSC, Prime Estimates

latter, we view FY07 record margins (GPM 17.3% and NPM of 12.5%), despite soaring cement and steel prices over the year, as testament to the company's ability, through vertical integration and bargaining power within raw material supplier circles, to continue hedging Arabtec's costs against market price appreciation.

Accordingly, we are foreseeing the GPM to remain robust through FY08 and FY09, at Gross Profit & GPM We are foreseeing the 17.9% and 18.1% respectively, expected GPM to remain robust to decline gradually effective FY10, as 2,500 18 . 5 % through FY08 and FY09, at 18 . 0 % 17.9% and 18.1% respec- new contracting capacity comes on stream 2,000 tively, expected to decline and the balance of power shifts some- 17 . 5 % gradually effective FY10. what, limiting pricing power, and a heftier 1, 5 0 0 17 . 0 % contribution from international operations 1, 0 0 0 16 . 5 % occurs, where we are unsure of how well 16 . 0 % Arabtec will have positioned itself as a 500 15 . 5 % new entrant at that time. That said, we 0 15 . 0 % Net income growth is are also foreseeing a turn in the commod- expected to record 07 08 09 10 11 12 AED680 million and ity market early next decade, and our AED973 million in FY08 reduction in some segments of costs, and FY09 respectively, have offset more aggressive margin ero- Gross Profit GP M largely on the back of our sion, which we forecast to have fallen to forecasts reflecting peak Source: Arabtec Holding PJSC, Prime Estimates revenue growth in associ- 16.3% by 2012. ated years of 39% and 43% respectively. Net income growth is expected to record AED680 million and AED973 million in FY08 and FY09 respectively (largely on the back of our forecasts reflecting peak revenue growth in associated years of 39% and 43% respectively). The corresponding NPM accordingly registers ca. 11.5% in both years prior to a foreseen slowing in bottom line momentum, (FY10-12 9.6% CAGR and average NPM of 10%) thereafter, on the basis of more moderate revenue growth assumptions effective 2010, and also due to the combined effects of escalat- ing deprecation and a higher tax bill attributable to increasing international operations.

Prime Research 13 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

Valuation

Our revised valuation on Arabtec has yielded a DCF fair value of AED17.82/share. Major drivers behind our increased target price include, a superior backlog, the factoring in of recent value accretive acquisitions, including Target and Gulf Steel, as well as far more clarity on international operations and increased confidence on the company's ability to establish itself as a preferred contractor within the booming construction market of Abu Dhabi. In addition, we have also brought down our WACC to 11.2%, through a lower risk free rate, in line with Fed rate cuts in the US, and follow through reductions locally. On the basis of 51% upside potential, we accordingly assign a strong buy rating on the stock.

Prime Research 14 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

Income Statement 2006a 2007a 2008e 2009f 2010f FINANCIAL SUMMARY Revenues 2,809.6 4,272.9 5,958.5 8,483.8 9,674.8 (Figures in AED million)) Growth 8.0% 52.1% 39.4% 42.4% 14.0% COGS 2,452.6 3,533.8 4,890.6 6,952.0 8,006.0 S,G & Admin. Expenses 151.9 260.5 355.1 505.6 576.6 Other Provisions 0.0 0.0 0.0 0.0 0.0 EBITDA 205.2 478.5 712.7 1,026.1 1,092.2 Growth 10.5% 133.2% 48.9% 44.0% 6.4% EBITDA Margin 7.3% 11.2% 12.0% 12.1% 11.3% Depreciation & Amortization 24.0 32.3 89.6 93.9 103.0 Operating EBIT 181.1 446.2 623.1 932.2 989.2 Interest Income 4.9 25.9 8.1 14.3 19.0 Investment Income 0.0 0.0 0.0 0.0 0.0 Interest Expense 1.2 3.6 3.5 3.1 2.9 Other Income (net) 29.5 96.5 108.1 111.9 115.2 Pre Tax Income 214.3 564.9 735.7 1,055.3 1,120.5 Pre Tax Income Growth 29.7% 163.6% 30.2% 43.4% 6.2% Income Tax 0.0 1.2 1.8 5.3 8.4 Effective Tax Rate 0.0% 0.2% 0.3% 0.5% 0.8% NPAT 214.3 563.6 733.9 1,050.1 1,112.1 Growth 29.7% 163.0% 30.2% 43.1% 5.9% Extraordinary Items 4.5 13.9 0 0 0 Net Income 218.8 577.5 733.9 1,050.1 1,112.1 Minority Interest 1.9 42.2 53.6 76.7 81.2 Net Attributable Income - NAI 216.9 535.4 680.3 973.4 1,030.9 Growth 30.8% 146.8% 27.1% 43.1% 5.9% ROS 7.7% 12.5% 11.4% 11.5% 10.7% Balance Sheet 2006a 2007a 2008e 2009f 2010f Cash & Marketable Securities 129.0 997.6 521.2 789.4 974.1 Trade Receivables-Net 1,197.5 1,932.8 2,695.2 3,837.5 4,376.2 Inventory 215.1 183.8 337.4 480.4 547.8 Other Current Asset 69.6 248.4 212.9 251.0 270.5 Total Current Asset 1,611.2 3,362.5 3,766.7 5,358.3 6,168.6 Net Fixed Assets 415.9 749.5 1,076.5 1,527.7 2,012.7 Other Assets 307.9 727.5 661.4 602.2 549.2 Total Assets 2,335.1 4,839.6 5,504.5 7,488.2 8,730.5 Short Term Bank Debt 156.8 209.3 200.9 192.9 185.2 CPLTD 0.0 0.0 19.9 0.0 0.0 Accounts Payable 1,226.4 2,923.5 3,155.7 4,493.1 5,123.9 Dividend Payable 78.0 299.0 387.8 506.2 536.1 Other Current Liabilities 8.0 128.1 133.2 138.5 144.1 Total Current Liabilities 1,469.3 3,559.8 3,897.5 5,330.7 5,989.2 Long-Term Debt 0.8 19.9 0.0 0.0 0.0 Other Non Current Liabilities 159.4 309.1 363.7 446.9 64.1 Provisions & Minority Interest 74.2 234.3 292.7 379.4 471.8 Total Shareholders' Equity 705.7 950.8 1,243.3 1,710.6 2,205.4 Total Liab. & Shareholders' Equity 2,335.1 4,839.6 5,504.5 7,488.2 8,730.5

Free Cash Flow Statement 2006a 2007a 2008e 2009f 2010f NOPLAT 181.1 445.2 621.5 927.5 981.7 Non-Cash Items 24.0 32.3 89.6 93.9 103.0 Gross Cash Flow 205.2 477.5 711.1 1,021.4 1,084.6 Gross Investments 389.1 -175.3 1,031.2 468.2 481.1 Non -Operating Cash Flow 34.0 110.1 107.8 111.3 114.4 Free Cash Flow -149.9 762.9 -212.2 664.5 717.9 Financing Flow Interest Income After-Tax -4.9 -25.9 -8.1 -14.3 -19.0 Investment Income After-Tax 0.0 0.0 0.0 0.0 0.0 Increase in Excess Cash & M. Sec. 15.9 788.4 -564.8 192.4 148.9 Change in Subsidiaries & Long Term Investments 2.0 5.3 1.0 1.0 1.0 After-Tax Interest Expense 1.2 3.6 3.5 3.1 2.9 Decrease in Debt & Bonds -157.6 -71.7 8.4 28.0 7.7 Provisions Used -15.7 -48.2 -4.8 -10.1 -11.1 Dividends Paid 1.9 120.2 352.6 464.5 587.4 Non-Appropriation Items 0.0 0.0 0.0 0.0 0.0 Shareholders Equity 7.2 -8.8 0.0 0.0 0.0 Total Financing Flow -149.9 762.9 -212.2 664.5 717.9

Source: Company Financials, Prime Projections

Prime Research 15 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

Stock Recommendation Guidelines

Recommendation Target-to-Market Price (x)

Strong Buy x > 25%

Buy 15% < x <25%

Accumulate 5%< x <15%

Hold -5% < x < 5%

Reduce -15% < x < -5%

Sell -25% < x < -15%

Strong Sell x < -25%

Investment Grade Explanation

Growth 3 Yr. Earnings CAGR > 20% Value Equity Positioned Within Maturity Stage of Cycle

Income Upcoming Dividend Yield > Average LCY IBOR

Speculative Quality Earnings Reflect Above Normal Risk Factor

Prime Research 16 Arabtec Holding PJSC March 31, 2008

FY07 Update UAE

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Prime Research 17