Burgan Bank Group (BURG) - Amazon S3...2 Oct-14 Oct-15 Oct-16 Oct-17 Oct-18 0 2 4 6 8 10 12 14 16 18...

Monday, 3 December 2018 1

Burgan Bank Group (BURG) Recommendation ACCUMULATE Risk Rating R-4

Share Price KWd 285 Target Price KWd 335

Implied Upside +19.2%

Cheapest Bank in Kuwait; Initiating with an Accumulate Burgan Bank is the cheapest bank in Kuwait trading at a 10% discount to its book value (29%

discount to its historical P/B) and a 2019e PEG of 0.6x. Moreover, the market is pricing in a

sustainable RoE of 10% vs. 12% based on our estimates. The stock has significantly

underperformed its peers over the last 12 months and we believe downside risk is low. We initiate

coverage with an Accumulate rating and a PT of KWd (Fils) 335/sh.

Highlights Strong earnings growth on the horizon. We pencil in a bottom-line (attributable) CAGR

of 14.5% in 2017-2022e vs. flat earnings (2012-2017). This accelerating growth forecast

in net income should be driven by net operating income, which we model to grow by

9.3% and flat credit provisions. Having said this, there could be further upside to our

estimates if BURG reduces provisions more than our model expectations. Like all Kuwaiti

banks, general/precautionary provisions (imposed by the Central Bank) are much

greater than specific provisions. As such, hefty reversals or netting these built up

reserves against impairments (when IFRS 9 is applied) can unlock value, boosting

profitability (RoE should markedly increase).

Geographically diversified bank. Due to limited growth in Kuwait, BURG has ventured

into Turkey (material subsidiary), Algeria (material subsidiary), Iraq (insignificant) and

Tunisia (insignificant). Turkey contributes ~23% (total loans) and ~20% (to total

revenue), while Algeria contributes 10% and 14% to total loans and revenue,

respectively. These subsidiaries generate strong margins for the bank as Kuwait

operations yield tight margins.

Clarity on IFRS 9 and lower CoR key to stronger profitability. BURG, along with all other

banks in Kuwait, has been booking excessive precautionary provisions since 2012 at the

request of the Central Bank. With IFRS 9, rather than booking a one-time impairment

charge against equity, banks have been using the buffers built to write off Stage 2 loans

that are expected to be impaired. Going forward, we are of the view that BURG would

not have to book general provisions, resulting in a significant drop in CoR. It should be

noted that so far the central bank has not updated the banks on IFRS 9 implementation.

Efficiency ratio requires improvement. The bank is operating at an optimal level in

Kuwait with a C/I ratio of 30.0% (past 3 years) given that it is corporate focused which is

not cost-intensive. On the other hand, international operations have been inefficient

(Turkey being the main contributor). Having said this, the efficiency ratio from

international operations has improved from 64.5% in 2016 to 55.8% in 2017 (47.4% in

9M2018). We do not expect the efficiency ratio to drop below the ~40% level in our

forecast horizon as the bank needs to grow revenue significantly vs. opex.

Asset quality markedly improved; write-offs/reversals along with prudent risk control

contributed positively. BURG’s NPL ratio receded to 2.73% in 2017 from an all-time high

of 11.5% in 2011, while the coverage ratio jumped to 144% vs. 35% (2012). We pencil in

steady improvements in the NPL ratio.

Strong capitalization position following KWD60mn rights issue. BURG’s rights issue is

expected to bolster CET1 ratio to 12.1% (vs. 10.8% in 9M2018) and Total Tier-1 ratio to

14.8% (vs. 13.5% in 9M2018) and CAR to 17.5% (vs. 16.5% in 9M2018) in 2018.

Catalysts 1) Clarity on implementation of IFRS 9 on loan book, 2) Possible FTSE EM inclusion in

2019 & 3) Stabilization of Turkish Lira.

Recommendation, Valuation and Risks Recommendation and valuation: We assign a Price Target of KWd 335 and an Accumulate

rating. BURG is trading at a 2019e P/TB and P/E of 0.9x and 9.4x, respectively. The stock

is cheap trading at a PEG of 0.6x (below 1.0x) based on earnings of CAGR 14.5% (2017-

2022e).

Risks: 1) Geo-political factors, 2) Unexpected asset quality deterioration, 3) CoR does not

improve & 4) Volatility in Turkish lira.

Key Financial Data and Estimates

FY2017 FY2018e FY2019e FY2020e

EPS (KWd) Reported 25.40 28.46 30.34 35.08

EPS Growth (%) -5.9 12.0 6.6 15.6

P/E (x) 13.1 10.0 9.4 8.1

Tangible BVPS (KWd) 255.0 281.7 328.9 356.6

P/TB (x) 1.1 1.0 0.9 0.8

DPS (Fils) 7.00 7.00 9.00 15.00

Dividend Yield (%) 2.1 2.5 3.2 5.3

Source: Company data, QNBFS Research

Key Data

Current Market Price (KWd) 285

Dividend Yield (%) 2.5

Bloomberg Ticker BURG KK

ADR/GDR Ticker N/A

Reuters Ticker BURG.KW

ISIN KW0EQ0100077

Sector Banks &

Financial Svcs.

52wk High/52wk Low (KWd) 309/241

3-m Average Volume (‘000) 2,426.2

Mkt. Cap. ($ bn/KWD bn) 2.3/0.7

Shares Outstanding (mn) 2,493.0

1-Year Total Return (%) (0.7)

Fiscal Year End December 31

Source: Bloomberg (as of December 2, 2018)

Shahan Keushgerian

+974 4476 6509

[email protected]

Saugata Sarkar, CFA, CAIA

+974 4476 6534

[email protected]


We Expect BURG to Generate RoE of 11.2% in 2018e; Significant Improvement from 8.9% (2017)


International Operations In-Efficient; Kuwait Efficient at C/I of 30%


13.3%

12.3%

10.7% 10.4%

9.7% 9.2%

8.9% 8.4%

7.0% 6.6%

0.0%

4.0%

8.0%

12.0%

16.0%

NBK Boubyan AUB KFH Average CBK Burg GBK KIB ABK

30.9% 32.0% 32.3%

35.4% 37.7%

42.1% 42.9%

45.6%

51.0%

0%

20%

40%

60%

CBK AUB NBK GBK ABK Boubyan KFH Burg KIB

Cost-to-Income


NPL Ratio Highest Among Peers but has Drastically improved from 11.5% (2011)


3rd Largest Market Share in Loans....................... …….. And Deposits


0.53%

0.80%

1.39% 1.42%

1.74% 1.79%

2.52% 2.57% 2.73%

0.0%

1.0%

2.0%

3.0%

CBK Boubyan AUB NBK GBK ABK KFH KIB Burg

5%

6%

6%

33%

9%

7%

21%

10%

3%

CBK Boubyan AUB NBK GBK

ABK KFH Burg KIB

5%

8%

5%

31%

8%

6%

25%

9% 3%

CBK Boubyan AUB NBK GBK

ABK KFH Burg KIB


Valuation We value BURG using 2 variations of the Residual Income Model (RI) -- 1) Warranted Equity Valuation (WEV) and 2) RI based on a

fundamental P/B:

a) We utilize a WEV technique derived from the Gordon Growth Model: P/B = (RoAE-g)/(Ke-g). This model uses sustainable

return on average equity (RoAE) based on the mean forecast over the next seven years, cost of equity (Ke) and expected long-

term growth in earnings (g) to arrive at a fair value for this stock. We consider this method best suited to arriving at an intrinsic

valuation through the economic cycle.

b) We derive BURG's fair value by employing the RI valuation technique (based on a fundamental P/B), which is calculated based

on the sum of its beginning book value, present value of interim residuals (net income minus equity charge) and the present

value of the terminal value (we apply a fundamental P/B multiple based on the Gordon Growth Model to the ending book value

at the end of our forecast horizon). We derive the P/B from the Gordon Growth Model: P/B = (RoAE-g)/(Ke-g). This model uses

sustainable return on equity (RoE) based on the median over our forecast period, cost of equity (Ke) and expected long-term

growth in earnings (g) to arrive at fundamental/justified P/B. Based on this method we arrive at a fundamental P/B of 1.2x.

c)

d) The RI model is suitable for the following reasons: 1) when the company does not pay dividends or the pattern of dividend payments

is unpredictable; 2) the company is expected to generate negative free cash flows for the foreseeable future and 3) as the traditional

free cash flow to equity (FCFE) formula does not apply to banks. A major advantage of RI in equity valuation is that a greater portion

of the company's intrinsic value is recognized from the beginning BVPS as opposed to the terminal value (common in traditional

FCFE methodology).

e)

We add Kuwait’s 10 year swaps rate of 1.08% to the 10 year US government bond yield (3.01%) to arrive at a risk free rate of 4.1%.

We factor in a beta of 1.0x. Finally, we add a local equity risk premium of 6.5% to arrive at a Ke of 10.60%.

Valuation Methodologies

Fundamental P/B (WEV) RI Based on Fundamental P/B

Sustainable RoE (%) 11.6 Beginning BVPS (2018e) (KWd) 270

Estimated Cost of Equity (%) 10.60 Present Value of Interim Residuals (KWd) 7

Terminal Growth Rate (%) 5.0 Present Value of Terminal Value (KWd) 46

Fundamental P/B 1.2x Fundamental P/B 1.2x

Intrinsic Value (KWd) 347 Intrinsic Value (KWd) 323

Current Market Price (KWd) 285 Current Market Price (KWd) 285

Upside/(Downside) Potential (%) +21.8 Upside/(Downside) Potential (%) +13.3

Source: QNBFS Research

Methodology Equity Value (KWd) Weight (%) Weighted Fair Value (KWd)

Residual Income 323 50 161

WEV 347 50 174

Target Price 335

Closing Price 281

Upside/(Downside) +19.2

Source: QNBFS Research


Trading at a 29% Discount to its Historical P/B…

Source: Bloomberg, QNBFS Research

…And a 46% Discount to its Historical P/E

Source: Bloomberg, QNBFS Research

Consistently Pays Dividends (KWd), However Erratic Do Not Expect Generous Dividends After Recent Rights Issue


0.25

0.5

0.75

1

1.25

1.5

1.75

2

Oct-14 Oct-15 Oct-16 Oct-17 Oct-18

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30

Oct-14 Jun-15 Feb-16 Oct-16 Jun-17 Feb-18 Oct-18

Historical Average Average - 18.5x Current P/E 2018e - 10.0x

18.00

5.00

7.00 7.00

9.00

15.00

56%

18%

28% 25% 30%

43%

0%

25%

50%

75%

100%

0.0

5.0

10.0

15.0

20.0

2015 2016 2017 2018e 2019e 2020e

DPS (LHS) Payout Ratio (RHS)

1.4%

2.1%

2.5%

3.2%

5.3%

0.0%

2.0%

4.0%

6.0%

2016 2017 2018e 2019e 2020e

Historical Average – 1.4x

P/B 2018e – 1.0x


Key Forecasts

Loan Portfolio

BURG is a diversified bank in Kuwait and has a 10% market share in loans and 9% market share in deposits; we pencil in a loan book

CAGR (2017-22e) of 5.0%. BURG is generally focused on corporates and has insignificant exposure to mass retail which contributes

10% to the loan book through a small domestic banking network of 29 branches (not retail focused as previously mentioned). Turkey

and Algeria contribute 23% and 10% to BURG’s loan portfolio, respectively. The Turkish subsidiary mainly caters to mid-corporates

and some retail while Algeria is focused on trade finance.

Loans (KWD mn) to Exhibit 5.0% CAGR vs. 5.5% (2012-17)


Retail Book Decreasing in Size; Corporate Oriented With Decent Contribution from International Operations


4,012 4,224

4,408 4,199

4,429

4,738

5,159

5,633

0

1,000

2,000

3,000

4,000

5,000

6,000

2015 2016 2017 2018e 2019e 2020e 2021e 2022e

20% 18% 13% 13% 12% 12% 11% 10%

80% 82% 87% 87% 88% 88% 89% 90%

0%

25%

50%

75%

100%

2010 2011 2012 2013 2014 2015 2016 2017

Retail Corporate

67% 63% 66%

33% 37% 34%

0%

25%

50%

75%

100%

2016 2017 9M2018

Kuwait International

The decrease is

mainly due to

Turkish Lira

depreciation


Operating Performance

We pencil in a bottom-line CAGR of 14.5% in 2017-2022e vs. flat performance (2012-2017). The growth in net income is expected to be

driven by net operating income which we model in a growth of 9.3% and flat credit provisions. Having said this, there could be further

upside to our estimates if BURG reduces provisions more than our model expectations. Like all Kuwaiti banks, general/precautionary

provisions (imposed by the Central Bank) are much greater than specific provisions. As such, hefty reversals or netting these built up

reserves against impairments (when IFRS 9 is applied) can unlock value, boosting profitability (RoE should markedly increase).

Net Profit (KWD mn) Total Revenue (KWD mn)


Net Interest Income (KWD mn)


65

57 54

71 76

87

99

107

0

20

40

60

80

100

120

2015 2016 2017 2018e 2019e 2020e 2021e 2022e

14.5% CAGR

248 235 239

268 278 292

313

345

12%

-5%

2%

12%

4%

5% 7%

10%

-7%

0%

7%

14%

0

100

200

300

400

2015 2016 2017 2018e 2019e 2020e 2021e 2022e

Revenue (LHS) Growth (RHS)

157 156

171 186

203 217

234

5.9%

-0.6%

9.7%

8.7% 9.2%

6.8%

7.9%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0

50

100

150

200

250

300

2015 2016 2017 2018e 2019e 2020e 2021e

Net Interest Income (LHS) Growth (RHS)


NIMs to Further Expand With Expected Rate Hikes; International Operations Support NIM due to Higher Margin Environment


NIMs to expand with further interest hikes and contributions from international operations. BURG’s Kuwait operations is corporate

banking based, as such margins are not as large vs. retail banks. The bank has maintained a NIM of 2% from Kuwait operations,

while margins are much wider in Turkey and Algeria given the operating environment in those countries. On a side note, Kuwait

has an advantage that allows it to instantly reprice corporate loans when interest rates go up. As such, BURG is a corporate oriented

bank can reprice loans in a rising interest rate environment allowing it to increase its margins.

RoE is Steadily Improving


Room for further upside dependent on CoR. RoE is steadily increasing based on our estimates. However, clarity from the central bank

regarding IFRS 9 and precautionary provisions would determine the level of RoE. Hence, reversals or netting these built up reserves

against impairments (when IFRS 9 is applied) can boost RoE significantly.

3.28%

2.60%

2.79% 2.82% 2.95%

3.27%

3.55% 3.53% 3.57% 3.70%

3.14%

2.46% 2.59% 2.50%

2.58% 2.77% 2.90% 2.72%

2.60% 2.63%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

2013 2014 2015 2016 2017 2018e 2019e 2020e 2021e 2021e

NIM Spread

13.2%

9.7% 8.9%

11.2% 10.8% 10.7%

11.1%

1.3%

1.1%

1.0%

1.3%

1.4% 1.4% 1.4%

0.0%

0.5%

1.0%

1.5%

0.0%

4.0%

8.0%

12.0%

16.0%

2015 2016 2017 2018e 2019e 2020e 2021e

Tangible RoE (LHS) RoRWA (RHS)


Efficiency

Burgan Operating Inefficiently at Elevated C/I


International operations are a drag on efficiency but has been improving. The bank is operating at an optimal level in Kuwait with a

C/I ratio of 30.0% (past 3 years) given that it is corporate focused which is not cost-intensive. On the other hand, international

operations have been inefficient (Turkey being the main contributor). Having said this, the efficiency ratio from international

operations has improved from 64.5% in 2016 to 55.8% in 2017 (47.4% in 9M2018). It is worth mentioning here that small banks in

Turkey generally have high C/I ratios. We do not expect the efficiency ratio to drop below the ~40% level in our forecast horizon as

the bank needs to grow revenue significantly vs. opex.

Asset Quality

Asset Quality Has Materially Improved


Asset quality unlikely an issue going forward. BURG has cleaned up its books since 2011 when the NPL ratio reached a high of

11.52% to 2.73% in 2017, although we expect a small increase to 2.99% in 2018e. Moreover, as of 9M2018 the coverage ratio stood at

170%.

45.0% 46.5%

48.5% 45.6%

42.0% 41.6% 41.0% 41.6%

0%

10%

20%

30%

40%

50%

2014 2015 2016 2017 2018e 2019e 2020e 2021e

4.05% 4.28%

2.73% 2.99%

2.81% 2.73% 2.50%

92.6%

110.1%

143.8%

156.1% 157.1% 162.1% 156.7%

0%

60%

120%

180%

0%

1%

2%

3%

4%

5%

2015 2016 2017 2018e 2019e 2020e 2021e

NPL Ratio (LHS) Coverage Ratio (RHS)


CoR Significantly Improved but Still Remains on the High Side


Cost of risk needs to significantly improve. Burgan’s high cost of risk is mainly driven from the central bank of Kuwait (CBK)

imposing excessive precautionary provisions on banks. CBK’s precautionary provisions contributed 52.9% to total credit provisions

in 2017, 57.8% in 2016, and 41.6% in 2015. Excluding these excess provisions, Burgan’s 2017 domestic CoR would have contributed

only 13bps to total CoR vs. 31bps from international operations in 2017. A reversal of these provisions would be earnings accretive

and would materially enhance profitability metrics (RoE, RoA, Net Profit Margin etc.) and thus value.

Capitalization

Capitalization Levels to Improve with KWD60mn Capital Increase


KWD60mn rights issue to bolster CET1 ratio. BURG’s rights issue is expected to bolster CET1 ratio to 12.1% (vs. 10.8% in 9M2018)

and Total Tier-1 ratio to 14.8% (vs. 13.5% in 9M2018) in 2018.

42.6%

34.4%

31.9%

37.5%

32.0%

27.9%

24.1%

130

97

92

130

115

100

85

20

40

60

80

100

120

140

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

2015 2016 2017 2018e 2019e 2020e 2021e

Provisions to PPP (LHS) CoR (RHS)

16.7% 16.2%

17.5% 18.4%

17.3% 17.1%

13.9% 13.5%

14.8% 15.7%

14.6% 14.4%

0.0%

5.0%

10.0%

15.0%

20.0%

2016 2017 2018e 2019e 2020e 2021e

CAR Tier-1


Company Description

Established in 1977 Burgan Bank is a diversified full service bank with a footprint across North Africa, Turkey and Iraq; BURG is a

corporate oriented bank in Kuwait and has a 10% market share in loans and 9% market share in deposits. BURG is a universal bank

offering services to corporates and retail customers, private banking, investment banking and brokerage. The bank operates across a

spectrum of 7 countries and has a network of 167 branches (29 branches in Kuwait).

Stable Shareholder base. Strong shareholder base as KIPCO is affiliated with the royal family.

Major Shareholders

Shareholders Investor Type Country Share (%)

KIPCO Private Kuwait 63.04

The Public Institution for Social Security Government Kuwait 8.43

73.47

Source: Company data

Subsidiaries

Company Country Share (%)

Algeria Gulf Bank Algeria 86.01

Bank of Baghdad Iraq 51.79

Tunis International Bank Tunisia 86.70

Burgan Bank A.S. Turkey 99.26

Burgan Bank Financial Services Dubai 100.00

Source: Company data


Detailed Financial Statements Ratios FY2017 FY2018e FY2019e FY2020e

Profitability (%)

RoE (Tangible) 8.9 11.2 10.8 10.7

RoAA 0.9 1.1 1.2 1.3

RoRWA 1.0 1.3 1.4 1.4

NIM (% of IEAs) 2.95 3.27 3.55 3.53

NIM (% of RWAs) 3.07 3.38 3.69 3.55

NIM (% of AAs) 2.33 2.57 2.82 2.86

Spread 2.6 2.8 2.9 2.7

Efficiency (%)

Cost-to-Income (Headline) 45.6 42.0 41.6 41.0

Cost-to-Income (Core) 48.3 44.5 43.3 43.0

Liquidity (%)

LDR 85.9 87.1 86.3 85.4

Loans/Assets 59.4 59.5 60.5 60.5

Cash & Interbank Loans-to-Total Assets 21.2 21.2 21.9 21.8

Deposits to Assets 56.0 55.5 56.7 57.2

Wholesale Funding to Loans 49.5 46.0 44.9 42.3

IEAs to IBLs 1.2x 1.2x 1.2x 1.2x

Asset Quality (%)

NPL Ratio 2.73 2.99 2.81 2.73

NPLs to Shareholder's Equity 18.6 17.9 15.3 14.8

NPLs to Tier 1 Capital 20.1 20.6 17.3 16.8

Coverage Ratio 143.8 156.1 157.1 162.1

ALL/Average Loans 4.0 4.6 4.5 4.6

Cost of Risk 92 130 115 100

Capitalization (%)

Tier 1 Ratio 13.5 14.8 15.7 14.6

CAR 16.2 17.5 18.4 17.3

Tier 1 Capital to Assets 10.4 11.1 12.3 12.1

Tier 1 Capital to Loans 17.5 18.7 20.3 20.1

Tier 1 Capital to Deposits 18.5 20.1 21.6 21.2

Leverage (x) 11.0 9.6 8.6 8.6

Growth (%)

Net Interest Income 9.7 8.7 9.2 6.8

Non-Interest income -13.2 20.7 -8.9 -0.6

Total Revenue 2.0 12.1 3.6 4.8

Opex -4.0 3.2 2.7 3.1

Net Operating Income 7.7 19.6 4.3 6.0

Net Provisions & Impairments 12.5 14.2 -3.5 -8.1

Net Income (Reported/Headline) -4.3 25.6 5.7 13.6

Net Income (Attributable) -5.3 30.9 6.6 15.6

Loans 4.3 -4.7 5.5 7.0

Deposits 11.2 -5.8 6.0 8.0

Assets 2.0 -4.8 3.7 7.1

RWAs 5.2 -7.4 7.8 13.9



Income Statement (In KWD mn) FY2017 FY2018e FY2019e FY2020e

Net Interest Income 171 186 203 217

Fees & Commissions 37 33 36 35

FX Income 10 18 16 17

Other Income 22 31 24 23

Non-Interest Income 69 83 75 75

Total Revenue 239 268 278 291

Operating Expenses (109) (113) (116) (120)

Net Operating Income 130 156 162 172

Net Provisions & Investment Impairments (50) (57) (55) (51)

Net Profit Before Tax & Minority Interest 80 98 107 121

Tax (11) (14) (15) (17)

Net Profit Before Minority Interest 69 84 92 104

Minority Interest (4) (3) (5) (6)

Net Profit (Headline/Reported) 65 82 87 98

Interest on Tier-1 Note (11) (11) (11) (11)

Net Profit (Attributable) 54 71 76 87


Balance Sheet (In KWD mn) FY2017 FY2018e FY2019e FY2020e

Assets

Cash & Balances with Central Bank 937 901 926 1,000

Interbank Loans 632 596 673 711

Net Investments 1,097 950 1,045 1,114

Net Loans 4,408 4,199 4,429 4,738

Investment in Associates 15 16 17 18

Other Assets 188 252 76 95

Net PP&E 102 110 121 133

Goodwill & Intangibles 37 33 29 25

Total Assets 7,415 7,056 7,315 7,833

Liabilities

Interbank Deposits 884 668 643 552

Customer Deposits 5,130 4,822 5,130 5,550

Subordinated Notes 322 358 365 383

Other Liabilities 212 274 125 224

Tier-1 Notes 144 144 144 144

Total Liabilities 6,692 6,267 6,407 6,854

Shareholders’ Equity 672 735 849 914

Total Liabilities & Shareholders’ Equity 7,415 7,056 7,315 7,833


Contacts

Saugata Sarkar, CFA, CAIA Shahan Keushgerian Zaid Al Nafoosi, CMT, CFTe

Head of Research Senior Research Analyst Senior Research Analyst

Tel: (+974) 4476 6534 Tel: (+974) 4476 6509 Tel: (+974) 4476 6535

[email protected] [email protected] [email protected]

QNB Financial Services Co. WLL

Contact Center: (+974) 4476 6666

PO Box 24025

Doha, Qatar

Disclaimer and Copyright Notice: This publication has been prepared by QNB Financial Services Co. WLL (“QNBFS”) a wholly-owned subsidiary of Qatar National Bank Q.P.S.C. (“QNB”). QNBFS is regulated by the Qatar Financial Markets Authority and the Qatar Exchange QNB is regulated by the Qatar Central Bank. This publication expresses the views and opinions of QNBFS at a given time only. It is not an offer, promotion or recommendation to buy or sell securities or other investments, nor is it intended to constitute legal, tax, accounting, or financial advice. QNBFS accepts no liability whatsoever for any direct or indirect losses arising from use of this report. Any investment decision should depend on the individual circumstances of the investor and be based on specifically engaged investment advice. We therefore strongly advise potential investors to seek independent professional advice before making any investment decision. Although the information in this report has been obtained from sources that QNBFS believes to be reliable, we have not independently verified such information and it may not be accurate or complete. QNBFS does not make any representations or warranties as to the accuracy and completeness of the information it may contain, and declines any liability in that respect. For reports dealing with Technical Analysis, expressed opinions and/or recommendations may be different or contrary to the opinions/recommendations of QNBFS Fundamental Research as a result of depending solely on the historical technical data (price and volume). QNBFS reserves the right to amend the views and opinions expressed in this publication at any time. It may also express viewpoints or make investment decisions that differ significantly from, or even contradict, the views and opinions included in this report. This report may not be reproduced in whole or in part without permission from QNBFS

COPYRIGHT: No part of this document may be reproduced without the explicit written permission of QNBFS.

14

OUTPERFORM

ACCUMULATE

MARKET PERFORM

REDUCE

UNDERPERFORM

Greater than +20%

Between +10% to +20%

Between -10% to +10%

Lower than -20%

R - 1

R - 2

R - 3

R - 4

R - 5

Significantly lower than average

Lower than average

Medium / In-line with the average

Above average

Significantly above average

Recommendations

Based on the range for the upside / downside offered by the 12 - month target price of a stock versus the current market price

Risk Ratings

Reflecting historic and expected price volatility versus the local market average and qualitative risk analysis of fundamentals

Between -10% to -20%

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