Kuwait in Focus
April 2010 Contents
Kuwait Economic Brief...... 2 Oil Market and Budget Developments...... 3 Monetary Developments February 2010...... 6 Real Estate Activity...... 12
Companies in Focus...... 17 Ahli United Bank (Almutahed)...... 18 Al Ahli Bank of Kuwait (ABK) ...... 21 Aviation Lease and Finance Company (ALAFCO)...... 24 Boubyan Petrochemical...... 27 Burgan Bank (Burgan)...... 30 Burgan Co. for Well Drilling, Trading and Maintenance (Burgan Well Drilling).....34 City Group...... 37 Commercial Real Estate Company (Altijaria)...... 40 Gulf Cable and Electrical Industries Company (Gulf Cable)...... 44 Gulf Insurance Company (GIC)...... 47 Injazzat Real Estate Development Company (Injazzat)...... 51 Kuwait Cement Company...... 55 Kuwait Finance House (KFH)...... 58 Kuwait Financial Center (Markaz)...... 62 Kuwait Food Group (Americana)...... 66 Kuwait and Gulf Link Transport Company (KGL)...... 69 Kuwait National Cinema Company (KNCC)...... 72 Kuwait Projects (KIPCO)...... 75 Mabanee Company...... 80 Mashaer Holding Company (Mashaer)...... 83 Mobile Telecommunications Company (Zain)...... 87 National Industries Group Holding (NIG)...... 93 National Investment Company (NIC)...... 97 National Real Estate Company (NREC)...... 100 Oula Fuel Marketing Company (Oula)...... 103 Tamdeen Investment Company (Tamdeen)...... 106 Tamdeen Group...... 109 United Real Estate Company (United Real Estate)...... 113 YIACO Medical Company (YIACO)...... 116
Kuwait Market Statistics...... 119
1 | nbkcapital.com Kuwait Economic Brief
• Oil Market and Budget Developments
• Monetary Developments February 2010
• Real Estate Activity
National Bank of Kuwait NBK Economic Research T. +965 2259 5500 F. +965 2224 6973 E. [email protected]
Disclaimer and Copyright While every care has been taken in preparing this publication, National Bank of Kuwait accepts no liability whatsoever for any direct or consequential losses arising from its use. The Economic Brief is distributed on a complimentary and discretionary basis to NBK clients and associates. This report and previous issues can be found in the “Reports” section of the National Bank of Kuwait’s web site. © Copyright Notice: NBK Economic Brief is a publication of National Bank of Kuwait. No part of this publication may be reproduced or duplicated without the prior consent of NBK.
2 | nbkcapital.com Kuwait Economic Brief Kuwait in Focus - April 2010
Oil Market and Budget Developments
Crude prices edge higher on global recovery signs... Kuwait should see budget surplus over KD 6 billion in FY2009-2010
Having traded in a narrow range of USD 70-80 per barrel (pb) for most of the past six months, crude oil prices saw a period of even greater stability through much of March. The price of Kuwait Export Crude (KEC) stayed largely within a range of USD 74-76 pb, recording one of the most stable periods of its 15-month recovery phase. This stability came despite further volatility in the US dollar, which appreciated by 3.5% versus the euro mid-month (and 2.2% on a trade-weighted basis) on concerns over the debt outlook within the Euro zone. By raising the foreign currency price of oil, a strengthening dollar would usually be bearish for crude prices in dollar terms.
Prices managed to end the month with a flourish, however, edging up to above USD 78 pb on a positive run of macro data and hence positive prospects for oil demand. While signs of recovery appear to offer some near-term momentum for crude prices, further increases risk pushing prices beyond what some market participants—including OPEC—see as their ‘comfort zone.’ Indeed, after deciding to leave official quotas unchanged at a meeting in March, OPEC officials publicly reiterated their commitment to stabilize the market should prices climb much further. This pledge may yet stem crude’s ability to make a sustained transition into the higher USD 80-90 pb range that some analysts have been looking for.
Kuwait Export Crude*
90
85
80
75
70 $ per barrelper $ 65
60
55
50 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11
*Note: Future price projections correspond to NBK’s price scenarios. Source: NBK Economic Research Department
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Benchmark prices hold on to The prices of all global benchmark crudes were also stable through most of March. The price of late February gains… the OPEC basket of crudes averaged USD 77 pb in the month; Brent averaged USD 79, while the traditionally higher value West Texas Intermediate (WTI) averaged USD 81. These represent increases of up to 7% on the month. Meanwhile, the futures curve continued to flatten. By the end of March, the spread of spot WTI to the December 2012 contract narrowed to less than USD 4, for the first time in 18 months, down from USD15 in December. Rising current prices likely reflect lower inventories.
Solid, though unspectacular Improving confidence about the recovery in global economic activity continues to translate growth in oil demand seen in into upward revisions to analysts’ forecasts for incremental global oil demand in 2010, with 2010… some of those analysts previously clinging to the weak end of the forecast spectrum beginning to throw in the towel. The Centre for Global Energy Studies (CGES), for example, made a fourth successive monthly upward revision to its demand outlook, this time by a hefty 0.3 million barrels per day (mbpd). The CGES now sees oil demand growing by 1.6 mbpd (1.9%) this year, thanks not only to the economic recovery but also to the cold winter in the Northern Hemisphere. This rate of expansion is on a par with that seen by the International Energy Agency (IEA), which has maintained its forecast—previously seen as extremely optimistic—at 1.6 mbpd. It is worth noting, however, that these growth rates are slower than those seen in the aftermath of previous periods of global weakness/recession.
OPEC crude output rises for Meanwhile, crude supplies also continue to increase. According to OPEC, the organization’s eleventh month in a row… crude output (excluding Iraq) saw its eleventh consecutive monthly increase in February, this time by 112,000 bpd to 26.811 mbpd. OPEC has now returned nearly one-third of the production cuts delivered since September 2009 to the market—and without any change in its official production quotas. While all member countries are producing above their agreed quota levels, four members—Angola, Iran, Nigeria, and Venezuela—together account for three quarters of current ‘overproduction.’
Kuwait Export Crude Price Scenarios
Scenario $/barrel Low Base High 2009 60.36 60.36 60.36 1Q10 74.37 74.37 74.37 FY09/10f 68.62 68.62 68.62 2Q10f 72.11 75.46 78.86 3Q10f 65.65 72.86 80.51 4Q10f 57.19 69.70 84.00 2010f 67.33 73.10 79.44 1Q11f 52.25 67.20 85.36 FY10/11f 61.80 71.30 82.18
Source: NBK Economic Research Department
Global oil supplies seen The next OPEC meeting is not until October, but the prospect of further ‘unofficial’ production climbing significantly this increases suggests that there could still be a de facto change in policy stance before then, year… particularly if crude prices rise further. Moreover, aside from crude, OPEC expects production of Natural Gas Liquids (NGLs) by its members to rise by 0.5 mbpd (10%) this year and non-OPEC supply to rise by 0.4 mbpd. Therefore, even if OPEC crude production remains unchanged from current levels, total global oil supplies could still rise by 1.5 mbpd this year compared to last.
Prices seen flat as supply Such an increase in supplies would roughly offset the more upbeat demand projections for increases offset improved 2010. Under this set of projections, there would appear to be little support for further price demand… increases from market fundamentals. Indeed, a weakening quarterly demand profile could yet weigh on the market later in the year. If OPEC were to maintain its output close to current levels, the price of KEC would be fairly flat through 2010, peaking at USD 76 pb in 2Q2010 before easing back slightly to just below USD 70 in 1Q2011.
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Faster supply growth could If, however, some aspect of supply ends up rising faster than expected (from an extra 0.2 mbpd push prices lower… of OPEC NGLs, for example), prices could fall back to below USD 60 pb by the end of this year. Such an event could end up being countered by cuts in OPEC crude production.
…while weaker supply growth If, on the other hand, supply is disrupted by a similar amount (perhaps from faster-than- offers upside price risk… expected declines in the North Sea and Mexico), the price of KEC could be above USD 85 pb by the start of 2011. While such a price might make OPEC somewhat uncomfortable, it may not be far enough from the organization’s desired price band to see it to act to bring prices back down.
FY2009-2010 budget surplus The 2009/10 fiscal year saw the price of KEC average USD 68.6, nearly double the USD 35 likely to exceed KD 6 billion… assumed in the government’s budget arithmetic. It may still be some time before the closing fiscal accounts are published, but a large fiscal surplus looks extremely likely. If, as we expect, public expenditures ended up 5% to 10% below the budget plans, the final surplus may have been between KD 6.3 and 6.9 billion before allocating 10% of revenues to the Reserve Fund for Future Generations (RFFG). This compares to the government’s original projection of a KD 4.0 billion deficit.
Large surplus also possible The scenarios above project an average price for KEC of between USD 62 and USD 82 pb for in FY2010-2011, despite big FY2010/11. This is still a fairly wide range, leaving open a wide range of potential outcomes spending increase… for the government’s budget balance. Revenues are projected at between 18% lower and 15% higher than our projections for FY2009/10. Meanwhile, public spending—based upon the government’s preliminary budget—is set to rise by 33% on the plans for the previous year. Based upon our price scenarios, the budget could see either a small deficit or another sizeable surplus of nearly KD 6 billion.
Budget Forecasts for Fiscal Years 2009-2010 and 2010-2011
Under Alternative Oil Price Scenarios FY 2009/10 FY 2010/11 Official Low Base High Possible Low Base High (million KD, unless otherwise noted) Budget Case Case Case Budget Case Case Case
Oil Price ($/barrel) 35.0 68.6 68.6 68.6 43.0 61.8 71.3 82.2
Total Revenues 8,075 17,782 17,845 17,845 9,719 14,711 17,692 20,425 Oil Revenues 6,925 16,632 16,695 16,695 8,617 13,609 16,590 19,323 Non-Oil Revenues 1,150 1,150 1,150 1,150 1,102 1,102 1,102 1,102
Expenditures (official) 12,116 12,116 12,116 12,116 16,162 16,162 16,162 16,162 Surplus (deficit) -4,041 5,666 5,729 5,729 -6,443 -1,451 1,530 4,263 After RFFG -4,849 3,888 3,945 3,945 -7,415 -2,922 -239 2,221
Expenditures (NBK estimate) 11,510 11,207 10,904 15,354 14,950 14,546 Surplus (deficit), NBK estimate 6,272 6,638 6,941 -643 2,743 5,879 After RFFG 4,493 4,853 5,156 -2,114 973 3,837
Source: NBK Economic Research Department
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Monetary Developments february 2010
Productive sectors helping credit growth
Money supply (M2) expanded 2.0% month on month (m/m), up KD 512 million, boosted by a large inflow of outside funds in February. This resulted in a KD 469 million growth in the Central Bank of Kuwait’s (CBK) net foreign assets. Much of these funds, subsequently, found their way to local banks, where deposits grew KD 481 million.
As a result, banks in Kuwait saw a large boost in liquidity in February, which added to already comfortable levels. Meanwhile, credit growth picked up somewhat this month, helped by strong demand from productive sectors, namely trade, construction, industry, and oil and gas.
Monetary Highlights – February 2010
Change Feb One Three Twelve 2010 Month Month Month mn KD mn KD % mn KD % mn KD %
Local Bank Assets 40,786 635 1.6 -112 -0.3 1,389 3.5 of which: Claims on Gov't 1,924 0 0.0 23 1.2 -88 -4.4 Credit to Residents 25,146 38 0.1 -9 0.0 1,152 4.8 Foreign Assets 7,311 102 1.4 -46 -0.6 -991 -11.9
Money Supply (M2) 25,645 512 2.0 654 2.6 1,612 6.7 Private Deposits 24,841 481 2.0 678 2.8 1,560 6.7 Sight Deposits 4,336 126 3.0 140 3.3 241 5.9 Savings Deposits 2,860 81 2.9 57 2.0 135 5.0 KD Time Deposits & CDs 14,966 310 2.1 615 4.3 1,014 7.3 FC Deposits 2,681 -36 -1.3 -134 -4.8 169 6.7
Source: NBK Economic Research Department
Credit growth improves Credit to residents was up KD 38 million in February, following slow-to-negative growth in previous months. The improvement was partially the result of action taken by the CBK, which reduced interest rates on February 8. The discount rate was cut 50 bps to 2.5%, while the 1-week and 1-month Repo rates were also cut 25 bps to 1.5% and 2.0%, respectively.
During February, loans to the productive sectors posted a combined KD 70 million growth. These sectors have witnessed strong 3-month annualized growth over the past months. Apart from interest cuts, demand for credit in these sectors was perhaps enhanced by the financial stability law, which went into effect in April of 2009. In fact, since end August 2009, new loans to the productive sectors have totaled KD 270 million. These loans are 50% guaranteed by the government if they fulfill the criteria of the stability law.
On the other side, personal facilities and loans to real estate fell KD 41 million and KD 52 million in February. These sectors were the growth leaders in 2009.
Wajih Boustani Assistant Economist Economics Department T. +965 2259 5356 E. [email protected]
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Credit Indicator - Percent Growth
50 %
40 %
30 %
20 %
10 %
0 %
-10 % Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10
YoY Rate Last 3-Months Annualized
Source: NBK Economic Research Department
Credit Indicator – Three-Month Annualized Percent Growth
80 %
60 %
40 %
20 %
0 %
-20 %
-40 %
-60 % Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10
Productive sectors Other sectors
Source: NBK Economic Research Department
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Solid deposit growth Private resident deposits rose 2.0% (up KD 481 million) m/m in February, exclusively in local currency. Deposits have grown KD 678 million over the past three months. Meanwhile, deposits from non-residents rose KD 35 million m/m.
Repo rate cuts in February and the strong expansion of deposits in recent months are pushing interest rates on KD deposits down. Average rates offered on KD private deposits fell between 6 and 17 bps for the different maturities in February, reaching 1.19%, 1.43%, 1.67%, and 1.90%, for the 1, 3, 6, and 12-month maturities, respectively.
Liquidity ample in system Bank assets rose KD 643 million m/m on the back of the large expansion of deposits. A small part of the increase was deployed as new credit to residents, while the remainder was retained as time deposits with the CBK (up KD 297 million) and deposits with foreign banks (up KD 142 million). As a result, liquidity at banks improved, driving the average 1-month Kuwait interbank offer rate (KIBOR) down 11 bps in February.
Liquidity Indicators
Liquid Assets to Total Assets Interbank Rates
18% 5%
16% 4%
14% 3%
12%
2% 10%
1% 8%
6% 0% Feb-09 May-09 Aug-09 Nov-09 Feb-10 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10
Including net foreign interbank deposits Excluding net foreign interbank deposits 1-mnth KIBOR 1-mnth LIBOR
Sources: NBK Economic Research Department
Since the begining of February, the Kuwaiti Dinar has been relatively flat against both the Dinar flat amid calmer Euro and USD. A calmer atmosphere in international exchange markets, as worries concerning international markets sovereign debt in the Euro zone subsided to some degree, contributed to an uneventful foreign exchange (FX) market in Kuwait.
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Monetary Indicators – Exchange Rate (Fils per Foreign Currency)
0.31 0.45
0.43 0.30
0.41 0.29
0.39
0.28 0.37
0.27 Stronger Dinar 0.35
0.26 0.33 09 08 07 08 09 09 08 09 07 09 08 10 ------Jul Apr Oct Jan Mar Mar Nov Dec Aug Sep Dec May
Dinar / Dollar (LHS axis) Dinar / Euro (RHS axis)
Source: NBK Economic Research Department
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Monetary Highlight – February 2010
1-Month Change 3-Month Change 12-Month Change Year-to-Date Feb Feb Jan Feb Jan Feb Jan Feb Jan Feb Jan Feb Jan Feb 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 mn KD mn KD % mn KD % mn KD % mn KD %
Total Liquidity (M2) 25,645 512 238 2.0 1.0 654 407 2.6 1.6 1,612 2,349 6.7 10.3 749 3.0 1) Currency in Circulation 804 31 -3 4.0 -0.4 -24 11 -2.9 1.4 52 42 6.9 5.8 28 3.6 2) Private Sector Deposits 24,841 481 241 2.0 1.0 678 397 2.8 1.7 1,560 2,307 6.7 10.5 721 3.0 KD Deposits 22,161 517 277 2.4 1.3 812 361 3.8 1.7 1,390 1,567 6.7 7.8 794 3.7 Sight Deposits 4,336 126 272 3.0 6.9 140 82 3.3 2.0 241 220 5.9 5.5 397 10.1 Savings Desposits 2,860 81 56 2.9 2.0 57 -6 2.0 -0.2 135 98 5.0 3.6 137 5.0 Time Deposits & CDs 14,966 310 -51 2.1 -0.3 615 286 4.3 2.0 1,014 1,249 7.3 9.3 260 1.8 Time Deposits 14,966 310 -51 2.1 -0.3 615 286 4.3 2.0 1,014 1,249 7.3 9.3 260 1.8 CDs 0 0 0 0 0 0 0 0 FC Deposits 2,681 -36 -36 -1.3 -1.3 -134 36 -4.8 1.3 169 740 6.7 37.4 -72 -2.6
Money (M1) 5,139 157 269 3.1 5.7 116 92 2.3 1.9 293 263 6.0 5.6 425 9.0
Quasi-Money 20,506 355 -31 1.8 -0.2 538 315 2.7 1.6 1,319 2,087 6.9 11.6 324 1.6
Net Foreign Assets 10,078 602 32 6.4 0.3 610 69 6.4 0.7 1,120 963 12.5 11.3 634 6.7 1) CBK (net) 5,499 469 22 9.3 0.4 299 -29 5.7 -0.6 461 231 9.2 4.8 491 9.8 Foreign Assets 5,569 468 22 9.2 0.4 297 -29 5.6 -0.6 428 198 8.3 4.0 490 9.7 Foreign Liabilities 70 -1 1 -1.3 0.9 -2 0 -2.1 -0.3 -34 -33 -32.4 -31.6 0 -0.4 2) Local Banks (net) 4,579 133 11 3.0 0.2 311 98 7.3 2.2 658 731 16.8 19.7 144 3.2 Foreign Assets 7,311 102 -147 1.4 -2.0 -46 -73 -0.6 -1.0 -991 -1,214 -11.9 -14.4 -45 -0.6 Foreign Liabilities 2,733 -31 -158 -1.1 -5.4 -358 -171 -11.6 -5.8 -1,649 -1,945 -37.6 -41.3 -189 -6.5
Domestic Assets 15,567 -90 205 -0.6 1.3 44 338 0.3 2.2 492 1,387 3.3 9.7 115 0.7 1) Claims on Gov't (net) -3,017 -123 334 4.3 -10.3 275 335 -8.4 -10.4 -949 -181 45.9 6.7 210 -6.5 CBK (net) -1,146 -139 157 13.7 -13.5 19 43 -1.6 -4.1 -318 -1 38.4 0.0 18 -1.6 Claims 0 0 0 0 0 … … 0 0 … … 0 … Deposits 1,146 139 -157 13.7 -13.5 -19 -43 -1.6 -4.1 318 1 38.4 0.0 -18 -1.6 Local Banks (net) -1,871 15 177 -0.8 -8.6 257 293 -12.1 -13.4 -631 -180 50.9 10.6 192 -9.3 Claims 1,924 0 2 0.0 0.1 23 23 1.2 1.2 -88 -88 -4.4 -4.4 2 0.1 Debt Purchase Bonds 0 0 0 0 0 0 0 0 Public Debt Instruments 1,924 0 2 0.0 0.1 23 23 1.2 1.2 -88 -88 -4.4 -4.4 2 0.1 Deposits 3,794 -15 -175 -0.4 -4.4 -234 -270 -5.8 -6.6 542 92 16.7 2.5 -190 -4.8 2) Claims on Private Sector 27,120 120 -15 0.4 -0.1 8 114 0.0 0.4 1,350 1,297 5.2 5.0 105 0.4 Credit Facilities 25,146 38 3 0.1 0.0 -9 194 0.0 0.8 1,145 1,176 4.8 4.9 41 0.2 Other Local Investments 1,975 83 -19 4.4 -1.0 17 -81 0.9 -4.1 206 122 11.6 6.9 64 3.3 3) Other (net) -8,536 -87 -113 1.0 1.4 -240 -111 2.9 1.3 90 270 -1.0 -3.1 -200 2.4
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Monetary Highlight – February 2010 (Continued)
1-Month Change 3-Month Change 12-Month Change Year-to-Date Feb Feb Jan Feb Jan Feb Jan Feb Jan Feb Jan Feb Jan Feb 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 mn KD mn KD % mn KD % mn KD % mn KD %
Total Bank Assets 40,786 635 -210 1.6 -0.5 -112 -101 -0.3 -0.3 1,389 941 3.5 2.4 426 1.1
Liquid Assets 5,413 369 -17 7.3 -0.3 182 -46 3.5 -0.9 1,190 973 28.2 23.9 353 7.0 Cash and CBK Balances 312 11 -92 3.6 -23.4 -61 -128 -16.3 -29.8 -742 -522 -70.4 -63.4 -81 -20.6 Cash 159 13 -22 8.6 -13.1 -8 22 -4.5 17.5 18 8 13.1 5.7 -10 -5.7 CBK Deps 153 -2 -70 -1.1 -31.0 -53 -150 -25.8 -49.1 -761 -530 -83.2 -77.4 -72 -31.8 CBK Bonds 1,243 0 226 0.0 22.2 295 402 31.1 47.7 935 958 … … 226 … Public Debt Instruments 1,924 0 2 0.0 0.1 23 23 1.2 1.2 -88 -88 -4.4 -4.4 2 0.1 Inter-Local Bank Deposits 780 61 -138 8.5 -16.1 -256 -168 -24.7 -18.9 66 -32 9.3 -4.2 -76 -8.9 Time Deposits w/ CBK 1,155 297 -15 34.6 -1.7 182 -175 18.6 -16.9 1,019 658 751.2 327.8 283 32.4
Credit Facilities 25,146 38 3 0.1 0.0 -9 194 0.0 0.8 1,152 1,184 4.8 4.9 41 0.2 Trade 2,258 23 -21 1.0 -0.9 37 -3 1.7 -0.1 -97 -165 -4.1 -6.9 2 0.1 Industry 1,512 4 8 0.3 0.6 64 61 4.4 4.2 40 34 2.7 2.3 12 0.8 Construction 1,704 34 37 2.0 2.3 22 17 1.3 1.0 -2 -24 -0.1 -1.4 71 4.3 Agriculture and Fishing 12 -1 0 -5.6 0.8 -1 -1 -8.5 -7.4 1 1 6.3 5.9 -1 -4.8 Non-Bank Financial Institutions 2,881 15 -30 0.5 -1.0 -66 -66 -2.2 -2.2 111 66 4.0 2.4 -16 -0.5 Personal Facilities 8,344 -41 -7 -0.5 -0.1 -65 81 -0.8 1.0 371 482 4.6 6.1 -48 -0.6 Purchase of Securities 2,788 -17 -21 -0.6 -0.8 -84 -5 -2.9 -0.2 -41 8 -1.4 0.3 -38 -1.4 Other Pers. Facs. 5,556 -24 15 -0.4 0.3 19 86 0.3 1.6 411 474 8.0 9.3 -10 -0.2 Consumer Loans 630 1 0 0.1 0.0 8 9 1.2 1.4 18 19 3.0 3.1 0 0.0 Installment Loans 4,606 13 28 0.3 0.6 67 86 1.5 1.9 439 462 10.5 11.2 41 0.9 Other 320 -38 -13 -10.5 -3.5 -55 -8 -14.8 -2.3 -46 -7 -12.6 -2.0 -51 -13.7 Real Estate 6,568 -52 22 -0.8 0.3 7 53 0.1 0.8 625 649 10.5 10.9 -30 -0.5 Crude Oil & Gas 228 10 0 4.5 0.1 19 18 9.0 9.1 81 80 55.2 58.3 10 4.7 Public Services … … … … … … … … … … … … … … Other 1,640 47 -6 2.9 -0.4 -25 35 -1.5 2.2 25 60 1.5 3.9 41 2.6
Foreign Assets 7,311 102 -147 1.4 -2.0 -46 -73 -0.6 -1.0 -991 -1,214 -11.9 -14.4 -45 -0.6
Other Assets 2,917 126 -49 4.5 -1.7 -239 -176 -7.6 -5.9 37 -3 1.3 -0.1 77 2.7
Total Deposit Liabilities 29,415 555 -91 1.9 -0.3 212 -39 0.7 -0.1 2,160 2,365 7.9 8.9 463 1.6 Private Sector Deps 24,841 481 241 2.0 1.0 678 397 2.8 1.7 1,560 2,307 6.7 10.5 721 3.0 Gov't Deposits 3,794 -15 -175 -0.4 -4.4 -234 -270 -5.8 -6.6 542 92 16.7 2.5 -190 -4.8 Interbank 779 89 -157 12.9 -18.5 -232 -166 -23.0 -19.4 58 -34 8.1 -4.7 -68 -8.0 Interbank 779 89 -157 12.9 -18.5 -232 -166 -23.0 -19.4 58 -34 8.1 -4.7 -68 -8.0
Foreign Liabilities 2,733 -31 -158 -1.1 -5.4 -358 -171 -11.6 -5.8 -1,649 -1,945 -37.6 -41.3 -189 -6.5
Other Liabilities 3,628 71 -32 2.0 -0.9 -50 65 -1.4 1.9 638 245 21.3 7.4 39 1.1
Equity 5,011 41 71 0.8 1.4 84 44 1.7 0.9 240 276 5.0 5.9 112 2.3
Feb Jan Dec Nov Oct Dec Feb 2010 2009 % Balance Sheet Structure: Liquid Assets/Total Assets * 11.4 10.8 10.4 10.3 10.5 10.4 8.9 Credit/Total Assets 61.7 62.5 62.2 61.5 61.9 62.2 60.9 DPBs/Total Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Foreign Assets/Total Assets 17.9 18.0 18.2 18.0 18.1 18.2 21.1 Private Sector Deposits/Total Assets 60.9 60.7 59.8 59.1 59.5 59.8 59.1 Loans to Deposits ** 89.2 90.5 91.0 90.3 90.3 91.0 88.0 Reserve Ratio 20.2 19.3 18.9 18.9 19.2 18.9 16.2
* Liquid assets include cash, public debt instruments, time deposits with CBK, and net interbank deposits. ** Loans used in the LDR ratio include: resident, non-resident, financial inst., in both KD&FC. Deposits used in the LDR ratio include: private, government, and financial inst.
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Real Estate Activity
Real estate transactions off in February
Sales overview
The total number of registered real estate sales (residential, commercial, and retail) fell 1% between January and February, to 383. After showing signs of a strong recovery late last year, activity in the real estate sector has slipped back over the last two months, with sales now back to the average levels seen in a depressed 2009. Timing may have been a factor: February is a short month—made even shorter by public holidays. But past evidence suggests that the seasonal effect on sales is not large. Moreover, sales are up just 7% on their depressed levels of a year ago, a comparison that should strip out such distortions. A more reasonable interpretation is that the unusual flurry of land sales in late 2009 exaggerated the pace of the recovery in activity, which has now settled back down. We are staying, for now, with our assumption that a gradual improvement in real estate activity is under way. But it will be slow, with a combination of caution and commercial oversupply weighing on the market.
Total Real Estate Sales
1200 150
1000 100
800 50
600
0 400
-50 200
0 -100 2007 2008 2009 2010
Number of sales (LHS) KD value of sales (%YoY, RHS)
Sources: Ministry of Justice
Transactions also declined by 15% in KD value terms between January and February, to KD 99 million. In year-on-year terms, sales turned negative for the first time since September last year. But there is scope for this to improve over the next couple of months as a result of a base effect from the sharp drop in sales a year ago.
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Sales – residential (mostly villas and land)
A sharp fall in residential sales—for the second month in a row—was the reason for the drop in sales overall. Residential sales fell by 11% from January to 255. At this level, they are more or less back to the levels seen in 1H2009, before an apparent recovery seemed to get going. In general, the average value of transactions has recovered from its mid-2009 lows of around KD 180,000 and stood at KD 208,000 in February. This need not entirely indicate rising property prices, however. Rather, a greater number of transactions of higher-value properties may now be taking place.
Residential Sales
1000 120
900 100
800 80 60 700 40 600 20 500 0 400 -20 300 -40
200 -60
100 -80
0 -100 2007 2008 2009 2010
Number of sales (LHS) KD value of sales (%YoY, RHS)
Source: Ministry of Justice
Sales – investment (mostly apartments)
Investment sales posted a decent 20% month-on-month gain in February to stand at 124, catapulting the year-on-year growth rate from -6% to +45% (thanks to weak sales a year ago). This confounds the idea that residential activity levels were weaker because of seasonal effects. Sales are now more or less in line with the (strong) averages seen through 2007 and 2008. Activity may be supported by two factors: a substantial fall in prices through 2008, which has made properties more affordable, and the earlier government ban (since partially overturned) on residential mortgage financing by banks, which may have diverted more property sector funds toward this alternative segment.
nbkcapital.com | 13 Kuwait Economic Brief Kuwait in Focus - April 2010
Apartment Sales
200 250
180 200 160
140 150
120 100 100 50 80
60 0
40 -50 20
0 -100 2007 2008 2009 2010
Number of sales (LHS) KD value of sales (%YoY, RHS)
Source: Ministry of Justice
Sales - commercial
There were four sales of commercial property during February, up from none in January (they averaged six per month in 2009). Despite the monthly increase, sales remain at weak levels. Commercial sales numbers can be volatile from month to month, but have trended down since mid-2008. While there are a number of large-scale commercial building projects currently under way, secondary market transactions volumes continue to be held back by weak demand and financing constraints. However, by boosting the demand for office space, the execution of the government’s recently approved four-year development plan could provide a timely stimulus to this segment.
nbkcapital.com | 14 Kuwait Economic Brief Kuwait in Focus - April 2010
Commercial Sales
25 600
500 20 400
300 15
200
10 100
0 5 -100
0 -200 2007 2008 2009 2010
Number of sales (LHS) KD value of sales (%YoY, RHS)
Source: Ministry of Justice
Savings and Credit Bank loans
The number of loans approved by the Savings and Credit Bank (SCB) fell 15% between January and February to 274. Excluding Ramadan-affected September 2009, this was the lowest number of approvals since January 2006. All categories of loans—those for construction, purchases of existing homes and maintenance and additions—saw declines. However new construction loan approvals that remain weakest in relation to their long-run trends; these fell to 50, compared to an average of 183 per month between 2003 and 2009. This probably reflects the ongoing sluggishness of new land plot distributions under the government’s housing scheme. Yet there continue to be hopes that this will pick up over the next few months.
By contrast, despite this month’s fall, loans for maintenance and improvement purposes, at 156 in February, remain substantially above their long-term trend. As we have noted before, this may be related to affordability issues, with rising home prices encouraging more people to upgrade their existing properties rather than ‘trade-up.’
nbkcapital.com | 15 Kuwait Economic Brief Kuwait in Focus - April 2010
SCB Loan Approvals
600 250
550 200
500 150
450 100 400 50 350
0 300
250 -50
200 -100 2007 2008 2009 2010
Number of loans (LHS) KD value of loans (%YoY, RHS)
Sources: Ministry of Justice
Real Estate Sales and SCB Housing Loans
Monthly Avg. 2009 2010 % Real Estate Sales 2008 2009 Dec Jan Feb M/M Y/Y
Sales Values (mn KD) 156.2 108.7 164.2 116.4 99.5 -14.6 -1.7 Residential Property 74.8 55.5 98.5 66.4 53.0 -20.2 15.6 Apartments 56.7 36.9 60.3 50.1 42.6 -14.8 108.2 Commercial 24.7 16.3 5.4 0.0 3.9 N/A -88.8 Number of Transactions 514 382 582 387 383 -1.0 17.5 Residential Property 381 277 476 285 255 -10.5 7.6 Apartments 121 100 102 102 124 21.6 45.9 Commercial 11 6 4 0 4 N/A 0.0 Average Transaction Size (000 KD) 320.3 281.2 282.1 300.9 259.7 -13.7 -16.3 Residential Property 203.3 199.3 206.9 232.9 207.6 -10.9 7.5 Apartments 477.2 373.3 590.7 490.7 343.8 -29.9 42.7 Commercial 2563.4 2880.6 1357.5 NA 972.5 N/A -88.8
Monthly Avg. 2009 2010 % SCB Housing Loans 2008 2009 Dec Jan Feb M/M Y/Y Value of Approved Loans (mn KD) 15.0 13.5 9.2 9.0 7.6 -15.3 -60.6 New Construction 10.2 8.0 3.6 2.8 2.6 -7.9 -83.5 Purchase of Existing Homes 3.2 3.9 3.9 4.8 3.3 -31.8 71.5 Additions & Renovations 1.5 1.6 1.8 1.3 1.7 29.4 9.3 Number of Approved Loans 412 371 354 322 274 -14.9 -34.8 New Construction 195 126 62 63 50 -20.6 -78.8 Purchase of Existing Homes 89 77 79 89 68 -23.6 70.0 Additions & Renovations 128 167 213 170 156 -8.2 8.3 Value of Disbursed Loans (mn KD) 12.1 12.8 13.9 13.0 11.8 -9.7 0.9 New Construction 7.0 7.8 8.2 7.9 6.5 -17.6 -14.0 Purchase of Existing Homes 3.6 3.3 3.8 3.4 3.7 8.8 43.7 Additions & Renovations 1.5 1.6 2.0 1.7 1.5 -10.1 2.2
Sources: Ministry of Justice and the Savings and Credit Bank
nbkcapital.com | 16 Companies in Focus
• Ahli United Bank (Almutahed) • Al Ahli Bank of Kuwait (ABK) • Aviation Lease and Finance Company (ALAFCO) • Boubyan Petrochemical • Burgan Bank (Burgan) • Burgan Co. for Well Drilling, Trading & Maintenance (Burgan Well Drilling) • City Group • Commercial Real Estate Company (Altijaria) • Gulf Cable and Electrical Industries Company (Gulf Cable) • Gulf Insurance Company (GIC) • Injazzat Real Estate Development Company (Injazzat) • Kuwait Cement Company • Kuwait Finance House (KFH) • Kuwait Financial Center (Markaz) • Kuwait Food Group (Americana) • Kuwait and Gulf Link Transport Company (KGL) • Kuwait National Cinema Company (KNCC) • Kuwait Projects (KIPCO) • Mabanee Company • Mashaer Holding Company (Mashaer) • Mobile Telecommunications Company (Zain) • National Industries Group Holding (NIG) • National Investment Company (NIC) • National Real Estate Company (NREC) • Oula Fuel Marketing Company (Oula) • Tamdeen Investment Company (Tamdeen) • Tamdeen Group • United Real Estate Company (United Real Estate) • YIACO Medical Company (YIACO)
NBK Capital MENA Research T. +965 2224 6663 F. +965 2224 6905 E. [email protected]
17 | nbkcapital.com Companies in Focus Kuwait in Focus - April 2010
Ahli United Bank (Almutahed)
Key Data Highlights • Ahli United Bank (Almutahed), previously known as Bank General Liquidity of Kuwait and the Middle East, was established in 1941 KSE Code ALMUTAHED.KSE 52-week avg. volume 334,289 Reuters Code ALMUTAHED.KW 52-week avg. value (KD) 160,778 as the first banking and financial institution in Kuwait. The
Price (KD) Price Performance bank currently holds a 6% share of the total assets in the
Closing Price 0.530 YTD 14.2% Kuwaiti banking sector. Bahrain-based Ahli United Bank 52-week High/Low 0.580 / 0.427 1-Year Period 14.2% (AUB) took control of 48% of the bank’s capital in 2002, Market Capitalization Shares Outstanding and increased this to 74.8% in August 2005. Million KD 568.81 Latest (million) 1,073.23 • Almutahed announced a net profit of KD 6.24 million Ownership Structure Closely Held: 87% Public: 13% in 1Q2010, 39% below 1Q2009. Total assets grew to
Price as of close on April 25, 2010. Sources: Zawya, KSE and NBK Capital KD 2.48 billion by the end of March 2010, up 10% compared to KD 2.26 billion at the end of December 2009. At the time of this publication, full financials had Stock Performance not been released.
0.610 12 • Almutahed recorded a net profit of KD 14.3 million in 2009, 72% below 2008, on the back of weaker non- 0.580 52-week High: KD 0.580 10 interest income and a surge in loan loss provisions and investment provisions. 0.550 8 • Almutahed’s asset quality indicators deteriorated in 2009, 0.520 although to a smaller extent than the bank's Kuwaiti peers. 6
0.490 Millions The non-performing loans (NPLs)-to-gross loans ratio Price (KD) Price
4 increased to 4.9% at the end of December 2009 from 0.460 3.05% at the end of December 2008. The NPL coverage
2 ratio declined to 107% as of 2009 from 127% as of 2008. 0.430 52-week Low: KD 0.427 • Strong competition has eroded Almutahed’s market share 0.400 0 Apr-09 Jun-09 Jul-09 Sep-09 Oct-09 Dec-09 Jan-10 Mar-10 Apr-10 since 2005. Almutahed’s share of total assets declined Volume Close from 7.5% in 2005 to 5.6% at the end of December 2009, while the share of total sector deposits dropped from 7% in Sources: Zawya and NBK Capital 2005 to 5.2% at the end of December 2009. Analyst • At the annual general meeting (AGM) held on March Munira Mukadam 28, 2010, Almutahed’s shareholders approved a stock T. +971 4 365 2858 dividend of 10% of the existing shares. This has increased E. [email protected] the number of outstanding shares from 976 million to 1073 million. Key Ratios
2005 2006 2007 2008 2009
Growth in Loans -7.8% 21.8% 35.6% 17.7% 6.0% Growth in Deposits -1.7% 13.8% 19.7% 12.0% 1.9% Growth in Net Profit 75.3% 13.0% 6.8% 6.6% -72.2% Growth in Operating Income 42.9% 3.4% 20.1% 14.3% -19.7%
Loans-to-Assets 47.0% 47.8% 55.9% 65.8% 69.1% NPLs-to-Gross Loans 3.5% 3.3% 2.7% 3.0% 4.9% NPL Coverage 136% 122% 127% 127% 107% Capital Adequacy N/A 18.1% 15.6% 14.8% 16.8%
Growth in Costs 30.2% 14.5% 22.2% 3.9% -12.3% Cost-to-Income 29.2% 32.3% 32.9% 29.9% 32.6% Net Interest Income-to-Operating Income 50.8% 54.9% 45.9% 40.0% 67.6%
RoAA 2.4% 2.5% 2.3% 2.3% 0.6% RoAE 19.9% 20.5% 19.1% 20.0% 6.3% Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 18 Ahli United Bank (Almutahed) Kuwait in Focus - April 2010
Overview Asset Quality
Ahli United Bank (Almutahed), previously known as Bank of • Almutahed’s asset quality indicators deteriorated in 2009, Kuwait and the Middle East was established in 1941, making it although to a smaller extent than the bank's Kuwaiti the first banking and financial institution in Kuwait. Almutahed peers. NPLs nearly doubled from KD 46.7 million as of was initially established as the Kuwaiti branch of a British bank December 2008 to KD 81 million as of December 2009. (the Iranian Imperial Bank at the time) and was later acquired The NPLs-to-gross loans ratio increased to 4.9% at the end by the HSBC Group in 1959. In 1971, the Kuwait Investment of December 2009 from 3.05% at the end of December Authority (KIA) took over the bank, following local regulations 2008. The NPL coverage ratio declined to 107% at the that restricted foreign ownership of banks. In 2002, AUB took end of 2009 from 127% at the end of 2008. Total NPL control of 48% of the bank’s capital, which AUB increased coverage fell below 120% for the first time since 2004. to 74.8% in August 2005. The bank offers a full range of • Almutahed’s pre-liberation NPLs accounted for only 2% of services, including retail, corporate, treasury, and investment the total NPLs at the end of December 2009, much lower management services. The bank operates via a network of 21 than most of the bank’s peers. branches and more than 50 ATMs across Kuwait. At the end of December 2009, Almutahed’s total assets stood at KD 2.3 NPLs-to-Gross Loans and NPL Coverage Ratio billion, accounting for nearly 6% of the total banking sector assets in Kuwait. In June 2008, Almutahed received approval 6.00% 160% from the CBK to convert into a fully Shari’ah-compliant bank. 136% 140% 4.92% 5.00% 127% 127% In January 2010, the bank announced it had converted into 122% 122% 120% a purely Islamic bank. The bank’s principal subsidiary is 110% 107% 4.00% the Kuwait and Middle East Financial Investment Company 3.49% 100% 3.27% 3.12% (KMEFIC), which offers investment and portfolio management 2.96% 3.05% 3.00% 80% services. Almutahed currently owns a 50.2% stake in KMEFIC, 2.67% one of the largest brokerage houses in Kuwait, with operations 60% 2.00% in Oman, the United Arab Emirates (UAE), Jordan, and Egypt. 40%
1.00% Latest News 20%
0.00% 0% 2003 2004 2005 2006 2007 2008 2009 • April 2010: Almutahed announced a net profit of KD 6.24 NPLs-to-Gross Loans (Left) Total NPL Coverage (Right) million in 1Q2010, 39% below 1Q2009. Total assets grew to KD 2.48 billion by the end of March 2010, up Sources: Company’s financial statements and NBK Capital 10% compared to KD 2.26 billion at the end of December 2009. At the time of this publication, full financials had NPL Analysis - Pre-invasion versus Post-liberation not been released. Pre-invasion • April 2010: The bank was renamed as Ahli United Bank KD '000 2005 2006 2007 2008 2009 (Al Mutahed) and begun operations in compliance with NPLs 1,980 1,970 1,870 1,860 1,943 Specific Provisions 1,980 1,970 1,870 1,860 1,943 Islamic Shari’ah laws as of April 1, 2010. This followed % of Total NPLs 7% 6% 5% 4% 2% a resolution passed by the CBK in December 2009, Post-liberation KD '000 2005 2006 2007 2008 2009
recognizing the conversion of Almutahed to a Shari’ah- NPLs 25,770 29,469 32,673 44,868 79,191 compliant bank. Specific Provisions 15,839 17,122 20,235 26,934 48,263 % of Total NPLs 93% 94% 95% 96% 98%
Post-Liberation • March 2010: Almutahed received approval to increase the NPL Growth 5% 14% 11% 37% 76% bank's capital from KD 104 million to KD 140 million. Provisions Growth 50% 8% 18% 33% 79% NPL Coverage 61% 58% 62% 60% 61% • September 2009: Fitch affirmed Almutahed’s ratings with a KD '000 Total NPLs 27,750 31,439 34,543 46,728 81,134 stable outlook. The long-term and short-term issuer default Total Provisions 37,692 38,476 43,766 59,423 87,143 ratings of A- and F2 reflect the high probability of support NPL Coverage 136% 122% 127% 127% 107% by Kuwaiti authorities. Moody’s rating agency downgraded NPLs-to-Gross Loans 3.49% 3.27% 2.67% 3.05% 4.92% Almutahed’s long-term foreign currency deposit rating to Sources: Company’s financial statements and NBK Capital A3 from A1 and Almutahed’s bank financial strength rating to D+ from C-.
nbkcapital.com | 19 Ahli United Bank (Almutahed) Kuwait in Focus - April 2010
Financial Statement Analysis • Almutahed got rid of almost its entire portfolio of investments at fair value through profit and loss, which Income Statement stood at KD 6.2 million at the end of December 2008. Additionally, the bank’s AFS portfolio declined from • Almutahed recorded a net profit of KD 14.3 million in KD 122.6 million to KD 75.6 million, now accounting for 2009, 72% below 2008, on the back of weaker non- just 3.1% of total assets compared to 5.5% in 2008. interest income and a surge in loan loss provisions and • Customer deposits reached KD 1.46 billion at the end investment provisions. However, on the operational level, of December 2009, 2% over 2008. Almutahed has been net interest income (NII) growth was robust at 36%, losing market share in deposits over the past four years. In driven by a larger drop in interest expenses than in interest 2005, Almutahed’s total deposits accounted for 7% of total income. sector deposits. However, at the end of December 2009, • Almost all non-interest income components fell during this share had dropped to 5.2% due to tough competition the year, recording a combined drop of 57%. This was in the corporate sector. primarily attributable to lower gains on the available-for- sale (AFS) portfolio and a drop in income from fees and Financial Statements commissions. Net gains on the AFS portfolio stood at KD 8.1 million in 2009, compared with KD 36.1 million in Income Statement (KD '000) 2006 2007 2008 2009 2008. Income from fees and commissions stood at KD Interest Income 110,806 130,163 139,945 109,350 Interest Expense (68,435) (87,624) (97,515) (51,817) 14.5 million in 2009, compared with KD 23 million in Net Interest Income 42,371 42,539 42,430 57,533
2008. Total operating income reached KD 85 million in Fees and Commissions 19,607 24,763 23,019 14,468 2009, 20% lower than the KD 106 million recorded in Foreign Exchange Income 2,158 4,749 5,015 3,879 Net Investment Earnings 12,044 20,012 35,629 9,128 2008. Other Operating Income 976 599 (149) 40 Total Operating Income 77,156 92,662 105,944 85,048 • On a positive note, costs were very well controlled in 2009 Staff Expenses (14,389) (16,948) (18,222) (17,087) and actually declined by 12% during the year, compared Depreciation (1,510) (2,010) (2,153) (2,336) to the marginal 4% growth recorded in 2008. However, Other Expenses (9,021) (11,506) (11,267) (8,313) Total Operating Expenses (24,920) (30,464) (31,642) (27,736) the larger decline in operating income pushed the cost- Loan Loss Prov. (2,694) (5,466) (15,848) (27,979) to-income ratio up to 32.6% in 2009. Although slightly Investment and Other Prov. 1,394 258 (2,683) (19,092) higher than the 2008 level (29.9%), the cost-to-income Other Income / (Exp.) (1,487) (1,515) (2,243) (701) Minority Interest (4,338) (7,296) (2,163) 4,722 ratio was still in line with the levels seen in previous years. Net Income 45,111 48,179 51,365 14,262
• Loan loss provisioning charges nearly doubled to KD 28 Balance Sheet (KD '000) 2006 2007 2008 2009
million in 2009, compared with KD 15.8 million taken Assets in 2008. However, the impact of investment provisioning Cash and Cash Equivalents 495,685 430,336 490,032 374,483 Due from Banks 248,105 297,128 43,424 153,596 charges on profitability was larger, as they grew to Loans and Advances 922,987 1,251,476 1,472,932 1,561,104 KD 16.2 million in 2009 from KD 1.5 million in 2008. Net Investments 192,321 172,758 128,804 75,591 Investment in Associates - 8,774 8,048 8,231 These provisions were against investments in the AFS Net Fixed Assets 20,178 35,503 49,772 46,176 portfolio. Others 50,130 42,574 44,006 41,352 Total Assets 1,929,406 2,238,549 2,237,018 2,260,533
Liabilities and Shareholders' Equity Balance Sheet Due to Banks and Oth.Fin.Inst. 428,766 609,790 483,271 527,777 Customers' Deposits 1,068,443 1,278,618 1,432,511 1,460,255 Borrowings 132,414 - - - • Almutahed’s total asset growth remained almost Other Liabilities 42,852 46,877 49,344 35,165 flat between 2007 and 2009. Total assets stood at Total Liabilities 1,672,475 1,935,285 1,965,126 2,023,197 KD 2.26 billion at the end of December 2009. Total Shareholders' Equity 235,097 269,884 243,066 213,159 Minority Interest 21,834 33,380 28,826 24,177 • Net loans grew by 6% to reach KD 1.56 billion at the end Total Liabilities and Equity 1,929,406 2,238,549 2,237,018 2,260,533 of December 2009. Growth in loans, albeit declining, was robust in the previous three years, recording a compound Sources: Company’s financial statements and NBK Capital annual growth rate (CAGR) of 25% between 2005 and 2008.
nbkcapital.com | 20 Companies in Focus Kuwait in Focus - April 2010
Al Ahli Bank of Kuwait (ABK)
Key Data Highlights
General Liquidity • Al Ahli Bank of Kuwait (ABK) was established in 1967.
KSE Code ABK.KSE 52-week avg. volume 224,430 The Behbehani family, currently ABK’s largest shareholder, Reuters Code ABKK.KW 52-week avg. value (KD) 90,609 holds approximately 30% of the bank’s total share capital. Price (KD) Price Performance With an asset base of KD 2.97 billion as of December Closing Price 0.480 YTD -1.4% 2009, ABK accounts for 7% of the total banking assets 52-week High/Low 0.500 / 0.426 1-Year Period 0.4% in Kuwait. Market Capitalization Shares Outstanding Million KD 548.37 Latest (million) 1,142 • ABK announced a net profit of KD 15.3 million in 1Q2010,
Ownership Structure 1% above 1Q2009, and 2.6% above 4Q2009. Operating Closely Held: 50% Public: 50% income stood at KD 27.5 million in 1Q2010, up 13% YoY Price as of close on April 25, 2010. Sources: Zawya, KSE, and NBK Capital and 4% QoQ. At the time of this publication, full financials had not been released.
Stock Performance • The 25% increase in the bank’s share capital via a rights issue is open for subscription from April 11, 2010 through
0.520 3.5 April 28, 2010. The bank plans on issuing 288 million shares for the price of KD 0.100 and a premium of 3.0 0.500 52-week High: KD 0.500 KD 0.250 per share, taking total subscription value to
2.5 KD 101 million.
0.480 2.0 • Some of ABK’s asset quality indicators significantly deteriorated in 2009, as the non-performing loans (NPLs)-
1.5 Millions Price (KD) Price 0.460 to-gross loans ratio increased from 2.5% in 2008 to 6% in 2009. However, NPL coverage remained strong at 113% 1.0 at the end of 2009; although it is weaker than the 209% 0.440 52-week Low: KD 0.426 0.5 reached at the end of 2008.
0.420 0.0 • ABK has historically maintained comfortable capital Apr-09 Jun-09 Jul-09 Sep-09 Oct-09 Dec-09 Jan-10 Mar-10 Apr-10 adequacy ratio (CAR), above the minimum required by the Volume Close Central Bank of Kuwait (CBK). As of December 2009, the Sources: Zawya and NBK Capital bank’s CAR stood at 17.23%, and the Tier I ratio stood at 15.60%. Analyst • At the annual general meeting (AGM) held on March 28, Munira Mukadam 2010, ABK shareholders approved the distribution of a T. +971 4365 2858 cash dividend of KD 0.015 per share for the year ended E. [email protected] December 2009. This translates into a payout ratio of 44% for 2009 and a dividend yield of 3%. Key Ratios
2005 2006 2007 2008 2009
Growth in Loans 25.3% 16.6% 30.4% 13.9% -5.0% Growth in Deposits 30.0% 13.0% 40.0% -9.8% -7.7% Growth in Net Profit 73.2% 27.6% 26.7% -39.5% -14.9% Growth in Operating Income 60.9% 34.6% 13.2% -3.7% -2.3%
Loans-to-Assets 61.2% 59.1% 63.2% 70.1% 68.2% NPLs-to-Gross Loans 4.2% 3.6% 3.0% 2.5% 6.0% NPL Coverage 170% 187% 169% 209% 113% Capital Adequacy 18.4% 15.3% 14.0% 14.7% 17.2%
Growth in Costs 22.8% 21.6% 29.1% 7.4% 5.5% Cost-to-Income 22.3% 20.1% 23.0% 25.6% 27.6% Net Interest Income-to-Operating Income 64.5% 57.3% 56.6% 60.6% 74.1%
RoAA 2.5% 2.7% 2.8% 1.5% 1.3% RoAE 19.4% 22.8% 26.1% 14.6% 12.2%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 21 Al Ahli Bank of Kuwait (ABK) Kuwait in Focus - April 2010
Overview to the troubled Saudi conglomerate and no exposure to the Al Gosaibi Group.
Al Ahli Bank of Kuwait (ABK) was established in 1967, by • September 2009: Moody’s downgraded ABK’s bank one of Kuwait’s prominent business families — the Behbehani financial strength rating from C- to D+. Consequently, family. The family is currently the largest shareholder, holding ABK’s long-term global local currency and long-term approximately 30% of the bank’s total share capital. The bank foreign currency deposit ratings were also downgraded to has a relatively small network of 24 branches and more than A2 from A1. In July 2009, S&P affirmed ABK’s BBB+/A-2 50 ATMs in Kuwait and two overseas branches in Dubai and rating with a Negative Outlook. Abu Dhabi. ABK is also awaiting approval for licenses to open new branches in Oman and Qatar. The bank has created a Asset Quality strong franchise in corporate and commercial banking, which is ABK’s main focus. Retail lending, considered to be very • ABK’s post-liberation NPLs-to-gross loans ratio increased secure and highly profitable in Kuwait, is another key area to 4.3% in 2009 from 0.8% in 2008. Total NPLs-to-gross of focus. As of December 2009, ABK had an asset base of loans stood at 6% at the end of 2009, compared with KD 2.97 billion, translating into a market share of 2.5% as of December 2008. NPL coverage dropped to approximately 7% of the total banking assets in Kuwait. ABK’s 113% at the end of December 2009, the lowest in the loans and deposits market shares at the end of 2009 stood at past six years, from 209% in 2008. approximately 8% and 7%, respectively. The bank provides commercial banking and asset management services, as well NPLs-to-Gross Loans and NPL Coverage Ratio as investment banking services via its wholly owned subsidiary Ahli Capital Investment Company. 9.0% 250%
7.8% 8.0% 209%
200% Latest News 7.0% 187% 170% 169% 6.0% 6.0% 5.5% • April 2010: ABK announced a net profit of KD 15.3 150% million in 1Q2010, 1% above 1Q2009, and 2.6% above 5.0% 112% 134% 4.2% 4Q2009. Operating income stood at KD 27.5 million in 4.0% 3.6% 113% 100% 3.0% 1Q2010, up 13% YoY and 4% QoQ. At the time of this 3.0% 2.5% publication, full financials had not been released. 2.0% 50%
• April 2010: The 25% increase in the bank’s share capital 1.0% via a rights issue is open for subscription from April 11, 0.0% 0% 2010 through April 28, 2010. The bank plans on issuing 2003 2004 2005 2006 2007 2008 2009 288 million shares for the price of KD 0.100 and a NPLs-to-Gross Loans NPL Coverage
premium of KD 0.250 per share, taking total subscription Sources: Company’s financial statements and NBK Capital value to KD 101 million.
• March 2010: At the annual general meeting (AGM) held NPL Analysis – Pre-invasion versus Post-liberation on March 28, 2010, ABK shareholders approved the distribution of a cash dividend of KD 0.015 per share for Pre-invasion KD '000 2005 2006 2007 2008 2009 the year ended December 2009. This translates into a NPLs 39,034 38,628 36,463 36,863 37,949 payout ratio of 44% for 2009 and a dividend yield of 3%. Specific Provisions 39,034 38,628 36,463 36,863 37,949 % of Total NPLs 71% 69% 61% 66% 29% • February 2010: Fitch affirmed ABK’s long-term issuer Post-liberation KD '000 2005 2006 2007 2008 2009 default rating (IDR) at A- and short-term IDR at F2. The NPLs 15,867 17,093 23,191 18,757 92,334 individual rating stood at C/D with a Stable Outlook for the Specific Provisions 13,374 16,675 12,588 8,446 16,696 % of Total NPLs 29% 31% 39% 34% 71%
long-term IDR. Post-Liberation NPL Growth -15% 8% 36% -19% 392% • September 2009: ABK sued Saudi conglomerate Al Saad Provisions Growth -7% 25% -25% -33% 98% NPL Coverage 84% 98% 54% 45% 18% Group owner Maan al-Sanea and Saad Trading, Contracting KD '000 Total
and Financial Services Co. for USD 125 million, for NPLs 54,901 55,721 59,654 55,620 130,283 an alleged breach of contract and fraud over a credit Total Provisions 93,081 103,965 100,881 116,451 147,185 agreement. ABK accused Saad of breaking a USD 60 NPL Coverage 170% 187% 169% 209% 113% NPLs-to-Gross Loans 4.2% 3.6% 3.0% 2.5% 6.0% million credit facilities agreement in 2007. In July 2009, Sources: Company’s financial statements and NBK Capital ABK announced an exposure of less than USD 30 million
nbkcapital.com | 22 Al Ahli Bank of Kuwait (ABK) Kuwait in Focus - April 2010
Financial Statement Analysis • Deposits fell by 8% in 2009, putting total deposits at KD 1.84 billion at the end of December 2009. This was Income Statement driven primarily by a drop in time deposits, which fell from KD 1.66 billion in 2008 to KD 1.48 billion in 2009, • ABK announced a net profit of KD 39 million in 2009, a decline of 11%. Sight deposits, on the other hand, 15% below 2008, on the back of weaker non-interest increased by 8%, from KD 332 million to KD 359 million. income and a doubling of loan loss provisions compared In 2008, total deposits were down 10%, standing at to 2008. KD 1.99 billion as of December 2008. The growth in customer deposits was slightly quicker than loan growth in • Net interest income (NII) surged to KD 81.8 million in the past, as they grew by a CAGR of 27% in the three years 2009, 19% higher than the KD 68.5 million recorded in ending in 2007. 2008. Interest income declined by 25% as lending dropped during the year. However, interest expenses fell by 52% Financial Statements in 2009, resulting in robust NII growth. All non-interest Income Statement (KD '000) 2006 2007 2008 2009 income components fell, posting a combined drop of 36% Interest Income 143,698 175,002 185,341 138,227 in 2009. Total operating income reached KD 110.4 million, Interest Expense (84,318) (108,610) (116,869) (56,453) 2% lower than 2008, supported primarily by NII growth. Net Interest Income 59,380 66,392 68,472 81,774 Fees and Commissions 16,715 18,415 24,493 20,296 • ABK took net loan loss provisions of KD 32 million in Foreign Exchange Income 2,740 5,135 5,073 3,650 2009, 90% of which were recorded during 2Q2009 and Net Investment Earnings 23,147 11,951 8,729 3,162 Other Operating Income 1,687 15,412 6,235 1,514 3Q2009. Investment provisions also negatively impacted Total Operating Income 103,669 117,305 113,002 110,396
profitability, but to a lower extent than in 2008. Total Staff Expenses (11,617) (17,355) (18,393) (19,943) investment provisions in 2009 stood at KD 5.4 million, Depreciation (1,614) (1,645) (1,238) (1,764) Other Expenses (7,628) (7,938) (9,302) (8,816) compared to KD 26.6 million in 2008. Total provisions Total Operating Expenses (20,859) (26,938) (28,933) (30,523)
accounted for 49% of income before provisions (IBP) in Loan Loss Prov. (14,992) (1,872) (15,213) (32,174) 2009. In 2008, total provisions accounted for 43% of IBP. Investment and Other Prov. (4,488) (8,544) (19,489) (5,324) Other Income / (Exp.) (3,315) (3,910) (3,331) (3,201) • Costs remained very well controlled for the second Net Income 60,015 76,041 46,036 39,174
consecutive year, growing by just 5% in 2009. ABK’s cost- Balance Sheet (KD '000) 2006 2007 2008 2009
to-income ratio averaged around 22% between 2005 and Assets 2007. In 2008, however, the ratio crept up to 25.6%. The Cash and Cash Equivalents 708,192 842,748 679,916 773,718 Loans and Advances 1,433,932 1,870,012 2,129,103 2,023,694 increase was due to weaker operating income, as costs were Net Investments 249,512 205,095 159,273 109,455 well controlled in 2008, growing by only 7%, compared to Net Fixed Assets 14,306 13,956 33,822 31,786 Others 18,584 29,346 34,845 27,335 the double-digit growth of more than 20% seen in each of Total Assets 2,424,526 2,961,157 3,036,959 2,965,988
the previous three years. The cost-to-income ratio in 2009 Liabilities and Shareholders' Equity increased further to stand at 27.6%, once again mainly Due to Banks and Oth.Fin.Inst. 417,378 335,401 648,567 740,313 Customers' Deposits 1,576,669 2,207,998 1,991,676 1,837,673 due to a decline in operating income during the year. Other Liabilities 167,296 98,664 84,304 57,516 Total Liabilities 2,161,343 2,642,063 2,724,547 2,635,502 Balance Sheet Total Shareholders' Equity 263,183 319,094 312,412 330,486
Total Liabilities and Equity 2,424,526 2,961,157 3,036,959 2,965,988 • ABK’s total assets declined by 2% in 2009, reaching Sources: Company’s financial statements and NBK Capital KD 2.97 billion. In 2008, total assets grew by only 3%, after recording a compound annual growth rate (CAGR) of 20% between 2004 and 2007.
• In 2009, net loans declined for the first three consecutive quarters, before increasing by 1% in 4Q2009. At the end of 2009, net loans stood at KD 2.02 billion, 5% below net loans at the end of December 2008. In 2008, lending growth stood at 14% with the loan book reaching KD 2.13 billion by December 2008. Almost all the growth in 2008 occurred during the first three quarters. In fact, 4Q2008 saw a slight decline in the loan book. Net loans and advances grew by a CAGR of 24% between 2004 and 2007.
nbkcapital.com | 23 Companies in Focus Kuwait in Focus - April 2010
Aviation Lease and Finance Company (ALAFCO)
Key Data Highlights
General Liquidity • Aviation Lease and Finance Company (ALAFCO) is a KSE Code ALAFCO.KSE 52-week avg. volume 1,088,679 Shari’ah-based commercial aircraft leasing company. Reuters Code ALAF.KW 52-week avg. value (KD) 207,748
Price (KD) Price Performance • ALAFCO has a very diverse client base, from Asia to the
Closing Price 0.202 YTD 2.0% Middle East, Africa, and the United States. Additionally, 52-week High/Low 0.214 / 0.152 1-Year Period 29.5% many of ALAFCO’s clients are government entities, which Market Capitalization Shares Outstanding represent less risk. Million KD 150.01 Latest (million) 743
Ownership Structure • ALAFCO’s main revenue stream comes from operating Closely held: 65.09% Public: 34.91% leases, effectively turning the company into an asset-heavy
Price as of close on April 25, 2010. Sources: Zawya and NBK Capital company. • ALAFCO’s 1Q2009-2010 revenues grew by 48% YoY to KD 8.6 million. Net income for 1Q2009-2010 grew at Stock Performance 54% YoY to KD 2.2 million.
0.300 16.0 • ALAFCO recorded revenue of KD 27 million in FY2008-
14.0 2009, a decline of 1% from KD 27.3 million in FY2007- 2008. 0.250 12.0 • As of FY2008-2009, ALAFCO reported net profit of 10.0 52-week High: KD 0.214 KD 10.2 million, a 1.3% growth from the KD 10 million
0.200 8.0 reported in FY2007-2008. Millions Price (KD) Price 6.0
0.150 52-week Low: KD 0.152 4.0
2.0
0.100 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close
Sources: Zawya and NBK Capital
Analyst
Alok Nawani T. +971 4365 2856 E. [email protected]
Key Ratios
FY2005-2006 FY2006-2007 FY2007-2008 FY2008-2009 1Q2009-2010
EBIT (KD Millions) 9.6 15.3 16.2 13.6 4.3 EBIT Margin 42% 57% 59% 50% 49% Net Profit Margin 36% 34% 37% 38% 26%
Investment-to-equity 0% 2% 0% 0% 0% Net debt-to-equity 1.5 1.4 1.4 2.1 2.8 Interest Coverage Ratio 1.9 2.0 2.5 2.2 2.1
ROA (%) 3% 4% 4% 3% N/A ROE (%) 11% 12% 12% 11% N/A
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 24 Aviation Lease and Finance Company (ALAFCO) Kuwait in Focus - April 2010
Overview ALAFCO has reported steady growth in operating profit over the previous four fiscal years up to FY2007-2008 at Aviation Lease and Finance Company (ALAFCO) is a provider a CAGR of 31%. As for the last full-year financials, the of Shari’ah-based commercial aircraft leasing products. story is a little different: ALAFCO reported a 16% decline in operating profit to KD 13.6 million for FY2008-2009. Headquartered in Kuwait, ALAFCO was established in 1992 Furthermore, ALAFCO’s operating profit margin has and listed on the Kuwait Stock Exchange in 2000. ALAFCO fluctuated historically between 42% and 59%. In FY2008- also offers a variety of consultative services in relation to 2009, ALAFCO achieved an operating profit margin of aircraft acquisition and disposal, lease management, and 50%. technical monitoring. Currently, 54% of the company is owned by Kuwait Finance House; Kuwait Airways owns 11%, and the • ALAFCO reported KD 10.2 million in net profit for FY2008- remaining 35% is publicly listed. 2009, a 1.3% increase from KD 10 million in FY2007- 2008. Moreover, the net profit margin expanded slightly to ALAFCO has a diverse client base with clients from Asia, the 38% for FY2008-2009, up from 37% in FY2007-2008. Middle East, Africa, and the United States. The company’s largest client base comes from China and Turkey, but a • Throughout the years, ALAFCO has had some nonrecurring recently announced agreement with Saudi Arabian Airlines contributors to its bottom line: gain on disposal of available- will add another large client. for-sale investments and gain on disposal of property and equipment. After adjusting net income for the impact of Latest News these non-recurring items, we notice a 28% decline in adjusted net profit for FY2008-2009 to KD 7 million from the KD 9.7 million reported in FY2007-2008. • April 2010: ALAFCO announced its highlight results for 2Q2009-2010. Net Income for the quarter came in at KD 2.8 million, up 25% QoQ and 60% YoY. The company Adjusted Net Income
delivered two aircrafts during 2Q2009-2010 compared to FY2005-2006 FY2006-2007 FY2007-2008 FY2008-2009 six during 1Q2009-2010. The detailed financials are yet Net income (KD million) 8.2 9.1 10.1 10.2 Net Income Margin (%) 36% 34% 37% 38%
to be disclosed. Net income ex. Non-recurring items (KD millions) 4.8 7.6 9.7 7.0 Adjusted Net Income Margin (%) 21% 29% 36% 26%
Financial Statement Analysis Sources: Company’s financial statements and NBK Capital
Income Statement 1Q 2009-2010
Full Year 2008-2009 • ALAFCO posted KD 8.6 million in revenue in 1Q2009- 2010, which represents 48% year-on-year growth. This • ALAFCO saw a marginal decline of 1% in total revenue for improvement is a result of 49% growth in operating lease FY2008-2009 to KD 27 million. This decline was driven income. by an 80% drop in consultancy and service income during • As with full-year numbers, Asia contributed the most to the year. total revenue with 46%, yet the Middle East region is • Operating lease income represented 97.4% of total slowly but surely contributing more to top-line numbers, revenue in FY2008-2009, up from 89% in FY2007-2009. having contributed 23%, up from 12% a year ago. The Consultancy income represented 2.1% of income during remainder of the top-line contribution comes from Europe the same period, down from 10.4% during FY2007-2008. and Africa. Finally, finance lease income accounted for 0.5%, the • Total expenses grew by 29% in 1Q2009-2010 to smallest contributor to the top line. KD 2.6 million. This growth is mainly due to a 41% • Asia is the region with the highest contribution to year-on-year increase in finance costs. ALAFCO’s revenue, as this region contributed 52% of the • Operating profit grew by 47% in 1Q2009-2010 to reach FY2008-2009 top line. In FY2008-2009, the Middle East KD 4.3 million for 1Q2009-2010. Operating profit margin contributed 24% of total revenue, overtaking Europe as stood at 49% in 1Q2009-2010, down slightly from 50% the second-largest contributor to revenue. in 1Q2008-2009. • On the expense front, total expenses grew by 21% year • As result of the increase in revenue, ALAFCO reported on year in FY2008-2009. Staff costs and other operating a 54% increase in net income in 1Q2009-2010 to expenses increased by 24% and 65%, respectively. KD 2.2 million.
nbkcapital.com | 25 Aviation Lease and Finance Company (ALAFCO) Kuwait in Focus - April 2010
Balance Sheet Financial Statements
• Naturally, ALAFCO is a very asset-heavy company, as the Income Statement (KD '000) FY2007-2008 FY2008-2009 1Q2008-20091Q2009-2010 Operating lease income 24,278 26,291 5,757 8,553 majority of the company’s leases are structured as operating Consultancy and service income 2,840 561 51 50 leases. Thus, the assets are recorded on ALAFCO’s balance Finance lease income 165 141 37 30 Total Revenue 27,282 26,993 5,845 8,633
sheet as property, plant and equipment (PP&E).Examining Murabaha income 339 103 62 95 PP&E, we notice that ALAFCO had an addition of KD 63 Gain on disposal of AFS 313 - - - Gain on disposal of PP&E - 3,173 - - million under aircraft and engine that resulted in a 26% Gain on foreign exchange - - - - Other income 237 134 - 21 increase in PP&E during 1Q2009-2010 when compared to Staff costs (1,043) (1,297) (342) (372) full year numbers. This addition is in line with ALAFCO’s Depreciation (9,465) (11,194) (2,391) (3,845) Finance costs (6,553) (6,294) (1,450) (2,043) announcement that the company had agreed to buy four Other operating expenses (550) (904) (209) (161) Directors fees (60) (60) - - new Airbus aircraft with delivery between 2009 and 2010. Profit before tax 10,501 10,653 1,515 2,329 Zakat (86) (107) (16) (23) • Additionally, ALAFCO is a zero investment company, an KFAS (95) (96) (14) (21) NLST (264) (268) (38) (58) indication of the company’s focus on core operations. Net Income 10,055 10,182 1,448 2,226 • As of 1Q2009-2010, ALAFCO has total debt amounting to Balance Sheet (KD '000) FY2006-2007 FY2007-2008 FY2008-2009 Dec-09 KD 292 million, up 30% from full year numbers. However, PP&E 205,332 186,338 299,518 376,329 only 9% of the total debt is short term. Additionally, the Capital advances 26,077 63,004 59,538 52,729 AFS 1,448 - - - company has a net debt-to-equity ratio of 2.8x, up from Investment in joint venture - - - - Receivables 440 200 1,651 1,083 2.1x from FY2008-2009. Finance lease receivables 2,669 2,128 1,817 1,695 Cash and balances 9,105 9,264 27,706 21,211 • Although the net debt-to-equity ratio has grown considerably Total Assets 245,070 260,935 390,230 453,046 over the last full year, ALAFCO has maintained solid Due to financial institutions 118,829 121,720 224,887 291,596 Security deposits 9,228 14,798 30,782 31,292 interest coverage numbers. As of 1Q2009-2010, ALAFCO Maintenance reserve 6,466 5,764 7,032 8,647 Other liabilities 31,985 37,506 33,971 25,653 recorded an interest coverage ratio (EBIT/Finance Cost) of Total Liabilities 166,507 179,788 296,672 357,189 2.1x. Total Equity 78,563 81,147 93,558 95,858 Total Liabilities & Equity 245,070 260,935 390,230 453,046 • Examining the return on assets (ROA) and return on equity (ROE) for ALAFCO, we notice strong numbers for both Sources: Company’s financial statements and NBK Capital categories. ALAFCO had an ROA of 3% for FY2008-2009, down from 4% the previous year. Additionally, ROE for FY2008-2009 stood at 11%, down from 12% the previous year.
nbkcapital.com | 26 Companies in Focus Kuwait in Focus - April 2010
Boubyan Petrochemical
Key Data Highlights
General Liquidity • Due to Boubyan Petrochemical’s dependence on income KSE Code BPCC.KSE 52-week avg. volume 2,578,158 from investments, the company must effectively be looked Reuters Code BPCC.KW 52-week avg. value (KD) 1,250,768 at as a holding company. Price (KD) Price Performance
Closing Price 0.520 YTD 30.8% • Boubyan’s most notable key strategic investment is the 52-week High/Low 0.580 / 0.281 1-Year Period 77.8% company’s 9% stake in EQUATE—a private company Market Capitalization Shares Outstanding founded in 1995 as a joint venture between the Million KD 252.25 Latest (million) 485 government-owned Petrochemical Industries Company Ownership Structure (PIC) and Union Carbide Corporation, now a wholly owned Closely held: 13.18% Public: 86.82% subsidiary of the Dow Chemical Company, and Boubyan Price as of close on April 25, 2010. Sources: Zawya and NBK Capital Petrochemical Company. Boubyan also holds sizeable available-for-sale investments in undisclosed entities. Stock Performance Available-for-sale investments represent 73% of their total assets at the end of January 2010.
0.800 250.0 • Boubyan’s net profit figure is highly dependent on dividend income and investment income.
200.0 • Boubyan Petrochemical reported a net profit of KD 20.3
0.600 million in FY2008-2009, a drop of 61% year-on-year. 52-week High: KD 0.580 150.0 As for 9M2009-2010, Boubyan reported a net profit of KD 9.5 million, a 50% drop from the KD 19.2 million Millions
Price (KD) Price 100.0 achieved in 9M2008-2009. 0.400 • With the exception of EQUATE, we are uncertain about
50.0 the exact composition of the majority of Boubyan’s 52-week Low: KD 0.281 investments.
0.200 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close
Sources: Zawya and NBK Capital
Analyst
Alok Nawani T. +971 4365 2856 E. [email protected]
Key Ratios
2005-2006 2006-2007 2007-2008 2008-2009 9M2009-2010
Net debt to Equity 25.9% 30.5% 34.0% 68.5% 81.1% Investments/Total Assets 88.2% 91.0% 86.6% 86.6% 85.6% Investments/Equity 115.4% 123.4% 126.1% 154.7% 165.2%
ROA 8.8% 12.6% 13.1% 5.1% N/A ROE 11.5% 17.2% 19.0% 9.1% N/A
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 27 Boubyan Petrochemical Kuwait in Focus - April 2010
Overview • The company’s bottom line was highly dependent on dividend and investment income. In 9M2009-2010, Boubyan Petrochemical, operationally, is a company that Boubyan Petrochemical recorded dividend income of acts as a third party between customers and petrochemical KD 3.5 million, 75% higher than the KD 2 million manufacturers that specialize in products such as polyethylene recorded in the same period last year. In addition, Boubyan and ethylene glycol. Petrochemical recorded KD 25.8 million in net investment income for 9M2009-2010, a 55% drop from the KD 57.2 However, taking into account Boubyan’s operational structure million recorded in 9M2008-2009. Net profit was also and its dependence on core and non-core investments, the negatively affected by a 34% YoY increase in general and company must be analyzed as a holding company. Although administrative expenses to KD 2.4 million for 9M2009- Boubyan Petrochemical has been growing operationally since 2010. its inception, it is still dependant on EQUATE as well as some non-core investments. • Impairment of investments available for sale during 9M2009-2010 amounted to KD 18.4 million.
Latest News • Boubyan reported a net profit figure of KD 9.5 million in 9M2009-2010, a 50% drop from the KD 19.2 million • March 2010: Boubyan Petrochemical announced a achieved during the same period last year. dividend income of USD 38.4 million from EQUATE for FY2009. FY2008-2009
EQUATE Overview • Operationally, the company has been growing consistently on a yearly basis, with FY2008-2009 revenue growing by 50% to KD 25 million year on year. Over the past three EQUATE Petrochemical Company is a private years, revenue has grown at a CAGR of 37%. Additionally, company founded in 1995 as a joint venture between the company reported a gross profit figure of KD 6 million government-owned Petrochemical Industries Company (PIC) for FY2008-2009, an increase of 91% year on year. Gross and Union Carbide Corporation, now a wholly owned subsidiary profit has grown at a CAGR of 52% over the past three of the Dow Chemical Company, and Boubyan Petrochemical fiscal years. Company. • Although Boubyan has grown operationally over the past Currently, both Dow Chemical Company and PIC own 42.5% of several years, the company is currently highly dependent on EQUATE. Boubyan Petrochemical Company holds 9%, and the two sources for income—dividend income and investment remaining 6% is owned by Qurain Petrochemical Industries income. In FY2008-2009, Boubyan Petrochemical Company, a publicly traded company established in Kuwait in recorded dividend income of KD 23.6 million and 2004. Producing polyethylene and ethylene glycol for markets investment income of KD 52.9 million. in Asia, the Middle East, Africa, and Europe, EQUATE owes its success to Kuwait’s rich hydrocarbon resources. In 2008, • The company recorded a net profit figure of KD 20.3 EQUATE reported a net income of USD 683 million, a decline million in FY2008-2009, a drop of 61% year on year. of 11% from FY2007. For the same period, Boubyan Petrochemical took an impairment of KD 52.1 million for investments available- Financial Statement Analysis for-sale, without which the company would have recorded a net profit figure of KD 72.4 million, an increase of 38% Income Statement above the previously recorded full-year net profit figure of KD 52.6 million in FY2007-2008. 9M2009-2010 (May 2009 – January 2010) Balance Sheet • Boubyan reported growth on an operational basis; revenue grew by 5% YoY to KD 19.8 million in 9M2009-2010. • Boubyan Petrochemical’s asset portfolio effectively • Additionally, the company reported EBIT growth of 48% transforms the company into a holding company. The YoY to KD 3 million, continuing the company’s trend following chart breaks down Boubyan’s asset portfolio. of operational growth. As a result, the EBIT margin for 9M2009-2010 came in at 15% compared to 11% in 9M2008-2009.
nbkcapital.com | 28 Boubyan Petrochemical Kuwait in Focus - April 2010
Boubyan Asset Breakdown Financial Statements
Total Assets Income Statement (KD '000) 2007-2008 2008-2009 9M2008-2009 9M2009-2010 KD 407 million Sales 16,782 25,189 18,782 19,792 EBIT (1,209) 1,365 2,003 2,970
Dividend income 23,625 23,641 1,976 3,456 Operating Assets Equate (AFS) Investments Net investment income 32,592 52,900 57,180 25,838 KD 44 million KD 120 million KD 243 million Share of results of associates 3,266 2,784 2,909 (234) 11% 29% 60% Finance cost (5,728) (6,682) (4,654) (5,463) Other Income 2,571 (20) (2,380) 2,799 Profit before impairment 55,116 73,988 57,033 29,367
Investment in Impairment of investments AFS - (52,105) (36,522) (18,395) Other Associates Taxes (2,109) (936) (800) (443) KD 229 million KD 14 million 57% Minority Interest (378) (612) (506) (1,001) 3% Net Income 52,630 20,335 19,205 9,527
Held for AFS Balance Sheet (KD '000) 2006-2007 2007-2008 2008-2009 Jan-10 Trading KD 178 KD 51 million Cash and cash equivalents 3,387 17,797 7,590 8,071 million Accounts receivable 6,635 6,422 8,756 11,346 Inventories 1,987 2,525 2,620 3,485 Sources: Company’s financial statements and NBK Capital Investments carried at fair value 43,229 46,983 35,508 51,015 Total Current Assets 55,238 73,728 54,474 73,918 Investments AFS (Equate) 125,565 131,500 120,000 120,000 Investments AFS (Others) 123,443 170,549 189,459 177,674 • The chart above highlights the vast size difference between Investments in associates 9,893 13,544 14,674 13,912 Exchange of deposits 314 602 7,250 5,074 Boubyan’s operating assets and its investments. The Property, plant and equipment 5,063 10,525 10,080 14,164 Goodwill 1,717 2,575 2,575 2,575 majority of the investments are classified as available- Total Assets 321,232 403,023 398,512 407,315 Accounts payable and accruals 6,564 11,435 11,271 11,033 for-sale (AFS) - Other, which in total amounts to 57% Exchange of deposits - - - 17,000 of Boubyan’s total assets. Broken down, AFS includes Dividends Payable 1,767 1,640 2,334 2,822 Term loans 75,593 111,814 160,330 162,253 investments in quoted and unquoted investments (for Total Liabilities 83,925 124,889 173,935 193,108 Total Equity 237,307 278,134 224,577 211,091 which information is limited). Total Liabilities and Sh. Equity 321,232 403,023 398,512 407,315
• EQUATE is considered a key strategic investment for the Sources: Company’s financial statements and NBK Capital company, since Boubyan has board representation and is involved in the decision-making process.
• Boubyan currently has a net debt-to-equity ratio of 81% for 9M2009-2010, up from 69% in FY2008-2009.
nbkcapital.com | 29 Companies in Focus Kuwait in Focus - April 2010
Burgan Bank (Burgan)
Key Data Highlights
General Liquidity • Burgan Bank was established in 1977 and holds
KSE Code BURG.KSE 52-week avg. volume 1,504,696 approximately 10% of the total banking assets in Kuwait, Reuters Code BURG.KW 52-week avg. value (KD) 595,129 as of December 2009. Kuwait Investment Projects Price (KD) Price Performance Company (KIPCO) currently owns 54.60% of the bank. Closing Price 0.335 YTD -1.5% 52-week High/Low 0.500 / 0.315 1-Year Period -19.3% • In January 2010, Burgan became a majority shareholder of Bank of Baghdad (BOB) after purchasing an additional Market Capitalization Shares Outstanding Million KD 339.68 Latest (million) 1,013.97 5.3% stake for USD 10.7 million from United Gulf Bank
Ownership Structure (UGB), which increased Burgan’s total ownership in BOB Closely Held: 61% Public: 39% to 50.6%. In April 2009, the bank transferred 45.31% Price as of close on April 25, 2010. Sources: Zawya, KSE, and NBK Capital of BOB shares and 60% of Algeria Gulf Bank (AGB) shares from UGB. In July 2008, Burgan completed the acquisition of Jordan Kuwait Bank (JKB) by purchasing a Stock Performance 43.86% stake from UGB.
0.550 12 • Burgan announced a net profit of KD 6.2 million in 2009, 83% below 2008, as net loan loss provisioning charges 0.500 52-week High: KD 0.500 10 more than doubled compared to 2008. However, on the operational level, net interest income (NII) growth was very 0.450 8 robust, up 50% over 2008, as interest expenses declined 0.400 sharply. 6
0.350 Millions • Burgan asset quality indicators significantly deteriorated in Price (KD) Price
52-week Low: KD 0.315 4 2009 as the non-performing loans (NPLs)-to-gross loans 0.300 ratio rose to 9.8%, compared to 1.4% as of December
2 2008. Consequently, NPL coverage fell to 76% at the end 0.250 of 2009, compared to 321% as of December 2008.
0.200 0 Apr-09 Jun-09 Jul-09 Sep-09 Oct-09 Dec-09 Jan-10 Mar-10 Apr-10 • Burgan’s capital adequacy ratio (CAR) stood at 16.9% at Volume Close the end of December 2009, up from 13.8% at the end of December 2008, and above the minimum regulatory Sources: Zawya and NBK Capital requirement of 12%. Analyst • As part of Burgan’s plans to increase its capital by Munira Mukadam KD 36 million, the bank announced that the rights issue T. +971 4 365 2858 would begin on April 13, 2010, and last for two weeks. E. [email protected] Burgan appointed Majed Essa Al Ajeel as the new chairman at the general assembly meeting, which was held on Key Ratios April 6, 2010.
2005 2006 2007 2008 2009
Growth in Loans 6.5% 18.3% 50.2% 50.1% 5.3% Growth in Deposits 11.3% 6.1% 33.2% 46.6% 0.4% Growth in Net Profit 43.2% 31.5% 34.3% -50.5% -83.2% Growth in Operating Income 28.8% 25.8% 20.7% 14.6% 27.7%
Loans-to-Assets 42.3% 42.8% 49.9% 54.1% 54.9% NPLs-to-Gross Loans 4.0% 3.4% 1.7% 1.4% 9.8% NPL Coverage 148% 165% 224% 321% 76% Capital Adequacy 18.37% 16.50% 16.58% 13.77% 16.90%
Growth in Costs 17.7% 15.0% 17.6% 20.1% 30.0% Cost-to-Income 29.6% 27.1% 26.4% 27.7% 28.1% Net Interest Income-to-Operating Income 62.0% 61.0% 48.4% 56.2% 65.8%
RoAA 2.3% 2.7% 3.0% 1.1% 0.2% RoAE 18.1% 22.0% 24.5% 11.2% 2.0%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 30 Burgan Bank (Burgan) Kuwait in Focus - April 2010
Overview Asset Quality
Established in 1977, Burgan Bank (Burgan) is the youngest • Burgan's asset quality indicators significantly deteriorated commercial bank in Kuwait. Burgan was primarily government in 2009 as the NPLs-to-gross loans ratio rose to 9.8%, owned for two decades. The bank underwent a major structural compared to 1.4% as of December 2008. Consequently, change in 1997, when Kuwait Investment Projects Company NPL coverage fell to 76% at the end of 2009, the lowest in (KIPCO), Kuwait’s leading holding company, took over the the past seven years, compared to a record high of 321% government’s share to become the largest shareholder. KIPCO as of December 2008. Prior to that, between 2004 and currently owns 54.60% of the bank. Along with the change in 2008, there had been a continuous improvement in the ownership came a shift in strategic focus and management bank’s asset quality indicators as the NPLs-to-gross loans style. The bank is now among the country’s top banks and ratio fell from 6.01% in 2004 to 1.4% in 2008; NPL operates via a network of 21 branches and more than 120 coverage increased from 99% to more than 300% during ATMs around Kuwait as of the end of 2009. The bank’s the same period. activities can be broadly divided into four main categories: retail banking, corporate banking, private and international NPLs-to-Gross Loans and NPL Coverage Ratio banking, and treasury and investments. As of December 12.00% 350% 2009, Burgan held approximately 10% of the country’s total 321% banking assets with an asset base of KD 4.1 billion. Burgan 300% 10.00% 9.76% operates on the three main strategic pillars of client delight 250% and care, leveraging the bank's operational and technological 8.00% 224% capabilities, and nurturing staff. Thus, the bank has focused 200% 6.00% 6.01% its efforts on bringing innovative products and services to 6.00% 165% 148% the market, enhancing customer satisfaction, and improving 150% 4.00% 4.00% delivery channels. The long-term strategy remains focused on 100% 99% 3.42% 100% transforming branches and taking a more customer-centric 2.00% 1.71% 76% approach. Burgan is the only bank in the GCC with ISO 1.39% 50% 9001:2000 certification for all its banking business. 0.00% 0% 2003 2004 2005 2006 2007 2008 2009 Latest News NPLs-to-Gross Loans Total NPL Coverage
Sources: Company’s financial statements and NBK Capital • April 2010: As part of Burgan’s plans to increase capital by KD 36 million, the bank announced that the rights issue would begin on April 13, 2010, and last for two weeks. NPL Analysis - Pre-invasion versus Post-liberation
• April 2010: Burgan appointed Majed Essa Al Ajeel as the Pre-invasion KD '000 2005 2006 2007 2008 2009 new chairman at the general assembly meeting, which was NPLs 5,169 5,111 4,949 4,952 5,050 held on April 6, 2010. Specific Provisions 5,169 5,111 4,949 4,952 5,050 % of Total NPLs 15% 15% 20% 16% 2% • January 2010: Burgan became a majority shareholder Post-liberation of BOB after purchasing an additional 5.3% stake for KD '000 2005 2006 2007 2008 2009 NPLs 28,825 29,183 20,341 26,050 231,645 USD 10.7 million from UGB. This increased Burgan’s total Specific Provisions 14,360 17,487 13,392 16,989 70,136 ownership in BOB to 50.6%. % of Total NPLs 85% 85% 80% 84% 98% Post-Liberation NPL Growth -30% 1% -30% 28% 789% • January 2010: At the general assembly meeting, Burgan Provisions Growth -25% 22% -23% 27% 313% received approval from the shareholders to increase NPL Coverage 50% 60% 66% 65% 30% its share capital by KD 36 million. The bank plans on KD '000 Total issuing 360 million shares for the price of KD 0.100 NPLs 33,994 34,294 25,290 31,002 236,695 Total Provisions 50,306 56,503 56,592 99,575 179,128 and a premium of KD 0.180 per share, increasing the NPL Coverage 148% 165% 224% 321% 76% total subscription value to KD 100.8 million. The board NPLs-to-Gross Loans 4.0% 3.4% 1.7% 1.4% 9.8%
of directors recommended no dividend be distributed for Sources: Company’s financial statements and NBK Capital 2009.
nbkcapital.com | 31 Burgan Bank (Burgan) Kuwait in Focus - April 2010
Expansion Strategy • In 2009, one of Burgan’s subsidiaries sold a 54% stake in one of its equity interests, resulting in a net gain of • In January 2010, the bank acquired a 5.3% stake of BOB’s KD 4.2 million, which was included as “other income” on shares from UGB. Burgan previously held 45.31% of BOB, Burgan’s income statement. This pushed other income up so the bank’s total ownership increased to 50.61%. to KD 12.6 million, compared to KD 4.5 million in 2008. Total operating income reached KD 155 million, 28% over • In 2Q2009, the bank completed the transfer of 2008. 60% of AGB’s shares, increasing Burgan’s total ownership to 65.11%. • Growth in operating costs stood at 30% in 2009, outpacing the growth in operating income, and slightly pushing the • In July 2008, Burgan acquired a 43.86% equity stake cost-to-income ratio up to 28.1% in 2009, compared with in JKB. Burgan previously owned 7.24% of JKB; the 27.7% in 2008. However, this was still in line with the acquisition of this stake increased Burgan’s total ownership average cost-to-income ratio of approximately 27% over to 51.1%. As of December 2008, JKB’s financials the previous four years. were consolidated, and it accounts for approximately 20% of Burgan’s consolidated assets. • The key factor that drove earnings down in 2009 was net loan loss provisioning charges, which more than doubled • Burgan announced its expansion strategy in 2008, involving to KD 79.4 million in 2009, compared to KD 36.4 million the purchase of JKB, AGB, BOB, and Tunis International in 2008. On the up side, the impairment charges on Bank (TIB). The shares of these banks were to be bought investments declined to KD 3.5 million in 2009, compared from UGB for KD 194 million. UGB, an investment bank to KD 10.2 million in 2008. based in Bahrain, is also majority owned (88%) by KIPCO.
• The transfer of TIB’s shares from UGB to Burgan has not Balance Sheet yet been completed. Burgan currently owns a 76.5% stake in TIB, which will increase by 10%. • Burgan’s total assets grew by just 4% in 2009, after recording a compound annual growth rate (CAGR) of 23% Post-transaction Shares in Subsidiaries between 2004 and 2008.
Burgan • Net loans expanded by 9% in 1H2009, but declined by 3% in 2H2009 to reach KD 2.25 billion at the end of Jordan Kuwait Bank Bank of Baghdad Algeria Gulf Bank Tunisia International Bank* December 2009, 5% above the levels reached at the 51.1% 50.61% 65.11% 86.5% end of 2008. On the other hand, total deposits growth *Note: Burgan currently owns 76.5% of TIB. Source: NBK Capital remained flat in 2009. At the end of 2009, total deposits stood at KD 2.42 billion. Net loans and advances grew by a CAGR of 30% between 2004 and 2008, underpinned by Financial Statement Analysis a four-year CAGR of 23% in customer deposits.
Income Statement
• Burgan announced a net profit of KD 6.2 million in 2009, 83% below 2008, as net loan loss provisioning charges more than doubled compared to 2008.
• However, on the operational level, net interest income (NII) growth was very robust, up 50% over 2008, as interest expenses declined sharply. Income from fees and commissions grew by 34%, and foreign exchange income turned positive. However, almost all other non-interest income components declined, compared to 2008.
nbkcapital.com | 32 Kuwait in Focus - April 2010
Financial Statements
Income Statement (KD '000) 2006 2007 2008 2009
Interest Income 129,862 167,713 208,744 201,996 Interest Expense (76,468) (116,600) (140,727) (100,167) Net Interest Income 53,394 51,113 68,017 101,829
Fees and Commissions 19,988 17,089 22,416 29,966 Foreign Exchange Income 2,024 4,363 (237) 4,499 Net Investment Earnings 6,798 32,256 26,435 5,077 Income from associate - - - 786 Other Operating Income 5,382 868 4,474 12,552 Total Operating Income 87,586 105,689 121,105 154,709
Staff Expenses (11,870) (12,641) (17,985) (20,994) Other Expenses (11,849) (15,241) (15,501) (22,542) Total Operating Expenses (23,719) (27,882) (33,486) (43,536)
Loan Loss Provisions (6,124) (264) (36,396) (79,389) Investment Provisions - - (10,158) (3,448) Other Income / (Exp.) (2,010) (2,725) (5,331) (7,732) Minority Interest - - 1,331 (14,393) Net Income 55,733 74,818 37,065 6,211
Balance Sheet (KD '000) 2006 2007 2008 2009
Assets Cash and Cash Equivalents 677,237 864,899 938,333 1,019,137 Due from Banks 411,801 380,568 532,412 407,427 Loans and Advances 946,317 1,421,104 2,132,990 2,246,949 Net Investments 120,735 110,146 107,404 140,952 Investment in Associates - - - 15,434 Net Fixed Assets 18,062 17,804 30,607 36,664 Others 36,063 53,026 201,253 227,421 Total Assets 2,210,215 2,847,547 3,942,999 4,093,984
Liabilities and Shareholders' Equity Due to Banks and Oth.Fin.Inst. 525,959 732,112 795,486 977,804 Customers' Deposits 1,237,936 1,648,538 2,416,101 2,424,981 Borrowings 138,540 42,998 197,943 123,022 Other Liabilities 47,626 72,759 147,668 139,903 Total Liabilities 1,950,061 2,496,407 3,557,198 3,665,710
Minority Interest - - 75,515 102,799
Total Shareholders' Equity 260,154 351,140 310,286 325,475
Total Liabilities and Equity 2,210,215 2,847,547 3,942,999 4,093,984
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 33 Companies in Focus Kuwait in Focus - April 2010
Burgan Co. for Well Drilling, Trading and Maintenance (Burgan Well Drilling)
Key Data Highlights
General Liquidity • Burgan Well Drilling offers a full range of services to the KSE Code BURG.KSE 52-week avg. volume 421,294 oil sector, most notably equipment maintenance and Reuters Code BURG.KW 52-week avg. value (KD) 249,191 manpower for the operation of oil rigs. Price (KD) Price Performance
Closing Price 0.520 YTD -8.8% • Burgan Well Drilling is focused on its core operations, as it 52-week High/Low 0.633 / 0.500 1-Year Period -0.2% lacks any investments in equity markets. Market Capitalization Shares Outstanding Million KD 109.01 Latest (million) 210 • Burgan Well Drilling is a high-margin business with
Ownership Structure FY2008-2009 (fiscal year ends in March) EBITDA and net Closely held: 82.29% Public: 17.71% profit margins of 36.5% and 23%, respectively.
Price as of close on April 25, 2010. Sources: Zawya and NBK Capital • This trend, however, has reversed over the third quarter of FY2009-2010, with 9M2009-2010 EBITDA and net profit margins reported at 32% and 15%, respectively. We Stock Performance accredit this reversal primarily to the reduction in revenues
0.700 7.0 over 3Q2009-2010 and the general increase in leverage over 9M2009-2010. However, we note that the trend 6.0 may not yet be termed ‘secular’ given that it is a one time
0.650 5.0 decline in 3Q2009-2010. 52-week High: KD 0.633
4.0 • The company’s loan book and net debt-to-equity ratio are 0.600 growing as the company has recently taken on new debt.
3.0 Millions Price (KD) Price During 9M2009-2010, Burgan Well Drilling secured an
2.0 Islamic Ijara facility for KD 5.8 million. This influx in new 0.550 debt has caused the company’s net debt-to-equity ratio 1.0 to expand to 1.3x, fairly high relative to the company’s 52-week Low: KD 0.500 0.500 0.0 previous four fiscal years. The company reported that this Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 new loan was taken to finance the purchase of four new Volume Close oil rigs. Sources: Zawya and NBK Capital
Analyst
Alok Nawani T. +971 4365 2856 E. [email protected] Key Ratios
FY2005-2006 FY2006-2007 FY2007-2008 FY2008-2009 9M2009-2010
EBITDA (KD millions) 6.2 11.2 12.1 10.9 9.5 EBITDA Margin 40.6% 48.3% 45.1% 36.5% 31.9% EBIT (KD millions) 5.3 9.9 10.5 9.6 6.0 Gross Margin 44.2% 42.8% 39.5% 32.3% 24.2% EBIT Margin 36.2% 39.0% 35.7% 27.3% 20.3% Net Profit Margin 31.8% 36.1% 35.4% 23.0% 14.8%
Quick Ratio 0.3 1.4 0.6 0.1 0.4 Current Ratio 0.5 1.7 1.1 0.3 0.5 Net Debt to Equity 0.7 0.0 0.0 0.2 1.3 Interest Coverage Ratio 7.8 11.0 16.5 6.1 3.6
ROA 12.0% 14.0% 14.5% 7.0% 3.7% ROE 26.6% 26.6% 24.7% 14.9% 8.9%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 34 Burgan Well Drilling Kuwait in Focus - April 2010
Overview FY 2008-2009
• Burgan Well Drilling reported revenue of KD 30 million Burgan Company for Well Drilling, Trading and Maintenance in FY2008-2009, 11% higher than the previous year. (Burgan Well Drilling) is an oil service company that provides In addition, revenue has grown at a CAGR of 23% since manpower for well drilling and rig mobilization, as well as repair 2004-2005. Burgan reports revenue using the percentage and maintenance services for Burgan Well Drilling-owned and of completion method. non-owned wells and rigs. Burgan Well Drilling’s sole source of revenue is service contracts with various government-operated • Offsetting growth in revenue is a 25% increase in contract oil companies. The company has operations principally in costs—mainly due to a 28% rise in staff costs as well as an Kuwait and Bahrain and has a longstanding relationship with increase of 52% in repair and maintenance costs. Kuwait Oil Company (KOC) and its parent, Kuwait Petroleum • Uneven growth in revenue and contract costs resulted in Corporation. Burgan Well Drilling was founded in 1970 and a 9% decline in gross profit for the year. Nonetheless, the was listed on the Kuwait Stock Exchange in 2005. gross profit margin remains at a healthy level of 32%.
Latest News • EBITDA dropped 10% in FY2008-2009, year on year, though it has historically grown at a compounded annual growth rate (CAGR) of 22%. This drop is due to the • March 29, 2010: Burgan receives an award to supply six combination of the aforementioned decline in gross profit oil rigs worth KD 58.54 million to state-owned Kuwait Oil and the considerable growth in SG&A for the year. The Co over a period of five years. decline in EBITDA resulted in the EBITDA margin declining to 37% in FY2008-2009 from 45% in FY2007-2008. Financial Statement Analysis • The company reported a net profit figure of KD 7 million for Income Statement FY2008-2009, a 28% decline from the previous year due to a 143% increase in finance costs. Naturally, net profit 9M2009-2010 margins declined as well, from 35% in FY2007-2008 to 23% in FY2008-2009. • Following the stellar financial performance in the first half of FY2009-2010, 3Q2009-2010 has been rather weak Balance Sheet pushing the 9M2009-2010 year on year (YoY) growth in net income into negative territory. Revenue for 9M2009- • During 9M2009-2010, Burgan Well Drilling’s loan book 2010 was reported at KD 30 million, a 34% increase when has grown substantially. As of end 9M2009-2010, the compared to the KD 15 million reported during the same company reported total loans of KD 65.7 million, 192% period last year. Note, however, that the 3Q2009-2010 higher than the KD 22.5 million reported by the end of revenues declined 23% quarter on quarter (QoQ). FY2008-2009. This is mainly due to an Ijara facility • Gross profit decreased by 2% in 9M2009-2010 to amounting to KD 35.8 million taken by Burgan Well KD 7.1 million, driven by a 52% YoY increase in contract Drilling to purchase four new oil rigs. The company’s net costs which outpaced revenue growth during the period. debt-to-equity ratio stood at 1.26x at the end of 9M2009, As a result, the gross profit margin contracted from 33% a marked increase from 0.49x as at end FY2008-2009. in 9M2008-2009 to 24% in 9M2009-2010. EBITDA • The EBIT interest coverage ratio for 9M2009-2010 has for the period increased by 6% YoY to KD 9.5 million. declined to 3.6x from 8.2x in the same period last year. EBITDA margin for the period declined to 32% from 40% The EBIT interest coverage ratio during 9M2009-2010 in 9M2008-2009. was at its lowest in 3Q2009 at 0.11x.
• Net profit for 9M2009-2010 came in at KD 4.4 million, • With Burgan Well Drilling taking on new loans as well down 23% YoY. The decline was primarily driven by a bad as further advances from KOC for future projects, the debt provisioning charge of KD 0.3 million in 3Q2009- company’s current and quick ratios stand at 0.54x and 2010, a 17% YoY increase in SGA to KD 1.1 million and 0.39x, respectively, as at end 9M2009-2010. a 117% YoY increase in finance costs to KD 1.7 million.
nbkcapital.com | 35 Burgan Well Drilling Kuwait in Focus - April 2010
Financial Statements
Income Statement (KD '000) FY2007-2008 FY2008-2009 9M2008-2009 9M2009-2010
Contract revenue 26,846 29,870 22,110 29,640 Contract costs (16,247) (20,234) (14,772) (22,478) Gross Profit 10,599 9,636 7,338 7,161
SG&A (959) (1,387) (956) (1,120) Depreciation (58) (83) (62) (14) Operating Profit 9,582 8,166 6,320 6,027
Provision for Bad Debts - (295) Profit/(loss) on sale of PP&E 3 (5) (8) - Other income 933 580 402 531 Finance costs (640) (1,557) (774) (1,679) Profit Before Taxes 9,877 7,183 5,940 4,585
Contribution to KFAS (89) (65) (53) (41) NLST (247) (184) (148) (116) Zakat (33) (74) (60) (46) Net Income 9,509 6,861 5,678 4,382
Balance Sheet (KD '000) 2006-2007 2007-2008 2008-2009 Dec-09
Cash on hand and at banks 9,778 916 185 233 Contract receivable 6,931 4,313 4,277 9,081 Unbilled contract receivables 102 237 139 1,346 Prepayments and other receivables 477 678 782 2,660 Inventory & construction in progress 2,588 3,731 5,490 5,017 Total Current Assets 19,876 9,875 10,872 18,337
Property, plant and equipment 39,984 55,603 86,781 121,514 Total Assets 59,860 65,478 97,653 139,851
Due to bank 1,968 - 1,906 2,079 Term loans - current portion 3,823 3,139 10,939 4,879 Ijara Payable - current portion - - - 11,911 Advances from KOC 741 1,302 1,179 2,162 Notes Payable - - 1,277 1,200 Murabaha contract - - 8,754 - Accounts payable 5,071 4,369 8,406 11,640 Total Current Liabilities 11,603 8,809 32,462 33,870
Term loans - non-current portion 4,673 7,654 9,711 25,885 Ijara Payable - non-current portion - - - 21,009 Advances from KOC 11,814 10,271 9,214 6,623 Provision for indemnity 253 319 354 358 Total Liabilities 28,343 27,053 51,741 87,746
Total Equity 31,516 38,425 45,912 52,105
Total Liabilities and Equity 59,860 65,478 97,653 139,851
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 36 Companies in Focus Kuwait in Focus - April 2010
City group
Key Data Highlights
Ge ne ra l Liquidity • In FY2009, the travel and tourism business line witnessed KSE Code TRANSPORT.KSE 52-week avg. volume 18,208 a 6.8% increase in revenue while the transportation Reuters Code TTGC.KW 52-week avg. value (KD) 10,454 business segment recorded an 8.5% decline. Purchased Pric e (KD) Price Performance in 1Q2009, the warehousing and real estate segment Closing Price 0.661 YTD 8.5% 52-week High/Low 0.661 / 0.487 1-Year Period 35.7% contributed KD 1.56 million to total revenues of KD 12.7 million, a 6.5% year-on-year (YoY) increase. Market Capitilization Outstanding Shares Million KD 74.68 Latest (million) 113.01 • The FY2009 EBITDA increased by almost 10% and Ownership Structure reached KD 4.2 million, compared to KD 3.8 million Closely Held: 90.52% Public: 9.48% in FY2008. This translates into an EBITDA margin of Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital 33%, up from 32% in 2008. On the positive side, the increase in cost of sales (+4.8%) was lower than revenue Stock Performance growth (+6.5%). Furthermore, general and administrative expenses, excluding the impact of provision for bad
0.700 0.1 and doubtful debts, also lagged the growth in sales and increased 6% YoY. Depreciation charges increased roughly 52-week High: KD 0.661 0.1 30% from FY2008.
0.600 0.1 • The FY2009 results witnessed a small increase of 1.7%
0.1 in reported net income. However, if we exclude the KD 2.7 million gain on the acquisition of the warehousing 0.500 0.0 52-week Low: KD 0.487 business in 1Q2009, the company’s net profit declined by Millions Price (KD) Price 0.0 almost 90% in FY2009, mainly due to the sharp increase in impairments of fixed assets to KD 1.86 million from 0.400 0.0 KD 0.40 million in FY2008. 0.0 • City Group had a total debt-to-equity ratio of 0.14x as of 0.300 0.0 December 31, 2009. The company remains well positioned Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close to service City Group's debt through its high liquidity and strong cash-generating capabilities. Sources: Zawya and NBK Capital
Analyst
May Zuaiter T. +965 2224 5597 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
Gross Profit Margin (%) 60.4% 48.8% 47.7% 45.9% 46.8% Operating Profit Margin (%) 37.8% 23.2% 17.4% 19.7% 17.9% Net Profit Margin (%)* 36.9% 42.6% 30.0% 28.0% 17.0%
ROA 66.1% 11.3% 8.5% 9.7% 9.3% ROE 74.2% 14.3% 10.2% 11.5% 11.7%
Current Ratio (X) 9.42 3.80 5.70 4.76 1.96 Debt to Assets (X) 0.05 0.14 0.10 0.05 0.11 Debt to Equity (X) 0.06 0.18 0.12 0.06 0.14
Receivables Turnover Ratio 5.26 3.70 3.01 3.70 3.01 Inventory Turnover Ratio 26.93 20.56 18.44 15.01 11.72 Payables Turnover Ratio 0.59 2.29 2.49 2.55 2.70
*From continuing operations and adjusted for one-off items such as impairment and gain on asset acquisitions. Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 37 City Group Kuwait in Focus - April 2010
Overview the travel and tourism business line, which decreased by 40% in 2008 in the midst of the global financial crisis. A City Group Co. KSC, formerly known as “The Transport and closer look at the total revenue reveals that the transport Warehousing Group Co KSC,” is a public limited company business is still the main contributor to total revenues: listed on the Kuwait Stock Exchange (KSE) with paid-up 79% in FY2007, 88% in FY2008, and 75% in FY2009. capital of KD 9.83 million. City Group is engaged in a variety • The FY2009 EBITDA increased by 10% and reached of activities related to land, sea, and air transport through the KD 4.18 million compared to KD 3.81 million in FY2008. company’s four fully owned subsidiaries: This translates into an EBITDA margin of 33%, up from • Transport and Warehousing Real Estate Group Company 32% in 2008. On the positive side, the increase in cost of sales (+4.8%) was lower than revenue growth (+6.5%). • Boodai Aviation Company Furthermore, general and administrative expenses, • Boodai Aviation Agencies Company excluding the impact of provision for bad and doubtful debts, also lagged the growth in sales and increased 6% • Abar Oilfield Services Company YoY. Depreciation charges increased roughly 30% from FY2008. Latest News • The FY2009 results witnessed a small increase of 1.7%
• February 2010: City Group stated that the company’s in reported net income. However, if we exclude the board of directors recommended a 15% distribution of KD 2.7 million gain on the acquisition of the warehousing bonus shares for FY2009. business in 1Q2009, the company’s net profit declined by almost 90% in FY2009, mainly due to the sharp increase • December 2009: City Group signed an agreement with in impairments of fixed assets to KD 1.86 million from Comprehensive Multiple Transportations to acquire 50% KD 0.40 million in FY2008. This “unusual” accounting of the company’s paid-up capital, through increasing gain arose as the purchase price of the warehousing Comprehensive Multiple Transportations’ capital by JOD business was determined to be lower than the provisional 15 million. City Group will receive 15 million shares for a fair value of the net assets acquired. nominal value of JOD 1 per share.
• January 2009: City Group’s wholly owned subsidiary, Balance Sheet Transport and Warehousing Real Estate Group, acquired 100% of the net assets of the real estate division of • Liquidity concerns are not a source of worry for this Al Masar United Company for a cash consideration of company; City Group’s debt-to-equity ratio stood at 0.14x KD 9.5 million. at the end of December 31, 2009, with cash and cash equivalents amounting to roughly KD 1.85 million. This Financial Statement Analysis was a considerable drop since December 31, 2008, when cash and cash equivalents stood at KD 15.4 million. Income Statement This drop in cash occurred because the company spent a significant portion of this cash to pay for acquiring the • In FY2009, the travel and tourism business line witnessed warehousing business. a 6.8% increase in revenue, while the transportation business segment recorded an 8.5% decline. Total revenue, however, grew by 6.5% to reach KD 12.7 million, due to the top-line contribution of KD 1.56 million from the warehousing and real estate segment. In January 2009, City Group’s wholly owned subsidiary, Transport and Warehousing Real Estate Group, acquired 100% of the net assets of the real estate division of Al Masar United. As a result, City Group had an additional source of revenue generated from the warehousing and real estate segment in 2009. In FY2009, this new revenue stream accounted for 12% of the total revenue. In FY2008, City Group’s revenue grew by just 0.4%, compared to the increase of almost 7% seen in FY2007. This was mainly due to the slowdown in
nbkcapital.com | 38 City Group Kuwait in Focus - April 2010
Financial Statements
Income Statement (KD '000) 2006 2007 2008 2009
Revenue 11,095 11,861 11,903 12,679 Cost of Goods sold 5,685 6,203 6,443 6,750 Gross Profit 5,410 5,658 5,460 5,930 G & A expenses 1,688 2,115 1,652 1,751 EBITDA 3,722 3,542 3,808 4,179 Depreciation 1,150 1,481 1,462 1,903 Operating Income 2,572 2,062 2,346 2,276 Other income 2,603 2,068 521 485 Share of income from associates - - - 42 Bad debt provision - - (63) (331) Finance costs (265) (432) (213) (190) Profit before Tax 4,910 3,699 2,591 2,281 Taxes (185) (143) (150) (226) Profit from continued operations 4,724 3,556 2,441 2,055 Gain on purchase of warehousing bus. - - - 2,676 Interest on time deposits - - 891 106 Impairment of fixed assets - - (404) (1,858) Ne t Inc o me 4,724 3,556 2,928 2,979
Balance Sheet (KD '000) 2006 2007 2008 2009
Cash and cash equivalents 1,890 13,525 15,382 1,845 Trade and other receivables 2,999 3,935 3,215 4,205 Due to related parties 11,906 12,185 730 1,371 Inventories 276 336 429 576 Current Assets 17,071 29,982 19,756 7,997
Fixed-assets-PP&E 13,870 11,886 10,305 23,752 Due from related party 10,995 - - Total Non Current Assets 24,865 11,886 10,305 23,752
Investment in associates - - - 87 Investment in securities - - - 104 Total Assets 41,936 41,868 30,061 31,940
Current portion of loan 2,006 2,767 1,625 1,580 Trade and other payables 2,487 2,493 2,526 2,501 Current Liabilities 4,492 5,260 4,151 4,081
Non-current portion of loan 4,066 1,387 - 1,850 Post employment benefits 425 499 543 612 Non-Current Liabilities 4,490 1,886 543 2,462 Total Liabilities 8,983 7,146 4,694 6,543
Share Capital 8,933 9,827 9,827 9,827 Legal reserve 4,467 4,837 5,144 5,465 General Reserve 4,467 4,837 5,144 5,465 Retained Earnings 15,087 15,223 5,251 4,641 Total Equity 32,953 34,722 25,367 25,397 Total Liabilities and Equity 41,936 41,868 30,061 31,940
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 39 Companies in Focus Kuwait in Focus - April 2010
Commercial Real Estate Company (Altijaria)
Key Data Highlights
General Liquidity • The Kuwait-based Commercial Real Estate Company KSE Code ALTIJARIA.KSE 52-week avg. volume 1,932,589 (Altijaria) is a Shari’ah-compliant real estate investment, Reuters Code TIJK.KW 52-week avg. value (KD) 226,076 development, and management company. Its main focus Price (KD) Price Performance is residential and commercial property development, Closing Price 0.089 YTD -20.5% 52-week High/Low 0.140 / 0.089 1-Year Period -19.1% along with investment in Kuwait and the region. Altijaria has major projects across various business segments and Market Capitilization Outstanding Shares Million KD 162.90 Latest (million) 1,830.34 geographic locations.
Ownership Structure • The change in fair value of real estate properties more than Closely Held: 13.30% Public: 86.7% doubled, to KD 33 million in 2009 compared to KD 14.7 Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital million in 2008. Excluding the impact of the change in fair value of real estate properties, the company reported Stock Performance losses in 2009 (vs. reported net profit of KD 19 million in 2008).
0.160 30.0 • The company’s investment book (both available for sale [AFS] and held for trading) stood at KD 41.5 million 25.0 0.140 52-week High: KD 0.140 according to the 2009 financials. The company’s
20.0 investment book accounts for 18% of shareholder equity. 0.120 Almost 79% of the AFS investment is in the unquoted
15.0 category. Millions
Price (KD) Price 0.100 10.0 52-week Low: KD 0.089
0.080 5.0
0.060 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close
Sources: Zawya and NBK Capital Analyst
Mariam Al-Bahar T. +965 2259 5138 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
Rental Income (% of real-estate-related rev.) 23% 34% 16% 30% 13% Profit from sale of real estate (% of real-estate-related rev.) 33% 32% 34% 8% 15% Change in fair value (% of real-estate-related rev.) 19% 32% 49% 62% 72% Revaluation gains (% of net profit) 56% 43% 59% 86% 162%
EBITDA (KD million) 16.2 14.2 37.4 19.6 41.8 EBITDA Interest Cover (x) 4.3 3.9 5.8 2.5 4.0 Net Debt-to-Equity (x) 0.3 0.2 0.4 0.7 0.7
Operating Profit Margin 76% 77% 89% 83% 91% Net Profit Margin 135% 191% 105% 61% 42% Adjusted Net Profit Margin 60% 58% 73% 50% 68%
Investment Book (% of Total Assets) 17% 9% 12% 12% 10% Investment Book (% of Total Equity) 25% 14% 18% 22% 18%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 40 Commercial Real Estate Company (Altijaria) Kuwait in Focus - April 2010
Overview includes other facilities such as squash courts, a health club, landscaped gardens, and a swimming pool.
The Kuwait-based Commercial Real Estate Company (Altijaria) Al-Shrooq Tower – Located on Jaber Al-Mubarak Street in is a Shari’ah-compliant real estate investment, development, the Sharq area, this tower consists of 21 floors and includes and management company. The main focus of the company commercial shops in the basement, on the ground floor, and is residential and commercial property development and on the mezzanine. investment in Kuwait and in the region. The company was established in 1968 and was listed on the Kuwait Stock Budoor Tower – Located in Sharq area on the Ahmed Al Jaber Exchange at the end of 2004. Altijaria aims to drive growth by Street, this office tower consists of 17 floors and includes seizing investment and real estate opportunities and expanding commercial shops in the basement, on the ground floor, and abroad in order to diversify the company’s revenue stream. The on the mezzanine. company has adopted the following business model: Major ongoing projects - Kuwait Altijaria engages in business activities related to commercial and residential real estate. Within the real estate sphere, the Symphony – This is a mixed-use project located in Salmiya and company handles the sale, purchase, and lease of land and is built on an area of 11,500 sq. m., consisting of commercial property. shops (divided into a basement, ground floor, mezzanine, and Altijaria’s network expansion through alliances and consortiums first floor) with two towers on top. The office tower is composed with various firms in the Gulf Cooperation Council (GCC) drives of 11 floors, and the other tower is a hotel with 20 floors. the company’s focus toward developing large-scale projects Al Tijaria Tower – This is another mixed-use project and will rather than smaller residential and commercial projects. include malls and office space. The tower is located in the The company’s latest ventures and acquisitions, such as First Sharq area and is built on an area of 4,295 sq. m. The top Investment Bank (Islamic Bank), are radically strengthening part of the tower is designated for office space and consists its business model in favor of greater diversification. of 40 floors.
The Dome – Located in Abu-Halifa on the coastal road, the Latest News project is built on an area of 15,195 sq. m. and consists of restaurants, coffee shops, and facilities for entertainment • April 2010: At the annual general meeting (AGM) held activities. on April 19, 2010, Altijaria's shareholders approved a 7% bonus shares, which has increased the number of Juman Residential Complex – Built on an area of 7,950 sq. outstanding shares from 1.65 billion to 1.83 billion. m., this residential project is located in Mahboula, facing the Fahaheel Express Road. The project consists of two buildings Major Projects of 12 floors each, which includes apartments, penthouses, and townhouses. The project also includes swimming pools, a paradise island for children, a waterfall, and other facilities Major completed projects - Kuwait such as tennis courts, a gymnasium, and commercial shops.
Al-Manar – Located in Bnaid Al Gar, this project consists of a Major upcoming projects - Kuwait 16-floor residential tower (two- and three-bedroom apartments) and six townhouses. One of the most important features of this X-Zone Project – This will be an entertainment project on an super-deluxe residential complex is its sea view. area of 5,940 sq. m. The project will consist of restaurants, Al Yarmouk Villas, Phase 1 – Located in the Yarmouk area, the coffee shops, a games area, two movie theaters, and other development consists of 18 plots, each 400 sq. m. in size. advanced entertainment facilities. The built-up area of each plot ranges from 460 sq. m. to 550 Ruba – The Ruba Project will be a residential building located sq. m. in Mahboula, and will be built on an area of 5,373 sq. m. Al Yarmouk Villas, Phase 2 – This project includes 14 plots adjacent to the Fahaheel Expressway. The project will consist and beach covering an area of around 386 sq. m. The built-up of 15 floors, and will contain a mix of dwelling units such area is around 450 sq. m. per plot. as individual townhouses and penthouses. The project will Rester Beach Resort – Located on the Gulf beach in the Al- also include provisions for outdoor and indoor recreational Egila area, the project consists of 31 townhouses, each of activities. which has two floors, a garden, and private parking. The resort
nbkcapital.com | 41 Commercial Real Estate Company (Altijaria) Kuwait in Focus - April 2010
Salmiya Park – This is one of the most important tourism • In 2009, the real estate recurring income decreased by projects launched in Kuwait and is spread over an area 14%, to KD 6.1 million, compared to 2008, entirely due to of 380,000 sq. m. The estimated cost of the project is the decline in rental income. The company’s rental income KD 19 million. decreased by 15%, to KD 6 million in 2009, compared to KD 7.1 million in 2008. Historically, rental income grew Kuwait International Tennis Complex – Built over an area of at a five-year CAGR of 12.5% for the period from 2004 70,000 sq. m., this will be a one-of-a-kind project in the to 2009, accounting for 23% of the real-estate-related region. The project will include a hotel, a commercial complex, revenue in the last five years. a major adapted and covered stadium, and tennis and squash courts, all for an estimated investment of KD 28 million. • Operating profit more than doubled, to KD 41.8 million in 2009, compared to 19.6 million in 2008, mainly due to Major international projects revaluation gains. However, growth at the net profit level was comparatively subdued at 32%, to KD 19.1 million in House Towers Project – Hajer and Al Mukam Towers are 2009, compared to 2008, mainly due to the increase in residential towers that will be located very close to Kaaba in interest expense and the decrease in profit from associates. Saudi Arabia. This project will cater mainly to the housing needs of pilgrims. The Hajer Tower will be a mixed-use Balance Sheet project and will consist of 31 floors, 10 floors of which will be occupied by the Mövenpick Hotel. The remaining floors will • Altijaria had a net debt-to-equity ratio of 0.7x as of the consist of furnished hotel apartments. Al Mukam Tower, also end of 2009, compared to an average net debt-to-equity a mixed-use tower, will consist of 45 floors and will include a ratio of 0.34x over the five years from 2004 to 2008. The hotel and hotel apartments. company’s equity and total debt stood at KD 235 million and KD 159.7 million, respectively, as of December 31, Ain Athari – Bahrain Park – This is an international build- 2009. We would like to highlight that the historical trend operate-transfer (BOT) project and will be developed in in the EBITDA interest cover has been impressive, with the cooperation with two other companies in the region. The last five-year average at 4.2x and 4x for 2009. However, project is located in Bahrain and will be built over an area of if we exclude the revaluation gains (mainly revaluation 170,000 sq. m. gains from real estate properties) from the EBITDA, it was insufficient to meet the interest expenses in the last two Financial Statement Analysis years.
Income statement • The company’s investment book (both AFS and held for trading) stood at KD 41.5 million according to the 2009 • Real-estate-related revenue increased significantly by financials. The company’s investment book accounts 93% to KD 45.9 million in 2009, compared to KD 23.8 for 18% of shareholder equity. Almost 79% of the AFS million in 2008, mainly due to the increase in the change investment is in the unquoted category. in the fair value of real estate properties. Change in the fair value of real estate properties accounted for 83% of the incremental real-estate-related revenue in 2009. Profit from land and real estate held for trading was instrumental in the rise in real-estate-related revenue.
• The change in the fair value of real estate properties more than doubled to KD 33 million in 2009, compared to KD 14.7 million in 2008. Historically, change in the fair value of real estate properties has been one of the main drivers of real-estate-related revenue. The contribution of the change in the fair value of real estate properties to real-estate-related revenue averaged 38% in the last five years (2004-2008). In 2009, the change in the fair value of real estate properties accounted for 72% of the total real-estate-related revenue.
nbkcapital.com | 42 Commercial Real Estate Company (Altijaria) Kuwait in Focus - April 2010
Financial Statements
Income Statement (KD' 000) 2006 2007 2008 2009
Rental Income 6,258 6,830 7,075 6,012 Hotel income 466 403 6 101 Change in fair value 5,892 20,600 14,744 33,021 Investment Income 9,065 5,865 -2,315 -2,100 Total income 27,710 48,269 21,466 43,765 Operating expenses -4,685 -6,086 -4,185 -4,270 Operating profit 24,436 46,477 16,285 38,510 Net Income 35,628 44,650 14,465 19,057
Balance Sheet (KD' 000) 2006 2007 2008 2009
Cash and Bank Balances 38,589 535 4,284 2,410 Investment Properties 84,173 123,248 128,825 191,478 Total Assets 311,077 337,493 398,697 413,035 Short-Term Debt 23,146 29,727 102,565 64,738 Long-Term Debt 50,019 55,489 46,512 94,952 Total Debt 73,166 85,216 149,077 159,690 Total Liabilities 112,556 112,039 179,959 177,760
Shareholders' Equity 198,521 225,455 218,738 235,275 Total Liabilities and Equity 311,077 337,493 398,697 413,035
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 43 Companies in Focus Kuwait in Focus - April 2010
Gulf Cable and Electrical Industries Company (Gulf Cable)
Key Data Highlights
General Liquidity • Gulf Cable and Electrical Industries Company (Gulf Cable) KSE Code CABL.KSE 52-week avg. volume 143,365 is the market leader in Kuwait, with the largest market Reuters Code CABL.KW 52- week avg. value (KD) 244,916 share in the electric cable business. Price (KD) Price Performance
Closing Price 1.760 YTD 2.5% • Gulf Cable set up new plants in 2009 across the GCC. The 52-week High/Low 1.980/1.160 1-Year Period 43.1% company boosted production capacity in 2008 to 75,000 Market Capitalization Outstanding Shares tons/year from the previous 50,830 tons/year in 2007. Million KD 356.88 Latest (million) 209.90
Ownership Structure • The company has large investments in the financial Closely Held: 39.9% Public: 60.1% markets. Investments represent more than 100% of
Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital shareholders’ equity and 70% of total assets. As a result, investment income accounts for a large portion of income, making up 41.7% of total net income in 2009. Stock Performance • Gulf Cable gained a foothold in the regional market in 2006 by acquiring 94.5% of a cable producer in Jordan 2.000 2.5 52-week High: KD 1.980 (KD 8 million) capable of producing an additional 20,000 tons of cable per year. The company plans on doubling its 1.800 2.0 cable-producing capabilities in Jordan to 40,000 tons.
• Acting as a regional player allows Gulf Cable to take 1.600 1.5 advantage of the increased spending by governments on major development projects (e.g., infrastructure). Millions Price (KD) Price 1.400 1.0 Approximately 50k to 60k MW of power generation capacity is likely to be added within the Middle East region over the
1.200 0.5 next four years. According to Middle East Electricity, Arab 52-week Low: KD 1.160 nations are expected to spend up to USD 120 billion on power projects between 2008 and 2012. 1.000 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close
Sources: Zawya and NBK Capital
Analyst
Wadie Khoury T. +965 2259 5118 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
Gross Margin* 32.0% 34.2% 31.1% 21.2% 17.2% EBITDA Margin 29.6% 31.0% 27.2% 17.6% 13.3% EBIT Margins 27.9% 29.3% 26.1% 16.4% 11.2% Net Income Margin 31.0% 30.4% 32.0% 2.9% 17.3%
Investment Book-to-Assets 79.5% 70.0% 75.6% 54.2% 75.9% Investment Book-to-Equity 93.7% 73.9% 87.1% 84.7% 111.3% Investment Income-to-Net Income 17.7% 17.2% 31.4% -400.7% 62.7%
ROAA 11.8% 11.2% 10.1% 1.1% 4.2% ROAE 13.5% 12.4% 11.3% 1.5% 6.8% Adjusted ROAA 37.5% 27.2% 23.0% 14.9% 7.8%
Debt-to-Equity 12.6% 2.2% 12.3% 50.9% 41.9% *Depreciation included Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 44 Gulf Cable and Electric Industries Company (Gulf Cable) Kuwait in Focus - April 2010
Overview income that helped boost profits as operations from core assets declined year on year.
With a production capacity of 75,000 tons/year, Gulf Cable is • EBITDA levels experienced a decline year on year, dropping one of the most dominant regional players in the manufacturing from KD 19.3 million in 2008 to KD 11.39 million in and supply of cables. Established in 1975, the company's core 2009. The effects come from weaker sales as well as operations involve cables to distribute electricity. These cables higher operating expenses throughout the year. are strictly low- and medium-voltage cables made of copper (approximately 70% of total produced cables) or aluminum • Looking at net profit strictly from an operational point of (approximately 30%). Gulf Cable’s production facilities allow view (i.e., excluding any profit from investments), we find it to produce other forms of cables such as data transmission that the adjusted net income showed stablity. Looking at cables, conductors, and telephone cables. Furthermore, Gulf the company’s return on average assets (ROAA) and the Cable has its own copper rod plants, enabling it to produce company’s adjusted return on assets (excluding investment 12,000 tons of copper per year (the main raw material used income), we find that the company would produce better in the production of cables). The group is composed of the returns strictly from operations, as shown in the figure parent company along with its subsidiary Gulf Cable and Multi below: Industries Company–JSC, located in Jordan. The company sells its products within the Middle East, including the United Return on Assets
Arab Emirates (UAE), Oman, Jordan, Qatar, Bahrain, and 2006 2007 2008 2009 Saudi Arabia. ROAA 11.2% 10.1% 1.1% 4.2% Adjusted ROAA 27.2% 23.0% 14.9% 7.8% Latest News Sources: Company report and NBKC
• February 2010: Gulf Cable won a contract valued at Balance Sheet KD 6.2 million with an undisclosed entity to supply cables. • A significant portion of assets have been allocated to • October 2009: Gulf Cable signed a 10-month contract market investments. At the end of 2009, the company with the Kuwait Ministry of Electricity and Water to supply has available-for-sale (AFS) investments (fair value of welding materials for tension power cables. The contract is KD 178.5 million) accounting for 113% of the total valued at KD 1.9 million. shareholders’ equity (69% of total assets). The company • April 2009: Gulf Cable signed a nine-month contract, increased its investment book by 38.9% year on year. valued at KD 1.4 million, to supply the Ministry of • Gulf Cable trades with electrical trading companies within Electricity and Water with electric cables. the region as well as government-related projects. This allows for some confidence in receivables going forward. Financial Statement Analysis • Since the AFS portfolio is counted at fair value, any mark- to-market gains or losses are reflected in the revaluation Income Statement reserve account. Per the 2009 results, the fair value reserve account improved to KD 44.8 million, from • Sales have shown an upward trend, growing at a CAGR KD 35.1 million in 2008, adding back KD 9.7 million of of 11% between 2005 and 2009. Despite the strong shareholders’ equity after a devastating impact from the performance throughout the period, sales declined year on effects of the financial crisis. year by 27.9% in 2009 compared to 2008. Gross profit margins increased slightly from 20.1% in 2008 to 22.3% • Looking at Gulf Cable from an operational standpoint, in 2009 due to a 23% year-on-year drop in cost of goods 6.2% of the company’s assets consists of property, sold. plant, and equipment (PP&E) valued at KD 15.9 million. PP&E improved by 6.2% year on year. • The company’s bottom line is highly dependent on income from investments. In 2008, the loss from investments stood • Inventory balances increased at a CAGR of 26.6% between at KD 12.9 million. The losses incurred in 2008 wiped 2005 and 2009 to reach KD 34.3 million. Inventory levels out any profits made from investments in the previous declined year on year as a result of the raw material value two years. In 2009, investment income rallied back to dropping by half. This could partly be explained by a 24% KD 4.38 million, representing 41.7% of total income. As decline in average copper prices year on year. a matter of fact, it was the company’s investments in net
nbkcapital.com | 45 Gulf Cable and Electric Industries Company (Gulf Cable) Kuwait in Focus - April 2010
• Although inventory levels declined, converting inventory Financial Statements into cash took more time for the company. In 2008, Gulf Cable was able to convert inventory into cash in Income Statement (KD '000) 2006 2007 2008 2009 Total Revenue 65,914 83,983 109,858 71,125 close to 173 days. By 2009, days inventory outstanding Cost of Revenue (44,496) (58,765) (87,817) (55,246) (DIO) stood at 274 days. Along with the increase in DIO, Gross Profit 21,418 25,217 22,041 15,878 Selling/General/Admin Expenses (2,098) (3,328) (4,027) (5,943) days sales outstanding (DSO) also increased in 2009 to Operating Income 19,320 21,889 18,014 9,935 Inv. Income (Exp), Net Non-Op. 1,305 6,308 (15,360) (207) 150 days from 108 days in 2008. Other, Net 341 (98) 919 1,386 Net Income before Taxes 20,966 28,099 3,573 11,115 Contributions to KFAS (210) (281) (36) (111) Days Sales Outstanding and A/R as a Percentage of NLST (462) (624) - (148) Zakat - (15) - (50) Sales Directors Remuneration (240) (310) (310) (310) Net Income 20,055 26,868 3,227 10,495 -
40% 160 Balance Sheet (KD '000) 2006 2007 2008 2009
34.0% Property, plant and equipment 11,849 11,627 14,975 15,920 32.8% 35% 140 Available for sale investment 142,039 248,450 128,446 178,452 29.6% Good will 760 - - - 30% 28.1% 120 Non-Current Assets 154,648 260,078 143,421 194,372 Inventories 26,055 34,713 48,756 34,248 25% 100 Trade Account Receivable 18,536 27,519 37,351 21,087 Other Reveivable and prepayments 126 3,064 4,913 1,268 Fixed deposit 2,639 201 186 388 20% 80 150 Cash and bank balances 1,009 2,983 2,403 5,591 Current Assets 48,365 68,479 93,609 62,582 A/R % of Salesof % A/R 15% 60 Days of Number Total Assets 203,013 328,556 237,030 256,954 108 100 Long term provisions 1,203 1,376 1,229 1,324 10% 77 40 Long term loans 3,233 2,574 12,925 10,564 Non Current Liabilities 4,437 3,950 14,155 11,888 5% 20 Trade A/P 667 1,019 1,089 1,650 Other Payables and accruals 4,737 5,635 5,771 9,238 Current Portion of LT loans 359 572 4,939 5,132 0% 0 Short term loans - 27,399 56,412 71,500 2006 2007 2008 2009 Due to banks 689 4,683 2,936 49
Days Sales Outstanding (DSO) A/R as % of Sales Current Liabilities 6,452 39,307 71,147 87,569 Total Liabilities 10,889 43,257 85,301 99,457 Sources: Company’s financial statements and NBK Capital Fair Value reserve 90,736 163,861 35,076 44,826 Other Equity 101,388 121,437 116,653 112,670 Total Equity 192,124 285,299 151,729 157,497 • The debt-to-equity ratio increased from 51% in 2008 Total Liabilities and Equity 203,013 328,556 237,030 256,954 to 55% in 2009 as a result of the additional take on Sources: Company’s financial statements and NBK Capital short-term debt. The company’s short-term debt increased from KD 56.4 million in 2008 to KD 71.5 million in 2009. The details are discussed later in the cash flow analysis.
Cash Flow
• In 2009, cash flow from operations increased to KD 50.1 million from a loss of KD 4.4 million in 2008 due to a significant improvement in the management of working capital. This comes from declining inventory and receivables. The results come as a surprise; however, additional details have not been provided to shed more light on the matter.
• As mentioned earlier in the Balance Sheet segment of the report, Gulf Cable raised a significant amount of debt over the year. The debt, coupled with the improvements in operating cash flows, was used to help purchase AFS investments of KD 47.6 million and dividend payments of KD 13.7 million. Also worth noting is the fact that Gulf Cable used some of this cash to pay down some of the company's debt outstanding worth KD 28.3 million.
nbkcapital.com | 46 Companies in Focus Kuwait in Focus - April 2010
Gulf Insurance Company (GIC)
Key Data Highlights
General Liquidity • Gulf Insurance Company (GIC) is the largest insurance KSE Code GINS.KSE 52-week avg. volume 78,283 company in Kuwait in terms of written and retained Reuters Code GINS.KW 52- week avg. value (KD) 34,954 premiums. Price (KD) Price Performance
Closing Price 0.390 YTD -12.4% • Approximately 66.7% of GIC is owned by KIPCO (the 52-week High/Low 0.550/0.390 1-Year Period -17.9% largest major shareholders are the Al Sabah family). Market Capitalization Outstanding Shares Million KD 66.16 Latest (million) 169.65 • GIC displayed strong growth in written premiums over the
Ownership Structure past four years, increasing at a CAGR of 22.4%. Moreover, Closely Held: 66.6% Public: 33.4% net income improved year on year, growing by 40% in
Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital 2009. • A significant portion of the company’s risks are shared with Stock Performance reinsurers. More than 40% of total claims are passed on to reinsurers. Sharing risks with reinsurers has contributed to
0.600 1.4 the company’s bottom-line growth.
52-week High: KD 0.550 • Looking at the company’s underwriting profit, GIC is paying 1.2 0.550 out KD 0.990 in claims for every KD 1.000 underwritten
1.0 in contracts. If the discounts on claims are included, the 0.500 claims paid out top KD 1.000. This comes mainly on the 0.8 back of increased casualty claims. 0.450
0.6 Millions
Price (KD) Price • A large portion of GIC’s assets are liquid, allowing
0.400 sufficient payback of claims. In addition, the company has 0.4 52-week Low: KD 0.390 high cash balances capable of paying off 2.6 times its net
0.350 0.2 outstanding claim reserve. • GIC held an investment book worth KD 75.6 million at the 0.300 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 end of 2009, which represented 30% of total assets. The Volume Close amount has come down over the years, as GIC beefed up Sources: Zawya and NBK Capital its cash balance significantly.
• Throughout 2009, GIC expanded its presence in the region through the acquisition of a Jordanian insurance company —Arab Orient Insurance Company. In addition, GIC Analyst strengthened its position in other subsidiaries, including Arab Misir Insurance Group and Syrian Kuwait Insurance Wadie Khoury Company. T. +965 2259 5118 E. [email protected] • GIC’s stock is relatively illiquid; the average daily value traded reaches KD 30,669. Key Ratios
2005 2006 2007 2008 2009
Premiums written Growth N/A 63.1% 5.0% 16.9% 54.9% Underwriting Profit Growth N/A -16.5% -16.9% 264.2% -34.5%
Loss Ratio 68.2% 77.7% 70.9% 61.0% 75.5% Expense Ratio 23.3% 19.2% 26.1% 25.3% 23.6% Combined Ratio 91.5% 96.9% 97.0% 86.3% 99.1%
Adjusted RoAA 5.1% 5.2% 3.8% 1.5% 8.2% Adjusted RoAE 11.5% 13.8% 10.6% 4.3% 28.1%
Inv Book-to-total Assets 49.4% 43.5% 41.8% 38.2% 29.7% Inv Book-to-total Equity 111.7% 134.6% 107.7% 118.9% 113.3%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 47 Gulf Insurance Company (GIC) Kuwait in Focus - April 2010
Overview Underwriting Profit
8.0 7.6 GIC is the largest insurance company in Kuwait in terms of written and retained premiums. Established in 1962, GIC 7.0 covers life and non-life segments throughout the region 6.0 through subsidiaries. Areas of non-life insurance covered include motor, marine and aviation, and property and casualty 5.0 insurance. 4.0 3.6
3.0 3.0 KD Millions KD Latest News 2.5 2.1 2.0 • June 2009: GIC increased its stake in the Arab Orient 1.0 Insurance Company, Jordan’s largest insurance company, to 55%, making GIC the largest shareholder of the company. 0.0 2005 2006 2007 2008 2009 • April 2009: Saudi Arabia’s Buruj Cooperative Insurance Source: Company reports Company, a subsidiary of GIC, announced its intention to undertake in an IPO, selling off 40% of the company’s shares. • “Commissions received on ceded reinsurance” are fees received from reinsurers to share risks (i.e., costs) Financial Statement Analysis associated with any claim incurred in return for a share of the profits from premiums. We examined the effect if these were removed from the underwriting profits. Excluding Income Statement these from the equation, GIC’s underwriting profit drops significantly; the company would have incurred a loss of • In the insurance industry, there are two main drivers for KD 4.3 million in 2009. This will be clarified further when revenue growth. The first involves the number of issued we take a look at the company’s combined ratio. insurance contracts alongside the level of risk associated with those contracts. The higher the risk, the higher the • The quality of earnings can be measured by the company’s expected premiums, and, hence, the higher the potential combined ratio. The combined ratio determines how much revenue from written premiums. The second driver of a company is paying out on claims versus how much it revenue involves the investment income/gains from is making on premiums. A combined ratio of more than investing premiums received from clients. 100% indicates the company is paying out more in claims than it is profiting from premiums, and a ratio of less than • Premiums written have increased at a solid four-year CAGR 100% means the company is making more on premiums of 22.4%. In 2009, GIC recorded KD 97.2 million in than it is giving out in claims. GIC displayed improvements written premiums. Of the total written premiums, KD 45 in the company’s combined ratio, dropping from 91.5% million was passed on to reinsurers. in 2005 to 86.3% in 2008. This means that, for every • Underwriting profit is the most important indicator in the KD 1.000 in written contracts, GIC paid out KD 0.860 insurance industry. This determines how well the company in claims in 2008. However, in 2009 the company’s is generating profits strictly from its core business. The combined ratio increased to 99%. The calculations were underwriting business includes premiums earned, as conducted without including discounts on claims offered well as commission on reinsurance and issuance fees by GIC. If these were included in the calculation, the less any operating expenses (i.e., claims incurred and combined ratio would have been above 100%. other expenses). GIC has produced a profit from its underwriting business throughout the years, as a result of a large contribution from commissions received on ceded reinsurance. Underwriting profit jumped from KD 2.5 million in 2006 to KD 7.6 million in 2008. In 2009, underwriting profit dropped to KD 3.6 million as a result of a 38% increase in operating expenses. The jump in operating expenses came as a result of increased claims incurred during the year.
nbkcapital.com | 48 Gulf Insurance Company (GIC) Kuwait in Focus - April 2010
• Investment income is an integral part of generating profits Balance Sheet as well. GIC has broken up its income generated from investments into life insurance and non-life insurance • Historically, AFS investments constituted the largest investments. On the life insurance front, GIC invests in portion of GIC’s assets, representing 27% of total assets three types of securities: investments held for trading, debt by December 2008. This share dropped to 16.1% by securities, and time and call deposits. The investments 2009, as the company looked to increase its position in generated a total of KD 1.6 million in 2009. The relatively other accounts—namely cash. The company increased its safer investments, the debt securities as well as time and cash account by 36.8% in 2009 through the sale of a call deposits, were behind the generation of KD 1.1 million significant portion of the AFS investments during the year. as interest income in 2009, making up the largest portion As of the end of 2009, GIC’s cash balance represented the of investment income from life insurance. largest portion (30%) of total assets.
• The non-life insurance investments contribute the larger • Nevertheless, the company still maintains a large portion of the company’s investment income. GIC generated investment book. As of December 2009, the company a gain of KD 3.8 million in 2009 from non-life insurance held an investment book worth KD 75.9 million. The main investments, up from a loss of KD 1 million in the previous criterion here is to determine how risky these investments year. A large contributor to the gain from investments is the are in order to determine how effective the company will be KD 1.7 million profit from realized gains from available- in terms of being able to pay its claims. This is difficult to for-sale (AFS) investments as well as dividend income from examine, as the breakdown of these investments is formed AFS. An investment impairment loss of KD 2.1 million was under general categories; however, just to get an idea, not enough to offset the company’s gains. held-for-trading (HFT) investments and AFS investments • GIC’s net profit grew by a healthy 40% in 2009, reaching in quoted securities represented more than 66% of the KD 6.1 million; however, on a four-year CAGR base, the company’s total investments, while debt securities and company’s net profit declined by 8%. The year-on-year held-to-maturity securities made up the rest as of 2009. growth in net profit came as a result of growth in premiums • One measure of success for an insurance business is written, increased commission from reinsurance, and an determined by whether the company is capable of paying improvement in net investment income gains. insurance claims through premiums on its investments. The outstanding claims recorded under liabilities determine Coverage Ratio how much GIC owes in claims that have been reported. The company reported outstanding claims of KD 67.2 100% 96.9% 97.0% 99.1% 91.5% million as of 2009, of which KD 38.1 million (56.6%) has 90% 86.3% been reinsured. Taking these factors into consideration, 77.7% 80% 75.5% 70.9% we find that GIC’s cash balance is capable of covering up 68.2% 70% to 2.6 times net outstanding claims. Even if reinsurance 61.0% 60% claims are not taken into account, the company’s cash 50% balance can cover up to cover 1.1x of total claims reported.
40% Hence, we believe GIC is in a good position to pay off its outstanding claims. 30% 26.1% 25.3% 23.3% 23.6% 19.2% 20% • A significant portion of the claims reported in 2009 came
10% from causalities, with a recorded net liability balance of
0% KD 21.2 million. This represents 72.6% of total claims 2005 2006 2007 2008 2009 in 2009. Loss Ratio Expense Ratio Combined Ratio • The majority of GIC’s liabilities come from required Source: Company financial statements reserves. These reserves are divided into four categories: 1) outstanding claim reserve, 2) unearned premium reserve, 3) life mathematical reserve, and 4) additional reserve. The outstanding claims reserve makes up 41.8% of total reserves (adjusted for reinsurance recoverable on outstanding claims), and is the largest of all reserves. This reserve represents all claims that have yet to be paid out.
nbkcapital.com | 49 Gulf Insurance Company (GIC) Kuwait in Focus - April 2010
• Another significant chunk of the liability pie is insurance Financial Statements payable representing 20.8% of the total liabilities. This includes any payables to the reinsurance business and Income Statement (KD '000) 2006 2007 2008 2009 claims to policyholders that have yet to be paid out. Premiums written 70,548 74,085 86,609 97,219 Reinsurance premiums ceded (33,261) (35,385) (44,211) (44,958) Net premiums written 37,287 38,700 42,398 52,260 • The total debt accumulated by GIC reached KD 17 million Movement in unearned premiums (868) (797) (901) (755) Net premiums earned 36,420 37,903 41,497 51,505 as of 2009, up from KD 7 million at the end of 2008. This Commission on ceded reinsurance 4,879 5,897 6,723 7,899 increased the company’s total debt-to-equity ratio to 0.26x Policy issuance fees 1,039 1,194 1,434 2,280 Net Inv. income from life insurance 1,431 2,384 480 1,586 in 2009, up from 0.09x in 2008. This has little bearing on Net Revenue 43,769 47,378 50,134 63,270 Claims incurred (19,591) (24,916) (23,984) (35,918) the company, as GIC has managed to maintain a negative Commission and discounts (4,528) (6,147) (6,263) (7,089) Inc. in life mathematical reserve (8,045) (1,198) (693) (2,159) net debt level since 2006. Net debt is defined as the Inc. in additional reserve (81) (59) (192) (110) company’s total debt less the company's cash balance. Maturity & cancel of life ins. policy (600) (694) (450) (702) Gen. and Admin. expenses (6,992) (9,903) (10,506) (12,135) Expenses (39,836) (42,917) (42,088) (58,113) • GIC expanded its reach in the insurance industry by Net Underwriting Results 3,933 4,461 8,046 5,156 acquiring a 55% stake in a Jordanian company named Arab Net Investment (loss) income 6,374 39,123 (1,048) 3,772 Sundry Income 162 95 59 123 Orient Insurance Company. The stake purchased amounted Other Charges (1,799) (4,628) (2,158) (2,978) Net Income 8,670 39,052 4,899 6,073 to a total of KD 8.8 million, of which KD 5.3 million was recorded as goodwill. Moreover, GIC strengthened its Balance Sheet (KD '000) 2006 2007 2008 2009 position in Arab Misr Insurance Group (increasing its stake Property and Equipment 5,666 6,192 6,459 5,528 Investments in ass. comp. 982 4,051 5,371 2,272 from 85.5% to 94.8%) and in Syrian Kuwait Insurance Intangible assets 2,700 2,725 2,934 8,307 Financial Instruments 81,422 92,775 90,820 74,725 Company (increasing its stake from 53.8% to 44.4%). Loans sec.by life ins. policies 127 438 732 862 Prem. and insurance receivable 18,668 22,961 27,842 37,242 Reins. recoverable on out.claims 15,806 22,225 37,231 38,053 Property held for sale 1,314 291 229 176 Other Assets 6,230 6,365 12,164 10,353 Cash and Cash Equivalents 54,514 65,009 56,195 76,873 Total Assets 187,429 223,031 239,976 254,391 Total liab. from ins. contracts 64,826 76,232 95,258 107,867 Bank Overdraft 8,727 7,889 7,016 17,019 Premiums received in advance 5,768 2,737 6,320 1,265 Isurance payables 27,300 25,507 30,771 36,079 Other liabilities 6,773 11,011 11,196 10,718 Amt. to policy holders-Takaful fund - - - - Total Liabilities 113,393 123,376 150,560 172,948 Equity 60,565 86,571 76,977 66,711 Minority interest 13,470 13,084 12,440 14,731 Total Equity 74,036 99,655 89,416 81,442 Total liabilities and equity 187,429 223,031 239,976 254,391
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 50 Companies in Focus Kuwait in Focus - April 2010
Injazzat Real Estate Development Company (Injazzat)
Key Data Highlights
General Liquidity • Injazzat Real Estate Development Co. (Injazzat) is a KSE Code INJAZZAT.KSE 52-week avg. volume 514,300 Kuwait-based real estate development company and Reuters Code INJA.KW 52-week avg. value (KD) 103,788 operates across various segments, including commercial, Price (KD) Price Performance residential, hotels, and entertainment. The company also Closing Price 0.106 YTD -39.8% 52-week High/Low 0.250 / 0.106 1-Year Period -55.8% owns a portfolio of indirect investments in funds and shares in real estate companies. Injazzat is diversified Market Capitilization Outstanding Shares Million KD 36.64 Latest (million) 345.65 across regions and countries.
Ownership Structure • Real-estate-related income for the company decreased Closely Held: 58.03% Public: 41.97% significantly from a profit of KD 27.2 million in 2008, Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital compared to a loss of KD 11.3 million in 2009. This decrease was mainly due to a significant decrease in the Stock Performance change in the fair value of investment properties: a profit of KD 10 million in 2008 compared to a loss of KD 18.9
0.300 6.0 million in 2009. The significant decrease in income from the sale of investment properties also negatively impacted
0.250 52-week High: KD 0.250 5.0 the real-estate-related income in 2009.
• Injazzat has major projects that are currently under 0.200 4.0 construction. We feel that upcoming projects in Kuwait, the Middle East, Europe, and the United States will act 0.150 3.0 as income boosters and provide the company with further Millions Price (KD) Price diversification, both region-wise and project-wise. 0.100 52-week Low: KD 0.106 2.0
0.050 1.0
0.000 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close
Sources: Zawya and NBK Capital
Analyst
Mariam Al-Bahar T. +965 2259 5138 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
Rental Income (% of Total Income) 4% 3% 5% 12% nmf Change in Fair Value of Inv. Prop.(% of Real-Estate-Related Rev.) 54% 62% 49% 37% nmf Change in Fair Value of Inv. Prop. (% of Net Profit) 63% 73% 61% 65% nmf Investment Income (% of Total Income) 3% 15% 13% 1% nmf Investment Income (% of Net Profit) 3% 21% 19% 2% nmf
EBITDA (KD million) 16.6 10.7 18.6 24.5 -13.2 EBITDA Interest Cover (x) 16.6 8.9 4.6 4.1 -2.8 Net Debt-to-Equity 0.3 0.4 1.0 0.9 1.6 Net Profit Margin 84% 72% 69% 56% nmf
Investment Book (% of Total Assets) 20% 16% 15% 14% 10% Investment Book (% of Total Equity) 31% 30% 40% 33% 31%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 51 Injazzat Real Estate Company Kuwait in Focus - April 2010
Overview Al Dajeej Ministries Building
Injazzat acquired the Al Dajeej Ministries Building, located in Established in 1998, Injazzat is a Kuwait-based company Farwaniya, in 2003 as another source of rental income. The that was listed on the Kuwait Stock Exchange in 2002. property has an office space area of 10,634 sq. m. and is fully The company is active in owning and operating residential occupied by the departments of various ministries under long- properties, retail development, mixed-use commercial term leases. development, build-operate-transfer (BOT) projects, and hospitality and entertainment properties. The company also Major upcoming projects – Kuwait engages in real estate activities and investments, including direct and indirect investments, buying and selling of real Shuwaikh Project estate and management of properties within Kuwait, the Middle East, Europe, and the United States. The company acquired a plot of 25,300 sq. m. in the Shuwaikh industrial area to develop a multi-use complex. This complex Shareholder Structure will include commercial shops and offices, with a total built-up
Name Type Country Holding area of 96,900 sq. m. The project is expected to be completed Alshaya Group Corportate Kuwait 25.26% by the end of 2010. A H Alsager and brothers Corportate Kuwait 18.81% International Gulf Company for Investment Corportate Kuwait 8.58% Shurooq Investment Fund Corportate Kuwait 5.33% Injazzat Tower Public - - 42.02% Foreign Ownership Structure This office tower is located next to the Dhow Tower in Sharq Open to GCC Investors 100.00% Open to Foreign Investors 100.00% on 1,000 sq. m. The tower consists of 28 floors covering a built-up area of about 15,750 sq. m. The tower is due to be Sources: Zawya and NBK Capital completed in 2010.
Latest News Major completed projects – International
• April 2010: The company has reached a preliminary Al Qouz Residential Project agreement to acquire 51% to 100% of Aqar Real Estate The project consists of two labor accommodations buildings Investments Company, which still awaits the concerned providing 620 rooms along with offices and commercial shops. approval. Aqar’s shareholders who sell their stakes will use Located in Dubai, the project is built on an area of 100,000 the proceeds of the sale to subscribe to Injazzat’s capital sq. feet with an estimated total built-up area of approximately increase that will follow the acquisition. The current 224,180 sq. feet. In June 2007, subsequent to the project market capitalization of Injazzat and Aqar Real estate reaching full occupancy, the company sold 50% of its share in Investments are KD 36.6 million and KD 23.4 million as of the project to a Kuwaiti company. April 25, 2010, respectively. Al Muhaisna Project (Labor Accommodation) Major Projects This project is situated in the Al Muhaisna area in Dubai and covers an area of about 56,914 sq. feet. The project consists Major completed projects – Kuwait of two floors and is composed of 401 rooms. It has been fully leased for five years. Injazzat acquired this project in 2007, Al Dhow Tower a 50% joint venture with First Real Estate Co. (Bahrain), as This office tower consists of 33 floors and a total built-up area part of the company’s strategy of holding income-generating of 24,129 sq. m. The tower is strategically built in Sharq on properties. an approximate total land area of 2,000 sq. m. Al Dhow Tower is an income-generating asset.
nbkcapital.com | 52 Injazzat Real Estate Company Kuwait in Focus - April 2010
Land Trading Financial Statement Analysis
An integral part of Injazzat’s investment activities involves Income Statement land trading, which includes buying parcels of land for direct resale or to be split into sub-plots and sold to one or more • Real-estate-related income for the company decreased buyers. The company has experience in land trading in Kuwait, significantly from a profit of KD 27.2 million in 2008 to a Bahrain, and several other international venues. loss of KD 11.3 million in 2009. This decrease was due Kuwait to a significant decrease in the change in the fair value of investment properties and the decrease in profit from the Al Mal and Aqar Joint Projects Company was established sale of investment properties. Real-estate-related income in 2005, in cooperation with Aqar Real Estate Investment accounted for an average of 89% of total income in the last Company (Aqar). Injazzat owns 66.7% of the company, while five years (2004-2008). Aqar has a 33.3% stake. The new company merged Injazzat’s • The change in the fair value of investment properties two plots with Aqar’s plot in Sharq, covering an area of 3,000 decreased significantly from a profit of KD 10 million in sq. m., to develop an office tower with a built-up area of nearly 2008 to a loss of KD 18.9 million in 2009, due to the 35,000 sq. m. decline in real estate prices. Bahrain • Historically, both top-line and bottom-line growth has been The company acquired several well-situated parcels in Al Seef, mainly driven by a change in the fair value of investment Ras Al Zuwaid, Al Janabeah Bahrain Investment Wharf, and properties and profit from the sale of investment properties. the Sar areas in Bahrain. The change in the fair value of investment properties accounted for an average of 54% of the real-estate related Saudi Arabia revenue and 67% of the net profit, in the last five years In December 2007, the company acquired, in association with (2004-2008). other parties, a multi-use plot of land in the eastern area of • Rental income increased slightly by 5%, to KD 3.4 Damam, covering an area of 223,372 sq. m. The company million in 2009 from KD 3.26 million in 2008. The intends to develop part of the land and sell the rest. company’s rental income has not been sufficient to Qatar meet operating expenses in addition to the finance charges, resulting in a deficit of KD 3.4 million in 2009. The company acquired several lands in the Lusail area for This was the trend for 2007 and 2008, with deficits of development and trading. In addition, the company has KD 5.1 million and KD 5.7 million, respectively. acquired shares in a Qatari company that owns land in the Al • Income from the sale of investment properties decreased Khor area resort. significantly to KD 0.05 million in 2009, compared to UAE KD 9.2 million in 2008. Income from the sale of investment properties accounted for an average of 25% of total real The company acquired various plots of land in Um Al Quwain estate-related income in the last four years (2005-2008). in the United Arab Emirates (UAE). One group of land, covering an area of about 56,700 sq. m., is situated in Um Al Tho’oub, • A closer look at the financials shows that the company and the second one, covering an area of about 6,272 sq. m., is reported a loss at the EBITDA level of KD 13.2 million in situated in the Al Maidan area. The aim is to hold on to these 2009, compared to a profit of KD 24.5 million in 2008, parcels and sell them at a gain. due to the decrease in real estate-related income.
Bulgaria • Investment income increased significantly from KD 0.3 million in 2008 to KD 3.5 million in 2009. Investment Injazzat has invested in a land acquisition program in Luilin income accounted for an average of 11% of total income on the northeastern side of Sofia and Bistritsa Hills on the in the last five years (2004-2008). southwestern side of Sofia, Bulgaria. • The company reported a net loss of KD 20.2 million in United States 2009 compared to a net profit of KD 15.3 million in 2008. This increase is entirely due to the decrease in the change Injazzat, in partnership with other investors, purchased two in the fair value of investment properties. adjacent tracts of land totaling 28.71 acres in McKinney, Texas, in the United States, for trading purposes.
nbkcapital.com | 53 Injazzat Real Estate Company Kuwait in Focus - April 2010
Balance Sheet Financial Statements
• The company holds investment properties that appear at a Income Statement (KD '000) 2006 2007 2008 2009 value of KD 110.5 million on the balance sheet according Rental Income 385 1,112 3,264 3,417 Profit on sale of dev. properties 2,504 0 0 0 to the 2009 financials. The investment properties Management and placement fees 537 450 3,752 324 accounted for 65% of total assets as of December 31, Income from sale of inv. properties 815 7,576 9,182 52 Change in fair value of inv. properties 7,407 10,132 9,953 -18,886 2009. Since the market capitalization of the company was Other operating income 363 1,450 1,097 3,818 KD 36.6 million as of April 25, 2010, we feel this is worth Total real-estate-related revenue 12,011 20,720 27,246 -11,275
highlighting. Operating expenses 1,297 2,245 2,946 2,116 Operating profit 10,714 18,475 24,300 -13,391 • The company’s investment book stood at KD 16.8 million Investment Income 2,124 3,052 280 3,513 as of December 31, 2009, which accounted for 11% Total Income 14,135 23,772 27,526 -7,762 of total assets and 31% of total equity. Although the Total expenses 2,502 6,254 8,943 6,835 Net Income 10,212 16,479 15,326 -20,197 investments-to-equity ratio is quite high, we would like to highlight that the company’s available-for-sale investments Balance Sheet (KD '000) 2006 2007 2008 2009 primarily represent investments in real estate development Cash and Bank Balances 6,581 14,705 22,882 16,316 Investment Properties 59,422 102,411 125,232 110,494 projects and portfolios through specialized real estate Total Assets 98,075 167,021 203,026 170,697 investment managers.The company has maintained an Total Debt 28,501 77,403 98,544 101,281 average net debt-to-equity ratio of 0.6x over the five years Total Liabilities 39,459 98,171 112,611 110,414 from 2004 to 2008. The company’s net debt-to-equity Shareholders' Equity 53,632 63,920 85,305 54,606 ratio increased significantly from 0.9x in 2008 to 1.6x in Minority Interest 4,984 4,929 5,109 5,677 98,075 167,021 203,026 170,697 2009. The company’s equity and total debt stood at KD 54 Total Liabilities and Equity million and KD 101 million, respectively, as of December Sources: Company’s financial statements and NBK Capital 31, 2009.
nbkcapital.com | 54 Companies in Focus Kuwait in Focus - April 2010
Kuwait Cement Company
Key Data Highlights
General Liquidity • Kuwait Cement Company is a dominant player in the local KSE Code KCEM.KSE 52-week avg. volume 433,948 cement market, with a production capacity of 3.8 million Reuters Code KCEM.KW 52- week avg. value (KD) 276,093 tons. Price (KD) Price Performance
Closing Price 0.720 YTD 28.6% • Kuwait Cement has a large investment book on its balance 52-week High/Low 0.770/0.500 1-Year Period 28.1% sheet. Among the largest of the company’s investments Market Capitalization Outstanding Shares is an 8.92% share in National Industries Group (NIG). Million KD 404.86 Latest (million) 578.40 NIG is one of the largest companies in terms of market Ownership Structure capitalization on the Kuwait Stock Exchange (KSE). Closely Held: 63.4% Public: 36.6%
Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital • Major development projects are under way. With oil the main source of revenue in Kuwait, government spending on large projects will persist. As a result, the demand Stock Performance for cement will increase, improving revenues for cement companies. 0.800 7.0 • Saudi Arabia’s excess cement production may cause a 52-week High: KD 0.770 0.750 6.0 commotion in the Kuwaiti market due to the competitive advantage of Saudi cement producers. This is the result 0.700 5.0 of subsidies provided by the Saudi government on energy
0.650 4.0 costs. • Kuwaiti companies enjoy a geographic advantage in terms 0.600 3.0 Millions Price (KD) Price of access to the Iraqi market. Kuwait Cement’s planned
0.550 2.0 capacity addition is likely to play an important role in exporting cement for the reconstruction activity in Iraq. 0.500 1.0 52-week Low: KD 0.500
0.450 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close
Sources: Zawya and NBK Capital
Analyst
Wadie Khoury T. +965 2259 5118 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
Gross Profit Margin 39.1% 40.2% 50.0% 32.1% 35.5% EBITDA Margin 35.3% 37.2% 46.9% 28.6% 29.9% Profit Margin 59.5% 55.7% 66.5% 5.0% 20.7% Adj Profit Margin (w/o Investment Income) 19.9% 27.9% 26.2% 17.7% 22.1%
Investment Book-to-Assets 71.4% 76.1% 83.3% 52.5% 38.7% Investment Book-to-Equity 89.4% 97.9% 100.4% 94.3% 70.2%
ROAA 18.5% 14.9% 16.8% 1.4% 4.7% Adjusted ROAA 17.4% 29.5% 35.4% 13.4% 10.6% ROAE 24.1% 18.9% 20.9% 2.0% -1.7%
Debt-to-Equity 20.0% 24.6% 17.2% 72.9% 59.2% Interest Coverage Ratio 8.6 x 8.5 x 8.1 x 5.2 x 5.9 x
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 55 Kuwait Cement Company Kuwait in Focus - April 2010
Overview we can expect more stability in earnings going forward. This will be discussed further in the balance sheet section.
Kuwait Cement Company is one of the three cement players • The impact of investment losses on Kuwait Cement was in Kuwait. Kuwait Cement is the largest local cement player offset by a reversal on impairments in 2009 in the amount involved in the production and distribution of ordinary cement, of KD 24 million (mainly from building and machinery). sulphate-resistant Portland cement, Portland cement for As a result, Kuwait Cement’s bottom line improved industrial purposes as well as other types of cement. The significantly in 2009, tripling to KD 12.8 million. company has the capacity to produce up to 3.8 million tons of cement, and a clinker capacity of 4 million tons per year, with • Kuwait Cement operates better as a cement company than the majority of Kuwait Cement’s core operations driven by the as an asset management firm. Looking at the operational housing market. The company strictly caters to the Kuwaiti return on assets (adj. ROAA) vs. the actual return on market, which consumes approximately 5.5 to 6 million tons assets (ROAA), we notice a more stable set of returns. Our of cement a year. calculation for the adj. ROAA involved stripping out any investment gains/losses, as well as impairment reversals/ Latest News charges from the income statement and balance sheet. Between 2005 and 2009, the company experienced a drop in its adj. ROAA from 17% to 11%; whereas actual • March 2010: Kuwait Cement announced its full-year ROAA (including investments) fell from 19% to 5%. results, recording a net profit of KD 12.8 million in 2009, compared to KD 4.3 million in 2008. • Interest coverage ratios improved from 5.2x in 2008 to 6.0x in 2009 as a result of a 25% decline in finance • January 2009: Kuwait Cement signed a deal worth charges due to the drop in debt. USD 53.5 million with Descon Engineering, a Pakistan- based company, to expand its cement plant in Shuaiba. Balance Sheet This will increase clinker capacity from 2.5 million tons to 5 million tons. • Kuwait Cement has significant exposure to the stock Financial Statement Analysis market, whereby the investment book made up 70% of shareholders’ equity by the end of 2009. This came as an improvement on the previous year, when the investment Income Statement book made up 94% of total shareholders’ equity.
• Sales declined from KD 86.3 million in 2008 to • The amendments to IAS 39 allowed Kuwait Cement to KD 61.7 million in 2009. Despite the drop in sales, gross prevent reclassification of its holdings from held-for- margins improved from 26% in 2008 to 34% in 2009. trading to available-for-sale (AFS) investments. This means The improvement in margins came as a result of a 34% that any unrealized gains or losses from investments can decline in the company’s cost of raw material (the largest go straight to equity, without having to pass through the portion of costs) in 2009. income statement. The amendments were made in the third quarter of 2008; the fair value of the reclassified • On the operational front, Kuwait Cement showed some investments was KD 34.2 million. improvement year on year. Although EBITDA declined by 26% in 2009 as a result of depressed sales, the EBITDA • Shareholders’ equity remained relatively stable, increasing margin slightly improved, increasing from 29% to 30%. by a mere 3% in 2009.
• As we have mentioned in past issues, the company’s • AFS represented the largest portion of assets, making up exposure to investments is cause for some concern. A 33.8% of total assets by the end of 2009. significant portion of income is driven from investments, • In 2009, AFS investments dropped by 22%. Kuwait thus introducing a high degree of volatility in earnings. Cement’s largest position held in AFS investments is an Losses from investments grew from a loss of KD 11.7 8.92% stake in the NIG holding company. This investment million in 2008 to a loss of KD 16 million in 2009. The alone constitutes 29.7% of total assets. The value of this company still focuses on investments as a key source of investment increased from KD 46.8 million in 2008 to income; however, Kuwait Cement seems to be deviating KD 52.3 million in 2009. from this strategy, and is moving toward more focus on core operations. If the company continues down this path,
nbkcapital.com | 56 Kuwait Cement Company Kuwait in Focus - April 2010
• Property, plant, and equipment (PP&E) increased Financial Statements significantly from KD 12.8 million in 2008 to KD65.8 million in 2009. This comes as a result of KD 29.9 Income Statement (KD '000) 2006 2007 2008 2009 Total Revenue 72,298 82,432 86,399 61,792 million in additions along with KD 24 million in reversal Cost of Revenue (46,150) (54,004) (63,572) (41,074) of impairment losses. Moreover, the company has KD 29.9 Gross Profit 26,149 28,429 22,827 20,718 Selling/General/Admin Expenses (2,206) (2,635) (2,991) (3,510) million that has been added to capital work in progress. Other Operating income 2,833 2,366 (610) (376) Provisions & Impairment 257 (13,204) - 15,833 • The company has increased its production capacity to Operating Income 27,033 14,955 19,226 32,665 Inv. Income (Exp), Net Non-Op 11,630 39,599 (15,564) (18,944) 3.8 million tons of cement per year, with expectations of Associate Results 2,929 2,153 833 (119) Net Income before Taxes 41,592 56,707 4,495 13,601 reaching 5 million tons. In order to produce this amount, Contributions to KFAS (344) (569) (43) (129) NLST (840) (1,146) - (302) Kuwait Cement will have to increase its clinker capacity as Zakat - (27) - (204) well. The capacity expansion would require approximately Directors Remuneration (140) (161) (140) (154) Net Income 40,268 54,803 4,312 12,813 an additional KD 15 million capital expenditure going forward. How will this be financed? The KD 38 million in Balance Sheet (KD '000) 2006 2007 2008 2009 cash will come in handy to help finance the project. AFS Investments 135,370 197,555 107,616 84,278 PP&E 25,864 8,430 12,807 65,771 Other Non Current Assets 10,864 11,944 16,189 15,856 • Kuwait Cement has raised plenty of debt over the years. Total Non Current Assets 172,098 217,929 136,612 165,905 HFT Investments 82,140 106,090 17,727 12,022 Total debt has grown from KD 40.7 million in 2005 to C&CE 8,358 17,143 41,516 38,017 KD 97.2 million in 2008, with the majority of debt being Other Current Assets 23,729 23,963 43,529 33,115 Total Current Assets 114,227 147,195 102,771 83,154 short-term. By 2009, the company shifted its strategy. Total Assets 286,325 365,125 239,384 249,059 Total Equity 222,463 302,711 133,339 137,139 After the company paid KD 16.2 million throughout 2009, Loans 13,519 11,200 38,798 54,938 Other Non Current Liabilites 1,290 1,291 1,498 1,544 total debt dropped to KD 81.2 million by the end of the Total Non Current Liabilities 14,809 12,491 40,296 56,481 year. Moreover, Kuwait Cement refinanced a significant Loans 41,180 40,750 58,356 26,233 Other Current Liabilities 7,874 9,174 7,392 29,205 portion of its total debt, so that long-term debt would Total Current Liabilities 49,054 49,923 65,748 55,439 Total Liabilities 63,863 62,414 106,044 111,920 account for a larger portion of total debt. Total Liabilities and Equity 286,325 365,125 239,384 249,059
• In 2006 and 2007, Kuwait Cement used the bulk of the Sources: Company’s financial statements and NBK Capital company’s cash flows from operations (CFFO) along with non-core sources of cash (dividends from investments) to purchase AFS investments and pay out dividends. In 2008, the company took on KD 45.2 million in debt to help pay out dividends and purchase additional AFS and PP&E. In 2009, things changed: debt was being repaid, more AFS investments were being sold than purchased, and the largest portion of Kuwait Cement’s CFFO was being invested in PP&E (KD 12.5 million).
• Kuwait Cement’s CFFO (adjusted for investments at fair value) improved from KD 2.7 million in 2008 to KD 23.9 million in 2009. More importantly, free cash flows (using the adjusted cash flow from operations) jumped from a loss of KD 6.4 million in 2008 to KD 23.9 million in 2009. The improvement in cash flow for operations comes from stronger working capital, mainly from the decline in inventory.
nbkcapital.com | 57 Companies in Focus Kuwait in Focus - April 2010
Kuwait Finance House (KFH)
Key Data Highlights • Kuwait Finance House (KFH) was established in 1977 as the General Liquidity first fully Shari’ah-compliant bank in Kuwait. It is currently KSE Code KFIN.KSE 52-week avg. volume 4,544,155 Reuters Code KFIN.KW 52-week avg. value (KD) 5,095,308 the largest Islamic bank in Kuwait and the second-largest
Price (KD) Price Performance Islamic bank in the world. As of December 2009, KFH’s
Closing Price 1.040 YTD 2.1% assets accounted for 28% of Kuwait’s total banking assets. 52-week High/Low 1.296 / 0.944 1-Year Period 0.3% • KFH has been expanding aggressively, purchasing stakes in Market Capitalization Shares Outstanding Million KD 2,565.39 Latest (million) 2,466.72 companies domestically and abroad, over the past few years. As of December 2009, KFH had 13 consolidated subsidiaries Ownership Structure Closely Held: 43% Public: 57% and eight associates in the region.
Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital • KFH announced a net profit of KD 118.7 million in 2009, 24% lower than the net profit in 2008, on the back of weaker non-financing income compared to 2008. Balance sheet Stock Performance growth during the period was slower, as total assets grew by
1.400 30 7%, compared to a compound annual growth rate (CAGR) of 32% between 2004 and 2008. Total financing grew by 7%, 1.300 52-week High: KD 1.296 25 while total deposits grew by 10% in 2009.
1.200 • KFH reported a drop in the total capital adequacy ratio (CAR) 20 to 15.21% in 2009, compared to 21.7% in 2008. However, 1.100 this remains well above the required rate of 12%, per Central 15
1.000 Millions Bank of Kuwait (CBK) regulations. Price (KD) Price
52-week Low: KD 0.944 10 • In terms of asset quality, although still fairly weak, KFH saw a 0.900 slight improvement in the non-performing receivables (NPRs)- 5 0.800 to-gross receivables ratio, which decreased from 12.6% in 2008 to 11.8% in 2009. Furthermore, the NPR coverage 0.700 0 ratio increased to 57% in 2009 compared to 47% in 2008. Apr-09 Jun-09 Jul-09 Sep-09 Oct-09 Dec-09 Jan-10 Feb-10 Apr-10 Volume Close • At the annual general meeting (AGM) held on March 9,
Sources: Zawya and NBK Capital 2010, KFH shareholders approved the distribution of a cash dividend of KD 0.025 per share, which translates into Analyst a dividend payout ratio of 48% for 2009 and a dividend Munira Mukadam yield of 2%. They also approved a stock dividend of 8% T. +971 4 365 2858 of the existing shares, which has increased the number of E. [email protected] outstanding shares from 2.27 billion to 2.46 billion. Key Ratios
2005 2006 2007 2008 2009
Growth in Receivables 41.7% 32.0% 43.6% 19.9% 6.5% Growth in Leased Assets 19.3% 7.4% 43.6% 27.0% 9.0% Growth in Depositors' Accounts 24.4% 16.9% 43.7% 23.3% 9.8% Growth in Net Financing Income * 8.7% 76.9% 33.2% 65.9% 6.8% Growth in Operating Income 97.3% 42.1% 41.1% 12.2% -11.5% Growth in Net Profit 59.5% 36.5% 69.9% -43.0% -24.3%
NPRs-to-Gross Receivables 4.4% 4.1% 3.8% 12.6% 11.8% NPR Coverage 151% 137% 97% 47% 57% Capital Adequacy N/A 18.9% 23.3% 21.7% 15.2%
Growth in Costs 132.5% 59.9% 3.4% 30.6% 22.0% Cost-to-Income 34.8% 39.1% 28.7% 33.3% 45.9% Net Financing Income-to-Operating Income 25.8% 32.1% 30.3% 44.9% 54.1%
RoAA 2.9% 2.9% 3.6% 1.6% 1.1% RoAE 25.6% 24.9% 28.8% 12.8% 9.6%
*Financing income less distribution to depositors’ accounts less Murabaha and Ijara costs. Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 58 Kuwait Finance House (KFH) Kuwait in Focus - April 2010
Overview Latest News
Kuwait Finance House (KFH) is the second-largest bank • April 2010: KFH and Killam Properties have established (28% market share of the total banking assets in Kuwait as a joint venture in Canada that will enable the acquisition of December 2009) and the largest Islamic bank in Kuwait. of CAD 450 million worth of residential properties in the KFH is also the world’s second-largest Islamic bank. The country. This will be KFH’s first real estate investment in bank was established in 1977 as Kuwait’s premier Shari’ah- Canada. compliant banking institution and has since grown to hold • March 2010: At the annual general meeting (AGM) held the lion’s share of the country’s Islamic banking business. on March 9, 2010, KFH shareholders approved the The government of Kuwait is the largest shareholder, holding distribution of a cash dividend of KD 0.025 per share, approximately 43% of the bank’s share capital via several which translates into a dividend payout ratio of 48% for public institutions, including the Kuwait Investment Authority 2009 and a dividend yield of 2%. They also approved (24.1%), the Public Authority for Minors’ Affairs (10.5%), and a stock dividend of 8% of the existing shares, which the Kuwait Awqaf Public Foundation (8.2%). KFH’s activities has increased the number of outstanding shares from can be broadly divided into retail and corporate banking, 2.27 billion to 2.46 billion. treasury, and investments. The bank provides solely Shari’ah- compliant products and services through 47 branches in • November 2009: KFH-Turkey received a “Category Five” Kuwait. KFH is also the leader in auto and real estate financing license, designed for Islamic banking activities, from the in Kuwait. An aggressive expansion strategy over the past few Dubai Financial Services Authority (DFSA), to operate in years has helped the bank expand its international network the Dubai International Financial Center (DIFC) in the to Bahrain, Saudi Arabia, the United Arab Emirates (UAE), UAE. This makes KFH-Turkey the first Category Five entity Turkey, and Malaysia, wherein KFH offers Islamic banking, to operate in the DIFC. investments, real estate, and leasing services via subsidiaries • September 2009: KFH-Turkey also won a license to open and associates. the first Islamic banking branch in Germany.
Subsidiaries and Associates as of December 2009 Asset Quality
Consolidated Subsidiaries Country Stake Principal Activities In terms of asset quality, although still fairly weak, KFH saw Islamic finance and Al Muthana Investment Co. Kuwait 100% investments a slight improvement in the NPRs-to-gross receivables ratio, Real estate development Al Nakheel United Real Estate Co. Kuwait 100% and leasing which decreased from 12.6% in 2008 to 11.8% in 2009. Real estate development Baitak Real Estate Investment Co. Saudi Arabia 100% and investment Furthermore, the NPR coverage ratio increased to 57% Infrastructure and in 2009 compared to 47% in 2008. Total NPRs growth Development Enterprises Holding Co. Kuwait 100% Industrial investments KFH Private Equity Ltd. Cayman Islands 100% Islamic investments remained flat in 2009, as NPRs stood at KD 642 million at Kuwait Finance House (Malaysia) Berhad Malaysia 100% Islamic banking services Islamic finance and the end of December 2009. In 2008, KFH’s asset quality Liquidity Management House Kuwait 100% investments had significantly deteriorated as NPRs, which had grown Computer maintenance, Consultancy, and Software by a CAGR of 17% between 2004 and 2007, shot up by International Turnkey Systems Co. Kuwait 97% services Kuwait Finance House Bahrain 93% Islamic banking services more than 300% to KD 642 million in 2008. This took the Kuwait Turkish Participation Bank Turkey 62% Islamic banking services NPRs-to-gross receivables ratio to 12.6% in 2008, compared Aref Investment Group Kuwait 52% Islamic investments Aircraft leasing and with the low-single digit figures seen in previous years. ALAFCO - Aviation Lease and Finance Co. Kuwait 52% financing services According to Fitch Ratings, the increase in impaired loans Real estate, investment, trading and real estate (ILs) in 2008 was due to a reclassification of performing Al Enma'a Real Estate Company Kuwait 51% mgmt. loans as non-performing in 4Q2008, based on sector-wide Associates Country Stake Principal Activities concerns primarily relating to KFH’s exposure to domestic Direct Investments investment companies. Furthermore, despite rapidly growing First Takaful Insurance Co. Kuwait 27% Islamic Takaful Insurance Islamic banking and provisions during the year (from KD 151 million in 2007 to Liquidity Management Centre Co. Bahrain 25% financial services Gulf Investment House Kuwait 20% Islamic investments KD 299 million in 2008), the NPR coverage ratio fell to 47%. National Bank of Sharjah UAE 20% Islamic banking services This was much lower than the levels seen during the boom First Investment Co. Kuwait 9% Islamic investments years until 2007, and one of the lowest in the Kuwaiti banking Indirect Investments Sokouk Real Estate Development Co. Kuwait 49% Real estate development sector. We would like to note that our ratios do not include Real estate projects Munsha'at Real Estate Projects Co. Kuwait 30% management leased assets, another form of financing, as information Leasing and Islamic regarding impaired leased assets is unavailable. A'ayan Leasing and Investment Co. Kuwait 16% investment
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 59 Kuwait Finance House (KFH) Kuwait in Focus - April 2010
NPRs-to-Gross Receivables and NPR Coverage Ratio • Almost all non-financing income components declined in 2009. Fee and commission income fell by 10% in 2009, 14.0% 160% 151% 12.6% while the bank recorded foreign exchange (FX) losses 140% 12.0% 137% 11.8% of KD 2.25 million in 2009, compared to FX income of 125% 120% KD 13.5 million in 2008. However, the largest decline 10.0% was in investment income, which fell from KD 210 million 100% 97% 8.0% in 2008 to KD 112 million in 2009. This drop was 80% largely driven by lower gains from the sale of investments 6.1% 6.0% 57% compared to 2008 and a share of loss from associates 47% 60% 4.4% 4.1% in 2009, compared to a share of income from associates 4.0% 3.8% 40% in 2008. Overall, the combined non-financing income
2.0% 20% fell by 26% in 2009. Total operating income reached KD 520 million, 11% lower than the 2008 level. 0.0% 0% 2004 2005 2006 2007 2008 2009 • A decline in operating income combined with a 22% increase NPRs-to-Gross Receivables NPR Coverage in operating costs in 2009 pushed the cost-to-income ratio Sources: Company’s financial statements and NBK Capital up to a record high of 46% in 2009, compared to 33% in 2008. This was higher than the ratios of most of the bank’s peers in the region. Islamic banks typically operate NPR Analysis – Pre-invasion versus Post-liberation on a higher cost base than their conventional peers. KFH’s
Pre-invasion lower operating efficiency further pertains to the building KD '000 2005 2006 2007 2008 2009 of a wider international network, the implementation of NPRs 31,737 31,693 6,368 6,309 6,275 Specific Provisions 31,737 31,693 6,368 6,309 6,275 Basel II reporting systems, and continuous improvements % of total NPRs 32% 26% 4% 1% 1% in information technology (IT). Post-liberation KD '000 2005 2006 2007 2008 2009 • Total impairments remained high at KD 204 million in NPRs 67,189 88,531 149,663 635,859 635,797 Specific Provisions 59,050 67,954 71,866 158,428 212,644 2009, although they were slightly lower (-3%) than the % of total NPRs 68% 74% 96% 99% 99% 2008 level. The impairments were related to exposures in Post-Liberation NPR Growth 1% 32% 69% 325% 0% the high-risk real estate sector and troubled investment Provisions Growth 6% 15% 6% 120% 34% NPR Coverage 88% 77% 48% 25% 33% companies. Income before provisions decreased by 12% KD '000 Total compared to 2008. NPRs 98,926 120,224 156,031 642,168 642,072 Total Provisions 149,016 164,455 151,355 299,107 368,128 Operating Income Breakdown NPR Coverage 151% 137% 97% 47% 57% NPRs-to-Gross Receivables 4.4% 4.1% 3.8% 12.6% 11.8% 100% 8% 7% 8% 7% Sources: Company’s financial statements and NBK Capital 12% 90% 13% 12% 11% 12% 80% 12%
Financial Statement Analysis 70% 21% 36% 60% 49% 51% 54% Income Statement 50%
40%
• KFH announced a net profit of KD 118.7 million in 2009, 30% 54% 24% lower than the net profit in 2008, on the back of 45% 20% 32% 30% weaker non-financing income compared to 2008 and high 26% 10% impairment charges. 0% • Net financing income (equivalent to net interest income 2005 2006 2007 2008 2009 in conventional banks) rose to KD 281 million in 2009, Net Financing Income * Investment Income Fee and commission Income Other Income 7% higher than the KD 263 million recorded in 2008. *Net financing income = Financing income less distribution to depositors’ accounts Financing income declined by 6% during the year. less Murabaha and Ijara costs. Sources: Company’s financial statements and NBK Capital However, financing costs fell by 17% in 2009, resulting in the growth of net financing income.
nbkcapital.com | 60 Kuwait Finance House (KFH) Kuwait in Focus - April 2010
Balance Sheet Receivables Breakdown
100% 6% 5% 6% 13% • Total assets grew by a moderate 7% in 2009, and reached 90% 18% 17% 15% KD 11.29 billion at the end of December 2009. In 2008, 17% 80% 17% the balance sheet grew by 20%, after recording a CAGR of 70% 37% between 2004 and 2007. 29% 60% 31% 45% 54% • Receivables and leased assets reached KD 5.09 billion (up 50% 43%
6% year on year [YoY]) and KD 1.29 billion (up 9% YoY) 40% 35% as of December 2009. Receivables’ growth was higher in 30% 46% 2008 at 20%, while leased assets expanded by 27%. As 20% 34% with most other Kuwaiti banks, KFH’s lending book grew 26% 28% 10% 19% substantially between 2004 and 2007, with receivables 0% and leased assets growing at a CAGR of 39% and 23%, 2005 2006 2007 2008 2009 respectively. Trading and Manufacturing Banks and financial institutions Construction and real estate Other • Growth in customer deposits was slightly quicker than Sources: Company’s financial statements and NBK Capital growth in financing (10% during 2009) reaching KD 7.26 billion at the end of December 2009 and accounting for Financial Statements around a quarter of total deposits in the Kuwaiti banking sector. The deposit base is the primary source of funds Income Statement (KD '000) 2006 2007 2008 2009 for KFH’s lending portfolio, as Islamic banks are restricted Financing Income 327,523 466,893 561,271 528,411 from accessing longer-term wholesale funding due to the Distribution to Depositors (176,362) (242,528) (216,800) (192,584) Murabaha and Ijara costs (32,041) (65,712) (81,194) (54,543) unavailability of instruments that comply with Shari’ah Net Financing Income 119,120 158,653 263,277 281,284 law. However, KFH is able to borrow via short-term Murabaha facilities (equivalent to interbank borrowing, Fee and Commission Income 44,008 56,125 70,140 63,406 Foreign Exchange Income 3,332 14,696 13,547 (2,250) which increased by 34% in 2008 but declined by 8% in Investment Income 183,249 266,397 209,897 111,613 2009), issuing Sukuks, or Shari’ah-compliant structured Other Income 20,875 27,037 29,998 65,523 Operating Income 370,584 522,908 586,859 519,576 financing. Impairments (27,180) (38,179) (210,940) (203,885) Staff Costs (72,269) (73,783) (96,254) (111,893) • At the end of December 2009, KFH’s investment portfolio Gen and Admin Expenses (38,863) (48,134) (70,873) (86,757) stood at KD 1.04 billion, growing by a minimal 0.3% Depreciation (33,754) (27,939) (28,547) (40,031) Operating Profit 198,518 334,873 180,245 77,010 compared to the level at the end of December 2008. KFH Other Expenses (5,288) (9,478) (5,593) (5,190) also held investments in properties worth KD 506 million Minority Interest (31,226) (50,129) (17,692) 46,921 at the end of December 2009, up 74% in 4Q2009 alone. Net Income 162,004 275,266 156,960 118,741
The jump is largely attributable to a transfer of assets Balance Sheet (KD '000) 2006 2007 2008 2009
from property and equipment to the investment properties Assets portfolio, worth KD 155 million. Cash and Bank Balances 231,996 553,565 368,062 444,943 Short-term Intl. Murabaha 1,050,599 1,067,291 1,312,153 1,257,573 • KFH reported a drop in the total CAR to 15.21% in 2009, Receivables 2,778,166 3,988,131 4,779,788 5,090,398 Trading properties 90,463 126,413 57,590 126,386 compared to 21.7% as of December 2008. The Central Leased Assets 647,939 930,657 1,181,825 1,288,066 Investments 583,351 896,098 1,038,602 1,042,026 Bank of Kuwait (CBK) requires all conventional banks Investments in Associates 210,538 341,279 449,496 410,838 to calculate and report CARs per Basel II regulations as Investment Properties 191,407 247,300 279,574 506,464 Other Assets 128,327 239,694 485,713 522,394 of January 1, 2005. However, this is not yet binding for Fixed Assets 401,005 407,488 591,339 601,606 Islamic banks. Therefore, KFH and the other Islamic banks Total Assets 6,313,791 8,797,916 10,544,142 11,290,694 in Kuwait currently report CAR based on Basel I norms. Liabilities and Sh. Equity Due to Banks and Fin. Inst. 1,080,004 1,186,391 1,595,452 1,460,925 However, KFH is in the process of implementing systems to Depositor's Accounts 3,729,930 5,361,155 6,611,556 7,261,827 enable the bank to report based on Basel II requirements, Other Liabilities 289,325 380,853 394,033 563,451 Total Liabilities 5,099,259 6,928,399 8,601,041 9,286,203 if and when the CBK directives require Islamic banks to Minority Interest 137,443 196,094 354,546 324,138 do so. Deferred Revenue 299,263 374,608 344,426 464,602 Fair Value Reserve 66,654 86,843 11,394 (33,597) Foreign Currency Trans. Res. 8,683 1,972 (7,548) 7,531
Total Shareholders' Equity 702,489 1,210,000 1,240,283 1,241,817
Total Liabilities and Equity 6,313,791 8,797,916 10,544,142 11,290,694
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 61 Companies in Focus Kuwait in Focus - April 2010
Kuwait Financial Center (Markaz)
Key Data Highlights
General Liquidity • Kuwait Financial Center (Markaz) was established in 1974 KSE Code MARKAZ.KSE 52-week avg. volume 1,394,583 and has become one of the leading asset management and Reuters Code MARKZ.KW 52-week avg. value (KD) 177,068 investment banking institutions in the Middle East and Price (KD) Price Performance North Africa (MENA) region. Closing Price 0.122 YTD 5.2% 52-week High/Low 0.150 / 0.106 1-Year Period -6.2% • Markaz was the first to offer a derivatives trading platform Market Capitalization Shares Outstanding in 2005, and is currently the only options market maker Million KD 55.86 Latest (million) 457.91 for stocks listed on the Kuwait Stock Exchange (KSE). In Ownership Structure 2009, Markaz saw a decline in the number of contracts Closely Held: 28% Public: 72% traded, in line with the overall weak performance of the Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital KSE; total volume traded declined by 27%, and total value traded declined by 41% in 2009.
Stock Performance • Markaz announced a net profit of KD 2.57 million in 2009, which compares favorably to the net loss of 0.160 10 KD 18.8 million recorded in 2008. Although management 0.150 52-week High: KD 0.150 fees and commissions were lower in 2009 than in 2008,
8 0.140 the bottom line was heavily supported by lower losses on the investment portfolio, particularly from the investments 0.130 6 held at fair value through income statement (FVIS). 0.120 • Cost control has been good in the past two years as it
0.110 Millions Price (KD) Price 52-week Low: KD 0.106 4 declined by 8% in 2008 and by 23% in 2009, after having 0.100 more than doubled between 2004 and 2007. Markaz’s
0.090 2 cost-to-income ratio has been very volatile, primarily due
0.080 to the nature of the operating income. However, looking at the costs as a share of total revenues (defined as interest 0.070 0 Apr-09 Jun-09 Jul-09 Sep-09 Oct-09 Dec-09 Jan-10 Mar-10 Apr-10 income, dividend income, and management fees and Volume Close commissions), there was a slight deterioration in 2009, as the ratio increased to 62% compared to 58% in 2008. Sources: Zawya and NBK Capital • Markaz’s assets under management (AUMs) fell by 3% in 2009 to KD 799 million, compared to KD 821 million in Analyst 2008. However, the decline was lower than the 34% drop during 2008. Munira Mukadam T. +971 4 365 2858 • Markaz’s board of directors proposed no dividend E. [email protected] distributions for 2009.
Key Ratios
2005 2006 2007 2008 2009
Management fees and comm-to-Op.Income 30.7% 89.5% 42.4% -102.6% 92.7% RoAA 30.5% 3.6% 16.4% -11.7% 2.0% RoAE 36.8% 4.6% 22.8% -18.1% 3.2%
Total Debt-to-Total Equity 13.7% 31.2% 38.7% 66.8% 39.8% Net Debt-to-Total Equity 10.9% 28.3% 36.8% 51.9% 25.1% Interest Coverage Ratio 75.91 4.02 13.18 -5.81 3.23 Operating Cash Flow Ratio 0.71 2.77 -1.74 2.61 3.27
Liquid Assets-to-Total Assets 41.8% 38.5% 39.7% 39.7% 44.6% Debt-to-Assets 11.6% 23.1% 26.8% 36.6% 27.3% Equity-to-Assets 85.0% 74.1% 69.9% 58.0% 68.7%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 62 Kuwait Financial Center (Markaz) Kuwait in Focus - April 2010
Overview ground, focusing on managing existing investments. As the restructuring process was completed in 1999, Markaz Kuwait Financial Center (Markaz) was established in 1974 once again began looking for investment opportunities in and has become one of the leading asset management the region. and investment banking institutions in the MENA region. • In the US, Mar-Gulf Management Incorporated (Mar-Gulf) The primary services of the company include investment has acted as Markaz’s asset management arm since 1988. management, corporate financing, investment and financial The fully owned subsidiary is involved in the ownership advisory services, private equity, mutual funds and real estate and development of industrial, retail, and commercial fund management, money market, and foreign exchange. properties in Los Angeles, California. Other major Following the 1990 invasion, Markaz went through a major subsidiaries include other fully owned asset management restructuring process as the company began divesting companies in the US, fund management firms in Bahrain, a substantial portion of non-core assets, affiliates, and and some consultancies in Kuwait. subsidiaries abroad. Markaz then increased its paid-up capital and listed on the KSE by April 1997. Markaz has since Major Subsidiaries expanded its operations via subsidiaries in the United States Proportion Subsidiary Country Principal Activity (US), Bahrain, and Saudi Arabia and representative offices in of Ownership Algeria and Lebanon. Markaz has brought several innovative Mar-Gulf Management Inc. USA 100% Asset Management products to the markets, including Kuwait’s first domestic KFC Lone Star, Inc USA 100% Asset Management KFC Lone Star 1, Inc USA 100% Asset Management mutual fund, the first Real Estate Investment Trust (REIT), First Management and Economic Consultancy Co. Kuwait 100% Economic Consultancy and the first derivative products trading platform. In fact, Markaz Gulf Fund Co. Bahrain 99% Fund Management Markaz is the only options market maker for stocks listed on Markaz Real Estate Opportunities Fund Co. Bahrain 99% Fund Management Marsoft for Computer Programming, Operations the KSE since 2005. As of December 2009, Markaz’s assets and Consultancy Services Co. Kuwait 67% Computer Consultancy under management (AUMs) were close to KD 800 million Sources: Company’s financial statements and NBK Capital (USD 2.8 billion).
Latest News Financial Statement Analysis
• March 2010: Markaz’s board of directors proposed no Income Statement dividend distributions for 2009. • Markaz announced a net profit of KD 2.57 million in • March 2010: Markaz announced it had submitted 2009, which compares favorably to the net loss of proposals to the KSE in 2009 to allow new entrants in KD 18.8 million recorded in 2008. Despite a slight the options market for market making, to enhance liquidity quarter-on-quarter (QoQ) improvement in management via increased competition. Furthermore, proposals to allow fees and commissions in 4Q2009, the results were weak options trading during the official market hours will also in that quarter largely due to an unrealized loss on the FVIS be sent. portfolio of KD 4 million. This resulted in an operating loss • October 2009: Markaz revealed its plans to raise its real of KD 15,000 and a net loss of KD 1.6 million in 4Q2009. estate exposure in Syria, Saudi Arabia, and Egypt. The • In 2009, management fees and commissions declined company’s real estate assets in the Middle East and the by 3%, reaching KD 8.3 million, compared to US stood close to USD 800 million. KD 10.9 million in 2008. However, total operating income turned positive in 2009, driven by significantly Strategy lower losses on the investment portfolio compared with 2008. Net losses from the FVIS portfolio and the • Markaz embarked on a rapid expansion strategy across available-for-sale (AFS) portfolio combined stood at the globe soon after the company’s incorporation in 1974. KD 2.6 million in 2009, 90% lower than the In 1976, Markaz established its first merchant bank in KD 24.7 million in losses recorded in 2008. Korea in partnership with Hyundai Engineering and Construction Company. In 1978, Markaz began its real • Markaz also reported a small reversal of credit loss provisions estate activity in Los Angeles, California. A year later, the of KD 653,000, compared with loan loss provision charges company acquired a majority stake in the Bank of Lebanon of KD 131,000 in 2008. Foreign exchange income and Kuwait. Although the 1990 invasion resulted in a improved in 2009, reaching KD 735,000, compared to halt to major operating activities, Markaz maintained its foreign exchange losses of KD 302,000 in 2008.
nbkcapital.com | 63 Kuwait Financial Center (Markaz) Kuwait in Focus - April 2010
• Total operating income stood at KD 9 million in 2009, • Markaz was able to build up its retained earnings, which compared to operating losses of KD 10.6 million in 2008. grew from KD 1.1 million in 2008 to KD 3.1 million in Markaz’s operating income breakdown has not been 2009, as the board of directors proposed no dividend consistent over the years. Since 2004, management fees distributions for 2009. Nevertheless, the retained earnings and investment income have continually alternated as the are still significantly lower than the levels seen in the years largest contributor to operating income. before 2008.
• Cost control has been good in the past two years as it • Markaz’s AUMs fell by 3% in 2009 to KD 799 million, declined by 8% in 2008 and by 23% in 2009, after having compared to KD 821 million in 2008. However, the decline more than doubled between 2004 and 2007. Markaz’s was lower than the 34% drop during 2008. Between 2003 cost-to-income ratio has been very volatile, primarily due and 2007, Markaz’s AUMs grew by a compound annual to the nature of the operating income. However, looking at growth rate (CAGR) of 24% to reach KD 1.2 billion, with the costs as a share of total revenues (defined as interest most of the growth achieved in the first two years of the income, dividend income, and management fees and period in question. commissions), there was a slight deterioration in 2009, as the ratio increased to 62% compared to 58% in 2008. Assets Under Management
1,400 Operating Income Breakdown 1,228 1,241 1,200 1,182 50
40 1,000
30 821 799 25.6 800 714 12.2 20
KD Million KD 600 524 10 7.5 14.1 15.7 11.4 10.9
KD Million KD 8.3 7.2 400 0 -0.9 -8.9 (10) 200 -23.8
(20) 0 2003 2004 2005 2006 2007 2008 2009 (30) 2004 2005 2006 2007 2008 2009 Sources: Company’s financial statements and NBK Capital Management Fees and Commissions FVIS Portfolio AFS Portfolio Others
Sources: Company’s financial statements and NBK Capital
Balance Sheet
• At the end of December 2009, total assets had dropped by 10% to KD 119.5 million. On the asset side, the trading investments portfolio grew by 11% to KD 41.2 million. However, the AFS investment portfolio and the loans to customers fell by 7% and 32%, respectively. Short- term financing declined continuously during the year, down to KD 54,000 at the end of 2009, compared to KD 3.97 million at the end of 2008.
• In terms of liabilities, Markaz’s short-term borrowings reached KD 4 million by the end of December 2009, after dropping to KD 861,000 at the end of June 2009, from KD 20.8 million at the end of December 2008.
nbkcapital.com | 64 Kuwait Financial Center (Markaz) Kuwait in Focus - April 2010
Financial Statements
Income Statement (KD '000) 2006 2007 2008 2009
Interest and Dividend Income 2,858 2,408 3,206 1,888 Management fees and commissions 11,412 15,700 10,854 8,338 Net gain/(loss) from FVIS Invest. (8,931) 12,168 (23,834) (904) Net gain/(loss) from AFS Invest. 7,106 7,709 (858) (1,730) Net income on sale of Invest. Prop. - - 428 - Provision for credit losses 113 (145) (131) 653 Foreign Exchange gain/ (loss) 159 (824) (302) 735 Other Income 28 - 61 17 Total Operating Income 12,745 37,016 (10,576) 8,997
General and admin expenses (5,233) (6,567) (5,436) (5,140) Finance Costs (1,867) (2,310) (2,758) (1,194) Total Operating Expenses (7,100) (8,877) (8,194) (6,334)
Other expenses (295) (1,110) - (123) Minority Interest (4) (12) (14) 33 Net Income 5,346 27,017 (18,784) 2,573
Balance Sheet (KD '000) 2006 2007 2008 2009
Assets Cash and Cash Equivalents 3,006 2,430 11,416 12,061 Trading Investments 51,842 66,978 37,153 41,165 AFS Investments 66,704 76,829 50,954 47,187 Acc. Receivables and Oth. Assets 4,187 12,211 9,206 4,690 Short-term financing - 5,207 3,972 54 Loans to customers 16,439 20,388 17,472 11,873 Invest. Prop and Prop. Under Development 36 3,101 1,321 1,931 Fixed Assets 269 574 738 573 Total Assets 142,483 187,718 132,232 119,534
Liabilities and Shareholders' Equity Due to banks and fin. Inst. 12 432 2,774 3 Acc. Payables and Oth. Liabilities 3,345 5,336 3,900 4,253 Dividends Payable 562 424 416 368 Short-term borrowings 32,894 22,990 20,820 4,012 Bonds - 27,300 27,595 28,680 Total Liabilities 36,813 56,482 55,505 37,316
Minority Interest 54 66 80 47
Total Shareholders' Equity 105,616 131,170 76,647 82,171
Total Liabilities and Equity 142,483 187,718 132,232 119,534
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 65 Companies in Focus Kuwait in Focus - April 2010
Kuwait Food Group (Americana)
Key Data Highlights
General Liquidity • Operationally, Americana has solid revenue numbers as KSE Code FOOD.KSE 52-week avg. volume 143,313 well as healthy margins historically. This is evident as Reuters Code FOOD.KW 52-week avg. value (KD) 233,826 Americana posted an 11% increase in revenue for FY2009 Price (KD) Price Performance year on year. Closing Price 1.440 YTD -4.0% 52-week High/Low 1.840 / 1.200 1-Year Period 0.0% • Americana reports revenues in three different segments: Market Capitalization Shares Outstanding Million KD 578.89 Latest (million) 402 restaurants, industries, and commercial and retail; with restaurants contributing the majority to annual sales. Ownership Structure Closely held: 66.33% Public: 33.67% • Although historically both gross profit and EBITDA have Price as of close on April 25, 2010. Sources: Zawya and NBK Capital grown consistently on a yearly basis, 2009 is the exception with both figures declining year on year (YoY). Stock Performance • Top line number aside, the company has a sizable investment portfolio with investments accounting for 25% 2.000 3.0 of total assets and 53% of total equity as of FY2009.
52-week High: KD 1.840 2.5 • Americana’s dependence on investment income has led 1.800 the company to have a very volatile net profit figure.
2.0 1.600 • Americana announced cash dividends for FY2009 at
1.5 KD 0.060, per share down 20% YoY from KD 0.075/share Millions
Price (KD) Price 1.400 in FY2008. The FY2009 cash dividend is indicative of an 1.0 4% yield and 66% payout ratio, which compares to a 86% payout ratio in FY2008. 1.200 52-week Low: KD 1.200 0.5
1.000 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close
Sources: Zawya and NBK Capital
Analyst
Alok Nawani T. +971 4365 2856 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
EBITDA (KD millions) 28.77 52.68 61.21 103.82 86.78 EBITDA Margin 12% 16% 14% 19% 14% Gross Profit Margin 18% 22% 19% 22% 17% Net Profit Margin 22% 10% 13% 6% 6% Operating Margin 18% 22% 19% 22% 17%
ROE (%) 26% 14% 17% 14% 13% ROA 17% 8% 9% 6% 6% Net Debt to Equity 0.02 0.20 0.27 0.58 0.34 Current Ratio 1.96 1.24 1.25 0.95 1.03 Quick Ratio 0.62 0.42 0.40 0.31 0.44
Day Sales Outstanding (DSO) 24 31 30 27 28 Interest Coverage 9.80 11.08 8.08 9.96 6.59 Investment/Equity 0.74 0.75 0.75 0.51 0.53
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 66 Kuwait Food Group (Americana) Kuwait in Focus - April 2010
Overview • Over the years Americana has had a fairly consistent gross profit margin trend with the margin fluctuating between a Kuwait Food Group (Americana) is a franchising and restaurant high of 22% and a low of 17% during the previous four management company established in 1964. Americana’s years. As for FY2009, gross profit margin has contracted most notable assets across the MENA region include franchise from the 22% recorded in FY2008 to 17% in FY2009. rights to KFC, Hardees, Pizza Hut, and TGI Fridays. • Historically, Americana has posted impressive EBITDA Since 1988, when Americana had 166 stores distributed growth. Over a four year period, EBITDA has grown at a across seven chains, the company’s store portfolio has grown CAGR of 32%. Although impressive, it must be noted that exponentially. As of FY2008, Americana boasted 1,064 EBITDA growth has not been stable, with it fluctuating outlets, under 18 different chains, across 17 countries. In from 83% growth in 2006 to 16% in 2007. Once again, 2008 alone, Americana managed to open 179 new outlets, FY2009 acts as the exception to this rule as EBITDA which translates into a new outlet opening every two days. declined by 16% year on year. This decline is mainly due to a 66% year on year growth in Other Operating Expenses Additionally, Americana’s portfolio includes a range of under Cost of Sales. Naturally, EBITDA margins contracted consumer food products that are manufactured in 18 company to 14% in FY2009, down from 19% in FY2008. owned plants, such as Americana Meat and Heinz Ketchup. The company opened the first factory for meat products in the • Operationally, Americana appears to be a sound company, Middle East in 1973 in Kuwait. Since then, the number of but the exposure it has to non-core investments has a commercial and industrial affiliated companies reached 22 by substantial impact on the company’s net profit. Americana’s the end of FY2008. income from AFS and investments at fair value dropped by 76% in FY2009 over FY2008. Yet, a substantial Financial Statement Analysis growth in income from associates has offset this drop and resulted in a 3% increase in net profit year on year from KD 35 million in FY2008 to KD 36 million in FY2009. Due Income Statement to the company’s dependence on investments, Americana’s bottom line has been rather volatile. According to FY2008 • When we consider Americana on an operational basis, we financials, Americana moved KD 53 million worth of see a stable company with healthy operational numbers investments at fair value to AFS and currently shows no and solid operational margins. The company’s operational investments at fair value on the balance sheet. strength is evident historically as Americana has posted strong revenue growth, with revenue growing at a CAGR • Americana announced cash dividends for FY2009 at of 32% over the past four years. This trend of strong top KD 0.060 per share down 20% YoY from KD 0.075/share line performance did not subside in FY2009 as Americana in FY2008. The FY2009 cash dividend is indicative of a posted an 11% increase in revenue to KD 616 million 4% yield and 66% payout ratio which compares to a 86% versus KD 557 million in FY2008. payout ratio, in FY2008.
• Americana breaks down revenue into three segments: Balance Sheet restaurants, industries, and commercial and retail. The restaurants’ segment, which consists of Americana’s endeavors into fast food and quality service restaurants, • Americana has a sizable investment book with an generated 52% of the company’s total revenue in FY2009. array of cross investments with other Al-Kharafi-owned Americana’s manufacturing activities, such as Americana counterparts. As of December 2009, Americana’s Meat and Americana Cake, are represented through the investment book represents 25% of total assets. As of industries sector, which contributed to 47% of total revenue FY2009, Americana’s investment-to-equity ratio lies at in FY2009. Finally, commercial and retail contributed to 0.53x, though this ratio has declined over the years from 1% of total revenue in FY2009. 0.75 in FY2006. Americana’s most notable investments are in National Investments Company, Gulf Cable and Gulf • With respect to gross profit, Americana has been able to Franchising. The following, is a table that illustrates the consistently grow this figure in line with revenue over the change in value of Americana’s three main investments at past several years, with 2009 being the sole exception over four different time periods. the past five years. Although total revenue grew year on year by 11%, Americana’s cost of sales grew by 18% for the year, resulting in a 16% drop in gross profit for FY2009 when compared to FY2008.
nbkcapital.com | 67 Kuwait Food Group (Americana) Kuwait in Focus - April 2010
Americana Investments Financial Statements
As of Company % ownership MCAP (millions) Value (millions) Income Statement (KD '000) 2006 2007 2008 2009 National Investments Company 6.61% 613 40.5 Dec. 30 Sales 323,852 434,873 557,449 616,425 Gulf Cable 9.09% 281 25.6 2008 Cost of sales (254,006) (354,208) (435,934) (514,662) Gulf Franchising Company 7.33% 12 0.9 Gross Profit 69,846 80,665 121,515 101,763 National Investments Company 6.61% 324 21.4 June 1 Other income 364 312 453 557 Gulf Cable 9.09% 269 24.4 2009 Selling and marketing expenses (27,955) (34,130) (40,277) (46,582) Gulf Franchising Company 7.33% 9 0.6 General and administrative (2,645) (2,972) (3,405) (3,573) National Investments Company 6.61% 359 23.7 Amortization (1,116) (1,112) (1,541) - Nov. 1 Gulf Cable 9.09% 390 35.5 Gain/ Losses from investments (7,654) 23,681 12,060 - 2009 Gulf Franchising Company 7.33% 5 0.4 Gains from AFS 5,942 4,572 4,055 3,923 Loss from drop of value in AFS - - (36,872) (11,377) National Investments Company 6.61% 315 20.9 Share of associates results 482 569 745 16,844 Apr. 25 Gulf Cable 9.09% 348 31.7 Net foreign exchange gain/losses (34) 470 (978) (490) 2010 Gulf Franchising Company 7.33% 4 0.3 Borrowing Cost (4,754) (7,572) (10,425) (13,174) Profit Before Taxes 38,911 64,483 45,330 49,929 Sources: Company’s financial statements and NBK Capital Income tax of subsidiaries (1,845) (3,208) (2,965) (5,560) Contribution to KFAS (296) (490) (259) (345) National Labour Support Tax (742) (1,320) (791) (865) • Examining Americana’s day sales outstanding (DOS), we Zakat - (31) (305) (375) notice that the number declined from 30 days in FY2007 Board of Directors' remuneration (55) (72) (72) (72) Net Profit for the Year 35,973 59,362 40,938 42,712 to 26 days in FY2009, which indicates more efficient Minority Interest 2,374 4,398 5,715 6,436 collection of outstanding receivables. Net Income 33,599 54,964 35,223 36,276
• Americana has a net-debt-to-equity ratio of 0.3x as of Balance Sheet (KD '000) 2006 2007 2008 2009
FY2009, with total debt amounting to KD 133 million. Inventories 41,801 67,603 91,280 74,498 Short-term debt accounts for 47% of the total debt. Trade receivables and others 27,390 35,324 40,729 43,476 Other debit balances 19,274 26,224 33,878 33,846 Americana has a solid interest coverage ratio of roughly investments at fair value 47,021 52,768 - - 7x based on FY2009 financials, which indicates that the Cash and cash equivalent 27,812 34,572 21,662 37,448 Total Current Assets 163,298 216,491 187,549 189,268 company is well positioned to service its debt. Property, plant and equipment 111,611 167,720 223,792 233,105 • Finally, on the dividend front, the company has paid Biological assets - 2,151 2,444 3,615 Intangible assets 8,999 10,684 13,557 13,656 dividends in each of the last 5 years, but with a very Investments in associates 1,728 1,849 2,662 - Available for sale investments 128,227 185,221 124,602 150,107 inconsistent payout ratio ranging between 15% and 83%. Investments in subsidiaries 2,435 - - - Total Assets 416,298 584,116 554,606 589,751
Loans and bank facilities 52,849 77,414 109,438 70,668 Payables and other credit balances 79,043 96,279 88,813 112,391 Total Current Liabilities 131,892 173,693 198,251 199,516
Loans 22,341 42,297 55,805 62,671 Provision for indemnity 12,361 14,157 17,029 18,802 Total Liabilities 166,594 230,147 271,085 264,532
Total Equity 249,704 353,969 283,521 325,219
Total Liabilities and Equity 416,298 584,116 554,606 589,751
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 68 Companies in Focus Kuwait in Focus - April 2010
Kuwait and Gulf Link Transport Company (KGL)
Key Data Highlights
Ge ne ra l Liquidity • Kuwait and Gulf Link Transport Company offers a full range KSE Code KGL.KSE 52-week avg. volume 4,589,553 of transportation and logistics services, namely overland Reuters Code KGL.KW 52-week avg. value (KD) 1,044,618 cargo transport, passenger transport through buses, and Pric e (KD) Price Performance car rental services. Closing Price 0.248 YTD 72.2% 52-week High/Low 0.395 / 0.100 1-Year Period 31.9% • Of the company’s associates, the largest two are KGL Market Capitilization Outstanding Shares Logistics and KGL Ports International. KGL owns 45.9% of Million KD 71.35 Latest (million) 264.27 KGL Logistics and 41.7% of KGL Ports International. KGL Ownership Structure Logistics, which is publicly listed, focuses on warehousing, Closely Held: 15.7% Public: 84.3% freight forwarding, and stevedoring, while KGL Ports Price as of close on April 25, 2010. Sources: Zawya and NBK Capital International develops and manages container terminals.
• KGL’s operational profitability has improved, as the Stock Performance company recorded a 31% increase in EBITDA for 9M2009 despite a 3% year-over-year (YoY) decrease in revenue. 0.450 30.0
0.400 52-week High: KD 0.395 25.0 0.350
0.300 20.0
0.250 15.0 0.200 Millions Price (KD) Price
0.150 10.0
0.100 52-week Low: KD 0.100 5.0 0.050
0.000 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close
Sources: Zawya and NBK Capital
Analyst
May Zuaiter T. +965 2259 5597 E. [email protected]
Key Ratios
2005 2006 2007 2008 9M2009
Sales (KD million) 40.8 52.8 57.8 58.0 40.8 EBITDA (KD million) 17.1 13.0 18.9 20.3 18.6 Net Income to Shareholders (KD million) 16.8 24.2 10.6 -8.3 -1.4
Gross Profit Margin (%) 39.6% 20.1% 29.6% 26.5% 30.0% Net Profit Margin (%) 41.2% 45.8% 18.3% -14.4% -3.4% EBITDA Margin (%) 42.0% 24.7% 32.7% 35.0% 45.6%
ROA 10.5% 13.8% 4.4% -3.3% N/A ROE 25.0% 36.2% 12.9% -10.6% N/A
Current Ratio (X) 0.41 0.76 0.61 0.87 0.97 Quick Ratio (X) 0.39 0.74 0.59 0.84 0.95 Debt to Assets (X) 0.45 0.50 0.52 0.55 0.54 Net Debt to Equity (X) 0.99 1.25 1.45 1.67 1.68 Interest Coverage Ratio (X) 12.11 0.53 1.01 0.33 0.81 Investment to Equity (X) 0.09 0.07 0.12 0.08 0.04
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 69 Kuwait and Gulf Link Transport Company (KGL) Kuwait in Focus - April 2010
Overview Financial Statement Analysis
Established in 1982, Kuwait and Gulf Link Transport Company Income Statement is one of the leading providers of transport-related services in the Gulf region. Headquartered in Kuwait, KGL provides 9M2009 Performance integrated supply chain management services throughout the Gulf and MENA (Middle East and North Africa) region. • In 9M2009, KGL reported revenue of KD 40.8 million, representing a slight decline of 3% from 9M2008. The KGL’s core business lies in logistics, transportation, port three reporting segments for KGL are land transport, management, shipping, and freight forwarding. Through the passenger and petrol transport, and car rental. Land company’s transportation unit, KGL provides overland cargo transport remained the highest contributor to revenue transportation services for manufactured goods, consumables, with a 70% share. The second-highest contributor was petroleum, raw materials, and heavy equipment. KGL’s car rental at 14%, passenger and petrol transport at 13%, passenger transport service includes bus transportation followed by other unallocated revenue at 4%. through local and international lines, in addition to private taxi and limousine operations. The company’s car rental • KGL continued to post growth in its operational unit focuses on renting and leasing vehicles to commercial, performance, as EBITDA increased by 31% from corporate, and government clients within Kuwait. KD 14.2 million in 9M2008 to KD 18.6 million in 9M2009. Moreover, the EBITDA margin expanded from 34% in 9M2008 to 46% in 9M2009. KGL Logistics • KGL registered a net loss attributable to shareholders of KGL Logistics, a 45.9%-owned associate of KGL, provides KD 1.4 million in 9M2009 compared to the net profit supply chain services specializing in warehousing, freight of KD 1.2 million achieved in 9M2008. Though the forwarding, and stevedoring. The warehousing unit offers performance in 9M2009 may appear weak at first glance, second-, third-, and fourth-party logistics services. Freight the company’s performance has actually improved as net forwarding includes air, sea, and land transport in addition income in 9M2008 was buoyed by an unrealized gain on to customs clearance and cargo insurance. The stevedoring investments at a fair value of KD 7 million. function entails the establishment of partnerships with port 2008 Performance authorities and shipping lines within Kuwait and the Gulf Cooperation Council (GCC). • KGL reported revenue of KD 58 million in FY2008. We note that revenue has grown at a compound annual growth rate KGL Ports International (CAGR) of 12.5% since 2005. In 2008, land transport was the highest contributor to total revenue with a 58% share.
A 41.7%-owned associate of KGL, KGL Ports International • In 2008, KGL demonstrated improved profitability at the covers the development, operations, and management of operating level, as EBITDA increased by 8% from KD 18.9 container terminals and roll-on-roll-off operations. This million in 2007 to KD 20.3 million in 2008. In contrast, company is headquartered in Kuwait and has additional revenue growth was flattish on a YoY basis in 2008. KGL’s operations within Egypt and the United Arab Emirates (UAE). EBITDA margin has witnessed some volatility over the past Locally, KGL PI manages and operates the terminal at Shuaiba years, as the margin dropped from 42% in 2005 to 25% Port. in 2006 before increasing to 33% and 35% in 2007 and 2008, respectively. Latest News • Net profit, however, declined from KD 10.6 million in • April 2010: The company announced that KGL 2007 to a net loss of KD 8.3 million in 2008. This came Transportation Company, its fully owned subsidiary, was about because of the following factors: a) a KD 5.5 million awarded a three-year contract of KD 3.6 million to rent allowance for doubtful debt and b) an 86% increase in buses for the transportation of students of the Public finance costs, to KD 11.5 million, in 2008. Authority for Applied Education and Training.
• January 2010: KGL reported that the company’s wholly owned subsidiary, KGL Car Rental Company, won a KD 9.7 million contract to rent cars to Kuwait Petroleum Company. KGL Car Rental’s contract is for 30 months, effective January 7, 2010.
nbkcapital.com | 70 Kuwait and Gulf Link Transport Company (KGL) Kuwait in Focus - April 2010
Balance Sheet Financial Statements
• As of September 30, 2009, the company had a current Income Statement (KD '000) 2007 2008 9M2008 9M2009 Revenue 57,755 57,972 41,935 40,836 ratio of almost 1.0x, which represented an improvement Cost of Sales (40,680) (42,600) (32,675) (28,601) from the current ratio of December 31, 2008, of 0.9x. Gross Profit 17,074 15,373 9,260 12,234 Share of results of associates 3,998 206 330 748 • KGL’s property, plant, and equipment (PP&E), which stand Gain on sale of associates - 1,431 1,431 - Gain on sale of share of subsidiaries - 2,069 - - at KD 123.5 million as of September 30, 2009, accounted Gain/Loss on sale of AFS - (2,962) 1,338 369 Unrealized gain on inv.at fair value - 7,001 7,001 - for 53% of total assets. Share of results of unconsol. subsidiaries (340) - - - Increase in fair value of inv. property 3,797 139 - - • As of September 30, 2009, the current portion of the Unrealized gain on investment property - - - - Profit on sale of investment property 2,101 433 430 - term loans was 30% of the total outstanding term loans of Gain/Loss on sale of PP&E (13) (1,957) (1,178) (1,573) KD 106.3 million. The company’s net debt-to-equity Impairment loss of investments - (2,308) (2,099) (255) Impairment on loss in joint venture - (116) - - ratio on September 30, 2009, stood at 1.7x, which was Allowance for doubtful debts (55) (5,500) (1,700) (500) Other income 1,875 1,386 2,927 1,271 relatively unchanged compared to year-end 2008. G&A expenses (10,795) (11,575) (7,942) (6,048) Provision for impairment of receivables - - - - • KGL’s interest coverage ratio increased to 0.8x in 9M2009 Finance costs (6,190) (11,531) (8,103) (7,639) Profit Before Taxes 11,453 (7,911) 1,697 (1,393) from 0.3x in 2008. KFAS (218) - (70) - NLST (281) - (42) - • The company has very little exposure to equity markets, Zakat (10) - (35) - with just KD 2.8 million in available-for-sale investments, Directors Remuneration (170) - - - Profit for the Year 10,775 (7,911) 1,550 (1,393)
most of which are quoted securities. Minority Interest 223 426 348 7 Ne t Inc o me 10,552 (8,338) 1,201 (1,400)
Balance Sheet (KD '000) 2006 2007 2008 Se p-09
Property, plant, and equipment 98,402 142,168 134,904 123,524 Intangible assets 868 857 1,029 1,029 Investment properties 2,510 13,257 7,156 7,185 Investment in associates 18,087 21,454 14,565 15,037 Investment in uncon.subsidiaries 1,944 4,563 5,178 5,260 Investment in joint venture 244 116 - - Available-for-sale investments 4,489 10,337 5,613 2,826 Total non-current assets 126,545 192,751 168,445 154,861
Inventory and spare parts 1,696 1,267 2,352 1,555 Land held for trading - - - 3,006 Receivables 20,464 35,798 29,912 27,354 Due from related parties 14,193 9,468 19,406 27,063 Other debit balances 8,002 - - - Cash and cash equivalents 4,784 7,508 6,414 7,275 Investments at FV through IS - - 13,467 13,467 Total current assets 49,139 54,041 71,551 79,720
Total assets 175,683 246,792 239,996 234,581
Equity attributable to shareholders 66,404 79,250 70,581 67,275
Minority interest 500 4,063 4,089 3,958
Total equity 66,904 83,313 74,670 71,233
Provision for employees' indemnity 1,664 2,068 1,829 2,051 Non-current portion of term loans 37,022 64,775 74,184 74,316 Non-current Murabaha payable 5,814 7,696 6,737 5,050 Total non-current liabilities 44,501 74,540 82,750 81,417
Current portion of term loans 34,198 41,584 28,557 31,980 Current portion of Murabaha payable 3,752 6,410 4,361 8,603 Bonds issued 6,000 - - - Trade payables 7,576 11,206 7,654 8,169 Due to related parties 557 9,847 6,399 9,009 Other credit balances 10,816 12,227 18,501 16,928 Bank overdraft 1,379 7,665 17,104 7,244 Total current liabilities 64,279 88,939 82,576 81,932
Total liabilities 108,779 163,479 165,325 163,349
Total Equity and Liabilities 175,683 246,792 239,996 234,581
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 71 Companies in Focus Kuwait in Focus - April 2010
Kuwait NATIONAL CINEMA COMPANY (KNCC)
Key Data Highlights • Kuwait National Cinema Company (KNCC) is engaged in Ge ne ra l Liquidity the cinema and entertainment industry in Kuwait. The KSE Code KCIN.KSE 52-week avg. volume 457,917 Reuters Code KCIN.KW 52-week avg. value (KD) 413,327 company imports and distributes video and cinema film
Pric e (KD) Price Performance and equipment; KNCC is also involved in the construction
Closing Price 0.700 YTD -18.6% of cinema theatres and handles the operations of those 52-week High/Low 1.000 / 0.690 1-Year Period -26.3% cinemas. Market Capitilization Outstanding Shares Million KD 70.74 Latest (million) 101.06 • In 2009, operating revenue declined by 6% to KD 11.3 million compared to the previous year’s Ownership Structure Closely Held: 59.99% Public: 40.01% KD 12 million. In 2008, operating revenue grew by 28%
Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital from 2007 and reached KD 12 million. • The decline in the company’s operating costs did not keep pace with KNCC’s revenue decline. Operating costs for Stock Performance 2009 decreased by just 2%, which slightly pushed down the gross profit margin from 24% in 2008 to 21% in 2009. 1.200 16.0 • KNCC recorded KD 1.61 million in operating profit for 14.0 2009. In 2007 and 2008, KNCC did not generate a
1.000 52-week High: KD 1.000 12.0 majority of profits from the company's core operations;
10.0 rather, it was counting on gains from available-from-sale (AFS) investments, gains from associates, and gains from 0.800 8.0 the sale of investment properties to generate positive profit. Millions Price (KD) Price 6.0 52-week Low: KD 0.690 • KNCC has an acceptable level of leverage with a
0.600 4.0 debt-to-equity ratio of 0.4x. However, we do note that all of the company's debt is of a short-term nature. Total debt 2.0 at the end of December 2009 stood at KD 19.2 million.
0.400 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close
Sources: Zawya and NBK Capital
Analyst
May Zuaiter T. +965 2259 5597 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
Gross Profit Margin (%) 26.4% 23.6% 31.8% 23.6% 20.5% Operating Profit Margin (%) 29.5% 36.7% 24.2% -54.1% 14.2% Net Profit Margin (%) 136.2% 106.6% 96.6% 39.2% 26.5%
ROA 31.1% 19.0% 15.5% 7.3% 4.5% ROE 39.7% 22.8% 20.9% 10.4% 6.7%
Current Ratio (X) 0.5 0.4 0.1 0.5 0.7 Debt to Assets (X) 0.1 0.1 0.2 0.2 0.3 Debt to Equity (X) 0.1 0.1 0.3 0.3 0.4
Receivables Turnover Ratio 7.1 4.6 6.3 12.6 9.2 Inventory Turnover Ratio 40.4 59.5 25.0 32.5 40.6 Payables Turnover Ratio 4.2 3.2 2.3 2.4 1.9
Source: Company's financial statements and NBK Capital
nbkcapital.com | 72 Kuwait National Cinema Company (KNCC) Kuwait in Focus - April 2010
Overview • The company’s operating costs decreased by 2% in 2009, which did not outdo the 6% decline in operating revenues Kuwait National Cinema Company (KNCC) was established in for the year. Hence, gross profit margins dropped from 1954. KNCC, an affiliate of Tamdeen Real Estate Company 24% in 2008 to 21% in 2009. In 2008, the company’s and formerly known as Kuwait Cinema Company, is a Kuwait- operating costs outpaced revenue growth, which pushed based company engaged in the cinema and entertainment down the gross profit margin from 32% in 2007 to industry in Kuwait. The company imports and distributes video 24% in 2008. and cinema film and equipment; KNCC is also involved in the • At the end of 2009, the company had an operating construction of cinema theatres and handles the operations profit of KD 1.61 million, compared to an operating loss of those cinemas. In addition, the company invests in foreign of KD 6.5 million at the end of 2008. KNCC had no shares and funds. In 2005, KNCC enhanced its corporate and impairments to account for in 2009 as opposed to 2008, consumer image by rebranding as “Cinescape.” in which the company had several impairments related to The company has investment stakes in Tamdeen Shopping property and equipment, intangible assets, and inventory, Centers Company (30%) and Tamdeen Holding Company which amounted to a little more than KD 9 million; these (20%). impairments resulted in an operating loss of KD 6.5 million in 2008. KNCC has been listed on the Kuwait Stock Exchange since 1984. The company’s stock is relatively illiquid, with a • KNCC’s 2009 performance boasts profits from its 12-month average daily trading volume of 454 thousand core operations, which, as we stated before, led to shares. KD 1.61 million in operating profit. In 2007 and 2008, KNCC did not generate profits from its core operations; Latest News rather, it was counting on gains from available-from-sale investments, gains from associates, and gains from the sale of investment properties to generate positive profit. • April 2010: The company approved the distribution of In 2008, despite a weak set of operational results and 36% cash dividends, equivalent to KD 0.036 per share the above-mentioned impairments, the saving grace for for the fiscal year ending December 31, 2009. In the the company’s bottom line came from the KD 6.2 million previous year, the company distributed a cash dividend of gain from the sale of the investment property (more details KD 0.040 per share. below). As a result, the decline in net income was limited • February 2010: The company’s board of directors to 48%, and net income reached KD 4.7 million compared recommended a 36% cash dividend, equivalent to to KD 9 million in 2007. KD 0.036 per share for the fiscal year ending December • In 2009, the company sold its stake in Tamdeen 31, 2009. In the previous year, the company distributed a Entertainment Company, which resulted in a profit of cash dividend of KD 0.040 per share. KD 0.080 million. Also in 2009, the company witnessed a gain from available-for-sale investments of KD 0.12 Financial Statement Analysis million versus a KD 0.030 loss in 2008. In 2008, the company disposed of an investment property Income Statement representing the value of a real estate portfolio of one of KNCC’s associate companies, Tamdeen Shopping • Before 2006, KNCC had two business lines: the Centers. As a result, the company recognized a gain of cinema division and the video division. However, KNCC KD 6.2 million from the sale. discontinued the video division in 2006 since this segment was witnessing declining profitability. • In February 2010, a cash dividend of KD 0.036 per share for 2009 was approved by the shareholders of the parent • In 2009, operating revenue declined by 6% to company. KD 11.3 million compared to the previous year’s KD 12 million. In 2008, operating revenue grew by 28% from 2007 and reached KD 12 million. Given the limited opportunities for entertainment in Kuwait, KNCC is one of the few sources of entertainment for the population of Kuwait, and hence, the company has the capability to resume revenue growth in the future.
nbkcapital.com | 73 Kuwait National Cinema Company (KNCC) Kuwait in Focus - April 2010
Balance Sheet Financial Statements
Income Statement (KD '000) 2006 2007 2008 2009 • KNCC’s investments in associates consist of a 30% Operating Revenues 7,747 9,405 12,002 11,270 stake in Tamdeen Shopping Centers and a 20% stake in Operating Costs -5,920 -6,419 -9,164 -8,959 Gross Profit 1,827 2,986 2,838 2,312 Tamdeen Holding. The previous 25% stake in Tamdeen Other operating income 3,200 3,458 4,056 3,640 G&A -930 -1,098 -1,971 -1,277 Entertainment was sold to a related party in 2009. Gain/Loss from inv. at fair value through P&L -41 -4 -162 -87 Impairment in value of P&E 0 -489 -9,215 0 Investments in associates made up 41% of total assets at Impairment in intangible assets 0 0 0 0 Impairment in inventory 0 0 -137 0 the end of December 2009, compared to 45% at the end Contingent liabilities provision 0 0 0 0 Other operating exp. -1,216 -2,514 -1,883 -2,672 of December 2008. At the end of December 2009, the Provision for doubtful debts 0 -63 -18 -310 Decline in inventory's net realizable value 0 0 0 0 company had AFS investments amounting to KD 5.9 million, Operating Profit 2,839 2,276 -6,492 1,605 Impairment in AFS 0 -107 0 0 out of which the majority lay in unquoted investments; Gains from available for sale investments 225 7,540 -30 122 Gain from associates -258 218 6,111 995 these unquoted investments include investments carried Gain from sale of associates 0 79 Gain on sale of investment property 0 0 6,235 1,607 at cost that amount to KD 459 thousand as of December Gain on sale of PP&E 6,215 Finance costs -374 -424 -810 -1,201 2009 since the fair value of this portion cannot be reliably Board of Directors remuneration -90 -90 -90 -90 Net Profit before tax 8,557 9,413 4,924 3,118 measured. Contribution to KFAS -89 -95 -45 -19 National Labour Support Tax -212 -230 -121 -79 Zakat 0 -6 -52 -29 • Real estate held for trading accounted for approximately Ne t Inc o me 8,256 9,081 4,707 2,991 KD 7 million at the end of December 2009. This takes up Balance Sheet (KD '000) 2006 2007 2008 2009
a significant portion of short-term assets, namely 39%. We PP&E 18,472 22,611 17,737 14,581 Intangible Assets 0 1,366 1,074 1,177 have no further information regarding the classification of Inv. Property 8,564 14,487 0 0 Inv. In associates 8,794 17,577 28,324 28,552 the actual real estate that is held for trading. Available for sale investments 11,916 7,559 5,889 5,911 Advance payment to purchase films 0 907 687 952 • KNCC has a debt-to-equity ratio of 0.4x. Total debt at Total Non-Current Assets 47,746 64,506 53,712 51,172 Inventories 173 341 223 218 the end of December 2009 stood at KD 19.2 million; the Trade and other recievables 2,137 831 1,076 1,363 Real estate held for trade 0 0 0 6,995 debt was classified as short-term loans, with an effective Inv. at fair value through profit and loss 923 0 62 729 Cash 252 214 7,323 8,843 interest rate of 5.25%. Total Current Assets 3,485 1,386 8,684 18,148 Total Assets 51,231 65,892 62,395 69,320
Share capital 8,085 8,085 10,106 10,106 Treasury shares 0 -841 -903 -903 Statutory reserve 4,244 4,244 4,745 5,053 General reserve 4,210 5,160 5,662 5,983 Land revaluation reserve 8,870 8,808 8,144 8,144 Change in fair value reserve 2,383 2,742 615 -304 Translation reserve 0 0 87 504 Retained earnings 13,853 17,196 16,745 15,110 Total Equity 41,645 45,394 45,200 43,692
Post Employment benefits 337 401 461 546 Total Non-Current Liabilities 337 401 461 546
Trade and other payables 1,893 3,683 3,986 5,301 Dividend payables 471 582 478 605 Due to a related party 830 223 0 0 Loans and bank facilities 6,055 15,608 12,270 19,177 Total Current Liabilities 9,249 20,097 16,734 25,083 Total Liabilities 9,586 20,498 17,195 25,629
Total Equity and Liabilities 51,231 65,892 62,395 69,320
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 74 Companies in Focus Kuwait in Focus - April 2010
Kuwait PROJECTS (KIPCO)
Key Data Highlights
General Liquidity • Kuwait Projects (KIPCO) is one of the region’s largest KSE Code KPROJ.KSE 52-week avg. volume 1,977,491 investment holding companies, with a significant Reuters Code KPROJ.KW 52- week avg. value (KD) 952,481 stake held by Kuwait’s ruling family. The company has Price (KD) Price Performance investments in more than 50 companies across different Closing Price 0.430 YTD -6.9% 52-week High/Low 0.552/0.419 1-Year Period -9.5% industries and regions. Market Capitalization Outstanding Shares • KIPCO has three main subsidiaries: a) Burgan Bank (refer Million KD 521.29 Latest (million) 1,212.31 to pg. 30), b) United Gulf Bank, and c) Gulf Insurance Ownership Structure Closely Held: 66.2% Public: 33.8% Company (refer to pg. 47). The subsidiaries are fully consolidated, and make up the largest portion of KIPCO’s Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital assets.
• Of the total KD 2.4 billion in loans and advances, Burgan Stock Performance Bank is responsible for KD 2.2 billion. • Burgan Bank and United Gulf Bank have completed 0.600 60.0 several transactions in recent years; United Gulf Bank sold
52-week High: KD 0.552 several of its subsidiaries and an associate (which include 0.550 50.0 banks within the region) to Burgan Bank. The subsidiaries and associate sold include Jordan Kuwait Bank, Algeria 0.500 40.0 Gulf Bank, and Bank of Baghdad.
0.450 30.0 • Showtime, once a subsidiary of KIPCO, provides media Millions
Price (KD) Price services within the MENA region. KIPCO entered into 52-week Low: KD 0.419 0.400 20.0 a joint venture agreement with its largest competitor, Al Mawarid (Orbit TV), to form the largest pay-satellite 0.350 10.0 television service in the Middle East.
• KIPCO’s total revenue improved by 5.9% in 2009 mainly 0.300 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 due to the sale of KIPCO’s stake in its subsidiary, Showtime. Volume Close • Following improved revenues came an increase in net Sources: Zawya and NBK Capital income by 99.2% in 2009. However, the company experienced a decline in profit margins across the majority of KIPCO’s business units.
Analyst
Wadie Khoury T. +965 2259 5118 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
Current Ratio 0.88 0.62 1.14 1.08 1.13 Net Debt-to-Equity 1.44 1.48 -0.47 -0.74 -0.66
Investment -to-Equity (HFT + AFS) 112.7% 123.8% 71.7% 65.8% 64.3%
Profit Margin 32.1% 21.9% 59.0% 5.5% 9.9% Growth In Revenue N/A 92.6% 287.6% -50.2% 22.0%
Source: Company's financial statements and NBK Capital
nbkcapital.com | 75 Kuwait Projects (KIPCO) Kuwait in Focus - April 2010
Overview Financial Statement Analysis
Kuwait Projects (KIPCO) is one of the region’s largest Balance Sheet investment holding companies and one of the largest Kuwaiti companies in terms of assets. KIPCO currently has direct and • KIPCO is Kuwait’s largest investment holding company, indirect stakes in more than 50 companies (subsidiaries and and therefore, we need to look at some of its important associates) across 21 countries. The company’s primary lines subsidiaries. The company has more than 50 investments of investment are in banking (commercial and investment), in different companies; however, there are four main insurance, and digital satellite services. The company was subsidiaries we need to focus on: incorporated in 1975, and is largely held by members of the Burgan Bank Kuwaiti royal family.
KIPCO’s direct investments include the following: Established in 1977, Burgan Bank was primarily government-owned for two decades. It underwent a major structural change in 1997, when KIPCO purchased the KIPCO’s Major Direct Investments as of 2008 government’s share to become the largest shareholder. For Subisidary Country of Incorporation KIPCO interest more details on Burgan Bank, please refer to pg. 30. United Gulf Bank Bahrain 95% Burgan Bank Kuwait 57% Gulf Insurance Company Gulf Insurance Company Kuwait 69% Gulf DTH (Showtime) Cayman Islands 0% United Gulf Management Incorporation USA 100% Gulf Insurance Company (GIC) is the largest insurance United Gulf Management Ltd. UK 100% company in Kuwait in terms of written and retained Hunter Capital Company USA 100% premiums. Established in 1962, GIC covers life and non- Kuwait United Consultancy Company Kuwait 98% Kuwait Projects Company Cayman Islands 100% life segments throughout the region through subsidiaries. KIPCO Private Equity Company Cayman Islands 100% For more details on Gulf Insurance Company, please refer Global Direct Television for General Trading and Contracting Company Kuwait 0% to pg. 47.
Source: KIPCO financials Gulf DTH L.D.C. (“Showtime”)
Overview Latest News Showtime Arabia operates as a digital satellite pay television network in the MENA region. The company began • March 2010: KIPCO signed a memorandum of operations in 1996 as a joint venture between KIPCO (the understanding with Munich Re, a German-based entity, to majority stakeholder) and CBS Corporation (the minority launch a new pension company whereby Munich Re will stakeholder). The company is recognized for broadcasting be responsible for providing a wide range of specialized famous Hollywood shows. services (training, actuarial, and technical services). Financial Overview • February 2010: KIPCO announced its full-year results, and achieved a net profit of KD 46.3 million in 2009 • Although information on Showtime’s financial compared to KD 24.1 million in 2008. performance is limited, it is evident the company has been operating at a loss. Despite this, there have been • January 2010: Burgan Bank, one of KIPCO’s subsidiaries, signs of improvement. announced that it has become the majority shareholder in Bank of Baghdad, in an attempt to diversify the bank’s • Revenue steadily increased year on year between regional footprint. 2006 and 2009. Revenue managed to increase by 9% in 2009, after the joint venture was established • October 2009: The National Bank of Kuwait signed a five- between Orbit and Showtime. year KD 80 million loan agreement with KIPCO. • In spite of the landmark deal between Orbit and • October 2009: KIPCO issued a USD 500 million bond, Showtime, net losses increased from KD 7 million in the first in Kuwait in 2009. The bond was oversubscribed, 2008 to KD 10.5 million in 2009. Details on the joint whereby subscriptions reached more than USD 3.3 billion. venture have not been provided; however, we assume that some of the losses associated are due to start-up costs. We view the merger as a positive development, and expect the company to benefit going forward.
nbkcapital.com | 76 Kuwait Projects (KIPCO) Kuwait in Focus - April 2010
Orbit Showtime Deal sheet analysis. As a matter of fact, if we strip away the gains from the sale of the group’s operations in 2008 • As of August 2009, KIPCO entered into a joint venture and 2009, investment income would have increased agreement with Al Mawarid Investments and other in 2009. However, fees and commissions fell 57.8% companies to form Panther. The newly established within the same time period. joint venture is responsible for distributing pay-satellite television services throughout the MENA region. • The drop in total income trickled down to operating income (total income less interest expense, salaries • Panther acquired Showtime, Global Direct Television, and benefits, and general and administrative and Orbit in order to carry out the company’s expenses). Operating profit from continuing operations designated service. KIPCO owns 60.5% of Panther, (after provisions) declined by 73.3% in 2009. UGB and Al Mawarid the remaining 39.5%. Moreover, recognized an impairment loss of USD 19.7 million Al Mawarid holds a call option to purchase an additional in 2009. 10.5% stake in the company between November 2010 and February 2011. If Al Mawarid decides to exercise • Low operating income played a role in the drop in net the entire call option, each company will have a 50% income in 2009, which fell from USD 214.6 million stake in Panther. in 2008 to USD 23.8 million in 2009.
• The merger of Orbit and Showtime marks the widest UGB Balance Sheet Analysis choice of premium channels offered in the Middle • UGB’s balance sheet experienced a major transition East on a single platform. The new service gives between 2007 and 2009, as the bank sold some of subscribers access to 75 channels with up-to-date its major subsidiaries and an associate to its sister Hollywood shows. company, Burgan Bank. The subsidiaries and associate • As the company looks to improve its financial included Jordan Kuwait Bank (JKB), which was sold performance, the merger could be the solution to in July 2008, Algeria Gulf Bank (AGB) and, Bank of climb into profitability. There will be higher economies Baghdad (BOB), which were sold in the first quarter of scale, resulting in declining costs and improved of 2009, and Tunis International Bank (TIB), which is efficiency, and bargaining power will increase as expected to be sold in the first quarter of 2010. competition decreases. Moreover, combined, the two • UGB experienced a significant decrease in loans heavyweight companies dominate the media market between 2007 and 2009 as a result of the sale of in the region. the bank’s subsidiaries and associate (i.e., AGB, United Gulf Bank (UGB) TIB, and BOB) to Burgan Bank. The assets held by the banks were reclassified as held for sale. Loans Overview and advances of TIB and AGB alone accounted for United Gulf Bank (UGB) was incorporated in 1980 and USD 388 million in December of 2008. UGB recorded was acquired by KIPCO in 1988. KIPCO increased its loans and advancements of USD 7.8 million in 2008, ownership to 95% by the end of 2009. down from USD 291.9 million in 2007. By 2009, UGB’s loans and advancements had increased to Financial Overview USD 52.5 million. UGB Income Statement Analysis • The largest portion of UGB’s assets are non-trading • Total income (including investment income, investments, which are composed of available-for-sale income from fees, commissions, foreign exchange (AFS) investments. At the end of 2009, non-trading [FX] revaluation, and the share of results from investments represented 30.2% of total assets, with associates) was weaker in 2009 than in 2008, as a the bulk coming from unquoted debt securities. result of weaker performance in investment income. Investment income slipped 66.5% in 2009, dropping • Another large portion of UGB’s assets include from USD 281 million to USD 94.2 million. Breaking investments in associated companies. As of September up investment income a little further, we find that 2009, these made up 27.3% of total assets. Some of the drop was a result of a decline in gain on sale, the company’s recognized investments in associates which decreased from USD 364 million in 2008 to include KAMCO, the Kuwait Education Fund, Syria USD 26.7 million in 2009. This is due to an agreement Gulf Bank, and United Cable Company. to sell some of the company’s operations in 2008. This is explained in more detail in the UGB balance
nbkcapital.com | 77 Kuwait Projects (KIPCO) Kuwait in Focus - April 2010
• Looking at the entire KIPCO group, the following graph others. The combined revenue from these sectors declined shows the company’s holdings and the change in its by 10% in 2009 due to a 2.5% drop in the company’s proportionate stake in each of the main subsidiaries. largest revenue generator, the commercial banking sector. Burgan Bank, historically treated as an associate, was • The largest portion of KIPCO’s revenue is derived from consolidated in 2007 as a result of KIPCO purchasing interest income, stemming mainly from the company’s a controlling stake. In the same year, KIPCO (along 56% holding in Burgan Bank, which accounted for more with the proportional stakes held by KIPCO’s than 97.4% of KIPCO’s total interest income. Interest subsidiaries) sold its entire stake in National Mobile income increased more than nine times in 2007. The Telecommunications Company (Wataniya) to Qtel for large jump came as a result of the full consolidation of a gain of KD 468.1 million. In 2009, the company Burgan Bank in 2007. As KIPCO displayed impressive sold its stake in Showtime to Panther (in which KIPCO growth in interest income in 2008 (almost doubling from owns a large stake); therefore, Showtime is no longer 2007 levels), growth from interest income dropped in treated as a subsidiary. 2009. In spite of this, total income still managed to grow year on year by 22% in 2009. The growth was driven by Proportionate Stake in KIPCO's Main Subsidiaries KIPCO’s sale of Showtime, increasing investment income
100% 95% throughout the year. KIPCO recognized a KD 46.4 million 92% 90% 88% gain based on the fair value of the businesses acquired by
78% 78% 78% Panther. 80% 76% 69% 69% 70% 68% • KIPCO incurred large provisions and impairments on
60% 56% 57% investments amounting to KD 82 million in 2009, compared 51% 50% to KD 37 million in 2008. Burgan Bank contributed
40% 37% KD 79.4 million in credit loss provisions and an additional KD 3.4 million in impairments on investments. However, 30% KIPCO managed to weather the storm, and increased 20% profits by the end of the year. 10% 0% 0% 0% • Net income followed revenue growth, as the company 2006 2007 2008 2009 experienced a 33.3% increase in net income in 2009 Burgan Bank Gulf Insurance Company Showtime United Gulf Bank as a result of improved sales coupled with a decline in
Source: Company reports expenses (including minority interest; however, income actually increased by 92% year on year). However, the • Of KIPCO's total assets as of 2009, 45.5% consisted company experienced weakened profit margins across the of loans and advances, mainly due to the consolidation majority of KIPCO’s business units. of Burgan Bank’s KD 2.2 billion loans and advances. However, despite the increase in Burgan Bank’s and Net Income and Profit Margin Breakdown by Segment
UGB's loans and advances in 2009, KIPCO’s loans Net Income Margins and balance account actually dropped by 3.7% in that 2008 2009 2008 2009 Commercial Banking 37,309 23,524 14.4% 9.3% period. The reason for the drop is unclear. Asset Management and Investment Bank 73,515 132,247 47.9% 69.9% Insurance 4,899 6,073 8.9% 8.6% • The company is in a solid position to repay its KD 665 Media (7,928) (10,492) -15.0% -18.3% million debt, as KIPCO’s cash balance represented Others 3,765 516 34.1% 7.6% Inter-segmental (65,580) (87,204) the second-largest asset (KD 1,027 million) as of Total 45,980 64,664 10.4% 13.9%
December 2009. This put the company’s net debt at Sources: Company reports and NBK Capital negative KD 362 million.
Income Statement
• KIPCO divides its revenue generation into five major sectors: a) commercial banking, b) asset management and investment banking, c) insurance, d) media, and e)
nbkcapital.com | 78 Kuwait Projects (KIPCO) Kuwait in Focus - April 2010
Financial Statements
Income Statement (KD '000) 2006 2007 2008 2009
Interest income 12,842 121,002 232,018 207,283 Investment Income 57,804 554,847 52,975 81,262 Fees and commission income 20,572 56,874 53,989 49,901 Share of results from associates 57,256 52,735 (3,002) (1,037) Net insurance premium earned 36,419 37,903 40,055 49,813 Digital satellite television services 39,355 44,095 52,883 57,453 Foreign exchange gain 2,760 15,787 (5,924) 2,021 Other Income 1,244 1,438 17,302 19,575 Total Revenue 228,252 884,681 440,296 466,271 Total Expenses (162,776) (294,258) (394,316) (401,607) Profit Before Tax 65,476 590,423 45,980 64,664 Tax - (14,671) (3,534) (8,103) Profit for the year 65,476 575,752 42,446 56,561 Parent Company 50,070 521,691 24,125 46,318 Minority Interest 15,406 54,061 18,321 10,243 Net Income 50,070 521,691 24,125 46,318
Balance Sheet (KD '000) 2006 2007 2008 2009
Cash in Hand and at Banks 212,381 878,576 972,021 1,027,700 T Bills and Bonds - 433,709 387,378 417,049 Loans and advances 71,870 1,696,456 2,518,992 2,425,496 Fair Value thru profit and loss 112,856 204,309 75,853 57,750 Financial Assets Available for sale 166,117 264,362 266,327 276,538 Financial assets held to maturity 8,159 6,872 15,367 21,721 Other Assets 79,310 165,070 212,039 206,928 Investments in Associates 536,060 246,393 238,889 252,072 Investment Properties 6,792 7,958 7,003 54,515 Property and Equipment 22,738 56,488 67,180 63,411 Intangible Assets 142,245 318,805 416,886 531,877 Total Assets 1,358,528 4,278,998 5,177,935 5,335,057 Liabilities Due to banks and Fin. Institutions 209,199 829,614 917,125 1,027,150 Deposits from customers 113,242 1,622,298 2,484,034 2,408,003 Loans payable 262,446 297,943 396,969 368,465 Bonds 88,123 64,829 50,995 49,294 Medium term notes 205,214 202,754 122,605 247,052 Other Liabilities 154,555 279,126 362,560 357,609 Total Liabilities 1,032,779 3,296,564 4,334,288 4,457,573 Total Equity 325,749 982,434 843,647 877,484 Total Liabilities and Equity 1,358,528 4,278,998 5,177,935 5,335,057
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 79 Companies in Focus Kuwait in Focus - April 2010
Mabanee Company
Key Data Highlights
General Liquidity • Mabanee is a pure retail rental player. The company owns KSE Code MABANEE.KSE 52-week avg. volume 805,138 the Avenues Mall, a landmark development and the largest Reuters Code MABK.KW 52-week avg. value (KD) 521,725 shopping mall of its kind in Kuwait. Though Mabanee is a Price (KD) Price Performance Kuwaiti story now, the company plans to expand regionally. Closing Price 0.680 YTD 6.9% 52-week High/Low 0.718 / 0.518 1-Year Period 24.8% • The company is currently Kuwait’s largest real estate Market Capitilization Outstanding Shares company in terms of market capitalization. Moreover, within Million KD 343.48 Latest (million) 505.12 the Kuwaiti real estate sector, the company reports the Ownership Structure highest rental income. The company plans to consolidate Closely Held: 63.06% Public: 36.94% its position by executing Phase III of the Avenues, resulting Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital in a unique mix of a mass market and luxury/concept mall under the same umbrella.
Stock Performance • We would like to highlight that the Avenues boasts high occupancy rates backed by tenants that are well-known all 0.800 7.0 across the Gulf Cooperation Council (GCC). The company
0.750 has pulled in major retail groups, which constitute 82% of 6.0 52-week High: KD 0.718 all tenants in Phase I and 58% in Phase II. 0.700 5.0 • The company’s rental income increased by 30%, to 0.650 4.0 KD 30.7 million, in 2009 compared to 2008, benefitting 0.600 from a full year of operation for Phase II (compared to
3.0 Millions Price (KD) Price only eight months in 2008) and high occupancy levels for 0.550 52-week Low: KD 0.518 Phase I during 2009 compared to 2008. 2.0 0.500 • The company owns investment properties (Phases I and 1.0 0.450 II of the Avenues Mall), which were shown at a cost of KD 169 million as of December 31, 2009. This block 0.400 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 is worth KD 323.2 million per independent evaluators’ Volume Close valuation, resulting in a mark-to-market (MTM) gain of Sources: Zawya and NBK Capital around KD 154.2 million.
Analyst
Mariam Al-Bahar T. +965 2259 5138 E. [email protected]
Key Ratios
2007 2008 2009
Rental Income (% of Total Income) 40% 102% 89% Investment Income (% of Total Income) 43% -58% -1% Investment Income (% of Net Profit) 65% -217% -3%
EBITDA (KD million) 12.8 28.4 25.1 EBITDA Interest Cover (x) 4.8 4.7 5.1 Net Debt-to-Equity (X) 0.7 0.8 0.6 Operating Profit Margin 59% 71% 64% Adjusted Net Profit Margin 40% 54% 46% Net Profit Margin 115% 17% 44%
Investment Book (% of Total Assets) 21% 11% 9% Investment Book (% of Total Equity) 45% 27% 17%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 80 Mabanee Company Kuwait in Focus - April 2010
Overview • The Grand Avenue will be an indoor avenue with an outdoor feeling; it will be flanked by flagship stores on each side.
Mabanee, a pure retail rental player in Kuwait, is currently The 37% ownership stake by the regional retail giant Alshaya the country’s largest real estate company in terms of market group gives the company a strategic advantage over its capitalization. The company owns the Avenues mega-mall, competitors. Alshaya-run stores comprise a sizeable area of which is a landmark development in Kuwait’s retail industry the Avenues, which lends a degree of stability to the tenant and the largest shopping mall of its kind in the country. profile. The company has pulled in major retail groups, which Mabanee plans to consolidate its position by executing Phase constitute 82% of all tenants in Phase I and 58% in Phase III of the Avenues, resulting in a unique mix of a mass market II. Also worth highlighting is the long waiting list for tenants, and luxury/concept mall under the same umbrella. Though which is likely to be advantageous to the mall’s owners in Mabanee is a Kuwaiti story now, the company plans to expand times of economic adversity. regionally.
Shareholder Structure Latest News Name Type Country Holding
Alshaya Group [via AlShaya United Commercial Company] Corportate Kuwait 36.45% • April 2010: At the annual general meeting (AGM) held on National Industries Group Holding Corportate Kuwait 20.01% Orient Investment Company Corportate Kuwait 6.59% March 28, 2010, Mabanee's shareholders approved the Public - - 36.95% distribution in a cash dividend of KD 0.01 per share for Foreign Ownership Structure Open to GCC Investors 100.00% the first time of its history, which translate into a dividend Open to Foreign Investors 100.00% yield of 1.4%. They also approved a 10% bonus shares, Sources: Zawya and NBK Capital which has increased the number of outstanding shares from 459.2 million to 505 million. The Avenues Project
The Avenues Project The Avenues - Key Statistics Phase l Phase ll Phase lll Segment Mass Market Upmarket Luxury/Concept
Completion April 2007 April 2008 1Q2012 The Avenues is divided into three phases built over 425,000 Occupancy Rate* (%) 95% - sq. m. of land in the Al Rai area. Phases I and II (combined Net Leasable Area (sq.m.) 124,608 42,089 86,000 net leasable area of 166,697 sq. m.) of the project were No. of stores 426 600 completed in April 2007 and April 2008, respectively. Development Cost KD 164 million KD 145 million
Meanwhile, according to the company, construction of Phase *Average rate of 2009. Sources: company’s financial statements and NBK capital III commenced during October 2009 and is 12% completed as of now. Part of Phase III will be handed over to tenants in 2Q2011 and the rest will be handed over by 1Q2012. Financial Statement Analysis Upon Phase III’s completion, the Avenues will have a net leasable area (NLA) of 265,697 sq. m. and a parking lot that Income Statement can accommodate more than 14,000 cars. Phase III of the Avenues will include an Old Souk, Gold Souk, Bazaar, Luxury • Real-estate-related revenue (mainly rental income and Mall, SOKU, Grand Avenue Mall, and three underground placement fees) decreased by 5%, from KD 36.3 million in parking lots. 2008 to KD 34.5 million in 2009, because of a significant decline in placement fees. This was partially offset by • The Old Souk will deliver a traditional Kuwaiti Souk an increase in rental income. Placement fees decreased atmosphere and will consist of many small stores with significantly, from KD 11 million in 2008 to KD 1.5 local sellers. million in 2009. These fees are realized upon signing new • The Bazaar will be a vivid and vibrant section, similar to leasing contracts, and considering that the first two phases the Istanbul Bazaar, featuring large household items and are almost fully leased, placement fees are likely to be goods. minimal going forward until the third phase is complete.
• The Luxury Mall will include designer boutiques and high- • Rental income increased by 30%, to KD 30.7 million, in end stores. 2009 compared to 2008, benefitting from a full year of • The SOKU area is inspired by New York’s SoHo and will operation for Phase II (compared to only eight months in evoke a youthful experience. 2008) and higher levels of occupancy levels for Phase I during 2009 compared to 2008.
nbkcapital.com | 81 Mabanee Company Kuwait in Focus - April 2010
• Operating expenses increased by 19%, to KD 9.4 million, Financial Statements in 2009, compared to KD 7.9 million in 2008. Increases in both leasable area and repairs and maintenance expenses Income Statement (KD '000) 2007 2008 2009 drove this overall increase in operating expenses. Rental Income 13,326 23,556 30,731 Placement fees 4,688 11,007 1,545 • EBITDA dropped by 12%, to KD 25.1 million, in 2009 Other Inv. properties revenue 855 1,750 2,213 Total Inv. properties revenue 18,868 36,312 34,489 compared to KD 28.4 million in 2008. Accordingly, the Inv. properties expenses 3,905 5,588 6,941 EBITDA margin contracted to 72.7% in 2009, compared Gross Profit 14,963 30,724 27,548 to 78.2% in 2008.Mabanee reported an investment loss General & administrative expenses 2,201 2,296 2,460 EBITDA 12,762 28,427 25,088 of KD 0.5 million in 2009, compared to a loss of KD 13.5 Depreciation 1,572 2,528 3,050 million in 2008. EBIT 11,189 25,899 22,038 • Hence, the company’s net profit more than doubled, to Finance costs 2,659 6,068 4,940 EBT 8,530 19,831 17,098 KD 15.3 million, in 2009, compared to KD 6.2 million in Net (loss) gain from investments 14,205 (13,485) (487) 2008. Other Income (130) 225 586 Net Income 21,751 6,225 15,331 Balance Sheet Balance Sheet (KD '000) 2007 2008 2009
• The company owns investment properties (Phases I and Cash & Cash Equivelant 3,916 24,017 10,000 II of the Avenues Mall), which were shown at a cost of Investment properties 100,653 157,122 169,000 Investment Book 41,726 26,267 19,000 KD 169 million as of December 31, 2009. This block Total Assets 195,239 230,819 220,000 is worth KD 323.2 million per independent evaluators’ Short-term loans 32,903 66,184 62,000 valuation, resulting in a mark-to-market (MTM) gain of Long-term loans 37,857 40,779 20,000 around KD 154.2 million. Total liabilities 102,242 133,211 109,000
• Mabanee owns a plot measuring 9,516 sq. m. in Salmiya, Shareholders' Equity 92,997 97,608 111,000 and 186,692 sq. m. of land adjacent to the Avenues Mall Total Liabilities and Equity 195,239 230,819 220,000
in Al Rai. Of the Al Rai land, 99,327 sq. m. is set aside for Sources: Company’s financial statements and NBK Capital the construction of Phase III of the Avenues. The company also owns a 40% stake in a 223,000 sq. m. piece of land in Saudi Arabia and a 10% stake in a 5.5 million sq. m. piece of land in Abu Dhabi.
• The company’s net debt-to-equity ratio decreased from 0.85x in 2008 to 0.65x in 2009. Mabanee’s total debt stood at KD 88 million at the end of 2009, compared to KD 107 million in 2008. The company’s EBITDA interest cover increased slightly, from 4.7x in 2008 to 5.1x in 2009. Taking into account the company’s robust core operations and healthy cash-generating abilities, we believe that it is placed comfortably to service its debt obligations.
• Mabanee’s investment book (both AFS and held for trading) stood at KD 19.0 million as of December 31, 2009, accounting for a significant 17% shareholders’ equity, and a notable 9% of total assets. Almost 43% of the AFS investments in 2009 are in the “unquoted” category. The remaining portion is invested in locally listed securities.
nbkcapital.com | 82 Companies in Focus Kuwait in Focus - April 2010
Mashaer holding company (Mashaer)
Key Data Highlights
General Liquidity • Mashaer is a Kuwait-based company that provides a range KSE Code MASHAER.KSE 52-week avg. volume 904,208 of services (such as accommodation and transportation Reuters Code MASK.KW 52- week avg. value (KD) 257,840 packages) for Haj and Umrah pilgrims. Price (KD) Price Performance
Closing Price 0.320 YTD 25.5% • Mashaer acts as a “middle man” by providing Haj and 52-week High/Low 0.345/0.198 1-Year Period 61.6% Umrah services. As a result, gross margins are extremely Market Capitilization Outstanding Shares low. Million KD 50.47 Latest (million) 160.20
Ownership Structure • People will continue to attend Haj and Umrah, thus ensuring Closely Held: 35.8% Public: 64.2% a sustainable revenue stream going forward. Risks, such as
Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital the swine flu epidemic, could have a significant effect on the company’s revenue stream going forward.
Stock Performance • The company is increasing its investments in associates. These associates perform a function similar to those of
0.350 12.0 the company, whereby they tailor services to the Hajj and 52-week High: KD 0.345 Umrah demographic. As a result, investments in associates 0.330 10.0 are increasingly contributing to operating profits and net 0.310 income.
0.290 8.0 • There was a large discrepancy in sales between 2007 0.270 and 2008. The difference arose as a result of a sale of 6.0 0.250 property in 2008 to repay debt to one of the company's Millions Price (KD) Price subsidiaries. The sale of this property was included as part 0.230 4.0 of revenue, causing a large difference.
0.210 52-week Low: KD0.198 2.0 • The company managed to pay back a significant portion of 0.190 its debt in September 2009 by liquidating the collateral 0.170 0.0 pledged against the debt (including murabaha investments, Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close a commercial complex, and land). Total debt dropped by 46% from 2008 to the end of September 2009. This is Sources: Zawya and NBK Capital expected to decrease finance charges (one of the largest portion of expenses) going forward. The liquidation of the company’s collateral affected the company’s liquidity, causing some concern about how Mashaer will pay its Analyst current debt of KD 22.4 million.
Wadie Khoury T. +965 2259 5118 E. [email protected]
Key Ratios
2005 2006 2007 2008 9M2009
Sales Growth N/A 49.6% 13.6% 157.4% N/A Net Income Growth N/A 85.1% 60.1% -353.5% N/A
Gross Margin 10.9% 10.9% 14.6% 8.7% 5.1% EBITDA Margin 0.0% -3.3% -1.6% 13.0% -0.1% Net Profit Margin 61.4% 76.0% 107.2% -105.6% 214.8%
Investment Book-to-Equity 76.6% 72.7% 24.7% 21.0% 17.3% Associates Contribution to Net Profit 0.0% 0.0% 1.2% -11.2% 28.4%
Debt-to-Equity 27.1% 21.9% 41.9% 64.8% 32.9% Interest Coverage Ratio 0.0 x -0.7 x -0.1 x 1.3 x 0.0 x
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 83 Mashaer Holding Company (Mashaer) Kuwait in Focus - April 2010
Overview increased YoY. Looking at the 9M2009 results, the gross margin declined to 5.1% from 15.6% in 9M2008. This Haj & Umrah Services Consortium Company (Mashaer) is a comes mainly as a result of a 23.2% decline in revenues Kuwait-based company that provides a range of services for Haj (COGS dropped by 13.7%). and Umrah pilgrims in accordance with Islamic Shari'ah. The services include providing hotel reservations and transportation Gross Margin Breakdown packages; trading and leasing real estate, warehouses, and Margins 2007 2008 means of transportation; importing and exporting of foodstuff Properties under development 35.9% 6.9% and consumable items; organizing conferences, seminars, and Hotel Reservation 13.9% 5.6% Tickets 4.6% 10.1% exhibitions; and providing medical services arrangements. Transport 7.3% 15.5% Other 14.5% 13.3%
Latest News Sources: Company’s financial statements and NBK Capital
• January 2010: The company changed its name from Haj • Investment income contributed KD 4.4 million, the single and Umrah Services Consortium Company to Mashaer largest contributor to net income in 9M2009. As a matter Holding Company. of fact, investment income was the sole reason for the • June 2009: Mashaer announced that its board of directors positive net income in 9M2009. The company suffered had appointed Jassem Mohammed Al Awadi as the a loss on the operational front, as EBITDA generated was company’s new CEO as of May 10, 2009. negative KD 2.5 million. Net income improved significantly YoY, as Mashaer rallied from a loss of KD 2.8 million in • March 2009: Mashaer announced that its board of 9M2008 to a profit of KD 3.8 million in 9M2009. directors decided not to pay any dividend for the fiscal year ending December 31, 2008. In the previous year, the • The largest contributor to investment income is unrealized cash dividend was KD 0.030 per share. gain on the revaluation of investment property, valued at KD 2.9 million. The valuation of these properties was Financial Statement Analysis conducted by an independent expert. In addition, the company included provisions that are no longer required, Income Statement valued at KD 1 million. This is due to a receivables settlement with a debtor, whereby the debtor transferred its stake in Al-Ofoq Real Estate Investment Company to • Sale of properties under development was included as part Mashaer valued at KD 1.1 million. of sales in 2008. This is the sole reason for the jump in sales, and a blow to gross margins, which dropped from 14.6% • Share of profits from associates provides a significant in 2007 to 8.3% in 2008. The reason Mashaer included contribution to Mashaer’s operations. In 9M2009, Mashaer this line item as part of sales is unclear; however, we do reported a negative EBITDA of KD 0.002 million; however, know why the company sold properties under development excluding profits from associates, the company would have in 2008. Mashaer sold these properties, valued at reported a larger decline in EBITDA of KD 1.1 million. KD 10.5 million, to Hajer Tower (one of Mashaer’s Profits from associates declined 29.2% in 9M2009 from associates) to settle a portion of the company’s debt. The 9M2008; however, we expect this to be an important and company recognized a profit of KD 0.13 million, thus recurring source of income for Mashaer as the company is generating a gross margin of 1.4%. This dragged down the continually investing in associates. This will be discussed overall gross margins for the remainder of the year. further in the balance sheet analysis section.
• Without the sale of properties, revenues would have • In 9M2009, finance costs made up the largest portion actually decreased in 2008, dropping from KD 5.7 million of expenses as a result of the company’s debt. However, to KD 4.5 million. The breakdown of sales for 9M2009 has it is important to highlight that finance costs dropped by not been provided in the financials. 46% compared to 9M2008. • Normally, gross margins from properties under development have the highest margins (in 2007, margins hit 36%, Balance Sheet compared to 7% in 2008). The settlement clearly brought margins down in 2008. Under hotel reservations, there was • Mashaer’s total debt, as of December 31, 2008, was a large decline in margins, which dropped from 14% in KD 41.6 million. The majority (78.1%) was short-term 2007 to 6% in 2008. Tickets and transport margins both debt (STD). The company’s current ratio stood at 0.64x at
nbkcapital.com | 84 Mashaer Holding Company (Mashaer) Kuwait in Focus - April 2010
the end of 2008. As a matter of fact, in 2008, Mashaer’s • The largest portion of assets is in investments in associates, total current assets were insufficient to pay off just short- which make up 23.5% of the company’s total assets as term debt. of September 2009. Going forward, we can expect this block on the balance sheet to rise because of the increased Short-term Debt vs. Current Assets contributions to entities under establishment amounting to KD 19.5 million as of September 2009. 35 32.5 • Mashaer’s investments in associates have grown by more 30 than six times over the past three years. Investments in 25.8 25 associates grew by 12.2% in the first nine months of 22.9 22.4 2009. Due to this increase in investments in associates, 20 17.5 their contribution to net profit has increased over the years.
KD Millions KD 15
10.5 Investments in Associates 10
5 4.1 3.2 3.0 2.2 2006 3.37
- 2005 2006 2007 2008 9M2009
Current Assets Short-term Debt 2007 16.53
Sources: Company’s financial statements and NBK Capital
2008 20.52 • In the first nine months of 2009, the company’s total debt balance fell by 46.1% to KD 22.4 million. Mashaer’s STD decreased to KD 21.6 million, and the long-term debt was 9M2009 23.01 completely wiped out. The company was able to repay its debt mainly from the liquidation of the pledged collateral. 0 5 10 KD Millions 15 20 25 By September 2009, the company settled a tawarruq finance facility of KD 7.5 million from pledged murabaha Sources: Company’s financial statements and NBK Capital collateral, and transferred investment property rights valued at KD 8.1 million. Over and above, the company • The company’s holdings in available-for-sale (AFS) settled KD 2.1 million of debt in cash. As a result, the investments grew at a CAGR of 18% over the past three company’s cash balance declined to KD 0.3 million in years. The breakdown of these investments includes 9M2009 from KD 1.6 million in 9M2008, and investment local quoted shares, local unquoted shares, and foreign properties declined by 60% to KD13.3 million within the unquoted shares. Local unquoted shares made up 64% same period. of AFS in 2008. All companies that fall under the local • The majority of debt was used for investment in properties unquoted shares category are recorded at cost less and as contributions to entities under establishment. The impairments (if any). Increases or decreases in the value of investments in properties include a commercial complex these assets have no bearing on equity due to the difficulty used as a housing facility for pilgrims in Saudi Arabia in determining the fair value of the unquoted securities; that was expected to be completed by the end of 2009. however, according to management, no impairment The contribution to entities under establishment includes charges were recorded for the year ending 2008. capital contributed by Mashaer in companies that will • Another large contributor to assets is properties under eventually become associates or subsidiaries. The entities development. In 2007, properties under development are expected to provide services tailored to the same were the largest portion of assets, making up 23.5% demographic as Mashaer, and will be treated as operating of total assets. In 2008, the value of properties under activity. development dropped significantly (43% decline between • We are a little concerned about the company’s ability to 2007 and 2008) because several of the properties under pay off its upcoming debt. Although some of the debt development were sold to settle a debt account with one is pledged against collateral, the company’s liquidity of Mashaer’s associates—Hajer Tower. This explains the has declined, and the upcoming debt due is valued at significant increase in the absolute value of the company’s KD 22.4 million. revenue and the decrease in the margins.
nbkcapital.com | 85 Mashaer Holding Company (Mashaer) Kuwait in Focus - April 2010
Financial Statements
Income Statement (KD '000) 2007 2008 9M2008 9M2009
Sales 7,325 18,857 2,333 1,792 COGS (6,259) (17,210) (1,969) (1,700) Gross Profit 1,067 1,647 363 92 SG&A (1,603) (1,276) (817) (920) Share of Results from Associates 94 2,225 1,546 1,094 Net Rental Income (Expense) 324 (144) (120) (268) EBITDA (118) 2,453 972 (3) Depreciation and Ammortization (563) (2,240) (385) (249) EBIT (681) 213 587 (252) Comission Income on Marketing 8,519 8 - - Net Investment Income (Expense) 527 (20,299) (3,489) 4,358 Interest 21 87 - - Other Income 50 55 47 7 EBT 8,436 (19,936) (2,855) 4,113 Taxes (571) - - (206) Net Income (before Minority Interest) 7,865 (19,936) (2,855) 3,907 Minority Interest 13 (27) (35) 58 Net Income 7,853 (19,910) (2,820) 3,849
Balance Sheet (KD '000) 2006 2007 2008 Sep-09
AFS Investments 9,554 13,814 13,353 11,720 Associates & Contribution to Entities 3,366 30,976 38,261 42,547 Prop. Under Development 2,326 30,319 17,356 - PP&E 222 417 1,640 1,673 Intangible Assets - 24,281 11,000 11,000 Other Non Current Assets 231 6,418 6,175 13,570 Total Non Current Assets 15,699 106,225 87,785 80,511 HFT Investments 290 4,908 110 96 C&CE, Deposits, Murabaha 1,319 2,059 8,640 763 A/R and Other Receivables 1,625 15,921 17,038 16,676 Total Current Assets 3,234 22,888 25,787 17,536 Total Assets 18,933 129,113 113,572 98,046 Total Equity 13,545 76,172 64,571 68,587 Loans - 21,315 9,109 - Other Non Current Liabilites 36 73 58 56 Total Non Current Liabilities 36 21,387 9,168 56 Loans 2,967 10,475 32,493 22,404 A/P and Due to Related Parties 2,384 21,079 7,340 6,998 Total Current Liabilities 5,351 31,554 39,833 29,403 Total Liabilities 5,387 52,941 49,001 29,459 Total Liabilities and Equity 18,933 129,113 113,572 98,046
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 86 Companies in Focus Kuwait in Focus - April 2010
Mobile Telecommunications Company (Zain)
Key Data Highlights • On March 30, Zain and Bharti Airtel Ltd. (“Bharti”) General Liquidity announced the signing of a definitive agreement for the KSE Code ZAIN 52-week avg. volume 11,354,459 Reuters Code ZAIN.KW 52-week avg. value KD13,757,530 sale of 100% of Zain Africa BV for an enterprise value of Price (KD) Price Performance USD 10.7 billion. As per Zain’s statement on the Kuwait Closing Price 1.320 YTD 33.3% Stock Exchange, dated March 31, 2010, the company will 52-week High/Low 1.560 / 0.780 1-Year Period 67.1% realize a profit of approximately USD 3.3 billion from the Market Capitalization Outstanding Shares sale of Zain Africa BV, which is expected to be recorded in Million KD 5,643.24 Latest (million) 4,275 2Q2010. Ownership Structure Closely Held: 35.47% Public: 64.53% • Zain announced its FY2009 results, with revenues growing Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital by 16% year on year (YoY) to KD 2.3 billion. EBITDA grew 24% YoY to KD 0.92 billion in FY2009, with an EBITDA margin of 40% compared to 37% in FY2008. Net income, Stock Performance on the other hand, declined 39% YoY to KD 195 million. We note that Zain’s “earnings release” remains to be 1.700 160.0 disclosed, which limits our ability to identify certain key 1.600 140.0 52-week High: KD 1.560 elements driving the FY2009 performance. 1.500 120.0 • Subsequent to the Zain Africa sale, management 1.400
100.0 has recommended an extraordinary cash dividend of 1.300 KD 0.170/share, which is subject to shareholder approval. 1.200 80.0 The FY2009 dividends are a 240% YoY increase compared Millions
Price (KD) Price 1.100 60.0 to FY2008 dividends of KD 0.050/share. The FY2009 1.000 cash dividend yield stands at 13%. FY2009 payout ratio 40.0 0.900 of 312% is notably higher than the FY2008 payout ratio
52-week Low: KD 0.780 20.0 of 66%. 0.800
0.700 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close
Sources: Zawya and NBK Capital
Analyst
Alok Nawani T. +971 4365 2856 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
Gross Profit Margin (%) 84.3% 78.8% 77.3% 77.0% 72.4% EBITDA Margin (%) 46.1% 43.7% 41.0% 37.3% 39.9% Operating Profit Margin (%) 34.4% 30.8% 26.9% 19.0% 21.8% Net Profit Margin (%) 31.4% 22.7% 19.1% 16.1% 8.4%
ROA 13.4% 10.6% 8.2% 6.6% 3.5% ROE 22.6% 21.7% 19.7% 15.5% 8.7% Current Ratio (X) 0.81 0.66 0.54 0.69 0.48 Debt to Equity (X) 0.36 0.92 1.14 0.79 0.87 Debt to Assets (X) 0.21 0.40 0.45 0.35 0.38 Investment/Equity 32.7% 10.8% 26.4% 13.7% 12.7%
Receivables Turnover Ratio 1.41 9.81 7.79 7.42 6.63 Inventory Turnover Ratio 21.12 25.19 20.70 17.57 20.32 Payables Turnover Ratio 0.49 0.82 0.77 0.63 0.69 Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 87 Mobile Telecommunications Company (Zain) Kuwait in Focus - April 2010
Overview 71.8 million subscribers at the end of 9M2009 (including African subscribers).
Zain is a leading regional telecom operator. Operating Zain initiated the “Drive 11” program in May 2009 that “will under the brand name “Zain,” Mobile Telecommunications focus on customer-facing services and commercial activities Company was established in Kuwait in 1983 as the Gulf’s while centralizing or outsourcing some back-office, non-core first mobile operator. The company’s shares are listed on the functions to strategic partners.” Kuwait Stock Exchange (KSE); Zain’s largest shareholder is the Kuwait Investment Authority with a 24.6% stake. Zain’s Zain’s relatively mature Middle East operations have proved main strategic objective was to become one of the top 10 to be a source of reliable cash flow for the group company. mobile telecommunications companies in the world in 2011, After the sale of African assets, the company’s exposure will be with 150 million customers and an EBITDA of USD 6 billion. focused on the Middle East. The Middle Eastern markets are However, given the recent sale of Zain’s African operations, we characterized by high gross domestic product (GDP) per capita, expect the company to revisit its overall strategic focus. Zain high average revenue per user (ARPU), a high penetration rate, is currently the leading mobile operator in Kuwait, Jordan, and moderate growth potential. The company’s exposure to Bahrain, Palestine and Sudan, while being the third-largest Africa had pressured Zain’s margin as the company operated operator in Saudi Arabia with a growing market share. in low-ARPU countries that involved significant investments in network roll-outs. A direct effect of expanding the network On March 30, Zain and Bharti Airtel Ltd. (“Bharti”) announced is the increase in Zain’s depreciation expenses and finance the signing of a definitive agreement for the sale of 100% of costs. However, with the successful completion of Zain’s Zain Africa BV (Zain’s African operations excluding Sudan and African asset sales, we expect the company’s future sales and Morocco) for an enterprise value of USD 10.7 billion. Zain profitability mix to change considerably. BV encompasses telecom operations in 15 African nations (excluding Morocco and Sudan). According to Zain’s press What Is the Story in Zain’s Key Markets After the Sale of African Assets? release dated March 30, 2010: “The transaction implies an equity value of USD 9 billion and consideration will be fully satisfied in cash, of which USD 8.3 billion will be paid upon Kuwait: Fierce Competition closing and USD 0.7 billion will be paid one year from closing. As we have stated in our previous publications, with the award Bharti Airtel will assume USD 1.7 billion of consolidated of the third mobile license to a consortium led by STC (branded debt obligations. Subject to shareholder approval, the size as Viva, which formally launched its services in September of available distributable reserves and the repayment of the 2008), Kuwait witnessed a revival of competition in the mobile USD 4 billion Revolving Credit Facility, Zain intends to market. Over the previous years, the Kuwaiti mobile market distribute a large proportion of the upfront net proceeds had drifted into a lull compared to neighboring countries where to shareholders in the form of dividends”. As per Zain’s fierce competition was raging, as both Zain and Wataniya had statement on the Kuwait Stock Exchange, dated March 31, been enjoying duopoly status. The first significant move with 2010, the company will realize a profit of approximately the entry of Viva was the cancellation of the long-standing USD 3.3 billion from the sale of Zain Africa BV, which is called-party-pays fee. Both Zain and Wataniya were directly affected. Zain’s Kuwaiti operation reported a 15% YoY decrease expected to be recorded in 2Q2010. in revenues and a decrease in their EBITDA margin from 52% Furthermore, Zain has recently announced a cash dividend in 9M2008 to 51% in 9M2009. As for Wataniya, it seems of KD 0.170 per share, which translates to a total of that the company was more affected by the cancellation of approximately KD 728 million (USD 2,509 million) or 28% of incoming calls fee compared to Zain. The company witnessed the deal’s equity value. a 20% YoY decrease in revenues from Kuwait, and a decrease Zain, which was once on its way to becoming a global telecom in their EBITDA margin from 51% in 9M2008 to 47% in operator, has clearly reverted to the path of a regional player. 9M2009. We believe that Zain will continue to witness weak Post the sale of Zain’s African assets, the company’s scope of growth due to the aggressive competition among the three operations has been reduced to 9 countries from 24 countries, operators. However, due to the importance of the Kuwaiti with Iraq, Kuwait, Sudan, Jordan, Bahrain, and Palestine operation to Zain Group (the third-highest contributor to group being the major revenue sources, a management contract in revenue, after Iraq and Nigeria, and the highest ARPU in the Lebanon, and associates in Saudi Arabia and Morocco. At the group), the company should strive to differentiate itself from end of 9M2009, Zain’s active subscribers (excluding Africa) the other operators. stood at 29.9 million, which compares to Zain’s total reported
nbkcapital.com | 88 Mobile Telecommunications Company (Zain) Kuwait in Focus - April 2010
Sudan: Good Performance • March 2010: Gabon disapproves of the Zain BV sale to Bharti, stating that Zain Gabon had not complied with We believe that there is still plenty of room for growth in ‘telecommunication rules’. Further detail on the claim Sudan. With increased competition, the mobile market remains undisclosed. We note that Zain Gabon accounted is growing at a rapid pace: the penetration rate increased for 3% of Zain’s consolidated revenues for 9M2009. from 12% in 2006 to 40% as of 9M2009. Zain is the market leader in Sudan (58% market share as of September • March 2010: Zain’s board of directors announced that the 30, 2009); the company was able to grasp around 50% of the due diligence for the sale of Zain Africa BV process was net additional subscribers since December 2008. Zain will complete and that a definitive sales agreement would be retain its Sudanese operations going forward. signed shortly. • March 2010: Bharti board approved the USD 9 billion Iraq: More Competition on the Way purchase bid for the acquisition of Zain’s African operations (excluding Sudan and Morocco). Zain may Increased competition could put pressure on Zain-Iraq’s be asked to provide legal protection from an ownership margin. In 2004, the three mobile operators in Iraq did not dispute in Nigeria. fully compete with each other as each operator was licensed to cover separate parts of the country. It was not until 2007 that • March 2010: Zain appointed Jamal Shaker Al-Kathmi as real competition began after the regulator awarded nationwide a replacement board member for Saad Al-Barrak (Zain’s licenses. The number of mobile subscribers grew at a CAGR former CEO). of 86% between 2004 and 2008, and the penetration rate • March 2010: Bharti aims to conclude its acquisition of reached 71% at the end of September 2009. Zain-Iraq is the Zain’s 15 African assets by late April. Bharti’s chairman, market leader, commanding a market share of around 49% Sunil Bharti Mittal, states “the deal has no complications” at the end of September 2009. Zain-Iraq achieved several and affirms its progression “on a pretty fast track”. The major steps over the past two and a half years by winning a two parties, to remain in exclusive negotiations until the 15-year mobile license, fully integrating MTC Atheer and 25th of March, 2010. Iraqna, and increasing the company’s ownership to 71.67%. During 2009, the competition intensified, and Asiacell • February 2010: Zain announced the introduction of “My adopted a very aggressive acquisition strategy to the extent Business” in Nigeria. This package is specially designed that during 3Q2009 Zain-Iraq witnessed a slight decrease in to assist and improve the efficiency of mobile usage for its subscriber base. We believe that the mobile market will business people and their workforce. The company has witness increased competition, which could put pressure on plans to further introduce “My Business” across all of Zain-Iraq’s margin. Africa and the Middle East. • February 2010: Mobily and Zain KSA announced their Latest News intention to file a lawsuit against the Communications and Information Technology Commission’s (CITC) decision to • April 2010: Congo Republic claimed that it hadn’t been bar free roaming services in Saudi Arabia. informed of the Bharti deal to buy Zain BV and described • February 2010: India’s largest mobile operator, Bharti it as a contravention of Zain’s license. The prime minister Airtel Ltd., offered USD 10.7 billion to buy Zain’s telecom said that the parties have 30 days to remedy the situation or operations in 15 African nations (not including Zain’s face sanctions. “Fines could run to one percentage point of operations in Morocco and Sudan). Bharti proposed local turnover with other sanctions being a reduction in the USD 10 billion to be paid upon the deal’s close, with the duration of the operating license, a suspension or outright remaining USD 700 million to be paid one year later. A withdrawal of the license. Neither Zain nor Bharti have breakup fee of USD 150 million is applicable to both Zain made official statements on the issue” (Reuters). We note and Bharti. The acquisition’s equity value is approximately that Zain Congo accounted for 2% of Zain’s consolidated USD 9 billion for Zain Africa. Zain expects net proceeds of revenues for 9M2009. up to USD 5 billion from the sale after the repayment of • March 2010: The definitive sales agreement for Zain Africa certain liabilities, noting that the proceeds are expected to BV between Zain group and Bharti was signed. be realized in the second quarter of this year.
nbkcapital.com | 89 Mobile Telecommunications Company (Zain) Kuwait in Focus - April 2010
• February 2010: Zain announced that the board of Financial Statement Analysis directors had appointed Mr. Nabeel Bin Salamah as CEO of the Group, effective Sunday, February 14, 2010. Income Statement • February 2010: Zain’s managing director and vice chairman, Saad al-Barrak, resigned from his post, • We note that Zain is yet to disclose its FY2009 earnings providing no reason for the decision. Dr. Barrak will keep release with country wise revenue details. Hence, the his post as CEO of Zain Saudi Arabia, which is 25% owned figures give us limited visibility in identifying the key by the company. drivers behind the FY2009 performance. We await the disclosure of Zain’s earnings release to further explore the • January 2010: Zain KSA obtained waivers concerning core causes of the FY2009 performance. updated operational milestones for FY2009 from the lenders of the Murabaha Islamic facility, which the • Looking for growth outside Zain’s saturated home market, company signed back in August 2009. The company over the past few years, the company has gone on a lavish stressed that it continued to make timely installment spending spree, acquiring existing telecom companies payments to the lending banks and meet its other financial and/or Greenfield licenses. The company believed that obligations under the loan. future growth would depend on Zain’s ability to expand regionally as management forecasted that Zain’s home • January 2010: Zain and Palestine Communications Group market would eventually face increased competition and (Paltel) signed an agreement to launch the “One Network” reach saturation. Zain’s top line grew at an impressive service between Jordan and Palestine, serving over four CAGR of around 41% between 2005 and 2009. In 2009, million mobile customers in both countries. According Zain’s consolidated revenue grew by 16% to exceed KD to the deal, the launch will go into effect as of February 2.3 billion. Zain’s top line benefited from the consolidation 1, 2010. “One Network” provides all Zain customers to of its Iraqi operations towards the end of 2008, which was be billed as local clients for voice and data services and previously accounted for under equity method. Revenues receive free incoming calls when traveling to any country from Sudan exhibited a 22% YoY increase, revenues from covered by the Zain network. Africa declined 6% YoY, Kuwaiti revenues declined 8% • January 2010: Due to a disagreement over the quality of YoY and revenues from other countries increased 14% YoY. service in Niger, the country’s communication ministry stated that it has cut the license duration of its two mobile Revenue Breakdown by Geography operators, Zain and Moov (majority owned by Etisalat), 2008 2009 until the operators’ services return to the stated levels of service quality. The 15-year license awarded to Zain in Others, 10% Others, 10% 2000 has been reduced by five years, and the 15-year Kuwait, 15% license awarded to Moov (also in 2000) has been reduced
Kuwait, 19% by three years. Sudan, 12%
Sub-Saharan Africa, 56% • January 2010: Zain plans to enter the Syrian telecom Sub Saharan Africa, Iraq, 3% 46% Sudan, 12% market by bidding for a third license or buying a stake in Iraq, 17% one of the two current operators, Syrialtel and MTN Syria. Iraq, 3% • November 2009: Zain halted the merger between its Jordanian unit and Palestine Telecommunications Co. Source: Company reports after failing to receive regulatory approval.
• On the EBITDA front, Zain’s EBITDA grew at a CAGR of 36% between 2005 and 2009. However, if we look at the EBITDA margin, we will notice that it decreased from 46% in 2005 to 40% in 2009, mainly due to Zain’s aggressive expansion plan.
nbkcapital.com | 90 Mobile Telecommunications Company (Zain) Kuwait in Focus - April 2010
• The 2009 EBITDA grew by 24% to KD 926 million, Balance Sheet implying an EBITDA margin of 40%, up from 37% in 2008. This improvement is due to the program “Drive 11”. • The growth in assets has been funded by a mix of debt This initiative has had a positive impact in 2009, as Zain and equity. The use of equity, to fund growth has helped has focused on controlling operating expenses related to contain leverage–which has increased as a result of various marketing and distribution. Furthermore the management mergers and acquisitions. Currently, Zain has a debt-to- was also able to maintain sufficient cost control with equity ratio of 0.9x as of December 2009. As of December general and administrative expenses G&A having increased 2009, the company’s total debt stood at KD 1.9 billion, only 6% YoY. up 13% YoY. • As for the bottom line, although the company still displays solid balance sheet strength, its profitability has been Net Debt-to-Equity Ratio decreasing; the net profit margin dropped to 8% in FY2009,
compared to 31% in FY2005. In FY2009, the bottom line 1x declined 39% YoY and reached around KD 195 million.
This was mainly because of a 216% YoY increase in the 0.8x share of losses from associates, a 26% YoY increase in 0.6x finance costs, and a loss of KD 38 million due to currency 0.6x revaluation representing a 3% YoY increase.
• Subsequent to the Zain Africa sale, management has recommended an extraordinary cash dividend of KD 0.170 per share, which is subject to shareholder 0.1X approval. The FY2009 dividends represent a 240% YoY increase compared to FY2008 dividends of KD 0.050 per 2005 2006 2007 2008 2009 share. The FY2009 cash dividend yield stands at 13%. FY2009 payout ratio of 312% is notably higher than the Sources: Company reports and NBK Capital FY2008 payout ratio of 66%.
EBITDA and Net Income Profile in KD Billions
0.93
0.75 0.69
0.57 46% 44% 41% 37% 40% 31% 0.32 0.32 0.29 0.27 23% 19% 16% 0.20 0.18 8%
2005 2006 2007 2008 2009
EBITDA Net Income EBITDA Margin Net Income Margin
Sources: Company reports and NBK Capital
nbkcapital.com | 91 Mobile Telecommunications Company (Zain) Kuwait in Focus - April 2010
Financial Statements
Income Statement (KD '000) 2006 2007 2008 2009
Revenue 1,297,415 1,677,270 2,003,080 2,318,372 Cost of Goods sold (274,729) (381,206) (461,070) (639,843) Gross Profit 1,022,686 1,296,064 1,542,010 1,678,529 Distribution, Marketing and OPEX (336,708) (461,655) (577,348) (518,533) G&A (115,829) (142,873) (210,749) (222,944) Depreciation & Amortization (162,057) (236,062) (303,363) (398,093) Impairment losses-Goodwill (5,785) - (63,262) (22,864) Prov. For doubtful debt (2,921) (3,832) (6,587) (10,974) Operating Income 399,386 451,642 380,701 505,121 Interest Income 18,254 26,289 31,489 13,372 Investment Income 7,810 21,537 (599) (8,226) Inc. from sale of shares in subsidiary - - - - Share of loss of associates 5,825 (3,135) (20,659) (65,374) Fair value gain on prev. held equity int. - - 152,413 - Other income 9,505 6,092 21,470 11,666 Finance Costs (88,084) (123,586) (128,002) (160,710) Loss of currency revaluation 3,396 13,144 (37,091) (38,172) Board of directors remuneration (28) (28) (32) (32) Contribution to KFAS (2,940) (2,973) (2,978) (1,818) Nat. Labor Support Tax & Zakat (4,323) (5,447) (5,877) (5,156) Profit before Tax 348,801 383,535 390,835 250,671 Taxes (34,972) (40,874) (53,720) (39,430) Profit for the year 313,829 342,661 337,115 211,241 Minority interest 18,848 22,206 15,113 16,233 Net Income 294,981 320,455 322,002 195,008
Balance Sheet (KD '000) 2006 2007 2008 2009
Cash and bank balances 474,322 261,263 367,871 267,175 Trade and other receivables 184,485 246,276 293,903 405,434 Loan to an associate - - 79,673 - Inventories 14,791 22,047 30,427 32,554 Investments - at fair value through profit or loss 18,455 23,002 16,676 7,464 Current Assets 692,053 552,588 788,550 712,627 Deferred tax assets 40,618 64,724 88,805 134,049 Investments - available-for-sale 134,842 179,468 96,904 98,492 Investment in associates 8,026 259,640 216,389 209,834 Loan to associates - 170,875 - 141,996 Property and equipment 1,131,189 1,495,602 2,026,790 2,151,768 Intangible assets 1,477,557 1,637,255 2,234,423 2,245,453 Other financial assets 6,648 6,850 2,378 2,539 Total Non-Current Assets 2,798,880 3,814,414 4,665,689 4,984,131 Total Assets 3,490,933 4,367,002 5,454,239 5,696,758 Trade and other payables 427,396 557,889 908,773 939,944 Due to banks 460,721 453,747 231,138 536,472 Due to non-controlling interest holders 155,262 18,509 - - Current Liabilities 1,043,379 1,030,145 1,139,911 1,476,416 Due to banks 921,117 1,531,512 1,670,788 1,615,994 Deferred tax liabilities 9,980 31,763 30,283 38,704 Other non-current liabilities 16,023 25,276 212,128 87,166 Non-Current Liabilities 947,120 1,588,551 1,913,199 1,741,864 Total Liabilities 1,990,499 2,618,696 3,053,110 3,218,280
Total Shareholder's Equity 1,354,432 1,581,927 2,219,412 2,296,602
Minority Interest 146,002 166,379 181,717 181,876
Total Liabilities and Equity 3,490,933 4,367,002 5,454,239 5,696,758
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 92 Companies in Focus Kuwait in Focus - April 2010
National Industries Group Holding (NIG)
Key Data Highlights
General Liquidity • National Industries Group Holding (NIG) is one of the KSE Code NIND.KSE 52-week avg. volume 9,004,939 largest listed investment holding companies in Kuwait. Reuters Code NIND.KW 52-week avg. value (KD) 3,674,263 Established in 1961, NIG was listed on the Kuwait Stock Price (KD) Price Performance Exchange in 1984. Closing Price 0.390 YTD 23.8% 52-week High/Low 0.510 / 0.295 1-Year Period 18.2% • NIG announced full-year results with the net loss narrowing Market Capitalization Shares Outstanding from KD 282 million in FY2008 to KD 23 million in Million KD 505.09 Latest (million) 1295 FY2009. The improvement is predominantly driven by Ownership Structure a 61% YoY increase in investment income, an 87% YoY Closely held: 26.23% Public: 73.77% decline in impairments to available for sale investments Price as of close on April 25, 2010. Sources: Zawya and NBK Capital and a 24% YoY decline in finance costs.
• NIG’s net profit figure is highly dependent on investment Stock Performance income. In FY2009, income from investments increased 61% YoY to KD 60 million, from KD 37 million in FY2008. 0.550 70.0 • NIG has investments spread across several regions
52-week High: KD 0.510 60.0 0.500 spanning an array of industries. As of end 2009, NIG’s total investments stood at KD 1.25 billion, accounting for 50.0 0.450 almost 79% of total assets.
40.0
0.400
30.0 Millions Price (KD) Price
0.350 20.0 52-week Low: KD 0.295
0.300 10.0
0.250 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close
Sources: Zawya and NBK Capital
Analyst
Alok Nawani T. +971 4365 2856 E. [email protected]
Key Ratios
2006 2007 2008 2009
Net Debt to Equity 67% 84% 238% 179% Investments/Total Assets 73% 81% 77% 79% Investments/Equity 128% 155% 273% 229%
ROA 9% 11% -14% -1% ROE 16% 21% -35% -6%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 93 National Industries Group Holding (NIG) Kuwait in Focus - April 2010
Overview Financial Statement Analysis
National Industries Group Holding (NIG) is one of the largest Income Statement listed investment holding companies on the Kuwait Stock Exchange since its initial public offering in 1984. Incorporated • NIG reported its FY2009 revenues at KD 96 million, a in 1961, NIG was established with the sole purpose of 15% YoY drop. NIG’s revenue is broken down into three participating in the advancement of Kuwait’s infrastructure major segments: Investments, specialist engineering, and and promoting its progression through the development of building materials. However, the company does not provide Kuwait’s building materials industry. In the early stages of the a revenue split between these segments. company, NIG was instrumental in the development of Kuwait’s • FY2009 gross profit came in at KD 19 million, a 16% YoY industrial base through the establishment of companies such drop. Gross margin for the year remained unchanged at as Kuwait Cement Company, Kuwait Metal Pipes Industries 20% when compared to FY2008. and Gulf Cables. As the company grew throughout the years, it embarked on a policy of product diversification and • On the other hand, NIG’s operating profit for FY2009 came international expansion during the latter decade, with the GCC in at KD 79 million, up 13% YoY. The improvement in serving as its first target market outside Kuwait. As a result, operating profit was primarily driven by a 61% YoY increase NIG has a web of operations across the GCC, Pakistan, Europe in investment income. and the Americas spanning several industries, including • NIG’s net loss for FY2009 came in at KD 23 million having petrochemicals, infrastructure and financial services. reduced from a net loss of KD 282 million in FY2008. The improvements were primarily driven by an 87% YoY Latest News decline in impairments to available for sale investments and a 24% YoY decline in finance costs. • January 2010: Moody’s downgrades the corporate family and probability of default rating of NIG along with debt Balance Sheet ratings on the USD 475 million debt issue to B1 from Ba3 reflecting the absence of tangible steps taken by • As a holding company, NIG’s balance sheet is naturally the company to improve the flexibility and debt capital dominated by a sizable investment book. The company’s structure, as expected by Moody’s. NIG’s credit profile latest financials show that investments account for 79% of remains geared towards the short-term and depends total assets. Total investments held by NIG have increased heavily on uncommitted bilateral credit lines. 59% YoY. • December 2009: NIG filed a lawsuit against a unit of U.S. • The KD 1.25 billion that NIG has in investments private equity firm Carlyle Group over a USD 25 million is dominated by available for sale investments investment loss. NIG has took provisions to cover this (KD 812 million), followed by investments in associates investment loss in 2008. Thus, this loss did not affect (KD 264 million). The remaining investments are 2009 results, according to the company. distributed between held for trading, property investments, and Murabaha and Wakala investments.
• NIG investments are spread in different regions of the world. The following, is a list of subsidiaries and associates that fall within NIG’s investment book based on the company’s latest financial statements.
nbkcapital.com | 94 National Industries Group Holding (NIG) Kuwait in Focus - April 2010
NIG Subsidiaries and Associates investments in private equity and direct investments in
National Industries Group Holding (NIG) the capital markets. Noor actively invests in the Kuwaiti Local Subsidiaries % Ownership Associates % Ownership Foreign Subsidiaries % Ownership Denham Investment 85% Kuwait Privatization 28% NIG Bahrain 100% capital markets and diversifies its investments through Eagle Propriety 100% Kuwait Cement 25% NIC Holding Guernsey 100% Gas & Oil Field Services 100% Marsa Alam Holding 20% NIG Guernsey LTD 100% the international capital markets, which include other Ikarus Petroleum 72% Al Raya 23% NIC Holding UK 100% National Combined Health 100% Eastern United Petroleum 20% BI Group 100% GCC countries, emerging markets such as Pakistan, China National Industries Co. 51% Kuwait Rocks 38% National Land Transport 100% Meezan Bank 46% NIC for Combined Energy 100% Noor Telecom 40% and India, and limited exposure in the developed markets Noor Financial 51% Project Holding Co. 31% Mabanee 20% of the United States and Europe. In addition to serving
Sources: Company’s financial statements and NBK Capital independent clients, Noor plays a vital role in advising NIG and its subsidiaries on investment transactions.
National Industries Company Meezan Bank
• NIG’s 51%-owned subsidiary, National Industries Company • Meezan Bank is one of NIG’s international investments (NIC), is one of the largest building materials manufacturers (46% ownership). Meezan is a Pakistan-based Islamic in the region. Listed on the Kuwait Stock Exchange with a bank. The bank currently has 166 branches across 40 market capitalization of KD 141 million, NIC is principally cities in Pakistan making Meezan Bank the largest Islamic engaged in the provision of complementary products to bank in Pakistan. In 2006, Noor Financial acquired a meet the demands of housing and infrastructure projects. 16% stake in Meezan Bank whose shares are listed on The company has production facilities in both Kuwait the Karachi Stock Exchange. During the fourth quarter of and Saudi Arabia, with a product portfolio that includes 2007, Noor acquired additional shares in Meezan, which aerated concrete blocks, sand lime bricks, ready mix and increased Noor’s shareholding to 45%. concrete pipes. Kuwait Privatization Project Holding Co. (KPPHC) Ikarus Industrial Petroleum (Ikarus), Saudi International Petroleum (SIPCHEM) and National Industrialization Company • Kuwait Privatization Project Holding Co. (KPPHC) was (Tasnee) established in 1994 and is currently listed on the Kuwait Stock Exchange. The major shareholders are NIG and • Ikarus, NIG’s 72% owned subsidiary, is an investment Kuwait Financial Center (which is 12% owned by NIG). vehicle with a range of investments in petrochemicals • The objective of KPPHC is to finance, evaluate and and the oil and gas sector within the MENA region. provide consulting services to a selected group of Kuwaiti Incorporated in Kuwait, Ikarus was listed on the Kuwait companies and regional projects, with a focus on controlling Stock Exchange in 2008. The company’s current business stakes in entities providing services in the different sectors strategy entails investing in start-ups or acquisitions of such as energy, infrastructure and real estate, as well as at least a 20% stake in large and mature operations with participating in BOT government projects. stable cash flows.
• Key investments of Ikarus include SIPCHEM and Tasnee. Mabanee The former was founded in 1998 in Saudi Arabia and produces butandiol, methanol, acetic acid, vinyl acetate • Mabanee, a pure rental play in the Kuwait retail segment, monomer and carbon monoxide. Tasnee, on the other hand, is currently the largest real estate company in Kuwait in was established in Saudi Arabia in 1985 and produces terms of market capitalization. NIG currently owns 20% various chemical and metallurgical products such as of Mabanee. polypropylene, HDPE, LDPE and lead. Ikarus owns an 8% and 5.3% stake in SIPCHEM and Tasnee, respectively.
Noor Financial Investments (Noor)
• Noor Financial Investment Company (Kuwait), NIG’s 51% owned subsidiary, is engaged in investment activities and financial services primarily in Kuwait, the Middle East, Asia, and other emerging markets. Noor provides a range of financial services, which include advisory services, underwriting, syndications and asset management. Noor follows a diversified investment strategy with major
nbkcapital.com | 95 National Industries Group Holding (NIG) Kuwait in Focus - April 2010
Financial Statements
Income Statement (KD '000) 2006 2007 2008 2009
Sales 99,741 117,458 112,821 96,191 Cost of sales (76,018) (90,102) (89,782) (76,865) Gross Profit 23,723 27,356 23,039 19,326
Income from investments 81,403 250,129 37,088 59,864 Profit from disposal of subs - - - 1,653 Share of profits of associates 9,522 19,737 2,451 4,379 Income on disposal of assoc. - - - 5,753 Changes in FV of inv. Property - - 5,697 3,610 Interest and other opr. income 15,485 22,122 31,509 13,414 Distribution costs (6,566) (7,979) (6,612) (4,495) G&A (16,815) (24,127) (22,815) (24,212) Operating Profit 106,752 287,238 70,357 79,292
Finance costs (30,990) (52,220) (67,609) (51,582) Profit on diposal of associates 70,164 Profit on disposal of PP&E - 2,215 - - Impairment in value of AFS inv. (1,173) (2,000) (326,305) (43,183) Impairment in value of wakala - - (2,485) (7,483) Goodwill impairment (1,250) (2,608) - - Impairment in value of assoc. - (6,084) - - (Loss)/gain on foreign exchange 3,157 19,790 (11,514) (12,456) Profit before taxes and dir. rem. 146,660 246,331 (337,556) (35,412)
Taxes and directors rem. (4,666) (7,670) (314) (116) Profit for the year 141,994 238,661 (337,870) (35,528)
Minority Interest 7,003 29,297 (55,907) (12,341) Net Income 134,991 209,364 (281,963) (23,187)
Balance Sheet (KD '000) 2006 2007 2008 2009
Goodwill 13,586 10,697 8,231 8,333 PPE 31,465 34,304 40,506 49,421 Investment in associates 125,912 286,301 303,079 263,487 Investment properties 552 - 22,645 33,742 Available for sale inv. 426,399 846,206 634,900 703,807 Deferred tax 151 132 108 - Total Non-current Assets 598,065 1,177,640 1,009,469 1,058,790
Inventories 23,960 23,323 22,992 22,571 Available for sale inv. - - 178,114 108,406 Accounts receivables 56,330 129,232 89,635 84,918 Murabaha and wakala inv. 57,608 33,883 29,800 10,201 Investments at fair value 456,165 590,542 158,816 128,332 Short term deposits 248,758 187,079 214,999 131,464 Bank balances and cash 16,258 17,894 29,325 30,132 Total Current Assets 859,079 981,953 723,681 516,024
Total Assets 1,457,144 2,159,593 1,733,150 1,574,814
Bonds and trust cert. 45,857 171,227 158,720 150,773 Long term borrowing 79,710 165,190 177,837 35,145 Leasing creditors 59 375 608 683 Provisions 11,638 9,558 8,369 9,055 Total Non-current Liabilities 137,264 346,350 345,534 195,656
Accounts payable 52,203 74,569 80,545 44,440 Bonds issued - - 14,431 14,306 Short term borrowing 403,185 571,211 767,124 732,481 Due to banks 31,652 37,046 39,719 43,603 Total Current Liabilities 487,040 682,826 901,819 834,830
Total Equity 832,840 1,130,417 485,797 544,328
Total Equity and Liabilities 1,457,144 2,159,593 1,733,150 1,574,814
Sources: Company financial statements and NBK Capital
nbkcapital.com | 96 Companies in Focus Kuwait in Focus - April 2010
National Investment Company (NIC)
Key Data Highlights
General Liquidity • National Investment Company (NIC) is one of the largest KSE Code NINV.KSE 52-week avg. volume 2,327,764 asset management companies in Kuwait, with a market Reuters Code NINV.KW 52- week avg. value (KD) 1,071,025 capitalization of around KD 343 million. Price (KD) Price Performance
Closing Price 0.360 YTD -1.4% • The hit on the investment portfolio in 2008 decreased fair 52-week High/Low 0.690/0.246 1-Year Period 4.3% value reserves, resulting in a decline in equity. By 2009, Market Capitalization Outstanding Shares cumulative changes in fair value declined to negative Million KD 306.68 Latest (million) 876.20 KD 2.2 million, dropping total equity down by a further Ownership Structure 11.8% year on year. Closely Held: 67.9% Public: 32.1%
Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital • A significant portion of the company’s investments are liquid. This allows NIC to convert investments into cash relatively quickly, making it easy to repay debt. Stock Performance • Assets under management (AUM) grew from KD 1 billion in 2004 to KD 2.24 billion in 2008. AUM for 2009 have 0.800 16.0 not yet been provided. 14.0 0.700 52-week High: KD 0.690
12.0 0.600
10.0 0.500
8.0
0.400 Millions Price (KD) Price 6.0
0.300 4.0 52-week Low: KD0.246
0.200 2.0
0.100 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close
Sources: Zawya and NBK Capital
Analyst
Wadie Khoury T. +965 2259 5118 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
Net Income Growth 181.8% -27.7% 136.2% -135.6% 25.8% Management and Advisory Fees Growth 74.0% -84.0% 0.8% -4.6% -40.0% AUM Growth 114.0% 3.7% 65.4% -38.8% N/A
AFS-to-Assets 33.1% 35.7% 34.3% 61.6% 65.3% AFS-to-Equity 48.1% 60.5% 55.0% 82.4% 81.2%
ROAA 30.6% 13.2% 15.4% -6.0% -14.5% ROAE 42.8% 20.4% 22.9% -7.2% -18.4%
Debt-to-Equity 28.5% 69.8% 33.7% 27.9% 20.3%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 97 National Investment Company (NIC) Kuwait in Focus - April 2010
Overview performance in 2008. In 2008, we saw the effect of the financial crisis take a toll on the company’s operating NIC is involved in investment management. This includes equity profits as they dropped by 34.8% compared to the 2007 trading, private equity investments, and asset management results. services. The company is responsible for managing several • Between 2004 and 2008, management fees as a funds, including equity, alternative, and money market percentage of average assets under management (AAUM) funds. Some of the most notable equity funds include the were consistently below 1%. This figure declined from Al-Wataniya Fund (investing in Kuwaiti listed equities), the 0.94% in 2005 to 0.44% in 2008. Furthermore, incentive Al-Safwa Fund (Shari’ah-compliant equity investments), and fees as a percentage of AAUM also fell from 0.77% in 2005 the Al-Darji Fund (GCC Shari’ah-compliant equities). NIC to 0.49% in 2008. This could be due to the effects of the has a large proprietary book from which the company tries to financial crisis, whereby fees related to the management of derive most of its profits. funds were affected in one way, and incentive fees were not paid due to the difficulty in outperforming the benchmark. Latest News AUM for the year ending 2009 have not been released yet.
• March 2010: The company announced its full year Assets Under Management financial results, reporting a loss of KD 26.1 million in 4.0 1.8% 2009, compared to a loss of KD 20.7 million in 2008. 1.71% 3.7
3.5 1.51% 1.6% • November 2009: NIC announced its request to buy back 1.39% 1.4% 10% of its shares within a six-month period starting 3.0 1.10% 1.2% November 21, 2009. 2.5 2.2 2.2 2.1 1.0% 2.0 Financial Statement Analysis 0.94%
KD Billions KD 0.8%
1.5 0.6% Income Statement 1.0 1.0 0.4%
• With the company’s business operations revolving around 0.5 0.2%
market investments, NIC’s earnings have been quite 0.0 0.0% volatile. Earnings between 2004 and 2009 fluctuated 2004 2005 2006 2007 2008 AUMs Management fees + Incentive fees as % of AAUMs significantly, from a high of KD 59.1 million in 2005 to a loss of KD 26.1 million in 2009. Sources: Company annual reports and NBK Capital
• A significant portion of the company’s reported income derives from market investments (which include realized Balance Sheet and unrealized gains, sales of available-for-sale (AFS) investments, and dividend income). Between 2005 and • Assets declined by 18% in 2009 due to a significant 2009, income from market investments averaged 34% of decline in AFS investments and a drop in investments in total income. In 2009, market investments contributed associates. A decline in mutual fund investments coupled KD 5.8 million to total income, up from a loss of KD 0.6 with a drop in unquoted equity investments were the main million in 2008. Impairment losses of KD 33 million reasons for the 13% decline in AFS. pushed the company into a net loss in 2009. Losses amounted to KD 26 million in 2009. • The most notable effect on the assets side of the balance sheet in 2008 was the 78% decline in investments at fair • We define an investment company’s profit from operations value through the income statement (held for trading [HFT]), as income generated from management and advisory fees due to market performance and the implementation of the less general and administrative costs. This gives a clearer IAS39 amendments. The largest contributor to this decline picture of how well the company has been able to generate was the local quoted security investments portfolio, which stable income streams from investing clients’ funds. decreased significantly from KD 80.9 million in 2007 to Profit from operations declined in 2009, as management KD 8.5 million in 2008. The reclassification resulted in a fees were almost halved year on year, and incentive fees jump in the AFS portfolio from 39% of assets in 2007 to were wiped out. EBIT margins were slashed from 65% in 62% in 2008. 2008 to 41% in 2009. These results came after a weak
nbkcapital.com | 98 National Investment Company (NIC) Kuwait in Focus - April 2010
• The majority of NIC’s assets fall under private and public Financial Statements investments in securities, both HFT and AFS. In 2007, HFT made up 30% of total shareholders’ equity but Income Statement (KD '000) 2006 2007 2008 2009 declined to 8% of shareholders’ equity in 2009. Realized/Unrealized gain on invest. (5,443) 27,142 (10,426) 3,318 Investment Income 19,043 44,942 40,799 11,189 Foreign Exchange Trading (762) (2,471) 2,675 638 • Between 2007 and 2008, equity was severely affected Share of Results from Associates 2,386 4,972 (496) (4,900) Other Income - - - 3,500 by the devaluation of investments. Shareholders’ equity Income 15,224 74,585 32,552 13,745 dropped by 30% due to changes in fair value and a drop Selling/General/Admin Expenses (2,222) (6,571) (10,956) (4,692) Operating Income 13,002 68,014 21,596 9,053 in retained earnings. Finance Costs (1,762) (8,116) (4,425) (2,247) Other, Net 830 634 (37,904) (32,882) • NIC’s debt-to-equity ratio decreased from 27.9% in 2008 Net Income before Taxes 12,070 60,532 (20,733) (26,076) Share of Associate tax - - - - to 20.3% in 2009. It is worth noting that NIC has taken on Zakat (37) (37) - - Contribution to KFAS (96) (509) - - only short-term debt. With liquid assets totaling KD 81.7 NLST (301) (1,513) - - Directors' fees (235) (235) - - million as of 2009, repaying short-term debt of KD 37.1 Net Income 11,401 58,238 (20,733) (26,076) million should not be an issue for NIC. Balance Sheet (KD '000) 2006 2007 2008 2009
Cash and Cash Equivalents 35,340 53,769 11,673 10,745 Investments 174,306 251,434 190,459 163,430 Other Assets 103,138 112,727 75,351 53,311 Total Assets 312,784 417,930 277,483 227,486 Short Term Debt 123,704 99,707 57,937 37,132 Accounts Payable and Accruals 11,777 22,752 12,123 7,510 Total Liabilities 135,481 122,459 70,060 44,642 Total Equity 177,303 295,471 207,423 182,844 Total Liabilities and Equity 312,784 417,930 277,483 227,486
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 99 Companies in Focus Kuwait in Focus - April 2010
National Real Estate Company (NREC)
Key Data Highlights
General Liquidity • National Real Estate Company (NREC) is one of the KSE Code NRE.KSE 52-week avg. volume 3,856,778 largest real estate companies in Kuwait in terms of market Reuters Code NREK.KW 52-week avg. value (KD) 1,031,833 capitalization. The company is primarily a rental player, Price (KD) Price Performance and has its presence all across the region. Closing Price 0.200 YTD 1.0% 52-week High/Low 0.355 / 0.186 1-Year Period -7.4% • The company is part of the Sultan Group, and holds a Market Capitilization Outstanding Shares 22.4% stake in Agility, according to the 2009 financials. Million KD 162.84 Latest (million) 814.20 NREC’s stake in Agility appears at a cost of KD 217 million Ownership Structure on the balance sheet as of December 31, 2009. The Closely Held: 40.52% Public: 59.48% Agility stake, as of April 25, 2010, is valued at KD 139 Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital million, 36% lower than the value reported in the 2009 financials. The Agility stake accounts for almost 22% of Stock Performance the total assets and 55% of total shareholders’ equity. Therefore, any material change in the value of Agility
0.400 25.0 could have a significant impact on NREC’s shareholders’ equity. Since the market capitalization of the company was 0.350 52-week High: KD 0.355 KD 162.8 million as of April 25, 2010, we feel this is 20.0 0.300 worth highlighting.
0.250 15.0 • A back-of-the-envelope calculation shows Souq Sharq
0.200 accounts for the majority of the company’s rental income. 52-week Low: KD 0.186 Millions NREC owns quite a few other income-generating properties Price (KD) Price 10.0 0.150 in Kuwait, but our main concern is the old age of those
0.100 properties. 5.0 0.050 • In 2009, NREC’s proportionate share of Agility’s net profit was more than the company’s net profit (KD 35.1 million 0.000 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 vs. NREC’s reported net profit of KD 29.5 million), which Volume Close means that NREC’s core real estate operations reported Sources: Zawya and NBK Capital losses. This was the trend for 2006 and 2008 as well.
Analyst
Mariam Al-Bahar T. +965 2259 5138 E. [email protected] Key Ratios
2005 2006 2007 2008 2009
Rental Income (% of Total Income) 23% 24% 13% 18% 13% Net Share in the Associates' Results (% of Total Income) 51% 56% 61% 70% 54% Net Share in the Associates' Results (% of Net Profit) 67% 113% 93% 172% 119%
EBITDA (KD million) 6.2 6.2 -4.4 -9.7 11.2 EBITDA Interest Cover (x) 3.7 1.8 -0.8 -2.9 3.8 Net Debt-to-Equity 0.3 0.1 0.4 0.7 0.7
ROAA (%) 25% 13% 12% 4% 5% Adjusted ROAA (%) 2% -12% -4% -6% -2% ROAE (%) 35% 17% 18% 8% 13%
Capital Work in Progress (% of Total Assets) 1% 6% 10% 44% 19% Investment in Associates (% of Total Assets) 56% 61% 47% 33% 35% Investment in Associates (% of Total Equity) 81% 80% 81% 85% 87% Investment Book (% of Total Assets) 7% 3% 5% 4% 3% Investment Book (% of Total Equity) 11% 4% 9% 9% 7% Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 100 National Real Estate Company (NREC) Kuwait in Focus - April 2010
Overview Financial Statement Analysis
National Real Estate Company (NREC) is one of the largest Income Statement Kuwaiti real estate companies in terms of market capitalization. The company was established in 1973, and was listed on • The company’s rental income increased by 7%, to KD 8.6 the Kuwait Stock Exchange in 1984. NREC specializes in million, in 2009 compared to 2008. We have witnessed developing, trading, and managing commercial and industrial a healthy trend in rental income growth in the last two real estate properties, including shopping centers, office years. NREC’s rental income increased by 5% in 2008, to properties, resorts and hotels, and retail centers, both locally KD 8 million, compared to 2007. and internationally. The company is part of the Sultan Group, • The change in the fair value of investment properties and holds a 22.4% stake in Agility, according to the 2009 increased significantly from a negative KD 4.7 million financials. in 2008 to a positive KD 15.1 million in 2009. This significantly boosted the total income, as it increased Completed Projects by 45% to KD 64.9 million in 2009, compared to Country Project Location Use Year of completion Leasable Area (sq. m) KD 44.8 million in 2008. Mishal Tower Sharq Commercial Offices, Retail 2008 - Sharq Marke Sharq Retail 1998 28,300 El Joan Resort Juliaa Resort - - • A closer look at the financials shows that the company Watya Complex Qebla Commercial Complex 1979 11,186 Kuwait reported negative EBITDA of KD 4.4 million and Souq Al Wataniya Mirqab Commercial Complex 1978 12,971 Al Wataniya Tower Kuwait City Commercial Complex 1989 3,332 KD 9.7 million for 2007 and 2008, respectively. However, Bobyan Complex Farwaniya (Dhajeej Area) Commercial Complex 1993 9,916 NREC reported an EBITDA of KD 11.2 million in 2009; Dasman Complex Dasman Commercial Complex 1979 16,081 this increase is mainly due to the rise in the fair value of Sources: Company’s financial statements and NBK Capital investment properties
• The company’s net share in the associates’ results for Upcoming Projects 2009 is entirely due to the share of Agility’s profit. The
Country Project Location Use net share of the associates’ results reached KD 35.1 Najmat Abu Dhabi Reem Island, Abu Dhabi Mega-Commercial Center million in 2009, which is 11.6% higher than in 2008. UAE TECOM Dubai Dubai Media City Hotel, Commercial Offices SHAMS Abu Dhabi Reem Island, Abu Dhabi Hotel, Commercial Offices, Residential The proportionate profits from associated companies (as a Iraq Erbil Mega Erbil Shopping mall, Appartments, Hotel, Offices percentage of total income) decreased significantly, from Egypt TELAL 6th of October Residential Villas Aqaba AL-Aqaba City Offices, Warehouse 70% in 2008 to 54% in 2009. Jordan Amman Zahran Road, Amman Mix Use Agricola Project Al Romail Residential Lebanon • The net share of the associates’ results as a percentage West End Project Pastor Street, Gemmayze Commercial Offices Libya Palm City Residences Janzour Residential Appartments, Commercial Center of net profit increased steadily, from 39% in 2003 to Pakistan Canal Residence Lahore Luxury Residential Villas 119% in 2009. As of 2009, NREC’s proportionate share Sources: Company’s financial statements and NBK Capital of Agility’s net profit was more than the company’s net profit (KD 35.1 million vs. NREC’s reported net profit of KD 29.5 million), which means that NREC’s core real Latest News estate operations reported losses. This was the trend for 2006 and 2008 as well. • April 2010: Agility’s board of directors proposed the • Net profit increased significantly by 61% in 2009, to distribution of KD 0.04 per share cash dividend for the KD 29.5 million, compared to KD 18.3 million in 2008. year ended December 2009, which is still awaiting the This increase was mainly due to the increase in the change approval of the annual general meeting (AGM). in the fair value of investment properties. • April 2010: The company announced that one of it's 100% subsidiaries in Lebanon has sold two of its subsidiaries in Lebanon for a total value of USD 21.8 million and realized a profit of USD 14.9 million which will be reflected in the company's financial statement for 1Q2010.
nbkcapital.com | 101 National Real Estate Company (NREC) Kuwait in Focus - April 2010
Balance Sheet Financial Statements
• The company is part of the Sultan Group, and holds a Income Statement (KD '000) 2006 2007 2008 2009 22.4% stake in Agility, according to the 2009 financials. Rental Income 16,290 7,677 8,030 8,587 Operating Expenses 10,475 11,611 12,961 12,495 NREC’s stake in Agility appears at a cost of KD 217 million Net Share in the Associates' Results 38,806 36,201 31,465 35,108 on the balance sheet as of December 31, 2009. The Investment Income 6,849 9,304 3,454 155 Agility stake, as of April 25, 2010, is valued at KD 139 Total Income 68,860 59,452 44,759 64,954 Net Income 34,251 39,021 18,292 29,520 million, 36% lower than the value reported in the 2009 financials. The Agility stake accounts for almost 22% of Balance Sheet (KD '000) 2006 2007 2008 2009 the total assets and 55% of total shareholders’ equity. Cash & Cash Equivelant 8,020 12,960 15,160 15,139 Investment in Associates 169,309 185,405 177,843 218,299 Therefore, any material change in the value of Agility Investment Properties 65,922 66,412 66,680 199,633 could have a significant impact on NREC’s shareholders’ Capital Work in Progress 16,876 38,217 235,429 119,800 Total Assets 277,598 396,276 532,949 620,057 equity. Since the market capitalization of the company was Bank Facilities 34,517 114,807 156,556 192,432 KD 162.8 million as of April 25, 2010, we feel this is 65,373 167,904 322,832 368,155 worth highlighting. Total Liabilities Shareholders' Equity 212,225 228,372 210,117 251,902
• The company’s investment properties increased Total Liabilities and Equity 277,598 396,276 532,949 620,057 significantly from KD 66.7 million in 2008 to KD 199.6 Sources: Company’s financial statements and NBK Capital million in 2009. This increase is mainly due to the completion or near completion of some projects. Capital works in progress amounting to KD 103 million have been transferred to investment properties during the year.
• The company had a net debt-to-equity ratio of 0.72x at the end of 2009, compared to an average net debt-to-equity ratio of 0.33x over the five years from 2004 to 2008. The company’s equity and total debt stood at KD 252 million and KD 192 million, respectively, as of December 31, 2009. NREC has short-term debt of KD 33 million and KD 15.1 million in cash.
• We would like to highlight that Agility’s board of directors proposed the distribution of KD 0.04 per share cash dividend for the year ended December 2009, which is still awaiting the AGM’s approval. Therefore, NREC will receive dividend income of around KD 9 million from Agility.
• NREC is exposed in a limited way in terms of market investments compared to some of the company’s Kuwaiti counterparts. The company’s investment book stood at KD 18.5 million as of December 31, 2009, which accounted for 7% of shareholders’ equity, in line with the last five years’ average of 9%.
nbkcapital.com | 102 Companies in Focus Kuwait in Focus - April 2010
Oula Fuel Marketing Company (Oula)
Key Data Highlights
Ge ne ra l Liquidity • Oula Fuel Marketing Company (Oula) released preliminary KSE Code OULAFUEL.KSE 52-week avg. volume 310,588 results for FY2009 ending December 31, 2009. Net profit Reuters Code OULA.KW 52-week avg. value (KD) 126,446 was KD 3.39 million versus KD 3.19 million in FY2008. Pric e (KD) Price Performance The company’s board of directors also recommended the Closing Price 0.405 YTD -5.8% 52-week High/Low 0.540 / 0.265 1-Year Period 50.0% distribution of KD 0.010 per share as cash dividends for FY2009. Market Capitilization Outstanding Shares Million KD 119.89 Latest (million) 299.73 • Oula is one of the two publicly listed operators of fuel Ownership Structure stations in Kuwait. The company’s operating assets consist Closely Held: 61.3% Public: 38.7% of 40 gas stations acquired from the government. Oula was Price as of close on April 25, 2010. Sources: Zawya and NBK Capital listed on the Kuwait Stock Exchange (KSE) on December 18, 2006.
Stock Performance • Oula has a major presence in the Kuwaiti retail petrol market. The company, along with its closest publicly listed 0.600 45.0 competitor, Soor, dominates that market with a combined 52-week High: KD 0.540 40.0 market share north of 60%, according to our estimate. 0.500 35.0 • Oula’s business model is simple and stable, if not especially
0.400 30.0 lucrative. The company has no control over prices or direct costs of sales. The government of Kuwait sets the retail price 25.0 0.300 of petrol. Oula procures petrol from the state, which allows 20.0 Millions Price (KD) Price 52-week Low: KD 0.265 the company to market that petrol at a specified gross profit 0.200 15.0 margin, which, thus far, the government has established at
10.0 12.8%. In terms of fundamental drivers, Oula’s top-line 0.100 growth is largely predicated on the demand for petrol and 5.0 the company’s ability to open new fuel stations. Given that 0.000 0.0 demand for petrol is relatively inelastic, the company’s Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close revenues grew by 2.2% in FY2009 compared to FY2008 despite the economic slowdown. Operating margins remain Sources: Zawya and NBK Capital low, around the 3 to 4% mark. Analyst
May Zuaiter T. +965 2224 5597 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
Sales Growth N/A 76.2% -1.6% 6.3% 2.2% Operating Profit Growth N/A 54.6% 31.7% 24.2% -23.4% EBITDA Growth N/A 8.8% -23.1% 24.3% 9.2%
Gross Profit Margin 12.8% 12.8% 12.8% 12.8% 12.8% Operating Profit Margin 3.2% 2.8% 3.7% 4.4% 3.3% EBITDA Margin 8.4% 5.2% 4.0% 4.7% 5.0% Net Profit Margin 3.1% 4.6% 5.5% 4.1% 4.2%
ROA 2.5% 6.7% 7.9% 6.9% 7.0% ROE 4.2% 10.0% 10.4% 8.2% 8.6%
Current Ratio 1.25 1.56 1.83 1.84 1.65 Quick Ratio 1.24 1.54 1.81 1.80 1.62 Investment to Equity 0.0% 0.6% 7.0% 15.0% 15.9% Net Cash (KD Millions) 24.8 24.5 20.6 10.6 11.5
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 103 Oula Fuel Marketing Company (Oula) Kuwait in Focus - April 2010
Overview Financial Statement Analysis
Oula is one of the only two publicly listed operators of fuel Income Statement stations in Kuwait. Established in May 2004, the company derives the majority of its revenues from retail petrol sales • The relatively inelastic demand for petrol continues to through its 40 petrol stations in Kuwait. Oula also generates drive steady growth in Oula’s top line. Despite the overall income from 1) customer-service centers in fuel stations, 2) economic slowdown, the company’s revenues grew by automotive services (car washes, oil changes, car maintenance, 2.2% in 2009, following 6.3% annual growth in 2008. etc.), 3) filling and storing fuel, and 4) shipping and trading • Gross margins have remained at 12.8% since inception petroleum products. Historically, the company has been given Oula’s business model. Simply stated, the involved in buying, leasing, and selling real estate assets government sets petrol’s retail price. Oula procures petrol related to its operational activities and has invested a portion from the state, which allows the company to market that of its financial surplus in various financial investments. Oula petrol at a specified gross profit margin, which, thus far, has a wholly-owned subsidiary, Oula National Market Services, the government has established at 12.8%. and owns 25% of Petronet Global Computer Services. The government has a 24% stake in Oula through the Kuwait • Because Oula has no control over gross margins, the Petroleum Corporation (KPC). company’s operating profitability depends almost entirely on its management’s ability to streamline operating costs. Shareholder Structure Our analysis shows that Oula’s 2009 profitability improved on an EBITDA basis, but the company's operating profits Major Shareholders Type Country Holding fell because depreciation and amortization expenses were Alfa Energy Corporate United Kingdom 24.61% Kuwait Petroleum Corporation Government Kuwait 24.00% significantly higher in 2009 than in 2008. Kharafi National Corporate Kuwait 12.00% Others 0.69% Public 38.70% • The company improved its profitability, as proven by the fact that EBITDA increased by 9.2% and 24.3% in 2009 Sources: Zawya and NBK Capital and 2008, respectively. Oula’s EBITDA margin increased to 5% in 2009 from 4.7% in 2008.
Latest News • However, Oula’s operating profit declined by 23.4% in 2009 after increasing by 24.2% in 2008. The decrease • March 2010: Oula released preliminary results for FY2009 in 2009’s operating profit resulted from an increase in ending December 31, 2009. Net profit was KD 3.39 the company’s recorded depreciation and amortization million versus KD 3.19 million in FY2008. The company’s expenses, which skyrocketed by almost 5.2x as the majority board of directors also recommended the distribution of of Oula’s non-current assets were reclassified as property, KD 0.010 per share as cash dividends for FY2009. plant, and equipment (PP&E) instead of intangibles • November 2009: Oula announced the appointment of a (mostly goodwill, in our view). Although the total non- new chairman, Ahmed Abdulaziz Al-Ghannam, effective current assets eked out 2.2% growth versus December November 16, 2009. 2008, this significant rise in depreciation and amortization expenses was driven by the aforementioned reclassification. • March 2009: The board of directors recommended Essentially, Oula obtained an independent valuation of the a distribution of 10% cash dividends, representing 40 fuel stations it acquired. This allowed the company to KD 0.010 per share, for the fiscal year ending December reallocate its total cost of acquiring these fuel stations 31, 2008. Oula paid a similar dividend for FY2007, but to PP&E, leasehold rights (a three-year period from the paid no dividends for FY2006. government and renewable), and the commercial license in 2009. Previously, Oula allocated a significant portion of its acquisition costs to intangible assets (goodwill), which requires no periodic depreciation or amortization charges. Operating profit increased in 2008, primarily driven by a reduction in certain expenses, including fuel station management fees, general and administrative expenses, lease rentals, and “other” operating expenses (OPEX).
nbkcapital.com | 104 Oula Fuel Marketing Company (Oula) Kuwait in Focus - April 2010
• In FY2009, net income increased to KD 3.39 million from Financial Statements KD 3.19 million in the previous year, an increase of 6.2% YoY. Income Statement (KD '000) 2006 2007 2008 2009 Revenue 75,171 73,949 78,634 80,332 Cost of Sales (65,549) (64,484) (68,569) (70,049) Balance Sheet Gross Profit 9,622 9,465 10,065 10,282 Operating Costs (6,313) (4,810) (4,833) (5,833) General & Admin. Expenses (1,204) (1,884) (1,791) (1,815) • Oula remains debt-free given the limited scope of expansion Operating Income 2,104 2,771 3,441 2,634 Depreciation & Amortization 1,782 216 272 1,420 beyond the company’s existing footprint in Kuwait. The EBITDA 3,886 2,987 3,713 4,054 company had a cash balance (including term deposits Loss on sale of AFS - - (1,400) (19) Group share of results from assoc. results - - - (13) with maturities within one year) of KD 11.5 million as of Cash Dividend - - 155 24 Loss on Sale of AFS - - (220) (53) December 31, 2009. Loss on Disposal of PP&E - (62) - - Interest income 1,317 1,242 918 450 • Unlike many Kuwaiti companies, Oula does not have an Other Income 229 281 490 573 EBT 3,650 4,232 3,383 3,597 overwhelmingly significant investment book. As we have KFAS (33) (38) (30) (32) stated previously, the company invests part of its excess NLST (91) (106) (81) (89) Zakat - (3) (32) (37) capital in financial investments. Oula’s investment book Board of Directors Remuneration (45) (45) (45) (45) made up 16% of the company’s shareholders’ equity on Net Income 3,481 4,040 3,195 3,394 December 31, 2009, up from 15% on December 31, Balance Sheet (KD '000) 2006 2007 2008 2009 2008. Available-for-sale (AFS) investments, which include PP&E and Intangibles 24,917 26,092 27,922 28,729 Available for sale investments 210 2,740 4,347 4,261 unquoted local investments susceptible to impairment Investment in associates - - 466 453 Total Non-Current Assets 25,127 28,831 32,735 33,442 (because they are recorded at cost because their fair Inventory 386 321 324 343 values cannot be determined reliably), dropped to 68% Trade and other receivables 1,970 1,324 1,358 1,423 Time deposits 20,723 16,308 3,030 4,100 of the overall investment book as of December 31, 2009, Murabaha investments - - 1,500 1,500 versus 74% in 2008. This is because the company started Wakala investments - - - 475 Cash and cash equivalents 3,728 4,324 7,552 7,387 investing in somewhat low-risk Wakala investments, while Total Current Assets 26,807 22,278 13,764 15,227 increasing its exposure to Murabaha investments. Total Assets 51,934 51,109 46,499 48,670 Share Capital 29,973 29,973 29,973 29,973 Statutory reserve 498 921 1,259 1,619 Breakdown of Available-for-Sale Investments Voluntary reserve 498 921 1,259 1,619 Fair value reserve - 94 (82) (127) Retained Earnings 3,803 6,997 6,517 6,194 Financial Investments (KD '000) 2006 2007 2008 2009 Total Equity 34,771 38,906 38,927 39,278 Available for sale investments 210 2,740 4,347 4,261 Of which, held in unquoted investments 805 1,916 1,755 Provision for staff indemnity 16 61 105 190 Total Non-Current Liabilities 16 61 105 190 Murabaha investments - - 1,500 1,500 Wakala investments - - - 475 Trade payables 25 456 357 442 Total Financial Investments 210 2,740 5,847 6,236 Notes payable 137 Investment to Equity 0.6% 7.0% 15.0% 15.9% Accrued expenses &staff leave pay 89 74 136 196 KFAS 45 38 68 32 Source: Company’s financial statements NLST 91 106 187 276 Zakat - 3 35 37 Dividends payable to shareholders - - 602 706 Board of Directors remuneration 45 45 45 45 Advances received - 58 35 4 Other 12 10 25 48 Due to related parties 16,703 11,353 5,975 7,416 Total Current Liabilities 17,147 12,142 7,467 9,202
Total Liabilities 17,163 12,203 7,572 9,392
Total Liabilities and Equity 51,934 51,109 46,499 48,670
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 105 Companies in Focus Kuwait in Focus - April 2010
Tamdeen Investment Company (Tamdeen)
Key Data Highlights
Ge ne ra l Liquidity • In April 2010, Tamdeen Investment Company, along KSE Code TAMI.KSE 52-week avg. volume 910,099 with other investors, agreed to sell a 25% stake in Ahli Reuters Code TAMI.KW 52-week avg. value (KD) 201,257 United Bank (AUB) for USD 1.35 billion. Tamdeen did not Pric e (KD) Price Performance disclose the buying parties; however, Tamdeen estimated Closing Price 0.380 YTD 171.4% 52-week High/Low 0.435 / 0.120 1-Year Period 143.6% its profit from the transaction at USD 340 million. Market Capitilization Outstanding Shares • Tamdeen has released results for FY2009 ending December Million KD 110.71 Latest (million) 311.85 31, 2009. Net profit was KD 2.27 million, versus KD 1.82 Ownership Structure million in FY2008, reflecting a 25% increase year on year Closely Held: 76.37% Public: 23.63% (YoY). Earnings per share stood at KD 0.00731 for FY2009 Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital versus KD 0.00585 for FY2008. The company’s board of directors recommended the distribution of KD 0.006 per Stock Performance share as cash dividends for FY2009. • Tamdeen Real Estate Company is Tamdeen’s majority 0.500 12.0 shareholder, with a 51.37% stake. Fatah Al Khair Holding 0.450 52-week High: KD 0.435 Group, a Kuwaiti family-owned business, owns 15% of the 10.0 0.400 company, and Kuwait Portland Cement Company has a
0.350 10% stake. 8.0 0.300 • Quoted investments in foreign securities accounted
0.250 6.0 for roughly 84% of Tamdeen’s available-for-sale (AFS) Millions Price (KD) Price 0.200 52-week Low: KD 0.120 investments as of December 31, 2009. These investments 4.0 are in equities, which tend to be volatile. This increases 0.150 the risk associated with these securities. 0.100 2.0 0.050 • Although the company owns no interest-bearing financial assets, Tamdeen faces interest rate risk through floating 0.000 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 interest rate loans from banks and banking facilities. Volume Close • Tamdeen has no long-term debt but has increased its Sources: Zawya and NBK Capital short-term debt via banking facilities. With roughly KD 69.4 million in short-term debt (short-term loans and banking facilities) and lackluster earnings from Tamdeen's Analyst core operations, the company’s ability to repay its debts could be impaired. May Zuaiter T. +965 2259 5597 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
Net Profit Margin (%) 64.5% 67.5% 59.2% 21.4% 19.9%
ROA 3.2% 2.9% 3.6% 1.2% 1.8% ROE 3.5% 3.7% 5.1% 2.2% 3.3%
Current Ratio (X) 0.25 0.12 0.03 0.08 0.09 Debt to Assets (X) 0.05 0.18 0.27 0.42 0.45 Debt to Equity (X) 0.06 0.24 0.39 0.78 0.84
AFS-to-Assets 92.8% 85.2% 80.4% 66.5% 54.0% AFS-to-Equity 100.2% 110.3% 114.0% 124.0% 100.3% Equity-to-Assets 92.6% 77.2% 70.6% 53.6% 53.8%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 106 Tamdeen Investment Company (Tamdeen) Kuwait in Focus - April 2010
Overview • September 2009: Tamdeen announced that the Central Bank of Kuwait had approved the company’s request to In 1997, Tamdeen Investment (formerly known as Gulf buy back 10% of its shares within a six-month period, Investment Projects Company) was established and registered effective October 1, 2009. as an investment company with the Central Bank of Kuwait. The company was listed on the Kuwait Stock Exchange (KSE) Financial Statement Analysis in May 2006. Income Statement Tamdeen Real Estate Company is Tamdeen’s majority shareholder, with 51.37% ownership. Fatah Al Khair Holding • During FY2009, the company recorded a KD 5.1 million Group, a Kuwaiti family-owned business, holds a 15% stake gain from sales of investments in associate companies, in Tamdeen Investment; Fatah Al Khair also owns a 25% stake which made up 44% of total revenue. Tamdeen in Tamdeen Real Estate Company. Kuwait Portland Cement recorded no such gains in FY2008. During 3Q2009, the owns 10% of the investment company, and the balance of the company sold its entire stake in Barwat Al Doha Real equity is publicly traded. Estate Company for a profit of roughly KD 4.6 million. The company’s main activities are as follows: During 2Q2009, the company sold its entire stake in • Managing financial investment transactions related to British Industries Printing and Packaging Company to securities, including the acquisition and sale of private an associate company, which generated a net profit of sector shares and bonds KD 383 million.
• Providing consulting services to clients on asset utilization, • During FY2009, Tamdeen’s share of associates’ results as well as consulting and advisory services on mergers and increased sharply, from negative KD 0.98 million in acquisitions (M&A) and business succession to corporate FY2008 to positive KD 1.29 million in FY2009. This clients FY2009 figure represents 11% of total revenues. In 2008, the share of profits from associates turned negative • Delivering investment and portfolio management services. because of the performance of Tamdeen Holding, which The company holds many direct investments. Its primary reported a loss of KD 6 million. (Tamdeen Holding is investments are in Ahli United Bank and Kuwait National a 25%-owned subsidiary that deals with acquiring, Cinema Company. establishing, managing, developing, and holding long- • Tamdeen had an asset base of around term strategic shares in Kuwaiti and foreign stockholding KD 126 million and shareholders’ equity amounting to companies.) Moreover, gains from available-for-sale (AFS) around KD 68 million as of December 31, 2009. The investments accounted for 92% of total revenue in 2008, company’s stock is relatively illiquid, with a 12-month but decreased to 38% in 2009. These gains declined by average daily trading value of KD 137,654. 44% in 2009. Subscription and portfolio management fees also declined, by 96%, during FY2009.
Latest News • In 2009, Tamdeen reported positive growth in only two revenue segments, gain from sales of associates and • April 2010: Tamdeen, along with other investors, agreed “other” (these grew by 100% and 24%, respectively, and to sell a 25% stake in Ahli United Bank (AUB) for together reached KD 5.5 million). USD 1.35 billion. Tamdeen did not disclose the buying • In 2009, investment companies in Kuwait continued to party; however, Tamdeen estimated its profits from the bear the brunt of the financial crisis; however, Tamdeen’s transaction at USD 340 million. revenue increased by 34% YoY. • March 2010: The company released preliminary results • Because Tamdeen deals with financial instruments in both for FY2009 ending December 31, 2009. Net profit was USD and Qatari Riyals, the company is exposed to foreign KD 2.27 million, versus KD 1.82 million in FY2008. exchange risk and reported a foreign exchange loss of Earnings per share stood at KD 0.00731 for FY2009, KD 90,640 in 2008, versus a loss of KD 80,667 in 2009. versus KD 0.00585 for FY2008.
• March 2010: Tamdeen’s board of directors recommended the distribution of 6% cash dividends, representing KD 0.006 per share, for FY2009. Tamdeen paid no cash dividend for FY2008.
nbkcapital.com | 107 Tamdeen Investment Company (Tamdeen) Kuwait in Focus - April 2010
• Total expenses and other charges increased by 37% in Financial Statements 2009 to reach KD 9.1 million, with “loss in fair value” the major contributor (43.8%). The rising expenses are Income Statement (KD '000) 2006 2007 2008 2009 Gains from AFS investments 5,989 11,107 7,766 4,385 attributable to the impairment of investments during Gains from sale of associates 280 2,499 - 5,059 FY2009, which amounted to roughly KD 4 million. Of this Share from associates’ results - 210 (986) 1,294 Subscription fees 873 239 1,107 49 impairment, KD 2.5 million was attributable to a decrease Portfolio management fees 73 170 225 128 Other revenue 111 500 390 483 in the value of investment in associates, and the remainder Total revenue 7,326 14,726 8,502 11,398 came from a decrease in the value of AFS investments. General and administrative costs (242) (331) (1,470) (1,299) Staff costs (382) (555) - - Finance costs (1,530) (4,801) (5,080) (3,632) • On the back of positive growth in operating profit, Loss in fair value (4,000) Tamdeen’s net profit increased by 25% during 2009, from Impairment of investment - - - - Other Expenses (224) (327) (134) (201) KD 1.817 million in 2008 to KD 2.266 million in 2009. Total expenses & other charges (2,378) (6,014) (6,684) (9,132) The company’s net profit margin declined from 21.4% in Ne t Inc o me 4,948 8,712 1,818 2,266 2008 to 19.9% in 2009. Balance Sheet (KD '000) 2006 2007 2008 2009 Asse ts Cash and cash equivalents 55 633 4,413 4,570 Balance Sheet Receivables & other debit balances 1,242 572 1,545 562 Available for sale investments 146,782 192,817 103,960 68,299 Investment properties 22,286 Investments in associates 1,528 44,828 45,421 29,634 • The company’s asset base decreased by 19% in FY2009 Land & R/E under development 14,895 817 894 919 compared to FY2008. As of December 31, 2009, AFS Properties and equipment 19 30 205 181 Investment properties 7,053 investments accounted for 54% of the total group’s assets Projects under progress 750 Total assets 172,323 239,695 156,438 126,451 and 100% of total equity. Liabilities Payables and other credit balances 7,536 5,075 7,120 1,100 • Quoted investments in foreign securities accounted for Loans and bank facilities 31,726 65,376 65,410 57,186 End of service indemnity 25 60 48 76 roughly 84% of the AFS investments as of December 31, Total liabilities 39,287 70,511 72,578 58,362 - - 2009. These investments are in equities, which tend to Equity Share capital 28,350 28,350 31,185 31,185 be volatile. This increases the risk associated with these Share premium 10,000 10,000 10,000 10,000 securities. Changes in fair value reserve 88,679 119,892 33,426 14,778 Retained earnings 5,159 9,592 8,388 10,416 Other Liabilities 848 1,350 861 1,710 • On the liabilities side, the company’s loan book declined Total equity 133,036 169,184 83,860 68,089 - (1) by 13% in 2009; this book currently accounts for 98% Total Liabilities and Equity 172,323 239,695 156,438 126,451
of Tamdeen’s total liabilities. It is important to note that Sources: Company’s financial statements and NBK Capital Tamdeen had only short-term debt (short-term loans and banking facilities), representing 45% of its total assets, as of December 31, 2009. Between December 31, 2008, and December 31, 2009, short-term loans decreased by around 18%. However, the company increased its bank facilities by 17% during that time. These loans and bank facilities carry floating interest rates and are secured against AFS investments. With more than KD 57 million in short-term debt and lackluster earnings from Tamdeen's core operations, the company’s ability to repay its debts might be impaired.
• The group manages portfolios for clients, the value of which amounted to around KD 112.9 million as of December 31, 2009.
nbkcapital.com | 108 Companies in Focus Kuwait in Focus - April 2010
TAMDEEN GROUP
Key Data Highlights
General Liquidity • Tamdeen Real Estate Company (Tamdeen Group) specializes KSE Code TAMI.KSE 52-week avg. volume 764,255 in developing, trading, and managing commercial and Reuters Code TAMK.KW 52-week avg. value (KD) 232,766 industrial real estate properties, including retail centers, Price (KD) Price Performance office properties, and hotels locally and internationally. Closing Price 0.310 YTD 3.3% 52-week High/Low 0.370 / 0.250 1-Year Period 6.9% • The company operates through several subsidiaries, Market Capitilization Outstanding Shares namely Tamdeen Shopping Centers Company, Tamdeen Million KD 115.67 Latest (million) 373.12 Holding Company, Tamdeen Investment Company, and Ownership Structure Tamdeen Entertainment. Closely Held: 73.76% Public: 26.24%
Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital • Tamdeen Group has several major projects that are currently under construction. We feel that upcoming projects, in Kuwait and in other countries in the Gulf Corporation Stock Performance Council (GCC), will act as income boosters and provide the company with further diversification region-wise and 0.380 16.0 project-wise. 52-week High: KD 0.370 0.360 14.0 • Operational income for the company increased by 18% in 0.340 12.0 2009, to KD 13.7 million from KD 11.7 million in 2008.
0.320 Although the breakdown of the operational income is not 10.0 provided, we assume that the increase was mainly due to a 0.300 8.0 boost in rental income due to the completion of the 360° 0.280 Millions
Price (KD) Price Mall that opened in mid-2009. We assume rental income 6.0 0.260 will increase further in 2010, considering a full year of 52-week Low: KD 0.250 4.0 0.240 operations for the 360° Mall.
0.220 2.0
0.200 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close
Sources: Zawya and NBK Capital
Analyst
Mariam Al-Bahar T. +965 2259 5138 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
Operating Income (% of Total Income) 34% 46% 31% 31% 56% Total Recurring Income (% of Total Income) 40% 54% 35% 32% 64% Investment Income (% of Total Income) 34% 34% 44% 24% 12%
EBITDA (KD million) 1.67 3.39 2.69 -1.28 3.86 EBITDA Interest Cover (x) 0.4 0.7 0.3 -0.1 0.4 Net Debt-to-Equity (x) 0.6 0.7 0.8 1.9 2.4
ROAA (%) 3% 1% 3% 3% 1% Adjusted ROAA (%) -3% -2% -4% 10% -1%
Investment Book (% of Total Assets) 41% 47% 46% 26% 19% Investment Book (% of Total Equity) 83% 106% 102% 119% 100%
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 109 Tamdeen Group Kuwait in Focus - April 2010
Overview Al Kout
The shopping center offers a mix of international, regional, Tamdeen Real Estate Company is one of Kuwait’s leading real and local brands complemented by a food court and a yacht estate companies. Originally established in 1982, the company club. The shopping center is acclaimed due to its design and was recently rebranded as Tamdeen Group. The company is has won several accolades. engaged in real estate investment and development activities in and outside Kuwait. Tamdeen Group specializes in developing, Al Manshar Towers and Complex trading, and managing commercial and industrial real estate Just a short walk from Al Kout, Al Manshar Towers and Complex properties, including retail centers, office properties, and is a mixed-use commercial and residential real estate project. hotels. The company sold its flagship property, Al-Fanar Mall, in It features a shopping mall, food court, four residential towers, 2008 and recently completed the 360° Mall. Tamdeen Group an office tower, and the five-star Al Manshar Rotana Hotel. also manages third-party properties, establishes and manages real estate investment funds, conducts real estate studies, Al Manshar Rotana Hotel provides consultancy services, and invests in companies with This five-star hotel with 200 rooms spread across 18 floors is similar activities. Tamdeen Group operates through several located to the west of the Al Manshar Complex and Towers. subsidiaries, namely Tamdeen Shopping Centers Company, The hotel was completed in April 2007. Tamdeen Holding Company, Tamdeen Investment Company, and Tamdeen Entertainment. 360° Mall
360° Mall is a shopping mall destination developed at the Shareholder Structure intersection of King Faisal Highway and 6th Ring Road. The Name Type Country Holding mall is strategically located in a busy and rapidly growing Fateh Al Khair Group Holding Company Corporate Kuwait 25% Al Salemiya United Real Estate Company Corporate Kuwait 20% residential area and has a unique circular design. The mall KIPCO Asset Management Company Corporate Kuwait 15% Mashaal Jassem Al Marzouk Private Kuwait 12% has a shopping area of more than 82,000 sq. m. and is the Public - - 28% second-largest mall in Kuwait after the Avenues. The mall was Foreign Ownership Structure completed in June 2009. Open to GCC Investors 100% Open to Foreign Investors 100%
Sources: Zawya and NBK Capital Major upcoming projects
Mall of Kuwait Subsidiaries The Mall of Kuwait will be located between the two highways Name Country Holding Tamdeen Housing Company [80% Directly, 20% via Tamdeen Holding Company Kuwait 100.00% linking Kuwait City to the south in the Sabahiya area. The Tamdeen Investment Company Kuwait 51.37% mall will have a massive retail area of 150,000 sq. m., and Manshar Real Estate Company Kuwait 50.00% Tamdeen Entertainment Company Kuwait 45.00% will have a hypermarket, five anchor stores, and entertainment Tamdeen Holding Company Kuwait 43.00% Fu-com Central Markets Company Kuwait 33.00% facilities. However, sources have led us to believe that the Tamdeen Shopping Center Development Company Kuwait 30.00% project may be delayed or even cancelled. Ajmal Holding Company Bahrain 29.00% Beyoo Leasing and Finance Company Kuwait 21.00% Baraya Sources: Company’s financial statements, Zawya, and NBK Capital The Baraya project is a joint venture of Tamdeen Group, Imtiaz Investment Company, and Barwa Real Estate Company from Major Projects Qatar. This mixed-use project, located in the heart of Doha, is part of the renovation of the downtown. The project will Major completed projects incorporate a premium shopping mall with 70,000 sq. m. of leasable area, a five-star business hotel, and a 25-storey class Madinat Al Fahaheel A office tower with a leasable area of around 30,000 sq. m.
Madinat Al Fahaheel is a mixed-use development project spread over 300,000 sq. m. in Fahaheel. The project has two main components: Al Kout and Al Manshar Towers and Complex.
nbkcapital.com | 110 Tamdeen Group Kuwait in Focus - April 2010
Sarab Al Areen • Adjusted net profit (excluding non-core real estate income and investment gains/losses) decreased significantly Sarab Al Areen is located in the Al Areen development in the from a profit of KD 8.2 million in 2008 to a lossof south of the Kingdom of Bahrain. Sarab Al Areen will offer the KD 4.2 million in 2009. However, as mentioned earlier, the only retail component in this prestigious development, with an impressive adjusted net profit in 2008 is entirely due to estimated gross leasable area of 175,000 sq. m. the profit recorded from the sale of the Al-Fanar complex.
Financial Statement Analysis Balance Sheet
Income Statement • The company had a net debt-to-equity ratio of 2.4x at the end of 2009, compared to a five-year average of 0.9x for • Total recurring income (which includes operational income, the period 2004-2008. The significant increase in total fees from managing real estate and investment portfolios, debt and sale proceeds from the Al-Fanar complex sale and other operating income) for the company increased was used to fund the 360° Mall and other projects that are by 27.7% in 2009 to KD 15.7 million, compared to currently in progress. We would like to highlight that the KD 12.3 million in 2008. This rise is due to the increase EBITDA in the last five years was insufficient to meet the in operational income (mainly rental income) and other interest expense. However, considering the incremental operating income. flow of rental income in 2010, we expect the situation to • Operational income for the company increased by 18% in improve appreciably. 2009, to KD 13.7 million, compared to KD 11.7 million in • The company’s equity and total debt stood at KD 86 million 2008. Although the breakdown of the operational income and KD 218 million, respectively, as of December 31, was not provided, we assume that the increase was mainly 2009. We would like to highlight that this debt was raised due to a boost in rental income due to the completion of against the mortgaging of investment properties, available- the 360° Mall that opened in mid-2009. We assume rental for-sale (AFS) investments, and projects in progress. income will increase further in 2010, considering the full year of operations for the 360° Mall. • Tamdeen Group holds a 51.3% stake in Tamdeen Investment Company. Hence, all reported financials for • Operational income accounted for 56% of the total income the Tamdeen Group are consolidated. The total debt of in 2009, compared to the five-year average of 35% for the KD 218 million is not entirely due to the parent company. period 2004-2008. Tamdeen Investment Company, which had KD 57.2 million • Operational expenses decreased by 12.7% in 2009 to of debt outstanding as of December 31, 2009, accounted KD 11.9 million, compared to KD 13.6 million in 2008. for 13% of the total debt for Tamdeen Group.
• A closer look at the real-estate-related income shows that • The company’s investment book (both AFS and held for the company reported positive EBITDA of KD 3.9 million trading) stood at KD 86 million at the end of December in 2009, compared to negative EBITDA of KD 1.3 million 2009, accounting for 100% of the shareholders’ equity for 2008. and 19% of the total assets. Of the KD 86 million, 40.6% is due to the consolidation of Tamdeen Investment • Net profit decreased significantly from KD 13.6 million Company (investment portfolio of KD 68.3 million as of in 2008 to KD 2.7 million in 2009. We would like to December 2009). highlight that the 2008 net profit was influenced by a one- time gain from the sale of the Al-Fanar complex, which was sold for KD 55 million, resulting in a gain of KD 36.2 million in 2008.
• Investment income decreased by 66%, to KD 3 million in 2009, compared to KD 9 million in 2008. This adversely impacted the net profit for the year. As a result, investment income as a percentage of total income decreased to 12% in 2009 compared to the five-year average of 37% for the period 2004-2008.
nbkcapital.com | 111 Tamdeen Group Kuwait in Focus - April 2010
Financial Statements
Income Statement (KD '000) 2006 2007 2008 2009
Operational Income 8,252 11,625 11,676 13,735 Operational Expenses 2,358 4,511 5,655 4,558 Net Operating Income 5,894 7,114 6,021 9,177
Other Operating Income 1,501 1,302 422 1,935 Fees from Management of RE & Inv. Portfolios 73 136 225 72 Profit from Sale of Share in a Subsidiary 1,567 753 0 0 Profit form Sale of Investment Properties 0 3,726 36,227 0 Impairment in Value of Investment Properties 0 0 -18,741 0 Profit from Sale of Inv. in Lands & RE HFT 0 0 39 0 Sale of Land included in Projects in Progress 0 1,850 0 1,777 Net Investments Income 6,091 16,207 8,951 3,049 Share of (loss)/Profit in associated companies 410 482 -3,508 2,161 Impairment in Value of Inv.in an associated Co. 0 0 0 -2,488 Other Income 748 729 2,748 1,623 Foreign Currency Exchange (loss)/Profit -510 351 -90 -75 Expenses and other Charges Staff Costs 2,076 3,057 3,794 3,536 General and Administrative Expenses 2,000 2,805 4,157 3,786 Finance Costs 5,071 10,026 10,028 9,221 Profit for the year before KFAS, NLST & Zakat 6,627 16,762 14,315 1,071
Contribution to KFAS -62 -139 -143 -25 Contribution to Zakat 0 -9 -135 -26 Provision for NLST -172 -405 -328 -101 Board of Directors' remuneration -120 -170 -243 -124 Profit for the year Shareholders of the Parent Company 4,530 11,562 13,593 2,703
Minority interest 1,743 4,477 -127 -1,908 Net Income 6,273 16,039 13,466 795
Balance Sheet (KD '000) 2006 2007 2008 2009
Assets Non-current assets Available-for-sale investments 163,461 197,463 119,065 85,378 Investments in associated companies 7,073 51,113 52,668 52,922 Investments in unconsolidated subsidairy Co. 0 0 800 841 Investment properties 90,088 86,759 48,333 124,619 Projects in progress 69,523 68,450 179,671 80,396 Machines and equipment 215 696 802 3,104 Total non-current assets 330,360 404,481 401,339 347,260
Current Assets Cash and bank balances 1,272 1,595 11,214 13,593 Short-term deposits 6,604 4,347 11,776 167 Inv. at fair value through statement of income 17 18 204 995 Accounts receivable and other debit balances 4,092 7,120 22,277 29,050 Inv. in lands and real estate held for trading 8,600 14,522 4,813 53,978 Total current assets 20,585 27,602 50,284 97,783
Total assets 350,945 432,083 451,623 445,043
Liabilities and Shareholders' Equity Total equity - Parent company 154,523 193,157 100,230 86,023 Minority interest 57,911 63,908 125,050 114,464 Total equity 212,434 257,065 225,280 200,487
Liabilities Non-current liabilities Term loans 83,807 85,600 119,250 150,847 Bonds Issued 19,792 19,848 0 0 Refundable rental deposits 2,051 2,077 3,697 4,173 Provision for end of service indemnity 445 402 470 570 Total non-current liabilities 106,095 107,927 123,417 155,590
Current liabilities Bank facilities 4,928 4,172 14,221 17,289 Accounts payable and other credit balances 21,338 18,029 20,530 21,170 Current portion of term loans 6,150 44,890 68,175 50,507 Total current liabilities 32,416 67,091 102,926 88,966
Total liabilities 138,511 175,018 226,343 244,556
Total Equity and Liabilities 350,945 432,083 451,623 445,043
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 112 Companies in Focus Kuwait in Focus - April 2010
United Real Estate Company
Key Data Highlights
General Liquidity • United Real Estate Company (United Real Estate) is KSE Code URC.KSE 52-week avg. volume 1,117,025 one of the premier real estate companies in Kuwait. The Reuters Code UREK.KW 52-week avg. value (KD) 100,836 company is a real estate developer in Kuwait with a major Price (KD) Price Performance focus on hospitality, commercial, and retail properties. Closing Price 0.083 YTD 3.8% 52-week High/Low 0.106 / 0.074 1-Year Period -17.0% The company’s real estate portfolio includes commercial complexes, hotels, resorts, residential buildings, shopping Market Capitilization Outstanding Shares Million KD 65.40 Latest (million) 787.97 malls, high-rise office buildings as well as mixed-use
Ownership Structure projects. Closely Held: 41.19% Public: 58.81% • United Real Estate has major projects across business Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital segments and geographic locations. We feel this diversification not only lends strength to the business Stock Performance model but also insulates the company from downturns in any particular region or country.
0.120 14.0 • The company’s land bank is worth highlighting as it has
12.0 a book cost of KD 77.6 million and accounts for 24% 52-week High: KD 0.106
0.100 of total assets according to the 9M2009 financials. We 10.0 feel this is significant when compared to the current
8.0 market capitalization of the company, which stood at 0.080 KD 65.4 million as of April 25, 2010.
52-week Low: KD 0.074 6.0 Millions Price (KD) Price • The company’s net profit decreased significantly from a 4.0 0.060 profit of KD 7.4 million in 9M2008 to KD 1.9 million in
2.0 9M2009. This decrease was mainly due to the decline in non-operating income and the increase in total expenses. 0.040 0.0 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close • We feel it is worth highlighting that the company’s investment book stood at KD 27.8 million as of 9M2009, Sources: Zawya and NBK Capital accounting for 18% of the shareholders’ equity and 9% of the total assets. The investment book as a percentage of Analyst equity is an area of concern.
Mariam Al-Bahar T. +965 2259 5138 E. [email protected]
Key Ratios
2005 2006 2007 2008 9M2009
Rental Income (% of Total Income) 56.2% 39.6% 43.4% 57.1% 59.9% Non–Operating Income (% of Total Income) 33.6% 42.1% 31.7% 17.3% -13.0% Non–Operating Income (% of Net Profit) 59.8% 91.7% 84.3% 66.3% -120.0%
EBITDA (KD million) 9.7 12.1 10.6 9.8 8.7 EBITDA Interest Cover (x) 4.1 2.2 1.8 2.0 2.7 Net Debt-to-Equity (x) 25.0% 35.1% 71.4% 51.3% 53.3%
ROAA 7.0% 7.0% 4.7% 2.2% 0.2% Adjusted ROAA (%) 9.7% 14.6% 11.4% 7.5% 7.1% ROAE (%) 13.0% 13.6% 9.5% 4.8% 0.4%
Investment in Associates (% of Total Assets) 13% 30% 27% 21% 22% Lands for Development (% of Total Assets) 8% 0% 6% 24% 24% Investment Book (% of Total Assets) 1.8% 6.0% 8.1% 9.1% 8.6% Investment Book (% of Total Equity) 3.6% 11.3% 17.5% 20.4% 19.4% Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 113 United Real Estate Company Kuwait in Focus - April 2010
Overview Latest News
Founded in 1973, United Real Estate Company is one of • March 2010: The company announced preliminary results the premier real estate companies in Kuwait, and is part of for 2009, in which net profit decreased by 36.6% to KIPCO Group. A real estate developer in Kuwait, the company KD 3.9 million, compared to KD 6.1 million in 2008. focuses on hospitality, commercial, and retail properties. The • October 2009: Abdali Investment and Development company develops properties and rents and manages third- reported that the Abdali Urban Regeneration Project party properties. United Real Estate studies the location and will open in 2010. The entire project will consist of 12 economic activity of the targeted property, and then outsources buildings, including hotels, retail outlets, restaurants, the construction. The company has major projects across apartments, and offices. United Real Estate is a part of various business segments and geographic locations. the joint venture responsible for the development of the project. Shareholder Structure
Name Type Country Holding Financial Statement Analysis United Gulf Bank Corporate Bahrain 28.91% Kuwait Projects Company (via Kuwait United Consultancy Company) Corporate Kuwait 11.29% Public - 59.80% Income Statement Foreign Ownership Structure
Open to GCC Investors 100.00% Open to Foreign Investors 100.00% • United Real Estate reported total real-estate-related Sources: Zawya and NBK Capital income of KD 19.9 million in 9M2009, up 42% compared with the same period a year before. The growth was mainly due to the sale of properties held for trading (whick grew Company Projects by more than five times) to KD 5.1 million during 9M2009 compared to the same period last year.
Existing Projects • Growth in rental income increased by 7% YoY, amounting to KD 10.6 million in 9M2009 compared to KD 9.9 million Project Location Use in 9M2008. This growth is almost double compared to Major completed projects - Kuwait that of the historical growth rates; whereby, the company’s Al-Shaheed Tower Sharq, Kuwait City Office Building
City Tower Sharq, Kuwait City Office Building rental income increased at a five-year CAGR of 3.9% for Al Mutahida Complex Kuwait City Offices and Shopping Mall the period from 2003 to 2008. As a result, rental income Al Maseel Complex Kuwait City Offices and Shopping Mall as a percentage of total revenue increased slightly, from Saleh Shehab Resort Al Jela'aa Chalet Resort
Marina World Salmiya Shopping Mall and Hotel 53% in 2003 to 57% in 2008.
Major completed international projects
Sheraton Helioplis Egypt Five-star Hotel • Non-operating income decreased significantly from a Bhamdoun Hotel and Commercial Center Bhamdoun, Lebanon Four-star Hotel and Commercial Center surplus of KD 6 million in 9M2008 to a loss of KD 2.3 Rawcheh Hotel Rawcheh in Beirut, Lebanon Five-star Hotel million in 9M2009. This decline was mainly due to foreign Sources: Company’s annual report and NBK Capital exchange losses that amounted to KD 3.5 million. • Total expenses increased by 26% to KD 15.8 million in Major Upcoming Projects 9M2009 compared to KD 12.5 million in 9M2008 due to the inclusion of the carrying value of the sold properties. • United Tower If we are to exclude this value, total expenses dropped by This office tower is located close to the Al-Shaheed and 9.5% in 9M2009 from 9M2008. Madina buildings in the Sharq area of Kuwait City. The tower • The company’s net profit decreased significantly from is designed on a land space of 4,852 square meters, and KD 7.4 million in 9M2008 to KD 1.9 million in 9M2009. construction is expected to be completed in 2010. This decrease was mainly due to the decline in non- • Regional expansion in Egypt, Jordan, and Qatar operating income as well as the inclusion of the carrying value of properties sold.
nbkcapital.com | 114 United Real Estate Company Kuwait in Focus - April 2010
• We observe that the return on average assets (ROAA) Financial Statements for the company decreased significantly from 8.5% in 2004 to 2.2% in 2008. To calculate the return on core Income Statement (KD' 000) 2007 2008 9M2008 9M2009 real estate assets, we adjusted the ROAA by excluding Rental Income 11,811 13,380 9,908 10,599 Net Hotel Operating Income 1,426 1,670 1,227 981 investment gains/losses and change in fair value from the Sale of properties held for trading 1,400 895 872 5,432 net profit and excluding the available-for-sale investment Other Operating Income 1,907 2,785 1,817 2,897 portfolio from the total assets. The adjusted ROAA for the Share of results of associates 2,040 646 178 29 Real estate related income 18,583 19,376 14,002 19,938 real estate operations decreased from 11.4% in 2007 to Change in fair value of inv.properties 846 468 0 0 7.5% in 2008. Investment income 3,200 3,894 3,634 1,259 Other non-operating income 1,006 782 782 0 Foreign exchange (loss) gain 3,555 -1,092 1,550 -3,489 Balance Sheet Total Non-operating Income 8,607 4,052 5,966 -2,230
Total Income 27,190 23,428 19,967 17,708 • The company’s total assets stood at KD 316.8 million Total Expenses 16,617 16,949 12,522 15,776 Net Income 10,215 6,114 7,369 1,855 in 2008, growing by 30% compared to 2007 (9M2009 KD 323.3 million). This was mainly due to the increase in Balance Sheet (KD' 000) 2006 2007 2008 Sep-09 properties held for sale, land for development, investment Cash and cash equivalents 7,633 13,490 12,336 7,570 11,310 16,461 7,293 12,905 available for sale, and the increase in projects under Account receivable and prepayments Properties held for trading 127 10,904 10,413 5,291 development. Available for sale investments 11,547 19,628 28,925 27,845 Investment in associates 58,520 64,604 67,984 72,582 • Development land worth KD 61.27 million was acquired Lands for development 350 14,035 75,831 0 in Syria, Qatar, Dubai, and Egypt for various projects in Projects under construction 0 498 9,559 0 Investment properties 90,880 92,926 94,232 187,543 2008, while an increase in unquoted securities was mainly Property and equipment 12,377 10,911 10,237 9,534
responsible for the increase in investments available for Total assets 192,744 243,458 316,810 323,270
sale. Accounts payable and accruals 16,236 14,544 66,024 71,613 Interest bearing loans and borrowing 43,586 93,429 85,174 83,910 • The company holds land that appears at a value of KD 77.6 Bonds 30,250 10,250 10,250 10,250
million on the balance sheet according to the 9M2009 Total liabilities 90,072 118,223 161,449 165,773 financials. The land for development accounts for almost Share capital 54,191 59,610 78,797 78,797 24% of the total assets and 49% of total shareholders’ Share premium 3,770 3,770 14,351 14,351 equity in 9M2009. Since the current market cap of United Treasury shares -4,096 -4,096 -4,630 -4,506 Statutary reserve 10,293 11,356 11,998 11,998 Real Estate Company is KD 65.4 million as of April 25, Voluntary reserve 2,583 2,583 2,583 2,583 2010, we feel it is worth highlighting. Treasury shares reserve 980 980 980 810 Cumulative changes in fair value 536 599 791 224 • Investment in associates increased significantly from Foreign currency translation reserve -478 -1,198 -664 -662 Employees' share option reserve 26 48 57 57 KD 24.8 million in 2005 to KD 68 million in 2008 Retained earnings 34,533 38,266 37,776 39,631 (9M2009, KD 72.6 million). As a result, the investment Equity attributable to equity holders 102,338 111,917 142,039 143,283 in associates as a percentage of total assets increased Minority interests 334 13,318 13,322 14,214 significantly from 13% in 2005 to 22% in 2008. We would Equity 102,672 125,235 155,361 157,497 like to highlight that, despite the increase, the contribution Total Liabilities and Equity 192,744 243,458 316,810 323,270 of the investment in associates to net profit is minimal. Sources: Company’s financial statements and NBK Capital
• The company’s net debt-to-equity ratio stood at 0.53x in 9M2009, compared to the last four years' average of 0.69x from 2005 to 2008. United Real Estate's equity and total debt stood at KD 143.3 million and KD 83.9 million as of September 2009, respectively. A closer look at the debt serviceability shows that the EBITDA-interest cover increased from 2x in 2008 to 2.7x in 9M2009.
• The company’s investment book stood at KD 27.8 million as of 9M2009, accounting for 19% of shareholders’ equity and 9% of total assets. We feel the investment book as a percentage of equity is quite high.
nbkcapital.com | 115 Companies in Focus Kuwait in Focus - April 2010
YIACO Medical Company
Key Data Highlights
General Liquidity • YIACO Medical Company’s (YAICO) principal activities KSE Code YIACO 52-week avg. volume 1,111,982 focus on importing and selling medical, chemical, and Reuters Code YIAC.KW 52-week avg. value 204,643 dental products and equipment. Price (KD) Price Performance Closing Price 0.204 YTD 25.9% • Kuwait Finance House owns 9.89% of YIACO, and Al 52-week High/Low 0.224 / 0.130 1-Year Period 56.9% Nakhil United Real Estate Company owns 5.54%, with the Market Capitalization Outstanding Shares Million KD 33.66 Latest (million) 165.00 balance held by the general public. Ownership Structure • The company has consistent growth in its revenue stream; Closely Held: 17% Public: 83% revenue grew at a compound annual growth rate (CAGR) of Price as of close on April 25, 2010. Sources: Reuters, Zawya, and NBK Capital 17% between 2005 and 2009.
• In 2009, impairment charges stood at KD 0.72 million; Stock Performance while in 2008, the company recorded impairment charges of around KD 1.66 million due to impairments of accounts 0.250 16.0 receivables, an impairment of goodwill, and an impairment
52-week High: KD 0.224 of investments in associates. 14.0 0.200 • YIACO’S board of directors recommended the distribution 12.0 of 5% (KWD 0.005 per share) cash dividends for the fiscal 10.0 0.150 year ending December 31, 2009. The company did not
52-week Low: KD 0.130 8.0 pay dividends for FY2008. Millions
Price (KD) Price0.100 6.0 • Given the nature of YIACO’s business, accounts receivable and inventories combined stood at around KD 39.7 million 4.0 0.050 as of December 31, 2009, and accounted for the majority
2.0 (68%) of total assets.
0.000 0.0 • As of December 31, 2009, the company continued to Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Volume Close maintain a low debt-to-shareholders’-equity ratio, which decreased from 0.10x in 2008 to zero in 2009. The Sources: Zawya and NBK Capital company’s current ratio also decreased from 1.32x in 2008 to 1.25x in 2009.
Analyst
May Zuaiter T. +965 2259 5597 E. [email protected]
Key Ratios
2005 2006 2007 2008 2009
Gross Profit Margin (%) 20.5% 25.1% 24.9% 27.2% 25.4% Operating Profit Margin (%) 2.6% 5.1% 4.8% 5.6% 3.6% Net Profit Margin (%) 3.8% 5.3% 4.7% 1.4% 2.0%
ROA 3.1% 5.4% 5.0% 1.6% 2.4% ROE 7.5% 11.4% 10.3% 3.4% 6.1%
Current Ratio (X) 1.12 1.35 1.35 1.32 1.25 Debt to Assets (X) 0.08 0.05 0.01 0.05 0.00 Debt to Equity (X) 0.20 0.10 0.02 0.10 0.00 Investment to Equity 49% 36% 35% 31% 31%
Receivables Turnover Ratio 2.82 2.04 2.33 2.46 2.44 Inventory Turnover Ratio 2.85 4.13 3.10 2.42 2.84 Payables Turnover Ratio 2.36 2.32 2.55 2.61 2.58
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 116 YIACO Medical Company Kuwait in Focus - April 2010
Overview • Reduced operating income and improved results from associates, as well as lower finance charges, appeared YIACO was incorporated in Kuwait in 1952 as the sole in FY2009 compared to FY2008. Operating income marketing agent for numerous multinational, research-focused decreased by 18%, from KD 3.02 million in 2008 to pharmaceutical manufacturers. The company was known as KD 2.48 million in 2009. Results from associates Yusuf Ibrahim Alghanim and Company until March 2002. increased by 29%, from KD 235,773 in 2008 to Its principal activities are importing and selling medical, KD 304,830 in 2009. Finance charges decreased by chemical, and dental products and equipment. 10%, from KD 766,998 in 2008 to KD 693,414 in 2009.
The company has two key divisions: • Consequently, net profit increased by 78% to reach KD 1.41 million in 2009, compared to KD 0.79 million • Its pharmaceutical business encompasses four areas: in 2008. Pharmacies, Skin Care, Animal Health, and Crop Protection Retail Pharmacies. • For FY2009, finance costs decreased by 10% following 63% growth in 2008, from KD 470,955 in 2007 to • A medical, scientific, and dental division encompasses KD 766,998 in 2008, fueled by high growth in bank the Medical Projects, Scientific, Dental, Imaging, overdraft interest expense (348%) and term loan interest Physiotherapy, Rehabilitation and Home Health Care, Key expense (369%). At the end of 2008, because of various Accounts, and Medical Furniture Divisions. investment losses and impairments, net profit attributable YIACO currently acts as an envoy for diversified, multinational, to shareholders declined by 66% YoY, reaching research-based companies such as Abbott, Bayer GSK, KD 778,786, down from KD 2.3 million in 2007. Intervet, Schering, Pfizer, Merck, Roche, Phillips, and Johnson • The company carries its investments at fair value on the & Johnson. The company owns and provides health care income statement, and these include an “Equity Securities services through the largest chain of pharmacies in Kuwait; Fund.” During FY2009, these investments continued YIACO also owns the Apollo Medical Center, the Canadian to drop in value, resulting in an unrealized loss of Medical Center, and the Adan Diagnostic Center. KD 290,445 versus a larger unrealized loss of KD 735,718 YIACO was listed on the Kuwait Stock Exchange (KSE) in in FY2008. November 2007. During that year, the company acquired Al Raya Health Care Company and City Medical, as part of its Balance Sheet expansion plans. YIACO operates mainly in Kuwait and Egypt. During 2008, YIACO significantly increased its representation • Given the nature of YIACO’s business, accounts receivable on Al Salam hospital’s board of directors and, as a result, and inventories combined stood at around KD 39.7 million transferred its investment in that hospital from available for as of December 31, 2009, and accounted for the majority sale (AFS) to investment in associate. (68%) of total assets.
Kuwait Finance House owns 9.89% of YIACO’s shares, Al • Investments in associates and “investments carried at Nakhil United Real Estate Company owns 5.54%, and the fair value through the income statement” together stood general public holds the remaining shares. at around KD 7.2 million as of December 31, 2009, and accounted for around 98% of total assets and for the Financial Statement Analysis majority of YIACO’s investments. • As of December 31, 2009, current liabilities totaled Income Statement KD 33.7 million, an increase of 32% YoY. This resulted mainly from the decline in Murabaha payables, which stood • In FY2009, YIACO Medical Company’s revenue increased at KD 13.5 million in December 31, 2009, compared with by 29%, to KD 69.7 million. During FY2008, YIACO’s KD 2.5 million the previous year. Accounts payable and revenue grew by 12% year on year (YoY) and reached accruals increased by 34%; however, term loans declined KD 54.1 million. The company’s 9M2009 financials from KD 2.25 million in December 31, 2008, to a mere provide a segmental breakdown of revenues, but YAICO KD 1,167 in December 31, 2009. made no such disclosures for FY2009. • As of December 31, 2009, the company continued to have • Administrative expenses constituted the largest component a low debt-to-shareholders’-equity ratio, which decreased of total OPEX (77%) in FY2009. This category accounted from 0.10x in 2008 to zero in 2009. The current ratio also for 76% of OPEX in FY2008. decreased, from 1.32x in 2008 to 1.25x in 2009.
nbkcapital.com | 117 YIACO Medical Company Kuwait in Focus - April 2010
Financial Statements
Income Statement (KD '000) 2006 2007 2008 2009 Revenue 46,075 48,251 54,080 69,742 Cost of Sales (34,498) (36,219) (39,348) (52,059) Gross Profit 11,577 12,032 14,732 17,684 Selling/Distribution/Admin. Exp. (9,225) (9,712) (11,711) (15,202) Operating Income 2,352 2,320 3,020 2,482 Other Income 378 692 867 575 Share of results of associates (119) 0 236 305 Realized Gain on Inv. 142 0 0 0 Unrealized loss/gain on invst at FV through I/S 391 24 (736) (290) Finance Cost (870) (471) (767) (693) Management Fees (177) (133) (44) (92) Impairment (1,663) (721) Profit from discontinued operations 411 0 0 0 Profit before Tax 2,507 2,432 913 1,566 Income Taxes (56) (103) (83) (80) Other Expenses (18) (38) (38) (79) Profit for the Year 2,433 2,291 792 1,408 Minority Interest (0) (13) (13) (15) Ne t Inc o me 2,433 2,277 779 1,392
Balance Sheet (KD '000) 2006 2007 2008 2009 Bank balances and cash 1,731 1,442 1,562 2,455 Accounts receivable and others 16,871 15,568 15,970 21,370 Inventories 8,362 11,701 16,264 18,351 Current Assets 26,964 28,711 33,796 42,176 Fixed-assets-PP&E 8,547 7,933 8,486 8,612 Intangible Assets 533 87 0 0 Other Non-Current Assets 1,199 823 431 360 Goodwill 0 135 0 0 Investment in associates 13 13 5,374 5,599 Investments carried at fair value 2,331 2,355 1,619 1,328 AFS investments 5,256 5,256 118 118 Total Non-Current Assets 17,878 16,601 16,027 16,018 Total Assets 44,842 45,313 49,823 58,194 Share Capital 15,000 15,000 16,500 16,500 Statutory reserve 1,722 1,954 2,035 2,182 Voluntary reserve 121 121 121 121 General Reserve 637 637 637 637 F/X Translation Reserve 150 109 80 174 Retained Earnings 3,538 4,083 3,280 3,307 Equity attributable to owners of the pa re nt 21,167 21,904 22,654 22,922 Non-Controlling Interest 92 104 89 86 Total Equity 21,260 22,008 22,743 23,008 Term loans 1,300 550 2,255 1 Accounts payable and accruals 14,852 14,225 15,068 20,150 Murabaha payable 3,307 5,706 2,516 13,512 Bank overdraft 489 865 5,695 0 Current Liabilities 19,948 21,346 25,534 33,663
Borrowings 900 0 0 0 Employees end-of-service benefits 926 932 510 1,176 Murabaha payable 1,808 1,027 1,036 346 Non-Current Liabilities 3,634 1,959 1,546 1,522 Total Liabilities 23,583 23,305 27,080 35,186 Total Liabilities and Equity 44,842 45,313 49,823 58,194
Sources: Company’s financial statements and NBK Capital
nbkcapital.com | 118 Kuwait Market Statistics
• March Market Statistics
NBK Capital MENA Research T. +965 2224 6663 F. +965 2224 6905 E. [email protected]
119 | nbkcapital.com ` Kuwait Market Statistics Kuwait in Focus - April 2010
Rebased Performance Summary Best Performers Close % Chg. 125 MSCI Kuwait (% Chg.) 651 (3.6%) TAMI.KW Tamdeen Investment Co. 0.265 69.9% % of stocks trading above 1yr avg. price* 44% BOUK.KW Boubyan Bank 0.520 19.5% 120 Advance/Decline Ratio* 0.59 THMR.KWAl Themar Intl. Hldg. 0.126 16.7% 52 week High / Low 715 / 513 BKME.KWBank of Kuwait & the Middle East 0.550 16.4% 115 121 KSE General Index (% Chg.) 7,534 (2.1%) TAMK.KW Tamdeen Real Estate Co. 0.305 15.1% KSE General Index 52 week High / Low 8,371 / 6,651 110 Market Cap. (KWD '000) 31,529,321 113
105
100 Highest Turnover Turnover (KWD) Worst Performers Close % Chg. ZAZain Kuwait 8,745,773 AINV.KW Al Ahlia Hldg. Co. 0.029 -29.3% 95 N National Bank of Kuwait 4,215,782 INJA.KW Injazzat Real Estate Dev. Co. 0.126 -25.0% IF Intl. Financial Advisors 3,971,445 AAYA.KW A'ayan Leasing & Inv. Co. 0.071 -14.5% 90 K Kuwait Finance House 3,309,350 MAYA.KW Mayadeen 0.034 -14.1% Dec-09 Jan-10 Feb-10 Mar-10 K Kuwait Real Estate Co. 2,567,141 AIGK.KW AREF Investment Grp. 0.094 -11.3%
MSCI GCC Mkts MSCI Kuwait
Quotes Monthly 52-Week % Change Trailing Market Cap. Company Name Close* Avg. Turnover Avg. volume % Chg. High Low High Low on high YTD 12 mths (KWD '000) PE* PB* ('000) ('000) A A'ayan Leasing & Inv. Co. 0.071 -14.5% 0.083 0.069 141,068 3,345 0.148 0.059 -52.0% -12.3% -34.3% 45,356 nmf 0.6 A Abyaar Real Estate Dev. Co. 0.053 -5.4% 0.058 0.050 422,600 3,178 0.113 0.045 -53.1% 8.2% -47.5% 55,964 nmf 0.4 A Agility 0.600 -3.2% 0.640 0.560 2,026,791 5,964 1.300 0.520 -53.8% 5.3% -4.8% 628,102 4.2 0.7 A Al Ahli Bank of Kuwait 0.445 -5.0% 0.469 0.431 131,284 1,870 0.530 0.460 -10.4% -8.7% -2.1% 547,649 14.0 1.7 A Al Ahlia Hldg. Co. 0.029 -29.3% 0.042 0.029 69,855 3,191 0.076 0.029 -61.8% -32.6% -38.3% 24,017 nmf 0.3 A Al Deera Hldg. Co. 0.099 4.2% 0.100 0.094 618,755 73 0.250 0.073 -60.4% 3.1% -60.4% 73,701 nmf 0.6 A Al Madina for Finance & Inv. Co. 0.065 -9.7% 0.075 0.065 441,623 14,064 0.128 0.064 -49.2% -13.3% -22.6% 27,556 nmf 0.4 M Al Mazaya Hldg. Co. 0.140 -2.8% 0.146 0.132 83,036 419 0.241 0.120 -41.9% 16.7% 5.3% 69,927 nmf 0.5 A Al Safat Inv. Co. 0.140 -2.8% 0.152 0.140 805,745 14,557 0.198 0.097 -29.3% 27.3% 44.3% 108,218 nmf 0.9 A Al Safwa Grp. Co. 0.056 -9.7% 0.064 0.056 645,045 31,160 0.094 0.045 -40.4% 12.0% 24.4% 72,800 nmf 1.2 T Al Themar Intl. Hldg. 0.126 16.7% 0.126 0.104 60,750 4,746 0.130 0.104 -3.1% -3.1% 10.5% 127,575 nmf 1.3 A Alafco Aviation Lease 0.206 -3.7% 0.214 0.202 110,800 1,426 0.214 0.124 -3.7% 4.0% 71.7% 152,984 19.6 1.6 A Aref Energy Hldg. 0.255 -7.3% 0.290 0.255 401,950 108 0.315 0.160 -19.0% 9.0% 53.6% 191,250 nmf 3.0 A AREF Investment Grp. 0.094 -11.3% 0.116 0.094 305,450 785 0.242 0.094 -61.2% -14.5% -20.3% 99,761 nmf 0.4 B Bank of Kuwait & the Middle East 0.550 16.4% 0.550 0.464 185,327 1,156 0.550 0.427 0.0% 18.5% 27.3% 590,274 41.4 2.8 B Bayan Investment Co. 0.068 -6.8% 0.073 0.067 73,523 2,047 0.166 0.067 -59.0% -1.4% -42.4% 26,701 nmf 0.4 B Boubyan Bank 0.520 19.5% 0.530 0.435 943,695 11,202 0.530 0.269 -1.9% 23.8% 93.3% 909,122 nmf 10.4 B Boubyan Petrochemical Co. 0.560 5.7% 0.570 0.530 933,495 3,613 0.570 0.380 -1.8% 36.6% 27.3% 271,656 26.8 1.3 B Burgan Bank 0.351 1.4% 0.365 0.337 617,941 5,050 0.500 0.315 -25.0% 10.3% -1.3% 390,499 nmf 1.2 C Coast Investment & Dev. Co. 0.162 3.8% 0.184 0.156 1,374,105 834 0.194 0.092 -16.5% 39.7% 52.8% 101,297 nmf 1.5 C Commercial Bank of Kuwait 0.940 1.1% 0.970 0.910 80,606 186 1.100 0.910 -14.5% 1.1% -7.8% 1,195,701 nmf 2.7
*Price as of close on March 31, 2010. Sources: Reuters, Zawya, and NBK Capital
nbkcapital.com | 120 Kuwait Market Statistics Kuwait in Focus - April 2010
Monthly 52-Week % Change Trailing Market Cap. Company Name Close* Avg. Turnover Avg. volume % Chg. High Low High Low on high YTD 12 mths (KWD '000) PE* PB* ('000) ('000)
F Commercial Facilities Co. 0.340 1.5% 0.345 0.330 95,587 233 0.345 0.265 -1.4% 1.5% 17.2% 182,500 12.8 1.2 F First Dubai Real Estate Dev. Co. 0.043 -3.4% 0.045 0.039 22,363 465 0.106 0.038 -59.4% -14.0% -45.6% 43,000 nmf 0.5 A First Investment Co. 0.114 9.6% 0.116 0.102 105,032 761 0.214 0.096 -46.7% 5.6% -37.4% 74,222 nmf 0.6 G Global Investment House 0.104 2.0% 0.110 0.099 773,641 2,622 0.154 0.064 -32.5% 5.1% 62.5% 136,492 nmf 0.8 G Gulf Bank 0.365 7.4% 0.385 0.340 1,543,682 0.490 0.270 -25.5% 21.7% -41.6% 915,311 nmf 2.2 C Gulf Cable 1.780 -6.3% 1.900 1.700 150,962 128 1.980 1.020 -10.1% 9.9% 71.2% 373,678 35.5 2.4 IF IFA Hotels & Resorts 0.570 11.8% 0.580 0.475 31,989 31 0.770 0.430 -26.0% -8.1% 2.7% 258,713 19.3 3.7 IK Ikarus Petroleum Industries Co. 0.146 12.3% 0.150 0.124 179,518 69 0.150 0.082 -2.7% 23.7% 82.5% 109,500 nmf 1.0 INInjazzat Real Estate Dev. Co. 0.126 -25.0% 0.168 0.124 87,144 324 0.265 0.124 -52.5% -28.4% -41.7% 43,552 11.9 0.6 IF Intl. Finance Co. 0.285 7.5% 0.285 0.265 0.300 0.232 -5.0% 7.5% 17.8% 132,729 nmf 1.6 IF Intl. Financial Advisors 0.096 -7.7% 0.114 0.095 3,971,445 6,347 0.182 0.065 -47.3% 5.5% 47.7% 69,120 nmf 0.5 JAJazeera Airways 0.200 -5.7% 0.214 0.200 85,000 248 0.327 0.172 -38.8% 5.3% -29.1% 44,000 16.2 1.6 K Kipco Asset Management Co. 0.400 0.0% 0.400 0.390 23,500 42 0.510 0.365 -21.6% -1.2% -14.9% 105,321 nmf 1.1 K Kuwait Cement Co. 0.750 0.0% 0.760 0.690 213,109 18 0.770 0.500 -2.6% 33.9% 43.1% 433,779 33.9 3.2 K Kuwait Finance House 1.120 2.5% 1.180 1.093 3,309,350 5,873 1.296 0.944 -13.6% 9.9% 2.5% 2,788,635 23.5 2.3 F Kuwait Food Co. 1.600 0.0% 1.680 1.560 66,619 131 1.840 1.200 -13.0% 9.6% 23.1% 643,203 17.7 2.3 K Kuwait Intl. Bank 0.232 1.8% 0.255 0.228 1,465,259 7,288 0.310 0.170 -25.2% 27.5% 20.8% 240,660 nmf 1.4 K Kuwait Invest Hldg. Co. 0.232 8.4% 0.232 0.206 37,750 495 0.295 0.182 -21.4% -5.7% 27.5% 75,901 nmf 1.4 K Kuwait Investment Co. 0.142 6.0% 0.144 0.130 240,186 552 0.168 0.114 -15.5% 14.5% 24.6% 74,550 nmf 0.6 K Kuwait Projects Co. Hldg. 0.495 2.0% 0.505 0.486 1,209,050 9,482 0.580 0.355 -10.3% 7.2% 46.5% 600,383 13.0 1.1 K Kuwait Privatization Project Hldg. 0.093 12.0% 0.097 0.081 123,000 3,449 0.118 0.063 -21.2% 32.9% 47.6% 73,823 23.9 0.7 K Kuwait Real Estate Co. 0.080 -2.4% 0.093 0.079 2,567,141 9,287 0.118 0.057 -32.2% 17.6% 40.4% 72,537 33.9 0.5 M Mabanee Co. 0.680 -1.6% 0.691 0.655 232,527 444 0.718 0.372 -5.3% 6.9% 82.8% 343,478 22.4 3.1 M Mayadeen 0.034 -14.1% 0.039 0.033 204,041 1,299 0.071 0.033 -52.1% -12.8% -32.0% 34,000 nmf 0.5 N National Bank of Kuwait 1.200 3.1% 1.220 1.120 4,215,782 9,100 1.236 0.891 -2.9% 17.9% 32.0% 3,749,979 14.1 2.2 N National Industries Co. 0.410 3.8% 0.410 0.375 24,233 1,018 0.420 0.265 -2.4% -2.4% 54.7% 141,875 nmf 2.0 N National Industries Grp. Hldg. 0.385 1.3% 0.410 0.380 2,371,277 10,233 0.510 0.224 -24.5% 26.2% 71.9% 498,613 nmf 1.1 N National Investments Co. 0.425 1.2% 0.470 0.410 1,843,468 422 0.690 0.246 -38.4% 16.4% 16.4% 372,391 nmf 1.7 N National Real Estate Co. 0.206 -5.5% 0.222 0.204 306,341 2,141 0.355 0.174 -42.0% 4.0% 18.4% 167,724 9.2 0.7 N Noor Financial Inv. Co. 0.085 0.0% 0.093 0.085 102,233 1,516 0.138 0.069 -38.4% -5.6% 23.2% 63,750 nmf 0.6 A Qurain Petrochem. 0.190 -9.5% 0.210 0.190 83,577 216 0.218 0.150 -12.8% 3.3% 26.7% 209,000 29.4 1.2 S Salhia Real Estate Co. 0.260 8.3% 0.270 0.230 36,550 185 0.270 0.142 -3.7% 18.2% 83.1% 103,798 14.3 0.9 S Sultan Center Food Products 0.202 -1.9% 0.210 0.198 59,590 1,480 0.295 0.168 -31.5% -4.7% 20.2% 116,923 nmf 0.9 T Tamdeen Investment Co. 0.265 69.9% 0.265 0.150 358,743 29 0.265 0.120 0.0% 89.3% 67.7% 82,640 36.5 1.2 T Tamdeen Real Estate Co. 0.305 15.1% 0.305 0.250 418,390 384 0.340 0.250 -10.3% 1.7% 0.0% 113,802 42.1 1.3 A The Commercial Real Estate Co. 0.099 -8.6% 0.108 0.097 270,495 1,628 0.150 0.099 -29.3% -11.7% 2.9% 181,767 9.5 0.8 T The Investment Dar Co. 0.074 0.0% - - - - 0.074 0.074 0.0% 0.0% 0.0% 70,607 0.5 0.2 N Wataniya 1.580 -4.8% 1.660 1.540 304,482 150 1.760 1.380 -10.2% 2.6% 1.3% 796,372 7.4 1.8 Z Zain Kuwait 1.360 6.3% 1.420 1.280 8,745,773 6,509 1.560 0.700 -12.8% 33.3% 94.3% 5,810,471 20.6 2.4
*Price as of close on March 31, 2010. Sources: Reuters, Zawya, and NBK Capital
nbkcapital.com | 121 Kuwait in Focus - April 2010
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