KUWAIT: Kuwait Stock Exchange (KSE) sank more in to the red and recorded its lowest level since May 15, 2007 at the close of this week as investors continued dumping their stocks along with the bearish spree hovering around all GCC stock markets.
Global" General Index closed at 341.94 points, 4.82 percent down from last weeks' close. The YTD loss escalated to 9.51 percent. Furthermore, the Kuwait Stock Exchange (KSE) price index was also down this week by 837.70 points (6.00 percent) and closed at 13,123.90 points. Market capitalization was down at KD54.45bn.
Market breadth strongly skewed towards declining stocks with 148 losers against only 9 advancers, while 31 stocks were not traded this week. Trading activity appreciated with investors trying to pull out of the correcting market. Volume of shares traded on the bourse was up by 14.00 percent, with 939.14mn shares changing hands. Value of shares traded also was up by 7.14 percent, aggregating to KD489.11mn. The Services sector took the spot-light in-terms of volume traded among all sectors accounting for 34.48 percent of the total volume traded this week with 323.86mn shares changing hands. The same sector led the value traded list as well, accounted for 35.73 percent (KD174.76mn) of the total market value. Intense trading on Zain, Kuwait largest listed company, cause the high trading with 53.20mn shares changing hands accounting for KD89.11mn traded.
Sector-wise, All market sectors were seen down for the second consecutive week. Global Food Index was the biggest loser for the second week as well. The Index lost 11.57 percent from its value after four food companies ended the week with a negative performance. The larges, Kuwait foodstuff Company (Americana) was the biggest loser in the sector, shedding 13.46 percent. Global Industrial Index came second, losing 8.34 percent this week with no rising stocks seen among its constituents. Kuwait Cement Company was the biggest loser in the sector with 17.46 percent drop in its share price. The scrip closed at KD1.040 and made it to the top losers list this week. Global Investment Index was down by 7.30 percent to come third on the rank. Al-Mal Investment Company was the only gainer in the sector adding 1.63 percent this week. On the other side, Al-Safat Investment Company topped the losers list, with 19.35 percent drop in its share price. The scrip ended Global Weekly Market Report - Kuwait the week at KD0.500.
Kuwait Investment Company was also seen on the losers list with 16.67 percent retreat in its share price.
Global special indices concluded the week also down. Global Small Cap (Low 10) Index was down by 3.15 percent while Global Large Cap (Top 10) retreated by 3.26 percent. The Sharia-compliant, Global Islamic Index shed 8.56 percent with most of the Islamic companies ending the week in red. Al-Themar International Holding Company was the biggest gainer this week, adding 7.46 percent. The scrip closed at KD0.144. Al-Safwa Holding Group, was the most traded stock for the third week with 89.02mn shares changing hands accounting for 9.48 percent of the total traded volume. The scrip closed down by 16.67 percent, at KD0.170.
Macroeconomic News Official data released this week showed that Kuwait posted a KD7.28bn ($27.18bn) surplus in the first five months of its 2008/2009 fiscal year on higher than expected oil revenues. The world's seventh-largest oil producer posted revenues of KD12.835bn in the five months to August 31, of which oil exports contributed KD12.27bn, government data obtained by Reuters showed. This is compared with an initial revenue forecast of KD12.68bn for the fiscal year which starts on April 1, including oil revenues of KD11.65bn, the data showed. The budget was based on a conservative oil price estimate of $50 per barrel.
Undersecretary for Maintenance at the Ministry of Public Works Fadel Al-Ajmi has announced that the agreed budget for the fiscal year 2008/2009 is set at an estimated KD53mn, KD46mn of which will be allocated to road maintenance, KD4.4mn to sewage network maintenance and KD2.6mn for construction maintenance.
Oil related news
Price of the Kuwaiti crude oil barrel saw $3.07 weekly drop reaching $95.13 on Tuesday, September 9, compared to $98.20 per barrel recorded on Tuesday, September 2. This is lowest price level recorded since last April 4. The Kuwaiti export crude barrel registered its greatest single drop in years on Tuesday September 2, when it lost $9.59 Over the past few weeks, the price of oil on the global market has seen a sharp drop, driven by slow economic growth, a decrease in consumption and demand on crude oil, as well as the appreciation of the US dollar against the basket of major currencies for the first time in 11 months.
OPEC announced this week that it would be reducing its production by 520,000 barrels per day to bring it to 28.2mn over the next 40 days. Meanwhile, oil prices fell in jittery trading on Wednesday, September 10, as the strengthening dollar and signs of a slowing economy outweighed inventory drops and OPEC's cutback of excess production. The Energy Department's Information Administration said that crude inventories fell by 5.9mn barrels last week compared to the previous week, and gasoline inventories fell by 6.5mn barrels. The EIA also reported, that inventories of distillates - which include heating oil and diesel fuel - fell by a lower-than-anticipated 1.2mn barrels.
Kuwait Petroleum Corporation (KPC) CEO Saad Al-Shuwaib said that the corporation's target volume of investments within the next five years, both in the county and abroad, would reach $55bn. Commenting on the latest developments in the fourth refinery project, he said, that KPC have commenced execution of memorandum of understanding with the contractors, but still have not signed any contracts with an party at this stage.
Kuwait has raised the official selling price (OSP) for its crude oil sales to Asian buyers for October by 70 cents to $2.55 a barrel below the average of Oman/Dubai quotes. Kuwait set its OSP at $3.25 per barrel below the Oman/Dubai average for September loading. The October crude price was in line with expectations as its price formula is loosely linked to that of Saudi Arabia's Arab medium grade, which was raised by 70 cents a barrel.
A report by the investment ministry showed that Kuwait is investing $1.5bn in Sudan, the leading investor in the African country. The report said that Kuwaiti investments concentrated in real estate, banks, construction, communications, oil, agriculture and transportation. Kuwait's Zain Telecommunications Company, Al-Mal United Bank, Al-Nour Real Estate City, the National Leasing Company and Majestic Land Transportation Company are among the top Kuwaiti investors in Sudan, said the report.
Kuwait was ranked in the 52nd among world countries in terms of competitiveness of business atmosphere, the International Finance Corporation (IFC) said in a recent report. Saudi Arabia was the best performer in the Middle East, moving up to the 16th spot from 24, ahead of Bahrain, United Arab Emirates and Kuwait. The Doing Business 2009 data for Kuwait showed that the best place ranked was for Paying Taxes being ranked in the 9th place. Protecting Investors was ranked 24, down from 19 on 2008 report. However, the biggest improvement was seen on Closing a Business segment which was 4 places up from 70 in 2008 to 66 on 2009. On the other hand, the biggest retreat was seen on the Starting a Business segment that went 9 placed down from 125 in 2008 to 134 for 2009.
Standard & Poor's Ratings Services ranked Kuwait's Banking Industry Country Risk Assessment (BICRA), reflecting the system's strong financial profile, the protected business environment in which banks operate, and the supportive economic environment. Offsetting these positives are the country's limited economic diversification, rapid and untested loan growth, high exposure to the real estate and stock markets, and increasing competition in Kuwait, Standard & Poor's noted in an updated report titled "Bank Industry Risk Analysis. Kuwait Bank's Financial Profiles Still Robust in The Face Of Tighter Regulation and Intense Competition" published this week on RatingsDirect. In addition, S&P assessment of the banking system in Kuwait (AA-/Stable/A-1+) takes into account the government's interventionist approach toward the system and the high likelihood of support of systemically important private sector banks in case of need, therefore uplifting the ratings on Kuwaiti banks above their stand-alone creditworthiness.
Recent Global publications
In continuation of Global Investment House coverage of the listed companies in Oman, we have come out with a Results Update on Bank Dhofar (BDOF). BDOF achieved a net profit of RO14.7mn for 1H08 as against a net profit of RO9.0mn reported during 1H07, thereby displaying a robust growth rate of 63.4 percent. The bank has registered a double digit growth in its asset base in 1H08. Its assets registered a YTD growth of 15.7 percent, majority of this arising out of a 24.4 percent YTD growth in net loans & advances that increased from RO733.8mn as at Dec'07 to RO912.5mn as at end of Jun'08. We believe that even though the overall cap arising out of hike in Cash reserve ratio should limit its ability to lend to a limited extent, relaxation in housing loans should help it to keep up the momentum displayed in 2007.
Based on the current market price of RO0.660 per share (as at Aug 31, 08), BDOF is trading at a 2008E P/E & P/BV multiple of 12.8x & 2.7x and a 2009E P/E and P/BV multiple of 11.5x and 2.5x respectively. Our estimated fair value for this banking scrip works out to RO0.813 per share based on DDM (80 percent) and adaptation of the Gordon Growth Model (20 percent). According to our fair value the banking scrip reflects an upside of 23.1 percent on closing price of RO0.660 per share (as at 31 August, '08); hence we maintain our earlier BUY recommendation on the scrip. Also and in continuation of Global coverage of the listed companies in Egypt, we have come out with a Result update on The Egyptian Financial and Industrial Company (EFIC). EFIC second quarter financial performance has continued the tremendous growth that has started in the first three months of 2008. This impressive performance was apparent in EFIC's top line figure during the first half 2008 standalone financial statements, where the sales soared by 109.3 percent, to reach LE413.3mn, compared to LE197.4mn during the first half of 2007. EFIC's 2008 first half sales has surpassed our projections by around 7 percent, due to the hike witnessed in the selling prices.
We derived EFIC fair value based on the combination of Discounted Cash Flow Method and Relative Valuation Method, we have valued the Company's shares at a fair value of LE61.8 per share, with an upside potential of 12.4 percent, compared to the current market price of LE55.0 per share, as of August 31, 2008. Hence, we recommend a BUY on the stock. On the Saudi Arabian market, Global have come out with a Result Update report on Saudi Cement Company (SCC). SCC is one of the leading cement producers in the country Saudi Arabia and is on its way to become the biggest cement producer of the country. The company presently has 10 cement kilns with a total clinker capacity of 13,825 tons daily (4.15mn tons annually), and cement grinding capacity of 6.0mn tons. The value of SCC's shares derived from the weighted average of the DCF and relative valuation methods is SR120 per share. The stock closed at SR91 on the Saudi Stock Exchange at the end of trading on September 1, 2008. The value of the stock has a potentia
l upside of 32 percent from its current price level. At current price, SCC shares are trading at a P/E multiple of 13.1x and 7.8x for 2008 and 2009 respectively. We, therefore, recommend a BUY on the stock.
Also on the Saudi Market, Global have come out with an Investment Update on Saudi Hollandi Bank (SHB). Based on the combination of two (DDM & GGM) valuation techniques, SHB share reveals an estimated fair value of SR58.03 per share, which is 0.1 percent higher to the current market price of SR58.0 per share (as on Sept 06, 2008). At the current market price, SHB is traded at 2008E P/E and P/BV multiples of 16.8x and 3.2x, respectively. Therefore, we reiterate our earlier recommendation of Hold on the stock with a medium term perspective.
Going further to the Jordanian market, Global have come out with a Result Update on Middle East Pharmaceutical and Chemical Industries Company (MPHA). Based on its current market price of JD3.0, the company's stock is trading at 116.4x its 2007 earnings and 2.3x its 2007 book value. On a one year forward basis, the stock is trading at 164.6x of 2008 forecasted earnings and 2.3x of 2008 forecasted book value. Based on a WACC of 9.8 percent, the DCF value of MPHA is JD2.4. On the basis of the weighted average P/E for the industry and the MPHA's projected 2008 earnings, the company's stock value is JD0.4. Assigning an 80 percent weight to the DCF value, and a 20 percent to the relative value, the weighted average share value of MPHA came out to be JD2.0, which is 33.7 percent less than the current trading price of JD3.0. Hence we recommend a "Sell" on the company's stock.
KSE
Global Investment House announced this week the successful acquisition of its first asset in the Global GCC Real Estate Fund-II. Kuwait Minister of Finance Moustafa Al-Shamali said that privatization project will be the government's top priority in the next legislative session. He further added that the privatization law will give a boost to the national economy and will help in strengthening internal and external security, besides providing equal opportunities to citizens. Once approved, the private sector will handle various projects under the supervision of the government, he added.
The Fund has acquired a 'Class A' commercial building nearing completion known as the Mashreq Tower for $30mn with the seed capital at Cairo Square in Riyadh. The Global GCC Real Estate Fund-II is a $500mn close-ended fund that was launched in July 2008 dedicated to capitalizing on investment opportunities in the GCC region.
Burgan Company for Well Drilling was awarded the tender worth KD16.5mn by Kuwait Oil Company (KOC). The company reported that the duration of the contract is two years renewable for a period of six months if requested. The implementation will commence four months after signing the contract.
Ras Al-Khaimah Company for White Cement and Construction Materials reported that the company's board had decided to establish a cement brick factory. It is expected to start production at the new factory during the first quarter of the year 2009 with a production capacity hitting 20mn blocks annually.
Fitch Ratings upgraded the Long-term Issuer Default Ratings (IDRs) of five Kuwaiti Banks this week. This follows the upgrade of Kuwait's Long-term foreign currency IDR to 'AA' from 'AA-' on September 4, 2008, with the Outlook remaining Stable. The Shortterm foreign currency rating is affirmed at 'F1+' and the Country Ceiling is upgraded to 'AA+' from 'AA'. The Long-term IDR of National Bank of Kuwait is upgraded to 'AA-' from 'A+' and Short-term IDR to 'F1+' from 'F1' to reflect the bank's leading domestic franchise. The long-term IDRs of Kuwait Finance House, Commercial Bank of Kuwait and Gulf Bank are upgraded to 'A+' from 'A', reflecting the banks' role in promoting the development of Kuwait's industrial sector and the bank's large government shareholding. The IDRs of the banks with less significant franchises (Al-Ahil Bank of Kuwait, Bank of Kuwait & The Middle East are unchanged. All bank Outlooks remain Stable and all other ratings are affirmed. All banks are rated higher than they would be if assessed purely on a standalone basis. Kuwait Finance House is currently examining prospects of making a contract with an establishment specialized in real-estate assessment on the international market.
© Kuwait Times 2008
