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Reports

BY  Pakinam El Etriby/
  • We expect the EGP devaluation to boost ORWE’s local and export sales, helping it to grow its total revenue at a 2024–29e CAGR of c11%
  • Despite current Red Sea disruptions, we expect ORWE to experience a strong 2024 mainly on higher selling prices and export rebates
  • We resume our coverage on ORWE with a TP of EGP19.5/share and a N rating on a high WACC following the recent 600 bps policy rate hike

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BY  Mairam Elsaadany/

  • Lucrative Heliopark sale valuation generates sizeable proceeds and sets a land valuation benchmark for HELI’s remaining land bank
  • HELI’s focus shifts to more revenue-sharing deals as the suboptimal execution pace weighs on its profitability
  • We increase our TP c91% to EGP21.2/share and upgrade our recommendation to OW from N on higher land valuation

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BY Nesrine Mamdouh/
  • Uncertain global factors at play shape export polyethylene prices
  • SIDPEC is benefiting from its comparative cost advantage. Strategic new projects and the acquisition of ETHYDCO potentially add value
  • We resume coverage with a TP of EGP37.2/share and an Overweight rating on strong fundamentals and compelling valuation

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BY  / 20 December 2023
  • Higher selling prices and volume recovery should bolster EAST’s operational performance over our FY23/24–27/28e forecast period 
  • Machinery leasing and investment income from UTC should also preserve EAST’s profitability and cash distribution capabilities                                                                        
  • We increased our TP by c18% to EGP31.4/share, yet downgraded our rating to N from OW as the stock rallied c45% since our last update

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BY  Heba Monir  /

  • Low FX liquidity is fueling soaring inflation and affecting GDP growth, in our view. We expect an FX adjustment when Egypt improves its FX supply
  • We see the current account deficit turning into a surplus with a moderate expansion in external debt over FY23/24e, impacted by recent rating downgrades by Moody's, S&P, and Fitch
  • We expect the budget deficit to widen to 7.1% of GDP in FY23/24e on higher interest expense and social benefits 

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BY /

  • Imminent inflection point in the GCC to support MENA operations
  • ORAS capitalizes on its U.S. presence, hedges setbacks, and further diversifies its exposure through BESIX
  • We resume coverage on ORAS with a TP of USD6.54/share and an OW rating

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BY  Mariam Elsaadany/

  • Amendments to the Gouna masterplan waive environmental fees, unlock value, and increase ODE’s hospitality exposure
  • ODE enjoys solid profitability in 2023e as the 3Q23 land sale should offset potential FX losses
  • We increase our TP by c42% to EGP15.5/share and maintain our OW rating as we integrate Gouna masterplan amendments in our model 

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BY
  • Higher local cigarette selling prices should support EAST’s operating margins over our FY22/23–27/28e forecast period
  • Machinery leasing income and investment income from UTC should also preserve EAST’s profitability and cash distribution capabilities         
  • We increase our TP by c41% to EGP26.6/share, and upgrade our rating to OW from N. UTC adds EGP2.51/share to our valuation 

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BY  /
  • The market is still digesting new macroeconomic and industry developments, which entails prudent pricing and cost management
  • Despite lowering our gross margin estimates, reflecting inflationary pressures, we expect ARCC to maintain its cost advantage
  • We cut our 2022–25e EBITDA estimates by c12% and TP by c25% to EGP11.2/share and reiterate our OW rating on compelling valuation 

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BY  /
  • A high inflationary environment and the expiry of the PMI under-license agreement results in lower operating margins, despite higher local cigarette selling prices
  • On a positive note, EAST's investment and machinery leasing income from its 24%-owned subsidiary UTC preserves its profitability and  cash distribution abilities              
  • We lower our TP c9% to EGP18.9/share and downgrade our rating to Neutral from Overweight on a higher WACC and the stock price rally

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BY Mariam Elssadany/

  • While sector investment demand benefited from inflation and EGP devaluation fears, currently, it is hurt by lower affordability, cost overruns, and challenging financing
  • We expect further market consolidation following sector conditions and the EGP devaluation; revaluation of assets is currently underway for the acquisition targets
  • We choose PHDC and TMGH as our top picks on sound fundamentals and high potential returns; both stocks trading below the sector’s  2023e average P/NAV of 0.34x

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BY  Monette Doss  /
  • Egypt’s external position vulnerability renders further EGP devaluation accompanied by interest rate hikes necessary, in our view
  • We expect further working capital loan growth, moderate deposit increases, maintained NIMs and pressured asset quality over the rest of 2022e
  • We lower our TP for CIB by c5%, and for CAE by c9% but increase it for ADIB-Egypt by c36%; and maintain an OW rating for all three banks. CIB is our top pick 

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BY  Monette Doss/
  • CIRA’s expansion plan implies increasing registered students and revenue at a 2022–29e CAGR of c13% and c25%, respectively, with some pressure on EBITDA due to rising OPEX
  • Planned annual CAPEX average EGP940m over the next five years with average debt/equity of 1.19x, on our numbers
  • We increase our 12-month target price for CIRA by c15% to EGP21.0/share, as we currently  include New Damietta university in our numbers and maintain our Overweight rating 

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Featured

By / Thursday

Juhayna Food Industries (JUFO EY) | Obourland Food Industries (OLFI EY) | Arabian Food Industries (Domty) (DOMT EY): Following the Egyptian government’s new initiative to reduce essential goods prices, JUFO reduced its 1.5-liter milk price by c7% to EGP67/pack and its 1-liter milk price by c6% to EGP47/pack, effective today, according to media reports. In related news, JUFO reduced its dairy products prices by c18%, and juices by c15%, it announced. Obourland reduced its milk prices by c15%–20%, while Domty lowered its dairy products’ prices by c10%. (Cairo 24, Mubasher)

Our comment: Although this announcement may signal lower prices for the three companies; however, we anticipate that the USD availability at the official EGP/USD rate would normalize their costs of production and partially mitigate the effect of lower prices on their gross margins. Also, the normalization of the price of consumer staples will help to improve consumer demand.

 

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BY /

GB Corp (GBCO EY): The company's 4Q23 consolidated net income decreased c93% y-o-y to EGP620m, according to its audited financial statements. The company will convene an AGM and EGM on 27 March to discuss amending article five of its incorporation and issuing guarantees for its sister companies and subsidiaries. (Company release, Al Borsa)

Our comment: At the consolidated level, GB Corp's y-o-y notable drop in net income was mainly due to the high base effect in 4Q22 resulting from the sale of its 7.5% stake in MNT-Halan, in addition to booking some FX losses, despite EBIT margin improvement. Total revenue increased c27% y-o-y to EGP8.79bn, backed by a y-o-y increase in GB Auto revenue (up c56% y-o-y) and GB Capital revenue (up c5% y-o-y) revenues, with GB Auto constituting more than 80% of total sales. Gross profit also increased c28% y-o-y to EGP2.56bn, implying only a c0.02 pp y-o-y increase in gross profit margin (GPM) to c29%. Moreover, EBIT surged c51% y-o-y EGP1.45bn, yielding an EBIT margin of c16% (versus c14% in 4Q22), supported by a c1 pp y-o-y decrease in SG&A/sales to c14% and recording some other income of EGP299m (up c 4x y-o-y), offsetting the c3x y-o-y increase in net provisions to EGP183m. Nevertheless, despite the y-o-y EBIT margin improvement, a c13% y-o-y decrease in net interest expense to EGP218m, and booking some gain from investment in associate of EGP1.07bn, profitability significantly declined y-o-y due to the high base effect stemming from the EGP8.21bn gain from the sale of the company’s stake in MN-Halan recorded during 4Q22, and booking some FX losses of EGP1.02bn versus an FX gain of EGP26.3m a year earlier. GB Auto revenue increased c56% y-o-y to EGP7.32bn, mainly due to a c2x y-o-y increase in passenger cars (PCs) revenue (contributing c43% to GB Auto sales). This PC's remarkable growth was backed by improved pricing and the local assembly business, despite the challenging environment of limited FX availability, import restrictions, and a slowdown in opening letters of credit (LCs). Moreover, PC volumes increased by c9% y-o-y to 4,563 cars. Gross profit increased c99% y-o-y to EGP2.10bn, implying a GPM of 28.7%, up 6.22 pp y-o-y, mainly due to the y-o-y higher selling prices. EBIT also increased by c2x y-o-y to EGP1.21bn, resulting in an EBIT margin of c17% (up by c5 pp y-o-y), supported by the GPM expansion and booking some other income of EGP287m (versus EGP45.8m in 4Q22). However, despite the margin improvement, GB Auto's bottom line dropped c85% y-o-y to EGP45.1m, mainly impacted by booking some FX losses of EGP1.02bn versus FX gains of EGP23.3m in 4Q22. The segmental breakdown showed a c2x y-o-y hike in Egypt PC sales revenue to EGP3.18bn, contributing c43% to total GB Auto sales. The two and three-wheeler revenue dropped c28% y-o-y to EGP210m (representing c3% of Auto sales), with volumes declining by c25% y-o-y to 5,177 units, largely impacted by the complete liquidation of three-wheeler inventory coupled with limited FX availability and import restrictions affecting the motorcycle inventory. However, in 3Q23, the company introduced a new tricycle product, of which it sold 321 units which increased to 1,464 units during 4Q23. As for the commercial vehicles and construction equipment (CV&CE) sales activity, it increased c14% y-o-y to EGP576m, comprising c8% of Auto sales, although volumes declined c60% y-o-y to 319 units. Egypt-after-sales revenue increased c32% y-o-y to EGP715m, representing c10% of Auto sales, driven by strong demand as customers prioritize maintaining their existing vehicles amid challenges in purchasing new ones. Tires revenue also increased c31% y-o-y to EGP540m, representing c7% of Auto sales. Furthermore, regional sales, contributing c20% of Auto sales, increased c8% y-o-y to EGP1.48bn. GB Capital revenue increased by c5% y-o-y to EGP1.56bn. Gross profit grew c36% y-o-y to EGP473m, implying a c7 pp y-o-y increase in GPM to c30%. EBIT also surged c61% y-o-y to EGP230m, yielding an EBIT margin of c15%, up c5 pp y-o-y, mainly on the GPM expansion, despite higher provisions of EGP37.7m versus EGP7.40m a year earlier. Nevertheless, despite the notable margin improvement, earnings dropped c93% y-o-y to EGP576m, mainly due to the base effect as 4Q22 included the capital gains from the sale of the company’s 7.5% stake in MNT-Halan.

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Eastern Company (EAST EY): The company approved increasing its local cigarette retail prices of Cleopatra, Mondial, Matossian Super, Belmont, and Boston by EGP3.00/pack to EGP30.0/pack, effective 17 February, according to its CEO and managing director and its release. Viceroy and Pall Mall prices increased by EGP8.00/pack to EGP50.0/pack. Cleopatra Box, a ten-stick pack, price increased by EGP2.00/pack to EGP22.0/pack. EAST also increased cigar and molasses prices. The price increase is lower than the increase in tobacco and non-tobacco raw material costs, the CEO and managing director added. (Company release, Mubasher)

Our comment: This comes sooner than our expectation of a retail price increase in 4Q23/24 and slightly lower than our expected increase of EGP4.00/pack. The EGP3.00/pack increase implies an ex-factory price of EGP9.38/pack, up c25% from the latest ex-factory price of around EGP7.51/pack in 2Q23/24 and is justified in our view, considering the recent hike in raw tobacco cost, which peaked at USD7,670/ton in January 2024, according to Brazil tobacco export data from the Ministry of Economics of Brazil, in addition to the increase in non-tobacco raw materials costs.

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Commercial International Bank (COMI EY): The bank’s 4Q23 consolidated net income hiked c83% y-o-y, yet dropped c13% q-o-q to EGP7.23bn, according to its audited financials. The bank is proposing a DPS of EGP0.55 for FY23, pending shareholder approval at an upcoming AGM. (Bank data)

Our Comment: The bank’s net income came lower than our estimate of EGP8.63bn by c16% yet higher than the Bloomberg consensus of EGP6.83bn by c6%. We attribute this deviation to charging a higher-than-forecasted loan loss provisions of EGP3.05bn, an increase of c2.4x y-o-y and c89x q-o-q, exceeding our estimate of EGP223m by c14x. Net interest income grew c65% y-o-y and c10% q-o-q to EGP15.2bn, in line with our estimates of EGP14.9bn (+1.8%), with c32% of it generated from interest income from treasuries. Non-interest income surged c2.6x y-o-y and c38x q-o-q to EGP1.55bn, exceeding our estimate by 5.06x on a hike in services fees, FX gains, dividend income, financial investments, and lower-than-forecasted losses from other operating items. Loan loss provisions hiked c2.4x y-o-y and c89x q-o-q to EGP3.05bn, coming c14x higher than our estimate of EGP223m, as the bank’s management tended to be conservative given the challenges persistent since FY22 on the macroeconomic outlook. The effective tax rate retreated by 8.7 pp y-o-y to 27.8%, given the lower allocation to treasuries. The bank’s ROE increased 13.5 pp y-o-y to 36.4%, yet came 10.4 pp lower than our estimate and 9.47 pp lower q-o-q due to the sizeable balance sheet growth and higher-than-expected loan loss provisions. Regarding the bank’s balance sheet, its net loans grew c21% y-o-y to EGP235bn, in line with our estimates (-0.9%), customer deposits increased by c27% y-o-y to EGP675bn, c5% lower than our estimate of EGP709bn, and financial investments increased c13% y-o-y to EGP270bn, beating our estimate of EGP231bn by c17%. CIB demonstrated resilient CAR of 26.2%, up from 22.7% a year earlier, and improved asset quality with NPLs dropping to 3.59% from 4.86% a year earlier and coverage ratio increasing to 309% from 229% a year earlier. The proposed DPS of EGP0.55/share for FY23 offers a net-of-tax dividend yield of 0.66%, over yesterday’s last price of EGP79.43/share.

 

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By / Sunday

SIDPEC (SKPC EY): The company's 4Q23 net income hiked 31% y-o-y to EGP645m, according to its announced unaudited KPIs. The company’s board postponed the discussion related to contributing USD180,000 in the capital increase of Egyptian BioEthanol Company (EBIOL), according to a bourse filing. (EGX)

 

Our comment: The company reported good results, with net income only missing our estimate by 5%, mainly on c0.5 pp lower-than-expected gross profit margin (GPM) of 26.6% and higher-than-expected effective tax rate. Revenue increased c21% y-o-y to EGP3.46bn and came c1.6% below our estimate. Gross profit rose c4% y-o-y to EGP922m, missing our estimate by c3.4%, as GPM contracted 4.4 pp y-o-y to 26.6%, despite the net positive USD exposure on higher y-o-y USD feedstock cost, and base effect as 4Q22 marked the beginning of the feedstock formula application. NPBT hiked c35% y-o-y EFP903m and came c3% above our estimate, potentially on higher-than-expected investment/other income. The NPBT beat reversed into a 5% net income miss on a higher-than-expected effective tax rate, filtering through a net income of EGP645m, c31% higher y-o-y.  We will comment further on the results after the company releases its detailed audited financials.

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By /

Egypt's external debt increased by 6.16% y-o-y while decreasing by 0.13% q-o-q to USD164.5bn in 1Q23/24, according to the Central Bank of Egypt (CBE)’s data. Long-term debt increased by 5.24% y-o-y, while retreating by 1.70% q-o-q to USD134bn (c82% of total external debt), while short-term debt increased by 10.4% y-o-y and 7.52% q-o-q to USD30.3bn (c18% of total external debt). (CBE)

Our Comment: The 1Q23/24 external debt came slightly lower than our estimate of USD166bn, possibly due to the delay in finalizing the first and second reviews of the IMF’s USD3bn Extended Fund Facility (EFF) and the disbursement of the corresponding two tranches worth a total of USD700m.

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By /Sun

Ezz Steel (ESRS EY): The company recorded a 3Q23 consolidated net loss of EGP509m, reversing a net profit of EGP1.08bn a year earlier, according to its audited financials. (Company data)

Our comment: Despite an in-line operational performance, the company booked a hefty EGP10.8bn FX loss, which we did not account for in our numbers, whipping out its decent operating profit and margin and resulting in a net loss of EGP509m, while we expected EGP4.15bn in net profit, excluding FX losses. Long steel production increased c20% y-o-y to 1.00m tons and came c1% above our estimate, while flat steel production surged c48% y-o-y to 0.59m tons and came c1% below our estimate. Total sales volume rose c18% y-o-y to 1.61m tons, c3% below our estimate. It is worth mentioning that in 9M23, domestic rebar consumption dropped c30% y-o-y to 4.6m tons, reflecting the inflationary pressures that negatively affected local consumption, while ESRS Local rebar sales fell by a lower c16% y-o-y to 1.95m tons, implying a market share of c42%. HRC domestic consumption fell by c17% y-o-y in 9M23, while ESRS 9M23 HRC local sales retreated by c11% y-o-y to 0.69m. On the other hand, the company doubled y-o-y its export-to-total sales volumes to c36% in 9M23, highlighting its comparative advantage as a fully integrated and exporting steel producer. Revenue hiked by c85% y-o-y to EGP41.0bn on higher y-o-y prices in EGP terms and higher volumes, in line with our estimate. COGS increased c66% y-o-y to EGP29.9bn and came c1% below our estimate. Gross profit surged c2.7x y-o-y to EGP11.1bn, c4% above our estimate, on c1 pp higher-than-expected GPM of c27%, c8 pp higher y-o-y. EBITDA increased c2.7x y-o-y to EGP10.3bn and came 7% above our estimate, on c21%lower-than-expected SG&A expenses of EGP1.16bn, c1.8x higher y-o-y. The EBITDA margin expanded by c8.0 pp y-o-y to c25% and came c2 pp above our estimate. EBITDA (USD/ton) increased c42% y-o-y to USD207 and came c10% above our estimate. Net financing costs were flat y-o-y at EGP771m and came c27% below our estimate, on c74% higher-than-expected interest income of EGP843m, c10.0x higher y-o-y, while finance cost of EGP1.62bn exceeded our estimate by c5% and hiked c1.9x y-o-y, reflecting the high-interest rate environment and the increase in the company’s gross debt to EGP67bn, from EGP33bn a year earlier and EGP49bn a quarter earlier. Net other expense increased c11% y-o-y to EGP115m and came in line with our estimate. The company recognized EGP10.8bn in FX losses, slightly offset by a deferred tax asset of EGP2.21bn, filtering through a net loss of EGP509m, reversing a net income of EGP1.08bn a year earlier.

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By / Sunday

Egypt's annual headline inflation decelerated to 34.6% y-o-y in November from 35.8% y-o-y in the previous month, according to data posted by the Central Agency for Public Mobilization and Statistics (CAPMAS). Monthly prices rose 1.3% m-o-m compared to an increase of 1.0% m-o-m in October, the data showed. (CAPMAS) 

Our Comment: November inflation came lower than our estimate of 2.1% m-o-m and 37.8% y-o-y. We believe the decline partially reflects the Egyptian government's initiative to reduce the prices of basic commodities in the local market for six months.  

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By  Mariam Elsaadany/ Mon

Heliopolis Housing (HELI EY): The company signed the final contract for a revenue-sharing project with Mg Developments to develop 77.19 feddans (324,198 sqm) in districts 10 and 11 of its New Heliopolis City land plot and its share of the project's revenue is EGP3.39bn, representing a 32.1% of the project's total revenue, it announced in a bourse filing. The project includes a minimum guarantee for HELI over 14 years, it added. The project will consist of one phase, the company’s IR said. (EGX, Al Borsa)

Our comment: This is the second revenue-sharing agreement closed by Heliopolis Housing for its New Heliopolis Housing plot after it finalized the SODIC East revenue-sharing agreement with SODIC (OCDI EY) back in 2015; however, it's much smaller, representing only c13% of SODIC East land area and only c2% of HELI's remaining land area in New Heliopolis City, based on our calculations. Based on our understanding, the project will be 100% residential. Mg Developments plans to launch it in early 2024, and construction should last seven years. HELI has already provided the infrastructure for the project's land and will not incur additional costs, and the companies still need to secure the required approvals for the project. Despite the agreement's small value, it provides some earnings visibility for Heliopolis Housing and monetizes part of its undeveloped land bank. HELI's share of the new project's revenue implies a total value of EGP10.6bn for the project's revenue and EGP32,616 per sqm of BUA, c7% higher than SODIC East's EGP30,475/sqm of BUA. We estimate the project's land value at c15% of the project's total expected proceeds, lower than an average of c25% in the case of deals involving direct acquisition of land, implying a value of EGP4,892/sqm for the project's land. The implied land value per sqm is lower than the implied value per sqm of residential land in SODIC East's agreement of around EGP6,777/sqm, based on our calculations, which is understandable in our view given SODIC's strong record as a developer, allowing it to maximize the extracted value from developed land plots. The company has not yet disclosed the project's minimum guarantee, while the SODIC East agreement entailed a minimum guarantee of EGP5bn. We initially estimate the project to contribute an NPV of EGP1.73/share for HELI, assuming that HELI will collect its revenue share over two years, equivalent to an NPV of EGP1.83/share and after excluding the NPV of the project's land of EGP0.10/share included in our previous valuation of HELI. If we assume that HELI will collect the EGP3.39bn over four years, the project’s contribution will decrease to EGP1.40/share. 

Our comment: The March inflation comes lower than our estimate of 3.75% m-o-m, and 34.0% y-o-y possibly due to a relative drop in poultry prices after the government increased poultry supply recently.

 

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By  Nesrine Mamdouh/ Sunday, December 3, 2023

Egypt's passenger car (PC) sales increased c15% y-o-y to 6,970 cars in October, versus an increase of c15% y-o-y to 7,887 cars in the previous month, according to a report by the Automotive Marketing Information Council (AMIC). Bus sales, however, dropped c28% y-o-y to 1,012 buses, compared to a decline of c62% y-o-y to 689 buses in the previous month, according to the report. (AMIC) 

Our Comment: Local Pcs sales increased y-o-y for the second consecutive month after eighteen consecutive monthly drops in sales. Initial numbers from the AMIC report point to total GB Corp (GBCO EY) sales of 1,763 cars in October, c18% higher y-o-y, implying that GB Corp's total market share during October was 25.3%, 0.66 pp higher than a year earlier. On another positive note, Hyundai sales significantly surged c3x y-o-y but dropped c49% m-o-m to 556 cars in October, with the y-o-y increase considered the fourth increase in a row. Chery's sales, however, decreased c18% y-o-y and c25% m-o-m to 978 cars. The company sold 136 cars of its Haval brand in October (up c89% y-o-y), yet it did not sell any in September. As for its Changan brand, it sold 93 cars in October versus 41 cars a year earlier and 30 cars in September.

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By Heba Monir /  Tuesday, 5 December, 2023

The Egyptian government downward revised Egypt’s real GDP growth forecast for FY23/24 to 3.5% from an earlier forecast of 4.2%, according to the minister of planning. (CNBC)

Our comment: The revised estimate is lower than our FY23/24e real GDP growth forecast of 4.0%. We expect an improved trade deficit in FY23/24e and a rebound in public investments to drive GDP growth despite expected lower government consumption.

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News

BY / Monday, 8 April 2024

Egypt’s National Wages Council (NWC) increased the minimum monthly wage for private sector employees to EGP6,000 from EGP3,500 previously, effective 1 May 2024, it announced. (Hapi Journal)

Our comment: We attribute the significant increase in NIR and deposits not included in official reserves to the FX inflows from the Ras El Hekma investment deal announced in February, net foreign portfolio inflows, and improved worker remittances.

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BY  / Monday, 8 April 2024

The Central Bank of Egypt (CBE) announced that the subsidized interest rate of the extended financing initiative to the industrial, agricultural, and tourism sectors, which increased to 15% from 11%, will be reviewed every three months at most or when there is an update regarding the credit and discount rates, effective 4 April 2024, it announced. Moreover, the Ministry of Finance raised the financing ceiling for a single company to EGP100m from EGP75m and to EGP150m from EGP113m for the company and its related entities. (CBE)

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