June 2020 - Volume 14, No 160

Summary Equity Markets The TEDPIX index and junior Farabourse (IFB) market continue to expand moderately 11% and 9% in IRR terms over during this month ending May 2020, respectively. Based on the unofficial exchange rate, the month-on-month gain in dollar terms was 2% in TSE and 1% in Farabourse market. This was mainly due to 8% depreciation of IRR exchange rate over the month.

Debt Markets For the start of the Iranian calendar year 1399 (March 2020) to end May, total issuance on the fixed income market reached 0.5 billion US$ based on the unofficial exchange rate. Yield to maturity (YTM) remained stable at 15% at the end of May.

Economic Review This issue reviews the updates on overall economy outlook and the recent rally of the stock market. In addition, we have included a separate report covering the latest macroeconomic data published by relevant organizations and senior macroeconomic strategists in a fact-sheet summary, as well as an economic calendar released by local and international statistics centres.

Photo: Nazanin Paykar

1 Investment Monthly Table of Contents 3 Market Overview 3 Market Update

6 Performance & Updates

7 Historic Trends & Sector Insight

8 Industry at a Glance

9 Market Snapshot

10 TSE & Junior Market Performance

11 Top Ranked Companies

12 Iran’s Fixed Income Market 14 Economic Review

15 Latest Updates

16 Macroeconomic Data 17 News & Views

17 Recent Brokerage Reports

17 Turquoise News

2 Iran Investment Monthly Market Overview June 2020 - Volume 14, No 160

Market Update

The (TSE) experienced a 1.4% decrease during the month of May; this came after a year of consistently positive year to end of April of 91% performance of in 2020. The recent correction occurred as a result of further depreciation of IRR versus Euro .

On a yearly basis, however, Rial is down by 37 Percent versus the central back Euro rate. Below you could see the normalized value trend of the Iranian currency versus its European peer. EUR per IRR (Normalized to 100)

Shervin Shahriari Chief Investment Officer

Source:Bonbast

During the month of May and depending on their fiscal year, most listed companies released their last year earnings reports. Earnings reported this time did not significantly change the previously reported forecasts of the total market profits, and the figure remains at around $14 billion. Yearly profit of listed companies (Billion USD)

Source:TSE

3 Iran Investment Monthly Market Overview June 2020 - Volume 14, No 160

These earnings came at a time when many investors, excited by the current positive atmosphere in the market, expected strong yearly performance which could result in positive adjustments to the earnings of listed companies.

However, this news showed that even though Rial depreciation has continued, it still has not had a significant impact on the profitability of listed companies. YOY change in profitability of 5 TSE largest sectors

Source:TSE

As previously discussed, one of the reasons behind this consolidation phase, that the market experienced slightly during the month of May, was the lower-than-expected earnings results reported during the month.

The sector that reported a 40 percent annual drop in earnings compared to the previous quarter, was the refined petroleum sector. This plunge in earnings is the result of the collapsing oil prices which we witnessed in April and May. Most export-oriented companies, especially in the metals and mining sectors, which had been boosted by the depreciation of Iranian Rial over the last six months, reported poor results. The only sector that positively surprised the market and beat expectations in its earnings report was the Pharmaceuticals sector. This is mainly due to price increases that they recently benefited from when the government raised the fixed limit on its price controls.

The Pharmaceuticals index was among top performers amongst all industries, and the sector as a whole enjoyed a 49% rise in companies’

4 Iran Investment Monthly Market Overview June 2020 - Volume 14, No 160

annual earnings and 11% rise in net profit in comparison to the past fiscal year.

With relatively poor autumn and winter performances for most sectors in comparison to the market expectations, it is likely that most companies will release cautious and conservative profitability reports for next quarter in July.

Here is the sector performance of different market segments in May:

MOM % in USD Terms

Source:TSE

5 Iran Investment Monthly Market Overview June 2020 - Volume 14, No 160

Performance & Updates

11 - Year Average (2008-2020)1 Market Capitalization (billion US$) 2 130 TSE & Farabourse Junior Market P/E 8.5 x TSE Dividend Yield (%) 10 % TSE Market Cap / GDP 57 % TSE & Farabourse Dividend Growth Rate 22 % TSE Total Turnover (billion US$), Average Annual 17 TSE TSE Overall Index Average Annual Growth (US$) 18 % TSE

1 Annual data from 2008 to May 2020 2 Calculated based on unofficial IRR per US$ exchange rates.

Summary - May 2020 Market Capitalization (billion US$) 271 TSE & Farabourse Junior Market Free Float 22% TSE & Farabourse Junior Market Number of Listed Companies1 635 TSE & Farabourse Junior Market TSE Index Performance (US$)2,4 2.3% (MTD) 96.4% (YTD) TSE Total Turnover (million US$)2 15,468 m$ TSE & Farabourse Junior Market Dividend Yield (%) 3 4.1% TSE P/E 19.5 TSE

1 174 companies are listed in Over-The-Counter (OTC) or off-exchange market named as “Base Market” in Farabourse junior market which trading of these companies are done directly between two parties. 2 Calculated based on unofficial IRR per US$ exchange rates. 3 Calculated based on the latest market data 4 TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index)

Tehran Stock Exchange & Junior Market Trade by Value1 - May 2020

Iran Farabourse (Junior Market) Trade Volume (million US$)

Tehran Stock Exchange (Main Market)Trade Volume (million US$)

Since the beginning 2020, the market has expanded to the upside recording the YTD performance of the TSE and IFB to 159% and 128% in IRR terms respectively. The gain in hard currency terms was 96% on the TSE and 73% on the IFB on a year to date basis. In May 2020, the TSE equity trade value expanded to 12,308 million US$ from the 4,566 million US$ historic 12-month average. The total number of shares traded on the TSE expanded by 83% compared to the one-year historic average of 110 billion shares. US$ Million

Source: Tehran Stock Exchange Iran Farabourse Company All figures in US$ are converted from IRR at the free market rate 1 Trading volume month on month in US$ term - TSE includes mainly equity while Farabourse has more fixed income instruments and smaller equities.

6 Iran Investment Monthly Market Overview June 2020 - Volume 14, No 160

Historic Trends & Sector Insight

Long-Term Overall Index (Normalized in USD) Long-Term Iranian Market Cap ( Normalized in USD)

Historic Average: 168 Historic Average: 161 May 2020 : 415

May 2020:474

TSE Best Performing Sectors & Overall Index (Normalized in USD)

Banks Motor Vehicles and Auto Pars Post & Telecommunication 147 Overall USD

107

105 97

TSE Large Sectors (% Market Capitalization)

22% 14% 9% 8% 7% 5% 5% 4% 26% Other Mining Metals* Pharma Telecom Chemicals Petroleum Diversified

Source: TSE, Bonbast, as of May 2020 *Metals sector includes steel, copper and aluminum

7 Iran Investment Monthly Market Overview June 2020 - Volume 14, No 160

Industry at a Glance - May 2020

YTD 1-Year Return 5-Year Return Top Performing Companies Market Cap Sector Trailing (%) Trailing (%) Trailing (%) in May 2020 (MOM %) (Million USD) in USD in USD in USD

Navard Aluminium Mfg. Group 116 272% 473% 147% Metals* ALUMTEK Corp 138 137% 603% 416%

Navard va Ghataat Co. 78 28% 312% 286%

Damavand Mining Company 58 180% 340% 479%

Mining Bama 643 205% 314% 305%

Goharzamin Iron Ore co 4,071 72% 208% -

Isfahan Oil Refinery 4,925 56% -8% -52%

Petroleum Pars Oil 744 38% 188% -42%

Tabriz Oil Refining 1,703 -51% -19% -43%

Fars chemical industries company 150 269% 571% 40%

Chemical Esfahan Petrochemical Company 182 40% 122% 229%

Kermanshah Petrochemical Industries Company 749 88% 163% -30%

Tourism 558 334% 663% -

Banks Bank Day 708 278% 831% 77%

Karafarin Bank 732 253% 468% 12%

TSE Large Sectors 5-Year Performance (Normalized in USD) Metals Mining Petroleum 303, May 2020 Chemical Banks 263, May 2020

200, May 2020

174, May 2020

149, May 2020

Source: TSE, Bonbast, as of ending May 2020 *Metals sector includes steel, copper and aluminum

8 Iran Investment Monthly Market Overview June 2020 - Volume 14, No 160

Market Snapshot -May 2020 Iran & Regional Markets

Iran: A 26-Year Snapshot, Asset Class Annualized Return in US$ (%) P/E Multiple Comparison 12% MSCI Morocco 17.3 Kuwait 14.3 Qatar 14.1 5% MSCI Arabian Markets 14.3 5% MSCI GCC Countries 14.6 MSCI Egypt 7.6 1% Saudi Arabia 22.0 UAE 10.3

% Iran 19.5 Turquoise Iran Fund* 9.2 Sub Fund B/C, as of ending May 2020 Note: Annual data from 1995 to May 2020 Source: CBI, TSE, IFB All figures in US$ are converted from IRR at the free market rate

Iran & International Markets

3 4 Tehran Stock Exchange MSCI Emerging Markets MSCI Frontier Markets

Average P/E Average P/E Average P/E 19.5 14.3 11.2 1 1-Year Performance in $ 1-Year Performance in $ 1-Year Performance in $ 245.4% -4.0% -10.5% Annualized 10 Year in $ 2 Annualized 10 Year in $ Annualized 10 Year in $ 9.5% 2.8% 3.6%

22.4 Chemicals 20.2 Financials 50.5 Financials 13.7 Basic Metals 16.7 Information Technology 14.1 Communication Services 8.9 Refined Petroleum 15.9 Consumer Discretionary 10.8 Real Estate 7.6 Metal Ores Mining 13.0 Communication Services 7.9 Consumer Staples 7.3 Monetary intermediation 7.1 Materials 4.7 Materials

Sector Breakdown (%) 40.1 Others Sector Breakdown (%) 27.1 Others Sector Breakdown (%) 12.0 Others

1.TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index) performance calculated in US$ for the Period of March 2019 to May 2020 2.TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index)10 year annualized performance calculated in US$ 3.MSCI Emerging Markets Index (US$) - May 2020 4.MSCI Frontier Markets Index (US$) - May 2020 Source: Tehran Stock Exchange - - MSCI Inc., Kamcoonline. All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

9 Iran Investment Monthly Market Overview June 2020 - Volume 14, No 160

TSE & Junior Market Performance Tehran Stock Exchange: TEDPIX*, May 2020

Normalised in US$ Normalised in US$

Volume million shares Million Shares

Source: Tehran Stock Exchange *TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index) All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

Iran Farabourse (Junior Market): IFX*,May 2020

Normalised in US$ Normalised in US$

Volume million shares Million Shares

Source: Iran Farabourse Company *Iran Farabourse (Junior Market) Overall Index (Total Return) All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

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Top Ranked Companies - May 2020 Turnover Value % Total Turnover (million US$)

Esfahan Oil Refining Co. has 23% of Iran’s refining capacity with 0.3% a nominal capacity of 375,000 barrels per day. The company Isfahan Oil Refinery 32.1 provides petroleum products for Esfahan Petrochemical Co., Arak Petrochemical Co., Sepahan Oil Co., Jey Oil Co. and National Petrochemical Co. of Iran.

Founded in 1962, Iran Khodro Industrial Group (also known Iran Khodro 0.2% as IKCO) is the leading Iranian vehicle manufacturer. 26.5 IKCO produces c.65% of all domestic vehicles, and is the largest automotive manufacturer in the Middle East.

Mellat Bank was established in 1979 with the 0.2% merger of ten pre-revolution private banks in Iran. 20.8 From the outset, the operations of the bank have included various commercial banking services.

Tejarat Bank was founded in 1979 after the implementation of the Banks 0.1%

Top 5 Traded by Value Traded 5 Top 15.8 Nationalization Act In 2009, the bank was partially privatized, with the Iranian state remaining as a minority shareholder.

Bandar Abbas Oil Refining Company is one of Iran’s nine petroleum refining Bandar Abbas 0.1% companies, Its major products are Oil Refining co 14.7 Liquefied Petroleum Gas (LPG), gasoline, heavy naphta, aviation jet fuel, kerosene. Market Cap % Total Market Cap. (million US$) Persian Gulf Petrochemical 5.8% Persian Gulf International Transportation founded in 1989 as a joint private 11,763 stock in Iran and was listed in 2010 in Tehran Stock Exchange. The company Industry operates as a distributor of products and goods across the country.

Mobarakeh Steel Esfahan Mobarakeh Steel Company, one of the largest industrial Manufacturing 5.2% complexes in the country, started its operation in 1991 with a nominal 10,563 capacity of 2.4 million tons per annum. The company produces more than 50% of Iran’s steel and operates in seven industrial complexes.

In 1972, Sarcheshmeh Copper Mines Joint Stock Co of National Iranian Kerman was established and, later, in 1976, it was renamed 3.8% to National Iranian Copper Industries Co. to cover all copper Copper Ind. Co. 7719 mines operations throughout the country. This company is active in extraction & utilization of copper mines, production of copper concentrates & manufacturing copper products. The Social Security Social Security Investment Company 3.3% Established in 1986, The company has a diversified Investment 6714 sector investment portfolio including oil & gas, Company mining, pharmaceutical, energy, cement and banking sectors.

Top 5 by Market Capitalization Top Chadormalu Chadormalu Mining and Industrial Company Mining & Industrial 2.8% is the largest iron ore producer in the country with more than 34% share of Iran’s Co. 5629 total production.

Source: Tehran Stock Exchange, Firouzeh Asia Brokerage. All figures in US$ are converted from IRR at the unofficial rate.

11 Iran Investment Monthly Market Overview June 2020 - Volume 14, No 160

Iran’s Fixed Income Market For the start of the Iranian calendar year 1399 (March 2020) to end May, total issuance on the fixed income market reached 0.5 billion US$ based on the unofficial exchange rate. Yield to maturity (YTM) remained stable at 15% at the end of May.

Iran’s Debt Securities Market - May 2020* 0.73 8.1 Tehran Stock Exchange Iran Farabourse (Junior Market)

Market Value (billion US$)* 2.11 26.33 Tehran Stock Exchange Iran Farabourse (Junior Market)

Average Daily Trading Value (million US$)*

376,600 5,907,650 Tehran Stock Exchange Iran Farabourse (Junior Market)

Average Daily Trading Volume (bonds)

* As of Ordibehesht 1399 (20 April - 20 May 2020)

Value & Breakdown of Sukuk Issuance in Iran’s Capital Markets, 2020 (1399)** - (billion US$)

85% 12% 2%

Islamic T-Bills Salaf (Salam) Sukuk Ijarah

Source: Iran Farabourse **Calculated by the unofficial exchange rate in the period of issuance, percentages have been rounded and may not total to 100.

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Iran’s Fixed Income Market

Snapshot of the Highest Yielding Debt Securtites1 - May 2020

Issuer Type YTM (p.a.) Maturity

Corporate Murabaha 0.272 16-Sep-23

Corporate Ijara 0.268 25-Feb-24

Corporate Ijara 0.268 25-Feb-24

Corporate Fixed Income 0.267 27-Jul-23

Corporate Fixed Income 0.262 2-Jul-23

Corporate Ijara 0.261 31-Jan-22

Corporate Murabaha 0.261 15-Mar-24

Corporate Mosharekat 0.257 19-Mar-23

Corporate Fixed Income 0.256 6-Nov-22

Corporate Fixed Income 0.251 21-Oct-22

1 This snapshot is a selection of the highest yielding securities with minimum one year maturity in Iran’s debt markets and should not be considered as a solicitation or recommendation by Turquoise Partners.

Iran’s T-bills YTM in IRR Term

May 2020 15.12%

Source: Tehran Stock Exchange - Iran Farabourse

13 Iran Investment Monthly Economic Review June 2020 - Volume 14, No 160

Latest Updates

Two major global economic developments affected the world economies since the beginning of 2020. One is the pandemic that is troubling many economies and specific sectors across countries. The other is the sharp devaluation of commodities including oil and petroleum products. The oil price declined from 70 US$ in the beginning of 2020 to historic lows of 16 US$ per barrel ending March 2020. Iran suffered from the largest number of reported COVID-19 cases in the region and the services sector as the largest sector in GDP exposed to broad-based damage. According to the World Bank report in June 2020, the real GDP contracted by more than 8% in 2019 as sanctions and lower export revenues in industries affected the economy. The negative growth will continue in 2020 by 5% partly due to lower oil prices, reduced non-oil activity reflecting the effects of the large-scale COVID-19 outbreak on domestic consumption and the service sector. In 2021, the GDP is estimated to increase by 2% as the economy is expected to adjust following this ongoing pandemic. Iran’s inflation remained at approximately 23% in 2020. The stock market however, rallied over the past 9 months. A strong rally after a sharp depreciation of the exchange rate is what happened over the past two devaluations. These rallies in stock market compensated for the loss of IRR depreciation with a lag of 6 months to 1 year. The TSE continued its positive performance in April and May 2020, recording one of the best performing stock markets in the world. According to the World Federation Exchange (WFE), Iran Farabourse and Tehran Stock Exchange recorded the highest annual growth in USD terms of 332% and 301%, respectively among emerging and frontier stock markets in the world.

Index Change % in USD (May 2020 vs. May 2019)

Source:WEF Since March 2020, the number of new trading codes and retail investors increased by 215%. Despite the pandemic, most brokerage houses were flooded by retail investors trying to get their trading codes. The trailing twelve-month P/E of both the TSE and the junior market hit a new record high and stood at approximately 20 at the end of June 2020.

14 Iran Investment Monthly Economic Review June 2020 - Volume 14, No 160

Number of New Trading Codes

215%

Source:Salameno Many observers have tried to explain retail investor’s behaviour. One of the suggested reasons is that Iran’s listed equities have been undervalued for a long time. Secondly, no other asset class in the country has been performing as well as the equity market. Thirdly, trading in other asset classes (such as the gold market or USD notes) are limited and controlled by the government. The other factor is that so far there has no tax on capital gains in Iran. Moreover, in principle equities are a good hedge against inflation and expected inflation is high. Sanctions have limited the ability to transfer money to other countries and individuals try to protect the value of IRR against any potential devaluation and inflation to come.

Normalised Index in USD

Source:TSE,CBR

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Macroeconomic Data Iran Economic & Market Data Data Macroeconomic Forecast Calendar Unit 2020/ 21 2021/ 22

National Consumer Price Index by Real GDP Growth (%) -6.0 3.1 Expenditure Deciles: in the Month of Ordibehesht of the year 1399: (%) June 8, 2020 Inflation 34 33

CPI by Provinces in the Month of Ordibehesht of the Year 1399: June 7, 2020 Actual Macroeconomic Data Consumer Price Index in the Month of Ordibehesht of the Year 1399: Unit Period Value Comments May 31, 2020

CPI by Provinces in the Month of Farvardin Population Growth % 2011- 2016 1.24% - of the Year 1399 : 1398 May 9, 2020 Unemployment Rate % 10.70% - (Mar 19 - Mar 20)

Inflation Rate % May-20 (Y/Y) 27.8% 2016 = 100

1398 Non-oil GDP Growth % 0.6% 2011 = 100 (Mar 19-Mar 20) 1398 GDP Growth % -7.0% 2011 = 100 (Mar 19-Mar 20)

Sources: IMF, Central Bank of Iran, Statistical Center of Iran, World Bank

16 Iran Investment Monthly News & Views June 2020 - Volume 14, No 160

Recent Brokerage Report Turquoise News

Iran Daily Market Update – June 2020 February 9, 2020 The Turquoise Venture Capital Fund started its public 14 Jun 2020 market subscription on the Iran Farabourse exchange from Feb 9th, 2020 for a period of 7 days. The Fund however was 15 Jun 2020 oversubscribed on the 3rd day and was able to raise money from a solid mix of both institutional and private investors. This 14 Jun 2020 public market subscription set a record within the Iranian capital 13 Jun 2020 markets for the venture capital funds, which was a positive news for the Iranian start-up ecosystem. 10 Jun 2020 More Information in Persian

09 Jun 2020 October 2, 2019 Turquoise Partners unveiled an online system to ease investment in start-ups at Iran National Library. More Information

September 17, 2019 On Tuesday, September 17, 2019, the Director of Trade, Investment and Innovation Department at the United Nations Industrial Development Organization (UNIDO) and his colleagues had a meeting with Turquoise Partners. In this meeting, which was held at the Turquoise Office, entrepreneurial opportunities in the Iranian tech scene and frontier markets were discussed. More Information

17 Iran Investment Monthly News & Views June 2020 - Volume 14, No 160

Asset • EU Regulated Equity Fund Management • EU Regulated Fixed Income Fund • Domestic Fixed Income Fund • Domestic ETF TSE-30 • Domestic Mutual Fund • Managed Accounts

Investment • Banking Services • M&A • ECM • DCM • Private Placement • Institutional Equity Sales • Retail Equity Sales • Market Entry Strategy

Principal Strategic Investments

18 Iran Investment Monthly June 2020 - Volume 14, No 160 Turquoise Partners 7th floor, Mahdyar Building, Salehi Street, Niavaran Ave. Tehran, Iran Tel: + 98 21 22 70 62 38 Fax: +98 21 881 07 746 Email: [email protected]

Firouzeh Asia Brokerage 5th Floor No. 11, Mirza Hassani St. Ghaem Magham Farahani Ave. Tehran, Iran Tel: +98 21 881 06 106 Fax: +98 21 881 07 746 Email: [email protected]

DISCLAIMER This document has been issued by Turquoise Partners for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell any security or other financial instrument or to any particular category of investors in jurisdictions in which such an offer or solicitation to the public or to any particular category of investors is illegal. Although the material in this report is based on information that Turquoise Partners considers reliable, Turquoise Partners does not make any warranty or representation (express or implied) in relation to the accuracy, completeness or reliability of the information contained herein. Any opinions expressed herein reflect a judgment at the date of publication and are subject to change. Turquoise Partners accepts no liability whatsoever for any direct, indirect or consequential loss or damage of any kind arising out of the use of all or any of this material. Where Turquoise Partners provides information in the document, it is provided exclusively for information purposes. The information does not constitute any form of recommendation related to the personal circumstances of investors or otherwise, nor does it constitute any specific or general recommendation to buy, hold, or sell financial instruments and does not thus create any relationship between Turquoise Partners and any investor. The document may not include all the up-to-date information required to make investment decisions. Other more accurate and relevant sources of information may exist. Investors should thus diligently inform themselves about the chances and risks of the investments prior to taking investment decisions. In addition to the financial aspects, this should include, in particular, the legal and tax aspects of the investments. It is strongly recommended that any potential investor should contact a financial adviser and, where required, a lawyer or tax adviser. Furthermore, it should also be considered that the future performance of financial instruments and their return cannot be inferred from their past performance. The value of investments may go down as well as up and investors in financial instruments should be capable of bearing a total loss of investment. Neither Turquoise Partners nor any third party content provider shall be liable for any errors, inaccuracy, delay or updating of the published content of the provided document. Turquoise Partners expressly disclaims all warranties as to the accuracy of the content provided, or as to the use of the information for any purpose, as far as legally possible. This material is for the use of intended recipients only and neither the whole nor any part of this material may be duplicated in any form or by any means. Neither should any of this material be redistributed or disclosed to anyone without the prior consent of Turquoise Partners. PERSONS DOMICILED, RESIDENT OR BASED IN THE UNITED STATES OF AMERICA ITS TERRITORIES OR POSSESSIONS OR WHO MAY OTHERWISE BE CONSIDERED AS UNITED STATES PERSONS, INCLUDING REPRESENTATIVES OF UNITED STATES COMPANIES OR NON-UNITED STATES SUBSIDIARIES OF UNITED STATES COMPANIES SHOULD NOT CARRY OUT ANY ACTION IN BREACH OF U.S. SANCTIONS LAWS.

19 Iran Investment Monthly