Al Maha Petroleum Products Marketing Co. (MHAS.MSM)

Country: Oman Current Market Price (OMR) 18.345

Exchange: Muscat Securities Market YTD Stock Performance (%) 57.7 Outstanding Shares (In million) 6.90 Sector: Oil and Gas/ Distribution and Marketing Market Cap (OMR Million) 126.58

Annualized EPS (1Q Local Ticker: MHAS 1.273 P/E 14.41 2008) (OMR) Reuters Code: MHAS.MSM BVPS (1Q 2008) (OMR) 3.25 P/B 5.64 Investment Opinion: OVERWEIGHT Adj. DPS (OMR) 0.35 Dividend Yield (%) 1.9 Last traded Price: OMR 18.345 (as on July 08, 2008) 52-week High (OMR) 19.200 52-week Low (OMR) 8.174 Fair Value: OMR 22.925 Source: Muscat Securities Market, Zawya.com

Products & Services: Ownership and operation of fuel filling stations, distribution of marine and aviation fuel, lubricants, and other petroleum products. Share Price Movement Al Maha vs. MSM Index

ƒ Al Maha Petroleum Products Marketing Co. (Al Maha) is the second largest oil distribution and marketing company in Oman, with has a market share of 30%. ƒ The country’s stimulating macro economic environment together with accelerating industrialization, infrastructure development and tourism activities provides abundant opportunities for Al Maha. ƒ In 1Q 2008, the company’s top and bottom- line soared 43.2% and 78.2% to OMR 51.76 million and OMR 2.20 million, respectively. ƒ In line with the robust results, on March 30, 2008, the company distributed 40% cash dividend and 15% stock dividend for the year 2007. ƒ On the other hand, rising cost of sales along with intensifying competitive heat is a cause for concern. ƒ Offsetting Al Maha’s growth opportunities with underlying risks, we raise our 12-month price target to OMR 22.925 from OMR 12.935, while reiterating our OVERWEIGHT recommendation on the stock.

Call us on +973 17549485 or email us at [email protected] Background

Established in June 1993, Al Maha Petroleum Products Marketing Co. (Al Maha) is the second largest petroleum marketing and distribution firm in the Sultanate of Oman. Prior to its incorporation, Al Maha operated as the marketing division of the Government-owned Oman Refinery Company. However, in Oman’s second largest September 1999, the company’s marketing division was formally separated and established as a petroleum products separate entity - ‘Al Maha Petroleum Products Marketing Company SAOG’, to exclusively distribute marketer. petroleum products to meet the escalating domestic demand for fuel. As on December 31, 2007, the company’s market share stood at 30.4% as compared to 26.2% in 2006.

In December 1999, Al Maha officially entered into a partnership deal with Abu Dhabi based ABS Lubricants to manage the newly established company. The Government of Oman continued to hold

65% stake in the company, while ABS Lubricants controlled 35%. In March 2004, the Ministry of Oil & Gas and the Central Bank of Oman (CBO) divested their 65% stake in the company by offering 60% to the public and 5% to ABS Lubricants. With this move, Al Maha was converted into a joint stock company from a limited liability company.

Al Maha primarily owns and operates gas stations and retail stores, distributes marine and aviation fuel, lubricants and other petroleum products. The company receives its petroleum supply from Oman Refinery Company. Largely, a domestic company, Al Maha is focused on creating new systems and processes to provide superior quality of customer services. It has an extensive retail network (145 filling stations as at end of December 2007) throughout the country that caters to the fuel needs of

even the remotest areas in Oman.

In 2002, Al Maha entered into an operational joint venture with Talal Zawawi Enterprises LLC (TZE) to set up 24-hour convenience stores, “Souks”, at most of its filling stations. These convenience stores were the first-of-its-kind in Oman and a masterstroke in Al Maha’s strategy to enhance its net worth. The Souks provide quick meals, soft drinks and other domestic necessities to motorists. In addition to being in the retail business, Al Maha has become a prominent supplier of fuel and lubricants to a

number of government bodies, and local and international companies operating in Oman. The

Extensive retail network. company’s clientele includes the Ministry of Electricity and Water, Royal Air Force of Oman, the Ministry of Defence, the Royal Oman Police and the Petroleum Development Oman (PDO). Within a short span of eight years, it has also achieved a significant position in the aviation-fuel segment. Further, the company has opened a number of marina fuel stations and launched its own brand of outboard lubricants known as ‘Al Bahaar’ to cater to the needs of the local fishing industry. Sensitive to its corporate social responsibility, Al Maha donated OMR 100,000 to the Gonu Cyclone Relief Fund

and participated in rehabilitation work in the aftermath of the cyclone. It also contributed OMR 500 to the Directorate General of Civil Defence.

Achievements

Number of Full service Stations 145 (as of December 2007)

Number of Products 10 and increasing

Number of ‘Souks’ Over 70

Number of Convenience Stores Over 60

Number of Staff 120 (as of December 2007)

Level of Automation 100%

Omanization Level More than 85%

For the quarter ended March 2008, Al Maha posted a net profit of OMR 2.20 million compared to OMR Spectacular financial 1.23 million for 1Q 2007, up 78.2%. Consequently, earnings per share (EPS) increased to OMR 0.318 performance. as against OMR 0.205.

Board of Directors

Al Maha’s board of directors consists of eight members. The Chairman is Mr. Rashed Bin Saif Al Chaired by Mr. Rashed Bin Suwaidi and Mr. Noor Bin Mohamed Bin Abdul Rahman is the Vice Chairman. The rest of the board Saif Al Suwaidi. members are as follows.

Name Designation

Mr. Ibrahim Bin Salem Abdulla Member

Mr. Munir Abdulnabi Makki Member

Mr. Rashed Bin Saif Bin Mohamed Al Member

Mr. Mardoof Al Saadi Member

Mr. Johar Jamal Al Johar Member

Mr. Omer Mohamed El Baqir Khalifa Member

Major Shareholders and Affiliates

Currently, 60% of the Al Maha’s stake is owned by the public, while rest of the 40% is controlled by Abu Dhabi-based ABS Lubricants. Foreign ownership is restricted to 70% of the share capital; Majority share with the however, it is open to both GCC as well as foreign investors. While Al Maha has no subsidiaries, it has public. an agreement with Talal Zawawi Enterprises for managing the “Souks”. The agreement entitles it to receive fixed annual fee payments until 2009 (starting 2007) instead of a share in profits.

Shareholding Pattern

40%

60%

ABS Lubricants Public

The Industry Scenario

On the back of higher oil revenues, increasing per capita income, amplifying surpluses in fiscal and balance of payments accounts, modest domestic inflation, increasing public and private sector investments, the Omani economy continued its double digit growth momentum in 2007. For the year, the country registered a 13.1% year-on-year nominal GDP growth to OMR 15.5 billion. Historically, Favourable macro- Oman’s oil distribution and marketing industry has been the mainstay of the country’s economy; it was economic environment. estimated to account for 70% of the Government’s revenues in 2007, as the industry witnessed

demand led growth. Divided into retail fuel marketing, aviation fuel marketing and the bulk fuel

business, the oil marketing sector is poised on the threshold of spiraling expansion. According to experts, the Omani economy is set to realize a growth rate of about 11.6% in 2008, thanks to surging world oil prices and improvement in non-petroleum exports. In addition, Oman’s total population stood at 3,204,897 in July 2007, and is projected to grow at 3.234% for the current year. The expansion in the economy and the population growth, supported by strong consumer spending, is expected to strengthen the industrial sector substantially.

The Omani government has forecast that the budget for the year 2008 would register a deficit of 6.9%

as spending is expected to increase by 20% to more than USD 15.06 billion. While total expenses is estimated to reach OMR 5.8 billion, revenue is set to rise to only OMR 5.4 billion, thereby leaving a shortfall of OMR 0.4 billon. On January 06, 2008, the government sanctioned additional allocations to the budget amounting to OMR 2.36 billion. The expansion is aimed at financing several economic

and development projects in various sectors, such as roads, harbor, gas, housing, airports, health,

city planning, education, and municipality services. However, the projected deficit may well turn into a surplus as the price of oil, which accounts for most of the country’s revenue, is calculated at only USD 45 per barrel at an average daily production of 790,000 barrels.

At present, the Omani oil and marketing industry consists of three major domestic players namely - Al Maha Petroleum Products Marketing Company, Shell Oman Marketing, and Oman Oil Marketing Company. Together, in 2007, the three companies accounted for 372 retail pumps in the country, with Three major players in the Al Maha owning the largest network of 145 filling stations. However, in terms of volume in the retail market. segment, Shell Oman enjoys the leadership position. Other than the retail segment, all the three

companies actively participate and compete in the commercial and aviation fuel and lubricant sectors.

Number of Retail Fuel Stations in Oman

Companies 2004 2005 2006 2007

Al Maha Petroleum Marketing Company 113 123 138 145

Shell Oman Marketing Company 125 124 121 124 Oman Oil Marketing Company 81 82 96 103

Total 319 329 355 372 Source: Gulf Baader Capital Markets

Over the past few years, all the business segments of the industry, including retail, aviation and lubricants have been experiencing a positive economic climate. Oman Oil Marketing Company, with an overall market share of 26.5%, registered a 25.8% revenue growth to OMR 152.66 million. Additions of new retail filling stations propped up revenues of Al Maha by 41.5% to OMR 174.80 million, helping it to capture a market share of 30.4% (2006 - 26.2%). Shell Oman Marketing Company, which dominates the market with overall market share of 43.1% as compared to 48% in 2006, registered a nominal growth of 9.4% in terms of sales in 2007. However, with demand far

outpacing supply, as of now, there is ample scope for all the three players to grow further.

In the recent past, the aviation sector in the country has undergone significant changes - at both the airport and airline level, with much waiting to happen in the pipeline. Some of the changes include the Oman government’s withdrawal of ownership from Gulf Air; transfer of Oman Air’s ownership from a public company to a close company, among others. Typically, in this segment aviation contracts are Significant changes in the yearly tender-based businesses awarded by airlines to one of the three oil marketing companies. In aviation segment. 2007, crude oil prices skyrocketed to USD100 per barrel; as a domino effect, jet fuel prices increased significantly, thereby affecting profitability of airlines. In addition to this, the government’s withdrawal from Gulf Air has resulted in a severe drop in the total fuel supplied to this sector, which in turn has

affected all the three companies to various extents. However, since tourism development has evolved

into another preferred project of the Omani government, tourist passenger traffic is anticipated to double in the near future. The government's strenuous efforts to boost the tourism sector in Oman have helped the fuel marketing companies to restrain the drop in business to some extent. The country’s market size for lubricants stood at around 31.5 million liters in 2007 (excluding marine); this segment, which is fragmented with over 30 players including many brands of UAE origin, is projected to grow at about 5% in 2008.

At present, the various petroleum products such as LPG, motor gasoline, aviation fuel, diesel and fuel oil are received from the Petroleum Development Oman (PDO) and supplied to the marketing

companies, after refining. The Government of Oman controls the prices of all these products in the

supply chain, except lubricant prices which are set at the discretion of the oil marketing companies. Enough to go around. Currently, the industry is witnessing growing demand, thanks to increased industrialization, construction activities and swelling vehicular traffic. This will augment the requirement for bulk fuels. Bulk fuels and lubricants are an important component of not only the infrastructure & construction, but also the vehicle manufacturing & maintenance segments. Therefore, an expansion in these two areas augurs well for the petroleum retailing sector. Peer Analysis (1Q 2008)

Particulars Al Maha Petroleum Shell Oman Marketing Oman Oil Marketing

Revenue 51,755 73,388 41,352

Net profit 2,196 3,062 1,609 Total assets 47,930 59,724 34,435

Shareholders equity 22,432 17,377 16,321 ROE* 39.2% 70.5% 39.4%

ROA* 18.3% 20.5% 18.7% EPS* 1.273 0.124 0.100

Market share (1Q 2008) 31.1% 44.1% 24.8% *Annualized figures

Asset Structure

As at the end of March 2008, Al Maha witnessed a healthy 31.9% growth in its total assets, which reached OMR 47.93 million from OMR 36.35 million in the year ago comparable quarter. The Total assets soared 31.9%. company’s assets base comprises mainly of receivables & prepayments, property, plant & equipment, and cash & bank balance which form 36.7%, 36.1% and 22.2% of the total assets, respectively. During the period, property, plant & equipment, which includes filling station assets and other fixed assets, climbed 35.6% to OMR 17.29 million from OMR 12.75 million in 1Q 2007. This can be attributed mainly to the construction of eight filling stations, which started in April 2007 and continued to March

2008, and to the construction of the company’s new head office in Ghala - is still in progress.

In 1Q 2008, total current assets, which accounted for 63.9% of the total assets, increased 29.9% to OMR 30.64 million as against OMR 23.59 million quarter-on- quarter. Meanwhile, cash & bank balance registered an over two-fold growth reaching OMR 10.65 million from OMR 3.72 million in 1Q 2007. Among the cash and bank balance, bank balance increased to OMR 10.63 million from OMR 1.69 million, even as cash balances grew 8.7% to OMR 0.03 million. In addition, receivables & prepayments rose 3% to OMR 17.58 million. However, for the quarter inventories plunged 14.3% to OMR 2.41 million from OMR 2.81 million. Of these inventories, petroleum products declined 15.7% to OMR 2.37 million, while lubricants registered an over seven-fold growth to OMR 0.04 million.

Asset Structure

22.2% 36.1%

36.7% 5.0%

Property, plant and equipment Inventories Receivables and prepayments Cash at bank and in hand

For the year 2007, Al Maha’s total assets surged 36.7% to OMR 46.65 million from OMR 34.13 million a year ago. The growth was mainly driven by a significant increase in property, plant & equipment, cash at bank, and receivables & prepayments. During the year, the company’s property, plant & equipment surged 38.9% to OMR 16.32 million, thereby accounting for 35% of the total assets. In 2007, receivables & prepayments, which accounted for 37% of total assets, increased 28% to OMR 17.25 million as against OMR 13.48 million in 2006. Concurrently, cash & bank balance soared 66.8% to OMR 11.50 million, while inventories tumbled 21.1% to OMR 1.58 million. However, total current assets surged 35.5% to OMR 30.33 million from OMR 22.38 million, while in terms of percentage it dipped slightly to 65% from 65.6% in 2006. Capital Structure

For the quarter under review, Al Maha’s total shareholders’ equity soared 31.9% to OMR 22.43 million from OMR 17.01 million, fueled by a surge in share capital and retained earnings. In line with the Equity-based capital encouraging results, on March 27, 2007, the company distributed 40% cash dividend (OMR 0.40 per structure. share) and 15% stock dividend. As a result, share capital increased to 6.90 million consisting of 6.9 million shares of OMR 1 each. Further, retained earnings soared 54.9% to OMR 12.15 million from OMR 7.84 million in 1Q 2007. During the quarter, the company’s legal reserve grew 11% to OMR 2.22 million, while special reserve stood at OMR 1.17 million. Accordingly, book value or net assets per share (BVPS) improved to OMR 3.251 from OMR 2.834 in 1Q 2007, while shareholders equity to total asset ratio was stable at 46.8%.

At the end of 1Q 2008, Al Maha’s total debt declined 44.4% to OMR 0.77 million, as non-current interest bearing loans tumbled by 80% to OMR 0.15 million from OMR 0.77million, while short-term interest bearing loans decreased mildly by 0.2% to OMR 0.62 million. The company continues to repay its debts regularly, with sound debt servicing capacity. Consequently, total debt to equity ratio declined to OMR 3.4% from 8.2% in 1Q 2007.

Capital Structure

14.00

12.00 10.00

8.00 6.00 4.00 millions in OMR 2.00 0.00 Share capital Legal reserve Special reserve Retained earnings

1Q 2008 1Q 2007

During the year ended December 31, 2002, the company obtained a loan facility of USD 8 million from the National Bank of Abu Dhabi for financing the construction of filling stations and other related capital expenditure. However, on January 2, 2006, the outstanding balance of the loan that amounted to USD 5.2 million was transferred to Oman International Bank. The loan, the repayment of which commenced on April 1, 2006, bears an interest at the rate of 3 months LIBOR plus 0.55% per annum. It is repayable in 13 equal quarterly installments of USD 0.4 million.

Recent Performance

The first quarter of 2008 was a highly fruitful one for Al Maha, on most counts. During the period, the company registered a robust 78.2% increase in bottom-line, which touched OMR 2.20 million as against OMR 1.23 million in the year ago comparable quarter, mainly driven by revenues. Therefore, Bottom-line climbed 78.2% net profit margin (NPM) climbed to 4.2% from 3.4% in 1Q 2007. This resulted in annualized earnings per share of OMR 1.273 as against OMR 0.821 in the year-ago period. Continuing the uptrend in return on investment ratios, both annualized return on equity (ROE) and return on assets (ROA) increased to 39.2% and 18.3% as against 29% and 13.6%, respectively, in 1Q 2007.

For the quarter, Al Maha registered a top-line of OMR 51.76 million, a remarkable 43.2% increase from OMR 36.13 million in the last comparable quarter. The growth was mainly spurred by increases in retail and commercial sales. However, aviation fuel sales decreased on account of substantial reductions in Gulf Air’s operations in the Muscat International Airport. Meanwhile, the company’s cost of sales rose sharply by 44.1% to OMR 46.57 million from OMR 32.32 million, while cost of sales as a percentage of sales revenue slightly increased to 90% from 89.5% in 1Q 2007. Consequently, gross profit margin (GPM) declined to 10% from 10.5% in 1Q 2007.

Recent Performance

25.00 20.00

15.00 10.00

5.00 millions in OMR 0.00 2007 2006 1Q 2008 1Q 2007

Gross Profit Operating profit EBITDA Net Profit

Rising cost of sales During 1Q 2008, the company’s EBITDA increased to OMR 2.67 million from OMR 1.65 million in the pressurize margins. year ago period. Accordingly, EBITDA margin increased to 5.2% from 4.6%. In addition, Al Maha’s operating profit climbed 75.1% to OMR 2.31 million from OMR 1.32 million, as a result of which operating profit margin (OPM) increased to 4.5% from 3.7% quarter-on-quarter. During the period, other income registered an over three-fold growth to OMR 0.18 million, while net finance income tumbled 59.1% to OMR 0.04 million.

Recent Performance (Ratios)

50.0% 40.0% 30.0% 20.0%

10.0%

0.0% GPM EBITDA margin OPM NPM ROE ROA

2007 2006 1Q 2008 1Q 2007

For the financial year ended December 31, 2007, Al Maha’s bottom-line climbed 67.9% to OMR 6.86 million as against OMR 4.09 million a year ago, mainly attributable to surging sales revenue and ROE and ROA climb 30.3% expansion of market share, owing to favorable economic conditions and spiraling demand for and 14.7%, respectively. petroleum products. Concurrently, basic EPS improved to OMR 1.144 from OMR 0.681 in 2006. Maximizing shareholders’ return, both ROE and ROA escalated to 30.3% and 14.7% from 22.5% and 12.0%, respectively, in 2006.

During the year, Al Maha’s top-line registered a strong 41.5% year-on-year growth to reach OMR 174.80 million, Within the revenues, the retail sales segment showed an impressive growth of 34% driven by increase in retail sales volume, which proved to be the major revenue generator. This increase can be mainly attributed to the company’s focus on the retail segment - seven filling stations were constructed, which in turn brought the total number of filling stations to 145 at the end of 2007 Top-line registered a from 138 in 2006. Further, revenues from the bulk sales segment zoomed 87%, thanks to spiraling healthy 41.5% growth. construction activities all over Oman and in the Sohar region in particular. On the other hand, revenues from the aviation fuel segment declined 7%. However, we expect this segment to gather steam in the near future fueled by the government’s effort to develop the tourism sector, growing air and passenger traffic, and the establishment/development of new air ports.

During the year, cost of sales ratio climbed 89.1% from 88.8%, as a result of which gross profit margin declined to 10.9% from 11.2%. Further, the company’s operating and administration expenses surged 21.1% to OMR 11.80 million from OMR 9.74 million, driven by a surge in transportation cost, employees cost, filling station expenses, depreciation, operating fees of PDO filling stations, donations & provision for impairment of receivables. However, EBITDA advanced 64.6% to OMR 8.70 million, as a result of which EBITDA margin increased to 5% from 4.3%. New Projects and Strategy

Al Maha's mission is to make available to the citizens of Oman petroleum products of the highest Customer oriented goals international quality, at most competitive prices, at the right time, and to place with absolute safety. and objectives. Toward this end, the company has been continuously focusing on adherence to the principles of Total Quality Management, cost consciousness and a highly competitive pricing structure, expansion of network, innovativeness, and market penetration.

Today, Al Maha has 145 filling stations; its network now spans the complete geographic boundaries of Enlarging retail network. the Sultanate, and caters to the fuel needs of even the remotest areas in Oman. All the filling stations are designed to be customer friendly and use the latest equipment and technology available in the industry today. They are specifically designed for the particular market area they serve.

Growth in Retail Sites

160 140 120 100 80 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007

Number of Filling Stations

In May 2008, Al Maha inked a deal with Towell Auto Centre that supplies the products of TOTAL, which is the fourth largest energy company in the world, with operations across a 100 countries. Apart from promoting the products through its 150 outlets, Al Maha plans to open more Car Wash & Rapid Oil Change centers throughout the country, in association with TOTAL. These initiatives will help the company to provide a wider range of ‘Rapid Oil Change’ centers to customers, together with world- class lubricant technology.

Earlier in June 2007, Al Maha initiated legal proceedings against Talal Al Zawawi Enterprises LLC (TZE), which managed the Souk convenience stores in some of its filling stations. Charging TZE with mismanagement, Al Maha threatened to terminate the management agreement. However, this conflict was resolved on August 21, 2007, and the terms of the contract were amended. Under the new terms, Al Maha secured the right to use the ‘Souk’ brand to operate the convenience stores. The company’s entitlement in the results of ‘Souk’ operations has been modified from 50% of net profit to an annual fixed amount of OMR 50,000 for the years 2007 through 2009. The annual fixed amount is to be paid by TZE to the company in consideration for the license to use the ‘Souk’ brand name.

Positives

• As the second largest player in the petroleum marketing sector, Al Maha enjoys valuable brand equity.

• The company’s effort to extend its network of filling stations would further boost revenues from the retail segment.

• Accelerating industrialization, and construction and tourism activities in the country will enhance its profitability

Negatives

• Rising cost of sales, a fragmented market and increasing competition are Al Maha’s major challenges.

• The company’s absence in the upstream segment can have a downward effect on margins. Valuation: Discounted Cash Flows

We have used the Discounted Cash Flow (DCF) method to determine our fair value estimate. As

inputs for our valuation, we have used the unlevered industry Beta for emerging markets’ oil refining and marketing companies of 0.84. We have derived the equity premium by adding the historical premium of US equities over the risk-free rate and the country premium. We estimate a country Cost of Equity: 9.05% premium of 1.20% using Moody’s long-term country rating (A2 for Oman) and estimating a default WACC: 9.04% spread for that rating, based upon the difference in yields for traded country bonds.

As a proxy for the risk-free rate of interest, we have taken the yield on 10-year US treasury notes as the proxy for the risk-free rate of interest. At the time of this report, the 10-year US Treasury bond had a yield of 3.910%.

Based on the inputs and the Capital Asset Pricing Model, we arrive at a Cost of Equity of 9.05%. Considering the long-term debts of Al Maha, we arrive at the Weighted Average Cost of Capital (WACC) of 9.04%.

Investment Opinion

Al Maha witnessed a robust 43.2% quarter-on-quarter and a 41.5% year-on-year growth in its top-

line in 1Q 2008 and FY 2007, respectively. Currently, the company boasts of 150 customer friendly

filling stations, equipped with the latest technology. The network spans the complete length and breadth of the country and caters to the fuel needs of even the remotest areas. This enables the company to reap the benefits of overall retail fuel demand in the country. In addition, the Fair Value: OMR 22.925 government’s plans to spend at least USD 3 billion in expanding the country’s international airport in Investment Opinion: Muscat and to build another three airports in tourist locations and in the industrial city of Sohar is OVERWEIGHT likely to add fillip to the aviation fuel segment. Further, the rising passenger traffic at Seeb

International Airport and increase in Oman Air’s operations, coupled with a rise in tourism projects in the country, would be extra bonus.

On the flip side, the company’s absence in the upstream segment, the rising cost of sales, coupled with heating competitive temperatures are expected to put some pressure on margins. However, we believe, the company’s prudent expansion policy, positive strategic outlook, increasing vehicular population, and the buoyancy in industrialization and construction activities will provide it a vigorous operating environment.

Considering the above factors, we revise our Fair Value per share for Al Maha upwards by 77.2% to OMR 22.925 from OMR 12.935 (June 06, 2007). The stock exhibits a 25% potential upside from its closing price of OMR 18.345 (as on July 08, 2008). Therefore, we reiterate our earlier OVERWEIGHT investment opinion on the stock.

Condensed Projections

(in OMR ‘000) 2008E 2009E 2010E Revenue 216,746 262,263 309,471 Net profit 8,618 10,452 12,351 Total assets 57,936 67,841 78,284 EPS (OMR) 1.249 1.515 1.790

FINANCIAL STATEMENTS

BALANCE SHEET As on

In OMR’ 000 31 Dec’ 07 31 Dec’ 06 % Chg 31 March’ 08 31 March’ 07 % Chg

ASSETS Property, plant and equipment 16,324 11,752 38.9% 17,290 12,754 35.6% Total Non-Current Assets 16,324 11,752 38.9% 17,290 12,754 35.6% Inventories 1,583 2,005 -21.1% 2,409 2,811 -14.3% Receivables and prepayments 17,245 13,478 28.0% 17,581 17,064 3.0% Cash at bank and in hand 11,498 6,894 66.8% 10,650 3,716 186.6% Total current assets 30,326 22,378 35.5% 30,640 23,591 29.9% Total assets 46,650 34,130 36.7% 47,930 36,345 31.9% Equity Share capital 6,000 6,000 0.0% 6,900 6,000 15.0% Legal reserve 2,000 1,889 5.9% 2,220 2,000 11.0% Special reserve 1,166 1,166 0.0% 1,166 1,166 0.0% Retained earnings 13,470 9,118 47.7% 12,146 7,839 54.9% Total equity 22,636 18,173 24.6% 22,432 17,005 31.9% Liabilities Interest-bearing loan 308 924 -66.7% 154 769 -80.0% Employees’ end of service benefits 126 106 19.2% 138 102 35.3% Total non-current liabilities 434 1,030 -57.9% 292 871 -66.5% Interest-bearing loan 616 616 0.0% 616 617 -0.2% Income tax payable 932 552 68.8% 22,190 15,452 43.6% Payables and accruals 22,033 13,759 60.1% 2,400 2,400 0.0% Total current liabilities 23,580 14,927 58.0% 25,206 18,469 36.5% Total liabilities 24,014 15,957 50.5% 25,498 19,340 31.8% Total equity and liabilities 46,650 34,130 36.7% 47,930 36,345 31.9% Net assets per share (OMR) 3.773 3.028 24.6% 3.251 2.834 14.7%

INCOME STATEMENT For the period ended

In OMR’ 000 31 Dec’ 07 31 Dec’ 06 % Chg 31 March’ 08 31 March’ 07 % Chg

Revenue 174,795 123,497 41.5% 51,755 36,130 43.2% Cost of sales -155,715 -109,665 42.0% -46,571 -32,324 44.1% Gross profit 19,081 13,832 37.9% 5,184 3,806 36.2%

Other income 432 513 -15.8% 181 56 223.2%

Operating and administration expenses -11,795 -9,741 21.1% -2,873 -2,486 15.6% Finance income 167 144 15.9% 24 43 -44.2% Finance charges -77 -108 -29.1% -15 -23 -34.8% Profit before income tax 7,808 4,640 68.3% 2,501 1,396 79.2% Income tax expense -945 -552 71.2% -305 -164 86.0% Profit for the year 6,863 4,088 67.9% 2,196 1,232 78.2%

No. of Outstanding Shares (‘ 000) 6,000 6,000 6,900 6,000 EPS (OMR) 1.144 0.681 67.9% 1.273* 0.821* 55.0% *Annualized figures

KEY RATIOS

31 March ’08 31 Dec ’07

Gross profit margin 10.0% 10.9% Net profit margin 4.2% 3.9% Cost of Sales Ratio 90.0% 89.1% Total debt/Equity ratio 3.4% 4.1% Shareholders equity/Asset ratio 46.8% 48.5% EPS (OMR) 1.273* 1.144 ROE 39.2%* 30.3% ROA 18.3%* 14.7% * Annualized figures OPINION RATINGS:

The stock is expected to perform better than the market index; investors may give the stock OVERWEIGHT more weight in their portfolio, than its weight in the overall market

The stock is expected to perform in tandem with the market index; investors may give the NEUTRAL stock the same weight in their portfolio as in the overall market.

The Stock is not expected to perform in line with the market index; investors may give the UNDERWEIGHT stock less weight in their portfolio than its weight in the overall market.

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DISCLAIMER: All reasonable care has been taken to ensure that the information contained herein is not misleading or untrue at the time of publication, but we make no representation as to its accuracy or completeness. All information is for the private use of the person to whom it is provided without any liability whatsoever on the part of TAIB Securities WLL, any associated company or the employees thereof. Nothing contained herein should be construed as an offer to buy or sell or a solicitation of an offer to buy or sell. The value of any investment may fall as well as rise. Past performance is no guide to the future. The rate of exchange between currencies may cause the value of the investment to increase or diminish. Consequently, investors may not get back the full value of their original investment