Orascom Construction (ORAS EY, OC DU): The company's 1Q23 consolidated net income increased 2.76x y-o-y to USD36.1m y-o-y, according to its audited financials. (Company data)
Our comment: The company's net income comes 2.15x higher than our estimate of USD17m, on USD28.4m in net FX gains as part of its net finance cost, and lower effective tax rate. The company's backlog decreased c1% y-o-y to USD5.46bn, and came c9% above our estimate. New awards increased c29% y-o-y to USD858m, comprised of USD458m new awards in MEA in renewable energy, infrastructure, commercial, marine, and transportation sectors, and included the new 500 MW BOO wind farm in Egypt, additional work for highway and road development, and new scope for a premium private sector real estate developer, and USD401m of new awards in the USA mainly in the data center and commercial sectors. BESIX backlog increased c11% y-o-y to USD6.17bn and came c9% higher than our estimate, on c31% higher-than-expected new awards of USD1.12bn, c31% higher y-o-y. The breakdown of Besix backlog revealed y-o-y slightly lower exposure to North America, UAE, and Europe versus a y-o-y higher exposure to other MENA countries and Africa. Revenue decreased c18% y-o-y to USD805m and came c4% lower than our estimate, with revenue from Egypt falling c42% y-o-y to USD409m (lower than our estimate by c9%), while revenue from the USA surged c50% y-o-y to USD357m (exceeding our estimate by c8%). BESIX revenue surged c11% y-o-y to USD837m and came c4% higher than our estimate. Gross profit dropped c24% y-o-y to USD69m, and exceeded our estimate by c8%, and gross profit margin contracted c0.7 pp y-o-y to 8.6% and came c0.9 pp higher than our estimate of 7.7%. SG&A expenses decreased c25% y-o-y to USD42m and came c11% above our estimate. EBITDA dropped c30% y-o-y to USD35.4m, missing our estimate by c9% on c0.2 pp lower-than-expected EBITDA margin of 4.4%, c0.7 pp lower y-o-y. MENA margin decreased slightly c0.1 pp y-o-y to 6.4%, c0.2 pp below our estimate, and the US margin improved c1.1 pp y-o-y to 1.9% and came c0.2 pp above than our estimate. EBIT decreased c28% y-o-y to USD27m, and came c4% below our estimate, while EBIT margin dropped c0.5 pp y-o-y to 3.4%, and came in line with our estimate. BESIX contribution to bottom-line profitability was almost neutral, with a minor negative contribution of USD0.1m (lower than our estimate of a positive contribution of USD0.7m), versus a negative contribution of USD11m a year earlier. Income from equity accounted investees, ex-Besix, decreased c44% y-o-y to USD2.8m, missing our estimate of USD3.2m by c13%. Net interest expense increased 2.17x y-o-y to USD7.8m, c5% above our estimate. The company booked USD28.4 in net FX gains on net interest cost, which we did not account for in our numbers. Net profit hiked 2.76x y-o-y to USD36.1m, and exceeded our estimate by 2.15x, mainly due to the FX gains and a lower-than-expected effective tax rate of 20.2% versus our estimate of 22.5% which was partially offset by a higher-than-expected minority interest. The company divested its full stake in the construction chemicals subsidiary for EGP1.8bn in May, and its shareholders at its 31 May AGM approved a 6.52m share buyback, representing 5.58% of its total shares, from Melinda French Gates, for USD3.0/share, which it plans to terminate in 3–12 months.