equity research initiation coverage - up.m-e-c.bizup.m-e-c.biz/up/mohcine/report/drake scull...

Equity Research Initiation Coverage

• Drake&ScullInternationalPJSC(DSI)isaUAE-basedpublicjointstockcompanyincorporatedinDubaiandengagedinmechanical,electricalandplumbing(MEP),industrialwater&power(IWP)andcivilcontractingintheUAE,SaudiArabia,BahrainandSudan.ThecompanyhasatotalbacklogofAED3.21bnconvertinginto1.8xestimatedFY08revenues,outofwhichthemajorityisintheUAE.

• DSIwentthroughaninitialpublicoffering(IPO)inJuly2008,atthepeakoftheUAEstockmarket.ThesharepricewassetatAED1.00plusAED0.02asanofferingcost.Thenumberofsharesofferedtothepublicamountedtoalmost1.20bnwithatotaloffersizeofAED1.22bn,equivalenttoa55%shareofthepost-IPOownershipstructure.ThecompanywasfinallylistedontheDubaiFinancialMarketonthe16thofMarch2009.

• DSI'sEBITDAisprojectedtoreachAED182.9mnin2009,downfromanestimatedAED213.0mnin2008,astheimpactoftheregionalslowdownandgrowingcompetitionbeginstofilterthroughtothecompany'sincomestatement.Movingforward,weprojectthattheEBITDAwillfalldowntoAED133.2mninFY10andAED115.7mnbyFY11.HowevertheintendeddeploymentoftheIPOprcoceedsthroughaquisitionsprovidesasignificantupsidetoourprojections.ThecompanyholdsanestimatednetcashbalanceofAED1.14bnasofyearend2008,whichconvertsintoAED0.52pershareand0.77xthecurrentmarketcapitalizationofthecompany.

• WeinitiatecoverageonDrake&ScullInternational(DSI)withaBUYrecommendationbasedonourfairvaluetargetofAED0.89pershare,implyinga30.5%upsidepotentialtothecurrentpriceofAED0.68pershare.Ourfairvaluetargetisaweightedaverageofthreevaluationexercises:athree-stageDCFexcludingthepotentialimpactofanyacquisitions,arelativevaluationandanadjustedDCFincludingtheimpactofacquisitions.

April 1st, 2009

Drake & Scull International (DSI.DU)...when cash is king

Sector Coverage TeamRoy Cherry+9714 3199 [email protected]

Current Price: AED 0.68 Country: United Arab Emirates

Fair value Target: AED 0.89 Sector: Construction

Recommendation: BUY Exchange: Dubai Financial Market

52-week range (AED) 0.64-0.85

Number of shares ('000) 2,177,778

Free float 55%

Market cap (AED '000) 1,480,889

Market cap (USD '000) 402,634

Dividend yield 2007 -

Year Net profit (AED'000)

BV (AED'000)

EPS (AED)

BVPS (AED)

FCF yield 1

FCF yield 2

P/EBITDA 1 P/EBITDA 2 P/E (x)

P/BV (x)

Dec-11E 112,932 2,683,184 0.05 1.23 5.5% 13.8% 12.8 5.0 13.1 0.6

Dec-10E 144,607 2,633,543 0.07 1.20 9.9% -27.5% 11.1 4.3 10.2 0.6

Dec-09E 215,510 2,443,233 0.10 1.12 -8.8% N/A 8.1 8.1 6.9 0.6

Dec-08E 245,901 2,234,062 0.11 1.02 4.9% N/A 7.0 7.0 6.0 0.7

Note: FCF yield 2 and P/EBITDA 2 account for acquisitions taking place in 2010.

April1st,2009 2

Drake & Scull International

Contents

INVESTMENT HIGHLIGHTS .........................................................3

COMPANY OVERVIEW ................................................................4

IPO AND USE OF PROCEEDS ................................................................................................................................ 4

CORPORATE STRUCTURE ..................................................................................................................................... 5

DSI'S SUBSIDIARIES ............................................................................................................................................. 6

CHAIRMAN AND MANAGEMENT ....................................................................................................................... 6

STRATEGY ................................................................................7

CONSTRUCTION MARKET: CANCER OF CANCELLATION ...................8

THE GCC REMAINS ONE OF THE MOST ATTRACTIVE MARKETS ...................................................................... 9

COMPARATIVE ANALYSIS OF THE GCC .............................................................................................................. 9

LAND OF MEGA-PROJECTS ............................................................................................................................... 10

UAE THE HARDEST HIT ...................................................................................................................................... 10

DSI’S BACKLOG - BEATEN BUT STILL STANDING...........................12

DSI'S MAJOR CONTRACTS ................................................................................................................................. 13

MODERATE CLIENT CONCENTRATION RISK ..................................................................................................... 15

MORE CANCELLATIONS IN DUBAI EXPECTED ................................................................................................. 15

SWOT - ANALYSIS ....................................................................16

FINANCIAL ANALYSIS AND FORECASTS ......................................17REVENUES .......................................................................................................................................................... 17

GROSS PROFIT .................................................................................................................................................... 17

EBITDA ................................................................................................................................................................ 18

NET PROFITS ....................................................................................................................................................... 19

CASH AND DEBT ................................................................................................................................................ 19

CASH CONVERSION CYCLE ................................................................................................................................ 20

CAPEX REQUIREMENTS ..................................................................................................................................... 21

DIVIDENDS ......................................................................................................................................................... 21

VALUATION ............................................................................22

SCENARIO DRIVEN THREE-STAGE DCF ............................................................................................................. 22

RELATIVE VALUATION ........................................................................................................................................ 25

ADJUSTED DCF - VALUATION IMPACT OF ACQUISITIONS .............................................................................. 25

FINANCIALS ...........................................................................27

April1st,2009 3


Investment highlights• Drake&ScullInternationalPJSC(DSI)isaUAE-basedpublicjointstockcompanyincorporatedinDubaiandengagedinmechanical,electricalandplumbing(MEP),industrialwater&power(IWP)andcivilcontractingintheUAE,SaudiArabia,BahrainandSudan.ThecompanyhasatotalbacklogofAED3.21bnconvertinginto1.8xestimatedFY08revenues,outofwhichthemajorityisintheUAE.

• DSIwentthroughaninitialpublicoffering(IPO)inJuly2008,atthepeakoftheUAEstockmarket.ThesharepricewassetatAED1.00plusAED0.02asanofferingcost.Thenumberofsharesofferedtothepublicamountedtoalmost1.20bnwithatotaloffersizeofAED1.22bn,equivalenttoa55%shareofthepost-IPOownershipstructure.ThecompanywasfinallylistedontheDubaiFinancialMarketonthe16thofMarch2009.

• DSI'sprimarylong-termstrategicobjectiveistosuccessfullydiversifythegeographicsourcesofthecompany’srevenuestreamsthroughinorganicandorganicgrowth.ThepurposeoftheIPOwastoprovidethemanagementwiththeabilitytofuelthiscross-countrydrive.WithassetvalueshavingcomeoffacliffsincethecompanywentpublicinJuly08,thepurchasingpoweroftheseproceedshasseenadramaticenhancement(forexampleArabtecHolding'smarketcapitalizationisdown~80%).Meanwhile,thecompanycontinuestoorganicallyreachouttonewmarketsfromtheUAEhomebase.OverthepastfewmonthsDSIhaspowereditselfintoSaudiArabia,BahrainandSudan.

• DespitetrimmingoffprojectsworthUSD1.66trtoreachUSD1.17traccordingtoouranalysis,theGCCremainsoneofthemostlucrativeconstructionmarketsintermsofrelativeprojectvaluesandconcentration.TheGCCenjoysanaverageproject/GDPofaround139%,higherthancomparablesuchasChinaandIndiaat102%andclearlyoutperformingtheUS,UKaverageof46%.BahrainandQatarenjoysthehighestprojectpenetrationratesintheGCC,ifnotintheworld.

• DSI'sEBITDA,excludinguseofproceedsforacquisitions,isprojectedtoreachAED182.9mnin2009,downfromanestimatedAED213.0mnin2008,astheimpactoftheregionalslowdownandgrowingcompetitionbeginstofilterthroughtothecompany'sincomestatement.Movingforward,weprojectthattheEBITDAwillfalldowntoAED133.2mninFY10andAED115.7mnbyFY11.HowevertheintendeddeploymentoftheIPOprcoceedsthroughaquisitionsprovidesasignificantupsidetoourprojections.

• DSIsatonanestimatednetcashbalanceofAED1.14bnasofyearend2008,whichconvertsintoAED0.52pershareand0.77xthecurrentmarketcapitalizationofthecompany.

• WeinitiatecoverageonDrake&ScullInternational(DSI)withaBUYrecommendationbasedonourfairvaluetargetofAED0.89pershare,implyinga30.5%upsidepotentialtothecurrentpriceofAED0.68pershare.Ourfairvaluetargetisaweightedaverageofthreevaluationexercises:athree-stageDCFexcludingthepotentialimpactofanyacquisitions,arelativevaluationandanadjustedDCFincludingtheimpactofacquisitions.

April1st,2009 4


Company overviewDrake&ScullInternationalPJSC(DSI)isaUAE-basedpublicjointstockcompanyincorporatedinDubaiandengagedinmechanical,electricalandplumbing(MEP),industrialwater&power(IWP)andcivilcontractingintheUAE,SaudiArabia,BahrainandSudan.DSIwentthroughaninitialpublicofferinginJuly2008andhadabelatedlistingontheDubaiFinancialMarket(DFM)onthe16thofMarch2008-thusbecomingthesecondlistedcontractorintheUAE.ThecompanyhasanestimatedtotalbacklogofAED3.21bn,outofwhichthemajorityisintheUAE.

TheMEPcontractingunitsinDSIhavebeeninvolvedsince1966intheexecutionofpowerdistribution,lighting,plumbing,heatingandventilationsystems.ThenatureoftheMEPbusinessmeansthatcompanieslikeDSIworkside-by-sidewiththecivilcontractorsaspartofthecontractorteamexecutingtheprojectforthedeveloper.However,MEPworkiseitherdirectlyawardedbythedeveloperorsub-contractedviathecivilcontractor.Around20-30%ofthetotalprojectvalueisusuallyspentonMEP.

WiththegrowingnumberoflargescaleprivateandpublicdevelopmentprojectsintheUAEandthewiderregion,DSIdecidedin2006toestablishaunitthatfocusesondesigningandbuildingdistrictcooling,sewage&watertreatmentplants,andpowergeneration&distribution.TheIWPdepartmentdevelopedtheJumeirahBeachResidencedistrictcoolingsystemin2006,whichatthetimewasoneofthelargestintheworld.TodayDSIisaregionalleaderindevelopingdistrictcoolingplants,earlierthismonththecompanywonanAED596mnequivalentcontracttobuildadistrictcoolingsystemforoneofthelargestdevelopmentsinBahrain.

WhileDSIwasoriginallypurelyfocusedonMEPworkbeforeestablishingitsIWPoperations,thecompany'sambitiontobetterutiliseitsexistingclientrelationshipsandtocaptureahigherproportionoftheircontractoutputbyofferingend-to-endservicesledtotheacquisitionofGTCCin2007,amedium-sizedUAEbasedcivilcontractor.

RecentlycompletedprojectsincludeShangri-LaAbuDhabiHotel,ParkPlaceTower,ZayedUniversityCampus,DubaiPoliceHeadquartersanddistrictcoolingplantsforbothJumeirahBeachResidenceandDubaiFestivalCity.InDecember2007,DSIwasawardedthe“MEPContractoroftheYear”andthe“MediumMEPProjectoftheYear”awardsatthe1stMiddleEastMEPAwards.Thefollowingyear,DSIwasawarded“MEPContractoroftheyear”forthesecondyearrunning.

Currently,thecompanyisinvolvedinsomeofthemostprominentdevelopmentsintheUAEincludingtwohotelsforRotanaandAldarPropertiesonYasIslandinAbuDhabi.DSIwhichisonafasttrackgeographicexpansionalsosecuredworkinSaudiArabia,BahrainandSudan.

IPO and use of proceeds

DSIwentthroughaninitialpublicoffering(IPO)inJuly2008,atthepeakoftheUAEstockmarket.ThesharepricewassetatAED1.00plusAED0.02asanofferingcost.Thenumberofsharesofferedtothepublicamountedtoalmost1.20bnwithatotaloffersizeofAED1.22bn,equivalenttoa55%shareofthepost-IPOownershipstructure.

ThecompanyfinallylisteditssharesontheDubaiFinancialMarketon16thofMarch2009,almosteightmonthsaftertheofferingwasclosed.

DSI is a UAE based contractor with

end-to-end services

A regional leader in district cooling

Venture into civil contracting to leverage

on existing clients relationships

Received best MEP contractor award

Went public in July 2008

Listed in March 2009

April1st,2009 5


IPO fact table

Type of offering IPO

Exchange Dubai Financial Market (DFM)

Sector Contracting

Shares offered 1,197,777,778

Offer size (AED) 1,221,730,000

Percentage offered 55%

Issue price AED 1.02 (AED 1.0 par value and AED 0.02 offering cost)

Minimum subscription 20,000 shares

Oversubscription 101.5 times Source: DSI

Use of proceedsDSIplanstousetheIPOproceedstoenhancethecompany’spositionintheUAEandexpandingitsactivitiesintheMENAregionthroughacombinationofbothorganicandinorganicgrowth.OrganicgrowthwilltakeplacethroughexpandingtheexistingMEP,IWPandthecivilcontractingbusinesseswhiletheinorganicgrowthwillbemainlythroughacquisitionsinexistingandnewmarketsthatfitthecompany’soveralllongtermstrategy.ThecompanyhasrecentlyrevealedthatitisseekingacquisitionsinSaudArabia,QatarandKuwait.DSIisallegedlyperformingduediligenceontwocompaniesinSaudiArabiaandoneineachofQatarandKuwait.

Corporate structure

WhileDrake&ScullGroupheld11.1%ofDSI'sshares,otherfoundershadan88.9%stakeinthecompanybeforetheIPO.However,theIPO,whichwasfullysubscribed,offered55%ofthecompanytothepublic.Asaresult,thepost-IPOownershipstructuremeantthat55%wasinpublichands,leaving40%withtheotherfoundersand5%withtheDrake&ScullGroup.

Pre-IPO corporate structure

Gulf TechnicalConstruction Company

Other founders

Others

80.0%100.0%

88.9%11.1%

20.0%

Drake & Scull Group Ltd.(JAFZA)

Drake & Scull International PJSC

Drake & Scull Abu Dhabi

Post-IPO corporate structure

Public

Gulf TechnicalConstruction Company

Other founders

Others

Drake & Scull Abu Dhabi

Drake & Scull Group Ltd- (JAFZA)

Drake & Scull International PJSC55.0% 40.0%

5.0%

20.0%

100.0% 80.0%

Source: DSI, SHUAA Capital

Proceeds to power expansion

55% public

April1st,2009 6


DSI's subsidiaries

Drake & Scull Abu DhabiInshort,Drake&ScullAbuDhabiisessentiallythecompany'sMEPoperatingarmintheUAEcapital.

Gulf Technical Construction CompanyGTTCisthecivilcontractingarmofDSI.ThecompanywasestablishedtenyearsagoinDubaianditwasacquiredbyDSIin2007.GTCCiscurrentlyundertakingtheconstructionofMovenpickHotel&OceanaResidencesatPalmJumeirahandRoyalAmwajResort&Spa.ThecompanyhasbeenthecivilcontractorfordistrictcoolingplantsalongsideDSI.ExamplesincludeplantsofboththeDubaiFestivalCityaswellastheGreenCommunity.

Chairman and management

Mr. Majed Seif Al Ghurair, ChairmanMr.AlGhurairistheCEOofAlGhurairGroupofCompanieswithbusinessesspanningtrade,industry,manufacturingandrealestate.HealsoservesasthechairmanofSHUAACapitalandGulfFinanceCorporation.Mr.AlGhurairisalsoaboardmemberofEmaarProperties,Damas,NationalCementandRAKBank.HealsoservesonseveralgovernmentbodiesincludingDubaiStatisticsCenterandDubaiEconomicAffairs.Mr.MajedSeifAlGhurairholdsaBAinAccountingfromAlAinUniversity.

Mr. Khaldoun Rashid Tabari, Chief Executive OfficerMr.Tabariholdsan8.25%stakepost-IPO.HehasbeentheCEOofthecompanysince1998.Heservesonmultiplecorporateboards,includingFirstQatarRealEstateandEnergyCentral.HeholdsaBAinManagementfromtheUniversityofColorado.

Mr. Khaled Jarrar, Chief Financial OfficerMr.Jarrar’sprimaryresponsibilitiesarefinancialoperations,acquisitionsandinformationtechnologyservices.Earlierinhiscareer,headvisedclientsonM&AtransactionsacrosstheU.SandledthefinancialstrategiesofseveralfinancialcompaniesintheMiddleEastformorethan15years.HeholdsaBachelorsdegreeinBusinessAdministrationfromClevelandStateUniversityinOhio.

April1st,2009 7


StrategyDSI'sprimarylong-termstrategicobjectiveistosuccessfullydiversifythegeographicsourcesofthecompany’srevenuestreamsthroughinorganicandorganicgrowth.ThepurposeoftheIPOwastoprovidethemanagementwiththeabilitytofuelthiscross-countrydrive.WithassetvalueshavingcomeoffacliffsincethecompanywentpublicinJuly08,thepurchasingpoweroftheseproceedshasseenadramaticenhancement(forexampleArabtecHolding'smarketcapisdown~80%).

AsofDecember2008DSIsitsonAED1.40bnofcash,withatleast50%accordingtothemanagementallocatedtoservetheinorganicaspectofthecompany'sgeographicdiversificationobjectives.Thecompany'scurrentfocusisontargetsoperatinginthemarketsofSaudiArabia,KuwaitandQatar.RecentmanagementstatementsrevealedthatDSIiscurrentlylookingatfourpotentialtargets,twoinSaudiArabiaandoneineachofKuwaitandQatar.MostlikelyDSIwillseekmanagementcontrolofthetargetcompanybutnotnecessarilyfullownership.Theintentionistokeepthelocalinvestor/partnerlinkandabilityto'lobby'newcontracts.However,thisinorganicexpansionstrategyisatitsinitialstagewithnoacquisitionsexpectedtomaterialisebeforeQ309attheearliest.OurmarketanalysisindicatesthattogetherwiththeUAEthesemarketsrepresentthefourlargestintheGCCregionandsomeoflargestintheworldonprojectvaluepercapitabasis.

Meanwhile,thecompanycontinuestoorganicallyreachouttonewmarketsfromtheUAEhomebase.OverthepastfewmonthsDSIhaspowereditselfintoSaudiArabia,BahrainandSudan.Inadditiontotheabovemarkets,thecompanyisincreasinglypitchingforworkinthewiderMiddleEastandNorthAfricaregion.TobetterunderstandtheabilityofDSItotakeonacontractinaforeignmarketwhereithasnopresence,oneneedstounderstandthatDSI'sbusinessmodelisnotidenticaltothatofageneralcontractor.WhiletheservicesofDSI'scivilcontractingandtoalesserdegreeitsMEParmsarecomparablewiththoseofothercivilcontractors,DSI'sIWPoperationsaredistinct.ThedistinctionliesinlowerrequirementsofonsiteDSIpresenceandmoreunique/nicheskillsetrequirements.Mostofthecompany'sIWPworkisperformedinitsDubaifacilities,regardlessofprojectsitelocation.Thecompanydesignsthesystem/plant,producesandprocurestherequiredequipmentthenshipsittotheprojectsiteswhereitcanbeassembledbylocalsub-contractorsunderthesupervisionofDSIpersonnel.Hence,thenatureoftheIWPbusinesscoupledwithDSI'sexperience1ensureshighermarketabilityandmobilityfortheseservicesoutsidetheUAE.

1 DSI designed and built the 60,000 TR (ton of refrigeration) Jumeirah Beach Residence district cooling system, which is one of the largest in the world.

Organic and inorganic growth

50% of cash earmarked for acquisitions

April1st,2009 8


Construction market: Cancer of cancellation WeestimatethatthetotalvalueofannouncedandongoingprojectsintheGCCcountriesisUSD1.17tr,whichequatestoa58.6%reductionfromtheUSD2.83trintheProleadsGCCprojectdatabase.Wereachedthisfigurebyscrutinizingandsubjectingavailableprojectvaluestoathree-stepapproach-attemptingtoremovemuchofthe'hotair'inthosefiguresandaccountfortheseverityoftheglobalslowdownontheGCCandlocalmarketdynamics.Thekeyreasonsthatinfluencedouranalysisinclude:

• Decreaseinoilprices;themainsourceoffiscalrevenuesintheGCC• Relativelackoffunding;creditmarketsfrozenacrosstheglobeandevenlocally• OversupplyintheDubairealestatemarketcombinedwithfallingpopulation• Negativemarketsentimentandreducedinvestorconfidence• Continueduncertaintyandlowvisibilityoffuturegrowth;highvolatilityof

investments'returns

Basedonouranalysisoftheannouncedvalueofconstructionprojectsintheregion,weestimatethatSaudiArabiahasnowovertakentheUAEasthelargestmarketintheregion.WereachedanestimatedvaluefortheSaudimarketofUSD555.1bn,wellaheadoftheUAE'sUSD294.3bn,Qatar'sUSD129.4bnandKuwait'sUSD115.8bn.

Source: SHUAA Capital

Althoughthecivilsegmentwitnessedthebiggestdownwardrevisioninprojectvalue,itremainedthelargest-holdingontoa50.1%sharecomparedtoa66.6%shareaccordingtoProleadsvalues.Powerandoilprojectscameadistantsecondandthirdwitha16.4%and10.6%respectively.Gasandpetrochemicalsegmentsrepresentrespectivesharesof7.6%and6.9%.


ThetruthofthematteristhatthevalueofannouncedprojectsintheGCCwasalwaysmeanttoserveasanindicationofheadingratherthanafinalandabsolutelyrealisablefigure.Manyoftheannouncedrealestateprojectslaunchesoverthepastfewyears

Value of GCC projects drops 58.6%

Saudi Arabia overtakes UAE

555,133

294,311

129,433 115,756

37,826 37,225

-

100,000

200,000

300,000

400,000

500,000

600,000

KSA UAE Qatar Kuwait Bahrain Oman

USD

mn

SHUAA Capital's estimated value of GCC projects

KSA47.5%

UAE25.2%

Bahrain3.2%

Qatar11.1%

Oman3.2%

Kuwait9.9%

Civil segment still the largest

SHUAA Capital value of projects in the GCC by segment

585,631

191,821

123,77289,224 80,472

53,349 45,415

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Civil Power Oil Gas Petrochemical Water Industrial

USD

mn

Civil50.1%

Water4.6%

Industrial3.9%

Petrochemical6.9%

Oil10.6%

Gas7.6%

Power16.4%

April1st,2009 9


inDubai,forexample,had10-20yearplansandmulti-billiondollarbudgets.Thebignumbersweremeanttocreate"catchy"headlinesandrarelyreflectedtheimmediatecommitment,butratheralong-termhypotheticalvisionsubjecttomanyparameterssuchasmaterialisingdemandandavailabilityoffinancing.Ontheground,workprogressedandaccomplishmentsweremade,butinphases.Todaythemarkethaschanged,ithassloweddowndramaticallyandincreasinglyinvestorsareadoptingarealisticattitudetowardsnewprojectsorphasesofexistingprojects,especiallyinrealestatedevelopment.

The GCC remains one of the most attractive markets

DespitetrimmingoffprojectsworthUSD1.66trtoreachUSD1.17traccordingtoouranalysis,theGCCremainsoneofthemostlucrativeconstructionmarketsintermsofrelativeprojectvaluesandconcentration.TheGCCenjoysanaverageproject/GDPofaround139%,higherthancomparablesuchasChinaandIndiaat102%andclearlyoutperformingtheUS,UKaverageof46%.BahrainandQatarenjoysthehighestprojectpenetrationratesintheGCC,ifnotintheworld.

Onapercapitabasis,announcedconstructioncontractvaluesintheGCC,adjustedforcancellationsanddelayscameinatUSD48,994comparedtoUS'sUSD28,277andChina'sUSD3,013.Individually,QatarenjoysthehighestpercapitavalueintheGCCandprobablyintheworldwithUSD117,881followedbyUSD57,708intheUAE.

Comparative analysis of the GCC

Country SC projects value (USD mn)

SC projects value/GDP SC projects value/population (USD/capita)

SC projects value/area (USD mn/km²)

UAE 294,311 140% 57,708 3.5

KSA 555,133 155% 21,856 0.3

Qatar 129,433 173% 117,881 11.3

Kuwait 115,756 90% 33,621 6.5

Bahrain 37,826 180% 48,557 56.9

Oman 37,225 79% 14,345 0.2

USA 8,619,146 61% 28,277 0.9

UK 830,771 30% 13,615 3.4

China 4,000,000 85% 3,013 0.4

India 1,500,000 118% 1,212 0.5Source: SHUAA Capital

Intermsofprojectconcentration,thereisaroundUSD13.1mnworthofprojectsperkm²intheGCCversusamodestUSD0.9mnperkm²intheU.SandUSD0.4mnperkm²inChina.ThisessentiallymeansthatGCCcontractorstypicallyenjoysignificantlyhigherprojectvalueswithinoperationalreach.

The GCC is one of the largest markets

in the world

Qatar project values: USD 118k per capita

April1st,2009 10


Land of mega-projects

OutoftheUSD1.66trinprojectvaluesweassumedcancelled,onholdordelayed,theUSD132.0bnCityofSilkinKuwaitwasthesinglelargest.ThisprojectusedtomakeuparoundhalfthevalueofplannedprojectsinKuwait,beforeouranalysis.TheCityofSilkisaplannedmegadevelopmentwithaniconic1kmhightower,afinancecity,aleisurecity,culturecityandecologiccity.Theprojectstarthasbeendelayedtill2012amidtheglobalcrisis.

Top 5 GCC ex-UAE projects on hold

Project Country Project Value (USD mn)

Madinat -al-Hareer (City of Silk) Kuwait 132,000

Al - Zour Refinery Kuwait 20,000

Kuokuang Refinery & Petrochemical Complex Saudi Arabia 20,000

Al Khiran Residential City (New Zour Township) Kuwait 20,000

Jeddah Project - Mile High Tower Saudi Arabia 10,000


ThecontractfortheconstructionoftheUSD20.0bnAlZourRefineryinKuwaitwasrecentlycancelled,sparkingrumoursthattheprojecthasbeenshelvedforthetimebeing.InSaudiArabia,theworldrecordattemptbyKingdomHoldingviathemile-hightowerhasbeenputonhold,asthedeveloperpostedthelargestquarterlylossinthehistoryoftheregion'smarketswitharoundUSD8.0bninlosses.

UAE the hardest hit

Basedonourestimates,theUAEwasthehardesthitintheregionbytheglobalslowdownintermsofabsolutefiguresinprojectcancellations.OuranalysisindicatesthatthetotalvalueofprojectsintheUAEfellbyanestimated74.4%,fromUSD1.15trto294.3bn.PriortoouranalysisandtherevisionoftheUAEprojectvalues,thecivilsegmentwherethebulkofspendingonrealestatedevelopmentfalls,accountedfor83.9%-wayaheadoftheGCCaverageof54.7%,excludingtheUAE.DubaiaccountsformostoftheprojectvaluescancelledintheUAE.


AlthoughouranalysisindicatesthatcivilprojectsstilldominatetheUAEmarket,theircontributionhasretreatedbyanestimated22.8%to61.1%.Thepowersegmentisadistantrunner-upwitha15.1%marketshareintheUAE.

UAE the hardest hit in the GCC

SHUAA Capital UAE projects value by segment

179,756

44,445

20,386 15,962 12,847 11,436 9,478

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Civil Power Oil Gas Petrochemical Industrial Water

USD

mn

Civil61.1%

Petrochemical4.4%

Industrial3.9%

Gas5.4%

Oil6.9%

Power15.1%

Water3.2%

Civil segment still dominates

April1st,2009 11


Unsurprisingly,Dubailostthelargestvalueofprojectsasthecontinuousannouncementsofmegamulti-billiondollarprojectscamebacktohaunttheemirate.FouroutofthetopfiveprojectsintheUAE,weassumedcancelledoronholdareinDubai.ThesefourprojectsalonehadatotalvalueofUSD216.1bn,makinguparound25.2%ofthetotalprojectvalueassumedonholdintheUAE.

Top 5 UAE projects on hold

Project Project Value (USD mn)

Jumeira Gardens 95,000

Mohammad Bin Rashid Gardens 54,000

Bawadi Development - Dubailand 54,000

White Bay Development - Umm Al Quwain 29,640

Culture Village 13,115 Source: SHUAA Capital

Dubai'sUSD95.0bnJumeiraGardensrealestatedevelopmentproject,whichhadthelargestannouncedUAEprojectvalueendeduponthetopspotofthelistofprojects‘onhold’.ThiswasthefirstprojecteverbyMeraasDevelopment.Launchedinlate2008,thismasterdevelopmentwouldcatertomorethan50,000residents.Theprojectplanwhichincludedtheevacuationandre-developmentoftheoldSatwaareainDubaiaimedtodevelophousing,business,retailandleisurezones.However,theprojectwasputonholdafewmonthsafteritwaslaunched,inlightofprevailingmarketconditions.

TheMohammedBinRashidGardens,aUSD54.0bnproject,witnessedasimilarfate.FallingrealestatedemandandpricesinDubailedthedeveloper,DubaiProperties,toputthisprojectonholdinDecember2008.TheUSD54.0bnBawadiDevelopmentislikelytofacethesamedestiny,aswebelievethisprojecttobeunfeasibleinthecurrentmarket.

Inadditiontotheabovelist,manysmallermulti-billiondollarprojectsintheUAEareassumedtobeeithercancelledoronhold.AlthoughthetopfivelistdoesnotfeatureanyprojectinAbuDhabi,wehavescaledbackanumberofthelargestprojectsinAbuDhabi–takingintoaccounttheslowereconomicandpopulationgrowthoutlook.AlthoughwerealisethatprojectslikeMasdarCity,SaadiyatIsland,ReemIslandandYasIslandaremovingahead,withthelattertwoatanadvanceddevelopmentstage,futurephasesofrunningprojectsinAbuDhabiareliketobesubjecttosignificantrationalrescalingandredesign.

Dubai loses the most

USD 95bn Jumeira Gardens on hold

Abu Dhabi not spared

April1st,2009 12


DSI’s backlog - Beaten but still standingTheongoingliquiditysqueeze,economicslowdownandresultingmarketuncertaintyhavetakentheirtollonDSI'sbacklogtoo.ThecompanyhasseenanestimatedAED873.1mnor35.8%oftheDubaipartofitsbacklogputonholdoverthepast3-4months.Asaresult,DSIhascurrentlyatotalbacklogofAED3.21bnconvertinginto1.8xestimatedFY08revenues,excludingprojectsputonhold

In2008,DSImanagedtosecurearound17projectsworthmorethanAED3.16bn.Sofarinto2009thecompanyhasbeenawardedAED0.95bnofcontracts.Althoughbackloggrowthhasinthepastreliedpre-dominantlyontheDubaimarket,thecompany'sfuturegrowthwillhavetocomefromnewmarkets.

TomeetthisobjectivethecompanyhasalreadydiversifiedintotheneighbouringEmirateofAbuDhabi,SaudiArabiaandSudan.Onthe16thofMarch2009DSIannouncedthatthecompanyhadjustbeenawardedanAED596mnequivalentIWPcontracttobuildadistrictcoolingsysteminBahrain,thecompany’sfirstinthismarket.Whilethedesign,engineeringandprocurementworkwillpredominantlybeexecutedviaDubai,theactualconstructionofthesystemwillmostlikelyutiliselocalsub-contractorsworkingunderthesupervisionofDSI'smanagementteam.Inadditiontotheabovemarkets,thecompanyisincreasinglypitchingforworkinthewiderMiddleEastandNorthAfricaregion.

Outthecompany'sAED3.21bnbacklog,69.6%comesfromUAEbasedprojects,18.6%fromtherecentlyawardedAED596mnDurratAlBahraincontract,9.4%comprisingoftwocontractsinSaudiArabiaworththeequivalentofAED474.0mnand2.3%fromtheAED75.0mncontractinSudan.

FromthechartbelowitisclearthatDubaiwasandremainsthelargestgeographicsourceofworkforDSI.DespitediscountingtheAED873.1mnofDSI'stotalbacklogputonholdinDubai,almost48.9%ofthecompany'stotalworkinhandremainsinDubai.

OutoftheAED2.23bnofcontractworkremainingintheUAE,AED1.57bnisinDubai,AED0.54bninAbuDhabiandAED121.0mninSharjah.


42.0%ofthecompany'sbacklogfallswithintheIWPcontractingsegmentfollowedbyMEPcontractingat37.9%andcivilcontractingwith20.0%.

DSI faced cancellations of AED 873mn

Almost AED 1bn contract awards year-to -date

Diversifying away from Dubai

69.6% of backlog in the UAE

Almost 49% of backlog in Dubai

DSI's estimated backlog by geography

1,569.0

596.0 542.9

302.4

121.1 75.0

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Dubai Bahrain Abu Dhabi Saudi

Arabia

Sharjah Sudan

AED

mn

Dubai48.9%

Saudi Arabia9.4%

Sharjah3.8%

Sudan2.3%

Abu Dhabi16.9%

Bahrain18.6%

April1st,2009 13



DSI's major contracts

WithabacklogworthAED3.21bnspreadover20contractsmainlyintheUAE,BahrainandSaudiArabia-thefivelargestprojects,intermsofbacklog,arecomprisedof:

• Districtcoolingsystem,Bahrain• MangrovePlace,AbuDhabi• RoyalAmwajResort,Dubai• NadAlShebaHorseRaceTrack,Dubai• Districtcoolingplants,MotorCityDubai

Durrat Al Bahrain district coolingDSIhasbeenawardeditslargestIWPcontracttodate;anAED596.0mncontracttodesignandbuildtheentiredistrictcoolingplantschemeinDurratAlBahrainproject.ThisnewUSD4.0bndevelopmentisahallmarkresortislandcityacrossaclusterof15islandscomprisingofbeachfrontvillas,executiveapartmentsandofficesinadditiontoluxuryhotels,retailmallsandrestaurantscapableofaccommodatingmorethan60,000residents.Theprojectmakesuparound18.6%ofDSI’scurrentbacklog,withphaseonedeliveryexpectedin2012followedbyphasetwoin2014.

Durrat Al Bahrain district cooling contract

Contract Details

Contract name Durrat Al Bahrain

Contract value AED 596.0mn

Current backlog estimate AED 596.0mn

Expected completion date 2014

Client name Durrat Al Bahrain Source: DSI, SHUAA Capital

Mangrove Place, Shams Abu DhabiThecontractawardedtoGTCC,civilarmofDSIbyLuxuryRealEstateforthecivilworksofMangrovePlaceisthedeveloper’sfirstrealestateproject.ThetotalvalueofthecontractisinexcessofAED350.0mn.ItislocatedwithinShamsAbuDhabi,adevelopmentonAlReemIslandexpectedtoaccommodatearound85,000residentsinaseriesofthemedneighbourhoodslinkedbywaterways.MangrovePlaceisamid-riseresidentialdevelopmentlocatedintheheartofthecommercialbusinessdistrictofShamswithEuropeanstyleapartmentswitheasyaccesstothecommercialandleisuredistrictsofShamsandAbuDhabi.

DSI's estimated backlog by scope of work

1,348.1

1,216.0

642.3

0

200

400

600

800

1,000

1,200

1,400

1,600

IWP MEP Civil

AED

mn

IWP42.0%

MEP 37.9%

Civil20.0%

AED 596mn in Bahrain

April1st,2009 14


Shams Abu Dhabi contract

Contract Details

Contract name Mangrove Place Shams Abu Dhabi



Expected completion date H1 11

Client name Luxury Real Estate Development Source: DSI, SHUAA Capital

Royal Amwaj ResortDSIsecuredinApril2008,togetherwithitssubsidiaryGTCC,theconstructionandMEPengineeringservicesworkfortheRoyalAmwajResortprojectfromSevenTides,whichisanindependentDubaiholdingcompanydevelopingavarietyofrealestateprojects.TheAED550.8mncontractsawardedtoDSIandGTCCinvolveboththeconstructionandMEPworksforthecompany’sflagshipdevelopmentRoyalAmwajResort&SpawhichfeaturesaMovenpickoperatedhotelandspawith296hotelroomsandover400condominiumapartments.TheexpectedcompletiondateoftheprojectisH209.Asof2008yearendalmost53.2%ofthecontractworkhadbeenaccomplished.

Royal Amwaj Resort contract

Contract Details

Contract name Royal Amwaj Resort & Spa




Client name Seven Tides Source: DSI, SHUAA Capital

Nad Al Sheba Horse Race track district coolingThiscontractfromMeydaanLLCinvolvesthedesignandconstructionofthecentraldistrictcoolingplantsatNadAlShebaHorseRacecourse,hometotheDubaiWorldCupin2010,theworld’srichesthorserace.Workonthedistrictcoolingplantsismovingaheadandhasaccordingtothemanagementnotbeenaffectedbythedelays/cancellationsfacingotheraspectsoftheMeydaanproject.

Nad Al Sheba contract

Contract Details

Contract name Nad Al Sheba race course district cooling




Client name Meydan LLC Source: DSI, SHUAA Capital

MotorCity cooling plantsMotorCityisthelargestdevelopmentundertakenbyUnionPropertiestodate.DSIhasbeenawardedbyEmicool,a45%ownedsubsidiaryofUP,thecivilandMEPcontractingworkofMotorCity’scoolingplantsforavalueofAED403.0mn.MotorCityisaflagshipdevelopmentwithresidential,officeandleisurespaceintheimmediatevicinityofDubaiLand,oneoftheworldmostambitiousdestinationprojects.CompletiondateofDSI’scontractisexpectedtowardstheendof2009throughearly2010,inlinewithhandoverofresidentialunitswithinMotorCity.

April1st,2009 15


MotorCity cooling plants contracts

Contract Details

Contract name MotorCity district cooling plants




Client name EMICOOL Source: DSI, SHUAA Capital

Moderate client concentration risk

ContractsinthecurrentbacklogaresourcedfromahostofdifferentclientsincludingSevenTides,IFAHotels&Resorts,MeydanLLCandotherprivatesectordevelopers.Thecompany’smajorclientsareDurratAlBahrainandLuxuryRealEstatewhichaccountfor18.6%and9.6%ofDSI'sbacklogrespectively.ThiscomprisesofbothIWPandcivilcontractingwork.

ThecompanyhassucceededtosecureseveralcontractsinthecivilandMEPcontractingsectorfromSevenTides,aclientwithan8.0%backlogshare.Morethan9.5%ofthebacklogcomesfromtheMangrovePalaceinShamsAbuDhabiawardedfromLuxuryRealEstateDevelopmenttoDSI.Another7.8%backlogsharewasbookedfromIWPandcivilworkatNadAlShebaHorseRaceCoursewhichisdevelopedbyMeydanLLC.


Inconclusion,webelievethatDSIisexposedtomoderateclientconcentrationrisk-withitsbacklogdistributedovernearly20clientsandwithnoclientexceeding19%contributiontothecompany'sbacklog.ThesinglelargestexposureistotheDurratAlBahrain(18.6%),whichawardedDSIthecontractdaysago-wellintotheregionalfinancialandrealestatecrisis.

More cancellations in Dubai expected

DespitethefactthatDSIhasalreadyseenanestimatedAED873.1mnworthofcontractscancelled/putonholdoverthepastfewmonths,webelievethatthecompanyisexposedtoadditionalcancellationsinDubai.GoingthroughtheDubaibacklogrevealsthattwocontractswithatotalbacklogvalueofAED227.6mnhaveseenlittleworkexecutedsincetheywereawarded.Ourbasecasescenarioassumesthatthesecontractswillbecancelled,takingthetotalcancellationrateoutoftheDubaibacklogupto45.1%from35.8%andthevaluetoAED1.10bn.ThisbringsthetotalbacklogutilizedinourbasecaseprojectionsdowntoAED2.7bn.However,ourfinancialprojectionsandvaluationaresubjectedtofourscenariosassumingDubaicancellationratesthatreachupto100%underthedoomsdayscenario.

Breakdown of DSI's contracts and backlog by client

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

OtherClients

IFA Hotels& Resorts

MeydanLLC

SevenTides

EMICOOL Durrat AlBahrain

Luxury RealEstate

Aramco ADNEC ZabeelInvestment

SABIC AldarProperties

AED

'000

Contract value Backlog estimate

Other Clients22.8%

IFA Hotels & Resorts

9.5%

Durrat Al Bahrain18.6%

Luxury Real Estate9.6%

SABIC4.4%

Aldar Properties2.5%

Zabeel Investment

1.8%ADNEC

3.0%Aramco

5.0%

Meydan LLC7.8%

Seven Tides 8.0%EMICOOL

6.9%

Nearly 20 clients, none exceeds 19% of backlog

Risk for more cancellations in

Dubai backlog

April1st,2009 16


SWOT - Analysis

Strengths Opportunities

• Cash rich with an AED 1.14bn net cash position as of year end 2008.

• Offers end-to-end contracting services including civil construction, MEP and IWP contracting.

• Geographically diversified operations, DSI is active across the UAE, Bahrain, Saudi Arabia and Sudan.

• Experienced management.

• With AED 1.14bn in net cash as of year end 2008, current market conditions should offer the company multiple acquisition opportunities.

• Expand its business beyond the UAE into other GCC countries and North Africa.

• Shift from a market wide scarcity of qualified labour/management to almost an abundance of experienced people on the market.

Weaknesses Threats

• Most of DSI's backlog is due for completion in 2009 - low operating income visibility relative to Arabtec Holding.

• Potential client defaults, impairment of receivables.

• More contract cancellations.

• Growing bargaining power of clients - leading to lower margins.

April1st,2009 17


Financial analysis and forecastsRevenues

OurprojectionsindicatethatDSI'srevenueswillexpandfromaroundAED1.77bnonproformabasisinFY08toAED1.82bninFY09,despiteassumingafurtherAED227.6mnincontractcancellationsoutofexistingbacklog.Movingbeyond2009,weexpectDubai'sshareofthebacklogandconsequentlyalsorevenuecontributionstodeclinewithoutbeingfullyoffsetbytheexpansionintoAbuDhabiandtheregion.Asaresult,weseeFY10revenuesdownby16.1%toAED1.61bnandfallingbyanother6.9%inFY11toreachAED1.50bn.AcquisitionsbyDSIareexpectedtoprovideasignificantupsidepotentialtoourprojections.However,intheabsenceofsufficientinformationonpotentialtargetswehaveoptednottoincludeacquisitionsinourprojections.

Source: DSI, SHUAA CapitalNote: FY 07 and FY 08 revenues up and till 16th of November 2008 are not attributable to DSI PJSC, the listed entity. DSI PJSC was incorporated on 17th of November 2008, revenue generated from that date onwards is attributable to the post-IPO shareholders. Hence, FY 08 revenues in the chart above serve as an indication only.

Gross profit

DSI'sgrossprofitmarginisestimatedtohavereached18.7%lastyear,alevelwedonotthinkissustainableunderthecurrentmarketconditions.Movingforward,weexpectDSI'sGPMtolose3.0percentin2009toreach15.7%beforesheddingafurther2.7and1.2percentineachofFY10andFY11,respectively.Currentmarketconditionshavebeenmarredbyprojectcancellationsanddelaysfuelledbyaregionwidedeclineinliquidity,leadingtoamorecompetitiveconstructionmarketlandscape.Asaresult,contractorslikeDSIhavetobemoreactiveinchasingcontractsandenticingdevelopers-leadingtogradualerosionofpricingpower.Inthepast,developershadasamainprioritytofindacontractoravailabletodotheworkontime,pricewasimportantbutitwasnotalwaysthehighestpriority.Todaydevelopersbargainingpowerisontheupswingandcontractors'capacityutilisationrateswillretreat,whichweseetranslatedintolowercontractormargins.Yetdeveloperswillcontinuetodistinguishbetweenvariouscontractorsonthebasisofexperience,executioncapacityandincreasinglyontheirfundingcapacity.Experienceddeveloperswillremainwillingtopayapremiumtoawellfundedcontractorwhoiscapableofsecuringfrombankstheprojectworkingcapitalrequirements,andhenceminimisetheimpactofthecurrentmarketconditionsontheexecutionoftheirproject.Havingsaidthat,webelieveDSI'ssoundcashpositioncouldprovetobeacompetitiveadvantageforthecompany-allowingformoresuccessfulbiddingandthefallingGPMtostayabovetheregionalindustryaverage.

Revenues peak in FY 09, fall in FY 10

DSI's revenue 2007-2011

820.5

1,765.0 1,815.8

1,614.11,503.2

65.4%

115.1%

2.9%

-11.1%-6.9%

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2007 2008E 2009E 2010E 2011E

Reve

nue,

AED

mn

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Reve

nue

grow

th

Revenue Revenue growth

More competition, lower GPM

April1st,2009 18



EBITDA

DSI'sEBITDAisprojectedtoreachAED182.9mnin2009,downfromanestimatedAED213.0mnin2008.Movingforward,weprojectthattheEBITDAwillfalldowntoAED133.2mninFY10andAED115.7mnbyFY11.

SimilartotheGPM,theEBITDAmarginisexpectedtocomedownfromthe2007and2008levelsintheyearsaheaddespitethefallbeingpartiallyoffsetbyanexpecteddeclineinselling,generalandadministrativeexpenses(SG&A)asaproportionofrevenue.Weexpectthatthecoolingdownofthelabourmarketandtheshiftfromscarcityoflabour(skilledandunskilled)toalmostanexcessoflabourtograduallytranslateintohigherbargainingpowerforemployers,resultinginlowerbonusesandeventuallysalaryreductionsandothercostcuts.Asaconsequence,weexpectDSI'sSG&A/revenuefortheyearsFY09-11toretreatfromanestimated7.9%inFY08backto6.8%inFY11.Althoughweprojectmoreprudentmanagementofindirectcosts,therewardsarenotlikelytobesufficienttopreventadeclineintheEBITDAmargin.OurprojectedEBITDAmarginforFY09is10.1%,anestimateddecreaseof199bpsand464bpsfromFY08andFY07respectively.Moresuccessfulandaggressivecostcuts,leadingSG&A/revenuebacktotherangeofFY06andFY07levelsof4.1%and6.1%respectively,couldofferanupsidetoourprojectedEBITDAmarginandthusalsovaluations.


DSI's gross pro�t and GPM 2007-2011

155.1

330.0

176.6209.3

285.4

11.8%13.0%

15.7%18.9%

18.7%

-

50

100

150

200

250

300

350

400

2007 2008E 2009E 2010E 2011E

Gro

ss p

ro�t

, AED

mn

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

GPM

Gross profits GPM

EBITDA falls in FY 09 on lower margins

DSI's EBITDA and EBITDA margin 2007-2011

120.7

213.0182.9

133.2115.7

7.7%

14.7%

12.1%

10.1%

8.3%

-

50

100

150

200

250

300

350

400

2007 2008E 2009E 2010E 2011E

EBIT

DA

, AED

mn

0%

2%

4%

6%

8%

10%

12%

14%

16%

EBIT

DA

mar

gin

EBITDA EBITDA margin

`

April1st,2009 19


Net profits

Inabsoluteterms,DSI'snetprofitclimbedupfromAED101.5mninFY07uptoanestimatedAED245.9mninFY08onproformabasis.Meanwhilethenetmarginrangedbetween12.4-13.9%.


Movingforward,DSI'snetprofit(excludingthepotentialimpactofacquisitions)isexpectedtoretreattoAED215.5mninFY09beforefallingbacktoAED144.6mninthefollowingyearandAED112.9mnbyFY11.Inlinewithourprojecteddeclineinrevenuesandprofitabilityanddespiteconsiderablecontributionfrominterestincome,thenetprofitCAGRfortheperiodfrom2008till2011isnegative22.8%.

YetwewouldliketoreiteratethefactthatourprojectionsdonotincorporateanypotentialacquisitionsthatDSImightconcludeinthecomingyearsonthebackoftheIPOproceeds.Althoughthecompanyhasmadeitclearthatitiscurrentlylookingatanumberofpotentialtargetsintheregion,thereisnoinformationonthesize,price,shareandpotentialbottom-linecontributionssuchacquisitionsmighthave.

However,thefactthatwearenotassuminganyacquisitionsmeansthatasignificantproportionoftheprojectednetincomeiscomingfrominterestincomeontheIPOproceeds.Theproceeds,whichhavebeenplacedpredominantlyintermdepositsspreadacrossoverfivebanks,arecurrentlyyieldinganinterestrateofaround6%.InourprojectionsweassumethattheinterestrateinFY09willstayat6.0%beforelosing150bpsinFY10andafurther100bpsinFY11-leadingtoanestimatedinterestrateof3.5%in2011.WeexpectAED82.2mninFY09interestincomefollowedbyAED65.7mnandAED56.6mninFY10andFY11respectively.

Intermsofpricetoearningsmultiples,theearningsonthedeposits(ourPinthissimplisticexercise)wouldbetheequivalentofP/E0916.7x(1/6.0%),P/E1022.2x(1/4.5%)andP/E1128.6x(1/3.5%).Withmostconstructioncompaniestradingwellbelow10xP/E09&10,acquisitionsshouldofferasignificantupsidetoourearningsforecasts.

Cash and debt

Asof2008year-endDSIholdsanestimatedAED1.40bnincash,comprisedmainlyoftheIPOproceeds,againstwhichithasAED261.9mnofdebt.AsaresultthecompanysitsonAED1.14bnworthofnetcash,theequivalentofAED0.52pershare,tofunditsexpectedregionalbuyingspree.Thiscashbalancewillalsoprovetobeusefultomitigaterisksarisingfromclientpaymentdelaysandincreaseddifficultiestosecureworkingcapitalfundingfrombanksfortheindustryasawhole.

DSI's net pro�t and net pro�t margin 2007-2011

101.5 112.9

245.9

144.6

215.5

7.5%

13.9%

12.4% 11.9%

9.0%

-

50

100

150

200

250

300

2007 2008E 2009E 2010E 2011E

Net

pro

�t, A

ED m

n

-1%

1%

3%

5%

7%

9%

11%

13%

15%

17%

net p

ro�t

mar

gin

Net profit Net profit margin

Net profit of AED 215.5mn in FY 09

Acquisitions should offer significant upside

Net cash of AED 0.52 per share

April1st,2009 20



Cash conversion cycle

DSIhasenjoyedtheluxuryofbeingpaidforitsserviceslongbeforeitpayssuppliers/sub-contractors.Asaresult,theneedtotakeondebttofundworkingcapitalrequirementshasbeenverylimitedinrecentyears.Realestatedeveloperswereflushwithcash,theymadeheftyupfrontpaymentstocontractors,propertypriceswereontherise,contractors'capacitywasscarce,costofrawmaterialandcontractors'serviceswereonaseeminglyneverendingupwardspiral-developerswerekeentopayfast,tobeservedfaster.Todaythatsenseofurgencyhasdisappeared,withmanydevelopersadoptingdelayingtactics.Thisdeteriorationledcontractorstosoundthealarmthroughlocalandinternationalmediaearlierthisyear,clearlysignallingthatdramaticchangeshadoccurred.


Asaresult,webelievethatDSIlikeothercontractorswillprobablyseetheworkingcapitaladvantageithasenjoyedinthepastquicklyreversinginFY09andtheyearsahead.Weexpecttheproportionofcontractadvances/upfrontpaymentstoshrinkinthecomingyears,inaddition,maincontractorslikeDSIwillhavetopaytheirsub-contractorson-time,asthelatterarefacinganeventougherfundingenvironment.Consequently,thecashconversioncycleisexpectedtogofromnegative68daysinFY07toanestimated-47daysinFY08andbackuptopositive17daysinFY09beforereaching25daysinFY11.

DSI's cash and debt

(261.9) (256.1) (252.8) (256.3)

127.5

1,399.2 1,337.2

1,581.4 1,650.3

1,394.0

(65.8)

61.8

1,137.3 1,081.1

1,328.7

(500)

-

500

1,000

1,500

2,000

2007 2008E 2009E 2010E 2011E

AED

mn

Debt Cash Net cash

DSI's cash conversion cycle 2007-2011

(68)

(47)

17 2025

(80)

(60)

(40)

(20)

-

20

40

2007 2008E 2009E 2010E 2011E

Day

s

Working capital requirements to increase

April1st,2009 21


Capex requirements

Weexpectthatthecompany'scapexbetween2009and2011willstayaroundthesameestimatedcapex(excl.land&acquisitions)/revenuelevelsof2008.Asaresult,DSI'scapitalexpenditureforFY09isexpectedtoclimbuptoAED45.4mnbeforedecliningtoAED40.4mnandAED37.6mninFY10andFY11.


Dividends

Giventhecurrentmarketconditions,especiallytheliquiditysqueeze,inadditiontothepotentialchallengesaswellasopportunitiesthatDSImightface,itisadvisablethatthecompanydoesnotdistributedividendsinthenear-termandcontinuetobenefitfromitswellfundedposition.Wethereforeassumethatthecompany'smanagementandboardwillnotproposeanydividendsfor2008or2009.Wehaveassumedthatthefirstdividenddistributionwillamountto5%ofsharecapitalandtakeplacein2011forFY10.

Moderate capex

DSI's estimated capex requirements 2006-2011

29.6

196.2

97.0

45.4 40.4 37.6

35.5 36.8

15.06.0%

23.9%

2.5%

5.5%

3.0%

4.3%

2.1% 2.5% 2.5%

-

50

100

150

200

250

2006 2007 2008E 2009E 2010E 2011E

Cape

x, A

ED m

n

0%

5%

10%

15%

20%

25%

30%

% o

f rev

enue

s

Capex Capex (excl. land & acquisitions)Capex/revenue Capex (excl. land & acquisitions)/revenue

Dividends not likely soon

April1st,2009 22


ValuationWeinitiatecoverageonDrake&ScullInternational(DSI)withaBUYrecommendationbasedonourfairvaluetargetofAED0.89pershare,implyinga30.5%upsidepotentialtothecurrentpriceofAED0.68pershare.

DSI's fair value

Valuation Fair value Weighting Weighted fair value/share

DCF 0.78 25% 0.19

Relative 0.81 25% 0.20

Adjusted DCF (incl. acquisitions) 0.98 50% 0.49

0.89

Upside/(downside) 30.5%Source: SHUAA Capital

Ourfairvaluetargetisaweightedaverageofthreevaluationexercises.Thefirstisathree-stageDCFvaluationbasedonourfinancialprojectionsexcludingthepotentialimpactofanyacquisitions.Next,weperformedarelativevaluationbasedonthemedianEV/EandEV/EBITDAforagroupofcomparablecompanies.Finally,throughwhatwewouldcalladjustedDCF-weassessedthevaluationimpactofthelikelydeploymentoftheIPOproceedsbyDSItoacquirecontractingcompaniesintheregion.GiventhehighlikelihoodthatDSIwillmakesignificantacquisitionsinthemediumterm,weoptedfora50%-50%splitinweightings.TheDCFandrelativevaluations,whichdonotaccountforacquisitionswereallocateda25%weightingeach.Meanwhile,weallocateda50%fortheadjustedDCFwhichaccountsforacquisitions.

Scenario driven three-stage DCF

WearrivedatanestimatedfairvalueforDSIofAED0.78pershare,implyinga14.9%upsidetothecurrentshareprice,basedonaweightedfourscenariodriventhree-stageDCFvaluations.TheDCFwasbasedonatenyearforecastperiodandaterminalvalue.Theweightedaveragecostofcapital(WACC)usedis11.29%1.Tocalculatetheterminalvalueweusedanascendingterminalgrowthratefrom0%inthedoomsdayscenarioto3%forthebullcase.

Weallocated70%oftheweightingtotheDoomsday,bearandbasecasescenarioscombined-leaving30%tothebullcase.TheDCFvaluationrangewasAED0.61-0.89pershare.DSI'snetcashpositionalonecontributesAED0.52ofthefairvaluepershare.Theterminalyearcontributes5.5%ofthefairvalueinthedoomsdayscenarioand20.9%inthebullcase.

DSI's scenario weighted DCF fair value

Scenario Net cash per share

Pv of FCF Terminal value Fair value Weighting Weighted fair value/share

Doomsday 0.52 0.05 0.03 0.61 10% 0.06

% fair value contribution 85.6% 8.9% 5.5% 100.0%

Bear 0.52 0.11 0.06 0.70 20% 0.14


Base 0.52 0.15 0.11 0.78 40% 0.31


Bull 0.52 0.18 0.19 0.89 30% 0.27


Fair value/share 0.78


1 The WACC was based on a cost of equity of 12.0% and a cost of debt of 8.0%. The cost of equity was based on a UAE risk free rate of 6.0%, an equity risk premium of 5.0% and an industry beta of 1.20.

Initiating with a BUY recommendation

Fair value target is a weighted average of

three valuation exercises

Three-stage DCF yields AED 0.78 per share

Valuation range of AED 0.61-0.89 per share

April1st,2009 23


Theobjectivebehindtheuseofathree-stageDCFwastonormalisetherevenuesandmargins,postthepeakyearsof2008and2009.OurviewisthattheindustrypeakedlastyearandthatcompanieslikeDSIwillin2009continuetoprettymuchfeedoffthepreviouseraastheywrap-upexistingcontracts.Wethereforebelievethattherepercussionsofthegrowingnumberofprojects(orphases)beingputonholdintheregionalmarket,tohavethelargestsuppressiveimpactonFY10andFY11industryearnings.HenceallscenariosrecordtheirsharpestdeclineinrevenuesandprofitabilityduringourfirststageoftheDCF.Thesecondstageofthedoomsdayandbearscenariosrepresentstwolevelsofintensityinthecontinuationofthedeclineinrevenuesandprofitability,butatslowerpacethantheprecedingperiod.Inthebaseandbullcase,thesecondstagerepresentsthestartofamarketrecovery.

Doomsday scenarioThedoomsdayscenarioassumesallDSI's(includingGTCC)Dubaicontractsarecancelledimmediatelyandthatthecompanywinsnofurtherworkthere-averyunlikelydevelopmentbutonethatisinterestingtoexplore.UnderthisscenarioFY08isassumedtobeDSI'speakperformancedespitetheDubaibusinessbeingpartiallyoffsetbycontractsinAbuDhabiandSaudiArabia.BasedonthisscenarioFY18EBITDAwouldbeshort79.3%comparedtoFY08figuresand33.9%belowDSI'sFY06EBITDA.TheEBITDAmargindropsfrom12.1%in2008to4.7%inFY18.

Thecompoundedannualgrowthrates(CAGR)fortheentire10yearforecastperiodis-6.1%forrevenue,-12.2%forgrossprofitwithEBITDAat-14.6%.Netprofitsfallatamuchslowerpaceonthebackofgrowinginterestincome,aswedonotincludeassumptionsonacquisitionshere.

Doomsday scenario CAGR's Stage 1 Stage 2 Stage 3

CAGR 2008-2011 2011-2013 2013-2018 2008-2018 2009-2018

Revenue -10.5% -13.4% -0.2% -6.1% 2.9%

Gross profit -24.7% -17.5% -1.2% -12.2% -0.7%

EBITDA -28.1% -11.2% -6.8% -14.6% -3.2%

Net profit -30.6% -6.3% 6.6% -8.7% -0.3%


Bear case scenarioThebearscenarioassumesthatallcontractsinDubaithatarelessthan20%completearecancelledin2009-reducingDSI'sDubaibacklogby17.2%toAED1.30bnfromAED1.57bnandthetotalbacklogby8.4%downtoAED2.94bnfromAED3.21bn.Theimpliedyeartodatecancellationrate(actual+scenarioadjustments)wouldbe46.8%forDubaiand28.0%forthewholebacklogunderthisscenario.Unlikethedoomsdayscenario,thebearcaseassumesthatDSIDubaiwillreplenishitsbacklogwithAED150.0mnandAED175.0mninFY10andFY11respectively.

WhileDSI'sFY18EBITDAisprojectedtoshed64.5%fromFY08figures,weforecasta13.5%gainoverFY06EBITDA.TheimpliedEBITDAmarginforthebearcasefallsfrom12.1%in2008to5.6%inFY18.

Bear scenario CAGR's Stage 1 Stage 2 Stage 3

CAGR 2008-2011 2011-2013 2013-2018 2008-2018 2009-2018

Revenue -6.9% -7.1% 2.1% -2.6% -2.9%

Gross profit -21.1% -10.8% 1.1% -8.5% -7.8%

EBITDA -22.7% -4.5% -3.3% -9.8% -9.0%

Net profit -26.7% -3.4% 7.5% -6.2% -5.2%


April1st,2009 24


Base case scenarioOurbasecaseassumesthatDSI'sbacklogwillloseallDubaicontractswhereworkhasyettostartandthosethathavejuststarted(lessthan5%ofworkcompleted).WhiletheDubaiproportionofDSI'sbacklogloses14.5%andfallsfromAED1.57bntoAED1.34bnunderthisscenario,thetotalcompanybacklogshrinksby7.1%.ThiswouldimplyaYTDDubaicontractcancellation/holdrateof45.1%withacompanywiderateof27.0%.Asyoucanseethereisaverylimiteddifferenceintermsofassumedcancellationsbetweenthebearandbasecase,simplybecausemostofDSI'sinitiatedcontractsareabovethe20%threshold.Movinginto2010weexpectDSIDubaitobeawardedcontractsworthAED225.0mnfollowedbyAED262.5mninFY11.

DSI'sFY18EBITDAisprojectedtoshed47.5%comparedtotheFY08level.TheimpliedEBITDAmarginforthebasecasefallsfrom12.1%in2008to6.6%inFY18-tobecomeinlinewiththeindustryaverageinmaturemarkets.

Base scenario CAGR's Stage 1 Stage 2 Stage 3

CAGR 2008-2011 2011-2013 2013-2018 2008-2018 2009-2018

Revenue -5.2% -2.4% 3.5% -0.4% -0.7%

Gross profit -18.8% -5.4% 2.5% -5.9% -5.1%

EBITDA -18.4% 0.2% -0.8% -6.2% -5.3%

Net profit -22.8% -0.2% 7.6% -4.1% -3.1%


Bull case scenarioTheunderlyingassumptionsforthebullcasescenarioisthatthecurrenttoughconditionsofthecontractingbusinesseswillrelativetotheotherscenariosbeshort-livedandthatDSIwilllosenofurthercontractsinDubai.Inthismostoptimisticscenario,themarketisassumedtostartrecordingapartialrecoveryduringthesecondstagewhichstartsinFY12-leadingtoafullrecoveryinthethirdstage,inabsoluteterms,ledbytheDubai,AbuDhabiandSaudiArabianmarket.AlthoughwedoprojectthatDSI'sbullcaseEBITDAmarginswillstayhigherthanthecurrentindustryaverageofmaturemarketsofaround6.5%,weexpectgrowingregionalcompetitiontokeepmarginswellbelowFY08levels.TheDSIEBITDAmarginunderthebullcasescenarioretreatsfrom12.1%inFY08to7.40%.

Bull scenario CAGR's Stage 1 Stage 2 Stage 3

CAGR 2008-2011 2011-2013 2013-2018 2008-2018 2009-2018

Revenue -3.1% 1.0% 5.6% 2.0% 1.3%

Gross profit -16.6% -0.2% 4.7% -3.2% -2.3%

EBITDA -15.4% 5.7% 2.0% -2.9% -2.0%

Net profit -20.3% 4.3% 8.6% -1.9% -1.0%


April1st,2009 25


Relative valuation

OurweightedrelativevaluationreturnsanequityvalueofAED0.81persharebasedonFY10EV/EandEV/EBITDAofselectedpeers.TheselectedpeersoperateoutoftheUAE,Australia,SouthAfrica,India,USandtheUK.Whilethetwolargestcompaniesbymarketcapitalisation,LeightonHoldingsandBalfourBeattyhavesignificantoperationsintheUAEandtheGCC,ArabtecHoldingisoneofthelargestgeneralcontractorsintheUAE.

DSI's peer group

Company Country Market Cap (USD mn)

EV/EBITDA (2010E)

EV/Net profit (2010E)

Arabtec Holding UAE 537 1.8 2.2

Leighton Holdings Limited Australia 3,966 4.2 9.8

Balfour Beatty plc United Kingdom 2,196 4.9 7.5

Perini Corporation USA 577 1.1 2.0

Murray & Roberts Holdings Limited South Africa 1,206 2.5 4.8

Voltas Limited India 288 4.1 5.2

Median 3.3 5.0 Source: Reuters, Bloomberg as of 30.03.2009

WeallocatethehighestweightingtotheEV/Emultiple,whichweconsidertobethemultiplethatprovidesthebestbalancebetweenthecashadvantage,interest/returnrateoncashdifferentialandlowercorporatetaxexposurethatDSIenjoys.

Relative valuation of DSI

Valuation Fair value/share Weighting Weighted fair value/share

EV/E 2010E 0.85 70% 0.59

EV/EBITDA 2010E 0.72 30% 0.22

0.81Source: SHUAA Capital

WeoptedtouseFY10asourbenchmarkyearsimplybecausewedonotatthisstageconsiderDSI'sFY09earningstofullyreflecttherapidchangesintheconstructionmarketoutlookthathasoccurredoverthepastsixmonths.

Adjusted DCF - valuation impact of acquisitions

TheimpliedweightedfairvaluepersharethatourscenariodrivenadjustedDCFgeneratesisAED0.98pershare.TheadjustedDCFwasbasedonDSI'scurrentcashbalance,median2010EP/EBITDAoftheselectedpeersandthescenariobasedprojectedgrowthratesandmarginsforDSI(excludingacquisitions).

DSI's fair value assuming acquisitions

Scenario Fair value Weighting Weighted fair value/share

Doomsday 0.62 10% 0.06

Bear 0.77 20% 0.15

Base 0.98 40% 0.39

Bull 1.25 30% 0.37

Fair value/share 0.98


Relative valuation returns AED 0.72-

0.85 per share

Adjusted DCF implies valuation range of

AED 0.62-1.25 per share

April1st,2009 26


ToassessthepotentialvaluationimpactofDSIdeployingitsIPOproceedstoacquireregionalcontractingcompaniesweusedthepeermultiplesinconjunctionwithourscenariobasedgrowthandmarginsforDSItoreverseengineerasimplisticimpliedDCF.

Theaboveselectedpeergrouphasamedian2010EP/EBITDAof3.3x(100-170%premiumtoArabtecHolding),implyingthatDSIcanutilize50%(management'sallocationtoacquisitions)ofitscurrentcashbalancein2010toacquireAED209.2mnofadditionalFY10EBITDA.Wecombinedthe'target'EBITDAwiththeprojectedEBITDAmarginforDSI(beforeacquisition)toreachtheimpliedrevenueofthetarget.Wethensubjectedtheimpliedrevenuetotheestimatedcapex/revenueratioofDSI,toreachthefreecashflowadditionfromtheacquisitions.Wesimplisticallyassumednoleverage,noworkingcapitaladvantage/disadvantageandnofurtheradditionsordeductionsfromtheEBITDA.WhilesomemightarguethatthetargetcompanyshouldhaveabettergrowthprospectthanDSIandoffersignificantsynergies,wechosetoadoptthemoreconservativeapproachofsubjectingthetargettothesamefourscenario'sandgrowthassumptionsasDSI.

Underallscenarios,thepotentialtargetthatDSI'smoney'could'buywastovaryingdegreesvalueaccretive.Theproducedvaluationrange,includingdoomsday,ranbetweenAED0.62-1.25pershare,implyingamaximumdownsidetothecurrentsharepriceof9.4%versusamaxupsideof83.7%.

To acquire or not to acquire

Detail Doomsday Bear Base Bull

Excluding acquisitions 0.61 0.70 0.78 0.89

Including acquisitions 0.62 0.77 0.98 1.25

Value addition/(destruction) 0.01 0.07 0.20 0.36

% value addition 1.0% 9.9% 25.5% 41.1%

Upside/(downside) including acquisition -9.4% 13.1% 44.2% 83.7%


April1st,2009 27


Consolidated proforma income statement (AED)Year to December 2006 2007 2008E 2009E 2010E 2011E

Revenue 496,008,094 820,456,281 1,765,000,000 1,815,754,892 1,614,078,893 1,503,230,629

Cost of sales (415,229,212) (665,327,265) (1,435,000,000) (1,530,396,852) (1,404,790,680) (1,326,581,213)

Gross profit 80,778,882 155,129,016 330,000,000 285,358,040 209,288,213 176,649,415

Selling, general & administrative expenses (20,124,362) (49,710,167) (140,000,000) (128,049,999) (110,185,674) (102,789,649)

EBITDA 66,665,911 120,699,827 213,000,000 182,929,865 133,196,053 115,653,035

EBIT 60,654,520 105,418,849 190,000,000 157,308,041 99,102,540 73,859,767

Other income 1,687,616 6,511,074 10,000,000 8,170,897 7,263,355 6,012,923

Net interest (1,434,923) (4,765,994) 23,829,467 64,048,651 47,858,558 41,283,483

Net IPO income - - 28,000,000 - - -

Tax - - - (6,028,393) (5,870,357) (4,582,619)

Minority interest - (5,655,039) (5,928,404) (7,989,336) (3,746,897) (3,642,041)

Net profit 60,907,213 101,508,890 245,901,063 215,509,859 144,607,199 112,931,512


Consolidated balance sheet (AED)Year to December 2006 2007 2008E 2009E 2010E 2011E

Bank balances and cash 62,821,315 127,524,457 1,399,178,818 1,337,220,484 1,581,444,554 1,650,269,191

Loan to shareholder - - 45,000,000 45,000,000 45,000,000 45,000,000

Trading securities 16,472,158 10,782,839 12,097,000 12,097,000 12,097,000 12,097,000

Prepayments and other receivables 14,891,955 40,690,088 145,068,493 174,113,483 154,774,688 144,145,403

Due from related parties 806,299 349,149 19,342,466 24,873,355 17,688,536 14,414,540

Contract receivables and retentions 200,629,573 333,588,843 652,808,219 795,947,350 685,430,763 638,358,212

Contract work in progress 10,420,281 151,465,732 280,465,753 348,226,966 287,438,707 267,698,605

Inventories 141,297 3,158,228 2,417,808 4,974,671 3,537,707 3,294,752

Development properties - 38,196,015 21,106,000 21,106,000 21,106,000 21,106,000

Total current assets 306,182,878 705,755,351 2,577,484,557 2,763,559,307 2,808,517,955 2,796,383,703

Property, plant and equipment 37,192,326 95,663,473 171,530,000 191,301,742 197,560,201 193,347,698

Goodwill and other intangible assets - 147,019,818 825,464,000 825,464,000 825,464,000 825,464,000

Available-for-sale investments - 10,214,109 12,576,000 12,576,000 12,576,000 12,576,000

Total non-current assets 37,192,326 252,897,400 1,009,570,000 1,029,341,742 1,035,600,201 1,031,387,698

Total Assets 343,375,204 958,652,751 3,587,054,557 3,792,901,049 3,844,118,156 3,827,771,402

Accounts payable and accruals 204,452,752 373,821,623 668,356,164 691,823,234 635,042,362 599,687,398

Due to related parties 1,794,390 1,821,148 21,623,288 25,157,209 19,243,708 14,537,876

Advances received from customers 27,731,613 154,890,770 353,835,616 314,465,107 230,924,495 199,895,799

Due to banks 6,795,975 54,519,973 83,754,000 161,776,299 137,864,448 128,149,381

Term loans 3,090,131 4,851,007 168,633,000 67,406,791 91,909,632 106,791,151

Excess billings 13,639,814 22,479,980 27,548,000 33,542,945 38,487,416 36,344,691

Total current liabilities 257,504,675 612,384,501 1,323,750,068 1,294,171,584 1,153,472,062 1,085,406,297

Employees' end of service benefits 6,172,578 12,256,283 19,779,000 28,533,553 34,125,395 37,822,930

Term loans 5,685,712 6,383,945 9,463,000 26,962,716 22,977,408 21,358,230

Due to related parties - 175,239,693 - - - -

Total non-current liabilities 11,858,290 193,879,921 29,242,000 55,496,270 57,102,803 59,181,160

Total Liabilities 269,362,965 806,264,422 1,352,992,068 1,349,667,854 1,210,574,864 1,144,587,457

Total shareholders' equity 74,012,239 143,988,244 2,219,734,000 2,435,243,859 2,621,807,058 2,667,805,670

Minority interest - 8,400,085 14,328,489 7,989,336 11,736,233 15,378,275

Total equity 74,012,239 152,388,329 2,234,062,489 2,443,233,196 2,633,543,292 2,683,183,944

Total liabilities and equity 343,375,204 958,652,751 3,587,054,557 3,792,901,049 3,844,118,156 3,827,771,402


Financials

April1st,2009 28


Key ratios

Year to December 2006 2007 2008E 2009E 2010E 2011E 2012E

Growth

Revenues 24.0% 65.4% 115.1% 2.9% -11.1% -6.9% -5.5%

Gross profit 79.3% 92.0% 112.7% -13.5% -26.7% -15.6% -7.3%

EBITDA 82.8% 81.1% 76.5% -14.1% -27.2% -13.2% -0.1%

Net Income 61.6% 66.7% 142.2% -12.4% -32.9% -21.9% -2.2%

Assets 56.0% 179.2% 274.2% 5.7% 1.4% -0.4% 3.6%

Equity 54.3% 105.9% 1366.0% 9.4% 7.8% 1.9% 5.8%

Margins & Profitability

Gross profit margin 16.3% 18.9% 18.7% 15.7% 13.0% 11.8% 11.5%

EBITDA Margin 13.4% 14.7% 12.1% 10.1% 8.3% 7.7% 8.1%

Net profit Margin 12.3% 12.4% 13.9% 11.9% 9.0% 7.5% 7.8%

RoAE 99.9% 89.7% 20.6% 9.2% 5.7% 4.2% 4.0%

RoAA 21.6% 20.0% 15.1% 7.8% 3.9% 3.0% 2.8%

Leverage

Net Debt (Cash) (AED '000) (47,249) (61,770) (1,137,329) (1,081,075) (1,328,693) (1,393,970) (1,592,631)

Total Debt to Equity 21.0% 45.7% 11.8% 10.5% 9.6% 9.6% 10.2%

Valuation

Number of ordinary shares ('000) 2,177,778 2,177,778 2,177,778 2,177,778 2,177,778 2,177,778 2,177,778

EPS 0.03 0.05 0.11 0.10 0.07 0.05 0.05

BVPS 0.03 0.07 1.02 1.12 1.20 1.23 1.29

P/BV 20.0 10.3 0.7 0.6 0.6 0.6 0.5

P/E 24.3 14.6 6.0 6.9 10.2 13.1 13.4

Fair value based P/E 31.7 19.0 7.9 9.0 13.4 17.1 17.5

P/EBITDA 22.2 12.3 7.0 8.1 11.1 12.8 12.8

P/EBITDA (incl. acquisition) 22.2 12.3 7.0 8.1 4.3 5.0 5.0

Dividends (AED '000) - - - - 108,889 108,889 108,889

Dividend Yield 0.0% 0.0% 0.0% 0.0% 7.4% 7.4% 7.4%

FCF yield 3.5% -5.0% 4.9% -8.8% 9.9% 5.5% 6.8%

FCF yield (incl. acquisition) N/A N/A N/A N/A -27.5% 13.8% 15.3%

Liquidity

Cash conversion cycle (51) (68) (47) 17 20 25 23

Cash ratio 0.3 0.2 1.1 1.0 1.4 1.5 1.8

April1st,2009 29


Research

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