Kuwait Stock Exchange Performance

Global Research Kuwait Kuwait Stock Exchange Performance Review & Outlook Reuters Code GLOB July 2004 OutlookPositive 1H 2004 KSE performance Uninspiring but solid Omar M. ElQuqa, CFA Executive Vice President omar@global.com.kw (965) 2400551 Ext.104 Shailesh Dash, CFA Head of Research shaileshdash@global.com.kw (965) 2400551 Ext.196 Omar M. Mahmoud Assistant Financial Analyst omarm@global.com.kw (965) 2400551 Ext218 KSE performance (in terms of Global General Index which is a market cap. based index) remained flat but solid in the first half of 2004. A number of issues have weighed on investor sentiment throughout the half. Uncertainty about Iraq, world oil markets and interest rates have been issues on investors mind. The continued unrest in Iraq has acted as a dampener, as the expected benefits of normalization has not materialized. But this has resulted in the market being more attractive now and with the continuing In Mn 500 400 300 200 100 Global Index starting 20022004 190 170 150 130 110 90 70 0 50 12.02 03.03 06.03 09.03 12.03 03.04 06.04 Mkt Volume General Index Market Capitalization (KD Bn) First Half 2004 Gain (%) Number of listed Companies Average Daily Volume (Mn) Exchange rate (KD:US$) : : : : : 18.3 2.03 111 151.3 0.295 profitability growth it presents several attractive opportunities for the investors. Private placements and IPOs make a big comeback The flat stock market performance (in terms of Global General Index) does not mean that investor euphoria has subsided. Instead, we believe that the positive sentiment would last much longer. The booming stock markets in the region have led to a great deal of demand for private placements and IPOs among the investors. Kuwait also had its share of several successful IPO and private placements in the past six months including the Boubyan Islamic Bank, Al Jazeera Airways, etc. Going forward we Kuwait Stock Exchange Performance2004 1

Global Research Kuwait believe the equity private placement market would remain very active and present the investors with several potentially good investment opportunities. Government needs to take forward the economic reform process For a sustainable high economic growth rate, only high oil prices and increased government expenditure will not be enough. The government needs to take forward the economic reform process at a greater speed. Also government s investment and timely implementation of the various key infrastructure and capital projects would be crucial in making the economy strong and attracting private investment. KSE to re rate by 1015% We believe in the second half KSE is likely to get back into the winning streak again. The strong oil prices and the subsequent economic growth should ensure that the fundamentals remain strong for a sustained period. The corporate profits have been highlighting the sustained strong fundamentals of the economy and this, along with the current low P/Es, would suggest that there is further room for another round of growth in the stock market. We believe the KSE Global General Indices, which is a market cap. based index, should see a growth of 10%15% in the remaining part of the year. Market Review 1H 2004 KSE sees a flat ride in first half 04 Coming off of a stunning performance in 2003, the KSE remained flat during the first half of 2004, despite some tectonic shifts beneath the surface. However, all but one of the ingredients for a broadbased market rally have remained in place throughout the period; only investor interest lacked. There have been no major changes in the general economic trend in the country, oil prices are still at the high end, the government budget is in a healthy state of surplus and the economy is flush with liquidity. Other sectors within the economy also remain in high gear, as expanding economic activity spills over into all segments of the economy, boosting corporate profitability. But offsetting these positives, investor sentiment has remained subdued. A number of issues have weighed on investor sentiment throughout the half. Uncertainty about Iraq, world oil markets and interest rates have been issues on investors mind. The continued unrest in Iraq has acted as a dampener, with expected benefits of normalization with its neighbor not materializing due to continued unrest. With terrorist attacks hitting closer to home in Saudi Arabia and Syria during the period, investor mood was also slightly 2 Kuwait Stock Exchange Performance2004

Global Research Kuwait shaken. Thus, the market struggled during most of the half, and ended down 2.03%, as measured by the "Global" General Index, which is a market cap weighted index. Yet using the KSE price weighted index, the Kuwaiti market did progress, rising by 14.1% to a new life time high on the last day of trading in the half, closing at 5,472.6 points. However, things weren t sour the entire period for the market. Coming out of the starting block, the market made headway in the first six weeks of the year, hitting a new peak of 182.45 points by February 16, up 6.8% on its 2003 record performance. However, an elongated correction phase conjured 25.9 points in losses (14.2%), yanking the index to its trough of 156.6 points, down 8.3% from its 2003 close. The market, however, ended the half year on a positive note, having achieved two consecutive months of marginal gains. Unlike last year s extended rally s though, the market has not been able to muster more than rare rally s that lasted a few sessions at most. The half year loss ended positive first half gains since 2000. Dissimilar to Kuwait, the remaining GCC markets showed more positive sentiment and were all able to post gains during the period under scrutiny, led by the Qatari market. The gains made by the KSE s regional peers include Qatar (+33.7%), Saudi Arabia (+28.7%), Oman (+26.8%), UAE (+22.0%) and Bahrain (+5.9%). The slowdown in market activity was accompanied by a deceleration in the pace of new listings in the market. The flurry of new listings last year, which totaled 13, were trailed by 4 new floatations in the first half of 2004. The insurance, services, industrial and nonkuwaiti sectors saw one listing apiece during the period. Gulf Finance House, the only new addition to the market in the first quarter, was enlisted in the nonkuwaiti sector. Listing activity picked up in the second quarter though, with Gulf Rocks Co floated in the industrial sector, Kuwait Company for Process Plant Construction & Contracting in the services sector and Kuwait Reinsurance Co in the insurance sector. For the remainder of the year, a number of listings are in the pipeline, the first of which has already been executed on July 4. International Leasing and Investment Co was listed in the investment sector, bringing the total number of listings in the year thus far to 5 and the aggregate figure to 112. The continuous flow of new listings at the market despite losses reveals that corporate managements still confide in the strength of the market. It also acts as an additional opportunity for investors to reenter the market and benefit from the attractive pricing of the new listings. As 4 new companies entered the market during the first half, Bahrain International Bank exited it. After more than one year and a half of suspension, the management of Bahrain International Bank opted to delist its shares from both the KSE and the BSE in preparation for liquidation. Following the move, the total number of listed companies at the close of the first half reached 111. Kuwait Stock Exchange Performance2004 3

Global Research Kuwait Investors remain uncertain The market traded in a range since February of this year, with investors stalling a bit after 2003's big runup. Investors overlooked blazing oil prices, a steaming economy and surging profits, remaining jittery and unmoved. Fears that the market is overheated and well into a bubble that is set to burst, although not fundamentally true, lead investors to be cautious. Slowing of reforms in Kuwait has also put the brakes on 2003 s buoyant mood. The market also had its doubts about the impact of a longanticipated increase in the key shortterm interest rates in the US on the Kuwaiti market. The announcement by the Fed, which broke a string of 13 straight rate cuts, to hike rates by 0.25% was smaller than observers had anticipated. The Central Bank of Kuwait matched the increase, with the rise passing nearly unnoticed in the market. The situation in Iraq, coupled with an onslaught of attacks in neighboring Saudi Arabia has also taken its toll on investors, albeit only moderately. A redhot property market and an emerging IPO market have also allowed investors to let off some steam, channeling funds into those markets, leaving the equity market, at some points, placid. Emerging IPO market steals the spotlight As the stock market surged in 2003 to paramount levels, investors have become more willing to take a chance on IPOs. Further, with liquidity in the market expanding ever so rapidly, the interest for IPOs is undoubtedly increasing, both in terms of investors who want to diversify their portfolio and promoters who want to unlock the value of their investments. During 2004, two major issues were brought to market, with a barrage of other private placement issues also attracting heavy investor interest. The much anticipated KD76mn public offering of the newly established Boubyan Islamic Bank, the largest public offering of its kind in Kuwait s history, was met with heavy demand, being oversubscribed by 3.45 times. Also, the IPO of Al Jazeera Airways attracted huge investor interest. The IPO, which was offering KD7mn of the company s KD10mn capital to the public, was oversubscribed 12 times, considered to be one of the highest, if not the highest oversubscription registered in Kuwait. But other lucrative opportunities arising in the primary market have also attracted a great deal of investor attention. Prelisting private placements for the shares of Kuwait Reinsurance, Gulf Rocks Co and Kuwait Co for Process Plant Construction & Contracting amassed substantial interest. Kuwait Reinsurance was oversubscribed between 3 4 times while KCPC s placement issue was also oversubscribed a number of times. It is of interest to mention that acted as the sole lead manager for both issues. 4 Kuwait Stock Exchange Performance2004

Global Research Kuwait Private placements and IPO s are being met with an open appetite by investors due to the saturation of other avenues of investments. As investors mobilized their funds to take part in the issues, a negligible portion of liquidity was soaked up, but more importantly, a watch and wait mood sent activity in the secondary market to nominal levels. We continue to expect more IPO s to come to the market, as a greater number of companies take advantage of the increased liquidity and high investor interest in both the primary and secondary markets. The Kuwaiti government, which has sponsored the privatization initiative since taking the reigns last July, could also take advantage of the situation to offload their stakes in public companies. Other high profile issues anticipated to hit the market include the issue for the third mobile license, which is currently at National Assembly for final approval and First Company for Local Fuel Marketing, which is intended to manage a number of petrol stations across Kuwait. These, and other issues will give investors another opportunity to invest in a promising primary market. NonKuwaiti stocks surface as clear favorites Although the market struggled through an uninspiring first half, NonKuwaiti stocks emerged as clear favorites. Gains registered by the "Global" NonKuwaiti Index was a bright spot in the otherwise bleak market. The sector was the exclusive doubledigit gainer, posting a rise of 18.8%, following last years stunning rise of 92.4%. Cement stocks in specific within the sector rallied to new lifetime highs, hitting double and triple digit growths during the period, fuelled by the continuing strong demand for cement products owing to the real estate and construction boom in the GCC region. The sanguine state of the property market in the region not only ignited interest at the KSE in cement stocks, but spilled over into real estate sector stocks as well. The "Global" Real Estate Index advanced by 6.9%, although commendable, remains far off from its 93.7% gain achieved in 2003. Other sectors producing positive gains and outperforming the market were the investment (+5.1%) and industrial (+3.8%) sectors. Table 01 : "Global" Stock Exchange Indices of KSE Performance % Change Banking Investment Insurance Real Estate Industry Services Food NonKuwaiti Issues Total Market (General) Large Cap Small Cap 2001 40.96 17.25 13.66 16.20 29.22 23.81 33.98 (3.93) 28.83 31.53 74.57 2002 17.91 30.72 14.41 42.79 20.50 38.36 24.70 0.78 24.11 20.51 67.51 2003 35.63 70.86 39.40 93.70 55.73 116.32 48.50 92.44 63.91 49.76 55.00 Source : (information on the Global indices are available at the website www.globalinv.net and Reuters where the ticker is GLOB and bloomberg where the ticker is GLOH) 1H2004 (7.32) 5.11 (16.04) 6.86 3.77 (7.39) (12.37) 18.84 (2.03) (10.23) 3.42 Kuwait Stock Exchange Performance2004 5

Global Research Kuwait But losses in the Insurance, Food, Banking and Service sectors acted as a drag on the index. Despite a boom in the economy of Kuwait, insurance companies as well as food companies saw their value decline in the first quarter of the current year. Both sectors were punished, with the "Global" Insurance Index shedding 16.0% during the half, while the "Global" Food Index also witnessed doubledigit index retreat, falling 12.4%. The services sector, which headed the market during 2003 in gains, also stumbled during the first half. Decline in the share value of telecomm & transport companies weighed heavily on the index, overshadowing strength of other sector components. As a result, the "Global" Services Index lost 7.4%. The "Global" banking sector was another market under performer and has continued to be one for 2.5 years. Despite the sector having improved its profitability by 21.7% in the first quarter, investor sentiment seems to have been affected by the current liberalization in the banking sector and restrictions on its credit growth. But we believe these changes will make the banking sector stronger in the long run, thereby impacting their share prices. Market participants once again favored small cap stocks, extending the trend to seven straight halves. Small cap stocks outperformed large caps, as the more speculative companies outpaced blue chips. The "Global" Small Cap index remained in positive territory, up 3.4% as compared to losses of 10.2% in the "Global" Large Cap index. Value of shares traded on course to break best The uneasy performance in the market affected investor confidence during the half, resulting in tranquil market activity at many points. However, during the half, the value of shares traded reached KD8.2bn, up 9.8% over first half of last year and in annualized terms, is up 0.8% over its record level of 2003. Yet nearly half of the sectors posted diminishing activity during the period. The investment sector saw the most activity at its counter, amounting to 29.6% of total market value, up 2.5% as compared to 1H2003 level. But value of shares traded was down on a number of other counters, with the banking sector witnessing the largest fall, down 27.5% from its 1H2003 activity. The insurance and the industrial sectors also saw activity decline, down 15.5% and 10.4% respectively. The nonkuwaiti sector, although representing only 6.8% of market value, grew a staggering 242.2% in activity, outpacing all other market segments by far. The real estate sector also saw 29.6% more KD s changing hands with the services and foods sectors trailing behind, seeing a growth of 29.0% and 21.2% respectively. 6 Kuwait Stock Exchange Performance2004

Global Research Kuwait Table 02 : Stock Exchange Activity (Value of Shares Traded at KSE) figures in Million KD Banking Investment Insurance Real Estate Industry Services Foods NonKuwaiti Issues Total Market Source: 2001 1,139 710 18 273 494 790 95 60 3,579 2002 1,619 1,814 32 909 922 1,111 158 113 6,678 2003 2,323 5,527 38 2,826 2,146 2,462 330 598 16,250 1H2003 1,194 2,367 19 1,164 1,171 1,231 145 163 7,454 1H2004 865 2,427 16 1,509 1,049 1,588 176 558 8,188 Volume of shares traded off record performance Choppy activity during the first half resulted in 18.5bn shares being traded, down 24.6% from trades executed during the first half of 2003. The average daily volume of shares traded during the half remains well below that of 2003, at 151.3mn shares, as compared to a daily average of 212.9mn during the first half of 2003 and 204.2mn for the whole year. Maximum trading activity was seen in the investment sector, amounting to nearly 38.4% of market volume. Real Estate stocks also generated a substantial amount of interest, representing 19.6% of traded shares, followed by the nonkuwaiti sector, accounting for 14.3% of market trades. But the top two sectors lost ground compared to last year s volumes. The investment sector saw volumes traded fall by 32.0%, the third largest fall in the market. Banks saw a steeper retraction in volumes traded, retreating by 41.8%. In fact, all of the remaining sectors, barring nonkuwaiti shares also registered a fall in the volumes traded. NonKuwaiti stocks, led by increased demand for cement stocks, posted an increase in volumes traded, up a substantial 44.2% over the first half of 2003. Interest in nonkuwaiti stocks is anticipated to continue for the remainder of the year, as the construction boom in the region has shown no signs of abating. Table 03 : Stock Exchange Activity (Volume of shares traded at KSE) figures in Mn shares Banking Investment Insurance Real Estate Industry Services Foods NonKuwaiti Issues Total Market Source: 2001 3,326 5,063 56 2,767 1,779 1,734 617 957 16,299 2002 3,631 11,030 89 5,724 2,583 2,266 890 1,621 27,834 2003 4,088 21,380 87 9,875 4,047 3,359 1,661 5,067 49,563 1H2003 2,266 10,412 49 4,844 2,404 1,930 755 1,826 24,486 1H2004 1,319 7,083 32 3,615 1,699 1,402 679 2,633 18,461 Kuwait Stock Exchange Performance2004 7

Global Research Kuwait Breadth tilts in favor of decliners 2003 s bullrun made it difficult to go wrong in the stock market, but 2004 thus far has been trickier, as market breadth tilted in favor of decliners. Out of 111 listed companies, only 43 were able to improve their share values while 63 registered losses of varying levels. Additionally, 4 stocks remained unchanged, of which 2 were untraded due to suspension. Prices during 2003 had seen a hefty runup with 74 equities returning gains in excess of 30%, an extraordinary feat. Despite the P/E of the market at 13.01 times at the start of the year, investors began to worry that valuations had become overstretched, shying away from stocks despite being rewarded with generous distributions. Collectively, the market distributed KD647mn in dividends for 2003. Although the hefty dividend distributions that were seen at the start of this year did not affect the market index per say, as the "Global" General Index is market cap weighted, it did shave off hefty percentages of the value of most stocks. Coupled with a waning interest, 46 companies registered losses in excess of 10% of which six fell by more than 30%. Insurance and Food sector stocks took the hardest hit over the last half year, with all the components within both sectors emerging with share losses. Warba Insurance Co lost 27.7% during the first half, while Kuwait Insurance Co lost 26.3%. KIC encountered a strong spell of selling pressure after announcing a loss of KD1.07mn in the first quarter of 2004 compared to KD1.3mn in profits for the same period last year. The food sector also had its woes. Livestock Transport & Trading Co saw its share value recede by 23.5% after announcing losses to the magnitude of KD1.08mn for the first quarter. Kuwait Foodstuff Co, which saw its profits decline by 6.9% also saw its share value plunge by 16.2%. However, it was Jeezan Real Estate Co which registered the largest downturn in stock price across the market, falling 56.4% to KD1.220 over the course of the 6 months. The stock price plummeted exdividend and strong first quarter earning announcements could not help the stock regain lost ground. Other stocks to post losses in excess of 30% included Kuwait Cable Vision Co (45.5%), Al Massaleh Real Estate Co (42.2%), Arab Real Estate Co (35.6%), National Mobile Telecommunications Co (32.1%) and Bayan Investment Co (32.0%). On the upside, the market produced 43 gainers, of which 14 were in excess of 30%. The nonkuwaiti sector produced the largest number of companies falling under this category. Gulf Cement Co s share value vaulted by 107.8% during the period, heading the market as the only 3digit gainer. Gains on the stock were jumpstarted in midapril when the company announced a growth of 356.1% in its first quarter 8 Kuwait Stock Exchange Performance2004

Global Research Kuwait earnings. Also, the heated state of the construction market as well as announced plans to introduce a new klinker production line into its factory, with a production capacity of 2.225mn tons per year have all bode well for the UAE based producer. Other cement sector stocks have also performed exceptionally well, rallying to new lifetime highs, all hitting doubledigit growth during the period. Sharqa Cement Co posted gains of 65.2% while Fujaira Cement Co (+37.1%) and Um Quwain Cement Co (+32.3) also realized hefty gains. But strong performances by both ARIG and Shuaa shares also boosted sector performance. The restructuring in ARIG and the subsequent turnaround in profitability was well accepted by the investing community, with interest in the stock boosting its share value by 53.6%. On the broader market, Kuwait and Middle East Financial Investment Co was another big gainer, outpacing the investment sector average of 0.34% by appreciating an outstanding 93.8%. Ajial Real Estate Co also produced brilliant gains of 72.2%, achieving a rise in share value of 74.7% during the month of June alone. A reevaluation of the company s key Al Hamra Cinema Complex resulted in a value increase of KD34mn, boosting expectations that revenues will improve as a result of the success of the project. Other prominent gainers during the half include International Investor Co (+48.0%), Kuwait Financing & Investment Co (+47.2%), Bank of Kuwait and Middle East (+45.3%) and Public Warehousing Co (+41.0%). Market Capitalization makes modest headway On the heels of the highest year on year growth since the exchange s inception (72% in 2003), market capitalization made modest headway during the first half of 2004. Even with the listing of four new companies, market capitalization at the KSE increased by a modest 0.9% to KD18.3bn. Market capitalization was not only affected by share value retreats, but also because of the dilution of capital in the companies as a result of bonus/rights issuances. The sectors evened out between growths and declines. The banking sector, which still carries the largest market capitalization among sectors at 31.0% was down once again, after being 33.5% of total market capitalization at the end of 2003 and 42.5% at the end of 2002. The banking sector, which all along has been the heaviest capitalized sector, has been losing ground since it reached its peak of nearly 46% in 2001. During the half, losses on the sector sent capitalization southward, shrinking by 6.7%. Kuwait Stock Exchange Performance2004 9

Global Research Kuwait Table 04 : Market Capitalization Banking Investment Insurance Real Estate Industry Services Foods NonKuwaiti Issues Total Market Source: 2000 2,689 835 156 417 693 1,117 160 311 6,378 2001 3,803 1,060 177 487 834 1,383 214 342 8,300 2002 4,484 1,539 202 729 1,036 1,949 266 334 10,539 2003 6,079 3,205 282 1,485 1,736 4,289 396 662 18,134 1H2004 5,672 3,434 269 1,659 1,857 4,051 357 990 18,288 But expansion in capitalization by the investment sector as well as the nonkuwaiti sector have stepped in to cover for the lost territory. The nonkuwaiti sector was able to increase its contribution to the total market cap to reach over 5% at 5.4%. The nonkuwaiti sector saw the biggest growth in the market, as it grew over its 2003 level by 49.6%. The investment sector was another big gainer during 2003 and represented nearly 19% of total market cap. The investment sector s capitalization grew to KD3.43bn or 7.1% over its 2003 level. By the end of the first half, the four sectors: services, investment, real estate and industrial accounted for more than 60% of the market capitalization. The roster of the ten largest capitalized stocks in the market saw two changes in the first half, with some additional movement between positions. The top ten large capitalization companies accounted for 47.2% of total market capitalization in Kuwait, down from nearly 51.4% during 2003 and a similar level of 51.5% of total market cap at the end of 2002. National Bank of Kuwait remains the heaviest capitalized stock in the market, bearing a capitalization of KD1.73bn (9.5% of total), followed by MTC, with a market capitalization of KD1.61bn (8.8% of total). Other members of the top ten market heavyweights include Kuwait Finance House, National Mobile Telecommunications Co, Public Warehousing Co, Commercial Bank of Kuwait, Gulf Bank, Bank of Kuwait and Middle East, AlAhli Bank of Kuwait and International Financial Advisors. It is of interest to mention that both BKME and IFA did not make the list at the end of 2003. 10 Kuwait Stock Exchange Performance2004

Global Research Kuwait Table 05 : Shares Turnover (%) Banking Investment Insurance Real Estate Industry Services Foods NonKuwaiti Issues Total Market Source: 2001 8.1 15.0 1.9 10.0 15.2 15.6 16.1 8.0 11.2 2002 53.0 165.1 17.7 138.3 112.3 104.7 145.9 48.1 98.1 2003 58.6 254.2 16.9 228.7 154.3 143.5 269.4 145.4 169.3 1H2003 32.5 130.3 9.5 113.8 100.4 84.2 122.5 54.1 86.2 1H04 18.0 76.4 5.2 73.4 59.4 53.2 107.8 78.1 58.3 Although turnover during the first half slowed from its peak at the end of 2003 and was off of its performance in the first half of 2003, it still remains at a relatively comfortable level. However, barring the nonkuwaiti sector, the remaining sectors as well as the market posted lower levels of turnover. The nonkuwaiti sector, inline with the increased activity on its counter, saw increased turnover, registering shares turnover of 78.1% as compared to 54.1% for the same period last year. The market produced a turnover value of 58.3% as compared to 86.2% for the first half of 2003 and 169.3% for the entire year. Soaring corporate profits give little inspiration We had hoped that the strong first quarter earnings would have supported the market and gave it the ability to react positively, but our case for that was quickly diminished. Strong first quarter earnings were not sufficient enough to push the stock market out of the narrow range it had been in for the latter half of first quarter, as investor sentiment remained subdued despite better than expected company earnings. Growth in profitability at the Kuwaiti market continued to trek upward during the first quarter of 2004, as companies registered profit growth of 49.6% over the first quarter 2003 level. The continued boom in the real estate sector has helped companies within the sector to post outstanding earnings, with companies reporting aggregate profit growth for the period of 91.0%. The services sector also posted hefty profit growth to the magnitude of 52.9%, led by sizeable profit increases by the telecom and transport companies. But it was the investment sector which led Kuwaiti sectors in earnings growth, registering 115.2% increase, on account of Kuwait continuing to house a bustling investment environment. All in all though, the nonkuwaiti segment was the surprise, spearheading the market in terms of profit growth, achieving aggregate profit increase of 155.9%. The market as a whole achieved profits of KD370.6mn as compared to KD247.8mn recorded during the Kuwait Stock Exchange Performance2004 11

Global Research Kuwait previous year. This translates into a 49.6% growth, to complement the 92.3% growth in corporate profitability registered for the whole of 2003. Earnings for the second quarter are expected to be strong, while third and fourth quarter results should also grow but not as dramatically yearoveryear due to a strong second half in 2003. Initial results compiled for 40 companies who have publicized first half earnings shows that the market will most likely see another season of aggregate growth in profitability, albeit slower than the first quarter s growth of 49.6%. 31 of the companies have thus far produced positive results, while 9 companies could not mirror last year s profitability, with the market registering 22.6% in aggregate growth. Of the notable sectors, the banking sector has completed the revelation of profits, with all of the sector components enjoying improved profitability. Barring Kuwait Real Estate Bank, the remaining seven banks all posted profit growths in excess of 10%, with Burgan Bank leading the pack with 69.5% growth. The sector as a whole enjoyed growth of 20.5%, owing to increased fee income, improved asset quality, and lower GDB levels. The nonkuwaiti sector continues to stun the market with robust profit growth as well. To the date of writing, 3 components within the sector revealed aggregate profit growth of 101.1%, on track with the first quarters stunning growth of 155.9%. Strong growth in cement sector stocks continues to carry the sector higher. The forward momentum in the local market will be dictated by the earnings growth visàvis investor expectations in the coming period. Therefore, the half year earnings season could be the dividing point between a renewed rally or the continuation of stagnant activity at KSE. Table 06: Corporate Earnings of KSE Listed Companies Banking Investment Insurance Real Estate Industrial Services Foods Kuwaiti Companies Non Kuwaiti Companies Total Market 1Q03 81.6 45.5 6.2 19.0 34.7 45.5 4.6 237.1 10.7 247.8 1Q04 99.3 97.9 4.2 36.4 33.1 69.6 2.8 343.3 27.3 370.6 Growth 21.7% 115.2% 31.4% 91.0% 4.6% 52.9% 39.5% 44.8% 155.9% 49.6% Source: 12 Kuwait Stock Exchange Performance2004

Global Research Kuwait Market Outlook 2nd HY 2004 While the market has failed to inspire in the first half of the current year, we believe the second half is likely to be different and it would get back into the winning streak again. The strong oil prices and the subsequent economic growth should ensure that the fundamentals remain strong for a sustained period. The corporate profits have been highlighting the sustained strong fundamentals of the economy and this, along with the current low P/Es, would suggest that there is further room for another round of growth in the stock market. We believe the KSE Global General Indices which is a market cap. based index should see a growth of 10%15% in the remaining part of the year. We do not foresee a kneejerk reaction to any interest rate rise which might happen for the remaining part of the year or in the first half of next year. While we do not expect any major surprises, getting a fix on which companies are candidates to shock or amaze the market would be a difficult proposition. The factors which would drive a fresh round of growth in the stock markets would essentially consist of the movement in interest rates and oil prices, speed at which the government and stock market reforms are implemented as well as government investment in infrastructure and capital projects. Despite having recorded substantial gains in the last three years, KSE is the cheapest in valuation terms compared to its GCC neighbors. KSE also scores over its neighboring bourses in terms of liquidity of stocks, expected profitability, depth of the stock market, etc. As a result of its fundamental strengths, KSE is poised to attract more institutional and retail investors as well as more regional listings in the year to come. Moving away from sentiments, we will try and examine the current fundamentals of the economy and various other factors which might impact the performance of KSE in the next few months. Oil prices to remain at comfortable level for the govt. to continue its spending program Despite OPEC trying its best to bring oil prices down, oil prices don t show any signs of weakening. OPEC agreed in June to raise its output ceiling by 2.5mn barrels a day in two stages in its effort to curb high world prices, but the same doesn t seem to have impacted the oil prices much. While there have been some signal by the USA and China to slowdown their economic growth rates and Saudi Arabia has increased its production further, the oil markets still seem to have remained tight. On a medium term perspective, we believe that oil prices will not be sustainable at these prices and will certainly come down from its current level. But the current world events give us belief that the oil prices are not going to go back below US$20 levels in the next couple of Kuwait Stock Exchange Performance2004 13

Global Research Kuwait years. World events like problems with the Yukos oil company in Russia, situation in Iraq, political turmoil in Venezuela and Nigeria would mean that sentiments more than the actual demandsupply are going to reflect in the world oil prices in the short run. As per various reports, despite hefty production, the US crude oil inventories seem to have fallen, indicating that demand may be keeping pace with the higher rate of supply. There are also worries that oil supplies need to build to even higher levels than usual before the peak demand season and it might not happen in reality. There is little prospect of the above happening which would further drive the oil prices unless they are calmed down further by increased oil supplies by OPEC and other major nonopec oil producers. We believe that in the medium term, oil prices are not going to go below the US$2830 a barrel level and it would help the government record comfortable fiscal surplus in the current year as well. This would mean the government spending will remain robust in the medium term, which will substantially boost the private consumption in Kuwait. Lower Interest Rate and Favorable Economic Policies to drive the market Even though the Central Bank hiked its discount rate by 25 basis points in response to the Fed rate cut, the market did not react much as it had already discounted a higher rate cut. Higher interest rates are now largely discounted and therefore the potential damage because of the close correlation between the equity markets and the interest rates seems to be less. But any substantial increase (more than 100 basis points) in the interest rates will certainly affect the equity markets. Going forward, a significant part of the ebb and flow in the market would be dictated by the economic policies of the government. Some of the positive factors which have been driving the economy like allowance for direct foreign investment, government initiative to boost tourism, relaxation of visa requirements, etc. need to be taken forward and supplemented with more reforms including the privatization process, tax rationalization, capital market and real estate sector reforms, etc. It is also essential that the government implements its announced infrastructure and tourism projects within the scheduled time period, as it would have a substantial impact on further driving economic activity. Year 2003 saw a 26% increase in the incoming freight traffic which can be attributed to the increased consumer and business expenditures as well as the inflow of capital goods. The first half of 2004 saw passenger arrivals and departures having increased by 37% and 32% respectively at the Kuwait International Airport. This growth reveals the increase in business & tourist arrivals into the country and also depicts the fact that the improving economy is attracting new residents into the country. The growth rate in inward freight traffic has come 14 Kuwait Stock Exchange Performance2004

Global Research Kuwait down to 9% while the outward freight traffic has gone up by 35% in the first half of the current year. Delay in implementing the pending government reforms and projects will certainly have an impact on the private economy and thereby on the stock markets. Liquidity & Depth continues to attract GCC investors After the current surge in the other GCC stock markets like Qatar, Saudi Arabia and UAE, valuations at KSE look cheap. The cheap valuations alongwith the liquidity and the depth provided by the KSE makes it one of the most formidable markets in the region. The volumes of share traded clearly indicates the interest investors have been bestowing upon the stock exchange. KSE is one of the 3 stock exchanges in the Gulf region which allows GCC citizens and others to invest in almost all the stocks listed in the stock exchange. KSE has been attracting other GCC stocks to be listed at the stock exchange and would continue to do so thereby improving the depth of the stock market. The attractiveness of the Kuwaiti market also stems from the liquidity in the stocks, which makes entry and exit comparatively smoother compared to its other regional counterparts. It is a prime factor which any investor whether retail or institutional takes into account before buying into a stock market. It has been amply demonstrated in the last few years by the growth recorded at KSE. The turnover of shares of the KSE in the 1H2004, which has declined compared to last year, still remains high at more than 116% (annualized) and is among one of the highest in the GCC region. Table 07 : GCC Stock Exchange Activity (1H 2004) Country Bahrain Kuwait Oman Qatar Saudi Arabia UAE Total Volume Traded 173,198,160 18,461,382,500 177,901,836 207,759,576 5,518,806,170 1,676,394,979 Total Value Traded (US$) 219,948,719 27,788,691,312 1,006,761,846 4,091,725,851 213,849,224,896 5,204,652,929 Source: Respective Stock Exchanges and Global Research Market Cap (US$) 11,500,325,676 62,058,803,062 7,554,031,588 32,919,721,343 204,159,962,799 55,565,865,238 No. of Transactions 7,451 560,737 128,599 180,220 5,626,207 91,056 Despite the substantial growth recorded by the Kuwait Stock Exchange (KSE), it appears undervalued compared to its regional peers. The substantial increase in profitability of corporates has also led to the comparative valuation look cheaper for Kuwait compared to its regional peers. The P/E as demonstrated by the table below shows that KSE is relatively cheapest at 11.9x compared to its regional peers. With the outlook for corporate profitability remaining strong, we believe the KSE will see an extended bull run in the current year as well. Kuwait Stock Exchange Performance2004 15

Global Research Kuwait Table 08: Comparative performance of the GCC Markets Country Kuwait Saudi Arabia UAE Qatar Oman Bahrain Source : Global Research Index "Global" Tadawul NBAD DSM MSM BSE 1H 2004 (% change) 2.03 28.74 21.99 33.65 26.82 5.89 Dividend Yield (%) 3.7 3.0 2.5 2.6 4.1 4.2 PER (x) 11.9 20.0 18.0 15.1 13.0 14.9 Despite the attractive valuations of the Kuwaiti stocks, we encourage investors to return to the old investment style, looking beyond the short term and investing in those companies best positioned to create long term value due to superior product portfolio and market penetration, sustainable business model, better franchise value and those which have quality underlying investment portfolio whose value can be unlocked in the future. Portfolio and Sector Strategy We have observed that investors in Kuwait have been recently favoring the growth in earnings per share and any new developments, which would substantially impact the above factor more than the cash or dividend paying capacities of these companies in a long run. The growth obviously has led to higher share prices and thereby higher capital gains for investors. There is no particular sector which we see to be the most favored, as sector leadership has reached the point of inflection this year. Clearly, at the moment investors are focusing more on growth (cyclical) rather than value, which has benefited sectors like cement (nonkuwaiti), investment and the real estate sectors. No doubt these are the sectors which have also been showing the largest improvement in their profitability. A turn in sector leadership is rarely a rapid event, but instead, generally develops gradually (as has happened in the past), therefore we believe the current sector leadership would continue for the remaining part of the year. While the text books would suggest that cyclical sectors typically have leadership of the market in the year leading up to a peak in the economy, it would be very difficult to predict at the moment if we have reached the peak of the economy yet as the oil prices still keep on rising and the full benefits of a regime change in Iraq does not seem to have mattered yet. Therefore, we would suggest to investors and portfolio managers that they should be ready for the same grinding action we have seen year to date and at the same time should be cautious by taking exposure in some value stocks with good cashflows and consistent dividend paying track records. While the cyclicals seem to be ruling now and may continue for some more time, the study of equity cycles would suggest that it should eventually come to an end. We 16 Kuwait Stock Exchange Performance2004

Global Research Kuwait endeavor to provide investors with our insights into various individual stocks/economy through our equity and economic & strategic outlook reports, but here we would like to present our opinion on the various sectors on a more macro level, which might prove useful to the investors in their decision making process or sector allocation strategies. Banking Recently, there have been several regulatory changes, which would affect the profit growth of the banks in the short term but would be helpful in making the banking sector stronger in the long run. Banking stocks in Kuwait have been the safest investment baring a few in the past and we believe they tend to remain so going forward. Restrictions on their loan portfolios (making them linked to their customer, government and FI deposits) and consumer loans (to the net of CDs and medium term loans) would certainly restrict the profit growths of the banks. But the banks in Kuwait have several valuable investments in their portfolio which they can sell to unlock the value of their investments. At the same time, some of the banks have quite a leverage in terms of their provisioning which they might use to increase their accounting profit. Also, regulatory changes like allowing the operations of foreign banks, allowing more Islamic Banks and the lifting of deposit guarantee would change the landscape of the banking sector in Kuwait. While it would certainly increase the competitive pressure on the banks in Kuwait, at the same time it would make the bank s managements more innovative and make structural changes in their set up to remain competitive. We are already seeing many banks upgrading their systems, employing external consultants to help them with their strategic plans and operations or recruiting management, which would bring about effective organizational transformation. This would help the banking sector in the long run and make them more profitable and stable. We have no doubt in our mind that we might see a couple of mergers or acquisitions in this sector in the next few years and those would be good stock pickings, though it would be difficult to predict them at the moment. We believe the year 2005 would again see the banking stocks gaining prominence and the larger banks would be the safest bet with their strong balance sheet and consistent dividend paying track record. There could be a recovery story in Burgan Bank with its new and experienced senior management, but it remains to be seen if the management can deliver the goods and if investors can regain their faith in the stock. Investments Investment sector in Kuwait consists of leasing/consumer companies, investment companies Kuwait Stock Exchange Performance2004 17

Global Research Kuwait and the new breed of investment companies, which based on their business model would qualify more as the investment banking companies. The leasing/consumer finance companies have performed exceedingly well because of the lower interest rates, growth in the stock markets and the growth in the economy, which has increased the disposable income in the hands of the residents. Many of these companies have diversified their income portfolio by diversifying into real estate investments and other businesses. While the increase in the interest rates will certainly affect the operations of these companies by reducing their margins initially and increasing payment defaults, the reduction in demand for consumer finance would take some time as the current expansion of the economy would last longer than envisaged. The demographic profile of the country also supports the growth of these companies. Also, the ever growing demand for Islamic finance would keep that particular segment growing, even though we foresee strong competition in that particular sector going forward. On the whole, we still forsee the profitability of this sector growing in double digits and therefore the consumer finance stocks would remain good bets for investment. Among the pure investment companies, investors need to remain careful and understand the underlying investment assets of these companies. Any fall in the stock market would substantially alter the value of the underlying investments of these companies, thereby affecting the value of the stocks of these companies. Investors need to be more careful while investing in these stocks. The success of the investment companies which have modeled themselves as investment banks would depend a lot on the management of these companies, their business models and the intellectual capacity which have been built in these companies. The investment companies which have a strong cash base, consistent dividend payout track record, diversified income stream and have substantial management and advisory fees would be less reliant on the stock market performance. These are the companies which the portfolio/asset managers need to add to their portfolios. Real Estate This sector has benefited immensely from the lower interest rate scenario and lack of other investment opportunities in the local economy. The activity in this sector continues to grow and has immense potential in the future, but will have its fortune linked to liquidity in the economy, interest rates, policies of the government and real estate transaction regulations. There has been talk about having a real estate transaction exchange which will help in a big way creating an organized and liquid secondary market for the real estate in Kuwait. We believe there is still room for further growth in this sector, though the growth rate would be substantially lower than what we have seen in the last 24 months. We would recommend investors be cautious in this sector, which has 16 listed companies, and look for only cash rich, consistent dividend paying 18 Kuwait Stock Exchange Performance2004

Global Research Kuwait companies which have large projects (stable cash flows) under their belt. Stability in Iraq and improved business scenario could further drive this sector. Those corporates which have exposure to the hospitality and the investment segment could benefit too. Insurance We believe the insurance sector is one of the most undervalued in the market as investor interest in this sector remains subdued with margins under threat from low investment yields and low liquidity available in these stocks. Most of these companies have been consistently declaring underwriting profits for the last several years and have an investment portfolio which largely consists of cash, debt and fixed income instruments. Most of these stocks, barring Bahrain Kuwait Insurance Company (BKIC), have lost value in the first half. Continued uncertainty in the financial markets makes short term investment in this sector difficult. But most of these companies, with their strong balance sheets and continued government support, remain good long term buys. At these values, the bigger companies like Gulf Insurance Company (GIC), Kuwait Insurance Co.(KIC) and AlAhleia Insurance Company (AAIC) all make good buys, having lost value in the last six months. A case in point is that of the stock of KIC which has lost 19% (after adjusting for dividends) value in the first half and at the end of June 2004 was priced at 420fils. The company, at the end of first quarter 2004, had a combined fixed deposit and cash & cash equivalent of KD41mn, which works out to approx. cash of 211fils per share while the stock is trading at 420fils. A similar case can be made out for AAIC as well, which has approx. cash and cash equivalents of 164fils per share. With a large part of the investments by these companies being in fixed deposits or other debt products, the profitability of these companies should see positive growth as the interest rates improve and as these companies restructure more and more of their portfolio s towards debt products. The stocks can be categorized as defensive stocks with their high dividend yield (also consistent dividend track record) and improved technical profits. Telecom We believe both the telecom companies listed in Kuwait, MTC and NMTC, are value stocks and have very strong cashflows as well as balance sheets. At their current level, we consider them to be safe investments even though we do not foresee them to repeat their past growth rates. Particularly, MTC with its strong balance sheet, comfortable cash position and consistent dividend paying track record would be investors safest best. On the other hand NMTC would see higher growth rates because of its operations in Tunisia and Algeria and thereby continue to trade at a higher multiple. We recommend both the Kuwait Stock Exchange Performance2004 19

Global Research Kuwait stocks at their current price (for more detailed analysis please check our individual stock reports on both these companies available on our website www.globalinv.net ). Services Apart from the telecom companies, which are heavyweights in the services sector, there are several other good opportunities in the educational, transport and logistics segments. In this sector, we would recommend investment where franchise value and growth profile is better than average, where cash flow can fund the growth, and where management credibility underpins. At some point, the appetite for risk will decline and when it does we expect the investors to buy the quality end of growth. Some of the stocks in this sector look good because of their business model which includes the Public Warehousing Company (PWC), Transport and Warehousing Company (TWC), Kuwait Gulf Link and Transport company (KGL), Automated Systems Company, Kuwait National Cinema Co., NAPESCO and Kuwait Educational Services Company (KEES). Even though the risk premium attached to the stocks like PWC, TWC and KGL is high because of the various contracts they have in Iraq, these companies have been consciously trying to diversify their revenue base, which will help them in stabilizing their earnings. PWC s stock has been additionally affected by litigation and an early solution to it would help the stock price gain momentum. KEES has converted itself into a holding company and has several good investments in the form of stakes in reputed educational institutions in Kuwait. With the cash surplus they have received from the divestment of some of the schools, they can leverage their investment into higher education further which is a high margin business. We believe the company would continue to perform well in the future. Cement Cement stocks have been the prime example of how cyclical stocks have done well in the last one year. Backed by substantially improved share prices, the stocks have done exceedingly well, particularly the UAE cement companies stocks which are listed in the nonkuwaiti sector at the KSE. With more than US$10bn worth of construction projects announced in UAE, the supply of cement is estimated to be short by 2530 percent. The cement prices have risen by almost 4050% in UAE in the last one year to Dh17 per bag, substantially improving the profitability of these companies. Going forward, we believe there is still value in these stocks and particularly in case of cement companies which have large capacities. At the moment, all the cement stocks including Fujairah Cement, Sharjah Cement and Gulf Cement look good, even though liquidity is a problem in these stocks. 20 Kuwait Stock Exchange Performance2004

Global Research Kuwait Table 09 : Volume Leaders Company Volume ('000) Table 10 : Value Leaders Company Value (KD'000) Kuwait Investment Projects Co. (Holding) AlMal Kuwaiti Co. 1,190,840 1,064,660 The Public Warehousing Co. AlAhlia Investment Co. 594,681 312,623 Ras AlKhaimah (White Cement) Fujairah Cement Industries Co. 792,740 754,080 Jeezan Real Estate Co. Kuwait Investments Projects Co.(holding) 292,194 276,083 Kuwait Real Estate Co. United Real Estate Company 641,750 612,150 Kuwait Real Estate Co. National Real Estate Co. 272,834 257,689 Pearl of Kuwait Real Estate Co AlAhlia Investment Co 536,950 523,950 International Financial Advisors National Mobile Telecommunications Co. 254,329 234,676 Burgan Bank Industrial & Financial Investments Co. 500,310 477,080 National Industries Co. Kuwait Real Estate Bank 221,504 219,927 Source : Source : Table 11 : Top Gainers (fils) Company 31Dec 30Jun % Change Table 12 : Top Losers (fils) Company 31Dec 30Jun % Change Gulf Cement Company 0.255 0.530 107.84% Jeezan Real Estate Co 2.800 1.220 56.43% Kuwait & Middle East Financial Invest. Co. 0.240 0.465 93.75% Kuwait Cable Vision Co 0.560 0.305 45.54% Ajial Real Estate Co 0.360 0.620 72.22% Al Massaleh Real Estate Co 0.510 0.295 42.16% Sharjah Cement & Industrial Development 0.224 0.370 65.18% Arab Real Estate Co 0.270 0.174 35.56% Arab Insurance Group 0.166 0.255 53.61% National Mobile Telecommunications Co 2.800 1.900 32.14% International Investor Co 0.196 0.290 47.96% Bayan Investment Co 0.375 0.255 32.00% Kuwait Financing & Investment Co 0.360 0.530 47.22% Kuwait Real Estate Bank 0.430 0.360 29.84% Bank of Kuwait and Middle East 0.475 0.690 45.26% Industrial and Financial Investments Co 0.355 0.250 29.58% Public Warehousing Co 1.220 1.720 40.98% Warba Insurance Co 0.560 0.405 27.68% National Cleaning Co Source : 1.000 1.400 40.00% Gulf Finance House Source : 0.495 0.360 27.27% Table 13 : Top 10 Market Caps Company (KD 000) Market Cap end 1H04 National Bank of Kuwait 1,733,641 Mobile Telecommunications Co. 1,605,687 Kuwait Finance House 1,140,852 National Mobile Telecommunications Co. 826,135 The Public Warehousing Co. 733,806 Commercial Bank of Kuwait 680,715 The Gulf Bank 648,478 Bank of Kuwait and the Middle East 485,718 AlAhli Bank of Kuwait 399,753 International Financial Advisors 369,600 Source : Table 14 : Top 10 Dividend Yields Company Yield % as of end 1H04 United Fisheries of Kuwait 20.62 Gulf Finance House 12.50 Bayan Investment Company 11.76 Kuwait Financial Center 10.23 Kuwait Insurance Co. 9.52 Kuwait Investment Co. 8.82 Al Massaleh Real Estate 8.47 Gulf Insurance Co. 8.24 AlAhlia Investment Co 7.87 National Industries Group 7.61 Source : Kuwait Stock Exchange Performance2004 21

Dividend Yield % 4.46 5.57 6.25 4.40 1.74 1.15 4.48 3.42 4.02 8.82 5.57 2.60 6.82 7.50 7.87 7.53 2.94 6.00 7.32 1.85 10.23 1.08 3.28 2.56 3.85 3.70 11.76 5.17 4.50 3.33 3.98 9.52 8.24 7.00 4.94 4.10 7.21 1.39 3.85 1.13 8.47 2.87 3.13 5.49 4.88 1.86 Global Research Kuwait 22 Kuwait Stock Exchange Performance2004 Facts sheet of Kuwait Stock Exchange Listed Companies For the Half Year Ended On: 30/06/04 Book Value Fils P/BV KD'000 Company Name Half Year Reuters RIC Closing Year To Date % No. of Shares Volume '000 Market Cap Half Year Net Profit March 2004 RIC Price KD Change ('000) Shares KD'000 Turnover % EPS Fils# P/E! BANKING National Bank of Kuwait The Gulf Bank Commercial Bank of Kuwati AlAhli Bank of Kuwait Bank of Kuwait and the Middle East Kuwait Real Estate Bank Burgan Bank Kuwait Finance House Sector Total/ Weighted Average INVESTMENT Kuwait Investment Co. Commercial Facilities Co. International Financial Advisors National Investment Company Kuwait Investment Projects Co. (Holding) AlAhlia Investment Co. ** The Coast Development Investment The International Investor Co. The Securities House Co. Industrial & Financial Investments Co. Securities Group Co. International Finance Co. Kuwait Financial Center Kuwait & Middle East Financial Inv. International Investment Group* Aref Investment Group Co. The Investment Dar Al Shall Consultant & Investment Co. First Investment Co. AlMal Kuwaiti Co. Gulf Investment House A'ayan Leasing & Investment Co. Bayan Investment Company Osoul Leasing & Financing Co.(Year end Oct.) Gulfinvest International Kuwait Financing & Investment Co. KIPCO Asset Management Financial Services Sector Total/ Weighted Average INSURANCE Kuwait Insurance Co. Gulf Insurance Co. AlAhlia Insurance Co. Warba Insurance Co. Kuwait ReInsurance Co. Sector Total/ Weighted Average REAL ESTATE Kuwait Real Estate Co. United Real Estate Company National Real Estate Co. Salhia Real Estate Co. Pearl of Kuwait Real Estate Co.** Tamdeen Real Estate Co. International Investment Projects* Ajial Real Estate Co. Al Massaleh Real Estate Arab Real Estate Co. Union Real Estate Co. AlEnma'a Real Estate Co. (Year end Oct.) Mabanee Company AlMal Real Estate Co. Jeezan Real Estate Co. Kuwait Lebanese Real Estate Development Co. Sector Total/ Weighted Average NBKK.KW GBKK.KW CBKK.KW ABKK.KW BKME.KW KREB.KW BURG.KW KFIN.KW KINV.KW FACI.KW IFIN.KW NINV.KW KPRO.KW AINV.KW COAS.KW TIIK.KW SECH.KW IICK.KW SGCK.KW IMCK.KW KFCK.KW KMEF.KW IIGK.KW AIGK.KW TIDK.KW SHAL.KW OLAK.KW MALK.KW GIHK.KW AAYA.KW BAYK.KW GLOB.KW OSUL.KW GVES.KW KFSK.KW KAMC.KW KINS.KW GINS.KW AINS.KW WINS.KW KWRE.KW KREK.KW UREK.KW NREK.KW SREK.KW PEAR.KW TAMK.KW IIPK.KW AREC.KW MREC.KW ARAB.KW UREC.KW ENMA.KW KBCC.KW AMRE.KW JEZK.KW KLRE.KW 1.1200 0.7900 0.6400 0.4550 0.6900 0.4350 0.3350 1.4600 0.3400 0.7900 1.5400 0.4400 0.2000 0.4700 0.4250 0.2900 0.6800 0.2500 0.3550 0.2700 0.1760 0.4650 0.0920 0.3050 0.3900 0.2600 0.2500 0.1500 0.2700 0.4600 0.2550 0.5800 0.1980 0.2220 0.5300 0.3000 0.4200 0.5100 0.5000 0.4050 0.3050 0.3600 0.2500 0.6500 0.4900 0.2360 0.3450 0.0580 0.6200 0.2950 0.1740 0.2240 0.2550 0.4100 0.2500 1.2200 0.2800 23.29% 10.23% 11.11% 12.35% 45.26% 29.84% 5.63% 8.75% 19.05% 22.55% 3.75% 22.22% 21.57% 18.97% 3.66% 47.96% 15.25% 29.58% 4.05% 22.86% 23.48% 93.75% 0.00% 3.17% 1.30% 16.07% 10.62% 2.74% 1.89% 0.00% 32.00% 22.67% 13.91% 14.62% 47.22% 20.00% 26.32% 5.56% 3.85% 27.68% 4.69% 16.28% 10.71% 31.31% 15.52% 1.72% 1.47% 0.00% 72.22% 42.16% 35.56% 13.85% 0.00% 2.50% 8.70% 56.43% 26.32% 1,547,894 820,859 1,063,616 878,579 703,939 675,973 860,604 781,406 7,332,869 500,000 391,451 240,000 399,417 1,049,621 500,776 394,756 365,962 241,500 321,969 211,765 225,539 396,678 139,466 219,440 346,680 497,190 24,039 283,905 350,000 348,330 293,000 301,875 208,091 250,000 308,000 216,980 221,100 9,247,531 194,040 113,100 117,418 101,268 99,556 625,382 570,933 541,912 466,400 314,924 203,626 320,000 600,000 160,000 178,526 341,413 165,375 318,500 300,000 180,000 119,520 84,375 4,865,504 121,000 66,155 90,730 61,730 48,095 341,970 500,310 88,953 1,318,943 40,720 69,578 126,003 187,780 1,190,840 523,950 6,340 171,850 80,105 477,080 80,970 124,080 403,020 311,335 70,370 273,260 850 386,540 1,064,660 355,120 67,430 305,240 110,135 190,760 343,740 70,850 50,300 7,082,905 710 8,755 14,185 7,755 970 32,375 641,750 612,150 446,225 14,925 536,950 27,060 39,525 221,825 289,500 25,700 107,140 73,740 332,790 163,156 82,830 3,615,266 1,733,641 648,478 680,715 399,753 485,718 294,048 288,302 1,140,852 5,671,508 170,000 309,246 369,600 175,744 209,924 235,365 167,771 106,129 164,220 80,492 75,177 60,896 69,815 64,852 20,188 105,737 193,904 6,250 70,976 52,500 94,049 134,780 76,978 120,693 49,500 68,376 114,999 66,330 3,434,492 81,497 57,681 58,709 41,014 30,365 269,265 205,536 135,478 303,160 154,313 48,056 110,400 34,800 99,200 52,665 59,406 37,044 81,218 123,000 45,000 145,814 23,625 1,658,714 7.82 8.06 8.53 7.03 6.83 50.59 58.13 11.38 17.99 8.14 17.77 52.50 47.01 113.45 104.63 1.61 46.96 33.17 148.18 38.24 55.01 101.60 223.23 20.30 54.96 3.54 136.15 304.19 101.95 23.01 101.11 52.93 76.30 111.60 32.65 22.75 76.59 0.37 7.74 12.08 7.66 0.97 5.18 112.40 112.96 95.67 4.74 263.69 8.46 24.70 124.25 84.79 15.54 33.64 24.58 184.88 136.51 98.17 74.30 82.49 64.52 57.47 30.63 31.46 18.24 30.84 86.26 31.89 58.52 406.32 81.94 25.66 5.73 53.78 29.51 115.13 24.51 13.03 21.70 37.45 103.85 16.45 13.80 5.20 31.94 61.90 13.55 73.02 10.77 34.70 7.83 54.37 60.10 69.18 62.05 16.23 25.22 14.41 43.72 24.94 15.36 95.69 27.51 16.21 7.97 20.51 9.73 37.48 388.09 5.48 13.58 12.24 11.14 14.85 21.93 23.84 10.86 16.93 14.28 10.66 13.50 3.79 5.37 7.79 50.62 12.65 8.47 3.08 11.02 13.51 21.43 8.14 3.76 15.80 18.12 28.86 8.45 7.43 18.82 7.94 18.39 6.40 67.70 5.52 8.28 8.49 7.23 6.53 18.79 8.23 14.27 17.35 14.87 19.65 22.46 6.48 10.72 10.74 28.12 12.43 42.13 6.67 3.14 51.09 11.07 338.49 336.63 247.24 204.41 240.02 179.80 232.65 334.66 272.07 195.05 291.66 279.46 147.50 142.36 181.72 140.83 179.57 172.58 126.27 295.35 155.31 158.46 130.79 127.18 154.45 125.69 120.90 77.30 119.79 144.40 140.18 155.27 76.49 129.31 86.83 207.39 154.42 302.68 396.29 369.69 292.61 266.87 324.86 168.49 141.56 199.69 246.18 102.17 227.17 109.89 243.32 125.53 173.11 128.07 153.52 126.14 270.94 123.55 148.38 3.31 2.35 2.59 2.23 2.87 2.42 1.44 4.36 2.84 1.74 2.71 5.51 2.98 1.40 2.59 3.02 1.61 3.94 1.98 1.20 1.74 1.11 3.56 2.40 2.53 2.07 2.07 1.94 2.25 3.19 1.82 3.74 2.59 1.72 6.10 1.45 2.41 1.39 1.29 1.35 1.38 1.14 1.33 2.14 1.77 3.25 1.99 2.31 1.52 5.64 1.21 1.39 1.29 1.99 2.67 1.98 4.50 2.27 2.30 31,922 13,240 15,281 6,728 5,537 3,083 6,636 16,851 99,278 3,986 5,727 24,379 8,182 6,733 2,906 524 3,247 2,376 6,095 1,382 1,292 756 3,246 12,909 99 979 455 2,782 4,534 1,023 3,799 673 2,672 425 3,005 98,373 1,065 1,699 2,031 1,571 404 4,640 3,600 1,952 5,097 1,963 1,229 3,828 1,228 1,383 329 1,633 730 1,687 11,596 116 36,372

Net Profit March 2004 KD'000 10,204 1,442 5,061 1,155 4,698 964 513 1,658 34 266 621 1,168 318 166 1,068 520 327 79 2,836 992 34,091 601 70 14,681 536 28,859 249 1,192 1,767 609 3,180 88 4,242 11,015 1,680 189 391 131 494 69,598 1,081 462 177 3,577 2,780 5,814 2,008 2,866 1,564 1,126 288 1,449 3,359 3,608 664 4,564 27,311 372,442 Dividend Yield % 7.61 5.88 3.57 4.94 4.04 4.29 2.93 5.25 1.06 5.49 7.14 3.13 0.99 6.43 3.16 3.33 4.48 5.75 3.02 4.26 3.47 1.45 4.84 6.94 4.31 5.26 5.00 6.82 5.15 1.04 0.82 3.45 2.76 2.29 20.62 3.69 4.30 2.58 1.08 1.51 2.28 2.35 2.94 6.78 0.96 4.46 12.50 2.59 3.54 Global Research Kuwait Kuwait Stock Exchange Performance2004 23 For the Half Year Ended On: 30/06/04 Company Name INDUSTRIAL National Industries Group Kuwait Pipes Industries & Oil Services Kuwait Cement Co. Refrigeration Indutries & Warehousing Gulf Cables & Electrical Industries Co. Heavy Engineering Ind. & Shipbuilding Co. Contracting & Marine Services Co. Kuwait Portland Cement Co. Shuaiba Paper Products Co. Kuwait Metalcollection & Shredding Kuwait Foundry Co. Aerated Concrete Industries Co. United Industries Co. Boubyan Petrochemical Co. (Year end April) ** Gulf Glass Manufacturing Co. Hilal Cement Co. Ahlia Industrial Projects Co. Kuwait Packing Materials Manufacturing Co. Kuwait Building Material Manufacturing Company National Industries Company for Building Materials Gulf Rocks Company Sector Total/ Weighted Average SERVICES Kuwait National Cinema Kuwait Hotels Co. The Public Warehousing Co. Kuwait Commercial Markets Complex Co. Mobile Telecommunications Co. Hasibat Holding Co. Kuwait Est. for Education Services (Year end Aug.) Independent Petroleum Group Co. National Cleaning Co. Sultan Center Food Products Co. Arabi Holding Group Company The Transport & Warehousing Group Co. National Mobile Telecommunications Co. Kuwait & Gulf Link Transport Co. Kuwait Cable Vision Co. Automated Systems Co. National Petroleum Services Company Kw Co.for Process Plant Construction & Contra. Sector Total/ Weighted Average FOODS Livestock Transport & Trading Co. United Fisheries of Kuwait Kuwait United Poultry Co. Kuwait Food Company (Americana) Sector Total/ Weighted Average NON KUWAITI CO. SHUAA Capital (Year end March) Sharjah Cement & Industrial Development Co. Gulf Cement Co. Umm AlQaiwain Cement Industries Co. Fujairah Cement Industries Co. Ras AlKhaimah Co. for White Cement & Construction Materials Arab Insurance Group (ARIG) United Gulf Bank Egypt Kuwait Holding Co. Bahrain Kuwait Insurance Co. Gulf Finance House Sector Total/ Weighted Average Market Total/ Weighted Average Reuters RIC RIC NIND.KW PIPE.KW KCEM.KW REFR.KW CABL.KW SHIP.KW MARI.KW PCEM.KW PAPE.KW KMCS.KW KFDC.KW ACIC.KW UICK.KW BPCC.KW GGMC.KW HCCK.KW AIPK.KW KPAK.KW KBMM.KW NIBM.KW ROCK.KW KCIN.KW KHOT.KW WARE.KW SHOP.KW TELE.KW COMP.KW EDUK.KW IPGK.KW CLEA.KW SCFK.KW AGHC.KW TTGC.KW NMTC.KW KGLK.KW KWTV.KW ASCK.KW NAPS.KW KCPC.KW CATT.KW FISH.KW POUL.KW FOOD.KW SHUA.KW SCEM.KW GCEM.KW QCEM.KW FCEM.KW RKWC.KW ARIG.KW UGBK.KW EKHK.KW BKIK.KW GFHK.KW Closing Price KD 0.4600 0.8500 0.7000 0.8100 3.3400 0.4200 0.4100 1.6200 0.4700 0.4550 1.8800 0.4900 0.1960 0.4800 0.8100 0.7000 0.4750 0.6000 0.3350 0.4350 2.3200 1.4400 0.2900 1.7200 0.5400 3.1000 0.2160 0.3250 0.5700 1.4000 0.5100 0.4200 2.2000 1.9000 0.9700 0.3050 1.9200 0.6100 0.5800 0.2180 0.1940 0.2360 1.7600 0.3100 0.3700 0.5300 0.2460 0.2550 0.1360 0.2550 0.1520 1.0400 0.3500 0.3600 Year To Date % Change 20.69% 7.61% 29.63% 3.57% 10.70% 1.20% 12.77% 17.35% 16.07% 0.00% 21.67% 16.95% 16.24% 14.29% 2.53% 9.09% 1.06% 7.69% 16.25% 2.35% 22.11% 4.35% 3.57% 40.98% 1.82% 21.72% 4.85% 0.00% 7.55% 40.00% 13.56% 2.44% 14.06% 32.14% 10.19% 45.54% 2.13% 29.79% 24.68% 23.51% 9.35% 2.48% 16.19% 32.48% 65.18% 107.84% 32.26% 37.10% 23.64% 53.61% 18.28% 1.89% 12.90% 27.27% Facts sheet of Kuwait Stock Exchange Listed Companies No. of Shares ('000) 706,182 159,673 377,004 73,715 77,474 135,111 81,000 71,550 40,006 20,331 20,000 119,022 150,000 400,000 32,914 33,000 80,000 30,250 26,250 200,000 26,413 2,859,896 77,000 50,000 426,632 160,517 517,964 50,625 123,656 108,750 29,026 312,159 35,066 59,556 434,808 104,816 53,500 30,800 29,700 33,000 2,637,574 216,507 154,000 115,404 143,412 629,323 330,000 318,165 264,649 204,750 275,816 442,134 150,000 756,044 126,000 50,000 409,091 3,326,650 31,524,729 Half Year Volume '000 Shares 371,245 187,980 100,435 95,173 14,411 217,990 7,240 11,658 8,730 7,740 1,303 16,375 257,000 347,665 8,710 150 100 18,120 10,690 8,570 7,305 1,698,589 37,798 3,760 401,418 69,920 39,631 97,850 72,760 70,540 43,980 158,220 31,615 839 99,968 126,310 17,865 11,593 112,275 5,725 1,402,066 110,170 385,160 177,420 5,808 678,558 113,100 103,570 160,930 340,670 754,080 792,740 37,890 168,660 4,313 400 156,330 2,632,683 18,461,383 Market Cap KD'000 324,844 135,722 263,903 59,709 258,764 56,747 33,210 115,911 18,803 9,251 37,600 58,321 29,400 192,000 26,660 23,100 38,000 18,150 8,794 87,000 61,279 1,857,167 110,880 14,500 733,806 86,679 1,605,687 10,935 40,188 61,988 40,636 159,201 14,728 131,024 826,135 101,672 16,318 59,136 18,117 19,140 4,050,769 47,199 29,876 27,235 252,405 356,715 102,300 117,721 140,264 50,369 70,333 60,130 38,250 114,919 131,040 17,500 147,273 990,099 18,288,729 Half Year Turnover % EPS Fils# P/E! 52.57 117.73 26.64 129.11 18.60 161.34 8.94 16.29 21.82 38.07 6.51 13.76 171.33 86.92 26.46 0.45 0.13 59.90 40.72 4.29 27.66 59.39 49.09 7.52 94.09 43.56 7.65 193.28 58.84 64.86 151.52 50.69 90.16 1.41 22.99 120.51 33.39 37.64 378.03 17.35 53.16 50.89 250.10 153.74 4.05 107.82 34.27 32.55 60.81 166.38 273.40 179.30 25.26 22.31 3.42 0.80 38.21 79.14 58.56 57.80 36.13 53.70 62.70 242.56 28.55 25.34 92.66 3.43 52.25 124.19 39.25 8.48 20.22 129.42 26.00 43.18 12.08 56.73 150.18 31.24 5.57 137.65 13.36 222.87 19.68 38.57 65.00 83.95 40.74 10.04 284.90 101.33 64.13 50.83 17.68 59.84 11.99 99.76 70.47 25.25 43.32 30.55 16.33 2.60 38.64 17.77 114.54 53.12 44.63 7.96 23.53 13.04 12.92 13.77 14.71 16.18 17.48 136.88 8.71 15.14 12.48 23.11 40.06 5.41 18.27 13.90 27.72 7.67 15.45 13.49 46.09 52.06 12.50 40.42 13.91 10.97 8.43 8.77 16.68 12.52 41.81 7.72 18.75 15.13 37.77 34.50 9.69 14.45 16.18 17.64 17.48 4.40 14.65 12.23 8.05 15.61 52.24 6.60 8.55 9.08 6.59 8.07 9.06 11.95 Book Value Fils P/BV! P/Es in Negative or above than 60 are excluded from the total * trading suspended # Diluted. First Quarter ending in March 2004 annualized ^Diluted ** Book Value & P/BV for the year ending in December 2003 346.87 257.93 254.56 229.98 980.26 158.14 163.98 542.51 204.19 181.00 914.50 172.62 235.15 261.98 167.63 207.66 131.01 156.26 136.60 136.67 389.98 282.53 274.99 106.26 280.24 128.62 565.11 120.36 147.49 266.95 253.63 164.51 165.87 388.44 308.48 223.65 117.03 196.72 119.21 229.45 296.27 206.13 158.36 112.98 657.91 280.31 110.33 151.31 131.68 113.13 128.34 131.38 279.40 97.20 381.88 226.74 144.65 141.31 208.86 1.33 3.30 2.75 3.52 3.41 2.66 2.50 2.99 2.30 2.51 2.06 2.84 0.83 4.83 3.37 3.63 3.84 2.45 3.18 5.95 2.30 5.24 2.73 6.14 4.20 5.49 1.79 2.20 2.14 5.52 3.10 2.53 5.66 6.16 4.34 2.61 9.76 5.12 2.53 5.18 1.06 1.23 2.09 2.68 2.02 2.81 2.45 4.03 2.17 1.99 1.04 0.91 1.56 2.72 1.54 2.49 2.11 2.78

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