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1. Al Rajhi Bank
\nBank of America Merrill Lynch analysis: We like Al Rajhi for its best-of-breed status, as the bank’s dominating retail franchise makes it best placed within our coverage universe to benefit from a mid cycle phase with 20 percent loan growth for 2013.
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2. Bank Muscat
\nBank of America Merrill Lynch analysis: We like Bank Muscat as a value play and view it as a catch up play to MENA peers with its recent capital raising phase now firmly behind us and quarterly trends set to rebound from 1Q lows.
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3. Dar Al Arkan
\nBank of America Merrill Lynch analysis: We are including Dar Al Arkan (led by chairman Yousef Bin Abdullah Al Shelash) in our MENA best ideas as the recent issuance of cheap bonds signals the company’s intention to launch new projects to capitalise on the improved conditions for home ownership in Saudi Arabia. The securing of long-term funding is the key long-awaited catalyst for a rerating,\nWe are buyers of Dar Al Arkan following the successful issuance of $450m of Islamic bonds at 6 percent, lower than its previous issuance at 10.75 percent in 2010. This will allow the company to fulfil demand in a residential market that is undersupplied and stands to benefit from government real estate reforms.
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\nBank of America Merrill Lynch analysis: In addition to being driven by Dubai's economic recovery and outlook, we like Emaar due to the stock's attractive valuation with the stock trading at an unwarranted discount to its book value, in our view.\nWe see four key reasons to own Emaar: (1) continued strong retail growth ; (2) improving profitability from Dubai hotels; (3) accelerating project launches and developments in Dubai and Saudi; and (4) a stronger balance sheet and reduced exposure to non-yielding assets like Amlak.
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5. First Gulf Bank
\nBank of America Merrill Lynch analysis: We like FGB given its attractive valuation and potential for dividend yield surprise. FGB offers solid dividend growth potential as it seeks further capital release. We continue to believe management has further room to hike given still high capitalisation levels and subpar potential for loan growth.
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\nBank of America Merrill Lynch analysis: We have included Mobily in this list due to its best of breed status which is driven by management’s history of strong execution, the new Saudi ICT-related growth opportunities underpinned by high public sector spending and a focus on improving shareholder returns.
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\nBank of America Merrill Lynch analysis: We like QNB due to its best of breed status due to its dominant banking franchise with over 50 percent market share. We believe QNB is well placed within Qatar to capitalise on the growth of ‘Qatar Inc.’
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\nBank of America Merrill Lynch analysis: Our top pick in the MENA chemicals space is Buy-rated SIIG due to the stock’s potential earnings surprise in 2Q13. SIIG recently completed its biggest expansion, which will increase total capacity. We see three key reasons that will drive outperformance over the next 12 months (1) This new project offers significant margin improvement; (ii) higher efficiency and integration across its different business units, and (iii) major volume growth, that will translate into 93 percent growth in revenues and 113 percent growth in 2013 earnings.
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\nBank of America Merrill Lynch analysis: YANSAB is our top dividend name in Saudi on the potential for a higher than expected dividend in 2013. YANSAB’s cash balance in 1Q13 increased by 85 percent, putting net debt to equity at 40 percent, this is the lowest level since the company started operations in 2010.