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GCC EQUITY REPORT by nikeborome

VIEWS: 8 PAGES: 10

									                       RESEARCH                                                                                          GCC
                                                                                                                    EQUITY REPORT

Dhofar Intl Dev & Invst Holding Co. (DIDI.OM)                                                                                 NEUTRAL
                                                           Quarterly Result Update
CMP                            OMR 0.527
Target                         OMR 0.546                   •       Dhofar International Development and Investment Holding (DIDI) reported
Upside                             3.6%                            total income of OMR 11.71 million during FY 2010, up 145.7% YoY.
                                                           •       Net profit increased 103.3% to OMR 18.73 million during 2010.
                                                           •       Our FY2011E operating income now stands 45.3% higher. Accordingly, our
MSCI GCC Index                             425.24
                                                                   net profit estimate has been revised upwards by 46.0%.
MSM 30 Index                             6,292.25
                                                           •       DIDI’s stock price gained 3.5% since our last report. Accordingly, we are
                                                                   reiterating our earlier NEUTRAL recommendation with a revised target price
Key Stock Data                                                     of OMR 0.546, implying an upside of 3.6%.

Sector                             Investment               Overview
Reuters Code                          DIDI.OM
Bloomberg Code                 DIDI OM Equity                  OMR Million              2009A        2010A        2011E         2012E        2013E
Net Out. Shares (bn)                    0.200
Market Cap (OMR bn)                     0.114                  Total Income               4.77        11.71         3.48         4.67          6.00
Market Cap (USD bn)                     0.297                  YoY Change                40.1%      145.7%        -70.3%        34.3%        28.5%
Avg. 12m Vol. (mn)                      0.137                  EBITDA                     3.99        10.81         2.43         3.50          4.56
Volatility (30 day)                    55.999
                                                               YoY Change                45.1%      171.0%        -77.5%        43.9%        30.2%
Volatility (180 day)                   31.819
                                                               Net Profit                 9.29        18.72        10.55        12.93        15.60
                                                               YoY Change                41.4%      101.5%        -43.6%        22.5%        20.7%
 Stock Performance (%)                                         Adj. EPS (OMR)            0.046        0.094        0.053        0.065        0.078
 52 week high / low (OMR)           0.653 / 0.331              RoAE                      13.3%        24.1%        12.3%        14.1%        15.6%

                   1M          3M          12M             Income
Absolute (%)      -14.7       3.5          24.6
                                                           Total income for 2010 jumped 145.7% to OMR 11.71 million from OMR 4.76 million in
                                                           2009, attributable to a one-time profit on sale of investment in associates, and
Relative (%)      -6.2        10.5         32.1            marginally offset by a loss from fair value of investments. DIDI realised OMR 10.37
                                                           million profit from a 2.5% stake sale in Bank Dhofar during 3Q10. Profit reported on
                                                           sale of financial assets was OMR 0.46 million, as against a loss of OMR 1.88 million
Shareholding Pattern                         (%)           during 2009. Other income rose 11.6% to OMR 0.11 million from OMR 0.09 million.
Muscat Overseas Group                       16.52
                                                           Dividend income increased 8.9% to OMR 0.74 million. However, loss on fair value of
Abdulhafiz Salim Rajab Al Aujaili
                                                           investments stood at OMR 0.78 million against a profit of OMR 3.71 million in 2009.
                                            12.06
Public                                      71.42          Expenses
                                                           Operating expenses were up 18.8% YoY to OMR 0.97 million during 2010 from OMR
                                                           0.82 million. General and administrative expenses were up 15.5% to OMR 0.89
                                                           million, following higher directors’ remuneration and sitting fees (up 77.2%) and
                                                           miscellaneous expenses (up 1.8%). Similarly, depreciation charges increased to OMR
DIDI and MSM 30 Index                                      0.08 million from OMR 0.04 million in the year-ago period. Finance costs dropped
                                                           23.0% to OMR 1.71 million from OMR 2.22 million in 2009.

                                                           Profitability
                                                           Share of profit from associates was up 29.9% to OMR 9.71 million from OMR 7.47
                                                           million. Net profit jumped 102.6% to OMR 18.73 million during 2010 from OMR 9.24
                                                           million in the earlier year. Higher profitability is attributable to profit from sale of
                                                           investment in associates, marginally offset by a loss in change in fair value of
                                                           investments and higher general and administrative expenses. Adjusted annualised
                                                           EPS stood at OMR 0.094 in 2010, compared to OMR 0.046 in 2009.




                                                    Call us on +973 17549499 or email us at research@taib.com
                                                                                                              TAIB RESEARCH 


Peer Comparison

We have considered Oman International Development and Investment Company (OMVS) for a peer comparison of investment companies
in Oman.

                                      Financial Performance of Comparable Investment companies
                                                                    OMVS                               DIDI
 (OMR Million)                                                   2009              2010            2009               2010
 Total Operating Income                                          50.37               54             4.77              11.71
 YoY growth                                                     21.1%              7.2%           40.1%             145.5%
 Total Operating Profit                                          25.96             26.88            3.95              10.73
 YoY growth                                                      9.3%              3.5%           45.1%             171.6%
 Net Profit                                                      11.41             11.96            9.78              18.73
 YoY growth                                                     36.8%              4.8%           48.9%              91.5%
 Total Investments                                              156.49            144.59            2.40               4.42
 YoY growth                                                    104.3%              -7.6%          -36.8%             84.2%
 Total Assets                                                   885.17            981.83           99.83             108.65
 YoY growth                                                     10.6%             10.9%            -3.1%              8.8%
 Total Liabilities                                              740.34            819.21           28.01              24.81
 YoY growth                                                      9.9%             10.7%           -19.7%             -11.4%
 Shareholders' Equity                                            82.84             92.62           71.53              83.84
 YoY Growth                                                     14.2%             11.8%            5.6%              17.2%
 Cost to Income Ratio                                           43.6%             45.3%           17.2%               8.3%
 Total Investments to Assets Ratio                              17.7%             14.7%            2.4%               4.1%
 Equity to Total Assets Ratio                                    9.4%              9.4%           71.7%              76.9%
 RoAA                                                            1.4%              1.3%            9.6%              18.0%
 RoAE                                                           14.7%             13.6%           14.0%              24.1%
Source: Zawya and DIDI’s Financial Statements
                                                                                                                        TAIB RESEARCH 


Risks and Concerns to Valuation:

           Tight liquidity conditions could affect infrastructure expansion plans, thereby affecting the company’s real estate
           investments and calling for a revision of our estimates and ratings.
           In a recovering financial market, exposure to investments in securities and financial instruments could pose liquidity risks.

Valuation Methodology:

We have used two valuation methods for arriving at DIDI’s fair value, as explained below:

      I.   Target P/BV approach based on the Gordon Growth Model (GGM), and
     II.   Comparative P/BV method.

Target P/BV Multiple Approach using the Gordon Growth Model (GGM)

The model uses sustainable return on average equity (RoAE), cost of equity (Ke) and expected growth in earnings (g) to arrive at the
target P/BV for the company using the formula:

                                                  Target P/BV = (RoAE - g) / (Ke - g)

Subsequently, we multiplied the target P/BV multiple for 2011E with the 2011E BVPS to arrive at the company’s fair value over a
medium-term investment horizon.

We have used the following assumptions to arrive at the target P/BV multiple for 2011:

    i.     Sustainable RoAE has been taken as the 5-year average of the RoAE over 2011E-2015E.
   ii.     The cost of equity (Ke) has been calculated as 10.71% using the Capital Asset Pricing Model (CAPM).
  iii.     The terminal growth rate (g) has been taken as 2.00%.



                                                         GGM Valuation Summary
                                   Sustainable RoAE                                          15.41%
                                   Cost of Equity (Ke)                                       10.71%
                                   Perpetual Growth Rate                                      2.00%
                                   Target P/BV Multiple for 2011E (x)                           1.54
                                   2011E BVPS (OMR)                                           0.418
                                   Fair Value per Share using Target P/BV (OMR)               0.643
                                   CMP (OMR)                                                  0.527
                                   Upside/(-)Downside                                         22.1%
                                                                                                                           TAIB RESEARCH 


Sensitivity Analysis

The following tables present a sensitivity analysis for the estimated fair value per share based on various terminal growth rate, cost of
equity and RoAE scenarios. The shaded area represents the most probable outcomes.

                                                        Sensitivity Analysis - GGM (Ke vs. g)
                                                                          Terminal Growth Rate (g)
                       Cost of Equity        1.00%               1.50%             2.00%              2.50%            3.00%
                           8.71%              0.781              0.806             0.835              0.869            0.908
                           9.71%              0.691              0.708             0.727              0.748            0.773
                           10.71%             0.620              0.631             0.643              0.657            0.673
                           11.71%             0.562              0.569             0.577              0.586            0.595
                           12.71%             0.514              0.518             0.523              0.528            0.534

                                                      Sensitivity Analysis - GGM (Ke vs. RoAE)
                                                                    Return on Average Equity (RoAE)
                       Cost of Equity        13.41%              14.41%           15.41%             16.41%            17.41%
                           8.71%              0.711              0.773             0.835              0.897            0.960
                           9.71%              0.618              0.673             0.727              0.781            0.835
                           10.71%             0.547              0.595             0.643              0.691            0.739
                           11.71%             0.491              0.534             0.577              0.620            0.663
                           12.71%             0.445              0.484             0.523              0.562            0.601

                                                      Sensitivity Analysis - GGM (RoAE vs. g)
                         Return on                                        Terminal Growth Rate (g)
                       Average Equity        1.00%               1.50%             2.00%              2.50%            3.00%
                           13.41%             0.534              0.540             0.547              0.555            0.564
                           14.41%             0.577              0.586             0.595              0.606            0.618
                           15.41%             0.620              0.631             0.643              0.657            0.673
                           16.41%             0.663              0.676             0.691              0.708            0.727
                           17.41%             0.706              0.722             0.739              0.759            0.781


 Comparative P/BV Multiple Based Valuation

                                               P/BV Multiple Based Valuation Summary
                                               DIDI's 2011E BVPS (OMR)                               0.440
                                               Target P/BV (x)                                        1.02
                                               Fair Value per Share using Target P/BV                0.448
                                               CMP (OMR)                                             0.527
                                               Upside/(Downside)                                  -15.0%


                                                           Outstanding                        Market
                                                             Shares            CMP#        Capitalisation     BVPS
                      Companies                             (Million)          (USD)       (USD Million)      (USD)       P/BV
                      DIDI                                          200          1.488               297.55     1.06            1.40
                      Ominvest                                      230          1.206               277.46     1.05            1.15
                      ONIC Holding                                  165          0.808               133.41     0.81            1.00
                      Tamdeem                                       312          0.606               188.93     1.18            0.52
                      Average P/BV                                                                                              1.02
                      Sources: Zawya and Companies’ Financial Statements
                      # CMP as on March 08, 2011
                                                                                                                       TAIB RESEARCH 


 Weighted Average Fair Value

  Applying equal weights (GGM – 50% and comparable P/BV – 50%), we arrived at a final fair value or target price of OMR 0.546,
  which implies an upside of 3.6% over the current market price of OMR 0.527 (as on March 08, 2011).

                                                          Weighted Average Fair Value
                                                                          Fair Value per                 Weighted Value
                        Valuation Method                                  Share (OMR)      Weightage     per Share (OMR)
                        Comparable P/BV Multiple Method                       0.448          50%              0.224
                        GGM Method                                            0.643          50%              0.322
                        Target Price                                                                          0.546
                        CMP (OMR)                                                                             0.527
                        Upside/(-)Downside                                                                     3.6%




Investment Opinion

Oman’s economy registered impressive growth during the few years before the economic crisis, owing to the spurt in oil prices.
However, the global financial turmoil and declining oil prices affected economic growth during the later part of 2008 and early 2009.
Consequently, investment as well as infrastructure growth slowed down. Moreover, the global credit crunch, capital market crash, a
steep correction in crude prices, and the economic slowdown affected bottom-lines and balance sheets of investment companies.
The Omani government remains focused on stimulating growth through various fiscal measures. The Central Bank of Oman reduced
the reserve requirement ratio for banks, increased the lending ratio, and allocated funds to boost liquidity in the market. Further, the
long-term drivers look intact with an estimated USD 94billion investment in several projects. Subsequently, Oman‘s economy grew
4.1% during 2010. With robust crude oil prices, the government is planning to boost spending by 11% in 2011 to push ahead with its
infrastructure and development projects. Given the overall favourable outlook, Oman’s economy is likely to grow by 5% during the
year 2011.

DIDI has multi-sector investments across financial services, insurance, education, and tourism. The company is focused on
increasing its investments, which augurs well for long-term growth. During September, the company sold a 2.5% (20.3 million
shares) stake in Bank Dhofar priced at OMR 0.75 per share and realised around OMR 15.20 million. The stake sale improved DIDI’s
balance sheet taking the book value per share to OMR 0.407 from OMR 0.418 in 2009. The proceeds were used to reduce
borrowings and increase investments in other emerging sectors. Furthermore, the government’s initiatives are expected to provide
substantial support to the investment sector. DIDI’s thrust on growth by expanding its investment horizon is likely to improve earning
opportunities in the upcoming years.

We had initiated DIDI on December 07, 2010 with a NEUTRAL recommendation (target price of OMR 0.537 with a 5.6% upside).
Currently, DIDI’s stock is trading at a P/E multiple of 9.99x and 8.15x on 2011E and 2012E earnings, and at a P/B multiple of 1.20x
and 1.11x on 2011E and 2012E BVPS, respectively. Meanwhile, the stock has gained 3.5% since our last update. Considering the
above factors, we have arrived at a target price of OMR 0.546, representing an upside of 3.6% over the current price of OMR 0.527
(as of March 08, 2011). Accordingly, we are reiterating our NEUTRAL rating on Dhofar International Development &
Investment Holding Company.
                                                                                                      TAIB RESEARCH 


Financial Statements

                                                          Consolidated Income Statement
(OMR Million)                                                    2009A          2010A     2011E    2012E      2013E
Dividend income                                                    0.68           0.74     1.03     1.37        1.78
(Loss) profit on sale of financial assets                         -1.88           0.46     0.84     1.28        1.69
(Loss) profit on sale of available for sale investments           -0.03           0.81     1.48     1.88        2.38
Profit on sale of investment in associate                          2.19          10.38     0.00     0.00        0.00
Change in fair value of investments                                3.71          -0.79     0.00     0.00        0.00
Other income                                                       0.10           0.11     0.12     0.14        0.15


Operating Income of the group                                      4.77          11.71     3.48     4.67        6.00


General and administrative expenses                               -0.77          -0.89     -1.04    -1.17      -1.44
Depreciation                                                      -0.05          -0.08     -0.08    -0.08      -0.09


Total operating expenses                                          -0.82          -0.97     -1.12    -1.25      -1.53


Profit before finance income and cost and share of
profit of associates                                               3.95          10.74     2.35     3.42        4.47


Finance income                                                     0.05           0.00     0.00     0.00        0.00
Finance cost                                                      -2.23          -1.72     -2.56    -3.32      -4.01
Share of profit of associates                                      7.48           9.71    10.77    12.83       15.15


Profit before impairment charges                                   9.24          18.73    10.56    12.94       15.61


Impairment in value of investment in an associate                 -0.03           0.00     0.00     0.00        0.00


Net Profit                                                         9.21          18.73    10.56    12.94       15.61


Attributable to:
Equity holders of the company                                      9.29          18.72    10.55    12.93       15.60
Minority interest                                                 -0.07           0.01     0.01     0.01        0.01
                                                                                              TAIB RESEARCH 



                                                   Consolidated Balance Sheet
(OMR Million)                                           2009A          2010A    2011E    2012E       2013E
Assets
Cash and bank balances                                   0.10            0.03     0.50     0.91        1.80
Receivables and prepayments                              0.38            0.44     0.76     1.04        1.35
Financial assets                                         2.40            4.42     6.70     8.83       10.66
Available-for-sale financial assets                     20.27           22.57    24.81    27.78       31.65
Investments in associates                               75.43           76.00    87.51    99.90      113.03
Property and equipment                                   1.23            1.20     1.20     1.24        1.32
Total assets                                            99.83          108.65   125.50   143.69      163.81


Liabilities
Other liabilities                                        0.54            0.49     0.57     0.65        0.74
Loans and borrowings                                    27.47           24.32    36.53    47.71       58.12
Total liabilities                                       28.01           24.81    37.09    48.35       58.86


Equity
Share capital                                           20.00           20.00    20.00    20.00       20.00
Share premium                                            1.86            1.86     1.86     1.86        1.86
Legal reserves                                           6.67            6.67     6.67     6.67        6.67
General reserve                                          4.01            4.95     5.48     6.12        6.90
Investments revaluation reserve                          8.15            8.74     8.74     8.74        8.74
Property revaluation reserve                             1.47            0.00     0.00     0.00        0.00
Retained earnings                                       29.38           41.33    45.36    51.64       60.46


Equity attributable to the equity holders of the
Parent Company                                          71.53           83.55    88.10    95.03      104.63
Minority Interest                                        0.28            0.29     0.30     0.31        0.32
Total Equity                                            71.81           83.84    88.40    95.34      104.95


Total Liabilities and Equity                            99.83          108.65   125.50   143.69      163.81
                                                                                                        TAIB RESEARCH 



                                                           Consolidated Cash Flow Statement
(OMR Million)                                                          2009A          2010A    2011E    2012E    2013E
Cash Flows From Operating Activities                                     4.03          3.73     4.56     6.44      8.45


Investing Activities
Net proceedings from (purchase)/sale of property and
equipment                                                               -0.12          -0.05    -0.08    -0.12     -0.16
Net realisation of available-for-sale financial assets                   0.32          -0.77    -0.76    -1.08     -1.49
Net proceedings from (purchase)/sale of financial assets                 3.23          -6.34    -1.44    -0.85     -0.14
Sale / additions in associates                                           3.78         14.20     -5.46    -5.84     -6.17
Interest paid                                                           -2.21          -1.69    -2.56    -3.32     -4.01
Interest received                                                        0.05          0.00     0.00     0.00      0.00
Net cash used in investing activities                                    5.04          5.34    -10.30   -11.21    -11.98


Financing Activities
Net changes in loans and borrowings                                     -7.03          -3.15   12.20    11.18     10.41
Dividend paid                                                           -2.00          -6.00    -6.00    -6.00     -6.00
Net cash (used in) from financing activities                            -9.03          -9.15    6.20     5.18      4.41


(Decrease)/Increase In Cash and Cash Equivalents
Cash and cash equivalents at the start of the period                     0.05          -0.08    0.47     0.41      0.89
Cash and cash equivalents at the end of the period                       0.10          0.03     0.50     0.91      1.80
                                                                               TAIB RESEARCH 


Financial Ratios

                                             2009A    2010A    2011E   2012E        2013E
 Profitability
 Return on Average Assets                     9.2%   18.0%     9.0%     9.6%       10.1%
 Return on Average Equity                    13.3%   24.1%    12.3%    14.1%       15.6%

 Margins
 Cost to Income Ratio                        17.2%    8.3%    32.3%    26.8%       25.4%

 Capital Adequacy
 Shareholders' Equity to Total Assets        71.7%   76.9%    70.2%    66.1%       63.9%
 Total Debt to Shareholder's Equity          38.4%   29.1%    41.5%    50.2%       55.5%
 Total Liabilities to Shareholder's Equity   39.2%   29.7%    42.1%    50.9%       56.3%

 Operating Performance
 YoY Change in Total Income                  40.1%   145.7%   -70.3%   34.3%       28.5%
 YoY Change in Operating Income              45.1%   172.1%   -78.1%   45.3%       30.8%
 YoY Change in Net Profit                    41.4%   101.5%   -43.6%   22.5%       20.7%
 YoY Change in Total Assets                  -3.1%     8.8%    15.5%   14.5%       14.0%
 YoY Change n Shareholders' Equity            5.6%    16.8%     5.4%    7.9%       10.1%

 Valuation Ratios
 Adj. EPS (OMR)                              0.046    0.094    0.053   0.065        0.078
 Adj. BVPS (OMR)                             0.358    0.418    0.440   0.475        0.523
 P/E (x)                                     11.35     5.63     9.99    8.15         6.76
 P/BV (x)                                     1.47     1.26     1.20    1.11         1.01
  CMP** (OMR)                                0.527    0.527    0.527   0.527        0.527
** CMP as on March 08, 2011
                                                                                                                            TAIB RESEARCH 




TAIB Securities WLL                                                                                                    Tel: +973 17549499
TAIB Tower, Diplomatic Area                                                                                             Fax: +973 17916035
Post Box 20485, Manama, Kingdom of Bahrain                                                             research@taib.com; www.taibdirect.com

DISCLAIMER:
All reasonable care has been taken to ensure that the information contained herein is not misleading or untrue at the time of publication,
but we make no representation as to its accuracy or completeness. All information is for the private use of the person to whom it is provided
without any liability whatsoever on the part of TAIB Securities WLL, any associated company or the employees thereof. Nothing contained
herein should be construed as an offer to buy or sell or a solicitation of an offer to buy or sell. The value of any investment may fall as well
as rise. Past performance is no guide to the future. The rate of exchange between currencies may cause the value of the investment to
increase or diminish. Consequently, investors may not get back the full value of their original investment

								
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