Al Meera Consumer Goods

Al Meera Consumer Goods Mohamed Hamdy Qatar Manager, Equity Analysis Equities | Consumer Goods | Initiation of Coverage Mubasher International Wednesday, 17 August 2016 [email protected] Return not in sync with expansions — Initiate with Hold Price Target: QAR231.5 Hold/Low Risk Low Risk ETR: +5.2% • Qatar is an attractive retail market with sustainable growth despite lower oil prices. MERS (QAR) vs. QE Rebased • Retail sector growth is fueled by high spending power and inflow of tourists and expats. Stock Details Volume (RHS) MERS QE Rebased Last price (QAR) 220.10 • MERS is leading the retail industry in Qatar through ownership of consumer outlets. mn 300.00 0.12 52-W High (QAR) 270.50 • Over the past five years, profitability ratios (ROE and ROIC) slipped as MERS ramped up 52-W Low (QAR) 165.30 250.00 0.10 its invested capital to fund its store expansion from 26 to 45. 6M -ADVT (QARmn) 3.08 200.00 0.08 % Chg: M oM 2.9 • MERS plans to expand by opening 15 stores in 2016 to reach a total of 60 (55 in Qatar). % Chg: YoY -18.63 150.00 0.06 • Initiate with Hold/Low Risk; PT of QAR231.5/share (+5.2%). % Chg: YTD 0.0 100.00 0.04 M ubasher Ticker M ERS.QE Bloomberg Ticker M ERS QD Expanding its leadership in domestic retail market: Expansions fueled top-line growth, yet profitability 50.00 0.02 Capital Details Al Meera Consumer Goods Co. (MERS.QE) is is weakening: MERS started its turnaround story in No. of Shares (mn) 20.0 leading the retail industry in Qatar through 2010 by implementing a strategic plan to expand 0.00 - M kt Cap (QARmn) 4,402.0

ownership and management of 45 consumer from its store count from 26 in Qatar to 45 by end

Jul-16

Oct-15 Apr-16

Jun-16 Jan-16 Mar-16

Feb-16 M kt. Cap (USDmn) 1,209.2

Nov-15 Dec-15

Aug-15 Sep-15 May-16 outlets (41 in Qatar and 4 in Oman), including its of 2015. Since then, net operating income (EBIT) Free Float (%) 41.8% first Géant Hypermarket at Hyatt Plaza, which was grew at a 5-year (2010-2015) CAGR of 20.3%, driven opened in Qatar in 2013. The company operates mainly by a 21.8% CAGR in total store sales (98% of Summary KPIs (QAR mn) 2013a 2014a 2015a 2016e 2017e 2018e three business segments: (1) retail, (2) investment, revenues). Retail EBITDA margin surged from 3.9% Total retail sales 1,946 2,176 2,449 2,806 3,162 3,494 and (3) leasing. MERS signed agreements with two in 2010 to 7.6% in 2015, supported by cost savings Shop rental income 37 43 50 68 75 82 leading international brands in 2011, namely Casino from economies of scale and synergies. Expansions Other operating income 97 81 21 21 21 20 Group (hypermarket) and WHSmith (bookstore). were financed from a QAR950mn rights issue in EBITDA 233 253 201 246 296 329 MERS started the construction works of 14 new 2013 and Islamic finance of QAR409mn in 2012. EBITDA margin 11.2% 11.0% 8.0% 8.5% 9.1% 9.2% shopping malls in Qatar, and plans to open a new Although normalized earnings grew by a 26.2% 5- Net Profits After Taxes 196 227 162 199 229 241 supermarket in Oman in H2 2016. year CAGR, MERS’s return on invested capital Net profit margin 10.1% 10.4% 6.6% 7.1% 7.3% 6.9% EPS 9.8 11.3 8.1 9.9 11.5 12.0 (ROIC) dropped from 34% in 2011 to 11% in 2015, An attractive retail market in the MENA region: DPS 8.0 9.0 9.0 9.0 8.0 8.4 putting into question its ability to generate a higher Qatar is emerging as an attractive market for BVPS 68.2 70.2 69.3 70.2 72.7 76.7 marginal return on new expansion investments. retailers in the MENA region with sustainable PER (x) 13.6x 17.7x 27.1x 22.2x 19.2x 18.3x growth due to the defensive nature of the business Initiate with Hold/Low Risk; PT QAR231.5 (ETR PBV (x) 2.0x 2.8x 3.2x 3.1x 3.0x 2.9x (i.e. mostly trading in food products) despite the +5.2%): We used two valuation models to value EV/EBITDA (x) 8.0x 13.7x 20.0x 16.5x 14.3x 13.3x continued drop in oil prices. The main factors MERS: (1) Discounted cash flow (DCF), resulting in Dividend Yield 6.0% 4.5% 4.1% 4.1% 3.6% 3.8% affecting growth in Qatar’s retail sector are: the QAR267.0/share and (2) Multiples valuation based Net Debt (Cash)-to-Equity - 6.3% 6.4% 13.0% 28.4% 40.3% country’s high per-capita income, high spending on 2016e PER and EV/EBITDA, resulting in an Net Debt (Cash)-to-EBITDA - 0.3x 0.4x 0.7x 1.4x 1.9x power, and growth in tourists number. In view of its average of QAR148.8/share. We assigned 70%/30% Source: Company reports, MubasherTrade Research estimates strategic “Vision 2030”, Qatar plans to more than weights to both models, respectively, reaching a double its visitors by 2030 to 7mn (vs. 2.8mn in one-year price target (PT) of QAR231.5/share, an 2014). Also, population growth in Qatar is expected total return (ETR) of +5.2% which is within supported by the continuous inflow of expats; we our Hold rating range. Hence, we initiate coverage expect inflow of expats to grow at a slower rate on MERS with a Hold/Low Risk rating. because of lower oil prices.

Page 1 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Corporate Profile

Al Meera Consumer Goods Co. is a mass grocery retailer (MGR) Board of directors structure Shareholder structure leading the retail industry in Qatar. It was established in 2005 and listed on the Qatar Exchange on 28 October 2009. Through its Chairman ownership and management of consumer outlets, MERS provides Non- Government wholesale and retail services, trading of consumer goods, government H.E. Abdulla Bin 29% foodstuff, household items, electrical and electronic equipment, 71% Mutual Khalid Al Qahtani Qatar in addition of other products. Funds Holding 4% The company operates three business segments: (1) retail, Vice Chairman LLC comprising the trading of consumer goods, (2) investment, 26% including equity and funds held as available-for-sale investments, Dr. Saif Said Al and (3) leasing, which mainly includes renting shops in various Sowaidi Qatar malls owned by the company. Al Meera Investment Consumer Authority At present, MERS operates through 45 supermarkets and Board Member Board Member Board Member 29% convenience stores in Qatar (41 stores) and Oman (4 stores). Goods MERS had acquired Qatar Markets Company and Al Oumara Dr. Mohammed HE Dr. Saleh Bin Mr. Ahmed Bakery in 2011. This acquisition provided five new store outlets in Nasser Al Qahtani Mohammed Al- Abdullah Al Khulaifi different areas totaling 15,000 sqm, in addition to providing a company-owned bakery. Furthermore, to facilitate access of high- Board Member Board Member Free Float quality international products, MERS signed an agreement with 42% two leading international brands, namely Casino Group (hypermarket) and WHSmith (bookstore). The WHSmith shops Mr. Mohammed Mr. Hassan Ibrahim Al Sulaiti Abdullah Al Asmakh sell a wide range of books, stationery items, toys and games, magazines, confectionery and drinks. The first two stores were opened in 2013 in Nuaija Mall and Ezdan Mall in Qatar. Source: Company reports Source: Decypha

Retail outlets

MERS expanded its network from 26 stores to 45 branches by MERS inaugurated first Géant Hypermarket at Hyatt Plaza in In 2011, MERS signed an exclusive franchise right of 2015 (41 in Qatar and 4 in Oman). Supermarket chain consists Qatar in 2013. The agreement between MERS and the French “WHSmith” in Qatar. Since then, three stores were of 14 branches in Doha and 18 other branches in malls. Outside Casino Group in 2011 relies on two pillars: the strength of MERS inaugurated in Nuaija Mall, Ezdan Mall, and Hyatt Plaza. We Doha, MERS has seven branches in addition to two branches in in the local retail market with knowledge in local needs, and the note that the company’s plan was to open 10 stores within residential compounds. MERS began construction work on wide experience of “Géant” Casino, the French hypermarket five years. The British retail “WHSmith”, internationally other stores as part of its expansion strategy to construct 14 chain, in operating and managing superstores. The shoppers at known as “SMITH”, is well known for its commercial stores new shopping malls across Qatar. To further expand and Géant have the opportunity to get products of the brand chains, with 550 libraries in its portfolio located in public reinforce its market share, MERS plans to open a new Casino, which includes food, home appliances and streets, railway stations, airports, hospitals, stores, where supermarket in a new mall in Oman in H2 2016. supplements, computer supplements, cleaning and others. books, stationery, magazines, newspapers, and lifestyle Casino’s products are directly imported from France based on products are sold. international standards.

Page 2 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Corporate Profile (Cont.’d)

Al Meera Supermarkets Company SPC (“Al commenced its operations. Corporate structure Meera Supermarkets”) is a single person company incorporated in Qatar. The company Al Meera Oman SAOC (“Al Meera Oman”) is a Al Meera Consumer Goods Co. QSC is engaged in the establishment and limited liability company incorporated in management of business enterprise and Oman. The company is engaged in the 100% investing therein, owning shares, moveable construction and management of shopping centers and related facilities. As at December and immovable properties necessary to carry Al Meera Supermarkets SPC out its activities. 2015, this company has not commenced its operations. Al Meera Holding Company LLC (“Al Meera Holding”) is a limited liability company, Al Meera Markets SAOC (“Al Meera 99% 1% 1% 99% incorporated in Qatar. The company is a Market”) is a limited liability company holding company for holding the group’s incorporated in Oman. The company is Al Meera Development Company LLC Al Meera Holding Company LLC investments and managing its subsidiaries, engaged in the establishment and operation of owning patents, trademarks and real estate shopping centers, supermarkets, and Qatari Subsidiaries needed to carry out its activities. hypermarkets. Al Meera Development Company LLC (“Al Qatari Subsidiaries 1% Qatar Markets Company WLL 99% Meera Development”) is a limited liability Al Oumara Bakery Company WLL (“Al Oumara Al Meera Bookstore Company SPC 100% company, incorporated in Qatar. The company Bakeries”) is a limited liability company, is engaged in establishment and management incorporated in Qatar. The company is engaged of business enterprise and investing therein, in the manufacture and sale of bakery Overseas Subsidiaries Partners owning patents, and real estate needed to products. In 2015, MERS disposed of 49% of its carry out its activities. interest in Al Oumara Bakery Company to 49% Qatar Quality Food LLC, reducing the former’s Qatari Subsidiaries ALGE Retail Corporation SARL 51% Casino Guichard-Perrachon continuing interest to 51%. The proceeds on Qatar Markets Company WLL (“Qatar disposal amounting to QAR3mn were received 30% Markets”) is a limited liability company, in cash. The disposal was completed on 29 July incorporated in the Qatar. The company is 2015, on which the control of Al Oumara was 1% Al Meera Oman SAOC 69% Oman National Investments Development Company engaged in the sale of food stuff, household transferred to the acquirer. The retained items and garments. ownership interest in Al Oumara is recognized 30% as investment in associate and accounted for Al Meera Bookstore SPC (“Al Meera using the equity method. 1% Al Meera Markets SAOC 69% Oman National Investments Bookstore”) is a single person company Development Company incorporated in Qatar. The company is engaged Aramex Logistics Services Company LLC is a Qatari Associates in the sale of stationery, computer accessories, limited liability company incorporated in Qatar. books and toys. The company is engaged in the warehousing and delivery truck services. 49% Overseas Subsidiaries 0.51% Al Oumara Bakery WLL 50.49% Qatar Quality Food Company ALGE Retail Corporation SARL (“Alge Corporation”) is a limited liability company 39% Regency Group Holding incorporated in Switzerland. The company is 51% Aramex Logistics Services LLC engaged in development of retail business in Aramex Regional LLC Tunisia, Libya, Egypt and Jordan. As at 10% December 2015, this company has not Source: Company reports Page 3 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Branches in Doha 1 Mamoura 2 Nuaija | WHSmith 3 Rawdat Al-Khail 4 Mansoura 5 Airport Hyper 6 Airport Branch 7 Umm Ghuwailina 8 Al Mirqab 9 Bin Omran 10 Khalifa South 11 Dahl Al-Hamam 12 Hazm Al Markhiya 13 Onaiza 2 14 Legtaifiya Other branches in Qatar 15 Gharafat Al Rayan 16 Azghawa 17 Sailiya (Barwa) 18 Geant | WHSmith (Hayatt Plaza) 19 Beverly Hills 20 Abu Nakhla 21 Jumaliyah 22 Murra 23 Shahaniya 24 Ghuwairiya 25 Res. Comp. 2 - Al Khor 26 Res. Comp. 1 - Al Khor 27 Shamal Al Meera Consumer Goods| Qatar | Initiation of Coverage 28 Kaaban Wednesday, 17 August 2016 29 Al Wakra Corporate Profile (Cont.’d) 30 Mesaimeer (Barwa) 31 Sealine WHSmith (Ezdan Mall) Branches in Doha New Branches (Opened in 2015) 1 Mamoura N1 Muraikh 2 Nuaija | WHSmith N2 Al Azizia 3 Rawdat Al-Khail N3 Muaither Doha 4 Mansoura N4 Gulf Mall 5 Airport Hyper N5 Jeryan Nejaima 6 Airport Branch N6 Al Thakhira 7 Umm Ghuwailina N7 Al Wakra (South) 8 Al Mirqab N8 Al Wajba 9 Bin Omran N9 Rawdat Ekdeem 10 Khalifa South N10 Al Thumama 11 Dahl Al-Hamam 12 Hazm Al Markhiya 13 Onaiza 2 14 Legtaifiya Other branches in Qatar 15 Gharafat Al Rayan 16 Azghawa 17 Sailiya (Barwa) 18 Geant | WHSmith (Hayatt Plaza) 19 Beverly Hills 20 Abu Nakhla 21 Jumaliyah Source: Company reports. Note: U1-U14 point to new stores under construction. 22 Murra 23 Shahaniya 24 Ghuwairiya 25 Res. Comp. 2 - Al Khor 26 Res. Comp. 1 - Al Khor 27 Shamal 28 Kaaban 29 Al Wakra 30 Mesaimeer (Barwa) 31 Sealine WHSmith (Ezdan Mall) New Branches (Opened in 2015) N1 Muraikh N2 Al Azizia N3 Muaither N4 Gulf Mall Page 4 For more informationN5 Jeryan on MubasherTrade, Nejaima please visit our website at www.MubasherTrade.com or contact us at [email protected] Al Thakhira. Please read the important disclosure and disclaimer at the end of this document. N7 Al Wakra (South) N8 Al Wajba N9 Rawdat Ekdeem N10 Al Thumama Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Valuation

Using our two valuation models (DCF and the “fading phase” ending at a terminal Investment Rationale • Renovation and upgrades of infrastructure, which multiples) and assigning 70%/30% weights value when the terminal ROIC is almost started in 2011, helped in dedicating more store to both models, respectively, we reached a equal the terminal WACC. We calculate Growth drivers of the retail industry space to enlarge and diversify offerings. weighted-average one-year PT of COE as 9.0% based on the following • Sustainable growth due to the defensive nature of • Imports under the name of “Al Meera” allowed business despite the continued drop in oil prices. QAR231.5/share. This implies an ETR of assumptions: the company to guide quality and keep up with Typically, more than two-thirds of products sold only +5.2%, within our Hold rating range. • US 10-year Treasury yield of 1.5%. customer needs. by supermarkets stores are food items, which Thus, we initiate coverage on MERS with • Inflation differential (between Qatar Hold/Low Risk rating. have the most resilient demand against economic • Plans to launch an on-line shopping platform to and USA) of 1.6%. challenges. further enhance the shopping experience through DCF – QAR267.0/share: Our projection • Adjusted 5-year monthly beta of 0.80. e-commerce. assumptions are mainly based on the • US equity risk premium (ERP) of 6.1%, • Sustainable demand due to the massive • MERS business is supported by the Qatari company’s expansion plan to open 14 Qatar country risk premium (CRP) of diversification of consumer goods in government ownership with 29% stake. stores in Qatar and one new supermarket 1.0% as implied by its credit default hypermarkets, which provides great adaptability in Oman. We assumed that the new stores spread (CDS) of 0.8%, levered up by 30% to the change in consumer preferences. • Working aggressively to approach global suppliers will be opened through 2020. Any to account for inherent volatility in • Consumers have preference towards branded directly from the UK, USA, Europe and Turkey to additional store above the 14 planned equity returns. hypermarkets, supermarkets, and convenience bring new products at competitive prices. In 2015, stores will add 1.7% or QAR3.9 to our PT. • Terminal WACC and terminal growth stores chains rather than small groceries. MERS stated that it deals with 51 international rate of 6.9% and 2.5%, respectively. vendors supplying more than 4,800 products. We discounted MERS's free cash flow to • High per-capita income in Qatar (c.USD66,265) the firm (FCFF) using a weighted average Multiples – QAR148.8/share: We used and high spending power towards consumer • Not exposed to significant currency risk as the cost of capital (WACC) of 7.6% on average. MENA peers’ forward PER and EV/EBITDA goods specifically. Qatari riyal (QAR) is pegged to the US dollar (USD). We extended our valuation period to 2032, of 12.8x and 11.2x, respectively, to reach • Higher number of visits and footfall to malls in the Key Risks assuming no further expansions, to include an average fair value of QAR148.8/share. GCC region compared to other regions. • Purchasing power might be affected by lower oil Valuation models • Expected massive number of tourist arrivals by prices. This might negatively affect the DCF Valuation 2022 for attending “FIFA World Cup 2022” will consumption of consumer goods and staples. All figures in QAR mn except per share numbers trigger growth in visits and footfall to • Absence of barriers to entry. Sum of PV of FCFF (2017-2032) 29.8% 1,610 supermarkets and malls. PV of Terminal Value 70.2% 3,798 • Small-sized market in terms of the population Enterprise Value 5,408 • Political instability in Turkey and civil war in the (c.2.6mn) and the number of cities. Levant may change tourists’ destination to Qatar. Investment in Associates (2016) 155 • Competition from international supermarkets and (Net debt)/Net Cash (2016) (182) • Developed and modernized infrastructure in high penetration of retail stores compared to the Minority Interest (2016) (40) Qatar and other GCC countries lowers the population size decreases expansion Equity value 5,340 required capex and facilitates the logistics. opportunities in the domestic market. No. of shares 20.0 Company’s strengths • Long-term fair value 70.0% 267.0 Majid Al Futtaim (MAF) plans to invest USD1.3bn • Leadership position in the retail industry in Qatar. in Oman, including Carrefour hypermarket. Multiples Valuation • Strategic expansion plans in Qatar and Oman • Competition in the consumer goods retail sector MENA Forward EV/EBITDA 11.2x through partnership and acquisitions. puts pressure on working capital, resulting in a Target equity value 3,009 lowering negative cash conversion cycle. Implied Fair Value 150.5 • Prevalence in all places in Qatar to implement its MENA Forward PER 12.8x “Your Favorite Neighborhood Retailer” slogan. • Significant capex required for expansion. Thus, we expect MERS to take on more debt and financial EPS (2017) 11.5 • Growing market perception of “Al Meera” brand burden to fund its expansions and working Implied Fair Value 147.1 since starting the refurbishment and construction capital. We expect that high capex will be of its new malls and stores in 2010. Average Multiple Valuation 30.0% 148.8 reflected in negative cash flows through 2019. Weighted Average Price Target 231.5 • Embracing the latest innovations into store Source: MubasherTrade Research estimates design. Page 5 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Valuation (Cont.’d)

7-Year CAGR Unit 2014a 2015a 2016e 2017e 2018e 2019e 2020e 2021e 2022e (2015-2022)

Total Retail Sales 2,176 2,449 2,806 3,162 3,494 3,834 4,157 4,379 4,499 9.1% Rental income 43 50 68 75 82 90 99 109 120 13.3% Other operating income 81 21 21 21 20 20 20 20 20 -1.0% Total operating income QAR mn 2,300 2,521 2,895 3,257 3,597 3,945 4,276 4,509 4,639 9.1% YoY Growth % 10.6% 9.6% 14.9% 12.5% 10.4% 9.7% 8.4% 5.4% 2.9%

EBITDA KPIs QAR mn 253 201 246 296 329 363 405 447 450 12.2% EBITDA margin % 11.0% 8.0% 8.5% 9.1% 9.2% 9.2% 9.5% 9.9% 9.7% EBIT QAR mn 228 165 203 239 258 277 303 331 324 10.1% EBIT Margin % 9.9% 6.6% 7.0% 7.4% 7.2% 7.0% 7.1% 7.3% 7.0% Net Profits After Taxes QAR mn 227 162 199 229 241 253 272 296 287 8.5%

2014a 2015a 2016e 2017e 2018e 2019e 2020e 2021e 2022e EBIT 228 165 203 239 258 277 303 331 324 Depreciation & Amortization 25 36 43 57 71 86 102 116 126 Capex (327) (137) (272) (297) (321) (346) (336) (276) (276) Change in Working Capital 233 124 62 (37) (34) (36) (37) (34) (23)

FCFF 159 188 37 (38) (26) (19) 31 137 150

PV of FCFF (37) (25) (17) 28 118 126

PV of FCFF CalculationofFCFF PV Terminal value (end of 2032) - based on TGR 5,877

Adjusted Beta 0.80 Equity weight 96.0% 91.4% 87.7% 84.1% 81.3% 80.0% 78.6% US ERP 6.1% Debt weight 4.0% 8.6% 12.3% 15.9% 18.7% 20.0% 21.4% Country Risk Premium 1.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Equity (CoE) 8.9% Aftr Tax Cost of Debt (AT CoD) 3.2% AT CoD 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% 3.2%

Valuation Terminal Growth Rate 2.5% WACC 8.7% 8.4% 8.2% 8.0% 7.8% 7.8% 7.7% Assumptions Terminal ROIC 7.2% ROIC 13.4% 14.6% 13.5% 12.6% 12.1% 11.9% 10.9% Terminal WACC 6.9% All figures in QAR mn except per share numbers Sum of PV of FCFF (2017-2032) 1,610 PV of Terminal Value 3,798 Enterprise Value 5,408 Cost of equity Investment in Associates (2016) 155 7.1% 8.0% 8.9% 9.8% 10.7% (Net debt)/Net Cash (2016) (182) 1.5% 326.4 291.7 263.4 239.8 219.9 Minority Interest (2016) (40) 2.0% 330.3 294.2 265.1 241.0 220.7

FairValue Equity value 5,340 2.5% 335.1 297.2 267.0 242.3 221.6

No. of shares 20 Growth 3.0% 341.1 300.7 269.2 243.7 222.6 Long-term fair value 267.0 3.5% 349.4 305.0 271.7 245.2 223.6

Source: Bloomberg, company reports, and MubasherTrade Research estimates Page 6 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Valuation (Cont.’d)

Expansion phase Fading phase

16.0% 14.9%

14.0% 12.5% We stretched our 12.0% 10.4% estimates through 2033 9.7% 10.0% 8.4% in order to envisage the 7.3% 7.0% 7.0% 8.0% 6.5% 6.6% 6.6% 6.7% 6.7% 6.8% 6.8% 6.9% 6.9% 7.0% FCFF during the growth 5.4% 6.0% 7.0% 7.4% 7.2% 7.0% 7.1% 4.0% 2.9% 2.7% 2.5% and fading phases. 2.3% 2.2% 2.0% 1.8% 1.7% 1.5% 1.3% 1.2% 2.0% 1.0% 0

0.0%

2016e 2017e 2020e 2021e 2022e 2025e 2026e 2027e 2030e 2031e 2032e 2018e 2019e 2023e 2024e 2028e 2029e 2033e Operating income growth EBIT margin

Expansion phase Fading phase

QAR mn 20.0% 300 We expect MERS to enter 18.0% 250 16.0% 14.6% 13.4% 13.5% 200 into the “fading phase” 14.0% 12.6% 12.1% 11.9% 10.9% 150 after “FIFA 2022”, 12.0% 9.8% 9.6% 9.3% 9.0% 8.7% 10.0% 8.4% 8.1% 7.8% 100 7.5% 7.2% 6.9% assuming no additional 8.0% - 50 8.7% 8.4% 8.2% 6.0% - 8.0% 7.8% 7.8% 7.7% 7.6% 7.5% 7.5% stores will be opened 7.4% 7.3% 7.2% 7.2% 7.1% 7.0% 6.9% 6.9% - 4.0% - thereafter. 2.0% (50)

0.0% 0 (100)

2016e 2017e 2020e 2023e 2024e 2027e 2028e 2031e 2018e 2019e 2021e 2022e 2025e 2026e 2029e 2030e 2032e 2033e FCFF ROIC WACC

Source: Bloomberg, company reports, and MubasherTrade Research estimates Page 7 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Valuation (Cont.’d)

Mkt cap EBITDA Margin PER EV/EBITDA Dividend Yield (USD mn) Country Company name 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 Morocco Label Vie 267 5.6% 7.1% 6.4% 6.3% 41.2x 27.4x 18.3x 15.8x 15.3x 10.2x 9.1x 8.5x -- -- 2.8% 3.4% Saudi Arabia eXtra 248 4.6% 2.7% 2.7% 3.2% 19.9x 29.2x 13.4x 12.6x 14.1x 13.8x 8.0x 6.4x 0.0% -- 4.3% 4.8% Saudi Arabia Al Othaim 1,202 5.8% 5.6% 5.2% 5.3% 22.1x 17.3x 17.8x 15.3x 15.7x 12.9x 13.6x 11.9x 1.7% 2.2% 2.0% 2.4% Saudi Arabia Saudi Marketing Co 408 8.3% 8.4% 8.6% 8.7% 27.4x 20.1x 11.0x 8.7x 20.7x 15.9x 10.5x 9.1x -- -- 2.3% 3.4% Saudi Arabia Al Hokair 2,400 17.3% 16.4% 16.2% 15.5% 24.5x 25.3x 11.3x 12.7x 21.3x 20.5x 9.7x 10.2x 1.5% 2.3% 5.5% 4.1% Saudi Arabia Jarir 2,604 13.3% 13.2% 12.6% 12.9% 22.4x 17.4x 13.1x 11.9x 22.1x 17.0x 12.2x 11.3x 3.3% 4.8% 6.4% 7.0% Saudi Arabia Shaker 351 7.8% 5.6% 5.9% 6.8% 5.7x 13.1x 6.7x 5.3x 22.1x 23.6x 18.2x 14.9x 4.2% 0.0% 8.4% 8.4% Saudi Arabia Aldrees 367 9.5% 9.4% 6.1% 6.7% 16.6x 12.0x 11.1x 9.9x 11.4x 9.2x 8.1x 7.1x 3.9% 4.6% 5.8% 5.8% MENA Average 981 9.0% 8.5% 8.0% 8.2% 22.5x 20.2x 12.8x 11.5x 17.8x 15.4x 11.2x 9.9x 2.4% 2.8% 4.7% 4.9% MENA Median 388 8.1% 7.7% 6.2% 6.7% 22.3x 18.7x 12.2x 12.3x 18.2x 14.9x 10.1x 9.6x 2.5% 2.3% 4.9% 4.5% Belgium Delhaize Group 12,033 4.8% 5.6% 6.5% 6.5% 32.7x 25.0x 18.4x 17.0x 7.1x 7.4x 7.2x 6.9x 2.6% 1.5% 1.8% 1.9% Belgium Colruyt 8,368 7.9% 7.5% 7.9% 7.8% 17.9x 18.3x 19.9x 19.6x 8.7x 9.0x 9.7x 9.4x 2.5% 2.5% 2.1% 2.2% Britain Morrison Supermarkets 5,739 1.7% -1.8% 4.6% 5.0% n/a n/a 19.3x 18.7x 28.1x 23.8x 8.2x 7.8x 5.4% 7.6% 2.7% 2.7% Britain Sainsbury 5,826 6.5% 2.7% 5.4% 5.2% 8.3x n/a 10.3x 11.5x 4.4x 9.7x 4.6x 4.8x 5.5% 5.1% 5.0% 4.5% China Yonghui Superstores 6,979 3.7% 3.0% 3.7% 3.8% 33.5x 63.1x 45.7x 39.0x 20.6x 28.8x 22.2x 18.7x 1.7% 1.5% 1.0% 1.5% China Changsha Tongcheng Holdings 681 6.2% 4.6% 5.9% 6.6% 25.6x 47.8x 39.6x 33.3x 13.5x 25.8x 18.6x 16.2x 1.5% 0.0% -- -- China Guangzhou Friendship Group 5,193 9.1% 8.4% 5.6% 5.1% 27.7x 40.9x 39.0x 29.8x 19.9x 35.9x 181.0x 172.8x 2.5% 0.8% 1.2% 1.3% China Shanghai Bailian Group 3,536 4.1% 3.8% 4.0% 4.4% 17.0x 17.1x 14.8x 13.7x 10.7x 12.5x 9.6x 8.7x 2.3% 0.0% 2.2% 2.3% France Carrefour 19,126 5.2% 4.7% 5.1% 5.3% 15.1x 19.7x 14.0x 12.3x 6.2x 6.8x 6.6x 6.1x 2.7% 2.6% 3.3% 3.6% Germany METRO 10,107 3.7% 3.7% 4.1% 4.2% n/a n/a 15.5x 13.5x 5.9x 5.0x 5.3x 5.1x 3.4% 4.1% 3.6% 3.9% Hong Kong Dairy Farm Int. Holding 9,736 6.6% 5.8% 5.8% 6.1% 23.9x 19.4x 21.8x 19.8x 16.3x 13.5x 15.8x 14.4x 2.6% 3.3% 3.0% 3.3% Japan Seven & i Holdings 38,563 10.8% 10.7% 9.2% 9.8% 19.2x 23.4x 21.2x 20.7x 7.0x 7.8x 6.6x 6.4x 1.8% 1.6% 1.8% 2.0% Japan J Front Retailing Company 3,327 5.2% 5.3% 5.6% 5.6% 10.8x 22.7x 12.2x 13.2x 9.2x 10.7x 8.4x 8.6x 1.7% 1.5% 2.1% 2.3% Japan Belc Co Ltd 855 7.0% 6.7% 6.7% 7.0% 9.6x 15.2x 17.0x 14.5x 5.2x 8.0x 8.6x 7.8x 2.2% 1.4% 1.1% 1.4% Japan Matsumotokiyoshi Holdings 2,601 5.8% 5.1% 6.3% 6.5% 13.3x 19.8x 14.5x 13.4x 5.8x 9.2x 7.0x 6.5x 1.8% 1.4% 1.7% 1.9% Portugal Jeronimo Martins 10,639 5.7% 5.7% 6.0% 6.2% 17.4x 22.6x 24.8x 21.8x 8.0x 10.3x 11.6x 10.6x 2.9% 2.2% 2.3% 2.5% Russia X5 Retail Group 6,284 7.7% 7.2% 7.2% 7.3% 15.2x 26.5x 17.0x 12.4x 6.1x 8.8x 7.6x 6.2x -- -- 0.0% 0.0% Russia O'Key Group 511 7.3% 6.1% 6.1% 6.2% 13.2x 20.5x 13.1x 10.4x 8.6x 6.6x 5.1x 4.6x 4.3% 4.2% 3.0% 3.2% Sweden Axfood AB 3,970 5.5% 5.9% 6.1% 6.1% 22.3x 22.7x 22.0x 21.2x 11.1x 11.9x 12.3x 11.8x 3.6% 3.4% 3.5% 3.7% Thailand Big C Supercenter 5,173 10.6% 9.9% 11.3% 11.8% 27.0x 24.2x 23.3x 20.9x 15.1x 13.7x 13.9x 12.6x 1.1% 1.3% 1.3% 1.5% United States Ingles Markets 758 5.8% 6.4% 6.3% 6.4% 24.4x 15.7x 13.1x 12.1x 6.7x 7.4x 6.9x 6.7x 2.7% 1.5% -- -- United States Whole Foods Market 9,872 9.2% 8.4% 8.5% 8.3% 24.1x 19.2x 20.4x 20.4x 9.9x 8.3x 7.7x 7.6x 1.3% 1.7% 1.7% 1.9% United States Kroger Co. 31,132 4.5% 4.7% 5.2% 5.2% 12.4x 19.5x 16.0x 14.8x 6.7x 8.9x 7.6x 7.1x 1.7% 1.0% 1.3% 1.4% United States Wal-Mart Stores 228,777 7.5% 7.5% 7.1% 6.7% 14.8x 17.0x 16.1x 17.2x 8.3x 8.7x 7.9x 8.3x 2.5% 2.3% 2.7% 2.7% Developed Average 17,908 6.3% 5.7% 6.3% 6.4% 19.3x 24.8x 20.4x 18.4x 10.4x 12.4x 16.7x 15.7x 2.6% 2.3% 2.2% 2.3% Developed Median 6,055 6.0% 5.8% 6.1% 6.2% 17.6x 20.5x 17.7x 17.1x 8.4x 9.1x 8.0x 7.8x 2.5% 1.6% 2.1% 2.2% Global Average 13,676 7.0% 6.4% 6.7% 6.8% 20.2x 23.5x 18.5x 16.7x 12.2x 13.2x 15.3x 14.2x 2.6% 2.4% 2.9% 3.0% Global Median 4,572 6.4% 5.9% 6.1% 6.4% 19.5x 20.1x 16.5x 14.7x 10.3x 10.3x 8.5x 8.4x 2.5% 1.9% 2.3% 2.6% Al Meera @ Market Price 1,209 11.0% 8.0% 8.5% 9.1% 17.7x 27.1x 22.2x 19.2x 13.7x 20.0x 16.5x 14.3x 4.5% 4.1% 4.1% 3.6% Al Meera @ MTRe price target 1,272 20.4x 28.6x 23.3x 20.2x 18.7x 23.5x 19.6x 17.0x 3.9% 3.9% 3.9% 3.5% Better than regional peers' average Source: Bloomberg, company reports, and MubasherTrade Research estimates Page 8 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Valuation (Cont.’d)

PER 2016 vs. Global Median EV/EBITDA 2016 vs. Global Median

Shaker 6.7x eXtra 8.0x Saudi Marketing Co 11.0x Aldrees 8.1x Aldrees 11.1x Label Vie 9.1x Al Hokair 11.3x Al Hokair 9.7x Jarir 13.1x Saudi Marketing Co 10.5x eXtra 13.4x Jarir 12.2x Al Othaim 17.8x Al Othaim 13.6x Label Vie 18.3x Al Meera 16.5x Al Meera 22.2x Shaker 18.2x Sainsbury 10.3x Sainsbury J Front Retailing Company 12.2x 4.6x O'Key Group O'Key Group 13.1x 5.1x Ingles Markets 13.1x METRO 5.3x 16.5x Carrefour 6.6x Carrefour 14.0x 8.5x Matsumotokiyoshi Holdings 14.5x Seven & i Holdings 6.6x Shanghai Bailian Group 14.8x Ingles Markets 6.9x METRO 15.5x Matsumotokiyoshi Holdings 7.0x Kroger Co. 16.0x Delhaize Group 7.2x Wal-Mart Stores 16.1x Kroger Co. 7.6x Belc Co Ltd 17.0x X5 Retail Group 7.6x X5 Retail Group 17.0x Whole Foods Market 7.7x Delhaize Group 18.4x Wal-Mart Stores 7.9x Morrison Supermarkets 19.3x Morrison Supermarkets 8.2x Colruyt 19.9x J Front Retailing Company 8.4x Whole Foods Market 20.4x Belc Co Ltd 8.6x Seven & i Holdings 21.2x Shanghai Bailian Group 9.6x Dairy Farm Int. Holding 21.8x Colruyt 9.7x Axfood AB 22.0x Jeronimo Martins 11.6x Big C Supercenter 23.3x Axfood AB 12.3x Jeronimo Martins 24.8x Big C Supercenter 13.9x Guangzhou Friendship Group 39.0x Dairy Farm Int. Holding 15.8x Changsha Tongcheng… 39.6x Changsha Tongcheng Holdings 18.6x Yonghui Superstores 45.7x Yonghui Superstores 22.2x

MERS trades above median regional and Regional peers global 2016e PER and EV/EBITDA Global peers

Source: Bloomberg, company reports, and MubasherTrade Research estimates Page 9 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Valuation (Cont.’d)

EBITDA margin 2016 vs. Global Median Dividend yield 2016 vs. Global Median

eXtra 2.7% Al Othaim 5.2% Al Othaim 2.0% Shaker 5.9% Saudi Marketing Co 2.3% Aldrees 6.1% Label Vie 2.8% Label Vie 6.4% Al Meera 4.1% Al Meera 8.5% eXtra 4.3% Saudi Marketing Co 8.6% Al Hokair 5.5% Jarir 12.6% Aldrees 5.8% Al Hokair 16.2% Jarir 6.4% Yonghui Superstores 3.7% Shaker 8.4% Shanghai Bailian Group 4.0% Yonghui Superstores 1.0% METRO 4.1% 6.1% Belc Co Ltd 1.1% Morrison Supermarkets 4.6% 2.3% Guangzhou Friendship Group 1.2% Carrefour 5.1% Kroger Co. Kroger Co. 5.2% 1.3% Big C Supercenter Sainsbury 5.4% 1.3% J Front Retailing Company 5.6% Matsumotokiyoshi Holdings 1.7% Guangzhou Friendship Group 5.6% Whole Foods Market 1.7% Dairy Farm Int. Holding 5.8% Seven & i Holdings 1.8% Changsha Tongcheng Holdings 5.9% Delhaize Group 1.8% Jeronimo Martins 6.0% J Front Retailing Company 2.1% Axfood AB 6.1% Colruyt 2.1% O'Key Group 6.1% Shanghai Bailian Group 2.2% Matsumotokiyoshi Holdings 6.3% Jeronimo Martins 2.3% Ingles Markets 6.3% Wal-Mart Stores 2.7% Delhaize Group 6.5% Morrison Supermarkets 2.7% Belc Co Ltd 6.7% Dairy Farm Int. Holding 3.0% Wal-Mart Stores 7.1% O'Key Group 3.0% X5 Retail Group 7.2% Carrefour 3.3% Colruyt 7.9% Axfood AB 3.5% Whole Foods Market 8.5% METRO 3.6% Seven & i Holdings 9.2% Sainsbury 5.0% Big C Supercenter 11.3%

MERS provides higher margins compared to Regional peers regional & global peers’ median Global peers

Source: Bloomberg, company reports, and MubasherTrade Research estimates Page 10 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Valuation (Cont.’d)

MERS trades at high PER but with higher estimated MERS trades at high EV/EBITDA despite its above median earnings growth margin EPS CAGR (2015-18) 2016e EBITDA margin 25% 18.0% Label Vie 16.0% Al Hokair

20% eXtra 14.0% Saudi Marketing Jarir Co 12.0% 15% Al Meera 10.0% Shaker Al Othaim Al Meera 8.0% Saudi Marketing 10% Co Label Vie 6.0% Aldrees Shaker Al Othaim 5% Aldrees 4.0% Jarir eXtra 2.0% Al Hokair PER 2016e 2016e EV/EBITDA 0% 0.0% 5.0x 7.0x 9.0x 11.0x 13.0x 15.0x 17.0x 19.0x 21.0x 23.0x 25.0x 5.0x 7.0x 9.0x 11.0x 13.0x 15.0x 17.0x 19.0x

Source: Bloomberg, company reports, and MubasherTrade Research estimates Page 11 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Financial Summary

Balance Sheet (QAR mn) Per-Share Data FY End: December 2013a 2014a 2015a 2016e 2017e 2018e FY End: December 2013a 2014a 2015a 2016e 2017e 2018e Total cash & short-term investments 810 624 472 521 586 647 Price 133.3 200.0 220.0 220.1 220.1 220.1 Accounts receivable, net 48 42 51 64 78 94 # Shares (mn) 20.0 20.0 20.0 20.0 20.0 20.0 Inventories 149 172 183 202 225 249 EPS 9.8 11.3 8.1 9.9 11.5 12.0 Other Current Assets - 0 6 6 7 7 DPS 8.0 9.0 9.0 9.0 8.0 8.4 Total current assets 1,006 838 712 792 896 997 BVPS 68.2 70.2 69.3 70.2 72.7 76.7 Net property, plant and equipment 284 588 691 922 1,164 1,415 Goodwill & Other intangible assets 356 354 353 353 353 353 Valuation Indicators Equity and other investments 148 210 210 155 155 155 FY End: December 2013a 2014a 2015a 2016e 2017e 2018e Other assets 0 0 0 0 0 0 PER (x) 13.6x 17.7x 27.1x 22.2x 19.2x 18.3x Total assets 1,795 1,991 1,966 2,222 2,568 2,920 PBV (x) 2.0x 2.8x 3.2x 3.1x 3.0x 2.9x Short-term debt - - 4 111 356 576 EV/Sales (x) 0.9x 1.5x 1.6x 1.4x 1.3x 1.2x Accounts Payable 370 435 427 570 636 702 EV/EBITDA (x) 8.0x 13.7x 20.0x 16.5x 14.3x 13.3x Total current liabilities 370 435 430 681 992 1,279 Dividend Payout Ratio 81.6% 79.4% 111.0% 90.6% 70.0% 70.0% Long-term debt - 88 85 71 56 42 Dividend Yield 6.0% 4.5% 4.1% 4.1% 3.6% 3.8% Other non-current liabilities 61 63 66 66 66 66 Total long term liabilities 61 152 151 137 122 108 Profitability & Growth Ratios Net Paid in capital 200 200 200 200 200 200 FY End: December 2013a 2014a 2015a 2016e 2017e 2018e Total Reserves & Retained Earnings 1,164 1,205 1,185 1,204 1,253 1,333 Revenue Growth 33.1% 10.6% 9.6% 14.9% 12.5% 10.4% Shareholders' equity 1,364 1,405 1,385 1,404 1,453 1,533 EBITDA Growth 64.9% 8.4% -20.5% 22.5% 20.3% 11.2% Total equity and liabilities 1,795 1,991 1,966 2,222 2,568 2,920 EPS Growth 85.4% 15.5% -28.5% 22.6% 15.4% 5.0% EBITDA Margin 11.2% 11.0% 8.0% 8.5% 9.1% 9.2% Income Statement (QAR mn) Net Profit Margin 9.4% 9.9% 6.4% 6.9% 7.0% 6.7% FY End: December 2013a 2014a 2015a 2016e 2017e 2018e ROAE 23.5% 16.4% 11.6% 14.3% 16.1% 16.1% Total retail sales 1,946 2,176 2,449 2,806 3,162 3,494 ROAA 13.8% 12.0% 8.2% 9.5% 9.6% 8.8% Shop rental income 37 43 50 68 75 82 Other operating income 97 81 21 21 21 20 Liquidity & Solvency Multiples EBITDA 233 253 201 246 296 329 FY End: December 2013a 2014a 2015a 2016e 2017e 2018e Depreciation & Amortization (34) (25) (36) (43) (57) (71) Net Debt/(Cash) - 88 89 182 412 618 EBIT 199 228 165 203 239 258 Net Debt (Cash)-to-Equity 0.0% 6.3% 6.4% 13.0% 28.4% 40.3% Non-operating income/(expenses) (4) (1) (3) (5) (10) (17) Net Debt (Cash)-to-EBITDA 0.0x 0.3x 0.4x 0.7x 1.4x 1.9x Net Profits Before Taxes 195 227 162 199 229 241 Debt-to-Capital 0.0% 5.9% 6.0% 11.5% 22.1% 28.7% Extraordinary items & minority interest 1 (0) (0) - - - Current Ratio 2.7x 1.9x 1.7x 1.2x 0.9x 0.8x Net Profits After Taxes 196 227 162 199 229 241 Consensus Estimates Cash Flow Statement (QAR mn) FY End: December 2016e 2017e 2018e FY End: December 2013a 2014a 2015a 2016e 2017e 2018e Revenues 2,795 3,120 3,554 Net Cash From Operating Activities (229) 486 319 308 259 294 MubasherTrade Research vs. Consensus 0.4% 1.3% -1.7% Net Cash used in Investing Activities (227) (389) (137) (217) (299) (323) Net Income 234 259 296 Net Cash used in Financing Activities 456 (97) (182) (202) (204) (192) MubasherTrade Research vs. Consensus -15.1% -11.3% -18.5% Net Change in Excess Cash - 0 (0) (111) (244) (220) PER (x), MTR Price Target 23.3x 20.2x 19.2x PBV (x), MTR Price Target 3.3x 3.2x 3.0x CAPEX (84) (327) (137) (272) (297) (321) EV/EBITDA (x), MTR Price Target 19.6x 17.0x 15.9x

Source: Company data, MubasherTrade Research estimates a = Actual; e = Estimate

Page 12 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Macro & Industry Overview

The most attractive retail market in the MENA growth, tourism growth, unemployment rate, growing business centers in the world. Building market in terms of infrastructure projects, region; the fourth globally: Qatar is emerging as urbanization rate, and car ownership and construction is a major contributor to the behind Saudi Arabia. In preparation for “FIFA one of the most attractive markets for retailers in (accessibility to malls and hypermarkets). In economy by 5.6% to GDP in 2014. According to 2022 World Cup” Qatar is investing heavily in the MENA region, according to the Global Retail Qatar, the retail sector has a sustainable growth Bank Audi’s Qatar Economic Report (May 2016), developing the country’s infrastructure, Development Index (GRDI) produced by A.T. due to the defensive nature of business despite the construction sector grew by 18.0% YoY in properties, and hotels to accommodate the Kearney. The Gulf state was ranked fourth in the continued drop in oil prices. Specifically, we 2015 versus 17.8% YoY growth in 2014. However, expected massive number of visitors and tourists 2015, ahead of the region's shopping hub of the expect that the footfall in supermarkets and the construction projects awards in Q1 2016 before and during FIFA World Cup events. UAE which boasts two of the world's largest hypermarkets will not be affected significantly by dropped by 92% YoY and by 70% QoQ to reach According to Gulf Business, Qatar is undertaking retail hubs. Globally, Qatar has the top scores in economic challenges as the food items typically USD830mn, falling for the first time below the projects worth USD8.5bn to implement a huge terms of market attractiveness and country risk. represent more than two-thirds of products sold. USD1bn since winning the World Cup host in tourism program, including the establishment of Regionally, Qatar (59.1) outpaces the UAE (58.0), High spending power in Qatar: The main factor 2010. This drop was mostly attributed to 57 hotels and resorts, 22 shopping venues, 21 Turkey (54.1), and Saudi Arabia (50.1) in GRDI. that affect the retail sector growth is the declining oil prices. According to Meed, the sports facilities, 11 theme parks, six convention We highlight that the GCC region is characterized country’s high per-capita income (c.USD66,265) construction awards declined by 5% YoY to reach centers and a theater. In view of its strategic by higher visits and footfall to malls compared to and high spending power toward consumer USD32bn. However, we expect that the “Vision 2030”, Qatar plans to attract 7mn visitors other regions as well as high consumer goods specifically. According to Trading construction sector should regain momentum by 2030 (vs. 2.8mn in 2014). In addition to the preference towards branded hypermarkets, Economics, the consumer spending in Qatar is starting 2017 in preparation for “FIFA World Cup expected strong growth in tourism, population supermarkets, and convenience stores chains projected to grow at a 5-year CAGR (2015-2020) 2022”. According to BMI, the sector growth will growth in Qatar is supported by the inflow of rather than small groceries. of 8.2%. Meanwhile, per-capita income is be mainly driven by non-residential buildings, expatriate workers. According to the Department Six pillars support the retail sector growth: projected to grow at a CAGR of 2%, according to followed by residential buildings and transport of Economic and Social Affairs at UN, the Generally, retail sector is affected mainly by key IMF estimates. infrastructure. international migrant stock in Qatar increased by six factors, namely per-capita income FIFA World Cup will lure a massive number of 5-year CAGR (2010-2015) of 3.0%, making around Construction boom is slowing down due to 75.5% of total population. (purchasing power), population and expats slumping oil prices: Qatar is one of the fastest- tourists: Regionally, Qatar is the second largest 2015 Global Retail Development Index (GRDI) Estimated GDP growth in 2016 GDP per capita in 2016

Qatar 3.4% Qatar $66,265

Egypt 3.3% UAE $32,989

Kuwait 2.4% Kuwait $25,142

UAE 2.4% Bahrain $22,798

Bahrain 2.2% Saudi Arabia $19,313

Oman 1.8% Oman $13,060

Saudi Lebanon $11,484 Arabia 1.2%

Lebanon 1.0% Egypt $3,600

Source: A.T. Kearney Source: IMF Page 13 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Business Model

Financial summary financed from a rights issue and Islamic financing MERS’s ability to generate a higher marginal QAR44.5mn (21% of total earnings). in 2013. In February 2013, MERS issued 10mn return on new expansion investments. Robust top-line growth fueled by stores new shares at a price of QAR95/share. The group Yet, new stores triggered retails revenues and expansion: MERS started its turnaround story in received a gross premium of QAR850mn (10mn 2015 earnings distorted by the impairment of margins growth: In 2015, both retail sales (97% 2010 with the construction of Nuaija Mall branch shares at a premium of QAR85/share), which investment: In 2015, net earnings dropped of total operating income) and rental income (2% and the replacement of old cooling, packing, and was transferred to reserves, while the issued 28.5% YoY to QAR162.1mn as the company of total operating income) increased by 12.5% packaging machines. Since then, MERS spent capital was doubled to QAR200mn. In 2012, recognized an impairment of available-for-sale YoY and 17.7% YoY, respectively. The strong top- almost QAR750mn in capex to increase the MERS obtained a QAR409mn Murabaha facility financial assets of QAR47.6mn in 2015. line growth was mainly supported by opening 10 number of its total stores from 26 stores in Qatar from Al Rayan Bank, a UK-based subsidiary of Moreover, MERS reported a significant new stores in Qatar, contributing QAR210.9mn to 45 stores in Qatar (41) and Oman (4) by end of Masraf Al Rayan (MARK.QE), a local bank. The extraordinary gain of QAR61.1mn on available- to the group’s sales or 77% of retail sales growth 2015. Meanwhile, total operating income grew facility carried a profit rate of 3.5% per annum for-sale investments in 2014 due to and 75% of the combined retail and rental at a 5-year CAGR of 21.3%, driven mainly by a and was payable in one lump-sum payment on unprecedented increase in the value of listed income. Excluding contribution of new stores, 21.8% CAGR in total stores sales, which or before three years from the drawdown date. stocks during Q1 2014 vs. only QAR1.1mn in retail sales (same-store sales) increased by 2.9% represented 97% of total operating income in The loan was settled and paid off in March 2013. 2015 and compared to QAR14.9mn in 2013. YoY. Although EBITDA margin (EBITDA as a 2015. Net operating working capital more than Adjusting comparable results by those percentage of total operating income) declined doubled from QAR136mn in 2012 to QAR279mn impairment charges and extraordinary gains, to 8.0% vs. 11.0% a year ago, retail EBITDA Margins improved notably from economies of in 2015, whereas the negative cash conversion 2015 net earnings increased by 26.6% YoY to improved by c.130 basis points to 7.6% in 2015. scale and cost saving synergies: Retail EBITDA cycle (CCC) declined from 50 to 37 days on hand QAR209.7mn. The company has quoted equity margin surged from 3.9% in 2010 to 7.6% in Stagnant growth in H1 2016 earnings despite (DOH) in 2015. Meanwhile, total debt declined investments of QAR196.6mn and unquoted 2015, which was supported by the diversification the robust top-line growth: H1 2016 net from QAR408mn to QAR89mn in 2015. investments of QAR13.7mn as of December of products, cost savings from economies of 2015. The unquoted investments are carried at earnings edged up by 1.5% YoY to QAR102.3mn. scale, and cost of sales synergies. The synergies Profitability showed a sign of weakness: Top- cost where the impact of changes in equity Meanwhile, total operating income grew by were created in 2011, when MERS acquired line performance reflected on net earnings, prices will only be reflected when the 11.0%, driven by a 10.6% YoY growth in retail Qatar Markets Co. and Al Oumara Bakery, which grew at a 5-year CAGR (2010-2015) of investment is sold or deemed to be Impaired. As revenues (97% of total operating income) in which provided MERS with a company-owned 19.9%. Excluding one-time items, normalized per the company’s operating segments, the net addition to a 50.1% upsurge in rental income. bakery. We also believe that the brands earnings increased at a 26.2% CAGR. However, profits of retail segment jumped by 33% YoY to EBITDA margin declined to 9.5% versus 9.7% a produced under the name of “Al Meera” also return on equity (ROE) retreated notably from QAR149.3mn (71% of total normalized earnings). year ago. Given a 67% YoY increase in capex on helped in improving margins. 26.3% in 2010 to 11.7% (15.1% based on Meanwhile, normalized earnings of investment the company’s expansion plan, depreciation normalized earnings) in 2015. Also, return on segment declined by 4% YoY to QAR16.1mn (8% expenses jumped by 53.4% YoY to QAR23.5mn. Expansions financed by a rights issue and invested capital (ROIC) dropped from 33.6% in of total normalized earnings), whereas net Islamic finance: The huge expansion capex was 2011 to 10.7% in 2015. This puts into question income of leasing segment increased by 21% to

Total stores (QAR mn) Revenues breakdown (QAR mn) EBITDA and EBITDA margin 70 11.2%11.0% 3 3 3 3 5,000 109 120 35% 500 12% 3 99 9.9% 9.7% 60 3 90 30% 9.1% 9.2% 9.2% 9.5% 3 5 5 5 5 4,000 82 9.0% 8.5% 10% 50 3 5 75 25% 400 8.0% 5 5 68 4 3,000 50 8% 40 2 3 43 20% 300 - 4 4 33 37 30 - 2,000 15% 6% 50 53 55 55 55 200 41 44 47 10% 20 1,000 4%

29 31 31 5%

1,946 2,176 2,449 2,806 3,162 3,494 3,834 4,157 4,379 4,499 10 1,504 100 2% 0 0% 0 0 0%

Total stores in Qatar Total stores in Oman WHSmith stores Total Retail Sales Rental income Growth in revenues Retail EBITDA EBITDA EBITDA margin Source: Company reports and MubasherTrade Research estimates Page 14 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

2010 | When the turnaround story started 2011 | Expanding through strategic agreements 2012 | Starting to reap the fruits of acquisitions Stores Stores Stores • A contract was signed for the construction of Nuaija Mall • Completed the construction of Abu Nakhla branch with a • Total store space increased by 8,900 sqm (+21%) with the branch. retail area dedicated to MERS of 3,082 sqm, out of an overall opening of branches in Umbearik, Airport Road, and mall area of 16,788 sqm. Sailiya. • The initial approval on allocating a number of proposed lands for constructing new branches was obtained. Acquisitions & Strategic Agreements • Started the development of three convenient stores and two supermarkets in addition to the design work of 10 • Muaither branch was closed and handed over to the owner, • Acquired Qatar Markets Co. and Al Oumara Bakery, which other stores, including a mid-sized mall in Ain Khalid. according to a court ruling, due to the owner’s request for provided five new outlets (15,000 sqm) in addition to demolition and reconstruction. providing MERS with a company-owned bakery. Acquisitions & Strategic Agreements • Purchased five “Safeer” stores in Oman with its partner Acquisitions & Strategic Agreements • Joint venture with the French retailer, Casino Group, to NIFCO. operate hypermarkets under the banner of “Geant” in • After completing the feasibility study, the board of directors Tunisia, Libya, Egypt, and Jordan, in addition to the current • Gaining hypermarket experience from the acquisition of deemed the Mawashi merger as “unprofitable”. franchise projects in Qatar and Oman. Qatar Markets Co. by adding more non-food products, such as electronics. Operational Development & Performance • Signed an MOU with National Investment Fund Co. (NIFCO) • The old freezers and cooling systems have been replaced of Oman to jointly operate shopping malls and supermarkets • MOU was signed with Aramex International Courier with new ones in some branches to support the sales of in Oman. Express and Regency Group Holding to form a JV to build fruits and vegetables. and operate a logistics facility. A distribution center will be • A franchise agreement with the Thailand-based Index Living set up to provide valued-added services (VAS), including • Machines for packing and packaging grains and groceries Mall Co. to operate furniture mega-stores in Qatar, Egypt, third-party storage and other logistical services, such as were installed and operated in a modern way. This Oman, and Jordan. trucking, customs clearance, and freight services. MERS multiplied the production by 5x. • A franchise agreement with WHSmith Travel Limited to and its partners co-manage the design and construction of all facilities. • Started to import materials and produced 33 products under operate bookstores in Qatar. MERS had said it would open at the “Al Meera” name. least 10 stores within the following five years. Operational Development & Performance • MERS held the first rank in the supply and sale of Tamween Operational Development & Performance • Renovation and upgrades helped to dedicate more store space to enlarge and diversify offerings. This has items (the essential foodstuff) for the Qatari families through • Items imported under “Al Meera” brand reached 500 items. the distribution of coupons to citizens in seven branches. The contributed to an average increase of 20%+ in sales of distribution of Tamween items increased by 64% YoY to • Installed new refrigerators and cooling devices to expand stores renovated and upgraded. 600,000 units despite the limited number of warehouses. offerings of fresh products. • MERS added over 2,500 Casino-branded products to its Financing • Bakery sales increased by 155% as a result of inaugurating offerings. Casino brand is owned by Casino Group and is more bakery counters in five branches. exclusive to MERS in Qatar and Oman. • Concluded an Islamic financing contract with Al Rayan Bank • to finance its construction refurbishment plans. • Rental income of leased stores increased 15.8% YoY despite Giant Stores reported a 65.3% YoY growth in profits due to closing Nuaija branch for rehabilitation and the loss of rental cost savings from economies of scale and cost of sales income from one branch. synergies.

Page 15 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

2013 | Entering the Omani market 2014 | Investing in expansion and refurbishment 2015 | Further expansions in Qatar and Oman Stores Stores Stores • • Increased store space in Qatar by adding two new The construction of nine new malls was completed. Each • Nine new shopping malls were opened in addition to the supermarkets (4,100 sqm) in Nuaija and Lqutaifiya in shopping mall includes a contemporary Al Meera first Al Meera brand in the Gulf Mall. Each of the new addition to three convenience stores in Sealine, Beverly Hills supermarket, shopping outlets and a number of restaurants. stores offers shoppers a wide variety of food and non-food 3, and, Barwa Messaimeer. • MERS started the construction of 14 new malls, which will related items as well as fresh products. increase store space by another 32,500 sqm from 72,500 sqm • In 2015, these ten new stores contributed QAR210.9mn to • Inaugurated first Géant Hypermarket at Hyatt Plaza in Qatar. to over 100,000 sqm. The transformation and rebranding of Giant Stores to Géant the group’s sales. Overall, the new stores, with a total with alignment of its prices with MERS stores increased the • The hypermarkets and malls in the three key cities of Oman selling area of 13,975 sqm, contributed a remarkable 9.7% footfall and sales from these stores. were completely refurbished and converted into community growth to 2015 sales. malls, consisting of retail shops, eateries and Al Meera • The refurbished stores continued their sales growth in • Launched two WHSmith franchise stores in Qatar in Nuaija hypermarket as anchor. Mall and a flagship store in Ezdan Mall. 2015 with Mamoura at 20% and Azghawa at 13%. Hazm Operational Development & Performance Markhiya, of which revamp was completed in June 2015, grew at 8%, although the mall was not yet launched. The • Completed the acquisition of five new stores (three • In September 2014, MERS together with its partners, hypermarkets and two supermarkets) in Oman with total Regency Group Holding and Aramex Regional, incorporated a revamp of old Wakra was completed in May 2015. space of 15,400 sqm. logistics company called Aramex Logistics Services Co. to • Started construction of five out of the 14 additional • Leased a 1,700 sqm supermarket space in a new shopping develop and operate a logistics facility and services business community malls in Qatar. mall (Gulf Mall). in Qatar. This involves building a logistics distribution center on a 91,000 sqm land plot. The initial phase will include a • Signed a lease to open a new supermarket (1,500 sqm) in Operational Development & Performance 20,000 sqm warehousing facility, with plans to quadruple the Al Muzn Mall in Oman to be opened in H2 2015. warehouse in the future phases. • Earnings jumped by 85% to QAR196.1mn. In July 2013, as Operational Development & Performance part of the government’s infrastructure, design and • Since its inauguration in 2013, the sales of first Géant • Sales and net profit from the retail segment increased by expansion, the land and building located in Al Khor with a Hypermarket at Hyatt Plaza increased by 13.7% in 2014. 12.5% and 33.3% YoY, respectively, while shop rental net book value of QAR1.0mn was sold to the government. • The 2014 average monthly sales of Nuaija increased by 35% income and net profit from the leasing segment increased Total proceeds received from the sale amounted to compared to its 2013 average monthly sales. The 2014 by 17.7% and 20.6% YoY, respectively. QAR72.4mn, resulting in a net gain of QAR71.4mn. average monthly sales of Lqutaifiya increased by 53%, • After a fair value assessment, the board of directors Financing compared to its first full month of operations (December decided to recognize impairment losses on available-for- 2013). sale investments amounting to QAR47.6mn. As a result, • To fund expansions, the company approved to double its the investment segment ended the year with a net loss of issued capital to 20mn shares via a rights issue at QAR31.5mn compared to a net profit of QAR77.8mn in QAR95.00/share. 2014. • Sales of Azghawa and Mamoura in January 2015 (after refurbishment) increased by 22% and 13%, respectively, compared to January 2014 (before refurbishment).

Page 16 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Business Model (Cont.’d)

Forecasts assumptions Revenues per sqm match GDP growth: Since MERS said the 14 new malls will increase its total store space by 32,500 sqm, we Resilient demand against economic challenges: Demand in the expect a 5% 7-year (2015-2022) CAGR in total stores space. retail market is sustainable due to the defensive nature of Meanwhile, we project a 2.6% CAGR in revenues per average business despite the economic challenges and the continued store space (000 sqm), matching the estimated average GDP drop in oil prices. We believe that the footfall will continue rising growth of +2.7% (2016-2021), according to IMF. We expect a given that more than two-thirds of the products sold by 2.4% YoY growth in revenue per average store space in 2016 vs. supermarket stores are food items. We believe that demand will 2.3% YoY growth in 2015. Accordingly, we expect a 9.1% 7-year be supported by the high per-capita income in Qatar and the (2015-2022) CAGR in retail revenues, including 2.6% estimated high spending power marked for consumer goods specifically. CAGR in same-store sales. Population and tourists to support footfall in stores: The Huge financing needed to fund capex: We anticipate an average population growth (+2% per annum) and the expected massive growth in cost per store space by 2.6%. Thus, we expect EBITDA number of tourist arrivals by 2022 to attend “FIFA World Cup margin to improve throughout our forecasts to reach 9.7% in 2022” should also trigger growth in visits and footfall number to 2022, up from 8.0% in 2015. Similarly, we expect an upward supermarkets and malls. In light of its National Vision for 2030, trend in retail EBITDA margin to reach 8.6% in 2022 versus 7.6% Qatar is targeting 7mn tourists, representing a CAGR of c.6% in 2015. However, we expect a slower earnings growth of 4.6% (2014-2030). CAGR (based on normalized earnings in 2015). In case the YoY growth in normalized earnings company will not raise its equity through a rights issue, we (QAR mn) Expansionary plan in line with “National Vision 2030”: As per expect a huge burden from financing cost as we expect 250 44% 50% its expansion plan, MERS’s strategy is to increase the number of significant required debt to finance MERS’s expansions and 37% stores in the domestic market, in line with the construction 200 40% refurbishments in addition to its maintenance cost and 33% boom in Qatar to achieve “Qatar National Vision 2030” by operating expenses. In our forecasts, we assumed that the 150 27% 30% developing all areas in the state. Our forecasts are mainly based company will raise its net debt from QAR89mn in 2015 to 18% 18% on the company’s plan to construct 14 new shopping malls 100 20% QAR618mn in 2018, which should elevate its finance cost from across Qatar. MERS has already started the construction of five QAR2.9mn in 2015 to QAR17.3mn in 2018. Accordingly, we 50 10%

community malls, out of those 14 malls. In 2016, we

66 66 77 77

125 106 196 166 227 210 162 expect that MERS will generate negative FCFFs through 2019. 106 conservatively assume that only three stores will be opened in We do not expect a rebound in profitability indicators due to the 0 0% Qatar in addition to one supermarket in Oman, which is 2010 2011 2012 2013 2014 2015 expected huge burden of debt and finance cost. We expect net scheduled to be opened in H2 2016. debt-to-EBITDA to reach 1.9x in 2018 vs. 0.4x in 2015. Normalized earnings Net earnings YoY Growth

(000 sqm) Revenues per estimated average area (QAR mn) Net Debt (Cash)-to-Equity and Net Debt (Cash)-to-EBITDA (QAR mn) EBITDA, Capex, and FCFF 150 50 3.5x 2.9x 600 2.7x 37 38 3.0x 2.5x 2.5x 336 35 36 36 40 2.3x 450 327 321 346 276 276 33 31 32 33 34 2.5x 272 297 100 29 1.9x 300 30 2.0x 137 1.3x 1.4x 150 83 84 1.5x 188 117 117 117 20 0.7x 0.6x 0 159 137 150 50 99 106 113 1.0x 0.4x 0.5x 0.6x 0.6x 83 92 0.3x 0.3x 0.4x 37 31 69 69 0.5x 0.1x -150 (38) (26) (19) 50 10 (62) 0.0x -300 0 - -0.5x 0.1x 0.1x -450 (351)

Estimated total area of stores Revenues / Av. Store space (000 sqm) Net Debt (Cash)-to-Equity Net Debt (Cash)-to-EBITDA EBITDA Capex FCFF Source: Company reports and MubasherTrade Research estimates Page 17 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016

Business Model (Cont.’d)

7-Year CAGR Unit 2014a 2015a 2016e 2017e 2018e 2019e 2020e 2021e 2022e Comments (2015-2022)

Total stores in Qatar 31 41 44 47 50 53 55 55 55 Total stores in Oman 4 4 5 5 5 5 5 5 5 WHSmith stores 3 3 3 3 3 3 3 3 3 Total no. of stores (inc. WHSmith stores) 38 48 52 55 58 61 63 63 63 4.0% Additional stores in Qatar - 10 3 3 3 3 2 - - Additional stores in Oman - - 1 ------Additional WH Smith stores 1 ------Area of additional stores in Qatar 000 sqm - 14 7 7 7 7 5 - - Area of additional stores in Oman 000 sqm - - 2 ------Estimated total area of stores 000 sqm 69 83 92 99 106 113 117 117 117 5.0% Based on the company's expansion plan to open … YoY Growth % 0.0% 20.1% 10.1% 7.6% 7.0% 6.6% 4.1% 0.0% 0.0% … 14 stores (32,500 sqm) in Qatar and one store ... Revenues / Av. no. of stores QAR mn 58 57 56 59 62 64 67 70 71 3.3% ... in Oman (1,500 sqm). YoY Growth % -1.6% -1.8% -1.5% 5.3% 4.6% 4.2% 4.0% 3.7% 2.7% Revenues / Av. Store space (000 sqm) QAR mn 31 32 33 34 35 36 36 37 38 2.6% YoY Growth % 7.8% 2.3% 2.4% 2.9% 2.9% 2.6% 2.3% 2.2% 2.7% Sales will be supported by GDP per capita growth … Total Retail Sales QAR mn 2,176 2,449 2,806 3,162 3,494 3,834 4,157 4,379 4,499 9.1% … in addition to population and tourists growth. YoY Growth % 11.8% 12.6% 14.6% 12.7% 10.5% 9.7% 8.4% 5.4% 2.7% Weight to total revenues % 98.1% 98.0% 97.6% 97.7% 97.7% 97.7% 97.7% 97.6% 97.4% Rental income QAR mn 43 50 68 75 82 90 99 109 120 13.3% MERS to maintain growth in rental income …

YoY Growth % 16.9% 17.7% 35.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% … by opening new malls. Projection AssumptionsProjection Weight to total revenues % 1.9% 2.0% 2.4% 2.3% 2.3% 2.3% 2.3% 2.4% 2.6% Other operating income QAR mn 81 21 21 21 20 20 20 20 20 -1.0% YoY Growth % -16.8% NM NM -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% Weight to total operating income % 3.5% 0.8% 0.7% 0.6% 0.6% 0.5% 0.5% 0.4% 0.4% Total Operating Income QAR mn 2,300 2,521 2,895 3,257 3,597 3,945 4,276 4,509 4,639 9.1% Revenues growth will decelerate in 2021, assuming … % change - YoY % 10.6% 9.6% 14.9% 12.5% 10.4% 9.7% 8.4% 5.4% 2.9% … no additional stores will be opened

Cost Of Operations QAR mn (1,813) (2,022) (2,374) (2,652) (2,926) (3,207) (3,465) (3,620) (3,706) 9.0% Based on the company's expansion plan and … Cost of revenues-to-revenues % 79% 80% 82% 81% 81% 81% 81% 80% 80% … the estimated inflation rate. Cost / Av. Store space (000 sqm) QAR mn (26) (26) (27) (28) (29) (29) (30) (31) (32) 2.6% YoY growth % -3.8% 1.3% 2.4% 2.7% 2.8% 2.6% 2.6% 2.4% 2.4%

Source: Company reports, MTR estimates Page 18 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Disclosure Appendix

Important Disclosures METHODOLOGY: We strive to search for the best businesses that trade at the lowest valuation levels as measured by an issuer’s intrinsic value on a per-share basis. In doing so, we follow both top- down and bottom-up approaches. Under the top-down approach, we attempt to study the most important quantitative and qualitative factors that we believe can affect a security's value, including macroeconomic, sector-specific, and company-specific factors. Under the bottom-up approach, we focus on the analysis of individual stocks by running our proprietary scoring model, including valuation, financial performance, sentiment, trading, risk, and value creation. COUNTRY MACRO RATINGS: We analyze the four main sectors of a country’s macroeconomics, then we assign , , and  star for low risk, Low Risk, and high risk, respectively. We use different weights for each economic sector: (a) Real Sector (30% weight), (b) Monetary Sector (10% weight), (c) Fiscal Sector (25% weight), (d) External Sector (15% weight), and (e) Credit Rating and Outlook (20%). STOCK MARKET RATINGS: We compare our year-end price targets for the subject market index on a total-return basis versus our calculated required rate of return (RRR). Taking into account our Country Macro Rating, we set the “Neutral” borderline (below which is “Underweight”) as 20% of RRR for  Country Macro Rating, 40% of RRR for  Country Macro Rating, and 60% of RRR for  Country Macro Rating. That said, our index price targets are based on the average of two models. Model (1): Estimated index levels based on consensus price targets of all index constituents. Stocks with no price targets are valued at market price. Model (2): Estimated index levels based on our expected re-pricing (whether re-rating, de-rating, or unchanged rating) of the forward price-earnings ratio (PER) of each index in addition to consensus earnings growth for the forward year. SECTOR RATINGS: On the sectors level, we focus on six major sectors, namely (1) Consumer and Health Care, (2) Financials, (3) Industrials, Energy, & Utilities, (4) Materials, (5) Real Estate, and (6) Telecom Services & IT. To assess each sector, we use the SWOT analysis to list the strengths, weaknesses, opportunities, and threats in each country. We then translate our qualitative SWOT analysis into a quantitative model to evaluate all six sectors across countries. Each of the measures we used, although mostly subjective, is assigned a score as either +1 (high impact), 0 (medium impact), or -1 (low impact). At a later stage, when assigning the final rating – Overweight, Neutral, or Underweight – for each sector in each country, we realize that sometimes it is unfair to assign equal weights for the sub-sectors in each major sector assessed. Hence, some of the sub-sectors are given different weights for their significant profile in each country. Additionally, the final rating for each sector in each specific country is assigned based on a relative calculation comparing this sector to all other sectors in this country. SECURITY INVESTMENT RATINGS: We combine intrinsic value, relative valuation, and market sentiment into a single rating. Our three-pronged methodology involves (1) discounted cash flows “DCF” valuation model(s), (2) relative If Risk Rating valuation metrics, and (3) overall sentiment. Whenever possible we attempt to apply all three aspects on the issuers or Total Return Low Moderate High is … securities under review. In certain cases where we do not have our own financial and valuation models, we attempt to (1) (2) (3) scan the market for other analysts’ value estimates and ratings (i.e. consensus view) on average. We compliment this with relative valuation and sentiment drivers, such as positive/neutral/negative news flows. For all issuers/securities Buy Higher than RRR Higher than RRR Higher than RRR covered, we have three investment ratings (Buy, Hold, or Sell), comparing the security’s expected total return (including (B) both price performance and expected cash dividend) over a 12-month period versus its Required Rate of Return “RRR” as calculated using the Capital Asset Pricing Model “CAPM” and adjusted for the Risk Rating we attach to each security. Hold Between RRR Between RRR Between RRR Our price targets are subjective and are estimates of the analysts where the securities covered will trade within the (H) and 20% of RRR and 40% of RRR and 60% of RRR next 12 months. Price targets can be derived from earnings-based valuation models (e.g. Discounted Cash Flow “DCF”), asset-based valuation models (e.g. Net Asset Value “NAV”), relative valuation multiples (e.g. PER, PBV, EV/EBITDA, etc.), Sell Lower than 20% Lower than 40% Lower than 60% or a combination of them. In case we do not have our own valuation model, we use a weighted average of market (S) of RRR of RRR of RRR consensus price targets and ratings. We review the investment ratings periodically or as the situation necessitates. We have decided not to publish a rating on the Not Rated SECURITY RISK RATINGS: We assess the risk profile of each issuer/security covered and assign one of three risk ratings stock due to certain circumstances related to the (NR)

(High, Moderate, or Low). The risk rating is weighted to reflect different aspects specific to (1) the sector, (2) the issuer, company (i.e. special situations). InvestmentRating (3) the security under review, and (4) volatility versus the market (as measure by beta) and versus the security’s average Not Covered We do not currently cover this stock or we are annualized standard deviation. We review the risk ratings at least annually or as the situation necessitates. (NC) restricted from coverage for regulatory reasons. Other Disclosures MFS does not have any proprietary holding in any securities. Only as a nominee, MFS holds shares on behalf of its clients through Omnibus accounts. MFS is not currently a market maker for any listed securities. Analyst Certification I (we), Mohamed Hamdy, Manager, employed with Mubasher International, a company under the National Technology Group of Saudi Arabia being a shareholder of Mubasher Financial Services BSC (c) and author(s) to this report, hereby certify that all the views expressed in this research report accurately reflect my (our) views about the subject issuer(s) or security(ies). I (we) also certify that no part of my (our) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or view(s) expressed in this report. Also, I (we) certify that neither myself (ourselves) nor any of my (our) close relatives hold or trade into the subject securities.

Head of Research Certification I, Amr Hussein Elalfy, Global Head of Research of Mubasher Financial Services BSC (c) confirm that I have vetted the information, and all the views expressed by the Analyst in this research report about the subject issuer(s) or security(ies). I also certify that the author(s) of this report, has (have) not received any compensation directly related to the contents of the Report.

Disclaimer This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Mubasher Financial Services BSC (c) (‘MFS’) has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; MFS makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the document are based upon publicly available information at the time of publication and are subject to change without notice. This document is not intended for all recipients and may not be suitable for all investors. Securities described in this document are not available for sale in all jurisdictions or to certain category of investors. The document is not substitution for independent judgment by any recipient who should evaluate investment risks. Additionally, investors must regard this document as providing stand-alone analysis and should not expect continuing analysis or additional documents relating to the issuers and/or securities mentioned herein. Past performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and may be subject to change without notice. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognized market, it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. References to ratings/recommendations are for informational purposes only and do not imply that MFS adopts, supports or confirms in any way the ratings/recommendations, opinions or conclusions of the analysts. This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MFS or its affiliates to any registration or licensing requirements within such jurisdiction. MFS accepts no liability for any direct, indirect, or consequential damages or losses incurred by third parties including its clients from any use of this document or its contents.

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Issuer of Report Mubasher Financial Services BSC (c) is an Investment Business Firm Category 1, licensed and regulated by the Central Bank of Bahrain. Website: www.MubasherTrade.com E-mail: [email protected] Sales & Research Contact Details INSTITUTIONAL SALES RETAIL SALES RESEARCH

MENA Bahrain UAE Research Team [email protected] [email protected] [email protected] [email protected] +971 4 321 1167 Call Center: +973 1730 0849 Call Center: +971 800 567 000

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