Market Updates



Stories In Focus


El Sisi: Egyptian ceasefire initiative includes no conditions for either party


President Abdel Fattah Al-Sisi said the Egyptian ceasefire initiative, which aims to end the ongoing fighting between the Israeli army and Hamas, does not “include the conditions” for either side, Daily News Egypt reported. He said this was to decrease tensions, end fighting, open the border crossing to permit aid first, then to have both sides hold talks on all issues. Egypt proposed a ceasefire initiative last week to bring an end to the ongoing violence in the Gaza Strip. The internationally backed proposal was accepted by Israel but Hamas rejected it, claiming the Egyptians had never approached them. Egypt’s Foreign Minister Sameh Shoukry received Wednesday Fatah Central Committee member Azzam Al-Ahmad and discussed ways to reach an “immediate ceasefire agreement, within the framework of the Egyptian initiative.” Foreig n Ministry spokesman Badr Abdelatty said in a statement that during the talks, Shoukry and Al-Ahmad reaffirmed the “great importance of working towards implementing the Egyptian initiative immediately to spare the Palestinian people the horror of Israeli military operations.” Al-Ahmad said there are no initiatives on the table, other than that of Egypt, state-run MENA reported. He added that Qatar and Turkey have new ideas, but said he heard no new proposals.


Offshore platform to produce 150 million cubic feet of gas per day by 2016


The Petroleum Ministry said on Tuesday that the Italian company Edison began a new project in Egypt to produce natural gas from an offshore platform in the Mediterranean in coordination with its joint venture Abu Qir Petroleum (AQP) at an investment of USD220 million, Al Masry Al Youm reported. “The project produces 150 million cubic feet of gas per day and 2,500 barrels of condensate,” said AQP president Adel Hegazy, explaining that the project includes nine wells of which three have already been drilled and tested. Production is projected for 2016. He added that AQP already produces 242 million cubic feet of gas per day, 4,200 barrels of condensate, and 276 tons of butane gas. “Edison trusts the Egyptian market potential,” he said. The Petroleum Authority has been buying gas from Edison since June 2012 for USD5.88 per million B TUs, a price linked to the price of the Brent crude.


EAST FY2013/14 results: Revenue broadly in line, up 13% accompanied by improvement in NPM


Eastern Tobacco (EAST EY, Price: EGP170.00, FV: EGP210.67, Add, P/E FY13/14e: 8.4x) released preliminary indicators for FY2013/14. Revenue came in at EGP6,160 million, increasing 13.2% y-o-y and coming in broadly in line with our estimate of EGP6,276 million and consensus' EGP6,012 million. Operating profit stood at EGP1,258 million in FY2013/14, translating to an operating profit margin of 20.4% versus 21.4% in FY2012/13. Net profit after tax reached EGP883 million, up 17.1% y-o-y, missing our estimate of EGP993 million, and beating consensus' EGP746 million. This translates to NPM of 14.3% in FY2013/14 versus 13.9% in FY2012/13. The annual results imply revenue of EGP1,805 million in 4Q FY2013/14, up 31.1% y-o-y and 16.2% q-o-q. Operating profit stood at EGP208 million, translating to a margin of 12.7%, narrowing from 15.1% in 4Q FY2012/13 a nd 29.5% in 3Q FY2013/14. Net profit reached EGP179 million in 4Q FY2013/14, up 94.5% y-o-y but down 46.4% q-o-q, implying a NPM of 9.9% versus 6.7% in 4Q FY2012/13 and 21.4% in 3Q FY2013/14. We believe the improvement in NPM, despite the compression in operating profit margin, is likely due to lower net operating expenses from continued operations. Nonetheless, we will be able to fully comment on this once full financials are out.


Suez Cement 2Q2014 results: Higher corporate taxes and lower FX gains hit bottom line despite stronger operational performance


Suez Cement (SUCE EY, Price: EGP38.00, Consensus FV: EGP45.5, Add, Consensus P/E FY2014e: 9.8x) released its 2Q2014 results with a top line of EGP1.72 billion, up 32% y-o-y despite an escalating energy shortage. This was due to higher cement selling prices as well as increased clinker imports to be able to maintain its market share. Gross profit increased an impressive 40% y-o-y to EGP385.1 million, implying a gross profit margin of 22.4%, up 120bps y-o-y, which, in our view, reflects the cement industry’s relatively strong cost passing ability amid an inflated cost base stemming from energy shortages and heightened imports of higher-priced clinker. SG&A increased 53% y-o-y, recording 6.9% of sales, up 100 bps y-o-y, which can be explained by the group’s increased advertising and marketing efforts. Forex gains were down 39% y -o-y to EGP17.8 million. Tax expense soared 92% y-o-y, recording an effective tax rate of 49% versus 29% a year ago after the country’s corporate tax rate was raised from 25% to 30% in 2014 for three years. Net profit came in at EGP142.5 million, down 15% y-o-y, mainly on higher corporate taxes and lower FX gains despite the stronger operational performance. The group’s total gray cement sales for 1H2014 increased 4.8% to 4.2 million tons, implying a utilization rate of c.70%, of which less than 5% were exported.


Arabian Cement 2Q2014 KPIs: Squeezed margins, higher taxes result in a loss


Arabian Cement (ARCC EY, Price: EGP12.00, Consensus FV: EGP12.09, Buy, Consensus P/E FY2014f: 14.2x) released its unaudited 2Q2014 results with a top line of EGP614 million, up 15% q-o-q, likely on higher cement selling prices. Gross profit came in at EGP172 million, down 14 % q-o-q, implying a gross profit margin of 28%, down 1,000 bps from the 38% recorded in 1Q2014. Backed by lower operating margins, the end of the company’s corporate tax holiday, which also coincided with the Egyptian government raising corporate income tax rate from 25% to 30%, the company recorded a net loss of EGP8.7 million in the quarter, versus a profit of EGP117 million in 1Q2014. On a semi-annual basis, the bottom line dropped 41% y-o-y in 1H2014 to record EGP108.3 million. The company reported c.20% lower clinker production volumes due to significant d rop in gas pressure over 2Q2014.


SKPC 2Q2014 KPIs: Healthy petrochemical prices overshadowed by lower volumes due to stoppages


Sidi Kerir Petrochemicals (SKPC EY, Price: EGP19.13, Consensus FV: 20.42, Hold, Consensus P/E FY2014e: 9.2x) has released unaudited headline figures for 2Q2014. Revenues recorded EGP746 million, in line with consensus and up 27% from last quarter, which was brought down by a one-month maintenance shutdown in January. Petrochemical prices remained firm during the quarter, with global HDPE prices averaging USD1,605/ton, up 5% q-o-q, 11% y-o-y, and LLDPE USD1,590/ton, up 12% y-o-y. Nevertheless, revenues were up a minor 2% y-o-y despite the healthy y-o-y improvement in petrochemical prices, owing to maintenance works at EGAS that resulted in a five-day stoppage at SKPC in the beginning of June and lower-than-normal gas pressures until mid-June. This likely resulted in lower production and sa les volumes in 2Q2014 compared to the full utilization level achieved a year ago. GPM was down 250 bps y-o-y and a mere 60 bps q-o-q, coming in at 51.4%. The bottom line was down 9.2% y-o-y and a mere 1.2% q-o-q to EGP281 million, moderately below market estimates. We believe the y-o-y drop in the bottom line mainly reflects weaker sales volumes owing to the stoppage that occurred during the current quarter. Global petrochemical prices increased 5% q-o-q and c.11.5% y-o-y, showing strong demand as well as firm oil prices, with Brent averaging around USD110/barrel during the quarter, up 6% y-o-y and 2% q-o-q. Meanwhile, owing to maintenance works at EGAS and lower-than-normal gas pressures until mid-June, volumes were lower y-o-y, hence largely offsetting the impact of higher petrochemical prices. The stoppage also impacted operating costs, resulting in squeezed gross margins.


Other Headlines


An alliance led by ex-foreign minister Amr Moussa rules out members of Hosni Mubarak's National Democratic Party from its parliamentary bloc (Ahram Online)


An official at Egypt’s Finance Ministry expects approximately EGP11 billion in returns to the treasury from incorporating 10% of profits of special accounts and funds into the general budget in FY2014/15 (Daily News Egypt)


Egypt’s Prime Minister visits Toshka project yesterday to see why it is not progressing; instructed by President Abdel Fattah El-Sisi to focus on Toshka, a major project (Al Masry Al Youm)


Minister of industry and trade says government will not go back on the raw material export ban, adding that the government will provide all facilities to local or foreign investors who use raw materials to produce finished products that have a higher return when exported (Al Masry Al Youm)


Ministry of Irrigation plans to use solar energy in 1,500 power plans to reduce debts of the ministry amounting to EGP8 billion (Al Mal)


Group of economic ministers meet today with Saudi Arabia and UAE’s ministers of finance to discuss arrangements for the donor conference; agreement with the UAE to provide Egypt’s petroleum needs until year-end (Al Mal)


Petroleum Authority executes projects to transfer butane gas with a cost of USD220 million; projects include three pipelines and 10 storage tanks (Al Mal)


Twenty Saudi companies plan to reclaim 250 feddans in Egypt, says secretary general of the Saudi Egyptian Association; companies await the announcement of the new agriculture map and new rules of allotting land in Egypt (Al Borsa)


No official instructions to increase prices of butane gas cylinders, says Ministry of Supply (Al Shorouk)


OCI resumes operations at Beaumont's ammonia and methanol plants after a lightening strike halted production for 3.5 days at the methanol plant and one day at the ammonia plant (Bloomberg)


North Giza Criminal Court releases on July 22 former chairman of Ezz steel Ahmed Ezz on EGP50 million bail for charges in a profiteering case (Mubasher)


Sinai Cement signs agreement with a Danish company to import coal mills; the company is about to sign agreements with local contractors to set up its plants to use coal for energy (EGX)


Arabian Cement starts trial operations to use coal for energy after obtaining the required environmental approvals; commercial operations to start in August (Al Borsa)


EGPC officials announce the arrival of 125,000 tons of diesel and gasoline at Alexandria and Suez Port on Wednesday (Youm 7)


EGAS will continue to reduce its gas supplies to energy-intensive industries (cement, fertilizers, chemicals, steel) by 30%-40% until the end of summer (Youm 7)


AAIB and CIB start marketing SODIC’s securitized bonds worth EGP173.5 million, which relates to receivables outstanding on its Kattameya Plaza project; the bonds will be divided into three segments with maturities of 13, 36, and 60 months (Al Mal)


Saudi Arabia


Stories In Focus


Saudi Public Investment fund to establish new companies


Saudi Arabia's Public Investment Fund (PIF) is expected to expand in areas including housing, petrochemicals, and technology, Reuters quoted Finance Minister Ibrahim al-Assaf as saying in an interview with Al-Sharq newspaper. The move is seen as the first sign that the Saudi government plans to use public funds to diversify the economy and support reforms and development. The minister also stated that the new decision will allow the PIF to establish new companies in cooperation with the private sector and other government institutions. The fund will also have independence and will not have to consult the cabinet to establish new companies.


Other Headlines


Saudi-Emirati Transport Company, SAPTCO's 50%-owned subsidiary, signs a four-year SAR280 million loan agreement with Al-Rajhi bank to finance the purchase of new buses for a new transaction (Tadawul)


Dallah Healthcare board approves Dallah Hospital's new expansion plan that encompasses purchasing neighboring land plot for SAR97.5 million and building a new medical tower that adds 150 new beds, 60 clinics, housing, and services facilities with an estimated investment cost of SAR500 million; construction work expected to commence in 2Q2015 (Tadawul)


Saudi Electricity signs an agreement with ARAMCO to settle due payments related to the usage of electricity from 2007 to 2013, under which ARAMCO to pay SAR1.5 billion; financial impact to be reflected in 3Q2014  (Tadawul)


Savola CEO and MD Abdelraouf Mannaa resigns effective December 31; board appoints board member Abdullah Rehaimi as new CEO and MD, effective January 1, 2015 (Tadawul)


Savola Group signs 16-week MOU with Takween Advanced Industries for the potential sale of its plastics and packaging segment; Takween appoints HSBC Saudi Arabia as financial advisor to complete a due diligence study on Savola Packaging Company, a fully owned subsidiary of Savola Group (Tadawul)


Saudi Airline Catering Company board recommends dividend distribution of SAR1.75/share for 2Q2014; dividend date August 7 and payment date August 19 (Tadawul)


Sparky’s Emirates, a subsidiary of Abdul Mohsen Al-Hokair Group for Tourism and Development Company, launches 2,948 sqm new kids entertainment center in Al Fujairah; financial impact to be reflected starting 3Q2014 (Tadawul)


Saudi Arabian Mining Company commences operations in in 3Q2014 at subsidiary Maaden Aluminium Company, which is 74.9% owned by Maaden, 25.1% owned by Alcoa; the aluminum plant will operate with an estimated capacity of 740,000 tons per year (Tadawul)


Al Jouf Cement appoints Prince Khalid bin Fahd as chairman, and Ashry bin Saad as managing director (Tadawul)


Hail Cement says operations to halt starting August 18 to September 6 to perform annual maintenance on plants (Tadawul)


Saudi Arabia Fertilizers Company announces the delay in commencement of its turnkey project SAFCO V from 3Q2014 to 1Q2015 as construction and mechanical work for the project are yet to be finalized; project was awarded to Italy’s Saipmen in 2011 at a total cost of SAR2 billion, and is expected to reach 1.1 million tons of urea per year (Tadawul)




Stories In Focus


Emirates NBD 2Q2014 results: NIM expands, non-interest income excels, driving earnings beat despite higher COR, weak lending


Emirates NBD (EMIRATES UH, Price: EGP11.70, FV: 8.50, Reduce, P/E FY2014e: 11.9x) released its 2Q2014 results. Net income came in at AED1.31 billion, up 41.2% y-o-y and 25.4% q-o-q. Operating income reached AED3.77 billion, growing 29.3% y-o-y and 11.0% q-o-q. Net interest income hit AED2.3 billion, up 21.7% y-o-y and 4.2% q-o-q. The bank’s NIMs expanded 49 bps y-o-y and 14 bps q-o-q to 336 bps helped by growth in the retail segment, Islamic operations, improved spreads on treasury, and an improved CASA mix. Non-interest income came in at AED1.4 billion, with a robust growth of 43.9% y-o-y and 24.0% q-o-q driven by higher fees and higher investment income. The bank’s efficiency improved in 2Q2014 with the cost-to-income ratio hitting 28.8%, down from 33.9% in 2Q2013 and 30.9% in 1Q2014, mainly driven by the income side. The opex-to-assets ra tio was maintained at 1.13% in 2Q2014 versus 1.20% in 2Q2013 and 1.10% in 1Q2014. ENBD’s asset quality metrics continued to improve, with the NPL ratio inching down to 13.5% from 13.8% in both March 2014 and June 2013, and provision coverage rising to 64.5%, up from 60.7% in March 2014 and 52.7% in June 2013. The bank’s CAR stood at 19.6% in June 2014.


du 2Q2014 results: Beats estimates on strong revenue growth, and better efficiency; board recommends AED0.12 DPS


du (DU UH, Price: AED5.84, FV: AED5.89, Hold, P/E FY2014e: 14.5x) released 2Q2014 results with revenues at AED3,024 million, up 13.7% y-o-y and 2.3% q-o-q. This exactly in line with our estimates and 3.9% higher than Bloomberg’s consensus estimates. Revenue grew 10.1% y-o-y and 1.6% q-o-q to AED2,266 million driven increased data revenues and focusing on the post-paid segment. Revenues from the fixed and broadband segments totaled AED541 million, rising by 26.7% y-o-y and 5.7% q-o-q. Gross profit for the quarter came in at AED2,012 million, growing 12.2% y-o-y and 5.1% q-o-q. This implies a GPM of 66.5%, down from 67.4% in 2Q2013 but up from 1.74% in 1Q2014. The annual improvement in the margin was due to higher revenues from the data segment, which is characterized by high margins. Revenues from the data segment accounted for 29.3 % of total revenues in 2Q2014 versus 27.1% in 2Q2013. EBITDA in 2Q2014 totaled AED1,289 million, rising 17.9% y-o-y and 9.5% q-o-q, driven by the increase in revenues. The EBITDA margin reached 42.6% in 2Q2014, up from 41.1% in 2Q2013 and 39.8% in 1Q2014. The margin enhancement was driven mainly by the improvement in GPM in addition to better utilization of operating expenses. Opex/ revenues in 2Q2014 reached 34.7%, down from 37.6% in 2Q2013 and 35.5% in 1Q2014. Net profit for the quarter grew 15.6% y-o-y and 10.3% q-o-q to AED548 million, beating our estimate by 6.7% and Bloomberg’s consensus estimates by 15.7%. The board recommended a dividend payment of AED0.12/share.


Other Headlines


Gulfa Mineral Water 2Q2014 results: Revenue reaches AED19 million, up 47% y-o-y and 32% q-o-q; net profit stands at AED2.51 million, up 46% y-o-y and 32% q-o-q (Dubai Financial Market)


Agthia Group 2Q2014 results: Revenue stands at AED432.5 million, up 7.4% y-o-y and 3.3x q-o-q; net profit reaches AED55.8 million, up 12.7% y-o-y and 1.1x q-o-q (Company release)


Dubai National Energy Company (TAQA) withdraws from the acquisition of Jaiprakash Power Ventures’ two hydroelectric power plants; TAQA was to acquire 51% of the plants at a cost of USD616 million (Bloomberg)


Dubai Retailing and Restaurants Group (Marka) to complete listing its shares on the Dubai Financial Market in September, marking the DFM's first flotation in five years (Reuters)


Abu Dhabi Aviation 1H2014 results: Revenue stands at AED734 million, down 6.1% y-o-y; net profit reaches AED95 million, up 13.8% y-o-y (Company release)


Deyaar 2Q2014 preliminary results: Net income comes in at AED62.5 million, up 129.2% y-o-y from AED27.3 million in 2Q2013 and 19.8% q-o-q in 1Q2014; annual increase due to robust property sales and consistent delivery of properties; the highlight of the quarter was expanding into the hospitality sector through offering Atria, a mixed-use residential and hotel apartment project, in Business Bay (Company release)


Majid Al Futtaim 1H2014 preliminary results: Revenues come in at AED12.8 billion in 1H2014, up 14% y-o-y, while EBITDA comes in at AED1.8 billion up 12% y-o-y; annual increase due to expansion in Dubai, Egypt, and Oman marking AED10.5 billion in retail sales (The National)


Union Properties 2Q2014 preliminary results: Net income comes in at AED527.4 million in 2Q2014, up 365.6% y-o-y from AED113.3 million in 2Q2013 and 193.3% from AED179.8 million in 1Q2014 due to a gain on valuation of properties (Company release)




Stories In Focus


CBQ 2Q2014 results: Earnings in line on NIM strengthening, provisions surge as asset quality weakens


Commercial Bank of Qatar (CBQ QD, Price: QAR69.40, FV: QAR84.20, Add, PE FY2014e: 11.9x) released its 2Q2014 results highlights with net income coming in at QAR502 million, down 3.0% y-o-y and 8.4% q-o-q and 2% ahead of our estimate. This yielded an annualized ROAA of 1.78%, down 65 bps from 2.42% in 2Q2013 and 16 bps from 1.93% in 1Q2014. Net interest income grew 41.8% y-o-y and 5.15% q-o-q to QAR652 million, reflecting the growth in lending activity and the consolidation effects of Abank. However, its effect was offset by a weaker growth in non-interest income during the quarter. Provisions significantly increased, rising 53.3% y-o-y and 305.5% q-o-q, to QAR206 million resulting in a COR of 1.19% compared to 1.02% in 2Q2013 and 0.29% in 1Q2014. The NPL ratio also rose to 3.82%, the highest over the past four quarters, while provisions coverage was 67. 3%. Annualized NIM showed signs of stabilization, standing at 3.11%, 64 bps higher than 2.47% in 2Q2013 and 54 bps above the 2.57% recorded in 1Q2014. The balance sheet showed solid annual growth, but was weak on a sequential basis with loans growing 33.4% y-o-y (+1.0% q-o-q) to QAR69.4 billion and deposits 27.5% y-o-y (-3.7% q-o-q) to QAR59.8 billion.


Vodafone Qatar 1Q2014/15 results: Broadly in line with estimates; postpaid segment drives revenues; margins enhance on efficiency, improved sales mix


Vodafone Qatar (VFQS QD, Price: QAR19.64, FV: QAR14.85, Reduce) released strong 1Q2014/15 results. Revenues for the quarter came in at QAR585 million, up 27.3% y-o-y and 6.3% q-o-q. This is 4.9% above our estimate and 1.2% above Bloomberg’s consensus estimates. Growth in revenues was driven by strong subscriber acquisition, mainly postpaid subscribers, which rose 28.0% y-o-y Revenues from the postpaid segment contributed to 18.0% of total revenues in 1Q2014/15. EBITDA for the quarter came in at QAR159 million, rising by 60.5% y-o-y and 4.3% q-o-q. This implies an EBITDA margin of 27.2%, up from 21.6% in 1Q2013/14 and almost unchanged q-o-q. The annual margin enhancement was due to stronger revenues from the postpaid and data segments, which are characterized by high margins. Additionally, the company managed to curb its operating expenses signific antly. Net loss in 1Q2014/15 narrowed 67.7% y-o-y and 16.3% q-o-q to QAR27 million.


Ooredoo 2Q2014 results: In line with estimates, margins negatively impacted on higher costs in Indonesia, Myanmar, Tunisia


Ooredeoo (ORDS QD, Price: QAR133.60, Consensus FV: QAR183.34, Consensus P/E FY2014e: 12.7x) released 2Q2014 consolidated results. Revenues for the quarter came in at QAR8,401 million, down 2.8% y-o-y but up 3.7% q-o-q. This is 1.5% below Bloomberg’s consensus estimates. The decline in revenues is a result of poor performance in Indonesia, Kuwait, and Iraq, impacted negatively by the political situation. Additionally, revenues were impacted by weaker IDR versus the QAR. Excluding the impact of forex losses, total revenues would have increased 1% y-o-y and 4.7% q-o-q. Gross profit for the quarter totaled QAR5,535 million, down 5.3% y-o-y but up 3.7% q-o-q, while EBITDA came in at QAR3,463 million, down 11.2% y-o-y but up 3.1% q-o-q. This implies an EBITDA margin of 41.2%, down from 45.1% in 2Q2013 and almost unchanged from 41.5% in 1 Q2014. The EBITDA margin’s annual deterioration was due to high startup costs in Myanmar. The margin was also affected by increased cost of sales, operational expenditures in the Indonesian unit, and maintenance expenses in Tunisia. Net profit for the quarter came in at QAR817 million, down 11.4% y-o-y and 7.8% q-o-q. This beats Bloomberg consensus estimates by 5.1% and implies a NPM of 9.7%, versus 10.7% in 2Q2013 and 10.9% in 1Q2014. Ooredoo’s total subscriber base in June 2014 reached 93.9 million, inching up by 2.0% y-o-y.


Other Headlines


Qatar's foreign trade surplus falls 1.3% y-o-y to QAR32.3 billion in June from QAR32.7 billion, hydrocarbon exports fall 1.9% y-o-y to QAR26.2 billion (Reuters)


Gulf International Services 1H2014 results: Revenue reaches QAR1,595.3 million, up 42.5% y-o-y; net profit at QAR463.7 million, up 58.2% y-o-y (Company release)


Fitch affirms Nakilat's senior secured debt rating at A and its subordinated debt rating at A- with stable outlooks (Qatar Exchange)


Gulf Drilling International (GDI), a subsidiary of Gulf International Services (GIS), awards Nakilat-Keppel Offshore & Marine (N-KOM) two contracts worth USD110 million; one to be completed by end-2015 to design and construct a floating jetty for Qatar Primary Materials Company with total annual capacity of 7.8 million tons, and the second is a six-year repair and maintenance contract for GDI's existing fleet of jack-up rigs operating in the Middle East (Qatar Exchange)


Industries Qatar to disclose 2Q2014 financial results on August 10 (QE)



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