Rolling Out the Reforms

May 17, 2023

Today’s Top News & Analysis

Supreme Council for Investment approves 22 decisions in its first meeting
Investment potential in the transportation sector could reach USD20bn
Lecico Egypt Q1 2023: Strong revenue growth and sky-high margins
MOIL 2022: Other expenses stifled gross profit
Qalaa Holding’s TAQA to partner with a Saudi Arabian natural gas company

MACRO

Supreme Council for Investment approves 22 decisions in its first meeting

The newly-formed Supreme Council for Investment approved new decisions to achieve the council’s aim of spurring FDI and revitalizing the economy. The decisions are:

· Reducing the cost of establishing companies.

· Reducing restrictions, approvals, and the period for establishing companies.

· Facilitating land ownership.

· Expansion of the issuance of the golden license.

· Enhancing governance, transparency, and competitive neutrality in the Egyptian market.

· Facilitating the import of production supplies.

· Easing financial and tax burdens on investors.

· Stimulating local and foreign investment.

· Expanding the jurisdiction of economic courts.

· Providing an integrated and competitive package of incentives and facilities in the agricultural and industrial sectors.

· Providing incentives for the energy sector regarding the production of green hydrogen.

· Providing incentives for the housing sector, real estate developers, and investment projects in new cities.

· Providing incentives for the transportation sector regarding export and customs fees and standardizing the pricing strategy. (Al-Borsa)

Investment potential in the transportation sector could reach USD20bn

Egypt’s Minister of Transportation mentioned how the country’s transportation investment opportunities could be worth USD15-20bn. Egypt is currently looking to attract investments in a new 2,250 km express-train network. Other investment areas include:

· Maritime transportation.

· Land transportation.

· Railways.

· Metro lines.

· Dry ports.

· Logistical areas.

· Electric traction systems.

The minister also highlighted past successful transportation investments, such as:

· DP World’s (Dubai Ports) investments in maritime transport through the management of two terminals in Ain Sokhna (handling 1.5mn containers annually).

· AD Ports Group’s (Abu Dhabi Ports) management of the Safaga multi-purpose terminal (capacity of handling 1.5mn containers annually).

· ADQ Holding’s investment in Alexandria Container Handling Co. [ALCN]. (Economy Plus)

Corporate

Lecico Egypt Q1 2023: Strong revenue growth and sky-high margins

Lecico Egypt [LCSW] consolidated statements for Q1 2023 show a net profit of EGP89mn compared to EGP29.3mn in Q1 2022. Revenues came in at EGP1.2bn (+63% y/y). GPM grew by 19.9pp to 41.1%, mainly powered by the sanitary ware segment’s higher selling prices. The revenue mix was as follows:

· Sanitary Ware segment sales of EGP788mn (+83% y/y) contributed c.65% of total sales. Volumes slightly decreased by 15%, while the average price per piece increased by 115% to EGP714/piece, powered by a stronger USD, according to management. GPM increased by 30pp y/y to 44.5%. Exports contributed 71.6% of segment sales.

· Tiles segment sales of EGP358mn (+37% y/y) contributed c.29% of total sales. Sales growth is attributable to an increase in the average price by 44% to EGP63.6/sqm, despite volumes decreasing slightly by 5%. GPM increased by 3.8pp y/y to 30.8%.

· Brassware segment sales of EGP70.5mn (+33% y/y) contributed the remaining c.6% of total sales. Higher sales can be attributed to an increase in average price per piece by 66% to EGP1,371/piece despite volumes dropping 20%. Still the highest among LCSW's business segments, GPM reached 55.9% (+18.1pp y/y). (Company disclosure: 1, 2)

MOIL 2022: Other expenses stifled gross profit

Maridive & Oil Services [MOIL] released its 2022 consolidated results, posting a 34% y/y increase in net losses to USD105mn with lower revenues of USD102mn (-12% y/y) and a 29% GPM (vs. a gross loss margin of 14% the previous year), driven by:

(1) Lower naval unit rental revenues of USD63mn (-14% y/y).

(2) Intra-company naval unit rental eliminations of USD16mn (+202% y/y).

(3) Intra-company project eliminations of USD15mn (+71% y/y).

(4) Higher other expenses of USD108mn (+450% y/y).

Some of the company’s Q4 2022 financial highlights that are important to mention are as follows:

(1) Lower revenues of USD26mn (-13% q/q).

(2) 94% of expenses were recorded in Q4 2022 alone.

(3) Administrative costs increased 336% q/q to USD17mn.

(4) Other incomes increased by 509% q/q to USD9.6mn, mainly from the sale of scrap machinery and equipment (scrap revenues reached USD12.6mn for the year, +2133% y/y).

(5) Lower financing costs of USD2mn in Q4 2022 (-67% q/q, -45% y/y) because of an FX gain of USD8mn in 2022 vs. an FX loss of USD0.4mn in 2021. (Company disclosure)

Qalaa Holding’s TAQA to partner with a Saudi Arabian natural gas company

TAQA Arabia, Qalaa Holding’s [CCAP] subsidiary (a 55.3% stake), signed a partnership agreement with the KSA-based Natural Gas Distribution Co. to establish a limited liability company in Saudi Arabia. Both companies had previously signed an MoU on 12 September 2022 to discuss ways of cooperation and avenues of partnerships. (Saudi Exchange)