Orascom Construction Industries

BLOM EGYPT SECURITIES

BLOMINVEST BANK

Equity Research Initiation of Coverage Sector: Country: Date: Construction/Fertilizers Egypt May 16, 2011

Share Price (EGP): Fair Value (EGP): Upside: Recommendation: Share Data
Bloomberg Symbol Reuters Symbol

245 270 10% HOLD

Initiating coverage with a HOLD Recommendation and a Fair Value of EGP 270 per share based on the channels of analysis below
Fertilizer pricing and market dynamics favorable for growth Orascoms fertilizer business continues to lead growth with revenues increasing by two-fold in 2010 and accounting for almost half of the companys EBITDA. This will be further boosted during 2011 by rising prices and solid market dynamics. Overall, global demand of Nitrogen fertilizers is expected to expand by 15% through 2014 on increasing agricultural needs. Coupled with relatively high oil prices and significant exposure to stable markets in Europe, we anticipate prices to be on the rise during 2011-2013 with Orascom perfectly positioned to take advantage of this trend. Construction backlog estimated to decline in the short term The market outlook for Orascoms construction business, which constituted 70% of revenue and 49% of EBITDA during 2010, remains weak for 2011. The company reported a backlog of USD 5.62 billion through 2010, 15% lower than the previous year. We expect to see further declines in 2011 as the potential for new business continues to weaken in Orascoms major markets - Egypt and Algeria - comprising almost 40% of backlog. Growth may resume in 2012 provided the geopolitical situation in the region calms down and Egypts new political system takes shape. Revenues surged during 2010 but a mild decline is expected for 2011 Net income reached EGP 3.65 billion in 2010, a 51% rise over 2009s reported earnings on a better than expected performance from the fertilizer sector and an almost unchanged construction contribution. We estimate OCIs revenues to slightly decline to EGP 27.1 billion in 2011 compared to 27.6 billion in 2010. Fertilizer revenues are expected to post a hefty 27% Y-O-Y increase vs. constructions 13% revenue decline. As per management guidance, we can expect to see growth in capacity for some of its fertilizers effective 2012. Stock trades at discount with potential for appreciation___ We estimate OCIs fair value at EGP 270 per share using a Sum-of-theparts methodology with 38% attributed to the construction segment versus 62% to the growing fertilizer group. When comparing OCI to an average composite, we find that it is considerably undervalued with a P/E of 13.7 as opposed to 19.3 for its peers. The companys earnings are projected to remain considerably high in 2011, hence providing a possibility for share price appreciation as geopolitical risks settle and a new Egyptian president is elected.

OCIC.EY OCIC.CA 50,695,155,000 206,919,000 38.00% 13.7 3.2

Market Cap (EGP) Number of Shares Free Float Price-to-Earnings Price-to-Book

Share Performance

Source: Reuters 1 Month Return 3 Month Return 6 Month Return 12 Month Return 52 Week Range -3.00% 5.16% -9.38% -6.99% 292 - 204

Contact Information:
Equity Analyst: Karim Houri karim.houry@blominvestbank.com Senior Equity Analyst: Issa Frangieh issa.frangieh@blominvestbank.com Research Analyst: Nader Ali Khedr nakhedr@blomsecurities.com Head of Research: Marwan Mikhael marwan.mikhael@blominvestbank.com

Performance and Forecasts

Year Revenues (EGP billions) Net Income (EGP billions) EPS (EGP) BVPS (EGP) ROA (%) ROE (%) 2008 20.3 5.4 25.8 72.9 7.9 12.1 2009 21.3 2.6 11.7 71.1 5.7 15.1 2010 27.6 3.7 17.7 76.1 7.3 21.7 2011e 27.2 4.0 19.5 75.6 7.6 23.4 2012f 28.9 4.5 22.0 79.0 8.6 25.8 2013f 32.0 4.8 23.4 88.0 9.0 25.4

Source: Company Historicals and Blominvest Estimates

Subject to Disclaimer on Last Page

ORASCOM CONSTRUCTION INDUSTRIES

FINANCIALS & VALUATION 2008 Profit & Loss Summary Revenue (EGPm) Revenue Growth (%) Gross Profit (EGPm) Gross Margin (%) Net Profit (EGPm) Profit Margin (%) Net Profit Growth (%) Earnings Per Share (EGP) Price-to-Earnings (Forward P/E) Balance Sheet Summary (EGPm) Cash & Cash Balances Trade and Other Receivables Property, Plant & Equipment Intangible Assets Total Assets Total Liabilities Book Value Per Share (EGP) Profitability ROA (%) ROE (%) Liquidity Cash / Current Liabilities Current Assets / Current Liabilities Net Working Capital / Current Assets Comparables Valuation P/Rev 1.8 2.8 Margin Analysis (%) Gross Operat. Net 24.5 29.6 18.6 16.7 13.3 15.7 Profitability (%) ROE ROA 21.1 20.7 7.3 10.8 0.56 1.35 0.26 0.38 1.25 0.20 0.29 1.14 0.12 0.27 1.05 0.05 0.28 1.09 0.08 0.30 1.16 0.14 7.9% 12.1% 5.7% 15.1% 7.3% 21.7% 7.6% 23.4% 8.6% 25.8% 9.0% 25.4% 8,269 8,236 9,912 9,910 43,026 25,444 72.95 5,925 9,750 14,991 9,874 46,858 29,715 71.13 5,443 11,143 17,999 10,762 53,424 35,082 76.11 5,334 10,859 17,642 10,547 52,093 33,871 75.61 5,494 11,283 18,299 10,336 53,116 34,063 79.06 5,604 11,800 18,791 10,129 54,265 33,049 88.03 20,253 50.2% 5,300 26.2% 5,444 26.9% 188% 25.82 9.33 21,313 5.2% 4,732 22.2% 2,550 12.0% 36.2% 11.74 20.53 27,560 29.3% 6,746 24.5% 3,652 13.3% 43.2% 17.65 13.65 27,148 -1.5% 7,303 26.9% 4,034 14.9% 10.4% 19.49 12.36 28,932 6.6% 7,869 27.2% 4,547 15.7% 12.7% 21.98 10.97 30,257 4.6% 8,381 27.7% 4,848 16.0% 6.6% 23.43 10.29 2009 2010 2011e 2012f 2013f

P/E Orascom Average of Peers Valuation Line of Business Construction Group Fertilizer Group Fertilizer Group Fertilizer Group Fertilizer Group Fertilizer Group Fertilizer Group Less: Net Debt Less: Minorities Total Value 13.6 19.3

P/BV 3.2 3.0

Subsidiary

OCI Ownership 100%

Value (in EGPm) 27,729 11,392 5,500 20,072 1,624 96 1,904 11,339 1,018 55,834

Per Share (in EGP) 134.01 55.06 26.58 97.00 7.85 0.46 9.20 54.80 4.92 269.83

EFC EBIC OCI Nitro Sorfert Notore Gavilon

100% 60% 100% 51% 14% 16.8%

ORASCOM CONSTRUCTION INDUSTRIES

TableofContents
INVESTMENT SUMMARY ............................................................................................................................. 4 COMPANY PROFILE ....................................................................................................................................... 6 Share Ownership....................................................................................................................................... 6 Board & Management............................................................................................................................... 6 Subsidiaries and Associates .................................................................................................................... 7 BUSINESS MODEL ......................................................................................................................................... 8 Revenue Mix .............................................................................................................................................. 8 Geographical Diversification.................................................................................................................... 9 Vertical Integration & Synergy ................................................................................................................. 9 Products & Services ................................................................................................................................10 STRATEGY......................................................................................................................................................11 Fertilizer Segment to Lead Growth ......................................................................................................11 Revenue Expansion in Growing Markets ............................................................................................11 Cost Control .............................................................................................................................................11 Brand Associated with Top Quality and Competitive Pricing ..........................................................12 Government Partnerships ......................................................................................................................12 OUTLOOK ......................................................................................................................................................13 Construction Backlog Continues to Decline .......................................................................................13 New Awards Expected to Continue Slump during 2011 ..................................................................13 Reliance on Regional Infrastructure Investments ..............................................................................14 Fertilizer Market Tied to World Demand for Food and Energy ........................................................14 Expectations for Fertilizer Prices & Capacity.......................................................................................15 RISKS ..............................................................................................................................................................16 FINANCIAL ANALYSIS ..................................................................................................................................17 COMPARABLE ANALYSIS ...........................................................................................................................21 Relative Valuation .................................................................................................................................... 21 Profitability Comparison ......................................................................................................................... 22 Management Efficiency ......................................................................................................................... 22 VALUATION ...................................................................................................................................................23 Assumptions in Valuation ...................................................................................................................... 23 Assumptions in Forecasting Construction Revenues ....................................................................... 24 Assumptions in Forecasting Fertilizer Revenue ................................................................................. 24 PROJECTED INCOME STATEMENT ..........................................................................................................26 PROJECTED BALANCE SHEET...................................................................................................................27 APPENDIX ......................................................................................................................................................28 I List of Comparable Peers ................................................................................................................. 28

ORASCOM CONSTRUCTION INDUSTRIES

INVESTMENT SUMMARY
We are initiating a HOLD recommendation on Orascom Construction Industries (OCI) shares after carefully analyzing the following: Business Model OCI is a leading construction contractor and fertilizer producer on a regional and international scale. The company actively pursues contracts in various sectors but the preponderance of its contracts consist of infrastructural works; ranging from building transportation projects to raising power plants as well as a multitude of industrial and commercial ventures. More than 60% of its backlog consists of infrastructure while the rest is split between industrial and commercial contracts. The grand majority of its backlog springs from the MENA region with Egypt, Algeria and GCC countries leading way. In the span of a few years, the group has become a major player in Nitrogen based fertilizers with a total production capacity of over 4.84 mtpa as of late 2010 with a target of 7.75 mtpa in 2012. Fertilizer revenues have followed an increasing trend and have grown in importance in relation to the weight of the total revenue mix. Profitability Net income reached EGP 3.65 billion in 2010, a 51% surge over 2009s sharp fall to 2.53 billion that was weighed down by the slowdown. This recovery in large part is due to the better than expected performance from the fertilizer sector and an almost unchanged construction contribution. Despite a lower share in revenue, fertilizers possess the advantage of having higher gross margins than construction which permits for a higher gross profit contribution. We estimate gross margin for fertilizer in 2011 to be around 40%, significantly higher than constructions near 20% margin. Construction COGS hover in the 80% range and are somewhat stable. We estimate ROA to slightly increase to 7.6% in 2011 with ROE nearing 24%. Both ratios are expected to fluctuate around these levels in the coming years as the fertilizer operations start to turn in more profits and as the construction sector recovers. Growth We expect OCIs revenues to slightly decline in 2011 to reach EGP 27.1 billion compared to 27.6 billion in 2010. Growth is estimated to record a CAGR of 5.7% for the 2011-2014 timeframe. In our model, fertilizer revenues are expected to post a hefty 27% Y-O-Y increase in 2011 vs. constructions 13% revenue decline. As per management guidance, we can expect to see growth in capacity for some of its fertilizers effective 2012. OCI reported a backlog of USD 5.62 billion through 2010, 15% lower than what was reported in 2009. The stagnating and even diminishing backlog has been attributed to a slowdown in construction activity and real estate in both the regional and international fronts. This decline began in the year superseding the credit crunch that interrupted OCIs exceptional performance in 2008 where backlog grew by 46% to around USD 7 billion. We expect this decrease to persist through 2011 but we anticipate a rebound in construction activity and a return to backlog growth during 2012. Financial Position OCIs liquidity ratios have conjointly followed a feebly-sloped downward trend from 2008 to 2010 as more borrowings and liabilities reached maturity. We see them continuing to decline in 2011 but stabilizing in 2012. Orascoms current ratio is estimated at around 1.05 in 2011 with the quick ratio also reaching a low of 0.27. OCI has held the reputation of being a cash-rich company as witnessed by its high cash balances of nearly EGP 5.5 billion in 2010. With ongoing expansion plans and acquisitions in an otherwise slowing market, OCI maintained its capital expenditures in order to remain competitive causing reliance on debt to surge from 2008 onwards. We expect a debt to equity ratio of around 90% in 2011, with a possible gradual decline to start in 2012 as no

ORASCOM CONSTRUCTION INDUSTRIES new plans for acquisitions or expansions are in sight for the short term. OCIs interest coverage ratio has fluctuated between 5 and 6 during 2008 - 2010, which is associated with a relatively safe investment. As earnings improve along with little debt issues, we see the ratio climbing to 8. Valuation We estimate OCIs fair value at EGP 270 per share using a Sum-of-the-parts (SOTP) methodology with 38% attributed to the construction segment versus 62% to the growing fertilizer group. Both lines of business were valued using a discounted cash flow (DCF) model with a WACC of 11% for fertilizer and 13% for construction; 2% was added to construction due to its high concentration in the Middle East. As per management guidance, weighted average selling prices and capacity were provided for each product from each plant constituting the basis of our analysis. When comparing OCI to an average composite, we find that it is considerably undervalued with a P/E of 13.7 as opposed to 19.3 for its peers. This temporary discount that OCI trades at accounts for the unrest that occurred recently in Egypt and the region, where the companys construction business mostly operates. However, OCIs revenues and earnings surged during 2010 and are expected to remain considerably high in 2011, hence providing a possibility for share price appreciation as the situation settles. Dividends Historically, OCI has been consistently distributing dividends bi-annually since 2008. Besides its large 300 EGP/share offered in march of 2008 which disbursed most of its earnings from the sale of the cement group, the usual semi-annual dividend offered amounts to around 5 EGP or the equivalent of 1 USD. The companys dividend payout ratio is around 45% of net earnings. Risks While unrest has settled in Egypt, a key market for Orascom, uncertainty continues in several markets that present a growth opportunity for the company. This may cause a delay in gaining new awards and have an adverse effect on its backlog since sovereign projects constitute a major share of Orascoms construction business. Another key concern is the competitive environment in the construction business. With the sector going through successive booms in the region, the market is now flooded with strong competitors on both the local and international levels with whom OCI has to contend in bidding for new contracts. The companys reliance on commodity prices is another notable risk since these fluctuate aggressively as witnessed globally by the large spikes and sharp falls across the board. A drop in commodities would signify a decrease in fertilizer prices and hence a drop in profitability. Specifically, oil has a direct impact on its fertilizer business; as oil prices increase, fertilizer prices follow suite resulting in higher profitability. On the other hand, oil prices have an indirect effect on its construction business; a considerable portion of Orascoms backlog comes from oil-exporting countries whose budgets rely on oil prices. The mounting tensions between the Egyptian and Algerian governments that occurred during the summer of 2010 present another growth-impeding risk. Sorfert Algerie, an OCI fertilizer subsidiary, is set to begin operations in 2011 and could face hindrances from the local government that may hurt its profitability.

ORASCOM CONSTRUCTION INDUSTRIES

COMPANY PROFILE
Orascom Construction Industries (OCI) is a leading construction contractor and fertilizer producer on a regional and international scale. It was originally founded in 1976 by Onsi Sawiris as a general contracting and trading company based in Cairo and has grown into one of Egypts largest corporations employing over 84,000 employees and workers. Throughout the years, the construction group has positioned itself as one of the most prominent contractors in the MENA region, scoring multi-million dollar contracts from various locations. The newly acquired and growing fertilizer segment represents a means of diversification as well as an alternative independent revenue stream. Since its inception in the mid 2000s, the nitrogen based fertilizer group has grown to rank amongst the top 5 nitrogen fertilizer producers worldwide in terms of capacity. This sector shows substantial room for growth through continuous investments as witnessed by the acquisition of new plants and the erection of others in different countries. Share Ownership OCI made its initial public offering (IPO) on March of 1999, offering 14% of its outstanding shares (8.63 million shares) with a par value of USD 12.50/share. Ordinary shares are listed on the Cairo and Alexandria Stock Exchange (CASE) whereas its GDR shares are listed on the London Stock Exchange (LSE) at a 1:1 ratio since 2009. Further issues followed suit bringing the total of shares issued to 206,918,461. The Sawiris family collectively controls 55% of the outstanding shares of the company.

Source: OCI

Board & Management

Mr. Nassef Sawiris Mr. Onsi Sawiris Mr. Salman Butt Mr. Osama Bishai Mr. Karim Camel-Toueg Mr. Nicolas Estay Mr. Kevin Struve Ms. Dalia Khorshid Mr. Fady Kiama Mr. Hassan Badrawi Mr. Hussein Marei Ms. Heba Iskander Mr. Sherif Tantawy Mr. Johan Beerlandt Mr. John Baracat Mr. Hossam Khattab Mr. Amr Hassaballah Mr. Hesham Abdelsamie Source: OCI Chairman & CEO Chairman & Non-Executive Director CFO Managing Director for Construction Group Director & Contrack President Executive Vice-President (Europe) Strategic Planning Director Corporate Treasurer Corporate Controller Director Business Development General Counsel Corporate Development Director CFO Construction Group CEO BESIX Group Managing Director NSF Managing Director EFC Managing Director EBIC Director of Subsidiaries

ORASCOM CONSTRUCTION INDUSTRIES Subsidiaries and Associates OCI operates through wholly as well as partially owned subsidiaries in both construction and fertilizer segments. Subsidiary Construction Orascom Construction BESIX Group Contrack Construction Materials National Steel Fabrication United Paint and Chemicals United Holding Company Alico Egypt National Pipe Company SCIB Chemical Fertilizer Egyptian Fertilizers Company Egypt Basic Industries Corporation OCI Nitrogen Sorfert Algerie Associate Notore Chemical Industries Gavilon
Source: OCI

Ownership 100% 50% 100% 100% 56.5% 56.5% 50% 40% 15% 100% 100% 100% 51%

13.5% 16.8%

ORASCOM CONSTRUCTION INDUSTRIES

BUSINESS MODEL
Revenue Mix OCI derives its revenue stream from two distinct business segments: a construction group which has constituted the core of the companys operations since its establishment and a newly founded nitrogen fertilizer production group.

Source: BlomInvest

Construction Group: Throughout the years, OCIs brand has become synonymous with a degree of quality and competency in the MENA region allowing the company to contend in diverse markets and competitive bids for new contracts. The company actively pursues contracts in various sectors but the preponderance of its business consist of infrastructural works; ranging from building transportation projects to raising power plants as well as a multitude of industrial and commercial ventures. In 2009, 60% of its backlog consisted of infrastructure while the rest was split between industrial and commercial contracts. In the last few years, the bulk of new contracts awarded has stemmed from sovereign clients outgrowing those from its private clientele. OCI operates through three entities, mainly: Orascom Construction, Contrack, and BESIX. The company has also formed a 50/50 joint venture with Morgan Stanley to develop infrastructure in the MENA region.

Source: OCI

Fertilizer Group: OCI ventured into the fertilizer business in 2005 by acquiring Middle East Petrochemical Company (MEPCO) which held a 30% stake in EBIC. OCI later increased that stake to 60% to control the majority of the company. With the divestment of its cement operations in 2007 by the sale of Orascom Building Materials Holding Co, a global cement producer, to Lafarge SA, the firm was able to direct its attention to the fertilizer segment and expand its operations with the acquisition of EFC, DSM Agro & Melamine (now OCI Nitrogen), the erection of a new plant in Algeria (Sorfert) as well as minority stakes in Notore and Gavilon. In the span of a few years, the group has become a major player in Nitrogen based fertilizers with a total production capacity of over 4.84 mtpa as of late 2010 with a target of 7.75 mtpa in 2012.

ORASCOM CONSTRUCTION INDUSTRIES Geographical Diversification Through its acquisitions and investments in subsidiaries and associates, OCI benefits from a global presence in international markets asides its predominance in local markets for both construction and fertilizer activities. Orascom construction has strong presence in emerging markets across the Middle East and North Africa. Contrack and Besix, which are based in the United States and Belgium respectively, provide OCI with exposure to the American and European market which were otherwise inaccessible. However, the grand majority of the backlog springs from the MENA region with Egypt, Algeria and GCC countries leading way. During 2010, both Europe and Asia constituted 15% of total backlog. The group maintains a well-diversified backlog making it less prone to regional risks. As for fertilizers, the recent takeover of Dutch-based OCI Nitrogen (formerly DSM Agro & Melamine) as well as the minority stake attained in Gavilon, the largest distributor of fertilizers in the US, allowed OCI to obtain this geographical diversification and offered the opportunity to operate via different distribution channels and the ability to cater to different markets.

Source: OCI

Vertical Integration & Synergy The construction group owns and operates construction materials companies which consist of a series of enterprises that specialize in the different phases of the construction process. From its wholly owned steel fabrication plant (NSF) to partially owned pipe companies amongst others whose core businesses entail of paint, glass, steel, chemicals and aluminum, OCI benefits largely from this vertical integration. Their involvement in the process means that OCI secures its building materials and necessities from inside sources which provide a more maneuverable approach, prompter service while granting lower margins and minimizing costs. OCI also benefits from synergies through ventures and acquisitions that extend to the fertilizer segment. A prime example would be Sorfert Algeria which is set to begin production in 2011. OCI owns 51% of Sorfert while the remainder is owned by Sonatrach, the largest oil and gas company in Algeria. Sonatrach signed an agreement to provide gas stock supply at a competitive cost for the plant over a period of 20 years. This proves to minimize substantial cost for a major input in the production process. The close proximity of EBIC and EFC permits the plants to benefit from synergies by facilitating the exchange of inputs and materials.

ORASCOM CONSTRUCTION INDUSTRIES Products & Services With 60% of its backlog consisting of infrastructural works, OCI has been associated with this particular kind of activity capturing both soft and hard infrastructure contracts. Construction expertise varies from building bridges, highways and railroads to water and energy plants to telecommunications. With the advance of new technologies, OCI is gradually widening its operating scope and reducing barriers for capturing new awards. Fertilizers offered by OCI are mainly nitrogen based that vary by their nitrogen concentration and their chemical composition. Since each type of fertilizer possesses different physical and chemical characteristics, their usage varies as each would present advantages and disadvantages to the soil type and crop being grown. At the base, anhydrous ammonia is amongst the cheapest and most commonly used fertilizers. Most other commercial fertilizers are derived from it. Urea contains 45-46% nitrogen content. On application, the nitrogen present in it gets converted into ammonia. It readily dissolves in water and is capable of showing quick results. UAN consists of a solution of Urea and Ammonium Nitrate. It has become popular because it is more versatile as a liquid and is widely available. CAN is Ammonium Nitrate in crystallized from which is quick-acting but highly hygroscopic. Ammonium Sulfate (AS) contains only 21% nitrogen and is applied in dry form with no nitrogen loss. It is a good source of sulfur that is an essential nutrient to plants. However it is acidifying and requires large quantities of lime to counteract the acidic effects. Melamine, a derivative of urea, contains 66% nitrogen and is more expensive to produce than other nitrogen fertilizers. Its nitrogen mineralization process is extremely slow, making this product both economically and scientifically impractical for use as a fertilizer.

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ORASCOM CONSTRUCTION INDUSTRIES

STRATEGY
Fertilizer Segment to Lead Growth The construction group has slowed in terms of growth relatively to that of the fertilizer segment that has grown exponentially since inception and shows potential for more. Part of OCIs strategy is to catapult this segment which already ranks among the top 10 producers worldwide for nitrogen fertilizers into the top 3. With the erection of Sorfert Algerie and the broadening of distribution channels, this target is highly likely. As for construction, despite the sluggish performance that has ensued the global financial crisis, OCI remains strongly competitive in its core markets but is recently weighed down by the regional upheaval.

Source: BlomInvest

Revenue Expansion in Growing Markets The Construction group recently conducted endeavors to solidify its presence in already established markets such as the MENA region while penetrating new ones, mainly emerging markets with strong construction opportunities such as India. OCI has been granted various awards across the MENA such as a USD 675 million contract as part of the billion dollar Qatar development plan as well as a prior USD 750 million contract to expand the international airport. The firm has also created a joint venture with Indian company HCC Infrastructure Limited (HIL) to tender to projects issued by the National Highways Authority of India and have already begun to grab part of the 11,854 km of roads and highway works that will be built. Cost Control Through vertical integration, OCI benefits from having the necessary capabilities of keeping its margins in check despite volatile price environments. Since 2007, operating margin has averaged at 17% as a result of stable COGS (around 78% of total revenue) and constant SG&A.

Source: BlomInvest

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ORASCOM CONSTRUCTION INDUSTRIES Brand Associated with Top Quality and Competitive Pricing The OCI name and brand has been linked with top grade quality and efficiency in services and products offered at competitive prices. Through extensive years of experience in the field, the contractor has gained a level of knowhow by overseeing various types of projects. Benefitting from low cost margins has given OCI the ability to provide their service at favorable prices thus giving an edge in the bidding process. A low cost player providing higher quality services are attributes that are favored thus giving OCI an advantage in gaining new awards. Customer satisfaction is essential since the majority of their clientele consist of governments undergoing infrastructural works; this gives rise to recurring businesses and the awarding of vast projects which is more favorable and larger in size than those undertaken by private ones. Government Partnerships With almost 65% of its backlog stemming from sovereign clients, OCI has formed ties and partnerships with many governments across the MENA region. In the GCC countries where it conducts most of its business, OCIs service is looked favorably upon in Qatar and UAE where no favoritism is exhibited towards local competitors. However, that is not the case in Saudi Arabia where OCIs exposure is weak due to the high barriers of entry and the availability of strong local competitors which capture most of the new infrastructure projects.

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ORASCOM CONSTRUCTION INDUSTRIES

OUTLOOK
Construction Backlog Continues to Decline OCI reported a backlog of USD 5.62 billion through 2010, 15% lower than 2009. The diminishing backlog is attributed to a slowdown in construction activity on both the regional and international fronts. This started in 2008 as countries in the GCC and the entire MENA region felt the effect of the worldwide economic slowdown. We expect to see further declines in 2011 as the potential for new business continues to weaken in Orascoms major markets, such as Egypt and Algeria which constitute almost 40% of backlog. Growth may resume in 2012 as the geopolitical situation in the region calms down and Egypts new political system takes shape. Both infrastructure and real estate investment are key demands of revolutions in the region with their respective governments indicating strong support by declaring massive spending plans. On a positive note, projects in Qatar, which constitute 20% of Orascoms backlog, are anticipated to continue growing as massive infrastructure projects take place in preparation for the World Cup.

Source: OCI, BlomInvest

New Awards Expected to Continue Slump during 2011 New awards have experienced a phase of decline since 2008 where they reached a record USD 5.48 billion, almost 80% of total backlog for the year. In 2009, new awards slumped to USD 3.17 billion as a result of the slowdown in construction activity where the fourth Quarter of 2009 proved to be the worst in 4 years with a meager USD 360 million. New awards in 2010 showed no improvements as OCI reported weaker numbers than last year with USD 2.62 billion vs. 3.17 billion in 2009. We expect New Awards to continue declining throughout 2011 due to geopolitical pressure that may slow demand for new construction. However, governments all over the MENA have declared spending plans to update their infrastructure and increase housing supply which would improve the companys construction line-of-business. We expect this to begin appearing in Orascoms operational and financial results in 2012.

Source: BlomInvest

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ORASCOM CONSTRUCTION INDUSTRIES Reliance on Regional Infrastructure Investments While the outlook for 2011 remains grim, we see new awards increasing in 2012 through augmented exposure to new markets and increased investment in key markets. Looking forward, this sector shows promise, and with the advent of new development plans in various countries throughout the GCC and MENA region, OCIs strong competitive edge and competencies in its field are guaranteed to make it capture an extensive portion of bids. Chief among these structuring plans are listed here below: o On the domestic level, Egypt is planning development and infrastructural projects for USD 24 billion. The Algerian government has allotted USD 150 billion to spend on infrastructure by 2013. o In the Gulf, Qatar has consorted significant restructuring and development plans that will shape and direct the countrys future. The government is implementing new plans to erect stadiums and to rearrange and renew infrastructure in preparation for the World Cup. o In the UAE, Abu Dhabi announced that a major USD 300 billion package is underway for construction and infrastructure. o As for Dubai, workload has slowed noticeably this past year upon suffering from the effects of the debt crisis contrarily to Abu Dhabi. However, upon the restructuring of its debt and improvements in its economy, activity is likely to resume. o Saudi Arabia, a market in which OCI does not possess strong presence due to strong local competition, might see increased exposure as new plans are being implemented to secure the long-term development of the country. Fertilizer Market Tied to World Demand for Food and Energy Fertilizer markets overall whether potash, nitrogen or phosphate based took a downturn in 2009 but has firmly rebounded in 2010 and is expected to maintain sustained growth trends for the coming four years. At the start of 2010, supply stagnated due to slower than anticipated growth in capacity. However, we expect a surplus to run for nitrogenous fertilizers in the long run due to capacity growth overtaking that of demand. Fertilizer production and consumption remain tied to the health of the global economy. As the economic recovery progresses, the agricultural market fundamentals are stabilizing and thus increasing agricultural needs to meet world demand for food and energy. Overall, global trade of Nitrogen fertilizers is expected to expand by 15% through 2014. In the short-run however, OCI has benefitted from favorable market dynamics in 2011: Competitors from Ukraine and China are experiencing rising cash costs in production while exports from Russia, China and Ukraine are constrained due to the surge in domestic consumption.

Source: Blominvest

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ORASCOM CONSTRUCTION INDUSTRIES Expectations for Fertilizer Prices & Capacity As prices bottomed in 2009, they did not gain as much momentum as was expected in 2010. However, we are witnessing a gradual recovery and we expect prices to be on the rise during 2011-2013. As stated above, capacities arent experiencing much growth. Worldwide expectations remain positive over a four year time scale. For OCI, as per management guidance, we can expect to see growth in capacity for some of its fertilizers effective 2012. Year by year, the fertilizer segment grows in importance. The acquisition of DSM Agro & Melamine now known as OCI Nitrogen which outperformed in the first half of the year plays a pivotal role in the expansion plans of the group as it has gained the capability to access new markets such as Europe and China. The erection of Sorfert in Algeria will also increase their foothold in the continent as well secure their domination in the nitrogenous fertilizer world.

Source: Blominvest

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ORASCOM CONSTRUCTION INDUSTRIES

RISKS
Outlined here are some of the main hurdles that could threaten to slow OCIs growth and affect revenue hence shrinking profitability: Delay in Demand for Construction While unrest has settled in Egypt, a key market for Orascom, uncertainty continues in several markets that present a growth opportunity for the company. This may cause a delay in gaining new awards and have an adverse effect on its backlog since sovereign projects constitute a major share of Orascoms construction business. Plans to update infrastructure and increase housing supply are already being proposed by several Middle Eastern governments in response to protester demands. However, actual construction and contract signing may lag until political risks in the region decline. Increased Competition in an Already Saturated Market OCIs construction division benefited from large margins early on due to the unavailability of equally experienced construction companies. However, with the advances made to the sector ensuing successive construction booms in the region, the market is now flooded with strong competitors on both the local and international level with whom OCI has to contend in the bidding for new contracts. Algerian Government Squabbles With mounting tensions between the Egyptian and Algerian governments that occurred during the summer of 2010, the outlook in Algeria remains uncertain for Egyptian companies. Orascom Telecom already faced some backlash with Djezzy, its Algerian operations as the government imposed high taxes and pushed for a hostile takeover. Sorfert which is set to begin operations in the first half of 2011 could face hindrances from the local government, thus affecting its profitability. Fluctuating Commodity Price Cycles Most commodity prices move concomitantly as witnessed globally by the large spikes and sharp falls across the board. OCIs reliance on commodity prices is apparent in both business segments. Specifically, oil has a direct impact on its fertilizer business; as oil prices increase, fertilizer prices follow suite resulting in higher profitability. On the other hand, oil prices have an indirect effect on its construction business; a considerable portion of Orascoms backlog comes from oil-exporting countries whose budgets rely on oil prices. As oil prices increase, thicker budget surpluses encourage them to invest in new construction projects. Another key commodity that affects Orascoms fertilizer business is natural gas, as it constitutes a large part of the costs. Despite having contractual agreements to have gas supplied at fixed prices, some contracts are about to expire such as OCI Nitrogen in 2012 (paying $5/MMBTU) which may push the company to pay spot prices that are expected to average $7/MMBTU in 2012 based on futures.

16

ORASCOM CONSTRUCTION INDUSTRIES

FINANCIAL ANALYSIS
Revenues We expect OCIs overall revenues to stagnate in 2011 due to the regional turmoil that may cause a temporary slowdown in new orders for construction. However, the companys strategy to propel the fertilizer group coupled with a recovery in fertilizer prices will help spark an increase in revenues. We expect fertilizer revenues to post a hefty 27% Y-O-Y increase vs. constructions languorous 4% in 2011. Fertilizers are gradually capturing a larger part of total revenues, estimating growth to record a CAGR of 16.1% for the 2010-2014 timeframe.

Source: BlomInvest

Gross Margins Despite lower revenue contributions, fertilizers possess the advantage of having higher gross margins than construction which permits for a higher gross profit contribution. We estimate gross margin for fertilizer in 2011 to reach 44%, significantly higher than constructions near 20% margin. Construction COGS hover in the 80% range and are somewhat stable while fertilizer costs are more variable and are forecasted to near 60% in the future. In 2011, we estimate around EGP 4.2 billion of gross profit from fertilizer compared to EGP 3.2 billion from construction.

Source: BlomInvest

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ORASCOM CONSTRUCTION INDUSTRIES Earnings Net income is estimated to reach EGP 4 billion in 2011, an 11% rise over 2010s reported earnings of EGP 3.65 billion. This increase in large part would be due to the favorable environment for fertilizer sellers as demand continues to expand and high oil prices allow gross margin enhancements. OCI nitrogen has been consistently beating estimates with better than expected results, and Sorfert Algeria which is on track to begin operations in 2011 will give an important boost to fertilizer revenues. Despite an expected sloppy performance in the construction sector for 2011, we anticipate an expansion for 2012 with higher awards granted and a return to backlog growth by year end.

Source: BlomInvest

Liquidity OCIs liquidity ratios have conjointly followed a feebly-sloped downward trend since 2008 as more borrowings and liabilities reach maturity. However, we see them stabilizing near our 2012 estimates. The companys current assets have always been greater than its current liabilities while the cash ratio, a measure of cash availability, will remain around 0.30. OCI has held the reputation of being a cash-rich company as witnessed by its high cash balances of nearly EGP 5.4 billion in 2010. Current Ratio = Current Assets / Current Liabilities Cash Ratio = Cash / Current Liabilities Net Working Capital (NWC) Ratio = (Current Assets Current Liabilities) / Current Assets

Source: BlomInvest

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ORASCOM CONSTRUCTION INDUSTRIES Leverage With ongoing expansion plans and acquisitions in an otherwise slowing market, OCI continued the same level of capital expenditures in order to remain competitive. Reliance on debt experienced a surge from 2009 and its capital structure mix was varied with more leverage factored in. For example 70% of the Sorfert plants investment cost was debt-financed as the company tapped a EUR 1.064 billion loan facility. Consequently, this had for effect of pushing up the debt equity ratio by 25% in 2009. We expect the ratio to start a gradual decrease during 2011 as no new plans for acquisitions or expansions are in sight for the short term. OCIs interest coverage ratio was around 7 in 2010, which is considered a relatively safe investment. As earnings improve along with little debt issues, we see the ratio climbing to the 8-10 range.

Source: BlomInvest

Profitability We estimate a slight increase in ROA to reach 7.7% in 2011 along with ROE rising to 23%. Both ratios are expected to improve further in 2012 as the fertilizer operations start to turn in more profits and construction recovers from a slowdown in orders. In 2010, OCIs ROA experienced a boost to reach 7.3% from 5.7% in 2009. This in large part is due to a recovery in earnings from the prior year where both business segments were under pressure. .

Source: BlomInvest

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ORASCOM CONSTRUCTION INDUSTRIES Dividends Historically, OCI has been consistently distributing dividends bi-annually since 2008. Besides its large 300 EGP/share offered in march of 2008 which disbursed most of its earnings from the sale of the cement group, the usual dividend offered amounts to around 5 EGP or the equivalent of 1 USD. The companys dividend payout ratio is around 45% of net earnings. Date 30-Jun-08 21-Sep-08 25-Mar-09 27-Sep-09 29-Mar-10 13-Sep-10 07-Apr-11
Source: OCI, BlomInvest

Price/Share (EGP) 367.00 326.11 144.86 245.30 267.22 257.74 248.50

Div./Share (EGP) 5.00 5.48 5.63 4.40 5.50 5.71 5.70

Div.Yield 1.36% 1.68% 3.89% 1.79% 2.06% 2.21% 2.29%

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ORASCOM CONSTRUCTION INDUSTRIES

COMPARABLE ANALYSIS
When studying a company, we find it necessary to see how it compares to its peers from three standpoints: 1. Profitability Comparison: Indicative of how efficiently the company is managing its expenses through different margin analysis (Gross Margin, Operating Margin, Net Income) 2. Relative Valuation: Shows how the market perceives the company as opposed to its peers (overvalued, undervalued, or fairly valued) 3. Management Efficiency: Shows how well management is utilizing its assets and equity to generate earnings. Comparable Firms We stratify our selection to companies that operate in the region and/or the fertilizer and construction industries which will provide insights into the strengths and weaknesses of our target company. Since OCI operates in two industries that possess dissimilar margins and different dynamics, comparison of the consolidated business to other firms can be distorted. Hence we proceeded by compiling a list that consists of 8 fertilizer producers and 8 contracting companies. To account for the differences, we computed a weighted average for these companies with the weights based on the gross profit contribution by both business segments in OCI. Thus a weight of 50% was accorded to both the construction and fertilizer businesses based on their gross profit contribution in 2010. The average market cap was of USD 6.6 billion with values ranging between 650 million and 16.9 billion. The average was significantly lower than OCIs 8.8 billion market cap due to the inclusion of smaller cap competitors from the MENA region. The complete list of companies is available in the appendix. Relative Valuation We compared Price against earnings, revenues, book value and cash flow in order to alleviate differences in accounting standards that can arise from operating in different countries. Through price to earnings and revenues, we can see that OCI is significantly undervalued compared to the peer composite due to an excellent performance in 2010 where both earnings and revenues registered around 30% growth. Instead of a rise in its share price, the stock fell considerably caused by the recent upheaval in the region. Performance during 2011 is expected to be close to its 2010 performance indicating an undervalued share price. On the other hand, its price to book value and cash flow are on par with the peer composite.

Source: BlomInvest, Reuters

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ORASCOM CONSTRUCTION INDUSTRIES Profitability Comparison OCIs gross margin is of 24% when compared to the significantly higher average of 29%. The individual companies that compose the list exhibit various discrepancies. Mainly, construction firms from Europe have unusually high gross profit margins which tend to skew our data. However, OCIs gross margin seems to be the most competitive relative to its Middle Eastern peers. On another note, OCIs operating margin is slightly higher than that of the average composite. This indicates that OCI is more cost effective in running its day-to-day activities. OCI has leveraged its know-how through extensive years of experience in the field to achieve better quality at lower costs. This is further validated through its SG&A margin which is almost half that of its peer. Net income margin is slightly lower than the peer average. Its higher debt results in higher interest expense which reduces its net income margin compared to its peers.

Source: BlomInvest, Reuters

Management Efficiency OCIs Return-on-Equity (ROE) at 21% is on par with its peer average whereas its Return-on-Assets (ROA) is lower. This lagging performance can be attributed to OCIs overleveraging with a Debt-toEquity (D/E) ratio of 91%, resulting in considerably higher interest expenses. In addition, its Revenue/Assets ratio is half that of its peers which further contributes to a lower ROA.

Source: Blominvest, Reuters

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ORASCOM CONSTRUCTION INDUSTRIES

VALUATION
We estimate OCIs fair value at EGP 270 per share using a Sum-of-the-parts (SOTP) methodology. Both lines of business were valued using a discounted cash flow (DCF) model; however the construction segment was valued as a whole while the fertilizer subsidiaries were segregated and valued individually.
Line of Business OCI Ownership Value (in EGPm) Per Share (in EGP)

Construction Group Fertilizer Group Subsidiaries EFC EBIC OCI Nitro Sorfert Notore Gavilon Total Less: Net Debt Less: Minorities Net Equity Value
Source: BlomInvest

100%

27,729 40,462

134.01 195.54 55.06 26.58 97.00 7.85 0.46 8.59 329.55 54.80 4.92 269.83

100% 60% 100% 51% 13.5% 16.8%

11,392 5,500 20,072 1,624 96 1,777 68,191 11,339 1,018 55,834

Assumptions in Valuation Discount Rate We used a WACC of 11% in valuing the fertilizer business group and a WACC of 13% for construction derived as follows: Fertilizer WACC = (Weight of Debt * Cost of Debt)*(1-Tc) + (Weight of Equity * Cost of Equity) = (50% * 5.98%)*(1-15%) + (50%*17.16%) = 11.09% OCI Cost of Debt = Interest Expense for 2010 / Debt for 2010 = EGPm 678 / 11.34 = 5.98% OCI Cost of Equity = Risk-Free Rate + (Beta * Market Risk Premium) = 10.4% + (1.06 * 6.4%) = 17.16% We used a Risk-Free Rate of 10.4% represented by the yield on the one year Treasury bill issued by the Egyptian Government. This captures the additional risk of investing in a relatively undeveloped country such as Egypt when comparing it to the U.S. Treasury. OCIs weekly Beta over the past 3 years is estimated at 1.06. This is a measure of OCIs share volatility against the EGX-30 Index that represents the 30 largest shares on the Egyptian Stock Exchange. A Market Risk Premium of 6.4% is the result of the difference between the average 5 year return of the EGX-30 estimated at 16.8% and the Risk-Free Rate of 10.4%. This represents the premium investors expect to gain for realizing the additional risk of investing in securities. To calculate constructions WACC, we added a 2% premium to the WACC of the fertilizer business segment in account for geopolitical risks in the MENA region where most of Orascoms construction projects are.

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ORASCOM CONSTRUCTION INDUSTRIES Terminal Growth Rate With the construction and fertilizer business segments being in different stages, we took different terminal growth rates beyond our forecasts to account for this. A 3% growth rate was used for construction compared to 4% for fertilizers. Corporate Tax Rate A 15% effective tax rate was applied on our forecasts based on previous taxes paid and due. Assumptions in Forecasting Construction Revenues 1. Existing Projects in Backlog Revenues were recognized over a four year time frame using an accelerated method with revenues heavily recognized in the first two years and then moderately over the remaining two. This assumption was based on historical observations of project completion time as well as the payment compatibility from clients. The top ten biggest contributors to backlog with values exceeding USD 140 million each had their revenues recognized independently. The remainder of backlog was then recognized as a whole with an average template of 30% in year 1, 40% in year 2, 20% and 10% in year 3 and 4 respectively. 2. New Awards Based on our estimates of the construction outlook in the region, as well as OCIs positioning in the markets, we see new awards gaining momentum as early as 2011. New awards are expected to bounce back to the USD 4 billion range in 2011 from its scanty USD 3.12 billion end-of-year estimate in 2010. Thereafter, we anticipate bids won to maintain an upward trend for the coming three years. Note that once awards are won, they are captured in the backlog and therefore follow the same principles for revenue recognition as existing projects. Our assumptions hence yielded the following forecasts:
(in millions USD) 2010 2011e 2012f 2013f 2014f

New Awards Backlog Revenue Revenue growth

Source: BlomInvest

2,620 5,620 3,398

2,490 5,355 2,941 -13.0%

2,700 5,683 3,063 4.1%

2,860 5,921 2,939 -4%

3,030 6,152 3,004 2,2%

Costs of Goods Sold were assumed stable and hovering around 80% of total revenues. Assumptions in Forecasting Fertilizer Revenue Fertilizer Price Forecasts Since OCI owns and operates different fertilizer plants, revenues and profits were recognized by subsidiary. As per management guidance, weighted average selling prices and capacity were provided for each product from each plant constituting the basis of our analysis. Our forecast for average selling prices over the next three years is as follows: Prices are in USD per ton
Fertilizer Urea Ammonia UAN CAN AS Melamine Source: BlomInvest 2010 238 321 204 227 200 1,512 2011e 249 336 213 238 210 1,584 2012f 261 352 224 249 219 1,659 2013f 275 372 236 263 231 1,750 2014f 289 390 247 276 243 1,837

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ORASCOM CONSTRUCTION INDUSTRIES Among the factors we considered to model our fertilizer pricing forecasts are: Production Inputs & Natural Gas Costs The production of nitrogenous fertilizers requires natural gas as a primary input. Although most plants have contracts for natural gas to be provided at fixed costs, OCI Nitrogens contract will expire forcing the company to pay spot prices in 2012 and resulting in a hike in costs. Other production input prices were assumed to increase marginally every year. Global Supply & Demand Overall, we estimated that global supply of nitrogenous fertilizer will increase on average causing surplus to rise accordingly. These dynamics are correlated to many factors that interplay resulting in an upward or downward pressure on prices. Chief amongst these factors considered were world agricultural needs, granular prices, restraints and oversupply from other producers, inventory carryover, cheaper alternatives, seasonality Transportation Costs Transportation costs were based on shipping charges (as per the Harpex and the Baltic Dry Index) and raw material costs that are tied to other commodity futures since they tend to move together. Production Capacity OCIs management guidance was taken for any planned changes in capacity. We assumed 100% capacity utilization:
Plant EFC EBIC Fertilizer Urea UAN AS Ammonia Ammonia CAN OCI Nitrogen UAN AS Melamine Sorfert Source: BlomInvest, OCI Ammonia Urea Capacity (mtpa) 1.3 0.325 0.3 0.7 0.45 1.2 0.2 0.75 0.24 0.8 1.2 Capacity Change 1.60 No Change No Change No Change No Change 1.45 No Change No Change No Change No Change No Change as of 2012 as of 2012 in 2012 Timescale in 2012 as of 2011 as of 2012

Fertilizer COGS consisted of cash costs of production which varied for each fertilizer. These were provided by OCI and projections were made in accordance with changes in future costs.

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ORASCOM CONSTRUCTION INDUSTRIES

PROJECTED INCOME STATEMENT

(in millions of EGP) Continuing Operations Revenues COGS Gross Profit Other Operating Income SG&A Provisions for Claims & Doubtful Debts Operating Profit Interest Income Interest Expense Gain on Foreign Currency Exchange Net Finance Cost Investments Income Income Before Taxes Income Tax Expense Net Profit From Continuing Operations Discontinued Operations Results from Discontinued Operations Gain on Sale of Investment Net Profit From Discontinued Operations Net Income EPS EPS from Continuing Operations Source: Blominvest 11 1,434 1,445 5,444 25.82 18.87 11.74 11.74 0 0 0 2,550 17.65 17.65 0 0 0 3,652 19.61 19.61 0 0 0 4,057 25.32 25.32 0 0 0 5,239 26.30 26.30 0 0 0 5,441 28.23 28.23 0 0 0 5,841 20,253 (14,952) 2,309 64 (1,093) (201) 4,070 677 (668) 494 503 2 4,575 (576) 3,999 21,313 (16,581) 5,300 168 (1,284) (212) 3,404 134 (632) 35 (462) 99 3,042 (491) 2,550 27,560 (20,814) 4,732 17 (1,626) (473) 4,664 104 (678) (31) (605) 429 4,488 (835) 3,652 27,148 (19,818) 6,273 217 (1,710) (543) 5,294 92 (757) 50 (615) 150 4,829 (773) 4,057 28,932 (20,252) 7,051 231 (1,736) (579) 6,596 126 (759) 50 (583) 150 6,163 (924) 5,239 30,257 (21,180) 7,826 242 (1,876) (605) 6,838 97 (734) 50 (586) 150 6,402 (960) 5,441 32,025 (22,418) 8,480 256 (1,954) (641) 7,270 132 (729) 50 (547) 150 6,872 (1,031) 5,841 2008 2009 2010 2011e 2012f 2013f 2014f

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ORASCOM CONSTRUCTION INDUSTRIES

PROJECTED BALANCE SHEET

(in millions of EGP) ASSETS Current Assets Cash and Equivalents Inventories Trade and Other Receivables Receivable on Sale of Discontinued Cement Operations Marketable Securities Assets Held for Sale Dues from Clients Total Current Assets Non-Current Assets PP&E Payments for Purchase of Investments Intangible Assets Investments in Associated Companies Investments Available for Sale LT Receivables Deferred Income Taxes Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Bank Overdraft for ST Loans Trade and Other Payables Due to Clients Provisions Income Taxes Payable Liabilities Related to Assets Held for Sale Total Current Liabilities Non-Current Liabilities LT Loans Provisions Other LT Liabilities Deferred Taxes Total Non-Current Liabilities TOTAL LIABILITIES EQUITY CAPITAL Share Capital Reserves Retained Earnings Net Profit for the Year Own Shares Adjustment on Translation of Foreign Companies TOTAL SHAREHOLDERS' EQUITY Minority Interest in Subsidiaries TOTAL EQUITY CAPITAL TOTAL LIABILITIES & SHAREHOLDERS' EQUITY Source: BlomInvest 43,026 46,858 53,436 52,093 53,116 54,265 55,270 1,074 6,183 6,484 5,367 -1,668 -86 17,355 227 17,581 1,035 4,320 8,836 2,417 -200 -15 16,393 750 17,143 1,069 4,523 8,738 3,531 -205 -320 17,336 1,018 18,354 1,035 4,706 7,785 3,883 -200 0 17,209 1,018 18,227 1,035 4,909 7,381 5,040 -200 0 18,164 1,018 19,182 1,035 5,171 9,068 5,221 -200 0 20,295 1,018 21,313 1,035 5,443 9,619 5,612 -200 0 21,509 1,018 22,527 7,754 1,891 613 507 10,766 25,444 11,219 1,913 571 582 14,285 29,715 12,656 2,096 739 970 16,461 35,082 10,994 1,947 750 600 14,291 33,866 11,454 1,925 700 600 14,679 33,933 10,990 1,950 650 600 14,190 32,951 11,237 1,922 600 600 14,359 32,743 3,671 8,318 1,600 634 457 0 14,679 2,266 8,494 3,659 650 361 0 15,429 4,125 10,358 2,884 877 377 0 18,621 3,765 10,407 4,344 650 409 0 19,575 3,240 10,615 4,340 650 409 0 19,254 2,965 10,199 4,539 650 409 0 18,762 2,690 9,991 4,644 650 409 0 18,384 9,912 2,785 9,910 136 133 255 36 23,167 43,026 14,991 0 9,874 2,105 253 247 38 27,508 46,858 17,999 0 10,762 2,588 237 329 229 32,144 53,424 17,642 0 10,547 2,600 250 271 251 31,562 52,093 18,299 0 10,336 2,600 250 289 277 32,051 53,116 18,791 0 10,129 2,600 250 303 306 32,379 54,265 18,886 0 9,927 2,600 250 320 338 32,321 55,270 8,269 1,462 8,236 0 163 535 1,194 19,859 5,925 1,402 9,750 0 211 539 1,523 19,350 5,443 1,834 11,143 0 252 449 2,159 21,280 5,334 1,737 10,859 0 250 450 1,900 20,531 5,494 1,852 11,283 0 250 450 1,736 21,065 5,604 1,936 11,800 0 250 450 1,846 21,886 5,660 2,050 12,490 0 250 450 2,050 22,949 2008 2009 2010 2011e 2012f 2013f 2014f

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APPENDIX
I List of Comparable Peers
Informational Company Construction Contractors Combined Group Arabtec Holding PJSC Aveng Limited Colas SA Leighton Holdings Limited Fluor Corporation (NEW) ACS Activ. de Construc. China State Const. Corp Construction Average Fertilizer Producers Abu Qir Fertilizers and Jordan Phosphate Mines China BlueChemical Ltd. Taiwan Fertilizer Co., Ltd. Arab Potash Company CF Industries Holdings Saudi Arabia Fertilizers Yara International ASA Fertilizer Average Average Composite (50% Construction, 50% Fertilizer) Orascom Construction Industries Source: Blominvest, Reuters Ticker Exchange Country Mkt Cap USD (m) 650 582 2,085 7,670 8,677 12,035 15,942 3,502 6,393 P/E Valuation P/Rev P/BV P/CF Gross Margin (%) 12.82 15.14 16.24 52.63 38.96 3.38 44.32 10.76 24.28 Profitability Analysis Oper Margin (%) 8.69 7.81 6.12 2.68 5.79 2.68 6.84 8.42 6.13 Profit Margin (%) 7.34 7.91 5.51 1.32 4.22 2.12 8.33 9.35 5.76 SG&A / Rev 3.27 7.62 47.71 28.51 0.75 25.65 3.93 16.78 ROE Management Efficacy ROA D/E Rev / Assets 0.91 0.61 1.45 1.52 1.77 2.82 0.48 0.71 1.28

CGC ARTC AEG RE LEI FLR ACS 601668

KUW DFM JNB EPA ASX NYSE MCE SHA

Kuwait UAE S. Africa France AUS USA Spain China

20.07 6.96 8.86 23.46 13.8 34.51 8.06 23.19 17.36

1.61 0.39 0.42 0.44 0.54 0.58 0.68 2.27 0.86

5.62 0.79 1.11 2.21 2.85 3.43 2.42 5.06 2.94

13.75 2.93 4.65 8.29 5.51 19.05 6.93 22.64 10.47

27.97 12.07 16.23 9.69 24.96 10.51 30.23 25.49 19.64

6.69 4.85 7.99 2.01 7.48 5.96 4.10 6.59 5.70

62.09 27.32 3.11 19.57 65.13 3.27 334.04 115.83 78.78

ABUK JOPH 3983 1722 APOT CF 2020 YAR

CAI AFM HKG TPE AFM NYSE SAU OSL

Egypt Jordan China Taiwan Jordan USA Saudi Norway

1,727 1,629 3,751 3,302 5,008 9,956 11,933 16,945 6,781 6,587 8,759

7.57 12.52 20.72 55.26 21.77 28.43 14.59 8.8 21.21 19.29 13.65

4.15 2.04 3.55 6.56 6.33 2.51 11.81 1.36 4.79 2.83 1.81

3.55 2.14 2.31 1.9 4.32 2.45 6.27 2.52 3.18 3.06 3.17

12.37 11.52 48.42 17.28 12.31 14.07 7.97 17.70 14.08 15.43

42.12 25.71 27.92 13.02 46.55 29.75 70.99 23.22 34.91 29.60 24.48

41.6 10.49 24.55 5.87 32.9 22.16 69.19 11.42 27.27 16.70 18.58

47.26 13.18 19.94 11.94 29.09 10.44 60 13.45 25.66 15.71 13.25

10.82 5.24 7.75 7.58 6.14 2.68 0.31 7.00 5.94 11.36 6.30

41.77 15.89 11.61 3.45 21.19 12.08 41.45 27.32 21.85 20.74 21.07

29.96 12.05 10.08 2.73 17.18 7.36 34.13 13.83 15.92 10.81 7.28

0 7.19 3.18 0.01 3.87 48.37 4.95 37.76 13.17 45.97 91.44

0.63 0.91 0.51 0.23 0.59 0.7 0.44 1.03 0.63 0.96 0.52

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Orascom Construction Industries

BLOMINVEST BANK s.a.l.
Research Department Verdun, Rashid Karameh Str. POBOX 11-1540 Riad El Soloh Beirut 1107 2080 Lebanon Tel: +961 1 747 802 Fax: +961 1 737 414 research@blominvestbank.com

Equity Rating Key

Buy: A recommendation with a potential return greater than 10% based on our current 12-month view of total shareholder return*. Hold: A recommendation with a potential return between -10% and 10% based on our current 12month view of total shareholder return. Sell: A recommendation with a potential return of less than -10% based on our current 12-month view of total shareholder return. * Total Shareholder Return is calculated by the potential price growth over a 12-month period along with the expected dividend yield.

For your Queries:

Marwan Mikhael, Head of Research marwan.mikhael@blominvestbank.com +961 1 991 784 Ext: 360 Issa Frangieh, Senior Equity Analyst issa.frangieh@blominvestbank.com +961 1 991 784 Ext: 361 Karim Houri, Equity Analyst - TDP karim.houry@blominvestbank.com +961 1 991 784 Nader Ali Khedr, Research Analyst nakhedr@blomsecurities.com +202 3761 7682

IMPORTANT DISCLAIMER
This research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. Blom Bank SAL or BlomInvest SAL can have investment banking and other business relationships with the companies covered by our research. We may seek investment banking or other business from the covered companies referred to in this research. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research. We and our affiliates, officers, directors, and employees, excluding equity analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives (including options and warrants) thereof of covered companies referred to in this research. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice. The price and value of the investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Copyright 2010 BlomInvest SAL. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of BlomInvest SAL.

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