Quarterly Result Update

• NRE reported 16.4% increase in revenues to KWD 7.5 million during 1Q11 compared to KWD 6.4 million in the year-ago period, driven by 15.7% and 89.9% increase in rental income and net sales, respectively.
• Bottom-line decreased to KWD 0.89 million from KWD 6.07 million in 1Q10 due to higher operating and interest expenses.
• We have revised our FY2011E revenue downwards by 1.5%, anticipating lower revenue from associates. Factoring 1Q11 results, we have revised operating profit downwards by 40.4%. We expect net profit of KWD 2.8 million.
• As the stock has declined 55.4% YTD, we are reiterating our OVERWEIGHT rating with a revised target price of KWD 0.090, implying an upside of 19.9%.

Revenues
During 1Q11, total revenues improved 16.4% to KWD 7.5 million from KWD 6.4 million during 1Q10. This growth was mainly due to rise in rental income and net sales by 15.7% and 89.9% respectively to KWD 2.70 million and KWD 3.03 million during 1Q11, compared to KWD 2.33 million and KWD 1.59 million in 1Q10. However, revenue from associates declined 53.3% to KWD 1.73 million from KWD 3.70 million in the year-ago quarter.

Profitability
During 1Q11, operating profit reduced 3.8% to KWD 1.56 million on the back of higher staff costs and CoS. Net investment loss stood at KWD 0.01 million against net investment income of KWD 0.09 million in 1Q10. Meanwhile, interest expenses soared 163.3% to KWD 1.51 million over KWD 0.57 million in the comparable quarter prior year. Provision for interest income stood at KWD 0.84 million against KWD 0.76 million in 1Q10. However, on a positive note, other income improved 25.4% to KWD 0.54 million from KWD 0.43 million. Interest income rose 7.7% to KWD 0.97 million from 0.90 million in 1Q10. Overall, net profit declined to KWD 0.7 million from KWD 6.02 million, attributable to higher operating and interest expenses during 1Q11. However, net profit soared during 1Q10, as NRE reported a one-time gain of KWD 4.31 million on sale of subsidiaries. Adjusted annualised EPS was KWD 0.005 during 1Q11, against KWD 0.028 in1Q10.


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