Your Week in Egypt

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YOUR WEEK IN EGYPT

URSA MAJOR BIG DIPPER
A week of Ministers and meetings with the Egypt Euromoney conference. But its hard to find any firm catalysts or conclusions other that how nice we are doing better than we feared. All this is overshadowed by disappointing US manufacturing figures Stellar disappointment double dippers back in vogue. This disappointment came after the build up of IMF upgrading global growth and some better than anticipated retail sales figures. As usual the bears and bulls read what they like, the former pointing out the that US is stagnating as the stimulus package is nearing an end, and the latter that the way to recovery comes in fits and starts. Our market ended up on the day, but before these figures came out. As we write markets are falling. Can we now decouple, given that we and other emerging markets can grow? Yes we can but I wouldnt bet on the high correlation to US markets unwinding just yet. So major bears for a while Ursa Majoraka Big Dipper. And to play the record yet again this is what we want to see to pick up the names we like. FOCUS: ETEL a storm in a teacup: The Telecommunications and ICT Minister dropped an apparent bombshell by announcing 2 new fixed line licenses and Telecom Egypt fell sharply on thoughts that its monopoly is over. The devil in the detail sees these new licenses as rather limited in application. In any case our forecasts already included factors for a second licence. Buy on the Dips FOCUS: Banks sell cars: Banks, rather state banks have boosted consumer lending, which has been driving up car sales. So this is rather why Egypt may finally lessen its correlation with US markets, as here is consumer demand in action. We wait to see if this reads across to other consumer items FOCUS: just build it: The Euromoney conference emphasised over and over again the stimulus package and concentration on infrastructure. El Sewedy would be one of those that should be attractive to pick up on any decent pull back. FOCUS: clinker and clunk, tinker with cement: Unused cement licences may be cancelled, and then again they may be reissued if pricing pressure results. And then again who would want to invest with all this interference going on? Certainly we think Cement demand is rising and so capacity constraints are coming. We upgraded our target price for Misr Beni Suef a massive 38% as the price shot up, but keep a hold. Why? Well the insiders (owner/managers) are buying, wary of being taken over and of a freefloat. A good catalyst for the short term maybebut when the music stops will you still have a chair! Half a FOCUS: Insiders out: With a check on the movements of insider transactions it seems that, aside from Misr Beni Suef, insiders have been selling. More grist for the Ursa Majors. Olympic has seen large insider selling rather at odds with my view we may see consumer sales start to motor.
8500 6500 4500 2500
EGX 30 Performance ytd
Figure 1: Market wrap

September Local % Foreign % Arabs % Retail % Institutions % 27-Sep -88.1 6.4 -5.5 100 65.1% 34.9% -1.32% 1.2 28-Sep -85.9 -8.4 -5.7 100 65.1% 34.9% -2.15% 1.2 29-Sep -87.0 7.1 -6.0 100 65.0% 35.0% 0.61% 1.3 30-Sep -84.7 -9.6 -5.7 100 65.1% 34.9% -0.62% 1.4 1-Oct -82.8 11.0 -6.2 100 63.9% 36.1% 0.42% 1.5
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EGX Performance Total Value traded (LEbn)

Source: Bloomberg, EGX
Mark Rorison mark.rorison@cich.com.eg Mona Mansour mona.mansour@cich.com.eg
Please Read Last Page For Contact Details and Important Disclaimer
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Executive Summary
Below is a summary of the most important events of the last week. To learn more about each of these stories, take a look inside:
Euromoney Conference Egypt 2009

A two day gathering of Government officials, business leaders, industry experts and international guests. Staged at the Semeramis Hotel in Cairo, this 48-hour summit helped clarify the position of and outlook for the Egyptian economy, in the context of continued macro economic uncertainty.
Drop in the number of vessels passing through Suez Canal

Egypt's Suez Canal Authority reported that revenues from the waterway have dropped 26% to US$371.8mn in August 2009 compared to the same month a year ago.
Bank aim to drive up car sales

Banks have initiated a new wave of car-loan programs as a means of enhancing credit borrowing and, ultimately, boosting car sales. Between them, Banque Misr and the National Bank of Egypt (NBE) allocated LE 10 bn in the form of personal and car loans
Attracting exploration projects to Egypt

One discussion that received attention at the Euromoney Conference was whether investors might be granted contracts for exploration of raw materials.
Going, Going, Green Wind as a new energy source

Since 2004/5 wind generated power has made an increased contribution to total electricity generation. Alternative sources of energy are set to play a key role in Egypts energy future.
Removal of sugar Import tariffs

Tariffs on both raw and white sugar have been removed until the end of 2009.
A busy week for wheat

Russian shipments seized, farmers turning to other crops and more imported Russian wheat. Turn to Mills to find out more.
New rivals for Telecom Egypt?

The Minister of Communications & IT's sprung a surprise, announcing live on air that two new licenses for triple-play services in gated communities would be granted. Telecom Egypts share price dipped as a result.
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Table Of Contents Executive Summary ....................................................................................................... 2 Euromoney conference ................................................................................................. 4 Economy ....................................................................................................................... 11 A drop in the number of vessels passing through Suez Canal ................................... 11 Steady average yield on 91-day T-Bills...................................................................... 11 Automotive ................................................................................................................... 12 Banks take centre stage in driving up car sales ......................................................... 12 Banking and Financial ................................................................................................. 13 The reluctant bull market ........................................................................................... 13 Weekly News ............................................................................................................. 13 Cement .......................................................................................................................... 14 Cement: IDA may cancel the licenses for un-implemented projects .......................... 14 Misr Beni Suef Cement: Company update -............................................................... 15 Consumer ..................................................................................................................... 16 Fertilizers ...................................................................................................................... 17 Attracting exploration projects to Egypt...................................................................... 17 Deregulating the N fertilizer market in January 2010 ................................................. 17 Green Energy................................................................................................................ 18 Going, going, green ................................................................................................... 18 Wind energy in the South Valley ................................................................................ 19 Hydrocarbons & related services ............................................................................... 20 Maridive & Oil Services .............................................................................................. 20 MILLS ............................................................................................................................ 21 Upper Egypt Mills: Net profit up 8% YoY ................................................................... 21 North Cairo Mills: Net profit down by 37% YoY ......................................................... 21 Middle & West Delta Mills: AGM & EGM decisions .................................................... 21 Wheat: GASC contracted to import 150k tons of Russian wheat .............................. 22 Wheat: Farmers turned to other crops ....................................................................... 22 Wheat: 63k tons of Russian wheat seized ................................................................. 22 Real Estate .................................................................................................................... 24 Nasr City Housing & Development (MNHD) .............................................................. 24 Sugar ............................................................................................................................. 25 Removal of import tariffs on raw and white sugar ...................................................... 25 Telecom......................................................................................................................... 26 Orascom Telecom (OT) ............................................................................................. 26
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Miscellaneous ............................................................................................................ 27
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Euromoney conference
Key takeaways
The Euromoney Conference that was held over the past two days highlighted Egypts resilience to the global economic crisis. Moreover, FY09/10 is expected to go on with its resilience and grow +4% - the GoE targets 5% - and keep unemployment rate at 9%. Key takeaways to achieve such goal include:
Enforcing the Public-Private Partnership (PPP) initiative to enhance the private sector role in the economy Minister of Investment confirms Egypts resilience. Focusing on infrastructure developments. Another stimulus package of LE8-9 bn might be considered in this fiscal year in addition to an LE8 bn of continued investment from the previous stimulus package. Activating excellence units within governorates administrative process of doing business in Egypt. to improve the
Expanding the contribution of the internal trade in the economy. Focusing on SMEs. Increasing the non-oil and gas exports. Improving human capital and investing in labour-intensive projects.
The Euromoney Conference Egypt 2009

In the opening session of the Euromoney Conference 2009 Dr. Mahmoud Mohieldin, Minister of Investment, highlighted Egypts solid performance during the crisis and confirmed a slightly higher economic growth in 2010. Future targets are indicated below:

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A GDP growth of 5% in FY09/10 up from 4.7% in FY08/09. Unemployment target of 9% in FY09/10. An inflation target of 6-8% in the medium term. A fiscal deficit to GDP is expected to range from 7-7.5% in FY09/10 up from 6.9% a year earlier. More focus on SMEs and easing their access to finance. FDI target of US$10 bn in FY09/10 with a more diversified inflow. Enforcing the Public-Private Partnership (PPP) initiative to enhance the private sector role in the economy. A PPP law and a new bankruptcy law will be referred to the Parliament in November 2009. A target of LE 135 bn worth of private investments in FY09/10 up from the LE120 bn a year earlier. The GoE is expected to invest LE 100 bn in FY09/10. 4
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Activating excellence units within governorates administrative process of doing business in Egypt.
to
improve
the
Another stimulus package of LE8-9 bn might be considered in this fiscal year in addition to an LE8 bn of continued investment from the previous stimulus package. Ensure an efficient trickle down effect through increasing infrastructure projects connecting all governorates in Egypt. Establishing malls and trading centers all over Egypt to ensure a better supply chain, hence more competitive pricing. There are 5 planned trading centers in Delta and 2 in Upper Egypt.
Banking
In the New Age Banking in the Post-Crisis Era workshop, EuroMoney welcomed the following guests: Mr. James Gohary, Senior Operations Manager, Financial Markets, International Finance Corporation (IFC) Ms Hala el Said, Executive Director, The Egyptian Banking Institute, Central Bank of Egypt Mr. Arthur Koops, Head of Risk Management, Arab African International Bank. The above guests focused their presentation on risk management, identifying the following major points:
Bank management have started to pay greater credit to risk management policies, Banks have begun to focus on the liabilities side of their balance sheet by securing long term retail funding, so as to mitigate the withdrawal risk that asserts itself in a whole-sale funding strategy currently employed by the system, In terms of assets, the banking institutions will slow down the growth experienced in the boom years, The result of such moves will be to revert back to granting credit only where it is warranted, this will dry up funding for start-ups and holding companies (the former should seek venture capital), will bring down the tenor of loans (recommended 5-year maximum) loan structure will improve as more collateral will be required, pricing of loans will improve, and with it margin banks will become more transparent and hopefully disclose their risk management practices.
In the Retail Financial Services a rapid evolution or a quiet revolution workshop, EuroMoney welcomed the following guests: Mr. Amro Abouesh, Executive Chairman, Tanmeyah Microenterprise Services Ms. Hala Bassiouni, Managing Director, Egyptian Housing Finance Company Mr. Basel el Hini, Managing Director, Banque du Caire Mr. Mohammed Farid, Senior Financial Economist, Head of Capital Markets Unit, Ministry of Investment Mr. Henri Guillemin, Managing Director, Credit Agricole Egypt Mr. Mohamed Ozalp, Vice Chairman, Banque Misr The guests focused their presentation micro lending and borrowing, and financing small enterprises, they made the following comments: 5 Please Read Last Page For Contact Details and Important Disclaimer
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Mr. Ozalp warned that we should not get ahead of ourselves, take a step back and be a more realistic when it comes to what we hope to achieve from small enterprise finance, He pointed out that the numbers for small enterprises are not that great and that the moral hazard induced by forgiveness programs in days gone past, has led prospective small borrowers to believe they dont need to pay back their loans or that they will be bailed out if they default. Taxi finance given as an example He also drew a clear line between retail banking and small enterprise banking as he believes the foundations for growth in the former are well established Mr Amro Abouesh was clear to point out that they are not competing with banks as his clients could not get a loan from a bank if they wanted to, He stated that low income groups have the lowest default risk at a 2% average in Egypt, and backed this claim by research and experience, He believed the microfinance business could reach about 5 million people. Ms. Hala Bassiouni stressed that her business is also different than banks and reaches customers on a different level, by providing them a chance of owning a home. She said that at EHFC, each mortgage loan is tailored to the consumers needs. Mr Henri Guillemin said that he sees room for improvement in CBE mortgage and retail regulations Mr. Basil described days gone by when banks were being bought out in multiples not seen anywhere else He attributed this to the banking systems self constraining strategy to compete for market share in the same pie, but that all investors acknowledged that there is a much bigger pie out there that will inevitably be tapped.
A focus on internal trade and non-oil & gas exports

In the second day of the Euromoney Conference Eng. Rachid M. Rachid, Minister of Trade and Industry highlighted the key role of internal trade and non-oil and gas exports in creating a high level of competitiveness to Egypt. Internal trade: Significance:

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A direct link to most of the vital sectors in Egypt. The short-term investment nature makes it more lucrative to investors. It will help reduce unemployment. Its development will result in reducing the informality in the Egyptian economy.
Current status: Internal trade accounts for c.2% of the Egyptian total investment equivalent to LE 2.5 bn a very low contribution. GoEs plan: The government is planning to expand this contribution to 8% -equivalent to LE 25 bn. Non-oil and gas exports: Current status: These exports increased by 116% to LE 95 bn in 2008 from LE 44 bn in 2004. GoEs plan: The GoE is planning to increase non-oil and gas industrial exports to LE 200 bn in a 4-year time span. Moreover, it is planning to introduce the following: Please Read Last Page For Contact Details and Important Disclaimer 6
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1000 new exporters to be introduced to the market next year. A support scheme for exporters i.e. feasibility studies, marketing support, full accreditation and labor training.
Meanwhile, the GoE has no intention to increase exports of raw materials - on the contrary it aims to depress it. Yet, Eng. Rachid highlighted that the GoEs direction is not towards protectionism and the decisions applied to some industries and products like cement were a sort of measures to curb inflation and to satisfy the market needs.
Enhancing Bilateral trade with the UK

The Minister of Trade & Industry, Eng. Rachid Mohamed Rachid, has started a two-day visit to the United Kingdom (UK) in order to enhance the bilateral trade between the two countries. It is worth mentioning that bilateral trade between Egypt and UK hit GBP 1.53bn in 2008, of which GBP 617mn were exports to UK, while the balance were imports from UK. Moreover, the cumulative UK investments in Egypt as of March 2008 amounted to LE 17.8bn in the fields of manufacturing, services, tourism, agriculture, construction, finance, communication, and information technology.
Essentials for growth

On the second day of the Euromoney Conference 2009 Prime Minister, Ahmed Nazif, highlighted the essentials for growth:
Enforce consumer and investor confidence Encourage investment in labor intensive sectors Transport is a pre-requisite for growth Focus sectors are health, transport, energy and education GoE is working on health insurance packages More schools and better curriculum are on the way currently there are 40k schools and 15 mn students. Invest in human capital
Meanwhile, he pointed out that there is no intention to influence the LE/US$ exchange rate and confirmed that it should be a market-based rate. It is worth highlighting that since net international reserves has been growing MoM, the local currency saw some appreciation against the US dollar. August net international reserves grew even stronger with 4%MoM vs. 1% growth a month earlier. Hence, August LE/US$ exchange rate averaged LE 5.546 compared to LE 5.636 in March the weakest monthly average reached since the beginning of the year. Moreover, in September the LE gained more strength against the US$ with an average exchange rate of LE 5.523.
No intention to influence LE/US$ exchange rate
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Figure 2: Net International reserves & LE/USD exchange rate

US$ bn
34 34 33 5.600 33 32 32
31
Net Int'l Reserves
LE/USD
5.660 5.640
5.620
5.580 5.560 5.540 5.520 5.500
31 30 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09
5.480 5.460
Source: Bloomberg and CICR
Infrastructure: Key for further economic growth

In the second day of the Euromoney Egypt Conference 2009 event, we attended a panel regarding the Infrastructure under a theme of Will they come before we can build it? Given the fact that Infrastructure projects are key drivers for the economy, the panel discussed the role, opportunities, and obstacles in the infrastructure projects for the investors as well as the financiers. Key points discussed were: A wide range of opportunities will be introduced during the next 5-10 years, including 52 planned infrastructure projects targeting essential and critical sectors e.g. transport (road & river), logistics, seaports and terminals, tourism, waste water, education, and health. Investment in these projects is worth LE 137 bn. The 52 projects could increase to 120 projects. The expected investment structure for these projects is 25-30% for the government, 3040% for the financial institutions, while the balance is for the private sector. A key obstacle in investing in infrastructure projects is its non-profitable nature. However, in order to mitigate this risk, the private investor can make the infrastructure developments needed as a part of its investment cost Infrastructure projects are the GoEs focus in order to ensure a sustainable economic growth. Since the onset of the crisis the GoE introduced an LE 15 bn stimulus package; of which LE 6.6 bn was directed to infrastructure projects. The offering of 52 infrastructure project under Public-Private Partnership (PPP) arrangement is integral to investments, as it relieves part of the burden on the GoEs budget. One of the main sectors that witnessed PPP projects is the transport sector. Also there are other sectors that are planned to be established under this scheme including water facilities and sanitation as well as electricity plants. We highly believe that endorsing PPP will support the economy.
Activating the PPP scheme
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Could SMEs be the economy rescuers?

During the SMEs session Can they ride to the rescue of the real economy? on the second day of the Euromoney Conference the panel discussed the key challenges that face the development of SMEs in Egypt, which can be briefed as follows:
Lack of access to finance
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Lack of formal set up for SMEs. Absence of professional management. Lack of required up-dated information. Lack of subcontracting culture in Egypt.
In addition, the guests stressed on the importance of Nominated Advisors (Nomads) to help SMEs attain the expected growth. Acknowledging that SMEs have a vital role in the economy - they contribute c. 80% of the countrys value added and c.75% of its non-agricultural private sector workforce, the GoE introduced a set of incentives to support SMEs.
Further SMEs support

The Social Fund for Development has announced that it has allocated LE 200mn to help stimulate the growth and creation of small business enterprises. The money will be placed in the National Bank of Egypt s custody and will be dispersed throughout the banks branches nationwide. The funds will be used across the industrial, trade and services sectors and are expected to fund more than 4,400 different projects.
Figure 3: GoE's support to SME's

Authority Ministry of Finance Facility New easy terms for the taxation of small enterprises in accordance with the investor's capital and the volume of the business. The rules allow the repayment of 60% of the value of the last tax over three batches at the end of June, September and December An agreement with a financial leasing company in Upper Egypt to provide SMEs with a minimum financing limit of LE 10 K to be used in purchasing needed equipments and vehicles LE1.6 mn worth of loans to finance 1,663 small projects in 15 governorates; of which 622 projects are located in Suhag governorate LE 15 mn for financing micro-projects in five Governorates; Souhag, Asuit, Al-Fayoum, Al-Sharkya and Al-Beherya
Social Fund for Development
Ministry of Local Developent Social Fund for Development (SFD)
The Social Development Fund and An agreement to finance small projects particularly agriculture in Qena and The Principal Bank for Development Asuit Governorates worth LE 5 mn and Agriculture Social Fund for Development (SFD) Reduced interest rate on SMEs loans by 2%
Source: CICR Database
Real Estate:
A key driving sector to the economy
The Euromoney Egypt Conference 2009 covered the Real Estate industry over two days. The first panel was named 'Real Estate in Egypt' and it raised the following questions:

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Will 2010 recovery be strong or sluggish? What are the key catalysts?
The second panel was named 'Real Estate Why are there homes without loans and loans without homes'. The panel raised the following issues:
Despite global real-estate horrors, the Egyptian real-estate market must be considered an investment choice among both domestic and international investors. It is also home to innovation and growth in retail finance, developer finance and retail outlet development. The demographic structure of Egypt puts this asset class on the horizons of both direct and portfolio investors. Can the
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promise be fulfilled and what does the government want from the sector homes for people or taxes for the budget? The panel highlighted that the Egyptian domestic real-estate market was not affected in the same magnitude as the global real estate markets. They stressed the importance of activating the system of mortgage finance, seeing it as key catalyst to boosting the real-estate industry. It was argued that the system of mortgage finance should be customized to meet the needs of middle and lower income households. The Mexican mortgage system was cited as a good example of such a system. Regarding the psychology of the market, the panel said that most home sellers are not lowering their prices, as required by buyers to close a deal leading to a stagnant secondary market. In fact, home owners preferred to lease their units rather than sell them. The drop in prices reached 15-20% in some areas of Cairo. The panel highlighted that the real estate sector is likely to witness some enhancement over 2010, whilst the high-end would probably reach saturation by the end of the same year. The catalysts of the real-estate enhancement are the strong unmet demand by locals and the pending activation of the mortgage system. Regarding investment return, the panel indicated that Egypts real estate sector is one of the best real estate sectors in the region. Over the past 30 years interest rates have hovered around 8% per annum whilst real estate price appreciation has averaged around 30% per annum over the same period. This has resulted in an average return of 22% per annum. For mortgage rates, the panel stressed that rates are directly related to those of the banks. Mortgage rates cannot go lower than current levels due to this bank rate benchmarking. Finally, the panel believed that the new tax law will have a minimal impact on the realestate market. This view was based on the fact that, historically, sectors exposed to new taxes have absorbed such changes yet still maintained the same growth levels.
Conference topics covered in later sections:
Green Economy Fertilisers Telecoms and ICT
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Economy
Mona Mansour | mona.mansour@cich.com.eg Alia Mamdouh | alia.mamdouh@cich.com.eg
Egypts solid performance to continue in 2010

Though Egypts economic performance dropped to 4.7% in FY08/09, up from the 7.2% achieved in the previous year, the country is still revealing strong growth potentials. An expected growth of +4% in 2009 is well above the IMF's 2.7% expected growth for the region. With a higher FDI inflows of US$10 bn (in line with CICRe); an expected exports growth of 10%; and an anticipated increase in consumption at around 5%, GDP could manage to grow close to 5%. The enforcement of the Public-Private Partnership scheme, the focus on SMEs, and GoEs commitment to support growth will place Egypt at a more competitive level than its regional peers.
A drop in the number of vessels passing through Suez Canal

Egypt's Suez Canal Authority reported that revenues from the waterway have dropped 26% to US$371.8mn in August 2009 compared to the same month a year ago. A total of 1,453 vessels have passed through the Suez Canal this month compared to 1,521 in July 2009 and 1,993 in August 2008.Despite the strong improvement in the Canals revenues at the beginning of FY09/10 marking a MoM growth of 10% in July revenues reflected signs of weakness in August. August saw a widened YoY drop of 26.3% vs 21.9% in July. This drop was associated to the further YoY decline in the number of non-oil tankers by 29% and the drop of 19% of the number of oil tankers. We believe in a better performance in FY09/10 with expected revenues of US$5 bn from US$4.74 bn in FY08/09.
Figure 4: Suez Canal Performance

Vessels
No. of Vessels Suez Canal Receipts
US$ mn
2,500
600
2,000
500
400 1,500 300

1,000
200 500
100
0
Jun-08
Jun-07 Jun-09
0
Jul-07
Jul-08
Aug-07
Jul-09
Source: CBE & IDSC
Steady average yield on 91-day T-Bills
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The average yield on Egyptian 91-Day Treasury Bills remained almost constant at 9.611%, at an auction held on Sunday, compared to 9.617% at last auction dated September 13, 2009. The Central Bank of Egypt (CBE) accepted bids for the same amount it was seeking, worth LE 2 bn (US$363.5 mn) at rates between 9.501-9.64%, compared to 9.48-9.669% at the previous auction. Bills are to be issued on September 29, 2009 and to mature on December 29, 2009. 11 Please Read Last Page For Contact Details and Important Disclaimer
May-09
May-07
May-08
Aug-09
Aug-08
Feb-08
Feb-07
Nov-07
Dec-07
Nov-08
Dec-08
Sep-08
Sep-07
Feb-09
Jan-09
Jan-07
Jan-08
Apr-07
Mar-08
Mar-07
Mar-09
Apr-09
Apr-08
Oct-08
Oct-07
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Automotive
Fadwa Hossam | Fadwa.Hossam@cich.com.eg
Banks take centre stage in driving up car sales

The role of banks in addressing the crippling affects of the global financial crisis on the auto sector has begun to take centre stage. With mounting pressure to raise their investments and reduce interest rates, banks have responded with new wave of car-loan programs as a means of enhancing credit borrowing and, ultimately, boosting car sales. Between them, Banque Misr and the National Bank of Egypt (NBE) allocated LE 10 bn in the form of personal and car loans.
Automotive: Banque Du Caire approves car loans worth LE 50 mn

According to the CEO of BANQUE DU CAIRE, The BoD has given a preliminary approval to its car loan program. This is expected to be launched next month. The bank will provide an initial LE 50 mn worth of car loans, to be increased later on. (Al Alam Al Youm, 30-Sep-09)
Comment
In 2008, 70% of passenger car sales were backed by car loans. On the back of the financial crisis, the risk of employee layoffs and the heightened threat of loan defaults, banks grew both hesitant and stringent in their retail loan requirements. The average 2.75% increase in lending rates administered by the CBE in 2008 reached 12.30% and heightened to 13.50% in Jan-09. This filtered trough to car loans and drove customers away from credit borrowing. Some banks raised interest rates on loans to 9.5%, other banks lending rates reached as high as 18% and 20%. However, as CBEs lending rates began to trend lower, reaching 10.50% in Jun-09, PC sales showed signs of a revival, growing MoM by 23%.
Figure 5: Passenger car sales vs CBE lending rates

Units 25,000 PC Sales CBE Lending Rate 16% 14% 20,000 12% 15,000 10% 8% 10,000 6% 4% 5,000 2% Nov-08
0%
Jul-08 Feb-08 Aug-08 Sep-08 Feb-09 May-09
May-08
Mar-08
Mar-09
Oct-08
Dec-08
Apr-08
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Source EAMA and CBE
Apr-09
Jun-09
Jun-08
Jan-09
Jan-08
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Banking and Financial

Alia Abdoun I alia.abdoun@cich.com.eg Karim Meleka I karim.meleka@cich.com.eg
The reluctant bull market The EUROMONEY Egypt Conference 2009: Banking The Agricultural Credit & Development Bank: To establish new financial and investment tools
The reluctant bull market

Egyptian banks failed to keep up with their global counterparts in the FTSE Global Bank Index this week after beating them last week. Banks, in conjunction with the broader local market, lost ground at the beginning of the week but slowly recovered near the end. Ultimately it lost -2.2% when the FTSE Global Bank Index went up 1.2%. All of the banks covered by CICH retreated, with NSGB severely damaged by the selloff. CIB (COMI) declined by -2.1%, National Societe General Bank (NSGB) declined by 8.0% after gaining a massive 8.4% last week. Credit Agricole Egypt (CIEB) was down by -0.9%. NSGB and CIEB have 20% and 16% upside potential respectively, according to CICR Target Prices.
Figure 6: Weekly Trading
Weekly News
The Agricultural Credit & Development Bank: To establish new financial and investment tools
The Chairman of the Agricultural Credit & Development Bank (ACDB), Mr. Ali Shaker announced in a press conference held on September 27, 2009 that the bank is on its way to launch new financial and investments tools for the benefits of its client base. Amongst these tools would be the establishment of an investment fund with a value of LE 100 mn in addition to a company specialized in the financial leasing, and finally buying a stake in one of the insurance companies. (Al-Alam Al-Youm, 29-Sep-09)
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Cement
Basma Shebeta | Basma.Shebeta@cich.com.eg Ghada Refky | Ghada.Refky@cich.com.eg
Cement: IDA may cancel the licenses for un-implemented projects

Eng. Amr Assal, INDUSTRIAL DEVELOPMENT AUTHORITY (IDA)S CHAIRMAN, revealed that the IDA may cancel the licenses for cement companies that have not yet started their projects. If necessary, the IDA would re-issue these licenses amongst other companies. (Al-Alam Al-Youm, 30-Sep-09)
Comment
The IDA will study the cement sector dynamics. If they conclude the sector needs new production capacities, the IDA will issue new cement licenses. In reference to the indicators below, we believe demand for cement will grow in 2009 and 2010 by 20% and 11%, respectively. Hence, the cancellation of licenses may well pressure utilization rates further. The government may consider issuing new cement licenses, especially if it is keen to lower selling prices. However, we believe investors would be reluctant to enter into such licences due to the hike in cost of establishing new cement plants since the last auction in Oct-07. The high level of government intervention in the cement sector could also play a role in detracting potential investors. In sum, we believe that if new, additional capacities were decided upon, several investment incentives would need to be offered by the government.
Figure 7: Weekly cement prices

Company Name National Cement Torah Cement Misr Beni Suef Cement Helwan Cement Sinai Cement South Valley Cement Suez Cement Misr Cement (Qena) Sector Average ***
* As of 1-Oct-09 ** As of 24-Sep-09 *** WoW % in cement sector Mkt Cap
Ticker NCEM TORA MBSC HCCO SCEM SVCE SUCE MCQE
Closing Price * 35.64 42.79 129.90 44.69 45.44 7.96 40.97 91.32
Last Week Price ** 35.81 42.63 134.79 36.42 46.95 8.15 41.68 92.48
WoW % 0% 0% -4% 23% -3% -2% -2% -1% -3%
Rec. NA NA H NA B NA NA H
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Figure 8: Cement sector outlook

Unit Consumption Chg. Production Chg. Utilization Rate Chg. Exports Chg. Imports **
** Including imports by local producing Co.s Source: Ministry of Investment and CICRe Source: Ministry of Investment and CICRe
2008 A 38.4 39.8 94% 1.34 -
2009 E 46.2 20% 45.7 15% 99% 482 bps 0.3 -79% 0.7
2010 F 51.4 11% 51.7 13% 98% -48 bps 0.3 7% -
2011F 54.6 6% 57.1 11% 89% -899 bps 1.6 440% -
2012 F 58.9 8% 63.3 11% 95% 527 bps 3.1 91% -
2013 F 64.5 9% 66.5 5% 99% 474 bps 4.3 38% -
mn tons mn tons mn tons mn tons mn tons
Misr Beni Suef Cement: Company update - Hold maintained.

We have upgraded our estimates for domestic cement consumption by an average of 6% through 2009-13 due to the favourable conditions (+25% YoY in 7M09). We have enhanced our estimates for MISR BENI SUEF CEMENT [MBSC.CA; MBSC EY]s utilization rates, revenues, and margins. Electricity provision, natural gas supply, and license fees are three issues forming the bedrock of on-going contract negotiations between MBSC and the authorities. MBSC is expected to secure these contracts shortly, facilitating the operation of its new 1.5 mtpa production line. Accordingly, we incorporated these contracts into our estimates, enhancing our capex forecast for MBSC by 25%. As a final result we increased our LTFV by 38% to LE 211/share from LE 152.5/share, implying an upside potential of 57%. We also increased our TP by 115% to LE 156/share from LE 72.5/share. This implies a 16% upside potential. Following the strong rally in MBSCs stock price (3M increase of 56%), we maintain our Hold recommendation.
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Consumer
Ingy El Diwany | Ingy.Eldiwany@cich.com.eg
Most of the consumer stocks were correlated to EGX 30 side-way movement. We believe that the third quarter results are expected to be better QoQ, yet lower YoY, given that bulk of the demand is concentrated in the third quarter. No significant news was revealed concerning the sector during the last week.
Stock price performance

Figure 9: Weekly prices
Open 27 Sep EGX 30 Al-Arafa for Investment & Cons. Eastern Company Olympic Group Oriental Weavers Carpets Raya Holding 7,003 US$0.87 LE 132.79 LE 33.53 LE 34.29 LE 6.77 Close 1 Oct 6,790 US$0.85 LE 135.01 LE 34.05 LE 34.29 LE 6.60 Weekly change -3% -2% 2% 2% 0% -3% Mkt cap (mn) NA 193 6,751 2,046 2,558 376 Target Price Upside to TP NA Rec.
NA US$0.89 LE 117.50 LE 35.30 LE 37.40 LE 5.30
NA
5% Underweight -13% Underweight 4% Hold 9% Hold -20% Sell
Source: Reuters and CICR
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Fertilizers
Muhammad El Ebrashi | Muhammad.Elebrashi@cich.com.eg Ahmed Abdelghani | Ahmed.Abdelghani@cich.com.eg
What is next? is this weeks activity. The Euromoney Egypt 2009 was concluded on Wednesday offering some opportunities to P fertilizer investors. Exploration rights were also mentioned in conjunction with infrastructure activities. In addition, PPP is becoming a worldwide notion. Mergers and acquisitions in the fertilizers industry are also still in the air.
Figure 10: Weekly Trading
Attracting exploration projects to Egypt

Infrastructure panellists on Day 2 of the Euromoney Egypt 2009 workshop discussed whether investors might be granted contracts for exploration of raw. One such material that received mention was phosphate rocks. Such exploratory activities are very much linked to infrastructure projects, such as the building of railroads, which facilitate the transfer of raw materials. The below paragraph is an excerpt from the workshop discussion: ''on the other side, infrastructure investments in Egypt are hurdled with their low return yields when compared with other project returns. For example, railroads and highways are being established by the GoE, which subsidise their costs. However, in order to mitigate this risk, the private investor can make the infrastructure developments needed as a part of its investment cost. For example, investor who is looking for concession rights to extract phosphate rocks used in P fertilizers, he should undertake all the appropriate infrastructure development needed, such as railways or river ports, to transfer the raw materials and goods.''
Comment
Although it is premature to judge the feasibility of the project, we believe that P fertilizers investors (existing and potential) might be able to reduce raw material costs, especially those of phosphate rocks, through the securing of exploration rights. It is worth noting that phosphate rocks costs represent 34% 38% of total inputs costs in the SSP fertilizers. In addition, we believe that the Government of Egypt (GoE) is using the stick and carrot method to better exploit its natural resources. Accordingly, P fertilizers investors might be able to incorporate infrastructure costs in their exploration investments.
Deregulating the N fertilizer market in January 2010
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GoE decided to liberalize the N fertilizer trade next January in view of stable the market. Governmental official asserted that the final decision depends mainly on global fertilizer price trends their effects on local market. (Almasry Alyoum through Arabfinance, 24Sept-09)
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Green Energy
Mona Mansour I mona.mansour@cich.com.eg Mayan Elmenshawy I mayan.elmenshawy@cich.com.eg
Going, going, green

The combination of growing electricity demand (a CAGR of 7% over 2004-2008) and dwindling oil production (a CAGR of -0.5% over the same time span) highlights the key role of alternative sources of energy. One of the more noticeable developments in this field is the expanding contribution of windgenerated power. Indeed, wind-installed capacity increased from 0.8% in FY04/05 to 1.6% in FY07/08 of the total installed electricity capacity. Growing foreign and private sector participation in the energy industry, particularly in renewable energy, adds to the sectors potential.
Covering electricity demand from unconventional sources
A focus on renewable energy in the Euromoney Conference

Dr. Hassan Younes, Minister of Electricity and Energy, gave a keynote speech on Day 2 of the Euromoney conference 2009. He stated that whilst 89% of current electricity generation stems from conventional sources, the Government of Egypt's (GoE) renewable energy plan should contribute 20% of generated electricity by 2020. It is worth noting that the GoE plans for 63% of the electricity generated from green energy sources to be produced by the private sector. The Minister highlighted a number of projects currently in progress, especially in wind energy. Several wind farms will be established in the both the West of Egypt and along the banks of the River Nile. The plan includes the following:
More private sector involvement in green energy projects underway
The implementation of an energy conservation program A street lighting program is under execution. A solar energy program in which 140 MW solar installations will be in full use by the year 2010. Additional US$100 -120 bn worth of new projects.
Figure 11: Planned green energy projects

PROJECT WIND Zafarana wind farm Phase 8 Phase 9 Gabal El-Zayt wind farm in Suez Gulf Phase 1 Phase 2 Phase 3 Germany and European Investment Bank (EIB) Japan Government of Spain Italian, a subsidiary of the Italianbased Italcementi 250 MW 220 MW 300 MW 120 - 400 MW PARTNERS CAPACITY 192 MW Japan Denmark 75 MW 120 MW COMPLETION DATE 2010 2009 2010 2010 In the bidding process Under Study Under Study Not Available
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Private wind farm
SOLAR Kuraymat solar thermal power NREA, EPC and the Spain-based plant company (Iberdrola), Mistui Co. Ltd of Japan, Orascom Construction and Industries Company (OCI)
140 MW
2010
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Source: CICR Database Please Read Last Page For Contact Details and Important Disclaimer
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The Minister also pointed out several investment incentives to private investors, including: (1) A reduction in custom duties on wind-energy related raw materials from 5% to 2%. (2) The GoE will offer to purchase the electricity generated for 20-25 years. Dr. Younes pointed out that electricity prices will not rise in 2009, though they may increase starting 2010 (the matter is under study). He also clarified that electricity prices were increased by 5% in 2004 followed by a 2.6% in 2006.
No increase in energy prices in 2009 Nile Basin initiative
Given that Egypts renewable energy stems mainly from hydro, the expansion of its hydro pool is critical. Egypt is participating in the Nile Basin initiative the Inga Dam. In addition, Ethiopia, Sudan, and Egypt have developed a plan to create an interconnection through the River Nile. This will allow the extension of existing transmissions and permit Egypt access to hydro resources in both Ethiopia and Sudan. Participants are currently in the fund raising phase.
Wind energy in the South Valley

The Cabinet of Ministers approved 1.5mn feddans for wind power, across the east and west of the Nile. The project is expected to generate over 30 GW and will be financed by both public and private sectors. The Minister of Energy said that all wind equipment will be produced locally.
A designated 1.5mn feddans in South Valley for wind energy
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Hydrocarbons & related services

Maridive & Oil Services
Fadwa Hossam | Fadwa.Hossam@cich.com.eg
Weekly Trading
Overall the oil service sector with the exception of Egypt Gas declined evenly over last weeks performance. Maridive, AMOC and Sidi Kreir recorded respective WoW declines of 3% and 2.2% and 1.2%. EGAS on the other hand grew by 8% to close at LE 90.29.

Company Maridive AMOC Egypt Gas Sidi Kerir Petrochemicals Ticker MOIL AMOC EGAS SKPC Price as of Price as of 1-Oct 24-Sep 4.14 44.01 90.29 11.84 4.27 44.98 83.62 11.98 WTD* Perf. -3.0% -2.2% 8.0% -1.2% Target Price 4.7 NA NA NA Upside/ (Downside) 13.5% Rating Hold Not Covered Not Covered Not Covered
Source: Bloomberg and CI Capital
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MILLS
Ahmed Abdel Ghani | Ahmed.Abdelghani@cich.com.eg Mirette Mohamed Ghozzi | Mirette.Ghozzi@cich.com.eg

This week, most of the Mills-sector stocks recorded small movements. Alexandria Mills [MILS.CA, MILS EY] was the exception, increasing 9.6% to reach LE 50.3/share.
Figure 13: Stock price performance

Company Ticker Price at 30-Sep 50.3 22.4 37.1 40.27 31.1 63.6 85.9 Price at 27-Sep 45.9 21.0 37.27 40.09 31.92 61.84 85.4 Weekly Target Change Price 9.6% 14.6 6.5% 13.7 -0.4% 47 0.4% 49.3 -2.5% 32.8 2.8% 53.3 0.6% 118.5 Rec. Sell Sell Strong Buy Strong Buy Underweight Sell Strong Buy Risk Rating Moderate Low Low Low Low Moderate Low
Alexandria Mills AFMC Central Egypt Mills CEFM East Delta Mills EDFM Middle & West Delta Mills WCDF North Cairo Mills MILS South Cairo & Giza Mills SCFM Upper Egypt Mills UEFM Source: Reuters & CICR estimates
Upper Egypt Mills: Net profit up 8% YoY |Positive

UPPER EGYPT MILLS [UEFM.CA, UEFM EY] released its FY08/09 financial results ended June 30, 2009, reporting 8% YoY higher consolidated net profit of LE 94.8 mn (+13% vs. CICRe of LE 83.9) vs. LE 87.7 mn in FY07/08. We will comment further on the results once we receive detailed financial statements. (www.egyptse.com, 30-Sep-09) (6-Sep-09): [UEFM | LTFV EGP 109.9/share |TP EGP 118.5/share| Strong BUY | Low Risk]
North Cairo Mills: Net profit down by 37% YoY | Negative

NORTH CAIRO MILLS [MILS.CA, MILS EY] released its FY08/09 financial results ended June 30, 2009, reporting 37% YoY lower net profit of LE 31.9 mn (-16% vs. CICRe of LE 37.8) vs. LE 50.7 mn in FY07/08. We will comment further on the results once we receive detailed financial statements. (www.egyptse.com, 30-Sep-09) (6-Sep-09): [MILS | LTFV EGP 28.2/share |TP EGP 32.8/share| Underweight | Low Risk]
Middle & West Delta Mills: AGM & EGM decisions

In its AGM held on September 30, 2009, MIDDLE & WEST DELTA MILLS [WCDF.CA; WCDF EY] approved the following:

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FY08/09 financial statements ended June 30, 2009. A DPS of LE 3.60 (+21% vs. CICRe of LE 2.98), implying a dividend yield of 9%. Charging wages expenses account with LE 3.5 mn to save employees share from profits. Using LE 4.02 mn from general reserve in addition to LE 2.5 mn from retained earnings to support share dividend yield according to Article No. 40 from law no.159/1981. Refusing Mr. Mohamed Al-Fekys - the second largest shareholder with a stake of 11.1%- request to be a board member.
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On a different note, in its EGM, WCDF approved the following: Amendments to article No.3 of the companys Articles of Incorporation to add new activities to the company including the establishment of a social club, commercial stores, restaurants, events hall and hotels. This will enhance the companys revenues from other activities and enable it to utilise its unused lands. Amendments to article No. 56 giving the AGM the right to approve ceasing the 5% of the companys profit legal reserve accumulation once the reserve reaches 50% of the companys paid-in capital. Prior to amendments, the company would set aside 5% of the annual profit when the reserve fell below 50% of the companys paid-in capital.
(6-Sep-09): [WCDF | LTFV EGP 47.4/share | TP EGP 49.2/share | Strong BUY | Low Risk]
Wheat: GASC contracted to import 150k tons of Russian wheat | Neutral for milling companies
THE GENERAL AUTHORITY FOR SUPPLY COMMODITIES (GASC) has secured a contract to import 150k tons of Russian wheat, at US$170/ton. This is to be delivered in the first half of November. (Al-Masry Al-Youm, 1-Oct-09)
Comment
We believe that this Russian wheat will have minimal impact on Egyptian milling companies due to the requirement that all imported wheat pass the Egyptian standards of quality. Russian wheat accounted for 36.4% of GASC's total wheat imports in 2009, at an average price of US$174/ton.
Wheat: Farmers turned to other crops | Neutral for milling companies

Wheat farmers announced that, in the current season, they have turned away from wheat cultivation to other, more profitable crops like sugar, trefoil and Syrian pulp. (AlGomhorya, 29-Sep-09)
Comment
We believe that shifting from wheat cultivation to other economic crops will have no effect on the milling companies. This is due to the fact that The General Authority for Supply Commodities (GASC) - the main buyer and importer of wheat - will secure any shortage of wheat locally or directly through international bids. We believe that the farmers decision to cultivate other, more profitable crops stems from the GoE's delay in announcing the wheat procurement price for the current season on September 9, 2009 -the farmers day- as announced before. Farmers were dissatisfied with the procurement prices for 08/09 season. Wheat prices ranged between LE 240/Ardab-LE 250/Ardab, due to the higher cultivation cost (which reached LE 2,000/feddan) and the long cultivation period (six months, from November to April).
Wheat: 63k tons of Russian wheat seized | Neutral for milling companies
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Dr. Ali Soliman, Head Of Central Department for Agricultural Quarantine, announced that the Agricultural Quarantine Outlets (AQO) in Port Said has seized a shipment of 63k tons of Russian wheat. This shipment will be held in custody until a certificate from the exporting country, confirming that the shipment is free from any inspects or plant diseases, is received. AQO refused The General Authority for Supply Commodities' (GASC) request to release the shipment until the certificate has been received. (AlMasry Al-Youm, 26-Sep-09) Please Read Last Page For Contact Details and Important Disclaimer
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Comment
We expect the seizure of this shipment to have no effect on the milling companies given that GASC will secure any shortage of wheat locally or directly through international bids. We believe that the AQO's decision to detain this shipment comes in the wake of the Minister of Agriculture's instructions, in May 2009, to AQO in the Egyptian ports to (1) ban the entry of wheat shipments not from the origin country and (2) ensure the ports of origin and plant characteristics' certificates are included to improve the imported wheat quality.
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Real Estate
Hany Mohamed Samy | Hany.Samy@cich.com.eg
Nasr City Housing & Development (MNHD) AGM approves a DPS of LE 0.8
In its AGM held on September 30, 2009 , Nasr City Housing & Development (MNHD) approved its FY08/09 financials, in addition to the distribution of a DPS of LE 0.80 next November. This DPS of LE0.80 implies a dividend yield of 2.2%. [MNHD | LTFV EGP 84.7/share | TP EGP 84.7/share | Strong BUY | High Risk]

Figure 14: Real Estate companies weekly trading
27-Sep 28-Sep 29-Sep 30-Sep 1-Oct From 27Sep to 1Oct -1% -3% -2%
TMG 6.57 % Change na PHD 9.07 % Change na NCHD 36.49 % Change na na: not available
Source: Reuters
6.45 -2% 8.87 -2% 35.9 -2%
6.48 0% 8.9 0% 36.03 0%
6.44 -1% 8.86 0% 35.81 -1%
6.49 1% 8.83 0% 35.92 0%
Comment
In the Euromoney conference discussed in the earlier section the panel discussion highlighted how Egypts real estate market has been relatively unaffected. It was also thought the new property tax would not affect the sector. The new mortgage market should benefit the sector but this would take time and some change of culture. We believe the panel accurately reflected the current dynamics of the local real-estate market. They highlighted the main drivers, catalysts, and hindrances faced by the industry and their outlook was in line with our expectations and analysis. We believe the strength and opportunities within the real-estate industry are reflected in our target prices below:
[TMGH | LTFV EGP 12.8/share | TP EGP 11.5/share | Strong BUY | Moderate Risk]
[PHDC | LTFV EGP 12.5/share | TP EGP 11.3/share | Strong BUY | Moderate Risk]
[MNHD | LTFV EGP 84.7/share | TP EGP 84.7/share | Strong BUY | High Risk]
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Sugar
Mirette Mohamed Ghozzi | Mirette.Ghozzi@cich.com.eg
Removal of import tariffs on raw and white sugar| Positive for Delta Sugar
Prime Minister, Dr. Ahmed Nazif, announced the decision to remove import tariffs on both raw and white sugar for the period starting August 15, 2009 until December 31, 2009. (Al-Ahram, 25-Sep-09)
Comment
The announcement of this decision put into effect the Minister of Finances proposal to remove import tariffs on sugar over a month ago. The decision came in response to rising international sugar prices. The increased cost of sugar is itself a product of shortages in global supply, particularly in India and Brazil. We feel that the tariff removal does not pose a threat to Delta Sugar [SUGR.CA; SUGR EY] given that international prices (over LE 3,200/ton) have recently risen faster than local prices (LE 2,750/ton). However, we do believe the lower local prices present an opportunity for SUGR to sell its accumulated inventory. The company recorded an inventory of 283k tons of sugar in 1H09. We expect domestic prices to rise, though not at the same rate as international prices, given that local prices are controlled by the Sugar Committee. The Committee stabilized local prices at LE 2,750/ton during the Holy month of Ramadan, up from LE 2,500/ton at the beginning of the year. The Committee will meet shortly to set the new sugar price.

Company Name Delta Sugar
* As of 1-Oct-09 ** As of 24-Sep-09 *** WoW % in sugar Mkt Cap
Ticker SUGR
Closing Price * 26.75
Last Week Price ** 24.36
WoW % 10%
Rec. Underweight
[SUGR | LTFV EGP 22/share | TP EGP 19.8/share | Underweight | Moderate Risk]
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Telecom
Amr Hussein Elalfy, CFA | Amr.Elalfy@cich.com.eg Mohamed Hamdy | Mohamed.Hamdy@cich.com.eg Noran Ali | Noran.Ali@cich.com.eg
This week, Orascom Telecom (OT) reversed its positive performance witnessed in the previous week, down 5.5% WoW, albeit the rumor of OT's bidding for the acquisition of a Nigerian company is still circulating in the market. Telecom Egypt (TE) showed a negative performance by end of week impacted by the Minister of Communications & IT's announcement of offering two licenses for offering tripleplay services in gated communities with US$1bn estimated investments over the next 5 years. Although the impact was negative on TEs stock price, we had already factored the impact of new entrants in our projections. Hence, the new announcement is not a surprise and we think reaction to the news was overdone. Meanwhile, Mobinil continues to trade around our target price of EGP 220.
Figure 16: Stock performance this week
Company Mobinil Orascom Telecom Telecom Egypt
Ticker EMOB ORTE ETEL
Price as of Price as of 1-Oct 24-Sep 220.91 34.70 17.94 224.29 36.72 18.78
WTD* Target Upside/ Perf. Price (Downside) -1.5% -5.5% -4.5% 220 45 21 -0.4% 29.7% 17.1%
Rating Underweight Strong BUY Hold
* Week to 1-Oct-09 Source: Bloomberg and CICR estimates
Orascom Telecom (OT)

ORASCOM TELECOM HOLDING (OT) has sent a statement to EGYPTIAN EXCHANGE concerning the conclusion of GDRs transfer. It is worth noting that the EGYPTIAN FINANCIAL SUPERVISORY AUTHORITY had announced earlier its exemption of both WEATHER CAPITAL LIMITED and WEATHER CAPITAL SP1 SA from submitting an obligatory tender offer to buy 50,974,601 GDRs, representing 254,873,005 shares of OT. On a different note, OT is reportedly interested in buying a Nigerian company, which will be sold as a part of government privatization plans. The company provides fixed lines services, marine cable in the south of Atlantic Ocean, and mobile through its unit NITEL. OT reportedly intends to bid for 75% of Nitel as a part of its expansion plans in Africa through the Nigerian market which include five mobile companies. (www.arabfinance.com, 27-Sep-09)
ORTE: Announces completion of GDRs transfer; rumoured to be interested in Nigerian market
Comment
OTs officials refused to comment on such a rumor. Nigeria is considered one of the largest and fastest growing telecom markets in Africa. Over 2002-2007, mobile subscribers grew by a CAGR of 92%, well above the African regional CAGR of 49%. In 1H09, mobile subscribers in Nigeria grew YoY by 28% reaching 66.4 mn, implying a 44% penetration rate.
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Weather Capital, parent of Orascom Telecom (OT) said on Friday, September 25, that it has completed the purchase of EUR 825mn-worth of outstanding exchangeable bonds as part of a buyback program. The bondholders agreed to sell to Weather EUR 750.5mn of exchangeable bonds that were due for payback 2013 and had a coupon rate of 4.75%. Weather said it also exercised its right of redemption to acquire the remaining EUR 74.5mn of the bonds. Settlement of the offers to sell and the redemption of the bonds were completed on September 24, the company said. (Weather Capital press release and Down Jones Newswires, 25-Sep-09)
Weather Capital: Completes EUR 825mn bond buyback | Neutral for Orascom Telecom
Miscellaneous
Dr. Tarek Kamel, the MINISTER OF COMMUNICATIONS & IT highlighted the following points during his speech in the EUROMONEY CONFERENCE: Strong contribution of ICT sector in the economy: The real GDP contribution of the ICT sector is around 3.8% or US$7bn. The mobile sector growth reached 37% in 2008/09 with a penetration rate of 70%. The sector has the challenges of finishing the overall infrastructure and renovation. Egypt is becoming a leader in off-shoring and outsourcing through special incentives provided by the government and the INFORMATION TECHNOLOGY INDUSTRY DEVELOPMENT AGENCY (ITIDA). Egypt is reportedly number "4" worldwide for off-shoring services. The ministry has dedicated 75 acres to establish an outsourcing zone in Maadi. The first three buildings are finished, and the first companies will come within few months. The ministry is committed to creating innovation centers. It started with MICROSOFT INNOVATION CENTER. The ICT sector plays a big role in providing better education and health services. The ministry is also trying to introduce technology-based components for Higher Education.
Highlights by Minister of Communications & IT in the Euromoney Conference
Opening up the fixed-line sector

(please read below news & view): As a step to opening up the fixed-line sector and providing added value for both the sector and consumer, the NTRA has approved two licenses for the telecom sector. This move will help some areas in Egypt to solve their network problems. International players were invited to come with their expertise to provide value-added services to the sector. Details of the tender will be announced in the next 48 hours by the NTRA chairman.
Hosting a forum for internet:

Egypt will invite international partners and stakeholders to a forum on internet services in Sharm El- Sheikh. The forum will reflect the hot debates concerning cyber security, the internet as media for value-added services and domain services, etc.
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The MINISTER OF COMMUNICATIONS & IT announced offering of a new generation of licenses, triple-play services. The two licenses include the provision of bundled valueadded services (voice, data, and internet) to the countrys higher-income bracket now located in the expanding nationwide gated communities. The new services would bring total estimated investments of around US$1 bn over the next 5-year period. Such announcement is deemed a technological turning point in Egypts telecom market. The entrants along with TELECOM EGYPT (TE) will adopt a fiber-optic network, which enjoys a technological edge and lower maintenance cost than the existing copper network. Although, the initial impact has been negative on TEs stock price (down to as low as LE 17.49 intraday or 3.2% lower vs. previous close but rebounded later), we had already factored the impact of new entrants in our projections for TE. Hence, the new announcement is not a surprise since competition will mainly take place in new gated Please Read Last Page For Contact Details and Important Disclaimer
Two new triple-play licenses to be offered | Neutral for Telecom Egypt
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communities, which are considered under-served areas. Accordingly, we maintain our Hold recommendation for TE with our target price of LE 21/share. Following details were stated by the Minister:
The licenses will only cover small gated communities including 50-5,000 units where the two new licensees, in addition to TE, will be able to compete. For more than 5,000 units, TE will be the only telecom operator and will maintain its monopoly position. The new licenses will enable telecom providers to offer bundled services including voice, data and internet. Revenue sharing with the government will be 8% with no "significant" upfront fees. The investment of the new licenses is expected to reach US$1 billion over the next 5 years. The new licenses investors/consortia. will be offered to both Egyptian and foreign
Licenses closing date will be January 12, 2010. Operation is expected by 2H10.
In the EUROMONEY CONFERENCE 2009, we attended a workshop hosted by VODAFONE EGYPT (VFE) titled Dial M for Money: Empowering access to finance. The workshop presented the case for mobile banking worldwide with focus on emerging markets. They shared with us the success story of SAFARICOM (VODAFONE GROUPs subsidiary in Kenya), which set up a subsidiary called M-PESA to offer money transfer services through mobile handsets. The major points discussed during the workshop are: By 2012, up to 364mn unbanked customers will have adopted mobile financial services (MFS) according to a McKinsey study. The two markets that have successfully implemented MFS are: Kenya: In just 2 years, 7mn customers joined the service and the market showed a successful adoption rate. The Philippines: There is real competition in the market in terms of business models applied (e.g. competition between mobile opcos and banks). ALLIANCE FOR FINANCIAL INCLUSION (AFI) is a global network of policymakers in developing countries that provides its members with the tools and resources to share, develop, and implement their knowledge of cutting-edge financial inclusion policies that work. Its goal is to enable people living on less than US$2 a day to have access to savings accounts, insurance and other formal financial services: an extra 20 mn by 2011 and 50mn by 2012. The CENTRAL BANK OF EGYPT (CBE) is currently discussing the rules and regulations of mobile financial services in Egypt.
Mobile financial services have growth potential, pending several factors
Comment
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Of the companies under our coverage, only ORASCOM TELECOM (OT) has put mobile banking as one of its main initiatives over the coming years. Meanwhile, its subsidiary MOBINIL has received initial approval from the CBE to launch money transfer and payment services via mobile phones with a final decision is yet to be made. Last but not least, VFE, a subsidiary of TELECOM EGYPT (TE) had previously launched a similar service Vodafone Cash Card in cooperation with HSBC BANK EGYPT for fees of 2% of transferred amount with a minimum of EGP 2/transaction.
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We definitely believe there is tremendous potential for MFS, not only in Egypt but in all emerging markets where OT operates. However, the timeline for implementation may take longer than expected since its development requires (1) regulatory approvals, (2) partnership agreements between mobile operators and regulated banks, and (3) most importantly an overall education process and culture change to adopt such new services. With an under-penetrated banking market, Egypt we think could potentially be one of the leading markets for these new services. Yet, we believe it is too early to attach a value to its new business model.
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Figure 17: Rolling one month research
Date 31-Aug-09 1-Sep-09 1-Sep-09 2-Sep-09 3-Sep-09 6-Sep-09 6-Sep-09 8-Sep-09 8-Sep-09 9-Sep-09 9-Sep-09 13-Sep-09 13-Sep-09 14-Sep-09 15-Sep-09 16-Sep-09 16-Sep-09 17-Sep-09 22-Sep-09 24-Sep-09 27-Sep-09 27-Sep-09 30-Sep-09
Title/Company/Sector AIVC Canal Shipping Agencies EZZ Steel United Arab Stevedoring OCI MENA TELECOMS WEEKLY | ISSUE NO. 18 Mills ALCN Sinai Cement Hard times, good banks Tighter budgets bring CPI lower MENA TELECOMS WEEKLY | ISSUE NO. 19
Type of report Newsflash Newsflash Company Note Newsflash Newsflash THE MENA RINGTONE IoC Company Note Company Note Sector Note Economy Newsflash THE MENA RINGTONE
Pages 2 2 10 2 2 13 49 6 5 23 1 14
OLYMPIC GROUP RECENT MARKET DEVELOPMENTS Middle and West Delta Mills AIVC MNHD Eastern Company MENA TELECOMS WEEKLY | ISSUE NO. 20 ORTE MENA TELECOMS WEEKLY | ISSUE NO. 21 Misr Beni suef Cement Triple play services
Company Note CEMENT MONTHLY Newsflash Newsflash Newsflash Newsflash THE MENA RINGTONE Newsflash THE MENA RINGTONE Company Note Industry Note
7 16 2 3 4 2 15 1 15 6 2
Source: CI Capital Research
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1 October 2009 Egypt - WEEKLY

Risk
st
RIC
Company
Recom.
Price
Curr.
LTFV
TP
Up/ (Dn)
P/E 08
P/E 09E
P/BV 08
P/BV 09E
ROE 08
ROE 09E
ROA 08
ROA 09E
DY 07
DY 08
Financial CIEB COMI NSGB RIC Credit Agricole - Egypt CIB NSGB Company M M M
Risk
H N/A B
Recom.
EGP EGP EGP

Curr.
12.70 57.59 28.54

Price
15.5 N/A 36.2 LTFV
14.7 N/A 34.4 TP
16% N/A 20% Up/ (Dn)
7.7x 12.3x 8.4x P/E 08
9.7x 9.6x 9.5x P/E 09E
2.2x 3.1x 1.9x P/BV 08
2.0x 2.4x 1.6x P/BV 09E
28.1% 25.5% 22.4% EV/ EBITDA 08
20.7% 25.2% 17.1% EV/ EBITDA 09E
2.2% 2.4% 2.5% ND/ EBITDA 08
1.6% 2.7% 2.0% ND/ EBITDA 09E
7.9% 1.2% 0.7% DY 07
8.7% 1.7% 3.2% DY 08
Building Materials ECAP ESRS IRAX PACH Cement MBSC MCQE SCEM Chemicals EFIC EFIC M S EGP 24.42 21.4 20.6 (16%) 7.5x 19.0x 2.0x 2.0x 8.6x 9.7x 2.9x 2.7x N/A 3.1% Misr Beni Suef Cement Misr Cement (Qena) Sinai Cement M M M H H B EGP EGP EGP 129.29 91.32 45.44 211.0 104.9 91.5 155.8 97.9 57.3 21% 7% 26% 12.8x 9.0x 7.7x 6.7x 7.8x 4.6x 3.1x 2.9x 2.1x 2.5x 2.8x 1.9x 5.7x 5.5x 6.4x 5.6x 4.7x 3.8x -0.4x -1.2x -0.2x 0.3x -1.3x -0.3x 2.3% 5.5% 3.1% 9.0% Al-Ezz Ceramics Ezz Steel Ezz Al-Dekheila PACHIN H M M M S SB SB SB EGP EGP EGP EGP 7.79 15.37 5.5 34.2 4.7 27.5 1,200.0 56.0 (39%) 79% 43% 31% 39.4x 6.8x 3.9x 11.0x 40.6x 30.8x 11.9x 7.5x 1.3x 1.6x 3.7x 1.6x 1.3x 1.5x 3.2x 1.5x 12.5x 2.7x 3.1x 10.0x 8.5x 6.4x 6.8x 6.7x 5.0x 0.8x 0.4x 0.5x 3.9x 2.7x 1.6x 0.1x N/A N/A
2.2% 16.3% 16.9% 15.5% 8.2% 6.9%
841.75 1,501.9 45.44 56.0
1.4% 11.0%
Housing & Real Estate MNHD PHDC TMGH Contracting Nasr City H&D Palm Hills Dev. TMG Holding H M M SB SB SB EGP EGP EGP 35.92 8.83 6.49 84.7 12.5 12.8 84.7 11.3 11.5 136% 28% 77% 33.5x 9.5x 9.1x 28.3x 13.5x 4.9x 14.7x 2.2x 0.6x 13.6x 2.4x 0.5x 28.9x 9.5x 8.9x 21.4x 5.9x 4.1x 0.1x 0.5x 1.7x -0.1x -1.8x 0.0x N/A N/A N/A N/A N/A N/A
EGYPT - WEEKLY
OCIC Mills AFMC CEFM EDFM
OCI
UW
EGP
237.14
216.5
207.9
(12%)
12.5x
16.6x
2.7x
2.6x
9.5x
10.8x
0.6x
1.1x
128.0%
1.6%
Alexandria Mills Central Egypt Mills East Delta Mills
M L L
S S SB
EGP EGP EGP
50.47 22.36 37.12
10.0 13.7 54.4
14.6 13.7 47.0
(71%) (39%) 27% 14%
28.0x 17.4x 10.0x 10.3x
21.6x 14.4x 7.3x 10.9x
3.3x 1.8x 1.4x 2.1x
2.9x 1.7x 1.2x 1.9x
8.7x 6.4x 5.0x 6.0x
6.6x 6.0x 2.6x 6.2x
-4.7x -0.7x -2.0x 1.1x
-4.7x -0.2x -1.9x
1.5% 3.6% 8.5% 0.1x
1.0% 2.7% 8.5% 6.1%
CI Capital Research Coverage Universe (simple avg.)
31 1.1x
st
EGYPT - WEEKLY

Market Sectors P/E 08 P/E 09E P/BV 08 P/BV 09E EV/ EBITDA 08 0.3x 2.9x 5.2x 8.6x 9.5x 12.2x N/A 6.6x 10.0x N/A 6.4x N/A 6.0x 1.9x 5.3x 5.5x 3.8x 5.9x EV/ EBITDA 09E 0.2x 6.6x 4.6x 9.7x 10.8x 10.4x N/A 7.5x 5.1x N/A 4.5x N/A 5.7x 1.4x 5.0x 4.3x 4.4x 6.1x ND/ EBITDA 08 0.0x 0.6x -0.6x 2.9x 0.6x 2.6x N/A 0.2x 1.3x N/A -1.7x N/A -1.0x 0.1x 1.5x 1.2x -0.5x 0.9x ND/ EBITDA 09E 0.0x 2.1x -0.4x 2.7x 1.1x 1.8x N/A 0.6x -0.3x N/A -1.6x N/A -1.2x 0.1x 1.4x 0.6x 0.6x 1.1x DY 07 DY 08
st
Banking Building Materials Cement Chemicals Contracting Engineering Financial Food & Beverage Housing & Real Estate Insurance Mills Paper Pharmaceuticals Services Telecom, Media, & Technology (TMT) Textiles Tourism * For banks, EV/EBITDA is ROE Market (simple avg. of all stocks above) ** For banks, ND/EBITDA is ROA
8.6x 7.3x 10.4x 5.8x 12.9x 10.3x 11.6x 10.2x 11.4x 7.4x 9.4x 14.2x 10.4x 12.3x 11.4x 10.1x 13.4x 10.4x
9.6x 16.0x 5.9x 19.0x 16.6x 11.1x N/A 10.6x 7.0x N/A 9.1x N/A 9.4x 9.7x 10.8x 9.0x 10.3x 10.9x
4.2%
4.4%
9.6% 11.2% 5.1% 14.5% 128.0% 6.2% N/A 4.6% 0.8% N/A 5.6% N/A 4.0% 9.3% 8.8% 5.4% 5.2% 8.4% 6.8% 3.1% 1.9% 1.6% 1.7% 5.4% N/A N/A N/A 5.3% 5.7% 5.5% 5.3% 5.5% 2.4% 5.2%
Distribution of recommendations SB B H UW S Total Strong BUY BUY Hold Underweight SELL 11 4 8 6 9 38 29% 11% 21% 16% 24% 100%
EGYPT - WEEKLY
Note: All multiples are calculated based on a market captialization-weighted average. Market sectors multiples are for all stocks that we track and not necessarily the ones in our coverage 33 universe. ** Banking ROE and ROA instead of EBITDA
Egypt - WEEKLY
Contents and Disclaimer:
CI CAPITAL RESEARCH
Mark Rorison | Group Director, Head of Research Mark.Rorison@cich.com.eg Amr Hussein Elalfy, CFA | Director Amr.Elalfy@cich.com.eg Mona Mansour | Director Mona.Mansour@cich.com.eg
CI CAPITAL HOLDING
8, Nadi El-Seid Street, Third Floor Dokki, Giza Egypt Reuters pages: COIW, COIX, COIY, and COIZ Bloomberg page: COIB <GO> For more information, please contact CI Capital Research on +2 (02) 33 38 62 59, send e-mail to Research@cich.com.eg or visit our website at www.cich.com.eg
CIBC
Amr Mostafa | Managing Director Amr.Mostafa@cich.com.eg
DYNAMIC SECURITIES
Ahmed Roushdy | Managing Director Ahmed.Roushdy@cich.com.eg
RATIN G SYSTEM In February 2009, CI Capital Research (CICR) launched a new rating system to give analysts more freedom to be market responsive. This is to make one element of our research more dynamic, namely the advertising of target pric es and recommendations. What we did not c hange is our assessment of the Long Term Fair Value (LTFV), nor have we stopped our detailed industry and company research. What we did is changing the target pric e to trade in the balance of where a share should trade and where we think it w ill trade. LTFV: As before we continue to estimate a fundamental valuation, largely DCF and/or NAV based. Target Price: The target price, which is not necessarily the LTFV, is where the analyst, given all (qualitative as well as financial) infor mation available, thinks the share price can get to within the next 3-12 months. This can be changed at any time on changing facts, and perc eptions. Recommendations: Our new rating system falls out from the total return relating to the share price performance to the target price, and including any dis tributions as may not be included in the target price calc ulation. This is shown in the table below, and to be BUY mus t return over 19%, an arbitrary hurdle rate we think reasonable given prevailing interest rates and risks. (Please see table below.) Recommendation structure:
Change to Target Price Strong BUY BUY Hold Underw eight SELL > 30% > 20% < 30% > 10% < 20% > 0% < 10% < 0% Strong Conviction
DISCLAIMER The information used to produce this market commentary is based on sources that CI Capital Research (CICR) believes to be reliable and accurate. This information has not been independently verif ied and may be condensed or incomplete. CICR does not make any guarant ee, representation or warranty and accepts no responsibility or liability to the accuracy and completeness of such information. Expression of opinion contained herein is based on certain assumptions and w ith the use of specific financial techniques that reflect the personal opinion of the authors of the commentary and is subject to change without notice. It is acknowledged that different assumptions can alw ays be made and that there is a wide choice of techniques that can be adopted each of which can lead to a different conclusion. Therefore, all that is stated herein is of an indicative and informative nature as forward-looking statements, projections, and fair values quoted may not be realized. Accordingly , CICR does not take any responsibility for decisions made on the basis on the content of this commentary. This commentary is made for the sole use of CICRs customers and no part or excerpt of its content may be redistributed, reproduced or conveyed in any form, w ritten or oral, to any third party without the prior written consent of CICR. This commentary does not constitute a solicitation or an offer to buy or sell securities.
EGYPT - WEEKLY

Your Week in Egypt - Vodafone Cash

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1 Egypt - WEEKLY

Figure 1: Market wrap

EGX Performance Total Value traded (LEbn)

Mark Rorison mark.rorison@cich.com.eg Mona Mansour mona.mansour@cich.com.eg

Euromoney Conference Egypt 2009

Drop in the number of vessels passing through Suez Canal

Bank aim to drive up car sales

Attracting exploration projects to Egypt

Going, Going, Green Wind as a new energy source

Removal of sugar Import tariffs

A busy week for wheat

New rivals for Telecom Egypt?

The Euromoney Conference Egypt 2009

A focus on internal trade and non-oil & gas exports

Enhancing Bilateral trade with the UK

Essentials for growth

No intention to influence LE/US$ exchange rate

Figure 2: Net International reserves & LE/USD exchange rate

Net Int'l Reserves

5.580 5.560 5.540 5.520 5.500

31 30 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09

Source: Bloomberg and CICR

Infrastructure: Key for further economic growth

Activating the PPP scheme

Could SMEs be the economy rescuers?

Lack of access to finance

Further SMEs support

Figure 3: GoE's support to SME's

Social Fund for Development

Ministry of Local Developent Social Fund for Development (SFD)

Source: CICR Database

Conference topics covered in later sections:

Green Economy Fertilisers Telecoms and ICT

Egypts solid performance to continue in 2010

A drop in the number of vessels passing through Suez Canal

Figure 4: Suez Canal Performance

400 1,500 300

Source: CBE & IDSC

Steady average yield on 91-day T-Bills

Banks take centre stage in driving up car sales

Automotive: Banque Du Caire approves car loans worth LE 50 mn

Figure 5: Passenger car sales vs CBE lending rates

Source EAMA and CBE

Banking and Financial

The reluctant bull market

Figure 6: Weekly Trading

Source: Bloomberg and CICR

Cement: IDA may cancel the licenses for un-implemented projects

Figure 7: Weekly cement prices

Ticker NCEM TORA MBSC HCCO SCEM SVCE SUCE MCQE

WoW % 0% 0% -4% 23% -3% -2% -2% -1% -3%

Source: Bloomberg and CICR

Figure 8: Cement sector outlook

2008 A 38.4 39.8 94% 1.34 -

2010 F 51.4 11% 51.7 13% 98% -48 bps 0.3 7% -

2011F 54.6 6% 57.1 11% 89% -899 bps 1.6 440% -

2012 F 58.9 8% 63.3 11% 95% 527 bps 3.1 91% -

2013 F 64.5 9% 66.5 5% 99% 474 bps 4.3 38% -

mn tons mn tons mn tons mn tons mn tons

Misr Beni Suef Cement: Company update - Hold maintained.

Stock price performance

NA US$0.89 LE 117.50 LE 35.30 LE 37.40 LE 5.30