Zain (Mobile Telecommunication Company) · Zain Saudi tower sale will act as a catalyst for Zain Group as it will give Zain Saudi space to focus on the operational side of the business

Global Research Investment Update Equity – Kuwait Telecom Sector 28 March, 2016

Zain (Mobile Telecommunication Company)

P a g e | 1 March - 2016

Data revenue in Sudan and Iraq to provide growth

8.6% dividend yield; P/E discount of 26%

Re-initiation of coverage with a BUY

We believe Zain’s stock price, which declined by 24% in the

past 12 months, has priced in the deteriorating fundamentals

and is now at attractive levels. The stock is trading at 2016e P/E of

8.6x which is at a 26% discount to GCC peers average P/E of 11.7x.

The company is expected to pay a DPS of 30fils in 2016 which

translates into a dividend yield of 8.6%. (One of the highest amongst

the GCC peers). We expect 2016e-20e earnings CAGR of 4% driven

by reduction in Zain Saudi losses, growth in Sudan operations and

turnaround in Iraqi operations.

We expect Sudan operations to be the main driver of top-line

and EBITDA growth for the company. The growth in Sudan is

being driven by data revenues which increased by 91.0%YoY in

2015. The mobile penetration rate is still very low at 56.0% while

data revenues formed only 11.0% of total revenues reflecting the

potential for growth. However, further devaluation of the Sudanese

Pound remains a major risk.

Iraq is a vital cog in Zain Group’s financial and stock price

performance as it accounts for 32.2% of revenue and 28.6% of

EBITDA. This is where we believe the high risk/reward factor comes

in. We have taken a conservative view on Iraq due to the fluid

situation there both on the security and economic front. However,

quicker than expected turnaround in Iraq will lead to higher than

expected earnings growth and consequently increase in valuation.

Zain Saudi tower sale will act as a catalyst for Zain Group as it

will give Zain Saudi space to focus on the operational side of

the business by reducing its debt. Improvement in cash flow will

also allow Zain Saudi to further capture market share ceded by

Mobily as the latter grapples with its internal issues. Zain Saudi is

currently in the process of choosing from the short-listed bidders.

Zain expects to raise USD500-600mn from the tower sale in Saudi.

Market Data Bloomberg Code ZAIN KK

Reuters Code ZAIN.KW

CMP (27 March 2016) KWD0.35

O/S (mn) 3,881.8

Market Cap (KWD mn) 1,514

Market Cap (USD mn) 5,058

52 Week High (KWD) 0.50

52 Week Low (KWD) 0.32

3m ADVT (USD mn) 2.1

Price Performance

1m 3m 12m

Absolute (%) -2.8 1.5 -23.9

Relative (%) -2.3 8.0 -7.9

Price Volume Performance

Source: Zawya

Umar Faruqui, CFA, ACCA Manager [email protected] Tel.: (965) 22951438 www.globalinv.net

Investment Indicators

2014 2015 2016e 2017e 2018e

Revenue 1,213 1,138 1,127 1,163 1,194

EBITDA 507 499 496 501 504

EBITDA margin 41.8% 43.8% 44.0% 43.1% 42.2%

Net Profit 194 154 158 165 170

EPS (fils) 50 40 41 43 44

Dividend Yield 8.0% 8.6% 8.6% 8.6% 8.6%

P/E (x) 10.0 8.8 8.6 8.2 8.0

EV/EBITDA (x) 5.5 4.6 4.5 4.2 3.8

Source: Company financials & Global Research

BUY

TP KWD0.405

+16%

0.20

0.25

0.30

0.35

0.40

0.45

0.50

0.55

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4,000

6,000

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Volume ('000) Zain (KWD)

Global Research - Kuwait

P a g e | 2 March - 2016

Valuation Methodology

We have calculated the Target Price of Zain of KWD 0.405 by using a blend of two methods:

1. We have used the discounted cash flow (DCF)-based sum-of-the-parts (SOTP)

methodology and given it a weight of 80.0%. The TP based on the SOTP DCF

method is KWD 0.386/share.

2. We have used the relative valuation method based on P/E and given it a weight of

20.0%. The 2016e average P/E of GCC telecom operators is 11.7x. Applying this

multiple to 2016 earnings, the Target Price of Zain comes at KWD 0.480/share.

Cost of Equity

We have derived COE of 12.3% for Kuwait operations using the Buildup Method and which

is the summation of the following:

1. US 10 Year Treasury Yield currently taken as 1.84%

2. US Risk Premium currently taken as 7.92%

3. Kuwait risk premium over US Risk Premium as 1.5%

4. Company specific premium or discount of 1.0%

WACC and Terminal Growth

We have used a WACC of 11.0% for Kuwait. For other operations we have used a different

WACC based on their perceived riskiness. The WACC ranges from 20.0% for Iraq and

Sudan to 14.0% for Jordan. We have taken a high WACC for Iraq and Sudan to account for

political and regulatory risk. Meanwhile, we have taken a terminal growth rate of 2.0% across

all the operations.

For the Saudi operations, we have used the Zain Group’s share of Zain Saudi’s current

market cap for valuation purposes.

Country Operations WACC Holding Proportionate EV

(KWD mn)

% of EV

Jordan 14% 97% 284 13%

Kuwait 11% 100% 1,047 47%

Iraq 20% 76% 299 13%

Sudan 20% 100% 245 11%

Saudi Arabia 37% 148 7%

Others 195 9%

Total EV 2,221

Net Debt- Adjusted for 2015 dividends (722)

Total Equity Value 1,500

Number of shares outstanding (in mn) 3,882

Estimated Fair Value/Share (KWD) 0.386

Source: Global Research

Valuation risks

(i) Imposition of corporate tax in Kuwait (ii) Further devaluation of currency in Sudan. (iii)

Further deterioration of security in Iraq (iv) Inability to repatriate money from overseas

operations. (v) Higher/lower than expected competition in Kuwait.


P a g e | 3 March - 2016

GCC and Emerging Market Comparables

Source: Bloomberg & Global Research

Company Country Bloomberg Mkt Cap

Ticker USD mn 2016e 2017e 2016e 2017e 2016e 2017e 12M 2016YTD

VIVA Kuwait VIVA KK 1,651 11.6 11.6 5.2% 5.2% 4.0 3.9 17.9% 0.0%

ZAIN Kuwait Zain KK 5,058 8.6 8.2 8.6% 8.6% 4.5 4.2 -23.9% 0.0%

STC Saudi STC AB 35,733 10.6 10.3 6.4% 6.4% 5.9 5.6 5.8% -8.7%

OOREDOO KUWAIT Kuwait OOREDOO KK 1,852 10.6 9.8 9.1% 9.1% 2.9 2.5 -19.9% 0.0%

OOREDOO Qatar ORDS QD 7,626 11.5 10.0 3.5% 3.5% 4.6 4.2 -12.3% 15.9%

ETISALAT UAE ETISALAT UH 42,625 17.0 16.3 4.7% 4.9% 5.9 5.6 70.4% 11.8%

OMANTEL Oman OTEL OM 3,000 9.7 9.9 7.8% 7.8% 4.7 4.6 -3.6% -1.6%

OOREDOO OMAN Oman ORDS OM 1,265 10.7 10.2 5.6% 6.0% 4.1 4.0 12.7% 5.6%

DU UAE DU DB 7,878 15.7 15.0 5.5% 5.8% 4.7 4.5 35.0% 24.1%

BATELCO Bahrain BATELCO BI 1,376 10.9 10.2 8.2% 8.2% 4.3 4.3 2.0% -2.5%

GCC Telcos Average 11.7 11.2 6.5% 6.5% 4.6 4.4

GCC Telcos Median 10.8 10.2 6.0% 6.2% 4.6 4.3

CHINA MOBILE Hong Kong 941 HK 219,846 12.6 11.6 3.4% 3.8% 4.0 3.7 -14.1% -4.8%

AMERICA MOVIL Mexico AMXL MM 50,280 12.3 11.6 2.2% 2.7% 5.6 5.6 -6.0% 10.7%

CHINA TELECOM China 728 HK 41,101 13.7 12.2 2.6% 2.8% 3.6 3.4 -16.8% 8.2%

CHINA UNICOM Hong Kong 762 HK 30,867 20.5 16.4 1.9% 2.3% 3.5 3.3 -11.6% 5.8%

TELEKOMUNIKASI Indonesia TLKM IJ 25,242 18.2 16.2 3.5% 4.0% 6.4 5.8 22.1% 7.1%

CHUNGHWA TELECOM Taiwan 2412 TT 26,343 20.2 19.7 4.7% 4.8% 10.3 9.6 16.7% 11.5%

BHARTI AIRTEL India BHARTI IN 21,417 26.5 23.7 0.8% 0.9% 6.0 5.5 -4.3% 5.2%

MTN GROUP LTD South Africa MTN SJ 15,216 9.5 9.3 7.3% 8.6% 4.3 4.2 -31.2% -4.1%

TELEFONICA BRASIL Brazil VIVT4 BZ 19,283 15.3 13.8 5.5% 6.2% 5.6 5.2 -5.1% 22.8%

VODACOM GROUP South Africa VOD SJ 14,915 17.1 15.5 5.2% 5.8% 8.4 7.7 24.9% 1.7%

SK TELECOM South Korea 017670 KS 14,335 10.4 9.9 4.9% 4.9% 4.5 4.4 -22.6% -3.7%

ADVANCED INFO Thailand ADVANC TB 15,310 17.0 15.1 5.9% 6.5% 9.8 8.6 -19.7% 20.7%

AXIATA GROUP Malaysia AXIATA MK 12,857 20.4 18.3 4.0% 4.4% 8.0 7.3 -13.8% -8.4%

TAIWAN MOBILE CO Taiwan 3045 TT 10,986 18.7 17.5 5.2% 5.3% 12.3 11.7 0.2% 4.5%

PHILIPP LONG DIS Distance TEL Philippines TEL PM 9,205 14.3 14.5 5.7% 5.3% 7.5 7.3 -25.9% -4.0%

TURKCELL Turkey TCELL TI 9,027 11.8 10.9 4.6% 4.5% 6.1 5.5 1.5% 19.2%

FAR EASTONE TELE Taiwan 4904 TT 7,230 19.6 18.2 5.2% 5.4% 9.2 8.7 0.9% 6.8%

TURK TELEKOMUNIKASYON Turkey TTKOM TI 8,142 12.0 10.6 7.0% 8.4% 5.8 5.5 2.6% 22.5%

MOBILE TELESYSTEMS Russia MTSS RX 7,152 8.5 8.0 10.2% 10.4% 4.3 4.2 8.7% 12.6%

KT CORP South Korea 030200 KS 6,579 11.5 10.6 2.5% 3.2% 3.1 3.1 1.8% 4.2%

IDEA CELLULAR India IDEA IN 5,652 12.4 20.1 0.7% 0.8% 6.0 5.4 -38.8% -26.9%

GLOBE TELECOM Phillipines GLO PM 6,022 16.1 15.7 4.5% 4.8% 6.8 6.5 9.3% 13.7%

HELLENIC TELECOM Greece HTO GA 4,242 12.7 11.5 2.4% 3.5% 3.8 3.7 -10.0% -16.1%

LG UPLUS CORP South Korea 032640 KS 3,978 11.6 10.3 2.7% 2.9% 3.8 3.6 -3.0% 2.4%

ROSTELECOM Russia RTKM RX 3,591 14.3 10.9 5.3% 6.1% 4.2 4.0 26.1% 5.2%

TELKOM SA South Africa TKG SJ 1,897 9.9 8.7 5.0% 5.8% 3.5 3.2 -25.5% -13.5%

MAYGAR TELEKOM Hungary MTELEKOM HB 1,630 14.8 14.1 5.3% 6.3% 4.4 4.4 5.3% 8.1%

GLOBAL TELECOM Egypt GTHE EY 1,625 25.8 8.9 2.3% 2.3% 2.6 2.5 -15.4% 32.2%

ORASCOM TELECOM Egypt OTMT EY 449 8.7 8.4 0.0% 0.0% 2.2 1.8 -32.7% 7.0%

EM Telcos Average 15.1 13.5 4.2% 4.6% 5.7 5.4

EM Telcos Median 14.3 12.2 4.6% 4.8% 5.6 5.2

P/E Div yield EV/EBITDA Stock Price Perf.


P a g e | 4 March - 2016

Overview of Major Operations

Kuwait, Iraq and Sudan account for bulk of the revenues

Aggregate of Kuwait, Iraq and Sudan operations accounted for 79.6% and 79.0% of Zain

Group’s Revenue and EBITDA respectively in 2015. Iraq alone accounts for 32.2% of Zain’s

revenue and 28.6% of its EBITDA thus making it a vital cog in Zain’s financial and stock

price performance. This is where we believe the high risk/reward factor comes in. We have

taken a conservative view on Iraq due to the fluid situation there both on the security and

economic front. However, quicker than expected turnaround in Iraq will lead to higher than

expected earnings growth and consequently increase in valuation.

Kuwait accounted for 28.4% of revenue in 2015 while it contributed 31.7% to EBITDA. This

reflects higher EBITDA margins in Kuwait due to higher ARPUs and higher contribution from

high-margin data revenues. Meanwhile, Sudan contributed 19.0% to total revenues and

18.7% to total EBITDA in 2015. We expect contribution from Sudan will increase in both the

top-line and the bottom-line due to the expected growth.

Revenue Contribution 2015 EBITDA Contribution 2015


Sudan and Iraq are under-penetrated markets

Sudan and Iraq are under-penetrated markets both in terms of mobile penetration and data

usage. Mobile penetration is 81.0% in Iraq and even lower at 56.0% in Sudan. This is in

sharp contrast to the GCC countries where mobile penetration rate is over 150%. Even in

Jordan, which is a middle-income country, the mobile penetration rate is 132.0% indicating

the growth potential in Sudan and Iraq.

Meanwhile, the data segment which has fueled growth in the GCC telecom sector in the past

few years is yet to take-off in Sudan and Iraq as indicated by contribution of only 11.0% and

7.0% to total their revenues respectively in 2015. The reasons for low contribution till now

include affordability of handsets, quality of network, late introduction of 3G services along

with the security and economic situation. However, we believe these services will lead the

growth in these countries as network rollout continues and smartphones become more

affordable. 4G license is likely to be granted in Sudan in 2015 and it will provide further boost

to data take-up.

Kuwait, 28.4%

Sudan, 19.0%

Iraq, 32.2%

Others, 20.4%

Kuwait, 31.7%

Sudan, 18.7%

Iraq, 28.6%

Others, 21.0%


P a g e | 5 March - 2016

Zain: Data revenue as % of total revenue Mobile penetration rates

Source: Zain Investor Presentations & Global Research

Iraq: We foresee a recovery in 2017 after a subdued 2016

Although, it’s difficult to make a call on Iraq, we believe, the worst might be over on the

security front judging by the news reports. However, imposition of 20.0% VAT tax on mobile

services will hold back growth in 2016. The tax on mobile services was imposed in August

2015 and the 4Q15 (first full quarter of VAT tax) revenue declined by 14.0%YoY. We expect

a further decline in revenues by 5.6% in 2016 (19.5% decline in 2015) as the imposition of

VAT across a wide variety of sectors impacts consumer spending. In the 4Q15 conference

call, the management stated that the company has been able to pass on half of the tax to the

subscribers.

However, we expect a recovery from 2017 onwards as data usage picks up and suspended

or damaged mobile towers start operating again. Competition also eased in 2H15 as

operators realized that the tariffs were unjustifiably low and we might see data prices

adjusting upwards going forward. In addition, oil prices are also expected to recover in 2017

which will positively impact consumer spending through increased government spending.

We expect 2017e-2020e revenue and EBITDA growth to be 6.3% and 4.1% respectively.

Kuwait: Intense competition to keep a lid on growth

We expect revenue from Kuwait operations to decline at a 2016e-20e CAGR of 1.1%. With a

high mobile penetration rate of 215% and data revenues already contributing 36.0% to total

revenues, all the three operators are fighting for existing subscribers. VIVA has kept the

pressure on by offering attractive data packages while Ooredoo Kuwait has followed suit

recently with attractive offers of its own.

We expect ARPU for Zain Kuwait to decline to KWD8.7 by 2020e compared to KWD9.6 in

2015. Consequently, we expect EBITDA margins to decline to 47.0% by 2020e compared to

48.9% in 2015. Prices for data only packages in Kuwait are one of the lowest in the region

and the management sees little possibility of an upward adjustment as has been seen in

Saudi Arabia.

0.0%

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P a g e | 6 March - 2016

Revenue from major operations (KWDmn)


Sudan: Introduction of 4G services to facilitate further growth

We expect revenues from Sudan operations to grow at a 2016e-20e CAGR of 4.2% while we

expect EBITDA to grow at a CAGR of 2.6%. Revenue and EBITDA will be driven by growth

in data revenue, which grew strongly by 91.0% YoY in 2015. With data as % of revenue

forming only 11.0% of total revenue, the potential for growth is significant. In addition, 4G

license will also be issued in 2016 which will facilitate further growth in data services.

However, currency devaluation and high inflation remains a risk in Sudan. The company is

hedging for high inflation by investing (USD140mn in 2015) in real estate in Sudan. There is

a restriction on repatriation of money from Sudan and therefore the company is forced to

invest domestically.

EBITDA of major operations (KWDmn)


Kuwait

Sudan

Iraq

150

250

350

450

550

2013 2014 2015 2016e 2017e 2018e

Kuwait Sudan Iraq

Kuwait

Sudan

Iraq

0

50

100

150

200

250

2013 2014 2015 2016e 2017e 2018e

Kuwait Sudan Iraq


P a g e | 7 March - 2016

Zain Group Financials

Revenue to witness modest growth from 2017

Zain consolidated revenues have declined on a YoY basis for the past five years (2011-15)

affected by currency devaluation in Sudan, security situation in Iraq and intense competition

in Kuwait. We expect Zain’s revenues to decline further by 0.9%YoY in 2016 as revenue

growth in Sudan operations will be offset by decline in Iraq and Kuwait operations. However,

we expect revenues to grow at 2017-20e CAGR of 2.8% as we expect Iraq operations to

turn around from 2017.

Zain group consolidated revenue (KWDmn)


We foresee gradual decline in EBITDA margins

We expect EBITDA to decline by 0.4% to KWD496mn in 2016 after a decline of 1.6%YoY in

2015. Beyond 2016, we expect EBITDA to grow at a CAGR of 0.9%. We are assuming a

gradual decline in EBITDA margin across all the major operations during our forecast period.

We expect Group EBITDA margin to fall to 41.4% by 2020 from 43.8% in 2015.

EBITDA (KWDmn) and EBITDA margin


-3.3% -2.2%

-6.2%

-0.9%

3.2% 2.6%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

800

1,000

1,200

1,400

2013 2014 2015 2016e 2017e 2018e

Total Growth

43.4%

41.8%

43.8%

44.0%

43.1% 42.2%

40.0%

42.0%

44.0%

46.0%

450

500

550

2013 2014 2015 2016e 2017e 2018e

EBITDA EBITDA Margin


P a g e | 8 March - 2016

Capex to come down but still remain high

We expect Zain group’s capex/revenue ratio to decline to 16.2% in 2016e compared to

21.0% of revenue in 2015. The capex/revenue was high in 2015 due to high Capex in Sudan

(33.0% of revenue) pertaining to additional costs associated with change of service provider.

In 2016, we expect capex/revenue from Sudan operations to come down to 24.0% of

revenue. According to the management in the conference call, 4G license cost in Sudan will

be around USD5-10mn which is immaterial in the context of the overall capital spending.

Capex (KWDmn) and capex/revenue

Source: Company financials, Investor Presentation & Global Research

The management has given a capex guidance of 15.0% for the group for the next two years.

The high capex is due to the expected investment in VOLTE technology in Kuwait. For

Kuwaiti operations, we expect the capex/revenue to increase to 16.0% in 2016 from 14.0%

in 2015. Meanwhile, in Iraq, the capex is expected to stay at elevated levels of around 15.0%

of revenues as Zain continues with the roll-out of the 3G services.

EBIT to remain flat

We expect EBIT (excluding income from associates and joint ventures) to decline by 3.7% in

2016e due to decline in EBITDA and increase in depreciation and amortization due to high

capex incurred in 2015. Thereafter, we expect EBIT to remain more or less flat during

2017e-20e.

Reduction in Zain Saudi net losses to prop up net profit

We expect net profit to increase by 2.1% in 2016 which is lower than the management

guidance of 5-7% growth for 2016.

After 2016, we expect net profit to grow at a 2017e-20e CAGR of 4.4% driven by reduction in

losses in Zain Saudi. Zain group holds a 37% stake in Zain Saudi and treats it as an

associate. The share of losses was KWD28.8mn in 2015 (loss reduction of 19.1%YoY)

which we expect to come down to KWD20.4 and KWD14.5mn in 2016e and 2017e

respectively. Zain Saudi has capitalized on the internal issues faced by Mobily and increased

its market share. In addition, possible tower sale and consequent reduction in debt will allow

Zain Saudi to further focus on operational issues. However, net profit may remain volatile

due to forex volatility.

17.0% 21%

16.2%

14.6% 13.2%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0

50

100

150

200

250

2014 2015 2016e 2017e 2018e

Capex Capex/revenue


P a g e | 9 March - 2016

Net Profit (KWDmn)


Remote chances of further dividend cuts during the forecast period

Zain cut the dividends to 30fils (payout of 75.5%) in 2015 compared to 40fils in 2014 and

50fils in 2013. The dividend cut didn’t come as a surprise to us as the average payout ratio

(dividend/net profit) was around 80.0% over the past five years. We believe the company will

pay 30fils in 2016 based on our net profit estimate.

If we look at the FCFE, the company will likely be able to sustain a dividend level of 30fils

during the forecast period comfortably. The FCFE/dividend ratio is between 50-60% which

gives the company enough cushion even if debt payments are accelerated. However, one

risk is the mobility of money due to repatriation and other restrictions.

DPS (fils) and Dividend payout (Dividends/Net profit)


-10.2%

-20.6%

2.1%

4.7% 3.3%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

0

50

100

150

200

250

2014 2015 2016e 2017e 2018e

Net Profit Growth

89.7%

79.9%

75.5% 73.9% 70.6%

68.3%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0

10

20

30

40

50

60

2013 2014 2015 2016e 2017e 2018e

DPS DPO


P a g e | 10 March - 2016

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

Revenue 1,240 1,213 1,138 1,127 1,163 1,194 1,228

Revenue Growth -3.3% -2.2% -6.2% -0.9% 3.2% 2.6% 2.8%

EBITDA 538 507 499 496 501 504 509

EBITDA growth -5.8% -5.8% -1.6% -0.4% 1.0% 0.5% 1.2%

Depreciation and amortization (195) (172) (213) (221) (229) (235) (240)

EBIT 343 335 286 275 272 269 270

Financial Charges (24) (26) (29) (33) (29) (27) (24)

Other income (49) (64) (55) (38) (29) (20) (12)

Profit Before Taxation 270 245 202 205 214 221 234

Taxation (26) (30) (35) (34) (36) (37) (39)

Net Profit for the year 244 214 166 170 178 184 194

Profit / (loss) from discontinued operations - - - - - - -

Non-controlling interest (27) (20) (12) (13) (13) (14) (14)

Profit attributable to equity holders 216 194 154 158 165 170 180

Net profit growth -14.2% -10.2% -20.6% 2.1% 4.7% 3.3% 5.7%

Cash and Bank Balance 399 344 360 420 478 582 682

Receivables and Prepayments 350 358 407 404 418 429 442

Inventories 15 17 28 29 30 32 34

Other current assets 2 2 1 1 1 2 2

Total Current Assets 766 721 795 855 927 1,045 1,159

Net property, plant and equipment 735 853 902 944 966 969 961

Intangible assets 994 1,095 1,185 1,104 1,023 942 861

Investments in JVs & associates & other investments 265 239 220 215 213 210 207

Other non-current assets 337 370 393 399 406 412 419

Total Fixed Assets 2,331 2,556 2,700 2,663 2,607 2,533 2,448

Total Assets 3,097 3,277 3,495 3,518 3,535 3,579 3,607

Accounts payable & accruals 543 656 762 747 798 844 889

Short term borrowings 198 172 213 200 175 150 125

Other current liabilities - - - - - - -

Long-term debt 557 617 752 742 667 617 542

Other non-current liabilities 35 39 40 47 52 57 62

Non-controlling interests 143 169 185 198 211 225 240

Share capital 432 433 433 433 433 433 433

Retained Earnings 509 513 511 552 600 654 718

Other reserves 679 680 599 599 599 599 599

Total Shareholders Equity 1,621 1,625 1,543 1,584 1,632 1,686 1,750

Total Equity & Liability 3,097 3,277 3,495 3,518 3,535 3,579 3,607

Cash Flow from Operating Activities 466 469 439 393 453 460 469

Cash Flow from Investing Activities (218) (309) (370) (179) (168) (156) (149)

Cash Flow from Financing Activities (155) (229) (61) (153) (228) (200) (220)

Change in Cash 94 (69) 9 60 58 105 100

Net Cash at End 399 344 360 420 478 582 682

EBITDA Margin 43.4% 41.8% 43.8% 44.0% 43.1% 42.2% 41.5%

Net Profit Margin 17.5% 16.0% 13.6% 14.0% 14.2% 14.3% 14.7%

Return on Average Assets 8.1% 6.7% 4.9% 4.9% 5.1% 5.2% 5.4%

Return on Average Equity 13.5% 12.0% 9.7% 10.1% 10.3% 10.3% 10.5%

Net debt / EBITDA (x) 0.7 0.9 1.2 1.1 0.7 0.4 0.0

EBITDA Interest coverage (x) 22.8 19.3 17.2 15.2 17.1 18.6 21.4

Debt / Equity (x) 0.5 0.5 0.6 0.6 0.5 0.5 0.4

Capex as % of sales 16.0% 17.0% 21.0% 16.2% 14.6% 13.2% 12.3%

EV/EBITDA (x) 6.5 5.5 4.6 4.5 4.2 3.8 3.4

EV/Revenues (x) 2.8 2.3 2.0 2.0 1.8 1.6 1.4

EPS (fils) 56 50 40 41 43 44 46

Book Value Per Share (fils) 417 419 397 408 421 434 451

Market Price (KWD) * 0.690 0.500 0.350 0.350 0.350 0.350 0.350

Market Capitalization (KWD mn) 2,983 2,164 1,514 1,514 1,514 1,514 1,514

Dividend Yield 7.3% 8.0% 8.6% 8.6% 8.6% 8.6% 8.6%

P/E Ratio (x) 12.4 10.0 8.8 8.6 8.2 8.0 7.5

P/BV Ratio (x) 1.7 1.2 0.9 0.9 0.8 0.8 0.8

Source: Company Reports & Global Research

* Market price for 2016 and subsequent years as per closing prices on 27 March, 2016

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P a g e | 11 March - 2016

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

relevant disclosures which apply to this particular research has been mentioned in the table below under the heading

of disclosure.

Disclosure Checklist

Company Recommendation Bloomberg Ticker Reuters Ticker Price Disclosure

ZAIN BUY ZAIN KK ZAIN.KW KWD0.350 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.

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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

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P a g e | 12 March - 2016

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