MENA-2 TUESDAY MORNING ROUND-UP
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Egypt
Bourse head says dividends exempt from tax
Egypt to cancel curfew starting on 15 June
EIPICO 1Q2011 net profit grows 6% Y-o-Y; beats estimate
Valuation of OT’s Djezzy stalling, Reuters reports
Jordan reinstates import tariff on ceramic tiles from Egypt; no material impact on Lecico
Mobinil may drop interconnection lawsuit against TE
Heliopolis Housing looking to suspend new auctions for land
Altimo ends Vimpelcom shareholder agreement with stake sale
Final contract between Agriculture Ministry and Alwaleed bin Talal for Toshka land to be signed today
Kuwait
Zain Iraq to float shares in an IPO in August, MEED reports
EFG Hermes Research
Saudi International Petrochemical Co. (Sipchem) - An Integrated, Cost Advantageous, Methanol Play;
Initiate with Buy - Initiation of Coverage 06 June 2011
Agenda
Egypt
Tue 7 June >> Saudi Cable Company AGM
Thu 23 June >> Talaat Moustafa Group (TMG) ex-div date for 50.3 million bonus shares
Saudi Arabia
Sat 25 June >> Zain Saudi Arabia AGM
Wed 29 June >> Dar Al Arkan AGM and EGM
Egypt News
Bourse head says dividends exempt from tax
The head of Egypt's stock exchange, Mohamed Abdel Salam, said on 6 June 2011 that listed companies’
dividends will be exempt from the new taxes proposed by the country’s interim government in its 2011-
2012 budget. "We reached an agreement to exempt companies listed on the bourse from a tax on
distributed profits. At this time we need confidence in the market and to reduce the burden on investors,"
Salam said by telephone. “We convinced them by showing the numbers,” he said. “The EGP400 million-
500 million (USD67 million-84 million) the tax was going to bring in would be outweighed by the
detrimental effect on investment. This exemption will encourage people to invest in the bourse and
companies to go public.” (Reuters, Bloomberg)
Egypt to cancel curfew starting on 15 June
Egypt's military has decided to end a nightly curfew that was first imposed at the height of the popular
uprising that toppled President Hosni Mubarak in February 2011, state media reported. "The Supreme
Council of the Armed Forces decided to end the curfew starting from mid-June," official news agency
MENA reported. State television said that it would end starting on 15 June 2011. An army source has said
that the decision was made to "encourage the return to normal life". A curfew from 6 p.m. to 7 a.m. was
imposed on 28 January 2011 while Mubarak was still in power. It was shortened over several stages and
now runs from 2 a.m. to 5 a.m. (Reuters)
EIPICO 1Q2011 net profit grows 6% Y-o-Y; beats estimate
Egyptian International Pharmaceutical Industries Company (EIPICO)[[Link]] has reported 1Q2011
headline figures showing a net profit of EGP98.8 million, up 5.7% Y-o-Y and 18.9% Q-o-Q. This comes in
20.9% ahead of our EGP81.8 million forecast for the quarter. No further details were provided. (MIST,
Nada Amin, Nour Farrag)
EIPICO: EGP38.4, Rating: Buy, FV: EGP44.3, MCap: USD513 million, PHAR EY / [Link]
Valuation of OT’s Djezzy stalling, Reuters reports
The Algerian government's valuation of Orascom Telecom's (OT) ([Link]) Algerian subsidiary, Djezzy,
has been delayed because of a disagreement about disclosure of company data, two telecoms sector
sources told Reuters. The Algerian government hired international business law firm Shearman & Sterling
in January 2011 to value the company. "The valuation has not been done yet because Djezzy refused to
allow Shearman access to its database," Reuters quoted an unnamed Algerian telecoms sector source as
saying. "Shearman should have finished the job, but it was unable to complete it because of the non-
disclosure condition made by Djezzy." Reuters has reported that the account was confirmed by a senior
Algerian government official dealing with the telecoms sector. "We still don't have our valuation, this is
sure. I am not sure about why but I think it is because Djezzy did not allow Shearman to get access to
information," Reuters quoted the official as saying. OT declined to comment on the story when contacted
by Reuters. An employee in Shearman & Sterling's Paris office told Reuters, "At this stage, there is no
blockage. There has been a delay, that is true, but I think that we are in a normal process and we
continue to negotiate at the moment with Djezzy about a confidentiality agreement." (Reuters)
OT: EGP4.25/USD3.42, MCap: USD3,590 million, ORTE EY / [Link]
Jordan reinstates import tariff on ceramic tiles from Egypt; no material impact on Lecico
The government of Jordan has announced that it is reinstating the import tariff that it had previously
applied on Egyptian ceramic tiles, which it had removed in December 2010, the Chairman of the Chamber
of Building Materials Industries, Sherif Afifi, was quoted as saying. This is a protectionist measure as the
Jordanian government has claimed that local ceramic and tile producers have suffered as a result of the
tariff’s removal. The article did not cite the tariff rate, however, previously Jordan had applied a
USD1.1/square metre (sqm) rate. Jordan is one of Egypt’s most important ceramic tile export markets,
with nearly USD100 million in tile exports (c15% of total exports). We believe that this will not materially
impact Lecico ([Link]), an Egyptian ceramic tiles producer, as Jordan represents less than 1% of its tile
sales. The company’s main tile export markets in the Middle East are Libya, Lebanon, Syria and Sudan. (Al
Alam Al Youm, Nada Amin)
Lecico: EGP14.9, Rating: Neutral, FV: EGP15.9, MCap: USD151 million, LECI EY / [Link]
Mobinil may drop interconnection lawsuit against TE
Mobinil ([Link]) may drop a lawsuit that it has brought against Telecom Egypt (TE) [[Link]] regarding
an interconnection dispute, as the former is optimistic about reaching an amicable solution with the
latter under Egypt’s new government, Zawya Dow Jones quoted Mobinil’s Chairman, Alex Shalaby, as
saying. Shalaby cited management changes in TE as a possible catalyst to solve the dispute outside of the
court system, adding that the National Telecommunications Regulatory Authority (NTRA) has re-opened
the file. Shalaby stated that Mobinil is seeking a settlement that would give: i) it its own international
gateway licence at reasonable terms, ii) the ability to build its own fibre network, and iii) solve the
interconnection dispute. (Zawya Dow Jones)
Mobinil: EGP141.08, Rating: Buy, FV: EGP172.0, MCap: USD2,375 million, EMPN EY / [Link]
TE: EGP15.44, Rating: Buy, FV: EGP19.5, MCap USD4,437 million, TELE EY / [Link]
Heliopolis Housing looking to suspend new auctions for land
Heliopolis Housing and Development Company (Heliopolis Housing) [[Link]] is looking to suspend new
auctions for land as the company noted that its last auction saw a slowdown in demand for land, Al Masry
Al Youm reported. The company will restart auctioning land plots once it sees that demand has fully
recovered given that it will need its land inventory, particularly because the company has limited liquidity
available to replenish its land bank as creditors are reluctant to finance land purchases by companies, Al
Masry Al Youm reported, citing the company’s Chairman, Fadel Al Shahawy. (Al Masry Al Youm)
Heliopolis Housing: EGP19.72, Rating: Buy, FV: EGP38, MCap: USD369 million, HELI EY / [Link]
Altimo ends Vimpelcom shareholder agreement with stake sale
Russia's Altimo has agreed to sell a 6% stake in Vimpelcom, triggering an end to the former’s shareholder
agreement with Norway's Telenor after less than two years. Altimo, the telecom arm of Mikhail Fridman's
Alfa Group, said in April that it wanted to give new Vimpelcom shareholder, Naguib Sawiris, seats on
Vimpelcom's board, which would require an end to the deal with Telenor. "After the merger with Wind
Telecom, Vimpelcom... corporate governance rules need to adequately protect its diverse shareholder
base," Reuters quoted Yevgeny Dumalkin, Vice President of Altimo, as saying in a statement. The
shareholder agreement with Telenor "will terminate six months following the closing of the deal, which is
expected to happen shortly," Altimo said. The agreement had included a clause that both sides retain a
25% stake or higher for the deal to be enforced. Altimo's sale of its 6% stake in Vimpelcom will reduce its
stake to slightly below that 25% level. Altimo said that it would sell 123.6 million Vimpelcom preferred
shares to Russian businessman Oleg Kiselev, a former business partner of Fridman, for USD100 million.
(Reuters)
Final contract between Agriculture Ministry and Alwaleed bin Talal for Toshka land to be signed today
The Ministry of Agriculture, represented by the General Authority for Reclamation Projects & Agricultural
Development (GARPAD), is expected to sign a final contract with Alwaleed bin Talal for Toshka land
today, Al Borsa reported. The final contract stipulates that Kingdom Agricultural Development Company
will own 10,000 feddans (42 million square metres (sqm)) of land, while another 15,000 feddans (63
million sqm) will be leased to the company for three years. The company will return 75,000 feddans (315
million sqm) of the total 100,000 feddans (420 million sqm) of land that it had originally allocated to
Kingdom Agricultural Development Company. (Al Borsa)
Kuwait News
Zain Iraq to float shares in an IPO in August, MEED reports
Zain Iraq, a subsidiary of Zain Group ([Link]), is preparing an initial public offering (IPO) on the Iraqi
stock exchange this August, MEED reported. The Iraqi government has requires all three operational
mobile operators to float 25% of their shares four years after being issued a licence. The process is
complicated and will take a long time, MEED quoted Zain Iraq’s, CEO Emad Makkiyah, as saying. Zain Iraq
will spend USD500 million this year on its operations in Kurdistan, where it launched operations in March
2011. (Argaam, MEED)
Zain: KWD1.02, Rating: Sell, FV: KWD0.92, MCap: USD14,562 million, ZAIN KK / [Link]
EFG Hermes Research
Saudi International Petrochemical Co. (Sipchem) - An Integrated, Cost Advantageous, Methanol Play;
Initiate with Buy - Initiation of Coverage 06 June 2011
Fair Value of SAR26/Share Implies 22% Upside Potential; Initiate with Buy: Sipchem is one of the MENA
region’s few pure methanol plays, with attractive downstream integration and a highly advantageous cost
structure. Sipchem began methanol production in 2004, butanediol in 2006, and acetyls in 2010 with the
commercial operation of its acetic acid, VAM and carbon monoxide plants. Sipchem’s recent investments
include ethylene vinyl acetate (EVA), low density polyethylene (LDPE) and ethyl acetate (EA) plants,
which are all slated to begin operations in 2013. Our valuation is largely biased to our long-term gas price
assumptions in Saudi Arabia.
Expect Gas Prices to Rise in 2012, Cost Advantage Likely to Remain Intact: The current gas price in Saudi
Arabia (USD0.75/mmBtu) allows Sipchem one of the highest methanol margins globally, leading to strong
cost advantage in AA and VAM. We estimate Sipchem’s methanol cash costs at USD80/tonne. We assume
that the new price starting in 2012 will be USD2/mmBtu until 2014, and USD3/mmBTU after, which should
still allow Sipchem to enjoy a significant global cost advantage, in our view.
2Q2011 Earnings Could be a Short-Term Catalyst: Sipchem has underperformed the Tadawul Index since
the beginning of the year as its results have missed market expectations over the last three consecutive
quarters. According to management, the acetyls complex has operated at around 90% utilisation rates
since April 2011 which should lead to increased volumes in 2Q2011, in our view. AA and VAM have soared
since April 2011 on significant global supply disruptions. Higher volumes and prices should improve
Sipchem’s earnings in 2Q2011, in our view.
EVA/LDPE Plant Appears Completely Discounted: Sipchem trades at an estimated 2011 P/E multiple of
13.7x and 2012 P/E multiple of 10.4x, largely in line with the regional and global average. In our view,
this ignores the value of Sipchem’s EVA/LDPE plant, which we believe will be accretive to shareholders.
(Yousef Husseini, Ahmed Shams El Din)
[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
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