- 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
GB Auto (AUTO EY): 3Q20: Pofitability Should Be Back On Track | Overweight, TP EGP5.13
- 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
Navigating Egypt: Good Stories With Limited Downside Risk
Egypt Financials Sector: Outperform On Sturdy NBFS Growth
- 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
Oriental Weavers (ORWE EY): Decent FCF Yield | Overweight, TP EGP7.15
- 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
Orascom Construction (ORAS EY, OC DU): Valuation Still Compelling | Overweight, TP EGP175
- 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
Arabian Cement (ARCC EY): No Alternative For Government Intervention | Overweight, TP EGP5.50
- 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
Egypt Financials Sector: Well Shielded
- 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
SIDPEC (SKPC EY): Raise TP On A Higher Feedstock Price Cut | Overweight, TP EGP9.00
- SIDPEC manages to land the more optimistic USD1/mmbtu feedstock price cut, which more than offsets significant top line pressure
- We raise our 2020–24e EBITDA and EPS estimates c10% and c27%, but cut our rating to Neutral following the recent share price rally
Madinet Nasr Housing (MNHD EY): Further Challenged | Overweight, TP EGP7.05
- Sector conditions continuing to be difficult have pushed MNHD to resort to one-off sales and cash sale discounts to overcome liquidity shortage
- This has also impacted deliveries which are expected to pick up in 2021e. We forecast revenue to grow at 3-year CAGR of c21% and pre-sales to grow modestly at c3%
- We maintain our OW rating on MNHD, while lower our TP c44% to EGP7.05/share; implying a 2020e TP/NAV of 0.35x, while it is trading at half of that
Eastern Company (EAST EY): Ex-Factory Price Hike Is Key For Rerating | Overweight, TP EGP16.2
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- SIDPEC manages to land the more optimistic USD1/mmbtu feedstock price cut, which more than offsets significant top line pressure
- We raise our 2020–24e EBITDA and EPS estimates c10% and c27%, but cut our rating to Neutral following the recent share price rally
El Sewedy Electric (SWDY EY): Excessively oversold | Overweight, TP EGP9.5
- 1Q20 is largely a reflection of earnings level through year-end, on our numbers
- Beyond base-effect rebound next year, growth prospects appear limited and El Sewedy Electric has likely already seen its best days until the next wave of capacity building
- We cut our 2020–24e EPS forecasts c44% and our TP c49% to EGP9.50/share, but maintain Overweight on share price slump
Egypt F&B sector: Weathering the pandemic
- While the coronavirus outbreak hindered a lot of industries, staples players benefited from panic buying and stockpiling of necessities
- We expect a more rationalized consumer spending as economic recovery takes time to materialize. We differentiate between stocks based on elasticity of demand, cost outlook, pricing, and profitability
GB Auto (AUTO EY): 3Q20: Pofitability Should Be Back On Track | Overweight, TP EGP5.13
- 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
Egypt’s passenger car (PC) sales grew c24% y-o-y to 17,051 cars in September
Egypt’s passenger car (PC) sales grew c24% y-o-y to 17,051 cars in September compared to a hike of c48% y-o-y in the previous month to 15,929 cars, according to a report by the Automotive Marketing Information Council (AMIC). Bus sales dropped c34% y-o-y to 2,506 buses, according to the report. (AMIC)
Our comment: Local PC sales came in c5% above our September estimate of 16,200 cars. Initial numbers from the AMIC report point to total GB Auto (AUTO EY) sales of 3,489 cars in September, which is largely in line with our estimate of 3,529 cars, with only c1% deviation, but higher c39% y-o-y. This implies that the total market share during the month was 20.4%, which is 1.3 pp lower than our estimate, but 2.2 pp higher than a year earlier. Hyundai sales grew c40% y-o-y to 2,319 cars during September, c16% below our estimate of 2,752 cars. Geely sales were only 3 cars, compared to 211 cars last year and missing our estimate of 6 cars during the month. Chery sales were up c2x y-o-y to 1,167 cars, beating our estimate by c51%. There were no Mazda cars sold, which is in line with our estimate.
Madinet Nasr Housing (MNHD): The company’s 3Q20 standalone net income increased c59% y-o-y to EGP162m
By Noha Baraka / Thursday, 5 November, 2020
Madinet Nasr Housing (MNHD): The company’s 3Q20 standalone net income increased c59% y-o-y to EGP162m, it announced. Revenue increased c106% y-o-y to EGP509m, gross profit increased c68% y-o-y to EGP326m, while gross profit margin contracted 16 pp y-o-y to c64%, it added. In other news, the company’s board approved selling a 20,000 sqm land plot in Taj City for an international school for EGP215m, it added. (EGX)
Our comment: The company posted stronger-than-expected results driven by deliveries in its social housing project, Nasr Gardens. According to the company’s management, pre-sales for the quarter stood at EGP1.40bn, c17% higher y-o-y, and c6% higher than our estimate of EGP1.32bn. Despite the slight pre-sales beat, revenue came significantly higher than our estimate even though no land sales took place during the quarter, which can be explained by the 261 units delivered in Nasr Gardens and/or higher contribution of pre-sales to revenue (representing the land component of sold units). We had expected deliveries in Taj City to be strong in 4Q20, however the company’s earnings release shows that some deliveries took place during the quarter. This will be clear as the full financials become available. The delivery of units in Nasr Gardens also impacted the gross profit margin leading to a c17 pp miss and narrowed the gross profit beat to c43%. The beat was further narrowed to c36% on the net income level, possibly due to higher y-o-y interest charges, which will be clearer when the full financials are available. The selling price for the plot sold for the school in Taj City implies a price of EGP10,750/sqm and is very close to a similar transaction last year in the same project, which took place at EGP10,500/sqm. More to follow as financials
SIDPEC (SKPC EY): The company reported an unaudited net loss of EGP47m in 3Q20
SIDPEC (SKPC EY): The company reported an unaudited net loss of EGP47m in 3Q20, reversing a net profit of EGP67m a year earlier, according to a bourse release. (EGX)
Our comment: This comes against our expectation of a net loss of EGP20m, on weaker-than-expected operations. Revenue pressure was even worse than our expectations, with the company reporting a c47% y-o-y drop to EGP746m, missing our forecast by c21% (with seemingly both volumes and prices significantly missing our estimates), and a gross loss of EGP4m, reversing a gross profit of EGP321m a year ago and compared to our estimate of a gross profit of EGP42m, implying a gross margin of -0.6%, which is 12.2 pp below last year and 5.0 pp below our expectation. This hefty miss on the top line, however, should have implied an even lower gross margin, which could mean production costs came in better than our expectations. The weaker operations were partially offset by a non-operational beat, lowering the miss on the bottom line level. We will comment further when the company publishes its full financial statements.
Eastern Company (EAST EY): The company’s 1Q20/21 net profit grew c10% y-o-y to EGP1.16bn
By Mariam Elsaadany / Monday, November 16, 2020
Eastern Company (EAST EY): The company’s 1Q20/21 net profit grew c10% y-o-y to EGP1.16bn, its audited financial statements showed. (EGX)
Our comment: This comes largely in line with our estimate of EGP1.16bn, only 0.5% higher. Total revenue grew c7% y-o-y to EGP3.95bn, broadly in line with our estimate of EGP3.60bn. Local cigarette revenue grew c7% y-o-y to EGP3.24bn, missing our estimate of EGP3.30bn by c2%, mainly on c4% lower-than-expected volume sold of 16.3bn sticks (up c3% y-o-y due to higher volume produced), despite some c3% higher-than-expected ex-factory price of EGP3.99/pack (up c4% y-o-y), which we largely attribute to improved sales mix. As for under-license revenue, it grew c5% y-o-y to EGP605m, c5% ahead of our estimate of EGP575m, mainly on a c12% higher-than-expected effective toll fee of EGP116 per 1,000 stick (a c10% y-o-y increase), despite volumes coming in c6% lower than our estimate at 5.23bn sticks (a drop of c5% y-o-y). Total gross profit grew c8% y-o-y to EGP1.61bn, missing our estimate of EGP1.66bn by only c3%, mainly as some c8% higher-than-expected raw material costs of EGP1.72bn (up c7% y-o-y), have more than offset the c9% lower-than-expected salaries of EGP448m (up c7% y-o-y). Gross profit margin during the quarter stood at 40.7%, 0.7 pp higher than a year earlier, but 1.2 pp lower than our estimate. Some c4% lower-than-expected SG&A expenses (up c9% y-o-y), along with c22% higher-than-expected net financing income (up c49% y-o-y), in addition to the fact that the company did not book any provision expense during 1Q20/21, against our expectations of EGP58m, all together, have more than offset the EGP41m booked in FX losses, filtering through to an in line bottom line figure.
Orascom Development Egypt (ORHD EY) | Commercial International Bank (COMI EY) | Banque du Caire (BQDC EY) | EFG Hermes Holding (HRHO EY): The company signed a USD265m 7-year loan agreement to refinance and upsize its outstanding debt with a 2.5-year grace period
Orascom Development Egypt (ORHD EY) | Commercial International Bank (COMI EY) | Banque du Caire (BQDC EY) | EFG Hermes Holding (HRHO EY): The company signed a USD265m 7-year loan agreement to refinance and upsize its outstanding debt with a 2.5-year grace period, it announced. ODE intends to use the proceeds as follows: (1) up to USD215m to refinance outstanding debt balances to relieve itself from upcoming debt commitments, and (2) an additional tranche of USD50m (in EGP), will be available for drawdown over 2 years for future growth opportunities at the discretion of the group, including any planned CAPEX for rollout of new rooms and renovation of hotels in the group’s destinations, it added. Commercial International Bank (CIB), Banque Misr, Banque du Caire, and HSBC are acting as mandated lead arrangers, EFG Hermes Holding acted as sole financial advisor, lead manager, global coordinator and bookrunner for the transaction, and CIB is acting as the facility agent of the transaction. (Company release)
Our comment: We positively perceive the announcement due to its large size of USD265m, the equivalent of EGP4.16bn, higher than ODE’s current debt balance of EGP3.48bn. According to the agreement, the company will use USD215m (EGP3.38bn) to repay existing debt, which covers all of outstanding debt and gives it room for additional debt with a 2.5-year grace period during tough times for the company due to its hospitality exposure in light of COVID-19. In addition to the grace period, the new debt will allow ODE to increase its EGP denominated debt and possibly allow for some interest savings. The remaining USD50m (EGP785m) will be used at the company’s discretion and will be utilized based on the recovery in the tourism sector and hospitality operations. As of 3Q20, ODE had a net debt balance of EGP1.65bn, and a net debt to equity ratio of 0.48x, and it is worth noting that the bulk of its debt is related to the hospitality segment and not to the real estate segment.
Heliopolis Housing (HELI EY): The company reported a 1Q20/21 net loss of EGP41.2m, reversing a net income of EGP37.9m a year earlier
Heliopolis Housing (HELI EY): The company reported a 1Q20/21 net loss of EGP41.2m, reversing a net income of EGP37.9m a year earlier, according to its announced KPIs. Revenue for the quarter dropped c85% y-o-y to EGP38.3m while gross profit dropped c83% y-o-y to EGP32.5m as gross profit margin increased c8 pp y-o-y to c85%, it added. (EGX)
Our comment: Although it was expected that the company reports weak 1Q20/21 figures due to no announced land sales during the quarter and the company lowering its FY20/21 budgeted KPIs, the reported net loss comes 3.3x higher than our net loss estimate of EGP12.9m. Revenue came c75% lower than our estimate of EGP155m and gross profit came c72% lower than our estimate of EGP116m as gross profit margin came c9 pp ahead of our estimate of c75%. More to follow once the company’s detailed financial statements become available.
Orascom Construction (ORAS EY, OC DU): The company’s 3Q20 net profit dropped c6% y-o-y to USD30.2m
Orascom Construction (ORAS EY, OC DU): The company’s 3Q20 net profit dropped c6% y-o-y to USD30.2m, its audited financial statements showed. (Company release)
Our comment: This comes c12% above our estimate of USD27.0m, with BESIX making a strong comeback, which, along with slightly better-than-expected operations, more than offset higher-than-expected interest expense and FX losses. Revenue grew c4% y-o-y to USD825m, which is in line with our forecast of USD816m, as higher-than-expected executions in the US more than offset lower revenues from both Egypt (almost evenly coming from government and private sector projects) and other countries. EBIT dropped c7% y-o-y to USD41m, which is slightly above our estimate of USD39m, also aided by slightly better margins from both MENA and the US, offsetting the less favorable market mix. MENA EBITDA margin rebounded from last quarter to 9.5%, which is 0.4 pp above our expectation and so did the US EBITDA margin, which came in at c1.3%, which is 0.3 pp above our forecast. The US continued to deliver a positive net income as well. While we had opted to factor in some USD3m in negative contribution from BESIX until we see a reversal materializing, the unit demonstrated a solid recovery and is already back to normal on all levels, and looking on track to make up for a weak 1H20 by year-end as promised. The unit’s revenue dropped c17% y-o-y to USD754m, which is c5% above our estimate, and its EBITDA margin recorded 4.3% on par with its historical levels, filtering through to a net income of USD20m, an even higher beat despite an expanding net debt position of USD95.8m. BESIX booked new project awards of USD477m during the quarter, somewhat missing our estimate of USD508m by c6%, and implying a book-to-bill of 0.6x, but remains in a comfortable range on a full-year basis, with backlog in line at USD4.93bn. Looking at OC’s balance sheet, working capital tightened faster than our expectation (with a notable uptick in receivables), albeit remaining overall in negative territory, translating to an operating cash outflow of USD76.6m during the quarter, compared to our estimate of a minor outflow of USD1m, which is also the reason behind the slightly higher-than-expected overdraft figure and therefore interest expense. The company, however, still enjoys a comfortable net cash position of USD209m as of 30 September 2020 (vs our estimate of 276m). OC booked new awards of USD674m during the quarter, of which USD480m in the MENA region, mainly from Egypt in the logistics sector, besides work in the New Administrative Capital and Al Alamein cities, as well as in the highway and roads segment spanning various governorates. The US subsidiaries signed new contracts worth USD195m, with data center projects accounting for a significant portion and the balance in private sector light industrial and commercial segments. The project awards figure is c7% above our forecast, with the beat mainly coming from the US, whose slowdown looks milder than our expectations across the board, translating nevertheless to an in-line backlog of USD5.27bn. As previously hinted by management, the board approved distributing an interim dividend in January 2021, the exact amount and payment date of which will be announced next month.
EFG Hermes Holding (HRHO EY): The company’s 3Q20 consolidated net income increased c18% y-o-y to EGP422m
EFG Hermes Holding (HRHO EY): The company’s 3Q20 consolidated net income increased c18% y-o-y to EGP422m, according to its audited financials. (Company data)
Our comment: This comes c40% higher than our net income estimate of EGP301m on unrealized gains from the move of seed capital/investments to investments through profit and loss (FVTPL) from investments through other comprehensive income (FVTOCI). Accordingly, income from capital market and treasury operations came in at EGP372m, c87% higher than our estimate of EGP199m, despite lower interest received on financial investments. Excluding revenue from capital market operations, the consolidated operating income came in at EGP1.06bn, only c3% below our estimate of EGP1.09bn. Brokerage revenue declined c24% y-o-y to EGP243m, c9% below our estimate of EGP268m. Asset management fees increased c7% y-o-y to EGP65m, c10% below our estimate of EGP72m, while advisory fees were slashed by c78% y-o-y to EGP38m, c24% below our estimate of EGP50m. The company's private equity arm recorded EGP388m, only c5% below our estimate of EGP399m, resulting from incentive fees of EGP359m achieved on the sale of Vortex Solar. Microfinance loans grew c5% q-o-q to EGP2.93bn, c5% below our estimate of EGP3.09bn. Microfinance NIMs came in significantly better than expected at 18.4%, higher than our estimate of 16.6% as the company benefited from lower cost of debt due to interest rate cuts, while interest earned on microfinance loans remained elevated. This resulted in Tanmeyah's net profit growing c42% y-o-y to EGP72m, c33% above our estimate of EGP54m. EFG Leasing’s net leased portfolio grew c38% y-o-y to EGP4.17bn, only c4% below our estimate of EGP4.36bn. Leasing NIMs came in lower than expected at 3.9%, below our estimate of 5.1% due to competition with the banking sector offering subsidized loans to different sectors. The declining leasing NIMs was partially offset by a c32% y-o-y drop in administrative expenses to EGP10.8m, c48% below our estimate of EGP20.9m. Accordingly, EFG Leasing net profit declined c9% y-o-y to EGP18m, largely in line with our estimate of EGP16m. Currently, the stock is trading at 2020e P/E and P/B of 11.4x and 0.79x, respectively, compared to CI Capital Holding for Financial Investments’ (CICH EY) 2020e P/E and P/B of 9.48x and 1.28x, respectively.
Heliopolis Housing (HELI EY): The company announced its 2020–2025 strategy for its different projects
Emaar Misr (EMFD EY): The company’s 3Q20 net income dropped c18% y-o-y to EGP440m, its audited financials showed. Revenue increased c44% y-o-y to EGP1.27bn, while gross profit increased c33% y-o-y to EGP462m as gross profit margin narrowed c3 pp y-o-y to c36%, it added. (EGX)
Our comment: The reported net income comes in line with our estimate of EGP445m despite operating numbers coming much stronger than our estimates. In our numbers, we had expected higher interest income from treasuries and lower deliveries. The reported revenue came 2.4x ahead of our estimate as Mivida deliveries beat our numbers by 10x as we had expected the remaining backlog in Mivida to be delivered at a slower pace. Marassi deliveries were in line with our estimates, while Uptown Cairo deliveries were c58% ahead of our estimate. The gross profit beat narrowed to 2.2x as gross profit margin came c2 pp lower than our estimate of 39% mainly due to lower-than-expected margins in Marassi which stood at c30%, c10 pp lower than our estimate of c40%. The beat was further narrowed significantly on the back of a high SG&A expense of EGP370m which came much higher than our conservative estimate of EGP180m as we had expected the company to continue its cost saving efforts, as it did in the previous quarter. This, along with lower-than-expected interest income, as interest from cash and treasuries came c32% lower than our estimate of EGP395m, led pre-tax income to come in line with our estimate of EGP575m with a c4% miss, while a slightly lower-than-expected effective tax rate of c20% narrowed the miss to c1%. The stronger-than-expected deliveries led to net interest income contributing c61% to net income, lower than our estimate of c89%. In terms of contribution, Mivida was the main contributor to total revenue at c57% (vs our estimate of c13%), followed by Marassi at c30% (vs. our estimate of c67%) and Uptown Cairo contribution stood at c13% (vs our estimate of c19%). The company’s cash and treasuries balance stood at EGP11.0bn, c96% of its current market cap. The company’s net contracted figure should be reported as part of Emaar Properties presentation, and it is worth noting that it has not been disclosing the breakdown of its backlog by project since 1Q20, making it difficult to estimate the remaining deliveries in Mivida.
Arabian Cement (ARCC EY): The company reported a consolidated net loss of EGP34m in 3Q20, reversing a net profit of EGP7m a year earlier
Arabian Cement (ARCC EY): The company reported a consolidated net loss of EGP34m in 3Q20, reversing a net profit of EGP7m a year earlier, its audited financial statements showed. (Company release)
Our comment: This comes better than our net loss estimate of EGP50m, despite worse than expected operations, on the back of FX gains, lower-than-expected financing expenses, and a positive tax charge. Standalone revenue dropped c17% y-o-y to EGP592m, which is c1% below our estimate, while consolidated revenue dropped c19% y-o-y to EGP601m, missing our forecast by c5%, on lower contribution from other consolidated subsidiaries. As anticipated, the company slipped into gross losses for the first time, with consolidated gross loss recording EGP31m, worse than our forecast of a loss of EGP3m, as production cash cost came in higher than our expectation of EGP510/ton by c3%, reaching EGP525/ton, a noteworthy c4% above the previous quarter, which was exacerbated by losses from the non-core subsidiaries. Some EGP6m lower-than-expected SG&A expenses, however, lowered the miss on the EBITDA level, which came in at EGP21m, still c77% lower y-o-y and c45% below our estimate of EGP39m, and implying an EBITDA margin of 4%, which is 9pp below last year and 3 pp below our forecast of 6%. An FX loss of EGP13m (in line with our unaccounted estimate), lower net financing costs (despite a slightly higher debt balance), and a positive tax expense of EGP13m (implying an effective tax rate of 28%) further eased the miss on the bottom line level.
Foreign holdings in Egyptian treasuries stood at USD23bn by the end of November
/ Thursday, 3 December 2020
Foreign holdings in Egyptian treasuries stood at USD23bn by the end of November, up from USD21bn in mid-October, the minister of finance said. (Bloomberg, Reuters, Al Borsa)
The National Bank of Egypt (NBE) has lowered the interest rate on its certificates of deposits (CDs) by 0.50%–1.00%
/ Thursday, 3 December 2020
The National Bank of Egypt (NBE) has lowered the interest rate on its certificates of deposits (CDs) by 0.50%–1.00% effective yesterday, it announced. (Masrawy)
HC Research NBFS Corporate Access Event
/ MONDAY, 15 APRIL 2019
