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Zain KSA (XOCTF) We use a DCF valuation model to derive our price objective of SAR 12.2. Key assumptions are a discount rate of 11.0%, underpinned by a risk free rate of 5.5%, a cost of equity of 29% and a 6.5% cost of debt. We explicitly forecast free cash flows until 2022 and then assume perpetuity growth of 3%, as we do when valuing other Gulf operators. Our forecasts take in to account the repayment of the deferred royalty loan afforded to Zain in 2013 (repayments starting from 2021). Downside risks are greater pricing pressure from MVNOs, the loss of its appeal against a SAR620mn tax claim, an unfavourable ruling against Zain KSA in its arbitration process with Mobily and an inability to grow market share and margins, which in turn would threaten capital requirements. Analyst Certification We, Abdelrali El Jattari, Ali Dhaloomal, Anton Fedotov, Benjamin Heelan, Celine Fornaro, Faisal AlAzmeh, CFA, Francisco Blanch, Hootan Yazhari, CFA, Jamie Clark, CFA and Jean- Michel Saliba, hereby certify that the views each of us has expressed in this research report accurately reflect each of our respective personal views about the subject securities and issuers. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. Special Disclosures Some of the securities discussed herein should only be considered for inclusion in accounts qualified for high risk investment. OS Merrill Lynch GEMs Paper #26 | 30 June 2016 81 HOUSE_OVERSIGHT_016191