Investment Case
Strong oil price
The UAE is the world’s fifth largest oil exporter and given the high price of
oil has led to record oil revenues for the government. The significant
petrodollar revenue has resulted in current account and fiscal surpluses,
which has supported a major investment boom. Banking sector is the
obvious beneficiary of a booming economy as they benefit from strong
investment-led credit growth, a growing population and a recovery in fee
income. Banks have structured innovative products both on liability and
asset side to enhance the fee-based income stream.
Considerable project pipeline
The government’s diversification programme involves a massive pipeline
of planned infrastructure and development projects. A large portion of
these projects are being undertaken in the Emirate of Abu Dhabi.
According to the IMF, Abu Dhabi is planning $227bn worth of real estate,
tourism, manufacturing and oil related investment projects over the next
ten years. This is likely to lead to ample financing opportunities for the
leading financial institutions in the Emirate.
Favourable demographic profile
The UAE has witnessed strong population growth due to attractive
employment prospects, low/no taxes and closeness to low cost labour
markets. The increasing petrodollar wealth is accelerating urbanization
and infrastructure investment. Significant amounts of infrastructure
projects are announced giving a further fillip to loan growth. Increasing
working population will boost consumer lending portfolio. The
demographic mix, along with strong inflows of expatriates, is likely to
create additional business opportunities for the banking sector.
Attractive valuations
We expect core underlying banking income to remain strong for the
foreseeable future on the back of favourable macroeconomic
environment, record oil prices and benign interest rate scenario.
Government thrust towards providing further impetus to economic growth
is likely to benefit the banking sector. On the flip side, inflation continues
to remain on the higher side and is likely to result in monetary and/or
fiscal measures undertaken to rein in inflation, which could possibly
moderate growth. On the whole, we are particularly bullish on the sector
in general and Abu Dhabi banks in particular. We expect the assets of
banks under coverage to grow at a CAGR of 20.1% during 2007-2011E.
The banks under coverage are trading in the range of 9 – 17x 2008E
earnings and 1.7 – 3.2x 2008E book value.

Contents
Investment Case 4
UAE Banking Sector 6
Overview of the sector 6
National banks continue to dominate 6
Islamic banking – A promising future 7
Increasing banking penetration 8
Robust profitability 9
Financial performance of listed banks 19
Market share of listed banks 19
DuPont analysis 27
Comparative analysis of listed conventional banks 30
Valuation methodology 33
Economic Value Added 33
Warranted Equity Valuation 33
Emirates NBD 36
National Bank of Abu Dhabi 48
Abu Dhabi Commercial Bank 58
Mashreq Bank 68
First Gulf Bank 78
Union National Bank 86
National Bank of Ras Al-Khaimah 92
Ratings Definitions 99