GB Auto

Company note

GB Auto Consumer | Egypt

MENA research

Geely: Positive but not very promising



New Chinese PC brand representation to extend GB Auto’s product offering to a lower income bracket and fill up its idle capacity

Overweight Target price (EGP) Current price (EGP) Potential return



We are more conservative on the new venture’s prospects given Chinese brands’ limited traction in the Egyptian market so far

Bloomberg Reuters



The new representation is value‐neutral at current discount rates; we raise our TP 2% to EGP30.9/share and maintain our Overweight rating

AUTO EY AUTO.CA

Mcap (EGPm) Mcap (USDm) Number of shares (m) Free float Daily volume (USDm) Foreign own. limit Foreign ownership

Through an agreement to distribute and assemble China’s Geely PCs in Egypt, GB Auto will expand its product offering, gaining exposure to a lower price point, and utilize the 100,000‐unit assembly capacity to be vacated when the Verna is discontinued by the end of 2013e. GB Auto will start distributing imported, CBU Geely Panda and Emgrand EC7 models in Egypt in 2Q12e and will begin CKD unit assembly by 3Q12e.

Management expects the new representation to add EGP1bn–EGP2bn to consolidated revenue in the near term, optimistically guiding for Geely’s sales volume to match Verna’s by 2014e (c23,000 units, 9% market share). We believe GB Auto’s brand equity and market leadership, backed by its reliable after‐sale service network and its PC consumer finance arm ‘Drive’ (launched in 4Q11), in addition to a new dealer distribution network dedicated to the new brand, will be key in driving Geely’s success in Egypt.

30.9 24.0 29%

3,096 513 129.0 22% 0.1 100% N/A

Note: All prices as of 26 February 2012

Price performance

50 40 30 20

However, we are more conservative about the new venture’s prospects as we do not expect any Geely model to offer a reasonable substitute for the Verna (GB Auto’s ever‐popular model, 13% market share, 52% of taxi replacements, 40% of GB Auto’s PC sales) given (1) the perception in the Egyptian market that Chinese brands produce lower‐quality vehicles and (2) the limited success any Chinese brand has achieved in the local market since becoming widely available in 2006 (8% average 6‐year market share). The new representation is value‐neutral at current discount rates; we raise our TP 2% to EGP30.9/share and maintain our OW rating. We maintain the view that GB Auto is among the best listed proxies for Egypt’s consumer recovery, offering high growth potential (2012–16e revenue CAGR of 15% and net income CAGR of 24%). The venture adds cEGP1.0/share (4%) to our valuation, but the incremental value is diluted by a 47 bps increase in our cost of equity on the back of expanding Egyptian T‐bill yields (12.7% after tax).

Potential catalysts for the new venture include (1) the brand gaining wider than expected traction, resulting in higher than expected sales, (2) after‐ sale revenue from preexisting and new Geely vehicles (not accounted for in our numbers), (3) higher than expected selling prices and/or margins, and (4) extension of the new brand offering to other North African markets.

10 J

M

M AUTO EY

J

S

N J EGX30

28 February 2012

Mai Nehad Analyst +202 3535 7356 mai.nehad@hc‐si.com

Key indicators

2010

2011e

2012e

2013e

P/E EPS growth

12.0x 33%

14.9x ‐21%

9.4x 59%

6.5x 45%

Source: Company data, HC

Please refer to important disclosures and analyst certifications on pages 13–15 of this report.

GB Auto Consumer | Egypt 28 February 2012

Valuing the new venture In our previous note, Oversold; upgrade to Overweight, published on 14 December 2011, we opted not to entirely exclude CKD sales due the expected announcement of an alternative PC representation and management’s solid conviction that, even if a new PC brand were not obtained, the company would find an alternative way to generate revenue from its idle capacity by adapting its CKD facility to assemble microbuses or pickup trucks or by leasing it out. We update our assumptions to more accurately account for the new brand representation. We currently assume (1) a market share of c3% for Geely in 2012e (c2,800 units), to increase to 7% by 2014e and remain at the same level thereafter – in line with Speranza’s current market share – as we believe the new brand would be relatively mature by then, (2) an average selling price of cEGP60,000 in 2012e, to increase at an average of 6% per annum thereafter as a wider product mix is introduced, and (3) a gross margin of 7.5% in 2012e, to increase to c12% by 2014e, in line with GB Auto’s average Hyundai PC margins, assuming a 50‐50 CBU‐CKD mix. We assume lower incremental revenue from the new brand than does management, which is guiding for cEGP180m in 2012e, EGP1.0bn in 2013e, and EGP1.8bn in 2014e, as we opt to be conservative at this stage while we wait to see how successful the brand’s rollout is. Fully incorporating management guidance in our numbers would raise our valuation 3%.

Geely PC forecasts (EGPm) Market share Volume (units) Average price/unit (EGP) % change Revenue % change COGS % change Gross profit (ex depreciation) Gross margin

2012e(1)

2013e

2014e

2015e

2016e

2.5% 2,753 59,175 163 (151) 12 7.5%

5.5% 11,632 68,052 15% 792 386% (712) 373% 79 10.0%

7.0% 17,249 71,454 5% 1,232 56% (1,090) 53% 142 11.5%

7.0% 19,663 72,883 2% 1,433 16% (1,262) 16% 171 11.9%

7.0% 21,826 74,341 2% 1,623 13% (1,429) 13% 194 11.9%

Source: HC Note: (1) Includes only 9 months of sales as sales begin in 2Q12e

We completely exclude Verna CKD sales from our numbers at this stage As the Verna (13% market share, 52% of taxi replacements, 40% of GB Auto’s PC sales) is to be completely phased out by 2014e, and as we see no reasonable substitute from Hyundai offering the same value proposition as the Verna, we believe Hyundai’s local PC market share will be diluted to c18%. For GB Auto’s Hyundai PC segment, beginning in 2014e, we assume (1) 10% y‐o‐y growth in CBU sales, (2) a 2% annual increase in average selling prices, and (3) a gross margin of 11.0% (in line with average CBU margins).

2


8,000

EGPm

5,000

6,513

5,816

5,939

5,133

4,512

4,349

6,000

5,244

7,000

5,388

6,035

34%

31%

6,542

Cut 2014–15e PC revenue forecasts as new Geely sales are not likely to entirely make up for lost Verna sales 40% 30%

13%

20%

12%

4,000

10%

3,000

0%

2,000 ‐10%

‐15%

1,000 0

‐20% 2012e Old PC revenue forecasts (LHS)

2013e

2014e New PC revenue forecasts (LHS)

2015e 2016e Y‐o‐y PC revenue growth given new forecasts (RHS)

Source: GB Auto, HC

GB Auto PC segment volume forecasts by brand 80,000

7,000

1,405 11,632

1,232

938

21,826 5,000

17,249

40,000 60,654

30,000 51,247

43,623

20,000

47,985

163

792

19,663

2,753

185 117

6,000

52,783

EGPm

Units

50,000

GB Auto PC segment revenue forecasts by brand

1,559

1,053

70,000 60,000

4,000

1,623

140 1,433

102 1,232

163

3,000 5,126 2,000

4,246

3,761

4,220

4,734

1,000

10,000

0

0 2012e Hyundai (1)

2013e

2014e Geely

2015e 2016e Mazda

Source: HC Note: (1) Does not include sales in Iraq

2012e Hyundai (1)

2013e

2014e Geely

2015e 2016e Mazda

Source: HC Note: (1) Does not include sales in Iraq

GB Auto PC segment gross margin by brand 14% 11.8%

11.8%

11.9%

11.9%

11.0%

11.0%

11.0%

7.0%

7.0%

7.0%

2015e

2016e GB Auto PCs

11.5%

12% 10% 10.0% 8% 6%

7.5%

4%

5.0%

2% 0%

1.6% 2012e

2013e Hyundai (1)

2014e Geely

Mazda

Source: GB Auto, HC Note: (1) Does not include sales in Iraq

3


Geely’s current PC and SUV offering worldwide(1) versus the Hyundai Verna Model

Type

PCs: CK CK‐2 (4) Emgrand EC7 Emgrand HB FOY FC MK SL Panda/LC(4) HA MK2 Emgrand EC7‐RV (sport) SUVs: MK Cross LC Crossover Verna

Sedan Sedan Sedan Sedan Sedan Sedan Sedan Hatchback Hatchback Hatchback Hatchback SUV SUV Sedan

Engine displacement (L) 1.3/1.5 1.5 1.5/1.8 1.5 1.8 1.5/1.6/1.8 1.8 1.3 1.3 1.5 1.8 1.5/1.6 1.3/1.5 1.6

Local price range(2) (EGP) Global price range (USD) N/A 54,000–62,500 N/A N/A N/A N/A N/A 52,000–60,000 N/A N/A N/A N/A N/A 67,500–78,250

N/A 9,000–10,420(3) N/A N/A N/A 13,800–15,800 N/A 8,666–10,000(3) N/A 13,800 N/A N/A N/A 11,250–13,042(3)

Source: Geely, Catalog Cars, One List, www.sgcarmart.com, HC Note: (1) Models offered vary among Geely’s different markets, which include Chile, Nepal, Russia, South Africa, Syria, Turkey, Ukraine, Uruguay, and Venezuela (2) Local prices include a 40% tariff on cars with 1.0L–1.6L engines and a 135% tariff on cars with >1.6L engines (3) Converted from local prices at EGP6.0/USD (4) Indicates the 2 CBU models to be sold by GB Auto beginning in 2Q12e

Geely’s market share across selected emerging markets versus motorization index and GDP per capita 250 Russia, 0.5%

Motorization index (1)

200

150

Ukraine, 3.7% Chile, 1.3%

100

China, 4.0%

50

Paraguay, 0.5% Egypt, 0.3%

Peru, 0.8%

0 0

5

10 GDP per capita, PPP ('000)

15

20

Source: The World Bank, newspaper articles, HC Note: (1) Motorization index is defined as the number of PCs per 1,000 inhabitants of a country (2) Geely has consistently ranked among China’s top domestic producers, after state affiliated Chery and BYD, each of which has a market share of c5%

4


Chinese brands have had limited success in the Egyptian market so far

Evolution of Chinese PC sales and market share in Egypt 18,000

9 brands

16,000

9.0% 8.3%

7.5%

14,000

12%

13 brands

10.4%

10%

8.4%

8%

Units

12,000 10,000

6%

8,000

4%

2.7% 6,000

2%

4,000 2,000

3,542

13,516

16,414

16,452

2006

2007 Sales volume (LHS)

2008

2009

17,360

11,133 0%

2010 Market share (RHS)

2011

Source: Automotive Marketing Information Council (AMIC), HC

2011 Egyptian PC market shares by country of origin Europe, 18%

2010 Egyptian PC market shares by country of origin

Japan, 12%

Japan, 12%

Europe, 16%

China, 9%

China, 8% Malaysia, 1% India, 0% USA, 20%

Malaysia, 1% India, 0%

USA, 23%

South Korea, 41%

Source: AMIC, HC

South Korea, 39%

Source: AMIC, HC

Top selling Chinese PC brands in the Egyptian market versus Hyundai Brand

Country of origin

Speranza Brilliance Geely Great Wall JAC Others(2) Hyundai

China China China China China China South Korea

Number of units sold

Market share

2010

2011

2010

2011

13,048 2,255 629 512 370 160 53,406

9,310 581 443 228 183 383 42,084

6.8% 1.2% 0.3% 0.3% 0.2% 0.1% 27.7%

7.0% 0.4% 0.3% 0.2% 0.1% 0.3% 31.6%

Local price range (EGP) 64,000–115,000 70,000–146,900 52,000–62,500(1) 70,000–152,000 68,500–135,900 N/A 64,500–525,000

Source: AMIC, www.contactcars.com, Catalog Cars, HC Note: (1) The only 2 models currently offered in Egypt (Panda and CK‐2) are available through distributors (2) Include Englon, Shanghai Maple, Landwind, and Zotye

5


2011 Egyptian PC market shares by brand(1) Other Chinese Others, 10% brands, 1.0%

2010 Egyptian PC market shares by brand(1) Other Chinese Others, 11% brands, 1.9%

Hyundai, 32%

Geely, 0.3% BMW, 2% Volkswagen, 2% Mitsubishi, 2% Mercedes, 2%

Toyota, 3% Skoda, 3% Nissan, 4%

Hyundai, 27%

Geely, 0.3% Mitsubishi, 1% BMW, 2% Toyota, 2% Volkswagen, 2% Mercedes, 2% Skoda, 3% Renault, 5%

Chevrolet, 18%

Renault, 7%

Nissan, 6%

Speranza, 7% Kia, 8%

Source: AMIC, HC Note: (1) ‘Other Chinese brands’ includes 11 brands such as Brilliance, Great Wall, Komodo, JAC, and Shanghai Maple, among others

Chevrolet, 20%

Speranza, 7%

Kia, 11%

Source: AMIC, HC Note: (1) ‘Other Chinese brands’ includes 11 brands such as Brilliance, Great Wall, Komodo, JAC, and Shanghai Maple, among others

Valuation New venture is value‐neutral at current discount rates The new venture adds EGP1.0/share (c4%) to our previous valuation of EGP30.4/share, but the incremental value is offset by an increase in the cost of capital. We tweak our numbers to more accurately reflect the value of the new Geely representation and to account for incremental revenue from the brand in 2012–13e (after having previously accounted for sales beginning in 2014e). We raise our EBITDA forecasts for GB Auto’s Egypt business 2% on average. We simultaneously raise our WACC 42 bps as we increase our cost of equity to reflect a 70 bps increase in the risk‐free rate, in line with the after‐ tax yield on 1‐year T‐bills (12.7%). Maintain Overweight recommendation and raise TP to EGP30.9/share We maintain our Overweight rating on GB Auto and raise our TP 2% to EGP30.9/share (27% upside). The stock still looks attractive at current price levels, trading at a 2012e P/E of 9.4x, implying a discount of 14% to its historical average forward trading P/E of 11.1x. We maintain the view that GB Auto is among the best listed proxies for Egypt’s consumer recovery given that it is a leader in the local PC market. The stock offers high growth potential, with a 2012–16e revenue CAGR of 15% and net income CAGR of 24%.

6


GB Auto valuation summary (EGPm)

2012e

2013e

2014e

2015e

2016e

GB Auto – Egypt EBITDA Taxes Appropriations Change in working capital Net CAPEX Free cash flows (FCFs) Risk‐free rate Beta Equity risk premium Cost of equity Equity weight Cost of debt Tax rate After‐tax cost of debt Debt weight WACC Terminal growth rate Present value of FCFs Terminal value Enterprise value Net debt Minority interest Equity value Number of shares (m) Value/share (EGP)

688 (89) (6) (69) (301) 223 12.7% 0.8 7.5% 18.6% 60% 12% 25% 9.0% 40% 14.8% 3.0% 199 4,440 1,269 67 3,105 129 24.1

840 (116) (11) (76) (120) 517 402

831 (125) (14) (78) (125) 488 331

946 (157) (15) (81) (126) 566 334

1,059 (193) (19) (86) (129) 631 324 2,851

119 (59) 60 6.5% 0.8 10.0% 14.4% 2.5% 53 1,760 50% 880 129 6.8

188 (83) 105 82

289 (116) 174 119

30.9

GK Auto – Iraq EBITDA CAPEX and working capital investments Free cash flows Risk‐free rate Beta Equity risk premium Cost of equity Terminal growth rate Present value of FCFs Terminal value Enterprise value GB Auto’s stake Value of GB Auto’s stake Number of shares (m) Value/share (EGP)

Target price (EGP)

348 (127) 221 132

410 (138) 273 142 1,232

Source: HC

7


Key risks Key downside risks include (1) weaker than expected sales from the new brand, (2) a slower than expected pace of recovery in Egypt’s PC market, (3) continued supply shortages in Egypt and Iraq, (4) market share erosion, especially in the Egyptian PC market, (5) a more prolonged slowdown in demand for commercial vehicles (CVs), (6) weaker than expected performance from the company’s new ventures (financing businesses and after‐sale services), and (7) inventory pileups. Key catalysts Key upside risks include (1) better than expected performance from the new brand, (2) easing Hyundai PC supply shortages in Egypt and Iraq, (3) a faster than expected pace of recovery in Egypt’s PC market, (4) addition of new representations in light CVs (pickup trucks and microbuses), heavy trucks, buses, and construction and agricultural equipment in 2012e, (5) a successful launch of after‐sale services in Iraq (soft launch of 4 centers in 4Q11, with 4 more planned for 2012e), (6) an uptick in the Iraqi operation’s margins on improved supplies and elimination of parallel imports, (7) a faster than expected pickup in CV demand, and (8) the start of bus exports by 2H12e.

8


GB Auto financial statements and ratios EGPm Income statement Total revenue Revenue growth COGS Gross profit Gross margin SG&A expenses Other operating income (expense) Operating profit Operating margin Net provisions Net interest cost Other nonoperating income (expense) Net income before taxes Taxes Net income before minority interest Minority interest Net income before appropriations Appropriations Net income after appropriations Net income growth Net margin EBITDA EBITDA growth EBITDA margin Balance sheet Cash and equivalents Receivables Inventories Other current assets Total current assets Net property, plant, and equipment Other noncurrent assets Total noncurrent assets Total assets Short‐term debt CPLTD Payables Other current liabilities Total current liabilities Long‐term debt Other noncurrent liabilities Total noncurrent liabilities Shareholder equity and minority interest

2010

2011e

2012e

2013e

2014e

2015e

2016e

6,876 61% (5,991) 885 12.9% (361) 34 557 8.1% (29) (171) (0) 357 (73) 284 (26) 258 (8) 249 33% 3.8% 636 45% 9.3% 829 692 1,661 417 3,599 1,688 231 1,920 5,518 828 ‐ 1,077 260 2,165 1,031 105 1,136 2,217

7,502 9% (6,615) 887 11.8% (360) 21 548 7.3% (12) (201) (2) 334 (78) 255 (51) 204 (6) 198 ‐21% 2.7% 637 0% 8.5% 650 695 1,909 416 3,670 1,949 244 2,193 5,863 826 305 1,078 170 2,378 727 110 836 2,648

9,002 20% (7,856) 1,146 12.7% (462) 23 708 7.9% (13) (208) ‐ 487 (90) 397 (62) 335 (11) 324 64% 3.7% 807 27% 9.0% 594 697 2,023 457 3,771 2,152 260 2,412 6,184 1,076 305 1,121 222 2,723 422 114 536 2,924

11,851 32% (10,382) 1,469 12.4% (583) 30 916 7.7% (14) (202) ‐ 700 (118) 582 (98) 484 (14) 470 45% 4.1% 1,028 28% 8.7% 690 709 2,165 511 4,074 2,160 283 2,443 6,517 1,186 305 1,178 276 2,945 118 119 237 3,335

12,617 6% (11,084) 1,533 12.2% (559) 28 1,002 7.9% (14) (185) ‐ 803 (126) 678 (149) 528 (15) 513 9% 4.2% 1,120 9% 8.9% 798 716 2,348 564 4,426 2,167 315 2,482 6,909 1,306 76 1,235 281 2,899 41 124 166 3,844

14,180 12% (12,421) 1,758 12.4% (620) 32 1,171 8.3% (15) (159) ‐ 997 (159) 838 (181) 657 (19) 638 24% 4.6% 1,294 16% 9.1% 965 721 2,532 619 4,837 2,170 360 2,531 7,368 1,116 ‐ 1,275 336 2,727 41 130 171 4,470

15,729 11% (13,747) 1,982 12.6% (677) 36 1,340 8.5% (15) (120) ‐ 1,204 (195) 1,010 (215) 795 (24) 771 21% 5.1% 1,469 14% 9.3% 1,245 661 2,415 676 4,996 2,171 425 2,596 7,592 866 ‐ 1,315 395 2,577 41 135 177 4,972

Source: GB Auto, HC

9


GB Auto financial statements and ratios (continued) EGPm Cash flow statement Net income Noncash items Net change in working capital Operating cash flow Net CAPEX Other investments Investing cash flow Financing cash flow Change in cash Key financial ratios Net debt/equity Net debt/EBITDA(1) ROAA ROAE ROIC Key price ratios EV/EBITDA(1) Clean P/E P/B Dividend yield FCF yield

2010

2011e

2012e

2013e

2014e

2015e

2016e

258 320 (496) 82 (405) 0 (405) 1,013 690 0.5x 1.7x 6% 13% 3% 7.2x 12.0x 1.4x 4.2% ‐13.7%

204 401 (139) 466 (351) (8) (358) (286) (178) 0.5x 2.2x 4% 9% 1% 7.7x 14.9x 1.2x 2.0% 1.2%

335 432 (129) 637 (301) (12) (313) (380) (56) 0.4x 1.7x 5% 12% 2% 6.2x 9.4x 1.1x 3.5% 6.1%

484 473 (159) 798 (120) (18) (138) (564) 96 0.3x 1.1x 8% 15% 3% 4.6x 6.5x 0.9x 5.0% 15.6%

528 509 (194) 844 (125) (27) (152) (583) 109 0.2x 0.7x 8% 15% 3% 4.1x 5.9x 0.8x 4.9% 14.6%

657 518 (208) 967 (126) (40) (166) (633) 167 0.1x 0.2x 9% 16% 4% 3.2x 4.7x 0.7x 6.2% 17.1%

795 518 (223) 1,089 (129) (59) (189) (621) 280 ‐0.1x ‐0.2x 11% 17% 4% 2.4x 3.9x 0.6x 7.6% 19.3%

Source: GB Auto, HC Note: (1) Proportionate

10


GB Auto breakdowns by line of business EGPm

Passenger cars – Egypt Market size (units) Hyundai Market share Sales volume (units) Sales revenue Gross profit Gross margin Geely Market share Sales volume (units) Sales revenue Gross profit Gross margin Mazda Market share Sales volume (units) Sales revenue Gross profit Gross margin Egypt PC sales volume (units) Egypt PC sales revenue Egypt PC gross profit Egypt PC gross margin

Passenger cars – Iraq Sales volume (units) Sales revenue Gross profit Gross margin

Two‐ and three‐wheelers Two‐wheeler sales volume (units) Three‐wheeler sales volume (units) Sales revenue Gross profit Gross margin

Commercial vehicles Bus sales volume – local (units) Bus sales volume – exports (units) Truck sales volume (units) Trailer sales volume (units) Construction equipment volume (units) Sales revenue Gross profit Gross margin

After‐sale services Sales revenue Gross profit Gross margin

2010

2011e

2012e

2013e

2014e

2015e

2016e

192,848 27.7% 53,406 3,506 436 12.4% 0.3% 646 90 1 0.9% 54,052 3,597 437 12.1% 20,338 1,587 95 6.0% 7,838 40,805 595 161 27.0% 927 ‐ 1,297 369 44 587 54 9.3% 310 112 36.2%

133,165(1) 32.2% 42,911 3,371 370 11.0% 0.5% 659 69 (10) ‐14.4% 43,569 3,441 360 10.5% 25,595 2,255 143 6.3% 11,190 62,930 970 250 25.7% 472 ‐ 512 123 25 257 (4) ‐1.6% 283 80 28.1%

175,505 29.2% 51,247 4,246 503 11.8% 2.5% 2,753 163 12 7.5% 0.5% 938 102 2 1.6% 54,938 4,512 517 11.5% 26,155 2,348 161 6.8% 12,608 65,604 999 254 25.4% 679 37 1,003 132 47 403 31 7.8% 335 103 30.7%

210,606 28.8% 60,654 5,126 607 11.8% 5.5% 11,632 792 79 10.0% 0.5% 1,053 117 6 5.0% 73,340 6,035 693 11.5% 36,402 3,334 245 7.3% 12,860 66,916 1,024 255 24.9% 817 209 1,224 155 72 536 48 9.0% 413 130 31.4%

246,409 17.7% 43,623 3,761 415 11.0% 7.0% 17,249 1,232 142 11.5% 0.5% 1,232 140 10 7.0% 62,103 5,133 567 11.0% 49,590 4,632 364 7.8% 13,117 68,254 1,050 256 24.4% 983 510 1,371 185 83 692 70 10.2% 498 160 32.1%

280,906 17.1% 47,985 4,220 466 11.0% 7.0% 19,663 1,433 171 11.9% 0.5% 1,405 163 11 7.0% 69,053 5,816 648 11.1% 53,377 5,085 425 8.3% 13,380 69,619 1,076 257 23.9% 1,184 942 1,467 227 96 882 100 11.4% 606 195 32.3%

311,806 16.9% 52,783 4,734 523 11.0% 7.0% 21,826 1,623 194 11.9% 0.5% 1,559 185 13 7.0% 76,169 6,542 729 11.1% 56,695 5,510 488 8.8% 13,647 71,011 1,103 264 23.9% 1,426 1,169 1,496 285 110 1,031 117 11.4% 734 237 32.3%

Source: GB Auto, HC Note: (1) Based on actual market numbers

11


GB Auto breakdowns by line of business (continued) EGPm

Others Tire revenue Transportation service revenue Financing businesses revenue Total sales revenue from others Gross profit Gross margin

2010

2011e

2012e

2013e

2014e

2015e

2016e

112 33 56 201 27 13.2%

176 7 168 351 66 18.7%

197 ‐ 209 406 81 19.9%

254 ‐ 256 510 99 19.4%

304 ‐ 308 613 116 19.0%

350 ‐ 365 715 133 18.6%

385 ‐ 425 810 147 18.2%

Source: GB Auto, HC

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GB Auto Consumer | Egypt 28 February 2012 Disclaimer HC Brokerage, which is an affiliate of HC Securities & Investment (referred to herein as “HC”) – a full‐fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services – is exclusively responsible for the content of this report. The information used to produce this document is based on sources that HC believes to be reliable and accurate. This information has not been independently verified and may be condensed or incomplete. HC does not make any guarantee, representation, or warranty and accepts no responsibility or liability for the accuracy and completeness of such information. Expression of opinion contained herein is based on certain assumptions and the use of specific financial techniques that reflect the personal opinion of the authors of the commentary and is subject to change without notice. The information in these materials reflects HC’s equity rating on a particular stock. HC, its affiliates, and/or their employees may publish or otherwise express other viewpoints or trading strategies that may conflict with the views included in this report. Please be aware that HC and/or its affiliates, and the investment funds and managed accounts they manage, may take positions contrary to the included equity rating. This material is for informational purposes only and is not an offer to sell or the solicitation of an offer to buy. Ratings and general guidance are not personal recommendations for any particular investor or client and do not take into account the financial, investment, or other objectives or needs of, and may not be suitable for, any particular investor or client. Investors and clients should consider this only a single factor in making their investment decision, while taking into account the current market environment. Foreign currency denominated securities are subject to fluctuations in exchange rates, which could have an adverse effect on the value or price of, or income derived from, the investment. Investors in securities such as ADRs, the values of which are influenced by foreign currencies, effectively assume currency risk. Neither HC nor any officer or employee of HC accepts liability for any direct, indirect, or consequential damages or losses arising from any use of this report or its contents. Copyright No part or excerpt of this research report’s content may be redistributed, reproduced, or conveyed in any form, written or oral, to any third party without prior written consent of the firm. The information within this research report must not be disclosed to any other person until HC has made its information publicly available. Issuer of report: HC Brokerage Building F15‐B224, Smart Village KM28 Cairo‐Alexandria Desert Road 6 October 12577, Egypt Telephone: +202 3535 7666 Fax: +202 3535 7665 Website: www.hc‐si.com IMPORTANT DISCLOSURES Analyst certification: I, Mai Nehad, certify that the views expressed in this document accurately reflect my personal views about the subject securities and companies. I also certify that I do not hold a beneficial interest in the securities traded. Analyst disclosures: The analyst or a member of the analyst’s household does not have a financial interest in the securities of the subject company (including, without limitation, any option, right, warrant, future, long or short position). The analyst or a member of the analyst’s household does not serve as an officer, director, or advisory board member of the subject company. The analyst’s compensation is not based upon HC’s investment banking revenue and is also not from the subject company in the past 12 months.

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GB Auto Consumer | Egypt 28 February 2012 HC disclosures: Company name: GB Auto

Disclosure: None

1. 2. 3. 4.

HC or its affiliates other than Al Futtaim HC Securities beneficially own 1% or more of any class of common equity securities of the subject company. HC or its affiliates other than Al Futtaim HC Securities have managed or co‐managed a public offering of securities for the subject company in the past 12 months. HC or its affiliates other than Al Futtaim HC Securities have received compensation for investment banking services from the subject company in the past 12 months. HC or its affiliates other than Al Futtaim HC Securities expect to receive or intend to seek compensation for investment banking services from the subject company in the next 3 months. HC has received compensation for products or services other than investment banking services from the subject company in the past 12 months. The subject company currently is, or during the 12‐month period preceding the date of distribution of this research report was, a client of HC. HC makes a market in the subject company’s securities at the time this report was published.

5. 6. 7. The HC rating system consists of 3 separate ratings: Overweight, Neutral, and Underweight. The appropriate rating is determined based on the estimated total return of the stock over a forward 12‐month period, including both share appreciation and anticipated dividends. Overweight rated stocks include a published 12‐month target price. The target price represents the analysts’ best estimate of the market price in a 12‐ month period. HC cautions that target prices are based on assumptions related to the company, industry, and investor climate. As such, target prices remain highly subjective. The definition of each rating is as follows: Overweight (OW): Estimated total potential return greater than or equal to 20% Neutral (N): Estimated total potential return greater than or equal to 0% and less than 20% Underweight (UW): Estimated total potential return less than 0% NR: Not Rated SP: Suspended Stocks rated Overweight are required to have a published 12‐month target price, while it is not required on stocks rated Neutral and Underweight. Distribution of HC ratings

Rating

Count

Percent

Percent provided investment banking services in past 12 months

Overweight (OW) Neutral (N) Underweight (UW)

36 28 7

50.70 39.44 9.86

0.00 0.00 0.00

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GB Auto Consumer | Egypt 28 February 2012 GB Auto as of 27/02/2012 60 50 40 30 20 10 ‐

Date

Recommendation

03/02/2009 26/02/2009 23/03/2009 20/05/2009 17/08/2009 23/11/2009 17/01/2010 14/02/2010 24/05/2010 21/11/2010 21/02/2011 07/06/2011 14/12/2011(1) 28/02/2012

Neutral Overweight Neutral Underweight Neutral Neutral Overweight Overweight Overweight Neutral Underweight Neutral Overweight Overweight

Target price EGP13.8 EGP13.8 EGP12.0 EGP13.8 EGP30.9 EGP28.7 EGP31.0 EGP37.2 EGP47.4 EGP47.9 EGP34.4 EGP33.5 EGP30.4 EGP30.9

Note: (1) Change of analyst

All HC employees and its associate persons, including the analyst(s) responsible for preparing this research report, may be eligible to receive non‐product or service specific monetary bonus compensation that is based upon various factors, including total revenues of HC and its affiliates, as well as a portion of the proceeds from a broad pool of investment vehicles consisting of components of the compensation generated by directors, analysts, or employees and may affect transactions in and have long or short positions in the securities (options or warrants with respect thereto) mentioned herein. Although the statements of fact in this report have been obtained from and are based upon recognized statistical services, issuer reports or communications, or other sources that HC believes to be reliable, we cannot guarantee their accuracy. All opinions and estimates included constitute the analysts’ judgment as of the date of this report and are subject to change without notice. HC may affect transactions as agent in the securities mentioned herein. This report is offered for information purposes only and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such would be prohibited. Additional information available upon request.

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