3. November 11, 2008
EGYPT | TABLE OF CONTENTS
Sector/Co. Page No.
STRATEGY 3
11
ECONOMY
INDUSTRY
22
BANKING
30
CEMENT
41
FERTILIZERS
50
POULTRY
58
REAL ESTATE
67
STEEL
80
SUGAR
91
TELECOM
101
WHITE CONSUMER GOODS
EQUITY
AL-EZZ CERAMICS & PORCELAIN (GEMMA) 107
109
ARAB COTTON GINNING CO. (ACGC)
COMMERCIAL INTERNATIONAL BANK (CIB) 111
113
CREDIT AGRICOLE EGYPT (CAE)
115
DELTA SUGAR
117
EASTERN COMPANY (EC)
EGYPTIAN FINANCIAL & INDUSTRIAL CO. (EFIC) 119
121
EIPICO
EZZ AL-DEKHEILA STEEL 123
EZZ STEEL (ES) 125
MARIDIVE & OIL SERVICES 127
129
MISR BENI SUEF CEMENT (MBSC)
131
MISR CEMENT (QENA)
MOBINIL 133
135
NASR CITY HOUSING & DEVELOPMENT (NCHD)
137
NATIONAL SOCIETE GENERALE BANK (NSGB)
OLYMPIC GROUP 139
141
ORASCOM CONSTRUCTION INDUSTRIES (OCI)
143
ORASCOM TELECOM (OT)
145
ORIENTAL WEAVERS CARPETS (OWC)
PAINTS & CHEMICAL INDUSTRIES (PACHIN) 147
149
PALM HILLS DEVELOPMENTS
RAYA HOLDING 151
153
SINAI CEMENT
155
TELECOM EGYPT (TE)
TMG HOLDING 157

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5. November 11, 2008
EGYPT | STRATEGY
AN OASIS OF GROWTH AND VALUE THAT SURPASSES RISK
Welcome to CI Capital Research (CICR)'s first Egypt Book, where we look from
the top to drill down through 9 sectors and into 26 companies, which we think
demonstrates a wide and deep knowledge of the market.
WHY HERE? WHY NOW?
The Egyptian market has been hit hard by factors not of its own making. Ever
since its reformist government has been in place it has managed c.7% p.a.
growth, and now, despite global events, is widely recognized as a market of least
risk characteristics for its ability to continue delivering growth. Yet, as high com-
modity prices brought inflation to emerging markets and as the dawning realization
that the global financial crisis would have a global economic impact, then the
Egyptian market was hit by an outflow of (largely foreign) portfolio investments.
This saw the market plummet some 50% year-to-date.
This is despite the potential to grow, despite the robustness of its banking system,
despite the lack of toxic financial products, and despite economic growth being
driven nearly 3/4's by local demand. In short, this has left investors with a market
with the potential to grow through these turbulent times, the potential for strong
long-term growth, a market of low-cost production, and at valuations often lower
than their developed and emerging market peers. We conclude, therefore, that
whilst the Warren Buffet approach of buying value for the long-term at times like
these is correct, it is entirely possible that the returns may be seen rather sooner.
Compelling macro backdrop
Egypt’s reformist government is determined to keep growth going, to minimize
risk, and to complete a program to bring rising living standards to the masses. It is
a consumer-led environment, stimulated by investments, and gradually lowering
interest rates. Long-term growth is assured by demographics and geographic loca-
tion.
Summary macro snapshot
Actual Forecasts
2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12
Real GDP Growth (%) 6.8% 7.1% 7.2% 5.0% 4.4% 5.7% 6.3%
Population (000) 71,347 72,798 74,357 75,844 77,361 78,908 80,486
Avg. Population (>15<45 yrs old) 35,531 36,253 37,030 37,770 38,526 39,296 40,082
GDP/Capita, Current (US$) 1,527 1,792 2,191 2,305 2,455 2,698 3,026
Private Sector Credit Growth 5.3% 9.1% 13.4% 10.5% 9.0% 12.3% 14.0%
Fiscal Deficit % GDP 8.0% 7.3% 6.6% 6.5% 6.0% 5.7% 5.3%
Source: CBE and CICR forecast
FIVE TOP PICKS
We suggest below five interesting investments spread between a wealth of oppor-
tunities and investment requirements. We have chosen these from among the lar-
ger stocks, although within the body of the report there are exciting stories for
those interested in smaller stocks.
Top recommendations
LE m LE LE 2008 2009 2008 2009 2008 2009 2008 2009
Up-
12M side EV/ EV/
Name M.Cap Price FV % PER PER PBV PBV EBITDA EBITDA Yield Yield
NSGB 5,468 18.1 35.8 98% 5.4 4.8 1.27 1.07 N/A N/A 2.8% 4.1%
EFIC 2,064 29.8 50.1 68% 9.7 4.5 2.91 2.33 6.5 3.3 2.9% 3.7%
Mobinil 11,537 115.4 206.0 79% 6.2 5.5 8.54 6.51 3.9 3.6 13.9% 14.6%
Ezz Steel 5,949 11.0 34.2 212% 3.3 4.4 0.99 0.81 1.8 2.1 2.7% 2.1%
EIPICO 1,763 24.5 43.7 79% 6.6 5.9 1.50 1.36 3.2 2.6 7.8% 9.2%
Source: CICR forecast
3

6. November 11, 2008
EGYPT | STRATEGY
VALUATION AND STOCK SELECTION
Our analysts use one main method of valuation, namely a discounted cash flow
(DCF) model. This discounts the explicitly forecast free cash flow for our 5 year
forecast period, then a terminal value at an assumed long-term growth rate. For
the real estate companies, the analyst discounts only the expected performance of
the known projects. Our basic cost of equity (COE) is taking a risk-free rate of
11.5% (derived from a 10-year bond) and 8% equity risk premium, which is con-
siderably higher than the traditional 5-5.5% seen in global equity research for
emerging markets. Individual company models have different COE, adjusting for
specific risk and leveraged beta. Basically we think you want to see at least 20%
upside potential from a share price performance in the current environment.
After the steep market fall, it is unsurprising that every stock has a significant up-
side potential to the thus-calculated methodology. Clearly in times like these, the
sensitivities of DCF go awry, not least as the market perception is perhaps saying
that the required rates of return have gone stratospheric. Whilst we are indeed
debating changing the valuation methods (in addition to DCF) and how we choose
a target price and recommendation, it is convenient to leave this in place, if noth-
ing else to emphasize the fact that EGYPT is way below its long-term potential
and indeed the whole market may be a “BUY”.
For the purposes of this report, rather than a simple relative ranking between the
stocks versus DCF upside potential, we have developed an “S” Score (or Subjec-
tive) rating in order to rank the stocks in some order of preference. We do this by
looking at a number of “screens” for Profitability, Momentum and Valuation, and by
looking at some charts to highlight this relative positioning.
We bring this together by including a number of factors, with weights to then pro-
vide a ranking order of the stocks, and from this derive a focus list of five compa-
nies drawn from different sectors. The factors and weightings we use include our
relative assessment of: management, size and tradability of the shares, valuation
from PER, PBV and EV/EBITDA, profitability from ROE or ROIC, balance sheet
risk from gearing, industry risk from our top-down view, and relative DCF upside.
We weight the factors subjectively, having higher weights for management and
industry risk than DCF upside potential. We also add a factor if we think the com-
pany may be an acquisition target. We only produce the result here in the form of
a ranked chart and is only one factor in considering our assessment of our top rec-
ommendations.
FROM THE TOP - SECTORS
From our view on the sustainability of growth in the economy, and with reducing
but high inflation, we try to think about which sectors are most and least at risk.
Given that the economy is 70% driven by local consumption, and given the gov-
ernment’s desire to sustain economic growth, we generally think the least risky
sectors should be the ones that would benefit from any investment program and
are linked to domestic consumption.
More risky
In this global environment, it is perhaps easier to think about where nerves should
settle, or where risks are increasing. The sectors below - we think - are relatively
high risk:
Housing & construction, particularly at the high-end of the market. De-
mand has been falling away here and the market looks somewhat satu-
rated. If economic growth continues and inflation abates, then there should
be reducing pressure on the middle classes, and this is reflected in the
housing companies’ shift towards the middle classes away from the top-
end. It is worth noting that there has not been the property boom to the ex-
tent there has been in parts of the Middle East, and property is still consid-
4

7. November 11, 2008
EGYPT | STRATEGY
ered more affordable in Egypt than in the Gulf. PALM HILLS DEVELOPMENTS,
SODIC, and TMG HOLDING are companies in this segment
Tourism: Falling global demand should place tourist receipts at risk. In re-
cent years, tourists have been coming not only from Europe and the Middle
East but increasingly from CIS. Egypt is a relatively low-cost location, with
good-all-year weather. Nonetheless, in our macro estimates, we pare the
growth of tourist receipts and think this sector potentially at risk.
Export oriented: With the slowdown in global trade expected, so too ex-
ports, particularly of consumer goods, are at risk. Egypt has some advan-
tage in that it is generally considered to be a low-cost producer. In addition,
we expect some currency weakness and export incentives to mitigate this
slowdown. Companies such as ORIENTAL WEAVERS CARPETS and OLYMPIC
GROUP (the latter to a lesser extent; only 10% of sales come from exports to
Arab and African countries) spring to mind as exporters in categories that
may suffer from falling global consumption, and yet these companies will
also spend efforts in focusing on domestic consumption as the export mar-
kets weaken.
Less Risky
Agriculture: We think food and food services is an interesting sector from
the top-down. Firstly, food is needed whatever the economy. Secondly,
after the rapid rise in basic food staples last year, Egypt realizes it has to
make more of its fertile crescent, and we think this is a sector which will
receive investment. Fertilizer, sugar, poultry ,and flour mills all make inter-
esting sectors. Included in this report are EFIC (fertilizers), DELTA SUGAR,
and EASTERN COMPANY (tobacco). (Our industry team would be happy to
help with bespoke requests on sectors, such as the milling sector, and
companies not included in this report.)
Non-housing construction: Since we think that there will be investment in
infrastructure and help for strategic sectors, then construction per se should
still be an activity going on in Egypt. Included in this should also be building
services and materials companies. OCI is the principal company in this
sector, but the larger proportion of its construction activity is outside of
Egypt (mainly GCC). However, its main profit growth driver comes from the
fertilizer segment. Other construction-related companies include EZZ STEEL
(virtual monopoly in Egypt). In addition, we include cement companies,
which is a sector wrongly out of favor – in our view. Within this, there are
speculative investments (MISR CEMENT – QENA) and totally mispriced (MISR
BENI SUEF CEMENT) and which foreigners can buy.
Oil & oil services: We think the energy sector is also a strategic sector for
further development. Mostly, we think this will benefit construction compa-
nies in the quoted sector. MARIDIVE & OIL SERVICES is an oil services com-
pany and has most of its earnings generated globally. Mostly, we think we
shall see continuing foreign direct investments (FDIs) in this sector as in-
deed recent press articles have continued to highlight the foreign interest in
the sector.
5

8. November 11, 2008
EGYPT | STRATEGY
DRILLING DOWN
In this section we drill down from the top, running several screens and charts for
consideration. We only show the top and bottom companies in each screen, so
our top picks, including our quot;Squot; Score chart, may have companies that have not
featured in these tables, but nonetheless in our opinion do well.
PE versus growth
12.0
10.0
OCIC
SUGR MCQE
8.0 ETEL
09E PER
EAST
ACGC MOIL
6.0 PHAR
EMOB
IRAX
NSGB
PACH COMI
ORWE CIEB OLGR
RAYA4.0 ESRS MBSC
SCEM
2.0
0.0
-10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40%
3-year EPS CAGR
Source: CICR forecast
The downward sloping trend line perhaps indicates that growth is not the main
factor on investors’ minds at the moment, or even that the very high growth rates
are disbelieved. In any case, as the cycle goes round, growth should undoubtedly
come back into fashion and now is the time to look at companies and markets with
the potential for long-range growth – Egypt!
Noteworthy above is Palm Hills Developments (PHDC), but this growth is coming
off a very low base. We circled the quot;Sweet Spotquot; i.e. companies growing at a
credible pace at under 6x earnings.
ROE vs. PBV and ROIC vs. WACC
The ROE versus PBV is in effect a diagram of the PER, and the slope of the line
greatly affected by the outliers. The correlation is low, r-squared is just 0.25, but
pictorially it does give a snapshot and prompt one to think about whether stocks in
the bottom right hand corner really are cheap. The PBV, or Market Value to In-
vested Capital, compared to the ROIC/WACC, or in a banks case ROE/COE, al-
lows some comparison across sectors, adjusted for risk. The ROE/COE implies
the level at which the equity or book value or invested capital should trade, and
then (ignoring growth) can be compared to the PBV.
ROE vs. PBV ROIC (ROE) vs. WACC (COE)
3.5 45%
OCIC EMOB
40%
09E ROIC (ROE for banks)
3.0
MCQE COMI
35% EFIC
EFIC
2.5 IRAX
IRAX CIEB
SUGR 30%
MCQE
09E PBV
SCEM
2.0 NSGB
25%
SUGR PACH PHAR
EAST MOIL CIEB
PHDC
20%
1.5 ORTE MBSC
EAST
COMI
PHAR MOIL
OLGR ESRS
OCIC
PHDC 15%
ETEL NSGB PACH OLGR RAYA
ORTE
1.0 ECAP TMGH
ESRS MBSC 10% ETEL
ORWE
ORWE ECAP MNHD
0.5 5%
SCEM ACGC
RAYA
TMGH
0%
-
7% 9% 11% 13% 15% 17% 19% 21% 23%
0% 10% 20% 30% 40% 50% 60%
09E ROE WACC (COE for banks)
Source: CICR forecast
Source: CICR forecast
6

9. November 11, 2008
EGYPT | STRATEGY
VALUATION
Company 2008E 2009E Company 2008E 2009E
Cheapest PER PER Cheapest PBV PBV
Sinai Cement 4.0 2.5 TMG Holding 0.35 0.32
Palm Hills Developments 4.4 2.9 Arab Cotton Ginning 0.48 0.46
TMG Holding 4.1 3.4 Raya Holding 0.55 0.50
Misr Beni Suef Cement 3.6 3.5 Oriental Weavers 0.65 0.60
Raya Holding 4.1 3.6 Sinai Cement 0.83 0.65
Dearest PER PER Dearest PBV PBV
Delta Sugar 9.0 8.9 EFIC 2.91 2.33
OCI 9.5 9.4 Misr Cement (Qena) 2.95 2.52
Orascom Telecom Holding 12.3 9.5 OCI 2.82 3.16
Al-Ezz Ceramics 13.4 22.4 Mobinil 8.54 6.51
Nasr City Housing & Dev. 36.4 33.4 Nasr City Housing & Dev. 15.31 12.99
Company 2008E 2009E Company 2008E 2009E
Highest Yield Yield Cheapest EV/EBITDA EV/EBITDA
Mobinil 14% 15% Sinai Cement 3.3 1.5
Credit Agricole Bank-Egypt 10% 12% Palm Hills Developments 2.2 1.6
Ezz Al-Dekheila 14% 11% Arab Cotton Ginning 2.5 1.9
Misr Beni Suef Cement 6% 10% Misr Beni Suef Cement 2.9 2.0
Olympic Group 7% 9% Ezz Steel 1.8 2.1
Lowest Yield Yield Dearest EV/EBITDA EV/EBITDA
Al-Ezz Ceramics 0% 0% Olympic Group 5.5 5.2
Maridive & Oil Services 0% 0% Delta Sugar 4.9 5.3
PACHIN 0% 0% Misr Cement (Qena) 5.5 5.3
Palm Hills Developments 0% 0% OCI 8.9 11.7
TMG Holding 0% 0% Nasr City Housing & Dev. 28.5 25.4
MOMENTUM
Company 2009E 3yr CAGR Company 2009E 3yr CAGR
Fastest EPS EPS Fastest EBITDA EBITDA
Palm Hills Developments 52% 100% Palm Hills Developments 42% 105%
EFIC 116% 69% TMG Holding -1% 95%
TMG Holding 21% 47% EFIC 86% 62%
Al-Ezz Ceramics -40% 42% OCI -12% 41%
OCI 1% 40% Olympic Group 30% 25%
Slowest EPS EPS Slowest EBITDA EBITDA
Nasr City Housing & Dev. 9% -3% Eastern Company 2% 5%
Delta Sugar 1% -5% Ezz Al-Dekheila -20% 5%
Arab Cotton Ginning 10% -6% Nasr City Housing & Dev. 13% 1%
Raya Holding 14% -6% Misr Cement (Qena) -4% -2%
Orascom Telecom Holding 30% -27% Delta Sugar -7% -6%
Company 2009E 3yr CAGR Company 2009E 3yr CAGR
Fastest CASH CASH Fastest BVPS BVPS
Sinai Cement 1389% 244% Maridive & Oil Services 29% 48%
Maridive & Oil Services 5% 200% Ezz Steel 22% 36%
Palm Hills Developments -4% 78% CIB 28% 29%
EFIC 70% 53% Ezz Al-Dekheila 19% 26%
TMG Holding 37% 45% Misr Beni Suef Cement 20% 25%
Slowest CASH CASH Slowest BVPS BVPS
Ezz Steel -28% -2% Delta Sugar 7% 7%
Misr Beni Suef Cement 1033% -8% Arab Cotton Ginning 5% 5%
Ezz Al-Dekheila -12% -11% PACHIN 5% 5%
Raya Holding 5% -19% Telecom Egypt 4% 4%
Nasr City Housing & Dev. -14% -24% Nasr City Housing & Dev. 18% 1%
Source: CICR forecast
The cheapest rated stocks, (PER) tend to come from the sectors out of favor, such
as cement, real estate, and IT services, with steel not far behind. Similarly the
highest yields are found there. Dividend yields are approaching money market
rates, which should enhance any total return for an investment. Whilst a sector like
cement is out of favor with investors, there really appears a good longer-term op-
portunity. Consider that the government is trying to sustain growth through invest-
ment, and there continues to be much need for infrastructure investment in Egypt to
such an extent that the companies are finding it necessary to increase their capac-
ity (see the industry section), and there is some sector consolidation to consider.
7

10. November 11, 2008
EGYPT | STRATEGY
PROFITABILTY & RISK
ROE 2008 2009 EBITDA Margin 2008 2009
Best Best
Mobinil 120% 135% Palm Hills Developments 66% 59%
EFIC 32% 58% Misr Cement (Qena) 53% 53%
Ezz Al-Dekheila 74% 45% Telecom Egypt 50% 52%
Palm Hills Developments 43% 43% TMG Holding 39% 51%
Nasr City Housing & Dev. 36% 42% Misr Beni Suef Cement 56% 46%
Worst 2008 2009 Worst 2008 2009
Oriental Weavers 13% 13% PACHIN 20% 20%
Telecom Egypt 10% 12% Ezz Steel 22% 20%
TMG Holding 9% 10% Oriental Weavers 17% 17%
Arab Cotton Ginning 6% 6% Olympic Group 15% 16%
Al-Ezz Ceramics 7% 4% Raya Holding 6% 6%
NET DEBT/EQUITY 2008 2009 Net Interest/Revenue 2008 2009
Best Best
Al-Ezz Ceramics 54% 37% Arab Cotton Ginning 33% 35%
Orascom Telecom Holding 78% 50% OCI 8% 11%
Olympic Group 51% 78% TMG Holding 8% 11%
OCI 52% 113% EIPICO 5% 5%
Misr Cement (Qena) 2% 4%
Worst 2008 2009 Worst 2008 2009
PACHIN -20% -22% Oriental Weavers -12% -10%
Palm Hills Developments -36% -33% Mobinil -9% -10%
EIPICO -41% -45% Orascom Telecom Holding -21% -18%
Misr Cement (Qena) -32% -45% Raya Holding -25% -19%
Delta Sugar -48% -46% Olympic Group -16% -19%
Source: CICR forecast
Mobile telephony may start to benefit from sector rotation as recent results from
MOBINIL suggest the concerns of a downturn in subscriber activity may have
been overdone. Clearly, the market also fears the housing and real estate com-
panies which seem already to be discounting a major downturn in real estate
prices. This also is a sector where consolidation may occur, especially amongst
smaller players, as in this environment the larger companies seek to acquire land
banks.
If our analysts are right there is considerable momentum still to be seen in Egypt.
Even those ranking in the “worst section” have reasonable growth expectations.
EZZ STEEL, almost a steel monopolist in Egypt, stands out as lowly rated and
growing quickly. The catalyst again should be construction volumes as it can
control its margin. MISR BENI SUEF CEMENT also falls into this category and looks
potentially mispriced.
EFIC has fast growing earnings and is cash generative, and a look at the com-
pany pages shows that it too is not highly rated. This is in a strategically-
important sector as the government wants to increase the agriculture capacity
and is still benefiting from better pricing even if fertilizer prices are well off their
peak.
The lowly-rated housing and cement sector rank well on EBITDA margin, and
MOBINIL in terms of returns on shareholders’ equity, but this latter is also one of
the most highly leveraged, just escaping our list of bottom 5. Reducing interest
rates, now that the cycle is turning may be of some help, but this is increased
financial risk for the returns. Even the worst appear to have reasonable returns
measured as EBITDA margin.
8

11. November 11, 2008
EGYPT | STRATEGY
quot;Squot; SCORE
Given the weightings and factors we include, the highest ranked stocks do not
necessarily have the most compelling valuations. In this way, OCI has come out
highly paced, and is indeed one of Egypt’s premier blue chips, with a well-
regarded management. The banks as cheap and tradable come out well in this
scoring too.
“S” Score ranking
140
120
100
80
60
40
20
0
RAYA
ORTE
IRAX
MNHD
SUGR
PHAR
TMGH
MOIL
ETEL
EAST
ORWE
ESRS
CIEB
NSGB
PACH
OLGR
PHDC
EFIC
OCIC
SCEM
ECAP
MCQE
EMOB
ACGC
MBSC
Source: CICR forecast
CI Capital Research Universe
LE m LE LE 2008 2009 2008 2009 2008 2009 2008 2009
Up-
Price 12M side EV/ EV/ Div. Div.
Name M.Cap (11/6/08) FV % PER PER PBV PBV EBITDA EBITDA Yield Yield
Al-Ezz Ceramics 254 5.0 7.2 45% 13.4 22.4 0.80 0.78 5.6 4.2 0.0% 0.0%
Arab Cotton Ginning 1,020 4.1 10.1 148% 8.0 7.3 0.48 0.46 2.5 1.9 3.8% 4.1%
CIB 8,989 30.7 N/A N/A 5.1 4.3 1.69 1.32 N/A N/A 3.3% 4.1%
Credit Agricole Bank-Egypt 2,959 10.3 15.3 49% 5.6 4.9 1.68 1.52 N/A N/A 9.7% 12.1%
Delta Sugar 2,170 22.0 32.3 47% 9.0 8.9 2.42 2.27 4.9 5.3 8.3% 8.4%
Eastern Company 5,450 218.0 305.6 40% 7.1 7.1 1.75 1.54 4.7 4.4 6.7% 7.0%
EFIC 2,064 29.8 50.1 68% 9.7 4.5 2.91 2.33 6.5 3.3 2.9% 3.7%
EIPICO 1,763 24.5 43.7 79% 6.6 5.9 1.50 1.36 3.2 2.6 7.8% 9.2%
Ezz Al-Dekheila 12,249 896.2 1,501.9 68% 4.2 5.4 2.62 2.21 3.4 4.1 14.4% 11.2%
Ezz Steel 5,949 11.0 34.2 212% 3.3 4.4 0.99 0.81 1.8 2.1 2.7% 2.1%
Maridive & Oil Services 3,781 2.6 5.1 99% 7.8 6.5 1.85 1.44 5.9 4.6 0.0% 0.0%
Misr Beni Suef Cement 936 46.8 152.5 226% 3.6 3.5 1.11 0.92 2.9 2.0 5.5% 10.0%
Misr Cement (Qena) 2,310 77.0 98.5 28% 8.5 7.8 2.95 2.52 5.5 5.3 7.1% 7.7%
Mobinil 11,537 115.4 206.0 79% 6.2 5.5 8.54 6.51 3.9 3.6 13.9% 14.6%
Nasr City Housing & Dev. 3,122 31.2 42.8 37% 36.4 33.4 15.31 12.99 28.5 25.4 1.7% 1.8%
NSGB 5,468 18.1 35.8 98% 5.4 4.8 1.27 1.07 N/A N/A 2.8% 4.1%
OCI 42,192 196.5 330.5 68% 9.5 9.4 2.82 3.16 8.9 11.7 2.3% 2.9%
Olympic Group 1,450 24.1 55.1 128% 5.5 4.2 1.51 1.23 5.5 5.2 7.2% 9.4%
Orascom Telecom Holding 33,116 36.8 96.1 161% 12.3 9.5 1.46 1.28 3.9 3.3 2.7% 3.5%
Oriental Weavers 1,708 22.9 48.3 111% 5.3 4.6 0.65 0.60 5.0 4.2 6.8% 7.8%
PACHIN 585 29.2 83.4 185% 5.3 4.5 1.14 1.09 4.1 3.4 0.0% 0.0%
Palm Hills Developments 3,774 8.1 24.3 199% 4.4 2.9 1.25 1.20 2.2 1.6 0.0% 0.0%
Raya Holding 259 4.6 11.5 152% 4.1 3.6 0.55 0.50 3.6 3.0 8.0% 9.1%
Sinai Cement 1,150 32.9 93.0 183% 4.0 2.5 0.83 0.65 3.3 1.5 5.0% 8.0%
Telecom Egypt 26,801 15.7 24.3 55% 9.9 7.9 1.00 0.96 5.6 4.8 6.6% 8.2%
TMG Holding 7,857 3.9 12.8 231% 4.1 3.4 0.35 0.32 3.0 2.4 0.0% 0.0%
Source: CICR forecast
*Maridive & Oil Services share price is in US dollar
9

12. November 11, 2008
EGYPT | STRATEGY
CONCLUSIONS
Summarizing the charts, tables and data above, these are the main conclusions
we draw:
A. Mispriced in our opinion:
SINAI CEMENT - Heavily sold off and half the value of its peers.
RAYA HOLDING - Consumer electronics, slow growth, and its net debt rank-
ing belies a liquid balance sheet and investments into a growing service
sector.
EIPICO – Low PER, high yield, decent (defensive - pharmaceutical)
growth, good margins and profitability.
The banks (see industry section) do not make most of the screens but are rela-
tively well placed as well capitalized and liquid, profitable, growing, and cheaply
rated. Now that the interest rate cycle has stabilized, interest may return to this
segment, not least as it is one banking sector in the world capable of lending to
a market with the potential to grow.
B. Speculative interest:
RAYA HOLDING - Cheap liquid balance sheet could be made to sweat
more.
MISR CEMENT (QENA) - Cement in the right place at the right time, and
ASEC is building a stake.
Our top five picks
From the above and from our “S” Score, we highlight the following investment
opportunities from different sectors and in no particular order:
NSGB: profitable, good returns, sound balance sheet, and still gaining
restructuring benefits, trading at 4.8x 2009E earnings, 1.1x 2009E BV,
ROE 24%, while earnings growing at 31% over next three years.
EFIC: Sound high returning growth in a strategically-important agricul-
tural sector, valued at 4.5x 2009E earnings.
EIPICO: Defensive play in the healthcare sector. Stable earnings with
long-range potential as health becomes an increasingly important issue
in Egypt.
MOBINIL: Mobile operator which has just beat consensus 3Q08 earnings.
It pays a generous dividend and sweats the equity. Interest rate and lev-
erage risk should be declining and has ongoing cost efficiency program.
We think there is some rotation back to Telcos, which should benefit from
stimulated consumer.
EZZ STEEL: Virtual monopoly position in Egypt, with controlled margins,
cheaper than foreign competition. Benefit from any rally in commodity
prices, and more fundamentally from the continued (non-housing) con-
struction investment we think will continue in Egypt.
10

13. November 11, 2008
EGYPT | ECONOMY
DEMAND & INVESTMENT: A DARING CHALLENGE POTENTIALS
Populous economy with inherent sizable
From the beginning of 2008 emerging economies watched
demand.
the global tornado from afar. Now with a vanishing confi-
Domestic investments represent the bulk –
dence, foreign capital has fled compelling the waning of
around 60% - of implemented investments.
many emerging economies stock markets. Yet, we deem
Well capitalized, under leveraged Banking
Egypt's economy will reveal distinguished resilience sector flushed with liquidity.
amidst the headwinds from the developed economies. Re- Solid BOP position even with the weaken-
inforced by its diversified GDP, liquid banking system, ing at the margins.
and an under-leveraged economy; Egypt is expected to Favorable factors of production and benign
maintain a modest GDP growth rate of 5% in FY08/09 – business environment that allows Egypt to
based on the GoE's ability to promote local investments, act as an investment hub within the region.
with a focus on SMEs. Underlying potential in a number of sectors
including fertilizers, infrastructure, agribusi-
ness and pharmaceutical.
Consumer-led recovery “the guardian” for growth: Reap-
ing the fruits of bold reforms implemented to date and a grow-
ing investors’ confidence, Egypt's economy has leapfrogged
RISKS
both on its economic and fiscal management platforms.
Thanks to the export-led strategy adopted, which led to the
witnessed domestic demand boom, GDP jumped to a growth
The current global challenges that is ex-
rate of 7.2% in FY07/08. pected to negatively impact exports growth.
Highly affected FX earning sectors, namely
FDI, a perfect exhale: Given Egypt’s fertile business soil and
tourism, Suez Canal and FDI.
the increasing investors’ confidence in a reformist government,
Inability to rely on fiscal pumping to pro-
FDI soared reaching US$13.2 bn in FY07/08 up from US$3.9
mote growth with the prevailing fiscal defi-
bn in FY04/05. Yet, it is expected to be hardly hit by the global
cit.
downturn and exacerbated by investors’ panic all over the
globe.
SELECTED MACRO INDICATORS
Sustained high inflation jeopardy fading away: Like other
open economies, Egypt was hit hard by the surge in interna- 2006/7 2007/8 2008/9F
GDP (Current, LE bn) 744.8 896.5 1,002.8
tional oil and food prices with inflation recording a double-digit Real GDP GR (%) 7.1% 7.2% 5.0%
growth of 11.7% in FY07/08. However, complying with the ex- GDP/Capita (Current, US$) 1,792 2,191 2,305
Inflation (CPI %) 10.9% 11.7% 17.0%
pected decline in international markets, we believe inflation to FDI (US$ mn) 11,053 13,237 6,364
simmer down driving the wheel for strengthened domestic de- Investments (LE bn) 155.3 179.3 190.8
mand.
ALIA MAMDOUH
BOP surplus maintained while current account deterio- ALIA.MAMDOUH@CICH.COM.EG
rates: Expenses of the robust domestic demand has been re-
flected in a deteriorating current account reaching US$0.9 bn
EGYPT’S ECONOMIC PERFORMANCE
in FY07/08 and turning into a deficit of US$ 3.3 bn in FY08/09
given the widening trade deficit and the relatively static ser- Real GDP GR Investment GR
8.0% 25.0%
vices growth. Yet, still BOP reflects low vulnerability given the
performance of the capital and financial account outweighing 7.0%
20.0%
such pitfalls. 6.0%
5.0%
Fiscal deficit restructuring, right on track: Despite the huge 15.0%
hike in expenditures due to increased subsidies, driven by the 4.0%
spiraling rise of oil prices; fiscal deficit to GDP narrowed to 10.0%
3.0%
6.6% in FY07/08 down from 7.3% in FY06/07. This is mainly 2.0%
5.0%
attributable to the revenues growth, powered by tax revenues' 1.0%
increase as well as other revenues including proceeds from 0.0% 0.0%
cement licenses worth of around LE 1.14 bn in FY07/08. 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12
11

14. November 11, 2008
EGYPT | ECONOMY
REAL SECTOR
Economic growth in recent years has been aggravated by a diversified output
Fueled by an ex-
strategy that was reflected in the strong growth in tourism, construction, real es-
panded output strat-
tate, communications, oil and gas and trade sectors. The inflow of foreign invest-
egy, economic
ments as DAMAC and Emaar helped flourishing the construction and real estate
growth has been
sectors that in turn fed the building materials industry. In addition, the entrance of
maintained over the
the third mobile operator, Etisalat Misr, lifted up the communications sector. Export
past years
volumes, despite the strengthening of the Egyptian pound against the US$ helped
the manufacturing sectors to record a growth of 8% in FY07/08 up from 5.9% in
FY05/06.
GDP growth by sector
Real GDP growth breakdown
2006/7 2007/8
Private consumption Government consumption 30.0%
Gross Capital Formation Net Exports
100%
25.0%
90%
20.0%
80%
70%
15.0%
60%
10.0%
50%
5.0%
40%
30%
0.0%
Construction
Real Estate
Financial
Oil & Gas
Industries
Others
Tourism
Communications
Wholesale &
services
20%
Trade
10%
0%
2004/5 2005/6 2006/7 2007/8
Source: CBE
Source: CBE
SMEs have been one of the pillars of the Egyptian private sector, compromising An economy with an
the bulk - above 90% - of the operating private non-agricultural establishments. increasing say for
Micro, small and medium enterprises contribute with around 80% of total value SME’s and the infor-
added and attract 47% of total investments. Moreover, their input to the country’s mal sector
exports reached around 20%; of which chemical products represent the lion’s
share of 38%.
SME’s contribution to Industrial GDP
2006E
2000
Small, 12%
Small, 14%
Large, 38%
Large, 48%
Medium, 40%
Medium, 50%
Source: CICR database
12

15. November 11, 2008
EGYPT | ECONOMY
As SMEs provide affordable goods and services that suits the lower and lower- High level of infor-
middle income groups - which represents 57% of the population - they are highly mality is the main im-
interrelated to the informal economy. Such high level of informality limits SMEs pediment facing
access to a wide range of formal services, most importantly credit facilities. Rec- SMEs. Yet, they enjoy
ognizing their vital role, GoE launched an Exchange market for growing medium increasing GoE sup-
and small companies, Nilex, to facilitate access to capital as well as exposure to port
foreign investors. We highly believe that increasing SMEs support is crucial to sus-
tain high growth levels by promoting entrepreneurship, job creation and attracting
domestic investments.
INVESTMENTS
The package of bold reforms implemented on all fronts, namely (1) reducing the Vibrant investment
minimum capital requirement of incorporation to LE 1,000, (2) corporate tax cut by appetite
half reaching 20%, (3) reducing weighted average custom tariffs from 14% to
6.9%, (4) tariff bands streamlined and reduced from 27 to 6, and (5) customs on
capital assets capped at 5% have created an attractive environment for invest-
ment. Moreover, with the country's favorable factors of production and competitive
energy prices, both investment and FDI recorded buoyant growth.
Based on weighted growth, the services sectors accounted for the bulk of new Services sectors led
investments. In FY07/08, investment in transportation and communication wit- investment growth
nessed the highest flow of 7.8%; followed by hydrocarbon investments, namely in
the upstream activities which recorded a weighted growth of 7.1%. Infrastructure
investments come next with a rate of 5% - especially in water and electricity sta-
tions.
Investment breakdown FY07/08 Investments weighted growth by sector
9.0%
Others,
Health,
8% Agriculture, 4%
2% 8.0%
Education, 3% 7.0%
Crude Oil & NG,
17%
Real Estate, 7% 6.0%
5.0%
Tourism, 3%
4.0%
Financial
3.0%
Intermediaries, 1%
Manufacturing & Oil
2.0%
Products,
Wholesale & Retail
22%
Trade, 1.0%
3%
0.0%
Transp. & Com.
Tourism
Others
Manuf.& Oil
Suez Canal
Real Estate
Education
Agriculture
Crude Oil & NG
Financial Sector
Wholesale Trade
Electricity & Water
Construction
Health
Products
Transp. & Com.,
20%
Construction &
Electricity & Water, 8%
Building, 2%
Source: CBE Source: CBE
Rising confidence in the country's economic performance loosened the wheel for Mounting FDI inflows
FDI flows which maintained their high growth levels reaching US$13.2 bn in were reflected in a
FY07/08 up from US$3.9 bn in FY04/05. FDI constitutes around 8.2% of the coun- strengthened cur-
try's GDP in FY07/08. The petroleum sector held the major chunk of 38% of such rency and an ex-
inflows, while the contribution of the real-estate still maintains a low level of 0.8% panded output
in FY07/08, despite its strong growth reaching US$90.6 mn up from US$39 mn in
FY06/07. Within the non-petroleum investments, the financial sector accounted for
the lion’s share of 40% followed by industrial activities (32%) and the services sec-
tors (15%).
13

16. November 11, 2008
EGYPT | ECONOMY
Investment & FDI & Shares in GDP Non-Petroleum FDI Breakdown FY07/08
FDI Implemented Investments CIT, 0.3%
US$ mn
FDI % of GDP Investment % of GDP
Real Estate, 1.8% Tourism, 2.2%
35,000 25.0%
30,000 Services, 15.3%
20.0%
25,000
15.0% Industry, 31.6%
20,000
15,000
10.0%
Financial Sector,
10,000
40.1% Agriculture, 1.4%
5.0%
5,000 Construction,
7.3%
0 0.0%
2004/5 2005/6 2006/7 2007/8
Source: CBE Source: Ministry of Investment
However, sustaining
However, sustaining such strong FDI levels is doubtful, especially after the re-
such strong FDI in-
moval of tax exemptions from the free zones for energy-intensive industries cou-
flows is of a concern
pled with the increase in energy prices that were announced in May 2008. More-
over, the current global financial turmoil is expected to have a negative impact on
the inflow of FDI, as 70% of such inflows comes from the US and EU countries.
Yet, with GCC surplus such decline is expected to be mitigated. We expect net
FDI inflows to reach US$6.4 bn in FY08/09, followed by US$5.9 bn in FY09/10. On
a different note, GoE expects FDI to reach around US$10 bn in FY08/09.
Despite the global gloom, announcements of new projects are still in the head- A positive aspect is
lines: Al Kharafi Group confirmed plans to pump US$2 bn in new investments in that announcements
the steel industry; Schneider Electric will establish a new electricity plant with an of new foreign invest-
investment cost of around US$ 45.5 mn; GlaxoSmithkline plans to buy the Egyp- ments are still in the
tian mature products business of Bristol-Myers Squibb Co. for US$210 mn, and headlines
Solvay SA, the world's largest soda- ash maker, bought Alexandria Sodium Car-
bonate Co. in a deal worth US$137.5 mn. Moreover, the fertilizers sector is to wit-
ness further investments including EBIC, Agrium and Egyphos.
Key pipeline projects over 2008-12
Sector Project Investments Completion Date
El-Swedy Cement US$350 mn 2010
North Sinai Cement LE 1,500 mn 2010
Cement
LE 1,600 mn
Al-Nahda Industries 2011
Al-Wady Cement LE 1,000 mn 2012
Four new steel raw materials factories; Ezz Steel (ES), Suez
US$15 bn NA
Steel Company, Tiba for Iron & Steel and the Egyptian
Steel
Company for Sponge Iron.
Almaza City Center by Al-Futtaim US$0.5 bn 2008
Hyde Park by Damac US$5.5 bn 2011
Cairo Nile Corniche Towers project by Qatari Diar LE 5.75 bn
Real Estate 2011
West Town Cairo, in Sheikh Zayed by SODIC US$2.4 bn 2011
East Town Cairo, in Katameya US$1.6 bn 2011
US$1.2 bn
Port Ghalib by El-kharafi Group 2009
US$2.5 bn
Serrenia resort by Shaheen Bus.& Inv, Group 2010
LE 1.5 bn
Tourism Porto Sokhna by Amer Group 2010
US$1.74 bn
Marassi by Emaar 2012
LE 2.56 bn
Almaza Bay Resort by Travco 2012
US$432 mn
Egyptian Basic Industries Co. (EBIC) 2008
US$250 - 300 mn
Egyptian Fertilzers Co. (EFC) 2010
Fertilizers
US$1400 mn
Agrium 2010
US$680 mn
Egyphos 2011
Source: CICR
14

17. November 11, 2008
EGYPT | ECONOMY
As domestic investments represent the bulk of total implemented investments in Another positive as-
Egypt, of which SMEs bears a considerable contribution, the GoE's commitment to pect is the GoE's
support SMEs investments as well as providing them with export facilities – commitment to focus
through tapping new potential markets – is expected to mitigate a reduced FDI on SMEs and con-
inflows. Moreover, the GoE's decision of freezing any increase in energy prices till tinuing infrastructural
the end of 2009 is another measure that can drive further investments. In addition development
to the continued infrastructural development with US$8.9 bn worth of transport
investments expected to pour into the country over the coming three years. We
expect total implemented investments to reach LE 190.8 bn in FY08/09. Against
this backdrop and given the purchasing power resilience of the upper and upper
middle classes of the society and their influence on the informal sector domestic
demand growth will likely maintain its levels. Thus, we believe Egypt to maintain a
modest growth amidst such turbulence and negative sentiments with expected
GDP growth rates of 5% and 4.4% in FY08/09 and FY09/10, respectively. Said
moderate setback in growth is to be also supported by the country’s diversified
GDP, liquid banking system with loans to deposits ratio of 53% and an under-
leveraged economy.
We highly believe a 5% GDP growth is still significantly higher than that witnessed
during the slowdown early in the decade, reflecting a better-off economic structure
with stronger spine and foundations. Overall, we believe economic slowdown will
worsen in FY09/10 given the steep decline in oil prices and the maintained global
slowdown affecting large emerging markets, including Russia and China.
Our estimates are considered conservative, yet there might be upside surprises if
the GoE succeeded to attract higher than expected FDI levels and support export-
oriented industries.
FDI & Investment Outlook
LE bn Investment FDI US$ mn
300.0 14,000
12,000
250.0
10,000
200.0
8,000
150.0
6,000
100.0
4,000
50.0
2,000
0.0 -
2005/06 2006/07 2007/8 2008/9 2009/10 2010/11
Source: CICR forecast
Public-private partnerships (PPP) are integral to investments, as well as sustained Public-private part-
economic growth as it aims at lifting-off some of the burden on the government nership, another
budget, particularly in terms of infrastructural investments. PPP is considered an mechanism for sup-
important supporting tool for the private sector as well benefiting from the govern- porting investments
ment endorsement in fast-tracking the projects permits. One of the main sectors
that witnessed PPP projects is the transport sector with Cairo-Alexandria highway
project that will be awarded to a private firm under the PPP model in January 2009
with an estimated investment cost of LE 1.9 bn. In addition to the Mediterranean
Coastal highway with an investment cost of LE 1.5 bn. There are still a number of
PPP opportunities in infrastructure development, including water facilities and sani-
tation as well as electricity plants with Egyptian Contracting Co. (Mokhtar Ibrahim)
winning a project for expanding a water utility in Obour City with an investment cost
of LE 280 mn. We highly believe that endorsing PPP will enhance sustaining mod-
erate economic growth levels without imperiling the existing fiscal deficit.
15

18. November 11, 2008
EGYPT | ECONOMY
MONETARY SECTOR
INFLATION
Rising global oil prices as well as international commodities prices, namely food – High levels of infla-
as Egypt is a net importer - lifted up local products' prices, leading CPI reading of tion imposed a threat
11.7% in FY07/08. Yet, the full impact should be reflected in FY08/09 by which to growth
CPI reading is expected to reach 17%. In an effort to curb inflationary pressure,
the GoE raised up interest rates; reduced imports tariff to 6.9% from 9%; and im-
posed tariffs on certain export commodities (steel, cement, rice), yet, inflation
maintained its increase – with CPI reading reaching the peak of 23.6% in August
2008. Bearing the highest weight in CPI (44%), food & non-alcoholic beverages
drove up the hike being highly influenced by changes in oil prices. In an attempt to
alleviate inflationary pressures on the public, as Egyptians spend around 45% of
their income on food items expanding to 60% for the lowest income groups, GoE
increased wages by 30% in May 2008. Yet, sustained high levels of inflation out-
weighed such efforts and eroded the Egyptian's purchasing power and real in-
comes.
CPI, food & oil prices
CPI Food prices Oil prices US$/barrel
35.0% 160.0
140.0
30.0%
120.0
25.0%
100.0
20.0%
80.0
15.0%
60.0
10.0%
40.0
5.0% 20.0
0.0% 0.0
May-07
May-08
Mar-07
Mar-08
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Apr-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Apr-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Source: CAPMAS & Bloomberg
Yet, inflation started
The decline in global oil prices witnessed since July 2008 was filtered down to
cooling-off
food commodities' prices which started to cool-off since September 2008, bringing
down the CPI reading to 20.2% in October 2008. We believe inflation will not re-
cord its 2008 skyrocketing readings, not only due to the cool-off in international
prices but also due to the absence of the low base of the consumer price index
effect. We expect inflation to start exhibiting lower levels in FY09/10, enhancing
the purchasing power and driving up domestic demand.
As a measure to counteract inflation, the Central Bank of Egypt (CBE) raised inter- Monetary tightening
est rates for six consecutive times starting February 2008. The overnight deposits was the first re-
and lending rates rose from 8.75% and 10.75% in December 2007 reaching sponse
11.5% and 13.5%, respectively in September 2008. Consequently, broad money
supply and liquidity (M2) witnessed slower growth of 15.7% in FY07/08 down from
18.2% in FY06/07. We do not believe that the monetary tightening have been to-
tally effective in curbing inflation mainly due to the slow pass of changes in corri-
dor interest rates to general interest rates in the banking system. In addition to, the
relatively low loan-to-deposits ratio of 53% that flushed the banks with excess li-
quidity, along with the nature of the Egyptian economy – which bears a significant
contribution from the informal sector.
16