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Global Research GCC Investment Strategy Equity - GCC January 10, 2012

GCC Investment Strategy - 2012Country Wise - P/E & Earnings Growth20.0%

3-yr Earnings CAGR

17.0%

Kuwait UAE

14.0% 11.0% 8.0% 8.0GCC

Oman

Qatar

14.0

Uncertainty likely to overshadow fundamentals Banking offers numerous opportunities; telecom a mixed bag KSA looks good at current levels; Qatar on dips Proposed strategy: Play the dividend game

KSA

10.0 12.0 2012e P/E (x)

Sector Wise - P/E & Earnings Growth24.0%3-yr Earnings CAGR

18.0% 12.0%

BanksConstructi on

Telecom

6.0%0.0% Petroche m 8.0 9.5

Real Estate

CBM11.0 12.5 2012e P/E (x) 14.0

Uncertainty likely to overshadow fundamentals Albeit the USA is now in a much better position, the Euro zone crisis still lingers. With economists stating that a recession in Europe is inevitable, we wait to see the repercussions of the ensuing news on GCC markets. There is a lot being said about drastic softening in the growth of China and India, two leading EM markets. Moreover, recent sanctions on Iran led it to retaliate with a threat to block off the Strait of Hormuz, which if implemented would share headlines with vaporization of investor sentiment. The implications of this standoff and the resulting geo-political upheaval could be manifold, none of which can be viewed in positive light. Re-rating still possible If oil prices move in a positive direction, regional surpluses will swell further than expectations, stringing along a wave of positive sentiments. Possible MSCI upgrade of UAE and Qatar in 2012 would trigger sizeable interest followed by inflows into these markets. Regulatory changes, like those relating to increasing of foreign ownership limits (case in point: UAE and Qatar) and opening the market to foreign owners (case in point: KSA) will lead to significant inflows into the market. Banking offers numerous opportunities, telecom a mixed bag During 2012, we expect the GCC banking sector to offer the highest earnings growth. We suggest that investors should keep a close eye on Qatar (on dips) and KSA for low risk banking sector investments. UAE banks offer substantially higher upside potential but that does not come without exceptionally higher risk. We reiterate our fondness of selective Abu Dhabi based banks. While we do not see enticing upside coming from petrochemical stocks, the construction and cement sectors should remain in the headlines on excessive infrastructure spending. The telecom & real estate sectors does not earn a bullish stance from our side, we remain opportunistic on the sector which offers some good picks. Proposed strategy: Play the dividend game If we were to somehow escape the list of risk factors affecting our valuation, KSA and Qatar should stand out as the best performing markets in the GCC in 2012. We would put more weight on KSA because of its size, its recent under-performance. While UAE offers the highest growth potential, especially after the poor performance in 2011 we believe that the country also has the highest probability to be bogged down by negative news. We believe that given highly uncertain times and expected market volatility, investors should stick to safe stocks (stocks with acceptable recommendations to curtail downside risk) that offer good dividend yield.

CBM - Cement & Building Materials

Country Wise - ROE & P/BV22.0%2012e ROAE (%)Qatar

20.0% 18.0% 16.0%14.0% 12.0% 10.0% 0.8 UAE 1.0 1.2 1.4 1.6 1.8 2012e P/BV (x) 2.0 2.2

Oman GCC

KSA

Kuwait

Source: Global Research

Faisal Hasan, CFA Head of Research fhasan@global.com.kw Tel.: (965) 22951270 Global Investment House www.globalinv.net

Global Research GCCGlobal Research - GCC Universe UAE Abu Dhabi Commercial Bank Arkan Building Materials Company Dana Gas Emirates Telecommunications Corporation National Bank of Abu Dhabi Ras Al Khaimah Cement Company Ras Al Khaimah Ceramics Co. Abu Dhabi National Energy Union National Bank Air Arabia Arabtec Holding PJSC Dubai Financial Market Drake & Scull International Emirates NBD Aramex Emaar Properties Aldar Properties Sorouh Real Estate Total Kuwait Mobile Telecommunications Company National Bank of Kuwait Kuwait Finance House Commercial Bank of Kuwait National Mobile Telecommunications Company Jazeera Airways Company Burgan Bank Mabanee Salhia Real Estate Total Oman Oman Telecommunications Company Bank Muscat Bank Dhofar National Bank of Oman Raysut Cement Company Oman International Bank Oman Cement Company Ahli Bank Total OTEL OM BKMB OM BKDB OM NBOB OM RCCI OM OIBB OM OCOI OM ABOB OM 2,546.0 3,068.5 1,309.8 901.3 395.3 731.7 379.8 543.3 2.0% 7.8% 8.0% 3.5% -9.4% 4.3% 3.8% 3.6% 14.1% 15.8% 3.0% 3.5% -23.7% 10.2% -0.7% 0.4% 2.8% -11.9% -17.1% -8.0% -38.9% 8.6% -31.6% -5.3% 8.5 8.2 11.0 8.0 10.4 14.6 10.8 8.2 9.00 1.8 2.2 0.5 1.3 0.5 2.8 0.8 1.4 1.42 22.4% 15.4% 18.2% 14.7% 14.3% 10.5% 9.4% 19.4% 17.4% 16.8% 2.2% 2.6% 2.2% 7.6% 1.7% 7.9% 3.0% 3.4% 0.15 0.09 0.05 0.04 0.07 0.02 0.04 0.03 1.31 0.76 0.55 0.32 0.76 0.29 0.44 0.26 ZAIN KK NBK KK KFIN KK CBK KK NMTC KK JAZEERA KK BURG KK MABANEE KK SRE KK 13,297.2 15,911.0 8,494.0 3,515.8 3,509.9 323.8 2,429.5 1,715.2 368.1 -5.5% -1.8% -3.3% -2.5% 2.1% -8.9% -2.1% -3.4% 0.0% -7.5% 5.7% -2.2% -6.1% 3.2% 32.3% -3.2% 3.6% -2.9% -41.9% -15.6% -23.4% -18.1% 1.0% 230.6% -13.8% 21.3% -26.8% 11.2 13.1 20.1 21.1 9.6 5.1 10.4 14.3 14.9 12.99 1.6 1.9 1.9 1.8 1.5 2.0 1.4 2.6 0.7 1.74 15.0% 15.0% 9.4% 8.5% 16.7% 49.2% 13.7% 20.3% 5.2% 13.8% 9.5% 2.6% 0.9% 1.3% 8.9% 10.1% 1.5% 12.1% 2.8% 2.6% 0.08 0.09 0.04 0.04 0.20 0.08 0.04 0.06 0.01 0.86 1.12 0.88 0.77 1.94 0.41 0.46 0.86 0.20 ADCB UH ARKAN UH DANA UH ETISALAT UH NBAD UH RAKCC UH RAKCEC UH TAQA UH UNB UH AIRARABI UH ARTC UH DFM UH DSI UH EMIRATES UH ARMX UH EMAAR UH ALDAR UH SOROUH UH 4,204.8 433.6 790.6 19,846.1 8,517.1 79.1 287.3 2,050.7 1,963.6 754.7 671.6 1,829.6 462.5 4,267.1 729.5 4,162.5 698.2 564.6 -6.8% -22.2% -15.4% -5.3% -0.9% -13.0% -5.3% 0.8% -0.7% -4.2% 10.0% -13.4% -5.3% -15.3% 0.0% -11.0% -11.0% -15.1% -1.1% -28.3% -15.4% -10.5% 7.9% -25.0% -5.3% 6.1% -2.7% -3.4% 26.9% -18.4% -2.0% -25.8% 2.8% -0.8% -19.1% -22.5% 25.5% -47.4% -42.9% -14.6% 11.3% -30.2% -36.2% -18.8% 1.2% -28.7% 4.2% -44.7% -26.4% -2.1% -14.1% -28.3% -61.6% -51.8% 8.1 18.7 5.3 9.9 8.0 na 5.4 4.1 3.9 10.1 16.7 nm 7.9 8.2 11.6 9.6 11.2 6.3 8.12 0.9 0.9 0.3 1.7 1.2 0.4 0.4 0.7 0.6 0.5 0.8 0.9 0.6 0.5 na 0.5 0.4 0.3 0.87 10.8% 5.1% 6.0% 17.4% 16.0% 0.0% 7.5% 17.9% 15.6% 5.2% 5.1% 1.0% 8.1% 6.1% 12.0% 4.9% 3.9% 4.9% 11.0% 1.1% 3.1% 4.5% 9.5% 1.7% 0.0% 3.4% 1.6% 2.3% 4.0% 1.7% 0.9% 4.0% 0.7% 9.0% 2.6% 0.6% 2.4% 2.1% 0.34 0.05 0.08 0.93 1.36 0.00 0.26 0.30 0.74 0.06 0.10 0.01 0.10 0.34 0.16 0.26 0.06 0.11 2.76 0.91 0.44 9.22 10.90 0.60 1.42 1.21 2.89 0.59 1.65 0.84 0.78 2.82 1.83 2.51 0.89 0.79 Bloomberg Ticker Mkt. Cap USD mn 1M Stock Performance 3M 12M P/E 2012e P/BV 2012e ROAE 2012e ROAA 2012e EPS 2012e Current Price

GCC Investment StrategyTarget Price 3.62 1.12 0.79 11.10 12.63 0.69 2.32 1.79 4.95 0.76 1.27 0.81 1.00 3.83 2.00 3.25 1.10 1.05 Upside / (Downside) 31.0% 23.1% 79.5% 20.4% 15.9% 15.0% 63.4% 48.1% 71.1% 28.7% -23.0% -3.6% 28.2% 35.8% 9.3% 29.5% 23.6% 32.9% STRONG BUY STRONG BUY STRONG BUY STRONG BUY BUY BUY STRONG BUY STRONG BUY STRONG BUY STRONG BUY SELL HOLD STRONG BUY STRONG BUY HOLD STRONG BUY STRONG BUY STRONG BUY Rating

0.86 1.13 0.92 0.73 2.59 0.61 0.55 0.98 0.25

0.3% 1.1% 4.0% -5.5% 33.6% 49.7% 18.9% 14.0% 25.0%

HOLD HOLD HOLD HOLD STRONG BUY STRONG BUY BUY BUY STRONG BUY

1.45 0.71 0.35 0.33 0.83 0.21 0.47 0.28

11.3% -6.8% -36.9% 3.7% 9.1% -27.8% 6.6% 6.3%

BUY HOLD SELL HOLD HOLD SELL HOLD HOLD

January 2012

2

Global Research GCC

GCC Investment Strategy

Global Research - GCC Universe Qatar Qatar National Bank Industries Qatar Qatar Telecom Vodafone Qatar Qatar Islamic Bank The Commercial Bank of Qatar Qatar Electricity & Water Company Doha Bank Al Rayan Bank Qatar National Cement Company Total Saudi Arabia Saudi Basic Industries Corporation Al Rajhi Bank Saudi Telecom Company Samba Financial Group Saudi Electricity Company Riyad Bank The Saudi British Bank Banque Saudi Fransi Etihad Etisalat Company Arab National Bank Saudi Arabia Fertilizers Company Yanbu National Petrochemicals Company Saudi Hollandi Bank Saudi International Petrochemichal Company Yamama Saudi Cement Company Arabian Cement Co. Saudi Cement Company Dar Alarkan Emaar Economic City Saudi Real Estate Co. (Akaria) Al Khodari Sons Company Mohammad Al-Mojil Group Total Bahrain Bahrain Telecommunications Company* All price in local currency as of 5 January 2012 Source: Bloomberg & Global Research

Bloomberg Ticker

Mkt. Cap USD mn 1M

Stock Performance 3M 11.8% 12.2% -0.5% 2.6% 7.1% 15.4% 7.1% 15.6% 15.3% 5.0% 12M 9.3% -6.2% -2.7% -10.2% 0.4% -8.1% 6.7% -0.5% 44.3% 3.5%

P/E 2012e 11.4 7.6 8.6 na 12.0 9.2 9.1 9.5 14.3 12.4 10.06

P/BV 2012e 2.4 2.4 1.1 1.0 1.9 1.6 2.7 2.2 2.5 2.3 2.03

ROE 2012e 21.8% 35.1% 13.4% -4.1% 16.0% 17.5% 32.4% 23.1% 18.1% 19.2% 21.2%

ROA 2012e 3.4% 28.6% 2.8% -3.2% 3.1% 3.4% 7.1% 2.9% 3.4% 16.8% 4.6%

EPS 2012e 13.63 17.53 16.73 (0.32) 7.02 9.28 15.70 6.91 1.94 9.12

Current Price 155.90 134.10 144.60 7.54 84.50 85.50 142.50 66.00 27.85 113.40

Target Price 169.04 170.90 197.17 7.49 82.92 98.03 180.81 67.27 27.24 125.40

Upside / (Downside) 8.4% 27.4% 36.4% -0.7% -1.9% 14.7% 26.9% 1.9% -2.2% 10.6%

Rating

QNBK QD IQCD QD QTEL QD VFQS QD QIBK QD CBQK QD QEWS QD DHBK QD MARK QD QNCD QD

27,237.2 20,256.8 6,989.7 1,750.7 5,483.9 5,810.7 3,913.8 3,746.8 5,736.7 1,529.3

2.6% -1.1% -4.6% -0.8% -0.4% 3.6% 2.3% 1.5% 3.9% 4.4%

HOLD