MENA-2 TUESDAY MORNING ROUND-UP
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Egypt
Former first lady relinquishes her assets
Eastern Company 3Q2010-2011 net profit falls Y-o-Y, Q-o-Q, in line with expectation
Ezz Steel names Paul Chekaiban as new Chairman; replaces Ahmed Ezz
Juhayna appoints new Financial Director
OT appoints new CEO
Additional details on Lecico insurance claim: no impact on income statement
SODIC denies rumours that it has canceled Mansoura Mall project
GARPAD postpones resolution of construction violations on CADR
Fayoum industrial authorities to withdraw land from uncommitted developers
Saudi Arabia
Saudi bourse in talks to join MSCI index
SABIC signs MOU with Sinopec to build PC plant in China
Morocco
Authorities squash jail protest with force, activists report
Qatar
VFQ grows mobile subscriber base to 756,767 subscribers by end-March
EFG Hermes Research
Al Ezz Dekheila (EZDK) - 4Q2010 Preview: Decrease Net Income Estimate; Lower Fair Value;
Downgrade to Neutral - Company Note 16 May 2011
Orascom Construction Industries (OCI) - Pandora JV Appears Value Accretive, Risks Well Balanced;
Maintain Neutral - Flash Note 16 May 2011
Agenda
Egypt
17-19 May >> Juhayna 1Q2011 results (expected)
17-19 May >> Elsewedy Electric 1Q2011 results (expected)
Tue 17 May >> Orascom Telecom (OT) AGM
Wed 18 May >> Orascom Telecom (OT) 1Q2011 results
Thu 19 May >> Mobinil AGM
Mon 23 May >> Orascom Development Holding (OD Holding) AGM
Thu 26 May >> Oriental Weavers ex-dividend for EGP2.0/share cash dividend
Sun 29 May >> Maridive ex-dividend date for USD0.06 cash DPS
Mon 30 May >> Sidpec AGM and EGM
Wed 1 June >> Telecom Egypt (TE) 1Q2011 results
Mon 6 June >> Orascom Construction Industries (OCI) AGM
Saudi Arabia
Wed 1 June >> Alujain AGM
Egypt News
Former first lady relinquishes her assets
The wife of former Egyptian President Hosni Mubarak relinquished some of her assets to the state on 16
May 2011 only days after anti-corruption authorities ordered her detention. An anti-corruption agency
ordered on 13 May 2011 that the former first lady Suzanne Mubarak be detained for 15 days to investigate
charges that she abused her husband's influence for unlawful personal gain. Mubarak returned to a Cairo
villa and gave authorities the power of attorney to withdraw up to EGP20 million (USD3.4 million), which
authorities said she held in two bank accounts, MENA said. (Reuters)
Eastern Company 3Q2010-2011 net profit falls Y-o-Y, Q-o-Q, in line with expectation
Eastern Company (Eastern) [[Link]] released 3Q2010-2011 financial statements on 16 May 2011 after
disclosing its headline net profit figure a few weeks ago. Net profit in 3Q2010-2011 fell 33% Y-o-Y and 18%
Q-o-Q to EGP148 million, 4% under our EGP155 million estimate. The Y-o-Y decline in net profit was
driven by higher depreciation expense, finance costs and the absence of a provision reversal, in line with
our expectation, while the Q-o-Q drop was on the back of weaker operating profit. Revenue grew 9% Y-o-
Y, declined 2% Q-o-Q, and was 8% ahead of our forecast at EGP1.1 billion. We expected that total
cigarette sales volumes would not be materially affected by Egypt’s economic slowdown, with the
possibility of a deceleration in foreign brands’ consumption in [Link] EBITDA margin fell Y-o-Y and Q-o-
Q to 29.9%, lagging our 31.2% estimate, which partly offset the positive revenue surprise. EBITDA grew 2%
Y-o-Y, fell 6% Q-o-Q, and came in 4% above our forecast. (Company Disclosure, Nour Farrag, Nada Amin)
Eastern: EGP102.8, Rating: Buy, FV: EGP129.0, MCap: USD865 million, ESTC EY / [Link]
Ezz Steel names Paul Chekaiban as new Chairman; replaces Ahmed Ezz
Ezz Steel ([Link]) has named Paul Chekaiban, currently Ezz Steel's managing director, as the firm's
chairman following Ahmed Ezz’s resignation, Zawya Dow Jones reported. "As part of the same
reorganisation, Alaa Abul Kheir has resigned from his position as director of Ezz Steel and been replaced
by Fayez Aly," Ezz said in an emailed statement, according to Zawya Dow Jones. Ezz has also reportedly
resigned from his position as chairman of Ezz Steel’s 55%-owned subsidiary Al Ezz Dekheila (EZDK)
[[Link]], according to Reuters. He will be replaced by Farouk Ibrahim, Ezz Steel’s Corporate Technical
Officer and a member of EZDK’s board of directors (BOD) since 2000. Ezz Steel in February announced
that its chairman at that time, Ezz, had been directed by authorities to remain in the country and that
precautionary asset-freezing measures related to Ezz were personal to him and not linked to the
company’s assets. We do not think that the absence of Ezz will have a material impact on the company’s
day-to-day operations thanks to its high-calibre management team. Moreover, according to management,
Ezz’s previously minimal involvement in Ezz Steel’s actual operations are another reason why day-to-day
operations will not be materially impacted. (Zawya Dow Jones, Reuters, Rita Guindy)
Ezz Steel: EGP9.1, Rating: Buy, FV: EGP12.1, MCap: USD835 million, ESRS EY / [Link]
EZDK: EGP632, Rating: Neutral, FV: EGP693, MCap: USD1,422 million, IRAX EY / [Link]
Juhayna appoints new Financial Director
Juhayna Food Industries (Juhayna) [[Link]] announced in a 16 May 2011 press release the resignation of
its Financial Director, Ehab Abdel Hamid, who joined Juhayna two years ago, but will now pursue
different career interests. Sameh ElHodeby, who joined Juhayna in 2006, has been appointed as the
company’s new Financial Director effective 15 May 2011. Elhodeby “has a strong financial and operational
background. His knowledge and experience will help keep the integrity and discipline of our financial
operations, providing a solid foundation for success,” Safwan Thabet, Juhayna’s CEO, was quoted as
saying.
Juhayna: EGP5.40, Rating: Neutral, FV: EGP5.60, MCap: USD660 million, JUFO EY / [Link]
OT appoints new CEO
Orascom Telecom (OT) [[Link]] has announced the appointment of Ahmed Abou Doma as the company’s
new CEO. Abou Doma previously held the position of CEO of Banglalink, OT’s subsidiary in Bangladesh.
Abou Doma will be reporting to Khaled Bichara, the former CEO, who has been nominated for the position
of Executive Chairman, pending board and general assembly approval and appointment. Bichara has also
recently been appointed as President and Chief Operating Officer (COO) of VimpelCom. Weather Capital
Special Purpose 1 (the majority shareholder of OT) has also recommend the election of the following
board candidates, Khaled Bichara, Ahmed Abou Doma, Aldo Mareuse, Alexander Shalaby, Emad Farid,
Mohamed Shaker, Henk Van Dalen, Jeffery McGhie and Ragy Soliman, at the General Assembly, following
the expiry of the term of existing board members. The General Assembly will take place on 17 May 2011.
(Company Release)
OT: EGP4.14/USD3.50, MCap: USD3,674 million, ORTE EY / [Link]
Additional details on Lecico insurance claim: no impact on income statement
Lecico ([Link]) issued a press release on 16 May 2011 providing details on its insurance claims for the
June 2010 fire that destroyed one of the company’s warehouses. According to the press release, Lecico
does not expect any impact from the claim on its income statement as it: i) has agreed to receive EGP41
million over two instalments (one on May 22 2011 and another on 20 June 2011) from Mohandes Insurance
Company to cover the loss of sanitary ware inventory (c53% of total inventory) destined for exports (28%
of total sanitary ware stocks), and accessories, ii) has agreed to receive the full insurance claim amount
for buildings and furniture earlier in 2011 from another insurance company, and iii) is contesting
previously-waived customs fees and penalties due to the Customs Authority on complementary products
imported for re-export. Lecico provisioned EGP7.5 million in 4Q2010 against the possible risk that it might
not be able to claim this back. Following the fire, management estimated total damages at cEGP70
million. (Company Disclosure, Nada Amin, Wafaa Baddour)
Lecico: EGP14.5, Rating: Neutral, FV: EGP15.9, MCap: USD147 million, LECI EY / [Link]
SODIC denies rumours that it has canceled Mansoura Mall project
Sixth of October Development and Investment Company (SODIC) [[Link]] has denied rumors that claim
the company has canceled its Mansoura Mall project, Al Borsa reported, citing the project's manager, who
added that SODIC will receive the Mansoura land plot within the next month. The Internal Trade
Development Authority (ITDA) is finalising procedures to start the project, Amr Talaat, Chairman of
SODIC, was quoted as saying. (Al Borsa)
SODIC: EGP57.4, MCap: USD351 million, OCDI EY / [Link]
GARPAD postpones resolution of construction violations on CADR
The General Authority for Reclamation Projects and Agricultural Development (GARPAD) has postponed
resolving developers violations on the Cairo Alexandria Desert Road (CADR). This decision was made as the
committee (formed by the Minister of Agriculture and Land Reclamation) has not yet completed the
technical report on CADR construction violations, Al Mal reported, citing an official at the Ministry of
Agriculture. The official added that it will be difficult for GARPAD to resolve these cases as it will be
difficult to transfer lands with construction violations (BuA greater than the permitted 7% of the land
area) to the Ministry of Housing, Utilities and Urban Planning (Ministry of Housing). The difficulty in
transferring those lands to the Ministry of Housing arises as the Ministry of Housing will have to incur
infrastructure costs related to those land plots. (Al Mal)
Fayoum industrial authorities to withdraw land from uncommitted developers
Industrial authorities in Fayoum have decided to withdraw land from uncommitted investors. (MIST)
Saudi Arabia News
Saudi bourse in talks to join MSCI index
Saudi Arabia’s stock exchange is in early stages of talks to join MSCI Emerging Markets Index,
Abdulrahman al-Tuwaijri, Saudi Capital Markets Authority Chairman, was quoted by Bloomberg as saying.
Tuwaijri was also quoted as saying during a forum that many conditions must be met before the Tadawul
can join an indice such as this. No timeline for the Tadawul’s inclusion within the MSCI Emerging Markets
Index was provided. (Bloomberg)
SABIC signs MOU with Sinopec to build PC plant in China
SABIC ([Link]) has announced that it has signed a memorandum of understanding (MOU) with China
Petrochemical Corporation (Sinopec) to build a 260,000 tonnes per year polycarbonate (PC) plant in
China. The joint venture (JV) project, which will be split 50:50 between the two companies, will be
constructed in the Tianjin petrochemical complex and is expected to become operational by 2015.
(Tadawul, Argaam)
SABIC: SAR106.50, Rating: Buy, FV: SAR133, MCap: USD85,200 million, SABIC AB / [Link]
Morocco News
Authorities squash jail protest with force, activists report
Moroccan authorities used tear gas and truncheons on 16 May 2011 to put down a prison protest by
accused Islamists who climbed on a roof to demand pardon or review of their cases, human rights activists
said. Around 324 people took part in the protest at Zaki prison in Sale, northeast of Rabat. At least 30
were injured, including one who fell from the roof, said Reda Binothmane, a member of a coordination
committee for ex-Islamist detainees. The prisoners' grievances include detailed allegations of torture and
arbitrary treatment. The government says it treats detainees in strict accordance with the law. (Reuters)
Qatar News
VFQ grows mobile subscriber base to 756,767 subscribers by end-March
Vodafone Qatar’s (VFQ’s) [[Link]] mobile subscriber base increased to 756,767 subscribers as at the end
of March 2011, implying 45% market share, according to an emailed statement by the company. VFQ
competes with incumbent Qtel ([Link]). VFQ has 100% 2G coverage across Qatar and provides 3G
coverage to 98% of Qatar’s population. (VFQ Press Release)
VFQ: QAR7.98, MCap: USD1,853 million, VFQS QD / [Link]
Qtel: QAR163.6, Rating: Buy, FV: QAR174.5, MCap: USD6,592 million, QTEL QD / [Link]
EFG Hermes Research
Al Ezz Dekheila (EZDK) - 4Q2010 Preview: Decrease Net Income Estimate; Lower Fair Value;
Downgrade to Neutral - Company Note 16 May 2011
Adjust Consolidated 4Q2010 Net Income and FV; Downgrade to Neutral: Our revised consolidated forecasts
for EZDK now call for 4Q2010 revenue of EGP4,466 million (from EGP3,564 million) and net income of
EGP111 million (from EGP258 million). Consolidated FY2010 estimates now call for revenues of EGP13,335
(from EGP12,433 million) and net income of EGP692 million (from EGP838 million). We lower our fair
value (FV) to EGP693/share on more conservative earnings estimates in 2011-2012. We downgrade our
rating on the stock to Neutral from Buy as our FV implies only 10% upside potential.
Standalone Revenues Outperform, Net Income Misses Estimates: EZDK announced unaudited standalone
headline figures for FY2010, with revenues of EGP9,864 million, 7% above our EGP9,255 million estimate.
Net income in FY2010 came in 17% below our estimate at EGP724 million. Revenues in 4Q2010 were
EGP3,060 million, up 58% Y-o-Y, 26% Q-o-Q, and 25% above our estimates, while net income was EGP117
million, down 51% Y-o-Y, up 35% Q-o-Q, and well below our estimated EGP266 million.
Volumes Likely Higher, Effect of Low-Cost Iron Ore Not Visible: We were expecting a strong Q-o-Q margin
improvement on the back of lower production costs as iron ore contracts were signed 10-13% lower Q-o-Q
in 4Q2010. The significant miss of our estimates indicates that EZDK used high-cost iron ore carried
forward from 3Q2010. This could be positive for 2011 margins, although we expect EZDK will be severely
hit by lower volumes after the recent events in Egypt. The Y-o-Y drop in net income is mainly a result of
the severe iron ore price inflation witnessed during 2010.
Ezz Resigns as Chairman of BOD; Farouk Ibrahim New Chairman: According to Mist News, EZDK’s new
board of directors (BOD) includes neither Ahmed Ezz nor Alaa Abou el Kheir. EZDK has confirmed that
Ezz’s resignation has been accepted. We think that the shares could react negatively to the news, but do
not think that the absence of Ezz will have a material impact on the company’s day-to-day operations
thanks to EZDK’s high-calibre management team. (Rita Guindy, Ahmed Shams El Din)
Orascom Construction Industries (OCI) - Pandora JV Appears Value Accretive, Risks Well Balanced;
Maintain Neutral - Flash Note 16 May 2011
Positive on Pandora JV - A Low Cost Strategic Fit; Reiterate Neutral: OCI announced today that its 50%
joint venture (JV) with Janus Methanol AG (Pandora Methanol LLC) has acquired an integrated ammonia-
methanol plant in Beaumont, Texas from Eastman Chemicals. Pandora plans to rehabilitate the plant,
which ceased operations since 2004. The total investment cost (including acquisition and rehabilitation) is
USD65 million. OCI expects ammonia production (250ktpa) to start in 4Q2011 and methanol (750ktpa) in
2012. The acquisition seems value accretive to shareholders, in our view, due to the relatively low
investment cost and the United State’s cheap gas prices. Our initial analysis suggests that the JV will add
4% to OCI’s 2012 revenue and 3% to EBITDA. We maintain our fair value (FV) of EGP265/share, implying
limited upside potential, and hence our Neutral rating.
Attractive Exposure to Cheap Gas in the US; Expect an IRR of 75%: We estimate OCI’s methanol cash costs
at USD230/tonne (versus the current spot price of USD360/tonne) and ammonia at USD210/tonne (versus
the current spot price of USD540/tonne). Our initial analysis suggests OCI would generate an IRR of 75% on
this investment despite the expected high maintenance CAPEX for the plant, assuming: i) OCI’s
proportionate investment costs of USD33 million, ii) a long-term gas price of USD6/mmBtu (current spot
Henry hub is USD4.2/mmBtu), and iii) long-term methanol and ammonia prices of USD420/tonne and
USD475/tonne, respectively.
More Acquisitions Appear to be in the Pipeline, According to Media Reports: OCI management was
interested in participating in the consolidation wave across the fertilisers business in order to expand its
global operations through acquisitions. Recent media reports have highlighted OCI amongst other global
players (including Yara, Wesfarmers, Sinofert and Incitec) as bidding for Burrup Fertilisers (BFPL), which
produces 760 ktpa of liquid ammonia in Australia. No official comment/details have yet been released.
We continue to believe that OCI’s strong balance sheet and high borrowing capacity would support value
accretive acquisitions for shareholders. (Ahmed Shams El Din, Rita Guindy)
[Note – EFG Hermes is not responsible for the accuracy of news items taken from other media.]
__________________________________________________________________________________________________
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fundamental analysis of the company’s future prospects, after having taken perceived risk into consideration. We have
conducted extensive research to arrive at our investment recommendations and fair value estimates for the company or
companies mentioned in this report. Although the information in this report has been obtained from sources that EFG
Hermes believes to be reliable, we do not guarantee its accuracy, and such information may be condensed or incomplete.
Readers should understand that financial projections, fair value estimates and statements regarding future prospects may
not be realized. All opinions and estimates included in this report constitute our judgment as of this date and are subject
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