MENA-­2

 THURSDAY  MORNING  ROUND-­UP  

   
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Egypt  
Prime  Minister  Sharaf  promotes  successes  ahead  of  Friday  protest  
Government  is  looking  to  recognise  direct  land  awards  since  1998  
Political  turmoil  drives  up  1Q2011  unemployment  
US  calls  for  G8  to  support  Egypt  and  Tunisia  
SODIC  reports  a  1Q2011  net  loss  of  EGP15.7  million  on  weak  delivers;  strong  pre-­sales  in  1Q2011  
Juhayna’s  Deputy  CEO  to  leave  the  company  
Olympic  Group  reports  1Q2011  results:  EGP35  million  net  loss  
Telenor  expects  Vimpelcom  arbitration  to  end  by  1H2012  
HDB  and  Egyptian  Arab  Land  Bank  dropped  by  the  government  
BG  to  invest  USD250  million  in  Egypt  licences  
   
Saudi  Arabia  
Private  sector  credit  growth  slows,  but  outlook  remains  strong  
   
EFG  Hermes  Research  
Nasr  City  Housing  &  Development  Co.  (MNHD)  -­  Reinitiate  Coverage:  Dispute-­Free  Land  Bank  Key  Value  
Driver,  Limited  Downside  Risks;  Buy  -­  Initiation  of  Coverage  -­  25  May  2011  
   
Agenda  
   
Egypt  
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  
Wed  1  June  >>  Elsewedy  Electric  ex-­‐dividend  date  for  EGP1.00/share  cash  dividend  
Mon  6  June  >>  Orascom  Construction  Industries  (OCI)  AGM  
Mon  6  June  >>  Mobinil  ex-­‐date  for  EGP3.16  cash  DPS  
   
Saudi  Arabia  
Wed  1  June  >>  Alujain  AGM  
Wed  29  June  >>  Dar  Al  Arkan  AGM  and  EGM  
   
Egypt  News  
   
Prime  Minister  Sharaf  promotes  successes  ahead  of  Friday  protest  
Egypt’s  Prime  Minister  Essam  Sharaf  promoted  his  interim  government’s  achievements  on  Wednesday  since  
taking  office  in  February  before  a  rally  planned  in  Cairo  on  Friday.  Prime  Minister  Sharaf,  in  an  address  on  state  
television,  did  not  mention  Friday’s  planned  protest,  but  appealed  to  Egyptians  to  give  his  government  time  to  
meet  their  demands.  “It  is  difficult,  even  impossible,  for  us  to  deal  with  and  realise  all  factional  demands...  on  an  
individual  basis,”  he  said.  “The  problem  isn’t  financial  problems  only.  A  lot  of  (the  problems)  depend  on  
institutional  and  administrative  reform.”  He  added  that  the  police,  which  had  been  in  disarray  since  the  uprising,  
was  being  restructured  and  that  a  plan  was  being  drawn  up  for  13  watchdog  bodies  to  root  out  corruption  and  
safeguard  public  funds.  
   
Facebook  groups  have  been  complaining  about  what  they  see  as  slow  political  and  economic  reforms  and  delays  
by  the  military  council  and  the  interim  government  in  bringing  to  justice  former  officials  charged  with  abuse  of  
power  and  graft.  They  have  called  for  a  massive  demonstration  in  Cairo’s  Tahrir  Square,  the  hub  of  protests  that  
toppled  Hosni  Mubarak,  on  Friday  in  what  they  dubbed  the  “second  revolution”.  (Reuters)  
   
Government  is  looking  to  recognise  direct  land  awards  since  1998  
The  government  is  finalising  a  draft  law  that  will  recognise  land  sales  by  direct  orders  executed  after  the  Law  of  
Tenders  and  Auctions  of  1998,  which  triggered  a  series  of  legal  disputes  in  the  real  estate  sector.  The  Minister  of  
Agriculture  and  Land  Reclamation,  Ayman  Abu-­‐Hadid,  submitted  to  the  cabinet  the  draft  law,  which  was  
previously  worked  on  by  the  government  of  Ahmed  Nazif  and  which  aims  to  legitimise  contracts  signed  by  the  
previous  governments,  with  local  and  foreign  investors  in  violation  of  the  Law  of  Tenders  and  Auctions  of  1998.  
This  would  put  an  end  to  court  proceedings  over  these  transactions,  especially  after  foreign  companies  indicated  
that  they  will  resort  to  international  arbitration  should  their  contracts  be  cancelled  or  assets  purchased  from  the  
government  re-­‐priced.  Drafting  the  law  is  approaching  the  final  stages  and  it  will  be  submitted  to  the  
government  “within  the  coming  few  days”,  Al  Masry  Al  Youm  reported,  quoting  a  government  official  as  saying.  
   
We  believe  that  such  a  law  would  be  yet  another  positive  signal  from  the  authorities  regarding  the  prominent  
land  disputes  that  are  currently  having  a  negative  impact  on  Egypt’s  economy  as  a  whole,  given  that  
construction  industry  is  one  of  the  top  employers  in  the  country.  A  law  of  that  kind  would  possibly  put  an  end  to  
the  Madinaty  row  and  other  cases  where  corruption  has  not  been  proven,  but  the  land  sale  transactions  had  
legal  flaws  that  could  be  challenged  in  courts.  The  news  could  further  strengthen  sentiment  towards  real  estate  
equities  listed  on  the  EGX,  provided  that  the  report  by  Al  Masry  Al  Youm  is  accurate,  given  that  no  similar  news  
was  reported  by  other  sources  as  of  today.  We  reiterate  our  Buy  rating  on  Talaat  Moustafa  Group  (TMG)  
[TMGH.CA].  (Al  Masry  Al  Youm,  Jan  Pawel  Hasman,  Shaza  El  Kady)  
   
TMG:  EGP4.25,  Rating:  Buy,  FV:  EGP9.10,  MCap:  USD1,438  million,  TMGH  EY  /  TMGH.CA  
   
Political  turmoil  drives  up  1Q2011  unemployment  
Egypt’s  1Q2011  unemployment  rate  rose  by  three  percentage  points  from  4Q2011  to  11.9%  as  political  turmoil  
hit  the  economy,  according  CAPMAS,  the  national  statistics  body.  The  total  number  of  unemployed  rose  to  a  
record  3.1  million,  as  nearly  141,000  people  lost  their  jobs  after  recent  events.  Urban  unemployment  stood  at  
15.9%,  while  rural  unemployment  stood  at  8.8%  in  1Q2011.  
   
The  figures  add  further  support  to  our  expectations  for  a  2011  contraction  in  real  GDP  of  2.5%  as  consumption  
and  investment  suffer  from  political  and  economic  uncertainty.  We  expect  the  loss  in  employment  to  be  driven  
mainly  by  the  tourism  sector,  the  country’s  largest  employer,  which  suffered  from  lower  tourist  arrivals  on  
security  concerns.  Construction  activity  is  likely  to  have  been  another  driver  of  unemployment,  in  our  view,  with  
legal  problems  restricting  growth  in  the  sector  as  evident  by  weak  cement  and  steel  sales  in  1Q2011.  (Reuters,  
Mohamed  Abu  Basha)  
   
US  calls  for  G8  to  support  Egypt  and  Tunisia  
The  United  States  on  25  May  2011  called  on  the  Group  of  Eight  nations  meeting  this  week  in  France  to  help  with  
financial  support  for  Egypt  and  Tunisia  as  the  two  countries  attempt  to  make  the  transition  to  democracy.  In  a  
letter  to  the  G8,  Secretary  of  State  Hillary  Clinton  and  Treasury  Secretary  Timothy  Geithner  argued  that  rich  
nations  should  do  everything  they  can  to  make  sure  popular  democratic  uprisings  are  ultimately  successful.  
Clinton  and  Geithner  reiterated  their  commitment  to  a  debt  swap  arrangement  for  Egypt  and  called  on  their  G8  
counterparts  to  undertake  similar  measures.  “A  debt  swap  will  enable  Egypt  to  channel  its  debt  payments  
toward  underwriting  swift,  sustainable  job  creation,”  the  letter  said.  (Reuters)  
   
SODIC  reports  a  1Q2011  net  loss  of  EGP15.7  million  on  weak  delivers;  strong  pre-­sales  in  1Q2011  
Sixth  of  October  for  Development  and  Investment  Company  (SODIC)  [OCDI.CA]  has  reported  a  1Q2011  net  loss  
of  EGP15.7  million  compared  to  a  net  profit  of  EGP29.7  million  in  4Q2010,  and  a  net  loss  of  EGP11.3  million  in  
1Q2010.  We  had  expected  a  net  profit  of  EGP17.1  million  in  1Q2011,  assuming  stronger  quarterly  deliveries  of  
units  in  the  Allegria  project,  as  well  as  a  stronger  gross  profit  margin  on  these  deliveries.  Total  revenues  of  
EGP42  million  in  1Q2011  came  in  significantly  below  our  forecast  of  EGP143  million.  We  had  expected  the  
company  to  deliver  54  villas  in  1Q2011.  The  company  delivered  22  units  only,  down  from  110  units  in  4Q2010.  
This  translated  into  gross  revenues  of  EGP52  million  from  Allegria,  down  from  EGP241  million  in  4Q2010.  The  
company  reversed  a  historical  sale  of  one  villa  worth  EGP14.6  million,  which  was  directly  subtracted  from  its  
quarterly  top  line.  This  reversed  unit  sale,  which  had  historically  generated  a  gross  margin  of  53%,  pushed  down  
the  gross  margin  for  Allegria  deliveries  in  1Q2011  to  9%  compared  to  26%  in  4Q2010  and  16%  in  3Q2010.  
Excluding  the  impact  of  sale  reversal,  deliveries  of  units  in  Allegria  generated  a  gross  margin  of  21%  in  1Q2011.  
Management  has  indicated  that  deliveries  are  back  on  track,  and  the  company  expects  to  deliver  500  units  in  
2011.  SODIC  closed  1Q2011  with  cash  and  cash  equivalents  of  EGP889  million,  down  from  EGP945  million  as  at  
the  end  of  2010.  It  reported  total  receivables  of  EGP1,949  million  compared  to  EGP2,118  million  as  of  end-­‐2010.  
(Company  Disclosure,  Jan  Pawel  Hasman,  Shaza  El  Kady)  
   
SODIC:  EGP65.24,  MCap:  USD398  million,  OCDI  EY  /  OCDI.CA  
   
Juhayna’s  Deputy  CEO  to  leave  the  company  
Juhayna  Food  Industries  (JUFO.CA)  announced  that  its  Deputy  Chief  Executive  Officer  Nabil  Skaria,  who  has  been  
with  Juhayna  for  three  years,  will  leave  the  company  effective  31  May  2011.  Juhayna’s  press  release  added  that  
“[Skaria]  contributed  to  the  development  and  success  of  the  Group  as  well  as  keeping  up  with  the  company’s  fast  
pace  of  growth.”  (Press  Release)  
   
Juhayna:  EGP5.50,  Rating:  Neutral,  FV:  EGP5.60,  MCap:  USD671  million,  JUFO  EY  /  JUFO.CA  
   
Olympic  Group  reports  1Q2011  results:  EGP35  million  net  loss  
Olympic  Group  (OG)  [OLGR.CA]  reported  a  1Q2011  consolidated  net  loss  of  EGP35  million  compared  to  a  net  
profit  of  EGP53  million  in  1Q2010,  with  the  decline  mainly  coming  from  core  operations.  Consolidated  revenue  
(including  B  Tech  and  Namaa)  fell  39%  Y-­‐o-­‐Y  to  EGP396  million.  Reported  gross  profit,  including  depreciation  
expense,  fell  60%  Y-­‐o-­‐Y  to  EGP67  million,  with  the  margin  contracting  to  17%  from  26%  in  1Q2010.  Financial  
statements  showed  an  operating  loss  of  EGP17  million  versus  an  operating  profit  of  EGP71  million  in  1Q2010  
and  an  FX  loss  of  EGP6  million  compared  to  a  slight  gain  last  year,  with  net  interest  expense  coming  in  slightly  
higher  Y-­‐o-­‐Y.  In  its  1Q2011  earnings  release,  management  indicated  that  consolidated  results  were  driven  by:  i)  
a  48%  decline  in  local  sales  (affected  by  local  political  events/curfew  measures),  a  36%  decline  in  exports  (also  
affected  by  political  instability  in  OG’s  main  export  markets),  and  a  13%  decline  in  B.  Tech  sales  (fully  
consolidated  retail  arm);  ii)  fixed/overhead  manufacturing  costs  along  with  low  factory  utilisation  and  sales  
volume;  ii)  an  adverse  sales  mix,  with  relatively  low  volume  contribution  from  high-­‐margin  automatic  washing  
machines;  and  iii)  raw  material  cost  pressures.  We  are  suspending  our  coverage  on  the  stock  as  EFG  Hermes  
Investment  Banking  is  advising  Olympic  Group  on  a  transaction  with  Electrolux.  (Company  Disclosure,  Nour  
Farrag)  
   
Telenor  expects  Vimpelcom  arbitration  to  end  by  1H2012  
Telenor  said  that  it  expected  the  arbitration  for  its  shareholder  rights  in  Vimpelcom  to  be  concluded  by  1H2012,  
according  to  Reuters.  Telenor  plans  to  present  its  initial  statement  of  claim  to  the  arbitration  panel  in  early  June  
2011.  Telenor  said  that  it  had  initially  decided  to  seek  arbitration  to  avoid  the  dilution  of  its  stake  in  Vimpelcom  
following  the  merger  with  Naguib  Sawiris’s  Wind  Telecom.  A  Telenor  spokesperson  said  that  the  company  
remained  committed  to  its  investment  in  Vimpelcom  and  regards  it  as  a  strategic  asset.  (Reuters)  
   
HDB  and  Egyptian  Arab  Land  Bank  dropped  by  the  government  
The  Housing  and  Development  Bank  (HDB)  [HDBK.CA]  and  Egyptian  Arab  Land  Bank  merger  plans  where  
dropped  by  the  government.  Egyptian  Arab  Land  Bank,  the  fourth  largest  state-­‐owned  bank  by  assets,  was  
restructured  along  with  HDB  in  order  to  be  merged  before  the  end  of  2012.  According  to  the  Central  Bank  of  
Egypt’s  Deputy  Governor  Hisham  Ramez,  HDB,  60%  owned  by  the  government,  is  not  planned  to  merge  with  
Egyptian  Arab  Land  Bank.  (Reuters)  
   
BG  to  invest  USD250  million  in  Egypt  licences  
BG  Group  Plc  plans  to  invest  USD250  million  in  drilling  three  exploratory  wells  in  offshore  concessions  this  year  
and  in  2012,  Egypt’s  Oil  Ministry  said,  citing  a  company  manager.  BG  plans  to  drill  two  wells  for  USD50  million  in  
the  El  Manzala  block  this  year  and  a  well  at  a  cost  of  USD200  million  in  El  Burg  before  the  end  of  next  year,  the  
ministry  said,  citing  Sami  Iskander,  BG’s  Executive  Vice  President  and  Managing  Director  for  Africa,  Middle  East  
and  Asia.  The  company  produces  over  35%  of  Egypt’s  total  gas.  (Bloomberg)  
   
Saudi  Arabia  News  
   
Private  sector  credit  growth  slows,  but  outlook  remains  strong  
Private  sector  credit  growth  in  Saudi  Arabia  slowed  in  April  to  0.5%  M-­‐o-­‐M,  down  from  1.2%  in  March,  and  to  
6.9%  Y-­‐o-­‐Y,  from  7.0%  in  March,  after  a  steady  acceleration  in  1Q2011.  We,  however,  do  not  see  this  slowdown  
as  a  trend,  with  the  expected  strong  demand  for  credit  by  both  the  corporate  and  retail  sectors  supported  by  the  
strong  macroeconomic  environment.  We  maintain  our  2011  private  sector  credit  growth  forecast  at  9.0%.  The  
monthly  monetary  data  released  by  SAMA  showed  that  money  supply  (M3)  accelerated  to  17.2  %  Y-­‐o-­‐Y  in  April,  
up  from  13.8%  in  March,  which  we  believe  was  a  result  of  the  rise  in  net  foreign  assets  (NFA)  position.  NFAs  
held  by  SAMA  rose  by  27.6%  Y-­‐o-­‐Y  in  April,  likely  driven  by  the  rise  in  oil  revenue,  and  will  reflect  a  widening  in  
the  fiscal  surplus.  We  do  not  expect  that  the  acceleration  in  money  supply  will  lead  to  inflationary  pressure,  with  
a  gradual  rise  in  private  sector  credit  growth,  although  we  do  see  inflation  accelerating  going  forward  on  higher  
food  and  producer  price  inflation  feeding  into  consumer  prices.  (Monica  Malik,  Murad  Ansari)  
   
EFG  Hermes  Research  
   
Nasr  City  Housing  &  Development  Co.  (MNHD)  -­  Reinitiate  Coverage:  Dispute-­Free  Land  Bank  Key  Value  
Driver,  Limited  Downside  Risks;  Buy  -­  Initiation  of  Coverage  -­  25  May  2011  
Reinitiate  Coverage  with  FV  of  EGP28.40/Share,  Buy  Rating:  We  reinitiate  coverage  on  MNHD,  with  a  fair  value  
(FV)  of  EGP28.40/share,  which  offers  29%  upside  potential  to  the  current  share  price.  The  company’s  dispute-­‐
free,  centralised  and  fully-­‐owned  land  bank  of  c10  million  sqm  is,  in  our  view,  its  principal  value  driver.  We  like  
the  company’s  limited  exposure  to  current  political  risks,  readiness  for  retail  land  sales,  diversified  management  
team,  connection  to  the  current  government,  and  unleveraged  balance  sheet  with  a  debt-­‐to-­‐equity  ratio  of  only  
c6%.  
   
Dispute-­‐Free  Land  Bank  with  Limited  Downside  Risks…:  We  believe  that  MNHD’s  dispute-­‐free  and  centrally  
located  land  bank  will  limit  share  price  volatility,  especially  as  other  developers  struggle  with  land-­‐related  court  
cases.  The  company  sits  on  one  of  the  oldest  land  banks  under  our  coverage,  which  it  obtained  through  
presidential  decrees,  mostly  before  the  1980s.  All  of  its  historical  disputes  with  local  institutions,  such  as  the  
army,  have  been  resolved,  while  its  reported  land  bank  faces  no  legal  issues  to  date.  
   
…and  a  Play  on  Affordable  Housing  Demand:  The  company  is  strategically  positioned  to  benefit  from  pent-­‐up  
demand  for  middle  income  and  affordable  housing,  in  our  view.  As  the  Egyptian  property  market  decelerates  on  
legal  and  political  uncertainties  faced  by  certain  developers,  we  expect  demand  in  MNHD’s  target  segments  to  
hold  up  relatively  well,  particularly  because  the  company  owns  an  inventory  of  units  nearing  completion  in  
Cairo’s  central  areas.  The  recent  launch  of  a  budget  housing  project  in  Sixth  of  October  City  has  the  potential  to  
fuel  the  company’s  top  line  over  the  coming  two  to  three  years,  in  our  view.  
   
Turnaround  Story  Geared  for  Positive  Catalysts:  MNHD’s  ongoing  turnaround  initiated  by  its  new  management  
team  is  on  the  right  track,  in  our  view,  to  transform  the  company  into  an  important  player  in  Cairo’s  residential  
real  estate  scene.  We  believe  that  the  transformation  is  likely  to  generate  a  number  of  positive  catalysts,  such  as  
new  project  launches  or  significant  land  sales,  which  could  trigger  share  price  revaluations.  Aside  from  the  
overall  industry  risk,  we  see  little  risk  to  the  company’s  operation,  especially  given  the  company’s  relatively  
simple  business  model.  (Jan  Pawel  Hasman,  Shaza  El  Kady)  
   
[Note  –  EFG  Hermes  is  not  responsible  for  the  accuracy  of  news  items  taken  from  other  media.]  
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Our  investment  recommendations  take  into  account  both  risk  and  expected  return.  We  base  our  fair  value  estimate  on  a  
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  to  
change  without  notice.  This  research  report  is  prepared  for  general  circulation  and  is  intended  for  general  information  
purposes  only.  It  is  not  intended  as  an  offer  or  solicitation  with  respect  to  the  purchase  or  sale  of  any  security.  It  is  not  
tailored  to  the  specific  investment  objectives,  financial  situation  or  needs  of  any  specific  person  that  may  receive  this  report.  
We  strongly  advise  potential  investors  to  seek  financial  guidance  when  determining  whether  an  investment  is  appropriate  to  
their  needs.  No  part  of  this  document  may  be  reproduced  without  the  written  permission  of  EFG  Hermes.  
   
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