Uae Research Yearbook

20 08 uae research yearbook egypt sales team uae sales team ksa sales team research management Local call center 16900 call center +971 4 306 9333 call center +800 123 4566 Cairo General + 20 2 33 38 8864 Int’l call center +20 2 33 33 94 00 [email protected] [email protected] UAE General + 971 4 363 4000 [email protected] [email protected] Head of Western Institutional Sales Western Institutional Sales Head of KSA Brokerage Head of Research Mohamed Ebeid Julian Bruce Hesham Khalil Philip Khoury +20 2 33 32 1054 +971 4 363 4092 +9661 211 3040 +971 4 363 4002 [email protected] [email protected] [email protected] [email protected] Local Institutional Sales Head of GCC Institutional Sales Head of KSA Sales Head of Egypt Research Amr El Khamissy Amro Diab Mohsen Mansour Wael Ziada +20 2 33 32 1045 +971 4 363 4086 +9661 211 3008 +20 2 33 32 1154 [email protected] [email protected] [email protected] [email protected] Gulf Sales UAE Retail Sales Head of Publ. and Distribution Ahmed Salem Reham Tawfik Rasha Samir +20 2 33 32 1078 +971 4 306 9418 +20 2 33 32 1142 [email protected] [email protected] [email protected] disclosures Disclosures by Stock Analysts We, Abid Riaz, Marise Ananian, Mohammad Madani, Monica Malik, Philippe Habeichi, Raj Madha, Sana Kapadia, Stefan Schurmann, Wael Ziada and Wafaa Baddour hereby certify that the views expressed in this document accurately reflect our personal views about the securities and companies that are the subject of this report. We also certify that neither us nor our spouses or dependants (if relevant) hold a beneficial interest in the securities that are traded in UAE Stock Exchanges. Disclosures by Contributors to Strategy Section We, Fahd Iqbal and Hanzada Nessim hereby certify that the views expressed in this document accurately reflect our personal views about the securities and companies that are the subject of this report. We also certify that neither us nor our spouses or dependants (if relevant) hold a beneficial interest in any securities listed on the UAE stock exchanges. Company Disclosures EFG-Hermes Holding hereby certifies that neither it nor any of its subsidiaries owns any of the securities that are the subject of this report. However, EFG-Hermes do own 1,431,105 local shares in Emaar as at 15 December 2007, one of the securities that are subject of this report. Funds managed by EFG-Hermes Holding and its subsidiaries for third parties may own the securities that are the subject of this report. EFG-Hermes may own shares in one or more of the aforementioned funds or in funds managed by third parties. The authors of this report may own shares in funds open to the public that invest in the securities mentioned in this report as part of a diversified portfolio over which they have no discretion. The Investment Banking division of EFG-Hermes may be in the process of soliciting or executing fee-earning mandates for companies that are either the subject of this report or are mentioned in this report. disclaimer Our investment recommendations take into account both risk and expected return. We base our long-term fair value estimate on a fundamental analysis of the company's future prospects, after having taken perceived risk into consideration.We have conducted extensive research to arrive at our investment recommendations and fair value estimates for the company or companies mentioned in this report. Although the information in this report has been obtained from sources that EFG- Hermes believes to be reliable, we do not guarantee its accuracy, and such information may be condensed or incomplete. Readers should understand that financial projections, fair value estimates and statements regarding future prospects may not be realized. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This research report is prepared for general circulation and is intended for general information purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. It is not tailored to the specific investment objectives, financial situation or needs of any specific person that may receive this report. We strongly advise potential investors to seek financial guidance when determining whether an investment is appropriate to their needs. No part of this document may be reproduced without the written permission of EFG-Hermes. efg-hermes (egypt), 58 tahrir street, dokki, egypt 12311 tel +20 2 33 32 1140 | fax +20 2 33 36 1536 efg-hermes (uae), level 6, the gate, west wing, difc dubai - uae tel +971 4 363 4000 | fax +971 4 362 1170 efg-hermes (ksa), kingdom tower, 22nd floor, riyadh, saudi arabia tel +9661 211 0046 | fax +9661 211 0049 bloomberg efgh reuters pages .efgs .hrms .efgi .hfismcap .hfidom efg-hermes.com table of contents EXECUTIVE SUMMARY p. 2 STRATEGY p. 4 ECONOMICS p. 18 BANKING UAE BANKING SECTOR p. 30 NATIONAL BANK OF ABU DHABI (NBAD) p. 34 ABU DHABI COMMERCIAL BANK (ADCB) p. 36 FIRST GULF BANK (FGB) p. 38 EMIRATES NBD (ENBD) p. 40 COMMERCIAL BANK OF DUBAI (CBD) p. 42 DUBAI ISLAMIC BANK (DIB) p. 44 ABU DHABI ISLAMIC BANK (ADIB) p. 46 OTHER FINANCIALS UAE HOUSING FINANCE SECTOR p. 48 AMLAK FINANCE housing finance p. 52 TAMWEEL housing finance p. 54 IAIC (SALAMA) insurance p. 56 TELECOM UAE TELECOM SECTOR p. 58 ETISALAT p. 62 DU p. 64 REAL ESTATE AND CONSTRUCTION DUBAI REAL ESTATE SECTOR p. 66 EMAAR PROPERTIES real estate p. 70 UNION PROPERTIES (UP) real estate p. 72 ARABTEC construction p. 74 UTILITIES AND ENERGY DANA GAS energy p. 76 TABREED utilities p. 78 AABAR ENERGY energy p. 80 OTHER ARAMEX logistics p. 82 RAK CERAMICS household goods p. 84 AIR ARABIA aviation p. 86 DUBAI INVESTMENTS COMPANY (DI) conglomerates p. 88 executive summary macroeconomic outlook for 2008 The short to medium-term economic growth outlook for the UAE economy is very strong:We forecast 9.0% real GDP growth in 2008e and high single-digit growth until the end of the decade. With oil prices sustained at high levels, growth in government spending will continue to be strong (above 20%), providing support to private sector confidence in the economy. Investment will be an important driver of economic growth until the end of the decade and beyond, with Abu Dhabi playing an increasingly important role. The combination of continued expatriate population growth, negative real interest rates and robust consumer confidence should result in strong growth in private consumption. As a result of buoyant domestic and regional demand, we expect robust real non-oil GDP growth of 9-11% until the end of the decade. While we forecast that the fiscal surplus will decline from historical levels due to spending growth outpacing revenue growth (assuming a Brent price of USD73.1 in 2008 and USD67.5 in 2009 vs. USD70.5 in 2007), it will remains strong at 23.0% of GDP in 2008 and 19.7% of GDP in 2009. We forecast an inflation rate of 7.6% in 2008 and 7.2% in 2009, with rental inflation in Abu Dhabi preventing any significant fall over the short to medium term despite the expectation of moderation in Dubai in 2008 and more so in 2009. The main risk to our outlook is further constraints on the supply of goods and labor, though broader risks include a sharp decline in the oil price and geopolitical tension with Iran. Lastly, the most important development on the external front is likely to be a shift in the currency peg and/or the currency regime which, although we believe will be of the order of 3% to 5% could well be of greater magnitude. We see a greater than 60% probability of either a revaluation of the AED/USD peg or an independent move to a currency basket in 1H2008. equity market drivers for 2008 oil price Oil prices are expected to remain comfortably above the levels required for fiscal break-even (approximately USD28 per barrel in 2008 and 2009 according to IMF estimates). Furthermore, few companies listed on the stock market have direct exposure to the oil price. Therefore, we see little fundamental direct downside risk over the medium term to either the economy or to listed companies from a sharp contraction in oil prices. Of course, a substantial number of private sector businesses operating in the UAE are dependent on revenues from oil-producing countries that have significantly higher break-even oil prices.While historical daily and weekly correlation between stock markets and oil prices has been low, we expect this to change with the increased influence of Western investors some of whom perceive (we believe wrongly) that the equity markets of the GCC to be a short-term oil play. investor appetite Western institutions have been instrumental in driving markets higher in 2007 and we believe their importance will only grow in 2008, with the bias moving increasingly from "fast money" proprietary desks and hedge funds to long-only mutual funds. This should be supported by the ongoing liberalization of ownership of listed companies. The inclusion of the UAE and the broader GCC within international indices should also help to increase international awareness of the region. As the year progresses, the increased penetration of Western investors should result in an increased focus on small & mid caps and stock picking in general, greater demand for corporate governance, and higher correlation with global emerging markets - although we do not believe that the extent of the latter will be sufficient to remove the benefits of diversification for international investors.

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