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Reports

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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BY and Abdelrahman Wahba/
  • 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

BY and Nemat Choucri /
  • 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

 

BY and Mariam Ramadan / 30 August 2020
    • 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

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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  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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BY and Zeina Shahin /
  • 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

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BY and AbdelRahman Wahaba/
  • 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

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BY and Farida Salama  /

  • 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

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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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Featured

BY and Farida Salama/

Egypt’s passenger car (PC) sales rose c8% y-o-y to 12,466 cars in July compared to an increase of c10% y-o-y in the previous month to 11,217 cars, according to a report by the Automotive Marketing Information Council (AMIC). Bus sales rose c59% y-o-y to 2,421 buses, according to the report. (AMIC)

Our comment: Local PC sales came in c6% higher than our July estimate of 11,800 cars. Initial numbers from the AMIC report point to total GB Auto (AUTO EY) sales of 1,859 cars in July, which is c11% below our estimate of 2,092 cars, and c24% lower than a year earlier. This implies that the total market share during the month was 14.9%, which came 2.8 pp below our estimate, and 6.3 pp lower than a year earlier. Hyundai sales dropped c27% y-o-y to 1,150 cars during July, c21% below our estimate of 1,450 cars. Geely recorded sales of 5 cars, which came in largely in line with our estimate of 2 cars during the month, compared to 435 cars last year. Chery sales came in c10% higher than our estimate (up 2.2x y-o-y) to stand at 704 cars in July. There were no Mazda cars sold during July, which is in line with our expectations, compared to 95 cars sold a year earlier.

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By  Mariam Elsaadany / Monday, August 31, 2020

Talaat Moustafa Group Holding (TMGH EY): The company’s subsidiary, Arab Company for Projects and Urban Development, has entered into a strategic alliance with the National Bank of Egypt (NBE) and Banque Misr to develop some 341,000 sqm of land located in Al Rehab and Madinaty cities, against cash proceeds of EGP4.0bn to be collected by TMG Holding between September 2020 and March 2021, it announced. The land will be developed in quality mixed-use projects by TMG Holding starting 2023. Capex required for the development of this land, excluding the EGP4.0bn deal proceeds, will be financed through the off-plan sales business model. TMG Holding will use the cash proceeds for the early repayment of some of its outstanding liabilities due by September 2022, in a bid to further strengthen the company’s cash position and balance sheet in times of increased market volatility stemming from the prevailing COVID-19 pandemic. The transaction falls into the company’s framework of maximizing its revenues, benefiting from its portfolio of fully paid mixed-use land plots available in its projects, already equipped with the necessary infrastructure and thus requiring no additional cash outlay to monetize. Moreover, it is expected to have an immediate positive impact on the company’s revenue and profitability. The value of the company’s fully-paid land bank is now estimated at between EGP40bn and EGP50bn, as referenced by this transaction, management said in the release. In related news, The National Bank of Egypt (NBE) and Banque Misr have set up an investment company (50% owned by each) to enter into a partnership with Talaat Moustafa Group Holding’s (TMGH EY) subsidiary, Arab Company for Projects and Urban Development, and possibly other projects in the future, according to the former’s vice chairman. (TMG release, Al Borsa)

Our comment: This transaction is considered a land sale where the company will monetize this land plot to satisfy its cash needs in a tough operating environment. TMG will develop this land on behalf of the 2 banks, without incurring any costs since this land already has the needed infrastructure, and the development cost will be financed through the off-plan sales model. The transaction implies a price of EGP11,730/sqm, which we think is rewarding and compensating the company for the lost opportunity cost of developing this land plot itself. We estimate the company’s current undeveloped land bank at EGP53.5bn, implying an NAV of EGP25.90/share, which is slightly higher than the upper range of EGP40bn–50bn calculated by the company. The company does not generally disclose its undeveloped land area, and relies on its BUA, however we estimate the current remaining undeveloped land bank to stand at 8.86m sqm (6.83m sqm of residential land and 2.04m sqm of retail land), accordingly, the 341,000 deal represents c4% of its undeveloped land bank. TMG was expected to begin paying land liabilities related to Celia starting 2H20, following a 2-year grace period, which might partly explain the liquidity needs, in our view. An additional benefit from this transaction is that it will help in supporting the company’s profitability in a challenging 2020.

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GB AUTO (AUTO EY): The company reported consolidated 2Q20 net income of EGP116m, reversing a new loss of EGP19.1m a year earlier, its financial statements showed. (Company release)

Our comment: This comes largely in line with our estimate of EGP119m, with only c3% deviation. Auto and Auto related business net loss narrowed to EGP20.0m in 2Q20, from EGP159m a year earlier, largely in line with our estimate of EGP20.7m, with only c4% deviation. Auto and auto related business revenue dropped c39% y-o-y to EGP2.88bn, which is largely in line with our estimate of EGP2.86bn, while gross profit also dropped c19% y-o-y to EG401m, beating our estimate of EGP393m by only c2%. Gross profit margin for the period stood at 13.9%, 3.4 pp higher than a year earlier, and only 0.2 pp higher than our estimate of 13.7%. Some EGP169m booked during the quarter as other operating income (of which EGP142m are related to a sale of land), came in c18% higher than our estimate. This, along with c27% lower-than-expected provisions (down c13% y-o-y) have more than offset the c3% higher-than-expected SG&A expenses (down c4% y-o-y), suggesting a more sizable beat of c15% on the EBIT level to EGP260m (up c35% y-o-y). This implies an EBIT margin of 9.0%, 4.9 pp higher than a year earlier and 1.1 pp higher than our estimate. Some EGP44m booked as FX losses and EGP27m in income taxes during the quarter have more than offset the c14% lower-than-expected net financing charges (down c46% y-o-y), diluting the beat on the EBIT level and causing a slight miss on the bottom line level of c4%. Segmental breakdowns showed that the higher-than-expected gross profit coming from regional operations and commercial vehicles (CVs) have largely offset the lower-than-expected Egypt’s 2- and 3-wheelers gross profit. Regional operations revenue dropped c77% y-o-y to EGP418m, c33% higher than our estimate, while gross profit dropped c55% y-o-y to EGP65.8m, beating our estimate of EGP29m by 2.2x as we believed that the coronavirus impact would be more pronounced given that Iraq had a complete lockdown for a longer-period of time compared to Egypt. As for the CVs, the business revenue dropped c17% y-o-y to EGP224m, 2.1x higher than our estimate, mainly on higher-than-expected effective selling price which we largely attribute to the sales mix. While the business gross profit dropped c59% y-o-y to EGP27.6m, 3.6x higher than our estimate, leaving margins at 12.3%, 12.7 pp lower than a year earlier, but 4.9 pp higher than our estimate. While Egypt’s 2-and 3-wheelers’ revenue grew c82% y-o-y to EGP532m on a more stable regulatory environment, it missed our estimate of EGP756m by c30% mainly on c28% lower-than-expected volume sold. The business gross profit grew 2.5x y-o-y to EGP101m, missing our estimate of EGP153m by c34%, leaving margins at 18.9%, 5.4 pp higher than a year earlier, but 1.4 pp lower than our estimate. It is worth mentioning that Egypt’s passenger cars (PCs) revenue dropped c27% y-o-y to EGP1.10bn, largely in line with our estimate of EGP1.13bn, as volumes dropped c22% y-o-y to 4,166 cars sold during the quarter largely in line with our estimate of 4,152 cars. The business gross profit grew c38% y-o-y to EGP96.3m, exactly in line with our estimate, leaving margins to stand at 8.7%, 4.6 pp higher than a year earlier, and 0.2 pp higher than our estimate. The company mentioned the reason for the y-o-y drop in volumes of both Egypt’s PCs and 2-and 3-wheelers due to the coronavirus outbreak and the closure of the traffic department and the presence of Ramadan and Eid which are typically low seasons for vehicles. As for GB Capital, revenue grew c8% y-o-y in 2Q20 to EGP1.32bn, missing our estimate of EGP1.38bn by c5%, mainly on c10% lower-than-expected other revenue (non-interest income). The business gross profit grew c31% y-o-y to EGP523m, c10% above our expectation, mainly on 2.0 pp lower-than-expected effective interest rate which resulted in c11% lower-than-expected cost of fund, implying a gross profit margin of 39.7%, 7.0 pp higher than a year earlier, and 5.3 pp higher than our estimate. Net interest margin for the business stood at 19.2% during the quarter, which is 9.0 pp higher than a year earlier, beating our estimate of 18.0% by 1.2 pp, thanks to its asset/liability duration mismatch through lending at fixed interest rates while borrowing at variable ones. Some c24% lower-than-expected provisions have more than offset the c15% higher-than-expected SG&A expenses and c36% lower-than-expected other operating income, suggesting a more sizable beat on the EBIT level of c12% to EGP250m, leaving margins at 19.0%, flat y-o-y, but 2.7 pp higher than our estimate. However, some 5.0 pp higher-than-expected effective tax rate have wiped out the beat on the EBIT level, leaving the business bottom line largely in line with our estimate to stand at EGP136m (down c20% y-o-y).

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GB AUTO (AUTO EY): The company reported consolidated 2Q20 net income of EGP116m, reversing a new loss of EGP19.1m a year earlier, its financial statements showed. (Company release)

Our comment: This comes largely in line with our estimate of EGP119m, with only c3% deviation. Auto and Auto related business net loss narrowed to EGP20.0m in 2Q20, from EGP159m a year earlier, largely in line with our estimate of EGP20.7m, with only c4% deviation. Auto and auto related business revenue dropped c39% y-o-y to EGP2.88bn, which is largely in line with our estimate of EGP2.86bn, while gross profit also dropped c19% y-o-y to EG401m, beating our estimate of EGP393m by only c2%. Gross profit margin for the period stood at 13.9%, 3.4 pp higher than a year earlier, and only 0.2 pp higher than our estimate of 13.7%. Some EGP169m booked during the quarter as other operating income (of which EGP142m are related to a sale of land), came in c18% higher than our estimate. This, along with c27% lower-than-expected provisions (down c13% y-o-y) have more than offset the c3% higher-than-expected SG&A expenses (down c4% y-o-y), suggesting a more sizable beat of c15% on the EBIT level to EGP260m (up c35% y-o-y). This implies an EBIT margin of 9.0%, 4.9 pp higher than a year earlier and 1.1 pp higher than our estimate. Some EGP44m booked as FX losses and EGP27m in income taxes during the quarter have more than offset the c14% lower-than-expected net financing charges (down c46% y-o-y), diluting the beat on the EBIT level and causing a slight miss on the bottom line level of c4%. Segmental breakdowns showed that the higher-than-expected gross profit coming from regional operations and commercial vehicles (CVs) have largely offset the lower-than-expected Egypt’s 2- and 3-wheelers gross profit. Regional operations revenue dropped c77% y-o-y to EGP418m, c33% higher than our estimate, while gross profit dropped c55% y-o-y to EGP65.8m, beating our estimate of EGP29m by 2.2x as we believed that the coronavirus impact would be more pronounced given that Iraq had a complete lockdown for a longer-period of time compared to Egypt. As for the CVs, the business revenue dropped c17% y-o-y to EGP224m, 2.1x higher than our estimate, mainly on higher-than-expected effective selling price which we largely attribute to the sales mix. While the business gross profit dropped c59% y-o-y to EGP27.6m, 3.6x higher than our estimate, leaving margins at 12.3%, 12.7 pp lower than a year earlier, but 4.9 pp higher than our estimate. While Egypt’s 2-and 3-wheelers’ revenue grew c82% y-o-y to EGP532m on a more stable regulatory environment, it missed our estimate of EGP756m by c30% mainly on c28% lower-than-expected volume sold. The business gross profit grew 2.5x y-o-y to EGP101m, missing our estimate of EGP153m by c34%, leaving margins at 18.9%, 5.4 pp higher than a year earlier, but 1.4 pp lower than our estimate. It is worth mentioning that Egypt’s passenger cars (PCs) revenue dropped c27% y-o-y to EGP1.10bn, largely in line with our estimate of EGP1.13bn, as volumes dropped c22% y-o-y to 4,166 cars sold during the quarter largely in line with our estimate of 4,152 cars. The business gross profit grew c38% y-o-y to EGP96.3m, exactly in line with our estimate, leaving margins to stand at 8.7%, 4.6 pp higher than a year earlier, and 0.2 pp higher than our estimate. The company mentioned the reason for the y-o-y drop in volumes of both Egypt’s PCs and 2-and 3-wheelers due to the coronavirus outbreak and the closure of the traffic department and the presence of Ramadan and Eid which are typically low seasons for vehicles. As for GB Capital, revenue grew c8% y-o-y in 2Q20 to EGP1.32bn, missing our estimate of EGP1.38bn by c5%, mainly on c10% lower-than-expected other revenue (non-interest income). The business gross profit grew c31% y-o-y to EGP523m, c10% above our expectation, mainly on 2.0 pp lower-than-expected effective interest rate which resulted in c11% lower-than-expected cost of fund, implying a gross profit margin of 39.7%, 7.0 pp higher than a year earlier, and 5.3 pp higher than our estimate. Net interest margin for the business stood at 19.2% during the quarter, which is 9.0 pp higher than a year earlier, beating our estimate of 18.0% by 1.2 pp, thanks to its asset/liability duration mismatch through lending at fixed interest rates while borrowing at variable ones. Some c24% lower-than-expected provisions have more than offset the c15% higher-than-expected SG&A expenses and c36% lower-than-expected other operating income, suggesting a more sizable beat on the EBIT level of c12% to EGP250m, leaving margins at 19.0%, flat y-o-y, but 2.7 pp higher than our estimate. However, some 5.0 pp higher-than-expected effective tax rate have wiped out the beat on the EBIT level, leaving the business bottom line largely in line with our estimate to stand at EGP136m (down c20% y-o-y).

 

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CI Capital Holding for Financial Investments (CICH EY): The company’s 2Q20 consolidated net profit declined c8% y-o-y to EGP90.4m, according to its audited financial statements. (Company’s financials)

Our comment: The net profit figure came in line with our estimate of EGP91.8m, with the biggest drop occurring in the IB business where brokerage, asset management and advisory fees combined, plummeted by c23% y-o-y to EGP58m mostly in line with our estimate of EGP59m and reflecting a halt in business activity during most of the quarter. The company’s leasing arm, Corplease, saw its net profit decline c3% y-o-y to EGP63m, however, it came c19% above our estimate of EGP53m due to one-off FX gains and other income of EGP9m, as well as lower-than-expected provisioning. Net leasing portfolio remained flat y-o-y at EGP8.4bn and only c4% above our estimate of EGP8.0bn. Corplease NIMs came in at 4.2% up from 4.0% in 2Q19, but lower than our estimate of 5.2% due to lower than expected interest earned on the net leasing portfolio, which came in at 13.3% down from 15.1% in 1Q20 and lower than our estimate of 14.5%. Reefy, the company’s microfinance arm, saw its net profit decline by c10% y-o-y to EGP26m, c36% below our estimate of EGP40m mainly due to lower-than-expected interest earned on its loan book. Reefy’s net loans grew c25% y-o-y to EGP785m, mostly in line with our estimate of EGP795m, while interest earned on its loan book declined to 46.4% in 2Q20 from 51.7% in 1Q20, a rate that we expected to be maintained given current economic uncertainty as well as the risky nature of the business. We believe that the decline in Reefy’s interest earned is triggered by higher competition in this field as well as a reflection of the 300 bps rate cut undertaken by the CBE in mid-March. Accordingly, Reefy’s NIMs declined to 39.7% in 2Q20 from 44.0% in 1Q20 and below our estimate of 44.8%. Currently, the stock is trading at a 2020e P/E and P/B of 6.62x and 1.09x, respectively compared to EFG Hermes Holding’s (HRHO EY) 2020e P/E and P/B of 13.14x and 0.72x, respectively.

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By Noha Baraka and Farida Salama / Tuesday April 21, 2020

Obourland Food Industries (OLFI EY): The company’s 1Q20 consolidated net profit grew c28% y-o-y to EGP68.1m, according to a bourse filing. (Company release)

Our comment: This comes c11% above our estimate of EGP61.5m, mainly on an EGP4m booked as FX gains, lower than expected SG&A expenses, and slightly higher margins. Revenue came in largely flat y-o-y at EGP583m, missing our estimate of EGP628m by c7%. Gross profit (including depreciation) grew c24% y-o-y to EGP143m, largely in line with our estimate of EGP145m, leaving margins to stand at 24.6%, 4.6 pp higher than a year earlier and 1.5 pp higher than our estimate. We attribute the higher-than-expected margins to a higher-than-expected cost savings from the installation of the 3 new Tetra Pak A3 speed production lines, as well as higher discounts received from Tetra Pak on the new packaging. Some c9% lower than expected SG&A expenses (up c5% y-o-y) caused a c6% beat on the EBITDA level (up c45% y-o-y) to stand at EGP101m, leaving margins at 17.4%, 5.2 pp higher than a year earlier and 2.1 pp higher than our estimate. Some EGP4m were booked as FX gains during the quarter, adding to the bottom line beat. On a segmental breakdown the beat on the top line level is mainly coming from the cheese segment. The cheese segment revenue came in largely flat y-o-y at EGP551m, missing our estimate of EGP597m by c8%, mainly on a c6% lower than expected units sold (down c2% y-o-y). Despite that demand increased significantly amid the coronavirus outbreak, the company couldn't keep up with the demand and couldn't increase its utilization rate to reach its full production capacity given that usually they plan production lines upgrades and replacements during this quarter, and the 3 new Tetra Pak production lines came on stream in December and the new processed cheese line was planned to be moved to the new factory in 1Q20. The cheese segment gross profit came in largely in line with our estimate at EGP135m (up c24% y-o-y), leaving margins to stand at 24.6%, 4.6 pp higher than a year earlier and 1.6 pp higher than our estimate. Juice and milk segments revenue dropped c4% y-o-y to EGP31m, but came in largely in line with our estimate of EGP32m, while its gross profit grew c24% y-o-y to EGP8m, beating our estimate by c9%, leaving margins to stand at 25.7%, 5.7 pp higher than a year earlier and 2.6 pp higher than our estimate. The company mentioned in its earnings release that milk volumes surged significantly y-o-y and Obourland is continuing with its plan of launching the 200ml flavored milk offerings, while the juice segment volumes were down y-o-y due to the current conditions and due to the fact that 1Q usually does not play in favor of juice products. The company is planning in 2Q20 to decrease its juice products’ prices to increase its competitiveness and sales.

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News

BY / Thursday, 24 September

A delegation from the International Monetary Fund (IMF) will visit Egypt in December to conduct a review of Egypt’s economic reform program, according to the Egyptian minister of finance. (Al Shorouk)

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BY  / Thursday, 24 September

Egypt witnessed billions of USD of foreign inflows into the Egyptian treasuries market during the month of August, according to the minister of finance. (Al Shorouk)

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