Market Updates


Stories In Focus

NIR increase USD0.107 billion to USD17.414 billion in March

Egypt’s net international reserves (NIR) increased USD0.107 billion to USD17.414 billion in March 2014, up from USD17.307 billion a month earlier. This is the third month of NIR increases after showing a continuous decrease since July 2013. NIR increased 0.62% m-o-m in March 2014 on the back of a 1.5% increase in foreign currencies. NIR rose 29.8% y-o-y for the same period, also mainly due to a 52% increase in foreign currencies. Egypt has received petroleum products worth c.USD1.2 billion from the UAE between January and March 2014, amounting to c.USD400 million monthly since January 2014. While Arab Gulf countries and international institutions have recently made many new aid pledges, no specific dates have been announced for disbursement, making it difficult to estimate any particular aid inflows in March. Data for 1H FY2013/14 reveals a 4% y-o-y improvement in export revenue, a 7.4% decline in imports, as well as a 857% y-o-y increase in official transfers, which could have contributed to higher NIR in March if such a trend were to continue. Suez Canal revenues have also increased in 1H FY2013/14, although whether they have increased from the USD339 million reported in February 2014 is yet to be seen. However, the head of the Suez Canal Authority expects a record high of USD5.5 billion in revenue by the end of FY2013/14, so Suez Canal revenues may have increased in March, contributing to higher NIR. NIR increased despite the c.USD83,000 monthly payments to foreign oil companies and a probable decline in tourism revenue given the 27% y-o-y drop in tourist arrivals in February 2014, which is expected to continue its weakness in March. The CBE has also covered the first 50% of foreign investor backlog on March 13, 2014, although we do not believe this was a large enough amount to significantly affect reserves.

Ministry of Housing approves debt repayment plan for struggling tourism companies

Minister of Housing, Utilities, and Urban Development Mostafa Madbouly approves the Ministry of Tourism’s proposal to reschedule the payments of debts tourism companies owe water companies, Daily News Egypt Online quoted a Ministry of Tourism statement as saying. The full payments of the debts, which have been outstanding since December 31, 2013 will be paid in six equal installments starting July 1, 2014 and ending January 1, 2015. Madbouly also met with the minister of finance Monday to discuss the ways to overcome the obstacles facing tourism in Egypt. He is scheduled to meet the ministers of manpower, social solidarity, and electricity this month.

Kuwait in talks to renew contracts to supply oil to Egypt

Kuwait is in talks to renew some of its contracts to supply oil to Egypt and has been looking for potential investments in the energy sector in Egypt, says Kuwait’s Minister of Petroleum, according to Al Ahram Online. Kuwait would supply 2.25 million barrels of oil and 1.2 million tons of petroleum products per month from the beginning of May 2015.

Other Headlines

Egypt’s Ministry of Agriculture and Land Reclamation plans to reclaim 40,000 acres in the Western Desert, to provide in the next few days the timetable for the project and information about areas to be reclaimed in the future, says minister (Daily news Egypt Online)

Prime Minister Ibrahim Mehleb to amend the maximum wage law for the public sector to state that an employee’s total compensation package, including overtime, incentives, bonuses, and any additional remuneration, should not exceed the maximum wage limit; to be applied starting March 26 (Al Borsa)

Total tax revenue as of March 2014 up 30% y-o-y to EGP149 billion, with EGP96 billion in income tax revenue and EGP53 billion in sales tax revenue, says head of Tax Authority (Al Borsa)

Negotiations are underway to apply taxes to dividends from stock market activity; currently no law targets this issue, says head of Tax Authority (Al Mal)

Ministry of Electricity will offer Spanish companies the request for proposal to implement the wind energy plant in Gulf of Suez, with total investments expected to reach USD200 million (Al Mal)

Electricity Facility and Consumer Protection Organization has set procedures to place solar panels on the rooftops of houses and commercial buildings that will produce 200 MW at a cost of EGP10 billion (Al Mal)

Minister of Housing says land allocation method will change from just public auctions to include other methods like sealed-bid auctions (Al Shorouk)

Shareholders of RAKBANK will meet on May 1 to discuss doubling foreign ownership to 40%; current foreign ownership is at 19.3% (Reuters)

Olayan Saudi Investment Company acquires 5.01% stake in GB Auto by buying 6.4 million shares, Investec Asset Management increases its stake in the company from 4.4% to 5.4% through purchasing 1.3 million shares; chairman Raouf Ghabbour sells an additional 1.4 million shares on Sunday after selling 12.6 million shares on Thursday, bringing total shares sold to 14.0 million, reducing his ownership to 26.28% from 37.18% (Company releases)

Cairo Pharmaceuticals targets revenue of EGP452 million in FY2014/15, up 17.0% from actual FY2012/13 figures, and net profit of EGP57 million compared to EGP60 million in FY2012/13, representing a 5% decrease (Company release)

Alexandria Flour Mills targets net profit of EGP12 million in FY2014/15, compared to the actual FY2012/13 figure of EGP19.5 million, and a flour milling quantity of 583,300 tons versus 496,337 tons in FY2012/13 (Company release)

EFIC shareholders approve FY2013 dividend distribution of EGP0.30/share, implying a payout ratio of 22% and yield of 2.7%; distribution will be on April 23 for shareholders as of April 16 (Company release)

Carbon Holding signs USD1.7 billion cooperation agreement with Marie Maire Tecnimont and Archirodon for infrastructure work and auxiliaries at its Tahrir Petrochemicals Complex in Al Ain Al Sokhna; complex is expected to have a capacity of 1.35 million tons per annum of polyethylene, 960,000 tons of propylene, 215,000 tons of butadiene (Al Masry Al Youm)

SODIC did not receive official notification regarding Eastown settlement; signs an agreement with Al Oula to finance installments of homebuyers, mainly finished units in Westown, according to SODIC MD Ahmed Badrawi (Company release, Al Borsa)

MNHD is studying offers from regional investors to co-develop projects on the company’s land bank; targeting sales of EGP1 billion in FY2014, mainly from Tag Sultan, GM Ahmed El Hitami says (Al Shorouk)  


Saudi Arabia

Stories In Focus

Bank Saudi Fransi 1Q2014 results: Strong profit beat on lower-than-expected provisions, revenue revival 

Bank Saudi Fransi (BSFR AB, Price: SAR41.00, FV: SAR46.55, Add, P/E FY2014e: 12.2x) released its 1Q2014 results to the stock exchange. Net income for the quarter came in at SAR856 million, up 25.1% y-o-y and 212.4% q-o-q. This is a strong 16% beat of our estimate of SAR740 million. Annualized ROAA for the period came in at 1.93%, up from 1.70% in 1Q2013 and the highest since 4Q2012. Operating income in 1Q2014 came in at SAR1.40 billion, up 16.3% y-o-y and 9.4% q-o-q and 3% ahead of our estimate. Net interest income for the period was SAR897 million, rising 12.3% y-o-y and 3.8% q-o-q. Non-interest income was up 24.1% y-o-y and 20.9% q-o-q to SAR504 million. The estimated annualized NIM (over average earnings assets less assets due from banks) was flat y-o-y for the first time since the rate cuts, and rose 3 bps q-o-q to 2.40%. This is the fifth quarter of NIM stabilization as asset yields have ceased declining, thus producing the opportunity for revenue growth to revert upwards. Operating expenses and provisions (no breakdown) totaled SAR545 million, growing 4.6% y-o-y and down 45.9% q-o-q. This reflects a huge q-o-q cut in provisions, exceeding the decline in cost of risk we projected for the year.

We assume a quarterly cost-to-income ratio of 33% and estimate the quarter’s provisions at SAR78 million, versus the very high SAR553 last quarter and SAR128 million in 1Q2013. That equates to a cost of risk of 27 bps versus 46 bps last year. Non-performing asset figures were not disclosed in the release but as of December 2013, the NPL ratio was at 1.33% and provisions coverage 146%. Customer deposits grew 15.6% y-o-y and 4.8% q-o-q to SAR137.9 billion, bringing the bank’s LTD down to 83%, the lowest since FY2007. The strong deposit growth over the quarter paints the NIM performance in 1Q2014 strongly and points towards future pricing flexibility. Net loans and advances came in at SAR114.8 billion, growing 8.5% y-o-y and 3.2% q-o-q. This is below the market growth of 12% y-o-y, but is consistent with past growth rates and in line with guidance.

Comment: Bank Saudi Fransi’s (BSFR) 1Q2014 net income beat our estimate handily (16%) on both lower provisions than expected and strong revenues (3% beat). Revenue growth y-o-y rose to 16%, the highest since policy rate cuts and versus 1% y-o-y growth in FY2013, driven by both net (NII) and non-interest income. NII growth rose to 12% versus 2% last year, also the highest since rate cuts; non-interest income was up a strong 24% y-o-y on what we expect is investment income gains. The NIM performed as expected, turning flat y-o-y for the first time in this rate regime, which is what produced the NII growth. We estimate cost of risk normalized to 27 bps from the very high 194 bps last quarter and 88 bps average in FY2013, producing a strong source of earnings lift that we were looking for. This provision cut is despite 21% q-o-q NPL additions in 4Q2013, but the cut is also in line with guidance. Our above- and below-the-line expectations were corroborated in 1Q2014 with NIM stabilization producing NII growth and provision cuts adding to earnings below the line, together leading to the highest annualized ROA since 4Q2012 of 1.93%, even though still below peers. We take this opportunity to update our estimates and valuation after the YTD 17% rise in the share price.

Almarai board recommends importing 100% of animal feed needs

Almarai (ALMARAI AB, Price: SAR64.50, Consensus FV: SAR63.60, Hold, P/E FY14e: 21.7x) recommended at its board meeting on April 7 sourcing 100% of its animal feed needs, namely alfalfa, from abroad whether by sourcing needs from affiliates in the US and Argentina or importing from third parties. This is part of the company’s plan to preserve Saudi Arabia’s water reserves. The initiative follows a former and fully implemented plan, announced in 2011, which included importing all feed for exported dairy production. The new plan will extend to cover importing feed needs required for local dairy production as well.

Other Headlines

Qassim Cement 1Q2014 results: Bottom line down 5.5% y-o-y to SAR159.05 million on lower cement sales due to a decline in demand, up 17.5% q-o-q on higher revenue and stronger performance at subsidiary (Tadawul)


Stories In Focus

Dubai says agreement in principle on UAE bourse merger; no final word on bond issue

An agreement to merge the Dubai Financial Market and Abu Dhabi Securities Exchange has been reached in principle but is not yet finalized, Reuters quoted Sheikh Ahmed bin Saeed al-Maktoum, head of Dubai's supreme fiscal council, as saying. Advisors had been appointed to help facilitate a merger of the exchanges, but the idea has been discussed sporadically for years without a deal.

The government of Dubai is planning to issue a sovereign bond, he added, depending on market conditions. When asked about Dubai's sovereign bond plans, Abdulrahman al-Saleh, head of Dubai's Department of Finance, noted the emirate had a USD1.9 billion sukuk maturity due this November, but indicated that could be refinanced by bank lending. The sukuk maturity is split between a USD1.25 billion USD-denominated tranche and a AED2.5 billion (USD681 million) local currency portion.

DGCX to launch agricultural contracts in 1Q2015

The Dubai Gold and Commodities Exchange (DGCX) is planning to launch agricultural commodities contracts in 1Q2015, Reuters quoted CEO Gary Anderson as saying on Monday. The bourse already trades in currencies, equities, energy, precious metals, and copper products. Anderson did not specify which agricultural commodities the exchange was considering but said there was strong support from some Dubai-based agricultural entities for the launch of two contracts. Large volumes of some agricultural goods such as wheat, rice, and pulses are re-exported through Dubai, according to Anderson, creating a need for a benchmark price mechanism.

Emirates NBD may write back Dubai World exposure this year

Emirates NBD (EMIRATES EY, Price: AED8.99, Consensus FV: AED8.00, Hold, P/E FY2014e: 12.2x) may write back its AED9.0 billion exposure to Dubai World (DW) this year, Reuters quoted Patrick Clerkin, head of the funding group at Emirates NBD, as saying. Clerkin added that upon the write-back, provisions for the name will be written back too, resulting in a significant one-off profit for the bank. The bank had provisioned 5% of the exposure, or AED482 million. In our forecasts, expect a gradual three-year write-back in DW exposure starting 2015, when 30% of the principle is due, in line with management guidance. Our earnings estimate for FY2014 is AED4.1 billion, which would alone translate to a y-o-y growth rate of 37%. The full reversal of provisions, which we believe is unlikely, would add another c.10% to our estimate for the year. Emirates NBD is the only bank under our coverage in the UAE that still accounts for DW exposure in its non-performing loan book. We had previously highlighted the DW exposure write-back as a major trigger to the stock. The bank’s DW exposure accounts for 26% of the bank’s total NPL book. Writing back this exposure would cut the bank’s NPL ratio c.400 bps to 10% and raise coverage c.20 pps to c.77%.

Other Headlines

Emirates Real Estate Investment Trust (REIT DU/ REIT.DU) will start trading today in USD on NASDAQ Dubai; IPO priced at USD1.36; issue was 3.5x covered at a price of USD1.36/share; base offer was raised from USD150 million to USD175 million; no limit up/down today (Reuters)

SCA grants final approval for Marka’s 55% IPO, which will run from April 13 to April 24; offer price is AED1.03/share, deal size AED275 million (Reuters)


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