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.
The Egyptian government's committee in charge of the indexation of gasoline and diesel prices raised gasoline prices in the local market by c11–13%, EGP1.50–2.00/liter, and diesel prices by c17% to EGP13.5/liter from EGP11.5/liter, effective 18 October, according to the Official Gazette. The committee raised the price of 80-octane gasoline by c12% to EGP13.75/liter from EGP12.25/liter, of 92-octane gasoline by c11% to EGP15.25/liter from EGP13.75/liter, and of 95-octane gasoline by c13% to EGP17.0/liter from EGP15.0/liter. The committee raised the heavy fuel oil (mazut) price by c12% to EGP9,500/ton from EGP8,500/ton for all industries except for the food sector, which is charged EGP1,500/ton, and the electricity generating sector, which is charged EGP6,500/ton. The committee also raised the price of compressed natural gas (CNG) for cars by c8% to EGP7.00/cubic meter from EGP6.50/cubic meter. The committee said that the price revision was due to higher production and import costs of petroleum products and that it would not convene to review prices for six months. In related news, the Egyptian government will not increase petroleum products' prices for six months; however, it plans to gradually increase them until the end of 2025, the prime minister said. If oil prices stabilize at USD73-74/bbl, we would have a chance not to increase prices until the end of 2025 as planned, he added. In other news, the fuel price hikes will save the state treasury EGP27.2bn in FY24/25, according to unidentified official sources. The government has spent from 1 July to date EGP42.3bn in petroleum subsidies (after it saved EGP9.2bn due to the July price revision) and expects to spend EGP80bn in petroleum subsidies from mid-October until 30 June 2025, including EGP69bn of diesel subsidies, the sources added. The recent increase in diesel prices will raise railway operating costs by EGP500m in FY24/25, following an EGP1bn increase in their operations costs due to the fuel price hikes in March and July, according to unidentified official sources. (Official Gazette, Hapi Journal, Al Masry Al Youm, Al Borsa, Asharq Business)
Our comment: This price revision is more aggressive than the previous one in late July, which entailed a gasoline price increase of c10–11% and a diesel price increase of c15%. We expect the October price revision to lead to higher-than-expected inflation over the coming few months, and hence the Monetary Policy Committee's (MPC) decision to maintain rates at its Thursday meeting is well justified, in our view. Also, Egypt's prime minister had said during the second week of October that Egypt's inflation rate may not ease as quickly as hoped. The diesel price increase would lead to higher food transportation costs and hence higher food and beverage prices, and the price revision of heavy fuel oil (mazut) would increase the production cost for the industrial sector, especially after the recent increase in electricity prices to the industrial sector in August of c21-31%. The budgeted petroleum products' subsidy bill for FY24/25 is EGP155bn, and hence, the total savings as a result of the July and October price revisions of EGP36.4bn suggests that the FY24/25 petroleum products' subsidy bill will decrease by c23% to EGP119bn.
Egypt's net international reserves (NIR) increased by USD108m m-o-m in August to USD46.597bn from USD46.489bn in July, according to Central Bank of Egypt (CBE)'s data. Deposits not included in official reserves decreased by USD660m m-o-m in August to USD9.20bn, the data showed. (CBE)
Our Comment: Egypt received USD820m from the IMF in August, representing the third tranche of its USD8.00bn Extended Fund Facility (EFF). NIR increased slightly by 0.23% m-o-m in August, mainly from gold, while foreign currencies remained unchanged.
Eastern Company (EAST EY): A UAE investment firm, Global Investment Holding, owned by Mohamed Alabbar and another UAE investor, acquired 30% of the company for USD625m and pledged to provide an additional USD150m for raw tobacco importation, according to a cabinet statement, company release, and unidentified people familiar with the transaction. According to the agreement, the Holding Company for Chemical Industries (CIHC) will retain a 20.9% stake in the capital of EAST, down from 50.9%, and there will be no impact on the 24% share of Eastern Company in the United Tobacco Company (UTC), the company added. Global Investment Holding is c99%-owned by UTC, according to the CEO of the CIHC. The CIHC has informed the Egyptian Competition Authority (ECA) of the deal to secure its approval, he added. The USD150m will be settled with EAST in the future, according to an unidentified official source. (Company release, Bloomberg, Al Mal, Al Borsa, Hapi Journal)
Our comment: Excluding the USD150m for raw tobacco importation, the USD625m that Global will pay implies a value for EAST of EGP28.9/share, c9% higher than our TP of EGP26.6/share, and c34% higher than yesterday’s closing price of EGP21.5/share. The deal valuation implies a PER of 9.09x for FY22/23e. Based on the shareholder agreement of UTC signed by EAST and UTC shareholders, if a foreign company acquires 10% of EAST, the shareholders of UTC will have the right to acquire EAST’s 24% stake in UTC at the stake nominal value in addition to USD108m. Given that Global Investment Holding is c99%-owned by the shareholders of UTC, EAST will not lose its share in UTC, which we value at EGP2.51/share. Accordingly, we favorably view the development since the valuation is good, an experienced tobacco manufacturer will join EAST’s board, which could enhance shareholder value, and the USD150m that Global pledged to provide will help EAST overcome its current supply bottlenecks.
Egypt’s annual headline inflation decelerated to 25.7% y-o-y in July from 27.5% y-o-y in the previous month, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 0.4% m-o-m compared to a 1.6% m-o-m increase in June, the data showed. Food and beverage prices increased 0.3% m-o-m in July, compared to a 2.6% m-o-m increase in the previous month. (CAPMAS)
Our comment: Inflation decelerated for a fifth consecutive month, helped by a decline in oil, cereals, and poultry prices. July’s inflation came lower than our estimate of 27.5% y-o-y and 1.9% m-o-m as we factored in our estimates an increase in electricity and tobacco prices.
Egypt’s banking sector net foreign assets (NFA) narrowed by USD1.27bn m-o-m to USD13.0bn in June from USD14.3bn in May and reversing a net foreign liability (NFL) position of USD27.0bn a year earlier, according to the Central Bank of Egypt (CBE)’s data. Excluding the CBE, the banking sector NFA position narrowed by USD1.86bn m-o-m in June to USD2.75bn from USD4.61bn in May, the data showed. (CBE)
Our comment: Egypt’s banking sector NFA position narrowed by USD1.86bn m-o-m on lower foreign assets, probably due to normalized foreign currency inflows, in our view. Meanwhile, the CBE’s NFA position widened by USD590m m-o-m on lower foreign liabilities.
By Heba Monir/ Sunday, June 2, 2023
Egypt’s banking sector’s net foreign liabilities (NFL) narrowed by c85% y-o-y and c13% m-o-m to USD3.64bn in April from USD4.21bn in March, according to the Central Bank of Egypt (CBE)’s data. Excluding the CBE, the banking sector’s NFL widened slightly by c2% m-o-m to USD2.89bn in April from USD2.83bn in March. (CBE)
Our comment: The c13% m-o-m narrowing in the NFL came mainly from a narrowing of the CBE’s NFL by c45% m-o-m to USD753m. Meanwhile, banks’ NFL widened slightly on lower interbank inflows, returning probably to normal levels prior to the liquidity shortage before the 6 March EGP devaluation..
By Mariam Elsaadany/ Sunday, 3 June, 2024
Talaat Moustafa Group Holding (TMGH EY): The company’s 1Q24 pre-minority income surged c6x y-o-y to EGP4.14bn, its KPIs showed. (EGX)
Our comment: The reported pre-minority income is c2.9x ahead of our estimate, despite total revenue coming below our estimate. Revenue grew c53% y-o-y to EGP6.79bn (c8% lower than our estimate), and gross profit grew c2.1x to EGP3.34bn, (c16% higher than our estimate) as gross profit margin widened c14 pp y-o-y to c49%, (c10 pp ahead of our estimate). The net income beat is likely due to FX gains, the company said it reported. Pre-sales surged c3x y-o-y to EGP61.8bn (c3% ahead of our estimate).
Edita Food Industries (EFID EY): Shareholder Kingsway Frontier Consumer Fund reduced its stake in the company to 8.65% from 12.5%, by selling 0.23m shares at an average price of 29.5/share, according to EGX data. (Mubasher)
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.
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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Egypt is scheduled to repay USD818m to the IMF in November, of which it repaid USD259m on 1 November, and should repay USD559m on 11 and 13 November, according to unidentified sources familiar with the matter. (Al Borsa)