MENA-2 TUESDAY MORNING ROUND-UP

Egypt
Government studies elimination of energy subsidies for various industries CBE accepts repos worth EGP2.7 billion Army operation nets militants in Sinai Tourist arrivals drop 48% in 1H2011; occupancy rates in Red Sea resorts hit 70% in August SODIC BoD approves 1 million shares buy-back Cable cuts disrupt connectivity in northern Egypt Outgoing international calls drop by 10%, TE VP says Amer reports 2Q2011 net income of EGP67.5 million, down 42% Y-o-Y

Saudi Arabia

Sahara-Tasnee JV signs deal with Evonik for SAP plant SABIC proposes USD50/tonne increase to MEG prices for September 2011 Kayan signs deal with Sinopec for natural alcohols plant

Jordan
Credit information bureau to operate by early 2012 Steel industrialists seek protection APOT to supply Indian and Chinese markets with potash

Morocco

Government says early elections set for November 25

EFG Hermes Research

MENA Strategy Note - Add Al Babtain and Remove Renaissance from the MENA Top 20 List - 16 August 2011 Telecom Egypt (TE) - 2Q2011: Mixed Results, Our Top Telecom Pick Due to Defensive Nature; Maintain Buy Flash Note 16 August 2011

Agenda
Egypt Sat 27 August >> Al Ezz Dekheila (EZDK) AGM

Egypt News
Government studies elimination of energy subsidies for various industries The Egyptian government is studying the elimination of energy subsidies for the ceramics, fertiliser, steel and cement industries, part of a strategy to improve the efficiency of government subsidies, Finance Minister Hazem Al Beblawi has said. The plan is part of a larger effort to rationalise the governments overall energy subsidies to industries and consumers. Al Belbwai did not elaborate as to when and how subsidies would be eliminated. He also added that the government is seriously studying the implementation of a minimum wage for the private sector that would still maintain the economys competitiveness. (Al Ahram) CBE accepts repos worth EGP2.7 billion

The Central Bank of Egypt (CBE) accepted EGP2.66 billion (USD445.54 million) in seven-day repurchase agreements (repos) in the money market (CBES) on 16 August, less than the EGP3 billion that it had asked for. The repos carry a fixed rate of 9.25%. The CBE introduced its weekly repo offerings on 20 March to keep short-term interest rates under control following the political and economic unrest that ousted former President Hosni Mubarak earlier in February. (Reuters) Army operation nets militants in Sinai Egyptian security forces pushing ahead with a crackdown on armed groups in lawless northern Sinai seized four armed militants on 16 August as they prepared to blow up a gas pipeline in the city of el-Arish, security sources said. Security forces said that the military operation - dubbed Operation Eagle - began this week after a spike in attacks on security forces in Sinai ever since the overthrow of former President Hosni Mubarak. Egypt launched the military operation earlier this week after an assault on a police station in el-Arish on 30 July in which an army officer, two policemen and three civilians died. Militants have formed alliances with armed Bedouin tribesmen with strongholds in the rugged mountains of Sinai. Sinai's population has a history of resentment towards Cairos central government, which has struggled to stamp its authority on the desert region bordering Israel and the Hamas-ruled Gaza Strip. (Reuters) Tourist arrivals drop 48% in 1H2011; occupancy rates in Red Sea resorts hit 70% in August Tourist arrivals dropped 48% in 1H2011 to 4.1 million, down from 7.9 million tourists in 1H2010, Al Borsa reported, citing an official at the Ministry of Tourism. Tourist arrivals during April 2011 reached 800,000 versus 1.24 million arrivals in April 2010. Occupancy rates in Red Sea resorts such as Sharm el-Sheikh and Hurghada climbed to 70% at the beginning of August, Al Shorouk reported, quoting the Minister of Tourism Mounir Fakhry Abdel Nour. (Al Borsa, Al Shorouk) SODIC BoD approves 1 million shares buy-back Sixth of October Development and Investment Companys (SODICs) [OCDI.CA] board of directors (BoD) has approved to buy back 1 million shares (c1.1% of total shares outstanding) in treasury. The company has set a maximum price of EGP18/share for the 1 million shares. The BoDs decision awaits approval from the Egyptian Financial Supervisory Authority (EFSA). (Mist news) SODIC: EGP17.08, MCap: USD259 million, OCDI EY / OCDI.CA Cable cuts disrupt connectivity in northern Egypt Three fibre cables were damaged during construction works on the Cairo-Alexandria road on 16 August between 10am and 11 am, leading to a partial cut of mobile and internet services, Al-Ahram online reported. A Telecom Egypt (TE) (ETEL.CA) official has denied that the damaged cables were caused by criminal attack or sabotage, adding that the company is transferring the services to other cables. "As we speak, the services are gradually coming back", he said. Mobile operators and some internet providers rely on one of these cables to connect between their different locations. Affected regions, according to TE officials, include some parts of Alexandria, Sadat Industrial City and other regions inEgypts north western governorates. The damage comes two days after another cable in the area was cut. "This makes it harder to fix the problem promptly," he added. The other two cables were used for international calls, but service was immediately transferred to alternative cables. Some mobile subscribers on all three Egyptian mobile networks (i.e., Mobinil (EMOB.CA), Vodafone Egypt (VFE) and Etisalat Misr (ETEL.CA)), are facing connection issues with voice calls and internet. All BlackBerry services were damaged as a result of the broken cable. Mobinil and Etisalat were the first to report the problem on their Twitter accounts. (Al-Ahram Online) Mobinil: EGP92.11, Rating: Buy, FV: EGP138.9, MCap: USD1,543 million, EMPN EY / EMOB.CA TE: EGP14.74, Rating: Buy, FV: EGP19.5, MCap: USD4,215 million, TELE EY / ETEL.CA Outgoing international calls drop by 10%, TE VP says Outgoing international calls have dropped by 10% due to lower tourism levels in Egypt as opposed to incoming international calls, Al-Youm Al Sabee Daily quoted Tarek Abou-Alam, Telecom Egypts (TE) (ETEL.CA) Vice President, as saying. TE signed several agreements with mobile operators in a number of countries to reduce call tariffs to prevent illegal international calls, which has had a negative impact on TEs revenue as these calls do not pass through its international gateway. Last year, Saudi operators slashed their roaming tariffs to local tariffs

level, which led to an overflow of Saudi SIM cards in Egypt. The Egyptian telecom regulator complained to its Saudi counterpart in order to stop the offers. (Al-Youm Al-Sabee) TE: EGP14.74, Rating: Buy, FV: EGP19.5, MCap: USD4,215 million, TELE EY / ETEL.CA Amer reports 2Q2011 net income of EGP67.5 million, down 42% Y-o-Y Amer Group (Amer) [AMER.CA] has reported 2Q2011 net income of EGP67.5 million versus EGP134 million in 1Q2011, down 42% Y-o-Y. Total revenues reached EGP319 million in 2Q2011 versus EGP330 million in 1Q2011. Total revenues for 1H2011 reached EGP649 million versus EGP654 million 1H2010, Al Mal reported. Net income for 1H2011 came in at EGP201 million, down 13% Y-o-Y. (Reuters, Al Mal)

Saudi Arabia News

Sahara-Tasnee JV signs deal with Evonik for SAP plant The Saudi Acrylic Acid Company (SAAC), a joint venture between Sahara Petrochemical Company (Sahara) [2260.SE] and the National Industrialization Company (Tasnee) [2060.SE], has signed an agreement with Evonik for the construction and operation of a 80,000 tonnes per year (tpy) super absorbent polymer (SAP) plant in Saudi Arabia. SAAC will own 75% of the project, while Evonik will own the remainder. The plant is estimated to cost SAR1.4 billion and is expected to become operational in 3Q2013. The technology used will be provided by Evonik and the SAP will be marketed by both companies once the plant becomes operational. (Argaam) Sahara: SAR20.0, Rating: Buy, FV: SAR30.0, MCap: USD1,563 million, SPC AB / 2260.SE SABIC proposes USD50/tonne increase to MEG prices for September 2011 SABIC (2010.SE) has proposed increasing the price of mono ethylene glycol (MEG) to USD1350/tonne in September 2011. This would represent a USD50/tonne increase versus August 2011 prices, and would be significantly higher than the current spot price of MEG of USD1,250/tonne. (Argaam) SABIC: SAR94.75, Rating: Buy, FV: SAR133, MCap: USD75,800 million, SABIC AB / 2010.SE Kayan signs deal with Sinopec for natural alcohols plant The Saudi Kayan Petrochemical Company (Kayan) [2350.SE], a 35%-owned subsidiary of SABIC(2010.SE), has signed a SAR488 million (USD130 million) contract with Sinopec Engineering for the construction of a distilled natural alcohols plant in Jubail, Saudi Arabia. The plant will have a capacity of 50,000 tonnes per year (tpy) and is expected to become operational by 2H2013. The project is in line with SABICs commitment to diversify its operations into oleochemicals using renewable feedstock, according to Kayan. Natural raw materials from renewable oils such as palm kernel oil and coconut oil will be used in the process. (ICIS, Argaam, Zawya Dow Jones)

Jordan News
Credit information bureau to operate by early 2012 A credit information bureau will start operations no later than the beginning of next year, Central Bank of Jordan (CBJ) Governor Faris Sharaf has said. He indicated that the CBJ, in cooperation with local banks, will seek to attract a strategic partner to participate in the company that will handle credit information operations. He also mentioned that the CBJ is currently working on developing a payment mechanism via mobile phones so that all banks can provide such a service besides the companies that provide mobile telecom services - without monopoly by any of them. (The Jordan Times) Steel industrialists seek protection Owners of steel factories have warned of a major crisis if no remedial action is taken to save the sector. Industrialists want the suspension of exemptions granted to investors implementing projects in Jordan. They have urged the government to suspend the import of steel from the UAE as well as not grant import permits or impose new taxes and fees on the local industry. Steel factory owners explained that importers bring UAE steel at low

prices and with deferred sales taxes into Jordan, which negatively affects the competitiveness of the local industry and will lead to flooding the local market with imported steel. (The Jordan Times) APOT to supply Indian and Chinese markets with potash The Arab Potash Company (APC) (APOT.JO) has recently signed two agreements to provide around 600,000 tonnes of potash to Indias market at a cost of USD300 million, the companys Chairman, Nabih Salameh, has said. APC also concluded an agreement with a Chinese group as at end-June to provide the Chinese market with 300,000 tonnes, he added, indicating that the accords are part of the companys marketing plans. In 2010, the companys overall production stood at 2.08 million tonnes. With the completion of new production facilities in 2010, production is expected to reach 2.5 million tonnes by end-2011. (Jordan Times)

Morocco News
Government says early elections set for November 25 The Moroccan government on 16 August said that it would hold a parliamentary election on 25 November, 10 months ahead of schedule, as the Kingdom rushes to adopt constitutional reforms designed to head off an Arab Spring-style uprising. The poll was originally planned for September 2012. Morocco's King Mohammed has said that he wants early elections to create a new government to enact the reforms that were approved in a referendum last month. Setting the new poll date has involved delicate negotiations between the Interior Ministry, which oversees elections, and some political parties, who say that more time is needed to make sure the vote is fraudproof. (Reuters)

EFG Hermes Research

MENA Strategy Note - Add Al Babtain and Remove Renaissance from the MENA Top 20 List - 16 August 2011 Al Babtain Oversold, Add to MENA Top 20 List: We add Al Babtain to our MENA Top 20 List. The shares have corrected 12% in the last few weeks the largest fall amongst our Saudi industrial coverage on the back of weak 2Q2011 results and a sell-off across Saudi Arabias market after theUS credit rating downgrade and renewed global growth concerns. The shares now trade at trough levels last seen during the Arab Spring; at 10.2x 2011 estimated earnings we believe current levels offer an attractive entry point. We believe further downside risks are mitigated by a dividend yield of 6.7%. Al Babtain was one of the stocks highlighted in our dividend yield screen. (Please see MENA Still Pays More; High Yields Supportive During Current Sell-Off published on 9 August 2011.) Renaissance Outlook Difficult, Remove from MENA Top 20 List: In its 2Q2011 earnings release, Renaissance announced weaker-than-expected results and highlighted higher-than-expected potential write-downs to come in 2H2011. Renaissance also highlighted financial irregularities at one of Topazs overseas subsidiaries. As a result, our analysts cut their 2011 earnings expectations by 49% to OMR14.1 million and incorporated a higher equity risk premium assumption for the Topaz-related divisions. These factors will create an overhang, in our view, and we therefore remove Renaissance from the MENA Top 20 List. MENA Top 20 Performance Hit by Sharp Sell-Off: Since the US credit rating downgrade, the MENA Top 20 List lost 6.2% on a free float-weighted basis (and -6.0% for the full market cap-weighted index) versus -3.9% for the benchmark S&P Pan Arab Composite Mid & Large TR Index. This underperformance occurred despite our more defensive approach since June. In our view, this performance is explained by the indiscriminate nature behind much of the sell-off. As we highlighted earlier (Sharp Sell-Off to be Short-Lived, but Remain Defensive, published 8 August 2011), we believe the sharp sell-off has created opportunities for investors to accumulate positions in the MENA region. We would expect to see volumes recover once Ramadan is over and the 3Q2011 earnings season approaches. (Fahd Iqbal, Simon Kitchen) Telecom Egypt (TE) - 2Q2011: Mixed Results, Our Top Telecom Pick Due to Defensive Nature; Maintain Buy Flash Note 16 August 2011 2Q2011 Earnings In Line, Revenue and EBITDA Miss Estimate; Keep Buy: Revenue and EBITDA missed our estimates by 4% and 7%, respectively, while earnings came in line at EGP826 million, boosted by sundry revenue of EGP109 million. We maintain our Buy rating on the stock as our fair value (FV) of EGP19.5/share implies 30% upside potential. TE has been on our Top Picks List since 13 July 2011; it remains our top telecom pick given its defensive nature, strong FCF generation (estimated 2011 yield 18%) and hence high dividend yield (estimated at 10.1% in 2011).

Retail Revenue Drops 5% Q-o-Q: Internet and Voice Surprise Negatively: Retail revenue missed our estimate by 6%, declining to EGP1.2 billion. The main negative surprise came in internet, which dropped Q-o-Q, missing our estimate by 22%. We believe the Q-o-Q decline could be due to 1Q2011s strong usage, which was not sustainable in 2Q2011. The other negative surprise was voice revenue, which missed our estimate by 10%. We believe that this negative trend will continue going forward. EBITDA Margin Misses on Higher-than-Expected Cable Systems Costs: EBITDA margin fell to 48.0%, below our expected 49.7%. This was mostly due to higher-than-expected costs related to the cable systems. EBITDA margin for should be lower than 1H2011s 50.6% as it will include the additional 8% salary increases (instated in July). Our FY2011 EBITDA margin forecast of 46.7% looks achievable. We note that administrative expenses included a one-off gain of EGP50 million in reversal of an accrual related to the social scheme. Other Important Notes on Cable Systems, VFE, and Taxes: TE booked EGP257 million in wholesale revenue related to cable systems, above our expected EGP180 million. Last year, management indicated that EGP600-700 million in revenue related to cable systems would be booked in FY2011; we believe that TE could beat this figure. Vodafone Egypts (VFEs) contribution was only 5% weaker than expected in 2Q2011 due to the lower-thanexpected EBITDA margin since it added 2 million subscribers during the quarter, which pressured the margin. In 2Q2011, TE accounted for the 25% corporate tax rate for the quarter and the 5% additional tax on 1Q2011. TE also adjusted its deferred tax asset account (balance in 1Q2011 was cEGP200 million), realising a gain of cEGP40 million. (Marise Ananian, Omar Maher)
[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.