??Dubai Financial Market Company (DFMC) has vastly outperformed the DFM General Index on a YTD basis, gaining 92% versus the index gain of 33%.

??DFMC’s current PE is 82x, up 7 fold from 11.6x in September of last year, as a result of significant price appreciation in 2009 coupled with declining EPS.

??DFMC reported net profit of USD 165 mn in 2008, down 58% from the previous year, whereas we had expected a net profit of USD 421 mn ( a 7.4% YoY growth) in our last note (July 2008). The decline in net profit was due to a 19% decline in Trading Fees and an impairment loss of USD 68 mn in Investments Available for Sale (AFS).

??DFMC reported a net profit of USD 35 mn in Q2 2009, a 48% decline from Q2 2008, but an 88% gain over Q1 2009. For the first half of 2009, DFMC reported net profits of USD 53 mn, a 65% decline over the first half of 2008. Earnings weakness came as a result of a 23% YoY decline in Trading Fees in 2Q09 to USD 34 mn; Trading fees in 1H09 came to USD 51 mn, a 55% decline from the same period in 2008. Brokerage fees grew by just 2% YoY in 2Q09 to USD 1.46 mn.

??Net Investment Income grew 4% in the second quarter, amounting to USD 8 mn. However, on a semi-annual basis, this segment declined by 59% from the first half of 2008.

??The company’s Operating Expenses have declined in the first half of the year; amounting to USD 10 mn, a 7% decrease from 1H08.

??Despite a slight pick-up in the market, the DFM is the best performing GCC market on a YTD basis, lackluster trading in the first half of the year is likely to leave its mark on full year bottom line results. Consequently, we expect DFMC to report a 2% increase in net profit to USD 168 mn.

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