Quarterly Result Update

Kuwait Projects Company (KIPCO) reported a total operating income of KWD 96.71 million during 1Q10, down 13.9% YoY from KWD 112.36 million in 1Q09.

Net profit was down 48.8% YoY to KWD 4.72 million during 1Q10 from KWD 9.23 million in 1Q09.

We have revised downwards our 2010E operating income by 11.7% given the sluggish performance of baking and real estate sector. Moreover, the net profit estimate has been revised downwards by 43.0% based on expectation of higher operating cost.

KIPCO’s stock price has declined 34.3% since our last update. Accordingly, we are upgrading our earlier NEUTRAL recommendation to OVERWEIGHT with a revised DCF target price of KWD 0.430, implying an upside of 28.4%.

Profitability
During 1Q10, net profit declined 48.8% to KWD 4.72 million from KWD 9.23 million during the same period last year, due to lower total income. As a result, adjusted annualised EPS stood at KWD 0.017 compared to KWD 0.033.

We had initiated KIPCO on July 15, 2009 with a NEUTRAL rating (target price of KWD 0.549, indicating a 7.7% upside). Currently, the bank’s stock is trading at a P/E multiple of 9.19x and 6.45x on 2010E and 2011E earnings, and at a P/BV multiple of 0.64x and 0.60x on 2010E and 2011E BVPS, respectively. The stock has declined 27.5% since the beginning of this year compared to a 7.3% decline in the KSE Price Index. Moreover, the stock has declined 34.3% since our last update report. Considering the above factors, we have arrived at a price target of KWD 0.430, implying an upside of 28.4% over the current price of KWD 0.335 (as on July 12, 2010). Accordingly, we our upgrading our earlier NEUTRAL recommendation on Kuwait Projects Company to OVERWEIGHT.


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