Shuaa Capital UAE Vision Book

January 12th, 2010 2

Vision 2010

Contents

HigHligHts.............................................................................3

Market.PerforMance.2009.....................................................4

Market.outlook.....................................................................8

uae.econoMic.BackdroP.......................................................11

Money.flow..........................................................................22

tecHnical.overview.............................................................24

PriMary.Market.activity.and.outlook................................28

Banking.sector.review........................................................32

real.estate.sector.review...................................................38

telecoM.sector.review........................................................44

stock.guide...........................................................................48

stock.Briefs.........................................................................49

NatioNal BaNk of aBu DhaBi ...................................................................................................................... 50

EmiratEs NBD .................................................................................................................................................. 51

aBu DhaBi CommErCial BaNk ..................................................................................................................... 52

uNioN NatioNal BaNk ................................................................................................................................... 53

first Gulf BaNk .............................................................................................................................................. 54

DuBai islamiC BaNk ....................................................................................................................................... 55

DuBai fiNaNCial markEt .............................................................................................................................. 56

tamwEEl aND amlak fiNaNCE .................................................................................................................... 57

Emaar ProPErtiEs .......................................................................................................................................... 58

uNioN ProPErtiEs ........................................................................................................................................... 59

DEyaar DEvEloPmENt.................................................................................................................................... 60

alDar ProPErtiEs ........................................................................................................................................... 61

sorouh rEal EstatE ....................................................................................................................................... 62

araBtEC holDiNG ........................................................................................................................................... 63

DEPa limitED .................................................................................................................................................... 64

DrakE & sCull iNtErNatioNal .................................................................................................................... 65

aGthia GrouP .................................................................................................................................................. 66

DP worlD ......................................................................................................................................................... 67

aramEx ............................................................................................................................................................ 68

Gulf NaviGatioN holDiNG ........................................................................................................................... 69

air araBia ........................................................................................................................................................ 70

taQa ................................................................................................................................................................... 71

DaNa Gas .......................................................................................................................................................... 72

taBrEED ............................................................................................................................................................ 73

Etisalat ............................................................................................................................................................ 74

Du ...................................................................................................................................................................... 75

aPPendix.i.(Market.tiMeline)...............................................76

aPPendix.ii.(Market.logistics).............................................77


Vision 2010

Highlights• After a bumpy year, equity markets in the UAE recorded a gain of 23% in 2009, according to the SC UAE Index. This performance came slightly higher than our expectation, of a 21% gain, in our Vision 2009 report. Out of the country’s two main exchanges, the ADX came out as the bigger winner. Despite the positive movement, UAE markets significantly underperformed global peers and fell short of the 74% recorded by the MSCI Emerging Markets Index in 2009.

• We expect the UAE to emerge from recession in 2010, driven by strong growth in Abu Dhabi. We expect real GDP growth of 2.5% YoY this year, up from - 3.5% YoY in 2009. We forecast nominal GDP at AED927.2bn this year, up 10.3% YoY. Inflation is expected to remain contained at under 1%.

• Abu Dhabi will benefit from a recovery in oil prices and output this year, as well as strong growth in the non-hydrocarbon sector, which will be supported by government investment and spending. We expect real GDP growth in Abu Dhabi of 4.1% YoY in 2010, up from -2.7% YoY in 2009.

• We expect Dubai’s economy to contract 0.4% YoY in 2010, an improvement on the 5% YoY contraction we estimate for 2009, as the key construction and real estate sector continues to be a drag on growth in the emirate.

• News flow about the Dubai debt story, and mainly the Dubai World’s debt restructuring, will be the main driver for stocks throughout 2010, especially during the first half of the year. Having said that, we expect that the outcome of these negotiations will not be too hostile to creditors. On that note, and taking into account the continued economic recovery (mainly driven by Abu Dhabi’s economy) we expect the UAE markets to witness another positive year.

• We expect the UAE markets to record gains of around 20 to 25% in 2010. The favorable valuation parameters of the market at current levels compared to the market’s own history, as well as to regional and global peers, will prove to be core catalysts for the market in 2010. We also believe that our forecast will be supported by corporate earnings growth (expected to record a growth c .17% coming from a low base in 2009) , some other positive corporate news flows, and improved investor sentiment post Dubai World’s debt issue resolution.

• We acknowledge several risks to our expectation, mainly the possibility of a negative outcome or a prolonged negotiation between Dubai World and its creditors, and its harmful effects on investors’ sentiment, the banking sector, as well as the whole economy. Further, the UAE, which has proven to be correlated with global markets, could suffer another blow if a sell-off in global equity market occurs. The same could be said about a correction in oil prices, or further structural threats in the real estate sector which could put some of the top developers (or contractors) at risk.


Vision 2010

Market Performance 2009After a bumpy year, equity markets in the UAE recorded a gain of 23% in 2009, according to the SC UAE Index. This performance came slightly higher than our expectation, in our Vision 2009 report, of a 21% gain. Out of the country’s two main exchanges, the ADX came out as the bigger winner with the ADX General Index (ADXGI) gaining 14.8% versus the DFM General Index’s (DFMGI) 10.2% rise in 2009. It is worth mentioning that the discrepancy between the SC UAE Index and DFMGI/ADXGI is mainly due to the fact that the SC UAE Index does not take into account names that are illiquid and may hinder the index performance; such as MashreqBank, Amlak and Tamweel. In addition to that, the SC UAE index includes names such as DP World.

Despite the positive movement, UAE markets significantly underperformed global peers and fell short of the 74% recorded by the MSCI Emerging Markets Index in 2009. We note that this positive movement also came from a very low base, post 2008’s staggering 66% drop in the SC UAE Index.

Source: Bloomberg, SHUAA Capital

We believe the key drivers of the market performance for the year included:• Strong support of the Government of Abu Dhabi to the Government of Dubai• Strong support of the Federal Government to the UAE banking sector• A strong rally in oil prices which saw a 137% rise in 2009• A slowdown in the real estate price correction• Improving investor sentiment globally which resulted in high gains by global

markets

The majority of UAE large caps ended the year positively. While 17 out of the largest listings actually outperformed the SC UAE Index’s gain, 33% fell short and 19 listings ended the year in the red. The best performing stock was Aramex which recorded an 80% gain as investors searched for companies that would be affected less than others during tough times. First Gulf Bank followed with a 79% gain backed by attractive fundamentals and share buy-back activity. Also, and not surprisingly, foodstuff and beverage producer Agthia emerged as the third top performer, having gained 74%, as it benefited from its ‘recession proof’ nature.

The most interesting component of the rise though was Dubai based real estate stock, Emaar Properties. The stock saw a gain of 71% during 2009, placing it fourth in our performance ranking. We note that Emaar had finally managed to come out of a significant underperformance it had experienced in 2007 and 2008, proving investor appreciation of the company’s project delivery track record and continued improvement in its transparency and investor relations, as well as a lack of a heavy debt burden compared to other Dubai based developers. The country’s largest listing, Etisalat, outperformed the SC UAE Index and gave investors a 34% return in 2009, on top of its cash dividend payouts of AED 0.6/share. We believe this performance was understated due to Etisalat’s less liquid nature and the inability of non-UAE nationals to own the stock.

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MSCI EM Index SC UAE Index rebased

MSCI EM vs. SC UAE Index


Vision 2010

Looking at the decliners, we realize that banks constituted the majority. Nine out of the nineteen decliners were banks as they continued to suffer from heavy provisioning from bad loans and a slowdown in their core operations.

Source: SHUAA Capital

Revisiting the rally…..A story in three acts

In an attempt to deconstruct the market movement in 2009, we now go back and look into the overall UAE performance in a little bit more detail. We divide the UAE performance for the year into three stages.

Act 1……..the decline continuesThe start of 2009 saw the continued selling pressure which was initiated in mid-2008. From January 1st 2009 to the 4th of February, UAE markets fell a further 16% as they remained infested by a negative investor sentiment, inability to tap debt markets globally, declining oil prices, correlation with global markets and a harsh domestic real estate decline. The worst performer during that period was none other than Dubai-based contractor, Arabtec Holding. The stock fell a whopping 66% in just over one month as investors avoided any exposure to real estate stocks. Aldar Properties, Sorouh Real Estate, Union Properties and Emaar Properties suffered similar fates with respective declines of 48%, 37%, 22% and 20%.

Act 2………..Government acts and global markets begin to recoverThe main turning point for UAE equities came on the 4th of February when the Government of Abu Dhabi showed its support to five Abu Dhabi banks by injecting AED 16 bn of fresh capital through Tier 1 notes. This move came on top of support previously shown by the Ministry of Finance and the Central Bank. The cash injection somewhat helped to relieve the wound to investor sentiment, causing a slight market gain.The bigger boost to the market however came on the 22nd of February, with the UAE’s Central Bank fully subscribing to a USD 10 bn bond issued by the Government of Dubai. At the time when investors were skeptical about Dubai’s debt situation and its ability to meet requirements, this came as a massive catalyst to markets. The SC UAE Index gained a whopping 6% the next day and markets started to show signs of life again. The cherry on top was an accelerated global market recovery, which only gave more comfort to investors.

The continued government support, coupled with a global rally, caused the SC UAE Index to gain 63% from the 4th of February till the 24th of November, when yet another supportive measure came in the form of a USD 5 bn bond issuance by Dubai that was fully subscribed for by two Abu Dhabi banks (majority controlled by the Abu Dhabi government). We also note that international investors, who were seeking value in UAE blue chips, led the market rally. The rally was then reinforced by local investors (and some international) who began picking up the smaller UAE listings, causing them to catch up with the blue chips; creating a lead-lag effect between large-cap blue chip companies and small-cap names.

UAE large cap Performance 2009

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Vision 2010

The best performing stock over the period was Arabtec, gaining over 300%. This was followed by the Dubai Financial Market and Aldar Properties, which recorded gains of 177% and 169%, respectively.

Act 3……...Dubai debt woes intensifyThe final leg of the UAE’s 2009 performance was, to say the least, the most interesting one. Two key events gave investors the rollercoaster of a lifetime. The first event occurred on the 24th of November – only a few hours after the Government of Dubai had issued the USD 5 bn bonds mentioned earlier – when Dubai World, a government owned entity, announced it will be asking its creditors and bond holders for a ‘standstill’. The announcement immediately caused a massive sell-off in the UAE, wiping out nearly all previous gains recorded from the beginning of the year and dropping 24% in ten days before the selling pressure eased. The second event took place on the 14th of December when the Abu Dhabi Government said it would lend the Government of Dubai USD 10 bn to help meet its debt obligations and caused the tides to turn again and assisted markets to recover some of the losses they suffered earlier.


Corporate earnings trends

Although quarterly earnings in 2009 may have recovered from the sharp dip of Q4 08, they have yet to reach the levels witnessed in the first nine months of 2008. Corporate earnings reverted to some sort of normalcy witnessed in the past years. We noticed that 2008's gains from revaluation, fair value gains, investment income and other non-operational items were somewhat reversed in starting Q4 2008.Q4 08 took the biggest hit as most companies across sectors not only suffered from a slowdown in their operations or losses in their investment portfolios, but also took hefty provisions and write-offs. This was certainly the case in the banking sector and the investment sector, which when combined, drove the earnings down by AED 6.76 bn when compared to Q3 08. The real estate and construction sector alone dragged earnings down by approximately AED 5.2 bn in Q4 08. The telecom sector was the only one that witnessed a growth in Q4 08, with the two telecom operators (Etisalat and DU) reporting a composite growth of 11% QoQ. Coming from a low base, Q1 09 earnings represented a strong QoQ recovery. The banking sector saw QoQ growth of c. 640%. Further, the real estate sector returned to profitability after the losses it had suffered in the last quarter of 2008, which were mainly attributed to the AED 1.8 bn loss Emaar Properties incurred in Q4 08. Etisalat also helped boost Q1 09 earnings as it recorded an 18% QoQ earnings growth. Recovery of the equity markets in the second quarter of 2009 drove profits upwards for some sectors, mainly investment companies and insurance companies. However, Emaar Properties suffered an AED 1.3 bn net loss in Q2 09 due to a write-down of AED 1.8 bn with regards to its US subsidiary. This loss was cancelled out though with Aabar

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Vision 2010

Investment’s net profit of AED 1.5 bn for the quarter (after restating). All in all, Q2 09 aggregate earnings posted a QoQ growth of 14%, resulting in the strongest quarter during 2009. After coming from a high base, the third quarter of 2009 saw aggregate earnings drop by 7% QoQ. This was seen despite the return of Emaar to profitability, with a profit of AED 655 mn, and a strong quarter for the logistics and transportation sector, which witnessed net income growth of 47% QoQ.Looking at our estimates for Q4 09, we expect earnings to slightly drop from the strong levels seen in the third quarter. The drop is expected to stem mainly from the banking sector, due to a drop in core operations and the anticipation of further provisions.


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Vision 2010

Market Outlook2009 was marked by the reality of a worsening economic situation hitting home, manifested by negative corporate news flow, such as a decrease in earnings, as well as poor economic indicators (such as layoffs, project cancellation, reducing productivity…). The correction in real estate prices did cascade on the whole economy, and more specifically on the banking sector. As the year evolved, investors started to reasonably price in the negative news flow associated with the real estate crash as well as the slowdown in economic activity; the market started to stabilize and commenced its path to recovery. However by year end, the Dubai World’s announcement came as a shock to the market, erasing most of the year’s gain, and we believe that throughout the first half of the year, investors have turned their attention and expectations on the Dubai World’s debt negotiation outcome and the whole Dubai debt story in general, its effect on the real estate story, the banking sectors, and the overall economy.

As such the Dubai debt story and more specifically, the Dubai World’s restructuring outcome will be the main driver for the market, in our view. At this point, with negotiations on the restructuring of USD22bn of Dubai World’s debt still at an early stage, all options remain on the table. Although we opt not to speculate on the outcome of the restructuring, especially concerning the refinancing terms or the level of haircuts (if any), we note that the Dubai government (and not the commercial entity) is in charge of the restructuring and negotiation of Dubai World’s debt. As such, we believe that the final resolution would take into account the ‘bigger picture’ with regards to the following: (1) there are several government related entities (GREs) that will need to tap international markets to refinance debt falling due in 2010-11; (2) how much local banks and contractors are negatively affected by the outcome of the restructuring, which could have significant repercussions and jeopardize local economic recovery; (3) a resolution that is considered ‘hostile’ by foreign banks would drastically affect the ability of all Dubai based entities to raise foreign capital in the near future.

Having said that, we note that the weak disclosure of economic indicators in the UAE (in depth, coverage, and frequency) and, to a certain extent, the weak corporate communication (especially related to the leverage and financial situation of some quasi-governmental entities), is pushing investors to price in the worst possible scenario. This is why we believe that towards the second half of the year, as the Dubai World’s restructuring story is resolved, most of the uncertainty that resulted from the restructuring will disappear, investors’ forecasts will be adjusted and the market will move to steadily price in better (or less bad) times ahead.

Interestingly enough, unlike the end of 08 and the beginning of 09, the risk appetite of investors (mainly foreign investors) remains high despite the Dubai World’s debt restructuring. This is particularly manifested in the somewhat immediate recovery of the market post the payment of the Nakheel 09 Sukuks (and the corresponding Abu Dhabi support) as well as the current high level of foreign ownership in blue chip stocks. While foreigners were net sellers after the ‘standstill‘ announcement, they came back to the market after the payment of the Nakheel 09 Sukuks, picking up their usual suspects or preferred names both in Dubai and in Abu Dhabi.

Bottom line: news flow about the Dubai debt story, and mainly the Dubai World’s debt restructuring, will be the main driver for stocks throughout 2010, especially during the first half of the year. At this point, uncertainty concerning the possible outcome of the debt restructuring, and its repercussion on capital markets as well as the local economy, remains high, making any forecast risky and highly sensitive to our set of assumptions. Having said that, we expect that the outcome of these negotiations will not be too hostile to creditors (for the reason explained above). On that note and taking into account the continued economic recovery (mainly driven by Abu Dhabi’s economy), we expect the UAE markets to record gains of around 20 to 25% in 2010.


Vision 2010

We acknowledge several risks to our expectation, mainly the possibility of a negative outcome or a prolonged negotiation between Dubai World and its creditors, and its harmful effects on investors’ sentiment, the banking sector, as well as the whole economy. We also acknowledge that during the negotiation, and prior to reaching an agreement, we might witness negative announcements by both parties, as part of a tactical move or strategy to achieve better terms. Such an announcement could significantly hurt markets.

Further, the UAE, which has proven to be more correlated with global markets, could suffer another blow if a sell-off in global equity market occurs. The same could be said concerning a correction in oil prices, as a severe correction will effect both fiscal strength of the region (the UAE to a lesser extend as the breakeven oil price is low), and would hurt both local and foreign investors’ confidence, putting further pressure on local markets. Some local factors would also constitute risk; mainly, another real estate correction which could put some of the top developers (or contractor) at risk. We note, however, that even though we believe that the severe real estate correction has been priced in investors’ forecasts, the news of a top developer blow-up would heavily weight on the market.

Earnings Outlook:

We expect aggregate earnings to have shrunk by c. 20% in 2009, pulled down mainly by weaker results in real estate companies. Slower balance sheet growth in the banking sector as well as deterioration in the asset quality resulted in higher provisioning and a decrease in earning by about c.14% in 2009. On the other hand, the telecommunications sector remained resilient with earnings slightly improving.

In 2010, and coming from a low base, we expect aggregate earnings to start recovering and record an aggregate growth of c. 17%, driven mainly by higher results for the real estate companies. However, we would like to note that these real estate companies (especially Emaar) have incurred large write-offs in 2009, contributing to the slump in aggregate earnings of 2009, and resulting in the high growth in 2010 . The banking sector will continue to witness a slower balance sheet growth as well as deterioration in the asset quality. However, given the earnings contraction that this sector has witnessed in 2009, we expect a meagre single digit earning growth in 2010. We would like to point out the substantial difference between our forecasts for Abu Dhabi banks and Dubai banks. Abu Dhabi banks will witness double digit growth while Dubai banks will suffer either from continued decrease in earnings or a relatively flattish forecast. The telecommunications sector will again remain resilient with earnings affected only slightly.

Valuation Parameters:

We believe that favorable valuation parameters of the market at current levels compared to the market’s own history, as well as to regional and global peers, will prove to be a core driver of the market in 2010. We also believe that our equity market performance forecast will be supported by corporate earnings (discussed above), some other positive corporate news flows and improved investor sentiment post Dubai World’s debt issue resolution. All in all, those will eventually lead to an expansion in valuation parameters.

Comparing the UAE market with the MSCI EM universe reveals that the UAE market is trading at a severe discount. Therefore, we believe that the UAE markets represent a persuasive investment case when compared to other emerging markets. Our earnings forecast discussed above, implies a forward PE of 7.9x 2010 earnings for the UAE markets as a whole, a 43% discount to the MSCI EM which currently trades at a forward PE of 13.8x 2010 earnings.

Comparing the market to its historical valuation using the 12 month trailing PE multiple, shows aggregate earnings multiples in 2009 have been acutely depressed. Current 12m trailing multiples stand at 9.3 times. These valuations are sharply below the historical average of 14.6 times, and 13.4 times for the adjusted average, where we opt to remove ‘off-the-chart’ levels witnessed mainly in 2005 and early 2006.


Vision 2010


Decomposing the forecast: a bottom-up view

Our expectations of a continued market recovery in 2010 and an expected gain of around 20 to 25% are mainly based on our bottom up view, however we expect a differential between listed companies this year.

During the rally at the beginning of 2009, investors and mainly foreign investors picked up the blue-chip high quality stocks that were trading at deep discounts. After a strong rally in these stocks, investors began looking at other stocks, which by comparison, started to look cheap. Speculators, on the other hand, picked up and pushed the valuation of some small caps and even some of the most fundamentally challenged stocks. This lead-lag phenomenon, where the top quality names and blue-chip stocks head started the market rally before the rest began to follow, is expected to be seen in 2010. We expect our top picks in the UAE to lead this rally.

In our bottom-up view, we expect real estate and construction stocks to have a mixed performance in 2010 with stocks having exposure to the Abu Dhabi market outperforming the rest; specifically Aldar Properties and Arabtec (especially post Aabar acquisition and the potential Abu Dhabi contracts award). In the banking sector, the discrimination between Dubai and Abu Dhabi names will be even more severe, as we expect names such as FGB, UNB and NBAD to perform well this year, whereas DIB and ENBD to be on the opposite side of the spectrum. We continue to favor the defensive stocks, particularly Etisalat with its resilient earnings. Similarly we expect, and despite last year’s performance, Air Arabia to outperform the market this year.

Risks to Monitor:

Although we believe in the case for a recovery of 20%-25% by the equity benchmark (SC UAE index) this year, there are a number of factors or potential developments that should be monitored closely, as they may have a detrimental effect on the performance of the market going forward. They include:

• A negative outcome or a prolonged negotiation concerning the Dubai World debt restructuring with its creditors (please refer to this discussion at the beginning of the section);

• A wave of sell-off in global equity markets, that would cause damage to investors sentiment and renew selling pressure in the UAE markets;

• A steep decline in global oil prices, which might act as a dampener on headline economic growth figures and general investor sentiment;

• A worse than expected deterioration in commercial bank’s asset quality, as the provisions due to the real estate crash but more important the Dubai Worlds’ debt intensify (we are expecting average NPL/Gross Loans to reach 8% by year end);

• The curse of the Middle East is chronic instability in evolving forms, and the main geopolitical risk affecting the Gulf for 2010 is deterioration in the nuclear standoff between Iran and the UN or the US as well as internal instability in Iran; not to men-tion the ever-present possibility of a terrorist attack by Islamic fundamentalist.

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Vision 2010

UAE Economic BackdropUAE was not immune from the global slowdown in 2009…

At the peak of the financial crisis in Q4 2008, many observers had predicted that the UAE and the rest of the GCC would be relatively immune from the effects of the global slowdown as a consequence of their considerable fiscal reserves that could be deployed to support the local economies. This has indeed been the case in countries such as Saudi Arabia, where real GDP growth was slightly positive last year, even with a substantial contraction in oil output.

The UAE’s case, however, is more a tale of two economies: Abu Dhabi owns almost all of the country’s oil resources, and according to our estimates has managed to sustain non-hydrocarbon growth of about 4% YoY in 2009 by increasing government spending to compensate for the drop in private consumption and investment. As a result, we believe overall GDP growth in Abu Dhabi was in the region of -2.7% YoY last year, once the decline in oil output (which accounts for about half of Abu Dhabi’s real GDP) is taken into account.

*Hydrocarbons have a slightly higher portion of nominal GDP in 2008 due to high oil prices.Source: National sources, SHUAA Capital analysis

Source: National sources, SHUAA Capital analysis

Dubai, however, has relatively little in the way of natural resources and no associated fiscal surpluses, leaving it a lot more vulnerable to the global recession. Unlike its neighboring emirate, Dubai has relied on the debt to finance its economic growth and diversification effort, and thus felt the full blown effect of the global financial crisis. The combination of the burst of Dubai’s real estate bubble, the shutdown of global credit markets, the high debt levels of the various Dubai Inc entities, as well as the job losses and resulting population decline has resulted in the ‘perfect storm’, pushing Dubai into a severe recession.

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Vision 2010

Different dynamics driving the construction sectors of Dubai and Abu Dhabi

Dubai’s construction and real estate market was particularly vulnerable to correction in 2009. Activity was driven to a large extent by speculative demand for property and financed by debt. As a result, the sector suffered a double whammy last year: the sharp drop in demand for accommodation as the economy slowed, jobs were lost and expatriates returned home combined with the credit crunch that made mortgages and building financing nearly impossible to secure. As a result of the decline in demand as well as new supply of both office and residential units, many projects that had been scheduled to commence in 2009 and 2010 have either been delayed or cancelled. Given that construction and real estate accounts for a significant portion (at least 25% but probably higher in our view) of Dubai’s economy, the contraction in these sectors is a key driver of our negative growth forecasts for the emirate.

Abu Dhabi’s GDP growth has not been as badly hit by the slowdown in construction and real estate as Dubai’s largely because activity is driven more by fundamental demand and supply dynamics rather than speculation. There is a real shortage of accommodation in Abu Dhabi that is reflected in the increase in housing rents (albeit at a slower rate) in the emirate last year. As a result, the construction sector was not affected by the vast scaling down or cancellation of projects as was the case in Dubai.

Using the available official 2008 GDP statistics for Dubai as a starting point (see Box 2 for a note on this), we estimate that the emirate’s GDP contracted by 5% YoY in 2009. This is based on our assumption that construction and real estate services, which together account for about 25% of GDP, declined by 10% YoY in real terms. We also expect to see a substantial contraction in the wholesale & retail trade sector, which accounts for a substantial proportion of Dubai’s economy, as well as negative growth in manufacturing, financial services and tourism.

Source: National source, SHUAA Capital

For the UAE as a whole then, bearing in mind that Abu Dhabi accounts for about 55% of the UAE’s total output compared with Dubai’s 33% share, we estimate GDP growth of -3.5% YoY in 2009, as a result of the decline in oil output as well as the sharp contraction in Dubai’s construction and service-based economy.

Dubai’s economy is likely to have contracted sharply in 2009

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Vision 2010

…but the outlook for this year is better

Looking ahead to 2010, we expect Abu Dhabi to lead the way on the growth front as a result of a recovery in both the oil and non-oil sectors with GDP growth of 4.1% YOY. We expect oil production to expand as the global economy recovers and the government continues to invest in increasing capacity in the sector. The non-hydrocarbon sectors will continue to be supported by increased government spending as the Abu Dhabi authorities pursue their longer term strategy of diversifying the economic base of the emirate away from oil. As oil revenues to the emirate’s coffers picks up on the back of higher anticipated oil prices, and given the significant fiscal surpluses accumulated since 2004, Abu Dhabi is in a strong position to support economic growth in the emirate, and indeed in the UAE as a whole, over the next few years.

Despite the expected strong macroeconomic fundamentals in Abu Dhabi, GDP growth for the UAE is likely to be dragged down somewhat by Dubai. With so much of Dubai’s economy dependent on consumer demand and private investment, and without the deep pockets to fund increases in government spending, it is hard to see where economic growth in Dubai will come from in 2010. To the extent that the global economy – and consumer sentiment – recovers this year, Dubai should see tourism, trade and financial and retail services expand, especially off 2009’s low base. However, we still expect output in the key construction and real estate sectors to decline, limiting annual GDP growth in Dubai to -0.4% in 2010.

As a result, our base case scenario is GDP growth for the UAE at around 2.5% YoY in 2010, rising to 3.7% YoY in 2011 as the global economic backdrop continues to improve and private consumption and investment gain momentum.

*Hydrocarbons have a slightly higher portion of nominal GDP in 2008 due to high oil prices.Source: National sources, SHUAA Capital analysis


33.8%

12.1%

15.8%

15.9%

6.7%

5.0%

10.7%

Mining and quarrying*

Manufacturing

Construction and realestate services

Wholesale and retail trade

Financial services

Transport, storage &communciation

Other

Hydrocarbons account for about a third of UAE's Nominal GDP (2008)

-4.0

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UAE’s growth to be driven by Abu Dhabi


Vision 2010

It’s all in the numbers, and the UAE’s national data may not fully capture economic trends.

Although we have used official statistics as a starting point for all our analysis and forecasting, we do have concerns over the extent to which these statistics accurately reflect what is going on in the economy. We recognize that the statistical agencies in the UAE are relatively young, but there are inconsistencies and significant gaps in the data published by the various economic and financial authorities that make forecasting variables such as growth and inflation difficult.

With regards to the GDP data for example, there is no breakdown of the expenditure side of national accounts, which makes it difficult to determine the extent to which the economy has been driven by private consumption and investment, or by the government. Furthermore, the production data for GDP appears to under-reflect the contribution of key sectors such as construction and tourism in Dubai, and we also do not have tremendous confidence in the GDP deflators used at the national level.

If, as we suspect, the construction, real-estate and business services sectors account for substantially more than the reported 25% of Dubai’s economy, then the risks to our GDP growth estimate for 2009 and indeed our forecast for 2010 are on the downside, as we do not expect to see a rapid recovery in these key sectors over the next year or two.

Another glaring anomaly in the statistics is the housing component of inflation in Dubai, which accounts for almost 40% of the consumer price index (CPI). In 2008, the official statistics show housing inflation of just under 7% YoY, which we believe is on the low side. Our estimate of average inflation in Dubai for 2008 is closer to 15% YoY, rather than the 10.8% reported officially. Even more astounding is that in 2009, the official housing component registers inflation of 2.7% in Jan-Aug 2009 over the same period 2008. Estimates from property advisory firms show declines of 30-45% in housing rentals in Jan-Sep 2009, with most of this coming in 1H09. Our own estimate for Dubai’s inflation in 2009 assumes an average decline in housing of 20% for the year (for inflation purposes, bearing in mind that most rental leases are for 12 months), and is thus substantially lower than the reported headline inflation data year-to-date. The impact of this difference is also reflected in our lower estimate for overall UAE inflation for 2009.

Inflation: How low will it go?

The silver lining of the 2009 recession has been the sharp drop in inflation. Official data shows that CPI inflation has dropped to 1.7% YoY for the UAE as a whole in Jan-Nov 2009 from an average of over 12% YoY in 2008, and we expect the official data will remain at this level for 2009 as a whole.

Average annual inflation in Abu Dhabi has dropped from almost 15% in 2008 to just 0.85% YoY in the first 11 months of 2009, driven by sharply lower food and clothing prices. The shortage of housing in Abu Dhabi has meant that housing costs continued to rise in the emirate last year, albeit at a much slower pace.

Dubai, however, is a different story. Our research shows rents have dropped between 30 and 45% on average in the first three quarters of 2009, with the biggest declines registered in H1 09. Despite this, the housing component of Dubai’s CPI shows inflation of over 2.7% YoY in Jan-Aug 09. Based on our own adjustments to the housing index, we estimate Dubai experienced deflation of 6.3% YoY on average in 2009, which suggests overall UAE inflation was close to zero, rather than the 2% YoY official estimates suggest.


Vision 2010

Dubai CPI component weights (%)

Housing, utilities & fuels 43.70

Food & non-alcoholic beverages 11.08

Transport 9.08

Miscellaneous goods & services 6.15

Communication 6.00

Clothing & footwear 5.52

Restaurants and hotels 5.48

Recreation and culture 4.24

Education 4.09

Furnishing, household equipment & maintenance 3.34

Health 1.08

Alcohol & tobacco 0.24source: Dubai Statistical Centre

Looking ahead to 2010, we expect inflationary pressure to remain low. We expect average inflation of around -0.5% YoY in Dubai this year, on the back of continued, albeit slower, declines in housing costs. We expect the annual CPI in Abu Dhabi to rise 1.5% on average this year, and overall inflation in the UAE to remain close to zero. As domestic demand recovers in 2011, and the pace of growth accelerates, we believe inflation will pick up across all emirates, but we do not expect to see a return to double digit inflation in the near-term.


Liquidity injections have helped to stabilize the financial sector

Monetary policy in 2009 has focused on stabilization of the financial sector as international and domestic credit markets seized up, especially during H1 09. Deposits in all banks, including local branches of international banks, were guaranteed by the government and AED50bn of liquidity was deposited into the banks at the height of the credit crunch. An additional AED20bn could still be deployed to boost liquidity in the sector if the authorities deem this necessary.

Nevertheless, there has been a sharp decline in both broad money (M2) and private sector credit growth in 2009 as banks appear to have become more risk averse. An analysis of the consolidated banks’ balance sheet shows up 2 interesting trends:

1. Banks’ cash and deposits at the central bank have grown almost 20% in the first 8 months of 2009, while domestic credit growth has been just 3.5% over the period. This suggests that banks are somewhat unwilling to lend and prefer to keep more of their assets in cash.

2. Within total credit growth, loans to the public sector, ie government and official entities, has soared by almost 25% in the year to August 2009, whereas bank loans to the private sector have remained almost flat over the same period. This suggests that whatever liquidity is available is being swallowed by the public sector at the expense of individuals and private businesses.

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In�ation is likely to remain contained


Vision 2010

Anecdotal evidence suggests lending criteria have become stricter during the course of 2009, contributing to the sharp slowdown in the real estate sector and private consumption and investment more broadly. That public sector credit growth has outpaced private credit growth suggests, in our view, either a ‘flight to quality’ in that the government is seen as a safer bet than the private sector, or a reflection of the fact that most local banks are owned by the government prominent families and these stakeholders have priority over whatever funds are available for lending; we favor the latter explanation.


We believe the outlook for credit growth in 2010 depends to a large extent on the successful (from the banks’ perspective) resolution of the Dubai World debt negotiations, as well as the borrowing requirements of government and official entities and global liquidity conditions. Given the low base effects of 2009 however, we would expect to see some recovery in private sector credit growth this year.

The UAE also made the decision in 2009 to withdraw from the planned GCC monetary union after the announcement that the new regional central bank would be based in Riyadh rather than Abu Dhabi as the government had hoped. Although the move was a political decision rather than an economic one, we believe it will allow the UAE’s authorities some flexibility with regards to monetary policy in the coming years than might have been the case under a monetary union, although of course, the monetary policy tools available to the central bank in the UAE are still limited by the pegged exchange rate.

Fiscal policy is likely to remain expansionary

We believe the fiscal position of the UAE remained strong in 2009, despite an estimated decline in hydrocarbon revenues of about 45% from the high of 2008. We expect the consolidated budget surplus has declined from over 20% of GDP in 2008 to about 4% of GDP in 2009.

Looking at the emirates individually, we estimate Dubai’s budget deficit widened to about AED10bn last year, or 3.4% of the emirate’s GDP as expenditures increased by 35% YoY. A significant portion of the spending was on infrastructure projects, but this government stimulus was insufficient to offset the decline in private sector demand. The recently approved 2010 Dubai budget projects a deficit in the region of AED6bn, with expenditure budgeted to decline by 6% YoY. We believe that the Government of Dubai can easily finance this deficit from the federal government, or by issuing sovereign paper, once the capital market appetite for Dubai is restored conditional on the ‘friendly‘ resolution of Dubai World’s debt negotiations.

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Public sector accounts for almost all credit growth (Jan-Aug 09)


Vision 2010

With Abu Dhabi accounting for the bulk of the consolidated budget, and based on our conservative assumption of an average USD70 per barrel oil price and a small increase in oil output this year, the fiscal outlook for 2010 remains extremely strong. We estimate a break even oil price of around USD55 per barrel for 2010. In our view, the government will continue to pursue an expansionary fiscal policy to support growth in the non-hydrocarbon sector, and we project capital expenditure to grow by almost 30% this year. Overall, we expect the consolidated budget to post a surplus of about 6% of GDP in 2010.

Source: IMF, IIF, SHUAA Capital analysis

External balances to remain healthy

Despite the decline in the value of oil exports and the slowdown in global trade in 2009, we still expect the UAE to post a healthy trade and current account surplus. The economic recession in the UAE combined with lower commodity prices last year have contributed to a reduction in imports, and we also expect net transfers to have benefited from lower remittances abroad during last year. Overall we estimate the current account recorded a surplus of almost USD6.8bn (3% of GDP), down from about USD22bn (9% of GDP) in 2008. We expect both the trade and current account surpluses to widen in 2010 on the back of higher oil prices and output as well as a recovery in non-hydrocarbon exports and re-exports as global trade picks up pace. Our forecast is for a current account balance of about 4.3% of GDP this year, based on a conservative oil price assumption of USD70 per barrel. If we use an oil price assumption of USD85 per barrel, the current account surplus would rise to 9.6% of GDP.

Source: National sources, SHUAA capital analysis

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Current account balance should post a healthy surplus in 2010


Vision 2010

Dubai’s external debt repayment profile is onerous

It would be fair to say that the uncertainty surrounding Dubai’s ability to service its debt obligations has been the main concern for market participants in 2009, and this is accurately reflected in the behavior of CDS spreads last year.

Source: Bloomberg

At this point, with negotiations on the restructuring of USD22bn of Dubai World’s debt still at an early stage, all options remain on the table. Although we opt not to speculate on the outcomes of the restructuring, especially concerning the refinancing terms or the level of hair-cuts (if any), we note that the Dubai government (and not the commercial entity) is in charge of the restructuring and negotiation of Dubai World’s debt. As such, we believe that the final resolution would take into account the ‘bigger picture’ with regards to the following:

• There are several government related entities (GREs) that will need to tap interna-tional markets to refinance debt falling due in 2010.

• To the extent that local banks and contractors are negatively affected by the out-come of the restructuring, it could have significant repercussions and jeopardize local economic recovery.

• Similarly, a resolution that is considered ‘hostile’ by foreign banks would drastically affect the ability of all Dubai based entities to raise foreign capital in the near future.

The payment schedule for Dubai entities over the next 2 years is indeed onerous: notwithstanding any restructuring, we estimate about USD10bn worth of bonds and loans are scheduled to mature in 2010. The repayment schedule rises to almost USD25bn in 2011.

Although Dubai has been able to borrow USD25bn from the central bank and Abu Dhabi this year, it has been made clear that any further financial assistance from Abu Dhabi will be on a case-by-case basis and would not necessarily cover all Dubai GRE’s liabilities. As a result, a timely and market-friendly resolution of the Dubai World debt issue is critical for our macroeconomic outlook and forecasts. Should the outcome of the negotiations be poorly received by creditors, or if there are further revelations of other GRE debt obligations that cannot be met, the economic implications for Dubai will be severe.

We do believe there is a silver lining to the credit events of 2009 however. There are indications that the authorities in Dubai have learned from the Dubai World experience and we expect new legislation to be passed this year that will require state-owned corporate entities to regularly report their financial positions and activities to the Dubai government’s finance department. This increased disclosure requirement and effort to boost transparency and internal controls within government institutions is a positive signal for investors and should be well received by the market.

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CDS spreads re�ect concerns on Dubai’s payment capacity.


Vision 2010

Population for the UAE expected to remain stable in 2010

After an expected drop of almost 3.9% (to 4.93mn) in 2009, we expect the population of the UAE to remain broadly stable this year at 4.91mn people. In Dubai, we estimate the population declined by almost 9% in 2009 to 1.54mn as many residents lost their jobs and left the emirate with their families. We expect Dubai’s population to continue to decline this year, albeit at a slower pace – we estimate another 3.6% drop to 1.49mn people. This population drop in 2010 will be mainly the result of a decrease in construction workers, with no or little decrease in white collar workers, in our view. In Abu Dhabi we expect the population to have grown by 3% in 2009 (to 1.65mn) and 4% (to 1.71mn) in 2010, driven by 4% and 5% growth in the non-hydrocarbon sector in 2009 and 2010 respectively.

The UAE is expected to undertake a population census in 2010, which should give us a more accurate picture of the size of the population in each emirate and the country as a whole.


Vision 2010

Summary of 2010 outlook

• We expect the UAE to post real GDP growth of 2.5% YoY in 2010, after contracting 3.5% YoY in 2009. We forecast nominal GDP growth of 10.3% YoY this year, to reach AED927.2bn.

• Abu Dhabi will be the main contributor to the UAE’s growth, as oil output recovers (3% YoY hydrocarbon growth) and the non-oil sector is supported by government investment and spending. We expect real GDP growth in Abu Dhabi of 4.1% YoY in 2010, up from -2.7% YoY in 2009. Abu Dhabi’s nominal GDP is forecast to reach AED457.3bn in 2010, up almost 14% YoY.

• We expect Dubai’s economy to contract 0.4% YoY in 2010, an improvement on the 5% YoY contraction we estimate for 2009, as the key construction and real estate sector continues to be a drag on growth in the emirate. Our estimate for 2010 nominal GDP in Dubai is AED299.8bn, up 0.6% YoY.

• A silver lining of the 2009 economic slowdown has been the sharp drop in inflation across the UAE, as pressure on housing prices ease in Abu Dhabi and rental prices decline outright in Dubai. We expect inflation to remain contained at 0.7% YoY for the UAE as a whole in 2010, from an estimated 0.5% YoY in 2009 and well below the 2008 high of 14.9% YoY.

• Monetary policy has successfully stabilized the banking system in the UAE, al-though banks appear to be more risk averse in their lending. Total credit growth slowed right down to 3.5% in the first 8 months of 2009, and most of this has been absorbed by the public sector (government and official entities). Although we do expect some recovery in private sector credit growth, this depends to a large extent on the successful resolution of Dubai World’s debt restructuring.

• Fiscal policy is likely to remain expansionary to support non-hydrocarbon growth in 2010. The recovery in oil prices (we have conservatively assumed an average oil price of USD70 per barrel for 2010) and output this year should result in consoli-dated surplus in the region of 6% of GDP, higher than the surplus of 4.1% of GDP we estimate for 2009.

• External balances for the UAE are likely to improve this year as well. Even based on our conservative oil price assumption, we expect a current account surplus of 4.3% of GDP, up from 3% of GDP in 2009.

• Our macroeconomic outlook is based on the assumption of a market-friendly resolution of Dubai’s World’s debt restructuring and no further debt crises in Dubai. We expect the Dubai government to pass legislation to improve the reporting of GREs financial positions and activities to the budget, to increase transparency and internal controls.


Vision 2010

Macroeconomic forecast table: UAE

2008 2009e 2010f 2011fNational IncomeNominal GDP (aEDbn) 934.3 840.2 926.4 1,008.8Nominal GDP (usDbn) 254.6 228.9 252.4 274.9Population (mn) 5.13 4.93 4.91 5.08GDP per capita (usD) 49,623 46,423 51,412 54,138

Real GDP Growth (%) 7.4 -3.5 2.5 3.7hydrocarbon growth -9.5 3.0 3.0Non hydrocarbon growth -0.6 2.3 4.1

Monetary Indicators (% YoY)m2 growth (eop) 19.1 8.0 9.2Private sector credit growth (eop) 50.3 4.7 6.0official CPi (pavg) 12.3shuaa CPi estimates (pavg) 14.9 0.5 0.7 2.5

External Accounts (USDbn)Exports 239.2 179.6 200.9hydrocarbons 102.1 60.9 72.2imports 176.3 141.0 155.1trade balance 62.9 38.6 45.7% GDP 24.7 16.9 18.1Current account balance 22.3 6.8 10.9% GDP 8.7 3.0 4.3

Fiscal Indicators (% GDP)Consolidated budget balance 21.6 4.1 6.0revenue 46.6 31.0 34.0Expenditure 25.0 26.9 28.0Non-hydrocarbon balance -15.7 -17.6 -18.0

Source: National sources, SHUAA Capital Analysis

Macroeconomic forecast table: Abu Dhabi

2008 2009e 2010f 2011fNational IncomeNominal GDP (aEDbn) 519.9 402.4 457.4 501.5Nominal GDP (usDbn) 141.7 109.6 124.6 136.6Population 1.60 1.65 1.71 1.78GDP per capita (usD) 88,680 66,637 72,824 76,779

Real GDP Growth (% YoY) 4.0 -2.7 4.1 4.1hydrocarbon growth 1.4 -10.0 3.0 3.0Non hydrocarbon growth 6.4 4.0 5.0 5.0

CPI (% YoY, pavg) 14.9 0.8 1.5 2.0source: National sources, SHUAA Capital analysis

Macroeconomic forecast table: Dubai

2008 2009e 2010f 2011fNational IncomeNominal GDP (aEDbn) 301.6 298.0 299.8 314.8Nominal GDP (usDbn) 82.1 81.1 81.6 85.7Population (mn) 1.69 1.54 1.49 1.53GDP per capita (usD) 48,502 52,526 54,840 55,903

Real GDP Growth (% YoY) 5.7 -5.0 -0.4 2.9

CPI (% YoY, pavg)official 10.8shuaa CPi estimates 14.9 -6.3 -0.5 3.2

Fiscal indicators (% GDP)Budget balance 1.75 -3.36 -2.00revenue 10.98 9.30 9.81Expenditure 9.23 12.65 11.81



Vision 2010

Money FlowIn the UAE vision 2009, we introduced a section that tackled the investment flows in and out of the UAE equity markets in an attempt to identify the key drivers behind their performances. Interestingly, we have come up with certain conclusions that were quite insightful drawing a direct link between the different categories of investors (Non-GCC, GCC, Foreign and UAE) and the behavior of the UAE markets.

In this section, we compare the findings of 2008 with the trend in investment flows in 2009 while formulating a view for 2010.

Trends in 2008 Trends in 2009

- foreigners were the key trend setters - foreigners remained the key trend setters

- locals were the ultimate source of liquidity - locals remained the ultimate source of liquidity

- foreigners were the largest net investors followed by the locals - foreigners became the second largest net investor after the locals

- the effect of foreigners on the local markets in 2009 will diminish following their exit in 2008

- the impact of the foreigners remained strong

As shown by the table above, the trends remained roughly the same for each of the key investor categories in 2008 and 2009. This underlines the ability of foreign investors to drive the UAE markets in various market cycles - the crash in 2008 and the following rally in 2009.

Foreign investors remain the key trend setters in 2009 While their ability to set the direction in the UAE markets weakened in Dubai, the foreigners have countered that trend by exhibiting an improvement on the ADXGI*. The rate at which foreign investors captured market trends on the DFMGI** dropped to 56% in 2009 from 60% in 2008, but increased to 63% from 59% on the ADXGI. Whether we look at those figures in absolute or comparative terms, the conclusion remains that foreign investors are still the primary trend setters in the UAE markets. Worth noting however is the improvement in the ability of the local investors to capture market direction on the DFMGI as shown by the increase from 35% in 2008 to 45% in 2009.

* Abu Dhabi Exchange General Index** Dubai Financial Market General IndexSource: Dubai Financial Market, Abu Dhabi Securities Exchange, SHUAA Capital

Local investors are still the ultimate source of liquidityThe UAE investors have undoubtedly proved to be the ultimate source of liquidity, consistently topping the list of investors in the local markets. As shown by the following graphs, their contribution to the total value traded was high in 2008 and 2009, grabbing over 60% share in both years. However, 2009 witnessed a decrease from 18% to 12% in the foreigners’ contribution to the total value traded on the DFMGI along with an increase from 14% to 22% and from 8% to 16% in the Non-GCC investors’ contribution on the DFMGI and ADXGI respectively. Needless to say, the highlight here would be the aggregate increase in the Non-GCC contribution to the total value traded in 2009.

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% of days when net activity matched market direction - Dubai

% of days when net activity matched market direction - Abu Dhabi


Vision 2010

Source: Dubai Financial Market, Abu Dhabi Securities Exchange, SHUAA Capital

UAE vs. Foreign Investors - two main forces at opposite ends of the tradeWhile the UAE investors control the liquidity in the UAE markets, their aggregate (combining Dubai and Abu Dhabi) net contributions to the daily investment activities are not without a match. In 2009, the foreigners have again proved to be a large contributor to the daily net investment activities in the markets even though their contributions came in second to the locals after having topped the list in 2008. Also, they remained a primary source of balance to the markets by consistently taking the opposite end of the trade and countering the effect of the other main net contributor, that is, the locals.

Source: Dubai Financial Market, Abu Dhabi Securities Exchange, SHUAA Capital

Key takeaways The simple comparison between 2008 and 2009 indicates that the main investor categories have actually maintained their role over time despite the immense difference between the markets' performances during those two years. The crash of 2008 and the following rally in 2009 have practically proved that foreigners are and will likely remain a major driver behind the performance of the local markets. Their investment patterns have very much driven the rallies and corrections in the past two years while tightening the relationship with markets elsewhere across globe. This was evidenced in 2008 and 2009 when local and global markets moved in synchrony. Having said that, we expect that foreign investors will remain a primary force in 2010 and suspect their dynamic entry and exit will continue to shape the up and down cycles in the markets going forward.

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Vision 2010

Technical OverviewRecapping 2009

What we forecasted vs. what happened

In our Vision 2009, we made the case for a bottoming phase in UAE equity markets and argued for medium term trading zones that would be as wide as 30-50%. Below is a quick recap and a comparison between what we forecasted in last year’s report and what had actually taken place:

What we anticipated in the UAE Vision 2009 What really happened

- uaE indices would bottom out while experiencing 30-50% intermediate term ranges

- Both uaE indices reached their lows in february 2009. the DfmGi* gained as much as 47% in 2009 but only to retrace back ending the year 10% higher. the aDxGi** gained as much as 52% during the year but ended 2009 only 15% higher.

- oil prices would find support at the 35-40 range and would offer substantial upside potential thereby supporting the local markets

- oil bottomed around 33 in february 2009 and gained 137% by the end of 2009 driving the gains in the uaE indices

- the exit of the hot foreign money was not expected to return quickly - foreign money returned quicker than expected and maintained its role as key driver behind the uaE markets’ performances

- the downside risk in the real estate stocks would be limited based on the fact that extreme levels of negativity were already factored into their prices

- real estate stocks bottomed in february 2009 and were a major force in last year’s rally

- the correlation with global markets would decrease - the correlation showed a decrease in Q1 and Q4 2009 but remained positively strong in between

* DFMGI: Dubai Financial Market General Index ** ADXGI: Abu Dhabi Exchange General Index

As shown by the comparative table above, the markets have practically lent themselves to many of the arguments we have made last year and their behavior was indeed part of the bottoming process with intermediate term gains reaching as much as 50%. One unexpected development however was the quicker than expected return of foreign money which helped maintain the strong positive correlation with global markets through much of 2009. Having said that, and before we move to our expectations for 2010, it is important that we highlight the key market trends in 2009.

Key market trends in 2009

Last year’s rise was a typical bear market rally with the UAE indices reversing no more than a third of their drop in 2008. Up until October 2009, the behavior of the UAE markets was very much synchronized with those across the globe but then a clear decoupling trend began to unfold. The failure of the local markets to catch up to the developed world led by the US markets after October 2009 created a divergence that has yet to unravel. Mainly, we identify two main parts to last years’ rally in the UAE indices:

1. The February-October up leg which triggered c. 50% rally2. The October-to-date correction which retraced two thirds of the up leg1

These two phases had clearly shaped the bottoming process we argued for in Vision 2009, however, the question still rests in whether or not a final bottom is actually in place. In other words: has a new bull market been borne in 2009 or was last year’s rally a bear market reaction carrying a promise of a new low?

1 While we are limiting our discussion to technical analysis, one can not but highlight the effect and future implications of the Dubai World’s debt ‘standstill’ / restructuring plan on the equity markets.


Vision 2010

DFMGI Monthly chart2

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6,000

PriceAED

.12

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

3,000

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3,800

4,000

4,200

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4,600

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5,000

5,200

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5,600

5,800

6,000

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q12006 2007 2008 2009 2010

Outlook for 2010

Unfortunately, the question to that answer remains unclear as more evidence is required in order to build a solid argument for either case. In our view, the markets seem to exhibit a positive bias for 2010 that is highly dependent on how things will play out on the international front. Mainly, we believe that the correction which began in October provided room for short and medium term upside potential to unfold but the UAE markets remain highly susceptible to the potential weakness in the global equity and commodity markets. The lag between the UAE and global indices since October 2009 implies a probable catch up play by the UAE markets over the coming months. However, this view is highly dependent on the sustainability of the rally in the US and oil markets – an event to which we attribute a great risk.

Key market levels for 2010

Since the technical picture is not yet complete, we focus our attention on those levels which we believe will act as key inflection points for the UAE markets in 2010 while highlighting the global risks which could have a severe impact on their performances.

Support Resistance Target if support is broken

Target if resistance is broken

DFGMI 1600 2100 1200 3000

ADXGI 2500 3000 1800 3800

2 We have used the Dubai Financial Market General Index as a proxy for both UAE indices given that similar patterns were observed in 2009


Vision 2010

DFMGI Monthly Chart

Target if resistanceis broken

Target if support is broken

Support

Resistance

PriceAED

.12

600

900

1,200

1,500

1,800

2,100

2,400

2,700

3,000

3,300

3,600

3,900

4,200

4,500

4,800

5,100

5,400

5,700

6,000

6,300

6,600

6,900

7,200

7,500

7,800

8,100

PriceAED

.12

600

900

1,200

1,500

1,800

2,100

2,400

2,700

3,000

3,300

3,600

3,900

4,200

4,500

4,800

5,100

5,400

5,700

6,000

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6,600

6,900

7,200

7,500

7,800

8,100

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22005 2006 2007 2008 2009 2010

ADXGI Monthly Chart

Resistance

Target if support is broken

Support

Target if resistanceis broken

PriceAED

.12

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

4,800

5,000

5,200

5,400

5,600

5,800

6,000

PriceAED

.12

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

4,800

5,000

5,200

5,400

5,600

5,800

6,000

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22004 2005 2006 2007 2008 2009 2010

The table and the charts above identify those levels which are expected to trigger major directional moves. In simple terms, a break below the supports is expected to trigger new waves of selling and push the indices to new lows whereas a move above the resistance lines will put the odds in favor of the bulls and hint at new highs in 2010.


Vision 2010

Key risks in 2010

With the above in mind, we note that even if a new up leg is to unfold, we will expect the potential unravelling of the intermarket risks below to counter any rally in the markets:

1. correction in global markets led by the US2. correction in oil

The US markets has witnessed an uninterrupted rally since March 2009 and the recent signs of exhaustion indicate that a corrective wave will likely unfold in 2010. Being the largest market in the world, we expect such an event to take a negative toll on the UAE markets. Similarly, the strong rally in oil since early 2009 has been a key driver in last years’ rise in the local indices but with oil currently approaching extended levels, the probability of witnessing a correction is getting increasingly higher. Needless to say, any weakness on that front is expected to have a strong negative impact on the performance of the local markets in 2010.

A cautious approach to 2010

In conclusion, we note that the markets currently stand on unstable ground with many risks jeopardizing the argument for sustainable upside in 2010. The positive bias toward the UAE markets in 2010 is highly dependent on the ability of the indices to break above the resistance levels specified above as well as the capacity for the US and oil markets to sustain their current rallies. That said, we should note that the probability of these risks materializing is high indicating that the UAE markets will unlikely end 2010 above last year's peaks.


Vision 2010

Primary market activity and outlookIPOs disappear

As we had anticipated in our Vision 2009 report, primary market activity was absent in 2009 as scarce liquidity and market worries kept potential issuers away. Furthermore, rights issues by UAE listings were also absent. This compares to one rights issue, worth USD 233 mn, and eight IPOs, which raised USD 1.3 bn, in 2008.


Debt issuances take the limelight

The dominating capital raising activity in 2009 came in the form of debt issuances, which was also the case in 2008 where we saw debt issuances worth USD 5.5 bn in the form of Islamic bonds, Sukuk. In all, a staggering total of USD 36.6 bn was raised from debt issuances in the UAE during 2009. This figure includes the USD 20 bn raised by Dubai from the UAE Central Bank and the Government of Abu Dhabi. We also mention a further AED 16 bn (USD 4.4 bn) was raised by Abu Dhabi banks through the issuance of Tier 1 capital notes to the Government of Abu Dhabi. Also, AED 4 bn (USD 1.1 bn) was raised by Emirates NBD in a similar issuance to the Investment Corporation of Dubai. To sum up, the absence of IPOs and rights issues was replaced by a spree of debt raising activities, the majority of which was subscribed for either directly or indirectly by the Government of Abu Dhabi and the Federal Government of the UAE. We mention though that all these issuances came before the Dubai World 'standstill' request on its debts and we believe none of the issuances would have been possible had they come after Dubai World's request.

Name of Issuer Type of Issuance Size of Issuance (USD bn)

Subscriber to Issuance

Tenor(years)

Abu Dhabi Commercial Bank (ADCB) Conventional 1.0 public 5 Dolphin Energy Conventional 1.3 public 10 Dubai Department of Finance Conventional & sukuk 5.0 NBaD & al hilal Bank 5 First Gulf Bank Conventional 0.5 public 3 Government of Abu Dhabi Conventional 3.0 public 5 & 10 Government of Dubai Conventional 10.0 uaE Central Bank 5 Government of Dubai sukuk 1.9 public 5

Government of Dubai Conventional 10.0 Government of abu

Dhabi5

Mubadala Conventional 1.8 public 5 & 10 National Bank of Abu Dhabi (NBAD) Conventional 0.9 public 5 RAK Capital sukuk 0.4 public 5 Tourism & Development Investment Co. sukuk 1.0 public 5

Source: Zawya, SHUAA Capital

Public equity issuance

-

2,000

4,000

6,000

8,000

10,000

12,000

2005 2006 2007 2008 2009

USD

mn

Rights issues IPOs


Vision 2010

Issuance outlook for 2010

Once the Dubai World's debt restructuring negotiations are over, and assuming a relatively investor friendly outcome is reached, the appetite for primary issuance will be restored. After almost a year and half of absence of IPOs, we expect 2010 will see the resurrection of Initial Public Offerings in the country. However, we believe the size of these offerings will be smaller than most issuances we saw in 2008 and significantly smaller than the record-size offerings we saw in 2007 (DP World, Air Arabia and Deyaar). We also believe debt issuances (post the Dubai World's debt issues are resolved) will continue to play a key role and their presence will be noticeable.

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Vision 2010

Banking Sector Review


Vision 2010

Banking sector review 2009, an eventful year

Throughout 2009 banks adopted strict means of conduct mainly involving (1) slowing down lending growth to preserve liquidity, (2) reinforcing loan provisioning cushions against anticipated losses and (3) tightening cost control to sustain profitability levels. Those voluntary measures taken by most local banks were supported by efficient government actions as evident through the successive measures initiated by the UAE Central Bank, the governments of Abu Dhabi and Dubai, and the Ministry of Finance (MoF). Massive liquidity injections and a conveyed 'unconditional' support from the government provided great relief to the local banking system which, as of September 2009, displayed a highly comfortable total capital adequacy ratio of 18.0%, well above UAE Central Bank's (CB) 11.0% requirement. Although reassuring at first sight, we believe this standalone indicator is insufficient to clearly gauge the real health and strength of the local banking industry, particularly after the turbulences of 2009 and anticipated challenges of 2010.

A brief snapshot

As of November 2009 and according to the most recent statistics made available by the CB, the UAE banking system comprised of a total of 52 banks, including 24 local institutions and 26 foreign banks. Despite predicted consolidation in the sector during 2009, the figures remain unchanged compared to December 2008 as the global financial turmoil forcefully led financial institutions to put their inorganic plans on hold until the smoke clears. Interestingly, branch network expanded to a total of 747, resulting in 54 new units, with names like Emirates NBD, National Bank of Abu Dhabi and Dubai Islamic Bank continuing to reinforce their retail banking platforms.

Since December 2008, the sector's asset base expanded by 6.6% to reach AED 1,552bn (USD 423bn) by November-end 09, reassessing UAE banking industry's status as the largest in the GCC region.

Nov-09 assets (USD bn) Total assets/ 2009e GDP

UAE 423 194%

Saudi 370 104%

Kuwait 141 125%

Qatar 127 137%

Bahrain 58 283%

Oman* 36 66%

GCC 1,155 135%*Latest figures as of August 09Source: Central Banks, SHUAA Capital

With a balance sheet size of AED 291bn as of September 2009, Emirates NBD remains the national champion, followed by National Bank of Abu Dhabi (AED 186bn), Abu Dhabi Commercial Bank (AED 159bn), and First Gulf Bank (AED 124bn). Though highly fragmented, the local banking industry's anticipated consolidation wave did not kick off in 2009, and instead of reshaping the sector's landscape, the focus was shifted to ensure the stability and quality of existing assets during the current challenging and eventful environment.

On the funding front, customer deposits crossed the AED 1tr mark in November 09 to AED 1,003bn, rising 8.7% year-to-date with an irregular growth pattern paced by the successive liquidity injections of the various authorities.


Vision 2010

Source: UAE Central Bank, SHUAA Capital

As anticipated, debt capital markets were shut down in H1 09 requiring authorities’ intervention to boost banks liquidity. However, the second half of the year allowed only a few Abu Dhabi players to raise long-term liquidity for a combined total of USD 2.5bn (AED 9bn).

Company name Size of issue (USD mn) Size of issue (AED mn) Issue date Maturity Details

NBAD 850 3,145 sep-09 sep-14 +228bps over us treasuries

ADCB 1,100 4,070 oct-09 oct-14fixed coupon rate of 4.75%; issued under the bank's Global medium term Note program

FGB 500 1,850 Nov-09 Nov-12 +285bps over us treasuries or +250bps over midswaps

Total 2,450 9,065 Source: Company data

As shown in the graph below, credit default swap (CDS) of the emirates of Abu Dhabi and Dubai peaked at 174.8bps and 633.6bps respectively on November, 27th, 2009, in light of the Dubai World's restructuring announcement.

Source: Reuters

Although the recent USD 10bn liquidity lifeline from Abu Dhabi has helped bring down CDS levels by 2009-end, we believe UAE banks in 2010 will face difficulties in raising medium and long term funds under their respective programs. As a matter of fact, Dubai's debt burden has not only shut access to this funding alternative for the coming year, but has also significantly elevated overall debt pricing associated with heightened risk linked to the UAE, and Dubai specifically.

In terms of credit, and mirroring the prudential lending approach adopted by most banks, total net loans and advances expanded at a much slower pace than deposits: +3.4% year-to-date to AED 1,027bn (USD 280bn). This limited loan origination (of AED 33bn) was channelled to borrowers with high creditworthiness and low risk profiles.

Liquidity gap (in UAE bn)

(80)

(70)

(60)

(50)

(40)

(30)

(20)

(10)

-2007 2008 Q1 09 H1 09 Q3 09 Nov-09

1/ CB puts in place a AED 50bn liquidity facility2/ The Ministry of Finance (MoF) releases AED 50bn into

UAE banks3/ Abu Dhabi government injects AED 16bn Tier 1 capital

in 5 AD banks4/ Dubai government issues USD 10bn bond fully

sbscribed by the UAE Central Bank

Saad and Al Gosaibi groups default announcement

Dubai government issues USD 5bn bonds, subscribed by Al Hilal Bank and NBAD

Dubai vs. Abu Dhabi 5-year CDs

0

100

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174.8

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14/12/09: Abu Dhabi provides USD 10bn to Dubai

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9

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Vision 2010

As a result, we have witnessed UAE banks' liquidity gap relaxing from a peak of negative AED 71bn by December-end 08 to a more manageable deficit of AED 24bn by November 2009, attesting the efficiency of liquidity injections into the troubled industry. However, we do not believe that this improvement is sustainable on the back of an expected withdrawal of some funds for the repayment of foreign debt obligations due in December 2009.

On the profitability side, UAE listed bank's net earnings amounted to AED 16bn over 9M 09, a 17% YoY drop compared to 9M 08 levels. Net operating revenues were on the rise, climbing 11% YoY, accentuated by improving net interest spreads (following the fall in benchmark rates) which alleviated overall net interest revenues offsetting the relatively limited new loans volume. This also compensated for the reported drop in non-interest revenue streams, adversely impacted by lower fee-generation capabilities and highly volatile investment revenues due to poor equity market performance. While most lenders dedicated their focus to support profitability levels with aggressive cost reduction measures (including halt of organic/ inorganic growth plans and downsizing), their efforts went in vain to the detriment of strong rise in provisions, mainly related to loan losses. In fact, UAE listed banks' loan-related provision expenses totalled AED 9.5bn during the nine-month period ending September 09, up from AED 2.5bn over 9M 08, and corresponding to a net cost of risk of 1.1% (up from 0.3% for 9M 08). This substantial increase in provision cushions allowed banks to cover for rapidly increasing NPLs and prepare for forthcoming challenges….

Asset quality, a key concern aggravated by Dubai's debt woes

As previously mentioned and while new financing witnessed a controlled increase over 9M 2009, Non Performing Loans (NPLs) formation accelerated affected by:

1. Strong rise in retail loans defaults (mostly unsecured personal lending) and credit cards (particularly in H1 09), accentuated by expatriates' outflow, especially in Dubai (estimated at -8.8% in 2009 vs. -3.9% for the UAE); and

2. increase in large ticket corporate defaults (Saad/ AHAB), seen as the next 'big thing' the banks will have to deal with moving forward.

These specific threats were put into perspective following the Saudi Saad/AHAB groups' demise and Dubai World debt restructuring in November 09. While provisioning charges for the two Saudi conglomerates are expected to be accounted for by 2009-end (adhering to the central bank's guidance1), and legal recourse already being initiated, all the upcoming concerns are now directed towards Dubai World's indebtedness and its contagion effect on UAE lenders...

While most banks do not disclose NPL figures on a quarterly basis, we estimate the banking system's NPL ratio to reach 3.5% by 2009-end, vs. 1.6% at the end of 2008. In 2010, and should the central bank's recommendation on the reduction of NPL classification to 90 day overdue (instead of the current 180 days) is put into effect, we could see this ratio increase significantly by the end of the coming year.

Dubai World debt restructuring: stress testing the UAE lenders…a worst case scenario

Since Nakheel 2009 Sukuks were fully repaid (with the support of the Abu Dhabi government) we know, at this stage, that Dubai World and its related entities have an estimated combined USD 18.7bn (AED 69.2bn) in bonds and loan obligations maturing by 2014. While it is not feasible to assess the exact exposure of UAE banks to the troubled group (only National Bank of Abu Dhabi came up with a clear statement on this issue), we have chosen to consider a worst case scenario (a stress test) whereby banks would conservatively cover for 100% of their related exposure through loan loss provisions and investment impairments.

1 As instructed in November 09's press release


Vision 2010

To portray this worst case scenario, we are relying on the UAE central bank's definition of banks' large exposures. As such, should we assume that Dubai World and its related entities (including Nakheel) are considered as one single commercial public sector entity, UAE banks' exposure to this account should not exceed 25% of their capital base. Also, we have decided to consider the AED 29bn payables (on Nakheel's balance sheet as of June-end 2009) as an associated loss burden for lenders, allowing us to price in the ripple effect the developer's default would have on related contractors and partners.

The outcome of such a worst case scenario reveals that the average NPL ratio of the top 5 UAE lenders could deteriorate from an average 2.2% in September 2009 to a high 8.4%. ADCB and DIB would be showing distressed ratios as high as 11.4% and 11.9% respectively, and NBAD's asset quality would be of much lesser concerns with 4.5%.

Current/ estimated NPL ratio

NPL ratio worst case scenario

Abu Dhabi Commercial Bank 4.2% 11.4%

Dubai Islamic Bank 5.0%* 11.9%

First Gulf Bank 1.4% 8.8%

Emirates NBD 1.9% 8.9%

National Bank of Abu Dhabi 1.2% 4.5%

Average 2.2% 8.4%*estimateSource: Company data, SHUAA Capital estimates

Regarding capital ratios, UAE banks demonstrated a highly comfortable 18% total CAR as of September 2009 according to the central bank's data. If additional provisioning is required as stated above, Emirates NBD, ADCB and DIB would be in a critical situation given Tier 1 ratios below or inline with regulatory minimum requirements.

September-09 Post 100% max DW exposure write off

Tier 1 CAR Total CAR Tier 1 Total CAR

Emirates NBD 13% 20% 5% 12%

National Bank of Abu Dhabi 16% 18% 12% 15%

Abu Dhabi Commercial Bank 14% 19% 7% 12%

First Gulf Bank 19% 19% 12% 12%

Dubai Islamic Bank 13% 12% 7% 7%

CB UAE requirements >7% >11%Source: Company data, SHUAA Capital estimates

In this stress test, or worst case scenario, the figures give us an indication on the significant negative impact Dubai World exposure can have on UAE's top lenders' solvency. It also suggests that, should this worst case scenario occur, another government intervention through direct capital injection is a necessity to prevent some local banks from failing.

Confidence must be restored through a necessary round of reforms

2009 events revealed some weaknesses in UAE's banking framework. While being a 'poor' year in terms of profitability, we believe 2009 was a wake-up call for UAE banks to review their lending practices and risk management policies and somehow realize the detriments of past excesses.

In our view, 2010 is the sensible time for supervisory authorities to establish stronger foundations for the banking industry, the main pillars of which we have identified below:

• The pressing need for a UAE Credit Bureau to enable lenders to assess borrowers' creditworthiness. A similar database should be available in every GCC country to aid in tracking regional banks' exposure to large accounts (such as Saad and Al Gosaibi's).


Vision 2010

• The upgrading of current prudential guidelines to match international standards, specifically regarding banks' adoption of Basel II guidelines for capital adequacy ratio calculation. Besides, more stringent rules on NPL classification and provision coverage policies, inline with the Central Bank's recent recommendations, would reinforce the UAE banking system's credit risk management.

• The improvement of corporate governance and financial disclosure. This should be complemented with measures to enforce transparency, especially from quasi-governmental entities given their many ramifications, influence and weight in the local economy.

2010 Earnings Outlook: revenue squeeze inevitable

Following past year's challenges, we expect 2010 to remain a difficult phase for UAE banks as the economic recovery that we are expecting does not mean the end of the regional liquidity shortage, nor the improvement of asset quality metrics.

Our expectations of banks' earnings profile for 2010 are based on the following key assumptions:

• Aggregated customer deposits to grow by 8% in 2010, resulting in an AED 84bn net liquidity addition for the year. In our view, this will be matched by a slower 6% growth in lending as we suspect banks to remain selective in their lending policies;

• NPL levels to rise sharply in H1 2010, especially if the recent Central Bank's recom-mendation on NPL classification is adopted. We expect NPL ratio to reach 6% by June-end 2010 and up to 8% by year-end, reflecting sharper asset quality deteriora-tion in the first half of next year. This will be matched by a net increase in provision-ing, hence constraining bottom line growth;

• While growth in assets will be limited, net interest margins will undoubtedly be under pressure after the staggering levels reached in 2009. The difficult access to liquidity aggravated by the deteriorating risk profile of the UAE is expected to put further strain on funding costs;

• Non-interest revenues are expected to be impacted by (1) prolonged volatility in local equity markets as well as (2) difficult recovery in fees and commissions on low origination;

• Operating expenses to remain under control in order to optimize cost structure in face of falling revenues.

• In the end, and while we estimate banks' net earnings to fall by 15% by 2009-end, we expect them to only recover by 8%-10% in 2010 (representing a mild recovery from a low base). Noteworthy, this figure will, in our view, widely vary amongst UAE banks with Abu Dhabi players being on the higher side of the bracket, with the exception of a more troubled ADCB.


Vision 2009 - UAE Equity Markets

Real Estate Sector Review


Vision 2010

Real Estate Sector ReviewThe past year has by all measures been a de-mystifying year. For many the unbelievable truth has turned into a reality, and at times a painfully undeniable one. Our forecast in January 2009 that property prices in Dubai would fall by as much as 60% from their peak, came as an unbelievable surprise for many - today those expectations have more or less materialised.

The days when new properties were rationed out by real estate developers during chaotic launches are long gone. Bargaining power has shifted from the abundant sellers to the relatively few buyers.

Dubai's woes proved contagious, Abu Dhabi did not escape unharmed. For all those who hesitated, 2009 confirmed that Abu Dhabi and Dubai are one. If Dubai sneezes, Abu Dhabi is destined to catch the cold and vice versa. Despite the stronger fundamentals in the capital, asset values dived and transactions volumes evaporated.

Some champions of the past have faded, no longer is performance measured by size or advertising billboards. Metaphorically, a growing distinction between the bold, the ugly and the beautiful has emerged - all in favour of the latter. While Emaar Properties did not escape unscathed, it certainly emerged as the undisputed property champion of Dubai. In Abu Dhabi, Aldar Properties and Sorouh Real Estate continue to look forward towards a slower than initially anticipated, but nevertheless a bright future.

Dubai

Dubai residential segment

According to our estimates, the past year saw 22,750 units delivered, taking the total number of residential units in Dubai up to 357,700 units. Even more interesting, our detailed analysis of Dubai's projects, construction progress, and handover activity revealed that 2010 is going to perhaps see an even greater number of deliveries than 2009. We expect over 26,650 apartments and villas to reach the market over the course of the next 12 months in Dubai, rendering 2010 deliveries among the highest since the construction boom took-off. Consequently, the total number of housing units is expected to reach an estimated 384,350 before year end.

While we had previously assumed 2010 would see fewer deliveries than 2009, the economic shock in late 2008 and the beginning of 2009 caused some leading developers to delay a higher number of 2009 projects than we initially had anticipated. Just like developers continued to drag their feet with construction progress, property buyers extended the handover process as some went scrambling for that last payment. The second part of 2009 saw renewed optimism and most developers picked up pace on projects already at an advanced stage, pushing more units across to 2010.


Dubai residential supply and demand 2008-2011

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

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2008 2009E 2010F 2011F

Cum

ulat

ive

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ial u

nits

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ancy

Cumulative supply Cumulative demand Estimated occupancy


Vision 2010

In the absence of a solid economic recovery in Dubai, local companies are expected to resume the process of unwinding their operations to a level that is more consistent with the prevailing market conditions, leading to further lay-offs and a further population decline. SHUAA Capital's economics team forecasts Dubai's population will shed some 3.6% in 2010, which when coupled with the additions we expect to witness in the residential market this year can only lead to one thing; increased vacancy rates. As the gap between supply and demand continues to widen, and liquidity remains both restrained and subjected to high interest rates, it is highly unlikely to witness a sustainable recovery in asset values, in 2010.

In fact we expect rents and asset values to lose a further 10%, to converge on average rents between AED 55-60 annually per sqft and an average selling price of AED 800-850 per sqft. Just like International City and Discovery Gardens will rent and sell significantly below the average, Downtown Burj Khalifa will remain well above the average prices mentioned above.

We expect the new supply to apply downward pressure on all areas, despite the growing qualitative disparity in Dubai. While we recognise all areas are not equal, it is evident from our analysis that the expected 2010 supply is spread across Dubai's key communities. Focus this year will be on the growing popularity of the downtown area, and how it will integrate and be impacted by the spike in supply from within and from its peripheries. The central cluster of Downtown Burj Khalifa, Business Bay, DIFC and Sheikh Zayed Road is expected to see almost 7,000 units delivered over the coming twelve months.

Dubai office segment

While falling asset values in the residential segment were at the centre of attention, in the shadows the office segment faced an even steeper decline over the past year. A look at the ongoing construction in this part of the real estate market reveals that 2010 will see the delivery of another 6.8mn sqft of office space. Despite project delays and cancellations, there seems to be a further 2.8mn sqft slated for 2011 delivery.

Source: SHUAA Capital, Colliers International

The growing supply coupled with our 2010 GDP forecasts, which still show a slowdown in 2010 for Dubai, implies that the Dubai office market is destined to see even higher vacancy rates in the days to come. The lay-offs and the resulting population decline over the past year coupled with 2009 supply have already knocked-down occupancy rates from the 90-95% range closer to the 70-75% level. In 2010, we expect the downward spiral in occupancy rates to settle around the 60%-65% level, which we believe is a clear signal that no near-term market wide recovery in rents and selling prices is in the making.

Average rents are expected to lose another 10-15% from the current levels of AED 180-200 per sqft annually, as more office space approaches completion around the city. Average property price are expected to witness a similar fate as more properties approach completion especially in Business Bay, TECOM and Jumeirah Lake Towers.

Dubai o�ce supply and demand 2008-2011 (sqft)

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

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Cumulative Supply Cumulative demand Occupancy rates


Vision 2010

Abu Dhabi

Abu Dhabi residential segment

Abu Dhabi's residential property market is expected to continue witnessing a shortage of residential properties for the foreseeable future. The reasons are very simple; relatively strong economic growth, resulting in further growth in population and by extension demand for property, in a market where both existing vacancies and new supply are limited.


We expect the Abu Dhabi real estate market to see 23,000 units delivered over the next two years, a figure that is significantly short of what local developers were setting the ground for at the onset of the emirate's property boom. However, the slow start in the initial two years (2005-2006) meant the Abu Dhabi market's take-off and actual construction boom was delayed into 2007 and 2008. What was initially perceived as a disadvantage, turned into the exact opposite. The initial delay and limited progress relative to announced ambitions provided Abu Dhabi developers with greater flexibility in rescaling their projects, which helped the emirate avert an over-supply situation.

Average rents for new leases lost an estimated 20% from the peak in mid-2008 till 2009 year-end, to reach an estimated average annual rate of AED 100-120 per sqft - a level we expect will be maintained in the coming year.

Apartment prices which retreated some 40% from the peak, reached an estimated average price of AED 1,000 per sqft in 2009. We expect the stronger 2010 economic growth, improved sentiment coupled with the reality of supply shortage to boost asset values by around 10-15% on foreign ownership zone properties on Al Reem Island and to a lesser extent Al Raha Beach.

Abu Dhabi residential supply and demand 2008 - 2011

-

50,000

100,000

150,000

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2008 2009E 2010F 2011F

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Cumulative supply Cumulative demand Estimated occupancy


Vision 2010

Abu Dhabi office segment

The majority of the capital's office stock remains significantly below international standards. Most office buildings in Abu Dhabi are not purpose-built, lack sufficient parking facilities and adequate services. Much of the existing office stock consists of converted residential buildings. The concept of zoning and clustering is almost non-existent, with most commercial buildings situated within a congested mosaic of residential areas. In all honesty, not much has changed over the past year.

Source: SHUAA Capital, Colliers International

Supply of new office space in the capital remained limited during 2009 and occupancy rates stayed in the 95-98% range. Nevertheless both rental rates on new leases and asset values retreated 15-20% and 35-40% respectively, as the market made a relative adjustment to neighbouring Dubai.

Just like in Abu Dhabi's residential market, the crisis meant re-scaling of development plans, leading to the cancellation of much of the anticipated medium to long-term office supply. The only certain deliveries over the next couple of years, are the current projects under construction. It is estimated that the next two years will see 6.2mn sqft of net leasable area reaching the Abu Dhabi market.

Going forward, we expect rents for high-grade office space to stabilise around the current levels of AED 260-310 per sqft. Property values in the relatively small parts of the freehold zones approaching completion, are expected to witness moderate growth of around 5-10% to reach AED 1,470-1,540 per sqft. Abu Dhabi contrary to Dubai, is expected to record strong growth in both GDP and population, leading local, regional and global companies to scramble for growth opportunities by shifting capacity to the capital.

Abu Dhabi o�ce supply and demand 2008 - 2011 (sqft)

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Vision 2010

Telecom Sector Review


Vision 2010

Telecom Sector Review2009: UAE telcos resilient… but not immune!

The UAE telecom sector continued to deliver top line growth in 2009 albeit at a much slower pace compared to the high growth rates achieved in past years, but still ahead of expectations. Despite a challenging year marked by economic slowdown, job losses, population decline, and a tough business environment, the telecom sector’s 9M 09 revenues grew 7% over the same period last year to reach AED 23.4bn. This compares to 27% revenue increase in 2008, and a compound annual growth (CAGR) of 29% for the 2005-2008 period. For 9M 09, growth was still driven by the mobile and broadband data segments. Etisalat UAE, the incumbent with the lion market share, managed to deliver 2.6% top line growth for 9M 09.

Source: Company reports, SHUAA Capital estimates

Both telecom stocks proved to be good investments in 2009, outperforming by a wide margin the ADX (14.8% return in 2009), DFM (+10.2%), and SC UAE index (+22.9%). Etisalat’s stock appreciated by 34% last year. Factoring the dividend, Etisalat delivered a total return of 40% in 2009. Du’s share price increased by 34% in 2009. At this time, Du does not pay a dividend.

Source: Company reports

UAE mobile market continues to set new records

As of Q3 09 the UAE mobile market counted 9.8mn active subscribers for an estimated 179% penetration rate, up from 162% in December 08. For the 9M 09 period, Etisalat and Du added approximately 776,000 subscribers, with net additions surprisingly accelerating in Q3 09 versus H1 09. We believe that the well established multiple SIM card ownership phenomenon continues to fuel subscriber growth.

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UAE telecom revenues (in AED mn)

Growth9M 09/9M 08:

7%

10.3%

2.4%-3.9%

25.8%

44.3%

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Etisalat UAE Du

UAE telcos: YoY % growth of quarterly domestic revenue


Vision 2010


The subscriber battle: Du clear winner!

YTD, Du emerged as the clear winner for subscriber growth. The second operator grabbed 83% share of net additions for the 9M09, up from 63% over the same period last year on the back of successful promotions. Du increased its share of UAE active mobile subscribers to 32% as of September 09 from 28% at the end of 2008.

The revenue battle: paints another picture

In terms of revenue share, the picture is different. So far, Etisalat has been successful in retaining high spending customers, with an estimated ARPU more than double than Du’s USD 28 (AED 103). The difference largely explains the discrepancy between subscriber market share and revenue share of the two players. We estimate that Etisalat commands a revenue share of more than 80% of UAE mobile market, compared to a 68% subscriber share as of September 09.

Slowdown more apparent in fixed-line subscribers

While UAE economic slowdown and population decline is less apparent with the reported 776,000 growth in mobile subscribers for the 9M 09 period, fixed-line subscriber statistics are more revealing in this area. UAE landline subscriptions decreased by 32,000 for the 9M 09. It is worth mentioning that this is the first time that the country records a drop in landlines. Note that the decline in fixed-line subscriptions is partly due to fixed-to-mobile substitution trend. The boom in UAE economy and population until 2008 fuelled a steady growth in landline subscribers, more than offsetting the impact of customers deciding to go ‘wireless only’.


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UAE �xed-line subscribers (‘000) and penetration rate


Vision 2010

As of September 09, total fixed-line subscribers in the UAE reached 1.47mn with Etisalat’s and Du’s market shares at respectively 89% and 11%.

We estimate total broadband subscribers (including USB modem mobile broadband subscribers) have reached 772,000 in Q3 09, increasing by 33% YoY. Broadband penetration increased to 14% of the population in Q3 09, up from 11% at the end of 2008. Etisalat’s and Du’s market shares were of respectively 92% and 8% as of September 09.


While as of February 2007, the mobile sector in the UAE is fully competitive, the situation is different in fixed services. So far, Etisalat and Du have not been competing for landline and broadband services in overlapping areas. Du has concentrated on certain Dubai free zones and new areas where it is the sole telecom services provider. This is about to change, with the Telecom Regulatory Authority (TRA) keen on promoting competition in fixed services across the country via infrastructure sharing.

UAE broadband subscribers (‘000) and penetration rate

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Etisalat fixed broadband Etisalat mobile broadband

Du fixed broadband % penetration of population


Vision 2010

Outlook: Our top 10 predictions for 2010

1. In the near future, population growth will no longer be a tailwind for UAE telcos as was the case until 2008.

2. Mobile data and other value-added services, broadband Internet, triple-play services through fiber-to-the-home will be the growth drivers of the sector.

3. Introduction of mobile number portability (MNP) is expected by Q2 10. In other markets, notably in neighbouring Saudi Arabia, MNP has not been a needle mover for various reasons. Based on anecdotal evidence, customers in KSA willing to switch found it less of a hassle to buy a new SIM card from an alternative operator than going through the tedious process of transferring their existing line. Will the UAE prove to be different?

4. Since 2007, UAE mobile sector is fully competitive. This year, we foresee more competition for fixed services. Infrastructure sharing is on the agenda, with a gradual implementation expected in the second half of 2010, which will allow operators to compete in each others territories for fixed services.

5. The TRA is expected to unveil soon a VoIP (voice over Internet protocol) policy. We believe that the TRA will allow VoIP services only through the two licensed telecom operators, and not through other players such as Skype. This will allow both Etisalat and Du to offer their customers VoIP plans for international long distance calls at a slight discount to current rates.

6. MNP, Infrastructure sharing, VoIP… The TRA’s and operators’ plate appears full for 2010. Expect delays in the implementation of these initiatives.

7. We expect the UAE telecom sector to remain a two-player market for the foreseeable future. We don’t expect a third mobile operator anytime soon. The UAE telecom sector will remain attractive for investors as one of the few remaining duopolies.

8. We don’t expect a change in foreign ownership rules in UAE telecom sector in 2010.

9. We don’t expect a change in Etisalat’s 50% royalty rate in 2010. And finally,

10. We forecast the UAE telecom sector to deliver another year of mid-single digit revenue growth in 2010. Specifically, we forecast Etisalat’s UAE operations to achieve low single digit revenue and EBITDA growth. On the other hand, we project Du to deliver 18% revenue growth and 38% EBITDA growth.


Vision 2010

Stock GuideSector Company Stock info Performance Valuation

Listing RIC Code Frn limit 000' # of shares Closing Price

(AED)performance 2009

(%)Avg. daily traded

USD (000')Mkt Cap USD

(000') PE 09e PE 10e P/B

Commercial Banks

National Bank of abu Dhabi aDx NBaD.aD 25% 2,174,275 12.40 38.5 804 7,340,524 8.2 7.0 1.7 Emirates NBD Dfm ENBD.Du 5% 5,557,775 2.95 6.4 519 4,463,894 3.9 4.8 0.6 rak Bank aDx rakB.aD 20% 962,033 4.50 -13.3 33 1,178,673 6.1 - 1.7 National Bank of umm al Quwain aDx NBQ.aD 0% 1,452,000 3.41 -42.9 27 1,348,068 11.3 - 1.7 abu Dhabi Commercial Bank aDx aDCB.aD 25% 4,810,000 1.58 -11.2 1,272 2,069,155 12.8 - 0.7 mashreq Bank Dfm masB.Du 0% 161,026 91.00 -65.5 1 3,989,583 9.8 - 1.3 Commercial Bank of Dubai Dfm CBD.Du 0% 1,764,807 3.70 10.9 38 1,777,828 6.5 - 1.2

union National Bank aDx uNB.aD 40% 2,062,500 3.20 58.6 453 1,796,945 6.0 5.7 0.8

first Gulf Bank aDx fGB.aD 15% 1,375,000 16.15 79.1 2,125 6,045,972 7.0 6.1 1.6 Commercial Bank international aDx CBi.aD 20% 1,340,015 1.50 -9.1 191 547,257 30.7 - 1.2 investBank aDx iNvB.aD 20% 1,155,000 2.20 -17.8 124 691,824 8.4 - 1.4 united arab Bank aDx uaB.aD 49% 996,401 6.00 20.4 30 1,627,708 22.0 - 3.7 Bank of sharjah aDx Bos.aD 30% 2,000,000 2.20 5.5 340 1,197,963 8.6 - 1.1 ajman Bank Dfm aJBNk.Du 49% 1,000,000 0.90 1.1 3,254 245,038 N/a - 0.9

islamic Banksabu Dhabi islamic Bank aDx aDiB.aD 0% 1,970,588 2.90 9.0 691 1,555,911 6.1 - 0.7 sharjah islamic Bank aDx siB.aD 20% 2,310,000 0.96 13.3 421 603,774 7.3 - 0.5 Dubai islamic Bank Dfm DisB.Du 15% 3,617,505 2.32 46.8 6,603 2,285,010 6.3 9.6 0.9

Non-bank financials

Dubai investments Dfm DiNv.Du 20% 3,664,775 1.00 8.9 5,166 997,788 3.3 - 0.5 Dubai financial market Dfm Dfm.Du 49% 8,000,000 1.88 50.4 20,995 4,094,857 42.7 - 1.9 waha Capital aDx waha.aD 49% 1,575,000 0.91 73.7 2,655 390,223 47.4 - 0.8 shuaa Capital Dfm shua.Du 49% 1,065,000 1.48 38.3 612 429,143 N/a - 0.8 Gulf General investment Company Dfm GGiC.Du 49% 1,791,000 1.10 -72.8 254 536,388 6.6 - 0.6 finance house aDx fh.aD 0% 220,000 5.80 3.8 105 347,409 11.0 - 1.8

insurance

abu Dhabi National insurance aDx aDNi.aD 25% 375,000 8.99 8.3 14 917,871 122.6 - 1.6 al khazna insurance aDx akiC.aD 25% 400,000 0.96 7.9 41 104,550 3.9 - 0.5 Emirates insurance aDx EiC.aD 0% 120,000 7.48 15.1 4 244,385 13.7 - 0.9 oman insurance Dfm oiC.Du 0% 381,713 11.00 4.8 1 1,143,194 17.8 - 2.5 al ain ahlia insurance aDx aaiC.aD 0% 15,000 65.00 -31.9 11 265,458 14.6 - 0.8 National General insurance Dfm NGiN.Du 0% 133,888 9.16 -8.4 0 333,908 17.3 - 3.9 aman Dfm amaN.Du 15% 200,000 0.97 3.2 949 52,819 5.5 - 1.1 methaq takaful aDx mEth.aD 25% 150,000 3.29 14.2 839 134,362 32.0 - 2.9 takaful Emarat Dfm tkfE.Du 25% 150,000 1.20 17.6 8,280 49,008 N/a - 1.2 abu Dhabi National takaful aDx tkfl.aD 0% 66,000 5.20 -35.0 11 93,441 N/a - 3.4 salama islamic arab insurance Dfm salama.Du 25% 1,100,000 0.87 11.5 2,653 260,557 11.1 - 0.7

real Estate & Construction

Emaar Properties Dfm Emar.Du 49% 6,091,239 3.86 70.8 41,422 6,406,519 76.6 7.8 0.8 union Properties Dfm uPro.Du 15% 3,366,857 0.68 3.8 5,560 623,832 N/a 4.6 0.4 Deyaar Dfm DEyr.Du 0% 5,778,000 0.58 16.0 6,682 913,144 11.8 11.2 0.4 aldar Properties aDx alDr.aD 40% 2,577,895 4.91 25.9 14,207 3,448,900 7.3 4.5 0.7 sorouh real Estate aDx sor.aD 15% 2,500,000 2.57 -19.7 10,827 1,750,681 10.5 8.0 1.1 rak Properties aDx rPro.aD 49% 2,000,000 0.59 15.7 5,767 321,272 4.9 - 0.4 arabtec Dfm artC.Du 49% 1,196,000 2.68 18.6 23,586 873,373 4.7 5.0 1.3 abu Dhabi National hotels aDx aDNh.aD 25% 1,000,000 3.80 15.2 122 1,034,605 7.6 - 0.5 National hotels & tourism aDx NCth.aD 0% 110,000 8.75 52.9 7 262,055 7.0 - 1.4 Depa ($) NasDaQ Dubai DEPa.Di 49% 614,726 0.53 3.9 189 325,805 4.2 5.1 0.7 Drake and skull Dfm Dsi.Du 49% 2,147,378 0.90 21.6 9,346 526,665 6.3 6.8 0.8

light industries

Julphar aDx GPhi.aD 49% 685,915 1.83 49.5 46 341,753 8.5 - 0.9 Damas ($) NasDaQ Dubai Damas.Di 49% 989,228 0.23 -67.6 42 224,555 N/a - 0.4 abu Dhabi shipbuilding aDx aDsB.aD 25% 211,992 3.85 11.0 4 222,214 6.4 2.7 foodco holding aDx fooD.aD 49% 100,000 3.30 10.0 3 89,847 15.9 1.2 agthia aDx aGth.aD 25% 600,000 1.84 74.3 880 300,580 10.3 10.0 1.2 r.a.k. Ceramics aDx rkCE.aD 49% 614,217 1.48 17.1 45 247,500 3.5 0.5 abu Dhabi Nat. Building materials Co. aDx BilD.aD 25% 300,000 2.11 -19.8 24 172,343 11.0 1.6 arkan Building materials aDx arkN.aD 0% 1,750,000 2.31 -63.3 956 1,100,629 N/a 2.6

Cement

union Cement & associates plc. aDx uCC.aD 49% 669,438 1.68 -43.1 7 306,204 8.7 0.8 Gulf Cement aDx GCEm.aD 49% 821,097 1.60 -29.2 103 357,689 9.2 0.8 rak Cement aDx rkCC.aD 49% 484,000 1.01 21.7 1,929 133,094 5.8 0.6 fujeirah Cement aDx fCi.aD 49% 355,865 3.00 -23.3 - 290,668 9.1 1.1 sharjah Cement aDx sCiD.aD 49% 502,689 3.75 0.0 - 513,241 14.2 1.3

servicesNational maritime Dredging aDx NmDC.aD 5% 200,000 8.50 -9.1 41 462,850 5.4 1.0 aabar Petroleum aDx aaBar.aD 40% 3,128,000 2.28 27.2 3,640 1,941,746 3.5 0.6

transportation &logistics

DP world ($) NasDaQ Dubai DPw.Di 40% 16,600,000 0.43 10.3 2,791 7,138,000 25.2 24.3 1.0 aramex Dfm armx.Du 49% 1,331,000 1.57 98.5 3,238 568,943 11.8 13.4 1.4 Gulf Navigation Dfm GNav.Du 20% 1,655,000 0.59 -7.8 3,902 265,853 71.7 59.9 0.6 air arabia Dfm aira.Du 49% 4,666,700 0.92 3.4 7,388 1,168,930 10.2 9.1 0.8 abu Dhabi aviation aDx aDav.aD 0% 404,352 2.50 48.8 61 275,227 8.6 0.8

utilitiestaQa aDx taQa.aD 0% 6,225,000 1.18 14.6 1,753 1,999,918 12.0 11.3 0.9 Dana Gas aDx DaNa.aD 49% 6,000,000 0.94 62.1 6,200 1,535,571 17.9 40.4 0.7 tabreed Dfm taBr.Du 49% 1,213,380 0.81 55.8 3,133 267,592 11.9 8.4 0.4

telecomEtisalat aDx EtEl.aD 0% 7,187,400 11.05 34.5 2,311 21,623,450 8.7 8.7 2.3 Du Dfm Du.Du 22% 4,000,000 2.91 34.1 1,043 3,169,158 46.8 31.5 4.3

Total 216,773 110,364,893


Vision 2010

Stock Briefs


Vision 2010

Outstanding recommendation:

BUYNational Bank of Abu DhabiCompany overview

Incorporated in 1968 and listed on ADX since 2000, National Bank of Abu Dhabi (NBAD) is the largest bank in Abu Dhabi and second largest in the UAE with assets worth AED 186bn as at September 09. Commonly referred to as Abu Dhabi’s prime lender, NBAD is 70% owned by the Abu Dhabi Investment Council (ADIC) which not only provides it with a strong competitive edge in terms of business generation, but also delineates the bank’s low risk profile due to this historical affiliation to the sovereign. NBAD offers a wide range of conventional, Islamic, and investment banking services and enjoys the second largest distribution network in the country with 95 branches across the UAE’s seven emirates and 325 ATMs. It also enjoys the largest international network amongst local banks, cemented via operations in Egypt, Kuwait, Bahrain, Sudan, Libya and Jordan and further in the UK, France, US, Switzerland and most recently in China. While the bank’s long term strategy is to become a leading Arab bank, NBAD intends to strengthen its MENA footprint by significantly enhancing its network in Egypt and Oman in the medium term.

Financial and operating highlights

During 9M 09, NBAD generated net earnings of AED 2,591mn, a 10% rise compared to 9M 08’s ‘clean’ figure of AED 2,362mn. While witnessing strong growth in assets compared to peers as well as improved margins, the bank’s profitability was constrained by lower non-interest revenues, strong increase in provisioning (+143% YoY), and rising costs as a result of an ongoing branch roll-out. On the balance sheet side, customer deposits grew 7% year-to-date to AED 111bn. This was matched by a strong 15% expansion in loans to AED 128bn (over December 08) hence leading to a loans-to-deposits ratio of up to 116% from 108% as of December 08. The bank’s asset quality metrics remained robust as NPL ratio came out low at 1.2% (vs. 1.0% in FY08) with coverage ratio at 146%. For Q4 09, we expect NBAD to generate net earnings of AED 694mn, down 24% QoQ mainly on an estimated precautionary provision hike. We are hence forecasting FY09 net earnings to touch AED 3.3bn, a 15% increase from a ‘clean’ AED 2.9bn FY08 figure.

Recent developments and outlook

In September 09, NBAD was able to raise USD 850mn five-year medium term notes under its existing USD 5bn EMTN program. In addition, its liquidity was strengthened with USD 132mn issues in three private placements in H2 09. Moving forward, we believe NBAD will continue to report solid balance sheet growth benefiting from the Abu Dhabi government’s support both on the funding and lending sides. Although we legitimately expect some pressure on the bank’s asset quality, it will, in our view, be less acute than peers, given NBAD’s high government exposure. As a matter of fact, we view NBAD as the most defensive stock in the UAE banking universe.

Share Ownership

Free Float, 29.5%

Abu Dhabi Investment

Council, 70.5%

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7

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Average Daily Traded Value Closing Price (Last Trade)

RIC Code NBaD.aD

Country uaE

Exchange aDx

Sector Banking & financial services

Foreign Investor Limit 25%

Share Price as at 31/12/2009 (AED) 12.4

2009 % Change 52%

52 week high 14.50

52 week low 6.50

Mkt Cap (AED'000) 26,961,010

Mkt Cap (USD'000) 7,340,524

Number of outstanding shares ('000) 2,174,275

Free Float 30%

PE 09e 8.2x

PB Current 1.7x

Average daily traded value (USD'000) 804


Vision 2010


NOT RATEDEmirates NBD Company Overview

Emirates NBD (ENBD) emerged in 2007 from the merger of two flagship Dubai-based banks: Emirates Bank International and National Bank of Dubai. With an asset base of AED 291bn as of end of September 09, ENBD is by far the largest bank in the GCC region, enjoying the widest distribution network with 129 branches and over 650 ATMs spread across the UAE. The banking group also operates in Saudi Arabia, Qatar, the UK, and Jersey (Channel Islands), and has representative offices in India, Iran and Singapore.It offers a variety of banking products and services based on a fairly diversified business model covering wholesale and consumer banking, wealth management, private banking, consumer finance, and investment banking, to name just a few. Over the next three to five years, the bank plans to increase its retail network to 200 branches in the UAE and open 10 branches in Saudi Arabia.


Over 9M 09, Emirates NBD’s profitability dropped 32% YoY to AED 3,164mn, strongly affected by steep rise in both loan loss provisions and impairments on investment securities. Customer deposits added 13% over December 08 levels to AED 184bn, while loan book growth was limited to 4% year-to-date, adherent with the bank’s conservative lending strategy. At these levels, ENBD managed to improve its liquidity profile as it displayed a ‘plain vanilla’ loans-to-deposits ratio, down to 118% from a peak of 129% as of December 2008. On asset quality and inline with management’s expectations, NPL ratio went up to 1.9% by the end of September 09 (vs. 1.0% in FY08) with coverage ratio down to 109% from 118% in FY08. On the expenses front, operating costs increased 5% YoY, highlighting an improved 9M 09 cost efficiency ratio of 32%, vs. 38% the same period last year. In terms of capital adequacy ratio, the bank strengthened it to 19.9% as of September 09 compared to 11.4% as of December 08, with Tier 1 at 12.7%.


Over the past year, Emirates NBD achieved important milestones in its integration process, with the final steps being the completion of the legal merger of Emirates Bank and NBD (into one legal entity) and the rebranding across all branches. Being the largest UAE bank with heavy exposure to Dubai and its related entities, ENBD is expected to face great challenges in 2010. As such, the bank intends to focus its strategy on (1) balance sheet optimisation through prudent lending growth and active funding management, (2) profitability improvement via maximisation of yields and reinforcement of fee income, and (3) risk management enhancement. Despite a relayed clear and focused strategy, we believe the aggravation of Dubai’s debt woes are going to threaten ENBD’s profit generation capacity for at least the coming year. Substantial write-downs, deterioration in asset quality and liquidity constraints being the considered risks, we retain a cautious stance on ENBD stock.

Share OwnershipFree Float,

39.0%

Dubai Government ,

55.6%

Juma Almajid, 5.3%

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RIC Code ENBD.Du

Country uaE

Exchange Dfm

Sector Banks



2009 % Change 6%

52 week high 4.70

52 week low 2.68

Mkt Cap (AED'000) 16,395,436

Mkt Cap (USD'000) 4,431,199


Free Float 39%

PE 09 Annualized 3.9x

PB Current 0.6x



Vision 2010


NEUTRALAbu Dhabi Commercial BankCompany overview

Abu Dhabi Commercial Bank (ADCB) was formed in 1975 following the merger of Khaleej Bank, Emirates Commercial Bank, and Federal Commercial Bank. As at September 09, the bank was able to maintain its rank as the third largest listed UAE bank in terms of assets worth AED 159bn. However, its profitability was strongly hit by the sharp deterioration of its asset quality with 9M 09 earnings almost halved YoY.Over the years, ADCB grew to become a well-diversified banking institution offering corporate, retail and investment banking services along with brokerage, private banking and wealth management. Its distribution network consists of 48 branches across the UAE complemented with two in India. As of September 2009, the bank employed 2,547 people and served over 300,000 retail and 13,000 wholesale customers.Islamic banking being one of the bank’s key area of focus, ADCB acquired 25% of one of Asia’s top Islamic lenders in 2008, Malaysia’s RHB Capital Berhad, and a specialized local subsidiary (Abu Dhabi Commercial Islamic Finance) was incorporated in H1 09.


ADCB’s 9M 09 net earnings declined 48% YoY to AED 683mn. This significant decline was mainly the result of the recognition of AED 1.2bn loan loss provision charges during the period (vs. AED 426mn over 9M 08) as a reflection of pressure on the bank’s loan quality, which included a sizeable exposure to Saad/ AHAB groups. On the other hand, the bank was able to significantly grow its top line as evident in a 17% YoY growth in net operating income. On the balance sheet, customer deposits stood at AED 83bn as of September 09, a 1.0% year-to-date drop. On the contrary, net loans increased 7.3% since December 08 to AED 116.7bn, hence tightening loans-to-deposits ratio further from 129% to 140% by Q3 09-end. This high level is explained by the bank’s strong reliance on borrowings, reinforced with a recent USD 1bn five-year bond issuance (under the bank’s USD 7.5bn Global Medium Term Note Program). Asset quality indicators sharply deteriorated during the period with NPL ratio peaking at 4.2% (vs. 1.1% in December 08) and the coverage ratio brought down to 52% (from 179% in FY 08). Given obvious downside risks, we expect ADCB to post a net loss of AED 88mn in Q4 09, bringing total FY 09 bottom line to an estimated AED 596mn, down 52% YoY.


ADCB was able to deliver top line growth in the difficult operating environment of 9M 09 as a result of higher net interest revenues and increasing contribution from its Malaysian associate. The additional long term liquidity recently raised as well, as a high total capital ratio (19.4% by September 09) should provide the bank with some support to enhance lending capabilities. Nonetheless, these positives are overshadowed by serious concerns about the bank’s ability to recover healthy asset quality ratios, especially in light of the very low provision coverage ratio displayed by the end of Q3 09. In addition, we suspect the bank to have one of the highest exposures to Dubai World amongst Abu Dhabi banks, which could put further strain on its balance sheet solidity. Therefore, we reiterate a cautious outlook on the stock for 2010 as it presents, in our view, the highest risk profile in the Abu Dhabi banking universe.

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Share Ownership

Free Float, 35.2%


Council, 64.8%

RIC Code aDCB.aD

Country uaE

Exchange aDx




2009 % Change -11%

52 week high 2.74

52 week low 1.27

Mkt Cap (AED'000) 7,599,800

Mkt Cap (USD'000) 2,069,155


Free Float 35%

PE 09e 12.8x

PB Current 0.7x

Average daily traded value (USD'000) 1,272


Vision 2010

Union National BankCompany overview

Union National Bank (UNB) was established in Abu Dhabi in 1982 and is the sole joint bank between the governments of Abu Dhabi and Dubai which are respectively holding 50% and 10% stake in the bank. With assets of AED 76bn as of September 09, UNB is ranked seventh among the listed UAE banks in terms of total assets, and sixth in terms of profitability with 9M 09 earnings of AED 932mn. The bank’s main areas of expertise are conventional and Islamic banking (via its specialized arm Al Wifaq Finance Company) as well as investment banking (through its subsidiary Union Brokerage). In the UAE, UNB’s operations are catered by a network of more than 42 branches and 135 ATMs. In addition, the bank’s footprint in the broader MENA region materialized in 2006 when it acquired a 95% interest in Alexandria Commercial and Maritime Bank, later renamed Union National Bank Egypt. In July 2009, the bank widened its presence by opening a representative office in China, at the Shanghai World Financial Centre.


On a ‘clean’ basis, UNB recorded a drop of 11% YoY in 9M 09 net profit to AED 987mn (vs. AED 1,109mn for 9M 08). This negative performance was attributable to a heavy 18% YoY plunge in non-interest revenues driven by a significant slump in the fee business, inline with the reported halt in loan origination. Indeed, September 09 loans came quasi-flat compared to December 08 levels at AED 50.7bn while non-performing loans witnessed a strong 84% year-to-date increase. Nonetheless, UNB still displayed a competitive NPL ratio of 1.3% in Q3 09, with coverage ratio maintained above 105%. On the liquidity front and after irregular growth, customer deposits stood at AED 54.7bn as of September-end 09, a notable 10.5% year-to-date growth. As a result, loans to deposits ratio significantly relaxed to 92.7% (vs. 101.9% at December 08). We are estimating UNB’s Q4 09 net income to total AED 171mn, a 52% QoQ decline mainly on higher provision charges expected at AED 188mn (vs. a mere AED 31mn in Q3 09).


Despite a drop in profitability during the year, UNB’s 9M 09 results highlighted (1) the improvement of its liquidity position, (2) the sustainability of competitive asset quality indicators despite the strong rise in NPLs witnessed throughout the year, and (3) the enhancement of its capital base with CAR reaching 17.1% by the end of the 9M 09 period. The bank’s current financial profile suggests a low risk profile and a relative resilience to the economic slowdown. In addition, the bank’s successful operations in Egypt are a growing revenue contributor and one of UNB’s key strengths. Based on current valuation levels, we are rating the bank as a BUY.


BUY


40.0%

Investment Corporation of Dubai, 10.00%


Council, 50.1%

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RIC Code uNB.aD

Country uaE

Exchange aDx

Sector Banks & financial services



2009 % Change 59%

52 week high 4.70

52 week low 1.31

Mkt Cap (AED'000) 6,600,179

Mkt Cap (USD'000) 1,796,945


Free Float 40%

PE 09e 6.0x

PB Current 0.8x



Vision 2010


BUYFirst Gulf BankCompany overview

Headquartered in Abu Dhabi, First Gulf Bank (FGB) was established in 1979 and listed on ADX in 2002. The ruling family of Abu Dhabi has been the bank’s main shareholder since 1996 and currently holds a 61% stake. Highly capitalizing on strong corporate relationships and robust shareholder support, the bank became one of UAE’s flagship players while enjoying the fastest-growing business as evident through the staggering 72% (2003-2008) CAGR recorded by total assets. As of September-end 09, FGB was the UAE’s fourth largest lender with total assets of AED 124bn and ranked third in terms of net profit with 9M 09 bottom line reaching AED 2.3bn. FGB’s core banking activities include corporate banking, treasury and investments, retail and Islamic banking as well as corporate finance. Core revenues are supported by other income streams generated by its two subsidiaries (involved in property development and private equity) and three associate companies. The bank’s network currently comprises of 19 branches in the UAE supplemented by a presence in Singapore, UK, Libya (with the opening of First Gulf Libyan Bank) and Qatar since the receipt of regulatory approval in January 2009.Under its one-year 10% share buy-back program (launched in November 2008) the bank managed to acquire a total of 21 million shares with 116.5 million shares remaining. The bank recently requested for the program to be extended for another year. In November 2009, the bank was able to raise USD 500mn three-year senior unsecured notes under its USD 3.5bn EMTN program, priced at 285bps above US Treasuries.


Over 9M 09, FGB posted a bottom line of AED 2,275mn (excluding the AED 181mn gain on sale of property), a 9% increase over 9M 08 ‘clean’ earnings. This performance was mainly achieved on the back of continuous balance sheet growth combined with improving interest margins, sustainability of the fee business and tight cost control. Customer deposits reached AED 89.4bn as of September 09, adding 21% year-to-date while loans expanded 13% over the same period to reach AED 90.0bn. At these levels, FGB relaxed its loans-to-deposits ratio from 107% in FY 08 to 101%. During 9M 09, NPLs increased by 160% to reach AED 1,276mn, pushing up NPLs/ Gross Loans ratio to 1.4% from 0.6% in FY 08. In parallel, provision coverage remained high at 153%. We expect FGB to post Q4 09 bottom line of AED 713mn, bringing FY 09 ‘clean’ earnings to AED 2,988mn, up 26% YoY.


Despite challenging operating conditions, FGB was able to outperform most UAE players as evident through a growing business, strong profitability levels, and competitive asset quality indicators. Although we acknowledge lingering pressure on the bank’s asset quality moving forward (especially given its still high direct and indirect exposures to the property sector), we believe it is well positioned and sufficiently capitalized to manage such stress (given a total CAR at 18.8% as of September 09). We reiterate our positive outlook on this stock and believe the current valuation still offers upside potential.


27.0%

Private investors,

11.7%

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family, 61.3%

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RIC Code fGB.aD

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2009 % Change 79%

52 week high 19.75

52 week low 6.55

Mkt Cap (AED'000) 22,206,250

Mkt Cap (USD'000) 6,045,972


Free Float 88%

PE 09e 7.0x

PB Current 1.6x



Vision 2010

Dubai Islamic BankCompany overview

Dubai Islamic Bank (DIB) was established in 1975 as the first Islamic banking institution in the GCC region. Spurred by an increasing demand for Islamic banking products and services over the years, the bank grew to become the sixth largest UAE listed lender as of September 09 with an asset base of AED 83bn. In terms of profitability, the bank ranked fourth with 9M 09 net earnings at AED 1.1bn. Following an ambitious expansion plan in 2009, DIB’s nationwide branch network was brought to a total of 61, including three Express Banking locations, and over 200 ATMs. In addition to an established presence in Pakistan (via DIB Pakistan), Iran and Turkey, DIB’s most recent acquisition materialized through the purchase of a 52% stake in the Jordan-based Industrial Development Bank, later renamed Jordan Dubai Islamic Bank (JDIB) which is set to start operations in January 2010. Noteworthy, the bank’s core operating business is complemented by participations in more than 50 companies, mainly operating in financial services and real estate. Deyaar, one of Dubai’s real estate developers, and Tamweel, a leading UAE mortgage provider, are part of DIB’s network.


Throughout 9M 09, DIB’s performance was severely affected by a strong increase in provisioning which was the main reason behind the 65% YoY decline in net earnings to AED 1,121mn. On the funding side, customer deposits showed strong volatility over 2009 mainly due to large withdrawals of government-related funds and active funding management to lower expenses. Loan portfolio was reported at AED 50.4bn as of September 09, down 4% year-to-date and reflecting the bank’s prudence in terms of loan origination. DIB’s 9M 09 loans-to-deposits ratio stood at 76.2%, the lowest level amongst UAE peers. Unfortunately, NPL figures were not being provided by the bank on a quarterly basis yet we assume DIB’s NPL ratio was north of 5.0% at September 2009 given its large exposure to Dubai and the local property sector. We expect the bank to post Q4 09 net income of AED 141mn (-53% YoY), translating to FY 09 net profits of AED 1,262mn, down 27% compared to FY 08 figure.


DIB’s 9M 09 earnings showed evident weaknesses, marked by lingering uncertainties on asset quality particularly on its high exposure to the property sector. These concerns were mirrored through the downgrading of the bank’s credit ratings throughout the year.In addition to being affected by heightened credit risks and general business slowdown, the bank was displaying a total CAR of 12.1% as of September 09. Although within regulatory requirements, this ratio is one of the lowest amongst local peers, making the bank more vulnerable to shocks. An AED 3bn five-year capital increase (approved by DIB’s EGM in April 2009) should provide some support to the bank’s capital. However, a controlled balance sheet growth and a conservative lending policy are, in our view, necessary to preserve the bank’s business until the local property market recovers, and brighter economic prospects are seen in Dubai. For now, we are maintaining a cautious outlook on the bank.


UNDER REVIEW

RIC Code DisB.Du

Country uaE

Exchange Dfm

Sector Banks and financial services



2009 % Change 47%

52 week high 3.37

52 week low 1.38

Mkt Cap (AED'000) 8,385,987

Mkt Cap (USD'000) 2,285,010


Free Float 63%

PE 09e 6.3x

PB Current 0.9x


Share Ownership

Free Float, 63.0%

Dubai Government ,

29.8%

Saeed Ahmad Lootah , 7.2%

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Vision 2010


UNDER REVIEWDubai Financial MarketCompany overview

Dubai Financial Market (DFM) was established as a public institution and commenced operations in 2000. It became a public joint stock company following its IPO in November 2006 through which 1.6 billion shares were offered to the public, representing 20% of DFM’s paid-up capital. The government of Dubai, via Borse Dubai, retained the remaining 80%.

In December 09, Kuwait’s HITS Telecom listed on DFM, bringing total number of securities listed on the exchange to 88, including 66 public shareholding companies, in addition to few debt instruments and mutual funds. DFM’s main revenue line remains trading commission with a fee structure of 0.2% on the total value traded on the exchange, considered on the upper range when compared to regional peers.


DFM reported a 9M 09 bottom line of AED 258mn, depicting a 67% YoY drop. This decline essentially reflected an exhausted operating climate characterized by thin volumes and weak traded values. In details, 9M 09 fee income came at AED 296mn, a 50% YoY fall, stemming from a 53% YoY plunge in traded values. Trading commission remained the bulkiest contributor at 92% of total fee income (vs. 93% in 9M 08). Alternatively, expenses (including G&A and amortization) remained almost flat YoY at AED 115mn leading to a 9M 09 EBIT of AED 181mn, a 63% decrease over 9M 08 EBIT of AED 481mn. On the other hand, 9M 09 investment revenues amounted to AED 78mn (vs. AED 299mn for 9M 08) as the exchange suffered from weaker gains on sale of investments and absent investment revaluation gains. For Q4 09, we expect DFM to report a bottom line figure of AED 94mn bringing FY 09 earnings to AED 353mn (-42% YoY).


In November 2009, DFM announced the migration to a new trading platform, the X-Stream, providing it with the ability to (1) display actual Bid and Ask prices during the pre-opening session rather than theoretical average prices, (2) register the closing price as the last executed transition price, (3) introduce new financial instruments, and (4) execute over 720,000 trades per session.

On December 22nd, 2009, DFM announced that Borse Dubai and NASDAQ OMX had approved its offer to acquire 100% of NASDAQ Dubai for USD 121mn (AED 445mn). The two exchanges will be placed under a holding company yet will remain separated operationally as each is regulated under different bodies: DFM under SCA (Securities and Commodities Authority) while NASDAQ Dubai under DFSA (Dubai Financial Services Authority). Once this acquisition is completed (probably by H2 2010), NASDAQ OMX will be holding a 1% stake in DFM. Although we welcome such a merger, we believe that more added value to DFM could be generated if NASDAQ Dubai equity listings are transferred to DFM, while preserving NASDAQ Dubai for derivative products.

In 2010, we do not expect traded values to significantly expand given our regional outlook. Consequently, we believe DFM’s profitability in the coming year will not markedly vary from that of 2009. Furthermore, the recent turmoil caused by the Dubai World demise leads us to review downward our general assumptions on UAE stock market development. As such, we reiterate a cautious outlook on the stock and believe the current valuation is full.


20.0%

Borse Dubai Limited , 80.0%

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RIC Code Dfm.Du

Country uaE

Exchange Dfm

Sector Banks



2009 % Change 50%

52 week high 2.75

52 week low 0.75

Mkt Cap (AED'000) 15,040,000

Mkt Cap (USD'000) 4,094,857


Free Float 20%

PE 09e 42.7x

PB Current 1.9x



Vision 2010

Tamweel and Amlak FinanceMortgage market on halt

The wide correction in Dubai’s real estate sector in H2 08 was aggravated throughout 2009 by lack of liquidity in the property market. This coupled with continuing idleness of Tamweel and Amlak, has put the emirate’s residential mortgage market on halt. As a result, the mortgage industry marginally shrank to a calculated AED 49.3bn as at September 09 compared to AED 50.8bn at December 08, signalling (1) non-existent wholesale funding for Tamweel and Amlak, (2) the absence of commercial banks’ lending to the residential real estate market, and (3) stagnant mortgage demand as alertness on real estate sector persisted.

Inline with our expectations for 2009, Tamweel benefited from strong asset quality metrics to maintain a September 09 loan book at AED 10.4bn, a mere 1% drop over December 08 levels, while affirming its leadership position in the market with a share of 30.5% (flat with 2008). On the other hand, Amlak’s exposure to high-end properties, with their valuations suffering the most from the real estate slump, recorded an 8% drop in financing assets to AED 9.3bn, down from AED 10.1bn at December 08, translating to a market share of 24.1% (down from 25.5% in 2008). Obviously, with blocked access to funding in the first nine months of 2009 and the merger being further delayed, Tamweel’s and Amlak’s combined market share has slipped to 54.6%, down from 56.0% at December 08.

Over 9M 09, both Tamweel and Amlak’s profits remained in the red inflicted by increasing funding costs and credit provision charges freezing their loan portfolio revenue generation. Though both mortgage providers do not disclose NPLs figures, it is unquestionable that both have suffered from a steep deterioration in asset quality, with Amlak to a probably larger extent.

With the merger remaining on the swing, Tamweel and Amlak are seen to remain in a difficult operating position in 2010 due to: (1) further drop in property prices leading to further increase in loan-to-value indicator, (2) persistence of liquidity shortage hindering property transaction pickup, and (3) contagion effect of the recent Dubai World restructuring on the overall property sector. In addition, we also identified the following endogenous factors: (1) balance sheet growth to remain frozen with no access to wholesale funding (at least at reasonable pricing), (2) further tightening in interest spreads on higher funding costs, and (3) more deterioration in loans’ credit quality which would require further provisioning charges.On another note, should the merger occur and the combined entity is granted a full banking license (which would open up the ability to raise retail funds), we remain sceptical on the effectiveness of such initiative amidst an overall weak and unstable operating environment.


UNDER REVIEW


Vision 2010


BUYEmaar PropertiesCompany overview

Established by the Government of Dubai in 1997, Emaar has grown over the years to become one of the largest real estate developers in the Gulf region and among the most recognized in the world. The company listed its shares on the Dubai Financial Market (DFM) in 2000, the same year when it offered Dubai’s first freehold properties to foreigners. The Government of Dubai, a 32% shareholder in Emaar has supported the firm throughout the years offering it free land which provided the company with operational flexibility and a low cost base. The company's current projects in Dubai include the prominent Downtown Burj Khalifa, home to one of the largest malls in the world, Dubai Mall and Burj Khalifa, the tallest tower in the world. The company's operations extend to the wider MENA region and the Indian sub-continent.


Emaar reported revenues of AED 5.43bn for the 9M 09 period, down 40.9% YoY. Revenues from land sales lost a staggering 68.0% YoY to reach AED 134.1mn in 9M 09. Property sales totalled AED 3.76bn, down 53.5% YoY. Hospitality and rental revenues increased by a strong 125.8% YoY, as Emaar expanded its portfolio of malls and hotels. Nevertheless, Emaar posted a net loss of AED 392.8mn in 9M 09. The main reason behind this loss was the AED 1.79bn write-off on its US operations. Moving into our Q4 09 net profit projections, we expect Emaar to post net profits amounting to AED 699.8mn, which would imply a QoQ increase of 6.9%. Emaar's FY 09 net profits would land on AED 307.0mn (EPS 0.05), 90% below last year's net profit. Excluding the loss from the discontinued US operations and the impairment of assets, 2009 net profits would have been AED 2.1bn (EPS 0.34), a decline of 31% YoY.

As of 9M 09-end, Emaar sits on a gross cash position of AED 2.0bn along with debt of AED 8.15bn, implying a net debt position of AED 6.15bn.


In December 2009, Emaar's BOD decided to reject the proposed merger with Dubai Holding's real estate units, removing existing concerns about the merger's dilution impact on minority shareholders. We expect 2010 to see another jump in the contribution from the company's investment property portfolio, due to higher occupancy and new property additions. On January 4th Emaar inaugurated the world's tallest building, the 828m high Burj Khalifa, with the handover of the previously sold units commencing in Q1 10. We believe that Emaar is poised for a stronger year; with growing recurring revenue streams coupled with property deliveries and a stronger contribution from its international operations.

RIC Code Emar.Du

Country uaE

Exchange Dfm

Sector real Estate



2009 % change 71%

52 week high 5.01

52 week low 1.74

Mkt Cap (AED’000) 23,512,183

Mkt Cap (USD’000) 6,406,589

Number of outstanding shares (‘000) 6,091,239

Free Float 69%

PE 09E 76.6

PB Current 0.8

Average daily traded value (USD’000) 41,422

Share Ownership

Free Float, 68.8%

Investment Corporation of Dubai, 31.2%

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Vision 2010


NOT RATEDUnion PropertiesCompany overview

Union Properties (UP) was established as the real estate unit of Emirates Bank Group (EBG) in 1987 then went public and got listed on the Dubai Financial Market (DFM) in 2000. UP’s core business relies mainly on real estate development for sale and lease and MEP contracting.

The company is currently building two of Dubai's most prominent properties; the Index Tower and Limestone House both located in the DIFC and scheduled for delivery in 2010. Limestone House will be attached to a five star hotel managed by the Ritz Carlton, which will form part of UP’s hotel portfolio. During 2009 UP began handovers of its largest development to date Motor City, a master development with residential, office, retail and leisure space powered by an F1 theme park.


UP's 9M 09 revenues reached AED 3.2bn, up a strong 20.9% YoY. This growth is mainly attributable to the handover of residential units in MotorCity project, which, recognised through the completed contract method, led to a spike in property sales revenues. UP delivered1,150 residential units within Motor City in 9M 09. Nevertheless, UP reported a 9M 09 net loss of AED 350.1mn, compared to a net profit of AED 800.7mn in 9M 08. The key reasons behind this loss include: 1) AED 470.6mn in valuation losses on investment properties (AED 456.6mn gain in 9M08) and 2) AED 125.0mn in provisions related to the contracting business (Thermo). Excluding these revaluation losses and provisions, UP would have reported a ‘clean’ net income of AED 245.5mn in 9M 09, compared to AED 344.1mn in 9M 08. UP’s net debt position reached AED 6.79bn as of 9M 09-end, translating into a debt-to-equity ratio of 120.6%. UP has managed to restructure AED 956.0mn worth of short term facilities into long term obligations earlier in Q3 09 and is in the final stages of restructuring a syndicated loan of AED 2.75bn.


While we view the continued handovers within the Motor City project as a strong positive, we remain concerned about the undisclosed extent of client defaults and the implication this might have on cash recovery (60% of the purchase price to be paid on handover). UP is expected to hand over the Index Tower and Limestone House in 2010 which should boost the property sales revenue. However, the company’s almost continuously underperforming MEP contracting subsidiary continues to be a source of uncertainty and losses, as is highlighted in Q3 09 provisions of AED 125mn over and above the AED 500mn booked in Q4 08. An added concern is the relatively high level of short-term debt (AED 4.15bn). Therefore we remain cautious on the name, especially given that there is no signs of a near-term recovery in Dubai’s real estate market.

RIC Code uPro.Du

Country uaE

Exchange Dfm

Sector real Estate



2009 % change 4%

52 week high 1.33

52 week low 0.50

Mkt Cap (AED’000) 2,289,463

Mkt Cap (USD’000) 623,832


Free Float 47%

PE 09 Annualized

PB Current 0.4


Share Ownership

Emirates NBD, 47.6%

Ghobash Trading & Investments, 5.1%

Free Float, 47.3%

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Vision 2010


NOT RATEDDeyaar DevelopmentCompany overview

Deyaar Development (Deyaar) is a Dubai-based real estate development company with local and regional operations that include development, lease, management and brokerage of property. All of Deyaar’s activities are performed in compliance with Islamic Sharia Principles. Deyaar went through an Initial Public Offering (IPO) in May 2007 and listed on the Dubai Financial Market (DFM) later in September of the same year. The company was first established in 2002 as Dubai Islamic Bank’s (DIB) real estate investment arm which currently retains a 41% ownership in the company while 57% is held by the public.

Deyaar has developed residential and commercial projects across the UAE, Lebanon and Turkey. The majority of Deyaar’s developments comprise of properties intended for sale. However the company remains a key player in the area of property management, with 900 properties under management on behalf of their owners.


Deyaar reported net profits of AED 212.2mn in 9M 09; down 71.9% YoY, on the back of AED 1.32bn in revenues. A 42.4% YoY decline in revenues was accompanied with a 20.9 percentage points reduction in gross margins. Deyaar booked fair value gains on investment properties amounting to AED 76.5mn in 9M 09, compared to nil in 9M 08. Net margins (NPM) continued to head south coming in at 16.0%, a 16.9 percentage point loss YoY. Deyaar’s investment properties include a 50% stake in a project under development in the DIFC area and land plots both locally and internationally. Deyaar closed 9M 09 with a cash position of AED 651.6mn and a total debt of AED 1.1bn (debt-to-equity ratio of 14.1%) implying a negative net cash position of AED 408.8mn.


Deyaar has managed to deliver six projects in 2009, with the second quarter of 2009 witnessing the delivery of four residential projects (470 residential units) in Dubai Silicon Oasis City and the company’s first project in Lebanon. In Q3 09, Deyaar handed over The Citadel, an AED 700mn 41-storey commercial tower in the Business Bay area of Dubai. In 2010, the company is up for delivering six projects, and will see revenues from property sales as the key feature on the income statement in the coming quarters and could very well exceed FY 09 levels. As we move into FY 10, most of Deyaar’s ongoing projects will approach completion, leading property sales revenue to fade beyond next year. In the absence of any major project launches, the company is left with a highly uncertain medium-term earnings profile which would rely on property management, brokerage, contracting and the income of the 50% stake in the DIFC properties. The contribution from these business lines will barely cover the current level of SG&A and finance costs.

RIC Code DEyr.Du

Country uaE

Exchange Dfm

Sector real Estate



2009 % change 16%

52 week high 1.01

52 week low 0.44

Mkt Cap (AED’000) 3,351,240

Mkt Cap (USD’000) 913,144


Free Float 55%

PE 09 Annualized 11.8

PB Current 0.4


Share OwnershipDubai Islamic Bank, 41.0%

Other investors, 4.0%

Free Float, 55.0%

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Vision 2010

Aldar PropertiesCompany overview

Aldar Properties (Aldar) was established in October 2004 then underwent an initial public offering (IPO) in 2005 that raised its capital to AED 1.5bn and was subsequently listed on the Abu Dhabi Securities Exchange (ADX). Aldar is an Abu-Dhabi real estate developer with operations including property development for sale and leasing, land sales in addition to property management and investment. Aldar has a current land bank close to 50mn sqm, all of which is located in Abu Dhabi and mostly granted by the Abu Dhabi Government.

The company is currently developing two of Abu Dhabi's largest projects including the 24mn sqm mixed-use Yas Island development and 5.2mn sqm of beach-front community Al Raha Beach. Aldar's strategy involves the sale of land plots, off-plan property in addition to building a strong diversified investment portfolio.


Aldar's 9M 09 revenues totalled AED 1.7bn, compared to AED 4.4bn in 9M 08. This 61.3% drop YoY was mainly due to lower land sales, which retreated to AED 103mn in 9M 09 compared to AED 3.63bn in 9M 08. Despite its 39.4% YoY growth, recurring revenues from investment properties, contributed a mere 5.6% of total revenues. With seven new hotels gone live in Q4 09 on Yas Island and more properties commencing operations in 2010, significant rental and hospitality revenue growth is expected in 2010. The company recognized AED 1.61bn in fair value gains on investment properties in 9M 09, which offset the impact of lower revenues and higher SG&A expenses to produce a bottom line of AED 1.57bn for the period, down 53.3% YoY. Moving onto Q4 09, we expect the company's net profits to reach AED 156.4mn, down 63.4% QoQ yet up 85.2% YoY. FY 09 net profits would therefore land on AED 1.73bn (EPS 0.67), down 49.9% YoY.

Aldar’s cash balance retreated from AED 12.1bn in FY 08 to AED 11.0bn in 9M 09, along with an AED 14.3bn expansion in debt resulting in a negative net cash position of AED 25.8bn. With most of the company’s investment properties either completed or approaching completion, the cash burn rate is expected to slow down rapidly in the coming quarters.


The company completed the Yas Marina circuit with Abu Dhabi's first F1 Grand Prix and went operational with seven hotels in October 2009. Aldar is expected to complete this year the Central Market Mall, the Ferrari theme park and the Links golf course. The handovers of sold properties on Al Raha Beach coupled with their impact on the income statement is due to begin, with Al Bandar project scheduled for delivery in Q2 2010 followed by Al Zeina and Al Muneera projects in 2011. We maintain our positive outlook on the under-supplied Abu Dhabi real estate market and specifically Aldar Properties, the most long-term oriented developer in the capital.


BUY

RIC Code alDr.aD

Country uaE

Exchange aDx

Sector real Estate



2009 % change 26%

52 week high 6.65

52 week low 1.96

Mkt Cap (AED’000) 12,657,464

Mkt Cap (USD’000) 3,448,900


Free Float 66%

PE 09E 7.3

PB Current 0.7


Share OwnershipMubadala

Development Co., 19.0%

Abu Dhabi Investment Co., 7.2%

Free Float, 65.7%

National Bank of Abu Dhabi,

5.2%National

Corporation for Tourism and Hotels,

3.0%

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Vision 2010


NOT RATEDSorouh Real EstateCompany overview

Sorouh Real Estate (Sorouh) is the second largest listed real estate developer in Abu Dhabi, established in the first half of 2005 and subsequently listed on the Abu Dhabi Securities Exchange (ADX) in December of the same year. The company holds a land bank of almost 60mn sqm, with around 10% in high value areas of Abu Dhabi and the remainder in the immediate proximity to the Dubai border. Sorouh's real estate development strategy used to be oriented towards land sales. However, the company is currently shifting focus to rental properties and the completion of previously sold off-plan properties.

The developer's major projects include Shams Abu Dhabi on Al Reem Island and Al Ghadeer. While Shams Abu Dhabi offers high-end office and residential units, Al Ghadeer is a middle-income housing project located between Dubai and Abu Dhabi.


Sorouh reported 9M 09 revenues of AED 2.66bn, down a 16.5% YoY. Despite revenues from land sales losing 62.9% YoY, Sorouh managed to partially offset this decline by recording property sales revenues for the first time (AED 1.27bn) as the company handed over the Golf Gardens villas and townhouses. Property sales revenues became the main revenue contributor with a 47.5% share (nil in 9M 08), leaving 43.8% to land sales revenues (98.7% in 9M 08). Net profits for the first nine months of 2009 reached AED 470.0mn, down 74.6% YoY, and implying a net profit margin (NPM) of 17.3% for the period. As of 9M 09-end, Sorouh holds AED 4.0bn of cash with a total debt balance of AED 2.41bn, resulting in a net cash position of AED 1.59bn/AED 0.64 per share.


The company’s Sun and Sky Towers within Shams Abu Dhabi remain on schedule for delivery mid-2010 with more than 50% of the retail podium being pre-leased. The Gate Towers are progressing as planned with three towers rising above ground. With most of the first phase of Golf Gardens completed and handed over to clients, the company is commencing construction on Golf Gardens II. Moving into FY 10, Sorouh is expected to witness a spike in unit deliveries and thus also a growth in revenues from past property sales. However, under the current market conditions, we expect limited or no new sales of land or property in the coming months, further suppressing Sorouh's results given that the company has a relatively small investment portfolio and recurring cash flows to hold onto. Nevertheless, with operations in the under-supplied Abu Dhabi market (the market which we expect to recover first in the UAE), we see this well-funded company as one of the strongest long-term real estate plays in the UAE.

RIC Code sor.aD

Country uaE

Exchange aDx

Sector real Estate



2009 % change -20%

52 week high 4.22

52 week low 2.03

Mkt Cap (AED’000) 6,425,000

Mkt Cap (USD’000) 1,750,681


Free Float 81%

PE 09 Annualized 10.5

PB Current 1.1


Share OwnershipAl Goud Financial

Investment , 11.6%

Free Float, 81.1%

Abu Dhabi Investment Company(ADIC), 7.3%

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Vision 2010

Arabtec HoldingCompany overview

Arabtec Holding (Arabtec) was established in 2004 with the intent of acquiring a 100% stake in Arabtec Construction, one of UAE's leading general contractors. In the same year, the company underwent an initial public offering (IPO) and used the proceeds to finance its acquisition of Arabtec Construction.

The company was among the main contractors on Burj Khalifeh, the world's tallest man-made structure. Arabtec's experience from large scale and technically challenging projects has enabled it access to both regional and international opportunities. For that reason, Arabtec was awarded the AED 10bn Okhta Centre contract from Gazprom Neft in Russia and the equivalent of AED 3.5bn worth of contracts in Saudi Arabia. The company also has operations in Qatar, Syria, Jordan and Pakistan.


Arabtec reported 9M 09 revenues of AED 5.57bn, down 13.5% YoY as Dubai -its main market- experienced a slowdown. Net profits in 9M 09 reached AED 511.7mn, a decline of 32.7% from 9M 08 on the back lower revenues, higher contingencies being built into margins and reduced pricing power on new contracts. We expect Q4 09 revenues to reach AED 1.83bn and produce an expected net profit of AED 169.0mn, leading to an implied net profit for the year of AED 680.8mn (EPS: AED 0.57) - a 28.9% YoY decline.

As of 9M 09-end, Arabtec had a cash balance of AED 658.3mn and a total debt of AED 1.01bn, implying a negative net cash position of AED 355mn (AED 0.3 per share). Arabtec's current backlog stands at AED 28.9bn as of 9M 09-end, equating to 3.0x FY 08 revenues and 3.9x our FY 09 revenue projections.


Last week, Abu Dhabi government-owned Aabar Investments submitted an offer to acquire 70% of the shares (post-conversion) in Arabtec with the latter's management consent. Aabar is offering AED 6.42bn for the stake through a mandatory convertible bond at the conversion price of AED 2.3 per share. Despite the offer falling short of the last market price on the announcement date, we believe there is more to it than the naked eye can see. Aabar is expected to aid Arabtec in securing major contracts, from the AED 6bn presidential palace contract all the way up to involvement in the construction of the nuclear power plants. Moreover, we believe this Abu Dhabi government stake will improve the odds of Arabtec successfully collecting its receivables from Dubai developers. In addition, the cash will dramatically enhance Arabtec's financial position, allow the company to bid for large regional contracts and facilitate acquisitions in key markets.


BUY

RIC Code artC.Du

Country uaE

Exchange Dfm

Sector Construction



2009 % change 19%

52 week high 3.78

52 week low 0.71

Mkt Cap (AED’000) 3,205,280

Mkt Cap (USD’000) 873,373


Free Float 55%

PE 09E 4.7

PB Current 1.3


Share Ownership


Free Float, 55.0%

Hashem Al Safi, 5.7%

Riad Kamal, 5.4%

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Vision 2010

Depa LimitedCompany overview

Depa Limited (Depa) is one of the leading providers of interior contracting services in the world. The company started providing interior contracting services in 1996 and subsequently decided to acquire the Italian-based contractor "Depa" in 1998, whose name it carries today.

This Nasdaq Dubai and London Stock Exchange listed company operates in the luxury fit-out sector from its Dubai headquarter, with subsidiaries and associates across 16 countries including UAE, Saudi Arabia, Libya, Morocco and Singapore. Depa's operations are broken down into three business lines: Interior contracting, manufacturing and procurement. Depa is involved in a number of landmark projects across the MENA region and Asia ranging from hotels, theme parks, metro stations to Burj Khalifeh.


Depa reported H1 09 revenues of AED 1.11bn, a YoY growth of 49.4% fuelled by increased contribution from infrastructure work through Lindner Depa and stronger progress in Abu Dhabi and Saudi Arabia. H1 09 net profits reached AED 91.7mn, up a strong 65.0% YoY on the back of higher revenues coupled with increased income from associates and net interest income. In H2 09 we expect Depa's bottom line to reach AED 195.0mn, more than double H1 09 profits and up 40.4% YoY. H2 09 net profit margin (NPM) is expected to come in at 12.8%, 150 bps higher YoY and 446 bps above H1 09 margins. Consequently, we forecast FY 09 net profits to record a YoY growth of 47.4% to reach AED 286.7mn (EPS: AED 0.47). This company is one of only two companies in our coverage universe to post 2009 earnings growth.

As of H1 09-end, Depa had a cash balance of AED 551.7mn and a total debt of AED 315.4mn (debt-to-equity ratio of 17.3%), resulting in a net cash position of AED 236.3mn or AED 0.38 per share. Depa currently has a backlog of AED 3.18bn converting into 1.6x FY 08 revenues and 1.2x projected FY 09 revenues.


Depa is aggressively pursuing new markets and contracts to compensate the impact of an imminent decline in Dubai business; Depa's largest market. The company is set for growth in markets like Abu Dhabi, Saudi Arabia, Morocco, Singapore and India. Other than that, Depa's aggressive entry into the infrastructure has proved successful with the company having almost completed the Dubai Metro Red Line and recently won the Green Line contract. A major concern for the company was the lack of liquidity for its shares on the Nasdaq Dubai platform. However, the planned merger of DFM and Nasdaq Dubai should boost the stock's liquidity.


BUY

RIC Code DEPa.Di

Country uaE

Exchange NasDaQ Dubai

Sector Contracting


Share Price as at 31/12/2009 (USD) 0.53

2009 % change 4%

52 week high 0.88

52 week low 0.29

Market cap (AED' 000) 1,195,704

Market cap (USD' 000) 325,805

Number of outstanding shares ('000) 614,726

Free Float 43%

PE 09E 4.2

PB Current 0.7


Share Ownership

Al Mal Opportunity Fund, 27.5%

Mazrui Holdings, 8.9%

Al Futtaim Capital, 7.5%

Free float, 43.0%

Other long term investors, 13.0%

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Vision 2010

Drake & Scull InternationalCompany overview

Drake & Scull International (DSI) is a UAE-based public joint stock company engaged in mechanical, electrical and plumbing (MEP), industrial, water and infrastructure (IWP) and civil contracting. The company's operations span across the UAE, Saudi Arabia, Bahrain, Sudan and more recently Thailand. DSI went through an initial public offering (IPO) in July 2008, at the peak of the UAE stock market offering 55% of its capital and finally listed on the Dubai Financial Market (DFM) in March 2009.


DSI reported 9M 09 revenues of AED 1.4bn, with the MEP business dominating the revenue mix with its 59.4% share. The civil engineering business generated 22.8% of revenues, leaving 17.8% for the IWP business. Gross profit for the 9M 09 period reached AED 286.8mn, translating into a gross profit margin (GPM) of 20.5% and inline with our FY 09 projected margin of 20.8%. 9M 09 net profits reached AED 232.7mn, with a net profit margin (NPM) of 16.6%. For the final quarter of the year we are projecting net profits to reach AED 77.3mn. The implied FY 09 bottom-line would be AED 309.0mn (EPS: AED 0.14), an increase of 47.2% YoY. The expected results for the year render DSI one of only two companies in our real estate and construction coverage universe that are posting a YoY net profit growth.

As of 9M 09-end, DSI had a cash balance of AED 1.12bn and a total debt of AED 328.2mn, resulting in a net cash position of AED 787.6mn or AED 0.37 per share. DSI’s backlog stands at around AED 2.97bn as of 9M 09-end, equating to 1.7x FY 08 revenues and 1.6x projected FY 09 revenues.


In H2 09, DSI executed two acquisitions; an 82% stake in Passavant-Roediger and a 75% stake in Drake & Scull International Kuwait. Passavant-Roediger is a leading global specialist EPC provider of turnkey wastewater treatment plants. DSI Kuwait is an MEP contractor. We believe these two acquisitions are inline with the company's long term strategy to diversify the geographic sources of the company's revenue streams through organic and inorganic growth. The company is still evaluating target companies in the region, with H1 10 expected to see further acquisitions. We expect FY 10 to bring further regional contract awards which, coupled with a successful execution of the next acquisitions, will reduce DSI's reliance on Dubai and expand its growth potential.


BUY

Share Ownership

Free Float, 55.0%


Drake & Scull Group, 5.0%

Khaldoun Tabari, 8.3%

Al Mal Capital, 5.2%

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RIC Code Dsi.Du

Country uaE

Exchange Dfm

Sector Construction



% change since March 16, 2009 22%

52 week high 1.22

52 week low 0.64

Market cap (AED' 000) 1,932,640

Market cap (USD' 000) 526,605


Free Float 55%

PE 09E 6.3

PB Current 0.8



Vision 2010


NOT RATEDAgthia GroupCompany overview

Emirates Foodstuff and Mineral Water Company, also known as the Agthia Group or Agthia, is one of the leading UAE food and beverages companies. Established in 2004 as a holding company under the Abu Dhabi government's privatisation program and listed subsequently, Agthia’s product portfolio includes bottled water and beverages, flour and feed, frozen vegetables and tomato paste. Starting Q4 07 Agthia management undertook an aggressive expansion strategy with two acquisitions (Ice Crystal, a 5-gallon water brand in Q4 07, Al Ain Vegetable for Processing and Canning in Q1 08), the set-up of a food processing unit (Al Ain Food and Beverages) in Egypt in Q2 09, and the acquisition (H1 09) of the exclusive GCC (excluding KSA) distribution rights of children’s drink, CapriSun. The firm is still planning further acquisitions in the food arena.


On the back of AED 694.8.mn in revenues (+15.9% YoY), Agthia reported AED 95.0 mn of net income in 9Mo 09 (+75..2% YoY), inclusive of a AED 6mn provision for “stock quality” booked in Q3 09. The flour and animal feed segment generated AED 509.0 mn in sales, for a gross margin of 25.8% (vs. 16.7% in 9Mo 08). The water and beverages segment recorded 9Mo 09 sales of AED 148.4 mn (+46.9% YoY), for a gross margin standing at 43.4% in Q3 09 vs. 42.3% in 9Mo 08 . With the commencement of shipments from the Egyptian plant in August, tomato paste and frozen vegetables 9Mo 09 revenues reached AED 37.3 mn (vs nil revenues in 9Mo 08), for a gross margin of 31.7%. Despite pricing pressure from international players, the outlook onthis segment revenues seems promising in light of Agthia’s expected move into fruit puree (Q4 09E) and frozen French fries (Q1 10E). Agthia ended Q3 09 with a AED 33 mn net cash position and Shareholder Equity of AED 890 mn vs. net cash of AED 64 mn and Shareholder Equity of AED 871 mn in Q2 09 and net debt of AED 174 mn and Shareholder Equity of AED 778 mn in Q3 08.


2009 has so far been eventful for Agthia as (1) it ventured successfully into new high-margin products such as CapriSun, (2) markedly grew its UAE market share in bottled-water, and (3) started new operations from Egypt. We believe 2010 will be another year of volume momentum for Agthia as it expands its water and beverages bottling capacity, and diversifies its food products offering with fruit puree and French fries. On the back of Q3 09 performance and management indications that feed prices seem to have hit the bottom, we call for flat YoY ongoing net earnings growth in 2010. We believe Agthia represents a compelling long-term play on the GCC food & beverage sector, with a major UAE .exposure. We view the company’s potential announcements of acquisitions in the GCC food & beverage sector (as per its publicly stated strategy) as a major catalyst for its share price - recognizing that the timing of such events is challenging to predict.

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RIC Code aGth.aD

Country uaE

Exchange aDx

Sector food & Beverages



2009 % Change 74%

52 week high 2.17

52 week low 1.02

Mkt Cap (AED'000) 1,104,000

Mkt Cap (USD'000) 300,580

Number of outstanding shares ('000) 600,000

Free Float 44%

PE 09e 10.3

PB Current 1.2


General Holding Corporation,

51.0%Abu Dhabi Public Pension

Fund, 5.00%

Free Float, 44.0%

Share Ownership


Vision 2010


BUYDP World Company overview

DP World (DPW) was established in 2005 following the merger of Dubai Ports Authority and Dubai Ports International. Subsequent to its November 07 listing on the Dubai International Financial Exchange (DIFX), DPW floated 20% of its stock to the public, while 80% of the company continues to be held by the Dubai government through Dubai World. Building on its expertise DP World successfully expanded to become the fourth largest port operator in the world, one of the “Big four”, operating 49 terminals and 12 new developments across 31 countries. Its share of the global container trade is 5.9%. The operator has a current capacity of 60 mn TEU.DP World focuses mainly on maintaining a strong presence and expanding into markets with high growth potentials and with high capacity constraints. As such, DP World aims to add a total of 36.2 mn TEU in capacity by 2017, of which 22 mn will be in the Middle East, Europe, and Africa, and 10.4mn in The Indian subcontinent and Asia Pacific. DPW currently relies on Origin and Destination (O&D) container traffic vs. transshipment traffic; current breakdown of traffic is 76:24, favoring high yield traffic.


DPW delivered strong H1 2009 net profits of USD 175 mn, implying a 36.7% drop over the reported H1 08 results. DP World’s operations were relatively more resilient to the market downturn compared to its peers, due to its strong presence in some of the emerging markets with high economic activity. DPW suffered from a 10% YoY drop in volume in H1 2009, and we forecast a 7.8% YoY decline by year end in total throughput, which will translate into a 15.7% drop in EBITDA and a 50.6% drop in net profits attributed to shareholders.Middle East and Africa are two regions with the highest growth rates in throughput, and both along with its operations in Europe) contributed to 63% of the total revenues. Revenues came c13.4% lower than H1 08, while EBITDA and EBITDA margin reached USD 535 mn and 38.7% respectively; 17.9% and 210 bps lower than H1 08.

Recent development and outlook

We forecast sales for FY 09 to reach USD 2.9 bn, brought down by the drop in throughput along with a substantial drop in bulk revenues. We expect EBITDA to reach USD 1.1 bn for FY 09, while net profits to sharply fall by 50.6% in 2009 reaching USD 282.8 mn. Net debt position stands at USD 4.3 bn (debt is USD 7.8 bn vs cash of USD 3.5 bn) at year end. DP World’s debt position was briefly put into question in late November 09 along with the rest of Dubai World’s obligation, however following further clarifications, DPW (and its obligations) was not included in Dubai World’s debt restructuring. However, it is important to note that DP World’s debt is mostly long-term, with USD 3.2 bn in bonds to mature in 2017 and 2034. Recently, DP World has decided to officially proceed with the construction of the London Gateway, which is located 25 km away from London and will have a throughput capacity of 3.5 mn TEU upon completion. On another front, DP World’s board is exploring secondary listing on London Stock exchange while maintaining its primary listing on Nasdaq Dubai. This is expected to attract more liquidity and trading, which will in turn brings the market valuation of the company to a more favorable one.

RIC Code DPw.Di

Country uaE

Exchange NasDaQ Dubai

Sector Container Ports


Share Price as at 31/12/2009 (USD) 0.43

2009 % change 10.3

52 week high 0.59

52 week low 0.18

Mkt Cap (USD’000) 7,138,000


Est. Free Float 20%

PE 09e 25.2x

PB Current 1.0x


Share OwnershipFree Float, 20.0%

Dubai World , 80.0%

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Vision 2010


BUYAramex Company overview

Established in 1982, Aramex went public in 2005 on the Dubai Financial Market. Since then, it has grown into one of the region’s leading providers of express package delivery, freight forwarding, and other supply chain services including document storage and 3PL. The company runs 304 offices in 192 cities in the world. Aramex has been undertaking acquisitions in Europe, Asia and the United States. In 2006, Aramex acquired TwoWay Vanguard, a Dublin-based logistics and freight service provider, allowing the company to diversify their revenue dependence to a more diversified geographic distribution. Aramex’s strategy of becoming the fifth global logistics and express transportation service provider by the year 2010 has seen heavy investment in different geographical regions, particularly in the Middle East, which accounts for 75% of the revenues. The company has recently opened its state-of-the-art AED 120 mn logistics center in Dubai with an area of 140,000 square meter.


Aramex reported a net income of AED 134.8 mn for the first nine months of 2009, a solid increase of 24% over the same period last year. The result was impressive given the current market conditions and the slowdown in business that has affected the sector. 9M 09 revenues dropped 9.1%, solely from the decrease in revenues from freight forwarding, which historically formed the major source of Aramex’s revenues. The express and other services (which enjoy higher gross margins) however witnessed an increase in revenues. The increase in such revenue segments, along with aggressive cost-cutting led to a growth of 5% YoY in gross profit to AED 818.5 mn for 9M 09, and to a gross margin of 57% (compared to 49% for 9M 08). Effective cost-cutting was also applied on overhead costs, which led to a YoY increase of 15% in its operating income to AED 152.8 mn.


Aramex’s stock got hit badly in the beginning of 2009, given that its driven by macro economic variables. The stock however ended the year significantly outperforming the rest of the market. Investors understood that Aramex’s high dependence on revenues from the Middle East (comprising 75% of the total revenues) was actually a significant advantage Aramex had over its peers. Revenues from the Middle East dropped 2%, compared to drops of 42%, 25%, and 20% in North America, Europe, and Asia respectively. Furthermore, its business model, a light asset based one, rendered the company more adaptable to the industry changes.Aramex managed to successfully shift its focus to services with higher margins, increasing their share of the total revenues, all the while engaging in aggressive cost-cutting. The margins will revert to their historic averages along with a recovery in global activity and thus in revenues from freight forwarding.We also reiterate our view that Aramex is one of the best defensive stock picks, backed by a resilient product mix and a solid revenues stream relative to the rest of the market. The company is in a prime position to continue ahead with its growth strategy, whether organically or not, while consolidating its leadership in the region.

RIC Code armx.Du

Country uaE

Exchange Dfm

Sector logistics



2009 % change 98.5

52 week high 1.90

52 week low 0.75

Mkt Cap (AED’000) 2,089,670

Mkt Cap (USD’000) 568,943


Est. Free Float 61%

PE 09e 11.8x

PB Current 1.4x


Share OwnershipLevant Logistics Holdings, 9.9%Free Float,

60.6%

Other Investors, 29.5%

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Vision 2010


UNDER REVIEWGulf Navigation Holding Company overview

Gulf Navigation is an integrated shipping company that is engaged in marine commodity transportation, vessel chartering, and shipping. The company started its operations from Dubai in 2003, and was listed on the DFM in February 2007. Focusing its business lines on the chartering of crude oil and liquid chemicals vessels, Gulf Navigation currently operates a fleet of 15 vessels including one Very Large Crude Carrier (VLCC), one Suezmax crude carrier, six product / bulk carriers, and seven chemical carriers. In addition to those, the company owns four crew boats.The company’s goal is to become a leading chemicals and oil shipping company in the Gulf region, taking advantage of its base in Dubai and of its location in the oil-producing region. Based in Dubai, Gulf Navigation opened an office in Saudi Arabia, in an effort to benefit from its presence in the world’s largest oil producer, and one of the largest producers of petrochemicals.


Gulf Navigation suffered heavily from the slowdown in the shipping spot rates and volumes, the main forces behind the drop in net profits. 9M 09 net income dropped sharply to AED 11.62 mn, compared to AED 136.9 mn reported in 9M 08. Revenues for the 9M 09 were 16.6% lower YoY reaching AED 255.6 mn, compared to AED 306.5 mn for same period last year. Revenues from chartering vessels, the main contributor to sales, decreased 16% to AED 244.5 mn for 9M 09, while revenues from shipping agencies decreased 36% YoY to AED 8.4 mn. The company failed to cut costs enough to mitigate the reduction in revenues, with operating costs increasing 49% YoY to AED 223.2 mn for 9M 09, largely from the expansion of the company’s vessel fleet, which was not rewarded yet with an increase in revenues.


Gulf Navigation remains vulnerable to the current environment that has affected its sector and its operations in particular. Although Gulf Navigation’s chemical vessels are out on a time basis, the rest operate in the spot markets. As such, the company’s operations were badly hit by the volatility in the spot market and by the slowdown in activities, and might continue to do so if the downturn prolongs. Higher demand, which should happen in parallel to a global recovery, along with better cost-cutting, should lead to the improvement of earnings and margins. There is no update yet on the Gulf Navigation’s USD 52 mn lawsuit against a company that filed for bankruptcy and reneged on a time charter contract. It is not clear whether Gulf Navigation has fully provisioned against these losses. If so, then any successful claim of the losses under a court ruling (, will reverse provision in the next quarters, thereby boosting the net income.With the exception of a robust recovery in the industry, we expect tougher times for the shipping company in the future, as it will be hard for Gulf Navigation to overcome its rising costs in a business facing a slow demand.

RIC Code GNav.Du

Country uaE

Exchange Dfm

Sector shipping



2009 % change -7.8

52 week high 0.99

52 week low 0.49

Mkt Cap (AED’000) 976,450

Mkt Cap (USD’000) 265,853


Est. Free Float 61%

PE 09e 71.7x

PB Currrent 0.6x


Share Ownership

Free Float, 60.5%

Global Capital Management Limited, 7.1%

Emirates Funds, 2.8%

Zamil Group Holding Company,

2.7%

Other Private Investors, 21.2%

Global Fund Co. (Bahrain), 5.7%

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Vision 2010

Air ArabiaCompany overview

The leading low-cost carrier in the MENA region, Air Arabia has been continuously expanding since its inception in 2003. Initially starting from its Sharjah hub, Air Arabia is considered a pioneer in a largely untapped region, offering passengers with affordable flights to 49 destinations, and covers international air transportation, travel agency services, and air-cargo. The company established another hub in Morocco in May 2009 to service 11 more destinations in Europe. In total, Air Arabia currently operates 21 Airbus 320 aircrafts on 60 destinations from two hubs.

Air Arabia has successfully adopted the business models of leading American and European low-cost carriers, and customized it to optimally serve the region. The company is the biggest international airline to fly to India with 13 destinations and over 98 flights per week, which has been suitable for the working expatriates in the region. The current economic climate had a minimal effect on the company’s passenger traffic, which increased to 2.96 mn for the first nine months of 2009, compared to 2.6 mn in the same period of 2008.


Air Arabia reported a 9M 09 net income of AED 336.5 mn, a drop of 10.1% compared to the same period in 2008. The drop in net income stemmed mainly from a decrease in revenues as a result of tight yields, which went down 1.8% YoY to AED 1.47 bn for 9M 09. Air Arabia brought in new aircrafts to its fleets, which exerted pressure on the load factors (dropping from 86% to 79%) and the net profit per aircraft (dropping from AED 143 to AED 114).

Despite the drop in revenues, operating income increased 8% YoY to AED 214 mn in the first nine months of 2009, while operating margins improved from 13% in 9M 08 to 14.6% in 9M 09. The improvement in operating margin reflects mainly the reduction of fuel costs, and to efficient cost control.


The financial results for the first nine months of 2009 reinforce our positive outlook for the company. The pressures on yields and on net margins have been anticipated, still Air Arabia figures are better than that of the industry. We still forecast tighter yields and margins over the near term, especially since the conventional carriers are narrowing the price gaps between themselves and the LCCs. The low fares are not sustainable going forward should fuel prices keep on increasing. Eventually conventional carriers will have to apply fuel surcharges, thereby reinstating the price gaps between them and the LCCs, removing some of the pressure on Air Arabia’s yield and its competitive advantage becomes more defined.The company still has an existing order of 48 Airbus 320s. In September, the company announced a new joint venture agreement to launch a secondary hub in Egypt. The JV will serve as a third hub servicing Europe, Middle East and Africa, commencing in 2010. For the near term, Air Arabia might continue to withstand tight yields, and we estimate its FY 09 net income at 420 mn, a decrease of 18% YoY. Nevertheless, the fact remains that Air Arabia is the leading low-cost carrier in the most underpenetrated region in the world, and it should further consolidate its position in the region in 2010.


BUY

RIC Code aira.Du

Country uaE

Exchange Dfm

Sector airlines



2009% change 3.4

52 week High 1.21

52 week Low 0.79

Market cap (AED' 000) 4,293,364

Market cap (USD' 000) 1,168,930


Est. Free Float 55%

PE 09e 9.1x

PB Current 0.8x


Share OwnershipDepartment of Civil Aviation-Sharjah, 17.4%

Al Maha Holding Company Free zone, 8.7%

IGCF SPV 4 and 5, 6.3%

Other Investors, 12.7%

Free Float, 54.9%

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Vision 2010


NOT RATEDTAQACompany overview

TAQA emerged as Abu Dhabi’s investment arm in 2005 when Abu Dhabi Water and Electricity Authority (ADWEA) transferred 90% of its shares in five independent water and power producers to TAQA following a privatisation program. TAQA remains Abu Dhabi’s major power and water supplier (c.85% market share), with a capacity of 8,438 MW (mega watts) in the UAE and Water desalination capacity 594 MIGD (million imperial gallons per day). In total, TAQA possesses 12,909 MW in electricity generation capacity across the UAE, Saudi Arabia, Morocco, Ghana, India, and the Caribbean. Through alliances with international oil and gas producers such as Shell U.K., Esso, and Russian Gazprom, TAQA diversified across the energy value chain. As at 9M 09, production capacities for oil and gas reached 136 mboed (million barrels of oil equivalent per day) and gas storage of 257 bcf (billion cubic feet).Its aggressive expansion strategy allowed TAQA to become a global energy player and grow its assets by c.80% to AED 93.1bn today from AED 51.8 bn in 2006.


The company’s revenues are driven by its high dependence on commodity prices. In 9M 09, TAQA recorded a drop of 25% YoY in oil and gas revenues to AED 4.63bn (contributing to 37.1%of total revenues vs. 47.4% in 9M 08) on the back of lower average crude oil prices, USD58 /bbl (vs. USD 112/bbl in 9M 08) and lower natural gas prices USD 3.85/ mmbtu (vs. USD9.75 /mmbtu in 9M 08). Electricity and water revenues, contributing to 36.6% of total revenues vs. 30.9% in 9M 08, benefited from the Tolling contract acquired in December 08 in the U.S. and the expansion of the local plant. This resulted in a 13% YoY rise in the segment's revenues to AED 4.57bn in 9M 09.As of September 09, TAQA reported AED 63.8bn in total interest bearing debt and cash position of AED 4.3bn with access to AED 13.3bn in undrawn facilities. The aforementioned will allow TAQA to meet its shorter term obligations. The company announced a target debt to total capital ratio of 70% compared to the current gearing of 84%.


9M 09 marked the end of TAQA's aggressive expansion strategy with the new management onboard. The company’s inorganic growth will only be tied to smaller acquisitions with attractive opportunities. Important acquisitions were made under the old management such as the EUR 285mn DSM Energie acquisition, the purchase of new exploration blocks in the North Sea, and the investment of EUR 800mn in the Bergermeer Gas Storage project. Going forward, the company announced the following in light of its new strategy: i) the commencement of production from a new oil well in the North Sea with 10,000 boed (barrels of oil equivalent per day) in production capacity, ii) the construction of the Bergermeer project in mid-2010 expected to be the largest gas storage facility in the world, and iii) expansion plans in downstream operations in Ghana, Morocco, and the UAE, boosting production capacity by more than 2,000 MW. The company's outlook remains tied to commodity prices. Any improvement on this front and capacity additions on the downstream operations will boost TAQA's topline. We believe that the new integration strategy will benefit the company in the long term while maintaining caution on the stock until implementation becomes clearer.

RIC Code taQa.aD

Country uaE

Exchange aDx

Sector utilities - oil & Gas



2009 % Change 14.6%

52 week high 2.11

52 week low 0.84

Mkt Cap (AED'000) 7,345,500

Mkt Cap (USD'000) 1,999,918


Free Float 28%

PE 09e 12.0x

PB Current 0.9x


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27.8%

Farm Owners' Financial Support

Fund , 21.1%

Abu Dhabi Water and Electricity

Authority, 51.05%


Vision 2010


NOT RATEDDana GasCompany overview

Dana Gas (Dana) was established in 2005 by Crescent Petroleum (Crescent) as the first private-sector natural gas company in the region. Dana's business model spans across the energy value chain with activities in the upstream gas exploration and production (E&P), midstream transmission, and downstream operations into gas-related industries and petrochemicals. With its prime UAE project suffering from delays, the company relies on its presence in Egypt and the Kurdistan Region of Iraq (KRI). Operations in Egypt commenced through the acquisition of Centurion Energy International in 2007, which has E&P projects in Tunisia and Nigeria. The KRI project is a joint venture with Crescent Petroleum that commenced operations in 2007, with aims to explore, produce and distribute natural gas from Khor Mor field and also appraise the Chemchemal field for potential natural gas production.


For the 9M 2009, Dana Gas reported AED 909 mn in gross revenues, a 0.9% YoY rise, driven positively by additional oil and gas production, an increase of almost 1.2 mn barrels of oil equivalent. Revenues were negatively affected by drops in LPG and condensate prices. Revenues from Egypt rose 5% YoY and contributed 82% of net revenues (net of royalties) while KRI’s contribution reached 16%. Gross profit and EBIT margins -excluding exploration cost- improved compared to 9M 08, reaching 58.5% and 20.1% in 9M 09 from 47.8% and 15.3% respectively, reflecting effective implementation of cost control measures. EBITDAX (earnings before interest, taxes, depreciation, amortization, and exploration) reached AED 408 mn, implying an increase of 11% YoY. Dana Gas' bottom line reached AED 282mn in 9M 09 (the figure includes one off items including exploration write-offs, gain on sale of Pearl petroleum) compared to AED 85 mn in 9M 08.


The year marked massive expansions in production capacities for Dana Gas Egypt with the discovery of nine new wells, allowing the company to reach its 40,000 boed (barrels of oil equivalent per day) target daily production, an increase of 20% over that of 2008. Additionally, Dana Gas inked a deal with Crescent Petroleum, Austrian OMV and Hungarian MOL to develop the Kurdistan gas network. Upon completion, more than 3 bcfd (billion cubic feet per day) will be pumped from the KRI region to regional and European destinations. Current production stands at 90 mcfd (million cubic feet per day). Total investments in the new project are estimated at USD 8bn. Dana Gas is also currently assessing the possibility of establishing a gas-based industrial city in Yemen. In the short term, we believe volume increases in Egypt coupled with rising crude oil prices will be the major drivers for growth. Additionally, the ramp-up in production from the KRI is expected to enhance profitability. Further clarity on the company's new Kurdistan project and any developments in the UAE-Iran project remains the main long-term driver for the stock.,

RIC Code DaNa.aD

Country uaE

Exchange aDx

Sector oil & Gas



2009 % Change 62%

52 week high 1.32

52 week low 0.52

Mkt Cap (AED'000) 5,640,000

Mkt Cap (USD'000) 1,535,571


Free Float 80%

PE 09e 17.9x

PB Current 0.7x


Share Ownership

Free Float, 79.6%

Crescent Petroleum Company,

20.4%

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Vision 2010


Under ReviewTabreed Company overview

Tabreed is the largest district cooling provider in the UAE. The company operates in four segments: chilled water, contracting, services, and manufacturing, to ensure access of buildings to district cooling schemes. As a result of its expansion plan set in 2008, Tabreed’s customers grew to encompass residential, commercial, and governmental sectors. Its reliance on its initial customer, the UAE Armed Forces, is decreasing, with the latter’s estimated demand on Tabreed’s total capacity, ~454,000 TR (tons of refrigeration), declining to 41% in 2009 compared to 53% in 2007.Tabreed has established presence in all GCC member countries plus Jordan through several joint ventures. Total cooling capacity outside the UAE is 37,000 TR and more than 250,000 TR in pipeline additions. In August 2009, S&P downgraded its long term credit rating on Tabreed to BB- on the back of high refinancing risk and tightening liquidity position.


The first nine months of 2009 marked a return to the company’s dependence on the core chilled water business. The segment's revenues in 9M 09 contributed 45% of the period's total, a significant rise from the 32% contribution recorded in Q1 09, and 39% in H1 09. Total revenues reached AED 570.7mn representing a 15% YoY rise due to capacity additions. Tabreed achieved an operating income and EBIT margin of AED 139.0 mn and 24.3% in 9M 09 respectively, compared to AED 120.0 mn and 24.1% in 9M 08. Bottom line in 9M 09 was AED 54 mn, implying a 10% rise over 9M 08. We estimate the bottom line to reach AED 29mn in Q4 09 taking FY 09 net profits to AED 83 mn.Tabreed's total assets reached AED 8.1bn and a total debt of AED 3.7bn (including liabilities under convertible debt) as at September 09. The company recorded a net debt to equity ratio to 1.23x compared to 1.08x in June 09 and 0.78x in September 08.


Throughout 9M 09, Tabreed managed to obtain more than AED 1.3bn in credit facilities, mitigating concerns on the company's abilities to acquire necessary financing to fuel its growth. Consequently, a portion of the finances was used to repay its USD 100mn Sukuk that matured in March 2009. On the operational front, Tabreed commissioned three new plants in 2009: Yas Island, UAE University in Al Ain, and Tabreed 7 at the Zayed Military City, with a total refrigeration capacity of 53,000 TR, thereby increasing Tabreed’s gross capacity by 16% to 395,100 TR for 9M 09.Going forward, Tabreed will need to fund its capital expenditures on the estimated 114,875 TR in additional capacity for 2010 bringing back refinancing concerns. Despite this, we expect the full ramp-up of new capacities and the estimated new additions in 2010 to contribute positively to Tabreed’s operating performance in the long term.

Mubadala Development Company, 10.9%

General Pension and Social Security, 7.38%

General Investments FZE , 5.92%

Free Float, 86.7%

Share Ownership

RIC Code taBr.Du

Country uaE

Exchange Dfm

Sector utilities - oil & Gas



2009 % Change 56%

52 week high 1.17

52 week low 0.42

Mkt Cap (AED'000) 982,838

Mkt Cap (USD'000) 267,592


Free Float 87%

PE 09e 11.9x

PB Current 0.4x


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Vision 2010


BUYEtisalatCompany overview

Etisalat was until February 2007 the sole telecom services provider in the UAE. As the incumbent operator, Etisalat UAE provides mobile, fixed-line, Internet, data and cable TV services. Despite operating as a monopoly for 30 years, Etisalat has built a modern telecom infrastructure, one of the most advanced in the region and has often been the first to market new services. In addition, the operator holds interests in 18 other countries including Saudi Arabia and Egypt.


As of September 09, Etisalat’s UAE subscriber base included 7.44mn mobile subscribers of which 90% are estimated active, 1.31mn fixed-line subscribers and in excess of 600,000 fixed broadband subscribers.

For 9M 09, Etisalat delivered 9% YoY net profit growth (after adjusting for AED 892mn gain on sale of Mobily shares in Q2 08). Etisalat's consolidated revenues reached AED 22.1bn for 9M 09, 6% higher than 9M 08. YTD, Etisalat’s top line growth was driven by international operations, as the UAE revenue increase was less than 3% YoY for 9M 09. Fully consolidated international operations contributed to 13% of reported revenue in Q3 09, up from 10% in Q3 08. Consolidated EBITDA for 9M 09 reached AED 14.9bn, increasing by 8% YoY. The group’s consolidated IFRS-adjusted EBITDA margin expanded to 67.3% from 66.2%in 9M 08. As a whole, the profitability of international operations improved YTD. We estimate that Etisalat Egypt’s (the largest contributor to international segment) EBITDA margin approached 20% for 9M 09, ahead of our expectations. UAE EBITDA margin stood at 74.0% for 9M 09, resilient due to cost discipline and higher than the 72.7% achieved in 9M 08.


After remaining on the sideline for most of 2009, Etisalat acquired in October Millicom's Sri Lankan assets for USD 155mn in cash. The transaction implies 7.4x 2009E EBITDA, in line with acquisition multiples in Asia. The launch of Indian operations has been pushed to Q1 10. In the MENA region, Etisalat submitted a bid to acquire the third integrated license in Libya and continues to study opportunities to expand in Iraq. Etisalat's balance sheet remains solid with a net cash position of AED 9.8bn or AED 1.36 / share as of Q3 09.

Three years after the end of its monopoly, Etisalat remains the dominant operator in the UAE with a 68% mobile subscriber market share (more than 80% revenue share), and c.90% market share in fixed-line and broadband segments. So far, Etisalat has been successful in retaining high spending customers, with an estimated mobile ARPU more than double than that of the second operator. We expect competition to step up in the UAE, following 1) major Capex by Du to upgrade its 3G network, 2) introduction of mobile number portability, expected by Q2 10, and 3) gradual implementation of infrastructure sharing as of the second half of 2010, which will allow operators to compete in each others’ territories for fixed services.

Share Ownership

UAE Government

60%

Free Float40%

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-

07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov

-09

Month

Avg

. dai

ly tr

aded

val

ue (A

ED '0

00)

0.002.004.006.008.0010.0012.0014.0016.0018.0020.00

Clos

ing

pric

e (A

ED)


RIC Code EtEl.aD

Country uaE

Exchange aDx

Sector telecom services



2009% change 34%

52 week High 12.55

52 week Low 7.89

Market Cap (AED' 000) 79,420,770

Market Cap (USD' 000) 21,623,450


Free Float 40%

PE 09e 8.7x

PB Current 2.3x



Vision 2010


NOT RATEDDUCompany overview

Emirates Integrated Telecom Company, better know as Du, is the number two integrated telecom operator in the UAE offering both mobile and fixed services. In the fixed segment, Du is the sole provider of triple-play landline-Internet-Pay-TV services by deploying a fibre-to-the-premise (FTTP) infrastructure to residential and business customers in select Dubai new areas and free zones.

DU launched mobile services in February 2007 - breaking Etisalat's 30-year monopoly- and wireline services in July 2007 under the 'Du' banner.


By Q3 09 Du had 3.1mn active mobile subscribers, increasing its market share to 32% from 25% in the same period last year. As of September 09, Du had 160,000 landline subscribers, 65,000 broadband subscribers, and 69,000 pay-TV subscribers.

Du's 9M 09 revenues reached AED 3.81bn, 40% higher than the same period last year with the mobile segment continuing to drive growth. Mobile segment represented 71% of total revenue in Q3 09. EBITDA for 9M 09 reached AED 677mn (before one-time items), 5x the EBITDA reached of 9M 08 as the margin expanded to 18% from 5% during the same period last year. Du's net profit for 9M 09 reached AED 160mn including a royalty provision of the same amount, versus a loss of AED 74mn in 9M 08. Du recognizes a potential royalty charge of 50% on net profit. However, the company is still awaiting a decision from the regulator on the effective royalty rate.


Major CAPEX, projected at AED 2.25bn in 2009, and a similar amount budgeted for 2010 to mainly upgrade the mobile network, including an expansion of 3G coverage to 90% of population by the end of 2010, will allow the company to compete more effectively with Etisalat. Population growth will no longer be a tailwind for UAE telcos as was the case until 2008. This said, 2010 could turn out as a watershed year for Du: 1) Introduction of mobile number portability, expected by Q2 10, will present an opportunity for Du to convince Etisalat mobile subscribers to switch to its network, 2) Infrastructure sharing is on the agenda, with a gradual implementation as of the second half of 2010, which will allow Du to expand fixed services in new territories. Du has been successful in growing its subscriber share of UAE mobile market. However, according to our estimates, Du's ARPU at USD 28 (AED 103) is approximately half of that of Etisalat. A key factor to monitor in 2010 will be the company's success in stimulating usage on its network or convincing more customers to use the Du line as a primary line instead of a second SIM card. Finally, a favorable decision by the regulator that would allow Du to pay a royalty rate below 50% in the first few years, would act as a catalyst for the stock.

Share Ownership

Mubadala

UAEGovernment

40%

Development Company

19.7%

Tecom Investments

20.0%

Free Float20.3%

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

31-J

an-0

7

29-M

ar-0

7

31-M

ay-0

7

31-J

ul-0

7

30-S

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7

29-N

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7

31-J

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31-M

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8

29-M

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8

30-J

ul-0

8

29-S

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8

30-N

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8

29-J

an-0

9

31-M

ar-0

9

31-M

ay-0

9

30-J

ul-0

9

30-S

ep-0

9

30-N

ov-0

9

Month

Avg

. dai

ly tr

aded

val

ue (A

ED '0

00)

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Clos

ing

pric

e (A

ED)


RIC Code Du.Du

Country uaE

Exchange Dfm

Sector telecom services



2009% change 34%

52 week High 4.09

52 week Low 1.78

Market Cap (AED' 000) 11,630,810

Market Cap (USD' 000) 3,169,158


Free Float 20%

PE 09e 46.8x

PB Current 4.3x



Vision 2010

Appendix I (market timeline)

Pre - 1970 Establishment of NBAD and NBD- acting as both Central banks and Commercial banks

1972 Union of the UAE established

1981 Petrodollars channeled into Al Manakh market in Kuwait triggering massive equity market bubble

1982 Collapse of Al Manakh in Kuwait and shelving of exchange in the UAE.

1991 Gulf War causes collapse in equity prices

1995 First recent IPO in UAE- Dubai Investments Company

1997 First recent IPO of a bank- ADIB IPO of Emaar Properties First mutual fund launched by Emirates Bank International

1998 UAP OTC market bubble bursts

2000 Dubai Financial Market established Abu Dhabi Securities Market established ESCA establishment

2001 Oil prices embark on an upsurge.

2002 IPO of Amlak Finance after four years of inactivity in primary market

2003 Petrodollars funneled into equity and real estate markets

2004 SC UAE rises 103%

2005

2006

2007

2008

UAE market cap crosses USD 100 bn mark. UAE markets raise nearly AED 45 bn in new equity UAE 3rd exchange setup- DIFX UAE market peaks on Nov 10th- up 132% and market cap USD 232 bn

UAE market crashes DFM goes public- first regional stock exchange to IPO Oil prices record a high above USD 75 SC UAE down 52% from its peak to low on Dec 4th

UAE markets rebound Oil prices reach USD 98. DP World lists its shares on the DIFX in what becomes the largest IPO in the region.

Increase of correlation with global markets Oil prices reach USD 147 Increase concern about Dubai’s debt Dubai real estate prices begin to correct UAE market crashes Oil free falls to USD 34

2009 Dubai issues USD 10 bn bonds to the UAE Central BankUAE banks exposure to Saad and Gosaibi at USD 2.9bnDubai issues USD 5 bn bonds to NBAD and Al Hilal BankDubai World Requests a 'standstill' on its debts from creditorsDubai issues USD 10 bn bonds to the Government of Abu DhabiDubai World fully pays off Nakheel 09 Sukuk on maturityOil increased 93% since the beginning of the yearDubai Financial Market acquired Nasdaq Dubai for USD 121 mn


Vision 2010

Appendix II (market logistics)

DFM ADX NASDAQ DUBAI

Governing Body Emirates securities and Exchange Commission

Emirates securities and Exchange Commission

Dubai financial services authority

Trading Days sunday to thursday sunday to thursday sunday to thursday

Trading Hours 10:00 - 14:00 10:00 - 14:00 10:00 - 16:45

Settlement Period t+ 2 t+ 2 t+ 3

Trading Mechanism Electronic Electronic Electronic

Daily fluctuation limits 15% 10% 10%

Trading currency aED aED aED & usD

Short selling n/a n/a covered short selling

Short lending n/a n/a n/a

Commissions

0.15% to broker 0.15% to broker n/a

0.05% to market 0.05% to market 0.06% to market

0.025% to authority 0.025% to authority n/a

0.05% to Clearing 0.05% to Clearing 0.01% to Clearing

Brokerage Membership fees aED 50,000 aED 25,000 usD 5,000

aED 100,000 aED 125,000 usD 10,000

Taxation

n/a n/a n/a

n/a n/a n/a

n/a n/a n/a

number of licensed brokers 99 100 26

number of listings

66 equity listings 68 equity listings 17 equity listings

7 debt instruments 1 debt instrument 10 debt instruments

islamic securities 4 mutual funds 9 7 structured products

mutual funds 15 2 mutual funds

21 islamic securities

phone number (04) 305 5555 (02) 627 7777 (04) 361 2222

website www.dfm.ae www.adx.ae www.nasdaqdubai.com


Research

Head of Research / Chief Economist

Mahdi H. Mattar, Ph.D.+9714 3199 [email protected]

Economics

Khatija Haque+9714 3199 [email protected]

Strategy

Ahmad M. Shahin+9714 3199 [email protected]

Jafar Shami+9714 3199 [email protected]

Commercial Banks and otherFinancial Services

Sofia El Boury+9714 3199 [email protected]

Ghida Obeid+9714 4283 [email protected]


Heavy Industries and Utilities


Hala Fares+9714 3199 [email protected]

Telecommunications, Media and Technology

Simon Simonian, CFA+9714 3199 [email protected]

Jessica Estefane+9714 3199 [email protected]

Consumer, Retail and Pharma

Laurent-Patrick Gally+9714 3199 [email protected]

Transportation and Logistics

Kareem Z. Murad+9714 3199 [email protected]

Real Estate, Construction andConstruction Materials

Roy Cherry+9714 3199 [email protected]

Taher Safieddine+9714 3199 [email protected]

Technical Analysis

Adel Merheb+9174 3199 [email protected]

Data

Ahmad M. Shahin+9714 3199 [email protected]

Nicole Chamat+961 1 974 [email protected]

Design

Jovan Ruseski+9714 3199 [email protected]

Client Services:

800 SHUAA (74822) – UAE only800 124 7482 - Saudi Arabia only+971 (4) 319 9603 – International [email protected]

Sales Trading Desk:

+971 (4) 319-9700 +971 (2) [email protected]

79January 12th, 2010

Vision 2010

This document has been issued by SHUAA Capital for informational purposes only. This document is not and should not be construed as an offer or the solicitation of an offer to purchase or subscribe or sell any investment or subscribe to any investment management or advisory service. This document is not intended as investment advice as to the value of any securities or as to the advisability of investing in, purchasing, or selling any security. SHUAA Capital has based this document on information obtained from sources it believes to be reliable. It makes no guarantee, representation or warranty as to its accuracy or completeness and accepts no responsibility or liability in respect thereof or for any reliance placed by any person on such information. All opinions expressed herein are subject to change without notice. This document may not be reproduced or circulated without the prior written consent of SHUAA Capital psc.

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