Earnings Downpour
Stocks mentioned: EXPA, SAUD, CANA, EGBE,ARCC, MCQE, PHAR, EKHO, EFID, RACC, GBCO, KZPC, EHDR, ETRS, ATLC
Today’s Top News & Analysis
ACUD to offer new land in the Administrative Capital by September
Egypt offers 152 industrial investment opportunities to curb import bill by USD30bn
Egypt launches a USD pension certificate for Egyptian expats
EXPA Q2 2023: Holding ground
SAUD Q2 2023: Climbing the profits ladder
CANA Q2 2023: Balance sheet retraction
EGBE Q2 2023: Slow and steady
ARCC Q2 2023: Best in class
MCQE Q2 2023: Margins pressure bottom line
PHAR Q2 2023: Higher-than-expected earnings, driven by better revenues and FX gains
EKHO Q2 2023: Top-line drop across all segments
EFID Q2 2023: Extraordinary net profits on strong revenues
RACC Q2 2023: Extraordinary net profits on higher offshore revenues
GBCO Q2 2023: Falling revenues reduced net profits
KZPC Q2 2023: The growth continues
EHDR Q2 2023: Post-merger growth
ETRS Q2 2023: FX gains pushes net income higher
ATLC Q2 2023: A weak quarter
MACRO
ACUD to offer new land in the Administrative Capital by September
The Administrative Capital for Urban Development (ACUD) intends to offer c.5,000 feddans in the first phase of the Administrative Capital by September, with 90% of the land allocated for service facilities. Meanwhile, ACUD’s chairman stated that the company is currently considering floating a stake on the Egyptian Exchange (EGX). We note that ACUD generated net profits of EGP16.1bn in 2022. (Zawya)
Egypt offers 152 industrial investment opportunities to curb import bill by USD30bn
The Industrial Development Authority (IDA) is offering 152 industrial investment opportunities to localize production and reduce the import bill in the pharmaceutical, food, engineering, chemical, and building materials industries at a value of USD30bn per year. (Asharq Business)
Egypt launches a USD pension certificate for Egyptian expats
In cooperation with National Bank of Egypt, Misr Life Insurance Co. launched a USD pension certificate, named Tomorrow’s Pension, for Egyptian expatriates. (CNBC Arabia)
CORPORATE
EXPA Q2 2023: Holding ground
Export Development Bank of Egypt [EXPA] announced Q2 2023 results. Below are our takeaways:
· Net income increased by 120% y/y to EGP698mn on the back of a stellar 76% y/y growth in net interest income (NII) to EGP1.2bn and a 288% y/y growth in net fees and commissions to EGP356mn.
· On a sequential basis, net income increased by 39% q/q, and NII increased by 13%. EXPA also booked provisions of EGP167mn (-1% q/q), almost maintaining the same annualized CoR of -1.3% of last quarter. However, the absence of other operating expenses this quarter against EGP80mn in Q1 2023 allowed for more bottom-line growth even with the same provisioning rate.
· On the balance sheet side, EXPA maintained its loan book at +17.7% ytd to EGP52.7bn like the previous quarter. The limited q/q growth can be attributed to the high interest rates that affect borrowers’ appetite. However, the bank managed to lower its NPL to 2.3% from 3.3% in Q1 2023 and increase the coverage ratio to 155% from 109%.
· Deposits, on the other hand, grew by 15.5% ytd to EGP84bn, pulling GLDR lower to 63% from 66% last quarter.
· EXPA’s ROAE is now up to 27% from 21% last quarter, and CAR went up slightly to 14.4% from 13.95% in Q1 2023.
EXPA is currently traded at an annualized P/E of 2.5x and a P/BV of 0.6x. (Bank disclosure)
SAUD Q2 2023: Climbing the profits ladder
Al Baraka Bank Egypt [SAUD] posted its Q2 2023 full results. Below are our takeaways:
· Net income increased by 39% y/y to EGP576mn (+30% q/q) on the back of a 28% y/y increase in net interest income (NII) to EGP1.1bn (+7% q/q). Net income grew at a faster pace than the top line because SAUD: (1) booked 16% q/q lower provisions of EGP108mn, (2) registered other operating income of EGP44mn vs. operating losses of EGP32mn in Q1 2023, and (3) enjoyed a lower effective tax rate of 34% (-4pp q/q).
· Annualized ROAE jumped back up to 28% this quarter against 23% in Q1 2023.
· On the balance sheet side, deposits picked up momentum after remaining flat the last quarter and grew by 6% ytd to EGP79bn.
· Loans grew by 10% ytd to EGP39bn. NPL ratio came at 4.3%, yet coverage increased to 149%.
SAUD is currently traded at an annualized P/E of 2.6x and a P/BV of 0.7x. (Bank disclosure)
CANA Q2 2023: Balance sheet retraction
Suez Canal Bank [CANA] announced Q2 2023 results. Below are our takeaways:
· Net income increased by 120% y/y to EGP377mn on the back of a 71% y/y increase in net interest income (NII) to EGP775mn.
· This comes despite a 40% q/q drop in gains from financial investments to EGP302mn. However, having almost no other operating expenses this quarter offset this drop.
· A drop in effective tax rate to 40% from 59% in Q1 2023 helped earnings growth.
· Deposits dropped q/q to EGP73bn from EGP75.5bn in Q1 2023, registered a ytd growth of 11% with GLDR maintained at 48%.
· Loans also dropped q/q to EGP35bn from EGP36.5bn, where NPL ratio increased to 6.1% from 5.6%, and coverage ratio came at 133%
· Annualized ROAE rose to 26%. However, CAR is now at 13.78%, barely a notch above the CBE’s minimum requirement which is very risky.
CANA is currently traded at an annualized P/E of 4.0x and a P/BV of 0.6x. (Bank disclosure)
EGBE Q2 2023: Slow and steady
Egyptian Gulf Bank [EGBE] announced the full results for Q2 2023. The bank managed to grow its net income by 61% y/y to EGP341mn, on the back of:
· Higher net interest income of EGP842mn (+23% y/y).
· Lower booked provisions of EGP5.4mn (-78% y/y).
· Higher net fees and commissions of EGP112mn (+126% y/y).
· A significant decrease in the bank's effective tax rate to 37%, down from 42% in Q1 2023.
This comes despite an increase of a 23% y/y increase in administrative expenses to EGP465mn. Also, the bank recorded other operating expenses of EGP60mn against other operating income of EGP20mn last year. Meanwhile, the bank’s deposits declined to EGP78.6bn from EGP80bn in Q1 2023, making the ytd growth at 9.5%, with a GLDR of 40.5%. On the other hand, loans grew by 13% ytd to EGP32bn with an NPL of 4.6% and a coverage ratio to 118%. Annualized ROE is now up to 24%.
EGBE is currently traded at an annualized P/E of 4.2x and a P/BV of 1x. (Bank disclosure)
ARCC Q2 2023: Best in class
Arabian Cement Co.’s [ARCC] H1 2023 net profits rose 182% y/y to EGP337mn compared to EGP119.5mn the year before. Revenues grew 50% to EGP3.2bn, this can be broken into:
· Local sales grew slightly by 2% y/y to EGP1.8bn (-4% vs. Prime Research estimates) from selling 1.3mn tons of cement and clinker (-28.4% y/y) with an average blended selling price of EGP1,426/ton (+46.3% y/y).
· Export sales grew exceptionally by 330% y/y to EGP1bn (-10% vs. Prime Research estimates) from selling 1.1mn tons of cement and clinker (+171% y/y) with an average price of EGP949/ton (+56%) on the back of a stronger USD.
· Transportation services also grew by 181% y/y to EGP315mn (+9% vs. Prime Research estimates) on the back of more export volumes.
GPM came in at 20.3% (+0.4pp y/y, -0.6pp vs. Prime Research estimates), which is attributable to the higher price of cement during the year. The stock currently trades at a 2023e P/E of only 3.55x and a cheap 2023e EV/ton of EGP485/ton.
We published a CORECoverage report on ARCC on 24 July 2023 titled "Survival of the Fittest" with a 12MPT of EGP15.1/share and an Overweight rating. (Company disclosure)
MCQE Q2 2023: Margins pressure bottom line
Misr Cement Qena’s [MCQE] H1 2023 net income after minority registered EGP44mn compared to EGP54mn in H1 2022 (-19% y/y). Yet, revenues grew by 47% y/y to EGP1.9bn on a higher average selling price of EGP1,459/ton (+47 y/y) and a slight increase of 5% in sales volumes to 1.2mn tons of cement compared to H1 2022. GPM slipped to 16% compared to 17% in H1 2022 (-1pp y/y). Export volumes increased to 168k tons compared to only 86k tons in the comparable period. Ready mix concrete sales amounted to EGP181mn compared to EGP124mn (+46% y/y) on the back of selling 150k cubic meters of concrete during H1 2023 (+8% y/y). (Company disclosure)
PHAR Q2 2023: Higher-than-expected earnings, driven by better revenues and FX gains
EIPICO [PHAR] posted H1 2023 consolidated net profits of EGP509mn (+67% y/y) due to:
· Higher revenues of EGP2.3bn (+31% y/y).
· Gross profit margin improving by 4pp y/y to 48%.
· Better SG&A-to-revenues ratio of 17% (-2pp y/y).
· The huge FX gains of EGP202.7mn vs. EGP81.6mn last year.
Meanwhile, Q2 2023 came with an extraordinary net profit growth both y/y and q/q of 145% and 70%, respectively, reaching EGP320mn, due to the same reasons in H1 2023, which are:
· Higher revenues of EGP1.3bn (+58% y/y, +29% q/q), mainly driven by the high local revenues of EGP868mn (+50% y/y, +40% q/q), acquiring 2.6% market share from Egypt's local sales in Q2 2023 of EGP33bn.
· Gross profit margin improving by 4pp y/y (-2pp q/q) to 47%.
· Better SG&A-to-revenues ratio of 16% (-5pp y/y, -3pp q/q).
· The huge FX gains of EGP202.8mn vs. EGP65.8mn last year.
Overall, Q2 2023 results came in above our expectations driven by the significant improvement in Egypt's local pharma sales in Q2 2023 to EGP33bn (+26% y/y, +14% q/q). Meanwhile, the unexpected FX gains helped deliver this earnings surprise.
We published a CORECoverage report on PHAR on 7 August 2023 titled "A Pharma Master" with a 12MPT of EGP66/share and an Overweight rating.
On a separate note, it is reported that EIPICO IIIs’ machines arrived in Adibia Port, a Suez Canal Economic Zone port. (Company disclosure, Al-Borsa)
EKHO Q2 2023: Top-line drop across all segments
Egypt Kuwait Holding Co. [EKHO] released its H1 2023 consolidated results, posting a lower net income of USD100mn (-30% y/y) on revenues of USD365mn (-33% y/y) with a GPM of 42% (-9pp y/y). Likewise, Q2 2023 net income declined to USD40mn (-33% q/q) on revenues of USD150mn (-30% q/q) with a 37% GPM (-8pp q/q). The company’s top-line declined in USD terms as a consequence of the EGP devaluation, which was witnessed across all segments, with:
· Fertilizers (AlexFert) posting lower revenues (-48% y/y, -29% q/q) with a GPM of 38% (-24pp y/y) in H1 2023 and 32% (-10pp q/q) in Q2 2023 due to lower selling prices and lower sales volumes affected by a 23-day shutdown at AlexFert as part of its bi-annual overhaul.
· Chemical & Plastics (Sprea Misr) posting lower revenues (-24% y/y, -58% q/q) albeit with a higher GPM of 58% (+18pp y/y) in H1 2023 driven by a decline in costs and better economies of scale following Sprea’s production line expansion. Meanwhile, Q2 2023 GPM declined to 48% (-14pp q/q).
· Gas & Electricity (NatEnergy) posting lower revenues (-16% y/y, -8% q/q) with a GPM of 32% (-2pp y/y, -1pp q/q) in H1 2023 and Q2 2023, despite increased energy generation, distribution volumes, and interconnection fees.
· Drilling (Offshore North Sinai) posting lower revenues (-14% y/y, -8% q/q) with a GPM of 45% (-18pp y/y) in H1 2023 and 41% (-8pp q/q) in Q2 2023 due to lower natural gas prices.
· Insurance (Delta Insurance [DEIN]) posting lower revenues (-34% y/y, -21% q/q) with a GPM of 23% (+2pp y/y) in H1 2023 and 27% (+8pp q/q) in Q2 2023.
· Cooling Systems (Gas Chill) posting decreased annual revenues (-86% y/y, +228% q/q) with a GPM of 21% (+11pp y/y) in H1 2023 and 54% in Q2 2023 (vs. a gross loss of USD98,084).
We note that revenues in some segments experienced growth in EGP terms, such as Sprea (+49.5% y/y) and NatEnergy (+38.5% y/y). Meanwhile, EKHO announced the successful installation of two new drilling platforms for ONS’ two new wells, Atom 1 and KSE 2. Furthermore, EKHO’s microfinancing arm, Bedayti (which began operations in March 2022), posted a net income of EGP24mn in H1 2023 after breaking even in Q1 2023.
EKHO is currently trading at an LTM P/E ratio of 5.5x and an LTM EV/EBITDA of 4.4x, while EKHOA is trading at an LTM P/E ratio of 6.7x and an LTM EV/EBITDA of 5.0x, based on yesterday’s closing price. (Company disclosure: 1, 2)
EFID Q2 2023: Extraordinary net profits on strong revenues
Edita Food Industries [EFID] reported H1 2023 consolidated net profits of EGP756mn (+120% y/y) due to:
· Higher revenues of EGP5.6bn (+80% y/y), driven by both growing volumes and prices at 2mn packs (+32% y/y) and an average price of EGP2.83/pack (+37% y/y).
· Recording net finance income of EGP20mn vs. net finance expense of EGP5mn last year.
Sequentially, Q2 2023 net profits grew by 96% y/y and 3.2% q/q to EGP386mn, due to:
· Revenues growing to EGP2.9bn (+82% y/y, +2.8% q/q), due to volumes growing to 959mn packs (+29% y/y) and average prices growing to EGP2.98/pack (+41% y/y).
· Posting net finance income of EGP10mn vs. net finance expense of EGP6mn last year.
Meanwhile, gross profit margin declined to 32% in both Q2 2023 (-1pp y/y, +0.3pp q/q) and H1 2023 (-2.5pp y/y). (Company disclosures: 1, 2)
RACC Q2 2023: Extraordinary net profits on higher offshore revenues
Raya Contact Center [RACC] reported its H1 2023 consolidated net profits of EGP85mn vs. EGP15mn last year, earnings growth was driven by:
· Higher revenues of EGP937mn (+71% y/y), mainly driven by the high offshore (FX-based) revenues of EGP625mn (+115% y/y) along with the higher subsidies of EGP26mn vs. only EGP6mn last year.
· An improved gross profit margin of 34% (+2.3pp y/y).
· Higher FX gains of EGP40mn vs. EGP6mn last year.
Meanwhile, Q2 2023 net profits grew to EGP38mn vs. EGP8mn last year (-19% q/q), due to:
· Higher revenues of EGP482mn (+66% y/y, +6% q/q), mainly driven by the offshore (FX-based) revenues which grew by 96% y/y and 2.9% q/q to EGP317mn along with the higher subsidies of EGP15mn vs. only EGP1mn last year.
· The improved gross profit margin of 34% (+2.3pp y/y, -1.1pp q/q).
· Higher FX gains of EGP20mn vs. EGP8mn last year. (Company disclosure: 1, 2)
GBCO Q2 2023: Falling revenues reduced net profits
GB Corp [GBCO] reported H1 2023 net profits of EGP608mn (-16% y/y) due to:
· Lower revenues of EGP10.8bn (-31% y/y) driven by a 50% y/y decline in passenger car revenues to EGP2.8bn and a 51% y/y decline in GB Capital revenues to EGP1.8bn.
· Declined gross profit margin to 22% (-3.4pp y/y).
Meanwhile, Q2 2023 net profits grew marginally by 2.1% y/y to EGP501mn despite:
· Revenues declining by 23% y/y to EGP6bn, also derived by a 40% y/y decline in passenger car revenues to EGP1.6bn and a 51% y/y decline in GB Capital revenues to EGP978mn.
· Gross profit margin declined by 5.6pp y/y to 22%. (Company disclosure)
KZPC Q2 2023: The growth continues
Kafr El-Zayat Pesticides [KZPC] H1 2023 net income came in at EGP142mn (+81% y/y) on revenues of EGP990.1mn (+39% y/y). The increase in revenues came mainly from EGP721.5mn in revenues from selling activities (+39% y/y) and EGP311.8mn from reselling activities (+36% y/y) powered by higher USD-linked selling prices for pesticides. GPM came at 25.7% (+6.2 pp y/y) on higher prices for pesticides. (Company disclosure)
EHDR Q2 2023: Post-merger growth
Egyptians for Housing & Development’s [EHDR] H1 2023 results showed a net income of EGP25.8mn compared to a net loss of EGP4.6mn. Revenues recorded EGP63.9mn compared to only EGP0.1mn in the comparable period. GPM came at 63.2% (+13.2pp y/y). We note that H1 2023 financials reflect the effect of the merger between EHDR and Emerald Real Estate Investment, Edge Development & Project Management, Odin Investment & Development, and Odin for Investment & Real Estate Marketing. (Company disclosure)
ETRS Q2 2023: FX gains pushes net income higher
Egytrans’ [ETRS] H1 2023 net income came at EGP33.4mn (+328% y/y) on revenues of EGP180mn (+93% y/y). Earnings growth is attributed to a higher GPM of at 26.2% (+2.7pp y/y) and an EGP24.2mn in FX gains during the period. We note that NOSCO's acquisition has not been reflected yet in ETRS's financials. (Company disclosure)
ATLC Q2 2023: A weak quarter
Al Tawfeek for Financial Lease [ATLC] announced the results for Q2 2023, where net income declined by 72% y/y to EGP25mn on the back of:
· Lower top line of EGP60mn (-56% y/y), with a GPM of 22%.
· Higher interest income of EGP3.5mn (+288% y/y).
· Credit provisions of EGP1.6mn against reversals of EGP0.97mn last year.
This comes despite gains from amortized cost investments of EGP3.4mn (+290% y/y). We note that this quarter was also weak sequentially with net income declining 31% q/q. (Company disclosure)
Key Dates
15-Aug-23
RUBX: BoD meeting / Discussing financial results.
16-Aug-23
DOMT: EGM / Amending Articles No. 3 & 4 of the company's bylaws.
RMDA: EGM / Approving increasing the issued capital & amending Articles No. 6 & 7 of the company's bylaws.
17-Aug-23
EGTS: OGM / Approving financial statements ending 31 Dec. 2022.
20-Aug-23
BINV: Cash dividend / Deadline for eligibility for a dividend of USD0.032/Share.
21-Aug-23
BINV: Cash dividend / Ex-dividend date for USD0.032/Share.
23-Aug-23
BINV: Cash dividend / Payment date for a dividend of USD0.032/Share.
MTIE: Stock dividend / Last date for eligibility for a 0.25-for-1 stock dividend.
24-Aug-23
MTIE: Stock dividend / Date for distributing a 0.25 for-1 stock dividend.
27-Aug-23
SPMD: OGM / Approving financial statements ending 31 Dec. 2022.
28-Aug-23
ZMID: Cash dividend / Deadline for eligibility for a dividend of EGP0.150/Share.
30-Aug-23
ORAS: Financial results Announcement / Q2 2023 financial results' announcement.
31-Aug-23
ZMID: Cash dividend / Payment date for a dividend of EGP0.05/share (1st installment).
PHAR: Cash dividend / Payment date for a dividend of EGP1.00/share (2nd installment).
1-Sep-23
MSCI / MSCI's August 2023 Quarterly Index Review Effective Date.
5-Sep-23
Egypt PMI / August 2023 reading.
6-Sep-23
ELSH: OGM / Approving the decisions of the company’s board of directors in its meeting held on 15/6/2023.
ELSH: EGM / Amending some articles of the Company's bylaws.