- We revise our 2019e—24e IB net profit estimates downwards by c21% due to slower-than-expected 2019e Egypt stock market performance
- We revise upward our 2019e—24e earnings estimates for Corplease by an average c12% on higher-than-expected loan growth, while lower our estimates for Reefy by c39% on lower-than-expected market share
- We increase our 12M TP by c2% to EGP7.49/share as we incorporate Taaleem in our valuation, and maintain Overweight. Our TP puts the company at a 2020e PER of 9.36x and P/B of 1.92x
CI Capital (CICH EY): On growth trajectory | Overweight, TP EGP7.49
EFG Hermes (HRHO EY): Growth Pending Economic Pickup | OW, TP EGP24.3
-
- We expect the imminent private sector growth, helped by accelerated monetary easing, to trigger 5-year bottom-line CAGR of 16% for IB and 14% for NBFI, taking total ROAE to c14% in 2024e
- Within NBFI, we expect leasing to show attractive growth following a pickup in private investment spending, while microfinance will more likely be pressured by increased competition, in our view
- We increase our 12M TP c3% to EGP24.29/share and maintain Overweight; our TP puts the company at a 2020e PER of 14.5x and a P/B of 1.29x
El Sewedy Electric (SWDY EY): Reiterate OW on share price weakness | Overweight, TP EGP18.5
- Cable volumes slow to recover; a return to pre-slide levels unlikely before 2023e, in our view
- Subdued turnkey execution pace slightly mutes stronger project awards, leaving revenue c12% higher on average in USD terms
- We cut our 12-month TP c13% to EGP18.5/share on a stronger EGP, but maintain Overweight on share price slump
Egypt F&B sector: Demand comeback on moderating inflation
- Demand growth back on track on more positive economic outlook, with margins reverting back to historical averages
- We raise our 12M TP c26% to EGP21.6/share for Edita, but cut c16% to EGP12.6/share for Juhayna and c9% to EGP11.5/share for Domty; maintain our OW for all the 3 stocks
- Companies’ valuations remain compelling for most of the F&B sector, but we still favor Juhayna on a higher potential return, stronger balance sheet, and its history of outperforming in an uptrend market
Ezz Steel (ESRS EY): Hazy outlook | Neutral, TP EGP12.0
- 2018 margin gains quickly wiped out; global steel spreads to take longer to recover, partially mitigated locally by protective tariffs and potentially a cut in natural gas prices
- Ezz Steel could remain in the red for another couple of years; potential share swap deal is not a game changer
- We cut our 2019–23e EBITDA estimates c34% and our 12-month TP c56% to EGP12.0/share and downgrade to Neutral from Overweight
Egypt macro: Eyeing inflation, targeting growth
- CBE surprises market with sizable 150 bps cut, signaling start of an accelerated easing cycle
- Positive real interest rate reduces currency risk and well positions local debt market among emerging markets
- We expect at least a further 100 bps cut before the end of the year; weakening global economic activity remains a risk
Egypt financials sector: Banking on a private-sector pickup
- Monetary easing key for resumption of CAPEX lending, in our view
- This should reflect in lower banking NIMs while strong CAR supports balance sheet growth, on our numbers
- We raise our 12M TP c8% for CIB to EGP87.8/share and maintain OW, leave CAE largely unchanged at EGP51.9/share but downgrade to N, and maintain ADIB at EGP18.3/share and OW; ADIB is our top pick as the bank’s turnaround story is not fully priced-in
Oriental Weavers (ORWE EY): Maintain OW on share price weakness | Overweight, TP EGP13.9
- Mixed local demand outlook and increased competition from export markets leave our top line estimates c4% lower, on average, over our forecast period
- This, coupled with slower rebate collections, leave our EBITDA estimates c30% lower, on average
- We cut our 12-month TP c32% to EGP13.9/share on our lower estimates, but maintain Overweight on share price weakness
Eastern Company (EAST EY): Upgrade to N on share price weakness | Neutral, TP EGP20.0
- Inevitable tax revision around the corner followed by a series of price hikes translate to an average increase of c7% in blended local ex-factory price over our forecast period, on our calculations
- This, however, is largely offset by a higher EGP/USD rate and lower volumes, leaving our FY19/20e–FY23/24e EBITDAR estimates c11% lower, on average
- We cut our 12-month TP c7% to EGP20.0/share on lower estimates and higher cost of equity, but upgrade to Neutral from Underweight on share price weakness
EIPICO (PHAR EY): Higher prices key for re-rating | Neutral, TP EGP85.0
- A combination of higher-than-expected market share loss and a lower blended portfolio price filter through to a 2019–23e total revenue downward revision of c14%, on average
- This, along with higher raw material cost per unit in USD terms, leave our EBITDA estimates c27% lower over our forecast period, despite lower EGP/USD rates
- We cut our 12-month TP c23% to EGP85.0/share and downgrade the stock to Neutral from Overweight on non-compelling valuation, despite share price weakness
Navigating Egypt: Shedding light on compelling stories
- We expect a 1-year delay in easing cycle and gradual EGP devaluation and remain bullish on prospects of the Egyptian economy; earlier-than-expected rate cuts pose upside risk to most of our coverage
- Given our macro view, we are bullish on construction, energy-related, consumer staples, financials, tourism, automotive, and select real-estate names
- With a big portion of our coverage undervalued, our focus is on compelling stories with low forward PEG ratios rather than merely potential returns, filtering through to 12 high-conviction picks
Orascom Development Egypt (ORHD EY): Growth on top of strong earnings visibility | Overweight, TP EGP14.5
- With sizeable hospitality operations, the continuation of a recovery in the tourism sector should bode well for the company
- ODE offers a solid growth story as the transition into the primary market unfolds
- We initiate coverage with a TP of EGP14.5/share and an Overweight rating on a c131% potential return; our TP puts the company on a 2019e TP/NAV of 0.66x, while trading at a c19% discount to peers
Orascom Construction (ORAS EY, OC DU): Excessively oversold | Overweight, TP EGP241
- We expect Egyptian operations to underperform the market but still achieve decent growth in project awards to an average annual USD2.0bn over our forecast horizon
- US operations to turn around next year backed by a solid market outlook, realization of deferred work, and the offloading of legacy OCI NV projects
- We raise our 2019–22e estimates c7% and our TP c53% to EGP241/share on a lower cost of capital and a higher EGP/USD rate, and reiterate our Overweight rating
SIDPEC (SKPC EY): Cost inflation weighs on valuation | Neutral, TP EGP26.0
- We expect a consistent dividend stream from 20%-owned ETHYDCO on a solid operational return profil
- We opt to slightly cut SIDPEC’s utilization rates pending clarity on feedstock supply
- We cut our 2019–22e EBITDA estimates c26% and our 12-month TP c4% to EGP26.0/share and downgrade our rating to Neutral from Overweight on non-compelling valuation
HELI EY 1Q18/19 results show a slow start to FY18/19
Heliopolis Housing (HELI EY): The company’s 1Q18/19 net income dropped c89% y-o-y to EGP8.71m, its KPIs showed. Revenue for the quarter dropped c10% y-o-y to EGP194m while gross profit dropped 18% y-o-y to EGP117m. Gross profit margin for the quarter narrowed c6 pp y-o-y to c60%. (Company release)
Follow-up on SODIC-MNHD deal
SODIC (OCDI EY) | Madinet Nasr Housing (MNHD EY): SODIC’s board has agreed to preliminarily make a mandatory tender offer to acquire a minimum of 51% of Madinet Nasr Housing through a share swap through which every 2 MNHD shares would be swapped for 1 SODIC share, it announced. The deal, if consummated, would bring the combined entity’s total undeveloped land bank to over 15m sqm sufficient for over 15 years of development, it added. The offer will be finalized following a due diligence process and the hiring of an independent financial advisor (IFA) to value MNHD, it also added. Meanwhile, MNHD confirmed receiving a notification from SODIC with its intentions and will study the offer, it also said in a bourse release. (EGX)
SODIC awarded 2.1m sqm Sheikh Zayed extension revenue-sharing plot
SODIC (OCDI EY): The company has received the official award letter for a 500-acre plot (2.1m sqm) allocated by the New Urban Communities Authority (NUCA) as part of the second phase of the government's revenue-sharing land offering, it announced in a press release. The plot is located in the Sheikh Zayed extension area and is only 10 minutes away from SODIC West. The project is expected to comprise over 5,000 units generating estimated total sales of around EGP43bn over a period of 8 years. NUCA is entitled to total payments of EGP14.2bn over 11 years of which EGP8.5bn are fixed installments, in addition to 15% of the annual collections. The projected payments imply a land cost of EGP2,300/sqm on a net present value (NPV) basis discounted at 16%. This should see the company's undeveloped land bank increase to c8m sqm and replenish its West Cairo land bank in SODIC West, which is c95% developed. The company expects to generate sales of around EGP150bn over the coming 11 years from its undeveloped 8m sqm land bank. (Company release)
August MPC meeting expectations
/ SUNDAY, 12 AUGUST 2018
At its last meeting on 28 June 2018, the Central bank of Egypt’s (CBE) Monetary Policy Committee (MPC) kept its policy rates unchanged for the second time after 2 consecutive 100bps cuts in both February and March, signaling the start of an easing cycle. Yearly headline inflation decelerated to 13.5% in July from 14.4% in the previous month, with monthly prices increasing 2.4% from 3.5% in June, according to data published by the Central Agency for Public Mobilization and Statistics (CAPMAS). Annual core inflation also decelerated to 8.54% in July from 10.91% in the previous month, with monthly core inflation decelerating to 0.58% from 1.62% in June, data posted on the CBE website showed. With the MPC due to meet this Thursday, we present our expectations on the likely outcome based on Egypt’s current situation.
ADIB 2Q18 earnings review
/ MONDAY, 13 AUGUST 2018
Abu Dhabi Islamic Bank (ADIB EY): The bank’s 2Q18 net profit rose c102% y-o-y to EGP217m, according to its standalone KPIs. (Company release)
Arabian Cement 2Q18 results review
Arabian Cement (ARCC EY): The company’s 2Q18 consolidated net profit rose c327% y-o-y to EGP51m, according to its audited financial statements. (EGX)
GB Auto 2Q18 results review
GB Auto (AUTO EY): The company reported 2Q18 net profit figure of EGP148m, reversing a net loss of EGP151m a year earlier, its audited financial statements showed. (Company release)
Heliopolis Housing 4Q17/18 KPIs
Heliopolis Housing (HELI EY): The company’s 4Q17/18 net income dropped c39% y-o-y to EGP131m, it announced in a KPI bourse release. Revenue for the quarter dropped c31% y-o-y to EGP395m, while gross profit fell c31% y-o-y to EGP234m, it added. (Company release)
PHDC 2Q18 earnings review
Palm Hills Developments (PHDC EY): The company’s 2Q18 net income increased c57% y-o-y to EGP216m, its earnings release showed. Revenue increased c16% y-o-y to EGP1.91bn, while gross profit margin increased by c12 pp y-o-y to 40%. New sales reservations jumped c126% y-o-y to EGP5.68bn, of which EGP3.7bn were from the Badya project in West Cairo and EGP0.8bn were commercial sales. The number of units sold increased c4x y-o-y to 1,777 units from 435 units last year. In other news, the company’s board approved increasing its paid-in capital by EGP1.54bn to EGP6.16bn via a tradable rights issue at par value, it added in its earnings release. The rights issue proceeds will be used to finance the development of infrastructure works at Badya, the development of the commercial component in Palm Hills New Cairo, accelerating construction in The Crown, and contributing seed capital for the 205-feddan plot for its commercial revenue-sharing project in West Cairo. (Company release)
Crédit Agricole 2Q18 earnings review
/ TUESDAY, 31 JULY 2018
Crédit Agricole (CIEB EY): The bank’s 2Q18 net profit rose c3% y-o-y to EGP490m, according to its KPIs. Net interest income rose c4% y-o-y to EGP692m. Deposits grew c3% q-o-q and c46% y-o-y, while loans increased c14% q-o-q and c13% y-o-y. (Company release)
EFID EY 2Q18 results review
Edita Food Industries (EFID EY): The company reported a 2Q18 net profit of EGP25.1m, reversing a net loss of EGP2.99m last year, its audited financial statements showed. (Company release)
DOMT EY 2Q18 results review
Arabian Food Industries Company (Domty) (DOMT EY): The company’s unaudited 2Q18 net profit rose 4.8x y-o-y to EGP57.7m, it announced in a release. (Company release)
The Egyptian government is targeting to export LNG at a price of USD5/mmBtu through long-term export contracts
/ THURSDAY, 23 January 2020
The Egyptian government is targeting to export LNG at a price of USD5/mmBtu through long-term export contracts, according to the minister of petroleum. The government is already in talks with international partners over renewable contracts with durations of 12–18 months, he added. This would be profitable to all parties and will allow the Egyptian government to increase its production of natural gas beyond 7.5 bcf/day in 2020 from 7.0 bcf/day in 2019, he also added. (Al Borsa)
Moody's Investors Service maintained its positive outlook on Egypt's banking sector
/ THURSDAY, 23 January 2020
Moody's Investors Service (Moody’s) maintained its positive outlook on Egypt's banking sector, it announced. The agency attributed the stability of its positive outlook to the robust economic growth and the high liquidity of its stable deposit-based funding, according to the report. Moody’s expects banks’ profitability to improve backed by projected credit growth of 12%-15%. The outlook, however, recognizes the challenging operating environment due to bureaucracy, infrastructure bottlenecks, and exposure to geopolitical risks. Moody’s expects capital and problem loans to remain broadly stable while untested loans to small and micro enterprises and a borrower-friendly legal framework increases banks vulnerability to future economic downturns. (Moody's)
HC Research NBFS Corporate Access Event
/ MONDAY, 15 APRIL 2019
