MENA-2 MONDAY MORNING ROUND-UP

Egypt
Pachins 4Q2010-2011 net income significantly above expectations PHD reports a 2Q2011 net loss of EGP45 million, down 25% Q-o-Q EIPICO workers strike ends - return to normal production Authorities to withdraw land in Sharm El Sheikh from uncommitted developers

Saudi Arabia
Aramco Total JV refinery to launch USD1 billion sukuk in October 2011

EFG Hermes Research

Lecico - Adjust Forecasts and FV on Production Disruption/Margin Pressures; Upgrade to Buy - Company Note - 21 August 2011 Oriental Weavers (OW) - Adjust FY2011 for 1H2011 Trends - Margin Pressure; Reiterate Fair Value and Buy Rating Company Note - 21 August 2011

Agenda
Egypt Sat 27 August >> Al Ezz Dekheila (EZDK) AGM Tue 6 September >> Orascom Construction Industries (OCI) 2Q2011 results Sat 10 September >> Ezz Steel AGM

Egypt News
Pachins 4Q2010-2011 net income significantly above expectations Pachins (PACH.CA) unaudited consolidated net income came in at EGP24.3 million, down 40% Y-o-Y (on higher costs) and up 57% Q-o-Q (on demand seasonality). This was significantly above our estimate of EGP13.5 million, We estimate that 4Q2010-2011 net income was mainly driven by: i) lower-than-estimated costs (despite the jump in raw material prices), which could be attributable to the sale of lower cost inventory, as well as ii) lower provisions on receivables and inventory. The company has also announced unaudited consolidated sales of EGP204.5 million in 4Q2010-2011 (up 5% Y-o-Y and 42% Q-o-Q), beating our estimate of EGP183 million, and a gross profit margin of 15.3%, down from 17.5% in 3Q2010-2011 and 25.5% in 4Q2009-2010, but higher than our estimate of 11% on both higher-than-expected prices and lower-than-expected costs. We expect the company to pay a EGP4.50/share cash dividend (flat Y-o-Y), implying a 68% payout ratio and a 12% dividend yield. We highlight that the companys tax holiday ends this year. The company did not mention the tax rate that will be paid starting in 2011-2012; however, assuming a 25% income tax, this would reduce both our net income estimate for next year and our fair value by 5%. (Company Disclosure, Malak Youssef) Pachin: EGP37.79, Rating: Neutral, FV: EGP36, MCap: USD127 million, PACH EY / PACH.CA PHD reports a 2Q2011 net loss of EGP45 million, down 25% Q-o-Q Palm Hills Developments (PHD) [PHDC.CA] reported a 2Q2011 net loss of EGP45 million, down from a net loss of EGP36 million in 1Q2011 and a net profit of EGP61 million in 2Q2010. Earnings came in below our forecasted net loss of EGP34 million. Total revenue reached EGP90 million in 2Q2011 versus EGP198 million in 1Q2011, EGP332 million in 2Q2010 and our EGP237 million forecast. PHD recorded a gross profit margin of -39% in 2Q2011, down from -6% in 1Q2011 and 62% in 2Q2010. The company has not yet provided the breakdown for revenues and COGS, hence it difficult to attribute the source of negative pressure on its margins in the quarter. We believe that it could be explained by the possibly high level of cancellations of standalone units that led to reversals of previously booked high-margin land revenues. Total cash and cash equivalents reached EGP176 million as at end-2Q2011, down from EGP295 million as at end-1Q2011 and EGP580 million as at end-2Q2010. Total bank debt declined to

EGP994 million in 2Q2011, down from EGPEGP1,063 million reported as at end-1Q2011. (Company Disclosure, Jan Pawel Hasman, Shaza El Kady) PHD: EGP1.77, Rating: Sell, FV: EGP2.10, MCap: USD309 million, PHDC EY / PHDC.CA EIPICO workers strike ends - return to normal production Egyptian International Pharmaceutical Industries Companys (EIPICO) [PHAR.CA] factories have returned to their normal production as the workers strike that began on 16 August 2011 came to an end, management confirmed. EIPICO expects the three-day shutdown to be compensated for during the remainder of the quarter and added that the company does not expect a material impact on 3Q2011 results. Some clarity was given regarding the workers demands, the employee fund has in fact been terminated, and the strike was to put pressure on a committee responsible for the dissolution of the funds assets to complete its task more swiftly. (Nada Amin, Wafaa Baddour) EIPICO: EGP33.55, Rating: Buy, FV: EGP44.33, MCap: USD447 million, PHAR EY / PHAR.CA Authorities to withdraw land in Sharm El Sheikh from uncommitted developers The Governorate of South Sinai is planning to withdraw land plots in Sharm El Sheikh from developers who have not been committed to the execution time-frame specified in their land purchase contracts, Al Ahram reported, quoting Khaled Foda, Governor of South Sinai, as saying. Foda added that the governorate will offer developers a threemonth grace period to complete the planned construction works. (Al Ahram, Mist News)

Saudi Arabia News

Aramco Total JV refinery to launch USD1 billion sukuk in October 2011 According to bankers close to the deal, the USD1 billion sukuk for funding the Saudi Aramco Total Refining and Petrochemical Company (Satorp) is expected to be issued around October 2011. The sukuk issue will be the final part of the financing for the USD14 billion project. The sukuk is currently in the final stages of approval from the Capital Market Authority (CMA), which is expected to approve the sukuk in September, allowing Satorp to complete the issue in October 2011, according to the bankers. The sukuk had originally faced numerous delays due to complications in structuring the deal in a Sharia-compliant way. (MEED)

EFG Hermes Research

Lecico - Adjust Forecasts and FV on Production Disruption/Margin Pressures; Upgrade to Buy - Company Note - 21 August 2011 Lower FV by 18%; Share Price Fall Overcompensates for Pressures: Lecicos 2Q2011 net profit came in at EGP5 million, down 80% Y-o-Y. The quarter showed declines in: i) sanitary ware and tile export volumes on weaker demand in Europe and a complete halt of exports to Libya; and ii) margins on rising costs and lower economies of scale. Net profit missed our estimate on lower margins. Our new fair value (FV) of EGP9.75/share reflects: i) a downgrade to our forecasts; and ii) a 50 bps increase in our cost of equity to 18.5% to account for a possible easing/removal of energy subsidies. Despite the downgrades, our new FV implies 28% upside potential. Accordingly, we upgrade our rating to Buy from Neutral. We note that Lecicos share price fell c30% since early July 2011. A faster-than-expected sales recovery in any of Lecicos high-margin markets is an upside risk to our revenue and margin forecasts. Reduce 2011 Net Profit Forecast on Weaker Sales and Margins: We downgrade our forecasts to account for: i) weaker demand in export markets; ii) a sharper drop in margins; iii) a nine-day strike that resulted in work stoppage at the Khorshid factory (74% of tiles capacity, 30% of sanitary ware) in 3Q2011; and iv) an increase in Egypts standard tax rate to 25% from 20%. We forecast a 7% revenue decline to EGP951 million (a cut of 6% from our previous forecast), driven by weak demand in Europe, Egypt and the loss of the Libyan market. Our new EBITDA margin estimate of 21.7% is 480 bps lower Y-o-Y and 300 bps below our previous estimate, but we maintain our terminal EBITDA margin estimate at 23%. We forecast a 60% plunge in 2011 net profit to EGP38 million (a cut of 59% from our previous forecast). 2Q2011 Hit by Decline in Export Volumes, Squeezed Margins: Revenue fell 2.3% Y-o-Y to EGP250 million, only 3% above our forecast. A 25% Y-o-Y rise in sanitary ware prices, coupled with a focus on domestic tile sales, helped to partially offset the weak export volumes in both segments. The EBITDA margin narrowed 600 bps Y-o-Y to 20.8% on: i) cost increases, including a 33% increase in energy costs since July 2010 and a 27% increase in labour costs since February 2011; ii) reduced economies of scale; and iii) lower local tile prices as a result of discounts granted to distributors to encourage local sales. Lecico booked a one-off deferred tax of EGP5 million to adjust for the increase in the standard tax rate. (Wafaa Baddour, Khaled Sadek) Oriental Weavers (OW) - Adjust FY2011 for 1H2011 Trends - Margin Pressure; Reiterate Fair Value and Buy Rating - Company Note - 21 August 2011

Raise FY2011 Revenue, Lower Margins Estimates; Maintain FV and Buy: Net profit for 2Q2011 was EGP58 million, down 4% Y-o-Y and 25% Q-o-Q. Revenue grew 16% Y-o-Y, supported by local and export price increases, but was reversed by significant margin pressure on higher raw material prices. We raise our revenue forecast by 6% to EGP4.6 billion (+12% Y-o-Y) and cut our EBITDA margin estimate by 175 bps to 14.7% to reflect these trends. Our FY2011 attributable net profit estimate falls to EGP269 million, down 12% Y-o-Y. Our fair value (FV) of EGP38.0/share offers 28% upside potential, thus we maintain our Buy rating. While we are positive on OWs ability to continue to grow revenue, margins and export rebate collection (50% of our FY2011 estimated attributable net profit) are the main upside/downside risks to our forecasts. Impressive Top Line Growth Continues on 22% Higher Average Price: Revenue grew 16% Y-o-Y and 17% Q-o-Q to EGP1,132 million, beating our forecast by 8%. Growth was driven by: i) 16% Y-o-Y local revenue growth (38% of total revenue) as local average prices rose 17% Y-o-Y, while sales volume were almost flat Y-o-Y; and ii) 16% Y-o-Y export revenue growth (62% of total revenue) as average export prices soared 25% Y-o-Y, while sales volumes fell 7% Y-oY. All export markets witnessed Y-o-Y revenue growth, except the Middle East. OW estimates that global carpet and rug sales grew by only 8-10% Y-o-Y in 2Q2011. Polypropylene Cost Pressuring Margins, Expect to Ease in 2H2011: EBITDA (includes export rebate) fell 3% Y-o-Y in 2Q2011 as the margin narrowed to 13.4% from 16.1% in 2Q2010. A c4 percentage point drop in the gross profit margin was partly offset by 47% Y-o-Y growth in the export rebate (EGP55 million, 94% of net profit). Average prices of polypropylene and other oil-based raw materials (c55% of COGS) rose 13% Y-o-Y, according to OW. Management expects polypropylene prices to ease going into 2H2011 from what OW sees as peak levels. The benefits of the 22% price increase to OWs products in 2Q2011 should become more pronounced as cost pressures lessen. EBITDA fell 14% below our forecast on the gross margin disappointment despite a larger export rebate. (Nada Amin, Wafaa Baddour)
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