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Reports

BY  Mariam Elsaadany/
    • The five-year strategy and the successful sale of a 270-feddan land plot are the new management’s first steps; we await more such efforts to turn around the company
    • A new revenue-share agreement with a private developer in the 7.1m sqm Heliopark plot could provide some EGP100bn in revenue stream over 15 years; according to management
    • We reduce our target price c24% to EGP8.41/share but upgrade our rating to Overweight from Neutral on the share price dip

BY  Noha Baraka/
  • Consumption recovery is behind us; however, the 14% VAT imposition may drag volumes; we estimate a 2020–25e volume and revenue CAGR of c10% and c14%, respectively 
  • Improved sales mix, along with indirect price increases, should mitigate higher costs, translating to a 2020–25e EPS CAGR of c18%   
  • We reduce our 12M target price c18% to EGP12.0/share on lower estimates but maintain our OW rating on compelling valuation 

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BY HC  Research/
    • We are positive on the Egyptian economy, which fared better-than-expected in light of COVID-19, on IMF and government supports
    •  Private sector pickup materializing on monetary easing, moderate inflation, and stable EGP
    • We are bullish on real estate, financials, and select industrial and consumer names, filtering through to 9 high-conviction picks

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BY  / 14 February 2021
    • We expect monetary easing and private sector pickup to support leasing and investment banking operations, while financial inclusion should benefit microfinance loan growth
    • CI Capital is currently a target of acquisition by Banque Misr. We expect synergies from this deal to have positive spillover effects on the company’s different operations
    • We increase our 12M TP for CI Capital by c19% to EGP5.47/share on lower COE and maintain our OW rating. Offer price implies a limited premium of c13% to market price and is c14% below our TP 

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BY and Mariam Ramadan  /

  • Global economic slowdown, IMO 2020 regulations, and tough competition in the lubricants market take a toll on AMOC’s operating margin 
  • We expect the heightened blending feed cost to continue weighing on operating margins too, taking EBITDA margin to an average of 3.2% over our forecast horizon, reversing a loss of -8.7% last year but still significantly below its preceding 5-year average of 6.6%
  • We initiate coverage with a TP of EGP2.84/share and an UW rating on uncompelling valuation and lackluster story

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  • Auto and auto related operations are gaining traction on improved market dynamics and GB Auto presence; auto business to revert to profits this year, on our numbers
  • We forecast GB Capital to continue delivering solid earnings growth and impressive NIMs, filtering through to a 4-year bottom line CAGR of c11%
  • We slightly cut our 12M TP c3% to EGP5.13/share on lower GB Capital valuation, but maintain our OW rating on compelling valuation

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  • Auto and auto related operations are gaining traction on improved market dynamics and GB Auto presence; auto business to revert to profits this year, on our numbers
  • We forecast GB Capital to continue delivering solid earnings growth and impressive NIMs, filtering through to a 4-year bottom line CAGR of c11%
  • We slightly cut our 12M TP c3% to EGP5.13/share on lower GB Capital valuation, but maintain our OW rating on compelling valuation

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BY
  • Macro indicators across the board have improved, with private investment yet to show its potential and drive the economy
  • Given the reversal of the bulk of 2016–17 rate hikes and some c11% EGP appreciation in 2019, we are bullish on consumer, financials, and select real-estate names
  • With most of Egyptian equities currently oversold, we focus on compelling stories with limited downside risk, filtering through to 10 high-conviction picks

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BY and Hana Adawy /
  • Private sector rebound witnessed in 1Q20 relapsed due to low visibility on the future development of the pandemic in our view, while we expect interest rate stability over the rest of 2020
  • Despite our 2020e earnings downward revision, NBFS are showing high resilience with companies under our coverage seeking profitable investments and synergies with commercial banks
  • We decrease our 12-month TP for EFG Hermes by c10% to EGP21.1/share and for CI Capital by c23% to EGP4.59/share on downward earnings’ revision, while maintain Overweight for both. EFG Hermes is our top pick on regional exposure and higher potential return

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BY  and Farida Salama /
  • A lower EGP/USD rate and delayed local demand recovery limit the benefits of an improved export market outlook, weighing down on Oriental Weavers’ top line
  • Despite higher working capital needs and CAPEX bill, the stock offers a 2021–24e FCF yield of c15%, on average
  • We cut our TP c23% to EGP7.15/share on our lower estimates, but maintain Overweight on share price weakness

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  • OC reasonably weathers the storm aided by a strong backlog and balance sheet, but new order intake ex-Egypt likely to be impacted 
  • COVID-19 additional costs still in place, but a good project mix and earlier revenue underbookings should give margins a breather and, along with BESIX’s recovery, support earnings
  • We lower our 2020–24e EBITDA estimates c5% and our TP c10% to EGP175/share, but reiterate OW on compelling valuation

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BY  Mariam Ramadan  and Abdelrahman Wahba/
  • Capacity shutdowns outpaced by demand destruction; prices unlikely to find a bottom without direct government intervention, which is now in the cards
  • Lower coal/petcoke/electricity prices, a stronger EGP and lower SG&A expenses offset weak selling prices, giving a breather to ACC’s operating margins, but earnings remain in the red until the end of the year, on our estimates
  • We cut our 2020–23e EBITDA estimates c11% and TP c21% to EGP5.50/share, and maintain OW on a still compelling valuation

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BY  Monette Doss  and Hana Adawy/

  • Despite our downward GDP revision, Egypt provides attractive risk-adjusted return for carry-trade, while the banking sector is strong enough to weather a business slowdown in 2020, in our view
  • CAPEX lending now delayed to 2021, however CIB, ADIB-Egypt and CAE are expected to maintain decent profitability, despite 2020e EPS downward revision, in our view
  • We remain Overweight on CIB and ADIB-Egypt, and upgrade our rating for CAE to Overweight from Neutral, despite lower valuations for the 3 banks. CIB is our sector pick

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Emaar Misr (EMFD EY): The company’s 1Q21 consolidated net income increased 2.03x y-o-y to EGP529m, according to its audited financial statements. Revenue grew 6.37x y-o-y to EGP1.54bn, and gross profit surged 22.1x y-o-y to EGP621m as gross profit margin expanded c29 pp y-o-y to c40%, it added. The company restated its 1Q20 financials as it adopted changes to its accounting with regards to its financial instruments, revenue recognition, and rental revenue recognition, it also said. (EGX)

Our comment: Emaar delivered strong quarterly results aided by strong Marassi deliveries, unusual during the first quarter given the seasonal nature of the project. Revenue from Marassi and Uptown Cairo came ahead of our estimates by c114% and c21%, respectively. This was enough to offset the c15% miss in Mivida deliveries and led to total revenues coming c31% ahead of our estimate of EGP1.18bn. Gross profit margin came largely in line with our estimate of c39%, missing it by only 1 pp. This was despite Marassi margins missing our estimate by c6 pp as Mivida delivered exceptional margins of c54% while Uptown Cairo also delivered a high margin of c45%. SG&A expenses came in line with our estimates, only c2% higher with the strong deliveries contributing to the c55% beat in the reported EBIT. Net interest income (including yields from treasuries) continued to drop and came c26% lower than our estimate despite a minor change in the company’s 4Q20 cash and treasuries balance mainly due to the drop in interest rates. Other income reached EGP46m, with the bulk of the amount from cancellation fees. The other income components (including an EGP11m provision reversal) has partially offset the lower-than-expected treasury bill yields, narrowing the beat on the net income level to c17% compared to our estimate of EGP451m. The strong operational numbers lowered the contribution of interest to net income to c43% compared to our estimate of c67%. The company’s cash and treasuries balance stood at EGP11.0bn by the end of the quarter, which is EGP2.43/share, c7% higher than Thursday’s closing price of EGP2.25/share. The company’s financials show that it has adopted changes to EAS 47, 48, and 49 effective January 2021. EAS 47 is related to the measurement of financial instruments; however, the amendments showed no change to Emaar Misr’s 4Q20 ending cash and treasuries balance. Emaar Misr also adopted changes to EAS 48 which led to a EGP55.2m increase in 1Q20 net income classified as sales commission. There were no changes in 1Q20 property revenue, after applying the amendments. The company also adopted changes to EAS 49 dealing with leased assets which led to a negligible EGP1.49m increase in 1Q20 rental revenue and EGP0.94m decline in depreciation and EGP0.20m decline in financing expenses.

 

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Talaat Moustafa Group Holding (TMGH EY): The first phase of the company’s 5,000-feddan project in Capital Gardens, Noor City, will be completed in a 4-year timeframe, the company’s CEO announced. The entire project will be completed in a 15-year timeframe over 10 stages, he added. Sales from the project are estimated at EGP800bn and investments at EGP500bn, he also said. The New Urban Communities Authority (NUCA) is entitled to an in-kind built-up area (BUA) of 2.4m sqm of the project, according to the minister of housing. (Bloomberg, Al Borsa)

Our comment: While the project is not included in our valuation for TMG of EGP17.2/share, we estimate it could add EGP4.67/share to our valuation. In our estimate, we used expected proceeds of EGP826bn, and expected investments of EGP500bn, implying a GPM of 39.5%. We expect the project to generate sizable pre-sales in 2Q21, possibly the highest contribution to the yearly sales, with management guiding for pre-sales of EGP16.6bn for 2021. The company has introduced a 15-year payment plan for the first time, according to marketing material, which we believe can boost sales of the first phase. 

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Obourland Food Industries (OLFI EY): The company’s consolidated 1Q21 net profit increased c3% y-o-y to EGP69.8m, its audited financial statements showed. (EGX)

Our comment: The reported net income comes largely in line with our estimate of EGP69.6m, as slightly higher-than-expected margins, lower-than-expected net financing charges, and higher-than-expected other non-operating income, have largely offset the higher-than-expected SG&A expenses. Revenue increased c14% y-o-y to EGP664m, broadly in line with our estimate of EGP664m. Gross profit (including depreciation) increased c9% y-o-y to EGP157m, largely in line with our estimate of EGP153m, with only c2% deviation. This implies a gross profit margin for the quarter of 23.6%, 1.0 pp lower than a year earlier, but 0.5 pp higher than our estimate. SG&A expenses were up c15% y-o-y to EGP66.8m, some c10% higher than our estimate of EGP60.5m, wiping out the slight beat on the gross profit level, and causing a c3% miss on the EBITDA level to EGP106m, which is an increase of c5% y-o-y. EBITDA margin for 1Q21 came in at 16.0%, 1.4 pp lower than a year earlier and 0.5 pp lower than our estimate. Some c40% lower-than-expected net financing charges of EGP1.8m, down c35% y-o-y, along with a c5x higher-than-expected other non-operating income of EGP2.3m, up c83% y-o-y, and some EGP0.3m booked in FX gains, have wiped out the miss on the EBITDA level and caused the bottom line to be largely in line with our estimate. On a segmental breakdown, the gross white cheese sales increased c11% y-o-y to EGP620m, only c2% below our estimate of EGP631m. Looking further into the white cheese segment, the gross unprocessed cheese sales rose c10% y-o-y to EGP612m, missing our estimate of EGP618m by only c1%, mainly on lower-than-expected effective selling price, given that the white cheese volume came in largely in line with our estimate at c24,700 tons, up c6% y-o-y. The company increased its prices by c5% since 4Q20, missing our estimate of c6%. As for the gross processed cheese sales rose c3x y-o-y to EGP8.2m, missing our estimate of EGP13.0m by c37%, mainly on c41% lower-than-expected volume at c144 tons, up c3x y-o-y. The y-o-y surge in the processed cheese sales was mainly following the strong performance of the glass-jar product coupled with the introduction of the new processed cheese product “Mafrooda” which was launched in October. The total net cheese revenue came in c3% below our estimate at EGP610m (up c11%y-o-y), on some c3x higher-than-expected discounts (up c51% y-o-y). The white cheese segment's gross profit came in largely in line with our estimate at EGP148m, a rise of c9% y-o-y, leaving margins at 24.2%, 0.5 pp lower than a year earlier, but 0.6 pp higher than our estimate. We attribute the higher-than-expected margins to higher-than-expected cost savings from the installation of the three new Tetra Pak A3 speed production lines and lower-than-expected raw material costs. As for the milk, its gross sales increased c93% y-o-y to EGP48.9m, exceeding our estimate of EGP32.1m by c52%, mainly on c43% higher-than-expected volume sold of c4,200 tons, a rise of c2x y-o-y. The y-o-y surge in milk sales came as a result of the company’s marketing plan and activities to increase its presence and market share and its newly launched 200ml flavored milk product. While gross juice sales dropped c12% y-o-y to EGP7.0m, c6% below our estimate of EGP7.5m, mainly on c5% lower-than-expected volume at 800 tons, down c6% y-o-y. The juice segment has been negatively impacted by COVID-19 and is facing fierce competition. Discounts and promotions for milk and juice products came in c18% higher than our estimate at EGP2.5m, c39% y-o-y higher than a year earlier, leaving net sales from both segments at EGP53.3m, beating our estimate of EGP37.4m by c43%, and up c70% y-o-y. The milk and juice segments’ gross profit increased c46% y-o-y to EGP10.6m, beating our estimate by c99%, leaving margins at 19.8%, 3.3 pp lower than a year earlier, but 5.6 pp higher than our estimate. The company mentioned in its earnings release that it will develop a new plan for the juice segment in 2021 and will continue to improve its gross profit margin for these businesses.

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By  Noha Baraka/ Wednesday, May 5, 2021

Egypt’s passenger car (PC) sales increased c67% y-o-y to 19,525 cars in March, compared to a drop of c2% y-o-y to 16,310 cars in the previous month, according to a report by the Automotive Marketing Information Council (AMIC). Bus sales increased c10% y-o-y to 2,056 buses, according to the report. (AMIC)

Our comment: Local PC sales came in c12% above our estimate for the month of 17,400 cars. Initial numbers from the AMIC report point to total GB Auto (AUTO EY) sales of 4,476 cars in March, which is c25% higher than our estimate of 3,596 cars, and c2x higher than a year earlier. This implies that the total market share during the month was 22.9%, which is 2.3 pp higher than our estimate, and 5.7 pp higher than a year earlier. Hyundai sales rose c3x y-o-y to 3,692 cars during March, c36% higher than our estimate of 2,710 cars, mainly due to the sale of more than 2,500 cars of Tucson NX4e new model which was recently released, exceeding our estimate by c52%. Chery’s sales increased c20% y-o-y to 779 cars, missing our estimate of 886 cars by c12%. Mazda sales increased c3x y-o-y to 5 cars in March, unlike our estimate of no sales during the month. There were no Geely cars sold, which is in line with our estimate.

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By Noha Baraka /  Wednesday, 5 May, 2021

Eastern Company (EAST EY): The company’s 3Q20/21 net profit grew c48% y-o-y to EGP1.35bn, its earnings release showed. (Company release)

Our comment: This came in only c4% higher than our estimate of EGP1.30bn, mainly on higher-than-expected net financing income (including FX gains/losses) which have more than offset the higher-than-expected SG&A expenses and some lower-than-expected other non-operating income. Total revenue grew c8% y-o-y to EGP3.98bn, exactly in line with our estimate, as some c5% higher-than-expected local cigarette revenue has largely offset the c14% miss in under-license revenue. Local cigarette revenue grew c14% y-o-y to EGP3.31bn, exceeding our estimate of EGP3.16bn by only c5%, mainly on a c4% higher-than-expected volume sold of 17.1bn sticks, up c11% y-o-y and c2% higher than the company’s target for the quarter, mainly due to the increased production capacity supported by the enhanced efficiency, the use of new machinery, and the maintenance of the existing ones. As for the under-license business, its revenue dropped c19% y-o-y to EGP495m, missing our estimate of EGP579m by c14%, mainly on a c12% lower-than-expected volumes shipped of 4.60bn sticks (a drop of c15% y-o-y), leaving the effective toll fee per 1,000 sticks at EGP108, c3% lower than our estimate, and c5% lower y-o-y. Gross profit grew c15% y-o-y to EGP1.70bn, in line with our estimate of EGP1.70bn, leaving margins at 42.6%, 2.6 pp higher than a year earlier, and only 0.1 pp lower than our estimate. SG&A expenses grew c6% y-o-y to EGP244m, c10% higher than our estimate of EGP223m, representing 6.1% of sales, 0.1 pp lower than a year earlier, but 0.5 pp higher than our estimate. EBIT grew c17% y-o-y to EGP1.45bn, broadly in line with our estimate of EGP1.48bn, with only c2% deviation, leaving margins at 36.5%, 2.7 pp higher than a year earlier, and only 0.6 pp lower than our estimate. The higher-than-expected SG&A expenses, along with some c25% lower-than-expected other non-operating income, were more than offset by some c49% higher-than-expected net financing income (including FX gains/losses) of EGP241m, c4x y-o-y higher, resulting in a c4% beat on the bottom line. More to follow once the company publishes its financial statements. It is worth mentioning that early signs suggest that 4Q20/21e is showing the continuation of the strong positive results of the previous 9M20/21, despite the continued impact of the pandemic on the molasses business, the company announced in its earnings release.

 

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Orascom Construction (ORAS EY, OC DU): The company’s 4Q20 net profit dropped c6% y-o-y to USD25.9m, its audited financial statements showed. The company’s board proposed an FY20 DPS of USD0.23, according to a company release.  (Company data)  

Our comment: The net profit figure comes c26% below our estimate USD35m, despite a stronger top line, on lower-than-expected operating margins and a lower contribution from BESIX. Revenue grew c3% y-o-y to USD928m, which is c9% above our forecast, coming across the board (Egypt’s government and private sectors, US and other countries). EBIT dropped c39% y-o-y to USD34m, which is c25% below our expectation, with both MENA and US EBITDA margins coming in lower y-o-y, q-o-q and missing our forecasts by 2pp and 1pp respectively, with management now guiding for flat y-o-y MENA margins in FY21. The US business, however, continued to deliver a positive bottom line figure, marking its first full year of positive net income post the OCI NV projects. BESIX’s revenue dropped c14% y-o-y to USD859m, which is a good c16% above our estimate, its EBITDA recorded USD27m, reversing a loss of USD6m a year earlier, missing our estimate of USD30m by c10%, with EBITDA margin recording 3.1%, missing our forecast by c0.9 pp, with the unit booking yet an additional EUR15m in provisions for the Netherlands and UAE projects. The unit also recorded higher below-the-line expenses despite the lower net debt level, translating to a net income of USD5m, compared to our expectation of USD15m. BESIX, nevertheless, booked impressive new project awards of USD939m during the quarter, significantly beating our estimate of USD535m, back already to its average pre-COVID level, and implying a book-to-bill of 1.1x, with backlog at a comfortable level of USD5.2bn despite the impressive executions. Besides the lower-than-expected income from operations and from BESIX, OC’s net interest expense was also higher than our expectation (despite the better-than-expected net cash position of USD359m), but this was more than offset by FX and derivative gains, implying a similar miss on the bottom line level. Looking at OC’s balance sheet, working capital relaxed back to 1H20 levels, translating to an operating cash inflow of USD158m during the quarter, compared to our estimate of USD44m, which is also likely the reason behind the lower-than-expected overdraft figure. The proposed dividend compares to our forecast of USD0.10, and implies a net-of-tax dividend yield of 3.8% (noting that all USD0.42 announced in FY20 was for FY19), and only marks the first installment as management expects to follow the same semi-annual payment pattern going forward.

 

 

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Talaat Moustafa Group Holding (TMGH EY): The company’s 4Q20 net income dropped c82% y-o-y to EGP103m, according to its audited financials. Revenue dropped c7% y-o-y to EGP3.69bn while gross profit dropped c51% y-o-y to EGP795m as gross profit margin narrowed c20 pp y-o-y to c22%, it added. Pre-sales for the quarter dropped c22% y-o-y to EGP4.50bn, which brought yearly pre-sales to EGP16.6bn, according to the board of directors report. (EGX)

Our comment: Except for pre-sales, TMG’s 4Q20 results came in weaker than our estimates and those of consensus, which we mainly attribute to lower-than-expected real estate revenue and margins, and higher-than-expected SG&A expense and taxes. Pre-sales for the quarter were healthy and came c40% ahead of our estimate of EGP3.20bn, also increasing c24% q-o-q. The pre-sales of EGP4.49bn booked in 4Q20, included some 1.5bn of non-residential sales that will be collected in 1Q21, improving the company's 1Q21 cash position. This brings FY20 non-residential sales to EGP5.5bn out of a total FY20 pre-sales figure of EGP16.6bn. Revenue came in c15% below our estimate of EGP4.33bn mainly on lower-than-expected real estate revenue which dropped c5% y-o-y to EGP2.92bn, coming c22% below our estimate of EGP3.73bn on lower-than-expected deliveries, and also due to TMG applying a new accounting standard in 4Q20, which stipulates discounting to the present the value of all outstanding receivables related to units the company already booked revenue from. The accounting treatment was applied to 4Q20 revenue, reducing it by EGP338m, however this value is not related only to the units delivered during 4Q20 and is also related to units that were delivered in previous periods and that still had outstanding receivables. The EGP338m is a non-cash expense, will not recur with the same magnitude going forward, and TMG will still recognize this amount in its income statement as interest income on receivables going forward as it makes collections from these units. In case of securitization or factoring transactions for these units, TMG will be able to recognize the interest income on these receivables at the time of the transaction, which will largely offset the securitization/factoring costs. Hospitality revenue dropped c55% y-o-y to EGP184m, however came in c69% higher-than-our estimate of EGP109m, which implies that in-bound tourism fared better than our expectations. Rental revenue grew c22% y-o-y to EGP579m, exceeding our estimate of EGP496m by c17%, despite COVID-19. Gross profit missed our estimate by a larger c51% as gross profit margin missed our estimates by c15 pp mainly due to lower-than-expected real estate gross profit margin which dropped c22 pp y-o-y to c19% and came in c19 pp below our estimate mainly due to the new accounting treatment, and also due to lower-than-expected hospitality margin of c2%, lower than c36% a year earlier and our estimate of c30%. Rental gross profit margin dropped c6 pp y-o-y to c39% and exceeded our estimate by c9 pp. Net income came significantly below our estimate of EGP540m by c81%, marking the lowest quarterly net income since 3Q13, mainly on: (1) the lower-than-expected real estate revenue and gross profit margin, (2) c97% higher-than-expected SG&A expense of EGP316m (up c30% y-o-y), representing c7% of pre-sales vs. our estimate of c5% and c4% a year earlier, and (3) higher-than-expected effective tax rate of c78% compared to c36% a year earlier and our estimate of c23%. This drop comes despite TMG not recording any goodwill impairment charges in 4Q20, while we had accounted for a charge of EGP562m in our numbers, as the company had consistently booked goodwill impairment charges for the past 6 years. Backlog significantly exceeded our estimate by c35% on higher-than-expected pre-sales, and lower-than-expected deliveries. The company ended the quarter in a net cash position of EGP1.53bn (factoring in EGP2.00bn of sukuk as part of debt and adding treasuries to cash), down from a net cash position of EGP3.2bn a year earlier. It is worth highlighting that in 31 March, TMG will receive EGP1.7bn of cash collections as part of the EGP4.00bn land sale deal to the National Bank of Egypt (NBE) and Banque Misr after it had already collected EGP2.25bn.

 

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EIPICO (PHAR EY): The company’s 4Q20 consolidated net profit dropped c1% y-o-y to EGP148m, its audited financial statements showed. The company’s board proposed a DPS of EGP3.0 (for total outstanding shares) for FY20, it announced. (EGX)

Our comment: This comes c41% ahead of our estimate of EGP105m mainly on higher-than-expected margins, some reversal of provisions booked during the quarter, higher-than-expected other non-operating income, along with lower-than-expected effective tax rate, which more than offset the higher-than-expected SG&A expenses and higher-than-expected net financing charges. Total revenue dropped c7% y-o-y to EGP747m, some c7% higher than our estimate of EGP700m, while gross profit grew c25% y-o-y to EGP342m, beating our estimate of EGP270m by c27%, mainly as the company booked some EGP74m in change in inventory given that it did not sell all of its production, unlike our assumption, which have more than offset the c22% higher-than-expected cost of raw material per pack in USD terms (up c63% y-o-y). Gross profit margin stood at 45.8%, 7.2 pp higher than our estimate and 11.9 pp higher y-o-y. The company booked some EGP19m in a reversal of provisions (a drop of c28% y-o-y), which have more than offset the c34% higher-than-expected SG&A expenses (a rise of c38% y-o-y), translating to a more sizable beat of c33% on the EBIT level to EGP188m (up c8% y-o-y). This implies an EBIT margin of 25.2%, 3.5 pp higher than a year earlier and 5.0 pp higher than our estimate. Some 4.7x higher-than-expected other non-operating income (up 2.2x y-o-y), along with 8.6 pp lower-than-expected effective tax rate (down 6.5 pp y-o-y), together, have more than offset the 3.8x higher-than-expected net financing charges (up 18.7x y-o-y), leading to a more sizable beat on the bottom line level. On a segmental breakdown, local revenue (excluding tender sales) dropped c18% y-o-y to EGP494m, missing our estimate of EGP515m by c4%. The company attributed the y-o-y drop to the reduced demand for non-chronic medications. Tender sales grew c21% y-o-y to EGP65m, while exports revenue grew c23% y-o-y to EGP189m, some c2% ahead of our estimate of EGP185m, (up c27% y-o-y in USD terms), as the company was able to abide by the Ministry of Health’s decision of carrying six-month's worth of inventory covering its local needs as a condition to resume its export business. It is worth mentioning, that EIPCO has started again to generate toll manufacturing revenue of EGP1.34m, which is the second quarter in a row after 8 consecutive quarters of not generating revenue from this segment. The company’s proposed DPS of EGP3.0 (excluding treasury shares; EGP2.95/share for total shares), is c19% higher than our estimate of EGP2.46, implying a net-of-tax dividend yield of c7%, some 1.1 pp higher than our estimate using Wednesday’s closing price.

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Egypt’s net international reserves (NIR) remained almost flat m-o-m in January at USD40.1bn, inching up by USD38m, according to the Central Bank of Egypt's (CBE) data. Deposits not included in the official reserves slightly decreased to USD5.59bn in January from USD5.83bn in the previous month, the data showed. (CBE)

Our comment: We believe the flat NIR figures could be attributed to low foreign inflows into Egyptian treasuries during January, which was also reflected in the upward interest rate pressures witnessed in treasury auctions since the beginning of 2021. We believe Egyptian treasuries are currently facing higher competition from Turkey, which increased the interest rate on its 15-month treasuries to 15.97% in January from an implied rate of 10.66% previously. Given Bloomberg's 2021e inflation estimates for Turkey at 12.2%, we estimate its treasuries currently offering a real return of 3.8%, close to Egypt’s real return of 4.2% (based on 12-month T-bill rate of 13.3%, 15% tax rate for European and American investors and our 2021e inflation forecast of 7.2%), with the 2 countries having similar 5-year USD CDS.

 

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SODIC (OCDI EY): The company’s FY20 gross contracted sales rose c2% y-o-y to EGP7.4bn, representing 1,361 units sold, with residential sales growing c19% y-o-y to EGP7.2bn and non-residential sales accounting for c3% of SODIC’s gross contracted sales in FY20 versus c17% in FY19, it announced in a release. Sales performance for the year exceeded management’s guidance after excluding Malaaz, as it had guided for EGP8.4bn in gross contracted sales including EGP1bn from Malaaz, and the launch of the project has been postponed to 2021, it added. West Cairo contributed c61% of the yearly gross sales figures vs. c39% by East Cairo and cancellations accounted for c14% of our FY20 gross contracted sales, and were negatively affected by client’s initial response to the outbreak of COVID-19, in addition to the cancellation of a bulk transaction in 3Q20. Excluding the effect of the bulk transaction, the cancellation rate for the year would stand at c10% of gross contracted sales, and it recorded cancellations of c7% of 4Q20 gross contracted sales. The company delivered 1,162 units in FY20, it also said. (Company release)

 

Our comment: This implies a c13% y-o-y drop in 4Q20 gross contracted sales to EGP3.30bn, divided into EGP3.24bn in residential sales and EGP60m in retail sales, a c17% drop in net contracted sales to EGP3.06bn, a c22% y-o-y drop in number of units sold to 616 units, and an c11% y-o-y drop in number of units delivered to 376 units. Having said that, we perceive the company reporting such y-o-y drops in operational figures as understandable given the impact of COVID-19 on its operations since March, and we positively perceive the impressive q-o-q growth in operational figures. Gross contracted sales grew c49% q-o-q, net contracted sales grew c77% q-o-q, number of units sold grew c57% q-o-q, while number of units delivered dropped c29% q-o-q. We attribute this impressive q-o-q growth in quarterly sales to a recovery in real estate investment demand following the 400 bps policy rate cuts that took place in 2020 (following a 450 bps rate cuts in 2019) rendering investment in real estate more appealing, despite suboptimal real demand, the company’s attractive product offering especially in West Cairo mainly in Vye and The Estates projects, and more y-o-y relaxed payment terms to make units more affordable to buyers. This helped the company to report almost flat growth in operational figures in FY20, despite COVID-19.

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BY / Thursday, 17 June

The Egyptian cabinet approved the new three-year export support program, which will come into effect on 1 July, according to a cabinet statement. (Al Borsa)  

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BY  / Thursday, 17 June 2021

The Central Bank of Egypt (CBE) will launch its 100%-owned export credit-risk guarantee company in two months with a paid-in capital of USD600m to support trade with African countries, according to the advisor to the CBE governor. (Al Shorouk)

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