Mabanee - GulfBase€¦ · · 2016-04-20Mabanee April 2016 P a g e | 1 ... including Debenhams,...

Global Research Initiation Report Equity – Kuwait Real Estate Sector April 17, 2016

Mabanee

P a g e | 1 April 2016

Retail real estate exposure in Kuwait, with GCC option

Despite weaker macroeconomic backdrop, retail real estate dynamics in Kuwait to remain favorable

Current level offers 18% upside; re-initiate with Buy

A direct play on the retail sector in Kuwait, one of the most

resilient economies in the GCC in current oil-price volatility.

We re-initiate on Mabanee with a Buy rating and a TP of

KWD1.019/share, implying an upside of 18% and 16e P/NAV of

0.8x. We believe the stock profile remains hedged to

macroeconomic conditions in the GCC. In 2016, with an uncertain

macroeconomic backdrop due to volatile oil prices, Mabanee

provides shelter with a unique defensive profile. Also, starting

2017, as Phase IV nears completion, rental growth expectations

would drive the stock. Finally, starting 2018, with a solid earnings

base, further potential upside is expected from the Saudi project,

which although currently excluded from our valuation, on

completion would add 14% or KWD0.141/share to our TP.

Own Mabanee to own the best retail real estate in Kuwait

Mabanee’s business model revolves around ‘The Avenues’ mall,

covering a total GLA of 270k sqm. In addition, Phase IV (GLA of

100k sqm and two hotels) is expected to be operational by 1Q18.

We expect a stable occupancy and rental income as strategic

relationships with major retailers through its parent Alshaya would

continue to provide a dependable, attractive tenant profile.

Top down dynamics continue to remain favorable in Kuwait,

given limited Grade-A retail space supply. For instance, per

capita retail space in Kuwait stands at 0.44 sqm, 45% low

compared to a GCC average of 0.8 sqm. Also, demand is

expected to remain strong with increasing wealth and population.

Overseas expansion a right strategic move, but drag on FCF

and dividends in short term. Recently, the company revised its

Saudi project deadline to 4Q19. This is not only more realistic in

terms of the development schedule, but would also provide extra

headroom to arrange financing, in our opinion, as until 2017, the

company’s cash flows are expected to remain deployed in Phase

IV development. We do not rule out the possibility of a capital raise

to fund the Saudi project, given its enormous size.

Market Data Bloomberg Code MABANEE KK

Reuters Code MABK.KW

CMP (14 Apr 2016) KWD0.860

O/S (mn) ex treasury 845

Market Cap (KWD mn) 727

Market Cap (USD mn) 2,414

52 Week High (KWD) 1.020

52 Week Low (KWD) 0.790

3m ADVT (USDmn) 1.11

Price Performance

1m 3m 12m

Absolute (%) -1.1 -2.3 -1.1

Relative (%) -1.1 -0.9 14.7

Price Volume Performance

Source: Bloomberg, Price (RHS) is in Kuwaiti Fils

Ankur Khetawat Assistant Vice President [email protected] Tel.: (965) 2295 1285

www.globalinv.net

Key summary

KWD FY14 FY15 FY16e FY17e FY18e

Revenue mn 85 87 90 93 121

NPAT mn 48 49 47 48 67

EPS 0.065 0.057 0.056 0.057 0.079

BVPS 0.4 0.2 0.3 0.5 0.4

P/NAV 0.8x 0.8x 0.8x 0.6x

P/E 13.3x 15.0x 15.3x 15.2x 10.9x

P/B 2.4x 2.4x 2.1x 1.9x 1.7x

Source: Mabanee, Global Research

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Mabanee Co.


Business model: A direct play on Kuwait retail real estate

Mabanee’s business model revolves around a single shopping mall, The Avenues, in Kuwait,

which the company developed, owns and operates. Mall-related lease and related income

(one-time placement fees) account for roughly 95% of the company’s top line, while the rest

is driven by advertising services for tenants. Mabanee is exposed to the retail market in

Kuwait, which is characterized by a low penetration rate and high occupancy levels. Retail

makes up 99% of the company’s gross leasable area (GLA), while an office building

(Mabanee Office building) accounts for the rest.

Mabanee: Asset portfolio

GLA

sqm

BUA

sqm

GLA/

BUA

Total

Stores

GLA/

Store O/c

Rentals

KWD/

sqm p.a.

Rentals

USD/

sqm p.a.

Status

Operational assets

The Avenues phases I & II 166,000 385,000 43% 426 390 100% 252 842 Operational

The Avenues phase III 104,000 345,575 30% 400 260 97% 315 1,110 Operational

Mabanee office building 5,200 7,400 70% 95% 102 341 Operational

Total operational 275,200

Under construction/

Planned assets

The Avenues phase IV 100,000 130,000 77% 312 1,042 Operational

by 1Q18

The Avenues - Riyadh* 400,000 216 721 Operational

by 4Q19

Avenues Khobar* 180,000 Operational

by 4Q19

Bahrain** 38,000

Total under construction 718,000

Total 993,200 737,975

Source: Mabanee, Global Research; Note: * In Saudi Arabia, the company hold 55% stake.**Bahrain stake stands at 35%

As a typical mall operator, Mabanee’s success depends on its strategic relationship with

major retailers. In Mabanee’s case, success is driven by the Alshaya Group, the company’s

largest shareholder with a 34% stake, which owns franchise rights for the Middle East for

over 70 major international retail brands, including Debenhams, Starbucks, Next, H&M, and

others. According to the company, about 20% of its mall’s stores are tenanted to Alshaya

retail.

While the story remains Kuwait-focused so far, after the recent acquisition of land bank in

Saudi Arabia, the company intends to diversify its operations outside Kuwait. As the table

above reflects, the company plans to develop 580k sqm of retail space in Saudi Arabia in

two locations, Riyadh and Khobar. The project will be a joint venture (JV) with Mabanee

holding a 55% stake in it.

Mabanee completed Phases I and II (total GLA 166k sqm, BUA 385k sqm) in 2005 and

2007, respectively, at a cost of approximately KWD155mn (USD540mn). Phase III (GLA

104k , BUA 345k) was operational starting 2013. The total cost of Phase III was KWD145mn

(USD500mn). Phase IV, the final phase and adjacent to the existing mall, is still under

construction (GLA of 100k sqm) with an expected completion date of end 2017. As

highlighted in the picture below, Phases III and IV are adjacent to the first two, and Mabanee

has already secured the plot. The land is not owned by the company, but is leased long

term. Land-related leasing expenses account for approximately 30% of total direct costs.

Mabanee Co.


The Avenues

Source: Google Maps

The initial phase of the Avenues hosts a number of anchor stores, including Carrefour, Ikea

and Debenhams. A typical rental contract for anchor tenants extends to more than 10 years.

While necessary to boost footfall, anchor stores pay lower rents as they occupy much larger

spaces and are typically locked into long-term leases. Accordingly, the average annual rental

rate in phase I stands at approximately KWD200/USD680 per sqm, considerably lower than

phase II where average rentals stands 40% higher at about KWD288/USD1,000 per sqm. To

reflect this, Phase II is targeted at smaller mid-end retailers, which are more profitable.

Overall, phases I and II encompass 426 stores (avg. GLA/store of 390 sqm), which are

operating at full occupancy.

Phase III, completed in 2013, is targeted at the high-end segment. This part of the Avenues

was envisioned to serve the significantly underserved Grade-A (high-end) retail segment in

Kuwait. Phase III is anchored by UK retailer Harvey Nichols and includes a range of smaller

luxury retailers. Since launch, the phase has been highly successful as reflected by the 97%

occupancy rate and average annual lease rate of KWD315/USD1,050 per sqm.

Mabanee follows the plain vanilla rental model

Rental increase depends on the lease tenure. Also, unlike Emaar Malls, Mabanee does not

link rentals to sales, thus following a straightforward lease structure. Currently, there are just

two agreements linked to turnover and neither has the threshold to generate turnover rent.

According to the company, a lease agreement is typically undertaken for five years. For the

first three years of the lease agreement, rentals remain fixed; thereafter, it increases 5%

annually. For longer durations (i.e., 20 years), rentals are revised by 15% every five years.

To reflect this, we assume a rental increase of 3% per annum for phases I and II. Also, we

do not assume any rental growth for Phase III until 2016; thereafter, rentals increase at a

conservative rate of 3% p.a.

We expect The Avenues to enjoy a stable rental and strong occupancy given that 1) our

analysis suggests a continuous shortage of retail space in Kuwait, meaning no competitive

threat in the medium term; 2) Alshaya, the promoter and key shareholder of the company

continues to lease more than one-fifth of GLA; 3) in line with the GCC trend, we continue to

expect a retail sales shift in Kuwait towards the supermarket segment, thus justifying higher

rentals; and 4) a concentration of anchor and exclusive stores that typically carry long-term

leasing agreements to continue to support the occupancy level and provide stable rentals.

Phase III

Phase IV

Phase I & II

Mabanee Co.


Key rental assumptions

Source: Company data, Global estimates

Phase IV, the final phase of the mall, is still under construction, with a target completion date

of 4Q17. The planned area of Phase IV stands at 100k sqm (total 400 stores) and an

estimated budget of KWD265mn (USD880mn). Given the company kick-started construction

in 4Q14, we include it in our valuation. Also, this extension will include two hotels

(comprising 420 rooms) – first, 170 rooms in phase IV and second, 250 rooms in Phase IV-B

with 250 rooms, costing cKWD50mn. Additionally, it will include a number of entertainment

centers targeted to both families and tourists in Kuwait.

Including Phase IV, The Avenues mall will have a total GLA of 375k sqm (1,200 stores),

among the largest in the world, comparable to the Dubai Mall, which has a total GLA of 343k

sqm. Once operational, the company expects to earn an average annual rental of

KWD350/USD1,162 per sqm from Phase IV. To be conservative, we assume a delay of one

year and also an initial occupancy of 25% in 2018, gradually rising to 90% at maturity in

2020. For rentals, in line with the existing contracts, we assume a flat rental for five years

and thereafter conservatively assume a 3% growth rate.

The Avenues Phases I–III are garnering strong interest as the mall is among the few grade-

A quality retail outlets in Kuwait and is centrally located. As the chart below reflects, in 2015,

footfall at the Avenues reached 52mn, more than doubling since 2011.

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The Avenues Phase I &II The Avenues Phase III The Avenues Phase IV

Mabanee Co.


The Avenues footfalls increased sharply after Phase III launched in 2012-13

Source: Mabanee

Mabanee’s ownership structure

Shareholders Shareholding

Alshaya United Co 34.17%

Durra National Real Estate 18.00%

Free float 47.83%

Source: Kuwait Stock Exchange

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Mabanee Co.


Mabanee’s expansion plans: Focused outside Kuwait

The company is currently implementing expansion plans across three countries, which

includes the following: 1) Phase IV of the Avenues, a 100k sqm GLA of KWD265mn; 2) in

Saudi Arabia at a total cost of KWD700mn (Mabanee’s stake stands at 55%, implying about

KWD385mn); and 3) a mall in Bahrain of a total area of 38k sqm. All these projects are

expected to be operational by 2019, which means Mabanee needs to spend about

KWD665mn in next four years before it can anticipate any revenue from these assets.

Mabanee’s expansion plans

Under construction/ Planned assets GLA in Sqm Budget (KWDmn) Remarks

The Avenues phase IV 100,000 265 Operational by 1Q18

The Avenues – Riyadh 400,000 385*

Operational by 4Q19

The Avenues- Khobar 180,000 Operational by 4Q19

The Avenues- Bahrain** 38,000 15** Operational in 1H17

Total u/c area 718,000 665

Source: Company data, Global Estimates; Note: *for Mabanee’s 55% stake, ** the stake in the Bahraini project stands at 35%

The Avenues, Bahrain

Owned 35% by Mabanee, the project’s land area stands at 262k sqm, with a total leasable

area of 38k sqm. The estimated cost of the project stands at KWD40mn (USD132mn); and it

is expected to be completed in the first half of 2017. We expect Mabanee to spend an

estimated KWD15mn, reflecting its 35% share in the project. We estimate a rental of

KWD235/sqm with an expected launch in 2017 and accordingly add associate income,

assuming a net profit margin of 75%. Also, for valuation purposes, we add the project at cost

at this stage.

Projects in Saudi Arabia

Mabanee owns a 55% stake in its Saudi ventures, which consists of two projects: 1) The

Avenues Riyadh and 2) The Avenues Khobar. While the latest estimates for the Saudi

projects are under finalization at this stage, as per 2014 disclosures, the total cost stands at

KWD700mn (USD2.3bn).

The Avenues Riyadh, a mixed use project, extends across 390k sqm of land and is located

at a prime position overlooking the King Salman Road and King Fahad Road in Riyadh. The

project’s planned leasable area is 400k sqm. In addition to the mall, the project will consist of

a number of towers that include two hotels (a five-star and a four-star), residential

apartments, offices and parking for 14,000 vehicles.

Mabanee’s second project in Saudi Arabia is The Avenues Khobar, a mixed-use project

located at the north-western corner of the intersection of King Saud Road with Prince Sultan

Road. It extends over an area of 209k sqm and includes a leasable area of 180k sqm.

Expansion plans to impact FCF and the bottom line in the near term

While positive in the long term, medium-term earnings and cash flows would be adversely

impacted due to an aggressive expansion, i.e., 1) to fund its capex plan, the company needs

to deploy the next seven years of FCF, leaving little room for dividend distribution and 2) the

bottom line would be hit during the this phase as most of the expansion would be funded by

borrowings. Assuming a 5% cost of borrowing and total capex requirement of KWD440mn

over the next three years would mean 31% lower operating profit in 2018, a year before any

of the expansions start generating cash flows.

Mabanee Co.


Mabanee’s expansion plans: Near-term impact on cash flows and profitability

KWDmn 2016e 2017e 2018e

Cash (NP+Dep) from Phase I-III 57 58 78

Investment in Phase IV (30) (120) (90)

Investment in Saudi (100) (100)

FCF after expansion 27 (162) (112)

Capex to FCF (moving) 0.5 2.2 2.3

Impact on profitability

EBIT 53 55 56

Interest cost re expansion (2) (13) (22)

% change in EBIT (3%) (23%) (39%)

Source: Global Research, For the purpose of above analysis, interest costs are expensed, not capitalized. Saudi investments are

based on our estimates as the company has not yet finalized the plans.

Therefore, it is not dividends, but a capital appreciation story at this stage

While these projects would be value accretive overall, given that they are still three–five

years away from fruition, we expect the market to only price-in gradually as completion

nears. Therefore, the capital appreciation story would continue to be priced-in as we near

completion, starting 1H17. Further, high capex until 2019 and debt servicing thereafter

means that dividends to remain muted in the near term.

Saudi expansion a right strategic move, but too early to add to our valuation

We view the Saudi project as a step in right direction as it would 1) diversify the company’s

revenue from a single geography (Kuwait) and 2) attain a critical level of occupancy, given

Alshaya’s strong retail portfolio. We estimate yields on costs at 14%, which then compresses

to 7% on completion. Finally, adjusting this to Mabanee’s 55% stake and bringing it forward

by four years at a WACC of 10% means the Saudi business would add KWD119mn or

KWD0.141/share to our valuation.

The Saudi project to add 14% to our TP

Item Unit Planned GLA Sqm 580,000

Budgeted cost KWDmn 700

GLA construction cost/sqm KWD/sqm 1,207

Forecasted lease rentals KWD/sqm/ p.a. 216

Net rental (@ 80% margins) KWD/sqm/ p.a. 173

Yield on cost 14%

Initial expected yields 7%

Expected value post completion KWDmn 1,432

EV/sqm KWD/sqm 2,469

PV (4 years discounting @10%) KWD/sqm 1,580

Value of Mabanee's 55% stake KWD/sqm 869

EV of Mabanee's stake KWDmn 504

Less: Debt (assuming 100% debt financing) KWDmn (385)

Value add by Saudi project KWDmn 119

Value add per GLA KWD/sqm 205

Value add per share KWf 141

Source: Global Research

Mabanee Co.


Despite the fact that Phase IV and the Saudi project being at initial stages, we only include

Phase IV in our valuation as 1) the company has not yet disclosed detailed plans for the

Saudi project whereas Phase IV construction has already been kicked-off, 2) the risk profile

of Phase IV remains low as it will be an extension of The Avenues, a well-established and

highly successful mall and 3) Phase IV is based in Kuwait, where the company has an

execution track record, something yet to be tested in the Saudi market.

Mabanee Co.


Financials: Stable earnings, but cash flows to be deployed to

growth opportunities thus limiting pay-outs

We expect lease rentals to increase c3.4% p.a. in the next two years, reflecting an upward

revision of rental rates as contract renewals come due. Starting 2018, we forecast a 30%

jump in revenue driven by the Phase IV delivery. We expect gross margins to remain flat at

74% in 2016e–17e and a similar trend to continue after the Phase IV launch.

Rental and related income (placement fees) account for about 95% of Mabanee’s revenue,

while the rest comes from advertising services for tenants. Placement fees are a one-time

income associated with the reservation of space at the mall. As evident in the chart,

KWD11mn in placement fees were booked in 2013 on the delivery of Phase III of The

Avenues and another KWD2.5mn was recognized in 2015. Accordingly, in our forecasts, we

assume another leg of placement fee in 2018 in line with the Phase IV launch in the same

year.

The next revenues growth to come in 2018 as Phase IV comes online


Mabanee has leased The Avenues land from the government. Accordingly, we expect land

lease charges to increase to reflect the increased GLA driven by the Phase IV completion. In

terms of the bottom line, we expect earnings to decline 2.1% in 2016, but rise 40% in 2018

on revenue from Phase IV and the Bahrain expansion. For the next two years, net margins

are expected to remain stable at 50%.

81%

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Avenues phase I & II Avenues phase III Avenues phase IVMabanee office Logistics Placement feesAdvertising fees Hotel GPM (Right axis)

Mabanee Co.

P a g e | 10 April 2016

EPS (left axis) and margins to pick up starting ‘18 as soon as Phase IV is online Short term debt maturity remains manageable


We categorize Mabanee’s investment properties into three sections: (i) operational

properties, i.e., Phase I, II and III of The Avenues mall and an office in Salhiya Kuwait City;

(ii) properties under development (The Avenues phase IV) and the Saudi project; and (iii)

land (in Kuwait and a recently acquired plot in Saudi Arabia). Phases I, II and III of the

Avenues are held at a cost of KWD345mn, while the cost attributed to the office building is

KWD2.5mn, on our estimates.

Assets under development reflect the capex associated with phase IV of The Avenues,

which at the end of 2015 stood at an estimated KWD55mn, approximately 20% of the total

estimated cost of KWD265mn. Cost incurred in the acquisition and development of The

Avenues, Riyadh was KWD150mn, which we include at cost for our valuation, given the

property is still under construction.

Finally, land in Kuwait relates to a 9,500-sqm plot in Salmiyah acquired in 2003 for

KWD3mn, or KWD316/sqm. We estimate the market value of the plot at KWD40mn as at the

end of 2015, reflecting an average price of KWD4,000/sqm.

Mabanee follows cost accounting and as such does not recognize any fair value gains on its

investment portfolio. Even so, according to an independent valuer, the fair valuations of the

investment property portfolio at the end of 2015 stood at KWD1bn (increasing 15% from

KWD875mn in 2014) driven by the construction of Phase IV and the Saudi project, 1.9x

higher than the carrying amount.

As of 4Q15, the company’s total debt was KWD204mn (consisting of KWD28mn short-term

loans and KWD176mn long-term loans) with an average financing cost of 4%. We expect

Mabanee’s aggressive capex plans for phase IV and The Avenues Riyadh to continue

expanding its debt profile. The estimated cost of The Avenues phase IV is KWD265mn, most

of it to be spent over three years, with the project breaking ground in 4Q14. Similarly, the

company owns 55% in the Saudi JV; the project is expected to be financed by raising debt at

the SPV level. The company has so far booked KWD150mn related to the project; however,

given the estimated project cost of KWD700mn, to be spent over the next five years, we

expect funding requirements to continue.

We also expect earnings to remain flat over next two years, until Phase IV is operational,

due to an increase in borrowing cost. While the overall burden of borrowing is likely to be

62%

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Mabanee Co.

P a g e | 11 April 2016

much higher, we expect a larger portion of borrowing to be capitalized as its directly related

to Phase IV. For instance, in 2016, we estimate that 50% out of total borrowings can be

attributed to operating phases, with the remaining half related to Phase IV and therefore

subject to capitalization.

Cash flows: Financing requirements to continue

Source: Global Research, Mabanee

Given its cash needs, Mabanee has been conservative in its dividend policy, relying on a

combination of cash and bonus dividends. In 2015, the company paid a cash dividend of

KWf10/share (17% pay-out ratio) and a 5% bonus issue (stock is yet not ex-bonus). Going

forward, we understand that Mabanee will continue with a conservative dividend policy until

the completion of Phase IV.

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Operating activities Investing activities

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Mabanee Co.

P a g e | 12 April 2016

Kuwait retail space continues to remain undersupplied

Kuwait’s retail sector is characterized by a supply shortage – attributed to limited project

launches – which does not suffice for the demand generated by the population growth and

the steady rise in purchasing power. The retail space in Kuwait has traditionally been

dominated by the small-store format, resulting in limited supply in Grade A retail space.

While the latest information on Kuwait retail remains limited, anecdotal evidence and DTZ

estimates suggest that the country witnessed a growth in retail area where GLA increased

by 60% to 1mn sqm by 2014 vis-à-vis 0.65mn in 2010. In line with international trends, we

have witnessed a visible shift towards large-format shopping malls from traditional small-

scale souqs in Kuwait. While the number of shopping centers has increased over the past 7–

8 years, the Kuwaiti market remains underpenetrated, by our estimates.

Kuwait witnessed rapid population growth in nationals and expats over past 15 years

Young population is a key demand driver for retail space: 68% of Kuwaitis are aged below 40

Source: PACI, Global Research

Population growth remains the key demand driver of Kuwaiti retail. As the chart above

demonstrates, in last 10 years, the population has been expanding at a CAGR of 4.5%,

contributing directly to the demand for retail space. Also, at the end of 2014, 38% of the

population in Kuwait was aged 20–34, a key target segment for large-shopping-mall

developers. Also, a large expat population (about 68% of the total) contributes to overall

retail demand in the country.

As the chart below exhibits, compared with other global cities, Kuwait’s market remains

underpenetrated in terms of GDP/capita. Based on this analysis, retail space per capita

stands at 0.44 sqm compared with 0.8 in the GCC, suggesting plenty of room for growth.

However, our GLA per capita number for Kuwait remains conservative as we exclude blue-

collar workers (estimated at 30% of the expat population) from our calculations; including

them would further push down the GLA per capita to 0.31 sqm. Additionally, Kuwait remains

a highly urbanized country (98% population lives in cities), which should typically result in

higher consumption, thus boosting the demand for retail space.

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Mabanee Co.

P a g e | 13 April 2016

Retail GLA/Capita vs GDP/Capita; Kuwait needs 40% additional GLA per capita

Source: Source: Global Research, Knight Frank, Colliers, JLL, Global Property Guide

We forecast retail space demand based on GLA per capita of 0.7/sqm and a population

growth of 3.5%. Our analysis suggests that Kuwait would need to construct about 0.9mn

sqm of additional space by 2018, a CAGR of 17% over the next four years. Unlike Dubai,

where tourism remains an important factor, retail demand in Kuwait is driven by population

growth and higher purchasing power as reflected by the higher GDP per capita.

In terms of supply, property advisory firm DTZ estimates that at the end of 2013, retail GLA

stood at 1mn sqm. In addition, the current pipeline stands at 0.5mn, which is likely to

increase stock by 50% to 1.5mn sqm by 2018. Thus, we forecast a continued shortage of

retail space in Kuwait and estimate that the shortage would increase to 250k sqm by 2018,

despite an increase in retail density per capita to 0.57 sqm.

Retail market to remain underpenetrated in Kuwait

Source: Global Research, DTZ, CSB Kuwait

It is worth highlighting that recent additional supply was concentrated in the regional mall

formats, i.e., malls measuring less than 80k sqm. Therefore, as the chart below reflects, The

Brussels

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Mabanee Co.

P a g e | 14 April 2016

Avenues remain an attractive destination offering a large super-regional mall and continue to

command the highest rentals in Kuwait.

Position of The Avenues remain unchallenged as it commands both size and price

Source: Global Research, The Avenues’ various phases indicated in red, Bubble size indicates GLA in sqm

Given the limited supply, we expect rentals to hold up strongly. As the chart below reflects, a

comparison of global cities on GDP per capita suggests that retail prices in Kuwait look

relatively undervalued for the amount of wealth that drives consumption habits.

Rentals remain sustainable

Source: Global Research, Knight Frank, Colliers, JLL, Global Property Guide

However, as highlighted in the chart below, rental yields appear to be on the high side,

standing at approximately 9.5% versus a CEMEA average of 7%, which can be justified

given all other asset classes in GCC like residential and commercial space have higher

yields, limiting capital appreciation driven by margin compression at this stage.

Avenues Mall

phase IV

Al Kout

Development Mall

Avenues Mall

phase III

360 Degrees Mall

Avenues Mall

phases I and II

Al Kout Mall Al Raya Mall

Marina Mall

Al Thuraya

Souk Sharq

Al Bustan

Al Fanar

Laila Gallery

Salhia Complex

0

200

400

600

800

1,000

1,200

1,400

1970 1980 1990 2000 2010 2020 2030

Ren

t U

SD

/sq

m/p

a

Year

Brussels

Zagreb

Prague

Frankfurt

BudapestTel Aviv

Amsterdam

Oslo

Warsaw

Lisbon

Bucharest

Moscow

St Petersburg

Jo'burg

Stockholm

IstanbulLondon City

Birmingham

Los Angeles

Abu Dhabi

Dubai

Muscat

Kuwait

RiyadhJeddah

Cairo

Doha

New Delhi

Mumbai

Singapore

0

1,000

2,000

3,000

4,000

5,000

6,000

0 20,000 40,000 60,000 80,000 100,000

Ren

tal/

sq

m (

US

D)

GDP/capita (USD)

Mabanee Co.

P a g e | 15 April 2016

Rental yields versus property prices

Source: Global Research, Knight Frank, Colliers, JLL, Global Property Guide

Brussels

Zagreb

Prague Frankfurt

Budapest

Tel Aviv

Amsterdam

Oslo

WarsawLisbon

Bucharest

Moscow

St Petersburg

Jo'burg

Stockholm

Istanbul

London City

Birmingham

Abu Dhabi

Dubai

Riyadh

Jeddah

3

4

5

6

7

8

9

10

11

12

13

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

Ren

tal yie

lds (

%)

Rental/ sqm/pa (USD)

Kuwait

Mabanee Co.

P a g e | 16 April 2016

Valuation

We initiate Mabanee with a Buy rating and a TP of KWd1,019/share. Based on April 14,

2016 prices, it offers an 18% upside. We value real estate companies using a combination of

DCF and land valuation and then cross-check our valuation against NAV. Where a final

master plan is available, we use a sum of the parts DCF. Otherwise, we rely on land

valuation only. For Mabanee, we value all projects using DCF, the company’s raw land at fair

value, and investment in associates at cost on top. For now, we exclude Saudi projects at

this stage, given the initial stage of the project. However, we add the company’s investment

in Saudi Arabia at the market value of Mabanee’s share (55%), which currently stands at

KWD83mn.

For DCF, we use a 10-year explicit forecast horizon to absorb all projects expansions.

Thereafter, in line with sustainable rental growth, we apply a terminal growth rate of 2%. For

DCF, we use a WACC of 8.6%, derived from using the cost of equity of 10%. To calculate

cost of equity, we use the US risk-free rate of 1.84% (in line with the 10-year US treasuries)

and then add an equity risk premium of 8.16% to reflect total Kuwait risk premium. We also

use a beta of 1 to calculate WACC. Finally, for cost of debt, we assume a post-tax rate of

5.2%, in line with the cost of borrowing to the company. Also, in line with the company’s mid-

term target, the weight of debt to equity stands at 70:30.

WACC

KWDmn

Beta 1.0

Risk free rate 4.5%

Country risk premium 5.5%

Cost of equity 10%

Cost of debt 5.5%

After tax cost of debt 5.2%

Equity market capitalization 727

Debt 204

Total 930

Tax rate 5.0%

WACC 8.6%


Mabanee Co.

P a g e | 17 April 2016

DCF valuation

KWDmn except per share data

NPV: FCF 903

Net debt as of 2015 181

Equity 722

Outstanding shares 845

DCF value per share (KWD) 0.855

Value of land 40

Value of Saudi land 82.5

Investment in associates 5.9

Investment portfolio 10.0

Value of land & investments 138.4

Value of land & investments

(/share) 0.164

Total value 1,019


DCF sensitivity (KWD/share)

Terminal growth rate

WACC

1.0% 2.0% 3.0% 4.0% 5.0%

6.6% 1.408 1.639 1.999 2.640 4.099

7.6% 1.127 1.272 1.481 1.806 2.384

8.6% 0.923 1.019 1.150 1.338 1.632

9.6% 0.767 0.834 0.921 1.039 1.210

10.6% 0.646 0.694 0.754 0.833 0.940


It is worth noting that our valuation for The Avenues stands at an estimated KWD900mn, in

line with that of the independent valuer. The independent valuation increased c2% to about

KWD850mn in 2015 due to the momentum gained in Phase IV. The valuation implied is 1.9x

higher than the carrying amount.

Mabanee’s IP valuation by the management (ex-Saudi)

2011 2012 2013 2014 2015

Independent valuation (KWDmn) 543 622 636 830 849

NOI (KWDmn) 27 38 58 58 58

Cap rates (%) 4.90 6.15 9.18 6.96 6.81


We cross-check our valuation with the NAV. To compute NAV, we markup investment

properties to the market value as these are denominated at cost. To value the company’s

investment properties, we use a capitalization rate of 6% based on historic yield trends. To

compute NOI (net operating income), we assume a margin of 80%, in line with industry

trends. Also, for under-construction, non-operational projects, given their initial stage, we

conservatively use the book value. We value Mabanee at 0.9x 2016e NAV of

KWd1,137/share. A convergence of NAV and DCF at this stage is due to the fact that

Mabanee’s portfolio now includes a matured asset and we do not include the Saudi project

in our valuation and value construction properties at cost.

As Mabanee recognizes its investment properties and land at cost, we revalue these to

reflect market value. For fair value of the land, we rely on the latest independent valuation,

Mabanee Co.

P a g e | 18 April 2016

which the company indicated was about KWD40mn as at the end of 2015 (versus a carrying

cost of KWD3mn). We understand that the plot is a prime beachfront location in Salmiyah,

opposite the American University in Kuwait.

Mabanee’s P/NAV

KWDmn except unit data 2016e 2017e 2018e 2019e

Equity 342 382 440 491

Mkt IP 1,035 1,070 1,464 1,493

BV IP (454) (559) (635) (644)

Mkt land 40 40 40 40

BV land (3) (3) (3) (3)

NAV 960 929 1,306 1,377

NAV/share 1.137 1.099 1.546 1.630

P/NAV (x) 0.8 0.8 0.6 0.5

P/NAV (Implied) (x) 0.9 0.9 0.7 0.6

Total operational GLA 275,200 275,200 375,200 375,200

NAV KWD/m² 3,489 3,375 3,481 3,670

NAV USD/m² 10,446 10,106 10,422 10,989


The table below analyzes the sensitivity of The Avenues to cap rate and growth:

Mabanee’s NAV sensitivity to cap rate and growth (per share)

Cap rate

Growth rate 5.0% 5.5% 6.0% 6.5% 7.0% 7.5%

1.0% 1.367 1.235 1.124 1.031 0.951 0.882

1.5% 1.374 1.241 1.131 1.037 0.956 0.887

2.0% 1.382 1.248 1.137 1.042 0.961 0.891

2.5% 1.389 1.254 1.143 1.048 0.967 0.896

3.0% 1.396 1.261 1.149 1.053 0.972 0.901

3.5% 1.403 1.268 1.155 1.059 0.977 0.906

4.0% 1.410 1.274 1.161 1.064 0.982 0.911


An analysis of Mabanee’s market implied valuation suggests a valuation of GLA EV/sqm of

KWD3,380, implying a yield of 7.5%, which is in line with our estimated cap rate for The

Avenues and in line with global comparables. Finally, the stock is currently trading at the

2016 PE of 15.5x, compared with a peer group median of 16.7x. Also, 2015 EV/EBITDA

stands at 13.3x, compared to the peer group multiple of 18.6x, whereas our valuation implies

15.3x.

Cap rates (Valuation)

KWDmn 2016e 2017e 2018e 2019e

Implied EV 1,042 1,118 1,229 1,181

Net operating income 61 63 86 88

Cap rate 5.8% 5.6% 7.0% 7.4%

2016e 2017e 2018e 2019e

Current EV 813 890 1,000 952

Net operating income 61 63 86 88

Cap rate 7.5% 7.1% 8.6% 9.2%


Mabanee Co.

P a g e | 19 April 2016

Global Retail Comparables

RIC Company Name Curr Price

Close

Company

Market

Cap

(USDmn)

Enterprise

Value

(USDmn)

EV/EBITDA,

TTM

EV/EBITDA,

NTM

P/Ex Fwd P/E

P/Bx

EMAA.DU Emaar Malls Group AED 2.9 10,347 11,468 18.1 NA 22.9 20.6 2.4

MABK.KW Mabanee Co SAK KWf 860 2,427 3,036 14.5 16.5 15.0 15.5 2.1

MULT3.SA Multiplan

Empreendimentos

Imobiliarios SA

BRL

54.5 2,782 3,180 14.3 13.1 28.3 26.3 2.3

IGTA3.SA Iguatemi Empresa de

Shopping Centers SA

BRL 24.5 1,239 1,663 12.0 11.9 22.7 30.7 1.6

BRML3.SA BR Malls Participacoes SA BRL 15.6 2,082 3,560 11.8 10.6 1,639.6 21.1 0.8

LH.BK Land and Houses PCL THB 9.2 3,078 4,028 22.2 18.4 13.7 14.6 2.3

CPN.BK Central Pattana PCL THB 53.0 6,794 7,370 19.3 16.3 30.4 25.8 4.6

1972.HK Swire Properties Ltd HKD 20.9 15,768 20,364 15.2 14.8 8.7 16.7 0.6

0823.HK Link Real Estate

Investment Trust

HKD 47.5 13,742 17,112 21.9 20.8 6.0 22.9 0.9

0014.HK Hysan Development Co HKD 33.1 4,467 5,089 13.8 12.8 12.1 15.0 0.5

0101.HK Hang Lung Properties Ltd HKD 15.4 8,944 9,894 11.9 10.7 13.6 14.2 NA

0004.HK Wharf Holdings Ltd HKD 42.7 16,672 23,972 11.7 9.8 8.0 10.7 0.4

0683.HK Kerry Properties Ltd HKD 21.7 4,039 9,085 16.9 12.5 5.7 8.1 0.4

0083.HK Sino Land Co Ltd HKD 12.9 10,211 7,804 12.1 12.1 8.3 15.2 0.6

CATL.SI CapitaLand Limited SGD 3.1 9,835 23,709 17.0 14.3 13.7 17.8 0.7

CTDM.SI City Developments Ltd SGD 8.7 5,897 10,238 11.4 9.2 10.7 13.5 0.9

CACT.SI CapitaCommercial Trust SGD 1.4 3,136 3,965 27.5 27.0 13.9 16.0 0.8

CMLT.SI CapitaMall Trust SGD 2.1 5,644 7,576 23.7 22.0 12.9 18.2 1.1

AEMN.SI Ascendas Real Estate

Investment Trust

SGD 2.5 4,902 7,362 20.5 17.7 15.0 15.9 1.1

GLPL.SI Global Logistic Properties SGD 2.0 7,070 14,656 31.0 19.2 11.2 34.2 0.8

SUNT.SI Suntec REIT SGD 1.7 3,170 5,261 30.9 31.3 12.6 19.2 NA

GRTJ.J Growthpoint Properties Ltd ZAc 2,450.0 4,637 7,255 15.2 14.2 9.2 13.8 0.9

HYPJ.J Hyprop Investments Ltd ZAc 12,127.0 2,004 2,583 21.0 19.1 6.7 20.2 NA

RDI.L Redefine International PLC GBp 45.6 1,147 1,909 20.4 17.7 8.9 14.9 NA

RESJ.J Resilient Property Income

Fund Ltd

ZAc 13,815.0 3,617 4,044 36.2 27.6 8.3 29.9 NA

ATTJ.J Attacq Ltd ZAc 2,010.0 1,021 1,631 17.9 19.1 8.8 28.7 1.0

HKLD.SI Hongkong Land Holdings USD 6.3 14,893 17,347 17.0 17.0 7.4 16.7 0.5

Avg 5,712 8,039 18.6 16.8 12.9 19.1 1.2

Median 4,467 6,878 17.0 16.4 11.7 16.7 0.9

Source: Reuters, Global Research. Data as of April 13, 2016

Risks

Downside risks to our valuation:

1. Execution risks related to Phase IV: Although Mabanee’s management has

demonstrated its project-management capabilities by executing large-scale construction

projects, any rise in costs from delays or cancellations of Phase IV would materially

impact our valuation.

Mabanee Co.

P a g e | 20 April 2016

2. Concentration risk: While the Saudi and Bahrain projects would provide a well needed

geographic diversification, until 2019, Mabanee remains fully exposed to Kuwait.

3. Interest rate risk: We recognize that interest rates bottomed out following the December-

2015 rate hike by the US Fed; we accordingly build in a 100–150bps rate escalation in

our interest rate forecasts. A sharper-than-expected rise in interest rates would impact

earnings adversely. Our estimates suggest that each additional 100bps rate hike would

reduce our cash flow estimates by KWD2.7 (-5%) and KWD4mn (-9%) in 2016 and

2017, respectively.

4. Land lease renewal: Mabanee has leased The Avenues land from the government which

expires in Sep-18. In line with the company’s expectations, we forecast the lease

renewal at the same terms and conditions. However, any unexpected rent escalation or

a failure to renew lease on exiting terms would adversely affect our valuation.

Mabanee Co.

P a g e | 21 April 2016

Key growth assumptions

Lease Properties 2011 2012 2013 2014 2015 2016e 2017e 2018e 2019e

The Avenues Phase I & II

Rent in KWD/m2 200 229 229 236 236 243 251 258 266

Growth Rate 5% 15% 0% 3% 0% 3% 3% 3% 3%

Total construction cost (KWDmn)

Occupancy Rates 98% 98% 98% 98% 98% 98% 98% 98% 98%

Leasable/BUA

The Avenues Phase III

Rent in KWD/m2 315 315 315 325 335 345 355

Growth Rate 0% 0% 0% 0% 3% 3% 3%


Occupancy Rates 80% 90% 97% 97% 97% 97% 97%

Leasable/BUA

The Avenues Phase IV

Rent in KWD/m2 350 350

Growth Rate 0% 0%


Occupancy Rates 25% 80%

Leasable/BUA

Mabanee office complex

Rent in KWD/m2 60 60 60 60 60 61 62 64 65

Growth Rate 0% 0% 0% 0% 0% 2% 2% 2% 2%


Occupancy Rates 95% 95% 95% 95% 95% 95% 95% 95% 95%

Leasable/BUA


FCF

Year 2012 2013 2014 2015 2016e 2017e 2018e 2019e 2027e

EBIT 37 55 54 53 55 56 80 81 107

Tax rate (2) (3) (3) (2) (4) (4) (5) (4) (7)

EBIT * (1-t) 35 52 51 51 52 52 75 77 100

Depreciation & amortization 3 7 7 7 9 11 11 11 11

Capital expenditure (50) (16) (116) (97) (125) (92) (21) (11) (11)

Revaluation of investment

properties 3 0 (1) (1) - - - - -

Changes in working capital 13 (16) 1 (5) - (68) - - -

Free cash flow: explicit period 4 27 (58) (45) (64) (97) 65 77 100

2%

1,551

FCF: total 4 27 (58) (45) (64) (97) 65 77 1,651


Mabanee Co.

P a g e | 22 April 2016

Financial Statements

Income statement (KWDmn)

Year to December 31st 2012 2013 2014 2015 2016e 2017e 2018e 2019e

Logistics revenue 4 7 7 7 8 8 9 9

Rental income 38 62 69 70 73 75 86 107

Placement fees 6 12 3 2 3 3 16 1

Advertising services 4 5 6 7 7 7 8 8

Revenue 52 86 85 87 90 93 121 132

Logistics expenses (4) (6) (7) (7) (7) (8) (8) (9)

Direct rental expenses (9) (15) (15) (16) (16) (16) (19) (24)

Gross profit 40 64 63 63 67 69 94 95

% of sales 76% 75% 74% 73% 74% 74% 78% 72%

Depreciation (3) (7) (7) (7) (9) (11) (11) (11)

SG&A expenses (excl.

depreciation) (3) (3) (1) (2) (2) (2) (3) (3)

Fair value gains/losses 3 0 (1) (1) - - - -

EBIT 37 55 54 53 55 56 80 81

% of sales 71% 63% 63% 61% 61% 60% 66% 61%

Net financing cost (2) (4) (4) (2) (4) (6) (10) (19)

Associate income (1) (0) (0) (0) (0) 1 2 2

Allowance for doubtful debt - - - - - - - -

Foreign exchange gains/losses 0 - - - - - - -

Other income/ expenses 0 0 1 0 0 0 0 0

Profit before taxes 35 50 51 51 51 51 72 64

Contribution to KFAS (0) (0) (0) (0) (1) (0) (1) (1)

Contribution to NLST (1) (1) (1) (1) (2) (2) (2) (2)

Income taxes/zakat (1) (1) (1) (1) (2) (2) (2) (2)

Net income before minority

interest 33 47 48 48 47 48 67 60

Minority interest 0 0 0 (0) (0) (0) (0) (0)

Net income attributable to

shareholders 33 47 48 49 47 48 67 60

EBITDA (excl. revaluation) 37 61 62 61 64 66 91 92

EPS (KWD) 0.048 0.067 0.065 0.057 0.056 0.057 0.079 0.071

DPS(KWD) 0.008 0.018 0.015 0.010 0.010 0.010 0.010 0.010

Payout ratio 17% 27% 27% 17% 18% 18% 13% 14%


Mabanee Co.

P a g e | 23 April 2016

Balance Sheet (KWDmn)

As of year to December 31st 2012 2013 2014 2015 2016e 2017e 2018e 2019e

Assets

Cash and cash equivalents 12 23 24 23 46 61 109 160

Accounts receivable 6 7 8 15 15 15 15 15

Held for trading investments - - - - - - - -

Current assets 18 30 32 38 61 76 124 176

Available for sales investments 12 13 12 10 10 10 10 10

Investment in associates 7 6 6 6 16 21 21 21

Receivables from associates 3 3 5 6 6 6 6 6

Accounts receivable and

prepayments 1 1 1 1 1 1 1 1

Property, plant and equipment 2 2 2 2 3 4 5 6

Investment properties 342 350 460 554 659 735 744 743

Non-current assets 366 376 486 579 695 776 786 786

Total assets 384 406 519 617 756 852 911 962

Liabilities

Trade & other payables 30 15 19 16 16 16 16 16

Short term borrowings 25 41 40 28 28 28 28 28

Current liabilities 55 56 59 44 44 44 44 44

Borrowing & long-term debt 104 87 129 176 276 401 401 401

Other non-current liabilities

(security deposits) 30 32 19 24 24 24 24 24

Provision for employee services 1 1 1 2 2 2 2 2

Non-current liabilities 135 120 197 270 370 426 426 426

Minority interest in subsidiaries 1 0 0 0 0 0 0 0

Paid - up capital 64 70 74 85 85 85 85 85

Share premium 17 17 17 17 17 17 17 17

Statutory & other reserves 36 46 56 66 66 66 66 66

Retained earnings 77 95 112 129 168 207 265 317

Treasury shares (2) (2) (2) (3) (3) (3) (3) (3)

Gain on sale of treasury shares - - - - - - - -

Treasury shares reserve 4 4 4 5 5 5 5 5

Foreign currency translation

reserve - - 2 5 5 5 5 5

Fair value reserve (1) (0) (0) (0) (0) (0) (0) (0)

Shareholder's equity 194 230 263 303 342 382 440 491

Total liabilities and equity 384 406 519 617 756 852 911 962


Mabanee Co.

P a g e | 24 April 2016

Cash flow (KWDmn)

Year to December 31st 2012 2013 2014 2015 2016e 2017e 2018e 2019e

Net profit before minorities 35 50 51 51 47 48 67 60

Depreciation & amortization 4 7 8 8 9 11 11 11

Change in working capital 13 (16) 1 (5) - (68) - -

Change in provisions 0 0 0 0 - - - -

Net financing cost 2 4 4 2 - - - -

Impairment loss on investments - - - 1 - - - -

Loss on sale of property &

equipment - - 0 0 - - - -

Others (3) (1) (1) (2) - - - -

Net cash generated from

operating activities 50 45 63 55 57 (10) 78 71

Investments activities:

CAPEX (PPE) (1) (1) (1) (0) (1) (1) (1) (1)

CAPEX (investment properties) (54) (15) (115) (97) (114) (86) (20) (10)

Investments 5 (0) (0) 1 - - - -


investment activities (50) (16) (116) (97) (125) (92) (21) (11)

Financing activities:

Dividends paid (6) (13) (17) (11) (8) (8) (8) (8)

Share issue - - - - - - - -

Bank borrowings raised 8 (7) 35 35 100 125 - -

Others - 1 36 16 - - - -


financing activities 2 (18) 53 40 92 117 (8) (8)

Net addition (deduction) in cash 2 11 (1) (2) 23 15 48 51

Cash at beginning 10 12 23 24 23 46 61 109

Net forex difference/ others - - 2 - - - - -

Cash at end of fiscal year 12 23 24 23 46 61 109 160


Mabanee Co.

P a g e | 25 April 2016

Financial Statements(KWD mn) 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Revenue 86 85 87 90 93 121 132 140 Cost (22) (22) (23) (23) (24) (27) (37) (40) Gross Profit 64 63 63 67 69 94 95 101 Selling, Gen. & Administrative Expense (3) (1) (2) (2) (2) (3) (3) (3) EBITDA 61 61 60 64 66 91 92 97 Depreciation (7) (7) (7) (9) (11) (11) (11) (11) EBIT 55 54 53 55 56 80 81 86 Finance cost (4) (4) (2) (4) (6) (10) (19) (18) Minority Interest & Income Tax (3) (3) (2) (4) (4) (5) (5) (5) Profit After Tax 47 48 49 47 48 67 60 66

Cash and cash equivalents 23 24 23 46 61 109 160 218 Inventories - - - - - - - - Trade receivables (current and non current) 11 14 22 22 22 22 22 22 Other current assets - - - - - - - - Development properties - - - - - - - - Investment properties 350 460 554 659 735 744 743 741 Short term investment 13 12 10 10 10 10 10 10 Long term investment 6 6 6 16 21 21 21 21 Property, plant, and equipment 2 2 2 3 4 5 6 7 Other non current assets - - - - - - - - Total Assets 406 519 617 756 852 911 962 1,019 Creditors and other credit balances 15 19 16 16 16 16 16 16 Short term borrowing 41 40 28 28 28 28 28 28 Other current liabilitiesBorrowing & long term debt 87 129 176 276 401 401 401 401 Other non current liabilities 33 68 94 94 26 26 26 26 Minority interest in subsidiaries 0 0 0 0 0 0 0 (0) Paid-up capital 70 74 85 85 85 85 85 85 Statutory and other reserves 64 76 89 89 89 89 89 89 Retained earnings 95 112 129 168 207 265 317 374 Total Equity & Liability 406 519 617 756 852 911 962 1,019

Cash Flow from Operating Activities 45 63 55 57 (10) 78 71 77 Cash Flow from Investing Activities (16) (116) (97) (125) (92) (21) (11) (11) Cash Flow from Financing Activities (18) 53 40 92 117 (8) (8) (8) Change in Cash 11 (1) (2) 23 15 48 51 57 Net Cash at End 23 24 23 46 61 109 160 218

P/E Ratio (x) 12.7 13.3 15.0 15.3 15.2 10.9 12.2 11.1 P/BV Ratio (x) 2.6 2.4 2.4 2.1 1.9 1.7 1.5 1.3 Free Cash Flow Yield (%) 4% -8% -6% -9% -13% 9% 11% 11%EV/ EBITDA 13.6 14.1 14.9 15.3 16.5 11.5 10.8 9.6

EV / Revenue 9.6 10.2 10.5 10.9 11.8 8.7 7.5 6.7

Revenue Growth (%) 64% -1% 1% 4% 3% 30% 9% 6%

EBITDA Growth (%) 64% 1% -1% 6% 3% 37% 1% 6%

Net Profit Growth (%) 44% 1% 2% -2% 1% 40% -11% 10%

Return on Average Assets 12% 10% 9% 7% 6% 8% 6% 7%Return on Average Equity 22% 19% 17% 15% 13% 16% 13% 13%Gross Profit Margin 75% 74% 73% 74% 74% 78% 72% 72%Operating Margin 63% 64% 63% 61% 60% 66% 61% 61%Net Profit Margin 55% 56% 56% 53% 51% 55% 45% 47%

Current Ratio (x) 0.5 0.5 0.9 1.4 1.7 2.8 4.0 5.3 Debt / Equity (x) 0.6 0.6 0.7 0.9 1.1 1.0 0.9 0.8 Debt / Assets (x) 0.4 0.5 0.5 0.5 0.6 0.5 0.5 0.5


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Mabanee Co.

P a g e | 26 April 2016

Disclosure The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the

relevant disclosures that apply to this particular research have been mentioned in the table below under the heading

of disclosure.

Disclosure Checklist

Company Recommendation Bloomberg Ticker Reuters Ticker Price Disclosure

Al Mabanee Co. BUY MABANEE KK MABK.KW KWD0.860 1,10

1. Global Investment House did not receive and will not receive any compensation from the company or anyone else

for the preparation of this report.

2. The company being researched holds more than 5% stake in Global Investment House.

3. Global Investment House makes a market in securities issued by this company.

4. Global Investment House acts as a corporate broker or sponsor to this company.

5. The author of or an individual who assisted in the preparation of this report (or a member of his/her household)

has a direct ownership position in securities issued by this company.

6. An employee of Global Investment House serves on the board of directors of this company.

7. Within the past year, Global Investment House has managed or co-managed a public offering for this company,

for which it received fees.

8. Global Investment House has received compensation from this company for the provision of investment banking

or financial advisory services within the past year.

9. Global Investment House expects to receive or intends to seek compensation for investment banking services

from this company in the next three month.

10. Please see special footnote below for other relevant disclosures.

Global Research: Equity Ratings Definitions

Global Rating Definition

STRONG BUY Fair value of the stock is >20% from the current market price

BUY Fair value of the stock is between +10% and +20% from the current market price

HOLD Fair value of the stock is between +10% and -10% from the current market price

SELL Fair value of the stock is < -10% from the current market price

Disclaimer This material was produced by Global Investment House KPSC (‘Global’), a firm regulated by the Central Bank of Kuwait and the Capital Markets Authority (Kuwait). This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities (‘securities’), perform services for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgment. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Global for, or sent by Global to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice. Past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such restrictions. By accepting this report you agree to be bound by the foregoing limitations.

Mabanee Co.

P a g e | 27 April 2016

Global Investment House

Website: www.globalinv.net Global Tower

Sharq, Al-Shuhada Str. Tel. + (965) 2 295 1000

P.O. Box: 28807 Safat, 13149 Kuwait

Research

Naveed Ahmed, CFA (965) 2295-1280 [email protected]

Wealth Management

Rasha Al-Qenaei (965) 2295-1380 [email protected]

Global Kuwait

Tel: (965) 2 295 1000 P.O.Box 28807 Safat, 13149 Kuwait

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Tel: (973) 17 210011 P.O.Box 855 Manama, Bahrain

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Global Egypt

Tel: (202) 24189705/06 24 Cleopatra St., Heliopolis, Cairo

Global Saudi Arabia

Tel: (966) 1 2994100 P.O. Box 66930 Riyadh 11586, Kingdom of Saudi Arabia

Global Jordan

Tel: (962) 6 5005060 P.O.Box 3268 Amman 11180, Jordan

Global Wealth Manager

E-mail: [email protected] Tel: (965) 1-804-242

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