- 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 macro: Eyeing inflation, targeting growth
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
GB Auto (AUTO EY): A compelling story, despite a lower TP | Overweight, TP EGP8.13
- Despite lower Egypt PC market estimates, we leave our 2019–23e EBITDA margins for the ex-financing business largely unchanged on efficiently managed working capital needs and lower SG&A expenses
- Consistent growth in GB Capital loan portfolio, coming in c11% higher than our previous estimates, as well as its balance sheet deleveraging allowing its bottom line to grow at an estimated 4-year CAGR of c23%
- We cut our 12M TP c6% to EGP8.13/share on lower ex-financing valuation, but maintain our OW rating on compelling valuation
Juhayna Food Industries (JUFO EY): Still attractive despite earnings cut | Overweight, TP EGP14.0
- Demand growth to be muted in the short term on continuation of economic reforms, with full recovery by the end of 2019e, in our view
- Higher EGP/USD largely offsets favorable milk cost outlook and lower SG&A expenses, leaving our EBITDA estimates c15% lower, on average
- We cut our 12-month target price c13% to EGP14.0/share and maintain our Overweight rating on compelling valuation
Arabian Food Industries (DOMT EY): New venture bodes well for margins | Overweight, TP EGP12.7
- Diversification largely offsets rising inflationary pressures, leaving our 2019–23e revenue estimates c3% higher, on average
- Higher prices continue to support Domty’s margins, allowing them to revert to historical averages post 2019e, but a higher EGP/USD cuts our 2019–23e gross profit margins by 1.1 pp, on average
- We cut our 12M TP c9% to EGP12.7/share on lower estimates and higher cost of capital, but maintain OW on compelling valuation
El Sewedy Electric (SWDY EY): OW on higher value and share price dip | Overweight, TP EGP23.0
- 2018–22e cable volume estimates cut an average c9% on weaker ex-Egypt market dynamics
- This should be offset by a consistently solid turnkey performance (most recently the Tanzanian Dam award) and a higher EGP/USD rate, translating to a c26% upward revision to our EBITDA estimates
- We raise our 12-month TP c25% to EGP23.0/share and upgrade to Overweight from Underweight on recent share price dive
Edita Food Industries (EFID EY): Buy on share price weakness | Overweight, TP EGP17.1
- Rising inflation may trigger another round of direct price increases, which may pose an initial drag on volumes, but this will be absorbed by consumers, in our view
- Despite price increases, inflation and lower volumes will result in a c15% EBITDA downward revision, on average
- We cut our 12M TP c20% to EGP17.1/share on lower estimates, but upgrade the stock to OW from N on compelling valuation
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
Arabian Cement (ARCC EY): Pent-up local demand a silver lining | Overweight, TP EGP7.00
- We forecast the start of a sector earnings rebound next year after another hit in 2H18e
- Negative sentiment around sector oversupply is overplayed, in our view, and overlooks an imminent local demand recovery
- We cut our 12-month TP c30% to EGP7.00/share on an average c34% downward revision to our 2019–22e EBITDA estimates, but maintain Overweight on attractive valuation post the recent share price dive
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)
CBE MPC cuts benchmark overnight deposit and lending rates by 150 bps
/ SUNDAY, 25 AUGUST 2019
The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) has decided to cut the benchmark overnight deposit and lending rates by 150 bps to 14.25% and 15.25%, respectively, at its meeting on Thursday, according to a press release. The CBE has also cut the rate of its main operation and the discount rate by 150 bps to 14.75%, it announced. Annual headline and core inflation declined to 8.7% and 5.9%, respectively, in July 2019 from 9.4% and 6.4% in June 2019, the lowest rates in almost 4 years, notwithstanding the recently implemented fiscal consolidation measures that reached cost recovery for most fuel products, it added. This decline was supported by the containment of inflationary pressures, as evident in the relatively tame monthly inflation figures, and by favorable base effects, as the recently implemented measures were weaker compared to the previous year.
Lower interest rates to support Egypt's plan to lengthen maturity of its debt
/ SUNDAY, 25 AUGUST 2019
Lower interest rates are expected to support the Egyptian government's plan to lengthen the maturity of its debt, according to unnamed official sources. In related news, the lower rates are also expected to decrease interest payments on government debt by EGP10bn during 4Q19, assuming rates are kept unchanged during the September MPC meeting. (Al Mal)
HC Research NBFS Corporate Access Event
/ MONDAY, 15 APRIL 2019
