Dubai Stock Exchange

Oman Cement Company – Result Update 1Q12

noreply@blogger.com (Sonu Katha) — Thu, 31 May 2012 09:03:00 +0000

· 1Q12 net profit increases by 23.9%YoY

· OMR10bn development plan; 35.5% Investment Expenditure

· Increased Clinker Capacity by 600,000tpa

· Fair value upgraded; Recommendation maintained at HOLD

Modest 8.5% increase in top line in 1Q12

Oman Cement Company (OCC) recorded a 8.6% increase in top line to OMR13.9mn as sales volume reflected positively. This resulted in a 23.9% increase in profits reaching OMR5.1mn as compared to OMR4.1mn registered in 1Q11. The increase has mirrored strongly in margins. Gross margins increased to 40.1% and net margins up by 450bps to 36.8% during the quarter. The increase can be attributed to the inauguration of its new clinker line which increased the capacity to 2.4mtpa. In addition to higher production and sales volume.

New Kiln leads to higher production and sales

Oman Cement managed to roll out 543,544tons of cement during 1Q12, up 10.7% as compared to the previous period, the increase is associated to a new Kiln commissioned in 2011, a new line of 4,000tpd of clinker has been completed. Clinker production on the other hand increased 94% and reach 538,295tons, of which 60% of it is from the new Kiln. In terms of sales, OCC sold 558,495tons of cement during 1Q12 as compared to 490,865tons in 1Q11, a 13.8% increase. OCC signed a contract to increase capacity of Kiln-1 and is expected to commission it in 1Q13.

Stabilization in Prices

Prices of cement in Oman have witnessed stability after recording continuous decline since 2009 where prices averaged around USD82.5/ton. Since 1Q12 Omani cement price have averaged around USD65/ton, a strong sign of stabilization. We expect cement prices to continue at their current levels and start to increase from 2013 onwards.

Huge Development Plan

The Omani government ratified the new budget for 2012 with a historical OMR10.0bn in expenditures, 35.5% of the expenditures is targeted to investments. According to the Ministry of Economy, the country is allocating around OMR2.0bn to build new projects including roads, construction of 29 schools, 5 new hospitals, establishment of fishing harbors and centralized markets.

The development plan will help OCC tremendously as it will help keep up local cement demand. In addition risks arising from the supply of cement from neighboring countries including UAE will decrease due to the situation in UAE is turning around as there is pickup in demand which has given rise to increase in price for the first time since 2009.

Healthy financial base

OCC managed to witness a 2.6% increase in equity for 1Q12 to reach OMR143.6mn, in addition to an healthy 3.8% increase in assets. Oman Cement debt/equity ratio is currently at 0.09x in 1Q12 and is expected to decrease to 0.05x in 2012. The company has a healthy current and quick ratio of 3.1x and 2.1x respectively.

Valuation update

We have upgraded our fair value to OMR0.698/share after incorporating improved cement demand forecast for 2012-15 in our model. Despite upgrading our fair value the recommendation has not changed due to 32.0% increase in share price in the last 3 months. Thus we maintain HOLD recommendation on the stock.

GCC Petrochemical Sector Quarterly – 1Q12

noreply@blogger.com (Sonu Katha) — Wed, 23 May 2012 06:14:00 +0000

· GCC petrochemical companies profit declined by 10.2% YoY during 1Q12

· Iraq oil production at its 30year high – to exert further pressure on oil price

· Overcapacity threatens GCC petrochemicals profitability – Alix partners

GCC petrochemical companies profit declined by 10.2% during 1Q12

GCC petrochemical companies 1Q12 earnings declined by 10.2% YoY to USD3.1bn as compared to USD3.5bn in the same period last year. While on a QoQ basis the earning improved by 23.9% added majorly by SABIC profit growth of 39% QoQ (Contributing 61.5% in 1Q12 compared to 58.4% in 1Q11 and 54.9% in 4Q11). First quarter performances of various petrochemical companies witnessed improvement on a QoQ basis mainly due to advancement in the product prices and higher volumetric sales.

Iraq oil production set to surpass Iran

Iraq's oil production has surpassed three million bpd as the country prepares to overtake Iranian production by the end of the year. The country's crude production rose by 195,000 barrels per day in April to touch 3.03mn for the first time since 1979, while oil exports rose to 2.51mn bpd, according to the International Energy Agency (IEA). According to the IEA, Iran's sales have dropped by 400,000 bpd to 2.1mn during the first quarter of the year while Iraq shipped a daily average of 2.14mn bpd during the same period. With the fourth round of oil auction due at the end of this month, there has been a lot of expectation that Iraq would embark on a strong growth path that would benefit global supplies and would result in a drop in oil price which will benefit the petrochemical companies which extract NAPTHA from oil to use as their feedstock.

Overcapacity threatens GCC petrochemicals profitability

According to a study released by AlixPartners - the petrochemical companies in the Middle East have benefited significantly from the availability of, and proximity to, oil and natural gas feedstock, production of many petrochemical products in the region will exceed demand significantly over the next few years, leading to low utilization rates and poor margins for less-competitive companies. Major driver for this threat is the huge expansion of chemical production capacity in the GCC coming on stream in the next three to five years

GCC Banking Sector Quarterly – 1Q12

noreply@blogger.com (Sonu Katha) — Wed, 23 May 2012 06:12:00 +0000

· GCC banking profitability rose 18%YoY and 38% QoQ

· Bottom-line growth of GCC banks was led by Qatar, up 68%YoY

· Balance Sheet growth strong on higher deposit base

· Results positive for UAE, Kuwait and KSA and marginally lower for Qatar

GCC banking profitability up on lower provisioning and operating expenses

GCC banks under our coverage saw their profits improving by 18%YoY and 38%QoQ mainly on account of lower provisioning expense (down 5% YoY and 46% QoQ) and operating expense (cost income ratio improves to 31.6% vs. 33.6% in 4Q11 and 32.2% in 1Q11). The aggregate quarterly profit is the highest recorded in the past 5 years. Qatar once again exhibited the strongest QoQ as well as YoY growth in profits with a growth of 58% and 68% respectively.

Net interest income down on shrinking margins

On an aggregate basis, GCC banks under our coverage witnessed healthy operating performance with net interest income rising by 11%YoY and non-interest income increasing by 4%YoY. However, on a QoQ basis, net interest income was down by 4% despite a 3% growth in lending. All countries witnessed margin pressures with Kuwait and UAE leading the way where NIMs were down by 53bps and 44bps respectively.

Balance Sheet growth strong on higher deposit base

Balance sheet growth was strong (up 4.3% QoQ) driven by a 6.2% jump in deposit base. However, aggregate lending was mediocre and increased by 2.8% during the quarter. Balance sheet growth was strongest in the case of UAE, with its total assets increasing by 5.3% QoQ.

Results positive for UAE, Kuwait and KSA and marginally lower for Qatar

On an aggregate basis, the banking sectors (banks under coverage) of all individual countries offered a positive surprise except Qatar in 1Q12. Qatar’s aggregate results were slightly off-mark (2.5% lower than anticipated), while that of the remaining varied albeit on a positive side.

GCC Cement Sector Quarterly – 1Q12

noreply@blogger.com (Sonu Katha) — Wed, 23 May 2012 06:11:00 +0000

· GCC cement sector profits increased by 21.2% YoY during 1Q12

· Average realization prices in GCC increased by 1.1%

· Price increase and rising regional demand pulls UAE companies out of losses

· Positive stance on Saudi Arabia

GCC cement sector profits increased by 21.2% YoY during 1Q12

GCC cement sector profits increased by 21.2% in 1Q12. Net profits increased from USD359.5mn in 1Q11 to USD435.6mn in 1Q12. However, net margins witnessed a fall of 90.4bps. Revenue on the other hand increased 24.3% to reach USD1.26bn.

Average realization prices in GCC increased by 1.1%

Cement prices in the GCC averaged around USD66.7/ton in 1Q12, as compared to USD66.0/ton enjoyed in 1Q11, a 1.1% increase mainly due to price increase in Saudi Arabia. KSA cement prices increased 11.3% in 1Q12 as compared to the previous year. While UAE, Oman and Kuwait witnessed declining prices because companies slashed prices to win contracts.

Price increase and rising regional demand pulls UAE companies out of losses

UAE cement companies witnessed a turnaround in 1Q12 and unlike previous quarters all companies ended in profits as compared to nearly half of them in losses due to low demand & rock bottom prices. However starting 1Q12, profits are back and UAE cement companies recorded a USD29.7mn in profits, up 338.3% as compared to 1Q11. The increase is due to higher cement prices, higher sales to neighboring countries and a pickup in local demand. Gross profits increased 45.3% to reach USD27.2mn, bringing gross margins to 10.5% as compared to the single digit recorded in 2011. Noticeably, noncore income grew 74.5% and reached 65.1% of the total profits.

Recommendation

Within GCC, we are POSITIVE on Saudi Arabia while our outlook is Neutral for Qatar & Oman and Negative for UAE.

Real estate market showing signs of stabilization IMF Staff Report for UAE - 2012

noreply@blogger.com (Sonu Katha) — Mon, 21 May 2012 10:44:00 +0000

Following the large decline in real estate prices since 2008, some segments of the real estate market have begun showing signs of stabilization. By the end of 2011, in Dubai the hotel and retail segments and some parts of the residential market started to pick up, whereas office rents have continued to decline. In Abu Dhabi, where the initial real estate drop was less pronounced, both commercial and residential rents have continued to decline. The ongoing large oversupply and upcoming project completions continue to weigh on the sector.

In Dubai, the office vacancy rate (30 percent at end-2011) is expected to increase further as large additional supply will come on stream this year. Retail and hotel vacancy rates (20 and 25 percent at end-2011, respectively) could stabilize as fewer new projects are in the pipeline and demand continues to be substantial.

In Abu Dhabi, the real estate supply and demand gap continues to widen. The office market vacancy rate (23 percent at end 2011) is expected to grow in light of the expected large new supply. Many projects in the residential market are also expected to come on stream. In the hotel segment, vacancies remain high at 35 percent. The authorities have taken steps to help the real estate sector. In Dubai, 220 projects in early stages have been canceled, and the Dubai Land Department has introduced initiatives to support projects that are close to completion, by certifying viable projects to facilitate financing. The Abu Dhabi government has reviewed the project pipeline of Abu Dhabi GREs, which are now proceeding at a reduced pace. In addition, Aldar, one of the largest developers, has received support from the Abu Dhabi government and has progressed with its restructuring plans to adjust to market conditions. On the federal level, legal amendments are under discussion that would relax foreign ownership restrictions, which could help boost demand.

UAE reaping the benefits of its early efforts to diversify the economy IMF Staff Report for UAE - 2012

noreply@blogger.com (Sonu Katha) — Mon, 21 May 2012 10:12:00 +0000

The UAE economy is gradually recovering from the 2009 crisis. The banking sector was strengthened through significant capital injections, and some progress has been made in restructuring the debt of government-related entities (GRE). The ailing real estate sector is beginning to find bottom but, given the ongoing oversupply, an early and broad-based recovery of the sector remains unlikely.

Outlook and risks. The recovery of the nonhydrocarbon economy, however, looks set to continue this year, backed by strong trade, tourism, logistics, and manufacturing, and helped by high oil prices. With limited near-term potential for further increases in real oil production, overall GDP growth is expected to moderate to 2.3 percent. Downside risks relate to a possible increase in regional geopolitical tensions, a potential decline in oil prices, a renewed worsening of global financial conditions, or a marked slowdown in Asia.

Macroeconomic policy mix. The UAE plans a gradual fiscal consolidation this year which will help unwind the fiscal stimulus of recent years and lower the currently high fiscal breakeven oil price without undermining the economic recovery. The planned fiscal consolidation will also increase the room for maneuver in case the downside risks materialize. Monetary policy will stay appropriately accommodative under the U.S.dollar peg.

Government-related entities. The GREs continue to face financial challenges in light of their high debt and rollover needs. Further deleveraging and strengthening of impaired GRE balance sheets is needed. Improving GRE corporate governance and increasing transparency about their financing strategies, financial conditions, and debt profile would be important to strengthen market confidence. Channeling bank funding to non-viable GREs should be avoided.

Financial stability. The banking system maintains significant buffers to withstand a further deterioration in asset quality and external liquidity conditions. The central bank should nonetheless continue to closely monitor banks’ liquidity and capital buffers as individual banks could be affected if downside risks materialize.

Statistics. Effective policymaking is contingent on timely and accurate data, rendering further improvements in the statistical framework important

BACKGROUND

1. Following the 2009 crisis, the economy has been slowly recovering and repairing its balance sheets. The Dubai World debt restructuring was completed, but several other troubled government-related entities (GRE) are still in the process of restructuring. The authorities strengthened the banking sector through liquidity support, recapitalization, and deposit guarantees, and the emirate of Abu Dhabi provided financial support to the emirate of Dubai. The Dubai Financial Support Fund (DFSF) was called to support troubled entities in the emirate and has now almost exhausted its funding of $20 billion.

2. The UAE has been reaping the benefits of its early efforts to diversify the economy. As the UAE developed into a major services hub in the Middle East, its dependency on oil exports declined markedly.

Based on its well-developed hospitality and services sectors, tourism, transportation and logistics have been major drivers of the post- 2009 recovery. The UAE has also been benefiting from high oil prices and strong growth in Asia. As a result of its perceived safe haven status and developed services sector, the country benefited from an increase in demand for property by expatriates and a

surge in tourism in the wake of the turmoil in the MENA region that began last year.

Recent Developments

3. The economic recovery continued and the external position strengthened significantly in 2011. Real GDP growth reached an estimated 4.9 percent, supported by high oil prices and production in response to disruptions in Libya. Nonhydrocarbon growth also strengthened, to around 2.7 percent, backed by strong trade, logistics and a surging tourism sector, despite the continued weakness of the construction and real estate sectors in the aftermath of the 2009 crisis. Backed by high oil prices and buoyant Nonhydrocarbon exports, the external current account surplus increased markedly, to around 9 percent of GDP. Inflation remained subdued at an average of 0.9 percent in 2011, mainly due to a continuing decline in housing rents and limited pass-through of international food prices.

4. The large property overhang continues to be a drag on the economy. Since mid-2008, real estate prices have fallen by more than 60 percent in Dubai, and to a lesser extent in Abu Dhabi. The large supply overhang and the completion of additional projects in the coming years render an early and broad-based recovery of the sector unlikely (Box 1).increased its current and development expenditures, and extended substantial financial support to Aldar, its flagship real estate developer.2 Following a contraction in 2010, Dubai’s deficit increased slightly in 2011, mostly on account of further spending from the DFSF. Nonetheless, high oil prices led to an improvement in the consolidated overall balance from a deficit of 2.1 percent of GDP in 2010 to an estimated surplus of 2.9 percent of GDP in 2011.

5. The recovery was supported by an expansionary fiscal policy. The consolidated government nonhydrocarbon primary deficit (including loans and equity) rose to nearly 42 percent of nonhydrocarbon GDP in 2011 (from 36 percent in 2010), as Abu Dhabi increased its current and development expenditures, and extended substantial financial support to Aldar, its flagship real estate developer.2 Following a contraction in 2010, Dubai’s deficit increased slightly in 2011, mostly on account of further spending from the DFSF. Nonetheless, high oil prices led to an improvement in the consolidated overall balance from a deficit of 2.1 percent of GDP in 2010 to an estimated surplus of 2.9 percent of GDP in 2011.

6. Supported by accommodative monetary policy, banks remained amply liquid but private sector credit growth did not pick up. In light of low U.S. interest rates, monetary policy stayed accommodative under the fixed exchange rate regime. Lending to the private sector has nonetheless remained sluggish and lagged behind the recovery in credit growth in neighboring GCC countries, as

excess capacity in the real estate sector and the debt overhang still limit lending opportunities. Despite a continued rise in nonperforming loans (second highest level among GCC countries), the banking sector has remained well-capitalized and profitable, as the net interest margin has remained

comfortable. In October 2011, the authorities quickly resolved Dubai Bank through a takeover by Emirates NBD bank

1 The Dubai Financial Support Fund, financed in equal parts by the central bank and Abu Dhabi, was established in 2009 to provide financial support and liquidity to government and government-related entities undertaking projects of strategic importance in Dubai.

2 The consolidated government comprises the federal, Abu Dhabi, Dubai, and Sharjah governments accounting for over 99 percent of total UAE fiscal expenditures.

3 In connection with this transaction, Emirates NBD received a Dh2.8 billion deposit from the ministry of finance. The government of Dubai has provided a guarantee—with a fair value of Dh768 million—for any losses relating to existing assets for seven years.

2 The consolidated government comprises the federal, Abu Dhabi, Dubai, and Sharjah governments accounting for over 99 percent of total UAE fiscal expenditures.

Saudi Telecom Company (STC) - Result Update 1Q12

noreply@blogger.com (Sonu Katha) — Sun, 20 May 2012 07:02:00 +0000

· 1Q12 net profit increase by 60.3%YoY and 8.0%QoQ to SAR2.52bn

· 1Q12 revenue increase by 12.2%YoY to SAR14.67bn

· Dividend of SAR0.5 per share for 1Q12

· Fair value upgraded; Recommendation downgraded to HOLD

Growth in revenue and gain on F.C exchange fluctuation boost profitability

STC 1Q12 net profit increased by a hefty 60.0%YoY to SAR2.52bn. The profitability has been driven by increase in operating profit and gain on foreign currency exchange fluctuations.

The increase in operating profit by 19.1%YoY to SAR3.17bn was boosted by increase in sales revenue by 12.2%YoY to SAR14.67bn and improvement in operating efficiency. Meanwhile, gains on foreign currency exchange fluctuations were SAR219mn in 1Q12 compared to a loss on currency exchange fluctuations of SAR355mn in 1Q11.

Profitability growth strong even on an adjusted basis

Last year, the impact of two month special salary of SAR375mn was registered in 1Q11. Even after adjusting for this special salary amount, the 1Q12 net profit has grown by a healthy 29.4%YoY.

EBITDA margins remain stable

EBITDA margins have remained stable at around 36.6% in 1Q12 compared to 36.6% in 1Q11. This is apparently due to operating efficiencies and rise in proportion of high-margin data revenues offsetting the impact of intense competition in voice revenues.

Expected dividend payout of SAR2.0 per share for 2012

STC also announced a dividend of SAR0.5 per share for 1Q12 which is not surprising as the company has paid the same amount of dividend in the previous four quarters. We expect an aggregate dividend payout SAR2.0 per share for 2012. The last time the company decreased its dividend payout was in 1Q11 to SAR0.5 per share which was the first decrease after 9 consecutive quarterly payments of SAR0.75 per share before that period. Going forward, we believe the threat of reduction in dividends remains low as the company is expected to generate sufficient free cash flows.

Revision in estimates

We have increased our 2012 revenue and net profit forecast by 3.1% and 1.7% respectively in light of the strong revenue growth experienced in 1Q12. We believe that domestic revenue will continue to increase on the back of increase in broadband revenues. However, the bottom-line is expected to remain volatile due to foreign currency exchange movements. Thus we have taken a conservative view with regards to net profit growth.

Valuation update

We have slightly upgraded our fair value to SAR45.0/share from SAR44.0/share in view of the revised forecasts. However, we have downgraded our recommendation to Hold from Strong Buy as the stock price has rallied by 22.3% since the start of the year. The stock has also outperformed the Tadawul index by 9.6%YTD. The stock is trading at 2012e P/E of 9.5x which is slightly above the regional telecom (based on Global Research universe) 2012e P/E of 9.3x. The stock offers a reasonable 2012e dividend yield of 4.9%.

Monthly Oil Report- May 2012

noreply@blogger.com (Sonu Katha) — Thu, 17 May 2012 08:04:00 +0000

·WTI price decrease by 6.2% to USD96.1 per barrel during the review period

·Greece in the limelight again as exit from Euro-zone being debated

·Euro trading near four month low against the USD

·Iraq crude oil production crosses 3.0mnbpd for the first time in three decades

Political stalemate in Greece creating uncertainty

Widespread support for anti-bailout parties in the recent Greek elections and the ensuing political deadlock has increased speculation over Greece leaving the Euro-zone. The uncertainty has had an adverse impact on capital markets and commodity prices. WTI crude oil prices decreased by 6.2% to USD96.1 per barrel during the review period (09 Apr-11 May 2012). The Euro has also plunged near its four month low against the USD at around 1.29USD/EUR.

Meanwhile, France has seen a change at the helm of affairs with the Socialist party coming into power after more than 20 years. The new president is likely to advocate for growth measures which is bound to cause friction with Germany which continues to emphasize on austerity measures. Thus the fate of the common currency hangs in balance. However, on the positive side, Germany continues to witness strong economic growth with a higher than expected GDP growth of 0.5% for 1Q12. The growth in Germany helped to avert Euro-zone as a whole sliding into its second recession in three years.

Increase in oil production from Iraq and Libya offsetting decline in Iran production

Iraq oil production has surpassed the 3.0mnbpd mark for the first time in more than 30 years. The country produced 3.02mnbpd in April 2012. The production in Iraq is likely to increase further as the country auctions new fields and work on existing fields accelerate. The increase in Iraq production is offsetting the decline in Iranian crude production. Iranian oil production declined to 3.2mnbpd in April 2012 compared to 3.65mnbpd in 2Q11. Although the sanctions imposed by EU come into effect from July 2012, some countries have already reduced their purchase of Iranian oil. In addition, Iran has also taken pre-emptive action by stopping supplies to some companies, thus leading to a steady decline in sales and ultimately its production. According to some analysts, as much as 1.0mnbpd of Iranian crude can go off the market. However, the recovery in Libyan and Iraqi production has more than offset crude oil production from Iran, ensuring minimal disruption to crude oil supplies.

Demand growth in China to offset decline in Euro-zone

Western Europe oil demand is expected to decrease by 0.26mnbpd in 2012, which is not surprising as the Euro-zone economy continues to stagnate on the back of austerity measures being taken in many countries. China is expected to remain the major oil demand growth driver with an expected increase of 0.4mnbpd in 2012. Though the economic growth is expected to slowdown in 2012, China has managed to land softly. With decrease in bank reserve requirements and reduction in inflation, the focus is likely to come back on growth.

Arabian Cement Company – Result Update 1Q12

noreply@blogger.com (Sonu Katha) — Thu, 17 May 2012 08:03:00 +0000

· 1Q12 net profit increases by 26%YoY

· Strong growth in dispatches YoY

· Slowdown in its Jordanian subsidiary

· Fair value upgraded; Recommendation upgraded to BUY

ACC profits nearly double on QoQ

Arabian Cement Company (ACC) witnessed an impressive 26% increase in 1Q12 net profit to SAR146.1mn as compared to the same period a year ago. The profit rose by astonishing 90.6% on a QoQ basis. The profits are attributable to ACC having the best sales quarter ever due to the positive demand situation in the Kingdom, with huge development plans and increasing construction activity in the highly populated western region.

Increase in production reflected positively

In 2011, ACC managed to increase production by 300,000tons in its Rabigh factory. The increase was reflected positively in the 1Q12, and will continue to do so in 2012.Cement dispatches for Arabian for 1Q12 increased by 35% QoQ to 1.166mn tons. Strong growth in cement dispatches reflected in strong growth in sales revenue which increased by 32.6% QoQ to SAR355.1mn. Production on the other hand increased 37% during 1Q12 as compared to the previous quarter to reach 1.171mn tons.

Additionally, Gross margins managed to increase 932bps to reach 49.1% on a QoQ basis, while net margins managed to increase 1,252bps to reach 41.2% on a quarterly basis. 1Q12 was a very good quarter for Arabian Cement in terms of production, dispatches, revenues and profits.

Slowdown in subsidiary, but promising outlook

Qatrana Cement, which is owned 86.7% by ACC started production on April 2011 and has a cement production capacity of 1.8mtpa, producing 386,000tons of clinker and 390,000tons of cement during the period. Unfortunately, ACC was hit by SAR57mn bottom line loss in 2011 which were 51% lower than the expected by ACC due to the slowdown in Jordan’s economy, low cement demand and increased competition. In 1Q12 Qatrana reported a SAR60.9mn in revenues and recorded a SAR15.7mn bottom line loss. Currently Qatrana cement is trying to decrease cost and improve efficiency, by replacing heavy oil to produce cement by coal. Also the company is increasing its marketing schemes by adding new points of sale to improve revenue. Notably the factory in Jordan is located in Southern Jordan, which is an area of close proximity to local markets, seaports, and highways. With an expected real GDP growth of 2.8% in 2012 and 3.0% in 2013, Qatrana Cement is expected to witness higher sales and production in upcoming years, which will benefit ACC tremendously.

Healthy financial base

ACC managed to witness a 12.7% increase in equity for 1Q12 to reach SAR3.0bn, in addition to an healthy 8.8% increase in assets. Arabian’s debt/equity ratio is currently at 0.5x in 1Q12 which is considered high as compared to its sector, however it’s expected to decrease to 0.4x in 2012. The company has a healthy current and quick ratio of 1.8x and 1.2x respectively.

Valuation update

We have upgraded our fair value to SAR66.9/share from SAR59.3/share after incorporating improved cement demand forecast for 2012-14 in our model. Our recommendation has changed to a BUY. The stock at its current price of SAR55.25/share is trading at a discount of 14.5% to the fair value. Thus, we upgrade our recommendation on the stock to BUY.

Arabtec Holding (ARTC) - 1Q12 Results

noreply@blogger.com (Sonu Katha) — Thu, 10 May 2012 10:20:00 +0000

· 1Q12 net profit at AED84.0mn compared to AED26.6mn in the same period last year

· Results offer positive surprise, significantly ahead of our expectations

· Operational performance improved but lesser minority interest played a key part in tripling the profits

· Minority interest as a percentage of net income dropped to 16.0% in 1Q12, last year at 50.7%

· Board authorized the CEO to negotiate the best possible price to acquire the remaining 45% stake in Gulf Steel Industries

Arabtec Holding reported 1Q12 net profit of AED84.0mn compared to AED26.6mn in the same period last year. The results are significantly higher than Global Research and consensus estimates.

Arabtec said that first quarter results reflect the results of the Group's continuing projects and new projects commencement during the period which were not significantly affected by any seasonal or cyclical operations.

Improvement in gross margins (highest in last eight quarters), positive return on investments and drop in financial charges were instrumental in doubling the profit before tax of the Company.

With Aabar Investment acquiring 10.45% stake in the Company (5.32% directly, 5.13% through Aabar Properties), the Company welcomed new board of directors of which four are from Aabar.

The Company is expected to hold a conference call soon which will further explain the financial performance

Building on success, Kenya Airways generates operating profits in 2011.

noreply@blogger.com (Sonu Katha) — Thu, 10 May 2012 10:18:00 +0000

Plans to add New Delhi & Beirut in 2012 Increase frequency to Jeddah

10^th May 2012 UAE: Kenya Airways is one of the most successful and consistently profitable airlines in Africa. The carrier has achieved five straight years of operating profits, as well as net profits over four of the past five years. In FY2010/11 (year ending 31-Mar-2011), the carrier reported a net profit of KES3.5 billion (USD42.6 million), improving significantly on the previous financial year.

Over the first half of the 2011/12 financial year, the carrier continued its run of solid profitability, with an operating profit of KES1 billion (USD12.8 million) and a net profit of KES2 billion (USD24.5 million). The large improvement in the net result was mostly due to a KES1.5 billion (USD17.5 million) gain on fuel derivatives.

Traffic has gone from strength to strength, as the airline has developed its network and grown its fleet. The carrier operates to 56 destinations, 45 of them within Africa. It has progressively been adding to its fleet, most recently adding Embraer regional jets to operate to smaller African destinations as well as domestic routes.

Mr. Abraham Joseph, Area Manager – Middle East, Pakistan & India for Kenya Airways said, “The outlook is very positive for Kenya Airways. 2012/2013 plans to be an exciting year for the carrier as we start 11 new destinations this financial year first of which is New Delhi. In the Middle East, we will be starting Beirut in the coming months and also increase frequency to Jeddah”.

The carrier handled a little over 3.1 million passengers in FY2010/11. It expects to handle approximately 3.7 million passengers for the year to 31-Mar-2012, and more than 4 million passengers in 2012/13.

Despite Kenya Airways’ strong traffic outlook, African traffic was subdued during most of 2011, partly due to the political instability in the North African region during the year. Kenya Airways continues to face growing competition from European and Middle East network carriers.

Kenya Airways already has a solid operational base and has proven it can be sustainably profitable. Despite the recent softness of passenger and traffic growth in Africa, both the regional and long-haul markets are expected to be buoyed by the economic growth and increasing foreign investment in the region. Long-term projections for Africa put overall passenger traffic growth at 5.1-5.7% p/a and the regional aircraft fleet is expected to double over the next 20 years, with Kenya Airways' plans exemplifying that. It is clear the carrier is not going to miss out on a once in a lifetime expansion opportunity.

Highlights of GCC Equity Monitor – May 2012

noreply@blogger.com (Sonu Katha) — Wed, 09 May 2012 06:08:00 +0000

Top Fundamental Picks

UNB (UAE), CMP: AED2.98, Target Price: AED4.64

UNB is trading at one of the lowest P/BV multiples within our banking universe despite a healthy expected ROE of 14%. Albeit the bank offers an ROE slightly below the sector average of 16%, its trading multiple is at a discount of 36% to the sector average. UNB posted good results for 1Q12 beating our expectations by 11%. We believe that the bank has tremendous potential to outperform its peers in terms of price appreciation.

Saudi Arabian Fertilizer Co. (KSA), CMP: SAR184.5, Target Price: SAR220.7

SAFCO is a subsidiary of SABIC which allows it to benefit from the distribution network of SABIC. It is the world’s highest margin urea producer in the world thanks to the availability of low cost feedstock gas. Besides, within the Saudi petrochemical space, SAFCO has easily outscored its peers with an average ROE of over 50%, compared to Saudi Arabia’s 2011 ROE of 18%. Along with that Company has an attractive dividend yield of 8.1%.

Abu Dhabi National Energy (UAE), CMP: AED1.20, Target Price: AED1.79

TAQA reported a 13.8%YoY growth in revenue in 2011 due to higher oil prices and growth in its Power & Water portfolio. However, the overall profitability for 2011 was adversely affected due to a one-off impairment charge taken in 4Q11 in Taqa’s North America operations. Going forward, we expect both revenues and net profit to grow at a 3-year CAGR of 8.8% and 13.2% respectively as the company is well-placed to capitalize on opportunities available in electricity and water segments. The company is also trading at attractive valuation multiples.

Top Technical Picks

UNB’s stock price closed at AED2.94. The stock eased down as the medium-term (11 weeks) and long-term (50 weeks) moving averages at around AED3.05 capped further strength. Knowing that a successful break through there would promote an initial target at AED3.27 before AED3.60, but a strong bullish tone will only take place once the stock closes above the strong resistance level at AED3.95. On the bearish side, only a dip below the strong base line at AED2.81 would trigger a deeper correction towards the support line at AED2.46. The weekly and daily “RSI” indicators are currently neutral.

Strategy: Medium-term and long-term investors can start accumulating the stock above AED3.05.

Dubai Financial Market – Result Update 1Q12

noreply@blogger.com (Sonu Katha) — Wed, 09 May 2012 06:07:00 +0000

· AED30.5mn profits in 1Q12

· Value traded in 1Q12 up 87.6% YoY

· New revenue streams increased 47% YoY

· Positive start for the year

Double digit growth in 1Q12 profits

DFM reported 1Q12 profits of AED30.5mn as compared to AED15.4 loss in 4Q11 and from AED341,000 profit during the 1Q11. DFM 1Q12 net profit is exactly equal to our estimate of AED30.5mn. The increase in profits can be attributed to the 87.6% increase in the average daily trading value on a YoY basis to AED319.9mn as stocks prospered due to the better world indicators, good quarterly performance in UAE companies in various sectors, macroeconomic development in the Emirate of Dubai and a strong rally among stock exchanges in the world, which led to improved investors confidence and sentiments. DFM Index increased 21.8% during the 1Q12 and the stock outperformed the market as it increased 36.9% during the same period.

Top-line – Expected revenue increase but far from pre-crisis levels

Top line performance reported double digits growth as trading commission fees increased 80.2% to reach AED45.9mn as compared to AED25.5mn recorded in 1Q11. Other segments of revenue including brokerage fees decreased 21% to AED3.9mn, ownership & mortgage fees increased 495% and 26.4% respectively during the same period. However, investment income and other income declined on a yearly basis by 18.1% and 23.2% respectively.

In 2012, we expect the company’s revenue to increase by 79.5% in 2012 to AED222.4mn as the investor risk appetite returns also aided by the 4% expected expansion in Dubai economy for 2012. On a 2012-2015 CAGR basis we expect revenue to increase by 34.6%, which is still likely to remain below pre-crisis levels.

Positive start for the year

Looking forward, DFM initiative to diversify revenues are intact, new revenue streams recorded AED1.53mn in 1Q12, up 47.1% YoY. As the streams gain momentum, trading commission fees which make up more than 70% of the revenue as of 1Q12 are expected to decrease and a balanced revenue structure will be seen. New streams include signing data selling agreements, managing cash dividends and applying listing fees and offering online advertising. As of 1Q12 DFM managed to register 2,613 new accounts, up 93.5% on a yearly basis, proving the increasing appetite for the market which DFM will benefit from.

Valuation update

We maintained our DCF based fair value of the stock at AED0.90/share.. The stock at its current price of AED1.09 is 17.4% higher than our fair value target. We, therefore, maintain a SELLon the stock at its current price.

Etihad Etisalat Company – Result Update 1Q12

noreply@blogger.com (Sonu Katha) — Wed, 09 May 2012 06:06:00 +0000

· 1Q12 net profit increase by 21.0%YoY to SAR1,207.5mn

· 1Q12 operating profit increase by 19.0%YoY to SAR1,253.5mn

· SAR1.0 per share dividend announced for 1Q12

· Recommendation downgraded to HOLD; Fair value unchanged

Profitability continues to grow at a strong pace

Etihad Etisalat 1Q12 net profit was slightly above our estimate of SAR1,150mn, a deviation of 5.0%. The net profit growth of 21.0%YoY to SAR1,207mn was driven by increase in revenue from voice services.

Sales revenue witnessed a healthy growth of 11.7%YoY to SAR5,009mn in 1Q11. The growth rate in sales has come down compared to the previous quarters which is not surprising considering the larger base and as the company enters the maturity phase. The YoY sales growth in 1Q11, 2Q11, 3Q11 and 4Q11 was 25.0%, 29.1%, 16.3% and 29.8% respectively.

Data revenues rise to 23.0% of total revenue in 1Q12

The company attributed the rise in revenues to higher revenues from voice services due to increase in number of minutes used. The company also cited a rise in post-paid subscribers and increase in business sector revenue. Data revenue increased by 28.0%YoY in 1Q12. The share of data revenue increased to 23.0% of total revenue in 1Q12 compared to 20.0% in 1Q11. The increase in the amount of high margin data revenues resulted in an increase in EBITDA margin to 36.2% in 1Q12 compared to 35.2% in 1Q11.

Dividends on the way up

1Q12 dividend payout of SAR1.0 per share has not surprised us. We expect the aggregate dividend payout for 2012 to be SAR4.0 per share which translates into an attractive dividend yield of 6.4%. However, there is a possibility that our estimate might turn out to be on the conservative side as strong growth in EBITDA might allow the company to give a higher than expected dividend payout in next few quarters. Any further increase in dividend payout can be a possible stock price trigger.

Valuation update

We maintain our DCF-based fair value of SAR73.0/share. We also keep our financial forecasts unchanged as 1Q12 results do not warrant any revision. However, we have downgraded our recommendation from Strong Buy to Hold. The stock price has rallied by 26.5% since we included the stock as one of our top picks in the strategy report dated 10 January 2012. The stock has also outperformed the Tadawul index by 11.83% YTD. The stock is trading at 2012e P/E of 8.4x which is close to the regional telecom (based on Global Research universe) 2012e P/E of 9.3x.

Yamama Saudi Cement Company 1Q12 – Result Update

noreply@blogger.com (Sonu Katha) — Thu, 03 May 2012 10:41:00 +0000

· 1Q12 net profit increases by 54.5%YoY

· 500,000 housing unit to be build in the Kingdom

· Expanding its products through 20% stake in Yemeni cement company

· Fair Value upgraded; Recommendation upgraded to BUY

YSCC reaches record profits in 1Q12

Yamama Saudi Cement Company (YSCC) witnessed an impressive 54.5% increase in 1Q12 net profit to SAR277.6mn as compared to the same period a year ago. The profit rose by 45.3% on a QoQ basis. Higher profits can be attributed to increasing local dispatches and demand arising in the Kingdom. YSCC Cement has benefited from its strategic location in the Central Province, and caters to large population in the Kingdom. Construction sector growth is driven by the SAR690bn 2012-13 budget, which focuses on the implementation of 500,000 housing units.

Largest producer in the Central region

Cement dispatches for Yamama for 1Q12 increased by 30.8% QoQ to 1,919mn tons. Strong growth in cement dispatches reflected in strong growth in sales revenue which increased by 33.1% QoQ to SAR491.6mn. Sales revenue was also supported by an increase in average realization prices by 1.7% QoQ to SAR254 per ton. Among the central region, Yamama posted the largest increase in production and sales, its market share of production in the central region reached 41% in 1Q12 as compared to 36.9% share during the same period a year ago. In addition it has a 41.7% share of the local dispatches in the central region. Yamama benefits from the central region tremendously as it caters the region that host the largest population in KSA.

Additional capacity to commence from 2015

Recently YSCC’s board of directors met and discussed the feasibility of replacing five of Yamama old production lines with a single 10,000/tons of clinker per day line, the company started checking for offers from specialized companies for the execution. However, due to increasing demand company is thinking not to replace old lines and just add the additional line which will boost capacity to 7.6mpta.

New investment in Yemen

In 2011, the company invested around SAR75mn to buy a 20% stake in Yemeni Saudi Cement Company which has a facility in Adan, Yemen. The company has a production capacity of 1.4mtpa. However, according to recent update the facility is currently un operational due to the political situation in the country. Hence, we have not take this in our forecasts.

Healthy financial base

YSCC managed to witness a 13.5% increase in equity for 1Q12 to reach SAR3.5bn, in addition to an healthy 10.3% increase in assets. Yamama’s debt/equity ratio is currently at 0.03x in 1Q12 and is expected to decrease to 0.01x in 2012. The company has a healthy current and quick ratio of 4.7x and 4.4x respectively.

Revision in estimates

We have increased our 2012 sales forecast by 33.3% and increased our per ton cost by 17.7% as the company will be importing more clinker. Consequently, we have revised upwards our 2012 net profit forecast to SAR1,017mn.

Valuation update

We have upgraded our fair value to SAR56.4/share after incorporating improved cement demand forecast for 2012-14 in our model. Our recommendation has changed to a BUY. The stock at its current price of SAR50.50/share is trading at a discount of 11.7% to the fair value. Thus, we upgrade our recommendation on the stock to BUY.

National Bank of Abu Dhabi (NBAD) – 1Q12 Results

noreply@blogger.com (Sonu Katha) — Thu, 26 Apr 2012 08:09:00 +0000

· Net profit posted for the quarter is AED1,041mn; rises by 12%YoY

· Bottom-line fared better than expectations; higher by 10%

· Net interest income surges 6%YoY for 1Q12

· Non-interest income rises 13%YoY on improving fee income

· Provisions drop 14%YoY, coverage at 99%

· NPL ratio was recorded at 3.03%; rises by just 9bps

· Net loans rise by 2%YTD, deposits jump considerably by 24%YTD

Analyst comments:

NBAD posted a very healthy set of results for 1Q12, growing by 12%YoY on improved top-line and lower provisions. Non-interest income also added value due to higher fee income which was up 11%YoY; forex gains and investment income showed positive growth as well. Loans growth remained low but deposits showed substantial mobilization at 24%QoQ. Provisions were down by 14%YoY since NPL formation was slow; NPL ratio saw an addition of just 9bps during the quarter. All provisions taken were specific in nature as the bank has already met the 1.5% collective provisions requirement and risk weighted assets seemed to have remained stagnant.

We take a positive view on the bank’s performance for the quarter. However, such a strong build up in deposits needs to be matched with aggressive loans disbursement, especially if deposits are not zero-cost. This unexpected spike in deposits also triggers the need to speak to the bank in order to assess any changes in their strategy for the year.

Abu Dhabi Commercial Bank (ADCB) - 1Q12 Results

noreply@blogger.com (Sonu Katha) — Thu, 26 Apr 2012 08:08:00 +0000

· Net profit posted for the quarter at AED802mn jumps 38%YoY

· Bottom-line beat our forecast by a large margin; was higher by 27%

· Net interest income rose 29%YoY

· Non-interest income dropped 17%YoY on lower fee income and drop in share of profits from associates

· Provisions decline by 28%YoY

· NPL ratio rises by 90bps to 5.5%, NPL coverage fell to 70%

· Loans remained flattish with a drop of 1%YTD while deposits grew by 4%YTD

Analyst comments:

ADCB posted spectacular net income figures for 1Q12, jumping by 38%YoY and beating our estimates by 27% due to lower than expected provisions taken by the bank. Results were underpinned by impressive top-line performance and decline in provisions. The bank’s net interest income has however slowed down from the previous quarter; down by 14%QoQ but that remains within our expectations for the current year. The rise in the NPL ratio on the other hand, has raised some concerns since our expectation for the full year was 5.0% which has clearly been breached (5.5%) in just 1Q12. As per our calculations, AED1.1bn of new NPL formation was seen during the quarter as against a net provision expense of AED287mn which has brought the coverage ratio down from a reported 80% in 4Q11 to 70%. The provisions taken were predominantly specific in nature with larger share from the consumer segment.

We believe we will need to revisit our model to incorporate the current changes to the bank’s asset quality figures.

Emirates NBD (ENBD) – 1Q12 Results

noreply@blogger.com (Sonu Katha) — Thu, 26 Apr 2012 08:07:00 +0000

· Net profit to shareholders for 1Q12 reported at AED641mn drops 55%YoY, rises over 2 times QoQ

· Results were higher than our expectations by 12%

· Top-line was higher by 8%YoY but lower by 8%QoQ

· Non-interest income jumped 49%YoY

· NPLs rise by 30bps from 2011 levels to reach 14.1%

· Provisions witnessed a drop, down 20%YoY and 37%QoQ

· Loans remained flattish with a rise of 0.5%YTD while deposits grew by very healthy 7.9%YTD

Analyst comments:

ENBD’s net income though down by 55%YoY, fared remarkably well as compared to the same period last year when viewed on an adjusted basis. Adjusting for the one-off sale of Network International in 1Q11, the bank’s bottom-line stands at a loss of AED422mn as against a profit of AED641mn for 1Q12. Moreover, the bank managed to beat our forecast for 1Q12 by 12% on higher than expected non-interest income. Non-interest income which grew by 49%YoY was driven by possible one-offs in forex income and good profits from investments; fee income however was down by 5%YoY. Net interest income was up by 8%YoY but was down by 8%QoQ as per expectations since loans growth has been flat and spreads have eroded from the previous quarter. ENBD posted an income of AED24mn in 1Q12 against a loss of AED477mn in 1Q11 from its associates and JVs, predominantly from Union Properties; we take this development as a positive sign despite the fact that such was also expected. The rise in the bank’s NPLs was within the guideline provided by the bank (100bps for full year) and is therefore not a cause of concern. The rise in NPLs was matched by a similar rise in provisions, though it needs to be scrutinized why the bank is still building up its collective provisions despite already having exceeded the 1.5% requirement set by the CBUAE. AED234mn of the AED1,100mn were from collective provisions which now constitute 2.7% of the CRWA.

Doha Bank (Doha) - 1Q12 Results

noreply@blogger.com (Sonu Katha) — Tue, 24 Apr 2012 06:27:00 +0000

· Net Profit up by 7.4% YoY to QAR390mn (+63% QoQ)

· Net Operating Income increased up 2% YoY to reach QAR613mn (+4.3% QOQ)

· Net Interest Income remained stable (both YoY and QoQ) at QAR439mn

· Total Assets remained stagnant QoQ at QAR52.4bn (+12.8% YoY)

· Total Loans and advances and financing activities declined by 3.8% QoQ to QAR27.7bn (+13.1% YoY)

· Total Customer Deposits and Unrestricted Investment Accounts declined by 1.1% QoQ to QAR31.4bn (+11.8% YoY)

· NPL ratio declined to 3.41%; coverage 76.7%

Analyst comments:

Doha Bank's 1Q12 results surprised us positively and are 21.5% above our expectation of QAR321mn. Investment income came in quite strong, increasing by 34.6% YoY and was largely instrumental in our deviation. Investment income for 1Q12 stood at QAR53mn as against QAR39mn in 1Q11 and just QAR1mn in the previous quarter. Fee income, however, was down by 26% QoQ and 5.2% YoY. All in all, operating income recorded a gain of 4.3% during the quarter. Operating cost came down and efficiency improved with the cost to income ratio improving to 30.0% for the quarter.

Balance sheet growth remained stagnant at QAR52.4bn despite the issuance of USD500mn senior guaranteed notes during the quarter. Both lending and deposit mobilization during the quarter came down by 3.8% and 1.1% respectively. Asset quality deteriorated further with NPL ratio coming down to 3.41% from 3.35% in 4Q11. However, coverage improved slightly and stood at 76.7% during the quarter vs. 73.1% at the end of 4Q11.

Saudi Cement Company 1Q12

noreply@blogger.com (Sonu Katha) — Tue, 24 Apr 2012 06:25:00 +0000

· 1Q12 net profit increased by 54.4%YoY

· 1Q record sales on the back of potent demand

· Largest cement producer in the GCC region

· Fair Value upgraded; Recommendation at HOLD

1Q12 net profit surges due to higher sales

Saudi Cement, witnessed an extraordinary 54.4% increase in 1Q12 net profit to SAR325.5mn as compared to the same period a year ago. The profit rose by another commanding 53.3% on a QoQ basis. Profits increase can be addressed to increased cement production by SCC and higher demand in the Kingdom. Construction activity is witnessing a growing era where government spending is reaching all time high.

Highest cement sales increase among listed cement companies

Cement dispatches for Saudi Cement in 1Q12 increased by 38.5% QoQ to 2.4mn tons. Remarkable cement dispatches lead to highest quarterly sales revenue in the company’s history which increased by 44.4% QoQ to SAR639.3mn. Sales revenue was also supported by an increase in average realization prices by 5.4% QoQ to SAR258.2 per ton.

Higher demand and huge capacity

Saudi Cement the largest cement company and is benefiting from the increasing Saudi demand which is expected to touch 52mtpa in 2012 and utilizing its economies of scale. However, gross margins of the company decreased on a quarterly and yearly basis to reach 55.2% as cost increased by 60% on yearly basis due to the increasing production.

Decreasing balance sheet size

SCC witnessed a downscaling in its balance sheet as the company pays out its debt and dividends. Assets decreased 14.7% and equity is down by 18.6%. SCC’s debt/equity ratio is currently at 0.4x in 1Q12 and is expected to decrease to 0.2x in 2012. The company has a modest current and quick ratio of 0.7x and 0.4x respectively.

Revision in estimates

We have increased our 2012 sales forecast by 39.1% and reduced our per ton cost by 11.1% as the company will produce more cement to cater the market. Consequently, we have revised upwards our 2012 estimates.

Valuation update

We have upgraded our fair value to SAR86.1/share from SAR66.8/share after incorporating the improved cement demand forecast for 2012-14 in our model and the increased production capacity. Our recommendation has not changed on the stock despite increase in fair value due to a YTD stock appreciation of 31.3% . The stock at its current price of SAR94.5/share is trading at a premium of 8.9% to the fair value. Thus, we maintain our recommendation on the stock at HOLD.

Commercial Bank of Qatar (CBQ) - 1Q12 Results

noreply@blogger.com (Sonu Katha) — Tue, 24 Apr 2012 06:23:00 +0000

· Net Profit up by 5.6% YoY to QAR471mn (+25.2% QoQ)

· Net Interest Income and Islamic income up 7.4% YoY to QAR478mn

· Other income down 9.8% YoY to QAR256mn

· Operating expenses up by 2.8% YoY to QAR211mn

· Total Assets declined by 2.3% QoQ to QAR69.9bn (+15% YoY)

· Net loans, advances and financing activities increased by 1.0% QoQ to QAR47.7bn (+20.7% YoY)

· Total Customer Deposits and Unrestricted Investment Accounts declined by 0.4% QoQ to QAR44.1bn (+25.0% YoY)

· NPL ratio increased marginally to 1.22%; coverage 115.4%

Analyst comments:

CBQ profitability results came 8.9% lower than our expectations on account of lower interest income (NII down by 6.1% QoQ) and investment income (down 51.4% QoQ and 56.6% YoY). Net interest income for the quarter reached QAR478mn, down 6.1% QoQ (+7.4% YoY). However, the bank managed to maintain its net interest margins (NIMs) close to 4Q12 levels according to our calculations, although spreads have come down by 20bps. Loan growth for the quarter was sluggish, growing by a marginal 1% while the deposit base declined by 0.4%. Asset quality remained almost unchanged.

Union National Bank (UNB) - 1Q12 Results

noreply@blogger.com (Sonu Katha) — Tue, 24 Apr 2012 06:22:00 +0000

· Net profit for 1Q12 reported at AED471mn exhibits rise of 3%YoY

· Bottom-line beats our expectations by 11%

· Net interest income surges 16%YoY for 1Q12 on higher spreads

· Non-interest income drops 5%YoY on decline in fee income

· Provisions remain on the higher side, rising by 67%YoY

· NPL ratio was recorded at 4.1% while coverage was at 71%

· Net loans inched up by 1%YoY while deposit grew 5%

Analyst comments:

UNB came up with a good set of results for 1Q12, beating our expectations by 11%. Albeit bottom-line remained largely unmoved from 1Q11 levels, improvement from the previous quarter was remarkable (growth of over 2 times). Bottom-line was kept afloat by net interest income which exhibited substantial growth YoY, however the bank’s top-line has started to exhibit weakness on quarterly basis. With deposit growth outpacing loans, pressure on the top-line is expected to ensue. Value added by the top-line during the quarter was offset by a rise in provisions and a drop in non-interest income; the former rising on account of further NPL formation and the latter driven by the impact of retail regulation on the bank’s fee income generation capability. NPLs saw an augmentation of around AED270mn during the quarter or 40bps to the NPL ratio. Provisions seem to emanate from both the corporate and retail segment equally and we believe that these was largely (maybe almost wholly) specific in nature. We have little reason to alter our full year expectations, for now.

First Gulf Bank (FGB) – 1Q12 Results

noreply@blogger.com (Sonu Katha) — Tue, 24 Apr 2012 06:21:00 +0000

· Net profit for 1Q12 reported at AED935mn exhibits rise of 7%YoY

· Bottom-line is largely in line with expectations; lower by just 5% from expectations

· Net interest income surges 13%YoY for 1Q12

· Non-interest income drops 18%YoY on decline in fee income

· Provisions drop 10%YoY

· NPL ratio was recorded at 3.5% while coverage was at 102%

· Net loans and deposits were stagnant YTD

Analyst comments:

FGB's net income was driven by growth in the top-line and a decline in provisions. Bottom-line could have been better if it were not for the 22%YoY rise in operating expenses and the drop in non-interest income on account of decline in fee generation. Fee & commission income, though down by 25%YoY, did show some signs of resuscitation with a growth of 24%QoQ. On the flip side, net interest income though up by 13%YoY, seems to have come under pressure and was down 4%QoQ. Continuation of dampened loans growth and erosion of spreads will certainly not bode well for the bank’s top-line but we do not expect this quarter to be representative of the full year. Asset quality remained largely intact with NPL ratio inching up by just 10bps from 4Q11; continuation of high provisions (down 10%YoY but up 36%YoY) may perhaps be on account of collective provisions taken by the bank in order to meet the CBUAE’s requirements.

Etisalat - 1Q12 Results

noreply@blogger.com (Sonu Katha) — Tue, 24 Apr 2012 06:20:00 +0000

· 1Q12 Revenues increase by 2.05%YoY to AED8,204mn

· 1Q12 Net Profit (attr. To equity holders of the corporation) declined by 0.5%YoY to AED1,809mn

· 1Q12 Operating profit decrease by 5.3%YoY to AED1,621mn

· EBITDA margin decline by 100 basis points to 30.3%

Analyst comments:

1Q12 revenues increase by 2.05%YoY to AED8,204mn. Increase in revenue from international operations more than offset the decline in revenues from domestic operations. International revenues increased by 21.3%YoY in 1Q12 to AED2,275mn. Meanwhile domestic revenues decreased by 2.64%YoY to AED6,085mn in 1Q12 reflecting the competitive environment in the UAE market. Meanwhile, operating profits declined by 5.3%YoY to AED1,621mn due to rise in operating costs by 6.7%YoY to AED5,063mn. Consequently, the EBITDA margins have come down to 30.3% in 1Q12 compared to 31.3% in 1Q11.

Monthly Oil Report - April 2012

noreply@blogger.com (Sonu Katha) — Tue, 17 Apr 2012 08:17:00 +0000

· WTI price decrease by 3.3% to USD102.8 per barrel during the review period

· Iran nuclear talks put downward pressure on oil prices

· Rise in Spanish and Italian bond yields renew fears of contagion

· OPEC production (ex Iraq) increases by 2.2%QoQ to 28.4mnbpd in 1Q12

Reduction in geo-political risk takes steam off oil prices

Start of talks with Iran has raised hopes of a diplomatic solution on the nuclear issue reducing fears of a possible military stand-off. Oil prices decreased by 3.3% to USD102.8 per barrel during the review period (12 Mar-13 Apr 2012). In addition, lower than expected job creation in the US in March and possible usage of US strategic reserves put pressure on oil prices. Furthermore, renewal of fears of contagion in the Euro-zone after a rise in Spanish and Italian bond yields has again dampened sentiments after a concrete deal was struck to save Greece.

Despite the decline in the review period, WTI prices have remained close to USD100 per barrel in 1Q12. S&P index increased by 12.0% in 1Q12 reflecting the improvement in global economic prospects. S&P index is a good indicator of global economic recovery as more than 40.0% of its aggregate earnings come from outside of US. The US 1Q12 earnings season has got off to a good start with 75.0% of the companies so far beating earnings expectations, according to Reuters. As can be seen in the graph below WTI crude oil prices have largely followed the trend in S&P 500 index.

World oil demand expected to recover by 0.86mnbpd in 2012

World oil demand is expected to continue to recover in 2012, though at a slower place. World oil demand is expected to increase by 0.86mnbpd in 2012 compared to 0.83mnbpd in 2011 and 1.6mnbd in 2010. The year 2012 has so far seen a raft of positive news coming out of US and European Union. The US economy has added 858,000 jobs in the four months to March 2012 reflecting the improvement in the world’s largest economy. Meanwhile, there have also been headways in the European debt crisis which have further improved sentiments. Though fears of contagion got revived due to recent increase in Spanish bond yields, nevertheless, the European Union has shown its determination to save the Union which bodes well for oil demand.

Non-Opec supply expected to surge again in 2012 after a dull 2011

Total Non-OPEC supply is expected to surge by 0.52mnbpd in 2012 driven by increase in production by 0.41mnbpd in North America. This follows Non-OPEC supply growth of just 0.09mnbpd in 2011 which partly explained the high oil prices in 2011 despite economic uncertainty prevailing at that time. In 2012 USA and Canadian oil production is expected to more than offset the decline in Mexican production. Improvement in granting of permits has also improved the outlook for US oil production in addition to expected increase in output from some fields.