By Mayar Hathout/ Sunday, 27 November 2022
Orascom Construction (ORAS EY, OC DU): The company’s 3Q22 consolidated net income decreased c16% y-o-y to USD23.9m, according to its audited financials. (Company data)
Our comment: The reported net income comes c24% higher than our estimate of USD19.3m, mainly on c22% higher-than-expected revenue. The company’s backlog decreased c5% y-o-y to USD5.73bn, accounting for the full effect of the EGP devaluation. New awards dropped c30% y-o-y to USD677m, comprised of USD473m new awards in MEA, predominantly in Egypt, in local currency in water infrastructure, BOO warehouse, and real estate development projects, and a small percentage in Saudi Arabia (which constitute a potential for larger projects) and USD204m of new awards in the USA in core data center and commercial projects. BESIX backlog decreased c5% y-o-y to USD5.37bn, and came c9% higher than our estimate, on c77% higher-than-expected new awards of USD1.3bn, c12% lower y-o-y. The breakdown of Besix backlog revealed lower exposure to Europe, UAE, and Africa versus higher exposure to the USA and other MENA countries. Revenue increased c33% y-o-y to USD1.14bn and came c22% higher than our estimate on higher-than-expected executions, with revenue from Egypt rising c18% y-o-y to USD0.69bn (exceeding our estimate by c21%), while revenue from the USA surged c48% y-o-y to USD0.40bn (exceeding our estimate by c34). BESIX revenue rose c4% y-o-y to USD793m and came c10% lower than our estimate. Gross profit rose c21% y-o-y to USD95m and exceeded our estimate by c26%, and gross profit margin dropped c0.8 pp y-o-y to 8.3%, c0.3 pp higher than our estimate of 8.03%. SG&A expenses rose c11% y-o-y to USD51m and came c9% above our estimate. EBITDA surged c25% y-o-y to USD57.2m, exceeding our estimate by c38% on c0.6 pp higher-than-expected EBITDA margin of 5.0%, c0.3 pp lower y-o-y. MENA margin decreased c0.4 pp y-o-y to 6.4%, 0.3 pp higher than our estimate, and the US margin increased 0.3 pp y-o-y to 2.5% and came c1.2 pp higher than our estimate on a good rebound in US margin. EBIT increased c36% y-o-y to USD46m, and came c57% above our estimate, while EBIT margin remained flat y-o-y at 4.0%, c1 pp above our estimate. BESIX reversed course with OC recording a minor loss of USD0.2m from BESIX versus a positive figure of USD6.5m a year earlier, missing our estimate of USD2.7m, which was partially offset by c62% higher-than-expected income from equity accounted investees ex-Besix at USD4.7, c34% higher y-o-y. Net interest expense surged 2.4x y-o-y to USD9.7m, and came c40% above our estimate on lower-than-expected interest income and c12% higher-than-expected interest expense. Net profit dropped c16% y-o-y to USD23.9m and came c24% higher than our estimate, mainly due to the higher-than-expected revenue.
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