MENA-2 SUNDAY MORNING ROUND-UP

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Egypt

Economy contracts sharply by 4.2% Y-o-Y in 1Q2011, in line with our expectations Central Bank has not intervened in currency since February; keeps rates steady Government drops proposed capital gains tax; no other budget changes Egypt resumes natural gas supply to Israel Arms deals with Egypt continue, US says African Development Bank may lend Egypt up to USD1.5 billion Maridive 1Q2011 results: bottom line misses on higher taxes despite strong top line Sixth of October City authorities study PHDs request to return 190 feddans Bank consortium grants USD82 million loan to MENA Sea Cables

Saudi Arabia

Inflation decelerates to 4.6% Y-o-Y in May Al Akaria nearly halves Dar Al Tamleek Company stake Sipchem to shutdown methanol plant for 10 days SIIG reports net income of SAR60 million for May 2011

UAE

Etisalat to offer 4G coverage by year end

EFG Hermes Research

Oriental Weavers (OW) - Growth on Scale, Diversification to Offset Cost Pressures; Reinitiate Coverage with a Buy - Initiation of Coverage Note - 09 June 2011 Saudi Mid-Cap Industrials and Materials - Infrastructure Spending Necessary, but Insufficient for Outperformance - Initiation of Coverage Note - 09 June 2011 Egypt Banking Sector Note - April 2011 Sector Trends: Loan Growth Slows; Deposits Broadly Stable 09 June 2011

Agenda
Egypt 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
Economy contracts sharply by 4.2% Y-o-Y in 1Q2011, in line with our expectations Egypt's economy contracted by 4.2% Y-o-Y in 1Q2011 after coming to a halt following events that began on 25 January 2011. The figure, mentioned in the Central Bank of Egypt's (CBE) Monetary Policy statement, comes in line with our expectations of a 4.0% Y-o-Y contraction for the quarter. The figure brings 9M20102011 (July-March) growth to 2.3% Y-o-Y. The statement said that investment plunged 26% Y-o-Y in real

terms in 1Q2011, reflecting a disruption of economic activity that was driven by the curfew, the deterioration in the countrys security position, and particularly by the uncertainty over the country's political and economic future. The CBE's statement highlighted that although a contraction in the economy was expected, the magnitude is larger than anticipated at the outset of the revolution. We expect consumption to have also contracted during the quarter, with 1Q2011 balance of payments figures pointing to an improvement in the country's net export position as imports contracted at a larger degree than exports. Indeed, leading indicators (including volumes of auto sales and that of household appliances) all point to a sharp contraction in consumption. In addition to the disruption in economic activity, we expect the contraction in consumption to have been driven by a major setback in the tourism industry, a leading employer in the economy, as well as lower employment growth. On a production basis, the declines are likely to have been driven by sharp contractions in the tourism and construction industries, leading employers in the economy. Positive growth is likely to have been recorded in the oil and communications sector, as well as the Suez Canal. We note that detailed GDP figures for 1Q2011 should be announced today at a press conference by the Minister of Economic Development and International Cooperation. We maintain our FY2011 growth expectations of a real contraction of 2.5%, with the 1Q2011 GDP outturn coming in line with our forecasts. On a fiscal year basis, this translates to growth of 1.4% in the current fiscal year (FY2010-2011, ending 30 June 2011), and 1.7% in FY2011-2012. We expect domestic demand to continue to contract in 2011 as political and economic uncertainty dampens confidence. The key consumption drivers, namely employment growth, tourism and remittances, are likely to continue showing weak performance. We expect the state of uncertainty to remain until after the Parliamentary and Presidential elections, planned to be held at the end of the year. (CBE, Mohamed Abu Basha) Central Bank has not intervened in currency since February; keeps rates steady The Central Bank of Egypt (CBE) has not intervened in the foreign exchange market since early February, the bank's Deputy Governor, Hisham Ramez, said on 9 June 2011, who added that sharp falls in international reserves are likely to ease. The CBE intervened a few days after the market reopened in early February, following the ousting of Hosni Mubarak as president, Ramez stated. "Since that day, we [have] not intervened We did not touch the market," he said. International foreign exchange reserves have dropped by USD9 billion this year, but Ramez clarified that this was due to a fall-off in tourism and export revenues.

Additionally, the CBE left its benchmark overnight deposit and lending rates unchanged on 9 June 2011, as we had expected. This leaves the overnight lending rate at 9.75% and the deposit rate at 8.25%. A statement from the bnak highlighted that inflation remains primarily driven by food prices on the back of by supply bottlenecks and distortions in distribution channels. The latter will continue to pose upside risks to inflation, together with rising global commodity prices, the statement read. However, these risks will be balanced by a weak economic environment that should limit rising inflation, the statement added. We expect the CBE to leave interest rates unchanged in 2011 given the contraction in the economy and an inflation environment that remains largely driven by supply bottlenecks in the food sector. (Reuters, CBE, Mohamed Abu Basha)

Government drops proposed capital gains tax; no other budget changes The Egyptian government has dropped plans to levy a tax on share dividends following strong opposition from investors, and is looking for ways to reduce planned expenditure as a result, Finance Minister Samir Radwan said on 9 June 2011. "We never had a plan to impose a capital gains tax in the traditional sense. All we discussed is a tax of 10% on distributed gains from the stock exchange, on dividends," Radwan told Reuters. "For the time being, we are not imposing this tax so that we [can] encourage the stock exchange." He ruled out reviving the idea of a dividend tax later this year and said that there have been no other changes made to the government's budget, which was approved by the interim cabinet on 8 June 2011. Asked how the government would compensate elsewhere in the budget for dropping the dividend tax, Radwan said: "I am trying to see if we can reduce expenditure somewhere." The government had expected the capital gains tax to raise an additional EGP2.5 billion (0.17% of GDP) in revenues annually. (Reuters, Mohamed Abu Basha) Egypt resumes natural gas supply to Israel Egypt resumed pumping natural gas to Israel on 10 June 2011 after supplies were halted in April following an attack on a pipeline, an Israeli official has said. "Gas has resumed [and is] flowing at commercial levels," an Israeli energy official told Reuters. Gas flow was stopped for more than a month following

explosions on the Egyptian side of the pipeline in the wake of political turmoil and ousting of former President Hosni Mubarak. Experimental testing on the pumping of gas to Israel and Jordan began on 7 June 2011 after repairs were made to the damaged pipeline, Ampal-American Israel Corp said. (Reuters) Arms deals with Egypt continue, US says US arms sales to Egypt have been unaffected by the uprising that ousted President Hosni Mubarak in February, a Pentagon official in charge of carrying out such programmes said on 10 June 2011 "We continue to do with Egypt what we were doing before the Arab Spring, if you will," Vice Admiral William Landay, head of the Defense Security Cooperation Agency, told reporters at the Pentagon. He declined to discuss the status of pending deals with other Middle East countries amidst the unrest that has shaken the region from Tunisia to Bahrain and Yemen. There has been no change in what we were doing before the 18-day uprising, Landay added. (Reuters)

African Development Bank may lend Egypt up to USD1.5 billion The African Development Bank (ADB) may lend Egypt as much as USD1.5 billion to help its economy recover from the events that began on 25 January 2011, a bank official said. We will be able to commit USD1 billion-1.5 billion in funding to Egypt over the next 12-18 months, Jacob Kolster, ADBs director for Tunisia, Libya and Egypt, said in an interview. Egyptians, from a financial point of view, will weather this crisis. The issue is really that they get going with some important economic and social reforms. We are there to support them. ADB President, Donald Kaberuka, and Kolster met with Egyptian government officials in Lisbon on 11 June 2011 prior to the lenders annual general meeting (AGM) to discuss what it could do to assist the North African nation. (Reuters) Maridive 1Q2011 results: bottom line misses on higher taxes despite strong top line Net income came in at USD14.8 million in 1Q2011, up 19% Y-o-Y and 44% Q-o-Q, but below our USD18.0 million forecast mainly on higher taxes and minority interests during the quarter. Revenues came in at USD109.2 million, up 69% Y-o-Y and 39% Q-o-Q, and 21% ahead of our estimate of USD90.4 million. This is mainly due to: i) higher utilisation rates for the companys vessels in 1Q2011; and ii) works on large OCS contracts during the quarter, which included the construction phase of the Aramco contract in Saudi Arabia and ONGCs contract in India. Critically, two of the companys prominent barges were deployed across these two major contracts during 1Q2011 in addition to a large number of support vessels, which boosted utilisation rates. Given the higher-than-expected top line, cost of sales of USD72.3 million came in 37% ahead of our forecast, resulting in a gross profit of USD36.9 million, in line with our USD37.5 million estimate. However, gross margins of 33.8% were somewhat weaker than our expectation of 41.5%. We highlight that the OCS segment is a relatively lower margin business by nature, which could pressure our FY2011 gross margin estimate of 46.4% given that we believe this year will continue to be largely dominated by OCS projects. With SG&A and depreciation expenses coming broadly in line with our forecasts, net operating profit of USD24.1 million was in line with our USD23.9 million estimate. Below the operating line, a combination of higher minority interests and taxes, both driven by a strong contribution from the companys OCS subsidiary, Valentine, led to the net income figure of USD14.8 million. Maridives shares have had a good run, gaining 31% since the re-opening of the EGX and post-1Q2011 results, which were broadly as expected. We see little scope for further positive catalysts for the shares. Given that we expect the OCS business to continue to dominate numbers for this year, we could see some pressure on our gross margins estimates and hence, pressure on earnings estimates for the full year. The shares are now in striking distance of our fair value (FV) of USD3.81/share, hence we advise investors to take some profits at these levels. Moreover, the company now trades on an estimated 2011 P/E multiple of 12.4x, which is relatively high compared to its average 12-month forward P/E multiple 9.3x (based on multiples going back to 2008), in our view. (Company Disclosure, Abid Riaz, Nadine Hassouna) Maridive: USD3.64, Rating: Buy, FV: USD3.81, MCap: USD1,118 million, MAPS EY / MOIL.CA Sixth of October City authorities study PHDs request to return 190 feddans Sixth of October City authorities have begun studying Palm Hills Developments (PHDs) [PHDC.CA] request to return 190 feddans (798,000 square metres (sqm)) to the New Urban Communities Authority (NUCA), Al Borsa reported. NUCA will make a final decision by the end of July. (Al Borsa) PHD: EGP2.24, Rating: Sell, FV: EGP2.1, MCap: USD177 million, PHDC EY / PHDC.CA

Bank consortium grants USD82 million loan to MENA Sea Cables Mashreq Bank and Misr Bank have given final approval for a loan worth USD82 million to MENA Sea Cables, 100% owned by Orascom Telecom (ORT.CA), until the technical advisor finalises due diligence on the cables project that MENA Sea Cables plans to establish linking Italy and India. The project is expected to cost USD400 million. The loan has a tenure of five years; USD46 million will be granted by Misr Bank, while the remaining USD36 million will be provided by Mashreq Bank. (Al Alam Al Youm) OT: EGP4.23/USD3.43, MCap: USD3,736 million, ORTE EY / ORTE.CA

Saudi Arabia News

Inflation decelerates to 4.6% Y-o-Y in May Saudi Arabias Consumer Price Index (CPI) decelerated to 4.6% Y-o-Y in May, down from 4.8% Y-o-Y in April, according to data from the Central Department of Statistics. The decelaration brought inflation to a 16-month low. The main factor behind the drop in inflation was a 0.32% M-o-M decrease in food costs in May. Housing costs rose 0.6% M-o-M during the month. We forecast annual average inflation of 5.5% in 2011, as we expect to see inflation strengthen 2H2011. (Reuters, Monica Malik) Al Akaria nearly halves Dar Al Tamleek Company stake Saudi Real Estate Companys (Al Akarias) [4020.SE] board of directors (BoD) have approved the sale of its 6.59% stake in Dar Al Tamleek Company (a total of 659,340 shares), to the Public Pension Agency for SAR10/share. This decreases Al Akarias ownership in Dar Al Tamleek to 3.41%. (Tadawul, Zawya Dow Jones) Al Akaria: SAR23.9, Rating: Neutral, FV: SAR27.4, Mcap: USD764.5 million, SRECO / 4020.SE Sipchem to shutdown methanol plant for 10 days According to a company source, as reported by ICIS, the Saudi International Petrochemical Company (Sipchem) [2310.SE] shutdown its 1 million tonnes per annum (mtpa) methanol plant for turnaround for 10 days on 11 June 2011. The shutdown is not expected to have an impact on the market as it is a short turnaround, according to market participants. (ICIS, Argaam) Sipchem: SAR21.35, Rating: Buy, FV: SAR26, MCap: USD2,088, SIPCHEM AB/ 2310.SE SIIG reports net income of SAR60 million for May 2011 The Saudi Industrial Investment Group (SIIG) [2250.SE] has reported a net income of SAR60 million for May 2011. This brings the total for 5M2011 to SAR340 million, up 49.8% Y-o-Y. (Tadawul)

UAE News
Etisalat to offer 4G coverage by year end Etisalats (ETEL.AD) Chief Corporate Communication Officer (CCCO) has said that the company plans to rollout 4G services in the UAE, covering 80% of the population by year-end. The CCCO added that although the network will be ready, it will take some time for 4G-enabled devices to enter the market. (Zawya Down Jones) Etisalat: AED10.7, Rating: Neutral, FV: AED12.54, MCap: USD23,051 million, ETISALAT UH / ETEL.AD

EFG Hermes Research

Oriental Weavers (OW) - Growth on Scale, Diversification to Offset Cost Pressures; Reinitiate Coverage with a Buy - Initiation of Coverage Note - 09 June 2011 Initiate Coverage with a Fair Value of EGP38.00/Share; Buy: We assign Oriental Weavers (OW) a Buy rating, as our fair value (FV) implies 20% upside potential. Despite global demand headwinds, OW has sustained top line growth by acquiring market share from high-cost producers in its main export markets (the US, Europe) and leveraging/growing its exposure to high-growth markets (Egypt, China, Africa). The company receives an export rebate (42% of 2008-10 net profit), which we exclude from our forecast starting in 2014 in the absence of future visibility. Including the rebate, OW trades at a deep discount to global carpet peers estimated 2011 P/E of 16.9x and EV/EBITDA of 8.6x. The companys founders, the

Khamis family, own 57% of OW. It sold minority stakes in 2010-2011, and we believe further disposals are plausible. Export-Driven Business Model, Despite Dominant Local Position: OW is a vertically integrated mass producer of a wide range of carpets and rugs with factories in Egypt, the US, and China. Local sales generate 36% of revenue (as at 2010), and OWs estimated market share in Egypt is 85%. Exports contribute the remaining 64%, mostly supplying big box retailers and hospitality chains, although OW started producing for competition abroad in 2010. Total production capacity grew at an estimated CAGR of 6% in 2008-2010, and average utilisation currently stands at 95%. Revenue Growth and Resilient Margins to Promote Profit Expansion Revenue grew at a 10% CAGR in 2008-2010. Net profit was roughly flat on consistently rising costs that were met with little pricing flexibility. We forecast a net profit CAGR of 7% in 2011-2017, driven by continued strong sales growth on an improved demand outlook and as OW explores business opportunities with new international clients/markets, and by margin stability relative to the historical trend. This is despite our assumption of discontinued rebate starting in 2014 and relatively depressed 2011 and 2012 net profit growth on Egypts economic slowdown and a surge in costs. Risks and Opportunities: Demand and competition are the main risks impacting OWs volume, market share and margins. Potential areas of growth include downstream expansion in Europe and/or China, and overseas acquisitions or joint ventures within the textile sector. (Nour Farrag, Nada Amin) Saudi Mid-Cap Industrials and Materials - Infrastructure Spending Necessary, but Insufficient for Outperformance - Initiation of Coverage Note - 09 June 2011 Initiate Coverage on Six Stocks; Time to Visit the Sector, Yet Selectively: We initiate coverage on six Saudi industrials and materials stocks exposed to the governments infrastructure spending in Saudi Arabia. The Tadawul Building Materials Index lost 45% between June 2009 and its post-financial crisis low in March 2011. We initiate coverage on the sector following a steep correction in 2010. The legacy high-margin contracts and inventory write-downs of 4Q2008 boosted 2009 earnings and pushed margin erosion and earnings deterioration to 2010, in our view. This coincided with demand slowdown and bullish commodity prices. We believe that demand is recovering as materials prices stabilise and that the tide is turning for earnings. Strong Balance Sheets, Diversified Client Bases are Necessary: Our coverage universe has suffered from deteriorating earnings since 2008, albeit at varying degrees. The companies that are most dependent on Saudi Arabian and GCC utilities in the power, and oil and gas sectors have suffered the most due to client concentration. The companies with large working capital financing needs and/or debt tenure mismatch (short-term debt financing capacity expansions) are not the best positioned to benefit from the anticipated demand recovery, raising the prospect of new capital injections. We thus favour stocks with a diversified client base and strong balance sheets. Buy Al-Babtain, Sell MESC, Neutral on SSP, APCO, SCC and Zamil: We expect the diverging estimated 2011 P/E of our coverage universe to converge at the end of our forecast horizon (2014). Al-Babtain and Saudi Steel Pipes (SSP) enjoy better earnings visibility thanks to their well-diversified client bases and strong balance sheets. We are buyers of Al-Babtain, as we like its ongoing acquisition of a minority stake in its subsidiary, Al-Babtain LeBlanc. SSPs dividends limit its downside potential, but the current share price factors in earnings growth, and hence our Neutral rating. We are sellers of MESC, as we believe its Jordanian subsidiary will need a capital injection. The earnings turnaround and contract news flow have been impacting the performance of Saudi Cables Company (SCC) and Arabian Pipes (APCO) following their losses in 2010. Their current share prices factor in a strong earnings recovery, in our opinion, and hence our Neutral rating. We are also Neutral on Zamil since its key business unit is facing competition, margin compression and because it has yet to reach a trough. (Tarek El-Shawarby, Ahmed Gad Egypt Banking Sector Note - April 2011 Sector Trends: Loan Growth Slows; Deposits Broadly Stable 09 June 2011 Aggregate Loan Growth Stalls in April 2011: According to recent statistics published by the Central Bank of Egypt, loan growth slowed in April 2011, with aggregate lending flat M-o-M and up 3% Y-o-Y compared to 5% Y-o-Y growth in March 2011. Lending to private sector corporates marginally declined M-o-M, while lending to the retail sector inched up just 0.3%. The uncertain political climate has resulted in a significant slowdown in corporate investment as well as in private consumption, especially for durable goods.

Deposits Broadly Stable M-o-M: Deposits rose 8% Y-o-Y in April 2011, but showed a slight 0.3% M-o-M fall, driven by a 0.7% decline in FX deposits and a 0.3% decline in EGP deposits. The dollarisation ratio was roughly unchanged versus March 2011 and stood at 22%, up from 19% in December 2010, but well below the 34% peak reached in early 2004. Our economics team believes that there is limited downside risk to further currency depreciation from current levels (the EGP has depreciated just 2.5% versus the USD YTD) due to the expected slowdown in the decline in FX reserves coupled with the external support Egypt is expected to receive until the end of the year. We do not expect a significant change in the deposits dollarisation ratio in the short term. Maintain 6% Loan Growth Forecast in 2011 for CIB, NSGB and CAE: We forecast average loan growth of 6% Y-o-Y for our coverage universe. Anecdotal evidence suggests that lending momentum in Egypt slightly improved since the end of the protests, with syndicated loans being extended to utilities sector companies and large blue chips. CIB, NSGB and CAE posted Y-o-Y loan growth well ahead of the sector average in 1Q2011 (22% for CIB, 15% for NSGB and 30% for CAE, compared to sector loan growth of 5%). Aggregate data are largely skewed towards state-owned banks, which we estimate account for 40% of sector lending. Loan growth at public banks has been negatively impacted by a credit quality overhang and restructuring. Reiterate Neutral Ratings on CIB, NSGB and CAE: We expect Egyptian banks to post a decline in profitability in 2011, owing to rising provisioning and lower non-interest income, but we forecast ROEs to remain at a decent average of 16% in 2011 and 20% in 2012. While we believe that current multiples are not demanding for banks, with such a return level and with a strong long-term asset growth story, we believe that uncertainty about the timing of a pickup in economic activity will likely deter multiples expansion in the short term. (Elena Sanchez-Cabezudo, Mohamed El Hefny)
[Note EFG Hermes is not responsible for the accuracy of news items taken from other media.] __________________________________________________________________________________________________ _______________ Our investment recommendations take into account both risk and expected return. We base our fair value estimate on a fundamental analysis of the companys 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. EFG Hermes (main office), Building No. B129, Phase 3, Smart Village km 28 Cairo Alexandria Road, Egypt tel.: +20 2 3535 6140 | Fax: +20 2 3537 0939 EFG Hermes (UAE office), Level 6, The Gate, West Wing, DIFC Dubai - UAE tel +971 4 363 4000 | fax +971 4 362 1170 EFG Hermes (Saudi office), Kingdom Tower, 54th floor, Riyadh - Saudi Arabia tel +9661 211 0046 | fax +9661 211 0049 EFG Hermes (Qatar office) Al-Fardan Towers, Office Tower, 7th floor, West Bay, Doha - Qatar tel +974 409 3888 | fax +974 421 3499 Website: www.efg-hermes.com Bloomberg: EFGH | Reuters pages: EFGS .HRMS .EFGI .HFISMCAP .HFIDOM